Ignite / Stream Energy Sued Federal Court -- Pyramid Scheme

[soapboxmom]

I have glorious news. One of my favorite scams to blog about has been sued by a very prominent and talented attorney fron Houston, TX. Ignite Stream Energy is bieng sued in federal court for operating a pyramid scheme. I will definitely have to take the kids on a homeschool road trip if it makes it to trial!

http://www.dallasnews.com/sharedcontent ... f95a4.html

12:00 AM CDT on Thursday, July 2, 2009
By ELIZABETH SOUDER / The Dallas Morning News
esouder@dallasnews.com

Dallas electricity retailer Stream Energy has been accused in a lawsuit of operating a pyramid scheme.

Attorney Scott Clearman of Houston said Wednesday that he filed a lawsuit in federal court in Houston against Stream, a multilevel-marketing company that requires its sales associates to pay $329 to sell the product.

Clearman said he seeks class-action status for the suit. His two clients paid to become Stream associates but couldn't sign up enough electricity customers to recoup the investment.

Stream chairman Rob Snyder said the company's sales strategy is lawful and mimics a structure used by many well-known direct sales companies.

"Simply put, the direct selling models used by firms such as Mary Kay and Stream Energy have been repeatedly found to be unquestionably legal. And unfortunately, it seems these days that any clown with a bow tie can file a lawsuit on behalf of a purported class of injured parties," Snyder wrote Wednesday in an e-mail.

The lawsuit names five companies related to Stream and 13 executives and top sales associates, including Snyder.

The issue is whether Stream's marketing arm, Ignite Inc., deals lawfully with sales associates, or if its recruitment strategy amounts to a pyramid scheme. It has nothing to do with the electricity side of the company.

Stream serves about 360,000 electricity customers in Texas and recently began operating a natural gas utility in Georgia.

The company has won several entrepreneur and direct sales awards. The Public Utility Commission designated Stream as a provider of last resort. That means that if an electricity retailer goes out of business, the PUC might automatically shift some customers to Stream rather than cut those people's power off.

The unusual sales strategy is only possible because of utility deregulation.

Stream doesn't hire salespeople. Instead, Ignite sales associates must pay to participate in a multilevel-marketing program. Salespeople earn money when they sign up new electricity customers, and especially when they recruit more salespeople.

According to Clearman, Stream's recruitment program is illegal because sales associates must pay $329 to enter the program, but they don't get anything tangible in return.

Mary Kay Inc., on the other hand, charges new sales associates $100, but, according to the Web site, those recruits get a package of samples and products to help them get started.

Snyder said Stream's program is perfectly legal because most of his revenue comes from electricity sales, not from the marketing arm. In fact, he said, the marketing arm loses money, because he pays out more in bonuses and commissions than he brings in from fees.

The lawsuit also accuses Stream and Ignite of lying to sales recruits, saying the program is " 'the greatest financial opportunity in America today' and an 'incredible income potential' when it is a pyramid scheme that will fail and most investors will lose their money."

According to the Ignite Web site, 74.7 percent of the associates who make at least one sale earn the $329 back. But that's a percentage of the people who actually make sales; Stream officials won't say how many people pay the fee and never make a sale.

Soapboxmom

[soapboxmom]

http://www.scribd.com/doc/17042376/Igni ... mid-Scheme

[wserra]

Texas is an entertaining place, SBM. While Stream hasn't yet answered in court - they were just served a few days ago - they have answered in the press. One Rob Snyder, a Stream founder, summarized it this way: "And, unfortunately, it seems these days that any clown with a bow tie can file a lawsuit on behalf of a purported class of injured parties." The plaintiffs' attorney, one Scott Clearman, apparently favors bow ties. Since I don't, does that mean I can't file a lawsuit in Texas? Do I have to be a clown as well?

I think they'll have to say a little more in court.

Snyder also claims that "the Texas Attorney General’s office has previously confirmed the legitimacy of Stream Energy’s network marketing effort". A search of the Texas AG's site fails to find any record of such "confirmation", however.

[soapboxmom]

Dear Wes,

Have our little jokesters from Ignite Stream filed a response? Remember that charming Rappidone that came on here with his one Latin phrase to entertain us? He and a bunch of his playmates share an ip address in Dallas right where Iggy's headquarters are located. Isn't that a surprise?

Soaopboxmom

[wserra]

Have our little jokesters from Ignite Stream filed a response?

Not yet, as of this morning. When they do, it's unlikely to be an enlightening document. Answers to complaints are usually just denials accompanied by boilerplate affirmative defenses.

[cdj1122]

The plaintiffs' attorney, one Scott Clearman, apparently favors bow ties. Since I don't, does that mean I can't file a lawsuit in Texas? Do I have to be a clown as well?

.

No, of course you don't have to be a clown, that's silly. But it helps add to the gravitas of the situation.
.

[Prof]

Clearman is a pretty serious lawyer and a very successful business litigator. (I didn't know he liked bow ties; I certainly do-- I don't wear anything else.)

[Nikki]

Clearman is a pretty serious lawyer and a very successful business litigator. (I didn't know he liked bow ties; I certainly do-- I don't wear anything else.)

I seriously, deeply hope that you mean that you never wear any other type of tie.

Otherwise, I'd be astonished that you were allowed to appear in ANY court.

[Prof]

Clearman is a pretty serious lawyer and a very successful business litigator. (I didn't know he liked bow ties; I certainly do-- I don't wear anything else.)

I seriously, deeply hope that you mean that you never wear any other type of tie.

Otherwise, I'd be astonished that you were allowed to appear in ANY court.

It has become a trademark; and, I appear in federal bankruptcy, district and circuit courts, as well as state courts wearing a bow tie. I don't wear seersucker or white suits, however, attire which some lawyers are seemingly addicted (see Matlock). And, to show you how low we've all fallen from grace, I don't wear suits anymore, but I wear one of 3 dark blue blazers with gray or tan slacks (tan for simple motions/appearances). The blazers all do have buttons from Ben Silver in Charleston, for those of you who know the store.

I saw my first sign of the end of days about 5 years ago when I went over to a meeting at Baker Botts (James Baker's grandfather's firm) and lawyers were sitting around in slacks and golf/polo shirts-- and it was a Tuesday.

[degerro]

I was just wondering why there is no update in this thread? The Last post is almost a year old. Surely something must have come of all of this by now.

I personally do not feel that Ignite/Stream is a scam.

They do not pay people simply to refer others.

It's only when those referral's sell or acquire services do their associates make money.

I am an IA with Ignite, and although I have not set the world on fire income wise, I did earn my initial start-up costs back the first month, and I'm no grand salesperson, let me tell you. They actually make it pretty easy to do.

I live in Dallas, and still remember the early days of Excel telecom, which many may not be aware of, but they almost single handedly brought down the costs of long distance services.

Ignite was started by some of the same people who headed Excell.

Please don't beat up on me too bad, this is just my opinion.

[Pottapaug1938]

I was just wondering why there is no update in this thread? The Last post is almost a year old. Surely something must have come of all of this by now.

I personally do not feel that Ignite/Stream is a scam.

They do not pay people simply to refer others.

It's only when those referral's sell or acquire services do their associates make money.

I am an IA with Ignite, and although I have not set the world on fire income wise, I did earn my initial start-up costs back the first month, and I'm no grand salesperson, let me tell you. They actually make it pretty easy to do.

I live in Dallas, and still remember the early days of Excel telecom, which many may not be aware of, but they almost single handedly brought down the costs of long distance services.

Ignite was started by some of the same people who headed Excell.

Please don't beat up on me too bad, this is just my opinion.

Well, why don't you start with a point-by-point rebuttal of the allegations, and then we'll talk.

[degerro]

Re: Ignite / Stream Energy Sued Federal Court -- Pyramid Scheme

New postby Pottapaug1938 on Thu May 27, 2010 12:37 pm

degerro wrote:I was just wondering why there is no update in this thread? The Last post is almost a year old. Surely something must have come of all of this by now.

I personally do not feel that Ignite/Stream is a scam.

They do not pay people simply to refer others.

It's only when those referral's sell or acquire services do their associates make money.

I am an IA with Ignite, and although I have not set the world on fire income wise, I did earn my initial start-up costs back the first month, and I'm no grand salesperson, let me tell you. They actually make it pretty easy to do.

I live in Dallas, and still remember the early days of Excel telecom, which many may not be aware of, but they almost single handedly brought down the costs of long distance services.

Ignite was started by some of the same people who headed Excell.

Please don't beat up on me too bad, this is just my opinion.



Well, why don't you start with a point-by-point rebuttal of the allegations, and then we'll talk.

Hmmm, I'm not sure I'm the best person to address the accusations point by point. I'm not a staff member of Ignite/Stream. I'm just an IA, and one who has not been active for a while at that.

I just thought that after a year, there must be some update on the status of the lawsuit mentioned at the outset of this thread.

However, since you posed the question, I went back and reread the original post in this thread, and the Dallas Morning News article it quoted, and will offer my own views of that based on what I do know.

There were only a couple of specific allegations cited in the article.

First; "According to Clearman, Stream's recruitment program is illegal because sales associates must pay $329 to enter the program, but they don't get anything tangible in return. "

I guess this depends on what is perceived as "tangible." The marketing materials, forms, brochures etc. certainly do cost money to produce, and they have value. How much value they have, depends on in whose hands they rest. As far as I know, it is not illegal to charge someone for the right to market your products. If it is, then almost all franchises and MLM companies would be deemed illegal, and they're not.

The article goes on to say "Mary Kay Inc., on the other hand, charges new sales associates $100, but, according to the Web site, those recruits get a package of samples and products to help them get started." The fact that Mary Kay offers a less expensive marketing packet to start is certainly not grounds for calling it a scam. You can't offer people samples of electricity. All you can do is to show them price comparisons.
an any of thewm, and it is paying people from proceeds
The only other specific allegation made is "The lawsuit also accuses Stream and Ignite of lying to sales recruits, saying the program is " 'the greatest financial opportunity in America today' and an 'incredible income potential' when it is a pyramid scheme that will fail and most investors will lose their money." Okay, well, "the greatest financial opportunity in America today" is certainly a matter of opinion, not fact, but it very well may be.

Clearman's assertion that "when it is a pyramid scheme that will fail and most investors will lose their money." is just as much an opinion as the former statement is. Not only that, he seems to be confusing IA's with investors. When you purchase a marketing kit, you are not an investor, but Ignite Stream is traded on the Stock Exchange, I believe. Which is another level of oversight. Mary Kay, Amway, Avon, Watkins, and other companies have been using MLM successfully for years. Heck, for that matter, the Social Security Administration has been around longer than any of them, and they are still paying out old claims with new money, aren't they?

You see, something that those who think all MLM's are doomed to fail because they will reach saturation, fail to realize is that more people turn 18 every day. And just as the SSA has been able to sustain itself, a well run MLM should be able to do the same. Think about it, we all know Amway has been around forever, and we have probably all known at least one person who sold it, but what percentage of your friends are Amway reps? If it is less than 50% can we really say that the market is saturated? And if Amway, Avon, and other MLM's, which have been around forever, haven't saturated the market, then who's to say that Ignite/Stream will?

In closing this post, the main thing that sold me on the company when I joined was that the Public Utilities Commission granted them a license. They don't just hand those out to any smuck who applies. In fact, the very article quoted states that "The Public Utility Commission designated Stream as a provider of last resort. That means that if an electricity retailer goes out of business, the PUC might automatically shift some customers to Stream rather than cut those people's power off." I personally think that says a lot.

Like I said, I am not an authorized spoke person for the company or anything. I just hate to see the word "scam" thrown around recklessly.

[wserra]

I just thought that after a year, there must be some update on the status of the lawsuit mentioned at the outset of this thread.

Understand the way this forum goes: we all have lives. None of the regulars here are MLM distributors or owners. This is a hobby. Accordingly, we post about that which catches our interest. I am more than glad to answer questions such as yours, as are others. But no one is going to take the time to update every thread in the forum, especially when s/he didn't start it.

As to your question, I checked the status of the SDTX lawsuit just now. It was dismissed last November on grounds of improper venue, due to an arbitration clause in the Ignite contract which the Judge found enforceable. Plaintiffs have appealed to the Fifth Circuit. The case was fully briefed as of March. There is nothing further on the docket.

[soapboxmom]

Ignite was started by some of the same people who headed Excell.....

In closing this post, the main thing that sold me on the company when I joined was that the Public Utilities Commission granted them a license. They don't just hand those out to any smuck who applies. In fact, the very article quoted states that "The Public Utility Commission designated Stream as a provider of last resort. That means that if an electricity retailer goes out of business, the PUC might automatically shift some customers to Stream rather than cut those people's power off." I personally think that says a lot.

Like I said, I am not an authorized spoke person for the company or anything. I just hate to see the word "scam" thrown around recklessly.

I have the entire PUC record saved on disk and I will try to download excerpts to Scrib.com and link it for you here. Stream had the most contested PUC application in Texas history. The backgrounds and credentials of key people were questioned among many other shocking revelations. Please stay tuned.

Excel you said.

From Forbes>

In a pyramid selling scheme, the mass of salespeople at the bottom line up a handful of customers to buy the product or service. Many of the salespeople will bring in only a small volume of business, but if you have enough of them the business will mushroom. Typical products: cosmetics (Mary Kay), household goods (Amway), vitamins (Shaklee).

The folks who make money aren't the ones who move the goods. The big money goes to the people who recruit the salespeople and to the people who recruit the people who recruit the salespeople. If you convince a customer to become a sales rep, you get not just a commission on his phone bill but also an override on any customers he recruits, and so on down the pyramid. ;

At Dallas, Tex.-based Excel, the salesman at the top, former high school football coach Paul Orberson, earns $1 million a month. The company trumpets his success in order to haul in new recruits.

Representatives are encouraged to sign up their relatives and friends as customers (shades of MCI's Friends & Family plan). That keeps turnover low, at least among the customers. "My mom isn't going to quit Excel for a check from AT&T. She is loyal to me," says Excel representative Clinton O'Rear, a part-time marketing consultant in Dallas. Still, there is plenty of turnover among the sales reps 80% don't even last a year.

Most recruits pay $195 to join, often mesmerized by visions of emulating Orberson. Excel is the country's fifth-largest long distance company, with 4.1 million customers. But Excel also boasts 1 million sales reps. That means the average Excel rep has only four customers, and one of them is himself. No wonder the turnover is so high.

The average Excel monthly bill is $28, and the commission at the bottom is 2%. That means the average salesman at the bottom is hauling in all of $20 a year in commissions. The few who climb the pyramid do better, collecting besides commissions bonuses when reps in their pyramid sign up new customers.

In the manner of a chain-letter scheme, the pyramid relies on a stream of new recruits for its prosperity. The company netted a fat $144 million on revenue of $1.4 billion last year. Minus the $195 recruiting fees, though, Excel would have been in the red.

Soapboxmom

[soapboxmom]

As promised here is the first juicy document of the 125 in the records I archived. Notice it is # 102. I would have published more, but they should only be viewed by folks diagnosed with severe to acute insomnia under close medical supervision. Boring!!!!

http://www.scribd.com/doc/32216324/Stre ... am-PUC-102

Please note the lack of signed contracts between the principals when Rob Snyder the owner and CEO was in fact a practicing attorney. Though he didn't trust Alex Rodriguez enough to sign a contract with him, he did trust that buffoon with only a 9th grade education to handle that application and run the business????

Soapboxmom

[soapboxmom]

And, there's more:

http://www.scribd.com/doc/32222450/Stre ... te-PUC-105

http://www.scribd.com/doc/32319864/Stre ... 107-Ignite

http://www.scribd.com/doc/32320061/Stre ... 109-Ignite

http://www.scribd.com/doc/32320297/Stre ... 111-Ignite

http://www.scribd.com/doc/32320422/Stre ... 113-Ignite

Soapboxmom

[rationalthinker]

10:35 PM CST on Monday, November 9, 2009

By VICTOR GODINEZ / The Dallas Morning News
vgodinez@dallasnews.com

A federal judge in Houston tossed out a lawsuit Monday that alleged Dallas electricity retailer Stream Energy is operating a pyramid scheme.

U.S. District Judge Kenneth Hoyt agreed with Stream in his ruling that the plaintiffs – former sales representatives for the company – are required to settle any disputes through arbitration rather than a lawsuit.

The two former sales representatives had claimed that Stream, a multilevel-marketing company that requires its sales associates to pay $329 to sell the product, was breaking the law because it didn't provide anything tangible in return for the upfront payment.

Stream argued that its sales strategy is legal and is similar to that used by other direct sales companies such as Mary Kay Inc.

Houston attorney Scott Clearman, who filed the lawsuit, had been seeking class-action status.

But the judge ruled the sales associates had agreed when they signed up with Stream to submit any complaints to arbitration.

The two sales associates could appeal the decision to the 5th U.S. Circuit Court of Appeals in New Orleans.

[Arthur Rubin]

I thought civil fraud claims were usually exempted by law from arbitration agreements. Comments, anyone?

[wserra]

I thought civil fraud claims were usually exempted by law from arbitration agreements.

The fine print is that the fraud must be in the inducement of the arbitration clause itself, and not the contract generally.

Accordingly, if the claim is fraud in the inducement of the arbitration clause itself - an issue which goes to the ‘making’ of the agreement to arbitrate - the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-4 (1967). Plaintiffs' claim is that the fraud was in the inducement to join a pyramid scheme. That was close on a very technical point, though, Arthur. I've seen you demonstrate considerable legal knowledge before. How did a physicist acquire it?

BTW, the Fifth Circuit has still not decided plaintiffs' appeal, although it was fully briefed nearly six months ago. Prof, JRB - is that typical? It's a long time by standards here.

[Arthur Rubin]

That was close on a very technical point, though, Arthur. I've seen you demonstrate considerable legal knowledge before. How did a physicist acquire it?

I'm a mathematician, actually.

I'm not sure where I picked this up, actually. I used to be a frequent reader of the Usenet newsgroups misc.legal.moderated and misc.taxes.moderated, and I've been known to read through credit card agreements, some of which actually have an exclusion for fraud by either party, at the option of the other party.