Battling the Biggest Fraud

It may be a letter in the mailbox saying, "Management opportunities starting at $18,000 a year are available in a new chemical company." Or a telephone caller asking, "Would you be interested in doubling or tripling your income on a part-time basis?" Or a young woman "pollster" on a street corner questioning passersby, "Do you feel you are being paid what you are worth?"

In whatever form, the evidence means the same thing: the pyramid operators are coming. Back of their fast talk is a billion-dollar industry−and the nation's No. 1 consumer fraud. Federal and state regulatory officials have been chasing pyramiders for years, but only lately have the efforts begun to pay off.

Full Restitution. Glenn Turner, the best known of the lot, was released last week from a West German jail where he had been fighting extradition to Britain on fraud charges; the charges were dropped, but he still must stand trial in Florida for mail fraud in connection with his Dare-to-Be-Great motivational course and Koscot Interplanetary cosmetics firm. William Penn Patrick, a former mentor of Turner's, was charged last month by the Securities and Exchange Commission with bilking some 80,000 people out of more than $250 million through his Holiday Magic cosmetics and soap empire. Shortly after the charges were made, Patrick was killed when he piloted a plane into a mountain; the case against the company goes to trial this week in a San Francisco federal court. Last month the Federal Trade Commission found Holiday Magic guilty of deceptive trade practices and is demanding full restitution to Holiday Magic investors. The Bestline Products soap firm, its president, William Bailey, and a dozen other officials were hit last month by the California Superior Court for a penalty payment of $1,852,000 and further ordered to make restitution to their victims.

Pyramiding is a marketing technique based on strudel-like layers of "distributorships." Recruits pulled in by the rosy letters, phone calls and pollsters are invited to a revival-type "opportunity meeting." There they are whipped into hopeful enthusiasm by spielers, who talk about incomes of up to $108,000 a year for peddling the company's products and recruiting new distributors.

The faithful often end up losing small fortunes instead of making them. The products−usually cosmetics, soaps or vitamins−are generally overpriced and do not sell well. To advance from mere salesman to distributor, recruits must pay the firm several thousand dollars and sign up for costly "leadership training" courses.