Group's founder settled state allegations of pyramid scheme

The Sunday Gazette/November 9, 2003
By Pam Allen

Halfmoon -- NXIVM founder Keith Raniere is no stranger to the business world - or to legal wrangling.

In 1990 in Clifton Park, Raniere started a multilevel marketing program called Consumer's Buyline.

The now-defunct service offered discounts on myriad items, with about 250,000 customers paying $19.00 a month. The company filed for bankruptcy and ceased operations in 1993, and attorneys general in 20 states began investigating [correction: 25 separate investigations] the business as an alleged pyramid scheme.

The New York attorney general's office filed a civil suit, and Raniere settled for $40,000 [note: also see terms of settlement of class action lawsuit and lawsuit settled in Arkansas] admitting no wrongdoing. So far, he has paid $9,000.

Filing suit

In August, Raniere's new company, NXIVM, sued a former student and others for publishing the group's confidential information.

The suit claimed that Stephanie Franco supplied ESP's manual to the New Jersey based Rick Ross Institute, which specializes in cults and other movements.

Two psychologists [correction, one clinical psychologist and a forensic psychiatrist] who read the manual described the program as having cult-like tendencies. [See the reports of John Hochman, MD and Paul Martin Ph.D., and analysis of ESP and comparative study regarding thought reform techniques].

In September, a federal judge in Albany denied the company's request that the information be removed from Ross' Web site [correction, The Cult Education Institute Web site, which is a nonprofit tax-exempted educational effort].

Raniere says he has seven copyrights pending on the materials, and their accessibility put those copyrights - and the program's trade secrets - in jeopardy.

And he said high-profile people and businesses that have taken ESP courses no longer want their names associated with the program.

For example Goldie Hawn was scheduled to speak at an ESP course called "Having Joy in Your Life" during "Vanguard Week," which held in August in the Adirondacks, but the actress backed out after learning of the recent controversy. The weeklong event is held to celebrate Raniere's birthday.

Ross, who has never met Raniere, claims the lawsuit was personal. "I would say he can't stand to be critiqued. He doesn't like that people with impeccable credentials [i.e. reports by John Hochman, MD and Paul Martin, Ph.D.] have been critical of him," Ross said.

John Hochman, a California psychologist [correction, John Hochman, MD is a forensic psychiatrist] and professor at University of California at Los Angeles, called ESP "a kingdom with no physical borders, but with psychological borders influencing how his subjects spend their time, socialize and think."

He said some people could suffer negative effects from the intensive courses, especially since the time demanded by the program distances students from other relationships.

Another behavioral specialist published similar findings that turned up on Ross' Web site [correction, The Cult Education Institute Web site], which includes information on about 300 so-called controversial groups [note: see disclaimer].

"Colored" past

Raniere, in turn, points to Ross' "colored" past which includes two felony charges in 1975 and 1976 [correction, one charge in 1974 designated a misdemeanor and one felony 1975], one in which he pleaded guilty to conspiracy to commit grand theft for embezzling jewelry from a store where a friend worked, and the other for stealing furniture and appliances from model homes [correction, nothing was stolen the charge conspiracy].

Ross also was charge in 1991 with kidnapping [correction, charged with "unlawful-imprisonment"] an 18-year-old member of a Christian religious organization - at the request of his family - for deprogramming. A jury acquitted Ross of the criminal charges, but a civil settlement [correction, a civil judgment] required Ross to pay the teen, Jason Scott $2.5 million [correction: $2.995 million]. Since then Scott settled for $5,000 and 200 hours of Ross' counseling [correction, consultation] time, Ross said.

Ross said an ESP student told Ross she was taking a second level intensive at the Colonie location about a year ago when she suffered a breakdown. He said she called Albany police, who took her to a local hospital for treatment.

Ross also referred to several [correction, two] published reports about a woman from a prominent Mexican family who said she had hallucinations and suffered a mental breakdown after 17-hour days of ESP workshops. [note: a treating psychiatrist advised both the Albany Times Union and Forbes Magazine that he had treated three former students of NXIVM including the young woman mentioned].

His only actual involvement regarding NXIVM has been through Franco, he said [correction, the reporter was told that the Ross Institute has handled numerous complaints about NXIVM and Rick Ross was not professionally involved "through Franco"]. Franco, who lives in New Jersey, attended a five-day class and became concerned about some of the group's practices, Ross said.

Franco's family hired him last year to perform an intervention on another family member who was taking NXIVM intensives.

Raniere tells a different story; He says Franco became involved in the program and wanted to be a coach. When they turned her down, she took steps to discredit the organization.

Ross says his main concern is that neither Raniere nor Salzman has mental health training.

"They are doing very intense programs that dig into people's psyche, something that has been rightfully reserved for people who are licensed mental health professionals," he said. Ross has neither a college education nor mental health training [note: the psychiatrist who treated three former NXIVM students said "NXIVM leaders weren't prepared or certified to deal with the potential psychological problems that can surface during the training"].

Both Raniere and Salzman said they are careful to observe new students and turn away anyone who appears troubled.

Raniere also argues that the number of people who have gripes with the program - he estimates that figure at 1 percent - are disproportionately reported in comparison with the 99 percent who had a positive experience [note: there is no scientific peer-reviewed study that has been published to assess the claims or results of NXIVM programs].