USA

Disputed government tech fund chief linked to multilevel marketing companies

Both companies operated as multilevel marketing plans, which work by encouraging current sales representatives to recruit more participants in exchange for incentives and often a cut of those people’s sales. Sometimes, these plans include additional incentives to get those new people to recruit even more participants.

Miles and his wife were never accused of wrongdoing, and he said in a statement that the two companies’ legal woes began after her involvement with them had ceased. In fact, his wife was affiliated with the company in the 1990s during years when a number of state attorneys general investigated it.

The choice of Miles has also drawn scrutiny for his lack of specialized expertise in the technologies bankrolled by the digital rights nonprofit, which funds encryption software tools like Signal for citizens of authoritarian regimes, he acknowledged in an interview, though he emphasized his management experience.

Miles, who in early July was tapped for the job by Michael Pack, the new CEO of the U.S. Agency for Global Media, has not been able to take the post amid a court battle over control of the fund. In late July, three federal judges said that Pack appeared to lack the statutory authority to control the fund, like he does with other federally funded international news organizations.

Asked what technological experience qualifies him to run OTF, Miles said, “Mmm. Oh, I don’t know. I’ve been dealing with the internet for a long time [as a user] so I don’t know. I would not suggest to you that I am the world’s preeminent expert on thwarting the Chinese firewall. I don’t believe that. But I do think that OTF probably does have people who are.”

He said later in the interview that he actually did have technology expertise but was mostly qualified for the job because he’s a “successful business manager,” and was South Carolina’s secretary of state for 12 years, where among other duties, he regulated nonprofits. He also served twice as chief of staff to Andre Bauer when Bauer was the lieutenant governor of South Carolina.

One multilevel marketing company Miles said positive things about, Excel Communications, sold long-distance telephone service, and was investigated in the 1990s for potential violations of anti-pyramid laws by attorneys general from Michigan, Texas, Arkansas, Nevada and Pennsylvania.

Pennsylvania alleged that Excel’s plan violated consumer protection laws because it required people to pay to be a representative. Excel reached a settlement with the state in 1998 in which the company said it stopped that problematic program. Michigan also launched a formal investigation into the company but later stopped looking into it when Excel agreed to change some of its marketing programs.

In December 1995, in a Success Magazine cover story, Miles is quoted telling his son about Excel: “I believe this is the finest financial opportunity you will ever have in your lifetime. If you do this, you will never have to do a job in your whole life.”

Asked about that quote, Miles told POLITICO: “When was that again? When was that?” Told it was in the 1990s, he said: “I don’t know. I have no idea. I don’t remember that but anyway, I never was involved in anything, any of that stuff. Nothing. Nothing.”

Miles’ wife Betty worked as an “independent representative” for Excel from 1994 to 2004, according to her LinkedIn bio. She even wrote books about her time in the industry with titles like “The Millionaire Master” and “The New American Dream,” whose cover notes that the introduction is by “Secretary of State Jim Miles.”

She was mentioned in a company newsletter as a successful distributor who made $17,000 every month, and was also mentioned on the former direct sales website ChangeMakerEvents.com as the “#9 All-time money earner” at Excel.

But most sales representatives for the company didn’t do nearly as well, with Forbes finding in 1997 that the average participant at the bottom of the company received just $20 per year in commissions. While Excel had made a $144 million profit in 1996, the company would have lost money that year without the $195 fee each recruit had to pay to become a sales representative, Forbes found.

In 1995, James Miles, who was then South Carolina’s secretary of state, was quoted in the Success Magazine story as saying the company was “legitimate, excellent, ingenious” when asked by the wife of a South Carolina state senator: “Jim, as Secretary of State, it’s your job to keep flimflam companies out of South Carolina. Is this a legitimate business?” Miles also noted that he had run criminal background and bankruptcy checks on the company and its principals.

Miles also spoke to a gathering of 4,000 “Excelites” in Atlanta in November 1996. He would not comment to CNN Money at the time when asked how he was connected to the company, although his attorney told the outlet, “What he does with Excel has nothing to do with his official job capacity. We don’t know anything about these speaking engagements.”

A 1996 New York Times story mentioned Betty Miles’ involvement in Excel but also noted that 86 percent of its representatives didn’t renew their contracts working for the company. Betty Miles didn’t respond to a request for comment.

Excel also was the subject of several hundred “slamming” complaints filed against it at the Federal Communications Commission in the mid-1990s. Slamming is the practice of changing someone’s telephone provider to a different company without that person’s permission.

Around the time the company went public, it was already getting bad press about its business practices, with a Dallas Morning News story noting that “Excel has become a somewhat controversial company in recent weeks, as some analysts criticized its accounting methods and other matters.” Some former sales representatives also sued the company and alleged that Excel had “interfered with their incomes,” and that it was a “multilevel marketing scheme.” The Tulsa World criticized the company as being a “pyramid of expanding recruits originating from a single representative.”

In 1998, the company merged with telecom company TeleGlobe and then was eventually taken over by Bell Canada, which went bankrupt in 2002. “Excel captured the spotlight briefly in the mid-1990s when it applied an Amway-style, multi-level marketing approach to the long distance telephone business, but this strategy never really paid off,” the Canadian newspaper The Globe and Mail wrote in 2002. “BCE [Bell Canada Enterprises] bought it along with Teleglobe, only to sell it later for just $227-million (U.S.) -- 90 percent less than it paid for it -- taking a huge writeoff.”

During the years of its existence, Excel drew a number of complaints from people who felt that they had been cheated, with one saying, “the folks at the top made out like bandits. The best that the rest of us could say was that we were only out $400. … I am sure that some of the true believers came to their senses after that, but what about the rest?”

Another wrote that it was “heartbreaking to think about how a company can abuse its people in such a way, when the distributors work so hard to build their financial future while building the company. How naive of us to have thought that Excel and all MLM companies have our best interests at heart!”

A third said that “Excel made money on selling distributorships that were essentially worthless at the time of investment but could produce ‘unlimited income’ if the purchasers recruited others to also buy distributorships. Excel was based upon the Ponzi Plan.”

When asked for comment for this story, Miles said in a statement: “I was never involved in any multi[-level] marketing plan. My wife was involved but quit before any legal trouble faced either [of] them. At the time my wife was involved the plans were perfectly legal. Later in their operations they ran into legal difficulties but my wife had long quit at the time of the legal difficulties. I was not personally involved but did give my legal opinion that the plans were on their face legal. And they were.

“Only in the subsequent operations did they have legal trouble and that involved primarily the representatives themselves making promises and doing things that were not consistent with the plan. But by the time that occurred my wife had left them and I played no part whatsoever in helping them resolve their problems.”

In a statement, USAGM CEO Pack said: “This is yet another character assassination of an American who simply wishes to serve the country. I remain confident in Mr. Miles’s ability to advance democracy and freedom of expression through the support of internet firewall circumvention technologies.”

The Open Technology Fund, where Pack wants to put Miles as acting CEO, is at the center of a pitched battle that has pitted OTF’s existing leadership against Pack, who tried to fire that leadership and board of directors and put his own people on it. In late July, a federal appeals court temporarily blocked Pack’s actions, saying he likely didn’t have authority to replace the board, but a final ruling has not been made.

But such court battles haven’t stopped Pack from changing some of USAGM’s personnel that deal with similar issues that OTF works on. Last Friday, USAGM also removed its director of the office of internet freedom, Chad Hurley, according to two people familiar with the matter, and moved him to the agency’s technology services and innovation group. Hurley was informed about the move, which was effective immediately, in a phone call with USAGM’s new chief operating officer, André Mendes, and no reason was given, according to one person.

Miles said he didn’t know if Pack knew about his links to the multilevel marketing plans but also said in an interview after being presented with what POLITICO planned to report: “I don’t think I’d quibble with your story. I think your story is probably right.”

In the late 2000s, Miles’ name also was used in marketing materials for another company that used a pyramid approach to growing its business. Paul Orberson, who had been a top earner at Excel, launched Fortune Hi-Tech Marketing in 2001, and the firm’s website homepage at one point used Miles as an external validator.

“Listen to Jim Miles’ perspective on Fortune Hi Tech Marketing and the Network Marketing Industry,” the website read. “Jim Miles was the Secretary of State of South Carolina for 12 years. Jim is a lawyer who has the ability to practice in front of the Supreme Court.” A company brochure that was available online in April 2009 entitled “Who is joining FHTM?” also listed both James and Betty Miles at the top of the list.

But as the company grew, some state attorneys general started investigating and by early 2010, both North Dakota and Montana had sent cease-and-desist orders to FHTM to prevent it from doing business in their states.

James Miles also was quoted in Montana’s cease-and-desist order as saying that FTHM was “a pyramid, there’s no doubt about that. … There’s nothing wrong with a pyramid.” But he also said that because the company had products and services to sell, FTHM was legal. The Montana commissioner of securities and insurance chastised Miles for saying that the company had “passed legal judgement by every state in this nation.” The commissioner’s office said: “For Montana, this representation is false.”

The company got in more trouble with attorneys general from Texas, Illinois, North Carolina and Kentucky starting to investigate, and the Federal Trade Commission also eventually started looking into the company. In late January 2013, a federal court halted the company’s deceptive practices, froze the defendants’ assets, and appointed a temporary receiver.

The attorney general of Kentucky, where the company was based, said at the time: “This was a classic pyramid scheme in every sense of the word. The vast majority of people, more than 90 percent, who bought into FHTM lost their money. Today marks the end of one of the most prolific pyramid schemes operating in North America.”

The Office of Aging of the South Carolina lieutenant governor, where Miles had been chief of staff, even issued a “scam alert” warning people about the company.

When asked if his wife regretted her involvement in these companies, Miles said: “She helped a lot of people at Excel. She is a very successful woman, a real high-powered woman, a wonderful salesperson, believes fervently in what she was doing and as a result of that, was very successful and made a lot of money and helped a lot of people make a lot of money.”

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