Trudeau Civil Case Document 737 737 1 and 737 2 Partial 08-05-13

8/22/2019 Trudeau Civil Case Document 737 737 1 and 737 2 Partial 08-05-13

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

FEDERAL TRADE COMMISSION,

Plaintiff,

v.

KEVIN TRUDEAU,

Defendant.

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Case No. 03-C-3904

Hon. Robert W. Gettleman

PLAINTIFFS MOTION FOR LEAVEINSTANTER

TO FILE A CONSOLIDATEDRESPONSE TO TRUDEAUS PROPOSED ORDER AND OPPOSITION TO HIS

REQUEST TO PAY HIS ATTORNEYS WITH MONEY BELONGING TO

CONSUMERS

Plaintiff Federal Trade Commission (FTC) moves the Court for leave to file a

consolidated reply to (1) Trudeaus Motion for To Release Assets for Payment of Attorneys

Fees (DE736) and (2) Trudeaus Response to the FTCs Proposed Order (DE735), both of which

Trudeau filed late Friday. Given the importance of this case and significance of these issues to

the receivership estate, good cause exists to permit the FTC to respond.

Additionally, the FTC seeks leave for its Consolidated Response to exceed the fifteen-

page limit by two pages. The Consolidated Response replies to two separate pleadings (one of

which is nine pages, and the other eight pages). Thus, the FTCs Consolidated Response is the

same length as Trudeaus two filings.

Finally, the FTC notices this motion for Tuesday at 8:30 AM, which is when the Court

scheduled a hearing regarding attorneys fees and the receiverships structure.

Case: 1:03-cv-03904 Document #: 737 Filed: 08/05/13 Page 1 of 3 PageID #:12818


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Dated: August 5, 2013

David OToole ([email protected])Federal Trade Commission55 West Monroe Street, Suite 1825

Chicago, Illinois 60603-5001Phone: (312) 960-5601Fax: (312) 960-5600

Respectfully Submitted,

/s/ Jonathan CohenMichael Mora ([email protected])Jonathan Cohen ([email protected])

Amanda B. Kostner ([email protected])Federal Trade Commission600 Pennsylvania Ave., N.W. M-8102BWashington, DC 20580Phone: 202-326-3373; -2551Fax: 202-326-2558



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CERTIFICATE OF SERVICE

I, Jonathan Cohen, hereby certify that on August 5, 2013, I caused to beserved true copies of the foregoing by electronic means, by filing such documents through theCourts Electronic Case Filing System, which will send notification of such filing to:

Kimball Richard [email protected]

Thomas Lee Kirsch, [email protected]

Katherine E. [email protected]

/s/ Jonathan CohenJonathan Cohen ([email protected])

Attorney for PlaintiffFederal Trade Commission



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Plaintiff,

v.

KEVIN TRUDEAU,

Defendant.

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Case No. 03-C-3904


FTCS CONSOLIDATED RESPONSE TO TRUDEAUS PROPOSED ORDER AND

OPPOSITION TO HIS REQUEST TO PAY HIS ATTORNEYS WITH MONEY

BELONGING TO CONSUMERS

Case: 1:03-cv-03904 Document #: 737-1 Filed: 08/05/13 Page 1 of 22 PageID #:12821


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TABLE OF CONTENTS

TABLE OF AUTHORITIES ......................................................................................................... iii

I. INTRODUCTION ...............................................................................................................1

II. THE COURT HAS AUTHORITY TO CREATE A RECEIVERSHIP OVER ALL

ASSETS TRUDEAU CONTROLS, BUT IF THE COURT HAS RESERVATIONS,

THE COURT SHOULD INCARCERATE TRUDEAU .....................................................2

A. The Court Has Authority To Include Any Asset Trudeau Controls Within the

Receivership .............................................................................................................3

B. If the Court Has Reservations About Its Authority, the Solution Is To

Incarcerate Trudeau Until He Complies With the Order To Pay,

Not To Give Him a Free Pass. ..............................................................................6

III. THE COURT CANNOT ALLOW TRUDEAU TO USE CONSUMERS MONEY

TO PAY TO DEFEND AGIANST THE CIVIL AND CRIMINALCONSEQUENCES OF THE MISCONDUCT THAT INJURED THEM ........................11

A. Think AchievementAbsolutely Prohibits Trudeau From Using ConsumersMoney To Pay His Future Legal Bills ...................................................................11

B. The Court Should Not Permit Trudeau To Use Consumers Money To PayExisting Legal Bills................................................................................................13

C. The Court Should Not Release Assets from NCHI Without Substantial

Additional Evidence...............................................................................................15

IV. CONCLUSION ..................................................................................................................17

CERTIFICATE OF SERVICE ......................................................................................................18



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iii

TABLE OF AUTHORITIES

Cases

American Freedom Train Found. v. Spurney, 747 F.2d 1069 (1st Cir. 1984) ................................ 4

Caplin & Drysdale v. United States, 491 U.S. 617 (1989) ........................................................... 12

CFTC v. Battoo, No. 12-cv-07127 (N.D. Ill. Sept. 27, 2012) ..................................................... 6, 9

CFTC v. Lake Shore Asset Management Ltd., No. 07-3598 (N.D. Ill. Aug. 19, 2011) .................. 6

CFTC v. Morse, 762 F.2d 60 (8th Cir. 1985) ............................................................................... 11

DeGuelle v. Camilli, __ F.3d __, 2013 WL 3942906 (7th Cir. Aug. 1, 2013) ............................... 7

FTC v. 2145183 Ontario Inc., No. 09-7423 (N.D. Ill. Nov. 30, 2009)........................................... 6

FTC v. Asia Pacific Telecom, Inc., No. 10-3168 (N.D. Ill. May 25, 2010) .................................... 6

FTC v. Fortune Hi-Tech Marketing, Inc., No. 13-cv-00578 (N.D. Ill. Jan. 24, 2013) ............... 6, 9

FTC v. Gill, 183 F. Supp.2d 1171 (C.D. Cal. 2001) ....................................................................... 3

FTC v. Image Sales & Consultants, No. 1:97-CV-131,1997 U.S. Dist. LEXIS 18905, (N.D. Ind. Nov. 14, 1997) ....................................................... 14

FTC v. Jordan Ashley, Inc., No. 93-2257,

1994 U.S. Dist. LEXIS 7577 (S.D. Fla. May 4, 1994) .............................................................. 14

FTC v. Leshin, No. 06-61851, 2011 WL 617500, *15 (S.D. Fla. Feb. 15, 2011) ........................ 10

FTC v. Neovi, Inc., No. 06-CV-1952, 2012 WL 2859987 (S.D. Cal. July 11, 2012) ..................... 3

FTC v. NHS Systems, 708 F. Supp. 2d 456 (E.D. Pa. 2009) ........................................................... 4

FTC v. Productive Marketing, 136 F. Supp.2d 1096, 1106 (C.D. Cal. 2001) ............................ 4, 8

FTC v. QT, Inc., 605 F. Supp.2d 999 (N.D. Ill. 2009) .................................................................. 12

FTC v. Think Achievement Corp., 312 F.3d 259 (7th Cir. 2002)......................................... 2, 11-13

In re San Vicente Med. Pners Ltd., 962 F.2d 1402 (9th Cir. 1992) ............................................... 6

Kokoraleis v. Gilmore, 131 F.3d 692 (7th Cir. 1997) ................................................................... 12



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iv

McGregor v. Chierico, 206 F.3d 1378 (11th Cir. 2000) ................................................................. 5

SEC v. AMX, Intl, Inc., 872 F. Supp. 1541 (N.D. Tex. 1994) ..................................................... 10

SEC v. Aragon Capital Advisors, LLC, 2011 WL 3278907 (S.D.N.Y. July 26, 2011) ................ 10

SEC v. Bilzerian, 127 F. Supp. 2d 232 (D.D.C. 2000) ................................................................... 5

SEC v. Black, 163 F.3d 188, 196-97 (3rd Cir. 1998) ...................................................................... 4

SEC v. Hickey, 322 F.3d 1123 (9th Cir. 2003) ........................................................................... 3, 4

SEC v. Levine, 671 F. Supp.2d 14, 36 (D.D.C. 2009) .................................................................... 3

SEC v. Solow, 682 F.Supp.2d 1312 (S.D. Fla. 2010) ................................................................... 10

SEC v. Universal Express Inc., No. 04-2322, 2007 WL 2469452 (S.D.N.Y. Aug. 31, 2007) ....... 3

SEC v. Universal Financial, 760 F.2d 1034, 1038 (9th Cir. 1985) ................................................ 4

SEC v. Wencke, 622 F.2d 1363, 1371 (9th Cir. 1980) .................................................................... 3

Tcherepnin v. Franz, 439 F. Supp. 1340 (N.D. Ill. 1977)............................................................... 4

United States v. Messino, 181 F.3d 826 (7th Cir. 1999) ............................................................... 12

United States v. Moya-Gomez, 860 F.2d 706 (7th Cir. 1988) ....................................................... 12

United States v. Tennessee, 925 F. Supp. 1292 (W.D. Tenn. 1995) ............................................... 3

Statutes

28 U.S.C. 1651(a) ........................................................................................................................ 6

28 U.S.C. 3001 et seq................................................................................................................... 1

28 U.S.C. 3003 ......................................................................................................................... 1, 9

28 U.S.C. 3014(a)(1) .................................................................................................................. 10

28 U.S.C. 754 ........................................................................................................................... 1, 2



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I. INTRODUCTIONExactly as he has done for fifteen years, Trudeau proceeds as though this Courts orders

are meaningless. Only a few days ago, as a sanction for Trudeaus third contempt, the Court

requested that the FTC nominate a receiver for all of Trudeaus assets, including all entities,foreign or domestic, owned or controlled by Trudeau (the Trudeau Entities). DE729 (July 26,

2013) at 1 (emphasis added). The Court then specifically identified the entities Trudeau owns

and controls. Id. at 1-2; see also PXA:1, Hearing Tr. at 31:19-20 (July 26, 2013) (He controls

those entities. Im finding that.). Yet as if the Court made no findings at all Trudeau now

argues that, absent a showing that [he] controls each of the so-called Trudeau Entities or [the

Court] otherwise has proper jurisdiction over these entities, the Court should reject the FTCs

Proposed Order. DE735 (Aug. 2, 2013) at 9 (emphasis added). Through a year of protracted

litigation, the FTC has proven conclusively, and the Court has found, that these assets belong to

Trudeaus victims, not to Trudeau and his lawyers.

As discussed below, under the Courts inherent contempt power and 28 U.S.C. 754

(which governs receivership jurisdiction), because the Court has jurisdiction over Trudeau, the

Court has jurisdiction over assets Trudeau controls.1

Even so, it is very likely that Trudeau

(acting through his wife or other nominees) will attack the Courts findings through endless

litigation with the receiver although this obstacle counsels against creating a receivership as a

1 The Courts July 26, 2013 order (DE729) correctly does not refer to the Federal Debt

Collection Procedures Act (FDCPA), 28 U.S.C. 3001 et seq. The Court created the

receivership as a contempt sanction, which is permissible because the FDCPA does not

supersede or modify . . . the authority of a court . . . to exercise the power of contempt under

any Federal law. 28 U.S.C. 3003(c)(8)(C). Notwithstanding the FDCPA, the Court could

also have created a receivership under various other sources of authority as well. See 28 U.S.C.

3003(b) (providing that nothing in the FDCPA curtail[s] or limit[s] the right of the United

States under any other Federal law . . . to appoint or seek the appointment of a receiver); id. at

3003(c) (8) (providing that nothing the FDCPA supersede[s] or modif[ies] . . . the authority of a

court . . . to appoint a receiver to effectuate its order).



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practical matter, not against the Courts legal authority to act. Trudeaus inevitable challenges to

the receivership will drain the funds available for redress and delay until redress with the

remaining funds is impossible. Such a process certainly does not serve consumers interests. If

the Court has reservations about its authority to create a receivership with sufficient teeth to

give it at least a chance to help consumers, or the collateral litigation the receivership will

trigger, then the solution is to incarcerate Trudeau until he complies, not to give Trudeau a free

pass.

Amazingly, Trudeau further argues that his victims should pay for Trudeaus attorneys to

continue to protect his assets and defend him from the civil and criminal consequences of the

conduct that caused their injury. See DE736 (Aug. 2, 2013). The Seventh Circuit ruled on this

very issue, directly rejecting Trudeaus position. FTC v. Think Achievement Corp., 312 F.3d

259, 262 (7th Cir. 2002).

II. THE COURT HAS AUTHORITY TO CREATE A RECEIVERSHIP OVER ALLASSETS TRUDEAU CONTROLS, BUT IF THE COURT HAS RESERVATIONS,THE COURT SHOULD INCARCERATE TRUDEAU.

In large part, Trudeau contends that the Court mistakenly found he controls entities

through various nominees. For several reasons, in addition to the overwhelming evidence

supporting the Courts finding, the Court should summarily reject Trudeaus attempt to reargue

his entire defense and the related contentions he advances. First, through both its inherent power

and 28 U.S.C. 754 (which governs receivership jurisdiction), the Court has jurisdiction over

assets Trudeau controls including the entities Trudeau controls because it has jurisdiction

over him. Second, if the Court has reservations about its authority, or the collateral litigation the

receivership will almost certainly spawn, the solution is to incarcerate Trudeau as a coercive

contempt sanction, not to create a receivership doomed to failure. Finally, the specific objections

Trudeau raises to the FTCs Proposed Order are meritless.



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A. The Court Has Authority To Include Any Asset Trudeau Controls Withinthe Receivership.

The Courts authority to include any asset Trudeau controls within the receivership stems

from two sources. First, the court has wide latitude and a broad range of civil contempt

sanctions at its disposal, such as fines, imprisonment, receivership, and a broader category of

creative, nontraditional sanctions. FTC v. Neovi, Inc., No. 06-CV-1952, 2012 WL 2859987, *2

(S.D. Cal. July 11, 2012) (quoting United States v. Tennessee, 925 F. Supp. 1292, 1303

(W.D.Tenn.1995)) (Neovis alterations omitted) (emphasis added); see alsoSEC v. Wencke, 622

F.2d 1363, 1371 (9th Cir. 1980) (The Supreme Court has repeatedly emphasized the broad

equitable powers of the federal courts to shape equitable remedies to the necessities of particular

cases, especially where a federal agency seeks enforcement in the public interest.) (citing four

Supreme Court cases along with various other authority). Pursuant to this power, courts can

create receiverships as contempt sanctions. See, e.g., SEC v. Levine, 671 F. Supp.2d 14, 36

(D.D.C. 2009) (appointing a receiver as a contempt sanction); SEC v. Universal Express Inc.,

No. 04-2322, 2007 WL 2469452, *12 (S.D.N.Y. Aug. 31, 2007) (same); FTC v. Gill, 183 F.

Supp.2d 1171, 1186 (C.D. Cal. 2001) (same).

Furthermore, the Courts equitable power includes authority over assets the contemnor

controls. See, e.g., SEC v. Hickey, 322 F.3d 1123, 1131 (9th Cir. 2003). Hickeys facts are

remarkably similar to those here. After finding that Hickey bilked investors out of millions, the

court ordered him to disgorge his unlawful gains. Id. at 1125. Hickey paid nothing, and the

court found him in contempt. See id. The court then froze the assets at a non-party brokerage

that Hickeys elderly mother nominally owned. See id. at 1126-27. The Ninth Circuit affirmed

based on facts establishing Hickeys control over the brokerage:

The SEC demonstrated that Hickey had unfettered control of the Brokerage.Hickeys employment agreement with the Brokerage allowed him to pay

whatever personal expenses he deemed appropriate. Dorothy Hickey, the nominal

owner of the Brokerage, testified that she delegated the day-to-day operations of

the Brokerage to Hickey, to the point where Hickey used a rubber stamp with the



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owners signature. Finally, Hickey registered with the California Department of

Real Estate as the Brokerages administrative manager and designated broker.

Given Hickeys dominance of the Brokerage, freezing the Brokerages assets was

necessary for the district court to guarantee that its disgorgement order would besatisfied and that Hickey would honor the payment schedule established in the

contempt order. The district court acted within its discretion by invoking its

equitable powers to freeze the Brokerages assets.

Id. at 1132. Accordingly, the Courts inherent contempt power affords it authority over assets

that Trudeau controls, even if those assets nominally belong to entities Babenko or another

nominee ostensibly owns.2

Second, 28 U.S.C. 754 provides for the vesting of jurisdiction over property located in

different districts in the district of the appointment of a receiver. Tcherepnin v. Franz, 439 F.

Supp. 1340, 1344 (N.D. Ill. 1977); see alsoAmerican Freedom Train Found. v. Spurney, 747

F.2d 1069, 1073 (1st Cir. 1984) ([T]he purpose of the statute is to give the appointing court

jurisdiction over property in the actual or constructive possession and control of the debtor,

wherever such property may be located.) (emphasis added). Accordingly, Section 754

authorizes a court to create a receivership that includes property nominally owned by entities not

before the Court.3 See, e.g., FTC v. NHS Sys., 708 F. Supp.2d 456, 463 (E.D. Pa. 2009)

2 Trudeau cites SEC v. Black, 163 F.3d 188, 196-97 (3rd Cir. 1998), which is not

contrary. InBlack, the Third Circuit distinguished various cases the SEC cited because in no

case referenced by the SEC has it been granted a freeze ex parte of assets where those assets

were anything other than property, or deemed property, of a defendant or of a culpable third

party. See id. at 196 (emphasis added). Here, the Court found that, because Trudeau controls

the Trudeau Entities, their assets are deemed to belong to Trudeau. Furthermore, the Court made

this finding not after an ex parte proceeding (as inBlack), but after affording Trudeau extensive

due process.

3Were the rule otherwise, it would require[e] the FTC to institute a separate action

against any third party holding assets of the receivership estate, FTC v. Productive Marketing,

136 F. Supp.2d 1096, 1106 (C.D. Cal. 2001), which would result in a multiplicity of actions in

different forums, and would increase litigation costs for all parties while diminishing the size of



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(rejecting non-partys Teledrafts argument that the court does not have in personam

jurisdiction over Teledraft as a party orin remjurisdiction over Teledrafts funds, because the

court had in remjurisdiction over Receivership funds pursuant to 28 U.S.C. 754); SEC v.

Bilzerian, 127 F. Supp.2d 232, 232-33 (D.D.C. 2000) (creating receivership pursuant to, among

other things, the Courts equitable powers, 28 U.S.C. 28 U.S.C. 754, and Fed. R. Civ. P. 66 . . .

. such Receivership Estate shall be compromised of . . . the legal and/or equitable interests

(whether direct or indirect, tangible or intangible) of Defendant Bilzerian in assets, wherever

situated and by whomever held (Property), including, but not limited to, the following: the

Bilzerian Related Entities, defined to mean entities or assets in which this Court finds or has

found that Bilzerian has an interest), affd, 75 Fed. Appx. 3 (D.C. Cir. 2003).4

In short, courts have the power to authorize a receiver to assume control over whatever

assets a defendant controls, and they do so all the time.5

For instance, in CFTC v. Battoo, Judge

Chang ordered:

the receivership estate, SEC v. Universal Financial, 760 F.2d 1034, 1038 (9th Cir. 1985).

4Trudeau quotesMcGregor v. Chierico, 206 F.3d 1378 (11th Cir. 2000), in which a

District Court improperly imposed a sanction that included assets belonging to a contemnors

wife without finding that she violated the order. See id. at 1385 (noting that the court ordered

assets used for consumer redress regardless of whether they belong to Michael Chierico or Teri

Chierico, and that Teri Chierico was an innocent spouse). Regardless of whether Babenko

would qualify as an innocent spouse, nothing in the FTCs Proposed Order impairs any assets

that Babenko controls. Specifically, it provides: nothing in this order restrains, limits or

enjoins the conduct of Nataliya Babenko with respect to: (i) Assets that she did not acquire

directly or indirectly from Trudeau or the Trudeau Entities, and were not derived in any mannerfrom Trudeau or the Trudeau Entities; or (ii) Assets that she lawfully acquired after July 26,

2013. DE731 (Aug. 1, 2013) at 2.

5Notably, in many instances, the orders freezing assets the defendant controls and

placing them under receivership were issuedex parte. See, e.g.,PXA6-8. In contrast, Trudeau

had a year to prove he did not control the Trudeau Entities.



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Robb Evans & Associates is appointed Receiver, with the full powers of an equity

receiver, over Defendants and their affiliates and subsidiaries, and all of the funds,

properties, premises, accounts, businesses, partnerships and any other kinds of

assets directly or indirectly owned, beneficially or otherwise, managed or

controlled by the Defendants, whether held in their own names or in the names of

others (Receivership Assets).

PXA:5, Order, No. 12-cv-07127 (N.D. Ill. Sept. 27, 2012) at 20 (emphasis added); see also

PXA:6, Order, FTC v. Fortune Hi-Tech Marketing, Inc., No. 13-cv-00578 (N.D. Ill. Jan. 24,

2013) at 8, 15 (freezing assets [o]wned, controlled, or held by, in whole or in part, for the

benefit of, or subject to access by, or belonging to, any Defendant, and appointing a receiver to

[t]ake exclusive custody . . . of all assets . . . in the possession, custody, or under the control of,

the Receivership Defendants, wherever situated); PXA:7, Order, FTC v. Asia Pacific Telecom,

Inc., No. 10-3168 (N.D. Ill. May 25, 2010) at 9, 16 (same asset freeze and receiver appointment

language); PXA:8, Order, FTC v. 2145183 Ontario Inc., No. 09-7423 (N.D. Ill. Nov. 30, 2009)

(same language); PXA:9, Order, CFTC v. Lake Shore Asset Mgmt. Ltd., No. 07-3598 (appointing

receiver to take custody of all assets under the control of LS Common Enterprise wherever

situated).6

B. If the Court Has Reservations About Its Authority, the Solution Is ToIncarcerate Trudeau Until He Complies With the Order To Pay, Not To GiveHim a Free Pass.

Notwithstanding the authority strongly supporting the Courts July 26, 2013 order

imposing a receivership on the Trudeau Entities, Trudeau is correct that the Entities are not

formally before the Court. Although Trudeaus brief does not articulate a due process concern

with precision (see Trudeau Br. at 7-8) (discussing due process generally), Trudeau will

6 Additionally, the All Writs Act supplements the Courts inherent contempt authority and

its power under 28 U.S.C. 754. Specifically, the All Writs Act provides that federal courts may

issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the

usages and principles of law. 28 U.S.C. 1651(a). As such, under the All Writs Act, 28 U.S.C.

1651, because the Court has jurisdiction over Trudeau, the Court has jurisdiction over assets

Trudeau controls including the entities Trudeau controls.



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undoubtedly instruct the Trudeau Entities to challenge the Courts findings because they

(purportedly) did not receive notice of the proceedings against Trudeau or the opportunity to

participate. See, e.g.,In re San Vicente Med. Pners Ltd., 962 F.2d 1402, 1408 (9th Cir. 1992)

(rejecting non-partys challenge to order including it in a receivership over its objection;

Because [non-party] San Vicente received notice at all stages of the receivership proceedings

and had every opportunity to participate in the proceedings, the fact that San Vicente was never a

named party in the proceedings did not violate due process.). For several reasons, this position

should not prevail,7 but the fact remains that Trudeau will do everything he can behind the

scenes to thwart, impede, or derail the receivers efforts to seize assets that Trudeaus victims

should receive.

Because the Court did not incarcerate Trudeau, he has no incentive to put forth genuine

cooperation.8

Knowing that a receiver cannot monitor him twenty-four hours a day, Trudeau

will do whatever the receiver asks and then call Babenko, or some other front person, and

instruct them to battle the receiver.9 It will then take months (if not years) before the receiver

collects what little domestic assets remain, further draining resources and letting the clock tick

down on consumers. Simply put, the problem is not that the receivership is legally infirm; but

7All of the Trudeau Entities had notice through Trudeau, their control-person.

Additionally, to the extent it matters, Babenko was deposed and obviously had notice of this

litigation (in fact, several of the entities she nominally owns appeared before this Court

repeatedly). Furthermore, even if one assumed, rather incredibly, that the Trudeau Entities had

no notice of this litigation, they have sufficient privity with Trudeau to support issue preclusion,

thereby estopping them from relitigating this Courts findings. See generallyDeGuelle v.

Camilli, __ F.3d __, 2013 WL 3942906 (7th Cir. Aug. 1, 2013).

8 Trudeau likely anticipates that the probable future dispute over whether he has

genuinely cooperated will take time and afford him still further chances to stall, flee, or

otherwise impair the receivership process.

9 Trudeau waited only days after the Courts order placing his Entities in a receivership

before urging the Court to reconsider including them. This is the antithesis of cooperation.



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that Trudeau will argue it is. The receivership guarantees collateral litigation will drain the funds

available for redress; meanwhile, Trudeau will continue to live lavishly while he simply outwaits

his victims. The Court should not countenance this process.

If the Court has reservations about its authority to create a successful receivership, or if

the Court has reservations about Trudeaus probable response to a genuine receivership, the

solution is incarcerate Trudeau until he complies with the Order To Pay, not to render the

receivership impotent. Whatever chance a real receivership might have, the alternative Trudeau

proposes is designed to fail. Among many issues:

Trudeaus order purports to cover assets controlled by Trudeau, but does notinclude any entities Trudeau creates in the future, arguably leaving Trudeau tocreate Global Information Network II outside of the receivership and transfer

operations there;10

Trudeaus order does not specify the entities that the Court found him to control,which will make it extremely difficult for the receiver to obtain quick compliance

from third parties genuinely uncertain as to what the order covers;

Trudeaus order obligates persons to inform the receiver immediately about assetsand grant the receiver access to those assets, see DE735-1 at 2, but the assetsneed only be turned over to the Receiver upon the Receivers request, see id.,

which means assets can be removed from the estate at will without violating the

order as long as they are moved before the receiver asks to take possession; 11

10 Certainly the receiver would challenge this, but every issue the order leaves unclear is

another issue the Trudeau Entities will raise in their struggle with the receiver.11

For any receivership to work, third parties must be required to turn over assets

immediately, or at least not move them. Cf. Productive Marketing, 136 F. Supp.2d at 1106

(finding a preliminary injunction directing any entity holding assets of the receivership

defendants to turn those assets over to the Receiver is necessary to achieve the purposes of the

receivership).



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Trudeaus order gives the receiver no right to stand in Trudeaus shoes withrespect to privileged information regarding the location of assets, rendering the cost

of finding assets prohibitive;12

Trudeaus order does establish a method for repatriating his overseas funds that cansucceed because he has established duress clauses on his foreign accounts;

Trudeaus order does not require third parties to pay any money owed to Trudeaudirectly to the receiver, thereby assuming that he will honestly account for and

disgorge whatever he receives from third parties a proposition that Trudeau has

established time and again is patently false;

Trudeaus order does not expressly require the receiver to immediately shut downany business that cannot be operated lawfully;

Trudeaus order does not transfer the Trudeau Entities bankruptcy rights to thereceivership. Therefore, if things still are not going Trudeaus way, the Trudeau

Entities can always declare bankruptcy to halt the receivership.13

If Trudeau will not accept a receivership with teeth, or if the Court has reservations

about creating one, then the solution is to incarcerate Trudeau rather than create an anemic

receivership that, as a practical matter, ensures that consumers will never see a penny of redress.

12 The Court invalidated that privilege with respect to Lane, but not with respect to other

lawyers.

13This is why receivership orders contain standard language prohibiting receivership

entities from declaring bankruptcy. See, e.g., PXA:5, CFTC v. Battoo, No. 12-cv-7127 (N.D. Ill.

Sept. 27, 2012) at 25 (prohibiting receivership defendants from [p]etitioning, or assisting in

filing of a petition, that would cause the Defendants to be placed in bankruptcy); PXA:6, FTC v.

Fortune Hi-Tech Marketing, No. 13-cv-00578 (N.D. Ill. Jan. 24, 2013) at 21 (prohibiting

defendants from [f]iling, or causing to be filed, any petition on behalf of the Receivership

Defendants for relief under the United States Bankruptcy Code . . . without prior permission

from this Court).



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C. Trudeaus Specific Objections To the Proposed Order Are Baseless.There is no merit to any of Trudeaus specific objections to the FTCs Proposed Order,

all of which seek to undermine the contempt sanction by incorporating FDCPA exemptions.

First, as discussedinfra at 2 n.1, the Court created the receivership as a contempt sanction. In

fact, contrary to Trudeaus claim that the FDCPA provides the exclusive means for the FTC

to recover a judgment on a debt, see DE735 at 3 (Trudeaus emphasis), the FDCPA does not

supersede or modify . . . the authority of a court . . . to exercise the power of contempt under

any Federal law. 28 U.S.C. 3003(c)(8)(C). Second, statutory exemptions do not protect a

contemnors assets from contempt sanctions. See, e.g., FTC v. Leshin, No. 06-61851, 2011 WL

617500, *15 (S.D. Fla. Feb. 15, 2011) (noting that a federal court has absolute discretion to

disregard exemptions; it is clear that state exemptions cannot be used to shield satisfaction of a

disgorgement order) (mag. op.), adopted by Order Affirming Magistrate Judges Report, No.

06-61851 (S.D. Fla. Mar. 8, 2011) (DE563); SEC v. Solow, 682 F.Supp.2d 1312, 1325 (S.D. Fla.

2010) (noting that a district court can ignore state law exemptions as well as other state law

limitations on the ability to collect a judgment in fashioning a disgorgement order); SEC v.

AMX, Intl, Inc., 872 F. Supp. 1541, 154445 (N.D. Tex. 1994) (homestead exemption not taken

into account); SEC v. Aragon Capital Advisors, LLC, 2011 WL 3278907, *7-*8 (S.D.N.Y. July

26, 2011) (rejecting argument that state law and ERISA protected alleged contemnors

retirement funds).

Third, notwithstanding this authority, the FTCs Proposed Order exempts from the

receivership assets that Trudeau could exempt in bankruptcy under 11 U.S.C. 522(d). See

DE731 at 2; cf. 28 U.S.C. 3014(a)(1) (FDCPA provision allowing debtor to exempt property

that is specified in 11 U.S.C. 522(d)). This is generous, and unwarranted, given that these

assets belong to consumers; however, the FTC included this language in its Proposed Order

because the Courts July 26, 2013 order excluded from the receivership personal assets

exempted by law. Finally, there is no reason why the Court should permit Trudeau to shield

very significant assets from the Courts Order To Pay. For instance, he seeks to exempt 75% of



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his disposable earnings, see DE735 at 6, although his future disposable earnings could be

millions of dollars. The receivership is not supposed to keep Trudeau comfortable the Court

created the receivership instead of putting [Trudeau] in prison. PXA:1 at 40. Both the Courts

July 26 order and the FTCs Proposed Order afford Trudeau reasonable and necessary living

expenses, and allowing him to keep anything more both injures consumers and rewards

Trudeaus contumacy.

III. THE COURT CANNOT ALLOW TRUDEAU TO USE CONSUMERS MONEYTO PAY TO DEFEND AGAINST THE CIVIL AND CRIMINALCONSEQUENCES OF THE MISCONDUCT THAT INJURED THEM.

Consumers have no legal obligation to pay for Trudeaus lawyers, and the Court should

not force them to do so. Moreover, Winston entered this phase of the litigation with eyes

open, knowing that Trudeau might lose the ability to use his companies to pay Winston (which

has already received at least $1.7 million and likely more for its work). Finally, Trudeaus

evidence regarding NCHI is exceptionally dubious, and the Court should not release any NCHI

assets unless Trudeau proves that they are donations from genuinely independent third parties

made solely to support his defense.

A. Think Achievement Absolutely Prohibits Trudeau From Using ConsumersMoney To Pay His Future Legal Bills.

The Seventh Circuit has addressed the issue presented here, holding that once the court

determined that all the frozen assets were either a product of fraud or necessary to compensate

the victims of the fraud for their losses, [the contemnor] had no right to use any part of the frozen

money for his own purposes, purposes that included defending himself against criminal charges.

Think Achievement, 312 F.3d 259, 262 (7th Cir. 2002) (emphasis in original). As the Seventh

Circuit asked:

Why should the victims of [the contemnors] fraud be made to finance his defense

to a criminal prosecution? As there is no answer to this question, to make them

do so would have been an abuse of the district courts equitable discretion, which

though considerable is not unlimited.



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Id. (emphasis added); see alsoCFTC v. Morse, 762 F.2d 60, 63 (8th Cir. 1985) (The report of

the receiver indicates that the funds remaining in the estate will not be sufficient to pay all of the

claims of defrauded customers. . . . It would be inequitable to further deplete these funds to pay

the attorneys retained by [the defendant] in his attempt to avoid paying his customers.).

Trudeau unsuccessfully attempts to distinguish Think Achievementon several grounds.

Initially, he argues that the assets currently frozen here go far beyond any proceeds of fraud.

DE736 at 4. Conveniently, he fails to state that Think Achievements holding plainly covers

assets that are either a product of fraud or necessary to compensate the victims of the fraud for

their losses, 312 F.3d at 262 (emphasis added), and the frozen assets are necessary to

compensate Trudeaus victims.

Next, Trudeau contends that Think Achievementdid not involve an order that victims

receive the contemnors future income, see DE736 at 5, which is true but irrelevant. Just as the

Order To Pay means that, until Trudeau complies, he cannot buy luxury cars or jewelry even

with future income, he cannot buy a gold-plated defense.14 Put differently, even future income

belongs to consumers, not to Trudeau. See, e.g., Caplin & Drysdale, 491 U.S. at 626 (A

defendant has no Sixth Amendment right to spend another persons money for services rendered

by an attorney, even if those funds are the only way that that defendant will be able to retain the

attorney of his choice.). As the Seventh Circuit wrote when a defendant complained that he

could not use funds frozen under a forfeiture law for his defense: One cannot spend money one

does not have and, by virtue of the forfeiture provision and the restraining order, the funds in

question are not the defendants to spend. United States v. Moya-Gomez, 860 F.2d 706, 725

14 Trudeau has a right to counsel, but he does not have a right to the best or most

expensive counsel. See, e.g., United States v. Messino, 181 F.3d 826, 830-31 (7th Cir. 1999)

(The Sixth Amendment guarantees [a defendant] adequate counsel, not the best possible

counsel.) (citing Caplin & Drysdale v. United States, 491 U.S. 617, 624 (1989)); see also

Kokoraleis v. Gilmore, 131 F.3d 692, 696 (7th Cir. 1997) (The sixth amendment does not . . .

entitle defendants to the best available counsel.).



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(7th Cir. 1988). Whether Trudeau has money now or earns it later, it belongs to consumers until

he complies with the Order To Pay. See, e.g., FTC v. QT, Inc., 605 F. Supp.2d 999, 1007 (N.D.

Ill. 2009) (following Think Achievementand refusing to release funds the court found rightfully

belong to . . . consumers).

Finally, Trudeau incorrectly argues that this case is at a much earlier stage than Think

Achievement. See DE736 at 6. The Seventh Circuit based its decision on the District Courts

determination that the frozen assets were either the product of fraud or necessary to compensate

victims, see 312 F.3d at 262. In other words, the contemnor no longer had an equitable

entitlement to the money, see id. Likewise, when the Court created the receivership for the

purpose of paying to the FTC the sum ordered by the court on June 2, 2010, it found Trudeau

no longer had an equitable entitlement to the receivership funds until the Courts Order To Pay is

satisfied. Because Think Achievementis precisely on point, the Court should not allow Trudeau

to pay future legal bills from receivership funds.15

B. The Court Should Not Permit Trudeau To Use Consumers Money To PayExisting Legal Bills.

Although Think Achievementdid not address the use of frozen assets to pay legal

expenses already incurred, and the Seventh Circuit noted that this issue could be more

complicated, see 312 F.3d at 262, the result is the same. The more complicated hypothetical

scenario the Seventh Circuit considered, however, is inapplicable here. The Circuit Court

postulated that a district court had determined preliminarily that a certain amount of the frozen

assets lawfully belonged to the defendant, and the court further informed the defendants counsel

15 Trudeau also complains that his defense would be severely prejudiced if he cannot

pay Winston. See DE736 at 3. The fact that Trudeau might need frozen money badly at the

moment is irrelevant to whether it isnt his to spend. Nor does the possible prejudice to

Trudeaus defense make Think Achievementany less dispositive. To the extent Think

Achievementmeans Winston will ask to withdraw from the criminal matter, Judge Guzman will

evaluate that request and its implications for the criminal proceeding.



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that he could count on being able to obtain up to that amount from the [frozen] fund to pay his

fee for defending [the defendant]. Id. at 263. In this hypothetical, the lawyer would be an

innocent third party with his own equitable claim to balance against that of the victims of the

defendants fraud. Id. Here, however, the Court never informed Winston that it could count

on being able to collect its fee. Winston has no equitable claim to the frozen assets at all, let

alone one of the sort that Think Achievementcontemplates might offset consumers claim.

Additionally, Winston continued to incur fees with eyes open, which further

underscores that it has no equitable claim to receivership money. Winston argues that it entered

its appearance long before it was on notice that any assets of third parties (i.e. the Trudeau

Entities) could become subject to asset freezes and collection in this matter, DE736 at 3, but

this is incorrect and irrelevant. Winston entered the case after the FTC moved to hold Trudeau in

contempt for violating the Courts 2004 order, so Winston understood (or should have

understood) the risk that, if the FTC prevailed, it would attempt to collect assets Trudeau

controlled to compensate victims.

Moreover, whether Winston should have seen this risk when it entered its appearance is

immaterial because Winston is not attempting to collect fees for work done years ago. Rather,

based on the Winstons Court-ordered production of billing information (covering June 2010

through early March, 2013), Winston is attempting to collect fees for work performed over the

last few months: long after the Courts 2010 Order To Pay, long after the FTC alleged that

Trudeau controlled the Trudeau Entities in its July 2012 contempt motion, and long after the

Court found that FTC had established aprima facie case (on December 6, 2012, see DE535).

Because Winston incurred the fees now at issue well after it had become patently obvious that

Trudeau could lose control over assets hidden in his companies, Winston assumed the risk of

nonpayment. Cf. FTC v. Image Sales & Consultants, No. 1:97-CV-131, 1997 U.S. Dist. LEXIS

18905, at *8 (N.D. Ind. Nov. 14, 1997) (As has been observed, an attorney who knowingly

consents to represent a defendant whose assets have been frozen assumes the risk of not being

paid. This principle squarely applies here and leads to the conclusion that no additional



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withdrawals for the payment of attorney fees and costs should be allowed, thus preserving at

least some assets for potential consumer redress.) (quoting FTC v. Jordan Ashley, Inc., No. 93-

2257, 1994 U.S. Dist. LEXIS 7577, *9-*10 (S.D. Fla. May 4, 1994)). Given that Winston

assumed the risk and that it already received at least $1.7 million16 after the Order To Pay that

Trudeau could have used to compensate his victims there is no reason to lessen the funds

available to redress consumers even further.

C. The Court Should Not Release Assets from NCHI Without SubstantialAdditional Evidence.

There is every reason to be suspicious of Trudeaus request that the Court release NCHIs

assets from the receivership. First, and most remarkably, neither Trudeaus motion nor its

supporting declaration from Website Solutions USA accountant Michael Dow states what assets

NCHI holds. Particularly because there has been no accounting of the receivership estates

assets, it is unthinkable that a subset of receivership assets would be released without knowing

the amount. Second, until very recently, Trudeau argued NCHI had no net assets. According to

Trudeaus trial exhibits, as of April 7, 2013, NCHI had only $25,841 on hand, but $110,416 in

liabilities, see PXA:4, DX 11A. In a report Trudeau filed on July 1, 2013, NCHI purportedly

held only $28,116 in cash (as of June 24), but owed $108,405. PXA:10, DE704 at 15-17. Thus,

it is at least probable that Trudeau is using NCHI to hide consumers money. Third, what little

financial information Trudeau disclosed about NCHI reveals the same unexplained intercompany

transfers that typify other Trudeau Entities bookkeeping. For instance, NCHI apparently

received payments documented as loans from Natural Cures Inc. and Website Solutions USA.

PXA4 at 5; DX 11A.

Fourth, although Trudeau claims NCHI was set up to fund his defense,17

curiously the

FTC has no evidence that NCHI paid anything to Winston between June 2, 2010 and March 7,

16Winston received $1.7 million as of early March, five months ago. See PXA:2, FTCX

18E.

17 Dow states that NCHI was established for the sole purpose of helping defray Kevin



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2013. PXA:2, FTCX 18E.18 It did, however, pay Lanes firm more than $115,000 (although it is

unclear how Lane was furthering Trudeaus defense). See PXA:3, FTCX 12C (excerpts).

Finally, there is no reason to credit Dows claim that NCHI funds are never under the

control of Trudeau, DE735-1 at 2, which runs contrary to the Courts finding that Trudeau

controls NCHI. See DE729 (July 26, 2013) (incorporating FTCs proposed findings of fact).

Among other things, Lane (who created NCHI, see id.) warned both Trudeau and Suneil Sant19

that the funds trustee should have an office in a state where asset protection laws will allow us

to protect the Funds assets from the claim of any creditor of Kevins who might assert that the

Fund is merely his alter ego. PXA:11. Trudeau was one of NCHIs original Directors, and he

served as a Director until only a few weeks ago. See DE735-1, Ex. A (NCHI original corporate

filing and July 11, 2013 board resolution removing Trudeau as a Director). Tom Morter remains

an NCHI Director. See id. (board resolution). Morter is Trudeaus good friend, PXA:12, see

also PXA:13 (photo of Trudeau and Morter on Canadian fishing trip), and Trudeau chose Morter

to replace Sant as Website Solutions President, PXA:14 at 338:14-20. Morters role suggests

that Trudeau continues to control NCHI, even now.

Simply put, because Trudeau has not established that NCHIs undisclosed assets came

from genuinely independent third parties who donated money to fund his legal defense, the FTC

asks the Court not to release these assets.

Trudeaus legal expenses. DE736-1 at 1. At least according to Lanes firm, however, NCHI

was originally organized to serve as a non-for-profit entity to promote the health philosophies of

Kevin Trudeau and others, but was converted to a legal defense fund at some point later,

apparently because it did not achieve tax-exempt status. PXA:11 at 11; FTCX 12M.

18 As noted above, see infra at 3 n.3, NCHI may have paid money to Winston from

sources the FTC could not identify. Whether Winston has ever received anything from NCHI is

conspicuously absent both from its motion and Dows supporting declaration.

19 Sant also was an original NCHI Director. See DE735-1, Ex. A (NCHI original

corporate filing).



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IV. CONCLUSIONThe receivership the Court created in its July 26 order is legally sound. However, if the

Court has reservations, the answer is to incarcerate Trudeau to coerce him to comply with the

Order To Pay, not to weaken the receivership. The FTC also urges the Court to avoid theperverse scenario in which the consumers Trudeau victimized must pay for his defense.

Dated: August 5, 2013

David OToole ([email protected])Federal Trade Commission55 West Monroe Street, Suite 1825Chicago, Illinois 60603-5001Phone: (312) 960-5601Fax: (312) 960-5600

Respectfully Submitted,

/s/ Jonathan CohenMichael Mora ([email protected])Jonathan Cohen ([email protected])Amanda B. Kostner ([email protected])Federal Trade Commission600 Pennsylvania Ave., N.W. M-8102BWashington, DC 20580Phone: 202-326-3373; -2551; -2880Fax: 202-326-2551



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CERTIFICATE OF SERVICE

I, Jonathan Cohen, hereby certify that on August 5, 2013, I caused to beserved true copies of the foregoing by electronic means, by filing such documents through theCourts Electronic Case Filing System, which will send notification of such filing to:

Kimball Richard [email protected]

Thomas Lee Kirsch, [email protected]

Katherine E. [email protected]

/s/ Jonathan Cohen

Jonathan Cohen ([email protected])Attorney for PlaintiffFederal Trade Commission



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Plaintiff,

v.

KEVIN TRUDEAU,

Defendant.

)

)

))

))

)

))

)

)

)

Case No. 03-C-3904


EXHIBITS IN SUPPORT OF FTCS CONSOLIDATED RESPONSE TO TRUDEAUS

PROPOSED ORDER AND OPPOSITION TO HIS REQUEST TO PAY HIS

ATTORNEYS WITH MONEY BELONGING TO CONSUMERS



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FTC PXA:1



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UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

FEDERAL TRADE COMMISSION, ))

Plaintiff, ))

vs. ) No. 03 C 3904) Chicago, Illinois

KEVIN TRUDEAU, ) July 26, 2013) 1:30 p.m.

Defendant. )

TRANSCRIPT OF PROCEEDINGS - ORAL ARGUMENTS AND RULING

BEFORE THE HONORABLE ROBERT W. GETTLEMAN

For the Plaintiff: FEDERAL TRADE COMMISSION600 Pennsylvania Avenue, N.W., M-8102BWashington, DC 20580BY: MR. JONATHAN COHEN

FEDERAL TRADE COMMISSION55 West Monroe Street, Suite 1825Chicago, Illinois 60603BY: MR. DAVID A. O'TOOLE

For Defendant Trudeau: WINSTON AND STRAWN LLP35 West Wacker DriveChicago, Illinois 60601BY: MR. KIMBALL ANDERSON

Official Reporter: JENNIFER S. COSTALES, CRR, RMR219 South Dearborn Street, Room 1706Chicago, Illinois 60604(312) 427-5351

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THE CLERK: 03 C 3904, FTC versus Kevin Trudeau.

MR. COHEN: Good afternoon, your Honor. Jonathan

Cohen for the FTC. With me is David O'Toole.

MR. ANDERSON: And good afternoon, your Honor.

Kimball Anderson for Mr. Trudeau. And Mr. Trudeau is here with

me in the courtroom today.

THE COURT: Good afternoon, folks.

This is here, as we all know, the FTC's motion for a

finding of contempt and incarceration of Mr. Trudeau to compel

compliance.

I have reviewed everything you have submitted -- both

parties have submitted -- which is quite extensive, as you

know. I don't see the need for any extensive argument today,

but, of course, I'm always happy to hear from both of you if

you want to add something or emphasize something. So I will

turn the floor over to you, but I don't envision an extensive

oral argument today because you have been so thorough in your

submissions.

Mr. Cohen.

MR. COHEN: We're happy to stand on our submissions.

I would like the opportunity to respond if Mr. Anderson would

like to add something.

THE COURT: That was brief.

MR. ANDERSON: Well, I had a few comments that I was

prepared to make, your Honor. I don't intend to repeat what's

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in the briefs, but I did want to highlight what I think are

some important themes.

THE COURT: Sure. Okay.

MR. ANDERSON: And thank you for this opportunity.

I wanted to comment on what I believe the factual

record reflects. I think the Court is well informed about the

law. The factual record has been somewhat -- somewhat deep.

But I think the record shows that when Mr. Trudeau was fined

$37 million, $37 million from the gross proceeds of the sale

of the weight loss cures book, he didn't receive those

proceeds. And, accordingly, he sought the advice of his long

time corporate attorney, Mr. Lane, about how to go about

dealing with the judgment.

And Mr. Lane's testimony, I think, was clear. It was

unimpeached. First, he advised Mr. Trudeau that he should try

to pay the judgment over time from his salary. Second,

Mr. Lane advised Mr. Trudeau that if he owned the entities that

were paying him a salary, the FTC would attack those entities

and likely destroy any probability of paying the judgment over

time. And third, Mr. Lane advised Mr. Trudeau not to transfer

any assets without adequate and proper consideration. And I

think Mr. Lane's testimony, as well as all of the financial

records, proved that Mr. Trudeau followed his lawyer's advice.

His wife set up some companies that then employed

Mr. Trudeau as a motivational speaker and as an author. And

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Mr. Trudeau, the evidence shows, did not use any of his own

money to set up the companies. The fact is he didn't have

startup capital. He did not provide any startup capital.

Mr. Lane so testified. The financial records reflect that.

Ms. Babenko, instead, provided the startup money and

paid Mr. Lane the legal fees to perform the legal work for the

companies. And once the companies were established, they

employed Mr. Trudeau. And Mr. Lane, by the way, disclosed all

of this to the FTC almost on a weekly basis. So there was no

withholding of any employment. There was no withholding of any

corporate relationships. There were no fraudulent transfers.

There were no transfers of Mr. Trudeau's assets to offshore

accounts. The various companies are, or at least were, until

the FTC attacked them, were real, operating companies with

dozens of employees, worldwide marketing expenses and real

creditors.

And I think the FTC's discussion of the record

reflects a misunderstanding of fundamental accounting.

Corporate as expenses are not assets of either the corporation

or Mr. Trudeau. The corporate assets were not dissipated.

That's a kind of pejorative term that the FTC uses throughout

its brief. But the corporation does have regulatory marketing,

employment overhead, and legal expenses, so I think this

pejorative term "dissipating assets" is misplaced. The

corporations were engaging in the everyday business activities.

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Another pejorative term that the FTC has thrown around a lot in

this court and its briefs is the term "asset protection

scheme." But I would respectfully suggest that there's nothing

nefarious to that corporation setting up corporations to

protect assets from creditors.

The black letter law shields every corporate

shareholder from the corporation's liability. And, similarly,

the corporation is shielded from the shareholders' liability.

And that was Mr. Lane's perfectly legitimate advice to protect

the corporations from Mr. Trudeau, who carried a substantial

judgment. And, accordingly, Mr. Lane assisted Ms. Babenko in

setting up corporations that would be protected from

Mr. Trudeau. They knew and advised Ms. Babenko that if they

were not protected, the startup company would be destroyed, and

there would be no business in which Mr. Trudeau could receive a

salary and pay off the judgment over time. Furthermore, there

was nothing nefarious about Ms. Babenko, a foreign national,

setting up companies with her own money outside of the United

States.

There has been a lot of hyperbole and a lot of

pejorative terminology to describe what I think the evidence

shows was legitimate business, legitimate legal advice, and a

legitimate plan to be able to pay a judgment over time, when

Mr. Trudeau did not have, and never received, the $37 million.

And I also think that Mr. Trudeau, through counsel,

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approached the process of paying the judgment in a responsible

way. At the outset we -- Winston and Strawn -- sent one of our

partners, a former FTC director, tried to work out a payment

plan. The FTC rebuffed it and said they were not interested in

working with us on any kind of consumer plan.

So we next obtained a proposal from Rust Consulting,

which the Court knows is a respected, national class action

administrator, to propose a remediation plan that Mr. Trudeau

would fund from his earnings as contemplated by Mr. Lane and

Mr. Trudeau; that effort was rebuffed.

And then Mr. Trudeau, stymied to work out a payment

plan, again sought Mr. Lane's advice. His testimony is that he

advised him to start sending in a substantial portion of his

salary. He did so. He did that for two months, but the FTC

refused to cash the checks. And Mr. Trudeau then decided that

that was fruitless.

We then came back into court and asked to work out a

payment plan. We suggested the appointment of a special master

or a magistrate. The FTC opposed this idea. We suggested an

accounting. The FTC, although they had asked for it in the

motion, rebuffed that idea and refused to cooperate with us.

And it's all unfortunate in my opinion because I believe

sincerely that if we had obtained even a little cooperation

from the FTC we'd have a viable consumer remediation plan in

place, or at least substantial funding to a plan accomplished.

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Instead, we have engaged in this unproductive path to

incarcerate Mr. Trudeau.

And then here's the, I think, the real nub of the

record. Despite all of these subpoena, the banks,

corporations, lawsuits, the law firms, all of the depositions,

all of the banking records, all of the credit card records, at

the end of the day the FTC, nor we, for that matter, have

identified any substantial assets available to pay the

judgment.

And the FTC's post-hearing brief illustrates this

point. There's a lot of indignation and speculation, but they

don't point to a single asset. And I think that it's

implicitly conceded that there aren't any assets because the

FTC has mounted this argument that Mr. Trudeau -- Mr. Trudeau's

lack of any present assets is self-imposed, and they argue that

self-imposed inability is no defense; however, they're wrong

about that legally. It has been pointed out the one case they

cite for that is a criminal contempt case, not a civil contempt

case. And there is overwhelming authority for the proposition

that coercive contempt is appropriate and legal only when

there's a present ability to pay. And so all of this argument

about legal fees and the past business expenses, so-called

self-induced inability to pay, is really not pertinent, your

Honor.

And even though the FTC asked for an accounting, and

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even though we offered to work with them to get an accounting,

to hire a company or an accounting firm that they were

comfortable with -- I even came to court and asked your Honor

to order an accounting -- all of those efforts were rebuffed.

So we went to -- Winston and Strawn went out and hired an

accounting firm. We hired the Sikich accounting firm, which is

one of the 50 largest accounting firms in the United States.

They are a mid-size accounting firm. And they conducted an

accounting of the companies that the FTC had identified as

so-called Trudeau affiliates, and that accounting revealed that

they essentially do not have any net assets, and that they are

all under water financially.

I think at the end of the day the record is clear that

Mr. Trudeau has done what the FTC requested. They requested an

accounting; he did that. He produced a sworn financial

statement. He produced his tax documents. He produced all of

his bank accounts, credit card statements, income statements,

balance sheets, and then we did this accounting with the

accounting firm.

I know why the FTC fought tooth and nail our efforts

to obtain an accounting, because it feared that it would show

exactly what we've been saying, namely, that there are no

significant net assets. And now the FTC is not contesting any

of that evidence. Their argument is, though, that this is

somehow incomplete. And I would suggest that that argument is

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just sophistry; no one can prove a negative under these

circumstances. Mr. Trudeau has done everything requested of

him. I think the motion, therefore, is moot.

I also think, as we have said in our brief, that there

is a path to procedure -- a path that we would recommend -- and

that is under the Federal Debt Collection Act. The FTC, I

think, frankly chose the wrong remedy. And this is not Kimball

Anderson speaking, it's -- there is substantial authority out

there that supports our thinking. We have cited in our brief

that Moore's Federal Practice states that a Federal Court

should not enforce a money judgment by contempt. And that that

proposition has also been repeated by the 11th Circuit in the

Combs vs. Ryan case, where he said -- the Court said, "It is

equally clear that when a party fails to satisfy a

court-imposed money judgment, the appropriate remedy is a writ

of execution, not a finding of contempt."

And the Courts in this Northern District of Illinois,

in particular the Robbins case, held the same. "The Federal

Debt Collection Act by statute is the exclusive means for the

government to recover a judgment on a debt." And we

acknowledge that the Act does not eviscerate a Federal District

Court judge's contempt power, but it also doesn't contemplate a

court using his contempt power to punish for past behavior or

perceived future misconduct.

It also doesn't eviscerate the debtor's statutory

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rights, statutory protection for garnishment of amounts

exceeding 25 percent, for example, of a debtor's salary and

earnings.

So there is a path here. The path is under the Act,

and allows for attachments, garnishments, even appointment of

receivership. We've endorsed that procedure with Mr. Trudeau's

blessing, and that is the proper procedure.

And I can see that the FTC in their last paper, their

latest gambit is, "Well, let's incarcerate Mr. Trudeau until he

fully cooperates with an accounting." And that request, I

respectfully suggest, is unfounded, and, in fact, unlawful.

Because as I have been saying here from day one, civil contempt

and any coercive confinement must place the keys to the

jailhouse in the defendant's hands. And the FTC wants to place

those keys in its hands, in the hands of some unnamed

accounting firm for some indefinite purpose. And that request

misapprehends the law governing coercive contempt.

And I don't think we need to look too far for guidance

on a proper remedy here. The Seventh Circuit in 2009, in one

of the appeals in this very case, FTC vs. Trudeau, held

squarely that "Civil contempt is not a proper means to punish

the defense, to vindicate the Court's authority, or to deter

future misconduct." I think that's the law of the case, and

yet, that is exactly what we see the FTC doing here.

So I think the motion is moot. I think the remedy

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sought is unlawful, and I, frankly, don't think that the FTC

picked the wrong -- I think they picked the wrong remedy. They

haven't been able to find -- because there aren't any --

substantial assets to pay the judgment. And now they should

take the statutory path, the one that Congress has said is the

exclusive path.

And just a few other side comments. You know, there

was no requirement in the Court's order or the law that

Mr. Trudeau become a lifetime indentured servant to the FTC.

He did not have to go to find work or work for other companies.

But on the advice of counsel he did try to do that. He tried

to set his business affairs so that he could work and ensure a

steady stream of earnings to pay the judgment. But I think

that that plan, although lawful and proper, has been basically

destroyed by the FTC. And now, ironically, after destroying

his ability to pay the judgment on an installment plan, the FTC

is here asking to incarcerate him. And that, I think, is truly

Orwellian and improper.

So that completes my summary of what I think the key

evidence in the record is. Again, there is no evidence of any

fraudulent transfers. There's no evidence of any dissipation

of Mr. Trudeau's assets. The evidence is that on advice of

counsel he began working for his wife's companies and tried to

work out a plan to pay the judgment. And the FTC has resisted

that at every step.

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That concludes my remarks. Thank you for your

attention.

THE COURT: Thank you, Mr. Anderson.

MR. COHEN: Your Honor, if I may.

THE COURT: Sure.

MR. COHEN: May it please the Court. I would like to

move through the remarks that Mr. Anderson made as briefly as I

can. But there is one thing from the outset that I want to

make completely clear. Toward the end counsel argued that

there was something improper about -- or that what we were

intending to do is place the keys to Mr. Trudeau's

incarceration in the hands of either the FTC or some accounting

firm; that's not what we're proposing at all. That's not what

we proposed last July when we first -- when we initially filed

this motion.

The way that an accounting would proceed in the

context of a coercive sanction is that hopefully Mr. Trudeau

would cooperate with an independent accounting firm, and then

the Court would evaluate whether he had established his

inability to pay in accordance with the law. It would not be

the accounting firm's decision. It would not be the FTC's

decision. It would be the Court's decision.

Now moving to some of the other points that

Mr. Anderson made. Mr. Anderson briefly touched upon the idea

that somehow this is just a routine money judgment. Our briefs

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discuss this at some length. There is very strong authority,

specifically the Supreme Court's decision in Jacksonville Paper

that orders of this nature are enforceable by contempt; that's

necessary to serve the public interest. In this instance, this

Court's order on June 2, 2010, was extremely clear in that it

gave specific directives both to the defendant and to the FTC,

and so it clearly is injunctive and it is clearly enforceable

by contempt.

The appropriate standard here is that it's Trudeau's

burden to establish a complete inability to pay. He hasn't met

that standard, but there's lots of ink spilled, as your Honor

mentioned, in the papers going back and forth. And actually

I'm not sure the parties are all that far apart on what

actually the standard is. It is important to think about why

that standard is what it is, why the burden of production is

placed on the defendant in a situation like this.

As the Court is aware, in civil matters, at least,

it's often the case that the law places the burden on the party

that is best able to meet it. Here Trudeau has Trudeau's

financial information. If the law were anything otherwise, no

one could ever enforce an order to pay, because defendants

could simply hide assets, which is exactly what Trudeau has

done here. It's not our burden, nor does the Court need to

find that Trudeau is able to pay some specific sum. Rather,

the question before the Court is whether Trudeau has satisfied

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his burden to clearly and unmistakably establish his present

inability to pay.

We don't need to go through the cases that are in the

papers, but there is case -- there are cases -- there are many

cases -- Commodity Futures Trading Commission vs. Wellington

Precious Metals. There was no specific finding there, but

because the defendant had hidden his assets, he was

incarcerated. We cite in our papers In Re Lawrence, the same

set of fact. We cite in our papers Affordable Media, the same

set of facts. There are another seven or eight cases that I

could go through.

Mr. Anderson -- counsel for Mr. Trudeau -- argued that

these are all his wife's companies. Your Honor has heard the

evidence. There is a mountain of evidence that Trudeau

controls these entities. I can't go through it all even if I

wanted to. Some highlights: You heard that Lane characterized

GIN as part of Trudeau's vision. You know that there is

correspondence in which Trudeau told Lane that, "I want to

start an MLL -- a company called The Global Information

Network." Trudeau instructed Lane to create the entities.

Trudeau told Lane who the owners would be. Trudeau located

these companies at 130 Quail Ridge Drive in Westmont where the

rest of his companies that he conceivably owns are located.

Trudeau ran the companies. He decided the servers

would be located in Belize. Lane testified that when he was

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giving legal advice to GIN he gave it to Trudeau because he

understood that Trudeau really speaks for GIN. Trudeau

instructed the GIN bank accounts be opened. Trudeau, according

to Lane, was able to access that cash. The GIN entity had paid

millions over the past three years in Trudeau's credit card

expenses and legal expenses. Lane testified that Trudeau

controls these companies in a layman's sense. When Trudeau was

asked whether he controlled the entities and questions related

to that subject, he took the Fifth Amendment. When Mr. Sant

was asked the same series of questions, he took the Fifth

Amendment. When Ms. Babenko, the purported successful

businesswoman who is ostensibly in control of these companies,

when asked, she also took the Fifth Amendment. The evidence is

overwhelming that Trudeau controls these entities.

It's worth briefly mentioning that there is

overwhelming evidence that Trudeau controls KMT Fiduciary

Trust. This is an entity that Lane referred to as an

indispensable part of Kevin's asset protection plan. And Lane

also admitted before this Court that Trudeau controlled KMT in

a layman's sense. With respect to these entities, both

domestic and international, there has been a complete failure

of proof -- a total failure to meet -- Trudeau can meet his

burden.

There has been no financial information submitted at

all for APC, for Website Solutions Switzerland, for NBT

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Trading, for Sovereign Trust, for NT Trading, S.A., for

Advantage Solutions. None at all. That is obviously not clear

and unmistakable evidence that this these entities don't have

assets.

With respect to GIN FDN, which is a particularly

important one because we know that $2 million came indirectly

from GIN FDN to fund the court-ordered escrow. Well, the only

evidence that the defendants submitted were 2010 statements

from an Ohio bank. There's no statements from the account at

Valartis in Liechtenstein. There are no statements from the

account at National Westminster Bank from which payments to

Lane were sent. This is not clear and unmistakable evidence.

It doesn't satisfy his burden of proof.

The O'Connor report, which counsel referenced, it's

not admissible from the FTC's perspective because we weren't

even told about it until after the evidentiary hearing. It's

hearsay. Its methodology is very suspect. But perhaps the

most important part of that report is Footnote 1, and Footnote

1 states -- and this is the accountant, Ms. O'Connor,

speaking -- who also sought accounting information from Global

Information Network Foundation, a Nevis Foundation. But

management at GINF, the foundation, declined our request.

Well, that management is under Trudeau's control. What this

shows is even at the very last minute, even after the

evidentiary portion of this hearing is concluded, the defendant

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is still not willing to cooperate and be forthcoming.

With respect to the domestic entities, the limited,

self-selected financial information is so incomplete as to be

useless. I won't make many points here, your Honor, but there

are a number of issues with what they've submitted. There are

weekly cash flow reports that show only one week in April.

They don't say anything about whether there was money there

before or money there after.

Natural Cure's Holding actually provides a

particularly poignant example. Natural Cures holding made

$557,000 in payments to the Lane firm after the Court entered

its order to pay. The only financial information that the

defendant provides regarding Natural Cures's holdings are

Defendant's Exhibits 12A and 12B. 12A is just a Westlaw

printout that gives the basic company information. 12B is a

bank account statement showing that a bank account was closed

in 2011. But we know from evidence before the Court that we

received from the Lane firm that Natural Cures Holding

continued making payments to Lane's firm in 2012. So we know

we don't have all of the information from Natural Cures

Holdings.

The same is true with International Pool Tour; it made

more than $900,000 in post-Order to pay payments to Lane's firm

and to Winston and Strawn. Trudeau produced evidence showing

that three accounts were closed in 2011 and IPT somehow managed

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to keep on making payments to the lawyers in 2012. This is not

clear and unmistakable evidence.

Trudeau has produced no evidence regarding where very

significant assets -- personal and corporate -- have gone. As

your Honor is aware KT Corporation owns Trudeau's Ojai,

California house. It's a specific asset that Trudeau controls

through the trust that he could have paid over to the FTC, but

hasn't. He doesn't explain why this hasn't happened.

GIN-USA reports 14 million in net profits since its

inception in 2011. There is no explanation as to where this

money has gone. There are millions in suspicious intercompany

transfers; they're not explained. There are transfers from

Trudeau's companies to Trudeau and Babenko specifically. For

instance, $486,000 from Website Solutions to Trudea

Documents

Trudeau Civil Case Document 737 737 1 and 737 2 Partial 08-05-13