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Congressman calls for halt to U.S. FTC breach probe amid claims of 'corporate blackmail'

Jaikumar Vijayan | June 20, 2014
A U.S. House committee has called on the Federal Trade Commission's Inspector General to probe the agency's relationship with a peer-to-peer network-monitoring firm whose data is key evidence in an FTC complaint filed against LabMD.

Boback said the FTC contacted Tiversa after the company provided testimony before Congress on its research findings related to data leaks on P2P networks. The FTC demanded that Tiversa either hand over its information or be subject to a formal Civil Investigative Demand. "Tiversa had no choice but to comply with the demand," Boback said.

He said that a former Tiversa employee cited by Issa is seeking retaliation for being terminated earlier this year. "This employee is clearly seeking retaliation for his termination and unfortunately is attempting to manipulate Congress into an investigation to achieve his goal," Boback said.

Boback also rejected previous claims made by LabMD CEO Michael Daugherty about a conspiracy between Tiversa and the FTC. "Tiversa has freely and honestly answered any questions by the Committee," he said.

Daugherty earlier this year claimed that the FTC's pursuit of his company since 2010 had forced him to shut down operations and lay off his employees.

Daugherty has accused the FTC of overstepping its authority in investigating LabMD, contending that the agency does not have authority to regulate data security practices.

He has also questioned the standards used by the FTC in judging whether a company has reasonable security measures. He has said it's unfair to hold companies to data security standards that have not yet been formally promulgated by the FTC or other federal body.

LabMD and Wyndham Worldwide are the only companies to challenge the FTC's data breach enforcement actions in recent years. In other cases, the FTC has extracted settlements from its targets.

Meanwhile, several business groups, including the U.S. Chamber of Commerce, TechFreedom, the American Hotel and Lodging Association, National Federation of Independent Businesses and the International Franchise Association, are calling for a review of the FTC's enforcement authority

Government watchdog Cause of Action, (CoA) which has taken up LabMD's defense, welcomed the House Oversight Committee investigation demand for an investigation into its relationship with Tiversa.

"The House Oversight Committee's investigation should send a message to federal agencies, the President and the courts that the arbitrary abuse of administrative power will not go unchecked," Cause of Action's executive director Dan Epstein said. "This is why it has investigated and litigated for LabMD to stop the FTC from arbitrarily expanding and abusing its power by victimizing an entrepreneur who did nothing wrong."

The CoA contends that there is no evidence that the FTC has taken steps to independently authenticate Tiversa's claims.


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