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  • 9th Circuit: FTC does not need to show irreparable harm to get injunctive relief

    Courts

    On June 17, the U.S. Court of Appeals for the 9th Circuit held that no showing of irreparable harm is required for the FTC to obtain injunctive relief when the relief is sought in conjunction with a statutory enforcement action where the applicable statute authorizes such relief. According to the opinion, the FTC brought an action against an entity and related individuals (collectively, “defendants”) operating a mortgage loan modification scheme for allegedly violating the FTC Act and Regulation O by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. (Previously covered by InfoBytes here.) The FTC brought the action under the second proviso of Section 13(b) of the FTC Act, which allows the agency to pursue injunctive relief without initiating administrative action. The district court granted the motion for preliminary injunction without requiring the FTC to make a showing of irreparable harm.

    On appeal, the 9th Circuit rejected the defendants’ argument that the FTC was still required to demonstrate the likelihood of irreparable harm in a Section 13(b) action. The appellate court noted that the FTC’s position is supported by the court’s precedent, quoting “‘[w]here an injunction is authorized by statute, and the statutory conditions are satisfied . . ., the agency to whom the enforcement of the right has been entrusted is not required to show irreparable injury.’” The appellate court concluded that its precedent is not irreconcilable with the 2008 Supreme Court decision in Winter v. Natural Resource Defense Council, Inc, noting that Winter did not address injunctive relief in the context of statutory enforcement. Therefore, the appellate court concluded that although irreparable harm is required to obtain injunctive relief in an ordinary case, the district court did not error in granting injunctive relief, without the showing of irreparable harm, in conjunction with a statutory enforcement action.  

     

    Courts Appellate FTC FTC Act Preliminary Injunction Ninth Circuit

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  • Court holds SEC has not proven pre-ICO cryptocurrency is a “security”

    Courts

    On November 27, the U.S. District Court for the Southern District of California denied the SEC’s motion for a preliminary injunction against a cryptocurrency company, concluding the agency failed show the currency tokens were “securities” as defined under federal securities laws. According to the order, the SEC filed a complaint against the company in October alleging it falsely claimed its initial coin offering (ICO) was registered and approved by the SEC and other regulators, including using the agency’s seal in marketing materials. At the time of the filing, the SEC claimed the company had already raised more than $2.5 million in pre-ICO sales. The SEC moved for a preliminary injunction to freeze the company’s assets and prevent the company’s owner from buying or selling securities and other digital currency during the pendency of the case. Upon review, the court noted the SEC must establish the company previously violated federal securities laws and there is a reasonable likelihood that it will happen again. The SEC argued the allegedly fraudulent marketing materials used to raise money from 32 “test investors” violated federal securities laws, while the company argued the investors did not have an expectation to receive profits as they were working with the company on the exchange’s functionality and therefore, the currency tokens were not “securities.” The court denied the SEC’s motion, concluding that it could not determine whether the tokens were “securities” under federal law without full discovery as there were disputed issues of material facts, including what the test investors relied on in terms of marketing materials before they purchased the cryptocurrency tokens.

    Courts Cryptocurrency Virtual Currency Initial Coin Offerings SEC Preliminary Injunction

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