FundAmerica Inc., a marketing plan that touts itself as a moneymaker for its members, was ordered on Friday to stop doing business in Utah, and fined $250,000 by the securities division of the Utah Department of Commerce.
The beleaguered multilevel marketing company based in Irvine, Calif., sells memberships for discounts or rebates on a variety of services and products. Mark Griffin, assistant Utah attorney general, said more than 1,000 Utahns are involved in the company, which has run into legal troubles in California and Florida.And Friday, FundAmerica's problems spread to Utah.
Nicholas E. Hales, a hearing officer for the securities division of the Utah Department of Commerce, ruled that memberships in FundAmerica qualify as securities, or an "investment contract," under state law. And FundAmerica isn't registered to sell securities in Utah.
Hales ruled members should cease and desist from selling or offering memberships in Utah.
Thomas Taylor, a lawyer acting in a limited role of representation of the company, argued for an extension of the hearing, saying the company would voluntarily cease doing business in Utah. But he couldn't guarantee that members of the program would honor the commitment.
Taylor said he hadn't been retained to argue for the company's right to do business in the state, so Hales ruled the company in default.
"This type of scheme in the state of Utah catches on like wildfire," Griffin said.
FundAmerica President Robert T. Edwards, 49, was arrested in Delaware last month, on a Florida warrant charging fraud and conducting an illegal lottery, or pyramid scheme. The Florida attorney general's office has filed a cease and desist order based on securities fraud and the unregistered sale of securities, and in California, company sales representatives filed a class-action lawsuit, freezing an estimated $20 million in FundAmerica's bank accounts.
Howard Ruff, a Springville entrepreneur, signed on as chief executive officer briefly, but quickly disassociated himself from the company.
In Salt Lake and Provo hotels, regularly scheduled recruiting meetings over the last 1 1/2 years pitched FundAmerica as an opportunity for financial freedom. In a February meeting, representatives spoke of the wealth achieved by selling memberships to a buying club.
Besides the benefits realized by using travel, hotel and telephone discounts themselves, FundAmerica members earn greater profits by selling memberships and earn bonuses through a distribution chain.
Company officials touted earnings potential of $12,000 to $20,000 monthly, and bragged that FundAmerica offered the ultimate networking opportunity. There is no product, such as soap, to inventory, one representative said, referring to what is thought to be the nation's largest multi-level marketing company, Amway Corp. Instead, management personnel receive continuing passive income as more people buy memberships.
John Baldwin, director of the Utah Division of Securities, said legitimate multilevel or network marketing programs are different from illegal pyramid schemes because they offer products for sale. "But if people only make money through the organization and signing up other people, that's illegal." Under Utah law, however, there is a question about whether buying discounts are considered a product, Baldwin said in a February interview with the Deseret News.