State of Minnesota,
by its Attorney General,
Hubert H. Humphrey, III,
Plaintiff,
vs.
International Network
and Frederick Homan,
Defendants.
INTRODUCTION
The State brings this consumer protection lawsuit against a
California business and its Minnesota representative for
violating Minnesota's consumer protection laws in the conduct of
an illegal pyramid scheme advertised on an online service.
VENUE
5. Venue is proper in Ramsey County in which America Online
subscribers received International Network's advertisements for
its illegal pyramid scheme.
BUSINESS PRACTICES
6. Defendant International Network advertises its illegal
pyramid scheme through America OnLine, an on-line computer
communication service.
7. International Network's America OnLine advertisement for
its illegal pyramid scheme states: "This is exactly how the rich
and the very rich have transferred tax free money to their
friends and family for generations! Itis [sic] as American as
Apple Pie!" (Copy of advertisement attached as Exhibit A to this
Complaint.) The advertisement then lists the five "phases" of
- 2 -
the pyramid scheme. For each phase, the advertisement states the
amount of money that a participant pays and the amount of money
the participant will "receive." In "phase 5," the advertisement
states: "You receive $2,500 from 54 people totaling a grand
total of $135,000 and to keep the program going, you gift out
$2500 to 4 designated people." The advertisement concludes
"Yours in Wealth and Prosperity, Start Smart, Company ID #1173"
and then lists the address of the individual seeking to subscribe
to the pyramid scheme. This form also contains a section called
"Sponsor Information." This section contains the name of
Homan, Frederick Harold as the "Sponsor" for International
Network in Minnesota.
b. A letter from International Network signed by
Frederick H. Homan (Homan signs the letter when it is sent to
Minnesota residents) with a salutation "Dear Wealth Seeker:
I believe, based on a reliable source, that you are a person
seeking a BRIGHTER financial future for yourself and your
family. As a result, I would like to extend a very special
invitation to participate in a program called `INTERNATIONAL
NETWORK'." (Copy of letter attached as Exhibit B to this
Complaint.) The letter continues by describing the steps the
subscriber must take to participate in the pyramid scheme.
- 3 -
("It's as easy as 1-2-3!") First, the subscriber must pay a
"subscription fee" of $50. Second, the subscriber must
sponsor three "subscriber/gifters." Third, the subscriber
must send a gift of $50 to a person to be designated by the
International Network. The letter also states "When you have
completed the five stages, which takes approximately 12 to 14
months, you will have received $157,900 & it's TAX FREE!"
c. A page with the heading "IS THIS LEGAL?" (Copy of
page attached as Exhibit C to this Complaint.) The first
part of the page describes how one person can give another
person money tax-free as long as each gift is less than
$10,000 and each gift is received from a different person.
The remainder of the page states "You Start By . . .
voluntarily sending a gift of $50 to one person designated by
the program, then . . .
Phase 1 You receive $50 from 3 people totaling $150
and then you gift out $100 to 1 person who is
designated by the program.
Phase 2 You receive $100 from 9 people totaling $900
and you then gift out $500 to 1 person who is
designated by the program.
Phase 3 You receive $500 from 27 people totaling
$13,500 and you then gift out $1,000 to 3
people/$3,000.
Phase 4 You receive $1,000 from 27 people totaling
$27,000 and you gift out $2,500 to 2
people/$5,000.
Phase 5 You receive $2,500 from 54 people for a grand
total of $135,000 and to keep the program
going, you gift out $2,500 to 4 designated
people."
- 4 -
The page concludes with the statement: "Just think . . .
once you have completed the five phases, you will have
voluntarily gifted out $18,650 and have received $157,900 and
you may repeat this cycle as many times as you wish!"
DECEPTIVE REPRESENTATIONS
9. In connection with International Network's scheme, the
defendants fail to disclose that:
a. The scheme is an illegal pyramid;
b. For every dollar received by a "subscriber" in the
scheme, there is a dollar given by another "subscriber"--the
scheme involves only the transfer of money between
participants;
c. Because of the geometric increase in the number of
partof all
participants to realize the promised return of $157,900,
(iii) only "subscribers" becoming involved in the scheme at
an early stage are likely to receive any return, and (iv) the
scheme is destined to eventually collapse because it would
require an infinite number of new members to continue to fund
the scheme;
d. The pyramid scheme will collapse at an unknown time
and "subscribers" who have not received a return, or gift,
before the collapse will lose all their investment;
e. Participating in the International Network scheme
violates Minnesota law.
10. In connection with the International Network scheme, the
defendants have affirmatively misrepresented:
a. That "subscribers" take any money received under
the scheme free of any federal tax liability. In reality,
any money received through participation in the scheme is
taxable income under federal and Minnesota law.
b. That the scheme is legal in Minnesota.
COUNT I
CHAIN REFERRAL SELLING
11. The Attorney General realleges paragraphs 1 through 10
contained in this Complaint.
12. By engaging in the conduct described in paragraphs 6
through 8 above, defendants have operated and continue to
operate a plan for the disposal or distribution of property
whereby a member gives or agrees to give a valuable consideration
in order to participate in the plan and for the chance to
receive something of value by inducing new participants to give
such valuable consideration, i.e., a chain referral, pyramid sales, or
multilevel sales distributorship plan, in violation of Minn.
State.
COUNT II
CONSUMER FRAUD
13. The Attorney General realleges paragraphs 1 through 12
contained in this Complaint.
14. By operating an illegal pyramid scheme, by failing to
disclose the facts set forth in paragraph 9, and by claiming
that income generated by it are not subject to federal
taxation, defendants have employed fraud, false pretense,
false promise, misrepresentations, misleading statements and
deceptive practices, with the intent that others rely thereon,
in violation of Minn. Stat.
COUNT III
FALSE ADVERTISING
15. Plaintiff realleges the allegations contained in
paragraphs 1 through 14 of this Complaint.
16. By operating an illegal pyramid scheme, by failing to
disclose the facts set forth in paragraph 9, and by claiming
that income generated by it are not subject to federal taxation,
the defendants have published and placed before the public
solicitations via America OnLine and fax that contain material
assertions and misrepresentations of fact and mutual omissions,
which are untrue, deceptive and misleading in violation of Minn.
Mail this post
Posted under Home Business Scams
This post was written by admin on December 18, 2008
