Pennsylvania Attorney General Mike Fisher said this week his office had shut down Club Freedom Inc., which promoted what he called a pyramid scheme that attracted more than 220 participants nationwide through direct mail.
Club Freedom organizers, who admitted no wrongdoing, will pay about $49,000 in restitution and $5,000 in civil penalties and investigation costs, the attorney general's office said.
“We believe Club Freedom was a blatant Ponzi scheme that obtained thousands of dollars from unsuspecting consumers who were led to believe that it was legal,” Fisher said.
Pennsylvania's Bureau of Consumer Protection entered into an Assurance of Voluntary Compliance agreement with State College, PA-based Club Freedom, secretary and treasurer Dayton G. Sauerman and organizers Neil Telafor and Ginger Normoyle.
Fisher said Club Freedom organizers used a printed brochure from November 2001 to March 2002 to promote participation in a “private club.” The brochure was mailed to hundreds of consumers in Pennsylvania and nationwide.
The mailer described Club Freedom as a “brand new concept in the world of earning money at home,” where “all members shall have an equal opportunity to earn money.” The brochure included information on how the plan worked and explained the financial benefits of participating and/or recruiting new members. The brochure included a toll-free number to obtain more information.
Those interested in joining were offered the chance to buy a position within the club for $200. Prospective members could buy as many positions as they wished at the $200 per position rate, with the promise of a $300 payout after six additional people joined.
Potential participants also were told they could earn commissions for referring others to the club or earn 10 percent on the membership fee for each person accepted into the club.
In addition to the fines and penalties, Club Freedom organizers were required to:
· Shut down all alleged operations and P.O. boxes used to promote the activity, plus provide written notice to Club Freedom members that they are entitled to refunds.
· Permanently cease promoting, engaging or participating in pyramid clubs or chain letter plans in violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law.
