State Officials in 1988 Suspected FundAmerica’s Sales Were Illegal : Fraud: Attorney general’s office investigated complaints of ‘pyramid’ scheme but didn’t file charges. Two years later, Florida regulators did.

The California attorney general’s office believed that FundAmerica, Inc. was running a pyramid scheme as early as September, 1988--nearly two years before Florida authorities filed criminal charges against the company--but it never took formal action against the Orange County marketing company, according to a letter obtained by The Times on Thursday.

After receiving complaints from its residents, Florida regulators began investigating the Irvine company last spring and then charged it and founder Robert T. Edwards last July with running a massive pyramid scheme defrauding 100,000 people across the country. Pyramid schemes enrich its creators--those at the top of the “pyramid”--at the expense of new members--those at the bottom.

In a Sept. 30, 1988, letter to Edwards, California Deputy Atty. Gen. M. Howard Wayne wrote that “we believe FundAmerica is in violation of Penal Code 327 (pyramid scheme statute) because its marketing plan permits one to purchase higher levels of compensation without regard to retail sales of the program.”

Shortly after the 1988 letter, Wayne met with FundAmerica officials who presented him with materials he said indicated that there was not enough evidence to file a claim against them.

FundAmerica claimed that it was a legitimate consumer buying club that offered its members discounts on travel, long-distance telephone service, etc. Florida prosecutors claim that the company’s main business was selling memberships to generate commissions for its distributors.

Wayne added that he received no complaints from the public about the company in late 1988.

“We sat back and waited for some complaints to come in and we didn’t hear any,” Wayne said Thursday in a telephone interview. “We didn’t think we had the kind of information we could use to bring an action.”

Florida and Texas investigators concluded differently a year and a half later. California concurred, filing an affidavit in the Florida case saying it too believed that FundAmerica was a pyramid scheme.

Wayne said FundAmerica membership grew significantly between the time of his investigation and that of the other states and that the company became less careful in keeping its marketing program within the law.

The Sept. 1988 correspondence between the California attorney general and Edwards was obtained through a public records request of the Florida statewide prosecutor. Officials there raided FundAmerica last July.

STRUGGLE ENDS A federal bankruptcy judge turns control of FundAmerica over to a trustee. D5