FundAmerica Legions Cheer New Chief Ruff

Thousands of FundAmerica members poured into a Costa Mesa hotel Tuesday night for what author and forecaster Howard Ruff called the “rebirth and the resurrection� of the Irvine-based firm, which securities regulators raided two weeks ago, calling it a pyramid scheme.

In his nearly two-hour presentation, Ruff, who replaced Robert T. Edwards as president and CEO on Monday, said he had not ruled out taking the company into Chapter 11 bankruptcy protection from creditors, though he felt confident that he could restore the firm and had plans to actually take it public in the next few years.

He said he had decided to take over the company because “I had an obligation to protect my friends.� Some 1,500 subscribers to Ruff’s financial newsletter have joined FundAmerica.

The audience was enthusiastic about Ruff’s speech.

“I’m very positive,� said Mark Guest, a 25-year-old FundAmerica member from Monarch Beach who said he has made a six-figure income with the company. “He (Ruff) has the vision of the power and the marketing and the membership of this company.�

Ruff was greeted with a standing ovation and whistles. His circus-barker-type presentation was transmitted via telephone lines to 15,000 FundAmerica members in eight states.

Ruff told members that they were not permitted to talk to the media under any circumstances or they would lose their membership.

Edwards, who founded the company in 1986, was arrested July 19 by Florida authorities on charges that he was running an illegal pyramid scheme. If he is convicted, he could receive more than 30 years in prison.

Released on $1-million bond, Edwards has disputed the charges. He did not attend Tuesday night’s meeting.

Ruff is best known for his gloom and doom predictions of the 1970s. He wrote the 1978 bestseller “How to Prosper During the Coming Bad Years,� as well as “Famine and Survival in America.�

FundAmerica is under investigation in at least three of the eight states where it does business.

Florida officials charge that the company has no real product and exists solely as a pyramid scheme, using membership dues from new investors to pay bonuses to existing ones. The company has vehemently denied the charge, saying its principal business is obtaining cash rebates for its members. Because it has so many members--about 100,000--the company says it can get major discounts by buying in bulk.

But regulators say the rebate system is rigged because FundAmerica uses money from new investors to subsidize rebates offered by companies such as Citibank. Once the company failed to attract new investors, it would have collapsed, regulators say.

FundAmerica’s presentation Tuesday was similar to the revivalist-style get-togethers that the company has held at the Red Lion Inn twice a week for the last several years. Those meetings were effervescent, complete with glowing testimonials about how much money people had made recruiting new members.

Meanwhile, a federal judge in San Francisco modified a total freeze on FundAmerica’s assets, which was put into effect after a class-action suit was filed against the company. The suit seeks more than $150 million in damages on behalf of its 100,000 members.

U.S. District Court Judge Marilyn Patel decided Tuesday that FundAmerica could spend more than $1 million of $17 million in several bank accounts so it could meet payroll and severance obligations.

“We think the people who work for FundAmerica deserve to get their back pay, obviously, but they may want to reconsider their employment, given the fact that the company’s former president is under criminal prosecution for running the company,� said Daniel C. Girard, one of the attorneys filing the class-action lawsuit.

Some of FundAmerica’s employees were threatening to walk off the job Tuesday unless they were paid.

Patel rejected a request by the company to pay some $5 million in commissions to its sales representatives. She did say, however, that it could pay each representative up to $3,000 in commissions.

FundAmerica charges $140 for a basic membership but pays bonuses to members who recruit new people. Bringing in new blood is the principal way that people achieved overnight success through the company.

“We opposed the $5-million request on the grounds most of that money was going to go to a small group of participants, because it’s a pyramid scheme--people like Edwards in particular,� Girard said.