CLEVELAND, OH — The man behind Smiling Bob probably isn’t smiling much these days.Steve Warshak, owner and CEO of Berkeley Premium Nutraceuticals, creators of the “male enhancement” product Enzyte, has seen his share of legal troubles this year, including an action initiated by the Federal Trade Commission, a class action lawsuit, and a 112-count indictment from the U.S. Attorneys Office for the Southern District of Ohio. Warshak is named personally in 107 of the accounts, according to a press release issued by the US Department of Justice in September.
Of particular interest to observers in the legal and Internet sectors is the case being prosecuted in Ohio, as some of the evidence in support of the fraud charges against Warshak was obtained via search of his email – a search performed not by way of a search warrant, but by way of a court order allowing investigators to collect and review thousands of Warshak’s emails sent through Yahoo and other email providers.
Such court orders require a lower burden of proof than do search warrants, a fact which prompted Warshak to file suit, alleging that the government’s search of his email violated his Fourth Amendment rights.
“Email users clearly expect that their inboxes are private, but the government argues the Fourth Amendment doesn’t protect emails at all when they are stored with an ISP or a webmail provider like Hotmail or Gmail,” said Electronic Frontier Foundation Staff Attorney Kevin Bankston, whose organization has filed an amicus brief in the case, supporting Warshak’s Fourth Amendment claim. “EFF disagrees. We think that the Fourth Amendment applies online just as strongly as it does offline, and that your email should be as safe against government intrusion as your phone calls, postal mail, or the private papers you keep in your home.”
The DOJ contends that it obtained Warshak’s email messages properly, under the terms of the Stored Communications Act (SCA) of 1986.
A district court ruled in the case (Warshak v. United States) that the government cannot use the SCA to obtain stored email without a warrant or prior notice to the email account holder, but the government has appealed the district court’s ruling to the Sixth U.S. Circuit Court of Appeals, which has yet to rule in the case.
“That [Sixth Circuit] court is now primed to be the first circuit court ever to decide whether email users have a ‘reasonable expectation of privacy’ in their stored email,” the EFF noted in a press release issued in November.
“This points to a very scary future unless we fix it,” Bankston told the Minneapolis Star Tribune. “The average person expects that no one is going to read their email, except the person they send it to.”
“We’re looking at a future in which almost all of our private papers are in the hands of third parties and not protected by the Fourth Amendment,” added Bankston. ”I think it would be very backwards for the law to force us to use snail mail and phones, instead of the internet, for our private communications – but that is the result if you follow the government’s theory.”
Regardless of how the court rules with respect to the email search, Warshak is not likely to find himself out of the woods.
Last week, the Cincinnati Enquirer reported that former BPN employee Samuel Grote has become the sixth ex-employee of the company, and seventh overall in the case, to admit criminal wrongdoing, and has agreed to plead guilty in January to a single fraud charge.
According to court documents filed, Grote helped manipulate BPN’s chargeback rate by splitting positive transactions into multiple transactions to offset chargebacks and keep the company’s chargeback ratio below the 1-percent.
In the claim filed by the FTC earlier this year, the FTC alleges that the company made false and unsubstantiated claims with respect to several of its products, including Avlimil and Rogisen; failed to disclose the material terms of the company’s “continuity plan” (recurring billing); performed unauthorized billing of consumers’ credit cards; and violated both the Electronic Fund Transfer Act and the Unordered Merchandise Statute.
“The defendants, Steve Warshak and his companies, have marketed and sold more than a dozen dietary supplements – including Avlimil, Rogisen, and Enzyte – that they claimed offered a variety of health benefits, including treating male and female sexual dysfunction, improving sleep, fighting fatigue, aiding weight loss, and improving skin, night vision, and heart health, among other benefits,” the FTC stated in a press release issued February 2, 2006. “They offered ‘free’ samples through radio, television, and print ads and through the internet, inviting consumers to contact them… after consumers provided credit or debit card information to pay the $4.50 shipping and handling fee for the “free” samples, the defendants used that information to bill the consumers for future shipments that they sent automatically.”
“The defendants enrolled consumers in the continuity program and automatically billed them on a recurring basis without obtaining the consumers’ express, informed consent and without disclosing the terms and conditions of the plan,” according to the FTC. “In addition, they did not obtain written authorization for recurring debits.”
The FTC also asserted that BPN “often made the process to cancel the shipments very difficult.”
“Consumers attempting to cancel often encountered busy telephone lines, Web sites that did not work, and were put on hold indefinitely,” the FTC stated in its February press release. “Many consumers who were able to reach a company representative were nevertheless denied refunds.”
The DOJ and FTC allege that BPN defrauded consumers of over $100 million, in all.
The class action lawsuit brought against BPN makes similar allegations to those made by the FTC and DOJ, namely that the company engaged in fraudulent and deceptive conduct by misrepresenting the nature of their products and employed deceptive billing practices.
