LOS ANGELES (CN) – Two distributors for Market America claim the company’s $7.3 billion valuation comes from millions of people who have lost money after enrolling in the pyramid scheme, including Chinese-Americans whom the company targets to sell products to relatives in Asia.
Chaunjie Yang and Ollie Lan sued Market America and its founders James Howard Ridinger, Loren Ridinger, and president and COO Marc Ashley in a federal class action on Tuesday.
Alleging violations of federal anti-racketeering law, the lawsuit says that, while the executives tell distributors they can earn more than $560,000, only those at the top make that kind of money. Ninety percent of sellers do not receive a penny, according to the lawsuit.
“According to Market America, the only way to fail under Market America’s business model is to quit. Meanwhile, Market America and its confederate conspirators now assert a business valuation of $7.3 billion that they have made off the backs of millions of people in their pyramid,” the class claims in the lawsuit.
Yang says he handed over $35,000 to Market America and eventually lost money in the venture. He says in the lawsuit that people enrolling in the scheme have to pay a $399 startup fee and $129 a month.
Market America requires distributors to invest between $130 and $200 each month on third-party retail products. Distributors pay to participate in training workshops, events and seminars, including flashy pyrotechnic events hosted by Ashley and the Ridingers, the lawsuit says.
The company targets Chinese-American immigrants, a vulnerable population who sometimes do not have the resources to defend themselves legally, the distributors say. Market America targets Chinese-Americans because it wants distributors to sell products to their family members in China.
“Further, these connections help Market America connect to billions of potential victims thousands of miles away,” the 46-page lawsuit states.
Yan and Lan say that like hundreds of thousands Market America lured into the scheme, they did not make any money despite their hard work.
Their lawsuit says 90 percent of distributors lose money in the scheme that rewards distribution for recruiting other distributors, rather than selling products. Through the website Shop.com, Market America offers various third-party retail goods including apparel, food, electronics and beauty products.
According to the plaintiffs, the company faced a 2012 class action claiming some of its products contained lead. Lan says his mother became ill after she was exposed to Market America’s products.
The complaint seeks a ruling that the arbitration provision in agreements distributors sign with Market America is unenforceable. They also seek restitution, damages, costs and an injunction for unfair and deceptive practices, false advertising, Racketeer-Influenced and Corrupt Organization Act violations , and federal securities fraud.
Yan and Lan are represented by Blake Lindemann of Beverly Hills, California
Market America did not immediately respond to an emailed request for comment.