California Attorney General Files Lawsuit Against Electricity Pyramid Marketing Scheme (Press Release)

Boston-Finney is seeking to enter California's newly deregulated electricity market

January 27, 1998

SAN DIEGO -- Attorney General Dan Lungren today filed a lawsuit against Boston-Finney and its president, Christopher S. Mee. The Harrisburg, Pennsylvania-based company is seeking to enter California's deregulated electricity market.

The action, filed in San Diego Superior Court, alleges that Boston-Finney has made numerous misleading and untrue statements in its efforts to sign up distributors and customers. The complaint also alleges that the marketing structure the company established violates California laws prohibiting the use of "endless chain" or "pyramid"marketing schemes.

The complaint seeks an injunction to halt the continuation of the use of misleading representations, to prevent the use of an endless chain marketing scheme, restitution and civil penalties in the amount of $1.5 million.

The complaint notes that the newly deregulated electricity market in California allows companies other than traditional public utilities to solicit the public to buy electrical power from them. Companies wishing to do so must file with the Public Utilities Commission as an electric service provider. Because of difficulties encountered in implementing the new deregulation requirements, the PUC moved the start date for a deregulated market to March 31, 1998. Deregulation had been set to take effect January 1, 1998. Even though the start date has been pushed back, since January 1, all utilities in California have been required to reduce their previous rate per kilowatt hour of electricity by 10 percent. Thus, even though the industry has not been fully deregulated, electrical customers' charges have been reduced by 10 percent since January 1.

In his complaint against Boston-Finney, Lungren alleges that the company has made numerous misleading statements about the benefits it will provide to customers who switch to Boston-Finney and the reasons for such benefits. Specifically, the Attorney General alleges that Boston-Finney:

Misrepresents it will offer electric power at approximately 20 percent below average market rates.

Misrepresents it is "one of the leading public utility retailers in the nation...obtaining a significant market share in both the residential and commercial environments."

Misrepresents it has entered into service contracts with major public utilities in California so that it can provide electrical service to the public.

Misrepresents it is able to guarantee the lowest electric power rate in the industry.

Misrepresents it will be able to offer electric power at substantial savings over the competition.

Misrepresents that by offering its products and services through network marketing, it will always be able to provide them to their customers at a lower cost.

Misrepresents that many of the nation's largest commercial and industrial electricity customers have already aligned themselves with Boston-Finney, thus giving Boston-Finney the opportunity to purchase billions of dollars of electricity annually at discount.

Misrepresents the company has buying power which allows it to pass on to its customers the benefits of the volume discounts it receives.

Misrepresents that company account executives have realistic expectations of earning large sums of money because it will be easy to introduce new account executives into its marketing program, easy to build a large "downline," and easy to make sales of its products.

Misrepresents that company account executives and distributors can lawfully be paid for introducing other individuals into their marketing program.

Lungren alleges that under the Boston-Finney program, account executives, who each paid the company $295, were promised that they would be paid commissions based on the number of other account executives they signed up, even before the company had secured customers for its electricity service. The company claims to have signed up over 4,800 distributors nationally, with more than 80 percent of the distributors being based in California.

Reprinted by the American Local Power Project