Friday, September 6, 2013

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

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 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.

Tuesday, September 3, 2013

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.

Monday, September 2, 2013

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?