Here is the latest in the FTC v IMI et al lawsuit. Since my last post the following activity has occurred:
26 February 2009 - REPLY to Response to Motion re MOTION to Stay filed by Sam Jain (Wood, Benjamin)
26 February 2009 - REPLY to Response to Motion re MOTION to Stay (Temporary) filed by Kristy Ross (Bertram, Connie)
3 March 2009 - REPLY to Response to Motion re MOTION for Other Relief Order Holding Sam Jain and Kristy Ross In Contempt Of Court And Requiring The Repatriation Of Their Assets filed by Federal Trade Commission (Arenson, Ethan)
4 March 2009 - MOTION to Dismiss Complaint by Marc D'Souza. Responses due by 23 March 2009 (Duncan, Russell)
4 March 2009 - MOTION to Stay Temporary by Marc D'Souza. Responses due by 23 March 2009 (Duncan, Russell)
5 March 2009 - REPLY to Response to Motion re MOTION to Dismiss Complaint and MOTION to Dismiss COMPLAINT JOINT REPLY MEMORANDUM filed by Sam Jain (Wood, Benjamin)
5 March 2009 - MOTION to Appear Pro Hac Vice for Garret Rasmussen on behalf of Marc D'Souza.
5 March 2009 - MOTION to Appear Pro Hac Vice for Michael Madigan on behalf of Marc D'Souza.
5 March 2009 - RESPONSE in Opposition re MOTION to Modify Preliminary Injunction, re Preliminary Injunction filed by Federal Trade Commission. Replies due by 19 March 2009 (Arenson, Ethan)
6 March 2009 - NOTICE to Substitute Attorney representing Defendant Kristy Ross (Del Negro, Michael)
6 March 2009 - PAPERLESS ORDER granting Motion to Appear Pro Hac Vice for attorney Garret G Rasmussen on behalf of Marc D'Souza.
6 March 2009 - PAPERLESS ORDER granting Motion to Appear Pro Hac Vice for attorney Michael J Madigan on behalf of Marc D'Souza.
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Defendant Marc D’Souza joins Defendants Sam Jain’s and Kristy Ross’s Motions to Dismiss and requests that the Court dismiss the FTC complaint for failure to join Innovative Marketing, Inc., "a necessary and indispensable party". D’Souza adopts and incorporates the supporting arguments and authorities provided in Mr. Jain’s memorandum in support of his motion to dismiss (arguments and authorities that the FTC have already responded to).
D'Souza also requests a stay of all proceedings against him all proceedings against him in the this case until a parallel criminal proceeding is resolved. Not only that, he asks the Court to to modify Section IV of the Preliminary Injunction to allow him to access assets either obtained (i) after December 2006, the date the Federal Trade Commission (“FTC”) acknowledges that Mr. D’Souza terminated his involvement with Innovative Marketing’s business; or (ii) resulted from foreign conduct involving foreign consumers for which he claims the FTC has no authority to seek consumer redress (Sandi note: the FTC argues that it does have the right to seek consumer redress for "foreign consumers").
D'Souza claims a Fifth Amendment privilege against self-incrimination.
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Jain and Ross claim that IMI has not been properly served because the FTC has not filed with the Court proof of service "by a receipt signed by the addressee, or by other evidence satisfying the court that the summons and complaint were delivered to the addressee" (basically, they are saying that because the return of service is only supplied as an "exhibit to its Opposition" as distinct to being filed separately with the Court, the FTC has not properly filed proof of service).
Jain and Ross also claim that the service of IMI in Belize is ineffective because Belize "specifically directs international plaintiffs to send "requests for service" only to the designated central authority, The General Registry in the Supreme Court Building in Belize City" (Process Servers were used to serve IMI in Belize). There is a footnote that says "Retaining this control by insisting on service through the central authority, Belize could refuse to serve a domestic corporation with foreign process from the U.S. Federal Trade Commission. ... (noting that "the Central Authority of the Russian Federation denies all requests for service of process originating from the United States."). For this reason, Defendants Jain and Ross have suggested joinder of IMI may never be feasible under Rule 19(b), justifying dismissal under Rule 12(b)(7)."
Jain and Ross also complain that the return of service identifies "Ramona Lewis" as "the person with whom the summons and complaint were left", but that the return of service "does not bear her signature or include any information establishing her connection to IMI or even to Apex Trust."
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Quotes taken from "Plaintiff's consolidated reply to Sam Jain and Kristy Ross's opposition to the FTC's motion for an order holding Sam Jain and Kristy Ross in contempt of court and requiring repatriation of their assets":
"In their Opposition, defendants Sam Jain and Kristy Ross fail to provide this Court with any justification for the contumacious conduct that has become their hallmark. Instead, Jain and Ross seek to downplay their wilful noncompliance with this Court's preliminary injunction ("PI") by pointing out that the FTC has only accused them of violating some, but not all, of the PI's provisions, and dismissing these provisions as unimportant.
Jain and Ross devote much of the rest of their Opposition to a half-baked impossibility defense, arguing that they cannot be held in contempt for failing to effectuate Innovative Marketing, Inc.'s ("IMI") compliance with the PI because the FTC has not proven they currently control IMI. In making this argument, defendants attempt to distance themselves from their own sworn affidavits, in which they proudly claim IMI as their own. Unfortunately for the defendants, the burden of proving an impossibility defense rests firmly with them. Having failed to offer any evidence that they no longer control IMI, Ross and Jain's impossibility defense fails."
and
"...defendant Jain wrongly accuses the FTC of "consistently misrepresent{ing} the contents" of the affidavit he signed admitting that he is the CEO of IMI. Opposition at 4. Jain argues that his affidavit merely states that he "performed the general functions of a Chief Executive Officer" not that he actually served as the CEO of IMI. This argument gets Jain nowhere. As Jain concedes in his own affidavit, the defendants operated IMI in an informal fashion, often without written contracts. See FTC's Ex Parte Motion For Temporary Restraining Order and Order To Show Cause ("TRO Motion") (D.E. 3) Ex 17, Att. F at 93. See also Aff. of Marc D'Souza at 6, attached as Ex. 17, Att. D at 31 to the TRO Motion ("These ventures relied on convoluted, complex and opaque business structures designed to confuse consumers and regulators as to the identity of the true owners ... the partners had no formal, written partnership agreement and deliberately did not keep formal records ...".) Given the loose structure of the defendants' fraudulent enterprise, it is hardly surprising that Jain did not have a name plate outside a corner office identifying him as CEO of IMI. Nonetheless, Jain admittedly controls IMI and "functions" as its CEO. Any doubt as to this point is resolved later in the same Jain affidavit, in which Jain acknowledges that he and defendant Sundin are the only two persons within IMI with the authority to "approve or reject any request for expenditures of {IMI's} resources." Id. at Att. F at 106."
and
"In their Opposition, Jain and Ross do not actually deny that they are corporate officers of IMI, nor do they deny the authenticity of their own sworn affidavits establishing their roles as IMI officers. Rather, Jain and Ross allege that the FTC has not proven that they are corporate officers IMI as of today, and as a result the FTC has failed to prove the defendants are in contempt of the PI for failing to effectuate IMI's compliance.
The defendants' argument fails to two independent reasons. First, it is not the FTC's burden to prove that the defendants have the capacity to comply with the PI. Rather, it is the defendants' burden to prove that compliance is impossible. Second, even if the FTC were obligated to provide evidence of the defendants' control of IMI, it has already done so via the defendants' own sworn affidavits. Moreover, the FTC possess a wealth of additional information establishing Jain and Ross's control of IMI, which is discussed in depth below."
and
"In their Opposition, defendants introduce no evidence of any kind establishing that they no longer control IMI. Instead, defendants merely assert that the FTC has not proven that they currently control IMI, and therefore they cannot be held in contempt. This is not enough."
and
"... it appears clear that the defendants are still crafting their story, which will undoubtedly have them relinquishing control of IMI shortly after the last date the Commission's evidence ties them to the company."
and
"Jain and Ross's control of IMI continued throughout 2007 and 2008. Pursuant to the PI issued by the Court, defendant James Reno recently turned over to the FTC thousands of pages of "instant message" logs, including instant message "chats" between both Reno and Jain as well as Reno and Ross. See Decl. of James Reno at 5, attached hereto as Exhibit 3. While the FTC's review of these logs is ongoing, the Commission has already uncovered plentiful evidence of Ross and Jain's continuing control of IMI. The Commission also has obtained the lease agreement for the luxury condominium occupied by Sam Jain prior to his decision to flee prosecution in California. This agreement further connects Jain and IMI."
and
"The instant message chat logs turned over to the FTC by James Reno contain a wealth of recent information about Jain's control of IMI."
and
"...the FTC obtained the "Residential Lease Agreement and Deposit Receipt" ("Lease") for the luxury San Francisco condominium in which Jain resided before absconding from the criminal case pending against him and fleeing California. ... The Lease, which is dated May 22, 2008, and runs through May 21, 2009, lists the tenant of the condominium as "IMI, Inc.," and includes a signature block for "Sam Jain for the benefit of IMI, Inc." ... The Lease also provides that only Sam Jain may occupy the unit." (Footnote: As the Court will recall, Jain attempted to evade service of the Complaint by describing this condominium as a "satellite office" for Jack Palladino's investigative firm, a description Palladino included in the sworn declaration submitted to this Court. ... This description appears irreconcilable with the Lease.)"
Note by Sandi: to be precise, the Residential Lease Agreement and Deposit Receipt records that "ONLY the following listed individuals, AND NO OTHERS shall occupy the subject property for no more than 21 days unless the {illegible} written consent of OWNERS is obtained in advance and in writing: Sam Jain" - I agree that this makes it difficult to believe that the condo was Palladino's satellite office ;o)
"The Reno instant message logs also contain evidence establishing Ross's continued control of IMI. In a May 5, 2008 discussion, Ross discusses "Winifixer", a clone of IMI's notorious "WinFixer" scareware product that was created by a competitor. ... Ross complains in the discussion about how "basically everyone on the planet copied our stuff" and indicates that she asked another IMI employee to ask the competitor to change the name of their product."
and
"...the defendants have already incriminated themselves by voluntarily airing the financial details of their fraudulent enterprise in open court filings."
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Quotes taken from plaintiff's opposition to defendant Sam Jain's motion to modify the preliminary injunction:
"Jain's argument that he has an absolute right to use an unlimited amount of frozen funds for his "criminal defense" is ironic, given that Jain is not presenting a defense in the unrelated criminal case pending against him in California. Instead, Jain has elected to flee prosecution and is now on the run from the United States Marshals' Service. Clearly, Jain should not be allowed to deplete the still unknown amount of frozen funds for a case in which he has affirmatively decided to abscond."
and
"To suggest that Jain has not received the proceeds of this fraud is absurd, and belied by the fact that Jain was the driving force behind the IMI lawsuit filed in Canada against Marc D'Souza to recover IMI's ill-gotten proceeds."
and
"Through their deceptive marketing, the defendants made more than $74 million through the sale of their computer security software products through 2006 alone. So far, the FTC has frozen a mere $174,000 in the United States, and because of the defendants' refusal to complete the court-ordered financial disclosures, the FTC has no way of knowing the full extent of their assets. It would unfairly prejudice the FTC to require it to trace assets at this stage in the litigation, especially since - in disregard of this Court's PI - the defendants are refusing to turn over IMI records to the FTC; the very records that would allow the FTC to accomplish the tracing defendants' demand. Defendants should not benefit from their own contumacious conduct, and therefore the defendants' argument on tracing should be rejected."
and
"Jain has not submitted any evidence of any kind that he lacks access to non-frozen funds. Indeed, it appears clear Jain has such access. Jain's lawyers have been extraordinarily aggressive in this litigation, filing motion after motion to delay this proceeding and undoubtedly ringing up a huge legal bill. Presumably Jain's lawyers have been compensated for these efforts, and Jain does not suggest otherwise. Moreover, Jain has yet to petition this court for any living expenses, despite the fact that the asset freeze has been in place for more than three months. Jain offers no explanation as to how he has been able to fund his exploits as a fugitive from justice during these several months. Jain also offers no evidence as to whether he is currently holding a job, and if so, what compensation he is receiving. Any such funds would be wholly exempt from the asset freeze, and should be used to pay Jain's legal expenses."
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Quotes taken from Declaration of James Reno pursuant to 28 U.S.C. 1746:
"ByteHosting has performed a variety of work for Innovative Marketing, Inc. ("IMI"), including the operation of an IMI call center. ByteHosting also provided Network Infrastructure Management services to IMI, including technical support, and configured and tuned IMI servers. This work ceased on or about October 24, 2008."
and
"During the period ByteHosting performed work for IMI, I was in routine contact with representatives of IMI, including defendant Kristy Ross. These communications occurred primarily during "chats" conducted over the Internet via instant message."
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Let’s turn our mind away from the legal maneuverings that are currently occurring in this case. There is going to be lots of back and forth until the Judge finally rules on the motions. As noted above, the FTC has “thousands of pages” of chat transcript as supplied by James Reno but so far only a few pages have been attached to publicly accessible court documents.
The FTC, in the court documents, has focused on the evidence supplied by the recorded messages of who has/had ongoing control of IMI. I looked at the chats from a different perspective.
I share with you some choice quotes:
As written by Mr James "I only provided the infrastructure, I'm a victim" Reno – it looks to me like he was well aware of exactly what was going on, and more than that, was quite a supporter/fan – and familiar enough with the behavior of the malware that he felt it necessary to reassure his correspondent that “garunteed {sic} no worms spreading to that box”:
James: http: // 63.210.246.34/users/jreno/ksx12f2f-MalwareWarrior.png
James: :)
James: Right click -> exit on taskbar
James: brings up the window that wont disappear ;)
James: and i love the FALSE alerts, its lovely
James: thats on a VMWAre workstation running inside our LAN, behind a firewall, with nothing but other unix boxes ;) .. garunteed {sic} no worms spreading to that box.
James: interesting software ;)
And elsewhere:
James: the only entries in my passport
James: "ukraine"
James: :) about once a year
James: heh
James: maybe i need to go to some other nations, just to get their stamps
James: lol
Conversation attributed to the fugitive Sam Jain:
Sam: well thats why we have the slush fund
Sam: of extra $ from globaldat
Sam: just figure ot how much :)
Sam: no worries
And later, the two of them being sneaky:
Sam: ya, i just put b.s. names
Sam: and address on the customs form
Sam: no 1 looks
James: im not worried about entry to ukraine
James: just re-entry to the us
James: dont feel like being hassled by customs again
James: stupid govt :(
James: us is so screwed anymore
James: if you miss me, its good actully :)
James: cuz then they cant say, i came to "meet with you"
James: even if they found out you were there
James: heh
James: but id love to meet sometime, just sucks
Sam: ya, if u get stopped coming back and after basic questions
Sam: u'd have to sayi {sic} want my lawyer
Sam: heh
James: i dont know if your using 'your' passport or not {Sandi comment: if not ‘his’ passport, then whose? Note Reno’s emphasis on ‘your’}
James: but afaik, interpool {sic} is watching yours
James: but if they seen you leave
Sam: yep i use mine
Sam: freely heh
Sam: screw them
James: im just saying
James you 100% are not there :)
Sam: its cuz of that swiss *** {Sandi comment: now that's interesting...}
James: so how was i meeting you :)
Sam: ya, so i guess from that standpoint
Sam: works out well