Lexington-based Fortune Hi-Tech Marketing continues to come under fire from officials around the country who allege it is operating an illegal pyramid scheme.
The attorneys general of North Carolina and Texas have opened investigations into Fortune, founded by Danville native Paul Orberson. In addition, a California lawyer has opened a class-action lawsuit against the multilevel marketing company. There is already a class-action suit under way in Kentucky. And the company has settled complaints in other states, including Montana and North Dakota.
At issue in the complaints and lawsuits is whether Fortune is operating a pyramid scheme, which is illegal in most states. Fortune recruits people to sell products, who in turn receive money for products sold by those recruits. When recruiting is emphasized over sales, it's considered a pyramid scheme in most states.
"From my clients' perspective, money was being made from all recruitment, not selling actual products," said Alex Shack, the San Diego lawyer for three named plaintiffs in the California case, which is in its initial phases.
Earlier this year, Fortune agreed to pay nearly $1 million to Montana to settle allegations that it was operating an illegal pyramid scheme there. Fortune had a similar problem in North Dakota and paid a $12,000 fine but did not admit wrongdoing.
In North Carolina, Attorney General Roy Cooper's office launched an investigation into Fortune in mid-2010. Consumers said they paid money to the company but were able to make money only by recruiting others, not by selling goods or services, according to a news release. A total of 25 consumers have now complained about Fortune in the state.
Officials in the Texas attorney general's office declined to comment but have sent two civil subpoenas to Fortune, asking for information that dates back to 2006 because of "possible violations of the Texas Deceptive Practices Act."
Fortune spokesperson Brian Wright said it would be inappropriate to comment on an ongoing legal matter.
In an email, however, Wright said Fortune is addressing any issues it has as a company in a growing industry. "In Montana, as an example, we addressed concerns relating to a perception of non-compliance and worked out a solution with them," he said. Fortune "representatives in Montana are continuing with the company, and our commitment to integrity remains unchanged."
Orberson made a fortune with network marketing in the Excel communications company. He started Fortune in 2001. The business model is based on new representatives joining the group for $99.99.
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 Fortune 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.
Kenyon Meyer of Dinsmore and Shohl in Louisville is representing the plaintiffs in the Kentucky case. He said the case is being reviewed in U.S. District Court for the Eastern District of Kentucky to determine whether to hear the case in open court, rather than in arbitration.
"I think we've got a very strong case," Meyer said. "We've presented some compelling arguments why it should be in court."