Florida Charges FundAmerica With Fraud Counts

Florida authorities filed criminal fraud charges Thursday against Robert T. Edwards, former president of Irvine-based FundAmerica Inc., and the company, alleging that they ran a pyramid scam in that state.

The charges of organized fraud, securities fraud and running an illegal lottery were made in an information, the equivalent of an indictment in most jurisdictions, filed in Florida’s 9th Circuit Court in Orlando by Statewide Prosecutor Peter Antonacci.

Edwards, who was arrested three weeks ago, could face a maximum of 65 years in prison and fines of $35,000 if convicted, said Don Marblestone, chief assistant statewide prosecutor. The company faces $35,000 in fines, not including any restitution it could be ordered to pay.

Marblestone said that the investigation of FundAmerica is continuing and that more charges and arrests are expected. California, Texas and Colorado are also investigating Edwards and FundAmerica.

“This was a big-time, premeditated rip-off scam, and we expect to pursue the investigation as aggressively as they pursued memberships,” Marblestone said. “A great deal of the things Mr. Edwards told potential investors were in fact not true.”

He said that among the material facts that Edwards failed to tell potential investors were his past associations with pyramid schemes in England, Canada and Australia, and his involvement in a land-fraud scheme in Missouri that resulted in a cease-and-desist order against him in that state.

FundAmerica’s attorney in Florida, Roma Theus, said the charges contain only “bare bones” information and that he would not comment until he could review the evidence against his client. Edwards, who resigned from FundAmerica after his arrest, and his attorney could not be reached for comment.

Florida prosecutors also said they plan to seek an increase in Edwards’ bail, which was set at $1 million, because of recent allegations that Edwards siphoned off $16.7 million in company funds in recent months.

The filing of the formal criminal charges had been expected since state authorities ordered the arrest of Edwards on July 19. The case was filed by the statewide prosecutor’s office, a division of the Florida attorney general’s office that handles criminal prosecutions that involve more than a single county.

FundAmerica, which operates in eight states, says it is a legitimate multilevel marketing company that offers customers cash rebates on services such as long-distance phone calls.

But regulators say the company derives nearly all of its income by recruiting new members rather than by offering a real product or service. California authorities said that although FundAmerica had about 100,000 members, it had sold as many as 1 million memberships.

People paid to become of part of a membership consumer buying club that offered rebates on services and products. But regulators say the rebate system is rigged because FundAmerica subsidized the rebates offered with the money paid by new investors. Once the company failed to attract new investors, it would have collapsed, they said.

Florida authorities claim that FundAmerica had since March bilked $8.2 million from residents of that state through an illegal pyramid scheme.

A cease-and-desist order requested by the Florida comptroller’s office three weeks ago could take effect at the close of business today unless FundAmerica files a legal challenge by that time. The order would make it illegal for FundAmerica to do business in Florida.

FundAmerica attorney Gerald Richmond said the company had filed a motion asking for more time, but Terry McElroy, spokesman for the comptroller’s office, said that motion had been denied by the state agency.

In addition, a spokesman for Carlson Cos. Inc. in Minneapolis said it was withdrawing from FundAmerica’s discount buying program because of “recent problems affecting FundAmerica.” Carlson is the fifth major vendor to do so.

The company, through its 1,300 Carlson Travel Network agencies, offered travel discounts to members under an agreement with FundAmerica. Carlson will no longer offer purchase credits to FundAmerica, spokesman Dexter Koehl said. He declined to discuss whether FundAmerica owes the company money.

Marblestone said the prosecutor’s office will seek higher bail in light of information that surfaced in the past week about Edwards’ compensation--$1 million a month--and his movement of company money to accounts abroad.

Howard Ruff, who replaced Edwards as chairman of FundAmerica for one week until company shareholders fired him on Monday, disclosed last week that Edwards had been paid a salary of $5.4 million during 1990 and that he had wired $11.3 million in company funds to two foreign entities.

Ruff, a colorful author and newsletter writer who said he planned to resurrect FundAmerica, said he was fired by company shareholders after he made the damaging disclosures.

Company officials have said that FundAmerica is considering filing a Chapter 11 bankruptcy petition to seek protection from its creditors.

Peter Bradshaw, a Vancouver businessman who is a co-owner of the Canadian holding company that owns FundAmerica, is serving as managing director of FundAmerica, and Houston developer Mitchell Blumberg has replaced Ruff. Representatives for the men did not respond to calls for comment Thursday.

In connection with a $150-million class-action lawsuit filed against FundAmerica in San Francisco, U.S. District Judge Marilyn Patel has frozen $17 million that FundAmerica holds in bank accounts.

Daniel Girard, attorney for the plaintiffs in that case, said he plans to subpoena Bradshaw and Harvey Conner, a top marketing official at the company, for testimony in the case next week. The plaintiffs are customers and sales representatives who say the company defrauded them.