We like to give you information that helps you stay off the radar of the Federal Trade Commission with posts like this, this, this, this, this and this. But, what do you do if the FTC does investigate? I asked newly-minted Gray Reed & McGraw shareholder Justice Jim Moseley to help us answer some questions. Before serving on the Texas Court of Appeals in Dallas, Justice Moseley was the Regional Director of the FTC’s Dallas Regional Office during the Reagan Administration.
Q: When and in what capacity does the FTC investigate?
A: The FTC has enforcement authority under 70 different statutes and federal rules. Many of its investigations are brought under the broad powers of Section 5 of the FTC Act which declares unlawful “unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(1). Its trade regulation rules attempt to set forth what it considers to be “unfair or deceptive” in the context of a particular industry or particular type of consumer transaction. In addition, the FTC is the primary enforcement arm responsible for privacy and false advertising.
FTC investigations are usually triggered by complaints from a consumer or from a competitor. The FTC may start an informal investigation by sending an “access letter” which is a non-enforceable voluntary request for information. However, it may also conduct a more formal investigation through the issuance of a “Civil Investigative Demand” or CID.
Q: What should a company do if the FTC investigates?
A: Although a response to an access letter is voluntary, if you refuse to cooperate the FTC is likely to follow up with a CID. The CID is a judicially enforceable request for information much like a subpoena that you cannot ignore.
The first thing you should do is carefully read the demand and make sure you preserve your records on the topic of inquiry. You are likely to get in more trouble if you attempt to hide or conceal evidence related to the investigation. Special rules also apply to preserving electronically stored information (ESI). Make sure your information technology personnel properly maintain the necessary ESI and revise any regular document or data retention procedures as necessary.
Next, you need to note the deadlines of compliance and consider contacting qualified experienced counsel immediately. Now is not the time to attempt to save a few dollars.
Q: What are my options?
A: Most of the investigations will require you to produce documents and will often request a meeting with FTC personnel. Normally, the most prudent course is to cooperate. You do, however, have the option to try and limit the scope of the inquiry or quash the CID in its entirety. Your ability to seek court intervention is often on a deadline, so you should not delay.
You are usually better off opening up a dialogue with the FTC to try and limit the scope and the scope of the CID if it is burdensome. You can often learn more about their concerns and better address the FTC’s concerns by keeping open the lines of communications. The FTC will often work with you to limit the parameters of the production or give you more time when the circumstances call for it. Likewise, if something comes up that causes a delay on your part, it is better to tell them in advance than leave them surprised and suspicious.
Although you are providing documents to a governmental entity, they will be treated as confidential and not subject to a FOIA request. They can and will be used against you, however. Someone from your company will usually also be asked to sign off on a certification of some kind that should be read carefully to avoid creating any personal liability that may not otherwise be there. Finally, read the requests carefully and only produce what is being requested. There is no need to give them additional fodder that may only open new lines of inquiry. Then, you usually have to sit and wait for the FTC to review the materials and get back with you.
Q: What are my risks?
A: You can usually identify the FTC’s concerns in the CID or in follow-up 
communications to determine the law or regulation the FTC is pressing. When evaluating whether a representation is deceptive under Section 5(a) of the FTC Act, for example, the FTC generally looks at three issues: (1) whether the respondent disseminated the representations alleged; (2) whether those representations were false or misleading; and (3) whether those representations are material to prospective consumers.
The FTC has broad authority to act against what it perceives to be deceptive practices under Section 5(a) of the FTC Act. The FTC also has broad discretion in determining whether a proceeding brought by it is in the public interest. The FTC has equally wide discretion in its choice of a remedy in addressing unlawful practices which can include injunctions, compliance orders and monetary damages.
Q: What is the procedure?
A: If the FTC staff concludes there has been a violation, it will usually push first for a “consent order” in which the company agrees to stop the harmful conduct and to pay consumer redress in the form of fines or civil penalties. If no agreement can be reached, the FTC staff will ask the Commission itself to start a formal proceeding before an administrative law judge; this procedure is similar to a trial before a judge.
If the administrative law judge rules in favor of the FTC, a “cease-and-desist order” is usually issued. The company can appeal an adverse decision by the judge to the full Commission. If either party is not satisfied with the outcome at that level, it can appeal the Commission’s decision in the federal courts. In cases where the FTC believes the respondent knew or should have known the conduct was “dishonest or fraudulent,” the FTC may follow up the administrative proceeding by asking a federal court to order consumer redress, such as an order to pay monetary restitution to victims of the violation.
The FTC also has the ability to go straight to a federal court to seek an immediate order to stop ongoing consumer fraud and to seek to freeze the assets of the defendant. The FTC will often seek to hold individuals financially responsible for any egregious acts.
