Quixtar, WWDB, and Britt sued in
RICO Class Action Suit for running Pyramid Schemes

The suit names Quixtar, World Wide Dream Builders, Britt worldwide, Ron Puryear and Bill Britt and their wives as defendants.   Bill Britt's duplication company, American multimedia was also named as a defendant.   

The suit names two California plaintiffs, Jeffery Pokorny and Larry Blemm, Quixtar distributors should be part of a class represented by two big name law firms, one in California and one in Florida. 

The first big name attorney is David Shapiro. The former United States Attorney in San Francisco, Mr. Shapiro served for 16 years as a federal prosecutor in several offices -- the Eastern District of New York, the District of Arizona, and finally, between 1995 and 2002, in the Northern District of California.  He has conducted numerous jury trials in federal district court and arguments in the U.S. Courts of Appeals. His main practice area is complex litigation, including securities and business crimes.

The second big name is attorney Willie E. Gary.   Once a migrant worker, now a multi-millionaire attorney, Gary earned his reputation by representing little-known clients against major corporations.  Gary has won numerous awards for his clients. 

The action is to recover damages caused by the defendants' operation of a pyramid scheme.  The suit outlines the two different pyramid schemes; the products business run by the  Quixtar corporation, and the tools business run by the "kingpin Corporations".

The action is brought, on behalf of a national class action of distributors, pursuant to the Racketeer Influenced and Corrupt Organizations Act and, on behalf of a California class of distributors, pursuant to the California Business and Professions Code.  The class is not yet certified by the court. 

The complaint first asks for relief from the Quixtar arbitration agreement as it is "procedurally and substantively unconscionable".   The complaint claims the arbitration agreement is unconscionable since Quixtar reserves the sole right to make changes and modify the rules at anytime, and had the power to train the arbitrators.  The plaintiffs also state that the arbitration provision subjects distributors to prohibitively expensive arbitration fees.  Quixtar's arbitration agreement requires and individual to pay "location" costs for the arbitration and hearing costs that total $18,000 for a three day trial.  These excessive hearing fees preclude distributors from vindicating their rights.  They allege Quixtar's arbitration agreement provision to restrict a distributor's right to bring a class action.

The complaint then details the nature of pyramid schemes.   The California Penal Code 327 defines and endless chain (or pyramid scheme) as follows:

"any scheme for the disposal or distribution of property whereby a participant pays a valuable consideration for the chance to receive compensation from introducing additional persons into participation in the scheme or for the chance to receive compensation when a person introduced by the participant introduces a new participant.  Compensation.... does not include payment based upon sales made to persons who are not participants in the scheme and who are not purchasing in order to participate in the scheme."

The complaint claims that the defendant companies and individuals recruit people to become Quixtar distributors, entice them to purchase Quixtar products and related "tools and functions" through material false statements and omissions, and then distribute the proceeds of the product sales to new recruits based almost exclusively on participants' recruitment of new victims, rather than on the sale of products to retail users of Quixtar's products. 

The complaint makes the argument that the majority of products are sold to IBOs (a euphemism for distributor).  Few distributors earn their money on the retail markup of the products.  Since there are few retail sales, an ever expanding base of self consuming distributors are required to keep the scheme afloat. 

The complaint focuses squarely on the retail sales issue that has long been debated on the Internet by pros and cons alike.    This site has written numerous articles on the subject of self-consumption, or product based pyramids.  It seems now this topic will have its day in court despite the fact that the FTC never took the initiative to challenge Amway/Quixtar on its self-consumption business model. 

Amway/Quixtar Co-founder Rich DeVos freely admits in his March 1983 Directly Speaking Tape that a "wholesaling only", or "buy from yourself" business is illegal.   Amway/Quixtar's stance on the issue has now turned from that of its founder, Rich DeVos, and the company insists it is not a pyramid because it sells products rather than collects and distributes head-hunting fees.   Back in 1983 Amway even had an internal memo called the "Postma memo", which declared the tools systems to be illegal pyramid businesses.

Contrary to the critic's-critics anonymous blogger like "IBOfightback" and "insider" and their opinions that a self-consumption pyramid model is legal,  two large law firms, and a former US Attorney specializing in securities and business crimes, are willing to risk millions of dollars of time and resources in their assertion that the self-consumption pyramid is illegal.  

To me this could be a pivotal case since it wants to focus at the core of what defines a pyramid scheme and what does not.   Since, in my opinion, the FTC was lax in approaching this issue with Quixtar, private individuals have taken it upon themselves to bring the issue to light and to seek a court ruling on it.