FEDERAL TRADE COMMISSION V. AFFORDABLE MEDIA. L.L.C.
179 F.3d 1228 (9th Cir 1999)
NATURE OF THE CASE: Affordable et al (D) appealed a decision that found Ds in civil
contempt of court after they failed to comply with a preliminary injunction when they
refused to return their illicit proceeds. The FTC (P) had sued Ds to recover as much money
as possible for defrauded investors in Ds' telemarketing scheme.
FACTS: Denyse and Michael Anderson (Ds), husband and wife, offered investors the chance
to participate in a project that sold such modern marvels as talking pet tags and
water-filled barbells by means of late-night television. Ds promised that an investment in
the project would return 50 per cent in a mere 60 to 90 days. Their venture was a Ponzi
scheme. The media units sold for $5,000. Each media unit entitled the investor to
participate in the sale of products from 201 of the late-night commercials. Each product
sold for $20.00. The investor would receive $7.50 for each product sold during his 201
commercials, up to a maximum of five products per commercial. Their maximum profit would be
$7,537.50 - an astronomical fifty percent return in sixty to ninety days. The LLC would
receive forty-five percent commission of the investor's $5,000.00 investment. Ds claimed
that this was the industry standard. Ds raised at least $13,000,000 and retained an
estimated $6,300,000 in commissions for itself. Not enough Talking Pet Tags and Aquabells
sold to return the investment. They used later investors' investments to pay the promised
yields to earlier investors - a classic Ponzi scheme. P brought a complaint against Ds. The
investors lost their shirts but Ds' profits remained in a Cook Islands trust. Their response
to the suit was to claim they were entitled to the commissions and that they could not
repatriate the assets because they had relinquished all control over the millions of dollars
of commissions in order to place this money overseas in the benevolent hands of
unaccountable overseers. Ds had created an irrevocable trust under the law of the Cook
Islands. They were named as co-trustees of the trust, together with AsiaCiti Trust Limited
('AsiaCiti'), a company licensed to conduct trustee services under Cook Islands law. The
provisions of the trust were intended to frustrate the operation of domestic courts, by
removing Ds as trustees and preventing AsiaCiti from repatriating any of the trust assets to
the United States if a so-called 'event of duress' occurred. The district court granted P
its requested preliminary relief and ordered Ds to turn over the monies. Ds faxed a letter
to AsiaCiti instructing it to repatriate the assets to the United States. AsiaCiti
considered the TRO an event of duress and removed Ds as co-trustees. P moved the district
court to find Ds in civil contempt. Ds were held in civil contempt and given a chance to
purge it. They did not so the judge took them into custody. Ds appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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