LEXINGTON, Ky. — Lexington-based Fortune Hi-Tech Marketing has operated a "massive pyramid scheme" involving more than 100,000 people, Kentucky and federal officials allege in a lawsuit against the company.
The Corporate Drive headquarters and Danville warehouse of the multi-level marketing company were seized Monday and the business was placed in receivership, Kentucky Attorney General Jack Conway announced in a news conference Monday afternoon.
The lawsuit was filed Thursday in Illinois federal court by the Federal Trade Commission and the attorneys general from Kentucky, North Carolina and Illinois. It claims that more than 90 percent of the consumers who paid a $249 fee to join Fortune Hi-Tech lost their money.
The lawsuit seeks a permanent injunction that would prohibit the alleged illegal operations of Fortune Hi-Tech, along with civil penalties, damages, and restitution. Conway said criminal penalties could be involved, since violating Kentucky's pyramid scheme law is a Class C felony.
Fortune Hi-Tech was founded in 2001 by Paul Orberson, a Danville native who made his initial fortune with multi-level marketing in the Excell Communications company. He has donated at least $1.6 million to UK Athletics, making him title sponsor of the Paul Orberson Football Office Complex at the Nutter Training Facility.
Fortune Hi-Tech's business model is based on new representatives joining the group for rates that have ranged from $99 and $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.
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 focus mostly on recruiting new people, rather than selling products.
Steve Baker, the FTC's midwest regional manager, said his office estimates Fortune Hi-Tech made $30 million a month, but 93 percent of its sales representatives made less than $15 a month. He said Fortune Hi-Tech's sales representatives can call the FTC hotline with questions at 202-326-2643.
Officials with Conway's office and the FTC could be seen entering and exiting the company's Lexington headquarters much of Monday morning. Lexington police were seen leaving the building at 11:45 a.m., along with people unloading boxes marked with the FTC logo. A trickle of workers exiting the building said they had been sent home for the day.
Monday's action was the latest in a long line of legal problems for Fortune Hi-Tech, which has said it has as many as 160,000 representatives around the world who sell specialized products and recruit others to continue that selling.
In 2011, Fortune Hi-Tech agreed to pay nearly $1 million settle allegations by Montana officials that it was operating an illegal pyramid scheme there. Fortune had a similar problem in North Dakota and paid a $12,000 fine. The company did not admit wrongdoing in either case.
In another 2011 settlement Fortune Hi-Tech agreed to pay $1.3 million to claimants in Texas after an investigation by that state's attorney general's office. The company did not admit to any wrongdoing,
In North Carolina, Attorney General Roy Cooper's office launched an investigation into Fortune Hi-Tech 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 Hi-Tech in the state.
Several complaints about Fortune have been made to the Kentucky Attorney General's office. In addition, at least one class action suit against Fortune Hi-Tech has been filed in federal court in Lexington.
Orberson keeps a low profile in Lexington but made headlines in 2010 when he gave $100,000 to the Hoops for Haiti fundraiser put on by University of Kentucky basketball coach John Calipari.
In 2010, Orberson told the Lexington Herald-Leader that he makes $600,000 a year as the founder of Fortune Hi-Tech. Orberson said he used to take minimum wage, but his accountants told him it would look like a money-laundering scheme.