Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D.N.J.: $14.5 million suspended judgment in FTC action against foot pad marketer ordered immediately payable, (Oct 17, 2013)

By Tobias J. Gillett, J.D., LL.M.

A foot pad marketer’s failure to disclose an asset transfer of nearly $3 million on the financial statement supporting a consent decree resolving FTC allegations was material and therefore resulted in the lifting of the suspension of a $14.5 million judgment against him under the terms of the order, the federal district court in Trenton, New Jersey, has ruled (FTC v. Xacta 3000, Inc., October 16, 2013, Pisano, J.).

In 2010, Xacta 3000, Inc. and its principal, Yehuda Levin, stipulated to entry of an order for a permanent injunction and monetary relief in the amount of $14.5 million to resolve FTC charges that they had deceptively marketed their Kinoki Foot Pads as removing toxins from the body; treating high blood pressure, depression, and a host of other medical conditions; and leading to weight loss. The order suspended the judgment based on the defendants’ sworn financial condition, but provided that if the court found that the defendants had failed to disclose any material asset, or made any material misrepresentation or omission from their financial statements, the judgment would “become immediately due and payable.”

In the present motion, the FTC moved to lift the suspension of the monetary judgment, alleging that Levin had failed to disclose either the approximately $2,894,100.52 in assets he had transferred to Lakewood Cheder School, or the approximately $700,000 still owed to him, on his financial statements.

The court granted the motion, finding that Levin had made a material misrepresentation on his financial statement. The failure to disclose the asset transfer was material whether it was characterized as a loan or a donation because the financial statement required Levin to disclose “each person to whom you have transferred, in the aggregate, more than $2,500 in funds or in other assets during the previous three years by loan, gift, sale, or other transfer.” Levin had responded “N/A,” a statement the court determined “constitute[d] a misrepresentation or omission.”

The court’s analysis was not altered by Levin’s assertion that he was mentally impaired as a result of a stroke at the time he made the statement, and therefore that he did not knowingly make a misrepresentation. Knowledge and materiality were “separate inquiries,” and therefore “whether [Levin] consciously knew he was making a misrepresentation [was] irrelevant for purposes of whether the representation was material.” The parties had stipulated that the financial statement contained material information, and therefore the misrepresentation was material. In any event, the court found the omission of nearly $3 million from the financial statement was “likely to induce a reasonable person” to agree to the stipulation.

The case is Civil Action No. 09-cv-399 (JAP).

Attorneys: Victor Frank Defrancis for FTC. UGO Colella (Katten Muchin Rosenman LLP) for Xacta 3000, Inc.

Companies: Xacta 3000, Inc.

Cases: ConsumerProtection FederalTradeCommissionNews NewJerseyNews