Berkeley Chief, Employees Indicted on Criminal Charges

CINCINNATI—The marketers behind “Smiling Bob” and Enzyte aren’t smiling now, as a federal grand jury indicted the owner of Berkley Nutraceuticals, Steve Warshak, along with five of his employees—including his mother—and TCI Media Co. for 112 counts of fraud and money laundering.Warshak faces up to 30 years or more in prison if the court finds he defrauded $100 million from his customers. While three of the charges carry a maximum 30 years in prison, such sentences would normally be served concurrently.

Earlier this year, Warshak and other Berkley defendants reached a settlement in the Federal Trade Commission (FTC) case concerning Berkley billing customers’ credit cards as a part of a 30-day “free trial” program. As part of that settlement, Berkeley and Warshak agreed to pay $2.5 million to numerous states, but they admitted to no wrongdoing. Five of the company’s executives pled guilty back in March to fraud, handing over various money and assets gained from the profits, and cooperating with the government in the cases against the remaining defendants.

According to the indictment, Warshak was swimming in profits from billing customers for products they didn’t want, so he funneled $25 million from Berkeley accounts to those controlled by him and his family. The government has frozen those assets.

“When an individual has a large amount of illegal income, they have to have a way to hide the income and to make it appear to be legitimate by moving it through nominee accounts and shell companies,” said Cromwell Handy, agent in charge of the Internal Revenue Service (IRS) criminal investigation division office in Cincinnati.

For the most part, the defendants have all voiced their innocence. “For 33 months, Berkeley Premium Nutraceuticals and its owner, Steve Warshak, have been the subject of a relentless investigation that features secret warrants and unconstitutional seizures of their e-mails without any court finding of probable cause,” said Warshak’s lawyers, Martin Pinales of Cincinnati and Martin Weinberg of Boston, in a statement. “As a result of the indictment, for the first time, [they] will have their opportunity to demonstrate, in a courtroom, before this community, that they are being falsely accused of crimes they did not commit and that they are not only presumed innocent, but are actually innocent of the charges.”

U.S. Attorney Gregory Lockhart said false claims were standard business at Berkeley, which he said fabricated advertised “studies” boasting of an average 24-percent increase in erect penis size among users of its Enzyte product. He said the company also made up the doctors endorsing Berkeley products, as well as Michael Johnson, who was identified in shipping correspondence as its director of customer care.

Lockhart assured the government is not trying to put Berkeley out of business, just stop any illegal or inappropriate practices. “Whether this particular company would continue in business may just be a business decision they would have to make,” he said.

Recent full-page advertisements placed by Berkeley in Cincinnati media assured customers and the public that the programs and accounting leading to the lawsuits and federal cases are in the past, as the company has invested heavily in improving its customer service, marketing and products.