Show Me the Money: FTC Secures $4M and $1.5M Penalties in Consumer Protection Consent Decrees

Prior to 2021, the Federal Trade Commission (FTC) routinely relied on its Section 13(b) enforcement authority to seek monetary relief for alleged violations of the FTC Act or related provisions. Between 2016 and 2020 alone, the FTC recovered and refunded an estimated $11.2 billion in equitable monetary relief to consumers through Section 13(b).[1] That came to a screeching halt with a 2021 Supreme Court decision, AMG Capital Management, LLC, v. FTC,[2] in which the Court held that the FTC is not entitled to equitable monetary relief such as restitution or disgorgement under Section 13(b) of the FTC Act. AMG severely limited the FTC’s ability to seek monetary relief, and in the years following, we saw a precipitous drop in monetary FTC settlements.

Nonetheless, the FTC recently settled two cases in which it stands to secure over $5 million in monetary recovery in the form of civil penalties (as opposed to consumer redress). The FTC announced a $4 million settlement with TruHeight, a seller of supplements advertised as supporting height growth in children and teenagers, and a $1.5 million dollar settlement with Publishing.com, an online self-publishing company that promised consumers they would earn a substantial income publishing e-books and audiobooks online using the company’s programs and services. These settlements highlight the ongoing efforts by the FTC to impose monetary penalties outside of Section 13(b) – and companies should be paying attention. 

Civil Penalties Under the FTC Act

While AMG sounded a death knell for Section 13(b) consumer redress, the FTC still has powerful tools at its disposal to impose monetary penalties:[3]

• Violation of Final Orders: Any person who violates an FTC order after it has become final is liable for a civil penalty of $53,088 for each violation. Each separate violation of such an order is considered a separate offense, unless a violation is through the continuing or negligent failure to obey a final order, in which case, each day of such failure is deemed a separate offense.[4]
• Knowing Violation of FTC Rules: If a person or company violates an FTC rule on unfair or deceptive practices, and does so knowingly or under circumstances where the violation should have been obvious, they can be required to pay a civil penalty of $53,088 per violation.[5]
• Penalty Offense: The FTC may impose a civil penalty of $53,088 for each violation when a person or company either violates a final FTC order or continues conduct the FTC has already declared unlawful after being put on notice. This applies when the party knows the conduct is unfair or deceptive. Notably, the FTC can seek penalties even against parties who were not named in the original cease‑and‑desist order, so long as they have actual knowledge that the practice has been ruled unfair or deceptive.[6]
• False Advertisements: If a person violates the false advertising provision and the product advertised may detrimentally affect a consumer’s health as a result of the use of the product under the conditions prescribed in the advertisement or if the violation is with intent to defraud or mislead, the FTC may seek conviction for a misdemeanor, punishable by a fine of $5,000, imprisonment for not more than six months, or both.[7]
   

For both knowing violations and penalty offenses, each day counts as a separate violation. Courts consider factors including culpability, history of prior conduct, ability to pay, and impact on business operations when determining penalty amounts.[8] The moral of the story? These penalties can add up – and quickly. 

TruHeight – Claims that Grew Too Tall 

In the case of TruHeight, the height-enhancing supplements for kids and teens, the Proposed Complaint alleges that the company and its officers used fake social media profiles run by automated bots and the company represented that the bots were real users to generate comments on TruHeight’s Facebook and Instagram pages in violation to the FTC’s Trade Regulation Rule on the Use of Consumer Reviews and Testimonials.[9]

The Proposed Complaint alleges violations of the FTC Act (false or unsubstantiated efficacy claims, false proof claims), fake and incentivized positive reviews, misrepresentations as to the existence of reviewers, and incentivized reviews expressing particular sentiments, all allegedly in violation of Sections 5 and 12. What is noteworthy is not the actual allegations—the FTC has always scrutinized substantiation and efficacy—but the ways in which the FTC pursued monetary relief. Claiming (allegedly without support) that the supplements made kids taller was not what resulted in significant monetary relief. Rather, it was TruHeight’s conduct surrounding the reviews, which allegedly violated the Reviews and Testimonial Rules, that justified significant civil penalties. 

Additionally, penalties may have been available for violation of Section 12 of the FTC Act, which makes violation of the false advertising provision with intent to defraud or mislead, when the advertised product could be injurious to health, a misdemeanor punishable by a fine of $5,000, imprisonment for not more than six months, or both.[10] 

Publishing.com - Income Claims That Didn’t Add Up

In the case of Publishing.com, the Proposed Complaint contends that the company and its officers misled consumers about how much income they could earn using the company’s products and services. The FTC does not specifically allege the violation of a rule. Rather, the FTC alleged false or unsubstantiated earnings claims and false or misleading testimonials or endorsements in violation of Section 5 of the FTC Act.[11]  Illustratively, the FTC alleges that Publishing.com disseminated advertisements and promotional materials including such statements as “A.I. Publishing Academy is designed to give you everything you need to succeed in making $1k to $3k a month while only working 1 hour a day.”[12] The complaint additionally alleges that Publishing.com featured video testimonials on its website from alleged consumers claiming to have earned income from online self-publishing using Publishing.com’s program, but failed to disclose that some of these testimonials came either from employees of the company or people who had a material connection to company employees.[13]

While the Proposed Complaint does not directly cite an applicable rule, several may have been implicated. For instance:

• Penalty Offenses Concerning Money-Making Opportunities. The FTC’s Penalty Offenses Concerning Money-Making Opportunities states that “it is an unfair or deceptive trade practice to misrepresent, explicitly or implicitly, that participants will or are likely to earn any specific amount or percentage.”
• Penalty Offense Concerning Substantiation. The FTC’s Penalty Offenses Concerning Substantiation states that “it is an unfair or deceptive practice for an advertiser to make an objective product claim without having a reasonable basis, at the time the claim is made, consisting of competent and reliable evidence.”
• Penalty Offense Concerning Endorsements and Testimonials. The unfair or deceptive trade practices described in the FTC’s Penalty Offenses Concerning Endorsements included misrepresenting an endorser as an actual user, a current user, or a recent user of a product or service and failing to disclose a connection between an endorser and the seller of an advertised product or service, if that connection might materially affect the weight or credibility of the endorsement and would not be reasonably expected by consumers.

It is possible that, in lieu of astronomical aggregate monetary penalties for violation of an FTC rule under Sections 45(m)(1)(A) and 45(m)(1)(B)(1), or criminal penalties under § 54(a) that may arise in adjudicated proceedings, the companies settled for much lower amounts. The TruHeight and Publishing.com complaints allege five counts of deceptive or unfair conduct since 2020 and three counts since 2018, respectively.[14] At current penalty levels, both companies could theoretically have faced significantly larger liability.

Admittedly, it is not clear from the publicly released documents exactly how the FTC calculated its redress against TruHeight and Publishing.com. But one thing is clear – the FTC is using all of the tools in its toolbox to seek monetary relief from companies. As a result, companies should keep FTC Rules and Notices in mind. The FTC definitely is.

Mintz continues to closely monitor developments regarding FTC consumer protection enforcement. If you have questions about federal and state regulator consumer protection enforcement, please contact one of the individuals above or your regular Mintz attorney.

[1] So Jung Kim, Post-FTC v. AMG: Consumer Redress Through Other Means, U. CHICAGO LAW REV. ONLINE (2022), https://lawreview.uchicago.edu/online-archive/post-ftc-v-amg-consumer-redress-through-other-means. 

[2] 593 U.S. 67 (2021).

[3] In addition to the penalties described, the FTC may also seek consumer redress under Section 19 of the FTC Act by commencing an action in civil court to grant such relief as the court finds necessary to redress injury to consumers or businesses resulting from a rule violation or the unfair or deceptive act or practice.

[4] 15 U.S.C. § 45(l).

[5] § 45(m)(1)(A).

[6] § 45(m)(1)(B).

[7] § 54(a).

[8] § 45(m)(1)(C).

[9] In re Vanilla Chip Compl. 11, 13.

[10] § 54(a).

[11] In re Publishing.com Compl. 7-8.

[12] In re Publishing.com Compl. 4.

[13] In re Publishing.com Compl. 6.

[14] In re Vanilla Chip Compl. 2, 12-14; In re Publishing.com Compl. 2, 7-8.
 

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