The FTC claims the Supreme Court’s AMG decision has cost consumer a staggering $1.5 billion.
The losses were realized through various fraudulent schemes, with the AMG decision leaving the FTC unable to effectively hold scammers accountable.
If you’re unaware of the Supreme Court’s AMG decision or need a refresh, in a nutshell the FTC went after payday loan scammers.
The scammers took the case to the Supreme Court, who in April 2021 ruled the FTC are unable to recovery monetary remedies through FTC Act rule 13(b).
Monetary remedies being everything the FTC can do to hit scammers they prevail against in their hip-pockets. Damages, civil penalties, disgorgement, restitution etc.
The regulator had been using 13(b) against scammers for forty years without issue. As they now stand, the FTC’s MLM cases we’re tracking have gotten significantly more complicated.
Even if they lose an FTC case, scammers are getting away with millions in defrauded consumer funds.
FTC Commissioner Kelly Slaughter (yes that’s her actual name), joined by FTC Chair Lina Khan, addressed the current post-AMG environment in a May 31st statement.
The Supreme Court’s ruling eliminated the Commission’s primary and best tool to seek monetary remedies when a company violates the FTC Act.
This tool, referred to by its statutory provision as Section 13(b), enabled the FTC to provide billions of dollars of relief—$11.2 billion from 2016 to 2022—in a broad range of cases including telemarketing fraud, anticompetitive pharmaceutical practices, data security and privacy and scams targeting seniors and veterans.
In the year since the Court ruled that we lack the ability to obtain monetary relief under Section 13(b), the FTC has confronted two predictable outcomes: consumers who were wronged are not getting money back and corporate wrong-doers are emboldened.
Cited cases the FTC won but couldn’t punish defendants appropriately include:
A fraudulent investment scheme defrauded consumers out of “at least $137 million”.
The FTC won the case but was only able to recover $2.4 million because, after losing 13(b), they were forced to negotiate a settlement.
A loan company defrauded consumers out of “over $1.5 billion”. After losing 13(b) the FTC was again forced to negotiate a settlement, securing only $18 million for consumer redress.
The loan company got to keep the rest.
A pharmaceutical company defrauded consumers through inflated drug prices to the tune of $493 million.
The FTC took the company to court. The court denied monetary relief as per the AMG decision and the company was thus
able to keep their nearly $500 million in illegal proceeds, and consumers received not one dollar back.
And on and on it goes.
By conservative estimates, AMG has caused consumers to already lose out on more than $1.5 billion of relief that the agency previously could have obtained under Section 13(b), and the losses increase with each passing day.
In the MLM industry we have FTC v. Redwood Scientific Technologies.
Redwood Scientific and owner Jason Cardiff lost the FTC’s case against them on every count. But again because of 13(b), didn’t have to pay any damages or restitution.
Affirming the FTC’s position that AMG has “emboldened” scammers, you can see Cardiff crowing about not having to pay back anything in our comments.
Because he didn’t have to pay any damages or restitution, Cardiff sees the case as a win – despite the fact that he lost.
Other MLM cases reduced to shambles as a result of AMG are FTC v. Neora and FTC v. Success by Health. Both cases are still playing out.
It wasn’t until last month that the FTC filed a major MLM related fraud case. FTC v. Financial Education Services still includes 13(b), but is supplemented with a raft of other violations.
Still, given this is the first major FTC action filed since AMG (almost half a billion in alleged fraud), we don’t know whether that’ll ensure monetary relief will be granted.
Speaking on changes the FTC has had to make filing lawsuits against scammers, Commissioner Slaughter writes;
Staff throughout the FTC has done an incredible job of pivoting in terms of tools and tactics to blunt the effects on consumers.
Despite these impressive efforts, our best outcomes are still justice diminished and justice delayed. The scope of relief available using our other tools is often considerably smaller.
One of the FTC’s alternative tactics is Section 19 of the FTC Act. One side-effect of Section 19 however is, due to the time it often takes to investigate a consumer complaint and file a lawsuit, by the time the lawsuit is filed, the statute of limitations governing Section 19 has expired.
This limitation has particularly harsh effects for consumers who are early victims of an illegal practice—often their complaints initiate an investigation, but they are cut out from relief.
From a consumer protection standpoint, that is just ridiculous.
Longer term enforcement strategies such as sending companies penalty offense warnings and rulemaking initiatives take time.
And as has been well-documented, proceeding through our administrative process can add years to the timeline of returning ill-gotten gains to the pockets of consumers when compared with our former federal court process and is also subject to Section 19’s abbreviated statute of limitations.
Finally, the FTC has no alternative paths for monetary relief or disgorgement of ill-gotten gains for competition violations.
Pending the outcome of test cases like FTC v. Financial Education Services, at least for the MLM industry (I don’t really follow FTC cases outside of MLM), the FTC has put its faith in Congress acting.
It is critical that Congress take prompt action to amend Section 13(b) to make clear what was well-established, black-letter law for more than forty years—namely, that when companies or individuals violate laws the Commission enforces, the agency can obtain equitable monetary relief under Section 13(b).
This past summer, we were grateful that the House of Representatives passed a bill that would do exactly that.
We call on the Senate to take up that bill and pass it as soon as possible.
On May 4th Senator Cantwell sponsored the Consumer Protection Remedies Act of 2022. The bill was “referred to the Committee on Commerce, Science, and Transportation”.
On May 11th the Committee “ordered [the bill] to be reported with an amendment favorably”.
I’m not particularly familiar with each step of bill legislation in the US. But from the bill’s page on Congress’ website, you can it’s still in the early stages.
If eventually passed into law, the Consumer Protection Remedies Act of 2022 will restore the FTC’s previous remedies via 13(b).
Failing which, I guess RIP regulation of MLM fraud in the US?
Thankfully none of this affects SEC and CFTC cases involving securities fraud. For straight pyramid fraud though, things are potentially looking bleak.