FTC Defense Lawyer Considers Ex Parte TROs and Asset Freezes

The Federal Trade Commission often initiates enforcement actions and asset freezes via ex parte temporary restraining orders. In other words, without notice to the parties involved. Often, parties first learn of the situation when served with a subpoena during a raid of its place of business and seizure of company assets.

The FTC Act (15 U.S.C. §§ 41-58, as amended) empowers the FTC to prevent unfair or deceptive trade practices and seek monetary redress and other relief for conduct injurious to consumers. The enormous power granted to the FTC permitting is, in large part, based upon the importance of protecting consumers from unfair and deceptive business practices.

The FTC may initiate federal district court proceedings to enjoin violations of the FTC Act, and to secure other equitable relief such as restitution and disgorgement of ill-gotten gains. Importantly, there is no right to a jury trial in such actions. The FTC can also pierce the corporate veil and impose personal liability upon, without limitation, owners and officers.

If the FTC pursues an ex parte temporary restraining order (TRO) it will also typically utilize a temporary receiver to take over a company’s assets and operations, and preserve property to satisfy the final judgment or settlement. It also often imposes an asset freeze. Necessary living expenses and attorneys’ fees may be available, depending upon the circumstances. However, the FTC almost always vigorously opposes the release, of either.

The scope of an asset freeze is not always bullet proof. For example, the 11th Circuit Court of Appeals recently unfroze a small business owner’s assets after being wrongfully targeted by the FTC. There, the FTC froze the assets of the company, joint marital assets and the assets of a sibling with no business connection to the corporate defendant. The court found that the district court “did not make sufficient factual findings to support freezing these assets.”

In that case, a provider of tech support to customers that also sells third-party antivirus and other data security software was raided by FTC regulators, in conjunction with the Florida Attorney General’s office, on suspicion of “deceptive” sales practices. To obtain the injunctive order that froze the individual defendant’s assets, the FTC cited two examples of recorded calls that were purportedly mischaracterized.

Online marketers, particularly those within the health and debt relief verticals, including those that use negative option billing models, should be familiar with FTC rules and procedures.

If your company is the subject of an investigation or has been served with a TRO and complaint, contact an experience FTC defense lawyer to evaluate available defenses, whether the matter may covered by insurance, whether the scope of the asset freeze is punitive on its face, and to negotiate or petition the court for the release of frozen funds.

Contact the author at rnewman@hinchnewman.com.

Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

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