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Author Topic: Former Utah Attorney General Mark Shurtleff arrested and charged with bribery  (Read 1876 times)

Ayuvo

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International Association to Expose, Study and Prevent Pyramid Schemes
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Pyramid Scheme Alert
Pyramid Scheme Alert is a non-partisan, non-profit, all-volunteer consumer education group.
Contact Robert L. FitzPatrick, Pres. at info@pyramidschemealert.org
Website Update - September 2014 Update
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Is It Legal?   
Dear Pyramid Scheme Alert Supporters and Colleagues,

In the last Update, I wrote that America's "top government defender" of multi-level
Top "government defender" of MLM, Mark Shurtleff, former AG of Utah, was arrested and charged with bribery.

marketing, former Utah Attorney General Mark Shurtleff, had been arrested and charged with bribery, along with another former Utah AG who was also known for protecting MLM from pyramid prosecution. Shurtleff took an international leadership role with MLM when he led a successful campaign to roll back Utah's anti-pyramid law and even protected MLMs from being sued by Utah victims. MLMs were among his top campaign donors and Utah has the highest concentration, per capita, of MLM headquarters in the nation.

MLM's most famous attorney has been sued for promoting and protecting the Ponzi scheme, Zeek Rewards, shut down by the SEC

Now, MLM's "top lawyer", Kevin Grimes and his law firm, the most famous in the MLM world, have been sued for "legal malpractice" for deceptively promoting and profiting from the MLM, Zeek Rewards, that was shut down by the SEC as a massive Ponzi scheme.

The law suit brought by the United States Securities & Exchange Commission (SEC) was settled on August 17, 2012. The settlement included agreements for the company and all remaining assets to be handed over to a court-appointed Receiver. That Receiver, is now suing Grimes and his law firm for their role in promoting and profiting from the scam, as a "vendor." Other suppliers and promoters of Zeek Rewards may also be sued. 
Grimes, the suit claims, was an important element of Zeek's predatory and deceptive recruiting program. The suit states, "Defendants' negligence and breach of this duty proximately caused an injury to RVG (Zeek victims) in an amount in excess of $100 million."

CLAWBACK!

But perhaps even more significant than the lawsuit against MLM's top legal expert and court room defender is that the Receiver is also going after as many as 10,000 individual consumers who invested in Zeek Rewards and "won" profits. They are now being sued in "clawback" claims. The Receiver is going after their "winnings." 

In other words, consumers who think they can make money in MLM must not only know that the claims of "unlimited income potential" are false, but also that if they were to make any money at all, they could be sued, if the scheme is ever prosecuted.

 Zeek was an MLM that operated under the disguise of an online "penny auction", in which people paid to bid on items for sale. The SEC prosecuted Zeek as a money transfer Ponzi that gained more than $600 million in its brief 18-month life span. The rewards paid to recruiters came from payments made by the recruits not from the company's or the distributors' profits on the auction transactions. This is equivalent to other MLMs paying rewards to recruiters, based on the purchases and sales of those they recruit. If recruiting stops, purchases stop, and the money transfer collapses. Profits on "Sales" do not support MLM "winners". Recruiting does.

Just like the victims of Bernie Madoff's Ponzi, the people who "made" money in the Zeek MLM are now being sued to pay back that money, including Zeek's high profile attorney and legal consultant, Kevin Grimes.

A July 30, 2014 announcement by the  court-appointed Receiver, Kenneth Bell in Charlotte, NC stated, "On March 3, 2014, I announced the filing of a lawsuit to obtain the return of the money paid out to net winners in the ZeekRewards scheme in excess of the amount they paid into RVG (legal name of Zeek scheme). In that lawsuit,...  I made claims against more than 10 of ZeekRewards' largest "net winners" in the United States asking that the Court order them to repay the net winnings they received from the scheme. I also made class action claims against approximately 9,400 ZeekRewards net winners in the United States who each won more than $1,000."

The names of the "winners" have been individually listed and publicized. The receiver's notices and lawsuits can be found at http://www.zeekrewardsreceivership.com.

How Could Consumers Have Known?

Which raises the question repeatedly posed to Pyramid Scheme Alert by consumers - how could anyone have known whether Zeek was legal or not?

The answer is they could not have known. Consumers have, effectively, been left to the mercy of wolves in sheep's clothing when it comes to "direct selling" and "income at home" schemes, aka "multi-level marketing" (MLM). In the case of the MLM, Zeek Rewards, the MLM legal star, Kevin Grimes, aided and profited from the wolf's predatory hunting, and he was an important part of the "sheep" disguise, according to the Receiver's lawsuit against him and his firm.

Zeek Rewards, like every other MLM on earth, claimed to be "perfectly legal". To bolster this false claim it employed the best known MLM lawyer in America, Kevin Grimes, of the law firm, Grimes and Reese P.L.L.C. That law firm's website, MLMLaw.com, was the go-to source for MLM lawsuits, archives of prosecutions, and MLM interpretations of laws. The firm claimed to have advised hundreds of new MLMs about the status of laws and the regulatory environment.

Zeek contracted with Grimes to conduct a "Compliance Test" that all the Zeek participants had to pass. Zeek and Grimes falsely led the recruits to believe that the only way the company would be prosecuted is if they, the participants, broke the law. In other words Grimes helped convince the public that Zeek was so legal it went an extra mile to prevent greedy or untrained consumers from jeopardizing the company's upright and ethical status. Now, Grimes and his firm Grimes & Reese are being sued for legal malpractice and the money they earned is being "clawed back."

Grimes' law firm used to be the in-house attorney for the MLM company, Melaleuca. It counts among its MLM clients the industry stalwarts such as Herbalife, Take Shape for Life (Medifast), Usana and Donald Trump's "Trump Network." Grimes was acclaimed for telling MLMs how to operate "legally." Grimes even reportedly touted his personal history as a former distributor for the MLMs, Amway and Nikken.
Endorsement of Kevin Grimes' law firm by client, Herbalife,
posted on law firm's website


Since the SEC brought charges against its former client, Zeek Rewards, there is no mention of Zeek Rewards on the law firm's website. In fact, Grimes himself has disappeared from the website, MLMlaw.com, and the firm has been renamed, R&R Law Group.

DSA Support?

Like most MLMs, Zeek Rewards was not a member of the official trade group for MLMs, the Direct Selling Association (DSA). However, Zeek's lawyer/law firm, Grimes and Reese who administered the "compliance test" to Zeek recruits and helped to convince the public that Zeek was "legal," was an award-winning member of the DSA. DSA affiliation through Grimes was an important element in disguising Zeek as "legal."

The DSA announced in 2010 that Grimes & Reese received DSA's "Partnership" Award. The DSA award to Grimes and Reese was personally presented by  DSA's "Hall of Fame" winners. The DSA stated, "Grimes & Reese's expertise in the industry is highlighted by the fact that in all of the major FTC pyramid scheme actions brought against direct sellers in the past decade the defendants have sought out their firm for representation. They have a truly unique understanding of legal expertise, marketing practices, compensation plan operation and industry ethics that enables them to provide legal services to direct sellers that other law firms simply cannot match."
 
In sum, Grimes, aka Grimes and Reese, world-famous in MLM for keeping MLMs out of jail or helping MLMs fight regulators. The DSA even gave them awards for this work. With his high-profile MLM credentials and award winning DSA-affiliation, Grimes became an important element of Zeek's predatory and deceptive recruiting program, according to the court-appointed Receiver, as well as a major financial beneficiary of the fraud.

The Standard MLM "Endless Chain/Matrix" at Work, Once Again.

Beneath Zeek's rhetoric about "penny auctions"  (little consumer income was ever generated from actual auction transactions) from and "profit sharing" (payments to recruiters came from the investments of new recruits, not true company profits) the scheme was a standard MLM program. The SEC Complaint against Zeek states,
"ZeekRewards also employs a pyramid "Matrix" to reward its investors for recruiting others to join the scheme. The company places each newly recruited affiliate into a "2x5 forced-fill matrix," which is a multi-level marketing pyramid with 63 positions that pools new investors' money and pays a bonus to affiliates for every "downline" investor within each affiliate's personal matrix. Affiliates that have (i) enrolled in a monthly subscription plan requiring payments of $10, $50, or $99 per month; and (ii) recruited at least two other "Each one recruits two more Preferred Customers" (i.e., investors who have likewise enrolled in a monthly subscription plan) qualify to earn bonuses through the Matrix."
"Once qualified, an affiliate earns bonuses and commissions for every paid subscription within her downline 2x5 pyramid, whether or not she personally recruited everyone within the matrix. Furthermore, affiliates are rewarded merely for recruiting new investors without regard to any efforts by the affiliates to sell bids or otherwise support the retail businesses."

The "2X5 forced-fill matrix" is a boiler-plate MLM "binary" pay plan. All MLMs require a qualifying purchase level or fee payment to earn "bonuses", as Zeek did. The classic MLM bonuses are said to grow "exponentially" by an expanding "matrix" of recruits, as they claimed at Zeek. Hundreds of MLMs also require the recruitment of two other participants to qualify for future rewards, often called the "right leg and the left leg" and, after that, the recruitment is carried on by others who continue the one-recruits-two program, forever.

All of MLMs make a false promise of "unlimited" expansion, even though, an "each recruits two" plan could only go 32 levels before the entire earth's population would be in the MLM. And, in all cases, the money for those "bonuses" is sourced, in total or in part,  from purchases and fee payments of new recruits. Even where there is more "external" money, MLM "winners" do not gain profit without recruiting, a model that dooms the vast majority to losses based on bottom-level positions on the chain, not their effort.

Was Zeek Rewards special? Why was it singled out and prosecuted?  If it is not special, then the question that is posed to Pyramid Scheme Alert every day by confused and concerned consumers must be directed to the FTC and SEC, "How is any "endless chain" MLM legal?"

Sincerely,
Robert L. FitzPatrick, Pres.
PYRAMID SCHEME ALERT

Another Major MLM Prosecuted for Pyramiding
Australians Prosecute Largest Euro-based MLM, Lyoness
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Most MLMs are based in the USA, but  pyramid promoters in other countries are learning fast how to duplicate the USA-invention. The largest Euro-based MLM is called Lyoness. Pyramid Scheme Alert  issued a warning about Lyoness more than a year ago and provided Euro-based resources that were tracking the scheme. Based in Austria, but duplicating and improving upon American trickery, Lyoness is a form of "blowback". The largest US MLMs are now ravaging other countries. Lyoness has adapted the MLM model in Austria and now invades the USA with its own version, a combination product and financial investment scheme.
To date, no known action or investigation of Lyoness has been taken by the FTC or SEC in the USA. But regulators in Australia have now launched a prosecution. The Lyoness MLM claims to be a "discount shopping program" offering cash-back discounts and "gift cards." It bears an uncanny resemblance to the US-based MLM, Fortune High Tech Marketing, which was shut down recently by the Federal Trade Commission.

SEC has taken no action against the MLM, Lyoness, for offering pyramid investments to US consumers. Australian regulators have launched a prosecution.


The Australian regulators allege that Lyoness offers commissions to members who recruit new members who make a "down payment" on future shopping. The chairman of Australia's equivalent of the US FTC, stated, "The concern with pyramid schemes is that the financial benefits held out to induce potential members to join up rely substantially on the recruitment of further new members into the scheme.  For these schemes to work so that everyone can make a profit, there would need to be an endless supply of new members."

The Australian regulators also allege that Lyoness breached the prohibition on 'referral selling', where a consumer is induced to buy goods or services by the promise of a commission or rebate contingent on a later event.

Complaints Unrecognized, Overlooked, Ignored
Has the FTC Misread Consumer Voices against MLM?
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In early 2013, the former chief of the FTC's Consumer Protection Bureau, David Vladeck, told a national news correspondent that he did not know if consumers were harmed by the 90+% loss rates in MLM or even that such massive loss rates indicated deception in solicitations. He did not dispute the losses, but questioned their significance or whether the consumers cared about losing their money. He based that remarkable claim partly on what he said was a paucity of "complaints" received by his office. In his position as chief consumer protector from 2009 to the end of 2012, Vladeck exempted MLMs from even being required to make financial disclosures in their investment solicitations to consumers.
Saw No Evil: Former Consumer Protection Bureau Chief, David Vladeck could not see harm in huge consumer losses in MLM.


While such statements and actions are astonishing for a Consumer Protection regulator, they may have been based on a faulty system used by the FTC to gather and analyze consumer complaints related to "multi-level marketing."

This is the conclusion reached by MLM researcher, Dr. Jon Taylor, Ph.D, who examined one full year's (2013) of consumer complaints sent to the FTC on pyramids, ponzis, and "business opportunities."  Dr. Taylor maintains the research-oriented website, MLM-thetruth.com. The data for his report on the FTC's handing of MLM complaints was gained through a Freedom of Information Act (FOIA) request, which FTC officials complied with and cooperated in fulfilling.

Dr. Taylor's analysis and conclusions were sent to the FTC in a formal report, as a follow-up to the petition sent to the FTC in Oct., 2012, by the International Coalition of Consumer Advocates. The ICCA petition was  the first international request for a full review and investigation into "multi-level marketing", not just individual MLM companies.

Read the Full Report, including  tragic, angry, and sad comments of consumers  seeking protection or assistance from the FTC   

Dr. Taylor's analysis showed:
More than 900 complaints were made to the FTC in one year referencing MLMs, a substantial consumer voice, not silence, as Mr. Vladeck had apparently believed.
More than 100 different MLMs were subjects of complaints, a large representative of the MLM "industry", indicating extensive abuses or problems and leaving little doubt about a need for FTC oversight. Instead, MLM remains "exempted" from industrywide regulation by the FTC, in favor of "case by case" reviews, which are extraordinarily rare and, relative to the number of MLMs, essentially useless for consumer protection, though each prosecution is important.
The FTC apparently makes faulty or erroneous distinctions between "direct selling" and MLM or "business opportunity" and MLM (Note: some MLMs deceptively tell new recruits that they are not MLMs; apparently they also fooled some at the FTC.)
The complaints include consumer accusations or suspicions of pyramid fraud as well as repeated claims that indicate persistent "unfair and deceptive" trade practices. To an informed analyst, many of the repeated and virtually identical "service" related complaints against many different MLMs are red flag indicators of product-based pyramid schemes. These would include "channel stuffing", deceptive promotions leading to unwanted or unneeded purchases, overpricing, grossly exaggerated health claims, and high churn rates. It is likely that Mr. Vladeck or others at the FTC are unaware of these red flag indicators. Even if the complex question of a pyramid scheme definition is omitted, the repetitive service complaints are indicators of widespread, "deceptive and unfair trade practices", which the FTC is charged with investigating.
The FTC may also be confused about financial Ponzi schemes and product-based pyramid selling schemes. Many MLM scams are both pyramids and Ponzis. For example, the analysis showed 23 complaints in 2013 against the MLM, Telexfree,  which the FTC never took an action against. However, in April of 2014, the SEC, which normally focuses on financial frauds, did prosecute Telexfree. 

Quoting from Dr. Taylor's report, "The conclusion of this study is that consumers have expressed anger at the abuses they experienced in multi-level marketing; they have appealed to the FTC for relief and for investigations; they have provided a large body of evidence and specific areas in which the FTC could take action to prevent abuse. Yet, due to an unwieldy data collection and classification system, FTC staff may be unaware of the public's experiences, needs, and requests. The cumbersome data format may have contributed to the false reading of consumer silence or lack of widespread abuses. The failure of the FTC to respond to the consumer complaints and pleas may also indicate a lack of knowledge among some staff members about the methodology and characteristics of "endless chain" and recruiting scams disguised as direct-selling companies."

 

Read the Report on Consumer Complaints to the FTC 

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 What About This One?   Now Available! Free! The new audio and written report published by Pyramid Scheme Alert is the product of years of research and direct experience of analysts, former insiders of multi-level marketing companies and veterans of  direct selling.The audio is a down-to-earth, conversational dialogue. that hits the key points for evaluating income opportunities and avoiding pyramid scams. The companion written report outlines the information for easy reference.   

 

 What Is this Thing Called Multi-Level Marketing? (free) This new report (March, 2014) examines the income disclosures of Amway, Herbalife and Nu Skin, which together account for 10% of the entire MLM business in America. It is a "portrait" of MLM in America and provides the reader with a clear picture of what MLM is and is not. A must read for "due diligence" or those who want to understand what all the MLM recruiting is all about.

 
 
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Munterbunt

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