## Facts

- The Federal Trade Commission (FTC) sued SkyBiz.com, Inc., related corporate entities, and individual principals for deceptive practices and operating an unlawful pyramid scheme.
- SkyBiz marketed a multi-level marketing program centered on the sale of a “Web Pak,” a computer-related bundle marketed as enabling consumers to create internet websites.
- Purchasers became “Associates” who could earn commissions from their own sales and from sales by recruits and downstream recruits.
- The FTC alleged the program’s compensation structure primarily rewarded recruitment rather than bona fide sales to ultimate users.
- The FTC alleged defendants made false or misleading earnings and business-opportunity claims, including overstating the likelihood that participants would earn substantial income.
- The FTC also alleged defendants supplied promotional materials that enabled others to make deceptive claims and failed to disclose material information about typical participant outcomes.
- The FTC sought temporary and preliminary injunctive relief and other equitable remedies under Federal Trade Commission Act (FTCA) § 13(b), including restraints necessary to prevent ongoing consumer injury.

## Issues

1. Whether the FTC showed a likelihood of success that defendants violated FTCA § 5(a) by deceptive earnings claims and operating a pyramid scheme.
2. Whether the balance of equities and the public interest favored preliminary injunctive relief to prevent continuing consumer harm.
3. Whether the court could extend the preliminary injunction to defendants’ extraterritorial activities connected to the alleged scheme.

## Decision

- The district court entered an ex parte temporary restraining order and, after a three-day evidentiary hearing, granted the FTC’s motion for a preliminary injunction.
- The court found the FTC was likely to prevail on the merits of its § 5(a) claims, including pyramid-scheme and misrepresentation theories.
- The court concluded the potential harm to the public without an injunction outweighed the harm to defendants from issuance of the injunction.
- The court applied the injunction to overseas conduct tied to the program’s operations and financial flows.
- On interlocutory appeal, the Tenth Circuit affirmed the preliminary injunction, including the likelihood-of-success finding, the balance-of-harms/public-interest determination, and the extraterritorial scope.

## Legal Principles

- A preliminary injunction under FTCA § 13(b) may issue when the FTC shows a likelihood of success on alleged § 5(a) violations and equitable factors favor interim relief.
- A compensation plan may be treated as an unlawful pyramid scheme where rewards are driven primarily by recruitment-based payments rather than bona fide sales to ultimate users, even if a product is involved.
- In FTC enforcement actions alleging consumer deception, courts may find irreparable public harm where ongoing conduct risks substantial losses and effective final relief may be impaired without immediate restraints.
- Federal courts may craft broad equitable relief under § 13(b), including applying injunctions to extraterritorial conduct when necessary to prevent continued violations and to make relief effective.

## Conclusion

The court granted the FTC a preliminary injunction against SkyBiz and related defendants based on a strong showing that the program likely operated as a deceptive pyramid scheme and that immediate restraints were necessary to prevent significant consumer harm; the injunction properly reached overseas activities connected to the challenged conduct.


Fed. Trade Comm’n v. SkyBiz.com, Inc., No. 01-CV-396-K (N.D. Okla. 2001)