LEGAL GUIDE
Written by attorney Robert Marshall Sanger | Dec 13, 2010

FTC -- The Federal Trade Commission -- and the Criminal Law

FTC -- THE FEDERAL TRADE COMMISSION AND THE CRIMINAL LAW

The Federal Trade Commission is an agency of the United States Government. They employ a large staff including a large number of lawyers in multiple offices around the country. They are primarily responsible for enforcing the federal laws and regulations to protect against fraudulent or deceptive claims that mislead consumers or against harmful business practices that undermine the competitive process.

The FTC does not prosecute criminal cases on its own. It refers those cases to the FBI or IRS-CID, or sometimes other agencies, for criminal investigation. Such cases are then referred to the United States Attorneys Office which handles the actual prosecution.

However, it is typical of the FTC to conduct an investigation and then launch both a civil and a criminal case. Often the FTC will file a complaint in federal (and sometimes even state) court alleging violations of the various code sections and regulations which they contend that the target business and its pricipals had violated. The Agency staff can also bring a complaint before the Commission itself.

If the case is filed in court, the FTC typically requests a Temporary Restraining Order ex parte. The order will freeze all of the assets of the company and often of its principals. Neither the company nor its principals will be allowed to sell, borrow again, transfer or alienate in any way even assets that they have not identified.

In addition, they will request in this ex parte application that the defendants be required to sign a declaration under penalty of perjury as to all of their assets. Finally, they will request the appointment of a receiver and ask that the receiver be allowed to force-ably take over the premises of the business and marshal all of the assets.

This is tantamount to a death sentence for the business and almost one for the principals unless they are able to obtain counsel to immediately fight the TRO and the upcoming Preliminary Injunction. However, counsel can usually get the court to allow a reasonable sum to be released from the assets right away so that the principals can have money for basic living expenses and sometimes can get funds released for attorneys fees.

But then the fight begins. It is critical to clearly define the duties of the receiver. If the receiver cannot be removed, at least it has to be made clear that his duty is to the company and the shareholders and to the alleged victimized customers but not to the FTC or the FBI or anyone else. This can be crucial because it can allow the business in many circumstances to continue running. The upcoming Preliminary Injunction Hearing also gives counsel the opportunity to establish his defense with the court.

All this must be done with an eye to the potential for a criminal prosecution. Often the civil action precedes an indictment. The FTC and AUSA hope that the receiver will provide them with information for the Grand Jury. Counsel can require that they take appropriate steps to obtain the information through regular procedures. And, while this is going on, counsel will have an opportunity to not only persuade the civil judge that violations are not provable (or are overstated) but she or he will have the opportunity to engage in preindictment discussions with the criminal agents and AUSAs.

It may also be necessary to ask for a stay of the civil case from the civil judge on the grounds that an active criminal investigation is being pursued. Even if the judge wil not grant a stay, she or he may allow counsel to file the financial declaration without signature and stay anything else that requires a declaration or statement of a party.

Every case is different and anyone facing civil or criminal charges associated with an FTC investigation should hire competent and vigorous counsel versed in this area of law and practice.

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