Saturday, September 29, 2012

Bad Argument: "My [whoever] would never lie to me" fallacy

English: This is an example of a SCAM website.
English: This is an example of a SCAM website. (Photo credit: Wikipedia)
One of the most often defenses for a possible scam is "I knew [whoever] and s/he would never lie to me, therefore this cannot possibly be a scam."

This is NOT a valid defense because it has a fundamental assumption, that [whoever] actually *knew* it's a scam. What if s/he does NOT know? What if s/he is also a fraud victim? What if s/he knew it's fishy and did not share the doubt?

This can happen easily. Take a contemporary example, that horrible movie that was inciting riots all over the Middle East for insulting Prophet Mohammed and Islam? It was originally filmed as "Desert Warriors", then completely re-dubbed to change the dialog. The entire cast and most of the film crew (all except the "director") were mislead. They would not have made the movie if they knew it's going to be re-dubbed and used to insult Islam.

Friday, September 28, 2012

Bad Argument: Retrospective Falsification

A diagram of cognitive dissonance theory. Diss...
A diagram of cognitive dissonance theory. Dissonance reduction can be accomplished in various ways, broadly including the addition of more, consonant elements, or else changing the existing elements. (Photo credit: Wikipedia)
Every ran into people who answers everything with "I knew that (all along)"? Everybody does.

Do those people *really* knew that all along? Doubt it. It's probably "retrospective falsification".

The short definition: the person is rewriting his/her memory to fit his/her current agenda / thoughts in order to resolve any cognitive dissonance.

The simplest example: married couple now divorcing bitterly telling each other "I never loved you!" Clearly, they were in love enough to get married, but now they're divorcing, there's a bit of retrospective falsification, to justify their current agenda (bitter divorce).

Usually this is "fudging" of details. Someone who was there at a significant event in history embellishes his or her role in it, or added details, and much more.

Victims of scams are often guilty of retrospective falsification, by ignoring any and all evidence of suspicious circumstances, even if they themselves brought it up.

Thursday, September 27, 2012

Scam Study: Burnlounge

(Photo credit: Fuzzytek)
EDITOR'S NOTE: Scam Study is a quick summary of the various proven Ponzi or pyramid schemes. It is meant to be a summary, with relevant scam factor analysis. 


Burnlounge was supposedly an online music store founded in 2004 by Alex Arnold, Ryan Dadd, and Stephen Murray. It was described as a MLM online music sales with its own download / subscription / chat client to users, but also allowed almost anyone to open their own "online music storefront" by purchasing a storefronts. It was marketed as iTunes meets eBay meets MySpace (remember, this was before Facebook became famous). It entered public beta in 2005, and formally launched in 2006, FTC said it's a pyramid scheme in 2007, and charged its execs as well as several high ranking affiliates for running it. The case went before a judge in 2008, and a final judgment was entered in 2012, that Burnlounge is indeed a pyramid scheme. 

Burnlounge has two general types of affiliates: Burnlounge Retailer, and Mogul. The former can only earn "credit", while the latter can earn cash. 

Burnlounge Retailer create "Burnpages", i.e. custom mixes of music they like from Burnlounge's catalog (which are licensed), but can only earn credits to be spent on more Burnlounge products. There are three sublevels of retailer: basic, exclusive, or VIP.  Basic lets you create Burnpages. Exclusive gets you monthly subscription of a DVD video news magazine, as well as downloads, while VIP gets you special access to venues and set of "music history" DVD. 

Any retailer (any level) can become a mogul by paying $6.95 per month, and perform some one-time sales goals like "sell two exclusive or VIP packages". They may get more if they meet some other sales goals. Moguls earn commission from sales of music, as well as recruiting other people to join as retailers or moguls. 

Moguls gets paid on "sales" done by their downlines through 6 levels, though Burnlounge use the term "rings" instead of levels and the term "concentric retail" instead of "multi-level marketing". However, the mechanics are the same. Moguls obviously gets paid for selling music through their own burnpages. 

Wednesday, September 26, 2012

Did "Zeek Defender" Craddock got an SEC subpoena?

According to Ponzitracker Jordan Maglich, it is possible that Robert Craddock, who represented himself as working for Zeek at one time, may have gotten an SEC subpoena.

One of the individuals leading an advocacy group openly critical of the Securities and Exchange Commission’s (“SEC”) handling of the alleged $600 million Zeek Rewards Ponzi scheme has reportedly been subpoenaed to appear before the SEC.  The individual, Robert Craddock, made this disclosure in a September 22, 2012 mass email directed to victims who have rallied behind claims that the SEC may have mis-handled the case.  While the SEC did not provide the reason for the subpoena, some have speculated that recent comments attributed by Craddock to the SEC concerning purported admissions of fault in the SEC's case against Zeek which were later refuted may have piqued the SEC's interest.

Tuesday, September 25, 2012

Cognitive Bias: Halo and reverse halo effects

Halo Effect over ARO
Halo Effect over ARO
(Photo credit: Alan R. Light)
Do you take stock in your first impression? Everybody does. After all, that is where the cliche "you don't have a second chance to make a first impression" came from.

However, when first impression is wrong, and they often are, what you have here is a cognitive bias known as the "halo effect". And scammers are known to use the halo effect for their scams.

In short, halo effect is the way the mind used the first impression to subsequently affect the judgement.

Say you are trying to evaluate someone, maybe interview a candidate for a job. If he arrives in a full suit (as is the normal dress code), nicely tailored, matching tie, spit-shined shoes, great crease on the pants, not a hair out of place, clean-shaven, even proper cuff links, you'd be impressed.

However, if the same candidate showed up in a rumpled blazer, slightly stained pants, dirty shoes, shirt that doesn't look like it's been ironed for a week, and 5 o'clock shadow before noon, then you're probably not going to like him as much as the guy who was dressed to the nines.

Even if it's the SAME PERSON, thus, the same abilities, qualities, personalities, etc.

That's why in jury trials, the defendant is NOT to appear in court wearing jail jumpsuits, or in chains or handcuffs, and is often in a suit to look as "clean" as possible, as not to prejudice the jury.

There are a lot of subtle signals one can project to create an image that would make a good first impression without being obvious about it. And scammers know most of them.

Monday, September 24, 2012

Mythbusting: 7 myths Zeek Apologists kept on repeating

After Zeek Rewards was shut down by the SEC as a Ponzi scheme over a month ago (17-AUG-2012), many people went ahead and started making excuses for Zeek, and in essence, defended Zeek. Some were just trying to justify how they got swindled. Others may have more nefarious agenda, yet others just analyzed it the wrong way or had incomplete data.

I will go through some of the myths spread and discuss why they are demonstrably myths, not reality.

MYTH: There were no victims in Zeek until SEC got involved.

FACT: A victim that doesn't know s/he is a victim, is nonetheless a victim.

This myth has been repeated by various Zeekheads who are apparently still in denial, a month after this Ponzi had been shut down WITH cooperation from the scam leader, Paul R. Burks. Many claimed that affiliates were happy until SEC came along.

One can be victimized by things s/he does not even know about. Second hand smoke is a great example. People inhaling second-hand smoke are victims, even though they may be too young to understand it. Ignorance of the victim status is just ignorance. It is NOT bliss. Blaming SEC would be a lot like Neo blaming Morpheus for showing him "the truth".

Living in a dream, with people watching their "VIP Points" growing, is not real. People who prefer living in a dream world won't make it in real life.

Sunday, September 23, 2012

Pitfall of Wishful thinking: ignorance is not bliss

Cover of "Matrix-Trilogy [Blu-ray]"
Cover of Matrix-Trilogy [Blu-ray]
When a victim doesn't even recognize s/he is a victim, who should be blamed? The people who defrauded them, or the people who told them that they've been defrauded?

If this is too theoretical, let me do a different example:

You've seen "The Matrix", right? Neo, Morpheus, Trinity, et al?

Is Neo a "victim" of the machines? Definitely, at least from Morpheus's standpoint. People who don't know "the truth" are all victims of this elaborate lie, this "simulation" called "The Matrix".

When did Neo become a victim? Clearly, he'd been a "victim" ever since he started in The Matrix. Long before he even realized he was a victim.

So when Morpheus got him "flushed" out of his pod by forcing him to "wake up", Neo gets exposed to "the reality". And it was much more unpleasant than he had ever expected.

Would you say that before Morpheus intervened, Neo was not a victim?

Of course not. Neo was a victim. He just doesn't know it. However, ignorance of his own status as a victim of the machines doesn't make him any less of a victim, except the cliche "ignorance is bliss", though it really isn't.

So what does this have to do with a scam?