Couple Invested on Advice of Neighbor

Ever since losing $200 in a film-processing scam as newlyweds, Paul and his wife promised each other they would always sleep on a major decision to spend money. For 13 years, they kept that promise.

But then a representative of Irvine-based FundAmerica Inc. made them an offer they couldn’t refuse. On a neighbor’s assurance that it was a sure-fire investment, the couple forked over $3,200 to FundAmerica for 40 memberships in April.

“Why we did it still blows me away,” said Paul, who spoke on condition his last name not be used. “I guess I figured, if he’s going for it, it must be pretty good. I looked up to him.”

Paul, a 33-year-old service contract salesman from Mira Mesa, Calif., stood to make an $800 profit if he resold all the memberships for $100 each. That would qualify him as a FundAmerica director, entitling him to a percentage of sales from members he recruited.

He dreamed of eventually pulling in $30,000 a month, as other sales directors said they had, and retiring at 40.

Reality, however, quickly set in. Since April, he was only able to sell two memberships.

“I kept thinking this market isn’t going to saturate, there are so many people in the United States,” he said. “I know people all over.”

But now Paul figures he is out most of his money. As a result, he canceled plans for a summer vacation out of town.

The experience of Paul and his wife is largely the reason why authorities in four states, including California, have stated that FundAmerica Inc. is a pyramid scheme.

They claim that the last people to join such an enterprise are likely to lose their money.

Florida prosecutors Thursday filed criminal charges against FundAmerica and its founder, Robert T. Edwards, for alleged involvement in organized fraud, securities fraud and operating an illegal lottery. Other states are investigating the company as well.

FundAmerica and Edwards deny any wrongdoing. They claim the company is a multilevel marketing company, similar to several major direct marketing companies operating nationwide, designed to offer savings and discounts to members to various services.

Indeed, despite the legal problems, FundAmerica still has many loyal followers and members.

Warren Bowman, a 45-year-old draftsman from Chatsworth, said he bought a membership in FundAmerica, not to get rich quick, but to take advantage of its savings, rebates and discount offerings. He paid $140 for a membership and is looking forward to rebates and discounts--of up to 20%--on phone bills, travel, flowers and mail order items.

“I couldn’t see anything wrong with the program and I still don’t,” Bowman said. “It’s just a group of people getting together and acting as a consumer force.”

He wishes FundAmerica would offer a gasoline credit card.

“If I owned my own business, I would offer my services to FundAmerica members,” Bowman said. “I couldn’t figure out a better way to get customers without having to go to direct mail.”

He said he was unnerved by the news that Edwards and FundAmerica face criminal charges for allegedly running a pyramid scheme. But now that Edwards has stepped down from the company, Bowman thinks FundAmerica can be viable.

“Edwards may be a crook, but I’ve never met an unhappy member,” Bowman said.