This article is a part of the The FTC's New Normal symposium.
There is much in the Federal Trade Commission’s (FTC) record over the past two years that could be categorized as abnormal. There is, for instance, nothing “normal” about using the threat of excessive force to cower businesses into submission. Introducing sky high costs for the filing of mergers isn’t normal, as it will scare away merging parties. These are attempts at regulation by intimidation.
Perhaps the most appalling example of this approach can be found in the recently amended complaint filed in the commission’s “dark patterns” suit against Amazon and, now, three of its executives. (This is, it should be noted, entirely separate from the much larger antitrust case against Amazon that the commission is expected to file this week.)
This is not unheard of. The commission has immense discretion to name individuals in an enforcement action. Indeed, the accepted standard for doing so—when the individual “participated directly in the deceptive practices or had authority to control those practices”—would permit it in virtually every case. But having the discretion to act and choosing to exercise that discretion are very different things.
Let us put away the weak merits of the case for a moment and ask: When might it be appropriate to bring a case against individual corporate executives?
Former Commissioner Christine Wilson has pointed out that the circumstances in which individuals have been named are relatively circumscribed and aimed at ensuring some form of relief in those limited cases. Thus:
One important factor is whether individual liability is necessary to obtain effective relief… [as when a case involves] fraudulent or deceptive conduct by small, closely held companies that essentially serve as the alter egos of their CEO or principal… [or] fraudsters open and shutter companies to stay one step ahead of law enforcement…. In these circumstances, the Commission traditionally – and appropriately – has included the CEOs or principals in the enforcement action.
The quintessential example of this is the case against Vyera Pharmaceuticals LLC (previously known as Turing Pharmaceuticals), in which former Turing CEO Martin Shkreli was also named. A few tidbits from the complaint highlight his rap sheet:
Shkreli has formulated, directed, controlled, had the authority to control, or participated in the acts and practices set forth in this Complaint.
Shkreli was ousted from Retrophin in 2014 by the board of directors for misconduct relating to improper grants and trades of company stock.
Upon leaving Retrophin, Shkreli started Vyera to look for similar products with which to replicate his Retrophin strategy.
Shkreli directed the minute details of Vyera’s business and strategy
Shkreli remained CEO until his arrest in December 2015 for securities fraud stemming from conduct at his hedge funds and at Retrophin. He was subsequently convicted of several felonies, including securities fraud and conspiracy to commit securities fraud, and sentenced to seven years in federal prison.
In cases like Shkreli’s, it may be necessary to name individuals. As Wilson explained last fall in a statement on the settlement of the FTC’s case against Drizly, which had named CEO James Corey Rellas:
Many FTC cases involve fraudulent or deceptive conduct by small, closely held companies that essentially serve as the alter egos of their principal or CEO. I support naming the CEO in such a case because the individual defendant is necessary to obtain effective relief and/or to prevent the fraudster from opening and shuttering companies to stay one step ahead of law enforcement.
If we look at well-publicized complaints brought in recent years against medium-sized companies not controlled by one person like Shkreli, the complaints are against the companies, not the individuals. The FTC’s complaint against DeVry University, which resulted in a $100 million settlement, didn’t name individuals. Zoom? No individuals. Epic Games $520 million settlement? No.
The reason is that none of these are “small, closely held companies that essentially serve as the alter egos of their principal or CEO.” As Wilson wrote in Progressive Leasing:
In contrast, naming the CEO or principal of a large, established company, in my view, will only rarely (if ever) be necessary to obtain effective relief. As I observed in my statement in Progressive Leasing, the currently popular notion of routinely imposing individual liability—not just at the FTC, but elsewhere—appears more consistent with vilification of successful businesspeople than with an objective desire to obtain effective relief and instill effective deterrence.
If Epic Games doesn’t fit this criterion, then a company that does $500 billion of revenue in a year—such as Amazon—surely does not.
But it is only recently—under the current administration—that the agency has expanded its practice to include individuals where doing so is not needed to further the aims of enforcement. This is particularly true where the defendant is a large, established corporation (like Meta or Amazon).
As Commissioner Rebecca Slaughter wrote in her dissent on Facebook, holding CEO Mark Zuckerberg liable:
The Commission often names individual defendants in cases against small companies, but rarely—if ever—does so in the case of large, publicly traded companies. … When executives at large companies exercise control over decisions, including decisions to break the law, they should be held accountable the same way executives at smaller companies are.
“Including decisions to break the law” is a key part of this statement. Effectively labeling particular executives as criminals—so callous to the harm their actions perpetuate that they need to be punished by the law and deterred from future egregious conduct—might make sense where the executives are essentially stand-ins for the corporate entity, serial recidivists, or at odds with the broader practice of the firm.
There are many bad actors out there, and the FTC has a strong history of defending consumers against fraudulent and malicious conduct executed by firms that barely exist, if they do at all, outside of the effort to defraud consumers. That is simply not a reasonable assessment of a company like Amazon, no matter what the popular neo-Brandeisian zeitgeist tries to imagine it to be.
