A founder of FutureNet, a company that was promoted as a multi-level marketing program, has agreed to settle Federal Trade Commission charges that the program was actually an illegal pyramid scheme. The settlement would bar Larry Stephen Huff not only from any future involvement in illegal ponzi or pyramid schemes, but from involvement in any multi-level marketing.
On February 17, 1998, the FTC filed charges against Valencia, California-based FutureNet, Inc., FutureNet Online, Inc., and five principals of these corporations seeking a permanent injunction against future violations and refunds for investors. On February 23, the court issued a temporary restraining order, freezing the defendants' assets and appointing a receiver for the corporate defendants. On March 3, 1998, the Court modified and extended the order, maintaining the injunction against pyramiding included in the initial restraining order. FutureNet, Inc., FutureNet Online, Inc., and two corporate officers, Alan J. Setlin and Chris Lobato, settled the FTC charges in April, 1998. The stipulated final judgment announced today would settle charges against Huff. Settlements have not been reached with two other defendants, Robert Depew and David Soto.
According to the FTC's complaint, FutureNet, Inc. claimed that its recruits could earn substantial income for the rest of their lives by joining a multi-level marketing program selling Internet access devices. Consumers paid fees ranging from $195 to $794 to become Future Net distributors in the scheme, which was promoted on the Internet. But, according to the FTC, a major portion of the income the defendants promised was not based on sales of the devices, which are easily available at other retail distributors, including Sears and Circuit City, at lower prices. Instead, the promised income could only come from fees paid by newly recruited distributors who would in turn recruit more distributors, vainly seeking to recruit and collect fees from an endless "downline" of new distributors. FutureNet claimed that their recruits -- so called "Internet Consultants" -- would receive $200 - $400 when they personally recruited another consultant, and $25 - $50 when a person in their downline recruited a new member. The agency charged that the bulk of the income from the FutureNet multi-level marketing plan did not depend on sales of the Internet devices they were purportedly selling, but rather almost entirely on the recruitment of new distributors -- the typical profile of an illegal pyramid. Since almost 90 percent of investors in any pyramid program actually lose money, the defendants' earnings claims were false, and violated federal law, the FTC alleged. In addition to the pyramid based on Internet access devices, the defendants, prior to the initiation of the FTC action, also had started a similar program based upon sales of deregulated electric power, even though no state had deregulated the sale of electric power at the time defendants began to offer this program.
The settlement announced today would bar Huff from:
- engaging, participating or assisting in any pyramid or ponzi scheme, or in any multi- level marketing program;
- misrepresenting the amount of sales a person can actually or potentially make;
- making earnings claims without disclosing the number and percent of participants who earn that much;
- misrepresenting that he has received approval from any Commission to sell products or services;
- selling electrical power without meeting state licensing and registration requirements;
The order requires that anyone working for Huff must comply with the settlement provisions. In addition, the settlement is expressly premised on the ". . . truthfulness, accuracy and completeness of the financial statements" provided by Huff. If the court finds that Huff misrepresented or made omissions about his financial status, he would be liable for $21 million for consumer redress. The settlement also contains record-keeping provisions to allow the FTC to monitor compliance.
The Commission vote to approve the stipulated final judgment and order was 4-0.
NOTE: This proposed stipulated final judgment and order 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 complaint and 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, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); 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. X98 0022)
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