Receiving an inquiry from a government agency, like the FTC, is different than being involved in civil litigation. Your client is dealing with the government, which does not have the same motivation or pressure points to settle as a private litigant.
Having worked at the FTC, it’s my impression that most of the lawyers working there are passionate about making a difference and protecting consumers. As such, if they get a sense that someone is playing games or being less than forthright, they have the luxury of devoting a substantial amount of time to a single matter and turning over every rock possible.
During my tenure, some companies attempted to bury damaging documents in massive document productions with the hope that they would go unnoticed. The problem is that by putting documents in places that you wouldn’t normally expect to find them (e.g., placing a random memo in the middle of financial data), it only highlighted the document’s potential importance. Once a company loses its credibility, it’s hard to get it back.
What can be done about producing damaging documents? If they are clearly relevant to the FTC’s inquiry and cannot be withheld based on confidentiality concerns or some applicable privilege, don’t bury them in other documents. Rather, disclose them as the are kept in the ordinary course of business and deal with them as a matter of law. If your company somehow ran afoul of the applicable regulations, look to prior FTC Orders to see how others in your circumstance were treated. Generally speaking, my experience with the FTC was that it tried to be consistent in its approach to dealing with issues. In short, deal with the issues and don’t play games. In the end, it’s been my experience that you’ll achieve better results.