Resurrected FundAmerica Puts Its Troubles Behind It : Regulation: Despite bankruptcy and the criminal trial of its founder, the Irvine marketing company is back in business.

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 believe that 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 claim shows FundAmerica was just the latest in a chain of pyramid schemes constructed by Edwards on at least three continents during 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--in spite of 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 like 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 way 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--while denying any past wrongdoing of the original company--claims 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 some instant legitimacy. But Gilman has succeeded in lining up an array of consumer services--including the addition of express overnight mail service--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 either refunded, invested on their 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, instead relying 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 of 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 current recession 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 any 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 all of 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,” California Deputy Atty. Gen. Susan Henrichsen said. She said a review of FundAmerica’s current marketing plan indicated there weren’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 in the same.

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

Florida officials, armed with strict laws governing multilevel marketing, aren’t quite 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 make sure that it is in compliance with all federal and state laws.

For instance, prospective members attending the company’s 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 that was 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, Davis said that 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 a few changes for people like 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.

For instance, 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.

Just how many of FundAmerica’s 100,000 or so members will return to the organization is still a big unknown. Financial guru Howard Ruff, who briefly took over FundAmerica last July after Edwards’ arrest, has started a competing organization. Ruff’s organization, MainStreet Alliance, has attracted 15,000 members to date. 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.”

How to Get a Refund or Renew Membership REFUNDS: Next week, FundAmerica’s former and current members are scheduled to receive a financial statement from the company indicating how much money they have in their personal accounts from rebates on services. Individuals with more than $250 can request a refund. The financial statement will include a form that must be filled out to get the money back. RENEWALS: For those with expired memberships, FundAmerica offers a half-price, two-year membership for $100. The company will allow those with money in their accounts to apply it toward a new membership. Memberships that were still current at the time of the company’s bankruptcy will be honored for whatever months went unused as long as the user utilizes at least two FundAmerica services, such as long-distance telephone service and coupon purchases. The deadline to renew is Sept. 30. For further information: FundAmerica P.O. Box 19625 Irvine, Calif. 92713-9625 (714) 250-5911

The Return of FundAmerica FundAmerica--surviving a Chapter 11 bankruptcy and an ongoing criminal case against its founder--started selling memberships again in California last month. Though the company has not admitted any wrongdoing, it has revised some of its marketing practices. Below is a comparison of the old and new FundAmerica sales structure. “FundAmerica has developed an exciting marketing program with the objective of complying with all federal and state laws. --From a letter by George Davis, president of FundAmerica Inc. “I can assure we will not let them operate with impunity in Florida.... If they want to come back, we’ll be happy to arrest them again.” --Peter Antonacci, Florida deputy attorney general FundAmerica Changes the Rules 1. Member: Pay $100 to the person who sells you the membership, plus one-time initiation fee of $40 to FundAmerica. The membership is renewable for $100 each year. New Member: same as original 2. New category: Representative Receive 3 company membership forms (requires no investment) or purchase 5 memberships, at $80 each, for resale (Total investment: $400). 3. Associate: Must purchase five memberships at $80 each for resale (Total investment: $400). New Associate: Have personally sold 3 of the 5 memberships 4. Manager: Must purchase 20 memberships at $80 each for resale (Total investment: $1,600). New Manager: Buy a total of 10 memberships, sell 3. And get 2 people to each buy a set of 5 memberships. Or, take orders for 20 memberships (no investment required). Sales must be completed within 2 consecutive calendar months. Total FundAmerica memberships sold: 20. 5. Director: Must purchase 40 memberships at $80 each for resale (Total investment: $3,200). New Director: Buy a total of 20 memberships, sell 6. And get 4 people to each by a set of 5 memberships. Or, take orders for 40 memberships (no investment required). Sales must be completed within 2 consecutive calendar months. Total FundAmerica memberships sold: 40 6. Executive director: Same membership sales as a director, plus train and develop 5 directors. New Executive Director: Same as original. 7. Presidential Director: Same membership sales as executive director, plus train and develop 10 directors.New Presidential Director: Same as original.

Services Provided by FundAmerica Long Distance Service * Service Provider: Pacific Coin SDN, Van Nuys * Rebate: Depending on phone usage, a 5% to 25% rebate is credited to member’s trust account. Travel Program * Service Provider: Carefree Travel, Chula Vista * Rebate: A 5% rebate on all scheduled domestic airline tickets, cruise and tour packages. Accelerated Mortgage Program * Service Provider: Mortgage Burners Inc., La Mesa * Rebate: A biweekly rebate of $1.25 is placed in member’s purchase-rebate account. Premium Grocery Service * Service Provider: Consumer Benefits Services Inc., Springfield, Ill. * Rebate: Members pay a service fee, of which 25% is rebated. Resort Condominiums * Service Provider: Vacation Locators, Port Orange, Fla. * Rebate: Members receive purchase rebates of 25% per week. Floral & Gift Service * Service Provider: Savannah Floral Services Inc./the Flower Club, Moorpark, Calif. * Rebate: 10% on each order. Overnight Air Express * Service Provider: Unishippers Inc., Atlanta * Rebate: Members receive a 45% rebate on all overnight air express up to 50 pounds. Voice Mail * Service Provider: Pacific Bell, San Francisco * Rebate: Members receive a 10% rebate on Voice Mailbox rentals and 20% if the optional 800 number service is installed. Source: FundAmerica Inc. and individual companies listed Researched by DALLAS M. JACKSON / Los Angeles Times