State goes after Equinox again

State and federal agencies are moving to shut down Equinox International Corp., a Las Vegas multilevel-marketing company that for years has generated controversy and attracted the scrutiny of regulators.

The Nevada Attorney General's office said it joined with Hawaii, Maryland, North Carolina, South Carolina and the Federal Trade Commission in suing Equinox in U.S. District Court last week. The suit was filed under seal Tuesday and was unsealed Friday.

Nevada officials said Equinox, principal owner William Gouldd and two related companies were accused of unfair and deceptive trade practices, false advertising, securities violations, violating licensing requirements and running pyramid schemes.

U.S. District Judge Johnnie Rawlinson issued a temporary restraining order freezing the defendants' assets and appointed a receiver, and required Equinox to post a bond pending further court action.

The complaint, which also named Advanced Marketing Seminars Inc. and BG Enterprises Inc., alleged Equinox distributors ran a classic pyramid scheme by focusing on recruiting new distributors as opposed to actual product sales.

Those responding to Equinox ads that implied salaried positions were available were instead given a sales presentation in which they were told that the real way to make money in the company was to recruit new distributors, the complaint alleged.

The state said although distributors were lured with the promise of 'big bucks' to be made, very few distributors actually recouped even their start-up costs.

Another suit filed by the state of Massachusetts against Equinox in February 1998 is pending, officials said today.

Equinox officials couldn't be reached for comment today.

Founded in 1991 by multilevel-marketing guru Gouldd, Equinox topped the 1996 Inc. magazine list of the nation's fastest-growing companies with a growth rate of 35,000 percent and annual sales approaching $200 million.

It grew because of a national distribution force of tens of thousands of people selling more than 350 products from water filters to herbal remedies.

In 1997 it opened an 80,000-square-foot, three-story corporate headquarters in Summerlin. Corporate officials boasted that the state-of-the-art building that employs more than 300 people was "environmentally friendly" with nontoxic paints and high-pressure laminates and energy-efficient mirrored glass.

But some Equinox distributors complained that it was hard to make a living selling Equinox products because of their high prices -- a 12-ounce bottle of shampoo for $9, for instance. And some complained the company operated a pyramid scheme because distributors were not only pressured to sell products, but were urged to recruit other distributors.

In August 1996 Equinox signed an agreement with Nevada and 13 other states, ending a lawsuit 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 was a buy-back policy guaranteeing distributors a full 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,"

This was not Gouldd's first run-in with state regulators.

In September 1990, as a top producer with National Safety Associates, he agreed to pay California $75,000 in civil penalties and other costs to settle a consumer protection lawsuit brought by then-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 nonexistent 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.

A new controversy erupted in September 1997 when 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 then terminated all 19 distributorships. So the former Equinox distributors formed another multilevel-marketing company, Trek Alliance Inc., headquartered in Truckee, Calif.

Equinox then sued Trek, charging the upstart multilevel marketer with raiding Equinox of distributors.

Nevada officials are unsure if the new complaint will shut Equinox down for good.

"It is our contention that Equinox violated the 1996 agreement. The federal court will hold a hearing to determine if the temporary restraining order should be converted to a permanent injunction," Richard Lindstrom, chief Nevada deputy attorney general, said today.

The hearing is set for Aug. 16.

"There's no way to know whether this hearing will lead to another settlement that will allow them to continue operating. It depends on what Equinox's defense is," he added.

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