Thursday, January 9, 2014

Bad Argument: If it were a scam it would have been busted by cops long ago!

Previously we had covered the bad argument: Wall Street Legitimacy Gauge, where being traded on Wall Street, for a long time, was used as "proof" of legitimacy when it's proven that Wall Street don't care as long as the stock prices go up.

Today we'll cover a parallel bad argument: because the government(s) haven't closed them for such a long time (5 years, 10 years, or even longer) they must be legal beyond reproach.

Very often, the fact that the network marketing company had been around for more than 5 years was touted by some of the most junior reps as a sign of legitimacy (both to themselves and to others), with an implied corollary "If they were illegal government would have shut them down long time ago!"

If you put it in the A therefore B form, it would be

a) company has not been deemed illegal for X years
b) company will never be deemed illegal in the future

Logically, this doesn't fly, as it's "appeal to age/tradition" fallacy.  It is... because it always had been. That's not a reason, that's just a statement.

Frankly, there is one example in 2013 that easily disproves this bad argument... Fortune High Tech Marketing, otherwise known as FHTM. FHTM was founded by Paul Orberson in 2001, and closed by FTC and several state attorney generals in January 2013. Took the authorities 11 years to close this pyramid scheme.

However, the problem apparently was even more endemic than that... the problem is the authorities... In that the victims have to complain for the authorities to act... and Pyramid/Ponzi schemes are very good in keep its victims in the dark with the mushroom treatment.

In an interview with Herb Greenberg (CNBC) in 2013, FTC's just resigned chief of consumer protection, David Vladeck had this to say:
HERB GREENBERG: What kind of a business (MLM) is it if 90% of 2.7 million every year-- right now we're talking 2.7 million distributors for one company (lose money). 
DAVID VLADECK: It doesn't mean that-- that-- that doesn't mean that the company made misrepresentations. And it doesn't mean that the people who-- who bought these-- franchises or participated in these schemes necessarily feel that they were injured. I-- look, I don't know what the failure or success rate of new businesses are in the United States. But it is not high.
And when we get consumers who are willing to tell that story, and the sufficient number of them who are willing to stand up and be counted, then we can do something about it.
And that's the way we work. We work precisely because consumers like that, instead of talking to reporters, come talk to us.
While Mr. Vladeck sounds slightly flustered, what he said was actually quite clear:


But this is the same as the "where's the victim" bad argument....  Ponzi or pyramid scheme victims often do NOT know they have been victimized because they had been mislead into thinking their scheme is NOT illegal. Nobody joins a ponzi ot pyramid scheme *knowing* it's illegal... People always think they joined a legitimate investment or legitimate business (except those people who joined an HYIP, and those people are truly caveat emptor) And if they don't know they've been victimized, they won't complain!

If you don't even realize you're in the Matrix, how would you know that the Machines controlled your life, and all of your life was really a dream?  Same idea here. If you don't even realize you've been scammed, how would you know that you need to complain to the FTC or SEC or whoever the authorities are and get the authorities to investigate?

And remember, scam companies are very good in keeping its victims in the dark and fed them crap information to keep them compliant. Zeek Rewards knew it was being investigated for several MONTHS before they were shut down, yet it gave absolutely NO indications to any participants except some of the "insiders" so they can take their money and run. People were literally lining out outside Zeek's office waiting to hand over their cashier's checks right up to the minute Secret Service and other agents went in and locked the doors and started carting off the documents. And even then affiliates don't see Secret Service agents, and simply assumed "Zeek employees carrying off boxes of office supplies".

So expecting the authorities to shut down a scam early makes absolutely no sense at all. The most obvious scams will be busted, but the ones that are less obvious will last a long time.

In the meanwhile... Where does that leave you, except up s**t creek without a paddle?

Don't expect the government to save you. They likely won't do it in time to save most of your money, if they save any at all.

You have to rely on YOURSELF, and your "crap detector".
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  1. Good post. It's why Amway people will say it's been around for more than 50 years and cite the 1979 FTC ruling that Amway was legal. I believe the FTC made one critical flaw in that decision. They did not clearly define end user. Thus Amway defenders claim that IBO's consuming products count as customers when we know a pyramid scheme is one where money flow from inside from bottom to top, which is exactly what happens in Amway.

    1. I'll explain why FTC did what they did in a later article about "Amway Safeguard Rules" and how it affects the FTC vs. Koscot decision.