Controversial TV pitchman Kevin Trudeau, who in July was found in contempt for failing to pay a $37.6 million sanction against him for deceptive marketing, was ordered to jail today and remains in federal custody in Chicago.
In August, a federal judge sided with the Federal Trade Commission in granting a court-appointed receiver broad authority to marshal assets and take over businesses the judge ruled were controlled by the infomercial king.
Appearing before U.S. District Court Judge Robert Gettleman today, Trudeau was found in contempt for violation of the asset freeze and receivership by transferring nearly $20,000 from an Australian account and for using a debit card tied to that account to buy things beyond what is ordinary and necessary living expenses.
The specific expenditures from the Australian account that led to the contempt finding, meaning money Trudeau allegedly spent after the asset freeze, included $894 at a liquor store, $359 for two haircuts at Vidal Sassoon, $1,057 for meats ordered online and $920 on cigars. There was also an $18,642 transfer from the Australian account that was paid to a lawyer who worked on Trudeau's taxes, which happened without the judge's approval.
Trudeau said he spent the money because he had no cash or credit cards and hadn't yet received his monthly allowance from the receiver.
"I thought I was following the order," he said today in court. "I would ask the court to let me work with the receiver. I can be helpful."
Gettleman also heard impassioned pleas from Trudeau and his attorneys for more time to prove his cooperation, and offered to pay back any money spent on things the judge deemed inappropriate expenditures.
Trudeau's lawyer Thomas Kirsch maintained, as his client and legal team have throughout the investigation into Trudeau's finances, that there "isn't a pot of gold at the end of the rainbow" and that the receiver will not find hidden assets anywhere in the world.
But Gettleman rejected the pleas, saying "This isn't an infomercial, Mr. Trudeau. You can't talk your way out of this one."
After the judge's ruling, Trudeau was turned over to the custody of two U.S. Marshals, who waited somewhat impatiently while the pitchman removed his belt, cufflinks and the shoelaces of his wingtips. He was then led out a side door of the courtroom and taken to the Metropolitan Correctional Center, where he will spend the night, and the receiver will meet with him to determine his level of cooperation.
Trudeau's next court appearance will be Thursday morning at 11 a.m. He can purge the contempt and get out of jail if he satisfies the judge that he's being forthcoming, candid and honest.
The government, however, remains deeply skeptical of Trudeau's promises. After all, for the better part of the past 14 months, Trudeau has been locked in an acrimonious dispute with the FTC over the agency's allegations that he was concealing assets that should have been used to pay the sanction.
The contempt finding was the fourth of Trudeau's career, which is also dotted with $2.5 million in prior settlements with the FTC for allegedly misleading claims for a host of products he pitched in infomercials. The 50-year-old Massachusetts native's record also includes two felony fraud convictions from the early 1990s, for which he spent nearly two years in federal prison.
The receiver, Los Angeles-based consulting firm Robb Evans and Associates, has been given substantial judicially backed power to seek out and seize assets, both domestically and abroad. Still, the FTC has indicated in court filings that it anticipates Trudeau might attempt to frustrate the process with further litigation or by simply dragging his feet.
"Because the Court did not incarcerate Trudeau, he has no incentive to put forth genuine cooperation," the government attorneys wrote in a motion in August.
Trudeau's defense team had argued unsuccessfully for a more limited role for the receiver, maintaining - as they had throughout- that the FTC was unjustly focused on punishing Trudeau and restricting his freedom to earn money to pay the sanction.
"The FTC has over-reached by submitting a[n] …order that attempts a worldwide freeze of not only Mr. Trudeau's assets (past, present and future)," wrote defense attorney Kimball Anderson, "but also those of many innocent persons and entities around the globe who are not before this court."
The $37 million penalty at the root of this dispute was formally entered in 2010 when Judge Gettleman ruled Trudeau had made misleading claims in infomercials for his best-selling book, "The Weight Loss Cure 'They' Don't Want You to Know About."
The FTC's complaint in that case alleged Trudeau had bamboozled hundreds of thousands of consumers with claims that the diet - which calls for prolonged periods of extreme calorie restriction, off-label injections and high-colonic enemas - was "easy." The judge ordered Trudeau to compensate any consumer who bought the book after viewing one of the ads.
But Trudeau didn't pay. So last summer, the FTC petitioned the court to jail Trudeau, arguing that was the only hope of getting him to pony up. Trudeau countered that he would pay if he could, but it was impossible because he had no assets.
Over the course of the next several months, the FTC subpoenaed the records of dozens of banks, corporations, individuals and law firms to bolster its allegations that Trudeau was masking his control of multiple lucrative business ventures that funded a lavish lifestyle, replete with luxury automobiles and stately homes.
The FTC presented evidence that alleged Trudeau, who moved to Switzerland last fall, had embarked on a sophisticated asset-protection scheme that revolved around the creation of several vaguely-connected companies, trusts and overseas bank accounts nominally owned or directed by Trudeau's young Ukrainian wife, Nataliya Babenko.
Trudeau and Babenko were married in 2008. She was 22 and Trudeau was about to get hit with the $37 million judgment. The FTC argued that Babenko was a key figure in Trudeau's attempts to dodge the penalty.
Trudeau's attorneys consistently claimed that Babenko, who recently completed a year of graduate film studies at New York University, was a "successful businesswoman in her own right" and that the assets of companies she owned or directed could not be used to satisfy the judgment against Trudeau. The judge didn't buy that - and placed those companies and about a dozen others under the control of the receiver.
Babenko's assets, which could include overseas trust accounts and tens of thousands of dollars in designer clothing, jewelry and furniture, may also be subject to forfeiture, to the extent that they were acquired with proceeds from those corporate coffers.
Among the companies covered by the judge's ruling is a multi-layered marketing foundation called the Global Information Network, known by the acronym GIN. It is billed as private wealth, health and success building club - boasting of thousands of members in more than 150 countries.
The club was conceived, Trudeau claims, by a secret council of 30 people – including anonymous billionaires, royals, high-level members of secret societies - and Kevin Trudeau. In internet videos, Trudeau pitched GIN as a way for members, who pay $1,000 to join and $150 a month in dues, to acquire secret information heretofore available to only the elite.
The club's U.S. subsidiary, GIN USA, reported more than $60 million in gross revenue in the past three years, virtually all of which came from payments, purchases and upgrade fees from the club's own members. It is not clear how much, if any, of that money remains.
The receiver will have to determine whether GIN and its affiliated entities should be allowed to continuing to operate or should be shut down and have their assets liquidated. The receiver has already fired a number of GIN employees, and has barred Trudeau from speaking at any of the company's events, even if he spoke for free.