U.S. Files Charges over $175M Online Pyramid Scheme

The U.S. Federal Trade Commission (FTC) announced Monday that it had sued to shut down an illegal Internet pyramid scheme that allegedly bilked consumers around the world to the tune of US$175 million.

According to the FTC, SkyBiz.com promoted its company as a work-at-home opportunity selling online tutorials. To participate, consumers paid a $25 registration fee and purchased an “e-Commerce Web Pak,” which included two Web sites and access to online tutorials, for an additional $100.

FTC attorney James Elliot told the E-Commerce Times that consumers were actually “signing up to earn commission checks from recruiting.” He said that fees paid by consumers went directly into the pockets of people higher up on the pyramid.

The FTC’s lawsuit was filed May 30th in U. S. District Court in the Northern District of Oklahoma and named these defendants: World Service Corporation, Nanci Corporation International, WorldWide Service Corporation, James S. Brown, Stephen D. McCullough, Elias F. Masso, Nanci H. Masso, Kier E. Masso, and Ronald E. Blanton. All of the individual and corporate defendants are from Tulsa, Oklahoma, the complaint said.

According to the WebBiz site, the following domains have been used or are being used. Skyboom.com, Skybusiness.com, Skyfamily.com, Companyontheweb.com, Familyontheweb.com, Skywebsite.com, Skywebbiz.com, Skywebfamily.com, Skywebco.com and Myskyfamily.com.

Temporary Freeze

The FTC’s case alleges that the defendants were making false and misleading claims and operating an illegal pyramid scheme. Elliot said the FTC is asking the court to shut down SkyBiz permanently and order the defendants to pay restitution to SkyBiz’s consumers.

On June 6th, Chief Judge Terry C. Kern temporarily halted SkyBiz’s operations and froze the defendants’ assets to preserve them for consumer redress, according to the FTC. The court also appointed a receiver, the agency said.

Although the company’s Web site is up and running, Elliot said the company is not supposed to be transacting any business under the court order. A preliminary injunction hearing is scheduled for June 26th.

The SkyBiz site currently bears a notice posted on its “Events & Meetings” page that reads, “Hawaii Convention Update: Due to the current situation regarding the investigation of SkyBiz by the FTC, all corporate functions, including meetings, conventions, etc. will not have a corporate presence.

“Most who have registered for the convention in Hawaii are still planning to attend. This will be a great time to get to know leaders from all over the world, and enjoy fun and fellowship. The event will be a unique opportunity to become well-acquainted with incredible people — and other leaders you have always wanted to know.”

Promises, Promises

SkyBiz allegedly lured consumers to invest in its pyramid scheme by promising quick riches, the lawsuit alleges. The FTC said that SkyBiz’s marketing materials — including live presentations, a Web site, and phone calls — represented to consumers that they were “likely to receive substantial income by participating in the SkyBiz program.”

The company’s marketing material contained a number of testimonials from satisfied customers, including one who said he was making $174,000 a month, according to the FTC.

Ante Up

The FTC said that SkyBiz sold 1.7 million Web Paks and that many people bought more than one because SkyBiz urged participants to do so in order to maximize their earning potential.

Although the Web Pak included two Web sites, one to promote SkyBiz and another for personal use, the FTC said that the vast majority of SkyBiz associates did not activate the personal Web site.

The vast majority of participants also did not get rich participating in SkyBiz, the FTC said. According to Elliot, 87 percent of the SkyBiz program participants did not make any money at all from the program, and 94 percent of those that did make money did not make enough to recoup their $125 investment.

Suits Around the World

The FTC is not the first law-enforcement agency to take action against SkyBiz. As early as May 2000, countries around the world began filing criminal or civil charges against SkyBiz associates.

In May 2000, Canadian authorities filed criminal charges against SkyBiz associate Jeanette Friskie. Sgt. Steven Foster of the Royal Canadian Mounted Police’s Commercial Crime Section in Regina, Saskatchewan, told the E-Commerce Times that Friskie goes to trial on September 24th.

The Australian Competition and Consumer Commission filed charges against SkyBiz associate Kevin Ryan in August. SkyBiz is also reportedly under fire from authorities in New Zealand, South Africa and Malaysia.

Why the Wait?

When asked why the FTC did not bring charges against SkyBiz sooner, Elliot said the agency had not been working with authorities in other countries and did not learn of their cases until the FTC had already started its investigation.

Elliot added because of the nature of the case, the FTC wanted to take its time to “make sure we had the facts right.” He also said that during the course of the investigation, the FTC taped seven or more presentations and recorded numerous phone calls.