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Misleading Ad Materials Can Result in Criminal Liability

Subjective belief in product not a defense against wire fraud

Mustafa Hassan Arif, a Pakistan-based marketer of non-FDA approved prescription drug products that purportedly cured a wide array of medical conditions, operated more than 1,000 websites that allegedly used false addresses around the world. The U.S. Department Justice charged Arif with false and misleading representations, modified clinical studies and bogus testimonials.

Arif allegedly generated more than $10M from 2007 through 2014 by selling the products globally. He was sued in the United States in the District Court of New Hampshire in 2014. In 2016, Arif pled guilty to wire fraud and was subsequently sentenced to six years’ imprisonment.

Arif appealed. First, he argued that he should have been prosecuted under the FTC Act for false advertising claims, rather than by the Department of Justice for wire fraud. Specifically, Arif argued that the FTC Act preempted the wire fraud statute. The First Circuit rejected this argument, stating that the two statutes were not in “irreconcilable conflict” because Congress did not intend the Federal Trade Commission to be the only enforcer in false advertising cases,

“This case provides a good example for why Congress has vested discretion in the prosecutorial agencies as to which statute to employ,” the court wrote. “The offense here was not a run-of-the-mill false advertising of a single product … The FTCA penalties for first or second offenders would hardly have been an adequate deterrent for such egregious conduct. Crime must be made not to pay.”

The First Circuit also rejected Arif’s argument that he did not commit wire fraud by virtue of his purported belief in the efficacy of the products he marketed. The court considered that Arif was being charged with knowingly making false representations, as opposed to selling drugs that did not work as intended or for harming consumers.

Takeaway: Marketers should keep in mind that false advertising can sometime constitute a crime. The U.S. Department of Justice possesses broad discretion over the kinds of cases that it wishes to prosecute. Arif’s conduct was considered egregious enough to warrant criminal prosecution and one’s subjective belief in a product may not be a defense against wire fraud when the efficacy of the product is not an issue.

See the Opinion, here.

Richard B. Newman is a digital media and data privacy compliance law attorney at Hinch Newman LLP focusing on advertising and digital media matters. You can follow him on LinkedIn at FTC Defense Lawyer

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Richard B. Newman

Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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