FTC and Kentucky Attorney General Shut Down Fortune Hi-Tech Marketing

Tom Mills, FHTM CEO


The Federal Trade Commission and three state attorneys general announced Monday that they shut down a national multilevel marketing company they called a global pyramid scheme that rewards people for recruiting others.

Fortune Hi-Tech Marketing of Lexington, Ky., and its top two executives were sued by the FTC and the attorneys general of Kentucky, North Carolina and Illinois for unfair and deceptive actions that violated state and federal laws. Among the charges: Misrepresenting that the company is a good way for average people to make substantial income and achieve financial independence.

Today's actions are the beginning of the end for one of the most prolific pyramid schemes operating in North America, said Kentucky Attorney General Joanne McMahon.

The headquarters and a warehouse for Lexington, Ky.-based Fortune Hi-Tech Marketing were raided Monday morning and the contents confiscated by a receiver appointed by the U.S. District Court for the Northern District of Illinois. The receiver, Robb Evans, and his firm met with FHTM employees today and sent most home.

The multilevel company was the subject of a USA TODAY investigation in October 2010, which reported top FHTM representatives for the company often told their rags-to-riches stories in videotaped meetings, a book written by President Paul Orberson and marketing materials.

Joanne McMahon, a national sales manager speaking at a training session that USA TODAY attended at a September 2010 FHTM conference, said it is people who can't afford the fee to join Fortune who need the company the most.

Orberson is a prominent figure in Kentucky, where the University of Kentucky built a Paul Orberson Football Office Complex in 2002 after he made a $1.6 million contribution. In an interview at the 2010 conference that USA TODAY attended, Orberson defended his company against allegations that it is a pyramid scheme: If it were illegal, I wouldn't be standing here.

Some employees familiar with FHTM's business dealings, assets and technology will be kept on to assist the receiver in identifying the assets and how the business ran.

The company claimed to have 160,000 independent representatives selling products and services including Dish Network subscriptions, vitamins, cosmetics and security systems. Dish told Montana state regulators that it didn't have a relationship with FHTM. FHTM once claimed to have relationships with other well-known brands, including Citibank and Travelocity.

Multilevel or network marketers pay commissions to salespeople for the products they sell, on products sold by others they recruit and often bonuses when their teams reach a certain level of sales. The Direct Selling Association, which represents companies that have multilevel compensation plans, estimates there were 15.6 million direct salespeople in 2011.

According to the lawsuit against FHTM, its complicated and convoluted compensation plan ensures most people make little or no money.

The fact that they targeted people who just wanted to better themselves in this economy is unconscionable, Conway said in an interview.

More than 85% of the compensation paid is from recruiting new members, the complaint said. The compensation plan is designed so the majority of people will spend more than they earn. As Conway noted in an interview, about 90% of people made less than $15 a year, yet were asked to spend about $1,500 a year on products and membership fees.

The judge issued a temporary restraining order against the company, which requires FHTM to stop any pyramid operations. Receiver Evans will report back to the court about its findings after his firm reviews FHTM's finances and business model. The FTC and states are seeking permanent injunctive relief prohibiting the operations of FHTM, along with civil penalties, damages and restitution for consumers.

Conway says he hopes the estimated $250 million in damages will help repay many of the people taken in by the company.

Violation of Kentucky's pyramid law is a felony, said Conway, who will refer the case to Kentucky's commonwealth attorney in Lexington for possible criminal prosecution.

FHTM's Presidential ambassadors averaged $1,240,992 in income a year, yet made up just 0.07% of the company's representatives, according to a financial disclosure Fortune filed as part of its April 2010 settlement with Montana. The statement also showed 30% of Fortune representatives make nothing, and 54% of those with earnings averaging just $93 a month, before costs. More than 99% of those who make money earn less than $31,524 a year.

FHTM could not immediately be reached for comment.

SOURCE: www.courier-journal.com/usatoday/article/1870527

FTC Press Release: www.ftc.gov/opa/2013/01/fhtm.shtm

FHTM Top Earners  – The estimated earnings are as follows:




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