By Dan Mitchell, MLM Blog Correspondent
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.
Stream serves about 360,000 electricity customers in Texas and recently began operating a natural gas utility in Georgia.
The company has won several entrepreneur and direct sales awards. The Public Utility Commission designated Stream as a provider of last resort. That means that if an electricity retailer goes out of business, the PUC might automatically shift some customers to Stream rather than cut those people's power off.