FTC Settlement Bans Fortune Hi-Tech from Multilevel Marketing
Fortune Hi-Tech Marketing and additional defendants, settling claims by the Federal Trade Commission and three states that it operated an illegal pyramid scheme, have agreed to be banned from multilevel marketing and surrender at least $7.75 million in assets.
The surrendered assets will be used to compensate consumers enrolled in pyramid scheme. The original complaint, filed by the FTC and the states of Kentucky, Illinois and North Carolina, alleged that in addition to operating an illegal pyramid scheme and making false earnings claims, Fortune Hi-Tech Marketing provided consumers with false and misleading materials for recruiting new participants.
According to the complaint, Fortune Hi-Tech Marketing falsely claimed consumers would earn significant income for selling the products and services of technology companies, as well as Fortune Hi-Tech Marketing’s health and beauty products. According to the complaint, the company’s compensation plan ensured that most consumers made little or no money. To the extent they could, it was through recruiting other consumers. The court subsequently halted the deceptive practices, froze the defendants’ assets and appointed a receiver pending a trial.
An investigation by the receiver determined that Fortune Hi-Tech Marketing’s main business was not selling products, but recruiting new members, confirming the complaint’s allegations. The investigation found that more than 98 percent or the participants lost more money than they made, with at least 88 percent not even able to recoup their enrollment fees.
In addition to Fortune Hi-Tech Marketing, the defendants are Paul C. Orberson, Thomas A. Mills, FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network Marketing (UK) Limited. The order imposes a judgment of more than $169 million that will be suspended partially when the $7.75 million in assets are surrendered. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
How security laws and anti-pyramid statutes have been applied to multilevel marketing companies is discussed here. Multilevel marketing compensation plans and anti-pyramid statutes are discussed in detail here.