Kevin Trudeau's pyramid continues to crumble as FTC snarks at GINtervenors

SEE UPDATE AT THE END (after the PS)
~CC, 23 December 2013

While serial scammer Kevin Trudeau continues his proxy prison ministry, allowing his long-time companion Janine Nubani Contursi to babble on the Facebooks about life lessons and miracles, the paper shuffling in his long, drawn-out civil case continues (Case number 1:03-cv-03904, Judge Robert Gettleman presiding). On December 20, 2013, the Federal Trade Commission (FTC) filed its opposition to the November 18, 2013 motion by Ohio GIN member Perry Kiraly et al. to intervene in the case. In its statement the FTC calls the suspended-for-now MLM arm of Trudeau's Global Information Network (GIN) an illegal pyramid scheme. The first clue that the FTC is not going to be gentle on the Intervenors is in the main document's title:

FEDERAL TRADE COMMISSION’S OPPOSITION TO PYRAMID SCHEME
PARTICIPANTS’ MOTION TO INTERVENE

The "pyramid scheme" participants = Perry Kiraly and his fellow Intervenors.

Here is a direct link to the document and the exhibits -- all 256 pages.

Heck, I could have told all of 'em that GIN was a pyramid scheme. In fact I believe I first suggested it back in... oh... 2009, when I first heard of GIN. I kind of mentioned it again in 2011. But then, I'm no credentialed expert.

To those who have been following (and swallowing) Perry Kiraly's Stand With GIN updates, these documents may come as a little bit of a shock. After all, Perry made it sound as if the receiver's attorney and the FTC attorneys were quite sympathetic to the Intervenors' desires to take over GIN. But to the rest of us, particularly those who have been casually exploring the background of some of the Intervenors and their lawyers, the Shimkos, for the past two months, the lack of accuracy might not be such a shock. Background research or not, anyone reading the GIN Membership Agreements, which most of the Intervenors signed, could see that they had no legal ownership in GIN. It would appear that Perry may have been erring on the side of optimism in some of his reports and updates. Or maybe he was simply misled by his Shimkos. If so... bad, bad Shimkos.

The FTC called upon their senior economist, Peter J. Vander Nat, Ph.D., who has been with the agency for 25 years and is an expert on MLMs and pyramid schemes. Dr. Vander Nat, unlike so many gurus of Scamworld (John Gray, Joe Vitale, Loony Coldwell), is what is known as a real Ph.D. His detailed analysis of GIN's pyramid-ishness is included in the exhibits accompanying this document. In their motion to oppose intervention the FTC cites Dr. Vander Nat's findings several times.

The Intervenors have until January 17, 2014 to reply to the FTC's opposition to their motion to intervene. Another hearing is scheduled for January 30 at 9:00 AM. At that time, presumably, the court will rule one way or the other. It's important to remember that the final decision will still be made by the court.


I am of course no legal expert, but from what I can see, both the FTC and Dr. Vander Nat make a very good case for GIN's MLM having been an illegal pyramid scheme. As noted above, the court still has to rule on this, of course. But Dr. Vander Nat has an excellent track record, at least according to him and to the FTC, who claim that to date no court has ever rejected his conclusion that an enterprise was a pyramid scheme.
 
The part of the latest court docs that details exactly why the FTC believes GIN is an illegal pyramid scheme is Doc 803-3, "Declaration of Dr. Peter Vander Nat" etc., supported by FRC PXC:1. It is part of that large doc I uploaded. Here is the link again.

On page 2 Dr. Vander Nat goes into "The Meaning of a Pyramid Scheme." He also explains Ponzi schemes, which are clearly illegal in the US. Both his report and the FTC statement of opposition cite numerous case precedents, including the 40-year-old Koscot case (involving old-school motivational huckster Glenn Turner) that first brought MLM dodginess to the public's attention in a big way. I have a three-quarters-finished blog post about Glenn Turner; I really do need to finish it.

Anyway, in his conclusion, Dr. Vander Nat says that in his opinion GIN's program fully meets the "Koscot test" for being a pyramid because "the firm offers substantial rewards for recruiting members without any requirement for retail sales; i.e., product sales outside the network."

And the FTC makes no bones about its contempt for the Intervenors:

In the latest obstacle to achieving consumer redress and concluding this matter, twenty-five participants in Kevin Trudeau’s Global Information Network (“GIN”) pyramid scheme (collectively, "the GIN Participants") seek to intervene—apparently because the Receiver halted their pyramid payments. For several reasons, however, their misguided motion is both legally meritless and factually baseless. First, because the GIN Participants neither own GIN nor have any right to unlawful pyramid payments, they lack a sufficient stake in this litigation to satisfy Article III standing requirements. Second, their motion is untimely because, through its attorneys, GIN knew about this litigation for nearly two years before anyone moved to intervene—after extensive litigation concluded, after the Court resolved the key factual issues, and after the Court created a receivership that the GIN Participants now seek to unravel.

Third, even if the motion were timely—and it is not—the GIN Participants still fail to satisfy the requirements of either Rule 24(a) or (b) because they lack any cognizable interest in this case, they raise no question of law or fact that has not already been litigated, and their intervention would prejudice the FTC substantially. If everyone involved with Trudeau’s machinations were permitted to intervene, there will be thousands of parties before the Court. It makes no sense to spend public resources and the balance of the Receivership Estate sorting through the mess that intervention will precipitate. In short, the interests of justice demand that the Court deny the motion.

The FTC also gets a little snarky about the Intervenors' MLM expert, Thayer Lindauer, who, by the way, wants to be "your network marketing attorney." Thayer will help you structure your MLM scheme to get around the regulators. But even Thayer thought GIN was operating an illegal pyramid scheme (and I'm sure he would be glad to make it a legal pyramid scheme, for a price). Here is a link to a page that contains Thayer's test about whether a company is an illegal pyramid scheme (for the record, Thayer thinks Herbalife is illegal too). And here is Thayer's discourse on "pyramid consequences," including his take on the ethical dilemmas faced by attorneys who advise MLM-ers.

But back to the court docs at hand. This is from Document 808-0, the FTC's statement of opposition to the motion to intervene:

D. The Pyramid Scheme Participants
Significantly, more than half of the twenty-five GIN Participants received payments from GIN for their “recruiting” efforts... In fact, their own alleged “expert,” Thayer Lindauer, opines that GIN operated as an illegal pyramid scheme:

My review of the current sales program of Global Information Network indicates that [it] was almost certainly operating as a pyramid promotional scheme as defined by various administrative decisions of the Federal Trade Commission under Section 5 of the Federal Trade Commission Act.

That was an excerpt of a letter from Lindauer to Timothy Shimko, one of the Intervenors' lawyers.

The FTC statement continues:

The FTC’s pyramid scheme expert concurs. Specifically, economist Peter Vander Nat—arguably the country’s preeminent expert on pyramids—provides an expert report including thorough economic analysis. Dr. Vander Nat “conclude[s] that GIN is a pyramid scheme.”... Among other things, he opines that the overwhelming majority of GIN pyramid participants will lose money: GIN promotes its business opportunity as a “perpetual money-making machine.” In reality, it is a perpetual recruitment scheme that dooms the vast majority of the participants (well above 90%) to financial losses by the very design of the compensation plan...

But the FTC seems to have Perry and gang's numbers too (in more ways than one).

...Although almost everyone loses, a very few do not. Perry Kiraly, the lead proposed intervenor, made almost $48,000, and would stand to make more if the Receiver had not dismantled Trudeau’s pyramid...Several other GIN Participants who seek to intervene also made money, and stand to make more at the expense of lower-ranking members. Many others have not yet recouped their pyramid payments, but apparently hope to do so if Trudeau’s pyramid continues functioning...(as Dr. Vander Nat explains, for this reason, it is typical for middle-level pyramid scheme participants to want the pyramid to continue—so they can recover their “investment” from lower-ranking members... This is why the GIN Participants allege that they “benefit financially from their membership in [GIN] in the form of residual income paid to members for attracting new members”... and why they complain that the Receiver deprived them of their purported “rights to income disbursements...

This may not necessarily mean that Perry's gang or some other group has zero chance of acquiring GIN at some point in the near future and re-creating it as a "legitimate" club (and possibly a legit MLM). They have a Plan B in mind too, which Perry has indicated since he first started doing his Stand With GIN updates. In fact, that is supposedly why they've been working with Thayer Lindauer: to clean up GIN's MLM and start 'er up again.

But if the FTC has its way, the court will not recognize their right to act as Intervenors -- after all, as the FTC patiently explained, they were members, who signed membership agreements stipulating that they had NO ownership. Moreover, their "intervention" wasn't timely, according to the FTC. So if they have any chance whatsoever of making GIN their baby, they will more than likely have to find some other way besides "intervention."

Some of us have thought all along that they were fighting a losing battle with the "Intervenor" effort, but they did manage to get themselves added to the docket and have become part of the case. In other words, they weren't laughed out of court right off the bat. Still, my sense is that the court will agree with the FTC that the Intervenors have no ownership in GIN. But again, that doesn't mean GIN is completely dead... yet. Even so, it looks as if the well-intentioned folks who contributed to the Stand With GIN fund may have just been throwing their money away, as many did for years in GIN. But at least those Shimkos will have a little extra spending money.

Bottom line is that the FTC, with the help of their economist/MLM expert, have defined GIN's pyramid dodginess pretty accurately -- which is another nail but possibly not the final one if GIN can somehow be taken over, revived, and turned into a legal scam. Though Perry Kiraly's "Intervention" effort will probably fail, Perry and his pals are probably not going to give up. And there are no doubt other parties fighting for the remains of the moribund beast.

More popcorn, please.

PS ~ Self-proclaimed GIN destroyer Abe Husein is excited because he, Peter Wink and Loony Coldwell were mentioned in a March 2013 email from Kevin Trudeau to some of his cohorts. Katie apparently panicked and clumsily tried to do some damage control after ABC News showed up outside of his luxury digs in Zurich in March. It was apparently those "ambush journalists" who spooked Katie into trying to discredit some of his detractors. It's almost as if he didn't really realize what they were up to until he got shaken out of his complacency by ABC's visit. More than likely he was also inspired by his looming court cases and upcoming hearings and trial. But his main concern besides discrediting his detractors seemed to be to get tons of pro-GIN testimonials into the right hands. In fact, he seemed more concerned with getting those testimonials than with discrediting Abe, Wink, and Loony. Word has it that no one in the GIN offices actually embarked upon a campaign to discredit the Three Stooges, reasoning that the Stooges did their own self-discrediting better than anyone else ever could.

Here's a shot of the emails.

"Video testes from cruise"... that kind of sounds like he's talking about naughty movies. I'd heard that some of those cruises got a little wild... Well, Katie is not the world's best speller or punctuator.

Obviously any efforts at damage control that may have been made in the wake of the ABC "ambush" were ineffective; ABC aired their episodes of The Lookout, one in May and a followup in August, with, it must be noted, a segment featuring Abe (but with no mention of Loony or Wink). I think that most journalists who have had any interaction with Loony or Wink, particularly Loony, can sense that showcasing them as sources would not be the best move, credibility-wise, for any news media outlet. (Peter did give a "press conference" after one of Katie's hearings, and some of the Chicago journos used some quotes from him, but that's about the extent of Peter's front-and-center exposure in this saga. I hear that some of the Chi-town journos think he is a little sleazy.)

The one major point that Loony, Peter, and Abe were and are correct about, of course, is that Trudeau is a scammer and GIN is a scam, which I've been saying for years. Where they are concerned it may be a pot-and-kettle situation, but they are correct about that one point and yes, they (particularly Abe) have earned themselves some media coverage for criticizing GIN and Katie. I did find it interesting that Katie's fans talk about him taking the "high road" when it comes to dealing with his detractors, when his emails indicate that he so clearly did not want to take the high road. It's worthy of note, I think, that this is the way that most Scamworld gurus handle their critics, when ignoring them does not work: by trying to discredit them. Loony Coldwell has tried that with all of his critics, including me, of course -- this being just one example. In this case, Loony was totally making up lies about me (major fail in the discrediting effort), whereas if Katie's guys had wanted to discredit Loony and Wink and Abe, they would have had some legit info on which to draw. But Katie's own lack of credibility was kind of an issue, to say the least, and ABC had enough goods on him to neutralize any efforts to discredit sources. They obviously did their own research and digging.

And so the saga continues, with no neat and tidy endings in sight.

UPDATE 23 December 2013:
Perry Kiraly sent out another update today (actually the update is dated December 20, but the email has today's date). Apparently, after discussion with one of his Shimkos and with other GIN members, he has changed his tune about the receiver and now agrees with those who feel the receiver is interfering with and destroying GIN. The receiver has bad vibes and it's ruining the club, I tell you... ruining it! Here's a sample of what Perry wrote in his email:

Exposure to the Receiver's vibration is changing the vibration of our club and a few of the members have already succumbed. The recent claim of the Receiver of being assisted by members of the club (whom the Receiver refuses to identify and plans to make an advisory board of), is an ominous signal that such is occurring.  Are these members suffering from Stockholm syndrome?  Maybe, but it is sure that the presence of the Receiver and his minions are the culprits.

More details to come.


Other relevant Whirled links about MLMs and pyramids:

• MLM: Kevin Trudeau's GIN is just one toxic drop in a huge ocean of fraud: http://cosmicconnie.blogspot.com/2013/10/mlm-kevin-trudeaus-gin-is-just-one.html
• Gimme that old time scamming... Back in Time with the big sick machine
• How MLMs can tear lives apart...
  Tin Promises, Part 1: http://cosmicconnie.blogspot.com/2013/12/tin-promises-how-mlms-can-tear-lives.html
  Tin Promises, Part 2 http://cosmicconnie.blogspot.com/2013/12/tin-promises-how-mlms-can-tear-lives_11.html

Out of this Whirled...
Here's more information about the difference between a "legitimate" MLM and an illegal pyramid scheme. Many activists argue that there really is little difference when it comes to results, because all MLMs are structured so that only the top few people ever make any significant money -- and they do so at the expense of hundreds of thousands of rank-and-file members.
http://www.dsa.org/ethics/internalconsumptionwhitepaper.pdf

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