Usenet Provider Giganews Sues Perfect 10 For Fraud, Demands $20m

In a prolonged legal action over copyright, Usenet provider Giganews retaliated against adult publisher Perfect 10 and beat it through every step of the legal system. Now Perfect 10 owes Giganews $5.6m, but the publisher hasn't paid up. That's prompted a new $20 million lawsuit from Giganews which alleges serial acts of fraud.

For many years, Perfect 10 went about its business of publishing images of women in print and on the Internet. At some point along the way, however, the company decided that threatening to sue online service providers was more profitable.

Claiming copyright infringement, Perfect 10 took on a number of giants including Google, Amazon, Mastercard, and Visa, not to mention hosting providers such as LeaseWeb and OVH.

With court papers revealing that Perfect 10 owner Norman Zada worked 365 days a year on litigation and that the company acquired copyrights for use in lawsuits, it’s no surprise that around two dozen of Perfect 10’s lawsuits ended in cash settlements and defaults.

With dollar signs in mind, Perfect 10 went after another pretty big fish in 2011. The publisher claimed that Usenet provider Giganews was responsible when its users uploaded Perfect 10 images to the newsgroups. Things did not go well.

In November 2014, the U.S. District Court for the Central District of California found that Giganews was not liable for the infringing activities of its users. Perfect 10 was ordered to pay Giganews $5.6m in attorney’s fees and costs. Perfect 10 lost again at the Court of Appeals for the Ninth Circuit.

But even with all of these victories under its belt, Giganews just can’t catch a break.

The company is clearly owed millions but Perfect 10 is refusing to pay up. As a result, this week Giganews filed yet another suit, accusing Perfect 10 and Norman Zada of fraud aimed at depriving Giganews of the amounts laid out by the court.

The claims center around an alleged conspiracy in which Perfect 10 transferred its funds and assets to Zada.

“As of now (over two years since the judgment), Perfect 10 has not voluntarily paid any amount of the judgment,” the complaint begins.

“Instead, Perfect 10, through the unlawful acts of Zada and in conspiracy with him, has intentionally avoided satisfaction of the judgment through a series of fraudulent transfers of Perfect 10’s corporate assets to Zada’s personal possession.”

Giganews says these “illegal and fraudulent” transfers began back in 2014, when Perfect 10 began to realize that the fight against the Usenet provider was going bad.

For example, on November 20, 2014, around six days after the court granted summary judgment in favor of Giganews, Perfect 10 transferred $850,000 to Zada’s personal account. The Perfect 10 owner later told a Judgment Debtor’s Examination that the transfer was made due to the summary judgment orders, a statement that amounts to a confession of fraud, Giganews says.

“We had a settlement of $1.1 million in, I believe, June. I was entitled to that money,” Zada told the hearing. “And after the summary judgment orders were issued, I did not see any point in keeping more cash than we needed in the account.”

Giganews says that Perfect 10 transferred at least $1.75m in cash to Zada.

Then, within weeks of the court ordering Perfect 10 to pay $5.6m in attorneys fees and costs, Giganews says that Zada “fraudulently transferred substantially all
of Perfect 10’s physical assets” to himself for an amount that did not represent their true value.

Those assets included a car, furniture, and computer servers. When Zada was questioned why the transfers took place, he admitted that “it would have been
totally disruptive to have those [assets] seized” in satisfaction of the judgment. Indeed, the complaint alleges that the assets never moved physical location.

Perhaps surprisingly given the judgment, Giganews alleges that Zada continues to run Perfect 10’s business in much the same way as he did before. The company even has copyright infringement litigation underway against AOL in Germany, despite having few assets.

This is made possible, Giganews says, by Perfect 10 calling on assets it previously transferred to Zada. When required by the company, Zada simply “gives” them back.

In summary, Giganews says these transfers display the “badges of fraud” that indicate attempts to “hinder, delay or defraud” creditors, while leaving Perfect 10 practically insolvent.

“As a consequence, Plaintiffs are entitled to a judgment against Defendants, and each of them, in the sum of the unlawfully transferred amounts of at least $1,750,000, or in an amount to be proven at trial, together with interest on that amount at the legal rate of 10% per annum from and after March 24, 2015,” the complaint reads.

But the claim doesn’t stop there. Giganews asks the court to prevent Perfect 10 from transferring any more cash or assets out of Perfect 10 to Zada or anyone acting in concert with him or on his behalf. This is rounded off with a claim for punitive and exemplary damages of $20m to be considered during a jury trial.

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