Yesterday, a new federal lawsuit in Florida alleging violations of the FTC Act was unsealed. The case involves a business that was offering high school diplomas and equivalents. Earlier in the week, the FTC had filed one of its famous sealed complaints, getting an “ex parte” Temporary Restraining Order (meaning that the defendants did not have a chance to tell their side of the story before the order was issued by the judge), and an asset freeze.
Asset freezes are an important part of the FTC’s strategy in many of these FTC Act cases. They accomplish several things:
First, an asset freeze can prevent your opponent from hiring or keeping an attorney. (Not surprisingly, the odds of winning go way up if you can keep the other side from having legal assistance and effectively telling its story.)
Second, an FTC asset freeze can preoccupy defendants, further preventing them from being able to mount a defense. For example, consider the ex parte Temporary Restraining Order entered this week in FTC v. Diversified Educational Resources, LLC, 014-cv-62116 (Southern District of Florida). Aside from cutting off all access to money – which would cause most of us considerable stress in itself – the order requires the defendants to provide information and documents to the FTC within 3 days, take a number of administrative steps, and do a number of other things – and all with a hearing to decide the fate of their business set to occur within only 2 weeks.
Some courts will allow defendants access to some assets for family needs and to (temporarily) hire a lawyer, but other courts simply take the FTC’s word unquestioningly and deny all access.
If a company gets hit with an asset freeze, the merits of a case may never be heard. A company may have legitimate defenses, but without access to a money for a lawyer, litigation expenses, expert witnesses, etc., the court may never get to hear it. That is why even wholly innocent defendants need to set up a litigation fund as soon as they receive any inkling of interest by the FTC – if you don’t do it then, the game may be over before it starts.