Pyramid unfolded : Fortune Hi-Tech Marketing (FHTM) scam through multi-level marketing

Fortune Hi-Tech Marketing - multi-level marketing

Founded in 2001, Kentucky-based Fortune Hi-Tech Marketing (FHTM) used multi-level marketing to sell a variety of consumer goods including Dish Network packages, mobile phone plans, shampoos, nutritional supplements, and residential gas and electricity contracts. The FTC halted the company’s practices and froze its assets in January 2013, alleging a pyramid scheme. Stocks in other MLMs, like Herbalife and Nu Skin, fell shortly after the announcement.

“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 Fortune Hi-Tech Marketing ’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.

One of the most prolific pyramid schemes

“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 Fortune Hi-Tech Marketing 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.

The settlement

It wasn’t until May 2014 that a settlement was reached banning the defendants from multi-level marketing. The judgment was for $169 million, but the company was required to surrender only $7.75 million based on the company’s financial condition including assets of the deceased defendant Paul C. Orberson’s estate. FHTM enrolled more than 350,000 consumers in the four years leading up to the settlement. More than 98% of participants lost more money than they made, and more than 81% of payments to participants were based on recruitment, not product sales.

In addition to the multi-level marketing ban, the settlement order permanently prohibits Thomas A. Mills, Fortune Hi-Tech Marketing Inc., FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network Marketing (UK) Limited from misrepresenting material facts about any product or service, including claims concerning how much money consumers can earn. The order also bars the defendants from selling or otherwise benefitting from customers’ personal information, failing to properly dispose of customer information, and collecting any additional money from customers.

The settlement resolves all of the FTC’s claims against the defendants, as well as the claims brought by Illinois, Kentucky and North Carolina.

 

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