The Federal Trade Commission , Washington, announced yesterday that it has asked a U.S. District Court Judge to halt the operation of a pyramid scheme that used a variety of direct marketing avenues, and to freeze the defendants' assets, pending trial, so they will be available for consumer redress.
According to the FTC, Dallas-based 2Xtreme and its successor, Denver-based Assurance Group/Akahi, used Web sites, direct mail, infomercials, telemarketing and seminars to convince consumers they could make substantial income by investing in their multilevel marketing scheme, which marketed nutritional supplements, beauty, weight-loss and other products.
In addition, 2Xtreme sold a recruiting tool to investors called Business in a Box for about $1,000 to $4,000. 2Xtreme claimed the BIBs would generate a specific level of earnings for the investor by helping develop a distribution network of salespeople. Marketing materials said that residual income from this investor network would provide enough earnings so that participants could reasonably expect to retire in two to five years.
The agency alleges that the pyramid scheme, disguising itself as a legitimate multilevel marketing plan, used deceptive earnings claims to lure consumers to enroll. The company claims to have recruited more than 60,000 consumers.
“You can dress yourself up as a legitimate business and call yourself something you’re not, but a pyramid is still a pyramid, and pyramids are illegal,” said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. “This scheme produced the same results all pyramids do: Most consumers lost their money.”
The FTC alleged that the earnings claims are false and that 2Xtreme's practices violated federal law. The FTC also charges 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. The FTC has asked the court to issue a preliminary injunction and freeze the defendants' assets, pending trial. It will seek redress for consumers who invested in the scheme.