In February of 2013, the FTC filed a lawsuit against Fortune Hi Tech Marketing. The lawsuit was filed in Federal Court in Chicago. The FTC is alleging that FHTM operates as a pyramid scheme. As mentioned in my last article, the FTC passed on the scalpel and picked up the sledgehammer. Basically, they departed from their traditional, math-based pyramid scheme arguments and went for a more generic approach. This new strategy is even worse than the other one. If it sticks, it represents a significant threat to the industry. Based on the FTC’s argument, rewards triggered via distributor consumption are illegal recruitment bonuses. This is a very important case.
Time for the Update
FHTM filed a motion to get the case transferred to federal court in Kentucky. Kentucky is the home state for the company and most of the principals. The judge in Chicago punted the file to Kentucky. The factors considered when deciding on such a transfer include:
(1) site of material events relative to the case;
(2) relative ease of access to sources of proof;
(3) convenience of the parties litigating;
(4) convenience for the witnesses.
This is big for two reasons. First, the judge in Chicago thought so little of the case that he sent it south. If he wanted it, he could’ve kept it. Second, the law in Kentucky is clearer with respect to pyramid schemes. It states:
Pyramid distribution plan” means any plan, program, device, scheme, or other process by which a participant gives consideration for the opportunity to receive compensation or things of value in return for inducing other persons to become participants in the program;
(5) “Compensation” means payment of any money, thing of value, or financial benefit conferred in return for inducing others to become participants in the pyramid distribution plan. Compensation does not include payment based on sales of goods or services by the person or by other participants in the plan to anyone, including a participant in the plan, who is purchasing the goods or services for actual use or consumption…..
Again, the FTC was initially arguing that commissions triggered via internal consumption are illegal bonuses. But the statute in Kentucky says the exact opposite. This case is FAR from over. There’s likely going to be a hearing next week in Kentucky regarding the injunction over Fortune Hi Tech. If FHTM wins, they’re back in business. The judge’s reasoning for sending the case to Kentucky is included below.
If you’re reading this via email, please click this link to read the judge’s opinion.