Top-Gun'ing Riverhead & Yaphank Long Island New York
Top-Gun ‘ing Riverhead with a race-track pipedream
Thanks to a casual conversation with one of the principals of Top-Gun Entertainment & Sports Inc., where the individual fibbed during a recitation of his background, I decided to do a little digging into this entity and the close-knit group of people who stand in the shadows. Being told Scott Reckler of Reckson Associates Realty was involved in the project and that Lehman Bro. was taking them public with a $350 million offer, just sounded too good to be true.
Thanks to the internet and federal SEC postings, I’ve come across some very interesting history.
My biggest concern is whether the individuals who are promoting this project have an actual vested interest strong enough to have them stick around, operate and manage the facility.
I did see any actual background in Auto-Sports-Park management. It would be one thing if they had run Limerock or Watkins Glenn but except for several shell corporations with flashy race related names, I can’t find a single race track that any of them have operated.
As per the Top-Gun website: The $180 million proposal, detailed on a newly launched Web site owned by Top Gun Sports and Entertainment Inc., calls for a NASCAR-type circle track, an amphitheater, a children's area with bumper boats, an arcade and an "adult playground" with eateries, nightclubs and retail stores. There are also plans for a 135-room hotel and an RV campground. Rosenberg, who proposes a 50-year lease and sharing revenues with the county, estimated Top Gun will generate $15 million in sales tax annually, while the economic impact could be up to $200 million each year. It would ultimately employ more than a 1,000.
Per the company’s 10SKB of March 31st 2005:
John W. Gandy, is the president.
Neil A. Rosenberg, is the vice president of corporate development and Director
Peter Scalise III, Director
Dr. Robert J. Waylonis, Director
John F. Smith III, board member.
Ron Hendrix, CFO and board member.
On November 18, 2005, the Company's Board of Directors appointed
D. Davy Jones as President and Chief Executive Officer and Director
Robert Koveleski, as Secretary and Director.
On November 18, 2005, John W. Gandy resigned as President and Chief Executive Officer and Director of the Company.
Also on November 18, 2005, Ron E. Hendrix resigned as Secretary and Director
John F. Smith, III resigned as Director of the Company.
According to published history:
Neal A. Rosenberg – “Mr. Rosenberg has been the COO of ITTCO Sales Co Inc., Ronkonkoma, LI, NY, (631)737-6800, national wholesale distributor of specialty appearance auto parts and accessories in the U.S. founded in 1978, which he ran from 1978-2004. Mr. Rosenberg is an electrician by trade also has extensive experience in Cable TV, Construction industries.”
According to Marc & Don Levinson of DONMAR Enterprises, Inc. of Jacksonville FL, “ITTCO Sales Co. has been supplying restyling shops for over 26 years. Founded in 1977 by Neil Rosenberg and Richard Scherer, ITTCO Sales started as Island Tops & Trim, a local trim and restyling shop, and grew one of the largest restyling shops in the country, as well as a nationwide trim and restyling distributor. ITTCO and DONMAR have had a business relationship since 1986,” In October of 2003 according to Marc Levinson, his company “acquired ITTCO’s RESTYLING PRODUCTS DIVISION and Stretch Forming Corp distributorship”. According to a page on DONMAR’s website; “Neil & Richie were installing sunroofs since 1974” According to a page on SUNROOFS.ORG, where Marc Levinson is listed as the Publisher & Managing Editor, Neil Rosenberg is listed as the Editor.
According to GOLIATH, ITTCO is a Private Company, with its headquarters at 181 Remington Blvd., Ronkonkoma NY 11779. The ITTCO Website is one page and hasn’t been revised since October 30, 1996 with the Owner / Operator listed as Neil Rosenberg.
Neil Rosenberg started another company with his partner Richard Scherer and called it R/S Associates, Inc. This entity is identified as a real-estate holding company in a 2002 NYS Appeals Court document which states that in 1986, these two companies applied for a loan of $332,500 from the New York Job Development Authority to purchase land and construct a facility in Ronkonkoma, New York. R/S Associates closed up two years later. Except for the mentioning’s of lawsuits, there are no documents available detailing final loan repayment. According to Zere Real Estate's Mario Vitanza, who on September 12th 2003 said he co-brokered the sale of 181 Remington Blvd., a 23,000-square-foot facility, by real estate investor Neil Rosenberg for $1.38 million. Paula Rosenberg is listed by SEMA as the contact for ITTCO.
March 18, 1996, Peter Riccardo, the owner of record for two Delaware corporations, America In Line and its subsidiary Mount Sinai, made a memorandum offering where the proceeds of each offering would be used to build and operate an in-line roller hockey rink in Mt. Sinai, New York. The Mount Sinai offering memoranda also stated that the anticipated net proceeds from each offering would be $1.3 million. Neither of the two offering memoranda disclosed, however, that Riccardo and Mount Sinai had agreed to pay 30% commissions to the salespeople who were selling Mount Sinai stock to the public. The SEC Complaint states that “These fraudulent offerings generated at least $650,000 in proceeds to America In Line and Mount Sinai” According to the Long Island Business News, The Company’s former headquarters, 191 Remington Blvd. in Ronkonkoma, was vacated about a month ago, according to Zere Associates, leasing manager for the property. A man on site, who identified himself as the building's owner, said he thought the firm was "out of business." Neil Rosenberg, of Ittco Sales, is listed by Zere as its owner. Rosenberg, who didn't return phone calls, is identified on an old business card as America In-line's vice president of corporate development.
According to GOLIATH, on August 16, 2002 Altrimega Health Corporation merged with Altrimega Acquisition Co. and Creative Holdings, Inc. a South Carolina corporation. According to SPAMWORKS, “Under terms of a reverse merger Altrimega Health Corp. (the "Company") has acquired 100% of Creative Holdings, Inc. of South Carolina for 320,000,000 shares of common stock. Creative Holdings is a start-up real estate investment company with a fast track to growth. Since its inception in September of this year the Company has moved quickly to sign letter of intents on deals worth in excess of $60,000,000.” Altrimega d/b/a Creative Holdings Holdings & Marketing Corporation CRHM ("Creative") announced on November 18th 2002 that it has signed a letter of intent with Office Developers, LLC of South Carolina to purchase commercial office space in Myrtle Beach, S.C. located on Grissom Parkway. On December 2nd 2002, they announced another “letter of intent” for 15 acres in Charlotte, NC. on W.T. Harris Boulevard. On December 4th 2002 they announced that in 16 more days, they’d complete 10 townhouse condos at Sea Garden 3rd Ave. S. North Myrtle Beach SC Ph:(843) 280-0440.
In a December 18th 2002 Press Release, Altrimega/Creative announced that it has formed a subsidiary, Southeast Funding, LLC ("Southeast Funding") specifically to establish mortgage banking operations to provide mortgages for units to be sold in Creative-owned projects. To date, Creative has closed on Sea Garden Townhomes of N. Myrtle Beach, S.C. creating 59 units for re-sale, signed letters of intent pending closing on a townhome community in Charlotte, N.C., creating 122 units for re-sale, and a proposed eight story office building in Myrtle Beach, S.C.
Their Form 8-K filed on December 17th 2004 shows the Nevada registered corporation’s address as 4702 Oleander Drive, Suite 200, Myrtle Beach, South Carolina. The form lists John Gandy as President. It is here that Altrimega does a tax-free share-swap with the owner of another Nevada shell Corporation called Top-Gun Sports & Entertainment in exchange for an aggregate of fifteen million seven hundred fifty thousand (15,750,000) restricted shares of Altrimega common stock, par value $0.001 per share, (the "Altrimega Common Stock"). Peter Scalise III receives over 11 million shares for his deal. It is also here where Altrimega’s Sea Garden, LLC will be sold to John Gandy or his assigns for the purchase price equal to the liabilities recorded on the Altrimega balance sheet relating to the Sea Garden assets.
According to the December 31st 2004 10KSB: The Company’s only active real estate project is the Sea Garden Town Home Community in North Myrtle Beach, South Carolina. The Company is developing this project through its 80% interest in Sea Garden Funding, LLC, the owner and developer of the remaining 27 units in a 173 unit, 2 bedrooms, 2 bath town home community approximately 3 blocks from the Atlantic shoreline. The Company acquired the project from Sea Garden, LLC on November 13, 2002 for the payment of $210,000 and the assumption of $1,071,344.66 in mortgages on the real property held by Horry County State Bank. The remaining 20% interest in Sea Garden Funding, LLC, is owned by an unaffiliated party, Maxine Roe, a resident of Myrtle Beach, South Carolina.
According to a June 30th 2005 Financial Report, Accounts receivable - related party - As of June 30, 2005, the Company has made a non-interest bearing, due on demand loan to the minority interest holder of Sea Garden Funding, LLC, which as of June 30, 2005 totaled $59,160. Accounts payable - related parties - As of June 30, 2005, officers-directors, and their controlled entities, have acquired 34.33% of the outstanding stock of the Company and have made non-interest bearing, due on demand loans to the Company totaling $84,402.
On September 2nd 2005 Altrimega announced a letter of intent to acquire American Racing Capital, Inc. from Davy Jones with another share swap.
On November 18, 2005, the Board appointed two new directors and the former directors resigned from the Board. The new directors consisted of D. Davy Jones and Robert Koveleski. John W. Gandy resigned as President and Director of the Company, Ron E. Hendrix resigned as Secretary and Director and John F. Smith, III resigned as Director of the Company. The Board also appointed new officers, by appointing D. Davy Jones as President and Chief Executive Officer and Robert Koveleski as Secretary.
According to the 10QSB filed on January 31st 2006 Altrimega/Creative/American Racing had total assets of $161,463 according to the filing. According to 10QSB “The increased net loss of $274,882 was mostly attributable to the lack of sales from the Sea Garden Project during the third quarter of 2005. There was no provision for income taxes in 2004; therefore, the net income after provision for income taxes was also $48,964.” It also details their future plans as “The new Board has devised a new plan of operations which seeks to integrate race track design and development operations with a professional racing team and a national driving school network to leverage the popularity and growth of the motor sports industry.”
On August 18th 2006, American Racing Capital released the following: ZEPHYR COVE, Nev., Aug. 18 /PRNewswire-FirstCall/ -- American Racing Capital Inc. ("ARC") ("the Company"), , a consulting group dedicated to motorsports sponsorship development and racetrack acquisition and design, and New Jersey Motorsports Park, LLC, jointly announced today that they have mutually agreed to discontinue discussions on a proposed joint partnership to develop a racetrack in southern New Jersey. Construction of the facility is scheduled to begin soon. While ARC will not be involved in the management or ownership of this facility, the companies will continue to work together on marketing, sponsorship and special project opportunities. Davy Jones, Chief Executive Officer of ARC, said, "After joint exploration, we and New Jersey Motorsports Park have determined that this is not the appropriate venture for our respective companies to jointly pursue. Our relationship with New Jersey Motorsports Park has been mutually beneficial and we part amicably. Management remains focused on the pursuit of alternative racing development projects that can build shareholder value. Our shareholders can be assured that this decision was done with their best interests in mind, and we value the confidence and trust they have placed in our management team."
According to American Racing Capital, Inc 10KSB/A • for 12/31/02, Great Western, LLC of 1960 Stickney Point Road, Sarasota, FL owns 25.6% of the Preferred stock.
Marcella M. Mica has investment control over Great Western, LLC, which holds notes for CONEX Capital Corp. and owns 60 million shares of Crowfly Inc. Which is another Nevada corporation with its headquarters at 220 WILLIAMS STREET EXTENSION, MOUNT PLEASANT, SC 29464 which is the home address of the listed President, William E. King, III. Crowfly’s SB-2 lists Rachel Gandy, wife of John owning 60 million shares through her Old Fields Investments, LLC, and 18,000,000 shares were issued to Gandy Associates, LLC; and 2,000,000 were issued to Hendrix & Gandy, LLC. On October 31st of 2003, the cash on hand was $30. Another holder of Crowfly stock is Amber Run LLC which holds 3% of Central Wireless Inc. Troy H, Myers, Jr. controls Amber Run. He also has voting control of Quickstep, LLC. of 2233 Main Street Sarasota FL, which holds 60% of American Racing Capital as does Quandry LLC which is listed as owning 60 million shares of Crowfly.
SPAMWORKS, is a watchdog of stock boiler-room e-mail promotions and logs all those reported to it.
By following the stock ownership as listed by Top-Gun/American Racing Capital/Creative Holdings/Altrimega, one concludes that the millions of shares swapped between all these corporations amounts to nothing.
Except for maybe the condo that Maxine Roe owns, I can’t find where money comes from and what assets actually exist within this tight group of Nevada Shell companies.
P/SIII-Peter Scalise III, $43,000 in Corp income?
Accoding to ARCI's 8--K · For 9/12/06
American Racing Capital made $43k doing Race-Track Development where?
I can’t find any development!
King of All Pink Sheets, Corey S. Ribotsky buys $2 million worth of 7 year 6% notes through his NEW MILLENNIUM CAPITAL PARTNERS II, LLC, and other shell entities such as WHO'S YOUR DADDY INC. and CENTRAL WIRELESS LLC of a company that reports $43K??????
According to Marco Antonio Chavarria who received the short end of the stick from Corey. As per Mr. Chavarria, "As all of the relevant documents were filed to obtain an adjudication by the federal court, Corey Ribotsky, “managing director” of the N.I.R. Group, LLC, is now seeking intervention to enforce a convertible debenture that he executed with Paul Taylor’s prior companies that used the Netco shell as Mr. Taylor was bleeding his prior shareholders. As such, I am now determining the appropriate course of action to take to protect the company. The intervention of Mr. Ribotsky appears meant to delay the proceedings. Rest assured that I will act promptly and swiftly in my filings."
According to the Nevada Secretary of State, Dean Heller: On October 1st. of 2006 the Nevada Corporation "Top-Gun Sports & Entertainment" is in Default of it's filing requirements.
According to the NYS Secretary of State Top Gun Sports & Entertainment Inc. with a registered address of 91 Knickerbocker Ave. Unit-1, Bohemia, NY 11716 which shows a state of incorporation of Nevada, is a Dealer/Broker of Securities. It is further listed as brokering a security of "one unit consisting of two-year 9% convertable notes and warrants.
According to the NYS Office of the State Comptroller, Patrick F. Cunningham has unclaimed money on file from his last address of record which was the same 181-191 Remington Ave. Ronkonkoma address as Neil Rosenberg's ITTCO Sales, Inc, which also was the address of record for America In Line and its subsidiary Mount Sinai.
As per Investorshub.com poster; RCA: "Now, what really struck a nerve is that this dump does not benefit the company in any manner. (According to prospectus, "All proceeds of this offering will be received by Selling Shareholders for their own accounts."
Thus, it provides complete control to Corey Ribotsky and his gang of "funds." (According to the prospectus, "The Selling Shareholders are affiliates of each other because they are under common control. AJW Partners, LLC is a private investment fund that is owned by its investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey S. Ribotsky is the fund manager, has voting and investment.")
Who is Corey Ribotsky? I only know that when I was trying to sort through the Paul Taylor fraud while President of NTCV, Taylor had Ribotsky fax me demand for debt conversions. Copies of the correspondence can be found at netcoinvestments.info . I do not know the extent of Ribotsky's involvement with Paul Taylor's fraudulent pumps and dumps, which involve the similar modus operandi of diluting the company through share issuances and throwing them onto the market.
So if buying this stock, remember that the number of shares going on the market will be 10x what is currently out there."
In a recent posting on the topgunse.com Message Board, Peter Scalise III a.k.a. psIII provided the following when questioned about the Nevada corporation and its revocation;
Posted: Tuesday October 10th 2006 at 12:21am
"that was a corp that was set up by attorneys for a deal that we never went through with--their was legalities as to why it had to be formed---Top Gun is a Delaware Corp--we never used in any way shape or form the Nev. corp and let it dissolve because we have no use for it
Edited by psIII - Today at 12:37am"
Accoding to the Nevada Secretary of State, Top-Gun's Corporation was revolked on October 1st 2006, but shows a filing date of 09/13/2004.
Accoding to the Suffolk County New York County Clerk's Office a Certificate of Incorporation was filed on 09/28/04 for TOP GUN SPORTS & ENTERTAINMENT INC and shows it as a Delaware corporation (APP FOR AUTH (DE)). But on September 17th, 2004, Peter Scalise III swapped 11,050,000 shares of the Nevada corporation for 11,050,000 shares of the Altigega/Creative/American Racing Capital Pink Sheet Nevada Corporation.
In addition, the NYS Secretary of State has the Nevada Top-Gun listed as a Securities Broker at the 91 Knickerbocker address back on March 23rd, 2005.
The following is provided by Robert L. FitzPatrick.
To better understand this current business hoax - multi-level marketing (MLM) - a look back at the penny stock phenomenon can be instructive. Penny stocks played upon unbridled optimism. It fooled investors into believing they were going to cash in on the stock of an unknown but `hot' new company. MLM capitalizes upon economic fear and insecurity. It fools investors into believing they will be delivered from downsizing, debt and global competition by this `hot' new sales system.
Some of the major penny stock firms were shut down by state and federal regulators by the end of the decade. Others are still in business often under new names. Some executives went to jail, paid large fines or were officially banned from the securities business. Yet some others came through mostly unscathed and are enjoying their riches from the fraud. The individuals and the specific companies are not the story. As in MLM, the key to reform and to avoiding being duped is to understand the system. Few people understood penny stocks just as few investors understand the mathematics and economics of MLM. For penny stock telemarketers, as for today's MLM upliners, public ignorance presents a very lucrative and vulnerable market to exploit.
Here's how a typical penny stock scheme worked, although there were many other variations on this theme.
A stock brokerage company makes a deal with a small group of investors to sell stock in a newly formed public company and then to merge this new company with an existing privately held one. The new public company will have no product, no history, no experience, nothing. Shares will be sold to the public on the story that this is a `blind pool.' or `shell,' that is, the new public company will have the structure of a publicly traded company which allows investors to buy and sell shares and better enables the company to gain new capital. It will also have cash available from the initial shares its sells. When the initial stock is sold, it will have a public structure and a large bank account without debt, nothing more. Then, it will merge with the private company which is engaged in some enterprise or another and thereby fold the private company into the public structure.
This process is a cheaper and easier way for the private firm to become publicly traded without the federal or state regulators, journalists or shareholders ever examining its viability. The shell will be sold boldly as just a new company with a bank account but one that has great `potential.' Shareholders are told that an impending and portentous merger will send the stock skyward.
As in MLM, the penny stock investor is really buying a `future.' The shell by itself, like the MLM distributorship that just retails products to friends and neighbors, is an unattractive business proposition indeed. But its potential is great due to possible subsequent events. This impeding event in the penny stock scheme is the much heralded `merger' leading to subsequent resell of the stock at a big profit. In the MLM scenario, the future is based upon the potential of huge downline development which will provide lifetime annuities.
Now comes the mathematical trick common to all pyramid schemes. In MLM the trick is to offer the possibility of exponential expansion of the downline. You enroll just five distributors and they each recruit five and they in turn enroll five each. Investors do not realize that if this expansion continued only 12 more times the number of distributors required would exceed the population of the earth. Nor do they know that because endless expansion cannot be achieved, 99% must fail in the business. They simply cannot see the inherent limit on the number of `winners' in this scheme. They do not realize that the real business is to continuously enroll replacements for the failures. They become convinced they will be one of the winners and so they ignore the overall picture. They also turn their heads away from the idea that they might profit from so many others' losses. MLM promoters play upon the greed, ignorance and the tinge of larceny in the heart of each new investor. Remember, MLM operates in an environment of personal fear and insecurity. People are investing in hope.
In penny stocks, the math is spelled out in the prospectus sent to each shareholder but is usually ignored or not understood by the investors. Penny stocks operated in a booming economy. Anything seemed possible. People were investing in greed which had been declared good. Remember? So, why bother to pore over the tortuous language of the prospectus?
Millions of shares are issued but only 20% are actually sold to the public. One or more people control the other 80% even though they may have invested little or no money of their own. This ensures massive profits to the insiders, including the company waiting in the wings for the merger, and to prevent any interference from those who actually put up the money.
The stock is sold for one penny a share. Investors believe this is very cheap and they are getting a bargain. Brokers hint that the stock could go to a dollar! They are getting in on the ground floor. This shell will soon merge with a company that has explosive potential for growth. This is a chance of a lifetime!
If the total number of outstanding shares are divided into the total dollars in the shell's new bank account, the true value of a share of stock is revealed to be perhaps 1/20th of one penny. Far from a bargain, at one penny a share the shareholders actually bought stock that is grossly overpriced. Further, the insiders who own 80% of the shares have become instantly wealthy with the initial sale of shares. If $500,000 of stock are sold to 500 shareholders, each buying about $1,000 of stock, then the day after the offering, the insiders gain $400,000 (80% of the net worth of the company).
Like the MLM recruit who enters the system years after the MLM company was founded and faces extraordinary odds against success, the penny stock investors were effectively beaten even before the company got off the ground. Or were they? Like the MLMer who has a losing business unless he is able to recruit many others below him and earn overrides from their losing investments, the penny-stocker can redeem his position handsomely if he can unload the stock at a profit to another investor behind him, the "bigger fool theory" as it is called in stock broker circles. Meanwhile those at the top of both types of schemes, the brokerage company and insiders in the penny stock deal, the founders and first top-line distributors in the MLM, pull the strings and profit accordingly.
As in MLM, some winners are needed to convince many more hopefuls to invest. Evidence must given to entice others, even if the evidence is bogus. In MLM, the lives of the wealthy upliners are presented as proof that the system works and the opportunity for success is available to all. The system functioned similarly in penny stocks. The first level of investors is offered the chance to sell its shares at 1 1/2 cents a share, a 50% profit in only one or two weeks! The brokerage company that is `making the market' buys back the shares, but unknown to the sellers, the brokerage company has already lined up twice as many people to buy these same shares at 2 cents a share. The brokerage company makes as much as 60% commission plus transaction fees on the `spread' between one and two cents, thus making more profit than the initial shareholders. Additionally, insiders are positioned to buy and resell the stock themselves in the artificially skyrocketing market. The buy/sell transactions are conducted on the same day.
As in MLM, the penny stock system works by getting investors to make relatively small investments, usually $500 to $5000. Each level of shareholders that is sold stock, therefore must grow in numbers of people to account for the higher priced shares. If five hundred were needed to buy the shares at one penny a share, with each investing an average of $1,000, then one thousand more investors are needed to make similar size investments when the stock is at two pennies a share. The base of the pyramid must now continuously expand to keep the entire structure from toppling. The rumored merger is made with the phantom company. Newsletters and phones calls pour forth from the brokerage company to trumpet the good news.
The merger of the shell with a private company provides the penny stock scheme with a certain validity. An empty shell was taken public; people invested; shares are bought and sold on the basis of this future transaction. But, in reality, the merger itself was as worthless to shareholders as the original shell. Its only purpose was to excite investors. The real money is to be made in the buying and reselling of the stock, not in any tangible business activity of the merged company itself.
This aspect is closely analogous to MLM's sales of products which are sometimes heralded as miracle cures or technology breakthroughs. Whatever they are, they are not the essential business of the enterprise. Continuously reselling distributorships in an ever expanding chain is the real business. Few people other than new distributors ever buy these products and most are sold as part of the investment scheme which is also contingent on future transactions. Products provide a fig leaf of validity and often keep regulators at bay just as the mergers did for penny stock promoters. If the newly formed penny stock company does not merge with another enterprise, it can be reclassified as an investment or banking company and fall under new and different regulations.
As more penny stock investors are solicited, the stock keeps rising. Soon the stock goes to five and then seven and perhaps eventually to twelve! For those on the inside, this is a veritable gold mine. For some shareholders who invested early, the program appears to be a wonderful and fully legitimate investment. Who can argue with making money by buying and selling stock? It's as American as apple pie. It's legal. It's just supply and demand. This is capitalism at its finest. What a system! The brokerage house has been earning huge commission rates on trades with stock rising at 50, 100 and 200% increments. The inside investors associated with the brokerage firm have been reaping massive profits.
But the bonanza does go not forever. The stock is astronomically overpriced relative to the assets of the company. Further, the number of investors needed to keep the stock propped up is becoming impossible to recruit. Some shareholders are beginning to ask questions about the actual business of this merged company. A point is reached at which the stock cannot be resold at a higher price. The collapse begins. Those holding the stock at this point suffer major losses on their investments. The real value of the stock is now revealed to be what is what it was all along, a small fraction of a penny or perhaps nothing at all.
The penny stock brokerage firm, it should be remembered, is not in any way harmed when the stock collapses. Only the most recent investors lose. The firm can move forward to create yet another similar scheme. It could also repurchase the shares from the losers and begin the entire process again with yet another "story" about the firms great potential.
Likewise, the MLM does not collapse by continuously enrolling distributors who lose their funds. The brunt of "collapse" is borne continuously by the new recruits. The systems rolls on as long as more recruits can be enrolled to replace those who lose their money and drop out.
Finally, it should be noted that taking companies public with very low stock prices and even using the merger with a blind pool or shell is not inherently fraudulent. It can be a valid method of helping a new company grow rapidly. Rather, it was the selling of grossly overpriced stocks (even though the selling price was only one penny a share) and then manipulating the price to entice more shareholders into schemes in which most were destined to lose money that constituted the fraud.
Likewise, a distribution system that allows distributors to appoint sub-distributors is not inherently fraudulent. It becomes fraud only when the company and the upliners place the majority of their efforts on recruitment of distributors rather than sales of products. Unfortunately, this kind of abuse pervades and characterizes the MLM industry.
When Securities & Exchange Commission and some state regulators closed in on the penny stock firms they were charged with `stock manipulation,' an accusation analogues to that of many former MLMers who have charged their uplines and MLM companies with `distributorship manipulation.' In MLM, not only are the distributorship investments manipulated, but the distributors themselves can also be taken for still more money by selling motivation and marketing material which they are told will help them succeed.
The MLM industry operates under the thin protection of a 20-year old ruling by an FTC judge that declared the basic business model legal. However, unlike the penny stock business, MLM does not have a federal or even state agency that specifically oversees its operations. There is no testing or certification for distributors. Companies do not register with any MLM regulatory body or send quarterly reports of sales activities as did the penny stock brokers. Even when an MLM company sells stock to the public, its day-to-day sales and marketing activities are not regulated, only its stock sales.
Some analysts have argued that MLM distributorships are, in fact, securities. They are bought on speculation. Their value rests on future transactions of dowliners and are promoted this way. Buy in now! Get in on the ground floor! One of your dowliners may become a superstar and take you to unimaginable wealth! The MLM industry naturally opposes this regulation. Few people favor greater government regulation of any business. Yet, regulation normally occurs only where abuse has been rampant. Until the MLM business goes back to selling products rather than making its money by using new distributors as its unwitting customers, the call for regulation will grow.