Speaker 1: Hey, Dream listeners. If you like this podcast, you're going
Speaker 1: to love the book. Yeah. I wrote a book. It's
Speaker 1: called Selling the Dream, and it's coming out March twelfth,
Speaker 1: twenty twenty four, on Atria. It's about all of your
Speaker 1: favorite characters from MLMs and some that you've never even
Speaker 1: heard of. I hope check it out previously on the Dream.
Speaker 1: They don't care if you can make ends meet at
Speaker 1: the end of the month. They just care that you're
Speaker 1: ordering the minimum. I've been digging into the legal history
Speaker 1: of mlams and I am going to take you on
Speaker 1: a journey through the epic battle that took place between
Speaker 1: the FTC and the multi level marketing industry. They don't
Speaker 1: care if they ever wind up in the hands of customers.
Speaker 1: All they know on their balance sheet at the end
Speaker 1: of the day that you ordered it and they got
Speaker 1: that profit. And now we're moving on. So there was
Speaker 1: this guy, John M. Taylor he passed recently, who studied
Speaker 1: business at Brigham Young and the University of Utah, Utah,
Speaker 1: where there are more MLM corporate headquarters per capita than
Speaker 1: anywhere in the world. It's the perfect place to study
Speaker 1: this and perhaps his most impressive study Taylor looked at
Speaker 1: the compensation plans and possibilities for success in six hundred MLMs,
Speaker 1: and he found that net losses were experienced by wait
Speaker 1: for it, over ninety nine percent of people who attempt
Speaker 1: this sort of business. In other words, he found that
Speaker 1: almost one hundred percent of people who buy into an
Speaker 1: MLM walk away having lost money. Of course, the industry
Speaker 1: disputes that, but even they admit that losses and attrition
Speaker 1: are higher than the normal retail sector. That level of
Speaker 1: loss sounds criminal to me, and yet MLMs persist and
Speaker 1: are expanding globally. Is there anyone who can do something
Speaker 1: about this in a way that might actually help people.
Speaker 1: I'm Jane Marie and this is the Dream Episode seven, Lazy, Stupid, greedy,
Speaker 1: or Dead. Hey, Dan, welcome back to your own office. Thanks. Yeah,
Speaker 1: it's nice to have you here. It's nice to be
Speaker 1: here every day. Yeah, I'm thoroughly frustrated. Why at this point,
Speaker 1: because I want to do something about this? Who do
Speaker 1: we call? You would call the FTC, which is the
Speaker 1: only government agency that really goes after MLMs in any
Speaker 1: sort of effective way. If the FTC were going after
Speaker 1: these companies the way we wish they would right now.
Speaker 1: You wouldn't need us to explain who they are or
Speaker 1: what they do. The FTC would be front page news
Speaker 1: every day, shutting down scam companies right and left. Lord
Speaker 1: knows there's enough of them to keep the Commission busy,
Speaker 1: and this episode will be about why that is. As
Speaker 1: we learned last week, people hesitate to report their bad
Speaker 1: experiences and to even feel them as bad experiences in
Speaker 1: the first place, so this type of fraud isn't often
Speaker 1: reported to the FTC. Over the past few decades, the
Speaker 1: handful of MLMs the FTC has brought down have been
Speaker 1: small and cartoonishly fraudulent. There was an energy drink company
Speaker 1: called Vemma whose recruiters targeted frat guys, burn lounge, the
Speaker 1: napster of MLMs, you know, stuff like that, easy to prosecute,
Speaker 1: small enough to shudder for good. On the one hand, great,
Speaker 1: we'll take these tiny victories. On the other hand, these
Speaker 1: small wins for the FTC have actually emboldened larger MLMs.
Speaker 1: They get to say, hey, look at those little weirdos,
Speaker 1: those little stupid, kooky crooks over there. They're giving direct
Speaker 1: selling a bad name. We're not like them, or we'd
Speaker 1: be shut down too, But of course we all know
Speaker 1: the world doesn't work that way. Destroying little bad guys
Speaker 1: doesn't mean that there are no big bad guys. Last
Speaker 1: time we were talking, you were telling me about a
Speaker 1: time when the FTC cared about people being victims of
Speaker 1: these sorts of companies and also was actively doing something
Speaker 1: about it and doing well at it. But something went wrong. Well, essentially,
Speaker 1: when MLMs came to the attention of the FTC, they
Speaker 1: went after him pretty hard for about fifteen years. And
Speaker 1: during that fifteen years they had some successes and then
Speaker 1: ultimately had a case that would define how multi level
Speaker 1: marketing as an industry would go forward, and they lost
Speaker 1: that case. So the losing of it defined like where
Speaker 1: we are now. And I should say the reason I
Speaker 1: found this out is because in looking into this, I
Speaker 1: started to call people who had been involved in against MLMs.
Speaker 1: And there's a man named Bruce Craig who was a
Speaker 1: assistant Attorney General for the state of Wisconsin for thirty years.
Speaker 1: He had been working in consumer protection. So I asked, Bruce,
Speaker 1: did the government ever try to shut these companies down?
Speaker 1: And if they did, how successful were they And if
Speaker 1: they were successful, what happened. Why aren't they anymore? There's
Speaker 1: one word, Amway. The Amway decision by the Federal Trade
Speaker 1: Commission changed everything. Okay, so what's Bruce talking about. Well,
Speaker 1: what would turn out to be one of the biggest
Speaker 1: cases in the history of the FTC's battle against multi
Speaker 1: level marketing. It was against Amway, and Amway at the
Speaker 1: time was the biggest MLM in the world aside from Avon,
Speaker 1: but they were a huge company and they lost that case.
Speaker 1: And that case, I would come to learn, had a
Speaker 1: huge effect on not only how the FTC would approach
Speaker 1: complaints against MLMs, but also how the industry would defend
Speaker 1: itself against cases brought against it, and it had an
Speaker 1: emboldening effect on the entire industry. In Boldenness two week
Speaker 1: of a word, everybody claimed they were just like Amway.
Speaker 1: They basically legitimized those that weren't sued because there was
Speaker 1: a difference between illegal and illegal one and they sued
Speaker 1: the illegal ones, and you know, the implication was that
Speaker 1: the other companies not suit were legal. It was a
Speaker 1: crazy enforcement concept and so the Amway case, I think
Speaker 1: affected completely the outcome. After nineteen seventy nine, Dan went
Speaker 1: looking for someone who was there who could tell them
Speaker 1: what happened, how things went awry. Remember this was forty
Speaker 1: years ago, so it was kind of a long shot.
Speaker 1: We didn't know if we'd be able to find many
Speaker 1: folks who worked on the case. But it turns out
Speaker 1: there's one voice who really counts from the inside, who's
Speaker 1: never really spoken about it at length, and Dan found him.
Speaker 1: Meet Joe Brownman, the greatest weapon our country has ever
Speaker 1: known against mass fraud in multi level marketing. Start with
Speaker 1: a question or two, and I'll go into whatever you
Speaker 1: want to know, and you know, if you need more information,
Speaker 1: just go wherever you want me to go. As far
Speaker 1: as starting, Oh, if you want to know where I
Speaker 1: was born, or do you want to know where I
Speaker 1: was whatever you want? Come on, now I do. Where
Speaker 1: were you born? I was plating Williamsburg were Trinity Hospital
Speaker 1: in Williamsburg, Brooklyn. I don't think that hostile doesn't exist
Speaker 1: any longer. And Williamsburg today is not what Williamsburg was
Speaker 1: like when I was living this seven the years ago.
Speaker 1: What was it like seventy years ago? I'd hate to
Speaker 1: describe it, so let me not. Okay. We ended up
Speaker 1: having almost think seven hours worth of conversations about these cases.
Speaker 1: He is careful about the way he speaks about these
Speaker 1: cases for a few reasons, one of them being that
Speaker 1: he is loyal to the FTC. He believes that the
Speaker 1: people there they do the best they can given their resources,
Speaker 1: and they care. One of the interesting things also about
Speaker 1: Joe is that I found out he was the lead
Speaker 1: lawyer on the Holiday Magic case, the company owned by
Speaker 1: William Pinpatrick, who we talked a lot about a few
Speaker 1: episodes ago. In today's fear ridden society, an ever growing
Speaker 1: majority is claiming the wealth of those who created These
Speaker 1: intellectual cowards fail to realize the truth of wealth. They
Speaker 1: falsely insist that a person has to be crooked or
Speaker 1: have some genius to gain wealth. This type of thinking
Speaker 1: is true in a socialistic system, but in a free society,
Speaker 1: this type of thinking is sickness and cowardice. You remember
Speaker 1: that guy William Pinpatrick of Fruity Beauty and the Pit.
Speaker 1: Holiday Magic was actually the first MLM that the FTC
Speaker 1: ever investigated. We are preparing the Holiday Magic complaint as
Speaker 1: if it was an important case that we couldn't afford
Speaker 1: to lose, because it was the first case. You don't
Speaker 1: want to lose the first case of its type, because
Speaker 1: then you don't know what's going to happen next. We
Speaker 1: all knew that this was going to be a template
Speaker 1: for the future cases that the Commission was likely to
Speaker 1: bring us this area of multi level selling, term is selling,
Speaker 1: whatever you want to call it. And it took a
Speaker 1: very long time. I think it took six months. And
Speaker 1: the reason it took that long is because they were
Speaker 1: looking at this complaint with a fine tooth comb, and
Speaker 1: every office had a recommendation and a suggestion as to
Speaker 1: how the word this paragraph or word that paragraph, of
Speaker 1: what to include or what to on a quick sort
Speaker 1: of thing, and it was very helpful. It just took
Speaker 1: a very long time. Can you just remind me what
Speaker 1: the FTC is. Their stated goal and this is paraphrase,
Speaker 1: but their stated goal is to keep free markets safe
Speaker 1: for the people that are functioning within them. So you
Speaker 1: have the consumer protection side, they deal with frauds. Then
Speaker 1: you have the competition side, and their job essentially is
Speaker 1: to make sure that monopolies don't exist and mergers and
Speaker 1: acquisitions are fair. So about two months after Joe started
Speaker 1: working for the FTC, he got a complaint on his desk,
Speaker 1: and it turns out it was a distributor for a
Speaker 1: Holiday Magic complaining that they were unable to achieve the
Speaker 1: wealth and all the things promised to them by Holiday
Speaker 1: Magic recruiters when they signed up as distributors. When they
Speaker 1: do their investigations, they fly to different cities and they
Speaker 1: interview people who are involved with these companies. Right, so
Speaker 1: this is the first one. They go out and they're
Speaker 1: talking to person after person who were distributors for Holiday Magic.
Speaker 1: Every time we went to a new city, we would
Speaker 1: always get two cars at the airport and stay at
Speaker 1: the same hotel, but go off in different directions every day.
Speaker 1: And half the time it wasn't doing things during the day.
Speaker 1: Half the time it was doing things at night because
Speaker 1: the people that we were talking to at day jobs
Speaker 1: and they were doing Holiday Magic part time. And some
Speaker 1: we'd start working after dinner hours when people were ready
Speaker 1: to see us after seven o'clock in the evening. We'd
Speaker 1: get back one at two o'clock in the morning most
Speaker 1: of the time, and we'd spend the day just you know,
Speaker 1: sleeping in. We wanted to know what was going on.
Speaker 1: We were asking them everything we wanted. The documentary we
Speaker 1: were asking we needed a full understanding of what they
Speaker 1: were doing, what they heard, what the representations were, what
Speaker 1: their success well lack of success was. I mean, we
Speaker 1: needed to know everything as they're doing that. That's how
Speaker 1: he's determining what he wants to bring as far as
Speaker 1: charges against Holiday Magic, and he found reason to charge
Speaker 1: them with several things, so he went after them in
Speaker 1: a few ways. The first one was something called the language.
Speaker 1: The actual language that it's found to be deceptive is
Speaker 1: somebody holding a meeting and saying, you know, join my company,
Speaker 1: and I guarantee you that in the next month or
Speaker 1: two you'll have riches beyond your wildest dreams. You'll be
Speaker 1: driving a new Cadillac, you'll be taking vacations in Ballei,
Speaker 1: You'll be you know, X, Y and Z. That would
Speaker 1: be reason to find that the representations of huge earnings
Speaker 1: was deceptive because it was not something that could be
Speaker 1: supported by the company's own experience. We had that kind
Speaker 1: of evidence. Holiday Magic's official recruitment materials were full of
Speaker 1: these sorts of promises and techniques for getting people to
Speaker 1: sign up on the spot. Quote, tell them they're going
Speaker 1: to be happier, healthier, wealthier and receive what they want
Speaker 1: out of life with the Holiday Magic Program. Pull a
Speaker 1: roll of one hundred dollars bills out of your pocket
Speaker 1: and say, now, I'm not trying to impress you with
Speaker 1: this money that I'm making, but would earning this kind
Speaker 1: of money each week interests you wonderful? And then there's
Speaker 1: something about throwing it in the air, or how about this.
Speaker 1: Any person who fails in the Holiday Magic Program must
Speaker 1: fall into one of the following categories one lazy, two stupid,
Speaker 1: three greedy, or four dead. The second one was more
Speaker 1: of an antitrust charge, and that was vertical price fixing.
Speaker 1: That's a company selling to a distributors saying you must
Speaker 1: resell the product at these prices. They're maintaining a resale price.
Speaker 1: In other words, the distributor is not determining what price
Speaker 1: he or she is going to sell those products that
Speaker 1: the manufacturer is. The third and most important thing that
Speaker 1: Joe went after Holiday Magic with was something that he
Speaker 1: referred to as the Plan. By the plan, what I
Speaker 1: mean is because people kept recruiting people, and if the
Speaker 1: plan was going to work, they would have to keep
Speaker 1: recruiting people. At some point, everybody in the market area
Speaker 1: who would know about the company, or have been recruited
Speaker 1: or have been attempted to be recruited, So there was
Speaker 1: no viable opportunity for anybody who is still hearing the
Speaker 1: plans for the first time to be able to make
Speaker 1: any kind of a go of it. In other words,
Speaker 1: the market was saturated with distributors or with people who
Speaker 1: had rejected the plan. As evidence at trial, Joe submitted
Speaker 1: an exhaustive amount of recruitment materials, including books, brochures, and
Speaker 1: even a movie produced by Holiday Magic. Each one laid
Speaker 1: out a similar story. You should tell recruits to get
Speaker 1: them to sign up, all they have to do is
Speaker 1: recruit five people a month, and then if those people
Speaker 1: follow the plan, they'll each recruit five people a month,
Speaker 1: and in a year, you're a millionaire. Period. They talked
Speaker 1: about the plan as if it's a fact that you
Speaker 1: could find five recruits, and that if you did, it
Speaker 1: would be a fact that they could find five more
Speaker 1: each month. Lots of people have done the math on this.
Speaker 1: If this plan, which the company repeated over and over
Speaker 1: and over at the recruitment meetings, if this plan worked,
Speaker 1: guess how many people each new recruit would have in
Speaker 1: their downline by the end of the year over two
Speaker 1: hundred and forty four million. The population of the United
Speaker 1: States at the time of the trial was only two
Speaker 1: hundred million. The trial took almost two years. What I
Speaker 1: don't mean to laugh. Yeah, there were two hundred witnesses
Speaker 1: called by both sides, so it took a lot of
Speaker 1: time to listen to all of that testimony. I guess
Speaker 1: if it's market saguration, you have to talk to the market.
Speaker 1: You have to try which is the people's telling end
Speaker 1: the people buying. And of course they can't do everywhere right.
Speaker 1: Holiday Magic at that time was a huge company. They
Speaker 1: were one of the biggest MLMs in the world, and
Speaker 1: you can't have two people working a case go everywhere
Speaker 1: in the country and determine whether the market has been saturated.
Speaker 1: They did focus on two areas. One was Florida and
Speaker 1: one was Oregon, and what they determined was that by
Speaker 1: looking at the number of distributors versus the number of
Speaker 1: eligible people to participate in Holiday Magic, the markets had
Speaker 1: been saturated. That's what they presented to the judge, along
Speaker 1: with the misrepresentation of earnings, potential vertical price fixing, and
Speaker 1: in holiday Magic. The Administrative Law judge accepted all of
Speaker 1: Joe's findings, all of his charges. They made an issue
Speaker 1: over and they made the issue that the judge was
Speaker 1: biased because he just adopted every one of our findings.
Speaker 1: And the Commission said, well, in this case, they didn't
Speaker 1: find there was any problem with that. That was unusual.
Speaker 1: That was the case where I wrote down enough is enough,
Speaker 1: you know, so they they accepted everything that the menstry
Speaker 1: of dredge around you were saying that in the Commission's
Speaker 1: findings in Holiday Magic, one of the last things written
Speaker 1: was enough is enough? Right? And you remember that, of
Speaker 1: course they do, because I mean basically what the Commission
Speaker 1: was saying was well, they were saying enough is enough.
Speaker 1: You know what enough enough means. It means there's nothing
Speaker 1: credible to discuss any longer. You guys, you know, we've
Speaker 1: given you the time of day. You guys are you know,
Speaker 1: have engaged in practices which are unacceptable. We're going to
Speaker 1: stop it. We're going to do what we can to
Speaker 1: make sure that it's not gonna, you know, be resurrected. Period.
Speaker 1: Enough is enough. It's just interesting to me that there
Speaker 1: would be almost an emotional response you know. That's why
Speaker 1: I mentioned it. You're right to me, it was saying that.
Speaker 1: I'm not saying it was emotional. Obviously, I'm not saying
Speaker 1: that because it was based upon the record. But it
Speaker 1: was an extremely strong record that we presented, right it was.
Speaker 1: I mean, I was there, I know what was in
Speaker 1: that record, what ended up happening. So Holiday Magic decided
Speaker 1: not to appeal and shut down. Shortly after that, they
Speaker 1: were like, we give up. For years, William Pinpatrick had
Speaker 1: been placing his hundreds of millions of dollars he had
Speaker 1: earned from Holiday Magic into trusts for his kids, and
Speaker 1: his money for the most part, was secure at that point.
Speaker 1: He shut down Holiday Magic. Then, oh boy, he died.
Speaker 1: He was a enthusiast of World War Two fighter planes
Speaker 1: and he was flying his Fife Mustang above his ranch
Speaker 1: in northern California and he crashed and died. Classic WPP,
Speaker 1: Classic WPP exactly. The Holiday Magic case was a big deal,
Speaker 1: and it started making waves in the MLM industry even
Speaker 1: before it was finished. Remember it took two years, and
Speaker 1: during that time, the FTC started keeping a list of
Speaker 1: companies that smelled of fruity beauty. MLMs have been cropping
Speaker 1: up all over the place, and Joe and his colleagues
Speaker 1: were watching. Two of the names that were on that
Speaker 1: list were an MLM called Jeremar. What'd they sell? They
Speaker 1: sold girdles, basically underwear and swimwear. This is what they sold.
Speaker 1: And then another company started by a former Holiday Magic
Speaker 1: distributor what named Glenn Turner. What I have done over
Speaker 1: the years is proven in a priorily eight rain dropout
Speaker 1: and learned the secret and the wisdom of the A
Speaker 1: is anyone can learn if they're willing and have desire. Now,
Speaker 1: that is the problem we have with most people. They
Speaker 1: don't have the decision making power to say I will
Speaker 1: I will stick to something like composed to stamped and
Speaker 1: to reach this destination. Now steps the Greatness is designed
Speaker 1: to show you how to take back total control of
Speaker 1: your mind because most of you lost it right after
Speaker 1: you were born when everybody started programming for your air
Speaker 1: and through your eyes their beliefs, their eyeas are success
Speaker 1: and what you should be. And his company was called
Speaker 1: Costcott Interplanetary. They sold mink oil based cosmetics from space minks.
Speaker 1: One of the things that Holiday Magic had that the
Speaker 1: other companies didn't was a history. They had been around
Speaker 1: for two years prior to Joe even receiving the complaint,
Speaker 1: but by the time they went to trial, which was
Speaker 1: in nineteen seventy one, they had now been a company
Speaker 1: for seven years. What that meant was that when Joe
Speaker 1: went looking for market saturation evidence, there was some to
Speaker 1: be found. It had happened. But Jeremar was a much
Speaker 1: younger company than that, and so was Costco, so looking
Speaker 1: for market saturation was far more difficult for the FTC
Speaker 1: staff lawyers taking those companies to court. Remember how Joe
Speaker 1: said this Holiday Magic case was super important to the
Speaker 1: FTC because, being the first complaint of its kind, it
Speaker 1: would set a precedent. He was really hoping to show
Speaker 1: that this relatively new business model was in fact a
Speaker 1: gussied up pyramid scheme in most, if not all cases,
Speaker 1: and if he could do that using the method he
Speaker 1: chose for Holiday Magic, they'd just apply the same methodology
Speaker 1: to any other company that came across their desks. Well,
Speaker 1: spoiler alert, that didn't happen, because the FTC actually settled
Speaker 1: its cases with Costcott and Jeribar before the Holiday Magic verdict.
Speaker 1: In its fervor to crush this new scourge, the FTC
Speaker 1: kind of shot itself in the foot. The settlements were
Speaker 1: technically victories for the FTC and for consumers, but they
Speaker 1: didn't do anything to help Joe's strategy. He wanted a
Speaker 1: cascade of guilty verdicts showing pyramid schemes and impossibly saturated markets,
Speaker 1: and instead he got one Holiday Magic. The problem is
Speaker 1: that if Cherima had come after Holiday Magic had been
Speaker 1: decided rather than before that, the expert witness could have,
Speaker 1: instead of relying upon a mathematical formula, could have done
Speaker 1: that and said, and I looked at the Holiday Magic facts.
Speaker 1: I found them to be similar to the Jerimoah facts.
Speaker 1: And the expert agreed that there was saturation in Holiday Magic. Therefore,
Speaker 1: it's inevitable that there would have been a saturation in
Speaker 1: Jerremah as well. So Joe didn't get exactly what he wanted.
Speaker 1: But it's cool that there was a short period of time,
Speaker 1: this burst of energy that the FTC had, and they
Speaker 1: were really putting work into this at this time. It
Speaker 1: appears that the FTC actually views multi level marketing as
Speaker 1: somewhat of a threat. And you also have to remember
Speaker 1: that there are cases being brought by state governments and
Speaker 1: civil cases being brought against these companies. So it was
Speaker 1: a kind of perilous time for the industry. Then the
Speaker 1: Amway case shows up. The FTC had issued a formal
Speaker 1: complaint against Amway in nineteen seventy five. I knew the
Speaker 1: prior of multi level investigations, and I was familiar with
Speaker 1: the Amway investigation. I'd sham the same way since give
Speaker 1: it to me, you know, And the answer was okay.
Speaker 1: So what Joe decides to do is go after Amway
Speaker 1: the same way he went after Holiday Magic. I had witnesses,
Speaker 1: and I had data, and I had numbers of distribute
Speaker 1: I mean, I had what I had, and the Commission
Speaker 1: said that saturation was painstakingly shown page one O three
Speaker 1: seven in the Holiday Magic decision. And they've been around
Speaker 1: for a while at this point. Yeah, yeah, So it's
Speaker 1: not the same problem that you were having with Jeromar
Speaker 1: or Costcott. They're not new. There are people in saturated
Speaker 1: markets absolutely to talk to you. Okay, he's got more
Speaker 1: evidence than he had in Holiday Magic. He's got sixteen
Speaker 1: years of Amway being in existence, and he has a
Speaker 1: win against Holiday Magic, and they have actually gotten Costcott
Speaker 1: and Jeromar shut down even though they weren't called a
Speaker 1: pyramid scheme. So he's going into this feeling he's feeling confident.
Speaker 1: He's basically going to take the exact same charges that
Speaker 1: he had leveled against Holiday Magic and level them in
Speaker 1: against Amway. It's important to know that Amway's a different
Speaker 1: type of company. There were people in coffins. They were
Speaker 1: trying to project a very different image the American Way Corporation.
Speaker 1: They had a different reputation. They were well known and
Speaker 1: not well known necessarily for being infamous or notorious. It
Speaker 1: was different. It was not, but you know, it was
Speaker 1: not what Holiday Magical cost Cuts reputation was. As I recall,
Speaker 1: it was not the same. Amway was different. Sure, the
Speaker 1: founders flailed around, starting and closing a bunch of businesses
Speaker 1: before settling on an MLM. And when they spoke, they
Speaker 1: sounded as blustery as any other MLM owners, but they
Speaker 1: more or less appeared as, for lack of a better word,
Speaker 1: normal guys. I mean, first of all, they were from Michigan,
Speaker 1: not northern California or Orlando or other exotic locales. They
Speaker 1: had a respectable uptight vibe selling cleaning, products and other
Speaker 1: household items, not fruity beauty and girdles, and they were
Speaker 1: incredibly conservative. In nineteen seventy, the devices started a nonprofit
Speaker 1: foundation that would go on to donate large sums of money,
Speaker 1: like really large to the Heritage Foundation, Focus on the Family,
Speaker 1: the Federalist Society. You get it. Yeah, I missed my flight?
Speaker 1: Can you get me to my pro am I can
Speaker 1: get you there, great ore in flight meal, mister Hope
Speaker 1: and Amway Food Bar? Did Damnway make this away office?
Speaker 1: Over three hundred and fifty home care, housewarees, nutrition and
Speaker 1: personal care products. How come you know about Amway? My
Speaker 1: wife and I have our own part time Amway business.
Speaker 1: We're building financial independence. God like your really fly Amway
Speaker 1: contact and Amway distributor. I've got the whole story. They
Speaker 1: got Bob Hope to be their spokesman. See what I'm saying.
Speaker 1: It goes kind of similar to Holiday Magic. In the courtroom,
Speaker 1: Joe calls a lot of witnesses, Amway calls a lot
Speaker 1: of witnesses. Everything kind of goes the way it did
Speaker 1: with Holiday Magic. Right. They're presenting like the same sort
Speaker 1: of argument and much more evidence to back it up.
Speaker 1: This time, and when it comes time for the administrative
Speaker 1: law judge to write his initial decision, he has found
Speaker 1: in favor of almost none of Joe's findings. So if
Speaker 1: you look that market saturation the most important charge the
Speaker 1: judge in his initial decision. In his writings, he cited
Speaker 1: evidence testimony brought forward by witnesses who had been called
Speaker 1: by Amway to talk about how easy it was to
Speaker 1: find new recruits. And he's got about twelve examples of
Speaker 1: support that from various parts of the country they found
Speaker 1: in recent years, it has become easier to sponsor. Okay,
Speaker 1: none of these areas in the country, Ray, Colorado, Missoula, Montana, Phoenix, Arizona, Timonium, Maryland,
Speaker 1: Holly Pond, Alabama. Never heard of these places. None of
Speaker 1: these places were the areas that we focused upon to
Speaker 1: show that there were problems. He cites to ten or
Speaker 1: twelve distributors and from parts of the country that we
Speaker 1: did not allege there was an issue. And he says
Speaker 1: we called some witnesses without saying how many who testified
Speaker 1: about the difficulty, without saying that they were credible, and
Speaker 1: does it even give the names or where they were from.
Speaker 1: And then he says, other witnesses whom I find credible
Speaker 1: were called by respondents and testified that in several of
Speaker 1: these areas they had no difficulty. Again, without any reference
Speaker 1: to the testimony of the people that we called, or
Speaker 1: even the number of people that we called. Joe had
Speaker 1: market saturation data and witness testimony from five different states
Speaker 1: in the country. The judge didn't look at that at all.
Speaker 1: What he did look at the testimony by Amway distributors
Speaker 1: that Amway called were all from people who lived outside
Speaker 1: of the areas Joe had found market saturation data for
Speaker 1: Let me read to you two sentences, okay. The complaint
Speaker 1: allege is that distributors are not long likely to recruit
Speaker 1: other distributors because recruitment of additional participants must have necessity
Speaker 1: ultimately collapsed when the number of persons theretofore recruited has
Speaker 1: so saturated the area with distributors or dealers as to
Speaker 1: render it virtually impossible to recruit others. That's actually a quote.
Speaker 1: Now now in the very next sentence, this is what
Speaker 1: he says. And don't ask me to tell you why
Speaker 1: he said it. Okay, Okay. The term saturation as used
Speaker 1: in the Complaint and Black Complaint Council as one of
Speaker 1: the legitimate proofs in a case involving a pyramid distribution scheme.
Speaker 1: And then he cites Costcott, Holiday, Magic and Jeremore. And
Speaker 1: then he writes, since Amway is not such a pyramid,
Speaker 1: the concept is immaterial here and I'm not allowed to.
Speaker 1: Don't ask me to explain that, please, I won't. I won't.
Speaker 1: It's gonna I'm gonna it's gonna. I'm gonna need I'm
Speaker 1: gonna need a shadow whiskey. I won't ask you to
Speaker 1: explain it, But can I ask you if it made
Speaker 1: sense to you? Here's here's what I feel comfortable saying.
Speaker 1: I don't understand it for this reason. Let's assume that
Speaker 1: he's right that Amway is. He said it's not a pyramid. Okay,
Speaker 1: he doesn't say what it is, but let's assume it's
Speaker 1: the some term. Let's call it multi level. Okay, So
Speaker 1: Costcott and Halliday, Magic and Jeremore are pyramids and Amway
Speaker 1: is a different type of operation. Why he made that distinction?
Speaker 1: In my mind, we offered evidence of saturation regardless. I
Speaker 1: feel like I need a whiskey too. Okay, what if
Speaker 1: there was saturation. Is it immaterial? I mean, he's not
Speaker 1: saying that there was no saturation, he's saying that it's
Speaker 1: immaterial because we did not prove that there was no
Speaker 1: one left to be recruited, and that was not how
Speaker 1: we defined saturation. There was one that he did find
Speaker 1: in favor of, and that was vertical price fixing, a
Speaker 1: lesser charge definitely one that wasn't going to bring the
Speaker 1: company down. But for this charge, Joe had some pretty
Speaker 1: compelling evidence. We had a tape recording. Can the tape recording.
Speaker 1: We had a tape recording of the president of Amway
Speaker 1: telling its distributors that they had to maintain the prices,
Speaker 1: but they should not put this in writing to their
Speaker 1: distributors because if they put it in writing, the FTC
Speaker 1: would find out about it and they would swoop down
Speaker 1: on them so fast that their heads would spin. So
Speaker 1: you put that on tape, and we subpoened all their
Speaker 1: tapes and we found it all right. So they nail
Speaker 1: them because the literally the guys who were sitting there
Speaker 1: on trial, whoops, they were recorded saying we are doing
Speaker 1: vertical price fixing exactly. There was no way he couldn't
Speaker 1: get them on that. And remember the president of Amway
Speaker 1: was rich of Os so Joe called him to the stand.
Speaker 1: So he was the person on the tape recording. You
Speaker 1: wanted him to authenticate the tape, right, and did he Yeah? Well,
Speaker 1: well the judge relied upon it. Yeah, I mean he
Speaker 1: came close to saying yes, you're right. So that was
Speaker 1: the decision by the Administrative Law Judge. And after the
Speaker 1: Admin Judge makes his decision, both Joe and Amway have
Speaker 1: the right to appeal that decision back to the FTC,
Speaker 1: which they both did. At the Commission. There's a five
Speaker 1: member panel politically appointed that listens to the appeal and
Speaker 1: makes the FTC's final decision on the case. So the
Speaker 1: Commission finds in favor of vertical price fixing, just like
Speaker 1: the Admin LAD judge did. Because there was a tape,
Speaker 1: there wasn't anything they could do. Yeah, they reversed the
Speaker 1: Admin Lad judge on misrepresentation of earning's potential. So they
Speaker 1: basically said to Joe, you proved that. Quit telling people
Speaker 1: they'll have a Lamborghini in a month, right, Okay. But
Speaker 1: what they didn't reverse is the market saturation charge, the
Speaker 1: charges that would have ultimately stated that Amway was a
Speaker 1: pyramid scheme. So between the Administay of lad Judge and
Speaker 1: the Commission, somewhere along the way, the concept of saturation,
Speaker 1: and again the Administry of lawd Judge actually says it outright,
Speaker 1: was considered either immaterial or redefined. I'll tell you this.
Speaker 1: I saved a couple of documents in the Amway case
Speaker 1: that they're in the public record, and I saved them
Speaker 1: for a reason because I just couldn't believe that the
Speaker 1: Commission's decision. We had evidence of the string of distributors
Speaker 1: recruited over a period of four or five years, with
Speaker 1: numbers mostly nineteen seventy one through nineteen seventy five. You
Speaker 1: know why aren't my numbers in the record. That this
Speaker 1: is the way the initial decision was written. Now, I'm
Speaker 1: not telling you that we proved saturation to an absolute certainty.
Speaker 1: That's for others to decide. I'm telling you I offered
Speaker 1: evidence of it, and that the Administrative Law judge he
Speaker 1: didn't reject it, he ignored it. There's a difference. So
Speaker 1: what he's saying is is that in his the data
Speaker 1: that he originally presented in the trial showing market saturation
Speaker 1: year by year by year, the number of distributors is
Speaker 1: going down, which means, as proposed by Joe, that it's
Speaker 1: becoming more and more difficult to find people to recruit, right,
Speaker 1: because so many people have been recruited that you can't
Speaker 1: find anymore. Also, there's probably tons of people who are like, oh, no, no,
Speaker 1: you exactly. There are so many ways in which market
Speaker 1: saturation affects the ability of a distributor to actually sell
Speaker 1: their products. One of them being the fact that it's
Speaker 1: difficult to find recruits and that's part of the way
Speaker 1: that you make money as a distributor. One of them
Speaker 1: being that now people are inundated with Amway distributors and
Speaker 1: they just kind of want them to go away, right,
Speaker 1: like I feel on Facebook when I see the makeup
Speaker 1: and candles, right, And so you have all of these
Speaker 1: different Amway distributors, and then throwing the fact that none
Speaker 1: of them can set their own pricing, so they're all
Speaker 1: trying to compete in a relatively small area, selling the
Speaker 1: same products for the same price in the same way,
Speaker 1: and it becomes really difficult. Were you surprised by the
Speaker 1: Commission's decision. No, I was not surprised by the Commission decision.
Speaker 1: Were you surprised by the initial administrative judge? Yes, very surprised.
Speaker 1: I mean you're presented this case. I was surprised. Yeah,
Speaker 1: And that was that. That was that. I never did
Speaker 1: anything after May of nineteen seventy nine involving any of
Speaker 1: these kinds of practices. I never even read the press
Speaker 1: releases that the Commission issued. I went on to other things.
Speaker 1: I guess I didn't tear enough to follow through number
Speaker 1: one and number two. Maybe I was so disappointed in
Speaker 1: the way the Yamwey decision came down that, you know,
Speaker 1: maybe I just didn't care anymore to follow on other cases.
Speaker 1: Clearly they're still around, So what did they suffer any consequences? Yeah?
Speaker 1: They did in one sense. They were supposed to change
Speaker 1: some of the language they used in recruitment. A year
Speaker 1: or so later, the FTC found that they weren't complying
Speaker 1: with that and were ultimately fined. Not a big enough
Speaker 1: find that it was going to take down the company,
Speaker 1: though clearly much It was one hundred thousand dollars like
Speaker 1: one high up distributor's salary, according to what they claimed
Speaker 1: their distributors could make. Yeah, come on, we wanted to
Speaker 1: find out if anything else was going on here? How
Speaker 1: did am We do this? How when all the other
Speaker 1: companies were falling like Domino's, how did Amway not only
Speaker 1: stay standing but continue to grow? We called our resident historian,
Speaker 1: Robert Fitzpatrick. Robert's currently working on a book, Ponzi Nomics,
Speaker 1: The unpold History of Multi level Marketing. He knows more
Speaker 1: about this case than just about anyone besides Joe, but
Speaker 1: comes to it with an outsider's perspective. The only thing
Speaker 1: that Amway introduced to the case that the others did not,
Speaker 1: was it it invented what it called rules. During the trial,
Speaker 1: kind of out of nowhere, Amway comes up with these
Speaker 1: three rules that they pulled out of thin air, but
Speaker 1: presented as something that had been founding principles of the
Speaker 1: company since it had started. So let me read to
Speaker 1: you what the am We rules are. And this again
Speaker 1: is what they said they did on their own to
Speaker 1: ensure that there was no funny business going on. Okay, First,
Speaker 1: and we required distributors to buy back any unused and
Speaker 1: marketable products from their recruits upon request. Wait, like if
Speaker 1: somebody was working under them and was like, I can't
Speaker 1: sell this stuff. Then they're supposed to give them money back. Right.
Speaker 1: We've looked into a lot of buyback policies and they
Speaker 1: are extremely complicated and really really difficult to execute if
Speaker 1: you're the distributor. There are tons of rules around what
Speaker 1: they can buy back. Rule number two and we required
Speaker 1: each distributor to sell at wholesale or retail at least
Speaker 1: seventy percent of its purchased inventory each month, a policy
Speaker 1: known as the seventy percent rule. Anybody who has spent
Speaker 1: ten minutes in business or in sales knows that the
Speaker 1: whole thing is preposterous that you offer an unlimited income
Speaker 1: opportunity to your salespeople. There's this fruit hanging there which
Speaker 1: if you just get out and recruit and recruit and recruit,
Speaker 1: you will make money. But then say, but you're not
Speaker 1: going to get to use that as your method of
Speaker 1: making money. You have to retail. This is going to
Speaker 1: be a retail based business. I mean, it's just preposterous.
Speaker 1: If what it is that you're saying as a company
Speaker 1: is these are independent distributors, they operate their own businesses,
Speaker 1: We don't keep tabs on their financial records, then there's
Speaker 1: no way that you could say you keep track of
Speaker 1: whether or not they are doing this the seventy percent rule.
Speaker 1: The last one is and we required each sponsoring distributor
Speaker 1: to make at least one retail sale to each of
Speaker 1: ten different customers each month, known as the ten customer rule.
Speaker 1: No evidence has ever been presented to prove that am
Speaker 1: We enforces these rules, that these rules are inherent to Amway,
Speaker 1: that they are just a part of the fabric of
Speaker 1: what Amway is. Yet the FTC treated these rules as
Speaker 1: economic and legalistic canons, some almost like scripture. So when
Speaker 1: I first talked to Robert about the Amway rules, I
Speaker 1: just assumed they were some like imposition handed to them
Speaker 1: by the FTC. But then I found out that was
Speaker 1: not the case. Who came up with the Amway rules?
Speaker 1: Amway really, Yes, I always assumed it was the FTC
Speaker 1: that came up with them. No, No, Amway introduced them.
Speaker 1: And nowhere else on earth, nowhere in the law, is
Speaker 1: there such a thing as rules that mitigate a pyramid scheme,
Speaker 1: And nowhere in the business world can you find anything
Speaker 1: similar to it. It was invented during the case as
Speaker 1: the case was going on. But if you read the decision,
Speaker 1: they are treated as if they are legal and economic canons.
Speaker 1: In fact, no data existed or was asked for to
Speaker 1: prove that these had efficacy or that they were valid.
Speaker 1: After that case, the defense of every MLM has been
Speaker 1: We're just like Amway. We have rules. We're retail oriented.
Speaker 1: We require that they sell five or ten retail products.
Speaker 1: They have to sell some percentage of their product every year.
Speaker 1: We have these rules. Don't ask them if they enforce
Speaker 1: the rules, don't ask them for any data on this.
Speaker 1: It's almost impossible to find evidence as to whether or
Speaker 1: not these companies are doing this. They don't keep it.
Speaker 1: They say loudly and clearly that they don't keep the records.
Speaker 1: They would need to present as evidence that they actually
Speaker 1: do this. But the Mway rules aren't even a law.
Speaker 1: There's no law, there's no nothing. It's just what they said.
Speaker 1: They were invented by Amway. They became the cover and
Speaker 1: they allowed I think they allowed the FTC to give
Speaker 1: Amway a pass, and they had to give them a
Speaker 1: pass because these people had enormous political power. Pause. Did
Speaker 1: you know that the Chamber of Commerce is not a
Speaker 1: government body but instead the largest private lobbying organization in
Speaker 1: the country. Yeah, the Chamber of Commerce spends more money
Speaker 1: each year by exponential amounts than any of the big
Speaker 1: lobbies that we hear about regularly. Over the last twenty years,
Speaker 1: they've spent more than the real estate lobby, Blue Cross,
Speaker 1: Blue Shield, and Exon Mobile combined. So here you got
Speaker 1: the finance chair of the Republican Party and the chairman
Speaker 1: of the biggest business lobby in the country on trial
Speaker 1: for fraud. Well, like Joe Brownman, and I think everybody
Speaker 1: believed that somehow there was a kind of legal snapfho
Speaker 1: that occurred here, a flawed decision, an inexplicable decision, but
Speaker 1: most people attributed it to well, the court system or
Speaker 1: the inadequacy of law. Here's what I concluded from it.
Speaker 1: These previous cases that the FTC had prosecuted were based
Speaker 1: on a consensus at that time among regulators that an
Speaker 1: endless chain financial proposition requiring payment to participate and promising
Speaker 1: a reward based on the bringing in of effectively new
Speaker 1: investors who would be faced with exactly the same prospect
Speaker 1: was inherently fraud. That this was self evident, didn't require
Speaker 1: a law because it was obvious. It's mathematically impossible it's
Speaker 1: demographically impossible, and it can be demonstrated on a piece
Speaker 1: of paper that it can't continue. And the last ones
Speaker 1: in will lose, and the last ones in will always
Speaker 1: be the vast majority of all who ever participated. So
Speaker 1: it's inherently unfair, it's inherently deceptive, and it's inherently harmful.
Speaker 1: Amway and Court used a tactic that reminds me of
Speaker 1: the shell game. Sure there's market saturation over here, but
Speaker 1: keep your eye on it. Now. Look over here. Look
Speaker 1: no market saturation right quick before there's market saturation, look
Speaker 1: over here. Essentially, their argument boiled down to this, as
Speaker 1: long as there were new markets to saturate, there was
Speaker 1: no such thing as market saguration. And from that point
Speaker 1: the saturation argument stopped being the MLM killer Joe and
Speaker 1: the FTC thought it would be. But let's go back
Speaker 1: a little further. The case was brought in nineteen seventy five.
Speaker 1: That's when the FTC brought the case against Amway. In
Speaker 1: nineteen seventy four, Richard Nixon resigned in disgrace. He was
Speaker 1: out of office, and his vice president assumed the presidency.
Speaker 1: His vice president was Gerald Ford. Gerald Ford was the
Speaker 1: Congressman for Grand Rapids, Michigan. Grand Rapids the birthplace of
Speaker 1: Amway and home to its founders. I can tell you
Speaker 1: from living near there that chances are if you owned
Speaker 1: a huge fancy house in Grand Rapids, you knew the
Speaker 1: other people who owned huge fancy houses in Grand Rapids, Michigan.
Speaker 1: He was a friend of the van Andls and the Devoces.
Speaker 1: They were major funders of his campaign, and when they
Speaker 1: were now being prosecuted by the FTC, he's the president
Speaker 1: they had, and this was reported in the Washington Post.
Speaker 1: They had a private meeting with gerald Ford while they
Speaker 1: were being prosecuted by the FTC. They later announced that
Speaker 1: gerald Ford was aware of their quote problem with the FTC.
Speaker 1: So is it possible really that the FTC was going
Speaker 1: to truly close down a company that had such political
Speaker 1: influence with the sitting president who was president through seventy six,
Speaker 1: that they could go in and meet with him privately
Speaker 1: and discuss their issue. I don't think so. I think
Speaker 1: anyone with some willingness to look at political realities would
Speaker 1: say that was never going to happen. The meeting that
Speaker 1: they had with President Ford. Did they attend that meeting? Together. Yes,
Speaker 1: And was that the only one that you know of,
Speaker 1: that's the only one that was reported in the media.
Speaker 1: I don't think you need multiple meetings with the president,
Speaker 1: and especially when you go back with him for years
Speaker 1: and years. Was their political influence involved, Well, of course
Speaker 1: there was. There couldn't not be. And you're thinking that
Speaker 1: the FTC was going to close that company down? No.
Speaker 1: And was there a burst of momentum within the industry
Speaker 1: after the Amily case. Absolutely. It began metastasizing, it began duplicating,
Speaker 1: more and more companies were formed, more and more companies
Speaker 1: that maybe had been in direct selling said well, there's
Speaker 1: the future and you can get away with it. So
Speaker 1: now we have put these into a business format. We
Speaker 1: have codified them, institutionalized the endless chain promise. The Amway decision,
Speaker 1: along with what would happen over the next few decades
Speaker 1: between the industry and the Executive Office of the United States,
Speaker 1: paved the way for their currently being about five hundred
Speaker 1: MLMs in operation worldwide. The FTC has shut down a handful.
Speaker 1: Don't worry, we'll be back with that story. Oh wait,
Speaker 1: one last thing. Guess who is the current chairman of
Speaker 1: the Chamber of Commerce Steve Vanandel, Jay's son, also the
Speaker 1: current chairman of Amway. Next time on the Dream, I'm
Speaker 1: still feeling that like overwhelmed feeling where I just I
Speaker 1: don't know where to start. But I'm not doing anything.
Speaker 1: I'm sort of like paralyzed by fear because there's just
Speaker 1: so much I should be doing and I'm trying to
Speaker 1: do it and it's not working. So wait, how much
Speaker 1: is this going to cost? Though? Actually I think it's
Speaker 1: going to cost maybe six or seven hundred dollars. Oh
Speaker 1: my god, I mean I need to stay in a hotel.
Speaker 1: I'm over one thousand dollars now. No, we're way over
Speaker 1: one thousand dollars. Now, We're up to like fifteen hundred bucks. Yeah,
Speaker 1: there is no question in my mind that everyone there
Speaker 1: knows exactly what they're doing, and they literally were just
Speaker 1: confronted with the faces and the stories of the people
Speaker 1: they're affecting and couldn't even bother to look up from
Speaker 1: the other dayers. The Dream is a production of Little
Speaker 1: Everywhere and Stitcher, written and reported by me Jane Marie
Speaker 1: Dan Galucci, Mackenzie cassab Lyra Smith and help from Claire Rollinson.
Speaker 1: We are edited by Peter Clowney. Our fact checker is
Speaker 1: Michelle Harris. The Dream is executive produced by Laura Mayer,
Speaker 1: Chris Bannon, Dan Galucci and me. We appreciate you subscribing, rating,
Speaker 1: and reviewing the show wherever you listen, Hello the Dream listeners.
Speaker 1: Have you had a personal experience with MLMs. We want
Speaker 1: to hear from you. Leave us a voicemail at seven
Speaker 1: one five six zero zero zero three two six, or
Speaker 1: send us an email at This is the Dream podcast
Speaker 1: at gmail dot com.