You Can't Cheat an Honest Man

by James Walsh

  The judge gave particular attention to the FTC’s allegations that Amway was doomed to failure because it saturated its markets. On this count, he noted:

  The preponderance of the evidence in the record does not support the allegation of “saturation.” Amway is not a “modern-day version of the chain letter.” [Its] system does not create the potential for massive deception present in a pyramid distribution scheme.... Unlike the pyramid companies, Amway and its distributors do not make money unless products are sold to consumers.

  In short, Amway was exonerated. All it received from the FTC investigation was a small fine for some misleading promotional and advertising statements. The bad publicity took a toll, though. Some former employees sued the company for brainwashing them; the suits gave life to talk that Amway was a quasi-religious cult. Sales, which had been growing steadily for 30 years, plateaued.

  In 1986, just as the company was entering another growth spurt, the FTC took another shot. It fined Amway $100,000 for illegally inflating earnings projections. Rather than drag out this administrative action with a legal challenge, Amway worked out an agreement with the Feds. It changed its business plan brochures to point out that the average monthly income for active distributors was $65. It also stated in bold type that only one in 82 distributors sold enough products to earn $2,138 a month.

  Many people remain skeptical about Amway, though.

  In 1996, the company ran into some unexpected trouble. Several record labels sued Amway, charging that motivational videotapes produced by some of its top salespeople were sprinkled with pop songs they’d never received permission to use.

  The lawsuit, filed by the Recording Industry Association of America, claimed that top Amway distributors sold the tapes to lower-level recruits through the mail or at sales conventions. And the tapes weren’t cheap, running up to $25 each. The RIAA lawsuit went on to claim that the copyright violations entitled the injured record companies to at least $11 million in damages.

  Some of the tapes mentioned in the lawsuit showed top Amway distributors—called “diamonds” in company jargon—enjoying the big homes and flashy cars Amway sales provided.

  Aside from catching the record industry’s attention, the tapes bother many regulators. In many cases, the business of promoting the Amway dream is a thriving industry all by itself—and one that more closely resembles an illegal pyramid.

  One of the diamonds named in the RIAA lawsuit was Dexter Yager. Yager was a famous character in Amway lore. He came from humble origins, without much formal education, to build a downline network that accounted for as much as a third of Amway’s total sales. (Most people who know Amway readily admit Yager has been as important to the company’s growth as either of its founders. Many people in the business call him the “patron saint of multi-level marketing.”)

  From all of this, Yager made tens of millions of dollars a year in bonuses. And he has many of the quirks of a Ponzi perp. He owns a huge home near Charlotte, North Carolina. He has various MercedesBenzes, Rolls-Royces and Jaguars. He boasts about his political connections—having met Ronald Reagan, George Bush and various other pro-business pols.

  Of course, Yager is a rarity. He joined a fast-growing MLM firm in its early years. He brought a zeal to selling that would have probably set him apart anywhere. And he has stayed with the venture for most of his working life. In these ways, he is like the investor who bought Microsoft stock at its initial offering. It would be very hard—if not impossible—for a person joining Amway today to replicate Yager’s success.

  The nature of the system pushes Yager to spread a different message among the Amway faithful. About once a week, at meetings all over North America, he offers motivational speeches to distributors. The talks often run two hours or longer—and have a spontaneous feeling, even if they’re well-practiced. He’s stoking the fires of his downline troops.

  Like many Ponzi perps, Yager makes a big deal about having the courage to dream. He walks his audiences through dream homes; he tells them to dream about owning fancy cars, big boats and personal jets. “I help [downliners] dream,” he says. “Most people don’t dream enough.”

  Dexter Yager presses the line of legitimacy that Amway has fought hard to establish. While critics question what they call his “lottery mentality,” Yager is not a Ponzi perp. He has the legally-tested Amway guidelines as a frame of reference.

  Not all MLM promoters do.

  CHAPTER 15

  Chapter 15: Faith, Religion and New Age Gurus

  Multi-level marketing programs and pyramid schemes use the rhetoric and psychology of religious evangelism to recruit and motivate distributors. They do this because many people confuse the faith they feel in religious contexts with trust of people or institutions.

  Some Ponzi perps decide that the rhetoric and psychology isn’t enough. They use religion and spirituality explicitly to fleece investors.

  Con men using religion as their pitch are nothing new. They trace back, through the novel Elmer Gantry, to the time of Christ (who was infuriated by money changers in the Temple)...and even beyond that. But the same social and technology issues that make the 1990s a high time for Ponzi schemes encourage religious Ponzi schemes.

  The Ponzi Scheme Church of Hakeem

  Few religious Ponzi perps can match Hakeem Abdul Rasheed for incorrigibility and sheer gall. Rasheed founded the Church of Hakeem in Oakland, California, as a non-profit religious corporation in March 1977. The Church obtained a tax-exempt status under Internal Revenue Code Section 501(c)(3).

  In December 1977, Rasheed held a meeting with about 10 members of the Church and announced the creation of a program he called the “Blessing Plan Covenant.” Participation in the Plan was open to anyone who paid a one-time enrollment fee of $25. Upon becoming a member, a person could then make “donations” to the Church— and receive a 400 percent investment return as a “blessing” or dividend.

  Rasheed said that the goal of the Plan was to create 10,000 millionaires. He was looking for people who had faith and wanted wealth. In January 1978, a month after his announcement, Rasheed renamed the Plan the “Dare-to-be-Rich Program.”

  The principal method by which Rasheed promoted the Dare-to-beRich Program was a series of “Celebrations.” These were meetings conducted personally by Rasheed. At the Celebrations, Rasheed described the Program: become a member of the Church; invest in the Dare-to-be-Rich Program; receive a 400 percent return on investment within a prescribed time period; and become one of the Church’s10,000 millionaires. Rasheed said that the 400 percent return on investment was possible because the Church had “national and international” investments, which generated “tremendous profits” that the Church chose to make available to investing members.

  As the membership grew, Rasheed relied increasingly on a small group of staff personnel to solicit the general public by restating the elements of the scheme. By July 1979, the Dare-to-be-Rich Program had grown so large that it required an organized staff which was formally instructed on how to promote the Program.

  Rasheed was a big believer in direct mail. The Church printed and mailed recruitment brochures to a wide cross-section of the public. Internally, these brochures were known as “Calendars.” They invited the general public to attend Church Celebrations and contained— among other things—the following statement:

  You Can Turn: $25 into $100 in 70 days, $250 into $1,000 in 90 days, $25,000 into $1,000,000 in 9 months. The Church of Hakeem, Inc. is an international as well as national church function. International and national investments return “Profits” which the church does not choose to keep. So it distributes its “Profits” to its active ministers only. These “Profits” we call an “Increase of God.”

  The Church also printed and distributed tickets for free entry to Celebrations, which contained promotional statements of the wealth to be gained through investment in the Dare-to-be-Rich Program. In fact, Rasheed followed Carlo Ponzi’s steps carefully. He paid big profits to earl
y investors with money invested by later ones. He counted on word of mouth to promote his scheme in Black communities throughout the Bay Area. Within a few months, the money was coming in faster than the Church could count it.

  The scheme only lasted a year—but it was a busy year. During November and December 1978, the Church collected at least $3.6 million through the Dare-to-be-Rich Program. Rasheed poured money into a number of questionable investments, including a Church-related private school, a yacht and Rolls-Royces. He didn’t invest in any for-profit businesses, national or international.

  On January 17, 1979, Internal Revenue Service agents seized all of the Church of Hakeem’s assets and effectively shut down the Dareto-be-Rich Program. At that point, at least 4,064 people had paid the membership fee and Rasheed had promised total returns of no less than $30.5 million. A flurry of civil and criminal charges followed.

  At his criminal trial, Rasheed testified that money in bank accounts seized by the IRS, like all money invested in Church activities of any sort, had been obtained from member donations. He’d told Church members, investors and the IRS that he held this money as a “trustee.”

  This wasn’t exactly true. Rasheed admitted that he’d converted money from the investors in the Church to his own personal use. The Feds had determined that Rasheed had purchased a yacht for $915,000 and transferred $1.5 million into accounts in his name at several local banks. In doing this, he’d ceased to be a trustee (if, in fact, he’d ever been one) and become a thief.

  The IRS considers the money thieves steal as income and taxes it, just like legitimate money that working people earn. This was part of the reason the IRS had seized the Church’s assets—to collect $1,533,853 it concluded Rasheed owed for 1978.

  In February 1980, Rasheed was convicted of six counts of mail fraud arising from his activities in the Church. He was sentenced to 15 years in a federal penitentiary.

  In March 1980, the court certified a class action lawsuit in which burned investors could seek money back from Rasheed and what was left of his Church. They were able to proceed with the facts established by the criminal case. They won the case, but neither the church nor Rasheed had any money to collect.

  In March 1981, the same federal court which had handled the criminal and civil cases against Rasheed considered a lawsuit the Church investors filed against the IRS. They wanted their yacht back.

  One problem: The Feds had already sold the yacht. So, the investors wanted the $915,000 it had been worth when the IRS seized it. The court ruled for them, concluding that:

  The question before this Court is whether the specific property obtained through the misappropriation of church membership fees and donations by means of a ponzi or pyramid scheme can be levied upon by the government for the purpose of satisfying the tax obligation arising [from] its passage into Rasheed’s possession. We think not.

  The Feds eventually agreed to rebate the money it got for the yacht at auction back to the investors. The IRS was left with a $2.6 judgment against Rasheed—but no way to collect from the bankrupt perp. It was the same position the investors had been in a year earlier.

  was the same position the investors had been in a year earlier.

  year sentence in a federal prison, Rasheed was transferred to a San Francisco halfway house to serve the rest of his sentence. In prison, he had been a model inmate; once out, he reverted to his old ways.

  In May 1986, Rasheed fled from the halfway house after depositing $178,500 in stolen checks into a Michigan bank account—and then writing more than $20,000 of checks on the bogus deposits. He was captured in San Francisco a short time later.

  Back in federal court, Rasheed claimed that he’d merely left the halfway house as scheduled: “I had no intention of doing anything illegal. I was on the square.”

  A few months later, after a trial in which the jury took 26 minutes to find Rasheed guilty of escaping the halfway house, he was sentenced to an additional five years in prison.

  A Slightly More Subtle Approach

  There’s no doubt that people trust their pastors and people they meet through their churches. Ponzi perps know this—and don’t usually hesitate to exploit this presumption of trust.

  Exploiting the presumption of trust doesn’t require religious piety. It simply plays on the social element of church, which is infused with trust and optimism. This relieves the perp of any direct connection to religion—he or she can simply act like a well-meaning church-goer, who happens to trade silver futures or sell pre-paid phone cards.

  Of course, the pitch is always strongest when the person making it is the pastor. More than anyone, he or she benefits from the trust and optimism people feel when they socialize with fellow church-goers.

  Robert Tilton, a controversial Texas televangelist who bills himself as the “Pastor to America,” exemplifies the issues that arise when the social element of religion meets the mechanics of a Ponzi scheme.

  Tilton has a background that suggests a Ponzi perp. A baby-boomer, he acted like James Dean—black leather jacket and minor scrapes with the law—in his Richardson, Texas, high school. Not much of an intellect, he bounced around Texas Tech University and several junior colleges. He talked about studying architecture but ended up working construction.

  In the late 1960s, Tilton drifted to Los Angeles. There, he spent most of his free time going to parties and sampling the expanded consciousness of the West Coast drug culture.

  On a trip home to Dallas in 1968, he met Martha Ann Phillips. They were married a few months later before a Justice of the Peace. The newlyweds spent their honeymoon dabbling in the just-starting New Age movement in and around Santa Barbara, California. By the summer of 1969, the Tiltons had moved back to Dallas. One night, two evangelical “Jesus freaks” knocked on their door. Tilton said he and his wife were “transformed” when one of the young men said, “Come with me, and I’ll make you a fisher of men.”

  In 1974, after Tilton had been able to put away some money from working for a Dallas home builder, the couple decided to become itinerant evangelists. They sold almost everything they owned, bought a used travel trailer and a secondhand gospel tent. They hit the road with their two young children.

  The family spent time on the revival-meeting circuit, preaching in small towns from north Florida to east Texas. After two years on the road, the Tiltons settled in Houston. There, Tilton worked with John Osteen, the pastor of a 7,000-member fundamentalist church. He still worked an occasional construction job to make ends meet.

  In early 1976, Tilton had a “revelation.” He’d preach a message that combined conservative Christianity, New Age spirituality and entrepreneurial wealth-building. He went back to Dallas to start the Word of Faith Family Church—which was some leased space in a former YMCA building in suburban Farmers Branch. Word spread about “Brother Bob” and his unusual theology of prosperity.

  Tilton encouraged his flock to follow his advice for making money in multi-level marketing and other bootstrap operations. This harkened back to early Protestant America, when material success was supposed to reflect God’s favor. Word of Faith’s annual budget jumped from about $27,000 in 1976 to $250,000 in 1977, $750,000 in 1978 and $1.8 million in 1980.

  However, by the mid-1980s, Success-N-Life, the Tiltons’ television show, was sputtering. It was being carried on only six stations. He came to realize that his vibrant church sermons—described by one of his followers as “having the excitement of a close Cowboys game”— needed even more punch for his television audience.

  Among his sources of inspiration, Tilton said, was TV real-estate pitchman and alleged Ponzi perp Dave Del Dotto. Rather than just talking about the righteousness of worldly success, Tilton started offering viewers specific stories of people who’d made it. “Sure, some people think the TV shows are kind of exaggerated,” says one supporter. “But you’ve got to realize who he’s trying to reach: the downand-out, the lowest of the low, the most desperate.”

  In the mid-1980s, Word
of Faith considered $6 million to be a very good year. Six years later, annual receipts exceeded $100 million and Word of Faith had 850 employees. Tilton’s annual salary was estimated at more than $1 million.

  The Tiltons claimed to have 8,000 members in their church. But, more importantly, they received 220,000 letters a month from people who watched their television program. No longer a weak performer, Success-N-Life was carried nationally on 212 television stations. The show was seen in an average of 199,000 households each day.

  But Tilton’s rapid growth and aggressive pro-business proselytizing had led to some disgruntled investors and attracted the attention of the regulators. In late 1991, Texas authorities told Tilton that his Word of Faith Family Church & World Outreach Center was being investigated on charges of consumer fraud. The state attorney general was seeking a court order to seize Tilton’s financial records...and was sharing his information with federal investigators.

  In November 1991, the television news magazine Prime-Time Live aired a story that raised allegations of mail fraud in Tilton’s ministry. The news show portrayed him as a huckster of dubious pyramid schemes. Brother Bob angrily denied the charges and dismissed the news media in general as “agents of the devil.”

  Criticisms about Tilton’s lavish lifestyle seemed to unnerve him. He and his wife stopped wearing their Rolex watches and driving their Mercedes-Benzes. But their efforts came a little too late to quiet their critics. “Tilton, in terms of just being an outright sham...is just awful. And he may be the only [television preacher] I’ve ever said this about,” said Jeff Hadden, a professor of sociology at the University of Virginia. “If Tilton believes himself, he has created the greatest act of self-deception of all of them.”

  J.C. Joyce, a Tulsa lawyer who had become Tilton’s main spokesman, responded to Hadden harshly: “I guarantee you he has never set foot in Robert Tilton’s church. It doesn’t take any giant to critique something. Any fool can do it.”