Consent Decree Compliance

SKILL 50: Consent Decree Compliance

Purpose

Understand what a consent decree means operationally, how to live under one, and how to negotiate better terms before signing.

What a Consent Decree Is

• Legally binding agreement between you and a regulator to resolve an enforcement action
• Entered as a federal court order (for FTC/DOJ) or administrative order (for CFTC/SEC)
• Typical duration: 10–20 YEARS (FTC standard: 20 years)
• Violation: contempt of court OR additional fines — up to $50,349 per violation per day (FTC)

Common Consent Decree Terms

• Injunction: "You shall not [operate unregistered prediction market / sell unregistered securities]"
• Compliance program: implement and maintain a written compliance program
• Independent monitor: hired at YOUR expense, reports to the regulator ($200K–$1M+/year)
• Periodic reporting: quarterly or annual compliance reports submitted to regulator
• Audit rights: regulator can audit compliance at any time with reasonable notice
• Disgorgement: pay back ill-gotten gains
• Civil penalty: pay the fine
• Cooperation: cooperate with ongoing investigations
• Neither admit nor deny: standard language — but you CANNOT publicly deny the findings either

Living Under a Consent Decree

• Every business decision evaluated against decree terms
• Launching a new product? Check if it violates the injunction (get monitor's approval if required)
• Changing compliance program? Monitor must approve
• Monitor has ACCESS to: internal communications, financial records, systems
• New employees must be briefed on decree obligations
• Decree follows the COMPANY (and potentially key individuals), not just the product

How to Negotiate Better Terms (Do This BEFORE Signing)

Duration

• Argue for 5–10 years instead of 20
• Basis: quick remediation, good faith cooperation, limited harm to consumers
• FTC has accepted shorter terms for smaller violations with prompt remediation

Scope of Injunction

• Narrow it to the SPECIFIC product/practice at issue
• Push back on: "and any substantially similar product or service" (overly broad)
• Define terms precisely: what counts as a "prediction market" vs. a "skill competition"

No Monitor

• Argue internal compliance program is sufficient
• Offer: enhanced reporting obligations instead of an independent monitor
• Cost savings: $200K–$1M+/year (worth fighting hard for)

Reduced Penalty

• Cooperation credit: if you cooperated early, provided documents promptly, self-reported → argue for 30–50% reduction
• Ability to pay: document financial constraints
• No prior violations: first-time violators get significant reductions
• Consumer harm limited: if few users were affected

Sunset Provisions

• Decree terms relax or terminate if compliance metrics are met
• Example: monitoring obligation drops from quarterly to annual after 3 years of clean reports

Right to Modify

• Preserve the ability to petition the court to modify terms if business circumstances change substantially
• Crucial for a technology company where the product landscape changes rapidly

Case Studies

FTC v. Epic Games (2023) — $520M, 20-Year Consent Decree

• Violation: COPPA violations (collected data from children), dark patterns for purchases
• Terms: $275M civil penalty, $245M refunds, 20-year privacy compliance program, biennial audits
• Lesson: COPPA violations are extremely expensive. Age verification is non-negotiable.

CFTC v. Polymarket (2022) — $1.4M Fine

• Violation: operating unregistered event contracts exchange
• Terms: $1.4M civil monetary penalty, agreed to cease offering to US persons, wind down US-facing operations
• Outcome: Polymarket restructured, geo-blocked US users, continued offshore operations
• Lesson: A focused, limited decree can allow the business to survive in restructured form

SEC v. Block.one / EOS (2019) — $24M Fine

• Violation: unregistered securities offering (ICO raised $4 billion)
• Terms: $24M fine (0.6% of proceeds raised). No ongoing compliance requirements. No admission of wrongdoing.
• Lesson: Early cooperation + good legal strategy can produce remarkably favorable terms even on large violations. Block.one walked away without ongoing obligations.

FTC v. Facebook/Meta (2019, modified 2020) — $5B Penalty, Ongoing Decree

• Terms: $5B civil penalty (largest FTC penalty ever), 20-year decree, independent privacy committee on board of directors, mandatory privacy reviews for new products
• Lesson: Systematic privacy violations at scale → maximum FTC enforcement response

Pre-Enforcement Mitigation Strategy

Best protection against a devastating consent decree: don't get one.

1. Get legal opinions BEFORE launching regulated products
2. Self-report problems when discovered (cooperation credit)
3. Remediate quickly and document the fix
4. Engage proactively with regulators (sandbox programs, no-action letters)
5. Build genuine compliance programs (not paper programs) — regulators can tell the difference

This is legal research and intelligence, not legal advice. Consult qualified legal counsel before taking action.