FTC Halts Internet Pyramid Scheme

In its 12th and largest law enforcement action against fraud on the Internet, the Federal Trade Commission has obtained a federal court order temporarily halting a pyramid scheme advertised on the Internet. The FTC estimates that the scheme has already taken in over $6 million. The court’s temporary restraining order freezes the defendants’ assets and appoints a receiver to manage the company, called Fortuna Alliance. The FTC has asked the court to issue a permanent injunction that will provide redress for the consumers who were victims of the scam.

“This brand new, high-tech scam is as old as Methuselah,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “Behind all the techno-jargon and the mathematical mumbo jumbo, this is just an elaborate, electronic version of a chain letter. People are told that if they sign up and send money, they’ll eventually end up at the top of the pyramid, collecting from those at the bottom. But most people never make it to the top. Early entrants may make some money, but eventually, the pyramids collapse and most of the “members” are left holding the bag,” she said.

The FTC has charged that Fortuna Alliance, L.L.C., and five officers marketed the pyramid scheme through a home page on the World Wide Web. Using claims such as “What if you paid...$250 a month which produced a minimum of $5,250 income each month for you, While you simply watched?, and “Would you want to continue this arrangement while you kept earning $5,000 a month ,” they induced thousands of consumers to pay between $250 and $1750 to join their pyramid scheme by claiming that members would receive over $5000 per month in “profits” as others were induced to “enroll.” In addition, Fortuna and its officers provided advice and promotional materials for members to set up their own web sites to recruit others to join the pyramid.

According to the complaint detailing the charges, most participants in a pyramid scheme lose money, so the claims that consumers who pay Fortuna $250 will receive high income or profits of over $5,000 per month are false and misleading. In addition, providing others with promotional material that contains similar false claims for use in recruiting new participants, is deceptive or unfair, in violation of the law. The FTC’s complaint asks the court to order a permanent halt to the alleged deceptive practices and to order redress for the people they signed-up to the scheme.

In papers filed with the court, the FTC contends that Fortuna has already taken over $6 million from consumers, and transferred at least $3.55 million of that money to a bank in Antigua, W.I. The temporary restraining order directs defendants immediately to see that the money is returned to the United States.

The Commission vote to authorize the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Western District of Washington, at Seattle, on May 23 under seal. The seal was lifted on May 28. The court has ordered a hearing on May 30 at 9:30 a.m. to consider the FTC’s request for a preliminary injunction continuing the temporary relief until the case is completed.

The FTC’s Seattle Regional Office handled the investigation, with invaluable assistance from the Washington State Div. of Financial Institutions’ Securities Division; the Bellingham, WA police dept.; the Washington State Attorney’s General office; and the Florida Comptroller’s Office, Dept.of Banking and Finance’s Div. of Financial Investigations.

NOTE: The Commission authorizes the filing of 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 actually has violated the law. The case will be decided by the court.

Copies of the complaint are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326- 2222; TTY 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 news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. 962-3158)