Money is not as important as oxygen,” says Gabriel Lullo, smiling. “But it sure ranks right up there! Am I right?”
Lullo looks like Christian Bale, with slicked-back black hair and a power suit. The room in the Amherst Marriott is cold, accented by chandeliers and a digital projector and screen taking up room at the front. In the audience are about 30 people, old, young, black and white, anxiously listening to Lullo tell them how they can become rich the easy way.
“I’ve been able to do this, acquire two BMWs, and live a lifestyle that’s awesome,” he says.
All he had to do was convince hundreds of people that a company called American Communications Network (ACN) was the opportunity of a lifetime, and not a business scheme designed to make suckers out of hopeful people.
“We’re kickin’ like fried chicken!” yells John Seppo, an ACN regional vice president (RVP), continuing a presentation that’s a bit like a 3 a.m. TV infomercial crossed with a rousing sermon. Seppo tells the crowd of potential recruits that doubters helped him—by providing motivation. Do anything to get people to say yes, he says—call them in the middle of the night if they resist.
“Do you think you are going to move up to RVP, SVP, or TC by playing by the rules? Recruit like a storm!” he bellows to the snowstorm-recovering crowd, some of them probably still without power.
On campus, the presence of various “moneymaking opportunities” like ACN or Cutco cutlery is flyered on the walls. “Work for Students” is written on class chalkboards all over campus. A man in a shirt and tie with slicked-back hair has spoken outside the Generation office for the past few weeks, offering students big money opportunities for little time and work.
It’s easy to get excited when someone tells you stories of living a life of luxury. But once you start asking questions and trying out ACN’s suggested sales pitches on everyone in your phone book, it quickly becomes clear that what Lullo described on stage won’t work for everyone.
He says the company sells phone services—long distance, local, DSL, etc. He says that for $500 you can buy into your dream job.
But once you wade through all the jargon, it’s clear that what your $500 has purchased is the incentive to badger other people into giving Lullo’s company $500 too.
No matter how many times Lullo and his disciples mention that the business was praised by Donald Trump, it doesn’t change the basic dynamic. What you are really selling—the real product—is your friends. Your neighbors. Anyone you can drag into the company’s embrace.
A ‘Pyramid Scheme’?
Experts have a name for businesses set up this way: pyramid schemes. Though ACN’s practices are not technically illegal under United States or New York State laws, they still prey on people who are not aware of the business structure’s relentless mathematical implausibility, said Robert FitzPatrick.
A business fraud expert and co-author of False Profits, FitzPatrick said the company’s representatives can try to deflect the label, but the bottom line is that “ACN is what you would call a pyramid selling scheme.”
FitzPatrick is also head of Consumer Education Group (CEG), an advocacy group that focuses entirely on multilevel marketing firms like ACN. “The mass majority of people will never, ever make money at [ACN],” said FitzPatrick.
For FitzPatrick, there are three questions his group looks at in order to determine whether or not the business is a pyramid scam: how many people earn money, how they make it, and does it cause harm? For CEG, math is an easy way to prove a scam.
“You need 128 people before you start getting to a commission rate that makes any sense at all, because a quarter percent or one percent of somebody’s phone bill is pretty much worthless,” explains FitzPatrick. “But how many people can build a down-line like that? Well, if you need 128, then roughly one out of 129. Less then one percent can ever make money at this. In order to make money you need to have a large number of people below you. How many people can have a large number? Well, only a small number.”
Does ACN cause harm? According CEG, the answer is yes. Pyramid schemes are considered damaging because they deceive people and they result in a large number of people not only failing to make a profit, but never making their $500 back, FitzpPatrick says.
“How could a system work where each person is told to recruit two others? If everyone recruited two, by the time we got to the 32 level, the last group would be over six billion,” explains FitzPatrick. “So can it work for everyone? The answer is no. What ACN does is entice people with a false proposition—the endless chain. An endless chain by design can only ever allow a small amount of people to be successful. They tell you ‘everyone has the same opportunity,’ when, of course, they do not.”
A Success Story?
To hear Lullo tell his story, only effort separates everyone in the audience from a life of luxury. Lullo says he is a 25-year-old UB alumnus who got started in the business three years ago. He told the crowd he has moved up to become one of six “team coordinators” in Western New York. He receives commission on more than 4,000 phone services and has over 550 representatives beneath him.
It is at the Amherst Marriot hotel on Tuesday nights where ACN meets to introduce a novel opportunity to their new sales representatives. As ACN president Greg Provenzano says during their welcome video, “Someone thought enough about you to pass along this life changing information…don’t let this once in a lifetime opportunity pass you by.”
This opportunity, though, is offered to a room full of people who are already involved with ACN. Most people here are learning how to get more people involved in the company, sort of like a meeting of some college Christian groups.
Only instead of spreading the word of the Lord, they’re told to get other people in on a “business opportunity that even Donald Trump is endorsing.”
Representatives from the company are given a script to read to their friends in order to get them involved. It begins, “hello (name),” and features subtopics like “If they ask questions.” All answers lead one to appear at these Tuesday night meetings.
The company’s practices have not led it to be criminally charged in the United States. But civil charges have been brought against the Canadian and Australian branches of ACN for misleading marketing practices—in those countries, ACN was labeled a pyramid scheme. The company recruits their reps by selling the American dream, but hearing of pyramid schemes makes some second guess why they got their friends involved, and why they signed up at all.
ACN 101
After paying $500 to buy into ACN you officially gain the title of Team Trainer (TT), allowing you to sell the company’s product: phone services. By selling these services, you receive a commission and earn “residual income.” In this entry-level position, one quarter of one percent (0.25 percent) of services you sell comes back to you as commission. But that doesn’t amout to much money; sell the most expensive phone service ($38.95) to 100 customers, and you wouldn’t even make $10 a month.
It’s not the commission that makes representatives money. It’s the bonuses for recruiting and advancement within the first month that allows them to make their money back. When you sell seven phone points (one awarded for each service sold) and recruit two other people to pay $500 and become TTs below you with seven phone points each, you get named “Executive Team Trainer.”
That position is still one quarter of one percent, but includes an exclusive, first month only, bonus check of $700. In other words, you’ve made back your $500 investment plus $200 that month.
Let’s do the math: To get your $500 back, you have to get the company $1,000, in the form of two new recruits who paid the company $500 each. Plus you get a $200 “bonus.”
So, the company just paid you $100 each to get it two more people—each determined to get two more people themselves, to get their $500 back.
“That $700 is huge, it’s a promotion they’re running right now,” says Nick Novack, a senior chemistry major at the University at Buffalo who was temporarily with the company. “That is something they push and really make you believe that you can do. It’s more essential for you to add representatives than it is to add customers.”
It’s not until a representative reaches level six (growing exponentially, 95 TTs underneath them) that his commission rises to one percent. The company says that it really jumps up at level seven when an independent rep at ACN makes seven percent commission on all services sold by the reps, but only on that level.
‘Kickin’ Like Fried Chicken’
“They’re insane—they’re so full of energy, I haven’t been to anything I can compare it to,” Novack explains about the ACN meetings where representatives share their success stories. “They’re like rappers, running around showing you their watches, BMWs, Hummers, and then their pay stubs to show you where they got the money from.”
It is this type of recruiting strategy that has brought criticism and charges against ACN. In 2002, The Competition Bureau of Canada brought charges against ACN for recruiting “new participants by exaggerating income expectations without disclosing the income of a typical participant,” according to a press release at www.ic.gc.ca. Instead of carefully breaking down sale and development strategies, they tend to mislead their representatives with energetic success stories of people making it big in the company, Canadian authorities said.
“The conference calls and seminars had nothing to do with sales strategies or tips. It was all stories of happy times to keep you interested in the company, my up-line told me this,” Novack explains, recalling the conversation he had with his recruiter, before he quit. “Apparently he underestimated my intelligence because he very clearly laid it out as a huge scam.”
In the Marriott conference room, there is no talk of scams.
“The reason why I’m so persuasive with ACN is because of what it has done for me. I tell good stories because it has completely changed my life financially,” explains Gabriel Lullo. “My mom was working two jobs, now she doesn’t have to anymore. I was working three, now I don’t have to anymore.”
Residual income allows this lifestyle, their promotional videos say, which is, simply, hard work today for commissions for life. This idea provides the benefit of not working on an hourly wage, or “dollars for hours” as Lullo describes it.
Lullo insists he’s not trying to “sell” anyone the company or make money off of them and that they are merely helping others. “I’m not trying to persuade you to get in. I am trying to persuade you to think differently because it’s a scary world out there and a lot of people aren’t prepared.”
Running a scheme is the last thing Lullo would call it. “A pyramid scheme is anybody who is marketing an opportunity to make money without selling services or products. I don’t know if you heard—Donald Trump is now endorsing this company. It’s impossible to run a pyramid scheme for more than a year. We’ve been running for 14 years in 18 countries. Pyramid schemes are illegal, but it’s a common misconception because we are constantly looking for people.”
Still, according to Lullo, only one third of the people he works with become Executive Team Trainers, thus making their money back.
ACN 1, Friends 0 (Final)
For every success story ACN tells, there seems to be another student with a negative reaction. FitzPatrick’s team has received many complaints about the company.
“Most complaints are not from students, but from parents of students,” tells FitzPatrick, “and some of them are quite desperate.”
FitzPatrick believes that it is a telltale sign of pyramid schemes to cause close relationships to fall apart. “Here we have friends, classmates, or relatives literally preying upon one another and in a scheme that will result with a majority, a large majority loosing money. That is pretty damaging to friendship,” FitzPatrick says. “Apart from schemes causing a large amount of people to lose money, it will also have the effect of alienating people from one another, destroying friendships, risking family and friend relationships in a very predatory way.”
Novack experienced these types of effects first hand. “I had customers already and one person underneath me. I could have stayed involved and just made money off his success, but I really don’t want to be a part of this. I don’t like the nature of the business,” Novack says. “There are more important things than money.”
A junior biomedical sciences major who wished her name be withheld had a friend like Novack. “She joined at the end of last semester and was really into it—it became her whole life.” The junior described her experience with her friend, who had become a completely different person. “She started calling everyone she hadn’t seen in years, and when I told her I wasn’t interested, she said she wanted me to see it. ‘It’s a part of me now,’ she said.”
The junior’s friend even found a new boyfriend who was higher up in ACN’s hierarchy.
“The more and more I pursued this, the more respect I could see I was losing from my friends,” said Novack. “I apologized to my friends and family and told them I was sorry for wasting their time.”
