Pyramid Promoter Settles FTC Charges

A leading salesman for an Internet-based business opportunity that promised easy income for investors in an Internet shopping mall network has agreed to settle Federal Trade Commission charges that the scheme was an illegal pyramid operation. The settlement will bar the defendant from engaging in pyramid schemes in the future, and from making misleading earnings claims or providing others with the means to make such claims if he participates in any multi-level marketing program.

In November 2000, the FTC charged J.D. Noland and other principals and participants of the Mesa, Arizona-based Bigsmart program with operating an illegal pyramid scheme. According to the FTC complaint detailing the charges, Bigsmart marketed Internet theme "malls" that it claimed would enable investors to earn substantial income from commissions on products purchased through the Internet. The malls were a collection of links to retail sites maintained by independent third-party merchants, such as MarthaStewart.com, and to a "Superstore" maintained by Bigsmart. Bigsmart directed traffic to the malls through the personalized Bigsmart "welcome pages" to which members could purchase access for a $10 application fee and a $99.95 "hosting" fee. Although Bigsmart claimed that members would make substantial amounts of money by investing in its Internet shopping mall network, the scheme was structured in such a way that realizing continued financial gains would depend on ". . . the continued, successive recruitment of other participants," not on retail sales of products and services to the public, according to the FTC's complaint. The FTC charged that the claims that consumers who invested in Bigsmart would earn substantial income were false; that promotional materials that contained the false and misleading claims provided the means for others to deceive consumers; and that Bigsmart was actually a pyramid scheme. All other defendants in the Bigsmart case previously settled the FTC charges. The settlement announced today ends the litigation with Noland.

The settlement bars the defendant from engaging in any future pyramid schemes. It also bars him from:

• Misrepresenting the potential earnings or income of any multi-level marketing program;
• Misrepresenting the benefits a participant in a multi-level marketing program can receive; and
• Misrepresenting the amount of sales a participant could expect to make.

It also bars him from providing others with the "means and instrumentalities" with which to make false or misleading statements about multi-level marketing programs. Based on financial statements provided by the defendant, a judgment in the amount of $104,748 will be suspended.

Should the Commission have evidence that the defendant made misrepresentations in the financial statements, the entire amount of the judgment, which represents his income from Bigsmart, will become immediately due.

The Commission vote to approve the settlement was 5-0. The order was filed in U.S. District Court for the District of Arizona. This case was brought with the invaluable assistance of the Offices of the Attorney General of Texas and the Wisconsin Department of Agriculture, Trade, & Consumer Protection, Division of Trade & Consumer Protection.

NOTE: A stipulated final judgment and rder is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the stipulated final judgment and order 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. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357). The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

(FTC File No. X010066)
(Civil Action No. 00 2260 PHX FJM)