Fortune Hi Tech Marketing is one of hundreds of multilevel marketing companies that operate in the U.S through a combination of clever lawyering (“Let me show you how to set up your MLM so it appears to abide by the laws.”) and failure of law enforcement to enforce the laws against pyramid schemes and business opportunity scams (aided in large part by the Direct Selling Association and its lobbying efforts).
What makes FHTM different? Nothing, really. Every multi-level marketing company seems to claim it is different! It either has magic juice, special vitamins, the supposed opportunity to make money on things you already consume anyway, or any of a number of claims of uniqueness.
FHTM was founded in 2001 by former Excel Communications superstar Paul Orberson. This news story on Fortune Hi Tech Marketing from WHAS11 in Louisville, KY say that the company has 200,000 representatives and brings in revenue of $500 million per year. (Although the company’s CEO, Tom Mills, claimed he didn’t know how many representatives FHTM had. Incredible!) Oddly enough, this multi-million dollar business is run with only 60 employees at headquarters.
The company claims to provide products and services at competitive prices for customers, although research shows that this is likely not the case. Fortune makes money by selling overpriced services, some claim. Independent Representatives (IRs) are required to sign up for services themselves or get other people to sign up, in order to qualify to receive payments from the company. If the services are indeed priced higher than consumers could get on their own, there is an obvious profit for Fortune High Tech Marketing.
As explained in this news report posted on YouTube, the company says you can make money by simply representing products you already use, such as Dish Network, Travelocity, and the like. You simply sign up with FHTM, pay their entrance fee, sign up for services through FHTM, recruit others to do the same, and the money begins to flow your way.
Sounds great, but it’s not quite so easy. As noted in this article on Fortune Hi Tech Marketing in USA Today:
Critics of Fortune, including the Montana Commissioner of Securities and the plaintiffs in a new lawsuit seeking class-action status, say Fortune is a “pyramid scheme” because salespeople are primarily paid for recruiting, not product sales, and more recent recruits can’t earn anything close to what the early entrants do.
I”m sure the company denies being a pyramid scheme. But I’d suggest you take a look at the image to the right (click to enlarge), which shows how to make lots of money in the business. Notice that the number of representatives keeps growing as you go down the pyramid, requiring an ever widening base of people at the bottom (who aren’t making any money if they’re at the bottom). If companies don’t want to be called pyramids, then I suggest they stop setting up systems that look exactly like…. PYRAMIDS. (See the full presentation here. 3MB file.)
Former FHTM member Joseph Isaacs points out the flaw in the system: He made almost nothing from the “residuals” they advertise you can earn from people using the services. The commissions are so low on the services, that it makes no economic sense for representatives to try to sell them beyond their “qualifying” levels.
Fortune documents show its sales reps are paid $100 to $480 for recruiting customers who pay fees to become representatives and buy or sell a small number of products. They receive commissions of up to 1% — or less than $1 on a $100-a-month cellphone bill — on products and services, which they are often encouraged to buy for themselves or give away. Former sales managers including Isaacs and Yvonne Day, a plaintiff in the lawsuit seeking class-action status, say their product commission checks were often less than $20, while income from bonuses totaled several thousand dollars. A lawsuit filed by Isaacs alleges 82% of 100,000 Fortune representatives last year “failed to earn a single residual commission over $20 despite making personal purchases.”
“All compensation is based on sales, and sales alone,” Mills said in his written response. “There is never any compensation for recruiting, only for the acquisition and retention of customers.”
“Customer acquisition bonuses,” he says, “reward the (independent representatives) for acquiring new customers.”
Isaacs contends, however, that he made almost all of his money from the fees paid by the company for bringing in new recruits. And he says that Fortune HighTech Marketing is not all it claims to be. He alleges:
- Paul Orberson had not made any special arrangements with the companies mentioned at the business opportunity/presentation seminar or in the company produced videos
- The only way to earn a significant income and be promoted up the ranks was to recruit additional IRs
- FHTM had not received regulatory approval for its pyramiding scheme in every state
- Only a handful of IRs had earned anywhere near the residuals projected
- The prominent businessmen, politicians, former attorney generals and sports figures to whom FHTM constantly alluded were in fact IRs actively promoting their own FHTM business
- A growing number of state attorneys general had already begun investigating FHTM in response to numerous complaints.
Multi-level marketing companies pull out all the stops to recruit new members. They rely on manipulating your emotions and hitting you in your weak spots to reel you in. As seen in this television news story, this news story, and this news article, the recruiting pitch includes slimy things such as:
- “Don’t leave this business! For your children’s sake! For your wives and husbands.” – Fortune founder Paul Orberson
- “The Lord wanted you to be here today. Can’t survive. Can’t pay your bills and all of the sudden, the Lord opened a door.” – Kevin Mullens, aPentecostal preacher and Fortune HiTech Marketing representative from Crawfordville, FL
- Fortune is “…a ministry that can produce whatever it is that you need.” – Kevin Mullens, aPentecostal preacher and Fortune HiTech Marketing representative from Crawfordville, FL
- “You’re gonna get paid $100,000 a year for doing exactly what you do today.” – Florida Trey Knight, FHTM representative in Florida
- “Last month, what I was paid on a monthly basis was more than I would have been paid in five years coaching at the high school level.” – Todd Rowland, FHTM representative from Arkansas.
But distasteful tactics aside, what is so wrong with multi-level marketing?
The debate over whether a particular company is running a pyramid scheme or Ponzi scheme has been ongoing for years. Companies like Medifast Inc. (NYSE:MED) with a multi-level marketing division called Take Shape For Life (TSFL) acknowledge the risk of being deemed a pyramid scheme in filings with the SEC:
Our Business is subject to regulatory and legislative restrictionsA number of laws and regulations govern our production, operation, and advertising. The FTC and certain states regulate advertising, disclosures to consumers, privacy, consumer pricing or billing arrangements, and other consumer matters. Our direct selling distribution channel is subject to risk of interpretation of certain laws pertaining to the prevention of “pyramid” or “chain sale” schemes. Although we believe we are in full compliance, should the governing body alter or enforce the law in an unanticipated way, there may be a negative result on the company’s operations.
Multi-level marketing companies are regularly exposed as nothing more than pyramid schemes which our governmental authorities allow to exist. In his report When Should an MLM or Network Marketing* Program Be Considered an Illegal Pyramid Scheme?, multilevel marketing expert Jon Taylor, PhD explains that the FTC’s definition of a pyramid scheme (1. commissions paid simply for recruiting, and 2. ignoring the marketing of products and services) is inadequate to determine whether an MLM is a pyramid scheme. Multilevel marketing companies can easily set themselves up to appear to avoid those two descriptors, but detailed analysis of compensation plans and recruiting activities of distributors or representatives would show that many MLMs are indeed pyramid schemes.
In his report The Myth of Income Opportunity in Multi-Level Marketing, court certified expert on multi-level marketing and pyramid schemes Robert FitzPatrick revealed that his extensive research found that 99% of all sales representatives each year in the sample of companies analyzed earned less than $14 a week in commissions. This figure is before all business expenses, inventory purchases, and taxes are deducted. The figure therefore represents a significant financial loss for virtually all that join these schemes. He also reported that on average no net income is earned by MLM distributors from door to door “retail” sales.
MLM continues to be ignored as a problem by most regulators because the companies claim that representatives are making profits on retail sales. According to FitzPatrick, “…the retail sales potential is held up as a defense against pyramid scheme charges since the payments to the upline are based on the product purchases of new recruits, not chiefly on entry or membership fees.”
But this retail sales argument is a myth. The products and services, while appearing legitimate, are typically overpriced (even at “wholesale” prices) in order to generate enough cash to pay multiple levels of commissions. This makes them difficult (if not nearly impossible) to sell in any volume that would provide a living wage to a representative. FitzPatrick’s research shows: “A statistical review of twenty-one (21) MLM companies representing 5 million sales people and “projected” retail sales of $10 billion reveals that even if retail sales are assumed to be occurring, the average MLM sales person is not earning a net profit from retail sales.”
Coming Soon: The focus on recruiting new representatives to FHTM.