Originally published in the Clarion-Ledger on 5/16/2014.
Pyramid schemes have been blossoming all over the United States since the nation hit hard times a few years ago. Of course, pyramid schemes are not anything new; these scams have been around in some form or other for decades.
But there is occasionally some good news, as a scheme is shut down by the authorities. Since Wednesday, at the request of three states and the Federal Trade Commission, there is one less pyramid out there.
Kentucky-based Fortune Hi-Tech Marketing, which allegedly targeted more than 100,000 consumers in the U.S. and Canada, is accused of claiming consumers would earn “significant income” by selling products and services from companies such as Dish Network, cellphone providers and the company’s own line of health products.
“Despite FHTM’s claims,” noted the FTC in a release, “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.”
In January 2013, a federal court froze FHTM’s assets, and this week’s judgment demands payment of $169 million, much of which will be suspended if the operators of the scheme produce $7.75 million. The scope and size of the FHTM operation makes it one of the largest such schemes shut down. The FTC joined the attorneys general of Illinois, Kentucky and North Carolina in asking a federal court to halt the practices of the company.
“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.” Consumers typically paid between $100 and $300 per year and up to $400 a month to get recruiting bonuses and commissions.
FHTM’s scheme is fairly typical, allegedly promoting itself to hard-hit consumers as a way to achieve financial independence. Through the use of “shills,” or fake testimonials, representatives would aggressively promote the company.
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 nonparticipants, and few products were ever sold to anyone other than participants. The scheme provided much larger rewards for recruiting people than for selling products.
“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.”
People often are confused when trying to distinguish between what may be an actual opportunity and a pyramid scheme. It’s intentionally confusing, and representatives are often cagey about answering questions. But generally, remember three basics:
- If the primary source of earnings is the number of people you recruit to the plan and not the products you sell, it’s a pyramid scheme.
- Don’t assume that even if a company has celebrity endorsers or sell familiar products that it is on the level.
- “Rags-to-riches” stories are common in such schemes and don’t typically match the real stories of most people who join the program.
“A successful legitimate company will portray an honest picture of the opportunity, including the possible risks, rewards and challenges and usually tend to treat the experience like running a small business,” noted Mississippi Attorney General Jim Hood. “A pyramid scammer, however, will happily sell you on the promise of making tons of money with little effort, pressuring the consumer to make a decision which is uncomfortable to them.”
(A Google search of Fortune Hi-Tech Marketing locations in Mississppi turned up contacts in Bassfield, Brookhaven, Clinton, Long Beach, Magee and Pearl.)