The Evolution (Supplements) of TGA penalties
We review the Federal Court’s decision to impose the largest ever fine for unlawfully advertising products containing therapeutic substances
- In July 2021, the Federal Court of Australia ordered Evolution Supplements Australia Pty Ltd (Evolution Supplements) to pay penalties of $11 million for unlawfully advertising products containing therapeutic substances.
- In addition, Evolution Supplements’ Director, Cumhur Keskin, was ordered to pay a penalty of $1 million for failing to comply with an advertising direction issued by the Therapeutic Goods Administration (TGA) and failing to prevent Evolution Supplements’ breaches.
- The penalties were the largest penalties imposed by the Federal Court for contraventions of the Therapeutic Goods Act 1989 (Cth) (TG Act).
In March 2020, the Secretary of the Department of Health (Secretary) commenced proceedings against Evolution Supplements and Mr Keskin following an investigation by TGA in response to an advertising complaint.
The investigation and proceedings related to advertisements for therapeutic goods which were not included in the Australian Register of Therapeutic Goods (ARTG) and for goods containing scheduled poisons, including Schedule 4 substances and Schedule 10 substances.
Schedule 4 substances are those which can only be supplied on a prescription, while Schedule 10 substances are considered to be of such danger to health, that their sale is prohibited.
Selective Androgen Receptor Modulators (SARMs), advertised on websites operated by Evolution Supplements, had not been approved for human use and were therefore not registered on the ARTG. The use of SARMs has been linked to liver failure and an increased risk of heart attack and stroke.
Relevantly, the advertisements had appeared on Evolution Supplements’ website from at least 31 January 2019. Following an exchange of correspondence between representatives of the Secretary and Mr Keskin, including formal directions under the Therapeutic Goods Act 1989 (Cth) issued on 23 January 2019 and 4 October 2019, Mr Keskin’s representatives indicated that he ‘was willing to comply 100% with the TGA on the products that need to be removed’. However, an email dated 23 October 2019 from the email address email@example.com was pleaded to have been sent to Evolution Supplements’ email subscribers, stating that SARMs would only be available online from 8.00pm until 4.00am. From that date, certain of the offending advertisements continued to appear on Evolution Supplements’ website, but only ‘after hours’.
February 2021 findings
Neither Evolution Supplements nor Mr Keskin appeared in the proceedings brought by the Secretary. In February 2021, based on the Secretary’s submissions, the Court was willing to grant declarations that each of Evolution Supplements and Mr Keskin had contravened provisions of the TG Act. The Court was willing to do so on the basis of deemed admissions arising from the failure of Evolution Supplements and Mr Keskin to take part in the proceedings.
Further, the Court made orders restraining Evolution Supplements from advertising products containing substances which were not, but should be, registered on the ARTG, and from advertising products containing Schedule 4 substances.
The question of what quantum of penalties, if any, should be applied for such contraventions was reserved for further hearing.
How many billion?
The further hearing on the quantum of penalties was held in June 2021 and again neither Evolution Supplements nor Mr Keskin appeared.
In evidence at the penalty hearing was financial information obtained from Commonwealth Bank of Australia, Afterpay, Zipmoney and eWay. The Secretary obtained such evidence pursuant to s 42YE of the TG Act, which allows the Secretary to require third parties to provide information on suspected contraventions of the civil penalty provisions of the TG Act.
The financial information disclosed deposits of more than $1.2 million during the period from January to September 2019, which, the Secretary submitted, inferred that the scale of Evolution Supplements’ business at this time was substantial.
At the penalty hearing, the Secretary submitted that:
- each day on which each of the impugned advertisements appeared on the website was to be considered a separate contravention of the s 42DLB(1) of the TG Act, and by the Secretary’s calculations, there were a total of 13,103 contraventions
- the maximum penalty for each contravention of s 42DLB(1) of the TG Act is 50,000 penalty units
- at the relevant time, a penalty unit was equal to $210 and, accordingly, the maximum penalty for each contravention was $10,500,000
- the maximum pecuniary penalty for the contraventions of s 42DLB(1) of the TG Act was therefore over $137 billion.
The Secretary further submitted that:
- each day on which Mr Keskin failed to take reasonable steps to prevent Evolution Supplements contraventions is considered a separate contravention of s 54B(3) of the TG Act and there were 362 days of such failure, and thus 362 contraventions of this section
- each day that Mr Keskin failed to comply with the direction from the Secretary constituted a separate contravention of s 42DX of the TG Act and there were 396 days of such failure, and thus 396 contraventions of this section
- in total the maximum pecuniary penalty for the 758 contraventions was $795 million.
Despite the maximum penalties that could be applied, the Secretary submitted that there were in effect 8 courses of conduct for which the appropriate total penalty for Evolution Supplements should be in the range of $15 million to $25 million.
For Mr Keskin, the Secretary submitted that, having regard to totality and deterrence the appropriate range of penalties was $875,000 to $1.4 million.
Ultimately, following a process of ‘instinctive synthesis’ and based on all relevant factors, the Court determined that the appropriate penalties were:
- $11 million payable by Evolution Supplements
- $1 million payable by Mr Keskin
with both parties ordered to pay the Secretary’s costs of the proceedings.
While these penalties were (significantly) less than $137 billion, they are still the largest penalties imposed by a Court for contraventions of the TG Act.
As is clear, the conduct of Evolution Supplements and its director was aggravated and conduct of the most serious kind. Perhaps most illuminating (and the basis for the penalties of this magnitude) is the financial information the TGA was able to access and interrogate from bankers and other parties involved in the ecommerce platform supporting the business.
The significant pecuniary penalty imposed on Mr Keskin also serves as a valuable reminder of the obligations on directors and management to take reasonable steps to prevent contraventions of the TG Act.
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