The Supreme Court is curtailing the Federal Trade Commission’s powers to recover illicit profits


WASHINGTON – The Supreme Court on Thursday curtailed the Federal Trade Commission’s longstanding practice of recovering ill-gotten profits from companies and individuals who defraud or mislead consumers in court and a key enforcement tool that the agency has relied on for decades turned upside down.

In an opinion by Judge Stephen Breyer, the court unanimously ruled that a 1973 law that gave the FTC the right to obtain injunctions to cease fraudulent or fraudulent business activities did not give the Commission the power to obtain financial judgments .

The court said that if the FTC wants to seek financial recovery on behalf of defrauded consumers, it must rely on other, more restrictive legislation that requires it to go through detailed administrative procedures aimed first at detecting and stopping the fraudulent behavior.

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The Commission had argued that such an approach was slow and ineffective. Relying on these funds alone will only stop the Commission from fraudulent behavior in the future, while the defendants will be able to keep the profits they have already made at the expense of consumers.

“If the commission feels that this authority is too cumbersome or otherwise inadequate, it is of course free to ask Congress for further remedial powers,” wrote Judge Breyer.

Aside from the FTC’s future enforcement approach, Thursday’s ruling could undermine numerous investigations currently pending with the agency, as well as cases pending in court. It is unclear whether previous defendants could, in now final cases, try to use Thursday’s judgment to try to resume scrutiny of previously paid fines.

The FTC puts in place a range of consumer protection and antitrust enforcement measures that target everything from financial fraud and false advertising to more sophisticated illegal or fraudulent practices involving large, well-known companies.

It used the 1973 Act to reclaim billions of dollars from defendants accused of fraudulent or unfair business practices. Recent notable cases contain Settlements and reimbursements from Volkswagen AG, Western Union Co. and the University of Phoenix. These comparisons did not include an admission or denial of wrongdoing.

In a testimony presented to Congress this week, the commission said it had used its cases to return $ 11.2 billion in ill-gotten gains to consumers over the past five years. Not all funds raised go back to the victims.

Critics have described the FTC’s longstanding approach as clumsy and overly punitive to companies whose behavior was not egregious or clearly illegal. Groups of companies, including the US Chamber of Commerce and the Pharmaceutical Industry Trade Association, filed submissions with the Supreme Court in support of the FTC’s challenge.

The case comes from a multi-billion dollar payday loan program run by businessman and racing driver Scott Tucker.

Mr Tucker was convicted of illegally charging high interest rates and lied to consumers about the cost of their loans in 2017, and later Sentenced to more than 16 years in prison.

In a civil case, the FTC obtained a verdict sentencing Mr. Tucker and several corporate defendants to pay $ 1.3 billion, the largest court order it had ever received. Mr Tucker questioned the FTC’s powers to pursue the monetary ruling on behalf of consumers, arguing that the commission did not have full power to compel monetary payments in court.

During the hearing in January, Judge Amy Coney Barrett suggested that Mr. Tucker may have valid legal arguments but was not exactly a compassionate defendant. “I mean, he’s been convicted, he has the dubious distinction of being the subject of an episode of ‘Dirty Money’ on Netflix,” she said.

Thursday’s verdict effectively overturned the civil sentence against Mr. Tucker and related defendants, despite other funds related to the criminal case – about $ 500 million – being distributed to consumers and prosecutors auctioning off exotic sports cars owned by Mr. Tucker last year were confiscated as another way to return money to the victims.

The commission had contingency plans for a loss to the Supreme Court, but FTC officials had warned that losing their long-held authority would undermine their mission. Thursday’s ruling could put pressure on Congress to consider new measures to strengthen the agency’s powers.

“The Supreme Court ruled in favor of fraudsters and dishonest companies and made the average American pay for illegal behavior,” said Acting FTC Chairwoman Rebecca Kelly Slaughter, a Democrat. “With this ruling, the court has stripped the FTC of the most powerful tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the authority’s powers so that we can cure unjustified consumers. “

The FTC Republicans have also told Congress that the commission would need a legislative correction if it lost in the Supreme Court, but have suggested that lawmakers could restore the FTC’s authority in a way that would facilitate the use of its powers Obtaining monetary judgments sets some limits.

Maureen Ohlhausen, a former Republican commissioner and acting FTC chairperson who criticized the commission’s approach, said the FTC had shifted over time from finding funds in overt fraud cases to monetary judgments in gray area cases where defendants had legitimate products and offered services.

Now the FTC needs to develop case law as part of its administrative process, which in turn will better inform the business community about illegal behavior, said Ms. Ohlhausen, attorney at Baker Botts LLP. “I think it will restore the FTC to the role that Congress envisioned,” she said.

Attorney Michael Pattillo, who argued on behalf of Mr. Tucker in the High Court, said, “We are pleased with the court’s judgment. We think that the unanimous decision of the court speaks for itself. “

The FTC’s power to seek ill-gotten gains had been accepted in court for years, but the tide had turned in some recent lower court judgments. For example, a federal appeals court based in Philadelphia overturned a $ 448 million judgment last year won by the FTC in a case alleging a pharmaceutical company

AbbVie Inc.

and others involved in bogus trials to keep a generic version of a testosterone substitute off the market. AbbVie denied the allegations.

Kathleen Benway, a former FTC consumer protection officer, now with Alston & Bird LLP, said the Supreme Court’s approach to the FTC is likely to give some defendants “a free bite in the apple” before facing a monetary judgment and make one Process that t “in the eyes of the FTC as attractive or useful to provide relief to consumers.”

But Ms. Benway said companies could still face significant financial liability before the Commission for violating regulations enforced by the FTC, including those related to telemarketing and online children’s privacy, despite civil penalties among them Circumstances would not go to consumers. Congress also recently gave the Commission explicit powers to combat Covid-19-related fraud, including through fines.

“Companies wouldn’t completely overturn the FTC,” she said.

Write to Brent Kendall at [email protected]

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