What persuades a seemingly rational adult to get involved in a pyramid scheme?
Massachusetts attorney Douglas Brooks, who represents victims of multilevel marketing scams, believes it is all in the selling.
“They use a number of techniques to sort of get people to lower their guard and to stop thinking critically, not treating it as a business, but treating it as a way that they’re going to fulfill their dreams,” Brooks told CNBC’s “American Greed.”
Thousands of people signed up for Nxivm (pronounced nek’-see-uhm), the group founded by self-styled guru Keith Raniere to promote his philosophy of “rational inquiry,” which he claimed offered the keys to higher consciousness. Members, many of them recruited from wealthy families, would pay thousands of dollars for Nxivm courses. They could advance within the organization, and earn “commissions” to offset some of their costs, by recruiting new members.
“You take a $5,000 course, and as soon as you were done with that, you’d be told, ‘Now you’re really ready to take the next one,’” former Nxivm consultant Frank Parlato told “American Greed.” “Nobody but Raniere and a couple at the top made any kind of a living wage.”
In October, a judge sentenced Raniere to 120 years in prison for his role in an offshoot of Nxivm, in which women were treated as slaves, forced to have sex with him and were branded in their pelvic areas with his initials. Raniere, 60, was convicted on charges including racketeering and sex trafficking. Prosecutors alleged in the 2019 indictment that Raniere sat atop a series of “pyramid organizations” that were primarily designed to benefit him.
“For Keith Raniere, this was about sex, money and power,” former Assistant U.S. Attorney Moira Penza told “American Greed.”
Like Nxivm, the group known as DOS — an acronym for a Latin phrase roughly translated as “master over obedient women” — was structured as a multilevel organization in which members were expected to recruit others. In DOS, Raniere was considered “grand master.” Recruits were referred to as “slaves.”
Actress Sarah Edmondson, who in 2017 became the first DOS member to go public with claims of abuse, said her recruiter claimed the group had a lofty purpose.
“She told me it was an international women’s group that would be totally underground, and a group of women working together to be a force for good in the world,” Edmondson said. “I felt like I met the people that I was going to be working with to change the world.”
It was only later that Edmondson learned about the abuse, and that Raniere was at the top of the pyramid.
Raniere, who has been held without bail since his 2018 arrest, is appealing his 2019 conviction on seven felony counts. He did not respond to interview requests from “American Greed,” but in an interview broadcast by NBC News ahead of his sentencing, he insisted he did not commit any crime.
At the trial, Raniere’s defense team argued that the women of DOS consented to their treatment. Nonetheless, Raniere said in the interview that he regretted what happened.
“I apologize for my participation in all of this — the pain and suffering,” he said. “I’ve clearly participated. I’ve been the leader of the community.”
Power of persuasion
In a legal multilevel marketing organization, the parent company creates a network of independent salespeople to distribute its products or services. Raniere began his career as a distributor for one of the best-known legitimate multilevel sales organizations, Amway, in the 1980s.
A multilevel marketing organization can become an illegal pyramid scheme if the focus, and the major source of potential income for members, is recruitment, rather than selling the product.
Brooks, the Massachusetts attorney, said he was surprised by the sway Raniere held over his followers.
“He was clearly intelligent. But the idea that he could become this guru and attract all these intelligent, well-educated people, and then have the thing graduate into a sex-trafficking organization is just beyond belief,” said Brooks. The attorney fought legal battles against Raniere dating to an earlier multilevel venture — Consumers’ Buyline, which the New York attorney general’s office shut down in a 1996 settlement in which Raniere admitted no wrongdoing.
It might be easy to dismiss Raniere’s followers as gullible dupes. But Nxivm attracted legions of business leaders, former government officials and other prominent people who bought what Raniere was selling.
Businesswoman Angela Ucci, who joined Nxivm soon after it was founded in 1998 and rose to become a senior trainer, recalls Raniere as unassuming yet persuasive. She spoke exclusively with “American Greed.”
“I think he was a master of that, of finding out about you and what made you tick and what you were interested in,” Ucci said.
Ucci publicly broke with Raniere in 2009 — long before the formation of DOS — after what she said were multiple inconsistencies between his teachings and his actions, including sexual advances that she rebuffed. She was among a group of defectors who claimed that Nxivm owed them more than $2 million in unpaid commissions and other obligations, which Nxivm denied.
“There was sexual stuff. There was business stuff. There was secrecy,” she said.
Other former members described emotional and physical abuse. At least one Nxivm member committed suicide.
Staying on guard
Brooks said people who assume that they will never find themselves in a similar situation do so at their peril.
“The key is to always be skeptical,” he said.
To be sure, not all multilevel marketing businesses are illegal pyramid schemes. But the Federal Trade Commission, which offers tips about how to spot the difference, warns that even in the legal programs, success is not as easy as the sales pitch might suggest.
“Most people who join legitimate MLMs make little or no money,” the agency says.
The FTC says to watch for these warning signs of an illegal pyramid scheme:
Brooks said the recruiting process used in pyramid schemes makes them particularly difficult to spot.
“Typically, your introduction to this thing is going to come from someone that you know, a friend or a family member, or a member of your church or community organization,” he said. “It’s a trusted relationship to some extent.”
The pitches are also deliberately vague, glossing over the improbability of ever making money.
“They don’t say, ‘I’ve got this organization where you have to recruit all your friends, and maybe if you recruit enough people, and they recruit enough people, and their recruits recruit enough people, you’re going to get rich,’” Brooks said.
“You’ve got to keep up your guard and ask questions about it. And the more you ask questions, the more you’ll find out that this person that’s recruiting you probably doesn’t know a hell of a lot themselves.”
In addition to Raniere’s conviction, five other Nxivm leaders pleaded guilty to criminal charges. Most have yet to be sentenced.
Dozens of former Nxivm members, led by Edmondson, have filed a civil suit against Raniere and others, as well against Nxivm itself, seeking unspecified damages for their ordeal. The case is on hold as the remaining criminal cases play out, so neither Raniere nor the other defendants have responded.
“Pyramid promoters, like all con artists, tailor their misrepresentations to make them plausible to the target audience,” the suit says.
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