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FTC, states succeed in quest to close Equinox International
Multilevel marketing company Equinox International Corp. agreed to permanently shut down Thursday under a legal settlement that will begin the liquidation of the controversial Las Vegas firm.
A consumer restitution fund, estimated at $30 million to $40 million, will be formed with proceeds from the liquidation. All current and former Equinox distributors who earned less than $150,000 during their time with the company will be eligible to receive restitution.
The settlement, finalized in a closed federal courtroom Thursday afternoon, also spelled the end of the multilevel marketing career of Equinox founder Bill Gouldd, who is banned for life from participating in any multilevel marketing company anywhere in the United States -- and will have most of his personal assets liquidated to help fund the restitution pool.
"We are extremely pleased with this settlement," said Tracey Brierly, Nevada deputy attorney general. "There's a ton of money for consumers, plus a permanent ban on Bill Gouldd and permanent dissolution of the company.
"We couldn't be more pleased."
"This is a tremendous result for Equinox distributors," said Barry Barnett, a Dallas lawyer who served as lead counsel for a group of class action plaintiffs participating in the case. "It means that class members will get a bigger recovery than they could have gotten by winning the case and taking all the assets left over."
Equinox attorneys declined comment after Thursday's hearing. Reporters seeking comment were ordered to leave Equinox's headquarters at Covington Circle Drive in Summerlin.
This morning, telephone calls to the company were answered by a message that all employees were in a "company-wide meeting." Equinox's elaborate website, however, was still in operation and made no mention of pending liquidation.
There have been no criminal charges against Equinox and Gouldd and officials said they could not disclose a criminal investigation if one existed. Thursday's settlement does not preclude the filing of criminal charges, said Nevada Chief Deputy Attorney General Richard Linstrom.
The civil settlement brought a sudden end to a company that once was designated America's fastest-growing company. In 1996, Equinox topped Inc. magazine's list of the nation's fastest-growing companies, with a growth rate of 35,000 percent from 1991 to 1996, and annual sales approaching $200 million.
The idea, Equinox claimed, was similar to the concept used by such companies as Amway and Excel Communications -- the sale of product through a network of independent distributors, rather than retail outlets. If distributors were able to recruit new representatives, these recruits would join the distributors "downline," making the recruiter eligible for a percentage of the sales made by their recruit.
These distributors sold a line of beauty and health products, as well as water filtration devices. Equinox's distributor network topped 40,000 when the FTC, Nevada and seven other states launched their legal assault in hopes of closing Equinox in August 1999.
Rather than operating as a legitimate multilevel marketing company, the government claimed Equinox attracted new recruits through deceptive advertising and false claims of income. The act of recruitment, rather than product sales, was the true source of income for Equinox participants, and formed the basis of an illegal pyramid scheme, the government alleged. As a result, the government claimed, most distributors ultimately lost money.
In the settlement, Equinox and Gouldd did not admit to any wrongdoing. Nor did the ban on multilevel marketing extend beyond Gouldd. By agreeing to the settlement, the company, employees and representatives will be absolved of any future civil actions over Equinox.
Judge Johnnie Rawlinson's approval of Thursday's settlement is only preliminary. Hearings will be held Sept. 8 to rule on the fairness of the agreement and to certify all former and current Equinox representatives as a class eligible for restitution.
If Rawlinson gives her final approval to the settlement at that time, notices will be mailed to all Equinox representatives with instructions on how to participate in the settlement. Further information on the settlement is available by calling the Nevada Attorney General's Bureau of Consumer Protection at 702 486-3132. The Internet address is www.state.nv.us/ag.
In the meantime, court-appointed receiver Robb Evans was scheduled to immediately seize control of Equinox, Brierly said, and will begin liquidating all of its assets to fund the restitution pool. Also to be liquidated are most of Gouldd's personal assets.
Gouldd assets scheduled for liquidation include a $10 million yacht dubbed "Moonraker," a $6 million corporate jet, multimillion-dollar homes in Boca Raton, Fla., and La Jolla, Calif., and about $700,000 in jewelry, Brierly said. The settlement gives Gouldd 30 days to vacate his home in Boca Raton.
Gouldd will be permitted to retain two homes in Boca Raton, Fla. -- one the home of his ex-wife, the other the home of his "former significant other," the settlement states. Gouldd will also be allowed to keep "reasonable household furnishings" in these homes, a 1997 Range Rover, an $11,000 watch, his clothing and personal effects not to exceed $50,000 in value.
Equinox employees will be allowed to remain on the job for another two weeks, Brierly said.
The settlement came as government officials and class action plaintiffs were wrapping up their case against Equinox. The plaintiffs brought 22 witnesses against Equinox in eight days of hearings, many former distributors who claimed Equinox had cost them substantial amounts of money. The plaintiffs also filed about 160 depositions.
One distributor, Douglas Johnson of Oxnard, Calif., testified he lost more than $18,000 during two years with the company and that the experience forced him into bankruptcy.
Johnson initially purchased $6,000 worth of Equinox products, but said he was only able to sell $2,000 of his products in two months. He testified he was told by other Equinox distributors to focus instead on recruiting, and he later recruited six people to join as distributors.
Johnson became choked up on the stand when he admitted his recruits included his mother and two of his sisters. His mother purchased $2,000 in products, Johnson said.
"I realized if I was to be successful in Equinox, I would have to be dishonest with people," Johnson said on the stand.
Another witness for the government was Tod Young, manager of the classified advertising department for the Las Vegas Review-Journal and Las Vegas Sun, who testified that more complaints had been received about Equinox distributor ads than any other company he could recall.
"Our case was extremely strong," Brierly said.