The FTC Investigative Process Step-By-Step

The FTC Investigative Process Step-By-Step

When the Federal Trade Commission (FTC) suspects that a company has violated antitrust or consumer protection laws, it can launch an investigation. This article will walk through the typical steps in an FTC investigation so you know what to expect if the FTC comes knocking.

Initial Inquiry

The FTC often starts with an initial inquiry before launching a full-blown investigation. This involves informal requests for information from the company to get a basic understanding of its business practices. The FTC may reach out to request documents, data, or interviews on a voluntary basis. Companies aren’t legally required to comply at this stage, but it’s usually wise to cooperate. Refusing to provide information can raise red flags and prompt the FTC to escalate to a formal investigation.

Formal Investigation

If the initial inquiry gives the FTC reason to believe there may be violations, they will open a formal investigation. This gives the FTC power to use compulsory process to obtain information. The key tool for formal investigations is called a Civil Investigative Demand (CID). A CID is essentially a subpoena requiring the recipient to provide documents, data, written answers to interrogatories, or oral testimony. If you receive a CID, you must respond within the timeframe specified, which is usually only a few weeks.

Negotiating CIDs

CIDs can be intimidating because they often request a massive amount of information across multiple topics. However, companies can try to narrow the scope by negotiating with the FTC. For example, you may be able to get more time to respond, clarify ambiguous requests, or exclude sensitive or irrelevant materials. But you have to be strategic since being overly resistant to compliance can damage your credibility.

Petition to Limit or Quash

If negotiations fail, companies can file a petition to limit or quash the CID. For example, you may argue the CID is too vague or broad, requests privileged information, or exceeds the FTC’s authority. However, the FTC director has discretion to deny petitions, so they rarely succeed. Going to court to challenge a denial is possible but usually not worth the time and expense.

Complying with CIDs

In most cases, companies end up complying at least partially with CIDs. This requires gathering, reviewing, and producing a lot of information on a short timeframe. Having robust records management and e-discovery procedures is essential. You also need to implement effective protocols to ensure any privileged materials are excluded. FTC lawyers will thoroughly review everything you produce, so make sure it is well-organized and indexed.

Settlement Negotiations

After its investigation, the FTC may decide to initiate an enforcement action if it finds violations. Companies then have a chance to settle before any formal complaint. Settlements typically involve agreeing to stop the problematic practices and comply with monitoring for a period of years. There may also be financial penalties or consumer redress. Accepting a settlement can avoid litigation risk and negative publicity, but requires admitting liability. Some companies opt to fight if they believe the FTC’s charges are unfounded.

Administrative Litigation

If no settlement is reached, the FTC can initiate administrative litigation by filing a complaint before an administrative law judge. This is like a trial, with pre-hearing discovery and motions, witness testimony, and introduction of evidence. However, the rules are more relaxed than federal court. If the FTC wins, the judge issues a cease and desist order and may require monetary relief or impose civil penalties. Either party can appeal the initial decision to the full Commission.

Federal Court Litigation

For consumer protection cases, the FTC has the option to file a complaint in federal court instead. There are stricter procedural rules but broader remedies available. If the court finds violations, potential sanctions include injunctions, restitution for consumers, disgorgement of profits, and civil penalties. The FTC acts as the plaintiff, but may partner with other agencies like the U.S. Department of Justice. Cases typically end in settlement, but if not, they proceed to trial before a judge or jury. Appeals go to the federal circuit courts.

Criminal Prosecution

In egregious antitrust cases, the FTC may refer matters to the Justice Department for criminal prosecution. DOJ has exclusive authority over criminal enforcement. Companies can face severe consequences like felony convictions, fines, and jail time for executives. For instance, an executive was sentenced to 5 years in prison for price-fixing. The FTC may continue a civil case in parallel to extract monetary relief.

Key Takeaways

– FTC investigations often start with informal inquiries before escalating to formal compulsory process.

– Civil Investigative Demands (CIDs) require companies to produce documents and information quickly.

– Negotiating CIDs, challenging them in court, or full compliance are options, each with pros and cons.

– If violations are found, the FTC may settle or litigate before an ALJ or federal court. Settlements require admitting liability.

– In extreme antitrust cases, criminal prosecution by the DOJ is possible.

– Having experienced legal counsel to guide you through the process is essential.