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Life Without Debt Leaves Jimmy Phipps Owing Society

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It was a common law marriage, Phipps says. God puts people together. The state had nothing to do with it. In Colleyville, Phipps purchased two adjacent homes on the 600 block of Field Street: one served as the Life Without Debt Computer Center, the other is where he and Calloway lived. Because he had no use for banks, Phipps purchased the homes directly from the owner using cash or money orders to make his monthly payments.

Phipps' computer center was a clearing house for cash, and until sometime after August 2001, money orders. He refused to deal with checks and credit cards. By far Phipps' most popular offering was the $2,500 annual Life Without Debt program. New members were instructed to stuff $2,500 in cash wrapped in a completed membership form into a white, self-addressed envelope and slip it into a Priority mail or Express shipping envelope. Those joining with money orders were required to prepare 10 money orders for $240 each for disbursement to the 10 established members up line in the pyramid plus one for $100 to cover Phipps' administrative costs, all with the pay lines left blank. (International members—Phipps claims his program membership hailed from 28 countries—were instructed to pay with international travelers checks.)

At the computer center, funds were counted. The new member's sponsor ID number was entered into the computer. Reports and mailing labels were printed for that sponsor's "up line" network to redistribute the cash to the sponsor and the nine other members above each membership purchase, or $240 each. The disbursements were to the appropriate up-line members while a membership kit was assembled and shipped to the new member, who was obligated to entice at least two fresh recruits within 90 days to remain active.

Phipps moved cash to and from the computer center daily in large postal tubs. At any one time, he claims, the center could be a hub for more than $1 million in cash, waiting to be sorted, counted and doled out from the 3,400-square-foot house wired with alarm systems and security cameras. At night he secured the cash in a large gun safe.

On the morning of August 20, 2001, some 10 federal agents, armed with a warrant, raided Phipps' Colleyville computer center, seizing his computers and storage drives and more than 80 boxes of documents. During Phipps' trial, IRS special agent Dan Williams testified that Phipps was cooperative, freely consenting to show agents documents and computers, and to open his safe. "I didn't want to get shot like David Koresh, Randy Weaver's wife and son, and many more who said 'NO!,'" Phipps writes in the margins of the transcript of Williams' testimony.

Phipps believes the raid had something to do with presidential politics. In 2000, he ran as an independent presidential candidate under the National Tee Party. "It was an experimental campaign," he says. "It was a knock-off on the Boston Tea Party for those of us that are teed off. If you're tired of reading lips, vote for Phipps."

To Life Without Debt members, the indictment and conviction of Phipps is as puzzling as it is frightening—jack-booted thuggery at its worst. Phipps is accused of devising a fraudulent pyramid scheme. He's charged with using the U.S. Postal Service and telephone lines to further that scheme (wire and mail fraud). He's accused of using ill-gotten gains generated from his schemes to pay FedEx bills and to dispense funds to other members in accordance with the terms outlined in his program membership kit (money laundering). He's accused of obstructing and impeding the administration of the IRS by utilizing "frivolous" legal arguments when responding to deficiency notices, by operating his programs as an all-cash business and not maintaining bank accounts, by demonstrating contempt for the IRS and the U.S. government by referring to them as lying, cheating and thieving, and for stating that his educational ephemera explores ways to get away from the IRS.

"There really are some interesting First Amendment issues tied up in this program," says Phipps' attorney Wes Loegering. "There's a lot of people that publish various tracts and books...The folks that believe that the 16th Amendment didn't provide the government the power to tax individuals. Those folks are out there. A lot of them."

Interesting questions are tied up as well. For example, is it really illegal to operate an all-cash business or opt out of opening bank accounts? How was Life Without Debt fundamentally fraudulent? In his manuals, Phipps makes no promises of huge passive payouts. He explicitly states his program is not an investment, security or a right to receive something for nothing. He classifies the program as a purchase agreement with risk limited to the purchase price of the materials. He stresses funds will not be doled out to members who don't generate sales.

"You knew what you were getting into before you sent in any contribution," says David Boston, a pastor for a non-denominational church in upstate New York near Albany. "Nobody held a gun to anybody's head." Boston, who joined several of Phipps' programs on and off between 1993 and 2006, says he earned back his contributions several times over.

Court documents show that just two disgruntled members testified at Phipps' trial out of more than 30,000. Neither was presented as a victim of Phipps' program, though Marie Pate, former executive director of the Better Business Bureau in Fort Worth, presented several complaints lodged against Phipps that she received. "Mr. Phipps did exactly what he told people he would do," says Carlton McKlarty, the Dallas public defender who represented Phipps before the jury that found him guilty. "He took their money and paid it out as promised."

None of the members of Phipps' various programs interviewed by the Dallas Observer felt they were conned by Phipps, even those who failed to offset their contributions. "I don't have any issues with the money I made or lost because the information that was given to me—understanding money and debt, credit and taxes—was very important to me," says Clyde George, an engineer with CBS Dallas-Fort Worth television affiliate KTVT-Channel 11. "I mean, if you went to college, how much money would you spend?"

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