3 Banned From Multilevel Marketing

The Federal Trade Commission settled charges against three corporations and their owners and officers, accused of using deceptive practices to promote their multilevel marketing program and of operating an illegal pyramid scheme, the agency said yesterday.

The FTC said it will receive $1.5 million in consumer redress. Three of the defendants, who also had been top distributors for Equinox International, a multilevel marketing company the agency sued in 1999, are permanently banned from the multilevel marketing industry. The final orders for permanent injunction were entered Tuesday in U.S. District Court for the Central District of California.

The defendants — Trek Alliance Inc.; J. Kale Flagg; Richard and Tiffani Von Alvensleben; Harry Flagg; Trek Education Corp. and VonFlagg Corp. — are, respectively, a multilevel marketing company, its owners and officers, its training arm and its parent corporation. They sold products such as water filters, cleaning supplies, nutritional supplements and beauty aids through a nationwide network of distributors.

In its complaint filed in December 2002, the FTC alleged that though distributors were told they could make money by selling the products, the defendants emphasized that more money could be made by focusing on recruiting new distributors. According to the complaint, distributors used deceptive claims to lure prospective participants, including claims that salaried jobs were being offered.

In addition to being permanently banned from multilevel marketing, Kale Flagg was ordered to pay $360,000 and the Von Alvenslebens $515,000. Harry Flagg is not subject to a ban, but is prohibited from participating in illegal pyramid schemes and is required to pay $20,000, according to the FTC.

The orders for all of the defendants also prohibit the violations alleged in the FTC’s complaint. The defendants authorized their insurance company to pay $600,000 to the FTC to be used as consumer redress. The payment settles a claim against a liability policy issued to the defendants.

Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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