Breaking MLM News: Fortune High-Tech Marketing Raided And Shut Down By Regulators As Pyramid Scheme

Paul Orberson the founder of Fortune High-Tech Marketing aka FHTM, who was one of the highest paid Excel Communication distributors in history, may now be looking at criminal charges before all the dust settles. Over the last 24 months, FHTM has been in many lawsuits, and regulator demands, yet the founder and his executive team seemed to not care as they continued to over-hype the compensation plan. (See FTC vs. FHTM)

Jayne O’Donnell, USA TODAY reported the following…

The Federal Trade Commission and three state attorneys general announced Monday that they shut down a national multilevel marketing company they called a “global pyramid scheme” that rewards people for recruiting others.

Fortune Hi-Tech Marketing of Lexington, Ky., and its top two executives were sued by the FTC and the attorneys general of Kentucky, North Carolina and Illinois for “unfair and deceptive actions” that violated state and federal laws. Among the charges: Misrepresenting that the company is “a good way for average people to make substantial income and achieve financial independence.”

“Today’s actions are the beginning of the end for one of the most prolific pyramid schemes operating in North America,” said Kentucky Attorney General Jack Conway.

The headquarters and a warehouse for Lexington, Ky.-based Fortune Hi-Tech Marketing were raided Monday morning and the contents confiscated by a receiver appointed by the U.S. District Court for the Northern District of Illinois. The receiver, Robb Evans, and his firm met with FHTM employees today and sent most home.

Linda B. Blackford — of the Herald Leader wrote…

Fortune Hi-Tech was founded in 2001 by Paul Orberson, a Danville native who made his initial fortune with multi-level marketing in the Excell Communications company. He has donated at least $1.6 million to UK Athletics, making him title sponsor of the Paul Orberson Football Office Complex at the Nutter Training Facility.

Fortune Hi-Tech’s business model is based on new representatives joining the group for rates that have ranged from $99 and $299. Representatives receive commissions for selling goods and services — such as Dish Network, Frontpoint Home Security, and various cell phone providers — and for bringing other people into the sales force.

In most network marketing groups, people who join early can make a lot of money because commissions automatically flow to the early members of a pyramid-shaped sales force that is based on recruiting new people. Illegal pyramid schemes are generally defined as those that focus mostly on recruiting new people, rather than selling products.

Steve Baker, the FTC’s midwest regional manager, said his office estimates Fortune Hi-Tech made $30 million a month, but 93 percent of its sales representatives made less than $15 a month. He said Fortune Hi-Tech’s sales representatives can call the FTC hotline with questions at 202-326-2643.

Officials with Conway’s office and the FTC could be seen entering and exiting the company’s Lexington headquarters much of Monday morning. Lexington police were seen leaving the building at 11:45 a.m., along with people unloading boxes marked with the FTC logo. A trickle of workers exiting the building said they had been sent home for the day.

Monday’s action was the latest in a long line of legal problems for Fortune Hi-Tech, which has said it has as many as 160,000 representatives around the world who sell specialized products and recruit others to continue that selling.

In 2011, Fortune Hi-Tech agreed to pay nearly $1 million settle allegations by Montana officials that it was operating an illegal pyramid scheme there. Fortune had a similar problem in North Dakota and paid a $12,000 fine. The company did not admit wrongdoing in either case.

In another 2011 settlement Fortune Hi-Tech agreed to pay $1.3 million to claimants in Texas after an investigation by that state’s attorney general’s office. The company did not admit to any wrongdoing,

In North Carolina, Attorney General Roy Cooper’s office launched an investigation into Fortune Hi-Tech in mid-2010. Consumers said they paid money to the company but were able to make money only by recruiting others, not by selling goods or services, according to a news release. A total of 25 consumers have now complained about Fortune Hi-Tech in the state.

Several complaints about Fortune have been made to the Kentucky Attorney General’s office. In addition, at least one class action suit against Fortune Hi-Tech has been filed in federal court in Lexington.

Orberson keeps a low profile in Lexington but made headlines in 2010 when he gave $100,000 to the Hoops for Haiti fundraiser put on by University of Kentucky basketball coach John Calipari.

In 2010, Orberson told the Lexington Herald-Leader that he makes $600,000 a year as the founder of Fortune Hi-Tech. Orberson said he used to take minimum wage, but his accountants told him it would look like a money-laundering scheme.

Read more here: http://www.kentucky.com/2013/01/28/2493747/federal-state-officials-send-workers.html#storylink=cpy

MLM Attorneys by Thompson Burton wrote the following…

After Six Year Slumber, FTC Wakes Up Big And Goes After Fortune Hi Tech

BREAKING NEWS:
The FTC has sued Fortune Hi Tech marketing, alleging them to be a pyramid scheme. As of today, an injunction has been issued and the offices in Kentucky have been raided. Read below for the FTC’s press release. Also, a copy of the complaint is provided below.
FHTM Promoted Itself as a Path to Financial Independence, But Most People Made Little or No Money

At the request of the Federal Trade Commission and the states of Illinois, Kentucky, and North Carolina, a federal court has halted an allegedly illegal pyramid scheme pending trial. The FTC and the state attorneys general seek to stop the allegedly illegal practices of the Fortune Hi-Tech Marketing (FHTM) operation, which claimed consumers would make substantial income by joining the scheme. The operation affected more than 100,000 consumers throughout the United States, including Puerto Rico, and Canada. In some areas, including Chicago, the scheme targeted Spanish-speaking consumers.
“Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC’s Midwest Region. “At any point most people must and will be underwater financially. These defendants were promising people that if they worked hard they could make lots of money. But it was a rigged game, and the vast majority of people lost money.” Read on…

The FTC Complaint…

FTC Action Leads Court to Halt Alleged Pyramid Scheme
FHTM Promoted Itself as a Path to Financial Independence, But Most People Made Little or No Money
At the request of the Federal Trade Commission and the states of Illinois, Kentucky, and North Carolina, a federal court has halted an allegedly illegal pyramid scheme pending trial. The FTC and the state attorneys general seek to stop the allegedly illegal practices of the Fortune Hi-Tech Marketing (FHTM) operation, which claimed consumers would make substantial income by joining the scheme. The operation affected more than 100,000 consumers throughout the United States, including Puerto Rico, and Canada. In some areas, including Chicago, the scheme targeted Spanish-speaking consumers.

“Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC’s Midwest Region. “At any point most people must and will be underwater financially. These defendants were promising people that if they worked hard they could make lots of money. But it was a rigged game, and the vast majority of people lost money.”

According to the complaint filed by the FTC and the state attorneys general, the defendants falsely claimed consumers would earn significant income for selling the products and services of companies such as Dish Network, Frontpoint Home Security, and various cell phone providers, and for selling FHTM’s line of health and beauty products. Despite FHTM’s claims, nearly all consumers who signed up with the scheme lost more money than they ever made. To the extent that consumers could make any income, however, it was mainly for recruiting other consumers, and FHTM’s compensation plan ensured that most consumers made little or no money, the complaint alleged.

“This is the beginning of the end for one of the most prolific pyramid schemes operating in North America,” Kentucky Attorney General Jack Conway said. “This is a classic pyramid scheme in every sense of the word. The vast majority of people, more than 90 percent, who bought in to FHTM lost their money.”

As alleged in the complaint, FHTM promoted itself as a way for average people to achieve financial independence. Some FHTM representatives claimed they earned more than 10 times as much as their previous earnings in their second and subsequent years with FHTM. One person claimed that another representative earned more than $50,000 in his sixth month and millions of dollars in subsequent years. Another person promoted a recruitment meeting on her Twitter account, stating, “Bring ur friends & learn how 2 make $120K aYR.” At its 2012 national convention in Dallas, FHTM called its top 30 earners to the stage to present them with a mock-up of a $64 million check, which several of them shared as a photo on social networking websites.

To participate in the scheme, consumers paid annual fees ranging from $100 to $300. To qualify for sales commissions and recruiting bonuses, they had to pay an extra $130 to $400 per month and agree to a continuity plan that billed them monthly for products unless they canceled the plan. Those who signed up more consumers and maintained certain sales levels could earn promotions and greater compensation, but contrary to FHTM’s claims, the complaint alleged, its compensation plan ensured that, at any given time, most participants would spend more money than they would earn.

According to the complaint, recruits were told they could earn high commissions by selling products to people outside the operation, but instead only minimal compensation was paid for sales to non-participants, and few products were ever sold to anyone other than participants. The scheme provided much larger rewards for recruiting people than for selling products, and more than 85 percent of the money consumers made was for recruitment.

In addition to charging the defendants with operating an illegal pyramid scheme and making false earnings claims, the FTC charged them with furnishing consumers with false and misleading materials for recruiting more participants. The attorneys general offices of Illinois, Kentucky and North Carolina joined the FTC complaint, as well as alleging violations of their respective state laws.

The defendants are Paul C. Orberson, Thomas A. Mills, Fortune Hi-Tech Marketing Inc., FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network Marketing (UK) Limited. On January 24, 2013, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the corporations pending a trial.

The Commission vote, including Commissioner J. Thomas Rosch, authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

For more information about the case, in English and Spanish, consumers can call 202-326-2643. To learn more about multi-level marketing, read the FTC’s Multilevel Marketing and Business Opportunity Scams ( Estafas de Oportunidades de Negocio ).

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

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

MEDIA CONTACT:
Frank Dorman
Office of Public Affairs
202-326-267

Allison Martin, Director of Communications
Kentucky Attorney General’s Office
502-696-5651

Maura Possley
Illinois Attorney General’s Office
312-814-3118

Noelle Talley, Public Information Officer
N.C. Department of Justice
919-716-6484

STAFF CONTACT:
David A. O’Toole
FTC’s Midwest Region
312-960-5601

Paul Orberson has responded with the following…

Today, January 28, 2013, members of a Court Appointed Temporary Receiver temporarily suspended FHTM, your beloved business. The Federal Trade Commission, the Commonwealth of Kentucky, and the states of Illinois and North Carolina filed a complaint in Federal Court and the Judge issued a Temporary Restraining Order appointing the Receiver. We are confident that our side of the story will be heard and we are already making positive strides towards reopening.

This is a process and we will be defending ourselves vigorously on Thursday, February 7, 2013. While operations are now temporarily suspended we truly expect to be vindicated.

At this point we are unable to provide you with any additional information. As soon as we know more about the situation and how it impacts your business, we will inform you immediately.

Sincerely,

Paul Orberson

No matter where you stand in the Fortune High-Tech Marketing case, if you are a proponent of direct selling, network marketing, MLM or whatever you call it, then we MUST come together and create best practices that the regulators agree are in the best interest of the consumers.

Living An Epic Adventure,
Troy Dooly
The Beachside CEO

Spread The News!

10 thoughts on “Breaking MLM News: Fortune High-Tech Marketing Raided And Shut Down By Regulators As Pyramid Scheme”

  1. Pingback: YPR Pariah | Fortune Hi-Tech Marketing 2 (Downfall)
  2. Paul Orberson and Tom Mills banned from MLM by the FTC.

    http://www.scribd.com/doc/144134467/Paul-Orberson-and-Tom-Mills-Banned-From-MLM-permanently

    Read the entire stipulated agreement here:

    http://www.joseph-isaacs.com/courtcases/Stipulated%20Preliminary%20Injunction%2005.24.13.pdf

  3. It has been hard to get to the root of Fortune Hi-Tech’s sales figures
    up until now. A few days ago the Federal judge unsealed the FTC v. FHTM
    case. After scouring through the exhibits their sales spreadsheets from
    2006-2010 were found. Almost 50% of all of their combined 5 year revenue
    came from recruiting fees, renewals and tools for reps only. Product
    sales were less than 50% of total revenue and most of that was internal
    consumption by the representatives. The sales charts are available at:
    http://www.joseph-isaacs.com/courtcases/FHTM%20sales%2006-10.pdf

    Happy
    reading. BTW – these are not the same figures given to the Texas AG or
    Direct Selling News to get listed in the top 100 a few years ago.

    How many victims ever knew what the real numbers were. Now they do thanks to the KY subpoenas and the FTC action.

  4. Whistle-blower, Joseph Isaacs, who was made famous by exposing the Fortune Hi-Tech Marketing (FHTM) pyramid scheme and fraud back in 2010 finally gets vindicated by the Federal Trade Commission and the Attorneys general of North Carolina, Kentucky & Illinois last week. From the press releases circulating around the internet as well as
    hundreds of media accounts, FHTM was officially shut down on January 28, 2013.

    In the morning of January 28th, the FTC and representatives from Roy Cooper’s office (Kentucky AG) raided the Fortune Hi-Tech Marketing corporate offices at 880 Corporate Way in Lexington, Kentucky. Employees were sent walking and all files and computer systems were confiscated.

    Federal Judge Darrah, from the Northern District of Illinois court issues a temporary restraining order to shut down this alleged pyramid scheme and a receiver was appointed to seize all assets in order to prevent the Defendants Orberson & Mills
    from fleeing the country and moving their money outside the USA. This action also prevented any of the related companies from liquidating assets.

    According to the FTC, the operation affected more than 100,000 consumers throughout the United States, including Puerto Rico, and Canada. In some areas, including Chicago, the scheme targeted Spanish-speaking consumers.

    “Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC’s Midwest Region. “At any point most people must and will be underwater financially. These defendants were promising people that if they worked hard they could make lots of money. But it was a rigged game, and the vast majority of people lost money.”

    Did the FHTM titanic finally crash into its iceberg?

    “This is the beginning of the end for one of the most prolific pyramid schemes operating in North America,” Kentucky Attorney General Jack Conway said. “This is a classic pyramid scheme in every sense of the word. The vast majority of people, more than 90
    percent, who bought in to FHTM lost their money.”

    In addition to charging the defendants with operating an illegal pyramid scheme and making false earnings claims, the FTC charged them with furnishing consumers with false and misleading materials for recruiting more participants. The attorneys general offices of Illinois, Kentucky and North Carolina joined the FTC complaint, as well as
    alleging violations of their respective state laws.

    The defendants are Paul C. Orberson, Thomas A. Mills, Fortune Hi-Tech Marketing
    Inc., FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network
    Marketing (UK) Limited. On January 24, 2013, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the corporations pending a trial.

    The Commission vote, including Commissioner J. Thomas Rosch, authorizing the staff
    to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division. The seriousness of these crimes finally came to a head.

    The whistle-blower, after being frivolously sued in 2010 by FHTM in a bogus trademark infringement case for intellectual property, they never owned, began a campaign of truth-telling. He was interviewed in 2010 by WHAS11 ABC news affiliate out of Kentucky. He was also contacted in 2010 by USA-Today and interview for an investigative piece on FHTM that resulted in a trifecta of articles on this entity. That investigative report exposed that other Attorneys Generals were looking into FHTM’s evil ways and confirmed Isaacs’ analysis that all of the money was made by recruiting whereby minimal efforts and rewards actually came from the sale of products.

    The FTC’s own expert has now vindicated Mr. Isaacs when his analysis became part of the Memorandum in Support of the TRO for Federal Court.

    According to Dr. Peter Vander Nat stated that after reviewing the financial data provided by FHTM, at least 88% of the compensation paid by FHTM is in the form of recruiting bonuses, not sales based commissions. Furthermore, most recruits will never recoup their investment into FHTM. Conservatively, at least 90% of FHTM participants earn nothing, and 94% of the recruits drop out within a year. In fact this massive loss rate is the mathematical consequence of FHTM’s business model.

    Dr. Peter Vander Nat wrote with his examination on FHTM…  “If the more than a minuscule number of recruits were able to achieve the results touted by FHTM, the bonuses could never be paid and the company would quickly collapse. FHTM’s mission is to enroll ever more victims and replace them as they suffer losses and quit the
    program. It’s a rigged game.” In other words, the FHTM compensation plan was
    derived to support the fraud. It was designed for people to fail.

    “The perpetrators of this pyramid scheme promised big returns but instead delivered significant losses for thousands of families in Illinois and all across the country,” Madigan said. “In collaborating with our state and federal partners, we’re seeking to bring the
    full force of the law against this entity to ensure that it is put out of business for good.”

    Even the corrupt Direct Selling Association had to chime in on this FTC action in order
    to prevent any backlash. For years FHTM misrepresented their relationship with the DSA. They promised reps for three years their membership would soon be approved. They even went so far as to claim they followed the rules of the DSA and their compensation plan was approved by the DSA as well as all 50 states here in the USA. They had the DSA policies on the bottom of their website until 2011 when that tidbit was
    replaced by the disclaimer that they had no affiliation with Fortune Magazine or rights to use the Fortune logo.

    The Direct Selling Association (DSA) has received numerous inquiries regarding whether FHTM is a member of the Association. “FHTM is not a member of DSA,” confirmed President Joe Mariano. Additionally, he stated that “the Association’s membership application process is rigorous, and isdesigned to ensure that only legitimate direct selling companies become members of the direct selling industry’s trade
    association.”

    While DSA cannot comment on the specific allegations regarding FHTM, Mr. Mariano commended the FTC and state attorneys general “for their comprehensive, ongoing efforts to identify and prosecute illegal and fraudulent pyramid schemes, an approach that is consistent with concerns raised by DSA through its membership application process and its long-established self-regulatory efforts.”

    So where does this leave all of the high level representatives that are loyal cult followers
    to its founder Paul Orberson? Many have taken to the internet over the past week promoting prayer vigils for the company lead by Cheryl Orberson, Paul’s current wife. Others have promised that FHTM will get through this minor speed bump in its business. One leadership call from the 30th said that all companies go through this type of investigations and that the FTC was performing a business colonoscopy on Fortune Hi-tech. Folks like Joel McNinch promised everyone that Paul and Tom were fighting for them with every grain and fiber of their soul.

    I think Paul is fighting to keep his proverbial butt out of prison. He will probably throw
    the reps under the bus as he did with both the Montana and Texas AG actions. He has been lying for so long I am certain he himself isn’t even aware of what the truth really is.

    Has the Federal government ever lost a Motion or case when they attempted to shut a
    company operating as an illegal pyramid or Ponzi scheme? Just ask the folks from YTB ore Zeek rewards. The sad part is that the high level representatives and leaders currently left in FHTM have no clue what it means to have a receiver going after you to recover ill-gotten gains.

    Why have so many leaders like Darla DiGrandi, Scott & Molly Aguilar, Ruel Morton, Mike
    Misenheimer and Alexis Adame run from this legitimate company over the past few months. Some left just in time and others fled right after the FTC action. All of these leaders are defendants in the multiple class action lawsuits too.

    Have any of them received legal advice on what happens when a pyramid scheme collapses and a Federal judge orders assets seized by a court-appointed receiver? I doubt it.

    Should the receiver have the ability to go after the net-winners and claw-back all of the
    ill-gotten funds made at the expense of the millions of net-losers? For sure and he will. What does this mean to the leaders that fled just in time? Nothing at all, they are not going to be immune to the pain that is about to come down on their families. The bigger question is “Do any of these people have any money left or was it all spent on the aura they had to create as an illusion for success? Was all the money spent on the lavish lifestyle to keep up the facade? How will the Fortune tellers spin a weave of lies to justify what is about to happen on the 13th of March? Only time will tell.

    For more information on the whistle-blower responsible for these investigations please
    visit his website at http://www.joseph-isaacs.com

  5. Myke,

    I can’t just blaim the Obama administration on the current hit from regulators.

    Sure, they will look for low haning fruit, but all administrations do that.

    Three different State AGs were involved in this current situation. I think 2013 will be a defining momment where a clear line may be drawn between what is a legit direct selling company and what is seen as a ponzi or pyramid situation.

  6. False earnings claims are part of the FTC complaint, but even if they got that right, they seemed to have missed the legal standard here:

    “According to the complaint, recruits were told they could earn high
    commissions by selling products to people outside the operation, but
    instead only minimal compensation was paid for sales to
    non-participants, and few products were ever sold to anyone other than
    participants. The scheme provided much larger rewards for recruiting
    people than for selling products, and more than 85 percent of the money
    consumers made was for recruitment.”

    Any company in that category is running significant risk for adverse legal scrutiny.

  7. It has always been important to me to be involved in a networking business that can work for the average person if they do average work, such as the refer 3 concept. Networking is not an easy business, as with any business, but working a simple plan that anyone can do is important for success. We don’t need improper income claims to pump things up, we just need to show people a plan that if worked will yield good results…and maybe big time results also.

  8. Troy,

    Not to get political here, but do you see this a trend by the Obama administration with an agenda? Kind of scary if you ask me.

  9. It is a tough deal for all. But it does go back to NOT over hyping the compensation plans. This is old school and folks still think it works. The regulators are sick and tired of it.

  10. I am very sorry to hear this happening to FHTM. I had several friends there and respected what Alexis Adame and a lot of the Latino market leaders did over there. I can only wish them for the best and to continue moving ahead with their dream. As industry leaders, regardless of what company anyone is, we are here to help in any way.

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