Scary LEGAL Issues You NEED to Know About

By: Clayton Makepeace

• 3 Golden Rules for avoiding most legal nightmares …
• 4 MORE secrets for KEEPING the millions you’re going to make as a savvy business owner, marketing exec or copywriter …
• And MORE!

Dear Business-Builder,

One year before 9/11 – almost to the day – I was cooling my heels on the 86th floor of Manhattan’s World Trade Center, waiting to be grilled by a team of government investigators and wondering how IN THE HELL I’d ever wound up there …

I flashed back to the moment, two years earlier, when a FedEx truck had rolled up to my office and disgorged an innocent-looking box. Inside the box, I found a bunch of investment newsletters written by a guy I’d never heard of – and a letter from my agent asking me to “take a look.”

As I read the first issue, I felt like somebody had just poured ice water down the front of my shorts. What the editor was saying shocked me … chilled me – and ultimately, electrified me!

This guy was saying truly outrageous things about President Clinton’s past and making extreme, negative predictions about the future of the economy and the stock market.

In short, his audacious, uniquely powerful message was in stark contrast to the Pollyanna pabulum I was seeing from other financial publishers.

The fact that I disagreed with most of the editor’s views was immaterial to me at the time. If ad agencies and copywriters only worked with clients and media whose opinions we agree with, there wouldn’t BE any ad agencies or copywriters!

To me, the editor was simply …

• A U.S. citizen, expressing his (admittedly outrageous) opinions, and …
• An American businessman, attempting to attract new customers.

Now I feel it’s only fair to remind you: I did NOT graduate Harvard Law School – or any other attorney assembly line for that matter.

… But I am a proud graduate of McKinley Elementary School in Tremonton Utah. And when Mr. Walden tested my sixth-grade class on the U.S. Bill of Rights and Constitution back in 1962, I passed with flying colors (OK – so maybe it was just a “C+”).

I distinctly remember those dusty documents saying – and I’m quoting from memory here …

“We the people say it is O.K.
to speak your mind and make money.”

Besides: It seemed clear that, crazy or not, the editor passionately believed what he was saying. Plus, I knew that thousands of investors did share his views. And his copious use of facts, figures and quotes from well-respected outside sources helped make his views seem at least plausible to thousands more.

Finally, I did the math: This guy’s unique (and uniquely entertaining) views … plus powerful sales copy … equaled huge promotional potential for him – and six- or maybe even seven-figure royalty potential for me.

So I called my agent and asked if the publisher was reputable. Did he deliver what he promised? I was assured that he was and he did. The prospective client worked with several other reputable copywriters, printers and mail list companies – and as far as my agent could tell, was on the up-and-up.

Anyways, I accepted the job.

I wrote a promotion or two for the guy … they mailed well … he paid me promptly … and I banked some VERY healthy royalties.  It was immediately clear that this client was probably going to be a $1 million-a-year cash cow for me.

It wasn’t long, though, until word got ‘round that I had written the client’s control.  Suddenly, people I respected were calling, positively mortified that I was working with this guy.

According to them, the editor was a convicted felon on the lam from federal authorities.  And not only that, his partners were as crooked as a dog’s hind leg, too.

“He’s not delivering the newsletters you’re selling,” they said, “nor is he paying refunds to dissatisfied subscribers.  And what’s more, the track record he gave you is a complete fabrication.”

You could have knocked me over with a feather.

I’d worked with scores of clients in my nearly three decades in the direct response biz. Until then, only ONE of them had proven to be a skunk – and even he gave me the straight poop on his investment track record and paid refunds promptly.

He delivered products to his customers too – as it turned out, much poorer quality products than I had been led to believe (hence the “skunk” part) – but at least he delivered something! (When I learned the skunk was cheating his customers, I resigned the account. Within a year, I heard he’d been nailed for his sins, had set up housekeeping with a cellmate named Bubba at a federal correctional facility, and would be getting his mail there for the next decade or so.)

Now, as I digested the horrifying news about this new client, I suddenly felt … well, dirty, somehow – like I needed to take a long, hot shower and scrub my entire body with #40 grit sandpaper.

My Momma raised me better than to be party to a scam. If she had ever caught me hanging out with such unsavory characters, she would have said, “Birds of a feather flock together,” – and proceeded to give me the thrashing of my life.

So, thanks to Mom, I didn’t even have to think about what to do next. I promptly bailed – and by doing so, walked away from the millions I would have surely made with the client.

Then, one fine August day in 2000, my phone rang again. This time it was a nice lady from the Commodity Futures Trading Commission (CFTC) – the federal agency charged with the responsibility of skewering anyone who breaks the law while selling futures or futures options.

The nice lady politely asked me if I would be so kind as to …

1. Send her every communication I’d ever had with the client …
2. Send her everything I had ever written for the client …
3. “Visit” her in New York to tell her everything I knew about the client.

Again – I am NOT a lawyer – but I do know one thing: When an investigator at a government agency “invites” you to pay him or her a visit, it’s not really an invitation. It is an order.

One way or another, you are going to talk to them. Your only choice is whether the record shows you did so voluntarily or only after some guy with a badge and a gun shoved a subpoena into your face.

And so, I was nice right back at her. “Sure,” I said, and we settled on a date.

Then, I speed-dialed a famous New York lawyer who specializes in such things and asked him to walk me through what I was positive would be more of a “grilling” than a “visit.”

Don’t shoot ME; I’m just the copywriter!

And so there I was that September day in 2000, in a windowless room at the World Trade Center, awaiting my turn on the CFTC’s spit. Long story short, it went OK.

I swore to tell the truth, the whole truth and nothing but the truth, so help me, Buddha. I told them everything I knew about the client (not much, as it turned out) and they let me go sans-handcuffs. I haven’t heard a peep from the CFTC, or any other regulator for that matter, in the five years since.

Besides the thirty-thousand smackers my lawyer and travel expenses cost me – and the month of writer’s block and lost productivity I suffered while waiting to give my deposition – there were no permanent scars.

And frankly, I had re-learned a valuable lesson: Uncompromising personal ethics, plus a working knowledge of the legalities involved with marketing and strict adherence to those laws – and, of course, the phone number of a great attorney – are absolutely essential to succeed over the long haul in any business today – especially this one.

99.99% of all direct marketers are honest, good people.

When someone suggests that direct response marketing is a sleazy business, I have to resist the urge to slap ‘em. In fact, the only reason I don’t brain these cynics is that I, for one, find physical abuse of the mentally retarded morally reprehensible.

The God’s truth is, the vast majority of the companies in this industry – and certainly every client I have ever had a long-term relationship with – provide quality products at fair prices and in doing so, bring tremendous value to their customers’ lives.

Yes, there are some bad apples:

• Insurance sharks that push children’s burial insurance policies to guilt-ridden parents and whole-life policies to addled seniors …
• Bankers who sell “low-interest” credit cards that whack you for up to 30% the second you’re even one day late paying ANY bill …
• Drug company fat cats who send lavish mailers to doctors touting stuff they know will kill thousands just to make a quick buck (Thalidomide, Tambocor, Fen-Phen & Redux and Vioxx) …
• “Natural” quacks who claim their non-prescription remedies will make you skinny, erase your bald spot and make your wilting willy snap to attention …
• Congressional candidates and other politicians who fill your mailbox with fundraising appeals promising you the world if you’ll only donate and vote – but never deliver (Why can’t you ever find an FTC cop when you REALLY need one???) …

Every one of these scam artists should be rounded up … liberally doused with Chanel No. 5 … shoved into a very small cell with a very large, very lonely Bubba … and have the door locked behind him.

And it should be done NOW – before he sullies the reputation of honest direct response companies any further, and certainly before he has the chance to reproduce!

But the fact is, these kinds of shameless swindlers represent only a tiny minority of the massive direct marketing community. And to those of us in the biz, it’s easy to avoid them.

Anyone with an IQ as large as my shoe size (I wear size 11 – and according to the psychiatric textbooks, an IQ of 11 is about one-fifth of what you need to be officially classified a “Moron” and well within the official “Idiot” range) – can see them coming.

Their slick silk suits, greasy hair, implausible promises, shoddy products, outrageous prices and Congressional imprimaturs are a dead give-away.

Beyond avoiding these obvious scoundrels, I also follow three “Golden Rules” when working with clients …

More legal stuff you need to know

It would be wonderful if avoiding legal entanglements was as easy as following my 3 simple “Golden Rules.” Unfortunately, in today’s highly regulated, lawsuit-crazy world, it is not.

So here’s some more great advice designed to help save you a bundle and, hopefully, keep you out of hot water …

1. Memorize everything you see at http://www.ftc.gov/
– the U.S. Federal Trade Commission’s (FTC) home
on the World Wide Web.

The FTC is the arm of the U.S. government that sets the rules for all advertising, marketing and sales conducted in this country. In my experience anyway, they’re a pretty decent and reasonable bunch of guys and gals. They just want everybody – consumers and businesses alike – to get a fair shake.

They know that for the U.S. economy to be successful, consumers need to have a level of confidence in the advertising and marketing messages we send to them.

And, the FTC also knows that it’s important to protect consumers from ALMOST all of the scammers and scoundrels named above (I’ll let you guess the only kind of swindler on the above list that even the FTC leaves alone! Hint: They’re both headquartered in Washington D.C.).

And on balance, they also know that advertisers and marketers need to employ animated sales copy (they seem more concerned with content than tone) to produce effective sales campaigns.

For the most part, the FTC wants to make sure that you follow my 3 “Golden Rules” above. If you do, you’ll be miles ahead of the game – but you will NOT be home free.

There are other little wrinkles you need to be aware of – like the thing some folks call the “reasonable person” rule – and it goes beyond merely insisting that you tell the truth.

In a nutshell, it says that nothing in your sales message should – whether by omission of key facts or by the presentation of supposed product benefits – deceive, mislead or leave a reasonable prospect with a false impression.

In FTC parlance, ads that mislead are “deceptive” and in the FTC’s own words, certain elements undergird all deception cases …

“First, there must be a representation, omission or practice that is likely to mislead the consumer.

“Practices that have been found misleading or deceptive in specific cases include false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services without adequate disclosure, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations.

“Second, we examine the practice from the perspective of a consumer acting reasonably in the circumstances. If the representation or practice affects or is directed primarily to a particular group, the Commission examines reasonableness from the perspective of that group.

“Third, the representation, omission, or practice must be a “material” one. The basic question is whether the act or practice is likely to affect the consumer’s conduct or decision with regard to a product or service.

“If so, the practice is material, and consumer injury is likely, because consumers are likely to have chosen differently, but for the deception. In many instances, materiality, and hence injury, can be presumed from the nature of the practice. In other instances, evidence of materiality may be necessary.” – http://www.ftc.gov/bcp/policystmt/ad-decept.htm

In Plain English, I’m pretty sure that means as a business owner, marketing exec or copywriter, you are required to do more than simply tell the objective truth. You must also avoid giving your prospect a false impression about your product by omitting or failing to mention a key fact about it.

Unless you have a secret desire to spend a few years honeymooning with Bubba, I strongly recommend that you spend a few hours at:

http://www.ftc.gov/bcp/guides/guides.htm

That’s where the FTC keeps its “Plain English” guides for advertisers and marketers. I suggest you commit them to memory.

I also recommend that my clients have sales copy reviewed by an attorney who is steeped in FTC regulations and who stays current with the actions being taken against other marketers.

2. If another regulatory agency has jurisdiction
over the clients you serve or the products you sell,
study their regulations carefully!

While the FTC watches advertisers and marketers in nearly every industry, some types of businesses are also governed by their own sets of regulators.

If you or your client is selling stocks, mutual funds and other kinds of securities investments, for example, you’ll need to understand the ground rules set out by the Securities & Exchange Commission (http://www.sec.gov/) as well as the National Association of Securities Dealers (http://www.nasd.com/). [UPDATE: In 2007, the NASD merged with the New York Stock Exchange's regulation committee to form the Financial Industry Regulatory Authority, or FINRA.]

If you’re involved in the selling of commodity futures or futures options, you need to study the Commodity Futures Trading Commission’s site at http://www.cftc.gov/cftc/cftchome.htm.

And, if you sell nutritional supplements, you should study http://www.fda.gov/ for guidance in preparing your advertising and marketing materials.

If you don’t know which agency regulates the industry you’re working with, you can check out the list at the U.S. government’s web portal: http://firstgov.gov/Agencies/Federal/All_Agencies/index.shtml

3. Keep your legal antennae tuned!

It would be nice if the laws and regulations governing the advertising and marketing of products and services were black & white and carved in stone. Unfortunately, they are not – so it is absolutely crucial to make sure an attorney reviews sales copy before it is mailed and keeps you on top of both current and possible future shifts in the legal landscape.

Many years ago, for example, the SEC hauled a guy named Chris Lowe up on charges. He wasn’t selling regulated securities – just publishing a monthly investment advisory newsletter. Each month, he merely offered his opinion as to what the stock market would do next, and made a few recommendations.

The way Chris saw it, sharing his opinions and recommendations was protected speech under the First Amendment to the U.S. Constitution. And so, Chris happily, even blissfully ignored the SEC’s prohibitions against using testimonials, his track record and other credibility devices when promoting his newsletter.

Then, in a startling display of brilliant business judgment, Chris hired me to write a promotion package for him. I did, and then sent him my invoice for, as I remember, around $10,000.

The check bounced. Then, it bounced again. And again. So I got Chris on the line and said, “Golly gee, Chris, what the heck’s going on here?” – or words to that effect.

Seems the SEC had not appreciated being ignored … had promptly shut down Chris’ little publishing operation … hauled him up on charges … seized his bank account – and left me holding the bag for ten grand plus about $3,000 in bounced check charges. My first and only promotion for Chris Lowe never went very far: It didn’t even make it into graphics – let alone into the mail!

Chris, on the other hand, did go far – all the way to the Supreme Court. I once paid an SEC attorney $300 an hour to help me understand what happened next. According to him, the learned arguments went something like this:

CHRIS: “You can’t do this to me – I’m operating under the First Amendment here.”

SEC: “Are not.”

CHRIS: “Am too!”

SEC: “Are not!”

SUPREME COURT: “IS TOO!”

SEC: “Damn!”

And so, ever since the famous “Lowe Decision,” marketers of investment and financial information products have been pretty much free to operate under the far more liberal FTC guidelines (“Don’t lie, cheat, steal or mislead”) instead of worrying about the SEC’s prohibition on the use of testimonials, track record and other crucial selling tools.

Nevertheless, the SEC or CFTC still take a run at a financial publisher every few years, trying to expand their jurisdiction and powers. So if you’re writing for financial publishers, it’s important to pay attention. The rules could change.

Something similar happened with the FDA not too long ago. While allowing big drug companies to get away with murder – literally – the agency had taken to kicking down doors at the offices of doctors who prescribed supplements.

In the case of one doctor – a Harvard-educated M.D. named Jonathon Wright – FDA enforcers reportedly held nurses and patients at gunpoint while they confiscated his supply of vitamin B12, his medical files and computers, effectively putting him out of business.

And so in 1995, FDA regulators found themselves at the center of Congressional Hearings on FDA abuses, held by Congressman John Dingel (R-TX). The FDA boys got spanked pretty good and behaved themselves for a while. But like the SEC, the agency has not abandoned the quest to expand its power.

Most recently for example, the FDA endorsed something called the Codex Alimentarius (Latin for “nutrition code”) established by the World Health Organization (WHO).

Should CODEX become the law of the land in the U.S., all the rules about marketing supplements would change radically:

• It would be illegal to sell a vitamin, mineral, herb, or other nutritional product to help consumers avoid future health problems …
• It would be a crime to sell supplements that exceed potency (dosage) levels set by WHO …
• It would be against the law to market any new dietary supplement before it has passed through the CODEX approval process.

So again – keep your ear to the ground: The rules for marketing supplement products are constantly changing – and when they do, you do NOT want to be the last one to know!

4. Why experiment on animals
when there are so many LAWYERS?!

While following the 3 Golden Rules … getting a grasp on pertinent regulations … insisting on a legal review of sales copy … and staying on top of any changes are crucial, you’re still not home free.

Problem is, according to the American Bar Association, there are now more than ONE MILLION lawyers in the U.S. alone – about one for every 218 adults in America.

It only feels like most of them are in Congress or working for regulatory agencies. In fact, far more work in the private sector – and of these, hundreds of thousands are just praying you’ll screw up.

According to the American Tort Reform Association, lawyers wrangle about one-quarter of a trillion dollars out of the legal system every single year. And according to the U.S. House of Representatives, lawyers – not their clients – get 33% of that.

That’s … let’s see … carry the “1″ … a whopping $81 BILLION per year: Enough to send a check for $81,180 to each and every lawyer in the country! (http://www.atra.org/wrap/files.cgi/7963_howtortreform.html; http://www.house.gov/jec/tort/tort/tort.htm)

No wonder America has gone lawsuit happy! Just a few ridiculous recent examples I found at: http://www.snopes.com/legal/lawsuits.asp:

• January 2000: Kathleen Robertson of Austin Texas was awarded $780,000 after she tripped over a toddler who was running amuck inside a furniture store.THE OUT-OF-CONTROL KID WAS MS. ROBERTSON’S OWN SON!
• June 1998: 19-year-old Carl Truman of Los Angeles won $74,000 and medical expenses from a driver who ran over his hand.AT THE TIME OF THE ACCIDENT, MR. TRUMAN WAS STEALING THE DRIVER’S HUBCAP!
• October 1998: Terrence Dickson of Bristol Pennsylvania was awarded more than $500,000 when a faulty door opener trapped him inside a garage and forced him to subsist on Pepsi and dog food for 8 days.MR. DICKSON HAD BEEN ROBBING THE HOUSE BEFORE HE GOT TRAPPED IN THE GARAGE!

Okay, I’ll come clean.  Those lawsuits aren’t real.  But with access to a news database and a few minutes to spare, you can easily find real lawsuits of equal stupidity.

The fact is, anyone can sue you at any time and for any reason. And even if you win, the suit is going to cost you tens of thousands, perhaps hundreds of thousands of dollars.

Business owners can buy insurance for this kind of thing – and most probably should. If you’re a copywriter or a marketing consultant, consider adding the following to your contracts:

1. A clause that says your client takes full responsibility for determining the accuracy, legality and regulatory compliance of all statements in the copy before it is used …
2. A “Hold Harmless” clause that says if your client is sued for any reason, he can’t turn around and sue YOU, and …
3. An “Indemnification” clause that says if YOU are named as a party in any regulatory or legal action against your client, he will reimburse you for any legal fees or awards assessed against you.

Pretty scary stuff …
but absolutely CRUCIAL to your success!

As you can see, it’s one thing to make big money as a business owner, marketing exec or copywriter. HOLDING ON to the money you make is another matter entirely!

So follow the 3 Golden Rules … follow your regulatory guidelines … get a lawyer’s help when appropriate … and CYA with contract provisions that protect you when the worst happens … and you have a good shot at both getting rich and staying that way.

Hope this helps …

Yours for Bigger Winners, More Often,

Clayton Makepeace
Publisher & Editor
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