Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC, States Challenge Alleged Pyramid Scheme, (Jan 28, 2013)

The FTC and the states of Illinois, Kentucky, and North Carolina have filed a complaint in the federal district court in Chicago against an alleged pyramid scheme that promised consumers substantial income in exchange for selling a variety of products and services, but which paid most of its income for recruiting other consumers (FTC v. Fortune Hi-Tech Marketing, Inc., FTC File No. 112 3069, Case No. 13 CV 578, announced January 28, 2013).

According to the complaint, Fortune Hi-Tech Marketing, Inc. (FHTM) and related companies and individuals would claim consumers could earn substantial income from selling products and services produced by companies such as Dish Network, Frontpoint Home Security, and various cellular telephone providers, as well as health and beauty products produced by FHTM.

However, to the extent consumers made money from the scheme, income was earned primarily through recruiting other participants. This ensured that most consumers would make little or no money through their participation, the FTC alleged.

“Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC’s Midwest Region at a January 28 press conference. “At any point most people must and will be underwater financially. These defendants were promising people that if they worked hard they could make lots of money. But it was a rigged game, and the vast majority of people lost money.”

“This is the beginning of the end for one of the most prolific pyramid schemes operating in North America,” Kentucky Attorney General Jack Conway said. “This is a classic pyramid scheme in every sense of the word. The vast majority of people, more than 90 percent, who bought in to FHTM lost their money.”

FHTM representatives purportedly promoted themselves as having earned tens of thousands and even millions of dollars through the scheme. Participants would pay annual fees ranging from $100 to $300, and would have to pay $130 to $400 in fees and agree to a continuous monthly billing plan for products in order to qualify for sales commissions and recruiting bonuses.

Although a small number could earn promotions and greater compensation, the vast majority of participants allegedly spent more money than they earned. Few products were sold to anyone other than participants, and more than 85% percent of income earned was allegedly made through recruitment.

The complaint charges that the defendants, Paul C. Orberson, Thomas A. Mills, Fortune Hi-Tech Marketing Inc., FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network Marketing (UK) Limited, operated an illegal pyramid scheme, made false earnings claims, and made false and misleading statements in marketing materials in violation of the FTC Act and the consumer protection laws of Illinois, Kentucky, and North Carolina. The court has issued a temporary restraining order.

News: ConsumerProtection FederalTradeCommissionNews