FTC Investigation Process
Under Investigation by the FTC? Here’s What You Can Expect During and After the Investigation Process
The U.S. Federal Trade Commission (FTC) investigates companies and individuals for a broad range of statutory and regulatory offenses. Successfully defending against an FTC investigation requires a strategic approach, and this begins with understanding what to expect during – and after – the investigation process.
While the FTC’s investigation process is largely similar to that of many other federal law enforcement agencies, there are some unique aspects to FTC investigations as well. At Oberheiden P.C., our federal defense lawyers have experience on both sides of FTC investigations, and we rely on this experience to pursue efficient, favorable, and discrete resolutions on behalf of our clients. We guide companies and individuals through all phases of the investigative process, and we engage with the FTC as warranted to resolve our clients’ investigations without charges being filed whenever possible.
FTC Investigations: Informal or Formal?
When facing an FTC investigation, one of the first questions that must be answered is whether the investigation is informal or formal in nature. Most FTC investigations begin informally, and many remain informal through their resolution.
The distinction between informal and formal investigations is an important one. Once an FTC investigation becomes formal, the Commission gains the ability to exercise its vast statutory investigative powers. At this stage, the FTC is typically invested in the investigation as well, and thus it is typically more difficult to convince the Commission that it should close the investigation without taking enforcement action or pursuing litigation in federal district court.
Informal FTC Investigation Process
During informal investigations, the FTC relies on publicly-available information as well as information supplied voluntarily by the target and witnesses. These investigations are typically triggered by consumer complaints, media coverage, or information supplied by one of the target’s competitors.
Since conducting an informal investigation does not trigger the FTC’s subpoena power (more on this below), the Commission can only review information that parties provide voluntarily. As a target (or as a witness or potential target), deciding whether and to what extent to voluntarily provide information to the FTC requires a careful assessment of the risks and rewards involved. In some cases, voluntarily providing evidence of compliance can lead to a swift and favorable resolution. In other cases, however, voluntarily providing harmful information (which is usually done unknowingly) can increase the chances of a formal inquiry.
During informal investigations, FTC agents may seek to establish a dialogue with the target. While being communicative can help facilitate a favorable result, it carries risks as well. As a result, during the informal FTC investigation process, it is crucial for targets to engage federal defense counsel to interface with the FTC on their behalf, and targets must work with their counsel to establish internal controls, communication channels, and a chain of command.
An informal FTC investigation will have one of two outcomes—either (i) the FTC will terminate its inquiry without further action, or (ii) the FTC will launch a formal investigation. With a proactive and targeted defense strategy, it will often be possible to end the FTC’s investigative efforts at this stage.
Formal FTC Investigation Process
While the formal FTC investigation process typically begins following an informal investigation, in some cases the FTC will initiate a formal investigation directly. During a formal investigation, the FTC utilizes its statutory powers to obtain information from targets and witnesses through various means. The statutory powers the FTC can exercise during a formal investigation include:
Under Section 9 of the Federal Trade Commission Act (the “FTC Act”), the FTC has the power to, “require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation.” Pursuant to the FTC’s Rules, “[a]ny member of the Commission may sign a subpoena . . . and both members and ‘examiners’ (employees) of the agency may administer oaths, examine witnesses, and receive evidence.”
The FTC’s subpoena power is extraordinarily broad; and, as the Commission explains, it “routinely uses the subpoena provisions of Section 9 to investigate alleged unfair methods of competition and other antitrust violations.” In the event of non-compliance with an FTC subpoena, the Commission can seek judicial enforcement in federal district court, and subsequent non-compliance can lead to a finding of contempt.
Civil Investigative Demands (CIDs)
The FTC also relies heavily on civil investigative demands (CIDs) during formal investigations. In certain investigations (i.e. those targeting unfair and deceptive trade practices), the FTC is limited to using CIDs rather than subpoenas. However, in other investigations, the Commission can issue both types of requests for information. As the Commission explains:
“The scope of a CID is different from that of a subpoena. Both subpoenas and CIDs may be used to obtain existing documents or oral testimony. But a CID may also require that the recipient ‘file written reports or answers to questions.’ . . . In addition, Section 20 [of the FTC Act] expressly authorizes the issuance of CIDs requiring the production of tangible things and provides for service of CIDs upon entities not found within the territorial jurisdiction of any court of the United States.”
Thus, while a CID may appear on its face to be less imposing than an FTC subpoena, the reality is that both types of requests present substantial burdens for their recipients. Upon receiving an FTC subpoena or CID, it is imperative to begin response efforts immediately while assessing any grounds to seek to limit or quash the request in tandem.
Pursuant to Section 6 of the FTC Act, the Commission can require companies to file “special reports” that disclose information about their, “organization, business, conduct, practices, management, and relation to other corporations, partnerships, and individuals.” Similar to FTC subpoenas and CIDs, these are powerful investigative tools that are subject to judicial enforcement.
Collaboration with Other Federal Law Enforcement Agencies
During formal investigations, the FTC may also collaborate with other federal law enforcement agencies. Section 6 of the FTC Act authorizes the Commission to, “share confidential information with other appropriate enforcement agencies, subject to appropriate limitations and confidentiality assurances.” The FTC frequently collaborates with agencies such as the Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), Securities and Exchange Commission (SEC), and U.S. Department of Justice (DOJ) during formal investigations, and these collaborative efforts can involve a wide range of potential charges that each their its own targeted and strategic defense.
Potential Outcomes of an FTC Investigation
At the end of the FTC investigation process, targets can face a number of potential outcomes. In general, the best-case scenario involves resolving an investigation at the informal stage. If an FTC investigation becomes formal in nature, then the target’s defense efforts should focus on terminating the investigation without charges being filed.
In many cases, this will mean avoiding financial liability and other consequences entirely. In certain circumstances, however, it may be in a target’s interests to negotiate a settlement agreement with the FTC. Absent either of these two outcomes, the FTC will pursue administrative enforcement action or file a lawsuit in federal court.
FAQs: The FTC Investigation Process
What Statutory and Regulatory Violations Does the FTC Investigate?
The FTC investigates a broad range of statutory and regulatory violations, and identifying the issue(s) at hand is a key early step in the process of successfully defending against an FTC inquiry. The FTC’s enforcement authority ranges from HIPAA and Gramm-Leach-Bliley Act compliance to combatting unfair and deceptive advertising practices online. Different types of investigations require different defense strategies, and targets of FTC investigations must ensure that they are defending against the right allegations.
Are FTC Investigations Public Record?
According to the FTC, “[p]re-complaint investigations are generally non-public.” Thus, targets that are able to avoid charges can generally avoid negative publicity as well. However, the FTC may choose to make an investigation public if, “the public interest warrants it or a merging party or target has disclosed the existence of the investigation.”
What Penalties Can the FTC (or a Federal Court) Impose Following an Investigation?
The specific penalties the FTC may impose following an investigation depend on the substantive issues involved. In appropriate cases, administrative enforcement action can lead to cease-and-desist orders, restitution orders, and/or civil monetary penalties. If the FTC pursues charges in federal court, it can seek preliminary injunctive relief as well as post-judgment remedies. Criminal prosecution is also a possibility in some cases.
When Should a Company or Individual Engage Federal Defense Counsel for an FTC Investigation?
When facing an FTC investigation, it is imperative to engage federal defense counsel as soon as possible. Prompt intervention can significantly reduce the risks and costs involved, and executing a proactive defense strategy generally affords the greatest opportunity for securing a pre-charge resolution.
Speak with a Federal Defense Lawyer at Oberheiden P.C.
The federal defense lawyers at Oberheiden P.C. bring centuries of relevant experience to defending companies and individuals during FTC investigations. For more information, please call 888-680-1745 or get in touch online today.