61.  FTC v. Five Star Auto Club, Inc., Civil No. 99-1693 (S.D.N.Y. filed March 8, 1999)

Defendants: Five Star Auto Club, Inc., Michael R. Sullivan, Angela C. Sullivan, Advance Funding Inc., Thomas Lee Bewley, and Judy L. Bewley

Type:  Pyramid Scheme

The Commission alleged that Defendants operated an illegal pyramid scheme that purported to allow members to "drive their dream vehicle for free" while earning large monthly commissions.  The FTC contended that the vast majority of participants could never qualify for free automobile leases and were destined to lose money in the scheme. Defendants, as well as a number of Five Star participants, made extensive use of the Internet to recruit new entrants into the scheme.

On March 8, 1999, the U.S. District Court in White Plains, New York, froze the assets of Five Star Auto Club, Inc. and the Sullivans, appointed a receiver to run the corporate defendant, and enjoined the defendants from making further misrepresentations. On April 5, 1999, the same parties stipulated to a preliminary injunction. On April 8, 1999, the FTC filed an amended complaint naming Advance Funding, Inc., Thomas Lee Bewley, and Judy L. Bewley as defendants.

On January 3, 2000, the court entered a stipulated permanent injunction against the Bewleys, prohibiting them from engaging in pyramid schemes and from making or providing others with the means of making material representations or omissions in connection with legitimate multi-level marketing programs. The settlement required that the defendants' business assets be used to establish a consumer redress fund.

On May 17, 2000, following trial, the court ruled that Five Star was a pyramid scheme that prevented the vast majority of participants from realizing the rewards promised by the defendants.  On June 13, 2000, the court issued its final order barring Michael and Angela Sullivan, for life, from engaging in any further pyramiding or multi-level marketing activity. The court also shut down Five Star and its Web site and ordered liquidation of its assets; ordered the defendants to pay $2.9 million in consumer redress; and placed the Sullivans under strict conduct prohibitions when selling any business venture in the future.

http://www.ftc.gov/opa/1999/9903/nasaarelease.htm (press release - sweep)

http://www.ftc.gov/opa/2000/01/fyi0002.htm (press release - Bewley final order)