FTC Rejected Ethics Advice for Khan Recusal on Meta Case (1)

The Federal Trade Commission Chair Lina Khan declined to recuse herself from an FTC case against Meta Platforms Inc., despite the advice of the agency’s top ethics official, according to internal agency documents.

The FTC’s ethics official recommended that Khan remove herself from the case to avoid the appearance of bias, but left it up to Khan to decide, concluding it wasn’t an ethics violation if she took part.

The full scope of the advice hadn’t been available before Bloomberg obtained an unredacted version of the memo.

“In my opinion, there is a reasonable appearance concern with her participation in this matter,” Lorielle Pankey, the FTC’s designated agency ethics official, known as the DAEO, wrote in an Aug. 31 memo. “I also recognize that reasonable minds may disagree.”

Meta had sought to disqualify Khan from participating in the case over the company’s proposed acquisition of a popular virtual reality startup. Meta argued that public statements by Khan calling for a ban on its future acquisitions showed she couldn’t be impartial.

Khan determined she didn’t need to distance herself after consulting the FTC’s general counsel’s office, according to emails reviewed by Bloomberg, where a lawyer advised that there was no issue with her participation since she hadn’t commented on the specific transaction.

The FTC’s Democratic majority then approved Khan’s decision to participate over the objections of the sole Republican commissioner Christine Wilson, blacking out all mentions of the ethics advice in Wilson’s dissent.

Those events led Wilson to abruptly resign, announcing her decision in a fiery op-ed accusing Khan of “abuse of power.” While the ethics dispute was public, many of the details — including the existence of the ethics memo and how it led to Wilson’s resignation — haven’t previously been reported.

The FTC defended Khan’s involvement in the case, noting that the ethics recommendation left the decision to her.

“This is nothing more than a coordinated effort between Big Tech monopolies and their allies in Washington to intimidate public servants whose job it is to protect Americans from unfair competition,” said FTC spokesperson Douglas Farrar. “It won’t work.”

Meta declined to comment Friday, pointing to its recusal petition and previous comments. The company said in February that it disagreed with the FTC’s decision to allow Khan to participate “given the serious issues of bias.”

On Friday, the FTC published Khan’s own previously confidential memo, dated Nov. 18, on her decision not to step away from the case.

“Meta has made multiple acquisitions since I joined the FTC that the agency did not oppose or challenge,” she wrote. “It is difficult to square this basic reality with Meta’s claim that I have predetermined that all acquisitions by Meta are unlawful and should be blocked.”

The ethics memo could have broader implications for Khan, who has come under fierce scrutiny by Republican lawmakers and faces similar calls by Amazon.com Inc. to step back from FTC probes of the online retail and cloud giant.

Federal Trade Commission Chair Lina Khan at the Justice Department’s Spring Enforcers Summit in Washington, March 2023.

Photographer: Al Drago/Bloomberg

While advice from the FTC’s ethics official is non-binding, it has always been followed, said William Kovacic, a former Republican FTC chair who also served as the agency’s general counsel. Kovacic said he wasn’t aware of any situations where a commissioner disregarded official ethics advice.

“Doing that is playing with fire,” said Kovacic, now a professor at George Washington University Law School.

A 2019 review by another federal agency found no recorded instances where a presidential appointee disregarded an agency ethics official’s advice except for one controversial case during the Trump administration involving the National Labor Relations Board.

The NLRB nullified a landmark decision because of the ethics controversy and later adopted new recusal guidelines that mirror those used by the FTC.

An independent ethics expert who served in the Obama and Clinton administrations called the situation “extremely complicated” but said many of the contested statements occurred before Khan took office.

Virginia Canter, chief ethics counsel for the Citizens for Responsibility and Ethics in Washington, who reviewed the documents at Bloomberg’s request, said she understood why the ethics official was concerned, “but her views are not governing here.”

Prosecutor Versus Judge

A key issue in the dispute is the dual role that FTC commissioners play. The agency can pursue cases in federal court where a judge decides the outcome or file lawsuits in-house where an administrative judge issues a decision that is reviewed by the commissioners. Those in-house proceedings have come under fire, and the Supreme Court ruled earlier this year that companies can contest whether the process adequately protects their rights.

Two judges have ruled that Khan’s public statements on Meta don’t justify removing her from FTC cases filed in federal court. In voting to bring those cases, Khan was acting as a prosecutor, they said. But for lawsuits filed in the FTC’s administrative court, where the commissioners act as judges, the situation is different, ethics experts said. Federal courts have reversed FTC decisions when a commissioner’s public statements show the official had “prejudged” a case’s outcome.

Khan was appointed by President Joe Biden to lead the FTC in June 2021, becoming the youngest person ever to head the antitrust agency. Since taking the post, she has sought to reinvigorate the FTC’s competition enforcement after years of criticism that the agency was too soft on acquisitions and conduct by the biggest tech platforms.

The case against Meta was one such effort, based on a novel legal theory that the deal would eliminate future competition in the emerging virtual reality market.

The FTC anticipated that Meta might seek to remove Khan as it had in a previous case. In a July 20 email to Khan and her advisers seen by Bloomberg, Elizabeth Tucci, the FTC’s deputy general counsel, said she didn’t believe Khan’s recusal was needed.

Khan’s prior statements aren’t “sufficient to justify what would amount to a companywide disqualification of the Chair from participating in adjudications involving Meta,” she wrote.

Meta filed a petition seeking to remove Khan from the case on July 25.

After that, Khan met with Pankey, the ethics official, who provided oral advice leaving the decision to up to the chair, according to a person familiar with the dispute who wasn’t authorized to speak publicly.

Wilson also sought out Pankey, asking her to provide written guidance on Meta’s petition. Pankey then wrote the Aug. 31 ethics memo for Wilson, which was not provided to Khan, the person said.

Khan ultimately declined to step back from the case, sending her own memo on Sept. 26 to the other commissioners with her reasoning. That left her colleagues – Wilson and the two Democrats, Rebecca Kelly Slaughter and Alvaro Bedoya – to decide on Meta’s request.

Wilson shared Pankey’s ethics memo with Slaughter and Bedoya, and the three commissioners debated the issue for several months. On Feb. 1, they voted 2-1 along party lines to allow Khan’s participation.

The FTC’s Democrats blacked out all references to the ethics officer’s recommendation in Wilson’s dissenting statement, saying she sought to quote from confidential materials that were prepared to facilitate the agency’s deliberations.

Agencies routinely protect information used to aid in decision making and aren’t required to disclose it under federal public records laws. The FTC rejected Bloomberg’s public records request for the materials earlier this year.

Surprise Resignation

Wilson announced on Feb. 14 that she would resign in a Wall Street Journal op-ed, criticizing Khan for “defiance of legal precedent and her abuse of power to achieve desired outcomes.” Her resignation came as a surprise to her colleagues, who she hadn’t informed ahead of time.

“I have failed repeatedly to persuade Ms. Khan and her enablers to do the right thing, and I refuse to give their endeavor any further hint of legitimacy by remaining,” Wilson wrote.

On Feb. 24, the FTC voted to dismiss its in-house case against Meta after a federal judge ruled against the agency’s request to block the deal and allowed the acquisition to close. The FTC also declined to appeal the federal court ruling, bringing an end to its challenge of the transaction.

Wilson formally submitted her resignation on March 2, saying in an interview that she felt compelled to step down after her colleagues insisted on censoring her dissent. She departed the agency on March 31.

At a House hearing in April, Khan said she had consulted with ethics officials on questions about when she should be disqualified.

“In instances where companies like Facebook or Amazon have petitioned for my recusal, I have consulted with the DAEO and have taken actions that are consistent with the legal statements that the DAEO has made,” Khan told a House panel last month.

(Updates to add Meta comment in 11th paragraph, additional details below.)

To contact the reporter on this story:
Leah Nylen in Washington at lnylen2@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Anthony Aarons, Elizabeth Wasserman

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