Last week, BINT Operations LLC aka “Blessings in No Time” (“BINT”) and its owners resolved two separate, but coordinated, lawsuits stemming from states’ and the FTC’s investigations alleging perpetration of an illegal pyramid scheme.
BINT allegedly operated a deceptively marketed faith-based wealth building organization designed as a “blessing loom” during the COVID-19 pandemic that falsely promised investment returns as high as 800 percent. Victims of the scheme were allegedly promised a return of over $11,200 each, for their (refundable) investment of between $1,400 to $1,425, if they recruited other people to join. However, these investments did not pay off and customers were not provided refunds as promised.
Arkansas’ Attorney General Tim Griffin and the Federal Trade Commission jointly filed a Stipulated Order for Permanent Injunctive Relief with a $450,000 settlement (the monetary portion is contained in a separate “Monetary Judgment” between Arkansas and defendants). This settlement enjoins defendants from:
- Participating in or operating a Ponzi, chain referral, or “blessing loom” scheme (seemingly more akin to their alleged conduct).
- Making misrepresentations regarding income, costs or other material aspects of business ventures or investment opportunities (defined terms).
- Creating contracts terms that prohibit parties from leaving reviews, addressing allegations of violations of the Consumer Review Fairness Act (enforceable by states and the FTC).
- Violating the Arkansas DTPA including its specific prohibition against operating a “pyramid promotional scheme.”
While these terms generally track the allegations from the lawsuit, the FTC and states took it a step further by prohibiting BINT and its owners from operating or even participating in any “multi-level marketing program,” which the agreement defined broadly as a program that recruits others and receives payment based at least partly on activities of a “downline.” The expansion of this injunction beyond otherwise illegal “pyramid schemes” is a good reminder of the broad powers of the state and FTC and the significant negotiating leverage they can wield.
At the same time, the Office of the Attorney General in Texas announced that it secured $2,500,000 in restitution and $7,500,000 in penalties from BINT. Parties have agreed upon, however, a number of payment options that would satisfy the judgment and vary depending on the time of payment and the collective aggregate gross annual income and assets; it’s unclear how much BINT will ultimately pay, but the priority in the settlement is payment towards restitution.
These cases serve as a reminder that pure chain referral/pyramid schemes – where consumers are promised returns based on the recruitment of others and not the sale of goods or services — are generally illegal under state and federal law. But additionally, these orders highlight the continued collaboration among states and the FTC, which can take different forms. Notably here one state (Arkansas) chose to file a joint lawsuit and settlement with the FTC in federal court, while another (Texas) chose a separate, but coordinated, lawsuit and settlement in state court. The consumer protection enforcement community collaborates often on these efforts (even more so in the post-AMG world), which can result in multiple lawsuits filed in different courts throughout the country. This makes it vitally important to ensure your practices comply with the law and stay in front of any potential enforcement.