The FTC has been back at full capacity for little more than two weeks but is already making news on the consumer protection front. On the staffing side, the Consumer Protection Bureau is currently being run on an acting basis by long time FTC staffer Reilly Dolan. Numerous media outlets were reporting that Andrew Smith, a partner at Covington & Burling, would shortly be appointed as the permanent Bureau Director. Mr. Smith has represented numerous companies on consumer data issues, which according to the New York Times, include Facebook, Uber and Equifax, all of which have been or are under FTC investigation.
Of course, the need for recusals is not surprising for big law firm lawyers who first make the switch to public service, but in this case Mr. Smith’s client representations have caught the eye of three U.S. senators. On Monday Senators Warren, Blumenthal and Schatz wrote a letter to Chairman Simons asking him to delay a vote on Mr. Smith while they probe further into his background. The letter stated, “While Mr. Smith has every right to represent corporations that have harmed consumers, and those companies have every right to be represented by Mr. Smith, it is impossible to believe that the best candidate [to head consumer protection] is someone with a long record of representing companies that have been accused of hurting consumers.” Notwithstanding this letter, the Commission voted 3-2 yesterday in favor of Mr. Smith’s appointment. The Chairman and each of the two Democratic Commissioners issued separate statements in support of and in opposition to the appointment. (here, here and here). This is the first time we can remember a Bureau Director appointment attracting such attention, but perhaps it is not surprising in an era where virtually everything that happens in DC has political implications.
In addition, Commissioner Chopra, one of two new Democratic commissioners (click here to see more on his background) has quickly made clear that he intends to be active on the consumer protection front. Commissioner Chopra this week sent a letter to his fellow Commissioners arguing that the Commission needs to take strong steps to deter and punish repeat violators of its orders. Of course, the FTC already has authority to seek monetary penalties for order violations and Commissioner Chopra argues that such monetary penalties should be “severe.” However, he goes on to argue for several new approaches – more typically used in fraud cases – to serial order violators. These include:
- Holding executives accountable for order violations by the companies they run under the theory that an injunction against a corporation binds its officers;
- Bans on related business practices – for example, if a company fails to comply with required disclosure obligations, then perhaps it cannot be trusted to operate in that line of business at all;
- Divestiture or closure of an operating unit plagued with compliance problems;
- Requirements that a company raise equity capital on the theory that the firm is violating its order in an effort to generate sorely needed capital;
- Lifetime occupation bans for executives.
As Commissioner Chopra indicates in his letter, these types of severe sanctions have typically been reserved for fraud cases and privately held corporations. However, his letter indicates that he intends to push for a broader application of these sanctions, when appropriate, to publicly held corporations and that shareholders alone should not have to bear the burden of a company’s non-compliance. These proposed changes, if adopted by the Commission, would be a sea change in many ways and raise the stakes significantly when it comes to enforcement investigations involving order compliance. We will be watching closely to see if any of these proposals make their way into an actual Commission enforcement proceeding.