"The Federal Trade Commission views it as a very favorable settlement with very strong injunctive relief and monetary relief," said Laureen Kapin of the FTC's enforcement division.
Basic Research pointed out that it did not admit any wrongdoing, but agreed to pay the commission to bring the litigation to an end.
"You're going to pay that money, so the intelligent thing, in our opinion, was to use it to buy peace with the FTC rather than pay lawyers to litigate into the indefinite future," said Richard Burbidge, an attorney for Basic Research. "At the end of the day, the company wants to work cooperatively with the FTC. It's proud of its products and wants to go forward avoiding any kind of contention or conflict."
Such actions by the FTC are not unheard of: The commission told Congress in March that it had filed complaints against 14 companies in the previous year and 100 over the decade.
However, the $3 million payment is substantially larger than settlements in most of the FTC's false claims cases.
In June 2004, the FTC alleged that Basic Research and other affiliated companies made misleading claims about three gels - Tummy Flattening Gel, Cutting Gel and Dermalin APg - that the company said could be rubbed on to melt away fat.
Two pill supplements, Leptoprin and Anorex, were marketed by the company for dieters who wanted to shed more than 20 pounds. And PediaLean, a fiber pill, was billed as causing substantial weight loss for children.
In each case, the FTC questioned the scientific backing for the claims, and also said the company misrepresented Daniel Mowrey, who was cited as an expert in some ads, as a medical doctor.
The advertisements ran on television, in magazines, tabloids and on the Internet.
Between 2000 and 2004, Basic Research sold nearly $66 million worth of the six products, with Leptoprin being by far its best seller, bringing in nearly $25 million in 2003 alone.
Burbidge said the company has stopped marketing all of the products. Basic Research also agreed to dismiss a lawsuit filed against the commission as part of the settlement.
The key to the settlement, Burbidge said, is that FTC has given the company specific guidance on what type of scientific support it expects from supplement makers. The disagreement stemmed from uncertainty on that issue, he said.
The settlement says that the FTC requires tests, studies or evidence "based on the expertise of professionals in the relevant area" conducted and evaluated objectively by qualified individuals and yielding reliable results.
Under the Dietary Supplement Health and Education Act, crafted by Utah Sen. Orrin Hatch in 1994, companies can make wide-ranging claims about herbal supplements, as long as they don't make blatantly false claims or purport to cure a specific illness.
The industry has exploded, particularly in Utah. The supplement industry had an estimated $20.3 billion in sales in 2005, according to industry figures cited by C. Lee Peeler, deputy director for the FTC's Bureau of Consumer Protection, in congressional testimony.
The FTC action was initiated just as the heads of Basic Research were summoned before a House subcommittee and grilled about their claims. The chairman of the subcommittee, Rep. James Greenwood, R-Pa., who called the Basic Research executives "scam artists," later left Congress to head a biotechnology industry group.