THE LOCAL AREA WATCH

THE QUIXTAR KINGPINS' TALE OF WOE

If you want a better idea of what the infighting between the head honchos at Amway and their top Quixtar distributors is all about, this complaint filed by kingpin Orrin Woodward and some of his cohorts in a California federal court will give you an idea.

The kingpins complain that Amway/Quixtar is an illegal pyramid scheme, because the owners of Amway of have deliberately priced the products to be distributed through the Quixtar distribution chain so high that they cannot be realistically sold to a genuine retail market -- i.e., to consumers outside of the Quixtar network.  So while the high prices profit Amway, they don't profit Quixtar distributors except by recruiting sub-distributors to buy from them kits of Amway products on the con that they can sell the overpriced stuff to a non-existent retail market.

Therefore, the multi-level marketing structure of Quixtar does not serve to expand the retail customer base for Amway products.  Rather it serves to profit those at the top of the distribution chain (Amway and the kingpins) solely at the expense of those at the bottom of the chain (the suckers who buy an inventory of unsellable Amway products).  For that reason, it would appear Amway/Quixtar crossed the Federal Trade Commission's line between legitimate MLM to illegal pyramid scheme.

The kingpins' complaint is persuasive.  In fact, what they say is no surprise to anyone who hasn't drunk the Amway Kool-Aid.  Amway is no Avon.  Of course, their complaint, being what it is, doesn't tell the full story.  That full story needs to include how the kingpins were willing partners in this racket.  They needed Amway to provide the sales kit for them to use as the gimmick to recruit sub-distributors into their organizations.  In addition to profiting from the sale of Amway products to their "downline" distributors, the kingpins made even more money selling motivational seminars, tapes, books, and other nonsense to those same distributors as "tools" that would allegedly help them sell to a retail market the overpriced Amway junk they were saddled with.

So the Quixtar kingpins have hands as dirty as the owners of Amway.  As I said before, it takes a lot of chutzpah for these bandits to claim they are victims.  Let us not forget that the kingpins only complained about the cruelties of Amway, when DeVos and Van Andel juniors cut off their "tools" trade this summer.  Amway ended the Mexican stand-off between it and the kingpins that had kept them working together since the '80s.  Now out come the guns a-blazing.  My bet is that the last man standing won't be the kingpins, but then Amway won't come out unbloodied either.

JUDGE CLUBS QUIXTAR REBELS

Last Wednesday we reported on the civil war between Quixtar (a.k.a. Amway) and the company's top multi-level marketing distributors (a.k.a. "independent business owners").  The first battle was at the local courthouse over what if any injunctions would be issued at the outset of litigation over Quixtar's attempt to rein in kingpin distributors using high-pressure sales tactics to push expensive motivational seminars and materials (a.k.a. "business sales materials") on new Quixtar recruits -- i.e., the "tools" racket.  Kent County Circuit Court Judge Paul Sullivan made his decision on Friday.

The Quixtar rebels lost the battle.  Sullivan issued a preliminary injunction that enforces the contract they signed with Quixtar as distributors of the company's products.  The injunction binds the distributors to maintaining confidentiality about their affairs with Quixtar, entering into no competition with the company, and submitting their disputes with the company to arbitration rather than the courts.  Basically the kingpins are stuck with the contract they signed with Quixtar.

Also a big defeat for the rebels was a separate ruling by Sullivan that Quixtar can prohibit them from selling "tools" produced by TEAM.  TEAM is a lead Quixtar distributor operated by kingpin Orrin Woodward that the company fired recently because of its abusive "tools" trade.  That firing set off the storm of litigation across the country by TEAM and other Quixtar distributors, some of which landed in Sullivan's courtroom last week.  Sullivan's decision is a big blow to the rebel distributors, because the sale of TEAM-produced "tools" to dupes at the bottom of the multi-level marketing pyramid is a large source of revenue for many of them.

All in all, Sullivan's rulings on Friday do not bode well for the kingpin distributors.  A judge issues a preliminary injunction in cases like this only if he finds (among other things) that the party requesting the injunction is likely to prevail in the end.  That means Sullivan has concluded that Quixtar is likely to win the case.  If so, Quixtar will have dismantled its existing network of distributors and put them out of business before resurrecting itself as Amway, which fits with plans announced by the company a couple of months ago.

So this civil war would appear to serve the company's interests, but to what specific end?  Is Amway cleaning itself up to operate as a private-label manufacturer, or is it purging the kingpin distributors who have a lock on the "tools" trade so that it can have that nasty piece of business all to itself?  If the latter, the Amway gang would of course need to get control of a multi-media firm to produce the "tools" and then hotel and convention facilities to host seminars to pitch them.

Oh, that's right.  They do.

NO HONOR AMONG THIEVES: THE DEMISE OF QUIXTAR

While Big Sister Heartwell was pandering to anti-war protesters, an even bigger band of malcontents was making a scene in downtown G.R. on Monday.  Over a hundred Quixtar distributors gathered in front of the Kent County Courthouse to oppose Amway's threat to fire them if they do not pledge loyalty to Amway instead of the kingpin distributors who filed suit against the company in dispute over the sale of "tools" (i.e., marketing gimmicks and motivational seminars) to "downline independent business operators" (i.e., suckers who buy Quixtar products thinking they can make money selling the stuff to others).

As most of you know, seven years ago Amway reorganized itself as Alticor with Quixtar as the subsidiary for the North American soap-and-vitamins multi-level marketing business.  Essentially Quixtar was a rebranding of Amway, but it merely put lipstick on the pig.  None of the crappy way of doing business changed.  Amway made its money providing the come-on, membership as an "independent business operator" selling Amway products, for its kingpin distributors to lure marks into their distribution networks where they could then make money pressuring the greenhorns into buying those useless "tools".  Recently Amway has come under public scrutiny around the world to control its kingpins and clean up the dirty "tools" business.

It appears that in response to the scrutiny, Amway Chairman Steve Van Andel and President Doug DeVos are trying to make a real change in the company's culture this time.  Whether this is part of a long-term plan to remake Amway from a multi-level marketing scheme to a private label manufacturer is not clear, but Van Andel and DeVos publicly committed themselves this past June to reining in the "tools" business of their kingpins.  Apparently that was a declaration of war between Amway and the kingpins, and the long knives came out.  Amway purged itself of the most notorious of the Quixtar kingpin distribution networks -- TEAM, Legacy, and Team 5K -- and their operators have in turn just filed suit against Amway in a California federal court alleging that they were victims of the illegal pyramid scheme operated by the company.  (You almost have to admire chutzpah of the accessories of that scheme calling themselves victims of it.  But then there is no honor among thieves.)

Consequently Amway demanded an oath of loyalty from its remaining top Quixtar distributors.  Either they side with company against the purged kingpins, or they will be immediately fired or suspended.  A number of these distributors rebeled and filed their own suit against Amway in the local state court.  On Monday their attorney asked Judge Paul Sullivan for an injunction preventing Amway from changing their status until the federal court in California sorts out whether or not Amway is an illegal pyramid scheme, and they showed up en masse in front of the Kent County courthouse to hear the judge's decision.  They didn't get it.  Sullivan said he will make his decision today.

Whatever the immediate outcome of these legal battles, it looks like the house of cards that always was the Amway multi-level marketing business is falling apart.

GUILT BY ASSOCIATION? NO, GUILT BY DIRTY ROTTEN DEED

In the comment section of our last article, our esteemed colleague Nick De Leeuw of www.RightMichigan.com thought we might be unfairly tarring alleged billionaire Rich DeVos with a tenuous connection to convicted felon John Sims.  I suggested that Nick should follow the links in that article to get the full story.  I then looked it over including the links, and I can see how one might think we've been pronouncing guilt by association.  To really get the full story, a reader needs to follow a couple of links to get the news on how DeVos and other hospital officials raided the Butterworth piggy-bank during the mid-90's and then deterred a federal investigation into that self-dealing.

Consequently, our reference to DeVos in connection to Sims was a bit opaque, especially for our newer readers.  Moreover, seeing that the media never reported this news, and the healthcare rate-payers of River City are still picking up the tab for the looting of the hospital, this story doesn't get told enough.  So we're re-posting below what we first reported on August 11, 2005.

 

THE FIXER, PART III

[Note:  This is the third in a four-part series about Charlie McCallum, a local attorney involved in the transactions that lead to the dissolution of four Grand Rapids institutions:  Autodie, Butterworth Hospital, Amway, and Old Kent Bank.]

THE PIGGY BANK

Charlie McCallum and his wife Lois Temple had a good thing going at Butterworth Hospital.  They were among the select few who had their hands on the cash that flowed through River City’s premier hospital.  Charlie was chairman of the hospital’s board of directors, and when he wasn’t doing that he was the corporate secretary.  And just to make sure that he got at least one big plum out his “public” service, he was Butterworth’s corporate legal counsel.  That gave him control over which law firm got the hospital’s legal work.  Charlie made sure the lion’s share went to his law firm Warner Norcross & Judd L.L.P., where he was managing partner.  And guess who the managing partner assigned the Butterworth account to?

But Charlie got other plums beyond a monopoly on Butterworth’s legal work.  After he assisted Amway-founder Rich DeVos to devour Butterworth in the Spectrum Health merger in the middle ‘90s, he got a big prize.  Charlie was made chairman of Spectrum’s lucrative health care insurance concern, Priority Health.  He held that post until retiring two years ago.

However, Charlie wasn’t above nickel-and-diming the hospital for personal gain either.  Wife Lois was a Butterworth executive assigned to one of its for-profit subsidiaries in the late ‘80s.  That subsidiary was Butterworth Occupational Health Inc.  While Charlie was in charge, the hospital shoveled about a million dollars in cash a year from its reserves into BOH to keep it limping along as a cush sinecure for his wife.  Although Charlie had the hospital book that transfer of funds as an investment (by reflecting BOH as an asset in the hospital reserves), the subsidiary never acquired anything with the capital flowing into it.  Lois and her crew expensed out every dime, especially on salaries.  BOH was actually a cipher as an asset, even though the hospital reserves showed it as a valuable asset worth every dollar of the total of eight million dollars transferred to it during Charlie’s tenure in Butterworth’s boardroom.

A Culture of Self-Dealing

BOH was a worthless chit in the hospital reserves.  But then it had uses other than giving Charlie’s wife a comfortable job.  As told in Part II of this series, BOH was a convenient vehicle for bailing out one of Charlie’s business clients.  It was all part of the self-dealing, especially through land transactions, by those who had power over the hospital’s purse or influence with those who did.  Butterworth Hospital was their piggy bank to fund whatever deals hospital insiders could cobble together to pass the smell test.  As Llody Zwarensteyn, president of the Alliance for Health, had once remarked laconically upon reviewing Charlie’s shenanigans with BOH:  “Butterworth has a culture of self-dealing.”

Charlie and Lois were not the only ones cashing in.  Butterworth doctors also did so.  Frequently their deals involved getting options on land they knew the hospital needed for expansion, or they might form a group to develop property that the hospital would agree to lease.  One notorious doctor who got his bankroll from Butterworth Hospital was Jeffrey Askanazi.  In a very strange deal, Butterworth’s board of director approved an undocumented loan of one million dollars from the hospital reserves to Askanazi, who would then use the funds to open a string of pain clinics north of Grand Rapids.  The idea was that the pain clinics would serve as feeders into the Butterworth health care system in a region where the hospital was not getting many patients.  Everything went south when Askanazi killed a patient in 1996 at one of Butterworth’s affiliates, United Memorial Hospital in Greenville, and the feds began investigating.  Eventually Askanazi was convicted in U.S. district court on Medicare fraud.

However, Butterworth neatly separated itself from Askanazi’s problems.  (Not too difficult when the Grand Rapids Press won’t cover the story because its publisher is serving as chairman of the hospital.)  One broken deal wasn’t going to put an end to Butterworth’s use as a piggy bank by River City’s elite.  Indeed, Charlie was going to help a new bigshot client make Butterworth into a huge piggy bank to help work out that client’s huge financial problems.

DeVos Takes the Reins

In 1993 Amway-founder Rich DeVos replaced Charlie as chairman of Butterworth Health Corporation.  First thing on DeVos’s agenda was to merge Butterworth, the area’s number one hospital, with Blodgett Memorial Medical Center, the area’s number two hospital, into a new organization – i.e., today’s Spectrum Health Corporation.  Doing so would create a combined reserve of nearly one billion dollars under DeVos’s control.  Having control over the merged reserve was crucial to DeVos’s financial well-being, and Charlie put his law firm to work to make that merger happen.

Contrary to the typically fawning local media coverage of DeVos and his late partner Jay Van Andel, their Amway multi-level marketing empire was facing grave financial problems in the early ‘90s.  In fact, Amway never fully recovered and was eventually dismantled, with Charlie’s assistance, several years later.  (See Part IV of “The Fixer”.)  Briefly, the bubble burst for Amway’s Asian affiliates, which were set up as publicly traded companies on the Tokyo stock exchange.  These entities were in many ways proxies for the privately held mother company that DeVos and Van Andel had led everyone to believe was extremely profitable.

However, that was not so.  Amway had to admit that it overstated its revenues every year by 15-25% since its founding.  Indeed, the scandal twenty years ago involving Amway's Canadian subsidiary was not a tax dodge as commonly believed.  Instead it was a scheme to inflate revenues by booking the same sale twice. Anyone familiar with the current corporate scandals that have sunk Enron, Worldcom, Aldephia, and the like understands how this inflated the value of Amway, and by proxy, its Asian affiliates.  Thus, DeVos and Van Andel were facing huge liabilities as the price of the affiliates’ stock crashed to almost nothing.  On top of that the jig was up, at least in North America, on getting new marks to push Amway products.

As a consequence, Amway’s bankers forced the company for the first time in its history to take on an outside director.  By 1993, Amway was in a financial work-out.  But where would the extra cash come from to finance the work-out?  What new pools of capital could DeVos get his hands on?  As it happened, DeVos was chairman of Butterworth while his banker David Wagner was chairman of Blodgett.  Between the two hospitals were $850 million in reserves.  Merge those reserves, bring them under the control of DeVos, and maybe some of that money would find its way into investing in the multitude of real estate projects belonging to RDV Corporation, DeVos’s personal holding company, which in turn could help make Amway’s work-out payments to the bank.  So Charlie had a new mission:  Merge Butterworth and Blodgett hospitals into Spectrum Health Corporation.

Slaying the Dragon … Almost

The biggest dragon Charlie and his law firm had to slay to make the merger happen was the Federal Trade Commission.  Upon receiving notice of the Butterworth-Blodgett merger the FTC threw down the gauntlet:  No more mergers of the major non-profit hospitals in a region.  The FTC had concluded that previous non-profit mergers resulted in increased prices to healthcare consumers.  So in 1995 the agency went to the U.S. district court to request an injunction against the Butterworth-Blodgett merger.  Fortunately for Charlie, a sympathetic judge was assigned to the case, and he bought into the unsubstantiated notion that because Butterworth and Blodgett were non-profit organizations they would lack the ill intent to abuse their monopoly power once merged.  So, Charlie defeated the injunction.

Undeterred, the FTC appealed to the Sixth Circuit Court of Appeals in Cincinnati.  In 1996 the Sixth Circuit ruled against the agency.  So the FTC decided that it would use its own administrative court process to challenge the Butterworth-Blodgett merger.  No more sympathetic judges.  Charlie was faced with a real problem now.  This one he could not solve.  He had no way to stop the FTC's choice to pursue the matter through its own internal process.  But DeVos did.

The FTC was slated to conclude its investigation of the merger and send the case to its administrative court in September 1997.  That led to a flurry of activity involving FTC investigators nationwide.  Eventually they learned of Charlie’s conflicts of interests, the transfer of millions of dollars of hospital reserves to BOH (the subsidiary run by his wife), and the use of BOH to bail out his client Joe Spruit.  FTC investigator Joseph Lipinski consulted with the local U.S. Attorney’s office about these dubious relationships and transactions, and Assistant U.S. Attorney Thomas Gezon reported back to Lipinski that there was “evidence of self-dealing” at Butterworth.  If Lipinski could show how non-profit Butterworth Hospital was already being abused by those entrusted with its operation, he could then show the FTC administrative court that the Butterworth-Blodgett merger would simply create a larger organization to loot.  Thus, the good intent argument that prevailed in the U.S. district court and the Sixth Circuit would be defeated once and for all.

DeVos Buys a Favor

So, DeVos decided to shop for a favor.  As a bigwig in Republican politics, he thought he knew where to go.  In April 1997 DeVos and his wife gave the Republican National Campaign Committee a $1 million contribution, the biggest ever to a political party at that time.  It was more than five times amount that the DeVoses had contributed to the Republican party in the preceding five years.  Since then the DeVoses have not made any further large contributions to the party.  It was one-time event nowhere near any important election.  So what did DeVos get for his money?  The attention of a senator from New Hampshire, Judd Gregg.

Gregg was then serving as the chairman of the U.S. Senate’s Commerce Committee and working on the appropriations bill that would fund the FTC.  In July 1997 Gregg slipped into that appropriations bill at the eleventh hour and without debate a proviso that exempted, with some very slick language, the Butterworth-Blodgett merger from scrutiny by the FTC.  If passed the FTC’s administrative court would be prohibited from hearing the agency’s challenge to the merger.  Lipinski immediately protested Gregg’s heavy-handed maneuver.  Gregg threatened Lipinski that if the FTC made a stink about the proviso he would zero out all funding for the FTC's anti-trust division on the basis that it duplicated the work of the U.S. Justice Department.

That cowed the FTC, and in September 1997 the agency announced that it was dropping all challenges to the Butterworth-Blodgett merger.  DeVos then sent Gregg for the first and only time the maximum campaign contribution allowed by law.  In November 1997 the two hospitals announced their merger as Spectrum Health Corporation with DeVos at the helm.  Charlie then collected his reward as chairman of Spectrum’s Priority Health.  It was a big success for DeVos and Charlie, but there was still a lot of work to be done.  See Part IV for the Fixer’s next assignment.

[Click here for the last installment of "The Fixer". - The Editor]

[Note:  This is the third in a four-part series about Charlie McCallum, a local attorney involved in the transactions that lead to the dissolution of four Grand Rapids institutions:  Autodie, Butterworth Hospital, Amway, and Old Kent Bank.]

THE PIGGY BANK

Charlie McCallum and his wife Lois Temple had a good thing going at Butterworth Hospital.  They were among the select few who had their hands on the cash that flowed through River City’s premier hospital.  Charlie was chairman of the hospital’s board of directors, and when he wasn’t doing that he was the corporate secretary.  And just to make sure that he got at least one big plum out his “public” service, he was Butterworth’s corporate legal counsel.  That gave him control over which law firm got the hospital’s legal work.  Charlie made sure the lion’s share went to his law firm Warner Norcross & Judd L.L.P., where he was managing partner.  And guess who the managing partner assigned the Butterworth account to?

But Charlie got other plums beyond a monopoly on Butterworth’s legal work.  After he assisted Amway-founder Rich DeVos to devour Butterworth in the Spectrum Health merger in the middle ‘90s, he got a big prize.  Charlie was made chairman of Spectrum’s lucrative health care insurance concern, Priority Health.  He held that post until retiring two years ago.

However, Charlie wasn’t above nickel-and-diming the hospital for personal gain either.  Wife Lois was a Butterworth executive assigned to one of its for-profit subsidiaries in the late ‘80s.  That subsidiary was Butterworth Occupational Health Inc.  While Charlie was in charge, the hospital shoveled about a million dollars in cash a year from its reserves into BOH to keep it limping along as a cush sinecure for his wife.  Although Charlie had the hospital book that transfer of funds as an investment (by reflecting BOH as an asset in the hospital reserves), the subsidiary never acquired anything with the capital flowing into it.  Lois and her crew expensed out every dime, especially on salaries.  BOH was actually a cipher as an asset, even though the hospital reserves showed it as a valuable asset worth every dollar of the total of eight million dollars transferred to it during Charlie’s tenure in Butterworth’s boardroom.

A Culture of Self-Dealing

BOH was a worthless chit in the hospital reserves.  But then it had uses other than giving Charlie’s wife a comfortable job.  As told in Part II of this series, BOH was a convenient vehicle for bailing out one of Charlie’s business clients.  It was all part of the self-dealing, especially through land transactions, by those who had power over the hospital’s purse or influence with those who did.  Butterworth Hospital was their piggy bank to fund whatever deals hospital insiders could cobble together to pass the smell test.  As Llody Zwarensteyn, president of the Alliance for Health, had once remarked laconically upon reviewing Charlie’s shenanigans with BOH:  “Butterworth has a culture of self-dealing.”

Charlie and Lois were not the only ones cashing in.  Butterworth doctors also did so.  Frequently their deals involved getting options on land they knew the hospital needed for expansion, or they might form a group to develop property that the hospital would agree to lease.  One notorious doctor who got his bankroll from Butterworth Hospital was Jeffrey Askanazi.  In a very strange deal, Butterworth’s board of director approved an undocumented loan of one million dollars from the hospital reserves to Askanazi, who would then use the funds to open a string of pain clinics north of Grand Rapids.  The idea was that the pain clinics would serve as feeders into the Butterworth health care system in a region where the hospital was not getting many patients.  Everything went south when Askanazi killed a patient in 1996 at one of Butterworth’s affiliates, United Memorial Hospital in Greenville, and the feds began investigating.  Eventually Askanazi was convicted in U.S. district court on Medicare fraud.

However, Butterworth neatly separated itself from Askanazi’s problems.  (Not too difficult when the Grand Rapids Press won’t cover the story because its publisher is serving as chairman of the hospital.)  One broken deal wasn’t going to put an end to Butterworth’s use as a piggy bank by River City’s elite.  Indeed, Charlie was going to help a new bigshot client make Butterworth into a huge piggy bank to help work out that client’s huge financial problems.

DeVos Takes the Reins

In 1993 Amway-founder Rich DeVos replaced Charlie as chairman of Butterworth Health Corporation.  First thing on DeVos’s agenda was to merge Butterworth, the area’s number one hospital, with Blodgett Memorial Medical Center, the area’s number two hospital, into a new organization – i.e., today’s Spectrum Health Corporation.  Doing so would create a combined reserve of nearly one billion dollars under DeVos’s control.  Having control over the merged reserve was crucial to DeVos’s financial well-being, and Charlie put his law firm to work to make that merger happen.

Contrary to the typically fawning local media coverage of DeVos and his late partner Jay Van Andel, their Amway multi-level marketing empire was facing grave financial problems in the early ‘90s.  In fact, Amway never fully recovered and was eventually dismantled, with Charlie’s assistance, several years later.  (See Part IV of “The Fixer”.)  Briefly, the bubble burst for Amway’s Asian affiliates, which were set up as publicly traded companies on the Tokyo stock exchange.  These entities were in many ways proxies for the privately held mother company that DeVos and Van Andel had led everyone to believe was extremely profitable.

However, that was not so.  Amway had to admit that it overstated its revenues every year by 15-25% since its founding.  Indeed, the scandal twenty years ago involving Amway's Canadian subsidiary was not a tax dodge as commonly believed.  Instead it was a scheme to inflate revenues by booking the same sale twice. Anyone familiar with the current corporate scandals that have sunk Enron, Worldcom, Aldephia, and the like understands how this inflated the value of Amway, and by proxy, its Asian affiliates.  Thus, DeVos and Van Andel were facing huge liabilities as the price of the affiliates’ stock crashed to almost nothing.  On top of that the jig was up, at least in North America, on getting new marks to push Amway products.

As a consequence, Amway’s bankers forced the company for the first time in its history to take on an outside director.  By 1993, Amway was in a financial work-out.  But where would the extra cash come from to finance the work-out?  What new pools of capital could DeVos get his hands on?  As it happened, DeVos was chairman of Butterworth while his banker David Wagner was chairman of Blodgett.  Between the two hospitals were $850 million in reserves.  Merge those reserves, bring them under the control of DeVos, and maybe some of that money would find its way into investing in the multitude of real estate projects belonging to RDV Corporation, DeVos’s personal holding company, which in turn could help make Amway’s work-out payments to the bank.  So Charlie had a new mission:  Merge Butterworth and Blodgett hospitals into Spectrum Health Corporation.

Slaying the Dragon … Almost

The biggest dragon Charlie and his law firm had to slay to make the merger happen was the Federal Trade Commission.  Upon receiving notice of the Butterworth-Blodgett merger the FTC threw down the gauntlet:  No more mergers of the major non-profit hospitals in a region.  The FTC had concluded that previous non-profit mergers resulted in increased prices to healthcare consumers.  So in 1995 the agency went to the U.S. district court to request an injunction against the Butterworth-Blodgett merger.  Fortunately for Charlie, a sympathetic judge was assigned to the case, and he bought into the unsubstantiated notion that because Butterworth and Blodgett were non-profit organizations they would lack the ill intent to abuse their monopoly power once merged.  So, Charlie defeated the injunction.

Undeterred, the FTC appealed to the Sixth Circuit Court of Appeals in Cincinnati.  In 1996 the Sixth Circuit ruled against the agency.  So the FTC decided that it would use its own administrative court process to challenge the Butterworth-Blodgett merger.  No more sympathetic judges.  Charlie was faced with a real problem now.  This one he could not solve.  He had no way to stop the FTC's choice to pursue the matter through its own internal process.  But DeVos did.

The FTC was slated to conclude its investigation of the merger and send the case to its administrative court in September 1997.  That led to a flurry of activity involving FTC investigators nationwide.  Eventually they learned of Charlie’s conflicts of interests, the transfer of millions of dollars of hospital reserves to BOH (the subsidiary run by his wife), and the use of BOH to bail out his client Joe Spruit.  FTC investigator Joseph Lipinski consulted with the local U.S. Attorney’s office about these dubious relationships and transactions, and Assistant U.S. Attorney Thomas Gezon reported back to Lipinski that there was “evidence of self-dealing” at Butterworth.  If Lipinski could show how non-profit Butterworth Hospital was already being abused by those entrusted with its operation, he could then show the FTC administrative court that the Butterworth-Blodgett merger would simply create a larger organization to loot.  Thus, the good intent argument that prevailed in the U.S. district court and the Sixth Circuit would be defeated once and for all.

DeVos Buys a Favor

So, DeVos decided to shop for a favor.  As a bigwig in Republican politics, he thought he knew where to go.  In April 1997 DeVos and his wife gave the Republican National Campaign Committee a $1 million contribution, the biggest ever to a political party at that time.  It was more than five times amount that the DeVoses had contributed to the Republican party in the preceding five years.  Since then the DeVoses have not made any further large contributions to the party.  It was one-time event nowhere near any important election.  So what did DeVos get for his money?  The attention of a senator from New Hampshire, Judd Gregg.

Gregg was then serving as the chairman of the U.S. Senate’s Commerce Committee and working on the appropriations bill that would fund the FTC.  In July 1997 Gregg slipped into that appropriations bill at the eleventh hour and without debate a proviso that exempted, with some very slick language, the Butterworth-Blodgett merger from scrutiny by the FTC.  If passed the FTC’s administrative court would be prohibited from hearing the agency’s challenge to the merger.  Lipinski immediately protested Gregg’s heavy-handed maneuver.  Gregg threatened Lipinski that if the FTC made a stink about the proviso he would zero out all funding for the FTC's anti-trust division on the basis that it duplicated the work of the U.S. Justice Department.

That cowed the FTC, and in September 1997 the agency announced that it was dropping all challenges to the Butterworth-Blodgett merger.  DeVos then sent Gregg for the first and only time the maximum campaign contribution allowed by law.  In November 1997 the two hospitals announced their merger as Spectrum Health Corporation with DeVos at the helm.  Charlie then collected his reward as chairman of Spectrum’s Priority Health.  It was a big success for DeVos and Charlie, but there was still a lot of work to be done.  See Part IV for the Fixer’s next assignment.

[Click here for the last installment of "The Fixer". - The Editor]

THE CON ARTIST AND THE PIGGY BANK

Last week John Sims, celebrated man about town during the '90s, lauded by the media, gushed over by city officials, and business partner of River City bigwigs, was sentenced for up to 21 years in prison for defrauding investors out of $700,000 by peddling franchises to non-existent ATM's.  (Not all were taken in during Sims's heyday, such as your insightful Executive Director, who had warned the media and the city of his dubious dealings.  To no avail, unfortunately.)  A reader reminded us via e-mail that we had something to say about Mr. Sims and his benefactors a while back.

Under "Birds of Feather" published on February 21, 2006, we wrote:

Thanks to a reader of ours who tipped me off yesterday that John Sims had been arrested on charges of fraud.  The news was confirmed this morning on the radio.

You may remember Sims as Mike Webb's partner.  Webb is presently serving a prison sentence for embezzlement.  The two hucksters were front men in the Charlevoix Club scheme for Peter Cook, former used-car salesman, local bigwig, and friend of Rich DeVos.  Cook set up Sims and Webb with $100,000 to act as public cover for a transaction that secretly funneled $3.6 million from the coffers of Butterworth Hospital (now Spectrum Health) to the benefit of a client of Warner Norcross honcho, Charlie McCallum a.k.a. the Fixer.

The sordid details are chronicled here, here, and here.

Unfortunately none of the culprits has had to pay any price for abusing Butterworth Hospital as their own private piggy bank, even if a couple of the small fry have been nabbed for other scams.  Meanwhile, we the healthcare rate-payers continue to pick up the tab for their slush fund.

Webb and Sims aren't the only ones who should be in jail.

AMWAY NO LONGER SCAMWAY?

As regular readers of the Local Area Watch know, we are no fans of Amway.  As reported here, here, and here, we have a healthy disdain for the multi-level marketing company that has been suckering ordinary people to buy its soap-and-vitamins sales kits with the pitch that reselling the stuff to family and friends is the path to riches, when in fact they were nothing but marks to enrich Amway and its kingpin distributors.  For a long time now Amway (including its most recent incarnation as Quixtar) has had a dirty bargain with its kingpins:  Amway turns a buck selling sales kits to the new marks recruited by the kingpins while turning a blind eye to the kingpins pressuring the marks to buy pricey but useless training and motivational crap.  A match made in hell.

Well, it's not illegal, at least not here in the U.S. of A.  That's O.K.  The law shouldn't stop people from being suckers.  But it is a business that stinks, and apparently the top brass at Amway can no longer deny the stench.  And so Amway Chairman Steve Van Andel and President Doug DeVos announced that they want to redirect their kingpins to selling Amway products rather than the Amway "opportunity".  To that end, they are junking the Quixtar brand name over the next two years with the hope that the odor which has clung to their company will disappear along with it.  Once that is done, the plan is to have Amway brand name arise like phoenix to restore confidence in their multi-level marketing operations.

Perhaps.  The reason for re-branding Amway as Quixtar seven years ago was to disassociate the company's North American multi-marketing operations from the taint the Amway name had acquired over the years.  However, under the Quixtar name the merry tradition of kingpins fleecing new recruits continued, and so Quixtar became as soiled as Amway.  Meanwhile, there have been government crack-downs on these dubious practices in some of the company's overseas markets causing considerable financial trouble and embarrassment.  Consequently Van Andel and DeVos say they want to finally eliminate the negative perceptions associated with their company.

No doubt they do.  What businessman wants his company to be the object of scorn?  But will Van Andel and DeVos actually undertake the difficult task of cleaning out the Augean stables of the kingpins who have helped to make Amway and then Quixtar reviled names?  Or is their re-branding strategy just more flim-flam, a Quixtar redux, that polishes the turd instead of flushing it?  Stay tuned.

THE RIVER CITY CODE OF SILENCE

On Tuesday 2nd Ward City Commissioner Rick Tormala declared that he is running for mayor of Grand  Rapids.   

In his announcement there was some indication that he is willing to break the code of silence on the de facto right of first refusal and special tax breaks city officials give the River City oligarchs, namely Rich DeVos and Peter Secchia, on large downtown real estate deals.  The city manager’s office under Kurt Kimball is the center of this corruption, and Tormala railed against Kimball’s usurpation of the City Commission’s role in setting policies and priorities – albeit obliquely – and incumbent Mayor George Heartwell’s acquiescence to this diminution of the people’s elected representatives – more pointedly.

That’s a start.  Until Tormala or some other candidate for city office defines the crimes against the public trust and names the names of the perpetrators, the reform message will not resonate with the voters and its messengers will not win the election.   

The voters need to be informed about how the city government has become a tool for DeVos and Secchia to use either to get control of downtown deals or to wet their beaks in the them.  The voters need to be informed how they got their hands upon the levers of government power by anointing themselves as kingmakers, as the men who claim they can either make or break the ambitions of city officials, and nothing more.

For example, consider the girlish giddiness of Heartwell over the prospect of Secchia endorsing his re-election as mayor or the chastening of 1st Ward City Commissioner Jim Jendrasiak who opposed a taxpayer-subsidy for DeVos’s ritzy J.W. Marriot hotel project and was then challenged in the next election by a DeVos-Secchia backed candidate.   Even four years after exiting three terms as mayor carrying water for DeVos and Secchia, Logie still pushes their agenda with the hope that these Republicans will back his Democratic run for the U.S. Congress once Vern Ehlers retires.  Then there are the rumors that City Manager Kimball and his assistant Eric DeLong have been promised cush jobs after they leave their posts.

The voters should be shocked at how cheaply their public servants go for these days.  Look at what DeVos and Secchia got in return for some kind words, a few promises, a couple of bucks, and the occasional excoriation behind closed doors.  Public funding of the arena and convention center (which boosted the value of nearby DeVos and Secchia properties like the Amway Grand Plaza Hotel which climbed $20 million or more), the nixing of a Monroe North parking ramp needed by a competing developer in favor of a ramp DeVos wanted for his project, the bargain Secchia got on the City Center, the legal defense of the Toxic Towers developers (financed by Secchia’s bank and assisted by DeVos’s property management firm), taxpayer subsidies to DeVos for the Marriot hotel project and the Chrisman medical complex on Michigan Street, and so on.

Then again, maybe not so shocked.  Going along to get along is Logie’s legacy from his long reign as mayor of Grand Rapids.  Over a dozen years Logie accumulated personal power by holding several board and commission seats tied to real estate development and didn’t hesitate to bully and intimidate the weak sisters among our public servants on behalf of DeVos and Secchia.  People got used to doing what was expected of them by Boss Logie to avoid confrontation.  Old habits die hard, and it’s no help that a phony progressive like Heartwell has tried to carry on the Logie oligarchic tradition for the past four years.

It’s well past time for a shake-up at City Hall.  The old guard at the city manager’s office must go, as well as the politicians like Heartwell who abet their corrupt agenda.

A shake-up won't happen if no one calls them to account.  The media’s not going to do it, especially with the newspaper of record run by a publisher who wants to be DeVos’s pal.   Even the brave new world of the internet has plenty of old-fashioned cowards.  For instance, the message board on UrbanPlanet.org that was critical of Secchia’s designs on downtown Grand Rapids disappeared into the ether.   Of course, we’ll bark, but we’re not the big dog. 

To get this job done it is up to politicians like Tormala and other candidates for city office to name the names of those who have abused the public trust.

The sixteen-year-long code of silence must be broken.

SHOW ME THE MONEY, DAVE!

Biotech is a bust in Michigan, because there's no capital to fund new ventures.  At least that's the story coming out of the latest "Biotech Connect" forum that the Van Andel Institute hosts every quarter.  Of course, anyone following the capital markets knows that that there is a glut of cash looking for good -- hell, even bad -- investments to put it to work and gin up returns as lousy as 10-11%.  There are private equity firms, hedge funds, and venture capitalists with pockets full of cash just around every corner -- except apparently in Michigan.  So is the lack of capital to invest in biotech, the latest darling of the money men, really the problem?

It is true that Michigan doesn't have as deep a pool of investment capital as there are on the East and West Coasts.  It is also true that investors have general preference for putting money into ventures nearer to home.  That's one of specific beefs voiced by "Biotech Connect" attendees.  As Jack Luderer, executive director of Western Michigan University's Bioscience Research & Commercialization Center, put it (according to Grand Rapids Press reporter Julia Bauer):  "The rule in the venture capital world is, the partners want to be home for dinner."  Well, who doesn't?  But that doesn't stop VC's, the PE guys, or the khaki-slacked hedge fund masters of the universe from pumping their cash into businesses half a continent away.  In fact, it is only angel investors, the fellows that focus on the raw start-ups to make micro-investments, who really stick close to home as a matter of principle.

The fact is geography is not a serious barrier to raising capital for biotech ventures in Michigan.  The real problem is that investors don't like what they see.  That doesn't necessarily mean there are no good biotech ideas coming out of Michigan, but there may well be a dearth of managerial talent that investors want to see behind those ideas.  Now that's where geography often plays an important role.  Industries tend to cluster in a region, and Michigan is not a biotech cluster.  So biotech business managers are elsewhere.  But even that can be overcome with the right price, but who will pay that price?

Well, certainly a true believer in Michigan's promise as a biotech mecca who has a $3 billion family fortune backing him.  And if that person happened to be running a large medical research institute, he would seem to be particularly well-placed to fix the problem of putting together the cash that would attract the biotech managerial talent who would in turn give far-away investors (you know, the money men in exotic locales like Chicago, Cleveland, and Pittsburgh) the confidence to back Michigan biotech companies.  Fortunately, folks, there is just such a person right here in our own backyard:  David Van Andel, chairman of the Van Andel Institute and scion of the Amway fortune.

So when Van Andel tells his fellow "Biotech Connect" attendees that all West Michigan needs to reach a "critical mass" of biotech talent to attract investors, I say that's simple enough:  "Show me the money, Dave!"  (Unless, of course, it's not there.)

ONE HUNDRED MILLION BUCKS FOR MSU MED SCHOOL: WHO BENEFITS?

As many of you know, Michigan State University is moving its medical school to Grand Rapids.  The school will need a new building in the vicinity of Spectrum Health, the DeVos-Cook Center, and the Van Andel Institute.  The university's board of trustees have approved the expenditure of $70 million for the construction of that building, and Spectrum Health has agreed to pony up $55 million toward that cost.  And that's only the start.  So far $100 million has been committed to the project by MSU, Spectrum, and the VAI.

Well, folks, just taking account of nothing more than the money put up for bricks and mortar, there's a lot of public money from taxpayers and health-care ratepayers sloshing around.  So who's the contractor who'll get his hands on all that dough?  Is it really any surprise that it will be Amway co-founder Rich DeVos?  The university trustees favor building the medical school at the Michigan Hill medical complex that DeVos's RDV Corp. is currently developing in conjunction with Christman Co. of Lansing.  It's no coincidence that the Michigan Hill location found that favor after Spectrum Health, of which DeVos is a current board member, past chairman, and high profile benefactor, announced that it will cover most of the cost of construction plus another $30 million for operations.

(And I'm sure it didn't hurt when the other Amway clan, the Van Andels, committed $16 million over the next eight years from the Van Andel Institute to finance research at the new medical school.  Then again, maybe it didn't make much of a difference.  If you think about it, for the scale of the medical school project, what the Van Andels promised is a paltry sum -- two million bucks a year -- compared to Spectrum Health's gift of $85 million up front.  But then the $16 million is coming out the pockets of the Van Andels, whereas the $85 million is ultimately coming from you, Mr. & Mrs. John Q. Public, as health-care consumers.  Little wonder then that DeVos's Spectrum Health is more generous with your money than the Van Andels are with their own.)

Mind you, the Michigan Hill medical complex is probably a good spot for the MSU medical school.  I should certainly think so, because I own a home in Heritage Hill only a couple of blocks away.  All this development will only increase its value.  Yet, precisely what is the value that the taxpayers and health-care ratepayers will realize from this expensive project?  We know how the DeVoses will benefit from the construction of the medical school and how the Van Andels will benefit from a research alliance between the VAI and MSU.  But what does the public get from the expenditure of all this public money?  Many grand promises so far about a bio-tech boom in River City, but so far no particulars about how ordinary people paying the bill reap any benefit from that.

THE REAL TOOL

On Sunday the Grand Rapids Press ran an interview of Dave Van Andel, one of the Amway heirs who is now running the Van Andel Institute downtown (while selling pills and potions on the side in a non-Amway venture).  There was nothing new in news about the institute, and we have already had plenty to say about the Van Andel Institute, including the absence of Jay's fortune in funding the institute and its relationship to the biotech boondoggle.  So, I no remarks today about that article.

What caught my eye was a tidbit in a sidebar to the Press article, in which Van Andel was on the defensive regarding the "tools and functions" racket that Amway/Quixtar kingpin distributors operate to fleece the flock fooled into thinking they'll get rich selling soap, vitamins, and doo-dads to friends and relatives.  A year ago we ran a three-part series on this scandal within the scandal that is Amway/Quixtar:  "The Pyramid is Crumbling", "The River City Kingpins", and "The Illusion of Wealth".  Read these articles for the full story behind Amway's Mexican stand-off with its key distributors.

Here is what Van Andel had to say to the Press about Amway/Quixtar's failure to rein in the tools scam:

"(Tools) don't have anything to do with us.  That's the frustrating part.  You talk about a tools business, that's a distributor who started that.  They don't have anything to do with us, and we don't, effectively, have any control over that.  You say, 'Well, why don't you do something about it?'  Well, I don'ty have any legal right to do anything about it. ... Unless they break a law or a rule that we have control over, you don't have the power to do anything about it.  That's the frustrating thing.  We're getting beat up for something we really don't have any control over."

Yeah, just like Dick DeVos and his family had no control over Alterra.

What I find noteworthy is that Van Andel does not defend the "tools and functions" trade -- i.e., the fiercely defended monopoly that kingpin Amway/Quixtar distributors hold over the sale of largely worthless motivational materials and seminars to sub-distributors on the pretext that these "tools" will help them get rich selling Amway stuff.  In fact, Van Andel appears to recognize that it is a vile business.

I also find it noteworthy Van Andel's lament that there is nothing he and Amway/Quixtar can do about it.  He says, "They [i.e., the kingpin distributors] don't have anything to do with us."  They don't?  His company's top distributors have nothing to do with the company?  That's a curious view of things.  Don't these distributors have to buy from Amway/Quixtar all the stuff they distribute?  Could not Van Andel demand that Amway/Quixtar refuse to sell to those kingpin distributors they believe are exploiting smaller distributors with the tools racket?

Of course, Van Andel could do that, except ... Well, you see Amway/Quixtar needs the kingpins more than the kingpins need them.  If Amway/Quixtar won't sell the kingpins the stuff that serves as the pretext to con their sub-distributors into buying their "tools" (the big money-maker for the kingpins), then the kingpins will replacy Amway/Quixtar with another multi-level marketing firm and set up a new pretext for peddling their "tools".  So Amway/Quixtar loses a major chunk of business while the kingpins relabel all their motivational tools and seminars and go on their merry way.  That is what Van Andel means when he says Amway/Quixtar has no power over them and their rotten trade.

So who's the real tool in this deal?

DEVOSES DOUBLE UP TO DOUBLETALK

Gubernatorial candidate Dick DeVos and his dad, Amway co-founder Rich DeVos, have been busy trying to douse the fire Guv Jen lit in Monday's debate regarding the DeVos family's investment in Alterra Health Care, a chain of old-age homes.  Jen asked Dick why he hadn't publicly disclosed his interest in Alterra, which collapsed in bankruptcy after several government investigations into charges that its staff was abusing residents.  Dick replied that he no longer had any holdings in the defunct company and that when he did he was nothing but a passive investor owning less than one percent of the company's stock.

Immediately after Monday's debate the facts began coming out about the true relationship between the DeVoses and Alterra.  Although the DeVoses, including Dick, didn't have direct ownership of a significant number of shares of Alterra, they held bonds convertible into 40% of the company's stock.  The Securities & Exchange Commission defines the ownership of such an option as having control over the company.  Nevertheless, both DeVos Jr. and Sr. disputed that definition in the media this week insisting that they had no control of Alterra.  So let's give them the benefit of the doubt on that one.  That still leaves unexplained by the doubletalking duo the fact that the DeVoses appointed four of the directors of Alterra's corporate board who had the right to veto any decision made by the other directors.  Plus the chairman of Alterra's board was the same fella who runs RDV Corp., the DeVos family's investment management company.

However, you slice it, Dick wasn't straight with the voters in Monday's debate when he passed off his holdings in Alterra as a tiny fraction of the company's stock.  That was an omission of fact that amounted to a lie.  The follow-up statements by Dick and his dad are no better.  They claim that their family had no control over Alterra to correct the abuses at its old-age homes, because they only had an option to convert their bonds into stock and didn't have actual ownership of it.  Well, folks, what is left unsaid by the doubletalking duo is that they chose not to exercise that option to take direct control and stop the abuse that was occurring.  Of course, that assumes they even had to exercise it to have effective control of Alterra, and remember their control of four veto-empowered directors plus the chairman of the board.

So these half-truths don't give me a lot of confidence that Dick is telling us everything when he said he never knew about the abuse at Alterra until recently.  But maybe that's true.  I find it difficult to believe that even a family that made its fortune conning ordinary people into a Ponzi scheme would be so heartless as to make money off of a company whose employees were physically and sexually abusing helpless old men and women suffering dementia.  Furthermore, the various state investigations into the abuse at Alterra old-age homes concluded that the knowledge of abuse had not been communicated to corporate headquarters.  Yet, that really doesn't let Dick off the hook, because those investigations were wrapped up while the DeVoses held their controlling stake in Alterra -- not afterwards.

So, either Dick hadn't a clue about a MAJOR scandal in Alterra's operations that prompted government investigations in at least four different states or he lied about his knowledge of it because he and his family chose not to act while in the position to do so to fix the scandal.  At the very least Dick is a lousy businessman who couldn't keep safe an important investment his family had made (after all, every dime they had in it got flushed in Alterra's bankrupcty).  Worse, he is a liar covering up his heartless pursuit of a buck at the expense of abused elders -- and still a lousy businessman because he lost everything anyway.

Either way, it doesn't speak well of Dick's self-proclaimed business acumen to pull Michigan out of its economic funk.

DICK DEVOS DISHONEST IN DEBATE

Monday night Bridget and I watched the first debate of the governor's race.  Both Gov. Jennifer Granholm and challenger Dick DeVos were disappointing.  When they weren't shoehorning preprogrammed talking points into their answers like the robotic political hacks they are, they let the panel of reporters bait them into slinging mud at each other.  Mind you, I'm not prissy about politics.  There's nothing wrong in principle with so-called negative campaigning or raising issues of character.  But that doesn't mean tarring your opponent can't be pointless, which most of Monday's attacks were.

However, Guv Jen did launch one attack that revealed a lack of character in Dick.  She asked him why he failed to report on his public disclosure of assets an investment in Alterra Healthcare Corp.  Alterra operated a chain of nursing homes in the U.S., including Michigan, until it collapsed into bankruptcy in 2003 amid allegations of patient abuse.  Dick retorted that Alterra was a publicly traded company in which he and his wife made an investment and had no control of it because they owned less than one percent of the company's stock.  In fact, Dick stressed the sub-one-percent figure twice.  In doing so, he characterized his investment as akin to owning some shares in GM or Microsoft or any other ordinary investment in a public company.  Befuddled by this, Guv Jen retreated.

Although Granholm's attack didn't work the way she had expected -- did she really think that DeVos somehow OK'ed the abuse of patients at Alterra nursing homes? -- DeVos's response showed us something we should know about his character.  He lied.  If not blatantly, he did so in fine Clintonian fashion, which is just as reprehensible for its deliberate slipperiness.

DeVos's characterization of his investment in Alterra was dishonest.  In 2000 Jerry Tubergen -- at the time president of RDV Corp., the DeVos family asset management firm -- was a member of Alterra's board.  He persuaded the DeVos family, including Dick and his wife Betsy, to collectively invest $173 million into Alterra to bail out the financially troubled company.  The investment purchased only a small amount of the company's stock.  Most of the investment was in the form of Alterra bonds (i.e., unsecured loans to the company) that were convertible into stock.  If the DeVos family had exercised their option to convert their bonds into stock, they would have owned 40% of Alterra's stock, including 90% of its Class A stock.  Control of that stock controls the company's board of directors.

So DeVos and his family were in fact THE major players in the financing of Alterra.  Their bonds allowed them to take that control of the company whenever they wanted, and so gave them a great deal of informal influence over Alterra if not direct control -- and that assumes none of the Alterra boardmembers other than Tubergen answered to the DeVos family.  That situation is rather different from how DeVos described it in the debate.  He and his family had rather more influence over Alterra than owning less than one percent of the stock in a publicly traded company would suggest.  While DeVos's statement about ownership of stock in Alterra was technically true, it was so incomplete as to the real stake he and his family had in the company that it was a deception.

BROTHER'S KEEPER

Oh sure, little brothers can be a pain, but sometimes they're pretty helpful.  Just ask Dick DeVos Jr., closet organizer entrepreneur, Amway scion, and candidate for governor.  What he is not, any longer, is the owner of the racing sloop Windquest.  Dick was the owner a year ago when he had his sailboat up for sale.  But apparently there were no takers.

Now Dick Jr. is running for governor, and I suppose a man of the people just doesn't go sporting around in regatta-winning racing sloops.  So, we learn in today's edition of the Detroit Free Press that his younger brother Doug is now not only the new owner of the Windquest but is also replacing Dick as the vessel's skipper in this year's big race from Port Huron to Mackinac Island.

Maybe Doug provided his brother this bit of P.R. cover, because Dick figured that Michiganders are a small-minded race who would begrudge him a token of his success as the proprietor of a capital-venture-firm-now-shelving-concern, husband of an heiress, and son of the biggest multi-level marketing huckster in the world.  But then, with Dick now trimming his sails on all manner of political positions he once held, maybe he's just tired of literally trimming them.

WE'RE NOT ON OUR OWN, WE HAVE DICK JR!

I closed the preceding story with the statement that you're on your own when it comes to making sure that you and your loved ones get the proper health care from River City's medical monopoly, Spectrum Health.  Maybe some of you are tempted think that because Dick DeVos Jr. has now pledged to protect the little guy against rapacious Big Oil, he will do the same against Big Medicine up on the hill.

Don't count on it.  Gubernatorial candidate Dick Jr. won't be addressing the failure of both state and local governments to police the problems at Spectrum Health and the Kent County medical examiner's office that have been revealed by the tragedies of the Jennings and Sallie families.  The reason is simple.  The DeVos family has mired their business interests in the financial well-being of Spectrum Health.  The old man, Rich DeVos, was the founding chairman of the health care colossus and remains an active member of the board.  Dick Jr. headed the Butterworth Foundation, a non-profit that solicits funds for the expansion of Spectrum Health, and keeps his hand in the game with his recent investment -- ahem, gift -- to the Spectrum's children's hospital that bears his mother's name.

With this influence over Spectrum, the old man has hitched the family's star to the big Michigan Street medical complex which will be paid for with income from Spectrum Health and its affiliates, doctors, contractors, and other related business activities.  Plus, there are all the entanglements that the DeVoses' partners, the Van Andel family, have with Spectrum Health through the Van Andel Institute.  So, don't look to Dick Jr. to watch your back on this one, dear readers.

SAY ANYTHING

I've had a lot to say about Dick Jr.'s campaign ads for governor -- and none of it good.  But I haven't wanted to leave the impression that Guv Jen has covered herself in glory by a lack of commentary about her campaign, so I was working on an article about her economic illiteracy.  Alas, this morning Dick Jr. had a radio commercial that trumped any of the economic nonsense that Jenny has spouted.  So he's not giving me a chance to appear even-handed in this campaign -- even though I'm trying.

To wit, Dick Jr. pronounced that evil Big Oil is raping the consumers with record high gasoline prices while raking in record profits.  The problem with Dick's charge against the oil companies is that it's a load of cobblers, as any experienced businessman -- as he claims to be -- would know.  (Besides, who is Dick Jr. to complain about high prices for ordinary products in light of the extortionate amounts his Quixtar "Independent Business Owners" browbeat their relatives and friends into paying for soap and vitamins?)

Gasoline is expensive, because China and India have greatly increased the demand for the petroleum from which it is refined.  In time new oilfields will go into production, and supply will exceed demand and prices will drop.  Meanwhile supply is artificially restricted because U.S. lawmakers banned drilling for oil across large swaths of the country, including the Alaskan Arctic, the West Coast, the eastern half of the Gulf Coast, and the Atlantic Coast.  Another problem is that environmental regulations and petty NIMBY politics have prevented the construction of any new gasoline refineries in the U.S. since the late '70s.  That's another bottleneck that restricts the supply of gasoline.

On top of all this, the federal government has mandated a myriad of different gasoline formulas for different parts of the country.  Therefore, if oil companies don't estimate the need for different formulas correctly, one part of the country can experience a gasoline shortage of one formula while another part has plenty of another formula, which is illegal to sell anywhere else.  (Fortunately, the Bush Administration has recently suspended, but not abolished, this idiocy to alleviate shortages ahead of the summer travel season.)

Despite these problems restricting supply, gasoline is still a lot cheaper by volume than that bottled water you buy while filling up at the corner gas station.  That's because the competition in gasoline is intense.  There is no conspiracy to jack up prices above the level that the laws of supply and demand dictate.  (Indeed, it would be a criminal violation of federal law to do so, and repeated investigations have found no shred of evidence of such collusion.)  And that is why oil company profits net out at about 10% percent, which an experienced businessman like Dick Jr. should know is pretty typical for most large companies.

So what should we conclude from Dick Jr.'s latest ad?  Either he isn't the experienced businessman he claims to be, which is why he is spewing such tripe about oil company profits, or he is a political whore who will tell you anything to get your vote.  You decide.

DEVOS NIXES LEGACY

Amway co-founder Rich DeVos made a curious statement after receiving the taxpayer-subsidized Woodrow Wilson award for public service.  According to Mark Fellows in the May 4th edition of Business Review Western Michigan, DeVos stated that he and his wife "have no concern about keeping a foundation alive" after they die.  He apparently has no plans of endowing, upon his demise, a foundation to carry out charitable works.

He then, once again, boasted about getting his name on various things in Grand Rapids and prided himself on his vanity which drove him to "outbid" everyone else to get his name on projects like the new convention center downtown.  Of course, vanity is of little use to a man six-feet-under.  Likewise, a foundation that has been the vehicle for that vanity.  So, DeVos's coolness to an enduring charitable legacy makes sense in that regard.

Then again, the old man may be setting the stage to pre-empt the embarrassing prospect of his heirs looting the cash from his foundation after his death in the way the children of his late partner Jay Van Andel sacked the Van Andel Foundation a month after their father's funeral and then permanently shut it down.

THE AMWAY PROMISE

Amway co-founder Rich DeVos addressed the Grand Rapids Economic Club on Monday and said, "If it's free, it's not worth much."  That quip was in reference to the Kalamazoo Promise, a charitable program bankrolled by an anonymous benefactor providing college scholarships to graduates of Kalamazoo public schools.  Since the advent of that remarkable program, there has been a great deal of curiosity as to why our local tycoons, namely the DeVos and Van Andel families of Amway fame, aren't doing something similar.

After all, if Forbes Magazine estimated correctly just DeVos's fortune, he is netting $8 million a week.  That's a heckuva lot of dough, folks.  With just one week's cash, DeVos could put 200 kids through college.  A couple of months' cash takes care of all the seniors in the G.R. public school system, still leaving DeVos about $300 million in new cash to roll around in every year.  Of course, the real question is whether that Amway fortune is a growing pile of cash or the smoke-and-mirrors of P.R. flacks.  If it's the latter, then we know why the DeVoses and the Van Andels will never sponsor a Grand Rapids Promise.  They can't.

But, of course, the success of the Amway (now Quixtar) scheme is the illusion of great riches that can be had by selling their soap and vitamins and other stuff.  That illusion isn't going to be too convincing if the owners of Amway do not appear to be fabulously wealthy themselves.  The DeVoses and the Van Andels have put on a good show in that regard, until it comes to the point of "show me the money!"  Where is it?

What happened the Van Andel Foundation that supported the Van Andel Institute?  Where is the commitment from the Van Andel children to replace the missing foundation funds with the purported fortune they inherited from their father?  Why do the Amway billionaires need taxpayer subsidies for their business ventures?  Why does DeVos have his share the Orlando Magic in hock to the banks for a quarter billion dollars?  Why did he have to sell the debt-encumbered Plaza Towers building for chump change?  Why does every public project the DeVoses and Van Andels donate money to end up streaming out cash back them?

And, of course, why does DeVos tell the Economic Club that the Kalamazoo Promise is a worthless program?  Why does he make the sour joke that kids trapped in wretched urban school districts can earn millions by skipping college and playing NBA basketball?  All of these things point to the conclusion that the DeVoses and the Van Andels only pretend to be billionaires, because that hype is critical to sustaining the Amway/Quixtar deception that selling their soap is the path to fame and fortune.  Actually, the real Amway Promise is that they'll suck you dry while they dazzle you with the illusion of wealth.

Having run out of marks in the private sector, the Amway clans are having success in re-jiggering their formula to extract cash from taxpayers and charitable donors.  It's you, folks, who need to pony up to them.  It you who must provide the tax subsidies (new hotel downtown, medical complex on Michigan Street), business franchises (the Van Andel Arena, the DeVos Convention Center), the higher rates for health care (so Spectrum can do its part in subsidizing DeVos's new medical complex), and donations (to pay for the Van Andel Institute now starved of Van Andel family financial support).  So forget that nonsense about the DeVoses and Van Andels funding a Grand Rapids Promise.  You people just don't understand which direction the cash is supposed to flow in.

[NOTE:  I should make clear that I believe no businessman like DeVos is obligated to turn over one dime he earns to charity.  He owes you and me, as members of the public, nothing.  However, he and his Amway cohorts have opened the door to this scrutiny by putting themselves out as great public benefactors, while in fact reaping substantial benefits from the public.  I find dishonesty in this, and that is why I bring attention to these matters.  Click here for links to related articles.]

HOW DICK JR. SAVED RIVER CITY

I saw the latest campaign ad for Dick Jr.'s run for governor.  It opens with photographs of a dilapidated downtown Grand Rapids circa 1970, which Dick DeVos credits himself for rescuing from its pit of despair.  Other than Dick Jr. being barely out of short pants when he allegedly began his program to renovate downtown, there's the inconvenient fact that the Amway co-founders, his father Rich DeVos and the late Jay Van Andel, took the credit for everything.  Well, maybe Dick Jr. was working behind the scenes.

Even so, I think there were other factors involved in bringing downtown out its funk of the '70s.  For example, the strong economy of the '80s and '90s that brought renewal to city centers across the country.  But, I'll let Dick Jr. have credit for all the glory of a reinvigorated downtown Grand Rapids, if he makes public all of the benefits he, his family, and the Van Andels have reaped from their involvement in downtown development projects.

MEDIA CLUELESS ON DICK JR.'S WEALTH

The big news in state politics this weekend was Dick DeVos's disclosure of his financial interests in lieu of making his tax returns public, as past contenders for the governor's office have traditionally done.  (State law requires neither disclosure.)  DeVos, the eldest son of Amway/Quixtar/Alticor founder Rich DeVos, said that the list of companies in which he has a stake is sufficient for voters to determine what, if any, conflicts of interest he may have.  Because that was the purpose of the disclosure, he attached no values to these financial interests.

Nevertheless, both the Grand Rapids Press and the Detroit Free Press surmised that DeVos must be very wealthy.  Indeed, the Free Press declared that Dick Jr. must be worth a half billion bucks.  How?  Apparently Forbes Magazine's estimate that Dick's dad is worth $3.4 billion had a role to play in this mystery math.  What is overlooked is that the Forbes estimate relies heavily upon the P.R. the DeVos family puts out about itself.  However, the Grand Rapids Press assures us that all of Dick Jr.'s finances are hunky-dory because the Fixer Charlie McCallum's law firm, Warner Norcross & Judd, says so.  (Of course, the Press didn't mention that the Fixer sits on the board of the DeVos family firm which has been reduced to bottling soap for other companies, essentially a big job shop that if Forbes were correct has the incredible net value of almost $7 billion -- remember the Van Andel family accounts for the other half of Amway.)

As we have said here before, when the DeVoses and the Van Andels have to hock everything they own and then panhandle for tax dollars and charitable donations to build and operate anything new they start in town, there is reason to believe that the Scamway fortune is nothing but smoke and mirrors.  But the financially illiterate local media hasn't figured that out, so they keep reporting about billions for which little evidence exists.  (Again, where is that press release from the Van Andel family about their huge endowment of the Van Andel Institute?  Perhaps it got buried under the release about the thirty grand the VAI is paying into CEO Dave Van Andel's retirement fund.)

So, if you ask me, here's why Dick Jr. won't release his tax returns:  He is telling the truth when he says it is to keep private the financial interests he has in common with family members.  And what is that?  You heard it here first:  The DeVoses are paupers and Dick Jr.'s wealth comes from his wife Betsy, heiress of the Prince Corporation fortune.  Unlike Dick Jr.'s father, her father really did create wealth by building a successful manufacturing company.

CONFESSIONS OF A FORMER PYRAMID BUILDER

Caught an interesting political spot on t.v. tonight.  Dick Jr. in his run for governor ran an ad in which an Alticor (f.k.a. Amway) employee admitted that the company had been in serious trouble recently.  Then other employees lauded Dick Jr. for turning Scamway around.  Apparently he feels the need to establish his bona fides as a real businessman.  For reasons I have stated elsewhere, I think this is an uphill battle for the young DeVos.

Of course, you heard it here first about Amway's financial problems.  We covered how the Amway/Quixtar pyramid was crumbling and the Fixer helped the DeVoses and Van Andels with a financial workout of their multi-level marketing scheme.  We explained how these alleged benefactors of River City got their hooks into tax dollars and other public revenue streams to fund their workout payments.  And we showed why that indicates that there is no multi-billion-dollar Amway fortune.  (We're still waiting for the Van Andel heirs to commit Dad's billions to the Van Andel Institute, while son Dave is making sure he nails down that $30,000 pension for heading up the institute.)

Because of all this, for the past twenty years there has been an ethical sewer flowing from Ada down Michigan Street hill into downtown G.R.  Even though it stinks to high heaven, the local media has ignored it all, especially DeVos suck-up Danny Gaydou, publisher of the Grand Rapids Press.  So why did Dick Jr. run counter to the family's 11th commandment to hype Amway at all costs?  Maybe he thought the hostile Detroit media would eventually catch up with the Amway's financial troubles and report them an at inopportune moment doing the campaign.  So he's making a virtue out of a vice in a pre-emptive move.  Clever politicking to ensure smooth sailing, I suppose.

THE JOB MAKER

Last night I caught another Dick DeVos campaign ad for governor.  Dick is one of the scions of the Amway/Quixtar fortune who has been touting his expertise as a "job maker".

Well, I've got an idea.  Why doesn't Dick promise to give each and every Michigander a Quixtar starter kit, and that way -- if all the motivational materials of the kingpin distributors are correct -- we can all become millionaires!  That's the ticket!

BIRDS OF A FEATHER

Thanks to a reader of ours who tipped me off yesterday that John Sims had been arrested on charges of fraud.  The news was confirmed this morning on the radio.

You may remember Sims as Mike Webb's partner.  Webb is presently serving a prison sentence for embezzlement.  The two hucksters were front men in the Charlevoix Club scheme for Peter Cook, former used-car salesman, local bigwig, and friend of Rich DeVos.  Cook set up Sims and Webb with $100,000 to act as public cover for a transaction that secretly funneled $3.6 million from the coffers of Butterworth Hospital (now Spectrum Health) to the benefit of a client of Warner Norcross honcho, Charlie McCallum a.k.a. the Fixer.

The sordid details are chronicled here, here, and here.

Unfortunately none of the culprits has had to pay any price for abusing Butterworth Hospital as their own private piggy bank, even if a couple of the small fry have been nabbed for other scams.  Meanwhile, we the healthcare rate-payers continue to pick up the tab for their slush fund.

SHOW ME THE MONEY, DAVE

According to the Press, on Tuesday at Cornerstone University David Van Andel, Amway heir and chairman of the Van Andel Institute, lectured the attendees of the school's Executive Series Luncheon on the duty of businesses to give back to the community.  By that he meant businesses should help others, create economic independence for the impoverished, promote education, and alleviate the "pain and suffering" of individuals.

That last mission, Dave noted, just happens to be purpose of the Van Andel Institute.  So I suppose he would be OK with businesses fulfilling their philanthropic obligations by donating money and resources to his organization.  But why should anyone donate anythng to the Van Andel Institute?  Dave's late father Jay, who made his money with the Amway scam and then founded the institute, promised the people of Grand Rapids that most of his two-and-a-half-billion-dollar fortune would be committed to the continued operation of the Van Andel Institute.  That's more than enough money to keep the place, and Dave's sinecure in it, chugging along.

But it appears that Jay's kids haven't kept his promise.  Immediately after their father's death a year ago, they disbanded his foundation and stopped its funding of the Van Andel Institute, which totaled $30 million annually.  After that Dave and his siblings made vague statements to the public that the family would continue to support the institute financially.  But no specifics as to how much and from what source have been offered, and the Amway-smitten local media has not raised these questions let alone press them.  Instead they, especially the Grand Rapids Press, have acted like P.R. flacks hyping the bio-tech boom the Van Andel Institute will bring to River City only if the public gets its act together to support it.

So Dave can lecture on our duty to give back to the community, which conveniently includes the Van Andel Institute.  However, I say to Dave, "Show me the money!" his father promised to the institute.  Until then, no one should cough up a dime for the institute.

QUIXTAR WHITEWASH

On Tuesday the Grand Rapids Press reported that Quixtar had its first decline in annual sales – about 3% from $1.1 billion to $1.06 billion.*  The company is, of course, nothing but a rebranding of the old Amway multi-level marketing scam, and it’s still owned by the DeVos and Van Andel clans, and it’s still locked like Amway was in a Mexican stand-off with the kingpins – those top-level distributors who exploit Quixtar’s bottom-level distributors as a captive market for the sale of motivational books, tapes, seminars, and other hype.  Because these bottom-of-the-pyramid distributors of Quixtar products are in fact the company’s customers – few of them actually make any money selling the stuff to others, most end up buying Quixtar’s overpriced crap for themselves – a rollback in sales means fewer people willing to be the chumps at the bottom of the Quixtar pyramid.

Well, folks, that’s bad news for Quixtar.  Suckering people into becoming new distributors is how Quixtar vacuums up the cash it needs to keep going.  Like a Ponzi scheme, without a constant supply of fresh suckers, the pyramid begins to crumble.  Soon it goes bust and all that’s left are the scraps.  With the recent lawsuit against Quixtar going forward in U.S. district court in Missouri, the infighting has already begun between the kingpins and middle-level distributors over what’s left.  Yet Steve Van Andel, chairman of Alticor Inc., the parent company of Quixtar, says the company is only taking “a little breather”.

Fortunately for Van Andel, the local rag isn’t going to challenge him on that.  Once again the Grand Rapids Press is in the tank for Amway/Quixtar.  Even though the news of the reversal in sales was the headline article in the Press’s business section on Tuesday, the headline was literally half the story.  Next to nothing was actually reported about the decline.  Most of the story simply parroted the fluff of Quixtar’s P.R. machine.  The Press’s intrepid reporter on the story, Rob Kirkbride, didn’t even bother to mention the Missouri lawsuit that Quixtar fought against so desperately and in the end failed to quash.  The fact that there’s a civil war taking down one the kingpin pyramids within Quixtar might explain the decline in sales, but the Press never raised the question.

To do so would have violated the prime directive of the River City players:  Gotta go along to get along.

________________________

* It should be kept in mind that none of the financial information that Quixtar reports can be trusted.  Like its prior incarnation as Amway, it is a closely-held corporation with no outside directors.  No outsiders know the truth, which is why Amway founders Rich DeVos and Jay Van Andel got away with inflating Amway’s revenues by as much as 25% over the years.  Only when their financial problems caught up with Amway in the early ‘90s were they forced to put an outside director on the board of Amway to keep the books honest.  That position was promptly eliminated once they successfully restructured Amway, with the assistance of the Fixer’s firm, into Alticor and Quixtar – and the outsiders were kept at bay once again.

ANOTHER PHONY BILLIONAIRE

In the latest edition of Forbes magazine, Dirk Smillie reports that recently departed oil billionaire Marvin Davis was in fact no billionaire at all.  He died broke, even though the Davis family fortune made the Forbes 400 list last year pegged at an impressive $5.8 billion.  Well, looks like Forbes had nailed it – give or take six billion bucks.

So the cupboard was bare, and Forbes magazine never had a clue.  So much for its famous Forbes 400 ranking of the richest families in the U.S. being anything more than a guesswork gossip sheet.  It is actually a list of two groups of people:  Those who desperately want to be on it, and then the real billionaires who don’t.  Forbes has placed our very own Rich DeVos of Amway fame on the list at $3.1 billion and the fortune of his late partner Jay Van Andel at $2.6 billion.  So which group do you think these hype merchants belong to?  (Click here and here if you need more clues.)

AMWAY QUIXTAR ROUND-UP

We continue to receive a great deal of interest in our article "The Pyramid is Crumbling" about the lawsuit that is symptomatic of the impending failure of the Amway-Quixtar pyramid scheme.  To assist new visitors interested in this story, below are links to earlier Local Area Watch articles about Amway, Amway founder Rich DeVos, his son Dick DeVos, and his partner, the late Jay Van Andel and the Van Andel Insitute.  Our full coverage of this subject can be found under the category "Project: Pyramid Power".

Were Rich DeVos and Jay Van Andel the billionaires that their publicity machine had made them out to be?  See:  HOW BIG IS A BILLION?, DEVOS'S EMPTY TIN CUP, and WHERE'S THE VAN ANDEL IN THE VAN ANDEL INSTITUTE?

Our three-part series on how DeVos and Van Andel replicated the Amway scam with taxpayer dollars:  THE PYRAMID IS CRUMBLING, THE RIVER CITY KINGPINS, and THE ILLUSION OF WEALTH.  Plus the related story of how DeVos bought a U.S. Senator to quash a Federal Trade Commission investigation in THE FIXER, PART III (THE PIGGY BANK).

Articles on DeVos's and Van Andel's projects in downtown Grand Rapids funded with OPM (other people's money, especially the taxpayers'):  SOX FOR TAXPAYERS, WHITE ELEPHANTS AND BLACK HOLES, BAD MEDICINE, HOPE ON THE HILL HIGH AND DRY, and WATCH YOUR WALLETS.

Articles on Dick DeVos Jr. and his run for governor of Michigan:  DICK AND JEN, AMWAY, WINDQUEST, AND REAL BUSINESS, and THE PRESS IS SWEET ON DICK JR.

And just in case you weren't sure, an opinion piece from yours truly, the Executive Director of L.A.W., as to why Rich and Jay were and remain a pair of low-rent, low-class hucksters no matter what their hype machine says:  PYRAMIDS AND A FINGER TO THE WIND.

PYRAMIDS AND A FINGER TO THE WIND

A few days ago the Press splashed across its front page a big illustration of the planned expansion of the Helen DeVos Children’s Hospital.  That was to be expected as Press publisher Danny Gaydou routinely whores out his paper as a PR machine for the Amway clans whenever they have something to push.  (Click here and here for recent examples.)  What caught my eye was the design of the new building to be erected in front of the existing hospital atop Michigan Street hill.  It is crowned with a jarring glass pyramid soaring into the sky that would make the children’s hospital the highest building in Grand Rapids (because of its location at the top of the hill that is 120 feet above downtown).

How fitting for the pyramid-builders.  They tried it before.  Remember a couple years back the office tower that the DeVoses wanted to build on the Ellis parking lot located across from the new courthouse?  That was to be the tallest building in Grand Rapids.  Its design included a great pyramid atop it.  Don’t scoff that there’s no message in these designs.  When Amway founders Rich DeVos and Jay Van Andel built the Amway Grand Plaza hotel twenty years, the design of that building had a message for Grand Rapids.  Not so odd considering that both were Masons.  These two hucksters often joked with Amway insiders that the oddly configured roofline of the hotel tower was an erect middle finger to us.

Over the past two decades Rich and Jay spread around a lot of cash in