For more than a decade, LabMD owner Michael Daugherty told his story to anyone willing to listen: An allegedly rogue cybersecurity firm used FBI surveillance software in an attempt to extort him, before colluding with the Federal Trade Commission (FTC) in a malicious enforcement action that financially ruined his cancer research center.
Armed with that judgment, the scorned business owner is now aiming to discover the FBI’s role in his lab’s destruction.
To that end, Daugherty said one of his lawsuits survived a motion to dismiss last week in Florida. The case is now in the discovery stage, giving Daugherty the ability to issue subpoenas and take depositions about the FBI’s role in the scandal, he said.
“It’s 2022, so people think this is over,” he told The Epoch Times. “In a big way, everything is just beginning.”
For its part, the cybersecurity firm tied to the scandal—Tiversa and its founder Robert Boback—have repeatedly denied allegations of wrongdoing. According to Boback, Daugherty has been hounding him for years with false accusations, including about his firm’s use of FBI software.“Fortunately, the courts require facts, not narratives, and recognize that Daugherty has marketed a book about his version of the story,” Boback said. “I have no doubt that the Florida courts will see the same.”
Tiversa, the FBI, and LabMD
Daugherty never intended to spend his career uncovering a government scandal. In 2008, he had a thriving cancer research center serving more than 700,000 patients.
The same year, another business was on the rise.
Cybersecurity provider Tiversa had recently worked for the FBI to investigate child pornography and other computer crimes—efforts that were awarded by then-FBI Director Robert Mueller, as documented in a 2019 New Yorker profile.
Tiversa’s high-profile work attracted the attention of the FTC, which requested the firm to provide information about private companies’ data security practices. One of those firms ended up being Daugherty’s LabMD.Tiversa founder Boback contacted Daugherty in 2008 with news that his firm found hundreds of leaked LabMD documents online. Boback told Daugherty the data was compromised because a LabMD employee installed a file-sharing program called Limewire on her work computer.
“At some point during Tiversa’s engagement, [the FBI] delivered to four Tiversa employees proprietary software with enhanced internet search capabilities developed exclusively for the FBI and for national security purposes,” an ongoing Daugherty lawsuit says.
“Tiversa was instructed to use this software extensively to continue to search the internet for inculpatory materials reflecting child pornography, access the suspect’s computer systems, download the inculpatory files, and turn those files over to the FBI.”
According to Daugherty, Tiversa allegedly disregarded the FBI’s instructions and used its software to boost its private business.
“To the public, Tiversa presented itself as a legitimate cybersecurity business with extraordinarily powerful internet search capabilities,” his lawsuit states. “However, the tool they were using was the FBI’s.”
To this day, Tiversa founder Boback denies that his firm used FBI surveillance tools and continues to dispute the allegation in court.According to Boback, most firms didn’t have proper cybersecurity practices in place in 2008, which is why their data was frequently breached by antiquated software such as Limewire.
“To put this in context, the LabMD file was found on the P2P (peer-to-peer) networks over 14 years ago, shortly after the very first version of the iPhone came out, and well before Tesla had a single production car on the road,” he told The Epoch Times.
“This was found when Barack Obama was a senator from Illinois. Many companies at that time had inadvertently exposed files on P2P networks during that time.”
FTC Opens Case Against LabMD
When Daugherty declined, Boback turned the file over to the FTC through a shell entity called the Privacy Institute to keep his illicit plan hidden, according to Daugherty.
The FTC opened an investigation into LabMD in 2010, filing a formal complaint against the company in 2013 for allegedly shoddy data security practices. Rather than settling with the FTC, as most companies do, Daugherty decided to contest the complaint.
Pressure mounted when Boback sued Daugherty in September 2013, claiming that Daugherty defamed him with accusations about extortion and collusion with federal government officials.
Embroiled in multiple legal and regulatory disputes, LabMD closed its doors in January 2014—something that haunts Daugherty to this day.
“I still cannot get over the fact that this is the cancer detection center with 700,000 patients, and everyone sits around like, ‘Oh, that is terrible; what time’s coffee?’ You know, I mean, people do not understand. I think it is too terrifying,” Daugherty told The Epoch Times.
“I mean, if I said the word ‘hospital’ with 700,000 patients, they would freak out. But, you know, ‘cancer detection center’—they do not know what to do with it.”
With hope seemingly lost, Daugherty caught a break a few months later, in April 2014, when former Tiversa employee Rick Wallace came forward to blow the whistle on the firm’s allegedly nefarious activities.
“Rick Wallace called me as a whistleblower crying, saying he ruined my company, and throwing himself on the mercy of the court,” Daugherty said. “He—it all came home to him—what he had done at the hands of Boback.”
Wallace testified in the FTC hearings about Tiversa’s attempted shakedown of LabMD and numerous other companies, also admitting that his company forged documents to make it appear as though LabMD’s patient-information file was found by four different IP addresses—and not hacked by Tiversa.
Wallace’s allegations received national attention, and, in June 2018, LabMD emerged victorious against the FTC. But the victory had little to do with Daugherty’s allegations. Rather, the 11th Circuit ruled at the time that the FTC’s enforcement action was too broad and lacked specifics.
For Daugherty, the technical regulatory aspects were of little concern, and he continued to fight the government—and Boback.
Then Daugherty’s biggest break to date came in January 2020, when the 11th Circuit ordered the FTC to pay LabMD $873,000 in legal costs.
“Looking back at all that has transpired in this case, the FTC’s assertion that it had an ‘undisputed factual basis to investigate LabMD’ rings hollow. The FTC only received information about the [customer information file] because LabMD had rejected Tiversa’s shakedown attempt,” said a special master that the 11th Circuit commissioned for the case.
“The FTC knew, or should have known, how Tiversa was getting its leads on companies it was reporting and should have been suspicious when Tiversa relayed the [customer information file] surreptitiously.”
Daugherty said the ruling provided validation for him after being treated as a pariah in the legal community for years.
Boback, however, criticized the special master’s findings.“The special master’s report had little to no input from Tiversa. Tiversa was not a party to that litigation and, therefore, was not able to cross-examine any witness to dispute any testimony,” he told The Epoch Times.
Suing the FTC, Probing the FBI
Unsatisfied with his hard-fought victory, Daugherty saw the 11th Circuit judgment as a springboard for further litigation.
Daugherty sued the FTC last November for $400 million in damages over its failed enforcement action against LabMD. He has also sought to revive a similar lawsuit against individual FTC employees involved in the scandal.
Those lawsuits have largely languished in court; the LabMD founder said that litigating against the U.S. government is an uphill battle. Fortunately for him, he recently had a breakthrough in a lawsuit against Boback, he said.The origin of the Florida lawsuit is a tale unto itself: In 2017, Daugherty began receiving anonymous emails from someone identifying themselves as “Insider” about Tiversa, the FBI, and the ongoing litigation.
Daugherty believes “Insider” was actually Boback trying to steer his litigation away from Tiversa. Daugherty provided The Epoch Times with the emails, which show Insider accusing the Tiversa whistleblower, Wallace, of being a criminal himself.
According to the emails from Insider, the FBI had investigated Tiversa without finding wrongdoing. Because Wallace’s accusations about Tiversa were false, the FBI was possibly looking to investigate him, according to the emails.
“I believe, now more than even before, you should try to get Boback on your side,” a May 2018 email from Insider says. “If you lose because you were hitched to Wallace’s false accusations or a lack of focus, we’ve all lost, and the regulatory machine will run wild with endless fines and self-aggrandizement.”
Boback, in turn, filed a motion to dismiss in November.
Boback’s motion focused on the fact that Daugherty has filed six lawsuits in five jurisdictions against him.
“Daugherty is attempting to get a second bite at the apple by filing a claim under Florida law that arises from the same operative facts raised in the PA Abuse of Process Action,” Boback said in his motion. “Daugherty now alleges that Boback committed a fraud upon a Pennsylvania court and Daugherty, while the parties were engaged in litigation in Pennsylvania … by anonymously providing false information to Daugherty via email.”
The motion to dismiss further said Daugherty’s accusations were “incomprehensible, difficult to follow, do not provide a basis upon which Mr. Boback can formulate a proper response, and fail to state a claim for numerous reasons.”
But after the parties argued the motion on April 20, Circuit Judge John Brown declined to dismiss the case. Daugherty said this is his most significant legal victory since the 2020 11th Circuit decision.
“Now, in this little case in Florida, we have survived and now have discovery. This is huge,” he said.
Along with advancing his litigation against Boback, Daugherty said the nature of the Insider emails means he may subpoena FBI officials in connection with their role in the Tiversa scandal.However, he also knows the discovery will become contentious when he starts prying into the relationship between Tiversa and the FBI.
While the FBI raided Tiversa in 2016, the Department of Justice discontinued its investigation a year later—the same year the company was acquired by private intelligence firm Kroll, according to the New Yorker profile.
“You know the FBI is going to lie about this and try to cover this up until 2029,” Daugherty said. “This is a huge victory, but the war has just begun.”
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