FTC Defense Lawyer

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Federal Trade Commission

The FTC protects consumers and competition by preventing deceptive, unfair and anticompetitive business practices through law enforcement, advocacy and education.

The FTC is an independent agency that reports to the President and to Congress on its actions.  These actions include pursuing law enforcement; developing policy and research tools through hearings, workshops, and conferences; and creating educational programs and materials for consumers and businesses.

FTC lawyers have consumer protection and competition jurisdiction in broad economic sectors.  They administer a variety of laws, such as the Federal Trade Commission Act, the Fair Credit Reporting Act and the Clayton Act.  The FTC also enforces rules issued pursuant to the Federal Trade Commission Act or other laws, including the Business Opportunity Rule and the Telemarketing Sales Rule.

Why the FTC was Created

The FTC seeks to maintain a competitive marketplace for both consumers and businesses.  The Federal Trade Commission was created in 1914 to prevent unfair methods of competition in commerce.  Congress has since passed additional laws giving the agency greater authority over anticompetitive practices.

Recognizing that unfair and deceptive practices can distort a competitive marketplace as much as unfair methods of competition, in 1938 Congress amended the FTC Act and granted the FTC authority to stop “unfair or deceptive acts or practices in or affecting commerce.”  The FTC is also directed to enforce a wide variety of other consumer protection laws and regulations.

The FTC is headed by a five-member Commission, nominated by the President and confirmed by the Senate, each serving a staggered 7-year term.  The President chooses one commissioner to act as Chair. No more than three commissioners may be from the same political party.

The FTC’s Mission and Strategic Plan

The FTC focuses on investigating and litigating cases that cause or are likely to cause substantial injury to consumers.  This can include more than just monetary injury.  It can also include, for example, unwarranted health and safety risks.  The FTC’s mission is carried out by the Bureau of Consumer Protection, the Bureau of Competition and the Bureau of Economics.

The FTC’s strategic goals are to protect consumers from unfair and deceptive practices in the marketplace; maintain competition to promote a marketplace free from anticompetitive mergers, business practices, or public policy outcomes; and advance the FTC’s performance through excellence in managing resources, human capital, and information technology.

The Federal Trade Commission recently published its fiscal years 2018 to 2022 strategic plan. The road map that will guide the agency over the next five years. The plan will enable the FTC to gauge its success in protecting consumers, maintaining competition, and advancing its organizational performance.

The FTC updated its mission statement to reflect better the FTC’s active role in consumer protection and competition law enforcement, advocacy and education efforts on behalf of American consumers and businesses. The Commission has also expanded its goal to further information and technology management as critical support functions at the FTC.

The FTC's primary objectives include the following:

• Identify and take actions to address deceptive or unfair practices that harm consumers
• Provide consumers and businesses with knowledge and tools that provide guid­ance and prevent harm
• Collaborate with domestic and international partners to enhance consumer protection
• Maintain competition to promote a marketplace free from anticompetitive mergers and business practices
• Manage resources, human capital and information technology

How the FTC Works

While the FTC does not often openly disclose why or when it began an investigation, there are several common triggers, including:

• Direct findings
• Consumer complaints
• News articles
• Advocacy group requests
• NAD recommendations
• Competitor requests

The FTC constantly monitors claims made across all media channels.  In addition, consumers often submit complaints directly to the FTC, to state Attorneys General, to local Better Business Bureaus and via social media.  The Commission also keeps a close watch on reports on news outlets for unlawful marketing practices.

The National Advertising Division of the Council of Better Business Bureaus (NAD) initiates reviews and conducts reviews in response to consumer or competitor complaints.  If an advertiser refuses to participate or to comply with an NAD decision, the matter can be referred to the FTC.

Depending upon how egregious the allegations are, any one of the foregoing can result in the identification of an investigation target. Companies should consult with an FTC consumer protection investigations and enforcement law firm to monitor the foregoing and take proactive measures to minimize the likelihood of being investigated.

How the FTC Enforces the Law

The FTC often evaluates whether enforcement activities are tracking the areas of greatest concern and whether there are new practices or technologies that require additional law enforcement.  The FTC’s Bureau of Consumer Protection, with the support of the Bureau of Economics, investigates cases and initiates civil enforcement actions, in the past primarily by filing actions in federal court pursuant to FTC Act Section 13(b), when there is reason to believe that entities have violated these laws and rules.  The FTC’s enforcement actions seek injunctions, civil penalties, consumer redress and other relief.  The FTC also brings enforcement actions via administrative proceedings.

If the FTC makes the decision to litigate, it can initiate action in federal court or bring an administrative action.  With various exceptions, if the FTC proceeds to federal court to pursue an enforcement action against you or your company, it may take the following actions:

• Enjoin violations of the FTC Act, and secure other equitable relief such as restitution and disgorgement of “ill-gotten” gains
• Serve you with a complaint and temporary restraining order
• Immediately freeze corporate and personal assets
• Gain immediate access to business premises
• Appoint a temporary receiver to take over corporate assets and operations

Unlike the provisions of the FTC Act that permit the FTC to seek monetary relief for violations of a cease and desist order, dishonest or fraudulent acts or practices, or knowing violations of promulgated rules, the plain text of Section 13(b) permits the issuance of injunctive relief.  Despite the FTC’s ability for decades to also pursue and obtain “ancillary equitable relief,” at least on its face, Section 13(b) does not permit the FTC to recover restitution, disgorgement, or other forms of equitable monetary relief.

Thus, in July 2020, the U.S. Supreme Court granted certiorari and consolidated two cases that call into question the FTC’s authority to seek equitable monetary relief directly in federal court in Section 13(b) cases, even before any administrative adjudication has occurred, and even in the absence of any rule violation.  The Supreme Court’s resolution of these cases pertaining to the scope of the FTC’s authority under Section 13(b) during the 2020-2021 has partially eliminate one of the agency’s most important and effective enforcement tools.  The ruling has had a profound and significant policy implications for the FTC and strategic implications for the advertisers and marketers that it regulates.

The agency has traditionally possessed extremely broad powers that have severely impacted defendants’ ability to provide for basic necessities and compensate employees, suddenly and without warning.  Such powers result from the FTC’s use of ex parte proceedings, held without prior notice in federal district courts to obtain temporary restraining orders (TROs) imposing asset freezes and temporary receiverships in cases of alleged consumer fraud.

The agency often names relief defendants in order to protect ill-gotten funds or assets as a result of the conduct of the other defendants.  In a federal lawsuit, the FTC can seek injunctive relief, civil penalties of more than $50,000 per violation of the FTC Act and restitution.

Contact experienced FTC attorneys to discuss sophisticated settlement and litigation strategies designed to rebuke FTC efforts to obtain monetary relief.

What is the FTC Bureau of Consumer Protection?

The Federal Trade Commission Bureau of Consumer Protection has a mandate to protect consumers against unfair, deceptive or fraudulent practices.  The Bureau of Consumer Protection enforces a variety of consumer protection laws enacted by Congress, as well as trade regulation rules issued by the FTC.  Its actions include individual company and industry-wide investigations, administrative and federal court litigation, rulemaking proceedings, and consumer and business education.  In addition, the Bureau of Consumer Protection contributes to the FTC's on-going efforts to inform Congress and other government entities of the impact that proposed actions could have on consumers.

The FTC Bureau of Consumer Protection is comprised of the following divisions:

• Division of Privacy and Identity Protection
• Division of Advertising Practices
• Division of Consumer & Business Education
• Division of Enforcement
• Division of Marketing Practices
• Division of Consumer Response & Operations
• Division of Financial Practices
• Division of Litigation Technology & Analysis

     Division of Privacy and Identity Protection

The Division of Privacy and Identity Protection oversees issues related to consumer privacy, credit reporting, identity theft, and information security.  The Division enforces the statutes and rules within its jurisdiction, engages in outreach and policy development, and educates consumers and businesses about emerging privacy, credit reporting and information security issues, as well as identity theft prevention and assistance.

Specifically the Division of Privacy of Privacy and Identity Protection  enforces laws including:

• Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, including deceptive statements and unfair practices involving the use or protection of consumers' personal information;
• The Fair Credit Reporting Act, which ensures the accuracy and privacy of information kept by credit bureaus and other consumer reporting agencies, and gives consumers the right to know what information these entities are distributing about them to creditors, insurance companies and employers;
• The Gramm-Leach-Bliley Act, which requires financial institutions to ensure the security and confidentiality of customer information, provide notice to consumers about their information practices, and give consumers an opportunity to direct that their personal information not be shared with certain non-affiliated third parties;
• The Children's Online Privacy Protection Act, which is meant to give parents control over information online companies can collect about their children and how such information can be used; and
• The Health Breach Notification Rule, which requires certain businesses not covered by HIPAA to notify customers, and others, if there’s a breach of unsecured, individually identifiable electronic health information.

The Division also issues reports on privacy and security issues.

In addition to the Bureau’s eight divisions, the FTC has eight regional offices — in Atlanta, Chicago, Cleveland, Dallas, Los Angeles, New York, San Francisco, and Seattle designed to permit the agency to better respond to the diversity of the U.S. marketplace.

     Division of Advertising Practices

The Division of Advertising Practices enforces “truth-in-advertising” laws, which require advertisers to tell the truth and to back up their claims with reliable, objective evidence.

DAP uses a variety of tools to protect consumers from misleading claims, including bringing law enforcement actions in federal and administrative courts, issuing warning letters, developing rules and guidance to businesses, advocating effective industry self-regulation and preparing consumer education materials.

The Division’s efforts span a broad range of products and practices.  See here, for the DAP's enforcement priorities, regulation development and policy issuance, consumer protection initiatives, enforcement priorities, rules and guides, and consumer protection initiatives.

     Division of Enforcement

FTC civil enforcement actions target fraud and, without limitation, seek restitution for consumers or disgorgement to the U.S. Treasury, and often civil penalties.

The FTC Division of Enforcement litigates civil contempt and civil penalty actions to enforce federal court injunctions and administrative orders in FTC consumer protection cases.  The Enfocrcement Division also coordinates FTC actions with criminal law enforcement agencies through its Criminal Liaison Unit and develops and enforces consumer protection rules.

With respect to order enforcement, the Division monitors compliance with administrative and federal court orders entered in FTC consumer protection cases.  These orders address a variety of consumer protection issues, such as advertising and financial practices, data security, high-tech fraud and telemarketing.

The Enforcement Division:

• Conducts investigations of possible order violations
• Files civil contempt actions in federal court to enforce injunctions
• Initiates court actions to obtain civil penalties for administrative order violations
• The Enforcement Division's Criminal Liaison Unit coordinates with criminal law enforcement agencies across the country to encourage criminal prosecution of consumer fraud.

The Criminal Liaison Unit:

• Identifies criminal law enforcement agencies that may bring specific types of consumer fraud cases
• Educates criminal law enforcers
• Trains prosecutors and investigators on identifying suspects and witnesses using the Consumer Sentinel Network
• Coordinates training with criminal authorities to help the FTC package cases for referral and parallel prosecution
• Provides Special Assistant United States Attorneys to help prosecute egregious violations of the FTC Act

Examples of FTC fraud cases include:

• Telemarketing scams
• Mortgage and other debt relief scams
• Bogus health products

In many cases, the FTC develops evidence that establishes defendants knew about the fraud. That evidence often supports criminal fraud prosecutions and includes:

• Victim statements
• Undercover sales calls and purchases
• Certified bank, business and phone records
• Insider testimony

FTC attorneys often partner with the U.S. Department of Justice, U.S. Attorneys and other federal and state criminal law enforcers to stop consumer fraud.

     Division of Marketing Practices

The Division of Marketing Practices responds to consumer fraud in the marketplace.  The Division enforces the FTC Act and several other federal consumer protection laws by filing FTC actions in federal district court for immediate and permanent orders to stop scams; prevent fraudsters from perpetrating scams in the future, freeze their assets; and get compensation for scam victims.

The Division's enforcement priorities include:

• Shutting down high-tech Internet and telephone scams
• Ending deceptive telemarketing or direct mail marketing schemes that use false and misleading information to take consumers’ money
• Stopping fraudulent business opportunity scams
• Stopping violations of the Do Not Call and CAN-SPAM consumer privacy protections

The Division issues, revises and enforces many of the FTC's rules, including, but not limited to, the Telemarketing Sales Rule, the CAN-SPAM Rules, the Franchise and Business Opportunity Rule, and the Magnuson-Moss Act.

The Division of Marketing Practices also  investigates the use of the Internet and other emerging technologies to defraud consumers, and prosecutes civil enforcement actions.

     Division of Financial Practices

The Financial Practices Division protects consumers in the financial marketplace from false information and unfair business practices.

The Division of Financial Practices examines brings actions emphasizing that companies using new technologies must follow the same basic laws as traditional market participants, including by honoring promises to consumers and gaining consumers’ consent to charges.

Financial Practices protects individuals and small businesses applying for short-term loans, including by ensuring that lending companies or their marketers do not gain an unfair competitive advantage by promising false loan terms or presenting paid-for advertising as neutral recommendations, and by taking action against companies that sell consumers’ sensitive loan application information (leads) to non-lenders, subjecting them to potential fraud and misuse.

The Division also leads the FTC’s enforcement efforts against deceptive and unfair practices in the education sector, including, prosecuting lead generators that present paid-for advertising as neutral recommendations or lure consumers into providing their personal information under false pretenses, and high school diploma mills that charge consumers for worthless certificates.

The Division also leads the FTC’s efforts to protect consumers from deceptive or unfair practices in auto purchasing, financing and leasing transactions, as well as deceptive, unfair, and abusive debt collection, mortgage, credit card and other debt relief  practices.

FTC Statutes and Regulations

The FTC enforces federal consumer protection laws that prevent fraud, deception and unfair business practices, including the Federal Trade Commission Act.  The FTC also enforces federal antitrust laws.

Consumer laws enforced by the FTC include, but are not limited to:

• The Federal Trade Commission Act (15 U.S.C. §§ 41-58, as amended)
• Inform Consumers Act (15 U.S.C. § 45f)
• Covid-19 Consumer Protection Act
• CAN-SPAM Act (15 U.S.C §§ 7701 - 7713)
• Consumer Review Fairness Act (15 U.S.C. § 45b)
• Truth in Lending Act (15 U.S.C. §§ 1601-1667f, as amended)
• Fair Debt Collection Practices Act (15 U.S.C. §§ 1692-1692p)
• Equal Credit Opportunity Act (15 U.S.C. §§ 1691-1691f)
• Electronic Fund Transfer Act (15 U.S.C. §§ 1693-1693r)
• Fair Credit Reporting Act (15 U.S.C. §§ 1681-1681x)
• Restore Online Shoppers’ Confidence Act (15 U.S.C. §§ 8401 - 8405)
• U.S. SAFE Web Act
• Children’s Online Privacy Protection Act (15 U.S.C. §§ 6501 - 6506)
• Better Online Ticket Sales Act (15 U.S.C. § 45c)
• Gramm-Leach-Bliley Act
• Telemarketing and Consumer Fraud and Abuse Prevention Act (15 U.S.C. §§ 6101 - 6108)
• Opioid Addiction Recovery Fraud and Prevention Act of 2018

What are FTC Warning Letters?

FTC Warning Letters may be public and are intended to warn companies that their conduct may be in violation of the FTC Act, and that legal consequences may follow if the conduct is not immediately ceased.  Consult with experienced FTC defense practice counsel if your company has received an FTC warning letter in order to discuss correcting non-compliant advertising activities.

Warning letters are not formal enforcement actions.  They may or may not be followed by FTC legal action.  Warning letters typically include an explanation of why the company is receiving the letter and examples of problematic advertising or marketing language.

Warning letter recipients are required to correct the problem immediately and contact the FTC within several days to confirm that they have made the required changes.  Warning letters may be sent unilaterally or jointly with other enforcement agencies.

What are FTC Penalty Offense Notices?

The FTC is empowered to obtain penalties for unfair or deceptive conduct via the Penalty Offense Authority, found in Section 5(m)(1)(B) of the FTC Act, 15 U.S.C. §45(m)(1)(B).  Here, the FTC can seek civil penalties if it establishes that the party knew the conduct was unfair or deceptive in violation of the FTC Act, and the FTC had already issued a written decision that such conduct is unfair or deceptive.

In order to trigger this authority, the FTC sends companies a “Notice of Penalty Offenses.”  This Notice is a document listing certain types of conduct that the FTC has determined, in one or more administrative orders - other than a consent order, to be unfair or deceptive in violation of the FTC Act.  Recipients of this notice that continue to engage in prohibited practices can face civil penalties of more than $50,000, per violation.

The FTC asserts that recipients of "Notices of Penalty Offenses" have actual knowledge that the practice is unfair or deceptive in violation of the FTC Act, and if they engage in the practice, the FTC can seek civil penalties against them.  Contact an experienced FTC defense lawyer if you or your company have received a Penalty Offense Notice.

Some recently distributed notices and the administrative determinations cited in Penalty Office Notices include, but are not limited to, penalty offenses concerning misuse of information collected in confidential contexts, penalty offenses concerning substantiation, penalty offenses concerning money-making opportunities, penalty offenses concerning endorsements, penalty offenses concerning business opportunities, and penalty offenses concerning weight loss.

How Recent Supreme Court Decision Has Reshaped the FTC's Enforcement Power

In 2021, the U.S. Supreme Court held that Section 13(b) of the FTC Act does not authorize the Federal Trade Commission to seek monetary relief in the form of restitution or disgorgement, despite the agency’s previous practice of seeking such relief.  The opinion has dramatically reshapes the FTC’s ability for obtaining monetary judgments from defendants.  Since the decision, FTC attorneys have  turned to Section 19 of the FTC Act as in order to obtain monetary remedies, along with the issuance of penalty offense notices and rulemaking that authorizes civil penalties.

Consult with an experienced FTC defense attorney to discuss what the recent Supreme Court does and does not impact.  For example, it does not affect the FTC's ability to obtain civil penalties for violation of an existing order, or statutes it enforces other than the FTC Act.  Following the ruling, the FTC invoked additional authorities in order to obtain civil penalties, including, but not limited to, the BOTS Act and the Red Flags Rule under the Fair Credit Reporting Act, and an expanded interpretation of the Restore Online Shoppers Confidence Act.

Restore Online Shoppers' Confidence Act Enforcement Trends

Automatic renewal laws are a regulatory investigation and enforcement favorite, including the FTC's Restore Online Shoppers' Confidence Act.  Various practices are more likely than others to draw undesirable regualtory attention, including, but not limited to, failure to clearly disclose "material terms" of the transaction (e.g., automatically renewing charges, the amount and frequecy of such charges and the cancellation procedure) before obtaining a consumers' billing information, failing to obtain express informed consent from consumers prior to initiating charges, inconspicuous or hidden disclosures, unreasonably burdensome or inconspicuous cancellation processes (a/k/a "dark patterns"), and imposing early termination fees.

From the FTC’s perspective, the foregoing are some, but not all, online business practices that are  considered problematic from a consumer protection standpoint.  Marketers should also be aware of state automatic renewal laws and the role that state attorneys general play regarding enforcement.

Understanding Other FTC Consumer Protection Enforcement Area Trends

In addition to warning letters, penalty offense notices and rulemaking and following the Supreme Court limiting Federal Trade Commission authority to collect monetary penalties under the FTC Act, the agency has been focusing its consumer protection enforcement efforts on various areas.  These areas include data privacy and security, consumer reviews, endorsements and testimonials, business opportunities and earnings claims, financial services (debt collection and student loan relief), investment-related services and payday loans), online subscriptions and negative option marketing, health care, cryptocurrency, telemarketing (robocalls and Do Not Call Registry violation), CBD marketing, Made in USA Labeling Rule, junk fees and artificial intelligence.

FTC Administrative Actions and Rulemaking

The administrative proceeding means of FTC enforcement provides the FTC with a narrow right to recover monetary relief in federal court.

An FTC administrative proceeding is, practically speaking, an expedited court proceeding that provides hurdles with respect to FTC’s ability to seek monetary relief.  The FTC is only permitted to seek injunctive relief in an administrative proceeding.  Following abbreviated motion practice and discovery, there is an evidentiary hearing and a substantive evaluation by an administrative law judge.  The ALJ then renders a decision which can be appealed.

The FTC is authorized to bring such an “internal enforcement action” before an ALJ, who can issue a “cease and desist” order.  If the “respondent” violates the cease and desist order, the FTC may initiate a lawsuit in federal court under Section 19 of the FTC Act to enforce the order and pursue civil equitable monetary relief.  In addition, in consumer protection cases, the FTC can seek monetary relief in federal court under FTC Act Section 19 for the original conduct, but only if “a reasonable man would have known under the circumstances that the conduct was dishonest or fraudulent,” and only after it has issued a cease and desist order that has become final.  These actions are subject to a three-year statute of limitations and, while FTC administrative consent orders do not usually contain monetary penalties, they carry the potential for fines of more than $50,000 per violation.

Both of those paths require the FTC to complete the administrative enforcement process prior to initiating a lawsuit in federal court seeking monetary relief.

Additionally and in lieu of relying solely on actions against individual respondents to determine that practices are unfair or deceptive, the FTC may use trade regulation rules to address unfair or deceptive practices that occur commonly.  The FTC is authorized to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” within the meaning of Section 5(a)(1) of the Act.  Before commencing a rulemaking proceeding, the Commission must have reason to believe that the practices to be addressed by the rulemaking are “prevalent.”

Once the FTC has undergone the arduous formal trade regulation rulemaking process, anyone who violates the rule “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule” is liable for civil penalties for each violation.  The FTC obtains such penalties by filing a suit in federal district court under Section 5 of the FTC Act.

In addition, any person who violates a rule (irrespective of the state of knowledge) is liable for injury caused to consumers by the rule violation.  In addition to being able to seek redress under Section 13(b), as discussed above, the FTC may pursue such recovery in a suit for consumer redress under Section 19 of the FTC Act.

The above means of enforcement provide the FTC with a narrow right to recover monetary relief in federal court.  In the case of administrative proceedings, the FTC may seek to enforce a cease and desist order in federal court, but only after the FTC has completed the administrative enforcement process and a cease and desist order has issued.  In the rulemaking context, the conduct at issue must violate a specific FTC-prescribed rule.

Given these practical limitations, the FTC has historically relied heavily on the third means by which the FTC carries out its enforcement policy and priorities, Section 13(b) of the FTC Act. Section 13(b) has, until recently, provided the FTC with expansive authority to file suit in federal court in consumer protection matters in pursuit of both injunctive relief and “equitable monetary relief” such as restitution, disgorgement and rescission of contracts, where the defendant “is violating, or is about to violate,” the law and enforcement would be in the public interest.

The Supreme Court has now severely limited the FTC's ability to seek monetary relief in federal court.  The FTC has recently lost a valuable tool in its remedial arsonal, Section 13(b) of the FTC Act which the agency used to use to proceed quickly into federal court to seek monetary relief.

What are FTC Administrative Law Judges?

The appointment of an ALJ is governed by statute.  They are authorized by the Administrative Procedure Act to preside over agency adjudicatory hearings.  The Administrative Procedure Act requires that adjudicatory proceedings be conducted in an impartial manner and that an administrative law judge may at any time disqualify himself or herself.

A party in a proceeding may file a motion to disqualify an ALJ along with an affidavit setting forth the grounds for the motion.  Grounds for such a motion may include, without limitation, that the ALJ’s prior employment involved him or her in the case or in a related case in an investigational or prosecutorial capacity.  The burden of establishing grounds for disqualification falls on the party asserting it.

FTC lawyers have delegated to its administrative law judges the initial performance of its “adjudicative fact-finding functions.”  ALJ's have specific powers pursuant to the Administrative Procedure Act and the FTC’s Rules of Practice, including, but not limited to, administering oaths and affirmations, issuing subpoenas, authorizing interrogatories, taking or ordering depositions, compelling admissions, ruling on offers of proof, receiving evidence, regulating the course of hearings and the conduct of the parties/counsel, holding settlement conferences, ruling on procedural and other motions, making and filing decisions, certify question to the FTC for its determination, and rejecting submissions or requests for in camera treatment.  ALJ's are also authorized to take any other actions authorized by the FTC rules or in conformance with the Administrative Procedure Act.

Basically, administrative law judges have broad authority to conduct initial fact finding for the FTC and to use this discretion in the conduct of pre-trial proceedings and trial.  The exercise of such discretion is only disturbed upon a showing of an abuse of discretion.

Should FTC practice attorneys refuse to comply with the directions of an ALJ or are found to have engaged in disorderly, dilatory, obstructionist or willfully disobedient conduct, an ALJ may suspend or bar such FTC lawyers from further participation in the proceeding.

How the FTC Uses Civil Investigation Demands (CIDs)

If your company receives a civil investigation demand, contact an FTC defense lawyer promptly because it means that the FTC is investigating unfair or deceptive acts or practices in anticipation of initiating an enforcement action.  A civil investigative demand (CID) is similar to a subpoena and carries significant enforceable weight, including the ability of the FTC to petition a court to enter an order compelling compliance.

CIDs first go to the bureau chief and then to a commissioner’s office for approval.  If you received one, it is not an accident. However, while a plain reading of the CID may not make it clear, do not automatically assume that you are the target.  If you receive a civil investigation demand, it is possible that you may simply be a third-party with information that the agency is interested in obtaining.

Civil investigative demands can be used to seek documents, written responses to questions and oral testimony.  CIDs often seek information pertaining to:

• Advertising and marketing campaigns
• Relationship or affiliation with third-parties
• Relevant documents and communications, including those with third-party marketers
• Claim substantiation
• Representations and disclosures made on websites
• Website and marketing agreements
• Refund policies or practices, including those about any continuity program or negative option
• Scripts and call recordings
• Marketing, sale and transfer of leads
• Lead qualification criteria
• Evaluation and monitoring of lead sources and buyers
• Products and services provided by lead buyers
• Policies, manuals and training materials
• Data security protocols and policies
• Data use restrictions
• Corporate organization charts, documents and information
• Business plans, balance sheets and income statements
• Consumer inquiries and complaints
• Bank account information
• Refunds, returns and chargebacks
• Federal, state and local law enforcement or government investigations, inquiries and actions
• Compliance with applicable federal laws, rules and regulations

CIDs require that recipients suspend any routine procedures for document destruction and take other measures to prevent the destruction of documents. Ensure that all documents and communications are preserved.  Time is of the essence as there is typically a quick return date and often very little time to formally challenge a CID.

Civil investigative demands can be broad-sweeping and invasive.  Proactively assessing what practices or relationships may have resulted in the investigation, implementing remedial measures and mounting a deliberate and persuasive response are critical.

The strength of the firm’s FTC CID investigation defense practice is its in-depth digital marketing industry knowledge and focus, professional leadership, ability to manage complex legal issues, attentiveness to time sensitive business matters, consistent delivery of positive results, innovative advice, diverse experience and familiarity with internal regulatory processes, all of which provide us with unique insights into understanding our clients’ businesses and allocating resources in a cost-efficient manner with the aim of investigation closure. 

Responses by an experienced FTC CID attorney should be strategic, persuasively advocate the appropriate position, set forth why the marketing or advertising claims in question are not misleading (e.g., substantiated), and why the company has not engaged in any wrongdoing. Depending upon the circumstances, it may be appropriate to request an meeting with an FTC attorney, the Director of the Bureau of Consumer Protection, FTC Commissioners or other FTC staff.

What are FTC Access Letters?

The FTC often contacts target companies to request information as part of an investigation.  CIDs are formal, compulsory information requests.  Access letters are informal requests.  Access letters typically come from an FTC staff attorney and set forth a general statement that the agency is conducting an investigation in order to assess whether the practices violates a statute or regulation.  Details about the investigation are not always disclosed.  Access leters seek voluntary compliance while the FTC determines whether or not to initiate a formal investigation.  The are often considered to be part of a "waiting period."

Suspended Judgments, Zero Dollar Settlements and Avalanche Clauses

The Federal Trade Commission does not just take a settling defendant's word for it when a representation is made regarding financial condition and assets.  FTC staff often requires that a defendant swears to the accuracy of related documentation, including personal and corporate financial statements.

Settlements with the Federal Trade Commission often include language that reads "...the order includes a $___  judgment, which has been partially (or totally) suspended based on the defendants’ inability to pay.”  However, if a defendant misrepresents its financial condition, the consequences could be disastrous.

If any portion of a judgment is suspended, the FTC's policy is to include a provision in the stipulated settlement agreement setting forth that the FTC’s agreement to settle was expressly premised on the truthfulness, accuracy and completeness of the defendants’ financial information.

The firm has also delivered numerous zero dollar settlements with favorably modified reporting requirements, and totally suspended judgments on behalf of numerous clients, based upon the truthfulness of asset disclosure forms.

The FTC will typically ask the Court to include a provision lifting the suspension – and making the total immediately due – if it turns out that a party “failed to disclose any material asset, materially misstated the value of any asset, or made any other material misstatement or omission” in their statements.  These are known as "avalanche clauses."

As part of the order compliance process, the Federal Trade Commission keeps a close watch for any signs that the parties may not have been truthful in what they said about their finances.  If the compliance process reveals evidence that a defendant was not truthful about finances, the FTC will ask the Court to activate the built-in avalanche clause.

FTC Defense Law Firm Order Compliance Reporting Obligations

Respondents that negotiate settlement and litigate matters with the FTC are routinely required to submit periodic reports on their efforts to comply with agency orders.  In addition to regulatory  investigation and enforcement defense, Mr. Newman assists clientele with ensuring compliance with FTC orders designed, in part, to prevent future recurrence.  Compliance with such orders is a critical part of the FTC's mission as the agency monitors a Respondents’ actions to comply with applicable obligations.

Respondent's should take seriously their obligation to provide timely reports.  The failure to do so can result in, without limitation, a compliance investigation and an order enforcement action with the imposition of penalties.  When appropriate, copies of relevant documents or other evidence should be submitted with the reports to demonstrate compliance.

Reporting requirements are in addition to the substantive obligations of the order, which directly address the Respondent’s alleged prior law violation.  When the Respondent is meeting all of its obligations contained in the order’s affirmative provisions, compliance reports are an important way to confirm that to FTC lawyers.  Respondents should expect FTC staff counsel to play an active role in ensuring that parties comply with their reporting obligations.  This is how the agency determines whether the Respondent is fulfilling its legal obligations.

Experienced FTC defense attorneys can help to assure order compliance and avoid a potential enforcement action.  Having no or an inadequate order compliance oversight process can lead to order violations, enforcement actions and civil penalties.  Failing to submit a complete compliance report can lead to civil penalties even in the absence of any violation of the order’s other terms.  Submitting a misleading, incomplete or seriously deficient report can, in appropriate circumstances, constitute an independent order violation and serve as evidence of bad faith in an order enforcement action for civil penalties and other relief.  If a Respondent submits a conclusory, unsupported, or otherwise deficient report, FTC lawyers can require a supplemental report to correct the deficiency.

If you or your company are subject to an FTC order, contact an FTC defense lawyer to discuss related terms, obligations and restrictions.  Doing so promptly can ensure that an investigation of order violations and an enforcement action related thereto are not initiated by the Bureau of Consumer Protection Enforcement Division.

FTC Defense Lawyer With a National Reputation

Richard is an award-winning, industry leading FTC defense lawyer and regulatory defense attorney whose practice is uniquely focused upon assisting leading advertisers, affiliate networks, publishers, advertising agencies, lead generators, lead aggregators, list managers, email marketers, telemarketers and technology businesses effectively and efficiently resolve contentious FTC investigations and enforcement actions.  The breadth of Richard’s superior grasp of the complex regulatory challenges and regimes facing the online advertising industry enables him to bring a broad perspective and knowledge to Federal Trade Commission matters, including the development of tactics needed to defend against agency actions and to secure advantageous outcomes.

He has successfully defended companies and individuals facing regulatory enforcement actions to minimize liability for conduct that violates the FTC Act and other laws and regulations enforced by the agency, modified broad-sweeping asset freezes, obtained necessary living expenses and attorneys’ fees, negotiated favorable settlement terms, modified compliance and monitoring requirements, and secured partially suspended judgments for a fraction of the total amount of alleged consumer injury and totally suspended $0 settlements.

When the FTC oversteps its authority, Richard is a formidable advocate in litigation, able to swiftly develop affirmative and aggressive strategies that are aligned with his clients’ business objectives.  His credibility with the Commission as an effective negotiator and consensus builder is a distinct benefit to his clients when obtaining an equitable early resolution is preferred.  Richard's excellent working relationships with the state and federal agencies regulating the Internet marketing industry help facilitate discussions that can be crucial to resolving enforcement actions amicably.

FTC defense attorney Richard Newman is also well positioned to guide advertisers and marketers through the minefield of FTC investigations. He possesses the talent and experience to develop win-win solutions that reduce the burden for those faced with a CID.  As a result of this experience, he brings unique perspective when counseling clients and finding creative solutions to complicated problems, including narrowing the scope of civil investigative demands, negotiating favorable production schedules and, in some instances, securing the amicable and outright closure of investigations with the goal of avoiding the initiation of enforcement proceedings altogether.