Chocolate Company Sued as Pyramid Scheme

RENO, Nev. (CNS) - MXI Corporation, a so-called "multi-level marketer of "healthy" chocolate is nothing more than a pyramid scheme whose participants, the company's salespeople, are doomed to lose money, a federal lawsuit claims.

In a complaint filed on May 1, lead plaintiffs Enrique Martinez, Michelle Martinez and Sunshine Martinez-Valdez say they were but three of a purported 50,000 salespeople in the MXI Corporation network during the period covered by the lawsuit.

As such, they say, they paid the defendant company fees and continuously purchased chocolate from it with the intention of reselling the chocolate and earning additional money by recruiting new sales people to the network.

"Although the wholesale price of MXI's chocolate is far higher than the retail price for most chocolate, MXI is able to sell its chocolate to the Participants because MXI tells Participants that its business model will provide them an income producing opportunity 'unlike any other,' 'with little risk of failure.' and that will allow Participants to 'pick the kind of income they want to earn,'" the complaint says. "More than just chocolate, MXI sells Participants a dream of financial prosperity."

The plaintiffs, however, said they quickly learned that the path to financial prosperity is not based on selling MXI Corporation's chocolate at retail.

"Because MXI's wholesale prices are too high. Participants have little - if any - genuine chance of selling the chocolate at even higher retail prices," the complaint says. "Thus, Participants earn very little money from retail sales. Instead, the money flows through the MXI system is generated by recruiting. Participants many money, if at all, by recruiting new Participants (who pay fees and but chocolate), and not by selling MXI's overpriced chocolate at retail."

In short, they say, in classic pyramid scheme style, MXI's true business model is based upon existing participants "endless recruiting" new members -- and new money -- into the fold.

"Despite the fact that all but a miniscule percentage of Participants are doomed to incur financial losses, MXI and the other defendants disseminate false and misleading statements about MXI's business to lure new participants," the complaint says. "In addition, the few promoters at the top of the pyramid scheme -- the less than 5% who have succeeded in lining their pockets at the expense of the greater than 95% of Participants who lose money -- cynically display their own ill-gotten gains to entice new participants.

"The individual Defendants named herein were managers and promoters who profited handsomely from the MXI pyramid scheme and who have made dozens of public statements to entice new Participants to join MXI's scheme," the complaint continues. "Their explicit and implicit fraudulent message is, join MXI and you too can share in the success of our chocolate business.

The plaintiffs seek unspecified damages, the imposition of a constructive trust, disgorgement of all proceeds from the alleged scheme, and court costs on claims of racketeering, mail and wire fraud, consumer fraud, and that the defendant's operated a pyramid scheme.

They are represented by John Desmond of Reno, and R. Adam Swick and J. Benjamin King, of Reid, Collins & Tsai LLP of Austin, Texas.

Representatives of the defendant MXI Corporation could not be reached for comment.

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