Why Fortune Hi-Tech (FHTM) Was Shut Down

by bobandanna on January 29, 2013

FHTMSuccessMagazineThe FTC and three (!) state Attorneys General have shut down Fortune Hi-Tech Marketing (FHTM), calling it a “global pyramid scheme that rewards people for recruiting others.” That’s the beginning of the USA TODAY article by Jayne O’Donnell, which we have included below our sig file for your convenience. Click here to read the original article.

So why do some MLM’s get shut down as pyramids while others carry on peacefully and prosperously for years and years with no problems with the authorities?

It all comes down to what you are selling and how you sell it.

Let’s get back to the basics …

Downtown, people sell goods and services like lawnmowers and licorice and legal advice. When you hand over your money, you get something in return that you have decided is worth the price.

Commissions are paid out of the difference between retail and wholesale all along the line from digging the raw materials out of the ground to shipping the materials to making the product to shipping the product to the jobbers and wholesalers who take it to the retailers who sell it to you. The miners get paid, the manufacturers get paid, the truckers get paid, the advertisers get paid, the salespeople and sweepers get paid.

If it’s a service, everyone gets paid from the difference between the price of the service and the cost of providing that service. The rent gets paid, the utilities get paid, the staff gets paid, the student loan gets paid.

It all comes out of the $500 you spend on your lawnmower or the $5000 you send to your lawyer to handle your real estate deal or divorce. Makes sense, no?

And that’s how legitimate companies thrive and last and pay people sensibly for what they sell.

But things get whacko in MLM if we forget that network marketing is just another way of delivering goods and services to the end consumer. We lose sight of the retail/wholesale model and start sending our money away for licences, businesses, opportunities, founders’ positions, ebooks, educational material, promises and piles of other pucky that we’d never buy downtown. And we get nothing back in a bag, bottle or box.

Please read our article “What Are You Selling? Really? Are You Sure?”

So what was Fortune really selling?

OrbersonMillionaireMagazinePaul Orberson was the top earner in Excel Communications, and allegedly the first distributor ever to earn a million dollars a month. When he left Excel to form his own company, it made sense that he would adopt and fine-tune the Excel model, as it had proven so profitable for himself.

Here’s the Excel model in a nutshell: High front end costs for a box of air, and puny or non-existent residual income.

Distributors will send in $300 to $500 for a ‘licence’ and receive a $10 binder as a starter kit. They will then go to work gathering customers for the company and be paid commissions like 2%, 1/4% (!), 1%, 5%, max 8%.

This model has been adopted by the energy and communications and travel companies. The travel comp plans we have studied have no residual income at all based on the sale of travel. It’s ALL recruiting!

So how do these companies produce their millionaires? Where does the money come from?

Out of your pocket.

Remember that $500 you sent away to start your business? $200 may have gone to your sponsor. Another $200 may have gone to your upline. The company may have kept $100. Worst of all, if you did not gather your two or three customers to trigger the bonuses, the company kept it all. And you got nothing but a box of air. See O’Donnell’s article to read …

More than 85% of the compensation paid is from recruiting new members, the complaint said. The compensation plan is designed so the majority of people will spend more than they earn. As Conway noted in an interview, about 90% of people made less than $15 a year, yet were asked to spend about $1,500 a year on products and membership fees.

When Excel was coming apart in 2004, a recruiting frenzy erupted among the soon to be homeless Excel distributors. Top earners found desperate new homes and started calling everyone on every list they had. We no longer heard the success stories, but started hearing the more truthful poverty stories – the kind we are now hearing from FHTM distributors.

excelebrationLeaders who had never spoken to us before would call us up and attempt to bring us over to their new venture. Many admitted that their Excel checks were 80% to 90% recruiting and training bonuses (right out of your pocket), and only 10% to 20% residual. If their businesses did not continue to expand, their check would plummet, people would leave, customers would vanish, and their puny residuals would shrink too.

The Excel model is 90% illegal and 10% impossible. If you threw away all that messy long distance and pesky products, and just kept the real money making part of the biz, you’d have …

… one of the biggest pyramid scams ever perpetrated on the network marketing industry. Michael Dlouhy

So there’s your answer to the millionaire question. Most of the top earners in Excel were sponsor monsters living off the start-up fees sent in by hopeful recruits, NOT from the sale of goods or services to the end consumer.

The business model was “One, two and you’re through! Sign and split!”

Fortune was huge, so stay tuned for thousands to come to its defence. But … having spent five years working the Excel model, we know first hand how devastating it can be to put your time, your energy, your money, your reputation and your soul into a dream, only to have it turn into a nightmare like Excel and Fortune Hi-Tech. Maxed out credit cards, remortgaged homes, tarnished reputations, broken marriages and bankruptcies are the legacy of companies like this.

These are NOT legitimate MLM companies, and we say good riddance.

We empathize with the present Fortune Hi-Tech distributors, but we know for certain they can find a better home. We did.

If you want to learn how to avoid misfortunes like this, read this free report Big MLM Lies. Your family and friends will thank you.

Bob and Anna Bassett
519-371-1028
bobandanna@togethertothetop.com
Tom ‘Big Al’ Schreiter’s 25 Skills
Material Connection Disclosure

PS Here’s the article from USA Today. Don’t just read and get irritated. Leave a comment! Thanks.

Federal, state regulators shut down Fortune Hi-Tech
Jayne O’Donnell, USA TODAY3:02p.m. EST January 28, 2013
Fortune Hi-Tech Products

Story Highlights:

Multilevel marketing company claimed the poor could get rich quick
Reps who weren’t making money weren’t working hard enough, company would say
Kentucky attorney general will refer for criminal prosecution

The Federal Trade Commission and three state attorneys general announced Monday that they shut down a national multilevel marketing company they called a “global pyramid scheme” that rewards people for recruiting others.

Fortune Hi-Tech Marketing of Lexington, Ky., and its top two executives were sued by the FTC and the attorneys general of Kentucky, North Carolina and Illinois for “unfair and deceptive actions” that violated state and federal laws. Among the charges: Misrepresenting that the company is “a good way for average people to make substantial income and achieve financial independence.”

“Today’s actions are the beginning of the end for one of the most prolific pyramid schemes operating in North America,” said Kentucky Attorney General Jack Conway.

The headquarters and a warehouse for Lexington, Ky.-based Fortune Hi-Tech Marketing were raided Monday morning and the contents confiscated by a receiver appointed by the U.S. District Court for the Northern District of Illinois. The receiver, Robb Evans, and his firm met with FHTM employees and sent most home.

The multilevel company was the subject of a USA TODAY investigation in October 2010, which reported top FHTM representatives for the company often told their rags-to-riches stories in videotaped meetings, a book written by President Paul Orberson and marketing materials.

Joanne McMahon, a national sales manager speaking at a training session that USA TODAY attended at a September 2010 FHTM conference, said it is people who can’t afford the fee to join Fortune who need the company the most.

Orberson is a prominent figure in Kentucky, where the University of Kentucky built a Paul Orberson Football Office Complex in 2002 after he made a $1.6 million contribution. In an interview at the 2010 conference that USA TODAY attended, Orberson defended his company against allegations that it is a pyramid scheme: “If it were illegal, I wouldn’t be standing here.”​

Some employees familiar with FHTM’s business dealings, assets and technology will be kept on to assist the receiver in identifying the assets and how the business ran.

The company claimed to have 160,000 independent representatives selling products and services including Dish Network subscriptions, vitamins, cosmetics and security systems. Dish told Montana state regulators that it didn’t have a relationship with FHTM. FHTM once claimed to have relationships with other well-known brands, including Citibank and Travelocity.

Multilevel or “network” marketers pay commissions to salespeople for the products they sell, on products sold by others they recruit and often bonuses when their teams reach a certain level of sales. The Direct Selling Association, which represents companies that have multilevel compensation plans, estimates there were 15.6 million “direct” salespeople in 2011.

According to the lawsuit against FHTM, its “complicated and convoluted compensation plan” ensures most people make little or no money.

“The fact that they targeted people who just wanted to better themselves in this economy is unconscionable,” Conway said in an interview.

More than 85% of the compensation paid is from recruiting new members, the complaint said. The compensation plan is designed so the majority of people will spend more than they earn. As Conway noted in an interview, about 90% of people made less than $15 a year, yet were asked to spend about $1,500 a year on products and membership fees.

The judge issued a temporary restraining order against the company, which requires FHTM to stop any pyramid operations. Receiver Evans will report back to the court about its findings after his firm reviews FHTM’s finances and business model. The FTC and states are seeking permanent injunctive relief prohibiting the operations of FHTM, along with civil penalties, damages and restitution for consumers.

Conway says he hopes the estimated $250 million in damages will help repay many of the “people taken in by the company.”

Violation of Kentucky’s pyramid law is a felony, said Conway, who will refer the case to Kentucky’s commonwealth attorney in Lexington for possible criminal prosecution.

FHTM’s “Presidential ambassadors” averaged $1,240,992 in income a year, yet made up just 0.07% of the company’s representatives, according to a financial disclosure Fortune filed as part of its April 2010 settlement with Montana. The statement also showed 30% of Fortune representatives make nothing, and 54% of those with earnings averaging just $93 a month, before costs. More than 99% of those who make money earn less than $31,524 a year.

Stacie Bosley, an assistant professor of economics at Hamline University in St. Paul, studied FHTM’s disclosures to Montana and Texas investigators. She concluded the company doesn’t have products or sales experiences — such as at-home parties — that are attractive enough for people to buy from the company unless they are required to do so.

“When consumers can readily buy anything they want from Walmart or Amazon, it is right to be skeptical of person-to-person sales” Bosley says. “There are a lot of these companies that are ripe for this kind of examination.”

But Lou Abbott, who has built several multilevel marketing companies but is often critical of the industry on his website, MLMtheWholeTruth.com, says FHTM had long operated in a “much grayer area” than Herbalife and other multilevel marketing companies because “so much of the income was from signing up people.”

Though unrelated, the FTC news hit Herbalife in trading Monday. Herbalife’s stock was down 8% to close at $40.02.

The FTC has set up a hot line to answer questions from former Fortune representatives, who are no longer allowed to sell or recruit for the company. English and Spanish options are available at 202-326-2643.

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{ 2 comments… read them below or add one }

bankalchemist May 12, 2013 at 6:07 pm Thumb up 0 Thumb down 0

make sure to read “Inside the Scam” by Joseph Isaacs his upcoming tell all about FHTM. I have not read his other release “The Art of Flatulence” but have been told its very authentic to his style.

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Joseph Isaacs February 9, 2013 at 7:51 am Thumb up 1 Thumb down 1

Great article. The mess from FHTM is just beginning when folks like Darla DiGrandi publicly announce that top leaders are really only making 60K annually because their recruiting efforts have become dismal. Residuals in FHTM amounted to zilch. They lost a big chunk of their money when FHTM dropped the training fees in 2010 after they were exposed for what they really are – a huge prolific pyramid scheme where most lose more than money.

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