Full opinion text
DECISION AFTER TRIAL McMAHON, District Judge. After a trial on the merits, held April 24-May 2, 2000, the Court makes the following Findings of Fact and Conclusions of Law. FINDINGS OF FACT I. The Parties A. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. §§ 41 et seq. The Commission enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. B. On March 8, 1999, Plaintiff filed suit against Five Star Auto Club, Inc. (“Five Star”), Michael Sullivan, and Angela Sullivan (collectively “Defendants”) alleging that Defendants: 1) made false and misleading earnings claims to consumers; 2) made false and misleading promises to consumers that their program offered “everyone the opportunity to drive their dream vehicle for free;” 3) provided others with the means and instrumentalities to make the same deceptive claims; and 4) failed to disclosed to consumers that Five Star’s pyramid structure would not allow many of Five Star’s participants to achieve the benefits promised by Defendants. (Complaint Counts I, II, III, & IV). C. Five Star Auto Club began operations in late March or early April 1997. (MS Dep., pp. 39(5)-(9); See Stip. #2). Five Star Auto Club was subsequently incorporated in the State of Delaware on December 2, 1997. (PX 1; MS Dep., pp. 37(22)-39(9); Stip. # 1). Until February or March 1999, Five Star’s corporate headquarters were located in Michael and Angela Sullivan’s home at 3 Dodge Street, Pough-quag, New York. (PX 230, # 13 & # 14; MS Dep., p. 56(7)-(9); Stip. #3). D. In February or March 1999, Five Star moved out of the 3 Dodge Street address. (PX 230, # 14; See Stip. # 3). At the time this action was initiated, the bulk of Five Star’s equipment and documents were in storage at Arnoff Moving and Storage in Poughkeepsie, New York (“Arnoff’). (MS Dep., pp. 79(13)-■(16), 143(21) — 144(5); See Stip. #4; Zlotnick Tstm.). The remainder of the corporation’s documents and equipment were stored at 1 Taconic View Court, LaGrangeville, New York, the Sullivans’ new luxury home that was under construction. (MS Dep., pp. 251(19)-252(6), 754(7)-765(22); PX 173; PX 174; See Stip. # 4; Zlotnick Tstm.) E. Defendants marketed Five Star as a program through which consumers could earn a substantial income and drive their dream vehicle for free. Infra at 111(A)(1) & (2). Five Star expanded through the sale of new memberships by current participants. (MS Dep., pp. 194(4)— 197(24)). Participants recruited new members pursuant to the incentive structure created by Defendants’ claims of driving your dream car for free and earning a substantial income. (Vander Nat Tstm.) F. Defendant Michael R. Sullivan was the founder, president and sole shareholder of Five Star. (PX 230, # 1 through # 4; MS Dep., pp. 15(4)-(12), 39(10)-40(5); Answer ¶ 5; Stip. # 5). Mr. Sullivan created the Five Star structure and was in charge of running Five Star’s operations, working full time for Five Star from at least December 1997 through March 9, 1999. (PX 230, # 16; MS Dep., pp. 16(l)-(6), 42(4) — 43(10); See Stip. # 6). Therefore, individually or in concert with others, Mr. Sullivan formulated, directed, controlled, or participated in the acts and practices of Five Star as detailed below, and did so at all times pertinent to this action. G. From March 1997 through March 9, 1999, Michael Sullivan, resided and transacted business in the Southern District of New York. (Id.; MS Dep., pp. 8(7)-(23), 56(7)-(9), 79(13)-(16), 143(21)-144(5); Stip. # 7). H. In 1984, Mr. Sullivan started Five Star Auto Leasing, Inc., through which he claimed to have brokered automobile leases between consumers and retail leasing and financial sources. (MS Dep., p. 28(4)-(25)). Mr. Sullivan was the founder, president and sole shareholder of Five Star Auto Leasing, Inc. (MS Dep., p. 28(4)-(15); Stip. # 9). Five Star Auto Leasing, Inc. was dissolved in 1991. (MS Dep., pp. 29(15)-(18), 652(16)-(19); Stip. # 9). I. Starting in 1989, Mr. Sullivan did business as Five Star Consultants, Inc. (MS Dep., p. 24(8)-(9); Stip. # 8). Through Five Star Consultants, Inc., Mr. Sullivan engaged in various activities including multilevel marketing. (MS Dep., pp. 24(21)-28(3)). Mr. Sullivan is the president, vice-president, founder, and sole shareholder of Five Star Consultants, Inc. (MS Dep., p. 24(8)-(20); Stip. # 8). J. Angela Sullivan was the vice-president of Five Star. She responded to subpoenas from the Kansas and Illinois Attorney General’s Offices providing an extensive description of Five Star’s business practices and identifying herself , as Five Star’s vice-president. (AS Dep., pp. 32(8)-36(7); MS Dep., pp. 750(4)-(ll), 752(22)-753(13); PX 171; PX 172; Stip. # 10 & 11). Moreover, in these same responses, she identified herself and her husband as the two only people who have “directed, controlled, or otherwise supervised the business operations” of Five Star. (PX 171; PX 172). K. Angela Sullivan signed an Answer to a civil suit filed by the State of New York State identifying herself as the vice-president of Five Star. (MS Dep., pp. 602(17)-604(13); PX 125, AS Dep., pp. 39(12)-40(18), 42(5)-(ll)). Additionally, in his sworn financial statement on behalf of Five Star, Michael Sullivan stated that Angela Sullivan is the vice-president of Five Star. (MS Dep., pp. 628(11) — 629(15); PX 129, Item 4; Stip. # 12). L. In addition to answering subpoenas on behalf of Five Star, Angela Sullivan did research, wrote checks, answered telephones, retrieved checks from the Post Office, made bank deposits and entered computer data for Five Star. (MS Dep., pp. 43(14)-44(21); AS Dep., pp. 43(25)-46(17), 51(2)-(4); PX 203). Therefore, individually or in concert with others, Ms. Sullivan formulated, directed, controlled, or participated in the acts and practices of Five Star as detailed below. M. From March 1997 through March 9, 1999, Angela Sullivan resided and transacted business in the Southern District of New York. (AS Dep., pp. 8(20)-(24); MS Dep., pp. 8(7)-(23), 56(7)-(9), 79(13)-(16), 143(21) — 144(5)). N. The Sullivans’ children, Melissa, Laurie and Michael, as well as Laurie Sullivan’s fiancee Rick Orobsco, all worked for Five Star. (MS Dep., pp. 54(1) — 56(12), 595(16) — 596(6), 680(1) — 681(5); AS Dep., pp. 46(21)-48(8); PX 2; PX 137). II. Procedural History A. On March 8, 1999, Plaintiff filed a complaint alleging that Defendants violated Section 5 of the Federal Trade Commission Act by engaging in deceptive marketing practices. B. On March 8, 1999, Plaintiff also moved for an ex parte temporary restraining order (“TRO”) prohibiting further misrepresentations, appointing a Receiver over Five Star, and freezing Defendants’ assets. C. On March 8, 1999, the Court issued a TRO prohibiting further misrepresentations, appointing a Peter B. Zlotnick (“Receiver”) as Receiver over Five Star, and freezing Defendants’ assets. D. On April 5, 1999, the parties stipulated to entry of a Preliminary Injunction continuing the TRO’s prohibition against misrepresentations, the appointment of the Receiver, and the freeze on Defendants’ assets. E. On April 9, 1999, Plaintiff filed an Amended Complaint adding Thomas Bewley, Judy Bewley (“Bew-leys”), and Advance Funding, Inc. as Defendants, and adding a common enterprise count. F. Plaintiff and the Bewleys have reached a settlement in this matter. Advance Funding, Inc. has not filed an Answer or participated in these proceedings. G. On or about April 22, 1999, Defendants filed an Answer to Plaintiffs Amended Complaint denying all allegations. H. After a hearing on November 24, 1999, on December 9, 1999, this Court modified the Preliminary Injunction having found that Defendant Michael Sullivan continued to promote the Five Star concept over the telephone and the Internet. III. Five Star’s Business Structure A. Defendants’ Focus I. First, Defendants promised, both explicitly and by implication, that Five Star made it possible for everyone to drive their dream vehicle for free, or for no more than $100 per month. (See e.g., MS Dep., p. 68(12)-(14); PX 6B, p. 110-113; PX 8, pp. 8, 10, 11, 12,17, 19, 42, 65-66; PX 9, pp. 5, 16, 17,.73-74, 75-76, 77-78, 89, 95, 98-99, 101, 103, 106, 107-108; PX 15; PX 100, p. 42; PX 134; PX 135; PX 230, #23-26 (c)(d)(h)(m)(o)(ee) (ff)(gg)(kk)(nn)(oo); PX 7B, p. 142; PX 221C, pp. 19-20; PX 230, # 42; PX 6B, pp. 8, 98, 110-111, 112; PX 230, # 48; PX 15A, pp. 2A, 8, 155; PX 230, # 57) 2. Second, Defendants claimed that Five Star participants could make a substantial income from the sale of Five Star memberships. (See e.g., PX 5C ($8,000 per month); PX 5D ($16K, $32K, 48K per month); PX 5F ($16,000, $24,000 and $32,000 per month); PX 5K ($8,000 per month); PX 5L ($180 — $40,000 per month); PX 7B, p. 96 (“We’ve never been promoting ourselves as a get rich quick, but, you know, this is a get rich slow program. If you’re committed for the long haul, you’ll all do very, very well.”); PX 8, p. 17 ($180— $800 per month); PX 8, p. 19 (“Your bonuses and commissions could pay your $100.00 U.S. Member’s Monthly Dues — plus you could receive Big Bucks every month.”); PX 8, p. 20 ($2400 per month); PX 8, p. 21 ($180 — $300 per month); PX 8, p. 48 ($2400 per month); PX 8, p. 72 ($2400 per month); PX 8, pp. 73-74 (over $250,000/year); and PX 8, p. 77 ($80,000 per month); PX 13 ($75,-000 up front and $60,000 per month); PX 9, p. 5 (“If I could show you how to virtually eliminate your costs in leasing a new vehicle, and at the same time earn a substantial income, would that interest you? Of course it would. Just get the facts on our new lease alternative and discover how you can ... Drive you Dream Car for Free!”); PX 9, p. 8 (“Get Rich Slow” not “Get Rich Quick.”); PX 9, p. 17 (“Earn an unlimited income based on 25% bonuses for your primary sales. Huge residual income potential based on monthly commissions.”); PX 9, pp. 94-95 ($180-$300), 106 ($180-$2400 per month); PX 9, p. 95 (“How would you like to graduate with a six figure income?” ... Talk to your parents ... Simply explain that your efforts combined with their small investment in a Five Star Auto Club Membership could easily finance your college education.); PX 13 ($75,000 up front and $60,000 per month); PX 15B, p. 16 (“FSAC Consultants You Can Earn A Substantial Income ...”); PX 15A, p. 173 ($100,000); PX 19, p. 7 ($180-$8,000 per month); PX 19, p. 23 ($16,000. $24,000 and $32,000 per month); PX 19, p. 33 ($16,000. $24,000 and $32,000 per month); PX 19, p. 56 ($180-$8,000 per month); PX 67 (“What Kind Of Income Potential Is There With Five Star ... Frankly, there is an unlimited income potential for those that WORK. No FREE RIDES for those who do not WORK. As with all real businesses, nothing comes fast, but for those who dedicate themselves for at least six month will see incredible long term results.”); PX 206A ($8,000 per month); PX 226B, p. 10 ($24,000 per month); PX 226B, p. 10, p. 23 (“several thousand a month extra”); PX 226B, p. 10, p. 26 ($24,000 per month); PX 226B, pp. 10, 29-31 ($16,000, $24,000 & $32,000 per month); PX 245, p. 7 ($180 — • $300 per month). 3. Five Star purported to offer access to other services, such as roadside towing, specially-priced insurance, and even a dental plan. However, Five Star had little, if any, focus on any retail product. (PX 5, PX 8, PX 9, PX 19; PX 206; PX 223; PX 227B, p. 67; PX 245; See TB Dep., p. 166(6)-(17)). Michael Sullivan admitted at his deposition that he knew of very few Five Star participants who availed themselves of the various retail products (MS Dep., pp. 232-234), and these products were not emphasized in Five Star’s promotional materials. Indeed, it seems quite clear that the retail products were included solely to stave off regulators. Michael Sullivan’s own statements clearly demonstrate this point. “Again, our total focus on the surface has to be retail to appease all these overregulators.” (PX 68). “The income claims are gone, and that’s fine, but all reference to money had to be removed. Put it in the kit manual, but you can’t have it on promotional materials that go out to everyone, including regulators.” (PX 53). B. Five Star’s Fee Structure 1. Participants could join Five Star at three different levels: consultants, members, and members-consultants. (MS Dep., pp. 85(6) — 94(11); PX 8, pp. 3-6; Stip. # 15). 2. Consultants paid a $95 annual fee to Five Star. (PX 5K; PX 5Z; PX 6B, p. 103; PX 6B, p. 103; PX 8, pp. 11, 13, 17, 19, 21, 32-33, 46; PX 9, pp. 22, 89, and 103; PX 13; PX 21; PX 89, PX 97; PX 220B, p. 100; PX 222B; PX 226B, p. 10). In exchange for their dues, consultants had the right to receive commissions from the sale of memberships, (MS Dep., pp. 85(6)-87(15); PX 8, pp. 17, 21, 33; PX 9, pp. 85, 90, 103; Stip. # 16), but did not have the right to participate in Five Star’s Vehicle Incentive Program (“VIP”), Reverse Value Lease (“RVL”), or Buyers Assistance Program (“BAP”). (MS Dep., p. 91(l)-(2); See Stip. # 17). 3. Defendants’ own marketing material consistently shows fees of $95 for the Consultant position. For example, promotional material that Mr. Sullivan admitted both developing and approving for distribution states “[t]he good news is, Consultants Annual Dues are only $95.” (PX 8, p. 17; PX 230, # 23-26(h)). The only Five Star material that Defendants could point to which they claimed made the $95 consultant fee “optional” is a certain version of the Five Star Application. (MS Dep., pp. 87(16) — 90(15); PX 3). However, the application contains only the statement “[y]ou may register as a Consultant for $0 in states that require this option.” Mr. Sullivan is not even able to say in which States this option was even available. (Id.) 4. Members paid a $395 annual fee to Five Star and in exchange received the right to participate in the VIP, BAP and RVL. (PX 8, p. 21; MS Dep., pp. 85(17)-(19) & 91(9)-(24)). Members could not earn commissions. (MS Dep., p. 265(11)-(12); PX 8, p. 21). 5.Member-Consultants paid a $490 annual fee to Five Star and in exchange received all the benefits of both consultants and members. (MS Dep., p. 188(4)-(7); PX 8, pp. 3 and 21; Stip. # 18). C. The Vehicle Incentive Program 1. The promise that Five Star makes it possible for everyone to drive their dream car for free while earning a substantial income lies at the heart of the Five Star advertising scheme. Supra at 111(A)(1). The VIP is the vehicle through which Defendants claim they can fulfill this promise. CInfra at 111(C)(3); MS Dep., p. 68(12)-(14).) Michael Sullivan drives home this point in a letter to all new participants suggesting that they sell Five Star by asking: “Would you be interested in driving a new car for just $100.00 per month under a new Lease Alternative? Keep it simple by asking them just one question.” (PX 19, p. 39). 2. In order to qualify for a VIP lease, Five Star participants were required to pay Five Star $100 per month starting the 10th of the month after they joined the VIP program. (Dep., 514(11)-(21); PX 8, pp. 5, 19). Participants could join the VIP program at three different times. (PX 8, p 5). First, Defendants encourage VIP participants to start paying monthly dues on the 10 h of the first month after enrollment. (PX 8, p. 19; PX 9, p. 53; PX 100). This option allowed member-consultants to start earning commissions on the sale of new memberships immediately. (PX 8, p. 5). Second, VIP participants could start paying $100 per month on the 10th of the month following establishment of a complete primary group. (PX 8, p. 5) Pursuant to this option, participants could not earn commissions on the sales necessary to establish their primary group. (Id.) Third, VIP participants could wait until delivery of their VIP vehicle to start paying $100 per month. (PX 8, p. 5). Under this option, participants would have to pay their own down payment, security deposit and bank acquisition fees (estimated by Defendants at $2000 to $4000). (Id.) 3. Both Five Star’s VIP program and the promise of a substantial income were predicated upon the receipt of these monthly dues. (Vander Nat Tstm.) The $100 per month dues were “the financial back bone of Five Star...” (PX 8, p. 19). 4. To qualify for a VIP lease, a consumer (at what I will call the “A” level) had to establish both a “primary group” and “secondary group” of new members. (MS Dep., pp. 61(3)-63(11); PX8, p. 20; PX 21). A member’s primary group (“B” level) consisted of those new members whose memberships were purchased directly from the original member. (MS Dep., pp. 62(21)-63(4); PX 8, pp. 17, 19; PX 21). The number of members required in a consumer’s primary group depended upon the cost of the desired vehicle. (PX 8, p. 20; PX 9, p. 103; PX 21; MS Dep., p. 243(3)-(20)). For example, in order to qualify to lease a $12,000 vehicle, a consumer had to directly sell three (3) new memberships. (Id.) In order to qualify to lease a $40,000 vehicle, a consumer had to sell twenty (20) new memberships. (Id.) 5. Additionally, a consumer participating in the VIP program had to establish a secondary group (“C” level) that was three time the size of his/ her primary group in order to qualify to lease a vehicle for free or for $100 per month. (Id.) The secondary group consisted of new members who purchased their membership either directly from the original participant or from an individual in the original participant’s primary group. (Id.; PX 8, pp. 17, 19; PX 21; PX 47, p. 28.) A portion of the payments from a consumer’s primary and secondary groups was supposed to be placed in escrow and used to pre-pay a 24 month lease when the consumer had a sufficient number of participants in his/her primary and secondary groups. (MS Dep., pp. 63(25)-64(8); 161(8)-(16); PX 8, p. 17; PX 47, p. 28). Thus, .money collected from individuals who were recruited at the B and C levels were to be used to pay for aptomobiles being leased for individuals who were at the A level. 6. Despite Defendants’ representations that participants’ funds would be placed in escrow, they were not. Five Star had no accounting for participants’ supposedly escrowed ■ funds. (MS Dep., pp. 161(2)-(25), 162(22)-164(15), 389(25)-395(10); PX5Z; PX12). ■ 7. The vast majority of Five Star participants joined Five Star in order to access the VIP. (Consumer Tstm.; Tobin Tstm.)-. For example, of the 6,733 Five Star applications examined by Plaintiff, 5,816 (86%) showed participants completing one or more portions of the Five Star application indicating that they were participating in the VTP (5,112 Member-Consultants (96%); 571 Consultants (47%); and 79 Members (66%). (To-bin Tstm.; See also MS Dep., pp. 78(12)-80(12).) ■ • 8. In order to sustain the VIP program it was imperative that VIP participants recruit new members who also participated in the VIP program and/or attempted to earn commissions. Specifically, even if 100% of the payments received by a participant’s downline were placed in escrow, less commissions paid on those memberships, there would not be enough money placed in escrow to pre-pay for a VIP lease, unless at least a portion of that participant’s downline was paying $100 per month VIP dues. (Vander Nat Tstm.). Moreover, Five Star’s program anticipated that a consumer’s primary group would recruit the consumer’s secondary group. (See e.g., PX 8, pp. 11, 17, 20, 21, PX 21, PX 234B.) The only incentive to recruit new members was to achieve a VIP lease and/or earn commissions; therefore, a consumer’s primary group had to establish his/her own downline of recruiters. (Vander Nat Tstm.) D. Other Automotive Programs 1. Through the Buyer’s Assistance Program (“BAP”), Five Star promised to save members money on the lease or purchase of a vehicle by facilitating the lease or sale through access to their network of over 4,000 dealers nationwide. (MS Dep., pp. 58(24)-59(12); PX 8, p. 17; PX 9, p. 103, PX 230, Adm. 23-26(oo) & (h)). In fact, Five Star had no independent dealer network, but accessed Autobytel and other Internet car buying services that provided price quotes on cars to anyone for free. (MS Dep., pp. 204(15) — 295(16), 339(24) — 343(6); PX 42; PX170, p. 30; Tobin Tstm.). Of course, there is nothing illegal about that; many consumers might prefer to pay someone with Mr. Sullivan’s familiarity with the auto industry to do their purchasing or leasing research for them. There is no evidence in this record that would allow the Court to ascertain how many Five Star participants availed themselves of the BAP. However, this Court does not credit Michael Sullivan’s testimony that a significant number of consumers ever used the BAP. 2. In late 1998, Defendants developed the RVL program. (PX 214). The RVL was an attempt to move those participants accessing the BAP into the VIP program. (PX 6B, p. 98; PX 214; PX 234B, p. 26; MS Dep. 69(17)-72(19)). Pursuant to this program, members could use the BAP to lease a vehicle for 24 months and then begin recruiting new members. (MS Dep., pp. 69(17) — 74(5)). For each new member recruited over that number which Five Star required be present in a consumer’s primary group to qualify for a VIP lease, Five Star promised to pay $295 toward the consumer’s lease. (MS Dep., pp. 71(5)-74(5); PX 214). For example, to lease a $20,000 vehicle through the VIP program, a consumer had to have 8 members in his/her primary group and 24 members in his/her secondary group. (PX 8, p. 20). Therefore, if a consumer leased a $20,000 car through the BAP program, Five Star promised to pay $295 toward that lease for the ninth through the twenty-fourth members recruited into the consumer’s downline. (MS Dep., pp. 69(17) 74(2)). E. Five Star’s Commission Structure 1. Five Star promised to pay consultants a $100 commission for each new membership they sold directly. (MS Dep., pp. 85(19) — 86(7); PX 8, p. 17; See Stip. # 19). Additionally, consultants were promised a $20 per month commission for each $100 per month payment made by each member in their secondary group. (MS Dep., pp. 86(20) — 87(15); PX 8, pp. 17, 21, 46-47; PX 51). This $20 commission increased to $40 when a consumer had 20 or more members in his/her secondary group. (Id.) 2. Five Star’s promotional materials focus on the theoretically large earnings that they claimed could be achieved through the $20 and $40 per month commissions. (See e.g., PX 8, pp. 17, 21, 47, 77; PX 9, pp. 21, 91,103; PX 21, PX 19, pp. 7, 23, 33, 56; PX 226B, pp. 30-33.) Defendants made numerous monthly earnings claims ranging from $180 per month to $80,000 per month. Supra at 111(A)(2). 3.These monthly ‘commissions were dependent upon participants’ recruiting others who in turn would also attempt to recruit new members, because these commissions were to be paid only if a consumer’s downline participated in the VIP program (thus making the $100 per month payments from which monthly commissions are derived). (Van-der Nat Tstm.) IV. Defendants’ Course of Conduct A. Marketing Materials 1. Five Star assisted participants in recruiting new participants by providing access to and/or selling promotional materials including: letters, brochures, audio tapes, video tapes, door hangers, and weekly conference calls. (PX 8, p. 7; PX 9, p. 31-37; MS Dep., pp. 120(17)-122(5)). 2. From April 1997 through November 1997, Five Star promotional materials were developed and distributed directly by Michael Sullivan. (MS Dep., pp. 95(21) — 98(2); 243(3)-(20); PX 21; Stip. # 20). At this time, the VIP program was called the AIP program. (MS Dep., p. 243(10)-(13)). 3. From December 1997/January 1998 through the beginning of August 1998, Five Star promotional materials were developed by Kevin Cole and Michael Sullivan and distributed by Kevin' Cole operating as Five Star Marketing Offices, Inc. and Dancole Networking, Inc. in Laugh-lin, Nevada. (MS Dep., p. 96(10)-(14), 97(23)-101(21), 105(3) — 110(8); PX 19, pp. 10-11 & 39-45). Mr. Cole was the National and International Marketing Director for Five Star from approximately December 1997 through the beginning of August 1998. (PX 50; PX 230, # 29; Stip. # 21). 4. In communications with Five Star participants, prospective participants, and the public, Michael Sullivan referred to Kevin Cole as Five Star Auto Club’s National Marketing Director. (MS Dep., pp. 240(3)-241(8), 432(3)-(20); PX 19, p. 41, PX 65; PX 206E; Stip. #22). Additionally, Mr. Sullivan referred to Mr. Cole’s operation as Five Star’s new Marketing Offices in Nevada and . Five Star Marketing Offices. (Id.; MS Dep., pp. 157(24)-158(7); 369(23) — 371(18); Stip. # 23). 5. Mr. Sullivan claims to have had problems with Mr. Cole’s operation of Five Star’s marketing offices starting in January/February 1998. (MS Dep., p. 101(17) — 103(19), 239(15)-(17)). In late July 1998, after a discussion with Michael Sullivan, Thomas Bewley went out to Laughlin, Nevada to remove Kevin Cole from his position as Five Star’s Marketing Director. (MS Dep., pp. 106(10) — 108(12), 336(22)-339(l); PX 41; Stip. # 24). During the first week of August 1998, Mr. Bewley succeeded in removing Kevin Cole from his position as Five Star’s Marketing Director. (MS Dep., pp. 106(10) — 108(12); TB Dep., pp. 92(2)-(3), 99(18)-(24)). Thereafter, Thomas Bewley took over Mr. Cole’s operation in Laughlin, Nevada. (MS Dep., pp. 110(9) — 111(2); PX 5A; PX 55; PX 59; PX 60;. 208; TB Dep. pp. 132(23)-133(9), 185(6)-(25); See Stip. # 25). 6. From August 1998 through Novem- . ber 1998, Five Star promotional materials were developed by Thomas Bewley and Michael Sullivan and distributed by Thomas Bewley from Laughlin, Nevada. (MS Dep., pp. 110(9)-111(2), 111 (15) — 112(2); PX 5A; PX 59; PX 60; PX 61; PX 62; PX 67; PX 68; PX 72; PX 73; TB Dep., pp. 129(13) — 130(21); Stip. #26). 7. When Mr. Bewley took over operation of the marketing offices, he continued to send out old materials with Mr. Sullivan’s permission. (MS Dep., pp. 425(24)-426(22). 8. On November 2, 1999, Thomas Bew-ley and his wife, Judy Bewley, moved Five Star’s marketing department to 737 E. Avalon Avenue, Muscle Shoals, Alabama, and ran the business as Five Star Automotive Research & Information Consultants (“FSARIC”). (MS Dep., p. 11(8)-(14)). Michael Sullivan suggested that the Bewleys use the name FSARIC which he was already using in conjunction with Five Star. (MS Dep., pp. 427(2)-428(9), 437(16)-439(6); PX62; PX69). 9. The Bewleys distributed Five Star marketing materials, hosted a Five Star conference, participated in weekly training teleconferences with Five Star members, responded to consumer inquiries and ran Five Star’s funding division until March 9, 1999. (MS Dep., pp.H0(9)-(17), 111(15)-112(17); 458((15)-(23); PX 90; TB Dep., pp. 228(18)-229(20), 326(l)-327(9), 361(9)-363(8), 364(2)-367(18), 470(13)-471(10)). 10. Thomas Bewley held himself out to Five Star participants, prospective participants and the public as Five Star’s International Marketing Director. (PX 5A; PX 8, p. 23; PX 9, pp. 4, 8, 93; PX 207; PX 212; PX 217; PX222B; PX 223, pp. 127, 129, 130; TB Dep., pp. 132(23)-134(12), 253(7)-(21)). Michael Sullivan knew that Mr. Bewley was holding himself out as Five Star’s International Marketing Director and both approved of and never objected to Mr. Bewley’s doing so. (PX 9, pp. 4-5; PX 230, # 24-26(o); TB Dep., p. 185(6)-(25)). 11. With Michael Sullivan’s permission, Thomas Bewley used the name Five Star Auto Club in correspondence. (MS Dep., pp. 594(25)-595(15); PX 122; Stip. # 28). 12. In communications with Five Star participants, prospective participants and the public, Michael Sullivan referred to Thomas Bewley as Five Star’s Marketing Director or Marketing Manager. (PX 50; PX 65; PX 9, p. 24; TB Dep., pp. 185(6X25), 432(3)-(20); Stip. # 27). 13. In communications with Five Star participants, prospective participants and the public, Mr. Sullivan also referred to Mr. Bewley’s Nevada, and later Alabama operations, as Five Star’s Marketing Department or Fulfilment Office. (MS Dep., pp. 158(8)-(15); PX 6B, pp. 108-109; PX 9, p. 4; PX 16; PX 65; PX 230, #23-26(o); PX 216; PX 223, p. 127; Stip. #29). Additionally, Michael Sullivan specifically authorized Mr. Bewley to send out certain materials, such as PX 5d and PX 5e, identifying Mr. Bewley as Five Star’s International Marketing Director, to all Five Star participants. (MS Dep., pp. 125(8) — 126(1); Stip. # 30). 14. Consultants, members, and member-consultants all received Five Star’s marketing kit containing Five Star promotional materials. (MS Dep., p. 117(14X7); Stip. # 31). These marketing kits were sent by the marketing offices, first in Nevada and then in Alabama. (MS Dep., p. 117(14X7); Stip. #31). The marketing kits contained multiple copies of marketing materials and were intended to be used by participants to sell Five Star memberships. (MS Dep., pp. 120(17)-122(5)). 15. Michael Sullivan contracted with Kevin Cole to send out marketing kits to all new Five Star participants. (MS Dep., pp. 100(16)— 101(14)). Mr. Sullivan sent Mr. Cole lists of all new participants and Mr. Cole was to send materials to each. (MS Dep., p. 101(13)-(14)). Five Star was to pay Mr. Cole $25 for each marketing kit that was sent out. (MS Dep., p. 105(3)-(15)). Starting in August 1998, Michael Sullivan had the same or similar agreement with Thomas Bewley. (MS Dep., p. 110(6) — 112(14), 117(14X7); Stip. # 33). 16. PX 5, PX 9, PX19 and PX 206 are examples of Five Star marketing kits that were sent to consumers. (MS Dep., pp. 240(3X20); TB Dep., 618(6)-621(3); Stip. #32). PX 19 and PX 206 were sent from Nevada during Kevin Cole’s tenure. (PX 19; PX 206; Stip. # 32). PX 5 was sent out from Nevada during Thomas Bewley’s tenure. (MS Dep., pp. 116(14X117(5); PX 5; Stip. #32). PX 9 was sent out from Alabama during Thomas Bew-ley’s tenure. (MS Dep., pp. 209(6)-210(7); PX 9; Stip. # 32). 17. The materials marked PX 5; PX 8; PX 9; PX 19, pp. 4-68; PX 21; PX 206; PX 223, pp. 120-158; and PX 245, pp. 3-33 were all Five Star marketing materials that were sent to Five Star participants and prospective participants from Five Star in New York or by Five Star’s marketing offices in Nevada and Alabama. (Stip. # 36; MS Dep., pp. 95(21) — 98(2), 116(14X117(21), 209(6)-210(7), 234(3X20), 240(3)-(20); Ireland Tstm.; Vera Tstm.; TB Dep., pp. 37(6X19); PX 230, Adm. 40 & 41). 18. The Court finds that materials containing misleading and inflated earnings claims were sent to consumers well after 1997, which Sullivan contends was the time after which earnings claims were limited to $300 per month. B. Websites 1. Five Star used http:// homel.gte.net/vgs/drvifree.htm as its first corporate website, (MS Dep., pp. 388(22) — 389(7); PX 47; Stip. # 37), and later maintained a site on the World Wide Web at http://vmw.autodub.net. (MS Dep., pp. 222(16X223(7); PX 15A, pp. 2A — 12; PX 15B, pp. 13-20; Stip. #37). Michael Sullivan approved content before it was posted on the corporate website. (MS Dep., p. 227(3)-(5)). PX 15A and PX 15B are true and correct copies of Five Star’s website located at URL http://unm.autodub.net as they appeared on January 19, 1999, and February 24, 1999, respectively. (PX 15A; PX 15B; PX 230, # 57; Stip. # 38). C. Conference Calls and Inquires 1. Michael Sullivan, Thomas Bewley and Kevin Cole hosted weekly conference calls for participants and prospective participants regarding the marketing of Five Star. (MS Dep., pp. 89(18)-90(2), 112(9)-(25); Stip. # 89). Exhibits PX 7B; PX 226A and 226B; 227A and 227B; and PX 6A and 6B are tapes and transcripts of such conference calls. (,See Stip. # 40; See PX 280, # 42 & #48; Vera Tstm.). 2. Michael Sullivan and Thomas Bew-ley fielded consumer inquiries from Five Star participants and prospective participants. (MS Dep., pp. 42(4)-(13); TB Dep., pp. 364(22)-365(8)). D. Conferences And Conventions 1. In April 1998, Five Star held its first annual convention at Bally’s hotel in Las Vegas, Nevada. (MS Dep., pp. 777(4)-(ll), 780(3)-(4); Stip. #41). Both Michael Sullivan and Kevin Cole spoke at the convention and each of their presentations was videotaped. (MS Dep., pp. 780(5)-(18); Stip. #42). The videotape was subsequently sent out to Five Star participants. (MS Dep., pp. 780(5)-(18); Stip. # 44) PX 192 is a fair and accurate copy of that video tape. (Stip. # 45; Consumer Tstm.). 2. In February 1999, a Five Star training conference was held in Alabama. (MS Dep., p. 781(4K9); Stip. # 46). Michael Sullivan, Thomas Bewely and Rob Black made presentations at this conference. (MS Dep., p. 782(10)-(22); Stip. # 46). Additionally, an individual made a presentation explaining a Five Star flip chart. (MS Dep., p. 782(23)-(25)). These presentations were all videotaped and have been marked PX 193. (TM Dep., pp. 10(18)-11(25); MS Dep., p. 783(5)-(21); See Stip. #46). E. Failure To Disclose 1. Defendants never disclosed to consumers that Five Star’s structure ensures that in numerous cases consumers cannot qualify for a VIP lease nor make a substantial income. (Consumer Tstm.). 2. In fact, Defendants do just the opposite. Defendants regularly state that Five Star is not an MLM (Multilevel Marketing Program). (PX 1, pp. 39^1; PX 8, p. 8; PX 9, p. 44; PX 165, p. 5; PX 47; PX 166, p. 8; 227B, pp. 49-50). This insistence is based on the fact that many MLM’s are not credible businesses and are associated with pyramid schemes— which Defendants acknowledge are illegal. Mr. Sullivan, outlines his thinking in a letter to Five Star participants which states: “The importance of knowing how to explain the difference is obvious, but I don’t think many will argue with the fact that the references to MLM have become tainted over the years. All too often, MLM has been associated with the many pyramid schemes popping up every day in the industry ... MLM is not a credible business for many of these newly unemployed professionals.” (PX 1, pp. 39-40). V. Five Star’s Participant Records A. Five Star’s Computers 1. On March 9, 1999, the Receiver, through his representative, served Michael Sullivan with a written demand for all outstanding corporate assets and documents. (MS Dep., p. 250(10)-(23); PX 23; Cohen Tstm.; Stip. # 49). That same day, Michael Sullivan informed the Receiver’s representative that the Sullivans had no Five Star assets or papers in their possession and that all corporate assets, not already in the Receiver’s possession, were in the Ar-noff Moving and Storage facility. (Cohen Tstm.) 2. On March 19, 1999, the Receiver gained access to Arnoff, and found only one computer in the storage facility. (Zlotnick Tstm.; Flores Tstm.; MS Dep., pp. 250(14)-251(18)). An Arnoff employee informed the Receiver that Michael Sullivan brought the computer into the warehouse just the night before. (Zlotnick Tstm.) When confronted with this fact, Mr. Sullivan admitted it was true, but claimed he had suddenly found the computer in the garage at 1 Taconic View Court. (Id.; MS Dep., pp. 251(19)-252(6)). The last entry in the computer was made on March 15, 1999, six days after service of the TRO. (Flores Tstm.) Additionally, all of the e-mail on that computer had been deleted on March 15,1999. (Flores Tstm.) 3. After the Receiver secured possession of the one computer in the warehouse, Mr. Sullivan once again claimed that there were no other computers containing Five Star data. (Id.) The Receiver then asked Mr. Sullivan how he had managed to post messages on Five Star’s website in defiance of the Court’s TRO during the previous week. (Id.) Mr. Sullivan informed the Receiver that he had used his son’s lap top computer, but denied that it contained any Five Star information. (Id.) The Receiver demanded the lap top which, after some debate, was finally produced. (Id.) The lap top computer contained, almost exclusively, Five Star business files. (Id.) B. Computer Database 1.The first computer recovered by the Receiver at Arnoff s contained a database purchased from Netmark. (MS Dep., pp. 253(15)-254(25); Zlot-nick Tstm.). Defendants used this database to keep track of information concerning Five Star participants, participants’ downlines, payments to Five Star and commissions paid by Five Star. (MS Dep., pp. 253(15) — 254(13); See Stip. # 52). 2. Five Star began using the Netmark database in April 1998. (MS Dep., pp. 138(20)-141(17); Stip. #51). Prior to April 1998, Five Star used a different database to keep track of participant information. (Id.; MS Dep., pp. 288(19)-289(12)). The Receiver has not been able to identify this earlier database. (Zlotnick Tstm.) 3. Customer information, such as names, addresses and identification numbers from the previous database, were input into the Netmark database. (MS Dep., p. 289(4)-(9)). The Netmark database, therefore, contains information regarding all Five Star participant names, addresses, telephone numbers, identification number, titles, and downlines. (MS Dep., pp. 253(15)-(17), 294(18)-296(25), 299(14)-300(22); See Stip. # 50 & # 53). 4. As of March 9, 1999, Five Star had 8,261 participants, of which 5,301 joined Five Star as member-consultants, 2815 joined Five Star as consultants, and 133 joined Five Star as members. (Blumenthal Tstm.; Zlotnick Tstm.; MS Dep., pp. 299(14)-300(22)). 5. As of March 9, 1999, 123 Five Star participants had recruited a sufficient number of members into their downlines to qualify for the lowest priced lease available through the VIP program. (Blumenthal Tstm.; See MS Dep., p. 396(12)-(15)). Of these 123 participants, six were consultants, and therefore, not eligible for a VIP lease. (Vander Nat Tstm.; Blumenthal Tstm.) The remaining 117 consumers were all member-consultants. (Vander Nat Tstm.; Blumenthal Tstm.) 6. Between $609,000 and $865,000 was paid in commissions to Five Star participants. (Blumenthal Tstm., Vander Nat Tstm., Zlotnick Tstm.; PX 236A.) 7. Mr. Sullivan admits that no Five Star participant ever made $16,000 per month or more. (MS Dep., pp. 130(4)-(16).) Additionally, he admits that $8,000 per month was not a typical amount made by Five Star participants. (MS 616(8))-(14)). Michael Sullivan claims he does not know whether $1760 per month, $960 per month, $500 per month, or $180 per month were typical of earnings of Five Star participants nor what percentage of participants made these amounts. (MS Dep., pp. 617(8) — 618(12).) 8. According to Five Star’s records, 94% of consultants and 95.5% of member-consultants never earned back their annual dues payment. (Blumenthal Tstm.; Vander Nat Tstm.) Additionally, over 99.5% of consultants and 96.2% of member-consultants never earned $540 (3 x 180) or more. (Blumenthal Tstm., VanderNat Tstm.; Tobin Tstm.; PX 231 A; PX 236A.) Additionally, 98.4% of member-consultants failed to earn at least $1080 (6 x 1080.) (Blumen-thal Tstm., Vander Nat Tstm.; PX 37: PX 231; PX 231A; PX 236A.) VI. Five Star Is A Pyramid Scheme A.Five Star derived its income from the sale of memberships and consultancies. The vast majority, if not all, of the participants who purchase memberships and consultancies did so for the purpose of recouping benefits from Five Star that far exceed their payments (i.e., commissions and free leases). (Consumers Tstm.; Vander Nat Tstm.; Tobin Tstm.) Achieving these benefits, however, required the recruitment of new members with the same aspirations. (Vander Nat Tstm.) Consequently, there would not and could not be sufficient funds in Five Star to fulfill Five Star’s promise for any particular individual, unless there were a greater number of participants in the two levels below that individual to subsidize his/her benefits. (Vander Nat Tstm.) B. Moreover, Five Star’s funding mechanism is not sufficient to meet is anticipated costs, further demonstrating that Five Star is a pyramid scheme. (Vander Nat Tstm.) C. Five Star’s structure, therefore, ensures that at least 90%, and probably closer to 98%, of Five Star participants at any given time will not be able to qualify for a VIP lease. (Vander Nat Tstm.). This same structure also ensures that at least 90% of Five Star’s members at any given time will be losing money. (Vander Nat Tstm.) D. In order to obtain the lowest priced vehicle for “free” through Five Star, the original participant needed to recruit three new members directly, and these three new members needed to recruit an average of three new members each. Supra at 111(C)(4) & (5). If, however, each Five Star participant recruited only three new members, Five Star would have 387,000,000 members between the 17th and 18th levels of recruitment, which exceeds the populations of the United States and Canada. (Vander Nat Tstm.) Therefore, Five Star was doomed to collapse. (Vander Nat Tstm.) E. Because Five Star’s structure must lead to its eventual collapse, at least 90% of Five Star participants, and probably closer to 98%, can never obtain a VIP lease; at lease 90% of Five Star participants, and probably more, will lose money. (Vander Nat Tstm.) VII. Five Star Has Been Found to Be a Pyramid Scheme by Various State Regulators A. Notice From State Agencies 1. Michael Sullivan received an Order To Show Cause from the State of Nevada Department of Business and Industry Consumer Affairs Division dated October 22, 1998, regarding the operation of Five Star as a “pyramid promotional scheme.” (PX 161; MS Dep., p. 722(5)-(10)). After receiving PX 160, no changes were made to Five Star’s structure. (MS Dep., pp. 722(5)-724(24)). 2. Prior to January 12, 1999, Michael Sullivan received a Decision and Order from the State of Nevada Department of Business, and Industry Consumer Affairs Division finding that “substantial evidence exists to support that Five Star Auto Club, Inc., Michael R. Sullivan, President is operating a pyramid operation in violation of NRS 598.100 et seq.” (PX 161; MS Dep., p. 724(25)-(18)). After receiving PX 161, no changes were made to Five Star’s structure. (MS Dep., pp. 724(25)-726(13)). 3. Michael Sullivan received a Cease and Desist Order from the State of Georgia dated October 7, 1998, regarding Five Star’s operations “[s]oliciting, offering to sell, and selling a multilevel marketing program wherein the financial gains to the participants are primarily dependent upon the continued and successive recruitment of other participants ...” (PX 162; MS Dep., p. 728(5)-(13)). After receiving PX 162, no changes were made to Five Star’s structure. (MS Dep., pp. 728(5)-730(23)). 4. Prior to the initiation of this suit, Michael Sullivan received a Notice Of Unlawful Trade Practices And Proposed Resolution from the State of Oregon Department of Justice regarding Five Star’s operation as a “pyramid club.” (PX 163; MS Dep., pp. 730(24) — 731(8); PX 64). After receiving PX 163, no changes were made to Five Star’s structure. (MS Dep., pp. 730(24)-735(23)). 5. Michael Sullivan received a Warning Letter from the Wisconsin Department of Agriculture, Trade and Consumer Protection dated January 20, 1998, regarding Five Star’s operation as a “chain distributor scheme.” (PX 166; MS Dep., p. 737(2)-(8)). After receiving PX 166, no changes were made to Five Star’s structure. (MS Dep., pp. 737(2)-738(25)). 6. Michael Sullivan received a Notice of Intended Action And Opportunity To Cease And Desist dated February 4, 1998, regarding Five Star’s operation as a “pyramid or chain promotion” from the State of Michigan Department of Attorney General. (PX 167; MS Dep., p. 741(2)-(8)). After receiving PX 167 no changes were made to Five Star’s structure. Infra at VII(A)(8). 7. Michael Sullivan received a letter " from the State Attorney, Fourth Judicial District of Florida, Special Prosecution Division dated August 21, 1998, regarding Five Star’s operations as a “pyramid sales scheme.” (PX 169; MS Dep., pp. 745(25)-746(2); PX 230, # 71). After receiving PX 169, no changes were made to Five Star’s structure. Infra at VII(A)(8). 8. On or about August 24, 1998, Michael Sullivan received a letter addressed to Mr. Elkins from the County of Fresno Office of the Attorney General regarding Five Star’s operation as a “pyramid.” (PX 199; MS Dep., pp. 811(24)-813(20)). After receiving PX 199, no changes were made to Five Star’s structure. (MS Dep., pp. 811(24)-813(20)). 9. Angela Sullivan received a subpoena from the Kansas State Attorney General’s Office directed to Michael R, Sullivan, President-Founder Five Star Auto Club, dated October 1, 1998, and responded on October 7, 1998. (MS Dep., pp. 750(4)-(ll), 752(22) — 753(13); PX 171; AS Dep., pp. 32(8) — 36(7); See Stip. #11). Supra at VTI(A)(8). 10. Angela Sullivan received a subpoena from the State of Illinois Attorney General directed to Five Star Auto Club dated August 3, 1998, and responded on August 17, 1998. (MS Dep., pp. 750(4)-(ll), 752(22)-753(13); AS Dep., pp. 32(8)-36(7); PX 172; See Stip. # 10). Supra at VII(A)(8). B. Prior Multilevel Marketing Participation 1. Michael Sullivan is an experienced participant in multilevel marketing programs. (PX 41A). By his own admission, he has joined at .least the following multilevel marketing companies: The Grocery Club, Apollo International, Alphen International, United Dental Program, Stairway Independent Distributor, Power Learning Systems, Fax Power and Vision 2000. (MS Dep., pp. 761(10)-(15), 763(1)-764(21), 768(17)-771(6), 771(7)-772(10), 774(11)-775(19), 803(7)-804(25), 806(8)-807(6), 807(19)-809(20); PX 177; PX 178; PX 179; PX 180; PX 184; PX 185; PX 194; PX 195A; PX 195B; PX • 196A; PX196B; and PX 197). 2. Mr. Sullivan recruited significant downlines in at least two of the multilevel marketing programs in which he participated.' (PX 190, PX 191). VIII. Defendants Are Not Credible A. Michael Sullivan 1. In a sworn financial statement, Michael Sullivan states that no1 corporate officers have received any salaries or draws from Five Star. (PX 129, Item 14; MS Dep., pp. 628(11)— 629(15)). Yet, Mr. Sullivan has taken or attempted to take large amounts of Five Star assets for his personal use. (Infra. atYX(B)(l)(c), IX(B)(2)(a), IX(B)(3); MS Dep., pp. 18(14) — 19(91), 653(7)-655(24)). These funds include at least $483,-000 to build a new luxury home and $50,000 placed in Defendants’ personal brokerage account. Sullivan also intended to transfer $750,000 to a living trust in his mother-in-law’s name, although this transfer was never consummated. Infra at IX(B)(l)(c), IX(B)(2)(a), IX(B)(3). 2. Mr. Sullivan now claims that Angela Sullivan was not the vice-president of Five Star. Yet, in his sworn finan- = cial statement on behalf of Five Star, Michael Sullivan states that Angela Sullivan is the vice-president of Five Star. (MS Dep., 628(11)-629(15); PX 129, Item 4). 3. Mr. Sullivan was not even honest about his own identity in dealing with Five Star participants, using a pseudonym to berate a' consumer. (PX 19, p. 64; MS Dep., pp. 244(24)-245(12)). Additionally, he was dishonest in his communications with Mr. Bewley, pretending that his frustration over Mr. Bewley’s failure to provide a financial accounting was precipitated by communications with Five Star’s accountants when, in fact, no such accountants existed. (MS Dep., pp. 466(8)-469(20); PX 83). 4. Within the past five years, Michael Sullivan was convicted of using a motor vehicle without the owner’s permission in violation of Section 53a-119b of the Connecticut penal code. (PX 230, # 117; MS Dep., pp. 837((8) — 839(17)). This crime involved dishonesty and false statements. Specifically, Mr. Sullivan rented a car in Florida and reported it stolen, when, in fact, he simply kept the car. (Id.) B. Angela Sullivan 1. Angela Sullivan now claims not to have been the vice-president of Five Star nor to have any knowledge of the Five Star scheme. 2. Ms. Sullivan responded to subpoenas from the Kansas and Illinois Attorney General’s Offices identifying herself as Five Star’s vice-president. (MS Dep., pp. 750(4)-(ll), 752(22)-753(13); PX 171; 172; AS Dep., pp. 32(8)-36(7); Stip. # 10 & #11). She has also signed an Answer to a civil suit filed by the New York State Attorney General’s Office as the vice-president of Five Star. (MS Dep., pp. 602(17)-604(13); PX 125; AS Dep., pp. 39(12)^0(18); 42(5)-OD). 3. Moreover, in response to requests for information from the States of Illinois and Kansas, Ms. Sullivan further identified herself and her husband as the only two people who have “directed, controlled, or otherwise supervised the business operations” of Five Star. (PX 171, PX 172). 4. Aside from this, there is no evidence in the record to connect Angela Sullivan with Five Star. However, she has benefitted from the use by Michael Sullivan of corporate assets for personal expenses, notably, the acquisition of a house in which the family currently resides (although title is held in the name of the builder pursuant to a lien). IX. Defendants’ Assets A. Five Star Receipt Of Consumers’ Money 1.Every check that Five Star received from March 1997 through March 1999 was deposited into Key Bank account # 323290013073 in the name Five Star Consultants (“Key Bank Account”). (MS Dep., p. 393(14)-(19); See Stip. # 54). Between April 1997 and March 1999, inclusive, $3,501,618.50.00 was deposited or credited to the Key Bank Account. (PX 233). 2. According to Michael Sullivan, from April 1997 through March 9, 1999, less than $100,000 of the funds deposited in the Key Bank Account were derived from sources other than Five Star. (MS Dep., pp. 670(8) — 672(20); Stip. #55). Notably, Mr. Sullivan admits that from December 1997 to March 1999, he only received approximately $600 to $700 in income from sources other than Five Star. (MS Dep., pp. 16(1)-17(1); Stip. # 56). From December 1997 until approximately August 1998, Angela Sullivan worked for Cornell Extension making approximately $12,000/year before taxes. (AS Dep., pp. 10(11) — 11(12); MS Dep., pp. 17(2)-18(10) & 33(25)-34(1); Stip. # 13). She has not worked since. (Id.) During the December 1997 to March 1999 time period, no one in the Sullivan household, other than Angela Sullivan, was employed other than working for Five Star. (MS Dep., p. 18(11)-(13); Stip. # 14). 3. At the time the Key Bank Account was frozen pursuant to the March 8, 1999 TRO, the account contained $25,906.84. (Zlotnick Tstm.) As detailed below, much of the $3.5 million was moved into other accounts or assets by Michael Sullivan. B. Defendants Moved Five Star Monies From The Key Bank Account Into A Number Of Different Locations. 1. Banks a. Michael Sullivan opened account # 323290022116 at Key Bank in the name of Advance Funding, Inc. with a $50,000.00 check written on the Key Bank Account in February 1999. (MS Dep., pp. 681(6)-683(14); PX 138; PX 139). Mr. Sullivan never held any position with Advance Funding, Inc. (MS Dep., pp. 682(11)-(13)). At the time the account was frozen pursuant to the March 8, 1999 TRO, the account contained $70,497.50. (Zlotnick Tstm.). b. In October 1998, Mr. Sullivan transferred $750,000.00 in Five Star funds from the Key Bank Account to an account in his own name at First Union National Bank (“First Union”). (MS Dep., pp. 162(21)-164(15), 632(19)-(21) & 684(20)-687(2); PX 140). At the time the account was frozen pursuant to the March 8, 1999 TRO, the account contained $727,974.00. (Zlotnick Tstm.; Stip. # 57). c. In February 1999, Mr. Sullivan wrote a check on the First Union account for $750,000.00 to a living trust for his mother-in-law, Mildred Alonzo. (MS Dep., pp. 706(4)— 711(16); PX 157). This check was never cashed because the trust was not completed before the funds were frozen and taken over by the Receiver. (MS Dep., pp.. 709(10) — 710(24)). d. Michael Sullivan opened bridged checking and money market accounts in the name of Five Star Auto Club, Inc. with M & T Bank in March 1998. (MS Dep., pp. 688(9)— 692(16); PX 142). All the funds for these accounts came from the Key Bank Account. (MS Dep., p. 691(17)-(23)). At the time the account was frozen pursuant to the March 8, 1999 TRO, the account contained $9,512.53. (Zlotnick Tstm.) e. Using Five Star funds from the Key Bank Account, Michael Sullivan opened account # 4290000379 in his own name at Premier Banking in November 1998. (MS Dep., pp. 692(17) — 693(21); PX 144). Mr. Sullivan intended to use this account as a personal account. (MS Dep., p. 693(17)-(21)). At the time the account was frozen pursuant to the March 8, 1999 TRO, the account contained $3,153.41. (Zlotnick Tstm.) After March 8, 1999, the Court released $2,800.00 to Defendants from this account pursuant to a stipulation between the parties to help meet living expenses. (Stip.# 58). f. Using Five Star funds from the Key Bank Account, Michael Sullivan opened account #429300000732 in the name of Five Star Consultants, Inc. at Premier Banking in December 1998. (MS Dep., pp. 697(5)-700(21); PX 148; PX 149; PX 150; PX 151; PX 152). At the time the account was frozen pursuant to the March 8, 1999 TRO, the account contained $90,000.00. g. In December 1998, Michael Sullivan opened money market account #4265000252 at Premier Bank in the Name of Five Star Consultants, Inc. (MS Dep., pp. 702(6)-703(7); PX 153). The monies deposited into this money market account were the same as those deposited into account #429300000732. (MS Dep., pp. 703(8)-706(3)). At the time the account was frozen pursuant to the March 8, 1999 TRO, the account contained $10,028.97. (Zlotnick Tstm.) 2. Property a. Michael and Angela Sullivan used at least $483,000.00 in corporate assets to pay KBL Corporation to purchase a new home at 1 Taconic View Court in LaGrangeville, New York. (MS Dep., pp. 676(15) — 677(15)—$50,000; 677(16)-678(18)-$100,000), 687(7)-88(18)-$32,000; 754(7)-755(15)-$80,-000; 756(23)-757(23)-$6056; 757(24)-759-$221,000; PX 134; 135; 141; 175; 176). Title to the property remains in the name of the builder, Kevin Lund or his corporation. (MS Dep., p. 6(13)-(14); Zlotnick Tstm.; Stip. # 61). There is no evidence that any funds other than funds belonging to Five Star were used to pay for construction of the Taconic View house. It is the finding of this Court that the funds used to purchase this house were a corporate asset of Five Star, and that any interest that either of the defendants has in the property at 1 Ta-conic View Court is the property of Five Star. b. Since June 1999, Michael Sullivan, Angela Sullivan, as well as their daughter, granddaughter, and Mildred Alonzo have been living at the 1 Taconic View Property without paying rent. (MS, pp. 5(18) — 8(6)). c. Pursuant to the TRO and Preliminary Injunction issued in this matter, the Receiver has taken control of Five Star furniture and equipment with a liquidation value of approximately $2,000. (Zlotnick Tstm.; See Stip. # 62). 3. Brokerage Account a. In November 1998, Michael Sullivan transferred $50,000 in funds derived from Five Star from the Key Bank Account to an E*Trade account held in the name of Michael and Angela Sullivan. (MS Dep., pp. 673(95)-675(1); PX 132). The E*Trade account was a personal investment for services rendered to Five Star by Mr. Sullivan. (MS. Dep., p. 674(3)-(5)). At the time the E*Trade account was frozen pursuant to the March 8, 1999 TRO, the account contained $53,000 in cash and securities. (Stip. 64; Zlotnick Tstm.) There is no evidence that any other source of funds were used to purchase the securities in the E*Traee account. The Court finds that the E*Trade account is an asset of Five Star. C. Frozen Assets Under the Receiver’s Control 1. As of December 31, 1999, $600,-445.61 of the funds over which the Receiver had taken control remained in the Receiver’s accounts. (Receiver’s Tstm.) These funds include a bank account belonging to Angela Sullivan and Mildred Alonzo. The FTC has not traced any Five Star corporate funds into this account. The Court declines to find that the monies in this account belong to Five Star. D. Other Assets 1. Michael Sullivan holds a trust account in his own name at Prosper International Limited in Nassau, Bahamas with a balance of $111 as of March 31, 1999. (MS Dep., pp. 711(17)-713(11); PX 158; Stip. #63). 2. Angela Sullivan maintained two accounts at the Bank of New York in her own name: account # 6800997621 and account # 6871976242. (Zlotnick Tstm.; Stip. # 59). At the time the accounts were frozen pursuant to the March 8, 1999 TRO, the accounts contained $3,461.41 and $22.11, respectively. (Zlotnick Tstm.; Stip. #60). X. Consumer Losses A. Five Star amassed approximately $3.5 million between April 1, 1997 and March 9, 1999. Supra at IX(A)(1). B. Five Star paid between $609,000 and $862,000 in commissions to consumers between April 1997 and March 9, 1999. Supra at V(B)(6). In addition, certain Five Star participants, who were “winners” under the pyramid scheme, took out another $400,000, more or less. C. It is a reasonable approximation that Five Star participants experienced losses in the range of $2.9 million. (Vander Nat Tstm.) D. The Court declines to consider additional evidence proffered by the de- • fendants following the close of trial. The Court invited a response from the defendants to the damages presentation by the FTC, but did not authorize a reopening of the record. There is no testimony in the record to support the various “factual” assertions made in defendants’ post-trial filing with the Court. Therefore, the Court cannot deem anything said therein to be competent evidence. XI. Defendants’ Post-Filing Activity A. On March 9, 1999, Michael Sullivan, Angela Sullivan and Five Star were all served with a copy of the March 8, 1999 Temporary Restraining Order. (MS Dep., p. 260(10X23)). All three then stipulated to the April 5, 1999 preliminary injunction. B. On April 29, 1999, the Receiver and Inspector Merrie Gordon of the New York Attorney General’s Office visited the property at One Taconic View Court, LaGrangevüle, New York. (Zlotnick Tstm.) In the open garage, the Receiver saw boxes of Five Star documents, and was able to conduct a quick review of those materials. (Id.) The Receiver then left the site, with the garage doors open (the same condition in which he had found them), and immediately called Kevin Lund, the builder of the house, to demand possession of the boxes. (Id.) Mr. Lund confirmed that he had allowed the Sul-livans to store boxes in the Taconic View home, but informed the Re- , ceiver that he would have to speak with Mr. Sullivan before turning them over. (Id.) The next day, Mr. Lund turned over to the Receiver’s agent a number of boxes from the Taconic View garage. (Id.) The boxes from the garage contained Five Star promotional materials, commission reports, un-sent commission checks, Advance Funding documents, and Five Star applications. (Id.) C. A number of documents that the Receiver had viewed in the boxes in the garage just the day before were removed from the boxes before they were turned over. The missing documents included: 1) a Five Star time card for Rich Orobsco; 2) an original certificate of ownership to a $41,000 blue Mercedes-Benz automobile in the name of Five Star Consulting Inc.; and 3) draft living trust documents for each of the Sul-livans and Ms. Sullivan’s mother dated November 28, 1998. (Zlot-nick Tstm.) None of these documents has been turned over to the Receiver or produced in discovery. (Id.) D. Despite the Court’s admonition not to contact Five Star participants, Michael Sullivan subsequently participated in nearly dozens of teleconferences with Five Star participants and communicated with Five Star participants by both regular and e-mail. (MS Dep., pp. 377(12)-388(21)). He did not preserve his written correspondence with Five Star participants. (MS Dep., 387(18)-388(13); PX 117). E. Five Star, Michael Sullivan, and Angela Sullivan have not accounted for foreign assets pursuant to the April 5, 1999 Stipulated Preliminary Injunction. Addition