FundAmerica Suit Settlement Given Tentative Approval
A federal judge in San Francisco has tentatively approved a proposed $9-million settlement of a class-action lawsuit against FundAmerica, the network marketing company that is accused by authorities in several states of running a pyramid scheme.
The settlement is still not final for several reasons--including a refusal by Florida regulators as of late Monday to go along with its terms. Florida officials object to a provision requiring them to drop a civil administrative action against the Irvine-based firm.
Florida Deputy Comptroller Larry Fuchs called the settlement “inadequate and premature” but added that negotiations would continue right up until a bankruptcy hearing scheduled for today in Santa Ana.
Florida has filed criminal charges against FundAmerica and founder Robert T. Edwards and is seeking to collect $30 million in fines. “They (FundAmerica) wanted the regulators to back off and leave them alone,” Fuchs said.
But FundAmerica attorney J. Pat Powers said the company simply wants to resolve all of the lawsuits against it at once.
“If we are going to settle with the class for this substantial sum of money, it will be in return for all claims against FundAmerica,” Powers said. “FundAmerica tried to negotiate a global settlement.”
The class-action lawsuit, filed in late July, originally sought $150 million in damages. The suit, which alleged fraud and racketeering, was filed on behalf of all persons who had received less in refunds and rebates from FundAmerica’s discount program than they had spent on memberships. The settlement was reached late Friday.
Several states, including California, contend that FundAmerica is a well-disguised pyramid scheme that relies on the sale of memberships for its revenue. But company officials say it is a legitimate consumer club, obtaining discounts for its members on such services as long-distance phone calls.
Even if Florida reaches a last-minute agreement with FundAmerica and the attorneys who filed the class action, the proposed settlement must win the approval of U.S. Bankruptcy Judge James N. Barr in Santa Ana. He is to preside over a hearing that will examine the settlement as well as decide whether a bankruptcy trustee should be named to run FundAmerica.
Besides $9 million in cash, FundAmerica has agreed to give those involved in the class action 50% of an estimated $17 million wired overseas by Edwards--if it can be established that the funds were transferred fraudulently.
The proposed settlement calls for FundAmerica and those who sued it to establish a committee to investigate the transfers. Some $11.3 million went to Acheteur International in Amsterdam and Theta Ltd. of the British West Indies, two firms about which so little is known that even FundAmerica’s current management is mystified.
The company has hired the accounting firm of KPMG Peat Marwick and a San Francisco law firm to investigate the transfers. It said it will ask Judge Barr to appoint an independent examiner to do the same.
FundAmerica said Monday that it will pay the settlement using funds presently frozen in bank accounts at First Interstate.
“The company’s hope is to get these matters behind it, so it can make peace with regulators where it is going to do business,” Powers said.
Still, even if the settlement is approved, FundAmerica will still face other problems. “We are still going to prosecute the company and we are still going to prosecute Bob Edwards, and you can quote me,” said Florida Assistant Statewide Prosecutor Marty Moore.
FundAmerica President Mitchell Blumberg said Monday that he believes FundAmerica can resume its business within the next few weeks.
“We have a wonderful business that gives people a terrific value, and we think Americans have a high need for our kind of service,” Blumberg said. “We will be able to go out and pick up steam and move across the country again.”
