Posted Aug 10, 2012 09:47 pm CDT
Late-night viewers of TV ads knew all about Smilin’ Bob.
Dressed in his everyday business outfit of a crease-proof shirt and drab tie, Smilin’ Bob would prance about the office, entertaining foreign executives or posing as Santa during the company’s holiday party.
And while a cheesy tune played through the commercial’s background, Smilin’ Bob would hail his colleagues with an ear-to-ear grin plastered on his face, his white teeth glistening.
He was popping the nutritional supplement Enzyte, a male sexual enhancer, the commercial said.
Because Enzyte is an herbal product, it did not need approval by the U.S. Food and Drug Administration, which otherwise poses strict regulations for pharmaceuticals. Urologists, however, deflated Enzyte’s braggadocio, insisting that there was no ingredient among the herbs, minerals and vitamins guaranteed to promote virility.
But just tell that to the eager customers who called the advertisement’s 800 number. The company that in 2001 produced Enzyte, Cincinnati-based Berkeley Premium Nutraceuticals, had in three years expanded from a family operation to a business employing 1,500 workers. Berkeley’s annual sales had also grown to $250 million, according to a 2010 opinion by the 6th U.S. Circuit Court of Appeals at Cincinnati.
Whether Enzyte helped its buyers where they wanted it was beside the point. What rankled them was Berkeley’s “auto-ship program,” by which a customer would impart a credit card number and continue to receive the product until the customer opted out. Until the end of 2002, no customer was told about the program. Steadily their credit card fees added up. By 2002 the Better Business Bureau received 1,500 complaints, according to the appellate ruling.
But Berkeley got into more trouble. To continue its bank credit, Berkeley had to maintain a low level of “chargebacks,” disputes that occur when a customer calls the credit card company to contest a charge. To keep the ratio low, Berkeley split its transactions into two or three parts so it looked like there were more transactions than customers making them.
In 2006, a federal grand jury handed down a 112-count indictment on fraud-related charges against Berkeley owner Steven Warshak; his mother, Harriet, who processed the credit card payments; and another of Warshak’s businesses.
Two years later, Warshak was found guilty of 93 counts, sentenced to 25 years and ordered to pay $93,000. Berkeley had to forfeit $500 million. His mother was sentenced to two years.
On appeal, the 6th Circuit sent the case back to the lower court for resentencing. Last September Warshak’s sentence was lowered to 10 years, his mother’s to one day.
Regardless of the outcome for the Warshaks—or for the male enhancement business—the 6th Circuit case, United States v. Warshak, nevertheless marked the first time a federal appeals court extended Fourth Amendment protection to the contemporary world of email correspondence. The court, in an opinion by Judge Danny J. Boggs, held that an individual’s reasonable expectation of privacy, the Fourth Amendment standard since 1967, applied to the content of emails stored in a third-party server.
Click here to read the rest of “Crashing the Third Party” from the August issue of the ABA Journal.