Congress Questions FTC’s Evidence Against LabMD

FOR IMMEDIATE RELEASE                                                                                                   

June 12, 2014


 Congress Questions FTC’s Evidence Against LabMD

WASHINGTON – On June 11, 2014 Congress’s chief watchdog, the House Committee on Oversight and Government Reform, advised the Federal Trade Commission (FTC) that the information the FTC obtained from Tiversa, Inc. is “false,” “incomplete” and “inaccurate.”   The Committee also said that it expected the FTC to “cooperate fully” with any subsequent document requests or transcribed interviews with FTC employees.

Cause of Action, a government accountability and transparency organization, has been defending LabMD, an Atlanta-based cancer-detection lab, in an ongoing Federal Trade Commission enforcement action alleging that LabMD’s data security, though not in violation of applicable HIPAA regulations, is unreasonable.

The FTC commenced its four and one-half year assault against LabMD based on information it obtained from Tiversa, Inc. Tiversa is a company claiming to specialize in peer-to-peer network security.

The FTC obtained confidential LabMD patient information from Tiversa in 2009 by way of a sham corporation located in the home of Tiversa’s CEO’s uncle Although Tiversa had a strong commercial interest in the FTC’s commencement of enforcement proceedings, there is no evidence that the FTC took any steps to authenticate Tiversa’s claim that LabMD patient files had been found in multiple places on a peer-to-peer network.  As the FTC and Tiversa were both aware, the unauthorized taking of patient files from a Georgia workstation, by peer-to-peer software or by any other means, is a crime under Georgia law.

To date, the FTC has refused to make public the full nature and extent of its relationship with Tiversa.

According to Dan Epstein, Cause of Action’s Executive Director, “the House Oversight Committee’s investigation should send a message to federal agencies, the President and the courts that the arbitrary abuse of administrative power will not go unchecked.  Cause of Action exists to hold accountable those who so choose to abuse their office.  This is why it has investigated and litigated for LabMD to stop the FTC from arbitrarily expanding and abusing its power by victimizing an entrepreneur who did nothing wrong.  The Committee’s action, and the record of testimony before the Administrative Law Judge and Judge Duffey in the U.S. District Court in Georgia, all lead to a single conclusion:  That the FTC – including its commissioners and staff attorneys – must be stopped.”

Excerpts from today’s hearing before the Chief Administrative Law Judge Michael Chappell of the FTC as well as statements from FTC Commissioner J. Thomas Rosch and U.S. District Court Judge William Duffey all point to the dangers or the FTC relying upon unauthenticated evidence as the basis for targeting LabMD:

Commissioner J. Thomas Rosch from his dissent on June 21, 2012 to the FTC’s denial of LabMD’s request to quash civil investigative demands against the company:

Specifically, I am concerned that Tiversa is more than an ordinary witness, informant, or “whistle-blower.” It is a commercial entity that has a financial interest in intentionally exposing and capturing sensitive files on computer networks, and a business model of offering its services to help organizations protect against similar infiltrations. Indeed, in the instant matter, an argument has been raised that Tiversa used its robust, patented peer-to-peer monitoring technology to retrieve the 1,718 File, and then repeatedly solicited LabMD, offering investigative and remediation services regarding the breach, long before Commission staff contacted LabMD. In my view, while there appears to be nothing per se unlawful about this evidence, the Commission should avoid even the appearance of bias or impropriety by not relying on such evidence or information in this investigation.

Judge William Duffey, from the May 7, 2014 United States District Court Northern District of Georgia hearing in LabMD v. FTC:

THE COURT: But the assistant director has just said that there will be evidence presented before a judicial officer, I guess an administrative law judge, in which somebody will state these nine thousand individuals — information about  individuals in a single record was accessed by an outside source through a file-sharing program that had been installed on LabMD’s computers. You are going to say that there is no evidence of that —that that ever happened, and you are going to believe that you are right, and the FTC, although sometimes I wonder if they are — just how compelling their evidence is, that they are going to claim that they are right, and somebody will make a determination of whether there has been a breach or not. Then the question is — and I do find this — and I think I know enough about this, and I learned a lot from the CID hearing — is that the FTC is going to go into the business of monitoring and investigating and regulating security breaches and that they have decided I think to do that within what they believe is their administrative authority, because I think they went to Congress and Congress wouldn’t authorize that for whatever reason, whether it’s politics or not. But I think there has been no amendment to Section 5 to specifically allow that. But they are taking the position that they have the authority to do that.

During that same hearing, Mr Schoshinski, an attorney representing the FTC, stated:

THE COURT: So sitting here today, you have no idea where the documents came from, whether they came from LabMD or some other source? Is that a fair thing to say?

MR. SCHOSHINSKI: No. We believe they were LabMD’s documents.

THE COURT: Well, they might have been LabMD’s documents, but you don’t know how they got into the possession of the two individuals that you tried to contact that pled guilty to this offense?

MR. SCHOSHINSKI: That’s correct, Your Honor.

THE COURT: So you have no information to establish how those documents were obtained; is that right?

MR. SCHOSHINSKI: That’s correct, Your Honor.

THE COURT: And you are still proceeding on this claim?

MR. SCHOSHINSKI: Yes, Your Honor, because the claim is not concerning that incident alone. It’s concerning —

THE COURT: All right. But are you still proceeding on that claim?

MR. SCHOSHINSKI: We are proceeding on that evidence, Your Honor.

THE COURT: And that evidence relates to other claims, because you have other documents that were found in other places?

MR. SCHOSHINSKI: That evidence relates to the potential injury suffered by consumers as a result of exposure of this information.

THE COURT: Are you serious about that last response?

MR. SCHOSHINSKI: Yes, Your Honor, I am.

THE COURT: So you don’t know where the documents came from, you don’t know how these people got the possession of it, you don’t know whether they originated from LabMD or some other place, but you are going to use that to show that, because they committed identity theft, that certain individuals were damaged by documents, the source of which you don’t even know?

MR. SCHOSHINSKI: Yes, Your Honor.

THE COURT: Holy cow.

From the June 12, 2014 proceedings before the Administrative Law Judge Chappell at the FTC. The “letter” referenced below is a June 11, 2014 letter from the House Oversight Committee to the FTC found here. Ms. VanDruff, counsel representing the FTC, stated:

JUDGE CHAPPELL:  Ms. VanDruff, what part of this letter do you think is not relevant to this proceeding? Stand up and address that question immediately.  I just read paragraph 2.  I want to hear from you.

MS. VANDRUFF:  Your Honor, I didn’t say it wasn’t relevant, Your Honor.  And Mr. Sherman is also copied on this letter and it is Mr. Sherman who raised the issue of Mr. Wallace this morning.  To the extent that Mr. Sherman believed that this letter was relevant to Your Honor’s —

JUDGE CHAPPELL:  You would agree this letter refers to the 1718 File.

MS. VANDRUFF:  Absolutely, Your Honor.

JUDGE CHAPPELL:  In black-and-white, it’s right there.  You would agree it refers to testimony being accurate or not regarding this case.

MS. VANDRUFF:  Yes, Your Honor.  I made no representation to the contrary.

JUDGE CHAPPELL:  Yet you didn’t talk about the letter until I asked you; is that correct?

MS. VANDRUFF:  Your Honor.

JUDGE CHAPPELL:  Until this lady brought it up.

MS. VANDRUFF:  The issue that Your Honor —

JUDGE CHAPPELL:  Were you going to sit there and not tell me about this letter?  Were you going to do that if I hadn’t asked you?  That’s what I want to know.

MS. VANDRUFF:  Your Honor, I was prepared address this letter today.  Mr. Wallace is not our witness, nor is Mr. Boback, and so if it was in the interest of — I don’t know.

JUDGE CHAPPELL:  You don’t think in the interest of truth this information should be disclosed to this court in this proceeding?

MS. VANDRUFF:  I was not withholding the information, Your Honor.

JUDGE CHAPPELL:  We’re trying to get to the truth here, aren’t we?

MS. VANDRUFF:  Of course we are.

JUDGE CHAPPELL:  You don’t think this letter touches on this matter in truth on this matter that we’re having a trial.  You were not going to bring up this letter; is that correct?

MS. VANDRUFF:  No, Your Honor, that is not what I said.  No.  That is not the position of the government, of course not.

JUDGE CHAPPELL:  Then you had plans to offer this letter because it’s relevant?  Is that what you’re doing?

MS. VANDRUFF:  Excuse me, Your Honor?

JUDGE CHAPPELL:  You had plans to offer this as an exhibit?

MS. VANDRUFF:  Your Honor, I don’t think that it is admissible for any purpose in this matter because it is hearsay.  Nonetheless, I think it’s appropriate in the context of Ms. Dickie’s representations to the court regarding Mr. Wallace and the conduct of the committee for Your Honor to have been advised about the current state of the committee’s investigation.

JUDGE CHAPPELL:  This is a letter to the head of the FTC.

MS. VANDRUFF:  Correct.

JUDGE CHAPPELL:  Talking about fundamental matters in this proceeding about truth or veracity, fundamental matters of a source that’s been very helpful to the government I might add in its case based on what I’ve heard.  I’m very disappointed this was not brought to my attention by the government.  Go ahead.

MS. VANDRUFF:  I apologize, Your Honor.  Thank you.



Forbes: Dan Epstein: Obamacare’s Implementation Poses Grave, But Largely Unknown Risks For Beneficiaries

Obamacare’s Implementation Poses Grave, But Largely Unknown Risks For Beneficiaries

By Dan Epstein        September 30, 2013

Many of us are concerned and anxious because we don’t know what the Patient Protection and Affordable Care Act (ACA), also known as Obamacare, will mean for our personal health care, our families and our pocketbooks as enrollment commences October 1.  The American people are likely unaware of the risks they face in disclosing their personal medical and financial information to strangers through the enrollment programs and have not been well informed of the potential for state entities to violate federal laws during the implementation of the ACA.

In an aggressive effort to recruit Americans into the ACA, the federal government has implemented “Navigator” and “Assister” programs.  These programs lack not just training and oversight, but also background checks, fingerprinting or other screening that should be required prior to obtaining Americans’ social security numbers, addresses, and personal medical information.  Recognizing these security concerns, thirteen Attorneys General wrote to U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius on August 14, 2013 warning that “…this is a privacy disaster waiting to happen.”  On September 18, 2013, the House Oversight and Government Reform Committee issued a troubling report detailing how navigators and assisters not only threaten to harm consumer privacy and misuse consumer data but are also being carried out by individuals who have not been subject to background checks or other certifications.  Concerned about the potential liabilities associated with these navigator and assister programs, entities in Ohio, Florida, Oklahoma, Pennsylvania, Utah and West Virginia have already voluntarily returned federal navigator grant money.

But another area of concern that has not yet received much attention is the risk of waste, fraud and abuse of the hundreds of millions of taxpayer dollars states are receiving to run their exchanges or marketplaces.  For example, California has received $910 million; New York, $369 million; and Hawaii, $205 million.  And this is just the beginning.  Additional funds will likely be pumped into the system if the navigators and assisters are unable to meet their enrollment “quotas.”   Entities within states should be on high alert regarding their risk of violating laws as implementation of the ACA occurs.  For example, using any false writings or documents known to be materially fictitious, concealing a material fact, or making any fraudulent or fictitious statements to a government representative about the use of grant funds are violations of 18 U.S.C. § 1001.  Further, under OMB Circular A-87, state and local entities that receive federal funding are required to adequately document all costs associated with administering the grant funds. If a recipient falsely certifies that they are conforming to this regulation, or if they do not properly document federal grant funds that are being primarily utilized for state programs, they may be subject to liability under both the OMB Circular A-87 and the False Claims Act. An Inspector General found that the IRS largely failed to account for and report these costs associated with implementing ACA. If our federal agencies are failing at this oversight, it follows that states cannot be adequately equipped, aware, or prepared to conduct oversight over implementation of the ACA, setting these state exchanges up for failure.

Cause of Action (CoA) is concerned about the potential for waste, fraud and abuse of these funds given to state entities.  This is why we have sent liability alert letters to more than 35 Governors thus far, and the District of Columbia, alerting them to the risks involved with the unintended misuse and waste of the ACA grant funds.  Given the hundreds of millions of federal taxpayer dollars at stake, taxpayers should hold their elected representatives accountable for how their money is being spent.

The grim reality is that the Affordable Care Act is deceptively complex and non-transparent.  Americans need to be cautious about enrolling in Obamacare (i.e., providing personal, medical and financial information to unchecked strangers), and mindful of the potential for misuse of taxpayer funds given the myriad, untested liability pitfalls and the vast sums of taxpayer money at stake.  At a minimum, the American people deserve to have our elected representatives and federal government provide proper oversight of the implementation of the Affordable Care Act.


Dan Epstein is the executive director of Cause of Action, a non-profit, nonpartisan government accountability organization.


Appeal in NARA FOIA Case for Financial Crisis Inquiry Commission Records

Cause of Action (CoA), a government accountability group, took a further step toward gaining such public access, filing an appeal in our fight against the National Archives and Records Administration (NARA).  We are challenging NARA’s wrongful withholding of records pertaining to the Financial Crisis Inquiry Commission (FCIC) – a temporary commission created by Congress to investigate the causes of the financial crisis– as NARA continues to claim that the requested records must remain secret and are not subject to the Freedom of Information Act (FOIA).

Appellant’s Brief



Click here to see other posts on our FOIA Request and Litigation for FCIC records.

Related Documents: Healthcare – The Patient Protection and Affordable Care Act

Letter to the Texas Attorney General

Letter (November 13, 2013)

IRS Complaints Against Enroll America For Violating the Internal Revenue Code

Complaint (November 22, 2013)

IRS Reply (August 5, 2013 )

Complaint (July 29, 2013)

Liability Alert Letters re: PPACA

The liability alert letter to the General Counsel of Covered California is here.

Cause of Action sent letters notifying Governors and state Attorneys General of legal liability should federal grant recipients in their states misuse the federal money they receive to run the state health exchanges and Navigator programs. Cause of Action explains how waste, fraud and abuse are potential consequences of federal funds given to states without accountability and proper oversight.

You can find each state letter below and the date on which the letter was sent:

Washington Post: GreenTech fits pattern of investment that has made big profits for Terry McAuliffe

Read the full story: Washington Post

A section dedicated to GreenTech’s public relations efforts cites only one specific initiative: McAuliffe’s past promotion of electric vehicles on “national television news programs.”


Dated March 12, the previously undisclosed prospectus, provided to The Washington Post by the nonprofit watchdog group Cause of Action, notes that McAuliffe is “currently the largest individual shareholder” of GreenTech.


The prospectus, along with other documents reviewed by The Post, shows how GreenTech fits into a pattern of investments in which McAuliffe has used government programs, political connections and access to wealthy investors of both parties in pursuit of big profits for himself.


That formula has made McAuliffe a millionaire many times over, paving the way for a long list of business ventures, including his law firm, from which he resigned in the 1990s after profiting — along with his partners — from fees paid by domestic and foreign clients seeking results from the federal government.


Cause of Action Report Exposes GreenTech Automotive’s Abuse of Political Influence

FOR IMMEDIATE RELEASE                                                                    CONTACT:

September 23, 2013                                                                           Jamie Morris, 202-499-2425


Cause of Action Report Exposes

GreenTech Automotive’s Abuse of Political Influence

GreenTech Automotive: A Venture Capitalized by Cronyism”

WASHINGTON – Cause of Action (CoA), a government accountability organization, today released GreenTech Automotive: A Venture Capitalized by Cronyism,” an investigative report revealing how GreenTech Automotive (GreenTech) used government funds and political connections to pursue big profits for its founder, Charles Wang, and Chairman, Terry McAuliffe. This is the second report in a series of investigations by Cause of Action shining light upon companies around the country that are structuring their businesses to use political connections for profit.

The CoA report details how GreenTech used political connections to receive millions of taxpayer dollars in loans and tax incentives, yet failed to meet expectations, instead exaggerating projections of job creation and vehicle production.

CoA’s six-month investigation uncovers how GreenTech relied on political graft to influence officials at the state and federal level to gain preferential treatment and skew the marketplace, resulting in American taxpayers underwriting the risk of speculative business ventures, while the company pocketed the profits.

Cause of Action’s Executive Director Dan Epstein explained:

“Concerns about how GreenTech does business have been expressed by every branch of our federal government – from Senator Grassley in Congress, to the Securities and Exchange Commission in the Executive Branch, to a federal judge in Mississippi- and American taxpayers share in the concern about how business is run in our country.

“GreenTech Automotive is an example of how cronyism means the government, not the market, is picking financial winners like Terry McAuliffe and Charles Wang.”

In light of issues raised in the report, CoA is alerting the House Oversight and Government Reform Committee of concern about GreenTech’s potentially improper activities.

Findings revealed in the report include:

  • Terry McAuliffe, while GreenTech Chairman, e-mailed then-Mississippi Governor Haley Barbour, seeking his assistance in pressuring United States Citizenship and Immigration Services (USCIS) Director Alejandro Mayorkas into fast-tracking EB-5 visa applications by GreenTech’s Chinese investors.
  • In 2009, when Mississippi Governor, Haley Barbour contacted Barbara Velarde, the head of the USCIS office that oversees the Regional Center program, urging the agency to designate Gulf Coast Funds Management (GCFM), a processing center than manages EB-5 investments for GreenTech and is run by former Secretary of State Hilary Clinton’s brother Tony Rodham, as the Regional Center for the entire state of Mississippi. Subsequently, GCFM became the country’s largest Regional Center for processing EB-5 investments, covering both Mississippi and Louisiana.
  • GreenTech may have violated USCIS regulations in every one of its four rounds of financing by impermissibly structuring each investment as “risk-free.”
  • GreenTech has made misleading statements to investors that potentially violate Section 17(a) of the 1933 Securities Act by inflating job-creation estimates.
  • GreenTech submitted exaggerated projections about its manufacturing output and job creation prospects in its funding applications to both Mississippi and Virginia. Unlike Virginia, Mississippi state officials failed to conduct proper due diligence on GreenTech and ultimately gave the company millions in loans and tax incentives to locate its manufacturing facility within the state.

To access the full report, click here.

About Cause of Action:

Cause of Action is a non-profit, nonpartisan government accountability organization that fights to protect economic opportunity when federal regulations, spending and cronyism threaten it. For more information, visit

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Mary Beth Hutchins, or Jamie Morris,




REPORT: GreenTech Automotive: A Venture Capitalized by Cronyism

Executive Summary

“It seemed like a win for everyone involved when a startup car company, backed by political heavyweights, wooed investors with plans to build a massive auto plant in the Mississippi Delta, hire thousands of people and pump out a brand new line of fuel-efficient vehicles…But today, the company is under a federal investigation and about the only thing on its land in Tunica County is a temporary construction office.”

–          Associated Press, August 12, 2013

Less than half of all businesses started between 1977 and 2000 survived to five years.  Market competition is cruel but it’s not unfair.  Unfair is when political heavyweights use their influence to skew the market and force taxpayers to underwrite the risk of speculative new business ventures; taxpayers suffer while crony companies reap the profits.  Such is the case with GreenTech Automotive, Inc. (GreenTech), a startup automobile manufacturer that promised jobs and economic growth in Virginia and Mississippi but has failed to deliver.  The following report is the latest from Cause of Action’s (CoA) investigations into companies that rely upon the politically powerful, not the competitive marketplace, to determine economic winners and losers.

The story of GreenTech and its principals, Terry McAuliffe and Charles Wang, weaves a tale of promises to invest billions of dollars and create thousands of jobs as a result of alleged technological breakthroughs.  What is becoming increasingly likely, however, is that taxpayers will instead bear the costs of broken promises by subsidizing a failed business that used political connections and pressure to profit from taxpayer dollars.

Terry McAuliffe has made a career of using politics to profit.

As far back as 1997, Business Week declared that “[m]any of Terry McAuliffe’s business deals are intertwined with his political interests.” According to Leaders Magazine in 2007, McAuliffe “started over two dozen companies in the fields of banking, insurance, marketing, and real estate.  McAuliffe served as Chairman of Federal City National Bank and, most recently, was an owner and Chairman of American Heritage Homes.” These companies and his political fundraising career earned him millions in personal profit, but also brought Department of Justice investigations, accusations of conspiracy and illegal donation schemes, and Department of Labor penalties. What is clear is that political fundraiser and businessman McAuliffe has made a habit of using his connections and favors to rake in profits, and he has continued that pattern with GreenTech. After receiving campaign contributions from Charles Wang in 2008 for his first gubernatorial bid, Terry McAuliffe made his deep political Rolodex available for GreenTech’s benefit.  As Amy Gardner from The Washington Post has observed, many of McAuliffe’s biggest business deals “came in partnership with prominent donors and politicians, creating a portrait over the years of a Washington insider who got rich as he rose to power in the Democratic Party.” He continued that pattern with GreenTech, benefitting the company through his own political connections.

  • In 2008, Charles Wang made a $50,000 donation to Terry McAuliffe’s gubernatorial campaign.  Shortly thereafter, Wang’s company merged with what is now GreenTech and McAuliffe was named Chairman.
  • As GreenTech Chairman, in an email to then-Governor Haley Barbour, McAuliffe cited efforts by U.S. Senators Thad Cochran (R-MS) and Roger Wicker (R-MS) to pressure the United States Citizenship and Immigration Services (USCIS) Director Alejandro Mayorkas into fast-tracking EB-5 visa applications that would provide Chinese investments for GreenTech.
  • McAuliffe sent numerous emails to Director Mayorkas and Douglas Smith, Department of Homeland Security’s assistant secretary for the Office of the Private Sector, expressing frustration with USCIS’ slow visa approval process. Smith attended GreenTech’s groundbreaking at its temporary Horn Lake facility, where McAuliffe also privately met with President Bill Clinton and Chinese investors.
  • Anthony Rodham, brother of former Secretary of State Hillary Clinton, is President and CEO of Gulf Coast Funds Management (Gulf Coast) the country’s largest Regional Center for processing EB-5 investments, and the manager of EB-5 investments for GreenTech.

GreenTech utilized the EB-5 visa program as a catalyst for favors and a prop for business deals.

In 2008, Gulf Coast, a sister company of GreenTech, used political pressure to position itself as a powerful Regional Center for managing two states’ EB-5 investments, yielding large profits. GreenTech was financed by Chinese investors with a strong interest in securing visas in exchange for millions of dollars in capital through EB-5.

  • Then-Mississippi Governor Haley Barbour, one of Terry McAuliffe’s current business partners, contacted Barbara Velarde, the head of the USCIS office that oversees the Regional Center program, urging the agency to designate Gulf Coast as the Regional Center for the entire state of Mississippi.
  • Kathleen Blanco, who was Governor of Louisiana at the time that USCIS approved Gulf Coast’s application, is currently a member of Gulf Coast’s board.
  • Between 2009 and 2012, GreenTech raised $67 million from more than one hundred EB-5 investors. Gulf Coast has collected a total of approximately $7.4 million in profits from GreenTech investors.

GreenTech is abusing taxpayer funds.

Under the leadership of Charles Wang and Terry McAuliffe, GreenTech submitted exaggerated projections about its manufacturing output and job creation prospects, convincing Mississippi state officials to award millions of taxpayer dollars in loans and tax incentives to develop a GreenTech plant within the state.

  • In exchange for a promise to build a manufacturing facility in Tunica County, the Mississippi Development Authority (MDA) agreed to provide a $3 million loan to GreenTech from the Mississippi Industry Incentive Financing Revolving Fund to construct an access road to the facility.
  • A $2 million loan was given to the Tunica County Economic Development Foundation to purchase the site on which the facility would be built.  GreenTech received a host of tax breaks and incentives including reduced state income, franchise, property, sales and use taxes and income tax rebates for company employees.
  • GreenTech has claimed that it will create 25,000 direct jobs that will each create 11.86 indirect and induced jobs, or 296,500 jobs in total.  This is problematic both in expectation and legality given that current law provides for no more than 10,000 EB-5 visas per year.

While it is unknown whether GreenTech will meet its own estimate of 25,000 full-time jobs in Mississippi by 2014, according to NBC12 News in Richmond, Va., a former GreenTech employee claims that GreenTech’s “lofty goals were nowhere near reality.”

What follows in this report are these and additional findings from a six-month investigation of the relationships and political deals that allowed GreenTech to entice Mississippi into a misbegotten experiment in green automotive technology. As this report reveals, the real engine driving GreenTech’s business plan appears to be its management’s extraordinary talent for exploiting taxpayers to advance their own interests.


PDFGreenTech Automotive: A Venture Capitalized by Cronyism

Exhibits:Exhibits 1-32

Wang Emails: 1 & 2

GTA Exhibit 6 (here) was the Document used in a Washington Post story