Controversial LV direct-selling company grows into trouble

Bob Shemeligian

Monday, Jan. 12, 1998 | 10:48 a.m.

Equinox International Corp. of Las Vegas reached the pinnacle of entrepreneurial success in 1996, topping Inc.'s list of the nation's fastest-growing companies. A short year later it's now mired in lawsuits with former distributors who claim they were misled, humiliated or drained of their personal funds.

Founded in 1991 by multi-level marketing guru Bill Gouldd, Equinox topped the 1996 Inc. Magazine list with a growth rate of 35,000 percent and annual sales approaching $200 million.

With a national distribution force of tens of thousands of people selling more than 350 products from water filters to herbal remedies, the company seems to have hit upon a winning formula that is the key to success among '90s network marketers.

The idea is simple: by tapping into a growing contingent of displaced workers and at-home moms looking to go into business for themselves, a company can build a direct sales force with minimal expenditures on overhead and advertising.

It is an idea that has worked well for multi-level marketing leviathan Amway, which distributes 400 products through 2.5 million representatives throughout the world, and has worked for Excel Communications, a Dallas-based direct sales long distance firm, which is projected to post $1 billion in revenues by the end of this year.

These are just two of many direct selling companies that contract with 5.7 million Americans who generate revenues of more than $16 billion each year, according to the Washington-based Direct Selling Association, a national trade association.

From appearances, direct selling has also worked for Equinox International, which recently opened a 80,000-square-foot, three-story corporate headquarters in Summerlin. Corporate officials boast that the state-of-the-art building that employs more than 300 local residents is "environmentally friendly" with non-toxic paints and high pressure laminates and energy-efficient mirrored glass.

But, detractors -- and there are many -- say the building is a perfect monument to a company founder who has made millions through the expert use of smoke and mirrors.

"It's just a scam," said Jeff Uddo, who purchased $1,300 worth of water filters, shampoo and vitamins after attending a four-hour Equinox recruiting seminar in Las Vegas in June 1996.

The seminar was run by Alan Cote, an independent contractor for Advanced Marketing Seminars, a sister company to Equinox. AMS recruits distributors -- also known as independent sales representatives -- at more than 200 locations throughout the nation.

Once Uddo got home, he said he started to realize how difficult it would be to sell a countertop water filter for $200 or a 12-ounce bottle of shampoo for $9. His fears were confirmed when he started trying to market Equinox products to friends.

"Nobody wanted that stuff," Uddo said. "They told me it was a scam. I felt like such a fool. They get you all hyped up in the recruiting session, and you fall for it. I've had experience in business, so I have some resistance to this type of thing. A person who comes in cold would have less resistance."

Within days, Uddo returned all the Equinox material to Cote, and after repeated phone calls and letters to Equinox and AMS, Uddo said he eventually received a refund of only about a third of his original investment.

Today, Uddo considers his loss a painful lesson learned about high pressure marketing sessions.

"It's definitely a pyramid scheme," Uddo said. "I remember during the recruiting session, they (AMS representatives) would stress that it's not a pyramid because we sell products, but they'd keep telling us to bring someone to the sessions, and they would diagram a pyramid on a chalkboard to show how the company operates."

Only two months after Uddo attended an Equinox training session, attorneys general from 14 states, including Nevada, concluded an investigation of the company.

In August 1996 Equinox signed an agreement with the states, ending a case alleging that the company attracted distributors with unsubstantiated claims of success about its products.

Under the settlement, Equinox agreed to improve disclosures to potential product distributors and to step up enforcement of existing internal policies.

The company was not charged with any crime, nor was it fined. It agreed, however, to pay $455,000 to the 14 states as their costs for conducting the nine-month investigation. Nevada received $7,500.

One of the stipulations of the Nevada agreement, termed "Assurance of Voluntary Compliance," was a buy-back policy guaranteeing distributors a full 100-percent refund within five days of the purchase of any Equinox products.

At the time, Gouldd noted the settlement was an important step for the company and would "allow us to move forward with aggressive growth plans,"

Gouldd had previous experience with a state penalty.

In September 1990, as a top producer with National Safety Associates, he agreed to pay the state of California $75,000 in civil penalties and other costs to settle a consumer protection lawsuit brought by then State Attorney General John Van de Kamp.

The suit alleged Gouldd "had purported to sell water purification devices when they were really selling the right to recruit distributors," Van de Kamp said in a statement at the time.

Just after the suit was settled, Howard Wayne, deputy attorney general for consumer affairs in San Diego, told a local newspaper that Gouldd had placed misleading ads in newspapers for non-existent jobs and that those who responded"were duped into attending high-pressure sales meetings" and were asked to spend $5,000 on the water filtration devices and to recruit others to make similar purchases.

Gouldd, described as a seasoned multi-level marketer, was on vacation last week and could not be reached.

But, an Equinox statement explains that even though Gouldd "wasn't responsible" for the alleged multi-level marketing abuses and wanted to fight the lawsuit, litigation would have proved expensive and time consuming. In addition, according to the statement, the agreement stipulates there was no admission of liability or wrongdoing on Gouldd's behalf.

Still, allegations of unfair business practices continue to haunt Gouldd.

The Better Business Bureau of Southern Nevada reports 104 complaints against Equinox in the past two years, and the state Division of Consumer Affairs reports 17 complaints against Equinox in the past year -- five are still pending.

And about the question of whether Equinox is a pyramid scheme:

"All profits which individuals make while acting as independent representatives for Equinox are derived from product sales," the company stresses in its statement.

Norma Restivo, manager of public relations for Equinox, explained: "A pyramid schedule is based on recruiting, but a legitimate company is based on product sales."

And Equinox certainly does sell product.

"We started doing business with Equinox in 1992, and today they probably have 95 percent of our business," said David Lieberman, president of International Purity Corporation, manufacturer of water filtration products. "In the last five years, we've probably shipped them in excess of $30 million worth of product. If the company is a pyramid, then the product has to go somewhere."

Or does it?

"We're talking about six 12-ounce bottles of shampoo to a case that are supposed to sell for $54 retail," said Monica Brown of Denver, a former Equinox independent sales representative. "It's too expensive, and that's the problem. The distributors would buy this product and they couldn't sell it to anyone."

Besides paying allegedly exorbitant prices for large quantities of product, Brown explained independent sales representatives are expected to attend training sessions conducted often throughout the nation by AMS.

"Some last all weekend long, and they can cost $300 in attendance fees, and that doesn't include travel," said Brown, who today is facing $75,000 in credit card debts -- which she said she accrued paying for Equinox products and training seminars -- and is considering whether to file bankruptcy.

"This man, Gouldd, has destroyed so many lives, and I used to think he doesn't realize the damage he's caused because he keeps himself so disconnected, but he's behind it all. It's so sad," Brown said. "I feel brokenhearted and betrayed."

But Restivo countered that thousands of independent sales representatives do make a good living distributing Equinox products.

"All of our advertising is regulated at the home office, and we keep it very straight forward to avoid any misconceptions," Restivo said. "Selling Equinox products is an opportunity, it's not a guarantee, and more and more people are getting into the business on either a full- or part-time basis."

And, it seems lately, more and more top distributors are getting out -- albeit, not by their own choice.

In September 1997, after 19 of the company's top distributors signed a letter to Gouldd demanding that he stop "humiliating" them in public; intimidating them into taking mandatory trips; breaking deals, and making advances on their wives and girlfriends at training sessions, Gouldd summarily terminated all 19 distributorships.

The 19 former Equinox distributors have since formed another multi-level marketing company, Trek Alliance Inc., headquartered in Truckee, Calif., and Trek and Equinox are now on opposite sides of a federal suit.

The $10 million suit was originally filed by Equinox against Trek, charging the upstart multi-level marketer with raiding Equinox of distributors. A temporary restraining order barring Trek Alliance from recruiting any Equinox distributors has been approved by U.S. District Judge David Hagen, but James Holden, Trek's attorney, said the main focus of the legal action is not about corporate raiding.

"This suit is about ethics in leadership, about how a company should be run," Hagen said.

So far, both sides are claiming at least Pyric victories in the legal action.

In a statement released Thursday, Equinox states that the granting of the temporary restraining order against Trek has "increased our confidence that our lawsuit is warranted and based in fact."

In addition, Equinox states the charges against Gouldd "are baseless in fact and are a part of a deliberate effort to deflect the spotlight from a failed attempt to take over the company."

The statement also notes that shortly before the distributors were terminated, "these same individuals were publicly praising Equinox for its leadership and influence in their success."

But Hagen explained that obviously things were not hunky dory at Equinox in the weeks and months before all 19 top distributors were terminated.

"I've never heard of a company firing all it's top people," Hagen said. "That's like shooting yourself in the foot."

The Trek suit is one of five pending lawsuits filed locally involving Equinox.

In a 1995 District Court action, Brent Tahajian of Las Vegas filed suit against Equinox charging the company with failing to produce promised sales support and operating a "pyramid promotional scheme."

Tahajian and two other plaintiffs claimed they lost tens of thousands of dollars when they purchased jogging suits and other materials from Equinox and then the company failed to provide support to help them sell the materials.

"The big issue was that there were all kinds of promises made about what he could do and how much money he could make," said Michael Van, Tahajian's Las Vegas attorney. "My client was in pretty deep."

Tahajian was one of several former independent sales representatives who appeared on a June 7, 1996, on the ABC news program "20/20." On the program the former distributors all said they lost amounts ranging from $20,000 to $100,000 trying to distribute Equinox products. They also accused Gouldd of operating the company in a cult-like fashion, through intimidation and false promises.

"He (Gouldd) is so charismatic, you do believe in it," Michelle Prekop said. "It's like you're a follower. It's like you are in a cult. You'll do anything. You'll do anything to be successful."

But Gerrit Besteman, head of research for Christian Research Institute, a non-profit group in Rancho Santa Margarita, Calif., that investigates cults, said that although his group has not done extensive research into Equinox, "we believe it is a multi-level marketer, and as long as you get something in return for which you pay, there is not really anything wrong with it."

About the "20/20" broadcast, Restivo said, "That program is a year and a half old. The company has continued to move forward since then."

But is it still growing?

Strangely, Equinox, which was named the fastest growing privately held company in American by Inc. Magazine in 1996, wasn't even included on the list of growing companies compiled by the magazine a year later.

Charlene Niles, editorial information manager for Inc. Magazine, said the reason is simple.

"We have no record of their application (in 1997)," Niles said. "I don't know if it fell between the cracks or the company was not interested in applying, or whether the growth was not sustained. It may have leveled."

Restivo said that while she doesn't want to discuss exact figures for 1997, the phenomenal growth sustained by Equinox through 1996 has leveled a bit.

"But, we anticipate continuing to do very well," Restivo said. "This company continues to move forward and expand it's it product line."

Just three months ago, for example, Equinox introduced a line of homeopathic remedies, which reflect a growing trend among Americans to choose alternatives to prescription drugs.

"We're very excited about the future," said Restivo, who added that eventually Equinox could go public.

"We've been asked about that quite often, and we're certainly looking at that option," Restivo said. "It won't happen in the very near future, but I'd say in the next two or three years."

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