FTC Charges Internet Mall Is a Pyramid Scam

July 7, 2003

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The Federal Trade Commission has charged the operators of an Internet shopping mall network with operating an illegal pyramid scam.

The FTC will seek to bar the defendants from engaging in future pyramid operations, from making misleading earnings claims, and from providing others with the means to make deceptive claims for any multi-level marketing program.

In a complaint filed in U.S. District Court, the FTC alleges that since 2000, Tucson, Arizona-based NexGen3000.com and its principals marketed Internet "shopping malls" that they claimed would enable investors to earn substantial income and commissions on products purchased through the Internet.

The malls contained a collection of links to retail Web sites maintained by merchants. The defendants allegedly advertised their business opportunity through the NexGen Web site, live presentations, and telemarketing calls, and maintained a network of affiliates to help promote and sell the malls.

Consumers paid a registration fee to join the NexGen program, and most also purchased a "WebSuite" including the Internet mall and related goods and services. A "Basic WebSuite"cost $185, including the registration fee, and a "Power Pack WebSuite" cost $555. The FTC's complaint states that NexGen assured consumers that buying the "WebSuite" qualified them to earn significant commissions for every "WebSuite" sold. NexGen allegedly claimed that "each activated business center has the potential to earn up to $60,000 per week."

The FTC alleges that the defendants deceptively represented that consumers who participated in their scheme would earn substantial income, when in fact most consumers lost money in the operation.

The complaint also states that the defendants provided deceptive marketing material to affiliates - providing them with the means to deceive others. The agency alleged that the defendants failed to disclose that a substantial percentage of participants would lose money, and that the scheme was actually an illegal pyramid. The FTC alleges that the practices violated the FTC Act.

The case was filed in the U.S. District Court for the District of Arizona.

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