IRVINE — One financial planner took the stage and was about to tell the 45 or so people in the hotel audience how he once made a fortune selling FundAmerica memberships. Then he caught himself, realizing that this was supposed to be the new and improved FundAmerica.
"We can't talk numbers any more, can we?" he asked another salesman. So he fudged things a tad: "Let's say that my income in a couple of years was more than most people make in their whole lives," he said.
They're \o7 baaaaack.\f7
Like the little girl who stared into her television screen and saw a poltergeist, some regulators are a bit rattled because FundAmerica started selling memberships again in California last month despite changes in the way it does business. But California officials believe that the revised FundAmerica marketing plan appears to be within the law.
On Sept. 3, FundAmerica founder Robert T. Edwards is scheduled to go to trial on charges that he ran the Irvine company as a pyramid scheme, accepting money from new members and using it to enrich initial distributors. If convicted, he could get more than 65 years in prison.
Florida prosecutors intend to introduce evidence in the trial that they claim shows FundAmerica was just the latest in a chain of pyramid schemes constructed by Edwards on at least three continents during the past 20 years.
FundAmerica's recent resurrection therefore strikes some as foolhardy.
"A leopard can't change its spots," Florida Deputy Atty. Gen. Peter Antonacci said. "This is a real frustrating thing."
FundAmerica, a multilevel marketing company, simply refuses to say uncle. Determined members and salespeople--in spite of the ongoing criminal case in Florida and the Chapter 11 bankruptcy--are clamoring to rebuild the discount buying club they have known and loved.
"Each week since we've been marketing, you can see more momentum picking up," chief operating officer Robert Gilman said. "People (are) coming back, saying: 'Oh, Gee, FundAmerica is so great, it's such a great concept, we're so happy it's back.'. . . . Sure, there are negatives out there and people who have distasteful feelings in their mouths about what happened. But we're out to vindicate that . . . and be good corporate citizens."
On paper, the old FundAmerica made some sense. The company would save its members money on everyday services like long-distance phone calls, groceries and travel by buying in bulk. The companies providing the services wouldn't have to advertise to attract tens of thousands of potential customers so they could pass on some of the money they saved in the way of rebates.
The problem, in the eyes of some regulators, was that FundAmerica allegedly emphasized membership sales over the consumer services it offered and allowed some marketing representatives to buy their way up the corporate ladder by purchasing dozens of wholesale memberships.
The new FundAmerica--while denying any past wrongdoing of the original company--claims that it's the real McCoy this time around.
Gone from its list of service providers, however, are some of the brand names, such as MCI Communications Corp. and Best Products Co., that lent FundAmerica some instant legitimacy. But Gilman has succeeded in lining up an array of consumer services--including the addition of express overnight mail service--by purchasing them through middlemen.
As before, rebates of up to 45% of a service's original cost are credited to a savings account for FundAmerica members. Eventually, the money is either refunded, invested on their behalf in an annuity or used to pay off a mortgage.
FundAmerica is called a multilevel marketing company--similar to Mary Kay Cosmetics and Amway Corp.--because it rarely advertises, instead relying on word of mouth to sell itself and its services. One FundAmerica official compared it to the popular shampoo commercial of a few years back: "They tell two friends, and they tell two friends, and they tell two friends. . . ."
The company says it has spent more than $32 million to settle all of the legal actions against it, with the exception of the Florida case. Next month, its sales representatives are scheduled to receive $4 million in commissions owed them from last year and members will have access to more than $1 million in savings they accumulated before the company's August, 1990, bankruptcy.
"It's pretty amazing that the company is back on its feet," conceded Gilman, a former American Express and Security Pacific executive who assumed his current position with FundAmerica in May. "We are going to be a great comeback story."
The company is counting on the current recession to help it.
"The '80s was the spending decade and now people are focused on savings," Gilman said. "What a brilliant concept and idea to give people cash back on . . . regular expenditures."