FTC Halts Pyramid Scheme

At the request of the Federal Trade Commission, a U. S. District Court Judge has halted the operation of an alleged pyramid scheme and frozen the defendants' assets, pending trial. The FTC alleges that consumers lost substantial sums of money to the scheme and has asked the court to order consumer redress after a trial on the merits of the agency's charges. On December 9, 1999, the FTC filed suit in U. S. District Court for the District of Maryland seeking a Preliminary Injunction and an asset freeze, pending trial. After a two-day preliminary injunction hearing that concluded February 25, 2000, Judge J. Frederick Motz found that based on the FTC's preliminary evidence, it is likely to succeed in proving in a full trial that the defendants deceived consumers. Judge Motz issued preliminary injunctions prohibiting the defendants from operating illegal pyramid schemes and from making various misrepresentations pending trial. The injunctions also froze the individual and corporate assets to preserve them for consumer redress.

The FTC complaint alleges that Dallas-based 2Xtreme Performance International, 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. Marketing materials represented that consumers could expect to earn enough income to retire in two to five years.

The FTC alleged that the earnings claims are false and that 2Xtreme's practices violated federal law. The FTC charged 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.

A trial date has not yet been set by the court.

The injunctions named John T. Polk, Patrick Farah, Peter Hirsch, 2Xtreme Performance International, USAsurance Group, Inc., Akahi Corp., Akahi.com Inc., and AFEW, Inc. Prior to the hearing, defendants Peter Hirsch, John T. Polk, and AFEW, Inc. stipulated to the entry of a preliminary injunction against them. The businesses were based in Englewood, Colorado; Dallas, Addison, and Carrollton, Texas.

For the latest news about this case, or information about filing a consumer complaint in this matter, consumers can call the FTC's 2Xtreme Hotline at 202-326-2081. Copies of the December 1999 complaint and the Preliminary Injunctions 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)