FTC v. Affordable Media (The Anderson Case)

The Ninth Circuit’s decision in FTC v. Affordable Media, 179 F.3d 1228 (9th Cir. 1999), is the most cited Cook Islands trust case in U.S. law. It is also the most misunderstood. Commentators routinely describe the Anderson case as proof that offshore trusts do not work, that Cook Islands trust law cannot withstand U.S. court enforcement, or that the structure is fundamentally unreliable.

The actual record tells a different story. The Ninth Circuit held the settlors in contempt because they retained practical control over the trust through their roles as co-trustees and trust protectors. The court did not hold that Cook Islands trusts are ineffective. The Cook Islands High Court, in a ruling most accounts omit, upheld the trust and awarded costs against the FTC.

The Underlying Fraud

Michael and Denyse Anderson operated a telemarketing business through Affordable Media, LLC. The company sold media units to investors, promising a 50% return within 60 to 90 days. The supposed profits came from consumer products sold through late-night television. The returns were not generated by product sales. Instead, the Andersons paid earlier investors with money from later investors. The FTC later characterized the operation as a Ponzi scheme.

Of the approximately $13 million raised from investors, Affordable Media retained roughly $6.3 million in commissions. The Andersons funded their Cook Islands trust with proceeds from those commissions. The underlying fraud is central to how the case played out in the U.S. courts, because it meant the government, not a private creditor, was the plaintiff, and the assets in the trust were themselves the product of illegal activity.

How the Trust Was Structured

In July 1995, three years before the FTC filed suit, the Andersons established an irrevocable trust under Cook Islands law. The trust was administered by AsiaCiti Trust Limited, a licensed Cook Islands trustee company. The trust deed included a duress clause providing that if an “event of duress” occurred—such as a court order directed at the trust assets—the overseas trustee could remove the Andersons and freeze distributions.

The structural problems were in the roles the Andersons held. They named themselves co-trustees alongside AsiaCiti. They also named themselves trust protectors, a role that gave them authority to certify whether an event of duress had occurred and to overrule certain trustee decisions. Between the co-trustee position and the protector powers, the Andersons retained enough control over the trust that a court could reasonably conclude they had the ability to cause repatriation.

No competent offshore trust practitioner would structure a trust this way today. The co-trustee arrangement alone gave the Andersons direct administrative control, and the protector powers compounded the problem by allowing them to override the very duress mechanisms designed to trigger the impossibility defense.

The U.S. Court Proceedings

In 1998, the FTC filed a civil action against Affordable Media and the Andersons. The Nevada district court issued a temporary restraining order and a preliminary injunction requiring the Andersons to repatriate all assets held outside the United States, whether held by them, for their benefit, or under their control.

On May 12, 1998, the Andersons faxed a letter to AsiaCiti instructing the trustee to provide an accounting and return the trust assets to U.S. jurisdiction. AsiaCiti responded by invoking the duress clause. The trustee removed the Andersons as co-trustees, declared an event of duress, and refused to repatriate the assets or provide an accounting.

The Andersons argued to the court that compliance was now impossible. They had been removed as co-trustees, and the overseas trustee had refused their request.

The district court was not persuaded. The FTC then disclosed that the Andersons were still trust protectors, a fact the Andersons had not volunteered. As protectors, they retained the power to certify that no event of duress had occurred, which would have reversed the trustee’s freeze. The court found that the Andersons had not genuinely lost control and held them in civil contempt on June 4, 1998.

In the weeks that followed, the Andersons attempted to purge the contempt by appointing their children as successor trustees. AsiaCiti removed them as well, citing the continuing duress. The Andersons were taken into custody.

The Ninth Circuit’s Holding

The Ninth Circuit affirmed the contempt finding. The court’s analysis focused on control. The Andersons had retained the ability to influence the trust through their protector powers, and that retained control defeated their impossibility defense.

The court expressed skepticism that even genuine impossibility would excuse contempt when the impossibility was the intended result of the debtor’s own trust design. But it did not resolve that broader question. Instead, it held that the Andersons had simply failed to carry their burden of proving impossibility “categorically and in detail,” because the evidence showed they still had mechanisms to cause compliance.

The Ninth Circuit did not rule that Cook Islands trusts are unenforceable, that offshore asset protection is illegal, or that duress clauses are inherently ineffective. It ruled that these specific settlors, who served simultaneously as co-trustees, protectors, and beneficiaries, could not claim they lacked control over the trust assets.

What Happened in the Cook Islands

The Cook Islands High Court issued a ruling in the Anderson case that most published accounts omit entirely. That ruling determined what happened to the trust assets.

After the Andersons were jailed, they agreed under duress to execute three documents the FTC demanded. The first removed AsiaCiti as trustee and replaced it with FTC, Inc., a corporation the FTC created for this purpose. The second appointed FTC, Inc. as trust protector. The third amended the trust to remove FTC, Inc. from the list of “excluded persons” under the trust deed.

AsiaCiti did not comply. Instead, the trustee sought a ruling from the Cook Islands High Court on whether these amendments were valid.

On August 10, 1999, the Cook Islands High Court ruled in AsiaCiti’s favor on all three points. The court held that the documents removing the existing trustee and appointing FTC, Inc. were an invalid exercise of the protector’s powers. The amendment purporting to remove FTC, Inc. from the excluded persons list was invalid because it would benefit an excluded person, violating the trust deed. The appointment of FTC, Inc. as protector was also invalid for the same reason.

The Cook Islands court then awarded costs against the FTC entity and in favor of the trustee.

A U.S. federal agency with substantial litigation resources attempted to take over a Cook Islands trust using documents executed under judicial duress, and the Cook Islands legal system refused to recognize those documents. The trust structure held even though the underlying facts—a Ponzi scheme, ill-gotten funds, settlors who named themselves co-trustees—were about as unfavorable as any case could present.

The Settlement

Rather than appeal the Cook Islands court’s ruling or initiate new proceedings in the Cook Islands to pursue the trust assets directly, the FTC settled. The settlement terms are not public, but the FTC released both the trustee and the trust from further liability. The Cook Islands court’s cost award against the FTC entity remained in place.

The FTC’s decision to settle illustrates why creditors who obtain U.S. judgments rarely pursue trust assets through Cook Islands litigation. A creditor must bring a separate action in the Cook Islands under Cook Islands law, which imposes short limitation periods, a beyond-reasonable-doubt burden of proof, mandatory litigation bonds, and a prohibition on contingency fees. Even the U.S. government concluded that settlement was more practical than fighting on that terrain.

How the Case Is Misrepresented

The Anderson case decided a narrow question about retained control, not a broad question about whether Cook Islands trusts protect assets from U.S. creditors. Three specific misrepresentations appear repeatedly in legal commentary.

The trust “failed.” The trust did not fail. The Cook Islands trustee performed exactly as designed: it refused to comply with U.S. court orders, sought and obtained a ruling from the Cook Islands High Court, and preserved the trust assets. The Andersons were held in contempt in the U.S. because of their own retained control, not because Cook Islands law was insufficient.

The case proves offshore trusts don’t work. The case proves that a settlor who names themselves co-trustee and protector of their own trust cannot claim impossibility when a court orders repatriation. That is a specific structural holding about retained control, not a general indictment of Cook Islands trusts. A trust with an independent trustee and an independent protector presents a fundamentally different enforcement profile.

The FTC recovered the assets. The public record does not support this claim. The FTC settled with the Cook Islands trustee, and the terms are confidential. No Cook Islands court ordered the trustee to turn over assets. No reported proceeding resulted in a creditor recovering trust assets through Cook Islands litigation.

What Changed After Anderson

The Anderson case accelerated changes in offshore trust practice that were already underway. The structural defects the Ninth Circuit identified—naming the settlor as co-trustee and granting the settlor protector powers—are now recognized as the two most dangerous design choices in an asset protection trust.

Modern Cook Islands trusts address both. The settlor is never named as trustee or co-trustee. The protector role is filled by an independent third party, typically a licensed professional in the Cook Islands or another offshore jurisdiction, who is not subject to U.S. court jurisdiction. The duress clause removes the settlor from any remaining advisory role, not just from a trustee position the settlor should never have held.

These structural changes are not cosmetic. They directly address the legal test the Ninth Circuit applied. The question in Anderson was whether the Andersons retained control sufficient to cause compliance. A trust in which the settlor holds no trustee powers, no protector powers, and no mechanism to direct or override the trustee’s decisions presents the court with a fundamentally different factual record. The impossibility defense rests on the same legal principles: it succeeds or fails based on whether the debtor genuinely cannot comply.

The Anderson case does not establish that Cook Islands trusts are vulnerable to U.S. enforcement. It establishes that a settlor who retains control over a trust cannot claim the trust is beyond their reach. The distinction has defined offshore trust practice for more than 25 years.