Internet Pyramid Scheme Marketers To Pay $75,000 in Redress Under Settlement with FTC

The Federal Trade Commission has negotiated a settlement with The Mentor Network, Inc. and Parviz Firouzgar, southern California-based marketers of an allegedly fraudulent pyramid scheme promoted partially via the Internet. The settlement would require them to pay $75,000 into a fund for consumer redress, and would bar them from operating any chain or pyramid marketing program. The settlement also includes provisions designed to ensure that payments to participants in multi-level marketing programs operated by the defendants come primarily from sales of goods or services to non-participants rather than from recruiting new participants.

Multi-level marketing plans are a way of selling goods or services through distributors. Distributors typically receive commissions on both their sales and on those of others they recruit to become distributors. If a plan offers to pay commissions for recruiting new distributors, it could be an illegal pyramid scheme. According to the FTC, pyramid plans inevitably collapse when no new distributors can be recruited and, when that happens, most people lose their money.

The FTC filed charges in the Mentor Network case as part of Operation Missed Fortune, the broadest federal-state coordinated law-enforcement and consumer-education effort ever initiated. Missed Fortune targeted get-rich-quick self-employment schemes, and resulted in more than 75 law-enforcement actions by the FTC and 25 states. The FTC alleged in this particular case that the defendants made false and misleading earnings claims in connection with their pyramid scheme that nominally involved the sponsorship of needy children in foreign countries. According to the complaint, the defendants claimed that consumers could receive as much as $12,285 by (1) paying $24 to join "MentorVision"; (2) paying $30 per month for a minimum of one year; and (3) recruiting three other people -- they also provided distributors with promotional materials containing false claims for use in recruiting other participants. Upon filing of the charges in federal district court in November 1996, the FTC obtained a temporary restraining order prohibiting the defendants from making misrepresentations regarding profits or earnings in an investment program, freezing their assets, and appointing a receiver over the defendants’ business. These provisions were continued in a preliminary injunction to which the defendants agreed in December. Mentor Network operates out of Irvine and Newport Beach.

The proposed consent judgment and order to settle the FTC charges, if approved by the court, would bar the defendants from engaging or assisting in any manner in the advertising, promoting or offering of any chain or pyramid marketing program, and from making or assisting another in making any misrepresentation about a material fact -- including earnings or whether the program has government approval -- of any marketing or investment program. In addition the order would require that, with regard to any multi-level marketing program that the defen dants operate or in which they play a role, the payments received by each participant be derived primarily from the sale of goods or services to non-participants, and not from recruiting addition al participants. The defendants would be required to institute and enforce rules concerning this sales requirement. The $75,000 in redress to be paid by the defendants would be due within five days from the date the court enters the order. If refunds prove impractical, the money will be turned over to the U.S. Treasury.

The FTC’s Seattle Regional Office handled this case with assistance from the Washing ton state Attorney General’s office, and Newport Beach, California, Police Department. The Commission vote to approve the settlement for filing in court was 5-0. It was filed March 17 in U.S. District Court for the Central District of California, in Santa Ana, and requires the court’s approval to become binding.

NOTE: This consent judgment 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 an FTC brochure for consumers on multilevel marketing plans and an alert titled "Don’t Get Burned by a Pyramid Scheme" are available from the FTC’s web site at http://www.ftc.gov and also 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. The consent judgment in this case will be available in both locations shortly. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. X970015)
(Civil Action No. SACV 96-11-4 LHM (EEx))