Federal Trade Commission v. Skybiz.com, Inc.
United States District Court for the Northern District of Oklahoma
No. 01-CV-396 (2001)
Skybiz.com, Inc. (defendant) sold a website-building software package called Web Pak to consumers called Associates, who earned commissions not primarily from selling Web Pak to end users but from recruiting new Associates -- who in turn earned commissions recruiting further Associates, cascading through the recruitment chain. The FTC (plaintiff) sued, alleging Skybiz made false and misleading statements, enabled others to make deceptive claims, hid from Associates the unlikelihood they'd achieve the promised benefits, and ran an illegal pyramid scheme in violation of the FTC Act, and sought a preliminary injunction.
Whether a multi-level marketing scheme is an illegal pyramid scheme when its primary purpose is recruiting new participants rather than selling its product to ultimate consumers.