Company accused of bilking its employees
The U.S. says Equinox International is a pyramid scam. The firm's assets were frozen last week.
Philadelphia Inquirer, August 9, 1999
By Evan Halpere
Equinox International has attracted tens of thousands of people to jobs selling its environmentally friendly water filters, toothpaste and other household products.
But these are not typical jobs. Salespeople pay to work there, buying the products from the company and reselling them at a markup. They then recruit salespeople and make a commission off the products the recruits sell.
There is just one problem, law-enforcement officials say. Over the last eight years, hardly anybody has made money. And thousands have lost big.
Government officials now say the Las Vegas-based company is one of the country's biggest swindle operations. In an action that will be announced today, the Federal Trade Commission and law-enforcement officials from Pennsylvania and five other states are moving to shut down Equinox and demand restitution of $200 million. They say that represents the losses the company caused its salespeople across the country, including many in Philadelphia.
A U.S. District Court judge in Nevada granted the agencies a restraining order on Friday, and a court-appointed overseer quickly seized control of the company. The order also froze all assets belonging to Equinox and its CEO, Bill Gouldd.
Gouldd, whose company has 300 offices nationwide and was featured on the cover of Inc. magazine three years ago as the country's fastest-growing private business, could not be reached for comment over the weekend. Through a company lawyer, he denied the government's claims and said he would contest the charges.
"We absolutely deny all of these allegations," said Val Miller, an attorney for Equinox. "We will aggressively defend ourselves, and we believe we will prevail in court."
Government court filings tell a tale of a pyramid scam that seduced recruits by selling a dream. They say people were lured to the company through misleading classified ads promising lucrative management positions and quick profits.
They were subjected to presentations that ran for hours, as company representatives enticed them by flashing big commission checks and photos of fancy cars and homes ostensibly bought with earnings from Equinox. The pitch, according to government lawyers, included "a glowing description of Gouldd's success" and said that after retiring as a millionaire at age 35, he wanted to "share his wisdom" with others.
What recruits were really buying into, the complaint alleges, were thousands of dollars of overpriced products. Government lawyers say new members were pressured to start off by buying at least $5,000 worth of products so they could be eligible for bonuses that rarely came. They were allegedly told to get those bonuses not by selling the products, but by recruiting new people into the company who were then pressured to make the same big investments.
Over the last several months, undercover investigators tape-recorded Equinox training sessions in various cities, including a March event at the Doubletree Hotel in downtown Philadelphia. Recruits were allegedly pressured to go to as many of these seminars as possible - at a cost of up to $2,500 per event. The seminars were conducted by another Gouldd company named in the complaint, Advanced Marketing Seminars.
Government lawyers described the seminars as "cult-like motivational meetings where distributors are implored to disregard their prior 'loser' lifestyle, i.e. working at a job, and immerse themselves in Equinox."
At several of the seminars, investigators taped company officials urging participants to take extreme measures to borrow money so they could invest in Equinox - in some cases even submitting false information to banks.
Several former Equinox members said in interviews over the weekend that Gouldd's charisma kept recruits dumping money into the scheme even when common sense dictated they should walk away. They said he created a mind-set that made recruits - many of whom were in their 20s and dismayed with the job market - feel that financial losses were part of the path to ultimate success.
Gouldd tells the story of how he rose from his rowhouse roots in Glenolden to become one of the most powerful figures in the so-called network marketing industry, which includes such as companies Amway, Nuskin and Herbalife. He said he worked several "dead-end jobs," including stints as a stereo salesman and a clerk at 7-Eleven, before he started building his empire with a trunkload of water filters he bought with a credit card.
"People would change their life according to whether Gouldd smiled at them," said Rob Styler, who wrote a book about Equinox after leaving the company in 1997. "He created this mystique. People believed that once they reached a certain level in the company, all their problems would be gone."
Styler said that six of the 6,000 people he recruited into the company made a profit. Others may have made some money, he said, but they put it right back into Equinox by renting desk space and phone lines at one of the company's satellite offices, placing classified ads to attract recruits, and attending costly company seminars.
"We were all young and impressionable, and we weren't satisfied with what we were finding in society," said Styler, of San Diego. "We wanted something else. That's what Gouldd was offering."
Kass Wilson ran an Equinox office in Northeast Philadelphia for about four years until 1995. She said training sessions were packed almost every day. Thousands of people signed on in Philadelphia, she said, but almost nobody left the company with a profit. Her parents put all of their retirement money into the venture - about $70,000 - and went bankrupt, she said.
In an interview at his Las Vegas headquarters last fall, Gouldd shrugged off what then were mounting complaints and civil lawsuits from salespeople who lost money through Equinox.
"We all know that in any business, most people don't put forth the effort," he said. "I guess it's like grades in school: How many people get straight A's versus straight C's?"
Gouldd also said it was impossible to lose large amounts of money through Equinox because salespeople always have the option of returning their merchandise for a refund.
The government's complaint says the refund system was bogus. It cites several cases of denied claims.
This is the third time Gouldd has been cited by government agencies. He paid a $75,000 fine to the California Attorney General's Office in 1990 for wrongdoing involving another company and promised never again to operate a pyramid scheme. In 1996, he promised 14 state attorneys general that Equinox would not make false and misleading claims, and he paid $540,000 to cover the cost of their investigation.
Gouldd said last fall that those agreements were routine regulatory housecleaning that every business goes through.
"I'm sure you've been pulled over by a police officer," he said. "That didn't make you a murderer or a drug dealer."
Government lawyers now accuse Gouldd of blatantly violating the earlier agreements.
Copyright © Rick Ross
