Chargebacks deplete funds in Equinox proceedings

David Strow

Tuesday, May 30, 2000 | 11:06 a.m.

More than $25 million will be available for a consumer restitution pool for former representatives of Las Vegas multinational marketing company Equinox International Corp., though the fund is being depleted by credit card chargebacks.

That's according to a report filed by the company's court-appointed receiver.

In a May 23 report filed with federal Judge Johnnie Rawlinson, receiver Robb Evans said that the assets of Equinox and its founder, Bill Gouldd, "appear to have a net realizable value in excess of $25 million." Evans is charged with liquidating these assets to form the consumer restitution pool.

Net realizable value would be proceeds from the sale of these assets, minus certain expenses, such as mortgages held against properties.

Originally, officials for the Federal Trade Commission and Nevada estimated the pool would have $30 million to $40 million for restitution. But Evans said that it shouldn't be assumed that target won't be met.

"As bankers, we tend to be more conservative than other folks," Evans said. "A lot of the property is quite valuable ... we're just shooting from the hip."

The $30-40 million figure, Evans said, "is other people's guesstimates. There's nothing wrong with it. We need some more time to get valuations before we can be more precise."

But Evans' report indicated funds are being depleted by an unexpected source -- credit card "chargebacks" by former representatives for their product purchases.

Since the April 20 closure of Equinox, more than $102,000 in chargebacks have been recorded by Equinox, with an additional $4,300 in bank fees as a result.

"Those consumers who are initiating chargebacks are ignoring the terms of the settlement with the (class action group), are receiving full restitution, and are gaining an advantage over class members and claimants," Evans wrote. He plans to seek a court order barring any further chargebacks from being processed by banks.

Equinox closed April 20 as part of a settlement with the FTC and several states, including Nevada. The settlement came about halfway through a civil case brought by the FTC, the states and a group of former Equinox representatives.

About 144 people were employed by Equinox when the company closed, Evans' report said. Seventy-four employees lost their jobs May 5, while the remaining 70 were retained for an unspecified period to help wind down business operations.

Most of the employees worked at Equinox's headquarters in Summerlin, Evans said.

The plaintiffs claimed that Equinox's multilevel marketing business was, in effect, little more than an illegal pyramid scheme, where revenues were primarily derived from recruiting new representatives into the company. Equinox did not admit wrongdoing in the settlement, though the settlement resulted in the company's closure and liquidation.

When the FTC initiated its action against Equinox last summer, the company had more than 40,000 representatives.

This trial had a severe impact on Equinox's business during the company's final days, Evans' report indicates. In March, the company lost $2.3 million on sales of $1.6 million. Legal expenses for the month totaled $1.42 million, "which was well above any previously projected or expected amounts," Evans wrote.

It is not clear how this compared to previous results, though Evans said the company was "well below June 1999 levels," losing between $500,000 and $1 million per month. In 1996 the company recorded nearly $200 million in annual sales.

Funds from the liquidation will be used to provide restitution to all former Equinox representatives who earned less than $150,000 during their time with the company. To date, no timeframe or procedure for distributing these funds has been set.

Though the major assets will be appraised within 60 days, Evans said he doesn't plan to rush the process.

"Our instructions are to maximize value," Evans said. "We want to move as quickly as we can, but we want to maximize value. We're not going to fire sale anything.

"As we get through this process, we'll come to grips with the time required to realize (the assets' fair) values." Assets to be liquidated include homes in La Jolla, Calif., Lake Las Vegas and Boca Raton, Fla., a 240-acre ranch in Colorado, a Falcon 20 jet aircraft, a houseboat on Lake Mead, two yachts, an industrial building in Dallas, Gouldd's personal jewelry, and "numerous other smaller boats and water recreational vehicles" in Florida.

Gouldd, who turned over much of his personal assets as a result of the settlement, liquidated millions of dollars worth of assets earlier this year in an attempt to help Equinox stay afloat. In a February report, Evans indicated Gouldd had sold $2.5 million in securities and a $1.75 million Las Vegas home to help finance the company's losses.

At least one group of assets will appear to yield more in cash than originally expected -- a $3 million inventory of products on hand at Equinox when the company shut down. Equinox representatives sold a line of health and beauty products, as well as a line of water filtration devices.

Several liquidators have offered to purchase product at about 15 percent of cost, Evans said. However, Evans said he's received inquiries from "numerous former distributors" offering to buy the products for their own use or for sale.

Evans said he will offer the products to the former distributors at 50 percent of the former wholesale cost. The sales will be cash only, with no warranties or refunds available.

These sales could yield as much as 110 percent of the cost of the product, Evans said.