Although it’s been on my radar, BehindMLM hasn’t covered the AMG v. FTC lawsuit as it isn’t itself an MLM related case.
That said, on April 22nd the Supreme Court handed scammers a victory. That victory has ramifications for MLM fraud related lawsuits.
Before we get into the heavy lifting, I want to preface by stating I’m not a lawyer. I don’t get a boner getting stuck into legal theory and that’s not what I’m doing here.
My interest in AMG v. FTC extends only so far as the impact the decision will have on regulatory cases against MLM companies.
At issue in AMG v. FTC is section 13(b) of the FTC Act.
Section 13(b) pertains to temporary restraining orders and preliminary injunctions.
With respect to MLM fraud cases; the FTC typically seeks an ex-parte TRO and then a preliminary injunction.
What the FTC has been doing for decades is using 13(b) to seek monetary relief, in the way of restitution or disgorgement.
This is used to secure funds from scammers, which are ultimately returned to harmed consumers.
At issue is not the FTC clawing back proceeds of fraud from scammers or returning them to victims, but rather how this is achieved.
To that end the Supreme Court ruled
Section 13(b) does not explicitly authorize the Commission to obtain court-ordered monetary relief, and such relief is foreclosed by the structure and history of the Act.
It is highly unlikely that Congress, without mentioning the matter, would grant the Commission authority to circumvent its traditional §5 administrative proceedings.
To summarize, the FTC has means to seek monetary relief through other sections of the FTC Act. Section 13(b) streamlines the process, however Congress never explicitly included monetary relief as part of Section 13(b).
The court’s ruling was a unanimous 9-0 decision against the FTC.
So what happens now?
As per a press-release issued by the FTC, the regulator has engaged Congress to enable them to continue holding scammers financially accountable.
Federal Trade Commission Acting Chairwoman Rebecca Kelly Slaughter issued the following statement regarding today’s decision from the U.S. Supreme Court in the matter of AMG Capital Management LLC v. FTC:
“In AMG Capital, the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior,” Acting Chairwoman Rebecca Kelly Slaughter said.
“With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”
On Tuesday, the full Commission testified before the U.S. Senate Committee on Commerce, Science, and Transportation and submitted testimony on the need for 13(b) legislation.
The Acting Chairwoman will appear before the Subcommittee on Consumer Protection and Commerce of the House Committee on Energy and Commerce to advocate on behalf of consumers for Congress to act quickly and advance legislation to protect and strengthen the FTC’s powers.
My take is the Supreme Court has intentionally punted this issue back to Congress, in order for them to explicitly clarify the monetary relief issue. Be it through an amendment to 13(b) or alternative means.
It’s a no-brainer that the FTC has to be able to follow through enforcement with monetary penalties, otherwise what’s the point.
Thankfully we don’t see it in MLM related securities fraud cases, but it’s a running joke that penalties issued by the SEC in relation to trading fraud are merely the cost of doing business.
Should defendants in FTC fraud cases be permitted to retain funds obtained in violation of the FTC Act, this is in no way a win for consumers.
Today the Supreme Court ruled in favor of AMG Services, Inc. and Scott Tucker who stole more than $1.3 billion from consumers through a deceptive payday lending scheme.
By misrepresenting loan terms, the defendant caused borrowers to pay more than seven times the interest they were told they would pay.
We’re not talking chump change here.
MLM cases I’m aware AMG has been brought up in include Redwood Scientific Technologies and Success by Health.
The thinking seems to be “do what you want so long as we get to keep what we stole”. Not unlike what appears to be going on with AMG – and no doubt now every other 13(b) case still being litigated.
With respect to Success by Health, an April 22nd order directs the parties
to meet and confer about these issues and then submit a joint memorandum by April 29, 2021, not to exceed seven pages, that summarizes their positions and points of agreement (and disagreement).
Once the Court has an opportunity to review the joint memorandum, it will schedule a status hearing so these issues can be further addressed.
A similar April 22nd order was made in the Redwood Scientific Technologies case.
In its Order re Cross-Motions for Summary Judgment, the Court ordered the parties to file a joint status report regarding remedies in this case within 15 days of the Supreme Court’s decision in AMG Capital Management, LLC, et al. v. Federal Trade Commission.
The Court expects the parties to submit one joint status report, due on April 30, 2021, and to discuss the effects of this decision at the May 7, 2021 status conference.
In both instances it’ll be interesting to see how the cases proceed. Particularly what the FTC comes up with.
One potential interim workaround till Congress acts is freezing assets to “prevent future harm”.
This is brought up by the court in the Success by Health April 22nd order;
As for the continued validity of the receivership, the analysis is more complicated because it was imposed both to preserve assets and to prevent future harm and it is not clear that AMG Capital casts any doubt on the latter objective.
Thus, AMG Capital may call for the receivership to be narrowed in scope but not eliminated.
Just so we’re clear, the 13(b) ruling doesn’t change Success by Health’s and Redwood Scientific’s fraudulent conduct in violation of the FTC Act, only how the FTC goes about obtaining monetary relief.
If you’re interested in the legal theory behind the Supreme Court’s decision, Kevin Thompson of Thompson Burton approaches the decision from an attorney’s perspective.
At no point am I suggesting that scammers should be allowed to keep their money.
I am suggesting that, on occasion, the FTC pursues innocent companies that settle because they’re not able to endure the hell of 13(b) litigation.
As the saying goes, better 9 guilty people go free than 1 innocent go to prison. I believe in Due Process. So does the Supreme Court. So should you.
Ultimately so long as scammers aren’t able to keep what they’ve stolen, I don’t have a problem with how monetary relief is obtained.
Both the Success by Health and Redwood Scientific cases are on our docket calendar. Stay tuned for coverage of the submitted status reports once they’re filed.
Update 23rd June 2021 – The FTC has announced it is reviewing the Business Opportunity Rule.
This suggests the previously granted MLM exemption will be removed, allowing the regulator to seek relief it can no longer get through 13(b).