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Once a salesman becomes a distributor, he receives cash bonuses for signing up other salesmen and distributors, and extra bonuses for any distributors whom his distributors sign up−a process equivalent to an illegal chain letter. SEC officials calculate that if each Holiday Magic distributor signed up as many distributors as the company claims he is expected to, at the end of a year 305,175,780 people would be selling the stuff. Says Mrs. Thurman H. Bane, an 84-year-old Monterey, Calif, woman who was left with unsalable Bestline soap powder stacked to her ceiling: "I began to see that the Best-line people weren't selling soap. They were selling memberships. They were out to catch all the suckers they could, and I admit I was one of them."
Hundreds of court injunctions have been filed against pyramiders before, but they usually settle out of court or ignore the actions and set up their operations elsewhere. The SEC move against Holiday Magic and the California suit against Bestline are refreshing departures. The SEC is asking not just for an injunction but also for the forfeiture of all the pyramider's profits; the suit contends that pyramiding is tantamount to selling unregistered securities. In the Bestline case, state officials declined to settle out of court and instead pressed their suit to its conclusion. Judge Kenneth Holland hopes that by establishing a precedent of stiff damages against Bestline, he may make other pyramiders reluctant to do business in California and encourage other state judges to clobber them.
The battle is far from over. Pyramid operations seem to have an irresistible attraction for people with low incomes and high expectations. "The real tragedy is that Holiday Magic appeals to minority people who want to get rich," says SEC Staff Lawyer Louis F. Burke. "It's the little guy who can't read who gets ripped off." Pyramiders also have a knack for forming new companies as soon as the old ones come under fire. Despite a pending FTC cease-and-desist order and numerous state injunctions, Bestline last week was still doing business in all 50 states and several foreign countries. Laments the SEC's Burke: "If Holiday Magic flounders here, they can still rape Europe, Africa, Latin America and the Far East."