FTC v. Kimoto

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Consumer Credit
  • Date Filed: 08-15-2014
  • Case #: 11-18023
  • Judge(s)/Court Below: Circuit Judge M. Smith, for the Court, Circuit Judges S. Thomas and Christen
  • Full Text Opinion

An individual will be held liable under the Federal Trade Practices Act if he or she is found to have 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; further one can be held individually liable under the Electronic Funds Transfer Act for violations committed by corporations if he or she has personal involvement in such violations.

Kyle Kimoto was convicted under two federal laws after his company, Vertek Group, LLC, conducted misleading marketing schemes. Kimoto appealed his convictions under the Federal Trade Commission Act, 15 U.S.C. §§ 41—58 (“FTCA”), the Electronic Fund Transfer Act, 15 U.S.C. § 1693 et seq. (“EFTA”), and an injunction barring him from engaging in preauthorized electronic funds transfer, marketing credit, and seven other activities. Kimoto argued the FTC had insufficient evidence of his involvement in Vertek’s schemes to convict him under the FTCA. This issue centered on the knowledge requirement of the rule to hold one liable for restitution. This requirement is satisfied if the “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.” Intent is not required. Because Kimoto was incarcerated when some of the schemes were implemented and customer complaints began, he argued he could not be in violation. However, because he developed and established the schemes, he “directly participated” in the misrepresentation. Kimoto contests his conviction under the EFTA because, he argues, there is no individual liability under the Act. The EFTA does not have its own “enforcement mechanism,” but instead relies on FTCA-enforcement agencies’ authorizing statutes. Because the FTCA holds individuals liable for corporate violations, the panel held such is the same under the EFTA. Finally, Kimoto argues his injunction was overly broad. Finally, the panel held that “the injunction will be upheld so long as it bears a ‘reasonable relation to the unlawful practices found to exist.’” Because the injunction barred actions that were common elements of the schemes, the injunction met the standard. AFFIRMED in part, VACATED in part, and REMANDED for further proceedings.

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