Breaking News:from The Wall Street Journal: “A Rigged Game”: The FTC Calls Fortune Hi-Tech A Pyramid

by henryvigeant | on January 29, 2013

“A Rigged Game”: The FTC Calls Fortune Hi-Tech A Pyramid

To all Independent Representatives at FHTM, we are sorry for.

Henry Vigeant

By Tom Gara Wall Street Journal

FHTM

Fortune High Tech Marketing’s website promised its sales people luxurious rewards including cars and overseas holidays.

The FTC today said it has asked courts to freeze the assets of Kentucky-basedFortune Hi-Tech Marketing (FHTM), which it alleges is a pyramid scheme.

Addressing those who had signed up as resellers of FHTM’s products, Steve Baker, the director of the FTC’s midwest region office, said  regulators “believe you’ve been victims of a rigged game.” The vast majority of resellers quit the company within a year of signing up, and almost all of them lose money, according to the investigation.

That’s because after paying hundreds of dollars to join — and sometimes thousands — commissions on actually selling a product were almost comically thin. As an example, Mr Baker pointed to cable TV packages with Dish Network DISH +0.29%, sold by FHTM reps: if you signed up a customer for a $50/month package on a two-year contact, your commission would be a whopping 43 cents.

It goes without saying that you’d need to sell a lot of cable TV to make back the hundreds of dollars you spent to become a sales person, let alone turn a profit, which almost nobody did. Instead the real money was to be paid in recruiting others to join the scheme, and taking a cut of the initial payments they make to join. “The plan was set up so that 96% of people lose money,” Mr Baker said.

FHTM sales people sold a whole variety of things, from Dish Network packages to organic shampoos, nutritional supplements, residential gas and electricity contracts and mobile phone plans. But it turns out they didn’t sell much, on average: 90% of sales people sold less than $15 worth of product, according to the regulator.

The FTC says it will go after the company’s assets and redistribute whatever it recovers to the victims of the scheme.

And while the FTC was announcing its action against FHTM, investors were busy selling off shares on two of America’s best-known direct marketing companies: shares in Herbalife HLF -0.44% were down 8.4% by 2pm today, and Nu Skin NUS +1.26% stock was down 6.2%.