FTC Commissioner Wants More Aggressive Penalties for Repeat Offenders
The Federal Trade Commission’s enforcement program is designed to ensure that defendants under court order for FTC Act violations do not become repeat offenders. Rohit Chopra, a Trump appointee to the Federal Trade Commission, wants the agency to take a more aggressive stance.
On May 11, 2018, Mr. Chopra issues an official statement declaring that “the credibility of law enforcement and regulatory agencies has been undermined by the real or perceived lax treatment of repeat offenders.” He states that “FTC orders are not suggestions.”
Chopra believes that, in recent years, the credibility of law enforcement and regulatory agencies has been undermined by the real or perceived lax treatment of repeat offenders. He cites numerous examples, including global financial institutions that pleaded guilty to felony charges related to a criminal conspiracy to manipulate exchange rates in the foreign currency exchange spot market, and HSBC’s admitted involvement in a money laundering scheme involving Colombian and Mexican drug cartels.
Chopra also discusses how FTC orders typically result from lengthy investigations and often litigation, and they reflect the considered judgment of agency staff as to how defendants can be brought into compliance with the laws that the agency enforces, while taking into account the relevant tradeoffs. To deter violations an retain credibility as law enforcers, according to Chopra, those that flout orders should face severe consequences — irrespective of whether they are small-time scammers or sophisticated corporations
Chopra believes that the Commission should carefully consider ways to build on its existing enforcement regime to make clear to market participants that orders are to be taken seriously. He states that “[f]or flagrant violators of district court orders, I believe the agency should consider contempt proceedings … And companies that violate administrative orders should face not only stepped-up injunctive relief but also meaningful civil penalties that vindicate the authority of the FTC.”
Chopra also believes that the “the FTC should hold individual executives accountable for order violations in which they participated, even if these individuals were not named in the original orders. This relief is expressly contemplated by Fed. R. Civ. P. 65(d), which provides that an injunction against a corporation binds its officers. And this relief is important, because it ensures that individual executives who control the operation of the firm — and not just shareholders — bear the costs of noncompliance.”
The Commissioner also wants the FTC to continue impose “fencing-in” requirements to prevent future harm to consumers, including bans on adjacent business practices, bond requirements and compliance reporting. Frequently, the agency seeks fencing-in relief against individual defendants, including lifetime occupational bans for recidivists. While these aggressive remedies are typically applied in fraud cases, Chopra calls for their application against repeat offender corporations and their executives.
The FTC should also consider seeking remedies that address the true causes of noncompliance, states Chopra. “Diagnosing these causes requires examining companies’ incentives and management … When the Commission orders corrective actions to safeguard against future noncompliance after the first instance of misconduct, and that misconduct is later repeated, we should then consider seeking to ban the firm from engaging in related business practices altogether.” For example, “if the Commission orders additional disclosures with respect to a specific type of transaction and the firm fails to comply, our investigation might question whether the firm can truly be trusted to ever conduct this transaction lawfully, making an outright ban appropriate.”
In some circumstances, Chopra also calls for closure of divestiture of the offending business unit or subsidiary, as well as requiring the dismissal of senior executives and clawing back executive compensation.
Chopra’s statement signals a tough stance from Democratic watchdogs, despite the new administration’s deregulatory agenda.
Chopra’s official statement can be seen, here.
Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.
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