Scott Johnson: Why is Amway a Pyramid Scam? — For Dummies

By Scott Johnson

Amway’s model is based on recruiting people.  It’s people, not products. People recruiting other people.

When a person joins Amway, they become an IBO (Independant Business Owner). They sign a contract of partnership with the Amway Corporation. More than 99 percent of IBOs lose money. It’s how pyramid schemes work.

Amway was sued in 2007 for being an illegal pyramid, and several former high-level distributors disclosed the results of a confidential study Amway conducted. That study showed that only 3.4% of Amway products were sold to outside customers.

That’s right, 96.6% of Amway products are sold to IBOs.

It’s not surprising. There is no demand from the general public. Amway products are grossly overpriced. IBOs have to sell products to themselves and their downline.

But in reality, Amway is not based on selling products. Amway is in the business of selling memberships, a lifestyle, a chance at making a fortune. You become an IBO to get rich. It almost never works.

It can’t because they have no fairly priced products – no demand for their overpriced goods.  Even the 3.4 percent of sales of Amway products to “outside customers” is largely to relatives and friends of IBOs.

Amway is a pyramid scheme. Very few IBOs sell any product. They are taught to recruit IBOs. The Amway culture is anti-selling product.

In order to be competitive on retail products, Amway would have to drop their prices which would mean Amway corporate would have to take less profit and/or pay out far less bonuses.

In order to pay commissions or bonuses to the upline, they have to double or triple the price of products compared to what you could buy at a retail store.

One of the largest sources of income for top-level IBOs – the few who make money – is selling tools.

I don’t mean hammers and drills etc. I mean tools for recruiting more IBOs for your downline. Amway sells books, tapes and other instructional material to members – sold to IBOs on the basis that these are tools of the trade – secret teachings that will help them recruit IBOs and get rich.

This sale of tools is the hidden profit source for most top-level distributors. They don’t make money on products; they can’t because they’re too expensive. They make it selling “tools” [tapes, etc.] to IBOs in their downline – for them to learn how to recruit more IBOs who, in turn, will recruit more IBOs and all of them need these tools to recruit more IBOs.

The upper layer in the IBO ranks make 2/3s to 9/10s of their profit from selling the tools and not from Amway products for use in the home or office.

They are not – no one is – selling hardly any product to non-distributor customers. That’s what makes Amway a pyramid.

Obviously, like any pyramid, only a few at the top make money. The vast majority of IBOs lose.

Most join with high hopes and quit soon after spending a few hundreds, or thousands, to find that there really is no demand for the Amway products and few people they know are interested in becoming IBOs.

The money they spent is absorbed by their upline and Amway Corp. itself.

The IBO then quits with a basement full of overpriced soap, sadder but wiser.

This is just a long-lived sh!tty scam.  Most people who become IBOs and buy overpriced Amway products [and if they are eager and earnest buy the Amway tools] after a time realize the model does not work.

They might recruit a friend or a relative. They might buy some soap or shampoo knowing they can get a better deal for less at Walmart.

After they run out of the two or three relatives they got to sign up and get tired of paying more for detergent or bottled water, they give it up and rarely think about Amway again.

They blame it on themselves perhaps. Thinking they did not try hard enough. Or they just did not have what it takes.

They don’t realize Amway is set up just for them. To get their few thousand and a few of their friends – and for you to quit, after disposing of some of your money with them.

Of course, once in a while someone comes in and makes a little money, but the big money is at the top, not the base of the pyramid.

It is for Amway, a game for suckers. If they recruit 10,000 people and 9,999 each buy some overpriced soap and recruit one other person -who also buys a little overpriced soap, they keep the game going. That’s 20,000 IBOs each on average losing $2000 each – and that’s 20 million – almost all of it absorbed at the top of the pyramid.

What did the 19,998 people in the lower ranks get for their collective $20 million – about a million dollars worth of products in their collective garages.

Amway has taken in millions of people over the years

***

Scott Johnson has a weekly radio show/podcast:: http://www.buildingfortunesradio.com/scott-johnson-peter-mingils/index.php?start=0

 


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  • Every one of Scott Johnson’s articles is a cut and paste of the same material. He presents no compelling arguments or logical points as to why anyone should join in his pet “crusade”. For example, he fails to explain why Amway has a good reputation among business partners which include Apple, Home Depot, Bank of America, Microsoft, AT&T, and North Face. The evidence is right here on Amway’s own web site: https://www.amway.com/en_US/partner-stores Perhaps if Scott were to try some of the Amway nutrition products, he would have more energy and feel better about himself.

  • If you hate Scott Johnson or want a good laugh, please read on!

    Amway Johnson; The peculiar case of the Amway Texan, driving people nuts for over 10 years. My post is a testament and historical account of Texas’s biggest asshole, Scott Johnson.

    I have found 2 separate accounts of Scott Johnson from 10 years ago, driving people crazy.

    One man started a blog as a direct result of Scott’s ability to annoy the sh*t out of the man.

    Here is the blog link:
    http://texasssux.blogspot.com/2010/12/textextex.html?m=1

    A second man wrote a hilarious exposé on Scott Johnson outlining Scott’s unsympathetic callous nature and Scott’s astonishing level idiocy.

    Apparently, Scott has been lying quite a bit on the Frank Report according to the article. Here is the expose:
    https://corporatefraudswatch.blogspot.com/2010/01/clueless-tex-refuses-to-face-ugly-truth.html?m=1

    PS I wasn’t going to post on Amway articles, but I just had to share these links.

    • Great Job Niceguy!
      You nailed Scott in his scam.
      Thank you.
      While Scott poses as an anti-Amway crusader he secretly supports the Amway scam.
      The last link from 2010 details what a weird devious game Scott is playing.
      And without fail Scott has to insult everyone he encounters.
      Even people who are anti-Amway.

      I wondered why Scott responded to one of my negative comments on Amway by saying that I need more self-confidence to be a good Amway distributor.
      Scott Johnson the Amway troll regurgitates the standard answer for an Amway cult believer.

      Let’s examine some key passages from the last link:

      Passage 1
      “the ‘Amway’ Ministry of Truth has continued to repress all dissent and to hide the real picture by relentlessly spewing forth the same poisonous propaganda – ‘Amway Products’ represent such ‘Good Value’ that ‘Millions of Independent Amway Business Owners’ are conducting ‘Billions of Dollars of Sales.’ ”

      In fact Amway sells generic products for premium prices.

      Passage 2
      “in the adult world of quantifiable reality, virtually no ‘Amway’ products have ever been sold to persons who are not agents of the organization, whilst the hidden, overall, attrition/failure-rate in the so-called ‘Amway Business Opportunity’ has been (effectively) 100% and an unknown number of persons have become so loaded with debt, and guilt, that they have committed suicide.”

      Pasage 3
      “a sad little band of three intellectually-castrated ‘Amway’ apologists. One of whom, Scott Johnson, paradoxically admits that he has been the victim of an ‘Amway’-related advanced fee fraud for 12 years (although he insists on using the rather misleading term ‘tool scam’) and that, despite persisting for 17 years in total, he’s never made a dime of overall profit out of his so-called ‘Amway Business’.

      These passages were written in 2010 meaning that Scott Johnson has been bitching and moaning about Amway since 1993.
      A total of 26 years of complaining about Amway!
      Scott Johnson is indeed intellectually-castrated.
      Hey, Scott, can you sing Soprano for us?

      Passage 4
      “Johnson has yet to find the courage to admit that he was both (unwitting) perpetrator and (unwitting) victim of a self-perpetuating, esoteric deception which was maliciously designed to be beyond the understanding of the average person.:

      Yes, according to Scott Johnson ordinary people can’t understand how Amway is a scam but he is such a genius he has it all figured out!!!!!
      Scott Johnson must be the world’s third smartest man!
      According to Scott Johnson all the rest of us are stupid.

      Passage 5
      “he (Scott Johnson) claims to have worked out how the ‘tool scam’ functions and to have approached law enforcement agencies and the media with complaint about ‘Amway’s’ millionaire under-bosses (whom he refers to as ‘LCKs’ ‘Lying Cowardly Kingpins’)

      Passage 6
      “However, imagine the reaction of law enforcement agents and journalists when they discovered that (after 12 years of being defrauded) Johnson not only remained under contract to ‘Amway,’ but that he energetically continued to promote the central organization and to defend its billionaire bosses by relentlessly regurgitating their own poisonous propaganda.”

      Scott Johnson is the biggest Gaslighter in Texas.
      Scott Johnson knows that Amway is a fraud but still is contractually involved with the scam.

      Passage 7
      “Despite decades of quantifiable evidence (including 17 years of his own dismal accounts) proving ‘Amway’ to be the corporate front for an ongoing major organized crime group (the bosses of which have followed a pattern of racketeering activity as defined in the US by the RICO Act of 1970), Johnson arrogantly still refuses to face up to the ugly truth – incessantly repeating that he knows everything and we ‘haven’t got a clue.’

      Again Scott Johnson is a genius and we are all fools.

      Passage 8
      “the fellow is a classic, cult core-adherent, in that he steadfastly claims to be absolutely righteous even when all the quantifiable evidence proves his behaviour to be (at best) misguided, or (at worst) downright evil. Although he is demonstrably dissociated from external reality, Johnson remains certain that he alone represents the truth and he acts accordingly.”
      David Brear
      https://corporatefraudswatch.blogspot.com/2010/01/clueless-tex-refuses-to-face-ugly-truth.html?m=1

      Scott Johnson, you are a huckster just like Keith Raniere.
      You pose as a gadfly fighting against the evil Amway but you are in bed with them.
      A person who truly opposed Amway would have left the Amway gang long before 17 years had passed.
      Now 27 years have passed and you’re still spewing out Amway propaganda.
      Scott Johnson, the only tool in this story is YOU!

      • Shadowstate,

        The best is yet to come!!! This post is just to wet everyone’s appetites. Consider it an appetizer. The entree is going to be 4 stars !

        • Niceguy:
          Again, I must thank you for this excellent work.

          It seems that Scott’s main beef with Amway is that they did not make him the head of the scam!

          Imagine the shock of the cops when they discovered that Scott, their star witness, was still involved with Amway in a major way!

  • A search on a Herbalife website gave a breakdown of the percentage of people in different earning brackets and it was roughly 1% that earned over 500k. The majority were in the 0.5k-1k bracket. They have that on their website and they appear to be very transparent about it. Looking at that document, I can’t see how people would even bother but, and I guess this is the problem, I would assume it’s because the majority are only devoting a few hours a week or even month to selling it. Is that a similar set up to Amway? How do they convince people to sign based on those figures? Is it purely “you need to work full time on it” kind of speech?

    • The low percentage of people making a lot of money while most others don’t make much is a red herring. That argument isn’t much different than a CEO at a major corporation making a lot more money than most of the rest of the employees. If you look at any MLM or corporate pyramid-structured organization, there are similarities, and while you may not like that a janitor makes a lot less than a CEO, or a new distributor makes a lot less than a Diamond with several hundred people in their organization, that’s how capitalism works. The key differences are that:

      1. The corporation is selling most of its products and/or services to people not associated with the company, i.e., customers. MLM scams sell most of their products and/or services to their own distributors, aka internal consumption. This is the definition of an illegal pyramid, as described on the FTC website and evidenced by several successful prosections against MLM scams.

      2. While even the lowliest janitor makes some money, most MLMers, on the order of 99+%, lose money. They may make some gross profit, but it is eaten up, and then some, by the overhead costs, both tool scams (illegitimate costs) and normal business overhead (legitimate costs) resulting in a net loss. Net profit is all that matters in business, if you spend more in overhead to produce the “profit” being made, your business will ultimately fail, which is what happens to most MLMers.

      3. Most companies cover the costs of training their employees (not to mention providing insurance, pensions, retirement plans, etc.), MLMers pay for their own training. While it is understood that the MLMer is not an employee and instead is an entrepreneur (further defined as an independent contractor by the IRS and therefore not entitled to the MLM providing insurance, pensions, retirement plans, etc.), when MLM scams take advantage of this relationship by creating massive training profits for the company (less common) or the upline distributors (more common) and lie by omission about those massive profits, it’s a RICO fraud situation.

      The dollar amounts you see on the Herbalife website are gross profit, not net profit. There are many lazy people in MLMs, and there are always going to be new people on the bottom not making much money, and that’s the way it should be, because the new people don’t produce much in terms of volume/profit for the MLM, and they are paid consistent with their direct and indirect (downline) volume/profit production, which is again, the way it should be. I’m not knocking the MLM model, as most MLM critics do, I’m knocking how it is being executed by most MLMs, with the lack of retail sales to non-distributor customers (illegal pyramid) and tool scams (RICO fraud). I believe if MLMs were held to task for thes two issues, most of them would rightly fold up and go out of business. A more complete description of the above and other related topics can be found here: http://allmlmfacts.org/2016/05/h-r-5230-and-the-fallacy-of-mlm/

  • Scott Johnson preaches his anti-Amway message here only to people who don’t use Amway products. He lacks the imagination and boldness to preach his message at an Amway convention.

    • You missed the message. The message is for you to tell others about Amway and other MLMs being scams, and have them pass it on to others, and so on. The message is useless against current Amway IBOs, as they have been “hooked.” That’s why it was no big deal to give up a small piece of my First Amendment right in the Settlement Agreement with Amway and not direct Amway related communications towards current Amway IBOs. The message needs to get to people BEFORE they join, not after.

  • A few clarifications to the above story:

    Amway’s model is based on recruiting people. It’s people, not products. People recruiting other people. — While this is true on some level, Amway and other MLM scams correctly state that the signup fee is paid only to Amway (or the appropriate MLM scam) and the recruiting distributor makes nothing. This is a technique that damages the credibility of the person making the accusation, which carries over to other things they claim. It is true that when the new distributor signs up, they are supposed to be given the option of paying only the signup fee and not products. Offering this option rarely occurs, and the sponsor (and their upline) do make money on the new distributor buying the products. It’s not reasonable that the new distributor would be aware of this option to not buy products, and I find it ridiculous that a person joining Amway wouldn’t buy the products in order to check them out for themselves and so they can promote them to other distributors and the rare customer. Also, even the lowest distributor makes some money, although much less than their overhead costs, but it does show the business “works.” Products are involved, products are what gives the illusion of a legitimate business, so they serve a very important function. Also keep in mind it’s not just the initial purchase of the products when joining, which are actually a small percentage of the overall products that are purchased, but also the ongoing purchases of products, many of which are consumables and are purchased on a regular basis. Depending on the upline, buying anywhere from 100 to 300 PV (the distributor cost is about three times the PV, or about $300-$900/month for Amway core line products, or $1,000s of dollars/month of “Partner Store” products) is promoted, but in such a manner that only to those who want to “succeed” should buy them. But YOU want to be a “winner,” don’t you? LOL It is often said within Amway that it is not a product business, but a relationship business. A more complete description is that it’s actually a lying, abusive relationship business, Raniere learned this lesson very well when he started NXIVM. I know this was a long and technical/picky clarification, but it’s so important to understand the whole story, or the MLM will make a flippant, and technically true statement without telling, as Paul Harvey used to say, the rest of the story.

    When a person joins Amway, they become an IBO (Independant Business Owner). They sign a contract of partnership with the Amway Corporation. — This is true, but they also sign a contract of sorts with their upline, by agreeing to settle any differences with Amway and/or their upline in Amway’s arbitration process, which is set up to be very unfair to the IBO. Seven judges from across the country have described Amway’s arbitration process as “illusory” and/or “unconscionable.” It’s a total trap.

    Amway was sued in 2007 for being an illegal pyramid, and several former high-level distributors disclosed the results of a confidential study Amway conducted. That study showed that only 3.4% of Amway products were sold to outside customers. — This is also true, and there’s more to the story. Amway never denied the 3.4% claim, they merely counter sued and claimed the information should not have been disclosed, as it was confidential information. They later settled for $25 million, which was later reduced for unknown reasons, but probably to get the distributors who left to cooperate by shutting up and stop complaining about Amway. The 3.4%, as tiny as it is, is an inflated number. People are taught to this day to manipulate the computer to make a self purchase appear that it was sold to a friend or relative. People are also taught to use the credit card of a nearby cooperating relative or friend, have the products shipped to their address, then go over, with a check in hand to pay for the credit card amount and take the products back to the distributor’s house for consumption.

    Even the 3.4 percent of sales of Amway products to “outside customers” is largely to relatives and friends of IBOs. — While these are legitimate sales, they are what I call “sympathy sales.” For example, my mom bought the skin care products because she loved and wanted to support her son’s business. She liked the products but probably never would have purchased them from anyone else.

    They don’t make money on products; they can’t because they’re too expensive. — The upline does make some money from the products, and the downline makes some GROSS profit, but because the tool scam and legitimate overhead costs are so high, the money they make from the products ends up in the pockets of the upline, and they double-dip on both product and tool profit, which means the downline operate at a negative NET profit, aka at a net loss. Here’s one typical example, just a good ‘ole redneck Florida surfer dude who is a born again “Christian,” who got booted from Amway: https://archive.sltrib.com/article.php?id=51831930&itype=CMSID

    The IBO then quits with a basement full of overpriced soap, sadder but wiser. — This does occur, but it’s not nearly as common as it used to be, when it tooks several days to weeks to ship the products, and an inventory was necessary to keep the “customers” satisifed. Amway is down to just a few days, which still puts them way behind Amazon’s next day delivery and the current expectation for fast order fulfillment.

    They blame it on themselves perhaps. Thinking they did not try hard enough. Or they just did not have what it takes. — Failed distributors don’t come up with these ideas on their own. These points are driven home by the upline at virtually every meeting, tape/CD/DVD/MP3/MP4, etc. They are taught the “system” (meetings, books, recordings, voice mail, website access, phone apps, etc.) is perfect and it’s YOUR fault if you don’t apply it with 100% commitment to succeed. Some of the common expectations include showing 15 marketing plans per month, reading 15 minutes or more from a recommended book, going to every meeting, listening/watching at least one recording every day, subscribing to the voice mail, website access, phone apps, etc. If you don’t do every single thing on the list every single day, you should expect to be started over from the very beginning. The analogy often used is that of an Olympic athlete, who should not expect to win a gold medal if they don’t train every day, break their diet, etc. I doubt the Olympic gold medal winners were following the recommendations 100% of the time, but that’s the mindset that is used to deflect the blame to the failed IBO while they are unknowingly being scammed by an illegal pyramid (lack of retail sales) and RICO fraud (ATS – Amway Tool Scam).

    Amway has taken in millions of people over the years. — Tens of millions. Other MLM scams raise this to hundreds of millions over the years.

  • Scott, you really need to spend time with your upline. You are obviously not putting in enough effort. Get on the phone! If you are not involved before a prospect you are unemployed.

  • Scott, you need someone like Toni Natalie if you want to fight Amway. For a lot less money than you pay Frank Perlato, you could hire Toni and she’ll do what she did to Nxivm. Frank didn’t do it. Toni did and it offends me to see Frank get the credit. #HireToniNow!

    • I need Natalie like Raniere needs mercy. I don’t pay Frank a dime, so that means Natalie would have to pay me. I’m still not interested. Natalie had zero impact on NXIVM’s demise, except to keep people from working together and be more effective. That means Natalie had a negative impact on NXIVM, not a positive one. Without Frank, Raniere would probably be up to several hundred women being cauterized near their genitals. You’re a nut. Thanks for playing the fool, you’re REALLY good at it. LOL

    • Gas Porter Hates Amway, aka Nicki Clyne:

      Nicki, this might shock you but Toni Natalie operated the National Health Network which was an Amway style scam selling expensive vitamins and minerals.

      • Selling implies customers. Natalie probably sold most of the products to distributors, just like Amway and other MLM scams. That’s what makes an MLM an illegal pyramid. I’ve explained this to you before, but you’re so fixated on Mack that you can’t think straight.

        • Scott,
          You’re so fixated on bellyaching about Amway that you don’t take the time to search the internet and Youtube to discover there are literally hundreds of videos attacking Amway.
          Scott, you would rather complain about people on this forum for not attacking Amway.
          The crimes of NXIVM go far beyond Amway-like tactics and structures.
          NXIVM was involved in:
          Blackmail
          Extortion
          Sex Trafficking
          Child Molestation
          Statutory Rape
          Money Laundering
          and
          Possible Murder

          Amway and Multi-Level Marketing is the smallest part of the NXIVM saga.

          • I’ve seen a few of the videos, I don’t spend a lot of time on them because they don’t address the main legal issues with Amway and other MLM scams, which are lack of retail sales (illegal pyramid) and tool scams (RICO fraud). They are mainly b!tching and moaning, not that their complaints aren’t valid, they simply aren’t actionable by the government. The people making and watching the other videos already know Amway is a scam, this website has lots of people who never heard of MLM. MLMs have resulted in all of the above, and more, and in much greater numbers than Raniere could have imagined in his wettest wet dream. LOL

            Therefore, while the other videos are helpful in getting some people to not join, the issues identified can be easily overcome by the MLM distributors with counter arguments. They can’t touch my logic, it is perfect.

            As usual, you don’t know what the f*ck you’re talking about and try to provide answers rather than asking questions of the foremost MLM scam expert on the planet, which is yours truly.

          • “they don’t address the main legal issues with Amway and other MLM scams, which are lack of retail sales” Scott Johnson

            Scott:
            It doesn’t take a genius to figure out that there will be very few retail sales because Amway products are grossly over-priced.
            Scott, the US economy runs on the premise of consumer choice.
            If consumers don’t like products because they are overpriced, they are always “Free to Choose” other products and other vendors.
            It does not take a genius to figure out that Amway is and always will be a losing proposition for most people.
            It’s called common sense.

        • “Selling implies customers.” Scott Johnson

          Scott:
          Wholesalers SELL products to retailers.
          In a sense that is what Toni Natalie was doing with her National Health Products.
          Scott, you know nothing about retailing.

          • Wrong again. In the MLM context, selling means non-distributor customers buying products. Most industries have specific definitions that are different than the generic meaning of the word/term being used. MLM scams love to use the term “end user” because one of the early court decisions used this term and they can bend it and distort it to mean distributors and customers. They claim a very high percentage, such as 98%, ultimately end up with “end users.” If this were the intent, then every MLM would always have 100% of the products ending up with the “end user.” It’s hogwash, and intended to fool those who are not familiar with the issues, particularly people like YOU, to be misled. It also works with most prospects and distributors who do not dig into the issues. Mr. Shadow, you know NOTHING about MLM scams and therefore NOTHING about retailing in the MLM scam context. LOL

          • Scott:
            Like most consumers, I know when products are grossly overpriced and Amway is grossly overpriced.
            I notice that Amway does not open retail outlets to compete with legitimate retailers because their products are not reasonably priced.
            And the scam about recruiting people to sell for you so that you will become rich “operating your own business” is only a cover to divert people away from the fact that the Amway model is uncompetitive.
            All consumers have to do is follow their own best interests as customers in an open and competitive marketplace and avoid Amway.
            Read Milton Friedman’s book “Free to Choose” about the importance of choice in a free economy.
            Scott, your whole attitude towards consumers is that they are stupid.
            Most people are actually quite smart and will follow their own best interests.
            Only stupid Amway salespeople like Keith Raniere will try to take away people’s right to choose.
            Your approach of berating people as stupid about Amway and MLMs actually defeats your purpose.

            To me, Amway and similar scams are filled with people like you and Keith Raniere who want to become rich by exploiting other people and avoid paying the minimum wage the way other retailers do.
            Amway distributors are treated as “independent contractors” not even meriting the minimum wage.

            So Scott, stop treating everyone else as stupid.
            Most readers of the Frank Report would never dream of joining a scam like Amway and they don’t have to be hectored about it.
            They inherently understand that Amway is a scam.
            How can you sell products and services to people if you disrespect them?

    • It’s hard not to engage Nicki Clyne, who knows how to destroy large criminal organizations, from the inside out. Nicki knows what it takes and who it takes. Nicki is a success story.
      Nicki is in the tireless fight against crime.
      Nicki is my great heroine.
      I am a great admirer of Nicki.

Frank Parlato Investigates

Frank Parlato Investigates

Frank Parlato is an investigative journalist.

His work has been cited in hundreds of news outlets, like The New York Times, The Daily Mail, VICE News, CBS News, Fox News, New York Post, New York Daily News, Oxygen, Rolling Stone, People Magazine, The Sun, The Times of London, CBS Inside Edition, among many, many others in all five continents.

His work helping take down NXIVM is featured in books like “Captive” by Catherine Oxenberg; “Scarred” by Sarah Edmonson; “The Program” by Toni Natalie, and “NXIVM. La secta que sedujo al poder en México” by Juan Alberto Vasquez.

Parlato has been featured prominently on HBO’s documentary “The Vow” and acted as lead investigator and coordinating producer for Investigation Discovery’s “The Lost Women of NXIVM.”

Parlato will be featured in an upcoming episode of American Greed.

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