Thursday, August 27, 2015

FTC shuts down Vemma for being a $200 million pyramid scheme...

It brings me no joy to see this news, which was a surprise even to me... I expect action, but not this fast. 

But to summarize, Vemma's assets has been frozen and operation stopped based on temporary restraining order as issued by court based on lawsuit brought by the Federal Trade Commission.

Quoting AP / CNBC story:

The Federal Trade Commission said Wednesday that Vemma Nutrition has been temporarily shut down for operating a pyramid scheme that promised college students riches if they sold its nutritional drinks, but most ended up losing money. 
The consumer protection agency said that Vemma told recruits that they could make as much as $50,000 per week selling its nutritional beverage Vemma, energy drink Verge or protein shake Bod-e. An initial investment of $600 was paid for products and business tools and $150 in Vemma products had to be bought each month to receive bonuses. The FTC said Vemma provided little help on how to sell its products and instead rewarded them for recruiting more people. 
Vemma earned $200 million a year in 2013 and 2014, according to the FTC.
A representative from Vemma, which is based in Tempe, Arizona, did not immediately respond to a request for comment.
A full copy of the complaint and the 5 summary points are available at BehindMLM.com:
Count 1 – Vemma is an “illegal pyramid” scheme 
Defendants promote participation in Vemma, which has a compensation program based primarily on providing payments to participants for the recruitment of new participants, not on the retail sale of products or services. 
Defendants’ promotion of this type of scheme, often referred to as a pyramid scheme, constitutes a deceptive act or practice. 
Count 2 – Income Claims 
In numerous instances in connection with the advertising, marketing, promotion, offering for sale, or sale of the right to participate in the Vemma program, Defendants have represented … that consumers who become Vemma affiliates are likely to earn substantial income. 
In truth and fact … consumers who become Vemma affiliates are not likely to earn substantial income. 
Count 3 – Failure to Disclose 
In numerous instances … defendants have represented … that individuals have earned substantial income from participation in the Vemma program, and that any consumer who becomes a Vemma affiliate has the ability to earn substantial income. 
In numerous instances … Defendants have failed to disclose, or disclose adequately, that Vemma’s structure ensures that most consumers who become Vemma affiliates will not earn substantial income. 
This additional information would be material to consumers in deciding whether to participate in the Vemma program. 
Count 4 – Means and Instrumentalities 
By furnishing Vemma affiliates with promotional materials to be used in recruiting new participants that contain false and misleading representations, (Vemma) have provided the means and instrumentalities for the commission of deceptive acts and practices. 
Count 5 – Relief Defendant 
Relief Defendant Bethany Alkazin, has received … funds or other assets from (Vemma) that are traceable to funds obtained from (Vemma’s) customers through the deceptive acts or practices described herein. 
Relief Defendant will be unjustly enriched if she is not required to disgorge the funds or the value of the benefit she received as a result of (Vemma’s) deceptive acts or practices.

But what does this mean to you, the Vemma affiliate, other MLM participants, and so on? What will happen on the hearing on September 3rd?

Here's a few layman's speculations. Remember, I'm not a lawyer, and I have no insider information. (Lack of such, however, has not stopped various Vemma "leaders" from issuing feelings, such as "Vemma doesn't deserve to be shut down" "It's just a complaint, not a lawsuit" "The lawsuit is a joke", "FTC bit off more than it can chew" and so on)

But let's be realistic here... If you want people to lie to you and tell you everything will be alright, go read whatever verbiage your upline put out. You're here for some real analysis.


Sunday, August 23, 2015

MLM Basics: Just What is Deductible in MLM, and what is NOT?

One of the "advantages" of opening your own business, MLM proponents touted, was that you can deduct a lot expenses as cost of doing business. But can you really?

In terms related to MLM, can you deduct the trips (tickets, hotels, travel expenses, etc.) to attend meetings all over the country?

Under rules in the Federal Tax Code, Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business.  The taxpayer has the burden of proving entitlement to a business expense deduction. The deductibility of their MLM expenses depended on whether their activity was engaged in for profit.

To determine whether an activity is engaged in for profit, Section 183 provides a list of factors for the court to consider: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer's history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.

This brings us to the case of the Olletts in 2004. They joined Amway in 1996. They kept their day jobs and made about $100K in 1999 and 2000 respectively, and claimed Amway expenses of $17500 in 1999 and $23000 in 2000, both year with losses (-1450 in 1999 and -3235 in 2000). IRS denied their deductions and it went into tax court, where they were ruled against (i.e. deductions are disallowed) in 2004. Do you know why? The hints are listed above, but let's be specific...


Thursday, August 20, 2015

Scam and Religion: What does Islam Say About Scammers (and MLM?)

Ban_pyra.gif (No to network marketing).
Ban_pyra.gif (No to network marketing). (Photo credit: Wikipedia)
Previously, MLMSkeptic has covered how the Christian Bible has prohibitions against scams. Then a reader asked, what about Islam?

Good question! Some research is required to answer this, and one of the best resource is Islamqa.info (however, it is also known for issuing its own fatwas, something frowned upon in Saudi Arabia, but that's something else entirely). In it, we were able to locate Fatwa 42579 as issued by the Standing Committee as established by the Sovereign of Saudi Arabia to be the definitely authority for all Sunni Islamic matters.

To make a long story short... Network Marketing is PROHIBITED under shariah law. It is haram.

Why? Here's my summary, but you can read the full decision.

1)  If you have to buy a product / kit to join, and you earn "commission" by recruiting others who also buy the kit, you have engaged in two forms of riba, aka usury / interest, and riba is considered haram. Specifically, riba al-fadl (exchange of goods of same type but different quantity) and riba al-nasi'ah (deferred payment of larger amount than if paid immediately, i.e. get 10 now, or 12 later). The product / kit purchased is considered a smokescreen for the riba.

2) If you are promised pay for recruiting X number of people, it is considered gharar, or "ambiguous transaction", also forbidden, because there is a chance you will be unable to recruit the number of people needed to be paid.

3) The transactions are fundamentally insincere and thus, forbidden, as the transaction benefits primarily the company and some participants encouraged to misrepresent the true nature of transaction.

4) The transaction itself also involves lying and cheating by promising participant wealth they do not usually earn.

Tuesday, August 11, 2015

Scam Tactics: How Do Scammers Identify What You Need?

How does a conman pick up on what does the victim needs, and thus, tailor the scam to fit?  There are five different techniques. If you are aware of these techniques, then you can watch out for when they are used on you.  Let MLMSkeptic explain the five techniques.

The techniques are:

1) Pre-screening

2) Probing questions

3) The tease

4) The Please

5) Trial Close / Seize


Pre-Screening

Your identity is known on the internet. Somebody out there has a profile on you, more than one if you have used multiple names and/or multiple identities. Credit agencies definitely have one on you (and there are several of them). If you're a professional you have professional profiles somewhere. And those can be accessed. That's just your public profile.

Then there's your "hidden profile". Your behavior online is part of your profile. If you give out your name and email address at capture pages that goes into a profile somewhere, and shady businesses will share that info (even if they promise never to do so) with other shady businesses and that's a part of your profile.

If you ever applied for a loan you will get solicitations for loan offers for MONTHS. They shared your info. And they're legit. Imagine what the ILLEGITIMATE scammers and conman will do...

If you ever asked for more info on suspicious "make money fast" type schemes, or clicked on teaser videos that says "sign up for my ____ for more info" and entered your email for "more info", your name is now on a "sucker list" to be marketed with more **** in a similar genre, because you have shown a preference for such topics. 

Scammers (and legitimate salespeople) pay $$$ to buy leads that may be interested in such things, and the lead list is pre-screened for people who are at least interested to whatever s/he's trying to sell. As the joke goes, you don't sell ice to Eskimos or sand to Arabs. By pre-screening the prospects, conversion is much easier.

The prospect generally doesn't see this step, as it's done long before the scammer meets the prospect. To counter this, simply don't be surprised when you got invited / solicited for sales pitch which seems to be exactly what you want. People already "know" you.


Probing Questions

Probing questions are pretty easy... Ask them what *do* they want. Due to pre-screening, you already have a decent idea on WHAT they want. However, there can be a little distance between what they say they want, vs. what they will settle for now. And asking questions will clarify that. 

If the presentation is pretty much a monologue, then the salesperson will be asking rhetorical questions, like "Are you looking for financial security in an insecure world?" "Are you looking toward better health?" then answer them him- or herself, "the answer is ________!"    And scammer will watch the reactions and see if s/he needs to change the speech. 

The salesperson will almost always frame the question so the answer is "yes". By answering things in the affirmative, prospect will have influenced him- or herself to answer "yes" later. 

The prospect should remain neutral for this part, not only to deny the presenter any clues on how to proceed, but to remain neutral mentally rather than "psyched up", in order to evaluate facts rather than emotions.


The Tease

The tease require a bit of mystery, and a commitment from the prospect to find out more. A "capture page" where the prospect watch a video and enter their info is such a tease if there's no details. The idea is to pique your interest, without telling you much. 

Tease works on relatively naive people who are not used to the various sales techniques, but not on veterans. Veterans will simply demand the information they need to make the decision, and will not waste time waiting for your "big reveal". 

The prospect should again, remain neutral when confronted with the tease. You are after facts, not teases with no solid info.

Friday, August 7, 2015

JM Ocean Avenue: Why did Ocean Avenue merge with a suspect scheme out of China called JM International?

Ocean Avenue *was* a nutritional supplement based MLM that started in roughly 2012. After a rough tossle with Visalus due to some people jumping ship, which culminated apparently with a theft of laptop from Ocean Avenue office in 2013, Ocean Avenue apparently merged with a Chinese company called JM International in 2014, according to a member:
OK JM International did a take over of Ocean Avenue back in 2014.
JMOA is part of Joy May who is owned by Joe Zhou, Bruce Fang and Jackie Zhang – JMOA is a $2 Billion company based out of china.
The Ocean Avenue managment stayed after the take over but it was not a happy merger and although Hop Rocket was initially going to be part of JMOA, it was decided that the US team would relinquish their interest in JMOA and everyone in the US office wanted to move to Hop Rocket which soft launched just 1 week ago.
Comment posted by Dottie Lotto on 6-AUG-2015
But who/what is JM International? Seems all we know are some Americanized names, and "it's out of China". (The 2 billion can't be trusted as it's unclear it's revenue, profit, products sold, cumulative or single year, etc.)

So who is JM International? If you search for JM International, , you will find ONLY "JMOA" (JM Ocean Avenue). In fact, you can't even find what JM stands for.

What's really interesting is how the "board of directors" change depending on which site you access, as you can't tell which is official and which is not. Some pages include Tim Richerson and Fred Ninow, others included two other Chinese names (Peter Li and Gary Ren).

However, after a bit of searching, I found an alternate domain, jmtop.com, which appears also to be a global corporate site. However, what's REALLY interesting is for a company allegedly started in China, it has NO CHINESE WEBSITE. It has Hong Kong and Taiwan, but none for Mainland China.

JM Ocean Avenue "select country" page as of 7-AUG-2015 ... No China? 

Next stop... Youtube, as I need to find the CHINESE name of this allegedly Chinese company, so I can research it on Chinese media. Searching for "JM International" found an alleged official channel, and following videos:



So we now know that the Chinese name for JM International is 中脉国际

So what does the Chinese Media Say about them?

MLM Myth: How Mary Kay Ash incorporated the Bumblebee Myth into company culture

A bit of link surfing on bad arguments brought me to an unexpected link... the Bumble Bee Myth, and its link to Mary Kay Ash of Mary Kay Cosmetics.
Diamond Bumblebee
pin award (photo credit:
Mary Kay Website)

Mary Kay Ash was quoted saying "Aerodynamically, the bumble bee shouldn't be able to fly, but the bumble bee doesn't know it so it goes on flying any way." She told the story in 1970 Seminar, where she started presenting the top sellers with the diamond bumblebee pin. (see right)

The problem is there had been NO physicist, scientists, or aerodynamicist that ever claimed bumble bee shouldn't be able to fly. Folklorists and historians have been trying to track down this myth for decades. It's obviously bull****, since we see bees fly every day.

People have "heard" of this myth, as it was variously attributed to various "leaders" (who repeat the bull****), various scientists (never authenticated), and celebrities / politicians (such as Mitt Romney).  Nobody can find the actual claim, paper, quote, or whatever. The closest historians can get was a single sentence in an old etymologist book Le Vol des Insectes (1934) by Antoine Magnan, where he claimed an assistant told him insect flight is impossible given law of air resistance. Bumble bee was NOT mentioned.

Mary Kay Ash
Mary Kay Ash
(Photo credit: Wikipedia)
In other words, this is another myth, perpetuated by MLM. It is not real.

But it is necessary to create a cult of personality, where myth is built up around the leader of the cult through heroization / idolization of the leader, often by enforcing a dress code and perpetuating ideological myths.

And the bumblebee myth is one of them. It is positive thinking mumbo-jumbo, about how you should IGNORE other people's advice, by citing a myth of something nobody ever said.

There is no denying that Mary Kay Cosmetics is a personality cult that enforces a dress code. You didn't know that? NO PANTS in Mary Kay. Founder hated pants. Everybody must wear skirts. That's right, skirts only. NEVER wear pants to any Mary Kay function, or you're forever be ostracized as troublemaker. In fact, it's #2 of "14 Nevers" on a MK Checklist. Oh, there's even "get a new hairstyle". Really.

Control types of clothing and hairstyle is #4 on "Behavior Control", one of four pillars of cult mind control.

And misquoting statements and/or using them out of context from non-cult sources? #5b of Information Control, another pillar of cult mind control.

The Real Motivation: It's Magical Thinking


Motivation is a form of magical thinking in which you imagine that
your words can turn useless people into high achievers. 


http://dilbert.com/strip/2015-08-07