Court Halts Trek Alliance Pyramid Scheme

August 4, 2003

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A federal district court judge has issued a preliminary injunction halting the alleged illegal activities of Trek Alliance, freezing its assets and those of its principals pending trial, and appointing a receiver to oversee the business assets.

In his order, Los Angeles U.S. District Court Judge J. Spencer Letts barred the defendants from making misrepresentations about the potential earnings, financial gain, or benefits of any multi-level marketing program, business investment opportunity, or pyramid marketing scheme. In addition, the order prohibits the defendants from participating in any illegal pyramid schemes.

"I spent over $5,000 in 3 months just on purchasing products and attending useless seminars. I was an idiot for falling into their scheme," Letty of Cicero, IL, said in a complaint to ConsumerAffairs.com. She was one of thousands allegedly victimized by the Trek scheme.

Another was Joseph, now a soldier stationed at Ft. Bragg, NC. "I was joining the Army a few months later and thought this would be a great thing to earn extra cash. Well, being 20 at the time I guess I was fooled," said Joseph, who lost about $2,500..

In December 2002, the Federal Trade Commission sued the California-based operation for using deceptive earnings claims to lure recruits into investing hundreds or thousands of dollars in their illegal scheme.

The FTC charged that Trek Alliance was patterned after Equinox International, an operation that in April 2000 agreed to liquidate assets worth roughly $40 million to settle charges by the FTC and eight state attorneys general that it was operating an illegal pyramid scheme. Two of the four individual defendants associated with Trek were top distributors with Equinox.

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According to the FTC, Trek Alliance operated a multilevel marketing company that offered distributorships for products including water filters, cleaning products, and nutritional supplements.

Judge Letts found that there is good cause to believe that the FTC is likely to prevail on the merits of this action. The parties will continue to conduct discovery, after which a trial will be scheduled.

The FTC alleged that Trek distributors ran classified ads in the “Help Wanted” sections of newspapers that implied that they were offering salaried positions. According to the FTC, people who responded to the ads were instead given a sales presentation designed to recruit new distributors.

The FTC alleged that Trek told recruits that they could earn money by selling products or recruiting, but emphasized that more money could be made through recruiting. The recruits were expected to attend training seminars around the country, purchase hundreds of dollars worth of products so they could enter the program at a higher level, rent desk space in regional offices, and subscribe to phone lines so they could begin recruiting others, all at their own expense.

While the company promised monthly incomes ranging from $2,000 to $20,000, the FTC complaint alleged that the vast majority of consumers made less money than they had paid for front-end expenses, and that many made little or nothing. The complaint also alleged that compensation was not sufficiently linked to retail sales, and that Trek did not adequately enforce policies and requirements that were ostensibly designed to assure such a link.

Finally, the FTC alleged that the program is a pyramid scheme and most participants lose money. The practices violate federal law, the complaint says. The FTC has asked the court to permanently enjoin the defendants' deceptive practices and to order consumer redress as final relief in the matter.

The FTC’s complaint names as defendants Trek Alliance Inc., Trek Education Corporation, VonFlagg Corporation, and individual defendants J. Kale Flagg, Harry Flagg, and Richard and Tiffani Von Alvensleben.

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