Equinox: Adverse publicity is stifling sales

Embattled Las Vegas network marketing company Equinox International Corp. says it is experiencing serious financial difficulties -- something it blames on an avalanche of negative media coverage spawned by federal and state regulators.

The company said its sales plunged 78 percent in September, in the wake of publicity following a lawsuit by the Federal Trade Commission and six states, including Nevada. Though the company has now been allowed to resume limited business operations, Equinox is now in "a very tight cash position," according to an Oct. 26 report filed by court-appointed receiver Robb Evans.

Equinox blames its financial difficulties in part on an "aggressive publicity policy" by the FTC and states involved in the action against the company. By issuing repeated press releases about the court action -- and using the word "pyramid scheme" repeatedly -- Equinox claims it has suffered "a disastrous effect on ... sales."

Equinox also accused North Carolina officials of sending letters to Equinox distributors saying that Judge Johnnie Rawlinson had found Equinox met the test of a pyramid scheme. Rawlinson did make this conclusion in a September order, but Equinox noted that this decision was preliminary, and that a final decision had yet to be made in court.

"Plaintiffs appear to be engaged in a concerted effort to accomplish through negative publicity what they did not accomplish in court -- putting Equinox out of business," said Equinox in an Oct. 29 filing.

Equinox sells beauty and health products, as well as a line of water filtration products, through a network of 40,000 independent distributors. However, government officials argue that most money isn't made through the sale of product, but through the recruitment of new representatives -- a violation of the FTC Act.

Equinox was shut down by Rawlinson on Aug. 6, and placed in receivership. The company resumed operations six days later, but had restrictions placed on these operations. Under a preliminary injunction issued in September, the company's advertising and large expenditures must be approved by Evans. Specifically, Equinox was ordered not to make any claims about potential income that could be derived from an Equinox distributorship.

Equinox was also barred from selling new distributors more than $1,000 in product and its assets were frozen by the court.

According to Equinox, more than 50 publications across the country wrote about the closure of the company on Aug. 6, but only two stories were written reporting that operations had resumed -- something it said frightened distributors away from the company.

Equinox's cash crunch has been further exacerbated by a decision by Imperial Bank to withhold $1 million in credit card proceeds, Evans reported. Evans said he was able to convince the bank to release $200,000 in proceeds, but that Imperial Bank has refused to release any more funds. Equinox is currently considering legal action against Imperial, Evans reported.

Exact financial numbers have yet to be provided by Evans to the court.

Equinox accuses Evans of making things worse with a series of proposed restrictions on the company's operations, and accused him of acting as a "pawn" of federal and state officials.

"(Evans) has gone too far," Equinox wrote. "The Temporary Receiver's overreaching now threatens to put Equinox out of business for good and deny Equinox its full day in court in April."

At the center of the dispute between Evans and the company are classified ads the company uses to attract new representatives to Equinox.

After approving a series of ads in September, Evans asked company management to place the words "Commissions Only-MLM" (multilevel marketing) across the bottom of each classified ad. Evans argued that the wording was appropriate, based on the court hearing.

But Equinox hotly disputes this, saying "multilevel marketing" creates a negative image that will only damage its operations more, since its competitors don't have to place such language in their ads. Moreover, Equinox argued that the additional text would increase costs for its representatives.

"The term 'MLM' carries with it a negative connotation to many prospective independent distributors who associate that term with illegal pyramid schemes," Equinox said. "This stigma can be overcome by a person to person explanation, but cannot be adequately described in an advertisement."

Evans and Equinox are also clashing over a new disclosure statement proposed by Evans. This form, which would have to be signed by any new representative, would disclose the percentage and number of representatives currently receiving rebates and bonuses from the company. Evans also wants to force Equinox to begin disclosing how many representatives are receiving rebates and bonuses in specific geographic areas.

Rawlinson ordered the company to do this in her September order, stating that Equinox had to disclose rebate and bonus information for distributors in a recruit's "geographic area."

Equinox is currently providing this information to representatives for the United States as a whole. Equinox argued that, since it has operations in Mexico and Taiwan, it constitutes an international entity, and therefore disclosures on a state-by-state level cannot be provided without heavy expense. It also argued that Evans had already approved the company's disclosure statements.

"Providing disclosures for different states or smaller geographic regions would vastly multiply the expense to Equinox of making the required disclosures," Equinox said. "One purpose of the preliminary injunction was to preserve assets -- not to squander them."

Equinox also accused Evans of a conflict of interest through the law firm representing him, Las Vegas-based Jones Vargas. Equinox noted that Jones Vargas represents Trek Alliance Inc., a company founded by former high-ranking Equinox distributors in 1997. Equinox and Trek are embroiled in a legal battle, and Equinox argues that its rival would be able to grab large numbers of Equinox distributors if Equinox is forced out of business.

"Until (Evans) eliminates this clear conflict and appearance of impropriety, his overzealous actions toward Equinox, including his after-the-fact reversals of previously approved advertisements, are suspect," Equinox said.

Evans has not yet filed a response to the conflict allegation.

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