Opinion ID: 2718331
Heading Depth: 3
Heading Rank: 2

Heading: Grant Connect Scheme

Text: 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 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 Gray with 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. 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. 18 FTC V. KIMOTO