KCD Holdings, Inc

Text (OCR of the scan at left; may contain errors)

IN THE MATIER OF KCD HOLDINGS, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SECS. 5 AND 12 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3752. Complaint, June 16, 1997--Decision, June 16, 1997 This consent order requires, among other things, the California-based companies, which market cellulose-bile products, and its officers to have scientific substantiation for claims regarding the benefits or safety of any product or program, including claims that it reduces the body's absorption of fat or sugar; provides any weight loss benefit, allows consumers to eat high-fat foods without increasing their risk of high cholesterol, clogged arteries, heart disease or other health problems; reduces the risk of these health problems; or can be used safely and beneficially in amounts sufficient to cause diarrhea. The consent order also prohibits the respondents from misrepresenting the existence or results of any test or study, and requires KCD, KCD Holdings and Richards to pay $150,000 in redress over a period of one year. Appearances For the Commission: Nadine Samter and Patricia Hensley. For the respondents: Geoffrey Levitt, Venable, Baetjer, Howard & Civiletti, Washington, D.C.

COMPLAINT The Federal Trade Commission ("Commission"), having reason to believe that KCD, Incorporated, KCD Holdings, Inc., and Deerfield Corporation, corporations, and Clark M. Holcomb, individually and as a former officer ofKCD, Incorporated, and KCD Holdings, Inc., and Bonnie L. Richards, individually and as a current officer of KCD, Incorporated, and KCD Holdings, Inc., and Gerald E. Ratto, individually and as an officer of Deerfield Corporation ("respondents"), have violated the provisions of the Federal Trade Commission Act, and it appearing to the Commission that this proceeding is in the public interest, alleges: 1. Respondent KCD Holdings, Inc. ("KCD Holdings"), is a Nevada corporation with its principal office or place of business at 2835 Towns gate Road, Suite 110, Westlake Village, California. 2. Respondent KCD, Incorporated ("KCD"), is a California corporation with its prl.ncipal office or place of business at 2835 Townsgate Road, Suite 110, Westlake Village, California. KCD is a wholly-owned subsidiary ofKCD Holdings.

Complaint 123 F.T.C. 3. Respondent Deerfield Corporation ("Deerfield") is a California corporation with its principal office or place of business at 1455 y alley High A venue, Thousand Oaks, California. Respondent Deerfield is now and has been at all times relevant to this complaint an advertising agency ofKCD and KCD Holdings. 4. Respondent Clark M. Holcomb ("Holcomb") was the president, director and a majority shareholder ofKCD Holdings and KCD from November 1993 through April1996. Individually or in concert with others, he has formulated, directed, controlled or participated in the acts and practices ofKCD Holdings and KCD, including the acts and practices alleged in. this complaint. His principal office or place of business is the same as that ofKCD Holdings., 5. Respondent Bonnie L. Richards ("Richards") is vice president, secretary, and director of KCD Holdings and KCD. Individually or '( in concert with others, she formulates, directs, controls or participates in the acts and practices ofKCD Holdings and KCD, including the acts and practices alleged in this complaint. Her principal office or place of business is the same as that of KCD Holdings. 6. Respondent Gerald E. Ratto ("Hatto") is an officer and the owner of Deerfield. Individually or in concert with others, he formulates, directs, controls or participates in the acts and practices of Deerfield Corporation, including the acts and practices alleged in this complaint. His principal office or place of business is the same as that of Deerfield.

7. Respondents have advertised, labeled, offered for sale, sold and distributed products to the public, including Sequester, an over-thecounter fat reduction and weight-loss tablet. Sequester is a "food" and/or "drug," within the meaning of Sections 12 and 15 of the Federal Trade Commission Act.

8. Since at least May 1994, respondents KCD, KCD Holdings, Holcomb and Richards ("KCD respondents") have advertised, distributed and sold an over-the-counter fat reduction and weight-loss product to the public through, among other means, newspaper and radio advertisements disseminated nationally. The KCD respondents have wholesaled this product to retail drug stores and other retailers for resale to the general public. The product, sold under the name "Sequester," is a combination of fiber and ox bile extract. 9. The acts and practices of respondents alleged in this complaint have been in or affecting commerce, as "commerce" is defined in·· Section 4 of the Federal Trade Commission Act. KCD HOLDINGS, INC., ET AL. 1537 1535 Complaint 10. The KCD respondents have prepared and disseminated or have caused to be disseminated advertisements for Sequester, including but not necessarily limited to the attached Exhibits A through E. Respondents Deerfield and Hatto have prepared and disseminated or have caused to be disseminated advertisements for Sequester, including but not necessarily limited to the attached Exhibits A through C and E. These advertisements contain the following statements and depictions:

A. THIS IS WHAT SEQUESTER DOES TO THE FAT IN FOOD YOU EAT Introducing Sequester - the revolutionary tablet that "shrinks" the amount of dietary fat your body absorbs.

Sequester is a lab-tested formula that neutralizes fat in the food you eat - safely and naturally - before it's absorbed, so it won't wind up on your body. SeQuester's unique, patented ingredients bind fat molecules to vegetable fiber passing them gently and harmlessly through your digestive tract. It's like you never ate them at all. Shrink fat with Sequester. Take advantage of introductory savings, and discover the safe, natural approach to fat reduction. It's in the diet section, today.

(Exhibit A -- newspaper advertisement) B. THE FAT STOPS HERE Dietary fat is a prime cause of overweight, heart disease, high cholesterol, and other major health problems. So imagine a tablet that can "shrink" the amount of fat your body absorbs.

Imagine Sequester. A revolutionary discovery that lets you "remove" fat from the food you eat before irs absorbed, so it won't wind up on your body. Or in your arteries.

Sequester is a safe, natural, lab-tested formula, shown to be effective in lowering fat absorption. It's easy. Just take one or more Sequester tablets 30 minutes before meals. Its unique, patented formula binds fat molecules to natural vegetable fiber (as illustrated), passing it gently and harmlessly through your digestive tract.

Sequester is intended for use as part of a program of sensible nutrition and exercise. Unlike fad diets that are ineffective at best, unhealthy at worst, Sequester contributes to a safe, gradual loss of body fat and weight significantly better than what you're likely to accomplish through dieting and exercise alone. So get control of fat, before fat controls you. Take advantage of our introductory savings on Sequester, and experience for yourself this patently superior approach to fat reduction. Look for Sequester in the diet section, today. (Exhibit B -- newspaper advertisement) C. For the holidays, don't cut it all out. Complaint 123 F.T.C. Just take Sequester.

SEQUESTER REDUCES FAT FROM THE FOOD YOU EAT. Don't look now, weight watchers, but the holidays are gaining on us. So many parties, so much good food, so hard to say, "no." So consider your choices: Either you can cut out all those rich, delicious foods that make life worthwhile. Or you can cut out this coupon and introduce yourself to Sequester - a revolutionary discovery that helps your body minimize fat retention from the food you eat.

With Sequester, you can plan on enjoying reasonable portions of all those great holiday foods, confident that their entire fat content won't be showing up on your scale- or in your arteries- come January 1st. Sequester is a safe, natural dietary supplement. Its unique, patented formula helps bind fat molecules to natural vegetable fiber, so, they pass gently and effortlessly through the digestive tract. Just take one or more tablets 30 minutes before meals.

This season, make Sequester the centerpiece of all your holiday meals. You'll fmd it in better drugstores and supermarkets, everywhere. NOTE: Sequester is intended for use as part of a complete program of sensible nutrition and moderate exercise. By following this program, studies suggest that Sequester contributes to a safe, gradual loss of body fat and weight significantly more successful than dieting and exercise alone. (Exhibit C -- newspaper advertisement) D .....

Q. SHOULD I INCREASE MY DOSAGE? A: After two or three days, increase your dosage to 2 tablets prior to your largest and fattiest meal of the day. If no diarrhea results from 2 tablets at your largest meal, you may choose to use 2 tablets before every meal. Some people will even use 3 or more Sequester tablets prior to their fattiest meal. If diarrhea occurs, it is controllable. It does not require medication or any treatment. It just means that there is too much fat in your stool to allow a normal bowel movement. This actually is a condition we regard as desirable as it means the fat is leaving your body. Whatever is appropriate for you depends upon how your body responds to lesser dosages, and upon the advice of your physician. (Exhibit D -- product package insert) E. Sequester Natural Nutritional Fat Sequestrant* *Sequester is a specially formulated patented product which, when used as directed, reduces fat and sugar from the foods you eat. Tests have shown Sequester effects metabolizable energy, thus increasing fecal energy (calorie) excretion and reduces hunger feelings without increasing total calorie intake.

(Exhibit E -- product package label) The KCD Respondents 11. Through the means described in paragraph ten, the KCD respondents have represented, expressly or by implication, that: KCD HOLDINGS, INC., ET AL. 1539 1535 Complaint A. Sequester prevents or significantly reduces the body's absorption of fat from consumed food.

B. Sequester significantly reduces the body's absorption of sugar from consumed food.

C. Scientific research demonstrates that Sequester prevents or significantly reduces the body's absorption of fat from consumed food.

D. Scientific research demonstrates that Sequester causes significant weight loss.

12. In truth and in fact:

A. Sequester does not prevent or significantly reduce the body's absorption of fat from consumed food.

B. Sequester does not significantly reduce the body's absorption of sugar from consumed food.

C. Scientific research does not demonstrate that Sequester prevents or significantly reduces the body's absorption of fat from consumed food.

D. Scientific research does not demonstrate that Sequester causes significant weight loss.

Therefore, the representations set forth in paragraph eleven were, and are, false or misleading.

13. Through the means described in paragraph ten, the KCD respondents have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representations set forth in paragraph eleven( A) and(B), at the time the representations were made.

14. In truth and in fact, the KCD respondents did not possess and rely upon a reasonable basis that substantiated the representations set forth in paragraph eleven( A) and (B), at the time the representations were made. Therefore, the representation set forth in paragraph thirteen was, and is, false or misleading. 15. Through the means described in paragraph ten, the KCD respondents have represented, expressly or by implication, that: A. Sequester causes significant weight loss. B. Use of Sequester allows consumers to eat high-fat foods without gaining weight.

C. Sequester causes significantly greater loss of weight and body fat than diet and exercise alone.

Complaint 123 F.T.C. D. Use of Sequester allows consumers to eat high-fat foods without increasing their risk of high cholesterol, clogged arteries, heart disease and other health problems associated with a high-fat diet.

E. Sequester reduces the risk of high cholesterol, clogged arteries, heart disease, and other health problems associated with a high-fat diet.

F. Use of Sequester in amounts sufficient to cause diarrhea is beneficial and safe.

16. Through the means described in paragraph ten, the KCD respondents have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representations set forth in paragraph fifteen, at the time the representations were made.

17. In truth and fact, the KCD respondents did not possess and rely upon a reasonable basis that substantiated the representations set forth in paragraph fifteen, at the time the representations were made. Therefore, the representation set forth in paragraph sixteen was, and is, false or misleading.

Respondents Deerfield and Hatto 18. Through the means described in paragraph ten, including but not limited to the advertisements attached as Exhibits A through C and E, respondents Deerfield and Ratto have represented, expressly or by implication, that:

A. Sequester causes significant weight loss. B. Use of Sequester allows consumers to eat high-fat foods without gaining weight.

C. Use of Sequester allows consumers to eat high-fat foods without increasing their risk of high cholesterol, clogged arteries, heart disease and other health problems associated with a high-fat diet.

D. Sequester prevents or significantly reduces the body's absorption of fat from consumed food.

E. Sequester reduces the risk ofhigh cholesterol, clogged arteries, heart disease and other health problems associated with a high-fat diet.

F. Sequester significantly reduces the body's absorption of sugar from consumed food.

t ' • KCD HOLDINGS, INC., ET AL. 1541 l535 Complaint 19. Through the means described in paragraph ten, including but not limited to the advertisements attached as Exhibits A through C ' - and E, respondents Deerfield and Hatto have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representations set forth in paragraph eighteen, at the time the representations were made. l_•.l 20. In truth and in fact, respondents Deerfield and Hatto did not possess and rely upon a reasonable basis that substantiated the representations set forth in paragraph eighteen, at the time the ; representations were made. Therefore, the representation set forth in paragraph nineteen was, and is, false or misleading. 21. Through the means described in paragraph ten, including but not limited to the advertisements attached as Exhibits A through C ~· ·.~ and E, respondents Deerfield and Hatto have represented, expressly or by implication, that scientific research demonstrates that Sequester:

A. Prevents or significantly reduces the body's absorption of fat from consumed food. .\.,• ,. I' B. Causes significant weight loss. 22. In truth and in fact, scientific research does not demonstrate that Sequester:

A. Prevents or significantly reduces the body's absorption of fat from consumed food.

B. Causes significant weight loss.

Therefore, the representation set forth in paragraph twenty-one was, and is, false or misleading.

23. Respondents Deerfield and Hatto knew or should have known that the representations set forth in paragraphs eighteen, nineteen and twenty-one were, and are, false or misleading_ 24. The acts and practices of respondents as alleged in this complaint constitute unfair or deceptive acts or practices, and the making of false advertisements, in or affecting commerce in violation of Sections 5(a) and 12 of the Federal Trade Commission Act. Complaint EXHIBIT A • .

(STORE IMPRINT) sQ-141 COMPLAINT EXHIBIT A KCD HOLDINGS, INC., ET AL. 1543 1535 Complaint EXHIBITB .• i t + ( .

(STORE IMPRINT GOES HERE.) SQ•lU _.;j·.~ COMPLAINT EXHIBIT B Complaint 123 F.T.C. EXHIBITC ~ -~'---, I -- I I I \ ' ' • • • , ,I t.... ________ ,.- • • '· Sequester is now available at Rite Aid.

COMPLAINT EXHIBIT C KCD HOLDINGS, INC., ET AL. 1545 1535 Complaint EXHIBITD • ~E· .

·Sequester.

A guide to a healthy lifestyle INSIDE:

Valuable Ups on Sequester use.

Plus: senstble eating & cxerdse bablts.

NOTE: Tho following Is tho CDPY for tho Sequester Insert NN I CJ COMPLAINT EXHIBIT D Ill ~II l~f f Jf CI,. ~C , \11 t I • ...!.~ l-. lc t\\ -....:.....c ;. \ l i . He l \ 1) · .~ Il l ·. llfl · \\'l -d l _ \1,1 . \ U ,J _'I ;r. ( :. \ t •l.' \1,1 HI 1;-, . .... t-l ·t 11 ,.'-47 • 1·. \:'\: MC ._- , •• ._,I· ~ ··ll.,!t t Complaint 123 F.T.C. EXHIBITD Thank you for purchasing Sequester .. This natural patented product helps reduce fat absorption and let's you lose weight naturaiJy and comfortably.

Take bold or the rat. bero~ the rat takes bold of you I Please study the Important information contained In this pamphlet. It Is designed to help you get the maximum benefit from Sequester. It contains many tips on food selection. food preparation, exercise and how to use Sequester most effectively.

THE REAL ENEMY: Your real enemy Is not weight. Your real enemy Is fat. Sequester helps fight fat.

HEALTHY HEART OBJECTIVE:

Number 1: To feed my body less fat.

Number 2: To train by body to burn rat more efficiently. PROBABLE BENEFITS:

• Improved Health • Reduced fat Intake • Reduced body weight • Increased energy level and productivity THE EFFECTIVE, BEAL111Y WAY TO TAKE YOUR SEQUESTER: Sequester Is a tested product that wtJI help you Jose fat. Many or us are used to weight loss programs which •take the weight otr' nearly overnight. Many of those programs cause us to lose water weight. and even muscle weight. But. weight Is not our number one enemy - fat Is. Sequester fights rat. and lostngjat takes ttme. Read and follow these lnstructtons carefully. Make Sequester a consistent part of your weight loss program. Gtve yourself90 or more days to see measurable results. (Tbe faJtfal few days of JOur Sequester program may neu abow .ome weftbt IDc..,..e. Don't paaJc. Tbfa Is normal.) follow our GoodFood dietary guidelines and get Into the good exercise habit. Good luck! Q: HOW SHALL I BEGIN'? A: Begin by taking one or two tablets with a full glass (8 ounces) of water or juice. Take your tablet{s) 112 hour prior to every meal. Taking Sequester during or alter a meal w111 not produce satisfactory results. Just be sure that before you take your jlrst btte. take your Sequester. SQ-23 KCD HOLDINGS, INC., ET AL. 1547 1535 Complaint EXlllBITD Q: HOW MANY TABLETS SHOULD I TAKE PER DAY? A: If you cat three meals per day. you wtll use a minimum of 3 tablets per day. F'or most people the maximum dally dosage Is 6 tablets. I.e .. 2 before every meal. Most people vary their dosage between 3 to 6 tablets per day to see which Is most etrecHve for them.

Q: HOW WILL I KNOW MY DOSAGE IS SATISFACTORY? A: You're on the right track when one or more of the followtng occur: {I Stools appear lighter In color; {2 Stools appear bulkier; (3 Stools m ay float In water. These lndlcaHons result from fats being passed through your digestive tract and eliminated In the stool. Q: SHOULD I INCREASE MY DOSAGE? A: After two or three days. Increase your dosage to 2 tablets prior to your largest and rawest meal of the day. If no diarrhea results from 2 tablets at your largest meal. you may choose to use 2 tablets before every meal. Some people wtll even use 3 or more Sequester tablets prior to thetr rawest meal. If diarrhea occurs, It Is controllable. It does not require medJcaHon or any treatment. It just means that there Js too much fat In your stool to allow a normal bowel movement. This actually Is a condition we regard as desirable as It means the fat Is leaving your body. Whatever Is appropriate for you depends upon how your body responds to lesser dosages, and upon the advlce of your physician.

Q: IF I EAT A IOO'J6 FAT-FREE MEAL, SHOULD I STILL TAKE MY SEQUESTER? A: If one of your meals contains absolutely no fat. It Is not necessary to take Sequester for that particular meal.

Q: SHOULD I TAKE VITAMINS SUPPLEMENTS WHILE TAKING SEQUESTER? A: If you wish to take vltamtn supplements. we advise doing so I hour prior to taking your Sequester or 2 hours after taking Sequester. We have observed no evidence of fat-soluble vitamin deficiency during our human testing. however taking a multiple vitamin/mineral supplement Is always a good Idea.

Q: WHAT ABOUT ADDITIONAL SIDE EFFECTS? A: Three out of 10 people In our tes t group experienced excess gas when taking Sequester. If this Is a concern we s trongly recommend that you get som e acllvalccl charcoal li•blcts. They arc very Inexpensive a nd can be found SQ - 2~ Complaint 123 F.T.C. EXHIBITE ·, ( '\ ) ( J ' Nattiral Nutritional Fat Sequcstrant* ~Is a·spec:tally formulated j;aimted product which, when used as directed, reduces .fat and supr bom the loods you eat. Tests have shown Sequester effects metabolizable enetBf, thus lncreaslng teal energy (calorie) ~on and reduces hunger feeJJnss without lnaus!ng total calorie intake. The oombinadon of sped.al Jngredlents, through our patented manutactudng process, negatively affects the availabWty of fat and sugar. The mechanism that produces this action remains undear.

1~ money back guanmtee.

Sequester slum/Jl be used with t1 properly IHllllnad dlet and eurdseJ1I'OITIII"- NUrllllONAL JNIIORMATIONPER TABLEI' (ONLY 2 CALOIIES EACH) Protein 35.0 mg Fiber 180.0 mg Fat 0.06 grams Carbohydrates 340.0 mg Vltam1ns &: Minerals •less than 2596 RDA Total Tablet WeJBbt • 700 miDJ.crams RECOMMENDED USE: For adults only. Take 1 or 2 tablets 3 times per day 1/2 hour before meals with a FUU glass of water.

NOTICE: Before considering any weight loss program, it 1s advisable to consult with your physidan. This product, when used In excess, may cause diarrhea, abdominal cramping( or gas. If this occurs, product dosage should be temporarily reduced or discontinued. Store in a cool dry place.

INGREDIENTS: Activated-Fiber Complex (Barley/Rice Fiber, Sodium Choleate Complex), Cellulose, Acada, Croscannellose Sodium, Lemon Pectin, Stearic Add, Carrot, Silicone Dioxide, Methylcellulose, Magnesium Stearate, Acerola and P.ropylene Glycol. Manufactured E.ll.clwlvely For: Made In the USA KCD, Inc. Westlake VIllage, CA 9136 I U.S. Paunt #4,865,850 'SSt 71 COMPLAINT EXHIBIT E KCD HOLDINGS, INC., ET AL. 1549 1535 Decision and Order DECISION AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption hereof, and the respondents having been furnished thereafter with a copy of a draft of complaint which the Seattle Regional Office proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violation of the Federal Trade Commission Act; and . . The respondents, their attorney, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by the respondents that the law has been violated as alleged in such complaint, or that the facts as alleged in such complaint, other than jurisdictional facts, are true, and waivers and other provisions as required by the Commission's Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Act, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

1.' Respondent KCD Holdings, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of Nevada, with its office and principal place of business located at 2835 Towns gate Road, Suite 110, in the City of Westlake Village, State of California.

2. Respondent KCD, Incorporated, is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its office and principal place of business located at 2835 Townsgate Road, Suite 110, in the City ofWestlake Village, State of California.

3. Respondent Deerfield Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its office and principal place of business Decision and Order 123 F.T.C. located at 1455 Valley High Avenue, in the City of Thousand Oaks, State of California.

4. Respondent Clark M. Holcomb was an officer of KCD Holdings, Inc., and KCD, Incorporated. He formulated, directed and controlled the policies, acts and practices of these corporations. His home address is at 2190 Upper Ranch Road, in the City of Westlake Village, State of California.

5. Respondent Bonnie L. Richards is an officer ofKCD Holdings, Inc., and KCD, Incorporated. She formulates, directs and controls the policies, acts and practices of these corporations. Her home address is at 4791 Parma Lane, in the City of Agoura Hills, State of California.

6. Respondent Gerald E. Ratto is an officer of Deerfield Corporation. He formulates ~ directs and controls the acts and practices of this corporation. His home address is at 1455 Valley High Avenue, in the City of Thousand Oaks, State of California. 7. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest. · ORDER It is ordered, That for purposes of this order, the following definitions shall apply:

1. "Competent and reliable scientific evidence" shall mean tests, analyses, research, studies or other evidence based on the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.

2. "KCD respondents" shall mean KCD Holdings, Inc. ("KCD Holdings"), KCD, Incorporated ("KCD"), corporations, their successors and assigns and their officers; Clark M. Holcomb ("Holcomb"), individually and as a former officer of the corporations; Bonnie L. Richards ("Richards"), individually and as an officer of the corporations; and each of their agents, representatives and employees. 3. ''Deerfield respondents" shall mean Deerfield Corporation ("Deerfield"), a corporation, its successors and assigns and its officers; Gerald E. Ratto ("Ratto"), individually and as an officer of the corporation; and each of their agents, representatives and employees.

KCD HOLDINGS, INC., ET AL. 1551 1535 Decision and Order 4. Unless otherwise specified, "respondents" shall mean KCD Holdings, KCD and Deerfield, corporations, their successors and assigns and their officers; Holcomb, Richards and Hatto, individually and as officers or former officers of the corporations; and each of the above's agents, representatives and employees. 5. "Commerce" shall mean as defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. Section 44. I.

It is ordered, That respondents, directly or through any corporation, subsidiary, division or other device, in connection with the labeling, advertising, promotion, offering for sale, sale or distribution of Sequester or any product or program, marketed or sold under any name, in or affecting commerce, shall not represent, in any manner, expressly or by implication, that such product or program prevents or reduces the body's absorption of fat or sugar from consumed food, unless the representation is true and, at the time it is made, respondents possess and rely upon competent and reliable scientific evidence that substantiates the representation. II.

It is further ordered, That respondents, directly or through any corporation, subsidiary, division or other device, in connection with the labeling, advertising, promotion, offering for sale, sale or distribution of Sequester or any product or program, in or affecting commerce, shall not make any representation, in any manner, expressly or by implication, that any such product or program: A. Provides any weight loss benefit;

B. Causes greater loss of body fat than diet and exercise alone; C. Allows consumers to eat high-fat foods without increasing their risk of high cholesterol, clogged arteries, heart disease or other health problems associated with a high-fat diet; or D. Reduces, or reduces the risk of, high cholesterol, clogged arteries, heart disease and other health problems associated with a high-fat diet, unless, at the time the representation is made, respondents possess and rely upon competent and reliable scientific evidence that substantiates the representation.

Decision and Order 123 F.T.C. III.

It is further ordered, That the KCD respondents, directly or through any corporation, subsidiary, division or other device, in connection with the labeling, advertising, promotion, offering for sale, sale or distribution of Sequester or any product or program, in or affecting commerce, shall not make any representation, in any manner, expressly or by implication, that any such product or program can be used, beneficially and safely, in amounts or with frequency sufficient to cause diarrhea, unless, at the time the representation is made, the KCD respondents possess and rely upon competent and reliable scientific evidence that substantiates the representation.

IV.

It is further ordered, That respondents, directly or through any corporation, subsidiary, division or other device, in connection with the labeling, advertising, promotion, offering ·for sale, sale or distribution of Sequester or any product or program, in or affecting commerce, shall not misrepresent, in any manner, expressly or by implication, the existence, contents, validity, results, conclusions or interpretations of any test, study or research. v.

It is further ordered, That respondents, directly or through any corporation, subsidiary, division or other device, in connection with the labeling, advertising, promotion, offering for sale, sale or distribution of Sequester or any product or program, in or affecting commerce, shall not make any representation, in any manner, expressly or by implication, about the benefits, performance, efficacy or safety of any such product or program unless, at the time the representation is made, respondents possess and rely upon competent and reliable evidence, which when appropriate must be competent and reliable scientific evidence, that substantiates the representation. VI.

It is further ordered, That with respect to the Deerfield respondents, it shall be a defense to Sections I, II and V of this order KCD HOLDINGS, INC., ET AL. 1553 1535 Decision and Order that they neither knew nor had reason to know of an inadequacy of substantiation for any such representation; provided further that it shall be a defense to Section IV of this order that they neither knew nor had reason to know that the test, study or research did not prove, demonstrate or confirm that ~epresentation. VII.

It is further ordered, That KCD Holdings, Inc., KCD Incorporated and Bonnie L. Richards, their successors and assigns, shall deposit into an escrow account, to be established by the Commission for the purpose of receiving payment due under this order ("escrow account"), the sum of one hundred and fifty thousand dollars ($150,000). This payment shall be made in the following manner: A. By certified or cashier's check made payable to the Federal Trade Commission, in thirteen installments, the first installment of twenty-five thousand dollars ($25,000) to be made no later than the date that this order becomes final; the next eleven payments of ten thousand, four hundred and sixteen dollars ($1 0,416) to be made no later'than the first day of each of the following eleven months; and the final installment often thousand, four hundred and twenty-four' dollars ($1 0,424) to be made no later than one year from the date that this order becomes fmal. The checks shall be deliverable to Regional Director, Federal Trade Commission, 915 Second Avenue, Suite 2896, Seattle, Washington.

B. In the event of any default in payment, which default continues for ten (10) days beyond the due date of payment, the entire amount due, together with interest, as computed pursuant to 28 U.S.C. 1961 from the date of default to the date of payment, shall immediately become due and payable.

C. In order to secure payment of respondents' indebtedness to the Commission, within seven (7) days of the date that this order becomes final, respondents shall cause to be transferred to the Commission a security interest in the property described in Appendix A, which property has been determined by an independent appraisal to have a value of one hundred and twenty-five thousand dollars ($125,000) or more in excess of all other perfected security interests, as security for the payments required to be made by respondents in Part VII( A) of this order. The respondents shall, within seven (7) days of the date that this order becomes final, ftle all documents necessary 15 54 FEDERAL TRADE COMMISSION DECISIONS Decision and Order 123 F.T.C. to perfect and record the Commission's security interest in the property described in Appendix A, in conformity with appropriate state law. The respondents shall, within ten (10) days of the date that this order becomes final, furnish to counsel for the Commission complete documentation evidencing that the Commission's security interest in the property described in Appendix A has been correctly perfected and recorded. The Commission will release this security interest upon receipt of all payments required by Part VII( A) of this order.

D. The funds paid by respondents, together with accrued interest, shall, in the discretion of the Commission, be used by the Commission to provide direct redress to purchasers of Sequester in connection with the acts or practices alleged in the complaint, and to pay any attendant costs of administration. If the Commission determines, in its sole discretion, that redress to purchasers of this product is wholly or partially impracticable or is otherwise unwarranted, any funds not so used shall be paid to the United States Treasury. Respondents shall be notified as to how the funds are distributed, but shall have no right to contest the manner of distribution chosen by the Commission. No portion of the payment as herein provided shall be deemed a payment of any fme, penalty or punitive assessment.

E. At any time after this order becomes final, the Commission may direct the escrow agent to transfer funds from the escrow account, including accrued interest, to the Commission to be distributed as herein provided. The Commission, or its representative, shall, in its sole discretion, select the escrow agent. F. Respondents relinquish all dominion, control and title to the funds paid into the escrow account, and all legal and equitable title to the funds vests in the Treasurer of the United States and in the designated consumers. Respondents shall make no claim to or demand for return of the funds, directly or indirectly, through counsel or otherwise; and in the event of bankruptcy of respondents, respondents acknowledge that the funds are not part of the debtor's estate, nor does the estate have any claim or interest therein. VIII.

Nothing in this order shall prohibit respondents from making any representation for any drug that is permitted in labeling for any drug under any tentative final or final standard promulgated by the Food KCD HOLDINGS, INC., ET AL. 1555 1535 Decision and Order and Drug Administration ("FDA"), or under any new drug application approved by the FDA.

IX.

Nothing in this order shall prohibit respondents from making any representation for any product that is specifically permitted in labeling for such product by regulations promulgated by the FDA pursuant to the Nutrition Labeling and Education Act of 1990. X.

It is further ordered, That respondents shall, for five (5) years after the last date of dissemination of any representation covered by this order, maintain and upon reasonable /written request make available to the Commission for inspection and copying: A. All advertisements or promotional materials containing the representation;

B. All materials that were relied upon in disseminating the representation; and C. All tests, reports, studies, surveys, demonstrations or other evidence in their possession or control that contradict, qualify or call into question the representation, or the basis relied upon for the representation, including complaints and other communications with consumers or with governmental or consumer protection organizations.

XI.

It is further ordered, That respondents shall deliver a copy of this order to all current and future principals, officers, directors and managers, and to all current and future employees, agents and representatives having responsibilities with respect to the subject matter of this order, and shall secure from each such person a signed and dated statement acknowledging receipt of the order, such statements to be retained by respondents for a period of five (5) years. Respondents shall deliver this order to current personnel within thirty (30) days after the date of service of this order, and to future personnel within thirty (30) days after the person assumes such position or responsibilities.

Decision and Order 123 F.T.C. xrr.

It is further ordered, That respondents KCD Holdings, KCD and Deerfield, and their successors and assigns, shall notify the Commission at least thirty (30) days prior to any change in the corporations that may affect compliance obligations arising under this order, including but not limited to a dissolution, assignment, sale, merger or other action that would result in the emergence of a successor corporation; the creation or dissolution of a subsidiary, parent or affiliate that engages in any acts or practices subject to this order; the proposed filing of a bankruptcy petition; or a change in corporate name or address. Provided, however, that, with respect to any proposed change in the corporation about which respondents learn less than thirty (30) days prior to the date such action is to take place, respondents shall notify the Commission as soon as is practicable after obtaining such knowledge. All notices required by this Part shall be sent by certified mail to the Associate Director, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Conu:llission, Washington, D. C.

XIII.

It is further ordered, That respondents Holcomb, Richards, and Hatto shall, for a period of five (5) years after the date of issuance of this order, notify the Commission within thirty (30) days of the discontinuance of their current business or employment, and of their affiliation with any new business or employment. The notice shall include the respondents' new business addresses and telephone numbers, current home addresses, and a description of the nature of the business or employment and their duties and responsibilities. All notices required by this Part shall be sent by certified mail to the Associate Director, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission, Washington, D.C. XIV.

It is further ordered, That respondents shall, within sixty (60) days after the date of service of this order, and at other such times as the Federal Trade Commission may require, file with the Commission a report, in writing, setting forth in detail the manner and form in which they have complied with this order.

KCD HOLDINGS, INC., ET AL. 1557 1535 Decision and Order XV.

This order will terminate on June 16, 2017, or twenty years from the most recent date that the United States or the Federal Trade Commission files a complaint (with or without an accompanying consent decree) in federal court alleging any violation of the order, whichever comes later; provided, however, that the filing of such a complaint will not affect the duration of: A. Any Part in this order that terminates in less than twenty (20) years;

B. This order's application to any respondent that is not named as a defendant in such complaint; and C. This order if such complaint is filed after the order has terminated pursuant to this Part.

Provided, further, that if such complaint is dismissed or a federal court rules that the respondent did not violate any provision of the order, and the dismissal or ruling is either not appealed or upheld on appeal, then the order will terminate according to this Part as though the complaint had never been filed, except that the order will not terminate between the date such complaint is filed and the later of the deadline for appealing such dismissal or ruling and the date such dismissal or ruling is upheld on appeal.

APPENDIX A (CONFIDENTIAL APPENDIX A REDACTED FROM PUBLIC RECORD VERSION) Complaint 123 F.T.C.