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FOR IMMEDIATE RELEASE:

Wednesday - March 24, 2004

RALEIGH - Acting United States Attorney George E. B. Holding announced that CLAUDE WILLIAM SAVAGE, 66, of Charlotte, N. C., a founder of Raleigh-based International Heritage, Inc. (IHI), pled guilty in federal court in Raleigh on Tuesday, March 23, 2004, to a one-count criminal information charging him with mail fraud. SAVAGE, three other IHI senior executives, and the company's outside public accountant were originally indicted by a federal grand jury on October 16, 2002. (A superseding indictment was filed on March 20, 2003.) SAVAGE was a founding director of IHI, a member of the Board of Directors, and a leading sales recruiter and representative.

IHI was incorporated in North Carolina in April 1995 by Stanley H. Van Etten, Larry G. Smith, and SAVAGE, as a multilevel marketing company purportedly offering exclusive brands of jewelry, recreational equipment, and fine unique collectibles.

IHI employed what it referred to as a network marketing distribution system, which purportedly was a means of selling products without retail stores. The marketing was accomplished through a network of representatives, referred to by IHI as "independent retail sales representatives." According to court papers and IHI's literature, sales representatives were independent contractors who purchased products from IHI, ranging from gold jewelry and fine collectibles to golf products and long-distance services, and either resold them to the public or kept them for personal use. Each sales representative also could supervise or manage one or more additional sales representatives. Each sales representative could purchase one, three, or seven "business centers," which in effect were positions on the pyramid, at a cost of $250.00 each. Thus, the costs to the sales representatives would be in increments of $250.00, $750.00, or $1,750.00, accordingly.

By the end of 1995, through recruitment and informational sales rallies led by SAVAGE and others throughout the country, IHI had recruited approximately 5,000 representatives and had "revenues" purported to be $5 million. By the end of 1996, IHI had 43,000 representatives, with "revenues" of approximately $50 million. By the end of 1997, IHI boasted 150,000 representatives throughout the United States and Canada, with over $100 million in "revenues." In each of its first three years (1995, 1996, and 1997), approximately 90% of IHI's "revenue" was derived not from the sales of products, but through the recruitment of representatives, i.e., the sale of "business centers," into the pyramid scheme. IHI's central sales pitch, common to all pyramid schemes, was that participants could make large amounts of money from the geometric growth of their own sponsored sales representatives, referred to as "downline." IHI sales materials included in the sales kit stressed the importance and power of "geometric progression" and recruiting over retail sales of products. This meant that the amount of income that IHI sales representatives received would be increased if they, in turn, successfully recruited sales representatives under their names and sales structures.

The payout scheme, executive salaries, and other overhead costs of IHI caused the company to maintain a negative cash flow from its beginning in 1995 through its final demise in November 1998. IHI lost $1.9 million in 1995 and continued to lose money through 1996 and 1997 despite the large numbers of sales representatives recruited. By July 1997, IHI had accumulated losses of approximately $7.6 million and was financially incapable of fulfilling its commitments to its vendors or to its representatives. By December 1997, IHI's losses had grown to over $12 million. IHI accumulated operating losses in the approximate amount of $30 million during the 3-year period from April 1995 through November 1998.

It was further made clear at a meeting of the IHI Board of Directors on July 20, 1998, attended by SAVAGE, that IHI was failing financially and that collapse was imminent. Despite this, SAVAGE continued to persuade persons to invest in "business centers," promising them enormous returns, when he knew that these returns could not be realized.

On November 25, 1998, IHI filed for Chapter 7 bankruptcy protection in the Eastern District of North Carolina, and an attorney was appointed as the bankruptcy trustee.

Trials are pending for the other three defendants named in the March 20, 2003 indictment, including Company Chief Executive Officer, President, and founding Director, Stanley H. Van Etten, 42, of Lake Drive, Raleigh, N. C.; IHI Chief Operating Officer, John David Brothers, 37, of Frisco, Texas; and the company's outside accountant, Davin Walter Brown, 49, of Tyson Street, Raleigh, N. C.

SAVAGE is the third defendant associated with IHI to plead guilty. On January 21, 2003, Larry G. Smith, 59, of Greenville, S. C., pled guilty to one count of conspiracy to commit mail fraud, wire fraud, securities fraud, and to make false statements to the United States. On October 20, 2003, Georgina Mollick, 39, of Raleigh, N. C., who served as counsel to IHI and later Vice-President for legal affairs, pled guilty to a criminal information charging her with misprision of a felony. Smith, Mollick, and Savage are awaiting sentencing.

Investigation of the case was conducted by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. The lead prosecutor on the case is Assistant United States Attorney J. Gaston B. Williams, and co-counsel is Assistant U. S. Attorney Clay C. Wheeler.

News releases are available on the U. S. Attorney's web page at www.usdoj.gov/usao/nce within 48 hours of release.

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