You Can't Cheat an Honest Man - James Walsh [118]
At the same time the Illinois agreement was being worked out, the State of Michigan issued a cease-and-desist order barring Trudeau from recruiting any more of its residents as Instant Executive distributors. The Michigan order was issued after months of negotiations failed to resolve the state’s complaints, according to Bob Ward, an assistant attorney general. The order restricted Trudeau from doing anything other than selling Nutrition For Life products in the state. Ward said that effectively shut him down, because “I’m not convinced there are any retail sales in Trudeau’s program.”
A few months later, in July 1996, Illinois and seven other states entered an agreement with Trudeau that essentially applied the terms of the Illinois agreement to the other states. The multistate deal also required Trudeau and Nutrition for Life to pay a total of $185,000 to reimburse states for the cost of their investigations.
The agreement meant the Instant Executive Program was abolished. Compensation in the Trudeau Marketing program would be based on sales rather than on recruitment. To receive a commission, an executive distributor would be required to make five verifiable sales each month. “[The agreement] provides a significant new layer of disclosure that gives participants a clear picture of how the program works and a realistic estimate of income possibilities,” Ryan said.
Trudeau had a different take on the outcome. “With the legal issue resolved, I can now focus my full energies and marketing expertise in helping thousands of people achieve financial freedom through a home-based business of their own,” he said. He claimed that the agreement resolved the legal issues “without any determination of wrongdoing.” Again, this was technically true—but it missed the larger point made by the settlement.
Trudeau wasn’t long on nuance. In the wake of the Instant Executive settlement, he celebrated the end to the legal skirmishes by throwing a party for employees and investors at Chicago’s Bismarck Hotel. He said he was about to begin “the largest advertising and marketing campaign in multi-level marketing history!”
A State Regulator Forces Some Repayments
Law enfrocement agencies don’t usually concentrate their efforts on making burned Ponzi investors whole. But, state agencies will often do more than the Feds to help the people who lose money recover at least some of it.
In late 1986, an woman named Lynn Ridenhour introduced what she called an MLM program to residents of Topeka, Kansas. The program was called the Top Flight Success System (TFSS). It was marketed by Ridenhour on behalf of Products Management Corporation (PMC). TFSS participants joined the program by paying a $1,500 entry fee. The $1,500 entry fee was paid in two checks: One check for $1,250 was made payable to TFSS; the second check for $250 was made payable to PMC. The check made payable to TFSS was deposited into a TFSS account, and the money was eventually paid to participants. PMC kept its check.
Payment of the fee entitled the participant to have his or her name placed on a chart in an entry level position as a passenger. The charts consisted of four levels organized in a pyramid fashion. At the base of the pyramid were eight passengers. Above this—in ascending order— were four crewmen, two co-pilots and one pilot at the top.
Once eight passengers paid their money (or, as Ridenhour called it, “boarded the airplane”), the pilot cashed out for $10,000. The remaining participants split into two new pyramids with everyone advancing one level. Each new airplane then recruited eight new passengers—at which point, the pyramids multiplied again. Theoretically, the process continued ad infinitum. Participants were encouraged to re-enter the TFSS system multiple times. Many did.
In addition to the pyramid scheme, TFSS ostensibly marketed two products:
1) a Top Flight Vacation Card, which entitled the