Ad Agency Pays $2 Million for False Advertising

Advertiser Marketing Architects, Inc. (MAI) has agreed to pay $2 million to the Federal Trade Commission (FTC) to settle claims that MAI created and disseminated deceptive radio ads for products marketed by its client, Direct Alternatives.

The FTC’s joint complaint with the Maine Attorney General’s Office states that MAI used false or unsubstantiated claims to sell weight-loss products on behalf of Direct Alternatives.  MAI is alleged to have developed and disseminated false testimonials and advertisements disguised as news stories, and to have used inbound call scripts that failed to adequately disclose consumers would automatically be enrolled in product plans. The complaint also states that MAI failed to garner empirical evidence to substantiate its weight-loss claims, despite documents from Direct Alternatives indicating scientific support was needed.

This isn’t the first time that MAI has found itself in hot water with the FTC, and the company’s reluctance to change its behavior likely influenced the present settlement. MAI had previously created similar advertisements for Sensa Products, LLC, a weight-loss company that was subject to a $26.5 million FTC settlement in 2014. The FTC successfully argued that Sensa’s advertising claims lacked verification and were based on “unfounded promises.” In its complaint against MAI, the FTC stated that MAI was aware of the need for scientific support, and that the earlier action against Sensa put MAI on notice of the importance of substantiation.

In addition to the fine, MAI is prohibited from misrepresenting material facts in advertisements it develops, such as the terms of cancellation policies or auto-subscription plans, and must provide adequate notice of product terms to consumers. MAI is also prevented from making any of the FTC’s universally false “gut check” weight-loss claims, and must verify its advertising claims with competent and reliable scientific evidence.

MAI’s settlement is among the largest ever obtained by the FTC against an ad agency and may signal a more heavy-handed approach to regulation within the industry. Traditionally, the FTC pursues false advertising cases against the companies whose products are being advertised, and only rarely proceeds against the agencies and consultants that help develop the ads. Ad agencies of all types should take notice from this settlement that they have an obligation to use reasonable efforts to validate and substantiate their clients’ claims and may not ignore warning signs.