Fast-Sinking Star

After making the #1 spot on the 1996 Inc. 500, multilevel marketer Bill Gouldd slid and folded in a settlement with the Federal Trade Commission.

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Legacies

Equinox: Class of 1996

Multilevel marketer slides from top rank and folds in a settlement with the Federal Trade Commission

What a difference four years can make. In 1996, Bill Gouldd was looking all but invincible. His Equinox International, a multilevel-marketing company based in Las Vegas, was growing at a pace that must have rattled the timbers at Amway, the ubiquitous industry leader. Gouldd may have had a mystical side to his personality (he added the second d to his name because a spiritual adviser had once warned him he was "out of balance," he told Inc. in 1996), but he also had an undeniable knack for driving his company's sales.

Since the company opened, in 1991, the network of distributors who sold Equinox water filters, vitamins, and other products had swelled to 100,000 people nationwide and in Mexico. Many of Gouldd's troops were shelling out as much as $2,500 to attend his high-voltage training conferences. As Equinox completed its fifth year, the company was reporting soaring revenues of $195 million. Its staggering growth rate for the five-year period totaled 35,625%, landing Equinox at the #1 spot on the 1996 Inc. 500 list (an achievement that Gouldd aggressively used to plug his company).

But, as it turns out, the Equinox story is as much about a calamitous fall as it is about a sizzling rise to the top. If Gouldd indeed had a Pied Piper's gift for drawing distributors into his sales force, at the same time he allegedly bullied and humiliated many of them. And as Equinox developed into a multilevel-marketing powerhouse, its founder attracted increasing journalistic and regulatory scrutiny. Gouldd's dispute with 19 of his top distributors led to their enlisting with another multilevel marketer three years ago and sapped the company's management strength and slowed its sales momentum. It also prompted Gouldd to file a $10-million lawsuit against the 19 former Equinox distributors and the company they joined, Trek Alliance.

A 10-month investigation by the Federal Trade Commission culminated in a trial that began six months ago in federal district court, in which prosecutors accused Gouldd of operating a fraudulent "pyramid" scheme. As part of the settlement, Gouldd (who never admitted to any wrongdoing) agreed to close Equinox permanently and refrain from working in the multilevel-marketing industry again. The settlement also called for liquidating an estimated $40 million in assets from Equinox and two of its sister companies and from Gouldd himself, with the proceeds earmarked for former Equinox distributors.

A flamboyant figure who sported two Rolexes (one with diamonds worth $88,000) and who hopscotched around the country in a private jet, Gouldd, now 46, once depicted his life as a rags-to-riches story that included a series of menial jobs when he was a young man. By the late 1980s he was a leading distributor for National Safety Associates, a multilevel marketer based in Memphis, and he had created his own company, Advanced Marketing Seminars, to train other distributors. When hundreds of National Safety Associates distributors joined Gouldd at Equinox, he retained the training company as an arm of his start-up.

Known for his power to pump up and cajole an audience, Gouldd sold his distributors not only on the potential to make big money fast but also on the virtues of his product line. That line eventually included more than 300 items, many of which were touted as bestowing unusual nutritional and environmental benefits. Distributors, who were recruited through newspaper ads and by word of mouth, were promised incomes upwards of $3,000 a month. However, that promise included some fine print: according to regulators, fledgling distributors were expected to purchase $5,000 worth of Equinox products to "buy in" as managers -- the level at which they could begin to earn commissions on sales made by distributors whom they recruited, also known as their downline. (It is that structure -- in which managers share earnings made by people in a sales-force chain -- that defines multilevel marketing.)

Bill Gouldd faced the rebellion of top Equinox distributors, who accused the founder of using "fear tactics."

But the Equinox system was soon creating many disenchanted distributors, who later contended in court that they were snookered by false claims and high-pressure salesmanship into investing in the company's products and training seminars. A searing exposé on ABC's 20/20 featured interviews with several aggrieved distributors and footage that showed Gouldd cursing at a woman who dared to ask him a question at a training session. The broadcast had the effect of crimping the company's sales, several former distributors noted in court documents.

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