Rich DeVos - Fred Harteis: Talk About Not Being on the Same Page

QRush thought you would find this interesting. These two points of view are astonishing. It is hard to believe they are associated with the same Amway - Quixtar business.

Hear what RICH DEVOS says VERSUS what Fred Harteis says!

If the taunting of a head stone doesn't keep 'em, I guess someone decided a new rule might do the trick. I wonder how Rich feels about that?

It seems as though Rich agrees with Bo Short, Scott Larsen and QBlog more and more each day.

QRush suggests it is time to reel them in. Could it be there is already someone in place to do just that?

QRush over and out.

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Rich DeVos Speaks Out

My good friend Rich DeVos made this tape years ago. Not much has changed except the name of the company. Maybe Rich will come back and clean this up. Maybe he already is. We'll see.

Listen to what he has to say.

HERE is more. QRush over and out.

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Quixtar on Dateline NBC

Just when you thought it was safe to watch television along came Dateline NBC. QRush watched the special report on Amway and Quixtar and could not help but think of what my friend Rich DeVos had to say. I guess he knew something the kingpins did not know. Maybe he still does.

I have used Bo Short's site to share this show with you. Once again, QRush would like to demonstrate that that Rich DeVos, Bo Short, Scott Larsen and QBlog agree. HERE IT IS!

QRush over and out.

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AMWAY INTERNAL MEMO

This is a famous document explaining the tools business of a very large line of sponsorship in the Amway, and now Quixtar, business. This perfectly describes a lot of the psychological games being perpetrated on the distributors. If you are a distributor and wonder why you feel the way you do. all you have to do is read this.

This has been copied from Scott Larsen's site.

1983 Amway Internal "Postma" Memo:Analysis of the Britt/Yager System

Below is a transcript of the famous internal Amway "Postma memo" from 1983 describing the Britt/Yager system by Amway's Patric Sullivan (now president of Amway PT Indonesia) and Edward Postma. (one time Business Conduct Manager). It is not known what positions they held when the memo was written. The original document is in .pdf format and can be downloaded .

Here are a few interesting quotes from the memo.

"I think there is little question that is where the big money is made. (the system) . The motivation business could not exist without the Amway business, yet in all seriousness, these Diamonds feel that their Amway business is impossible without the motivational business. It has been clearly stated to me by more than one Diamond in this group that if anything is done that negatively affects the tools business, they would leave the business."

"Although the Amway business is legal (no question), the tool business is not (my conclusion)".



________________________________________________________________



TO: Patric Sullivan
FROM: Ed Postma
DATE: January 19, 1983
Subject: ANALYSIS OF THE BRITT/YAGER SYSTEM

There is no question that the system captioned is all inclusive. It is the only system utilized in the Amway business which attempts to give security to entrepreneurship. Although there are variations of this system dependent on the personality of the Diamonds involved, there are certain underlying principals which are used by all. Below are some of the methods of operations used by this system.

A. Relationships.
When talking to Directs and Diamonds in this organization, it is often heard that they are in the process of developing friendships downline. Friendship-relationship is central to the building of the business in this line of sponsorship since it develops a good deal of loyalty and dependency to the line. Loyalty and dependency is the ultimate objective of the "system."

1. Relationship within the line of sponsorship. The line of sponsorship becomes involved in developing friendships as opposed to immediate business relationships. When a new distributor is sponsored to this line of sponsorship, the immediate upline Direct Distributor becomes acquainted with the individual. This is done in two ways; first, often times because of the business-building techniques, the Direct Distributor will have been the individual who has shown the plan for the new distributor. The second method is that the Direct Distributor is consistently help up in "edification." This makes him someone who is to be trusted and emulated. There is constant reenforcement of this technique in training situations, or in rallies. In addition, it is taught in the line of sponsorship, that when a new Direct Distributor breaks, over 50% of his volume should be in one leg. It is patterned for a new distributor to be assured that his upline will help him to become a Direct Distributor. Technique used allows for upline direct Distributors to work in one leg of this individual's group. They are consistently edifying the distributor whose organization they are building, however, relationships are being developed with the upline Directs. This is done to assure loyalty within the organization. Should a Direct Distributor break, and decide to do his own thing, relationships which have been developed upline would preclude any independence.

It is also customary for this line of sponsorship to consistently teach that the relationships in a line of sponsorship are sacred. Distributors are taught that they will not be able to build the business without the presence of an upline Diamond or an upline support structure. Inevitably, if Direct Distributors break off from this structure, their business begins to sag. In many cases, because they feel that they have violated the love and trust of the line of sponsorship, their businesses will ultimately disappear. We have had this occur at least three times in the Northwest in the last three years. So, while friendships are being developed, a dependency is also being created. It is this aspect of their methodology, that has allowed for charges of "mind control."

In all situations, within the line of sponsorship, distributors are taught that they are to do all that has been requested of them by their line of sponsorship. There is no room for individuality or creativity. They are taught consistently that there is no need for creativity, since the line of sponsorship has the answers for them. Decisions are made for distributors based on personality and the size of the business. However, as time goes on, a distributor finds himself more and more reliant upon the advice of the upline Direct, Emerald, or Diamond. In fact, after a Direct becomes a Diamond, he is still not free to act on his wishes. In the area of finances, a new Diamond in the Puryear organization recently confided that in order for him to buy a house, it was necessary for him to receive the approval of Ron Puryear and Bill Britt. Absolutely nothing is left to chance or creativity. There is always the chance of failure if someone is creative, and in order for their business to be credible, no failure is to be allowed.

2. Relationships with other lines of sponsorships. This section of the memorandum could be summarized in the word--NONE. Distributors are consistently advised to have absolutely no relationships with any other persons in the Amway business, with the exception of his upline organization. They may read no other material except that provided by their line of sponsorship. They may listen to no tape or receive any other information from any source, other than their line of sponsorship. If they wish to receive information from any other area, they are completely isolated by the line of sponsorship. The rationale given for this attitude is simply that there are no other successful lines of sponsorship in Amway. They are consistently taught that their line of sponsorship does two-thirds of the volume that Amway does annually. To ensure that this sense of isolation is reenforced, the line of sponsorship has provided alternative sources of information so that the distributor organization is not dependent upon the corporation. It excludes from the sources of information any reference to any other line of sponsorship or any achiever in Amway. Although it may seem difficult for us to believe that people would acquiesce to this type of pressure, there is a great deal if insecurity present in the new distributor and his relationship to the business. In providing an organizational structure which gives security to the new distributor, and assuring him he won't go no where else for information, this line of sponsorship effectively isolates its distributors from others.

3. Relationship with the corporation. For most new distributors, the corporation is a complete enigma. Although they have signed an application with the corporation contractually agreeing to abide by certain principals, the line of sponsorship does not allow communication between the distributor and the corporation. Since his source of information is consistently upline, there becomes no necessity for the individual to develop that relationship. Historically, this line of sponsorship has viewed the corporation as an impediment to their growth. Because of the fiercely independent nature of its distributors, Directs, and Diamonds, the corporation has become viewed as a hindrance. There is insecurity about the way that the corporation deals with any challenges in the distributor organization. First of all, this organization does not feel that the company can understand the impact of building the business on a person. It is their feeling that no one at the company completely relates to their efforts in attempting to build the business and organization. This includes even Rich and Jay. It is their feeling that Rich and Jay do not have an understanding of what it takes to build the Amway business today. Second, this organization feels insecure about the direction the corporation is taking. There is a constant feeling of competition with the corporation. In addition, this organization, because of its structure method of doing business, looks at the corporation as a rudderless ship. Every time that the company comes out with a change in direction, they feel that this is confusing their new distributors. As a result, they discourage their distributors from being involved in any corporation function or tape program. In addition, the corporation serves to signal other success in other lines of sponsorship. This system does no allow that success can be built differently than in the method that they use.

It is also this organization's feeling that the corporation cannot show the lover or concern that is required in building the business. This has to do with relationships. It is their feeling that only on a one-to-one basis or in the building of the business can this relationship be developed. They also feel that because of the size of the corporation effective communication cannot always take place. They would prefer that this communication be done between the company and Diamonds, since Directs may be yet susceptible to confusion. They also feel encumbered by corporation paper work. Their goal is to simplify the business as much as possible.

In the words of one Diamond from the Northwest, "The corporation should manufacture products and get out of the way." This sums up the extent of the relationship that these Diamonds wish to have with the company. Although this is an extreme point of view for many of these distributors, this view is often times heard as they honestly believe that the corporation is in no way motivating. It has been my judgment on observations, that they do no do a better meeting than we do, nor can they provide the same type of motivation as we do. However, in attempting to convince the corporation to stay out of the motivation business, it allows them to do two things: first, it further isolates the business, second, it allows them to operate a motivation business with little or no competition. Another factor involved is that in some cases, people are trained to do the business in an improper manner. Having a corporation representative stop a Direct from doing certain practices causes confusion in their organizations and a breakdown in the trust relationship that has been developed. In evaluating the techniques that their business utilizes, it can be proven that their isolation from the corporation has actually caused them difficulty.

In some instances in this line of sponsorship's association with the company, where corrective matters have been take, the measures taken often cause animosity as opposed to understanding. This has also caused a strain in the relationship.

4. Summary paragraph. In the area of relationships, this organization has continually and consistently attempted to create an isolationist point of view with regards to all facets of the business. This isolationism is a present danger, since the loyalty and trust of the distributors and Directs lie with a few select individuals. As these select individuals go, so will go their business.

B. Motivation.
If there are any discussion of any length with the Diamonds utilizing this system, it becomes clear that although they realize that they are Amway distributors, they consider their personal business to be the motivation (tool) business. I think there is little question that is where the big money is made. The motivation business is also where their primary allegiance lies. When asked, a Diamond in this organization will tell you that he is in the motivation business and that his Amway business would be impossible without his motivation business. So, there is developed a peculiar relationship. The motivation business could not exist without the Amway business, yet in all seriousness, these Diamonds feel that their Amway business is impossible without the motivational business. It has been clearly stated to me by more than one Diamond in this group that if anything is done that negatively affects the tools business, they would leave the business. Their motivation business falls into five categories. Three of these categories are unrelated to the business itself.

1. Tapes and books. When we observe these motivational businesses, the first area that causes concern is the area of tapes and books. These products are sold through the line of sponsorship with little regard to Rule 4. As on example, I would like to diagram the World Wide Dream Builders in the Northwest.

Actual:




For Tools:




Each of these Diamond diagrammed deal with their downline Emeralds and Directs. It is well documented as to the inner workings of the tape business. However, each pin level gets a markup on the tapes with largest given to the Direct Distributor. The reason for this is that the Direct becomes involved in buy backs and inventory. In addition, -because he is basically one legged, he is not profitable in his Amway business. So, at that level, the tool business subsidizes the Amway business.

2. Rallies. Although the corporation has decided that rallies are not products, this line of sponsorship believes that they are as a portion of the motivation business. A large portion of the money accumulated through the motivation business, comes from the rally system. Although Diamonds reap the largest percentage of profits, Emeralds begin to get a percentage of the receipts. In addition, Diamonds and Emeralds receive speaker fees at these functions. It is not uncommon for the profits on these functions to exceed $25,000 to $50,000 for a weekend or $250,000 for a Free Enterprise night.

In addition, this is another area of entry into the Rule 4 violation. In all cases that distributors have become involved with other lines of sponsorship, it has been done through an invitation to a major function.

3. Accessories. This area of the motivation business is not recognized as that. However, in attendance at the major functions are vendors for other products to include jewelry, clothing, and automobiles. These accessories are made available to distributors so that they may appear successful. It is considered extremely important for Diamonds to show material success in the business. Although I cannot be certain, it would seem reasonable to assume that the individuals promoting the functions would receive a cut of everything sold there.

4. Counseling. Counseling is a non-profit area of the motivation business although it is an important one simply because relationships are developed. Counseling goes on continually with the upline also causing dependency. It is a portion of the motivation business because of the relationship of the counseling to the decisions made in the motivation arena.

5. Moving up. Moving up in the Amway business is considered to be an important part of the motivation area of the business. It is important to demonstrate success as the system (not the Amway business) allows. In most cases, moving up is important, in the method designed by the system, as opposed to the willingness to work the business. If a Diamond sponsors a Diamond, that second Diamond should not go Double Diamond until the first does. To do so is caused by egos as opposed to a desire to help others. It also causes anxiety with the relation to the tools business. Although a formula has been developed so that Diamonds in depth get their fair share, there is some concern about Double Diamonds in depth.

Summary
There is a major economic force at work with the tool business. Anything that is done by the corporation that will cause conflict or competition with this business could cause a major split. This business will crumble under its own weight for the following reasons.

1. Rights of the Directs. People are becoming more sophisticated about the Amway business. A lot of sophistication has to do with the fact that Amway is no longer a "closet" business. A lot of people have heard of it and have talked about it. The biggest fear that Diamonds have in this system is that the Directs will take Rich's speeches seriously, become "little Napolean," and cut off their ability to move the motivation business downline. This has happened in some cases already and could happen many more times.

2. Greed. A continuing promise to all Directs in this system is that they will do as well (financially) or better than Diamonds in the system today. This may not always be possible. There have already been challenges with Diamonds in depth, and now Double Diamonds are going to break, which will further break up the continuity of the system. If someone elected to do so, he could go off and do his own thing without the line of sponsorship. The loyalty, trust, and love would already be built. Ego could destroy the traditional system. The system has encouraged "sponsoring" up so much that in many cases, the downline leader is smarter, more ambitious, and more ego bound than the upline.

3. The Tool business (motivation) is illegal. If I understand the MLM system, there are certain parameters that confirm its legality. Unlike the Koscot method of marketing, the MLM system moves a product to an ultimate consumer outside of the business structure; i.e., a customer. Although the Amway business is legal (no question), the tool business is not (my conclusion).

a. It is a pyramid. It sells only to those who involved in its structure.

b. It may violate tax laws. It is hard to determine whether or not proper sales taxes are paid (especially in the state of Washington).

c. A real danger of inventory loading without the protection of a buy back rule exists. This has already occurred (Mackey). It will happen again.

d. It could be construed as an employer/employee relationship.

e. It is not a free enterprise opportunity. A downline Direct is not to compete with an upline Diamond.

The motivation business is getting larger than expected. None of the major participants really wishes to deal with it in a detail sense. With proper prodding, this business will fail.

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Amway Report by G. Robert Blakey

This may be long-winded but is more than worth the time it takes to read it. It was written by an expert in the field of organized crime and racketeering. I do not need to comment as it speaks for itself.


Who is G. Robert Blakey? HERE is the answer.
In essence, what did he say? "It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."




I. Introduction

I have been retained by counsel for Plaintiffs in the case styled The Procter & Gamble Company, et al. v. Amway Corporation, et al, Case No. H-9723 84 (S. D. Texas, Houston Division), for the purpose of rendering an expert opinion. My area of expertise includes the structure and function of organized crime groups. I have reviewed 9 documents that form the basis for a comparison between the structure and function of organized crime, and the structure and function of the Amway enterprise. My opinions are set forth with a reasonable degree of certainty, based upon my education, training, background and review of relevant materials.
Three preliminary points relate to this report. First, I am not being asked to render an opinion as to whether Defendants' conduct is, in fact, a violation of the federal RICO statute. This will be for the jury to decide after instructions by the court. I have testified in the past as an expert on organized crime in a variety of contexts; it is in that capacity that I will render my opinion in this case. Second, while my opinion arises from Plaintiffs' allegations relating to various improper conduct by Defendants, the primary focus is on the structure and function of the Amway business. Third, this Report may have to be supplemented as Defendants produce additional discovery. As later shown, I have reviewed already a fair number of documents, many obtained by Plaintiffs' counsel outside of formal discovery. I understand, however, that a large number of documents are to be produced for review, and a number of witnesses have not yet been produced for deposition.

II. Opinion

It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.

III. Basis of Opinion

To understand the basis for my opinion, it is first helpful to examine the structure and function of major organized crime groups. This may then be compared with the structure and function of the Amway business. The obvious parallels emerge.
A. Organized Crime
An especially troubling problem with the phrase "organized crime" is that it is used in different contexts with different meanings. Sometimes, too, these different meanings are not always clearly separated. These different uses can, of course, lead to problems both in communication and in the law.

Like Humpty Dumpty's language, C. Dodgson ("Lewis Carroll"), through the Looking Glass and What Alice Found There, Chapter 6, at 247 (Modem Library ed.): ("When I use a word," Humpty Dumpty said, "it means just what I choose it to mean neither more nor less,") the phrase "organized crime" can mean whatever the speaker chooses to make it mean, and it has meant many things to many people. It can be use4, for example, to refer to the crimes committed by organized criminal groups-gambling, narcotics, loan sharking, theft and fencing, and the like. See generally President's Commission on Crime and Administration of Justice, Task Force Report.- Organized Crime 2-4 (1967). It can also be used to refer, not to the crimes committed, but to the criminal groups that commit them. Id.

Here, a difference of opinion sometimes exists. How sophisticated should a criminal group become before it is called "organized crime"? Should "white collar" criminal groups be called "organized crime"? On the definition of "white collar" crime as generally not including "organized crime," compare E. Sutherland, WHITE COLLAR CRIME.,- 9 (Dryden Press Inc. 1949,@ with H. Edelherlz, THE NATURE, IMPACT AND PROSECUTION OF WHITE-COLLAR CRIME, 3 (U.S. Department of Justice, National Institute of Law Enforcement and Criminal Justice, 1970). THE REPORT OF THE NATIONAL CONFERENCE ON ORGANIZED CRIME, (Washington, D.C. October 1-4, 1975), however, broadly defines organized crime to be "any group of individuals whose primary activity involves violating criminal laws to seek illegal profits and power by engaging in racketeering activities and, when appropriate, engaging in intricate financial manipulations." Id. at v. Should "subversive groups" be called "organized crime"? See IIT Research Institute and Chicago Crime Commission, A Study of Organized Crime in Illinois 20 (Summary) (I 97 1) ('independent social process, separate from" organized crime).

Typically, "white collar" or "subversive groups" or ad hoc groups, such as youth groups, pickpocket rings, and professional criminal groups put together for one or more scores" are excluded from definitions of "organized crime." The President's Commission on Crime and Administration of Justice in 1967 suggested, for example, that organized crime" should be limited to groups that have become sufficiently sophisticated that they must regularly employ techniques of both violence and corruption to achieve their criminal ends. Task Force Report at 8 ("unique form of criminal activity"). Others disagree, and the literature does not reflect- a consensus. Compare Schelling, "What is the Business of Organized Crime?," 20 J. PUB. LAW 71 (1971) (concept keyed to "monopoly").

Among those groups that have some plausible claim to the dubious title of organized crime," additional distinctions can be helpfully drawn; it is useful, for example, to distinguish between "enterprises...... syndicates," and "ventures." Some, too, would probably not apply the label of "organized crime" to each of these groups; they would, for example, restrict it to "syndicates."
An organized crime "enterprise" is a criminal group that provides licit or illicit goods or services on a regular basis. See, e.g., Schelling, "Economic Analysis and Organized Crime," Task Force Report at 115; Rubin, "The Economic Theory of the Criminal Firm," The Economics of Crime and Punishment 155 (1973). An example would be a narcotics wholesaler and his cutting crew. See U.S.C.A. § 848 (1972), "Continuing criminal enterprises." See, e.g., United States v. Manftedi, 488 F.2d 588 (2d Cir. 1973), cert. denied, 417 U.S. 936 (1974). Thus, it is a criminal firm or business organization. See Schelling, "Economic Analysis and Organized Crime," Task Force Report at II 5.

An organized crime "syndicate" is a criminal or related group that regulates relations between various "enterprises." It may be metropolitan, regional, national, or international in scope. It may be concerned with only one field of endeavor or it may be concerned with a broad range of licit or illicit activities. A "syndicate," therefore, is a cartel or business organization. It fixes prices for goods and services, allocates markets and territories, acts as a legislature and court, sets policy, settles disputes, levies "taxes," and offers protection from both rival groups and legal prosecution. See Task Force Report at 6-10.

A "venture" is a criminal episode usually engaged in for profit by a group. It may be the hijacking of a truck. See, e.g., United States v. Persico, 339 F. Supp. 1077 (E,.D. N.Y.), aff'd 467 F.2d 485 (2d Cir. 1972), cert. denied, 410 U.S. 946 (1973) (trial of Carmine J. Persico, Jr., a member of the Vito Genovese syndicate, S. Rep. No. 72, 89th Cong., 1st Sess. 20 (1965) for hijacking). Or the robbery of a bank. See, e.g., United States v. Franzese, 392 F.2d 954 (2d Cir.), vacated in part as to Franzese only and remanded, otherwise cert. denied, 394 U.S. 310 (1968), related case, 525 F.2d 27 (2d Cir. 1975) (trial of John Franzese, a caporegime of the Profaci syndicate, S. Rep. No. 72, 89hCong., 1st Sess. 28 (1965) for bank robbery). On the background of the robberies and a related homicide trial, see generally J. Mills, The Prosecutor 96-245 (Farra, Straus and Giroux, 1969). It is "organized crime" when members of the "venture" have ties to a "syndicate." This tie gives the "venture" access to superior criminal resources, including capital, skilled labor, outlets for stolen property, etc.

Finally, "organized crime" may refer to the entire criminal underworld, or at least that part which has some semblance of organization. See Task Force report at 7; Schelling, supra note I 0, at 115. Thus, "organized crime" is distinguished from random acts of violence, passion, or greed.
In 1951 the Kefauver Committee declared that a nationwide crime syndicate known as the Mafia operated in many large cities and that the leaders of the Mafia usually controlled the most lucrative rackets in their cities. Kefauver Comm., 3d Interim Rep. 5 Rep. No. 307, 82d Cong., 1st Sess. 150 (1951). In 1957, 20 of organized crime's top leaders were convicted (later reversed on appeal - United States v. Bufalino, 285 F.2d 408 (2d Cir. 1960)), of a criminal charge arising from a meeting at Apalachin, N.Y. At the sentencing the judge stated that they had sought to corrupt and infiltrate the political mainstreams of the country, that they had led double lives of crime and respectability, and that their probation reports read "like a tale of horrors."
Today, that group is the most significant national group in organized crime in the United States. It consists of 24 groups, known as the "Mafia" or "LaCosa Nostra," operating as criminal cartels in large cities across the Nation. Task Force Report at 7. The description of it presented here relies heavily on the Task Force Report. See also PRESIDENTS COM'N ON ORGANIZED CRIME, THE IHVACT: ORGANIZED CRIME TODAY 35-38 (I 986): Blakey, "Federal Criminal Law," 46 HASNNG L.J. II 75, 1193-98 (1995) (citing various sources).

The membership of these groups is of exclusively men of Italian descent; they are in frequent communication with each other, and their smooth functioning is insured by a national body of overseers. In individual cities, the local core group may also be known as the "outfit," the "syndicate," or the "mob." See Testimony of former New York City Police Comm'r Michael J. Murphy, McClellan, Narcotics Hearings, 88th Cong., Ist Sess., Pt. 1, at 63 (1963); testimony of Capt. William Duffy, id. pt. 2, at 506; OFFICE OF THE N.Y. COUNSEL THE GOVERNOR, COMBATING ORGANIZED CRIME -A PEPORT OF THE 1965 OYSTER BAY, NEW YORK, CONFERENCES ON COMBATING ORGANIZED CRIME(1966). These 24 groups work with and control other racket groups, whose leaders are of various ethnic derivations. In addition, the thousands of employees who perform the street-level functions of organized crime's gambling, usury, and other legal and illegal activities represent a cross section of the Nation's population groups.

The present confederation of organized crime groups arose after Prohibition, during which Italian, German, Irish and Jewish groups had competed with one another in racket operations. The Italian groups were successful in switching their enterprises from prostitution and bootlegging to gambling, extortion, and other illicit and licit activities. They consolidated their power through murder and violence. See generally, ORGANIZED CRIME IN AMERICA 147-224 (Tyler ed. 1962).

Members of the 24 core groups reside and are active in a number of states. The scope and effect of their criminal operations and penetration of legitimate businesses vary from area to area. The wealthiest and most influential core groups operate in New York, New Jersey, Illinois, Florida, Louisiana, Nevada, Michigan and Rhode Island.

Recognition of the common ethnic tie of the 5,000 or more members of organized crime's core groups is essential to understanding the structure of these groups today. Some are concerned, however, that the identification of Cosa Nostra's ethnic character reflects unfairly on Italian-Americans generally. This false implication was eloquently refuted by one of the Nation's outstanding experts on organized crime, Sgt. Ralph Salerno of the New York City Police Department. When an Italian-American racketeer complained to him, "Why does it have to be one of your own kind that hurts you?", Sgt. Salerno answered:

"I'm not your kind and you're not my kind. My manners, morals, and mores are noyours. The only thing we have in common is that we both spring from an Italian heritage and culture-and you are the traitor to that heritage and culture which I am proud to be part of"
Grutzner, City Police Expert on Mafia Retiringftom Force, N.Y. Times, Jan. 21, 1967, p.65 col. 3.

The most significant group in organized crime thus consists of these 24 groups allied with other racket enterprises to form a loose confederation operating in large and small cities. In the core groups, because of their permanency, of form, strength of organization and ability to control other racketeer and legitimate operations, resides the power that organized crime has in America today.

Each of the 24 groups is know as "family," with membership varying from as many as 700 men to as few as 20. For an extensive discussion of the internal structure of the organized crime groups, see Cressey, "The Functions and Structure of Criminal Syndicates, "Task Force Report at 25, et.seg. Seealso, Narcotics Hearings,89th Cong., Ist Sess., pts. 1 & 2 (1963), 1st & 2d Sess., pts 3 & 4 (1963-64), 2d Sess., pt. 5 (1964). Most cities with organized crime have only one family; New York City has five. Each family can participate in the full range of activities in which organized crime generally is known to engage. Family organization is rationally designed with an integrated set of positions geared to maximize profits. Like any large corporation, the organization functions regardless of personnel changes, and no individual-not even the leader-is indispensable, if he dies or goes to jail, business goes on.

The hierarchical structure of the families resembles that of the Mafia groups that have operated for almost a century on the island of Sicily. Each family is headed by one man, the "boss," whose primary functions are maintaining order and maximizing profits. Subject only to the possibility of being overruled by the national advisory group, his authority in all matters relating to his family is absolute.

Beneath each boss is an "underboss," the vice president or deputy director of the family. He collects information for the boss; he relays messages to him and passes his instructions down to his own underlings. In the absence of the boss, the underboss acts for him.

On the same level as the underboss, but operating in a staff capacity, is the caporegime, who is a counselor, or adviser. Often an elder member of the family who has partially retired from a career in crime, he gives advice to family members, including the boss and underboss, and thereby enjoys considerable influence and power.

Below the level of the underboss are the caporegime, some of whom serve as buffers between the top members of the family and the lower-echelon personnel. To maintain their insulation from the police, the leaders of the hierarchy (particularly the boss) avoid direct communication with the workers. All commands, information, complaints, and money flow back and forth through a trusted go-between. A caporegima fulfilling this buffer capacity, however, unlike the underboss, does not make decisions or assume any of the authority of his boss.

Other caporegime serve as chiefs of operating units. The number of men supervised in each unit varies with the size and activities of particular families. Often the caporegima has one or two associates who work closely with him, carrying orders, information, and money to the men who belong to his unit. From a business standpoint, the caporegima is analogous to plant supervisor or sales manager.

The lowest level "members" of a family are the soldati, the soldiers or "button" men who report to the caporegime. A soldier may operate a particular illicit enterprise, e.g., a loan-sharking operation, a dice game, a lottery, a bookmaking operation, a smuggling operation, on a commission basis, or he may "own" the enterprise and pay a portion of its profit to the organization, in return for the right to operate. Partnerships are common between two or more soldiers and between soldiers and men higher up in the hierarchy. Some soldiers and most upper-echelon family members have interests in more than one business, licit or illicit.

Beneath the soldiers in the hierarchy are large numbers of employees and commission agents who are not members of the family and are not necessarily of Italian descent. These are the people who do most of the actual work in the various enterprises. They have no buffers or other insulation from law enforcement. They take bets, drive trucks, answer telephones, sell narcotics, tend the stills, and work in the legitimate businesses.

The highest ruling body of the 24 families is the "commission." This body serves as a combination legislature, supreme court, board of directors, and arbitration board; its principal functions are judicial. Family members look to the commission as the ultimate authority on organizational and jurisdictional disputes. It is composed of the bosses of the nation's most powerful families but has authority over all 24. The composition of the commission varies from 9 to 12 men.

The commission is not a representative legislative assembly or an elected judicial body. Members of this council do not regard each other as equals. Those with long tenure on the commission and those who head large families, or possess unusual wealth, exercise greater authority and receive utmost respect. The balance of power on this nationwide council rests with the leaders of New York's 5 families. They have always served on the commission and consider New York as at least the unofficial headquarters of the entire organization.

Organized crime today is increasingly diversified and sophisticated. One consequence appears to be significant organizational restructuring. As in any organization, authority in organized crime may derive either from rank based on incumbency in a high position or from expertise based on possession of technical knowledge and skill.

Traditionally, organized crime groups, like totalitarian governments, maintained discipline through the unthinking acceptance of orders by underlings who have respected the rank of their superiors. Their code was "omerta" or silence. Nevertheless, since 1931, organized crime groups gained power and respectability by moving out of bootlegging and prostitution and into gambling, usury, and control of legitimate business. Their need for expertise, based on technical knowledge and skill, increased. Currently, both the structure and operation of licit and illicit enterprises reveal some indecision brought about by attempting to follow both patterns at the same time. Organized crime's "experts" are not fungible, or interchangeable, like the "soldiers" and street workers, and since experts are included within an organization, discipline and structure inevitably assume new forms. It may be awareness of these facts that is leading many family members to send their sons to universities to learn business administration skills.
As the bosses realize that they cannot handle the complicated problems of business and finance alone, their authority is delegated. Decision making will be decentralized, and individual freedom of action will tend to increase. New problems of disci line and authority may occur if greater emphasis on expertise within the ranks denies unskilled members of the families an opportunity to rise to positions of leadership. The unthinking acceptance of rank authority may be difficult to maintain when experts are placed above long-term, loyal soldiers.

The leaders of the various organized crime families acquire their positions of power and maintain them with the assistance of a code of conduct that, like the hierarchical structure of the families, is very similar to the Sicilian Mafia's code-and just as effective. The code stipulates that underlings should not interfere with the leader's interests and should not seek protection from the police. They should be "standup guys" who go to prison in order that the bosses may amass fortunes. The code gives the leaders exploitative authoritarian power over everyone in the organization. Loyalty, honor, respect, absolute obedience-these are inculcated in family members through ritualistic initiation and customs within the organization, through material rewards, and through violence. Though underlings are forbidden to "inform" to the outside world, the family boss learns of deviance within the organization through an elaborate system of internal informants. Despite prescribed mechanisms for peaceful settlement of disputes between family members, the boss himself may order the execution of any family member for any reason.

B. The Amway Business

1. Family Structure
The Amway business has a "family" structure parallel to that found in organized crime. With respect to both organizations, the family orientation is twofold. First, every participant;in the business is considered a member of a "family," led by a particular individual at the top of a chain of command. Second, the business stresses involvement by participant's family members, such that wives and children are drawn into the business to perpetuate their family influence over time. Family dynasties result that may be passed from generation to generation.

One of the primary family lines relates to the Amway Corporation itself. Amway Corporation is a privately held company founded in 1959 by Jay Van Andel and Rich DeVos. The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business. The control of the Amway Corporation and its related entities appears to be shifting to the sons of the founders - Richard DeVos, Jr. and Steve, Van Andel. Amway Corporation also has a Policy Board that consists of Richard DeVos, Sr., Steve Van Andel, Richard DeVos, Jr., Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.

In addition to the DeVos and Van Andel family, who control the Amway Corporation, according to a 1996 Amway Corporate Culture document there are at least eight "lines of sponsorship" that control groups of Amway distributors. Every family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan. However, each family also is involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies. The leaders of the families sit on the Amway Distributor Advisory Board, where they work with Amway Corporation to develop the direction of the business. (AM0023684).

The Yager family has the largest organization in North America. Dexter Yager runs his organization, but has an "inner circle" of about 20 key Diamonds that work with him in a leadership role. Yager also has a tool business called "Internet" which provides BSM to thousands of Diamonds and Direct Distributors. The Corporate Culture Document states that "loyalty to Dex is paramount to have a voice in the organization," a statement which is also reflected in various lawsuits that have been brought involving Yager and his company as defendants.

Another large family is the Britt family (aka Britt East Coast), with Bill Britt as the "unchallenged leader." This family is comprised of over 149,000 distributorships, and is located primarily in the East. Bill Britt sets policy along with some "front-line" Diamond leaders, and decisions are ratified by a management team that includes 20 additional Diamonds.

Other families include: the Childers family (run by a leadership team of six Diamonds); the Stewart family; the Gooch family; the Bryan family (aka Down East); the Wilson family (aka WOW - Wilson Out West) - with Don Wilson also being one of Dexter Yager's "inner circle;" the Puryear family (aka World Wide Drearnbuilders); the Hays family (aka IC or International Connection); the Matz family (aka IDA or International Diamond Association); the Dornan family (aka Network 2 1); the Strehli family (aka Creative Life Styles); and the INA (International Networking Association) family, run by a group of seven families.

The Amway business stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. (TS0000058). You are to "edify" or honor your upline, and "counsel" with them regularly. The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems. Distributors are told how to dress - for example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage. Amway becomes a way of life for its participants, much like those involved with the Mafia.

In addition to involvement with the upline and downline "family," distributors' actual family members are drawn in to the Amway business as a matter of right, apparently resulting in family members being given responsibilities that may outweigh their capability. Amway tells distributors that when they are ready for retirement they should start to delegate more day-to-day functions to family members. A model of this approach is the Amway Corporation itself. Plaintiffs' counsel recently deposed David Van Andel and Nan Van Andel, both of whom have held high positions within Amway Corporation and its related corporate entities. The deposition testimony reflected a lack of knowledge and business background that suggests neither person obtained or retain their position on merit, nor would they continue in their position in a normal business. This is also a characteristic found within the Mafia.

2. Association-in-Fact
The major Amway families do not, in most cases, have a formal legal relationship among each other. All distributors must enter into a distributorship agreement with Amway Corporation to recruit new distributors and sell Amway products and services, but Amway asserts that distributors are independent contractors, involved in their own businesses. Moreover, with regard to the tools business, there appears to be no legal relationship whatsoever between Amway Corporation and the major families - each family has its own tools program that it runs independently of Amway Corporation.

In order for the Amway business to function, there is an association-in-fact among the participants. The large family leaders, e.g. the Yagers and Britts (and their corporations) work with the DeVos and Van Andel family (Amway Corporation) to ensure the continuing operation of the business. Some mechanism is necessary due to inherent tensions and power struggles that arise. For example, in the early 1980's DeVos and Van Andel saw the tremendous income and power accruing to large family leaders through their tool businesses. The income from the tool business of the major uplines reportedly far eclipses their income from the Amway plan. DeVos spoke strongly against this over-emphasis on tools, and warned that it might damage the Amway business as a whole. DeVos and Van Andel were apparently hamstrung, however, in taking action because the large distributors such as Yager could simply take his downline out of Amway, with potentially devastating results to DeVos and Van Andel. In fact, it was in just this manner that DeVos and Van Andel formed Amway. They had been distributors for a company called Nutrilite, but left, taking their distributorship organization with them, and looking for a product to sell. DeVos and Van Andel settled on L.O.C., a liquid cleaner, and that began the Amway Corporation.

The Amway business is governed by the leaders of the various families. According to the formal structure, the Amway business is governed "in partnership by the Amway Policy Board consisting of the co-founders Rich DeVos and Jay VanAndel and other family members, and the Amway Distributors Association Board consisting of distributor leadership who are nominated and elected to their positions." (Amway Corporate Culture - AM0023672). The Amway Distributor Association Council/Board advises and consults with Amway Corporation on all aspects of the business. (ADA59). Thirty distributors serve. Fifteen are elected by all qualified direct distributors, and 15 are elected from Council members from slate nominated by Amway Corporation. The Council is led by the Executive Committee. (ADA63). The Executive Commiittee of the ADAC includes heads of the major families, e.g. Britt and Yeager. (ADA 18).
The manner in which the ADAC is structured ensures that either the major family leaders, or their designees, are elected. There is a three-year term limit, but powerful leaders such as Yager and Britt may subvert the limit, either through designees or through "bending" the structure. For example, Yager and Britt were invited to ADAC meetings even after their terms expired, with Amway Corporation picking up their expenses. (ADA 1019).

3. Legal and Illegal Activity
The association-in-fact enterprise among the Amway participants is used to pursue both legal and illegal activity. There are legal products and services offered sales of name brand merchandise or services such as MCI or VISA. Plaintiffs allege that the structure is also used, however, to pursue illegal activity: the Amway Sales and Marketing Plan is a pyramid scheme; the "tools" business is a pyramid scheme; consumers are induced, through false promises of wealth and other misrepresentations, to join Amway; distributors and potential distributors are induced, through misrepresentations, to purchase motivational tools and attend motivational rallies; distributors and consumers are induced, through product disparagement such as spreading the rumors of P&G's Satanic connections, to purchase Amway products. These illegal activities are undertaken separate and apart from the legitimate manufacture, distribution and sale of products or services.

Apart from the illegalities alleged by plaintiffs in various civil cases, Amway has a history of documented illegal behavior. In 1979, the FTC ordered Amway to cease and desist from illegal price fixing. In 1983, Amway Corporation and Amway Canada Ltd. paid total fines of $20 million ($16 million by Amway Corporation) and pled guilty to criminal charges of defrauding Canadian Government through customs violations. Canadian authorities had charged that Amway set up group of dummy companies and created fictitious trade between them to get Canadian customs to accept a lower value for goods. (ROSLONIEC 30, 3 1). A statement by Amway as part of the plea acknowledged that the allegations of the Canadian government were "substantially correct." Id.

4. Corporate Structure
The Amway business also uses a variety of corporate structures, which may have the dual effect of insulating individuals from liability and masking illegal activity. The Amway Corporation, for example, uses a myriad of corporate subsidiaries and related entities, and the relationship among them is not clear from the publicly filed papers. Moreover, deposition testimony suggests that a number of the corporations do not observe the normal corporate formalities. James Rosloniec is a Vice President of Amway Corporation, in charge of audit and control. Despite his high position in Amway Corporation, when deposed he did not know what Amway Financial Services, Inc. does, nor did he have any knowledge of the following Amway-related organizations - Amway Jewelry Company, Amway Realty Network, Inc., Group Fifty Corporation, Merchandising Products, Inc., Nutrilite Products, Inc., Nutrilite Products, Limited - New Zealand, Sunrise Auto Plaza, Inc., Taerus Expo Corp, American Way, Limited, Video Incentives, Plus, Inc., Amway International, Inc. Moreover, he often had little knowledge with regard to corporations where he is both and officer and director. For example, he is the Vice President and on the board of directors of HI, Inc.. Mr. Rosloniec "believes" this corporation owns a Hawaii distribution center, but he has never been to a meeting or board meeting. He "believes" he is president and treasurer of Amway Investment, Inc., which has a value in excess of $300 million. He "assumes" he is president of Amway Auditing and Financial Services, which is presently a shell corporation. Mr. Rosloniec is Vice President and Treasurer of Ja-Ri, which he knows owns residential property, although he does not know why or who lives in the residential property- All of this suggests that Mr. Rosloniec is little more than a "shill" for the DeVos and Van Andel family.

Most of the major distributor families also use the corporate form for their Amway-related business. Dexter Yager has D. & B. Yager Enterprises, Inc., which deals with the Amway sales and marketing business, and Internet Services Corporation, which deals with the tools business. Donald Wilson has Wilson Enterprises for his Amway sales and marketing business, and WOW International, Inc. for his tools business. These are all legally separate corporate entities, yet all work together to promote the Amway Sales and Marketing Plan and the tools business.

5. Dispute Resolution
The nature of the Amway related business lends itself to potential disputes. There may be disputes within distributor families, among distributor families, or between distributor families and the DeVos and Van Andel family. The subject matters may include territories, or rights to lines of distributors, or rights to engage in the tools business. The families strongly prefer to resolve all disputes internally. There is both a formal method of dispute resolution, in the nature of binding arbitration, and a more informal mechanism, with edicts from the family leaders. Only when a participant has nothing to lose" have they resorted to the courts, and these complaints offer a rare glimpse into the inner workings of Amway.

The formal mechanism for dispute resolution is set out in Amway's Business Reference Manual. When a problem exists, it is first discussed with the offender. If the problem persists, it is reported to your direct distributor (upline). If the problem still persists, a warning letter may issue with a copy to Amway. If this does not resolve matters, the direct distributor may take action, including termination. If the violating distributor is dissatisfied, he can appeal to Amway. There is an informal conciliation procedure with the Executive Diamond Conciliation Forum. If there is no informal resolution, the panel issues a recommendation. If the party disagrees, he can request a review before full ADA Board. Upon receipt of ADA Board or EDC Panel recommendation Amway reviews the matter. Amway issues a final decision, which is binding among the participants.

The informal dispute resolution mechanism is illustrated in the Musgrove complaint (Texas 1998). The Musgoves went to an upline with a complaint that their direct upline had illegally taken monies owed them and their downlines. Don Wilson, a described Yager "general," told them any solution would be solved within the Yager organization. The Musgroves were told that going to Amway or the ADA would be a "mistake." When there was no resolution by the upline, the Musgroves went to Jody Victor - a principal of the ADA. Mr. Victor acknowledged that Yager was in control of the organization and that Wilson was one of his generals. Mr. Victor said that to cross Don Wilson or Dexter Yager would be the equivalent of "being drawn and quartered." When nothing happened through the ADA, a last ditch effort by the Musgroves was to approach Amway Corp.. This simply resulted in alleged retaliation from Wilson and Yager, which led to the Musgroves' suit.

6. Control
The Mafia uses "omerta" and violence for control. Amway has other methods, with similar effect. Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. Punishment may start off with being vilified by uplines as a "loser," as "negative," or as "brain-dead" which are typical Amway appelations for anyone who does not believe in the Amway system and the riches that allegedly flow from it. More serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed." There are also reports of violence against those who attempt to take action against Amway.

The upline control is evident from recent complaints that have been filed in courts across the country. The Taylor complaint (State of Washington) alleged that the plaintiff/distributor's complaints about their upline led to defamatory statements by their upline to their downline. Their upline allegedly encouraged their downline to write complaints about the plaintiff, and their upline threatened that they had the authority, political connections and clout to cause the plaintiffs to lose their business. The defendants allegedly coerced distributors to buy motivational tools and attend functions; if they did not, they were to be "cut out like cancer." The Stewart complaint (Texas) alleges that uplines coerced attendance at "approved" functions, controlled by family leaders. Anyone trying to hold events independent of high level approved functions was "blackballed" from participating in other events. High level distributors would conspire to sabotage independent events, and organize boycotts. The Musgrove complaint quotes a high level distributor in Yager organization on an Emerald Club tape as saying: "I know one thing - I do not want anything that doesn't have Dexter Yager's approval - that equals devastation. -.. somebody will step on you."

A 1991 Forbes article relates that a former Amway CFO who resigned in 1979 says that he and his family received threats for years. His former secretary was helping the Canadians in their investigation, and said she was "roughed up" in Chicago and told to "stay away from Amway." Philip Kems, a former distributor writing an expose, charges that Amway used private detectives to follow him and rough him up. These are all control methods that are similar in function to those employed by organized crime.

IV. Supporting Exhibits
Attached are two charts I intend to use in conjunction with my testimony.

V. Material Reviewed
It is my understanding that counsel for plaintiffs will provide the listing of the Amway-related documents I have reviewed, prior to preparing this report, approximately one week prior to my deposition. The primary data I have considered in forming my opinion are:
Publications referenced in the background section on Organized Crime.Texas Amended ComplaintDeposition of James Rosloniec and Exhibits attached theretoDeposition of David Van Andel and Exhibits attached theretoDeposition of Nan Van Andel and Exhibits attached theretoADA Answers to Interrogatories ADA Responses to Document RequestsAmway Corp. Answers to InterrogatoriesIntervention Pleading of Stewarts, et al. in Griffiths, et al. v. Amway Corp., et al., Harris County, TexasOriginal Answer, Third Party Claim, and Plaintiffs' Claims by Jeffrey and CeciliaMusgrove, Case No. 98-17491, Harris County, TexasFirst Amended Complaint, Taylor v. Amway et al., State of Washington, Case No. 98-2-15585-0 SEANotice of Pendency and Settlement of Class Action, Hanrahan, et al. v. Executives Unlimited, Inc., Case No. 94-CV-4615, E.D. Pa.Fourth Amended Complaint, UtahAmway Corporate Culture (AM0023671)Bergfeld International material (SCH 000202)The Network Manual and The Distributor Network Manual (P&G 051904)1979 FTC Order12/9/91 Forbes article2/16/98 Business Week articleTranscripts of rallies, including "What is This All About," Dexter Yager, Internet Services Corporation- 1994November, 1996 Duns Business Records Plus - Report on Amway Corporation"Family" messages and Family Matters messages: (AM 0026090-0026097, AM 0026164-0026170, AM 0026160, AM 0026162, AM 0026157 - 0025158, AM 0026155, AM 0026138-0026153)September,1994 Amagram (P&GO017672) (policy board)Intemetsite: http://www.amway-abn.comBusiness Reference Manual(1994) (AM3331)Letter from Avon (PG 0216932)The Amway Business Review (incorporating the Amway Sales and Marketing Plan)The Direct Distributor Manual (AM 3918)Amway Business Compendium (S 00331 1)Organizational Deviance in the Direct Selling Industry: A Case Study of the Amway Corporation, Carol Lynn Juth-Gavasso, August 1985Charlotte Business Journal, 2/13/95 article "The Amazing Money-Making Machine"Internet site material - ProbstInternet site material - Amway: The Untold StoryDirectly Speaking, Rich DeVos, January and March.-."1983

VI.Compensation
I have been retained by Plaintiffs' counsel, and I am being compensated at the rate of $550 per hour, plus expenses.

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