Published November 20, 2013
Craig Zucker believes he had a "great American success story" until federal regulators shut him down for speaking up, and now the entrepreneur is fighting back.
Scraping together $2,000 with a partner, Zucker in 2009 began importing small, high-powered magnets from China. Dubbed "Buckyballs," the BB-sized magnets could form all kinds of shapes and quickly became a hot seller. A year of trade shows, blog posts and word of mouth brought sales to $10 million, and Zucker projected more than doubling that by 2012. With his product in 1,500 stores, the 34-year-old Zucker was living his entrepreneurial dream.
"It was the great American success story," Zucker recalled.
But then the complaints started coming in. The U.S. Consumer Product Safety Commission warned that small children -- younger than the "14 and over" age group Zucker was targeting -- could swallow these powerful magnets, then pull them against their stomach walls with other Buckyballs. They were a danger, the agency declared. In fact, from 2009 to 2011, the CPSC says some 1,700 children have been hospitalized after ingesting Buckyballs or similar, high-powered magnets.
Zucker says he worked vigorously with the agency and had five warning labels on the product. Maxfield & Oberton, Zucker's company, complied when the agency sought a recall in 2010, asking to adjust the warning label on the product. But in 2012, the agency sought a "stronger recall of the product."
"Essentially, it was a declaration that we were going out of business," Zucker said.
The commission was on the brink of outlawing products that it not only approved, but even helped create the warning labels for, Zucker told FoxNews.com. He said the CPSC was adamant about the product recall, asked stores to stop selling them and did not listen to any recommendations from Maxfield & Oberton to assuage the agency's safety concern.
The agency filed an administrative lawsuit hours after receiving his company's recommendation, he said.
With his million-dollar company belly-up for a product he still believes is safe, Zucker lashed out against what he considered government overreach. He took out online ads lampooning the nanny-state regulatory mentality.
"Coconuts: tasty fruit or deadly sky ballistic?" read one. "Stairways: are they really worth the risk?"
He challenged commission officials to debates, and invited consumers to call CPSC Commissioner Inez Tenenbaum's "psychic hotline" to find out how it was that "the vote to sue our company was presented to the Commissioners on July 23, a day before our Corrective Action Plan was to be submitted."
Zucker's company was one of a dozen selling high-powered magnets that faced sanctions from the commission, but it was the only one of three named in the suit that voluntarily went out of business. And now, Zucker is the only individual being pursued personally for a financial judgment that could top $50 million to pay for the recall. Zucker believes it is because he taunted his regulatory tormentors.
"They are making it out to be a sin to talk about the government agency," said Zucker's lawyer, Reed Rubinstein, who is serving as counsel to Cause of Action. "There are no allegations here that he did anything wrong. He simply pushed back."
Rubinstein filed a lawsuit on behalf of Zucker asking the U.S. District Court in Maryland to prevent the agency from seeking damages from Zucker's own bank account under the rarely used Park doctrine, which protects principals behind limited liability corporations. The attorney said the commission's decision to go after Zucker personally puts every entrepreneur at risk and threatens the limited liability for owners. Zucker is raising funds for his defense by selling "Liberty Balls."
One commissioner agreed, though she was outvoted 3-1. Nancy Nord, the former interim commissioner of the CPSC who says she has a set of Buckyballs on her desk, wrote an opinion piece in The Wall Street Journal and said the agency crossed the line between safety regulation and overreach in this case.
"Rather than work with Maxfield & Oberton to address the issue of children being injured by an adult product, the agency demanded an immediate recall," Nord writes. "When the company asked the agency to reconsider, the CPSC filed a lawsuit alleging that the product was defective because unintended users were misusing the product and suffering injuries. Instead of seeking an injunction against the sale of Buckyballs while the agency pursued its case, which the law allows, the agency approached retailers with an informal "request" that Buckyballs be removed from store shelves."
CPSC spokesman Scott Wolfson said the agency's goal is to keep a dangerous product from children, not to punish companies. He said the agency had worked with Zucker's company in the past and was hoping to work with the company on new safety concerns.
"The decision to file the lawsuit was not done in haste," Wolfson said. "Most times with recalls, companies will comply."
Wolfson said it was Zucker's decision to dissolve the company. He said other high-powered magnet companies decided to either comply to the recall demand or face the lawsuit.
Shihan Qu, the founder of Zen Magnets, which was also listed on the suit, called the CPSC's actions a "witch hunt" and an attempt for the agency to expand its powers. Qu finds himself in the unusual position of defending a competitor against a government agency.
"What's the old saying? 'An enemy of an enemy is a friend,'" he said, pointing out that his company is still selling magnets during the legal process. "The agency is gambling to expand their power. This is how all power is gained. The CPSC is canceling our product on pre-evidence."
David Japha, a lawyer for Star Networks USA and Zen Magnets, the two companies listed in the CPSC lawsuit, would not comment on Zucker's case, but he said the CPSC seems to simply "want a pound of flesh."
"Everything you have in your house can be used for the wrong purpose," Japha said. "The purpose of a corporate entity is to protect the individual."