State of Virginia vs. Consumer Buyline

COMMONWEALTH OF VIRGINIA

 

STATE CORPORATION COMMISSION

 

	AT RICHMOND, MAY 11, 1993
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
		CASE NO. SEC920078
v.
CONSUMERS' BUYLINE, INC., KEITH RANIERE, and ROBERT G. BREMNER, JR. ,
Defendants

 

RULE TO SHOW CAUSE

 

The Commission's Division of Securities and Retail Franchising, after having conducted an investigation of this matter pursuant to § 13.1-518 of the Code of Virginia, alleges:

(1)          Consumers' Buyline, Inc. ("CBI") is a corporation organized in May 1990

under the laws of the State of New York. It is authorized to issue 200 shares of no par common stock, 100 shares of which are issued and outstanding. CBI's home office is located at 100 East Sitterly Road, Clifton Park, New York, 12065. It obtained a certificate of authority to transact business in Virginia on February 14, 1992. Its registered agent and registered office in Virginia are Edward R. Parker, 5511 Staples Mill Road, Richmond, Virginia 23228.

(2)          The founder and president of CBI is Keith Raniere ("Raniere"), whose address is same as that of CBI.

(3)          Robert G. Bremner, Jr. ("Brember"), who resided at 1523 Siege Road,

Mechanicsville, Virginia 23111, is the leading commissioned affiliate of CBI in this Commonwealth and is a "National Director" of CBI.

(4)          Between approximately November 1990 and July 22, 1992, CBI, through

its agents Raniere, Bremner and others, offered and sold in this Commonwealth securities in the form of investment contracts issue by CBI. The November 1990-July 22, 1992, time frame applies to the allegations set forth below.

(5)          CBI is a multi-level marketing membership organization that offers its

members the opportunity to purchase via telephone, through third party vendors, "over 250,000 national brand name products [at] guaranteed exclusive low prices." The products are available in more than 40 categories, including appliances, home electronics, home furnishings, leisure, personal and recreational, personal health aids, real estate relocation services, interstate moving, motor vehicles, financial services, skin care, travel, groceries (an extra cost option), legal referral network, and optical services network.

(6)          CBI memberships are offered and sold by persons designated as

"affiliates" who solicit others to become "members" of CBI. Recruitment of new members is accomplished by word-of-mouth, by group meetings, and by the use of audio and videotapes featuring Raniere.

(7)          Membership is obtained by completion of a one page Member Application

form and submission of the form, along with payment of the annual fee of $39 and payment of the first monthly fee of $15, to CBI. Membership is in effect upon receipt and acceptance of the application by CBI at its home office. Each applicant is required to authorize CBI to collect future membership fees either by drafting his/her checking account on a monthly, quarterly or annual basis or by charging his/her American Express, VISA or MasterCard account annually for the entire yearly amount.

(8)          At the time a prospective member is solicited, he/she is advised of the

opportunity to become an "affiliate." Affiliateship i.e.; obtained by completion of a one page Affiliate Application form and its acceptance by CBI at its home office. Although it is stated on the face of the application "that no purchase of a membership or payment is required to become or remain a CBI Affiliate," CBI recommends that all affiliates who market memberships be members themselves. Affiliates are the sales force for CBI memberships.

(9)          An affiliate receives from CBI a one-time "sign-up" fee of $5 for each new

members he/she personally signs up plus commissions (referred to by CBI as "residual commissions") based on the monthly fees paid by that affiliate's "downline" members. "Downline" refers to the persons who purchased memberships directly from the affiliate, or directly from affiliates sponsored by the affiliate, or directly from affiliates of affiliates sponsored by the affiliate, etc.

(10)           To be eligible to earn residual commissions, an affiliate is advised that "all

you have to do is sell two memberships." The commission structure is as follows: An affiliate earns 20% of the monthly fees paid by downline members on the affiliate's 3^rd level, 25% of the monthly fees paid by downline members on the 6^th level, and 50% of the monthly fees paid by downline members on the 9^th level. For commission purposes, it is immaterial whether the downline memberships were sold by the affiliate, personally, or by the affiliate's downline or upline. The CBI literature illustrates five "income phases" that show monthly commission incomes ranging from up to $200 in the First Phase - Affiliate, to $30,000+ in Phase Five - Five Star Director.

(11)           The Affiliate Application form states, among other things (I) that an

affiliate cannot have more personally sponsored affiliates than personally sold memberships; (ii) that CBI is responsible for the calculation and payment of affiliate commissions, which payments are made monthly; and, (iii) that an affiliate must maintain a personal volume of at least $30 in personally sold memberships each calendar month to receive commissions.

(12)           A prospective affiliate is lead to believe that little, if any, effort need be

exerted to earn commission income of $200 or more per month by statements such as (I) "[t]o be eligible to make residual commissions, all you have to do is sell two memberships"; (ii) "[t]his is all found money - walkaway income - money that just keeps spilling into your wallet no matter what you're doing. In other words, think of it as a royalty reflecting your ongoing rights to something you've already created. Better yet, think of $200 per month royalty income as though you suddenly had $48,000 in the bank, while 5% interest piles up"; (iii) an affiliate does not have to "buy any product, maintain any inventory, keep any records [or] keep up with any paperwork"; (iv) an affiliate can provide his/her sponsor the names of friends and the sponsor will solicit these persons on behalf of the prospective affiliate; and, (v) no thought and no effort are needed to earn commissions, just mechanically follow a prepared sales script.

(13)           As of the end of February 1992, there were 14,225 affiliates in Virginia, of

which 4,150 were qualified to earn commissions. In addition, all of the Virginia affiliates also are CBI members.

(14)           As of March 1992, four Virginia residents were "National Directors" and

77 Virginia residents were "Directors." In the first quarter of 1992, the four National Directors were paid commissions in the amounts of $30,364, $17683, $55,966 and $10,750, respectively. These four National Directors had personally sponsored 11,3, 9 and 34 affiliates and had downlines of 70,195, 78,046, 93,429 and 29,292, respectively.

(15)           The total amounts of membership fees collected form Virginia residents

for the months of January, February and March 1992, respectively, are $142,772, $138,674, and $ 137,147.

(16)           The Division's records indicate that no security issued by CBI is or ever

has been registered under the Securities Act. Va. Code § 13.1-501 et seq., and that no individual is or ever has been registered under the Securities Act as an agent of CBI.

(17)           This proceeding was instituted on July 17, 1992, when the Division filed a

Motion for Issuance of Temporary Injunction. On July, 1992, CBI consented to the entry herein of an Interim Order by which the Commission accepted CBI's offer that, pending final resolution of the issues raised by the Division, it would (I) only allow persons desiring to become members or affiliates of CBI to become either a member or an affiliate, but not both, and (ii) no offer or sell in this Commonwealth securities in violation of Va. Code § 13.1-504B and 13.1-207.

(18)           The allegations set forth in paragraphs (1) - (16) describe activities which

constitute acts made unlawful by Va. Code § 13.1-504 and 13.1-507.

Now, therefore, it is ORDERED that the Defendants appear before the State

Corporation Commission, it its Courtroom, 2^nd Floor, Tyler Building, 1300 East Main Street, Richmond, Virginia, at 10:00 a.m. on April 21, 1993, and show cause, if any then can, why they jointly or severally should not be penalized pursuant to Va. Code § 13.1-521 and/or permanently enjoined pursuant to Va. Code § 13.1-519 on account of the aforesaid alleged violations and/or have other sanctions imposed as the Commission may order.

      IT IS FURTHER ORDERED that each Defendant file on or before April 2, 1993, as original and seven (7) copies of a responsive pleading in which it/he expressly admits or denies the allegations contained in this rule to Show Cause, or an other appropriate pleading. If it/he denies any of the allegations, it/he shall set forth in such responsive pleading a full and clear statement of all the facts which it/he is prepared to prove by competent evidence that refute the allegations so denied. Each Defendant shall expressly indicate in such responsive pleading whether or not it/he desires and intends to appear and be heard before the Commission on the scheduled hearing date. The responsive pleading shall be delivered to the clerk, State Corporation Commission, Document Control Center, P.O .Box 2118, Richmond, Virginia 23216, and shall contain a caption setting forth the style of this case and its case number.

      IT IS FURTHER ORDERED that each Defendant shall be in default if it/he fails to timely file either a responsive pleading as set forth above or another appropriate pleading, or if it/he files such pleading and fails to make an appearance at the hearing; that if it/he is in default, it/he waives all objections to the admissibility of evidence and it/he may have entered against it/him a judgement by default imposing some or all of the aforesaid sanctions.

      AN ATTESTED COPY hereof shall be served upon each of the Defendants as follows: by being sent by first class mail to Edward R. Parker, Registered Agent of Consumers' Buyline, Inc., 5511 Staples Mill road, Richmond, Virginia 2328; by service upon the Secretary of the Commonwealth as statutory agent for Keith Raniere, c/o Consumers' Buyline, Inc. 100 East Sitterly Road, Clifton, Park, New York 12065; and by the Sheriff of the County of Hanover upon Robert G. Bremner, Jr., 1523 Siege Road, Mechanicsville, Virginia 23111; and an attested copy shall be sent to F. Caliborne Johnston, jr., Esquire, Mays & Valentine, P.O. Box 1122, Richmond, Virginia 23208-1122.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMONWEALTH OF VIRGINIA

 

STATE CORPORATION COMMISSION

 

IN RE:
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
v.		CASE NO. SEC920078
CONSUMERS' BUYLINE, INC., KEITH RANIERE, and ROBERT G. BREMNER, JR. ,
Defendants

AFFIDAVIT

Commonwealth of Virginia

City of Richmond, To wit:

            Comes now the affiant and, having been first duly sworn, says:

(1)   I am John W. Parthum, Senior Investigator for the Division of Securities and

Retail Franchising of the State Corporation Commission.

(2)   This affidavit has been prepared for the purpose of obtaining service of

process on defendant Keith Raniere pursuant to the provisions of Virginia Code § 8.01-329.

(3)   The defendant is a nonresident of the Commonwealth.

(4)   The last known address of defendant is:

C/o Consumers' Buyline, Inc.

100 East Sitterly Road

Clifton Park, New York  12065

 

And further the affiant sayeth not.

                                                                                    ______________________________

                                                                                                John w. Parthum

Subscribed and sworn to before me, a Notary Public, this 10^th day of March 1993.

                                                                                   

______________________________

                                                                                                Notary Public

My Commission expires:   _______________________                                      SEAL