The U.S. Federal Trade Commission (FTC) has reached a $12 million settlement with a business accused of running a nationwide pyramid scheme that defrauded people of hundreds of millions of dollars.
FES told customers that they could remove negative information from people’s credit reports and increase credit scores by hundreds of points, according to the complaint. For this, they charged as much as $89 a month.
FES also operated a pyramid scheme in which customers were encouraged to sell company services to other people. The business is estimated to have made over $213 million through these fraudulent practices.
The firm is also required to put in place a compliance monitoring system to ensure that neither its employees nor contractors violate the terms of the settlement.
“FES and its owners, operators, and associated companies deceived consumers about their credit repair products and charged them upfront for the service,” the FTC said.
Moreover, the company’s credit repair services “failed to deliver,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection. These services were “rarely effective” and in many cases ended up hurting people’s credit scores, the FTC stated.
“In addition, the pyramid scheme made overinflated income claims that consumers could make tens of thousands of dollars recruiting others into FES.”
Recruiters of the pyramid scheme made “outlandish” income claims that people could earn $1,000 per week, FTC said.
To join the scheme, customers had to pay hundreds of dollars and remain subscribed to the “bogus credit repair services” every month even if they did not need them.
This business structure is a pyramid scheme in which compensation to members increases based on the number of new members they recruit, the agency stated. “Few, if any, consumers make the income promised, and many consumers lose money as agents.”
Crackdown on Pyramid Schemes
Authorities have cracked down on several other pyramid schemes. In July last year, the Texas Office of the Attorney General secured a $10.76 million judgment against a couple from North Texas who cheated millions of dollars from people during the COVID-19 pandemic.The couple ran a business called “Blessings in No Time” (BINT), positioning it as a faith-based wealth-building program solely for black people. People who joined them by paying $1,400 were promised a “blessing” in the form of eight times the investment.
Some people invested up to $50,000. In total, the couple scammed over $40 million from almost 8,000 black Americans.
Those who wished to leave the organization were promised full refunds under the condition that they concealed the truth about the business on the internet.
The defendants claimed their business was legitimate and that members who joined the program could make between $5,000 and $10,000 within 10-14 days after joining even if they had no prior skills or experience.
“The vast majority of people who joined 8FDL never made any money,” said a press release from the U.S. Department of Justice.
“They may say you can change your life—quit your job and even get rich—by selling the company’s products. That’s a lie. Your income would be based mostly on how many people you recruit, not how much product you sell,” the agency said.
“Pyramid schemes are set up to encourage everyone to keep recruiting people to keep a constant stream of new distributors—and their money—flowing into the business.”
