FundAmerica Fraud Charges Stun Members
John Cameron of Anaheim, an independent music producer, says that at first he was “highly suspicious” of the revivalist-style sales pitch he got from representatives of Irvine-based FundAmerica Inc.
But he changed his mind after hearing more about the marketing network, which offers members discounts on airline flights and long-distance telephone calls and rewards people who sign up new members. He joined as an independent sales representative in February.
Working six or seven hours a week, Cameron said he supplements his income by about $1,300 a month as a FundAmerica representative.
So Cameron and others--the company claims 100,000 members in seven states--were stunned by the arrest Thursday of FundAmerica’s top executive on fraud charges in a Florida investigation.
“This is not a get-rich scam, but it has ruffled a lot of feathers because it works,” Cameron said. “The caliber of the people involved is professional. If FundAmerica goes down, it will destroy a lot of good people.”
Florida authorities disagree. Pete Antonacci, Florida’s Statewide Prosecutor, said FundAmerica and President Robert T. Edwards are promoting an illegal pyramid scheme that has bilked Floridians of $8.2 million since April. Pyramid schemes lure investors who are paid “earnings” out of money received from new investors until the scheme collapses.
The company strongly denies those charges.
While the California attorney general’s office isn’t making similar charges, it has also been investigating the company for several months, said Al Sheldon, a deputy attorney general.
Sheldon said his office is attempting to get answers from the company that will help it decide whether to file charges in California alleging that the company is in violation of state laws prohibiting pyramid schemes. He said laws regulating such schemes often differ from state to state--what could be a crime in Florida may be legal in California.
Sheldon said he began receiving inquiries about FundAmerica’s aggressive sales pitches only since March. FundAmerica says it has been operating in California for four years.
FundAmerica President Robert T. Edwards was arrested Thursday in Delaware. He waived extradition and was to be moved to Florida on Friday evening, Florida officials said. Edwards, a Newport Beach resident, is wanted in England in another investigation of an alleged pyramid scheme. He is expected to meet a $1-million bond upon his arrival in Florida, said Antonacci, the Florida prosecutor.
Florida officials said the state will formally charge Edwards with running an unlawful lottery and organized criminal fraud; the fraud charge alone carries a maximum prison sentence of 30 years. Additional charges are possible against Edwards and other company officials, said Antonacci, the Florida prosecutor.
The prosecutor alleged Fund-America also crossed the line into illegality by recruiting new members with inflated predictions of their earnings and deceptive claims about how easy it is to make sales.
The company issued a statement Thursday saying it was “shocked” by the actions of the Florida authorities.
The company’s sales literature says members are prohibited from purchasing memberships solely for the purpose of qualifying for bonuses or advancement in the marketing program.
A FundAmerica spokesman said the company has been cooperating with investigators and that regulators have failed to understand the difference between a pyramid scam and a legal network marketing company, such as Amway, Mary Kay Cosmetics and Shaklee, in which independent representatives sell products. FundAmerica also confirmed that its offices in Irvine were searched by Florida officials aided by the Orange County district attorney’s office.
FundAmerica says its members can make money two ways. One way is by reselling the discounted products they buy. The second way is through recruiting new members and salespeople, some of whom join the company for no fee and others who must pay as much as $3,200.
A $140 fee entitles a person only to the discounts. Higher fees let the member climb the management ladder to titles such as director, executive director and presidential director.
FundAmerica’s marketing efforts focus on affluent customers. The company points to its board of directors as an indication of its legitimacy. The board includes economist Arthur B. Laffer; William A. Dexter, chairman of Dexter Investment Corp.; and W.G. Kanke, president of Vancouver-based Kanke Restaurants, a chain of 300 restaurants.
Laffer could not be reached for comment.
Cameron, the once-skeptical FundAmerica sales representative, said he checked out FundAmerica’s sales program and that it works to his satisfaction. He said he even talked a drug dealer into buying a membership and giving up his trade to be a FundAmerica sales representative. His income from FundAmerica, he said, helps him make the monthly payment on his Mercedes.
“I believe in FundAmerica 100%,” he said.
