The Federal Trade Commission has asked a U.S. District Court Judge 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 alleges 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.
"You can dress yourself up as a legitimate business and call yourself something you're not, but a pyramid is still a pyramid, and pyramids are illegal," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "This scheme produced the same results all pyramids do: most consumers lost their money."
According to the FTC, Dallas-based 2Xtreme, and its successor, Denver-based USAsurance Group/Akahi, used Web sites, direct mail, infomercials, telemarketing and seminars to convince consumers they could make substantial income by investing in their multi-level marketing scheme, which marketed nutritional supplements, beauty, weight-loss and other products. Showing people standing in front of large estates or luxury cars, testimonials for 2Xtreme made claims such as "My best month has been almost $20,000," and "I've generated revenues" of "about $2,000 in the first month . . . and then it went to $60,000." In addition to "lotion and potion" consumer products investors were sold, 2Xtreme sold a recruiting tool called Business in a Box (BIB) for prices ranging from about $1,000 to about $4,000. 2Xtreme claimed the BIBs would generate a specific level of earnings for the investor by helping develop a "downline." Marketing materials represented that residual income from investors' downlines would provide enough earnings so that participants could reasonably expect to retire in two to five years.
The FTC alleges that the earnings claims are false and that 2Xtreme's practices violated federal law. The FTC also charges that since 2Xtreme is actually a pyramid, consumers will not earn the specific levels of income touted in the marketing materials. In fact, most consumers will lose money, the complaint says. In addition, by providing promotional materials containing the misrepresentations about income to its participants, 2Xtreme was providing them with the 'means and instrumentalities' to violate federal law. The FTC has asked the court to issue a preliminary injunction and freeze the defendants' assets, pending trial. It will seek redress for consumers who invested in the scheme.
The FTC complaint names John T. Polk, Patrick Farah, Peter Hirsch, USAsurance Group, Inc., AKAHI Corp., AKAHI.COM, Inc., 2XTREME Performance International, LLC., and AFEW, Inc. The businesses are based in Englewood, Colorado; Dallas, Addison, and Carrollton, Texas.
The complaint was filed in the U.S. District Court for the District of Maryland, Northern Division on December 9.
The Commission vote to file the complaint was 4-0. The FTC received invaluable assistance in this matter from the Federal Bureau of Investigation, the Ft. Worth field office of the Securities and Exchange Commission, the U. S. Postal Inspection Service, the Texas Attorney General's Office, the Wisconsin Attorney General's Office and the Arizona Attorney General's Office.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaint 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 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.
(FTC File No. 992 3103)
(Civil Action No. JFM 99CV 3679)