According to radio station KSJB, the North Dakota Attorney General issued a Cease and Desist Order against Fortune Hi-Tech Marketing (FHTM) after the company “…blatantly disregarded” warnings…”assortment of violations”…
BISMARCK – Attorney General Wayne Stenehjem has issued a Cease & Desist Order against Fortune Hi-Tech Marketing of Lexington, KY and its principals Paul C. Oberson, Jeff Oberson, and Thomas A. Mills for violations of North Dakota transient merchant, consumer fraud, and home solicitation sales laws. The Order was filed late yesterday, December 10, 2009.
Apparently, the way I read it, FHTM failed to get a license required by the state. Seems like not a big deal except that it has then opened them up for further scrutiny:
According to Stenehjem Fortune Hi-Tech continued its business activities in North Dakota even after being told it could not do so without the required Transient Merchant license. “This business blatantly disregarded our effort to ensure compliance with North Dakota law,” Stenehjem said. “This is not the typical response from a legitimate company and its actions must have consequences.”
The Consumer Protection Division is reviewing Fortune Hi-Tech’s activities and it appears there also may be violations of the consumer fraud and home solicitation sales laws. “I’m concerned about this assortment of violations,” said Stenehjem. Stenehjem has requested information about the extent of the company’s business transactions in North Dakota including dates of transactions, customers, and payments received.
In addition to these violations, Stenehjem asked the Consumer Protection Division to review whether this company is engaged in any violations of North Dakota’s pyramid law. North Dakota law prohibits promotional pyramid schemes in which the participant pays for the opportunity to receive income primarily from the recruitment of other participants rather than the sale of goods or services.
In the last sentence above, I put into italics the key principles that distinguish a legitimate MLM from an illegal pyramid. (I talk about that concept in more detail in Pyramid Scheme or Legitimate MLM?)
FHTM posted this on their website:
Some of you may have heard that we have been contacted by the Attorney General of North Dakota.
Complaints have been made to the Attorney General’s Office about the manner in which our business is being conducted in your state. We respect the right of the Attorney General’s Office to oversee the conduct of companies doing business in North Dakota. While we are in discussions with them, you must not engage in your Fortune business in North Dakota. We hope that this matter will be resolved as quickly as possible, but in order for us to be able to obtain a positive result, you must honor this requirement until you hear from us.
Though this matter may be something different, there is a difficulty that many companies face that market products or services that have low margins.
Simply put, there just isn’t enough mark up to sustain high levels of commissions. Those products or services may include products such as telecom services, common commodities, travel services, technologies that keep getting cheaper, etc. The temptation then is to increase payouts by including sign up fees, distributor web sites, training fees etc. into the line of commissionable products. Since those items are by their nature only purchased by other distributors – not customers outside of the compensation structure – they can bring the company under legal scrutiny as then the income may be “primarily from the recruitment of other participants rather than the sale of goods or services.” YTB Travel’s legal problems in California and Illinois are an example of what can happen.
Also, see our overview of Fortune Hi-Tech Marketing