James Aboltin and Pamela Knight filed their RICO pyramid scheme lawsuit against Jeunesse back in July, 2016.

I’d been loosely following the case, with recent developments warranting its addition to my tracking roster.

Aboltin and Knight’s lawsuit seeks to recover losses as a result of signing up as Jeunesse distributors.

Both plaintiffs claim they were

deceived by Jeunesse’s misleading business opportunity, falsely believing that it was a legitimate way to earn money.

Aboltin and Knight allege Jeunesse is a pyramid scheme and names the company, MLM Mafia, Inc., Online Communications, LLC, company owners Wendy Lewis and Randy Ray, Chief Visionary Officer Scott Lewis, and top former and current Jeunesse distributors Kim Hui, Jason Caramanis, Kevin Giguere, and Alex Morton as defendants.

The case was initially filed in Arizona and had been slowly progressing.

On October 3rd, 2016, Jeunesse filed a motion requesting the case be moved to Florida.

On September 12th, 2017, the motion was granted.

After some shuffling around of attorneys, a new case number was assigned on September 29th and an amended complaint filed on October 30th.

In it Aboltin and Knight allege Jeunesse distributors pay money to

Jeunesse LLC and/or its co-conspirators, Wendy Lewis, Randy Ray, Scott A. Lewis, Kim Hui, Jason Caramanis, Alex Morton, Kevin Giguere, Online Communications, LLC, and MLM Mafia, Inc. (collectively “Defendants”), and unnamed Diamond Director co-conspirators, in return for which participants receive

(1) the right to sell products, and

(2) the right to receive, in return for recruiting other participants into the Pyramid Scheme, rewards that are unrelated to the sale of products to ultimate end users.

Supporting this is a preliminary expert report from Stacie Bosley, who served as an expert witness in the FTC’s pyramid scheme case against Vemma.

In that report, Dr. Bosely concludes “that Jeunesse is operating a pyramid scheme, disguised as a multilevel marketing organization.”

In my own BehindMLM review of Jeunesse I noted a distinct lack of retail focus in favor of affiliate autoship recruitment.

The basis of Aboltin and Knight’s pyramid scheme allegations is the definition of a pyramid scheme as follows:

Although pyramid schemes can take various forms, they are at their core inherently illegal schemes, by which perpetrators induce others to join, with the promise of profits and rewards from a putative business.

The reality of the schemes, however, is that rewards to those that join come almost exclusively from the recruitment of new
participants/victims to the scheme.

Within the context of MLM and Jeunesse specifically, this would primarily occur via recruitment of affiliates on autoship.

Without significant retail sales activity taking place to add an additional source of revenue, Jeunesse would indeed be operating as a pyramid scheme.

Which is exactly what Aboltin and Knight allege;

The Jeunesse compensation plan produces a system of monetary rewards that dramatically favors recruitment over retail sales and leads to a constant cycle of victims churning in and out of the program.

Very few (if any) of Jeunesse’s products are ever sold to anyone other than the distributors themselves.

Moreover, Jeunesse’s system strongly encourages distributors to buy more and more product, regardless of whether they need it for retail sales or would otherwise buy it for personal use.

Distributors must achieve certain levels of purchases by themselves or in conjunction with downline distributors to maintain their eligibility for each type of bonus from Jeunesse.

This pressure to maintain their statuses incentives the distributors to purchase product they do not need.

Indeed, Jeunesse specifically designed its system to incentivize distributors to purchase product they do not need.

Because Jeunesse’s Distributors essentially do not sell products to consumers (who are not also distributors), they only obtain return on their investment by recruiting new distributors (who then buy products).

In sum, the Autoship Program is a centerpiece of the Jeunesse Public Compensation Plan.

The purchase of product packages by Jeunesse Distributors generate the profits that go to those at the top of the Jeunesse pyramid

This is in line with Vemma and Herbalife’s business models pre-settlement, both of which the FTC went after for being a pyramid scheme.

Jeuenesse’s secret backroom deals with top distributors are also scrutinized as misleading, particularly those of Kevin Giguere, Jason Caramanis, Kim Hui and Alex Morton.

Upon information and belief, top BDA recipients are brought to Jeunesse’s home office where there are pitched on the inside deals by the Jeunesse leadership, specifically Wendy Lewis and Randy Ray, and are then presented with a BDA.

As of Fall 2015, there are four individuals who work out of the Jeunesse home office and all they do is draft and execute BDAs.

Jeuenesse’s official name for the backroom deals it brokers in secret is “Business Development Agreements” (BDA).

According to Jeunesse’s own representatives, Jeunesse’s rapid success in the network marketing industry is largely due to these secret BDAs.

Not only are such deals not disclosed to the public, but Defendants routinely hold out such deal recipients as having achieved certain levels of success in Jeunesse without disclosing that that success is due to the inside deal, and not by organically building a team from scratch pursuant to the Public Compensation Plan.

Kevin Giguere’s backroom deal with Jeunesse was exposed in a bitter lawsuit filed by Matthew Nestler.

Amid claims of murder threats, roughly a year after it was filed the lawsuit was confidentially settled.

As alleged in Aboltin and Knight’s lawsuit;

In a recruiting call in which Giguere was attempting to recruit two top earners from a rival network marketing company using secret BDAs, Giguere stated:

“I make $2.5 million this year and I think I’ll make $3.5 to $4 million next year.”

Giguere also stated that he was transferring his Jeunesse earnings to investment properties, including a restaurant, and explained “I’m trying to get diversified, because this shit ain’t going to last forever …. Making this kind of money.”

When asked specifically about Jason Caramanis, Giguere stated Caramanis was a “bad dude.”

That Caramanis was in “ten companies. He makes a million a month in our company, makes $40,000 a month in Seacret …. He used to make $150,000 a month in Vemma… He just brokers deals all day long … he don’t talk to anybody … he don’t come to the conventions … he don’t do shit.”

According to Defendant Giguere, Jeunesse top earner, Jason Caramanis earns $1 million a month from Jeunesse by sitting in his home office and brokering BDAs all day long.

Giguere also stated that for the “big players” in the company, estimated to be about 4-5 individuals, a BDA can be worth up to $100,000 to $200,000 a month.

Giguere stated about the people in his organizations from his previous companies: “I brought them all over.”

As a result, he stated that he “put 30,000 people in last year.”

If each of those individuals brought over by Giguere “activated” and “qualified” by paying the $49.95 startup fee and by purchasing only the Basic Product Package at $199.95, then the revenue earned by Jeunesse based on just this one undisclosed BDA is approximately $7.5 million.

We’ve previously covered Alex Morton’s suspected BDA, which was the only explanation for his rapid rise through Jeunesse’s affiliate ranks.

Aboltin and Knight allege

pursuant to that deal, (Morton) was advanced undisclosed sums in exchange for persuading his VEMMA “downline” to join Jeunesse.

Within weeks, he was held out to the public as having achieved “Diamond Director” level without having met the requirements of the public plan, and without disclosing the existence or terms of the BDA.

As a direct result of this fraudulent concealment, many Arizona residents were lured into the Jeunesse scheme.

While Jeunesse’s BDAs aren’t illegal in and of themselves, their lack of disclosure goes a long way to misleading the general public.

Such deal recipients are routinely held out by Jeunesse as having achieved certain “levels” within the Jeunesse Public Compensation Plan (typically, Diamond Director), without disclosing the existence of the BDA, and thus fraudulently implying to the public that such rapid success can also be achieved by distributors by building a business organization through the Jeunesse Public Compensation Plan.

Stated somewhat differently, recipients of Jeunesse’s BDAs endorse Jeunesse and the Jeunesse Public Compensation Plan without disclosing that they are being paid for their endorsements through the BDAs.

That failure to disclose constitutes fraud.

Going on to allege that Jeunesse’s Policies and Procedures are unenforceable and therefore not a suitable vehicle through which to resolve their dispute, Aboltin and Knight propose class action relief.

Plaintiffs seek relief on behalf of themselves and a nationwide class of all persons who were Jeunesse Distributors from September 9, 2009, until the present, and who suffered damages as a result of Defendants’ operation and promotion of the illegal Pyramid Scheme.

Specific Arizona and Texas sub-classes are also proposed.

The members of the class and the subclass number in the hundreds of thousands, if not millions, and joinder of all Class members in a single action is impracticable.

Questions Aboltin and Knight hope to have answered by way of litigation include:

  1. Whether Defendants are operating an unlawful pyramid scheme;
  2. Whether Distributors paid money to Defendants in exchange for (1) the right to sell a product and (2) the right to receive, in return for recruiting others into the program, rewards which were unrelated to the sale of the product to ultimate end users outside the distribution channel;
  3. Whether Defendants’ conduct constitutes an illegal pyramid scheme under Arizona, Texas, and Florida law;
  4. Whether Defendants omitted to inform Plaintiffs and the Class that they were entering into an illegal pyramid scheme where the overwhelming majority of Distributors lose money;
  5. Whether Defendants failed to disclose the existence of the BDAs to potential distributors who were not BDA recipients;
  6. Whether Defendants held out BDA recipients as having achieved level of success in Jeunesse without disclosing the existence of the BDA;
  7. Whether Defendants engaged in acts of mail and/or wire fraud in direct violation of RICO;
  8. viii. Whether and to what extent the conduct has caused injury to Plaintiffs and the Class;
  9. Whether Defendants’ conduct constitutes an unlawful, unfair and fraudulent business practice under Arizona, Texas, and Florida law.

Specific claims for relief are presented across eleven counts, including;

  • judgment declaring Jeunesse’s arbitration provision is unenforceable
  • engaging in racketeering activity (2 counts)
  • conspiracy to commit racketeering activity
  • injunctive relief
  • consumer fraud (Arizona law)
  • violations of the Florida deceptive and Unfair Trade Practices Act
  • violation of the Sale of Business Opportunities Act
  • violations of the Deceptive Trade Practices-Consumer Protection Act (Texas)
  • unjust enrichment and
  • federal securities fraud

One side issue that’s been playing out since the original lawsuit was filed last year is service on Alex Morton.

Morton was initially served in September, 2016.

On September 19th his attorney filed a motion requesting additional time to file a response to the lawsuit. A second extension was requested on October 3rd.

Instead of filing a response, Morton went on to file a Motion to Dismiss based on “insufficiency of service of process”.

The motion was initially stricken but refiled on December 2nd.

On September 12th, 2017, service on Morton was quashed, meaning Aboltin and Knight would have to initiate service on him again.

Obviously aware of the case, for now Morton appears to be more interested in arguing technicalities then addressing the allegations against him.

The September 12th order gave Aboltin and Knight another 21 days to serve Morton, a task that has proven difficult.

On October 2nd a motion was filed requesting an extension and permission to serve Morton via alternative means.

In the motion Aboltin and Knight alleged Morton was evading service.

Morton appears to be avoiding service in this case, making ordinary service impractical.

Plaintiff’s proposed alternative service is to serve the Florida summons and appropriate pleadings by certified U.S. Mail to Morton’s last known Arizona address, with a copy to his prior counsel in the Arizona case.

On October 31st an order granted additional time to serve Morton through to November 30th, but denied permission for alternative service.

Judge Spaulding stated the motion was ‘not supported by evidence that Morton is evading service‘.

I imagine Morton will be served in the next thirty days, else another motion requesting alternative service with specific details of his evading attempts at service over the same period.

With the amended complaint filed only a day earlier on October 30th, defendant answers are expected to be filed over the next month or so.

Stay tuned…

 

Update 1st July 2018 – A class settlement is on the horizon, following a June 29th motion requesting a stay in proceedings.