News

Life Without Debt Leaves Jimmy Phipps Owing Society

Continued from page 2

Generally, a fraudulent pyramid emphasizes recruitment of salespeople or members over product sales, requiring substantial investments from each recruit either in fees or to purchase materials for sale. Perpetrators of these schemes generate revenue almost exclusively from up-front cash investments, often from unsuspecting recruits. Life Without Debt members didn't accumulate inventories of Phipps' books and tapes to retail to other customers. Instead each member was required to sell memberships that included single copies of his books and tapes for each member's own use.

Yet even legitimate MLM programs have checkered reputations, sometimes butting heads with federal regulators. Typical MLM programs pressure distributors to leverage relationships with family and friends, or "warm leads," while the vast majority of distributors fail to earn even marginal incomes. MLM companies have sold everything from newsletters instructing people on how to sell newsletters, to gold medallions, to milk cultures that allow distributors to grow and sell other milk cultures, to gasoline additives. The names of the successful are familiar: Herbalife (weight-loss, nutrition, skin-care products), Nu Skin Enterprises (cosmetics, nutritional supplements), Mary Kay and Excel Communications—now Irving-based Excel Telecommunications—a Dallas-based long-distance telephone service reseller founded by entrepreneur Kenny Troutt.

But the granddaddy of all MLM firms is Amway, shorthand for American Way Association. Founded in 1959, Amway markets personal care products, Nutrilite dietary supplements, water purifiers, cosmetics, household soaps and cookware. Amway parent Alticor posted 2006 revenues of $6.3 billion, with more than 70 percent of Amway sales generated in Asia.

Phipps cut his MLM teeth on Amway soaps and pills as a teenager in Muleshoe after an uncle introduced him to the system. It was a flop. Phipps found it all but impossible to generate leads and recruit distributors among Muleshoe's population of 5,000.

So Phipps went to work. After his family moved to Arlington in the early '70s, he worked the parts counter at a Ford dealership. He worked as a construction laborer and trim carpenter. Yet MLM's lure never receded. To Phipps, the system represented salvation from the working grind. He purchased and sold Dare to Be Great, a motivational program published by Glenn W. Turner Enterprises. In the early '70s Turner was known as the "King of Network Marketing" and at his zenith was worth some $300 million. But by 1975 he had run afoul of regulators, and the Federal Trade Commission shut him down, charging Dare to Be Great was an illegal pyramid scheme that bilked $44 million from its distributors. Turner was later convicted of conspiracy and fraud in another pyramid scheme in 1987 and served five years in prison.

"I fell in love with the concept of network marketing," Phipps says. He was hooked on the idea of compounding one's income, a dynamic not afforded by a conventional job. But his MLM efforts continued to flop. After marrying in 1976, Phipps barely eked out a living. He was forced to supplement his meager earnings with debt.

He divorced 10 years later after his wife ran off with the father of one of her children's friends. He lost everything. He lived on peanut butter and crackers. He sought solace in a singles Sunday school class at the First Baptist Church of Euless. Here he found a like-minded support group and experienced a revelation.

The class was studying the parable of the talents in Matthew 25, a story on the importance of carrying out one's responsibilities using God-given gifts. Phipps was so taken with the message that at the end of the lesson he made a bargain with the Lord. If God would show him how to use his talents, he vowed to serve him for the rest of his days. At that moment Phipps was filled with the spirit. He was moved to study the course of America's economic history. He worked day and night composing simple, childlike stories summarizing the founding of the United States. He began selling his stories.

In 1987 Phipps started his first MLM program with a kit that included this self-composed literature plus a packet of positive quotes printed on quality card stock. He called it Fast Cash Financial Services. It sold for $67.50, from which he took a fee of $7.50, distributing the rest to members. He promoted Fast Cash via direct mail using purchased mailing lists. It was an instant success. After years of barely making a living, Phipps claims he earned $1 million in his first year.

"I've never met anyone like him in my life," says Phil Brantley. "I would hate to be like him because he has no outside interests. He doesn't hunt. He doesn't fish. He doesn't travel. He doesn't shop. None of that stuff."

What Phipps does do with fire-in-the-belly passion is nurture grudges against an assortment of government agencies and officials. He has an almost pathological craving to bait, scorn and dare. In 1987 Phipps reported no income on his income tax returns. In 1988 he stopped filing tax returns altogether. That same year, the U.S. Postal Service shut off his mail after he was hit with an injunction from regional Postal Inspector Stephen Caver in Fort Worth demanding he cease operating what the inspector classified as an illegal pyramid scheme. Phipps signed the injunction as a condition for resuming his mail service. He quickly shifted tactics.

He began using fax machines. He urged his members to ship contributions via private shippers such as AirBorne Express, UPS and FedEx. He even produced an audiocassette to supplement his membership kit called Corruption Within the United States Post Office to expose unscrupulous conduct infecting the quasi-governmental agency he had "accidentally discovered." Phipps claims the tape juiced program revenues an extra $1 million in three months.

• 1
• 2
• 3
• 4
• 5
• 6
Next Page »