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I Wuz Robbed!

Lawyers are worse theives than MLMs.

By Petrarch  |  June 30, 2008

One of the rites of passage for many middle-class Americans is the experience of joining a Multi-Level Marketing group.  These are those businesses where you try to sell shampoo, soaps, deodorant, and who-knows-what in the hope of becoming filthy rich.  Even those who've never had this entertaining experience surely know a friend who is constantly peddling Amway, Avon, or Mary Kay products; it's been part of the American scene for a century.

An MLM is not like a normal sales business where you earn a commission by selling some product.  Yes, you do make money that way, but there's only so much one person can sell; the real money lies in getting others to sell the product and you take a cut of their sales as well as your own.  Have enough such "downline" salesmen and you can retire in luxury, at least so the story goes.

And, indeed, it's a fact that the largest single source of millionaires in America is through participation in a multi-level marketing scheme.  Making money from the work of others based on your own organizational and leadership abilities is the basic foundation block of capitalism.

The devil is in the details, though.  The way many of these groups are set up, it's not enough to have your downstream folks selling things, you yourself must sell at least a certain minimum each month in order to get any of the commissions.  This puts a tremendous incentive on each person to meet their quota, even more than in a normal sales organization.

But the company doesn't care where the products go.  As a result, all over the country there are garages stuffed to the gills with excess junk some poor soul had to buy at the end of the month in order to "qualify" to be paid commissions his downline had earned for him.

The line between a legitimate MLM company (like Amway) and an illegal pyramid scheme is a very fine one, often impossible for a normal person to distinguish.  Many years ago, when yours truly was much younger, more enthusiastic, and less wise, I became involved in just such a group; I am still paying the debts today.  I learned many valuable lessons which have served me well, though: number one being, I am not a salesman, and probably never will be.

As with any pyramid scheme, eventually you run out of willing victims, the money flow seizes up, and the entire structure comes crashing to the ground in a pile of lawsuits.  The Federal Trade Commission and Justice Department get involved at that point.

They confiscated all the assets of my erstwhile company and most of the assets of the executives.  The collection was held in trust for the bankruptcy and class-action lawsuits.  Even a bankrupt company of this size has quite a lot of cash value; it turned out to be in the tens of millions.

The court appointed a receiver whose job was to find all the creditors, count up all the valid debts, divide the debts into the money on hand, and shell out.  Sounds simple enough, right?  But it's not: all the lawyers get paid off the top.  We'll return to this point shortly.

The assets didn't include just big bank accounts.  There were office buildings, warehouses, unsold goods, houses, yachts, who knows what all.  Most of this stuff was extra-fancy and not easily sold.  It's the sworn fiduciary duty of the receiver to get the best price he can, even if it takes a while, to the glee of real-estate brokerages and sales agents.

It did take a while.  It took almost ten years.  Every year, there'd be a new report posted on the website: We're trying to sell this or that, we're negotiating with the IRS or that law firm; the judge has approved those settlements.  But no checks to creditors until it's all sold.  Meanwhile, the receiver, lawyers, and all manner of other hangers-on keep getting paid by the hour.

Well, life moves on.  At the end of last year when I'd almost forgotten about the whole affair, a message showed up out of the blue.  The case was closed!  All assets were sold; all debts totaled; the settlement approved; the math complete, and the checks to be shortly in the mail.

And six months later, sure enough, a check showed up.  OK, it was five percent of the approved losses, but still; a few hundred bucks is a few hundred bucks, and it's worth far more in moral satisfaction.  Off to the bank to deposit with glee!

Then, the mail brought me a letter from my banker.

The check bounced.

After all those years; all those millions and millions of fees paid to lawyers, receivers, investigators, counselors, and so on, not only was the "settlement" a tiny fraction of the overall losses recorded, but the only thing I ever got was a charge from my bank for a rubber check.

And it's that last ten bucks, I think, that is the worst insult of all.  Because in a modern MLM, there isn't any obvious fraud.

Sure, in fact, the only people who become hugely rich are the first dozen or two folks who join up before anyone has heard of the company, when there are still millions and millions of potential downline members out in the wide, wide world.  But as long as a real product is being sold, as long as the rules are clearly laid out and honestly followed, why is it any concern of the government what business agreements people choose to make?

I went into the plan knowingly, and I learned life lessons well worth the price.  The founders of the business worked hard, used their skills and imaginations, and (lest we forget) did sell actual products that many many people freely chose to buy.  I liked the products, and I still miss some of them!

The only effect of the federal intervention and the lawsuits was for the money to be taken from people who at least arguably earned it and for it to be given to lawyers.  The people "harmed," like myself, got a slap in the face.

Class-action lawsuits and federal trade actions sound good in principle.  They sound like they're out there to protect vulnerable consumers.  If someone is harmed by a company, shouldn't they be compensated?

But they aren't.  The history of these cases - Big Tobacco, asbestos, silicone breast-implants, MLMs - is an unchanging story of millions to lawyers and pennies (or bills) to the victims.

It's often turned out that the case was bogus from the start: silicone breast-implants are once again available now that the science has proven that they are harmless and that they always were harmless, but that is no consolation to the shareholders and employees of Dow Corning who lost everything when it was driven into bankruptcy by the avalanche of lawsuits.

The settlement with Big Tobacco was supposed to fund programs to help smokers quit smoking; the states have spent the money on everything except curing smokers while the lawyers shop for Learjets.  When was the last time you heard of a big corporate lawsuit with thousands of victims where the victims actually received anything much?  Never.

We don't want corrupt businessmen to gain riches through fraud, but what's the point of taking their money away if it only goes to trial lawyers and their pals?  Even the most corrupt businessman contributes to the economy by employing workers in his factories and offices; that's not so for lawyers.

The lawyers, judges, expert witnesses, receivers, consultants and so on down the line are not really thieves; most of them would never dream of doing something unlawful.  The crime is in what the law allows to be done in the name of justice; the law itself is what needs fixing.  Republicans have long argued for tort reform; we will be paying for decades for Republican failure to reform this morass when they had the chance.

And as for me?  I'm going to call the receivership which handled the bankruptcy case of Equinox International, and, let us say, discuss the issue.  I may even call the office of the judge involved; it's only fair to let him know what didn't get done.  Will anything change?

If anything does change, I'll post an epilogue to this article.  Don't hold your breath.


Will wonders never cease? Apparently I was not alone; a great many people did not receive their checks "on time" and the money had been removed from the account by the time they tried to cash them. The judge was not amused. The receiver's office re-issued them, including mine, and this time I got the money.

No doubt, the receiver billed extra for the re-issuing.