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Lurking in the Shadows – Dual Agency Enforcement of Affiliate Marketers

7 Apr, 2015 By: Rachel Hirsch


It is no secret that the Federal Trade Commission (FTC) enjoys flexing its enforcement muscle whenever there is a potential for consumer harm. Sometimes, however, the FTC is at its strongest when it teams up with another agency to bring down the proverbial hammer on affiliate marketers alleged to have engaged in fraudulent activity. It is common, therefore, to see such pairings as the FTC and state attorneys general (AG) offices, the FTC and the Consumer Finance Protection Bureau (CFPB), the FTC and the Food and Drug Administration (FDA), and even the FTC and the Department of Justice (DOJ).

The most recent example of such a pairing came in March, when the FTC and 32 law enforcement partners announced the results of Operation Ruse Control, a nationwide and cross-border crackdown to protect consumers when purchasing or leasing a car, encompassing 252 enforcement actions. Enforcement efforts by the FTC, the United States Attorney’s Office in the Northern District of Alabama and other partners at the federal, state and local level in the U.S. and Canada include both civil and criminal charges of deceptive advertising. The fraud alleged in these enforcement actions stems from automotive loan applications, odometer fraud, deceptive add-on fees, and deceptive marketing of car title loans.

In March, the FTC also announced a $7.5 million settlement with AllStar Marketing Group LLC, a direct marketing company selling As Seen On TV products, such as Snuggies, which was charged with deceptive “buy-one-get-one-free” promotions. The settlement was reached alongside actions by the New York State Office of the Attorney General, which announced a separate state case against the company on the same day as the FTC press release. In addition to the $7.5 million paid to the FTC, Allstar will pay $500,000 to the Attorney General’s Office for penalties, costs and fees to settle that action.

In dual-agency enforcement cases, the stakes are even higher when the DOJ gets involved. So how does an affiliate marketer know if possible criminal enforcement is lurking in the background of an FTC or state AG proceeding? Focus on three key points:

  1. Ask. You can always ask the FTC staff attorney or local AG if they are working with another federal or state agency.
  2. Investigate. Has the FTC staff attorney or local AG worked a parallel case in the past? Are they connected with local prosecutors on LinkedIn or Facebook? Have they conducted joint presentations with prosecutors at trade seminars or CLEs?
  3. Discovery. There may not be a lot of options for discovery in a criminal proceeding, but that’s not so in a civil proceeding. Use the power of civil discovery to obtain documents shared between the FTC and any other governmental agency. When you start getting pushback or objections, you’ll know.

And remember, even if you come up empty on all three points, given the nature of the offense (e.g., data privacy breaches, Computer Fraud and Abuse Act violations), it may be safe to assume that criminal proceedings have been or may be initiated, and govern yourself accordingly in the civil litigation proceeding.

If criminal proceedings are lurking in the background, do not:

  1. Take lightly your sworn depositions or sworn document responses and interrogatories.
  2. Miss the opportunity to present a defense to allegations of wrongdoing or fraud.
  3. Testify in open court under oath until you have consulted with counsel.

When faced with dual-agency enforcement, your best option is to try to achieve a coordinated settlement with both agencies while the investigation is still private. If you do, perhaps the next FTC press release will announce a settlement of your case rather than the initiation of civil or criminal proceedings against you.

Rachel Hirsch is a senior associate at Ifrah PLLC, a law firm in Washington, D.C., focusing on advertising and marketing law. She regularly defends affiliate marketers and advertisers in complex litigation matters in state and federal court. She can be reached at (202) 524-4140, via e-mail at rhirsch@ifrahlaw.com, and online at www.ftcbeat.com.


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