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The U.S. Federal Trade Commission (FTC) announced Thursday that it has settled charges with three operators of Bigsmart.com, an online business opportunity for investors in an Internet shopping mall network that government investigators charged was an illegal pyramid scheme.
According to the FTC complaint, Bigsmart marketed Internet theme malls that featured a collection of links to retail sites maintained by independent third-party merchants, such as MarthaStewart.com, and to an online superstore operated by Bigsmart itself.
Traffic was directed to the malls through personalized Bigsmart "welcome pages" that members bought access to for a US$10 application fee and a $99.95 hosting fee. In return for their investment, the FTC said, members were told they could earn "substantial income" from commissions on products purchased through the sites.
However, the FTC said those claims were false. Moreover, the agency asserted that various Bigsmart promotional materials were misleading and provided the "means and instrumentalities" for others to deceive consumers.
Pyramid Alleged
Government representatives said that each of these practices undertaken by the Mesa, Arizona-based company violated federal consumer protection laws.
"Although Bigsmart claimed that members would make substantial amounts of money, the scheme was structured in such a way that realizing continued financial gains would depend on the continued, successive recruitment of other participants, not on retail sales of products and services to the public," said the FTC.
As part of the settlements -- which the FTC noted does not constitute an admission by the defendants of any wrongdoing -- Bigsmart promoters Darrin Epps and Edward Lamont have been permanently barred from future multilevel marketing plans. The FTC said the lifetime ban was imposed because of the "egregiousness of their recruiting practices in this case and their prior involvement with unlawful multilevel marketers."
Future Prohibitions
A third defendant who served as a "figurehead" president of the company for roughly eight months, Richard Slaback, was barred from participation in such operations for seven years.
The settlements also prohibit all three from ever taking part in a pyramid scheme, making false or misleading claims in selling a business venture, and making or assisting others in supporting misrepresentations about earnings or income in conjunction with any business in which they are engaged.
The defendants must also meet FTC requirements that they monitor their employees or agents to ensure they are not using illegal practices.
In terms of financial redress, Slaback will pay $38,000 to consumers who were taken in by the operation's claims. The amount comes on the heels of a $5 million payment in restitution that Bigsmart principals Mark Tahiliani and Harry Tahiliani agreed to provide to investors in March. The Tahilianis also posted a $500,000 performance bond to settled FTC charges in the case.
Earlier Case
The Commission said that both Epps and Lamont were also previously high-level distributors in Equinox International Corporation, another multilevel marketer the FTC filed suit against in August 1999.
The FTC said it will monitor Bigsmart's compliance with mandates of the settlement, which was approved by a vote of 5-0. The orders were filed in the U.S. District Court for the District of Arizona.
According to the FTC, Epps and his company Netforce Seminars signed up
investors in the pyramid scheme from their offices in Austin and San
Antonio, Texas. Meanwhile, Lamont's recruitment efforts were undertaken from
offices in Pittsburgh, Pennsylvania.
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