Sterling Multi Media Talking Pet Tags

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Every Home Will Buy One

You get a call which offers a chance to buy from Sterling Multi-Media a "Media Unit" that entitles you to share the proceeds from products sold in a number of television commercials that they place in various media markets. The products, with a "proven consumer appeal" —range from water-filled dumbbells to "The Talking Pet Tag" —have a retail price of $20 each. But, according to them, their actual cost is $5, so each sale yields a $15 profit. They tell you that each commercial spot is almost certain to generate at least five sales.

They also tell you that all previous investors have earned returns of 50% or more, as well as the return of their principal, within 60-90 days and that you are highly likely to receive similar returns. They guarantee that you will earn at least a 25% profit, as well as the return of your principal, within 90 days of investing your money by purchasing blocks of television commercials that promote various products.

In fact, contrary to what they told you, many investors who purchased the Media Units have not received any profits or return of their principal, more than 90 days later, or ever. To the extent that some investors did receive profits, they apparently came from money invested by other investors, through what proved to be a deceptive ponzi scheme that bilked investors out of $35 million dollars, not from the sale of the products advertised on TV.

The Sterling Group sold such imaginative products as the "Aquabell," a water-filled dumbbell, the "Talking Pet Tag," and a plastic wrap dispenser known as "KenKut" by means of late-night television commercials broadcast between the hours of 11:00 p.m. and 4:00 a.m.

They telemarketed media units, an investment that afforded investors the opportunity to receive a portion of the profits generated from the sales of these innovative products.

The media units sold for $5,000, with a minimum purchase of two units required. Each media unit entitled you to participate in 201 commercials. You would receive $7.50 for each product sold during your 201 commercials, up to a maximum of five products per commercial. According to them, you would likely receive $37.50 per commercial for a total of $7,537 —an astronomical fifty percent return in sixty to ninety days.

They raised at least $13,000,000 from investors in the media-unit scheme, retaining an estimated $6,300,000 in commissions. Unknown to you, they would receive 45% of your $5,000 investment.

It turns out that the late night consumer was not as gullible as the investors, for Sterling could not sell enough Talking Pet Tags and Aquabells to return the promised yields. Instead, they used later investors' investments to pay the promised yields to earlier investors —a classic Ponzi scheme.

When charged with securities fraud and racketeering they claimed that they should retain the 45% commissions they received for their hard work in the fraud, even though they acknowledged that the investors were defrauded.

They also felt hard done by financially, even though the district court released monies to pay for their living expenses and attorneys' fees. Incredibly, they also contend that the court was hasty in trying to freeze their assets as "the district court did not find that there was a likelihood of asset dissipation."

Contrary to this assertion, early on in the scheme they created an irrevocable trust under the law of the Cook Islands. The owners were named as co-trustees of the trust, together with a trust company licensed to conduct such services under Cook Islands law. The trust created the circumstances in which the trustee would refuse to repatriate assets to the United States by means of so-called duress provisions —such as when the government wants to get it back to its rightful owners.

In their attempt to comply with a court order, they either intentionally invoked, or intentionally failed to preclude the invocation of, an "anti-duress" clause in the trust agreement. The invocation of that clause resulted in their removal as trustees and ensured that the assets would not be repatriated.

They say they would really like to return the millions of dollars but their offshore trust agreement just doesn't allow it. The court held them in civil contempt and ordered them jailed pending repatriation of the assets. On appeal, the Ninth Circuit considered their defense of "impossibility of performance".

The judge ruled that their inability to comply with the asset repatriation order was the intended result of their own conduct in setting up the trust. Even though they later signed trust instruments appointing a government trustee, as a condition of their release from prison for contempt, the Cook Islands court still would not comply.