Evelyn Pringle December 8, 2004
This article is the first in an investigative series covering the Amway Scandal.
Former Amway insider, Eric Scheibeler, has written a must read new book called "Merchants Of Deception." This one time member of the Amway motivational cult has turned whistleblower and FBI witness and boy does he have some tales to tell.
In the book, Scheibeler exposes an Enron sized fraud with Amway raking In billions of dollars annually, and the billionaire founding families Being the largest soft money contributors to the GOP, with funds that have Been generated from what may turn out to be one of the largest consumer fraud scandals in history, perpetrated by the world's largest multi-level marketing company (MLM).
The former Federal Auditor has also has a website, www.merchantsofdeception.com, that reveals the close ties between Amway and Republicans.
As a life long conservative, Scheibeler was discouraged to both discover and document that "the GOP seems to have been hijacked by political payoffs from an industry that is rife with consumer deception, and bogus 'business opportunity' selling."
He goes on to say that it's "time this secret influence peddling and the harm it causes consumers and our democracy are revealed. I was on the inside for nine years. I saw it with my own eyes. I also have the internal documents, financials, and the audio and video tapes to prove it."
Merchants of Deception exposes the company's deceptive marketing of phony business opportunities and other secret scams by Amway's top promoters to sell so-called success tools to unsuspecting recruits all over the world. It also contains first hand accounts of the Kingpin's fraudulent recruitment practices that have led to an endless stream of lawsuits.
Scheibeler and Dateline Team Up In Sting Operation
In addition to writing a book and setting up a web site, Scheibeler provided key documentation for the May 7, 2004, NBC Dateline program that televised an expose of the secretive and illegal pyramid business run by Amway & Quixtar kingpins.
During its investigation, Dateline smuggled hidden cameras into recruitment meetings in order to document the company's deceptive claims and promises, and to expose its multi-million dollar 'secret' business. The expose verified the common allegation made in numerous consumer lawsuits, that the company is merely a front for a hidden pyramid business based on selling books, tapes, and registrations to seminars and rallies to new recruits, with nearly all participants losing money.
According to Dateline, the FBI and the IRS are conducting investigations into the scheme.
Republicans Will Do Anything For A Buck
Amway's billionaire founders, Rich DeVos and Jay VanAndel, have been the largest soft money contributors to the GOP on and off for the past 20 years. Together, DeVos and VanAndel gave $4,000,000 to a 527, just 45 days prior to the last election. And you can bet that they demand (and get) a bang for every red cent.
Scheibeler's book reveals how GOP donations and corporate promotion have resulted in a trade off for political protection and tax reduction benefits for the MLM. His web site provides a goldmine of documentation to back up his claims, including audiotapes.
By going to the site, you can hear Newt Gingrich promoting Amway at a large event, or you can listen to audio clips of then Texas Governor George W Bush. There is even a clip sent by high-level kingpin distributors from a private meeting within the White House.
Scheibeler tells how some members of the GOP have been paid as much as $100,000 for a single promotional appearance at an Amway seminar. The list of high-paid Republican speakers who have appeared at rallies over the years, reads like a list of who's who in the GOP. It includes former Presidents George Bush, Ronald Reagan, Gerald Ford and former Vice Presidents Bob Dole and Dan Quayle, along with other GOP heavyweights like Gingrich, Oliver North, Senator Rick Santorum and even the latest SE Regional Chairman for the Bush-Cheney '04 campaign, Ralph Reed.
Scheibeler reveals just how much Republican law makers have given back to Amway in return for the large speaking fees and contributions, which includes tax breaks and a blanket of immunity from investigations into the company's illegal business practices. In hindsight, it is more than evident that the money bought a whole lot of regulatory protection for Amway.
Merchant's of Deception provides a good example of how the racket works in the case of Newt Gingrich. His speaking fees are reported to be in the $50,000 range. The books explains how, after accepting speaking fees, Gingrich arranged a reported last-minute modification in a comprehensive tax bill that allegedly provided a $283 million tax break to just one company -- Amway.
One report called the tax break a $283 million payoff. "The payoff for Amway was not in the original House or Senate version of the tax bill. House Speaker Newt Gingrich intervened at the last minute to help get the special tax break inserted in the bill." (San Antonio Express-News Aug 12,1997).
Who Else Is Involved In The Amway Scandal?
Back in 1997, syndicated columnist Molly Ivins described Amway's Lobbying power in Congress. "Amway has its own caucus in Congress. Yes, the Amway caucus. Five Republican House members are also Amway distributors: Reps. Sue Myrick of North Carolina, Jon Christensen of Nebraska, Dick Chrysler of Michigan, Richard Rombo of California and John Ensign of Nevada. Their informal caucus meets several times a year with Amway bigwigs to discuss policy matters affecting the company, including China's trade status," she said.
Ivins also noted that, "House Majority Whip Tom DeLay, a onetime Amway salesman, also remains close to the company."
Which figures, because everybody knows that if there's a buck to be made from a scam, DeLay is sure to be lurking around in the shadows somewhere nearby.
And the fund-raising power of this pyramid company is not limited to the company's top dogs. The downline distributors are often pressured to produce large sums of money by soliciting small contributions from a great number of people. And that money can add up fast, considering that in 2000, Amway reportedly had over 700,000 distributors.
In 1997, a request from Congresswoman Sue Myrick to Amway Kingpin, Dexter Yager, for help in her fund raising events, increased her campaign war chest by more than $20,000 with small contributions from distributors. The next year, another fundraiser aimed at distributors brought in over $35,000.
W and Amway Are Tight
When it comes to W and Amway, it's a give and take situation. They mutually provide "quid pro quo" favors to each other. For instance, during the 2000 campaign, W used the company's voicemail network to reach thousands of Kingpin Dexter Yager's distributors with a personalized message from none other than Bush himself.
Then last summer, when Amway co-founder Rich DeVos attended a dinner party at the home of a friend in Grand Rapids, MI, he got seated right across the dinner table from W, according to the Orlando Sentinel.
DeVos isn't shy about discussing his contributions to Bush. "People ask Me sometimes why I support Bush, "DeVos said, "I just tell them, 'Because When I walk into the room, he says, "Hi, Rich." 'I've been a friend to the family for a long time.'"
"I give the max," DeVos said proudly.
"People talk about buying access, But all I can tell you is that politicians know the people who support them," he told the Sentinel.
And DeVos ain't lying, he has been very generous to W over the years. The $2,000 campaign Limit that he gives directly to Bush, is but a fraction of what he actually contributes. His wife, kids, and their spouses, also make large donations to W and other members of the GOP.
During the 2000 election cycle, DeVos, his wife, and son contributed a combined sum of $760,000 to Republican candidates and causes, and according to FEC records, Amway itself contributed a whopping $1.3 million, with every dime going to Republicans.
Favored politicians are also aware that the Amway perks don't necessarily end once they leave office. For example, DeVos has remained such great friends with President Ford over the years, that when Ford travels, it's often on DeVos' private jet.
How Much Does W Protect Amway - Let Me Count The Ways
Scheibeler's reporting provides a well documented expose of the Bush administration's direct involvement in the regulatory protection of Amway, and verifies that DeVos does get a lot of bang for every buck.
As we all know, there are rampant cases of improper influence in the Bush White House. Right off the top my head, energy and drug companies come to mind.
But Amway is different; its primary goal is not merely to rip off tax payers. It's to literally protect its very existence. The MLM completely relies on political protection to prevent it from being shut down by regulators and law enforcement.
And Bush has demonstrated that he was more than willing to engage in the protection racket.
On his web site, Scheibeler is highly critical of the FTC, and its current chairman, Bush appointee, Timothy Muris, mainly because of the agency's utter refusal to properly investigate and/or prosecute pyramid schemes, despite the overwhelming number of well documented complaints that have been filed with the agency.
Without a doubt, Amway's business practices are flagrant violations of FTC rules. Three separate federal court rulings have defined these types of pyramid sales as illegal schemes, and there are any number of websites on the internet that document the financial harm caused to millions of people by Amway's deceptive recruitment schemes. Yet, the Bush administration has consistently ignored the company's violations.
Scheibeler's web site attracts testimonials from Amway victims all over the world. Complaints have come in from Australia, New Zealand, UK, Germany, France, Canada, and Slovakia. And the whole world watches as the FTC turns a blind eye to the blatant exportation of this "American" fraud.
In fact, it could be said that Bush has aided and abetted Amway's criminal behavior. To begin with, appointing Tim Muris to head the FTC was the equivalent of setting a fox loose in the chicken coup. Before his appointment, Muris was as an attorney with the antitrust division of the law firm Howrey, Simon, Arnold and White, LLP. And guess who the firm's antitrust division counts as one of its largest clients? Amway.
So here we have it, while Muris was at Howrey, and while he was in charge of the FTC, his former law partners were representing Amway in a class action lawsuit initiated by a former Amway distributor that alleged that the MLM's recruitment program was an illegal pyramid scheme.
And there's more. The MLM's influence with the FTC doesn't end with Muris, it extends beyond him. During the Clinton administration, a company named Equinox (an Amway clone), was prosecuted for violating the pyramid scheme fraud statutes. One of Equinox's expert witnesses was David Scheffman, and he testified against the FTC and defended the scheme.
Scheffman claimed that the company's business model was legitimate and not a pyramid scheme, based on the assertion that company operated just like Amway. In the end, Equinox lost the court battle and was shut down, but guess where Scheffman ended up? Muris made him the Chief Economist at the FTC.
Does the information above indicate any conflict of interest violations within the Bush administration? Probably not, since the term conflict of interest was obviously deleted from the White House vocabulary when Bush moved in.
Showing posts with label Amway. Show all posts
Showing posts with label Amway. Show all posts
Wednesday, August 4, 2010
Amway, Republicans & That Old Time Religion
Evelyn Pringle December 14, 2004
Eric Scheibeler's book new, Merchants of Deception,[*] is a first hand account of the author’s recruitment into the Amway cult, his rapid advancement as a recruiter of others, and his final awakening after many years of mind-dulling dedication to the cult ideology. The book evidences Eric's deep personal resolve to try and stop what happened to him from happening to others.
For decades, Amway has used its political clout within the extreme Right Wing of the Republican party to gain access to foreign markets, obtain special tax breaks, and most importantly, to retain immunity from prosecution for pyramid scheme fraud. The giant MLM is able to generates funds all over the globe, simply by using some of those funds to buy protection against regulation and oversight. It has unprecedented influence with the current White House. But worst of all, it has the reach and ability to recruit, manipulate, and misinform millions of new people each year.
The Amway Snow Job - How It Works
Over the past 20 years, more than 10 million Americans have been lured into the trap of investing vast amounts of time and money in Amway’s pyramid sales scheme. And each new recruit was subjected to its radical conservative propaganda campaign as a key component of the motivational training that their up-line recruiters insisted they must have in order to be successful with Amway.
To that end, millions of Amway audiotapes, CDs and videos are sold each year. The main message they expound is that success is achieved by emulating the Amway beliefs and values, characterized by political conservatism, disdain for the poor, extreme distrust of government social programs, and adherence to the rules of right-wing Christianity.
To date, there have been no studies done on the political leanings of recruits entering the Amway program. But it is known that many recruits who may not have embraced the radical right-wing agenda going in, adopt it soon after being exposed to Amway's indoctrination. If even half of the recruits believe the propaganda they are exposed to, it means millions of people are converted each year as a direct result of their involvement with the MLM.
Eric is a good example of this kind of conversion. Before he came into Amway, politics had never been an issue with him, and he was not a deeply religious person. But he soon came to believe that he was dealing with people of great faith and integrity, in part because the tapes he was instructed to listen to.
Unbeknownst to Eric, an educational process had begun that would eventually alter and control nearly all of his values and beliefs. As part of that process, he was instructed to (1) attend choreographed Amway rallies where it delivers its message, often over 2 or three days; (2) read politically charged books; (3) listen to hours of politically slanted audiotapes and voicemail messages; and (4) pay large amounts of money to listen to Right Wing Religious and Republican spokespersons at seminars around the nation.
While attending these seminars, Eric began to learn about the supposed evils of liberalism and the Democratic Party and how the liberals wanted to take from the hardworking, honest people and give to the nonproductive members of society, who were only poor because they were lazy.
Distributors were also pushed to contribute money to the campaigns of conservative Republicans who were brought in to speak. It they were not from their home state, they were urged to help get them elected anyways in order to make the whole country better.
When speaking, top promoters constantly linked the Amway teachings to religion, with comments such as, “When you’re loyal to the upline, it’s being loyal to God. It’s being loyal to your husband and loyal to your children,” by Amway Double Diamond Linda Harteis at a Ladies Meeting.
When Republicans spoke at rallies, they were often introduced as great Americans, while their Democratic counterparts were portrayed as godless, anti-family, anti-business, and anti-success. Mother Jones magazine correctly described the Amway distributor force as "heavily influenced by the company's dual themes of Christian morality and free enterprise" and operating "like a private political army."
A typical example of the kind of derogatory political messages that are broadcast to Amway members, is one sent by Dexter Yager a few years back. The entire message was a condemnation of Hillary Clinton, disguised as a prayer. At one point, Yager says, “God, melt that woman’s brain,” and that was one of the milder prayer lines.
The comments made by these people can only be described as bizarre. For instance, they claimed that women who chose a career over staying home and raising their children, either lacked values or were just plain stupid. They'd make other comments like, "Why do you think she's working, because she hates her kids?"
According to Eric, these kinds of remarks were often followed with a disclaimer such as, "I certainly understand the bad position that these women are in. Some are forced into the workplace, because they are married to a man that just isn't a man."
After a thorough brainwashing, Eric came to believe that Amway had given him and his wife the gift of membership in a group of like-minded people who believed in God, America, and the family. He reached the point where he bought into what co-founder DeVos claimed in his book, Believe! "This country was built on a religious heritage, and we had better get back to it. We had better start telling people that faith in God is the real strength of America!" DeVos wrote.
The Bush Family & Religious Heathens
Several members of the media have looked into the relationship between the two Bush Presidencies and members of the extreme Religious Right Wing. After reading up on that gang, the only thing I know for sure, is that there is not a single honest person in the whole bunch.
First off, lets take a look at evangelist Doug Wead, a divorced Baptist Minister, and former Diamond distributer, who is still a regular speaker at Amway conventions.
Wead was the first President Bush's liaison to the Christian Right and he later served as Special Assistant to the President in the first Bush White House. Time magazine referred to him as "the man who coined the phrase the compassionate conservative."
He was linked to the second President Bush early on as well. US News and World Report described Wead as an "old friend and advisor" to George W Bush. In the book, First Son, Author and Dallas Morning News Reporter, Bill Mintuglio, said that Wead was a man who had spent years "preparing strategy reports" for both President Bush and GW.
The book claims W was the “family liaison to hard-edged conservatives and to Christian evangelical leaders, developing close ties to (among others) defeated ... congressional candidate Doug Wead, with his Amway and Jim and Tammy Faye Bakker connections.”
In 1998, W decided it was his turn. Within days of his reelection as governor, W was secretly planning to run for President, because, as he said, he felt certain he had been called. He was encouraged in this belief by evangelical friends like Doug Wead and by his mother, who called him “the Chosen One," according to Kitty Kelly's book, the Family.
Anticipating W’s reelection, Wead had already written a memo encouraging him to run, “You have been given a great opportunity, an opportunity that has been denied to many who have sought it. It is a gift that has rarely been extended. It might not ever be extended again,” Wead wrote.
Years earlier, Wead had lost his own Congressional bid after Republican Senator Barry Goldwater, threw his support behind Wead's Democratic opponent, and stunned the Christian community with the remark, "I don't think God should be sold for money."
Goldwater was obviously a good judge of character and realized that it would be better to have a Democrat in office than a charlatan like Wead. And he was absolutely right, because as it turns out, Wead's past with Amway is even shadier than most people know.
At one time, Wead and his ex-wife Gloria, were both Diamond distributors, sponsored by Dexter and Birdie Yager. Wead earned large sums of money by speaking at Amway functions throughout the Yager organization.
Wead and another kingpin, Jean Godzich, eventually branched out and set up an Amway in France. In 1986, the French government began investigating it and decided the company was a dangerous mind-control cult, and a fraudulent business. Amway France terminated the distributorship of Godzich, from whose group most of the complaints had originated.
So what do Wead and Godzich do next? They set up a new MLM in France, called Groupement or GEPM. Its product line consisted of Amway products, its business structure was identical to Amway France, and its cultic activities were just as blatant as they were in the first operation.
After receiving numerous complaints about GEPM, French authorities moved in to shut it down, but this time it issued criminal arrest warrants, 13 for the company’s distributors, and 2 for Godzich and Wead. Godzich took all the cash and fled the country and Wead never returned to France.
This man is the same Doug Wead, who 2 years later, would become a White House Aide to the first President Bush, and spiritual adviser to the second. God help us!!!
Some Religious Top Guns Need Extra Protection
The Amway pyramid fraud scheme seems to offer steady employment. If you are being investigated or arrested in one country or state, all you have to do is move along to another and set up shop again. Defrocked religious zealots seem to get away with doing this time and time again.
For example, Don Storms is an Executive Diamond with Amway. He is also an ex-minister, who spent 13 years traveling the country with a gospel quartet, before teaming up with Jim Bakker and becoming a senior vice president at the PTL Club. In 1979, he and wife Ruth started their Amway business. Today, Storms is a real estate developer, in addition to his Amway business, according to MLM Survior.com on July 13, 1999.
Don’s buddy, Kevin Trudeau, is a prolific marketer, but with a vary shady past. He is a twice-convicted felon and has served time in prison for credit card fraud. The FTC has prosecuted him a couple times for concocting fraudulent infomercials and at one time or another, he has been under investigations by 18 state Attorneys General, and the US Postal Service.
Trudeau was once involved with the MLM company, Nutrition for Life, Inc (NFLI). But that involvement came to an abrupt halt, after the SEC began investigating his recruitment practices. On April 17, 1996, the Illinois Attorney General filed a lawsuit against Trudeau, and his partner, for running an illegal pyramid scheme that was set up to peddle motivational books and tapes. The State of Michigan also ordered him to stop all marketing in that state related to his business the Trudeau Marketing Group (TMG).
So what do the Ex-Pastor and Ex-Con have in common? Quixtar. Their Quixtar/Trudeau connection was revealed in a spam e-mail, which stated in part:
"PLEASE CONTACT ME RIGHT AWAY! URGENT! URGENT! URGENT! DON'T LET THIS ONE GET AWAY FROM YOU. THE LARGEST, MOST EXPLOSIVE MLM OPPORTUNITY OF ALL TIME IS NOW UNDERWAY. IT IS UNIMAGINABLY HUGE. HUGE AMOUNTS OF MONEY ARE BEHIND IT, HUGE CORPORATIONS LIKE MICROSOFT AND IBM,. . .
"IT IS VITALLY IMPORTANT THAT YOU RESERVE YOUR POSITION NOW IN THE TRUDEAU TRAINING TEAM ORGANIZATION, WHICH NOW WITHOUT QUESTION THE MOST UNBELIEVABLE MLM MARKETING GROUP IN HISTORY. KEVIN TRUDEAU, WHO IS THE HUGE IN THE TV INFOMERCIAL BUSINESS WORLDWIDE, AND HIS ORGANIZATION OF INFORMERCIAL DISTRIBUTORS (TO WHICH I BELONG) ARE BUILDING AN EXCLUSIVE MARKETING ORGANIZATION IN COOPERATION WITH AND DIRECTLY DOWNLINE FROM THE BIGGEST LEADERS IN THE NETWORK MARKETING INDUSTRY TODAY, THE JODY VICTOR, DEXTER YAGER, DON STORMS, BLAINE ATHORN GROUP."
How's that for Amway name-dropping? A little research by MLM Survivor.com, revealed the following: On June 30, 1999, Trudeau placed an announcement on the TMG's voicemail system. It seems that his long-time buddy and ex-business associate, Blaine Athorne, (who fired him after his 1989 credit card fraud) hired the TMG in an exclusive relationship with his Amway/Quixtar organization.
Trudeau briefly noted his earlier job with network marketing, but claimed it was the changing dynamics in the company, which made it impossible for him to continue as a distributor. "I no longer could promote that business. . . [because of] disagreement in management."
Oh really? Could that disagreement have had something to do with his conviction for pyramid fraud, or the $1 million fine that he had to pay as a result of his infomercial fraud?
Or maybe it was about the Postal Service investigation or the umpteen investigations by state Attorneys General. Who knows?
About Quixtar, Trudeau says: "I believe in my heart of hearts is the ultimate network marketing opportunity of all times. . ." One of the claims he makes on behalf of Quixtar is: "You'll be able to buy hundreds of thousands and eventually millions of products at very good pricing -- similar to Sam's Club." Then comes the big push!
"I have chosen after multiple meetings with corporate executives, top distributors and lawyers that it would be in the best interests of everyone if I did not become a distributor in Amway or Quixtar. I have formed a company called the Trudeau Training Team. The Trudeau Training Team has signed an exclusive marketing and sales arrangement with Storms Enterprises Inc. . . Don Storms has personally sponsored my long-time friend and business associate Blaine Athorne. Blaine Athorne is going to be the founding distributor in our downline organization. . . My company has signed an exclusive marketing and sales training contract with Blaine Athorne’s distributorship and downline, and Don Storms.
"Many of the marketing strategies that I've employed in the past will be utilized in this organization."
What marketing strategy is he referring to here? Is there any other, besides the old standard run-of-the-mill pyramid scheme?
Trudeau says Don Storms is "one of the greatest network marketers of all time," and Storms says, "Kevin Trudeau's training [is] the best in the world."
So here it is for all to see, a prime example of the quality of ethical and legal behavior we can expect from Amway/Quixtar and its distributors.
More Secretive Religious Groups
Amway founder Richard DeVos is a member of the Council for National Policy (CNP). A group described as "the Most Powerful Conservative Group You've Never Heard Of," by ABC News in a May, 2004 report that noted the group's extraordinary secrecy.
If you want to do a little Republican name-dropping, just recite the names of the 500 or so members of the CNP. They include Christian Coalition president Pat Robertson; political strategist Ralph Reed; Sen Jesse Helms; Congressmen Dick Armey and Tom Delay; Gun Owners of America head Larry Pratt; Oliver North; Texas billionaire Nelson Bunker Hunt; Focus on the Family head James Dobson; and former presidential candidate Gary Bauer.
"According to a membership roster ... other notable former and current members include: Attorney General John Ashcroft and Health and Human Services Secretary Tommy Thompson. (Both are no longer members); Christian businessmen like Holland and Jeffrey Coors, of the brewing company; two of fundamentalist Christianity's most prominent end-of-the-world theologists: John Ankerberg, and Dave Breese," ABC noted.
DeVos is also a major supporter of a right-wing, Christian non-profit entity called Gospel Communications International, which has annual revenues of $6.7 million. Its Board of Directors reads like a Who’s Who of Amway kingpins, with DeVos as Chairman and his son, Doug DeVos, as Vice-Chairman. Out of 15 Directors, 10 are from Amway.
Launched in 1995, Gospel.com, claims to be the largest Christian website on the Internet. In 1999, it claimed that it had more than 780 million hits from people in 216 different countries and territories around the world.
During 1998, Gospel was responsible for showing videos and films to over 200 million people in schools, churches, homes, prisons, hospitals, and on television. To give you an idea of what kind of information was contained in those films, consider that 2 books that were being promoted on its website as of September 14, 2004, included, From Reveler to Revelation - the Journey of President George W Bush; and A Greater Freedom: Stories of Faith from Operation Iraqi Freedom, by Oliver North.
And of course no religious nutcase tale would be complete if Jerry Falwell wasn‘t mentioned. Not to worry, ole Jerry is in the loop. Amway Kingpin, Dexter Yager, not only financially supports Falwell’s Liberty University, one of Yager's sons sits on the University’s board of directors.
Dexter Yager is such a prince, that years ago, he even let Jim and Tammy Faye Bakker broadcast their religious show from his home, after they lost the PTL ministry, according to Mother Jones Magazine. What a guy.
So How Much Money Are We Talking About?
How much money are we talking about? Well first of all, Amway perks are not limited to money contributions. For example, when describing the events at the 2000 Republican Convention, the New York Times wrote, “For the party’s top underwriters, there will be an array of gold-plated events in Philadelphia, including cocktails with Gen. Colin L. Powell and an evening cruise on the Delaware River aboard the ‘Enterprise,’ the yacht owned by Richard M. DeVos, the Amway founder, who is a Bush supporter.”
Four years later on September 2, 2004, the Detroit Free Press described another boat ride. Insiders were feted aboard Dick and Betsy DeVos’ yacht at the 2004 Republican National Convention in New York, as well as Jay Van Andel’s lavish 169-footer.
Besides yachts trips, we are looking at a whole lot of money being passed around. For example, in 1994, Amway and Anschutz were the top two donors, each giving $250,000 toward a $2.5-million soft money contribution to the RNC. It was the largest single political donation on record.
In return, the Amway big-wigs are treated very well. On July 18, 1996, DeVos was honored at a $3 million Republican fundraiser, where keynote speaker, Bob Dole, paid tribute to him. A week later it was reported that Amway had donated $1.3 million to the San Diego Convention and Visitors Bureau, to pay for Republican infomercials airing on Pat Robertson's Family Channel during the convention, according to the Sept/Oct 1996, issue of Mother Jones magazine.
Although the Democrats filed a complaint and blocked the payoff, it demonstrates how one hand washes the other when it comes to Amway, the Religious Right Wing, and the Republican Party.
In the Bush/Cheney campaign 2000, Betsy DeVos, daughter-in-law of Richard DeVos, became a so-called Bush Pioneer by raising over $100,000. And overall, in 2000, Amway was the second largest contributor of soft money to the RNC, with donations totaling $1,138,500, second only to Reynolds Tobacco.
In 2004, the 527 “Progress for America” received a bundle. “The latest crop of donors includes Amway founders Richard DeVos and Jay Van Andel, who each chipped in $2 million,” reports Newsweek, “The Secret Money War,” Sept 20, 2004.
So what does Amway get in return for all this money? A lot. But most importantly, it allows Amway to operate with political protection against criminal investigations that would lead to the collapse of not only Amway, but the entire MLM industry.
Pyramid Scheme Alert Takes On The MLM
In June 2000, the first consumer advocacy group was formed that focuses directly on pyramid scheme fraud. Pyramid Scheme Alert, Inc (PSA) is a non-profit organization, founded by three activist/authors, with support and encouragement from attorneys, former regulators and private citizens all over the world.
PSA Directors, Robert FitzPatrick and Susanna Perkins, have written an excellent white paper report entitled, "The Amway Industry," which details the damaging and corrupting influence of the MLM industry on consumers and democracy. It is by far, the most thorough and comprehensive report available for people looking for information about the MLM industry. [**]
PSA also has a website that is full of information, which receives more than 150,000 hits per month. The organization provides answers to a stream of consumer inquiries each day. Several of its directors have served as expert witnesses in private and government sponsored court proceedings involving MLM companies. PSA's findings has been referenced, quoted, and featured in reports on NBC, ABC, BBC and in many newspapers and magazines around the world.
It was surely a welcome sight for consumers. For decades now, people have went up against Amway with very little success, and for good reason. Amway attorneys routinely threaten website publishers with libel suits. State Attorney General offices say they are too small and financially strapped to take on MLMs in court, and appeals to the FTC have consistently gone unanswered.
Amway Will Be In Business Until Bush Leaves Office
In light of the above, you can bet that Amway will not be closing its doors anytime soon. Its illegal scheme will remain in tact for at least as long as Bush is in the White House.
But there is one oddity about the Bush-Amway gang that Eric recently pointed out. In most cases of fraud, crooks don’t steal from their own. So this makes Amway unique, because it pays the current administration to protect a multi-billion dollar fraud that targets Conservative Christian Republicans almost exclusively.
Eric said he wondered what kind of animals would eat their own? If my memory serves me correctly, I think pigs do that.
(Second Article In A Series On Amway Scandal)
* With prior permission, this article contains a large amount of information taken directly from Eric Scheibeler's website, www.merchantsofdeception.com, and his book, Merchants of Deception.
** With prior permission, this article contains an extensive amount of information taken directly from "The Amway Industry" white paper written by Robert FitzPatrick and Susanna Perkins, Directors of PSA, and the PSA website.
Eric Scheibeler's book new, Merchants of Deception,[*] is a first hand account of the author’s recruitment into the Amway cult, his rapid advancement as a recruiter of others, and his final awakening after many years of mind-dulling dedication to the cult ideology. The book evidences Eric's deep personal resolve to try and stop what happened to him from happening to others.
For decades, Amway has used its political clout within the extreme Right Wing of the Republican party to gain access to foreign markets, obtain special tax breaks, and most importantly, to retain immunity from prosecution for pyramid scheme fraud. The giant MLM is able to generates funds all over the globe, simply by using some of those funds to buy protection against regulation and oversight. It has unprecedented influence with the current White House. But worst of all, it has the reach and ability to recruit, manipulate, and misinform millions of new people each year.
The Amway Snow Job - How It Works
Over the past 20 years, more than 10 million Americans have been lured into the trap of investing vast amounts of time and money in Amway’s pyramid sales scheme. And each new recruit was subjected to its radical conservative propaganda campaign as a key component of the motivational training that their up-line recruiters insisted they must have in order to be successful with Amway.
To that end, millions of Amway audiotapes, CDs and videos are sold each year. The main message they expound is that success is achieved by emulating the Amway beliefs and values, characterized by political conservatism, disdain for the poor, extreme distrust of government social programs, and adherence to the rules of right-wing Christianity.
To date, there have been no studies done on the political leanings of recruits entering the Amway program. But it is known that many recruits who may not have embraced the radical right-wing agenda going in, adopt it soon after being exposed to Amway's indoctrination. If even half of the recruits believe the propaganda they are exposed to, it means millions of people are converted each year as a direct result of their involvement with the MLM.
Eric is a good example of this kind of conversion. Before he came into Amway, politics had never been an issue with him, and he was not a deeply religious person. But he soon came to believe that he was dealing with people of great faith and integrity, in part because the tapes he was instructed to listen to.
Unbeknownst to Eric, an educational process had begun that would eventually alter and control nearly all of his values and beliefs. As part of that process, he was instructed to (1) attend choreographed Amway rallies where it delivers its message, often over 2 or three days; (2) read politically charged books; (3) listen to hours of politically slanted audiotapes and voicemail messages; and (4) pay large amounts of money to listen to Right Wing Religious and Republican spokespersons at seminars around the nation.
While attending these seminars, Eric began to learn about the supposed evils of liberalism and the Democratic Party and how the liberals wanted to take from the hardworking, honest people and give to the nonproductive members of society, who were only poor because they were lazy.
Distributors were also pushed to contribute money to the campaigns of conservative Republicans who were brought in to speak. It they were not from their home state, they were urged to help get them elected anyways in order to make the whole country better.
When speaking, top promoters constantly linked the Amway teachings to religion, with comments such as, “When you’re loyal to the upline, it’s being loyal to God. It’s being loyal to your husband and loyal to your children,” by Amway Double Diamond Linda Harteis at a Ladies Meeting.
When Republicans spoke at rallies, they were often introduced as great Americans, while their Democratic counterparts were portrayed as godless, anti-family, anti-business, and anti-success. Mother Jones magazine correctly described the Amway distributor force as "heavily influenced by the company's dual themes of Christian morality and free enterprise" and operating "like a private political army."
A typical example of the kind of derogatory political messages that are broadcast to Amway members, is one sent by Dexter Yager a few years back. The entire message was a condemnation of Hillary Clinton, disguised as a prayer. At one point, Yager says, “God, melt that woman’s brain,” and that was one of the milder prayer lines.
The comments made by these people can only be described as bizarre. For instance, they claimed that women who chose a career over staying home and raising their children, either lacked values or were just plain stupid. They'd make other comments like, "Why do you think she's working, because she hates her kids?"
According to Eric, these kinds of remarks were often followed with a disclaimer such as, "I certainly understand the bad position that these women are in. Some are forced into the workplace, because they are married to a man that just isn't a man."
After a thorough brainwashing, Eric came to believe that Amway had given him and his wife the gift of membership in a group of like-minded people who believed in God, America, and the family. He reached the point where he bought into what co-founder DeVos claimed in his book, Believe! "This country was built on a religious heritage, and we had better get back to it. We had better start telling people that faith in God is the real strength of America!" DeVos wrote.
The Bush Family & Religious Heathens
Several members of the media have looked into the relationship between the two Bush Presidencies and members of the extreme Religious Right Wing. After reading up on that gang, the only thing I know for sure, is that there is not a single honest person in the whole bunch.
First off, lets take a look at evangelist Doug Wead, a divorced Baptist Minister, and former Diamond distributer, who is still a regular speaker at Amway conventions.
Wead was the first President Bush's liaison to the Christian Right and he later served as Special Assistant to the President in the first Bush White House. Time magazine referred to him as "the man who coined the phrase the compassionate conservative."
He was linked to the second President Bush early on as well. US News and World Report described Wead as an "old friend and advisor" to George W Bush. In the book, First Son, Author and Dallas Morning News Reporter, Bill Mintuglio, said that Wead was a man who had spent years "preparing strategy reports" for both President Bush and GW.
The book claims W was the “family liaison to hard-edged conservatives and to Christian evangelical leaders, developing close ties to (among others) defeated ... congressional candidate Doug Wead, with his Amway and Jim and Tammy Faye Bakker connections.”
In 1998, W decided it was his turn. Within days of his reelection as governor, W was secretly planning to run for President, because, as he said, he felt certain he had been called. He was encouraged in this belief by evangelical friends like Doug Wead and by his mother, who called him “the Chosen One," according to Kitty Kelly's book, the Family.
Anticipating W’s reelection, Wead had already written a memo encouraging him to run, “You have been given a great opportunity, an opportunity that has been denied to many who have sought it. It is a gift that has rarely been extended. It might not ever be extended again,” Wead wrote.
Years earlier, Wead had lost his own Congressional bid after Republican Senator Barry Goldwater, threw his support behind Wead's Democratic opponent, and stunned the Christian community with the remark, "I don't think God should be sold for money."
Goldwater was obviously a good judge of character and realized that it would be better to have a Democrat in office than a charlatan like Wead. And he was absolutely right, because as it turns out, Wead's past with Amway is even shadier than most people know.
At one time, Wead and his ex-wife Gloria, were both Diamond distributors, sponsored by Dexter and Birdie Yager. Wead earned large sums of money by speaking at Amway functions throughout the Yager organization.
Wead and another kingpin, Jean Godzich, eventually branched out and set up an Amway in France. In 1986, the French government began investigating it and decided the company was a dangerous mind-control cult, and a fraudulent business. Amway France terminated the distributorship of Godzich, from whose group most of the complaints had originated.
So what do Wead and Godzich do next? They set up a new MLM in France, called Groupement or GEPM. Its product line consisted of Amway products, its business structure was identical to Amway France, and its cultic activities were just as blatant as they were in the first operation.
After receiving numerous complaints about GEPM, French authorities moved in to shut it down, but this time it issued criminal arrest warrants, 13 for the company’s distributors, and 2 for Godzich and Wead. Godzich took all the cash and fled the country and Wead never returned to France.
This man is the same Doug Wead, who 2 years later, would become a White House Aide to the first President Bush, and spiritual adviser to the second. God help us!!!
Some Religious Top Guns Need Extra Protection
The Amway pyramid fraud scheme seems to offer steady employment. If you are being investigated or arrested in one country or state, all you have to do is move along to another and set up shop again. Defrocked religious zealots seem to get away with doing this time and time again.
For example, Don Storms is an Executive Diamond with Amway. He is also an ex-minister, who spent 13 years traveling the country with a gospel quartet, before teaming up with Jim Bakker and becoming a senior vice president at the PTL Club. In 1979, he and wife Ruth started their Amway business. Today, Storms is a real estate developer, in addition to his Amway business, according to MLM Survior.com on July 13, 1999.
Don’s buddy, Kevin Trudeau, is a prolific marketer, but with a vary shady past. He is a twice-convicted felon and has served time in prison for credit card fraud. The FTC has prosecuted him a couple times for concocting fraudulent infomercials and at one time or another, he has been under investigations by 18 state Attorneys General, and the US Postal Service.
Trudeau was once involved with the MLM company, Nutrition for Life, Inc (NFLI). But that involvement came to an abrupt halt, after the SEC began investigating his recruitment practices. On April 17, 1996, the Illinois Attorney General filed a lawsuit against Trudeau, and his partner, for running an illegal pyramid scheme that was set up to peddle motivational books and tapes. The State of Michigan also ordered him to stop all marketing in that state related to his business the Trudeau Marketing Group (TMG).
So what do the Ex-Pastor and Ex-Con have in common? Quixtar. Their Quixtar/Trudeau connection was revealed in a spam e-mail, which stated in part:
"PLEASE CONTACT ME RIGHT AWAY! URGENT! URGENT! URGENT! DON'T LET THIS ONE GET AWAY FROM YOU. THE LARGEST, MOST EXPLOSIVE MLM OPPORTUNITY OF ALL TIME IS NOW UNDERWAY. IT IS UNIMAGINABLY HUGE. HUGE AMOUNTS OF MONEY ARE BEHIND IT, HUGE CORPORATIONS LIKE MICROSOFT AND IBM,. . .
"IT IS VITALLY IMPORTANT THAT YOU RESERVE YOUR POSITION NOW IN THE TRUDEAU TRAINING TEAM ORGANIZATION, WHICH NOW WITHOUT QUESTION THE MOST UNBELIEVABLE MLM MARKETING GROUP IN HISTORY. KEVIN TRUDEAU, WHO IS THE HUGE IN THE TV INFOMERCIAL BUSINESS WORLDWIDE, AND HIS ORGANIZATION OF INFORMERCIAL DISTRIBUTORS (TO WHICH I BELONG) ARE BUILDING AN EXCLUSIVE MARKETING ORGANIZATION IN COOPERATION WITH AND DIRECTLY DOWNLINE FROM THE BIGGEST LEADERS IN THE NETWORK MARKETING INDUSTRY TODAY, THE JODY VICTOR, DEXTER YAGER, DON STORMS, BLAINE ATHORN GROUP."
How's that for Amway name-dropping? A little research by MLM Survivor.com, revealed the following: On June 30, 1999, Trudeau placed an announcement on the TMG's voicemail system. It seems that his long-time buddy and ex-business associate, Blaine Athorne, (who fired him after his 1989 credit card fraud) hired the TMG in an exclusive relationship with his Amway/Quixtar organization.
Trudeau briefly noted his earlier job with network marketing, but claimed it was the changing dynamics in the company, which made it impossible for him to continue as a distributor. "I no longer could promote that business. . . [because of] disagreement in management."
Oh really? Could that disagreement have had something to do with his conviction for pyramid fraud, or the $1 million fine that he had to pay as a result of his infomercial fraud?
Or maybe it was about the Postal Service investigation or the umpteen investigations by state Attorneys General. Who knows?
About Quixtar, Trudeau says: "I believe in my heart of hearts is the ultimate network marketing opportunity of all times. . ." One of the claims he makes on behalf of Quixtar is: "You'll be able to buy hundreds of thousands and eventually millions of products at very good pricing -- similar to Sam's Club." Then comes the big push!
"I have chosen after multiple meetings with corporate executives, top distributors and lawyers that it would be in the best interests of everyone if I did not become a distributor in Amway or Quixtar. I have formed a company called the Trudeau Training Team. The Trudeau Training Team has signed an exclusive marketing and sales arrangement with Storms Enterprises Inc. . . Don Storms has personally sponsored my long-time friend and business associate Blaine Athorne. Blaine Athorne is going to be the founding distributor in our downline organization. . . My company has signed an exclusive marketing and sales training contract with Blaine Athorne’s distributorship and downline, and Don Storms.
"Many of the marketing strategies that I've employed in the past will be utilized in this organization."
What marketing strategy is he referring to here? Is there any other, besides the old standard run-of-the-mill pyramid scheme?
Trudeau says Don Storms is "one of the greatest network marketers of all time," and Storms says, "Kevin Trudeau's training [is] the best in the world."
So here it is for all to see, a prime example of the quality of ethical and legal behavior we can expect from Amway/Quixtar and its distributors.
More Secretive Religious Groups
Amway founder Richard DeVos is a member of the Council for National Policy (CNP). A group described as "the Most Powerful Conservative Group You've Never Heard Of," by ABC News in a May, 2004 report that noted the group's extraordinary secrecy.
If you want to do a little Republican name-dropping, just recite the names of the 500 or so members of the CNP. They include Christian Coalition president Pat Robertson; political strategist Ralph Reed; Sen Jesse Helms; Congressmen Dick Armey and Tom Delay; Gun Owners of America head Larry Pratt; Oliver North; Texas billionaire Nelson Bunker Hunt; Focus on the Family head James Dobson; and former presidential candidate Gary Bauer.
"According to a membership roster ... other notable former and current members include: Attorney General John Ashcroft and Health and Human Services Secretary Tommy Thompson. (Both are no longer members); Christian businessmen like Holland and Jeffrey Coors, of the brewing company; two of fundamentalist Christianity's most prominent end-of-the-world theologists: John Ankerberg, and Dave Breese," ABC noted.
DeVos is also a major supporter of a right-wing, Christian non-profit entity called Gospel Communications International, which has annual revenues of $6.7 million. Its Board of Directors reads like a Who’s Who of Amway kingpins, with DeVos as Chairman and his son, Doug DeVos, as Vice-Chairman. Out of 15 Directors, 10 are from Amway.
Launched in 1995, Gospel.com, claims to be the largest Christian website on the Internet. In 1999, it claimed that it had more than 780 million hits from people in 216 different countries and territories around the world.
During 1998, Gospel was responsible for showing videos and films to over 200 million people in schools, churches, homes, prisons, hospitals, and on television. To give you an idea of what kind of information was contained in those films, consider that 2 books that were being promoted on its website as of September 14, 2004, included, From Reveler to Revelation - the Journey of President George W Bush; and A Greater Freedom: Stories of Faith from Operation Iraqi Freedom, by Oliver North.
And of course no religious nutcase tale would be complete if Jerry Falwell wasn‘t mentioned. Not to worry, ole Jerry is in the loop. Amway Kingpin, Dexter Yager, not only financially supports Falwell’s Liberty University, one of Yager's sons sits on the University’s board of directors.
Dexter Yager is such a prince, that years ago, he even let Jim and Tammy Faye Bakker broadcast their religious show from his home, after they lost the PTL ministry, according to Mother Jones Magazine. What a guy.
So How Much Money Are We Talking About?
How much money are we talking about? Well first of all, Amway perks are not limited to money contributions. For example, when describing the events at the 2000 Republican Convention, the New York Times wrote, “For the party’s top underwriters, there will be an array of gold-plated events in Philadelphia, including cocktails with Gen. Colin L. Powell and an evening cruise on the Delaware River aboard the ‘Enterprise,’ the yacht owned by Richard M. DeVos, the Amway founder, who is a Bush supporter.”
Four years later on September 2, 2004, the Detroit Free Press described another boat ride. Insiders were feted aboard Dick and Betsy DeVos’ yacht at the 2004 Republican National Convention in New York, as well as Jay Van Andel’s lavish 169-footer.
Besides yachts trips, we are looking at a whole lot of money being passed around. For example, in 1994, Amway and Anschutz were the top two donors, each giving $250,000 toward a $2.5-million soft money contribution to the RNC. It was the largest single political donation on record.
In return, the Amway big-wigs are treated very well. On July 18, 1996, DeVos was honored at a $3 million Republican fundraiser, where keynote speaker, Bob Dole, paid tribute to him. A week later it was reported that Amway had donated $1.3 million to the San Diego Convention and Visitors Bureau, to pay for Republican infomercials airing on Pat Robertson's Family Channel during the convention, according to the Sept/Oct 1996, issue of Mother Jones magazine.
Although the Democrats filed a complaint and blocked the payoff, it demonstrates how one hand washes the other when it comes to Amway, the Religious Right Wing, and the Republican Party.
In the Bush/Cheney campaign 2000, Betsy DeVos, daughter-in-law of Richard DeVos, became a so-called Bush Pioneer by raising over $100,000. And overall, in 2000, Amway was the second largest contributor of soft money to the RNC, with donations totaling $1,138,500, second only to Reynolds Tobacco.
In 2004, the 527 “Progress for America” received a bundle. “The latest crop of donors includes Amway founders Richard DeVos and Jay Van Andel, who each chipped in $2 million,” reports Newsweek, “The Secret Money War,” Sept 20, 2004.
So what does Amway get in return for all this money? A lot. But most importantly, it allows Amway to operate with political protection against criminal investigations that would lead to the collapse of not only Amway, but the entire MLM industry.
Pyramid Scheme Alert Takes On The MLM
In June 2000, the first consumer advocacy group was formed that focuses directly on pyramid scheme fraud. Pyramid Scheme Alert, Inc (PSA) is a non-profit organization, founded by three activist/authors, with support and encouragement from attorneys, former regulators and private citizens all over the world.
PSA Directors, Robert FitzPatrick and Susanna Perkins, have written an excellent white paper report entitled, "The Amway Industry," which details the damaging and corrupting influence of the MLM industry on consumers and democracy. It is by far, the most thorough and comprehensive report available for people looking for information about the MLM industry. [**]
PSA also has a website that is full of information, which receives more than 150,000 hits per month. The organization provides answers to a stream of consumer inquiries each day. Several of its directors have served as expert witnesses in private and government sponsored court proceedings involving MLM companies. PSA's findings has been referenced, quoted, and featured in reports on NBC, ABC, BBC and in many newspapers and magazines around the world.
It was surely a welcome sight for consumers. For decades now, people have went up against Amway with very little success, and for good reason. Amway attorneys routinely threaten website publishers with libel suits. State Attorney General offices say they are too small and financially strapped to take on MLMs in court, and appeals to the FTC have consistently gone unanswered.
Amway Will Be In Business Until Bush Leaves Office
In light of the above, you can bet that Amway will not be closing its doors anytime soon. Its illegal scheme will remain in tact for at least as long as Bush is in the White House.
But there is one oddity about the Bush-Amway gang that Eric recently pointed out. In most cases of fraud, crooks don’t steal from their own. So this makes Amway unique, because it pays the current administration to protect a multi-billion dollar fraud that targets Conservative Christian Republicans almost exclusively.
Eric said he wondered what kind of animals would eat their own? If my memory serves me correctly, I think pigs do that.
(Second Article In A Series On Amway Scandal)
* With prior permission, this article contains a large amount of information taken directly from Eric Scheibeler's website, www.merchantsofdeception.com, and his book, Merchants of Deception.
** With prior permission, this article contains an extensive amount of information taken directly from "The Amway Industry" white paper written by Robert FitzPatrick and Susanna Perkins, Directors of PSA, and the PSA website.
IRS To Amway - The Party's Over
Evelyn Pringle January 10, 2005
Apparently, the IRS has decided that Amway distributors are having too much fun listening to tapes, reading books, and attending the same training seminars year after year after year.
In July, 2004, the United States Tax Court issued a ruling that barred 2 distributors from claiming business related tax deductions for the cost of these items.
The husband and wife distributors, Randall and Kay Ollett, have been in Amway since 1996, and have listed thousands of dollars in Amway-related business expenses on their tax returns each and every year, even though they have never showed one dime of profit.
The Tax Court has evidently decided that partying with the Amway crowd is no longer going to be funded at the tax payers expense, because when it was asked to determine whether the Olletts engaged in their Amway activity with the intent of making a profit in 1999 and 2000, it concluded that the Olletts did not have an actual and honest objective of making a profit from their distributorship, and therefore, could not deduct Amway-related expenses on their Federal Tax Return.
Olletts Kept Their Day Jobs
The Olletts began to operate a distributorship under the name of Ollett Enterprises in 1996. They were recruited into Amway by upline sponsors, David and Carole Marzke. However, both couples were ultimately members of a larger distributor network established by Bill Florence, known as the Florence organization.
The Olletts filed joint Federal income tax returns for 1999 and 2000. On their 1999 return, they listed Amway business expenses in the amount of $17,384, and a net loss of income of $1,450; in 2000 they listed expenses of $23,001, and a net loss of $3,235.
In addition to being Amway distributors, the Olletts remained employed in their regular jobs, with a combined income of $96,389 in 1999 and $98,949 in 2000. Until the court determined otherwise in 2004, they had been able to use their losses from Amway to offset the income they earned from their regular employment.
Olletts Become Their Own Best Customers
A distributor earns money by selling products and recruiting new downline distributors. Under Amway’s system, a distributor earns a performance bonus based not only on the sales volume generated by the distributor himself, but also on the sales volume generated by the distributor’s downline.
Generally speaking, the only distributors who earn large bonuses for the sale of products, are those who have built-up a large network of downline distributors. (For details on Amway's compensation method, go to the web site of Eric Scheileber, author of Merchant's of Deception, www.merchantsofdeception.com)
Like just about every other distributor in Amway, the Olletts focused most of their efforts on building their downline rather than developing a customer base and selling products. They testified that they spent 15 to 20 hours a week “prospecting, contacting, and showing the plan, and attending local meetings."
After 3 or 4 years, the Olletts still only had 5 distributors in their downline. Yet in the words of a true Amway diehard, they testified that they believed the key to success was “to meet [people] * * * and get them into this business” and that “the profit comes when you have enough people, when you’ve registered enough people."
As for selling efforts, Kay claimed she regularly spoke to prospects about ordering products. But when it came time to get honest about actual sales, she had to admit that 70-75% of the sales were for products they themselves purchased for their own use.
The Olletts became their own best customers. They purchased every kind of product imaginable, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products and a water treatment system. They even ordered food items such as health food bars and energy drinks, and clothing such as men’s socks, slacks, and sport shirts.
IRS Bans Tax Payer Funded Amway Roadtrips
For 1999 and 2000, the Olletts claimed $15,122 in tax deductions for travel expenses to attend training seminars hosted by the Florence organization. They claimed that they attended the functions in order to learn how to build a successful distributor network.
They testified that by 1999 they had decided they were going to spend “whatever it took to go to those meetings." And they meant it, because in 1999, they listed a deduction of $6000 for a Cadillac to drive to functions because Kay didn't like to fly. They also claimed travel expenses for hotels, meals, and the cost of tickets for the events.
In 1999, they listed expenses for seminars like: Dream Weekend in Birmingham, AL; Florence Spring Leadership Conference in Chattanooga, TN; Weekend of the Diamonds in Charlotte, NC; Florence Family Reunion in Tampa City, FL; a training on cosmetics sponsored by Florence Enterprises in Columbia, SC; a free enterprise celebration in St Louis, MO; and Florence Fall Leadership conference in Knoxville, TN.
In addition, the Olletts listed travel expenses for trips allegedly made to “show the plan” to prospective recruits, even though they enlisted no recruits during any of the trips.
They continued their business-related travel in 2000 and attended training seminars in Atlanta, GA; Knoxville, TN; Greensboro, NC; a Renaissance hotel at an unspecified location; Columbia, SC; and a seminar in Atlanta, GA a second time.
The Olletts continued to travel all over the country to attend the training seminars long after it became evident that the training had not improved their ability to sell products or recruit their own network of distributors. The court noted that losses incurred in the initial stages of a business may be expected, but losses that continue without explanation beyond that period typically indicate a lack of a profit objective.
The court wanted to know why the trips were always to events where the Olletts met up with the same people year after year, and why they still found it necessary to attend so many training seminars during their third and fourth years in Amway. It decided the answer was that the Olletts were enjoying the social aspects of the trips, and using Amway as a device to deduct personal expenses as business expenses.
For instance, the court noted that on two occasions, the Olletts drove to Champaign, Ill, where their daughter attended college and tried to claim the trips as a business expense: Randall testified: "The fact that I was going to use my business car to transport [personal] effects down there meant I made sure that I would have somebody to show the plan to."
They again tried to claim a deduction in 1999, for a trip they took to Chattanooga, TN, where their parents lived. Randall testified that the expense was justified: "Because I used my business car, I made sure that I prospected and tried to--made contacts with people in Chattanooga." The court didn't buy it.
In 1999 and 2000, the Olletts also listed a $4,081 deduction for books, tapes, and other materials. They claimed these items were part of Amway’s training program and that they were instructed to purchase them by their upline.
The Olletts offered no indication of how long they expected the IRS to allow them to claim tax deductions for a business that was clearly never going to turn a profit. When the court asked Randall how he intended to turn their losses into profits, his response was basically keep on truckin: "The only way I can solve it is to talk to more people. And there, in essence, is the challenge that I have, which is finding those people," he said.
What Constitutes A Legitimate Business-Related Expense?
Under rules in the Federal Tax Code, Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business. The Olletts had the burden of proving entitlement to a business expense deduction. The deductibility of their Amway expenses depended on whether their activity was engaged in for profit.
In determining whether an activity is engaged in for profit, Section 183 provides a list of factors for the court to consider: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer’s history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.
After considering these factors, the court determined that the Olletts did not have an actual and honest objective of making a profit, in part because: (1) they did not have any sales experience prior to becoming distributors and yet they relied solely on their upline for advice and training; (2) they did not seek independent business advice at the beginning of their venture to assess its potential for success; and (3) they did not seek advice on turning around years of operating losses.
But most importantly, the court said, the Olletts reported no significant revenue from their Amway activity and no reason for them to believe they ever were going to have any significant revenue from this activity.
Pay The Tab -- The Party's Over
In its final ruling, the court determined that the Olletts "repeatedly used their Amway activity as an attempt to mask obviously personal expenses as deductible business expenses. In effect they attempted to live a deductible lifestyle. The conferences at times of the year associated with vacation and recreation are consistent with this same mindset."
Because of the manner in which the Olletts carried on their Amway activity, the lack of revenue, and the size and persistence of the continuing losses, the court ruled that their activity was not carried on for profit, and therefore, they could not deduct their losses from that activity from income earned through their regular employment
This ruling may turn out to be a blessing in disguise for the millions of distributors who only survive in Amway because they can deduct their Amway losses (aka expenses) from the income earned in their real jobs. If the IRS bars these deductions once and for all, the victims of Amway will be forced to face fact that they will never make a dime off this pyramid scheme.
Apparently, the IRS has decided that Amway distributors are having too much fun listening to tapes, reading books, and attending the same training seminars year after year after year.
In July, 2004, the United States Tax Court issued a ruling that barred 2 distributors from claiming business related tax deductions for the cost of these items.
The husband and wife distributors, Randall and Kay Ollett, have been in Amway since 1996, and have listed thousands of dollars in Amway-related business expenses on their tax returns each and every year, even though they have never showed one dime of profit.
The Tax Court has evidently decided that partying with the Amway crowd is no longer going to be funded at the tax payers expense, because when it was asked to determine whether the Olletts engaged in their Amway activity with the intent of making a profit in 1999 and 2000, it concluded that the Olletts did not have an actual and honest objective of making a profit from their distributorship, and therefore, could not deduct Amway-related expenses on their Federal Tax Return.
Olletts Kept Their Day Jobs
The Olletts began to operate a distributorship under the name of Ollett Enterprises in 1996. They were recruited into Amway by upline sponsors, David and Carole Marzke. However, both couples were ultimately members of a larger distributor network established by Bill Florence, known as the Florence organization.
The Olletts filed joint Federal income tax returns for 1999 and 2000. On their 1999 return, they listed Amway business expenses in the amount of $17,384, and a net loss of income of $1,450; in 2000 they listed expenses of $23,001, and a net loss of $3,235.
In addition to being Amway distributors, the Olletts remained employed in their regular jobs, with a combined income of $96,389 in 1999 and $98,949 in 2000. Until the court determined otherwise in 2004, they had been able to use their losses from Amway to offset the income they earned from their regular employment.
Olletts Become Their Own Best Customers
A distributor earns money by selling products and recruiting new downline distributors. Under Amway’s system, a distributor earns a performance bonus based not only on the sales volume generated by the distributor himself, but also on the sales volume generated by the distributor’s downline.
Generally speaking, the only distributors who earn large bonuses for the sale of products, are those who have built-up a large network of downline distributors. (For details on Amway's compensation method, go to the web site of Eric Scheileber, author of Merchant's of Deception, www.merchantsofdeception.com)
Like just about every other distributor in Amway, the Olletts focused most of their efforts on building their downline rather than developing a customer base and selling products. They testified that they spent 15 to 20 hours a week “prospecting, contacting, and showing the plan, and attending local meetings."
After 3 or 4 years, the Olletts still only had 5 distributors in their downline. Yet in the words of a true Amway diehard, they testified that they believed the key to success was “to meet [people] * * * and get them into this business” and that “the profit comes when you have enough people, when you’ve registered enough people."
As for selling efforts, Kay claimed she regularly spoke to prospects about ordering products. But when it came time to get honest about actual sales, she had to admit that 70-75% of the sales were for products they themselves purchased for their own use.
The Olletts became their own best customers. They purchased every kind of product imaginable, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products and a water treatment system. They even ordered food items such as health food bars and energy drinks, and clothing such as men’s socks, slacks, and sport shirts.
IRS Bans Tax Payer Funded Amway Roadtrips
For 1999 and 2000, the Olletts claimed $15,122 in tax deductions for travel expenses to attend training seminars hosted by the Florence organization. They claimed that they attended the functions in order to learn how to build a successful distributor network.
They testified that by 1999 they had decided they were going to spend “whatever it took to go to those meetings." And they meant it, because in 1999, they listed a deduction of $6000 for a Cadillac to drive to functions because Kay didn't like to fly. They also claimed travel expenses for hotels, meals, and the cost of tickets for the events.
In 1999, they listed expenses for seminars like: Dream Weekend in Birmingham, AL; Florence Spring Leadership Conference in Chattanooga, TN; Weekend of the Diamonds in Charlotte, NC; Florence Family Reunion in Tampa City, FL; a training on cosmetics sponsored by Florence Enterprises in Columbia, SC; a free enterprise celebration in St Louis, MO; and Florence Fall Leadership conference in Knoxville, TN.
In addition, the Olletts listed travel expenses for trips allegedly made to “show the plan” to prospective recruits, even though they enlisted no recruits during any of the trips.
They continued their business-related travel in 2000 and attended training seminars in Atlanta, GA; Knoxville, TN; Greensboro, NC; a Renaissance hotel at an unspecified location; Columbia, SC; and a seminar in Atlanta, GA a second time.
The Olletts continued to travel all over the country to attend the training seminars long after it became evident that the training had not improved their ability to sell products or recruit their own network of distributors. The court noted that losses incurred in the initial stages of a business may be expected, but losses that continue without explanation beyond that period typically indicate a lack of a profit objective.
The court wanted to know why the trips were always to events where the Olletts met up with the same people year after year, and why they still found it necessary to attend so many training seminars during their third and fourth years in Amway. It decided the answer was that the Olletts were enjoying the social aspects of the trips, and using Amway as a device to deduct personal expenses as business expenses.
For instance, the court noted that on two occasions, the Olletts drove to Champaign, Ill, where their daughter attended college and tried to claim the trips as a business expense: Randall testified: "The fact that I was going to use my business car to transport [personal] effects down there meant I made sure that I would have somebody to show the plan to."
They again tried to claim a deduction in 1999, for a trip they took to Chattanooga, TN, where their parents lived. Randall testified that the expense was justified: "Because I used my business car, I made sure that I prospected and tried to--made contacts with people in Chattanooga." The court didn't buy it.
In 1999 and 2000, the Olletts also listed a $4,081 deduction for books, tapes, and other materials. They claimed these items were part of Amway’s training program and that they were instructed to purchase them by their upline.
The Olletts offered no indication of how long they expected the IRS to allow them to claim tax deductions for a business that was clearly never going to turn a profit. When the court asked Randall how he intended to turn their losses into profits, his response was basically keep on truckin: "The only way I can solve it is to talk to more people. And there, in essence, is the challenge that I have, which is finding those people," he said.
What Constitutes A Legitimate Business-Related Expense?
Under rules in the Federal Tax Code, Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business. The Olletts had the burden of proving entitlement to a business expense deduction. The deductibility of their Amway expenses depended on whether their activity was engaged in for profit.
In determining whether an activity is engaged in for profit, Section 183 provides a list of factors for the court to consider: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer’s history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.
After considering these factors, the court determined that the Olletts did not have an actual and honest objective of making a profit, in part because: (1) they did not have any sales experience prior to becoming distributors and yet they relied solely on their upline for advice and training; (2) they did not seek independent business advice at the beginning of their venture to assess its potential for success; and (3) they did not seek advice on turning around years of operating losses.
But most importantly, the court said, the Olletts reported no significant revenue from their Amway activity and no reason for them to believe they ever were going to have any significant revenue from this activity.
Pay The Tab -- The Party's Over
In its final ruling, the court determined that the Olletts "repeatedly used their Amway activity as an attempt to mask obviously personal expenses as deductible business expenses. In effect they attempted to live a deductible lifestyle. The conferences at times of the year associated with vacation and recreation are consistent with this same mindset."
Because of the manner in which the Olletts carried on their Amway activity, the lack of revenue, and the size and persistence of the continuing losses, the court ruled that their activity was not carried on for profit, and therefore, they could not deduct their losses from that activity from income earned through their regular employment
This ruling may turn out to be a blessing in disguise for the millions of distributors who only survive in Amway because they can deduct their Amway losses (aka expenses) from the income earned in their real jobs. If the IRS bars these deductions once and for all, the victims of Amway will be forced to face fact that they will never make a dime off this pyramid scheme.
Amway - Modern Day Teflon Don
Evelyn Pringle January 13, 2005
The paperwork involved in the endless stream of lawsuits filed against Amway and its Kingpin distributors over the past 2 decades would probably fill a 10 story office building. The complaints and discovery documents filed in these actions, which Amway has fought so hard to keep hidden, outline 20 years of fraud perpetrated on millions of unwitting and vulnerable recruits all over the world.
There have been so many suits filed, that the company's attorneys can't even come up with an exact number. In 1985, Amway Diamond Rick Setzer sued Amway. During the discovery process, in a request for production of documents, Setzer's attorneys asked for:
"Copies of all lawsuits filed against Amway corporation and or Richard DeVos and or Jay VanAndel for the past 10 years."
This was Amway's response, in part:
"The request imposes an undue burden in that the number of lawsuits filed against Amway Corporation and/or Richard DeVos and/or Jay Van Andel for the past ten years represents literally thousands of lawsuits, with the file on each lawsuit varying from several pages to entire rooms filled with documentation." Affidavit in Support of Defendants' Objections to Plaintiffs' First Request For Production of Documents.
Even if "thousands" only means 2000, over 10 years that means 200 law suits were filed each year. That number is astronomical when you consider that the number of distributors who actually go so far as to file a lawsuit is but a small percentage of the actual number of distributors who fall victim to Amway each year.
If people took the time to read the records contained in these lawsuits, they would find a common theme: Amway is a pyramid scheme; the tools business is a pyramid scheme; recruits are lured in by exaggerated income claims and flamboyant displays of wealth; retail selling is ignored in favor of self-consumption of Amway products; distributors and potential distributors are pressured to buy tools and tickets to motivational rallies.
Founder Jay Van Andel's former speechwriter, Don Gregory, described how Amway preys on new recruits. "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same," he said.
Eric Scheibeler is a former Amway insider turned whistleblower and FBI witness who has written a book about his experiences in Amway, entitled Merchants of Deception. (A free advance copy of the book, Merchant's of Deception, may be downloaded for a limited time at www.merchantsofdeception.com).
According to Eric, the 1970 FTC ruling requires that the majority of products going through a MLM must be sold to an end consumer (a non distributor) in order to not be considered an illegal pyramid scheme. This is referred to as the retail sales rule. Yet Eric says that he and his wife were taught to build a business that relied almost entirely on self consumption, which he has since learned is illegal.
A prime example of this excessive sales for self-consumption is still going on today, 30 years after the FTC issued its ruling, is the July, 2004, IRS case against Amway distributors, Kay and Randall Ollett. When testifying, Kay told the court that about 70-75% of their sales were a result of products purchased by her and her husband for their own use. The Olletts purchased almost all of their household products through their distributorship, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products, food items such as health food bars and energy drinks, a water treatment system, and even clothing such as men’s socks, slacks, and sport shirts.
The Tax Court ruled against the Olletts and would not allow the couple to claim tax deductions for expenses related to their Amway activity.
Eric also explains how the "tools" business of selling books, tapes, and videos is also an illegal pyramid because it is a closed system and no product is ever sold at retail to a consumer outside the group. Which means recruits unknowingly become involved in not one, but two illegal pyramids, when they join Amway, according to Eric.
The downline distributors are never told that their upline is making as much or more from the sale of tools as they are from the sale of products. The distributors assume that the lifestyles of their upline are attributable to their Amway businesses, and buy more tools hoping to achieve the same success.
So it becomes a never-ending cycle: the more tools the downline distributors buy, the more successful upline distributors appear; which in turn motivates downline distributors to buy more tools. Over 99% of low level distributors eventually quit, or go broke trying to hang on long enough reach a level where they too can get a cut of the tools profits.
In the 1998 New Hampshire case of Lavoie v Yager, Ruby directs alleged that their upline cut them off from the tools profits, and also alleged unfair trade practices, illegal chain distribution scheme, interference with advantageous relations, securities fraud, under the RICO Act. The complaint in this case is unique in that it contains details on the inner working of Kingpin Dexter Yager's system, and it also follows the progression of a distributor through the system.
Another wealth of insider information can be found in the 1998 Morrison v Amway suit. 29 distributors filed a lawsuit and revealed many of Amway's best-kept secrets. The suit alleges that the distributors make the majority of their income selling tools rather than products and that distributors in the downlines are coerced into spending money on tapes and functions by being told that they have no chance of success unless they do. It also alleges that tools profits are used to control and coerce downline distributors, and that those who ask questions or refuse to play the game risk having their businesses destroyed
The 1998 Vernon v Amway case seems to substantiate Eric Scheileber's claim that Amway recruits unknowingly become part of 2 illegal schemes when they join Amway. This case sought damages incurred by: fraudulent inducement in causing plaintiffs to participate in an illegal scheme to purchase and sell motivational tapes and tickets to Amway events; and conspiracy to fraudulently induce them to enter into an agreement to execute what they believed to be an Amway Sales Plan.
Teflon Amway
In addition to all the schemes described in the 1000s of complaints filed in civil suits, Amway’s long history of illegal activity is also well documented in criminal court files. In fact, one particularly scathing report compared the Amway business structure to the business structure of organized crime groups and found them nearly identical.
The report was submitted by an expert witness in a lawsuit filed back 1998, but Amway was able to keep it hidden until early 2004 when it suddenly began showing up on the internet. Here's what Amway does not want you to know. After an in-depth study of Amway business practices, the nation’s foremost organized crime expert, Professor G Robert Blakey, reached the following conclusion:
“It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.”
It should be noted that Blakey has impeccable credentials as an authority on organized crime. His legislative drafting experience resulted in the passage of the Organized Crime Control Act of 1970 (RICO). He was also directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
Wisconsin Attorney General Takes On Amway
As far back as the early 1980s, Amway was warned that the media and law enforcement agents were monitoring its conduct in a number of states. One internal memo that surfaced in a lawsuit, dated December, 1982, to Jay Van Andel, from Casey Wondergen, was titled: Subject: Distributor Activities Drawing Legal and Media Heat On Amway.
The memo specifically notified Amway leaders that the company was being investigated by Attorneys General in Wisconsin, California, Oregon, Minnesota, New York, and possibly New Jersey and Connecticut.
The state with the most active investigation was Wisconsin. The attorney general’s office conducted an in-depth investigation and determined that Amway: (1) Did not accurately portray the income experience of persons who had participated in the business under the current Compensation Plan, and (2) Did not indicate the percentage of persons who had actually achieved the earnings levels being used as illustrations, and therefore, Amway had violated Wisconsin’s trade practices law.
The attorney general determined that the actual average annual adjusted gross income for each of the approximately 20,000 Wisconsin distributorships was $267, or 2.2% of the projected $12,000 income. During 1979-1980, only about 139, or less than 1%, had an adjusted gross income in excess of $12,000. In fact, the average net income (after expenses) was a net loss of $918. (State of Wisconsin v Amway Corporation et al, 7/82).
In response to his findings, the attorney general obtained a consent agreement requiring Amway to disclose actual sales and actual income or profit experiences of active Representatives when it used hypothetical examples. The agreement required Amway to disclose the percentage of Representatives who actually had achieved any level of performance which was being used for illustrative purposes.
Amway was further required to disclose the percentage of active Representatives versus those who had become inactive. A number of distributors were also fined for illegal misrepresentation of income.
FTC Takes On Amway
In 1979, the FTC rendered a determination in response to charges that Amway's claims about the amount of money distributors earned had the capacity to deceive potential distributors. As a result, an order was issued that prohibited Amway from misrepresenting the amount of profit, earnings or sales its distributors were likely to achieve. The order also required that whenever Amway made above-average earnings or sales claims, it had to also disclose clearly and conspicuously either the average earnings of all distributors or the percent of distributors who actually earn the amount claimed.
In 1983, the FTC took Amway back to court after it determined that the company had violated the 1979 order by placing an ad in major newspapers that represented the earnings of distributors without the required disclosures. The FTC complaint charged that the ad contained earnings and sales claims that were higher than the average income earned in any recent year. In addition, it charged Amway with violating the 1979 order for failing to include a clear and conspicuous disclosures in the ad of the average earnings or sales of all distributors or the percent of distributors who actually achieved the results claimed. Amway was $100,000.
Canada Takes On Amway
In 1983, Amway was involved in another criminal case in Canada. Canadian authorities charged that Amway set up dummy companies and created fictitious trade between them to get customs to accept a lower value for goods. The company was charged with evading duties and taxes by using false invoices to misrepresent the value of products it shipped across the border.
Key documents used in the fraud were provided to Canadian authorities by whistle blower, Dorothy Edgar, who was an executive secretary to Edward Engel, Amway's then vice-president of finance. Engel learned of the fraud in late 1977, and urged Amway to disclose it to Revenue Canada. When Amway refused, Engel and Edgar resigned.
In response to the charges, Amway and Amway Canada Ltd agreed to plead guilty to charges of defrauding the Canadian Government and were fined $20 million. As part of the plea bargain, Amway was required to sign a statement acknowledging that the allegations by the Canadian government were "substantially correct.” All total, Canada billed Amway $148 million in back customs, duties, taxes and penalties.
In 1989, the Canadian authorities took Amway back to court to collect the back duties, fees, and fines that the company had agreed to pay in the 1983 settlement agreement. Although the Canadian department of Revenue claimed Amway owed $148 million, the case was finally settled for $45 million.
Eight years later in 1996, the Canadian government took on Amway again to challenged its attempt to claim a tax deduction for fines it paid for the 1983 criminal conviction on tax fraud. The court ruled that Amway could not treat the fines paid for tax evasion as a tax deductible expense.
When considering the validity of the 20-year stream of lawsuits against Amway, a person surely has to wonder why thousands upon thousands of people would make up the same lie.
The paperwork involved in the endless stream of lawsuits filed against Amway and its Kingpin distributors over the past 2 decades would probably fill a 10 story office building. The complaints and discovery documents filed in these actions, which Amway has fought so hard to keep hidden, outline 20 years of fraud perpetrated on millions of unwitting and vulnerable recruits all over the world.
There have been so many suits filed, that the company's attorneys can't even come up with an exact number. In 1985, Amway Diamond Rick Setzer sued Amway. During the discovery process, in a request for production of documents, Setzer's attorneys asked for:
"Copies of all lawsuits filed against Amway corporation and or Richard DeVos and or Jay VanAndel for the past 10 years."
This was Amway's response, in part:
"The request imposes an undue burden in that the number of lawsuits filed against Amway Corporation and/or Richard DeVos and/or Jay Van Andel for the past ten years represents literally thousands of lawsuits, with the file on each lawsuit varying from several pages to entire rooms filled with documentation." Affidavit in Support of Defendants' Objections to Plaintiffs' First Request For Production of Documents.
Even if "thousands" only means 2000, over 10 years that means 200 law suits were filed each year. That number is astronomical when you consider that the number of distributors who actually go so far as to file a lawsuit is but a small percentage of the actual number of distributors who fall victim to Amway each year.
If people took the time to read the records contained in these lawsuits, they would find a common theme: Amway is a pyramid scheme; the tools business is a pyramid scheme; recruits are lured in by exaggerated income claims and flamboyant displays of wealth; retail selling is ignored in favor of self-consumption of Amway products; distributors and potential distributors are pressured to buy tools and tickets to motivational rallies.
Founder Jay Van Andel's former speechwriter, Don Gregory, described how Amway preys on new recruits. "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same," he said.
Eric Scheibeler is a former Amway insider turned whistleblower and FBI witness who has written a book about his experiences in Amway, entitled Merchants of Deception. (A free advance copy of the book, Merchant's of Deception, may be downloaded for a limited time at www.merchantsofdeception.com).
According to Eric, the 1970 FTC ruling requires that the majority of products going through a MLM must be sold to an end consumer (a non distributor) in order to not be considered an illegal pyramid scheme. This is referred to as the retail sales rule. Yet Eric says that he and his wife were taught to build a business that relied almost entirely on self consumption, which he has since learned is illegal.
A prime example of this excessive sales for self-consumption is still going on today, 30 years after the FTC issued its ruling, is the July, 2004, IRS case against Amway distributors, Kay and Randall Ollett. When testifying, Kay told the court that about 70-75% of their sales were a result of products purchased by her and her husband for their own use. The Olletts purchased almost all of their household products through their distributorship, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products, food items such as health food bars and energy drinks, a water treatment system, and even clothing such as men’s socks, slacks, and sport shirts.
The Tax Court ruled against the Olletts and would not allow the couple to claim tax deductions for expenses related to their Amway activity.
Eric also explains how the "tools" business of selling books, tapes, and videos is also an illegal pyramid because it is a closed system and no product is ever sold at retail to a consumer outside the group. Which means recruits unknowingly become involved in not one, but two illegal pyramids, when they join Amway, according to Eric.
The downline distributors are never told that their upline is making as much or more from the sale of tools as they are from the sale of products. The distributors assume that the lifestyles of their upline are attributable to their Amway businesses, and buy more tools hoping to achieve the same success.
So it becomes a never-ending cycle: the more tools the downline distributors buy, the more successful upline distributors appear; which in turn motivates downline distributors to buy more tools. Over 99% of low level distributors eventually quit, or go broke trying to hang on long enough reach a level where they too can get a cut of the tools profits.
In the 1998 New Hampshire case of Lavoie v Yager, Ruby directs alleged that their upline cut them off from the tools profits, and also alleged unfair trade practices, illegal chain distribution scheme, interference with advantageous relations, securities fraud, under the RICO Act. The complaint in this case is unique in that it contains details on the inner working of Kingpin Dexter Yager's system, and it also follows the progression of a distributor through the system.
Another wealth of insider information can be found in the 1998 Morrison v Amway suit. 29 distributors filed a lawsuit and revealed many of Amway's best-kept secrets. The suit alleges that the distributors make the majority of their income selling tools rather than products and that distributors in the downlines are coerced into spending money on tapes and functions by being told that they have no chance of success unless they do. It also alleges that tools profits are used to control and coerce downline distributors, and that those who ask questions or refuse to play the game risk having their businesses destroyed
The 1998 Vernon v Amway case seems to substantiate Eric Scheileber's claim that Amway recruits unknowingly become part of 2 illegal schemes when they join Amway. This case sought damages incurred by: fraudulent inducement in causing plaintiffs to participate in an illegal scheme to purchase and sell motivational tapes and tickets to Amway events; and conspiracy to fraudulently induce them to enter into an agreement to execute what they believed to be an Amway Sales Plan.
Teflon Amway
In addition to all the schemes described in the 1000s of complaints filed in civil suits, Amway’s long history of illegal activity is also well documented in criminal court files. In fact, one particularly scathing report compared the Amway business structure to the business structure of organized crime groups and found them nearly identical.
The report was submitted by an expert witness in a lawsuit filed back 1998, but Amway was able to keep it hidden until early 2004 when it suddenly began showing up on the internet. Here's what Amway does not want you to know. After an in-depth study of Amway business practices, the nation’s foremost organized crime expert, Professor G Robert Blakey, reached the following conclusion:
“It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.”
It should be noted that Blakey has impeccable credentials as an authority on organized crime. His legislative drafting experience resulted in the passage of the Organized Crime Control Act of 1970 (RICO). He was also directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
Wisconsin Attorney General Takes On Amway
As far back as the early 1980s, Amway was warned that the media and law enforcement agents were monitoring its conduct in a number of states. One internal memo that surfaced in a lawsuit, dated December, 1982, to Jay Van Andel, from Casey Wondergen, was titled: Subject: Distributor Activities Drawing Legal and Media Heat On Amway.
The memo specifically notified Amway leaders that the company was being investigated by Attorneys General in Wisconsin, California, Oregon, Minnesota, New York, and possibly New Jersey and Connecticut.
The state with the most active investigation was Wisconsin. The attorney general’s office conducted an in-depth investigation and determined that Amway: (1) Did not accurately portray the income experience of persons who had participated in the business under the current Compensation Plan, and (2) Did not indicate the percentage of persons who had actually achieved the earnings levels being used as illustrations, and therefore, Amway had violated Wisconsin’s trade practices law.
The attorney general determined that the actual average annual adjusted gross income for each of the approximately 20,000 Wisconsin distributorships was $267, or 2.2% of the projected $12,000 income. During 1979-1980, only about 139, or less than 1%, had an adjusted gross income in excess of $12,000. In fact, the average net income (after expenses) was a net loss of $918. (State of Wisconsin v Amway Corporation et al, 7/82).
In response to his findings, the attorney general obtained a consent agreement requiring Amway to disclose actual sales and actual income or profit experiences of active Representatives when it used hypothetical examples. The agreement required Amway to disclose the percentage of Representatives who actually had achieved any level of performance which was being used for illustrative purposes.
Amway was further required to disclose the percentage of active Representatives versus those who had become inactive. A number of distributors were also fined for illegal misrepresentation of income.
FTC Takes On Amway
In 1979, the FTC rendered a determination in response to charges that Amway's claims about the amount of money distributors earned had the capacity to deceive potential distributors. As a result, an order was issued that prohibited Amway from misrepresenting the amount of profit, earnings or sales its distributors were likely to achieve. The order also required that whenever Amway made above-average earnings or sales claims, it had to also disclose clearly and conspicuously either the average earnings of all distributors or the percent of distributors who actually earn the amount claimed.
In 1983, the FTC took Amway back to court after it determined that the company had violated the 1979 order by placing an ad in major newspapers that represented the earnings of distributors without the required disclosures. The FTC complaint charged that the ad contained earnings and sales claims that were higher than the average income earned in any recent year. In addition, it charged Amway with violating the 1979 order for failing to include a clear and conspicuous disclosures in the ad of the average earnings or sales of all distributors or the percent of distributors who actually achieved the results claimed. Amway was $100,000.
Canada Takes On Amway
In 1983, Amway was involved in another criminal case in Canada. Canadian authorities charged that Amway set up dummy companies and created fictitious trade between them to get customs to accept a lower value for goods. The company was charged with evading duties and taxes by using false invoices to misrepresent the value of products it shipped across the border.
Key documents used in the fraud were provided to Canadian authorities by whistle blower, Dorothy Edgar, who was an executive secretary to Edward Engel, Amway's then vice-president of finance. Engel learned of the fraud in late 1977, and urged Amway to disclose it to Revenue Canada. When Amway refused, Engel and Edgar resigned.
In response to the charges, Amway and Amway Canada Ltd agreed to plead guilty to charges of defrauding the Canadian Government and were fined $20 million. As part of the plea bargain, Amway was required to sign a statement acknowledging that the allegations by the Canadian government were "substantially correct.” All total, Canada billed Amway $148 million in back customs, duties, taxes and penalties.
In 1989, the Canadian authorities took Amway back to court to collect the back duties, fees, and fines that the company had agreed to pay in the 1983 settlement agreement. Although the Canadian department of Revenue claimed Amway owed $148 million, the case was finally settled for $45 million.
Eight years later in 1996, the Canadian government took on Amway again to challenged its attempt to claim a tax deduction for fines it paid for the 1983 criminal conviction on tax fraud. The court ruled that Amway could not treat the fines paid for tax evasion as a tax deductible expense.
When considering the validity of the 20-year stream of lawsuits against Amway, a person surely has to wonder why thousands upon thousands of people would make up the same lie.
Bush Controls FTC While Amway Rips Off Millions
Evelyn Pringle January 17, 2005
Every year, Amway rips of millions of people all over the world through a secret pyramid scheme that will no doubt continue for as long as Bush is in office and controls the Federal Trade Commission.
The scheme was the subject of the May 7, 2004, edition of NBC's Dateline, when it aired an expose that revealed that the main income of the Amway kingpins does not come from the sale of products, that it comes from the sale of books, tapes and seminars tickets (also known as "tools"), in a secret program operating under the cover of the Amway sales organization.
Dateline determined that about 20 high level distributors are part of an exclusive club that has "run hugely profitable businesses, selling all those books, tapes and seminars -- things the rank and file distributors can't sell themselves, but are told over and over again they need to buy in order to succeed," it reported.
Its easy to understand how people get roped in. They are told they can make millions of dollars by working part-time. Dateline reporters took hidden cameras to an Amway recruitment meeting and the first thing they heard was how easy it was to make big money in Amway. Dateline's Producer, Tim Sandler, posed as a member of the audience, and listed as speaker Greg Fredericks, said:
“If you're somewhat serious, all I mean by somewhat serious -- if you invest maybe, say, 10 to 15 hours a week in your business. This is your own business -- you could generate in the next 12 to 18 months, an extra quarter of a million.”
Sandler asked, “How much?” And Fredericks repeated, “A quarter million.”
Sandler again asked, “You're making more than $250,000 -- quarter of a million?” And Fredericks said, “Umm hmm.”
Former high-level distributor turned whistle-blower, Eric Scheileber, tells how he listened to the claims of the Amway kingpins and took the bait - hook, line and sinker. “I thought if I could create a six figure income and spend time with my family, I'd do anything for that,” he told Dateline.
"But instead of a life of leisure and more time with his family, he says he worked day and night, buying the tapes, attending the rallies. Still, he made nowhere near the six figure salary ... in his best year he made $34,000 and even that didn't last," Dateline reported.
(Eric has launched the website www.merchantsofdeception.com, and written the book, Merchants of Deception, which reveals the details of the secret tool business. A free advance copy of the book is available for a limited time on his website).
Vicki and Lindy Mack had a similar tale, "they not only didn't make money, they lost more than $35,000 over a five year period. Much of it on books, tapes, and traveling to rallies."
How Does The Scheme Work?
First off, new recruits are told to quit shopping at stores; to use Amway products only. According to Eric, the company assigns a point value (PV) to all products and the average distributor's household is expected to personally self-consume 100 PV, or between $175-$450. Now keep in mind, that Amway convinces hundreds of thousands of people to do this each year.
Which brings us to the next step. The new distributors are then sent out to recruit other people to do the same thing. But the sale of products is not the source of the large income. The sale of the so-called "tools" is. Upon joining the company, a recruit is given a list of hundreds of books and tapes, which is described as the motivational system that is the key to success in Amway.
The next step to become a distributor, is to develop a goal sheet with the emphasis on selling more and more tools each month. However, in order to sell tools, the recruit must convince other people to join and create a downline group to buy the tools, because they can only be sold to other Amway distributors.
How many people will he have to recruit? Well for starters, if the goal is 4000 PV a month, he would need 50 people in his group. But if he set his sights on becoming a Profit Sharing Direct (Direct), that requires doing 7500 PV ($15,000) for 6 months in a row. As a Direct, Eric says a distributor is told he will be making over $50,000 a year in a business structured 9-4-2; which means, you sponsor 9 people, who each sponsor four people, who each sponsor two, all of whom do a monthly volume of 100 PV.
To give you an idea of what this would entail, to reach this goal, a distributor would need 80 people in his downline. But there's much more to it than simply getting 80 people to join Amway. To move 7500 PV, the distributor would need to sell the tape of the week to 40 people - every week. He would also need to sell 200 more tapes, 75 books, and 16 kits, and 25 boards and easels.
And on top of all that, according to Eric, he would have to get 40 distributorships to buy tickets to monthly seminars, which translates into 80 tickets, since the distributorships are usually run by married couples. After hearing all this, its not hard to figure out why 99% of all Amway recruits never make a dime.
But it gets worse. In order to move up to the next level and become a Pearl, a distributor has to help 3 separate groups do 7500 in volume in one month. This is no small feat; 22,500 PV amounts to about $50,000.
However, here's the kicker, this is the level a distributor must reach, before he receives a bonus based on the tools sold to his downline each month. The bonus is usually between 2 and 4% of the total BV in the group. Very few distributors ever make it to this level.
The month the Scheilebers went Pearl, their downline moved nearly $70,000 in goods. "This was where "the big money" was to kick in," Eric said, "We could not wait to get the check that month. ... we carried the mail in to our kitchen and opened the envelope together. We were shocked at what we saw. Our bonus ... amounted to about $64 dollars.
At this level, distributors are led to believe they will be making $80-100,000. However, even though the Scheilebers were working a combined 100 hours most weeks, their income was still only about $20,000 for that year.
Isn't There A Law Against Pyramid Schemes?
There is supposed to be a law against pyramid schemes. But its rarely enforced against its namesake, which happens to be Amway. In 1979, as a result of a case against Amway, the FTC issued 3 rules that companies had to follow as a guard against pyramid scheme fraud: (1) 70% of the products sold had to be sold to retail customers; (2) distributors had to maintain a base of 10 retail customers; and (3) if a distributor quit, the company had to buy back its inventory.
However, as the FTC prosecuted new pyramid cases in the 1990's, the law became refined, after many defendants claimed innocence by stating that they had adopted the inventory buy-back policy, the 70% rule, and the 10 customer rule deemed acceptable in Amway. This prompted the appellate court in Webster v Omnitrition Int'l, Inc, to point out that the "70% rule" and "10 customer rule" are meaningless if commissions are paid based on a distributor's wholesale sales (which are only sales to new recruits), and not based on actual retail sales. (Statement of Debra Valentine, General Counsel for the FTC, on Pyramid Schemes, May 13, 1998)
As it stands now, although the law's namesake remains the number one culprit when it comes to pyramid schemes, the company is allowed to flourish in blatant violation of every rule set forth in the 1979 FTC Amway law.
What Did Amway Know and When Did It Know It?
The various documents that have surfaced during discovery in lawsuits against Amway over the past 25 years, reveal that by the early '80s, Amway knew about the tool pyramids and knew they were illegal. An internal memo from the District Court in Cincinnati, entitled Amway Distributor Compliance With The Code Of Ethics And Rules Of Conduct warned the Amway hierarchy about the illegal systems when it reported:
"Widespread illegalities inherent in Amway distributor designed "systems" of tapes, books, and rallies. While most of these "systems" were conceived in the late 1960's and early 1970's as genuine "support" programs ... entrepreneurial "higher pins" discovered and developed programs for substantial, separate, additional income, under the Amway "umbrella,"" it said.
Another 1982 memo, to the Amway Policy Committee, entitled Challenge of the 80s, warned "how these "support systems" escalated to what we believe is now a threat to the future security of Amway Corporation, at least in the United States." It specifically stated, "... these "tools/systems" are illegal, per se, under several U.S. federal and state laws."
The Challenge memo, in part, listed the following problems: (1) That operating and/or participating in a ... scheme involving only non-consumer items - particularly motivational tapes - violates state pyramid/chain distribution laws, and could lead to Amway distributors being indicted and/or convicted of criminal fraud. (2) That regulatory agencies, particularly state Attorneys Generals, are increasingly sensitive to the ongoing emergence of such programs. ... (5) That Federal Trade Commission and Anti-Trust Laws are being violated through price fixing and collusion."
It advised that corrective statements should be made immediately to correct misleading statements being made by the diamond distributors to new recruits such as: "No Selling" "Not Amway" "Must Have Tape of the Week" "Must Attend Rallies to Succeed"
In yet another 1983 memo, from the Heckert v Amways lawsuit, Ed Postma, then Amway business conduct manager, warned the leaders about the personal agendas of the kingpins.
"If there are any discussions of any length with the Diamonds utilizing this system, it becomes clear that although they realize that they are Amway distributors, they consider their personal business to be the motivation business. I think there is little question that that is where the big money is made. The motivation business is also where their primary allegiance lies," Postma wrote.
The memo called the system illegal because: It is a pyramid; it sells only to those who are involved in its structure; it may violate tax laws; there is no buyback rule; there is a danger of inventory loading; and it could be construed as an employer/employee relationship.
Postma also noted the huge amount of money being made off seminars. "It is not uncommon for the profits on these functions to exceed $25,000 to $50,000 for a weekend or $250,000 for a Free Enterprise night," he said.
He described the phony displays of wealth being used to entice recruits to join Amway, "...accessories (jewelry, clothing, and automobiles) are made available to distributors so that they may appear successful. It is considered extremely important for Diamonds to show material success in the business," he said.
At about the same time that this flurry of memos was taking place, it appears that Amway did try to get the kingpins to knock it off. In a 1983 taped speech entitled “Directly Speaking,” (never supposed to be heard in public), Amway co-founder, Rich DeVos, told the Diamonds that their tool businesses were illegal:
"Let me talk to you about the legal side ... that deals with the illegal operation of a business that does not have an end consumer, where the product is not retailed. That would include all books and tapes. ... when those things go out that way ... beyond my ten or 20% theoretical guideline ... then it becomes an out and out illegal pyramid."
DeVos explained that the priority on the sale of tools instead of products was hurting Amway, "... all the tape business does is take money out of the organization, and because the final person can’t retail it, it never brings money into the organization. ... motivation is important ... But, it must be motivation that builds the business – not become a business in itself. And some of you have made it a business in itself ... I am imploring all of you to do two things. Number one, clean up your act. And number two, if you know people who are continuing to do things improperly ... just tell us who’s doing it."
Here's what DeVos said about ripping off downline distributors by having them buy tools and self-consume products: "if I'd been told ... you don't have to sell the product, all you have to do is wholesale it to people ... maybe I wouldn't pay any attention to pricing, either. But that's an illegal business. And those of you that ... foster it and talk about it are operating illegally."
He even barked about the bogus income claims the Diamonds were making to bring in new recruits without disclosing the profits they planned to make off the tools. "You present wonderful numbers on the blackboard about all the money they can make. Maybe you ought to tell them about all you're going to take from them before they make any. Maybe that would be the rest of the story," DeVos said.
DeVos made that statement in 1983, but according to former long-time distributor, Bo Short, nothing has changed. Bo says we rarely get the whole story when people talk about how much they make in Amway. "I heard people say countless times, "We made $250 last month!" What many of them did not say is that they spent $500 in books, tapes and seminars that same month. This is a net loss of $250," Short reports.
On the tape, DeVos, himself, as much as admits the tool systems are a farce, "achievement numbers haven't changed at all with this tremendous burden of systems. I and you cannot prove an any higher ratio of achievement than you had before," he claimed.
If tools were the key to success, DeVos, wanted to know, "Why don't I have a hundred thousand Diamonds if all it takes is the tapes? Why, it's so easy. Just give 'em the tapes, and they're Diamonds next week. ... Who you kidding? ... Do the tapes help? Sure, they help. Do meetings help? Sure, they help. Are they the answer between winning and losing? No, they are not," he said.
20 years later, Bo Short makes the same point. He tells distributors who stay in Amway for years, naively believing the system will eventually work, to "Look around the room at your next convention. How many new diamonds do you see being recognized? Where are all the new diamonds? Why are the same faces on stage while the ones in the audience seem to change periodically? ... If the system was working so well, ... there should be a steady flow of diamonds convention after convention, year after year," he said. The fact is the system does not work.
If You Can't Beat Em, Join Em
In 1983, Amway apparently gave up the fight, and decided to compete with the kingpins instead, by putting PV on tools, and allowing the downline distributors to participate in the profits. The uproar over this decision prompted DeVos to record another "Directly Speaking" tape.
On the second tape, he explained the company's decision. "Amway has been working for three years on the matter of how to cope with the tape business. Should the company get in it, should it stay out of it ... we are going to put BV on tapes. ... we will pay full BV..." he said. ... "it awards everybody fairly in relationship to what they do in it, it protects the upline, it protects the downline ... we have a little hooker in there ... the BV on tapes can never exceed 20% of your total Business Volume," he advised.
For what its worth, DeVos did specifically tell the diamonds not to try and force people to buy tools. "... they will always be presented on a voluntary basis. No strings, no pressure, and no force, and by 'force' I mean such as saying to somebody ... "You must take ten tickets. You must take a hundred tickets. Here's your hundred tickets. Pay me for 'em. You better get rid of 'em. We're going to fill this hall. Or saying, "You must subscribe to Tape of the Week, or I won't work with you."
That's force, he said.
But no matter what good intentions DeVos may have had, they did not last because in the end Amway joined forces with the kingpins and they became mutually dependent on one another for survival.
To help stifle any competition from the downlines and maintain their monopoly on the tool business, Amway implemented a rule that required all new motivational materials to be sent to the company for prior approval before any sale or use was permitted. In addition, the Amway Sales and Marketing Plan began openly encouraging new recruits to buy tools and attend functions regularly by stating:
"To assist you with your own training and motivation, as well as training and motivating others, some distributors produce and distribute Business Support Materials and support services independently of Amway ... These may include books, magazines, and other printed materials, audiotapes, videotapes, rallies, meetings and educational seminars. While these BSMs are not required ... you may decide that they can play a useful role in building a profitable Amway business...
"As your business begins to grow ... You will also want to attend motivational and business-building meetings. Typically, you may attend one distributor meeting a week," the manual advises.
The continuation of the scheme stop low-level distributors from earning any profits from the tool pyramid was verified by yet another document that surfaced in a law suit, which quotes Amway attorney, John Pierce, in a March 25, 2002, telephone conference, saying:
"98% of the IBOs (Independent Business Owners), should not participate in the income nor should they even be aware that there is an opportunity."
The fact is, absolutely nothing has changed in Amway. Every problem that downline distributors experienced in 1983, still exists today.
Why Doesn't The Media Expose This Fraud?
The media often refuses to take Amway whistle-blowers seriously due to a belief that a scheme as deceptive and illegal as what they describe would never be allowed to continue for so long. And that's the exact same point that Eric Scheibeler raises in his book, Merchants of Deception. How could a world-wide consumer fraud scheme of this magnitude be allowed to continue for over 20 years?
The answer, Eric says, is that our government allows it to continue. Amway stays in business because Bush controls the FTC and he refuses to allow the agency to enforce the anti-pyramid laws. In effect, Amway's political influence within the Republican party provides the company with insurance against prosecution for fraud.
The cost of this insurance is paid for by large political contributions, with 100% going to Republicans. For instance, Amway was the second largest contributor of soft money to the RNP in 2000. In 2004, company founders, DeVos and Van Andel, gave $2 million to the Republican 527 group, "Progress for America." (Newsweek, “The Secret Money War,” Sep 20, 2004).
It really is that simple. As long as Amway pays the premiums, the insurance coverage for the largest consumer fraud scheme in the history of this nation will remain in effect.
Every year, Amway rips of millions of people all over the world through a secret pyramid scheme that will no doubt continue for as long as Bush is in office and controls the Federal Trade Commission.
The scheme was the subject of the May 7, 2004, edition of NBC's Dateline, when it aired an expose that revealed that the main income of the Amway kingpins does not come from the sale of products, that it comes from the sale of books, tapes and seminars tickets (also known as "tools"), in a secret program operating under the cover of the Amway sales organization.
Dateline determined that about 20 high level distributors are part of an exclusive club that has "run hugely profitable businesses, selling all those books, tapes and seminars -- things the rank and file distributors can't sell themselves, but are told over and over again they need to buy in order to succeed," it reported.
Its easy to understand how people get roped in. They are told they can make millions of dollars by working part-time. Dateline reporters took hidden cameras to an Amway recruitment meeting and the first thing they heard was how easy it was to make big money in Amway. Dateline's Producer, Tim Sandler, posed as a member of the audience, and listed as speaker Greg Fredericks, said:
“If you're somewhat serious, all I mean by somewhat serious -- if you invest maybe, say, 10 to 15 hours a week in your business. This is your own business -- you could generate in the next 12 to 18 months, an extra quarter of a million.”
Sandler asked, “How much?” And Fredericks repeated, “A quarter million.”
Sandler again asked, “You're making more than $250,000 -- quarter of a million?” And Fredericks said, “Umm hmm.”
Former high-level distributor turned whistle-blower, Eric Scheileber, tells how he listened to the claims of the Amway kingpins and took the bait - hook, line and sinker. “I thought if I could create a six figure income and spend time with my family, I'd do anything for that,” he told Dateline.
"But instead of a life of leisure and more time with his family, he says he worked day and night, buying the tapes, attending the rallies. Still, he made nowhere near the six figure salary ... in his best year he made $34,000 and even that didn't last," Dateline reported.
(Eric has launched the website www.merchantsofdeception.com, and written the book, Merchants of Deception, which reveals the details of the secret tool business. A free advance copy of the book is available for a limited time on his website).
Vicki and Lindy Mack had a similar tale, "they not only didn't make money, they lost more than $35,000 over a five year period. Much of it on books, tapes, and traveling to rallies."
How Does The Scheme Work?
First off, new recruits are told to quit shopping at stores; to use Amway products only. According to Eric, the company assigns a point value (PV) to all products and the average distributor's household is expected to personally self-consume 100 PV, or between $175-$450. Now keep in mind, that Amway convinces hundreds of thousands of people to do this each year.
Which brings us to the next step. The new distributors are then sent out to recruit other people to do the same thing. But the sale of products is not the source of the large income. The sale of the so-called "tools" is. Upon joining the company, a recruit is given a list of hundreds of books and tapes, which is described as the motivational system that is the key to success in Amway.
The next step to become a distributor, is to develop a goal sheet with the emphasis on selling more and more tools each month. However, in order to sell tools, the recruit must convince other people to join and create a downline group to buy the tools, because they can only be sold to other Amway distributors.
How many people will he have to recruit? Well for starters, if the goal is 4000 PV a month, he would need 50 people in his group. But if he set his sights on becoming a Profit Sharing Direct (Direct), that requires doing 7500 PV ($15,000) for 6 months in a row. As a Direct, Eric says a distributor is told he will be making over $50,000 a year in a business structured 9-4-2; which means, you sponsor 9 people, who each sponsor four people, who each sponsor two, all of whom do a monthly volume of 100 PV.
To give you an idea of what this would entail, to reach this goal, a distributor would need 80 people in his downline. But there's much more to it than simply getting 80 people to join Amway. To move 7500 PV, the distributor would need to sell the tape of the week to 40 people - every week. He would also need to sell 200 more tapes, 75 books, and 16 kits, and 25 boards and easels.
And on top of all that, according to Eric, he would have to get 40 distributorships to buy tickets to monthly seminars, which translates into 80 tickets, since the distributorships are usually run by married couples. After hearing all this, its not hard to figure out why 99% of all Amway recruits never make a dime.
But it gets worse. In order to move up to the next level and become a Pearl, a distributor has to help 3 separate groups do 7500 in volume in one month. This is no small feat; 22,500 PV amounts to about $50,000.
However, here's the kicker, this is the level a distributor must reach, before he receives a bonus based on the tools sold to his downline each month. The bonus is usually between 2 and 4% of the total BV in the group. Very few distributors ever make it to this level.
The month the Scheilebers went Pearl, their downline moved nearly $70,000 in goods. "This was where "the big money" was to kick in," Eric said, "We could not wait to get the check that month. ... we carried the mail in to our kitchen and opened the envelope together. We were shocked at what we saw. Our bonus ... amounted to about $64 dollars.
At this level, distributors are led to believe they will be making $80-100,000. However, even though the Scheilebers were working a combined 100 hours most weeks, their income was still only about $20,000 for that year.
Isn't There A Law Against Pyramid Schemes?
There is supposed to be a law against pyramid schemes. But its rarely enforced against its namesake, which happens to be Amway. In 1979, as a result of a case against Amway, the FTC issued 3 rules that companies had to follow as a guard against pyramid scheme fraud: (1) 70% of the products sold had to be sold to retail customers; (2) distributors had to maintain a base of 10 retail customers; and (3) if a distributor quit, the company had to buy back its inventory.
However, as the FTC prosecuted new pyramid cases in the 1990's, the law became refined, after many defendants claimed innocence by stating that they had adopted the inventory buy-back policy, the 70% rule, and the 10 customer rule deemed acceptable in Amway. This prompted the appellate court in Webster v Omnitrition Int'l, Inc, to point out that the "70% rule" and "10 customer rule" are meaningless if commissions are paid based on a distributor's wholesale sales (which are only sales to new recruits), and not based on actual retail sales. (Statement of Debra Valentine, General Counsel for the FTC, on Pyramid Schemes, May 13, 1998)
As it stands now, although the law's namesake remains the number one culprit when it comes to pyramid schemes, the company is allowed to flourish in blatant violation of every rule set forth in the 1979 FTC Amway law.
What Did Amway Know and When Did It Know It?
The various documents that have surfaced during discovery in lawsuits against Amway over the past 25 years, reveal that by the early '80s, Amway knew about the tool pyramids and knew they were illegal. An internal memo from the District Court in Cincinnati, entitled Amway Distributor Compliance With The Code Of Ethics And Rules Of Conduct warned the Amway hierarchy about the illegal systems when it reported:
"Widespread illegalities inherent in Amway distributor designed "systems" of tapes, books, and rallies. While most of these "systems" were conceived in the late 1960's and early 1970's as genuine "support" programs ... entrepreneurial "higher pins" discovered and developed programs for substantial, separate, additional income, under the Amway "umbrella,"" it said.
Another 1982 memo, to the Amway Policy Committee, entitled Challenge of the 80s, warned "how these "support systems" escalated to what we believe is now a threat to the future security of Amway Corporation, at least in the United States." It specifically stated, "... these "tools/systems" are illegal, per se, under several U.S. federal and state laws."
The Challenge memo, in part, listed the following problems: (1) That operating and/or participating in a ... scheme involving only non-consumer items - particularly motivational tapes - violates state pyramid/chain distribution laws, and could lead to Amway distributors being indicted and/or convicted of criminal fraud. (2) That regulatory agencies, particularly state Attorneys Generals, are increasingly sensitive to the ongoing emergence of such programs. ... (5) That Federal Trade Commission and Anti-Trust Laws are being violated through price fixing and collusion."
It advised that corrective statements should be made immediately to correct misleading statements being made by the diamond distributors to new recruits such as: "No Selling" "Not Amway" "Must Have Tape of the Week" "Must Attend Rallies to Succeed"
In yet another 1983 memo, from the Heckert v Amways lawsuit, Ed Postma, then Amway business conduct manager, warned the leaders about the personal agendas of the kingpins.
"If there are any discussions of any length with the Diamonds utilizing this system, it becomes clear that although they realize that they are Amway distributors, they consider their personal business to be the motivation business. I think there is little question that that is where the big money is made. The motivation business is also where their primary allegiance lies," Postma wrote.
The memo called the system illegal because: It is a pyramid; it sells only to those who are involved in its structure; it may violate tax laws; there is no buyback rule; there is a danger of inventory loading; and it could be construed as an employer/employee relationship.
Postma also noted the huge amount of money being made off seminars. "It is not uncommon for the profits on these functions to exceed $25,000 to $50,000 for a weekend or $250,000 for a Free Enterprise night," he said.
He described the phony displays of wealth being used to entice recruits to join Amway, "...accessories (jewelry, clothing, and automobiles) are made available to distributors so that they may appear successful. It is considered extremely important for Diamonds to show material success in the business," he said.
At about the same time that this flurry of memos was taking place, it appears that Amway did try to get the kingpins to knock it off. In a 1983 taped speech entitled “Directly Speaking,” (never supposed to be heard in public), Amway co-founder, Rich DeVos, told the Diamonds that their tool businesses were illegal:
"Let me talk to you about the legal side ... that deals with the illegal operation of a business that does not have an end consumer, where the product is not retailed. That would include all books and tapes. ... when those things go out that way ... beyond my ten or 20% theoretical guideline ... then it becomes an out and out illegal pyramid."
DeVos explained that the priority on the sale of tools instead of products was hurting Amway, "... all the tape business does is take money out of the organization, and because the final person can’t retail it, it never brings money into the organization. ... motivation is important ... But, it must be motivation that builds the business – not become a business in itself. And some of you have made it a business in itself ... I am imploring all of you to do two things. Number one, clean up your act. And number two, if you know people who are continuing to do things improperly ... just tell us who’s doing it."
Here's what DeVos said about ripping off downline distributors by having them buy tools and self-consume products: "if I'd been told ... you don't have to sell the product, all you have to do is wholesale it to people ... maybe I wouldn't pay any attention to pricing, either. But that's an illegal business. And those of you that ... foster it and talk about it are operating illegally."
He even barked about the bogus income claims the Diamonds were making to bring in new recruits without disclosing the profits they planned to make off the tools. "You present wonderful numbers on the blackboard about all the money they can make. Maybe you ought to tell them about all you're going to take from them before they make any. Maybe that would be the rest of the story," DeVos said.
DeVos made that statement in 1983, but according to former long-time distributor, Bo Short, nothing has changed. Bo says we rarely get the whole story when people talk about how much they make in Amway. "I heard people say countless times, "We made $250 last month!" What many of them did not say is that they spent $500 in books, tapes and seminars that same month. This is a net loss of $250," Short reports.
On the tape, DeVos, himself, as much as admits the tool systems are a farce, "achievement numbers haven't changed at all with this tremendous burden of systems. I and you cannot prove an any higher ratio of achievement than you had before," he claimed.
If tools were the key to success, DeVos, wanted to know, "Why don't I have a hundred thousand Diamonds if all it takes is the tapes? Why, it's so easy. Just give 'em the tapes, and they're Diamonds next week. ... Who you kidding? ... Do the tapes help? Sure, they help. Do meetings help? Sure, they help. Are they the answer between winning and losing? No, they are not," he said.
20 years later, Bo Short makes the same point. He tells distributors who stay in Amway for years, naively believing the system will eventually work, to "Look around the room at your next convention. How many new diamonds do you see being recognized? Where are all the new diamonds? Why are the same faces on stage while the ones in the audience seem to change periodically? ... If the system was working so well, ... there should be a steady flow of diamonds convention after convention, year after year," he said. The fact is the system does not work.
If You Can't Beat Em, Join Em
In 1983, Amway apparently gave up the fight, and decided to compete with the kingpins instead, by putting PV on tools, and allowing the downline distributors to participate in the profits. The uproar over this decision prompted DeVos to record another "Directly Speaking" tape.
On the second tape, he explained the company's decision. "Amway has been working for three years on the matter of how to cope with the tape business. Should the company get in it, should it stay out of it ... we are going to put BV on tapes. ... we will pay full BV..." he said. ... "it awards everybody fairly in relationship to what they do in it, it protects the upline, it protects the downline ... we have a little hooker in there ... the BV on tapes can never exceed 20% of your total Business Volume," he advised.
For what its worth, DeVos did specifically tell the diamonds not to try and force people to buy tools. "... they will always be presented on a voluntary basis. No strings, no pressure, and no force, and by 'force' I mean such as saying to somebody ... "You must take ten tickets. You must take a hundred tickets. Here's your hundred tickets. Pay me for 'em. You better get rid of 'em. We're going to fill this hall. Or saying, "You must subscribe to Tape of the Week, or I won't work with you."
That's force, he said.
But no matter what good intentions DeVos may have had, they did not last because in the end Amway joined forces with the kingpins and they became mutually dependent on one another for survival.
To help stifle any competition from the downlines and maintain their monopoly on the tool business, Amway implemented a rule that required all new motivational materials to be sent to the company for prior approval before any sale or use was permitted. In addition, the Amway Sales and Marketing Plan began openly encouraging new recruits to buy tools and attend functions regularly by stating:
"To assist you with your own training and motivation, as well as training and motivating others, some distributors produce and distribute Business Support Materials and support services independently of Amway ... These may include books, magazines, and other printed materials, audiotapes, videotapes, rallies, meetings and educational seminars. While these BSMs are not required ... you may decide that they can play a useful role in building a profitable Amway business...
"As your business begins to grow ... You will also want to attend motivational and business-building meetings. Typically, you may attend one distributor meeting a week," the manual advises.
The continuation of the scheme stop low-level distributors from earning any profits from the tool pyramid was verified by yet another document that surfaced in a law suit, which quotes Amway attorney, John Pierce, in a March 25, 2002, telephone conference, saying:
"98% of the IBOs (Independent Business Owners), should not participate in the income nor should they even be aware that there is an opportunity."
The fact is, absolutely nothing has changed in Amway. Every problem that downline distributors experienced in 1983, still exists today.
Why Doesn't The Media Expose This Fraud?
The media often refuses to take Amway whistle-blowers seriously due to a belief that a scheme as deceptive and illegal as what they describe would never be allowed to continue for so long. And that's the exact same point that Eric Scheibeler raises in his book, Merchants of Deception. How could a world-wide consumer fraud scheme of this magnitude be allowed to continue for over 20 years?
The answer, Eric says, is that our government allows it to continue. Amway stays in business because Bush controls the FTC and he refuses to allow the agency to enforce the anti-pyramid laws. In effect, Amway's political influence within the Republican party provides the company with insurance against prosecution for fraud.
The cost of this insurance is paid for by large political contributions, with 100% going to Republicans. For instance, Amway was the second largest contributor of soft money to the RNP in 2000. In 2004, company founders, DeVos and Van Andel, gave $2 million to the Republican 527 group, "Progress for America." (Newsweek, “The Secret Money War,” Sep 20, 2004).
It really is that simple. As long as Amway pays the premiums, the insurance coverage for the largest consumer fraud scheme in the history of this nation will remain in effect.
Tuesday, August 3, 2010
Organized Crime Expert - Amway Just Like Mafia
January 27, 2005
Evelyn Pringle
Amway knew it was in trouble when the internet arrived and the details about the company’s pyramid schemes began appearing online.
A memo dated December 19, 1997, that surfaced in a lawsuit, contains the details of a voice message sent out to the Amway leadership, by then Vice President, Ken MacDonald, that reveals just how desperately Amway tried to control the flow of information on the internet.
MacDonald said ... "This message is on the internet ... we’ve hired consultants and been working very diligently on all of the secret computer language that helps the search engines pick a site and because of that we’ve moved the positive Amway sites quite a bit up in the web search engines, and some of the negative sites down. And lastly, that we are working to provide very soon, for all those who qualified Emeralds and above ... their own personal homepage so we will have tons of positive Amway information on the web," he said.
There is one particular document that the company has gone to great lengths to stop people from reading on the internet. In fact, on June 12, 1998, Amway went to court and got a Protective Order in attempt to keep this specific report hidden from public view.
Professor G Robert Blakey was retained as an expert witness for the plaintiffs in the 1998 Procter & Gamble v Amway lawsuit to render an opinion on Amway's business practices. He is one of the nation's foremost authorities on organized crime. Blakey was directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
After studying Amway’s business structure and functions, Blakey, wrote a damning report that stated: "It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."
For those not familiar with the RICO Act, it "was passed by ... Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts," according to the Act's website.
Amway has been sued hundreds of time under the RICO Act.
Blakey Report Outed
In the early spring of 2004, Amway became extremely upset when the full Blakey Report began appearing on the world wide web. The company’s attorneys flew into action trying to suppress it.
Initially, they successfully used the protective order to force websites to remove the report. For example, on March 11, 2004, the MLM Survivor website reported that the Quixtar Blog had removed the Blakey Report from its servers and said "... according to the site owner, Amway's lawyers are frantically trying to find out who leaked. They assert the report is confidential, and covered by a protective order."
However, Amway was not as successful with getting it removed from other sites. MLM Survivor reported that company attorneys also contacted MLM, to demand that they remove the report from its website because it was sealed under a protective order.
Survivor’s response to Amway was, "We can't remove what we don't have. MLM Survivor does not now, nor has it ever, had a copy of the report on its website. Link, yes. Copy, no," the website said.
This must be like deja vu to MLM. The website had already been hit with one SLAPPer lawsuit by Amway. SLAPP is the abbreviation for Strategic Lawsuits Against Public Participation.
According to the First Amendment Center, "SLAPPers do not sue to achieve a litigation outcome; rather, they file to silence their opposition. Generally, the mere filing of the suit — or just the threat of suit — accomplishes that purpose;" www.firstamendmentcenter.org
However, it looks like the SLAPPer failed to obtain its objective with Survivor because the site is still alive and well on the internet. In fact, Survivor had this to say about the lawsuit. "I have to admit that I've been waiting for about six years (as long as this site has been in existence) for Amway/Quixtar/Alticor to slap me with a lawsuit for one trumped-up thing or another. I never expected my first-ever lawsuit to be such a farce," it said.
In another futile attempt to have the report removed from a site, on March 2, 2004, Amway Attorney, Griffin, sent a letter with a copy of the court order to a research professor by the name of David Touretzky. On March 21, 2004, he wrote back to Griffin and stated: My reading of this order leads to the following observations:
Paragraph 16 says that the terms of the order shall remain in force "to the extent that the information in such material is not or does not become known to the public..." Since I obtained my copy of the Blakey Report from a publicly accessible web page, the information clearly has become known to the public. The order therefore no longer applies to this document.
Paragraph 16 also says that the protective order is "binding upon all persons to whom confidential information is disclosed hereunder." The information was not disclosed to me under the terms of this order. I was never a party to this litigation, nor do I have any relationship of any kind with Amway, or Proctor & Gamble, or their respective attorneys, agents, or consultants. The protective order was never intended to apply to totally unrelated parties like me, or the news media, and it is not binding upon me now.
Touretzky’s reasoning would apply to the copy of the report that I obtained as well. When I discovered my copy a while back, it was already published on a number sites. It is currently posted on just about every Amway website out there.
The entire report can be read on the www.merchantsofdeception.com website of Eric Scheileber, a former Amway Distributor, who wrote the book, Merchants of Deception, that prompted the current FBI investigation of Amway, and an expose by NBC’s Dateline. (The book discloses Amway’s close ties to the Republican party and both Bush administrations and can be downloaded free, for a limited time, on the website)
Why Was Amway So Worried?
Why was Amway so worried about people reading the report? Probably because it very specifically explains how the Amway Corporation’s family-business structure is just like the mafia. According to Blakey, Amway has a family structure nearly identical to those found in organized crime.
The company has remained a privately held company since it was founded by Jay Van Andel and Rich DeVos in 1959, Blakey notes. But control of the corporation has now shifted to the sons of the founders, Richard DeVos, Jr and Steve Van Andel, he says.
The report also describes the Amway pyramid schemes. "The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business."
As evidence of the mafia-like family structure, the report points out that Amway's Policy Board consists of family members Richard DeVos, Sr, Steve Van Andel, Richard DeVos, Jr, Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.
On June 7, 2002, the shift of control in authority that Blakey mentioned in 1998, was further confirmed by a press release that announced that Doug DeVos would become president of Amway’s parent company, Alticor,* after the retirement of Rich DeVos.
Upon taking office, Doug DeVos, in true mafia lingo, was quoted as saying: "It’s humbling to be asked to step into a job that has been done so well for the past 43 years, first by my dad and then by my brother."
Further confirmation of the control being passed down, was the fact that Doug DeVos joined Chairman Steve Van Andel (Van Andel’s son) in the Office of the Chief Executive, extending the dual leadership structure first established by company co-founders Rich DeVos and Jay Van Andel, according to the press release.
Blakey explains that family members are drawn in to the business as a matter of right, with family members being given responsibilities that outweigh their capability. The basis for this assertion is with Amway itself. As an example, Blakey refers to the deposition testimony of Jay Van Andel's 2 children, David and Nan Van Andel, in the P&G lawsuit.
When deposed, they both held high positions with the company. Yet Blakey says, their testimony reflected a complete lack of knowledge and business experience. It was obvious that neither obtained their position on merit, nor would they have been permitted to continue in their position in an regular company.
"Placing unqualified family members in high positions is also common in the Mafia," Blakey reports.
What About Other Amway Families?
Amway stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. "Amway becomes a way of life for its participants, much like those involved with the Mafia," Blakey notes.
He describes how, "You are to "edify" or honor your upline, and "counsel" with them regularly."
"The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems," Blakey wrote.
According to the report, distributors are even told how to dress. For example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage, he notes.
The absolute control is also evidenced by the Amway Distributors Association Board. At the time of Blakey’s report, the Board consisted of 30 distributors who were elected.
However, 15 were chosen off a list of nominees compiled by Amway. The Board is led by the Executive Committee which also includes family leaders, which all but guarantees that the family leaders, or their designees, will get elected and retain control of Amway.
Although the DeVos and Van Andel families control the corporation, Blakey says a 1996 Amway Corporate Culture Document shows there are at least 8 other lines of family sponsorship that control the distributors groups. Every participant is considered to be a member of a family, with one individual positioned at the top of a chain of command.
In 1998, the Dexter Yager family had the largest organization in North America, and the Bill Britt family was enormously comprised of over 149,000 distributorships.
However, it should be noted that Bill Britt has since been booted out of Amway and is under investigation for a host of scams. According to an August 12, 2004, letter from Robert FitzPatrick, President of Pyramid Scheme Alert, to North Carolina's Attorney General, requesting an investigation of the Bill Britt organization, "Last year, it was reported that Bill Britt was involved in what authorities consider perhaps the largest single financial fraud case in North Carolina history in terms of the amount of dollars that disappeared," the letter stated.
The August 8, 2003 edition of The Triangle Business Journal reported that in spring, 2001 Bill Britt invested $5 million in a fraudulent investment scheme perpetrated by Cornerstone Management, a company under investigation and prosecution by the SEC since 1999, according to the letter.
At the time of the Blakey report, other "Amway families" included: the Childers (team of six Diamonds); the Stewarts; the Gooch family; the Bryans (Down East); the Wilsons (WOW); the Puryears (World Wide Dreambuilders); the Hays (International Connection); the Matz family ( International Diamond Association); the Dornans (Network 21); the Strehlis (Creative Life Styles); and the INA (International Networking Association), run by a group of seven families.
According to the report, each family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan, and is also involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies, Blakey determined.
However, each family kingpin rules his own Amway distributor pyramid and his own tool pyramid. But even though these pyramids are all separate corporate entities, they all work together to promote the Sales and Marketing Plan and the tools business, the report found.
What Else Is Amway Hiding?
What else is Amway hiding? Most likely Blakey’s assertion that "The Mafia uses "omerta" and violence for control," and "Amway has other methods, with similar effect."
Blakey claims, "Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. ... serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
There are also reports of violence against those who attempt to take action against Amway, the report maintains.
(Part 2 of this article will discuss specific incidents of this "omerta" and violence and other information contained in the report that Amway fought so hard to keep hidden.)
* Alticor was announced in October 2000 as the parent company for Amway (direct selling), Quixtar (e-commerce); www.alticor.com.
Evelyn Pringle
Amway knew it was in trouble when the internet arrived and the details about the company’s pyramid schemes began appearing online.
A memo dated December 19, 1997, that surfaced in a lawsuit, contains the details of a voice message sent out to the Amway leadership, by then Vice President, Ken MacDonald, that reveals just how desperately Amway tried to control the flow of information on the internet.
MacDonald said ... "This message is on the internet ... we’ve hired consultants and been working very diligently on all of the secret computer language that helps the search engines pick a site and because of that we’ve moved the positive Amway sites quite a bit up in the web search engines, and some of the negative sites down. And lastly, that we are working to provide very soon, for all those who qualified Emeralds and above ... their own personal homepage so we will have tons of positive Amway information on the web," he said.
There is one particular document that the company has gone to great lengths to stop people from reading on the internet. In fact, on June 12, 1998, Amway went to court and got a Protective Order in attempt to keep this specific report hidden from public view.
Professor G Robert Blakey was retained as an expert witness for the plaintiffs in the 1998 Procter & Gamble v Amway lawsuit to render an opinion on Amway's business practices. He is one of the nation's foremost authorities on organized crime. Blakey was directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
After studying Amway’s business structure and functions, Blakey, wrote a damning report that stated: "It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."
For those not familiar with the RICO Act, it "was passed by ... Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts," according to the Act's website.
Amway has been sued hundreds of time under the RICO Act.
Blakey Report Outed
In the early spring of 2004, Amway became extremely upset when the full Blakey Report began appearing on the world wide web. The company’s attorneys flew into action trying to suppress it.
Initially, they successfully used the protective order to force websites to remove the report. For example, on March 11, 2004, the MLM Survivor website reported that the Quixtar Blog had removed the Blakey Report from its servers and said "... according to the site owner, Amway's lawyers are frantically trying to find out who leaked. They assert the report is confidential, and covered by a protective order."
However, Amway was not as successful with getting it removed from other sites. MLM Survivor reported that company attorneys also contacted MLM, to demand that they remove the report from its website because it was sealed under a protective order.
Survivor’s response to Amway was, "We can't remove what we don't have. MLM Survivor does not now, nor has it ever, had a copy of the report on its website. Link, yes. Copy, no," the website said.
This must be like deja vu to MLM. The website had already been hit with one SLAPPer lawsuit by Amway. SLAPP is the abbreviation for Strategic Lawsuits Against Public Participation.
According to the First Amendment Center, "SLAPPers do not sue to achieve a litigation outcome; rather, they file to silence their opposition. Generally, the mere filing of the suit — or just the threat of suit — accomplishes that purpose;" www.firstamendmentcenter.org
However, it looks like the SLAPPer failed to obtain its objective with Survivor because the site is still alive and well on the internet. In fact, Survivor had this to say about the lawsuit. "I have to admit that I've been waiting for about six years (as long as this site has been in existence) for Amway/Quixtar/Alticor to slap me with a lawsuit for one trumped-up thing or another. I never expected my first-ever lawsuit to be such a farce," it said.
In another futile attempt to have the report removed from a site, on March 2, 2004, Amway Attorney, Griffin, sent a letter with a copy of the court order to a research professor by the name of David Touretzky. On March 21, 2004, he wrote back to Griffin and stated: My reading of this order leads to the following observations:
Paragraph 16 says that the terms of the order shall remain in force "to the extent that the information in such material is not or does not become known to the public..." Since I obtained my copy of the Blakey Report from a publicly accessible web page, the information clearly has become known to the public. The order therefore no longer applies to this document.
Paragraph 16 also says that the protective order is "binding upon all persons to whom confidential information is disclosed hereunder." The information was not disclosed to me under the terms of this order. I was never a party to this litigation, nor do I have any relationship of any kind with Amway, or Proctor & Gamble, or their respective attorneys, agents, or consultants. The protective order was never intended to apply to totally unrelated parties like me, or the news media, and it is not binding upon me now.
Touretzky’s reasoning would apply to the copy of the report that I obtained as well. When I discovered my copy a while back, it was already published on a number sites. It is currently posted on just about every Amway website out there.
The entire report can be read on the www.merchantsofdeception.com website of Eric Scheileber, a former Amway Distributor, who wrote the book, Merchants of Deception, that prompted the current FBI investigation of Amway, and an expose by NBC’s Dateline. (The book discloses Amway’s close ties to the Republican party and both Bush administrations and can be downloaded free, for a limited time, on the website)
Why Was Amway So Worried?
Why was Amway so worried about people reading the report? Probably because it very specifically explains how the Amway Corporation’s family-business structure is just like the mafia. According to Blakey, Amway has a family structure nearly identical to those found in organized crime.
The company has remained a privately held company since it was founded by Jay Van Andel and Rich DeVos in 1959, Blakey notes. But control of the corporation has now shifted to the sons of the founders, Richard DeVos, Jr and Steve Van Andel, he says.
The report also describes the Amway pyramid schemes. "The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business."
As evidence of the mafia-like family structure, the report points out that Amway's Policy Board consists of family members Richard DeVos, Sr, Steve Van Andel, Richard DeVos, Jr, Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.
On June 7, 2002, the shift of control in authority that Blakey mentioned in 1998, was further confirmed by a press release that announced that Doug DeVos would become president of Amway’s parent company, Alticor,* after the retirement of Rich DeVos.
Upon taking office, Doug DeVos, in true mafia lingo, was quoted as saying: "It’s humbling to be asked to step into a job that has been done so well for the past 43 years, first by my dad and then by my brother."
Further confirmation of the control being passed down, was the fact that Doug DeVos joined Chairman Steve Van Andel (Van Andel’s son) in the Office of the Chief Executive, extending the dual leadership structure first established by company co-founders Rich DeVos and Jay Van Andel, according to the press release.
Blakey explains that family members are drawn in to the business as a matter of right, with family members being given responsibilities that outweigh their capability. The basis for this assertion is with Amway itself. As an example, Blakey refers to the deposition testimony of Jay Van Andel's 2 children, David and Nan Van Andel, in the P&G lawsuit.
When deposed, they both held high positions with the company. Yet Blakey says, their testimony reflected a complete lack of knowledge and business experience. It was obvious that neither obtained their position on merit, nor would they have been permitted to continue in their position in an regular company.
"Placing unqualified family members in high positions is also common in the Mafia," Blakey reports.
What About Other Amway Families?
Amway stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. "Amway becomes a way of life for its participants, much like those involved with the Mafia," Blakey notes.
He describes how, "You are to "edify" or honor your upline, and "counsel" with them regularly."
"The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems," Blakey wrote.
According to the report, distributors are even told how to dress. For example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage, he notes.
The absolute control is also evidenced by the Amway Distributors Association Board. At the time of Blakey’s report, the Board consisted of 30 distributors who were elected.
However, 15 were chosen off a list of nominees compiled by Amway. The Board is led by the Executive Committee which also includes family leaders, which all but guarantees that the family leaders, or their designees, will get elected and retain control of Amway.
Although the DeVos and Van Andel families control the corporation, Blakey says a 1996 Amway Corporate Culture Document shows there are at least 8 other lines of family sponsorship that control the distributors groups. Every participant is considered to be a member of a family, with one individual positioned at the top of a chain of command.
In 1998, the Dexter Yager family had the largest organization in North America, and the Bill Britt family was enormously comprised of over 149,000 distributorships.
However, it should be noted that Bill Britt has since been booted out of Amway and is under investigation for a host of scams. According to an August 12, 2004, letter from Robert FitzPatrick, President of Pyramid Scheme Alert, to North Carolina's Attorney General, requesting an investigation of the Bill Britt organization, "Last year, it was reported that Bill Britt was involved in what authorities consider perhaps the largest single financial fraud case in North Carolina history in terms of the amount of dollars that disappeared," the letter stated.
The August 8, 2003 edition of The Triangle Business Journal reported that in spring, 2001 Bill Britt invested $5 million in a fraudulent investment scheme perpetrated by Cornerstone Management, a company under investigation and prosecution by the SEC since 1999, according to the letter.
At the time of the Blakey report, other "Amway families" included: the Childers (team of six Diamonds); the Stewarts; the Gooch family; the Bryans (Down East); the Wilsons (WOW); the Puryears (World Wide Dreambuilders); the Hays (International Connection); the Matz family ( International Diamond Association); the Dornans (Network 21); the Strehlis (Creative Life Styles); and the INA (International Networking Association), run by a group of seven families.
According to the report, each family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan, and is also involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies, Blakey determined.
However, each family kingpin rules his own Amway distributor pyramid and his own tool pyramid. But even though these pyramids are all separate corporate entities, they all work together to promote the Sales and Marketing Plan and the tools business, the report found.
What Else Is Amway Hiding?
What else is Amway hiding? Most likely Blakey’s assertion that "The Mafia uses "omerta" and violence for control," and "Amway has other methods, with similar effect."
Blakey claims, "Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. ... serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
There are also reports of violence against those who attempt to take action against Amway, the report maintains.
(Part 2 of this article will discuss specific incidents of this "omerta" and violence and other information contained in the report that Amway fought so hard to keep hidden.)
* Alticor was announced in October 2000 as the parent company for Amway (direct selling), Quixtar (e-commerce); www.alticor.com.
Amway - Mafia Like Business
January 31, 2005
Evelyn Pringle
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.)
Evelyn Pringle
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.)
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