The Extraordinary Reach of FTC Ex Parte

By: Ifrah Law

The Federal Trade Commission (“FTC”) is granted extraordinary authority to participate in ex parte discussions with judges, conduct investigations and enact enforcement actions like asset freezes and TROs without notice to the parties it is targeting. Often the first time a company learns it is under investigation is when it is served a subpoena and its business operations are shut down.

Usually the process of shutting down a business or otherwise depriving a company or person of their property requires a high standard of fair notice and due process. Even the Department of Justice is not given the power of pretrial restraint of property in a criminal case,

However, public policy has seemingly carved out an exception in the case of the FTC. The agency is permitted to proceed in its investigations and with initial judicial motions “ex parte” – without all parties to the situation being present or even aware of the investigation. The importance of protecting consumers from unfair business practices or deceptive advertising is deemed to outweigh the right of a company under investigation to receive timely notice of the situation.

The FTC may carry on an investigation of a company for months or even years without letting the company know it is under scrutiny. Once the government has amassed sufficient evidence of what it deems to be deceptive advertising or other allegations considered dangerous to consumers, it has several options for informing the target of the investigation and moving to the next phase of the investigation.

Many companies first learn that they are being investigated by the FTC when they are served with a Civil Investigative Demand (CID) requesting documents and information. The CID is issued directly by the agency but has the full legal authority of a subpoena.

The FTC may also proceed directly to the federal court on an ex parte basis in order to ask for a temporary restraining order (“TRO”), asset freeze or appointment of a receiver. The justification for allowing these FTC ex parte requests, without giving the company in question the chance to defend itself until later, is that there may be an immediate threat of significant harm to consumers and a significant risk that the assets in question may disappear.

Remarkably, the standard of proof for the government in these cases is not exceptionally high considering its effect can be to effectively shut down a legitimate business enterprise; often the FTC will merely present screenshots of the advertisements in question.

An FTC asset freeze can affect all of a company’s bank accounts, and may even include the seizure of property like computers and servers. Even where the marketing in question was conducted by an outside party, all of the company’s operations may fall under the wide net of the order, preventing products from being manufactured or sold, and employees and contractors from getting paid. These seemingly draconian measures often come as a complete blind side: business as usual comes to a stop, without the opportunity for the company to present any arguments in its defense until up to ten days later.

While current FTC enforcement actions appear to have slowed under the current administration, certain industries which rely on online marketing are still vulnerable to these surprising FTC ex parte actions. Companies in health related fields focused on nutrition and weight loss, in addition to debt collection organizations and technology. However, all companies which engage in internet marketing should be closely aware of the FTC rules governing ads and other public statements, and the risks involved for failing to comply.