The Essential Guide to FTC Compliance, Investigations, and Enforcement

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.

Upon receipt of a CID, it is crucial to read through the CID, preserve pertinent records and information, calendar deadlines, and consult counsel or appropriate vendors to initiate a “litigation hold” (i.e., preservation of documents) if needed. Reviewing and assessing the grounds for the FTC CID at an early stage is also important to preserve any legal arguments and defenses, including regarding confidentiality of records.

Given the seriousness of a CID, it is important to consult with experienced FTC defense lawyers immediately upon receipt of a CID. Counsel can assist with, among other things:

• negotiating deadlines and any extensions needed;
• clarifying the scope and purpose of the requests;
• evaluating potential document productions;
• drafting written responses;
• considering potential broader implications for the recipient;
• balancing cooperating with the FTC with protecting business goals;
• preserving legal objections, including for potential objections under the attorney-client privilege, the Fifth Amendment, and other privileges; and
• researching applicable laws, strategy, and potential penalties.

Experienced FTC defense attorneys can also provide insights into the legal motivations of the FTC staff and negotiate with the FTC to minimize the possibility that the matter proceeds past the investigative phase.

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.