The Federal Trade Commission announced that it will return more than $3.7 million to consumers who were duped by Fortune Hi-Tech Marketing in a vast pyramid scheme.
In January 2013 the agency filed suit against FHTM and related individuals charging the defendants with violations of the Federal Trade Commission Act and state law. The defendants conned more than 350,000 consumers in the United States, Canada, and Puerto Rico by claiming they could earn significant income by signing up as an FHTM representative and selling various products and services of companies such as Dish Network, Frontpoint Home Security, and various cell phone providers, the regulators said.
The defendants promoted their operation as a way for average people to achieve financial independence, with one FHTM representative claiming that he earned more than $50,000 in a single month and another tweeting about an upcoming recruitment meeting, "Bring ur friends & learn how 2 make $120K aYR."
Participants were required to pay start-up costs, annual fees (ranging from $100 to $300), and if they wanted to qualify for sales commissions and recruiting bonuses, monthly fees of $300 to $400. However, according to the complaint filed by the FTC and the Attorneys General of Illinois, Kentucky, and North Carolina, the defendants in fact perpetuated a pyramid scheme where the defendants recruited new members to pay the existing ones.
At any given time most participants had to spend more money than they earned pursuant to FHTM's compensation plan, the regulators added. Not only did an overwhelming majority (more than 98 percent) lose more money than they ever made, at least 88 percent of participants failed to recoup their enrollment fees.
In 2014, an Illinois federal court judge halted the defendants' operations, banned them from multilevel marketing, and ordered them to surrender assets totaling at least $7.75 million as part of a $169 million judgment. The defendants were also prohibited from misrepresenting material facts about any product or service (including claims about how much money consumers can earn) or from selling or otherwise benefitting from customers' personal information.
Two years later, the FTC announced that it mailed 285,361 checks totaling more than $3.7 million to affected consumers, and that it may distribute additional funds in the future after lawsuits against certain FHTM employees have been resolved.
To read the complaint and the orders in FTC v. Fortune Hi-Tech Marketing Inc., click here.
Why it matters: The case reiterates for operators of multilevel marketing programs the importance of accurately representing potential earnings claims and not stating or implying that certain results will be achieved without competent and reliable evidence for support.