“A moment’s insight is sometimes worth a lifetime of experience.” Oliver Wendall Holmes, Supreme Court Justice from 1902 – 1932
Hat tip to Don Ryan over at ASD Updates for breaking the story on the lawsuit.
I published an article on Seeking Alpha yesterday. SA is a site dedicated to stock analysis. As a wannabe-tech nerd, I think their site is brilliant. People interested in a stock can subscribe to receive updates when articles are published about the specific stock. If you have the mobile app, you’re notified when new articles are live. Herbalife has been a widely discussed stock over the past year. It’s been almost a year since Bill Ackman gave his first presentation about Herbalife. In this article, I outline the seven assumptions that caused Ackman to miss big. The article got 90+ comments on day 1. Some favorable, some not-so-favorable.
Check it. Chime in. Share.
The FTC has sued Fortune Hi Tech marketing, alleging them to be a pyramid scheme. As of today, an injunction has been issued. Read below for the FTC’s press release. Also, a copy of the complaint is provided below.
FHTM Promoted Itself as a Path to Financial Independence, But Most People Made Little or No Money
At the request of the Federal Trade Commission and the states of Illinois, Kentucky, and North Carolina, a federal court has halted an allegedly illegal pyramid scheme pending trial. The FTC and the state attorneys general seek to stop the allegedly illegal practices of the Fortune Hi-Tech Marketing (FHTM) operation, which claimed consumers would make substantial income by joining the scheme. The operation affected more than 100,000 consumers throughout the United States, including Puerto Rico, and Canada. In some areas, including Chicago, the scheme targeted Spanish-speaking consumers.
“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.”
According to the complaint filed by the FTC and the state attorneys general, the defendants falsely claimed consumers would earn significant income for selling the products and services of companies such as Dish Network, Frontpoint Home Security, and various cell phone providers, and for selling FHTM’s line of health and beauty products. Despite FHTM’s claims, nearly all consumers who signed up with the scheme lost more money than they ever made. To the extent that consumers could make any income, however, it was mainly for recruiting other consumers, and FHTM’s compensation plan ensured that most consumers made little or no money, the complaint alleged.
“This is the beginning of the end for one of the most prolific pyramid schemes operating in North America,” Kentucky Attorney General Jack Conway said. “This is a classic pyramid scheme in every sense of the word. The vast majority of people, more than 90 percent, who bought in to FHTM lost their money.”
As alleged in the complaint, FHTM promoted itself as a way for average people to achieve financial independence. Some FHTM representatives claimed they earned more than 10 times as much as their previous earnings in their second and subsequent years with FHTM. One person claimed that another representative earned more than $50,000 in his sixth month and millions of dollars in subsequent years. Another person promoted a recruitment meeting on her Twitter account, stating, “Bring ur friends & learn how 2 make $120K aYR.” At its 2012 national convention in Dallas, FHTM called its top 30 earners to the stage to present them with a mock-up of a $64 million check, which several of them shared as a photo on social networking websites.
To participate in the scheme, consumers paid annual fees ranging from $100 to $300. To qualify for sales commissions and recruiting bonuses, they had to pay an extra $130 to $400 per month and agree to a continuity plan that billed them monthly for products unless they canceled the plan. Those who signed up more consumers and maintained certain sales levels could earn promotions and greater compensation, but contrary to FHTM’s claims, the complaint alleged, its compensation plan ensured that, at any given time, most participants would spend more money than they would earn.
According to the complaint, recruits were told they could earn high commissions by selling products to people outside the operation, but instead only minimal compensation was paid for sales to non-participants, and few products were ever sold to anyone other than participants. The scheme provided much larger rewards for recruiting people than for selling products, and more than 85 percent of the money consumers made was for recruitment.
In addition to charging the defendants with operating an illegal pyramid scheme and making false earnings claims, the FTC charged them with furnishing consumers with false and misleading materials for recruiting more participants. The attorneys general offices of Illinois, Kentucky and North Carolina joined the FTC complaint, as well as alleging violations of their respective state laws.
The defendants are Paul C. Orberson, Thomas A. Mills, Fortune Hi-Tech Marketing Inc., FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network Marketing (UK) Limited. On January 24, 2013, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the corporations pending a trial.
The Commission vote, including Commissioner J. Thomas Rosch, authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.
If you’re reading this via email, please click this review the FTC vs. Fortune Hi Tech lawsuit.
Something strange happened recently….Amway lost a lawsuit! Cue the Rocky soundtrack. The little guy won this fight. In a lawsuit filed against another MLM in 2010, Amway ultimately ended up losing after a full jury trial. Amway alleged that a competing MLM (bHIP) was interfering with Amway’s relationships with its distributors. The jury decided differently. Check out the press release below. In most of these cases, they never reach a jury. They’re normally settled out of court (like in the Amway / Pokorny case) or litigated in confidential arbitration (where distributors normally lose). This is very interesting news and appears to be a clear victory for the pro-distributor movement. Stay tuned on this one. It’s likely far from over…
BHIP TRIUMPHS IN TWO YEAR LEGAL BATTLE WITH AMWAY CORP.
The dispute between bHIP and Amway began in September 2010 after Amway obtained an order from a Texas State Court outside the presence of bHIP counsel requiring it to cease all business activities with Casey Combden and any distributor sponsored by Mr. Combden into the bHIP opportunity.
After expedited discovery a Collin County Texas Court heard evidence and arguments of counsel. Following a five hour hearing the Court dissolved the temporary order and determined that a temporary injunction was not warranted.
Amway dismissed the state court action and re-filed their claims of tortuous interference with a contract, business relations and prospective business relations as well as assertions that bHIP misappropriated, stole, or converted Amway’s trade secrets (limited Line of Sponsorship Information).
In the federal court filing, Amway also added a claim for false advertising of the business opportunity and products of bHIP under the Lanham Act. Amway claimed that Mr. Combden joined bHIP in violation of his distributor contract with Amway, and that bHIP induced him to do so. Further, Amway claimed that the distributor agreement that Mr. Combden signed in 1989 incorporated the Amway Rules of Conduct which were amended in 2004 to include a covenant not to compete.
Mr. Combden and others testified they were not aware the non-compete was added. bHIP urged that an independent contractor should not be allowed to be sued based upon an agreement to which they have no real input or right to object. Additionally, if Mr. Combden was not aware of the contract, bHIP could not be expected to be aware of it. bHIP also made the case that names and contact information of people that Mr. Combden had long standing relationships with were not Amway’s trade secrets.
The contact information of people sponsored into a business is developed by the independent distributors, not the company. bHIP stood firmly on its philosophy that the time, energy and money spent to develop a leader in a company entitles that distributor to advise those individuals of other opportunities in which they may be involved. When this matter was initially filed in state court, it did not include an allegation of false advertising under the Lanham Act.
Amway claimed that bHIP improperly induced distributors to join bHIP and sell bHIP products rather than Amway products. Amway claimed that bHIP over stated its financial strength as a company and stated that its products made medical claims about benefits they provided other than providing the consumer with energy. Relying on information from its manufacturers, bHIP provided two documents to a limited audience as educational materials concerning theingredients in the products, not the products themselves.
After hearing seven days of testimony from nineteen witnesses, the jury heard closing arguments from counsel for both sides and deliberated. The jury returned a verdict unanimously in favor of bHIP which resulted in the entry of a judgment that Amway take nothing on its claims.
When asked about his thoughts on the two year ordeal, Founder and CEO Terry LaCore said
“In life there is right and wrong. Sometimes, no matter how painful, you need to stand up for what is right.” It is bHIP’s desire that the network marketing industry renews its beliefs in the value that an independent distributor brings. “Without each and every distributor working on behalf of the company and selling its products, there would be no company for them to be tied to.” said Terry LaCore.
For more information, please contact:
Jenifer L. Grace
General Counsel bHIP Global, Inc.
Melissa, Texas 75454
The Direct Selling Edge conference for MLM startups is back! The event kicks off on Thursday, January 10th in Las Vegas. See below for a link to purchase your ticket. The details for the conference can be found on our MLM Startup Conference page. We received some great feedback after our last conference and we’ve made the agenda even better. In addition to our already stellar lineup of MLM professionals, we’re very pleased to announce our latest guest at the DS Edge Conference. Len Clements.
I’ve written in the past about Len Clements. Len Clements’s influence in the network marketing industry cannot be understated. I can say with 100% certainty that Len is one of the most knowledgeable individuals in the country with respect to the direct sales industry. Len will have a segment dedicated to separating fact from fiction in the network marketing industry. We will also have the following speakers:
Donna Marie Seretella: As the founder of Direct Selling Solutions, she leads MLMs and leading distributors in the areas of compliance consulting and distributor compliance relations. She’s literally written the book on the subject. We’re very excited to have her again!
Karen Clark: Karen is the founder of My Business Presence, a social media training company for network marketing companies. She began her direct selling career as an independent representative who achieved the highest title in her company’s compensation plan in just seven years. Karen now works with independent consultants of direct selling companies to master the world of internet marketing, including the effective use of social media. She’s also the co-author of two books, Incredible Business and Direct Selling Power.
Daren Falter: Daren is a MLM celebrity. Daren has experienced success both as a distributor in the field and as a company owner. Daren wrote one of the most widely read books in the network marketing industry: How to Select a Network Marketing Company. Daren will be speaking about one of the most important topics: Recruiting Top Leaders. It’s going to be fun!
DS Edge – 2013 Agenda
We’re also happy to be working once again with MLM software guru, Mel Atwood, MLM software provider from YourSolutions.net. Mel brings an incredible level of commitment, energy and passion to his work for MLM clients. Whether he’s serving as the Vice President at the Association of Network Marketing Professionals or adding value as a fellow DSA supplier member, Mel’s activity inside and outside of his software firm adds tremendous value to the industry.
And of course, Jay Leisner of Sylvina Consulting will provide tremendous value regarding compensation plan design. Jay has an amazing ability of taking complex principles regarding compensation design and explaining them in terms that are easy to understand and actionable.
Satisfaction is 100% guaranteed.
At the end of each day, from 5 until 8 pm, you’ll have the the opportunity to meet with conference speakers for 30 minute appointments at no additional cost! Add the six hours up and you’re easily walking away with over $1,000 worth of consultation.
Click the link below to purchase your ticket. Details on hotel accommodations are included on that page. Reference the “Edge Conference” and you’ll be able to reserve a room under $40 a night. The deal they’re giving our attendees is fantastic.
I sincerely hope to see you there!
- Definitely worth the money. As a matter of fact, after 30 minutes, I think I got my money’s worth. I found out that my business plan was not legal and by the end of this, I’ve learned all the tools and information to make this work. It’s a really good program. Zach Taylor
- Thank you for the most crucial information supporting my Party Plan Business. This 2 day class was exactly what I needed! Great job by everyone! Absolutely every aspect of my business was covered. Thank you again. Cheryl Wollrab
- I was amazed at the information. I thought it was going to be a broad stroke event to get you with different vendors. I was very surprised to see all of the targetted topics, how in depth they went into discussing very important issues, for anyone whose considering getting into the MLM business as a startup company. Mike Duke
Written by +Kevin Thompson