Pyramids that Crumble

What began as inquires 11 years ago has ended in successful prosecution of a fraudulent business scheme.  The Better Business Bureau^® at Fort Worth began receiving inquiries about a suspected pyramid scheme in 1997.  During the subsequent years, James Phipps, used several different names for his business, but the mode of operation was the same: Send money to get rich quick. 

Life Without Debt, Quantum Leap Executive Series, Fast Cash, Fast Cash Financial Services, Inc., Computer Center, and James Phipps Educational Systems are all various names used Phipps to obtain cash from unsuspecting clients who desired to better their financial status.  Complaints were lodged at the BBB, after sending cash payment, as requested, to the company to receive educational information on how to better their finances without a great amount of effort.  In some cases it suggested that you would accomplish this by recruiting others below you, in turn, reaping returns from their joining the system. Unfortunately, the promised materials rarely arrived and the only one richer was the man running the pyramid scheme.  Phipps became $25 million richer; while his 30,000 gullible clients from around the world lost the money they had invested in the scheme. These consumers contributed anywhere from $2,000 to $100,000.

When the complaints began to roll into the BBB and Phipps started getting calls and letters from the BBB, Phipps took his money and ran to Alabama thinking he could begin fresh.  However, the BBB’s cooperative system allows Bureaus around the country to check out questionable business schemes when they begin in a new area.  It also allows the Bureaus to easily work with authorities, upon request, to provide the proof needed for prosecution.

In the end, Phipps was convicted of numerous charges including: money laundering, mail fraud, income tax evasion, wire fraud and corrupt endeavor to obstruct and impeding Internal Revenue Service laws.  Phipps, now 60 years old, will spend the next 17 years in federal prison.

The BBB suggests that prospective investors carefully examine a multi-level sales program to be reasonably certain it is not a ‘pyramid’ scheme before investing.  Pyramid schemes emphasize recruitment or ‘distributors’ to earn money rather than retail sale of a product. Investors should be wary of promises of high potential earnings, especially without effort, time and serious personal commitment. Also, be cautious of large start-up costs. 

Legitimate multi-level companies try to keep such costs low while pyramid schemes emphasize large initial payments to become a “distributor.” No more than a minimal initial inventory should be required to become a distributor, and a reliable firm will guarantee in writing that unsold products will be bought back for a certain percentage of the original price.  Don’t make any payments or sign any contracts at an “opportunity meeting” or similar high-pressure situation.  The Bureau’s pamphlet, “Tips on Multi-Level Marketing,” is available upon request. Information is also available from the State Attorney General’s office and the Direct Selling Association, a national trade association based in Washington, D.C. which represents legitimate in-home sales companies, many of which engage in multi-level marketing.