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?