Beverage maker Four Loko has agreed to new labeling and packaging for its controversial fruit-flavored alcohol products to settle allegations by the Federal Trade Commission of deceptive advertising.  The agency sent a warning letter in November 2010 to the marketers of Four Loko and other caffeinated alcohol drinks, warning that their marketing could be in violation of the FTC Act.

Phusion Projects, the maker of Four Loko, agreed to remove the caffeine and other stimulants from the drink. But the agency alleged that the packaging and labeling remained deceptive, based on claims that the 23.5-ounce can contained the alcoholic equivalent of two regular 12-ounce beers that could be safely consumed on a single occasion. According to the FTC, the can contained as much as four to five 12-ounce beers and that the consumption of a container on a single occasion would constitute “binge drinking.”

The agency said that the company urged merchants to place Four Loko near other single-serve alcoholic beverages, and its Web site featured pictures of consumers drinking directly from the cans. Pursuant to the administrative settlement, Phusion Projects must disclose on containers how much alcohol the drink contains as compared to the amount of alcohol found in regular beer in a statement centered on the front of the container. In addition, beginning six months after the settlement takes effect, only resealable containers can be used for beverages that have more alcohol than the equivalent of two and a half regular beers.

The company is also barred from misrepresenting the alcohol content of any of its beverages or from depicting consumers drinking directly from the container of a product that has more alcohol than that of two and a half regular beers. Phusion and its three owners – all named in the complaint – are also subject to five years of monitoring by the agency.

“We don’t share the FTC’s perspective and we disagree with their allegations,” Jaisen Freeman, one of Phusion’s cofounders, said in a statement. “We don’t believe there were any violations. However, we take legal compliance very seriously and we share the FTC’s interest in making sure consumers get all the information and tools they need to make smart, informed decisions.”

To read the complaint in In the Matter of Phusion Projects, click here.

To read the consent order, click here.

Why it matters: The settlement with the FTC might stem the tide of some of the legal problems facing Phusion Projects. After a teenager allegedly died as a result of drinking too much Four Loko, several states – including Michigan, Oklahoma, Utah, and Washington – banned the drinks, and Sen. Charles Schumer (D-N.Y.) argued that the Food and Drug Administration should ban caffeinated alcohol drinks entirely. Responding to critics, Phusion Projects has already removed caffeine from its products and has now agreed to packaging and labeling changes. The company still faces a consumer class action in which plaintiffs maintain that Phusion deceptively marketed Four Loko to look like nonalcoholic energy drinks by using vibrant colors and designs and fruit-flavor names.