Spotting a Potential Scam is Much Easier Than You Think

Most online scams are not very elaborate, in that they are usually produced by one or two people. They only "seem" big online.

In order to look big, they will often borrow pictures from legitimate sources and relabel them to suit their needs, often with a little help from Photoshop (tm). 

Here are two prime examples:

Exhibit One: Corllins University

Corllins University is not a real university, but a website (one of many) operated by a Pakistani who goes by the name of Salem Kureshi. For a university that doesn't exist, its online presence is quite large, albeit, populated with fake photos. Here's one of them:

This was a screenshot of the Corllins University Facebook timeline, supposedly their graduating class,   originally posted on Consumer Watch of Botswana Blog.  This picture has since been deleted from their timeline. Care to guess why? Because it doesn't belong to Corllins University.  

Here's the real source of the picture:

MLM Basic: What is a buying club, and why MLM is NOT a buying club

English: The interior of a typical Costco warehouse club store. This is the apparel section of the warehouse in Mountain View, California. Photographed on October 9, 2005 by user Coolcaesar. (Photo credit: Wikipedia)

Very often, a suspect scheme's supporters will claim that they are a "buying club", where people can get things for a discount, and thus, membership in this "club" can be sold as a product. Then they cite "CostCo" or Sam's Club as examples.

This is a myth, and I will refer to a real lawyer's opinion on this. This lawyer is Spencer Reese, half of "Grimes and Reese", famous MLM lawyers. They know what they're talking about. You can see the link at the end.

If the company fits the following criteria, it is a buying club in fact, and thus, must follow buying club laws:

(1) Is the organization a corporation / Partnership / Unincorporated association / Other business enterprise?
(2) Is the enterprise organized "for profit"?
(3) Does the enterprise have "members"?
(4) Is the primary purpose of the enterprise to provide benefits to members (i.e., discounted goods or services)?
(5) Do these benefits result from, or are they promoted as stemming from, the cooperative purchases of goods or services?

Note that there is NOTHING in here about "making money" or "income". Indeed, you don't join a "buying club" to make money... You join a "buying club" to "save money" from purchases by leveraging the buying clout of the club.

Therefore, any comparison of a buying club to an "income opportunity" is already bogus.

Bad Argument: Reverse Psychology Spam Domains

With domain registration under $10 for a year, and free hosting for blogs and such available, a lot of scammers have started making domains that claims to post information about a potential scam, but instead, actually recruits you into the scam.

I've previously seen plenty of examples for TVI Express, but here's an example involving Zeek Rewards.

Note the domain and title, but most of the info is actually for recruiters, assuring Zeek is NOT a scam. It even reprints articles from the official Zeek Rewards "news" website. (this is one of them)  

EDITORIAL: People in denial do some crazy things...

It is interesting that people in denial will do some absolutely crazy things, such as claiming black is white, truth is fiction, and so on.

This is exactly what's happening with many Zeek affiliates, one week after their scheme, ZeekRewards, was shut down by the SEC as a $600 million Ponzi scheme. And they are being lead by someone who thus far has yet to publicize his own relationship with Zeek, not as an affiliate, but also as a consultant for Zeek.

This is a letter I was forwarded recently, and it illustrates the amount of delusion people in denial has, in that they refuse to see the truth, but would rather spin some sort of conspiracy to fit their own narrative.

Their words will be in blue, and my reply will be in red.

Bad Argument: "You are the 1%" accusation

When defenders of a suspect scheme ran out of arguments against critics of the suspect scheme, and prefer to continue to "vent their spleen", some resort to accusing the critics of being associated with some sort of "evil", the 1% (out to suppress the 99%).

For Americans, it could be as simple as "un-American".

As this sort of accusation is rather rare, I'll cite some ACTUAL examples:

Exhibit 1: Skepticism is "anti-American"

“Have you tried to sabotage as hard as you’ve been doing with (SCHEME NAME REDACTED) to those real ponzi that are running from offshore? I’ve found you’re an anti-american, a traitor and maybe a crook that takes advantage of the American legal system. It seems to me that you make a living by sabotaging American companies. Do you understand what a global economy is? People like you are the one who are giving away American jobs to undesirable countries and in the process benefit from it.”

For your information, this suspect scheme is believed to operate both as a Ponzi scheme AND a pyramid scheme hybrid, claims to have 1.2 million affiliates, and pays up to 1.5% DAILY ROI if you put in some money, but they insist they are NOT an investment.

Apparently, believing "if it's too good to be true, it probably is", is anti-American and traitorous, to people defending a suspect scheme.

Genre Analysis: does MLM and travel make sense?

Travel industry is cool, but does it
make sense to mix it with MLM?
(Photo credit: Storm Crypt)

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. 


Travel MLMs were the rage about 3-5 years ago, when multiple companies hit the market. Unfortunately, it was also plagued with scammers. 

• TVI Express, a self-claimed make money and travel opportunity, was declared by Australian Federal Court as a pyramid scheme, and outlawed by China, Indonesia, Lesotho, South Africa, and more.  (see Scam Study: TVI Express for more details )
• Zamzuu, aka YTB, or "Your Travel Biz", an opportunity that promised you to become an online seller of travel, was sued by state of California and state of illinois and forced out of both states after paying over a million in fines
• Business in Motion charged by Royal Canadian Mounted Police of being a pyramid scheme, offered travel sales opportunities to people, but paid on recruitment

However, we are not here to discuss the scams, but rather, the viability of the genre... Does this genre actually make sense? Is combining travel and MLM a meatball sundae, or a viable business? 

In my opinion, combining travel with MLM is mostly a meatball sundae. It only makes sense under a very specific set of circumstances that is very rarely met, and thus, makes no sense for the average Joe. 

Who are you associating with? Who's your conscience?

Jim-rohn-PASSES-AWAY (Photo credit: Wikipedia)

{EAV:18679baaf82871ac}

While network marketing is a useful tool, it often leads to congregation of ONLY like minds, thus nobody is around to provide some neutral, even contrarian thoughts to provoke some deeper soul-searching.

In other words, if you only congregate with clones of yourself, who is going to be your conscience?

This thought came up when I read a blog post, that was subsequently highlighted on Lifehacker. And then I recognized that the blogger mentioned Jim Rohn.

Jim Rohn is like one of the pioneers of network marketing and motivational speaking. He sold nutritional supplements BEFORE there was an Amway. In fact, Tony Robbins is one of his STUDENTS. That's how long this guy had been around. And one of his quotes is

"You are the average of the five people you spend the most time with."

This is quite true, which is why you need to associate not just with like-minded people, but in fact, people who are BETTER than yourself, in DIFFERENT WAYS. 

The "if it haven't been charged it's not a scam" fallacy

Federal Trade Commission Deputy Director Jessica Rich . (Image credit: Getty Images via @daylife)

If a suspect scheme has been pretty thoroughly debunked, its "supporters" will often fall back to the "if it haven't been charged it's not a scam" fallacy as a defense. It usually takes the following form:

A: Acme XYZ is a scam because of ____, ____, and _____. 

B: Acme XYZ has not been charged by any government regulators! If it's illegal it would have been shut down by now/ long time ago! So it's legal!

Technically, this is a "red herring", as it neither disproves the premise "Acme XYZ is a scam", nor does it prove the counter-premise "Acme XYZ is not a scam".

The fact (assuming it is true) that Acme XYZ has not been charged / convicted as a scam does not mean anything in itself. You can be a scam, and not be charged (or convicted). It simply means the government have yet to act. It does not preclude them from acting in the future.

Scam Study: TVI Express

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. 


Introduction

TVI Express "ATM Card", not really issued to any one

"TVI Express", also known as "Travel Ventures International", first appeared on the scene in 2009 in India, and claims combine three trends: e-commerce, home business, and travel. It is a convicted pyramid scheme around the world and is prosecuted in multiple countries around the globe as a pyramid scheme. Due to the way it operates in multiple countries, with server elsewhere, individual countries had to shut them down individually, leading to its continued survival. However, the scheme is mostly dead in 2012, except in the Philippines, where it still has many adherents.

Beginning of TVI Express

The origin of TVI Express is unknown, though its founder is believed to be "Tarun Trikha" (also spelled Parun Trika in some cases). He had previously appeared on various network marketing forums claiming he's new and wants to learn. Archived forum posts indicated that he had previously started various ventures, but none of them were much of a success and quickly expired, leaving no trace of their existence. He operates a "conglomerate" called V2Global, based somewhere in India.

Tarun Trikha came up with "Travel Ventures International", or TVI Express, in late 2008, and launched it in 2009, and he was very careful in crafting a facade of legitimacy through multiple layers of suggestions and vague wordings. It is clear he planned this for a while, as he crafted this scam the same way a spy agency construct a "legend" for its agents.

MLM Basic: what is a Ponzi scheme, and what is the difference between it and pyramid scheme?

Many defenders of potentially fraudulent business opportunities, when confronted with evidence that their opportunity may in fact be a Ponzi scheme, often immediately retort "Ponzi schemes are investments, but this is a business opportunity!"

However, a Ponzi scheme can easily be either an investment or a business opportunity. People
 are so familiar with the investment version of Ponzi scheme, few if any ever considered the possibility that a business opportunity can be a Ponzi scheme. Ponzi schemes can pretend to be work-related income opportunities, or an outright business... such as pigeon farming.

Ponzi in 1920 (Photo credit: Wikipedia)

It sure doesn't help the issue when in a MLM, recruiting and marketing are so intimately linked, that often people can't tell them apart. Instead of "investing", you are usually told you are buying a starter kit, or making a "down payment" on a discount card, and so on. So you are thinking you made a purchase, when in fact you have indeed "invested".

In fact, most people are completely ignorant of the law when it comes to what exactly *is* a Ponzi scheme.

So what is a Ponzi scheme?

Investigating HugeYield... it's just a clone of HYIP ponzi scheme

International Money Pile in Cash and Coins (Photo credit: epSos.de)

It is "easy" to make a bit of money on the Internet, if you start scams and trick people into giving you money.  It is, of course, illegal.

On the other hand, it is possible, but not likely, for you to make money off such schemes not started by you. And the lure of such profit is what keeps people pushing them. When MLM 'veterans' who had been in the "industry" for decades started to push such schemes, often known as HYIP (High Yield Investment Programs), it's indeed sad to see such people fall.

One such a scheme is called "HugeYield", and it was pushed by two MLM "veterans" who had subsisted on other participants for decades, without finding much success. They are also apparently the owners, though they insist some generic-name person is the owner.

Modern HYIPs are always on the internet, and to disguise their Ponzi-scheme business model, they usually adopt a disguise. The most frequently used is "advertising", i.e. you are supposedly buying advertising units, but if you recruit enough people (who also buy such advertising units) you will make your money back and earn much more than you put in. HugeYield is no exception.

There are some people who know the risk of putting money into a scam, but is determined to "time" these scams any way, as they think they can beat the odds by joining early and be one of the early winners, and leave all subsequent joiners holding the bag. I personally consider that to be despicable, but that's just my opinion.

Read more about this Internet Ponzi scheme

The "Darth Vader" Solicitation

David Prowse as Darth Vader in The Empire Strikes Back (1980) (Photo credit: Wikipedia)

Remember in Star Wars: The Empire Strikes Back, when Darth Vader offered Luke Skywalker a chance to join him to rule the Galaxy? (The twist after that is voted #1 twist of all times) This is AFTER Vader sliced off Luke's hand, mind you. Clearly, the offer will not be accepted.

Did you know that Moamar Khadaffi offered one of the most prominent dissidents in Libya a chance to join him to work through the problems, in order to avoid the revolution that eventually killed him? The offer was turned down as well. The dissident knew then that making such an offer means Khadaffi will lose and the rebels will win.

Clearly, such offers are almost NEVER taken seriously.

So why do defenders of potential scams (and outright scams) make such offers?

Bad argument:"Sour grapes" argument and variants

"White" table grapes. Are they "sour"?
Do MLMers believe all critics are "sour grapes"?
(Photo credit: Wikipedia)

When members of a particular "opportunity" sees criticism leveled at their scheme, many of them are not interested in reading the criticism to see if truth was offered and logic used. Instead, they automatically and reflexively conclude that it must have been written by "enemies" (we'll discuss "imaginary enemies" in the future).

Once they decided that they have an "enemy", they have to attribute some sort of a "motivation" to the enemy as they usually have no evidence to defend against the logic and evidence presented. So they will proceed to INVENT some motivation for their "enemy", the critic, thus creating a circular argument: You hate _____ because you hate _____.

One of the most often imagined reason for a critic to exist is "sour grapes", i.e. jealousy or disgruntlement. The member somehow believed that the critic is jealous of their success, so must attack their success. Here is an example:

[responding to an article that discuss how ZeekRewards is not what it appears to be]
Karina wrote: ... So I think you are just plain jealous that people are making money while you are not or you are making big money anonymously at Zeek rewards yourself! 

Not only did Karina use "sour grapes" (i.e. you're just jealous), she also tossed in "you are probably profiting from whatever you are criticizing any way!"  It's a random accusation, ad hominem attack.

There are several variants to the "sour grapes" argument, all of them involving IMAGINED motivation of the critic.

Patent on Network Marketing, really?

United States Patent and Trademark Office seal (Photo credit: Wikipedia)

An HYIP online, JustBeenPaid, claims to be the only MLM covered by a patent. On their website, you will find the following words:

JustBeenPaid! (JBP) and its related programs operate in accordance with United States Patent 6,578,010 (now public domain)

However, if you look up the patent  http://www.google.com/patents/US6578010  you will find it's actually about having a single computer system managing multiple HYIP-type funds without co-mingling, and allow each group manage their own membership, rules, contributions, cash outs, accruals, and so on.

It is basically a well designed HYIP script that can handle multiple HYIP funds. (HYIP is just a fancy name for Internet Ponzi scheme)

And there is NO PROOF ANYWHERE that this patent is now public domain. It was issued in 2003, so it could not have expired yet.

So why would an Internet Ponzi scheme, already under investigation in Italy, claim to be somehow associated with the USPTO?

The "you know nothing" tactic and "I dare you" tactic

MLMers who ran out of coherent and logical arguments will often fall back to the "you know nothing" tactic. Usually, it goes like this.

A: BizX is very likely a scam because of _____, ______, and _____.
B: You know nothing / know very little / are wrong about BizX. 

There's a variant I call "I dare you" tactic:

A: BizX is very likely a scam because of _____, ______, and _____.
B: I dare you to join and learn the "truth". 

Both replies are completely irrelevant. Instead of counter the premise with their own evidence, or to defeat the logic presented, the opponent basically issues a personal opinion, the latter was a 'dare'.

Cognitive Bias: "appeal to authority" fallacy

Who are real experts in Multi-level marketing?
(Photo credit: Wikipedia)

A common sales technique is to cite some experts. The question is... are they really experts in what they say they are in?

MLMers often cite so-called leaders, who had been in the industry for a decade or two, and have mastered many sales techniques. They got a bit of name recognition, so when they endorse a particular opportunity or product, people think that product / opportunity must be good, instead of looking at the actual merits of the product/opportunity itself. This is sometimes called "name-dropping", but the real name is "appeal to authority" or "argument from authority". It is best demonstrated as follows.

A: X is true
B: Why?
A: Because Y said so. 

Y could be anybody... your brother, the church leader, expert witness, your parents, your teacher... your upline, etc. etc. It's someone who you consider to be important enough to be an "authority".

Cognitive Bias: "first kiss" and "last supper"

Do you remember your first kiss? How about
fourth? Seventh?
Kiss You (Photo credit: Wikipedia)

The human mind has a lot of cognitive bias, and two of them involved "first kiss" and "last supper", but not in the literal sense.

Human memory is frail, because we don't actually record everything with equal intensity. Instead, we remember the first things, and the most recent things more clearly than anything in the middle.

Do you remember your first kiss? How about fourth or fifth?

Do you remember what you ate last night? How about six days ago at dinner?

In each case, you probably remember the first, the last, but almost nothing in the middle.

A scammer can take advantage of that.

Cognitive Bias: the "no true Scotsman" fallacy

Traditional Scotsman (Photo credit: Wikipedia)

Another tactic used by MLMers, when confronted with evidence of their so-called MLM as scam, with arrest of members in other countries, will reply 'they are doing it wrong', 'they are just bad people, the system is fine', or some variation of the same theme.

They are guilty of using the "no true Scotsman" fallacy, or the "they did it wrong" variant (which was documented earlier).

The best way to explain "no true Scotsman" is with an example, as given by YourLogicalFallacyIs.com (slightly paraphrased)

Angus: Scotsman do not put sugar on porridge!
Lachlan: I'm a Scotsman, and I put sugar on my porridge
Angus: Then ya're no true Scotsman!

Angus moved the goalpost by redefining Scotsman as "true Scotsman" when confronted with facts counter to his claim. And a lot of MLMers do the same thing.

Investigating IBC Travels... looks like a TVI Express clone

A Clone of My Own (Photo credit: Wikipedia)

When you plan to join acompany, you don't want to see any link between it and a known scam, such as TVI Express, which was busted in Australia, China, Indonesia, USA, and many more countries.

So when a company goes through quite a bit of effort to hide such links, you should probably become VERY VERY interested in WHY would they do so.

The more someone try to hide something, the more interested investigators get. This is sometimes known as the "Streisand effect" (named after Barbara Streisand, who tried to suppress aerial photo of her house by suing a website, but instead inspired people to download the photos even more, thus achieving the opposite effect).

IBC Travels is such a new "opportunity", and it is desperately hiding its link to TVI Express... and failing.

"They did it wrong", a special variant of "no true Scotsman" fallacy

Another frequent "rebuttal" from defenders of an "opportunity", when given evidence of malfeasance such as members arrested, charged, and convicted of running a pyramid scheme, is usually "they are bad people and did it wrong", with an implied corollary, "the company is completely innocent and cannot be responsible". One such example is highlighted below:

[Linganay wrote] ...All those reports you posts I've read about scam? It's not the company but it's just referrring to people who have not been honest. They just collected money but did not remit to the company. The company has been vigilant and terminated those who abused and misrepresented the company.  (see original version )

But what was the "reports you post I've read about scam" Linganay referring to? Here are just SOME of the headlines:

• TVI Express "leader" in Majene, Indonesia sentenced to 9 months in jail for defrauding the public
• Central Bank of Lesotho in Africa issued press release that TVI Express is operating illegally in the country and urges all citizens to refrain from participating
• Times News of South Africa reported that Tarun Trikha is the head of TVI Express scam, which involved over 1 billion SA Rands, with over 50000 victims in South Africa alone
• South Africa announced first arrest of TVI Express members for running pyramid scheme.
• TVI Express Trio "TeamTVIOz" convicted of running pyramid scheme in Australia, and of falsely using logos of hotels, airlines, and cruise lines.
• A dozen people arrested in China in multiple cities (2009, 2010) for running "British TVI Travel Express" scam. 

There was nothing about upline cheating downline by taking their money and not giving them membership. All were describing TVI Express itself as a pyramid scheme, and was shut down as a scam in multiple countries. You can check the actual news articles. 

Clearly, Linganay was mislead by his upline into believing that all the fraud reports about TVI Express are lies or "misunderstandings" caused by a few "bad apples", when it is TVI Express itself that is rotten.
(Linganay's full rebuttal involved several other fallacies that will not be addressed here, but perhaps another time. )

Linganay is essentially guilty of using a variant "no true Scotsman" fallacy, which I call the "they did it wrong" argument.