Washington -- The Federal Trade Commission announced a lawsuit on Monday against a business operation accused of using illegal pyramid schemes to cheat consumers out of $200 million.
Law enforcement authorities from six states joined in the complaint, filed in U.S. District Court in Nevada, against Equinox International Corp. and its affiliates, Advanced Marketing Seminars, Inc.; and BG Management, Inc. The companies are based in Las Vegas, and the suit also names their founder, William Gouldd.
The commission charged the operators of the business with misrepresenting the potential profits to be earned by participants.
While the companies purport to sell water filters, vitamins, nutritional supplements and skin care products, the real way participants make money is by successfully recruiting other distributors, not by actual retail sales, the FTC said. As part of this illegal pyramid scheme, new participants paid money to the company for the right to sell its products, according to the complaint.
The commission also alleged that while recruits were expressly told they would receive substantial income from joining the scheme, only those managers at the top of the pyramid who profited from the sales of subsequent recruits^×found the venture profitable.
Huge Cost to Consumers
According to the FTC, the scheme has caused more than $200 million in consumer injury.
Jackie Jorgenson of Equinox said no one was available to comment on the case. BG Management also declined to comment.
Distributors used classified Help Wanted ads to entice new participants, implying that they would earn lucrative salaries, according to the commission.
Instead of a job interview, the recruits were given an hour-long sales presentation where they were told that they can make money by selling products to consumers, but the distributors indicated that real financial gains would come from recruiting others, the FTC said.
To qualify as a manager and become eligible to sell products and recruit others, new participants had to buy $5,000 worth of products. They also were encouraged to rent desk space in the local office for several hundred dollars a month and spend several hundred dollars to attend seminars sponsored by the company.
All of these expenses typically outweighed any money the distributor might make, the FTC said in its complaint.
The court has granted a temporary restraining order against the company and placed it in receivership for the time being. The FTC is asking for a permanent injunction and consumer redress.
Gouldd has been the subject of law enforcement action before. California filed suit against him in 1990 for his work as a distributor of another multi-level marketing scheme. He signed a permanent injunction that barred him from future pyramid schemes.
The states that filed along with the commission are Hawaii, Maryland, Nevada, North Carolina, Pennsylvania and South Carolina.