United States: State AGs In The News - July 2nd, 2015

AG Insights

Are You Getting Too Much State AG Enforcement in Your Dietary Supplement Business?

  • In her latest blog post, Dickstein Shapiro Counsel Doreen Manchester provides background and insight into the different roles of State AGs and federal agencies in regulating dietary supplements.


Second Circuit Upholds Ruling That Apple Violated Antitrust Laws When Setting E-Book Prices

  • In a two to one decision, the Second Circuit Court of Appeals upheld a 2013 trial court decision that Apple Inc. violated the Sherman Act by conspiring with e-book publishers to sustain higher prices. The case was originally filed in the Southern District of New York by the U.S. Department of Justice along with 33 State AGs.
  • On appeal, the three judges debated whether Apple's effort to coordinate a new pricing model among major e-book publishers was anticompetitive "marketplace vigilantism," or instead a rational business approach to compete in a market that was already highly concentrated, with Amazon.com, Inc., supplying over 90 percent of e-books to consumers. The dissenting judge indicated that he thought "Apple took steps to compete with a monopolist and open the market to more entrants, generating only minor competitive restraints in the process."
  • The majority found that there was "some surface appeal" to Apple's argument that in light of Amazon's virtually uncontested dominance, a more aggressive strategy was procompetitive in the e-book market. However, as Judge Lohier wrote in his concurring opinion (finding that Apple's agreement was a per se violation of the Sherman Act), "more corporate bullying is not an appropriate antidote to corporate bullying."
  • Barring further appeal, Apple will be required to pay $450 million in restitution and penalties, as it negotiated in 2014 with the AGs and lawyers for the consumer class action.

Consumer Financial Protection Bureau

CFPB Consumer Complaint Database, Now With Narratives!

  • The Consumer Financial Protection Bureau (CFPB) announced that it now offers public access to a searchable set of 7,700 consumer complaints with accompanying narratives addressing problems and concerns with various financial products and services.
  • The CFPB has provided access since 2012 to data from over 627,000 individual complaints, but until now consumers did not have access to the consumer-drafted narratives associated with the complaints. The CFPB believes that providing access to these narratives will help other consumers make decisions regarding financial products, and will indirectly improve the quality of the services offered.
  • The new feature allows consumers to search narratives based on date received, company name, product description, issue, state, and zip code. It also allows a search based on company response, however, such response is limited to a few standard formats, including "company chooses not to provide a public response."

Consumer Protection

FTC and New Jersey AG Settle With App Developer Over Allegedly Deceptive Virtual Currency Mining Function

  • The Federal Trade Commission (FTC) and New Jersey Acting AG John Hoffman settled with smartphone app developer Equiliv Investments, LLC, and principal Ryan Ramminger (together, "Equiliv"), for alleged violations of the FTC Act and the New Jersey Consumer Fraud Act.
  • In the Complaint, the FTC alleged that Equiliv marketed a smartphone application that purported to give consumers various prizes in exchange for the completion of certain tasks, such as playing games with advertisements built in, or taking online surveys. However, the real purpose of the app was allegedly to install malware and use the computing power of each smart phone to "mine" virtual currencies for Equiliv.
  • Virtual currencies provide the opportunity for firms to provide computing resources to solve complex mathematical problems in exchange for payment in the form of future denominations of the currency—a process referred to as "mining." By allegedly infecting consumers' smartphones with malware downloaded through the app, Equiliv was able to use the collective computing power of thousands of phones to give itself an advantage in mining the currency. The use of that power caused negative effects to the devices' battery and used consumers' monthly data allotments.
  • The Stipulated Order requires Equiliv to destroy all consumer information it collected through the marketing and distribution of the app and enjoins it from creating or distributing malware. It also calls for a $50,000 monetary judgment against the defendants, payable to the state of New Jersey, with $44,800 suspended upon compliance with the conditions of the Order.

False Claims Act

DOJ Settles With For-Profit Colleges Over Allegedly Altered Test Scores and Fake Diplomas

  • The U.S. Department of Justice (DOJ) resolved five separate lawsuits against Education Affiliates (EA), an entity that operates for-profit post-secondary education training programs on 50 different campuses under various trade names, for multiple alleged violations of the False Claims Act.
  • The complaints alleged various types of false claims made by EA in pursuit of federal student aid on behalf of its students. Claims included using altered admissions test results, creating false high school diplomas, referring prospective students to "diploma mills" from invalid online sources, and falsifying students' federal aid applications.
  • EA agreed to pay $13 million to resolve all claims against it. The underlying lawsuits were brought by whistleblowers who, under the terms of the settlement, will receive payments totaling approximately $1.8 million.


SEC Charges Advisory Firm With Fraudulent Valuation Practices

  • The Securities and Exchange Commission (SEC) brought an administrative action against investment firm AlphaBridge Capital Management, LLC, and its owners, Thomas Kutzen and Micheal Carino, for inflating the valuation of unlisted, thinly-traded assets in order to receive higher management and performance fees in violation of the 1940 Investment Advisors Act.
  • The SEC alleged that AlphaBridge coordinated with certain broker-dealer representatives to create the appearance that the asset valuations had been determined independently and were supported by standard industry auditing processes, when instead the valuations were created internally and secretly disseminated by Carino. The respondents have agreed to resolve the action through the submission of Offers of Settlement.
  • The Order requires AlphaBridge and its owners to pay a combined $5 million to resolve the claims, of which $4,025,000 is designated as disgorgement of profits and $975,000 as civil penalties. In addition, Carino is barred from working in the securities industry, or associating with advisors, brokers, and dealers, for at least three years. AlphaBridge and Kutzen are censured, and the firm will engage an independent monitor to oversee winding down the related funds.

States v. Federal Government

States Seek to Overturn "Waters of the U.S." Rule

  • A group of State AGs, led by Georgia AG Sam Olens, filed a lawsuit to challenge the "Waters of the United States" rule ("Rule"), contending that the Rule violates the Administrative Procedure Act and the U.S. Constitution, and exceeds the authority created by the Clean Water Act.
  • The Rule, which was published in final form in the Federal Register on June 29, extends the definition of the waters over which the Environmental Protection Agency (EPA) and Army Corps of Engineers ("Army Corps") have regulatory authority under the Clean Water Act. The Rule addresses the scope of EPA and Army Corps authority over "tributaries" and "adjacent waters," and outlines the standard to be used to decide case-specific issues where there is a "significant nexus" with jurisdictional waters.
  • The AGs' Complaint states that the Rule too drastically expands federal authority under the Clean Water Act, and thus usurps the states' primary responsibility for the management, protection, and care of intrastate waters. The AGs argue that giving the EPA and Army Corps authority over minor creeks, streams, roadside ditches, ponds, wetlands, or any other area where water may flow once every 100 years, would overly-burden small transactions and local business activity with costly, and time-consuming, federal bureaucracy. The AGs request the U.S. District Court for the District of Georgia to declare the Rule illegal and enjoin the EPA and Army Corps from enforcing it.

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