Troubled mental health startup Cerebral Inc. must pay millions to the federal government to settle allegations involving its data privacy practices and cancellation policy.
The U.S. Department of Justice and the Federal Trade Commission (FTC) released a federal complaint and proposed order detailing allegations of unlawful sharing of protected health information with third parties for marketing and making it too hard to unsubscribe from the Cerebral online platform. The complaint also alleges that the company’s founder and ex-CEO personally influenced these policies.
Cerebral said on its website that it is “pleased” that it has reached a settlement with the government.
“The settlement allows Cerebral to move forward with a continued focus on our mission of building a new era of mental healthcare with a safe and secure platform for our clients,” the company said. “We look forward to continuing to be a trusted provider of high-quality mental health care to all those who need it most.”
Kyle Robertson, the company’s founder and ex-CEO, has not responded to a request for comment.
The proposed order states that the company must pay the federal government about $5.1 million in monetary relief. It is also ordered to pay a $10 million civil penalty.
However, the company may not have to pay the full amount of the civil penalty. The federal government will suspend the $10 million after the company pays $2 million and if regulators find that Cerebral made true financial representations. The FTC states it is allowing this concession because Cerebral can’t pay $10 million.
“Under the proposed order, Cerebral will pay nearly $5.1 million, which will be used to provide partial refunds to consumers impacted by its deceptive cancellation practices, as well as a $10 million civil penalty, which will be suspended after a $2 million penalty payment due to the company’s inability to pay the full amount,” the FTC said in a news release.
Further, the complaint, released on April 15, details allegations that Robertson knew about and participated in the actions that are alleged.
“Through his singularly powerful position, and by virtue of the close control he exercised over Cerebral’s relevant teams, operations, and policies, Robertson contributed extensively and directly to the chronic misconduct alleged herein,” the complaint states.
The FTC describes Cerebral’s subscription model — which also includes but is separate from charges to health plans — as providing access to virtual outpatient mental health on a “negative option basis.” Consumers were automatically charged even if they didn’t use the services and had to cancel them to stop charges.
Posts by aggrieved users on several social media platforms detail Cerebral, making it difficult to cancel services and not stop charges even after a patient makes a request to cancel. This findings are reflected in the complaint filed in the U.S. District Court for the Southern District of California.
Specifically, the FTC and DOJ complaint allege that Cerebral violated the Federal Trade Commission Act, the Opioid Addiction Recovery Fraud Prevention Act of 2018 and the Restore Online Shoppers’ Confidence Act.
If approved, the order will require Cerebral to do the following, according to the FTC:
— Never again share patient personal health information with third parties for most marketing purposes
— Obtain patient consent before disclosing that info to third parties
— Not misrepresenting is privacy practices
— The creation of a “comprehensive privacy and data security program”
— Post the FTC’s allegations and require actions on Cerebral’s website
— The development of a data retention schedule and a clear mechanism for patients to request their data be deleted
— The deletion of most consumer data not use for “treatment, payment, or health care operations unless the consumers consent to its retention”
— Provide an easy method to cancel services
“As the Commission’s complaint lays out, Cerebral violated its customers’ privacy by revealing their most sensitive mental health conditions across the Internet and in the mail,” FTC Chair Lina Khan said in the release. “To address this betrayal, the Commission is ordering a first-of-its-kind prohibition that bans Cerebral from using any health information for most advertising purposes.”
Cerebral faced similar punishment from the State of New York earlier in the year. It must pay out $200,000 in penalties and $540,162 in restitution for maintaining a “long and burdensome” cancellation process that often resulted in patients paying for services never received, according to the state’s attorney general’s office.
Cerebral was once a star among a handful of digital health unicorns that grew to prominence following the onset of the pandemic and huge venture capital investment rounds. Founded in 2019, the company has raised $462 million in funding, according to Crunchbase.com. It secured a $4.8 billion valuation in its last funding round.
Since then, in a series of stumbles, the Cerebral has seen the ouster of and a legal fight with Robertson, a series of layoffs and scrutiny over its handling of controlled substances.
Companies featured in this article:
Cerebral, Federal Trade Commission, U.S. Department of Justice
