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COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
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AT
RICHMOND, MAY 11, 1993 |
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COMMONWEALTH
OF VIRGINIA, ex rel. |
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STATE
CORPORATION COMMISSION |
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CASE
NO. SEC920078 |
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v. |
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CONSUMERS'
BUYLINE, INC., KEITH
RANIERE, and ROBERT
G. BREMNER, JR. , |
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Defendants |
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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 3rd level, 25% of the
monthly fees paid by downline members on the 6th level, and 50% of
the monthly fees paid by downline members on the 9th 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, 2nd
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
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IN
RE: |
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COMMONWEALTH
OF VIRGINIA, ex rel. |
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STATE
CORPORATION COMMISSION |
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v. |
CASE
NO. SEC920078 |
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CONSUMERS'
BUYLINE, INC., KEITH
RANIERE, and ROBERT
G. BREMNER, JR. , |
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Defendants |
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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 10th day of March
1993.
______________________________
Notary
Public
My
Commission expires:
_______________________ SEAL