Federal Trade Commission: Asset Freezes in Enforcement Cases

FTC Asset Freezes in White Collar Enforcement Cases

This is where the Federal Trade Commission (FTC), is at its most potent.

When the FTC files a lawsuit in federal court – especially in cases involving fraud or major consumer harm – it often asks the federal judge for an asset freeze at the very outset of the case.

FTC complaints are frequently filed under seal along with an ex parte motion (meaning without any advance notice to the defendants) for a temporary restraining order that includes an asset freeze and sometimes demands that a receiver take over the business. The purpose of an asset freeze is to immediately preserve funds and property that might be needed to repay consumers if the FTC eventually wins the case. Without a freeze, the FTC argues that there’s a risk that a sued company or its owners could dissipate money – for example, by hiding it in overseas accounts, selling off assets, or spending it – before victims can get restitution.

It is critically important, from the outset of the case, to retain experienced counsel who can fight the asset freeze, like Dynamis LLC did here.

What an Asset Freeze Does

An asset freeze is a court order that prohibits the defendants from transferring, selling, or disposing of their assets. It typically covers all assets under the defendant’s control, both personal and business-related. That includes bank accounts, real estate, vehicles, investments, and other property. This freeze poses significant challenges for law firms handling criminal defense and internal investigations for individuals and companies under government investigation because it makes it impossible to pay legal fees. There is typically no “carve-out” for anything, whether its legal fees or legal expenses.

Critically, the freeze isn’t limited to the money made from the alleged scheme – it usually extends to legitimate assets as well. The FTC routinely seeks to freeze all of a defendant’s assets for potential consumer redress, including both “ill-gotten gains” and “untainted” assets unrelated to the alleged wrongdoing.

For example, if an entrepreneur is accused of running a fraudulent telemarketing operation, the freeze might lock down not only the revenues from that business but also the owner’s personal savings, his home, and any other investments – even if those were obtained legally outside of the scheme. The rationale is to ensure there’s a large enough pool of money available to refund consumers if the FTC prevails. (On the flip side, funds or revenue that a defendant earns after the court order, from unrelated lawful activities, are generally not automatically frozen. An asset freeze order will often require the defendants to disclose all their assets to the FTC and the court, so that hidden assets can be identified and brought under the freeze.

How the FTC Obtains a Freeze

To get an asset freeze, the FTC must persuade a judge that such relief is justified at the start of the case, which often places intense pressure on defendants and their trial lawyers to act swiftly in mounting a defense. The FTC uses this to squeeze defendants and try and force them to settle.

Typically, the request for a freeze is bundled with a request for a temporary restraining order or preliminary injunction (we’ll cover those next). Under the law (Section 13(b) of the FTC Act), the FTC needs to show that it is likely to win on the merits of the case, and that the equities (justice and public interest) favor granting the freeze and other injunctive relief. Because the FTC’s mission is to protect consumers, courts often accept that restraining a defendant’s assets early on is in the public interest to ensure victims can be made whole later.

In practice, in fraud cases the evidentiary showing often includes proof of the fraudulent scheme (through lengthy declarations, consumer complaints, financial records, etc.) and a showing that without a freeze, the money might be moved or squandered, defeating any final judgment. Courts have regularly granted asset freezes when presented with evidence that defendants might dissipate assets – for example, if the defendants were already moving funds in response to the investigation or have a history of hiding money.

The FTC commonly seeks asset freezes ex parte, meaning the defendant doesn’t get advance notice. This is important: the court can order a freeze without the defendant present or aware, to prevent the very risk that giving notice would prompt an immediate draining of accounts. Courts will grant an ex parte freeze/TRO if the FTC shows that giving the defendant notice would likely result in immediate irreparable harm – such as the disappearance of assets or destruction of evidence. As a result, business owners have sometimes woken up to find their bank accounts frozen and a receiver at their door, without any prior warning from the FTC.

Impact on Defendants

Having your assets frozen is obviously extremely onerous – it means you cannot freely use your money, pay your mortgage, make payroll, or sometimes even cover living expenses without court permission. Asset freeze orders are intentionally broad and can lock up essentially all funds a defendant has access to.

This often and intentionally puts enormous pressure on defendants, as it leaves them with limited means to hire a lawyer or sustain their business operations—particularly in complex enforcement action cases involving money laundering or other financial crimes requiring experienced criminal lawyers. Courts recognize this and have discretion to allow exceptions.

By design, asset freezes often leave defendants without the ability to pay for basic expenses like mortgage payments or attorney’s fees, but judges have broad discretion to release some funds for these purposes, as sometimes do. For instance, a court might carve out a certain amount per month from the freeze so that an individual defendant can pay for food, rent, and utilities, and may permit a portion of frozen funds to be used to retain legal counsel. These are not automatic; defendants must request such carve-outs and justify them.

Challenging or Modifying an Asset Freeze

If you are under an asset freeze, you do have the opportunity to challenge it or at least narrow it – usually at the preliminary injunction hearing which occurs shortly after the TRO (typically within a couple of weeks) or even beforehand by filing a motion to dissolve or modify the TRO.

Defendants can appear in court to argue that the freeze should be lifted or limited. Here are some common arguments and strategies to modify an asset freeze:

• No Risk of Dissipation: You can argue that a complete freeze is unnecessary because you have no intention (or ability) to hide or dissipate assets. If you can demonstrate a track record of cooperation and that you will maintain the status quo, a judge might be persuaded that a full freeze is overkill. For example, if the funds are all in known U.S. bank accounts and you agree to notify the court of any transactions, perhaps a less restrictive asset preservation order could suffice.

• Overbroad Scope: If the freeze sweeps in assets that have nothing to do with the alleged wrongdoing, you can ask the court to exclude those. A frequent plea is to exclude innocent third-party assets, such as a spouse’s separate property or jointly held accounts that contain a spouse’s earnings. Likewise, if a business has revenues from legitimate products unaffected by the alleged fraud, the company might argue those revenues (especially future revenues) shouldn’t be frozen. Courts may be sympathetic if you can clearly segregate “untainted” funds from the rest.

• Living and Legal Expenses: Almost always, defendants will request a carve-out from the freeze to pay for ordinary living expenses and to pay their lawyers. Courts often require detailed financial disclosures (a full accounting of your assets, income, and expenses) to consider this. If you can show that, without access to a certain amount of money, you cannot afford basic needs or mount a defense, courts will often release a reasonable sum to cover those costs. The key is to ask promptly and provide a credible, specific budget of what you need.

• No Final Monetary Remedy Available: In some cases, defendants might argue that the asset freeze is inappropriate because the FTC ultimately isn’t entitled to monetary relief at the end of the case. This is a more technical legal argument – for example, after the Supreme Court’s AMG Capital decision in 2021, the FTC cannot obtain equitable restitution under Section 13(b) (it must use other avenues for money). A defendant might claim that if the law won’t allow the FTC to take money, then holding assets now serves no purpose. This argument’s success can vary; some courts have been receptive in limiting freezes when monetary relief is doubtful, while others maintain freezes to ensure funds are available for other relief (like consumer refunds via a different statute, or to pay civil penalties if the FTC seeks them).

In challenging a freeze, supporting evidence is crucial. Courts will look at financial documents, affidavits, and the specifics of the case. It’s often wise for defendants to propose a narrowed alternative rather than all-or-nothing: for instance, suggest that the freeze remain on certain accounts but lift on others, or offer to keep funds in a trust account overseen by the court or a receiver as a middle ground.

Negotiation with the FTC is also possible here – in some cases, FTC attorneys might agree to unfreeze certain assets (say, a specific bank account) if they are convinced those funds are unrelated to the fraud or needed for legitimate purposes. Any agreement usually will be put into a court order.

Read a brief that Dynamis LLP filed in Florida that ultimately resulted in the court releasing the asset freeze on all of the defendant’s bank accounts. See the declaration that accompanied the motion.

Risks of Violating a Freeze

It should go without saying, but violating an asset freeze order is a very bad idea. If a court finds that you moved or concealed assets in violation of the order, you can be held in contempt. Contempt of court can lead to monetary fines and even jail time. Even an inadvertent violation (for example, you forgot to stop an automatic payment that drained a frozen account) can land you in trouble, so it’s critical to read every detail of the order and work closely with the receiver (if one is appointed) to avoid missteps. Typically, an asset freeze order will explicitly require defendants to cooperate in repatriating any assets that were moved and to report any expenditures. Full compliance is not optional – it’s legally required until the court lifts or adjusts the order.

In summary, an asset freeze is a powerful tool the FTC uses to lock down money. From the defendant’s perspective, it can feel like a financial death grip. However, it is not necessarily permanent or absolute. By promptly engaging in the legal process – providing accurate financial information, demonstrating good faith, and petitioning the court for necessary relief – defendants can often alleviate some of the strain (e.g., getting living expense allowances or narrowing the freeze).

Contact Dynamis LLP today to learn how we can help you navigate the complexities of Federal Trade Commission investigations and “prosecutions.” If you are an organization or individual facing a situation requiring an aggressive, robust response to a Federal Trade Commission inquiry or even an active case, contact attorneys at Dynamis LLP or email whitecollar@dynamisllp.com today.