New Documents Show How FTC Lobbied Sen. Jay Rockefeller To Kill FOIA Reform

By: Daniel Epstein

Cause of Action led the charge to uncover the information

Yesterday, released documents obtained through the Freedom of Information Act (FOIA) showing how the Federal Trade Commission (FTC), at the direction of FTC Chairwoman Edith Ramirez, lobbied former U.S. Sen. Jay Rockefeller to hold up FOIA reform legislation late last year.

Sen. Rockefeller is the former chairman of the Senate Commerce Committee – the committee charged with FTC oversight.

Shawn Musgrave at requested the documents at the suggestion of our organization—Cause of Action, a group that works tirelessly to make the federal government more open and transparent.

While the revelation may come as a shock to some, cronyism and opacity at the FTC is nothing new to us. Prior to yesterday, our organization released documents exposing both the close relationship between the FTC and Sen. Rockefeller, as well as the FTC’s opacity when it comes to FOIA requests.

The documents obtained by show not only how the FTC lobbied aggressively against transparency reform, but also reflect the heights to which FTC’s opacity – and Sen. Rockefeller’s acquiescence – reach. In fact, Jeanne Bumpus, the FTC’s congressional liaison, used a non-government email account to lobby the FTC:

This isn’t the first case of a government official using a non-government email address to conduct official government business. It is, however, yet another example of how this administration’s “commitment…to usher in a new era of open Government” was little more than lip service.

The FTC Used Sen. Rockefeller As Its Personal Hit Man

Last year, Cause of Action alleged that Sen. Rockefeller was a pawn for the FTC. We produced documents showing that Sen. Rockefeller’s own chief of staff negotiated with Chairwoman Ramirez concerning former House Oversight Committee Chairman Darrell Issa’s investigation into the FTC, an investigation initiated in response to the FTC’s aggressive and fraudulent battle with the cancer detection company LabMD.

In an effort to silence our organization, the FTC motivated Sen. Rockefeller to publicly attack us in a letter to Congressman Issa.

What the documents uncovered yesterday confirm is that the FTC and Sen. Rockefeller shared an extremely cozy relationship whereby the FTC would use the senator as a proxy to fight its battles to kill FOIA reform and to attack us.

We Live Security: Whistleblower claims cybersecurity firm hacked clients

Read the full story: We Live Security

Last week, a former employee of Tiversa claimed in court in Washington D.C. that the company would routinely hack systems belonging to prospective clients to motivate them to purchase the cybersecurity firm’s services. It is alleged that the company would break into the prospect’s systems, without permission, then make a sales call to the prospect to offer security services to fix the problems it had just found and/or created. According to ESET security researcher Stephen Cobb, “Obviously, if these allegations are substantiated, they will be seen as some of the most egregious violations of professional ethics that the security industry has ever seen; but we do need to bear in mind that these proceedings are still ongoing and nothing is yet proven.”


This has all come to a head because a cancer testing laboratory, LabMD, has accused the cybersecurity firm, Tiversa, of stealing its client data back in 2010. It is alleged that Tiversa then claimed that the stolen data was being shared by known identity thieves. When the lab refused to buy the security firm’s services it threatened to report the lab to the FTC (Federal Trade Commission) for not securing their records properly. This is ultimately what happened, allegedly leading to the medical facility’s ultimate bankruptcy, according to a report in The Register.


As CNN Money puts it, the FTC gave LabMD a choice: “sign a consent decree (basically a plea deal which means years of audits and a nasty public statement) or fight in court.” Given that a plea deal would damage the reputation of the business, LabMD took the latter option. This initial case was lost, but following the release of a book about the case, a government watchdog, Cause of Action, has taken up the matter to pursue it further.

Weekly Rundown 5-8-2015



CNN Money: Whistleblower accuses cybersecurity company of extorting clients – Cause of Action’s fight against the FTC continued on Tuesday… Read More

Law 360: Analyst Backs LabMD In FTC Row, Alleges Fraud At Tiversa — “LabMD Inc. on Tuesday scored a major hit in its data security fight with the Federal Trade Commission after a former analyst at the cybersecurity firm Tiversa Inc. testified that his company lied to the agency about the extent of LabMD’s data leaks after the medical testing firm turned down its services… According to LabMD’s attorney Reed Rubinstein… the testimony marked a “remarkable day” in the case and vindicated the company’s assertion that “the FTC action was based on manufactured evidence.” At the close of the hearing Tuesday, Rubenstein announced that LabMD will seek a criminal investigation against the Tiversa…” Read More

Epoch Times: EB-5 Visa Limits May Slow Flow of China’s Elite to US – Cause of Action will not allow public officials to take advantage of the EB-5 visa program… Read More

Fox News: Clinton agrees to testify this month before House committee on Benghazi, private emails — “Democratic presidential candidate Hillary Clinton has agreed to testify on Capitol Hill this month about two controversial issues when she was secretary of state — the fatal terror attacks in Benghazi, Libya, and using a private server and emails for official business, her attorney said Tuesday…” Read More

Washington Times: IRS still targeting tea party: Nine groups awaiting agency approval — “Nine tea party groups were still awaiting IRS approval for nonprofit status nearly two years after the political targeting program was exposed, the inspector general said in a report Thursday that, despite hiccups, claimed the tax agency has generally done a good job of cleaning up its act…” Read More

CNNMoney: Whistleblower accuses cybersecurity company of extorting clients

Read the full story: CNNMoney

In a federal court this week, Richard Wallace, a former investigator at cybersecurity company Tiversa, said the company routinely engaged in fraud — and mafia-style shakedowns.


To scare potential clients, Tiversa would typically make up fake data breaches, Wallace said. Then it pressured firms to pay up.


“Hire us or face the music,” Wallace said on Tuesday at a federal courtroom in Washington, D.C.. CNNMoney obtained a transcript of the hearing.


The results were disastrous for at least one company that stood up to Tiversa and refused to pay.


In 2010, Tiversa scammed LabMD, a cancer testing center in Atlanta, Wallace testified. Wallace said he tapped into LabMD’s computers and pulled the medical records.

Witness in LabMD Proceeding Confirms that FTC Never Checked Source of Key Evidence

By: Patrick Massari

After nearly one year, the Federal Trade Commission’s (FTC) enforcement action against LabMD, Inc., a cancer detection company, resumed (In re: LabMD, Inc., No. 9357). After much anticipation, LabMD called to the stand Richard Wallace, a former employee turned whistleblower of Tiversa, Inc. (the company that provided the primary evidence relied upon by the FTC in bringing this enforcement action). According to LabMD’s attorney Reed Rubinstein, Wallace’s testimony confirmed that “the FTC action was based on manufactured evidence.”

Specifically, the FTC’s case has hinged on whether a LabMD file with confidential patient information was located on a publicly available network. Wallace testified in open court that although Tiversa told FTC that it located the file at various IP addresses, this simply was not true. To the contrary, Wallace said that Tiversa sought to “monetize” a business model where it would fabricate IP addresses where confidential information was available. According to Wallace, Tiversa would then contact the “offending” company with a proposal to pay money to Tiversa to remediate the cybersecurity threat, or face prosecution from the FTC for violating federal laws regarding data security practices. When LabMD refused to pay Tiversa, Tiversa’s CEO Robert Boback “basically said F him, make sure he’s at the top of the list.” According to Wallace, the list (given to FTC) identified companies that refused to hire Tiversa, but for which Tiversa fabricated IP addresses with confidential information.

With regard to the primary exhibit upon which FTC’s case rests, Walllace confirmed the Judge’s insightful observation that “[Exhibit] CX 19, these four IP addresses were created by you and they’re actually for all practical purposes they’re fake as far as the aging file was not found on these [four] IP addresses…” Wallace added: “…the actual files that were doctored up were never provided to LabMD. They just — I just had to put them in the data store so they would look real.” Despite the opportunity, FTC chose not to question Wallace at this time.

This testimony supports the assertion that FTC never fulfilled its obligation to confirm the key information upon which it relied to bring this enforcement action, which, for all practical purposes, has ended LabMD’s business. Indeed, it confirms what LabMD has argued in motions and publicly since September 2013: that FTC’s case against LabMD is based upon a crime – the theft of LabMD’s confidential medical files – and a lie – Tiversa misled Congress, FTC, and LabMD in misrepresenting that the file was available on other IP addresses.

At this time, the parties await FTC’s decision on whether it intends to present more testimony in light of LabMD’s case, and Wallace’s testimony.

Law360: LabMD Loses Bid To Exclude FTC Docs In Data Security Row

Read the full story: Law360

An administrative law judge on Thursday shot down LabMD Inc.’s bid to block the Federal Trade Commission from introducing into the parties’ data security fight new evidence related to the origin of an allegedly leaked patient file, rejecting the lab’s argument that the documents were clearly inadmissible.


In his order, Chief Administrative Law Judge D. Michael Chappell denied LabMD’s motion to prohibit the FTC from using or offering into evidence six documents that contain additional information about how data security firm Tiversa Holding Corp. came across a LabMD patient file that Tiversa allegedly found on servers outside the company and turned over to the regulator.


LabMD argued in its March 25 motion to exclude that the agency shouldn’t be allowed to introduce the proposed exhibits because it would cause unfair prejudice and confusion due to the agency’s undue delay in obtaining and producing the documents. According to the lab, the evidence should have been produced pursuant to a September 2013 subpoena that the FTC issued to Tiversa that sought all documents related to LabMD, but were withheld by the data security company.


But Judge Chappell declined to side with the lab in his order Thursday, instead ruling that the present record in the case “fails to support the conclusion that the subject documents are clearly inadmissible for all purposes” and that the possibility still existed that the FTC could use the documents to rebut the lab’s defense…


Reed Rubinstein, a Dinsmore & Shohl LLP partner and the senior vice president of litigation at Cause of Action, which is representing LabMD in the administrative proceeding, told Law360 on Friday that his side was encouraged by the judge’s decision to leave open the possibility that the evidence could still be excluded at a later time.


“It seemed as though the judge’s ‘wait and see’ attitude was a suggestion perhaps that our arguments had not fallen on deaf ears,” he said.

Law360: LabMD, FTC Data Security Fight Delayed Again

Read the full story: Law360

An administrative law judge has postponed until May 5 the resumption of proceedings in the Federal Trade Commission’s closely watched data security fight with LabMD Inc., marking the latest delay in a case that has been on hold for almost a year.


In an order dated Thursday, Chief Administrative Law Judge D. Michael Chappell revealed that the evidentiary hearing in the case, which was scheduled to resume on March 19, would instead be rescheduled to May 5.


The order offered no reason for the extension, saying only that the decision was “based upon good cause” and had been made following a conference call with the parties during which there had been no objections. The case has been on hold since May 30, when witness Rick Wallace revealed a congressional investigation into a key player in the FTC’s case.


“The judge told us the hearing was postponed, so we’ll show up on May 5 and we’ll see what Mr. Wallace has to say then,” Reed Rubinstein, a Dinsmore & Shohl LLP partner and the senior vice president of litigation at Cause of Action, which is representing LabMD in the administrative proceeding, told Law360 on Monday.