[Senate Hearing 117-788]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 117-788

                          CURBING COVID CONS:
      WARNING CONSUMERS ABOUT PANDEMIC FRAUDS, SCAMS, AND SWINDLES

=======================================================================

                                HEARING

                               before the

 SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND DATA SECURITY

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 27, 2021

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation





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                Available online: http://www.govinfo.gov   
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                   MARIA CANTWELL, Washington, Chair
AMY KLOBUCHAR, Minnesota             ROGER WICKER, Mississippi, Ranking
RICHARD BLUMENTHAL, Connecticut      JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii                 ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts         TED CRUZ, Texas
GARY PETERS, Michigan                DEB FISCHER, Nebraska
TAMMY BALDWIN, Wisconsin             JERRY MORAN, Kansas
TAMMY DUCKWORTH, Illinois            DAN SULLIVAN, Alaska
JON TESTER, Montana                  MARSHA BLACKBURN, Tennessee
KYRSTEN SINEMA, Arizona              TODD YOUNG, Indiana
JACKY ROSEN, Nevada                  MIKE LEE, Utah
BEN RAY LUJAN, New Mexico            RON JOHNSON, Wisconsin
JOHN HICKENLOOPER, Colorado          SHELLEY MOORE CAPITO, West 
RAPHAEL WARNOCK, Georgia                 Virginia
                                     RICK SCOTT, Florida
                                     CYNTHIA LUMMIS, Wyoming 
                                     
                    David Strickland, Staff Director
                 Melissa Porter, Deputy Staff Director
       George Greenwell, Policy Coordinator and Security Manager
                 John Keast, Republican Staff Director
            Crystal Tully, Republican Deputy Staff Director
                      Steven Wall, General Counsel
                                 ------                                

         SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, 
                           AND DATA SECURITY

RICHARD BLUMENTHAL, Connecticut,     MARSHA BLACKBURN, Tennessee, 
    Chair                                Ranking
AMY KLOBUCHAR, Minnesota             JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii                 ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts         JERRY MORAN, Kansas
TAMMY BALDWIN, Wisconsin             MIKE LEE, Utah
BEN RAY LUJAN, New Mexico            TODD YOUNG, Indiana    




















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 27, 2021...................................     1
Statement of Senator Blumenthal..................................     1
Statement of Senator Blackburn...................................     3
Statement of Senator Klobuchar...................................    54
Statement of Senator Thune.......................................    56
Statement of Senator Markey......................................    58
Statement of Senator Lujan.......................................    62

                               Witnesses

Daniel Kaufman, Acting Director, Bureau of Consumer Protection, 
  Federal Trade Commission.......................................     5
    Prepared statement...........................................     6
William E. Kovacic, Global Competition Professor of Law and 
  Policy, Professor of Law, Director, Competition Law Center, The 
  George Washington University Law School........................    11
    Prepared statement...........................................    13
Kevin H. Rhodes, Senior Vice President and Deputy General 
  Counsel, 3M Company............................................    19
    Prepared statement...........................................    21
Cynthia Alexander, Assistant Attorney General, Consumer 
  Protection Division, Washington Attorney General's Office......    32
    Prepared statement...........................................    34
Bonnie Patten, CEO, Truth in Advertising.........................    36
    Prepared statement...........................................    37

                                Appendix

Response to written questions submitted by Hon. Richard 
  Blumenthal to:
    Daniel Kaufman...............................................    67
    William E. Kovacic...........................................    72
    Kevin H. Rhodes..............................................    73
    Cynthia Alexander............................................    73

 
                          CURBING COVID CONS: 
                    WARNING CONSUMERS ABOUT PANDEMIC 
                      FRAUDS, SCAMS, AND SWINDLES 

                              ----------                              


                        TUESDAY, APRIL 27, 2021

                               U.S. Senate,
      Subcommittee on Consumer Protection, Product 
                         Safety, and Data Security,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Richard 
Blumenthal, Chairman of the Subcommittee, presiding.
    Present: Senators Blumenthal [presiding], Blackburn, 
Klobuchar, Thune, Markey, and Lujan.

         OPENING STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Good morning, everyone.
    Thank you so much for joining us, all who are watching, and 
to our witnesses, particularly thank you for being here today, 
whether in person or remotely, and I want to say a special 
thanks to the Ranking Member, Senator Blackburn.
    This subcommittee has been traditionally very, very 
bipartisan and we are beginning our hearings today in a very 
bipartisan way. The witnesses that we have before us are the 
result of a bipartisan consensus and there is nothing partisan 
about consumer protection. We all want to protect against the 
abuses and deception and lies that all too often we see in the 
marketplace.
    We are completing a year of unimaginable heartbreak and 
hardship for all Americans, a year of pandemic crisis, 
healthcare crisis, and consumer crisis. This year of heartbreak 
for Americans has also been a breakout year for the swindlers 
and con artists. They have seen it as a bonanza and, in fact, 
they have made it a bonanza.
    There have been 460,000 reports of consumer fraud in the 
past year, according to the FTC, at a cost of more than $411 
million, which represents a 45 percent increase in the numbers 
of reports, 83 percent rise in the dollars lost.
    So these reports show the results of a flooding of online 
marketplaces with fake personal protective equipment, 
sophisticated counterfeits, and other kinds of frauds. These 
sophisticated counterfeits have infiltrated the supply chain, 
often unchecked by big tech platforms, putting unsuspecting 
consumers and health care workers at risk. Truly it has become 
a matter of life and death.
    As consumers have grown more fearful for their safety, 
social media platforms have become a mega mall for snake oil 
peddlers hawking fake cures and prevention. These platforms 
have been way too slow to respond. They've done too little too 
late and then often only as a result of vigorous prodding, in 
fact, very strong kicks by consumer advocates and Members of 
Congress as well as state AGs.
    Hucksters, like Joseph Mercola, have spread medical 
misinformation to millions, denying the science of COVID-19 
while reaping profit windfalls, selling expensive vitamins and 
supplements as cures. One of them, he has advertised is this 
Vitamin C liposomal with his name which he has said will 
successfully fight COVID and advised people to take it rather 
than get the vaccine.
    To this day, despite FDA warnings, he tells consumers you 
likely don't need a vaccine. In fact, he creates false fears 
about the vaccine and then he offers these supplements, such as 
Vitamin C, as prevention strategies and treatments readily 
available. They've been shown, he says, to be effective. Of 
course, he's not only playing fast and loose. He's lying.
    In protective equipment, we've seen similar kinds of scams, 
real and fake protective equipment which endangers lives. It 
literally puts lives at risk because the fake 3M devices are no 
substitute for the real ones.
    Not only have these social media platforms been enablers, 
knowing and recklessly enabling these kinds of frauds to occur, 
but they've also been laggard and lacking in taking action when 
they had fair notice that many of these frauds were exploiting 
their platforms.
    The Federal Trade Commission has been a line of defense but 
all too often what we've seen is warnings rather than court 
action. The time for warnings is over. The FTC must go to court 
against wrong-doings. It needs to create deterrence through 
hefty legal penalties and strict court orders and it needs to 
refer for criminal action more often and more effectively these 
kinds of cases.
    The perpetrators of these frauds don't like to pay money. 
They don't like to pay penalties. They don't like to pay 
restitution, but, most importantly, they don't like to be 
behind bars and that's what the FTC has to seek. More than 
daring, it's teeth. This agency has to use those teeth through 
the penalties that have been provided, new penalties provided 
most recently by Congress.
    So we need to bolster and support the FTC, providing more 
legal tools and resources where necessary to defend consumers 
and as a first step to ensure that the FTC can get consumers 
money back when they are scammed, we need to restore 13B 
authority that was taken away by the Supreme Court when it 
caved to a shadowy campaign to disarm the FTC. Unless Congress 
acts, the FTC will have in effect both hands tied behind its 
back.
    Over the last 4 years, the FTC has secured over $11 billion 
in refunds for consumers. There is approximately $1.8 billion 
of American money at stake right now, and I hope that Congress 
will act promptly and effectively to restore that authority.
    Let me just say in summary the path forward seems clear. 
The FTC must act more swiftly to stop scams, perhaps going to 
court without Department of Justice authority. It has to seek 
financial penalties against wrong-doing more vigorously. It has 
to hold the platforms accountable for aiding scams, and in that 
regard, we need to re-examine and revise Section 230 to enable 
victims to go against the platforms, as well, and the FTC needs 
to work with law enforcement to bring criminal penalties as a 
deterrent.
    There's a lot of work ahead and I look forward to tackling 
it in combination with the Ranking Member, Senator Blackburn. 
Again, my thanks for your leadership over the years, Senator, 
and I turn to you.

              STATEMENT OF HON. MARSHA BLACKBURN, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Blackburn. Thank you, Mr. Chairman.
    I want to welcome our witnesses who are with us and also 
joining us virtually, and I want to thank you and your staff 
for the work that they have done on pulling this hearing 
together.
    People are truly spending more time on the Internet than 
ever before and many times this is through work or school or 
just simply connecting with family and friends, but the 
fraudsters are aware of this and they are wise to how people 
are on the Internet and where they are vulnerable and we 
continue to see this play out many times.
    Ms. Patten, I know you and your group see quite a bit of 
it.
    Even in the earliest days of the pandemic, it was difficult 
for people to get accurate information about the nature of the 
virus, how severe it was, where it started, how it spreads.
    The disinformation took on a life of its own, becoming 
essentially a media pathogen. It's no surprise that when PPE 
items and household cleaners were out when you went to the 
grocery store, the big box, that buyers flocked to the Internet 
to get what they needed.
    Tennessee has taken the lead in cracking down on some of 
the most high-profile scandals in this space. In the first 
consumer action brought by any state attorney general's office 
in response to COVID-19, Tennessee shut down a hoarding and 
price-gouging practice that deprived rural East Tennessee and 
Eastern Kentucky of hand sanitizer and other essential cleaning 
supplies.
    Another Tennessee company falsely claimed that its products 
could protect surfaces from COVID-19 for 90 days. They falsely 
claimed that their products were FDA-and EPA-approved and 
falsely implied that it was being used by companies, like 
McDonald's and Panda Express. The attorney general's office 
immediately launched an investigation. The company settled, 
paid their fine, and promised to stop making false and 
misleading claims.
    Individual consumers weren't the only victims of scam 
artists. Our Federal Government has been defrauded in countless 
instances. The Paycheck Protection Program or PPP has saved 
thousands of small businesses and kept hundreds of thousands of 
people on the payroll when the economy came to a standstill.
    However, according to a report issued by the Small Business 
Administration's Office of Inspector General, nearly 55,000 
loans were made to potentially ineligible businesses, totaling 
more than $7 billion.
    While I know we're all ready for COVID to be over, it's 
important that we remain vigilant during this next and 
hopefully last phase of the virus and that soon we're all going 
to see things return to normal.
    Thank you, Mr. Chairman.
    Senator Blumenthal. Thank you, Senator Blackburn.
    I now would like to call remotely on Chairman Cantwell if 
she's available. Apparently she is not here as yet.
    Is Senator Wicker available? If not, let me move ahead to 
introduce the witnesses.
    The two who are with us this morning in person, first 
Daniel Kaufman, who is Acting Director of the Bureau of 
Consumer Protection at the FTC. He served for 8 years as the 
Bureau's Deputy Director and before that, before joining the 
FTC in 1998 as a staff attorney, he was a litigator. He spent 4 
years as a litigator in New York City. He received his B.A. 
from Cornell University and graduated Cum Laude from the 
University of Pennsylvania Law School.
    Bonnie Patten, who is the CEO of Truth in Advertising, 
graduated from Boston University and received her JD from 
Boston University and her B.A. from the University of 
Pennsylvania. Prior to helping found the Truth in Advertising 
organization, she spent most of the past two decades working as 
a litigation attorney in New Haven, Connecticut.
    We're joined remotely by William Kovacic, who is Global 
Competition Professor of Law and Policy at the George 
Washington University Law School. Professor Kovacic has taught 
antitrust, contracts, and government contracts. Before joining 
the Law School in 1999, he was the George Mason University 
Foundation Professor at the George Mason University School of 
Law, and he was a member of the FTC from January 2006 to 
October 2011, and he chaired the agency from 2008 to March 
2009.
    Kevin Rhodes is Senior Vice President and Deputy General 
Counsel at 3M. He leads that company's Legal Team on a global 
basis and he has helped lead 3M's ongoing efforts during the 
COVID-19 pandemic to address fraud, counterfeiting, and price 
gouging of personal protective equipment, most notably of 3M's 
N95 respirators, and I held up one of them a few moments ago.
    Prior to joining 3M in 2000, he was a partner at Kirkland 
Ellis in Chicago where he specialized in intellectual property 
litigation. He received his JD Magna Cum Laude from 
Northwestern University and his B.A. from Grinnell College.
    Cynthia Alexander is Assistant Attorney General, Consumer 
Protection Division, in the Washington Attorney General's 
Office. She played a significant role in leading her office's 
response to COVID-19 scams and COVID-related consumer 
complaints.
    Prior to joining the Attorney General's Office, she served 
for 17 years as a trial attorney in the Civil Division of the 
United States Department of Justice. She holds an MBA and a 
Ph.D. in Clinical Psychology and she is a licensed psychologist 
in the state of Washington.
    So we welcome all of you, and let's begin with Daniel 
Kaufman.

         STATEMENT OF DANIEL KAUFMAN, ACTING DIRECTOR,

                 BUREAU OF CONSUMER PROTECTION,

                    FEDERAL TRADE COMMISSION

    Mr. Kaufman. Thank you.
    Chairman Blumenthal, Ranking Member Blackburn, and Members 
of the Subcommittee, I am Daniel Kaufman, Acting Director of 
the Bureau of Consumer Protection at the Federal Trade 
Commission.
    My written statement represents the views of the Commission 
but this opening statement represents my views and not 
necessarily the views of the Commission or any individual 
commissioner.
    I'm pleased to appear before you today to discuss 
protecting Americans from COVID-19 scams. My written statement 
describes the extensive work that the FTC has accomplished and 
continues to accomplish in combating COVID-related frauds.
    The FTC's Bureau of Consumer Protection is comprised of 
eight divisions and eight regional offices and each has been 
actively working on COVID-related issues. So far, we have 
brought more than a dozen law enforcement actions, engaged in 
extensive consumer education efforts, kept the public informed 
about the scams we are seeing, and have also directed the 
removal of deceptive claims related to COVID made by more than 
350 companies.
    Our most recent law enforcement action utilized the new 
civil penalty tool that Congress recently gave us and we are 
very thankful for that important new statutory authority as 
well as the increased funding that we have recently received.
    As part of that work, the FTC is committed to expanding its 
outreach to lower income communities. Just last month, we 
launched a new way for legal service organizations to report 
fraud and other illegal business practices that their clients 
may have experienced.
    Through the Community Advocate Center on our Complaint 
Intake Site, reportfraud.ftc.gov, we aim to get their fraud 
reports into the hands of law enforcers and connect people with 
tailored advice on how to try to recover their money.
    I had hoped to use my opening statement to describe in more 
detail all of the work set forth in the FTC's recently released 
COVID Report that the agency has done related to the pandemic. 
Instead, I would like to discuss last week's Supreme Court 
decision in the AMG matter, which held that returning money to 
harmed consumers and disgorging the ill-gotten gains of 
lawbreakers are not authorized by Section 13(b) of the FTC Act. 
This decision eliminated the primary tool that the FTC uses 
today to return money to harmed consumers.
    Over the past four decades, the Commission has relied on 
Section 13(b) to return billions and billions of dollars back 
to consumers in a wide variety of cases, including 
telemarketing fraud, anticompetitive pharmaceutical practices, 
scams that target seniors and veterans, and other deceptive 
business practices.
    I am a 22-year veteran of the Federal Trade Commission and 
it is not hyperbole to say that this decision will dramatically 
curtail the ability of the FTC to effectively protect 
consumers.
    For example, looking at the cases that the FTC currently 
has in litigation, the Supreme Court's decision, if left 
unfixed by Congress, puts about 24 active consumer protection 
and competitive litigations at real risk with potential 
consumer harms of upwards of $2.4 billion.
    In addition to the huge challenges presented by the AMG 
decision, some courts recently have also ruled that the 
Commission cannot seek injunctive relief under 13B in cases 
where the unlawful conduct is no longer occurring, even when 
there is a reasonable likelihood that it will recur. This 
magnifies the challenges before the Commission.
    Congress can fix this situation and at a minimum restore 
the FTC to the authority that it has used for almost four 
decades to protect American consumers and the longer it takes 
to implement the fix, the longer the FTC will be greatly 
weakened in our ability to protect consumers.
    Let me be clear. Although the AMG decision has had a very 
significant impact on our ability to protect consumers and 
indeed to protect honest businesses, there are other tools and 
authority that we will use and are using to do the best we can 
under these circumstances.
    The FTC will keep fighting but there will be more 
litigation that will last longer and use up more resources. 
There will be less protection for consumers and the only 
benefits will accrue to lawbreakers.
    Thank you for the opportunity to testify, and I welcome 
your questions.
    [The prepared statement of Mr. Kaufman follows:]

   Prepared Statement of Daniel Kaufman, Acting Director, Bureau of 
             Consumer Protection, Federal Trade Commission
I. INTRODUCTION
    Chairman Blumenthal, Ranking Member Blackburn, and Members of the 
Subcommittee, I am Daniel Kaufman, Acting Director of the Bureau of 
Consumer Protection at the Federal Trade Commission (Commission or 
FTC).\1\ I am pleased to appear before you today. Despite the 
unprecedented challenges of the past year, the Commission has 
endeavored to protect consumers and competition. A key part of this 
work has been combatting COVID-related harms. The Commission staff 
recently released a report describing the major challenges consumers 
face from the pandemic and the Commission's efforts to help: using 
reports from consumers to identify and respond to emerging unlawful 
practices in real time; filing more than a dozen law enforcement cases; 
directing the removal of deceptive claims related to COVID-19 made by 
more than 350 companies; and educating consumers and businesses through 
more than 100 alerts on COVID-related topics.
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    \1\ This written statement presents the views of the Federal Trade 
Commission. The oral statements and responses to questions reflect my 
own views and do not necessarily reflect the views of the Commission or 
any Commissioner.
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    The civil penalty authority in the newly-enacted COVID-19 Consumer 
Protection Act \2\ and additional funding the Commission recently 
received from the American Rescue Plan will enable us to intensify our 
efforts to protect consumers from unscrupulous actors that seek to 
exploit the pandemic and its economic fallout. The Commission just 
brought its first action seeking monetary penalties under its new 
authority, targeting deceptive COVID-19 marketing of vitamin D and zinc 
products.\3\
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    \2\ Pub. L. No. 116-260, 134 Stat. 1182, Division FF, Title XIV, 
Sec. 1401(b)(1).
    \3\ FTC Press Release, In First Action Under COVID-19 Consumer 
Protection Act, FTC Seeks Monetary Penalties for Deceptive Marketing of 
Purported Coronavirus Treatments, https://www
.ftc.gov/news-events/press-releases/2021/04/first-action-under-covid-
19-consumer-protection-act-ftc-seeks (Apr. 15, 2021).
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    In this testimony, I provide a high-level summary of the 
Commission's efforts.
II. COVID-19 CONSUMER PROTECTION EFFORTS
    The Commission has worked diligently to identify and address the 
effects of the COVID-19 pandemic on American consumers and businesses. 
The Commission's response to COVID-19 has included law enforcement, 
consumer education and outreach, and data collection, each of which is 
discussed in more detail below.
a. Law Enforcement
    Most recently, the FTC deployed its new authority under the COVID-
19 Consumer Protection Act to charge that a chiropractor and his 
company deceptively marketed products containing vitamin D and zinc as 
scientifically proven to treat or prevent COVID-19.\4\ The Federal 
court complaint seeks civil penalties authorized by the new statute and 
an order barring baseless health claims.
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    \4\ See supra n. 3.
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    This action is merely the latest in a long line of enforcement 
efforts that began early in the pandemic. The FTC issued its first 
warnings to consumers about COVID-19 related scams in February 2020, 
even before the declaration of a national emergency.\5\ As schemes 
proliferated in response to demand for scarce goods, to peddle 
treatments and cures, and to exploit consumers' and small businesses' 
financial distress, the FTC moved quickly to challenge deceptive 
claims.
---------------------------------------------------------------------------
    \5\ Coronavirus: Scammers follow the headlines, https://
www.consumer.ftc.gov/blog/2020/02/coronavirus-scammers-follow-headlines 
(Feb. 10, 2020).
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    The agency filed its first court action \6\ just one month after 
the national emergency declaration.\7\ In that case, the FTC alleged 
that a company falsely claimed to be an approved lender to induce 
struggling small businesses to submit applications for the Paycheck 
Protection Plan loan program, administered by the Small Business 
Administration (SBA).\8\ In response, a Federal court order has barred 
the defendants from misrepresenting affiliation with the SBA or that 
they are authorized to issue SBA loans.\9\
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    \6\ Complaint, FTC v. Ponte Investments, LLC, Case No. 1:20-cv-
00177 (D.R.I.), available at https://www.ftc.gov/system/files/
documents/cases/sbacomplaint.pdf.
    \7\ Proclamation 9994 of March 13, 2020, available at https://
www.govinfo.gov/content/pkg/FR-2020-03-18/pdf/2020-05794.pdf.
    \8\ See supra n. 6.
    \9\ Stipulated Final Order, FTC v. Ponte Investments, LLC, Case No. 
1:20-cv-00177 (D.R.I.), available at https://www.ftc.gov/system/files/
documents/cases/x200042_ponte_inv_-_stipulated
_final_order.pdf.
---------------------------------------------------------------------------
    In a second action against a government impostor, the FTC sued a 
company that allegedly deceived consumers with mailers that featured a 
Great Seal of the United States and a mock stimulus check and promised 
to get them Federal COVID-19 stimulus benefits.\10\ As alleged in the 
complaint, rather than assisting consumers obtain stimulus benefits, 
the mailers sought to lure consumers to a car dealership.
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    \10\ Complaint, In re Traffic Jam Events, LLC, Docket No. 9395 
(FTC), available at https://www.ftc.gov/system/files/documents/ cases/
d9395_traffic_jam_complaint_final.pdf.
---------------------------------------------------------------------------
    Companies also have been quick to capitalize on consumers' concerns 
about their health and safety. The FTC has sued entities for allegedly 
breaking promises to quickly ship much needed goods, including personal 
protective equipment (PPE) and cleaning products.\11\ In one such 
action, the FTC sued a website operator that misrepresented that 
critical PPE, such as masks and hand sanitizer, were in stock and would 
ship the next day. In reality, the Commission alleged, the defendant 
failed to ship the PPE for weeks without seeking consent for the delay 
or offering consumers refunds.\12\
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    \11\ Complaint, FTC v. SuperGoodDeals.com, Inc., Case No. 20-cv-
3027 (E.D.N.Y.), available at https://www.ftc.gov/system/files/
documents/cases/202_3135_supergooddeals_-_complaint.pdf; Complaint, FTC 
v. QYK Brands LLC, Case No. 8:20-cv-01431-JLS-KES (C.D. Cal.), 
available at https://www.ftc.gov/system/files/documents/cases/
202_3147_qyk_brands_-_complaint.pdf; Complaint, FTC v. Am. Screening, 
LLC, Case No. 4:20-cv-1021 (E.D. Mo.), available at https://
www.ftc.gov/system/files/documents/cases/202_3158_american_screening_-
_complaint.pdf; Complaint, FTC v. Zaappaaz LLC, Case No. 4:20-cv-02717 
(S.D. Tex.), available at https://www.ftc.gov/system/files/documents/
cases/ 202_3136_zaappaaz_-_complaint.pdf.
    \12\ Complaint, FTC v. SuperGoodDeals.com, Inc., Case No. 20-cv-
3027 (E.D.N.Y.), available at https://www.ftc.gov/system/files/
documents/cases /202_3135_supergooddeals_-_complaint.pdf.
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    The FTC also has taken action against the operator of counterfeit 
websites that tricked consumers into paying for sanitizing products 
that were never delivered.\13\ The Commission obtained a Federal court 
order that, while litigation proceeds, prohibits the defendants from 
making deceptive claims, suspends their deceptive websites, and bars 
them from using their websites to collect money from consumers.\14\
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    \13\ Complaint, FTC v. One or More Unknown Parties Deceiving 
Consumers Into Making Purchases Through: www.cleanyos.com et al., Case 
No. 5:20-cv-02494 (N.D. Ohio), available at https://www.ftc.gov/system/
files/documents/ cases/complaint_w-a_filed.pdf.
    \14\ Preliminary Injunction, FTC v. One or More Unknown Parties 
Deceiving Consumers Into Making Purchases Through: www.cleanyos.com et 
al., Case No. 5:20-cv-02494 (N.D. Ohio), available at https://
www.ftc.gov/system/files/documents/cases/
ftc_v_unknown_preliminary_injunc
tion_with_att_a.pdf.
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    The Commission also has used its enforcement efforts to attack 
dangerous, false claims of COVID-19 treatments and cures. For example, 
the Commission sued a company that, even after receiving a warning from 
the FTC, deceptively advertised a $23,000 treatment plan as a 
scientifically-proven way to treat COVID-19.\15\ During litigation, the 
court ordered the defendants to stop making deceptive health 
claims.\16\
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    \15\ Complaint, FTC v. Golden Sunrise Nutraceutical, Inc., Case No. 
1:20-cv-00540-DAD-SKO (E.D. Cal.), available at https://www.ftc.gov/
system/files/documents/cases/202_3146_golden
_sunrise_-_complaint.pdf.
    \16\ Stipulation to Preliminary Injunction as to Defendants Golden 
Sunrise Nutraceutical, Inc, Golden Pharmaceutical, Inc., and Huu Tieu, 
FTC v. Golden Sunrise Nutraceutical, Inc., Case No. 1:20-cv-00540-DAD-
SKO (E.D. Cal.), available at https://www.ftc.gov/system/files/
documents/cases/030_-_gs_order_re_stipulation_pi_to_ 
defs_golden_sunrise_nutraceutical_inc._golden
_pharmaceutical_inc._and_tieu.pdf; Stipulation to Preliminary 
Injunction as to Defendant Stephen Meis, FTC v. Golden Sunrise 
Nutraceutical, Inc., Case No. 1:20-cv-00540-DAD-SKO (E.D. Cal.), 
available at https://www.ftc.gov/system/files/documents/cases/029_-
_gs_order_re_stipu
lation_pi_to_def_meis.pdf.
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    Similarly, the Commission sued a marketer for making baseless 
claims that his dietary supplement could treat or prevent COVID-19,\17\ 
and issued an administrative order prohibiting those claims in the 
future and requiring the defendant to notify consumers and retailers 
that the supplement will not treat, prevent, or reduce the risk of 
COVID-19.\18\
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    \17\ Complaint, FTC v. Ching, Case No. 2:20-cv-03775 (C.D. Cal.), 
available at https://www.ftc.gov/system/files/documents/ cases/
whole_leaf_complaint.pdf; Complaint, In re Ching, Docket No. 9394 
(FTC), available at https://www.ftc.gov/system/files/documents/cases /
d09394_administrative_part_iii_complaint.pdf.
    \18\ Decision and Order, In re Ching, Docket No. 9394 (FTC), 
available at https://www.ftc.gov/system/files/documents/ cases/
d09394_whole_leaf_decision_and_order.pdf. The Federal case is still 
pending.
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    In addition, to protect consumers attempting to replace or 
supplement income during the pandemic, the Commission--along with 19 
federal, state, and local partners--led a nationwide crackdown against 
scams making false promises of income and financial independence.\19\
---------------------------------------------------------------------------
    \19\ FTC Press Release, As Scammers Leverage Pandemic Fears, FTC 
and Law Enforcement Partners Crack Down on Deceptive Income Schemes 
Nationwide, https://www.ftc.gov/news-events/press-releases/2020/12/
scammers-leverage-pandemic-fears-ftc-law-enforcement-partners (Dec. 14, 
2020).
---------------------------------------------------------------------------
    Starting in March 2020, the FTC also launched a campaign to 
challenge companies' deceptive COVID-19 claims--directing the companies 
to cure violations and pursuing enforcement actions if problematic 
claims were not quickly removed. To date, the FTC has issued more than 
350 warning letters, many in conjunction with the Food and Drug 
Administration (FDA), to sellers and marketers that claimed that their 
products could treat or prevent COVID-19.\20\ The Commission also 
issued warning letters with the SBA regarding small business relief 
\21\ and joint letters with the Federal Communications Commission (FCC) 
to Voice Over Internet Protocol service providers and others 
``assisting and facilitating'' illegal telemarketing calls, including 
calls to market products such as fraudulent home test kits.\22\
---------------------------------------------------------------------------
    \20\ Copies of all of the FTC's COVID-19 related warning letters 
are available here: https://www.ftc.gov/coronavirus/enforcement/
warning-letters.
    \21\ FTC Press Release, FTC and SBA Warn Operator of SBA.com and 
Lead Generator Lendio to Stop Potentially Misleading Coronavirus Relief 
Loan Marketing, https://www.ftc.gov/news-events/press-releases/2020/05/
ftc-sba-warn-operator-sbacom-lead-generator-lendio-stop (May 18, 2020); 
Press Release, FTC and SBA Warn Six Companies to Stop Potentially 
Misleading Marketing Aimed at Small Businesses Seeking Coronavirus 
Relief Loans https://www.ftc.gov/news-events/press-releases/2020/06/
ftc-sba-warn-six-companies-stop-potentially-misleading-marketing (June 
24, 2020).
    \22\ FTC Press Release, FTC and FCC Send Joint Letters to VoIP 
Service Providers Warning against `Routing and Transmitting' Illegal 
Coronavirus-related Robocalls, https://www.ftc.gov/news-events/press-
releases/2020/04/ftc-fcc-send-joint-letters-voip-service-providers-
warning-against (Apr. 3, 2020); FTC Press Release, FTC and FCC Send 
Joint Letters to Additional VoIP Providers Warning against `Routing and 
Transmitting' Illegal Coronavirus-related Robocalls, https://
www.ftc.gov/news-events/press-releases/2020/05/ftc-fcc-send-joint-
letters-additional-voip-providers-warning (May 20, 2020).
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    Warning letters can be issued more quickly than a court complaint, 
and proved to be overwhelmingly successful in removing potentially 
dangerous claims from the markets. The Commission has monitored 
responses to these warning letters closely, and has been pleased to see 
that in the vast majority of cases, letter recipients removed 
problematic claims quickly. The Commission is determined to pursue 
swift enforcement action against noncompliant warning letter 
recipients.
    The FTC also took enforcement actions to protect consumers' privacy 
and data.\23\ Although the conduct in these matters occurred before the 
COVID-19 outbreak, the relief in these orders seeks to protect 
consumers from digital harms that have been exacerbated by the 
pandemic.\24\
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    \23\ See Complaint, United States v. HyperBeard, Inc., Case No. 
3:20-cv-3683 (N.D. Cal.) (enforcement of the COPPA Rule against kids 
app developer for allegedly collecting personal information from 
children under age 13 without obtaining parental consent), available at 
https://www.ftc.gov/system/files/documents/cases/192_3109_hyperbeard_-
_complaint.pdf; Complaint, In re Zoom Video Comms., Inc., Docket No. C-
4731 (FTC) (administrative action challenging claims that gave 
consumers a false sense of security about how the company protected 
their information), available at https://www.ftc.gov/system/files/
documents/cases/1923167zoomcom
plaint_0.pdf; Complaint, In re Flo Health, Inc., File No. 1923133 (FTC) 
(charges a developer of a period and fertility-tracking app with 
allegedly sharing consumer health information with outside data 
analytics providers after promising that such information would be kept 
private), available at https://www.ftc.gov/system/files/documents/
cases/flo_health_complaint.pdf.
    \24\ For example, the settlement in HyperBeard imposed a $4 million 
civil penalty requiring the defendants to delete personal information 
the company illegally collected from children under 13. See Proposed 
Stipulated Order, United States v. HyperBeard, Inc., Case No. 3:20-cv-
3683 (N.D. Cal.) available at https://www.ftc.gov/system/files/
documents/cases/192_3109_hyper
beard_-_proposed_stipulated_order.pdf. In addition, as part of the 
settlement in Flo Health, Flo must notify affected users about the 
disclosure of their personal information and instruct any third party 
that received users' health information to destroy that data. See 
Agreement Containing Consent Order, In re Flo Health, Inc., File No. 
1923133 (FTC) available at https://www.ftc.gov/system/files/documents/
cases/flo_health_order.pdf.
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    In light of the eviction crisis caused by the pandemic, the 
Commission has partnered with fellow enforcers at the Consumer 
Financial Protection Bureau (CFPB) to focus on ensuring renters are not 
subjected to unlawful practices.\25\ The Commission also will continue 
its efforts to ensure that tenant screening companies comply with the 
Fair Credit Reporting Act, so that consumers who have gone or will go 
through an eviction are not further stigmatized by incomplete or 
inaccurate information as they seek new housing.\26\ The Commission is 
also monitoring and investigating conduct by multistate landlords that 
may violate the FTC Act or other laws if they evict tenants in 
violation of national, state, or local eviction moratoriums, as Acting 
Chairwoman Slaughter and Acting CFPB Director Uejio recently warned in 
a joint statement.\27\
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    \25\ Press Release, FACT SHEET: The Biden-Harris Administration's 
Multi-Agency Effort to Support Renters and Landlords, https://
www.whitehouse.gov/briefing-room/statements-releases/2021/03/29/fact-
sheet-the-biden-harris-administrations-multi-agency-effort-to-support-
ren
ters-and-landlords/ (Mar. 29, 2021).
    \26\ An example of the FTC's efforts to protect tenants even before 
the pandemic is our case against AppFolio, in which the defendant 
agreed to settle charges that it failed to follow reasonable procedures 
to ensure the accuracy of criminal and eviction records in tenant 
screening reports and reported obsolete information. See Complaint, 
United States v. AppFolio, Inc., Case No. 1:20-cv-03563 (D.D.C. Dec. 8, 
2020), available at https://www.ftc.gov/system/files/documents/cases/
ecf_1_-_us_v_appfolio_complaint.pdf.
    \27\ Joint Statement by FTC Acting Chairwoman Rebecca Kelly 
Slaughter and CFPB Acting Director Dave Uejio (Mar. 29, 2021), https://
www.ftc.gov/news-events/press-releases/2021/03/joint-statement-ftc-
acting-chairwoman-rebecca-kelly-slaughter.
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    The Commission will remain vigilant in order to protect the public 
from harms that stem directly and indirectly from the COVID-19 
pandemic. The FTC is committed to tackling emerging threats, adjusting 
our strategies wherever necessary, and working in close coordination 
with our partners.
b. Consumer Education and Outreach
    The Commission has buttressed its law enforcement actions with 
consumer and business education. Since the beginning of the pandemic, 
the FTC has worked aggressively to dispel misinformation and confusion 
about the pandemic and related issues that have fueled COVID-related 
scams. The Commission's education campaign has several facets: consumer 
and business alerts; a multi-media campaign; substantive business 
guidance; and outreach with partners.
    Early in the pandemic, the Commission began issuing alerts warning 
consumers and the business community of COVID-related frauds. To date, 
the FTC has issued more than 100 consumer and business alerts on a wide 
range of COVID-related topics, including economic impact payments, 
health claims, online shopping, privacy in a virtual environment, 
contact tracing, government imposter scams, job scams, and 
misinformation.\28\ The FTC sends its alerts to more than 367,000 e-
mail subscribers, which include consumers, businesses, partners, and 
the media. In turn, many of these subscribers share the information 
with their communities, greatly expanding the reach of the agency's 
message. The FTC has developed a multimedia campaign with a dedicated 
website (ftc.gov/coronavirus) that contains a library of materials for 
consumers and businesses in several different languages.
---------------------------------------------------------------------------
    \28\ All of the FTC's business and consumer alerts are available at 
https://www.ftc.gov/coronavirus.
---------------------------------------------------------------------------
    As the pandemic required many work, school, recreational, and 
social activities to transition from in-person to online and virtual 
platforms, the shift to digital life presented new opportunities for 
bad actors to exploit. The Commission worked to prevent this 
exploitation from occurring in the first instance. Accordingly, in 
April 2020, the Commission published guidance for education technology 
companies and schools regarding their duties to protect children's 
privacy and personal data--including warnings of the parental consent 
requirements for data collection imposed by the Children's Online 
Privacy Protection Act (COPPA).\29\
---------------------------------------------------------------------------
    \29\ COPPA Guidance for Ed Tech Companies and Schools during the 
Coronavirus, https://www.ftc.gov/news-events/blogs/business-blog/2020/
04/coppa-guidance-ed-tech-companies-schools-during-coronavirus (Apr. 9, 
2020).
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    Finally, FTC staff has engaged in national and local outreach with 
partners to reach a variety of audiences, including older consumers, 
ethnic and community media, housing organizations, re-entry groups, 
library patrons, and the military community. The staff has used 
webinars, tele-town halls, Twitter chats, Facebook Live events, and 
interviews with local and national media, to reach its audiences. 
During the pandemic, FTC staff has participated in hundreds of virtual 
webinars, presentations, and interviews--in English, Spanish, and 
Mandarin. The FTC also has used new methods to reach people in 
economically and geographically diverse communities who are targeted by 
COVID-19 scam artists. For example, the FTC conducted a national radio 
media tour, mailed post cards to communities with low broadband access, 
and delivered letters to community health professionals in 5,000 rural 
and urban health clinics to help people avoid COVID-related fraud.
    As the pandemic has deepened, some new consumer financial issues 
have arisen and others have been exacerbated. To ensure we are 
responding appropriately to the issues consumers are facing, the FTC 
coordinated a series of virtual listen-and-learn sessions across the 
country. Participants have included representatives from legal 
services, social services, elder justice centers, departments of aging, 
housing counselors, religious organizations, the Better Business 
Bureau, and the offices of State Attorneys General. Based on input from 
stakeholders, the FTC is enhancing and expanding its COVID-19 financial 
recovery and resiliency campaign, the centerpiece of which will be a 
web-based toolkit available in multiple languages.
c. Data Collection
    The FTC's Consumer Sentinel Network collects millions of reports 
from the public about fraud, identity theft, and other consumer 
problems, and makes them available to thousands of law enforcement 
users across the country. In the weeks following the first known cases 
of COVID-19 in the U.S., the FTC developed systems to track and alert 
the public to shifts in Sentinel reporting. On ftc.gov/exploredata, the 
FTC launched public dashboards showing aggregate Sentinel data on 
reports associated with COVID-19 by age, type of fraud, and geographic 
location, with figures that are updated daily. Since January 2020 and 
as of April 7, 2021, the FTC has received more than 436,000 such 
reports, reflecting $399 million in fraud losses.\30\
---------------------------------------------------------------------------
    \30\ The figures reflect reports in Sentinel that specifically 
mention words related to the pandemic, such as COVID, stimulus, N95 and 
related terms. To provide the most relevant results, some subcategories 
are excluded. For more information, visit https://public.tableau.com/
profile/federal.trade.commission#!/vizhome/COVID-19andStimulusReports/
Map.
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    The FTC's monitoring and analyses of Sentinel data reveal increased 
fraud activity in 2020. Specifically, the number of fraud, identity 
theft, and other reports to Sentinel (excluding Do Not Call) increased 
more than 45 percent over 2019 numbers, and reported losses from fraud 
grew from more than $1.8 billion in 2019 to $3.3 billion in 2020.\31\ 
Being able to use Sentinel data to spot trends has helped the FTC 
respond to emerging scams in real time--from bringing cases to halt 
fraudulent activity, to targeting alerts warning of the newest fraud, 
to addressing specific threats, such as the proliferation of identity 
theft related to unemployment insurance benefits.\32\
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    \31\ Some of the increase in complaints for 2020 is due to a new 
large data contributor, namely the FBI's Internet Crime Complaint 
Center, which added about 200,000 complaints in 2020. In addition, the 
FTC launched a re-designed website to capture consumer reports more 
easily at the end of October 2020. Nevertheless, the rise in reports is 
highly significant. From FTC's websites and call center alone, the 
surge in reports was about 970,000 in 2020, and many Sentinel data 
contributors also experienced an increase in complaint volume in 2020.
    \32\ Identity thieves targeted unemployment insurance benefits in 
record numbers in 2020. Of the identity theft reports received in 2020, 
over 400,000 came from people who said their information was misused to 
apply for a government benefit, and the overwhelming majority of these 
related to unemployment insurance. This represents a staggering 
increase of nearly 3000 percent from 2019. These reports were 
overwhelmingly about fraudulently obtained unemployment benefits 
claims, a problem that has proliferated during the pandemic. Working in 
cooperation with the U.S. Department of Justice Unemployment Insurance 
Fraud Task Force, the FTC launched www.IdentityTheft.gov/
unemploymentinsurance to provide information to the public on where to 
report and how consumers can protect their credit.
---------------------------------------------------------------------------
    Ensuring that the experiences of all consumers are represented in 
Sentinel is critically important to the agency's work. To expand 
accessibility, the FTC launched a new modernized reporting website, 
ReportFraud.ftc.gov, in October 2020. The updated site includes a 
COVID-19 banner, providing an easy way for consumers to report COVID-
related issues. And, this month, the FTC launched the Community 
Advocate Center, which is part of the agency's ongoing work to 
collaborate with legal services organizations to learn about consumer 
protection needs and problems affecting the lower-income communities 
they serve. The Center provides a new way for organizations that 
provide free and low-cost legal services to report fraud and other 
illegal business practices directly to the FTC on behalf of their 
clients.
III. CONCLUSION
    Throughout the past year, the Commission has worked tirelessly to 
stop bad actors from exploiting the pandemic at the public's expense. 
But the Commission's work is far from over. COVID-related scams are 
likely to persist as the country continues to grapple with this 
pandemic. Combatting these scams will remain a top priority for the 
Commission, and we will continue to use every tool we have to stop this 
predatory behavior, including seeking civil penalties under the newly 
enacted COVID-19 Consumer Protection Act, where appropriate.\33\
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    \33\ Pub. L. No. 116-260, 134 Stat. 1182, Division FF, Title XIV, 
Sec. 1401(b)(1).
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    We look forward to continuing to work with the Subcommittee and 
Congress, and I am happy to answer your questions.

    Senator Blumenthal. Thanks very much, Mr. Kaufman.
    I'd like to turn now to William Kovacic, who joins us 
remotely.

      STATEMENT OF WILLIAM E. KOVACIC, GLOBAL COMPETITION

         PROFESSOR OF LAW AND POLICY, PROFESSOR OF LAW,

               DIRECTOR, COMPETITION LAW CENTER,

          THE GEORGE WASHINGTON UNIVERSITY LAW SCHOOL

    Mr. Kovacic. Thank you very much, Chairman Blumenthal. My 
thanks also to Ranking Member Blackburn and the Subcommittee 
Members. I'm most grateful for the opportunity to participate 
in these important proceedings.
    The COVID pandemic is the latest grim demonstration that 
catastrophe often inspires serious fraud, and I'd like to 
discuss several ways that Congress and the FTC, the states, and 
other law enforcement bodies and their partners can respond to 
what has been a merciless stress test on the ability of public 
administration to respond to this type of crisis.
    In offering suggestions, I immediately acknowledge the 
admirable efforts already undertaken by the Congress, the FTC, 
the states and their partners to protect Americans from 
exploitation.
    My first suggestion echoes the comment that the Chairman 
made in opening the proceedings and that is my belief that 
serious fraud will only be deterred when we bring the full 
range of our criminal enforcement powers to bear on the wrong-
doers.
    I think the Chair described accurately the state of mind of 
the wrong-doers here. They have sinister skill. They have utter 
cravenness, and I don't think they will respond fully if the 
worst that can happen to them is that we take the money away 
from them and return it to the Treasury or return it to 
consumers.
    In many instances, they squander the assets they gained 
improperly and they hide the funds that they have. I think the 
only way to deter their misconduct effectively is to take away 
their freedom through criminal enforcement.
    Now as the Chair said, the FTC already has a platform, the 
Criminal Liaison Unit, to encourage and work with criminal 
enforcement authorities to use their powers on behalf of 
consumers by bringing criminal sanctions to bear on the wrong-
doers.
    I think an unmistakable lesson of this recent experience is 
that augmenting that capability, increasing the cooperation 
with criminal enforcement authorities, with the FTC playing a 
crucial role in helping set up cases, identify areas for 
examination, in many instances to assist in compiling a record 
that will be useful in criminal prosecution is the only way to 
bring our fullest and most powerful deterrent to bear on these 
individuals.
    Civil enforcement is an important part of the mix, let 
there be no doubt, but I think our first and foremost strategy 
in many respects has to be dealing with serious criminals with 
serious criminal enforcement process.
    My second suggestion deals with themes that Daniel and the 
Chair have raised already and that is we must restore the 
ability of the Federal Trade Commission to go directly to 
District Court and to receive restitution or to achieve 
disgorgement, restitution for victims, disgorgement of other 
assets to place in the Treasury.
    These measures do have important deterrent value and they 
are the best tool that the FTC has at its disposal to achieve 
compensation for victims and this must be a priority of 
legislative drafting in the months to come.
    My third suggestion is a dramatic expansion of funding and 
resources for the FTC, along with some ideas about how to spend 
it.
    Last fall before this committee and proceedings convened by 
Senator Wicker, I suggested that a threefold increase in the 
budget of the FTC would be appropriate to put the Commission in 
a position to do the work that it must do and that it was 
important not simply to add to the size of the professional 
staff. The Commission is blessed with wonderful professionals 
and you have one of them seated before you with Daniel Kaufman.
    But I think it is important to consider bringing the salary 
levels up to the level, for example, that the Consumer 
Financial Protection Bureau enjoyed, roughly a 20 percent 
boost, so that we can recruit the best and, more important, to 
keep them.
    What would I do with the salaries? I would enhance what are 
presently the best data collection and consumer education 
systems in the world. Those are the FTCs. I would use the money 
to enhance Sentinel, to expand the consumer and business 
education projects that the FTC has underway. I would invest 
more in building the data analytics capability that the agency 
already has, to use the information that it has, and to apply 
it more effectively, and I would use the competition and 
markets authority regime, the data unit there, as a model for 
doing this.
    And, finally, I would indeed use the money to expand 
cooperation with state partners, with state and local 
governments to enforce more effectively.
    I welcome your questions and those of other committee 
members. Thank you.
    [The prepared statement of Mr. Kovacic follows:]

              Prepared Statement of William E. Kovacic \1\
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    \1\ Global Competition Professor of Law and Policy, George 
Washington University Law School; Visiting Professor, King's College 
London; Non-Executive Director, UK Competition and Markets Authority. I 
thank Robert Anderson, Anna Caroline Muller, Will Hayter, Alison Jones, 
Antonella Salguiero, and Nadhya Sporysheva for useful comments about 
topics concerning my testimony. The views expressed here are mine only. 
Contact: [email protected].
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Introduction
    I thank the Subcommittee and its leadership for the invitation to 
participate in these proceedings.
    The COVID-19 crisis has provided the occasion for the latest 
iteration of a grim phenomenon in human experience. Calamity creates 
conditions in which serious fraud flourishes. Amid catastrophe 
occasioned by natural disaster, economic collapse, or disease, craven 
individuals and organizations prey upon victims with false promises to 
alleviate misery. The desperation of victims to gain relief renders 
them especially vulnerable to malicious conduct.
    The COVID Pandemic has administered a merciless stress test to our 
government institutions. Our public institutions have responded 
admirably to this test. Congress has strived to create new capabilities 
to challenge and deter serious fraud. The adoption of the COVID-19 
Consumer Protection Act is but one illustration.\2\ The Federal Trade 
Commission (FTC) and its partners at the state and local level have 
confronted COVID-related fraud with extraordinary dedication. The 
commitment, drive, and ingenuity of these institutions is inspiring to 
behold. With their offices shuttered and staff working remotely, our 
consumer protection agencies have devised creative methods to challenge 
fraudulent, oppressive commercial conduct that has follows in COVID-
19's wake.
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    \2\ Pub. L. No. 116-260, 134 Stat. 1182, Division FF, Title XIV, 
Sec. 1401(b)(1).
---------------------------------------------------------------------------
    The pandemic stress test also has illuminated weaknesses in the 
framework through which the United States and other countries address 
supplier misconduct amid crisis conditions. My testimony derives 
lessons from this experience to suggest how Congress and the regulatory 
community at home and abroad might improve the existing consumer 
protection framework. I also identify how the regulators since early 
2000 have strengthened operational techniques and devised new 
approaches for the exercise law enforcement and related policy duties. 
I recommend that agencies make recent, positive policymaking 
innovations lasting elements of agency practice.
    Most of my suggestions deal with authority that the FTC can apply 
directly, or could apply, with an enhanced mandate from Congress. I 
offer an initial cautionary note about the effectiveness of the civil 
enforcement tools at the FTC's disposal. I believe the only way to 
deter the most serious fraudulent schemes we have observed is to 
subject violators to criminal punishment. Severe civil sanctions, 
including the imposition of monetary penalties and orders mandating 
restitution or disgorgement, are unlikely to deter truly corrupt 
individuals or malign enterprises, which often are adept at hiding or 
squandering assets to render them judgment proof in civil actions.
    The FTC has a Criminal Liaison Unit which works with criminal 
prosecutors at the federal, state, and local levels to assist in the 
development of criminal cases against participants in serious fraud.\3\ 
I see an urgent priority to be the expansion of this effort to ensure 
that a greater number of malicious behaviors uncovered during the 
COVID-19 crisis, and in other settings, be punished through criminal 
proceedings. I doubt that we can approach desired levels of deterrence 
if potential wrongdoers do not face a growing possibility that fraud 
will cost them their freedom.
---------------------------------------------------------------------------
    \3\ The functions of this group are described in Federal Trade 
Commission, Criminal Liaison Unit, at https://www.ftc.gov/enforcement/
criminal-liaison-unit.
---------------------------------------------------------------------------
    My testimony is guided partly by experience in serving as a Non-
executive Director of the United Kingdom's Competition and Markets 
Authority (CMA). In today's proceedings I do not speak on CMA's behalf, 
but my comments are informed by the CMA's work in addressing problems 
related to COVID-19.
Filling Gaps and Correcting Vulnerabilities: Priorities for New 
        Legislation or Deliberations that Could Yield New Legislation
    In the following areas, new legislation would improve the 
effectiveness of the U.S. consumer protection regime.
Federal Trade Commission Remedial Powers
    Last Friday, the Supreme Court ruled that the FTC lacks authority 
under Section 1(b) of the Federal Trade Commission Act to obtain 
restitution and similar forms of equitable relief in antitrust and 
consumer protection cases.\4\ The ability to obtain equitable monetary 
relief (restitution and disgorgement) in actions filed directly in 
Federal district court is vital element of the FTC's anti-fraud 
program. I endorse efforts by Congress to amend the FTC Act to give the 
FTC express authority to obtain the full range of equitable remedies, 
including monetary recoveries, for consumer protection violations. The 
ability to deprive wrongdoers of the financial gains from misconduct 
provides compensation for victims and increases deterrence by 
diminishing the returns to fraud and other forms of oppressive 
behavior.
---------------------------------------------------------------------------
    \4\ AMG Capital Management, LLC. v. Federal Trade Commission, No. 
19-508 (S.Ct., Apr. 22, 2021).
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    I also suggest that Congress conduct deliberations concerning the 
Commission's ability to recover monetary remedies for antitrust 
violations. I believe there is a useful role for civil monetary relief 
in FTC antitrust enforcement, and I endorse the approach the Commission 
set out in a 2003 policy statement to seek such remedies in 
``exceptional cases'' involving clear violations of the antitrust 
laws.\5\ The consideration of equitable monetary relief as a remedy in 
FTC actions filed in Federal district court should be part of a larger 
discussion about what Congress believes to be the agency's role in 
developing competition law standards through, respectively, 
administrative adjudication and litigation in the Federal district 
courts.
---------------------------------------------------------------------------
    \5\ Federal Trade Commission, Policy Statement on Monetary 
Equitable Remedies in Competition Cases, 68 Fed. Reg. 45821 (2003). The 
Commission withdrew this policy statement in 2012. Federal Trade 
Commission, Withdrawal of the Commission Policy Statement on Monetary 
Equitable Remedies in Competition Cases, 77 Fed. Reg. 47071 (2012).
---------------------------------------------------------------------------
    Another enhancement of the FTC's remedial authority I recommend for 
the Committee's consideration would be to establish a U.S. replica of 
the markets regime now implemented in the United Kingdom by the 
Competition and Markets Authority.\6\ Part 4 of the Enterprise Act 2002 
\7\ enables the CMA to investigate markets where it appears that the 
structure of the market or the conduct of suppliers or customers in the 
market is harming competition and, where problems are identified, to 
impose remedies (including price caps) and make proposals to 
legislators to correct observed problems. This would enable to FTC to 
study sectoral or economy-wide phenomena and to order remedies 
regardless of whether the conditions or practices in question violate 
existing consumer protection laws.
---------------------------------------------------------------------------
    \6\ William E. Kovacic, Market structure and market studies, in 
Competition Law and Economics 30 (Jay Pil Choi, Wonhyuk Lim & Sang-Hyop 
Lee eds., 2020).
    \7\ Enterprise Act 200, c.40, Section 4 (``Market 
Investigations'').
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Federal Trade Commission Jurisdictional Limitations
    Congress should eliminate statutory exemptions that deny the FTC 
jurisdiction over common carriers, not-for-profit institutions, the 
business of insurance, and banks.\8\ Most of these jurisdictional 
limitations date back to the agency's creation. Some exemptions may 
have made sense when established; the economy and the affected fields 
of activity were much different. Today, the exemptions are embarrassing 
anachronisms that diminish the FTC's capability to perform the 
competition policy role that Congress set out in 1914 and to carry out 
the consumer protection and privacy responsibilities that now are key 
elements of the agency's law enforcement portfolio. On many occasions 
over the past two decades, the FTC has pled with the Congress to 
revisit and eliminate--or at least curtail--the jurisdictional 
exemptions.
---------------------------------------------------------------------------
    \8\ See David A Hyman & William E. Kovacic, Implementing Privacy 
Policy: Who Should Do What?, 29 Ford. Intell. Prop. Media & Ent. L.J. 
1119, 1133 (2019).
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Federal Trade Commission Budget and Compensation Levels for Employees
    There is a grave mismatch between the duties Congress has assigned 
the FTC and the resources it has given the agency to carry out its 
mandate. There is a serious need to raise the FTC's budget, but not 
simply to build a larger staff by hiring more people. Reforms to the 
Federal compensation system are necessary to attract and retain a 
larger number of elite personnel. I do not see how the FTC or many 
other public agencies can recruit and retain necessary personnel 
without a significant increase in the salaries paid to managers and 
staff.
    Consider two possibilities for compensation reform. The first is to 
align FTC salaries with the highest scale paid to the various U.S. 
financial service regulators. One model would be the compensation scale 
used to pay employees of the banking regulatory agencies; the salary 
scale for these bodies exceeds the General Schedule (GS) Federal civil 
service wage scale by roughly twenty percent.\9\
---------------------------------------------------------------------------
    \9\ See Paul H. Kupiec, The Money in Banking: Comparing Salaries of 
Bank and Bank Regulatory Employees (American Enterprise Institute, 
April 2014), https://www.aei.org/wp-content/uploads/2014/04/-the-money-
in-banking-comparing-salaries-of-bank-and-banking-regulatory-
employees_17170372690.pdf.
---------------------------------------------------------------------------
    In adopting the Dodd-Frank Wall Street Reform and Consumer 
Protection Act in 2010,\10\ Congress concluded that the importance of 
the mission of the new Consumer Financial Protection Bureau (CFPB) 
warranted higher salaries for the agency's personnel. If the higher 
salary scale made sense for the CFPB, I see no good reason why a more 
generous compensation schedule is not appropriate for what is the 
Nation's leading consumer protection agency (and its leading Federal 
data protection authority).\11\
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    \10\ Pub. L. No. 111-203, 124 Stat. 1376 (2010).
    \11\ As a member of the FTC, I observed firsthand how the disparity 
in salaries between the CFPB and the FTC resulted in a significant 
migration after 2010 of the Commission's elite consumer protection 
attorneys and economists to the CFPB. Many of these individuals were 
major contributors to the FTC's consumer protection programs because 
they combined outstanding intellectual skills with decades of 
experience (much of it in middle-level and senior management positions) 
at the Commission. It was impossible to replace them with individuals 
of comparable skill and experience, and the FTC's performance suffered 
as a consequence.
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    A second, more ambitious alternative would be to triple the FTC's 
existing budget of about $330 million per year and use the increase 
mainly to raise salaries and partly to add more employees. This 
experiment might be carried out for a decade to test whether a major 
hike in pay would increase the agency's ability to recruit the best 
talent, retain the talent for a significant time, and apply that talent 
with greater success in a program that involves prosecuting numerous 
ambitious cases and devising other significant policy initiatives.
    A major increase in compensation, either by adopting the CFPB model 
or trying our my more ambitious proposal, is a crucial test of our 
national commitment to improve the foundations for effective consumer 
protection enforcement. The nation should spend what it takes to get 
the best possible personnel to run the difficult cases (and carry out 
other measures, such as the promulgation of trade regulation rules) 
that will be the pillars of a new, expanded enforcement program. Such 
steps will become even more important if new political leadership seeks 
to close the revolving door, which has operated as a mechanism to 
encourage attorneys and economists to accept lower salaries in Federal 
service in the expectation of receiving much higher compensation in the 
private sector at a later time.
Federal Trade Commission Administrative Process
    I propose two legislative changes to the FTC's administrative 
framework to enable the Commission to carry out the full range of its 
duties, including consumer protection, more effectively. The first is 
to relax the limits that the Government in the Sunshine Act \12\ 
imposes on the ability of commissioners to deliberate together 
privately to discuss matters of strategy and tactics. Among other 
consequences, the Sunshine Act severely limits the ability of a quorum 
of commissioners to deliberate over matters of agency policy except in 
meetings open to the public.\13\ Policy planning, strategy-setting, and 
case selection functions cannot be executed at the highest level of 
effectiveness without this reform. A central reason to entrust 
governance to a multimember body, rather than to govern an agency with 
a single executive, is to gain the benefits of deliberation. Collective 
decision making, and the informal collaborative discussions that 
surround it, are deemed useful to improve the agency's ability to make 
wise choices when setting priorities, formulate strategies for 
litigation and nonlitigation programs, and selecting projects. As now 
written and interpreted, the Sunshine Act severely reduces the FTC's 
ability to realize the theoretical advantages of collective governance. 
I know of no jurisdiction abroad that relies on an administrative 
commission to implement consumer protection law and encumbers the 
enforcement with so many restrictions on collegial decision making.\14\ 
In numerous conversations, officials with consumer protection agencies 
in other jurisdictions with multi-member commissions express disbelief 
that the United States created an administrative mechanism with 
enormous potential and then chose to undermine its implementation so 
severely.
---------------------------------------------------------------------------
    \12\ P.L. 94-409, 90 Stat. 1241 (1976).
    \13\ The Sunshine Act and its requirements are analyzed in Reeve T. 
Bull, The Government in the Sunshine Act in the 21st Century (Mar. 10, 
2014) (report prepared for the Administrative Conference of the United 
States), https://acus.gov/report/final-sunshine-act-report.
    \14\ My experience as a non-executive director of the CMA has 
highlighted how the FTC is largely foreclosed from using policy 
planning and prioritization techniques that are commonly employed to 
great advantage in other jurisdictions.
---------------------------------------------------------------------------
    To serve the accountability and transparency aims that motivated 
the adoption of the Sunshine Act, Congress could press the FTC to use 
other disclosure techniques. Here, as well, experience in foreign 
jurisdiction suggests a superior alternative path. A number of 
jurisdictions achieve desired transparency through measures that 
require their competition authorities to publish an annual statement of 
priorities, to issue their prioritization criteria, to provide 
explanations of the decision to prosecute and not to prosecute in 
individual cases, and to issue annual reports that discuss the agency's 
progress in realizing its goals.\15\ In many instances, documents that 
set out priorities, case selection criteria, and results achieved are 
issued first in draft form for public comment. In addition to these 
measures, agency officials make regular appearances before legislative 
committees and in public fora to discuss the work of their 
institutions. These techniques can be supplemented with a program of ex 
post evaluation that tests, through actual experience, the assumptions 
that guided agency decisions in specific cases and supplies an 
additional basis for public debate about the agency's policymaking. 
Experience with the disclosure mechanisms described here suggests that 
other jurisdictions achieve informative public disclosure, and rigorous 
agency accountability, without the limits imposed by the Sunshine Act.
---------------------------------------------------------------------------
    \15\ For example, it is sensible for the FTC to emulate the 
practice of many foreign authorities issue closing statements after the 
agency has conducted an investigation but decided not to intervene. The 
triggering event in the United States might be matters in which the 
agency has used compulsory process to conduct an inquiry.
---------------------------------------------------------------------------
    A second legislative measure is to enable the FTC to recruit and 
hire competition and consumer protection specialists to serve as 
administrative law judges.\16\ The administrative adjudication of cases 
was a crucial basis for the establishment of the Commission in 1914. 
Several pillars of the institution were designed solely, or 
principally, to support administrative adjudication: the multi-member 
governance configuration (with the board performing the functions of 
deciding to prosecute and of hearing appeals from administrative 
cases), the broad, scalable mandate of Section 5 of the FTC Act,\17\ 
and special information gathering powers to inform the development of 
legal standards to meet evolving commercial conditions. All of these 
characteristics put administrative adjudication at the center of the 
agency's work. There was little point in Congress designing the agency 
as it did except to create a platform for administrative adjudication 
and norms creation.
---------------------------------------------------------------------------
    \16\ See William E. Kovacic, Chairman, U.S. Federal Trade 
Commission, The Federal Trade Commission at 100: Into Our Second 
Century 42-45 (2009)
    \17\ As amended by the Wheeler-Lea Act, Section 5 of the Federal 
Trade Commission Act prohibits ``unfair methods of competition'' and 
proscribes ``unfair or deceptive acts or practices.'' 15 U.S.C. 
Sec. 45.
---------------------------------------------------------------------------
    The proceedings before the administrative law judge (ALJ) are the 
vital first step of the FTC's administrative process. The 
administrative hearing collects and analyzes evidence and applies the 
law. It is the foundation for subsequent deliberation by the Commission 
sitting as a plenum in appeals. At present, the Commission has no 
ability to insist that ALJ appointees have significant prior experience 
in competition law or consumer protection law. The ALJ selection 
process is controlled by government-wide processes that accord no 
weight to the FTC's institutional considerations. Congress can correct 
this deficiency by amending the government's ALJ selection process to 
use competition and consumer protection expertise as a key criterion in 
the choice of FTC ALJs.
Priorities for Future Legislative Oversight and Policy Discussion
    In this section I identify possible focal points for congressional 
oversight and policy discussions.
Preserving and Extending Recent Operational Innovation and Identifying 
        Other Areas to Improve FTC Capacity
    I suggest that the Subcommittee convene formal proceedings or 
conduct informal discussions with the FTC to ask the agency to describe 
what new measures it devised to deal with the COVID crisis and how it 
adapted existing procedures and policy tools to detect and attack 
fraudulent schemes and to provide information to consumers. It appears 
that the Commission used a number of innovative methods to provide 
additional information to consumers and to expedite, as much as 
possible, the investigations and cases involving fraud. The 
Subcommittee might engage with the Commission in an ongoing 
conversation about what worked well and ought to be continued in more 
normal times.
    The COVID stress test undoubtedly identified for the Commission 
areas in which greater expenditures and changes to operations are 
necessary for the future. This might be an ideal moment for the 
Subcommittee and the Commission to consider what type of capital 
investment might be needed to upgrade the agency's Consumer Sentinel 
system or the create net information networks to join up the FTC more 
closely with other public agencies with consumer protection duties and 
with civic bodies that monitor problems affecting consumers.
    This would also be an appropriate time for a stocktaking exercise 
in which the Subcommittee and Commission reflect upon ways that, based 
on the experience of the past year, the pandemic has changed the 
commercial environment for the longer term--in some instances, creating 
conditions that pose greater hazards for consumers but in other cases 
inspiring commercial innovations that benefit consumers. In short, the 
Subcommittee might use its policy making deliberations to assess, with 
the FTC and other consumer protection bodies, how COVID has altered the 
commercial landscape in ways that dictate adjustments in consumer 
protection policy.
    To my view, the FTC has the world's best consumer protection 
complaint database (the Consumer Sentinel Network) and the world's best 
program of consumer and business education. During the COVID-19 
pandemic, the Commission has made excellent, creative use of these 
tools.
    The Consumer Sentinel Network and the FTC's consumer and business 
education programs are the product of decades of farsighted investments 
in building a superior team of professionals and in creating an 
administrative infrastructure to support them. The formation of these 
capabilities is a genuine success story in modern public 
administration. As the Nation emerges from the harshest period of the 
pandemic and returns to greater health and economic prosperity, there 
is an opportunity to use recent experience to consider how these 
efforts might be enhanced. The FTC and its many partners no doubt have 
learned about ways in which these systems can be improved. The Senate 
Commerce Committee might convene proceedings to discuss what these 
enhancements might be and to identify the resources needed to 
accomplish them.
    I suspect one significant focal point for an enhancement of the 
FTC's capacity will be to strengthen its data analytics team. 
International experience suggests a way forward on this score. One of 
the most important policy innovations undertaken by the UK's CMA in 
recent years has been the creation of a Data, Technology and Analytics 
(DaTA) unit. Formed in 2018, the group now numbers over forty 
professionals, many with professional training and experience in fields 
such as computer science and engineering. The CMA formed the DaTA group 
out of recognition that a major enhancement of its scientific 
capabilities was necessary to enable the agency to meet the challenges, 
in its capacity as a competition agency and a consumer protection body, 
presented by developments in highly dynamic, high technology commercial 
sectors. It would no longer be possible to rely chiefly, or 
exclusively, on attorneys and economists to staff relevant projects.
    The CMA DaTA team has proved to be an extremely valuable asset 
during the pandemic. Among other contributions, the DaTA unit played a 
vital role in the analysis of consumer complaints related to COVID. The 
unit's analytics group enabled the CMA to identify trends almost in 
real time and to publish weekly updates about trends in complaints. The 
results of the data analysis, in turn, enabled the CMA to focus its law 
enforcement efforts and related publicity work immediately upon areas 
of greatest urgency and to give valuable guidance (informed by reliable 
data) to other government bodies. I urge the Subcommittee to encourage 
the FTC to develop a comparable capability and to urge Congress to fund 
its development.
Larger questions about configuration of U.S. Consumer Protection System
    The remedies issues mentioned at the beginning of my testimony are 
only one set of developments that, I expect, will force a 
reconsideration of the institutional arrangements through which the 
Federal government and its state and local partners implement consumer 
protection policy. We may see in the next year the adoption of long-
awaited national privacy legislation. Should this come to pass, 
Congress must choose a mechanism for its enforcement. Should it give 
the new mandate to the FTC, create a standalone Federal privacy agency, 
or devise other enforcement and policymaking frameworks? Whatever 
choice is made will have a major impact on the future operations of the 
FTC.
    We also may see the courts revisit the basic question of whether 
the president may remove the members of the independent Federal 
regulatory agencies without cause. My own interpretation of recent 
cases, such as the Supreme Court's decision in 2020 in Seila Law LLC v. 
Consumer Financial Protection Bureau,\18\ is that the Court may be 
minded to come back on the issue of the removal power in future cases 
and, perhaps, to alter fundamentally a key pillar of the modern 
regulatory state. There have been rumblings in the lower courts, as 
well, in the form of opinions that openly express doubts about the 
soundness of the FTC's administrative adjudication system.\19\
---------------------------------------------------------------------------
    \18\ 591 U.S. ___ (2020).
    \19\ Axon Enterprise v. Federal Trade Commission, 2021 U.S. App. 
LEXIS 2374 (9th Cir., Jan. 28, 2021).
---------------------------------------------------------------------------
    All of these developments suggest that we may be on the threshold 
of a basic reassessment, driven by the rulings of the Federal courts, 
about the proper structure and allocation of authority to the 
regulatory bodies on which Congress has relied heavily for over a 
century to regulate commerce and protect consumers. This seems an 
increasingly urgent topic for consideration by the Subcommittee and 
agencies, such as the FTC, subject to its oversight.
FTC Rulemaking Authority
    This is an ideal time for the Subcommittee to reflect upon what 
adjustments it might wish to make, beyond measures already adopted 
recently in COVID-related legislation, to clarify and augment the FTC's 
powers to issue trade regulation rules governing consumer protection 
and competition matters. In hearings and other policy deliberations, 
the Subcommittee might consider what mix of instruments it wishes the 
Commission to exercise (and what remedies to apply) in the future: the 
Magnuson-Moss rulemaking process, more generic Administrative Procedure 
Act rulemaking authority, or sector-specific grants of rulemaking 
powers. In doing so, I think it is sensible for the Subcommittee to be 
guided by the awareness that the Federal judiciary today is unlikely to 
embrace statutory interpretation approaches that courts have used in 
the past to infer broad grants of rulemaking authority to the 
Commission for various purposes.\20\ In my view, this reassessment 
grows more urgent in light of the Supreme Court's decision last Friday 
in the AMG Capital Management case, mentioned above.
---------------------------------------------------------------------------
    \20\ One case whose analytical foundations might be seen by some 
judges as worthy of a rethink is National Petroleum Refiners Ass'n v. 
Federal Trade Commission, 482 F.2d 632 (D.C. Cir. 1973).
---------------------------------------------------------------------------
Interagency Cooperation
    The U.S. consumer protection regime is a decentralized system that 
distributes policymaking and law enforcement power across numerous 
agencies at the federal, state, and local levels. Federal statutes 
coexist with myriad state laws mandates, some with powerful enforcement 
mechanisms.
    The extraordinary decentralization and multiplicity of enforcement 
mechanisms supply valuable possibilities for experimentation and 
provide safeguards in case any single enforcement agent is disabled 
(e.g., due to capture, resource austerity, or corruption).\21\ Among 
public agencies, there is also the possibility that Federal and state 
government institutions, while preserving the benefits of 
experimentation and redundancy, could improve performance through 
cooperation that allows them to perform tasks collectively that each 
could accomplish with great difficulty, or not at all, if they act in 
isolation. Congress should use its oversight powers to encourage the 
FTC and the states to adopt collaborative approaches that preserve the 
multiplicity of actors in the existing U.S. regime but also promise to 
improve the performance of the entire system through better inter-
agency cooperation--to integrate operations more fully ``by contract'' 
rather than a formal consolidation of functions in a smaller number of 
institutions.
---------------------------------------------------------------------------
    \21\ David A. Hyman and William E. Kovacic, State Enforcement in a 
Polycentric World, 2019 B.Y.U. L Rev. 1447.
---------------------------------------------------------------------------
    For models of successful interagency cooperation, one might study 
the successful policy integration that has taken place through the work 
of the United Kingdom Competition Network and the European Competition 
Network. In both examples one can see the mix of organizational 
structures and personal leadership that enabled agencies collectively 
to accomplish policy results that would have been unattainable through 
the work of single agencies operating in isolation. The United States 
has no equivalent to these institutions, which have served valuable 
policy formation and coordination functions abroad. The development by 
U.S. consumer protection bodies of such networks could provide a useful 
way to replicate the success achieved in other jurisdictions. Other 
useful measures would include the creation of a regular program of 
secondments in which the leading agencies in the United States--federal 
and state bodies, alike--would swap personnel to build familiarity with 
the partner institutions and help create the trust and understanding 
that improve cooperation.
    The Subcommittee's oversight activities can be a valuable means for 
guiding the FTC and other consumer protection bodies agencies to 
cooperate more extensively in ways that pool experience and knowledge 
and enable Federal and state officials to get the greatest value from 
their consumer protection expenditures and respond more quickly and 
effectively to fraud and patterns of misconduct. The Subcommittee might 
help foster the expansion and formalization of interagency contacts 
through secondments, the formation of working groups, and the creation 
of U.S. equivalents of the ECN and the UKCN.
    Promoting agency efforts to expand their existing impact evaluation 
programs--especially common evaluation exercises performed by federal, 
state, and local agencies, could be one part of a broader effort by 
Congress to support efforts to evaluate the effects of past antitrust 
cases--especially those with significance for the digital marketplace. 
Committee hearings could provide a regular forum in which agency 
officials, practitioners, and academics examine the effects of 
completed matters. Committees could cooperate with universities and 
think tanks to hold programs that study past experience. One step in 
this direction might be for consumer protection agencies to convene an 
event that focuses on lessons learned for consumer protection policy 
from the pandemic experience.
    I also would note that the during the crisis the FTC has formed 
closer alliances with its competition and consumer protection agencies 
overseas. By reason of desperate necessity, the FTC and its foreign 
counterparts have recognized, in a highly practical way, the benefits 
that can flow from pooling knowledge and accounting from policy 
experiments taking place in real time in other jurisdictions. I expect 
a favorable result of the crisis to be that the habit of deeper 
cooperation born out of the crisis will persist and improve 
policymaking in the future.

    Senator Blumenthal. Thanks very much, Professor Kovacic.
    And now Kevin Rhodes.

STATEMENT OF KEVIN H. RHODES, SENIOR VICE PRESIDENT AND DEPUTY 
                  GENERAL COUNSEL, 3M COMPANY

    Mr. Rhodes. Chair Blumenthal, Ranking Member Blackburn, and 
Distinguished Members of the Subcommittee, thank you very much 
for the opportunity to testify today.
    3M appreciates your focus on consumer protection, including 
critical issues of PPE supply chain integrity and public health 
and safety.
    In my role as Senior Vice President and Deputy General 
Counsel with 3M, I am proud to be a leader of 3M's ongoing 
efforts to address fraud, counterfeiting, and price gouging of 
PPE products during the COVID-19 pandemic, most notably 3M's 
N95 respirators.
    Hundreds of 3Mers around the company and across the world 
have joined together to help stop pandemic profiteers seeking 
to take advantage of the tremendous demand for our products in 
unlawful ways.
    Our efforts are designed to help healthcare workers, first 
responders, and others on the front lines of the fight against 
COVID-19 get the genuine 3M N95 respirators they need and 
deserve at a fair price.
    Our actions against PPE scams are just a part of 3M's 
overall pandemic response. We are committed to the safety of 
our employees, healthcare workers, and the public. We are 
meeting these commitments by responding to the pandemic from 
all angles.
    We have increased our global manufacturing of PPE products 
to unprecedented levels, making nearly four times as many 3M 
N95 respirators than before the pandemic. In the U.S. alone, we 
are now producing more than 95 million N95 respirators every 
month, thanks to ramped-up production at our facilities in 
Aberdeen, South Dakota, and Dowling, Nebraska, and we are 
partnering with Federal, state, and local governments to help 
ensure our products are getting to where they are needed the 
most.
    With respect to our efforts to address PPE scams, we have 
published a wide variety of online resources and tips to help 
the public spot and avoid fraud, counterfeits, and price 
gouging.
    We have created and staffed hotlines and web intake forms 
around the world to help the public identify authentic 3M 
products from 3M authorized distributors and to report cases of 
suspected wrong-doing. Since the beginning of the pandemic, we 
have processed more than 13,800 of those reports. We have 
referred thousands of them to law enforcement and government 
agencies, and the effectiveness of the investigations and 
actions those law enforcement authorities and agencies have 
taken is a key lesson learned in our view.
    We've also taken legal action directly against wrong-doers. 
3M has filed 33 lawsuits in courts across the country. We have 
won temporary restraining orders, preliminary injunctions, and 
final judgments in multiple cases, putting a stop to the 
defendants' unlawful conduct. In those cases where 3M has 
recovered monetary damages, we are donating all of those 
recoveries to COVID-19-related charities.
    We're also prioritizing the stopping of online scams, as 
Chair Blumenthal mentioned in his opening comments. Those have 
been a key focus of our activities, as well. We have partnered 
with e-commerce and technology companies to remove tens of 
thousands of false or deceptive e-commerce listings, social 
media posts, and websites.
    3M's partnerships with law enforcement and Customs 
authorities have been especially important in addressing the 
problem of counterfeits. In February, the Department of 
Homeland Security announced that its special agents had seized 
11 million counterfeit masks in operations conducted in five 
states. That investigation began with a suspected counterfeit 
report submitted to 3M by a concerned respirator buyer and that 
example's hardly unique.
    Since the beginning of the pandemic raised by law 
enforcement, seizes by Customs authorities around the world and 
other actions have removed more than 38 million counterfeit 
respirators from the market before they can endanger 
unsuspecting wearers.
    3M hopes that by continuing to share our experience, we can 
help in educating the public and in protecting it from further 
scams.
    In my written testimony, I offer a number of lessons 
learned and suggestions in that regard, highlighting the 
effectiveness of private/public partnerships, of consumer 
education, and the need for pandemic preparedness to include 
specific plans and dedicated resources for law enforcement and 
government agencies to respond quickly and effectively to the 
fraud, counterfeiting, and price gouging that unfortunately 
does take place when demand for PPE so far exceeds supply.
    I thank you again for the opportunity to offer these views 
today. 3M is very proud of our hard work as a leading supplier 
of N95 respirators and other PPE that are so important to the 
fight against COVID-19, and of our commitment to continuing to 
help prevent fraud, counterfeiting, and price gouging before it 
starts and to stop it where it is occurring.
    I will be pleased to answer your questions or to supply 
additional information for the record. Thank you very much.
    [The prepared statement of Mr. Rhodes follows:]

Prepared Statement of Kevin H. Rhodes, Senior Vice President and Deputy 
                      General Counsel, 3M Company
    Chair Blumenthal, Ranking Member Blackburn, and Distinguished 
Members of the Subcommittee on Consumer Protection, Product Safety, and 
Data Security of the Senate Committee on Commerce, Science, and 
Transportation, thank you for the opportunity to appear before you 
today.
    Chair Blumenthal, I would especially like to thank you for 
organizing this critically important hearing and for your tireless 
championing of consumer protection. Senator Blackburn and Subcommittee 
Members, your partnership and collaboration with 3M during this 
pandemic is greatly appreciated, and I thank each of you as well.
    3M is grateful for the opportunity to testify on the subject of 
``Curbing COVID Cons: Warning Consumers about Pandemic Frauds, Scams, 
and Swindles.'' By way of introduction, my name is Kevin Rhodes, and I 
am a Senior Vice President and the Deputy General Counsel of 3M 
Company, based in St. Paul, Minnesota. In this role, I am proud to be a 
leader of 3M's ongoing efforts during the COVID-19 pandemic to address 
fraud, counterfeiting, and price gouging of personal protective 
equipment, most notably respiratory protection products. Our efforts 
are designed to help the heroic healthcare workers and first 
responders, who put their lives on the line for others every day, get 
the genuine 3M N95 respirators \1\ they need and deserve at a fair 
price.
---------------------------------------------------------------------------
    \1\ ``N95 respirators'' are filtering facepiece respirators 
approved by the United States National Institute for Occupational 
Safety and Health (NIOSH) as capable of filtering at least 95 percent 
of non-oily particles from the air breathed through the respirator when 
properly selected and worn. See 42 C.F.R. Part 84--Approval of 
Respiratory Protective Devices.
---------------------------------------------------------------------------
About 3M
    Since its founding in 1902 in northern Minnesota as a small-scale 
mining venture, 3M has grown into a global, diversified technology 
company based on science applied to life and bringing innovative new 
products to the market. 3M's vision is to create technologies and 
products that advance every company, enhance every home, and improve 
every life; and today, some 95,000 3Mers work together to create more 
than 60,000 3M products that are used in homes, businesses, schools, 
hospitals, and other industries around the globe.
    Since long before the COVID-19 pandemic, 3M has been a leading 
provider of personal protective equipment (PPE) and medical solutions 
for medical professionals, workers, and the public. Besides the 
disposable N95 respirators that are among 3M's most widely-known 
personal protective equipment products, 3M is also a leading 
manufacturer and supplier of powered-air purifying respirators, 
elastomeric reusable respirators, and self-contained breathing 
apparatuses. In addition, 3M provides other critical products in 
support of the world's pandemic response, including hand sanitizer, 
single patient use stethoscopes, disinfectants, separation and 
purification media used in vaccine manufacturing, oxygenator membranes, 
and disinfecting wipes.
3M's response to the COVID-19 pandemic
    From the outset of the COVID-19 pandemic, 3M has recognized and 
embraced its responsibility to lead in supporting the public health 
response. In March of 2020, Mike Roman, 3M's Chairman of the Board and 
Chief Executive Officer, made clear that 3M's most urgent priority is 
protecting the health and safety of its employees and others:

        3M has a unique and critical responsibility in pandemic 
        preparedness and response--a responsibility I and all our 
        people take very seriously. Our most urgent priority is the 
        safety of our employees, healthcare workers and the public.\2\
---------------------------------------------------------------------------
    \2\ ``3M CEO on COVID-19 response: We have a unique and critical 
responsibility,'' available at https://news.3m.com/English/3m-stories/
3m-details/2020/3M-CEO-on-COVID-19-response-We-have-a-unique-and-
critical-responsibility/default.aspx.

3M has taken these words to heart. 3Mers across the globe have helped 
fulfill 3M's unique and critical responsibility by responding to the 
pandemic from all angles. We have ramped up our United States and 
global manufacturing of disposable respirators and are making nearly 
four times as many 3M N95 respirators than before the pandemic. We are 
helping to ensure those products are getting to where they are needed 
most by frontline workers, partnering not only with our authorized 
distributors, but also directly with Federal and state partners, 
including the Strategic National Stockpile, the Department of Health 
and Human Services, and the Federal Emergency Management Agency. In 
addition, we are aggressively targeting fraud, counterfeiting, and 
price gouging by bad actors seeking to take advantage of the tremendous 
demand for our products during the pandemic.\3\
---------------------------------------------------------------------------
    \3\ For more on these and many more 3M actions to lead in the 
pandemic response, see ``A year of helping fight COVID-19,'' available 
at https://news.3m.com/English/3m-stories/3m-details/2021/-A-year-of-
helping-fight-COVID-19/default.aspx.
---------------------------------------------------------------------------
    Beginning in January of 2020, as we began to see the challenges 
that were coming, 3M began surging its production of N95 and other 
respiratory products to unprecedented levels. We ramped up production 
to full capacity at our factories making respirators in the United 
States and around the world--doubling production within two months. By 
the end of the year, we had manufactured two billion disposable 
respirators globally--more than three times the number we produced in 
2019. 3M also increased our supply of reusable respirators and powered 
air-purifying respirators, which are often suitable alternatives to 
disposable N95 or similar respirators.
    In the United States, 3M quickly moved to full-capacity production 
of N95 respirators, bringing surge manufacturing capacity on line for 
24/7 production at our facilities in Aberdeen, South Dakota; and 
Valley, Nebraska.\4\ 3M also invested in capital and resources to 
increase its United States N95 respirator production, and partnered 
with the Department of Defense, via contracts awarded under the 
authority of the Defense Production Act (DPA), to increase 3M's N95 
respirator manufacturing capacity in the United States. This increase 
in 3M's United States production includes a 120,000-square-foot 
expansion at 3M's manufacturing facility in Aberdeen, South Dakota, 
where 3M has added hundreds of new jobs since the pandemic began. In 
the United States alone, 3M is now manufacturing more than 95 million 
N95 respirators a month--up from 22 million a month prior to the 
pandemic.
---------------------------------------------------------------------------
    \4\ See ``How 3M Plans to Make More than a Billion Masks By End of 
Year,'' available at https://www.bloomberg.com/news/features/2020-03-
25/3m-doubled-production-of-n95-face-masks-to-fight-coronavirus.
---------------------------------------------------------------------------
    With the global demand for N95 respirators and other PPE products 
exceeding the supply available from 3M and other manufacturers since 
early in 2020, wrongdoers have sought to exploit the public health 
emergency and prey on innocent parties through a variety of unlawful 
scams, including fraudulent offers of N95 respirators and other 
products in high demand, counterfeiting, price gouging, and other 
unfair and deceptive practices--all of which undercut the integrity of 
the marketplace and constitute an ongoing threat to public health and 
safety. As explained in more detail below, 3M has launched a global 
effort to help protect the public against these pandemic profiteers and 
their unlawful activities. We have created and made available many 
resources to help purchasers of respirators and the public avoid these 
unlawful schemes. 3M has established and staffed new hotlines and web 
intake forms in the United States and around the world to help 
purchasers and end-users of 3M products identify authentic 3M 
respirators and ensure products are from 3M authorized distributors. 3M 
has published on our website the United States list prices for many of 
the most common models of 3M N95 respirators to help customers identify 
and avoid inflated prices. We have also filed lawsuits in courts across 
the country against wrongdoers, terminated 3M distributors for engaging 
in price gouging or violating 3M policy, and collaborated with 
technology companies to combat online fraud and deceptive trade 
practices. Our partnerships with law enforcement and customs agencies 
around the world, including the United States Department of Homeland 
Security (DHS) and United States Customs and Border Protection (CBP), 
have resulted in raids and seizures that have removed tens of millions 
of counterfeit respirators from the market before they could reach 
unsuspecting users.
Pandemic profiteers: fraud, counterfeiting, and price gouging
    It was not long after the COVID-19 pandemic began that 3M started 
to receive reports of suspected fraud, counterfeiting, and price 
gouging connected with our products. 3M moved quickly to form and 
deploy a dedicated team, including in-house and outside attorneys, 
government affairs staff, and employees from across the company, 
working alongside federal, state, and international law enforcement 
authorities and government officials, to help investigate and take 
action against those involved in these unlawful and unethical 
activities.
    From the outset, many of the reports we investigated involved 
fraudulent schemes offering to sell nonexistent quantities of 3M N95 
respirators to unsuspecting buyers, including local, state or 
provincial, and Federal or national governments. Examples include 
fraudsters claiming to have access to enormous quantities of 3M 
products--sometimes billions or even trillions of respirators, 
representing hundreds or thousands of years of 3M's entire production 
capacity--when in fact they had no business relationship with 3M and no 
access to 3M products. These scammers have taken many approaches to try 
to convince would-be buyers that they have genuine 3M N95 respirators 
to sell. They have impersonated 3M employees, claimed to have the 
ability to place orders directly with 3M factories, and represented 
that they are directly affiliated with 3M as one of our authorized 
channel partners. Often these fraudsters create fake invoices, purchase 
orders, letters, or e-mails purporting to be from 3M or its executives, 
or other forged documents to support their claims of access to 3M and 
its products.
    The targets of these scams are not only private purchasers, but 
also government procurement officials charged with using public funds 
to secure PPE supplies for public sector frontline workers. These 
buyers often have longstanding relationships with 3M authorized 
distributors and 3M has emphasized that these existing supply chains 
are the safest way to secure genuine 3M products. 3M has explained that 
offers of enormous quantities of what are claimed to be 3M respirators 
from new sellers that no one has ever heard of before, or new companies 
that were only formed after the pandemic started, or that have no 
experience in PPE supply, sound too good to be true because they are 
not true.
    The goal of these schemes is to secure payment in advance, before 
the buyer realizes the product does not exist. Thus, the payment terms 
usually include up-front deposits, payments into escrow accounts that 
the purported seller may access, and other schemes designed to allow 
the fraudster to secure funds in advance and then disappear once the 
money is received. In addition to 3M's hotlines offering support to 
verify whether offers are from legitimate sellers, 3M also has 
published a list of common schemes that do not match 3M's business 
practices to help buyers identify and avoid fraudulent offers.\5\
---------------------------------------------------------------------------
    \5\ See https://multimedia.3m.com/mws/media/1860221O/covid-n95-
selling-facts.pdf.
---------------------------------------------------------------------------
    Typically, these schemes also involve price gouging, with the 
selling prices of the purported 3M N95 respirators often being many 
multiples of the prices for authentic 3M respirators from 3M's 
authorized distributors. These price gougers often target government 
procurement officials charged with using precious public funds to 
secure PPE supplies for public sector healthcare workers and first 
responders. To help buyers identify and avoid inflated prices, early in 
the pandemic 3M took the important step of publishing its single-case 
list prices for the most common 3M N95 respirator models sold in the 
United States.\6\
---------------------------------------------------------------------------
    \6\ See https://multimedia.3m.com/mws/media/1862179O/get-the-facts-
n95-respirator-pricing
.pdf.
---------------------------------------------------------------------------
    As the pandemic progressed, reports of counterfeit respirators 
increased. Both the number of counterfeiter manufacturers and the 
quantities of counterfeit products they were offering for sale steadily 
increased as the demand for N95 respirators continued to exceed supply 
and counterfeiters set up manufacturing operations to capitalize on the 
opportunity to make and sell fake products. The counterfeit products 
are often manufactured at scale and for cross-border sales, making it 
difficult to track the source of products being offered for sale to 
end-users in the United States or elsewhere. Although some of the 
counterfeit products may be identified by mistakes in packaging, 
missing straps, strange odors, blocked valves, and other readily-
apparent defects, counterfeiters have become increasingly sophisticated 
since the pandemic began, making their fake respirators more difficult 
to distinguish from authentic 3M products. 3M has responded by 
emphasizing that the best way to avoid counterfeit products is to 
purchase 3M N95 respirators only from 3M authorized distributors, by 
posting tips on how to spot counterfeit products on our website, and by 
publishing counterfeit alerts as we become aware of specific 
information that will assist buyers and users in identifying and 
avoiding counterfeits, such as lists of commonly counterfeited product 
models, product lot codes used by counterfeiters, fake product seals, 
and other ways to spot counterfeit products.\7\
---------------------------------------------------------------------------
    \7\ See https://multimedia.3m.com/mws/media/1934748O/3m-
counterfeit-communication-letter
.pdf; https://multimedia.3m.com/mws/media/1960842O/3m-8210-counterfeit-
communication-letter.pdf; https://multimedia.3m.com/mws/media/1861617O/
avoiding-counterfeit-respirators
.pdf.
---------------------------------------------------------------------------
The dangers of counterfeit respirators
    3M has received questions about the performance of counterfeit 
respirators. The answer is that the performance of these fake products 
is unknown, may be highly variable, and cannot be trusted. There is a 
real danger that they will not provide the level of protection wearers 
expect from genuine 3M N95 respirators. These counterfeit products have 
not been NIOSH approved. They are not tested to see if they meet the 
N95 standard. The people who are making these fakes are not interested 
in testing them to see if they work. They are not interested in making 
high quality products. They are interested in nothing more than 
fraudulent profiteering by making as many as they can as cheaply as 
possible and passing them off as NIOSH approved, genuine 3M 
respirators.
    Genuine 3M N95 respirators contain advanced filter material and are 
designed to be tight fitting, forming a seal with the wearer's face, so 
inhaled air passes through the filter (instead of going around the 
edges). 3M N95 respirators contain proprietary, advanced electrostatic 
microfiber media to capture particles. 3M's unique manufacturing 
process injects an electrostatic charge into the microfibers, which are 
arranged in an open formation, allowing for easier passage of air while 
also enhancing the capture of airborne particles. 3M N95 respirators 
are also designed to seal to the wearer's face--as fit and seal are 
critical to respirator performance. 3M N95 respirators are tested on an 
ongoing basis to ensure they meet filtration efficiency requirements 
and other performance criteria specified in applicable government 
regulations. 3M has strict quality controls and manufacturing standards 
to help ensure the consistent high performance and consistent fit of 
our products.
    Counterfeit respirators, on the other hand, are not designed, 
tested, or approved to ensure they perform as advertised. Counterfeit 
respirators are made by unknown fraudsters, using unknown processes and 
materials, with unknown or nonexistent quality controls. They do not 
come from 3M's supply chain and are not manufactured using 3M's 
proprietary advanced materials or robust quality controls. There is no 
telling how an individual counterfeit respirator will perform because 
counterfeiters have little or no interest in quality control and thus 
there may be tremendous product-to-product variability in fit, 
filtering ability, and performance. Counterfeit products never should 
be trusted to provide respiratory protection for anyone who needs it, 
let alone frontline workers in the fight against the pandemic.
    As the Honorable Alejandro N. Mayorkas, Secretary, United States 
Department of Homeland Security, said about counterfeit respirators 
during a press conference announcing the seizure of more than eleven 
million counterfeits on February 18, 2021, ``Not only do they give a 
false sense of security, but how dangerous is the exposed individual? 
How dangerous is the individual confronting a potential COVID-19 
infection without any protective gear?'' \8\
---------------------------------------------------------------------------
    \8\ ``Feds seize more than 11 million fake N95 masks,'' available 
at https://www.msn.com/en-us/news/us/feds-seize-more-than-11-million-
fake-n95-masks/ar-BB1dMdsF?li=BBnb7Kz.
---------------------------------------------------------------------------
    Counterfeiters are criminals. They have no qualms putting fake 
NIOSH N95 certifications on their products. They have no qualms trying 
to pass their products off as genuine using fake 3M logos and fake 
packaging. They have no qualms deceiving frontline workers counting on 
genuine 3M N95 respirators and do not care whether their products 
provide those frontline workers with protection or not. That is why 3M 
has been so active in communicating the dangers of counterfeit 
respirators. 3M has stressed that avoiding counterfeits starts by 
knowing who is selling what are claimed to be genuine 3M N95 
respirators--in other words, is it really a 3M authorized distributor 
with access to genuine 3M products? 3M has communicated widely that it 
stands ready to help answer that most important question. For anyone 
who has any questions about whether respirators that have been 
purchased or that are being offered for sale are authentic, 3M has the 
resources available to assist in authenticating the product, via our 
anti-fraud hotlines or our 3m.com/covidfraud website.
3M's global response against respirator fraud, counterfeiting, and 
        price gouging
    In March of 2020, 3M launched its global effort against respirator 
fraud, counterfeiting, and price gouging. 3M did so to help protect 
healthcare workers, first responders, and others on the front lines of 
the fight against the COVID-19 pandemic from counterfeit and inferior 
PPE products, to help reduce the money and time wasted by government 
and other procurement personnel on fraud and scams, to address 
exorbitant pricing by those seeking to take advantage of a public 
health crisis for personal gain, and to make sure that 3M's good name 
and reputation are not associated with fraudsters, counterfeiters, or 
other unscrupulous pandemic profiteers.
    Our legal and government affairs functions have joined with 
hundreds of 3M employees across the company and around the world, as 
well as more than 30 law firms representing 3M, to protect public 
health and the PPE supply chains supporting healthcare workers and 
others responding to the pandemic. We track our progress and the 
success of our efforts, regularly publishing updates on our website so 
the public can stay informed and engaged in helping to identify 
unlawful activities, and to deter bad actors by communicating 3M's 
sustained and substantial commitment to finding and stopping their 
misconduct.
    The latest update summary from our 3m.com/covidfraud website, 
showing the results of our efforts to date, is reproduced on the 
following page:\9\
---------------------------------------------------------------------------
    \9\ See https://multimedia.3m.com/mws/media/1862180O/3m-covid-19-
infographic-print-ver
sion.pdf.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    As the infographic indicates, 3M's efforts start with creating 
opportunities for the public to report suspected cases of fraud, 
counterfeiting, and price gouging. We have created and staffed public 
hotlines in the United States and elsewhere around the world to help 
callers identify authentic 3M products, ensure products are from 3M 
authorized distributors, and report cases of suspected wrongdoing. Our 
website also includes intake forms so the public can report cases of 
suspected fraud, counterfeiting, and price gouging. Since the beginning 
of the pandemic, we have processed more than 13,800 reports of 
suspected fraud, counterfeiting, and price gouging from our hotlines 
and web intake forms. Similarly, we have established points of contact 
for government procurement officials to validate third-party offers and 
quotes, and have worked with federal, state, and local procurement 
officials across the country to help determine the validity of PPE 
offers and proposals.
    3M investigates and takes action on these reports in a number of 
ways. Many are referred to law enforcement or other authorities for 
investigation and enforcement. We have referred thousands of cases to 
Federal and state law enforcement, with many leading to criminal or 
civil enforcement actions. 3M has partnered closely with the United 
States Department of Justice COVID-19 Hoarding and Price Gouging Task 
Force (the DOJ Taskforce), a combined effort involving attorneys from 
Main Justice and participants from U.S. Attorney's offices in every 
Federal district. We have reached out to state attorneys general 
offices as well to brief them on our efforts and to establish working 
relationships for information sharing and case referrals.
    The investigatory and enforcement powers of law enforcement have 
greatly enhanced the ability to take effective action based on reports 
3M receives of suspected illegal activities. Price gouging, for 
example, can be addressed effectively via our close partnerships with 
the DOJ Taskforce and state attorneys general. 3M has referred numerous 
reports of suspected price gouging to the DOJ Taskforce and state 
attorneys general for investigation and potential enforcement.\10\
---------------------------------------------------------------------------
    \10\ See, e.g., ``New Jersey Man Arrested For $45 Million Scheme To 
Defraud And Price Gouge New York City During COVID-19 Pandemic,'' 
available at https://www.justice.gov/usao-sdny/pr/new-jersey-man-
arrested-45-million-scheme-defraud-and-price-gouge-new-york-city-
during; ``Santa Monica Woman Admits Price Gouging in Sale of Scarce N95 
Masks She Sold at Huge Markups over List Price During Pandemic,'' 
available at https://www.justice.gov/usao-cdca/pr/santa-monica-woman-
admits-price-gouging-sale-scarce-n95-masks-she-sold-huge-markups.
---------------------------------------------------------------------------
    3M also has filed legal actions directly against wrongdoers. 3M has 
filed 33 lawsuits in Federal courts across the United States and in 
Canada against defendants engaged in fraud, counterfeiting and price 
gouging.\11\ 3M has won 18 temporary restraining orders and 11 
preliminary injunctions from Federal judges across the country putting 
a stop to defendants' unlawful conduct. In 20 of the cases, 3M has 
reached settlements where the defendants agreed to cease their unlawful 
activities immediately and permanently, subject to strict verification 
and disgorgement of ill-gotten profits. In 17 of the cases, 3M has 
recovered monetary damages through court orders or agreements by the 
defendants, and 3M is donating all of those recoveries to COVID-19 
relief charities.
---------------------------------------------------------------------------
    \11\ A list of legal citations to these lawsuits is attached as 
Appendix A.
---------------------------------------------------------------------------
    As an example, it was on April 10, 2020, at the height of the 
pandemic in New York, that 3M filed its first Federal lawsuit, in the 
United States District Court for the Southern District of New York 
against Performance Supply, LLC, a company targeting public officials 
in a fraud and price gouging scheme. Performance Supply offered to sell 
a Purchasing Agent at the New York City Office of Citywide Procurement 
seven million nonexistent 3M N95 respirators for $45 million, 
representing a markup 500 percent higher than 3M list prices. 
Thankfully, New York City officials contacted 3M and we let them know 
the offer was fake. 3M sued and won a temporary restraining order and a 
preliminary injunction, putting a prompt end to the scam.\12\ We also 
shared the information we had discovered with law enforcement 
authorities, who brought criminal charges of conspiring to commit wire 
fraud, wire fraud, and conspiring to violate the DPA against Ronald 
Romano, the owner of Performance Supply.\13\
---------------------------------------------------------------------------
    \12\ See 3M Co. v. Performance Supply, LLC, 458 F. Supp. 3d 181 
(S.D.N.Y. 2020).
    \13\ See ``A Car Salesman, a Macedonian Ex-Minister and a $45 
Million Mask Scheme,'' available at https://www.nytimes.com/2020/05/26/
nyregion/coronavirus-fraud-masks-new-york
.html.
---------------------------------------------------------------------------
    An important element of 3M's enforcement efforts is addressing 
false or deceptive online business practices. 3M has partnered with 
some of the largest e-commerce and technology companies in the world to 
secure the removal of tens of thousands of e-commerce listings with 
fraudulent or counterfeit product offerings, false or deceptive social 
media posts, and deceptive Internet addresses seeking to scam 
unsuspecting buyers.
    A case that illustrates how 3M has collaborated with online 
retailers to stop scams is 3M Co. v. KM Bros Inc., et al., No. 2:20-cv-
05049 MWF (JCx) (C.D. Cal. 2020). This case involved sellers on Amazon 
of fake, defective, and damaged respirators under the 3M name and logo, 
at prices more than 20 times 3M list prices. When buyers complained 
that they had received far fewer items than ordered, that the items 
appeared not to be 3M products, and that the products were damaged and 
in plastic bags rather than regular packaging, Amazon blocked the 
sellers' accounts and 3M filed suit.\14\ A settlement including a 
Consent Judgment and Permanent Injunction put an end to the scam and 
disgorged the Defendants' profits in the amount of $192,000, which 3M 
donated to Direct Relief's COVID-19 Fund for Community Health.\15\
---------------------------------------------------------------------------
    \14\ See 3M Co. v. KM Bros. Inc., et al., No. 2:20-cv-05049 MWF 
(JCx), 2020 WL 8676137 (C.D. Cal. 2020).
    \15\ See ``3M Settles N95 Price-Gouging Claims with Amazon 
Seller,'' available at https://news.bloomberglaw.com/ip-law/3m-settles-
n95-price-gouging-claims-with-amazon-seller.
---------------------------------------------------------------------------
    3M's partnerships with law enforcement and customs authorities 
around the world have been particularly important in addressing the 
problem of counterfeit respirators. This collaboration has helped 
prevent tens of millions of counterfeit respirators from reaching 
frontline workers in the United States and elsewhere. In the United 
States, 3M actively shares information and case referrals involving 
counterfeiting with DHS, through Homeland Security Investigations (HSI) 
and the National Intellectual Property Rights Center (IPR Center), and 
with CBP. An example of this close collaboration is a recent 
investigation that HSI and the IPR Center launched after 3M contacted 
them and shared information that had come in through our fraud 
reporting process. 3M was contacted by a healthcare organization that 
had read a counterfeit alert 3M posted on its website and realized that 
the respirators it had purchased for its doctors and nurses had lot 
codes 3M identified as being used by counterfeiters. The HSI/IPR Center 
investigation identified the source of the counterfeit products and 
culminated in the announcement, on February 17, 2021, that HSI special 
agents had executed multiple criminal search warrants and had seized 11 
million counterfeit masks in operations conducted in five states.\16\ 
That matter is hardly unique: since the beginning of the pandemic, 
raids by law enforcement and seizures by customs authorities around the 
world have removed more than 38 million counterfeit respirators from 
the market before they could endanger unsuspecting wearers.
---------------------------------------------------------------------------
    \16\ See ``DHS prevents millions of counterfeit N95 masks from 
reaching hospital workers, first responders,'' available at https://
www.ice.gov/news/releases/dhs-prevents-millions-counterfeit-n95-masks-
reaching-hospital-workers-first.
---------------------------------------------------------------------------
    As 3M's N95 respirator manufacturing capacity in the United States 
and elsewhere has increased, the gap between supply and demand has 
narrowed, and with that narrowing we have seen a gradual decrease in 
the number of reports we have received of unethical and unlawful 
business practices related to 3M N95 respirators. The volume of reports 
also has decreased as 3M has widely publicized its anti-fraud and anti-
counterfeiting efforts, both to alert potential targets as to the 
nature and risks of these schemes so they can avoid becoming victims, 
and to deter would-be fraudsters by making clear 3M's resolve to find 
and stop their unlawful behavior.\17\ Even with this decrease in the 
volume of reports to our hotlines and website, 3M's commitment to 
helping prevent fraud, counterfeiting, and price gouging before it 
starts and to stop it where it is occurring remains unwavering, and 3M 
will continue these efforts for as long as they are needed to support 
those serving so bravely on the front lines of the COVID-19 response.
---------------------------------------------------------------------------
    \17\ A list of Internet links to press coverage of 3M's efforts to 
address fraud, counterfeiting, and price gouging is attached as 
Appendix B.
---------------------------------------------------------------------------
Lessons learned and suggestions for consideration
    In January 2021, 3M published a white paper, entitled ``Preparing 
Nations and Protecting Lives: Pandemic Preparedness for Citizens and 
Economies,''\18\ setting forth a series of policy recommendations to 
strengthen pandemic preparedness and response. The white paper explains 
how policymakers can help proactively combat fraud and counterfeit PPE 
activity by taking steps to avert PPE demand spikes. The 
recommendations include establishing robust stockpile programs, 
supporting resilient PPE supply chains, and minimizing trade 
restrictions to promote global access to an array of PPE products.
---------------------------------------------------------------------------
    \18\ https://www.3m.com/3M/en_US/worker-health-safety-us/epidemic-
preparedness-and-stockpiling/.
---------------------------------------------------------------------------
    In addition, 3M has learned a number of lessons from its experience 
addressing fraud, counterfeiting and price gouging during the COVID-19 
pandemic, and respectfully offers the following insights for 
consideration by policymakers:

   Even with more robust and secure domestic PPE supply chains, 
        as well as government stockpiles, in a future pandemic the PPE 
        marketplace may struggle to keep up with dramatic spikes in 
        demand, and this will create an opportunity for unscrupulous 
        actors seeking to take advantage of a public health crisis for 
        personal gain. Thus, pandemic preparedness planning should 
        include specific plans and dedicated resources for federal, 
        state, and local governments to respond quickly against fraud, 
        counterfeiting, and price gouging. The DOJ Task Force is an 
        example of rapid and effective mobilization of Federal 
        resources against these unlawful activities. Federal agencies, 
        such as the Federal Trade Commission (FTC), also can play an 
        important role by enforcing existing laws and regulations 
        against fraud, counterfeiting, and price gouging, seeking all 
        available relief to stop and deter these bad actors.

   Close public-private coordination among law enforcement, 
        government agencies, and suppliers of PPE that is subject to 
        fraud, counterfeiting, and price gouging, can be particularly 
        effective in stopping unlawful actors. As I have described, 
        3M's partnership with Federal and state law enforcement and 
        agencies has greatly enhanced the ability to take effective 
        action based on reports 3M receives of suspected illegal 
        activities. Such partnerships that have been effective during 
        the COVID-19 pandemic can serve as a model for securing PPE 
        pandemic response supply chains in the future.

   With respect to counterfeit PPE, much of the counterfeiting 
        appears to be perpetrated by manufacturers producing 
        counterfeit products at scale for export. Once such products 
        enter the United States supply chain, they can be difficult to 
        identify, track, and remove from the marketplace before they 
        get into the hands of healthcare workers and other end users. 
        The most effective way to stop such counterfeits is before they 
        enter the domestic supply chain. The cross-border trade in 
        counterfeit PPE requires multilateral solutions supported with 
        American leadership.

   Public education is important so that potential targets of 
        scams--not only private purchasers, but also government 
        procurement officials charged with using public funds to secure 
        PPE supplies for public sector frontline workers--can identify 
        and avoid being victimized by fraud, counterfeiting, or price 
        gouging. Government agencies, such as the FTC, can play an 
        important role in alerting the public to the threats of fraud 
        and counterfeit PPE.

   In terms of Federal government procurement of PPE supplies, 
        more centralized procurement for Federal agencies could help 
        ensure distribution of supply is appropriately prioritized and 
        could lessen the risks of agencies reaching out to the 
        secondary market to fill urgent orders (e.g., rather than have 
        agencies individually compete for scarce supplies, identify a 
        single agency to serve as ``consolidator'' of orders across 
        agencies, working to secure PPE from trusted suppliers).
                                 * * *
    Chair Blumenthal, Ranking Member Blackburn, and Distinguished 
Members of the Subcommittee, I thank you again for the opportunity to 
offer these views on the subject of ``Curbing COVID Cons: Warning 
Consumers about Pandemic Frauds, Scams, and Swindles.'' 3M is proud of 
our hard work to fulfill our unique and critical responsibility in 
pandemic preparedness and response as a leading supplier of N95 
respirators and other PPE that are so important to the fight against 
the COVID-19 pandemic, as well as our efforts to address the reports of 
fraud, counterfeiting, and price gouging that have arisen in connection 
with these products during the pandemic. 3M very much appreciates the 
interest and engagement by Members of this Subcommittee and their 
staffs on these critical topics of PPE supply chain integrity and 
public health and safety. 3M remains committed to addressing this 
unethical and unlawful activity and to continuing to work with members 
of the Subcommittee, their staffs, and other stakeholders to stop and 
prevent it.
    I will be pleased to answer any questions or to supply additional 
information for the record.
                                 ______
                                 
                               Appendix A
    3M lawsuits alleging COVID-19 related fraud, counterfeiting, and 
price gouging.

   1.  3M Co. v. Shopify Inc., No. cv-20-28883 (Can. Ont. Sup. Ct. Apr. 
        8, 2020)

   2.  3M Co. v. John Doe, No. DC-20-05549 (Dall. Cnty. 193rd Jud. 
        Dist. Apr. 10, 2020)

   3.  3M Co. v. Performance Supply, LLC, No. 1:20-cv-02949 (S.D.N.Y. 
        Apr. 10, 2020)

   4.  3M Co. v. RX2LIVE, LLC, No. 1:20-cv-00263 (E.D. Cal. Apr. 10, 
        2020)

   5.  3M Co. v. Geftico, LLC, No. 6:20-cv-00648 (M.D. Fla. Apr. 14, 
        2020)

   6.  3M Co. v. Hulomil, LLC, No. 3:20-cv-00394 (W.D. Wis. Apr. 28, 
        2020)

   7.  3M Co. v. 1 Ignite Capital, LLC, et al., No. 4:20-cv-00225 (N.D. 
        Fla. Apr. 30, 2020)

   8.  3M Co. v. King Law Center, Chartered, No. 6:20-cv-00760 (M.D. 
        Fla. Apr. 30, 2020)

   9.  3M Co. v. TAC2 Global LLC, No. 8:20-cv-01003 (M.D. Fla. Apr. 30, 
        2020)

  10.  3M Co. v. Zachary Puznak, et al., No. 1:20-cv-01287 (S.D. Ind. 
        Apr. 30, 2020)

  11.  3M Co. v. Zhiyu Pu, et al., No. cv-20-28903 (Can. Ont. Sup. Ct. 
        May 11, 2020)

  12.  3M Co. v. Burris Wollsieffer, et al., No. 2:20-cv-00336 (D. Utah 
        May 29, 2020)

  13.  3M Co. v. Matthew Starsiak, et al., No. 20-cv-01314 (D. Minn. 
        June 5, 2020)

  14.  3M Co. v. Preventative Wellness Consultants LLC, No. 2:20-cv-
        02932 (S.D. Ohio June 5, 2020)

  15.  3M Co. v. KM Bros. Inc., et al., No. 2:20-cv-05049 (C.D. Cal. 
        Jun. 8, 2020)

  16.  3M Co. v. Legacy Med. Supplies, LLC, et al., No. 20-cv-01371 (D. 
        Minn. June 15, 2020)

  17.  3M Co. v. Nexus Med. LLC, et al., No. 1:20-cv-00697 (W.D. Tex. 
        June 30, 2020)

  18.  3M Co. v. Aime LLC, et al., No. 2:20-cv-01096 (W.D. Wash. July 
        15, 2020)

  19.  3M Co. v. G7 Env't LLC, et al., No. 20-cv-08892 (C.D. Cal. Sept. 
        28, 2020)

  20.  3M Co. v. Am. Dental Equip. LLC, No. 5:20-cv-02128 (C.D. Cal. 
        Oct. 9, 2020)

  21.  3M Co. v. Premium Contractor Solution, LLC, No. 3:20-cv-00443 
        (S.D. Ohio Oct. 29, 2020)

  22.  3M Co. v. Dreside, Navitelia Indus. Inc., No. 20-cv-24489 (S.D. 
        Fla. Oct. 30, 2020)

  23.  3M Co. v. Addian, Inc., et al., No. 20-cv-4515 (N.D. Ga. Nov. 4, 
        2020)

  24.  3M Co. v. Cmty. Attire, Inc., No. 20-cv-021250 (C.D. Cal. Nov. 
        6, 2020)

  25.  3M Co. v. Individuals, P'ships, and Unincorporated Ass'ns, No. 
        20-cv-02348 (D. Minn. Nov. 17, 2020)

  26.  3M Co. v. The Perfect Part Inc., et al., No. 20-cv-10540 (C.D. 
        Cal. Nov. 18, 2020)

  27.  3M Co. v. Paylessbeauty, No. 20-cv-10536 (C.D. Cal. Nov. 18, 
        2020)

  28.  3M Co. v. Moonlight Med. Supplies & Equip. LLC, et al., No. 20-
        cv-3664 (N.D. Tex. Dec. 17, 2020)

  29.  3M Co. v. Nationwide Source, Inc., No. 20-cv-02694 (D. Minn. 
        Dec. 30, 2020)

  30.  3M Co. v. SLH Med. Supplies Inc., et al., No. 21-cv-40024 (D. 
        Mass. Feb. 25, 2021)

  31.  3M Co. v. CovCare Inc., et al., No. 21-cv-01644 (E.D.N.Y. Mar. 
        26, 2021)

  32.  3M Co. v. MM Med. Supply, LLC, No. 21-cv-00771 (M.D. Fla. Mar. 
        31, 2021)

  33.  3M Co. v. Ugly Juice, LLC, et al., No. 3:21-cv-02338 (N.D. Cal. 
        Mar. 31, 2021)
                                 ______
                                 
                               Appendix B
Press coverage of 3M's efforts to address fraud, counterfeiting, and 
price gouging.

National Law Review: Respirator Mask Price Gouging and Trademark 
Infringement? Not on 3M's Watch https://www.natlawreview.com/article/
respirator-mask-price-gouging-and-trademark-infringement-not-3m-s-
watch-0

Law 360: Facing COVID 19 scams, companies turn to trademark law https:/
/www.law360.com/technology/articles/1321684/facing-covid-19-scams-
companies-turn-to-trademark-law?nl_pk=d6fd733f-adac-44fb-b79e-
ee82f582357c&utm_source=
newsletter&utm_medium=e-mail&utm_campaign=technology

Law 360: 3M Sues Amazon Seller Over Fake N95 Masks 3M Sues Amazon 
Seller Over Fake N95 Masks

Law 360: 3M Wins Restraining Order In Price-Gouging Case: https://www
.law360.com/lifesciences/articles/1267281

Bloomberg Law: 3M gets more settlements in campaign against mask price-
gouging https://news.bloomberglaw.com/ip-law/3m-gets-more-settlements-
in-campaign-against-mask-price-gouging

Miami Herald `Maker of essentially N95 masks says it's targeting 
Florida's fraudsters and profiteers' https://www.miamiherald.com/news/
politics-government
/state-politics/article242081256.html

Wall Street Journal: 3M Sues Mask Seller for Alleged Price-gouging 
trademark infringement https://www.wsj.com/articles/3m-sues-mask-
seller-for-alleged-gouging-trademark-infringement-11586529025

Wall Street Journal: 3M files lawsuit against merchant selling masks on 
Amazon for 18 times list price https://www.wsj.com/articles/3m-files-
lawsuit-against-merchant-selling-masks-on-amazon-for-18-times-list-
price-11591642637

CNN: 3M sues over another company's marked-up offer to New York City of 
N95 masks https://www.cnn.com/2020/04/10/politics/3m-sues-new-york-
city-n95-masks/index.html

Washington Post: Used car salesman tried to scam New York out of 45 
million N95s https://www.washingtonpost.com/nation/2020/05/27/used-car-
salesman-tried-scam-new-york-out-45-million-n95-masks-he-didnt-have-
feds-say/

New York Times: Bethany Frankel's Dark Journey to Find N95 masks 
https://www.nytimes.com/2020/05/21/technology/bethenny-frankel-medical-
masks-coronavirus.html

New York Times: Company Questions Deal by `Shark Tank' Star to Sell N95 
Masks to Florida https://www.nytimes.com/2020/04/22/us/daymond-john-
n95-masks-florida-3m.html

Good morning America: 3M Warns of counterfeit N95 masks: https://www
.goodmorningamerica.com/news/video/warning-counterfeit-face-masks-
71837474

Fox Business News: 3M lawsuit alleges price gouging https://
www.foxbusiness.com/money/3m-lawsuit-mask-price-gouging-ny

Fox 3M sues KM brothers and preventative wellness over PPE fraud 
https://www.foxbusiness.com/markets/3m-lawsuits-km-brothers-
preventative-wellness

The Hill: 3M claims distributor tried to sell masks to NYC officials 
https://thehill.com/homenews/news/492261-3m-claims-distributor-tried-
to-sell-masks-to-nyc-officials-for-six-times-price

The Verge: 3M sues Amazon storefront that allegedly sold fake N95 masks 
for $23 apiece https://www.theverge.com/2020/6/9/21285364/amazon-
marketplace-mask-price-gouging-n95-3m-ppe

Pioneer Press: 3M alleges price gouging in legal action against 
Canadian company https://www.twincities.com/2020/04/21/3m-alleges-
price-gouging-in-legal-action-against-canadian-company-selling-n95-
masks/

Associated Press: 3M files 18 lawsuits against mask profiteers https://
apnews.com/article/f6f7ca233d85ef59cc89396b1e0779ba

The Guardian: 45M deal for NHS masks collapses among claims https://www
.theguardian.com/society/2020/nov/03/45m-deal-for-nhs-masks-collapses-
amid-claims

Globe and Mail: Giant 3M launches lawsuits in Ontario against PPE 
fraud: https://www.theglobeandmail.com/business/article-us-giant-3m-
launches-lawsuits-in-ontario-several-us-states-to/

Star Tribune: 3M gains another victory in effort to thwart N95 price 
gouging fraud https://m.startribune.com/3m-gains-another-victory-in-
efforts-to-thwart-n95-price-gouging-fraud/572182922/

WCCO/CBS: 3M fighting to keep counterfeit N95s off the frontline 
https://minnesota.cbslocal.com/video/5303990-3m-fighting-to-keep-
counterfeit-masks-off-the-frontline/

DHS Press Release/Story https://www.ice.gov/news/releases/dhs-prevents-
millions-counterfeit-n95-masks-reaching-hospital-workers-first

Associated Press US Government Seizes More than 10 million fake 3M 
brand N95s

The Hill https://thehill.com/policy/national-security/539322-federal-
agents-seize-more-than-11-million-fake-n95-masks

Wall Street Journal https://www.wsj.com/articles/u-s-agents-seize-10-
million-counterfeit-n95-face-masks-11613603061

CNBC DHS seizes 11 million counterfeit 3M N95 masks, more raids to come

CBS Evening News featuring video with 3M VP and General Counsel Kevin 
Rhodes--https://www.cbsnews.com/news/n95-masks-counterfeit-homeland-
security/

The Guardian https://www.theguardian.com/world/2021/feb/17/fake-n95-
masks-coronavirus-usa

CBS: https://minnesota.cbslocal.com/2021/02/15/not-a-problem-that-is-
going-away
-3m-fighting-to-keep-counterfeit-n95-masks-off-the-frontline/

Law 360: WB Mason preyed on buyers with fake 3M masks https://www.law
360.com/articles/1356806/wb-mason-preyed-on-buyers-with-fake-3m-masks-
suit-says

Law 360: 3M makes deal with ex marine over massive N95 scam https://www
.law360.com/articles/1323511/3m-makes-deal-with-ex-marine-over-massive-
n95-mask-scam

Wall Street Journal: 3M Sues Mask Seller for Alleged Gouging Trademark 
Infringement

CNN: 3M Sues In New York City Over Price Gouging of N95 Masks

CNBC: 3m Sues New Jersey Company for Alleged Price Gouging Of Masks

New York Times: 3M Sues Distributor for Alleged Price Gouging of N95 
Respirators in New York

New York Daily News: Lawsuit by 3M accuses NJ business of massive 
price-gouging scam, peddling protective N95 masks at staggering 600 
percent markup

Reuters: 3M Sues New Jersey Distributor Over Alleged Price Gouging of 
N95 Respirators in NYC

The Hill: 3M claims distributor tried to sell masks to NYC officials 
for six times the price

Star Tribune: 3M suit: Distributor tried to sell N95 masks to NYC for 
600 percent above list price

FOX10 News:3M sues over another company's marked-up offer to New York 
City of N95 masks

Star Tribune: 3M suit: Distributor tried to sell N95 masks to NYC for 
600 percent above list price

Bloomberg Law: 3M Sues Unauthorized Vendor for NYC N95 Mask Price-
Gouging

Daily Beast: New Jersey Company Tried to Sell New York Masks at 500 
percent Markup

The Street: Lawsuit Charges New Jersey Company with Price Gouging N95 
Masks

Channel News Asia: 3M sues distributor for alleged price gouging of N95 
respirators in New York

Yahoo Finance: 3M sues Performance Supply alleging illegal price 
gouging of N95 face masks

MSN: 3M sues New Jersey company for alleged price gouging of masks to 
NYC officials

NBC New York: NJ Company Allegedly Tried to Sell Masks to NYC at 600 
percent Markup, Suit Says

Financial Post: 3M Sues for Alleged Price Gouging in New York

FinanzNachrichten.de: 3M Sues Performance Supply Over N95 Mask Price 
Gouging

FOX10 News:3M sues over another company's marked-up offer to New York 
City of N95 masks

Bloomberg Law: 3M Sues Unauthorized Vendor for NYC N95 Mask Price-
Gouging

Florida Post: 3M sues New Jersey company for alleged price gouging of 
masks to NYC officials

    Senator Blumenthal. Thank you, Mr. Rhodes.
    And now Cynthia Alexander remotely. Thank you.

       STATEMENT OF CYNTHIA ALEXANDER, ASSISTANT ATTORNEY

             GENERAL, CONSUMER PROTECTION DIVISION,

              WASHINGTON ATTORNEY GENERAL'S OFFICE

    Ms. Alexander. Thank you, Chair Blumenthal and Ranking 
Member Blackburn and distinguished members of the Committee, 
for this opportunity to testify about COVID scams and how we 
can work together to protect consumers from fraud.
    I'm an Assistant Attorney General in the Consumer 
Protection Division of the Washington State Attorney General's 
Office, and here in Washington State, our courts are fond of 
repeating a quote from the 1914 House Conference Report on the 
FTC Act regarding unfair business practices and the quote is, 
``There is no limit to human inventiveness in this field.''
    I think it's fair to say more than a hundred years on this 
observation is still on point. It certainly is in our state.
    In Washington, as in many other states, the Consumer 
Protection Division of the Attorney General's Office houses a 
Consumer Resource Center that receives complaints from 
consumers about businesses that operate in Washington and 
offers a voluntary complaint resolution process.
    In the early months of the pandemic last year, we began to 
see our complaint volume double. A significant portion of the 
complaints we received related to price gouging or failure to 
refund fees paid for travel or events or memberships that were 
affected by COVID restrictions, but I'm going to focus today on 
a few of the COVID-related scams we've seen in Washington.
    One area of particular concern for our office has been the 
marketing of unsubstantiated COVID treatments. We investigated 
a number of individuals and businesses engaged in this conduct 
and we used a combination of enforcement tools, including cease 
and desist notices from the Attorney General, warning letters 
and lawsuits in our efforts to stop this conduct and protect 
our consumers in Washington.
    For example, early in the pandemic, a Washington company 
began promoting a virus-destroying drink to consumers. The 
company's chief research director said in an e-mail sent to 
Washingtonians, ``I think this drink is so incredibly promising 
for protection from this pandemic that I'm giving it to my 
pregnant wife and 19-month-old daughter daily. So be sure to 
click the link below to get the details.''
    We also received complaints about an allergy clinic that 
was advertising treatments for COVID-19 and when our 
investigator called to ask what treatments they were offering, 
they said immune system boosting.
    These two matters we resolved with a cease and desist 
letter in one case and a warning letter in another case, but we 
did file a lawsuit against an individual who announced on 
Facebook that he had developed a COVID-19 vaccine and offered 
to vaccinate consumers for $400 each, and in the course of the 
investigation, we learned he admitted that he had injected 
about 30 consumers with this product. So the Attorney General 
filed a lawsuit against him in Washington Superior Court that 
resulted in a consent decree that prohibits this kind of 
conduct and required him to provide full restitution to 
consumers for the amounts they paid as well as pay civil 
penalties.
    Now that COVID vaccines have become available, we're seeing 
an increasing number of vaccine-related scams. For example, 
we've become aware of blank or fraudulently completed vaccine 
cards bearing the CDC logo being offered for sale on some 
online platforms and so earlier this month, 46 state attorneys 
generals signed a letter to companies with major online 
platforms expressing these concerns and requesting that the 
companies take immediate action to monitor their platforms for 
these fake vaccine cards, to promptly take down any ads or 
links for them, and to preserve all their records.
    We've also become aware of COVID-19 vaccine survey scams in 
which consumers who have been vaccinated receive a text or an 
e-mail asking them to complete a survey about the vaccine they 
just received and typically the consumers are then offered a 
free reward but asked to pay a nominal shipping fee and then 
they're billed for the fee but never receive an award.
    And then most recently, we've heard about portable COVID 
testing operations in our community that aren't endorsed by 
local or state health departments. These operations have 
apparently set up testing tables in neighborhoods and parks and 
it's been observed by local health officials that the testers 
may be collecting and holding personal information insecurely, 
falsely claiming to be with public health, and despite offering 
free testing, the fine print in their documents that indicate 
that consumers could be billed.
    So these are just a few examples of the types of COVID 
schemes we've seen and so combining consumer fraud requires 
vigilance and persistence and partnership and collaboration 
with other Federal and state enforcement agencies.
    So I want to take just a second to say one important tool 
for us is our collaboration with the FTC and because of that, 
the importance of that partnership, many of the states are very 
interested in the FTC's 13B authority to obtain equitable 
monetary relief.
    Washington joined 28 other states and the District of 
Columbia in filing an amicus brief in the AMG case because our 
enforcement efforts are very much fortified by having a strong 
Federal partner in the FTC and we benefit from the FTC's 
independent authority to obtain redress for consumers.
    It's a critical supplement to the states' efforts because 
the FTC can obtain restitution for consumers for unlawful 
activity that spans multiple states.
    So thank you for the opportunity to testify about these 
important issues, and I'd be happy to answer your questions.
    [The prepared statement of Ms. Alexander follows:]

   Prepared Statement of Cynthia L. Alexander, J.D., Ph.D., Consumer 
       Protection Division, Washington Attorney General's Office
    Chair Blumenthal, Ranking Member Blackburn, and distinguished 
members of the subcommittee, I am pleased to testify before you today 
to discuss protecting consumers from COVID-19-related scams.\1\
---------------------------------------------------------------------------
    \1\ Any opinions expressed in this written statement are mine and 
do not necessarily reflect those of the Washington Attorney General's 
Office.
---------------------------------------------------------------------------
    As the 1914 House Conference Report on the Federal Trade Commission 
Act put it in reference to unfair business practices, ``[t]here is no 
limit to human inventiveness in this field.'' \2\ Our Washington courts 
have frequently repeated this quote in their decisions interpreting 
Washington's Consumer Protection Act,\3\ and, more than 100 years 
later, the COVID-19 pandemic has underscored how incontrovertible this 
observation remains.
---------------------------------------------------------------------------
    \2\ H.R. Conf. Rep. No. 1142, 63d Cong., 2d Sess. 19 (1914).
    \3\ Wash. Rev. Code Sec. 19.86.
---------------------------------------------------------------------------
    In Washington, as in many states, the Consumer Protection Division 
of the Attorney General's Office houses a Consumer Resource Center that 
receives complaints from consumers about businesses that operate in 
Washington, and offers a voluntary complaint resolution process. Before 
the COVID pandemic, our office typically received approximately 17,000 
to 18,000 consumer complaints each year. In 2020, the number of 
consumer complaints we received increased by 50 percent. Indeed, in the 
early months of the pandemic, our complaint volume doubled. In response 
to this spike in complaint volume, the Attorney General initiated new 
processes to ensure that COVID-19-related complaints were reviewed 
immediately, and, where appropriate, acted upon as quickly as possible.
    A significant portion of the COVID-19-related complaints we 
received related to price gouging or failure to refund fees paid for 
travel, events, or memberships affected by COVID restrictions, but I 
will focus my testimony today on COVID-19-related scams we have seen in 
Washington.
    One area of particular concern for our office has been the 
marketing of unsubstantiated COVID-19 treatments. We have investigated 
a number of individuals and businesses engaging in this conduct, and 
used a combination of enforcement tools, including cease and desist 
notices, warning letters, and court filings in our efforts to protect 
Washington consumers.
    For example, early in the pandemic, a Washington company began 
promoting a ``virus destroying drink'' to consumers. The company's 
Chief Research Director stated in an e-mail sent to Washington 
consumers ``I think this drink is so incredibly promising for 
protection from this pandemic that I'm giving it to my pregnant wife 
and 19-month-old daughter daily . . . so be sure to click the link 
below to get the details.'' The Attorney General sent a cease and 
desist notice to the company explaining that misrepresenting the health 
benefits of a product may violate Washington's Consumer Protection Act 
and that the Attorney General would hold those who deceive the public 
with unproven or false statements regarding the effectiveness of COVID-
19 treatments or preventative measure accountable during the emergency. 
The company discontinued its marketing and agreed with us that ``any 
and all confusion around COVID-19 must be avoided.''
    We also received complaints about an allergy clinic that advertised 
testing and treatments for COVID-19 on its website and on postcards 
sent to Washington consumers. Alongside these offers, the clinic 
identified ``tips to help strengthen your immune system,'' including 
various vitamins and supplements. We had an investigator call the 
clinic to inquire about the types of COVID-19 treatments offered, and 
the company representative who answered the phone responded that the 
clinic offered immune system boosting. We sent a warning letter to the 
clinic that explained that advertisements may violate our Consumer 
Protection Act if they represent that a product or service yields a 
health benefit without competent and reliable scientific evidence to 
substantiate those claims. The clinic stopped advertising COVID-19 
treatment after receiving the letter.
    We initiated an investigation into an individual who announced on 
Facebook that he had developed a COVID-19 vaccine and offered to 
vaccinate consumers for $400 each. In the course of the investigation, 
he admitted that he had injected approximately 30 consumer with his 
product. The Attorney General filed a lawsuit against him in Washington 
Superior Court that resulted in a consent decree with injunctive terms 
enjoining him from marketing or selling any substance or product 
represented to have health benefits without sufficient scientific 
evidence to substantiate the claims. He was also required to provide 
full restitution to consumers for amounts they paid for the vaccine and 
pay civil penalties.
    Another category of COVID-19-related complaints we received, 
especially early in the pandemic, involved businesses offering personal 
protective equipment for sale, but failing to deliver the products to 
consumers. In some cases, the businesses credibly explained that supply 
chain disruptions were preventing them from fulfilling orders in a 
timely manner. For example, an online seller of N95 masks explained, in 
response to a cease and desist notice we sent, that it relied on drop 
shipping rather than physical inventory, and was caught off guard when 
the extreme surge in demand for N95 masks caused its supplier to be 
unable to fulfill its orders, and, in turn, its credit card payment 
processor to freeze its accounts. The company provided instructions to 
the Washington consumers who complained to request chargebacks to their 
credit cards.
    Now that COVID-19 vaccines have become available, we are seeing an 
increasing number of vaccine-related scams. For example, we have become 
aware of blank or fraudulently completed vaccine cards bearing the 
Centers for Disease Control and Prevention logo being offered for sale 
on a number of online platforms. On April 1, 2021, 46 state Attorneys 
General signed a letter to Twitter, Shopify, and eBay expressing 
concern about the use of their platforms for the marketing and sale of 
fake COVID vaccine cards. The letter requested that the companies take 
immediate action to (1) monitor their platforms for ads or links 
marketing, selling, or otherwise indicating the availability of blank 
or fraudulently completed vaccine cards; (2) promptly take down ads or 
links identified through that monitoring; and (3) preserve records 
pertaining to any such ads or links. Each company responded with their 
commitment to prevent blank or fraudulently completed vaccine cards 
from being marketed or sold on their platforms.
    We have also become aware of COVID-19 vaccine survey scams in which 
consumers who have been vaccinated receive a text or e-mail asking them 
to complete a survey about the vaccine they received. The consumers are 
offered a free reward but asked to pay a nominal ``shipping'' fee. They 
are billed for the fee but never receive the reward. For example, a 
Washington consumer received a survey about the Moderna vaccine after 
he received that type of vaccine. The consumer was offered entry into 
an Apple iPad giveaway for a shipping payment of $19.99. The consumer 
was actually charged $39.99 and ended up having to cancel his credit 
card.
    Most recently, we have heard about portable COVID-19 testing 
operations not endorsed by local or state health departments. These 
operations have apparently set up testing tables in neighborhoods and 
parks, and even gone door-to-door to consumer homes. Our local public 
health officials have observed that the testers are not using 
appropriate personal protective equipment such as masks, face shields 
or gloves to protect consumers, are collecting and holding personal 
information insecurely, are falsely claiming to be ``with public 
health,'' and, despite signs offering free testing, use paperwork 
indicating in fine print that consumers could be billed.
    Combatting consumer fraud requires vigilance and persistence. I 
expect that we will continue to see new COVID-19-related scams in 
Washington as the pandemic enters the next phase, and we will continue 
to use all of the tools at our disposal to protect our state's 
consumers.
    Because the subcommittee will address, in addition to COVID-19 
scams, the FTC's threatened Section 13(b) consumer redress authority in 
light of the Supreme Court's ruling in AMG Capital Management, LLC v. 
FTC,\4\ I will briefly mention the importance of the restitution remedy 
for our state enforcement efforts.
---------------------------------------------------------------------------
    \4\ No. 19-508, 2021 WL 1566607 (U.S. Apr. 22, 2021).
---------------------------------------------------------------------------
    The Washington Consumer Protection Act confers broad equitable 
power on our trial courts to fashion appropriate equitable remedies, 
including authorizing restitution of ``moneys or property . . . which 
may have been acquired by means of any act . . . prohibited or declared 
to be unlawful'' by the Act.\5\ Washington case law provides that 
restitution may be measured the defendant's unlawful gain.\6\ Thus, 
restitution ``not only restores the property to the party but insures 
future compliance where it is assured a wrongdoer is compelled to 
restore illegal gains.'' \7\
---------------------------------------------------------------------------
    \5\ Wash. Rev. Stat. 19.86.080(2).
    \6\ See, e.g., State v. LG Electronics, Inc., 185 Wash. App. 123, 
144 n.33, 340 P.3d 915 (2014), aff'd, 186 Wash.2d 1, 375 P.3d 636 
(2016).
    \7\ State v. Ralph Williams' North West Chrysler Plymouth, Inc., 82 
Wash.2d 265, 277, 510 P.2d 233 (1973)
---------------------------------------------------------------------------
    Washington joined 28 other states and the District of Columbia in 
filing an amicus curiae brief in the AMG Capital Management case. The 
brief explained the states' interest in the FTC's authority to seek 
restitution under Section 13(b) of the Federal Trade Commission Act. 
The States and the District of Columbia explained that the states' 
enforcement efforts are fortified by having a strong Federal partner in 
the FTC. Although each state authorizes its attorney general or other 
state agency to seek restitution to remedy anticompetitive, unfair, or 
deceptive practices, the states benefit from the FTC's independent 
authority to investigate and redress violations of Federal law. The 
FTC's authority to seek restitution is a critical supplement to the 
states' efforts because it is able to efficiently obtain redress for 
consumers affected by unlawful activity that spans multiple states. As 
the amicus brief explained, without the FTC acting to obtain 
restitution for consumers nationwide, every state touched by an 
incident of cross-border wrongdoing would need to file suit or risk 
leaving victims uncompensated and wrongdoers inadequately deterred.
    The combined efforts of Federal and state regulators create a 
powerful deterrent effect. Restitution deters unlawful conduct because 
individuals and businesses are more likely to comply with the law if 
they face the possibility of being compelled to return their illegal 
gains.
    Thank you for the opportunity to testify about these important 
issues, and I would be happy to answer your questions.

    Senator Blumenthal. Thanks very much, Ms. Alexander.
    And now to Bonnie Patten of Truth in Advertising. Thank you 
for being here.

               STATEMENT OF BONNIE PATTEN, CEO, 
                      TRUTH IN ADVERTISING

    Ms. Patten. Chairman Blumenthal, Ranking Member Blackburn, 
Members of the Subcommittee, on behalf of Truth in Advertising, 
I welcome the opportunity to appear before you to highlight 
deceptive marketing schemes that have arisen during this 
pandemic and to sound the alarm that the worst is ahead of us 
as the FTC is now powerless to claw back ill-gotten gains from 
wrong-doers under Section 13(b) of the FTC Act.
    Tina.org is a nonpartisan/nonprofit consumer advocacy 
organization whose mission is to combat deceptive advertising 
and consumer fraud.
    The list of deceptively marketed products and services 
exploiting this pandemic that Truth in Advertising is tracking 
is extensive. CBD products marketed to military veterans as a 
coronavirus treatment, wellness centers targeting first 
responders with IV vitamin drips to protect against COVID-19, 
Amazon and eBay sellers falsely claiming that their PPE is FDA-
approved, and sham wellness kits targeting seniors.
    The number of scams has been so prolific that the FDA and 
FTC have had to issue more than 350 warnings pertaining to 
fraudulent coronavirus tests, treatments, and vaccines.
    Unfortunately, the deception does not stop with outrageous 
health claims. Many are exploiting the economic desperation 
wrought by this pandemic. Multilevel marketing companies 
claiming that people can earn full-time pay working part time, 
lending companies deceptively using the CARES Act to exploit 
debt-ridden college students, vaccine survey scams stealing 
personal information and money, and imposter scams where 
fraudsters contact grieving families under the auspices of the 
Funeral Assistance Program to steal personal data.
    To make matters worse, the FTC has lost a mainstay of its 
enforcement authority, the ability to make victims whole under 
Section 13(b). We must not lose sight of the fact that AMG 
directly impacts more than 4.5 million struggling Americans in 
all 50 states.
    This decision permits loan shark AMG to pocket $1.3 billion 
that it stole from constituents in your communities. These 
victims needed money to pay their rent, to put food on their 
table, and now they're left with nothing pursuant to this 
decision, and the victims of AMG are not alone.
    Another 2.7 million consumers illegally enrolled in credit 
monitoring services will not see a penny of the $5.3 million 
ordered in restitution in the credit bureau case.
    Likewise, consumers who were charged hundreds of millions 
of dollars as a result of Abbvie's use of sham litigation to 
illegally maintain monopoly will not see any refunds. In fact, 
in the Abbvie trial court decision which awarded the FTC $448 
million, the judge stated that if equitable relief was not 
permitted in 13B cases, ``this interpretation would eviscerate 
the FTC Act.''
    That's just three cases. The FTC has approximately 75 13B 
cases currently pending with more than $2 billion in exposure, 
including the antitrust case against Facebook. Unless Congress 
acts to fix 13B, many of these cases will simply disappear and 
our senior citizens, our military veterans, struggling parents, 
and honest business owners will likely pay the price.
    During these unprecedented times, it is imperative that the 
FTC not only quickly stop deceptive marketing as soon as 
possible but also expeditiously return ill-gotten gains to 
victims. At present, the FTC simply cannot do that and as a 
result, your constituents and the honest businesses in your 
communities will suffer the consequences. Congress must provide 
a broad and permanent 13B fix.
    Thank you and I look forward to answering your questions.
    [The prepared statement of Ms. Patten follows:]

            Prepared Statement of Truth in Advertising, Inc.
I. Introduction
    Chairman Blumenthal, Ranking Member Blackburn, and Members of the 
Subcommittee, on behalf of Truth in Advertising (TINA.org), I welcome 
the opportunity to appear before you to highlight fraudulent and 
deceptive marketing schemes that have arisen during this unprecedented 
crisis, and to sound the alarm that the worst is yet to come as the 
Federal Trade Commission is now powerless to claw back ill-gotten gains 
from wrongdoers under Section 13(b) of the FTC Act.\1\
---------------------------------------------------------------------------
    \1\ See AMG Capital Mgmt., LLC, et al., v. Fed. Trade Comm'n, No. 
19-508, slip op. (U.S. Apr. 22, 2021)), https://www.supremecourt.gov/
opinions/20pdf/19-508_l6gn.pdf. Moreover, it is important to note that 
even the most rigorous of laws are of little value if the agency 
responsible for enforcing them does not have the means or resources to 
properly police the marketplace. Given the FTC's limited resources, its 
current ability to oversee a multitrillion-dollar marketplace and 
protect more than 320 million consumers is clearly hampered. And while 
Congress recently appropriated additional funds to the FTC, the 
Commission still remains significantly under-resourced and over-
leveraged, as Acting Chairwoman Rebecca Slaughter noted in her April 
20, 2021 testimony before the United States Senate Committee on 
Commerce, Science, and Transportation Hearing on Strengthening the 
FTC's Authority to Protect Consumers. As she noted, ``[e]ven before the 
recent merger wave, we were averaging twice as many annual merger 
filings as we had been ten years ago, while our employee count remained 
flat. In fact, we had 50 percent more employees at the beginning of the 
Reagan administration as we do today. And our filing rates keep going 
up. On the consumer protection side, there is similar growth in both 
breadth and depth of problems in the markets, especially digital 
markets, that require enforcement. But our ability to keep up with this 
volume of work against large, sophisticated companies without 
substantial increases in resources will be limited.''
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    Strengthening the Federal Trade Commission's Authority to Protect 
Consumers: Hearing Before the Comm. on Commerce, Science, and Transp., 
117th Cong. 2-3 (2021) (statement of Rebecca Kelly Slaughter, Acting 
Chairwoman, Fed. Trade Comm.), https://www.ftc.gov/system/files/
documents/public_statements/1589184/
opening_statement_april_20_senate_oversight_hear
ing_420_final.pdf. In short, unless more funding is allocated, it is 
impractical to think that the FTC can do more.
    My organization, TINA.org, is a nonpartisan, nonprofit consumer 
advocacy organization whose mission is to combat deceptive advertising 
and consumer fraud; we work with businesses and government agencies on 
behalf of consumers to effectively prevent and stop deception in our 
economy.
    The central premise of modern consumer protection laws is that 
marketplace dishonesty causes harm to consumers and businesses alike; 
and, if left unchecked, such behavior impairs the efficient allocation 
of resources in our economy.\2\ There can be no doubt that the ongoing 
pandemic has exacerbated the ever-present dangers of deceptive and 
unfair acts and practices in the marketplace. TINA.org has heard from 
countless consumers--senior citizens, military veterans and struggling 
parents--whose experiences illustrate the fact that deceptive marketing 
is putting the health, financial well-being and safety of our most 
susceptible populations at risk. And compounding these issues is the 
fact that communities of color and lower income communities have been 
disproportionately impacted by fraudulent marketing and misinformation 
concerning COVID-19.\3\
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    \2\ Jeff Sovern, Six Scandals: Why We Need Consumer Protection Laws 
Instead of Just Markets, St. John's Legal Studies Research Paper No. 
21-0001 (2021), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3765745.
    \3\ See, e.g., Ryan Zamarripa and Lorena Roque, Latinos Face 
Disproportionate Health and Economic Impacts From COVID-19, Center for 
American Progress (Mar. 5, 2021), https://www.americanprogress.org/
issues/economy/reports/2021/03/05/496733/latinos-face-disproportionate-
health-e conomic-impacts-covid-19/; Poll: 61 percent of U.S. households 
with children report facing serious financial problems during the 
coronavirus outbreak, Harvard T.H. Chan School of Public Health (Sept. 
30, 2020), https://www.hsph.harvard.edu/news/press-releases/poll-61-of-
u-s-households-with-children-report-facing-serious-financial-problems-
during-the-coronavirus-outbreak/ (``Many of these problems are 
concentrated among Black and Latino households with children, 
households with children that have annual incomes below $100,000, and 
households with children that have experienced job or wage losses since 
the start of the outbreak.''); Margery Austin Turner and Monique King-
Viehland, Economic Hardships from COVID-19 Are Hitting Black and Latinx 
People Hardest. Here Are Five Actions Local Leaders Can Take, Urban 
Institute (Aug. 12, 2020), https://www.urban.org/urban-wire/economic-
hardships-covid-19-are-hitting-black-and-latinx-people-hardest-here-are 
-five-actions-local-leaders-can-take; Brandi Collins-Dexter, Canaries 
in the Coal Mine: COVID-19 Misinformation and Black Communities, 
Shorenstein Center on Media, Politics and Public Policy, John F. 
Kennedy School of Government, Harvard University (June 24, 2020), 
https://shorensteincenter.org/canaries-in-the-coal-mine/ (``Even as 
Black people are disproportionately dying from the virus due to 
systemic racism, harmful inaccuracies about how to keep from 
contracting COVID-19, how to treat it, and where it comes from are 
metastasizing in Black online spaces, putting people at even greater 
risk.'').
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    The list of deceptively marketed products and services exploiting 
this pandemic is extensive. CBD products marketed to military veterans 
as a coronavirus treatment;\4\ bleach advertised as a liquid cure-
all;\5\ wellness centers targeting first responders with IV vitamin 
drips to protect against COVID-19;\6\ Amazon and eBay sellers falsely 
claiming that their personal protective equipment (PPE) is FDA 
approved;\7\ scammers simply failing to deliver paid-for PPE;\8\ hand 
sanitizers marketed as providing 24-hour protection against COVID-
19;\9\ alleged immunity-boosting supplements targeted at children;\10\ 
risky colloidal silver solutions advertised as having the ability to 
kill the virus from within;\11\ toothpastes and teeth-whitening 
products claiming to prevent COVID-19;\12\ and sham wellness kits 
targeting seniors.\13\ The number of scams has been so prolific that 
the FDA and the FTC have had to issue numerous warnings pertaining to 
fraudulent coronavirus tests, treatments and vaccines.\14\
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    \4\ Fed. Food & Drug Admin. and Fed. Trade Comm'n Warning Letter to 
Patriot Supreme (Oct. 16, 2020), https://www.ftc.gov/system/files/
warning-letters/fda-covid-19-letter-for_our_
vets_llc.pdf.
    \5\ Press Release, The U.S. Dep't of Justice, Justice Dep't Seeks 
to End Illegal Online Sale of Industrial Bleach Marketed as ``Miracle'' 
Treatment for COVID-19 (Apr. 17, 2020), https://www.justice.gov/opa/pr/
justice-department-seeks-end-illegal-online-sale-industrial-bleach-
marketed-miracle-treatment; Fed. Food & Drug Admin. Warning Letter to 
Genesis 2 Church (Apr. 8, 2020), https://www.fda.gov/inspections-
compliance-enforcement-and-criminal-investigations/warning-letters/
genesis-2-church-606459-04082020.
    \6\ IV Therapies and COVID-19: The Drip, Drip, Drip of Deceptive 
Claims, Truth in Advertising, Inc., June 3, 2020, https://
www.truthinadvertising.org/iv-therapies-and-covid-19-the-drip-drip-
drip-of-deceptive-claims/.
    \7\ Face Mask Sellers on eBay Falsely Claim Products Are `FDA 
Approved', Truth In Advertising, Inc., May 13, 2020, https://
www.truthinadvertising.org/face-mask-sellers-on-ebay-falsely-claim-
products-are-fda-approved/. It is often the case that products listed 
for sale in online marketplaces are deceptively advertised. When 
presented with such findings, companies typically point the finger at 
third-party vendors, deny liability, and use Section 230 of the 
Communications Decency Act as a shield. Removing the 230 shield from 
online commercial speech would allow the FTC to hold third-party vendor 
sites accountable.
    \8\ Press Release, The U.S. Dep't of Justice, Michigan Man Charged 
With COVID-19-Related Wire Fraud Scheme (Apr. 28, 2020), https://
www.justice.gov/usao-ndca/pr/michigan-man-charged-covid-19-related-
wire-fraud-scheme.
    \9\ Prompted by TINA.org, Hand Sanitizer Maker Removes COVID-19 
Claims, Truth In Advertising, Inc., May 20, 2020, https://
www.truthinadvertising.org/prompted-tina-org-hand-sanitizer-maker-
removes-covid19-claims/; CATrends: Hand Sanitizers Marketed to Prevent 
Disease, Truth In Advertising, Inc., Apr. 9, 2020, https://
www.truthinadvertising.org/catrends-hand-sanitizers-marketed-to-
prevent-disease/.
    \10\ TINA.org Finds Plexus Deceptively Marketing Supplements for 
Kids, Truth In Advertising, Inc., Aug. 12, 2020, https://
www.truthinadvertising.org/tina-org-finds-plexus-deceptively-marketing-
supplements-for-kids/.
    \11\ Jim Bakker Show Claims Silver Solution Supplement Kills 
Coronavirus, Truth In Advertising, Inc., Feb. 19, 2020, https://
www.truthinadvertising.org/the-jim-bakker-show-claims-silver-solution-
supplement-kills-coronavirus/.
    \12\ Press Release, New York State Attorney General, Attorney 
General James Orders Alex Jones to Stop Selling Fake Coronavirus 
Treatments (Mar. 12, 2020), https://ag.ny.gov/press-release/2020/
attorney-general-james-orders-alex-jones-stop-selling-fake-coronavirus-
treatments; Snow Teeth Whitening, Truth In Advertising, Inc., https://
www.truthinadvertising.org/snow-teeth-whitening/ (last visited Feb. 1, 
2021).
    \13\ Katherine Skiba, Pandemic Scammers Target Older Americans on 
Medicare, AARP, July 8, 2020, https://www.aarp.org/money/scams-fraud/
info-2020/medicare-scams-coronavirus.html.
    \14\ Beware of Fraudulent Coronavirus Tests, Vaccines and 
Treatments, U.S. Food & Drug Admin., www.fda.gov/consumers/consumer-
updates/beware-fraudulent-coronavirus-tests-vacci
nes-and-treatments (last visited Apr. 23, 2021).
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    Unfortunately, the deception does not stop with outrageous health 
claims; many are also exploiting the economic desperation wrought by 
this pandemic: multilevel marketing companies claiming people can earn 
full-time pay working part-time;\15\ lending companies deceptively 
using the CARES Act to exploit college students;\16\ investment scams 
claiming to have patented COVID cures;\17\ financial entities 
pretending to be SBA-authorized lenders to lure in small businesses 
struggling to keep their workers employed;\18\ vaccine survey scams 
stealing personal information and money;\19\ and imposter scams where 
fraudsters contact grieving families under the auspices of the FEMA 
Funeral Assistance Program to steal personal data.\20\
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    \15\ How MLMs Exploit Consumers During A Pandemic, Truth In 
Advertising, Inc., Apr. 27, 2020, https://www.truthinadvertising.org/
how-mlms-exploit-consumers-during-a-pandemic/; Press Release, Fed. 
Trade Comm'n, FTC Sends Warning Letters to Multi-Level Marketers 
Regarding Health and Earnings Claims They or Their Participants are 
Making Related to Coronavirus (Apr. 24, 2020), https://www.ftc.gov/
news-events/press-releases/2020/04/ftc-sends-warning-letters-multi-
level-marketers-regarding-health. MLM companies and their distributors 
are also taking advantage of the pandemic to make inappropriate health 
claims. Mixed Messaging in the MLM Industry Regarding Coronavirus 
Claims, Truth In Advertising, Inc., Apr. 14, 2020, https://
www.truthinadvertising.org/mixed-messaging-in-the-mlm-industry-
regarding-coro
navirus-claims/.
    \16\ Fed. Trade Comm'n Warning Letter to Frank Financial Aid (Nov. 
10, 2020), https://www
.ftc.gov/system/files/warning-letters/covid-19-letter_to_frank.pdf.
    \17\ Press Release, Fed. Trade Comm'n, Southland Man Arrested on 
Federal Charges Alleging Fraudulent Investment Scheme Featuring Bogus 
Claims of COVID-19 Cure (Mar. 25, 2020), https://www.justice.gov/usao-
cdca/pr/southland-man-arrested-federal-charges-alleging-fraudulent-
investment-scheme-featuring.
    \18\ Fed. Trade Comm'n and Small Bus. Admin. Warning Letter to TF 
Group, Inc. d/b/a Taycor Financial (June 22, 2020), https://
www.ftc.gov/system/files/warning-letters/sba-covid-19-letter-
taycor_financial.pdf, Fed. Trade Comm'n Warning Letter to 
sbaddisasterloan.org (June 22, 2020), https://www.ftc.gov/system/files/
warning-letters/sba-covid-19-letter-sbadisasterloan.org_
.pdf.
    \19\ Watch Out for New Vaccine Survey Scams, AARP, https://
states.aarp.org/montana/vaccinesurveyscams (last visited Apr. 23, 
2021).
    \20\ Funeral Assistance FAQ, Fed. Emergency Mgmt. Agency, https://
www.fema.gov/disasters/coronavirus/economic/funeral-assistance/
faq#scams (last visited Apr. 23, 2021); Michelle Singletary, A New FEMA 
Program Offers Up to $9,000 to Help with COVID-19 Funerals. Scammers 
See an Opportunity, Apr. 16, 2021, https://www.washingtonpost.com/
business/2021/04/16/fema-covid-funeral-program-fraud-faq/.
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    And, to make matters worse, the agency primarily charged with 
policing these deceptive acts, the FTC, has now lost a mainstay of its 
enforcement authority--the ability to make victims whole under Section 
13(b) of the FTC Act.\21\ Because Section 13(b) does not specifically 
mention the right to equitable relief when a permanent injunction is 
issued, the Supreme Court has held in AMG Capital Management, LLC, et. 
al. v. Federal Trade Commission that the FTC may not seek restitution 
or disgorgement in any case brought under Section 13(b).\22\
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    \21\ 15 U.S.C. Sec. 53.
    \22\ See AMG Capital Mgmt., LLC, et al., v. Fed. Trade Comm'n, No. 
19-508, slip op. (U.S. Apr. 22, 2021), https://www.supremecourt.gov/
opinions/20pdf/19-508_l6gn.pdf.
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    It is important to remember the facts of AMG and appreciate the 
devastating impact this decision will have on the company's victims. 
AMG was a payday lending scheme that extracted money from people in 
desperate circumstances.\23\ In its appeal, the company did not dispute 
that it violated the law. Instead, it argued that the $1.3 billion it 
stole should be its to keep and the Supreme Court has agreed with AMG. 
The Supreme Court has held that this legislative body fully endorsed 
the notion that wrongdoers should pocket the money they've illegally 
taken when it drafted 13(b).\24\
---------------------------------------------------------------------------
    \23\ Press Release, The U.S. Dep't of Justice, Scott Tucker 
Sentenced To More Than 16 Years in Prison for Running $3.5 Billion 
Unlawful Internet Payday Lending Enterprise (Jan. 5, 2018), https://
www.justice.gov/usao-sdny/pr/scott-tucker-sentenced-more-16-years-
prison-running-35-billion-unlawful-internet-payday (``For more than 15 
years, [AMG's] Scott Tucker . . . made billions of dollars exploiting 
struggling, everyday Americans through payday loans carrying interest 
rates as high as 1,000 percent.'')
    \24\ See AMG Capital Mgmt., LLC, et al., v. Fed. Trade Comm'n, No. 
19-508, slip op. at 14 (U.S. Apr. 22, 2021) (``We must conclude, 
however, that Sec. 13(b) as currently written does not grant the 
Commission authority to obtain equitable monetary relief.''), https://
www.supremecourt
.gov/opinions/20pdf/19-508_l6gn.pdf.
---------------------------------------------------------------------------
    Because the Supreme Court has ruled in AMG's favor, there is an 
urgent need for this Congress to empower the FTC to be able to seek 
equitable relief under Section 13(b). If Congress fails to act, then 
the deceptive marketing practices I have enumerated will only multiply. 
Allowing wrongdoers an absolute right to retain funds under Section 
13(b) is going to make consumers and our economy more vulnerable to 
harm, especially during these unprecedented times.
    Moreover, if Congress truly wants to eradicate the deception that 
is plaguing our economy, it must add to the FTC's toolkit by permitting 
penalty authority over first-time offenders; independent litigation 
authority to obtain civil penalties; a civil penalty fund for victims; 
as well as enhancement of some tools that the FTC already has at its 
disposal, including Administrative Procedure Act (APA) rulemaking 
authority, mandating that funeral homes disclose their pricing lists on 
their websites, requiring companies that use negative-option offers to 
simplify cancellations and provide clearer renewal information, and 
exclude the protection of commercial speech from Section 230 of the 
Communications Decency Act of 1996.\25\
---------------------------------------------------------------------------
    \25\ 47 U.S.C. Sec. 230.
---------------------------------------------------------------------------
    At present, first-time offenders find it economically advantageous 
to ignore initial FTC orders and settlements.\26\ Only when the 
calculus changes such that it becomes economically disadvantageous to 
engage in deceptive marketing and fraud from the outset will there be 
an impetus for all to champion truth in advertising.
---------------------------------------------------------------------------
    \26\ Funeral Assistance FAQ, Fed. Emergency Mgmt. Agency, https://
www.fema.gov/disasters/coronavirus/economic/funeral-assistance/
faq#scams (last visited Apr. 23, 2021); Michelle Singletary, A New FEMA 
Program Offers Up to $9,000 to Help with COVID-19 Funerals. Scammers 
See an Opportunity, Apr. 16, 2021, https://www.washingtonpost.com/
business/2021/04/16/fema-covid-funeral-program-fraud-faq/.
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II. Truth in Advertising, Inc.
    Truth in Advertising (TINA.org) is a nonpartisan, nonprofit 
consumer advocacy organization whose mission is to combat deceptive 
advertising and consumer fraud; promote understanding of the serious 
harms commercial dishonesty inflicts; and work with consumers, 
businesses, independent experts, synergy organizations and government 
agencies to advance countermeasures that effectively prevent and stop 
deception in our economy.
    At the center of TINA.org's efforts is its website, www.tina.org, 
which aims to re-boot the consumer movement for the 21st century. The 
site provides information about common deceptive advertising 
techniques, consumer protection laws and alerts about specific 
deceptive marketing campaigns--such as nationally advertised ``Built in 
the USA'' vans manufactured abroad,\27\ and pillows and essential oils 
falsely marketed as able to treat chronic disease.\28\ The website 
functions as a clearinghouse, receiving consumer complaints about 
suspicious practices, which TINA.org investigates, and, when 
appropriate, takes up with businesses and regulatory authorities. The 
website is a repository of information relating to consumer protection 
lawsuits and regulatory actions.
---------------------------------------------------------------------------
    \27\ Sprinter Summary of Action, https://
www.truthinadvertising.org/sprinter-summary-of-action/ (last visited 
Feb. 1, 2021).
    \28\ MyPillow Summary of Action, https://
www.truthinadvertising.org/mypillow-summary-of-action/ (last visited 
Feb. 1, 2021); doTerra Summary of Action, https://
www.truthinadvertising
.org/doterra-summary-action/ (last visited Feb. 1, 2021); Young Living 
Summary of Action, https://www.truthinadvertising.org/young-living-
summary-action/ (last visited Feb. 1, 2021).
---------------------------------------------------------------------------
    Through its collaborative approach and attention to emerging issues 
and complexities, TINA.org has become a trusted source of expertise on 
matters relating to consumer fraud. TINA.org regularly draws on this 
expertise to advocate for consumer interests before the FTC and other 
governmental bodies and appear as amicus curiae in cases raising 
important questions of consumer protection law.\29\
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    \29\ For example, TINA.org participated as amicus in AMG Capital 
Management., LLC v. Federal Trade Commission. Brief of Amicus Curiae 
Truth In Advertising, Inc. In Support of Respondent, AMG Capital Mgmt., 
LLC v. Fed. Trade Comm'n, No. 19-508 (U.S. Dec. 7, 2020), https://
www.supremecourt.gov/DocketPDF/19/19-508/162934/20201207192719389_19-
508%20
brief.pdf. TINA.org also filed an amici brief in Federal Trade 
Commission v. Quincy Bioscience Holding Co., Inc., which reinstated a 
Section 13(b) suit against a business falsely marketing a dietary 
supplement to the elderly as clinically proven to improve memory. Brief 
of Amici Curiae Truth In Advertising, Inc., AARP, AARP Foundation, 
Advertising Law Academics, and National Consumers League in Favor of 
Appellants and in Support of Reversal, Fed. Trade Comm'n v. Quincy 
Bioscience Holding Co., Inc., 753 Fed. Appx. 87 (2d Cir. 2019) (No. 17-
3745), https://www.truthinadvertising.org/wp-content/uploads/2018/03/
Prevagen_Amici-Curiae-brief.pdf.
---------------------------------------------------------------------------
    Since its inception, TINA.org has filed more than 200 legal 
actions, published more than 1,000 ad alerts, written over 800 news 
articles, and tracked more than 2,000 Federal class actions alleging 
deceptive marketing. Notably, since 2015, state and Federal agencies 
have obtained more than $250 million from wrongdoers based on TINA.org 
legal actions and evidence, and returned millions in ill-gotten gains 
to consumers.
III. Fraud, deception and scams during the COVID-19 crisis
    During this pandemic, consumers nationwide have been inundated with 
deceptive marketing campaigns seeking to exploit and capitalize on the 
global public-health crisis.\30\ While some scams deplete bank accounts 
and retirement savings, others have drastic consequences for consumers' 
health and safety. Undoubtedly the COVID-19 Consumer Protection Act of 
the 2021 Consolidated Appropriations Act, which authorizes the FTC to 
seek civil monetary penalties for deceptive COVID-19 health claims and 
government benefit scams during the pandemic, will help to bring select 
wrongdoers to justice.\31\ But, the Act is severely limited in time and 
scope -failing to capture broad-based economic scams, among other 
things.
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    \30\ FTC COVID-19 and Stimulus Reports, https://public.tableau.com/
profile/federal.trade.
commission#!/vizhome/COVID-19andStimulusReports/Map.
    \31\ COVID-19 Consumer Protection Act of the 2021 Consolidated 
Appropriations Act, Pub. L. No. 116-260, 134 Stat. 1182, Division FF, 
Title XIV, Sec. 1401.
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a. Deceptive health claims
    Deceptive advertising peddling unapproved treatments, cures, and 
preventatives for a virus that has killed more than a half million 
people in the United States \32\ flood the internet. The number of 
scams has been so prolific that the FDA and the FTC have had to issue 
numerous warnings pertaining to fraudulent coronavirus tests, 
treatments and vaccines.\33\ Not only do many of the deceptive ads 
target particularly susceptible populations, including parents of young 
children, first responders, military veterans, senior citizens and 
communities of color, many also promote products that are inherently 
dangerous--some can cause severe health consequences while others are 
advertised as negating the need to follow standard COVID-19 prevention 
and treatment recommendations, thereby increasing the risk that 
consumers contract and spread COVID-19 or fail to obtain medically 
necessary treatment.
---------------------------------------------------------------------------
    \32\ Coronavirus Cases Are Rising Again. See How Your State is 
Doing, NPR, Apr. 22, 2021, https://www.npr.org/sections/health-shots/
2020/09/01/816707182/map-tracking-the-spread-of-the-coronavirus-in-the-
u-s.
    \33\ Beware of Fraudulent Coronavirus Tests, Vaccines and 
Treatments, U.S. Food & Drug Admin., www.fda.gov/consumers/consumer-
updates/beware-fraudulent-coronavirus-tests-vaccin
es-and-treatments (last visited Apr. 23, 2021).
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    Since the initial coronavirus outbreak, TINA.org has invested 
considerable resources to investigate and track such scams.\34\ In 
February 2020, TINA.org wrote about an ingestible silver solution 
falsely marketed as able to kill the coronavirus from within. Not only 
was the treatment claim false, but the marketers also failed to 
disclose the possible risks of consuming silver, which include cancer 
and birth defects.\35\ A few months later, TINA.org outed more than 40 
wellness centers across the country deceptively promoting intravenous 
supplement/vitamin therapies as a way to prevent and treat COVID-19, 
several of which specifically targeted first responders.\36\ Following 
this investigation, TINA.org exposed a multilevel marketing company 
misleadingly marketing supplements as able to boost children's immune 
systems and keep them ``virus free,'' at a time when parents across the 
country were grappling with whether or not to send their children back 
to school.\37\
---------------------------------------------------------------------------
    \34\ A Growing List of Coronavirus Scams, Truth In Advertising, 
Inc., Mar. 16, 2020, https://www.truthinadvertising.org/a-growing-list-
of-coronavirus-scams/.
    \35\ Jim Bakker Show Claims Silver Solution Supplement Kills 
Coronavirus, Truth In Advertising, Inc., Feb. 19, 2020, https://
www.truthinadvertising.org/the-jim-bakker-show-claims-silver-solution-
supplement-kills-coronavirus/.
    \36\ IV Therapies and COVID-19: The Drip, Drip, Drip of Deceptive 
Claims, Truth In Advertising, Inc., June 3, 2020, https://
www.truthinadvertising.org/iv-therapies-and-covid-19-the-drip
-drip-drip-of-deceptive-claims/.
    \37\ TINA.org Finds Plexus Deceptively Marketing Supplements for 
Kids, Truth In Advertising, Inc., Aug. 12, 2020, https://
www.truthinadvertising.org/tina-org-finds-plexus-deceptively-marketing-
supplements-for-kids/. Several other MLM companies and their 
distributors have touted their products as a way to prevent getting 
COVID-19. See, e.g., Herbalife Summary of Action, https://
www.truthinadvertising.org/herbalife-2020-summary-of-action/ (last 
visited Feb. 1, 2021) and Mixed Messaging in the MLM Industry Regarding 
Coronavirus Claims, Truth In Advertising, Inc., Apr. 14, 2020, https://
www.truthinadvertising.org/mixed-messaging-in-the-mlm-industry-
regarding-coronavirus-claims/.
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    TINA.org has also tracked reports of industrial bleach advertised 
under the name ``Miracle Mineral Solution'' as a treatment for COVID-
19,\38\ accounts of CBD products marketed to military veterans as a 
coronavirus treatment,\39\ and Department of Justice cases and civil 
lawsuits regarding toothpastes and teeth-whitening products claiming to 
prevent COVID-19.\40\
---------------------------------------------------------------------------
    \38\ Press Release, The U.S. Dep't of Justice, Justice Dep't Seeks 
to End Illegal Online Sale of Indus. Bleach Marketed as ``Miracle'' 
Treatment for COVID-19 (Apr. 17, 2020), https://www.justice.gov/opa/pr/
justice-department-seeks-end-illegal-online-sale-industrial-bleach-
marketed-miracle-treatment.
    \39\ Fed. Food & Drug Admin. and Fed. Trade Comm'n Warning Letter 
to Patriot Supreme (Oct. 16, 2020), https://www.ftc.gov/system/files/
warning-letters/fda-covid-19-letter-for_our_
vets_llc.pdf.
    \40\ Press Release, New York State Attorney General, Attorney 
General James Orders Alex Jones to Stop Selling Fake Coronavirus 
Treatments (Mar. 12, 2020), https://ag.ny.gov/press-release/2020/
attorney-general-james-orders-alex-jones-stop-selling-fake-coronavirus-
treatments; Snow Teeth Whitening, Truth In Advertising, Inc., https://
www.truthinadvertising.org/snow-teeth-whitening/ (last visited Feb. 1, 
2021).
---------------------------------------------------------------------------
    It is critical to note that while silver shards suspended in 
liquid, bleach, CBD, and toothpaste may sound like suspect COVID-19 
treatments and cure-alls, one must remember that our country--and the 
world--is living through a time of unprecedented uncertainty and fear, 
one that has prompted panic, heightened stress and anxiety levels, and 
exacerbated mental health issues.\41\ Moreover, as a result of historic 
and systemic racism, among other things, communities of color are 
vulnerable targets for fraud and deceptive marketing during this 
pandemic.\42\ Consequently, consumers, desperate to care for themselves 
and their loved ones, are more susceptible to the compelling and 
persuasive marketing tactics used to sell these bogus products.
---------------------------------------------------------------------------
    \41\ Emotional Well-Being and Coping During COVID-19, Univ. of 
California Weill Institute for Neurosciences Dept. of Psychiatry and 
Behavioral Sciences, https://psychiatry.ucsf.edu/coping
resources/covid19 (last visited Feb. 1, 2021); Nirmita Panchal et al., 
The Implications of COVID-19 for Mental Health and Substance Use, Henry 
J. Kaiser Family Foundation, Aug. 21, 2020, https://www.kff.org/
coronavirus-covid-19/issue-brief/the-implications-of-covid-19-for-
mental-health-and-substance-use/; Bilal Javed et al., The Coronavirus 
(COVID-19) Pandemic's Impact on Mental Health, Int. J. Health Plann 
Mgmt., June 22, 2020, https://www.ncbi.nlm.nih.gov/pmc/articles/
PMC7361582/.
    \42\ Brandi Collins-Dexter, Canaries in the Coal Mine: COVID-19 
Misinformation and Black Communities, Harvard Kennedy School 
Shorenstein Center on Media, Politics and Public Policy (2020), https:/
/shorensteincenter.org/wp-content/uploads/2020/06/Canaries-in-the-Coal-
Mine-Shorenstein-Center-June-2020.pdf. (``Even as Black people are 
disproportionately dying from the virus due to systemic racism, harmful 
inaccuracies about how to keep from contracting COVID-19, how to treat 
it, and where it comes from are metastasizing in Black online spaces, 
putting people at even greater risk.'')
---------------------------------------------------------------------------
    The pandemic has also spurred ads deceptively promoting products 
aimed at protecting consumers from the virus. TINA.org stopped the 
maker of alcohol-free hand sanitizers from deceptively claiming that 
its products ``kill'' the coronavirus for up to 24 hours.\43\ Consumers 
have also complained of scammers advertising and selling--but never 
delivering--N95 masks and other PPE.\44\ And a TINA.org investigation 
revealed more than two dozen eBay sellers falsely claiming their face 
masks were ``FDA approved'' or illegally using the FDA's logo on 
product packaging or other marketing to boost sales.\45\ There have 
also been numerous reports of schemes targeting older Americans, 
including the offering of sham ``COVID Wellness Kits'' containing hand 
sanitizer and/or face masks to Medicare beneficiaries in order to steal 
their Medicare numbers and other personal identifying information.\46\
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    \43\ TINA.org's Letter to Everest Microbial Defense, https://
www.truthinadvertising.org/wp-content/uploads/2020/05/4_30_20-TINA-
warning-ltr-to-Everest-Microbial-Defense_Redacted.pdf.
    \44\ Press Release, The U.S. Dep't of Justice, Michigan Man Charged 
with COVID-19-Related Wire Fraud Scheme (Apr. 28, 2020), https://
www.justice.gov/usao-ndca/pr/michigan-man-charged-covid-19-related-
wire-fraud-scheme.
    \45\ Face Mask Sellers on eBay Falsely Claim Products Are `FDA 
Approved', Truth In Advertising, Inc., May 13, 2020, https://
www.truthinadvertising.org/face-mask-sellers-on-ebay-falsely-claim-
products-are-fda-approved/ (last visited Feb. 1, 2021).
    \46\ Katherine Skiba, Pandemic Scammers Target Older Americans on 
Medicare, AARP, July 8, 2020, https://www.aarp.org/money/scams-fraud/
info-2020/medicare-scams-coronavirus.html.
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    These deceptive advertising tactics not only scam consumers out of 
their hard-earned money, but may leave consumers unnecessarily 
vulnerable to the COVID-19 virus. In short, the surge in exploitative 
health schemes employed during this pandemic has risked, and continues 
to risk, the health and safety of consumers across the country.
b. Fraudulent economic claims and imposter scams
    Unfortunately, pandemic-related deception does not stop with 
outrageous health claims; many are also exploiting the economic 
desperation brought on by this pandemic. TINA.org has exposed--in news 
stories,\47\ regulatory complaints \48\ and a warning letter \49\--
numerous MLM companies taking advantage of the pandemic to promote what 
they claim to be lucrative business opportunities despite the fact that 
most people who get involved in multilevel marketing make little to no 
money.\50\
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    \47\ MLMs Continue to Break the Law Despite FTC Warning, Truth In 
Advertising, Inc., Dec. 15, 2020, https://www.truthinadvertising.org/
mlms-continue-to-break-the-law-despite-ftc-warning/.
    \48\ Beautycounter Summary of Action, https://
www.truthinadvertising.org/beautycounter-summary-action/ (last visited 
Feb. 1, 2021).
    \49\ Market America Summary of Action, https://
www.truthinadvertising.org/market-america-summary-action/ (last visited 
Feb. 1, 2021).
    \50\ How MLMs Exploit Consumers During a Pandemic, Truth In 
Advertising, Inc., Apr. 27, 2020, https://www.truthinadvertising.org/
how-mlms-exploit-consumers-during-a-pandemic/; Market America Summary 
of Action, https://www.truthinadvertising.org/market-america-summary-
action/ (last visited Feb. 1, 2021); Beautycounter Summary of Action, 
https://www
.truthinadvertising.org/beautycounter-summary-action/ (last visited 
Feb. 1, 2021). See also Press Release, Fed. Trade Comm'n, FTC Sends 
Warning Letters to Multi-Level Marketers Regarding Health and Earnings 
Claims They or Their Participants are Making Related to Coronavirus 
(Apr. 24, 2020), https://www.ftc.gov/news-events/press-releases/2020/
04/ftc-sends-warning-letters-multi-level-marketers-regarding-health; 
Press Release, Fed. Trade Comm'n, FTC Sends Second Round of Warning 
Letters to Multi-Level Marketers Regarding Coronavirus Related Health 
and Earnings Claims (June 5, 2020), https://www.ftc.gov/news-events/
press-releases/2020/06/second-round-warning-letters-to-mlms-regarding-
coronavirus.
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    TINA.org also sounded the alarm regarding investment news publisher 
Agora, Inc. for exploiting financial uncertainties during the pandemic 
to lure consumers--predominantly senior citizens--into pricey 
newsletter subscriptions with automatic renewals.\51\ There have also 
been reports of lending companies deceptively using the CARES Act to 
exploit debt-laden college students;\52\ financial entities pretending 
to be SBA-authorized lenders to lure in small businesses struggling to 
keep their workers employed;\53\ and investment scams claiming to have 
patented COVID cures.\54\
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    \51\ Agora Coronavirus E-mails, Truth In Advertising, Inc., Mar. 
27, 2020, https://www
.truthinadvertising.org/agora-coronavirus-e-mails/. See also, Fed. 
Trade Comm'n v. Agora Financial, LLC, No. 19-cv-3100 (D. Md.), https://
www.ftc.gov/enforcement/cases-proceedings/182-3116/agora-financial-llc.
    \52\ Fed. Trade Comm'n Warning Letter to Frank Financial Aid (Nov. 
10, 2020), https://www
.ftc.gov/system/files/warning-letters/covid-19-letter_to_frank.pdf.
    \53\ Fed. Trade Comm'n and Small Bus. Admin. Warning Letter to TF 
Group, Inc. d/b/a Taycor Financial (June 22, 2020), https://
www.ftc.gov/system/files/warning-letters/sba-covid-19-letter-
taycor_financial.pdf, https://www.ftc.gov/system/files/warning-letters/
sba-covid-19-letter-sba
disasterloan.org_.pdf.
    \54\ Press Release, The U.S. Dep't of Justice, Southland Man 
Arrested on Federal Charges Alleging Fraudulent Investment Scheme 
Featuring Bogus Claims of COVID-19 Cure (Mar. 25, 2020), https://
www.justice.gov/usao-cdca/pr/southland-man-arrested-federal-charges-
alleging-fraudulent-investment-scheme-featuring.
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    As with the onslaught of deceptive health claims, marketers making 
unsubstantiated financial claims have similarly targeted vulnerable 
populations including retirees, students in debt, and small businesses 
struggling to stay afloat during this pandemic. There have also been 
reports of vaccine survey scams stealing personal identifying 
information and money,\55\ and impost scams where fraudsters contact 
grieving families under the auspices of the FEMA Funeral Assistance 
Program to steal personal data.\56\
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    \55\ Watch Out for New Vaccine Survey Scams, AARP, https://
states.aarp.org/montana/vaccinesurveyscams (last visited Apr. 23, 
2021).
    \56\ Funeral Assistance FAQ, Fed. Emergency Mgmt. Agency, https://
www.fema.gov/disasters/coronavirus/economic/funeral-assistance/
faq#scams (last visited Apr. 23, 2021); Michelle Singletary, A New FEMA 
Program Offers Up to $9,000 to Help with COVID-19 Funerals. Scammers 
See an Opportunity, Apr. 16, 2021, https://www.washingtonpost.com/
business/2021/04/16/fema-covid-funeral-program-fraud-faq/.
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IV. The need for equitable relief under section 13(b) of the FTC Act
    During these extraordinary times, it is imperative that the FTC not 
only stop deceptive marketing as quickly as possible but also 
expeditiously return ill-gotten gains to victims and honest businesses 
struggling to make ends meet. At present, the Commission lacks 
authority to accomplish these twin objectives.
    In 1973, Congress, realizing that the FTC's slow-moving 
administrative regime did not protect consumers from imminent harm and 
deception, added Section 13(b) to the FTC Act to provide the Agency 
with a fast and effective means to halt illegal conduct.\57\ Section 
13(b) provides, in pertinent part, that the FTC ``may seek, and after 
proper proof, the court may issue, a permanent injunction.'' \58\ 
Though the statute does not specifically reference equitable relief, up 
until the Supreme Court's ruling in AMG last week, the majority of 
circuit courts to consider the issue (including the Seventh Circuit 30 
years ago) had held that Section 13(b) implicitly authorized a wide 
range of equitable remedies, including restitution, rescission and 
disgorgement.\59\
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    \57\ See Fed. Trade Comm'n v. Shire, 917 F.3d 147, 155 (3d Cir. 
2019), https://www2.ca3.uscourts.gov/opinarch/181807p.pdf. (``Section 
13(b) thus empowers the FTC to speedily address ongoing or impending 
illegal conduct, rather than wait for an administrative proceeding to 
conclude.'')
    \58\ 15 U.S.C. Sec. 53.
    \59\ After Credit Bureau, the Third Circuit held that Section 13(b) 
of the FTC Act does not permit equitable relief. See Fed. Trade Comm'n 
v. AbbVie Inc., 976 F.3d 327, 376 (3d Cir. 2020), https://
www2.ca3.uscourts.gov/opinarch/182621p.pdf (``If Congress contemplated 
the FTC could sue for disgorgement under Section 13(b), it probably 
would not have required the FTC to show an imminent or ongoing 
violation. That requirement suggests Section 13(b) does not empower 
district courts to order disgorgement.'').
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    The FTC brought its first case for a 13(b) permanent injunction in 
1979. Thereafter, 13(b) became a mainstay of the FTC's enforcement 
program with dozens of cases brought under this section each year--
among them Volkswagen,\60\ Herbalife,\61\ DeVry University,\62\ Office 
Depot \63\ and Uber.\64\ In fact, from 2016 to 2020, the FTC returned 
approximately $1.1 billion to consumers using 13(b).\65\ But now that 
the Supreme Court has held that 13(b) permits wrongdoers the right to 
pocket the monies they have stolen.\66\ As such, the FTC will no longer 
be able to make victims of fraud and deception whole using 13(b).
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    \60\ Press Release, Fed. Trade Comm'n, Volkswagen to Spend up to 
$14.7 Billion to Settle Allegations of Cheating Emissions Tests and 
Deceiving Customers on 2.0 Liter Diesel Vehicles (June 28, 2016), 
https://www.ftc.gov/news-events/press-releases/2016/06/volkswagen-
spend-147-billion-settle-allegations-cheating.
    \61\ Press Release, Fed. Trade Comm'n, Herbalife Will Restructure 
Its Multi-level Marketing Operations and Pay $200 Million For Consumer 
Redress to Settle FTC Charges (July 15, 2016), https://www.ftc.gov/
news-events/press-releases/2016/07/herbalife-will-restructure-its-
multi-level-marketing-operations.
    \62\ Lesley Fair, FTC Case Against DeVry Yields $100 Million 
Settlement, Fed. Trade Comm'n, https://www.ftc.gov/news-events/blogs/
business-blog/2016/12/ftc-case-against-devry-yields-100-million-
settlement.
    \63\ Press Release, Fed. Trade Comm'n, FTC Sending More Than $34 
Million in Refunds to Office Depot Customers (Feb. 20, 2020), https://
www.ftc.gov/news-events/press-releases/2020/02/ftc-sending-more-34-
million-refunds-office-depot-customers.
    \64\ Press Release, Fed. Trade Comm'n, FTC to Send Refund Checks to 
Uber Drivers as Part of FTC Settlement (July 16, 2018), https://
www.ftc.gov/news-events/press-releases/2018/07/ftc-send-refund-checks-
uber-drivers-part-ftc-settlement.
    \65\ Recent FTC Cases Resulting in Refunds, https://www.ftc.gov/
enforcement/cases-proceedings/refunds (last visited Feb. 1, 2021).
    \66\ See AMG Capital Mgmt., LLC, et al., v. Fed. Trade Comm'n, No. 
19-508, slip op. (U.S. Apr. 22, 2021)), https://www.supremecourt.gov/
opinions/20pdf/19-508_l6gn.pdf.
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    Consequently, as the coronavirus pandemic continues to ravage our 
nation, the FTC will be powerless to provide consumers and honest 
businesses with swift and equitable remedies and wrongdoers will no 
doubt be emboldened to exploit this national crisis for their own 
financial gains. Moreover, the Supreme Court decision in AMG's favor 
will have dramatic and dire consequences for the dozens of Section 
13(b) cases the FTC currently has pending.\67\ The FTC's docket 
currently includes its antitrust complaint against Facebook,\68\ 
pyramid scheme cases against Neora \69\ and Success By Health,\70\ its 
case against the makers of the deceptively marketed memory supplement 
Prevagen,\71\ and the action it filed against a house-flipping scam, 
which includes real estate celebrities Dean Graziosi and Scott Yancey 
as defendants.\72\ In all of these 13(b) cases the FTC is now 
foreclosed from seeking monetary relief, even if it prevails.
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    \67\ As of mid-2020, the FTC was a party to 56 Section 13(b) cases 
pending in Federal district court. Brief for the Federal Trade 
Commission, AMG Capital Mgmt. LLC, et al., v. Fed. Trade Comm'n, No. 
19-508 (U.S. Nov. 30, 2020), https://www.supremecourt.gov/DocketPDF/19/
19-508/162011/20201130120930570_19-508bs.pdf.
    \68\ Fed. Trade Comm'n v. Facebook, Inc., No 191-0134 (D.D.C.), 
https://www.ftc.gov/enforcement/cases-proceedings/191-0134/facebook-
inc-ftc-v.
    \69\ Press Release, Fed. Trade Comm'n, FTC Sues Multi-Level 
Marketer Neora, formerly known as Nerium, Alleging it Operates as an 
Illegal Pyramid Scheme (Nov. 1, 2019), https://www.ftc.gov/news-events/
press-releases/2019/11/ftc-sues-multi-level-marketer-neora-formerly-
known-nerium.
    \70\ Press Release, Fed. Trade Comm'n, FTC Acts to Shut Down 
`Success by Health' Instant Coffee Pyramid Scheme (Jan. 16, 2020), 
https://www.ftc.gov/news-events/press-releases/2020/01/ftc-acts-shut-
down-success-health-instant-coffee-pyramid-scheme.
    \71\ Press Release, Fed. Trade Comm'n, FTC, New York State Charge 
the Marketers of Prevagen With Making Deceptive Memory, Cognitive 
Improvement Claims (Jan. 9, 2017), https://www.ftc.gov/news-events/
press-releases/2017/01/ftc-new-york-state-charge-marketers-prevagen-
making-deceptive.
    \72\ Press Release, Fed. Trade Comm'n, FTC Seeks to Add Real Estate 
Inv. Celebrities Dean Graziosi and Scott Yancey as Defendants in Real 
Estate Training Case (Aug. 31, 2020), https://www.ftc.gov/news-events/
press-releases/2020/08/ftc-seeks-add-real-estate-investment-
celebrities-dean-graziosi.
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    And to make matters worse, in 2019, the Third Circuit Court of 
Appeals ruled in FTC v. Shire ViroPharma, Inc. that the FTC cannot seek 
equitable relief under Section 13(b) if the alleged violation occurred 
in the past and the defendant was not ``violating'' or ``about to 
violate'' the law.\73\ As a result, wrongdoers that line their pockets 
with money they have illegally obtained can now sail off into the 
sunset with immunity just as long as they retire their scams before the 
FTC catches up with them.
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    \73\ Fed. Trade Comm'n v. Shire ViroPharma, Inc., 917 F.3d 147 (3d 
Cir. 2019), https://www2.ca3.uscourts.gov/opinarch/181807p.pdf.
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    In order to effectively police wrongdoers and protect consumers and 
honest businesses, legislative action must be immediately taken to give 
the FTC the authority it needs to obtain monetary remedies for past 
acts as well as present ones. The glaring reality is that until 
Congress acts, wrongdoers will be free to steal, lie and cheat their 
way to riches and they will have an absolute right to retain all funds 
they steal from their victims. Every day that goes by without a 13(b) 
legislative fix will undoubtedly negatively impact our economy and have 
a devastating impact on U.S. consumers.
V. Equipping the FTC with independent penalty authority
    The common thread that runs through all scams is the wrongdoers' 
desire for financial gain. While the COVID-19 Consumer Protection Act 
of the 2021 Consolidated Appropriations Act authorizes the FTC to seek 
civil monetary penalties for first-time violations, it is limited in 
time and only addresses deceptive COVID-19 health claims and government 
benefit scams.\74\ The Act fails to cover frauds and deceptions that 
take advantage of the economic devastation wrought by this pandemic 
such as work-from-home scams, phony job offers, pyramid schemes, and 
investment scams.\75\ Equipping the FTC with broad independent penalty 
authority would serve as a valuable deterrent against deliberate, 
egregious violators that are using this pandemic to take advantage of 
some of the most vulnerable populations in our society.
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    \74\ COVID-19 Consumer Protection Act of the 2021 Consolidated 
Appropriations Act, Pub. L. No. 116-260, 134 Stat. 1182, Division FF, 
Title XIV, Sec. 1401.
    \75\ See Emma Fletcher, Income Scams: Big Promises, Big Losses, 
Consumer Protection Data Spotlight, Dec. 10, 2020, https://www.ftc.gov/
news-events/blogs/data-spotlight/2020/12/income-scams-big-promises-big-
losses.
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    The FTC has nationwide jurisdiction and an unparalleled view of the 
landscape. It maintains data on millions of consumer complaints and has 
unique statutory authority to operate across national borders.\76\ Even 
with its finite resources, the FTC is able to undertake investigations 
and develop facts necessary to prove cases against sophisticated 
corporate wrongdoers for large illegalities. But this is where the 
agency's efficacy ends. The FTC's ability to hold offenders accountable 
for their transgressions is sorely lacking.
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    \76\ Since January 2020, the FTC has received more than 450,000 
pandemic-related consumer reports. See FTC COVID-19 and Stimulus 
Reports, Consumer Sentinel Network Reports, https://public.tableau.com/
profile/federal.trade.commission#!/vizhome/COVID-19andStimulusReports/
Map (last visited Apr. 23, 2021).
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    Time and again, the FTC is forced to bring a second action against 
a lawbreaker because the company found it economically advantageous to 
ignore the initial consent agreement \77\ or closing letter.\78\ Not 
only does this waste the FTC's limited resources but it ensures that 
illegal behavior continues to exploit consumers for longer than is 
necessary. Until the FTC has broad, generic authority to turn on the 
penalty switch in appropriate cases, companies will find it highly 
profitable to flout FTC laws.
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    \77\ Facebook entered into a consent agreement with the FTC in 2012 
requiring the social media platform to stop its illegal practice of 
disclosing unauthorized private, identifying user information. See 
Decision and Order, In the Matter of Facebook, Inc., No. 19-cv-2184 
(D.D.C. July 27, 2012), https://www.ftc.gov/sites/default/files/
documents/cases/2012/08/120810facebookdo.
pdf. Unable to penalize Facebook for its transgressions, the FTC only 
obtained a promise that Facebook would abide by the law going forward. 
As this reprimand was effectively toothless, Facebook reverted to its 
deceptive privacy practices, requiring the FTC to file a complaint in 
Federal court in 2019 to hold the platform accountable yet again for 
its failure to follow the law and protect consumers' privacy. See 
Complaint for Civil Penalties, Injunction, and Other Relief, U.S.A. v. 
Facebook, Inc., No. 19-cv-2184 (D.D.C. July 24, 2019), available at 
https://www.ftc.gov/system/files/documents/cases/
182_3109_facebook_complaint_filed_7-24-19.pdf. Only at this point, was 
the FTC able to punish Facebook with a $5 billion penalty. Had the FTC 
been able to penalize Facebook initially, it is likely that consumer 
privacy rights would have been better protected years earlier and 
Facebook less likely to flout the law. See also Strengthening the 
Federal Trade Commission's Authority to Protect Consumers: Hearing 
Before the Comm. on Commerce, Science, and Transp., 117th Cong. 1-2 
(2021) (statement of Rohit Chopra, Comm'n, Fed. Trade Comm.), https://
www.ftc.gov/system/files/documents/public
_statements/1589172/
final_chopra_opening_statement_for_senate_commerce_committee_20210
420.pdf. (``[Google]'s repeated law violations over the last decade 
were frequently met with favorable treatment from the FTC. . . . While 
the FTC is quick to bring down the hammer on small businesses, 
companies like Google know that the FTC is simply not serious about 
holding them accountable. Congress and Commissioners must turn the page 
on the FTC's perceived powerlessness.'')
    \78\ In June 2018, the FTC sent a closing letter to Williams-Sonoma 
following an investigation into the company's marketing of certain 
Chinese-made products as ``Crafted in America.'' Fed. Trade Comm'n 
Closing Letter to Williams-Sonoma, Inc. (June 13, 2018), https://
www.ftc.gov/system/files/documents/closing_letters/nid/musa_williams-
sonoma_closing_letter.pdf. The FTC did not pursue its investigation due 
to the company's corrective actions and assurances that it was an 
isolated error. This representation was false. Between April and May 
2019, TINA.org collected more than 800 examples of products that were 
marketed as made in the USA but were either imported or made with 
imported materials. (Examples collected were drawn from seven of 
Williams-Sonoma's sites--Williams-Sonoma, Williams-Sonoma Home, 
Rejuvenation, Pottery Barn, PBteen, Pottery Barn Kids and West Elm.) As 
a result of these findings, the FTC filed an administrative action 
against Williams-Sonoma, which settled the charges for $1 million. 
Decision, In the Matter of Williams-Sonoma, Inc., No. C-4724 (F.T.C. 
July 13, 2020), https://www.ftc.gov/system/files/documents/cases/
2023025c4724williamssonomaorder.pdf. See also, TINA.org's Petition for 
Rulemaking to Promulgate Regulations for Made in the USA Claims, 
https://www.truthinadvertising.org/wp-content/uploads/2019/08/TINA_org-
Petition-for-Rulemaking-to-Promulgate-Regulations-for-Made-in-the-USA-
Claims.pdf.
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    Further, penalties are a vital necessity in cases in which the 
precise economic harm to consumers is difficult to measure. For 
example, penalty authority could have a major impact on social media 
influencers, who are promoting false and dubious products and services 
during this pandemic and frequently do not disclose their material 
connections to the brands they promote.\79\ TINA.org's investigations 
of the Kardashians,\80\ Ciroc,\81\ and influencers on Instagram who 
received FTC warning letters \82\ are illustrative of the problem. 
Additionally, Senator Blumenthal's efforts to curb dangerous and 
predatory social media marketing targeting children, such as ads 
promoting detox teas, would benefit from broad FTC penalty 
authority.\83\ If companies and influencers were exposed to monetary 
penalties each time a promotional post failed to adequately disclose 
the material connection at issue, social media marketers would be less 
likely to deceive consumers, many of whom are children and young 
adults.\84\
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    \79\ Laura Bradley, How Influencers Are Milking the Coronavirus for 
Clout--and Money, Daily Beast, Mar. 22, 2020 (updated June 23, 2020), 
https://www.thedailybeast.com/how-influencers-are-milking-the-
coronavirus-for-clout-and-money.
    \80\ Kardashian/Jenner et al., Summary of Action, https://
www.truthinadvertising.org/kardas
hian-summary-action/ (last visited Feb. 1, 2021).
    \81\ Ciroc Summary of Action, https://www.truthinadvertising.org/
ciroc-summary-action/ (last visited Feb. 1, 2021).
    \82\ Instagram Influencers Summary of Action, https://
www.truthinadvertising.org/influencers-ftc-complaint-summary-action/ 
(last visited Feb. 1, 2021).
    \83\ Letter from Sen. Richard Blumenthal to the Honorable Joseph 
Simons, Chairman, Fed. Trade Comm. (June 4, 2019), https://twitter.com/
SenBlumenthal/status/1136059843285061
632.
    \84\ Of course, any such legislation should give the FTC discretion 
so that nano-influencers and micro-influencers with smaller followings 
are not treated the same as sophisticated, career influencers who know 
their legal responsibilities.
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    Additionally, even where civil penalties are available for knowing 
violations of trade regulation rules, the Commission is hamstrung in 
its efforts to pursue wrongdoers.\85\ The requirement that the FTC 
refer a complaint for penalties to the Attorney General only leads to 
harmful delays and a misallocation of scarce resources. The current 
inefficient outsourcing of authority should be eliminated and the FTC 
authorized to independently litigate civil penalties.
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    \85\ See 15 U.S.C. Sec. 45(m)(1)(A).
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VI. The need for a civil penalty fund
    The benefits of imposing penalties do not need to stop at deterring 
wrongdoers from repeating illegal acts. If authorized, the FTC could 
use penalty funds to make consumers who have been economically harmed 
monetarily whole again.
    At present, FTC redress is limited to the amount of money it can 
obtain directly from the wrongdoer(s). But because many defendants have 
the means and inclination to dissipate assets through lavish spending, 
bankruptcy protection, hiding funds in inaccessible accounts/locations, 
or are otherwise insolvent, it is often the case that consumers who 
have a right to redress receive pennies on the dollar, if they receive 
anything.\86\ It is for this exact reason that other Federal agencies 
use collected penalty funds to compensate victims, including the 
Consumer Financial Protection Bureau's Civil Penalty Fund \87\ and the 
SEC's Fair Fund.\88\
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    \86\ See, e.g., Stipulated Order for Permanent Injunction and 
Monetary Judgment as to Defendants Carey G. Howe, Anna C. Howe, Shunmin 
Hsu, Ruddy Palacios, and Oliver Pomazi, Fed. Trade Comm'n v. Arete 
Financial Group, et al., No. 19-cv-2109 (C.D. Cal. Sept. 9, 2020), 
https://www.ftc.gov/system/files/documents/cases/
145_order_for_perm._inj._as_to_arete_defs_anna_
howe_2020-09-10.pdf (monetary judgment of $43.3 million partially 
suspended upon surrender of at least $835,000 and additional assets). 
See also, Press Release, Operators of Student Debt Relief Scheme Agrees 
to Pay at Least $835,000 to Settle FTC Allegations (Sept. 9, 2020), 
https://www.ftc.gov/news-events/press-releases/2020/09/operators-
student-debt-relief-scheme-agree-pay-least-835000; Redacted Stipulated 
Order for Permanent Injunction and Monetary Judgment as to Defendants 
Mark Gelvan, Outreach Calling, Inc., Outsource 3000, Inc., and 
Production Consulting Corp., Fed. Trade Comm'n v. Outreach Calling 
Inc., et al., No. 20-cv-7505 (S.D.N.Y. Oct. 26, 2020), https://
www.ftc.gov/system/files/documents/cases/de_42_-_redacted
_order_as_to_gelvan_and_corporations_entered.pdf (monetary judgment of 
$56,023,481, which is partially suspended based on inability to pay.). 
See also, Press Release, FTC Joins Four States in Action to Shut Down 
Alleged Sham Charity Funding Operation That Bilked Millions from 
Consumers (Sept. 16, 2020), https://www.ftc.gov/news-events/press-
releases/2020/09/ftc-joins-four-states-to-shut-down-alleged-sham-
charity-operation; Stipulated Order for Permanent Injunction and 
Monetary Judgment Against Vemma Nutrition Co. Vemma International 
Holdings, Inc. and Benson K. Boreyko, Fed. Trade Comm'n v. Vemma, No. 
15-cv-1578 (D. Ariz. Dec. 20, 2016), https://www.ftc.gov/system/files/
documents/cases/161222_vemma_273-stipulated_final_order_
redacted.pdf ($238 million judgment partially suspended upon payment of 
$470,136). See also, Press Release, Vemma Agrees to Ban on Pyramid 
Scheme Practices to Settle FTC Charges (Dec. 15, 2016), https://
www.ftc.gov/news-events/press-releases/2016/12/vemma-agrees-ban-
pyramid-scheme-practices-settle-ftc-charges.
    \87\ Civil Penalty Fund, Consumer Financial Protection Bureau, 
https://www.consumerfinance
.gov/enforcement/payments-harmed-consumers/civil-penalty-fund/ (last 
visited Feb. 1, 2021).
    \88\ 15 U.S.C. Sec. 7246.
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    For the sake of providing complete and timely consumer redress, 
particularly now when many in our country are in an economic freefall 
and consumers do not have the luxury of time, the FTC should be 
authorized to establish such a consumer reimbursement fund, rather than 
being required to arbitrarily deposit penalties in the U.S. Treasury, 
as is the current practice.\89\
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    \89\ See, e.g., Press Release, Fed. Trade Comm'n, FTC Brings First-
Ever Cases Under the BOTS Act (Jan. 22, 2021), https://www.ftc.gov/
news-events/press-releases/2021/01/ftc-brings-first-ever-cases-under-
bots-act.
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VII. Additional considerations to better protect consumers during the 
        pandemic
    TINA.org would also like to highlight areas of law that may be 
strengthened to better protect consumers during this pandemic.
a. APA rulemaking authority
    The FTC's Section 19 rulemaking authority is seriously hindered by 
unnecessary roadblocks and hurdles imposed by the Magnuson-Moss 
Warranty Federal Trade Commission Improvements Act.\90\ As Jessica 
Rich, former Director of the FTC's Bureau of Consumer Protection, noted 
in testimony focused on safeguarding American consumers during this 
pandemic before the House Subcommittee on Consumer Protection and 
Commerce, ``the rulemaking process set forth in Section 19 is highly 
complex and elongated . . . As a result, most rulemakings under these 
procedures have taken many years--nine in the case of both the Credit 
Practices and Used Car Rules. . . .'' \91\
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    \90\ Magnuson-Moss Warranty--Federal Trade Commission Improvements 
Act, Pub. L. No. 93-637, 88 Stat. 2183 (1975) (codified at 15 U.S.C. 
Sec. Sec. 2301-2312 (2012).
    \91\ Safeguarding American Consumers: Fighting Fraud and Scams 
During the Pandemic: Hearing Before Subcomm. On Consumer Protection and 
Commerce of the Comm. on Energy and Commerce, 117th Cong. 6 (2021) 
(statement of Jessica L. Rich, Distinguished Fellow, Inst. Of 
Technology Law and Policy, Georgetown University Law Center), https://
docs.house.gov/meetings/IF/IF17/20210204/111139/HHRG-117-IF17-Wstate-
RichJ-20210204.pdf.
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    Further, Commissioner Rohit Chopra has noted that establishing FTC 
rules through APA rulemaking authority would be much more efficient, 
and would be more effective than litigating multiple cases on a similar 
subject matter. ``For taxpayers and market participants, the present 
value of net benefits through the promulgation of a clear rule that 
reduces the need for litigation is higher than pursuing multiple, 
protracted matters through litigation.'' \92\ At the same time, APA 
rulemaking authority would enable the Commission to ``establish rules 
through a transparent and participatory process, ensuring that everyone 
who may be affected by a new rule has the opportunity to weigh in on 
it.'' \93\
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    \92\ Comment of Fed. Trade Comm'n Rohit Chopra, Hearing #1 on 
Competition and Consumer Protection in the 21st Century (Sept. 6, 
2018), https://www.ftc.gov/system/files/documents/public_statements/
1408196/chopra_-_comment_to_hearing_1_9-6-18.pdf.
    \93\ Id.
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    In short, the unnecessary hurdles imposed by Magnuson-Moss on the 
FTC's rulemaking ability should be eliminated and the FTC should be 
allowed to use the Administrative Procedure Act more broadly to 
establish necessary rules.
b. Require funeral homes to disclose their pricing online
    More than 565,000 individuals in the United States have died of 
COVID-19.\94\ And the overwhelming grief of family members forced to 
lay their loved ones to rest during this pandemic is exacerbated by the 
fact that funeral service providers are not required to post their 
price lists on their websites. Funeral service providers who advertise 
online should be required by law to post their price lists on their 
websites in order to conform to consumers' shopping behavior and allow 
consumers to meaningfully price-shop from the comfort of their own 
homes before committing to a purchase during such a difficult time.\95\
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    \94\ Coronavirus Cases Are Rising Again. See How Your State is 
Doing, NPR, Apr. 22, 2021, https://www.npr.org/sections/health-shots/
2020/09/01/816707182/map-tracking-the-spread-of-the-coronavirus-in-the-
u-s.
    \95\ Such a rule would also align with stay-at-home recommendations 
during the COVID-19 outbreak. See also TINA.org's Funeral Rule Comment, 
https://www.truthinadvertising.org/wp-content/uploads/2020/06/TINA-
Funeral-Rule-Comment.pdf.
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    Not only are transactions in the funeral industry inherently 
fraught with emotion and stress, they are also ones with which 
consumers tend to have little experience or familiarity and ones that 
require making important and costly decisions under tight time 
constraints. Moreover, such a law would also allow the FTC to more 
easily review funeral homes' sales and business practices without 
imposing any significant burden on the funeral service providers.\96\
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    \96\ See FTC's Media Resources for the Funeral Rule, https://
www.ftc.gov/news-events/media-resources/truth-advertising/funeral-rule 
(last visited Feb. 1, 2021).
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c. Require companies that use negative-option offers to simplify 
        cancelation and 
        provide clearer renewal information
    As U.S. consumers shelter at home during this pandemic, many are 
turning to online shopping for their purchasing needs--from PPE to 
toilet paper to grocery items and medication. Inevitably, some are also 
unintentionally enrolling in unwanted negative-option offers that 
siphon money off of already strained budgets.\97\ Unfortunately, 
deceptive negative-option offers have become a multibillion-dollar 
industry. On a regular basis, consumers find that they have been 
charged for long-forgotten subscriptions,\98\ or that they are unable 
to cancel a trial before being charged. Indeed, losses relating to such 
offers in just 14 cases the FTC pursued over the past decade have 
totaled more than $1 billion.\99\
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    \97\ Consumer complaints (very often from senior citizens) 
concerning negative-option offers are one of the most common types of 
complaints that TINA.org receives. Consumers generally complain about 
unwittingly being enrolled in a negative-option plan and then finding 
it impossible to cancel the subscription.
    \98\ This issue is likely exacerbated, in part, by increasing rates 
of digitization: without a physical item, like a book, arriving in the 
mail, or paying by writing a check, the only indication a consumer may 
have of a long-forgotten, converted subscription is an ambiguously 
labelled, recurring charge on their credit card. See Sophia Wang, One 
Size Does Not Fit All: The Shortcomings of Current Negative Option 
Legislation, 26 Cornell J. L. & Pub. Pol'y 197, 200 (Fall 2016).
    \99\ See Subscription Traps and Deceptive Free Trials Scam Millions 
with Misleading Ads and Fake Celebrity Endorsements, Better Business 
Bureau, 2 (Dec. 2018), https://www.bbb.org/globalassets/local-bbbs/
council-113/media/bbb-study-free-trial-offers-and-subscription-
traps.pdf.
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    Companies that use negative-option offers should be required to (1) 
permit consumer cancelation of negation options in an easy and specific 
manner--at minimum, if the subscription was entered into online, then 
it should be able to be canceled online,\100\ (2) provide timely 
reminders to consumers before recurring charges are initiated,\101\ and 
(3) notify consumers of any material changes to the terms of a 
subscription and provide an opportunity to cancel the subscription 
before the terms go into effect.\102\
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    \100\ ROSCA mandates only that, for goods and services offered on 
the internet, there be ``simple mechanisms for a consumer to stop 
recurring charges,'' but provides no specifics and no requirement that 
cancelation be online. See 15 U.S.C. Sec. 8403(3).
    \101\ When consumers relinquish control, they incur the additional 
burden of tracking their various subscriptions. If a consumer forgets 
about an expiring trial or a recurring charge, it can result in an 
inefficient allocation of consumer resources. Indeed, 48 percent of 
consumers have had a free trial convert to a paid subscription without 
realizing it. See Brady Porche, Poll: Recurring charges are easy to 
start, hard to get out of, Creditcards.com (Aug. 22, 2017), https://
www.creditcards.com/credit-card-news/autopay-poll.php.
    \102\ See TINA.org's Comment to the FTC regarding Negative Option 
Offer Rule, https://www.truthinadvertising.org/wp-content/uploads/2019/
12/12_2_19-comment-to-FTC-re-NOO-Rule.pdf.
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    Moreover, legislation that prohibits marketers from surreptitiously 
tying ``free'' trial offers to future, ongoing charges would be 
beneficial. TINA.org continually receives complaints from consumers who 
report being charged repeatedly after signing up for what they thought 
was a free trial offer.\103\ Unless further action is taken to protect 
consumers, the trend of consumers being unwittingly trapped in 
deceptive trial offers and automatically renewing subscriptions will 
only grow.
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    \103\ Between 2015 and 2017, consumer complaints about free trials 
more than doubled in the U.S. Over that same span, the Better Business 
Bureau identified nearly 37,000 complaints--the average loss being 
$186. The FBI's Internet Crime Complaint Center also recorded a rise in 
complaints about free trial offers between 2015 and 2017, with losses 
totaling more than $15 million over that time span. Corresponding with 
this consumer dissatisfaction, more than 100 Federal class actions have 
been filed on behalf of U.S. consumers complaining about various 
negative option terms and conditions since 2014. And during this same 
time period, the FTC has brought 23 cases under ROSCA and pursued at 
least 5 cases against payment processors linked to deceptive negative 
option and free trial offers. See TINA.org's Comment to the FTC 
regarding Negative Option Offer Rule, https://
www.truthinadvertising.org/wp-content/uploads
/2019/12/12_2_19-comment-to-FTC-re-NOO-Rule.pdf.
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d. Exclude Section 230 of the Communications Decency Act protection for 
        commercial speech
    When Section 230 of the Communications Decency Act was enacted in 
1996, neither Google nor Facebook existed and Amazon had just arrived 
on the scene as an online bookseller. The law was enacted to protect 
young Internet service providers at a time when the Internet was just 
beginning to gain popularity;\104\ protecting multibillion-dollar 
companies from liability for deceptive marketing statements made about 
products sold on their websites and from which they profit was not on 
the agenda.
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    \104\ U.S. Dep't of Justice, Section 230--Nurturing Innovation or 
Fostering Unaccountability?: Key Takeaways and Recommendations (June 
2020), https://www.justice.gov/file/1286331/download.
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    However, fast-forward 25 years, and that is exactly what Amazon, 
Google and others argue--that Section 230 shields them from liability 
for the deceptive marketing statements that lure consumers to purchase 
bogus products sold on their websites by third parties and from which 
these shopping platforms turn a handsome profit. Such unfettered 
impunity has led to widespread deceptive marketing issues online, 
issues that will continue to multiply at an unprecedented rate as 
consumers pivot to online shopping as a result of the COVID-19 
pandemic.\105\
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    \105\ United Nations Conference on Trade Dev., COVID-19 has changed 
online shopping forever, survey shows (Oct. 8, 2020), https://
unctad.org/news/covid-19-has-changed-online-shopping-forever-survey-
shows; Press Release, Research and Mkts., COVID-19 Impact on e-Commerce 
& Online Payments Worldwide, 2020--Online Shopper Penetration Increases 
During the Pandemic (May 29, 2020), https://www.globenewswire.com/news-
release/2020/05/29/2040716/0/en/COVID-19-Impact-on-e-Commerce-Online-
Payments-Worldwide-2020-Online-Shopper-Penetration-Increases-During-
the-Pandemic.html.
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    By way of example, a TINA.org investigation found that Amazon 
actively promotes and profits from more than 100 deceptively marketed 
brain supplements primarily sold to senior citizens on its 
website.\106\ Amazon is not just turning a blind eye to claims that 
these unproven products improve memory, among other purported health 
benefits, it is actively promoting these claims by independently 
publishing its own marketing content to amplify the deceptive marketing 
messages of third-parties.\107\
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    \106\ How Amazon Promotes, Profits from Deceptively Marketed Brain 
Supplements, Truth In Advertising, Inc., Jan. 16, 2020, https://
www.truthinadvertising.org/how-amazon-promotes-profits-from-
deceptively-marketed-brain-supplements/.
    \107\ Deceptive health claims are given increased visibility on the 
website through sponsored search results, designations such as 
``Amazon's Choice'' and ``Editorial recommendations,'' star ratings, 
and other Amazon-specific marketing materials. Amazon also plays an 
important role in the processing of many of these deceptively marketed 
brain supplements, collecting customer shipping information, fulfilling 
orders and even gift-wrapping some items when requested.
---------------------------------------------------------------------------
    Similarly, a TINA.org investigation found that eBay was promoting 
more than two dozen eBay sellers spanning 45 listings that falsely 
claimed their face masks were ``FDA approved'' and/or illegally used 
the FDA's logo to boost sales of their products.\108\ eBay was not only 
allowing the sale of these falsely marketed face masks, it was also 
giving some items greater exposure by listing them as ``sponsored'' or 
``promoted products'' in exchange for a fee.
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    \108\ Face Mask Sellers on eBay Falsely Claim Products are `FDA 
Approved', Truth In Advertising, Inc., May 13, 2020, https://
www.truthinadvertising.org/face-mask-sellers-on-ebay-falsely-claim-
products-are-fda-approved/.
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    To date, online department stores like Amazon and eBay have largely 
succeeded in fending off all attempts to hold them accountable for 
false and deceptive commercial speech on their websites using Section 
230 as their impenetrable defense shield.\109\ Removing this bulwark 
from online commercial speech would allow the FTC to hold online stores 
to the same legal standards as brick and mortar stores, and ensure that 
online websites are held accountable for the deceptive marketing they 
promote and profit from.
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    \109\ A push has begun to remove certain elements of Section 230 
protection from online commercial speech. For example, the Country of 
Origin Labeling Online Act, or COOL Act (S. 3707), which sought to 
require clear disclosure of seller location and country-of-origin 
labeling for products advertised online, was introduced in the 116th 
Congress.
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VIII. Conclusion
    Deceptive marketing and similar forms of commercial dishonesty are 
a scourge of the American economy, inflicting billions of dollars in 
losses to cheated consumers and distorting the efficient allocation of 
resources, rewarding those who hone ingenious frauds and punishing 
honest competitors. Many of the deceptive marketing schemes and frauds 
exploiting the COVID-19 pandemic go well beyond inflicting economic 
injuries--they result in physical harm and, in some instances, even 
death. Consumers are foregoing appropriate preventative measures and 
medically advantageous treatments for useless products that are falsely 
marketed. At this juncture, there is a real risk that the deceptive 
marketing practices enumerated today will only multiple as the agency 
primarily charged with policing these deceptive acts and practices, the 
FTC, lacks the necessary authority to claw back ill-gotten gains, 
punish egregious wrongdoers and fully reimburse victims of fraud.
    TINA.org looks forward to working with the Subcommittee and 
Congress to address the issues articulated above, and I would be happy 
to answer your questions.

    Senator Blumenthal. Thank you very much, Ms. Patten. Thank 
you for that excellent description of the explosion that we're 
seeing in frauds and the vulnerability and lack of enforcement 
that will result from the 13B decision by the Supreme Court 
which could eviscerate large areas of enforcement and that 
challenge to us in Congress has been highlighted by Mr. Kaufman 
and Mr. Kovacic, as well, and certainly it ought to be at the 
top of our priorities as we consider this crisis.
    Ironically, the increasing hope resulting from the vaccines 
has only accelerated the frauds that we're seeing. In fact, 
swindlers have stolen money from senior citizens by promising 
them at-home vaccinations. There have been pitches to schedule 
vaccination appointments and checkups. Committing identity 
theft and counterfeit vaccination cards and fake negative 
results of tests are increasing online.
    So the challenge is not diminishing with our ability to 
potentially conquer the pandemic through increased vaccinations 
and you mentioned, Ms. Patten, the 350 warnings that the FTC 
has directed to companies to remove deceptive claims.
    Mr. Kaufman, let's be very blunt. These warnings are just a 
slap on the wrist. So far the FTC has brought only one case 
under the COVID-19 Consumer Protection Act, and I hope that 
will be a start in increasing vigor by the FTC.
    I agree totally that we need to increase the resources 
available to the FTC, as Mr. Kovacic has emphasized. The 
President is apparently going to seek an $80 billion increase 
for the IRS. I would suggest something comparable for the FTC 
in the way of resources.
    But what plans does the FTC have to use increased penalties 
and criminal referrals?
    Mr. Kaufman. Thank you for the question, Senator.
    We have more cases in the pipeline that will be utilizing 
the new civil penalty authority that Congress has given us. We 
think it's a very important tool that we definitely will be 
utilizing.
    I also do want to mention that the 350 companies that 
received warning letters, we're watching them closely to make 
sure that they don't recur and if they do, we will also be 
bringing law enforcement against them, as well.
    Senator Blumenthal. But if those warning letters and the 
scrutiny are just the cost of doing business, it won't be a 
deterrent to them. Criminal referrals and increased penalties 
are what will put them out of business.
    Mr. Kaufman. I do agree. Increased criminal referral is 
something we do. We have a unit at the FTC, the Criminal 
Liaison Unit, that works with criminal law enforcement 
throughout the country to get them interested in our cases and 
that's something that we can and should do more of.
    Senator Blumenthal. Let me turn to the social media 
platforms. We've all seen the fake cures, the fake PPE, now 
fake vaccination cards.
    Right now for these platforms, there's no cost to inaction. 
They seem to pay attention only when Congress or the state AGs 
thoroughly kick them in the butt and often it takes multiple 
kicks in the butt.
    Let me ask Ms. Patten and Mr. Kovacic. What changes should 
we make in the Section 230 immunity that right now these 
platforms enjoy?
    Ms. Patten. Well, I think that 230 definitely needs some 
fixing. Tina.org's position is that platforms that profit from 
the goods and services that they are deceptively marketing 
should not be able to hide behind that 230 immunity, such that 
the fix that's needed is that if it deals with commercial 
speech in which a platform is making money that they should not 
be able to use 230 at all.
    Senator Blumenthal. Professor Kovacic?
    Mr. Kovacic. Thank you, Mr. Chairman.
    I don't know if it's simply in the context of Section 230, 
but I think it's appropriate through perhaps a variety of 
different legal steps to bring responsibility to bear on the 
intermediaries who are aware or should be aware of the falsity 
of claims that are being made to exercise care in denying the 
use of their platforms to those who make these kinds of claims.
    I'm not sure if 230 is the only specific vehicle to use. I 
haven't spent much of my work studying that carefully, but I 
can think of other legal concepts and principles where we bring 
responsibility to bear on third parties who know or should know 
that the conduct taking place through the medium or vehicle 
that they control is fraudulent and situating responsibility 
with the individual or institution that's in a position to 
control the behavior that's aware that there's serious harm 
that can flow from the behavior, I think it's entirely 
appropriate, and I expect that you and your colleagues will be 
looking at a number of different ways in which this kind of 
responsibility can be brought to bear on a variety of different 
actors, including information platforms.
    Senator Blumenthal. Thanks, Professor Kovacic.
    Senator Blackburn.
    Senator Blackburn. Thank you, Mr. Chairman.
    I find it so interesting Section 230 comes up in so many 
different arenas. So thank you all for that.
    Mr. Rhodes, I want to come to you first. I appreciate your 
comment about pandemic profiteers and thought that was an 
artful term and really a very fitting way to kind of couch some 
of what we've seen taking place online, and we know this 
wasn't--pardon me--our first pandemic. It will not be the last, 
and so education, consumer education is a big part of this 
responsibility.
    So I wish you would talk for just a minute about how you 
all as a corporate entity--pardon me--view your responsibility 
to educate people on how to detect something that is an actual 
real item, authentic, and something that's a fake. Mr. Rhodes, 
yes, thank you.
    Mr. Rhodes. Thank you very much for the question, Ranking 
Member Blackburn.
    So early on in the pandemic, our Chairman of the Board and 
CEO Mike Roman said 3M has a unique responsibility to respond 
to the pandemic from all angles as a leading supplier of 
personal protective equipment, including N95 respirators.
    We have taken that responsibility and those words to heart 
and that includes helping to do what we can to ensure that 
brave frontline workers get genuine products at a fair price 
and part of that is educating, you know, both the public and 
procurement officials as to what we're seeing in the 
marketplace, what we're going after by way of frauds and scams 
and counterfeits and the like.
    So, you know, part of our activities have involved not only 
putting information on our website. We posted tips on how to 
spot fraudulent offers. You know, typically characterized by 
get the money upfront and then disappear before the buyer 
realizes there's no product. Those involve upfront payments, 
payments into escrow that the seller pays into and the--I'm 
sorry--the buyer pays into and the seller can access, and 
other----
    Senator Blackburn. OK. So, sir, I want to interrupt you 
right there. So you are conducting education to both the 
individual consumer and also to purchasing agents, is that 
correct?
    Mr. Rhodes. That's correct.
    Senator Blackburn. OK.
    Mr. Rhodes. We have----
    Senator Blackburn. All right. Let me move on. My time--yes. 
My time is limited. I want to move on.
    OK. So, Mr. Kaufman, when you all are trying to go through 
your enforcement, what kind of participation are you getting 
from the online marketplace, from vendors that have third 
parties that are selling?
    Mr. Kaufman. So the answer would be twofold. When we see 
bad claims, in addition to reaching out to the party that's 
involved in the bad claims, we are also contacting the 
platforms to make sure that they're aware that there's bad 
activity on their platform.
    Senator Blackburn. And do they respond appropriately?
    Mr. Kaufman. They have responded appropriately, but I wish 
they would respond more without being invited to respond by the 
FTC.
    Senator Blackburn. OK. Do they come to you with due 
diligence or information on their own? We think we have someone 
who needs to be investigated.
    Mr. Kaufman. We get occasional referrals from platforms and 
from companies, as well.
    Senator Blackburn. OK. All right. And, Professor Kovacic, I 
want to come to you on this. I know you're going to tell me you 
need more budget and staff. That's going to be a part of your 
answer. And Mr. Kaufman, to you.
    When we look at what the FTC is doing, one of the things 
that we have discussed for a couple of years now is the need to 
scale enforcement. So as you look at this, other than budget 
and agents, what kind of authorities do you need? Mr. Kaufman, 
you first, and then Professor Kovacic.
    Mr. Kaufman. So certainly the most pressing issue right now 
is restoring our 13B authority.
    Senator Blackburn. OK.
    Mr. Kaufman. Without that, that authority is a huge, huge 
blow to the FTC, and there are other areas. We can definitely 
use civil penalty authority. Most notably, data security and 
privacy violations, to be able to penalize first-time privacy 
violators would be a huge benefit for consumers and for the 
agency.
    Senator Blackburn. OK. Professor?
    Mr. Kovacic. I would echo Daniel's comments, put those on 
my list, as well.
    I'd simply add I would like to see the development of a 
comprehensive strategy that brings together the full community 
of law enforcement authorities to decide in a more collective 
way what are we doing now and what do we have to do to be more 
effective. I think that would be very profitable. A way to make 
sure we got the full value for the additional expenditures.
    Senator Blackburn. Thank you. Thank you, Mr. Chairman.
    Senator Blumenthal. Thanks, Senator Blackburn.
    Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much. Thank you to all 
our witnesses. Welcome to Mr. Rhodes from 3M, a company in my 
home state, and good to see you again, Mr. Rhodes. Thank you to 
the Chairman and to the Ranking Member for holding this really 
important hearing. It couldn't come at a more important time, 
as you point out with the Supreme Court decision with 13B.
    Mr. Kaufman, in your testimony you highlight that the FTC 
has sent out more than 350 warning letters directing companies 
to remove deceptive claims from fake coronavirus treatments to 
ads for products that were never delivered.
    How do these companies react to these warning tools and why 
is 13B so important?
    Mr. Kaufman. So the companies, to their credit, to the 
extent that we want to give them credit, have been very 
responsive. The response has been overwhelmingly positive and 
within 48 hours the claims are removed. So it has been highly 
successful from that perspective.
    But in terms of 13B, there is a lot of litigation we have 
ongoing that relies solely upon 13B for monetary relief. So 
rather than getting millions and millions or tens of millions 
of dollars for consumers, we will be stuck getting nothing if 
there's no congressional fix to 13B.
    Senator Klobuchar. And do you have any sense of how much 
money could be at stake, a range? I know you can't put an exact 
dollar figure.
    Mr. Kaufman. So, well, for the past 5 years, we've given 
back $11 billion with a B back to consumers. So I would 
estimate it's certainly hundreds of millions per year. That 
seems to be a fairly conservative estimate.
    Senator Klobuchar. Mm-hmm. And that's going forward, of 
course, too, not just going back.
    Mr. Kaufman. Correct.
    Senator Klobuchar. And because of the pandemic and some of 
this fraud that's going on that we've identified, is it 
possible you'd even have more than usual?
    Mr. Kaufman. It is certainly possible. We are always 
looking for the cases that cause the most harm to consumers.
    Senator Klobuchar. OK. Very good. And, Professor Kovacic, 
thank you for joining us again.
    You recommend a significant increase in the FTC budget in 
your testimony. I agree with that. You know, Senator Grassley 
and I have this bill, the Merger Filing Fee Modernization Act, 
which time has come. It would not be everything. A lot of what 
you're talking about, I think could be long in the 
appropriations process, but what this would do would increase 
the budget of each of the FTC and the Antitrust Division by 
$67.5 million and it's paid for actually in this case not by 
taxpayer money but by an increase merger filing fee on the 
biggest deal. It actually helps some of the smaller deals.
    And I call for even more, of course, of $300 million 
increase to the FTC budget in the appropriations process, but 
you go even farther. Could you talk about why this is so 
important at this moment of time not just from the pandemic 
fraud cases you're seeing but also from what you're seeing with 
those antitrust cases?
    I think it's so important that the FTC under Chairman Simon 
brought the Facebook case, but I bet that you could use nearly 
all the personnel in the FTC to work on those cases and then 
we'd have no one left for anything else. So could you talk 
about the importance of this increase in budget?
    Mr. Kovacic. Yes. Thank you, Senator Klobuchar.
    I'm thinking from my perspective as someone who started his 
career at the FTC in the 1970s and I have watched since the 
efforts of our public institutions to do expansive ambitious 
things with modest resources, and I think as a starting point 
as a nation, we have to realize that if we want the equivalent 
of superior results, we've been talking for the last couple of 
years about the equivalent of a public policy moon shot, to put 
competition law in a much different place, consumer protection 
in a much different place.
    We look at our experience that with NASA, that was 
expensive but it was worth it, arguably, and I think to have 
the conversation that says it is worth it for our Nation to 
spend what it takes not just in aggregate numbers but to 
recruit and retain the personnel that we're going to need to 
drive these programs home successfully.
    Senator Klobuchar. Thank you.
    Mr. Kovacic. And I think if we're not willing to spend more 
and suppose we don't triple the agency's budget, if we don't 
take the steps that you have suggested, step by step, I think 
we're going to find ourselves in a chronic position that we do 
in public policy where we have grand policy aspirations and we 
scratch our heads and say why isn't it working?
    Senator Klobuchar. OK.
    Mr. Kovacic. In part, it's not working because we're not 
willing to pay for it.
    Senator Klobuchar. Thank you. Mr. Rhodes, hometown company. 
In your testimony, you note that 3M partnered with the U.S. 
Department of Homeland Security to help seize approximately 11 
million counterfeit 3M N95 masks and in January 3M helped 
Minnesota avoid buying nearly 500,000 counterfeit N95 masks 
from a fraudulent vendor.
    Can you speak to the important role of public/private 
partnerships in combating fraud?
    Mr. Rhodes. Yes, thank you for the question, Senator 
Klobuchar.
    That has been an integral part of our efforts from the 
beginning in processing those 13,800 reports. Forming close 
partnerships with law enforcement and with agencies has really 
allowed us to extend beyond what we can do with our civil 
litigation authority and the opening comments I thought were 
spot on that the criminal enforcement really helps to make the 
difference to stop the bad actors and so that's been a critical 
part of our efforts from beginning last March when we sent a 
letter to the Department of Justice, to the National 
Association of Attorney Generals, the National Governors 
Association, reaching out.
    We conducted briefings, formed working relationships with 
the DOJ Task Force, with Department of Homeland Security, 
Homeland Security Investigations and their National IPR Center, 
as well as Customs and Border Protection, and those have really 
been among the most effective steps that we've been able to 
take.
    Senator Klobuchar. Thank you. Thank you.
    And just last, I'll just put this one on the record since 
my colleagues are waiting to ask questions, but, Ms. Patten, 
thank you for your work and I will say Senator Lujan and I have 
done a letter after a hearing that he conducted on 
misinformation on vaccines and I'll follow up with you on this 
but just some astounding findings that maybe if we could take 
12 accounts down or get the social media companies to do it, we 
would be in a lot better place.
    So thank you.
    Senator Blumenthal. Thanks, Senator Klobuchar, and thanks 
for your very thoughtful book which deals with many of these 
topics.
    Senator Klobuchar. Thank you.
    Senator Blumenthal. Senator Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman.
    Mr. Kaufman, following the enactment of the TRACE Act in 
December 2019, the FTC's seen a drop in robocall complaints.
    Could you elaborate on some of the FTC's recent robocall 
enforcement actions?
    Mr. Kaufman. Sure. We are engaging quite a lot with the FTC 
and with DOJ on a number of robocall issues. We've got several 
cases in litigation and we have a lot of cases in the pipeline 
that will be challenging that robocall conduct. So it's an area 
we are very actively involved in.
    Senator Thune. Could you speak to the FTC's efforts on 
engaging on that issue with industry initiatives, like the 
Robocall Traceback Group, and whether this public/private 
partnership has been successful in identifying illegal 
robocallers?
    Mr. Kaufman. Absolutely. It's been a very successful 
partnership. It's been a robust source of leads and helpful 
information to allow us to build successful law enforcement 
actions. So it's highly successful.
    Senator Thune. OK. Good. Justice Breyer's opinion last week 
regarding the FTC's authority to seek equitable relief cited 
the Safe Data Act which is comprehensive privacy legislation 
I've sponsored with Senators Wicker, Fischer, and Blackburn as 
an example of Congress considering providing for a fix to the 
gap in the FTC's 13B authority.
    Mr. Kaufman, in your view, would this particular provision 
be helpful to the FTC after the Supreme Court's unanimous 
ruling that the FTC could no longer secure consumer redress in 
Federal courts under the FTC's 13B authority?
    Mr. Kaufman. Absolutely. We really do appreciate the 
inclusion of 13B reform in the Safe Data Act and very much are 
very supportive and think it's a very important thing for 
Congress to take up.
    Senator Thune. Mr. Rhodes, I appreciate all the work that 
3M has done throughout the pandemic to increase its production 
of PPE, to support individuals and frontline workers.
    In fact, last November I had the opportunity to visit 3M's 
manufacturing facility in Aberdeen, South Dakota, and see the 
expansion of 3M's N95 mask production lines. At the same time 
you were increasing your manufacturing capabilities, scammers 
were trying to exploit the pandemic by offering a number of 
fraudulent products.
    What steps did 3M take to combat fraudulent activity during 
the pandemic, and can you talk about your partnership with law 
enforcement officials when identifying fraud?
    Mr. Rhodes. Yes, thank you for the question, Senator Thune.
    So our efforts to address the pandemic really started with 
getting information out there. We established our website, our 
fraud hotlines to both allow customers to verify the offers of 
product were authentic and from authorized 3M distributors.
    We put online information about how to spot fraud in all of 
its forms, how to spot counterfeits. We published the list 
prices for our commonly sold N95 respirators so that customers 
could identify and avoid inflated pricing.
    At the same time, once we established intakes for reports 
of suspected fraud, we reached out, as I mentioned, to the 
Department of Justice, to state AGs' offices, to DHS, to CBP, 
to the FBI, and started a process of sharing information, of 
referring reports. We've referred thousands of reports which 
has really extended the reach and effectiveness of our actions.
    We've also brought our own actions in 33 lawsuits in courts 
across the country and we've been very successful in stopping 
the unlawful activity and we've donated all of our recoveries 
in those cases, monetary recoveries to COVID-19-related 
charities.
    We've also partnered with online retailers, Internet 
companies to take down tens of thousands of false or deceptive 
product listings, social media posts, websites, and so it's 
been really a case of addressing fraud, price gouging, and 
counterfeiting from all angles.
    Senator Thune. Mr. Kaufman, there have been a number of 
discussions around vaccine passports since the Biden 
Administration took office. Vaccination is key to ending this 
pandemic, but the idea that a vaccine passport or lack thereof 
could be used to track or restrict Americans' movement is 
concerning.
    I understand several technology companies have been working 
to develop visual tools or passports which may be appealing to 
consumers as they seek ways to facilitate their return to 
normal activities and while convenient to the consumer, I am 
concerned about the privacy and security of that health data 
that the consumer may opt to provide these companies.
    Has the FTC taken steps to conduct oversight of the privacy 
implications of digital vaccine passports?
    Mr. Kaufman. At the moment, we have not done anything 
publicly about it, but it is an issue that we are very 
concerned about. Obviously there are enormous implications 
involving vaccines and privacy issues.
    We've also been active in a lot of other health privacy 
areas. We brought a recent case flow involving an online 
telehealth app that collected a lot of information from 
hundreds of millions of people. So the issue of health and apps 
is an area we're very focused on and I think you raise a very 
important issue that we will be looking at.
    Senator Thune. OK. Good. I'm glad you're going to be 
looking at it.
    Thank you, Mr. Chairman.
    Senator Blumenthal. Thanks, Senator Thune.
    And now Senator Markey.

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you very much, Mr. Chairman. Thank 
you for holding this very important hearing.
    A year ago, I sent a letter to the Federal Trade Commission 
urging it to develop and implement a comprehensive plan to stop 
bad actors from preying on innocent consumers with COVID-
related scams and price gouging.
    Since then, the Commission has taken a number of important 
steps to stop this type of behavior, including issuing warning 
letters and charging a scammer who deceptively marketed a fake 
COVID treatment, but there is so much more that needs to be 
done.
    The Commission also needs to address consumer protection 
threats that have indirectly arisen as a result of the 
pandemic. Specifically, we need to stop websites that are 
taking advantage of kids who are online and on their devices 
more than ever during the period of distance learning.
    I recently sent a letter to the Federal Trade Commission 
urging it to investigate whether Google violated Section 5 of 
the Federal Trade Commission Act by misleadingly marketing 
children's apps as compliant with the Children's Online Privacy 
Protection Act, a law which I authored, despite evidence that 
many of those apps appear to illegally track children and share 
their personal information without consent.
    Mr. Kaufman, as children's time online skyrockets during 
this pandemic, is the Federal Trade Commission committed to 
cracking down on platforms that are unfairly manipulating kids 
and deceiving parents while they do it?
    Mr. Kaufman. Absolutely. I agree very much with you. What 
has happened from the pandemic, everybody has gone online and 
privacy and security issues have really been magnified by the 
movement of everything online.
    So we are very familiar with your letter. I can't comment 
on a specific investigation but issues of children's privacy 
are very important to myself, to my bureau, and to our Acting 
Chairman.
    Senator Markey. OK. Great. Thank you.
    Last week, the Supreme Court stripped the Federal Trade 
Commission of its ability to obtain monetary relief for victims 
of scams under Section 13(b) of the Federal Trade Commission 
Act. Under this ruling, the Federal Trade Commission will 
operate without its primary tool for compensating cheated 
consumers.
    The Supreme Court's decision was nothing short of a gut 
punch to the Federal Trade Commission and to the consumers 
which it serves.
    I look forward to working with Chair Cantwell and 
Subcommittee Chair Blumenthal and all of my colleagues on this 
committee to quickly enact legislation that restores the 
Federal Trade Commission's rightful authority under Section 
13(b) but until Congress acts, it is imperative that the 
Federal Trade Commission uses its full authority to deter bad 
actors from engaging in illegal activity. We need to stop these 
scams before they happen.
    Federal Trade Commissioner Chopra has proposed that one way 
the Federal Trade Commission can deter harmful behavior is by 
using the Commission's Penalty Offense Authority. Under the 
Federal Trade Commission Act, if the Commission formally 
condemns a particular illegal practice in one case, other 
companies then who knowingly engage in the same practice can 
face big fines.
    As an example, when a company recently posted fake positive 
reviews that tricked consumers into buying its products, the 
Federal Trade Commission issued an Order condemning that 
practice. Using its Penalty Offense Authority, the FTC could 
potentially now issue serious fines against any company that 
knowingly defies the Federal Trade Commission by posting fake 
reviews for their own products.
    In other words, using Penalty Offense Authority, the 
Federal Trade Commission could potentially put whole industries 
on notice and hit companies where it hurts if they scam 
consumers.
    Mr. Kaufman, what are your thoughts on this approach, and 
is the Federal Trade Commission currently inventorying existing 
Orders to see if it can use them to collect civil penalties 
from scam artists who are operating today?
    Mr. Kaufman. The Penalty Offense Authority is one of the 
additional tools that we are very closely looking at to make 
sure we can do everything we can in our power to protect 
consumers, despite the loss of 13B.
    One issue I have with that authority is that it gives you 
penalties. You know, at the FTC, one of our first priorities, 
we want to stop the bad conduct and get money back to 
consumers. Penalty Authority doesn't allow us to do that, but 
it is a good alternative, given the unfortunate decision of the 
Supreme Court last week.
    Senator Markey. Thank you, Mr. Kaufman.
    Mr. Kaufman, again, I just wish that the FTC now would use 
the penumbra of the authority of the Federal Trade Commission 
Act to protect consumers wherever possible while simultaneously 
I realize that it's imperative that we pass legislation for 
more power of the FTC to ensure that it can get money back for 
consumers who have been bilked, and I'm looking forward to 
working with Chairman Blumenthal and Chair Maria Cantwell in 
order to accomplish that goal.
    Thank you.
    Senator Blumenthal. Thanks, Senator Markey. Thanks for 
those excellent comments.
    And now Senator Lujan. We may be having technical 
difficulties with Senator Lujan.
    While we're waiting, let me ask a question. I think it's 
pretty clear from the testimony that we've heard today and 
everything we know about the FTC that the Supreme Court 
decision really is an existential threat to the FTC and to 
consumers and if we do nothing else in this subcommittee, we 
need to reauthorize the FTC's authority to protect consumers 
and put money back in their pockets. That's essentially what 
13B enables the FTC to do, put money back into consumers' 
pockets for their losses.
    The money that results from penalties goes to the Federal 
Government, not to consumers. It's a deterrent. It's a good 
means of punishment, but consumers see none of it.
    Let me ask Assistant Attorney General Alexander because you 
are doing what I did for 20 years as Attorney General of the 
State of Connecticut, which is to put money back in consumers' 
pockets.
    Could the state attorneys general fill some of the gap left 
by the Supreme Court's decision in restricting FTC authority to 
provide restitution if the FTC were to share more of its cases, 
to refer more of them, and perhaps even for you to seek 
criminal penalties if the FTC fails to do so?
    Ms. Alexander. Thank you for the question, Senator.
    Yes, I mean, the states do have restitution authority. Our 
state in Washington, our courts give us very broad equitable 
restitution--give the courts very broad equitable authority to 
provide restitution to consumers, but I will say that, you 
know, without the FTC being able to seek that form of relief, 
you know, the states sort of become the primary source of 
restitution and while we devote considerable effort to consumer 
protection, the states can't do everything and, you know, in 
some cases, the FTC Act is broader than a state's consumer 
protection act and reaches farther, reaches into professions 
that some states' consumer protections acts don't cover.
    You know, the presence of a lot of regulators pursuing 
restitution allows every regulator to focus their efforts on 
different schemes, you know, and broaden the range of conduct 
that can be investigated and prosecuted and, you know, the 
combined efforts of the Federal Government, the FTC, and the 
states create a powerful deterrent effect, and when there's one 
less regulator with the authority to deprive wrong-doers of the 
fruits of their illegal conduct, that deterrent effectiveness 
is necessarily weakened.
    I know you asked about criminal prosecution. I'm a civil 
attorney and I can't really speak to that specifically. So I'm 
going to leave that question maybe to my FTC colleagues.
    Senator Blumenthal. Let me ask you, Ms. Patten. You raised 
the issue of independent litigating authority. How important 
could that be to the FTC?
    Ms. Patten. I think it's vitally important to the FTC. When 
harm is done and consumers need help, time is of the essence. 
The FTC should not have to ask permission to go in and deal 
with harmful conduct and they need to get that money to 
consumers as quickly as possible and without independent 
authority that cannot happen.
    Senator Blumenthal. You know, your organization is in the 
business of educating and it does extraordinary work in raising 
warnings to consumers and making sure they know about these 
scams. Why is education not enough?
    Ms. Patten. Education is not enough because our 320 million 
consumers in the United States are continually scammed and they 
need to be made whole and education doesn't do that. So without 
13B and without a functioning FTC, that's not going to happen.
    Senator Blumenthal. And part of education is to lead 
consumers to report wrongs against them----
    Ms. Patten. Yes.
    Senator Blumenthal.--which enables the FTC and state law 
enforcers to take action to stop the scammers, correct?
    Ms. Patten. That's correct. The Consumer Sentinel Network 
that the FTC relies on all the time is based on consumer 
complaints.
    Senator Blumenthal. You know, one may wonder, given all 
that's been said about 13B authority, who's against restoring 
it and why.
    Ms. Patten. Criminals.
    Senator Blumenthal. Criminals, scammers, the payday lenders 
who exploit working families, the for-profit colleges that prey 
on veterans, the fake vaccine card perpetrators or the other 
kinds of con artists that prey on seniors, and, without trying 
to disparage anyone unfairly, the Chamber of Commerce has said 
in a letter to the Committee, in fact just before last week's 
FTC oversight hearing, that it opposes any action on 13B.
    I recognize that Acting Chair Slaughter and Commissioner 
Phillips disagreed with the Chamber of Commerce in their 
testimony, but, regrettably, they were provided with that 
letter just minutes before their testimony.
    I would be interested to know, Mr. Kaufman, whether you 
have a further rebuttal to the Chamber of Commerce.
    Mr. Kaufman. Absolutely. I could spend, unfortunately, far 
too long with my rebuttal to that letter. I strongly disagree 
with their propositions.
    At the outset, they're fundamentally saying that we should 
not be able to get money from companies unless they engage in 
egregious fraud. So unless we meet that standard of egregious 
fraud, we shouldn't be able to get money back from consumers, 
and I think that is just bad policy.
    The issue when consumers are deceived is not what was the 
intent of betrayal? What was the mental state of the company 
that engaged in the bad conduct? Who should bear that burden? 
The company that deceived consumers or consumers who relied 
upon that company and made a deceptive purchase. It is 
consumers who should get their money back, irrespective of the 
mental state of the advertisers.
    So I could not disagree more with so many of the 
propositions in the Chamber's letter.
    Senator Blumenthal. And one might ask what is non-egregious 
fraud? Garden variety exploitation of seniors or veterans or 
COVID sufferers?
    Mr. Kaufman. Absolutely. In the advertising area, that is 
an area where we think it would be particularly challenging. If 
there is a bad study that a company's relying on, can you say 
that it was fraudulent for them to rely upon that study? It 
creates very challenging litigation issues.
    I've litigated health claims for about 7 years at the FTC. 
I've seen firsthand how challenging it is to bring these cases 
but then to increase the burden and require some showing of 
intent on behalf of the company would be unacceptable.
    Senator Blumenthal. In effect, what the Chamber of Commerce 
wants to do is convert 13B into a criminal statute.
    Mr. Kaufman. I haven't thought about it from that 
perspective, but I agree with your commentary.
    Senator Blumenthal. Requiring mens rea or criminal intent 
for there to be a violation which is unheard of in prior 
consumer protection jurisprudence. If that were the case, state 
attorneys general would be straitjacketed in everything they 
did and the FTC would be severely undermined.
    Let me turn to Senator Lujan. I'm told he is available. 
Senator Lujan?

               STATEMENT OF HON. BEN RAY LUJAN, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Lujan. Thank you so much, Chairman. I very much 
appreciate your leadership and this important hearing that 
we're having today.
    I also want to recognize Ranking Member Blackburn for 
calling this hearing to explore actions we can take to stop 
COVID-19-related scams.
    It's critical to understand how we best protect our 
communities in times of crisis and I look forward to working 
together on this topic.
    Even as the FTC tackles this unprecedented crisis of fraud 
and abuse against all Americans, we still don't understand the 
full scale of this crisis. That's why as a House member, I 
introduced the bipartisan Protecting Indian Tribes from Scams 
Act to better understand the scope of scams targeting tribes 
and tribal members and to create a roadmap for Congress to put 
an end to these schemes. The House passed this bill last year 
but we still have more work to do.
    Mr. Kaufman, can I get a commitment from you to work with 
me on this issue?
    Mr. Kaufman. Absolutely. We'd be very happy to do so.
    Senator Lujan. And last year, I introduced the Stopping 
COVID Scams Act so the FTC could go after scammers quickly and 
decisively. I'm glad the parts of that bill were incorporated 
into Consolidated Appropriations Act in December.
    Critically, the FTC now has civil penalty authority and I 
was glad to see that the Commission brought its first action 
seeking monetary penalties under its new authority and 
targeting deceptive COVID-19 marketing of Vitamin D and zinc 
products.
    We can't just give scammers a slap on the wrist, especially 
when people's lives and livelihoods are on the line.
    Mr. Kaufman, should Congress expand the FTC's present Civil 
Penalty Authority to make it permanent and increase its scope 
beyond the COVID-19 health crisis?
    Mr. Kaufman. So I do think there are areas where the FTC 
could definitely use Civil Penalty Authority. Data security and 
privacy first-time violations are an area where I do think 
Civil Penalty Authority is appropriate. I'd be glad to discuss 
with your office other areas where it might be suitable for the 
FTC to have Civil Penalty Authority against first-time 
violators.
    Senator Lujan. Appreciate that. Mr. Kaufman, as we recently 
explored in the hearing in the Communications Subcommittee, 
misleading and contradictory information about the coronavirus 
on social media platforms and broadcast media has done real 
harm. Fake claims have gotten in the way of public health 
professionals trying to do their job and protect our 
communities.
    That is why last week Senator Klobuchar and I requested 
information from Jack Dorsey and Mark Zuckerberg about why they 
have failed to take action against a small group of 12 accounts 
responsible for up to 65 percent of anti-vaccine content on 
their platforms.
    Many of these accounts turned their lies into profit by 
selling supplements, books, and other miracle cures. This needs 
to stop.
    So my question actually is to Ms. Patten. Do you have any 
recommendations on steps Congress can take to ensure online 
platforms address misinformation super spreaders?
    Ms. Patten. Well, I think the very first thing Congress 
needs to do is fix 13B. After that, I think that broad civil 
penalty authority to the FTC would go a long way in deterring 
these platforms and social media companies to do the right 
thing, and I think that a civil penalty fund that could 
reimburse victims of these frauds that you're talking about 
would also be appropriate.
    Senator Lujan. Mr. Kaufman, do you have a response to that?
    Mr. Kaufman. Yes. I definitely agree strongly on the civil 
penalty fund. It's a tool that other agencies have where civil 
penalties can go to the agency to disburse money to consumers 
that were harmed. So I think that would be--and again I'm 
speaking for myself and not for the Commission. But I do know 
the Acting Chair is very interested in that, as well, but a 
civil penalty fund would be a highly effective tool for the 
agency and for consumers.
    Senator Lujan. And in New Mexico, we started seeing COVID-
19 scams as early as last March. They tried to scare seniors 
that they would lose their social security payments and it 
wasn't true. They tried to sell miracle cures. They were lies. 
Especially in rural communities, many of these scammers reached 
their targets not over the Internet but on the telephone. 
Robocalls aren't just a nuisance, they are used to take 
advantage of elderly and vulnerable populations when they're 
most at risk.
    I'm encouraged that the FTC is taking action against 
companies that enable those calls, including voice over 
Internet protocol providers. However, it looks like the number 
of illegal calls are on the rise once again.
    Mr. Kaufman, what additional tools does the FTC need to 
fight illegal robocalls?
    Mr. Kaufman. A lot of the challenges in fighting robocalls 
are technological and we are coordinating closely with the FCC 
and we do have a lot of cases in the pipeline on robocall 
issues, but on the other issues you raised, I think education 
is a very important part of the FTC's mission and it's 
important that we not just put information on our website but 
that we're reaching out to consumers, to different communities, 
to share the information about hang up the phone when you get a 
robocall.
    So one thing we've done is we've mailed postcards to 
hundreds of thousands of consumers who are in neighborhoods 
which have low Internet access. So we've appeared on a lot of 
radio shows in order to get the message out to consumers that 
might not go to our website to find the information.
    Senator Lujan. Thank you, Mr. Chairman. I yield back.
    Senator Blumenthal. Thanks a lot, Senator Lujan.
    A couple of final questions. I appreciated the Acting 
Chair's announcement about the Consumer Community Advocate 
Center. I hope you're familiar with it. We all recognize that 
fraud actually exploits the most vulnerable in hard-to-reach 
communities.
    I'm hoping that the FTC can partner with leaders in local 
communities, faith leaders, senior citizens leaders and 
advocates.
    What is the plan for getting the center started, the 
Community Advocate Center?
    Mr. Kaufman. So the Community Advocate Center, we announced 
it about a month ago, it's a way for legal service 
organizations to file complaints with the FTC on behalf of 
their clients and get advice back about what their clients 
should do.
    We kicked it off a month ago. We've already signed up 30 
different organizations and we have support from a lot of 
national organizations, as well. So it is just starting up and 
we think it has a lot of promise to get us information about 
frauds that are targeting low-income communities who may be 
less likely to report to the FTC or to other law enforcement 
agencies.
    Senator Blumenthal. Thank you. And finally the Funeral 
Rule, the Commission requested last summer comments on changes 
to the Funeral Rule.
    Does the Commission intend to make changes to that rule?
    Mr. Kaufman. I can say the rule review is still underway 
and we are looking closely at the comments and more will be 
coming in the future.
    Senator Blumenthal. Thank you.
    I want to just close by thanking all of the witnesses for 
this excellent testimony. It's been a great start to our 
subcommittee's series of hearings. I hope we will explore more 
of the COVID scams that we're seeing multiplying and exploding 
literally every day. I think education, Ms. Patten, is a very 
important component here.
    As you've described so eloquently, there are enforcement 
actions that need to be taken as a deterrent, as a source of 
restitution, and as a punishment, and I'm hoping that the FTC 
will play an increasingly vigorous role with additional 
resources that are absolutely necessary and as to the tech 
platforms, we need to make them accountable for enabling these 
kinds of scams, and thoughtful revision to Section 230 is key 
to that effort.
    Thank you to Ms. Alexander, Mr. Rhodes, Professor Kovacic, 
and to Mr. Kaufman, and Ms. Patten. Really appreciate your 
being here, and thanks to my colleagues, especially Senator 
Blackburn.
    The hearing record will remain open for two weeks. Any 
Senators who'd like to submit questions for the record should 
do so by May 4. We ask that your responses be returned to the 
Committee as quickly as possible and in no case later than two 
weeks after you receive these questions.
    1That concludes today's hearing. Thank you all.
    [Whereupon, at 11:39 a.m., the hearing was concluded.]

                            A P P E N D I X

 Response to Written Questions Submitted by Hon. Richard Blumenthal to 
                             Daniel Kaufman
    Prevalence and availability of fraudulent cures and treatments. The 
Federal Trade Commission (FTC) has sent nearly 400 warning letters to 
companies and individuals who claim their products treat or prevent 
COVID-19, forcing many of these scam artists to take down their false 
claims. The FTC has done a commendable job in this massive undertaking 
despite limited resources.
    Unfortunately, several COVID-19 profiteers--including including 
some of the biggest sellers of fake COVID-19 ``treatments'' and 
``cures''--continue to spread their false health claims and rake-in 
millions of dollars selling their products. For example, Joseph Mercola 
continues to peddle false claims on social media and in his new book 
(which is now a best seller on Amazon.com) that vitamin C, D, Zinc and 
Selenium can treat and prevent COVID-19, and he sells these same 
products on Amazon.com under the ``Amazon Choice'' label. He continues 
to do so despite a warning letter from the Food and Drug Administration 
(FDA). Some of his dangerous COVID-19 treatment claims are even hosted 
on the National Institutes of Health's (NIH) National Library of 
Medicine.

    Question 1. What specific, additional resources and authorities 
does the FTC need to enhance its enforcement efforts to protect the 
public during this pandemic?
    Answer. The most critical issue affecting the FTC's ability to 
fulfill our enforcement mission is the recent loss of a pillar of our 
statutory authority. On April 22, 2021, the U.S. Supreme Court held 
that the FTC cannot seek equitable monetary relief under Section 13(b) 
of the Federal Trade Commission Act,\1\ reversing four decades of case 
law that the Commission has used to provide billions of dollars of 
refunds to harmed consumers. Accordingly, the Commission has requested 
that Congress amend Section 13(b) to provide the FTC with the ability 
to seek monetary relief under that authority.\2\ I join that request.
---------------------------------------------------------------------------
    \1\ See AMG Cap. Mgmt.,LLC v. Fed. Trade Comm'n, 141 S.Ct. 1341 
(2021).
    \2\ See Press Release, FTC Testifies Before Congress on its Work to 
Protect Consumers from COVID-19 Scams and Threats to its Ability to 
Return Money to Victims of Illegal Conduct, Apr. 20, 2021, www.ftc.gov/
news-events/press-releases/2021/04/ftc-testifies-congress-its-work-
protect-consumers-covid-19-scams.
---------------------------------------------------------------------------
    While it is critical that the FTC step up its enforcement against 
pandemic-related scams, so too must major tech platforms. 
Unfortunately, many of the largest platforms use Section 230 of the 
Communications Decency Act as a shield against taking responsibility 
for fraud happening on their platform, an advantage brick-and-mortar 
retailers do not enjoy. I am grateful that Congress is looking at 
Section 230 reform and happy to provide assistance.

    Question 2. How does your agency coordinate with other Federal 
agencies, such as the FDA and NIH, to track dangerous COVID-19 health 
claims and issue warning letters to fraudsters?
    Answer. FTC staff communicate and coordinate regularly with our 
state and Federal law enforcement partners to enhance our efforts to 
protect consumers against COVID-19 scams.
    With regard to our Federal partners, the FTC--along with 
representatives of other agencies including CFPB, CBP, EPA, FBI, FDA, 
ICE, and USPIS--participates in a Department of Justice-led inter-
agency working group to share intelligence about emerging COVID-19 
scams and to de-conflict targets. Separately, FTC staff consult with 
FDA staff on a near-daily basis to share investigative information and 
coordinate work with regard to warning letters sent jointly by the two 
agencies to entities peddling products or services claimed to prevent, 
treat, or cure coronavirus disease. Agency staff also work closely with 
Federal partners on consumer and business education outreach through a 
variety of methods and projects, such as joint webinars on false COVID-
19 advertising claims, posting of FTC COVID-19 resources on the HHS's 
website for older adults, and drafting of relevant FAQs for the COVID-
19 resources page on usa.gov.
    FTC staff has also communicated with staff in offices of state 
Attorneys General to discuss consumer fraud related to the COVID-19 
pandemic, during calls coordinated by the National Association of 
Attorneys General. During these calls, which also involved enforcers 
from other Federal agencies, we have exchanged information about scams 
encountered, provided updates on formal law enforcement actions, and 
informed state enforcers when the FTC has issued new or updated 
consumer education guidance materials that they can share with their 
constituents. FTC staff also closely coordinates COVID-19 outreach 
efforts and anti-fraud messaging with NAAG, including radio media 
tours, blog posts, infographics, and social media campaigns.
    The FTC commonly refers investigative leads to other Federal or 
state enforcers as circumstances warrant, for instance, to another 
Federal agency with direct regulatory responsibilities over the product 
in question, or to a state Attorney General's office if the product in 
question appears to be advertised or available to a limited geographic 
market. We also regularly receive and investigate referrals from other 
law enforcement agencies.
    We will continue to coordinate and cooperate with our state and 
Federal enforcer partners to maximize the impact of our efforts to 
combat fraud related to the COVID-19 pandemic. To date we have issued 
more than 400 warning letters in this area, including nearly 130 issued 
jointly with FDA.

    Threats to Section 13(b) authority. Until the Supreme Court's 
ruling on April 22, the single strongest tool in the Commission's tool 
box was Section 13(b) of the FTC Act, which as Chairwoman Slaughter 
explained, ``allows the agency to return money to wronged consumers and 
put law-breakers on the hook for the costs of their illegal conduct.'' 
It will be nearly impossible now to return money to consumers now.

    Question. Let's say a consumer was scammed today and loses their 
whole livelihood. If that scammer fights you at every step under 
Section 19, what is that process and how long from now will consumers 
get their money back? And how much would it cost for the FTC to pursue 
that case?
    Answer. Because the Supreme Court ruled in AMG that courts can no 
longer award the Commission monetary relief under Section 13(b) of the 
Act, the Commission's ability to provide redress to consumers who lose 
money to scammers is significantly impaired. Post AMG, the Commission 
can now only obtain redress for scammed consumers through Section 19 of 
the Act. If the scam did not involve violation of a Commission rule, 
the Section 19 process is time consuming and resource intensive.
    For scams that do not involve rule violations, the process to 
obtain monetary relief would be as follows if the defendant fights 
every step of the way:

   1.  The Commission authorizes staff (``complaint counsel'') to 
        initiate an administrative action under Section 5(b) of the 
        Act. \3\
---------------------------------------------------------------------------
    \3\ 15 U.S.C. Sec. 45(b).

   2.  If complaint counsel prevails at the administrative hearing, the 
---------------------------------------------------------------------------
        defendant appeals to the Commission.

   3.  If complaint counsel prevails on the appeal before the full 
        Commission, the order becomes a final Commission cease and 
        desist order. The defendant then appeals the ruling to a U.S. 
        Circuit Court of Appeals of the defendant's choosing.

   4.  If the Commission prevails in the Circuit Court of Appeals, the 
        defendant petitions for Supreme Court review.

   5.  If the Supreme Court hears the case and rules in favor of the 
        Commission or denies review, the first phase of the process is 
        complete, resulting in a final administrative cease and desist 
        order against the defendant.

   6.  Once the final administrative order is obtained, the Commission 
        then commences the second phase by filing an action for 
        monetary relief in U.S. District Court under Section 19(a)(2) 
        of the FTC Act. To obtain monetary relief, the Commission must 
        prove that the defendant engaged in unlawful conduct that a 
        reasonable person would have known to be ``dishonest or 
        fraudulent.'' \4\
---------------------------------------------------------------------------
    \4\ Id. Sec. 57b (a)(2).

   7.  If the Commission prevails in district court, the defendant 
        appeals the monetary relief judgment to the U.S. Circuit Court 
---------------------------------------------------------------------------
        of Appeals.

   8.  If the Commission prevails in the Circuit Court of Appeals, the 
        defendant petitions the Supreme Court review.

   9.  If the Supreme Court hears the case and rules in favor of the 
        Commission or denies review, the second phase of the process is 
        complete, resulting in a final judgment against the defendant 
        for monetary relief.

  10.  The Commission collects on the judgment.

  11.  The Commission distributes refund checks to consumers who lost 
        money to the scam.

    In essence, the process for obtaining monetary relief under Section 
19(a)(2) is a bifurcated one, with liability adjudicated in the Section 
5(b) administrative proceeding and monetary relief determined in the 
Section 19(a)(2) district court proceeding. Because the Commission must 
litigate two consecutive proceedings to obtain monetary relief via 
Section 19(a)(2), the process involves far more time and resources than 
the pre-AMG process of obtaining monetary and injunctive relief in a 
single proceeding brought under Section 13(b).
    Unsurprisingly, this process takes a long time. The Commission's 
past experience using this pathway indicates that consumers can expect 
that it will take about a decade from the filing of an administrative 
complaint for the Commission to provide refunds to harmed consumers. 
For example, in the Commission's action against Figgie International, 
Figgie fought at every step of the way. The Commission filed its 
administrative complaint in May 1983. After twelve years of litigation, 
the Commission finally was able to distribute refunds to consumers in 
June 1995.\5\ Even in cases where defendants have not fought at every 
step, it took more than seven years for the Commission to provide 
refunds to consumers using the Section 19(a)(2) pathway.\6\
---------------------------------------------------------------------------
    \5\ See FTC v. Figgie Int'l, Inc., 994 F.2d 595 (9th Cir. 1993), 
cert. denied, 114 S. Ct. 1051 (1994); In re Figgie Int'l, Inc. 107 
F.T.C. 313 (1986) (complaint filed May 17, 1983), aff'd sub nom Figgie 
Int'l v. FTC, 817 F.2d 102 (4th Cir. 1987); Press Release, Federal 
Trade Commission, Figgie International, Inc. (June 9, 1995), https://
www.ftc.gov/news-events/press-releases/1995/06/figgie-international-
inc.
    \6\ In the Commission's action against Telebrands Corporation for 
making false and deceptive weight loss claims, seven years elapsed 
between the start of administrative proceedings and the Commission's 
distribution of $7 million in refunds to harmed consumers. In re 
Telebrands Corp., Docket No. 9313, 2003 WL 22319292 (F.T.C. Sept. 30, 
2003), aff'd sub nom Telebrands Corp. v. FTC, 457 F.3d 354 (4th Cir. 
2006); Press Release, Federal Trade Commission, FTC to Send Refund 
Checks to Consumers Who Bought Bogus ``Ab Force'' Weight Loss Devices 
(Nov. 18, 2010), https://www.ftc.gov/news-events/press-releases/2010/
11/ftc-send-refund-checks-consumers-who-bought-bogus-ab-force-weight. 
The process was ``faster'' because Telebrands agreed to a $7 million 
settlement during the pendency of the Section 19(a)(2) district court 
proceeding. Press Release, Federal Trade Commission, Marketers of Ab 
Force Weight Loss Device Agree to Pay $7 Million for Consumer Redress 
(Jan. 14, 2009), https://www.ftc.gov/news-events/press-releases/2009/
01/marketers-ab-force-weight-loss-device-agree-pay-7-million. It took 
ten years for the Commission to obtain monetary relief against Koskot 
Interplanetary, an unlawful multi-level marketing scheme. See FTC v. 
Turner, No. 79-474-Orl-Civ-R, 1982 WL 1947 (Dec. 29, 1982); In re 
Koscot Interplanetary, 86 F.T.C. 1106 (1975) (complaint filed May 24, 
1972), aff'd sub nom Turner v. FTC, 580 F.2d 701 (D.C. Cir. 1978).
---------------------------------------------------------------------------
    Moreover, the inefficiencies of Section 19(a)(2) are exacerbated in 
cases in which preliminary injunctive relief is necessary. In cases 
involving hardcore frauds and scams, the Commission typically seeks an 
ex parte temporary restraining order that imposes an asset freeze, puts 
corporate defendants under the control of a court-appointed receiver, 
and grants the Commission access to business premises to secure 
documents and evidence. Such extraordinary preliminary relief is 
necessary because defendants in hardcore fraud cases often dissipate 
assets or destroy evidence when they learn that the FTC has brought an 
enforcement action against them. Prior to AMG, the Commission sought 
such ex parte relief concurrently with its action for monetary and 
permanent injunctive relief under Section 13(b). Post AMG, however, 
courts may still be able to award ex parte preliminary relief under the 
preliminary injunction provision of Section 13(b), but such relief will 
be to maintain the status quo pending resolution of the Commission's 
administrative complaint and to preserve the district court's ability 
to award monetary relief in a subsequent Section 19 action for monetary 
relief. Thus, in cases in which preliminary relief is warranted, the 
bifurcated process in a typical Section 19(a)(2) case will be 
trifurcated: (1) the Commission will first institute a proceeding for 
preliminary relief in Federal district court under Section 13(b) in 
which the Commission will have to establish, and the district court 
will have to assess, the Commission's likelihood of success on the 
merits as a predicate to granting preliminary relief; (2) the 
Commission will next file and litigate the merits of its complaint in 
an administrative proceeding; and (3) the Commission will then return 
to Federal district court after completion of its administrative 
litigation to seek monetary relief under Section 19(a)(2). This 
trifurcated process will be highly inefficient--the Commission and 
defendants will be mired in years of litigation, consumers will have to 
endure even longer waits to get refunds, and a district court judge 
will spend years overseeing an asset freeze, receivership, and 
preliminary injunction for a case in which the merits will be litigated 
in a separate administrative forum. Given that the court would be asked 
to order an asset freeze and monitor it for several years while the 
matter proceeds through other fora, and given the risk the case may not 
make it back to the court issuing the asset freeze, many courts might 
not issue such an order in the first place.
    It is difficult to assess how much additional money the Commission 
will have to spend pursuing monetary relief under the Section 19(a)(2) 
pathway. Nonetheless, because the process is far more consuming than 
Section 13(b) pathway the Commission used prior to AMG, litigating 
cases under the Section 19(a)(2) pathway will tax the Commission's 
resources. Commission staff on those cases will mired in years of 
litigation, which will prevent those same staffers from being able to 
bring new enforcement cases. As a result, the opportunity cost is 
significant. The inefficient process set forth in Section 19(a)(2) will 
result in the Commission bringing fewer enforcement actions than it did 
prior to AMG.
    In Section 19 cases that do involve the violation of a Commission 
rule governing unfair or deceptive conduct,\7\ the Commission can still 
proceed directly to Federal court, but even those actions will not 
yield the same results that the Commission has historically obtained 
under Section 13(b) due to Section 19's three-year statute of 
limitations. Unlike Section 13(b), which has no statutory time bar, 
Section 19's three-year limitations period will limit the number of 
consumers who are eligible for redress through a Section 19 action. 
Many Commission actions involve schemes that have been operating for 
many years, primarily because it takes several years for such schemes 
to generate a sufficient volume of complaints to justify the 
Commission's use of its limited resources to commence an investigation. 
As a result, by the time the Commission commences and completes its 
investigation and files suit, multiple years may have elapsed from the 
time the unlawful conduct first began. In such cases, consumers who 
were victimized more recently will receive redress, whereas consumers 
who had the misfortune of being victimized in the early days of the 
scheme will be left out in the cold due to Section 19's three-year 
limitations period.
---------------------------------------------------------------------------
    \7\ For example, the recently enacted COVID-19 Consumer Protection 
Act treats deceptive acts or practices associated with the treatment, 
cure, prevention, mitigation, or diagnosis of COVID-19 as rule 
violations that the Commission can directly enforce in Federal court 
under Section 19(a)(1). Pub. L. No. 116-260, Title XIV, Sec. 1401(c)(1)

    Counterfeit good commercial activity. Online retail platforms have 
dealt with a barrage of fraudulent goods--such as personal protective 
equipment, vaccines, vaccine cards, and others--throughout the COVID-19 
pandemic. While the FDA, Centers for Disease Control, and other 
agencies shared information to help consumers identify and avoid fake 
products, online retail marketplaces are also responsible for detecting 
---------------------------------------------------------------------------
and removing such content from their sites.

    Question 1. What role have online retailers played in identifying 
and ending counterfeit good commercial activity?
    Answer. FTC staff regularly engages with social media and sales 
platforms regarding products and advertising claims of concern. We 
currently send copies of our health claims warning letters to platforms 
where deceptive claims are disseminated or the products in question are 
sold. In other instances, we have proactively reached out to 
marketplace platforms regarding particular products or product 
categories of concern. Although we have found the platforms can be 
responsive to these concerns, online retail platforms must do much more 
to combat problematic claims and conduct in their marketplace, 
including the harmful sale of counterfeit and other fake goods. Over 
the last year, the Commission has seen a surge in complaints about 
scams and frauds proliferating online, particularly on ecommerce 
platforms. As discussed above, ending the scourge of fraudulent claims 
may require Congress revisiting Section 230 of the Communications 
Decency Act.
    In terms of the specific issue of counterfeit and pirated goods, 
other agencies, including the Department of Commerce, Department of 
Homeland Security, and U.S. Trade Representative, have studied the 
problem closely and have additional expertise and knowledge to answer 
this question.

    Question 2. What recommendations do you have for Congress regarding 
ways to address counterfeit good commercial activity on online 
platforms and marketplaces?
    Answer. As the FTC's complaint data shows, fraud in the online 
marketplace has skyrocketed over the last year. Legal requirements to 
verify the identities of third-party sellers, and to verify the 
authenticity of sellers' goods before they are sold or shipped by the 
online retailer, may help address the problem of counterfeits and other 
scams. But ultimately, rooting out fraud may require revisiting the 
special legal immunities platforms claim under Section 230 of the 
Communications Decency Act, an advantage that brick-and-mortar 
businesses do not enjoy. In addition, as noted in response to Question 
1, above, other agencies have studied this issue and have provided 
specific recommendations to address counterfeit and pirated goods 
online. See, e.g., Khttps://www.dhs.gov/publication/combating-
trafficking-counterfeit-and-pirated-goods; https://ustr.gov/about-us/
policy-offices/press-office/press-releases/2021/january/ustr-releases-
2020-review-notorious-markets-counterfeiting-and-piracy. FTC staff has 
provided technical assistance on bills intended to implement some of 
these recommendations.

    Question 3. When the FTC secures civil penalties under the COVID-19 
Consumer Protection Act, will the Commission provide financial relief 
to consumers, such as refunds for scams and deceptive products?
    Answer. The CCPA provides both for compensatory relief through 
Section 19 of the FTC Act, and civil penalties through Section 5(m) of 
the Act. The Commission always strives to return compensatory funds to 
consumers, and those obtained through the CCPA will be no different. In 
addition, the CCPA allows the Commission to seek civil penalties, which 
can help deter fraud in the first instances. In many cases, the 
Commission intends to seek both compensatory funds and civil penalties.

    Criminal referrals on fraud and scams. Mr. Kovacic mentions in his 
prepared remarks that the ``only way to deter the most serious 
fraudulent schemes we have observed is to subject violators to criminal 
punishment.'' We need to use the prospect of time in jail to deal with 
some of these worst offenders of our consumer protection law.

    Question 1. How many criminal referrals has the FTC sent to the 
Department of Justice (DOJ) and state law enforcement regarding 
pandemic fraud?
    Answer. The FTC launched the Criminal Liaison Unit (``CLU'') in 
2003. From 2003 through May 2020, prosecutors have relied on FTC 
information and support to charge 1,050 defendants. During the 
coronavirus pandemic, the Commission has referred six matters involving 
pandemic fraud to our criminal partners. Over the coming years, we 
intend to step up the referral volume significantly.

    Question 2. What are the nature of these violations, is it small 
scams, or is the FTC willing to refer large companies and prominent 
figures to the DOJ?
    Answer. The FTC refers cases to criminal authorities that require 
the deterrence provided by prosecution, and that our prosecutorial 
partners will take. For criminal prosecution, prosecutors will usually 
need to prove fraud (e.g., mail or wire fraud) and are always 
interested in intent. The better the facts show the violative conduct 
was intentional, the more likely the case will be taken. Assuming the 
requisite facts are present, the size of the company only makes the 
case more attractive to criminal prosecutors.

    Question 3. Mr. Kovacic shared some ideas for making referrals more 
effective and frequent. What do we need to do to expand the FTC's 
Criminal Liaison Unit, to make sure the FTC keeps making these 
referrals?
    Answer. As the numbers bear out, the Commission's criminal referral 
process is extremely strong, and has continued to get stronger over the 
years. The FTC is able to refer all appropriate cases and, unlike when 
the CLU program first began, we now have prosecutors fighting over our 
largest cases.

    Question 4. From your experience at the FTC, what are the hurdles 
the Commission encounters in referring crimes and seeing cases filed 
against the worst offenders?
    Answer. The Commission's Criminal Liaison Unit has been a 
resounding success. Initially, it was difficult to get criminal 
prosecutors to take our cases, presumably because prosecutors were 
unfamiliar with the agency and reluctant to take cases in which 
sentencing had historically been light (i.e., most sentences for 
consumer fraud were measured in months, not years). Through years of 
hard work, both predicates have changed. We are now well known among 
the criminal prosecution community, having established close 
relationships across the country; and sentences in our largest cases 
are now measured in decades, not months. We still have trouble 
successfully referring smaller cases that cause significant harm to a 
smaller number of people--but we are now working more closely with 
state and local prosecutors to address these cases.

    Chamber of Commerce response to 13(b). A few minutes before the 
Commerce Committee's April 20, 2021, hearing, Strengthening the Federal 
Trade Commission's Authority to Protect Consumers, the Chamber of 
Commerce sent a letter to the Committee criticizing the FTC's use of 
13(b).

    Question. Now that you have had a chance to read the letter, is 
there anything else you want to address about the Chamber of Commerce's 
criticism of the FTC and its stance on Section 13(b)?
    Answer. As then Acting Chairwoman Slaughter noted in her letter 
last month to the Senate Committee on Commerce, Science, and 
Transportation,\8\ the Chamber's position, which is based on numerous 
misstatements and faulty premises, would harm consumers and honest 
competitors. I join the Commission in urging Congress to restore the 
FTC's ability to use Section 13(b) of the FTC Act to return money to 
consumers and clarify that the FTC can use Section 13(b) to enjoin past 
conduct that is reasonably likely to recur.
---------------------------------------------------------------------------
    \8\ Letter from Acting Chairwoman Slaughter to the Senate Committee 
on Commerce, Science, and Transportation Regarding Section 13(b) of the 
Federal Trade Commission Act, https://www.ftc.gov/public-statements/
2021/05/letter-acting-chairwoman-slaughter-senate-committee-commerce-
science
---------------------------------------------------------------------------
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Richard Blumenthal to 
                           William E. Kovacic
    Criminal referrals on fraud and scams. Mr. Kovacic mentions in his 
prepared remarks that the ``only way to deter the most serious 
fraudulent schemes we have observed is to subject violators to criminal 
punishment.'' We need to use the prospect of time in jail to deal with 
some of these worst offenders of our consumer protection law.

    Question 1. How many criminal referrals has the FTC sent to the 
Department of Justice (DOJ) and state law enforcement regarding 
pandemic fraud?
    Answer. I do not know how many referrals the FTC has made. I expect 
that the Bureau of Consumer Protection can provide the number of 
referrals by year going back to the creation of the Criminal Liaison 
Unit.

    Question 2. What are the nature of these violations, is it small 
scams, or is the FTC willing to refer large companies and prominent 
figures to the DOJ?
    Answer. I do not know what types of matters the FTC has referred to 
DOJ for possible criminal prosecution in the time since I left the 
Commission in 2011. I expect that the Bureau of Consumer Protection has 
compiled a data set that lists all referrals and identifies the alleged 
wrongdoers and the severity of the alleged offense.

    Question 3. Mr. Kovacic shared some ideas for making referrals more 
effective and frequent. What do we need to do to expand the FTC's 
Criminal Liaison Unit, to make sure the FTC keeps making these 
referrals?
    Answer. The primary limitation upon the effectiveness of the FTC's 
Criminal Liaison Unit CLU) mechanism is funding. A properly resourced 
CLU would have a minimum of five fulltime professionals supported by 
two administrative staff. This level of staffing would enable the CLU 
to work with the Bureau of Consumer Protection to identify matters for 
referral to the DOJ, to build effective working relationships with DOJ, 
to assist DOJ in the evaluation and preparation of cases, to maintain 
complete data sets regarding the history and results of referrals, to 
establish closer relationships with Federal prosecutors outside DOJ 
(e,g,. the postal system inspectors), and to form partnerships with 
criminal prosecutors at the state level.

    Question 4. From your experience at the FTC, what are the hurdles 
the Commission encounters in referring crimes and seeing cases filed 
against the worst offenders?
    Answer. I see two important obstacles. The first is the limitation 
on funding discussed immediately above. The second is the challenge of 
persuading the DOJ and other criminal prosecution offices to assign a 
higher priority to serious consumer fraud amid numerous other demands 
upon their resources. The criminal enforcement offices at the federal, 
state, and local levels are pressed to address a multitude of grave 
offenses, and the FTC's referrals are competing for attention with 
numerous other forms of serious misconduct.
    One potential solution to the second obstacle would be for the 
President to undertake a ``whole of government'' approach, similar to 
President Biden's initiative on competition, for consumer fraud. Such 
an initiative would seek to create a forum to raise awareness across 
public agencies about the seriousness of consumer fraud and to engage 
agencies beyond the FTC to use their powers to detect and prosecute 
consumer fraud. The FTC would play a central role in the work of this 
whole of government initiative.

    Chamber of Commerce response to 13(b). A few minutes before the 
Commerce Committee's April 20, 2021, hearing, Strengthening the Federal 
Trade Commission's Authority to Protect Consumers, the Chamber of 
Commerce sent a letter to the Committee criticizing the FTC's use of 
13(b).

    Question. Now that you have had a chance to read the letter, is 
there anything else you want to address about the Chamber of Commerce's 
criticism of the FTC and its use of 13(b)?
    Answer. The Chamber of Commerce (the Chamber) letter fails to 
recognize the importance of restitution and disgorgement to the 
effective implementation of the FTC's anti-fraud program. Cease and 
desist orders are valuable--indeed, necessary--remedies, yet forward 
looking injunctions by themselves have feeble deterrent value.
    The Chamber's letter does not persuade me that the Commission has 
sought equitable monetary remedies in inappropriate cases involving 
allegations of consumer fraud. To my mind, the FTC has used a highly 
disciplined approach to ensure that it seeks equitable monetary 
remedies in deserving cases.
                                 ______
                                 
 Response to Written Question Submitted by Hon. Richard Blumenthal to 
                            Kevin H. Rhodes
    Risks of enforcement limitations after 13(b). I commend 3M for 
spending the money and time bringing counterfeiters and fraudsters to 
court. Fortunately, 3M won disgorgement in these court cases, and 
donated the counterfeiter's profits. Regrettably, now the FTC cannot do 
that.

    Question. Why was disgorgement important in 3M's efforts to stop 
and deter those exploiting consumers and healthcare workers?
    Answer. 3M has now filed 36 lawsuits in Federal courts across the 
United States and in Canada against defendants engaged in fraud, 
counterfeiting and price gouging in connection with purported 3M 
respiratory protection products. In those actions, 3M's primary goal is 
to secure injunctive relief and judgments that put a stop to the 
defendants' unlawful conduct. In addition, 3M has obtained disgorgement 
of the defendants' ill-gotten profits or other monetary recoveries 
through court orders or agreements by the defendants in a number of 
cases, and 3M is donating all of those monetary recoveries to COVID-19 
related relief charities.
    3M believes that making pandemic profiteers pay and eliminating the 
profitability of their unlawful schemes are important to stopping and 
deterring counterfeiting and other unlawful behavior. Injunctive relief 
alone may stop the unlawful activities of a defendant, but if that bad 
actor is able to keep the ill-gotten profits from its unlawful 
activities, by the time it is stopped, the scheme may have generated 
significant profits. Unfortunately, an injunction alone may be viewed 
as just a cost of doing business. Absent disgorgement of profits, 
would-be counterfeiters may be tempted to seek to obtain and keep 
profits from selling counterfeit products for as long as they can until 
they are caught and stopped.
    Thus, 3M believes that disgorgement is important to deter bad 
actors by making it clear to them that fraud, counterfeiting and price 
gouging do not pay. Disgorgement is a key point of leverage in 3M's 
enforcement efforts, as many of the fraudulent entities do not 
otherwise have a valid business, so often the main recoverable assets 
are their ill-gotten gains.
    Disgorgement of profits sends a powerful message to wrongdoers. 3M 
has widely publicized its enforcement efforts, including the monetary 
recoveries 3M has received and donated. Publicizing that disgorgement 
is a remedy 3M has sought and obtained helps deter would-be fraudsters 
by making clear 3M's resolve not only to find and stop their unlawful 
behavior, but also to make sure they do not reap financial benefits 
from their pandemic profiteering and exploitation of healthcare workers 
and others seeking authentic 3M respirators.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Richard Blumenthal to 
                           Cynthia Alexander
    Counterfeit good commercial activity. Online retail platforms have 
dealt with a barrage of fraudulent goods--such as personal protective 
equipment, vaccines, vaccine cards, and others--throughout the COVID-19 
pandemic. While the FDA, Centers for Disease Control, and other 
agencies shared information to help consumers identify and avoid fake 
products, online retail marketplaces are also responsible for detecting 
and removing such content from their sites.

    Question 1. What role have online retailers played in identifying 
and ending counterfeit good commercial activity?
    Answer. In my role as an Assistant Attorney General in Washington, 
I typically learn about counterfeit and fraudulent commercial activity 
when online retailers have not prevented it, and thus can speak to 
their role in ending such activity only in the context of enforcement 
efforts. For example, in 2019, the Washington Attorney General found 
that dozens of schools supplies sold on Amazon's online marketplace had 
illegal levels of lead and cadmium. To resolve the investigation 
without a lawsuit, Amazon entered into an agreement to block the sale 
of children's school supplies and jewelry on the platform without lab 
reports and other proof that the products are not toxic. While consumer 
protection enforcement agencies can play a role in ensuring online 
retailers take responsibility for counterfeit and fraudulent products 
sold on their platforms, the online retailers usually have (or can 
readily obtain) the data to be in the best position to combat the sale 
of such goods on their platforms.

    Question 2. What recommendations do you have for Congress regarding 
ways to address counterfeit good commercial activity on online 
platforms and marketplaces?
    Answer. I do not have specific recommendations, but my personal 
opinion (and not necessarily that of my office) is that because online 
retail platforms are best positioned to prevent the sale of counterfeit 
and fraudulent goods on their platforms (and indeed typically profit 
from such sales), they should be accountable when products offered or 
sold on their platforms are counterfeit, fraudulent, banned, mislabeled 
or otherwise unsafe.

    Question 3. When the FTC secures civil penalties under the COVID-19 
Consumer Protection Act, will the Commission provide financial relief 
to consumers, such as refunds for scams and deceptive products?
    Answer. I will have to defer to the FTC on the proper scope of its 
authority.

                                  [all]