* 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 (Reuters) - Federal and state regulators on Monday shut down direct-sales company Fortune Hi-Tech Marketing following complaints that the company was operating a pyramid scheme.
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 products.
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 consumers.
Most paid $100 to $300 in annual fees and some paid additional money to be eligible for sales commissions and recruiting bonuses.
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.