Sales distributors prevail after alleged pyramid scheme.

Byline: Michigan Lawyers Weekly Staff

A $46 million settlement was secured for more than 170,000 sales distributors across the U.S. in a class action that claimed the plaintiffs were defrauded by the defendants' illegal pyramid scheme.

According to the allegations, Stream Energy and its Ignite marketing arm were formed in 2004 to resell gas and electricity to Texas customers, but by Stream's own admission, Ignite operated as a multilevel marketing program that required sales representatives to purchase a "Services Program" for $329. These "Independent Associates" then recruited others into the Services Program, signed up customers to switch their gas or electricity services to Stream, and were asked by Ignite to pay a recurring fee for websites to promote their sales efforts. In an internal company document, the defendants' CEO characterized the payment structure as a "pyramid" in which "[t]here are Peters here to rob for the purpose of paying Paul," according to plaintiffs' counsel.

Because the Independent Associates were only compensated according to the number of individuals they enlisted to purchase the Services Program and not by their sales revenue, the plaintiffs brought a class-action lawsuit on behalf of other Independent Associates under the Racketeer Influenced & Corrupt Organizations Act (RICO). The suit alleged that SGE Management, LLC and other entities behind Stream Energy induced the plaintiffs to participate in an illegal pyramid scheme by misrepresenting that Ignite was a legitimate business opportunity and defrauded the plaintiffs to the point that all have lost their investment in the Services Program along with additional monetary losses.

The settlement comes after nine years of procedural wrangling. The complaint was initially filed in June 2009 by a predecessor law firm of one of plaintiffs' counsel. Following extensive discovery, the...