The Incredible Implosion of the Bay Area’s Largest Pyramid Scheme

By William Penn Patrick’s own admission, he wasn’t much of an entrepreneur for the first three decades of his life.

“For 34 years I failed in everything I did,” he once said.

But Patrick’s fortunes changed one day in 1964 as he walked past the open garage of a house in San Rafael. Inside, the owner was having a cosmetics jumble sale – the company, Zolene, was going bankrupt. Sensing an opportunity, Patrick reached out to Zolene and offered to buy them out of $16,000 in makeup and skincare. The company agreed, handing over its warehouse to the eager overseas.

It wasn’t the start of a rags-to-riches story, however. It was the first step in a saga that ended with the implosion of a massive pyramid scheme, a hidden room full of cash, and three fatal plane crashes.

Patrick called his new business venture Holiday Magic and set up the company’s headquarters at 616 Canal St. in San Rafael. Although the company sold cosmetics, its real livelihood was recruiting distributors. These distributors purchased product from Holiday Magic and had to sell that product to make a profit – or even hope to break even.

In other words, it was a pyramid scheme.

616 Canal St. in San Rafael was the former headquarters of Holiday Magic.

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Anyone familiar with multilevel marketing companies will recognize their sales pitch. Promotional materials for Holiday Magic boasted annual salaries of $40,000 (that’s nearly $315,000 adjusted for inflation) and touted being your own boss.

“As distributors of the company, these people work for themselves, run their own business, use talents often suppressed in old professions,” read one advertisement from 1967.

As a distributor of Holiday Magic, many paid even more money to enroll in Patrick’s “Leadership Dynamics” courses, which combined New Age pseudoscience and Gordon Gekko-style motivational tactics. A “Mind Dynamics” course cost $200 and promised to teach people how to control their brain waves. In 32 hours, you would be able to activate your “alpha” brain waves, which had the power to cure certain diseases and increase your IQ.

The success – and the legal problems – were immediate. A year after its creation, Holiday Magic was the subject of a misleading advertising lawsuit. According to the suit, they were promoting their makeup and creams as being “entirely made from fruits, nuts, herbs and vegetables” which, of course, ignored the presence of other additives like oil. alcohol and mineral oil. Some products also claimed to cure certain skin conditions. Patrick agreed to remove the misleading allegations in exchange for not admitting guilt to any charges.

Building on his commercial success, Patrick then turned to politics. In 1965, Patrick announced that he was challenging Ronald Reagan for the Republican nomination for governor of California. The grandiose and talkative businessman was a harbinger of the modern political era. He campaigned as an outsider, saw communist infiltration around every corner, and called the polls a threat to democracy. “I will be a David fighting the political Goliaths of both parties,” he said in a stump speech, “but I have no intention of fighting on their terms.”

He also shocked the establishment by breaking the ultimate, now antiquated rule: talking bullshit about other Republicans. “The Republican Party must have more than a parrot,” he said of Reagan. “This candidate is not a man.”

Reagan wiped the floor with him. Patrick received just under 39,000 votes to Reagan’s 1.4 million. Patrick also invested hundreds of thousands of dollars in his own campaign, meaning he spent almost $9 for each vote he cast. Enraged by the loss, Patrick blamed a political pollster, saying the man had taken bribes to sway the polls against him. The man sued Patrick for defamation and won, pocketing $300,000 in damages.

California Governor-elect Ronald Reagan is shown with his wife, Nancy, as he addresses the crowd at the election headquarters in 1966.

California Governor-elect Ronald Reagan is shown with his wife, Nancy, as he addresses the crowd at the election headquarters in 1966.

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The loss had no repercussions for Holiday Magic, which was making money by continuing to recruit new distributors beyond the Bay Area. Patrick bought a yacht, a small airport in Novato, vintage planes and a ranch on the shores of Clear Lake. There he built a 9-bedroom, 13-bathroom mansion with indoor and outdoor pools. A 1967 local newspaper ad for Holiday Magic featured a photo of her yacht with the caption, “Don’t all cosmetic companies have a navy? Probably not. But not all cosmetic companies are Holiday Magic.” .”

In 1972, a Canadair Saber owned by Patrick was leaving an airshow in Sacramento when its inexperienced pilot overran the runway. At high speed, it ripped through a fence and crashed into a Farrell Ice Cream Parlour. Twenty-two people, including a dozen children, were killed. Lawsuits from survivors and grieving family members poured in – and that was just the beginning.

In 1973, the United States Securities and Exchange Commission filed suit against Holiday Magic, alleging that it had illegally defrauded 80,000 distributors of $250 million. During a congressional oversight panel, the Federal Trade Commission called the company an “unfair and deceptive pyramid distribution scheme.” The dramatic implosion probably came as no surprise to Patrick. A former president of Holiday Magic would later testify that Patrick once confidently told him, “It will take another two years for the FTC to get us. I can steal more during this time than you can honestly do for the company in the next 20 years.

A view of an 8th Air Force North American P-51D Mustang in flight over England, circa 1940.

A view of an 8th Air Force North American P-51D Mustang in flight over England, circa 1940.

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But Patrick wouldn’t live to see the end of Holiday Magic. On June 9, 1973, he took Holiday Magic Finland director Christian Hagert for a ride in his red, white and blue Mustang P-51D. As Patrick performed tricks over his Clear Lake ranch, witnesses saw the plane dive sharply. It slammed into a ridge at high speed, obliterating the aircraft and killing both men on impact. Patrick was 43 years old.
At the ranch, his wife, Marie, discovered a secret room hidden behind wine racks. Inside was $480,000 in cash. On an envelope were written the words: “In case something happens to WPP, give it to Marie.”

Death seemed to only hasten the deluge of legal troubles. A number of people have filed civil lawsuits against Leadership Dynamics. They all told similar stories of assaults at meetings, alleging that physical coercion had been used by instructors to coerce people into submission. They said they were promised sparkling new lives and commercial riches, but left with trauma and wounds. A couple demanded $4.2million in damages while another South Lake Tahoe man demanded $2million for being ‘violently assaulted, beaten and kicked’ to the point that he needed to stitches.

When the SEC trial began in July 1973, local rumors swirled that the Holiday Magic offices on Canal Street had all but been emptied of executives, leaving “secretaries virtually alone in headquarters.” The lawsuit was a disaster for the company. A former executive testified that 95% of the company’s revenue comes from signing up distributors, not selling cosmetics. Although Holiday Magic promised a lavish lifestyle and financial freedom, only the small fraction of distributors at the top could turn a profit. An SEC attorney called it the “fraud of the decade.”

Holiday Magic was found guilty of deceptive marketing practices in an FTC investigation and settled with tens of thousands of defrauded distributors. Marie Patrick sold the ranch, yacht, and airport to help pay off the company’s debts, and Holiday Magic abolished the distribution system in favor of door-to-door sales. New chairman Thomas Donnelly told the Marin Independent Journal they would also be disbanding 80 of Holiday Magic’s ancillary companies, calling them “just shells”.

Although it spat for a few more years, Holiday Magic was essentially dead – except as a case study. Today it is still used in law schools and law journals as a classic example of an illegal pyramid scheme.

“The guy who stole the most money in California was the late William Penn Patrick,” California Deputy Attorney General John Porter told the San Francisco Examiner in 1977.[He] probably hurt more people than any other promoter in our history.

In the aftermath of the company’s dissolution, High Valley Ranch, Patrick’s beloved estate in Clear Lake, was purchased by former Holiday Magic regional manager Thomas Willhite. Inspired by his mentor’s leadership courses, Willhite launched PSI World (PSI stands for People Synergistically Involved), which offered self-help and motivational courses.

Like Patrick, Willhite also loved vintage aircraft. He flew his replica World War I German fighter plane, complete with mock machine guns, around the ranch often, sometimes sporting a cap, goggles and a white scarf like the Red Baron. “He was a little crazy,” his flight instructor told the Press Democrat. “He thought he was indestructible.”

In September 1983, Willhite ascended for a solo flight over the ranch. While performing stunts for a assembled group of PSI World members, his plane nosed over and crashed, killing him. Willhite was 43, the same age as Patrick when he died.

The property remained in the hands of PSI World until last February when it was sold to a commercial cannabis company. This company is trying to build a major cultivation operation but, as befits a ranch once owned by William Penn Patrick, the project is now tied to endless political drama.

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