New FundAmerica Emerges From Ashes of Regulatory-Troubled Entity : Retail: California says the resurrected discount buying club appears to be legally structured. Florida labeled the original a pyramid scheme.

One financial planner took the stage and was about to tell the 45 or so people in the hotel audience how he once made a fortune selling FundAmerica memberships. Then he caught himself, realizing that this was supposed to be the new and improved FundAmerica.

“We can’t talk numbers any more, can we?” he asked another salesman. So he fudged things a tad: “Let’s say that my income in a couple of years was more than most people make in their whole lives,” he said.

They’re baaaaack.

Like the little girl who stared into her television screen and saw a poltergeist, some regulators are a bit rattled because FundAmerica started selling memberships again in California last month despite changes in the way it does business. But California officials say the revised FundAmerica marketing plan appears to be within the law.

On Sept. 3, FundAmerica founder Robert T. Edwards is scheduled to go to trial on charges that he ran the Irvine company as a pyramid scheme, accepting money from new members and using it to enrich initial distributors. If convicted, he could get more than 65 years in prison.

Florida prosecutors intend to introduce evidence in the trial that they contend shows that FundAmerica was just the latest in a chain of pyramid schemes constructed by Edwards on at least three continents the past 20 years.

FundAmerica’s recent resurrection therefore strikes some as foolhardy.

“A leopard can’t change its spots,” Florida Deputy Atty. Gen. Peter Antonacci said. “This is a real frustrating thing.”

FundAmerica, a multilevel marketing company, simply refuses to say uncle. Determined members and salespeople--despite the ongoing criminal case in Florida and the Chapter 11 bankruptcy--are clamoring to rebuild the discount buying club they have known and loved.

“Each week since we’ve been marketing, you can see more momentum picking up,” Chief Operating Officer Robert Gilman said. “People (are) coming back, saying: ‘Oh, Gee, FundAmerica is so great, it’s such a great concept, we’re so happy it’s back.’. . . . Sure, there are negatives out there and people who have distasteful feelings in their mouths about what happened. But we’re out to vindicate that . . . and be good corporate citizens.”

On paper, the old FundAmerica made some sense. The company would save its members money on everyday services such as long-distance phone calls, groceries and travel by buying in bulk. The companies providing the services wouldn’t have to advertise to attract tens of thousands of potential customers--so they could pass on some of the money they saved in the form of rebates.

The problem, in the eyes of some regulators, was that FundAmerica allegedly emphasized membership sales over the consumer services it offered and allowed some marketing representatives to buy their way up the corporate ladder by purchasing dozens of wholesale memberships.

The new FundAmerica--although denying that the original company engaged in any wrongdoing--maintains that it’s the real McCoy this time around.

Gone from its list of service providers, however, are some of the brand names, such as MCI Communications Corp. and Best Products Co., that lent FundAmerica instant legitimacy. Gilman has succeeded in lining up an array of consumer services--including the addition of express overnight mail--by purchasing them through middlemen.

As before, rebates of up to 45% of a service’s original cost are credited to a savings account for FundAmerica members. Eventually, the money is refunded, invested on members’ behalf in an annuity or used to pay off a mortgage.

FundAmerica is called a multilevel marketing company--similar to Mary Kay Cosmetics and Amway Corp.--because it rarely advertises, relying instead on word of mouth to sell itself and its services. One FundAmerica official compared it to the popular shampoo commercial of a few years back: “They tell two friends, and they tell two friends, and they tell two friends . . .”

The company says it has spent more than $32 million to settle all the legal actions against it, with the exception of the Florida case. Next month, its sales representatives are scheduled to receive $4 million in commissions owed them from last year, and members will have access to more than $1 million in savings they accumulated before the company’s August, 1990, bankruptcy.

“It’s pretty amazing that the company is back on its feet,” conceded Gilman, a former American Express and Security Pacific executive who assumed his current position with FundAmerica in May. “We are going to be a great comeback story.”

The company is counting on the lingering economic slowdown to help it.

“The ‘80s was the spending decade, and now people are focused on savings,” Gilman said. “What a brilliant concept and idea to give people cash back on . . . regular expenditures.”

FundAmerica was never charged with wrongdoing in California, where it had more than 50,000 members, even though regulators here issued a press release last year saying they believed that the company was a pyramid scheme.

Even so, FundAmerica has submitted its new sales literature and marketing plans to the California attorney general’s office--which is charged with regulating multilevel marketing companies--to make sure it complies with state laws.

“We have no basis at this time to say they can’t operate,” Deputy Atty. Gen. Susan Henrichsen said. She said a review of FundAmerica’s marketing plan indicates that there isn’t any “obvious violations of law.”

But Henrichsen quickly added that her office is expecting to monitor FundAmerica’s presentations to ensure that what is on paper and what actually happens are one and the same.

“You have to see how a system operates before you find out if it’s violating law and causing harm,” she said.

Florida officials, armed with strict laws governing multilevel marketing, aren’t as cooperative.

“I can assure we will not let them operate with impunity in Florida,” Antonacci said. “If they want to come back, we’ll be happy to arrest them again.”

The new FundAmerica has changed some of its marketing practices. And the company has hired a former Securities and Exchange Commission official to ensure that it is in compliance with federal and state laws.

For instance, prospective members attending sales presentations are given a two-page letter describing the company’s run-in with regulators in various states and the settlement of a class-action lawsuit filed against it.

“We’re taking the issue head-on,” Gilman said. “We’re not hiding, saying that we haven’t had any problems.”

The new company is legally known as FundAmerica 2000 Inc.--the original FundAmerica Inc. filed for bankruptcy in August, 1990, and was stripped of its remaining assets--but it is doing business simply as FundAmerica nonetheless.

“I believe changing the name would have admitted guilt to wrongdoing,” said Mark Guest, a Monarch Beach FundAmerica salesman. “We never did anything wrong.”

Edwards’ personal attorney, George Davis, after a bitter battle with former FundAmerica Chairman Peter Bradshaw and President Mitch Blumberg, paid $1 million to a bankruptcy trustee to gain control of the FundAmerica name as well as the company’s computer programs, membership lists and the like.

Davis serves as the new FundAmerica’s president and owns 100% of its stock. In his disclosure letter to prospective members, he said Edwards had “agreed to consult with senior management in getting the new FundAmerica off to a fresh and successful start.”

FundAmerica’s new marketing plan will mean changes for people such as Guest, who at 26 was earning a six-figure income.

Ostensibly, FundAmerica got into trouble with regulators because new salespeople were buying blocks of memberships from top distributors in order to move up the corporate ladder themselves. Some state officials were concerned that the new salespeople could get stuck holding large numbers of memberships that they couldn’t use and couldn’t resell.

Under the old system, salespeople could buy 40 memberships wholesale at a cost of $3,200 and instantly become a director. Once at that level, they earned higher commissions than someone of a lower rank, but there was no guarantee that they could sell, at $100 retail, all of the memberships they had purchased.

Now, every FundAmerica representative must prove that he or she has actually sold some of the memberships before moving up the organization’s sales ranks.

“If you buy them and just sit on them, there is no incentive,” Gilman said.

How many of FundAmerica’s 100,000 or so members will return to the organization is a big unknown. Financial investment guru Howard Ruff, who briefly took over FundAmerica last July after Edwards’ arrest, has started a competing organization. Ruff’s MainStreet Alliance has attracted 15,000 members. And there are rumors that another former FundAmerica president may do the same.

Nevertheless, FundAmericans have high expectations, and some are looking for Edwards’ triumphant return if he is acquitted in Florida. Gilman plays down such a scenario.

“We’re running without Bob Edwards now,” he said. “Whether or not he comes back is really not a point of discussion.”