A conservative politician had better be pro-business. In terms of garnering campaign donations—the fuel that drives candidates to election-time victories—being pro-business is being pro-money.
It also helps when a business that a Utah politician supports is headquartered in Utah and brings in revenue from outside of the state.
A video circulating on the Web shows Utah Attorney General Mark Shurtleff enthusiastically welcoming a 2004 gathering of Usana multilevel marketers. He joked that he had convinced then-Gov. Jon Huntsman Jr. to rename the state “Utana.” “I tell you why,” Shurtleff said to convention attendees. “It’s because you guys pay a lot of taxes in the state.”
Shurtleff later gave his blessing to legislation that benefited Utah’s many multilevel-marketing companies. In 2006, after the state Legislature passed Senate Bill 182 to relax regulation of the MLM industry, there was little hue and cry. That is, except from Jon Taylor, a critic of multilevel marketing who saw the companies as thinly disguised pyramid schemes. In a 2006 Salt Lake Tribune op-ed piece, Taylor complained that politicians passed the bill because they love the tax money multilevel-marketing companies bring into the state at the expense of “millions of people, mostly out of state [that] have lost billions of dollars.”
Since then, multilevel-marketing companies have become ever more at home in Utah. Their headquarters and campuses have grown; they’ve bought naming rights at sporting arenas, concert venues and a high-rise office in Utah County. Like the ski industry, they are an industry closely associated with Utah, thanks to the help of politicians on all levels of government.
Another, more controversial industry has also taken root in Utah and is becoming just as established as the MLMs. It’s an industry that elected officials have also embraced because it brings cash and jobs into the state while exporting its products to consumers across the country and around the world. It’s the “online business opportunity” (OBO) or “upselling” telemarketing industry, sometimes referred to as “call centers.”
The industry blossomed in Utah in the mid-2000s, selling consumers around the country on get-rich-quick, do-it-yourself business plans. These companies acquire sales leads, often the names of people who click on Facebook ads that say “work from home” or those who purchase “business success kits” from infomercials. Then they call those consumers and upsell them on costly coaching services to help launch their own Internet businesses or profit from online auctions or real-estate-investment schemes. Several Utah call centers have acquired a bad reputation for fraudulently overstating opportunities, making illegal promises to customers about the money they’ll rake in, refusing to give refunds and placing unapproved charges on customers’ credit cards.
State and federal regulators have been slow to catch onto the abuses of the OBO industry. “Fraud built Utah like cocaine built Miami,” says Jason Jones, a critic of OBO companies. A former Utahn now residing in Chicago, Jones has been following the industry’s ups and downs on his blog, The Salty Droid, since 2009. He says it’s hardly a secret that Utah is a “no-enforcement zone” when it comes to prosecuting culprits in the industry.
That’s because OBO companies have done their homework. They worked hard to win over pro-business politicians. In 2008, the call-center industry collectively donated in the neighborhood of $200,000 to Shurtleff, even while a number of those contributors faced legal actions from the Attorney General’s Office, as well as administrative actions from the Utah Division of Consumer Protection.
During Shurtleff’s brief run for Senate in 2009, his campaign banked another $92,000 from companies in the dialing, coaching and upselling industry, according to a review of his state and federal campaign-finance-disclosure documents.
Two high-profile Shurtleff contributors—Mentoring of America and IWorks—subsequently were charged by the Federal Trade Commission. The agency won its case against Mentoring of America (and affiliated companies) and is now seeking $450 million in damages allegedly taken from more than a million consumers. IWorks’ owner Jeremy Johnson has been charged for defrauding consumers out of $275 million.
But change is in the air. After a dozen years in office, Shurtleff will be stepping down in 2013. He is making it his mission to see that the person who will fill his shoes is Republican John Swallow, his chief deputy. Swallow has campaigned to press on in the legal fight for state control of federal lands and to put a stop to President Obama’s 2010 health-care reform. But as Swallow recently told a call-center owner in a private phone conversation, he also wants to place the state Division of Consumer Protection under control of the Attorney General’s Office. This would enable the Attorney General’s Office to oversee both the investigation and the prosecution of businesses who are named in consumer complaints.
As Shurtleff’s heir apparent, Swallow is a magnet for OBO campaign contributions, thus far banking $82,284 from companies known to be involved in the OBO industry, according to campaign finance disclosures.
But currying favor with pro-business politicians doesn’t begin and end with campaign cash. OBO companies also court government through in-kind services, charitable deeds and mutual endorsements.
And their efforts, at least in Utah, have not been in vain. Indeed, while the Federal Trade Commission has charged multiple Utah telemarketing companies with serious fraud charges, according to Utah’s Administrative Office of the Courts, on the state level there is no record of a felony or misdemeanor conviction against a company or an individual for violating Utah’s Telephone Fraud Prevention Act since the law regulating telemarketers was enacted in 1993.
In the mid-2000s, Shurtleff was introduced to Tim Lawson, a longshot candidate for governor in 2000 with connections to Utah’s growing dialing industry. Their friendship helped broker an introduction between Shurtleff and industry players as reported in a 2009 City Weekly cover story, “Called Into Question.”
The industry itself was emerging and taking form, crafting products for consumers looking for extra money or help setting up a home business. Consumers watching late-night TV would learn about entrepreneurs who’d written a book or developed a system enabling consumers to “work from home part time.” Whether consumers wanted to make extra money from government grants, Internet auctions or real-estate transactions, they’d usually hear buzz phrases like: “Set your own hours” and “Be your own boss.” The entrepreneur on TV may have made money off his or her own system, but the “coaches” who buy the leads from the TV show make their money off consumers.
And they make lots of money. Some companies charge consumers, depending on their available credit, between $5,000 to $20,000 for special coaching services. If the coaching services leave consumers wanting, many consumers will say nothing because shame and embarrassment keep them from asking for their money back. Those who do complain to the state of Utah may not realize that unlike some states, Utah’s Division of Consumer Protection is separate from the Attorney General’s Office. The investigators in Consumer Protection depend on the Attorney General’s Office to prosecute the cases.
Some of the first OBO companies to put Attorney General Mark Shurtleff on speed dial were IWorks and Mentoring of America.
Jeremy Johnson, the millionaire philanthropist who owned IWorks, took Shurtleff on at least one trip on his private jet and offered to transport officials on state business in his private helicopter. Johnson was charged in 2010 by the Federal Trade Commission for defrauding thousands of American consumers out of $275 million.
Another company among Shurtleff’s OBO contributors, Mentoring of America, which City Weekly reported on in “Called Into Question,” faced numerous sanctions from state consumer-protection investigators and at one point avoided paying more than $100,000 in potential fines. Through a 2007 settlement, Mentoring of America paid no fines and promised to reform its practices and join an industry association—which has since disbanded. In 2009, Mentoring of America was charged by the FTC for running an elaborate telemarketing and upselling scheme. On May 1, 2012, the FTC won its case against Mentoring of America and affiliated companies, and the agency is now seeking $450 million in damages the government says the companies took from more than a million consumers. The judge is still deliberating on the final amount of damages to award.
While the FTC charged multiple individuals for the scheme, including those involved in late-night infomercials hawking real-estate success programs and Internet-marketing programs, Tom Syta, the assistant regional director for the FTC’s West Coast office, says the majority of the $450 million in damages resulted from the call centers upselling consumers on coaching services, ostensibly to guide them to wealth and riches.
“In the Mentoring of America case, it was less than 1 percent [of clients] that made a profit, and it was an even smaller number that made a significant profit,” Syta says. The majority of the company’s clients were sold coaching services with big price tags, with some clients being charged as much as $14,995. Syta also says that victims were not quoted the same rates; company operatives would find out how much credit the consumers had and then would sell them coaching packages designed to use up their available credit.
Syta says “upselling” thrives in good times and bad. When the economy is good, people take risks on business opportunities hawked by call centers. “When things are going bad, people think, ‘I need to replace income or I need to replace the job I lost,’ ” Syta says. “People are grasping.”
Jason Jones, a former lawyer who devotes himself full-time to reporting on the OBO industry, says he first started his blog The Salty Droid as a joke in 2009. Since then, he says, advocacy has become a full-time job. In 2011, for example, he says he provided evidence to the FTC of IWorks’ efforts to bully unhappy customers into not complaining about the coaching they received. Jones says his declaration helped the FTC get an injunction to freeze Jeremy Johnson’s assets.
Jones says the entire industry is built on a farcical idea that people can make money online without effort. “The tagline of my site is, ‘You can’t make money online,’ ” Jones says. “That’s the most important unicorn to kill.”
Jones, who grew up in Utah, says the lackluster regulation of the OBO industry is a direct result of Utah’s pro-business climate, the kind that favors businesses that don’t upset Utah consumers—or its voters. “It’s not just negligence, the non-enforcement of this stuff, but the politicians actively fostering it—being a part of it,” Jones says. “Everyone in Utah politics has at some point touched some part of this money, without a doubt.”
Indeed, the industry has found many ways to coach Utah’s politicos on the benefits of their Utah-based companies.
One way is to donate to political campaigns. Mentoring of America attempted to show its support of Shurtleff’s candidacy to the tune of a $32,500 donation in 2008. However, for reasons still unknown, Shurtleff returned $30,000 to the company.
Before Shurtleff decided to return the donation he was enough of a presence at the company for a salesman to invoke the attorney general’s name as a character reference while attempting to make a sale. From e-mails obtained in a 2009 records request, a consumer wrote to the Division of Consumer Protection on April 22, 2008, to say she was considering purchasing MOA’s services. A Mentoring of America salesman named Larry Bickel told her she could count on Shurtleff as a reference to his “honesty and integrity.”
The woman wrote: “I am considering investing a lot of money in his program. I want to invest wisely and not lose it on a scam,” presumably asking Consumer Protection to set her straight. The division forwarded the e-mail on to the Attorney General’s Office.
Later that year, in December 2008, Bickel was arrested for a Christmas-time shoplifting spree, having tried to take $1,600 worth of goods from a Utah County mall. In a 2009 interview with City Weekly, Shurtleff said he had referred the matter of Bickel using Shurtleff’s name as a reference to his subordinates. Assistant attorney general Blaine Ferguson confirmed the office did not contact the would-be MOA customer.
Mr. Good Deed$
Before Jeremy Johnson was charged with running a massive fraud empire out of his St. George-based IWorks company, selling customers on programs to gain government grants, he’d established himself as a philanthropist. During the Haiti earthquake, Johnson grabbed headlines by flying helicopters with supplies to the devastated country.
In 2008, Shurtleff received $50,000 in campaign contributions from Johnson and, at the time, told City Weekly their friendship was based on Johnson’s support for the Lost Boys charity, a nonprofit home for children who had escaped abusive polygamist homes.
In 2009, City Weekly requested e-mail records pertaining to Jeremy Johnson from the Attorney General’s Office—records the AG’s office did not wish to make available. City Weekly took its request to the State Records Committee, where the committee reviewed the records and classified many as public documents. The Attorney General’s Office appealed the State Records Committee’s determination. In late 2011, 3rd District Court Judge Robin Reese affirmed the State Records Committee decision on most of the records. A year and a half after requesting the records, City Weekly was able to review a small collection of e-mails.
According to e-mail exchanges, Washington County officials, in 2008, were expressing concerns over investigating Jeremy Johnson in light of his charitable donations. Assistant Attorney General Kirk Torgensen had, in November 2008, asked a former Washington County Attorney Paul Graf if he was involved in investigating Johnson.
Graf, in an e-mail, explained that he was only peripherally involved but that he had spoken to an investigator “who is concerned that the county attorney and St. George [police department] have a conflict because Jeremy [Johnson] donates to many police causes,” Graf wrote.
Graf said further that the investigator was hoping for an impartial set of eyes to look at the case, perhaps from the state Attorney General’s Office. “In my conversation with the county attorney, I learned that he did not want to prosecute [Johnson] but is not of a mind to refer any prosecutions to the AG,” Graf wrote.
In a reply e-mail later that morning, Torgensen warned Graf that an impartial review should not come from his office.
“Strictly confidential, this guy is a campaign contributor to Mark [Shurtleff] and pretty good friends with him,” Torgensen wrote. “We should really not take it over so I am glad the County Atty is not thinking of doing so.”
Brock Belnap, a spokesman for the Washington County Attorney’s Office, says he could not comment on the specific allegations but says they were not related to consumer protection violations such as those the FTC charged Johnson with in 2010.
“Because Jeremy Johnson had given money to build the Washington County Children’s Justice Center (which is under the supervision of the County Attorney’s Office), we believed that there would be at least a perception of a conflict of interest” had the county been tasked with investigating Johnson, Belnap wrote in an e-mail.
He says since the case could not be referred to the Attorney General’s Office, it was referred in 2009 to Iron County. In April of that year, the office decided it could not prosecute the case, Belnap says, because of “evidentiary reasons.”
Shurtleff’s office did bring a suit against Johnson on behalf of Consumer Protection in 2008, but the office settled with Johnson and dismissed all charges. Since that time, Shurtleff has defended Johnson as a humanitarian who ran a company that dealt with thousands of consumers, one that invariably would face complaints from disgruntled customers.
Shurtleff’s e-mails also note Johnson’s offer to help out with state business. An e-mail reveals Shurtleff telling his staff assigned to a complex public-lands litigation project that Johnson was willing to fly AG staff over southern Utah to help spot road claims as part of a state lawsuit against the Department of the Interior. In the 2009 e-mail exchange, Shurtleff tells his staff in the Public Lands division that he will remind Johnson about the request when he sees him later in the week when he’ll be flying with Johnson to California.
According to previous media accounts, Shurtleff flew on Johnson’s private jet to California as part of a charity event in summer 2009. Photographs from that trip show Shurtleff grinning from the jet’s posh interior and also posing on the tarmac inside Johnson’s Lamborghini sports car.
Attorney Nathan Crane, who is representing Johnson in the FTC case, confirms that Johnson has been involved in charity activities and in helping law enforcement by lending his helicopter to state agencies as well as the FBI and the Drug Enforcement Agency in searches for fugitives. “[Johnson] spent a lot of time with both these agencies to help chase down bad guys,” Crane says.
Although Johnson’s FTC case is ongoing in the District Court of Nevada, the case has taken several twists and turns since Johnson’s 2010 charging. Johnson has been arrested twice: once in a Phoenix airport attempting to leave the country en route to Costa Rica, a few months after receiving a federal indictment for mail fraud. Later, he was brought in in Washington County for an outstanding Nevada warrant, which was issued after he bounced several bad checks meant to cover more than $100,000 in gambling losses at a Las Vegas casino.
While Johnson’s charitable acts may have earned him some leeway with the local and state officials who would have prosecuted him, another OBO operator, Sov Ouk, pursued the “family friend” angle.
It was 10:45 p.m. on a cold night in January 2012 when a black car slowly pulled into the driveway of Johanna Quinones’ Sandy home and parked with the engine running. Quinones didn’t recognize the car but feared who might be in it. She quickly called the police. Quinones previously had a restraining order against her ex-husband, Sov Ouk, a Salt Lake City Internet-marketing entrepreneur.
She was naturally relieved when a patrol car rolled up to her house and an officer approached the idling car. She then watched in amazement as the officer shook hands amiably with the driver, the man she would later find out was Utah Attorney General Mark Shurtleff. The state’s top attorney had driven her ex-husband to her house, in an act, she says, of intimidation.
To add to the confusion, Quinones learned that Shurtleff had called 911 on her. Quinones had gotten into an argument with her ex-husband a few hours earlier after she had waited at his house so she could drop off their children, as part of their custody arrangement. When Ouk called and told her he had yet to leave work and was at least a half-hour away, Quinones says the couple quarreled, and she ended up taking the children back to her house.
In a recorded 911 call, Shurtleff can be heard identifying himself by name, telling police that he’s outside of the residence and warning the dispatcher that he’s concerned about Ouk’s children. As a result, when law enforcement arrived on the scene, they promptly went into Quinones’ home and shined flashlights into the eyes of her sleeping children to make sure they had not been abused. The children were startled but in good condition, a police report from the incident would note.
“Just because he was late [picking up the children], he tries to prove a point to me and brings the attorney general to my house at 10:45 at night,” Quinones says. “I did not appreciate that.”
Shurtleff’s “bromance” with Ouk, owner of Global Marketing Alliance, goes back a few years. According to Quinones, in 2007, Shurtleff’s son, Heath, went to work at an affiliated company owned by Ouk called Global Marketing Design, a company that helped design websites for Shurtleff’s 2008 election efforts.
Shurtleff’s campaign banked $10,000 from Ouk’s company in his 2008 election bid plus $2,400 for his 2009 Senate campaign. In 2010, Shurtleff added his voice as a testimonial for one of Ouk’s other business efforts, a nutritional-supplement product called 8 Zone. In an infomercial, currently on YouTube, featuring Olympic gold medalist Apolo Anton Ohno, the video opens with a limo pulling up outside what appears to be the Grand America Hotel in Salt Lake City. At a staged press conference, Ohno begins talking about the wonders of the supplement as being vital to anyone interested in “Olympic medal health.”
Testimonials start to flash across the screen, including one from Mark Shurtleff, identified as “Attorney General.”
“I’ve tried a lot of vitamins and supplements in my life, and this is the first time, with the Red Zone, that it’s really worked for me,” Shurtleff says, smiling. “I loved it.” City Weekly attempted to interview both Ouk and Shurtleff for this story but calls and e-mails were not returned.
Currently, Global Marketing Alliance is facing an administrative citation from Consumer Protection for up to $17,500 in fines for deceptive practices and other violations resulting from complaints filed by consumers over promises the company made, claiming, for example, a GMA program has “no failures.” The matter is still pending.
Still, when operated lawfully, some in the industry say the OBO industry provides valuable services that can help people get ahead. State Sen. Aaron Osmond, R-West Jordan, has had years of experience in the coaching industry, having previously served as CEO of a company called WealthRock until he left in April 2012 to return to the IT field.
As a legislator and former member of the industry, Osmond says his company worked hard to make sure its coaches were professionals with knowledge of the OBO services they offered, whether it was real-estate investing or starting online businesses.
As to the idea recently suggested by AG candidate John Swallow of moving Consumer Protection under the Attorney General’s Office, Osmond says he sees “no significant benefit.
“In my perspective, you have to have a Division of Consumer Protection—that is clear—because this industry is fraught with small organizations that do take advantage of students,” Osmond says.
He says a division that advocates for average citizens is essential, though, during his time in the industry, he says he worked to police his companies and even alert regulators of bad actors in the industry.
Osmond also worked for The Coaching Company, a business affiliated with several companies involved in a still-ongoing civil lawsuit filed in 3rd District Court in 2009—prior to Osmond’s employment. That lawsuit primarily focused on James Smith, a Florida real-estate “guru” who referred clients to affiliated coaching companies in Utah. Osmond’s involvement in the company came after the lawsuit was filed.
The lawsuit alleges a coach involved in Smith’s companies defrauded more than a dozen, mostly elderly, victims out of a combined $10 million. Osmond was not a part of the companies at the time, and, during the time he worked for The Coaching Company and WealthRock, he says, the companies maintained a positive Better Business Bureau rating and faced no actions from Consumer Protection. No trial date has yet been scheduled in the case.
It bears noting that an affiliated James Smith company called Real Estate Investor Education donated $12,500 in 2011 to Swallow’s campaign for attorney general, according to Swallow’s campaign-finance-disclosure forms.
The Party Never Stops
Since many victims of OBO fraud reside out of state, Utahns are often oblivious about what these companies do and how they give Utah a black eye. For Utahns, the OBO call centers are unknown entities, operating in the shadows, except when tragedy strikes.
Like when Sov Ouk threw an office party for his employees in 2009. One employee was given the keys to a company BMW. After employees started drinking at the office, the group then went downtown to a strip club, where employees knocked back high-end tequila until closing time. Leaving the club, GMA employee John Bishop was, according to police reports, highly intoxicated. He drove the company BMW and rolled it after going speeds in excess of 120 mph along Interstate 80. The crash killed Jason Palmer, also a GMA employee, who was ejected from the vehicle. In 2011, Bishop was sentenced to 25 years in prison for the fatal crash, and Ouk’s company has faced $400,000 in legal exposure from resulting lawsuits, according to his divorce file.
Beyond such overt tragic losses, The Salty Droid’s Jason Jones says the true victims of unscrupulous companies in the OBO industry are the unwitting consumers. He says the industry seems to focus on whatever trend is hottest—like real estate prior to the housing collapse—to lure in a demographic that are struggling to make ends meet.
“It’s tilted toward senior citizens and so many baby boomers. You see all these stories on the local news about people losing their jobs because the economy is modernizing past their skill set, and that group of people are the meat and potatoes for this fraud monster,” Jones says. “That’s horrifying. That’s our family members, our fellow citizens who are already in this sad and desperate situation, who are getting ground out in this meat grinder.”
This is Part 2 of a three-part series on the OBO telemarketing industry. The third installment will appear in the June 21 issue.