The highly anticipated trial of LabMD versus the Federal Trade Commission (FTC) has been interrupted by a related investigation by the House Committee on Oversight and Government Reform.
The committee recently disclosed via a letter to the chairwoman of the FTC that testimony it had relied upon in its case against LabMD may not have been truthful. The letter addressed to Chairwoman Edith Ramirez says that key information provided to the FTC upon which the initial complaint against LabMD is based is “incomplete and inaccurate.”
Unofficial court documents related to the LabMD vs. FTC case lay out some, but not all, of the details related to whatever the committee is investigating, which has resulted in witnesses exercising their Fifth Amendment right against self-incrimination and at least two trial delays. The trial is currently in a recess of undetermined length while the court awaits information from the congressional oversight committee and decision concerning a grant of immunity to a key witness in the case, Robert Wallace.
Central to the case and the committee investigation is a file known as the 1718 file. This is the file that the FTC claims was “found” on a peer-to-peer Web site by Tiversa (a “cyberintelligence” company) that contained protected information and is the reason for the three-year investigation of LabMD. According court documents, the source of this file is in question. Sometime in 2009, FTC and Tiversa “cut a deal under which Tiversa funneled the 1718 file to FTC after FTC sent a civil investigative demand to Tiversa’s sham corporation, ‘The Privacy Institute’.”
According to a motion to admit an exhibit, known as RX-542, which is the letter from Darrell Issa (R-Calif.) of the Government Oversight Committee mentioned previously, the source of this document is now in question. The FTC allegedly never attempted to verify the source of the file by any outside company or expert, accepting the source as stated by Tiversa.
According to the motion to admit the congressional oversight committee’s letter, Wallace may have been the author of the 1718 file or the file was obtained illegally by Tiversa. The same motion also states that Tiversa CEO Robert Boback has testified inconsistently about the origins of the file. It seems that the FTC case may be relying on a document that was obtained illegally by Tiversa, which would be criminal if true and a lie about the origin of the file. Ultimately, the court ruled that the RX-542 document is admissible.
Saga Far From Over
LabMD has all but shut down operations because of the FTC pursuit of what it considered security lapses serious enough to warrant a three-year investigation and severe penalties for LabMD. Now, it seems that at least some of the parties to this civil action have been less than truthful about the foundational evidence in this matter, resulting in action by a congressional oversight committee into the actions of the FTC.
There may also be repercussions for other FTC cases that involve Tiversa. LabMD may not survive, but its unwillingness to give in to the FTC’s relentless pursuit may benefit others in the laboratory and health care community. We will just have to wait for the next episode in this surprising and ever more interesting case.
Takeaway: Compliance officers need to be on the lookout for any and all cases concerning compliance and privacy issues so they are aware of the latest developments in laws and regulations should they ever find their company is the target of such an investigation.
