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Table of Contents

Lead Story

Simple ways to better your business

News

Industry Update

Feds place chokehold on banks, processors

Apple changes app rules to include virtual currencies

Square ditches mobile wallet, offers cash advances

Features

Your next third-party partner: Friend or foe?

mPOS shaking things up

ISOMetrics:
Alternative payments gaining momentum

Views

A fresh look at chargeback insurance

Gene Lieb and Laura Kaiser
Business Financial Resources

Education

Street SmartsSM:
Auto-pilot and self reflection

Tom Waters and Ben Abel
Bank Associates Merchant Services

TRO/asset freeze: The FTC's nuclear option

Michael Thurman
Thurman Legal

Is that a terminal or a PIN pad?

Dale S. Laszig
DSL Direct LLC

Top five legal issues in the MCA industry

Andrew T. Hayner
Jaffe, Raitt, Heuer & Weiss P.C

Company Profile

Chargebacks911

New Products

Dynamic POS suite

DynaPro, DynaPro Mini
MagTek Inc.

FI-proven platform for merchants

SmartVista for Retailers
BPC Banking Technologies

Inspiration

Discovery leads to delight

Departments

Readers Speak

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

June 23, 2014  •  Issue 14:06:02

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TRO/asset freeze: The FTC's nuclear option

By Michael Thurman

It's a nightmarish scenario. As you pour your first cup of coffee of the week, your receptionist pages you and says federal agents with a court order are waiting for you in the lobby. The ensuing hours are a blur: a Federal Trade Commission attorney telling you a judge ordered your company to be taken over by a receiver in a secret hearing conducted on a Friday afternoon; marshals walking in and out of your office, carrying your business' computers and file boxes; employees being interviewed by FTC investigators and then sent home; a locksmith changing the locks at the front door.

By noon, you have grasped that you have lost your business to the government, and there's not much you can do about it. But it gets worse! At lunch your credit card is declined when you order a sandwich and a drink. You call the bank and are told your account has been frozen and it cannot honor the check you wrote to pay your mortgage.

Then, as you read the temporary restraining order (or TRO) that was handed to you at the front door in the morning, you realize you are now prohibited from withdrawing any funds, transferring any assets, paying any bills and borrowing any money. Other than the two twenties in your pocket, you have no money to live on or with which to defend yourself. In short, you are done.

This scenario is neither outlandish nor unusual. Similar orders were executed against at least 48 companies and 29 business owners and their employees in 2013. These TRO/asset freezes were imposed on owners and businesses in the first- and third-party debt collection, debt settlement, payday lending, loan modification, timeshare resale, Internet directory marketing, contest promotion, multilevel marketing and business opportunities marketing industries.

The TRO/asset freeze is the most draconian, and probably least known, weapon in the FTC's arsenal in its war against "unfair and deceptive acts and practices." Although the authority to freeze assets is not expressly spelled out in the Federal Trade Commission Act, the federal courts rarely hesitate to grant the FTC's requests for such orders, usually based solely on sworn affidavits from government investigators and other witnesses.

What's especially frightening about the TRO/asset freeze is that the FTC can, with the court's help, shut down a business completely and take away all of its (and its owners') resources in a matter of hours without any opportunity for the defendants to be heard. In most cases, the first chance defendants have to confront the FTC's evidence and tell the other side of the story is days, or even weeks, after the freeze has been entered.

At that point, it's usually too late. Severed from their financial resources and barred from operating their businesses, the only option usually left to defendants is to negotiate "inability to pay" settlements, in which the FTC keeps most or all of the frozen assets, shutters the business forever and often permanently bars the individual owners from working in the industry in the future. Under the terms of the typical FTC settlement, owners are subject to extensive reporting and compliance obligations, including the requirement to provide written copies of the FTC's final order to any future employers, partners and employees.

There is no presumption of innocence, no right to a hearing or to confront one's accusers before an asset freeze is imposed, and no right or, in many cases, ability to hire an attorney to refute the FTC's claims. In short, none of the constitutional protections that are guaranteed to criminal defendants are available to defendants in FTC civil enforcement actions.

In subsequent articles, I will discuss the source of the FTC's authority to obtain TRO/asset freezes, how the FTC selects the companies it targets for such actions and what steps companies can take to avoid becoming targets of this form of FTC "capital punishment."

Michael Thurman of Thurman Legal is a Southern California attorney who defends businesses and individuals in state and federal regulatory investigations and civil enforcement actions, private consumer class actions, and general business litigation matters. He also helps businesses prepare for and try such actions by implementing "litigation readiness" programs, developing compliance policies and procedures and conducting legal and regulatory audits. He can be reached at michael@thurman-legal.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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