Kentucky Attorney General Jack Conway's office has filed a lawsuit in federal court claiming Fortune Hi-Tech Marketing in Lexington has been operating a massive pyramid scheme. The headquarters and a warehouse in Danville were seized Monday as part of a federal investigation into the multi-level marketing company's business practices, which Conway contends lost money for more than 90 percent of its subscribers.
Conway says there were other red flags. “Fortune Hi-Tech distributors only receive pennies for selling multi-year service contracts but they receive significant payments for signing up new members. Legitimate multi-level marketing companies reward distributors based on product sale,” he says.
Fortune Hi-Tech's assets have been frozen while investigators probe the company's finances and business model. Conway says the investigation, which also included attorneys general from Illinois and North Carolina and the Federal Trade Commission, began in 2010 after his office received about dozen complaints.
“After our office began reviewing the documents we believed that Fortune Hi-Tech Marketing was operating a massive pyramid scheme that involved more than 100,000 people across the United States and several other countries,” Conway says. “And we think the damage to consumers is in the hundreds of millions of dollars.”
Legal action against the company has already been taken in three other states. Steve Baker, Director of the FTC's Midwest Region, says the Fortune Hi-Tech charged fees for membership and products sent to sellers, who were then rewarded primarily for signing up new members, not selling the products.
“A rep that sells a dish network package for $50 a month with a two year commitment makes a commission of 43 cents,” Baker says.
Conway says over 90 percent of people who have bought into Fortune Hi-Tech have lost money. Now the action shifts to an investigator called a "receiver," who will report his findings to the U.S. District Court for the Northern District in Illinois.