Dallas electricity retailer Stream Energy has been accused in a lawsuit of operating a pyramid scheme.
Attorney Scott Clearman of Houston said Wednesday that he filed a lawsuit in federal court in Houston against Stream, a multilevel-marketing company that requires its sales associates to pay $329 to sell the product.
Clearman said he seeks class-action status for the suit. His two clients paid to become Stream associates but couldn’t sign up enough electricity customers to recoup the investment.
Stream chairman Rob Snyder said the company’s sales strategy is lawful and mimics a structure used by many well-known direct sales companies.
“Simply put, the direct selling models used by firms such as Mary Kay and Stream Energy have been repeatedly found to be unquestionably legal. And unfortunately, it seems these days that any clown with a bow tie can file a lawsuit on behalf of a purported class of injured parties,” Snyder wrote Wednesday in an e-mail.
The lawsuit names five companies related to Stream and 13 executives and top sales associates, including Snyder.
The issue is whether Stream’s marketing arm, Ignite Inc., deals lawfully with sales associates, or if its recruitment strategy amounts to a pyramid scheme. It has nothing to do with the electricity side of the company.
Logo from Ignite
Jeff Gardner on July 6th, 2009 at 6:12 pm
We’re a network marketing company based in Dallas, like Stream/Ignite (in fact, our software provider is in the same building) – and I’m surprised that there are any legal problems. It’ll be interesting to see how this all works out.
GBG Home Business Guy on July 7th, 2009 at 3:13 pm
This is the problem with companies that market a product they can’t make money on. The only way to put money in the comp plan is to charge some type of ‘License Fee’, which is basically pay-to-play. Legal – maybe, but why not create product volume and pay commissions on that volume rather than spreading around the ‘fee’. Product volume commission is true, effective (and legal) network marketing…