Saturday, January 11, 2014

MLM Dictionary: Koscot Test

Koscot Test was a 4 part test that determines whether the business or a scheme is a pyramid scheme. It was established in 1975 in the court case "FTC vs. Koscot Interplanetary" i.e. 86 F.T.C. 1106, 1181 (1975) "Koscot".

Koscot Interplanetary is a part of "Glen Turner Enterprises", ran by Glen W. Turner (who's still around!). Despite the fancy name, Koscot sells "Kosmetics (sic) for the communities of tomorrow!"

Original charges from the FTC was filed in 1972, and the trial started two years later. During the trial, the court created what's known as the Koscot Pyramid Test, often shortened to Koscot Test. It has four parts:

(1) Payment of money to the company;
(2) The participant receives the right to sell a product (or service);
(3) 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.

Koscot case has been referred to in every suspect pyramid scheme case since.

Friday, January 10, 2014

Bad Argument: Neglect to Mention, Revisited (How Crooks are Riding the Coattails of Bitcoin to scam people)

Do you ever hear something, accepted as "yeah, that's cool", only to realize later that you've been hoaxed or been told only half or less of the story? If so, you've been victim of "neglect to mention" bad argument.

The problem is with the modern tech devices such as smart phones and tablets, we often do "like" or "retweet" or "repost" without doing any fact-checking. I admit I sometimes do stuff like that, but I generally do it to cute-sy stuff like cute animals, funny pictures, and so on. I don't form opinions about something important, like money, based solely on one-sided info... Or I try to. And I've been hoaxed recently when I reposted that story about that alleged ex-marine waitress who got no tip because she claimed the family took her for a lesbian.  I didn't look carefully and later when it was revealed to be a hoax, I was embarrassed.

I vowed to fact-check stuff I repost or share or comment from now on. But apparently some people don't, as they've been influenced by half (or less) of the story.

Recently some celebrity / news / Bitcoin worshipper made the following comment in response to my opinion/rant about Bitcoin is too risky.
Forgive me K Chang. But Bitcoin has already been around since 2009 (5years). Even Sir Richard Branson And Lamborghini is taking Bitcoin payments.
Neither you or I have a crystal ball. But I would rather listen to Billionaires like Sir Richard Branson that have vision, rather than an opinion shot from the hip :-)
Nothing wrong with Lambourghini or Sir Richard Branson accepting Bitcoins... Except neither are true, or at least, not completely true.

Q: Is Sir Richard Branson accepting Bitcoins?

A: Sort of. Virgin Galactic, the $250000 USD spaceflight takes Bitcoin


Analysis: Well, that's not so impressive now, is it? Can you buy a Virgin Atlantic ticket with Bitcoin? Apparently not! I guess if you're a billionaire you don't care if you accept some Bitcoins and they become worthless... And the PR value alone (getting mentioned in every newspaper in the world) is worth it.

Q: Is Lambourghini accepting Bitcoins?

A: No. One Lambo dealer in Long Beach claimed to accepted Bitcoins for a brand new Tesla Model S. However, later they admitted they asked the payer to convert it into dollars first.


Again, the dealer is relying on the PR value, getting mentioned in every newspaper in the world (or at least the US) is worth it. Besides, they even made the guy convert the payment into dollars first. They will lose nothing. It's a publicity stunt, nothing more.

Later the commenter did a shifting goalpost, and claimed that it was all Lambo dealers in UK that's accepting Bitcoins, but further research got NOTHING, and the comment has produced no proof. Heh...

The commenter has made a fundamental mistake of not doing his/her own fact-checking, and fallen for the "sensational headline" soundbites, and then applied that mistaken impression as evidence to support a premise, that Bitcoin is NOT as risky as I claim it is.

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.

Wednesday, January 8, 2014

BREAKING NEWS: Is WCM777 / Kingdom 777 going to be banned in Brazil?

TelexFree seem to be focusing all the attention of Brazilenos nowadays, it's rather interesting that some OTHER scam got mentioned along with TelexFree... But it did... via an official press release on the Ministry's website, issued by Prosecutor's Office of Consumer Protection:

And here's the automatic Google translation (click on link above to read original Portuguese)
On the same occasion, in view of the fact that news reached the public prosecution brought by people who invested in financial pyramids by foreign websites and does not receive any promised amount, especially by Chinese website, which has no relationship with the Ympactus , it is good to clarify, investors should be aware that standard does not exist on the cyberspace, and that there are only a few tried allowing the process tramite the Brazilian courts without prejudice to the foreign investors seek justice in the case, the Chinese with all the difficulties that this represents. These legal issues should serve to alert everyone of the risks they run.
Is there some OTHER Chinese website offering financial pyramid that's heavily promoted by Brazilenos?

Nope, this can only be Ming Xu's WCM777, i.e. Kingdom 777

There's a couple more countries in South America though...  They've only been outlawed in 3 so far...

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Monday, January 6, 2014

Bad Argument: The Wall Street Legitimacy Myth

One of the favorite arguments by proponents of network marketing is "Look at how big Amway is! And Herbalife! And Mary Kay! And Avon! And ______! Their stock prices keep going up! If they were a scam Wall Street would have never invested in them!"

A more recent version would cite Herbalife as an example, such as "Herbalife a pyramid scheme? Wall Street don't see it that way! Herbalife stock has MORE THAN DOUBLED in price since Ackman's accusation!"

While it is true that price for Herbalife stock (HLF) has indeed rose from 25's to 60's in 2013 (Ackman's accusation was in late 2012) one must question... Are the two even related to each other...  i.e. "price of stock" vs. "morality / criminality"?

Perhaps John Hempton of Bronte Capital put it best when reacting to Ackman's accusation in January 2013:
I agreed with Bill Ackman that Herbalife is mostly about ripping off distributors and people at the end of the chain. The product is more than twice as expensive as competitor shakes. I called Herbalife "scumbags". 
But they are highly cash flow positive scumbags and they will use the cash flow to buy back shares. Over the past five years the share count has gone from 140 million to 108 million and will fall further. 
They are scumbags then - but they are scumbags working for stock market investors.
In other words, as long as the stock prices keep going up, Wall Street wouldn't give a f*** about the company being scumbags.

BREAKING NEWS: How Many Corporate Entities Does Dawn Wright-Olivares Really Have?

According to reports by, Dawn Wright-Olivares's agent / attorney for corporation in Arkansas had been disbarred back in May 2013, and may be responsible for more than one of Dawn Wright-Olivares's corporations.

Dawn Wright-Olivares (just "Dawn" from here on) is owner of "Wandering Phoenix LLC", an entity registered through N. Donald Jenkins Jr. of Arkansas.

Search through Arkansas corporate records shows that Dawn is also owner of "Wandering Rex LLC".

Dawn was COO of "Rex Venture Group", operator of Zeek Rewards, for years before changing to Greg Caldwell 2 months before RVG was closed by SEC (August 17, 2012) as a Ponzi scheme.

N. Donald Jenkins Jr. , the register agent, was apparently disbarred in May 2013, which may have resulted in a disciplinary investigation that started on Aug 17, 2012, same day SEC closed Zeek. While this could be a coincidence, it could also be a coordinated effort between the disciplinary board and SEC as not to tip of the culprits that they are under investigation.

(Thanks to for the lead )
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Sunday, January 5, 2014

MLM Dictionary: Autoship

Previously a commenter asked me if I can put up a glossary page where some of the terms I often use are defined. I haven't thought about it for a while, as at the time adding to a page over and over sounds a bit... boring. Then I realized... why not define the term as a blog post, and link to relevant articles if I already discussed it?

Meet the new segment: MLM Dictionary

Today's term:  

Autoship (n)

Autoship refers to the periodic "subscription" of products shipped from company to you and your account is automatically debited. The amount is usually just sufficient to meet the minimum sales quota to stay qualified for certain amount of sales commission or rank level.

DSA code of ethics require DSA members to honor cancellation of autoship as well as accept returns of merchandise with a clearly defined return policy (usually it's 90% of price paid within 6 months). 

Usage: New affiliates are highly encouraged to enroll in "fast start", which includes autoship of 1 unit of product XYZ every month, thus qualifying you for rank of "supervisor" immediately.  

Analysis: Autoship is a somewhat controversial practice that has attracted attention of critics.