If you’re an online marketer, who pushes the legal envelope, read up on people who’ve been caught – because that loophole you think is protecting you, may not be much of a shield.
Kyle Kimoto was a recidivist FTC violator. A perpetual purveyor of negative option and free-to-pay marketing schemes, he’s currently in prison for wire fraud violations. Kimoto recently tried to escape another FTC censure, but failed.
Below, we’ll explain his appeals’ arguments and the reasons they didn’t work.
First, A Bit About Negative-Option Kingpin, Kyle Kimoto
Got Caught By The FTC, Then Opened A Business Under His Wife’s Name
A notoriously aggressive marketer, in 2008 Kimoto was enduring his 3rd FTC investigation. At the time, due to previous FTC “busts,” he was legally prohibited from engaging in certain marketing tactics. At that time, he moved to Las Vegas, registered a new company in his wife’s name, and then hired his old network of coders, designers, marketers, writers, and programmers.
“Stopped” Involvement In “Wife’s Company”
That same year, Kimoto went on criminal trial and insisted he ceased activities in his “wife’s” new Las Vegas-based marketing business. In 2009, after being convicted on wire fraud charges, the FTC caught up with Kimoto’s new operation and swiftly brought suit against it and its principals. Everyone involved, except Kimoto, accepted a summary judgement. He appealed.
Failed Defense Arguments For Recidivist Online Marketer
Online Marketer’s Defense #1: It Wasn’t Me!
Marketer: I Had Nothing To Do With The Company During The Time Period The FTC Said I Did.
Kimoto argued that he completely severed ties with his wife’s company when he started to prepare for his wire fraud trial, and therefore shouldn’t be held liable for any misdeeds from that point forward.
Judges: No Way; You Knew What Was Going On And Even Had Testimonials Before There Were Customers.
The judges didn’t agree. They reasoned that Kimoto helped establish his wife’s business, which was link enough. The panel also pointed out that he helped “structure the deceptive offers” and was aware of the contents of the company’s marketing materials, thereby making him liable — even though he may not have been “hands on” during the period in question. The bench specifically pointed out Kimoto’s egregious use of testimonials before the “products” had even launched.
Online Marketer’s Defense #2: Advice of Counsel
Marketer: Before I launched the scheme I ran it by a lawyer who said it was legal. It’s not my fault.
Kimoto also tried to use the “advice of counsel” defense, which is, essentially: “my lawyer said what I was doing was legal; so, it’s not my fault.”
Judges: Nope. The Defense Can’t Be Used When It’s A Question of Individual Knowledge of Liability.
Judges shot down the “advice of counsel” defense because it doesn’t apply in cases where liability is linked to individual knowledge of a situation.
Online Marketer’s Defense #3: The Jeff Skilling Defense
Marketer: All The Complaints Poured In After I Had Recused Myself From The Company
In an argument very similar to his first, Kimoto tried to convince the panel of judges that he couldn’t have been involved in any scamming because the charge back complaints came flooding in after his criminal trial commenced. In other words, “I had no idea I had done anything wrong; I was gone when it all went to hell.” (Call it “the Jeff Skilling Enron” defense).
Judges: “Sorry, Mr. Frequent FTC Violator, No Go.”
Considering Kimoto’s track record with online marketing schemes, the judges scoffed, pointed to his past infractions, and gaveled that one down.
Online Markete’s Defense #4: EFTA Doesn’t Apply To Little ‘Ole Me
Marketer: The federal law only applies to companies and entities, not individuals.
Kimoto reasoned that the Electronic Fund Transfer Act (EFTA), one of the statutes used to charge him, didn’t cover individual liability.
Judges: EFTA = FTC Act = Personal Liability
The court knocked that one down, too, reasoning that his EFTA violations were also FTC Act violations, which does allow for individual liability.
There’s a certain valiance to fearless folks who refuse to go down without a fight, so a tip of the hat for gumption. Nevertheless, his Hail Mary legal passes fell flat at the 50-yard-line.
In the end, it was FTC 4, Kimoto 0.
Marketing Online? Talk To A Lawyer.
It’s tempting to cross the marketing legal line because let’s face it, “There’s gold in them thar hills!” But know that if you try to skirt FTC marketing regulations, they will come after you. Commissioners can, if in generous moods, go soft on first-time offenders – especially if they have proper counsel. But if the commission catches you creating another illegal honey pot after censure ? The FTC’s gloves come off.
Moreover, just because these defenses didn’t work for Kimoto, it doesn’t mean they won’t work for you. Talk to an FTC Marketing lawyer about the specifics of your situation to learn your options.
Remember: Kimoto went to JAIL.
Are you in trouble with the Federal Trade Commission? If you need a lawyer that has helped hundreds of online marketers with their FTC investigation situations, get in touch with Kelly / Warner Law. We’re one of the early legal firms to build an online marketing team, and we’ve seen it all.
Call or emails us today to start untangling your FTC knot, or to simply review your promotional efforts to ensure you’re in safe, compliant territory.