S1 E7: Lazy, Stupid, Greedy or Dead

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Previously on The Dream.

They don't care if you can make ends meet at the end of the month.

They just care that you're ordering the minimum.

I've been digging into the legal history of MLMs

and I am going to take you on a journey.

through the epic battle that took place between the FTC and the multi-level marketing industry.

They don't care if they ever wind up in the hands of customers.

All they know on their balance sheet at the end of the day that you ordered it and they got that profit and now we're moving on.

So there was this guy, John M.

Taylor, he passed recently, who studied business at Brigham Young and the University of Utah.

Utah, where there are more MLM corporate headquarters per capita than anywhere in the world.

It's the perfect place to study this.

In perhaps his most impressive study, Taylor looked at the compensation plans and possibilities for success in 600 MLMs, and he found that net losses were experienced by, wait for it, over 99% of people who attempt this sort of business.

In other words, he found that almost 100% of people who buy into an MLM walk away having lost money.

Of course, the industry disputes that, but even they admit that losses and attrition are higher than the normal retail sector.

That level of loss sounds criminal to me, and yet MLMs persist and are expanding globally.

Is there anyone who can do something about this in a way that might actually help people?

I'm Jane Marie, and this is The Dream, Episode 7: Lazy, Stupid, Greedy, or Dead.

Hey, Dan, welcome back to your own office.

Thanks.

Yeah.

It's nice to have you here.

It's nice to be here.

Every day.

Yeah.

I'm thoroughly frustrated.

Why?

At this point.

Because I want to do something about this.

Who do we call?

You would call the FTC, which is the only government agency that really goes after MLMs in any sort of effective way.

If the FTC were going after these companies the way we wish they would right now, you wouldn't need us to explain who they are or what they do.

The FTC would be front page news every day, shutting down scam companies right and left.

Lord knows there's enough of them to keep the commission busy.

And this episode will be about why that is.

As we learned last week, people hesitate to report their bad experiences and to even feel them as bad experiences in the first place.

So this type of fraud isn't often reported to the FTC.

Over the past few decades, the handful of MLMs the FTC has brought down have been small and cartoonishly fraudulent.

There was an energy drink company called Vemma, whose recruiters targeted frat guys, Burn Lounge, the napster of MLMs, you know, stuff like that.

Easy to prosecute, small enough to shudder for good.

On the one hand, great.

We'll take these tiny victories.

On the other hand, these small wins for the FTC have actually emboldened larger MLMs.

They get to say, hey, look at those little weirdos, those little stupid kooky crooks over there.

They're giving direct selling a bad name.

We're not like them, or we'd be shut down too.

But of course, we all know the world doesn't work that way.

Destroying little bad guys doesn't mean that there are no big bad guys.

Last time we were talking, you were telling me about a time when the FTC

cared

about

people being victims of these sorts of companies and also was doing, like actively doing something about it and doing well at it, but something went wrong.

Well, essentially, when MLMs came to the attention of the FTC, they went after them pretty hard for about 15 years.

And during that 15 years, they had some successes and then ultimately had a case

that would define how multi-level marketing as an industry would go forward.

And they lost that case.

So the losing of it defined like where we are now.

And I should say the reason I found this out is because in looking into this, I started to call people who had been involved in cases against MLMs.

And there's a man named Bruce Craig, who was a assistant attorney general for the state of Wisconsin for 30 years.

He had been working in consumer protection.

So I asked Bruce, did the government ever try to to shut these companies down?

And if they did, how successful were they?

And if they were successful, what happened?

Why aren't they anymore?

There's one word, Amway.

The Amway decision by the Federal Trade Commission

changed everything.

Okay, so what's Bruce talking about?

Well, what would turn out to be one of the biggest cases in the history of the FTC's battle against multi-level marketing.

It was against Amway, and Amway at the time was the biggest MLM in the world, aside from Avon.

But they were a huge company, and

they lost that case.

And that case, I would come to learn, had a huge effect on not only how the FTC would approach complaints against MLMs, but also how the industry would defend itself against cases brought against it.

And it had an emboldening effect on the entire industry.

Emboldened is too weak of a word.

Everybody claimed they were just like Amway.

They basically legitimized those that weren't sued because there was a difference between a legal and an illegal one, and they sued the illegal ones.

And

the implication was that the other companies not sued were legal.

It was a crazy enforcement concept.

And so the Amway case, I think, affected completely the outcome after

1979.

Dan went looking for someone who was there, who could tell him what happened, how things went awry.

Remember, this was 40 years ago, so it was kind of a long shot.

We didn't know if we'd be able to find many folks who worked on the case.

But it turns out there's one voice who really counts from the inside, who's never really spoken about it at length.

And Dan found him meet joe brownman the greatest weapon our country has ever known against mass fraud in multilevel marketing

start with a question or two and i'll go into whatever you want to know and you know if you need more information just go wherever you want me to go as far as starting off do you want to know where i was born or do you want to know where i went yeah where were you whatever whatever you want well no come on i do where were you born i was born in the williamsburg maternity hospital in williamsburg brooklyn I don't think that hospital even exists any longer.

And Williamsburg today is not what Williamsburg was like when I was living there 70 years ago.

What was it like 70 years ago?

I'd hate to describe it, so let me not.

We ended up having almost, I think, seven hours worth of conversations about these cases.

He is careful about the way he speaks.

about these cases for a few reasons.

One of them being that he is loyal to the FTC.

He believes that the people there, they do the best they can given their resources and they care.

One of the interesting things also about Joe is that I found out he was the lead lawyer on the Holiday Magic case, the company owned by William Pinpatrick, who we talked a lot about a few episodes ago.

In today's fear-ridden society, an ever-growing majority is claiming the wealth of those who create it.

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This type of thinking is true in a socialistic system, but in a free society, this type of thinking is sickness and cowardice.

You remember that guy?

William Pimpatrick of Fruity Beauty and the Pit?

Holiday Magic was actually the first MLM that the FTC ever investigated.

We were preparing the Holiday Magic complaint as if it was an important case that we couldn't afford to lose

because it was the first case.

You don't want to lose the first case if it's type because then you don't know what's going to happen next.

We all knew that this was going to be a template for the future cases that the Commission was likely to bring in this area of multi-level selling, permanent selling, whatever you want to call it.

And it took a very long long time.

I think it took six months.

And the reason it took that long is because they were looking at this complaint with a fine tooth comb.

And every office had a recommendation and a suggestion as to how to word this paragraph or word that paragraph or what to include or what to not include, that sort of thing.

And it was very helpful.

It just took a very long time.

Can you just remind me what the FTC is?

Their stated goal, and this is paraphrased, but their stated goal is to keep free markets safe for the people that are functioning within them.

So you have the consumer protection side, they deal with frauds.

Then you have the competition side, and their job essentially is to make sure that monopolies don't exist and mergers and acquisitions are fair.

So about two months after Joe started working for the FTC, he got a complaint on his desk.

And it turns out it was a distributor for Holiday Magic complaining that they were unable to achieve the wealth and all the things promised to them by Holiday Magic recruiters when they signed up as distributors.

When they do their investigations, they fly to different cities and they interview people who are involved with these companies, right?

So this is the first one.

They go out and they're talking to person after person who were distributors for Holiday Magic.

Every time we went to a new city, we would always get two cars at the airport and stay at the same hotel, but go off in different directions every day.

And half the time it wasn't doing things during the day, half the time it was doing things at night because the people that we were talking to had day jobs and they were doing Holiday Magic part-time.

And so we'd start working after dinner hours.

When people were ready to see us after seven o'clock in the evening, we'd get back one or two o'clock in the morning most of the time and we'd spend the day just sleeping in.

we wanted to know what was going on we were asking them everything we wanted their documents we we were asking we needed a full understanding of what they were doing what they heard what the representations were what their success or lack of success was uh i mean we needed we needed to know everything as they're doing that that's how he's determining what he wants to bring as far as charges against holiday magic and he found reason to charge them with several things so he went after them in a few ways.

The first one was something called the language.

The actual language that it's found to be deceptive is somebody holding a meeting and saying, you know, join my company, and I guarantee you that in the next month or two, you'll have riches beyond your wildest dreams.

You'll be driving a new Cadillac.

You'll be taking vacations in Bali.

You'll be, you know, X, Y, and Z.

That would be reason to find that the representations of huge earnings was deceptive because it was not something that could be supported by the company's own experience.

We had that kind of evidence.

Holiday Magic's official recruitment materials were full of these sorts of promises and techniques for getting people to sign up on the spot.

Quote, tell them they're going to be happier, healthier, wealthier, and receive what they want out of life with the Holiday Magic program.

Pull a roll of $100 bills out of your pocket and say, now, I'm not trying trying to impress you with this money that I'm making, but would earning this kind of money each week interest you?

Wonderful.

And then there's something about throwing it in the air.

Or how about this?

Any person who fails in the holiday magic program must fall into one of the following categories.

One, lazy.

Two, stupid.

Three, greedy.

Or four,

dead.

The second one was more of an antitrust charge, and that was vertical price fixing.

That's a company selling to a distributor, saying you must resell the product at these prices.

They're maintaining a resale price.

In other words, the distributor is not determining what price he or she is going to sell those products at.

The manufacturer is.

The third and most important thing that Joe went after Holiday Magic with was something that he referred to as the plan.

By the plan, what I mean is because people kept recruiting people and if the plan was going to work, they would have to keep recruiting people.

At some point, everybody in the market area would know about the company or have been recruited or have been attempted to be recruited.

So there was no viable opportunity for anybody who is still hearing the plan for the first time to be able to make any kind of a go of it.

In other words, the market was saturated with distributors or with people who had rejected the plan.

As evidence at trial, Joe submitted an exhaustive amount of recruitment materials, including books, brochures, and even a movie produced by Holiday Magic.

Each one laid out a similar story you should tell recruits to get them to sign up.

All they have to do is recruit five people a month.

And then, if those people follow the plan, they'll each recruit five people a month, and in a year, you're a millionaire.

Period.

They talked about the plan as if it's a fact that you could find five recruits, and that if you did, it would be a fact that they could find five more each month.

Lots of people have done the math on this.

If this plan, which the company repeated over and over and over at their recruitment meetings, if this plan worked, guess how many people each new recruit would have in their downline by the end of the year?

Over 244 million.

The population of the United States at the time of the trial was only 200 million.

The trial took almost two years.

What?

I don't mean to laugh, but yeah.

There were 200 witnesses called by both sides.

So it took a lot of time to listen to all of that testimony.

I guess if it's market saturation, you have to talk to the market.

You have to try.

Which is the people selling and the people buying.

And of course, they can't do everywhere, right?

Holiday Magic at that time was a huge company.

They were one of the biggest MLMs in the world.

And you can't have two people working a case go everywhere in the country and determine whether the market has been saturated.

They did focus on two areas.

One was Florida and one was Oregon.

And what they determined was that by looking at the number of distributors versus the number of eligible people to participate in Holiday Magic, the markets had been saturated.

That's what they presented to the judge, along with the misrepresentation of earnings potential, vertical price fixing.

And in Holiday Magic, the administrative law judge accepted all of Joe's findings, all of his charges.

They made an issue over that.

They made the issue that the judge was biased because he, you know, he just adopted every one of our findings.

And the commission said, well, in this case, they didn't find there was any problem with that.

That was unusual.

That was the case where they wrote down enough is enough.

So

they accepted everything that the administrative law judge found.

You were saying that in the Commission's findings in Holiday Magic, one of the last things written was enough is enough.

And you remember that.

Of course they do, because I mean, basically what the Commission was saying was,

well, they were saying enough is enough.

You know what enough is enough means.

I know what it means, but you know, it means there's nothing credible to discuss any longer.

You guys, you know, we've given you the time of day.

You guys

have engaged in practices which are unacceptable.

We're going to stop it.

We're going to do what we can to make sure that it's not going to, you know, be resurrected.

Period.

Enough is enough.

It's just interesting to me that there would be almost an emotional response.

You know, that's why I mentioned it.

You're right.

To me, it was saying that

I'm not saying it was emotional.

Obviously, I'm not saying that because it was based upon the record.

But it was an extremely strong record that we presented.

Right.

It was.

I mean, I was there.

I know what was in that record.

What ended up happening?

So, Holiday Magic decided not to appeal

and shut down shortly after that.

They were like, we give up.

For years, William Pinpatrick had been placing his hundreds of millions of dollars he had earned from Holiday Magic into trusts for his kids.

And his money, for the most part, was secure.

At that point, he shut down Holiday Magic.

Then,

oh boy, he died.

He was an enthusiast of World War II fighter planes,

and he was flying his P-51 Mustang above his ranch in Northern California, and he crashed and died.

Classic WPP.

Classic WPP, exactly.

The Holiday Magic case was a big deal, and it started making waves in the MLM industry even before it was finished.

Remember, it took two years, and during that time, the FTC started keeping a list of companies that smelled of fruity beauty.

MLMs had been cropping up all over the place, and Joe and his colleagues were watching.

Two of the names that were on that list were an MLM called Jeremar.

What'd they sell?

They sold girdles,

basically underwear and swimwear is what they sold.

And then another company started by a former Holiday Magic distributor.

What?

Named Glenn Turner.

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And his company was called Coscott Interplanetary.

They sold mink oil-based cosmetics.

From what?

From space minks?

One of the things that Holiday Magic had that the other companies didn't was a history.

They had been around for two years prior to Joe even receiving the complaint, but by the time they went to trial, which was in 1971, they had now been a company for seven years.

What that meant was that when Joe went looking for market saturation evidence, there were some to be found.

It had happened.

But Jeremar was a much younger company than that, and so was Costcott.

So looking for market saturation was far more difficult for the FTC staff lawyers taking those companies to court.

Remember how Joe said this holiday magic case was super important to the FTC because being the first complaint of its kind, it would set a precedent?

He was really hoping to show that this relatively new business model was, in fact, a gussied up pyramid scheme in most, if not all, cases.

And if he could do that using the method he chose for Holiday Magic, they'd just apply the same methodology to any other company that came across their desks.

Well, spoiler alert, that didn't happen.

Because the FTC actually settled its cases with Costcott and Jeremar before the Holiday Magic verdict.

In its fervor to crush this new scourge, the FTC kind of shot itself in the foot.

The settlements were technically victories for the FTC and for consumers, but they didn't do anything to help Joe's strategy.

He wanted a cascade of guilty verdicts, showing pyramid schemes and impossibly saturated markets, and instead he got one, Holiday Magic.

The problem is that if Jeremar had come after Holiday Magic had been decided, rather than before that, the expert witness could have, instead of relying upon a mathematical formula, could have done that and said, and I looked at the holiday magic facts, I found them to be similar to the Jeremar facts, and I, the expert, agreed that there was saturation in holiday magic, therefore it's inevitable that there would have been saturation in Jeremiah as well.

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So, Joe didn't get exactly what he wanted, but it's cool that there was this short period of time, this like burst of energy that the FTC had, and they were really putting work into this.

At this time, it appears that the FTC actually views multi-level marketing as somewhat of a threat.

And you also have to remember that there are cases being brought by state governments and civil cases being brought against these companies.

So it was a kind of perilous time for the industry.

Then the Amway case shows up.

The FTC had issued a formal complaint against Amway in 1975.

I knew the prior multi-level investigations and I was familiar with the Amway investigation.

I just remember saying, well, you just give it to me, you know.

And the answer was, okay.

So what Joe decides to do is go after Amway the same way he went after Holiday Magic.

I had witnesses and I had data and I had numbers of distribution.

I mean, I had what I had.

And the commission said that saturation was painstakingly shown page 1037 in the Holiday Magic decision.

And they've been around for a while at this point, yeah.

Yeah.

So it's not the same problem that you were having with Jeromar or Coscott.

They're not new.

There are people in saturated markets

to talk to.

Okay.

He's got more evidence than he had in Holiday Magic.

He's got 16 years of Amway being in existence.

And he has a win against Holiday Magic.

And they have actually gotten Coscott and Jeromar shut down, down, even though they weren't called the pyramid scheme.

So he's going into this feeling.

He's feeling confident.

He's basically going to take the exact same charges that he had leveled against Holiday Magic and level them against Amway.

It's important to know that Amway is a different type of company.

There's no people in coffins.

They were trying to project a very different image.

The American Way Corporation, they had a different different reputation.

They were well known and not well known necessarily for being infamous or notorious.

It was different.

More legitimate.

It was not what, you know, it was not what Holiday Magic or Costcott's reputation was, as I recall.

It was not the same.

Amway was different.

Sure, the founders flailed around starting and closing a bunch of businesses before settling on an MLM.

And when they spoke, they sounded as blustery as any other MLM owners.

But they more or less appeared as, for lack of a better word, normal guys.

I mean, first of all, they were from Michigan, not Northern California or Orlando or other exotic locales.

They had a respectable, uptight vibe, selling cleaning products and other household items, not fruity beauty and girdles.

And they were incredibly conservative.

In 1970, the DeVoses started a non-profit foundation that would go on to donate large sums of money, like really large, to the Heritage Foundation, Focus on the Family, the Federalist Society.

You get it.

Say, I missed my flight.

Can you get me in my Pro-Am?

I can get you there.

Oh, great.

Our in-flight meal, Mr.

Hope, and Amway Food Bar.

Does Amway make this?

Amway offers over 350 home care, housewares, nutrition, and personal care products.

How come you know about Amway?

My wife and I have our own part-time Amway business.

We're building financial independence.

Sounds like you're really flying with Amway.

Contact an Amway distributor.

I've got the whole story.

They got Bob Hope to be their spokesman.

See what I'm saying?

It goes kind of similar to Holiday Magic in the courtroom.

Joe calls a lot of witnesses.

Amway calls a lot of witnesses.

Everything kind of goes the way it did with Holiday Magic, right?

They're presenting like the same sort of argument

and much more evidence to back it up this time

and when it comes time for the administrative law judge to write his initial decision he has found in favor of almost none of joe's findings

so if you look at market saturation, the most important charge, the judge in his initial decision, in his writings, he cited evidence,

testimony brought forward by witnesses who had been called by Amway to talk about how easy it was to find new recruits.

And he's got about 12 examples of support that from various parts of the country they found in recent years that has become easier to sponsor.

Okay?

None of these areas in the country, Ray, Colorado, Missoula, Montana, Phoenix, Arizona, Timonium, Maryland, Holly Pond, Alabama, never heard of these places.

None of these places were the areas that we focused upon to show that there were problems.

He cites to 10 or 12 distributors from parts of the country that we did not allege there was an issue.

And he says, we called some witnesses, without saying how many, who testified about the difficulty without saying that they were credible and doesn't even give their names or where they were from

and then he says other witnesses whom i find credible were called by respondents and testified that in several of these areas they had no difficulty again without any reference to the testimony of the people that we called or even the number of people that we called.

Joe had market saturation data and witness testimony from five different states in the country.

The judge didn't look at that at all.

What he did look at, the testimony by Amway distributors that Amway called, were all from people who lived outside of the areas Joe had found market saturation data for.

Let me read to you two sentences.

Okay.

The complaint alleges that distributors are not long likely to recruit other distributors because recruitment of additional participants must of necessity ultimately collapse when the number of persons theretofore recruited has so saturated the area with distributors or dealers as to render it virtually impossible to recruit others.

That's actually a quote.

Now in the very next sentence, this is what he says.

And don't ask me to tell you why he said it, okay?

Okay.

The term saturation as used in the complaint and by complaint counsel is one one of the legitimate proofs in a case involving a pyramid distribution scheme.

And then he cites Coscott,

Holiday Magic, and Jeremy.

And then he writes, since Amway is not such a pyramid, the concept is immaterial here.

And I'm not allowed to.

Don't ask me to explain that, please.

I won't.

I won't.

I'm going to need a shot of whiskey.

I won't ask you to explain it, but can I ask you if it made sense to you?

Here's what I feel comfortable saying.

I don't understand it for this reason.

Let's assume that he's right, that Amway is, he said it's not a pyramid.

Okay, he doesn't say what it is, but let's assume it's some term.

Let's call it multilevel.

Okay?

So Costcad and Holiday Magic and Jeremy

are pyramids.

And Amway is a different type of operation.

Why he made that distinction?

In my mind, we offered evidence of saturation regardless.

I feel like I need a whiskey too.

Okay.

What if there was saturation?

Is it immaterial?

I mean, he's not saying

that

there was no saturation.

He's saying it's immaterial because

we did not prove that there was no one left to be recruited.

And that was not how we define saturation.

There was one that he did find in favor of, and that was vertical price fixing.

A lesser charge, definitely one that wasn't going to bring the company down.

But for this charge, Joe had some pretty compelling evidence.

We had a tape recording.

Can you describe the tape recording?

We had a tape recording of the president of Amwick telling its distributors that they had to maintain the prices, but they should not put this in writing to their distributors because if they put it in writing, the FTC would find out about it and they would swoop down on them so fast that their heads would spin.

And he put that on tape and we subpoenaed all their tapes and we found it.

All right.

So they nail them because the literally the guys who are sitting there on trial, whoops, they were recorded saying we are doing vertical price fixing.

Exactly.

There was no way he couldn't get them on that.

And remember, the president of Amway was Rich DeVos, so Joe called him to the stand.

So he was the person on the tape recording.

We wanted him to authenticate the tape.

Right.

And did he?

Yeah.

Well, the judge relied upon it.

Yeah.

I mean, he came close to saying yes.

You're right.

So that was the decision by the administrative law judge.

And after the admin judge makes his decision, both Joe and Amway have the right to appeal that decision back to the FTC, which they both did.

At the commission, there's a five-member panel, politically appointed, that listens to the appeal and makes the FTC's final decision on the case.

So the commission finds in favor of vertical price fixing, just like the admin law judge did, because there was a tape.

There wasn't anything they could do.

They reversed the admin law judge on misrepresentation of earnings potential.

So they basically said to Joe, you proved that.

Quit telling people they'll have a Lamborghini in a month.

Right.

Okay.

But what they didn't reverse is the market saturation charge.

The charges that would have ultimately stated that Amway was a pyramid scheme.

So between the Administrative Law Judge and the Commission, Somewhere along the way, the concept of saturation, and again, the Administrative Law Judge actually says it outright, was considered either immaterial or redefined.

I'll tell you this:

I saved a couple of documents in the Amway case that are in the public record,

and I saved them for a reason because

I just couldn't believe the Commission's decision.

We had evidence of the string of distributors recruited over a period of four or five years

with numbers, mostly 1971 through 1975.

You know, why aren't my numbers in the record?

This is the way the initial decision was written.

Now, I'm not telling you that we proved saturation to an absolute certainty.

That's for others to decide.

I'm telling you I offered evidence of it and that the administrative law judge, he didn't reject it, he ignored it.

There's a difference.

So what he's saying is that in the data that he originally presented in the trial showing market saturation, year by year by year, the number of distributors is going down, which means, as proposed by Joe, that...

it's becoming more and more difficult to find people to recruit.

Right.

Because

so many people have been recruited that you can't find anymore.

Also, there's probably tons of people who are like, ooh, no, no, thank you.

Exactly.

There are so many ways in which market saturation affects the ability of a distributor to actually sell their products.

One of them being the fact that it's difficult to find recruits, and that's part of the way that you make money as a distributor.

One of them being that now people are inundated with Amway distributors and they just kind of want them to go away.

Right.

Like I feel on Facebook when I see the makeup and candles.

Right.

And so you have all of these different Amway distributors, and then throw in the fact that none of them can set their own pricing.

So they're all trying to compete in a relatively small area, selling the same products for the same price in the same way, and it becomes really difficult.

Were you surprised by the commission's decision?

No, I was not surprised by the commission decision.

Were you surprised by the initial administrative judge?

Yes.

Very surprised?

I mean,

you had presented this case.

I was surprised.

Yeah.

And that was that.

That was that.

I never did anything after May of 1979 involving any of these climbs of practices.

I never even read the press releases that the Commission issued.

I went on to other things.

I guess I didn't care enough to follow through, number one, and number two, maybe I was so disappointed in the way the Yamway decision came down that, you know, maybe I just didn't care anymore to follow on other cases.

Clearly, they're still around, so what?

Did they suffer any consequences?

Yeah, they did in one sense.

They were supposed to change some of the language they used in recruitment.

A year or so later, the FTC found that they weren't complying with that

and were ultimately fined.

Not a big enough fine that it was going to take down the company, though, clearly.

How much?

It was $100,000.

So, like one high-up distributor's salary.

According to what they claimed their distributors could make.

Right, but come on.

We wanted to find out if anything else was going on here.

How did Amway do this?

How, when all the other companies were falling like dominoes, how did Amway not only stay standing, but continue to grow?

We called our resident historian, Robert Fitzpatrick.

Robert's currently working on a book, Ponzi Nomics, The Untold History of Multilevel Marketing.

He knows more about this case than just about anyone besides Joe, but comes to it with an outsider's perspective.

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The only thing that Amway introduced to the case that the others did not was it

invented what it called rules.

During the trial, kind of out of nowhere, Amway comes up with

these three rules that they pulled out of thin air, but presented as something that had been founding principles of the company since it had started.

So let me read to you what the Amway rules are.

And this, again, is what they said they did on their own to ensure that there was no funny business going on.

Okay.

First, AMWI required distributors to buy back any unused and marketable products from their recruits upon request.

Wait, like if somebody was working under them and was like, I can't sell this stuff, then they're supposed to give the money back.

Right.

We've looked into a lot of buyback policies, and they are extremely complicated and really, really difficult to execute if you're the distributor.

There are tons of rules around what they can buy back.

Rule number two, and we required each distributor to sell at wholesale or retail at least 70% of its purchased inventory each month, a policy known as the 70% rule.

Anybody who has spent 10 minutes in business or in sales knows that the whole thing is preposterous, that you offer an unlimited income opportunity to your salespeople.

There's this fruit hanging there, which if you just get out and recruit and recruit and recruit, you will make money.

But then say, but you're not going to get to use that as your method of making money.

You have to retail.

This is going to be a retail-based business.

I mean, it's just preposterous.

If what it is that you're saying as a company is these are independent distributors, they operate their own businesses, we don't keep tabs on their financial records, then there is no way that you could say you keep track of whether or not they are doing this, the 70% rule.

The last one is Amway required each sponsoring distributor to make at least one retail sale to each of 10 different customers each month, known as the 10 customer rule.

No evidence has ever been presented to prove that Amway enforces these rules, that these rules are inherent to Amway, that they are just a part of the fabric of what AMWE is.

Yet, the FTC treated these rules as economic and legalistic canons, some almost like scripture.

So when I first talked to Robert about the Amway rules, I just assumed they were some like imposition handed to them by the FTC, but then I found out that was not the case.

Who came up with the Amway rules?

Amway!

Really?

Yes.

I always assumed it was the FTC that came up with them.

No!

No!

Amway introduced them, and nowhere else on earth, nowhere in the law is there such a thing as rules that mitigate a pyramid scheme and nowhere in the business world can you find anything similar to it.

It was invented during the case, as the case was going on.

But if you read the decision, they are treated as if they are legal and economic canons.

In fact, no data existed or was asked for to prove that these had efficacy or that they were valid.

After that case, the defense of every MLM has been, we're just like Amway.

We have rules.

We're retail-oriented.

We require that they sell five or ten retail products.

They have to sell some percentage of their product every year.

We have these rules.

Don't ask them if they enforce the rules.

Don't ask them for any data on this.

It's almost impossible to find evidence as to whether or not these companies are doing this.

They don't keep it.

They say loudly and clearly that they don't keep the records they would need to present as evidence that they actually do this.

But the Amway rules aren't even a law.

There's no law.

There's no nothing.

It's just what they said.

They were invented by Amway.

They became the cover.

And they allowed, I think, they allowed the FTC to give Amway a pass.

And they had to give them a pass because these people had enormous political power.

Pause.

Did you know that the Chamber of Commerce is not a government body, but instead the largest private lobbying organization in the country?

Yeah, the Chamber of Commerce spends more money each year by exponential amounts than any of the big lobbies that we hear about regularly.

Over the last 20 years, they've spent more than the real estate lobby, Blue Cross Blue Shield, and ExxonMobil combined.

So here you got the finance chair of the Republican Party and the chairman of the biggest business lobby in the country sitting on trial for fraud.

Well, like Joe Brownman, I, and I think everybody believed that somehow there was a kind of legal snafu that occurred here, a flawed decision, an inexplicable decision, but most people attributed it to, well, the court system

or the inadequacy of law.

Here's what I concluded from it.

These previous cases that the FTC had prosecuted were based on a consensus at that time among regulators that an endless chain financial proposition requiring payment to participate and promising a reward based on the bringing in of new, effectively new investors who would be faced with exactly the same prospect was inherently fraudulent.

That this was self-evident, didn't require a law because it was obvious.

It's mathematically impossible.

It's demographically impossible

and

can be demonstrated on a piece of paper that it can't continue, and the last ones in will lose.

And the last ones in will always be the vast majority of all who ever participated.

So it's inherently unfair, it's inherently deceptive, and it's inherently harmful.

Amway and court court used a tactic that reminds me of the shell game.

Sure, there's market saturation over here, but keep your eye on it.

Now, look over here.

Look, no market saturation, right?

Quick, before there's market saturation, look over here.

Essentially, their argument boiled down to this.

As long as there were new markets to saturate, there was no such thing as market saturation.

And from that point, the saturation argument stopped being the MLM killer Joe and the FTC thought it would be.

But let's go back a little further.

The case was brought in 1975.

That's when the FTC brought the case against Amway.

In 1974, Richard Nixon resigned in disgrace.

He was

out of office and his vice president assumed the presidency.

His vice president was Gerald Ford.

Gerald Ford was the congressman for Grand Rapids, Michigan.

Grand Rapids, the birthplace of Amway and home to its founders.

I can tell you from living near there that chances are if you owned a huge fancy house in Grand Rapids, you knew the other people who owned huge fancy houses in Grand Rapids, Michigan.

He was a friend of the Van Andels and the DeVoses.

They were major funders of his campaign.

And when they were now being prosecuted by the FTC, he's the president.

They had, and this was reported in the Washington Post, they had a private meeting with Gerald Ford while they were being prosecuted by the FTC.

They later announced that Gerald Ford was aware of their, quote, problem with the FTC.

So, is it possible, really, that the FTC was going to truly close down a company that had such political influence

with the sitting president, who was president through 76,

that they could go in and meet with him privately and discuss their issue?

I don't think so.

I think anyone

with some willingness to look at political realities would say that was never going to happen.

The meeting that they had with President Ford, did they attend that meeting together?

Yes.

And was that the only one that you know of?

That's the only one that was reported in the media.

I don't think you need multiple meetings with the president, especially when you go back with him for years and years.

Was there political influence involved?

Well, of course there was.

There couldn't not be.

And you're thinking that the FTC was going to close that company down?

No.

And was there a burst of momentum within the industry after the Amway case?

Absolutely.

It began metastasizing.

It began duplicating.

More and more companies were formed.

More and more companies that maybe had been in direct selling said, well, there's the future and you can get away with it.

So now

we have put these into a business format.

We have codified them, institutionalized the endless chain promise.

The Amway decision, along with what would happen over the next few decades between the industry and the executive office of the United States, paved the way for there currently being about 500 MLMs in operation worldwide.

The FTC has shut down a handful.

Don't worry, we'll be back with that story.

Oh, wait, one last thing.

Guess who is the current chairman of the Chamber of Commerce?

Steve Van Andel, Jay's son, also the current chairman of Amway.

Next time on on the dream.

I'm still feeling that like overwhelmed feeling where I just don't know where to start, but I'm not doing anything.

I'm sort of like paralyzed by fear because there's just so much I should be doing and I'm trying to do it and it's not working.

So.

Wait, how much is this going to cost though, actually?

I think it's going to cost maybe six or seven hundred dollars.

Oh my God.

I mean, I need to stay in a hotel.

We're over a thousand dollars now.

No, we're way over a thousand dollars.

Now we're up to like $1,500.

Yeah, there is no question in my mind that everyone there knows exactly what they're doing and they literally were just confronted with the faces and the stories of the people they're affecting and couldn't even bother to look up from their computers.

The Dream is a production of Little Everywhere and Stitcher, written and reported by me, Jane Marie, Dan Gallucci, Mackenzie Kassab, Lyra Smith, and help from Claire Rawlinson.

We are edited by Peter Clowney.

Our fact-checker is Michelle Harris.

The Dream is executive produced by Laura Mayer, Chris Bannon, Dan Gallucci, and me.

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