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The PRSI story, so far, is worthy of the best the Three Stooges or the Keystone Cops have to offer. The curtain opens with a S.W.A.T team in Boca Raton, Florida. . .
January 6, 2000: On a tip that there were weapons and ammunition there, the corporate offices of PRSI (Professional Resource Systems International) in Boca Raton, FL, were raided by a squad of heavily armed law enforcement officials. Following the raid, the State of Florida’s Attorney General, Bob Butterworth, obtained a temporary injunction which shut down the company and placed its assets in receivership. He charged that it constituted an illegal pyramid scheme. The company has also been shut down in the State of Louisiana. Florida complains that 60,000 consumers have invested at least $18 million in the scheme, and that substantial monies have been siphoned off by the defendants to pay for travel, homes, and personal items.
Immediately the rumors, suggestions, and discussion among the distirubtors – known as SOHO Owners – and corporate officers and employees started, fueled by e-mail. Officers expressed complete confidence in their legal advisers, in CiTX (the e-commerce software developers for the business), and in each other. But they needed a scapegoat, and that turned out to be one Richard Snell.
Snell had been a Vice President with the company, handled corporate monies, and may have acted as their legal counsel for a time. According to PRSI spokesmen's statements, he used company funds to travel to Texas, to purchase personal items, and possibly to pay family members who were not employed by the company. They blame him for calling the cops for the January 6 raid. Apparently, he was trying to plea-bargain his way out of jail time in Texas by squealing on PRSI. On Feb. 25, Snell was sentenced to a year in jail in San Antonio. PRSI leaders and members have busily tried to blame Snell for all of their troubles.
January 28: the State of Florida filed an Amended Complaint. This complaint alleges, among other things, that PRSI CEO William Caudell had been convicted of securities fraud in 1993; and that Joseph Rotunno, who was not an officer of the company but who was involved in all decision making, has used at least seven aliases in the past, and has been convicted of "loan sharking, fraud, and embezzlement, among other things." Neither of these allegations has been denied by the plaintiffs.
On January 28th, the State of Louisiana issued a permanent injunction against PRSI. According to a statement on the Louisiana Attorney General’s website,
" 'This is final. No longer can PRSI, its owners, operators and ring leaders here in Louisiana or anywhere else attempt to sell and/or promote this phony internet scam,' stated Ieyoub. 'Anyone approached about PRSI should contact my office immediately.'
"PRSI utilized a pyramid scheme disguised as a network marketing company to entice Louisiana consumers to join their 'members only' intranet. The company and its employees offered consumers a chance to earn money by purchasing a home business opportunity known as the 'SOHO System' at a cost of $295. This private intranet would allow members to buy and sell merchandise.
"DOJ’s initial investigation revealed there is not a product and promoters never intended on offering a product. It’s believed their sole reason for existence was to recruit 'Cybermanagers' to keep money rolling in and the scheme operational."
Par. 22 of Florida’s Amended Complaint states:
"As of the date of filing the original Complaint, and since the SOHO sales began in early April, 1999, not a single web page had been produced, no products had been sold through the SOHO program, and no consumers had received training as to how to market and sell their products. These things had not occurred because the Intranet has not been created and the Defendants had failed to deliver on any of their promises. The only way members have earned any money from the PRSI opportunity is by recruiting new members for their downline."
And, as we all know, if members earn income only by recruiting, the scheme is, ipso facto, an illegal pyramid.
February: In mid-February, a hearing was held to determine whether the temporary injunction against PRSI should be lifted. On February 28, the judge ruled that the temporary injunction will remain in place. The order stated, in part:
"The Court finds that the Defendants failed to carry their burden of showing a change in circumstances that would warrant dissolution of the TEMPORARY INJUNCTION. Although there is evidence that CiTX has begun creating and producing a product, what has been produced to date is not what the SOHO system was represented to be. The TEMPORARY INJUNCTION does not prohibit CitX from continuing on that path. However, the pattern of conduct demonstrated by the individual Defendants in their operation of PRSI dictates that they continue to be enjoined from any involvement in PRSI and from the acts and practices set forth in the Order Granting Temporary Injunction Without Notice. Therefore, the Motion to Dissolve TEMPORARY INJUNCTION Without Notice, based on the alleged change in circumstances, is hereby DENIED."
March 7: the defendants answered the amended complaint, and requested a trial by jury. It is a short, but interesting, read. The defendants admit a few things, like the name and legal status (a Nevada corporation) of the company. By denying the allegations in Par. 8, for example, they would appear to deny that William Caudell was the CEO of PRSI, or that Gillespie was President. However, they do not deny the previous criminal convictions of Caudell or Rotunno. Then they go on to deny that they've been selling the "SOHO" bizopp:
"Since on or about April of 1999, Defendants PRSI, CAUDELL, GILLESPIE, ARGENTO, ROTUNNO and TOBIN (hereinafter referred to as "the PRSI Defendants"), have been and continue to be engaged in the business of advertising and promoting the ability of consumers to earn money by purchasing a home business opportunity called a "Small Office/Home Office System," known as the "SOHO system," from Defendants, for the price of $295.00."
Florida’s amended complaint asks that the defendants be barred from future participation in "any home business or business opportunity from within the State of Florida and/or from contacting, offering, or selling such services or products to Florida consumers;" and from participating in any multi-level marketing scheme in the State of Florida, as well as reimbursing consumers and fining the defendants."
Throughout the unfolding scenario, statements by PRSI officers, members, and CitX spokesmen have been soundly refuted by court testimony.
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"the allegations with respect to the Compensation Plan being illegal was refuted by Jerry Nehra (a formal lead attorney for AMWAY and MLM specialist) stating that PRSI is in full legal compliance."
e-mail from Gene Hallman of CiTX, 1/3/00
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"PRSI and its principals had been advised by Gerald Nehra, their legal counsel who specialized in multi-level marketing businesses, in September, 1999, that their method of operation was a pyramid scheme. (Exhibit 10). On September 3. 1999, Nehra stated: "Where does PRSI set the money to pay commissions on the sale of SOHO’s? From the sale of more SOHO’s? If so the system cannot be legally defended. I told this client numerous times that the program needed to fit into the legal model as described in my article: The Legal ABC’s of MLM. My belief is that, when they were unable to do so, they stopped calling me and went forward anyway." Nehra’ letter of January 4, 2000 (Exhibit 11), the day the injunction was entered, indicated the Defendants still were not in compliance: "PRSI/CitX CANNOT sell an MLM income opportunity. No commissions can be paid on the sale/purchase of an MLM income opportunity;" "
Judge’s decision on 2/28/00
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"CitX currently has more than 500 sites online at www.i3x.net,"
e-mail 1/3/00 from Gene Hallman of CiTX
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But now we must ask to move just a bit faster than expected on a minimal number (just 50) of the Web SOHO Business Builder 101 packages if at all possible." The e-mail further states: "7. AS SOON AS is humanly possible we need CITX to deliver a product to those 50 customers. It would be BEST that these sites be fully functional at the on set but it ‘vould be acceptable to have them as static sites JUST FOR THE VERY SHORT TERM."
e-mail 12/31/99 from PRSI’s compliance officer to CiTX
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Michael Palage testified for the defendant as an expert in computer technology and internet systems development. According to the judge's decision:
"Palage reviewed the PRSI and CITX websites and other promotional materials. He prepared a chart(Exhibit 18) in which he analyzed the 66 claimsand representations made by the Defendants and, based on the documentation with whichhe had been provided to date, Palage found no evidence that any of thefeatures or products hadbeen produced to date, other than the website (claim # 58) and the "shingles" (claims # 7 and 50). The shingles, or member pages, were created for those members by an entity other than CITX. The only way to transact a credit card sale was if the site owner had his own merchant account, not through the IntraPay feature promised by Defendants and discussed in a CITX press release. The website where the shingles were found, www.i3x.net, did not have a search engine or directory to assist shoppers, and members were not provided with the e-mail capability they had been promised. Palage testified that industry standards dictated the creation of technical documentation such as plans, diagrams, or drawings that would detail the specifications required to build the system, To his knowledge, none had been produced by or for the Defendants.
"Palage testified that merely changing the domain name, or address, of the website would not cause the loss of the underlying technical information. Therefore, Defendants’ claim that CITX was unable to move forward on the project because the Receiver took over PRSI’s website, causing CITX to lose access to the software already in place on the old site and have to start fresh on the i3x.net site, was without merit."
Court decision, 2/28/00
Additionally, the Florida Attorney General's office had this comment to make about the responses of some of the defendants in the case:
"Defendant Bill Caudell invoked his Fifth Amendment privilege to most questions at his deposition. Defendant Sal Argento invoked his Fifth Amendment privilege in response to all questions at his deposition. Defendant Lester "Gil" Gillespie was redeposed on 2/11/00 and gave his testimony. Defendants Joseph Rotunno and Ben Tobin invoked their Fifth Amendment privilege at their depositions. Defendants CitX Corporation and Bernie Roemmele failed to answer the Amended Complaint and a clerk's default was entered on 3/17/00"
Sadly, thousands of the SOHO owners, who've paid their money and received nothing in return, want the court to let PRSI get back to business as usual. Unfortunately, when "business as usual" is providing nothing for something, the scheme deserves to be shut down.
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