A 'classic pyramid' or merely Destiny?

January 27, 1995|By Joe Nawrozki | Joe Nawrozki,Sun Staff Writer

A Pennsylvania computer company calls it an innovative way to raise capital. Maryland's attorney general calls it a high-tech spinoff of the old pyramid scheme.

The two sides will battle it out before the state's securities commissioner as more than 1,000 recruits who have jammed promotional meetings at a Baltimore hotel this month wonder if they'll get a chance to recoup $10,000 on their $1,500 investments.

Attorney General J. Joseph Curran Jr. issued a cease-and-desist order this week banning the Destiny Foundation of Mount Joy, Pa., from conducting what he described as a "classic pyramid scheme" at twice-weekly meetings that have drawn thousands to the Best Western Inn on O'Donnell Street.

Many of them were veterans of the "Friends Helping Friends" pyramid network that drew hordes of Baltimore-area players to meetings in Washington over a six-month period until law enforcement authorities and publicity shut them down.

Pyramid schemes are a violation of Maryland's criminal code and have also been attacked as violations of laws regulating sale of securities.

Donald E. Brand, a Bel Air attorney representing the Destiny Foundation, said yesterday he will respond to Mr. Curran's action early next week and seek a speedy hearing to have the decision reversed.

According to Destiny's literature, investors put up $1,500 to get in at the bottom level of the company's marketing hierarchy, plus $25 for the company's product -- a floppy disk containing a program for IBM-compatible personal computers called "Organize Your Destiny."

As the original investor recruits more investors, he becomes a "sales group representative," then "sales group assistant manager" and finally a "sales group manager." When he has signed up a total of seven additional members of the sales force, he collects $10,000 and "cashes out." Destiny keeps $2,000 for its effort, expense and taxes -- plus the $25 for the software.

The company, which operates an electronic bulletin board, also sells other computer products and services, mostly to businesses. Nadim Baker, the firm's 25-year-old president, explained Destiny's approach.

"The first problem we had a as a new company in the industry was that we couldn't afford to produce millions of dollars in advertising and productions," he said. "We devised a network marketing plan that was a little different."

He called the $1,500 investors pay a "license" to sell various Destiny products. "It didn't matter how many people were involved in the group," Mr. Baker said. "It depended on the number of sales they made."

But he conceded that an unknown number of new company members became "representatives" without buying the software.

The Attorney General's office says Mr. Baker's marketing system is neither new nor different. It calls the operation a "multi-level participatory pyramid-type program" based on "either recruitment of other participants or mere membership in the pyramid organization."

Not so, says Mr. Brand, the firm's attorney.

"This is not a pyramid. . ." he said. "It's a very legitimate marketing plan. One of the things alleged is that there is no product, that the computer software is just a tool to support the pyramid scheme. But it is viable software. We will bring in computer experts to testify."

Mr. Curran said a floppy disk doesn't make the scheme legal. "An operation might say it's legitimate but when you strip away all the fancy words and sales guides, it's the same old pyramid scheme we've seen over and over," he declared.

The attorney general's office was largely responsible for the unraveling of the wildly popular "Friends Helping Friends" network, whose players included doctors, lawyers, artists, teachers, truck drivers and more than a few police officers.

While that network was declining under investigation in December, the Destiny Foundation began conducting business meetings in Southeast Baltimore and recruited many former players in the "Friends" group.

"It spread like wildfire," said Mike McKelvey, a resident of Harford County who attended two of the Destiny meetings. "At the meeting before the state closed it down on Tuesday, there were 1,000 people there. You couldn't get into the parking lot. They were in the hotel ballroom, spilled out into bar, hallways, restaurant, everybody waving applications to get on board."

Mr. McKelvey, a salesman and experienced computer user, said Mr. Baker's presentations were "very smooth but he rambled on about nothing." He said the computer program -- on two disks -- was not much better.

"One was a start-up program and on that were 24 files of nothing," he said. "Another disk was supposed to be an organizer with four files, and it came up blank.

"That company has a long way to go if that's their product," he said. "I got the very distinct impression the pyramid action was what drew those huge crowds."

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