FTC Releases 2019 Annual Highlights

The Federal Trade Commission has released its FTC’s 2019 Annual Highlights which describe 2019’s most significant efforts to protect consumers and promote competition, including enforcement, advocacy and regulatory policy.

In 2019, the FTC brought numerous enforcement actions targeting consumer fraud, deception in the marketplace, and harms to consumer privacy. The FTC focuses upon areas that have the greatest consumer impact: technology, health care, and consumer products and services.

In 2019, FTC actions led to more than $232 million in refunds to consumers across the country. Over the last four years, consumers have cashed more than $1 billion in FTC refund checks.

FTC Consumer Protection Efforts

In 2019, the FTC achieved a number of successes on the consumer protection front. The FTC required The University of Phoenix to pay $50 million in cash and cancel $141 million in debt owed to the school by students harmed by their alleged deceptive ads, which purportedly touted job opportunities and relationships with top tech companies.

FTC lawyers continued to demonstrate privacy enforcement leadership, including record-breaking settlements in its actions against Facebook and other tech giants. The Commission also initiated numerous actions involving various types of fraud, from imposter scams to pyramid schemes, from illegal robocalls to phony business opportunities. According to reports, the FTC’s actions led to the return of more than $232 million in refunds to consumers across the country.

FTC Enforcement Highlights

The FTC fulfills its law enforcement mission by bringing court and administrative actions to enhance competition and protect consumers.

            Health Care

Health-related misrepresentations are a core enforcement priority.

The FTC settled a lawsuit against Gerber Products Company, which allegedly made deceptive claims about its Good Start Gentle baby formula’s ability to reduce the risk that infants would develop allergies. The FTC also obtained orders and monetary relief in two cases, NatureCity, LLC and A.S. Research, LLC, to resolve allegations that the companies deceptively promised that their products would treat a variety of conditions and chronic pain affecting older consumers.

In the agencies’ first case challenging fake paid reviews on an independent retail site, the settlement with Cure Encapsulations, Inc. resolved allegations that the defendants made false and unsubstantiated claims for their weight-loss supplement and that they paid a third-party website to write fake reviews on Amazon.com.

The FTC has also recently issued joint warning letters with the FDA to companies about allegedly deceptive or unsubstantiated claims to treat Coronavirus. The two agencies also sent warning letters about alleged unsubstantiated claims that certain dietary supplements treat or cure serious medical conditions. Additionally, the FTC sent warning letters to three sellers of cannabidiol (CBD) products, explaining that advertisers must possess competent and reliable scientific evidence to support their statements.

            Technology

In 2019, the FTC continue its mission to combat illegal robocalls.

The FTC announced four new cases and three settlements as part of Operation Call It Quits, a coordinated action against scammers responsible for more than a billion illegal calls. The FTC—with 25 federal, state, and local law enforcement partners—filed another 87 lawsuits, including five criminal cases.

In the FTC’s first Telemarketing Sales Rule action against a Voice over Internet Protocol (VoIP) service provider, a federal court stopped the operations of Globex Teleco. Inc., which allegedly facilitated the promotion of a credit card interest reduction scheme. Four separate operations settled the FTC’s charges that they violated the FTC Act and the Telemarketing Sales Rule when they allegedly bombarded consumers nationwide with billions of unwanted and illegal robocalls to pitch auto warranties, debt-relief services, fake charities, and more.

Two settlements about the use of endorsements in social media demonstrate the FTC’s commitment to stopping deception online. The FTC’s action against Devumi, LLC alleged the company sold fake followers, phony subscribers, and bogus likes to companies and individuals that wanted to boost their social media presence.

The case against Sunday Riley Modern Skincare, LLC alleged its employees posted fake product reviews on a well-known retail website.

More generally with respect to alleged online deception, online lender Avant, LLC paid $3.85 million to settle the FTC’s charges that the company purportedly used deceptive and unfair loan servicing practices, such as imposing unauthorized charges on consumers’ accounts and unlawfully requiring consumers to agree to automatic payments from their bank accounts.

            Consumer Products and Services

Truly Organic Inc. and its CEO paid $1.76 million to settle the FTC’s charges that they falsely claimed that their bath and beauty products are “100% organic” and “certified organic” by the U.S. Department of Agriculture (USDA).

Snack box company UrthBox, Inc. settled the FTC’s charges that they misrepresented customer reviews as being independent. In reality, according to the FTC, the company gave people free products to post positive reviews. In addition, the FTC alleges, those who signed up to receive a supposedly free snack box from UrthBox, Inc. were charged automatically for six months of shipments because they did not opt out before the end of the month.

            Deceptive and Unfair Marketing

Cases against imposters, pyramid schemes, sweepstakes scams, deceptive debt collectors and phony business opportunities are critical areas of focus when it comes to FTC legal regulatory investigations (CIDs) and enforcement actions.

Tech support software provider Office Depot, Inc. and its supplier paid $35 million to settle charges that they falsely claimed a scan detected signs of malware, then tricked consumers into buying millions of dollars’ worth of computer repair and technical services.

In another tech support case, the FTC alleged that Elite IT Partners, Inc.’s scheme tricked consumers into believing their computers were infected with viruses in order to sell them costly computer repair services.

In 2019, the Commission also took action against two alleged illegal pyramids.

In AdvoCare International, L.P., the FTC alleged that the multi-level marketer deceived consumers into believing they could earn significant income as “distributors” of its health and wellness products. In the case against Neora, LLC (formerly known as Nerium International, LLC), the FTC alleged the company falsely promised recruits that they could achieve financial independence by joining the scheme.

The FTC also initiated an action against online dating service Match Group, Inc.—the owner of Match.com, Tinder, OKCupid, and PlentyOfFish—alleging the company used fake love interest advertisements to trick hundreds of thousands of consumers into purchasing paid subscriptions on Match.com.

Affiliate marketers and lead generators should take note of the settlement with Digital Altitude, LLC who paid $1.9 million to resolve the FTC’s allegations that they deceptively claimed people could earn “six figures in 90 days” by using a purported business coaching scheme (in a related matter, the FTC alleged that the operators of Allied Wallet, Inc. knowingly processed payments for merchants that were engaged in fraud, including some merchants the FTC had taken enforcement action against, such as Digital Altitude, LLC).  Affiliate marketing attorneys and their lead generation clientele should also note the Career Education Corporation matter where the operator of several post-secondary schools paid $30 million to settle the FTC’s charges that they used sales leads from lead generators that falsely told consumers they were affiliated with the U.S. military (and that allegedly used other unlawful tactics to generate leads).

In the largest forfeiture the FTC has ever obtained in a case of this kind, the operators of a sweepstakes scam surrendered a record $30 million in cash and assets and were permanently banned from the prize promotion business.

At the FTC’s request, a federal court stopped the operation and froze the assets of Global Asset Financial Services Group, LLC, an alleged debt collection scheme that purportedly bilked consumers out of millions of dollars, using deceptive and threatening tactics to collect phantom debts that they did not owe.

The Commission and the Utah Division of Consumer Protection sued Nudge, LLC and affiliated companies, alleging that they made empty promises about earning money by “flipping” houses, to convince consumers to buy real estate training packages that cost thousands of dollars.

In the Manhattan Beach Venture, LLC matter, the FTC charged the operators of two similar student loan debt relief schemes, and a financing company that assisted them, with bilking millions of dollars from consumers.

In 2019, the FTC also brought its first actions solely enforcing Consumer Review Fairness Act (CRFA), which prohibits companies from barring consumers from writing or posting negative reviews.

            Data Privacy

Protecting the privacy of consumers’ information is one of the FTC’s top enforcement priorities.

In a history-making settlement order, Facebook, Inc. agreed to pay a record-breaking $5 billion penalty, the largest ever imposed on any company for allegedly violating consumers’ privacy. The FTC charged the tech company with violating a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information.

Facebook also submitted to new restrictions and a modified corporate structure that will hold the company accountable for the decisions it makes about its users’ privacy.

In a related matter, the Commission issued an Opinion and Order that data analytics company Cambridge Analytica, LLC violated the FTC Act by using deceptive tactics to collect personal information from tens of millions of Facebook users for voter profiling and targeting. The FTC also settled related charges against the company’s former CEO and an app developer for their use of deceptive tactics.

In its case against Equifax, Inc., the FTC alleged that the company did not secure the massive amount of personal information stored on its network, leading to the 2017 data breach that exposed the personal information of 147 million people. Under a global settlement that includes the CFPB and states, Equifax will pay at least $575 million, and up to $700 million.

Auto dealer software provider LightYear Dealer Technologies, LLC—doing business as DealerBuilt—settled the FTC’s charges that it allegedly did not take reasonable, readily available, and low-cost steps to secure consumers’ data, leading to a breach that exposed the personal information of about 12.5 million consumers.

Under the terms of its settlement with the FTC, technology company InfoTrax Systems, L.C. will implement a comprehensive data security program to resolve allegations that the company didn’t have security safeguards in place, which allowed a hacker to access the personal information of a million consumers. The FTC also brought charges against 12 companies that allegedly misrepresented their participation in the EU-U.S. Privacy Shield framework, which enables companies to transfer consumer data legally from EU countries to the United States. In 2019, 11 of the cases settled: One in June, five in September, one in November, and four in December. The case against RagingWire Data Centers, Inc. is ongoing.

The Commission continued its efforts to safeguard children’s privacy through rigorous enforcement of the Children’s Online Privacy Protection Act (COPPA). Google LLC and its subsidiary YouTube, LLC paid a record $170 million to settle allegations that the video-sharing platform illegally collected personal information from children without their parents’ consent, in violation of COPPA. Under the terms of the settlement, the companies paid $34 million to the NY AG and $136 million to the FTC, the largest amount the FTC has ever obtained in a COPPA case.

In another of the FTC’s largest COPPA civil penalty cases, the operators of the video social networking app Musical.ly—now known as TikTok—paid $5.7 million to settle allegations that the company illegally collected personal information from children.

In its first action against a marketer of stalking apps, Retina-X Studios, LLC agreed not to sell apps that monitor consumers’ mobile devices unless the company takes certain steps to ensure the apps will only be used for legitimate purposes. The settlement resolves allegations that these apps compromised the privacy and security of the consumer devices on which they were installed. Hinch Newman successfully resolved this landmark investigation on behalf of its client by securing a non-monetary administrative settlement that avoided the initiation of enforcement proceedings, the FTC barred from

            International Law Enforcement

In 2019, the FTC engaged in enforcement-related mutual assistance with foreign agencies or multilateral organizations in 50 matters. The assistance included using the FTC’s powers under the U.S. SAFE WEB Act to obtain information for and share information with foreign authorities in investigations ranging from government imposter to romance to cryptocurrency scams, as well as privacy and data breach investigations.

One highlight was the FTC’s use of the U.S. SAFE WEB Act’s information-sharing powers to collaborate successfully with the U.K. Information Commissioner’s Office in the FTC’s investigation into Cambridge Analytica, LLC’s alleged use of deceptive tactics to harvest personal information from tens of millions of Facebook users for voter profiling and targeting. In its Opinion and Order, the Commission also found that the company engaged in deceptive practices relating to its participation in the EU-U.S. Privacy Shield framework.

The FTC also worked on joint enforcement-related projects with foreign counterparts through the International Consumer Protection Enforcement Network (ICPEN), the Global Privacy Enforcement Network (GPEN), the Unsolicited Communications Working Group (UCENet), and the International Mass Marketing Fraud Working Group (IMMFWG), which the FTC co-chairs along with the U.S. Department of Justice (DOJ) and U.K. law enforcement agencies.

The FTC brought, or continued to litigate, several significant enforcement actions involving large-scale international frauds. These include new lawsuits against a Canadian-based operation, Educare Centre Services, Inc., which purportedly sold sham credit card interest rate reduction services to U.S. consumers through Dominican Republic-based telemarketers, and also allegedly used a Canada-based VoIP provider, Globex Telecomm, Inc., to make illegal robocalls.

The FTC also took action against payment processor Allied Wallet, Inc. which, through intertwined U.S. and U.K.-based entities, allegedly assisted numerous scams, including the global business coaching scams MOBE Ltd. and Digital Altitude LLC, by knowingly processing fraudulent transactions to consumers’ accounts. The FTC also added Latvian defendants to its case against Apex Capital Group LLC  and continued litigation involving the Sanctuary Belize overseas real estate investment scam, including a Belizean-based bank that paid $23 million to settle the FTC’s charges that it substantially assisted various U.S. and foreign individuals and entities that defrauded U.S. consumers.

In these and many other cases, the Commission relied on the U.S. SAFE WEB Act’s provisions that allow the FTC to reach foreign conduct that has a “reasonably foreseeable” effect on U.S. consumers or that involves “material conduct” in the U.S. as the basis for challenging practices involving international defendants.

FTC Education Highlights

In 2019, the FTC developed a video describing the warning signs of a Social Security scam, and expanded the topics covered by the Pass It On campaign to include unwanted calls, home repair scams, money mule scams, and work-at-home scams.

As part of Operation Call It Quits, the FTC created new articles, videos, and shareable graphics with tips on battling unwanted calls.

For the Tech Support Take Down 2019 campaign, the Commission developed a new video, infographic, and tips.

The National Association of Attorneys Generals featured these resources on its site, which is a national forum to support the work of attorneys general and their staff.

The Commission’s new publication, Disclosures 101 for Social Media Influencers, offers guidance to influencers and advertisers about how to comply with the established truth-in-advertising principle that any material connection between influencers and advertisers must be clearly and conspicuously disclosed to consumers. The publication is designed to achieve two goals: to communicate the “clear and conspicuous” standard in a legally accurate way; and to convey the information in a manner that resonated with a social media-savvy audience. The accompanying how-to video registered more than 17,000 views in its first two months.

Richard B. Newman is an FTC defense attorney at Hinch Newman LLP. Follow him on Twitter @FTC defense lawyer and on Facebook at @FTC defense attorney.

Informational purposes only. Not legal advice. May be considered attorney advertising.