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Legal Review: The FTC Reminds Companies That Compliance Counts

1 Apr, 2014 By: Marc Roth Response


Recent Federal Trade Commission (FTC) enforcement actions serve as a strong reminder that companies and individuals who have entered into a consent decree must diligently follow through with the compliance process or risk penalties such as a contempt order. In the past eight months alone, the FTC has successfully obtained contempt orders in five cases of recidivist offenders totaling tens of millions of dollars in judgments.

The most recent contempt order, issued in January 2014, resulted in a $14.75 million judgment for violations of a December 2008 permanent injunction and final order. These matters serve as a reminder to companies that are engaged in settlement negotiations with governmental agencies to weigh the costs of compliance before committing to monetary relief obligations and changes in business practices that may not be realistic.

Recent Contempt Orders

In January, at the FTC’s request a U.S. District Court judge in Florida issued a contempt order against two individual defendants who had previously agreed to a permanent injunction and final order in 2008 in connection with their alleged role in deceptively marketing negative option programs to consumers nationwide. As a result of the original settlement, the defendants were ordered to pay more than $11 million dollars in monetary relief, including refunds to defrauded consumers, and were barred from making misrepresentations to consumers and billing consumers without their authorization, among a number of other unlawful acts in the future.

According to the contempt order, the defendants opened a new business within months of the 2008 order and continued to engage in the same kinds of deceptive acts and practices. The defendants allegedly used deceptive phone and Internet solicitations to target recent loan applicants and led them to believe they would provide cash advances, loans or lines of credit, when they were actually enrolling them in a continuity program. The contempt order found that the defendants violated the 2008 order and awarded the FTC a $14.75 million judgment, which represented their net revenue from the new business according to evidence presented by the FTC.

This order follows on the heels of contempt orders issued in November 2013 in two separate cases in the U.S. District Courts of the Western District of New York and the Northern District of Illinois against defendant Paul Navestad and defendant Kevin Trudeau, respectively. In both cases, the courts pursued criminal action against the defendants in order to force them to comply with payment obligations imposed under their original settlements.

In the Navestad case, which involved a deceptive robocalling scheme, he was found liable for contempt for failing to pay more than $21 million in penalties and disgorgement owed from the original settlement. The court found that an arrest warrant was appropriate because “only incarceration would compel Navestad to pay the sums due.”

In one of the most extreme examples of enforcement efforts and contempt, Trudeau was found guilty of criminal contempt by a federal jury and was sentenced to 10 years in prison on March 17. Trudeau owes more $37 million in fines and consumer restitution and was previously found in civil contempt three times.

Looking Ahead

Based on the FTC’s recent, aggressive pursuit of recidivist violators, marketers would be well advised to carefully consider the injunctive and/or monetary relief terms of any proposed settlement agreement before agreeing to be bound by them. Additionally, when entering into a post-settlement compliance phase, companies should note that the FTC is closely monitoring injunctive efforts as well as payment obligations. A company’s satisfactory fulfillment of payment obligations does not excuse or prolong compliance obligations related to injunctive provisions (unless stipulated in the consent decree).

Marketers should assume that violations of an FTC order are likely to result in consequences, which may be more severe than the requirements of the original consent decree. Moreover, while the above cases reflect only the FTC’s approach towards recidivists, many state regulators look to the FTC for guidance on enforcement efforts and, as a result, may also ramp up efforts to target repeat offenders through state regulatory action. ■


About the Author: Marc Roth


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