The Washington PostDemocracy Dies in Darkness

The Trump Network sought to make people rich, but left behind disappointment

Republican presidential candidate Donald Trump at the Old Post Office Pavilion, soon to be a Trump International Hotel, in Washington on March 21. (Jabin Botsford/The Washington Post)

The salespeople at Ideal Health were thrilled when they heard Donald Trump would become the new face of their company. The New York real estate mogul, whose reality show “The Apprentice” made him famous, licensed his name to the firm, which was then rebranded as the Trump Network in 2009.

“Oh, my god, people cried when they heard it was him,” says Jenna Knudsen, who worked as a high-ranking saleswoman for Ideal Health at the time. “They cried and looked at each other and said, ‘We’re going to be millionaires!’ ”

Knudsen and her colleagues sold customized vitamins and other health products as part of a controversial business model known as multilevel marketing, in which companies pay salespeople commissions for selling products and recruiting more representatives.

Trump, whose presidential campaign is based in part on his reputation as a businessman, is well known for licensing his name to golf courses, hotels, clothing, wine and many other products. But in this case, he became involved in an industry that consumer advocates had long criticized as promising financial independence to sales recruits but rarely delivering it. Ideal Health had already faced complaints about its practices.

Trump says he was not involved in the company’s operations. But statements by him and other company representatives — as well as a plethora of marketing materials circulating online — often gave the impression of a partnership that was certain to lift thousands of people into prosperity. In fact, within a few years, the company fell on hard times, leaving some salespeople in tough financial straits. It ultimately was acquired by another firm.

But when Trump joined forces with Ideal Health, he was enthusiastic about its future.

“When I did ‘The Apprentice,’ it was a long shot. This is not a long shot,” Trump told a Trump Network convention of at least 5,000 people in Miami in 2009, his face projected onto a giant screen. “This is going to be something that’s really amazing.”

“It’s going to be our company as a group,” he added.

Sales people affiliated with the newly branded company also highlighted the relationship. “We’re working on projects behind the scenes every single day with Mr. Trump,” Kim Stone, who was one of the highest-level sales representatives in the company, says in a video that was posted online in early 2010. “Literally you will be able to set yourself up for the rest of your life, financially speaking, if you take advantage of the timing right now with this company.”

In an interview, Stone said many salespeople believed Trump would be more involved. “Initially when the owners said we’re all becoming Trump Network, they kind of led the field to believe he was financially a part of it,” she said. “And technically it was just this branding deal.”

Trump attorney Alan Garten said in a statement that Trump has always been transparent about his relationship with the network. Some materials, such as the company’s website, did contain fine-print disclosures.

“His role in the Trump Network was limited to licensing the ‘Trump’ brand and providing motivational speeches to its members. Mr. Trump was never an owner of the Trump Network. He also was not involved in the manufacturing or sale of any of the Trump Network’s products,” Garten said. “To be clear, Mr. Trump’s role in the Trump Network was clearly disclosed, to everyone involved in the company and its members, whether it be in the member’s independent contractor agreements, the marketing materials, or on the products themselves.”

Interviews with nine former salespeople and industry and academic experts — as well as court filings, Federal Trade Commission complaints and Trump Network documents and videos that remain online today — tell the story of Trump leveraging his name and reputation, only to leave some disappointed when imagined benefits did not materialize.

Trump Network is not the first Trump-affiliated company to receive scrutiny. Another of Trump’s branding arrangements has become a topic in the campaign: Trump University, which has been sued, along with Trump, for promising to teach people unique ways to make money in real estate -- a program that would cost thousands of dollars -- without actually delivering any effective lessons. Students also say they were misled about the extent of Trump’s involvement. Trump has rejected the allegations.

Some of Trump Network’s sales representatives who suffered after the company ran into trouble say the lack of commitment by Trump and the Trump Network’s owners let them down. Knudsen — who had reached one of the company’s top sales ranks, had thousands of people working under her and at one point was earning thousands of dollars a month — ended up losing her house. Her car, purchased as part of the company’s rewards program, was repossessed in the middle of the night. She said she was a single mother with no alimony and no child support, and her kids were traumatized.

“They changed us to the Trump Network, so we thought we were his company, he was invested in us. But we were just an endorsement. We were just paying to rent his name,” Knudsen said. “Was Trump to blame? We don’t know, but he certainly did not do what he said. He did not support us, he did not make this company his baby company. And somewhere between [the owners] and Donald Trump, they devastated thousands of people. And no one ever apologized.”

The road to the Trump Network

When he set his sights on Ideal Health in the late 2000s, Trump did not hint at any qualms about the industry. “I’m a big fan of network marketing,” Trump said at the Miami convention in 2009, which featured circus performers on stilts and a massive dance party.

Ideal Health was started in 1997 by Scott Stanwood, his brother Todd and Lou DeCaprio, who had worked together in the multilevel marketing business. Ideal Health’s flagship product — later the Trump Network’s — was a multivitamin, tailored for customers based on a urine test. It cost $139.95, plus $69.95 a month for the vitamins, plus $99.95 for additional testing every six months. Former salespeople praised the product, saying it helped customers live healthier lives. But some experts say it was of questionable value.

“There’s very little evidence to suggest that this test is going to provide you with clinically meaningful information, or that the supplements they provide are going to make you healthy,” said Timothy Caulfield, a public health professor at the University of Alberta and longtime analyst of alternative medicine.

But most of the controversy surrounding Ideal Health, and later the Trump Network, stems from how these companies rewarded and recruited sales representatives. Although many multilevel marketing companies are legal, the FTC has called some thinly disguised pyramid schemes.

Scott Stanwood said he couldn’t comment because of confidentiality agreements with the Trump Organization. He said he was speaking on behalf of Ideal Health and the Trump Network’s other owners.

As is common with the model, Trump Network sales representatives made money when they sold products, and when salespeople working under them made purchases. They weren’t employees, so they weren’t guaranteed a salary. And because salespeople paid upfront for products each month, they bore a lot of the risk.

A Trump Network compensation plan shows that those in sales were promised big rewards for recruitment. A hypothetical example presented by the company showed that salespeople could build “levels” of salespeople under them and would earn commissions of $100, $25 or $20 each time a new recruit bought a business starter kit for $497. “Extraordinary growth on Level 7,” the plan says, “2,187 people x $20 = A Lot of Money.”

In one complaint to the FTC, obtained through a Freedom of Information Act request by The Washington Post, one former sales representative recounted spending $1887.75 on starter kits and other materials. “[T]hey kept tricking me into believing that I will make money just by selling more products and inviting more people, but the rate of return is so low,” the consumer, who is not identified, wrote. “In other words, they are scamming and deceiving people, making them believe that if they ‘just hang in there’ they will make money.”

Garten said the Trump Network did not receive any complaints from the FTC. Katie Baker, an attorney with the FTC, said that the FTC does not reach out to companies to resolve individual complaints, but merely analyzes and compiles them.

Well before Trump got involved, Ideal Health had faced similar questions about its business practices, according to documents made public by a 2004 Freedom of Information Act request by the Minneapolis law firm Mansfield Tanick & Cohen.

Sales representatives said they paid thousands of dollars for leadership programs, infomercials, starter kits and other materials that they never recovered in sales. One consumer said they joined the company expecting to make a five-figure monthly income, but instead ended up spending $8,956.20 on promotional materials. Another claimed they were encouraged to mortgage their home for $70,000 to buy shares in TV advertising.

“They try to use people[’]s hopes and dreams to empty their wallets,” reads one complaint.

Following in Donald Trump's footsteps

Trump was not new to multilevel marketing. He already had been involved for several years with ACN Inc., a company that sells phone and other services. According to documents released earlier this year by his campaign, in 2014 and 2015 Trump received $1.35 million in fees for three speaking engagements with ACN. ACN said that Trump was a paid keynote speaker at several company events, as were many other industry and business experts, and that he was not involved in any other facet of the business.

Trump was introduced to Ideal Health in early 2008 through Dean Blechman, a former chief executive of Ideal Health, and another associate, according to a court document from a subsequent separation lawsuit between Blechman and Ideal Health.

Ideal Health was “under-capitalized,” Blechman said, and the company was seeking a partnership to expand its recognition. So he and two other business contacts arranged a meeting with Trump at his office in Manhattan. Blechman says Trump liked the idea of promoting health, as well as creating jobs and income for people through direct marketing.

“I brought the company a hundreds-of-millions-of-dollar revenue opportunity,” Blechman said. “There was nobody in the world, nobody, not a single person in the world, that was more perfect than Donald Trump.”

At first, Trump considered taking a stake in the company, according to the court document. Trump’s attorney Garten said the billionaire “became involved with the Trump Network because he believed in the strength of the management team," but said only a licensing agreement was ever envisioned. Ultimately, in March 2009, the parties settled on an agreement in which Ideal Health would license Trump’s likeness and trademarks, and Trump would promote its products.

Trump’s endorsement persuaded some salespeople to quit their day jobs and recruit friends, family and neighbors to join, according to interviews and contemporary news stories. The network grew to more than 20,000 people, from 5,000 before his involvement, the Boston Globe reported in 2010.

As many Americans were confronting the aftermath of the financial crisis and the Great Recession, Trump touted the network as a salvation.

“The economic meltdown, greed and ineptitude in the financial industry have sabotaged the dreams of millions of people. Americans need a new plan,” he said in an introductory video. “They need a new dream. The Trump Network wants to give millions of people renewed hope, and with an exciting plan to opt out of the recession.”

Sara Harper, a former Trump Network saleswoman in San Diego, said the overall message she and her colleagues received made it easy to think that Trump was a substantial part of the business. “A picture was painted that he was involved at a level of business decision-making that I don’t think he really was,” she said.

Several salespeople said that following in Trump’s footsteps was a major attraction.

People saw the Trump Network as an opportunity to be associated with “the biggest business brand in the world,” says Lenny Izzo, a chiropractor who was one of the Trump Network’s top salespeople.

“With Trump coming in, they hyped it up to make us believe, oh, it’s not going to take us long now; we’re going to make money so much faster,” said Yvonne Zook, who was a mid-level sales representative.

But over the next few years, according to several of the salespeople, far fewer people started showing up at the annual conferences. And by late 2011, some suddenly stopped receiving their payments and began to leave the company.

Garten said many people enjoyed financial success with the network. "But, like with any business venture, you get what you put into it,” he said.

He added that any problems at the Trump Network that came up "were solely the result of the financial crisis."

Others, though, suggest alternative reasons for why the company struggled, including mismanagement and profligacy by the owners, such as spending on a new office and flashy promotional events, and an awkward fit between the Trump brand and a health and wellness product.

Some sales representatives don’t criticize Trump for the business’s struggles, saying he did his best in a limited relationship. “He did exactly what he was asked to do. And I think that’s why people were excited, because they thought that this could be the turnaround for the company, because they felt that he had the business sense,” said Carolyn Connolly, a top saleswoman.

According to public records, the Trump Network’s owners, Todd and Scott Stanwood and Lou DeCaprio, filed for bankruptcy. The trio lost the 8,000-square-foot home with an infinity pool where they lived together north of Boston.

Around the end of 2011, Trump’s licensing contract ended, and in early 2012 the business was sold to another company, Bioceutica, for an undisclosed sum. Trump’s attorney says those in sales who signed on with Bioceutica received outstanding payments. Bioceutica declined to comment.

Izzo says that Trump could have saved the company “if he had stepped in … but he didn’t have good reason to do that.” Izzo, who also went bankrupt, added: "Could he have approached this differently? Absolutely. Could he have taken less fees, could he have stepped in and guided the company differently? He could have, but that wasn’t the choice.”

Alice Crites contributed to this report.

See also:

The myth and the reality of Donald Trump’s business empire

Donald Trump’s first Cabinet pick is just as controversial as he is, and a lot richer

The uniquely American appeal of Donald Trump’s favorite insult

After winning the Mississippi and Michigan primaries earlier in March, GOP front-runner Donald Trump offered his crowd of supporters "Trump Steaks." (Video: Reuters)