Fortune Hi-Tech Marketing, the Lexington-based network marketing group, has agreed to pay nearly $1 million to Montana to settle allegations that the company was operating an illegal pyramid scheme there.
Last month, Montana Commissioner of Securities Monica Lindeen ordered the company to stop operations in the state after the agency received a series of complaints, including that Fortune promised huge rewards that never came through for the $299 membership fee.
Last week, Lindeen and Fortune agreed to a settlement, which includes $840,000 to 3,400 Montana participants, an average of $247 a person, and a $100,000 fine paid by chief executive and founder Paul Orberson and vice president Thomas Mills. Dianne Graber, a Montana representative of Fortune, will pay a $5,000 fine to the general fund.
The settlement also includes a $50,000 contribution to the Investor Protection Trust, a non-profit organization that provides investor education in Montana. In the future, anyone wanting to join Fortune will pay a fee of $75, and receive a brochure that discloses the average income of representatives and how long it takes to achieve that income.
"This agreement sends a clear message to businesses operating illegally in Montana that I am committed to protecting consumers," Lindeen said. "Montanans work hard to support their families, and I will not tolerate the sale of false promises to them."
Fortune officials said the $100,000 fine was paid "without admitting the allegations of the state." They also dispute that the company paid $1 million to settle the matter, because the $840,000 is for payment to any Montana representatives who choose to resign from the business.
"We feel we have a promising future in the state of Montana and that the majority of our representatives will continue to work their FHTM businesses," the news release said.
Orberson, a Danville native, made a fortune with network marketing in the Excel communications company. He started Fortune in 2000. The business model is based on new representatives joining the group for $299. Representatives receive commissions for selling goods and services — such as security services and nutritional products — and for bringing other people into the sales force. Orberson estimates there are 160,000 representatives worldwide.
In most network marketing groups, people who join early can make a lot of money because commissions automatically flow to the early members of a pyramid-shaped sales force that is based on recruiting new people. Illegal pyramid schemes are generally defined as those that only recruit new people, rather than selling products.
Fortune had a similar problem in North Dakota, but the attorney general's office there accepted Fortune's argument that it was a legitimate business, and the cease-and-desist order was dropped. Fortune paid the state a $12,000 fine.
Montana officials estimated that Fortune had received as much as $1.9 million from residents. Lindeen and other officials determined that Fortune was an illegal pyramid scheme because most of the compensation came from recruiting new people to the network. Montana authorities also alleged that Fortune salespeople misrepresented relationships with some companies.
Orberson keeps a low profile in Lexington but made headlines when he gave $100,000 to the Hoops for Haiti fund-raiser put on by University of Kentucky basketball coach John Calipari.