supplements: vitamins, minerals, herbs, & "natural" products
note: Here you will find links to other entries in The Skeptic's Dictionary about persons or practices relating to vitamins, minerals, or herbs. Here you will also find excerpts from items in The Skeptic's Refuge relating to people who make a living selling supplements at inflated prices and encouraging others to do the same with the promise that by doing so you will be on your way to riches beyond your imagination, eternal youth, increased spirituality, or something of the sort.
There are too many companies and products involved in this kind of chicanery to list them all by name. The following links should help you decide whether a particular outfit or product is trustworthy.
For those cancer patients who are thinking of trying an untested alternative therapy, please read Dr. Stephen Barrett's A Special Message for Cancer Patients Seeking "Alternative" Treatments.
Articles about persons and practices
Joel D. Wallach, "The Mineral Doctor" (Claims that all diseases are due to mineral deficiencies and that just about anyone can live more than one hundred years if they take daily supplements of colloidal minerals harvested from a pit in Utah.)
naturopathy (Their favorite cure for anything that ails you is a diet rich in vitamins and mineral supplements, often sold through their office.)
natural (Of course, supplements aren't natural, even though some of the ingredients in them are. My favorite claim here is one by Dr. Atkins that his low-carb diet, which requires supplements, was the most natural.)
holistic medicine (Holistic practitioners are often adamant that vitamins are good for the soul.)
multi-level marketing (There are probably more MLMs centering around vitamin and mineral sales than any other product.)
Amway® (Quixtar®) (Team of Destiny®)
DHEA (dehydroepiandrosterone) (If your body produces it, it must be good to add it via a supplement, right? Think cholesterol.)
shark cartilage (Those who sell it swear it can cure cancer.)
bioharmonics (One of the more popular claims in "energy" healing is how valuable supplements are to proper health and spirituality.)
aromatherapy (Improve your life force or spirit with essential oils!)
Bach's flower therapy (Homeopathic aromatherapy for the soul.)
Wicca (Wiccans favor herbs over conventional medicines.)
homeopathy (Vitalism at its best!)
alternative health practices (One of the most popular AHPs is to use supplements for vitality, increased harmony, wholeness, and wellness.)
Ayurvedic medicine (Find the right foods and herbs for your body type.)
anthroposophic medicine (Steiner discovered that "a plant is a healing plant when it has a distortion or an abnormality.")
Excerpts from Mass Media Funk, Bunk, and Newsletters
Herbal Remedies Found to Contain Toxic Heavy Metals
Heavy metals in Ayurvedic herbs
Vitamin supplements do no good in protecting against cancer or other diseases
On recommended dietary allowances (RDA) of vitamins and minerals
Vitamins and good health
Vitamin C, vitamin E and beta carotene do not reduce the risk of heart disease, cancer, or mental decline
Longevity and vitamin and mineral supplements
Biggest medical product recall in Australian history
Cancer "cure" of Nicholas J. Gonzalez
Dangers of taking herbs before surgery
Raw-food diet fad
Colonic irrigation (colon hydrotherapy)
Naturopathy: harmless therapy!
St. John's wort was no better than a placebo
Ginkgo
Creatine
Herbs and your pharmacy
Vitamin C supplements and hardening of the arteries
Herbal remedies
Herbs and prostrate cancer
Herbs, luck, and pregnancy
British Columbia and Traditional Chinese Medicine
Anesthesiology, herbal products, and unexpected bleeding and difficulty in blood clotting during surgery
Consumer Reports test St. John's wort, SAM-e (s-adenosyl-methionine), and kava pills
Herbs and Hodgkin's disease
Herbs in ice cream and other neutraceuticals
Apple cider vinegar
Bringing LIGHT into the world through high quality nutritional supplementsFrom Mass Media Funk or Bunk
September 30, 2004. A new study published in the Lancet has found that vitamin supplements do no good in protecting against cancer or other diseases. In fact, the study has found that some supplements may even increase one's cancer risk.January 15, 2001. The Institute of Medicine has issued the latest of four reports on recommended dietary allowances (RDA) of vitamins and minerals. The report is based on a four-year review of the scientific research into vitamins and minerals. The bottom line? "Nutritionists say a healthy daily diet, with at least five fruits and vegetables, can provide plenty of most vitamins." Nevertheless, 40% of Americans take supplements. Some need them. Some are probably being harmed by them. E.g. Vitamin A: "more than 3,000 micrograms daily can risk birth defects in pregnant women and liver damage for others." Vitamin E: more than 1,000 milligrams (1,500 international units) a day "could cause uncontrolled bleeding." Vitamin C: "more than 2,000 milligrams a day can cause diarrhea."
On the other hand, "many people over age 50 have trouble absorbing vitamin B12 from natural food sources and thus should eat fortified foods, like breakfast cereals, or a daily supplement to ensure they get 2.4 micrograms a day....[and] the amount of vitamin D older people need for strong bones has doubled, to 400 international units."
While the RDA has changed for many vitamins and minerals, the labels used on consumer goods generally follow the guidelines set down in 1968. To confuse matters even more, some products list the amounts of vitamins and minerals by milligrams or micrograms, while others use international units (a microgram equals 3.33 international units).
The USDA has set up a nutrient database online, so you can do a search for a product like milk and get a list of dozens of dairy products which you can then click on to find out what nutrients are contained in various sized servings.
April 13, 2000. WebMD reports that we're more likely to find vitamins conducive to good health in our kitchen than in our bathroom...if you have foods such as fresh fruits, vegetables and nuts in the kitchen. According to a recent report by the Institute of Medicine (IOM) pill supplements for vitamins C and E, selenium, and carotenoids have no proven role in preventing disease. IOM recommends a ceiling on daily consumption of selenium and vitamins C and E to reduce the risk of adverse side effects from overuse. The full report is available from IOM.
July 8, 2002. A five-year study involving more than 20,000 people aged 40 to 80 found that a daily dose of vitamin C, vitamin E and beta carotene does not reduce the risk of heart disease, cancer, or mental decline. Prof Rory Collins, a co-author of the report at Oxford University's Clinical Trial Service, said: "Over five years we saw absolutely no effect." At the end of the trial, people taking vitamins had exactly the same risk of heart disease, cancer, cataracts, bone fractures, asthma and mental decline as those who took a placebo. In contrast, cholesterol-lowering drugs reduced the risk of heart disease and stroke by around one third.
October 26, 1997. An article in the New York Times by Jane E. Brody reported the results of a 13-year study involving over 10,000 Americans which "found no evidence of increased longevity among vitamin and mineral supplement users in the United States." This is especially bad news, since most of the people who take vitamins are non-smokers who don't drink heavily and who eat more fruits and vegetable than the rest of us. (The study also found that supplements failed to help the longevity of smokers, heavy drinkers, and those with chronic diseases.) The results of the study have been out for four years. Nevertheless, it is estimated that some $6.5 billion a year is being spent by Americans on vitamin and mineral pills. (It might seem like $6.5 billion is a lot of money, but consider that Americans spend about $2.5 billion on Halloween candy and costumes.) Why do we spend so much on supplements? I suppose in part it is because some people really do have vitamin or mineral deficiencies and they need the supplements. Others may be taking supplements because they believe the pills will help fight cancer, give them more energy, help them live longer, improve their chi, rev up their spirit or vital energy, and so on. It is true that the information regarding nutrition, vitamins and minerals is bewildering, confusing and contradictory; that uncertainty gives some wishful thinkers hope that the stuff will do them good. Maybe. And maybe that is why vitamins and minerals are so popular among MLM programs. But why ignore the possibility that these pills might be doing some harm? Vitamin E can interfere with the action of vitamin K (which promotes blood clotting). Too much calcium can limit the absorption of iron and too much zinc can reduce the level of copper in the body (decreasing "good" cholesterol). Folic acid can react adversely with anticonvulsants and each year the greatest number of poisoning deaths among children is from iron supplements meant for adults.
April 28, 2003. An investigation into "alternative" medicines has led to the biggest medical product recall in Australian history, according to the Sydney Morning Herald. Two hundred nineteen products have already been banned and eventually 70% of "complementary" medical products may be forced from the marketplace. The investigation began when 87 adverse reactions were caused by a travel sickness pill, Travacalm. Nineteen people had to be hospitalized. At least one lawsuit has already been filed.
The federal parliamentary secretary for health, Trish Worth, said "some people were very, very ill and tried to jump out of planes and off ships because of the hallucinatory effect it had." Testing found dosages varied from 0 to 700 per cent of that listed on the label.
Travacalm is produced by Pan Pharmaceuticals, Australia's largest contract manufacturer of alternative medicines. Pan's license to produce medicines has been revoked. The Therapeutic Goods Administration is considering criminal charges against Pan and has already found that Pan falsified test results and substituted ingredients for those listed on labels.
Since Pan produces products for many different companies, consumers were advised to stop using any alternative supplements until specific products can be checked out.
Bob Carr, the Premier of New South Wales, told reporters that it is time to end the hype over "alternatives" and do some proper scientific assessments of remedies touted as "alternative therapies." Carr said the public needed to be more skeptical about complementary or alternative medicines. "Let's encourage a healthy skepticism based on science," he said.[thanks to Kerrie Dougherty]
The New Zealand Herald reports:: "The Food Safety Authority last night issued a list of 642 dietary supplements and vitamins sold in New Zealand that are made by or contain ingredients made by the disgraced Australian company.
It took three days to put the list together, mainly because complementary medicines do not have to be registered in New Zealand, so authorities have no record of what is being sold, who makes what, or where products come from."
further reading
Stopper put on more herbal companies By Kirsty Needham and Jeni Porter May 9 2003
Can natural remedies recover? May 4 2003
Bastyr shows nation the way to naturopathy 2003-05-06 by Carole Beers
RatbagsDotCom
January 18, 2000. Any nut in a storm. That seems to be the motto of the National Center for Complementary and Alternative Medicine. They've committed over $1.4 million over five years to study the crackpot cancer "cure" of Nicholas J. Gonzalez, who uses a variation on the Max Gerson treatment of coffee enemas and vitamins. Read all about it in the WashingtonPost.com. The fact that Gonzalez has already been convicted of incompetence and malpractice does not seem to bother those spending other people's money on this bogus research.
July 11, 2001. The current issue of JAMA (vol 286 no 2) has an article warning patients about to have surgery of the dangers of taking herbs before surgery. I find this interesting since many people take herbs as an alternative to surgery. They think herbs like ginkgo biloba and ginseng can prevent diseases which might require surgery otherwise. The main danger is that the herbs might lead to excessive bleeding. The authors are not campaigning to eliminate herbs from the diets of millions of Americans, which would be fruitless since the numbers who believe in the magical nutritional and healing power of their herbs is growing exponentially, it seems. Rather, the authors are encouraging patients to inform their doctors of any herbs they might be taking. Many patients are not telling their doctors about their herbal intake, either because they don't realize that herbs contain chemicals that might react with anesthesia or other drugs given before or after surgery or because they don't want their doctor to know that they are hedging their bets with alternative medicine. For purposes of the law, herbs are called "dietary supplements" and are not subject to the same kind of scientific scrutiny as prescription or non-prescription drugs. So, perhaps herb users think of their herbs as "alternative vitamins and minerals."
The concern is not new and was reported on over a year ago by CNN, ABC, and HealthCentral. I reported on this concern last October. WebMD took up the issue last September. A report on the JAMA study can be found at the CNN site.
The mystical belief in the power of herbs has carried over from consenting adults who should be allowed to ingest whatever useless remedy they wish, to marketing herbs for our children and our dogs and cats. Andrea Candee, MH, i.e., "master herbalist", claims to know what herbs are "child-friendly." You can find out what they are if you buy her book. I can understand an Aborigine, with 40,000 years of tradition behind him or her, claiming to be a master herbalist. But I wonder where Candee got her title. The fact is that herbs have pharmacological properties, have been used in conventional drugs for years, and are being used by millions of self-medicators today. Those who produce and market herbs should do less to make people think their products are safe just because they are natural, and do more to inform people that herbs are drugs. When one's doctor asks what drugs you or your children or pets are taking, one should list not just prescription drugs but herbs as well. Your life or the life of those you love may depend on it.
September 1, 2002. Peggy Orenstein has an article in today's New York Times Magazine on the raw-food diet fad. She pays a lot of attention to Roxanne's, a raw-food restaurant in Larkspur (Marin county, about a 15-minute drive up 101 from the Golden Gate Bridge that connects San Francisco to Marin). It's one of the "in" places to dine in the Bay area; reservations must be made a month in advance for the privilege of eating food that has not been cooked. For some mystical reason, food may be heated to 118 degrees and still be considered raw at Roxanne's, which is run by Roxanne Klein, wife of Michael Klein, who made his fortune in data communications. Mr. Klein hasn't eaten cooked food in five years, is a vegan who eats honey, and subsists on about 800 calories a day (he says). Roxanne has been a vegan for 10 years and also hasn't eaten cooked food in five years. Orenstein describes Michael as gaunt with muscular arms. She describes Roxanne as making Kate Moss look fat. The Kleins claim they are the poster children for health and good living.
I haven't dined at Roxanne's, and probably never will, but I know several people who have. They gave it mixed reviews. The food was interesting, they said, and most of it was tasty. But the service was not what one would expect when paying something like $70 each for dinner (with wine). Why, you might ask, would anyone want to spend that kind of money to eat raw food? Well, why not? If the food is good and tasty, the wine of high quality, the service excellent, and the ambiance pleasant, who cares whether the soup is hot?
On the other hand, the raw-food craze seems to be based on some pseudoscientific notions. The Kleins think that eating raw food will ward off aging and disease. They seem to take literally the words of one of the raw-food pioneers, T. C. Fry, who claimed ''All the diseases of civilization -- cancer, heart disease, diabetes -- are all directly attributable to the consumption of cooked food.'' Fry took the proof for that claim to the grave seven years ago when he died at age 70. (It is said, however, that he was in perfect health when he died and didn't look a day over 60.)
Mr. Klein believes that cooking food destroys a food's natural enzymes and minerals, and depletes it of protein and vitamin content, while concentrating pesticide residues. Orenstein contacted David Klurfeld, a professor of nutrition and food science at Wayne State University in Detroit. He says that aside from a slight loss of some vitamins, cooking food is not detrimental and provides many benefits, such as making food taste better and sterilizing it in the bargain. According to Klurfeld, heat ''denatures'' a food's proteins, changing their shapes in ways that improve digestibility. The enzymes in a raw vegetable, says Klurfeld, "are specifically tailored to that food and even left intact rarely assist the human body."
Orenstein notes that one of Roxanne's multipurpose vegetables, the lowly parsnip, contains "small amounts of light-activated carcinogens, whereas the cancer-fighting nutrient in tomatoes is released only when cooked."
Well, I'd like to write more about this interesting topic, but from the smoke blowing by the study window I surmise that the barbequed ribs are done, well done.
February 9, 2000. Despite the lack of scientific studies to support any benefit to periodically douching the colon, many people are self-medicating with colonic irrigation (colon hydrotherapy) in the hopeful belief that it will help them live longer and more healthily. Katherine Rauch of WebMD reports on one naturopath who prescribes colonics for "asthma, arthritis, sinus problems, chronic fatigue and constipation." The fact that there is no scientific evidence to support such treatment is little deterrent to true believers in "nature's remedies."
One conventional MD is quoted as saying that the dangers from colonic douching "include spreading infection from contaminated equipment and harmfully altering the chemical balance of the colon." Dr. Ross Black notes that "A major function of the colon is to absorb minerals such as potassium and send them through the bloodstream. Colonics could wipe out these minerals and thereby cause deficiencies."
February 25, 2003. Dorsey Griffith, the Sacramento Bee Medical Writer, gives naturopaths the thumbs up in an article on their push to be licensed as "healing arts practitioners" in California. This will give them the legal right to practice medicine here. (Only eleven other states license naturopaths to practice medicine. However, Nevada, Idaho, and Massachusetts may join California in adding to that list.) Anything that is natural and non-toxic is a potential therapy for these folks, including colonic irrigation and coffee enemas. Some of them do seem to keep up on the latest scientific research on nutrition, but like most "alternative" health care providers, their membership usually includes many who disdain science and work by intuition, sympathetic magic, and spirit guides. Their favorite cure for anything that ails you is a diet rich in vitamins and mineral supplements, often sold through their office.
The main "balance" in this article in the form of noting that licensure is opposed by the AMA and by chiropractors. Although, the headline writer (in the print edition) did us all a favor with the head over the continuation of the article, which reads: Bill: Most therapies harmless, a study by UCSF concluded
Now that's a real attraction: We use therapies, most of which are harmless! Come on Down!
April 18, 2001. Sales of St. John's wort, a medicinal herb used by many people as a mood elevator, have declined from $310 million in 1998 to $195 million last year, according to Grant Ferrier, editor of the Nutrition Business Journal. Mark Blumenthal, of the American Botanical Council, does not think that the reduced sale reflects the increased realization that the herb isn't all that it has been cracked up to be. According to the WashingtonPost.com, he "speculated that the reduced sales were caused by recent reports of problems with herbal supplements and findings that St. John's wort could interfere with AIDS medicines, cardiac drugs and oral contraceptives."
A study published today in the Journal of the American Medical Association found that St. John's wort was no better than a placebo in treating severely depressed patients. (The study involved 200 patients for eight weeks.) This contradicts the results of an earlier study by Ronald Brenner, chairman of psychiatry at St. John's Episcopal Hospital in New York City. (His study involved 30 mildly to moderately depressed patients for six weeks.) A third study may resolve the issue for a while. The National Institute of Mental Health and the National Center for Complementary and Alternative Medicine are doing a joint study on the effectiveness of the herb in treating major depression. The study is very large and will be the most comprehensive study ever done on St. John's wort.
June 10, 2000. "A few years ago, spending $15 million to investigate an herbal supplement would have been labeled by many a waste of taxpayer money, a foolish exploration into the realm of hocus-pocus." So writes Bruce Taylor Seeman in "Testing the claims for gingko." Now that Americans spend some $15 billion a year ($300 million on gingko alone) on "supplements" it has become fashionable to spend tax dollars investigating folk remedies such as Ginkgo to improve memory. The National Center for Complementary & Alternative Medicine, part of our national Institutes of Health, has launched a five-year, $15 million test of Ginkgo as a preventative for Alzheimer’s disease. Perhaps some politician saw the ad on television featuring an actor who plays a doctor on TV touting the benefits of Ginkgo. I know that when I saw the ad my first thought was "we ought to be spending millions to investigate this matter."
In 1994, Congress passed the Dietary Supplement Health and Education Act, which deregulated the herbal products industry. Dietary supplements do not have to be proven effective before putting them on the market. They are, however, forbidden to exaggerate benefits--whatever that means. Sellers of Ginkgo have claimed that it increases the flow of blood to the brain, which it does, and that therefore it improves memory and cognitive functions, which is speculation. Gingko has also been touted as a cure for depression, hepatitis, asthma, tinnitus, hardening of the arteries and impotence.
Dr. Steven DeKosky, a neurologist at the University of Pittsburgh is leading the gingko study. He characterizes Ginkgo is as "a mild blood thinner and an antioxidant." Antioxidants are readily available in many fruits and vegetables and there are many strong blood thinners already available, so why study gingko? Other than the fact that it is a fashionable herb? Because it might be cheaper than food or drugs to perform whatever useful function it might perform? I don't know. Gaia Herbs sells their Extra Strength Ginkgo Leaf for about $16 an ounce (regular strength is about half as much as the extra strength). That doesn't sound cheap to me. Maybe it will be safer? Safer than raisins or berries, which also are good sources or antioxidants? Until the law is changed, there is no requirement that such "supplements" as gingko be safe, much less useful.
It is hoped, of course, that something useful will be learned about Alzheimer's disease while studying the effects of gingko.November 12, 1997. "Athletes swallow expensive doses of hope" was the title of an article by Chris Hays in the Sacramento Bee. The article did an excellent job of explaining why it is so difficult to get unbiased information about body-building supplements: the main source of information comes from body building magazines which are all owned by the supplement manufacturers themselves. Even so, Hays claims that "everyone agrees" that creatine "works." A typical ad on the internet reads
Creatine monohydrate provides safe nutritional support for athletes seeking peak performance in short-duration, high intensity workouts. By supporting the body's natural ability to regenerate the primary energy immediately available to working muscle, creatine monohydrate has the potential to increase optimal work output in activities such as weight-lifting and sprinting.
Creatine is a nitrogenous organic acid, C4H9N3O2, found in the muscle tissue and which supplies energy for muscle contraction. Joseph Clark has written an scientific paper on the use of creatine in sports. It is very technical sounding but he notes that "30% of the population have a diet and metabolism such that they do not benefit from creatine supplementation." The only negative side effects mentioned were water retention and heat intolerance. The positive benefits include such things as an increase in muscle peak torque production while decreasing plasma ammonia accumulation. The author does note that a healthy body self-regulates the production of chemicals (creatine is synthesized in the liver and kidneys, using three amino acids derived from food intake) and will shut down production when more of the chemical would be redundant. Furthermore, beyond a certain amount of some chemicals the body simply will not use them; hence, further supplementation is pointless or harmful (if the body can't eliminate the excess, for example). (This is why certain supplements are probably pointless, such as DHEA. Taking a supplement may shut down its natural production by the adrenal glands.)
January 21, 2000. CNN.Com reports that at least one pharmaceutical firm is treating herbal medicines like conventional ones. "CVS Corp. of Woonsocket is asking customers to tell their pharmacists what herbal supplements they use. The information is entered into a computerized program that cross-checks them for adverse combinations."
March 2, 2000. Taking vitamin C supplements could speed up hardening of the arteries, according to a study of "573 outwardly healthy middle-aged men and women who work for an electric utility in Los Angeles." Those taking vitamin C supplements showed "accelerated thickening of the walls of the big arteries in their necks....the more they took, the faster the buildup," according to the (now defunct) Nando Times.
October ?, 1998. Los Angeles Times. Andrew Weil, M.D., "In the medicine chest, a place for herbs." This article begins by making a plea for herbal remedies while claiming that the New England Journal of Medicine attacked herbal remedies in a recent editorial. He also claims that a study done at Stanford University indicates that some 70% of us are using "alternative" medicine, i.e., medicine that does not include drugs or surgery. However, the article quickly degenerates into a paranoid whining about how the big bad bullies of real medicine have hogged all the money for research and that's why naturopaths and homeopaths can't do science. Weil thinks we should fund "integrative medicine" (i.e., whatever spiritual hocus-pocus is suggested by whatever shaman who happens to be in the neighborhood). If only these quackmeisters had the funds they could prove the real value of shark cartilage or bee pollen. But the big bullies at the A.M.A. have all the resources. The same kind of pathetic plea was made in the 1950s and 60s by parapsychologists. The only reason they couldn't prove ESP, remote viewing, etc., and collect their deserved Nobel Prizes was that the real scientists had a good ol' boys club and excluded them from participation. They couldn't get university jobs where all the research was done. So now they have departments and labs all over the world and what have they discovered that is of any value to anyone? They've proved only that whining loud enough and long enough pays off. The same tactic seems to be working for the "alternative" folks. The National Institutes of Health has upped the budget for the "Alternative" division to some $20,000,000 a year, according to James Randi.
October 21, 2000. Today's Sacramento Bee has an article by Shari Roan of the Los Angeles Times regarding an ancient herbal remedy that seems to be effective in treating prostate cancer. Chinese herbal medicine will probably get a big boost from the results of two studies which used PC-SPES, a combination of eight different herbs including saw palmetto and ginseng, to treat end-stage prostate cancer. "The herbal remedy appears to have estrogen-like properties. Estrogen is a female hormone and is one of the oldest proven treatments for prostate tumors, the authors note."
This month, the Journal of Urology is publishing the results of a study done on 69 men by Dr. Aaron E. Katz, associate professor of urology at Columbia College of Physicians and Surgeons. After one year, 88% had a reduction in PSA. ("PSA is a protein in the blood that is elevated in men with prostate cancer and certain other benign conditions."*) However, "the men had a variety of other treatments for their cancer, including surgery, radiation treatment or hormone therapy." According to Dr. Ian M. Thompson, Jr. chief of urology at the University of Texas Health Science Center in San Antonio, the results of this study are "exciting and disturbing." The good news is that PS-SPES seems to work; the bad news is that we don't know how, what dose is right and safe, or what the long-term side effects might be.
Next month the Journal of Clinical Oncology will publish the results of a study by Dr. Eric J. Small et al. with similar positive results. Dr. Small, of UC San Francisco, was concerned about the effect of his study since "we don't even know what [PS-SPES's] long-term side effects are." The Katz and other studies have found breast enlargement, reduced libido and blood clotting, among other things, as side effects. In other words, the side-effects are similar to those with estrogen treatment.
An earlier study on PC-SPES, published in the New England Journal of Medicine (September 17, 1998), concluded: "PC-SPES has potent estrogenic activity. The use of this unregulated mixture of herbs may confound the results of standard or experimental therapies and may produce clinically significant adverse effects." However, it is unlikely that the side effects will be as severe or as permanent as those from microwave treatment for enlarged prostate: burnt urethra or partial penile amputation.
Because PC-SPES is considered an herb rather than a drug, the U.S. Food and Drug Administration (FDA) has not tested or recommended it. Herbal remedies are essentially unregulated. Thus, their purity as well as their effectiveness may vary with their source.
Coincidentally, it is reported today in DrKoop.com that the National Center for Complementary and Alternative Medicine, a division of the National Institutes of Health, has announced $7.8 millions in grants for various studies on alternative therapies, including one "to examine whether...PC-SPES may reduce DNA damage in cancer cells and improve the immune system in prostate cancer patients."
February 23, 1996. Ann Landers, (from the Davis Enterprise). Today, Ann Landers gave a boost to alternative medicine quackery by not responding to the illogical reasoning of P.W. from Taiwan regarding Western medicine men versus Chinese herbalists. P.W., a European married to a Taiwanese, wrote that while in Europe his wife had become pregnant three times and each time she miscarried due to fetal chromosomal abnormalities. Their European doctors declared the couple to be "healthy" and apparently gave them every indication that they were just unlucky. This evaluation was "depressing," says P.W.
The barren couple went East and in Taiwan their gynecologist gave them "a bag full of herbs" which they were instructed to take for a year. Halfway through the "treatment" Mrs. W. became pregnant. At the time the letter was written their son was 10 months old.
P.W. implored Ann: "Please, Ann, tell your readers in the West that couples who cannot have a child do not necessarily have a problem. The problem might be with their specialists, whose Western knowledge of the human body is sometimes quite limited." Now, I think most Western physicians would admit that their knowledge of the human body is often limited, but it hardly relates to P.W.'s situation. He assumes that the Chinese herbalist, who spoke of "harmony and balance in the body and mind," was instrumental in his wife's pregnancy. Furthermore, he assumes that the Western specialists were wrong in attributing their problem to bad luck. What evidence does P.W. have for these notions? The only "evidence" he has is the fact that his wife got pregnant after taking the herbs. This bit of post hoc reasoning is totally insufficient to warrant P.W.'s conclusions and Ann Landers should have let him know that. Instead, she replied:
I'm for whatever works. Considering the number of people who die from botched and unnecessary surgery and improper medication, herbal medicine could be a viable alternative.
Ann doesn't consider how many people die or continue to suffer when they take herbs instead of getting proper "Western" treatment with surgery, medicine, or drugs. But worse than that she seems oblivious to the insufficiency of evidence presented by P.W. The fact that his wife got pregnant after taking herbs does not prove the herbs had anything to do with her getting pregnant. It might have been "luck" [the luck of natural events taking their course] or divine intervention, for that matter, that explains the pregnancy. However, P.W. had ruled out divine intervention because his wife's father, an herbal doctor, told him "there are no miracles in healing." To which P.W. commented in a fitting non sequitur: "those so-called miracles just show how little some traditional doctors know."
Ann doesn't ask what herbs they took and she certainly indicates no interest in whether anyone has done a controlled study on the effectiveness of these herbs. She's for "whatever works." What does that mean? It seems to mean, "I'm for believing whatever you feel like believing when you are happy with some event." P.W.'s happy he has a son, so he is welcome to believe that the herbs did it and that the European physicians who told him he and his wife were healthy but unlucky didn't know what they were talking about. Furthermore, this proves herbalists with their notions of harmony and balance and other gibberish are not just valid, but superior notions to the Western notions of the body and cause-effect relations. What bunk!
January 2, 2001. Soon, British Columbia will be the only place in North America where traditional Chinese medicine (TCM) practitioners will be recognized as doctors by a regulatory body, according to the TheGlobeandMail.com. Two years ago, the British Columbia's Health Professions Council recommended that Chinese medicine practitioners be regulated. Last month, the B.C. Ministry of Health agreed.
TCM doctors use herbs instead of synthetic drugs and acupuncture and chi kung instead of surgery or other traditional Western medical therapies.
TCM doctor Henry Lu, founder of the International College of Traditional Chinese Medicine in Vancouver, supports the move. "Many diseases that have been treated by Western medicine are not quite successful," he said. True, but that doesn't mean TCM will be any more successful. Randy Wong, the registrar at the college, thinks the licensing will help in several ways. He notes that currently anybody can call himself a TCM doctor and set up practice in B.C. Licensing will weed out the bad guys.
"Wong said it will take at least two years to license TCM doctors in B.C. after bylaws on education and the prescription of herbs are approved by the government and the TCM community."
Canada has what we in America call Socialized Medicine, but so far the government has not agreed to pay for TCM visits and treatments.
Licensing will also be a step towards integrating TCM with traditional medicine. The final step will be when the government starts to pick up the tab for TCM.
The article did not go into the reasoning behind The Ministry of Health's decision. Maybe they see this as a way to save money. Maybe they see that TCM is growing in popularity, and if allowed to continue unregulated could prove unhealthy for the province. Maybe they really believe it works as well as the medicine they now provide their citizens. Even if they don't believe there is anything important to TCM, the politically correct thing to do is regulate it. At least the government will have some control over what herbs are being distributed and can regulate their purity. Whereas, in America all you have to do is call your product a food or supplement, rather than a drug or medicine, and you can distribute it with minimal interference from the Federal Drug Administration or other government agencies. Teenagers in health shops who have read a few pamphlets distribute health advice and recommend herbs to customers as if they were physicians with years of knowledge and experience. The government might like to say let natural selection work this out but it might also feel a strong paternalistic urge to protect its citizens from unscrupulous purveyors of mugwort and ginkgo biloba.
March 7, 2000. Anecdotes are circulating among anesthesiologists that herbal products, taken by many advocates of "alternative" medicine, may be causing unexpected bleeding and difficulty in blood clotting during surgery, according to CNN.com. And I thought people who took such herbs did so to avoid surgery!
November 21, 2000. The December 2000 issue of Consumer Reports (CR) says that tests on St. John's wort were "reassuring." They tested 13 brands and all "contained a reasonably standardized dose of dianthrones." St. John's wort is a mood modifier popular among self-medicators who are looking for a pick-me-up with minimum side-effects. There is "fairly solid" evidence, says CR, that St. John's wort "can help people with clinically significant mood disorders." And the only major side effect is increased sensitivity to sunlight. CR does note that "self-treatment can be dangerous, particularly with depression, which causes some 20,000 reported suicides a year in the U.S." CR also notes that St. John's wort "decreases the effectiveness of a host of medications, including oral contraceptives, cholesterol-lowering statin drugs, beta-blockers, and calcium-channel blockers for high blood pressure and coronary heart disease, protease inhibitors for HIV infection, and many other prescription drugs."
CR also tested 12 brands of SAM-e (s-adenosyl-methionine) and found that "manufacturers are generally producing a reasonably stable standardized product," though they found four examples of misleading labeling. SAM-e "helps cells regulate the brain chemicals dopamine and serotonin" and is also used by self-medicators as a mood elevator. CR notes that the side effects of SAM-e can include upset stomach, insomnia and mania. And it is not cheap, costing $55-$260/month for 400-mg daily dose.
Finally, CR reports that 13 of 15 brands of kava pills contained approximately the amount of kavalactones that their label said. Extract of the root of the kava plant has long been used by Pacific islanders. It allegedly relieves anxiety and elevates mood. "Kava can magnify the potency of other antianxiety medicines and reduce the effectiveness of several other drugs, notably Parkinson's drugs containing levodopa." Side effects include blurred vision and impaired coordination.
CR does warn those taking prescription drugs to consult with your doctor or pharmacist before self-medicating with herbs. There may be drug interactions and some of these could be serious, even life-threatening.
February 26, 1997. Today Katherine Quartz spoke at Sacramento City College and I was able to attend and get some more information on the case. She was part of a panel which included her lawyer, a Native American who is also a psychologist and a woman who heads an Indian Services Agency. Her son, Thomas, was also in attendance.
Apparently, an Indian who lives on a reservation is not a citizen of the United States and is under the jurisdiction of Indian tribal laws and courts. Had Ms. Quartz never left her reservation, she would have been free to seek any kind of treatment she wished for her son. But she had gone to Portland, Oregon, to go to college. This fact was used by authorities in Oregon and California to impose their laws on her. She did seek out a pediatrician for her son when he first got ill. She did not seek out an Indian healer at that time, she said, because the only healer in her area was gravely ill himself. The diagnosis of Hodgkins was not immediate, but was not made until four months after the first visit with a physician. When chemotherapy was offered as the only reasonable therapy for her son, she says she told the doctors she wanted to do some research first. She did and concluded that chemotherapy was not a reasonable modality of treatment. She then took her son to a practitioner of traditional Chinese medicine, who treated her son with acupuncture and herbs. (She asserted a belief that "herbs can go in and break up tumors," though she gave no source for this notion.) She then took her son to a naturopath who treated him with herbs.
She says that her troubles began when she tried to get a CAT scan of her son, which she says she wanted in case any questions came up later about the efficacy of the treatments she'd chosen for her son. X-rays had shown significant reduction in tumor size and growth, she says. But a CAT scan would provide better evidence, she believed. Her treatment by the medical doctors in Oregon she went to for the CAT scan was less than respectful of Indian ways. She was told that chemotherapy was the only correct medical treatment for her son and that she was endangering his life by seeking alternative treatments. One pediatrician even wrote to authorities investigating the case that Ms. Quartz's thought processes were impaired. His evidence seemed to be limited to the fact that she disagreed with him on the proper medical treatment for her son.
Given the unique status of Indians--they are basically members of a foreign nation, but have unique status granted in the U.S. Constitution--the Tribal appellate court's ruling is binding and California cannot order the boy back into chemotherapy. According to Ms. Quartz, her son received five chemotherapy treatments against her will. He looked fine today, but she said that after the treatments he looked awful. His hair fell out and he developed mouth sores and other signs of physical debilitation (which are common side effects of chemotherapy). She says that her research discovered that her son might be made sterile by chemo and that the statistics were not exactly as promising as they might seem. According to her lawyer, the survival rate was 90% if the patients were followed for ten years. But if they were followed for fifteen years, the survival rate was less that 10%. Both claim that there is evidence that while chemo might stop a cancer, it so debilitates the immune system that the effects after ten years are devastating.
In her quest to seek the best course of treatment for her son, Ms. Quartz was charged with child endangerment and had her son taken away from her. She was charged with kidnapping for taking him from a hospital. She claims a police officer held a gun to her head and told her she was killing her son by not getting him into chemotherapy. A medical doctor abused his authority to try to get her declared mentally incompetent because she dared to favor alternative medicine to traditional medical treatment. Her behavior as a mother was exemplary and her seeking out an Indian healer is consistent with her life on a reservation for the past sixteen years. I don't know if I would have made the same decision as she did about the chemotherapy, but I know that I would have done research, too. And if I came to the conclusion that the therapy recommended by my physician was not the best for my child, I would not put my child into the therapy. Furthermore, I would not expect to be labeled mentally incompetent or a child abuser simply because I came to a different conclusion than my physician.
As readers of my pages know, I hold no sympathy for alternative medical treatments. But I have even less stomach for authoritarian bullies whether they carry guns or a stethoscope.
(Ms. Quartz says her son has been given a "clean bill of health" but she doesn't say by whom. Master herbalist Joseph?)
July 19, 2000. "Are 'functional foods' dangerous? Opponents renew call for stricter FDA regulations," is a CNN.com story about cashing in on the growing fascination with "alternative" medicine and "natural" drugs. Manufacturers of ice cream, cereal, teas, soft drinks, etc. are adding herbs along with unsubstantiated claims about improving memory and enhancing immune systems. The so-called nutraceuticals are popular with consumers, despite the lack of evidence in support of the claims being made.
"According to the General Accounting Office, the investigative division of the U.S. Congress, American consumers spent about $31 billion last year on dietary supplements and herbal food products."[thanks to Jon Henrik Gilhuus]
From Skeptic's Dictionary Newsletters
#30. Pat wrote: "I would like to know the truth about the claimed health benefits of drinking apple cider vinegar [ACV] and honey tonics." I always turn to Quackwatch for information on questionable medical practices and I suggest everybody else do the same.
A recent issue of Dr. Stephen Barrett's Consumer Health Digest just happened to have a way to find the answer:
Three apple cider vinegar marketers warned to curb claims. The FDA has warned three Internet marketers of apple cider vinegar tablets to stop making claims that their products are effective against various diseases:
HCC DemoMarketing, LLC, of Germantown, Tennessee, was told to stop suggesting that its products are useful for arthritis, osteoperosis [sic], and sore throats.
Apple-Cider-Vinegar-Diet-Pills.Com, of Dayton, Ohio, was warned to stop claiming that their pills can relieve arthritis pain, fight infection, fight osteoporosis, control cholesterol, help people with high blood pressure, and relieves sore throats, laryngitis, and nasal congestion.
Sharon L. Bush, of Birmingham, Alabama, was warned to stop suggesting that her pills are useful against arthritis, prostate problems, multiple sclerosis, and high cholesterol levels.
ACV tabs are also part of the lucrative diet-pill scam business. See "Vinegar and Weight Loss: The Sour Truth Will vinegar pills help me lose weight?" by Elizabeth Somer, MA, RD. The Nutrition Forum (Vol 14 No. 6 November/ December 1997) contained the essay "The Sour Truth about Apple Cider Vinegar" by Beth Fontenot, MS, RD.
***
Jay wrote to complain about his doctor who has a sales office in his examination room.
A quick missive to THANK you for exposing the despicable, coercive tactics of MLM [multi-level marketing] recruiters. One of the worst I have encountered in recent years is a physician I visited who had all sorts of vitamins, supplements and magnetic therapy (!) products prominently displayed in his office. As he was poking away at my foot with all manner of sharp instruments, he began to pitch me on these products, especially a magical magnetic mattress cover that sold for THOUSANDS of dollars! How totally unethical! And how much of an argument am I going to give the guy who's holding the scalpel? I think MLMs ARE a cult!
I have no idea why Jay thinks this guy is involved in an MLM. Trying to sell you something is one thing; trying to recruit you to sell the product is another. Both would be unethical, in my view, for a doctor to do out of the examination room.
#8. HarmonicInnerprizes says it "dedicates itself to bringing LIGHT into the world through high quality nutritional supplements, assisting in the facilitation of the advancement of human consciousness on our planet." (How can I ridicule such nobility!?)
External articles worth a look
NATIONAL INSTITUTES OF HEALTH STATE-OF-THE-SCIENCE CONFERENCE STATEMENT Multivitamin/Mineral Supplements and Chronic Disease Prevention May 15–17, 2006
Quackwatch on "Dietary Supplements," Herbs, and Hormones
The Dangers of Dietary Supplements
Colloidal Mineral Supplements: Unnecessary and Potentially Hazardous by James Pontolillo
DHEA: Ignore the Hype by P.J. Skerret
Herb (St. John's Wort) ineffective as anti-depressant
Some Herbs Boost Breast Cancer Risk (Herbal Supplements to Fight Menopause Symptoms Can Be Dangerous) by Liza Jane Maltin
Kava Linked to Liver Damage
Dietary Supplements and Animals by Linda Grassie
Traditional Medicine and Pseudoscience in China: A Report of the Second CSICOP Delegation (Part 1); (Part 2.)
High doses of vitamin E may increase risk of death
Vitamins 'may raise death risk from cancer' Oct 1, 2000
Vitamin A and increased risk of bone fracture
Vitamin E supplements may increase heart risk
Sunday, February 10, 2008
* With soap in their hands and hope in their heartsnews
With soap in their hands and hope in their heartsnews
Ramjee Chandran - 30 April 2002
Source: http://www.domain-b.com/companies/companies_a/amway_india/20020430_hope.html
Bangalore: According to the local office of Amway India, about six thousand five hundred Bangaloreans have already signed up to become Amway salespersons.These 6,500 people have paid the USA-owned Amway Corp. Rs 4,200 each.6,500 x Rs 4,200 = Rs 3 crores. ( Almost)Cash up front.And that's only in Bangalore.A Bangalore company probably can't raise this kind of money in the stock market in these days of tight money conditions. But Amway did. Without advertising. Without the great dollops of press coverage that even the launch of a new whisky usually generates. It's all word of mouth, we are told. Word from the mouths of people living abroad who have been told by Amway to call their kith, kin and caboodle in India.Word is also out to spam you on the internet. Spam is unsolicited promotional material - junk mail on the Net. Word is out to send you cheap postcards. Calling, writing, faxing or spamming people in India to tell them of the good news. The good news is that they have the means to 'help' you to change your life. To 'own your business'. To 'earn your freedom'. To 'not just get a life, but get a lifestyle'.The subliminal message is: Stop being a loser. Whatever you've been doing with your life, it is worth less than what you can do as an Amway salesperson.When I put this last proposition across to an Amway sales person, his response was this: "You've hit the nail on the head. You're right. That is the case."He explained further: "You don't have to give up your publishing business (thank god!). Use your spare time profitably. What do you do when drive to work? Nothing! What do you do in the evenings? Watch TV? Pah!"Right through this entire opening phase, something nagged me. There was no mention of what Amway did. What was the 'word' that this guy kept talking about. What was Amway selling?I asked him. "The dream, my man," he replied his face aglow "the dream. Amway is not selling you anything. Amway is giving you a 'business opportunity' you cannot beat."The 'business opportunity' to do what?" I asked, still confused."The opportunity to use world class products. The opportunity to get others to use world class products. The opportunity to change your life.""What world class products?""Only the best.""Name one product.""Many products. 10,000 products. From shampoo to Chrysler cars!""I can buy Chrysler cars in Bangalore?""Not yet. But the day will come. Maybe not Chrysler cars but maybe Marutis.""I can buy a Maruti through Amway?""Of course! When they tie up the deal.""What deal?""The Distribution deal. If Maruti is smart, they will understand that in a few years, only multi-level marketing will survive. Even Bill Gates said it. The end of retail selling is here. Amway will overtake them. By the year 2000, no one will buy anything from shops.""Which shops?""Any shop. Every shop.""Nilgiris, Shoppers' Stop, Folio and Bata will all close down?""Yes, of course." He sounded a little exasperated. Then he became paternal. He employed the tone one uses to talk to a friend's child. "Are you aware of Amway?""Yes," I replied "I have read everything they gave another salesman like yourself. And I went to an Amway meeting.""Then you have learned nothing, my friend, nothing! You must have spoken to the wrong person. The world is going to change. Haven't I already told you that retail selling is dead?"I did not give up. "Where is this place where they stock 10,000 products. I'd like to see it for myself.""Well, it's not 10,000 products yet. But it will get there.""How many products do they have right now?""That's immaterial. You're just being pedestrian.""Tell me how many products do they have?""Six.""Six of what?""Detergents, a great Liquid Organic Cleaner which you can pour into your plants after cleaning the floors and Dish Drops which will make your glassware shine like anything!"Before I could speak, he added: "They also have a lotion and a shampoo. But why am I telling you all this. The point is not the products but the opportunity. No matter what the products are, the opportunity will make you lots of money. And then you can retire. What is needed is not for us to quibble about details. We - you, me and everybody - must do all we can to make this succeed."Then, totally pickled in his own sales pitch, he began to shout: "GET OFF THE POT! GET ON THE PHONE, MAN, AND SPREAD THE WORD!! USE YOUR MAGAZINES AND TELL LAKHS OF PEOPLE THE GOOD NEWS!!!"So I got off the pot, picked up my phone and began to research the story.How it worksAmway's operations rest on what is called Multi Level Marketing (or MLM). It has been called 'network marketing', 'pyramid selling' (a phrase that inspires vitriol among Amway types). It has also been compared to a chain letter or the buying of a lottery ticket.How it works is both simple and complicated at the same time.You try and sign up others as fellow Amway distributors. You get commissions on whatever they buy. You also get commissions on the purchases made by the people whom they in turn sign up as Amway distributors.The more people you sign up, the more they will buy. The more they buy, the more money you will make.How to become a millionaireNow I will explain the 9-6-3 scheme because every Amway distributor talked about this.Having signed up, you get 9 people to sign up. Next, each of the nine people gets 6 people to sign up. Then, each of those 6 people gets 3 people to sign up.Here's the calculation:You = 1.You x 9 = 9 people.9 x 6 = 54.54 x 3 = 162.Total = 226 Amway distributors in your group.If you achieve this target, you no longer 'belong' to someone else's group. You become a 'direct'.The next assumption is that each of these 226 people in your group will buy an average of Rs 1,500 worth of Amway products every month.226 x Rs 1,500 = Rs 3,39,000 per month.For every Rs 1,500 worth of product purchase you get 50 PV (Point Value). It works out to about 3.34% of the value of products bought. For every PV you get a commission. It's called 'bonus'.There is a (telescopic) slab system to determine your bonus.The lower the quantity of purchase, the lower the commission.Till you reach the level of 200 PV (that's Rs 6,000 worth of goods), you get no bonus. With 200 PVs, your earnings (bonus for that month), will be Rs 180. When you (together with your group) buy Rs 15,000 worth of products, you will get 500 PV. Your bonus on this will still be 3% and your personal income will be Rs 450 per month less whatever is to be shared with the others in the group.If you and your group members buy Rs 3.39 lakhs worth of Amway products every month, you will earn 11,300 PV. Your bonus on this will be 21% and you will earn Rs 71,190.00. After sharing your bonus with the others in your group, you will be left with Rs 40,500.
Amway Products vs. Other Products1. G&H Body Lotion, 250 ml, Rs. 316.00Nivea Lotion, 250 ml, Rs. 110.002. Satinique (shampoo & cond.) 250 ml, Rs. 314.00Sunsilk (shampoo & conditioner) 250 ml, Rs. 85.003. Dishdrops (1 litre =4 litres), Rs. 420.00Godrej Concentrate (1 litre=4 litres). Rs. 64.004. SeeSpray Concentrate, (1 litre=4 litres) Rs. 290.00Colin Glass & Household Cleaner, 4 litres, Rs. 252.005. Amway Zoom Concentrate, 1 litre, Rs. 299.00Robin Cuffs N Collars, 1 litre Rs. 128.756. LOC High Suds Organic Cleaner,(1 litre=167 litres) Rs. 322.00Teepol, 5.5 litres=167 litres, Rs. 352
(NOTE: I could not work out a way for people to spendRs. 1500 a month without wasting the product.)
At this level, the bottom 162 people in your group make no bonuses at all because their PV is less than 200, having bought only Rs 1,500 worth of product. However, you have nothing to worry about. You will make bonuses on their purchases because their PVs are counted in your tally.Remember, you will earn this Rs 40,500 a month only:1) IF you get to sign up 226 people;2) IF you make sure that each and every one of the 226 people buy Rs 1,500 worth of products EVERY MONTH; and3) IF every one of these 226 people has the ability and the desire to pay Amway prices (see box) because Amway makes the claim that their products are 'world class'.When you get 226 people in your group, you become a 'direct'. Your commission drops to 4% on the purchases of the group.Then what? Then you go sign up more and more people if you want to make more money.If you want to become a millionaire, you will need to sign up several hundreds of people and have them all buy more Amway products.If you are the poor sod at the bottom of the heap, you will be told 'if you work hard' you can sign up hundreds, why thousands, of people from anywhere in the world to become Amway distributors and that, by 'working hard', you can beat the odds and become a millionaire.(When you become a millionaire - by 'working hard' in your spare time - you can buy the BMW they kept showing you in the promotional videos - the one that had the stereotype honey-blonde draped over the dude who was playing golf.)You are also being told that if you aren't making nice dollops of money, it is because you aren't 'working hard'.The definition of 'working hard' is to get as many people as you can to pay Amway Rs 4,200 to become distributors.There's another way. That is to sell products door-to-door or person-to-person. You could do that too. There should be nothing to stop you from lining up outside apartment buildings with the dabba distributors of Bangalore (see photo) and sell Amway shampoo for Rs 315. You could also be posh and invite the ladies of your kitty party for tea and then sign them up or sell them shampoos or detergents.The positive side to AmwayLet me say that the above is the positive side to Amway. That is, the chance to make money.It is the chance to get oneself involved in a trade as a side business, specially if one is trying to recover from a failed (or failing business) or one has lost one's job. To the extent that a few people will surely make money, the system works.Alas, that's not where the story ends.Because for every one who makes money, there will necessarily many who do not.Indeed, as I went along from Amway distributor to Amway distributor, I found myself vastly better informed than most of them, with the exception of one articulate couple. They spent over 2 hours with me, explaining the nitty gritty of the commission structure, despite reservations. I thank them for this. In direct contrast was my experience with the people at Amway's nice office on Airport Road. (See box below.)
Hiding from questionsI spent 2 hours in the Amway office on Airport Road. The administrative manager, Arijit Mitra turned out to be extremely personable and a gentleman.However, he did say that he would not be able to answer any questions about the details of the scheme and indeed, he wanted to know why I wanted to write an in-depth story. His colleague, a lady that distributors speak to, first told me that she would come back in 10 minutes and then she vanished from plain sight.After one and a half hours, there was no sign of her and Mitra kept me engaged. Then another lady came out and told me that she was 'very busy'. I told her I would wait indefinitely. Then Mitra reappeared from the bowels of the Amway office and looked apologetic. He said his colleague would not meet me because she did not want to meet me. He explained that she was not 'authorised to talk to the press'.I tried to ask him to tell Vinitha not to hide inside the building and that my questions were very simple. But no dice. I never got to ask questions of the very person who was qualified to answer them. Then I asked Mitra to call her superior (Gowri Someone) in Delhi so I could talk to her. He did. He told me that she had told him the same thing.Mitra asked me to go to Delhi and speak to someone called Steven Beddoe. He said there was no one in Bangalore who was authorised to talk to the press. I asked Mitra why Amway had people in Bangalore who were authorised to take money from Bangaloreans but no one who could be accountable for this.Mitra had no answer.
The underside of AmwayMy basic problem with Amway is that I believe that the success of some is dependent on the failures of others. That is:1. Amway will make money; and2. Some distributors will make money; but3. Both will do so at the expense of the many who may not.And those who don't will probably be middle income people for whom Rs 4,200 is a major piece of investment. (My accountant spends less on school fees for his two children for the whole year.)As a quick aside, let me quote the 'zero sum theory'. For those who might not know it, this is a theory propounded by the famous economist, Lester Thurow. His book 'The Zero Sum Society' explains it in detail with a lot of econometric models. It will take me over a 100 pages to go into all that. Basically, Thurow said that for every person who has made a certain amount of profit, someone else has made an equivalent amount of loss.This is like the horse races. Any Turf Club will make money. A small number of bettors will make money. (One of them will hit the jackpot.) The only way that the Turf Club can make someone rich is because thousands of hopefuls lose their bets and their money. It is the losers' money which is collected and passed on to the lucky ones. The lottery works in pretty much the same way.I am not saying that Amway is like a horse race or a lottery. But the overall money movement and the odds of someone becoming rich are startlingly similar.This is better explained with numbers.Remember how many people you need to sign up? I'll remind you - 225.If you must get 226 people (including you) to sign up, then consider this.6,500 people (in Bangalore alone) have already signed up.Each one of them hopes he or she will make a lot of money.It is reasonable to expect that if one Amway distributor stands a chance of becoming a millionaire, then every Amway distributor should stand an equal chance of becoming a millionaire. Otherwise it is exactly like a horse race.So, if all 6,500 people adhere to the 9-6-3 formula, then hold on to your hat when you read this.6,500 x 9 = 58,500 Amway distributors58,500 x 6 = 3,51,000 Amway distributors3,51,000 x 3 = 10,53,000 Amway distributors.That's Ten Lakhs Fifty Three Thousand (or 1.053 million) Amway distributors for the city of Bangalore.An employee of Bata Shoe Company, (the masters of retail selling), told me they employ about 30,000 sales people in their 1,500 stores across the nation. 30,000 Bata sales people for the whole of India. 10,53,000 Amway sales people only for Bangalore.The standard response to this is that all these Amway salespersons are not necessarily going to be in Bangalore. You can pick up the phone and call someone anywhere else in the world.Therefore, you can call your cousin in Ooty and tell her the 'good news'. She pays Rs 4,200, then she will call her nephew in Raichur who will pay Rs 4,200 and he will call someone else who will pay Rs 4,200 and so on. All this is done in the hope that more sign-ups mean more people will buy Amway products.So if not 10,53,000 Amway sales people, how many will actually operate in Bangalore? Let's hazard a guess. Half ... 5 lakh salespeople? 2 lakh sales people? 1 lakh sales people? Will there be any left at all?Two days after my visit to the Amway office I received a call from the Amway HQ in Delhi, from Steven Beddoe, GM, Distributor Services. He told me that the numbers would never grow to what I have mentioned above. Because I persisted, Beddoe suggested that the possible number of Amway distributors in Bangalore would be about 1.67% of the middle class population.Bangalore's population is about 5.2 million. Of this let's be conservative and say that 25% are middle-class. That is 1.3 million of which 1.67% (21,710) would be Amway distributors. Beddoe reacted again. He said he didn't think that the total number of Amway distributors would be that many. (He even said that the number was less for a certain South Asian country.)I asked him if that number could be as low as 10,000. He said that was a possibility. (10,53,000 to 10,000 and we still don't have a number.)Then the chances of people making money is slashed because Amway themselves are suggesting that each person will sign up less than 2 other people on an average. Therefore, if some of them manage to sign up 226 people, many others won't sign up people at all.And if you divide this number - 10,000, into groups of 226, then the total number of 'directs' in Bangalore will be 44.10,000 - 44 = 9,956 Amway distributors who do not stand the chance of becoming 'directs'. Who will be among the lucky 44?You?I asked Beddoe to help me with this puzzle and apart from giving me philosophical discourse, he couldn't address the matter of numbers. All he said was that Amway distributors should sign up more and more people.Which brings me to me to my next thought.
Why Amway will make money even if you don'tAnother interesting calculation: If 1.05 million people sign up, Amway will receive Rs 4,422 million (Rs 442.26 crores or US$ 110.55 million) in up-front cash from this 'cash rich' country.They will have earned all this money without having sold a single one of their very expensive products.
What is a pyramid scheme?China recently banned direct selling. The Chinese government defended its move on the basis that direct selling operations like Amway can easily turn into 'pyramid scheme' operations without thorough regulation.In a typical pyramid scheme, people are obliged to buy over-priced products which they cannot return. The only way that the company makes money is by bringing more and more people into the network. The company makes money on their initial sign up fees.Such companies would not care if products are not sold, since the pressure to move products rests with the 'distributors'. The distributors also are motivated to sign up more and more people because that's the only way they can move any products.The danger of the pyramid scheme is that those who join later in the scheme are stuck at the bottom of the pyramid and have very little chances of making any money. But no one wants to believe that he is at the bottom of the pyramid. And the effort to sign up people far exceeds the motivation to sell products from door to door.The Federal Trade Commission of the USA ruled that Amway was not a pyramid. The basis for its decision was that Amway encourages its distributors to sell products at a retail level. But The Advocate newspaper in the US reported that these rules are not enforced, followed, in fact, not even monitored.Suggesting that Amway is a pyramid scheme evokes considerable ire among Amway people. All of them parrot the standard Amway comeback that every corporation is a pyramid. The guy at the top makes more money than the bloke at the bottom. But in a commercial operation, that is any company, nobody takes money from all the employees as Amway does from all its salespeople.
Then, by some chance, if all these people actually manage to spend Rs 1,500 a month on products, Amway will giggle into their bank manager's sleeves having earned another Rs 18,954 million (Rs 1,895.40 crores or US$ 473.85 million) on sales every year.Surely, the numbers I have outlined above are absurd. No one supposes that Amway will turn this kind of money around. But the significant thing is that these calculations are based on Amway's numbers, not mine.I seek to demonstrate from these numbers that no matter how many Amway sales people there are and how much they buy every month (even if they do not buy anything), Amway stands to make a lot of money from the initial sign up fees.Because, for Rs 4,200, you get about Rs 2,000 worth of products. (It means they have sold Rs 2,000 worth of products for Rs 4,200) The rest, they say, goes towards giving you a 'business opportunity'.In addition Beddoe informed me that each year, distributors will have to 'renew their contract. He wouldn't confirm the exact amount they will have to pay, but said it would be in the region of Rs 1,200. So, the existing 6,500 people will give their American masters a revenue of Rs 78 lakhs a year ... money for jam.One Amway distributor told me that if he did not buy products worth at least Rs 1,500 every six months, he would be bounced out of the system. One Amway employee denied this. Another distributor said that the distributor I spoke to was 'a bullshitter'. (Frankly, I found it difficult to establish who should be believed.)If this is true, Amway stands to make about Rs 2 crores a year from this minimum performance requirement.Add to this the number of others (in the entire country) who may have signed up and your guesstimate on Amway's profits is as good as mine. They could recover more than their entire capital cost in a quick manner with a hefty profit to boot, without any heartburn about selling products. If they were keen on selling products, they would appoint a number of sales agents.(Courtesy: Bangalore Magazine and www.angelfire.com)
Ramjee Chandran - 30 April 2002
Source: http://www.domain-b.com/companies/companies_a/amway_india/20020430_hope.html
Bangalore: According to the local office of Amway India, about six thousand five hundred Bangaloreans have already signed up to become Amway salespersons.These 6,500 people have paid the USA-owned Amway Corp. Rs 4,200 each.6,500 x Rs 4,200 = Rs 3 crores. ( Almost)Cash up front.And that's only in Bangalore.A Bangalore company probably can't raise this kind of money in the stock market in these days of tight money conditions. But Amway did. Without advertising. Without the great dollops of press coverage that even the launch of a new whisky usually generates. It's all word of mouth, we are told. Word from the mouths of people living abroad who have been told by Amway to call their kith, kin and caboodle in India.Word is also out to spam you on the internet. Spam is unsolicited promotional material - junk mail on the Net. Word is out to send you cheap postcards. Calling, writing, faxing or spamming people in India to tell them of the good news. The good news is that they have the means to 'help' you to change your life. To 'own your business'. To 'earn your freedom'. To 'not just get a life, but get a lifestyle'.The subliminal message is: Stop being a loser. Whatever you've been doing with your life, it is worth less than what you can do as an Amway salesperson.When I put this last proposition across to an Amway sales person, his response was this: "You've hit the nail on the head. You're right. That is the case."He explained further: "You don't have to give up your publishing business (thank god!). Use your spare time profitably. What do you do when drive to work? Nothing! What do you do in the evenings? Watch TV? Pah!"Right through this entire opening phase, something nagged me. There was no mention of what Amway did. What was the 'word' that this guy kept talking about. What was Amway selling?I asked him. "The dream, my man," he replied his face aglow "the dream. Amway is not selling you anything. Amway is giving you a 'business opportunity' you cannot beat."The 'business opportunity' to do what?" I asked, still confused."The opportunity to use world class products. The opportunity to get others to use world class products. The opportunity to change your life.""What world class products?""Only the best.""Name one product.""Many products. 10,000 products. From shampoo to Chrysler cars!""I can buy Chrysler cars in Bangalore?""Not yet. But the day will come. Maybe not Chrysler cars but maybe Marutis.""I can buy a Maruti through Amway?""Of course! When they tie up the deal.""What deal?""The Distribution deal. If Maruti is smart, they will understand that in a few years, only multi-level marketing will survive. Even Bill Gates said it. The end of retail selling is here. Amway will overtake them. By the year 2000, no one will buy anything from shops.""Which shops?""Any shop. Every shop.""Nilgiris, Shoppers' Stop, Folio and Bata will all close down?""Yes, of course." He sounded a little exasperated. Then he became paternal. He employed the tone one uses to talk to a friend's child. "Are you aware of Amway?""Yes," I replied "I have read everything they gave another salesman like yourself. And I went to an Amway meeting.""Then you have learned nothing, my friend, nothing! You must have spoken to the wrong person. The world is going to change. Haven't I already told you that retail selling is dead?"I did not give up. "Where is this place where they stock 10,000 products. I'd like to see it for myself.""Well, it's not 10,000 products yet. But it will get there.""How many products do they have right now?""That's immaterial. You're just being pedestrian.""Tell me how many products do they have?""Six.""Six of what?""Detergents, a great Liquid Organic Cleaner which you can pour into your plants after cleaning the floors and Dish Drops which will make your glassware shine like anything!"Before I could speak, he added: "They also have a lotion and a shampoo. But why am I telling you all this. The point is not the products but the opportunity. No matter what the products are, the opportunity will make you lots of money. And then you can retire. What is needed is not for us to quibble about details. We - you, me and everybody - must do all we can to make this succeed."Then, totally pickled in his own sales pitch, he began to shout: "GET OFF THE POT! GET ON THE PHONE, MAN, AND SPREAD THE WORD!! USE YOUR MAGAZINES AND TELL LAKHS OF PEOPLE THE GOOD NEWS!!!"So I got off the pot, picked up my phone and began to research the story.How it worksAmway's operations rest on what is called Multi Level Marketing (or MLM). It has been called 'network marketing', 'pyramid selling' (a phrase that inspires vitriol among Amway types). It has also been compared to a chain letter or the buying of a lottery ticket.How it works is both simple and complicated at the same time.You try and sign up others as fellow Amway distributors. You get commissions on whatever they buy. You also get commissions on the purchases made by the people whom they in turn sign up as Amway distributors.The more people you sign up, the more they will buy. The more they buy, the more money you will make.How to become a millionaireNow I will explain the 9-6-3 scheme because every Amway distributor talked about this.Having signed up, you get 9 people to sign up. Next, each of the nine people gets 6 people to sign up. Then, each of those 6 people gets 3 people to sign up.Here's the calculation:You = 1.You x 9 = 9 people.9 x 6 = 54.54 x 3 = 162.Total = 226 Amway distributors in your group.If you achieve this target, you no longer 'belong' to someone else's group. You become a 'direct'.The next assumption is that each of these 226 people in your group will buy an average of Rs 1,500 worth of Amway products every month.226 x Rs 1,500 = Rs 3,39,000 per month.For every Rs 1,500 worth of product purchase you get 50 PV (Point Value). It works out to about 3.34% of the value of products bought. For every PV you get a commission. It's called 'bonus'.There is a (telescopic) slab system to determine your bonus.The lower the quantity of purchase, the lower the commission.Till you reach the level of 200 PV (that's Rs 6,000 worth of goods), you get no bonus. With 200 PVs, your earnings (bonus for that month), will be Rs 180. When you (together with your group) buy Rs 15,000 worth of products, you will get 500 PV. Your bonus on this will still be 3% and your personal income will be Rs 450 per month less whatever is to be shared with the others in the group.If you and your group members buy Rs 3.39 lakhs worth of Amway products every month, you will earn 11,300 PV. Your bonus on this will be 21% and you will earn Rs 71,190.00. After sharing your bonus with the others in your group, you will be left with Rs 40,500.
Amway Products vs. Other Products1. G&H Body Lotion, 250 ml, Rs. 316.00Nivea Lotion, 250 ml, Rs. 110.002. Satinique (shampoo & cond.) 250 ml, Rs. 314.00Sunsilk (shampoo & conditioner) 250 ml, Rs. 85.003. Dishdrops (1 litre =4 litres), Rs. 420.00Godrej Concentrate (1 litre=4 litres). Rs. 64.004. SeeSpray Concentrate, (1 litre=4 litres) Rs. 290.00Colin Glass & Household Cleaner, 4 litres, Rs. 252.005. Amway Zoom Concentrate, 1 litre, Rs. 299.00Robin Cuffs N Collars, 1 litre Rs. 128.756. LOC High Suds Organic Cleaner,(1 litre=167 litres) Rs. 322.00Teepol, 5.5 litres=167 litres, Rs. 352
(NOTE: I could not work out a way for people to spendRs. 1500 a month without wasting the product.)
At this level, the bottom 162 people in your group make no bonuses at all because their PV is less than 200, having bought only Rs 1,500 worth of product. However, you have nothing to worry about. You will make bonuses on their purchases because their PVs are counted in your tally.Remember, you will earn this Rs 40,500 a month only:1) IF you get to sign up 226 people;2) IF you make sure that each and every one of the 226 people buy Rs 1,500 worth of products EVERY MONTH; and3) IF every one of these 226 people has the ability and the desire to pay Amway prices (see box) because Amway makes the claim that their products are 'world class'.When you get 226 people in your group, you become a 'direct'. Your commission drops to 4% on the purchases of the group.Then what? Then you go sign up more and more people if you want to make more money.If you want to become a millionaire, you will need to sign up several hundreds of people and have them all buy more Amway products.If you are the poor sod at the bottom of the heap, you will be told 'if you work hard' you can sign up hundreds, why thousands, of people from anywhere in the world to become Amway distributors and that, by 'working hard', you can beat the odds and become a millionaire.(When you become a millionaire - by 'working hard' in your spare time - you can buy the BMW they kept showing you in the promotional videos - the one that had the stereotype honey-blonde draped over the dude who was playing golf.)You are also being told that if you aren't making nice dollops of money, it is because you aren't 'working hard'.The definition of 'working hard' is to get as many people as you can to pay Amway Rs 4,200 to become distributors.There's another way. That is to sell products door-to-door or person-to-person. You could do that too. There should be nothing to stop you from lining up outside apartment buildings with the dabba distributors of Bangalore (see photo) and sell Amway shampoo for Rs 315. You could also be posh and invite the ladies of your kitty party for tea and then sign them up or sell them shampoos or detergents.The positive side to AmwayLet me say that the above is the positive side to Amway. That is, the chance to make money.It is the chance to get oneself involved in a trade as a side business, specially if one is trying to recover from a failed (or failing business) or one has lost one's job. To the extent that a few people will surely make money, the system works.Alas, that's not where the story ends.Because for every one who makes money, there will necessarily many who do not.Indeed, as I went along from Amway distributor to Amway distributor, I found myself vastly better informed than most of them, with the exception of one articulate couple. They spent over 2 hours with me, explaining the nitty gritty of the commission structure, despite reservations. I thank them for this. In direct contrast was my experience with the people at Amway's nice office on Airport Road. (See box below.)
Hiding from questionsI spent 2 hours in the Amway office on Airport Road. The administrative manager, Arijit Mitra turned out to be extremely personable and a gentleman.However, he did say that he would not be able to answer any questions about the details of the scheme and indeed, he wanted to know why I wanted to write an in-depth story. His colleague, a lady that distributors speak to, first told me that she would come back in 10 minutes and then she vanished from plain sight.After one and a half hours, there was no sign of her and Mitra kept me engaged. Then another lady came out and told me that she was 'very busy'. I told her I would wait indefinitely. Then Mitra reappeared from the bowels of the Amway office and looked apologetic. He said his colleague would not meet me because she did not want to meet me. He explained that she was not 'authorised to talk to the press'.I tried to ask him to tell Vinitha not to hide inside the building and that my questions were very simple. But no dice. I never got to ask questions of the very person who was qualified to answer them. Then I asked Mitra to call her superior (Gowri Someone) in Delhi so I could talk to her. He did. He told me that she had told him the same thing.Mitra asked me to go to Delhi and speak to someone called Steven Beddoe. He said there was no one in Bangalore who was authorised to talk to the press. I asked Mitra why Amway had people in Bangalore who were authorised to take money from Bangaloreans but no one who could be accountable for this.Mitra had no answer.
The underside of AmwayMy basic problem with Amway is that I believe that the success of some is dependent on the failures of others. That is:1. Amway will make money; and2. Some distributors will make money; but3. Both will do so at the expense of the many who may not.And those who don't will probably be middle income people for whom Rs 4,200 is a major piece of investment. (My accountant spends less on school fees for his two children for the whole year.)As a quick aside, let me quote the 'zero sum theory'. For those who might not know it, this is a theory propounded by the famous economist, Lester Thurow. His book 'The Zero Sum Society' explains it in detail with a lot of econometric models. It will take me over a 100 pages to go into all that. Basically, Thurow said that for every person who has made a certain amount of profit, someone else has made an equivalent amount of loss.This is like the horse races. Any Turf Club will make money. A small number of bettors will make money. (One of them will hit the jackpot.) The only way that the Turf Club can make someone rich is because thousands of hopefuls lose their bets and their money. It is the losers' money which is collected and passed on to the lucky ones. The lottery works in pretty much the same way.I am not saying that Amway is like a horse race or a lottery. But the overall money movement and the odds of someone becoming rich are startlingly similar.This is better explained with numbers.Remember how many people you need to sign up? I'll remind you - 225.If you must get 226 people (including you) to sign up, then consider this.6,500 people (in Bangalore alone) have already signed up.Each one of them hopes he or she will make a lot of money.It is reasonable to expect that if one Amway distributor stands a chance of becoming a millionaire, then every Amway distributor should stand an equal chance of becoming a millionaire. Otherwise it is exactly like a horse race.So, if all 6,500 people adhere to the 9-6-3 formula, then hold on to your hat when you read this.6,500 x 9 = 58,500 Amway distributors58,500 x 6 = 3,51,000 Amway distributors3,51,000 x 3 = 10,53,000 Amway distributors.That's Ten Lakhs Fifty Three Thousand (or 1.053 million) Amway distributors for the city of Bangalore.An employee of Bata Shoe Company, (the masters of retail selling), told me they employ about 30,000 sales people in their 1,500 stores across the nation. 30,000 Bata sales people for the whole of India. 10,53,000 Amway sales people only for Bangalore.The standard response to this is that all these Amway salespersons are not necessarily going to be in Bangalore. You can pick up the phone and call someone anywhere else in the world.Therefore, you can call your cousin in Ooty and tell her the 'good news'. She pays Rs 4,200, then she will call her nephew in Raichur who will pay Rs 4,200 and he will call someone else who will pay Rs 4,200 and so on. All this is done in the hope that more sign-ups mean more people will buy Amway products.So if not 10,53,000 Amway sales people, how many will actually operate in Bangalore? Let's hazard a guess. Half ... 5 lakh salespeople? 2 lakh sales people? 1 lakh sales people? Will there be any left at all?Two days after my visit to the Amway office I received a call from the Amway HQ in Delhi, from Steven Beddoe, GM, Distributor Services. He told me that the numbers would never grow to what I have mentioned above. Because I persisted, Beddoe suggested that the possible number of Amway distributors in Bangalore would be about 1.67% of the middle class population.Bangalore's population is about 5.2 million. Of this let's be conservative and say that 25% are middle-class. That is 1.3 million of which 1.67% (21,710) would be Amway distributors. Beddoe reacted again. He said he didn't think that the total number of Amway distributors would be that many. (He even said that the number was less for a certain South Asian country.)I asked him if that number could be as low as 10,000. He said that was a possibility. (10,53,000 to 10,000 and we still don't have a number.)Then the chances of people making money is slashed because Amway themselves are suggesting that each person will sign up less than 2 other people on an average. Therefore, if some of them manage to sign up 226 people, many others won't sign up people at all.And if you divide this number - 10,000, into groups of 226, then the total number of 'directs' in Bangalore will be 44.10,000 - 44 = 9,956 Amway distributors who do not stand the chance of becoming 'directs'. Who will be among the lucky 44?You?I asked Beddoe to help me with this puzzle and apart from giving me philosophical discourse, he couldn't address the matter of numbers. All he said was that Amway distributors should sign up more and more people.Which brings me to me to my next thought.
Why Amway will make money even if you don'tAnother interesting calculation: If 1.05 million people sign up, Amway will receive Rs 4,422 million (Rs 442.26 crores or US$ 110.55 million) in up-front cash from this 'cash rich' country.They will have earned all this money without having sold a single one of their very expensive products.
What is a pyramid scheme?China recently banned direct selling. The Chinese government defended its move on the basis that direct selling operations like Amway can easily turn into 'pyramid scheme' operations without thorough regulation.In a typical pyramid scheme, people are obliged to buy over-priced products which they cannot return. The only way that the company makes money is by bringing more and more people into the network. The company makes money on their initial sign up fees.Such companies would not care if products are not sold, since the pressure to move products rests with the 'distributors'. The distributors also are motivated to sign up more and more people because that's the only way they can move any products.The danger of the pyramid scheme is that those who join later in the scheme are stuck at the bottom of the pyramid and have very little chances of making any money. But no one wants to believe that he is at the bottom of the pyramid. And the effort to sign up people far exceeds the motivation to sell products from door to door.The Federal Trade Commission of the USA ruled that Amway was not a pyramid. The basis for its decision was that Amway encourages its distributors to sell products at a retail level. But The Advocate newspaper in the US reported that these rules are not enforced, followed, in fact, not even monitored.Suggesting that Amway is a pyramid scheme evokes considerable ire among Amway people. All of them parrot the standard Amway comeback that every corporation is a pyramid. The guy at the top makes more money than the bloke at the bottom. But in a commercial operation, that is any company, nobody takes money from all the employees as Amway does from all its salespeople.
Then, by some chance, if all these people actually manage to spend Rs 1,500 a month on products, Amway will giggle into their bank manager's sleeves having earned another Rs 18,954 million (Rs 1,895.40 crores or US$ 473.85 million) on sales every year.Surely, the numbers I have outlined above are absurd. No one supposes that Amway will turn this kind of money around. But the significant thing is that these calculations are based on Amway's numbers, not mine.I seek to demonstrate from these numbers that no matter how many Amway sales people there are and how much they buy every month (even if they do not buy anything), Amway stands to make a lot of money from the initial sign up fees.Because, for Rs 4,200, you get about Rs 2,000 worth of products. (It means they have sold Rs 2,000 worth of products for Rs 4,200) The rest, they say, goes towards giving you a 'business opportunity'.In addition Beddoe informed me that each year, distributors will have to 'renew their contract. He wouldn't confirm the exact amount they will have to pay, but said it would be in the region of Rs 1,200. So, the existing 6,500 people will give their American masters a revenue of Rs 78 lakhs a year ... money for jam.One Amway distributor told me that if he did not buy products worth at least Rs 1,500 every six months, he would be bounced out of the system. One Amway employee denied this. Another distributor said that the distributor I spoke to was 'a bullshitter'. (Frankly, I found it difficult to establish who should be believed.)If this is true, Amway stands to make about Rs 2 crores a year from this minimum performance requirement.Add to this the number of others (in the entire country) who may have signed up and your guesstimate on Amway's profits is as good as mine. They could recover more than their entire capital cost in a quick manner with a hefty profit to boot, without any heartburn about selling products. If they were keen on selling products, they would appoint a number of sales agents.(Courtesy: Bangalore Magazine and www.angelfire.com)
* Amway nothing but Mafia - Blakey Report
Source : http://www.amquix.info/blakey.html
Amway Report by G. Robert Blakey
"It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."G. ROBERT BLAKEY
Table of Contents
Introduction
Opinion
Basis of Opinion
Organized Crime
The Amway Business
Family Structure
Association-in Fact
Legal and Illegal Act
Corporate Structure
Dispute Resolution.
Control
Supporting Exhibits
Material Reviewed
Compensation
Original in .pdf
I. Introduction
I have been retained by counsel for Plaintiffs in the case styled The Procter & Gamble Company, et al. v. Amway Corporation, et al, Case No. H-9723 84 (S. D. Texas, Houston Division), for the purpose of rendering an expert opinion. My area of expertise includes the structure and function of organized crime groups. I have reviewed 9 documents that form the basis for a comparison between the structure and function of organized crime, and the structure and function of the Amway enterprise. My opinions are set forth with a reasonable degree of certainty, based upon my education, training, background and review of relevant materials.
Three preliminary points relate to this report. First, I am not being asked to render an opinion as to whether Defendants' conduct is, in fact, a violation of the federal RICO statute. This will be for the jury to decide after instructions by the court. I have testified in the past as an expert on organized crime in a variety of contexts; it is in that capacity that I will render my opinion in this case. Second, while my opinion arises from Plaintiffs' allegations relating to various improper conduct by Defendants, the primary focus is on the structure and function of the Amway business. Third, this Report may have to be supplemented as Defendants produce additional discovery. As later shown, I have reviewed already a fair number of documents, many obtained by Plaintiffs' counsel outside of formal discovery. I understand, however, that a large number of documents are to be produced for review, and a number of witnesses have not yet been produced for deposition.
II. Opinion
It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.
III. Basis of Opinion
To understand the basis for my opinion, it is first helpful to examine the structure and function of major organized crime groups. This may then be compared with the structure and function of the Amway business. The obvious parallels emerge.
A. Organized Crime
An especially troubling problem with the phrase "organized crime" is that it is used in different contexts with different meanings. Sometimes, too, these different meanings are not always clearly separated. These different uses can, of course, lead to problems both in communication and in the law.
Like Humpty Dumpty's language, C. Dodgson ("Lewis Carroll"), through the Looking Glass and What Alice Found There, Chapter 6, at 247 (Modem Library ed.): ("When I use a word," Humpty Dumpty said, "it means just what I choose it to mean neither more nor less,") the phrase "organized crime" can mean whatever the speaker chooses to make it mean, and it has meant many things to many people. It can be use4, for example, to refer to the crimes committed by organized criminal groups-gambling, narcotics, loan sharking, theft and fencing, and the like. See generally President's Commission on Crime and Administration of Justice, Task Force Report.- Organized Crime 2-4 (1967). It can also be used to refer, not to the crimes committed, but to the criminal groups that commit them. Id.
Here, a difference of opinion sometimes exists. How sophisticated should a criminal group become before it is called "organized crime"? Should "white collar" criminal groups be called "organized crime"? On the definition of "white collar" crime as generally not including "organized crime," compare E. Sutherland, WHITE COLLAR CRIME.,- 9 (Dryden Press Inc. 1949,@ with H. Edelherlz, THE NATURE, IMPACT AND PROSECUTION OF WHITE-COLLAR CRIME, 3 (U.S. Department of Justice, National Institute of Law Enforcement and Criminal Justice, 1970). THE REPORT OF THE NATIONAL CONFERENCE ON ORGANIZED CRIME, (Washington, D.C. October 1-4, 1975), however, broadly defines organized crime to be "any group of individuals whose primary activity involves violating criminal laws to seek illegal profits and power by engaging in racketeering activities and, when appropriate, engaging in intricate financial manipulations." Id. at v. Should "subversive groups" be called "organized crime"? See IIT Research Institute and Chicago Crime Commission, A Study of Organized Crime in Illinois 20 (Summary) (I 97 1) ('independent social process, separate from" organized crime).
Typically, "white collar" or "subversive groups" or ad hoc groups, such as youth groups, pickpocket rings, and professional criminal groups put together for one or more scores" are excluded from definitions of "organized crime." The President's Commission on Crime and Administration of Justice in 1967 suggested, for example, that organized crime" should be limited to groups that have become sufficiently sophisticated that they must regularly employ techniques of both violence and corruption to achieve their criminal ends. Task Force Report at 8 ("unique form of criminal activity"). Others disagree, and the literature does not reflect- a consensus. Compare Schelling, "What is the Business of Organized Crime?," 20 J. PUB. LAW 71 (1971) (concept keyed to "monopoly").
Among those groups that have some plausible claim to the dubious title of organized crime," additional distinctions can be helpfully drawn; it is useful, for example, to distinguish between "enterprises...... syndicates," and "ventures." Some, too, would probably not apply the label of "organized crime" to each of these groups; they would, for example, restrict it to "syndicates."
An organized crime "enterprise" is a criminal group that provides licit or illicit goods or services on a regular basis. See, e.g., Schelling, "Economic Analysis and Organized Crime," Task Force Report at 115; Rubin, "The Economic Theory of the Criminal Firm," The Economics of Crime and Punishment 155 (1973). An example would be a narcotics wholesaler and his cutting crew. See U.S.C.A. § 848 (1972), "Continuing criminal enterprises." See, e.g., United States v. Manftedi, 488 F.2d 588 (2d Cir. 1973), cert. denied, 417 U.S. 936 (1974). Thus, it is a criminal firm or business organization. See Schelling, "Economic Analysis and Organized Crime," Task Force Report at II 5.
An organized crime "syndicate" is a criminal or related group that regulates relations between various "enterprises." It may be metropolitan, regional, national, or international in scope. It may be concerned with only one field of endeavor or it may be concerned with a broad range of licit or illicit activities. A "syndicate," therefore, is a cartel or business organization. It fixes prices for goods and services, allocates markets and territories, acts as a legislature and court, sets policy, settles disputes, levies "taxes," and offers protection from both rival groups and legal prosecution. See Task Force Report at 6-10.
A "venture" is a criminal episode usually engaged in for profit by a group. It may be the hijacking of a truck. See, e.g., United States v. Persico, 339 F. Supp. 1077 (E,.D. N.Y.), aff'd 467 F.2d 485 (2d Cir. 1972), cert. denied, 410 U.S. 946 (1973) (trial of Carmine J. Persico, Jr., a member of the Vito Genovese syndicate, S. Rep. No. 72, 89th Cong., 1st Sess. 20 (1965) for hijacking). Or the robbery of a bank. See, e.g., United States v. Franzese, 392 F.2d 954 (2d Cir.), vacated in part as to Franzese only and remanded, otherwise cert. denied, 394 U.S. 310 (1968), related case, 525 F.2d 27 (2d Cir. 1975) (trial of John Franzese, a caporegime of the Profaci syndicate, S. Rep. No. 72, 89hCong., 1st Sess. 28 (1965) for bank robbery). On the background of the robberies and a related homicide trial, see generally J. Mills, The Prosecutor 96-245 (Farra, Straus and Giroux, 1969). It is "organized crime" when members of the "venture" have ties to a "syndicate." This tie gives the "venture" access to superior criminal resources, including capital, skilled labor, outlets for stolen property, etc.
Finally, "organized crime" may refer to the entire criminal underworld, or at least that part which has some semblance of organization. See Task Force report at 7; Schelling, supra note I 0, at 115. Thus, "organized crime" is distinguished from random acts of violence, passion, or greed.
In 1951 the Kefauver Committee declared that a nationwide crime syndicate known as the Mafia operated in many large cities and that the leaders of the Mafia usually controlled the most lucrative rackets in their cities. Kefauver Comm., 3d Interim Rep. 5 Rep. No. 307, 82d Cong., 1st Sess. 150 (1951). In 1957, 20 of organized crime's top leaders were convicted (later reversed on appeal - United States v. Bufalino, 285 F.2d 408 (2d Cir. 1960)), of a criminal charge arising from a meeting at Apalachin, N.Y. At the sentencing the judge stated that they had sought to corrupt and infiltrate the political mainstreams of the country, that they had led double lives of crime and respectability, and that their probation reports read "like a tale of horrors."
Today, that group is the most significant national group in organized crime in the United States. It consists of 24 groups, known as the "Mafia" or "LaCosa Nostra," operating as criminal cartels in large cities across the Nation. Task Force Report at 7. The description of it presented here relies heavily on the Task Force Report. See also PRESIDENTS COM'N ON ORGANIZED CRIME, THE IHVACT: ORGANIZED CRIME TODAY 35-38 (I 986): Blakey, "Federal Criminal Law," 46 HASNNG L.J. II 75, 1193-98 (1995) (citing various sources).
The membership of these groups is of exclusively men of Italian descent; they are in frequent communication with each other, and their smooth functioning is insured by a national body of overseers. In individual cities, the local core group may also be known as the "outfit," the "syndicate," or the "mob." See Testimony of former New York City Police Comm'r Michael J. Murphy, McClellan, Narcotics Hearings, 88th Cong., Ist Sess., Pt. 1, at 63 (1963); testimony of Capt. William Duffy, id. pt. 2, at 506; OFFICE OF THE N.Y. COUNSEL THE GOVERNOR, COMBATING ORGANIZED CRIME -A PEPORT OF THE 1965 OYSTER BAY, NEW YORK, CONFERENCES ON COMBATING ORGANIZED CRIME(1966). These 24 groups work with and control other racket groups, whose leaders are of various ethnic derivations. In addition, the thousands of employees who perform the street-level functions of organized crime's gambling, usury, and other legal and illegal activities represent a cross section of the Nation's population groups.
The present confederation of organized crime groups arose after Prohibition, during which Italian, German, Irish and Jewish groups had competed with one another in racket operations. The Italian groups were successful in switching their enterprises from prostitution and bootlegging to gambling, extortion, and other illicit and licit activities. They consolidated their power through murder and violence. See generally, ORGANIZED CRIME IN AMERICA 147-224 (Tyler ed. 1962).
Members of the 24 core groups reside and are active in a number of states. The scope and effect of their criminal operations and penetration of legitimate businesses vary from area to area. The wealthiest and most influential core groups operate in New York, New Jersey, Illinois, Florida, Louisiana, Nevada, Michigan and Rhode Island.
Recognition of the common ethnic tie of the 5,000 or more members of organized crime's core groups is essential to understanding the structure of these groups today. Some are concerned, however, that the identification of Cosa Nostra's ethnic character reflects unfairly on Italian-Americans generally. This false implication was eloquently refuted by one of the Nation's outstanding experts on organized crime, Sgt. Ralph Salerno of the New York City Police Department. When an Italian-American racketeer complained to him, "Why does it have to be one of your own kind that hurts you?", Sgt. Salerno answered:
"I'm not your kind and you're not my kind. My manners, morals, and mores are not yours. The only thing we have in common is that we both spring from an Italian heritage and culture-and you are the traitor to that heritage and culture which I am proud to be part of"
Grutzner, City Police Expert on Mafia Retiringftom Force, N.Y. Times, Jan. 21, 1967, p.65 col. 3.
The most significant group in organized crime thus consists of these 24 groups allied with other racket enterprises to form a loose confederation operating in large and small cities. In the core groups, because of their permanency, of form, strength of organization and ability to control other racketeer and legitimate operations, resides the power that organized crime has in America today.
Each of the 24 groups is know as "family," with membership varying from as many as 700 men to as few as 20. For an extensive discussion of the internal structure of the organized crime groups, see Cressey, "The Functions and Structure of Criminal Syndicates, "Task Force Report at 25, et.seg. Seealso, Narcotics Hearings,89th Cong., Ist Sess., pts. 1 & 2 (1963), 1st & 2d Sess., pts 3 & 4 (1963-64), 2d Sess., pt. 5 (1964). Most cities with organized crime have only one family; New York City has five. Each family can participate in the full range of activities in which organized crime generally is known to engage. Family organization is rationally designed with an integrated set of positions geared to maximize profits. Like any large corporation, the organization functions regardless of personnel changes, and no individual-not even the leader-is indispensable, if he dies or goes to jail, business goes on.
The hierarchical structure of the families resembles that of the Mafia groups that have operated for almost a century on the island of Sicily. Each family is headed by one man, the "boss," whose primary functions are maintaining order and maximizing profits. Subject only to the possibility of being overruled by the national advisory group, his authority in all matters relating to his family is absolute.
Beneath each boss is an "underboss," the vice president or deputy director of the family. He collects information for the boss; he relays messages to him and passes his instructions down to his own underlings. In the absence of the boss, the underboss acts for him.
On the same level as the underboss, but operating in a staff capacity, is the caporegime, who is a counselor, or adviser. Often an elder member of the family who has partially retired from a career in crime, he gives advice to family members, including the boss and underboss, and thereby enjoys considerable influence and power.
Below the level of the underboss are the caporegime, some of whom serve as buffers between the top members of the family and the lower-echelon personnel. To maintain their insulation from the police, the leaders of the hierarchy (particularly the boss) avoid direct communication with the workers. All commands, information, complaints, and money flow back and forth through a trusted go-between. A caporegima fulfilling this buffer capacity, however, unlike the underboss, does not make decisions or assume any of the authority of his boss.
Other caporegime serve as chiefs of operating units. The number of men supervised in each unit varies with the size and activities of particular families. Often the caporegima has one or two associates who work closely with him, carrying orders, information, and money to the men who belong to his unit. From a business standpoint, the caporegima is analogous to plant supervisor or sales manager.
The lowest level "members" of a family are the soldati, the soldiers or "button" men who report to the caporegime. A soldier may operate a particular illicit enterprise, e.g., a loan-sharking operation, a dice game, a lottery, a bookmaking operation, a smuggling operation, on a commission basis, or he may "own" the enterprise and pay a portion of its profit to the organization, in return for the right to operate. Partnerships are common between two or more soldiers and between soldiers and men higher up in the hierarchy. Some soldiers and most upper-echelon family members have interests in more than one business, licit or illicit.
Beneath the soldiers in the hierarchy are large numbers of employees and commission agents who are not members of the family and are not necessarily of Italian descent. These are the people who do most of the actual work in the various enterprises. They have no buffers or other insulation from law enforcement. They take bets, drive trucks, answer telephones, sell narcotics, tend the stills, and work in the legitimate businesses.
The highest ruling body of the 24 families is the "commission." This body serves as a combination legislature, supreme court, board of directors, and arbitration board; its principal functions are judicial. Family members look to the commission as the ultimate authority on organizational and jurisdictional disputes. It is composed of the bosses of the nation's most powerful families but has authority over all 24. The composition of the commission varies from 9 to 12 men.
The commission is not a representative legislative assembly or an elected judicial body. Members of this council do not regard each other as equals. Those with long tenure on the commission and those who head large families, or possess unusual wealth, exercise greater authority and receive utmost respect. The balance of power on this nationwide council rests with the leaders of New York's 5 families. They have always served on the commission and consider New York as at least the unofficial headquarters of the entire organization.
Organized crime today is increasingly diversified and sophisticated. One consequence appears to be significant organizational restructuring. As in any organization, authority in organized crime may derive either from rank based on incumbency in a high position or from expertise based on possession of technical knowledge and skill.
Traditionally, organized crime groups, like totalitarian governments, maintained discipline through the unthinking acceptance of orders by underlings who have respected the rank of their superiors. Their code was "omerta" or silence. Nevertheless, since 1931, organized crime groups gained power and respectability by moving out of bootlegging and prostitution and into gambling, usury, and control of legitimate business. Their need for expertise, based on technical knowledge and skill, increased. Currently, both the structure and operation of licit and illicit enterprises reveal some indecision brought about by attempting to follow both patterns at the same time. Organized crime's "experts" are not fungible, or interchangeable, like the "soldiers" and street workers, and since experts are included within an organization, discipline and structure inevitably assume new forms. It may be awareness of these facts that is leading many family members to send their sons to universities to learn business administration skills.
As the bosses realize that they cannot handle the complicated problems of business and finance alone, their authority is delegated. Decision making will be decentralized, and individual freedom of action will tend to increase. New problems of disci line and authority may occur if greater emphasis on expertise within the ranks denies unskilled members of the families an opportunity to rise to positions of leadership. The unthinking acceptance of rank authority may be difficult to maintain when experts are placed above long-term, loyal soldiers.
The leaders of the various organized crime families acquire their positions of power and maintain them with the assistance of a code of conduct that, like the hierarchical structure of the families, is very similar to the Sicilian Mafia's code-and just as effective. The code stipulates that underlings should not interfere with the leader's interests and should not seek protection from the police. They should be "standup guys" who go to prison in order that the bosses may amass fortunes. The code gives the leaders exploitative authoritarian power over everyone in the organization. Loyalty, honor, respect, absolute obedience-these are inculcated in family members through ritualistic initiation and customs within the organization, through material rewards, and through violence. Though underlings are forbidden to "inform" to the outside world, the family boss learns of deviance within the organization through an elaborate system of internal informants. Despite prescribed mechanisms for peaceful settlement of disputes between family members, the boss himself may order the execution of any family member for any reason.
B. The Amway Business
1. Family Structure
The Amway business has a "family" structure parallel to that found in organized crime. With respect to both organizations, the family orientation is twofold. First, every participant;in the business is considered a member of a "family," led by a particular individual at the top of a chain of command. Second, the business stresses involvement by participant's family members, such that wives and children are drawn into the business to perpetuate their family influence over time. Family dynasties result that may be passed from generation to generation.
One of the primary family lines relates to the Amway Corporation itself. Amway Corporation is a privately held company founded in 1959 by Jay Van Andel and Rich DeVos. The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business. The control of the Amway Corporation and its related entities appears to be shifting to the sons of the founders - Richard DeVos, Jr. and Steve, Van Andel. Amway Corporation also has a Policy Board that consists of Richard DeVos, Sr., Steve Van Andel, Richard DeVos, Jr., Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.
In addition to the DeVos and Van Andel family, who control the Amway Corporation, according to a 1996 Amway Corporate Culture document there are at least eight "lines of sponsorship" that control groups of Amway distributors. Every family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan. However, each family also is involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies. The leaders of the families sit on the Amway Distributor Advisory Board, where they work with Amway Corporation to develop the direction of the business. (AM0023684).
The Yager family has the largest organization in North America. Dexter Yager runs his organization, but has an "inner circle" of about 20 key Diamonds that work with him in a leadership role. Yager also has a tool business called "Internet" which provides BSM to thousands of Diamonds and Direct Distributors. The Corporate Culture Document states that "loyalty to Dex is paramount to have a voice in the organization," a statement which is also reflected in various lawsuits that have been brought involving Yager and his company as defendants.
Another large family is the Britt family (aka Britt East Coast), with Bill Britt as the "unchallenged leader." This family is comprised of over 149,000 distributorships, and is located primarily in the East. Bill Britt sets policy along with some "front-line" Diamond leaders, and decisions are ratified by a management team that includes 20 additional Diamonds.
Other families include: the Childers family (run by a leadership team of six Diamonds); the Stewart family; the Gooch family; the Bryan family (aka Down East); the Wilson family (aka WOW - Wilson Out West) - with Don Wilson also being one of Dexter Yager's "inner circle;" the Puryear family (aka World Wide Drearnbuilders); the Hays family (aka IC or International Connection); the Matz family (aka IDA or International Diamond Association); the Dornan family (aka Network 2 1); the Strehli family (aka Creative Life Styles); and the INA (International Networking Association) family, run by a group of seven families.
The Amway business stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. (TS0000058). You are to "edify" or honor your upline, and "counsel" with them regularly. The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems. Distributors are told how to dress - for example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage. Amway becomes a way of life for its participants, much like those involved with the Mafia.
In addition to involvement with the upline and downline "family," distributors' actual family members are drawn in to the Amway business as a matter of right, apparently resulting in family members being given responsibilities that may outweigh their capability. Amway tells distributors that when they are ready for retirement they should start to delegate more day-to-day functions to family members. A model of this approach is the Amway Corporation itself. Plaintiffs' counsel recently deposed David Van Andel and Nan Van Andel, both of whom have held high positions within Amway Corporation and its related corporate entities. The deposition testimony reflected a lack of knowledge and business background that suggests neither person obtained or retain their position on merit, nor would they continue in their position in a normal business. This is also a characteristic found within the Mafia.
2. Association-in-Fact
The major Amway families do not, in most cases, have a formal legal relationship among each other. All distributors must enter into a distributorship agreement with Amway Corporation to recruit new distributors and sell Amway products and services, but Amway asserts that distributors are independent contractors, involved in their own businesses. Moreover, with regard to the tools business, there appears to be no legal relationship whatsoever between Amway Corporation and the major families - each family has its own tools program that it runs independently of Amway Corporation.
In order for the Amway business to function, there is an association-in-fact among the participants. The large family leaders, e.g. the Yagers and Britts (and their corporations) work with the DeVos and Van Andel family (Amway Corporation) to ensure the continuing operation of the business. Some mechanism is necessary due to inherent tensions and power struggles that arise. For example, in the early 1980's DeVos and Van Andel saw the tremendous income and power accruing to large family leaders through their tool businesses. The income from the tool business of the major uplines reportedly far eclipses their income from the Amway plan. DeVos spoke strongly against this over-emphasis on tools, and warned that it might damage the Amway business as a whole. DeVos and Van Andel were apparently hamstrung, however, in taking action because the large distributors such as Yager could simply take his downline out of Amway, with potentially devastating results to DeVos and Van Andel. In fact, it was in just this manner that DeVos and Van Andel formed Amway. They had been distributors for a company called Nutrilite, but left, taking their distributorship organization with them, and looking for a product to sell. DeVos and Van Andel settled on L.O.C., a liquid cleaner, and that began the Amway Corporation.
The Amway business is governed by the leaders of the various families. According to the formal structure, the Amway business is governed "in partnership by the Amway Policy Board consisting of the co-founders Rich DeVos and Jay VanAndel and other family members, and the Amway Distributors Association Board consisting of distributor leadership who are nominated and elected to their positions." (Amway Corporate Culture - AM0023672). The Amway Distributor Association Council/Board advises and consults with Amway Corporation on all aspects of the business. (ADA59). Thirty distributors serve. Fifteen are elected by all qualified direct distributors, and 15 are elected from Council members from slate nominated by Amway Corporation. The Council is led by the Executive Committee. (ADA63). The Executive Commiittee of the ADAC includes heads of the major families, e.g. Britt and Yeager. (ADA 18).
The manner in which the ADAC is structured ensures that either the major family leaders, or their designees, are elected. There is a three-year term limit, but powerful leaders such as Yager and Britt may subvert the limit, either through designees or through "bending" the structure. For example, Yager and Britt were invited to ADAC meetings even after their terms expired, with Amway Corporation picking up their expenses. (ADA 1019).
3. Legal and Illegal Activity
The association-in-fact enterprise among the Amway participants is used to pursue both legal and illegal activity. There are legal products and services offered sales of name brand merchandise or services such as MCI or VISA. Plaintiffs allege that the structure is also used, however, to pursue illegal activity: the Amway Sales and Marketing Plan is a pyramid scheme; the "tools" business is a pyramid scheme; consumers are induced, through false promises of wealth and other misrepresentations, to join Amway; distributors and potential distributors are induced, through misrepresentations, to purchase motivational tools and attend motivational rallies; distributors and consumers are induced, through product disparagement such as spreading the rumors of P&G's Satanic connections, to purchase Amway products. These illegal activities are undertaken separate and apart from the legitimate manufacture, distribution and sale of products or services.
Apart from the illegalities alleged by plaintiffs in various civil cases, Amway has a history of documented illegal behavior. In 1979, the FTC ordered Amway to cease and desist from illegal price fixing. In 1983, Amway Corporation and Amway Canada Ltd. paid total fines of $20 million ($16 million by Amway Corporation) and pled guilty to criminal charges of defrauding Canadian Government through customs violations. Canadian authorities had charged that Amway set up group of dummy companies and created fictitious trade between them to get Canadian customs to accept a lower value for goods. (ROSLONIEC 30, 3 1). A statement by Amway as part of the plea acknowledged that the allegations of the Canadian government were "substantially correct." Id.
4. Corporate Structure
The Amway business also uses a variety of corporate structures, which may have the dual effect of insulating individuals from liability and masking illegal activity. The Amway Corporation, for example, uses a myriad of corporate subsidiaries and related entities, and the relationship among them is not clear from the publicly filed papers. Moreover, deposition testimony suggests that a number of the corporations do not observe the normal corporate formalities. James Rosloniec is a Vice President of Amway Corporation, in charge of audit and control. Despite his high position in Amway Corporation, when deposed he did not know what Amway Financial Services, Inc. does, nor did he have any knowledge of the following Amway-related organizations - Amway Jewelry Company, Amway Realty Network, Inc., Group Fifty Corporation, Merchandising Products, Inc., Nutrilite Products, Inc., Nutrilite Products, Limited - New Zealand, Sunrise Auto Plaza, Inc., Taerus Expo Corp, American Way, Limited, Video Incentives, Plus, Inc., Amway International, Inc. Moreover, he often had little knowledge with regard to corporations where he is both and officer and director. For example, he is the Vice President and on the board of directors of HI, Inc.. Mr. Rosloniec "believes" this corporation owns a Hawaii distribution center, but he has never been to a meeting or board meeting. He "believes" he is president and treasurer of Amway Investment, Inc., which has a value in excess of $300 million. He "assumes" he is president of Amway Auditing and Financial Services, which is presently a shell corporation. Mr. Rosloniec is Vice President and Treasurer of Ja-Ri, which he knows owns residential property, although he does not know why or who lives in the residential property- All of this suggests that Mr. Rosloniec is little more than a "shill" for the DeVos and Van Andel family.
Most of the major distributor families also use the corporate form for their Amway-related business. Dexter Yager has D. & B. Yager Enterprises, Inc., which deals with the Amway sales and marketing business, and Internet Services Corporation, which deals with the tools business. Donald Wilson has Wilson Enterprises for his Amway sales and marketing business, and WOW International, Inc. for his tools business. These are all legally separate corporate entities, yet all work together to promote the Amway Sales and Marketing Plan and the tools business.
5. Dispute Resolution
The nature of the Amway related business lends itself to potential disputes. There may be disputes within distributor families, among distributor families, or between distributor families and the DeVos and Van Andel family. The subject matters may include territories, or rights to lines of distributors, or rights to engage in the tools business. The families strongly prefer to resolve all disputes internally. There is both a formal method of dispute resolution, in the nature of binding arbitration, and a more informal mechanism, with edicts from the family leaders. Only when a participant has nothing to lose" have they resorted to the courts, and these complaints offer a rare glimpse into the inner workings of Amway.
The formal mechanism for dispute resolution is set out in Amway's Business Reference Manual. When a problem exists, it is first discussed with the offender. If the problem persists, it is reported to your direct distributor (upline). If the problem still persists, a warning letter may issue with a copy to Amway. If this does not resolve matters, the direct distributor may take action, including termination. If the violating distributor is dissatisfied, he can appeal to Amway. There is an informal conciliation procedure with the Executive Diamond Conciliation Forum. If there is no informal resolution, the panel issues a recommendation. If the party disagrees, he can request a review before full ADA Board. Upon receipt of ADA Board or EDC Panel recommendation Amway reviews the matter. Amway issues a final decision, which is binding among the participants.
The informal dispute resolution mechanism is illustrated in the Musgrove complaint (Texas 1998). The Musgoves went to an upline with a complaint that their direct upline had illegally taken monies owed them and their downlines. Don Wilson, a described Yager "general," told them any solution would be solved within the Yager organization. The Musgroves were told that going to Amway or the ADA would be a "mistake." When there was no resolution by the upline, the Musgroves went to Jody Victor - a principal of the ADA. Mr. Victor acknowledged that Yager was in control of the organization and that Wilson was one of his generals. Mr. Victor said that to cross Don Wilson or Dexter Yager would be the equivalent of "being drawn and quartered." When nothing happened through the ADA, a last ditch effort by the Musgroves was to approach Amway Corp.. This simply resulted in alleged retaliation from Wilson and Yager, which led to the Musgroves' suit.
6. Control
The Mafia uses "omerta" and violence for control. Amway has other methods, with similar effect. Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. Punishment may start off with being vilified by uplines as a "loser," as "negative," or as "brain-dead" which are typical Amway appelations for anyone who does not believe in the Amway system and the riches that allegedly flow from it. More serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed." There are also reports of violence against those who attempt to take action against Amway.
The upline control is evident from recent complaints that have been filed in courts across the country. The Taylor complaint (State of Washington) alleged that the plaintiff/distributor's complaints about their upline led to defamatory statements by their upline to their downline. Their upline allegedly encouraged their downline to write complaints about the plaintiff, and their upline threatened that they had the authority, political connections and clout to cause the plaintiffs to lose their business. The defendants allegedly coerced distributors to buy motivational tools and attend functions; if they did not, they were to be "cut out like cancer." The Stewart complaint (Texas) alleges that uplines coerced attendance at "approved" functions, controlled by family leaders. Anyone trying to hold events independent of high level approved functions was "blackballed" from participating in other events. High level distributors would conspire to sabotage independent events, and organize boycotts. The Musgrove complaint quotes a high level distributor in Yager organization on an Emerald Club tape as saying: "I know one thing - I do not want anything that doesn't have Dexter Yager's approval - that equals devastation. -.. somebody will step on you."
A 1991 Forbes article relates that a former Amway CFO who resigned in 1979 says that he and his family received threats for years. His former secretary was helping the Canadians in their investigation, and said she was "roughed up" in Chicago and told to "stay away from Amway." Philip Kems, a former distributor writing an expose, charges that Amway used private detectives to follow him and rough him up. These are all control methods that are similar in function to those employed by organized crime.
IV. Supporting Exhibits
Attached are two charts I intend to use in conjunction with my testimony.
V. Material Reviewed
It is my understanding that counsel for plaintiffs will provide the listing of the Amway-related documents I have reviewed, prior to preparing this report, approximately one week prior to my deposition. The primary data I have considered in forming my opinion are:
Publications referenced in the background section on Organized Crime.Texas Amended ComplaintDeposition of James Rosloniec and Exhibits attached theretoDeposition of David Van Andel and Exhibits attached theretoDeposition of Nan Van Andel and Exhibits attached theretoADA Answers to Interrogatories ADA Responses to Document RequestsAmway Corp. Answers to InterrogatoriesIntervention Pleading of Stewarts, et al. in Griffiths, et al. v. Amway Corp., et al., Harris County, TexasOriginal Answer, Third Party Claim, and Plaintiffs' Claims by Jeffrey and CeciliaMusgrove, Case No. 98-17491, Harris County, TexasFirst Amended Complaint, Taylor v. Amway et al., State of Washington, Case No. 98-2-15585-0 SEANotice of Pendency and Settlement of Class Action, Hanrahan, et al. v. Executives Unlimited, Inc., Case No. 94-CV-4615, E.D. Pa.Fourth Amended Complaint, UtahAmway Corporate Culture (AM0023671)Bergfeld International material (SCH 000202)The Network Manual and The Distributor Network Manual (P&G 051904)1979 FTC Order12/9/91 Forbes article2/16/98 Business Week articleTranscripts of rallies, including "What is This All About," Dexter Yager, Internet Services Corporation- 1994November, 1996 Duns Business Records Plus - Report on Amway Corporation"Family" messages and Family Matters messages: (AM 0026090-0026097, AM 0026164-0026170, AM 0026160, AM 0026162, AM 0026157 - 0025158, AM 0026155, AM 0026138-0026153)September,1994 Amagram (P&GO017672) (policy board)Intemetsite: http://www.amway-abn.comBusiness Reference Manual(1994) (AM3331)Letter from Avon (PG 0216932)The Amway Business Review (incorporating the Amway Sales and Marketing Plan)The Direct Distributor Manual (AM 3918)Amway Business Compendium (S 00331 1)Organizational Deviance in the Direct Selling Industry: A Case Study of the Amway Corporation, Carol Lynn Juth-Gavasso, August 1985Charlotte Business Journal, 2/13/95 article "The Amazing Money-Making Machine"Internet site material - ProbstInternet site material - Amway: The Untold StoryDirectly Speaking, Rich DeVos, January and March.-."1983
VI.;Compensation
I have been retained by Plaintiffs' counsel, and I am being compensated at the rate of $550 per hour, plus expenses.
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Amway Report by G. Robert Blakey
"It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."G. ROBERT BLAKEY
Table of Contents
Introduction
Opinion
Basis of Opinion
Organized Crime
The Amway Business
Family Structure
Association-in Fact
Legal and Illegal Act
Corporate Structure
Dispute Resolution.
Control
Supporting Exhibits
Material Reviewed
Compensation
Original in .pdf
I. Introduction
I have been retained by counsel for Plaintiffs in the case styled The Procter & Gamble Company, et al. v. Amway Corporation, et al, Case No. H-9723 84 (S. D. Texas, Houston Division), for the purpose of rendering an expert opinion. My area of expertise includes the structure and function of organized crime groups. I have reviewed 9 documents that form the basis for a comparison between the structure and function of organized crime, and the structure and function of the Amway enterprise. My opinions are set forth with a reasonable degree of certainty, based upon my education, training, background and review of relevant materials.
Three preliminary points relate to this report. First, I am not being asked to render an opinion as to whether Defendants' conduct is, in fact, a violation of the federal RICO statute. This will be for the jury to decide after instructions by the court. I have testified in the past as an expert on organized crime in a variety of contexts; it is in that capacity that I will render my opinion in this case. Second, while my opinion arises from Plaintiffs' allegations relating to various improper conduct by Defendants, the primary focus is on the structure and function of the Amway business. Third, this Report may have to be supplemented as Defendants produce additional discovery. As later shown, I have reviewed already a fair number of documents, many obtained by Plaintiffs' counsel outside of formal discovery. I understand, however, that a large number of documents are to be produced for review, and a number of witnesses have not yet been produced for deposition.
II. Opinion
It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.
III. Basis of Opinion
To understand the basis for my opinion, it is first helpful to examine the structure and function of major organized crime groups. This may then be compared with the structure and function of the Amway business. The obvious parallels emerge.
A. Organized Crime
An especially troubling problem with the phrase "organized crime" is that it is used in different contexts with different meanings. Sometimes, too, these different meanings are not always clearly separated. These different uses can, of course, lead to problems both in communication and in the law.
Like Humpty Dumpty's language, C. Dodgson ("Lewis Carroll"), through the Looking Glass and What Alice Found There, Chapter 6, at 247 (Modem Library ed.): ("When I use a word," Humpty Dumpty said, "it means just what I choose it to mean neither more nor less,") the phrase "organized crime" can mean whatever the speaker chooses to make it mean, and it has meant many things to many people. It can be use4, for example, to refer to the crimes committed by organized criminal groups-gambling, narcotics, loan sharking, theft and fencing, and the like. See generally President's Commission on Crime and Administration of Justice, Task Force Report.- Organized Crime 2-4 (1967). It can also be used to refer, not to the crimes committed, but to the criminal groups that commit them. Id.
Here, a difference of opinion sometimes exists. How sophisticated should a criminal group become before it is called "organized crime"? Should "white collar" criminal groups be called "organized crime"? On the definition of "white collar" crime as generally not including "organized crime," compare E. Sutherland, WHITE COLLAR CRIME.,- 9 (Dryden Press Inc. 1949,@ with H. Edelherlz, THE NATURE, IMPACT AND PROSECUTION OF WHITE-COLLAR CRIME, 3 (U.S. Department of Justice, National Institute of Law Enforcement and Criminal Justice, 1970). THE REPORT OF THE NATIONAL CONFERENCE ON ORGANIZED CRIME, (Washington, D.C. October 1-4, 1975), however, broadly defines organized crime to be "any group of individuals whose primary activity involves violating criminal laws to seek illegal profits and power by engaging in racketeering activities and, when appropriate, engaging in intricate financial manipulations." Id. at v. Should "subversive groups" be called "organized crime"? See IIT Research Institute and Chicago Crime Commission, A Study of Organized Crime in Illinois 20 (Summary) (I 97 1) ('independent social process, separate from" organized crime).
Typically, "white collar" or "subversive groups" or ad hoc groups, such as youth groups, pickpocket rings, and professional criminal groups put together for one or more scores" are excluded from definitions of "organized crime." The President's Commission on Crime and Administration of Justice in 1967 suggested, for example, that organized crime" should be limited to groups that have become sufficiently sophisticated that they must regularly employ techniques of both violence and corruption to achieve their criminal ends. Task Force Report at 8 ("unique form of criminal activity"). Others disagree, and the literature does not reflect- a consensus. Compare Schelling, "What is the Business of Organized Crime?," 20 J. PUB. LAW 71 (1971) (concept keyed to "monopoly").
Among those groups that have some plausible claim to the dubious title of organized crime," additional distinctions can be helpfully drawn; it is useful, for example, to distinguish between "enterprises...... syndicates," and "ventures." Some, too, would probably not apply the label of "organized crime" to each of these groups; they would, for example, restrict it to "syndicates."
An organized crime "enterprise" is a criminal group that provides licit or illicit goods or services on a regular basis. See, e.g., Schelling, "Economic Analysis and Organized Crime," Task Force Report at 115; Rubin, "The Economic Theory of the Criminal Firm," The Economics of Crime and Punishment 155 (1973). An example would be a narcotics wholesaler and his cutting crew. See U.S.C.A. § 848 (1972), "Continuing criminal enterprises." See, e.g., United States v. Manftedi, 488 F.2d 588 (2d Cir. 1973), cert. denied, 417 U.S. 936 (1974). Thus, it is a criminal firm or business organization. See Schelling, "Economic Analysis and Organized Crime," Task Force Report at II 5.
An organized crime "syndicate" is a criminal or related group that regulates relations between various "enterprises." It may be metropolitan, regional, national, or international in scope. It may be concerned with only one field of endeavor or it may be concerned with a broad range of licit or illicit activities. A "syndicate," therefore, is a cartel or business organization. It fixes prices for goods and services, allocates markets and territories, acts as a legislature and court, sets policy, settles disputes, levies "taxes," and offers protection from both rival groups and legal prosecution. See Task Force Report at 6-10.
A "venture" is a criminal episode usually engaged in for profit by a group. It may be the hijacking of a truck. See, e.g., United States v. Persico, 339 F. Supp. 1077 (E,.D. N.Y.), aff'd 467 F.2d 485 (2d Cir. 1972), cert. denied, 410 U.S. 946 (1973) (trial of Carmine J. Persico, Jr., a member of the Vito Genovese syndicate, S. Rep. No. 72, 89th Cong., 1st Sess. 20 (1965) for hijacking). Or the robbery of a bank. See, e.g., United States v. Franzese, 392 F.2d 954 (2d Cir.), vacated in part as to Franzese only and remanded, otherwise cert. denied, 394 U.S. 310 (1968), related case, 525 F.2d 27 (2d Cir. 1975) (trial of John Franzese, a caporegime of the Profaci syndicate, S. Rep. No. 72, 89hCong., 1st Sess. 28 (1965) for bank robbery). On the background of the robberies and a related homicide trial, see generally J. Mills, The Prosecutor 96-245 (Farra, Straus and Giroux, 1969). It is "organized crime" when members of the "venture" have ties to a "syndicate." This tie gives the "venture" access to superior criminal resources, including capital, skilled labor, outlets for stolen property, etc.
Finally, "organized crime" may refer to the entire criminal underworld, or at least that part which has some semblance of organization. See Task Force report at 7; Schelling, supra note I 0, at 115. Thus, "organized crime" is distinguished from random acts of violence, passion, or greed.
In 1951 the Kefauver Committee declared that a nationwide crime syndicate known as the Mafia operated in many large cities and that the leaders of the Mafia usually controlled the most lucrative rackets in their cities. Kefauver Comm., 3d Interim Rep. 5 Rep. No. 307, 82d Cong., 1st Sess. 150 (1951). In 1957, 20 of organized crime's top leaders were convicted (later reversed on appeal - United States v. Bufalino, 285 F.2d 408 (2d Cir. 1960)), of a criminal charge arising from a meeting at Apalachin, N.Y. At the sentencing the judge stated that they had sought to corrupt and infiltrate the political mainstreams of the country, that they had led double lives of crime and respectability, and that their probation reports read "like a tale of horrors."
Today, that group is the most significant national group in organized crime in the United States. It consists of 24 groups, known as the "Mafia" or "LaCosa Nostra," operating as criminal cartels in large cities across the Nation. Task Force Report at 7. The description of it presented here relies heavily on the Task Force Report. See also PRESIDENTS COM'N ON ORGANIZED CRIME, THE IHVACT: ORGANIZED CRIME TODAY 35-38 (I 986): Blakey, "Federal Criminal Law," 46 HASNNG L.J. II 75, 1193-98 (1995) (citing various sources).
The membership of these groups is of exclusively men of Italian descent; they are in frequent communication with each other, and their smooth functioning is insured by a national body of overseers. In individual cities, the local core group may also be known as the "outfit," the "syndicate," or the "mob." See Testimony of former New York City Police Comm'r Michael J. Murphy, McClellan, Narcotics Hearings, 88th Cong., Ist Sess., Pt. 1, at 63 (1963); testimony of Capt. William Duffy, id. pt. 2, at 506; OFFICE OF THE N.Y. COUNSEL THE GOVERNOR, COMBATING ORGANIZED CRIME -A PEPORT OF THE 1965 OYSTER BAY, NEW YORK, CONFERENCES ON COMBATING ORGANIZED CRIME(1966). These 24 groups work with and control other racket groups, whose leaders are of various ethnic derivations. In addition, the thousands of employees who perform the street-level functions of organized crime's gambling, usury, and other legal and illegal activities represent a cross section of the Nation's population groups.
The present confederation of organized crime groups arose after Prohibition, during which Italian, German, Irish and Jewish groups had competed with one another in racket operations. The Italian groups were successful in switching their enterprises from prostitution and bootlegging to gambling, extortion, and other illicit and licit activities. They consolidated their power through murder and violence. See generally, ORGANIZED CRIME IN AMERICA 147-224 (Tyler ed. 1962).
Members of the 24 core groups reside and are active in a number of states. The scope and effect of their criminal operations and penetration of legitimate businesses vary from area to area. The wealthiest and most influential core groups operate in New York, New Jersey, Illinois, Florida, Louisiana, Nevada, Michigan and Rhode Island.
Recognition of the common ethnic tie of the 5,000 or more members of organized crime's core groups is essential to understanding the structure of these groups today. Some are concerned, however, that the identification of Cosa Nostra's ethnic character reflects unfairly on Italian-Americans generally. This false implication was eloquently refuted by one of the Nation's outstanding experts on organized crime, Sgt. Ralph Salerno of the New York City Police Department. When an Italian-American racketeer complained to him, "Why does it have to be one of your own kind that hurts you?", Sgt. Salerno answered:
"I'm not your kind and you're not my kind. My manners, morals, and mores are not yours. The only thing we have in common is that we both spring from an Italian heritage and culture-and you are the traitor to that heritage and culture which I am proud to be part of"
Grutzner, City Police Expert on Mafia Retiringftom Force, N.Y. Times, Jan. 21, 1967, p.65 col. 3.
The most significant group in organized crime thus consists of these 24 groups allied with other racket enterprises to form a loose confederation operating in large and small cities. In the core groups, because of their permanency, of form, strength of organization and ability to control other racketeer and legitimate operations, resides the power that organized crime has in America today.
Each of the 24 groups is know as "family," with membership varying from as many as 700 men to as few as 20. For an extensive discussion of the internal structure of the organized crime groups, see Cressey, "The Functions and Structure of Criminal Syndicates, "Task Force Report at 25, et.seg. Seealso, Narcotics Hearings,89th Cong., Ist Sess., pts. 1 & 2 (1963), 1st & 2d Sess., pts 3 & 4 (1963-64), 2d Sess., pt. 5 (1964). Most cities with organized crime have only one family; New York City has five. Each family can participate in the full range of activities in which organized crime generally is known to engage. Family organization is rationally designed with an integrated set of positions geared to maximize profits. Like any large corporation, the organization functions regardless of personnel changes, and no individual-not even the leader-is indispensable, if he dies or goes to jail, business goes on.
The hierarchical structure of the families resembles that of the Mafia groups that have operated for almost a century on the island of Sicily. Each family is headed by one man, the "boss," whose primary functions are maintaining order and maximizing profits. Subject only to the possibility of being overruled by the national advisory group, his authority in all matters relating to his family is absolute.
Beneath each boss is an "underboss," the vice president or deputy director of the family. He collects information for the boss; he relays messages to him and passes his instructions down to his own underlings. In the absence of the boss, the underboss acts for him.
On the same level as the underboss, but operating in a staff capacity, is the caporegime, who is a counselor, or adviser. Often an elder member of the family who has partially retired from a career in crime, he gives advice to family members, including the boss and underboss, and thereby enjoys considerable influence and power.
Below the level of the underboss are the caporegime, some of whom serve as buffers between the top members of the family and the lower-echelon personnel. To maintain their insulation from the police, the leaders of the hierarchy (particularly the boss) avoid direct communication with the workers. All commands, information, complaints, and money flow back and forth through a trusted go-between. A caporegima fulfilling this buffer capacity, however, unlike the underboss, does not make decisions or assume any of the authority of his boss.
Other caporegime serve as chiefs of operating units. The number of men supervised in each unit varies with the size and activities of particular families. Often the caporegima has one or two associates who work closely with him, carrying orders, information, and money to the men who belong to his unit. From a business standpoint, the caporegima is analogous to plant supervisor or sales manager.
The lowest level "members" of a family are the soldati, the soldiers or "button" men who report to the caporegime. A soldier may operate a particular illicit enterprise, e.g., a loan-sharking operation, a dice game, a lottery, a bookmaking operation, a smuggling operation, on a commission basis, or he may "own" the enterprise and pay a portion of its profit to the organization, in return for the right to operate. Partnerships are common between two or more soldiers and between soldiers and men higher up in the hierarchy. Some soldiers and most upper-echelon family members have interests in more than one business, licit or illicit.
Beneath the soldiers in the hierarchy are large numbers of employees and commission agents who are not members of the family and are not necessarily of Italian descent. These are the people who do most of the actual work in the various enterprises. They have no buffers or other insulation from law enforcement. They take bets, drive trucks, answer telephones, sell narcotics, tend the stills, and work in the legitimate businesses.
The highest ruling body of the 24 families is the "commission." This body serves as a combination legislature, supreme court, board of directors, and arbitration board; its principal functions are judicial. Family members look to the commission as the ultimate authority on organizational and jurisdictional disputes. It is composed of the bosses of the nation's most powerful families but has authority over all 24. The composition of the commission varies from 9 to 12 men.
The commission is not a representative legislative assembly or an elected judicial body. Members of this council do not regard each other as equals. Those with long tenure on the commission and those who head large families, or possess unusual wealth, exercise greater authority and receive utmost respect. The balance of power on this nationwide council rests with the leaders of New York's 5 families. They have always served on the commission and consider New York as at least the unofficial headquarters of the entire organization.
Organized crime today is increasingly diversified and sophisticated. One consequence appears to be significant organizational restructuring. As in any organization, authority in organized crime may derive either from rank based on incumbency in a high position or from expertise based on possession of technical knowledge and skill.
Traditionally, organized crime groups, like totalitarian governments, maintained discipline through the unthinking acceptance of orders by underlings who have respected the rank of their superiors. Their code was "omerta" or silence. Nevertheless, since 1931, organized crime groups gained power and respectability by moving out of bootlegging and prostitution and into gambling, usury, and control of legitimate business. Their need for expertise, based on technical knowledge and skill, increased. Currently, both the structure and operation of licit and illicit enterprises reveal some indecision brought about by attempting to follow both patterns at the same time. Organized crime's "experts" are not fungible, or interchangeable, like the "soldiers" and street workers, and since experts are included within an organization, discipline and structure inevitably assume new forms. It may be awareness of these facts that is leading many family members to send their sons to universities to learn business administration skills.
As the bosses realize that they cannot handle the complicated problems of business and finance alone, their authority is delegated. Decision making will be decentralized, and individual freedom of action will tend to increase. New problems of disci line and authority may occur if greater emphasis on expertise within the ranks denies unskilled members of the families an opportunity to rise to positions of leadership. The unthinking acceptance of rank authority may be difficult to maintain when experts are placed above long-term, loyal soldiers.
The leaders of the various organized crime families acquire their positions of power and maintain them with the assistance of a code of conduct that, like the hierarchical structure of the families, is very similar to the Sicilian Mafia's code-and just as effective. The code stipulates that underlings should not interfere with the leader's interests and should not seek protection from the police. They should be "standup guys" who go to prison in order that the bosses may amass fortunes. The code gives the leaders exploitative authoritarian power over everyone in the organization. Loyalty, honor, respect, absolute obedience-these are inculcated in family members through ritualistic initiation and customs within the organization, through material rewards, and through violence. Though underlings are forbidden to "inform" to the outside world, the family boss learns of deviance within the organization through an elaborate system of internal informants. Despite prescribed mechanisms for peaceful settlement of disputes between family members, the boss himself may order the execution of any family member for any reason.
B. The Amway Business
1. Family Structure
The Amway business has a "family" structure parallel to that found in organized crime. With respect to both organizations, the family orientation is twofold. First, every participant;in the business is considered a member of a "family," led by a particular individual at the top of a chain of command. Second, the business stresses involvement by participant's family members, such that wives and children are drawn into the business to perpetuate their family influence over time. Family dynasties result that may be passed from generation to generation.
One of the primary family lines relates to the Amway Corporation itself. Amway Corporation is a privately held company founded in 1959 by Jay Van Andel and Rich DeVos. The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business. The control of the Amway Corporation and its related entities appears to be shifting to the sons of the founders - Richard DeVos, Jr. and Steve, Van Andel. Amway Corporation also has a Policy Board that consists of Richard DeVos, Sr., Steve Van Andel, Richard DeVos, Jr., Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.
In addition to the DeVos and Van Andel family, who control the Amway Corporation, according to a 1996 Amway Corporate Culture document there are at least eight "lines of sponsorship" that control groups of Amway distributors. Every family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan. However, each family also is involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies. The leaders of the families sit on the Amway Distributor Advisory Board, where they work with Amway Corporation to develop the direction of the business. (AM0023684).
The Yager family has the largest organization in North America. Dexter Yager runs his organization, but has an "inner circle" of about 20 key Diamonds that work with him in a leadership role. Yager also has a tool business called "Internet" which provides BSM to thousands of Diamonds and Direct Distributors. The Corporate Culture Document states that "loyalty to Dex is paramount to have a voice in the organization," a statement which is also reflected in various lawsuits that have been brought involving Yager and his company as defendants.
Another large family is the Britt family (aka Britt East Coast), with Bill Britt as the "unchallenged leader." This family is comprised of over 149,000 distributorships, and is located primarily in the East. Bill Britt sets policy along with some "front-line" Diamond leaders, and decisions are ratified by a management team that includes 20 additional Diamonds.
Other families include: the Childers family (run by a leadership team of six Diamonds); the Stewart family; the Gooch family; the Bryan family (aka Down East); the Wilson family (aka WOW - Wilson Out West) - with Don Wilson also being one of Dexter Yager's "inner circle;" the Puryear family (aka World Wide Drearnbuilders); the Hays family (aka IC or International Connection); the Matz family (aka IDA or International Diamond Association); the Dornan family (aka Network 2 1); the Strehli family (aka Creative Life Styles); and the INA (International Networking Association) family, run by a group of seven families.
The Amway business stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. (TS0000058). You are to "edify" or honor your upline, and "counsel" with them regularly. The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems. Distributors are told how to dress - for example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage. Amway becomes a way of life for its participants, much like those involved with the Mafia.
In addition to involvement with the upline and downline "family," distributors' actual family members are drawn in to the Amway business as a matter of right, apparently resulting in family members being given responsibilities that may outweigh their capability. Amway tells distributors that when they are ready for retirement they should start to delegate more day-to-day functions to family members. A model of this approach is the Amway Corporation itself. Plaintiffs' counsel recently deposed David Van Andel and Nan Van Andel, both of whom have held high positions within Amway Corporation and its related corporate entities. The deposition testimony reflected a lack of knowledge and business background that suggests neither person obtained or retain their position on merit, nor would they continue in their position in a normal business. This is also a characteristic found within the Mafia.
2. Association-in-Fact
The major Amway families do not, in most cases, have a formal legal relationship among each other. All distributors must enter into a distributorship agreement with Amway Corporation to recruit new distributors and sell Amway products and services, but Amway asserts that distributors are independent contractors, involved in their own businesses. Moreover, with regard to the tools business, there appears to be no legal relationship whatsoever between Amway Corporation and the major families - each family has its own tools program that it runs independently of Amway Corporation.
In order for the Amway business to function, there is an association-in-fact among the participants. The large family leaders, e.g. the Yagers and Britts (and their corporations) work with the DeVos and Van Andel family (Amway Corporation) to ensure the continuing operation of the business. Some mechanism is necessary due to inherent tensions and power struggles that arise. For example, in the early 1980's DeVos and Van Andel saw the tremendous income and power accruing to large family leaders through their tool businesses. The income from the tool business of the major uplines reportedly far eclipses their income from the Amway plan. DeVos spoke strongly against this over-emphasis on tools, and warned that it might damage the Amway business as a whole. DeVos and Van Andel were apparently hamstrung, however, in taking action because the large distributors such as Yager could simply take his downline out of Amway, with potentially devastating results to DeVos and Van Andel. In fact, it was in just this manner that DeVos and Van Andel formed Amway. They had been distributors for a company called Nutrilite, but left, taking their distributorship organization with them, and looking for a product to sell. DeVos and Van Andel settled on L.O.C., a liquid cleaner, and that began the Amway Corporation.
The Amway business is governed by the leaders of the various families. According to the formal structure, the Amway business is governed "in partnership by the Amway Policy Board consisting of the co-founders Rich DeVos and Jay VanAndel and other family members, and the Amway Distributors Association Board consisting of distributor leadership who are nominated and elected to their positions." (Amway Corporate Culture - AM0023672). The Amway Distributor Association Council/Board advises and consults with Amway Corporation on all aspects of the business. (ADA59). Thirty distributors serve. Fifteen are elected by all qualified direct distributors, and 15 are elected from Council members from slate nominated by Amway Corporation. The Council is led by the Executive Committee. (ADA63). The Executive Commiittee of the ADAC includes heads of the major families, e.g. Britt and Yeager. (ADA 18).
The manner in which the ADAC is structured ensures that either the major family leaders, or their designees, are elected. There is a three-year term limit, but powerful leaders such as Yager and Britt may subvert the limit, either through designees or through "bending" the structure. For example, Yager and Britt were invited to ADAC meetings even after their terms expired, with Amway Corporation picking up their expenses. (ADA 1019).
3. Legal and Illegal Activity
The association-in-fact enterprise among the Amway participants is used to pursue both legal and illegal activity. There are legal products and services offered sales of name brand merchandise or services such as MCI or VISA. Plaintiffs allege that the structure is also used, however, to pursue illegal activity: the Amway Sales and Marketing Plan is a pyramid scheme; the "tools" business is a pyramid scheme; consumers are induced, through false promises of wealth and other misrepresentations, to join Amway; distributors and potential distributors are induced, through misrepresentations, to purchase motivational tools and attend motivational rallies; distributors and consumers are induced, through product disparagement such as spreading the rumors of P&G's Satanic connections, to purchase Amway products. These illegal activities are undertaken separate and apart from the legitimate manufacture, distribution and sale of products or services.
Apart from the illegalities alleged by plaintiffs in various civil cases, Amway has a history of documented illegal behavior. In 1979, the FTC ordered Amway to cease and desist from illegal price fixing. In 1983, Amway Corporation and Amway Canada Ltd. paid total fines of $20 million ($16 million by Amway Corporation) and pled guilty to criminal charges of defrauding Canadian Government through customs violations. Canadian authorities had charged that Amway set up group of dummy companies and created fictitious trade between them to get Canadian customs to accept a lower value for goods. (ROSLONIEC 30, 3 1). A statement by Amway as part of the plea acknowledged that the allegations of the Canadian government were "substantially correct." Id.
4. Corporate Structure
The Amway business also uses a variety of corporate structures, which may have the dual effect of insulating individuals from liability and masking illegal activity. The Amway Corporation, for example, uses a myriad of corporate subsidiaries and related entities, and the relationship among them is not clear from the publicly filed papers. Moreover, deposition testimony suggests that a number of the corporations do not observe the normal corporate formalities. James Rosloniec is a Vice President of Amway Corporation, in charge of audit and control. Despite his high position in Amway Corporation, when deposed he did not know what Amway Financial Services, Inc. does, nor did he have any knowledge of the following Amway-related organizations - Amway Jewelry Company, Amway Realty Network, Inc., Group Fifty Corporation, Merchandising Products, Inc., Nutrilite Products, Inc., Nutrilite Products, Limited - New Zealand, Sunrise Auto Plaza, Inc., Taerus Expo Corp, American Way, Limited, Video Incentives, Plus, Inc., Amway International, Inc. Moreover, he often had little knowledge with regard to corporations where he is both and officer and director. For example, he is the Vice President and on the board of directors of HI, Inc.. Mr. Rosloniec "believes" this corporation owns a Hawaii distribution center, but he has never been to a meeting or board meeting. He "believes" he is president and treasurer of Amway Investment, Inc., which has a value in excess of $300 million. He "assumes" he is president of Amway Auditing and Financial Services, which is presently a shell corporation. Mr. Rosloniec is Vice President and Treasurer of Ja-Ri, which he knows owns residential property, although he does not know why or who lives in the residential property- All of this suggests that Mr. Rosloniec is little more than a "shill" for the DeVos and Van Andel family.
Most of the major distributor families also use the corporate form for their Amway-related business. Dexter Yager has D. & B. Yager Enterprises, Inc., which deals with the Amway sales and marketing business, and Internet Services Corporation, which deals with the tools business. Donald Wilson has Wilson Enterprises for his Amway sales and marketing business, and WOW International, Inc. for his tools business. These are all legally separate corporate entities, yet all work together to promote the Amway Sales and Marketing Plan and the tools business.
5. Dispute Resolution
The nature of the Amway related business lends itself to potential disputes. There may be disputes within distributor families, among distributor families, or between distributor families and the DeVos and Van Andel family. The subject matters may include territories, or rights to lines of distributors, or rights to engage in the tools business. The families strongly prefer to resolve all disputes internally. There is both a formal method of dispute resolution, in the nature of binding arbitration, and a more informal mechanism, with edicts from the family leaders. Only when a participant has nothing to lose" have they resorted to the courts, and these complaints offer a rare glimpse into the inner workings of Amway.
The formal mechanism for dispute resolution is set out in Amway's Business Reference Manual. When a problem exists, it is first discussed with the offender. If the problem persists, it is reported to your direct distributor (upline). If the problem still persists, a warning letter may issue with a copy to Amway. If this does not resolve matters, the direct distributor may take action, including termination. If the violating distributor is dissatisfied, he can appeal to Amway. There is an informal conciliation procedure with the Executive Diamond Conciliation Forum. If there is no informal resolution, the panel issues a recommendation. If the party disagrees, he can request a review before full ADA Board. Upon receipt of ADA Board or EDC Panel recommendation Amway reviews the matter. Amway issues a final decision, which is binding among the participants.
The informal dispute resolution mechanism is illustrated in the Musgrove complaint (Texas 1998). The Musgoves went to an upline with a complaint that their direct upline had illegally taken monies owed them and their downlines. Don Wilson, a described Yager "general," told them any solution would be solved within the Yager organization. The Musgroves were told that going to Amway or the ADA would be a "mistake." When there was no resolution by the upline, the Musgroves went to Jody Victor - a principal of the ADA. Mr. Victor acknowledged that Yager was in control of the organization and that Wilson was one of his generals. Mr. Victor said that to cross Don Wilson or Dexter Yager would be the equivalent of "being drawn and quartered." When nothing happened through the ADA, a last ditch effort by the Musgroves was to approach Amway Corp.. This simply resulted in alleged retaliation from Wilson and Yager, which led to the Musgroves' suit.
6. Control
The Mafia uses "omerta" and violence for control. Amway has other methods, with similar effect. Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. Punishment may start off with being vilified by uplines as a "loser," as "negative," or as "brain-dead" which are typical Amway appelations for anyone who does not believe in the Amway system and the riches that allegedly flow from it. More serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed." There are also reports of violence against those who attempt to take action against Amway.
The upline control is evident from recent complaints that have been filed in courts across the country. The Taylor complaint (State of Washington) alleged that the plaintiff/distributor's complaints about their upline led to defamatory statements by their upline to their downline. Their upline allegedly encouraged their downline to write complaints about the plaintiff, and their upline threatened that they had the authority, political connections and clout to cause the plaintiffs to lose their business. The defendants allegedly coerced distributors to buy motivational tools and attend functions; if they did not, they were to be "cut out like cancer." The Stewart complaint (Texas) alleges that uplines coerced attendance at "approved" functions, controlled by family leaders. Anyone trying to hold events independent of high level approved functions was "blackballed" from participating in other events. High level distributors would conspire to sabotage independent events, and organize boycotts. The Musgrove complaint quotes a high level distributor in Yager organization on an Emerald Club tape as saying: "I know one thing - I do not want anything that doesn't have Dexter Yager's approval - that equals devastation. -.. somebody will step on you."
A 1991 Forbes article relates that a former Amway CFO who resigned in 1979 says that he and his family received threats for years. His former secretary was helping the Canadians in their investigation, and said she was "roughed up" in Chicago and told to "stay away from Amway." Philip Kems, a former distributor writing an expose, charges that Amway used private detectives to follow him and rough him up. These are all control methods that are similar in function to those employed by organized crime.
IV. Supporting Exhibits
Attached are two charts I intend to use in conjunction with my testimony.
V. Material Reviewed
It is my understanding that counsel for plaintiffs will provide the listing of the Amway-related documents I have reviewed, prior to preparing this report, approximately one week prior to my deposition. The primary data I have considered in forming my opinion are:
Publications referenced in the background section on Organized Crime.Texas Amended ComplaintDeposition of James Rosloniec and Exhibits attached theretoDeposition of David Van Andel and Exhibits attached theretoDeposition of Nan Van Andel and Exhibits attached theretoADA Answers to Interrogatories ADA Responses to Document RequestsAmway Corp. Answers to InterrogatoriesIntervention Pleading of Stewarts, et al. in Griffiths, et al. v. Amway Corp., et al., Harris County, TexasOriginal Answer, Third Party Claim, and Plaintiffs' Claims by Jeffrey and CeciliaMusgrove, Case No. 98-17491, Harris County, TexasFirst Amended Complaint, Taylor v. Amway et al., State of Washington, Case No. 98-2-15585-0 SEANotice of Pendency and Settlement of Class Action, Hanrahan, et al. v. Executives Unlimited, Inc., Case No. 94-CV-4615, E.D. Pa.Fourth Amended Complaint, UtahAmway Corporate Culture (AM0023671)Bergfeld International material (SCH 000202)The Network Manual and The Distributor Network Manual (P&G 051904)1979 FTC Order12/9/91 Forbes article2/16/98 Business Week articleTranscripts of rallies, including "What is This All About," Dexter Yager, Internet Services Corporation- 1994November, 1996 Duns Business Records Plus - Report on Amway Corporation"Family" messages and Family Matters messages: (AM 0026090-0026097, AM 0026164-0026170, AM 0026160, AM 0026162, AM 0026157 - 0025158, AM 0026155, AM 0026138-0026153)September,1994 Amagram (P&GO017672) (policy board)Intemetsite: http://www.amway-abn.comBusiness Reference Manual(1994) (AM3331)Letter from Avon (PG 0216932)The Amway Business Review (incorporating the Amway Sales and Marketing Plan)The Direct Distributor Manual (AM 3918)Amway Business Compendium (S 00331 1)Organizational Deviance in the Direct Selling Industry: A Case Study of the Amway Corporation, Carol Lynn Juth-Gavasso, August 1985Charlotte Business Journal, 2/13/95 article "The Amazing Money-Making Machine"Internet site material - ProbstInternet site material - Amway: The Untold StoryDirectly Speaking, Rich DeVos, January and March.-."1983
VI.;Compensation
I have been retained by Plaintiffs' counsel, and I am being compensated at the rate of $550 per hour, plus expenses.
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