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O.C. Firm Investigated in Pyramid Scheme Case

Inquiry: Hawaii agencies look into Irvine company, which sells tutorials for aspiring travel agents.

March 07, 1996|JAMES S. GRANELLI | TIMES STAFF WRITER

IRVINE — Hawaii state prosecutors said Wednesday they are investigating an Orange County company to determine if its sales of how-to kits to would-be travel agents constitute an illegal pyramid scheme.

In addition, World Class Network in Irvine faces a securities probe by another Hawaii agency to determine if it is selling unregistered securities in the form of distributorships.

Daniel Dimacale, World Class Network's chairman, acknowledged that the year-old company is under investigation in Hawaii but said he was confident the operation would emerge unscathed.

"We're a very, very legitimate business," he said.

Dimacale said the company, which operates in 11 states, has patterned itself after the Amway marketing network. It sells a number of products as well as kits to those who want to sell its products and bring in other distributors.

Its travel agency tutorial kit, for instance, sells for $495 and gives buyers text, videotape and audiotape. Once the contents are "studied," the purchaser "becomes an independent travel agent for World Class Network" and can sell and book trips, according to a company press release.

For $49 more, a buyer receives a kit "at cost" to become a distributor, Dimacale said.

"We have a zero tolerance on distributor activities that are not within our policies, procedures and guidelines," he said, and he encourages authorities to take action against misleading salespeople.

The company is about to resolve its only other investigation--a complaint with Oregon authorities over one distributor's alleged misrepresentations, he said. Oregon officials could not be reached for comment.

Distributors earn money only through commissions on products they sell or on products sold by distributors they bring into the company, he said.

But Patricia Moy, a securities enforcement attorney for Hawaii's Department of Commerce and Consumer Affairs, said her office has received complaints from some of the 1,189 distributors and independent agents the company has signed up since last fall.

She said that it appears that the company hasn't instituted all of Amway's safeguards, especially one that prohibits payments just for bringing in new salespeople.

"From the people we've talked with, my understanding is that if I bring in someone [as a distributor], I get a $100 commission," she said.

Moy said that her office is trying to determine if the distributorships are essentially investment contracts, which state law classifies as securities. The distributorships are not registered as securities at this point.

The Hawaii attorney general's office would not comment on the investigation into pyramid allegations--where no products are sold and money is paid to later investors from earlier ones--except to acknowledge that the probe exists.

"We are looking into the case, but we're not at a point where we can indicate what the status is," said Larry Goya, a deputy state attorney general.

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