FTC v Affordable Media, the Anderson case

The facts

Michael and Denyse Anderson were successful telemarketers based in San Diego. In 1995, well before any legal trouble, they established a Cook Islands trust and funded it with substantial assets. Several years later they were retained by a telemarketing operation that the Federal Trade Commission subsequently found to be fraudulent. The FTC sued and, in May 1998, obtained both a temporary restraining order and a preliminary injunction requiring the Andersons to repatriate assets held for their benefit outside the United States.

The Andersons wrote to their Cook Islands trustee, AsiaCiti, requesting an accounting and repatriation of the assets in compliance with the court's order. AsiaCiti responded by declaring an event of duress under the trust deed provisions, removed the Andersons as co-trustees, and declined both to provide an accounting and to repatriate the assets.

The Andersons returned to court and argued that compliance was now impossible: the trustee held the assets, had refused, and could not be compelled by a US court. The district court rejected the defence, held the Andersons in civil contempt, and ordered their incarceration. The Ninth Circuit affirmed. 179 F.3d 1228 (9th Cir. 1999).

The structural error that decided the case

The Andersons had appointed themselves as co-trustees alongside AsiaCiti as the licensed Cook Islands trustee, and had also taken the role of trust protectors.

When AsiaCiti invoked the duress provision and removed the Andersons as co-trustees, the Andersons still held protector powers. The Ninth Circuit found that those protector powers gave them a practical route to compliance: they could exercise their protector authority to influence the trust administration, and through that route compliance with the court's repatriation order was not genuinely beyond their reach. The impossibility was therefore self-created, and self-created impossibility is not a valid defence to civil contempt.

That is the operative finding. The court did not hold that Cook Islands trusts are ineffective. It did not hold that anti-duress clauses are invalid. It did not hold that a Cook Islands trustee can be compelled by a US court. It held that these specific settlors, who held both co-trustee and protector roles simultaneously, could not claim they lacked control over the trust.

What the anti-duress clause actually did

The clause operated exactly as drafted.

AsiaCiti identified an event of duress, declared it formally, removed the compromised co-trustees, and declined to repatriate. No US court compelled it to do otherwise, then or subsequently. The assets stayed in the Cook Islands. This part of the case consistently goes unreported in summaries that describe the outcome as a failure of the structure.

The duress clause was designed to protect the assets from being repatriated under compulsion. It achieved that. The settlors faced contempt because of the role they had retained, not because the clause failed. Those are different outcomes from different causes.

What the Cook Islands court decided

Most accounts of this case end with the Ninth Circuit contempt finding. Very few mention what happened in the Cook Islands.

The Cook Islands High Court upheld the trust. It awarded costs against the FTC. The FTC eventually settled with AsiaCiti on confidential terms. The settlement terms were not made public. The frequent claim in secondary sources that the FTC recovered the assets is not supported by anything in the public record. The consistent, unrebutted account from practitioners familiar with the case is that the money stayed in the Cook Islands.

Read the two outcomes together. The Ninth Circuit found the Andersons in contempt for failing to repatriate assets they had retained the practical ability to influence. The Cook Islands High Court upheld the trust and awarded costs against the agency that tried to reach through it. The structure worked. The structural error undermined the settlors' personal position, not the trust itself.

What the case is and is not authority for

Three rules that follow directly

Never serve as your own trustee, even as a co-trustee. The licensed Cook Islands trustee company should hold legal title alone. Adding yourself as co-trustee defeats the purpose of appointing them and creates the exact retained control that produced the contempt finding here.

Never serve as your own protector. A protector genuinely independent of the settlor is what makes the trustee's refusal credible. A settlor-protector is a structural contradiction that a court will find and use, as the Ninth Circuit did here.

Reserve as little as you can tolerate. Every retained power is a chain link a court can follow. The audit question for every reserved power is not what it directly does but what sequence of steps it ultimately allows. Lawrence v Goldberg failed on a two-step chain: appoint a trustee, who then restores access. Anderson failed on a similar logic through the protector role.

The Cook Islands proceedings nobody reports

The FTC v Affordable Media litigation is almost entirely discussed through the Ninth Circuit lens. The Cook Islands proceedings, which are the ones that actually determined what happened to the assets, receive almost no coverage in US practitioner commentary. The full picture requires both.

The FTC sought relief in both the United States federal courts and in the Cook Islands. In the Cook Islands, the High Court was asked to recognise and enforce the US repatriation order and to provide associated relief against the trust. The Cook Islands High Court declined both. It upheld the trust as valid under Cook Islands law, refused to recognise the US court's order, and awarded costs against the FTC.

That is the outcome that matters for understanding what the structure provides. The Ninth Circuit found the Andersons in contempt because they retained protector powers. The Cook Islands High Court found the trust valid and the FTC's claims without merit. The assets were in the Cook Islands throughout. The FTC's settlement with the trustee was on confidential terms. The FTC did not recover what its repatriation order sought to recover.

What the case proves about the statute specifically

Anderson is sometimes read as evidence that the Cook Islands statute is too aggressive, that it provides more protection than US courts will tolerate. That reading is backwards. The statute worked exactly as designed and the US court had a finding available to it, the Andersons' retained protector powers, that produced the contempt finding without ever needing to engage with whether the Cook Islands law was valid.

The federal courts in Anderson never held that the Cook Islands statute was invalid, that anti-duress clauses are unenforceable, or that a Cook Islands trustee's refusal was improper. They held that the Andersons, specifically, retained enough practical authority to be held personally in contempt for the failure to comply. A settler without those retained powers presents a genuinely different question, one that no federal appellate court has answered against the trust in any reported case.

The lasting significance

Anderson established three things that remain definitive. A properly triggered anti-duress clause allows a Cook Islands trustee to refuse a US court order and no subsequent case has successfully compelled one. A settlor who serves as their own protector has retained control that a US court will find. And the Cook Islands High Court will uphold a properly structured international trust against foreign challenges, including from a US federal agency with substantial resources.

The case remains the most important authority in the field not because it shows the structure is vulnerable, but because it shows precisely where the line is and what happens on either side of it.

General information, not legal advice. Case summaries are necessarily compressed. Read the full decision with qualified US counsel before relying on it. See the other reported cases and contempt and repatriation.