Household First Life’s (former?) CFO, circa 2022, is alleged to have referred to the corporate’s compensation plan as a “Ponzi scheme”.
Integrity Advertising Group (IMG) personal Household First Life, the insurance coverage area of interest MLM firm.
As alleged by IMG in a March third, 2023 filed lawsuit, defendants Nicholas Ayala, Michael Killimett, Ryan Montalto and Matthew Smith
wrongfully induced Integrity to pay them hundreds of thousands of {dollars} in change for his or her companies, materials guarantees, and associated companies.
Defendants not solely didn’t stay up their guarantees; it additionally seems that they by no means meant to take action.
Ayala, Killimett, Montalto and Smith are all cited as “former Integrity government worker(s)”.
- Nicholas Ayala owned Precedence Life Insurance coverage Company LLC
- Michael Killimett owned FFL Southeast
- Ryan Montalto owned FFL United and
- Matthew Smith owned FFL Northwest
IMG claims it purchased the above entities from the Defendants in 2020.
These insurance coverage companies – Precedence Life, FFL Northwest, FFL Southeast and FLL United – then turned wholly owned subsidiaries of Integrity.
As a part of the acquisition, Ayala, Killimet, Montalto and Smith signed Employment Agreements with IMG.
Every Employment Settlement offered that every Defendant would “function President” of his respective Company after Integrity acquired that Company.
In a nutshell, IMG argues that, primarily based on ongoing month-to-month monetary studies, the Defendants didn’t uphold their finish of acquisition settlement.
On the time of Integrity’s acquisition of every Company, every Company was producing internet earnings of between $600,000 and $1.2 million yearly.
In 2023, every Company reported adverse annual internet earnings.
Integrity offered every Defendant with month-to-month monetary studies to asses the continued efficiency of his respective Company.
Integrity recognized extreme and ongoing underperformance in reference to every Defendant’s administration of his respective Company.
On data and perception, every Defendant has didn’t commit his finest efforts, full enterprise time, or consideration, or all of them, to the enterprise and affairs of his respective Company.
In an try to handle the collapse of the 4 Household First Life companies, IML met with the Defendants in February 2023.
Integrity met with every Defendant to elucidate the steps the Defendant should take, constant along with his Employment Settlement, to enhance his respective Company’s enterprise.
IMG adopted up with “required instant steps” calls for and a “Companion Motion Plan”.
On the time of submitting its lawsuit, IMG claims
on data and perception, no Defendant progressed in taking the instant steps required by the Companion Motion Plan to enhance his respective Company’s enterprise outcomes.
IMG asserts that every of the Defendants as an alternative have been centered on “set up(ing) and operat(ing) his personal unbiased advertising group”. This might allegedly be a violation of the Defendant’s Employment Agreements.
By the tip of February 2023 the Defendants seem to have had sufficient. On February twenty seventh every of the Defendants “threatened to resign”.
IMG responded by terminating the Defendants later the identical day.
IMG’s filed lawsuit asserts
- breach of contract
- tortious interference with present contract
- civil conspiracy
- fraudulent inducement and
- unjust enrichment
IML is looking for damages in extra of $5 million, and a declaratory judgment confirming every of the Defendants was correctly terminated.
On June fifth, the Defendants filed an Amended Reply to the Criticism. The Reply is the standard denials however what’s attention-grabbing is the connected Counterclaims.
Versus them going off and constructing their very own “unbiased” organizations, the Defendants declare the 4 entities failing is a results of “IMG’s conduct”,
IMG makes use of a extremely misleading, complicated, and convoluted compensation construction.
Though the Administration Members continued to provide vital development for IMG, IMG and (Shawn) Meaike started manipulating the Bonus Scheme by altering varied incentives and shifting credit score for brokers round to keep away from having to pay vital bonuses to the Administration Member’s companies.
Meaike would additionally use the cash that was purported to be paid to the Administration Members’ companies for his personal private pleasure and achieve.
Oddly sufficient, none of that is talked about in IML’s unique lawsuit.
I ought to level out that Shawn Meaike is the unique founder and President of Household First Life. He offered the corporate to IMG in October 2019.
As a part of the acquisition, Meaike was given an possession stake in Integrity Advertising Group and different perks.
Meaike acquired a 5 p.c kickback for every FLL “companion” acquired by IMG.
Due to this kickback, Meike used the Bonus Scheme to shift cash to different FFL managed companies to inflate their income to make them extra engaging for IMG to buy.
As soon as acquired by IMG, Meike would then shift cash out of those companies to make them much less worthwhile.
The Defendants declare, upon studying of “the fraudulent scheme of manipulating their financials”, they confronted IMG’s CFO and Director of Gross sales Operations.
This government is just not named within the Defendant’s Counterclaim. Household First Life’s web site fails to checklist a CFO.
In any occasion, Defendants go on to say;
After assembly with Ayala and searching into the difficulty intimately, the Gross sales Director referred to as the bonus construction a “Ponzi scheme,” and he or she stated they might work out an answer.
Nonetheless, nothing was performed thereafter to rectify the issue.
As a substitute, Ayala was informed to “grasp in there” and to proceed “doing what he was doing”.
As of November 2022, Matthew Smith claims his FFL Agent place earnings “have been minimize by greater than 75%, though manufacturing considerably elevated”.
The IMG Gross sales Director additionally informed Smith the bonus program was a “Ponzi scheme”, and he or she confirmed that their bonuses have been being diminished so IMG and Meike may seem extra worthwhile.
Right here’s the beforehand referenced February 2023 showdown, this time as recounted by the Defendants;
On February 8, 2023, regardless of figuring out every Administration Members’ financials have been merely incorrect, IMG despatched a letter to every Administration Member falsely accusing them of getting decrease “monetary end result … for the 2022 fiscal yr, as in comparison with the monetary outcomes of [their agencies] when Integrity acquired the enterprise …”
The Defendants go on to allege they got directions that “would make it almost inconceivable to achieve the objectives of the motion plan”.
Right now, it turned clear that IMG was trying to manufacture a for “Trigger” termination so it could not need to pay FMV for the Administration Members Rollover Items.
The Defendants keep they didn’t threaten to resign however did the truth is resign on February twenty seventh.
Thereafter, IMG acknowledged receipt of the Administration Member’s resignation letters, however claimed IMG was now terminating all of them – after the very fact – “for trigger”.
In the identical termination letter, IMG’s actual motivation was revealed, as IMG acknowledged that it could be exercising its proper to repurchase every Administration Members Rollover Items, ensuring to emphasise the for “Trigger” language of their Employment Agreements.
“Rollover Items” are a part of a monetary association reached when IMG purchased the Defendants’ FFL companies.
Every Administration Member offered capital contributions in change for “Class A Widespread Items” and/or “Class A Most well-liked Items” (Rollover Items).
The Defendants argue that FFL was adamant it terminated them for “Trigger”, with a view to get out of paying out regardless of the Rollover Items have been value on the time.
The Defendant’s Counterclaim alleges breach of contract and customary regulation fraud.
Declaratory judgment pertaining to the Defendants resigning, and IMG not terminating them for “Trigger” can also be sought.
BehindMLM reviewed Household First Life in November 2021. I didn’t see a Ponzi scheme however I additionally wasn’t conscious Meaike was allegedly manipulating Agent positions.
Before everything, an government manipulating an MLM compensation plan for their very own profit is a due-diligence purple flag. It’s additionally most likely proof of fraud ought to the FTC ever file go well with.
Taking a step again from each IMG’s unique lawsuit and the counterclaim, it seems earnings within the 4 Defendant’s positions dried up.
This was doubtless a mixture of Meaike’s alleged manipulation and that resulting in an absence of effort. Why work tougher when the man operating the corporate is simply going to screw you out of more cash?
Ultimately the positions bumped into the purple, bringing us to the February 2023 showdown.
I’m additionally curious as to what particularly led Household First Life’s CFO to confer with the corporate as a Ponzi scheme. Both the time period was misused interchangeably to explain a pyramid scheme, or there’s some funding shenanigans happening Household First Life I’m not conscious of.
A CFO would by definition be in-charge of and totally conscious of Household First Life’s financials. They’d after all additionally learn about unlawful manipulation of Agent’s earnings to learn Meaike and anybody he was working with.
That Household First Life at present doesn’t seem to have a CFO, or at the least publicly acknowledge having one, is ominous.
That stated, personally I’m leaning to “Ponzi scheme” getting used to confer with a “pyramid scheme”. Within the absence of additional clarification nonetheless, I can’t verify.
Sadly IMG’s lawsuit and the Defendant’s Counterclaim have been filed in a state-level Texas District Court docket.
This implies I can’t observe them on Pacer and, consequently, BehindMLM received’t have the ability to observe the case. Authentic filings coated on this article have been courtesy of NAAIP.
Pending any updates we’re capable of share, we’ll preserve you posted.
