The Essential Guide to FTC Compliance, Investigations, and Enforcement

The FTC has broad-ranging investigation powers, including various forms of compulsory process relating to suspected violations of laws and regulations enforced by the FTC and of possible violations of FTC orders. 15 U.S.C. §§43, 46, 49, 57b-1, FTC Manual Ch. 3, Section .1.2.1. In particular, 15 U.S.C. section 57b-1 outlines the power to issue Civil Investigative Demands (“CIDs”), and 15 U.S.C. section 49 details powers to convene investigative hearings, which may involve subpoenas for witness testimony and for the production of documents relating to any matter under investigation.

A variety of events may prompt the FTC to open an investigation. One way in which the FTC identifies targets for investigations is through the use of data obtained from the Consumer Sentinel Network. The Sentinel Network populates a database with consumer complaints from phone calls to the FTC, complaints submitted on the FTC website, complaints received by state Attorneys General, complaints to the Better Business Bureau, and other sources within the network. The Consumer Sentinel Network’s database is an investigative cyber tool that provides Sentinel Network members with access to millions of consumer complaints. Thus, complaints to any Sentinel Network member, even if the complaints are unverified, can trigger an investigation by the FTC or other state or federal agencies. The Consumer Sentinel database allows attorneys working at the FTC to identify trends in consumer complaints, or trends regarding complaints concerning specific companies and brands, which can lead to investigations. In other words, retaining counsel to proactively implement and continually review policies to ensure FTC compliance, and having sufficient call center and customer service staffing, is crucial to limit consumer complaints and thus limit the risk of an FTC investigation.

Other triggers for investigations include formal requests from members of Congress, publications (such as media, blogs, tweets) or reports by advocacy groups or competitors that happen to be reviewed by the FTC. Additionally, during FTC investigations and enforcement actions, the FTC often discovers conduct by third parties that the FTC believes is unlawful, thus triggering separate investigations into those third parties and their actions.

Major investigations involving many different respondents require approval at the Commission level; however, most investigations may be initiated by Regional Directors and Assistant Directors, who may pursue them for 100 hours before seeking review by the Bureau Director. Before opening an investigation, staff should ordinarily have information indicating that the Commission is likely to have jurisdiction of the proposed target and over the practices, that the volume of business in or affecting commerce is substantial, that the practices to be investigated are not the primary responsibility of another federal or state or local agency, and that there will be some benefit to consumers.

CIDs are judicially enforceable demands for documents, tangible things, written reports or answers to questions, or oral testimony (somewhat similar to conventional subpoenas) and may be issued when the FTC has “reason to believe” a person has possession, custody, control of materials or information “relevant to” an unfair or deceptive act or practice affecting commerce. CIDs will request responses under oath and may indicate that you are the target of an FTC investigation or that the FTC believes you have information relevant to an investigation.

The Commission must approve all forms of compulsory process, like CIDs, but requests identical to what may appear in a CID may be made prior to a formal CID, with compliance only voluntary. If an investigative target does not respond voluntarily, there is an obvious risk that the staff member may seek formal approval for a CID. Getting the advice of an experienced FTC defense attorney is highly recommended upon receipt of a CID.

Recipients of CIDs should weigh potential response options. If a CID is procedurally or substantively deficient, the recipient may be able either to meet and confer with the FTC to narrow the requests or to file a petition to quash or limit the CID. For example, a CID is required to state the nature of the conduct constituting the alleged violation that is under investigation and provide the applicable law; furthermore, the requested documents or other requests should be reasonably relevant to a legitimate investigation of a possible FTC action. Moreover, requests for documents and information must describe the requested material with definiteness and certainty and prescribe a response date within a reasonable period; and a request for oral testimony must state the date, time, and place where the testimony will be taken, as well as the process for obtaining transcripts. If a CID recipient is considering filing a petition to quash or limit the CID, there are special requirements to consider, including the requirement to meet and confer with the FTC before filing, and the requirement to file the petition within twenty days of service, or, if the response date is less than twenty days after service, prior to the response date. For any other written responses, the recipient may try to assert objections, including on grounds of relevance and indefiniteness, along with the substantive responses to the CID requests.

CIDs should be taken seriously, as there are potentially serious consequences for failing to respond or insufficiently responding. Perhaps most importantly, a deficient response can lead to the FTC investigating further and potentially commencing an enforcement action in federal court, which can result in added risks and costs. In FTC lawsuits (covered below), the FTC generally has a broad range of remedies, from monetary redress (i.e., restitution and disgorgement) to equitable remedies (i.e., temporary restraining order, asset freeze, receiver, preliminary or permanent injunction). The FTC can also refer potentially criminal violations to the Department of Justice or Attorney’s General Office for further action. Thus, the stakes are high if a recipient does not respond to a CID.

Investigative hearings may be held to formalize the interview process by requiring a person to appear at a given time and place, to be sworn in, to produce documents, and to give testimony. A representative of the FTC will generally preside over the proceedings, and a transcript of the hearing will be created. For example, an investigational hearing may be conducted pursuant to a CID for the giving of oral testimony or in response to a subpoena duces tecum. Persons providing testimony or producing documents have the right to counsel and may want to consider the applicability of specific defenses, such as the privilege against self-incrimination.

Communications with the FTC during an investigation include formal, sworn responses to a CID or subpoena, but also can include less formal communications, such as letters, emails, and phone conversations between counsel and the FTC to obtain more information about an investigation. Targets of investigations may also consider whether it makes sense under the circumstances to strengthen their positions using consumer surveys, research studies, or other more formal submissions. Generally, the FTC welcomes communications and questions, which can be a good way to determine the intent and focus of the investigation. Using experienced counsel is important in these high stakes communications, in order to increase your chances of resolving an investigation without a formal enforcement action, and also in making certain that in communicating with the FTC that defenses and privileges are not waived.

Following an investigation, the FTC may initiate an FTC lawsuit or administrative action if it has “reason to believe” that the law is being or has been violated. Specifically, a recommendation to the full commission may be made by the trial attorneys and FTC Bureau of Consumer Protection for authorization to file a court complaint or administrative action; or, if there is insufficient evidence or other factors warranting the closure of the matter, the FTC staff may make a recommendation to close the matter and take no further action.

Following an investigation, the FTC may either close the consumer protection investigation, or recommend proceeding with enforcement. Assistant Directors of the Bureau of Consumer Protection, Regional Directors, and the Director of Federal-State and Consumer Relations are authorized to close consumer protection investigations which have not exceeded 100 work-hours. However, if initiation of the investigation required approval by the Bureau Director, such approval must be obtained for closing. Additionally, if the FTC investigation has received previous Commission consideration, Commission approval must be obtained.

If FTC staff close an FTC investigation without recommendation of further action, FTC staff may consider obtaining informal correction of the practices if it appears that the target of the investigation has acted in good faith and will make the necessary changes promptly. Regardless of whether informal corrections are requested, the FTC staff may close an investigation with a private closing letter sent to the target of the investigation.

If, after an investigation, FTC staff believe that grounds exist to support a recommendation for a complaint, FTC staff ordinarily offer the instagatory target the ability to enter either a consent agreement with the FTC or a stipulated injunction and final order for entry in a federal court. If the investigatory target does not agree to a consent agreement or final court order (or if he or she is otherwise not offered one), FTC staff will recommend to the Commission that a complaint be filed. FTC staff normally informs the target of the investigation that the complaint recommendation will be forwarded to the Commission. The target of the potential enforcement action will ordinarily have an opportunity to make a written submission to the Bureau Director and the Commission. Additionally, the enforcement target may also request meetings with the Bureau Director and each Commissioner, which will be granted at the discretion of the Director and each Commissioner.

If the Commission votes to approve a complaint, FTC staff will promptly file the complaint in the appropriate forum and serve the complaint on the defendants.

If you have an FTC legal matter, call us at 415-955-1155, ext. 120, or contact one of our FTC defense lawyers directly.