When Methodist preacher William J. Simmons was relieved of his ministerial duties, the charge was that he was basically a lazy do-nothing. Unfortunately, he stumbled upon a get-rich-quick scheme that turned racial prejudice, the temperance movement and one of the nation’s first multi-level marketing programs into a criminal empire that bought and sold judges, police chiefs and at least one Governor.

It sounds like a cruel joke, but it isn’t—the Ku Klux Klan made huge profits selling white sheets. The Klan had its own sheet factory in Atlanta called Gates City Factory, which produced hooded white robes at two dollars apiece in 1923, and these were in turn sold to the racist faithful for $6.50. Considering that the Klan peaked at three million members in 1925, there was a lot of money to be made in the worsted white cotton. Many of those millions of dollars were pocketed by the Imperial Wizard and his corrupt cohorts.
In many ways, the KKK was a vast, grotesque pyramid scheme to enrich its top members—kind of like Amway for bigots.
Red-haired former minister William J. Simmons of Atlanta revived the Klan in 1915—piggybacking on the publicity for D.W. Griffith’s film “Birth of a Nation,” based on the novel The Clansman—and Simmons charged new members an initiation fee of $10 each, called a klectoken. He also sold Klan life insurance to almost half his first batch of recruits.
But it wasn’t until 1920 that a couple of high-powered commission salesmen created the actual pyramid that re-launched the Klan across the nation.
In 1920, a small Atlanta public relations firm, Southern Publicity Association, which had repped clients such as the Salvation Army and Anti-Saloon League, was close to bankruptcy when it signed a deal with the KKK. The arrangement entitled the publicity firm to keep $8 of the $10 initiation fee paid by each new Klan member it signed up.
The firm’s owners—Edward Clarke and Mrs. Elizabeth Tyler—divvied up the county into “Provinces” and sent out a sales force of 1,100 “Kleagles” (also on commission) to drum up new racist members. The duo handed over a $4 commission per KKK member to each Kleagle and gave $1.50 to a regional supervisor called a Grand Goblin. They kept $2.50 for themselves. The remaining two dollars went straight to the Klan’s florid founder, William J. Simmons.
In the first 16 months, Clarke and Tyler had cleared a then hefty $212,000 in net profit, while Simmons received $170,000, according to business historian Charles Alexander. A muckraking campaign by the “New York World” wound up backfiring when the congressional committee investigating the Klan in 1921 brought no charges against them. With this de facto government stamp of approval, membership soared higher than the flames of a burning cross, as did sales of hooded sheets, the Klan newspaper and even the sale of obscure titles, like Imperial Kligrapp and Klexter, Klageroo and Kladd.
By 1922, with business booming, the Klan found itself almost bankrupt. Although it had gross-ed about $10.5 million in the previous two years, the looting was so excessive there was almost no money left.
A new clique—led by the chubby dentist from Texas, Hiram Evans—bullied their way to top leadership, finally buying out Simmons for $146,500 in February 1924.
Although the Klan under Imperial Wizard Evans drop-ped the price of custom hooded sheets to five dollars, it wasn’t enough to save the Klan. And, appropriately enough for a business scam, back taxes finally put the KKK out of business. In 1944 the Feds sued the KKK for $685,000 in unpaid back taxes. That year the Klan officially disbanded. Splinter groups using the name would sporadically resurface, but never with the same national power or pro-fitable pyramid scheme.

Our thanks to Richard Zacks for letting us share this “I thought I’d heard everything” story with our readers. For more of Richard Zacks, readers may enjoy his book “Island of Vice” which features Rev. Charles Parkhurst and Teddy Roosevelt and their moral crusade against corruption in New York.