Congress May Give the FTC More Money and Power, Making Its Internal Watchdog More Important than Ever

  • Congress may grant more power and money to the FTC, even though it needs stronger oversight from its internal watchdog at its current budget and authority.
  • Currently, FTC’s internal watchdog is hired and fired by the FTC, and lacks independence
  • Left unchecked, the powers of the FTC can undermine the ability for entrepreneurs and innovators to reach their full potential

In a recent hearing before the Senate Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security, the five commissioners of the Federal Trade Commission (FTC) requested more resources and authority, and Senators on the committee appear inclined to approve the FTC’s request. According to National Journal:

“I’ve never met an agency, or a department or a commission, that didn’t believe they needed more resources,” [Senator Jerry] Moran said. “I hear it on an ongoing basis. But I think this is different.”

Senator Moran, who chairs the Subcommittee, assembled the five FTC commissioners to hear their recommendations for a burgeoning bill to create a national standard on data privacy. FTC Chairman Joseph Simons opportunistically pushed for greater funding and the authority to make additional rules on data protection and levy civil fines against corporate actors found to have violated consumers’ privacy; and the senator found himself “sympathetic” to the pitch.

However, greater power requires greater accountability, and the FTC’s past use of its funding and authority has not been without controversy. In August 2018, Cause of Action Institute (CoA Institute) submitted comments outlining structural and procedural reforms to prevent the FTC from abusing its authority in the future. Without those reforms and a potential increase in the Commission’s budget and authority, effective oversight of the FTC will be as important as ever.

To that end, the FTC’s Inspector General (IG) is charged with ensuring the agency doesn’t overreach its authority, but CoA Institute’s experience with the IG suggests the office may be reluctant to hold the FTC accountable. This could be because the FTC IG is constrained by its lack of structural independence but also could be because of the IG’s cozy relationship with the agency. While many Inspectors General are nominated by the President and confirmed by the Senate to oversee their respective agencies, the FTC is one of 29 agencies where the IG is appointed by—and can be removed by—the head of the agency.

Most recently, Chairman Simons appointed Andrew Katsaros as the FTC’s Acting IG on June 8, 2018, following Roslyn Mazer’s retirement after three years as IG. So, not only was IG Katsaros chosen by the head of the agency he is supposed to oversee, but he is also designated only as “Acting IG.”  Crucially, the Project on Government Oversight (POGO) notes that acting inspectors general are less effective than permanent inspectors general:

Inspector general offices are most effective when led by a permanent inspector general, rather than an acting official … a permanent IG has the ability to set a long-term strategic plan for the office, including establishing investigative and audit priorities. An acting official, on the other hand, known by all IG office staff to be temporary, may tend to lack direction or vigor.

Curiously, while many inspectors general make their investigative reports public (there is a website dedicated to just publishing these reports from across the government), the FTC IG does not. It appears the FTC IG’s investigative reports aren’t available without a FOIA request, which CoA Institute recently submitted to obtain a September 30, 2015 report (a revised version was sent on October 16, 2015) relevant to one of our prior cases defending against FTC overreach. The report takes the form of a letter from the FTC IG to the U.S. House Committee on Oversight and Government Reform (OGR) regarding the FTC’s handling of its case against LabMD, a small cancer detection lab that, despite ultimately prevailing in court, was put out of business by the FTC’s egregious overreach.

The first substantive section of the letter suggests the IG had no interest in conducting oversight if OGR was investigating the matter, even though IGs and congressional committees commonly conduct investigations in tandem into the same matters: OGR “staff’s representation that they would cease investigative activity factored strongly in the OIG’s decision to initiate investigative activity.”  The IG also complained that OGR did not provide the IG documents related to the inquiry, but the IG has the authority to conduct interviews and request documents from the agency to conduct its oversight duties.

Further, OGR published a report in January 2015 outlining many troubling findings related to FTC’s conduct in the LabMD case. Despite having access to that report, the FTC IG appears to have written its letter more like the agency’s defense counsel, rather than its independent overseer.

For example, the IG’s letter tries to roll back the position the FTC previously represented to OGR on a key issue in a way that is favorable for the agency:

From the OGR Staff Report Dated January 2, 2015:

The FTC admitted that the use of Tiversa’s information was unusual relative to standard agency operating procedures for enforcement measures.

From the FTC Letter to OGR on September 30, 2015:

Based on our investigative activities, the OIG found that the FTC handled evidence received from Tiversa in the same manner it had handled other evidence about data security breaches.

There are other aspects of the letter that also suggest disinterest in holding the FTC accountable. The IG went out of its way to note that LabMD had lost rulings in various federal courts:

We note that LabMD litigated cases against the FTC in the U.S. District Court for the Northern District of Georgia and the U.S. Court of Appeals for the Eleventh Circuit. Both courts denied LabMD’s motion for preliminary relief for lack of jurisdiction.

It’s unclear why the FTC IG felt the need to mention that fact, but its inclusion was incredibly short-sighted considering LabMD won its case before the FTC Administrative Law Judge less than two months later and would eventually win before the Eleventh Circuit Court of Appeals in 2018.

Concerned about the independence and prior work of the FTC’s IG, CoA Institute sent a FOIA request in September 2018, asking for the IG’s five most recent investigative reports, a list of all preliminary investigations opened from January 2012 to the present, and a list of all investigations closed from January 2012, to the present. We have yet to receive any responsive documents from the agency.

If Congress follows through with empowering the FTC with more authority and money, the FTC IG needs to do more to safeguard tax dollars and prevent overreach, waste, fraud, and abuse. History teaches that so far it hasn’t been up to the task.

Kevin Schmidt is Director of Investigations for Cause of Action Institute. You can follow him on Twitter @KevinSchmidt8

FTC v. Vylah Tec: Magistrate Orders FL AG to Produce 30(b)(6) Witness for Second Time

Court cites improper behavior and objections in first depositions, allows for new deposition in ongoing “Cupo Case”

A Federal District Court ruled partially in favor of Cause of Action Institute’s motion for sanctions against the state of Florida, instructing a Florida assistant attorney general to re-appear for the second time at a new deposition due to the improper and invalid objections made during the first deposition.

“Nobody is above the law. Even lawyers working at the Florida Attorney General’s Office who appear as witnesses in depositions must follow the same rules as any other witness,” said Cynthia Crawford, senior counsel at Cause of Action Institute. “This case boils down to government officials who aggressively used their powers to unfairly crackdown on a family business by using questionable techniques and procedures and then tried to stonewall questions about the case they have brought. We hope the government will be more forthcoming and cooperative in the second deposition as we seek to defend our client and resolve this dispute.”

In August 2018, a Federal Court denied Florida’s motion for a protective order in which it tried to prevent Cause of Action from examining Florida’s role in the raid and prosecution of Vylah Tec LLC. In September, a senior assistant attorney general was selected to sit as the “30(b)(6)” witness for the state of Florida.

The Court ruled that the Florida Office of Attorney General “improperly instructed [the witness] not to answer numerous other questions posed by defense counsel.” In some instances, the Florida Office of Attorney General refused to cite a reason for their objection, as required. The Court also noted that instructions to the witness not to answer on the basis that “the document speaks for itself,” were improper.

As a result, the Court granted the defense a new deposition on limited topics, instructing the State to re-appear.

Parties have until Friday, Dec. 14, 2018, to hold a new deposition.


The Vylah Tec case demonstrates the vast power of the federal government and the ability of the Federal Trade Commission (FTC) to use a court order obtained in secret to deny a family-run company due process by swooping in and seizing assets—including the money they need to hire a lawyer and mount a defense. Cause of Action Institute firmly believes a prosperous society allows all individuals, entrepreneurs, and companies an opportunity to succeed, but far too often when facing the FTC, companies or individuals have their livelihoods threatened and must defend themselves against a regulatory authority with near endless resources and no motive to render justice.

Court to FTC: Effort to freeze assets goes too far

In the ongoing Cupo case (FTC v. Vylah Tec LLC), Court denies FTC’s motion to re-freeze CoA Institute’s clients’ assets, including a house and personal bank accounts

Washington, D.C. Cause of Action Institute (CoA) successfully defeated the Federal Trade Commission’s (FTC) efforts to re-freeze some personal assets of CoA client Dennis Cupo and marital assets of Robert Cupo. The assets were frozen at the outset of the case, but upon appeal, the 11th Circuit Court of Appeals unfroze the assets and remanded the case back to the District Court. Judge Sheri Polster Chappell’s order, published yesterday evening, is a major victory for the defendants, especially Dennis Cupo – the Court agreed with CoA’s argument that the Government failed to tie Dennis Cupo’s personal assets to any of the allegations. Much of the case, FTC v. Vylah Tec LLC, centers on the FTC’s aggressive action, including seizing the now-freed assets, securing a temporary restraining order in secret, and using aggressive policing tactics – such as raiding the defendant’s office with armed police officers.

“Yesterday’s ruling and this case are broader than a simple enforcement action by the FTC – it’s about an agency that routinely exceeds its authority to crack down on businesses with aggressive tactics that are meant to scare, intimidate, and bully companies and individual entrepreneurs,” said John Vecchione, president and CEO of Cause of Action Institute. “The Court’s opinion makes clear that the FTC cannot charge Americans with wrongdoing and seize assets, while failing to prove a defendant’s connection to the case or justify the asset seizure. This is a significant victory for the defendants and an important victory in our effort to curb the FTC’s abuse of power.”

Importantly, the Court found that the Government has failed to produce any evidence of wrongdoing about one of the named defendants, Dennis Cupo.  As the Court said, “For one thing, it only works if Dennis is a ‘wrongdoer.’ The evidence above clearly suggests otherwise.”

The case involves a small family-run tech support company, Vylah Tec, LLC (“V-Tec”). After obtaining a secret court order, the Federal Trade Commission 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. Despite the hostile raid and seizure of all computers and records, FTC investigators were unable to produce evidence tying any alleged improper conduct to the unfrozen assets, or wrongdoing of any kind to Dennis Cupo.

Not only did the FTC demand a freeze of assets of the defendants, but they also went so far as to demand a freeze of the jointly held marital assets of the wife of one of the defendants. After the 11th Circuit Court of Appeals reversed this freeze – the FTC filed a new motion to recapture the same personal assets without the evidence needed in equity. Judge Chappell strongly rebuked the motion.

“The FTC often lives in a world of its own reality and tries to summarily dictate the law to businesses,” Vecchione added. “In these cases, the FTC plays with a stacked deck as they are granted a much lower bar to proving wrongdoing or seizing assets. The Court found that the FTC did not meet even the lower standard. The Court’s order means a Florida couple can proceed with their lives without a Government threat to leave them homeless, and we hope will lead to Mr. Dennis Cupo being dismissed from the case. We are gratified by this ruling, denying the FTC’s lawless effort to seize assets without following the process every American is due.”

The case highlights much-needed reform in the FTC due to its aggressive, overbearing, and unfair enforcement process. Cause of Action Institute recently filed more than 15 pages of recommended changes that can read here.

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.

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CoA Institute Submits Comment to FTC, Recommends Multiple Reforms to Curb Agency Overreach and Abuse

Cause of Action Institute (“CoA Institute”) today submitted a public comment to the Federal Trade Commission (“FTC” or “Commission”) in advance of a series of hearings concerning the agency’s efforts to evaluate its law enforcement and policy agenda, improve investigative processes, and otherwise reform its implementation of the FTC Act.

CoA Institute’s recommendations are based on considerable experience dealing with the FTC.  Our attorneys regularly practice before the Commission.  At present, CoA Institute represents D-Link Systems, a networking equipment manufacturer, which is fighting vague and unsubstantiated allegations that it placed consumers “at risk,” despite any evidence of actual or likely substantial injury.  CoA Institute also represents Vylah Tec, LLC, a family-run technical support company that has been targeted on suspicion of “deceptive” sales practices.  The FTC has failed to uncover any concrete evidence of wrongdoing, yet the company remains subject to a punitive injunctive order.  In the past, CoA Institute represented LabMD, Inc., a small cancer-detection company, against claims that it had unreasonable data-security practices.  And CoA Institute has directly litigated against the FTC over matters related to the Freedom of Information Act.

As explained in the comment, CoA Institute’s track-record with the FTC gives it unique insight into how the agency can be improved in four general areas:

Reforming the FTC’s Enforcement Processes

When FTC staff believes there has been a violation of the law, the agency typically threatens a regulated entity with an enforcement proceeding and attempts to settle the matter by consent order.  This is the outcome in most cases.  But these consent orders tend to be vague; they provide little guidance about the standards with which other regulated companies are expected to comply.  This opens the door to regulatory overreach.  The FTC should provide specificity in its consent orders.

The FTC also should refine its use of ex parte injunctions, which are an extraordinary remedy.  Without clearer guidance limiting the use of temporary restraining orders and asset freezes, the FTC may continue to raise due process concerns and impose unjustifiable hardships on regulated entities defending themselves in enforcement proceedings.

Concerns about due process likewise arise with respect to the FTC’s own rules of procedure, which differ in material ways from well-accepted rules of procedure and evidence in federal courts.  The Commission’s rules provide its staff a decided advantage, particularly given the relatively boundless resources available to the agency.  This is unfair and flouts the rule of law.

Finally, the FTC should eliminate its practice of seeking legal damages in excess of what the agency is statutorily authorized to pursue.  Although the FTC may request equitable monetary damages, including restitution or disgorgement of ill-gotten gains, in practice the damages sought by the Commission are pecuniary and ultra vires.  In short, they amount to the imposition of personal liability on defendants.  This approach cannot be countenanced by the FTC Act.

Increasing FTC Transparency

Related to the reforms of the FTC’s enforcement regime are the changes that should be made to its disclosure practices.  As mentioned, the FTC regularly relies on consent orders to settle matters before an actual enforcement proceeding is opened.  The use of these negotiated orders, which are party-specific and, again, vague, fails to provide the requisite notice of legal standards to which regulated parties are expected to conform.  The FTC should abandon efforts to treat consent orders as a “common law” body of precedent that shapes future obligations for regulated parties.

To the extent the FTC continues to use consent orders in this problematic way, however, it should aim to make the orders specific, with detailed analysis about the application of generally applicable standards.  The Commission also should proactively disclose the closing letters and closing memoranda from matters where enforcement is not pursued.  In these cases, the FTC has determined that a potential respondent is operating within legal bounds.  The Commission itself admits that these documents are useful, but they are not uniformly disclosed to the public.

Developing a Proper Understanding of “Substantial Injury”

At the heart of Section 5 of the FTC Act is the concept of “substantial injury.”  Without actual, or the threat of “likely,” substantial injury, the FTC can do nothing.  But the exact scope of what is “likely” and “substantial” harm is unclear.  The FTC does not define the terms precisely, and the body of consent orders that reflect settled matters provide little further detail.  What is clear, however, is that the FTC prefers to maintain ambiguity to facilitate its overreach.

The Commission should do a better job considering the countervailing benefits to consumers or competition provided by allegedly unfair acts or practices, too.  This can be done with rigorous cost-benefit analysis.  The FTC often focus on amorphous concepts of harm while ignoring how regulated entities’ practices benefit the consumer or, more broadly, competition in the marketplace.

How Congress Should Amend the FTC Act

Although CoA Institute’s recommendations are principally directed to the FTC, Congress should play a key role in reforming the Commission’s enforcement processes.  We propose that legislators amend the FTC Act to allow direct appeals to a U.S. Court of Appeals following an administrative law judge decision.  This would replace the current process by which an appeal is first made to the full Commission.  It would be better to permit respondents to seek appellate relief in an Article III venue, and bypass the full Commission, because the FTC has a remarkable track record of never losing its own administrative appeals.  Regulatory agencies should not be allowed to wear the dual hats of prosecutor and judge.

Ryan P. Mulvey is Counsel at Cause of Action Institute

Click here to access the full comment or read below.


Court of Appeals Rebukes Federal Trade Commission’s Data Security Overreach


JUNE 8, 2018

WASHINGTON, D.C. – In a landmark ruling on June 6, 2018, the Eleventh Circuit Court of Appeals invalidated a Federal Trade Commission (FTC) order against cancer-screening facility LabMD.  The agency had hounded LabMD for years claiming the company violated an undefined data security rule known only to the FTC.  The opinion sends a clear message that the FTC’s enforcement of data security, without publishing any standards, disregards the rule of law, violates due process, and will not be tolerated by the Courts. Cause of Action Institute represented LabMD in the proceedings at the FTC and filed an amicus curiae brief in the Eleventh Circuit on behalf of nine medical doctors harmed by the FTC’s actions.

Cause of Action Institute’s President and CEO John Vecchione commented on the decision:

“The FTC’s lawless bullying of companies and actions that drove LabMD out of business and denied our physician clients’ access to its services have suffered a stern and public rebuke. Standardless regulatory overreach in this case forced the closure of a successful small business even though the FTC has never presented any evidence of consumer harm, nor published any data security standards with which it says the company should have complied.  Notably the 11th Circuit ruled the FTC-issued injunction was so vague and unintelligible that no court could intelligently enforce it.  The Court made no finding and affirmed no decision of the FTC that LabMD had done anything wrong.

“Scores of companies have knuckled under to the FTC’s insistence on ‘consent’ orders to buy peace.  This ruling is a signal that they don’t have to.  The Court signaled that vague, standardless dictates by unelected bureaucrats would not be enforced in Courts of law.  LabMD’s experience in this case is a stark reminder of the costs required to fight a federal agency that is willing to spend millions of taxpayer dollars over more than eight years of investigation and litigation, all in the pursuit of wrong.  We congratulate Ropes & Gray for its representation of this case before the Circuit and LabMD itself for daring to fight the good fight.  We are also proud of our attorneys and Cause of Action Institute’s contribution to that fight.”

In the opinion, the court explained the absurdity of the FTC’s position– namely that the agency requires data security standards without providing any specificity on those very standards.  From the opinion:

“[T]he Commission’s cease and desist order is nonetheless unenforceable. It does not enjoin a specific act or practice. Instead, it mandates a complete overhaul of LabMD’s data-security program and says precious little about how this is to be accomplished. Moreover, it effectually charges the district court with managing the overhaul. This is a scheme Congress could not have envisioned. We therefore grant LabMD’s petition for review and vacate the Commission’s order.”

While the decision may appear to be narrowly related to the cease and desist order at issue in LabMD, in practice, it will have broad ranging implications for how the agency investigates and enforces data security. The Court also recognized the constitutional injustice of the FTC’s enforcement action in this case: “Being held in contempt and sanctioned pursuant to an insufficiently specific injunction is therefore a denial of due process.”  This abuse of due process by going after a company for allegedly violating Section 5 of the FTC Act, but never telling the company what it is actually supposed to have been doing has been a central theme of the LabMD case from the start.

The FTC lost this case before its own FTC’s chief administrative law judge (ALJ) and now before the Eleventh Circuit. The FTC’s disregard of the ALJ’s opinion, when the Commission considered the case at the administrative level, illustrates the unfairness of the FTC enforcement process where the agency acts as its own detective, prosecutor, judge, and executioner. As former FTC Commissioner Joshua Wright explained: “[I]n 100 percent of the cases in which the administrative law judge ruled found no liability, the Commission reversed. This is a strong sign of an unhealthy and biased institutional process.

Read the full opinion here.

Read more about Cause of Action Institute’s efforts to hold the FTC accountable here and here.

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.

For more information, please contact Mary Beth Gombita,

FTC Raids Small Business and then Obscures Participation in the Raid

Update: On Thursday, March 29, 2018, after clarifying that there was no legal impediment to its production, CoA Institute received from the FMPD the unredacted body cam footage showing the raid on Vylah Tec’s offices.

On May 3, 2017, the Federal Trade Commission (“FTC”) raided a small family-run tech support company, Vylah Tec, LLC (“V-Tec”), on suspicion of “deceptive” sales practices. The hours-long 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. The FTC’s sting-like raid, assisted by local police, included hands-in-the air orders, temporary confiscation of employee cell phones, and police-escorted bathroom breaks.

On January 4, 2018, Cause of Action Institute (“CoA Institute”), under Florida’s “Sunshine Law,” requested from the Fort Myers Police Department access to the body camera recordings taken by officers participating in the raid at V-Tec’s headquarters. In the request, CoA Institute specifically  stated that any denial of access to the requested records should be accompanied by an identification of the statutory exemption relied upon.

On March 15, 2018, two body cam recordings were produced to CoA Institute. Despite the multi-hour duration of the raid, the recordings were brief: ten minutes and eighteen minutes. The recordings showed Fort Myers police officers entering V-Tec’s offices, ordering V-Tec employees to put their hands in the air, and shepherding the employees into a small office vestibule where the employees were told they were being held until they were interviewed by unidentified people who had not yet arrived.

Curiously, although the police officers and the employees were clearly visible on the recording, several minutes into the recording, when other people entered the scene, the view immediately became obscured. Even more curiously, at times only a portion of the view is obscured so that the image of the employees is still clear, but people on the other side of the room cannot be seen – such as in the image below.

CoA Institute reached out the Fort Myers Police Department, seeking an explanation of what appeared to be redacted footage. In response, the FMPD confirmed that the footage had been redacted because they could not release the “agency” portion of the video. The Florida Sunshine law is very broad and does not include an exception to its broad disclosure requirements for images of agency personnel operating in their official capacity. It thus appears that the FMPD was instructed to deny access to body cam footage that shows the participation of those entities in the raid of V-Tec’s offices.

On March 16, 2018, CoA Institute requested that the FMPD “state in writing and with particularity the reasons for the conclusion that the record is exempt or confidential’ as required by Fla. Stat. § 119.07(1)(f)” because CoA Institute believes that the FMPD’s refusal to release an unredacted version of the footage to be improper.

Cynthia Crawford is senior counsel at Cause of Action Institute

Appellate Court Unfreezes Small Business Owner’s Assets After Being Wrongly Targeted by FTC

Washington, D.C. – The 11th Circuit Court of Appeals has ruled to unfreeze in part the assets of our client, Robert Cupo, who owns a small family-run tech support company, Vylah Tec, LLC (“V-Tec”), after the Federal Trade Commission (“FTC”) used misleading evidence to convince the lower court to grant a damaging injunctive order against his company. The ruling rejects the government’s clear overreach in not only freezing assets of the company, but also the joint marital assets of Mr. Cupo and his wife, and the assets of his brother who had no business connection to V-Tec.  Cause of Action Institute (“CoA Institute”) filed an appeal of the district court’s order in September 2017.

CoA Institute Senior Counsel Cynthia Crawford: “The Government attempted to bulldoze Mr. Cupo and his family with punitive financial penalties before they had an opportunity to defend themselves. The preliminary injunction was granted based on faulty and mischaracterized evidence. That’s not due process, and it certainly is not justice. After nine long months of financial hardship, a large portion of the burden has finally been lifted, allowing our client to continue to fight to clear his name.”

The 11th Circuit found that the district court “did not make sufficient factual findings to support freezing these assets.”

Case Background:

V-Tec provides tech support to customers and also sells third-party antivirus and other data security software. In May 2017, the company’s headquarters 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 Cupos’ assets, the FTC in court cited two examples of recorded calls that were both mischaracterized. The Government conceded that it submitted false evidence. Nonetheless, a Florida district court judge granted the injunctive order turning V-Tec’s operation over to a third-party receiver and freezing the assets of Mr. Cupo and several of his family members.

The 11th Circuit ruling vacates the asset freeze imposed against the assets held jointly by Mr. Cupo and his wife, as well as the asset held by his brother.

The full opinion can be found here.

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: