Law Enforcers Target Internet Pyramid Schemes

Scores of Law Enforcement Actions Target Pyramids; Hundreds of Warnings Sent To Web Sites

For Release

In an ongoing sweep of pyramid scams on the Internet, the Federal Trade Commission and 26 state law enforcers have targeted over 600 Internet pyramid sites for law enforcement action.

"We're keeping a pledge to police the Net for illegal pyramid schemes," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "We've swept for pyramid scams in the past and we promised pyramid promoters that we'd be back. The actions we're announcing today demonstrate our commitment to keeping these scams off the Net.

The massive law enforcement initiative was launched with an Internet "Surf Day" -- a simultaneous effort by state and federal enforcers to surf the Internet looking for specific types of fraud. The pyramid Surf Day was conducted March 10-11, 1999. The FTC and state law enforcers identified more than 600 Web sites that appeared to be promoting pyramid schemes, and e-mail warnings were sent to the sites, alerting them that pyramid schemes are illegal and the site might violate the law.

The FTC identified Equinox, International Corp., as a massive pyramid scheme being promoted on the Internet. Together with state law enforcement partners from Hawaii, Maryland, Nevada, North Carolina, Pennsylvania, Tennessee and Virginia, the FTC filed suit in U. S. District Court to halt the illegal operation. District Judge Johnnie B. Rawlinson issued a preliminary injunction and appointed a receiver, pending trial.

In another law enforcement action, the FTC filed suit against 2Xtreme to halt the operation of a vast pyramid scheme promoted in part on the Internet, and to freeze the defendants' assets, pending trial, so they will be available for consumer redress. The agency alleged that the pyramid scam, disguising itself as a legitimate multi-level marketing plan, used deceptive earnings claims to lure consumers to enroll in the scheme. The company claims to have recruited more than 60,000 consumers.

In addition to the FTC actions, state agencies have taken law enforcement actions against 70 pyramid targets. State enforcers include the Attorneys General of Arizona, Idaho, Illinois, Kentucky, Nevada, New York; the Hawaii Department of Commerce and Consumer Affairs; North Carolina and Oregon Departments of Justice; and the Wisconsin Bureau of Consumer Protection. (See attached listing)

The FTC has published a free brochure, "The Bottom Line About Multilevel Marketing Plans," that warns that consumers should:

  • Avoid any plan that offers commissions for recruiting additional distributors;
  • Beware of plans that ask new distributors to spend money on high-price inventory;
  • Be cautious of plans that claim you'll make money through continued growth of your 'downline' recruits, instead of sales;
  • Beware of plans that promise enormous earnings or claim to sell miracle products;
  • Beware of shills - decoy references used to promote the plans.

Copies of the "The Bottom Line About Multilevel Marketing Plans," are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll free 1-877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Contact Information

Media Contact:
Claudia Bourne Farrell or Brenda Mack
Office of Public Affairs
202-326-2180
Staff Contact:
Paul Luehr or James Kaminski
Bureau of Consumer Protection
202-326-2236 or 202-326-2449