Consumer Buylines Inc., a locally based discount buying service with 200,000 members nationally, is being investigated by authorities in New York and Maine and has been sued by the Arkansas attorney general for allegedly using deceptive trade practices.
"They're essentially operating what appears to be an illegal pyramid," said Perrin Jones, a spokesman for the Arkansas Attorney General. "Everything depends on you bringing in more and more people until the thing collapses under its own weight."
Pyramid schemes generally depend on investments by subscribers, rather than sales of goods or services, to make a profit. Pyramids are illegal in Maine, New York and Arkansas, officials said.
The president of Consumer Buylines, Keith Raniere, denied the charge and said many officials misunderstood the operations of his 2- year-old company, which employs 200 workers and has a second office in Albany. In 1988, Raniere garnered local attention when he qualified at the age of 27 for the elite Mega Society - one up from Mensa - by demonstrating an IQ of 178.
"It's not a pyramid because it doesn't cost anything to be an affiliate and sell memberships," said Raniere, "and if someone drops their membership, they can still be an affiliate."
For a $219 yearly fee, members are promised "exclusive low prices" on everything from automobiles to legal services and skin care products and "can cancel at any time," Raniere said. Affiliates, whether members or not, sell memberships in exchange for commissions.
The New York Attorney General's investor protection bureau is investigating the company and subpoenaed its records in March, according to a Nancy Connell, a spokeswoman.
"We've gotten 16 complaints or inquiries in the Albany area," said Connell, "half from people wondering if this is an investment they should make, and half were complaints from people saying they are not receiving what they thought they should have for their money."
Raniere said his company had cooperated with New York officials over the past 11 months but denied ever being subpoenaed. He called "multi-level marketing" such as that practiced by Consumers Buyline "an industry that is frequently misperceived, and we are working to turn that perception around."
The office of New York Attorney General Robert Abrams previously cooperated with Arkansas investigators, Connell said. In Arkansas, according to both sides, Raniere's firm originally sued the state attorney general for announcing its concerns with Consumers Buyline. Speaking from Little Rock, Jones said the company lost the case on technical grounds, appealed in federal court but later withdrew the suit, and that it was dismissed "with prejudice, meaning they can't sue again."
On Feb. 3, Arkansas sued Consumers Buyline for allegedly operating an illegal pyramid. A trial date has not been set. Raniere predicted the case would be resolved without going to court.
The situation in Maine, he said, "just escalated recently."
There, the chief prosecutor for three counties near Lewiston, Janet Mills, warned Consumers Buyline she considered it to be an illegal pyramid scheme and demanded the firm refund fees collected from local members. In a letter to Raniere, Mills charged Consumers Buyline affiliates with deceptive sales tactics. Mills claimed some prospective customers were told a district attorney and other local officials already belonged to Consumers Buyline.
"With 200,000 sales people, sometimes things are said that are improper," said Raniere. "If that was the case, we terminate them as affiliates."
He said the company's lawyer would be sending Maine officials a reply within days "that should make them very happy." Raniere noted that "with traditional multi-level marketing, states do worry about consumers being defrauded."
"Our basic business is to sell memberships, through multi-level or direct sales," said Raniere.
In a 1988 profile in The Times Union, Raniere was described as playing seven musical instruments, singing in local musicals and being a former judo champion and track star. He graduated from Rensselaer Polytechnic Insitute with three undergraduate degrees earned simultaneously.