Assert Your FTC Defense Before It’s Too Late

By: Ifrah Law

The Federal Trade Commission (“FTC”) is granted extraordinary authority to conduct investigations without giving notice to the companies in its sightlines, and the agency can enact sudden and unforeseen enforcement actions like asset freezes and TROs which take its targets completely by surprise. Often a company’s first clue it is under investigation is when it is served a subpoena and its business operations are shut down.

Public policy emphasizing consumer protection permits the FTC to secretly collect evidence and, once it has collected evidence sufficient to support an allegation of deceptive advertising, to act swiftly and unilaterally. The agency is at a distinct advantage; not only has it had time to conduct its investigation unhindered, it has also had the opportunity to present its allegations unchallenged to a federal judge in order to obtain a subpoena. This “first shot” may predispose the judge in question towards viewing the facts in the agency’s favor without being exposed to the other side of the argument.

Once a company realizes it has been targeted, time is of the essence. It takes a swift and tactical response to give the target of an FTC investigation even a chance of keeping its business open and functioning.

Too often clients contact FTC defense attorneys too late in the process. When a company is served the initial subpoena and temporary restraining order (“TRO”), the clock begins ticking on a very short time period of between 5-10 days during which the company may fight to prevent the TRO from turning into a permanent injunction.

Not only does the target of the investigation have a short time to assemble its defense, during this time the company is also expected to complete thorough financial disclosures and repatriate any assets which are currently overseas.

With assets and bank accounts frozen and the threat looming that the company could be permanently shut down, many general counsel move quickly at this critical juncture in efforts to negotiate with the federal government.  In trying to settle, they often unwittingly concede certain points which close off future avenues of defense.

It’s important to retain experienced FTC defense right away. The ramifications of making certain concessions too quickly without the advice of specialized counsel may be long lasting and devastating. Once a TRO has been converted to a permanent injunction, months and even years may go by during which the company may be entirely halted in its operations and its bank accounts frozen.

Often a receiver is appointed as well, meaning the company’s major business decisions are completely taken over by a third party. This court-appointed party will be directed by the court to collect the company’s assets; to do so, they will be given full control over all business operations, and may even begin to sell off assets. The receiver basically has the keys to the kingdom.

Add that to that the high fees earned by receivers and their lack of a definitive timeline; this gives receivers little incentive to accelerate the process or explore ways to allow a company to legally continue.

Upon the imposition of a receivership, the burden on the targeted company to refute the receiver’s decisions becomes even higher. In arguing that continuing business could be more profitable than selling off assets, the target company must establish that it can successfully market its product going forward without using the allegedly deceptive practices. If future sales or profits earned after injunctive relief is imposed are found to be the result of deceptive advertising, they will be regarded as damages, greatly increasing the risk of devastating financial impact. Many companies at this point choose not to continue but to simply give up.

Immediate and strategic response by experienced FTC defense counsel is imperative to give companies a fighting chance in the face of a Civil Investigative Demand (CID), subpoena or TRO arising from FTC claims.