Meta Platforms Inc. has launched a legal challenge against the US Federal Trade Commission (FTC), questioning the constitutionality of the agency’s enforcement actions. The tech giant seeks to halt the FTC’s attempts to modify their 2020 privacy settlement, arguing that the agency’s internal process is biased and violates the US Constitution.

Meta’s Allegations

In a lawsuit filed at the US District Court for the District of Columbia, Meta claims that the FTC’s administrative process favors its commissioners, creating a biased decision-making environment. Legal experts view this as a significant attack on the FTC’s operating procedures, emphasizing potential implications for the agency’s enforcement practices.

Legal Maneuvers

This legal move follows a dismissal earlier in the week of Meta’s complaint seeking judicial approval for reopening the $5 billion privacy settlement—the largest in US history. Although denied by Judge Timothy Kelly, Meta immediately filed an emergency motion at the US Court of Appeals, aiming to block the FTC’s actions.

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Constitutional Challenges

Meta’s lawsuit aligns with a broader trend of corporations challenging the constitutionality of federal agencies’ administrative adjudication processes. The US Supreme Court’s recent ruling in Axon Enterprise v. FTC and SEC v. Cochran has opened avenues for such challenges, allowing targets to question the constitutionality of actions without waiting for in-house decisions.

Broader Implications

The case echoes challenges other federal agencies face, particularly in light of increasing court scrutiny over administrative authority. Similar debates are ongoing at the Supreme Court in SEC v. Jarkesy, questioning agencies’ abilities to seek penalties before in-house judges. Meta’s complaint raises parallel concerns about Congress delegating power for administrative adjudication and potential violations of the right to a trial by jury.

Supreme Court’s Role

Legal experts speculate that the Supreme Court’s rulings in ongoing cases, including Meta’s, could reshape the landscape of administrative agency power. Comparisons are drawn to recent decisions like West Virginia v. EPA and Seila Law LLC v. CFPB, indicating a broader reassessment of agency structures and procedures.

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Privacy Fallout

Apart from the legal implications, the case is expected to slow down the FTC’s proposed updates to Meta’s 2020 privacy settlement. The updates, introduced in May, aim to restrict Meta’s use of facial recognition and prohibit profiting from children’s data. A ruling against the FTC could jeopardize its ability to safeguard consumer privacy, as critics argue it challenges decades of congressional authorization.

Congressional Response

Privacy advocates and congressional members critical of Meta’s data handling practices have supported the FTC. Senator Edward Markey accused Meta of attempting to evade accountability and emphasized the importance of regulatory oversight in protecting children’s online privacy.

In response to Meta’s legal challenge, Facebook, Meta’s parent company, did not immediately comment.

The case is Meta Platforms Inc. v. The Federal Trade Commission, D.D.C., No. 1:23-cv-03562, complaint filed 11/30/23.

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A pivotal challenge to the U.S. Securities and Exchange Commission (SEC) authority is set to unfold before the Supreme Court, marking another legal skirmish against federal agencies regulating financial markets. This challenge questions the SEC’s power to safeguard investors from fraud through its in-house tribunal system, with the Biden administration appealing a lower court ruling that curtailed the SEC’s enforcement capabilities. The case involves hedge fund manager George Jarkesy, who faced fines and industry expulsion over allegations of securities fraud.

The Controversy

Critics argue that the SEC’s in-house system provides an unfair advantage, allowing the agency to prosecute cases before its judges rather than facing a jury in federal court. The 5th U.S. Circuit Court of Appeals ruled in favor of Jarkesy’s challenge, asserting that the SEC’s use of in-house enforcement proceedings violates the Seventh Amendment right to a jury trial and encroaches upon presidential and congressional powers.

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Potential Implications

Legal experts highlight that the outcome of this case could hinder the SEC’s ability to identify and penalize wrongdoers in the securities industry. The broader context reveals a separate challenge to the Financial Industry Regulatory Authority (FINRA), an industry-financed “self-regulatory organization,” is also in progress. Conservative and business groups supporting these challenges express concerns about the expansive reach of the federal “administrative state” in various regulatory domains.

Industry Concerns

Some concerns limit the SEC’s and FINRA’s efficiency in addressing misconduct, which could have lasting repercussions, allowing malfeasance to persist within the financial system. Professor Benjamin Edwards of the University of Nevada, Las Vegas, emphasizes the importance of a robust enforcement structure, stating, “Our financial system ultimately runs on trust, and you have to be able to trust that the people you’re working with are operating honestly.”

Legal Landscape

This challenge is part of a series of legal attacks against the SEC, even as the Supreme Court, with its 6-3 conservative majority, has shown skepticism toward expansive federal regulatory power. Past decisions faulted the SEC’s selection of in-house judges and eased the process for targets of agency actions to challenge decisions in federal court. The court is also poised to decide on the constitutionality of the Consumer Financial Protection Bureau’s funding structure.

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Case Background

The SEC investigated George Jarkesy in 2011, resulting in fines and an industry ban for securities fraud. The 5th Circuit overturned the SEC’s decision, citing concerns about the right to a jury trial and the SEC’s discretion in choosing in-house or federal court proceedings. Additionally, it criticized the job protections for administrative judges, arguing that they infringe on presidential powers.

The FINRA Challenge

Simultaneously, a constitutional challenge to FINRA’s structure, brought by Alpine Securities Corp, is working its way through the federal appellate courts. Alpine claims that FINRA wields government power and should be subject to constitutional provisions, including presidential oversight. This case, if brought to the Supreme Court, could have profound implications for FINRA’s regulatory authority.

Industry Frustration

Frustration within the business community has grown as the SEC continues to impose fines on defendants. Critics, including UCLA School of Law corporate law expert James Park, argue that the SEC and FINRA lack sufficient checks on their discretion, potentially leading to overly aggressive enforcement practices. The outcome of these legal challenges may reshape the regulatory landscape for financial markets, impacting the SEC’s and FINRA’s roles in ensuring market integrity and investor protection.

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A recent revelation involving Ilyas Khrapunov, a Kazakhstani individual accused of orchestrating hundreds of millions of dollars laundering from the largest city in Kazakhstan and a central bank, has sparked controversy as he aligns himself with his brother’s litigation finance startup. According to records from the Swiss business registry and a court affidavit, Ilyas Khrapunov has assumed the consultant position at Litigation Partners, SA, founded by his brother Daniel Khrapunov in February.

Shady Past and Current Endeavors

Money Laundering and Exile

Ilyas Khrapunov, previously accused by a federal judge of establishing shell companies exclusively for money laundering purposes, has now positioned himself as an external advisor to Litigation Partners. The litigation finance firm, based in Geneva, specializes in complex litigation, mainly focusing on disputes related to former Soviet Union countries.

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Litigation Partners: A Controversial Venture

The Industry Landscape

Litigation finance, a decade-old industry boasting approximately $13.5 billion in assets under management, involves investors funding lawsuits in exchange for a portion of the award if the case succeeds. Although major markets for this industry include the US, UK, and Australia, Switzerland has seen the presence of notable firms like Burford Capital and Omni Bridgeway.

Lack of Transparency and Regulation

The industry’s growth can partly be attributed to the minimal regulation and transparency surrounding funders. While some US courts have started advocating for more disclosure, Switzerland, where Litigation Partners operates, has yet to see significant regulatory pushes.

Funding Origins and Controversial Figures

Litigation Partners’ capital sources and the extent of its funding remain undisclosed in the public domain. Daniel Khrapunov claims that the startup funds were derived from a 2020 sale of Swiss-based real estate initially purchased by his mother in 2004. His parents, Viktor and Leyla Khrapunov are in exile in Switzerland after being convicted in absentia in 2018 of defrauding Almaty, Kazakhstan’s largest city, of at least $300 million.

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Past Financial Misconduct and Current Ventures

The Beverly Hills Connection

Daniel Khrapunov, now 27, and his sister Elvira Kudryashova were implicated in a California LLC named 628 Holdings, allegedly using funds looted from Almaty to purchase properties. Despite claims in a lawsuit filed by Almaty, the lawsuit was dismissed in 2018 due to jurisdictional constraints.

Denial and Educational Pursuits

In response to questions about his role in 628 Holdings, Daniel Khrapunov refuted any involvement in the alleged crimes, stating he was a full-time student in Switzerland. Meanwhile, Ilyas Khrapunov, a key player in managing family fortunes, is currently involved in a master’s law program with aspirations of becoming a litigation consultant.

Recent Legal Troubles and Financial Struggles

Judgment and Financial Strain

In July 2023, a US District Judge upheld a $200 million verdict in favor of BTA Bank against a unit of Swiss Development Group (SDG), a company set up by Ilyas Khrapunov for real estate deals in the US. Despite financial struggles, including a $221,000 judgment, Ilyas Khrapunov revealed his involvement with Litigation Partners in a court update.

Little Oversight in Switzerland

Unlike the US, where battles over disclosure are intensifying, Switzerland lacks significant regulation in the litigation finance sector. While the Swiss Federal Supreme Court deemed litigation funding permissible in 2004, provided funders act independently, there is a notable absence of strict oversight.

Industry Insider’s Perspective

Isabelle Berger, Chief Investment Officer at Nivalion, a Swiss-based entity regulated by the Swiss Financial Market Supervisory Authority, highlighted the industry’s adherence to rules. Despite the lack of strict regulations, Berger believes that the market’s size may deter new entrants.

In summary, the intertwining of Ilyas Khrapunov with his brother’s litigation finance startup raises eyebrows, especially given the family’s controversial past and ongoing legal battles. The evolving landscape of the litigation finance industry and Switzerland’s minimal regulatory environment add further complexity to this unfolding saga.

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