Web nutraceuticals scam bilked victims of $100M

An American nutraceutical company has been shut down by the Federal Trade Commission after three years of running a massive scam that bilked one million consumers out of more than $100 million.

Central Coast Nutraceuticals of California, two individuals and four affiliated companies have had their assets frozen, and a temporary receiver has been named to take over the businesses under a court order issued by the United States District Court.

The company was marketing the products AcaiPure, an acai berry supplement, and Colopure, a colon cleanser product, on the internet using bogus endorsements from TV personalities Rachael Ray and Oprah Winfrey.

The internet sites run by the company make dramatic claims about weight loss and the prevention of colon cancer that are not substantiated by any scientific evidence.

'The products don't work, and the consumers soon find out that they have been charged the full price for what was supposed to be a free trial offer' —David Vladeck, Federal Trade Commission

"It markets these products by telling consumers if they enter their credit card information on the internet to pay for a modest shipping and handling fee, the consumers will get free samples," said David Vladeck, the director of the FTC's Bureau of Consumer Protection.

"But the products don't work, and the consumers soon find out that they have been charged the full price for what was supposed to be a free trial offer."

The company then begins adding recurring monthly charges for products they didn't order.

"Consumers then face months of aggravation trying to remove the unauthorized charges from their accounts and trying to obtain refunds from CCN," Vladeck said.

"Many even decided they had no choice but to cancel their credit cards or close their bank accounts to avoid further CCN charges. Even then, consumers often get nasty collection letters and emails from CCN threatening to ruin their credit if they didn't pay up."

Visa urges consumers to fight charges

The senior business leader for payment system risk at Visa is urging consumers who have been charged for unauthorized products from the company to use a fee-dispute system to get their money back.

"We have tightened enforcement of our rules against banks whose merchants generate excessive levels of cardholder disputes because of deceptive marketing," said Martin Elliott.

But he stressed its difficult for credit card companies to crack down because deceptive businesses often change their names, banks, tactics and locations to avoid detection.

More than 2,800 complaints against Central Coast Nutraceuticals have been filed with law enforcement agencies and the Better Business Bureau.

One of those complaints came from Heather Boedecker of Cincinnati, who was lured onto a website by the endorsements of Oprah Winfrey and Rachael Ray.

She agreed to a free trial that was to cost under $5 US. She gave her debit card information and believed she would not be charged for anything more.

'I tried it out, and it did not work' —Heather Boedecker, consumer

It was her first online purchase.

"I received the product in the mail a few days later," she said. "I tried it out, and it did not work."

She called the company to cancel, but a few months later, she got a call from the collections department at CCN.

"The lady on the phone advised I now owed $77.95 US for not returning the product from the free trial."

"She stated that if I did not pay my outstanding balance, CCN would send my account to a collection agency, and this could damage my credit report."

The FTC hopes by freezing the company's assets, consumers like Boedecker will get some of their money back.

"Our goal is to recover every penny of the defendants' available assets and make that available for consumer redress," said Vladeck.

Limited powers

While the FTC has the legal authority to halt deceptive business practices and seize the proceeds of illegal behaviour, the FTC does not have authority to lay criminal charges.

However, Vladeck said other law enforcement agencies are looking into the case, including Canadian authorities. 

"We have got a request from a Canadian law enforcement agency to share our investigatory information," Vladeck told CBC News. "We have good bilateral ties with Canada and will be delighted to provide whatever relevant information we might have to assist the Canadian authorities."