The Federal Trade Commission believes that the Supreme Court’s AMG ruling has cost consumers $1.5 billion.
The losses were incurred through a variety of fraudulent techniques, with the FTC unable to hold scammers accountable as a result of the AMG judgment.
If you’re not familiar with the Supreme Court’s AMG ruling or need a refresher, the FTC went after payday loan scammers in a nutshell.
The scammers brought the issue to the Supreme Court, which determined in April 2021 that the FTC could not recoup monetary damages under FTC Act rule 13 because the scammers had taken the case to the Supreme Court (b).
The FTC can only use monetary remedies to hammer scammers hard in the pocketbook. Damages, civil penalties, disgorgement, restitution, and other remedies are available. For forty years, the regulator has been successfully employing 13 (b) against scammers. The FTC’s MLM cases that we’re following have gotten substantially more convoluted as of late.
Scammers get away with millions of dollars in duped customer cash even if they lose an FTC case.
FTC Commissioner Kelly Slaughter (yep, that’s her real name) and FTC Chair Lina Khan issued a statement on May 31st that addressed the present post-AMG situation.
When a firm violates the FTC Act, the Supreme Court’s decision destroyed the Commission’s principal and best weapon for seeking monetary remedies.
From 2016 to 2022, the FTC used this tool, known as Section 13(b), to provide billions of dollars in relief in a variety of cases, including telemarketing fraud, anticompetitive pharmaceutical practices, data security and privacy, and senior and veteran scams, totaling $11.2 billion. The FTC has seen two predictable outcomes in the year since the Supreme Court determined that the FTC lacks the authority to seek monetary remedies under Section 13(b): consumers who have been harmed are not getting their money back, and corporate wrongdoers have gained confidence. The FTC prevailed but was unable to adequately punish the defendants, which include:
Consumers were scammed of “at least $137 million” as a result of a fraudulent investment scheme. The FTC won the lawsuit, but only received $2.4 million because they were compelled to negotiate a settlement after losing 13 (b).
Consumers were robbed of “almost $1.5 billion” by a loan firm. The FTC was obliged to negotiate a settlement after losing 13 (b), securing only $18 million in consumer redress.
The rest goes to the lending firm. A pharmaceutical corporation deceived consumers to the tune of $493 million by inflating medicine prices.
The FTC filed a lawsuit against the corporation. According to the AMG judgment, the court denied monetary remedy, allowing the firm to keep over $500 million in illicit revenues while consumers received no compensation.
The list goes on and on.
AMG has already cost consumers more than $1.5 billion in relief that the agency could have secured under Section 13 (b), according to reasonable calculations, and the costs are mounting by the day.
FTC v. Redwood Scientific Technologies is a case in the MLM sector.
The FTC’s complaint against Redwood Scientific and its owner, Jason Cardiff, was dismissed on all counts. But, once again, I was exempt from having to pay any damages or restitution due to 13 (b).
Cardiff was crowing about not having to pay back anything in our comments, confirming the FTC’s opinion that AMG has “emboldened” scammers.
Despite the fact that he lost, Cardiff considers the case a win because he didn’t have to pay any damages or reparations.
FTC v. Neora and FTC v. Success by Health are two other MLM cases that have been reduced to shambles as a result of AMG. Both cases are currently in progress.
The FTC didn’t pursue a big MLM-related fraud action until last month. 13 (b) is still present in FTC v. Financial Education Services, but it is augmented by a slew of other infractions. We don’t know if monetary relief will be granted because this is the first large FTC action launched since AMG (nearly half a billion in alleged fraud).
Commissioner Slaughter adds, “Staff throughout the FTC have done an excellent job of pivoting in terms of tools and techniques to soften the effects on consumers,” in reference to the modifications the FTC has had to make in pursuing lawsuits against fraudsters. Despite these valiant attempts, our finest outcomes nevertheless result in justice being harmed and justice being delayed. The extent of relief provided by our other tools is frequently far less.
Section 19 of the FTC Act is one of the FTC’s alternative strategies. However, due to the length of time it takes to investigate a consumer complaint and bring a lawsuit, the statute of limitations governing Section 19 has generally expired by the time the lawsuit is filed.
This restriction has a particularly devastating impact on consumers who are the first victims of a fraudulent practice—their complaints frequently trigger an inquiry, but they are cut off from relief. That is ludicrous from the standpoint of consumer protection.
Longer-term enforcement measures, such as issuing penalty violation warnings to businesses and initiating rulemaking, require time. When compared to our prior federal court process, going via our administrative process can add years to the timetable for restoring ill-gotten earnings to consumers’ pockets, and it is also subject to Section 19’s shorter statute of limitations. Finally, for competition violations, the FTC has no other options for monetary redress or disgorgement of ill-gotten earnings. The FTC has put its faith in Congress acting pending the result 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).
It is critical that Congress act quickly to update Section 13(b) to clarify what has been well-established, black-letter law for more than four decades: that when companies or individuals violate the Commission’s laws, the agency can seek an equitable monetary remedy under Section 13(b) (b). We were grateful this summer when the House of Representatives enacted a bill that would accomplish exactly that. We urge the Senate to take up and pass the bill as quickly as possible.
Senator Cantwell introduced the Consumer Protection Remedies Act of 2022 on May 4th. According to the bill, “Referred to the Committee on Commerce, Science, and Transportation.”
The Committee “ordered [the bill] to be reported favorably with an amendment” on May 11th.
I’m not really familiar with the many stages of bill legislation in the United States. However, as you can see from the bill’s page on Congress’ website, it’s still in the early stages.
The Consumer Protection Remedies Act of 2022, if approved into law, will reinstate the FTC’s existing remedies through 13 new provisions (b).
If that fails, I think MLM fraud regulation in the US is doomed. All of this, thankfully, has no bearing on SEC and CFTC charges involving securities fraud. However, the prospects for straight pyramid fraud appear to be dismal.