A company described as a massive pyramid scheme, which authorities said targeted consumers in North Carolina, was ordered to shut down Monday, as federal regulators seized the assets of Lexington, Ky.-based Fortune Hi-Tech Marketing.
The action was spurred by complaints from attorneys general in three states, including Roy Cooper of North Carolina. Authorities say FHTM, founded in 2001, ensnared more than 100,000 people in the U.S., Canada and Puerto Rico.
According to the government’s complaint, people paid $250 to $299 in order to become sales representatives for FHTM. The company claimed to sell a variety of goods and services, including health and beauty items, Dish Network and Frontpoint Home Security. Sales representatives were required to purchase bundles costing $130 to $400 a month, which they could then sell to other customers.
On Wednesday, longtime Charlotte television host Barbara McKay told the Observer she’d been a sales representative for the company. And Donna Lewis, the wife of former Bank of America CEO Ken Lewis, also bought into the company several years ago, according to Observer news partner WCNC-TV.
McKay told the Observer she and Lewis had both ended their involvement with the company.
“We are good friends,” said McKay, of Lewis. “We thought it was a good way to help people, but it turned out it was not. We cut ties.”
Still, McKay said that when she first became involved with FHTM several years ago, its claims had seemed plausible.
“It all seemed very legitimate,” said McKay. “Basically, it was earning money with products you’re already using. That sounded like a good idea to me. I was using the products they offered. ... We just believed all of it.”
Lewis told WCNC in 2010 that she believed the company was not a pyramid scheme, and that she had joined it to help other people who were suffering in the bad economy.
“She hasn’t been involved with that for a long time,” said a man who answered a phone number for Donna Lewis on Monday, before hanging up.
The company said in a recorded phone message at its Lexington headquarters that it will vigorously defend itself and expects to be vindicated.
“We are confident that our side of the story will be heard and we are already making positive strides toward reopening,” the company’s recording said.
Focus on recruiting
Authorities say that the company focused almost exclusively on recruiting others to join its network, not on actually selling goods.
The government claims that more than 85 percent of the payouts to sales representatives were actually bonuses tied to recruiting new members. Representatives made $100 for each member they recruited, and $100 for each member one of their recruits signed up. On the other hand, they made 50 cents a month for selling a cellular phone contract and 80 cents a month for selling a Dish Network package.
FHTM is not affiliated with the major companies whose goods it sold.
Many representatives spent more than $1,500 a year to remain eligible for recruiting bonuses. And as a business, FHTM generated ample revenue: The government estimated the company made $30 million a month. Still, more than 90 percent of those who bought into FHTM lost money, the government said.
“FHTM’s complicated and convoluted compensation plan ensures that the vast majority of FHTM’s Reps make little or no money,” the government said in its complaint. Despite that, the company claimed sales representatives could make hundreds of thousands or millions of dollars.
“The mission of FHTM is to transform the lives of many by offering outstanding products and services through the best opportunity in direct selling,” read a description of the company on its website.
A federal judge issued a temporary restraining order to bar the company from conducting business, froze its assets and placed the company in receivership. By late afternoon Monday, FHTM’s website was shut down.
Authorities had questioned the company before. In 2010, FHTM agreed to pay about $1 million to settle claims with Montana that it was a pyramid scheme. The N.C. Attorney General’s office has received 37 complaints and inquiries about FHTM since 2008, and opened its investigation into FHTM in 2010.
‘People that I trusted’
Looking back, McKay said many were persuaded to sign on because of the testimonials of others.
“People that I trusted told me about it, and they cited all the government regulatory agencies that had approved it,” said McKay, a host on WBTV for decades who now works as a public relations professional for the effort to bring a movie studio to Eastland Mall.
FHTM’s plans sounded promising, and even some clergy members were promoting the business, she said.
“When you are really wanting to navigate some difficult economic waters, you look at things you might not have looked at before and you look at it in a different way.”
McKay said she eventually began to hear troubling rumors about the company.
“I began to realize that not everything told to me was true,” she said.
She said she severed ties with the company, and received a letter of termination.
A hearing in the Fortune Hi-Tech Marketing case is scheduled for Feb. 7. WCNC-TV, The Associated Press and Observer researcher Maria David contributed