Wednesday, 30 November 2016

'MLM' racketeering case shines a light on 'Herbalife (HLF)'.


More than half a century of quantifiable evidence, proves beyond all reasonable doubt that what has become popularly known as 'Multi-Level Marketing' is nothing more than an absurd, cultic, economic pseudo-science, and that the impressive-sounding made-up term 'MLM,' is, therefore, part of an extensive, thought-stopping, non-traditional jargon which has been developed, and constantly-repeated, by the instigators, and associates, of various, copy-cat, major, and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim closed-market swindles or pyramid scams (dressed up as 'legitimate direct selling income opportunites'), and related advance-fee frauds (dressed up as 'legitimate training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.)


The MLM Racket: Class Action Ruling Exposes Reality Of A 'Direct Selling' Pyramid Scheme

By Robert FitzPatrick


A federal appeals court certification of "class action" status for the lawsuit against the MLM, Stream/Ignite, affects pyramid scheme claims against Herbalife and other MLMs.
The case establishes that the operation of a pyramid scheme is sufficient for "racketeering" charges, tripling the potential damages.
The ruling clarifies the reality that pyramid schemes are inherently deceptive, pre-ordaining participants to losses. The sales of products and other trappings of legitimacy are irrelevant to the outcome.
The ruling addresses the reality that all pyramid schemes are disguised, for the purpose of duping people to believe the scheme is "legitimate." People join Stream/Ignite in that belief.
The Stream ruling may awaken regulators and other authorities from uncritically accepting MLMs as "legitimate", and begin examining economic realities without prejudice or fear.
At this writing, end of November 2016, in the world of "multi-level marketing" most attention is focused on one MLM company, Herbalife (NYSE:HLF). This is mainly due to a 4-year Wall Street battle over Herbalife stock price and a 2-year FTC investigation leading to a prosecution announcement and simultaneous Settlement agreement. The Settlement requires a $200 million restitution payment by Herbalife and basic restructuring of its USA operations, affecting recruiting, participant purchases, retail selling and income claims.
One overriding issue lies at the heart of the Wall Street-Herbalife controversy, the FTC-Herbalife prosecution, and, whether stated or not, all other controversies, lawsuits, and prosecutions involving other MLMs such as Nu Skin (NYSE:NUS) or Usana (NYSE:USNA). That issue is "Pyramid Scheme." It is not possible that Herbalife is uniquely or anomalously operating a pyramid scheme, since all MLMs are based on the same recruiting business model, top-loaded compensation plan, and endless chain income proposition. All have the same loss, failure and churn rates among participants. The devastating and hilarious treatment of Herbalife by satirist John Oliver on HBO and Youtube (6.5 million views) extended the label of "pyramid scheme" across the entire MLM "industry."
In addressing this underlying and fundamental issue of inherent fraudulence, a recent US Fifth Circuit Appeals court ruling granting class action status to a lawsuit brought against another MLM, called Stream/Ignite, (Juan Ramon Torres; Eugene Robison, v. SGE Management, LLC. et al.,) may have greater and longer-term impact than all the heat and noise around Herbalife. The lawsuit, originated and driven by Houston attorney, Scott Clearman, argues that the MLM, Stream/Ignite is engaged in "racketeering," under the Racketeer Influenced and Corrupt Organizations Act, generally known as RICO. The racket's purpose, the case argues, is to perpetrate a pyramid scheme. To do this, it engages in mail and wire fraud. The RICO charge hinges on the underlying charge that Stream is a thinly disguised pyramid scheme. If a jury agrees with Clearman, penalties are tripled under the RICO law.
AARP submitted an amicus brief as did the consumer advocacy group, Truth in Advertising in support of the plaintiffs (MLM victims) in the case. Other reports of the ruling are in Bloomberg News and Dallas News. A good overview of the case is provided at the Truth in Advertising website.
Confusion, Vulnerability to Pyramid Fraud as the American Dream
While almost everyone claims to know in general what a pyramid scheme is, public understanding of this type of fraud diminishes sharply when a pyramid scheme is disguised as "direct selling" and includes selling products. Millions of people fall into this form of disguised pyramid fraud and the FTC has stated that the average person could not be expected to see through the "sales company" disguise. Even though such a disguised fraud will do more harm than a more obvious one would, due its disguise as a real business, the FTC and SEC, America's main regulatory agencies against business frauds, have closed down only about two dozen such schemes in 30 years. These few had wreaked enormous harm on an international scale, duping millions of victims and causing billions in consumer losses. Those MLMs that were prosecuted looked and acted just like the others that the FTC and SEC allow to operate with impunity. Neither agency has provided a usable guideline for legality. Two specific and inexplicable regulatory actions in 2016 reveal the regulatory breakdown:
1) The SEC forced the shutdown of the MLM, Zeek Rewards for operating a pyramid scheme. This was done in a Settlement agreement in which Zeek did not admit wrongdoing. Then, the Dept. of Justice prosecuted the CEO of Zeek, Paul Burks, for criminal fraud. The DOJ did not try to prove Zeek was a pyramid scheme but only that the CEO employed deception to gain money from hundreds of thousands of people resulting in most losing money. A jury quickly found him guilty, despite his defense of being a "legitimate MLM." Burks now awaits a prison sentence that may keep him in jail for the rest of his life.
2) At about the same time, the FTC concluded that the MLM, Herbalife, was also engaged in massive deception leading to even greater losses from even more people and over a much longer period of time. Herbalife also signed a Settlement agreement in which it did not admit wrongdoing. Herbalife, however, was allowed to stay in business, subject to payment of a $200 million fine and agreement to stop illegal practices. Subsequently, no criminal charges were filed by the DOJ. The CEO was not prosecuted. Billions in shareholder funds are still in his trust.
One can only conclude that size, wealth, and, apparently, political influence among MLMs (Paul Burks had no political friends in high places and did no significant lobbying) determines which ones get prosecuted, among the very few that ever do. Overall, the MLM model remains unexamined, unregulated, seemingly above the laws against fraud.
"Multi-level marketing" enterprises, the sector that includes Zeek, Herbalife and Stream/Ignite and the source of the pyramid scheme confusion that leaves the public so vulnerable, are everywhere these days, at work, in churches, synagogues and mosques, at family gatherings, online, all over Facebook, and at high school and college campuses. This phenomenon of the pyramid income proposition replacing true work opportunity and outrageously representing itself as the promise of the American Dream is primarily due to government corruption, incompetence and neglect. If MLMs are frauds and not the extraordinary income opportunity they claim to be, millions of consumers reason, how could so many operate openly? It has reached a scale where the recruiting scheme is now viewed by millions of Americans as the last best hope for opportunity, while traditional jobs, trades, professions, businesses and public service work are viewed as unattainable, unfair, or diminished in value, just as MLM promoters constantly declare.
The Disguise and Disinformation of Products and "Sales"
But beyond MLMs buying protection from the law, there is the matter of the disguise itself. Pyramid schemes of the "product" type can be elaborately disguised organizations, with manufacturing facilities, distribution centers, lobbyists, lawyers, and even stock sold on exchanges. The camouflage is enhanced by years of confusion and dis-information sown by the Direct Selling Association that falsely spreads the story that any enterprise that gains revenue from product-purchase transactions is exempt from the definition of a pyramid scheme.
In fact, as indisputably verified by math and tragically revealed in the documented losses among MLM participants, approaching 100% loss rates for those joining each year, a pyramid scheme is the same deceptive and destructive fraud whether it is a simple chain letter, a Madoff-style Ponzi or a global "sales" operation like Herbalife. Last-ones-in always lose and the last-ones are always the vast majority of the total.
Implications of Steam/Ignite Lawsuit for Other MLMs
Stream/Ignite, now the defendant in a class action pyramid scheme lawsuit certified by a federal appeals court, purports to sell energy services such as electricity. It does not produce or own or have any expertise in energy but functions merely as a reseller. The case argues that reselling electricity in the open market is not a viable and profitable business for Stream. It serves as a device for the real business, the plaintiffs claim, of perpetrating a financial fraud; a fraudulent pyramid income promise generates the "sales" not the value of its product offering.
In the suit's litany of revelations of Stream/Ignite's income claims, structure, pay plan and marketing tactics, Houston attorney Scott Clearman demonstrated a rare insight into the reality of multi-level marketing and the nature of a pyramid scheme disguised as "direct selling." The court ruling certifying Clearman's RICO suit as "class action" to represent about 200,000 victims of Stream/Ignite, may put all other MLMs at risk for similar RICO/pyrramid scheme charges and lawsuits. The federal court's positive ruling on class certification on the case will be cited in other cases against MLMs.
Beyond its legal impact, the logic and reasoning that support Clearman's arguments are important for understanding what a pyramid scheme is and for penetrating the "sales company" disguise. This form of disguise (other large-scale pyramids are disguised differently as social clubs, personal growth programs, or "sharing/gifting" networks) not only obscures the money transfer and economic harm, but even more importantly, the purchase transactions are designed to obscure the recruiting incentives, impossible income promises and to confuse the millions of people that fall victim.
The payment for the right to gain rewards from recruiting is disguised as a "purchase" transaction, even when a purchase is required to gain the right to recruit and recruiting a certain number of people is required to obtain rewards, and most of the purchases are made by the recruiters.
When the financial data reveal massive losses and obvious ties between purchasing and recruiting rewards, the perpetrators claim the motives of the victims are related only to purchasing products, rather than seeking income. Even the act of recruiting is obscured since rewards also require that the new recruit make a purchase before the recruiter can actually be rewarded. The false identity of a "sales company" serves to protect the executives from fraud charges and confuses the victims about how they lost their money. Also after victims have engaged in the required purchasing and recruiting, many understandably become fearful that they are now implicated, making any complaints to authorities unlikely. The code of silence is maintained by inducing victims to believe they are also perpetrators.
Products as Currency Supplemented by Fees and Charges
Stream is a typical MLM, however, the key elements of a pyramid scheme - (1) pay-to-play-purchasing, (2) endless-chain recruiting-requirements and (3) rewards-for-recruiting and (4) closed market/absence of retailing - are more readily recognized at Stream than in some other MLMs. As a reseller, not a producer, of energy, Stream starts out with only a very small gross profit margin. Under the classic MLM program the entire "upline" chain of recruiters gets a "commission" on every purchase of electricity made by those recruited and their "customers," if they have any. The lawsuit claims that Stream/Ignite makes little or possibly no net profit at all on reselling electricity. But, whether the enterprise is profitable or not (as a private company, its books are not public) from reselling electricity, it is impossible for Stream to provide adequate funding to pay the whole upline out of this small margin; and that small margin, gained only from months energy purchases, would also not provide the necessary upfront cash for "fast start" bonuses and other typical MLM incentives for immediate recruiting.
Embedding Recruiting Reward Money in Pricing or Adding Fees
This financial limitation differs from schemes like Herbalife or Nu Skin that make their own "products" and can set high prices yielding gross margins as much as 80% or even more, out of which they pay 40%-50% in recruiting rewards, with the rest covering operations, administration and profits to the owners. In those schemes, almost all the recruiting rewards are embedded in the inflated price of the commodities, e.g., soap, face cream, protein powered, etc. The key pyramid factors of the endless chain, pay-to-play-purchasing and recruiting-for-rewards are the same in all MLMs but the funding for the rewards is more obscured by embedding the payments-to-participate and the rewards-for-recruiting inside the product's high price.
Like some other MLMs - such as North Carolina-based ACN, another "energy and utility" MLM, and the one hyped personally by Donald Trump - that also have lower-margin goods or services to sell, Stream is forced to get additional money from participants besides product/service purchases. In Stream's case, each recruit must pay over $300 to sign up and about $30 a month to remain qualified. This gives Stream tens of millions in additional revenue gained directly and immediately from new recruits and out of which it can pay "endless chain" recruiting rewards and "quick start" bonuses to energize recruiting before the "losing" recruit eventually quits.
The difference between the high-margin and low-margin MLMs is incidental. In fundamentals, these two types of MLM schemes are otherwise identical and they produce exactly the same loss rates since "rewards" are based on the "endless chain" recruiting that flows upward from last to first. Stream just offers a clearer window into the "direct selling" disguise.
No Customers
Supporting the view that Stream's true business is a pyramid recruiting scheme, the class action lawsuit offers evidence - the very same type of evidence is often presented in other MLM cases - that profitable "retail selling" is not feasible for the participants and the pay plan does not support retailing, aka "direct selling" and none of the participants are profitable from personal selling.
In the Stream pay plan, (as in nearly all other MLMs) almost no customers are required for a recruit to qualify for recruiting rewards, and very little income could ever be gained from just personal reselling. Each participant generally has only a few real customers to qualify for the promised recruiting money. Under the recruiting-based plan, recruiters can even count themselves and the purchase of the scheme's website "back office" as "customers" for reward qualification purposes.
The only feasible way for the participant to gain a net profit is not from "reselling" electricity to customers, but from recruiting others into the pay plan that do the same. The lawsuit's claim that Stream's and its distributors' profitability is based on recruiting not retailing, and that the retailing opportunity does not exist are exactly the same charges the FTC leveled against Herbalife. By design and the laws of math, such a recruiting-based income plan must result in only a few of the total ever being profitable since their profits must be based on the unprofitable work and payments of all the others. Additionally, the vast majority of all participants must, by design, be in the no-profit bottom ranks. What makes this calculated scam more visible at Stream is that, even with a significant downline, the rewards gained by a dedicated recruiter as "commissions from the reselling of electricity" would be minimal due to the low margin that Stream has available to work with as a reseller. The plan can only work if more recruits are enrolled who pay the $300+ to join and the monthly fees on top of purchasing energy and continue the recruiting process - ad infinitum.
Both the low-margin-additional-fee schemes like Stream and ACN and high-margin schemes like Herbalife, Nu Skin and Usana, (which don't need to charge "fees" but do often induce large volumes of purchases into the thousands of dollars from recruiters) depend totally on deceiving recruits into believing they can make money from "direct selling" and that everyone who "tries" can always be profitable, no matter when they join or where they are on the chain. Also, as in all MLMs, the scheme relies on personal purchasing and fee-payments - from the distributors themselves - obtained through false income promises and quota-driven purchasing, rather than on market-based purchases by actual customers.
Pyramid Scheme Racketeering
What gives the Stream lawsuit special significance is the charge - now included in the certified class action status - of racketeering. RICO is usually associated with prosecutions of organized crime, especially the Mafia. It can also be applied in civil suits, as it is in this case. The racketeering charge has been brought against other MLMs. In fact, the author of the RICO statute, Professor G. Robert Blakey, wrote a famous expert report in a lawsuit brought against the largest of all MLMs, Amway, in which he showed how Amway mirrored a Mafia organization, exhibiting the defining characteristics of a racket:
  • engaged in illegal activity (deceiving and harming consumers);
  • was closely held by two families;
  • top-gun recruiters, numbering about 8 at the time of his report in the late 1990s, equivalent to Mafia families working under the authority and in close coordination with the ruling families;
  • a diverting labyrinth of official-sounding corporations to prevent law enforcement or money tracing;
  • real operation dictatorially governed through an informal network of power relationships between the families, top recruiters, downliners, attorneys, and suppliers, equivalent to the famous Mafia hierarchy of Don, Underboss, Consigliere, Capo, Soldier and Associate;
  • everyone in the organization required to abide by the rules exactly; no innovation, independence or dissent allowed. Any efforts at change or objection within the ranks is met with immediate dismissal or extreme financial and social punishment;
  • code of silence;
  • through a uniform set of policies and the total dependency of the recruiting "families" on the ruling families, even the lowest level and newest recruits are required to follow the rules totally without deviation. Any sign of defection or independence can be quickly detected by the recruiting organizations whose responsibility is to report any deviance and deal with it swiftly. As Dr. Blakey noted, such imposition of uniformity and obedience can extend even to clothing styles sales, vocabulary, attitude expression, sexual practices and family relations. "Amway becomes a way of life for its participants, much like those involved with the Mafia," Blakey wrote.
In the Stream case, the plaintiffs argue Stream's true purpose is to operate a pyramid scheme. The promoters collaborate with the knowledge of operating a "robbing Peter to pay Paul" enterprise, that will not - and cannot - deliver on its advertised promise of an "income opportunity" to any more than a tiny handful at the top; all others are doomed to losses. The collaboration involves deceiving and cheating over 200,000 people out of tens of millions of dollars. The underlying nature of the scheme as a pyramid scheme makes the collaboration an act of racketeering, including mail and wire fraud.
The lawsuit and the federal court ruling affirming class action status cut through decades of confusion and disinformation about what a pyramid scheme is, and how people are lured into them and harmed. For example, the suit argues and the court agreed that it is Stream's claim to being a "legitimate MLM" that draws people into Stream/Ignite. Therefore, if a jury finds that Stream is a pyramid scheme, "the legal requirement of RICO, that a cause exist between company actions and victims' harm is met "through a common sense inference that they (Stream participants) were duped into joining the pyramid scheme based on the representation that Ignite is a legitimate enterprise."
Further, the case argued, and the court agreed, that injury to victims is not subject to the classic MLM defense that the causes for losses are specific to each "loser," e.g., dropped out, did not follow the plan, did not try hard enough, did not want to make money in the first place or that the victim must prove specific misrepresentations by the company. The court accepted the lawsuit's claim that "it is enough to show that a 'foreseeable and natural consequence' of the allegedly unlawful pyramid scheme is "that the vast majority of the unwitting IAs (participants) would lose money."
As the court stated, " Pyramid schemes are 'inherently fraudulent' and are per se mail fraud, a RICO predicate act. And, by design, a pyramid scheme's fraud inheres in its concealment of the deceptive nature of the "robbing Peter to pay Paul" payment structure."
Simple translation:
(1) The vast majority of people that join a pyramid scheme are doomed from the start whether or not they "try" or "want" to make money or not, or follow rules or not or "believe" or not or even whether the company lied to them. Virtually all who join will meet the same fate by virtue of the scheme itself, not due to any personal circumstance or individual experience in the scheme.
(2) All pyramid schemes disguise their true nature and so no one can be said to have voluntarily "joined" a MLM that operates a pyramid scheme. What they think they joined - e.g., direct selling - is not the reality.
Confusion or Willful Ignorance about Pyramid Scheme's Inherent Deception?
Perhaps the most important aspect of the federal court's class action affirmation is that it upheld the basic premise of this lawsuit. This is that if the MLM, Stream is found to be a pyramid scheme by a jury, all the disguise of sales and the contradictory statements and promises and disclaimers are irrelevant. RICO-fraudulence is based upon what the scheme is, not in specific actions, statements, products or policies. All of that is just disguise and disguise is an intrinsic element of all pyramid schemes.
Despite the reality of the inherent deceptiveness of a pyramid scheme with preordained harm to participants and despite the reality that "disguise" is an integral part of such a racket, the "sales" disguise seems to overwhelm, confuse and stop many legislators, journalists and regulators from even examining MLM reality. The disguise is accepted without inquiry, on faith, almost as if the scheme would have to tauntingly advertise itself as a fraud for the regulators to wake up. As long as the pyramid is properly dressed up to look like a real business, the regulators appear oblivious and make no investigation. This has led to epic regulatory neglect and to the sad practice of major news organizations mindlessly re-publishing provably and obviously false data from the Direct Selling Association - including totally impossible "income averages" as valid facts, without fact checking! It has also led them to ignore obvious contradictions of economic fundamentals and the laws of math and physics, such as the claim of immunity from market saturation, "infinite" sales chains" and eternally unlimited opportunity. The absurdity, the irony and the tragedy manifested in the MLM data on losses and churn rates seems to completely elude the media and the regulators. All manner of ridiculous rationalization have been accepted or concocted to evade facing reality.
Pyramid Fundamentals
Dissecting a MLM pyramid requires only a basic understanding of the fundamentals of pyramids, including its essential element of disguise. Expertise in economics, law, marketing or finance can sometimes be as much handicap as asset. What is most needed is the freedom of mind to evade preconceived perspective. For example, it is nearly impossible to see the pyramid if the scheme is accorded, from the start of an inquiry, the status of "direct selling" or even "legitimate business." This type of flawed or pre-judged approach taken by many journalists and regulators is illustrated in their futile search for some "bright line" of illegality, to distinguish the "good" MLM from the fraud. In searching for evidence of "inventory stockpiling", for example, they gloss over the fraudulent income proposition based on "infinity" that led to the inventory purchases in the first place and pay little regard to 99.7% loss rates.
Many investigators unthinkingly accept MLMs' identity of "direct selling" even though the MLMs encourage all their "direct sellers" to recruit their own competitors! One-on-one sales is claimed to be the basis of the MLM business while profitable direct sellers cannot be found, only predatory recruiters.
Legal scholars, major economists, universities or investigative journalists are oddly missing from this international controversy, despite hundreds of billions in consumer losses globally, Wall Street warfare, class action lawsuits, whistle-blowing websites and books, FTC and SEC prosecutions, and the shocking exhibition of millions of people being led to believe that MLM is their only hope to achieve the American Dream.
In its certification of the Stream lawsuit as "class action," the US Fifth Circuit Court of Appeals has perhaps opened the door for regulators and others to finally look past the disguise and examine MLM economic reality. Citing a much earlier landmark FTC case against the MLM fraud, Koscot Interplanetary, the court wrote, " Indeed, the very reason for (pyramid schemes') per se illegality... is their inherent deceptiveness and the fact that the futility of the plan is not apparent to the consumer participant."
And it went on, "Because pyramid schemes are per se mail fraud, which include inherent concealment about the deceptive payment scheme, one who participates in a pyramid scheme can be harmed 'by reason of' the fraud regardless of whether he or she relied on a misrepresentation about the scheme. An inherently fraudulent pyramid scheme . . . would fall within the broad definitions of fraud under RICO even if no misrepresentations occur. Participants are then harmed by the fraud involved in pyramid schemes not because of any misrepresentations, but because … harm to participants, is a direct and foreseeable consequence of such structure."
When the true nature of a MLM pyramid is understood and its inherent deceptiveness is grasped, the fact that hundreds of such schemes are allowed to operate can only be seen as an American tragedy.

Robert FitzPatrick (copyright 2016)

Thursday, 24 November 2016

'MLM' Pitchman, Donald Trump, Picks 'MLM' Racketeer, Betsy DeVos, as Education Secretary.


More than half a century of quantifiable evidence, proves beyond all reasonable doubt that what has become popularly known as 'Multi-Level Marketing' is nothing more than an absurd, cultic, economic pseudo-science, and that the impressive-sounding made-up term 'MLM,' is, therefore, part of an extensive, thought-stopping, non-traditional jargon which has been developed, and constantly-repeated, by the instigators, and associates, of various, copy-cat, major, and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim closed-market swindles or pyramid scams (dressed up as 'legitimate direct selling income opportunites'), and related advance-fee frauds (dressed up as 'legitimate training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.)

Donald Trump,Betsy DeVos

Earlier today my Blog was swamped with visits to 'Amway' pages. I then discovered that Donald Trump has named Betsy DeVos as Education Secretary.

As Donald Trump gets set to take over as the next US President, media attention has again suddenly focused on what he will do with his business and whether his largely-opaque money making activities represent a conflict of interest prohibited by the US Constitution.

During the campaign,Trump never stopped boasting of his tremendous wealth and business skills. He now claims he will hand complete control of his business to his three eldest children - Donald Jr, Ivanka and Eric. However, this move has done nothing to allay fears that Trump will exploit the presidency to his own financial advantage and to that of his associates.

To date, only a few journalists have delved into Trump's 'MLM' racketeering activities, but perhaps the appointment of Betsy DeVos will change this situation.

For decades, the Utopian 'MLM income opportunity'  lie has been used to bedazzle, blame and steal billions of dollars from, millions of constantly-churning victims around the world. 

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See original image

The appointment Ms. DeVos to an influential position of government in itself represents a huge conflict of interest. For a start, she is a prominent member of one of the original 'Amway' cultic crime families, whilst her brother, Erik Prince (the instigator of 'Blackwater'), has been one of the most-controversial figures in the USA in recent years.

David Brear (copyright 2016)


Saturday, 19 November 2016

Donald Trump now capitulates - agreeing to pay back $25 millions to more than 6000 of his victims

Donald Trump listens as Michael Sexton speaks at the launch of the Trump University investment school in 2005Image copyrightAP
Image captionDonald Trump with Michael Sexton at the launch of his fake 'Trump University Investment School,' in 2005.

Donald Trump was being sued by more than 6000 victims whom he'd conned into handing over up to $35 000 (£28 000) each in exchange for what he falsely-described as  'real estate secrets taught by his own hand-picked instructors.'
Previously, Mr Trump had repeatedly lied to US electors by boasting he would never settle these class-action lawsuits, because he was completely innocent and was, therefore, easily going to win them.
New York Attorney General, Eric Schneiderman, has described this development as 'a stunning reversal by Donald Trump and a major victory for the victims of his fraudulent university.' 
Predictably, Trump's lead attorney, Daniel Petrocelli is now pretending that his client is pleased with the outcome, saying 'he was willing to sacrifice his personal interests, to put this behind him, and move forward.'
Trump faced three lawsuits - two in California and one New York. One of the California suits accused him of racketeering.
The trial in the first (non-racketeering) California case had been due to begin in San Diego federal court on November 28th. 

Media captionTrump's attorney, Daniel Petrocelli. 

Mr Schneiderman, whom Mr Trump has attempted to character assassinate, had sought  $40 millions to compensate victims of the fake university which was forced to close in 2010. Earlier this year, Schneiderman described Trump's operation as a 'fraud from beginning to end... preying on desperate people.'
At no stage has Donald Trump expressed the slightest concern for any of the plaintiffs in these cases. Indeed he has posed as the victim himself, despite the fact that he personally pocketed around $5 millions.
At first glance, perhaps the most astonishing aspect of these matters, is the fact that Trump was never arrested and has not faced criminal prosecution, but then, even though it bore his name as bait, the 'Trump University' advance fee fraud was deliberately set up behind a Mafia-style front of legally-registered corporate structures designed to prevent, and/or divert, investigation, and isolate Boss Trump from criminal liability. Yet this type of criminogenic system is exactly what the US federal Racketeer Influenced and Corrupt Organisations Act, 1970, was originally drafted to tackle.
David Brear (copyright 2016)

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Wednesday, 16 November 2016

Donald Trump - A Face in the Crowd.

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Image result for a face in the crowd

This morning I was reminded of an insightful movie from 1957.

I would invite all Blog readers to watch 'A Face in the Crowd' (Written by Bud Schulberg. Produced and directed by Elia Kazan). 

Image result for vitajex
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See original image

At approximately 44 minutes, the movie begins to take the piss out of the original 'MLM' wampum, 'Nutrilite (aka 'Vita- 6' or 'Vitasol') which Schulberg thinly disguised as 'Vitajex.'

 In 1934, Carl F. Rehnborg (aged 48) created California Vitamins Inc.’, allegedly to manufacture and distribute what he arbitrarily defined as' the ‘World’s First Multi-Mineral/Multivitamin Plant-Based Food Supplement - a Unique Combination of Vitamins and Minerals in a Special Base.’ At first, this so-called ‘Health Tonic’ was brewed up, and peddled as 'Vita-6'  a.k.a. 'Vitasol,' in insignificant quantities. Consequently, it was of no particular interest to regulators. However, anyone with an ounce of common sense could immediately tell that Rehnborg’s ‘invention’ was just another essentially-inert potion (in the absurd tradition of the medicine show); a random mixture of cheaply-procured common substances with an expensive price tag. It had probably taken Rehnborg 6 hours to concoct, not 6 years.

Carl F. Rehnborg  circa 1939

By 1939, Rehnborg had spotted the existing term, 'Nutrilites' (probably in an old scientific magazine). So he legally-changed the name of his pay-to-play game of make-believe to the technical-sounding ‘Nutrilite Products Company Inc.’ and moved his quackery onto an almost unprecedented scale. Soon, Rehnborg was legally employing dozens of white-coated workers in purpose-built industrial buildings in Buena ParkCalifornia. He also acquired an alfalfa farm near to the city of Hemet in California's San Jacinto valley, but it is unclear exactly where he suddenly found all the necessary capital to pay for these impressive sites and their modern equipment. To his followers and casual observers, Rehnborg’s activity looked like any other lawful enterprise. His staff were ordinary honest folk, to whom the truth was also unthinkable. At this time, Rehnborg rechristened his potion ‘Nutrilite Double X (‘XX’Supplement.’ He now proposed to offer it as two ‘complimentary products’ in one pack -  comprising little green bottles of bright red ‘Multivitamin Capsules’ and boxes of pale-coloured ‘Multi-Mineral Pills.’ The product was deliberately designed to look modern and scientific (like a proprietary medicine), but, tellingly, the price was fixed at just less than $20 a box (the equivalent of several hundred dollars today). Rehnborg claimed that the ‘XX’ brand-name was derived from the Roman numeral representing twenty. It should have been read as ‘double cross;’ for when the former toothpaste salesman’s pricey wampum was routinely analysed by independent chemists working for the FDA, it was discovered that (although it contained essentially what it said on the labels and was quite harmless) ‘XX Supplement’ really did mostly comprise a random mixture of cheaply-procured, common substances (dried vegetable extracts: alfalfa; parsley; watercress; yeast; etc.). FDA experts later estimated that ‘XX Supplement’  cost no more than a few cents a pack to produce. Thus, FDA lawyers must have known that Rehnborg was, in fact, using authentic pharmaceutical equipment to mass-produce a precisely-measured, harmless placebo, but labelled as a ‘Health Tonic’ (a meaningless term), and peddling it at an exorbitant mark-up (certainly, more than 1000%). This crack-pot pseudo-scientific swindle, which was tantamount to a self-styled 'alchemist' stamping a valueless amalgam of base-metals, 'Pure Gold,' and selling it for the price of pure gold, could have been quickly nipped in the bud, simply by charging Rehnborg with criminal fraud. Apparently, prosecutors never considered the possibility that they might be dealing with someone with severe psychological problems whose own inflexible delusions were contagious. Instead, at first, FDA lawyers felt obliged to take no action; reasoning that, by truthfully listing the banal ingredients, but avoiding making any specific therapeutic claims, on his packaging, Rehnborg had found a loophole in federal laws concerning criminal misbranding of medicines. As result, an up-dated version of an age-old fiction was permitted to be mass-marketed as fact to an unsuspecting public. Unfortunately, the lack of any rigorous, official challenge only brought its author more credibility. Not surprisingly, a host of copy-cat 'Unique Vitamin and Mineral Health-Tonic’ scams quickly sprang up.

As WWII drew to its close, ‘Nutrilite’ had lost its novelty, so Rehnborg (who was approaching 60) had teamed-up with two respectable-looking associates, Lee S. Mytinger and William S. Casselberry (later described by FDA officials as a ‘cemetery-plot salesman’ and a ‘psychologist’). The result was ‘Mytinger and Casselberry Inc.,’ a second corporate structure peddling ‘Exclusive Commission-Agency Rights’ to ‘Distribute XX Supplement’ using (what was first defined by the company’s owners as) a ‘New Business Model.’ In theory… you could try to sell ‘XX  Supplement’ to your social contacts for a small profit, but, if you wanted to make big money, you didn’t need to sell anything… you could buy a monthly quota of ‘XX Supplement’ yourself and sign-up your social contacts to do the same… your ‘Sponsored Recruits’ would then ‘Sponsor’ their own social contacts, etc., ‘compensation’ would automatically multiply in an infinitely-expanding geometric progression‘Mytinger and Casselberry Inc.’offered a mind-numbing ‘contract’ in which the ‘company’ undertook to pay its ‘Independent Distributors’ an escalating ‘monthly commission’ on the totality of their escalating ‘Business Volume’ [i.e.their own regular monthly purchases (falsely defined as ‘sales’), added to the regular monthly purchases (falsely defined as ‘sales’), of their ‘Sponsored Recruits’, and those of the recruits of their recruits, etc. etc. ad infinitum].

In reality, the new set-up was merely the original lie with a second chapter added, but to casual observers ‘Nutrilite Products Company Inc.’ appeared to be exclusively manufacturing for, and wholesaling ‘XX Supplement’ to, ‘Mytinger and Casselberry Inc.,’ whose commission agents, in turn, appeared to be retailing it to the public for a profit. Although ‘XX Supplement’ was presented as ‘Unique,’ it mostly comprised substances which could easily be bought at a fraction of their exorbitant, assembled fixed-price, in traditional retail outlets. The product was effectively-impossible to sell to the public for a profit on the open market. Therefore, the overwhelming majority of its final customers were merely the non-salaried agents of the second corporate structure, which itself was the sole agent of the first corporate structure. In order for them to maintain the false hope that if they signed-up further contributing participants they would automatically become rich, the participants in this dissimulated money game were obliged by its rules to keep handing-over a monthly payment to Mytinger and Casselberry, to be shared with Rehnborg. From all points of view (medical, economic, legal, etc.), ‘XX Supplement’ might have well not existed. It was just a convenient means of laundering illegal payments in a closed-market swindle based on the crack-pot theory of endless-chain recruitment. New victims were supplied with a $49.50 ‘Business Kit’ (i.e. a large cardboard box stuffed with a month’s supply of ‘XX Supplement’ and a fat folder containing page after page of mystifying pseudo-economic/medical presentations and diagrams, and instructions in how to go about remembering, contacting and recruiting everyone they’d ever known during their lives). These presentations contained the concrete evidence which FDA lawyers could use to prosecute Rehnborg, Mytinger and Casselberry. Contributing participants were being instructed to smile, project excitement and enthusiasm, and to recite a precisely-worded script which proclaimed ‘Nutrilite XX Supplement’ to be ‘good value,’ because it could ‘cure or prevent,’ virtually any known human illness.

Even though it wasn’t his area of responsibility, FDA Legal Counsel (1939-1971), William H. Goodrich, was probably the first senior US law enforcement agent to deduce that the innocent baby that Rehnborg, Mytinger and Casselberry had baptised a ‘New Business Model’ (later to become known as: ‘Multi-Level Marketing’) was actually the same old delinquent previously known a 'pyramid scam.’ Again, anyone with an ounce of common sense could work out immediately that, since Rehnborg had been peddling medical alchemy, the strong likelihood was that Mytinger and Casselberry were peddling economic alchemy. The sinister trio of quacks were obviously acting in association, but agents of the Food and Drug Administration and those of the Federal Trade Commission acted independently. At this time, anti-racketeering legislation did not yet exist in the USA. However, in the late 1940s, the rapidly-expanding ‘XX Supplement’ dossier was already in the hands of FTC lawyers. Apparently, prosecutors still never considered the possibility that they might be dealing with persons suffering from severe psychological problems and whose own inflexible delusions were contagious. Instead, they still felt obliged to take no action; this time reasoning that Mytinger and Casselberry appeared to have found a loophole in federal laws concerning pyramid scams and Ponzi schemes. As a result, another updated version of an age-old fiction was permitted to be mass-marketed as fact to an unsuspecting publicYet again, the lack of any rigorous official challenge only brought its authors more credibility. Not surprisingly, a host of copy-cat 'income opportunity' swindles (camouflaged by banal, but pricey, wampum) quickly sprang up.

By 1947, Rehnborg, Mytinger and Casselberry were steadfastly pretending  ‘15 000 Successful Distributorships in the USA,’ with ‘sales’ totalling ‘$500 000 dollars per month.’ They had also organised the production of a ‘Free’ booklet, ‘How to Get Well and Stay Well’, in which they further pretended that ‘Nutrilite Double X Supplement’ had ‘cured or greatly helped such common ailments’ as : ‘Low blood pressure, Ulcers, Mental depression, Pyorrhoea, Muscular twitching, rickets, Worry over small things, Tonsillitis, Hay Fever, Sensitivity to noise, Underweight, Easily tired, Gas in stomach, Cuts heal slowly, Faulty vision, Headache, Constipation, Anaemia Boils, Flabby tissues, Hysterical tendency, Eczema, Overweight, Faulty memory, Lack of ambition, Certain Bone conditions, Nervousness, Nosebleed, Insomnia, Allergies, Asthma, Restlessness, Bad skin colour, Poor appetite, Biliousness, Neuritis, Night blindness, Migraine, High blood pressure, Sinus trouble, Lack of concentration, Dental caries, Irregular heartbeat, Colitis, Craving for sour foods, Arthritis, Rheumatism, Neuralgia, Deafness, Subject to colds.’

Rehnborg now cast himself in the role of ‘Scientific Adviser’ to‘Mytinger and Casselberry Inc.’ He toured the USA preaching the gospel to wide-eyed ‘Distributors’ - ‘for less than $20 a month’‘Nutrilite Double X Supplement’ was the ‘Answer to Man’s Search for Health.’ After both companies’ owners were approached by FDA officials and warned that they could face criminal prosecution for misbranding, the booklet was ‘revised.’ Specific therapeutic claims were supposed to be eliminated. ‘All illnesses’ suddenly became a ‘state of nonhealth’ produced by ‘chemical imbalance’.… ‘Nutrilite XX Supplement’ cured nothing, it merely ‘enabled people to Get Well and stay Well’ by themselves. However, pages 41-52 of the booklet still recounted alleged case-histories explaining that ‘Nutrilite brought relief from such ailments as diabetes, feeble mindedness, stomach pains, sneezing and weeping.’ Not surprisingly, the FDA officials were not impressed, so they finally launched a number of raids, and seizures of ‘Nutrilite XX Supplement’ and associated publications.

In 1951, after a series of lawsuits, appeals and counter suits (in which Mytinger and Casselberry hired top lawyers who portrayed their clients as American capitalist heroes being crushed by Soviet-style bureaucracy), the FDA obtained (on behalf of the people) a permanent Supreme Court injunction against ‘Mytinger and Casselberry Inc.’ preventing ‘Distributors’ from referring to 50 publications making false claims about ‘Health Tonics and Food Supplements’ (including various ‘Revised Editions’ of ‘How to Get Well and Stay Well’). FDA agents soon found that the injunction was being flouted. As a result of mounting complaints, they infiltrated the organisation (as potential recruits) and recorded deluded proselytisers chanting the same cure-all mantra about ‘XX Supplement.’ 

Faced with more litigation and fearing that their monopoly of information might be lost, in 1954, Rehnborg, Mytinger and Casselberry hired a leading advertising agency which handled the clean-cut Hollywood star, Alan Ladd. Along with his wife and children, Alan Ladd then briefly-featured in kitsch 'Nutrilite' advertising material published in various mainstream magazines.

The charlatan-trio also paid a team of professionals to produce a 20 minute colour propaganda film, ‘From the Ground up’ (featuring themselves as three nice ordinary American guys turned philanthropic scientists and industrialists), and they began to publish their own propaganda magazine, ‘Nutrilite News’ (stuffed with colour photos of happy, healthy and wealthy ‘Distributors’). 

Amway Co-Founders Rich DeVos and Jay Van Andel (bottom row, second and third from the right, respectively) and their group of senior key agents pose with Nutrilite Founder Carl F. Rehnborg and his wife Edith Rehnborg, in front of their tour bus, 1956.
Richard DeVos and Jay Van Andel (2nd and 3rd from the right, front row), Carl F. Rehnborg (immediately behind Van Andel, second row), circa 1950.

Soon, they were organising ‘Rallies and Seminars’ (addressed by ‘Successful Christian Distributors’ like Rich De Vos and Jay Van Andel). No quantifiable evidence (in the form of audited accounts) was ever produced to prove what percentage of claimed ‘sales’ were authentic retail transactions to the public for a profit, or how many people who’d signed a ‘contract’ with ‘Mytinger and Casselberry Inc.’ had actually received an overall net-profit from the operation of what its instigators arbitrarily defined as an ‘MLM income opportunity’. Excluding the tiny percentage of grinning shills at the top of the pyramid, the hidden, rolling insolvency/churn-rate was 100%. Since there was no significant or sustainable external revenue, participants were actually buying infinite shares in their own finite money. 

In 1959, when it seemed that ‘Mytinger and Casselberry/Nutrilite Products Inc.’ might finally be shut down (under the ‘Federal Food, Drug and Cosmetic Act 3381-3383’, rather than anti-pyramid scams legislation) De Vos and Van Andel hid behind familiar words and images stolen from popular culture. They created the American Way Association’ - the first of what was to become a shoal of red, white and blue herrings. The original 'Nutrilite' lie was progressively-absorbed back into the spin-off 'Amway' lie, 1972-1994.

David Brear (copyright 2016)