Dec 15, 2010 11:00 AM PST    Text size: 

The 6th U.S. Circuit Court of Appeals decision also has broad ramifications over government probes involving accessing emails stored by ISPs.

A three-judge panel of the 6th Circuit vacated sentence and forfeiture orders against Steven Warshak, who was convicted in 2008 on 93 counts of conspiracy, fraud and money laundering.

But the court upheld his criminal conviction and the case has been remanded to the lower court for resentencing.

Warshak's troubles with the government go back nearly four years ago, when the FBI, U.S. Postal Service and the FTC took a microscope at the company's product and operations.

Federal prosecutors accused Berkeley of swindling customers out of $411 million with deceptive ads, manipulating credit card transactions and refusing to accept returns or cancel orders.

In early 2008, he was convicted and was sentenced to 25 years in prison and fines in excess of $45 million.

But on appeal the 6th Circuit said the lower court "did little to explain how it arrived at $411 million as the amount of loss, other than to suggest that the figure represented Berkeley's net sales."

The crux of the "complex and voluminous" case focused on the whether the government violated the 4th Amendment rights of Steven Warshak by compelling his ISP to turn over about 27,000 of his emails without first obtaining a warrant.

Tuesday's ruling by the 6th Circuit said that the government indeed violated Steven Warshak's rights and struck down part of the Stored Communications Act, a 1986 law that allows the government to secretly obtain emails through an administrative subpoena if they have been stored for 180 days or more with ISPs.

“The 4th Amendment must keep pace with the inexorable march of technological progress, or its guarantees will wither and perish,” the court said.

“The police may not storm the post office and intercept a letter, and they are likewise forbidden from using the phone system to make a clandestine recording of a telephone call — unless they get a warrant, that is,” the court said.

“It only stands to reason that, if government agents compel an ISP to surrender the contents of a subscriber's emails, those agents have thereby conducted a 4th Amendment search, which necessitates compliance with the warrant requirement."

The 6th Circuit, however, refused to bar the emails as evidence under the exclusionary rule because government agents obtained them in good faith.

Enzyte, Berkeley's flagship product that purported to increase the size of a man’s erection, was launched in late 2001.

By 2004, demand for Berkeley’s products had grown so dramatically that the company employed 1,500 people and its call center remained open throughout the night, taking orders at breakneck speed.

Berkeley’s line of supplements also expanded, ballooning from approximately four products to around 13. By year’s end, Berkeley’s annual sales topped out at around $250 million, largely on the strength of Enzyte.

The popularity of Enzyte appears to have been due in large part to Berkeley’s aggressive advertising campaigns. The vast majority of the advertising — approximately 98 percent — was conducted through television spots. In 2004, network television was saturated with Enzyte advertisements featuring a character called “Smilin’ Bob,” whose trademark exaggerated smile was presumably the result of Enzyte’s efficacy.

The “Smilin’ Bob” commercials were rife with innuendo and implied that users of Enzyte would become the envy of the neighborhood.

But later Enzyte's claims started to unravel, prosecutors said. According to ads, “Enzyte was developed by Dr. Fredrick Thomkins, a physician with a biology degree from Stanford and Dr. Michael Moore, a leading urologist from Harvard.”

The ads also stated that the doctors had collaborated for 13 years in developing a supplement designed to “stretch and elongate.” In reality, the doctors were just as fictitious as “Smilin’ Bob.” Prosecutors who contacted Stanford and Harvard learned that neither man existed.

The appeals court on Tuesday also reversed the convictions of Warshak's mother, Harriet Warshak, on conspiracy to commit money laundering and money laundering, saying the "evidence was insufficient" and set aside her two-year sentence.

But the court upheld Harriet Warshak's convictions for conspiracy to commit mail, wire and bank fraud and bank fraud. She handled the company's credit card operation.