FTC HALTS INTERNET PYRAMID SCHEME; PROMISES OF HIGH INCOME, PREAPPROVED CREDIT CARDS WERE FALSE
November 5, 1997
In its latest law enforcement action aimed at stemming fraud on the Internet, the Federal Trade Commission has obtained a federal court order temporarily halting a pyramid scheme advertised on the Internet. The scheme promised investors would earn up to $18,000 a month for a minimal initial investment and small monthly payments. It also offered investors preapproved, unsecured Visa or MasterCards with high credit limits. The court’s temporary restraining order freezes the defendants’ assets and appoints a receiver to preserve them. The FTC has asked the court to issue a permanent injunction and to order redress for injured the consumers who were victims of the scam.
“Internet pyramids are just electronic Ponzi schemes — full of the same fraudulent promises as the Ponzi schemes of old,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “People are told that if they ‘enroll’ and send money, they’ll eventually end up at the top of the pyramid, collecting money from those at the bottom. But most people never make it to the top. Early entrants may make some money, but eventually, the pyramids collapse and most of the ‘members’ are left with nothing but empty promises,” she said.
The FTC has charged that Nia Cano, also known as Nghia F. Cano, Nina DeCano and Nina S. Cano, doing business as Credit Development International and Drivers Seat Network; and Charles Johnson and Jaime Martinez marketed the pyramid scheme through recruitment seminars and sales meetings across the country. Using the name Credit Development.
International, or CDI investment program, the defendants claimed that for an initial investment of $130 and monthly payments of $30, consumers could obtain unsecured credit cards and make a much as $18,000 per month as additional participants signed up for the program. At training sessions, CDI members also provided advice and promotional materials for members to advertise to recruit others to join the scheme. Many recruited membership by sending unsolicited e-mail, a practice known on the Internet as “spamming.”
The agency also charged Leaders Alliance, Inc., doing business as American Business Consultants or ABC, which processed CDI memberships and application fees.
According to the complaint detailing the charges, most participants in a pyramid scheme lose money, so the claims that consumers who pay CDI $130 initially and $30 per month thereafter will receive income of $18,000 per month are false and misleading. In addition, the FTC charged that consumers who signed up for membership in CDI did not receive the credit cards that were offered and those claims were also false in violation of the law. Finally, the FTC alleged that providing others with promotional material that contains similar false claims for use in recruiting new participants is deceptive in violation of the law. The FTC’s complaint asks the court to order a permanent halt to these alleged deceptive practices and to order redress for the people who had signed up and given money to the defendants.
CDI Pyramid Promoters Settle FTC Charges; Nearly $2 Million for Consumer Redress
June 30, 1998
Three principals of a pyramid scheme promoted through the Internet had promised investors would earn up to $18,000 a month and receive an unsecured credit card with a high credit limit. These promoters have agreed to settle Federal Trade Commission charges that their claims were false and their scheme violated federal laws. The settlement, which requires approval of the court, provides nearly $2 million in consumer redress and would enjoin the defendants from operating pyramid or Ponzi schemes, or any program that promises income primarily from the recruitment of others, rather than the sale of a product. The order would prohibit misrepresentations in the sale of marketing opportunities and specifically prohibit misrepresentations about earnings and benefits, such as receiving unsecured credit cards, from participating in any such program. It also requires liquidation of the businesses through which the pyramid scheme operated.
In November 1997, the FTC charged that Nia Cano of Long Beach, California, also known as Nghia F. Cano, Nina DeCano and Nina S. Cano, doing business as Credit Development International (CDI) and Drivers Seat Network (DSN), and Charles Johnson of Lake Elsinore, California, marketed the pyramid scheme through recruitment seminars and sales meetings across the country. The Commission later added additional defendants, including Bryan McCord of Garden Grove, California. The defendants claimed that, for an initial investment of $130 and monthly payments of $30 a month, consumers could obtain unsecured Visa or MasterCard credit cards with high credit limits and make a much as $18,000 per month by recruiting participants for the program. The FTC alleged that these claims were false.
At the request of the FTC, a Federal District Court issued a temporary restraining order, freezing the defendants’ assets and appointing a receiver to preserve them. Following a November 20, 1997, hearing, the court granted the FTC’s request for a preliminary injunction, continuing the asset freeze and receivership. The FTC asked the court to issue a permanent injunction and to order redress for consumers who were victims of the scam. The settlement announced today would resolve the FTC charges against Nia Cano, Charles Johnson and Bryan McCord. The case will continue against the remaining defendants.
The settlements will prohibit the defendants from engaging in any pyramid, Ponzi or other marketing scheme in which a person derives income primarily from recruiting others into the program. They also will prohibit misrepresentations about earnings and the availability of an unsecured credit card. In addition, each defendant is enjoined from assisting other businesses to make such misrepresentations. The settlements prohibit the settling defendants from releasing the names of the consumers who were recruited to join CDI and DSN. Further, the settlement with Nia Cano requires the liquidation of her businesses. Nearly $2 million in assets frozen by the court will be placed under the authority of a receiver who will implement a redress plan.