How One ‘David’ Is Beating the ‘Goliath’ Federal Regulators

fighting(Ping! Zine Web Hosting Magazine) – When the federal government pushed, Michael J. Daugherty pushed back.

And although many people finding themselves in a losing battle when they draw the unwarranted scrutiny of a leviathan agency like the Federal Trade Commission, Daugherty’s case comes with a special twist – he’s winning.

He’s not surprised if others find that astonishing.

There’s no doubt small businessmen like him face an arduous task when the FTC launches an investigation, says Daugherty, author of the book “The Devil Inside the Beltway” (www.thedevilinsidethebeltway.com), which chronicles his effort to expose government corruption and the behavior of regulators.

“FTC agents come after businesses, large and small, while failing to verify the information they rely on for their investigations,” says Daugherty, whose company, LabMD, came under FTC scrutiny. “If I had not fought back and done some investigating myself, this case wouldn’t be where it is today.”

His efforts stirred up a hornet’s nest in Congress, where hearings led by U.S. Rep. Darrell Issa, R-Calif., have shone a spotlight on the FTC’s practices.

“I may be the kind of small businessman regulators usually try to beat up on, but I made up my mind I wasn’t going to be bullied,” he says.

In the process, Daugherty says he has learned a few lessons about fighting the federal government:

  • Don’t expect a quick resolution. Daugherty has spent several years in this battle and LabMD, a cancer-testing company that was based in Atlanta, doesn’t even exist anymore. He theorizes the FTC may go after small companies specifically on the assumption that many of them will give in because of the time and the money involved. It takes dogged determination to avoid wilting to the pressure, Daugherty says. “Usually, no one pushes back,” he says. “But just because a business is small doesn’t mean the people behind that business are weak.”
  • Legal fees are killer, so look for help. A federal agency like the FTC likely will have a lot of questions that most people won’t feel comfortable answering without the help of a lawyer. But those billable hours add up fast. Even if you win, you can lose. That’s why help comes in handy. In Daugherty’s case, Cause of Action, a nonprofit government-accountability organization, has stepped in to assist with legal fees.
  • Do your own research. Lawyers won’t know everything. You need to be willing to dig into everything you can about your case and anything that might be related to your case. Review previous judicial decisions. Comb through regulations. “Part of fighting is gaining knowledge,” Daugherty says.

Daugherty’s experience with the FTC began in 2008 after LabMD received a call from Tiversa, a Pittsburgh-based technology security firm, claiming that LabMD patient-billing information was vulnerable. Tiversa offered its services, for a fee, to fix the problem, Daugherty says.

He viewed the call as a shakedown and declined. Tiversa turned over its information to the FTC, which launched an investigation. In August 2013, the FTC filed a formal complaint, alleging that LabMD failed to reasonably protect the security of consumers’ personal data, including medical information.

Daugherty counters that patient information never left LabMD computers. In a lawsuit against Tiversa, Daugherty claims Tiversa hacked into LabMD’s computers and provided false information to the FTC about how Tiversa obtained the patient files. Tiversa, meanwhile, has a lawsuit against Daugherty, claiming his book defamed the company.

Daugherty scored a significant victory May 5 when a former Tiversa employee, Richard Wallace, testified that Tiversa did not find LabMD patient information on Internet sites, but instead hacked into LabMD’s computer system and found the information there.

It was part of a widespread Tiversa scheme to fake data breaches and pressure companies into hiring Tiversa to “fix” their security lapses, Wallace testified.
After Wallace’s testimony, a stinging Congressional report was released that accused Tiversa of using “fear-mongering tactics” to generate business. The report, among other accusations, also said Tiversa supplied false documents to Congress and other U.S. government agencies.

The report said Tiversa manipulated advanced, non-public, knowledge of FTC regulatory actions for profit, and that information provided by Tiversa formed the basis of the FTC’s case against LabMD.

The 99-page report also criticized the FTC for failing to question Tiversa’s creation of a dubious shell organization to funnel information to the FTC, and for not questioning the veracity of the information.

In addition, the report said the FTC and Tiversa both misrepresented to a congressional committee the extent of their relationship with each other.
None of this would have come to light without the dogged efforts of Daugherty.

“I want to set the record straight on how the government really behaves,” he says, “so that businesses will be better prepared to deal with it and Congress will be motivated to change it.”

About Michael J. Daugherty

Michael J Daugherty is Founder, President & CEO of LabMD, a cancer detection laboratory based in Atlanta, Georgia, as well as the author of the book “The Devil Inside the Beltway, The Shocking Expose of the US Government’s Surveillance and Overreach into Cybersecurity, Medicine and Small Business.”

The book details Daugherty’s battle with the Federal Trade Commission over its investigation into LabMD’s data security practices. It is an insider’s look at how agencies exploit the Administrative Procedure Act to grab for power by exploiting the small and weak to control the big and powerful.

Because of his work, Mike has testified before the House of Representatives House Oversight Committee and regularly keynotes in front of healthcare, law, business and technology audience educating them on what to expect when the Federal Government investigates you.  He holds a BA in Economics from University of Michigan-Ann Arbor, regularly blogs at MichaelJDaugherty.com and sits on the board of Snoopwall, a privacy company based in Nashua, N.H. He is also a pilot and resides in Atlanta, Ga.

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