FundAmerica Founder Hit With $20-Million Fine : Investigation: Florida’s attorney general levied the largest fine ever against an individual. The state says the Irvine firm’s Robert T. Edwards operated a pyramid scheme.
Florida’s attorney general on Monday announced a $20.4-million fine--the largest penalty that office has ever levied on an individual--against FundAmerica founder Robert T. Edwards for allegedly violating state law by operating a pyramid scheme.
Edwards, who is facing criminal and civil charges relating to the operations of Irvine-based FundAmerica Inc., allegedly violated the state’s Unfair and Deceptive Trade Practices Act, according to Florida attorney general spokesman Joe Bizzaro.
He said Florida investigators suspect that Edwards is hiding millions of dollars in foreign bank accounts, and that some of the money was stolen from unsuspecting investors.
“We believe this is the highest fine assessed against an individual in Florida,” Bizzaro said. “We certainly don’t think he should profit from any illegal activity here in Florida.” Several states, including California, claim FundAmerica is a well-disguised pyramid scheme which relies on the sale of memberships for its revenues. But company officials say it is a legitimate consumer club, obtaining discounts for its members on such services as long-distance phone calls and travel.
Florida officials base the fine on the sale of 2,700 directorships--which puts an individual toward the top of a pyramid--as well as 4,600 individual memberships. The directorship sales--which required the purchase of 40 memberships for a total of $3,200--were the most egregious in the eyes of Florida officials, so they were each accorded the maximum fine of $5,000 under state law. The individual membership sales were assessed $1,500 fines.
FundAmerica recently filed for Chapter 11 bankruptcy protection from creditors, following the filing of a $150-million class-action lawsuit which froze the company’s assets and banned it from doing business in the United States.
The company Monday announced a restructuring of its sales program and said it is negotiating with regulators in two states so it can begin doing business again. The company refused to disclose the name of either state.
FundAmerica and Edwards have denied the charges against them, including organized fraud activity and running an illegal lottery.
Edwards, 49, could not be reached for comment Monday. But his attorney said that he was shocked by the Florida fine.
“The imposition of the fine is clearly premature and imprudent and improper,” said Neal Sonnett. “Mr. Edwards is a legitimate, honest businessman. He has not broken any laws.”
Edwards is scheduled to appear in Florida Circuit Court in Orlando Wednesday for a review of his $1-million bail. The Florida Statewide Prosecutor’s office is asking for a higher bail because it is concerned that he might try to flee the country.
Sonnett said Edwards will be in court on Wednesday, which will mark his first public appearance since he was arrested July 19. He is living in a rented home in Newport Beach.
Edwards is wanted by New Scotland Yard in London on pyramid-scheme charges and has allegedly gotten in trouble with authorities in Canada and Australia as well.
“These innuendoes about him being a fugitive or nobody knowing where he is are absurd,” Sonnett said. “I will be there by Mr. Edwards’ side and we intend to ask the judge to lower the bail, something we would not have done except for this outrageous motion.”
The Florida attorney general already had fined FundAmerica $8.2 million, which the company is asking an appeals court to review. The company is also challenging the state’s cease-and-desist order in the Circuit Court in Dade County.
On Wednesday, Florida authorities will try to characterize Edwards as a man who can’t be trusted. They will claim that Edwards gave them false information during his arrest. They will also review his past activities on three different continents and lay out some $11.3 million in wire transfers that they claim Edwards made to entities in Amsterdam and Hong Kong.
The company said it has hired the accounting firm of KPMG Peat Marwick to “determine the propriety of the substantial sums of money that were transferred to offshore entities during the past year.”
FundAmerica also said it was reorganizing operations in an effort to meet regulatory objections and obtain approval to do business again.
“New management is committed to restructuring FundAmerica and to resuming its operations,” president Mitchell G. Blumberg said in a statement.
FundAmerica’s sales representatives will no longer be allowed to buy memberships in blocks, a practice which resulted in people trading unused memberships like pork bellies on a commodity exchange, the company said.
Now, sales representatives will be allowed to buy memberships only when they have found people to use them for the stated purpose--savings on services such as phone calls.
FundAmerica said it would also expand its refund program.
“We’ve modified the marketing plan so that the focus of the program is in selling memberships, rather than buying them,” Blumberg said.
Also on Wednesday, financial guru Howard Ruff--president of FundAmerica for a week this summer before he was fired--told subscribers to his newsletter that he will be starting a company similar to FundAmerica in the next 30 to 60 days.
