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Archives for August 2017

08/9/2017

FTC Destroying Family-Run Tech Support Business Without Evidence of Wrongdoing or Due Process

Washington, D.C. – Cause of Action Institute (“CoA Institute”) is stepping in to defend a small family-run tech support company, Vylah Tec, LLC (“V-Tec”), after the Federal Trade Commission (“FTC”) targeted the company and conducted an hours-long raid of the company’s headquarters on suspicion of “deceptive” sales practices. The raid was initiated as part of a politically-hyped campaign known as Operation Tech Trap headed by the FTC in conjunction with the Florida Attorney General’s office.

V-Tec is a small start-up owned by Robert Cupo that operates out of a single office in Fort Myers, Florida, and provides tech support to customers who buy electronic devices from the Home Shopping Network and other shopping channels. Individuals who purchase electronic devices such as laptops, printers and tablets are provided pre-paid tech support with their purchase. On top of its tech support operation, V-Tec also generates revenue from selling third-party antivirus and other data security software to customers who want additional security on their devices.

The FTC’s sting-like raid, assisted by local police, included hands-in-the air orders, the temporary confiscation of employee cell phones, and police-escorted bathroom breaks. One mother was told she could not leave to pick up her kids from daycare and police officers would use her phone to call and tell them she had been detained for questioning. Despite the hostile raid, FTC investigators were apparently unable to uncover any concrete evidence of wrongdoing by the company.

Nevertheless, a Florida District Court judge was sufficiently convinced by FTC lawyers to grant the government a preliminary injunctive order against V-Tec. This punitive process includes turning the company’s operation over to a third-party receiver and freezing the assets of the Cupo family members. CoA Institute has filed a motion to stay the District Court’s order.

CoA Institute Senior Counsel Cynthia Crawford: “When the government puts a company in its crosshairs, the process becomes the penalty. In this case, the court’s decision to allow an injunctive order is akin to using a sledgehammer to swat a fly. Freezing assets and turning the business over to a receiver is steadily draining V-Tec’s finances and destroying its reputation. Meanwhile the court’s action is harming the thousands of customers who are not receiving the support they paid for. We urge the court to reevaluate the flawed evidence FTC presented and stay this destructive order so that the Cupo family can have their day in court before the company is destroyed.”

In court, the FTC argued that V-Tec’s sales pitches for the software are deceptive, citing two examples of recorded calls. However, the FTC clearly mischaracterized its evidence and failed to support accusations fundamental to FTC’s case. Much of the evidence presented is either incomplete or incorrect. For example, the government in open court, played a portion of a tech support call that they wrongly alleged as deceptive “upselling.” What the government omitted, however, was that the technical support representative stayed on the phone after the customer declined to purchase additional software and addressed the caller’s problem.

A second transcript the FTC submitted in court mislabeled the so-called guilty party as a V-Tec employee, when in fact the person trying to harm the consumer did not actually work for V-Tec. A brief investigation of the call and the surrounding context would have made that clear. A V-Tec support representative actually protected the consumer in that instance, disconnecting the other individual from the call and disabling his remote access to the caller’s computer.

Instead of protecting consumers, the court’s injunction order is causing the most significant consumer harm. Since May 3, 2017, V-Tec has failed to answer over 100,000 customer calls. Many of these are likely customers with lifetime service contracts who, instead of receiving the product they paid for, are stuck in a never-ending hold loop. The order also froze assets of individuals with no actual stake in V-Tec. These individuals cannot access their savings and are struggling to pay for basic life expenses, or in one case, access funds of a wholly unrelated business.

The full motion for stay is available here.

For information regarding this press release, please contact Zachary Kurz, Director of Communications: zachary.kurz@causeofaction.org

 

 

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08/8/2017

Consumer Product Safety Commission Revises FOIA Rule in Response to CoA Institute Comments

The Consumer Product Safety Commission (“CPSC”) finalized a rule today implementing new Freedom of Information Act (“FOIA”) regulations. The agency incorporated important revisions proposed by Cause of Action Institute (“CoA Institute”) in a comment submitted to the agency in in January 2017.

CoA Institute urged the CPSC to remove outdated “organized and operated” language from its definition of a “representative of the news media.”  Such language has been used in the past to deny news media requester status to government watchdog organizations like CoA Institute.  For example, CoA Institute took the Federal Trade Commission to the D.C. Circuit just to get the agency to acknowledge that its FOIA fee regulations were outdated and that it was improperly denying CoA Institute a fee reduction.

In deciding that case, the D.C. Circuit issued a landmark decision clarifying proper fee category definitions and the application of fees in FOIA cases.  CoA Institute cited this case to the CPSC and the agency took heed of the current case law, removing the outdated “organized and operated” language from its regulations.

The Consumer Product Safety Commission indicated that its revisions, which incorporated model language developed by the Department of Justice, focused on the nature of a news media requester, as opposed to the content of any given request. The agency further agreed that press releases could qualify as distinct work product.  Finally the CPSC added language clarifying that the examples of news media entities used in its fee category definition were “not all-inclusive.”

CoA Institute’s successful comment is just another small step in our efforts to provide effective and transparent oversight of the administrative state and, more specifically, to ensure agency compliance with the FOIA.

Ryan Mulvey is Counsel at Cause of Action Institute

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08/8/2017

Documents Reveal Special Interest Groups Lobbied HUD for Mortgage Settlement Funds

Groups committed to “revolutionary social change” sent proposals, met with high-level HUD officials

The Obama-era appears to have been a flush time for a number of favored special interest groups seeking hand-outs. It now appears that the previous administration’s pattern and practice of circumventing the congressional appropriations process to funnel money to third-party groups may have been more widespread than we thought. Beginning in 2013, the federal government entered into a number of settlements with major banks to resolve claims related to the issuance of residential-mortgage-backed securities. These settlements included billions of dollars in “consumer relief” payments that should have gone to the alleged victims, but instead were funneled to third-party organizations, including to those favored by the Obama administration.

CoA Institute has been investigating these settlements for several years and has recently uncovered documents indicating that some of these third-party organizations were directly lobbying high-level Housing and Urban Development (“HUD”) officials for a piece of the settlement pie. These documents are consistent with prior records discovered by the House Judiciary Committee regarding similar lobbying of Department of Justice (“DOJ”) officials.

In May of 2015, the House Judiciary Committee wrote a letter to the DOJ requesting information and documents relevant to the residential-mortgage-backed securities settlements.  The information they received suggested that some third-party organizations were advocating for provisions that included mandatory donation requirements from which they would benefit.

One of the communications the House Judiciary Committee received was an email sent on November 8th, 2013 from the Leadership Conference on Civil and Human Rights (LCCHR) to the DOJ.  In the email, LCCHR urged the DOJ to include funds in the JP Morgan settlement promoting community restoration and specifically seeking investment in Virginians Organized for Interfaith Community Engagement (VOICE) and their Metro Industrial Areas Foundation (Metro-IAF) affiliates. The DOJ also provided the House Judiciary Committee with an email from VOICE leadership to the head of legislative affairs at the DOJ.  VOICE asked to set-up a meeting to make the argument that grants to community equity restoration funds be mandatory in all future settlements.

Commentators have noted that groups like VOICE and their IAF affiliates have “a commitment to what [they] call ‘revolutionary social change’” promoted through their own training institutes. One “objective of the training is to help leaders see the connection between their local issues and the broader national IAF objectives and associated progressive causes.”

CoA Institute recently received documents from HUD that are similar to those that the House Judiciary Committee received from the DOJ two years ago.  CoA Institute filed a FOIA request for information on HUD’s involvement in the mortgage settlements.  After filing a complaint against HUD for failing to disclose its role in the mortgage settlements, COA received documents including the segments below from HUD. The HUD documents reveal communications between HUD and VOICE, the same organization that had been lobbying the DOJ to receive settlement funds.

For instance, the following is an email between senior policy advisor Michelle Maiwurm, then working for Sen. Mark Warner (D-VA), and Damon Smith, then Principal Deputy General Counsel at HUD, discussing opportunities for third parties, such as VOICE, to submit proposals for the settlement agreement.

The lead organizer at VOICE, Martin Trimble, responds to a meeting with HUD officials Lelaine Bigelow and Damon Smith earlier that day and attaches the fund proposal.

 

Here are the relevant portions from VOICE’s proposal for the VOICE/Metro IAF National Community Equity Restoration Fund mentioned in the previous email correspondence.

The parallel evidence discovered from documents submitted to the House Judiciary Committee and those provided to CoA Institute helps explain why Attorney General Jeff Sessions recently prohibited DOJ from entering into settlement agreements that provide for payments to non-governmental, third-party organizations that are not parties to the dispute. In order to ensure this problem won’t reoccur in a future administration or with other agencies, however, Congress should pass the Stop Settlement Slush Funds Act of 2017. This bill would prevent all agencies, not just DOJ, from entering into these slush-fund agreements, would remove agencies’ ability to divert funds to politically-aligned third-parties and would allow them to be disbursed to actual victims of the alleged violations or deposited in the Treasury, as required by law.

Josh Schopf is Counsel and Cara Brown is Law Clerk at Cause of Action Institute, a Washington, D.C. non-profit oversight group advocating for economic freedom and individual opportunity.

 

 

 

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08/2/2017

It’s Time to End Ex-Im Bank’s Taxpayer Subsidized Corporate Welfare

When the federal government subsidizes a private company, we all lose. Such subsidies, often referred to as “corporate welfare” by critics, tend to benefit big companies, while stifling innovation and making it more difficult for smaller companies to compete. The Export-Import Bank, or Ex-Im Bank, is perhaps the highest profile example of this process.

The Ex-Im Bank claims to facilitate exports of U.S. goods and support American jobs. To do this, the Bank finances American businesses—freeing them from the need to obtain private loans—so that they can compete internationally. This may sound good in the abstract but its implementation imports all the hazards of corporate welfare.

In April, President Trump disappointed supporters of free trade when he seemingly changed his position on the Ex-Im Bank. As a candidate in 2015, Trump said the Ex-Im Bank was “unnecessary” and contradictory to free enterprise. However, three months after his inauguration, he called the Bank “a very good thing” claiming that “it actually makes money.” In his first budget proposal, President Trump decided to keep it. He also intends to nominate two board members, which will permit the bank to enter into full operation, meaning more and bigger loans from the taxpayer.

On the bright side, President Trump has nominated former Rep. Scott Garrett to head the Bank. In the past, Garrett has been an outspoken critic of the Ex-Im Bank, which hopefully means that should he be confirmed, he will limit its operations and advocate for reform. It can only be seen as a positive sign that the big businesses who benefit most have already come out in opposition to his nomination.

The Ex-Im Bank claims to “level the playing field” for domestic products and help small businesses compete internationally. But federal subsidies to politically-favored companies hurt both international competition and market efficiency. If a business can’t get a private loan, resources should be allocated elsewhere to companies that can better compete, without taxpayer-subsidized assistance. Artificially propping up private industry is not the role of the federal government.

Many economists recognize the failures of the Ex-Im Bank. But supporters, most prominently the companies that get these cheap loans, argue it is acceptable to sacrifice quality, efficiency and competition to help prop up American jobs. However, the biggest recipients are generally in good positions to sustain themselves and do not need these funds to retain American jobs.

Most beneficiaries of the Ex-Im Bank’s loans are, in fact, not small businesses. The largest recipient, by far, is Boeing, which takes a whopping 40 percent the Bank’s financing.  The top 10 recipients, which include Caterpillar, General Electric, and other behemoth companies (and which frighteningly includes “unknown”), makes up 75 percent of the Bank’s expenditures.

Boeing has repeatedly threatened job losses if the Bank goes away. In 2015, the company cautioned that ending the Ex-Im Bank would lead to the loss of thousands of employees because otherwise it would be unable to compete with the European company, Airbus. Congress gave in and re-instated the Bank—and Boeing went ahead and cut 4,000 jobs anyway. Re-instatement of the Bank did nothing to save those jobs, but it did line the pockets of shareholders (18 of which are members of Congress). Companies like Boeing don’t need subsidized loans to stay afloat. Faced with the possibility of the Ex-Im Bank closing, for example, the government and Standard & Poor released reports that found Boeing would do fine without the aid. The other largest recipients are similarly financially sound.

Free and open trade breeds competition and efficiency, whereas corporate subsidies set up a system of reliance, barriers to entry and inefficiency. If you’re playing with the house’s money, you’re much more likely to chase the river and make poor decisions. For example, in 1987, the Ex-Im Bank’s investments were so bad that it requested a massive federal bailout. After the loss of hundreds of millions of dollars, it needed a $3-billion bailout just to stay afloat. The bank had some gains and some losses in the 1990s. Although there was an overall profit of $5 billion since 1990, the low interest rates brought in much less money than it could have and defaults may result in a net loss in the future.

A federal budget agency found that the Ex-Im Bank’s current budget is on pace to cost taxpayers $2 billion over the next decade. Yet we continue to throw more and more taxpayer money at an unnecessary corporate welfare regime, benefitting not the free market but favored players.

Federal policies should create an even playing field for industry and a friendly environment for entrepreneurship to flourish. Only about two percent of all exports are subsidized by the Ex-Im Bank. If 98 percent of the market can export without needing any help from a corporatist bank, the other two percent should manage fine. The Bank helps line the pockets of politically-connected businessmen and gives little aid to the average person. It is time for the president and Congress to end it for good.

Tyler Arnold is a communications associate at Cause of Action Institute

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