FundAmerica Faithful Cheer ‘Resurrection’ : Investors: Thousands flock to Costa Mesa hotel to hear new leader say company accused as pyramid scheme will rise again.

COSTA MESA — Thousands of Fund-America members poured into a hotel here Tuesday night for what author and economic forecaster Howard Ruff called the “rebirth and the resurrection” of the controversial company that was raided by security regulators two weeks ago for allegedly being a pyramid scheme.

In his nearly two-hour presentation, Ruff, who replaced Robert T. Edwards as president and CEO on Monday, said that he had not ruled out taking the company into Chapter 11 bankruptcy protection from creditors, though he felt confident he could restore the firm and had plans to actually take it public in the next few years.

“That’s the way I’m going to become sincerely rich,” said Ruff, who disclosed that he has cancer. “. . . The company isn’t dead; it’s just in a coma.”

He said he’d decided to take over the company because “I had an obligation to protect my friends.” Some 1,500 subscribers to Ruff’s financial newsletter, the Ruff Times, have joined FundAmerica.

The audience was enthusiastic about Ruff’s speech.

“I’m very positive,” said Mark Guest, a 25-year-old FundAmerica member from Monarch Beach, who says he has made a six-figure income with the company.

Ruff was greeted with a standing ovation and whistles. His circus barker-type presentation was transmitted via telephone lines to 15,000 FundAmerica members in eight states.

Ruff told all members they were not permitted to talk to the media under any circumstances or they would lose their membership.

Edwards--who founded the company in 1986--was arrested July 19 by Florida authorities on charges he was running an illegal pyramid scheme. If he is convicted, he could face more than 30 years in jail.

Released on a $1-million bond, Edwards has disputed the charges. He did not attend Tuesday night’s meeting.

Ruff disclosed that the company’s cash crunch is even more severe than previously thought. First Interstate Bank, which FundAmerica entrusted with $11 million in deposits, has seized those funds and is refusing to release them, according to Ruff. He called on members to register their outrage with the bank and said he would not hesitate to sue. “You cannot ambush us and not pay a price,” he said.

Even though money is tight, Ruff said, the company will refund dues to any members who joined after May 15, if they want out of the company.

FundAmerica released a statement earlier this week saying that Ruff and some of his associates intended to inject capital into the beleaguered company. However, on Tuesday, Ruff declined to reveal the identities of his “influential, wealthy friends” who were going to invest in the company.

He did announce his intention to overhaul the company’s sales force, tightening up some of its practices to ensure that they comply with state laws.

Ruff is best known for predicting a period of economic distress in the 1980s, which turned out to be a prosperous period. He authored the 1978 bestseller “How to Prosper During the Coming Bad Years “ as well as “Famine and Survival in America.”

FundAmerica--which does business in eight states--is under investigation in at least three of them.

Florida officials charge the company has no real product and exists solely as a pyramid scheme, using membership dues from new investors to pay bonuses to existing ones. The company has vehemently denied the charge, saying its principal business is obtaining cash rebates for its members. Because it has so many members--about 100,000--the company says it can get major discounts by buying in bulk.

The entire rebate system is rigged--according to regulators--because FundAmerica subsidizes the rebates offered by companies such as Citibank with the money of new investors. Once the company failed to attract new investors, it would have collapsed, according to regulators.

Meanwhile, a federal judge in San Francisco modified a total freeze on FundAmerica’s assets, which was made following the filing of a class-action lawsuit against the company seeking more than $150 million in damages on behalf of its members.

U.S. District Judge Marilyn Patel decided Tuesday that FundAmerica could spend more than $1 million of $17 million in several bank accounts so it could meet payroll and severance obligations.

But Patel refused a request by the company to pay some $5 million in commissions to its sales representatives. She did say, however, that it could pay each representative up to $3,000 in commissions.

FundAmerica charges $140 for a basic membership but pays bonuses to members recruiting new blood. Bringing in new people is the principal way people achieved overnight success through the company.