March 24, 2000

Attorney General Jennifer M. Granholm today announced that she has taken action against an on-line company accused of marketing an illegal pyramid scheme to Michigan consumers. Pyramid schemes violate the Michigan Pyramid Promotion Act; their deceptive nature violates the Michigan Consumer Protection Act.

Powercard International, doing business as KM.NET, is an Internet business headquartered in Alabama. Through both its Internet site and promotional meetings, the company offers consumers the opportunity to become an independent Internet "mall" owner for an investment of $399.95.

According to the Notice of Intended Action filed today, Granholm alleges that in return for simply recruiting additional people to invest in their program, KM.NET offers participants $100 cash payments, called "fast start bonuses," and "points" to be accumulated toward later "commission" payouts. Michigan's Pyramid Promotion Act forbids businesses from offering program participants compensation in return for inducing other persons to become participants in the program.

The Attorney General also alleges that because its business practices are "deceptive" and cause the "probability of confusion or misunderstanding" regarding a participant's legal rights, KM.NET is in violation of the Michigan Consumer Protection Act.

Granholm said: "Some call it a 'virtual mall' -- we call it a virtual pyramid."

In the KM.NET program, consumers are encouraged to purchase an on-line "mall," in essence, a web site which serves as a portal to numerous on-line retail stores. Once consumers have purchased a mall of their own, they are then encouraged to sell malls to other consumers. When a current mall owner convinces a new recruit to participate in the KM.NET program by buying a mall, the current owner is rewarded with a $100 cash bonus and a large distribution of "commission points" to be applied to a later cash payout.

In a legal multi-level marketing program, participants earn income from both the direct retail sale of products to the public and retail sales made by direct or indirect recruits of current participants. According to the Attorney General's notice, KM.NET participants' earnings come "primarily from recruitment" and not from the sale of products.

The Attorney General's office warns that people who become "mall" distributors are legally responsible for the claims they make about the company, its product and the business opportunities it offers. Likewise, distributors are responsible for any claims made about a new distributor's earnings potential.

The company has ten days in which to respond to the Attorney General's allegations or face the potential of a lawsuit filed on behalf of the people of Michigan. Willful and knowing violation of Michigan's Consumer Protection Act is punishable by fines of up to $25,000 per violation.

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