Injunctions Against Con Man Mostly Affirmed
PASADENA, Calif. (CN) - The 9th Circuit on Friday upheld various findings against a man whose "fraudulent business practices have drawn FTC scrutiny for over a decade."
Kyle Kimoto's activities have prompted three separate enforcement actions from the Federal Trade Commission, according to the ruling.
"In each, Kimoto lured consumers with a deceptively advertised headline product and them enrolled them in 'upsells' or negative-option 'free trials' that required consumers to undergo a burdensome cancellation process in order to avoid inadequately disclosed recurring monthly fees," Judge Milan Smith Jr. wrote for a three-member panel Friday.
A 2003 action that ended with criminal charges and a $106 million restitution order against Kimoto stemmed from a credit card scheme that the defendant ran through his company, Assail.
Kimoto next "moved to Las Vegas and formed a corporate entity to engage in Internet marketing schemes, which eventually became the Vertek Group," Smith wrote.
Kimoto's wife owned Vertek only in name to let her husband avoid regulatory scrutiny, and he "hired many of the employees who had been involved in the Assail scheme," according to the ruling.
Among "several deceptive marketing campaigns" engaged by the Vertek team were a "Line of Credit" scheme that smacked consumers with costly "upsells," and a "Grant Connect scheme" that sneaked a $39.95 monthly charge in the offer details.
Vertek also marketed "Acai Total Burn" and a "Work From Home" scheme.
Smith noted that Kimoto stopped participating in Vertek's daily operations in March 2008 when he was tried, convicted and imprisoned in connection to the Assail scheme.
Regulators took aim at Vertek and its officers in 2009 and added claims against Kimoto in an amended complaint.
Kimoto was the only defendant to appeal after U.S. District Judge Philip Pro in Las Vegas granted the FTC summary judgment.
Though Kimoto claimed ignorance of the Vertek schemes based on his imprisonment for the Assail matter, the 9th Circuit on Friday cited evidence of his involvement in most of the Vertek operations.
Kimoto won relief from the Pasadena, Calif.-based panel only as to the Acai Total Burn Scheme.
"Unlike the other schemes previously described, however, the evidence does not show that Kimoto controlled Vertek at the time the Acai Total Burn scheme was developed, nor does it show that he directly participated in the scheme," Smith wrote.
As such the trial court must amend the permanent injunction against Kimoto and reconsider how much he owes restitution, according to the ruling.
Judges Sidney Thomas and Morgan Christen joined the opinion. Kimoto was represented by Peter Borenstein and Michael Driscoll. Theodore Metxler, Burke Kapplar and Dotan Weinman represented the Federal Trade Commission.