FTC Investigation Defense: 10 Keys to a Favorable Outcome

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The U.S. Federal Trade Commission (FTC) holds primary responsibility for enforcing the nation’s consumer protection and antitrust laws. While the FTC actions have traditionally focused on targeting large companies suspected of committing widescale consumer fraud, antitrust violations, or engaging in significant anticompetitive business activities, it has recently devoted significant resources to targeting smaller companies as well—particularly in the e-commerce sector.

As the FTC explains, “Every year the FTC brings hundreds of cases against individuals and companies for violating consumer protection and competition laws that the agency enforces. These cases can involve fraud, scams, identity theft, false advertising, privacy violations, anti-competitive behavior, and more.” While the FTC has civil enforcement authority, it can also refer cases to the U.S. Department of Justice (DOJ) for criminal prosecution. As a result, companies and individuals targeted in FTC investigations need to be extremely careful, and they need to be confident they are making informed decisions every step of the way.

“FTC investigations can lead to civil or criminal penalties for both companies and individuals. When facing an FTC investigation, it is imperative to execute a proactive defense strategy focused on obtaining a specific positive result in light of the particular circumstances presented.” – Dr. Nick Oberheiden, Founder and FTC Investigation Lawyer at Oberheiden P.C.

While each FTC investigation requires a targeted approach that takes into account the specific facts, allegations, and laws at issue, there are some overarching considerations involved in favorably resolving any FTC inquiry. With this in mind, here are 10 keys to asserting a successful FTC investigation defense:

1. Understanding the Scope of the FTC’s Enforcement Authority

The FTC’s enforcement authority is extremely broad in scope. With its mission “ to protect consumers and competition by preventing anticompetitive, deceptive, and unfair business practices through law enforcement” and other means, the FTC’s authority touches on everything from phishing and Internet marketing scams to anticompetitive corporate mergers and acquisitions.

In addition, the FTC’s Office of Inspector General (OIG) investigates, “allegations of fraud, waste, abuse and/or misconduct involving FTC employees, contractors or entities conducting business with the FTC.” For FTC contractors, facing an OIG investigation presents unique risks. But, regardless of whether an investigation involves the FTC’s Enforcement Division or the OIG, an unfavorable outcome can lead to severe consequences, and all targeted businesses and individuals must rely on the representation of experienced FTC investigation attorneys or FTC defense attorneys.

2. Understanding the Scope of the FTC’s Investigation

While helpful, understanding the scope of the FTC’s enforcement authority is not sufficient to discern the scope of an FTC investigation. These investigations can target a multitude of specific offenses, and many FTC investigations focus on a particular commercial or business practice that violates one particular statutory and regulatory provision. Oftentimes, the FTC will allege multiple counts of the same offense; and, while this can make it appear as though an investigation is relatively low-risk, repeated violations or violations that affect multiple consumers can trigger substantial aggregate financial penalties—if not a substantial aggregate period of federal incarceration.

Some examples of possible allegations in FTC investigations include:

  • Anticompetitive business practices
  • Consumer data privacy and security violations
  • Consumer financing and lending fraud
  • COVID-19 fraud
  • E-commerce scams
  • Identity theft
  • Investment fraud scams (including cryptocurrency and NFT scams)
  • Phone and email marketing scams

Again, these are just examples. Additionally, while the FTC will often target one specific statutory or regulatory offense, FTC investigations can also encompass multiple wide-ranging allegations. To defend themselves effectively, companies and individuals targeted in these investigations need to ensure that they have an accurate and comprehensive understanding of the full universe of the allegations involved.

3. Identifying the Relevant Statutes and Regulations

Along with understanding the factual allegations at issue, successfully defending against an FTC investigation also requires a clear understanding of the relevant statutes and regulations thus, it would be helpful for businesses to find legal resources and guidance concerning this. The FTC’s enforcement authority covers numerous statutes and regulations, each with its own unique set of prohibitions (and its own set of possible defenses). Some of the statutes that are most commonly at issue in FTC investigations include:

  • CAN-SPAM Act
  • Clayton Act
  • Consumer Review Fairness Act
  • COVID-19 Consumer Protection Act
  • Elder Abuse Prevention and Prosecution Act
  • Equal Credit Opportunity Act
  • Fair Debt Collection Practices Act
  • Fair Packaging and Labeling Act
  • Federal Trade Commission Act
  • Magnuson Moss Warranty-Federal Trade Commission Improvements Act
  • Protecting Children in the 21st Century Act
  • Sherman Act

Here, too, this list is far from exhaustive. FTC investigations can implicate numerous statutes, and individual deceptive or anticompetitive practices violate multiple statutory or regulatory prohibitions. Thus, not only is it imperative to understand all of the factual allegations at issue in an FTC investigation, but to understand all relevant sources of legal authority as well.

4. Identifying All Available Defenses

With a clear understanding of the relevant facts and relevant laws, experienced FTC investigation lawyers or FTC defense lawyers should be able to identify all available defenses and begin the process of formulating a cohesive defense strategy. Defenses in FTC investigations can take various forms, from challenging procedural miscues during the investigation to raising substantive defenses based on the facts at hand or the limitations of the statutory or regulatory prohibitions that apply. The key to identifying and selecting defenses is to ensure that the defenses chosen do not leave any potential charges unaddressed and the defense should be ready to provide a piece of proficient advice and guidance. If the target of an FTC investigation overlooks even a single potential charge, this oversight could result in significant civil or criminal exposure.

5. Formulating a Cohesive Defense Strategy

Due to the breadth of the issues falling within the FTC’s enforcement jurisdiction, formulating a cohesive defense strategy can prove extremely challenging. But, it is also extremely important, as targeted businesses and individuals need to expose a clear path that the FTC can follow toward a positive outcome.

When facing an FTC investigation (or any federal investigation), it can be tempting to raise all possible defenses and see what sticks. But, more often than not, this is not the most prudent approach. Rather than relying on the FTC to sift through a laundry list of defenses and make its determination about whether any warrant closing the Commission’s investigation without further action, targeted businesses and individuals can typically obtain more favorable and more efficient results by focusing on one specific defense (or set of defenses) that compels a desirable result.

6. Communicating Effectively with the FTC

When seeking to resolve an FTC investigation without facing formal charges, effective communication is paramount. Targeted businesses and individuals must be able to rely on their defense counsel to communicate effectively on their behalf. This means not only effectively presenting the target’s defense strategy, but also maintaining open lines of communication that facilitate an amicable resolution.

7. Preserving Relevant Records Across All Devices

As with any federal investigation or law enforcement matter, targets of FTC investigations must be careful to preserve all relevant records. This applies across all devices, from the company’s cloud servers and on-site laptops to employees’ company-issued and bring-your-own (BYO) mobile devices. Not only must targets preserve relevant records to submit compliant responses to the FTC’s enforceable requests (as discussed below), but destroying—or allowing the destruction of—relevant records can itself lead to federal charges.

8. Responding Appropriately to FTC Subpoenas, CIDs, and Requests for Special Reports

When conducting investigations, the FTC can compel the production of information through three primary means: (i) FTC subpoenas, (ii) civil investigative demands (CIDs), and (iii) requests for special reports.

Each of these is a unique type of request that the FTC uses under different circumstances. However, all three share the quality of judicial enforceability. In other words, if a target fails to comply with (or successfully challenge) an FTC subpoena, CID, or request for a special report, the FTC can go to a federal district court and seek a motion to compel. If the court issues a motion to compel and the target still fails to comply, the target can face additional consequences for contempt of court.

Responding to an FTC subpoena, CID, or request for a special report is a complex, high-risk, and usually a time-consuming task. While there are grounds for challenging all three types of requests, these grounds are limited, and the supreme court will often defer to the FTC’s judgment. Thus, targeted businesses and individuals must consider the likelihood of success when considering a challenge—and also consider whether an alternate approach (i.e., seeking to negotiate the scope of the request with the FTC) may be more appropriate.

9. Focusing on a Specific Targeted Result

Just as it is important for FTC investigation targets to have a cohesive defense strategy, it is also important for targets to have a specific end goal in mind. Is it reasonable under the circumstances to seek to resolve the FTC’s investigation without any liability? Or, is it prudent under the circumstances to pursue a specific negotiated outcome? If an FTC defense strategy does not target a specific desired result, it will not be as effective as it could be.

10. Acknowledging the Risks and Staying Focused on the Task at Hand

Finally, when facing an FTC investigation, it is imperative to acknowledge the risks involved and stay focused on the task at hand. The consequences of failing to assert an effective defense strategy can be substantial, and targeted businesses and individuals must keep this in mind for the duration of the FTC’s inquiry. Mistakes happen when people aren’t being careful; and, in the context of an FTC investigation, even seemingly minor mistakes can have significant and long-term ramifications.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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