Thousands of true believers gathered in celebration at arenas across the country, all convinced they've found the true path to success, to wealth beyond their wildest dreams. The promises are golden, fueling dream they do -- of luxury homes, fancy cars, yachts and private planes. So who are all these people and what are they so worked up about?
The people are distributors for a company called Quixtar, which says it's had $3 billion in sales since 1999. They say the company's special formula for success has made them rich. But their main purpose here is to tell all these thousands of other distributors that they can do it, too.
All they have to do is sell everything from the company's own line of vitamins and cosmetics to name brand appliances and electronics. For that they'll get a percentage of the sales. And if they recruit a ton of other people to do the same they'll get a percentage of the orders placed by everyone they recruit.
The more people they recruit, the richer they can get. And richer, and richer and richer. Sound too good to be true? We thought it did. In fact, it sounded a lot like another company that made news several years back. Amway, a hugely successful business that came under government scrutiny, was fined and ordered to stop making unrealistic promises about income to its distributors.
To find out what Quixtar was up to, we took our hidden cameras to a recruitment meeting in New Jersey -- one of hundreds held around the country each week, and where hundreds of thousands of Quixtar faithful get their start. The first thing we hear is how easy it is to make it in Quixtar.
Greg Fredericks: “If you're somewhat serious, all I mean by somewhat serious -- if you invest maybe, say, 10 to 15 hours a week in your business. This is your own business -- you could generate in the next 12 to 18 months, an extra quarter of a million.”
Tim Sandler [Dateline producer]: “I'm sorry. How much?”
Fredericks: “A quarter million.”
Sandler: “You're making more than $250,000 -- quarter of a million?”
Fredericks: “Umm hmm.”
The recruiter, Greg Fredericks, sure gets our attention when he says he himself has made it big on the Quixtar plan.
Fredericks: “I owe nobody nothing. You know, today I'm looking at a million dollar home, a thousand dollar Rolex just for kicks. And I just got a brand new Lincoln Navigator sitting out front paid for cash. So things are good.”
And he says those kinds of riches are ours for the taking. And on top of getting rich, we'd also be able to make our own hours and spend more time with our family. So at another meeting, after paying $200 for a starter kit, we sign up and are officially introduced to the Fredericks team.
The first step is to think positive.
Fredericks: “So I don't put anything into my head that's going to cause me to be thinking outside my positive role.”
That means, no TV, no reading newspapers.
The second – and perhaps most important – step, is we're told to buy motivational books and tapes from top Quixtar distributors.
Fredericks: “Reading. I would recommend you start reading. Do 15 minutes to about a half hour a day.”
Those books and tapes are going to cost us, but one of Fredericks's associates says they hold the key to our success. Still, it's not just buying the books and tapes, which can go for about $60 a month. We're also urged to spend money on seminars for about another $50 a month. And within days of becoming Quixtar distributors, we're told of one big event we shouldn't miss.
Fredericks: “This is going to be the function of the year.”
A few hundred dollars later, we find ourselves on a bus ride -- a 14 hour bus ride from New Jersey to South Carolina for something called "Spring Leadership Weekend." To Fredericks and others it's not just a business trip, it's a pilgrimage.
Fredericks: “Lord, we ask you for a spirit of openness so that we might go down to Greenville, South Carolina, Lord, and that we might be changed. In Jesus's might name we say, Amen.”
Fredericks: “Let's have a great weekend.”
At the arena in South Carolina, people have been sleeping outside, like teenagers at a rock concert. When we arrive the next day it's not long before the crowd swells and we're part of a fevered rush to get inside -- 15,000 pack the arena as we thrill to a carefully choreographed show that promises money and everything that comes with it. We're urged by those successful Quixtar distributors on stage to dream big like they do.
The excitement builds with each success story. One man says he once ran a car wash. His vision of financial freedom moves the crowd to a chant we hear over and over again.
Crowd: "Freedom! Flush that stinking job!"
The speakers are treated like superstars, all living testaments to what happens when you follow the Quixtar plan. But there's one who's become an icon. If Quixtar is a religion, one man is its pope. His name is Bill Britt, and legend has it he's worth millions, all because of Quixtar.
Bill Britt: “I got into this business for five reasons. Good reasons. The first one was money. The second reason I got in was for money. In fact, that's what all five reasons were.”
So devoted are the followers, many in the crowd with us become sleep deprived, afraid to miss out on advice that will make them millionaires. Such devotion is hard to fathom, but we see just how far it goes on the last night of the weekend, when a single candle is lit. Soon the dark arena becomes a tabernacle, a shrine to the Quixtar dream.
For some, there is a solemn and tearful promise to their leaders. But are the leaders keeping their promises to the faithful? What the thousands lighting candles in this arena don't realize is that 99.9 percent of them will not only never get rich from Quixtar, but they won't even come close.
The freedom to flush that stinking job--that's the promise. And that's exactly what Eric Scheibeler did.
Eric Scheibeler: “I thought if I could create a six figure income and spend time with my family, I'd do anything for that.”
Scheibeler, at the time a federal auditor, had heard the stories and seen the videos. He signed up, and after a few years working part time in the business, he ceremoniously shot his own alarm clock. He triumphantly quit his day job. And with a limo waiting it was party time as he walked into the welcoming arms of his family and friends in the business.
Chris Hansen: “Goodbye boss, hello family.”
Scheibeler: “That's right. Exactly. It seemed to be the American dream.”
But instead of a life of leisure and more time with his family, he says he worked day and night, buying the tapes, attending the rallies. Still, he made nowhere near the six figure salary he thought he would. In fact, in his best year he made $34,000 and even that didn't last.
Hansen: “What do you have today?”
Scheibeler: “We're destitute, financially. We'll change that. But financially we have nothing as a specific result of this.”
We heard it again and again. People who worked the Quixtar plan, only to suffer in the end.
Vicki Mack: “It's hurt us. It's hurt a lot of people.”
Vicki and Lindy Mack say they not only didn't make money, they lost more than $35,000 over a five year period. Much of it on books, tapes, and traveling to rallies.
Hansen: “That by the way, is like a year at Harvard.”
Vicki Mack: “No kidding. I know that. We know that.”
So why, despite the promises, did the Macks and thousands of others end up on the losing end of the Quixtar dream? One man says it's because it's based on a lie. And he should know. His name is Bo Short, and for a time, he was selling the dream himself as one of Quixtar's brightest stars. But he says, he began to realize he was part of a mass deception.
Hansen: “You see these videos of these attractive couples driving Porches and Ferraris. Panoramic shots of palatial mansions.”
Bo Short: “They're beautiful. Right.”
Hansen: “Is that actually achievable by selling Quixtar products?”
Short: “Based on my experiences, no.”
Hansen: “How are people getting all of this stuff then?”
Short: “There is another business.”
And it's a business that is completely separate from Quixtar, a hidden business that most recruits don't realize exists. Short says many of those high-level distributors singing the praises of Quixtar on stage are actually making most of their money by selling motivational books, tapes and seminars -- not Quixtar's cosmetics, soaps and electronics.
Hansen: “This was the dirty little secret.”
Short: “That's exactly what it was, absolutely.”
Hansen: “That's not what you hear at the conventions.”
Short: “No, and that's not what you're told in somebody's living room when you see it either.”
In fact, about 20 high level distributors are part of an exclusive club, one that those hundreds of thousands of other distributors don't get to join. For years only a privileged few, including Bill Britt, have run hugely profitable businesses, selling all those books, tapes and seminars -- things the rank and file distributors can't sell themselves, but are told over and over again they need to buy in order to succeed.
Hansen: “Why are the recruits told to listen to the tapes and read the books over and over and over again?”
Short: “Because it creates a dependency and it creates a habit that keeps you bound to that business.”
Vicki Mack knows all about that. Even though she's a medical doctor, a pediatrician with a thriving practice, she found herself slaving away in the pursuit of new Quixtar recruits. After all, new recruits mean new sales and new sales mean more money.
Vicki Mack: “We'd be out, just even hanging out at McDonald's at the play places talking to parents.”
Hansen: “At McDonalds?”
Vicki Mack: “Yeah.”
Hansen: “Now you graduated from Berkeley.”
Hansen: “Went to medical school.”
Hansen: “Making a very fine salary as a pediatrician.”
Hansen: “And yet you're in a mall at a McDonald's on a Saturday trying to sell this thing.”
None of this surprises Bo Short. Not the commitment of time and money, not the emotion as we saw at the rally we attended.
Hansen: “There's a man with tears.”
Short: “There are probably many people with tears. And not all of those tears are because they're committed to it. Many of those tears are because they have worked diligently and are not any closer.”
Hansen: “If this is not a legitimate business opportunity, then in reality, in your opinion, what is it?”
Lindy Mack: “I would use the word scam.”
Vicki Mack: “That's what I was thinking too.”
Bo Short says, when he and several other high level distributors began to suspect the same thing, they confronted the company's managing director, Ken McDonald.
Short: “I said, 'Ken, I believe that people are stealing money and you're letting it happen.' And he didn't respond… And I remember looking at him a few minutes later. I said, 'Ken, kick some of them out. Show people you're serious.' And he looked at me and said, 'What would happen to the business?'”
Short says the company acknowledged it had been aware of the problem for decades. How could that be? Remember when we said Quixtar sounded a little like Amway--a company which drew the ire of the federal government several years back for making false promises to recruits? Well it turns out Quixtar isn't just like Amway -- it was Amway. Quixtar is just its new incarnation with many of the same players.
Eric Scheibeler and the Macks began as Amway distributors. And many of those same high-level Quixtar distributors also began with Amway. So did Bo Short, who says he decided to walk away from the business and all the money that came with it.
Hansen: “You were a poster boy for this outfit. You were on the company yacht. Are you now turning around and biting the hand that fed you?”
Short: “I don't care if anyone thinks I'm biting anyone's hand that fed me. I'm telling the truth.”
Quixtar declined to be interviewed on camera. But its managing director, Ken McDonald says in a letter that Short's recollection of events is "misleading" and he questions Short's "motivation" for speaking out. Short does run a small direct marketing firm himself and Quixtar considers him a potential competitor.
Quixtar also says it "prohibits" its independent distributors from making exaggerated claims about income. As for the company's income, most of that comes from the sale of products, not from tapes and books and tickets to rallies. In its contracts, the company discloses that some distributors do make money from those sales but that buying those materials is "strictly voluntary."
As for Bill Britt and some of the other top-level distributors we saw on stage, they also declined our request for an on-camera interview. But their lawyer told us in a letter that the income claims we heard are "not promoted or endorsed" by Britt and those other top distributors. He also wrote that buying the books and tapes is "voluntary"... and that how much they make from those sales "is not available."
So how much does an average Quixtar distributor really make? Well, only about $1,400 per year. What's the source for that figure? It's Quixtar itself. You can find it in the fine print of the company's own registration materials. That's $248,600 less than what our recruiter, Greg Fredericks, said we could make.
We caught up with him at one of his recruitment meetings.
Hansen: “We're doing a story on Quixtar and Quixtar distributors.”
Hansen: “And these folks here work with me.”
Fredericks: “Oh, great.”
Hansen: “ And we wanted to ask you a couple of questions.”
First we reminded him about the money he said we could make.
Hansen: “Are you really making...”
Fredericks: "I'm not disclosing that.”
Hansen: "A quarter million dollars by working merely 15, 16 hours a week?
Fredericks: “[affirms] But I'm not going to disclose to you my information as far as my personal income.”
But what he did let slip when he didn't know the camera was rolling was that one of the elite distributors we saw on stage is making most of his money from the motivation business.
Fredericks: “Probably three quarters of it.”
Sandler: “And that's from seminars -- holding seminars?”
Fredericks: “Seminars, rallies, functions, motivational tools, tapes, books, speaking engagements, appearances.”
But he didn't seem to remember saying that.
Fredericks: “I don't know where that number came from. You're mentioning a number, three quarters of what his income is...”
Hansen: “That's what you said, not what I said.”
Fredericks: “Did I say that?”
And that's about all he had to say. Later we found something else about Fredericks. Back in the mid 90s, he was arrested and charged with possession of crack cocaine and is still wanted by police to face charges in North Carolina.
What about others involved in Quixtar? Both the FBI and the criminal division of the IRS are making separate inquiries into at least two top distributors not focused on in this report. In the meantime, hundreds of thousands of true believers are drawn into Quixtar every year, dazzled by the promise of the good life. But unless things change, says Bo Short, it's a broken promise that will leave broken hearts.
Short: “I think people are being hurt. Because understand, the majority of people in the audience believe, or desperately, desperately want to believe this. And they sit there with their hearts in it. What about them?”
Some former high-level distributors have filed a lawsuit against Quixtar in federal court, accusing the company of antitrust violations and conspiracy. Quixtar disputes the allegations and says it hopes the matter will be resolved through arbitration.