January 31, 2005
Professor G Robert Blakey was retained as an expert witness in the 1998 Procter & Gamble v Amway lawsuit to issue an opinion on Amway's business practices. Blakey is one of the nation's foremost authorities on organized crime and after studying its business structure and functions, Blakey determined that the Amway business is run in a manner that is parallel to the businesses run by members of organized crime, "consisting of associated enterprises engaging in patterns of legal and illegal activity."
Pyramid schemes that include little or no sales to retail customers are illegal. Because the tool pyramids sell to Amway distributors only, and not to retail customers, the tool pyramids are illegal.
And Amway knows they are illegal. Company memos from the early 1980's that have surfaced in lawsuits, reveal that co-founders Rich DeVos and Jay Van Andel, were well aware of the illegality of the tool pyramids operating under the umbrella of Amway.
However, they recognized the enormous power accruing within the pyramids and that the income from the tool systems was becoming greater than the income from marketing Amway products. But if they dared to take action against the pyramids, they feared the kingpins would decide to take their downlines and leave Amway altogether. When it became clear that the company risked collapse if it continued to the fight, Amway decided to join the kingpin distributors in the tool business instead.
Mafia Like Corporate Structure
Professor Blakey determined that Amway uses corporate structures to protect individuals from liability and to hide the company’s illegal activities. The major families use the corporate form for their tools business and the Amway sales and marketing business. For example, Don Wilson has Wilson Enterprises for Amway sales and marketing, and WOW International for tools.
Currently, there are three primary lines of sponsorship within Amway, headed by Dexter Yager, Bill Britt,* and Ronald Puryear and all three run their tool pyramids through separate corporations.
While very few of these companies operate under normal corporate rules, or are bound to each other legally, according to Blakey, "In order for the business to function, there is an association-in-fact among the participants. The large family leaders ... work with the DeVos and Van Andels (Amway Corporation) to ensure the continuing operation of the business."
This association is necessary due to the predictable power struggles, he notes.
Family leaders, much like organized crime groups, hold positions because of who they are, and not because of any particular job qualifications.
For instance, Blakey reports that when deposed in the P&G suit, James Rosloniec, a Amway Vice President, supposedly in charge of audit and control, said he did not know what Amway Financial Services did, and he had no knowledge of the Amway companies, Amway Jewelry Company, Amway Realty Network, Group Fifty Corp, Merchandising Products, Nutrilite Products, Nutrilite Products, Limited - New Zealand, Sunrise Auto Plaza, Taerus Expo Corp, American Way, Limited, Video Incentives, Plus, or Amway International, Inc.
More often than not, Blakey noted, Rosloniec had little or no knowledge about the operations of corporations where he was both an officer and director. Eg, he was a Vice President and director with HI, Inc; yet in his testimony, he said he "believes" this corporation owns a Hawaii distribution center, but had never been to a company meeting or board meeting. He "believes" he is president and treasurer of Amway Investment, Inc., which has a value in excess of $300 million. He "assumes" he is president of Amway Auditing and Financial Services, which is a shell corporation.
"All of this indicated that Rosloniec is nothing more than a "shill" for the DeVos and Van Andel family," Blakey determined.
Mafia-Like Dispute Resolution
The nature of the Amway corporation lends itself to disputes and just like the Mafia, Amway families prefer to handle their disputes internally. There is a formal method of resolution with binding arbitration, and an informal method, with determinations rendered by family leaders, Blakey explains.
The formal resolution method is set forth in Amway's Business Reference Manual. When a problem arises, it is first discussed with the offender. If the problem persists, it is reported to the offender’s upline. If it still persists, a warning letter may be issued, with a copy sent to Amway. If this does not resolve the issue, a direct distributor may take action, including termination.
If the violator is dissatisfied, he can appeal to Amway for an informal conciliation procedure. If there is still no resolution, the panel issues a recommendation. If the party disagrees, he can request a review by the ADA Board. Upon receipt of a recommendation Amway reviews the matter and issues a final determination binding on all parties.
For those who may be interested, the informal method is outlined in the complaint filed in the 1998 Musgrove lawsuit. The Musgroves alleged that their upline had illegally taken monies owed to them and their downlines.
The Musgroves claim they were warned that going to Amway or the ADA would be a "mistake." When there was no resolution, they went to Jody Victor - a principal of the ADA. Victor advised them that to cross Don Wilson or Dexter Yager would be the equivalent of "being drawn and quartered."
When nothing got resolved, the Musgroves went to Amway, which resulted in retaliation against them and prompted them to file the lawsuit.
Mafia Methods Of Coercion & Control
Blakey points out that "The Mafia uses "omerta" and violence for control," and "Amway uses other tactics, with similar effect."
Low-level distributors must honor their upline. No negative talk or action is permissible. Paul Klebniov discussed this no-talk-rule in the December 9,1991, issue of Forbes Magazine: "Amway's attitude toward any insider critical of the organization has bordered on paranoia."
According to Blakey's report, a distributor who steps out of line is punished. "Punishment may start off with being vilified by uplines as a "loser," as "negative," or as "brain-dead" which are typical Amway appelations for anyone who does not believe in the Amway system and the riches that allegedly flow from it," he says.
"More serious offenders," says Blakey, "may have portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
The Eric Scheibeler Experience
The punishment Blakey described actually happened to Eric Scheibeler and his wife. In a depositon, the former Amway distributor explains how he and his wife thought they were joining Amway, but ended up in a pyramid scheme.
"What we didn't realize is that we were in an Amway motivational organization ... to promote, market and retail the system to our organization. And we personally were used ... to extract somewhere between three and four million dollars, I'm estimating, of good people's money that went to books, tapes and seminars, which is really the real secret income source that our upline Amway diamond was making money from," he recounts.
Eric describes how "people are brought in based on this incredible life-style and economic success of the Amway distributors ... when, in fact, a lot of them don't make a net income of one dollar on Amway. Almost all their profits come from recruiting - using Amway as a shell corporation to recruit people into their secret motivational organization, which is where all their income has come from," according to his deposition.
In his book Merchants of Deception, Eric said in time he discovered that "perhaps millions of others had been recruited and induced to participate in not just one, but two illegal pyramid-type businesses. The first was the tool business that had no end user outside of the organization, and the second was the Amway business," he said.
(The book can be downloaded from his website, merchantsofdeception.com, for a limited time only).
Eric tried to do something about the fraud, and says, "I provided information of fraud, global fraud, to Amway regarding ... forced participation in the tool business, fraudulent income representations, and they took no action ... I provided that also to Dick DeVos, the president of Amway, personally in both fax and certified letter, and the action they took was cut my income off," he said in his deposition.
As punishment for speaking out against the company, Amway cut off their monthly commissions drawn from the organization the Scheilebers had developed, and withheld about $20,000 while the couple went bankrupt, lost everything, and barely held onto their home.
At their lowest point, Eric’s sponsor asked him to sign an agreement stating he would never speak about his experience with Amway again. In return, Amway would release the $20,000 of the Scheileber’s money the company claimed it was holding "in escrow," and would buy Eric's Amway business for $75,000. In a nutshell, they wanted to buy the business and his silence for $95,000. Eric declined.
Same Coercion & Control Alleged In Lawsuits
This upline coercion and control is alleged in nearly every one of the many law suits filed all over the country. For instance, the 1998 Taylor v Amway suit alleged that the upline warned the distributors that they had the authority, political connections and clout to cause the plaintiffs to lose their business and told distributors to buy tools and attend functions or they would be "cut out like cancer."
After taking a look at the Van Andel Institute's Website, I'd say Van Andel indeed had the political ties to make good on such threat. The site lists Van Andel's history in politics.
"In 1992, President George Bush appointed Jay to serve as the United States Ambassador and Commissioner General to the Genoa Expo '92 in Genoa, Italy. He has also served as Chairman of the U.S. Chamber of Commerce, a Director of the Gerald R. Ford Foundation, a member of the U.S.O. World of Governors, and North American Chairman of the Netherlands American Bicentennial Commission," it says.
The complaint filed in the Stewart v Amway case alleges the uplines coerced attendance at functions, controlled by family leaders, and anyone trying to hold events independent of high level approved functions was "blackballed" from participating in other events.
In the 1998 Morrison v Amway case, 29 distributors filed the suit and revealed many of the company's secrets. The suit alleges downlines are coerced into spending money on tapes and functions and told that they have no chance of success unless they do and that those who ask questions or refuse to play the game risk having their businesses destroyed
For those who may be interested, the complaint in the 1998 New Hampshire case of Lavoie v Yager, details on the inner working of the Yager tool system and also outlines the progression of a distributor through the system.
Report of Actual Violence
Blakey found, "There are also reports of violence against those who attempt to take action against Amway."
For example, Edward Engel was Amway's chief financial officer until he resigned in 1979, over a disagreement with DeVos and Van Andel. Engels claims he and his family received threats for years after his resignation.
"It was a Big Brother organization," says Engel today. "Everyone assumed that the phones were tapped, and that Amway had something on everybody."
In 1983, while Engel's former secretary, Dorothy Edgar, was helping the Canadian authorities in their investigation of Amway, she was roughed up in Chicago, after she was told to "stay away from Amway."
Engel picked her up after the incident and says he believes her story, according to Paul Klebniov's article.
In 1982, former Amway distributor, Philip Kerns, quit the company and wrote an expose called "Fake it Till You Make It." He claims Amway had private detectives follow him and rough him up. The expose prompted Phil Donahue and 60 Minutes to run highly critical programs about Amway.
The many examples of threats, intimidation, blackmail, and violence outlined above definitely mimic attempts to control with methods often used by members of the Mafia.
Eric says there was one question that had haunted him. "How could this have possibly gone on for so long?"
After delving into the company's political connections he discovered the answer. His book reveals the close ties between Amway, the Republican Party, and both Bush administrations. According to Eric, over the past 20 years, there have been huge contributions and large speaking fees paid to prominent Republicans, which have resulted in immunity and protection for Amway against investigations into its violations of anti-pyramid scheme statutes.
If not for this prepaid-insurance, I firmly believe that Amway would have been shut down 20 years ago.
* (Part 1 of this article contains the statement: "Bill Britt has since been booted out of Amway." It should have said, according to a tape recorded message by Triple Diamond Ron Puryear, leader of World Wide Dream Builders, Bill Britt, retired from the Amway IBOA board of directors in June of 2004. The announcement occurred just after the board of directors met in its June session, where Britt was supposedly approached by other directors about compromising personal issues relating to two 911 emergency calls made by a woman reporting disputes. His speaking fees from World Wide Dreambuilders functions have ended since he won't be speaking at those seminars any longer.)