International Heritage investigation continues

by Paul Flemming

SBJ Staff

Missouri regulators are continuing to investigate the activities of International Heritage Inc., a network-marketing company active in southwest Missouri, and they advise caution to possible investors.

State officials said more than 60 calls have come into a hot line in the office. About half of those, state regulators said, were from participants in IHI programs complaining that the investigation was taking place. No action has been taken against the company in Missouri.

IHI, incorporated in Nevada and with its headquarters in North Carolina, is a direct-sales organization selling lines of expensive jewelry and collectibles, among other products.

A federal judge in Georgia March 27 issued a preliminary injunction against the North Carolina company, barring it from business practices that constituted a pyramid scheme. The Georgia action is the result of a Securities and Exchange Commission complaint filed March 16 against the company. Trading of the company's stock was earlier suspended by the SEC March 13-26.

"The system which has previously been in operation ... was violative of the securities laws of the United States," the judge said, according to a transcript of the proceedings. "Based upon that prior conduct, the court is justified in entering a preliminary injunction. Specifically, the court is going to enjoin the further use of retail business agreements ... that there be no payment or investment required for participation, except the purchase of the sales kit."

The judge's order was expected to be issued in written form April 3. The order, as expressed in court March 26, barred IHI from using "retail business agreements" and ordered no "transactions where products or services are not provided upon payment."

SEC and Missouri officials alleged that the company's revenues were misrepresented.

"We're arguing that the sale of memberships is a large percentage of IHI's revenue," said Doug Wilburn, commissioner of securities in Missouri's secretary of state's office.

Up to "90 percent of revenues are from sales of these business centers. Products are just kind of secondary."

A March 24 release from Secretary of State Bekki Cook's office said IHI was continuing to recruit investors in Missouri without informing them of the SEC action in Georgia.

The SEC complaint alleges that "business centers" sold by IHI are, in fact, securities.

In addition to IHI, corporate officers were named as defendants in the complaint, and a court-appointed receiver was put in charge of the company.

After four days of hearings in Georgia, the federal judge ordered the preliminary injunction, the appointment of a monitor to assure compliance with the court's order and allowed IHI's officers to go back to work to institute changes in the company's business practices.

The judge required a $5 million bond be posted by IHI and that half of Stanley H. Van Etten's compensation be withheld. Van Etten is IHI's founder, chairman, president and chief executive officer. The defendants named in the complaint were barred by the judge from issuing statements on behalf of the company.

Also last week, two law firms announced class-action lawsuits against the company on behalf of IHI investors.

Missouri regulators have taken no action against the company, but did issue an alert that its investigation was ongoing.

"Sometimes with scams or cons, time is of the essence," Wilburn said, referring to pitches that require immediate investment. "IHI, if it's legitimate, will be there in two weeks. We're just advising people to step back and let the state take a look."

Wilburn said it is unusual for his office to comment on an investigation prior to issuing a cease-and-desist order.

"Meetings were being held nightly. We took this step to prevent people from becoming victims," he said.

Participants in IHI in Springfield declined to comment or would not be identified.

The company's web page was undergoing changes and contained only the company's addresses. Local participants indicated that the Georgia court proceeding had been decided in IHI's favor and that the company was conducting business as usual.

"I had heard well before the judge's decision, people involved in IHI say the ruling was in," Wilburn said.

"It will be imperative for IHI to get the word out to its people as soon as this order is entered, so that they do not find themselves in violation of the order," the judge said.

"Because if someone messes up down the road, an excuse that I won't care to hear is that I hadn't heard about that. The court would intend to sanction to the full extent permitted by the law anyone who violates this order.

"I want to make it clear that the intent of this order is to permit a retail business operation to continue. The spirit of this order is not to permit a violation of the securities laws. That's what this is all about, and that's as simply as I can state it."

INSET CAPTION:

'The spirit of this order is not to permit a violation of the securities laws.'

Doug Wilburn

Missouri secretary

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