The FTC Rebels Against Supreme Court “Disgorgement” Ruling

The financial definition of disgorgement is: the legally mandated repayment of ill-gotten gains imposed on wrongdoers by the courts. Funds that were received through illegal or unethical business transactions are disgorged, or paid back, often with interest and/or penalties to those affected by the action.

In the legal system, this is considered a “remedial” civil action, rather than a punitive one. It has often been one of the Federal Trade Commission’s go to options for collecting settlements from entities it takes to court.

But in an April 2021 decision, the Supreme Court ruled against the FTC’s use of disgorgement in the case AMG CAPITAL MANAGEMENT, LLC, ET AL. v. FEDERAL TRADE COMMISSION. So why is the agency still using it?

In a January op-ed for The Hill, Caleb Kruckenberg argues the commission is simply abusing its power with a lucrative tool. He notes:

For decades, the FTC relied on a statute authorizing “permanent injunctions” to obtain monetary fines. That always seemed strange. After all, neighboring sections of the law allow the commission to seek limited monetary penalties, while injunctions normally only prevent future action and do not entail an award of any damages. Yet “disgorgement” awards — the return payment of supposedly illegal gains — became so pervasive that in 2019, for example, courts ordered that $723.2 million be paid to the government in such awards.  

In the AMG Capital case, the government went after organization head, Scott Walker, for deceptive pay-day lending schemes. The matter at hand was whether the FTC winning an injunction against the organization automatically triggered the right to a “disgorgement.”

Justice Breyer wrote the court’s majority opinion against the FTC on this matter:

Section 13(b) of the Federal Trade Commission Act authorizes the Commission to obtain, “in proper cases,” a “permanent injunction” in federal court against “any person, partnership, or corporation” that it believes “is violating, or is about to violate, any provision of law” that the Commission enforces. 87 Stat. 592, 15 U. S. C. §53(b). The question presented is whether this statutory language authorizes the Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement. We conclude that it does not.

In June of last year, the Biden Administration’s pick for FTC Chair, Lina Khan instructed her agency to use its “full set of tools and authorities … post-AMG” in its enforcement practices. By December of 2021, the government was boasting of a $21 million dollar settlement obtained against background report provider, MyLife.

Kruckenberg points out that when FTC Chair Khan instructed her agency to use a set of tools post-AMG, she just meant the FTC would simply ignore the ruling:

The $21 million was part of a settlement, approved by a federal judge, ordering restitution with any remainder “to be deposited to the U.S. Treasury as disgorgement.” And looking further, we realized that the FTC entered into the same kind of settlement just a few weeks earlier. The agency is acting like the AMG decision doesn’t exist.  

Kruckenberg also points out that disgorgements have often been the easiest way out for those accused of wrongdoing by the FTC. When a business is targeted, an injunction is typically levered against it without notice or opportunity to challenge the charges. So, whether the charges are warranted or not, the organization loses control of itself an goes into a “receivership.” The FTC can then fine the business into oblivion. In a sense, the accused are held hostage, and paying a disgorgement has been the lesser of two evils to get out of the legal quagmire.

Now, the United States Supreme Court has ruled against this practice, but the FTC does it anyway. This is a serious challenge undermining the balance of powers in this country. If one federal agency is allowed to simply disregard the orders of our nation’s highest court, what is stopping others from doing so? This issue is about the weaponization of federal power against private entities and the legitimacy of the rule of law. Any private citizen would be held accountable for blatantly violating a Supreme Court ruling, the FTC should not have an exception.

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

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