His Pyramids Were Schemes, Authorities Say : Marketing: FundAmerica of Irvine was only Robert T. Edwards' latest dubious venture. Surpassing the Pharaohs, he's left his mark on three continents.


Some say FundAmerica founder Robert T. Edwards built pyramids better than the Egyptians.

Constructed on at least three continents, his monuments weren't made out of sandstone. They were made of money.

From Australia to England to California, investigators say, the 49-year-old Canadian presented himself as an earnest businessman when he really is a globe-trotting con man. He seems to have two overriding talents: He can persuade nearly anyone that he can make them truly rich, and he knows when to get out of town.

Edwards left Canada in the early 1970s, just before the national police there filed criminal charges against him for allegedly running a pyramid scheme. He resurfaced in Great Britain, but went on the lam when another pyramid operation collapsed. Four years ago, he slipped out of Australia under a cloud after his sales firm failed.

"He left the country with some money sticking to his fingers," asserted Norman Prentice, spokesman for the South Australia Department of Public and Consumer Affairs in Adelaide. "He never came back to this country and, I might add, neither did the money."

Now, authorities in the United States say they have uncovered the Great Pyramid of Edwards' career--FundAmerica Inc. in Irvine.

Four states, including California, allege that FundAmerica is a pyramid scheme and are investigating the company and Edwards. On Thursday, Florida formally charged Edwards and FundAmerica with organized fraud, securities fraud and illegal lottery activity. If convicted, he could get more than 65 years in jail.

Edwards has denied the charges against him. He says he is a legitimate entrepreneur, traveling the world to create multilevel marketing companies that are as upstanding and as successful as Amway or Mary Kay Cosmetics.

FundAmerica is his piece de resistance. The four-year-old company has 100,000 members in eight states and was bringing in big money. Documents filed in Florida indicate that it took in $33 million in just the first four months of this year.

Well-known business figures--such as supply-side economist Arthur Laffer and investment guru Howard Ruff--were so taken with Edwards that they became FundAmerica members and for a while accepted leadership roles in the company.

FundAmerica has steadfastly maintained that it is a run-of-the-mill consumers club, saying that its sole purpose is to earn cash rebates for its members on services such as travel and long-distance phone calls.

State authorities, however, contend that it is a gussied-up pyramid scheme, deriving almost all its income from membership sales, and that a market has even formed around selling them in blocks. California officials said there are 100,000 members, but another 900,000 memberships were sold to existing members in packets that have not been resold.

Indisputably, those at the top of the alleged pyramid got rich selling FundAmerica memberships. Twenty-five-year-olds sported six-figure incomes and Armani suits. A few attorneys quit their jobs because they could make more money at FundAmerica. Some Harvard Business School graduates said it was the financial opportunity of a lifetime.

Edwards was "the marketing genius" behind it all, it was said again and again in glossy FundAmerica brochures and videotapes.

But ever since his arrest in Florida on July 19, Edwards has become persona non grata. Free on $1 million bail and reportedly still living in Newport Beach, Edwards and his attorney, Hy Shapiro, would not comment for this article.

The company Edwards created is now struggling for its survival. FundAmerica spokesmen say Edwards, who was being paid $1 million a month before his arrest, is completely divorced from the firm. And late this week they said they are trying to recover some $11.3 million that he mysteriously wired to entities in Hong Kong and the Netherlands before his arrest.

FundAmerica needs the money. Company officials said it is on the brink of filing for Chapter 11 bankruptcy protection from creditors. Should FundAmerica go bankrupt, it would be following in the footsteps of many earlier Edwards entities.

The locales are different, but that's about the only distinction among Edwards' companies. His modus operandi has changed little over the past two decades, according to interviews with investigators, victims and others familiar with his operations.

Typically, he sweeps in as the answer to every penny pincher's prayers. He forms a club of bargain hunters so huge that merchants agree to prearranged discounts in exchange for the prospect of a lot of business from members. This in itself is not a pyramid scheme; some investigators even think it's a great idea.

But Edwards adds a few special twists, investigators say.

For starters, members don't see the first few hundred dollars in savings--it goes into a trust fund. FundAmerica said it was a fund for one's golden years. "Spend your way to retirement," was a company jingle.

Authorities in several states are probing what Edwards and FundAmerica did with the money that accumulated in this fund. A similar fund that Edwards created in an Australian entity in the late 1980s was a sham, investigators say.

But the big money in Edwards' operations is not in trust funds but in signing up new members. People soon learn that the fastest way to a six-figure income is to buy more memberships wholesale and sell them to others retail.

FundAmerica's memberships could be had for $80 wholesale and then sold for $100 on an individual basis. This sales method is so popular that investigators in several countries say memberships were traded in blocks among salespeople, like pork bellies on a commodities exchange.

What happened, investigators say, is that markets became saturated, and people with 50 or 100 memberships couldn't find anybody to buy them, leaving them holding worthless unsold memberships.

Predictably, Edwards and his ideas evoke a lot of emotion these days.

His supporters say he is the business world's boy wonder, so far ahead of his time that he is simply misunderstood by investigators.

His critics--including Ruff, who replaced Edwards as president of FundAmerica before being fired a week later--say he is something else altogether.

"He is a liar," says Ruff flatly.

Robert Thomas Edwards was born in Winnipeg on May 15, 1941. He has told friends that his family was poor and that he had to put himself through the University of Manitoba, graduating with a physical sciences degree in 1963.

He joined Phi Delta Theta--a fraternity whose guiding principles are "friendship, sound learning and rectitude"--and his junior year was sports editor of the Manitoban, the college newspaper.

Edwards and fraternity brother Harold F. Fitzpatrick started Savex Cashcard Ltd. in the late 1960s, offering discounts to members in exchange for a $12 fee. Winnipeg-based Savex offered cardholders 10% off at some stores, 50% off movie tickets and access to a computerized buying service that was supposed to find the lowest price on any item in town within 24 hours.

Like FundAmerica, Savex had levels of sales representatives who were recruited at what Edwards called opportunity meetings, often held in the basement of a Winnipeg hotel.

The Winnipeg Free Press reported in January, 1971, that a color film was shown to prospective members which featured expensive cars and luxurious surroundings. The film said Savex representatives could make $160,000 (Canadian) a month in their spare time by selling cards to new members.

The company drew the attention of the Better Business Bureau of Greater Winnipeg. According to the Free Press, the bureau was concerned that "Savex would appear to be more consumed with recruiting distributors than with marketing the cashcards, the prime goal appearing to be a fast buck for those at the top of the pyramid."

Nevertheless, Savex cards spread into Edmonton, Calgary and Vancouver. Because there were too many cards and not enough people, Savex salesmen began taking ads in Calgary newspapers trying to unload them at prices close to what the salesmen paid. The company soon collapsed.

Edwards, Fitzpatrick and a third friend, Garfield John Lawrence, were charged in 1973 with running a game of chance--the Canadian equivalent of a pyramid scheme--in connection with Savex, said Royal Canadian Mounted Police spokesman Jean LeGal.

"There was a warrant out for his (Edwards') arrest," said LeGal. But by then, he and his friends had already set up shop in England.

They opened an office in the Putney section of London and began selling memberships for 5 pounds in a discount club called Cashchek Ltd., according to published reports. Again, people were given a chance to buy into a pyramid-type sales force. This time, more than 150 people paid up to 2,200 pounds each (more than $5,400 in 1973 U.S. dollars) for the privilege of reselling memberships at a profit.

Cashchek declared bankruptcy in England in March, 1973, just about the time that Canadian authorities were getting around to bringing criminal charges against Savex. By June, investors were told by English authorities that they had no hope of getting their money back.

"Some of the corporate proceeds appear to have been remitted overseas," reported The Guardian. The British newspaper said authorities estimated that about 215,000 pounds ($529,867 U.S.) were missing.

Edwards, Fitzgerald and Lawrence left England before New Scotland Yard charged Edwards in 1975 with conspiracy to defraud and issued an arrest warrant that is still valid, said New Scotland Yard spokesman Cornelius Alexander in London.

From there, Florida and Australian authorities suspect, Edwards went to New York in late 1974 to begin a real estate firm. Robert Edwards Associates and Dupont Estates--two entities he ran on Park Avenue--sold what authorities said was worthless land outside Montreal.

"Here at last is the chance of a lifetime," Edwards wrote in a letter to prospective customers dated April 26, 1975. "This property will be advertised nationally in the coming months, but we are giving you--our original customers--first crack at it."

But on May 28, 1975, the Missouri Securities Commissioner issued a cease-and-desist order against Edwards, maintaining that he was selling land as an unregistered security.

Despite all these problems, everywhere Edwards has surfaced people are drawn to him. His is a soft-sell, delivered with charm and seeming sincerity.

"On the surface, a pleasant fellow, quietly spoken," said Laurie Mulham, a former consultant to Edwards in Australia. "I didn't see indications of (Edwards) being a kind of high-flying crook."

Joseph Preston, owner of Amerishop in Zeeland, Mich., met Edwards after his discount buying club was asked to become part of FundAmerica, a deal which was terminated after less than a year. "He was very well-traveled and well-mannered and intelligent," said Preston. "He knew what he was talking about."

Said Ruff: "He radiates candor and honesty."

Friends and former employees say he works day and night, relaxing by duck hunting and salmon fishing. He has preferred to accumulate few personal belongings. He rents a house.

"He wasn't an extravagant guy by any means," said John Hunter, a former business associate of Edwards in Australia. "He didn't own any property over here."

But Edwards has told others that he was big in Texas real estate.

"He made a point of telling me he had done very well in real estate," said Preston. "He said he made a lot of money in apartments in Houston."

Mitchell Blumberg, a Houston developer who recently became FundAmerica president, once told a roomful of FundAmerica members that he and Edwards did a real estate deal together. Blumberg now refuses to comment.

While Edwards likes to say that real estate made him a multimillionaire, he did not stick with that business. By the early 1980s, he was once again active in multilevel marketing. This time, the company was called Personal Best, and it operated in the United States, Canada and Australia.

Personal Best, with a U.S. office in Bellingham, Wash., sold weight-loss products, including mineral supplements, an aloe vera drink and chicken soup, said Hunter, who started the company with Edwards. Like all the rest, Personal Best had a pyramid-like sales force. Personal Best ultimately failed in North America, but the chapter in Australia was reincarnated as Trump Card International.

Trump Card entitled its members to what it claimed were the lowest prices in South Australia for any product valued over $100. But consumer affairs officials were soon getting complaints. One woman told a parliamentary committee that Trump Card's bargain hunters told her that the lowest-priced mattress in Adelaide cost $750; she found the same item elsewhere for $599.

The company had about 20,000 members when it declared bankruptcy in May, 1986, Australian officials estimate. About 1,000 people lost an average of $1,000 each in Australian dollars, said Mulham, the former consultant to Edwards. In its bankruptcy filing, Trump Card declared debts of about $350,000 Australian.

On Oct. 2, 1985--seven months before Trump Card filed bankruptcy--Edwards transferred the equivalent of $712,000 (U.S.) in company funds to a Personal Best account at the Peoples State Bank in Washington. He eventually sent some of it back, but most of the money remained in the United States, according to Australian authorities.

"This particular program was virtually a mirror image with what he has done with FundAmerica and a mirror image of his exploits in Canada and England," Mulham said.

Two months after the downfall of Trump Card, FundAmerica was formed.

Joseph Preston of Amerishop says Edwards assured him that FundAmerica would be a gold mine. "This guy mentioned the name Trump Card," Preston said. "He said he had tested the concept there (in Australia) and was now ready to try it in the United States."

FundAmerica wasn't an overnight success. Preston said the company had only about 1,500 members in 1987, and his company decided to terminate its relationship with Edwards because business was so bad.

But things picked up. Membership grew rapidly, and Edwards struck it rich. Company documents released by Ruff indicate that Edwards paid himself $5.4 million in salary this year and wired funds overseas--including $10.5 million to an Amsterdam firm, Acheteur International, for unknown purposes.

"We are entitled to that," said Acheteur President Peter Hordijk. "Our business is selling business ideas." He refused to elaborate, but investigators are probing the transaction.

For years, Edwards kept his past behind a veil of secrecy. A glowing profile of Edwards entitled "Pyramid Power" that recently appeared in an Orange County business publication made no mention of his failures.

Ruff and some FundAmerica members now say they feel like fools for having trusted Edwards.

"I made one mistake," Ruff said. "I limited all of my investigations to the United States of America. Next time I do something like this, I'm going to go from Afghanistan to Zaire."

Probing Pyramids in Edwards' Past Authorities on three continents claim that FundAmerica founder Robert T. Edwards has been involved in alleged pyramid schemes and other questionable activities for more than two decades. The FundAmerica marketing structure is shown below.

1. In the 1960s, Edwards and others form Savex Cashcard Ltd. in Winnipeg Canada, offering discounts at retail stores. Savex fails and in 1973 criminal charges are filed against Edwards.

2. In 1971, Edwards and others found Cashcheck Ltd. in London. Sales representatives reap commissions from signing members. The firm goes bankrupt, and in 1975 Edwards is charged with conspiracy of defraud.

3. In 1974, Edwards opens two real estate offices in New York. Investigators say he specializes in selling worthless land outside of Montreal. 4. Edwards is said to be active in the booming Texas real estate market in the late 1970s.

5. In the mid-1980s, he forms Personal Best, which sells weight-loss products. It has offices in Australia, Europe and Bellingham, Wash. The has a pyramid-like structure.

6. From the remnants of Personal Best, Edwards forms Trump Card International in Australia. Trump Card files for bankruptcy in 1986.

7. Edwards forms FundAmerica Inc. in Irvine in 1986.

8. Florida officials arrest Edwards on July 19 in Delaware for running an illegal lottery or pyramid scheme in Florida.

9. FundAmerica officials reveal that Edwards wired $11.3 million to entities in the Netherlands and Hong Kong before his arrest.

10. Formal charges filed against Edwards and FundAmerica in Orlando, Fla. If convicted, Edwards could face 65 years in prison. FUNDAMERICA MARKETING STRUCTURE

PRESIDENTIAL DIRECTOR: Must bring in 10 directors

EXECUTIVE DIRECTOR: Must bring in five directors.

DIRECTOR: Must purchase 40 memberships at $80 each for resale, equals and invetment of $3.200.

MANAGER: Must purchase 20 memberships at $ 80 each for resale, equals an investment of $1,600.

ASSOCIATE: Must purchase five memberships at $ 80 each for resale, equals an investment of $400.

MEMBER: Pay $100 to the person who sells you the membership, plus one-time intiation fee of $40 to FundAmerica. The membership is renewable for $100 each year.

Sources: Investigators, public officials, public documents and newspaper reports in Canada, Australia, Great Britain, Florida, California and Texas. Scott Brown / Los Angeles Times

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