The First Circuit recently affirmed the six-year sentence of Mustafa Hassan Arif, who sold bogus drugs and health products under a panoply of brands he had concocted out of Pakistan. Arif created and operated over 1,500 websites to market and sell the products, and induced unwitting purchasers in the United States and elsewhere to buy his products online through altered clinical studies, fabricated testimonials, and false indicia of origin. Specifically, his web of subnetworks and referral networks included claims that the drugs had been clinically tested and been shown to cure a variety of diseases and that the drugs were manufactured and distributed from addresses in Europe and New Zealand. However, in fact, all of the studies, testimonials, and statistics were completely fabricated and the drugs were made in Pakistan. Arif’s scheme garnered over $11 million in revenues.
In affirming Arif’s sentence, the First Circuit rejected each of Arif’s arguments on appeal. Specifically, although Arif conditionally pled guilty to wire fraud in 2016, he argued that prosecutions such as his must be pursued exclusively by the Federal Trade Commission as false advertising cases, and not by the Department of Justice as wire fraud cases. The First Circuit rejected this argument squarely. Arif also argued that he could not have committed fraud as a matter of law because he “held an honest and sincere belief in the efficacy of his products [and] correctly identified their ingredients,” and that a purchaser of “reasonable prudence” would have known not to rely on the statements made on his websites due to a disclaimer on the third-party payment processor’s website. These arguments similarly failed, and the First Circuit held that “Arif’s belief in the efficacy of his products does not negate his fraudulent intent when he knowingly made false statements that went to the heart of his customer’s purchases” and “[customer] reliance is not an element of wire fraud.”
Takeaway: False advertising online may carry stiff penalties and even jail time; extreme cases may draw the ire of the Department of Justice as well as the Federal Trade Commission. Moreover, mere belief in the efficacy of the falsely-advertised products and a disclaimer will not protect online false advertisers from liability.