Equinox OK to operate pending trial

David Strow

Tuesday, Sept. 7, 1999 | 11:29 a.m.

A federal judge issued a preliminary injunction against Equinox International Corp. on Friday, which will keep a receiver in control of the controversial Las Vegas multilevel marketing company until a trial begins in April 2000.

However, the company was permitted to continue business operations until next spring, and may still recruit new representatives, subject to restrictions on its advertising.

The injunction freezes the assets of the company until the trial, as well as those of company founder William Gouldd. The company is permitted to incur "reasonable" business expenses, while Gouldd is permitted reasonable living expenses. These assets were initially frozen by a temporary restraining order issued Aug. 5.

"We're gratified by the decision," said Richard Linstrom, Nevada chief deputy attorney general for consumer protection. "Under federal law, you can only get an injunction if you're likely to succeed on the merits of the case."

Equinox's sole comment was a one-paragraph release issued shortly after Judge Johnnie Rawlinson's ruling.

"Federal Trade Commission efforts to shut down Las Vegas-based Equinox International without a trial have failed," the statement read. "Equinox has been allowed to continue business operations, and the judge has agreed to give Equinox a full trial to present their case. Equinox unequivocally denies the FTC's allegations and expects nothing less than a complete victory."

Equinox is a multilevel marketing company that sells beauty and health products, as well as a line of water filtration devices. The company sells its products through about 40,000 active independent distributors, who purchase products from the company at wholesale and resell them at a mark-up.

But the FTC and six states say most money is made through recruiting new sales representatives, rather than selling products, and accuse the company of operating an illegal pyramid scheme. These charges were the basis of their successful bid for a temporary restraining order issued against the company Aug. 5. Government prosecutors have also accused Equinox of recruiting new distributors through misleading income potential statements.

Equinox has denied these charges, saying its multilevel marketing business is modeled after that of Amway, whose operations have been approved by the FTC, and insists it stresses retail sales to all distributors. During hearings, several top distributors testified that they regularly sold products personally, despite the fact that they had sizable distributor networks under them. The company also says it doesn't condone income claim practices and said it has dismissed distributors for making such claims.

The injunction primarily affects Equinox's advertising. Under the order, the company is barred from making income claims to recruits, and must disclose all expenses associated with being a distributor. Equinox is also prohibited from suggesting in recruitment ads that distributors are employees of the company.

Products may still be sold to distributors, but the company is required to pay full refunds on all products not sold within a year.

But Equinox scored a victory when the judge allowed the company to resume payment of bonus checks to distributors for sales made by representatives recruited by that distributor. The FTC had argued that these checks were the basis of the alleged pyramid scheme, but the company successfully argued that it could not survive the next seven months without paying those checks since distributors would desert the company. The checks had been barred under the initial restraining order.

During the April trial, the FTC and states will attempt to have Equinox shut down. The plaintiffs are also seeking to have all funds returned to sales representatives, and civil penalties against the company for alleged violations of the FTC Act. Civil penalties sought range from $1,000 per violation by Pennsylvania to $100,000 per violation requested by Hawaii.