Life Without Debt Gets Life?
In Dallas, Fraud Update Link reports that on May 4th, 2007, "A federal jury has convicted James Ray Phipps, on all 19 counts of an indictment charging various offenses related to an elaborate pyramid investment scheme he operated, announced U.S. Attorney Richard B. Roper, of the Northern District of Texas. After eight days of trial, that began on April 23, 2007, before U.S. District Judge Barbara M.G. Lynn, the jury found Phipps guilty of three counts of mail fraud, one count of wire fraud, 11 counts of money laundering, one count of corrupt endeavor to obstruct and impede the Internal Revenue Service (IRS) laws, and three counts of income tax evasion."
What makes Mr. Phipps worthy of comment is that "Phipps, 59, was arrested in April 2006 by federal agents outside of a post office in Anniston, Alabama, on charges outlined in a federal indictment. He was released on bond, but in October 2006, a U.S. Magistrate Judge in Dallas revoked his pre-trial release and remanded him to custody, finding that he had violated a condition of his release by continuing to operate his scheme with a different name."
Phipps ran the standard illegal pyramid. "Phipps ran the scheme using unsolicited faxes, unsolicited mailings, weekly conference calls and live seminars that encouraged others to become members and contribute money to "Life Without Debt," promising that in return, they would receive money for recruiting other members. Members were encouraged to contribute between $2,000 and $100,000. The larger the contribution to "Life Without Debt," the larger the supposed return of money from the plan. The $2000 plan, for example, required each member to recruit two new members, repeating this cycle until there was an eight-level matrix with 510 members. Phipps' literature represented that "the end result is that $2000 will grow into $122,400 with minimum effort and absolutely no risk." Participants were then told to "compound leverage" that money into the larger investment plans. Contributions were restricted to cash and money orders only, but eventually Phipps began requiring payments in cash only."
The fraud update report confuses a ponzi scheme -future investors pay off old investors- with a pyramid -investors need to recruit other investors to be paid. But goes on to describe how Phipps ran his plan "From 1998 to 2006, Phipps received more than $25 million from “Life Without Debt” members. There were more than 30,000 participants in “Life Without Debt,” more than 90 percent of whom lost their money.
In every way, “Life Without Debt” was a Ponzi scheme, marketed as a multi-level marketing program, claiming to use compound leveraging to generate large sums of money for its members. Members were required to recruit two new members within 90 days of enrollment and those two members were required to recruit two additional new members. The classic “pyramid” was created with the new members positioned below the earlier established members and those initial established contributors positioned near the top of the pyramid. Phipps represented that he would collect a four percent fee for administering “Life Without Debt” and would distribute the remainder of the contributed money to people above them in the pyramid matrix, referred to as “upline” from new recruits. In fact, an expert witness, Peter J. Vandernat, Ph.D., of the Federal Trade Commission, testified that based on his examination and analysis of “Life Without Debt” promotional materials and organizational structure, that “Life Without Debt” was an illegal pyramid scheme. He further testified that all pyramid schemes are inherently fraudulent because the vast majority of participants are never in a position to recoup their initial payment.
To perpetuate the scheme and conceal its illegality, “Life Without Debt” provided purported “educational” materials to new members including literature and audiocassette tapes which were anti-government/anti-income tax, in nature. Phipps would also send lulling cash payments to “Life Without Debt” members to keep them in the scheme and entice them to recruit other potential investors.
So we have 30,000 people, each putting up around $1250 to play a lottery in which 10% of them can make money -but since it is unregulated, we are not sure that the 10% actually won legitimately. Is $1250 to a win a lottery something we should be: a) shutting down as criminal, or b) regulating and keeping the money with the state? I tend to favour the latter course of action.
