Holiday Magic was a multi-level marketing organization, founded in 1964, by William Penn Patrick (1930–1973) in the United States. Originally the organization distributed goods such as home-care products and cosmetics. Company distributors were encouraged to recruit other distributors in a multilevel marketing structure, which was later characterized as a pyramid scheme.
On May 16, 1974, a compromise settlement with approximately 31,000 class members, establishing a trust fund worth $2,600,381, was approved by the court. The organization was dissolved in 1974, subsequent to the death of Patrick in 1973.
The company had been investigated by the Market Court of Sweden, United States Securities and Exchange Commission, the Federal Trade Commission, and the State of California.
Organization
Origins
In 1964, after a bankruptcy and several business failures, Patrick (age 33) was walking by a garage in San Rafael, California, and noted that fruit-scented cosmetics were being sold. The company called Zolene was about to go out of business. Patrick bought all of the cosmetics supplies for $16,250, and founded Holiday Magic, Inc. After the purchase, Patrick began selling distributorships in his new company.
Patrick, a student of Alexander Everett (founder of Mind Dynamics), used Mind Dynamics techniques as well as the Silva Method in the Holiday Magic organization.
Legal problems
The State of California filed suit against Holiday Magic in December, 1972.
In February 1973, Holiday Magic was sued for calumny by Avon Products. In the lawsuit, Avon Products' claimed that "Holiday Magic employees distributed leaflets accusing Avon of goon squads, paying off The District attorney's office.."
In June 1973, the United States Securities and Exchange Commission filed a lawsuit against Holiday Magic, charging Patrick with "bilking some 80,000 people out of more than $250 million through his Holiday Magic cosmetics and soap empire."
The company was investigated by the Federal Trade Commission, and in June 1973 the company was found guilty of deceptive trade practices. The FTC found that Holiday Magic was in violation of section 5 of the Federal Trade Commission Act, and section 2 (a) of the Clayton Antitrust Act.
In 1973, Holiday Magic's proceedings were prohibited by the Market Court of Sweden, and a fine of 2 million Swedish kronor was imposed.
Pyramid scheme
The company was termed as part of the "big three" scams, in a 1974 United States Senate hearing before the Consumers of the Committee on Commerce that dealt with pyramid sales. 1974 hearings before the Congressional Oversight panel of the Federal Trade Commission described Holiday Magic as a "Multi-level marketer of cosmetics", that used an "unfair and deceptive pyramid distribution scheme". Holiday Magic was also labeled a "pyramid scheme" and a "multi-level distributorship" by the United States Bureau of Domestic Commerce, in their 1976 published book: Crimes Against Business: A Management Perspective.
The company was cited by the United States House of Representatives in a 1975 hearing as an example of consumer fraud, again in 1977, and in 1991, in a hearing by the House Committee on Small Business. Katz's Everybody's Business: An Almanac also referred to Holiday Magic as a "pyramid sales organization". Turner described it as one of the first "pyramid marketing" companies in America. Clarke referred to the company as an "illegitimate" business. Tobias poked fun at the pyramid nature of the organization, in his book The Only Investment Guide You'll Ever Need, telling readers to be wary of "..Holiday Magic - where the big money to be made was not in selling cosmetics, but in selling franchises to sell franchises (to sell franchises).." Howe wrote in the San Francisco Chronicle that Holiday Magic was "..one of the largest of all pyramid schemes.."
Holiday Magic is used as an example in graduate level criminal justice coursework to analyze the nature of corporate scams. According to the Duke Law Journal: "Illegality permeated every facet of the promotion of the Holiday Magic marketing program." One of the Holiday Magic Inc. cases was also cited by The University of Chicago Law Review and the Columbia Law Review. The Office of the State Attorney General in Maine, United States cites In re Holiday Magic, Inc., 84 F.T.C. 748 as an example of pyramid schemes. Faltinsky described Holiday Magic as "..the largest pyramid scam of all time.."