Sell-Shocked: The Pyramid Schemer Who Convinced His Targets to Climb Into Coffins
When the staff of the Bellhouse Hotel in Beaconsfield, England, greeted guests arriving one day in 1972, they thought they were receiving a relatively quiet bunch who were there to attend a business seminar.
Then the screaming started.
During the four-day gathering, hotel employees said they observed coffins being moved into the meeting area; whips being brandished; and disgusting food, like lumpy custard and fatty pork chops, being ordered for the group to eat. Attendees howled in anger. The scene was so disturbing that another hotel, the Excelsior, had banned the group from the premises after hosting a similar gathering.
Such bizarre behavior was the norm for people attending seminars at William Penn Patrick’s Leadership Dynamics Institute, or LDI. To prove their psychological mettle, the participants were forced to climb into a coffin and endure the simulation of death. Some were strapped to a cross in a twisted misappropriation of religious dogma. Still others were physically abused to the point they would leave the seminar with welts and bruises—all in the pursuit of success. As for the terrible food, the general manager of the hotel explained that the “special menus” were ordered because, as he understood it, “people had to be taught to appreciate things.”
Patrick's most ardent devotees believed that use of these unorthodox techniques could help them achieve their personal and professional goals. But some former followers had a different attitude—it was abuse, plain and simple. “[I was] beaten, harassed, threatened, menaced, kicked, subjected to bodily injury and mental shock by teachers untrained in psychology,” said one attendee (who later became a plaintiff in a civil suit).
“Self-help seminars” that consisted of psychological torture and physical abuse were just one of Patrick’s schemes. He was, after all, the man behind Holiday Magic, a cosmetics company that earned him millions in ill-gotten profits while its distributors went belly-up. His “magic”? A keen ability to make $250 million disappear.
Dare to Dream Big
Before he could build a vast—if disreputable—empire, Patrick first had to overcome a modest background: He was born on a farm near Roper, North Carolina, in 1930, and later said that he left at age 15 with nothing more than $5 and a cardboard box with some clothes in it. (His father, however, disputed this story.) Patrick was, in his words, “a very scared young man.”
In the beginning, at least, Patrick did appear to do things by the book: After serving in the Air Force, he attended the University of Illinois and later Sacramento State College to study history and political science. But he didn't seem to think much of formal education. “Fortunately the education didn't take,” he told a reporter in 1969, well after he had amassed his fortune. “We're educated not to believe in ourselves, and most people are afraid of life.”
Patrick wasn't afraid of life—just of being an average earner. Sales had always interested him, and his first business was selling cookware to families on a military base. Later, he tried his hand at operating a gas station and peddling jewelry. As many as a dozen ventures, he said, were failures. Nothing seemed to stick.
Then, in 1964, Patrick was in San Rafael when he noticed a garage sale. The homeowner was liquidating their supply of products obtained from Zolene, a company specializing in cosmetics and other beauty supplies. Using his savings, Patrick bought into Zolene for around $16,000 and named his fledging business Holiday Magic.
Patrick wasn't interested in moving the product himself. Instead, he recruited descending levels of subordinates: There were distributors, who farmed out product to organizers, who put them in the hands of “Holiday Girls,” ostensibly the public-facing representatives of the company. The Holiday Girls would peddle the cosmetics at parties, to friends, and via door-to-door sales. The products, with names like Lemon Face Splash and Papaya Dew Moisture Crème, were said to be made from organic ingredients. (Though this, like many of Patrick's claims, was subject to controversy and a false advertising allegation from the California attorney general—not every ingredient in the products was natural and thus ran counter to the “organic” label. The claim was removed.)
Patrik made personal appearances at company gatherings, smiling warmly and delivering a crafted pitch for anyone looking for motivation. “All kinds of people are working for us,” he told a reporter. “Lawyers, doctors, executives—with this kind of leadership talent we are able to grow faster. There is no ceiling, no limit to what a person can make. It's wide open.”
He sold the inventory to distributors, who sold it down the line. New members were encouraged to “buy” into a higher tier of participation. A seller could buy in to being a Master distributor for $4500; upgrading to General would set them back $8750. Any Holiday Girl who recruited a Master would receive a $100 finder’s fee, while any Organizer would get a 2 percent override.
This had all the hallmarks of a pyramid scheme, which requires investors to recruit other investors ad infinitum with dubious promises of product, distributorships, or earnings. A close relative of the pyramid scheme is the Ponzi scheme, so named for Charles Ponzi, who promised high returns for people who “invested” with him in the 1920s so he could buy international postal reply coupons. But there weren’t enough coupons in circulation to make the profits Ponzi was claiming. Instead, Ponzi used the incoming money to pay off earlier investors, making it seem as though he was successful.
Pyramid schemes added selling a product to the scam. They began to draw the attention of the Federal Trade Commission in the 1970s, with more work-from-home offers circulating. One notable example was Koscot Interplanetary, which, like Holiday Magic, moved beauty products and encouraged people to spend $2000 to become a “supervisor.” Both Koscot and Holiday Magic peddled rights—the right to sell and right to receive product.
(Although multi-level marketing businesses can be pyramid schemes, which are illegal in most states, the two terms are not interchangeable: Some MLMs sell and traffic in reputable products. One way to tell, according to the FTC: “If the MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.”)
Whether any consumer actually bought the product was of little concern to Patrick—the “pyramid” had already added to his bottom line, with most of the money coming from the constant jockeying for stature in the hierarchy of the company and the proposition of earning $100,000 or more annually. So long as ambitious recruits were buying, or “inventory loading,” the end sale to the customer was largely unnecessary.
The success of Holiday Magic was almost instant. Patrick earned nearly $1 million his first year in operation and repeated the feat many times over for the next several years. By 1968, he estimated his own net worth at $25 million. Flush with cash, he began spending lavishly, buying a yacht and several airplanes. He claimed that he kept $10,000 to $15,000 in cash on his person because he did not like writing checks.
That Patrick disliked leaving a paper trail turned out to not be such a surprise.
A Strange Kind of Leadership
Though Patrick didn’t rely on consumer sales, his pyramid approach required recruits, and lots of them. Holiday Magic was aggressive in bolstering its ranks, which grew to 60,000 by 1968, and used creative methods to do so.
“How would you like to make $108,000 this year—in your spare time?” one highly uncritical 1966 newspaper column read. “Nonsense? No [...] magic. Holiday Magic, to be exact.”
One Canadian reporter who was hailed by a street barker described walking into a Holiday Magic recruiting effort and being greeted with promises of making big money—provided they paid $250 for the necessary training course.
The success of Holiday Magic gave Patrick other ideas. Shortly after starting the company, he decided to enter politics and sought the Republican nomination to run for governor of California. His expectation was not only that he'd be elected but that he might eventually take a seat at the White House following the 1972 election. But he was unable to rattle fellow Republican Ronald Reagan, who received 1,385,550 votes to Patrick’s 38,792.
The defeat did little to shake Patrick's confidence. Instead, he began transacting in the building of self-esteem. Holiday Magic, after all, required ambitious, fearless personnel. In the late 1960s, he added Mind Dynamics—“a program that purported to increase people’s IQ, improve their reading speed, relieve pain, speed the healing of injuries and increase extra-sensory perception” by “teaching clients to turn on their alpha brain waves,” according to one newspaper, all for just $150 a course—to his growing empire. He also started the Leadership Dynamics Institute, an effort to bolster the assertiveness of Holiday Magic affiliates or anyone looking to better their outlook on life.
The LDI approach was unconventional: It seemed to involve hazing rituals and humiliation as a path toward self-betterment. Attendees paid up to $1000 to meet at a hotel for a long weekend, which would involve seminars that encouraged participants to climb into a coffin or, even more bizarrely, get tied to a cross or whipped. There are claims of attendees being urinated on; others said they sustained physical injuries. It was a business rally as a Hammer horror film.
“I was black and blue from head to toe,” one unhappy participant testified about a 1970 meeting. “My cheekbone was sticking out over an eighth of an inch. Dizzy spells. Continuous pain in the chest and ribs and stomach. And my wrists were infected and I had continuous nightmares ... I had slight whip scars on the back.”
In 1972, Gene Church and Conrad D. Carnes published The Pit: A Group Encounter Defiled, a purportedly fact-based account of the seminar that Church attended. The portrayal is far from flattering: Promotions at Holiday Magic depended on attendance, they claimed; participants were locked in cages and half-starved; being shut in a coffin was meant to represent being “dead” to the possibilities of life. According to The Pit, some attendees were forced to eat their own vomit ... or feces.
When Patrick was sued over LDI, he made sure to mention that they used a “modern coffin” that was “very nice” at the seminars. He was asked if anyone with claustrophobia had been placed in a coffin.
“Well, let me say this,” Patrick said. “If they did, they got over it.”
One entity that did not get over it was the FTC, which took a skeptical view of both Holiday Magic and Patrick. So did many state attorney generals.
The FTC began going after Holiday Magic in 1970; in 1973, a judge found the company guilty of running an unfair and deceptive marketing scheme. Holiday Magic was ordered to pay back investors. That same year, the Securities and Exchange Commission (SEC) alleged the company had defrauded investors of $250 million, or a staggering $1.6 billion in today's dollars. Holiday Magic, the SEC said, had led investors to believe they could earn $100,000 a year. In reality, everyone in the United States would need to be recruited into the system in a year for investors to bring in six figures annually. Instead, most made less than $100.
Patrick’s problems were compounded by the lawsuits that arose out of his fascination with airplanes, a possible consequence of his Air Force tenure. In 1972, a Patrick-owned company named Spectrum Air was ordered to pay $865,000 to the widow of a man who died after his private plane crashed in 1970. Spectrum had repaired it prior to the accident.
Worse, a vintage F-86 fighter plane owned by Spectrum crashed into an ice cream parlor in Sacramento in 1972, killing 22 people—12 of them children. Litigation over that accident prompted families to seek millions of dollars in damages.
Patrick wouldn’t live to see the outcome of most charges and complaints. On June 9, 1973, he was piloting a P-51 Mustang plane when it crashed 80 miles north of San Francisco. Both Patrick and a passenger were killed.
The persistent scrutiny over Holiday Magic meant that it didn’t outlive its founder for very long. Though the company switched to a direct-to-customer model and agreed to try and repay former investors and distributors, operating as a reputable company and under the watch of federal regulators wasn’t nearly as profitable. Bankruptcy followed, and in 1974, William Penn Patrick's pyramid finally collapsed.