Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-11-18023/USCOURTS-ca9-11-18023-0/pdf.json

Parties Involved:
Federal Trade Commission
Appellee
Grant Connect, LLC

Kyle R. Kimoto
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FEDERAL TRADE COMMISSION,

Plaintiff-Appellee,

v.

GRANT CONNECT, LLC, et al.,

Defendants,

and

KYLE R. KIMOTO,

Defendant-Appellant.

No. 11-18023

D.C. No.

2:09-cv-01349-

PMP-RJJ

OPINION

Appeal from the United States District Court

for the District of Nevada

Philip M. Pro, Senior District Judge, Presiding

Argued and Submitted

April 7, 2014—Pasadena, California

Filed August 15, 2014

Before: Sidney R. Thomas, Milan D. Smith, Jr.,

and Morgan Christen, Circuit Judges.

Opinion by Judge Milan D. Smith, Jr.

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2 FTC V. KIMOTO

SUMMARY*

Federal Trade Commission

The panel affirmed in part and vacated in part the district

court’s summary judgment in favor of the Federal Trade

Commission, and its order permanently enjoining Kyle

Kimoto from engaging in a variety of marketing tactics and

ordering him to pay restitution.

The district court found that Vertek, Kimoto’s wholly

controlled company, had committed multiple violations of the

Federal Trade Commission Act, through its misleading

advertising and various marketing schemes.

The panel held that the district court properly held

Kimoto personally liable for both injunctive relief and the

requirement to pay restitution with respect to Vertek’s Line

of Credit Scheme, Grant Connect Scheme, and Work From

Home Scheme. The panel also held that Kimoto could not be

held liable for either injunctive relief or restitution with

respect to the Acai Total Burn Scheme. The panel vacated

that part of the district court’s grant of summary judgment

and permanent injunction based on Vertek’s violations of the

FTC Act in connection with the Acai Total Burn Scheme.

The panel held that individual liability for corporate

malfeasance was available for violations of the Electronic

Fund Transfer Act because such violations are also deemed

to be violations of the FTC Act, and that Kimoto was liable

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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FTC V. KIMOTO 3

for Vertek’s violations of the Electronic Fund Transfer Act

because of his personal involvement in concocting and

carrying out the several schemes that violated the Act.

The panel held that the scope of the district court’s

permanent injunction was not overbroad. The panel

remanded so that the district court could modify the

permanent injunction and the amount of restitution as

required by this decision.

COUNSEL

Peter Borenstein (argued) and Michael Dirscoll (argued), Law

Students, University of Loyola Law School, Los Angeles,

California;(argued); Erica L. Reilley, Jones Day, Los

Angeles, California; Daniel Patrick Selmi, Los Angeles,

California, for Defendant-Appellant.

Theodore P. Metzler (argued), Burke W. Kappler, and Dotan

Weinman, Attorneys; Roberto Anguizola, Assistant Director;

John F. Daly, Deputy General Counsel for Litigation; Federal

Trade Commission, Washington, D.C.; Blaine T. Welsh,

Assistant United States Attorney, Las Vegas, Nevada, for

Plaintiffs-Appellees.

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4 FTC V. KIMOTO

OPINION

M. SMITH, Circuit Judge:

Kyle Kimoto (Kimoto) appeals from the district court’s

grant of summary judgment to the Federal Trade Commission

(FTC), and its order permanently enjoining Kimoto from

engaging in a variety of marketing tactics, and ordering him

to pay restitution. The district court found that

Vertek—Kimoto’s wholly controlled company—had

committed multiple violations of the FTC Act, 15 U.S.C.

§§ 41–58, through its misleading advertising, and further

found that Kimoto was both personally involved in the

practices and knew that the advertising was misleading or

was recklessly indifferent as to that possibility. On this basis

the district court permanently enjoined Kimoto personally

from engaging in a variety of advertising practices and

ordered him to pay restitution.

On appeal, Kimoto argues that the FTC presented

insufficient evidence of his involvement in Vertek’s

violations of the FTC Act to personally enjoin him or require

him to pay restitution. Specifically, Kimoto argues that he

cannot be held liable for Vertek’s schemes related to the

marketing of what are styled the Line of Credit scheme, the

Grant Connect scheme, the Work From Home scheme, and

the Acai Total Burn scheme, because the campaigns were not

launched until after Kimoto was imprisoned as a result of

prior violations of the FTC Act committed through a different

company. Kimoto further argues that he cannot be

individually liable for Vertek’s misdeeds under the Electronic

Fund Transfer Act (EFTA), codified in part at 15 U.S.C.

§ 1693. Finally, Kimoto claims that the district court’s

injunction—barring him from engaging in what are described

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FTC V. KIMOTO 5

as negative-option marketing, continuity programs,

preauthorized electronic fund transfers, the use of

testimonials, and marketing or selling products related to

grants, credit, business opportunities, diet supplements, or

nutraceuticals—is overly broad.

We affirm the district court’s grant of summary judgment

to the FTC in part, and vacate the district court’s grant of

summary judgment to the FTC solely with respect to the Acai

Total Burn scheme. 

FACTUAL AND PROCEDURAL BACKGROUND

Kimoto’s fraudulent business practices have drawn FTC

scrutiny for over a decade, and have resulted in three distinct

enforcement actions against him. Kimoto’s various schemes

have employed several unifying features: in each, Kimoto

lured consumers with a deceptively advertised headline

product, and then enrolled them in “upsells,” or negativeoption “free trials” that required consumers to undergo a

burdensome cancellation process in order to avoid

inadequately disclosed recurring monthly fees.

Two such schemes provide the relevant background for

this appeal. In 2003, the FTC brought an enforcement action

against Kimoto and one of his companies, Assail, Inc. FTC

v. Assail, Inc., 410 F.3d 256, 259 n.1 (5th Cir. 2005). The

FTC alleged that Kimoto enticed customers with an offer to

purchase a preapproved MasterCard through Assail, but that

when they tried to do so Assail provided them either with

applications for cash-secured debit cards, or with unusable

plastic cards bearing an unauthorized reproduction of the

MasterCard logo. Id. When customers accepted the offer for

the ostensible credit cards, Assail also enrolled them in

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6 FTC V. KIMOTO

additional negative-option “free trials” that ceased to be free

after an introductory period. Id. Assail then charged

consumers recurring fees both for the “credit cards” and for

the “free trials,” and erected a variety of barriers to effective

cancellation. Id. On appeal, the Fifth Circuit held that

Kimoto, through Assail, “committed multiple, egregious

violations of the [FTC Act].” Id. at 264. The district court in

Assail imposed a permanent injunction barring Kimoto from

engaging in telemarketing and also ordered Kimoto to pay

$106 million in restitution. Subsequently, the FTC initiated

criminal charges against Kimoto for his role in the Assail

scheme. United States v. Kimoto, 588 F.3d 464, 470 (7th Cir.

2009).

Apparently undeterred by the injunction, Kimoto moved

to Las Vegas and formed a corporate entity to engage in

Internet marketing schemes, which eventually became the

Vertek Group, LLC. To avoid regulatory scrutiny, Kimoto

entrusted his then-wife, Juliette Kimoto, with legal ownership

of the entity. According to Kimoto’s ex-wife, this structure

had the added—and intended—benefit of permitting her to

profit from the company in the event that Kimoto was

incarcerated.

Although Mrs. Kimoto was the titular owner of Vertek,

Kimoto organized and ran the company. Kimoto hired many

of the employees who had been involved in the Assail

scheme, including Michael Henriksen and Tasha Jn Paul. 

Kimoto also arranged for Michael Henriksen’s brother’s

business, Global Gold, to be the first “product provider” for

the scheme and recruited two more Assail veterans, Randy

O’Connell and James Gray—through their business

consulting and staffing company O’Connell Gray, LLP—to

help “with the logistics of accepting transactions on the

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FTC V. KIMOTO 7

[Internet] . . . .” With his team in place, Kimoto directed and

participated in the development of several deceptive

marketing campaigns.

A. The Line of Credit Scheme

One of Vertek’s first schemes involved the marketing of

a “$7,500 Unsecured Credit Line” with promises such as “No

Credit Check! No Employment Verification! No Security

Deposit! Bankruptcy? No problem! Approval Guaranteed!” 

The advertisements failed to mention that consumers could

only use the “line of credit” to make purchases from Global

Gold’s online store.1 Consumers who clicked on the

advertisements would be taken to so-called “landing pages,”

which were deceptive websites where consumers could sign

up for the scheme. Consumers entered personal data on two

screens, which contained check boxes indicating that the

customers agreed to certain terms and conditions, as well as

a privacy policy.

A section entitled “Offer Details” appeared in small print

further down the page, below the “Submit” button. The

details stated that customers would be charged a $39.95

monthly fee if they did not cancel the service, and that they

would be automatically signed up for additional programs,

each of which had its own “free trial” period, followed by

recurring monthly charges.

The terms and conditions suggested that consumerswould

receive a traditional credit card. Hidden deep in the fine

print, however, the terms and conditions noted that the line of

 

1

 Vertek marketed the same scheme under numerous brands, including

Global Gold, First Plus Platinum, and First National Gold.

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8 FTC V. KIMOTO

credit could only be used “to purchase merchandise

exclusively at the Global Gold Credit Services Web site.” 

The terms and conditions also noted, more than twenty

paragraphs into the fine print that the consumer “accepted

enrollment for up to 2 additional promotional product offers

. . . .”

Consumers who signed up for the line of credit often

believed that they would receive a credit card, and also

complained that they never agreed to be charged for the

“upsells.” When consumers tried to cancel, Global Gold’s

customer service operation made it exceedingly difficult,

needlessly transferring customers to different websites or

phone numbers, even though all of the calls ended up in the

same service center. The scheme ran from June 2007 until

May 2009, when the FTC shut it down. During that time,

after considerable effort on their parts, approximately 94

percent of subscribers cancelled their subscriptions.

B. The Grant Connect Scheme

Like the Line of Credit scheme, the Grant Connect

scheme relied on misleading advertising and hidden

“upsells.” The Grant Connect landing pages featured pictures

of President Obama and Vice President Biden, or of a scantily

clad female model holding cash. The pages stated that

billions of dollars in government grants were available to

individuals “to help [them] with [their] financial situation,”

including funding home purchases, child care, debt

consolidation, medical costs, and other personal expenses. 

The sites offered an “easy to use program” to “instantly find

the Grant that’s right for you,” and included phony

testimonials from individuals claiming that they had received

hundreds of thousands of dollars in government grants.

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FTC V. KIMOTO 9

The “landing pages” used the same deceptive two-step

ordering process as the Line of Credit scheme. The

inconspicuous offer details included an initial $2.78

processing fee along with automatic recurring monthly

charges of $39.95, as well as enrollment in two additional

offers with their own trial periods and negative-option

monthly charges.

Customers who purchased Grant Connect were directed

to the Grant Connect website, where they discovered that

most government grants cannot be used for personal

expenses. Despite this fact, Global Gold representatives (who

also handled calls related to the Grant Connect scheme) told

users they could find grants for things like expanding a

business, buying a home, and other personal expenses. The

Grant Connect scheme began in March 2008. By the time the

FTC shut down the site in May 2009, and after considerable

effort on their parts, more than 91 percent of Grant Connect’s

customers had cancelled their memberships.

C. The Work From Home Scheme

The Work From Home scheme operated along similar

lines. Misleading advertisements promised that consumers

could make a substantial income quickly and easily while

working from home. One such program, marketed as

Domain Processing or One Hour Wealth Builder, claimed

that users could “immediately begin earning hundreds to

thousands of dollars a day, in just a few minutes of [their]

spare time,” through buying and selling expired Internet

domain names. Indeed, the site claimed that users could

make $174,150 a year working for fewer than four hours a

day. A different program, My Search Cash, offered a “free”

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10 FTC V. KIMOTO

trial kit for an “easy to use system” to make “$50,000 or more

a year” using eBay and Google.

Not only were these earning claims unsubstantiated, the

sites also included false testimonials extolling the simplicity

of making money using the systems. The Work From Home

scheme used the same two-step ordering process, and also

included two “free” negative-option trials. The Work From

Home scheme began in March 2008 and continued until the

FTC took over the sites in July 2009. By the time the FTC

stepped in, after considerable effort on their parts,

approximately 63 percent of customers who signed up for the

offers had cancelled.

D. Kimoto’s Trial and Incarceration

Kimoto’s criminal trial for his involvement in the Assail

scheme began in late March 2008. Kimoto, 588 F.3d at 470. 

After a ten-day trial, the jury convicted Mr. Kimoto on one

count of conspiracy, one count of mail fraud, and twelve

counts of wire fraud. Id. at 468. During his trial and his

subsequent incarceration, Kimoto ceased to actively

participate in Vertek’s daily activities.

E. The Acai Total Burn Scheme

The final version of Vertek’s scheme involved the

marketing of Acai berries, a popular nutritional supplement. 

Consumers were told that Acai Total Burn would help them

build muscle, increase their metabolism, lose weight, gain

energy, reduce fatigue, and retard the aging process. These

claims were unsubstantiated.

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FTC V. KIMOTO 11

The Acai Total Burn scheme used the same deceptive two

page ordering process, inconspicuous disclosures, and

automatic enrollment in additional negative-option trials as

the other schemes. Acai Total Burn was available to

consumers for only two months, from June 5, 2009, through

July 30, 2009. During that time, the program enrolled 670

customers, 159 of whom had already cancelled when the FTC

took over the site.

F. Prior Proceedings

In July 2009, the FTC brought suit against many of the

participants in the schemes, including Vertek, Global Gold,

Steven Henriksen, and Mrs. Kimoto. The FTC sought,

among other relief, a temporary restraining order, which the

district court granted the following day, and a preliminary

injunction. The FTC amended its complaint to add

allegations regarding additional iterations of the scheme, as

well as to add Kimoto, Michael Henriksen, Tasha Jn Paul,

Johnnie Smith, and others as defendants.

Following discovery, the FTC and various defendants

moved for summary judgment. The district court found no

genuine dispute of material fact regarding whether the Line

of Credit, Grant Connect, Work From Home, and Acai Total

Burn schemes were deceptively marketed; that the negativeoption upsells were inadequately disclosed; that the

testimonials were false; and that defendants violated the

EFTA by debiting consumers’ accounts without written

authorization. Kimoto does not challenge these findings on

appeal.

The district court also found that the corporate defendants

operated as a common enterprise, because “[a]ll the various

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12 FTC V. KIMOTO

offers were run by the same individuals using different

company names,” the defendants “swapped and shared

personnel,” as well as “blurred the lines of corporate

separateness in their activities,” and “engaged in concerted

and coordinated action across campaigns, and [making] their

profits interdependent.” Kimoto, initially proceeding pro se,

was the only defendant to appeal from the district court’s

judgment.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over Kimoto’s appeal from the

district court’s grant of summary judgment and entry of a

permanent injunction under 28 U.S.C. § 1291. We review de

novo the district court’s grant of summary judgment. FTC v.

Stefanchik, 559 F.3d 924, 927 (9th Cir. 2009). We view the

evidence in the light most favorable to the non-moving party

and decide whether there are any genuine issues of material

fact and whether the district court correctly applied the

substantive law. Id. Where the district court chooses to

impose an equitable remedy, we review its decision for an

abuse of discretion. Id. at 931.

DISCUSSION

Kimoto contends that there is insufficient evidence of his

personal involvement in many of the schemes to hold him

personally liable. Kimoto further argues that his liability for

Vertek’s actions ended when he left the company to prepare

for his criminal trial, and that he cannot be individually liable

for Vertek’s misdeeds under the EFTA.

Kimoto also contends that the district court’s injunction,

which bars him from engaging in negative-option marketing,

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FTC V. KIMOTO 13

continuity programs, preauthorized electronic fund transfers,

the use of testimonials, and marketing or selling products

related to grants, credit, business opportunities, diet

supplements, or nutraceuticals, is overly broad. We address

these arguments in turn.

I. Personal Liability

Individuals may be held liable for injunctive relief based

on corporate entity violations of the FTC Act if (1) the

corporation committed misrepresentations of a kind usually

relied on by a reasonably prudent person and resulted in

consumer injury, and (2) individuals participated directly in

the violations or had authority to control the entities. FTC v.

Publ’g Clearing House, Inc., 104 F.3d 1168, 1170–71 (9th

Cir. 1997). In order to hold an individual liable for restitution

as a result of the misconduct of a corporation, the FTC must

also show that the individual “had knowledge that the

corporation or one of its agents engaged in dishonest or

fraudulent conduct, that the misrepresentations were the type

upon which a reasonable and prudent person would rely, and

that consumer injury resulted.” Id. at 1171 (quoting FTC v.

Am. Standard Credit Sys., Inc., 874 F. Supp. 1080, 1089

(C.D. Cal. 1994)). To satisfy the knowledge requirement, the

FTC must show “that [a defendant] ‘had actual knowledge of

material misrepresentations, [was] recklessly indifferent to

the truth or falsity of a misrepresentation, or had an

awareness of a high probability of fraud along with an

intentional avoidance of the truth.’” Id. The FTC need not

show that a defendant intended to defraud consumers in order

for that individual to be personally liable. Id. And “[t]he

extent of an individual’s involvement in a fraudulent scheme

alone is sufficient to establish the requisite knowledge for

personal restitutionary liability.” FTC v. Affordable Media,

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14 FTC V. KIMOTO

179 F.3d 1228, 1235 (9th Cir. 1999). Applying this standard,

we conclude that the district court properly held Kimoto

personally liable for both injunctive relief and the

requirement to pay restitution with respect to all of the

schemes described above, with the exception of the Acai

Total Burn scheme.

A. Line of Credit Scheme

Kimoto does not challenge his individual liability for

injunctive relief with respect to the Line of Credit scheme. 

Further, the government’s evidence establishes that Kimoto

possessed the requisite scienter to be personally liable for

restitution because he either knew that Vertek was engaged

in deceptive advertising in connection with the Line of Credit

scheme or was recklessly indifferent as to that fact. Publ’g

Clearing House, 104 F.3d at 1171. Kimoto arranged Vertek’s

entire operation. He organized the companies, recruited

personnel who had been involved in his prior deceptive

marketing schemes, and directed Vertek’s activities. This

alone is enough to conclude that he had knowledge sufficient

to support personal liability for restitution damages. Id.

(“The extent of an individual’s involvement in a fraudulent

scheme alone is sufficient to establish the requisite

knowledge for personal restitutionary liability.”).

Additionally, Kimoto declared that he thought it was

“important for [him] to understand and know [the language

on the deceptive landing pages], because that was [his] job to

take it out to the affiliate marketer.” In light of Kimoto’s

prior troubles with the FTC, which also involved

inadequately disclosed “upsells,” his level of participation in

the scheme and knowledge of deceptive web pages shows

that he knew about, or was recklessly indifferent as to

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FTC V. KIMOTO 15

Vertek’s deceptive practices. See Publ’g Clearing House,

104 F.3d at 1171 (holding an individual liable where she filed

a business license at the direction of someone facing criminal

charges due to deceptive telemarketing, and had worked at a

predecessor company that had been shut down due to a fraud

investigation); FTC v. Amy Travel, 875 F.2d, 564, 574–75

(7th Cir. 1989) (holding individuals liable where they wrote

deceptive scripts and managed the day-to-day activities of the

corporation).

Kimoto argues that the FTC has not established the

requisite scienter because he sought the advice of counsel,

and was imprisoned at the time Vertek received many of the

consumer complaints and chargebacks related to Global Gold. 

Kimoto is mistaken on both counts. It is well established that

“reliance on advice of counsel [is] not a valid defense on the

question of knowledge” required for individual liability. FTC

v. Cyberspace.Com, LLC, 453 F.3d 1196, 1202 (9th Cir.

2006) (quoting Amy Travel, 875 F.2d at 575). Nor is it

relevant that many of the consumer complaints and

chargebacks—which can constitute evidence of an

individual’s knowledge—were received after Kimoto was

incarcerated. As previously discussed, Kimoto was well

aware of the fraudulent nature of the schemes before he was

imprisoned. The fact that he did not receive additional

information that would have heightened his knowledge of

Vertek’s FTC Act violations does not absolve him.

B. Grant Connect Scheme

Kimoto is personally liable for Vertek’s false advertising

of the Grant Connect scheme because he both controlled

Vertek at the time the scheme was organized, and directly

participated in establishing the scheme. According to his

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16 FTC V. KIMOTO

fellow con artists, Kimoto was “responsible for creating and

organizing Vertek.” He “assembled a team to assist him in

conducting the business of Vertek . . . , which included

Defendants Michael Henriksen and Tasha Jn Paul,” and

“personally participated in the operation[] of Vertek [] until

he began full-time preparation for his criminal trial.” 

“During the time that he participated in the operation[] of

Vertek [], [] Kimoto directed the activities of Vertek [].” 

Accordingly, Kimoto controlled Vertek at least until the

beginning of his trial in March 2008. In 2007, more than a

year before Kimoto’s criminal trial, Vertek began drafting

deceptive terms and conditions for the scheme, as well as

deceptive landing pages and advertisements. Vertek also

created the logo for the scheme. Kimoto thus participated in

the claimed violations through his control of, and

involvement in, Vertek during the period that Vertek drafted

the misleading advertising.

Kimoto also personally participated in concocting the

Grant Connect scheme. Kimoto introduced his idea for the

scheme to O’Connell Gray in 2006, after which James Gray

sent Kimoto login credentials for several grant search

products in order to enable Tasha Jn Paul to create a “highly

detailed roadmap of how all the sites and offers interrelate.” 

Kimoto also negotiated the roles and responsibilities of

Vertek and O’Connell Graywith respect to the Grant Connect

scheme. Following these discussions, O’Connell Gray sent

Kimoto a draft letter of intent regarding the “Government

Grant Venture” between O’Connell Gray and a “Kyle

Komoto [sic] entity to be named.” Finally, in early 2008,

Kimoto received the misleading “program specifics” and

phony “testimonials” for Grant Connect.

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FTC V. KIMOTO 17

Kimoto argues that he cannot be held liable because Grant

Connect was not marketed to consumers until after his

imprisonment. Our case law makes clear that an individual

is liable for corporate violations of the FTC Act where that

individual “participated directly in the violation.” Publ’g

Clearing House, 104 F.3d at 1170. Here, Vertek’s violation

consisted of the deceptive marketing that underlay the Grant

Connect scheme, marketing that Kimoto participated in

designing and approving. Kimoto does not allege, nor does

the record show, that the marketing materials surrounding

Grant Connect materially changed after he ceased his active

participation in the scheme. Accordingly, Kimoto is

personally liable for Vertek’s violations in connection with

the Grant Connect scheme because of his personal

involvement in that violation—drafting the misleading

advertisements that constituted the violation. The fact that

Kimoto did not continue his participation after his criminal

trial began does not alter the simple fact that he participated

in creating the very material found to be misleading by the

district court.

Kimoto possessed the requisite scienter to be personally

liable for restitution because he either knew that Vertek was

engaged in deceptive advertising in connection with the Grant

Connect scheme or was recklessly indifferent as to that fact. 

Publ’g Clearing House, 104 F.3d at 1171. Gray sent Kimoto

program specifics and testimonials for Grant Connect on

February 15, 2008, many months before the product

launched. Clearly the testimonials could not have been

legitimate since the product had not yet launched. Kimoto

thus had knowledge that the scheme was deceptive.

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18 FTC V. KIMOTO

C. Work From Home Scheme

Kimoto wrote the deceptive text for the landing pages

associated with the Domain Processing scheme, one of the

Work From Home schemes, to redesign the website, and to

design the landing pages and deceptive advertisements. 

Kimoto also received the product description for the scheme,

which deceptively promised that participants could earn

inflated incomes.

Kimoto possessed the requisite scienter to be personally

liable for restitution because he either knew that Vertek was

engaged in deceptive advertising in connection with the Work

From Home scheme or was recklessly indifferent as to that

fact, Publ’g Clearing House, 104 F.3d at 1171, for the same

reasons that he knew, or was recklessly indifferent as to the

possibility that the statements associated with the Line of

Credit scheme and Grant Connect scheme were

misleading—namely, his history of trouble with the FTC

related to “upsells,” his orchestration of the enterprise that

brought the scheme to fruition, and the clearly overstated

incomes contained in the draft product description that he

received.

D. 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. Kimoto

was incarcerated on April 18, 2008, whereas work on the

Acai Berry scheme did not begin until February 2009. 

Accordingly, Kimoto cannot be held liable for either

injunctive relief or restitution with respect to the Acai Total

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FTC V. KIMOTO 19

Burn scheme. We vacate that part of the district court’s grant

of summary judgment and permanent injunction based on

Vertek’s violations of the FTC Act in connection with the

Acai Total Burn scheme.

II. Liability Under the EFTA

Although Kimoto does not contest that Vertek violated

the EFTA, he argues that there is no individual liability for

corporate violations of that Act. We disagree. The EFTA

provides that “a violation of any requirement imposed under

[the EFTA] shall be deemed a violation [of the FTC Act].” 

15 U.S.C. § 1693o(c). The EFTA further provides that “[a]ll

of the functions and powers of the Federal Trade Commission

under the Federal Trade Commission Act are available to the

Federal Trade Commission to enforce compliance by any

person subject to the jurisdiction of the Federal Trade

Commission with the requirements imposed under this

subchapter.” Id. The EFTA provides no enforcement

mechanism of its own, instead relying on the enforcement

provisions in the authorizing statutes of the agencies tasked

with enforcing the FTC Act. See 15 U.S.C. §§ 1693o(b)–(c). 

As previously discussed, where the FTC seeks a permanent

injunction for violations of the FTC Act under 15 U.S.C.

§ 53(b) it can, under appropriate circumstances, hold an

individual personally liable for corporate violations of the

FTC Act. Affordable Media, 179 F.3d at 1234. In light of the

above, we hold that individual liability for corporate

malfeasance is available for violations of the EFTA because

such violations are also deemed to be violations of the FTC

Act, and that Kimoto is liable for Vertek’s violations of the

EFTA because of his personal involvement in concocting and

carrying out the several schemes that violated the EFTA,

which are more fully discussed above.

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20 FTC V. KIMOTO

III. Scope of the Injunction

Kimoto next challenges the scope of the district court’s

injunction on several grounds. First, he contends that the

injunction is not tailored to his specific bad acts. Second, he

argues that the injunction’s ban on certain types of marketing

and advertising, and on all use of testimonials, is

impermissibly broad. Finally, Kimoto argues that the

injunction’s ban on all electronic fund transfers is overbroad. 

None of these arguments is availing.

To determine if an injunction is overbroad, we consider

“(1) the seriousness and deliberateness of the violation;

(2) [the] ease with which the violative claim may be

transferred to other products; and (3) whether the respondent

has a history of prior violations.” FTC v. John Beck Amazing

Profits, LLC, 888 F. Supp. 2d 1006, 1012 (C.D. Cal. 2012)

(citing In re Stouffer Foods Corp., 118 F.T.C. 746, 811

(1994)). The Commission “is not limited to prohibiting the

illegal practice in the precise form in which it is found to

have existed in the past.” FTC v. Ruberoid Co., 343 U.S.

470, 473 (1952). And those “caught violating” the FTC Act

“must expect some fencing in.” FTC v. Nat’l Lead Co.,

352 U.S. 419, 431 (1957). Accordingly, injunctive relief

under the FTC Act may be framed “broadly enough to

prevent respondents from engaging in similarly illegal

practices in future advertisements.” FTC v. ColgatePalmolive Co., 380 U.S. 374, 395 (1965). The injunction will

be upheld so long as it bears a “reasonable relation to the

unlawful practices found to exist.” Id. at 394–95.

Vertek operated as a common enterprise with other

companies involved in the scheme. Where corporate entities

operate together as a common enterprise, each may be held

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FTC V. KIMOTO 21

liable for the deceptive acts and practices of the others. FTC

v. Network Servs. Depot, Inc., 617 F.3d 1127, 1143 (9th Cir.

2010). Kimoto, in turn, is personally liable for Vertek’s

violations of the FTC Act in connection with each of the

schemes previously discussed, except for the Acai Total Burn

scheme, by virtue of his having personally participated in

each of the deceptive schemes, and by virtue of his control

over Vertek prior to his incarceration. Kimoto has also

consistently engaged in variations on the same deceptive

marketing scheme, which, in its latest iteration alone, has

defrauded consumers of more than $29 million. As the

record reveals, the common elements employed in each of the

frauds concocted by Kimoto is easily transferable both to new

product lines and to new modes of communication with

consumers. Accordingly, because the district court’s

injunction was based on Vertek’s violations of the FTC Act

in connection with the Line of Credit, Grant Connect, and

Work From Home schemes, it is not overbroad but is, instead,

reasonably tailored to “prevent respondent[] from engaging

in similarly illegal practices in future advertisements.” 

Colgate-Palmolive Co., 380 U.S. at 395.

CONCLUSION

For the reasons above we AFFIRM the district court’s

grant of summary judgment to the FTC in part, and VACATE

the district court’s grant of summary judgment to the FTC

with respect to the Acai Total Burn scheme. We REMAND

to the district court so that it may modify the permanent

injunction and the amount of restitution as required by this

opinion. Each party shall bear its own costs.

AFFIRMED in part, VACATED in part, and

REMANDED for further proceedings.

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