Rich Dad on Ponzi:Kiyosaki really doesn't know anything

Cover of Robert T. Kiyosaki

I've discussed a long time ago that Robert "Rich Dad" Kiyosaki is not the financial expert that he portrayed himself to be. He gave a lot of pithy (but generic) advice that is best only use for motivation, not specific concrete action.

However, when a Google search brought me to an article he wrote about Ponzi schemes, my interest is piqued. I've studied MLM, Pseudo-MLM scams, and Ponzi schemes for several years. I wouldn't call myself an expert, but I do a lot of research before expressing my opinion.

Is Robert Kiyosaki's article accurate and useful?

That's a resounding no. Kiyosaki has absolutely NO IDEA what is a Ponzi scheme, even though he quoted the Wikipedia definition. Kiyosaki went on blasting various "legal Ponzi schemes", such as Social Security, Pension, and so on, as well as made blanket accusations and declarations.

Kiyosaki called social security a "legal Ponzi", when leading economists, esp. one that literally wrote the book on Charles Ponzi, explained why that is wrong.

Kiyosaki called the stock market a "legal Ponzi" as well. Kiyosaki is well known for his aversion to stock market and preference for real estate and precious metals and indeed, has several books on the matters. Rich Dad's Prophecy basically claims that stock market will crash hard "soon". Even his game, "Cashflow", reflects this heavy bias.

But why does Kiyosaki claimed that stock market is a Ponzi? Because the poor people feed money from the bottom and ended up in the rich people on the top. However, that does not describe a Ponzi scheme at all. That describes a pyramid scheme. Ponzi scheme is a scheme where you paid early joiners with money from latecomers. That does NOT describe the stock market except in certain "pump and dump" cases, and pump and dump is already fraudulent.

The Bulgarian Ponzi Aftermath

In Bulgaria, even today, you'll find empty lots of land and half-finished shells of alleged apartment buildings, sitting there today. What you probably don't know is they are the aftermath of Ponzi schemes.

In the 1990's Bulgaria was attempting to transition out of the former Soviet Bloc command economy into a more capitalistic economy. As a result, it is a free-for-all for crooks and scammers, as there are virtually no laws on investment. All of the Soviet Block countries suffered to one degree or another. Even Russia was rocked by the MMM Pyramid, believed to have sucked in one BILLION dollars (not rubles, DOLLARS) Albania had a whole revolution known as the "Lottery Uprising" when the pyramid schemes collapsed and the impoverished poor took up arms and turned anarchist.

Bad Argument: Badass, Dare, and Neg

Badass (TV Series (Photo credit: Wikipedia)

One of the most often used tactics in getting people to commit is the "motivational speech". The objective is simple: get the people to get off their butts in a seminar and pluck down their dollars for your miracle solution to their problems, whatever they are. And one of those is basically insult your audience, though in a relatively gentle way, about how they are wussies, and they should be badasses, take charge of their lives, blah blah blah. In the dating scene, this is known as a "neg", and it's basically a disguised "dare", something you'd do back in kindergarten, like "I double dare you!" Surprising how well it still works today, on adults, who should have grown out of it long time ago.

Here's one such example. I won't "name" the company. I've done some blurring to prevent it from being too obvious. But it's hardly "disguised".

Without any context, what do you think of this picture? You'd think you're looking at one of those casino ads or something.

But no, this is an ad featuring an income opportunity / blog hosting / network marketing education amalgam. The question "are you all in" is a dare, that you have to "risk it all to gain it all", with the clear implication that if you don't risk it all, you are a wuss and therefore you should get out.

That may work as a motivational speech, as a "call to action", but do you really want to DO BUSINESS with people like that?

Ponzi "winners", don't hide your assets or you'll be sorry

Ponzi in 1920 (Photo credit: Wikipedia)

Ponzi schemes are easy to pull off with a bit of credibility. When Ponzi "winners" attempt to hide their assets from the law and creditors, they make things much worse. As the two men in Arizona found out when they agreed to help a Ponzi scammer hide assets.

Ponzitracker reported that the Hall Brothers of Arizona were arrested and indicted in Arizona. Authorities stated that they were in contact with a "winner" in a 90 million Ponzi scheme. Lindsey Howell, of South Carolina, did not start the Ponzi (That would be "Ron Wilson" former councilman in South Carolina)  However, Howell benefited hugely from it, to the tune of millions, as he did not disclose he was paid millions for promoting the scheme to others. Ron Wilson is spending 19 years behind bars for spending 60 million (much paid out to people like Howell) of the 90 million he soaked up.

BREAKING NEWS: Herbalife share trading halted [now resumed], auditing firm KPMG quit

Wall Street Journal reported that all trading of Herbalife shares has been halted, and its audit firm, KPMG, just resigned.

It was only April 3rd that Herbalife filed a report to the SEC indicating that KMPG was hired for entire year of 2013.

WSJ also reported that a major KPMG exec was fired from the LA office last night due to possible insider trading tip-off. It is not known if this was related to Herbalife or not.

http://blogs.wsj.com/marketbeat/2013/04/09/herbalife-shares-halted-news-pending/

UPDATE: Trading has resumed.  It is confirmed that KPMG senior partner has leaked info of "several" companies to third-party, leading to profiting from that insider info. That partner has been fired, AND KPMG resignation has been confirmed by Herbalife, who will figure out who to hire before end of the month.

http://www.usatoday.com/story/money/business/2013/04/09/herbalife-halt-stock/2066755/

Related articles

• Ackman Reprieve: Herbalife Halt Likely Due To Resignation Of Auditor KPMG
• Herbalife trading halted after auditor KPMG reveals alleged insider trading
• BREAKING NEWS: Security Exchange Commission declared Profitable Sunrise "international pyramid scheme"
• BREAKING NEWS: TVI Express Pyramid Scheme Leader Tarun Trikha arrested by Indian CID

BREAKING NEWS: More video of Tarun Trikha's arrest in India

A tipster forwarded this bit of footage, believed to be taken by more of the Tarun Justice league. (yes, that's a bit of word pun)

Bad Argument: Demand for parity

(Photo credit: Wikipedia)

One problem with the MLM industry, and its various shady cousins (the HYIP, the Ponzi, and such) is their reputation. The oldest firms like Amway and Herbalife had been followed by various scandals and lawsuits, while the newer ones have no reputation or started by shady characters or do shady business (sell nothing substantial). One way these firms "manage" their reputation is to encourage its members to "demand parity" in news coverage. For example, if there's an article that reflects negatively on the industry, the pro-industry people would then demand some sort of positive coverage as a "balance" to the negative story. And if they don't get it (or just get a brief mention), they will portray that as some sort of a "bias" against the industry. They may encourage its members to seek parity, or they shill the demand for parity.

While the common adage "there are two sides to every story" is often true, the same thing does NOT apply the FACTS. Rather it is the INTERPRETATION of facts that is subject to debate.  When people started citing "there are two sides", they *may* be trying to imply that the "two sides" are equally valid, when they may NOT, in fact, be equally valid. Demand for parity tries to pin the burden on the critic, trying to portray the critic as "biased" and "unfair" when the facts were not in doubt.

Think about it. If they have better facts, they would have presented them and refuted the facts presented by the critic, thus defeating the critic's viewpoint. The very fact that they had to resort to "but you didn't show the side that's FAVORABLE to us!" means they can't refute the critic's facts, but must instead, try to shout him down.

Sometimes, the demand for parity takes rather curious leaps of logic. Here's one sample comment posted on BehindMLM when the student newspaper at North Texas State University published an article unfriendly to Vemma, calling it a financial threat to young students. The comment at BehindMLM says:

This comment contains a lot of half truths, let's analyze it one at a time. 

1) "My calculus textbook was $220. I haven’t used calculus once in 23 years."

The comment basically said the writer spent a lot of money for education that meant nothing to him. I don't doubt it, but is the message accurate, and furthermore, is it RELEVANT? No. He's using the "pot calling the kettle black" tactic... raise some other issues to derail the discussion. 

2) "Billionaires are buying network marketing companies while universities are putting kids into debt for jobs that are no longer in existence. "

This is such a generality that's impossible to evaluate. Donald Trump STARTED MLMs, which didn't really go anywhere. Warren Buffet only kept Pampered Chef, sold the rest. Even Sir Richard Banson sold Virgin Cosmetics (spun off). So which billionaire is this guy talking about? No idea. Thus, the claim is unsupported, and thus, useless to prove anything. 

[UPDATE: Bumped to Tuesday] Anderson Cooper 360 to feature Zeek Rewards Ponzi tonight 8-APR-2013

This is from the AC360 website:

360º Tuesday

One of the biggest financial schemes in U.S. history went down in a small North Carolina town with many losing their life savings. Watch AC360° at 8 and 10 p.m. ET.

UPDATE: Darn it, looks like Beyonce and Thatcher stole the spotlight... 2nd time in a row. 

UPDATE2: Now showing Tuesday 9-APR-2013. 

What is Lead Generation and Why Herbalife is Banning Most of Them?

Herbalife product brochure Cover
TU Turkey Turkiye (Photo credit: www.goherb.eu)

Starting in December 2012, Herbalife is in a fight of its life when Bill Ackman, fund manager, publicly denounced it as a pyramid scheme, stating that it should be closed, and made a 300+ page presentation . Since then, a lot of famous people have come out, both for and against that view. People against MLM lauded Ackman, while people for MLM accused Ackman of running a "short and distort" campaign against Herbalife.

The truth is somewhere in between. Herbalife itself does NOT know whether it is a pyramid scheme or not. It says it's not, but it cannot prove its claim. Herbalife ran its MLM without regard whether it had slipped over the edge into a pyramid scheme. Even it does not know how many "retail" customers it has. It could only "confirm" some 30% of customers are retail. The rest seems to be distributors, but some are no doubt "self-consumers", i.e. They just join for the discount on the merchandise. But how many? What percentage? Herbalife claimed to be conducting a survey and may have some results soon.

As for the rest of the distributors, who are really in Herbalife for the money, what are their chances of making it big, and how do they get there? A lot of them relied on "lead generation" companies (i.e. lead seller), who basically sell them a list of people who may be interested in their sales pitch. And these are QUITE expensive... Typically $100 per name.  What's more interesting, these lead generation companies are often run by Herbalife affiliates themselves. According to an article from the New York Post, 6 out of the top 20 Herbalife affiliates either run a lead seller, or has close ties to one. Herbalife is well aware of them and has a list of approved lead sellers, which numbered 29 as of 2010.

According to the New York Post article, that number of approved lead sellers has just been trimmed to TWO. That's right, from 29 to 2. Furthermore, that has been a longstanding clause in the affiliate agreement that affiliates may not sell leads or advertising to other affiliates. Apparently these lead generators are considered "third-party" and thus not covered by that prohibition clause, even though one of the remaining company is directly owned by a Chairman Club member Shawn Dahl. And even then, the internal Herbalife memo stated that no leads may be purchased from Dahl's company, Online Business Systems.

BREAKING NEWS: TVI Express Pyramid Scheme Leader Tarun Trikha arrested by Indian CID

The news first broke on Facebook, then pictures emerged, then a screen cap of news report (in Hindi) seem to confirm that Tarun Trikha, head of TVI Express scam, which may have involved up to 7 million victims worldwide, had been arrested in India.

For a more detailed report, see my other blog:

http://kschang.blogspot.com/2013/04/rumor-some-facebook-post-claims-tarun.html

TVI Express is a blatant pyramid scheme that somehow survived by moving from one jurisdiction to another.

When UK started investigating they moved to Cyprus.

When India started investigating they moved to Indonesia.

When Indonesia revoked their license they faked an airline, which bought two cheap puddle jumpers, claimed to be buying more, then was grounded due to maintainence issues. Its CEO quit, then 2 months later the whole thing collapsed when Indonesian government revoked their flight license.

Apparently life in Indonesia was not that pleasant, and Mr. Tarun Trikha went back home.

Now all who associated with Tarun Trikha will likely suffer the consequences.