FTC vs Affordable Media (A must-read)
The full case citation is [Federal Trade Commission vs Affordable Media LLC 9th Circuit Appeal No. 98-16378,June 15, 1999] This is also known as the “Anderson” case.
Denyse and Michael Anderson were successful telemarketers and had created a foreign asset protection trust in the Cook Islands in 1995. A few years later, around April 1997, they were hired to do telemarketing for a company that, it turns out, was defrauding its customers. Please note that the Andersons formed their trust well in advance of any problems.
The FTC sued the fraudsters, and, more importantly, the FTC asked the Andersons to rebate the money they had earned from the fraudulent contracts. The Andersons refused, stating that the telemarketers alone, not they, were party to the fraud. (Note: The case would not exist if the Andersons had done their due diligence.)
The FTC fought theAndersons, and won a preliminary injunction that required them to return all of the money from the Cook Islands trust. The Andersons faxed a letter to the Cook Islands trustee, telling the trustee that they had been ordered to repatriate the trust assets. However, the trustee advised the Andersons that since they were under “duress” the assets of the trust could not be repatriated since it violated the terms of the trust. The Andersons went back to the Judge and told him that they were sorry, but, according to the trustee, their hands were tied and they could not comply. The judge threw the Andersons in jail for contempt of court. By Christmas the Andersons had helped the FTC get the funds. They were let out of jail with no money, and they had to surrender their passports. The Andersons appealed the decision — and lost! The appeal decision (which should be read by all financial investigators, financial planners, and attorneys) states in essence that since the offshore trust was created only to “frustrate and impede” US Courts, and that the transfer of the funds to the trust served no economic purpose other than to avoid garnishment, the Andersons could be held in jail for contempt of court.
These types of structures, whether domestic or foreign, have been held by law to be improper and possibly illegal. What makes this decision so revolutionary is that this is the first case that deals directly with Foreign Asset Protection Trusts, and provides a remedy in theUS(imprisonment for contempt of court) for failure to return/repatriate the funds so they can be garnished.
This decision is broadly worded and has the potential to allow the persons and professionals who establish these mechanisms to be held both civilly and criminally liable for the creation of these “structures that frustrate and impede.” This case may well be the foundation case for the litigator to go after foreign trusts, and those who establish them, for recovery of funds.
Whether or not you like this case law, or even the premise behind the case, it is something that should be read in its entirety.