Sunday, February 7, 2016

Scam Tactic: Deny everything, make up some other reasonable sounding reasons

When confronted with truth that contradicts their world view, MLMers often resort to denial, i.e. "that can't possibly be true". It's motivated reasoning, i.e. thinking with your heart, not with your head, and that means impulsive rather than logical decisions.

After the denial, then some alternate explanations was supplied with no proof in order to justify the view.

Recently on BehindMLM I encountered a perfect example of such.

On Feb 6th, 2016, commenter B.F. wrote on BehindMLM that MLM "Kyani" was "kicked out of the Norwegian direct selling organization (Direktesalgsforbundet) for using illegal health claims in the official marketing."

Less than 24 hour later, commenter "MLMexec" replied "Kyäni was not kicked out of the Norwegian DSA because of illegal marketing. They were trial members for a year and weren’t accepted as full members because Eqology and Zinzino joined forces to vote against it."

But is that true?

Saturday, January 30, 2016

Scam absurdities: "An honest Ponzi" is still illegal (duh)

Those of you who read articles in general may recall something about MMM... If not, here's a TL;DR version:

MMM, or Mavrodi's Money Machine, is a fraud company founded by Sergei Mavrodi, his brother Vyacheslav Mavrodi, and Olga Melnikova. With its start in 1989 Sergei tried to do legit business, but was chased down for tax evasion by 1992. By 1994, Sergei had gone into financial market and with the Russian economy in hyperinflation he was promising profit of 1000% percent a year with a full-on TV campaign as well as a "free metro ride day" where they paid for EVERYBODY's metro ride for a day in Moscow.

In 1993 and 1994 it was estimated that MMM was taking in 100 BILLION rubles PER DAY for its shares. Party finally ended in Mid 1994 when tax police closed MMM for tax evasion. However, Mavrodi was able to manipulate the victims into voting him into Russian Dumas (house of representatives) by claiming government closed MMM, not him, and if they do that he'll pass measures to pay them back. Elected official was also immune from arrest. Mavrodi's run came to and end when the Dumas chose to cancel his immunity in 1995, and MMM finally declared bankruptcy in 1997.

However, Mavrodi went on to start several more scams, including "Stock Generation" (closed 2002, Mavrodi arrested and convicted 2007), MMM2011, MMM-India, and MMM-Global.

The interesting parts about MMM2011 and the last few schemes is its.... "honesty", so to speak. MMM2011 was described as...
"This is a pyramid. It is a naked scheme, nothing more ... People interact with each other and give each other money. For no reason!"  (source)
Which brings us to the "honest Ponzi"...   Is it a Ponzi scheme if the owners admits to it?

Of course it is. Does a weasel stop being a weasel by admitting it is a weasel?

Yet that's what many scammers want you to believe... that as long as they paper over any irregularities with enough disclaimers... they can't be "liable".

Sunday, January 3, 2016

What should you look forward to MLM and Direct Selling in 2016?

It is now 2016, and as usual, positive thinkers are already out hating my blog posts already.

First reader comment of 2016 starts with:
You loser ...obviously couldn't make it in any MLM's - most likely your attitude and shallow thinking.
Hahahahaha.  This is the sort of typical potty mouth positive thinker type comment, though in this instance he was reacting to my comparison of "MLM Cult vs. ISIS".

The fact that he somehow thinks that "MLM Cult" refers to his chosen profession is rather amusing, isn't it?

But really, let's throw around some REAL numbers, compiled by Direct Selling Association ( and the World Federation of DSA (sort of global DSA), the industry lobby group.  It's too early for 2015 numbers, but here's the 2014 factsheet, as published by DSA (US).

DSA factsheet 2014,

The key figures... 34.47 billion USD in 2014 US Retail Sales... by 18.2 million people "involved".

That's less than $1900 sold per "involved" person PER YEAR. ($1894 if you want to be exact)

And since people are joining faster than actual retail growth sales (8.3% vs. 5.5%), average retail per person per year is GOING DOWN. This is despite the PR spin, i.e. "more individuals generated more revenue in 2014 than any year previously".

And remember, that's retail sales, NOT PROFIT.  Actual profit will be FAR LESS. Even if you estimate a margin of 20% AFTER expenses, that is $379 per year.

Friday, December 25, 2015

How a MLM cult is like ISIS, and how to defeat both of them

A recent episode of NPR's Hidden Brain that talked about terrorism, and how does the psychology of radicalization work, got me thinking, as the cult psychology of ISIS shares many similarities with cult psychology of a MLM cult, and this new angle to take on how a cult gains control over its members provides some very interesting insights into how it works, and some idea on how to combat it.

How is ISIS like a MLM Cult?

ISIS is like a MLM cult in that they entice members into self-destructive behavior by convincing them they are doing it for the greater good.

According to Scott Atran, an advisor to UN and the White House as anthropologist, explained that most ISIS fighters genuinely believe they are fighting for a "great cause", i.e. establishing a Caliphate, and generally it is the people in their 20's that were enticed by promises of glory, adventure, and purpose. They also believe that world is a disasterpeaceful change is not possible, self-sacrifice is honorable, ends justifies the means, and utopia is possible. ISIS recruit by leveraging idealism in naive young people already ostracized from society.

Now think about how MLM cults leverage a very similar mindset... MLM cult believers genuinely believe they are building a better world by spreading the "great product and great opportunity" among the masses. Many MLM cult believers do believe they cannot succeed in a regular job market. Indeed, that is a mantra often repeated in MLM cults, like "J.O.B. = just over broke" and so on, and MLM promises glory (recognition for accomplishments), adventure (travel all over, often exotic places) and purpose (spread the gospel of prosperity). There's also belief that traditional job CANNOT allow one to be financially secure, and utopia (financial freedom) is possible. In many ways, MLM cult preys on idealism of people who can't get a regular job (often through no fault of their own) and ostracized from society.

So to summarize:

  • Both ISIS and MLM cult tell followers to believe in a great cause
  • Both ISIS and MLM cult promise followers glory, adventure, and purpose
  • Both ISIS and MLM cult tell followers world is a disaster
  • Both ISIS and MLM cult tell followers existing ways do not work
  • Both ISIS and MLM cult tell followers utopia is achievable
  • Both ISIS and MLM cult leverage idealism in people  

It's scary how similar they sound, if you break it all down and get to the core message.

Thursday, December 24, 2015

Breaking News / Woo Files: Nu Skin Taiwan head accused of illegally importing medical devices

News from Taiwan via Malaysia, original Chinese and English translation provided. (Thanks to JusticeAlwaysLate for spreading this bit of news)

台灣.新北市18日訊)在馬來西亞、新加坡和汶萊都設有分公司的著名直銷公司美商如新華茂(NU SKIN)台灣總裁姜惠琳與多名幹部、高階直銷商,涉嫌明知產品“BODY SPA機”是未獲衛生機關核准輸入的醫療器材,仍在2012年間從香港帶1萬多套回台販售,獲利約1600多萬元台幣(下同.約210萬令吉)。新北地檢署昨依違反《藥事法》等罪嫌,起訴姜女等31人。
(Taiwan, Taipei Dec 18th) Well-known direct selling US company Nu Skin, with branches in Malaysia, Singapore, and Brunei, has its Taiwan CEO Huilin Jiang, along with several officers and high level members accused of knowing that the product "Body Spa machine" is an "not permitted as import" medical device, yet brought back over 10000 kits from Hong Kong for sale in Taiwan, profited over 16 million NTD (almost $500000 USD). Taipei Public Prosecutor's Office has now officially charged 31 people, including Ms. Jiang, with violations of "Drug Regulation Act". 
Nu Skin is founded in the US in 1984 and operates via direct sales of cosmetics, and is now in 54 markets around the world. Taiwan branch was established in 1992, and Ms. Jiang took over as CEO in 2007. Nu Skin Taiwan was a sponsor of the 101 building New Years Fireworks and festivities 2013. 
全案起因於前年,一名林姓賣家在網路上販售號稱能緊緻肌膚的“BODY SPA機”,被檢舉未經核准,林到案供稱是向如新直銷商購買後,獲緩起訴。
The case started three years ago. A "Lin" advertised a machine online for sale called "Body Spa" that claimed to tighten muscle tone, and was investigated as the device is not legally permitted for sale without Taiwan FDA approval. Lin cooperated with investigators and said he got the machine from Nu Skin reps and had his case continued. 
不過檢調追查,發現衛生署早在2011年,就曾以未附安全證明文件等理由,禁止如新進口“臉部SPA機”,但姜惠琳仍在同年底,未申請主管機關核准,就另外核可BODY SPA機行銷策略,由如新的寰宇領袖、藍鑽級主任等高階直銷商,向下線會員推銷,稱可向海外預購BODY SPA機,然後趁集團在香港舉辦大中華區年會時領貨。
Further investigations show that the Taiwan FDA had denied Nu Skin's import of Body Spa back in 2011, due to various reasons including "no safety documents included". However, Ms. Jiang went ahead, later in 2011, and approved sales strategy of Body Spa kits by (Cosmo?) leaders, Blue Diamond level execs, and such highest level members to be promoted to lower level members, claiming that the high level execs can pre-pay for these new machines and stock them overseas, and everybody can pick up their stock when Nu Skin held their convention in Hong Kong later. 

Wednesday, December 23, 2015

Scam Psychology: Idiot's Guide to Idiocy... and how to avoid it

It is very often in scam psychology that the victim refused to accept that they have been victimized, and they often square off against the critics. However, here are some questions they should be asking themselves... Are they *really* arguing best evidence... or merely best "intentions"?

1. What exactly are you arguing for? 

Often, proponents of a scheme have very different arguments. The ones I've seen are:

(Scheme name) is [mostly] legal!
(Scheme name) pays me [and that's good enough for me, never mind legal!]
Go pick on some [bigger evil] and leave (Scheme name) alone!

Some folks even managed to do all three at once.

But think about it, only the first item is a real "defense" of the scheme. The other two are tacit admissions that the scheme may indeed be shady, if not outright illegal.

2. Are you arguing or merely denying? 

There's a big difference between arguing, and denying.

Arguing means both sides present their best argument, and analyzes the other side's argument for flaws.

Denying simply means you insist that the other side is wrong, wrong, and wrong, without analysis.

Don't see the difference? Watch this comedy skit "Argument Clinic" courtesy of Monty Python:

3. Does your argument SOUND weak? 

A lot of scheme defenders, when trying to defend certain potentially illegal parts of the scheme, end up sounding like a whiny cat, because their argument end up as...

"But you don't *have* to do that... It's optional."

For example:

"But you don't have to recruit more sellers (It's just that you make more money if people you recruited also recruit more sellers)"

"But you don't have to buy stuff every month (If the people you recruited buy enough so your "group volume" qualifies you for commission)"

Now repeat that in a whiny kid's voice, and you'll see how weak that argument was.

It's also a bogus argument, because it's tacit admission that the scheme has at least one potentially illegal / amoral component. It's roughly equivalent to "I smoked (pot) but I didn't inhale".  That's a VERY weak argument.

4. Are you arguing from "might" or "meek"? 

Are you using "might" or "meek" for your arguments? Or just whatever that suits your argument? Are they even relevant?

Many promoters often invoke bandwagon fallacy (i.e. X people joined, Y amount of money spent, Z celebrities endorsed, etc.) That's the "might".

Many promoters adopt the "meek" attitude when they whine about government persecution, conspiracy of rich, and so on and so forth.

They are NOT relevant! Those are WEAK arguments! Find better ones!

Friday, November 27, 2015

Scam Tactics: Attribute Transfer

Scammers want you to trust them, and they usually try to invoke something that we respect and revere, then use "attribute transfer" to get you to transfer the respect and reverence onto the scammers. Many scams invoke religion, patriotism, celebrity, and such, in order to transfer authority, sanction, and prestige to their scam, so that the victims are more likely to accept it than reject it out of hand.

What is Attribute Transfer? 

Attribute transfer relies on easily recognized symbols linked to popular and accepted concepts. Cross, Jesus, Flag, Cartoon, Prayer, Military Service (in some areas), large and old companies, famous investors with loads of money, scientists and doctors (in white lab coats) and so on. They wish you to associate the attributes of the popular concept or symbol with this new scheme that they have.

It can be summarized as "we are kinda like that more popular thing".

This is related, but not the same as excitation-transfer theory in psychology, which is defined as "how residual excitation from one stimulus amplify the response to a different stimulus". One of the most often given examples is the cliche advice "take a girl on a date to do something really exciting like roller coaster in hopes of she associate the excitement with you".

Profitable Sunrise brochure
using Christ the Redeemer image

Example: Profitable Sunrise 

Profitable Sunrise is an international ponzi and pyramid scheme shut down in 2013 that supposedly operates out of England and solicited investments with slogan "profit with every sunrise" (which is itself a symbol) and also used the symbol of the "Christ the Redeemer statue" in Brazil (see right).

Profitable Sunrise promised payout of 1.6% to 2.7% DAILY and justified these profits by claiming that they make short-term usurious rate "bridge loans" to large businesses. Yet nobody in Europe can track down this company. The executive, "Roman Novak", apparently does not exist, as no one seem to have ever met him.

In the US its most notorious promoter of Profitable Sunrise was Nanci Jo Frazer of Ohio, who used a church / charity called "Focus Up Ministries", which was later renamed "Defining Vision Ministries" for her recruitment purposes, along with her husband and another co-conspirator.  As a part of settlement with state of Ohio, they are to pay back $108146.61 over the next TEN YEARS, AND have her "ministries" dissolved. The fine is substantially reduced from original judgment of 710000 dollars.

Nanci Jo Frazer and gang was also known to have released fake news that claimed she had been exonerated. You can still find it when you Google her name. It's bogus.

Scammers invoked attributes of religion, Jesus, sunrise (a generally good symbol), and so on to make their scheme look more realistic than it is.

Example: USFIA

USFIA started back in 2012/2013 when it infiltrated China as "American Mining 美洲犬業" claiming to offer amber jewelry at discounted prices, but will pay people if they invest money in "amber units" AND introduce yet more investors. Its owner, Steve Chen 陳力 had several previous ventures including Amkey and NGTalk that had failed or withered. Chinese government caught on in 2014 and arrested over a dozen local representatives in a nation-wide raid, but failed to stop the scam as Steve Chen operates out of the US city of Arcadia, in the suburbs of Los Angeles and based his USFIA (and various other entities, such as AFG) there. Two of the suspects escaped China to Thailand, and was repatriated as a part of "Operation Foxhunt 2014". However, the root of the problem was not destroyed, and USFIA quickly rebooted itself by late 2014 by adopting a new American name: US Fine Investment Arts, and a new Chinese name 富豪集團 (Royal Group), and shifted to "investment in Gemcoin, a new cybercurrency backed by amber". It then proceed to claim their cybercurrency is "approved" by California law, and just look at Bitcoin's meteoric rise.

USFIA was closed in 2015 by coordinated raid between SEC, State of California, FBI, US Marshal Service, and so on. A receiver took over the company and fired all employees immediately and proceed to take inventory of all assets.  Receiver's first report shows that they were barely able to find about 20 million, and Steve Chen has chosen NOT to provide a list of his assets, claiming his 5th amendment privilege to not incriminate himself. All the supposed amber jewelry with astronomical prices are vastly overpriced, and supposed inventory of amber to "guarantee value" is worth "nominal value", i.e. souvenir grade, not gem grade. The "law" that Steve Chen and minions claimed permitted Gemcoin actually repealed a law that says business may ONLY use US dollars and in no way validates or approves "Gemcoin". There are even rumors that one of the VPs in the company claimed to be related to President Obama. There was no proof that Gemcoin is actually a cryptocurrency like Bitcoin. So far the only proof appears to be a PDF file that contained screenshots of "transactions" online.

USFIA is also famously used several celebrities at its events, including former mayor of Arcadia John Wuo who appeared in multiple events singing praises of the scheme and its leader. In 2015 John Wuo was a city councilman and quickly resigned after USFIA office was closed, citing "health reasons".

Scammers tried to invoke attribute of state government, bitcoin and cybercurrency in general.

How to See Through Attribute Transfer

To see through attribute transfer, you have to look through the examples and stick with just the facts and general idea, such as

  • What does the speaker want? 
  • According to the speaker, WHY should you believe the speaker? 
  • What attribute are they trying to transfer onto themselves from the symbol? 
  • Is there any LEGITIMATE connection between the speaker and the symbol?
  • What's left of the speaker's argument AFTER you cross out the attributes?