Sunday, 7 September 2014

Robert FitzPatrick asks: 'How is any endless chain MLM legal?'



WARNING


'Is Multi-Level Marketing 
legal?' 



This frequently asked question can, in itself, be deeply-misleading; for what has been commonly-referred to as 'MLM,' is just a means of shutting-down the critical, and evaluative, faculties of all ill-informed observers in order to dissimulate fraud and prevent victims from facing reality.


In the final analysis, 'MLM' jargon is not a traditional use of language. 


'MLM' jargon is thought-stopping nonsense which has been designed to deceive. 


Therefore, it is the usual policy of this Blog that mystifying 'MLM' jargon should never be repeated without detailed qualification or heavy irony.


In reality, 'MLM' jargon is part of an overall pattern of ongoing major racketeering activity which can be traced back to the 1940s.

Due to the vast number of victims it has touched around the globe, and the length of time it has survived without a rigorous challenge, blame-the-victim 'MLM income opportunity' racketeering, should, therefore, be classified as a criminogenic phenomenon of historic significance.

David Brear (copyright 2014)



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The following article is by Robert FitzPatrick, President of Pyramid Scheme Alert.






International Association to Expose, Study and Prevent Pyramid Schemes
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Pyramid Scheme Alert 
Pyramid Scheme Alert is a non-partisan, non-profit, all-volunteer consumer education group.
Contact Robert L. FitzPatrick, Pres. at 
info@pyramidschemealert.org
Website Update - September 2014 Update 

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In the last Update, I wrote that America's "top government defender" of multi-level
Top "government defender" of MLM, Mark Shurtleff, former AG of Utah, was arrested and charged with bribery.
 marketing, former Utah Attorney General Mark Shurtleff, had been arrested and charged with bribery, along with another former Utah AG who was also known for protecting MLM from pyramid prosecution. Shurtleff took an international leadership role with MLM when he led a successful campaign to roll back Utah's anti-pyramid law and even protected MLMs from being sued by Utah victims. MLMs were among his top campaign donors and Utah has the highest concentration, per capita, of MLM headquarters in the nation.
MLM's most famous attorney has been sued for promoting and protecting the Ponzi scheme, Zeek Rewards, shut down by the SEC

Now, MLM's "top lawyer", Kevin Grimes and his law firm, the most famous in the MLM world, have been sued for "legal malpractice" for deceptively promoting and profiting from the MLM, Zeek Rewards, that was shut down by the SEC as a massive Ponzi scheme.


The law suit brought by the United States Securities & Exchange Commission (SEC) was settled on August 17, 2012. The settlement included agreements for the company and all remaining assets to be handed over to a court-appointed Receiver. That Receiver, is now suing Grimes and his law firm for their role in promoting and profiting from the scam, as a "vendor." Other suppliers and promoters of Zeek Rewards may also be sued.

Grimes, the suit claims, was an important element of Zeek's predatory and deceptive recruiting program. The suit states, "Defendants' negligence and breach of this duty proximately caused an injury to RVG (Zeek victims) in an amount in excess of $100 million." 

CLAWBACK!


But perhaps even more significant than the lawsuit against MLM's top legal expert and court room defender is that the Receiver is also going after as many as 10,000 individual consumers who invested in Zeek Rewards and "won" profits. They are now being sued in "clawback" claims. The Receiver is going after their "winnings."  


In other words, consumers who think they can make money in MLM must not only know that the claims of "unlimited income potential" are false, but also that if they were to make any money at all, they could be sued, if the scheme is ever prosecuted.




 Zeek was an MLM that operated under the disguise of an online "penny auction", in which people paid to bid on items for sale. The SEC prosecuted Zeek as a money transfer Ponzi that gained more than $600 million in its brief 18-month life span. The rewards paid to recruiters came from payments made by the recruits not from the company's or the distributors' profits on the auction transactions. This is equivalent to other MLMs paying rewards to recruiters, based on the purchases and sales of those they recruit. If recruiting stops, purchases stop, and the money transfer collapses. Profits on "Sales" do not support MLM "winners". Recruiting does.Just like the victims of Bernie Madoff's Ponzi, the people who "made" money in the Zeek MLM are now being sued to pay back that money, including Zeek's high profile attorney and legal consultant, Kevin Grimes.


A July 30, 2014 announcement by the  court-appointed Receiver, Kenneth Bell in Charlotte, NC stated, "On March 3, 2014, I announced the filing of a lawsuit to obtain the return of the money paid out to net winners in the ZeekRewards scheme in excess of the amount they paid into RVG (legal name of Zeek scheme). In that lawsuit,...  I made claims against more than 10 of ZeekRewards' largest "net winners" in the United States asking that the Court order them to repay the net winnings they received from the scheme. I also made class action claims against approximately 9,400 ZeekRewards net winners in the United States who each won more than $1,000."

The names of the "winners" have been individually listed and publicized. The receiver's notices and lawsuits can be found at http://www.zeekrewardsreceivership.com.

How Could Consumers Have Known?

Which raises the question repeatedly posed to Pyramid Scheme Alert by consumers - how could anyone have known whether Zeek was legal or not?

The answer is they could not have known. Consumers have, effectively, been left to the mercy of wolves in sheep's clothing when it comes to "direct selling" and "income at home" schemes, aka "multi-level marketing" (MLM). In the case of the MLM, Zeek Rewards, the MLM legal star, Kevin Grimes, aided and profited from the wolf's predatory hunting, and he was an important part of the "sheep" disguise, according to the Receiver's lawsuit against him and his firm.

Zeek Rewards, like every other MLM on earth, claimed to be "perfectly legal". To bolster this false claim it employed the best known MLM lawyer in America, Kevin Grimes, of the law firm, Grimes and Reese P.L.L.C. That law firm's website, MLMLaw.com, was the go-to source for MLM lawsuits, archives of prosecutions, and MLM interpretations of laws. The firm claimed to have advised hundreds of new MLMs about the status of laws and the regulatory environment.

Zeek contracted with Grimes to conduct a "Compliance Test" that all the Zeek participants had to pass. Zeek and Grimes falsely led the recruits to believe that the only way the company would be prosecuted is if they, the participants, broke the law. In other words Grimes helped convince the public that Zeek was so legal it went an extra mile to prevent greedy or untrained consumers from jeopardizing the company's upright and ethical status. Now, Grimes and his firm Grimes & Reese are being sued for legal malpractice and the money they earned is being "clawed back."

Grimes' law firm used to be the in-house attorney for the MLM company, Melaleuca. It counts among its MLM clients the industry stalwarts such as Herbalife, Take Shape for Life (Medifast), Usana and Donald Trump's "Trump Network." Grimes was acclaimed for telling MLMs how to operate "legally." Grimes even reportedly touted his personal history as a former distributor for the MLMs, Amway and Nikken.

Endorsement of Kevin Grimes' law firm by client, Herbalife,
posted on law firm's website 
Since the SEC brought charges against its former client, Zeek Rewards, there is no mention of Zeek Rewards on the law firm's website. In fact, Grimes himself has disappeared from the website, MLMlaw.com, and the firm has been renamed, R&R Law Group.

DSA Support?

Like most MLMs, Zeek Rewards was not a member of the official trade group for MLMs, the Direct Selling Association (DSA). However, Zeek's lawyer/law firm, Grimes and Reese who administered the "compliance test" to Zeek recruits and helped to convince the public that Zeek was "legal," was an award-winning member of the DSA. DSA affiliation through Grimes was an important element in disguising Zeek as "legal."

The DSA announced in 2010 that Grimes & Reese received DSA's "Partnership" Award. The DSA award to Grimes and Reese was personally presented by  DSA's "Hall of Fame" winners. The DSA stated, "Grimes & Reese's expertise in the industry is highlighted by the fact that in all of the major FTC pyramid scheme actions brought against direct sellers in the past decade the defendants have sought out their firm for representation. They have a truly unique understanding of legal expertise, marketing practices, compensation plan operation and industry ethics that enables them to provide legal services to direct sellers that other law firms simply cannot match."
In sum, Grimes, aka Grimes and Reese, world-famous in MLM for keeping MLMs out of jail or helping MLMs fight regulators. The DSA even gave them awards for this work. With his high-profile MLM credentials and award winning DSA-affiliation, Grimes became an important element of Zeek's predatory and deceptive recruiting program, according to the court-appointed Receiver, as well as a major financial beneficiary of the fraud.

The Standard MLM "Endless Chain/Matrix" at Work, Once Again.

Beneath Zeek's rhetoric about "penny auctions"  (little consumer income was ever generated from actual auction transactions) from and "profit sharing" (payments to recruiters came from the investments of new recruits, not true company profits) the scheme was a standard MLM program. The SEC Complaint against Zeek states,

"ZeekRewards also employs a pyramid "Matrix" to reward its investors for recruiting others to join the scheme. The company places each newly recruited affiliate into a "2x5 forced-fill matrix," which is a multi-level marketing pyramid with 63 positions that pools new investors' money and pays a bonus to affiliates for every "downline" investor within each affiliate's personal matrix. Affiliates that have (i) enrolled in a monthly subscription plan requiring payments of $10, $50, or $99 per month; and (ii) recruited at least two other "Each one recruits two more Preferred Customers" (i.e., investors who have likewise enrolled in a monthly subscription plan) qualify to earn bonuses through the Matrix."
"Once qualified, an affiliate earns bonuses and commissions for every paid subscription within her downline 2x5 pyramid, whether or not she personally recruited everyone within the matrix. Furthermore, affiliates are rewarded merely for recruiting new investors without regard to any efforts by the affiliates to sell bids or otherwise support the retail businesses."

The "2X5 forced-fill matrix" is a boiler-plate MLM "binary" pay plan. All MLMs require a qualifying purchase level or fee payment to earn "bonuses", as Zeek did. The classic MLM bonuses are said to grow "exponentially" by an expanding "matrix" of recruits, as they claimed at Zeek. Hundreds of MLMs also require the recruitment of two other participants to qualify for future rewards, often called the "right leg and the left leg" and, after that, the recruitment is carried on by others who continue the one-recruits-two program, forever.

All of MLMs make a false promise of "unlimited" expansion, even though, an "each recruits two" plan could only go 32 levels before the entire earth's population would be in the MLM. And, in all cases, the money for those "bonuses" is sourced, in total or in part,  from purchases and fee payments of new recruits. Even where there is more "external" money, MLM "winners" do not gain profit without recruiting, a model that dooms the vast majority to losses based on bottom-level positions on the chain, not their effort.

Was Zeek Rewards special? Why was it singled out and prosecuted?  If it is not special, then the question that is posed to Pyramid Scheme Alert every day by confused and concerned consumers must be directed to the FTC and SEC, "How is any "endless chain" MLM legal?"
Robert L. FitzPatrick, Pres. 
PYRAMID SCHEME ALERT 

Friday, 5 September 2014

Bob McDonnell convicted of corruption, whilst 'MLM' racketeers continue to buy US politicians.


Despite spending much of his political life steadfastly pretending to be a highly moral heterosexual Christian patriot and happily-married father of five heterosexual children, the former Governor of Virginia, Robert F. (Bob) McDonnell (centre), disclosed during his recent corruption trial that he has split from his wife, Maureen (right); whilst the couple's eldest daughter, Jeanine, revealed in court that her father's squeaky clean public image has been a sham for many years. These tragicomic revelations were the flimsy foundation on which Bob McDonnell's defence rested.





http://www.advocate.com/politics/media/2014/09/05/watch-rachel-maddow-done-bob-mcdonnells-moralizing-marriage


http://www.freerepublic.com/focus/news/800283/posts

Bob McDonnell is currently living with his family's Catholic Priest, Father Wayne Ball, who has the dubious distinction of once being arrested (with a young man) for performing sex acts in a car parked in a public place.







http://www.nytimes.com/2014/09/06/us/politics/for-bob-mcdonnell-a-miscalculation-at-the-scene-of-a-blunder.html?_r=0


In a sensational court case, which must be causing sleepless nights for the many US politicians, and former politicians, who have been co-opted by 'MLM' racketeers (particularly those peddling pseudo-medical wampum), the former (Republican) Governor of Virginia, Bob McDonnell (b. 1954), and his wife, Maureen, have been convicted of conspiring to use his public office to promote what has been (somewhat generously) described as a 'dietary supplement,' in return for substantial bribes.

The first Afro-American Federal Judge in Virginia, James R. Spencer

A federal jury convicted Bob McDonnell of 11 of the 13 counts with which he was charged; Maureen McDonnell was convicted of 9 of the 13 counts with which she was charged. Sentencing will not take place until Jan 2015. Both  McDonnell and wife now face up to 20 years in prison for each of their combined total of 20 conspiracy, fraud, extortion and bribery convictions. In reaction to the mounting list of guilty verdicts, the couple hung their heads in shame and wept profusely before Senior US District Judge James R. Spencer. The McDonnells then left the courtroom separately.

http://www.huffingtonpost.com/2014/09/05/bob-mcdonnell-appeal_n_5770608.html
Bob McDonnell, who is the first ever Governor of Virginia to be indicted for a criminal offence, has declared (via his attorney) his intention to appeal his convictions.


Michele Bachmann, Bob McDonnell and Mitt Romney are shown. | AP Photo

Although it now beggars belief, Bob McDonnell (an outrageous hypocrite who evidently couldn't even manage his own finances, let alone those of his country) had once been widely-tipped as Mitt Romney's running mate for the 2012 Presidential election. However, Mr. Romney's own extensive, sleazy connections with wealthy  'MLM' racketeers (particularly, those behind the latter-day snake oil known as 'Nuskin' ) are even more astonishing.


To date US federal prosecutors, have not  taken the slightest action against any of the numerous public officials, and former public officials, co-opted by 'MLM' racketeers. Yet, it has been widely-reported that Madeleine Albright, and her consultancy company, have been in receipt of $10 millions from 'Herbalife.' Although she no longer holds public office, Ms. Albright's current silence on the embarrassing subject of 'MLM' in general, and 'Herbalife' in particular, should in itself be considered to be an unlawful favour. As I've previously stated in another article, if Ms. Albright still sincerely believes that 'Herbalife' has been an entirely lawful enterprise offering a viable 'income opportunity,' then she's probably too stupid to be held to account.
The McDonnells had been charged with doing favours for the controversial former CEO of 'Star Scientific,' Jonnie Williams, in exchange for more than $165,000 in 'gifts' and 'loans.' They were also charged with submitting fraudulent bank loan applications, and Maureen McDonnell was charged with one count of obstructing justice.
Apparently in return for his co-operation with federal prosecutors, Mr. Williams was not charged with any criminal offence, and it has been reported that he received a 'rare blanket immunity'
During the trial, attorneys acting for Bob McDonnell and his wife, provided painfully-intimate details of the breakdown of their marriage.
For obvious reasons, Maureen McDonnell chose not testify during the trial. However, the former Governor testified in his own defence, claiming that he only gave 'routine political courtesies' to Jonnie Williams. 




http://www.huffingtonpost.com/2014/08/27/jeanine-mcdonnell-testimony_n_5723660.html




Bob McDonnell, and other witnesses (including eldest daughter, Jeanine), divulged embarrassing details about his secret marital problems; particularly concerning Maureen McDonnell's obsessive behaviour towards Jonnie Williams. However, this was perceived by the jury as being part of a defence strategy designed to prove that the McDonnells could not be guilty of a conspiracy, because they had not really been on speaking terms.

Claim: Star Scientific claims its Anatabloc product may be useful in the treatment of traumatic brain injuries
Jonnie Williams testified (under immunity) that he actually spent lavishly on the McDonnells in order unlawfully to obtain their help promoting his 'cure-all, tobacco-derived anti-inflammatory, Anatabloc.' 

Heading the list of bribes was:




  •  approximately $20 000 of designer clothing and accessories for Maureen McDonnell.

  •  a $6 500 Rolex watch for Bob McDonnell. 
  • $15 000 for the catering at one of the MacDonnell daughter's weddings.
  • $2 800 golf club membership fees for Bob McDonnell.



  • various golf equipment and golf trips for Bob McDonnell.
  • various vacations for the McDonnells. 
  • Jonnie Williams also admitted supplying what were described as 'loans' totalling $120,000, to Bob and Maureen McDonnell.
In exchange, the McDonnells:
  • appeared at various 'Anatabloc' promotional events which were reported in the media.
  • hosted a lunch at the Virginia Governor's Mansion which 'Star Scientific' propaganda described as a 'product launch.' 
  • permitted Jonnie Williams to invite a number of his associates to a reception for Virginia health care leaders (also held at the Governor's mansion) 
  •  arranged private meetings for Mr. Williams with two state health officials. 
(It was, thus, revealed in court that Jonnie Williams had tried to legitimize his so-called 'Antabloc' product by being seen to associate with Governor, and Mrs., McDonnell and with senior public officials, and by trying to obtain state funds for research. However, in the end, no applications for research grants were submitted).
Prosecutors explained that it was the McDonnells who had approached Jonnie Williams, because they were in deep financial trouble. Yet, it would seem that the couple must have been a perfect target for an experienced charlatan. Their credit card debt had been around $90,000, whilst they were losing between $40,000 and $60,000 annually on family-owned, vacation rental properties.



Two of  Williams 'loans' to the McDonnells (totalling $70,000) had apparently been intended to subsidise their two loss-making, Virginia Beach, rental houses.




Mr Williams openly stated in court that he first wrote out a cheque for $50,000 in response to Maureen McDonnell's desperate confession that she and her husband had major problems. Williams testified that Maureen McDonnell offered to help his company and that she had experience of selling nutritional supplements.
Bob McDonnell testified in court that he had now repaid all the outstanding loans to Jonnie Williams, but apparently, it has not been disclosed exactly where he suddenly obtained this money.

David Brear (copyright 2014)

Monday, 1 September 2014

US regulators and law enforcement agencies unite to tackle international Pyramid schemes.

Beth Healy
Beth Healy


Given the current tragicomic situation with dozens of US-based, blame-the victim, 'MLM Income Opportunity' rackets ('Herbalife', 'Amway', 'USANA', 'Forever Living Products', 'NuSkin', 'Xango', etc.) still being allowed to steal from a never-ending chain comprising countless millions of people all over the globe, the article posted below might (at first glance) seem to be a piece of heavy satire; nonetheless, Beth Healy reports in the 'Boston Globe' (August 30th 2014):

http://www.bostonglobe.com/business/2014/08/29/regulators-and-law-enforcement-talks-tackle-rapidly-growing-internet-ponzi-schemes/01vDzz4tOzBSc9ps63fKgP/story.html?p1=ArticleTab_Article_


'Authorities in talks to tackle online Ponzi schemes'






'US regulatory and law-enforcement authorities are engaged in discussions about how to stop the worldwide spread of Internet pyramid schemes, following criminal indictments in Massachusetts against the owners of TelexFree Inc., who allegedly conducted a $1 billion global fraud.


The talks involve creating a coalition of federal and state securities regulators, as well as law-enforcement agencies, who would in turn reach out to their counterparts abroad, according to two US officials with knowledge of the effort. The Department of Justice is among the parties participating in the process.

The discussions reflect a growing realization by regulators in the United States and overseas that greater collaboration is needed to fight a new breed of online financial scams that move seamlessly across borders and ensnare victims with unprecedented speed.

“They are beginning to multiply exponentially,’’ said Luis Guillermo Velez, superintendent of companies in Colombia, in a recent interview. In the past year, Velez said, he has shut down three large pyramid schemes in his country, including TelexFree and Emgoldex, outfits that also have thrived in the United States.

“It’s so difficult to identify the people responsible and to really capture them, that at some point there needs to be an international agreement on how to handle this situation,’’ he said.





Officials say today’s online Ponzi schemes can expand so rapidly they make Bernard Madoff’s brand of financial fraud look quaint by comparison. No longer does it take years to attract assets through word-of-mouth referrals. Fraudulent startups barely need an office, never mind banks of telemarketers like those in the boiler rooms of corrupt brokers in the 1980s. Launching an online money scheme appears to require merely basic Web skills, a target audience, and a few slick YouTube videos.

William F. Galvin
“Obviously, the days of securities regulation being done by jurisdiction, based on a geographical area — it doesn’t work any more,’’ said William F. Galvin, Massachusetts’ secretary of state and head of its Securities Division. His office filed civil fraud charges in April against TelexFree, which sold long-distance phone plans but relied on a constant flow of new investors for most of its revenue, according to prosecutors.
In Massachusetts alone, hundreds of investors believe they are owed $90 million by the company, according to Galvin’s complaint. Globally, the figure may exceed $1 billion, authorities say.
TelexFree is an example of how quickly alleged pyramid schemes can spread. Even though it was shut down by a judge in Brazil in June 2013, the company was able to set up shop in Marlborough and flourish here for nearly a year, reeling in hundreds of Massachusetts residents, particularly in Brazilian and Dominican immigrant neighborhoods. Participants were promised large returns if they opened accounts for about $1,400 and helped promote the company by persuading friends and family to join, and approving online ads that touted TelexFree.
Galvin and the US Securities and Exchange Commission started investigating TelexFree once they learned about it. But the company, registered as a telecommunications provider, stayed under the radar by not seeking a license as an investment firm. Regulators say better communication with their foreign counterparts could help prevent such alleged schemes from operating undetected for so long.
Galvin’s office is now investigating Emgoldex Team USA Inc. and its principals for selling gold online in an apparent pyramid scheme. He said the company promises investors large returns if they get other people to buy gold as well.
No one from Emgoldex returned calls seeking comment.
“At the root of it is, they’re promising returns that are just ridiculous. That’s really the essence of what most securities fraud is,’’ Galvin said.
Velez, the Colombian official, shut down Emgoldex in his country in May. He said victims there may have lost $25 million to $50 million. But because Emgoldex is an online entity with locations purportedly in Munich and Dubai, his office so far has found no assets to recover or people to charge.
“Nobody has shown up — no attorneys, no representatives, nothing,’’ Velez said. Panama’s banking regulator is now investigating the company, he said.
Velez has had no contact with US authorities, he said. But he agrees that greater international cooperation could help put a halt to online schemes.
The SEC in March froze the assets of World Capital Market Inc., known as WCM777, in California, charging it with raising $65 million from investors through a Ponzi scheme. The same company also allegedly defrauded investors in Colombia, Velez said. Galvin shut the firm down in Massachusetts in 2013. The company is now in bankruptcy.
Often, these outfits gain traction by preying on particular groups of people.
Madoff, who is serving a 150-year prison term for a massive Ponzi scheme, targeted the Jewish community and nonprofits. TelexFree in the United States focused on Brazilian immigrants. WCM777 pursued Asian-Americans and Hispanic-Americans, according to the SEC’s complaint in Los Angeles.
Even after such firms are shut down, their principals and top promoters often move on to new schemes, with different names. Several people formerly involved with TelexFree, including family members of the principals, are now promoting similar ventures.
One of TelexFree’s American owners, James Merrill of Ashland, is home awaiting trial on criminal fraud charges in the case. His business partner, Carlos Wanzeler, has fled to Brazil, and is considered a fugitive. Both men face up to 20 years in prison if found guilty.
Merrill pleaded not guilty to the charges against him. Lawyers for both men deny any wrongdoing by their clients.
Galvin said achieving international cooperation will require coordination at the federal level.
“If it’s a scam in Columbia, it’s a scam here,’’ he said. “If it’s a scam in Brazil, it’s a scam here.” '

Beth Healy (Boston Globe copyright 2014)