Author: Jarod Bona
As you may have heard, the Senate recently approved a new slate of FTC Commissioners. Among them is new Commissioner Rohit Chopra, who is a former assistant director at the Consumer Financial Protection Bureau and former advisor to the Secretary of Education.
Commissioner Chopra was sworn in on May 2, 2018 and quickly announced one of his early priorities: On May 14, 2018, he issued a public memorandum to the other FTC Commissioners and the FTC Staff describing how he believes the FTC should handle repeat offenders of FTC violations.
Let’s dig into this a little bit.
Commissioner Chopra describes the problem of corporate recidivism as generally resulting from significant management dysfunction, which requires “serious remedies that address the underlying issues.”
After describing several non-antitrust examples of this corporate recidivism, particularly involving large financial institutions, Commissioner Chopra points out, bluntly, that “FTC orders are not suggestions.” He says that—“to deter violations and maintain [the FTC’s] credibility as law enforcers”—the FTC “should carefully consider ways to build on its existing enforcement regime to make clear to market participants that our orders are to be taken seriously.”
For flagrant violators of district court orders, he believes that the agency should consider “contempt proceedings, referral to criminal authorities, and remedial injunctive relief.” Companies that violate FTC administrative orders should face additional injunctive relief and meaningful civil penalties.
Notably, Commissioner Chopra expresses a desire to go after individual executives that participate in FTC order violations, even if those individuals weren’t named in the original orders. So if a company is subject to an FTC order and violates that order, Commissioner Chopra would like to target the people that created the violation.
Structural Remedies Following Order Violations and an Important Caution
Finally, in what I believe is the most newsworthy part of this memorandum, Commissioner Chopra describes the structural remedies that he believes the FTC should explore for FTC-order violators.
His purpose in proposing these remedies is to address “the true causes of noncompliance.” Commissioner Chopra believes that certain companies may “engage in risky business practices to demonstrate to investors and capital markets that they are meeting or surpassing expectations for earnings and growth.” He also believes that “executive compensation practices might inadvertently create incentives for practices that might harm consumers or competition.”
We are, of course, treading on dangerous territory here. Businesses necessarily take risk—that is a feature not a bug. What are “risky business practices”? That is for the market—in its brutal truth and honesty—to reveal. It isn’t up to a government official or entity, without Skin in the Game, to make these determinations.
That isn’t to say that the FTC shouldn’t enforce antitrust, competition, and consumer protection laws. Nor is it to say that the FTC shouldn’t raise the penalties for repeat offenders. But protection of competition moves silently and dangerously to market distortion and harm when it decides that it is smarter than the market itself.
Those that enforce the antitrust laws with government power must do so humbly for the line between removing the barriers to competition and, frankly, screwing-up competition is a fine one that we rarely see clearly. It is best that those with power stay firmly on one side, so they don’t cross this line.
With those cautions, here are the structural remedies that Commissioner Chopra proposes the FTC consider invoking in response to order violations:
- Outright bans on certain business practices.
- Closure or divestiture of certain operating units.
- Dismissal of senior executives and board directors.
- Dismissal of third-party compliance consultants.
- Clawbacks, forefeitures, and reforms to executive compensation agreements.
- Requirements to raise equity capital.
Before finishing here, let me clarify a couple points.
First, my understanding of Commissioner Chopra’s memorandum is that the FTC should consider such structural responses to order violations, not that all or any of them should necessarily apply in all or some cases. And to the extent he is publicly presenting these ideas for consideration, he serves competition well by transparently opening the dialogue now rather than just applying these remedies when the first applicable case comes before him.
His memorandum thus offers the other commissioners and people like me a chance to weigh in. So, for that, Commissioner Chopra should be congratulated. He has considerable experience fighting for consumer protection, so he—as much as anyone—probably understands the importance of transparency.
Second, I am not taking a specific position on his proposed structural remedies (at least in this article). But I want to raise the problem of second and third and fourth order effects. Commissioner Chopra is right that “FTC orders are not suggestions,” and who, really, can argue with the idea that repeat offenders shouldn’t be punished, probably more than others. That’s doesn’t sound controversial. But these are precisely the instances in which government power can, unknowingly, do more harm than good.
Very few people are going to line up behind a corporation that violated FTC antitrust, competition, and consumer protection laws, repeatedly. But it is up to all of us to make sure that protection of competition doesn’t descend into government market manipulation.
Good motives don’t always make good policy.