Wednesday 10 03, 2018

The Power of an FTC Asset Freeze Order

Portrait Liana Chen
By Liana Chen


The United States government has many legal tools to prosecute companies, foreign nations, and individuals. One of the most powerful is the asset freeze order. Make no mistake, when such an order is exercised, the consequences can be devastating.

What Is An Asset Freeze?

The Federal Trade Commission (FTC) can obtain an asset freeze order to prevent defendant companies and their individual owners, officers, and employees from dissipating assets. The goal is to preserve funds to pay damages or restitution to consumers.

Historically, defendants have argued that asset freezes are overbroad or violate Due Process rights. Nevertheless, many courts routinely grant asset freezes within days or weeks of the FTC filing an action. Even more consequential, the freeze can be granted without prior notice to a defendant, which can severely impact business operations and even the ability to pay defense costs.

A Brief History of FTC Powers and Asset Freezes

Section 13(b) of the FTC Act, 15 U.S.C. §53(b), authorizes the FTC to seek temporary restraining orders or preliminary injunctions if the agency has reason to believe:
(1) that a person or entity is violating or is about to violate a law enforced by the FTC; and
(2) the enjoining thereof (until dismissal or final order) is in the public interest.

Courts have broadly held that appropriate relief includes “ancillary relief necessary to accomplish complete justice,” including freezing of company and even individual assets so that funds will be available to compensate defrauded consumers.

FTC requests are subject to a significantly more lenient standard than in private litigation, as the FTC need not show irreparable harm.

Under §13(b), a court must only:
(1) determine the likelihood that the FTC will ultimately succeed on the merits; and
(2) balance the equities.

Under the first prong, the FTC must make a “prima facie showing of illegality.” Under the second, public protection receives overwhelming weight, and some courts routinely weigh in favor of the FTC.

As a matter of practice, many courts routinely grant FTC requests for asset freezes, which results in physical freezing of accounts or broad orders restricting any transfers. This makes it difficult for defendants to continue business operations, pay defenses costs, or even pay for personal living expenses.

It's crucial for defendants to seek counsel and vigorously oppose or attempt to limit an asset freeze, especially if funds are needed to pay expenses, such as taxes, a mortgage, or litigation costs.

Experienced counsel might be able to argue that an asset freeze is improper when:

  • Prior business operations described in the court complaint were already abandoned.
  • There is no history of the defendant disregarding court orders.
  • There’s no history of disposing of evidence.
  • There has been no transfer or hiding of assets.
  • Under court discretion, to unfreeze assets for defense fees or personal living expenses.

Kronenberger Rosenfeld has successfully negotiated with the FTC on many asset freeze orders. Negotiations can cover a range of topics including:

  • Whether the freeze order applies to business activities and revenue generated after the date of the order.
  • Whether frozen money can be used to pay for counsel fees.
  • Or, whether frozen money can pay a personal mortgage or basic living expenses like groceries.
  • Whether funds unrelated to the alleged wrongdoing should be frozen.
  • And whether funds earned by a spouse should be covered by the order.
Steps to Take If Your Assets Are Frozen

If your assets or your company’s assets have been frozen, consult with experienced counsel immediately. You should also conduct a thorough review of the court order and all related documentation.

Careful review is crucial as violating a court order can have severe consequences, including a finding of contempt of court, daily fines, and jail time. It's crucial to engage counsel quickly to analyze the asset freeze and provide guidance on how you can comply with the order.

Contact us if you or your company is the subject of an asset freeze order. Time is of the essence. We look forward to assisting you.

This entry was posted on Wednesday, October 03, 2018 and is filed under Resources & Self-Education, Internet Law News.

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