Steven Warshak did more than lie to banks, hide his money and mislead thousands of customers who bought his “male enhancement” pills, a federal judge said Wednesday.
He also dragged his family and friends through a legal mess that left many of them broke and, in some cases, on their way to prison.
The judge said it’s a tragedy caused by Warshak’s ego and greed.
“Not only is Steve Warshak corrupt, but he corrupted members of his family and good people who worked for him,” U.S. District Judge S. Arthur Spiegel said. “He gambled with their lives. Steve Warshak was blinded by his arrogance.”
Spiegel then sentenced Warshak to 25 years in prison and ordered him, his company and some members of his family to repay more than $500 million.
The judge also sentenced Warshak’s ailing, 75-year-old mother, Harriet Warshak, to two years in prison, but he agreed to let her remain free pending her appeal because of serious medical problems.
The sentences are the culmination of a federal investigation into Warshak and his company, Berkeley Premium Nutraceuticals, that lasted at least four years and resulted in criminal charges against about a dozen employees and associates.
Most of the charges related to the sale of Enzyte, an herbal supplement that promised to boost men’s sexual performance. Enzyte, by far the company’s most popular product, was marketed on TV in ads featuring a grinning character known as Smilin’ Bob.
Prosecutors said the slick ads masked a criminal enterprise that involved false advertising, fraudulent bank documents, hidden profits and unauthorized charges on customer credit cards.
The key to the scheme was Berkeley’s “continuity program,” which automatically charged additional orders of Enzyte to credit cards each month. The program was not fully disclosed in ads, and customers who complained were given the run-around or referred to a “quality control” officer who did not exist.
“This scheme permeated the entire operation of this company,” said Assistant U.S. Attorney Anne Porter.
A federal jury agreed earlier this year when it convicted Warshak and several others of conspiracy to commit bank, wire and mail fraud, as well as multiple counts of money laundering.
Warshak, who has denied wrongdoing and is appealing his conviction, apologized Wednesday for the financial and emotional cost the case has exacted on his friends, family and employees. He said he ultimately is responsible for any mistakes the company made.
“I apologize to the employees of Berkeley,” Warshak said. “I let them down. I should have been a better leader. I should have been a stronger leader. I should have made better decisions.”
Warshak, who is married and has four children, has lost several homes, cars and other property to government seizures related to his conviction. A Cincinnati native, he said he recently moved his family to Northern Kentucky so they could be closer to relatives while he is in prison.
“He has, in many respects, been punished already,” said Warshak’s lawyer, Martin Weinberg. “He’s lost all his money. He’s lost his homes.”
Spiegel interrupted Weinberg to point out that Warshak is not alone: “A lot of other people have lost, too,” the judge said.
Spiegel said it’s difficult to calculate the total loss because most of the money came in relatively small increments – sometimes less than $100 – and involved tens of thousands of customers. He said many customers were charged for several months against their will, but they did not complain because of embarrassment.
“Steve Warshak acted on greed and preyed on the insecurities and perceived sexual inadequacies of his customers,” Spiegel said.
Warshak had argued the company’s problems were caused by its stunning growth in 2001 and 2002, rather than criminal intent. He said mail orders for Enzyte and other herbal supplements poured in so fast employees were unable to keep up with demand or to respond to customer complaints.
Prosecutors, however, said Warshak produced bogus studies showing the effectiveness of Enzyte and e-mails he sent to employees urging them to keep charging customer credit cards through the continuity program.
“The defense said all the problems were the result of the rapid growth of the company,” Spiegel said. “The jury did not buy it, and this court did not buy it.”
The fate of Berkeley, which is still open and selling supplements, remains in doubt because of the steep forfeiture order Spiegel approved Wednesday.
But the judge said he would not immediately seize all of the company’s assets in hopes it could continue to operate legally.
He has appointed a monitor to ensure the company operates as a legitimate business and that its assets are handled appropriately.
Several other Berkeley employees, including those who cooperated with authorities, will be sentenced today and Friday.
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