Business Law

Federal Trade Commission vs. Moses (2nd Cir.) – FTC Forces Corporate Officer to Disgorge $11 Million in Gross Revenue Due to Corporations’ Fraudulent Debt Collection Practices

Please share:

The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest:


The Second Circuit has held that the FTC was empowered to force a corporate officer to disgorge $11 million, his companies’ gross revenue, as a result of the corporations’ fraudulent debt collection practices. [Federal Trade Commission vs. Moses, 2019 Westlaw 166011 (2nd Cir.).]

Facts: A group of corporations specialized in the bulk purchase of defaulted “payday” loans. In an effort to collect from the borrowers, the account representatives for the companies made a series of abusive and fraudulent phone calls, threatening both the borrowers and their families.

After the companies and its management agreed with the New York State Attorney General to stop engaging in those practices, the insiders formed new corporate entities and resumed the misbehavior.

The Federal Trade Commission brought suit against the corporations and the insiders under both the FTC Act and the Fair Debt Collection Practices Act, seeking not only to bar the wrongful conduct but also to force the defendants to disgorge all of the proceeds that they had received. One of the insiders defended on the ground that he had no control over the day-to-day operations of the firms. The trial court granted summary judgment in favor of the FTC and required the individual, as well as the firms, to disgorge almost $11 million.

Reasoning: The Second Circuit affirmed, holding that there was ample evidence that the individual insider controlled the companies’ affairs and had full knowledge of what was going on. Citing 15 U.S.C. § 53(b), which authorizes the issuance of permanent injunctive relief, the court held that appropriate relief could also include disgorgement of the proceeds.

Further, citing earlier Second Circuit authority, the court held the FTC could compel “disgorgement of profits.” The court noted that the individual defendant had an opportunity to challenge the FTC’s calculations but failed to do so at trial.

Author’s Comment: I have no sympathy for the defendants, but I have doubts about two aspects of this decision. First, the statute authorizes a “permanent injunction.” But the statute does not mention disgorgement. When Congress wants to authorize disgorgement, it knows how to do so. Perhaps some corrective legislation is in order.

Second, even if disgorgement is a permissible remedy, there is a difference between disgorgement of profits and disgorgement of gross proceeds. Even bad guys have operating expenses, and it is almost never true that “gross equals net.” A judgment against the individual representing the firms’ entire revenue is punitive, since the individual defendant never received that sum of money. Clearly, these defendants merited punishment. But the question is whether the statute authorizes punitive damages, which is essentially what the trial court imposed in this case.

Regardless of those quibbles, however, it is very clear that the courts are fed up with the antics of the “bulk debt” industry and will not hesitate to impose severe remedies. I predict that if the defendant seeks certiorari, it will not be granted.

These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw. Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.

Forgot Password

Enter the email associated with you account. You will then receive a link in your inbox to reset your password.

Personal Information

Select Section(s)

CLA Membership is $99 and includes one section. Additional sections are $99 each.