Zeek Claim Process Ends; 550 Million In Claims Received

Zeek Rewards Claim Process has ended at midnight, and soon after, Zeek Rewards receiver Ken Bell posted a letter that shared some interesting details:

• Total amounts claimed is over $550 million
• Total number of claimants number almost 200000 (average loss of $2750)
• Lawsuits against net winners, as well as those who knew and did nothing are coming soon

http://www.zeekrewardsreceivership.com/pdf/ZRWUpdatefromReceiver9.6.13.pdf

Are You Aware of Your Own Bias? How About MLM Lawyers?

Human beings are remarkably adaptable creatures. However, sometimes, this adaptiveness works against us. One way this happens is we become unaware of our own biases. It is simply the way it is. And this is especially apparently in the MLM world. And it often takes a bit of outside information or criticism to make one aware of one's own bias.  (If you think I have a bias leaning one way or another, let me know in the comments!)

Anyway, with the Brouhaha between Ackman and Herbalife, one of the few MLM lawyers in the country, Jeffrey Babener, wrote an article on his MLMLegal.com about what he believed Ackman missed.

Previously I've analyzed John Hempton's position on Herbalife. Hempton is a fund manager and is opposed to Ackman's position and found Hempton has his own bias that he doesn't seem to realize (or not apparent from his writing), but he's a money manager, not a lawyer. A lawyer should cover all angles, right?

In this case, not quite. Mr. Babener showed quite a bit of bias too.

Bad Argument: If you look for negative stuff, you'll find it

Recently, I was reminded of another variant of negativity avoidance, when defender of a suspicious scheme used what I called "if you look for it, you'll find it" excuse. Except in this case, he was referring to "negativity". It goes roughly like this:

A: We found X, Y, and Z about this opportunity that raises questions about its legitimacy. How do you explain it?
B: If you go look for negativity you will find it.

This is a complete non-sequitur. It means nothing.

The defender (B) clearly is trying to imply that you can dig up negative information on anybody if you look hard enough, thus the negative information are of no consequence. This is basically to cover up his lack of counter-argument, but to get in "the last word" any way. Yet he said it in a way to imply a deeper meaning, in a way trying to imply that his opponents are vindictive and he's the magnanimous one.

Pithy, but worthless advice. Actually, it's the WRONG advice. Let me explain why.

What is a Product Based Pyramid Scheme? Is Herbalife a Product Based Pyramid Scheme?

Editor's Note: This is a continuation of a previous discussion about Product Based Pyramid Schemes. You may want to read that one first. 

Is Herbalife a product-based Pyramid Scheme? First, let us do a quick recap of what is a pyramid scheme, and its variant, a product-based pyramid scheme.

In a regular pyramid scheme, you pay to join the scheme, which buys you the right to recruit additional members into the scheme, and when you meet some recruiting requirements, you get paid.

In a multi-level marketing scheme, you pay very minimal cost to join the scheme, which buys you the right to sell the products as an affiliate, as well as the right to recruit additional members into the scheme. You get paid by the company when additional members you recruited i.e. downlines, also sell the products with their own markup.

In a product-based pyramid scheme, you pay for a starter kit to join the scheme, which buys you the right to sell the products as an affiliate, as well as the right to recruit additional members into the scheme. You also sign up for monthly autoship to qualify for commission payout. You get paid commission by the company when those additional members you recruited (i.e. downlines) buy a starter kit and signup for autoship, and they can also profit by recruiting additional downlines (that also buy starter kit and monthly autoship) just like you did.

Are you confused yet? Does the product-based pyramids scheme look JUST like a multi-level marketing scheme? There is a pretty subtle difference, but they are VERY similar.

Going back to regular pyramid scheme, the formal definition was:

1. The participant makes a payment of money to the company;
2. In exchange, the participant receives the right to sell a product (or service);
3. In exchange, the participant receives compensation for recruiting others into the program;
4. The compensation is unrelated to the sale of products (or services) to the ultimate user.

Please note that multi-level marketing scheme fits 1, 2, and 3, but not 4, in that the compensation from the company to affiliate is based on SALE OF PRODUCTS (by downlines, presumably to real consumers), not by recruiting additional downline affiliates.

The product-based pyramid scheme looks just like a multi-level marketing scheme in that the company can claim it has sold products to / through the affiliates, thus it has paid the affiliates based on SALES of products, even though the company is essentially a pyramid scheme with the product purchases replacing the direct transfer of money.

So how do you separate product based pyramid scheme from multi-level marketing scheme (i.e. illegal vs. legal), and which one describes Herbalife?

Genre Analysis: The Hilarity of Carbon Credit MLMs

United Nations Framework Convention on Climate Change (Photo credit: Wikipedia)

EDITOR'S NOTE: Genre Analysis is my personal opinion on a particular genre of network marketing, like MLM + penny auction, or MLM + daily deals, and so on.  

You can mix MLM with almost any business that needs a lot of consumer-level marketing, In the past several years, there has been some attempt to create multi-level "carbon credit" MLMs. So what exactly is a carbon credit? 

A carbon credit refers to any sort of trade-able certificate that permits the emission of one ton of CO2 or any equivalent greenhouse gas. Now you're probably going... Why would ANYBODY want to buy that? Good question! To understand that, we have to take a sidetrip to discuss global warming. 

Basically, the globe is warming (how much and how fast is subject to some debate) due to all the carbon emissions we're putting into the air from all the fossil fuel we've been burning. And the warming ocean is not good for us in the long run, so United Nations created a framework in 1997 called UNFCCC which established a global quota on how much carbon emissions is allowed for each country. This was signed in Kyoto, Japan, so it's known as the Kyoto Protocol. 192 different states signed, and it was formally adopted in 2005 by the UN at Montreal (see logo above). 

What's significant is while US representative signed the treaty, Congress never ratified it, so this protocol is NOT binding on the US. (i.e. US has no requirement to follow the quota given)  Canada withdrew from the protocol in 2012, and many nations that had was committed to first period (2008 to 2012) stated that they have no intention to continue onto second period (2013 to 2020). So basically this thing is dead in the water, and may sink altogether. 

That doesn't prevent some hucksters from selling you some carbon credits though. 

Why Zeek Rewards Was Such a Successful Scam

Magic ball toss (Photo credit: backofthenapkin)

Zeek Rewards Ponzi, closed by SEC last year, is the largest Ponzi scheme in the US, involving up to 2 million victims (due to some people having multiple accounts, the actual number is closer to 1 million) for 700 million dollars. How did it get so big? Don't people care about the warning signs? Are they all so blind? These aren't the smartest people in the world (we are talking the average Joes, not the elites like those Madoff soaked) but surely there are SOME smart people in that million victims?

It is a combination of factors, and it had everything to do with psychology, by taking advantage of your cognitive biases.

Your brain, due to millions of years of evolution, tends to form thoughts in certain ways, and a successful scammer can take advantage of that.

Think about magic. A lot of magic relies on misdirection. The magician tosses the ball up and down, up and down, followed it with his eyes. Then he tossed the ball up... and it vanished.

No it didn't. He didn't actually throw the ball up, but his eyes went up as if he did. And you, expecting him to do the same thing again, didn't actually look at his hand with the ball.

In other words, you were "trained" by the magician to follow his eyes, not the ball itself, so you were amazed at the ball vanishing into the air... when it never left his hand.

Zeek did the exact same thing... It showed the victims enough of a legitimate business that the victims never bothered to follow the IMPORANT item... the money.

Is it any wonder that Paul Burks, head of Zeek, is a trained magician? 

But wait, there is more!

Blind Men, Elephant, and MLM, Revisited

Previously, I've discussed how many scheme participants have evolved rather convenient holes in their logic, by insisting that their experience of the company, which by their admission is not a complete experience, proves the company is legitimate, like three blind men, depending on which part of the elephant they touch, describe the elephant in very different terms.

Here's a revisit, on a different type of selective blindness, that the belief that as long as the product or service is legitimate, then the company itself must be legitimate. This is often used by affiliates of a company being suspected or accused of being a product-based pyramid scheme.

8-ball pyramid scheme model. (Photo credit: Wikipedia)

A regular pyramid scheme is a pure exchange of money. You pay to join the pyramid at the bottom. Additional joinees push you up the levels. When you get the top you grab all the money gathered up and leave. No product was involved. This was also known as the "airplane game".  The wikipedia picture on the right shows the 8-ball version, which has captain, co-pilots, crew, and passengers.

So what is a product-based pyramid scheme? A product-based pyramid scheme is a regular pyramid scheme that was disguised by purchases of products or services. However, to explain that, we have to discuss the definition of pyramid scheme, i.e. the Koscot Test.