Friday, 22 April 2011

Where law ends, tyranny begins'



The following, self-explanatory, letter was sent by Bruce Craig (on June 24th. 2009) to David C. Vladeck, the new Director of the Consumer Protection Bureau at the US FTC, who was appointed by the Obama administration.
In effect, what Bruce Craig is saying to David Vladeck, is exactly what Corporate Frauds Watch has said, and continues to say to its free-thinking readers without fear or favour -  that, in 1979, the millionaire bosses of  'Amway' fraud were caught red-handed running a dissimulated closed-market swindle, but they deceived ill-informed US government regulators into allowing them to continue to commit fraud, and then used the resulting multi-billion dollar profits from this same fraud, and related frauds, to buy political influence. This chronic US regulatory failure has produced a hidden, ongoing, global financial holocaust (with a small 'h') which, for obvious reasons, the US government now cannot fully acknowledge.
Dear Mr. Vladeck:
I was a consumer litigator for the Wisconsin Department of Justice during most of my 30 years there, retiring in 1997. I began litigating pyramid schemes in 1969, against Koscot Interplanetary, and concluded with a successful action against Fortune in Motion in 1997. I drafted the Wisconsin prohibition against pyramids or 'chain distributor schemes' in 1970. Until 1979, the Commission viewed pyramids as a per se violation of Sec. 5. Commissioner Paul Rand Dixon wrote several decisions, Koscot, Holiday Magic, and Ger-Ro-Mar all of which reached this conclusion with little difficulty. I frequently worked in conjunction with the Commission's staff attorneys on these cases.
The Commission's Amway decision in 1979 erroneously concluded that Amway was not a pyramid because it had a provision in its dealer rules requiring retail sales and a buy-back program. This ruling has effectively legitimized pyramids, now called MLMs, as all other pyramids immediately adopted the 'Amway rules'. While the Commission did bring some pyramid cases, they involved extended litigation, a confusing legal standard, and a requirement that it prove that the 'Amway rules' were not enforced. The unfortunate by-product of this litigation was the implication that other companies, such as Amway, were legal since they were not sued. The Commission has never revisited the Amway decision to see if in fact it does have retail sales and a meaningful buy-back program.
The 1979 ruling made billionaires of the Amway founders and funded a highly effective public relations and lobbying effort which, for the past 30 years, has entrenched the dubious principles of the Amway decision and influenced a significant number of legislators and other governmental officials both state and federal. Timothy Muris was an Amway attorney prior to being appointed Chairman of the Commission. Perhaps the most disappointing commentary in this respect, at least from my perspective, is the involvement of former director of the consumer bureau, Joan (Jodie) Bernstein, who filed submissions in respect to the Business Opportunity Rule on behalf of the Quixtar Company, an Amway affiliate, and the firm Bryan Cave, L.L.P. In her rebuttal submission, she designated me a 'self-appointed' critic who filed nothing but a 'patronizing screed' . I found this beneath a person once the recipient of the Miles Kirkpatrick Award and in direct opposition to her service with the Commission.
The Business Opportunity Rule has been in process since early 2006 and was once intended to deal with the pyramid issue. I submitted comments on this rule. Since then, as evidence of the influence of the pyramid lobby, the rule has been amended to exclude pyramids leaving rack jobbers and envelope stuffing proposals.
If promulgated in its current form, the Rule will stand in mute testimony to the dominance of the pyramid lobbying effort and the inability of the Commission to deal effectively with this matter. I would strongly urge you to suspend the promulgation of this rule until a complete review of the issues involved has been made. At a minimum, it would seem advisable to find out whether the underpinnings of the 1979 Amway decision were in fact based on a rational analysis. I have previously suggested this in my letter to Chairman Pitofsky in 2000, a copy is enclosed.
Pyramid selling has now been successfully promoted around the world, solely on the basis that it has been legalized in the United States. Yearly losses are well into the tens of billions of dollars -far exceeding the Madoff matter and with victims far less able to absorb the losses. The fact that pyramids, or endless chains, are per se illegal has been buried in the meaningless distinction between a pyramid and a Multi Level Marketing plan.
It is the endless chain aspects of the plan that are illegal, not the existence or non-existence of retail sales or buyback programs. This ambiguity results in the implication that there are legal MLM companies, as the term is used. It has been perfected by thirty years of well funded lobbying efforts.
With the current economic downturn many unemployed persons will be seeking alternate sources of income. Pyramids will exploit this fact and exacerbate the problem, as 99% of pyramid participants fail. This would be a tragic development, one that the Commission should seek to avoid.
I am willing to discuss this further if either you or your staff is so inclined.
Respectfully submitted,
Bruce A. Craig
Bruce Craig, should know what he's talking about. He once examined the tax-returns of all active 'Amway' adherents in the State of Wisconsin (I believe there were around 35 000 of them). This led him to write the following warning as a foreword to Eric Scheibeler's book, 'Merchant's of Deception.'
'Mr. Scheibeler's book is a chilling portrayal of the process by which intelligent people can persist for years in pursuing the Amway dream while making no money. It is all the more significant because he earned his way to one of the highest distributor levels in the Company....I learned of similar experiences from ex-distributors when I interviewed them for the State of Wisconsin's Amway litigation in the early 80's. Such conditioning may explain why the tax returns (obtained for this litigation) of all active Wisconsin Direct Distributors, the company's top 1%, showed an average net income of minus $900. Why did these men and women persist....under these economic circumstances? Eric Scheibelers book answers this question for those whose minds are clear enough to read its pages.'

BRUCE A. CRAIG, retired Assistant Attorney General, 
Wisconsin Department of Justice - Office of Consumer Protection

Eric Scheibeler, in fact, wasted ten years of his life in 'Amway' and lost around $100 000. During this period, he passed around $4 millions to his handlers (mainly from the sale of publications, recordings and tickets to meetings). When finally, he managed to begin to confront external reality, Eric was destitute, suffering from chronic psychological deterioration symptoms and on the point of suicide.

David Brear (copyright 2011)

1 comment:

Kasey Chang said...

Mr. Brear,

I absolute agree that the laws and "Amway rules" for MLM are confusing, and a lot of scams pretend to be legal by adopting the Amway rules in name. Others simply incorporate offshore and recruit US members through the Internet (TVI Express would be one of them). FTC itself does not seem to have went after ANY pyramid schemes in decades. Most of the action was at the state level. Governor Jerry Brown sued YTB as pyramid scheme when he was California Attorney general.

However, that brings us back to fundamental questions regarding MLM.

1) Would you agree that MLM is somewhere between a traditional business and a pyramid scheme? (or a hybridization of both?)

2) Can such a thing as "ethical MLM" actually exist? (Throw aside the "legal" aspect for the moment)

3) How much of the fault is the system itself, and how much of it is the way it's done? (i.e. is it the system's fault, or is it the "leaders / recruiters" fault?)

Hoping for a polite discussion.

--KC