Regulatory compliance isn't just about avoiding fines—it's about protecting your business, your customers, and your reputation. When companies cut corners on compliance, they risk financial disaster, legal trouble, and even criminal charges.
One of the most extreme cases of non-compliance in recent history involved Steven Warshak, the founder of Berkeley Premium Nutraceuticals, a Cincinnati-based supplement company best known for selling Enzyte, a so-called “natural male enhancement” pill. His aggressive marketing tactics and disregard for consumer protection laws led to a massive federal investigation, a high-profile criminal trial, and a 10-year prison sentence.
His story serves as a stark warning for business owners in all industries—especially those handling sensitive customer transactions, data, and financial processes.
Like many companies using “free trial” offers, Berkeley Premium Nutraceuticals automatically enrolled customers in recurring billing plans. Customers who signed up for a free sample often found themselves locked into ongoing charges that were difficult, if not impossible, to cancel.
As complaints mounted, banks and credit card companies flagged the company due to an abnormally high number of chargebacks. This put Berkeley Premium Nutraceuticals on the radar of regulators, leading to an extensive investigation by the Federal Trade Commission (FTC) and federal prosecutors.
The consequences were severe. The FTC successfully shut down Berkeley Premium Nutraceuticals, and in 2008, Warshak was convicted on multiple counts of fraud. He was originally sentenced to 25 years in prison, later reduced to 10 years. He was released in 2017, but his company, fortune, and reputation were permanently destroyed.
Warshak’s downfall wasn’t just a result of bad luck—it was the inevitable consequence of ignoring regulatory compliance. Here’s what every business leader should take away from this case:
Customers have a right to know exactly what they’re signing up for. If your business relies on automatic billing, subscription models, or complex terms, clear disclosures are non-negotiable. The FTC actively enforces laws against deceptive practices, and non-compliance can lead to lawsuits, hefty fines, or worse.
A high rate of chargebacks signals that customers feel misled or overcharged. This doesn’t just hurt your ability to process payments—it raises red flags for banks, payment processors, and regulators. Businesses with high chargeback rates are often classified as “high-risk,” leading to frozen accounts, increased fees, or being blacklisted by major financial institutions.
Fraudulent billing practices aren’t just an FTC issue—they can also trigger criminal investigations for wire fraud and money laundering. Ensuring your payment systems are compliant with industry regulations like PCI DSS (Payment Card Industry Data Security Standard) is essential to avoiding legal trouble.
Many companies assume they’re too small for regulators to care about. But agencies like the FTC, SEC, and DOJ regularly investigate businesses of all sizes—especially in industries prone to consumer complaints, such as financial services, healthcare, and e-commerce.
Warshak’s case proves that executives can be held personally liable for regulatory violations. Ignorance is not a defense. Business owners and executives must stay informed about compliance requirements and ensure their teams follow the law.
Steven Warshak’s downfall is a cautionary tale about the dangers of prioritizing short-term profit over regulatory compliance. While his company’s marketing tactics may have been effective at driving sales, they ultimately led to criminal charges, financial ruin, and years behind bars.
At Bawn, we help businesses navigate complex compliance landscapes, ensuring they operate ethically and securely. Whether you’re dealing with data protection, payment security, or industry regulations, we provide expert guidance to keep you on the right side of the law—while protecting your customers and your bottom line.
Don’t let compliance be an afterthought. If your company needs guidance on security and regulatory risk, reach out to Bawn today.