Texas authorities said Wednesday that officials of FundAmerica Inc. told them in a closed-door meeting that they intended to do everything they can to retrieve $11.3 million of company money wired to two overseas entities by company founder Robert T. Edwards.
Edwards was arrested July 19 in Florida on charges he was running FundAmerica as a pyramid scheme. During the nine months before his arrest, he wired millions of dollars to two mysterious entities in the Netherlands and Hong Kong.
"They indicated to us they are going to try and get a significant chunk of that money returned to the company," said Kelly Fero, a spokesman for Texas Atty. Gen. Jim Mattox.
FundAmerica executives said they were "working on divorcing Edwards," who still is a shareholder in FundAmerica's Canadian parent corporation, from the Irvine-based company, Fero said.
FundAmerica spokesman Peter Pfabe said he wasn't privy to the discussions in Texas but did say, "Robert Edwards has no say in the operations of the business."
Howard Ruff, named president of FundAmerica on July 30 and then fired a week later, had revealed Edwards' $5.4-million salary and the wiring of millions of dollars to the Netherlands and Hong Kong. In an advance copy of his newsletter, The Ruff Times, Ruff claims that shareholders in the Canadian parent company offered him money to remain silent about FundAmerica.
"They offered me $200,000 (in 12 monthly installments) and a small stock position in the company," Ruff wrote. "When I asked what they wanted in return, they said, 'It would be nice if you stayed with us, didn't speak to the press or launch any lawsuits.' "
Ruff in his newsletter called Edwards "a liar" for having failed to disclose his alleged involvement in at least three different pyramid schemes around the world.
"I don't know if Edwards is a brilliant international con man as he is accused by others of being or a reckless, single-minded fanatic," Ruff wrote.
Four states, including California, have declared FundAmerica a pyramid scheme. Regulators in those states say the company derives nearly all of its income from getting new members rather than offering a real product or service.
But FundAmerica has maintained it is a legitimate multilevel marketing company that offers customers cash rebates on services such as long-distance phone calls.
So far, Florida is the only state to take official legal action, having charged Edwards with organized fraud activity and running an illegal lottery. The company is the subject of a cease and desist order in Florida which goes into effect Friday though FundAmerica officials have asked for additional time to appeal the decision.
Florida officials are expected to indict FundAmerica as a corporation on criminal charges today. And assistant statewide prosecutor Jack McLaughlin said he will file a motion today to have Edwards' bail--a $1-million bond--set even higher. Edwards allegedly ran pyramid schemes in three other countries and there is an active arrest warrant against him issued by New Scotland Yard.
Meanwhile, FundAmerica's regiment of business associates--those companies providing members with travel plans and phone service for instance--continues to shrink.
On Wednesday, MCI Communications became the fourth company to disassociate itself from FundAmerica. The Washington telecommunications company canceled its bulk rate agreement because FundAmerica owes it $3.25 million.
FundAmerica members who subscribed to MCI's long-distance service through FundAmerica--about 50,000 households in eight states--will receive a letter saying they can continue with MCI or choose another carrier, said Jana Weatherbee, a spokeswoman in MCI's San Francisco office.
FundAmerica members had placed about $1 million a month worth of phone calls through MCI. Weatherbee said their service will not be interrupted.
Ruff revealed in his newsletter that a FundAmerica check to MCI for $800,000 recently bounced.
FundAmerica executives have said they are seriously thinking about taking the company ito Chapter 11 bankruptcy, protecting it from creditors. But Ruff predicts the company will collapse altogether. "I believe it will sink through a Chapter 11 bankruptcy into a Chapter 7 liquidation," Ruff wrote.