If you’re an online marketer, who pushes the legal envelope, it’s wise to read up on people who’ve been caught – because that loophole you think is protecting you, may not be as much of a shield as you believe. We’re not saying that the four defenses described below will never work, but if you’re caught more than once, don’t expect to slip the legal noose.
Kyle Kimoto is 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 going through 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 he had been convicted on wire fraud charges, the FTC caught up with Kimoto’s new – still sketchy — 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 should not be held liable for any misdeeds carried out by the company from that point.
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’s involvement in establishing the company was enough to link him to the entity. 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 the issue at hand is individual knowledge as it relates to liability.
Online Marketer’s Defense #3: Jeff Skilling Defense
Marketer: All The Complaints Started Pouring 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 chargeback complaints came flooding in after his criminal trial commenced. In other words, “I had no idea I had done anything wrong, I was gone 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, on which I am being charged with violating, 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 is deserved; 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 being censured? The FTC 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 is in JAIL right now.
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 first firms to have a team dedicated to online marketing legal issues, and we’ve seen it all.
Call or emails us today to start untangling your FTC legal knot, or to simply review your scheme to make sure you’re in safe, legal territory.