Attorney General Conway & FTC Announce Legal Action Against Fortune Hi-Tech Marketing
Attorney General Jack Conway and the United States Federal Trade Commission (FTC) announced today that they have taken legal action against Fortune Hi-Tech Marketing (FHTM), an alleged global pyramid scheme operating since 2001 from its corporate headquarters in Lexington, Ky. The headquarters and a warehouse in Danville, Ky., were secured Monday morning by a receiver appointed by the United States District Court for the Northern District of Illinois. The receiver now has possession of FHTM's assets.
“Today's actions are the beginning of the end for one of the most prolific pyramid schemes operating in North America,” General Conway said.
The Kentucky Office of the Attorney General, the FTC, the North Carolina Attorney General and the Illinois Attorney General filed a lawsuit on Thursday, January 24, in federal court against FHTM and its principal operators – Paul Orberson, president, and Thomas Mills, vice president. The judge issued a temporary restraining order against the company, which requires FHTM to stop any pyramid operations. The receiver will report back to the court regarding its findings after a thorough review of FHTM's finances and business model.
Kentucky's investigation into FHTM started in 2010 after the Attorney General of North Dakota and the State Auditor of Montana took legal action against the alleged pyramid operation in their states and ultimately reached settlements with FHTM. The Texas Attorney General also subsequently settled pyramid allegations with the company. The Kentucky Office of the Attorney General had received about a dozen complaints regarding FHTM and issued subpoenas to the company in August of 2010 and August of 2011 to see if it violated Kentucky's Pyramid Sales Act and/or the Consumer Protection Act.
“After our office began reviewing the documents, we believed that Fortune Hi-Tech Marketing was operating a massive pyramid scheme that involved more than 100,000 people across the United States and in several other countries,” General Conway said. “We think damage to consumers could be in the hundreds of millions of dollars.”
The Kentucky Attorney General's Office and the FTC were contacted by the North Carolina Attorney General and Illinois Attorney General regarding complaints from consumers in those states.
“Operations like this claim to offer career success and high earnings. But the reality is that only the few at the top make money, and they make it at the expense of new recruits who end up losing,” said North Carolina Attorney General Roy Cooper.
"The perpetrators of this pyramid scheme promised big returns, but instead delivered significant losses for thousands of families in Illinois and all across the country," Illinois Attorney General Lisa Madigan said. "In collaborating with our state and federal partners, we're seeking to bring the full force of the law against this entity to ensure that it is put out of business for good.”
The Kentucky Office of the Attorney General contacted the FTC because of the scope of the case and FHTM's widespread operations in many states. The FTC's financial analysts reviewed the documents and confirmed Kentucky's initial findings. The FTC conducted further investigation and concluded that FHTM allegedly violated the FTC Act, as well as the Consumer Protection Acts and Pyramid Sales Acts of Kentucky, Illinois and North Carolina.
“Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC's Midwest Region. “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.”
The FTC and states agreed to jointly file the lawsuit against FHTM. The lawsuit claims that consumers paid a $249 fee to join FHTM. In exchange for that payment, people could sell satellite television service, home security systems, beauty products and other consumer goods and services. In promotional materials and at recruitment events, consumers were told they could “get rich” if they worked hard and sold products. Unlike legitimate multi-level marketing programs, FHTM distributors had no incentive to sell products. For example, the distributors only received pennies for selling multi-year service contracts and received substantial payments for every new FHTM member they signed up. FHTM's promotional presentations and materials focused almost entirely on recruiting new members rather than selling products.
“This is a classic pyramid scheme in every sense of the word,” General Conway said. “The vast majority of people, more than 90 percent, who bought in to FHTM lost their money.”
The FTC and states are seeking permanent injunctive relief prohibiting the illegal operations of FHTM, along with civil penalties, damages, and restitution for consumers.
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