House Oversight notifies FTC of investigation into Tiversa and "less than accurate" information it provided in LabMD case (Update 1)

In a bit of a bombshell, the House Committee on Oversight and Government Reform sent Edith Ramirez, Chairwoman of the FTC, a letter yesterday that provided some details of its investigation of Tiversa and the “less than accurate” and “incomplete” information its CEO, Robert Boback, provided in his testimony to the FTC in its case against LabMD.

At the crux of the issue, on June 5, Boback testified to Issa’a committee that he had been given “incomplete” information by an employee about the origin of the “1718 file” that was the impetus for the FTC opening an investigation into LabMD.   Boback testified to Issa’s committee that an employee had told him the source of the 1718 file prior to Boback’s November 2013 testimony in the FTC’s case against LabMD. “And, subsequently,” Boback testified, “we have done a new search and found that the origin was different than what was provided to me …. in November.”  “I didn’t know [Tiversa Employee B] was going to provide me with less than accurate information,” Boback informed the committee.

On May 30, a former Tiversa employee, Richard Wallace, had indicated through his attorney that he was seeking an immunity deal with House Oversight that would also cover any testimony he might give in the FTC’s hearing against LabMD.  As a result of his intention to invoke his 5th Amendment rights until an immunity deal could be reached, and as a result of Boback’s lawyer’s statement that Boback would not testify until they had an opportunity to find out what the House matter involved, the FTC hearing had been postponed until today.

I’ve uploaded Chairman Issa’s letter to the  FTC here (pdf).

This is a developing story that will be updated as more information becomes available.

Update 1: The FTC’s administrative hearing against LabMD resumed today before Administrative Law Judge Chappell.  Since the recess, former Tiversa employee Rick Wallace, whom LabMD had called as a witness, had not (yet) been able to arrange an immunity deal with the House Oversight Committee, and the first part of today’s hearing dealt with whether LabMD should call him, let him invoke the 5th, and just put their questions to him and let Judge Chappell draw inferences from the questions and his invocation of the 5th. Judge Chappell replied, “Well, if all he’s going to give us is his name, that’s a lot of inferencing.”

Things started to really heat up, though, after Judge Chappell read the letter from House Oversight to the FTC, as the FTC’s lawyer, VanDruff, had not made the court aware of the letter herself and had stated, when asked about it, “We think, though, that this is not admissible for any purpose in  this matter.” After Judge Chappell saw the letter, there was a somewhat heated exchange. From an uncertified rough draft of the transcript:

JUDGE CHAPPELL: Ms. VanDruff, what part of this letter do you think is not relevant to this proceeding? Stand up and address that question immediately. I just read paragraph 2. I want to hear from you.

MS. VANDRUFF: Your Honor, I didn’t say it wasn’t relevant, Your Honor. And Mr. Sherman is also copied on this letter and it is Mr. Sherman who raised the issue of Mr. Wallace this morning. To the extent that Mr. Sherman believed that this letter was relevant  to Your Honor’s —

JUDGE CHAPPELL: You would agree this letter refers to the 1718 File.

MS. VANDRUFF: Absolutely, Your Honor.

JUDGE CHAPPELL: In black-and-white, it’s right there. You would agree it refers to testimony being accurate or not regarding this case.

MS. VANDRUFF: Yes, Your Honor. I made no representation to the contrary.

JUDGE CHAPPELL: Yet you didn’t talk about the  letter until I asked you; is that correct?

MS. VANDRUFF: Your Honor.

JUDGE CHAPPELL: Until this lady brought it up.

MS. VANDRUFF: The issue that Your Honor —

JUDGE CHAPPELL: Were you going to sit there and not tell me about this letter? Were you going to do that if I hadn’t asked you? That’s what I want to know.

MS. VANDRUFF: Your Honor, I was prepared to address this letter today. Mr. Wallace is not our witness, nor is Mr. Boback, and so if it was in the interest of — I don’t know.

JUDGE CHAPPELL: You don’t think in the interest of truth this information should be disclosed to this court in this proceeding?

MS. VANDRUFF: I was not withholding the information, Your Honor.

JUDGE CHAPPELL: We’re trying to get to the truth here, aren’t we?

MS. VANDRUFF: Of course we are.

JUDGE CHAPPELL: You don’t think this letter touches on this matter in truth on this matter that we’re having a trial. You were not going to bring up  this letter; is that correct?

MS. VANDRUFF: No, Your Honor, that is not what I said. No. That is not the position of the government, of course not.

[…]

Later in the hearing:

MS. VANDRUFF: Your Honor, we don’t object to the court receiving this document, but I don’t believe  it’s admissible for any permissible purpose. It is hearsay. It is statements by the chair of on.

And so LabMD offered the letter as an exhibit, the FTC opposed it based on hearsay, and both sides have to brief that issue in writing.

In the meantime, there was also the issue of what to do about Rick Wallace’s testimony. The significance of his testimony to LabMD’s defense was made clear in this exchange between LabMD’s counsel and Judge Chappell:

JUDGE CHAPPELL: Well, based on the evidence I’ve heard, what can he address other than how the government got the information from Tiversa? And am I correct, that’s the issue he’s supposed to testify regarding?

MR. SHERMAN: That’s correct. How he got the information. And I think he can also address the veracity of that information, whether or not in fact that information is what it purports to be. And without that information and without that piece of evidence, I would submit that the government has a very slim chance of proving that LabMD participated in an unfair practice, that being its data security, and that the state of LabMD’s data security was likely to cause substantial consumer injury.

After some non-public sidebar and discussion, Rick Wallace was called to testify, and as agreed upon, provided his name, that he was employed by Tiversa from 2007 until February of this year, and then he invoked his 5th Amendment rights to the first question. No further questions were asked, and LabMD counsel indicated he would present a motion under the Commission’s Rule 3.39 to seek immunity for Wallace, but would not do so until it was in the best interests of his client and the truth. The FTC indicated it would not oppose the motion for immunity.

Boback’s deposition, which was taken as per the judge’s prior order of May 30, was admitted into the record but not yet made public as it reportedly contains some sensitive medical information that should have been in camera.

I’ve uploaded the draft of the rough transcript with the caution that it is only an uncertified rough draft and “THE FINAL TRANSCRIPT MAY VARY WITH REGARD TO PAGE/LINE NUMBERING AS WELL AS SUBSTANTIVE CONTENT.” With that caution, you may access the rough transcript here (.txt).

 

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