Court Order Could Recover $2.2 Million More From Internet Scam Promoters
A recent federal court contempt citation has cleared the way for the final mailing of refund checks to victims who invested in an Internet pyramid scheme called Fortuna Alliance. This mailing brings to 15,622 the total number of consumers receiving refunds. The FTC's case against Fortuna returned approximately $5.5 million to investors in the U.S. and 70 foreign countries. The contempt citation could provide an additional $2.2 million in consumer redress that will go to consumers who received partial refunds.
"This recovery shows once again that pyramid schemes are a lose-lose situation," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Investors get burned because pyramid schemes inevitably collapse. Promoters lose when the law comes after them. When it comes to pyramids, big losses are the bottom line."
On May 29, 1996, the FTC charged Fortuna Alliance and its officers with violating federal laws by operating an illegal pyramid scheme. At the request of the agency, a federal district court judge froze the company's assets and appointed a receiver, pending trial. On February 24, 1997, the principals of the company agreed to settle the FTC charges. Under the terms of the agreed-to permanent injunction, every Fortuna member was entitled to receive a full refund of his or her "membership" fees. The refunds were to be paid from $2.8 million Fortuna transferred from an offshore bank in Antigua, West Indies, and $350,000 frozen in U.S. banks. The federal court had earlier ordered immediate refunds of an additional $2.35 million frozen in the United States. The injunction also required that if those amounts were insufficient to meet refund requests, defendants would pay additional money to ensure full refunds for all who sought them.
At the request of the FTC, a federal district court issued a contempt order on June 5 citing Fortuna and its principal, Augustine Delgado, for failure to provide an additional $2.2 million needed to pay refunds in full. Meanwhile, refund payments were prorated at 60 percent of the amount paid in, with the balance to be refunded when defendants pay the deficiency. The contempt order prohibits the defendants from promoting any marketing or investment program until the deficiency, plus interest, is paid to consumers. Any person who promotes a Fortuna or Delgado marketing or investment program with knowledge of this prohibition is also subject to contempt proceedings.
In its original complaint, the FTC charged that Fortuna Alliance, L.L.C., and four officers, marketed the pyramid scheme through a home page on the World Wide Web and with printed promotional materials. Using fabulous earnings claims, they induced tens of thousands of consumers in over 60 countries around the world to pay between $250 and $17,500 to join their pyramid scheme, claiming that members would receive over $5,000 per month in "profits" -- for each $250 invested -- as others were induced to "enroll." The agreed-to injunction barred Fortuna Alliance and its principals from "engaging, participating, or assisting in any manner or capacity . . . the advertising, promoting, offering for sale, or sale, of any chain or pyramid marketing program." In addition, it barred the defendants from making deceptive earnings claims in conjunction with any marketing or investment program they offer. The contempt order goes beyond the injunction by ordering an absolute ban on promoting any marketing or investment program until the deficiency is paid in full, with interest.
The FTC's Seattle Regional Office handled the case, with invaluable early assistance from the Washington State Division of Financial Institutions' Securities Division; the Bellingham, WA Police Department; the Nevada and Washington State Attorneys' General offices; and the Florida Comptroller's Office (Department of Banking and Finance's Division of Financial Investigations). The FTC used counsel in London, Belize, and Antigua for foreign litigation freezing defendants' offshore bank accounts. The Department of Justice's Office of Foreign Litigation was instrumental in reaching settlement of the foreign actions.
NOTE: Consent judgments are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge. The issuance of a contempt order is a finding by the court that defendants have violated the injunction.
Copies of the complaint, permanent injunction, and contempt citation and a list of the number and amount of refunds, by country, are available from the FTC's web site at http://www.ftc.gov/ro/fortuna.htm 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.
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