Prominent Shaklee Distributor Accused
of Operating Ponzi Scheme
Stephen Barrett, M.D.
John W. Cranney of Belmont, Massachusetts, has been accused of operating a Ponzi scheme that defrauded victims nationwide of more than $10 million. In July 2012, the Massachusetts Securities Division filed an administrative complaint charging him and three companies he operated with multiple violations of the Massachusetts Uniform Securities Act . The complaint alleges that Cranney:
- Engaged in a Ponzi scheme that defrauded at least 36 victims from multiple states of approximately $I0.4 million dollars
- Failed to register and acted as broker-dealers or as investment advisers and investment adviser representatives.
- Effectuated the offer and sale of unregistered securities.
- Beginning in 2002, used his affiliation as an independent distributor with Shaklee Corporation to solicit investments from family, friends, and colleagues who trusted him.
- Falsely represented himself as a financial advisor and/or investment fund manager and enticed unsuspecting victims with promises of high returns on safe investments.
- Instead of making investments as promised, retained most of the invested funds for personal gain.
The complaint describes Cranney's history with Shaklee this way:
SHAKLEE CORPORATION AFFILIATION
22. The Cranney family brought the Shaklee business to New England.
23. Cranney has worked for Shaklee Corporation, a direct sales natural nutrition company, for the last forty-five (45) years under an independent distributorship contract.
24. In 1967, Cranney obtained his Shaklee independent distributorship contract by filling out an application and was "sponsored" into Shaklee by an individual who had an existing independent distributorship contract with Shaklee.
25. Shaklee is a multi-level marketing system that is comprised of a hierarchy of groups of individuals who obtain independent distributorship contracts with Shaklee. Individuals who have existing independent distributorship contracts with Shaklee sponsor new individuals into Shaklee to enable them to obtain independent distributorship contracts with Shaklee.
26. Operating under a Shaklee independent distributorship contract generally involves direct sales of Shaklee health and personal care products to customers, as well as recruiting and training new Shaklee salespeople. Individuals within the Shaklee hierarchy are not only compensated for the products he or she sells, but they are also compensated for the products sold by salespeople in their Shaklee "downline," i.e. they are compensated for the products sold by salespeople he or she has trained and for products sold by salespeople those salespeople have trained, and so forth.
27. A 2012 Shaklee newsletter describes Cranney's involvement with Shaklee as follows: Jack Cranney sponsored into Shaklee in 1967. He decided the income opportunity and lifestyle of network marketing were a perfect fit. After quickly becoming a Master Coordinator, Jack sponsored his parents into Shaklee about a year later and helped them grow to the rank of Master too. Many in Shaklee fondly remember [Cranney's mother], who lived to be 103. In the early 1970s, Jack began publishing support material about how to build successful network marketing businesses. His programs and training material have been used all over the world, and he holds copyrights on hundreds of sales plans. The Cranneys have driven dozens of luxury cars earned through their Shaklee business and have traveled around the world on incentive trips. They hold several all-time company records, including the. largest vertical and horizontal development for 2010.
28. Cranney's mother opened a Shaklee downline group office under the name Cranney Industries in Cambridge, Massachusetts in 1973 because she and Cranney' s father were members of Cranney's downline at Shaklee. Cranney took over Cranney Industries in the late 1980s.
29. Cranney testified that he is likely in the top twenty (20) of individuals in the Shaklee hierarchy.
30. Cranney is the sponsor for approximately 50,000 individual Shaklee independent distributorship contracts, but Cranney testified that he could not be sure about the exact numbers because Shaklee "purge[s] records." As a sponsor, Cranney testified that he trains individuals who fall in his immediate "downline" of sponsorships and assists them in growing their Shaklee businesses.
31. Cranney receives commissions based on his downline of independent distributorship contracts. Cranney testified that he receives commissions on three (3) or four ( 4) subsets of groups that fall below him in the Shaklee hierarchy. Cranney' s commissions are generated by product sales by the three (3) or four (4) subsets of groups that fall below him, and he earns three (3) to six (6) percent on the sales of the individuals within those subset groups.
32. Cranney holds and attends training sessions m Massachusetts and across the country for the subset of groups that he sponsors within Shaklee.
33. He has also hosted training sessions at his home for a fee m Belmont, Massachusetts for individuals whom he sponsors within Shaklee..
The Massachusetts Securities Division is asking the Court to issue temporary and permanent injunctions and to order disgorgement of all proceeds obtained through the alleged wrongdoing. Several of Cranney's victims have sued him.
The Boston Globe has reported that after the complaint was filed, Shaklee suspended Cranney as a distributor and began holding payments to him (estimated to be about $45,000 per month) and that the FBI raided Cranney's home in November 2012 [2,3]. Cranney filed for bankruptcy in March 2013.
- Administrative complaint. In the matter of John William Cranney; Cranney Capital I, LLC; Cranney Capital III, Inc.; and Cranney Industries d/b/a Belmont Industries. Massachusetts Securities Division Docket No. 2102-0059, filed June 24, 2012.
- Friends fight to recover money from Belmont businessman: Accused in $10 million theft. The Boston Globe, April 8,, 2013.
- Healy B. Belmont businessman pressed on funds in court: Jack Cranney says FBI seized records of losses. The Boston Globe, April 9, 2013.
This article was posted on May 14, 2013.