Just three years ago, Las Vegas-based Equinox International Corp. was touted as the nation's fastest growing private company, boasting $194 million in annual sales.
On Friday, the company's sales came to a halt after federal and state officials filed a lawsuit accusing Equinox of being nothing more than a high-tech pyramid scheme. As many as 400 Las Vegas Valley residents are employed by Equinox.
"The defendant has been operating an illegal pyramid scheme, made deceptive advertising claims and provided (its employees) with the means and instruments to violate federal law," Nevada Attorney General Frankie Sue Del Papa said.
Del Papa said U.S. District Court Judge Johnnie Rawlinson issued a temporary restraining order against Equinox's business operations last week. The judge also froze the company's assets and appointed a court receiver pending future court action on the case.
The restraining order was issued in conjunction with the filing of the lawsuit in federal court by the Federal Trade Commission and five states, including Nevada, against Equinox and associated businesses, Advanced Marketing Seminars Inc. and BG Enterprises.
Equinox is headquartered at 10190 Covington Cross Drive, near Summerlin Parkway and Town Center Drive. It was founded by Bill Gouldd in 1991 and its methods have been controversial from its inception.
Attempts to reach GoulddÂ for comment Saturday were unsuccessful. A message on a machine at Equinox headquarters said the business couldn't field phone calls because of "special circumstances."
The company sells products such as water and air filtration systems, dietary and personal care products, household cleaning products and cosmetics. However, instead of selling the products through traditional retail venues, the company sells its merchandise through 100,000 independently contracted sales representatives, known as distributors, in the United States and Mexico.
The lawsuit contends that the company recruits distributors through misleading classified advertisements, then convinces them to make at least a $5,000 front-end investment to become a seller of the product. The sellers are then instructed that to make money, they need to recruit more people to make the front-end investment, and not necessarily by selling large volumes of Equinox products, according to the lawsuit.
The government alleges that Equinox also misleads distributors about amounts of compensation to distributors, and that distributors rarely make a profit.
"Not only do they spend $5,000 to buy products from Equinox to become managers so they can recruit people, they also often spend many thousands of dollars renting desks, subscribing to phone lines, purchasing classified advertisements and attending training seminars," the complaint reads. "A very small percentage of distributors actually make more money than they expend for front-end expenses."
In a 1996 interview with the Review-Journal, Gouldd said the company's techniques were appropriate.
"Obviously, any company in our business will undergo that kind of scrutiny," Gouldd said. "It's almost beneficial to us. If you've got 100,000 different sales reps out there, it's almost impossible to know what everyone else is doing."