In the largest-ever penalty issued against an ad agency, the Federal Trade Commission announced that Marketing Architects, Inc. (MAI) agreed to pay $2 million dollars to settle a false advertising complaint filed with the FTC and the State of Maine Attorney General’s Office.

The ad agency came to the FTC’s attention after the Commission settled with Direct Alternatives (DA) and Sensa Products, LLC for more than $16 million and more than $26 million respectively to resolve claims that the companies engaged in the false and deceptive advertising, marketing and sale of weight loss products. According to the Complaint, MAI created direct response radio ads for Sensa and DA as well as MI6 Holdings, LLC (MI6) and other unidentified clients with toll free numbers inviting consumers to call and purchase weight loss. In addition, for some clients, including DA, MAI created and implemented scripts for its Interactive Voice Response (IVR) system, providing testing, analysis and strategic advice regarding the performance of its IVR scripts and ads as well as collecting payment information.

According to the Complaint, MAI used a toolbox of multiple deceptive advertising practices to make millions for its clients, violating the FTC Act in multiple ways.

First, MAI disseminated ads for multiple products with claims of substantial weight loss and falsely claimed (expressly or impliedly) that the results were backed by scientific studies that did not actually exist. For example:

  • “Do you want to lose 10 pounds? How about thirty, or even fifty pounds?”, “AF Plus is an amazing PROVEN breakthrough in weight loss.”
  • “With the metabolism-boosting benefits of AF Plus, you can keep eating your favorite foods and STILL lose pounds and inches – in fact, we guarantee it!”
  • “I got tired of being fat. Being overweight really limited my life because I didn’t have any self-confidence. I’ve since lost [all of] the extra pounds and inches with Final Trim. Hi, I’m Jill Moore with Final Trim. If you need to lose 30 pounds or more, I’m inviting you to participate in our nationwide risk-free trial.”
  • “Final Trim is an amazing PROVEN breakthrough in weight loss: a ONCE-daily capsule that can help you lose weight in days.”
  • “I lost seventy-two pounds – AFTER I stopped dieting!”

Second, MAI invented fictitious consumers to provide invented testimonials about weight loss that did not actually occur.

Third, the advertiser falsely formatted radio ads to appear as health news reports or public service announcements without disclosing that the spots were paid ads for the identified weight loss product.

Finally, MAI provided IVR support and handled calls from consumers responding to “risk free” and “free trial offers” from DA and MI6. In this capacity, MAI collected payment information from consumers while failing to disclose material terms of the offers – including failing to inform consumers that they would automatically be enrolled in continuity plans and relying on ambiguous offer language to obtain consent. The FTC noted that this strategy was designed to generate a high consumer response rate and increase MAI’s revenues.

In addition to the monetary penalties, the settlement Order specifically prohibits the agency from making or assisting others in making express or implied claims to make weight loss claims and other health-related claims or brokering ad placements for such ads, unless the agency possesses and relies upon competent and reliable scientific evidence that is sufficiently high quality to be generally accepted by experts in the relevant field. The order also specifically bars the advertiser from making any claims that do not satisfy the FTC’s seven “gut check” claims. These provisions of the Order are limited, however, and do not generally apply when the agency “does not: (1) have an ownership interest in such Covered Product; (2) own or license the right to advertise such Covered product; or (3) derive royalties or payments generated from the sale of such Covered Product.” Thus, when MAI is acting at arm’s length and purely as an ad agency, the Order makes clear that “it shall be a defense hereunder if it can establish, after reasonable inquiry, Defendant neither knew nor had reason to know that any representation” was not supported by competent and reliable scientific evidence.

In addition to prohibiting MAI from making unsubstantiated health-related and weight loss claims, the Order also bars the agency from engaging in various other misleading and deceptive practices such as creating false testimonials claiming a product is scientifically proven when it is not. Further, the Order also includes provisions related to negative option marketing similar to the provisions included in the FTC’s Settlement Order with AdoreMe last year.

What does this mean for ad agencies?

The FTC has long made clear that ads promising fast, easy weight loss are inherently suspect and will be subject to close scrutiny. While the FTC has typically scrutinized the advertisers, initiating enforcement among numerous companies (including DA and Sensa), the FTC has not typically gone after the ad agencies. However, this settlement is an important reminder that ad agencies are not immune from enforcement activities, particularly when making health claims or other claims that require a scientific basis.

While this is not the first time that the FTC has settled deceptive advertising charges with an ad agency (for example, the FTC settled with Deutsch LA in 2014), the unprecedented $2 million penalty was intended to send a message to ad agencies. According to the allegations in the Complaint, MAI’s conduct is a veritable “what not to do” for ad agencies.

The Defendant allegedly had a history of crafting unsubstantiated claims for weight loss products and ignoring red flags. Further, the agency also had a significant financial interest in the success of the advertised products because it provided IVR services to many of its clients. Finally, MAI was aware of its regulatory obligations. As noted above, MAI created weight-loss ads for Sensa and although the agency was not charged, the FTC had served the agency with a copy of the Sensa order which made clear that “competent and reliable” evidence is required to support health claims. Despite this, MAI apparently continued to assist its clients in the same advertising practices that had gotten Sensa into hot water in 2014, even ignoring recommendations from DA’s counsel recommending against the use of certain weight loss claims.

It is clear that ad agencies cannot escape liability if there are red flags that its clients cannot support the advertising claims they wish to make – particularly for health-related or weight loss claims. Agencies are at heightened risk when they work for, or have worked for, companies that are under FTC order.