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.
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.
No wonder many of the Equinox distributors were unhappy. From 1995 to 1998 more than 80% of them earned less than $1,000 a year, and fewer than 2% of them earned more than $20,000, according to FTC figures. Even some of the seemingly successful distributors sometimes sank deep into the red. In 1997, Gouldd faced the rebellion of top Equinox distributors. In a letter the distributors sent to Gouldd (and which they and Gouldd later made part of a court record) they accused him of "sexual misconduct" and the use of "fear tactics." They also alleged that Equinox had reneged on its promise to share the Advanced Marketing Seminars profits with them and contended that the company had shortchanged them. Gouldd denies all claims.
Gouldd suspended all 20 distributors three weeks later, and 19 of them signed on with Trek Alliance, which is headquartered in Incline Village, Nev. The departure of those top producers battered Equinox because, as Gouldd told Inc. in a recent interview, "when players break off a team and ruin the unification of the team, everyone loses." The company's revenues, which had already plummeted from $135 million in 1996 to $78 million in 1997, fell again in 1998, to $47 million.
In the spring of 1999, FTC lawyers and representatives from the attorney general's offices of many states gathered in San Diego for a law-enforcement summit on "pyramiding" schemes. In the discussion it became apparent to the FTC that consumers' complaints against Equinox were widespread in the nation, and the agency decided to act. Its investigators began monitoring Equinox's training sessions across the country in October 1998.
In August 1999 the FTC and six states (the number would grow to eight) took the matter to U.S. District Court judge Johnnie Rawlinson of Las Vegas, who ordered a freeze on Equinox's assets and appointed a court receiver. The central charge was that Equinox was operating a pyramid scheme, meaning that it was selling distributors the right to recruit other distributors and rewarding them in ways unrelated to the sale of products to the ultimate users. The trial began on April 3; Gouldd settled 17 days later.
That settlement erased the last vestiges of Gouldd's footprint in the world of multilevel marketing, but it hardly left him destitute, according to court documents. He wound up with almost $10 million in assets, including one of the Rolexes, a Range Rover, two houses in Florida, and a cool $8 million in cash.
Donna Fenn is a contributing editor at Inc.
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DONNA FENN is the author of Upstarts! How Gen Y Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009), about ways Gen Y is changing the entrepreneurial landscape.