Regulatory sweeps in the digital marketing industry are inevitable. The following is specifically meant to address a few things that you should know if you are the unfortunate subject of an enforcement action initiated by the Federal Trade Commission (the “Commission”) relating to allegations of deceptive advertising.
“Kick-off” usually takes the form of your business being ransacked, your personal property being seized and service of a legal complaint and a temporary restraining order barring further operations.
For good measure, the government will typically freeze both corporate and personal assets.
You may be asking, “How can the government get away with doing that?”
For starters, the Federal Trade Commission Act (the “Act”) empowers the Commission to investigate and prevent unfair competition and deceptive trade practices, and to seek monetary redress and other relief for conduct injurious to consumers. As a result, the Commission is permitted to initiate federal district court proceedings to enjoin violations of the Act, and to secure other equitable relief such as disgorgement of what it considers to be “ill-gotten gains.”
Oftentimes, the temporary restraining order will appoint a temporary receiver to take custody, manage and preserve money or property that is subject to the litigation so that when the final judgment or settlement is rendered, the property remains available to accomplish what has been ordered or agreed upon.
The Commission can pierce the corporate veil and disregard the formal division between corporate and personal assets. As a general rule, corporate officers may be held individually liable for violations of the Act if the officer personally participated in or controlled the challenged acts, or if the officer held a control position over employees who committed illegal acts. The Commission often names individual defendants, alleging that doing so is necessary for an order to be fully effective in preventing the alleged deceptive practices in the future.
Well, now what?
You may be contacted by a staff attorney who will try to back you into a corner. Be cordial. Say little. Advise the Commission that you are in the process of retaining legal counsel.
Although a regulatory enforcement action is no laughing matter realize that the process is an ephemeral one. It can be resolved efficiently with the assistance of an experienced FTC defense lawyer that should be able to immediately assess relevant factual and legal defenses in furtherance of formulating a robust strategy to minimize damage.
Counsel experienced with defending regulatory enforcement actions in the online marketing and advertising sectors may also be able to negotiate the release of reasonable and necessary living expenses in furtherance of the ultimate resolution of the enforcement action.
Interestingly, in a recent case filed by the Commission in Utah, the court initially granted the Commission’s request for a temporary restraining order and froze assets both traceable to the subject business enterprises, as well as from unrelated business enterprises. Assets of the individual defendants were also frozen. There was no initial access to funds for personal expenses or legal fees, not uncommon with Commission-imposed asset freezes.
However, some of the defendants decided not to stipulate to a preliminary injunction and successfully convinced the court to narrow the scope of the asset freeze, as well as the respective entities to which it applied. The assets of unrelated businesses were unfrozen.
The moral here is that some courts may be sympathetic to the plight of a defendant that has just had their life turned upside down. As noted above, the Commission may also be persuaded to agree to release funds, absent a court order, in furtherance of settlement negotiations.
Recent regulatory settlements reflect that the spectrum of deceptive marketing enforcement actions taken by the Commission, the Consumer Financial Protection Bureau and state regulators is widening. Be certain that your matter is handled correctly from the get-go.
Information conveyed in this article is provided for preliminary informational purposes only and does not constitute, nor should it be relied upon, as legal advice. No person should act or rely on any information in this article without seeking the advice of an attorney regarding how best to respond to a regulatory investigation or enforcement action.
