Phone Firm Reacts to Complaints
By BRADLEY HOPE,A lawyer for a California-based telecommunications company is distancing the company from its New York operations and promising better enforcement of its rules after several complaints were filed with the Federal Trade Commission, the Better Business Bureau, and the attorney general by those who were recruited to work for the company.
Standing in groups at Times Square, Union Square, City College of New York, and La Guardia Community College, representatives of the Santa Ana-based company, called Yor.net, Yor.com, or Yor Voice, invited high school graduates and people in their early 20s to large presentations at hotels.
A lawyer for the company, Scott Warren, said that Yor.net is a multi-level marketing company that abides by all laws and regulations.
David Jennings, 25, a Connecticut-born actor, was working as an $11-an-hour magician at Toys "R" Us near Times Square in April when three suited Yor.net representatives approached him.
"You look like a sharp guy," they said, he recounted in an interview with The New York Sun. They told him, he said, about the wealth of the company's managers and the chance to be a part of a revolutionary business, and they said that he would have to act fast because the open positions at the company were quickly getting filled.
"The last time I worked professionally was last summer," Mr. Jennings said. "I was already looking for another source of income. They got me because I was already looking."
Expecting a job interview, Mr. Jennings showed up at what turned out to be a large meeting in a conference room of the New Yorker Hotel in Midtown, he said.
After being bombarded with descriptions of trips to Mexico and the company's unique position in the market, the audience was told that to start work, they would have to pay $390 for a basic starter package and another $110 to buy two devices that allow someone to plug a phone into a broadband Internet connection, Mr. Jennings said.
Mr. Jennings said he paid the full amount from his savings account.
"I felt like I had fallen into an opportunity merely by chance," he said in his letter to the Attorney General's Consumer Fraud Bureau. "I felt like I was specially chosen for this opportunity."
The first thing he was told to do by his manager was invite his high school and college friends, family members, and neighbors to hotel meetings in order to increase the number of people working under him, he said.
The company required him to sign up one customer to begin earning income, Mr. Jennings said. His manager suggested that the fastest way to start earning money was to sign himself up for the service, Mr. Jennings said.
He later brought two friends to a hotel meeting, but they declined to pay the sign-up fee, he said. At no point was he given any training about the telecommunications industry or how the Yor.net product worked, he said.
When his bank account dwindled to about $50 and he was living on crackers, peanut butter, and the charity of his fiancée, he told his manager that he wanted to leave the company. By this point, he estimated he had spent about $1,000 on the sign-up fee, cell phone bills, two of the phone adapters, and other expenses without earning a dime.
He said the company's operations seemed to him much like the description of a pyramid scheme on the Attorney General's Web site, and he filed a complaint. His manager declined to return his money or buy back his products, telling him that the three-day refund period had elapsed.
The Federal Trade Commission received 34 complaints against Yor.net from March 2006 to June 2007, according to the commission's response to a Freedom of Information Act request from the Sun in May.
Some of those with complaints about the company have approached not the FTC but the Better Business Bureau, which last month downgraded Yor Voice.net's rating from BB to "F," its lowest rating, a rating the bureau says signifies, "We strongly question the company's reliability."
Cheong Chan, the father of a 17-year-old recruited into the company in Boston, is among those who complained to the Better Business Bureau. His son was discharged from the company for being underage after Mr. Chan made a complaint.
The Sun found two persons who had been recruited into the Yor workforce who had received refunds from Yor.net after they filed complaints with the FTC or Better Business Bureau.
Yor.net was founded by Dennis Wong, formerly a senior manager of another telecommunications company, 2by2.net, that was the focus of an FTC investigation in 2004. Representatives for that company, which also went by the name Mall Ventures, Inc., sold dial-up Internet service and access to an online shopping Web site.
In a complaint filed in U.S. District Court of the Central District of California, the FTC described 2by2.net as operating a "prohibited marketing scheme" in which company representatives exaggerated the amount of money prospective representatives could make after paying a $420 sign-up fee. The vast majority of the new representatives made no money, and the ones who earned an income did so mostly by signing up new representatives and receiving a bonus for getting them to pay the sign-up fee, the complaint said.
Multilevel marketing organizations are legal, but they can cross the line into illegal "pyramid schemes" when an organization makes the majority of its revenue not by selling goods or services, but by recruiting new salespersons.
Mr. Wong and a co-founder of 2by2.net, Jeffrey P. Morgan, settled the case for $10.4 million, but were required to pay only $400,000 as long as they did not get involved with a prohibited marketing scheme in the future, according to the judgment and order filed with the court. Messrs. Wong and Morgan did not admit guilt to any charges in the FTC's complaint.
After the settlement, the FTC put out a press release titled, "FTC Cracks down on Internet Mall Pyramid Promoters," that described the commission's efforts in getting settlements with 2by2.net and in another case.
"Based on its structure, it wasn't a pyramid scheme," the lawyer for Yor.net, Mr. Warren, who also represented 2by2.net, said. "Based on its practice under the FTC guidelines it was probably operating a pyramid scheme."
Mr. Warren said nearly 100% of the 2by2.net income was from fees paid by new representatives. He said the company didn't require representatives to get customers.
After parting ways with Mr. Morgan, Mr. Wong created Yor.net in 2005, Mr. Warren said.
Comparisons of 2by2.net and Yor.net Web sites show that Mr. Wong brought at least nine top recruiters with him to the new company, including Johnny Ly, who is one of the senior managers of the New York division of the company and a frequent presenter at the hotel meetings.
Mr. Warren said that Yor.net was created with a new philosophy.
"Our mission ‘To build a financial empire built on the foundations of truth and the strength of friends' is not to be taken lightly," Mr. Wong wrote in a summary of his views of network marketing provided to the Sun. "However, when dealing with the masses, one cannot expect everyone to agree. When problems occur, as they always will in the realm of business, I try my best to rectify those issues."
Mr. Warren said that in contrast with 2by2.net, Yor.net requires each representative to have three customers, not including themselves, and that the $390 package includes telephone and Web accounts and other products that representatives can sell to recoup their initial investment.
Before June, only two customers were required, Mr. Warren said.
According to complaints and interviews, Yor.net representatives recommended that new representatives sign themselves up as their first customer. Mr. Jennings said he was only required to sign up one customer.
The $60 bonus, called "match pay," that Yor.net representatives receive for each pair of representatives they sign up comes only after those new recruits sign up three customers. This makes the payment a bonus for "customer acquisition" rather than recruitment, Mr. Warren said.
Mr. Jennings and another complainant, Miguel Luna, a 20-year-old student at LaGuardia Community College in Queens, said the emphasis of the training they received was about getting people to come to the hotel meetings and not selling the product.
As of June 7, 2007, 2,282, or 71.81%, of Yor.net representatives had earned no money since they signed up with the company, according to a document provided to The New York Sun by Yor.net. Of the 28.19% who earned money, the average total income from when a representative first signed up with the company until June 7, 2007 was $206.67, according to the document.
The presenters and current representatives of the company are required by policy to explain that it is not likely that new representatives will earn income by signing up, Mr. Warren said. Several complainants said they had never seen these figures.
Mr. Warren said that the company made the majority of its income from "customer acquisition," but he said Yor.net officials declined to disclose the amount of revenue they made from signing up new representatives to sell the product.
As of July, the company has 18,500 customers paying for service on a monthly basis and 2,500 active representatives, Mr. Warren said. Customers pay the company a total of $240,000 a month, he said.
The product, an Internet-based telephone — or "Voice Over Internet Protocol" — service like that offered by Vonage and other providers, has a monthly fee. The Yor.net monthly rate is $16.89 for customers that pay a year in advance, and $22.89 for those that pay month-by-month. Vonage, a publicly held company with more than 2 million customers, offers the service for $24.99 a month.
The chief executive officer of VoipReview.org, Eric Laughlin, said that Yor.net is not included in his Web site's database of 250 companies nor had he heard of the company.
"We see new companies every week just about," he said. "But I haven't seen anybody get traction with multi-level marketing for VoIP."
Yor.net's lawyer, Mr. Warren, said the complaints and descriptions of a meeting on May 24 provided by the Sun are a "wake-up call."
Mr. Warren said that when Yor.net's corporate office began receiving complaints in April, they enacted stricter requirements for the representatives, and were adding more requirements in light of the more recent allegations.
At a Yor.net meeting at the Sheraton Hotel in the Flushing section of Queens on May 24th, a reporter observed Mr. Ly and another manager, Eyston Perez, speak to a crowd of more than 200 people.
Prospective representatives were brought into a room with loud techno music playing, where they were shown an inspirational video with an introduction by Mr. Wong and soft music in the background.
"I got really sick and tired of being sick and tired," Mr. Wong says, later adding: "I refuse to be broke, I refuse to be poor."
The video, narrated by Mr. Wong's former partner at 2by2.net, Mr. Morgan, goes on to describe the precarious job market in America and growing burdens like college payments and the lack of benefits for people doing manual labor. There are scenes of construction workers, a dog barking, and homeless people, as well as close-up, fleeting shots of words like "Thrive" on bulletin boards and signs.
Mr. Perez then introduced Mr. Ly, mentioning that earlier in the afternoon they had attended a "private Armani sale." He also referred to Mr. Wong as "about to be a billionaire," a characterization that the company's lawyer, Mr. Warren, said is false.
Mr. Ly spoke about his rise from a young man struggling with a life of drug dealing to a life of "time freedom" and "profit" at Yor.net. Nearly an hour into the presentation, he told the audience that to become a representative for the company they would have to pay for a start-up package.
He described a scenario where a representative had 2,000 representatives working for him and 20,000 customers recruited by those representatives: "Now, if you earn roughly around one dollar per customer every single month after month after month, how much money would you make? Every single month?" he asked. "Twenty thousand dollars a month, after month, after month, after month, after month. Now, I know that sounds crazy to some people."
After the presentation, representatives brought prospective representatives into small groups, pulled out contracts, and began asking for credit card and Social Security numbers.
In asking parents or friends to borrow the $500, one representative, Hameed Hemmat, said prospective representatives "shouldn't lie." Instead, he offered a script: "Tell them this," he said. "‘Yor.com is a business course that I can take for one year. The class is going to teach me about business, finance, and economic trends. I get college credit and it will really look good on my resume. To register for one year it costs $500. Can you please help me out with that?'"
http://www.nysun.com/new-york/phone-firm-reacts-to-complaints/59871/
