Court decision could boost FTC authority over e-commerce

The Federal Trade Commission's authority to conduct investigations of e-commerce could be enhanced under an opinion issued last week by the D.C. Circuit Court of Appeals.

In the case, FTC v. Ken Roberts Company, a unanimous three-judge panel ruled that the agency is entitled to investigate four Web-based companies for potential deceptive advertising even though the businesses--which teach individuals to trade commodities--fell outside the agency's normal purview.

The case stems from an interagency investigation of deceptive practices by "day traders" and commodity brokers begun in 1999 and conducted jointly by the FTC, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). In a May 1, 2000, release, the FTC trumpeted that it had agreements from 14 online firms that promised to discontinue their claims of sharing "the secrets of making easy money with little risk using their day-trading strategies."

But four companies affiliated with Ken Roberts, an Oregon-based business that claims to teach people to make money by trading commodities such as wheat and oil, refused to comply with the FTC's civil investigative demand, a legal notice requiring cooperation.

Ken Roberts said that its activities were subject to the CFTC and the SEC, not the FTC, according to the appeals court opinion. Although the CFTC has never taken enforcement action against the company, it has investigated its claims and required the company to register with the CFTC as a commodity-trading advisory.

The appeals court disagreed with the company's argument. "Because under no reasonable reading of the Commodity Exchange Act or the Investment Advisors Act does either of those statutes manifestly strip the FTC of its broad power over deceptive advertising, we affirm the district court's decision that appellants must comply with the FTC's compulsory process," read the opinion, written by judge Harry Edwards and joined by judges David Tatel and Judith Rogers.

"The central issue [in the case] was could we investigate them? The court said we could, and so our investigation could go forward," said Larry DeMille-Wagman, an attorney in the office of the FTC general counsel. "If this case had gone the other way, we would not be able to investigate these sorts of companies."

Citing Ken Roberts' Web-based promotional material claiming returns of 200 percent to 1,000 percent--and that "the only thing you need to become wealthy in the stock market is a price"--DeMille-Wagman said, "We wanted to see what they have got to back up these claims."

Officials at Ken Roberts did not return a call seeking comment.