* Salespeople earned more for recruiting than selling
* An estimated 100,000 people affected by the firm
* Company shut down on Monday morning
WASHINGTON, Jan 28 Federal and state regulators
on Monday shut down direct-sales company Fortune Hi-Tech
Marketing following complaints that the company was operating a
Fortune Hi-Tech, which promoted itself as a way for average
people to achieve financial independence, had recruited people
to sell products made by Dish Network, certain
cellphone providers and Frontpoint Home Security, the Federal
Trade Commission said. It also sold a range of health and beauty
The company's distributors earned very little for selling
goods and services and made more for signing up additional sales
people, Kentucky Attorney General Jack Conway said after a raid
on its Lexington, Kentucky, offices.
"Legitimate firms work the other way," he said. "This is a
classic pyramid scheme in every sense of the word."
Law enforcement estimated that 100,000 people across the
United States had been affected by the scheme. In some areas,
including Chicago, the scheme targeted Spanish-speaking
Most paid $100 to $300 in annual fees and some paid
additional money to be eligible for sales commissions and
The FTC and the states of Illinois, Kentucky and North
Carolina filed a complaint against Fortune Hi-tech Marketing on
Thursday. A judge granted a temporary restraining order
requiring the company to be shut down.
At a press conference in Lexington, Steve Baker, director of
the FTC's Midwest regional office, declined to comment on
whether the move against Fortune Hi-Tech means the agency is
making a more aggressive push against direct marketers.
No one answered the telephone at Fortune Hi-Tech Marketing
on Monday. Callers reached a recorded message in which an
unidentified man explained the closure and said the company
expected to be "vindicated."
"We are confident that our side of the story will be heard
and we are already making positive strides toward re-opening,"
the message said.
The company's website () was still
functional on Monday afternoon.
Another direct sales company in the spotlight recently is
weight-loss and nutritional products company Herbalife Ltd
, which has been in a battle with activist hedge fund
manager William Ackman.
Ackman in December revealed a short position in the stock,
describing the multi-level marketer as a "pyramid scheme"
because distributors earn more than 10 times as much from
recruitment as from selling the company's products. Shares in
Herbalife, which has denied Ackman's charge, fell more than 8
percent on Monday.
The FTC's Baker declined to comment on Herbalife
specifically or whether the agency is making a bigger push
against direct marketers in general.