Federal Trade Commission v. Affordable Media. L.L.C.

179 F.3d 1228 (9th Cir 1999)

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Nature of the Case

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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 percent 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.