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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In the last Update, I wrote that America's "top government defender" of multi-level
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Top "government defender" of MLM, Mark Shurtleff, former AG of Utah, was arrested and charged with bribery.
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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.
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MLM's most famous attorney has been sued for promoting and protecting the Ponzi scheme, Zeek Rewards, shut down by the SEC
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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.
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| 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
David, Robert Fitzpatrick ask all to arrive at the same conclusion: that if one or more of these MLM's is illegal, aren't they all? That is the question you and I have been asking (in so many ways) for some time.
ReplyDeleteRape is rape, crime is crime, no matter who commits it or where it is committed. If Zeek Rewards is a fraud, then Herbalife is a fraud, Amway is a fraud, Mary Kay is a fraud, Xango is a fraud, In fact all that seek to defraud on the Amway blueprint are illegal, and the MLM institution as a whole should be deemed criminal, face RICO prosecution and its instigators jailed. It's just that simple.
quixtarisacult - Simple when you know how the trick has been pulled, but not at all simple when you don't.
ReplyDeleteThe point which Robert comes close to making, is that fraud and obstruction of justice are unlawful, and when combined, constitute racketeering under US federal legislation designed to combat organized crime.
The mystifying economic pseudo-science labelled 'MLM' has been developed in order to dissimulate fraud and prevent victims from complaining.
When the FTC failed to identify the 'Amway' racket in 1979, this was seen as a license to steal.
Agreed....nothing is ever simple. The more any issue is complicated, the harder it is to solve. Once crime has been construed as business, then, as you say all have a "license to steal."
ReplyDeleteGood info! Thank you Sir!
ReplyDelete