Monday December 22, 2014
SNc Channels:

Search
About Salem-News.com
Zip Weather


Weather Forecast
Keizer is a thriving community near Salem, Oregon

 

Feb-25-2010 01:32printcomments

The Southwestern Company Part 2: A RICO Case

This activity is illegal, shameful, and unconscionable. The Southwestern Company represents the very worst of the U.S. business community.

Salem-News.com
On March 25, 1999, a van carrying a group of sales people, working exhaustive shifts similar to those imposed by the Southwestern Company, flipped over and crashed. Of 14 passengers, 7 died. Monica Forgues, shown here, is one of the survivors of the fatigue-related crash.

(EUGENE, Ore.) - A summer working for the Southwestern Company begins in early June. Employees from around the United States and around the World meet in Tennessee for a week of extensive group training in Southwestern’s sales techniques.

The Southwestern Company recruits second year employees to be “managers” and gives them incentives to recruit their own team members. Managers get a percentage of their workers sales. The “do anything to make a sale” technique, which managers have learned in their summer working for Southwestern, becomes their most valuable tool in recruiting new workers.

Foreign employees, who must apply and pay for a special J-1 student work visa, pay for their tickets to fly to the U.S. Once they are here, they will pay for everything else as well.

Once they have gone through training, employees are assigned to a work area, and must pay to travel there. On arrival, employees must procure their own housing.

The typical working day for a Southwestern employee starts around 6:30 am. When they get up, they are expected to call their manager to check in. If they miss their morning check in, their manager will call them.

One of the crucial elements of the Southwestern training routine is the cold shower that employees are told to take every morning. The cold shower is an antidote for the sleep deprivation and exhaustion that naturally follow from employees’ grueling work schedules.

The 12 hour work day that Southwestern trains its employees to follow is “optional.” It would be illegal if it were a job requirement.

Since managers have a financial stake in their employees earnings, they are incentivized to enforce the 12 hour working day. The Southwestern Company requires extensive documentation of all employee activities, which makes it easy to track employees’ work time, and pressure them if they are not working 12 hour days.

Manager pressure is only one way of enforcing the 80 hour work week. Financial coercion is also a powerful tool for compelling compliance. Since Southwestern employees are paid on commission, they have no income unless they sell. For employees far from home, who must pay for both their living and working expenses out of pocket, this is a powerful incentive.

After a 12 hour day of selling, Southwestern employees return home after dark. Whether riding a bicycle or driving a car, this exhausting schedule, combined with operating a moving vehicle at night, virtually guarantees accidents and injuries.

After the selling day, employees check in with their manager again, and go over the day's sales. If their sales are not up to par, then they discuss strategies for how they can improve their selling techniques.

The 12 hour work day is only for 6 days out of the week. The Southwestern Company is run by good Christians, so the Sunday workday is limited to a mandatory 6-8 hours of group activities, lead by managers.

Malinda Turvey died in the 1999 crash

On March 25, 1999, a van carrying a group of sales people, working exhaustion shifts similar to those imposed by the Southwestern Company, flipped over and crashed. Of 14 passengers, 7 died. Five passengers were permanently injured, including Monica Forgues, who was paralyzed for life from the neck down.

Since the year 2000 Phil Ellenbecker, whose daughter Malinda died in the crash, has been fighting in Wisconsin for the passage of a law to clamp down on companies like Southwestern. The Southwestern Company aggressively opposed the legislation for years, until it was finally passed on March 26, 2009.

Mr. Ellenbecker maintains the websites Dedicated Memorial, which is a permanent memorial to those who died and were injured, and TravelingSalesCrews.info, which provides up to date information on the criminality associated with various direct selling companies.

Monica Forgues was paralyzed from the neck down

The Racketeer Influenced and Corrupt Organizations Act (RICO) is a Federal Statute designed to allow for prosecutions of organized crime organizations. RICO makes it a crime to engage in a pattern of criminal activity in violation of certain other Federal laws.

Potential RICO violations committed by the Southwestern Company include illegal immigration violations under U.S. Code Title 18 Sec. 1546, and money laundering violations under Title 18 Sec. 1960.

Potential money laundering violations arise from the Southwestern Company’s general scheme of tax evasion. The Southwestern Company has structured its operations to evade State and Federal taxes. It then induces its employees to open bank accounts and transfer funds across State lines in furtherance of this tax evasion scheme.

Illegal Immigration

The Southwestern Company recruits heavily in foreign countries. Foreign workers, all college students, are brought to the United States on J-1 Visas. J-1 Visas are special 3 month work permits specifically issued to foreign students so that they can work in the U.S. during the summer. They must be sponsored by a licensed U.S. company.

The J-1 Visas issued to Southwestern Company employees are sponsored by Global Educational Concepts, a wholly owned subsidiary of the Southwestern Company.

The company sponsoring the J-1 Visa is required by law to assist the Visa holder in finding employment and safe housing. Since all of the J-1 Visa holders are being funneled into “independent contractor” work, this may not qualify as employment under the J-1 definition.

The Southwestern Company also has a policy of having its employees find their own housing. Employees are required to go door-to-door asking strangers if they know of an available room for rent in their neighborhood. This would appear to violate the provisions of the J-1 Visa program requiring that the sponsor assist the Visa holder in locating safe housing.

The J-1 Visa program also specifically requires that employees not be engaged in any direct selling where they must purchase inventory prior to sale.

The Southwestern Company requires its employees to purchase a full set of the books that they sell. These are “demonstration” materials, not inventory, according to Southwestern.

The Southwestern Company also requires employees to purchase inventory before they have received payment for it. The Southwestern Company agrees to buy back unsold inventory, where the money is never collected, which provides some cover under the J-1 rules. However, employees must pay the shipping costs for inventory, which means that they incur financial risk and financial losses as a result of having to purchase unsold inventory. This appears to be a violation of J-1 Visa rules.

Most importantly, the Southwestern Company sales program, from the start of training to the final group session at the end of the summer, is longer than 3 months. The J-1 Visa provides for up to 4 months in the United States, but the worker can only be employed for the first 3 months of that time period. In order to complete the Southwestern Company sales program, foreign workers must work illegally, and violate the conditions of their Visa.

The Southwestern Company’s operations, and their use of the front company Global Educational Concepts, appear to be carefully designed to violate J-1 Visa rules, while maintaining the ability to deny intentional wrongdoing.

Not only is the Southwestern Company violating immigration laws, but they are also inducing their foreign employees to violate immigration laws. By requiring foreign employees to work after their Visas have expired, Southwestern is exposing the foreign college students who work for them to potentially severe penalties for violating their Visas.

Tax Evasion

The Southwestern Company evades State and Federal taxes by falsely classifying its employees as independent contractors.

Sales people are not subject to minimum wage laws, whether they work as independent contractors or employees. The key point in classifying employees as independent contractors is in avoiding Social Security and Medicare contributions at the Federal level, and avoiding Unemployment and Workers Compensation contributions at the State level, as well as avoiding worker safety laws.

According to a handbook put out by the State of Oregon, indicators of employee status are that the “means and manner of work are controlled by the employer,” the employee is “trained by the employer to perform the job,” they “work for one employer,” and their “wage, salary, or commission is set by the employer.”

If these job conditions predominate, then the worker must be classified as an employee, not an independent contractor.

The Southwestern Company trains its employees in a highly regimented week-long group course, where they are taught the rules that they must follow. Employees’ workings hours are set by these rules. Employees follow other extraneous rules, such as not carrying cell phones, and avoiding contact with family and friends. Employees carry company issued IDs, bearing the Southwestern Company name and logo. All of the materials they carry are also marked with the Southwestern Company name and logo.

According to Oregon law the primary determinants of being a true independent contractor are the ability for the individual to “set [their] own hours” and be “free from direction and control.”

If workers are not free to set their own hours, and not free from direction and control, then they must be classified as employees, not as independent contractors.

The Southwestern Company attempts to plausibly evade these rules by using “manager” independent contractors to control and direct the activities of “worker” independent contractors. This scheme is a transparent sham.

The Southwestern Company is training all of its employees. They train their managers in the techniques necessary to control their workers. The Southwestern Company then rewards managers with a percentage of their workers' sales if they compel their workers to follow the company’s rules, especially the 80 hour work week.

Tax evasion by the Southwestern Company with respect to Social Security, Medicare, Unemployment, and Workers Compensation contributions is only one aspect of their organized tax evasion.

The classification of employees as independent contractors also means that the income taxes owed by these employees are not being withheld. Especially for foreign workers, this probably means that in many cases income taxes are not being paid.

Just as with the J-1 Visas, the Southwestern Company is exposing its foreign employees to potential penalties by inducing them to violate laws that they are probably not even aware of.

Money Laundering

Southwestern Company employees are required to open bank accounts in their own names in order to process checks paid to them for merchandise, and to submit payments to the Southwestern Company. This activity directly contributes to the underlying tax evasion schemes being perpetrated by the Southwestern Company, and thus may be considered money laundering.

Opening checking accounts and using them to process checks for the Southwestern Company is another area where employees assume both financial and legal risks. If checks bounce, the employee absorbs the costs, and must engage in collection activities themselves.

Foreign employees, who are not familiar with the U.S. banking system, or the propensity of Americans to write bad checks, learn of the financial risks involved in this arrangement the hard way. The exposure of J-1 Visa holders to financial losses related to bounced checks is another area where the Southwestern Company may be violating the regulations of the J-1 Visa program.

Conclusion

The Southwestern Company is clearly violating the law in their classification of employees as independent contractors. They are clearly violating immigration laws by inducing their employees to work after their Visas have expired, and quite possibly violating other regulations specific to the J-1 Visa program.

What is most disturbing about this illegal activity is that the Southwestern Company is bringing in foreign workers, and making them culpable in their criminal schemes. These workers are college students who are ambitious, hard working, and looking for an opportunity to benefit from those positive personal qualities.

The Southwestern Company is offering their employees the promise of an opportunity to work hard and make money, while learning valuable skills, while at the same time inducing people who have no way of knowing or understanding our laws into illegal activities.

This activity is illegal, shameful, and unconscionable. The Southwestern Company represents the very worst of the U.S. business community. The legalistic façade that they have created to disguise their activities is just that: a façade. That façade is paper thin, and any serious inquiry into their activities is sufficient to tear it to shreds.

In “Part 3: Web of Deceit” I will continue this series by exposing the web of front companies and political action committees operated by the Southwestern Company, their owners, and executives. I will also expose their extensive contributions and ties to Republican politicians.

===================================

Salem-News.com Business/Economy Reporter Ersun Warncke is a native Oregonian. He has a degree in Economics from Portland State University and studied Law at University of Oregon. At a young age, his career spans a wide variety of fields, from fast food, to union labor, to computer programming. He has published works concerning economics, business, government, and media on blogs for several years. He currently works as an independent software designer specializing in web based applications, open source software, and peer-to-peer (P2P) applications.

Ersun describes his writing as being "in the language of the boardroom from the perspective of the shop floor." He adds that "he has no education in journalism other than reading Hunter S. Thompson." But along with life comes the real experience that indeed creates quality writers. Right now, every detail that can help the general public get ahead in life financially, is of paramount importance.

You can write to Ersun at: warncke@comcast.net




Comments Leave a comment on this story.
Name:

All comments and messages are approved by people and self promotional links or unacceptable comments are denied.



Kevin August 6, 2012 10:16 pm (Pacific time)

thank you for this great researched and reliabe article. the truth revealed about SW. Hope someone will bring this company down.


BCY April 11, 2011 5:24 am (Pacific time)

It all starts at the top - Spencer Hays is one of the most evil and unethical "business" men I have ever met. While there are "successes" within his companies, the path of broken people in its wake cannot be ignored.


Andrew from England April 11, 2010 11:49 am (Pacific time)

Hi Ersun - I sold $40,000 dollars worth of sales in 11 weeks. I came from England and it was a wonderful adventure and has been the foundations from which I have built a successful career in the city of London. I wish you luck in yours.


It was the Van, not the job that kil February 25, 2010 7:54 pm (Pacific time)

I can't believe you don't give credit where credit is do those girls where Magazine Sales Persons, Not Book! There is a difference! Give Credit where Credit is do and don't give all the Credit to The Southwestern Company. Magazine Top Heavy Van Killed them not selling Magazines. Do your research on Church Vans. People die every year because of there poor design.

Editor: Our reporter spoke to the father of a girl in the tragic accident.  There is a clear parallel between the circumstances referenced in the article, and what happened to the people in the van that day.  Magazines, books, that is irrelevant.  The idea is pushing young people in unfair employment circumstances and taking advantage of laws that are meant to protect employees.  The idea is not that the vehicle was top heavy, the idea is that when you mix fatigue and night driving because people are pushed too hard, you are dealing with deadly circumstances.    


Hank Ruark February 25, 2010 6:46 pm (Pacific time)

Brandon: Yours re "irresponsible journalism" prompts me to inquire into your professional qualifications. From what renowned institute of journalism did you emerge ? Where have you worked, at what level, producing what journalistic product ? For whom did you write, if not on published daily or weekly ? Magazine field ? If so, what journal, in what area of expertise ? For those of us who write for S-N, that information is available both in squibs with our stuff, and as public disclosure in Staff-section. IF perhaps you have not so participated, from whence does this denigrating statement come, sir ? If details in reports here false in any way, show us how and where by simple delivery of facts-involved with our distortions/perversions, if you can discover any. Be sure to provide links to any documentation, which is what we do here routinely, for check by anyone who wishes so to do (including details of our professional preparation and experience.) Otherwise. I invite you to blow it right out of that familiar container we all recognize from Army days...or deposit it yours in other suitable (and flushable, we can hope !) container. If this seems intense, sir, that's because those of us who work at this profession, often long hard hours to inform ourselves properly, for the edification of you and others, sometimes wonder if what we do does not deserve at least a decent and more appreciative audience than your response seems to indicate. You pays your nickel and gets to read our stuff...but that does not sell you the right to abuse those who work to inform you, sir !! For further dialog on this sore-point you have created, ID-self with working phone to Editor Tim and I'll be happy to continue with full details as to why this matters, in an open, honest, democratic channel such as we have now created here at S-N.


Hank Ruark February 25, 2010 2:33 pm (Pacific time)

  Re lawsuit/threat, perhaps too-young assignee to suit research doth not know that "mafia", in lower/case, was common Chicago term long ago.

  In fact believe we used it to refer to behaviors in large city av centers stealing media via copying copyrighted items sent for review prior to purchase, in then-celebrated media journal participating in suit by injured producers.

  So ref. to term by legal eagles flapping wings --or lips !--may be simple fear- inducing threat, as we then experienced.


Ersun Warncke February 25, 2010 1:28 pm (Pacific time)

As far as interviews go, I do not personally see much point in rehashing manufactured talking points with PR people. I do journalism based on observed facts, documented research, and speaking to real people, not professional liars. That said, the invitation is open. If Henry Bedford would like to have an interview, he is welcome to fly to Oregon, and I will have him interviewed under oath in a deposition, and on the stand in a court room. I am generous like that.


Hank Ruark February 25, 2010 10:02 am (Pacific time)

  Intrigued now by possibility  --surely not probability !! -- of point-for-point explanation with documentation proving its position, by this company.

  OR will there be simply and only more legal lip-flapping to use fear and dollar-demand as weapons at command of the so-called "legal" profession ?

  IF-and-WHEN any such point-for-point response, with full documentation, prepared at large cost perhaps but now demanded as goodwill test from both company and law/firm,doth arrive, I hope s-N will then publish in full.

 THAT will prove in depth and action the good faith and goodwill reflected in these reports to the public on tactics familiar by many similar situations, known to many other persons.


Hank Ruark February 25, 2010 2:42 pm (Pacific time)

( Mafia-comment inadvertently "sent" --must be coffee-time!) Fact is that suit resulting proved up stealth of many thousnds of dollars worth of product, producers won, and copyright law was "clarified" to make pointed change very clear covering consequences. Existing file of magazine copies may produce further detail, if that's useful. Meanwhile let legal-eagles flap wings or lips, and continue with strong reports re far too common corporate behaviors. Doubt if any jury, common in such actions, would hesitate to accept lower/cased "mafia" as other than characterizing term, commonly used in many published pieces for 50 years, as illegal in obvious opinion backed by detailed reporting as in this one. Company will be ill-advised to push action resulting in radical re-publication of the characterization --probably far more costly even than the fees for those lip-flapping legal-eagles !!


Jeff Kaye~ February 25, 2010 12:26 pm (Pacific time)

As if Southwestern is going to grant interviews. Not unless it's with some softball right wing bs network stooge. Great job Ersun, watch out for these backstabbing SOB's; they're obviously not constrained or even slightly dissuaded by any law on the books. That WAS kinda insulting to the real Mafia, though, I mean, they have standards... They get Sundays off, except for the hitters, and that's maybe the ONLY day they work. Now that we have their attention, I can't wait for the grand finale!


Ersun Warncke February 25, 2010 12:13 pm (Pacific time)

The connection of Southwestern to the tragedy in Wisconsin is that Southwestern aggressively lobbied against the efforts to pass a law preventing the kind of illegal activity that lead to the accident (which I explicitly state in the article). Why did Southwestern oppose this law? Because they are engaged in an extremely similar pattern of business practices that involves illegally classifying works and independent contractors and forcing them to work absurd hours. But hey Brandon, lawyers for your company have already threatened me with a libel suit. We will see who is lying from whether or not they sue me, and who wins if they do. I am putting all my cards on the table here, so we will see who is really telling the truth.


Brandon February 25, 2010 10:06 am (Pacific time)

Not a single interview with anyone who works with Southwestern, and implying that a travelling sales crew of magazine salespeople who died while switching drivers on a highway in a moving vehicle, NOT due to fatigue as Ersun suggests, and then tacitly ties into Southwestern is wrong. Where are your sources? Whom have you spoken to on record? Did you speak to foreign students who succeeded or just ones who were "victimized", as you put it? Did you know that students from the University of Tartu made over $1 million in profit last summer, as they were being "exploited" by this greedy mafia? Irresponsible journalism at it's worst.

This company's greedy approach strikes me as an irresponsible business practice.  Responsible journalism at its best is what you must have meant to write. 


Brandon February 25, 2010 9:59 am (Pacific time)

Sir

This is a disgrace. Those students who died in a van were selling MAGAZINES, not Southwestern products. Your article is fraught with flat-out lies, fantasy, and fabrication. You have zero journalistic integrity to link those poor students who flipped over their van in Wisconsin with Southwestern students - I have a hard time believing you didn't know these dead and maimed teenagers you've EXPLOITED to write your socialistic BS weren't associated with the Southwestern Company. Apparently you fancy yourself some Hunter S. Thompson hack up there in Salem, but after reading this completely made-up account of magazine sellers and how they somehow represented Southwestern, it's clear you're not worthy to carry Hunter's cigarette holder, my friend. I want anyone reading this article to realize this author is LYING TO YOU. These things are simply untrue. Do your own research away from the left-wing propaganda this man is hatefully spewing across the internet.

Editor: Geez Brandon, you guys really hate having this exposed, don't you?  Ersun is one of the smartest writers I have ever met, his research is solid.  You are obviously simply part of this group that is now running scared, the truth is a painful SOB sometimes, especially for greedy businesses that rape the people of America while exploiting other citizens in the world.  I actually have a line on some real garbage about this company, stuff that is even worse.  But the bottom line is that nobody wants this stuff being peddled by people with the look of fear in their eyes, with a bunch of greedy southern Republicans banking the profits without paying taxes, you could say that is nothing new, but it is just wrong.  Now as for Hunter S., you don't even have a right to talk about such a cool person.  A person with your structure of priorities has nothing to say about it.    

[Return to Top]
©2014 Salem-News.com. All opinions expressed in this article are those of the author and do not necessarily reflect those of Salem-News.com.
comments powered by Disqus


Articles for February 24, 2010 | Articles for February 25, 2010 | Articles for February 26, 2010

Use PayPal to
support
Salem-News.com:




Donate to Salem-News.com and help us keep the news flowing! Thank you.

Steele`s Karate
In Salem
Sign Up Now!