In Print

Pushing over pyramids

By Kevin Steel ⋅ June 5, 2006 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

A Canadian crusader against ponzi schemes may end up silenced by the law. So, who’ll be left to shine a light on the scammers?

David Thornton spends a lot of time looking out his little window. It’s not a great view, just a small piece of sky. He lives in the basement of a friend’s suburban home in Oakville, Ont. But he pays no rent, which Thornton says is exactly what he can afford. The once successful businessman is, these days, pretty much broke. In addition to the lousy view, and a small bedroom, he gets to use his buddy’s Internet connection. There, things are at least a little more exciting than the scene out his window. While online, the 65-year-old managed to get himself sued for a small fortune. “Not every senior citizen surviving on a $400-a-month pension can say they’re being sued for $10 million,” Thornton jokes.

Too bad he’s already been cleaned out, thanks largely, he says, to the fallout from a pyramid scheme, which is why he’s spending his days on the Internet fighting the scams, and getting himself sued in the process. In 1999, the self-described “dispossessed businessman” says his wife became involved in a scam called Women Empowering Women–a pyramid so cleverly wrapped up with feel-good feminism that it became a continent-wide phenomenon for awhile (they’re known elsewhere as Women Helping Women, or sometimes muffin or cookie clubs). Thornton’s wife got his sister involved, and she lost $7,500. The family strife that followed, Thornton says, ended up costing him his 23-year relationship and his half of the business he had built up with his wife. “I’ve lost everything I own,” he says. He has a lot more free time now, and he’s using it to campaign against the same kind of schemes, trying to ensure others don’t suffer his fate. But with a massive lawsuit hanging over him, and little means to defend himself against it, Thornton’s not sure how much longer he’ll be able to fight the scammers.

In November, with the help of a few friends, Thornton started a non-profit website called Crime Busters Now–”created to help victims of frauds of all kinds, mainly pyramidal ones, their family and relatives, through prevention, information, training, and specific actions against promoters of such systems.” (The schemes are called pyramids, because the early enterers sit at the top, while new layers of “investors” are added underneath them. Whenever someone new signs up, they pay money–often called a “gift”–to everyone above them on the pyramid, and are then required to go out and find new recruits to recoup their money and start making profits. Eventually, pyramids run out of enough new suckers, so those on the bottom end up burned as the whole thing collapses.) One of Thornton’s biggest targets this year was a Mississauga, Ont.-based concern called Treasure Traders International (TTI). Started in 2003, TTI used a pirate theme and participants traded vastly overpriced emeralds amongst themselves. Thornton alleges that the whole thing was a pyramid (also called multi-level marketing) and had been publicly saying so for years on Internet message boards, e-mail and the web. When TTI expanded into Great Britain, so did Thornton, enlisting the help of international activists and police in trying to shut the firm down.

It must have worked. In November, the British government forced TTI out of business. In January, president Alan Kippax quietly shut his Canadian operation, too. But any satisfaction that Thornton’s crime-busting brought him was short-lived. Weeks later, Kippax unveiled a new enterprise, Business In Motion International Corp. (BIM). When Thornton went after them, too, Kippax sued. Now, both the defunct TTI and BIM are seeking $10 million for damages and “interference with economic relations,” as well as injunctions to suspend the Crime Busters Now website, and to stop Thornton from contacting any of BIM’s business associates. Garth Walkden, lawyer for both BIM and TTI, did not respond to interview requests.

Unlike in the U.K., Canadian authorities are doing little to crack down on fraudulent pyramid schemes, Thornton complains. “They’re illegal, and yet nothing is done to stop them,” he says. Often, the problem is that cops can’t get victims to come forward, says Robert FitzPatrick, author of False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes. Fitzpatrick also runs an anti-fraud organization called Pyramid Scheme Alert , based in Charlotte, N.C., and has been working with ABC’s Good Morning America for months, trying to find people fleeced by pyramid schemes to speak out. They’ve had no luck. “If the government gets involved or it goes to court, people will come out of the woodwork,” FitzPatrick says. “But while it [the pyramid scheme] keeps going and they’ve lost, or if it quietly goes bankrupt, you can’t get a peep out of people. They’ll even lie–’Oh I got my money back out of it.’ It’s an amazing thing, the shame.”

Still, if protecting greedy people from throwing away their money was the government’s job, it would have to shut down every casino and lottery in the country. And since none of the victims appears interested in complaining anyway, it’s worth asking whether authorities need to get involved in what, essentially, is just another lousy investment. “That would be nice, if people actually came into these things fully informed, if the information about them was actually disclosed, if the losses that preceded them were known,” FitzPatrick says. But, he points out, recruits are told they’re getting in on a sure thing. “So what we get here in large numbers are people reporting to us losing their homes, losing their car, going through divorce, seeing somebody drop out of college in order to join a scheme,” he says. “At the end of the day, what you see–and we have done a report on this–99 per cent of all the people who put money in lose,” he says, though the odds are a little better in the classic four-tier pyramid, where only 90 percent lose.

But Bernie Bicoy, president of the Venture Research Institute , an investment club in Lake Forest, Calif., thinks that there are better ways to keep these scams in check. A large part of Venture’s work involves identifying flim-flams and exposing them publicly. He believes that information services, such as his and Thornton’s, are probably better ways to deal with problems like pyramid schemes, rather than trying to get the government to clamp down on them. “What we realized 20 years ago was that regulatory agencies can be as much a part of the problem as they are the solution,” he says. The agencies can’t stop the fraud, they take a long time to complete investigations, and by the time anything happens–usually months, perhaps years later–there are dozens, or even hundreds more victims, the company’s out of business and the money’s all gone. “Besides–and they’ve even said this to me–it’s not their job to prevent you from losing money,” Bicoy says of the cops. “Their job is to shut down ongoing scams.”

Meanwhile, Thornton and Bicoy see protecting people from losing money as their job. In fact, one of the schemes identified on Thornton’s crime-busters website was affiliated with the Ontario Police Association. It raised money to send children fishing with cops, with organizers keeping the bulk of the cash. A few years ago, when police in Ontario shut down one of the women-empowerment pyramids, participants included the wife of an ex-politician from Durham and her two grown daughters, a former school board trustee, and prominent members of community groups. Like Thornton’s wife, many are from comfortable homes, with successful families, so the question of how much protection they really require is a debatable one.

But with pyramid operators throwing lawsuits and gag orders at him, Thornton’s not sure how much longer he’ll be able to play the role of crusader in a free market full of pyramid pirates. And without people like him informing the public about the shadowy scams, it makes the caveat emptor ethos more challenging. Still, Thornton promises to keep plugging away as long as he can. “I must’ve done something right,” he says “I think I hit a nerve.” Besides, $10-million lawsuits don’t mean much to a man who really has nothing left to lose.

[This article appeared in the June 5, 2006 issue of the Western Standard.]