FTC Resurrects Penalty Offense Authority as Possible Civil Penalty Vehicle

Following the U.S. Supreme Courtroom’s April 22, 2021 determination in AMG Capital Management, LLC v. Federal Trade Commission, which put the brakes on the power of the Federal Commerce Fee (FTC or Fee) to make use of its Part 13(b) authority to hunt financial penalties for violations of the FTC Act, the Fee has sought one other path to presumably get well civil penalties: it revived the company’s long-dormant Penalty Offense Authority beneath Part 5(m)(1)(B) of the FTC Act (45 U.S.C. § 45(m)(1)(B)). Part 5(m)(1)(B) permits the Fee to pursue civil penalties in federal court docket if it satisfies two necessities. First, the FTC should show that an organization knew its conduct violated the FTC Act. To ascertain precise data, the Fee sends a enterprise a Discover of Penalty Offenses (additionally referred to as a “Section 205 Synopsis”) that outlines conduct the FTC has decided violates the FTC Act. Second, the FTC should have issued a earlier administrative order (aside from a consent order) that decided sure particular conduct was unfair or misleading. If, after receiving discover, a enterprise engages in practices deemed violative, the FTC can pursue civil penalties of as much as $43,792 per violation in federal court docket.

The FTC has flexed this new muscle twice previously week, sending a Notice of Penalty Offenses to more than 700 businesses concerning faux evaluations and deceptive endorsements and a Notice of Penalty Offenses to 70 for-profit higher educational organizations in respect of false guarantees made about graduates’ job and earnings prospects. Notably, whereas different FTC coverage statements and initiatives have garnered dissents, the Fee voted 5-0 to authorize and distribute the notices.

Penalty Offenses Regarding Schooling. The FTC’s Notices of Penalty Offenses to the educational organizations warned them to not misrepresent, straight or not directly, the employment prospects of graduates, the demand for explicit coursework, a graduate’s potential remuneration, and the extent of the establishment’s job placement help program. In an accompanying letter, the FTC warned the businesses that failure to stop misleading conduct might lead to important fines. The notices state that receipt of the letter doesn’t mirror an evaluation that the recipient has engaged in conduct that is likely to be deemed misleading or unfair. Fairly, it consists of the next assertion:

Receipt of this Discover places your organization on discover that participating in conduct described therein might topic the corporate to civil penalties of as much as $43,792 per violation. See 15 U.S.C. § 45(m)(1)(B).

In late 2020, Commissioner Rohit Chopra and FTC legal professional Samuel Levine (now Director of the FTC’s Bureau of Client Safety) collectively revealed an article during which they advocated for the FTC to revive its Penalty Offense Authority, which the Fee ceased utilizing within the Nineteen Eighties. Chopra and Levine argued the Fee might “substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms.” Whereas the FTC has gone after for-profit academic organizations for misleading practices a number of occasions, that is the primary time it has issued Part 5(m)(1)(B) notices to take action.

The FTC created a webpage itemizing the academic organizations that obtained Notices, a pattern Discover and letter, and hyperlinks to the executive orders cited within the Discover (which date from 1980, 1971, and 1952).

Penalty Offenses Regarding Endorsements. The FTC despatched one other, even bigger, batch of Notices of Penalty Offenses on October 13, this time to over 700 corporations in various industries. The Fee warned the businesses that sure conduct associated to using endorsers and testimonials, such as misrepresenting that an endorser is an precise or latest buyer, misrepresenting that an endorsement represents the expertise or opinions of unusual prospects, or utilizing an endorsement to make misleading efficiency claims, violates Part 5 of the FTC Act. The Fee knowledgeable the businesses they’re on discover that participating in prohibited conduct might topic them to civil penalties of as much as $43,792 per violation.

As with the Discover of Penalty Offenses directed to for-profit academic establishments, the Penalty Offenses Concerning Endorsements website lists the instances the FTC relied on, which date between 1941 – 1984, and features a pattern Discover and letter and an inventory of recipients.

Many corporations have inner insurance policies governing endorsements and testimonials, however the FTC’s latest actions emphasize the significance of reviewing these insurance policies to verify they’re updated or implementing inner insurance policies if they aren’t already in place.


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