For about two years, a massive $25 million weight-loss scam allegedly operated out of a condo office at Branford’s 420 East Main St., in building 2, Suite 8. The scam allegedly drew in unwitting consumers across the nation, consumers who relied on fake news sites, $79.99 a month at a time.
Over a period of 19 months from September 2010 to April 2011, a Guilford man named Boris Mizhen, along with Richard Chiang, who allegedly operated a company named LeadClick Media in Poway, California, devised “unfair and deceptive” media practices to advertise the benefits of diet supplements and to use “real reporters” to sell the product. The operation was a fake, authorities say.
On Tuesday Attorney General George Jepsen and State Department of Consumer Protection Commissioner William M. Rubenstein, along with the Federal Trade Commission, (FTC) announced a settlement agreement in the case. It included a $33 million judgment Mizhen and his companies agreed to pay the state and the federal government.
However, the judgment was suspended because the defendants are unable to pay the full amount. The settlement requires a court-appointed receiver, as yet unnamed, who will oversee liquidation of real estate and other assets owned by Mizhen and his wife, Angelina Strano, in order to make partial payments to consumers harmed by the scam. The settlement also requires the approval of U.S. District Court Judge Janet C. Hall.
According to a 58-page order, the court receiver will determine the worth of two properties owned by the couple. One is the condo on East Main Street, in Branford. The other is an 11-acre piece of prime land at Exit 57, off Route 1 and I‑95 in Guilford. In addition, a variety of men’s watches, recently purchased paintings, and a bronze chess set will be sold. Overall, the court receiver hopes to obtain about $7 million, according to court papers.
Jepsen said in a prepared statement that his office has reviewed “approximately 1,278 consumer complaints not just from Connecticut, but around the country, and the unfair and deceptive conduct alleged in those complaints was simply unacceptable.
“While the defendants have submitted affidavits and tax returns demonstrating their inability to pay the full judgment, this settlement ensures that substantial assets they do possess will go toward making whole those consumers who were harmed. This settlement also includes significant safeguards to prevent these companies from engaging in such conduct in the future. I’m pleased that our partnership with the Federal Trade Commission has brought us to this positive resolution. Consumers must be on guard against scams and phony marketing, which have proliferated on the Internet. This resolution sends a strong message that Internet fraudsters operating out of Connecticut do so at considerable risk.”
Mizhen, 60, operated the businesses from his Branford office, located not far from his Guilford home on Prospect Avenue in Sachem’s Head, an upscale seaside community. In 2003, when he operated another business, New Age Opt In, Inc. out of the same 420 East Main Street address, he said in an official filing that he lived in Branford at 12 Fellsmerr Farm Road. For about a year, Strano was a top officer of New Age.
Microsoft Sues Mizhen
In June, 2010 Microsoft sued Mizhen for allegedly finding a way to game Hotmail’s spam filters, thereby delivering unwanted e‑mails to consumers. To circumvent the company’s anti-spam system, Mizhen allegedly created millions of new e‑mail accounts and then somehow figured out how to classify his messages as “not spam,” according to the lawsuit.
This was the second time Microsoft sued Mizhen for allegedly spamming Hotmail users. The previous case, filed in 2003, ended when Mizhen agreed to pay $2 million to the company and to refrain from spamming Hotmail users in the future.
In the current case, federal attorneys said his products included LeanSpa LLC, NutraSlim LLC and NutraSlim U.K. LTD, companies all based at his East Main St., address, along with a range of other products derived from them. Mizhen was the owner or corporate officer of the three companies. The phony news sites that advertised the products sometimes referred to legitimate national news operations even though they had no permission to do so.
A combined federal and state lawsuit was brought against the LeanSpa companies and Mizhen in 2011. The lawsuit asserted that the companies and their owner used unfair and deceptive practices to advertise, market and sell dietary supplements. Strano was named as a “relief defendant“ who received or otherwise benefited from funds gained through the deceptive practices.
Permanent injunctions barring Mizhen and his companies from operating again are now in place.
Late Tuesday, an attorney for LeanSpa and Mizhen told the Hartford Courant that his clients should never have been named in the lawsuit “and have been ruined by it.”
“LeanSpa was an excellent company with first rank scientific advisers and an excellent, clinically tested weight loss product,” Bill Rothbard, the attorney, said, in a written statement to the Courant. “It did not mislead consumers in its product claims or billing practices, and was itself a victim of deceptive and fraudulent conduct by its marketing partners.”
Rothbard said LeanSpa and Mizhen regretted that Jepsen announced the settlement before there was a final ruling in federal court. The settlement, Rothbard said, included an “unwarranted freeze of personal assets” of Mizhen and Strano. Strano wasn’t even involved in the business and was accused of no wrongdoing, he said.
That is not the view of the prosecutors in the case.
LeadClick Media Emerges
According to a 39-page amended federal complaint, Mizhen hired LeadClick Media, a California corporation operating out of Poway, and Richard Chiang, its owner, to devise the deceptive media practices that included using so-called real reporters to advertise the benefits of the diet supplements. In fact no reporters participated in the scam.
They also allegedly devised internet ads designed to look like news reports. The fake news site typically pictured Acai berry diet supplements along with a coffee colon-cleansing product. The websites purported to provide objective investigative reports from reporters typically pictured on the website. “The reporters claimed to have tested the products on themselves and achieved dramatic and positive results.” In fact, said the federal complaint, the news reports were fake, as were the photographs of the reporters.
The LeanSpa defendants allegedly paid LeadClick over $11.9 million for LeadClick’s deceptive marketing practices, the court documents say. Chiang coordinated directly with Mizhen to use blogs or fake news sites to market the product and to obtain consumer leads. They discussed monthly sales. Chiang also received a salary along with other financial benefits, the lawsuits say.
LeadClick was a product of Corelogic, Inc., a Delaware corporation. About a year ago government attorneys obtained a permanent injunction to stop them from operating.
One reason the scam caught on was that consumers like quick results. And the price was right, or so they thought. Consumers were told to pay only a nominal fee for postage. Then they were told to enter credit card numbers for nominal shipping charges.
After they entered the card number, they were automatically enrolled, without their knowledge, in a continuity plan that charged their credit card $79.99 each month. They allegedly did not authorize the deduction or even know it would occur until they looked at subsequent bills.
“The pattern of conduct alleged in this complaint was appalling,” said Commissioner Rubenstein. “The use of fake news websites with false claims to lure consumers to buy products is unacceptable by itself. It is made all the worse when consumers are tricked into unwanted purchase plans and then are improperly thwarted in their attempts to cancel and obtain refunds. Consumers are entitled to honest claims about products and fair purchase and refund terms. This settlement will prevent those responsible from repeating their behavior and they will forfeit their assets to help compensate consumers.”
There are no state or federal criminal charges filed against Mizhen but the U.S. Attorney’s Office in New Haven served as local counsel for the FTC in the federal civil case, a spokesman told the Eagle. The U.S. Attorney’s offices prosecutes all criminal and civil cases brought by the federal government.
###
