Government Investigations: Insight from a Former Federal Trade Commission Director

Holland & Knight hosted Dama Brown, the former Regional Director of the Federal Trade Commission's (FTC) Southwest Region, for a webinar presentation on Aug. 11, 2021.

During the interview, Holland & Knight Partner Anthony DiResta and Associate Brian Goodrich asked Brown dozens of questions about the nuts and bolts of FTC investigations, how outside counsel may provide input to the staff attorneys managing an investigation and recent FTC enforcement initiatives.

The webinar ­– Critical Outposts for Consumer Protection Investigations – is a helpful course on the basics of working with FTC staff, as well as a "peek behind the curtain" into the Commission's investigation powers and protocol. It is full of best practice tips and "inside information" that can help companies enhance their regulatory compliance programs and minimize their risks associated with various business practices.

Key Takeaways

What Companies Should Know About FTC Investigations and the Regional Offices

• The FTC Regional Offices are staffed by dedicated enforcement attorneys that review consumer complaints related to brands doing business in their respective regions to identify potential unfair, deceptive and abusive acts and practices (UDAAPs) and consumer harm, thereby identifying companies to investigate.
• Companies are well-served by developing a rapport with FTC attorneys during an investigation, and by making enhancements to compliance management systems – even in the midst of an investigation.
• In contrast to many other regulators, during investigations companies and their counsel have many ways to provide input and influence the Commission's thought process and decision through requesting meetings, presentations or sending letters.
• The FTC continues to focus on COVID-19 and protecting consumers against false claims and scammers that are taking advantage of the numerous government programs designed to alleviate the financial and health consequences of the pandemic.
• The FTC often interacts with other agencies. For example, the FTC and Consumer Financial Protection Bureau (CFPB) have access to a shared database of information regarding their investigations so that they can collaborate on different aspects of the investigation without duplicating efforts.

What Is Consumer Protection

From the FTC's regulatory and legal perspective, Consumer Protection is a broad term encompassing all avenues of protecting the consumer from potentially dubious claims. Yet, practically speaking, in her role at the FTC, Brown viewed Consumer Protection as protecting and helping American consumers when they are suffering (e.g., the COVID-19 global pandemic) or vulnerable and susceptible to bad actors in the marketplace. As such, during her tenure, the Dallas Regional Office investigated businesses that targeted vulnerable consumers in various industries through scams, deceptive and misleading advertising, and frivolous health claims.

The FTC's focus is often on regulatory compliance, and specifically the integrity of the communications from the marketer to the consumer – i.e., whether the communications are accurate, transparent and nondeceptive. In other words, companies must tell the truth, not exaggerate any claims and be transparent through disclosures and disclaimers.

Impact of Administration Change

While still too early to predict the full impact of the Biden Administration and the change in FTC Commissioners, it is clear that the agency is turning its focus toward antitrust and protecting consumers harmed by the COVID-19 global pandemic.

Of note, it is unclear whether and how the agency will seek monetary penalties in cases. Brown noted that the U.S. Supreme Court's ruling against the FTC in AMG Cap. Mgmt., LLC v. Fed. Trade Comm'n, 141 S. Ct. 1341 (2021) was "demoralizing for the agency." She described the administrative process that the staff is now required to undergo to obtain monetary penalties as "cumbersome," and expressed hope that Congress may bolster the FTC's weakened authority through legislation.

Selecting Companies to Investigate

The FTC reviews consumer complaints received from consumers themselves, ensuring that the complaints are verified and not only from a disgruntled consumer who disagrees with the business. The FTC looks at the FTC's own database of complaints, called Consumer Sentinel Network, for patterns of credible complaints. Recent trends that have received additional scrutiny include patterns of consumers alleging COVID-19 scams, identity theft, telemarketing scams, sweepstakes and lotteries, health and weight loss products, debt collection and financial matters, among others.

In other instances, the FTC staff receives complaints and petitions directly from Congress or trade associations, or a member of the staff reads an interesting article that raises their enforcement antenna. In addition, other regulatory agencies, the Better Business Bureau, state attorneys general and nonprofits submit complaints to the FTC for review.

Using Artificial Intelligence to Respond to Discovery Requests

Throughout the investigatory process, documents are provided to the FTC in the discovery phase, oftentimes numbering in the hundreds of thousands. To assist companies with review and production, artificial intelligence (AI) has become a common assistive tool. The FTC generally accepts the concept of using artificial intelligence, but does not yet have guidelines or a uniform approach to how it may be used. For example, some staff may require the use of particular search terms or review of the seed sets (the initial, manually coded round of documents used to train the AI). However, other staff members may only require review of the seed documents manually tagged as responsive.

When a company is utilizing artificial intelligence in its review, it should advocate for its position and propose an approach to the review. The FTC may push back or offer its own approach, but as AI becomes more common in investigations and continues to rapidly evolve, counsel has breathing room to offer its own approach as to appropriate methodologies to achieve a responsive and diligent review.

Wrapping Up an Investigation

From the FTC's perspective, various offices may handle an investigation differently, but most offices will permit the target to present a White Paper or advocacy prior to the office submitting its final recommendation to management. This stands in contrast to other federal agencies that may head straight to court without first giving the target and potential defendant an opportunity to be heard. Brown noted that companies and counsel should heed the FTC's inquiry into any counterarguments and forcefully push their defense, as it is their only chance to comprehensively defend the company outside of court.

In fact, the FTC often sees counsel circumvent staff and write directly to the Bureau Director. While this route is not recommended, the Bureau Director generally does not have any more information than what the staff has already provided since the information provided by staff likely originated with the Bureau Director.

Changes to Business Practices Following Investigation

Following an investigation or during the investigation, a company may change or enhance its business or compliance practices. Yet, many companies worry about changes being considered an admission of guilt. When asked about how the timing of any such changes may be perceived by the staff, Brown firmly stated that companies should not hesitate to make such changes. Doing so allows the company to argue that an injunction should not be issued as the company will have already made the requisite changes to its practices. Furthermore, Brown reiterated that the FTC is both consumer-friendly and business-friendly, and is more accessible than most agencies as it is open to having a dialogue.

How We Can Help

Holland & Knight's Consumer Protection Defense and Compliance Team includes a robust governmental investigations and consumer protection compliance practice, with experienced attorneys that are recognized thought leaders in the field. The team has represented dozens of companies and individuals in federal and state regulatory investigations, including investigations concerning advertising and marketing practices, as well as involving allegations of UDAAPs. The team regularly provides clients practical, forward-thinking compliance counseling; conducts regulatory preparedness audits; and diligence in connection with transactional and contractual matters. The firm's practice also includes significant experience dealing with novel issues on the topics on the forefront, including social media marketing and consumer data privacy.

For more information or questions about the specific webinar or FTC enforcement and investigations, contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.