Scam Spotting: Anatomy of a "free" premium headphones offer

Ever seen those offers: we're giving away (insert item) as a promotion, all you need to do is pay shipping and handling?

Let's dissect one and see how it really works.

Recently, someone brought this to reddit.com/r/scams attention. In the interest of NOT giving them any link juice, all names will be redacted, but you can easily figure it out.  Here's a screenshot of the top of their giveaway page.

They claim to be giving away all sorts of headsets and headphones for FREE. The catch is you'll need to pay about $13USD per item for shipping and handling.

However, are these headphones REALLY worth as much as they say? The answer is no. NOT EVEN CLOSE. Let's take that first headphone for example. They said "save $80", implying MSRP is $80.

Well, let's do a bit of digging via Google image search, and we got a $3 headset:

Oh, myyyyy. It's the EXACT SAME headset. For $2.99 with free shipping.  These headphones are NOT worth $80. They're not even worth $8. It's worth $3.00

Now you see why they are charging $13. For every order, they pocket $10, while making people believe they are getting something for cheap.

Let's pick another item, just to make a point.

How to spot truth in sea of lies, rumors and myths

Spotted this in the Lifehacker archives (originally published 2012) but it's still relevant

The internet is full of crap. For every piece of reputable information you'll find countless rumors, misinformation, and downright falsehoods. Separating truth from fiction is equal parts a mental battle and diligent research. Here's how to make sure you never get duped.

As long as words are hitting the page, news and facts are filtered through someone. Sometimes this is a ludicrous rumor that somehow morphs into a fact, or even just a small tip that doesn't work at all. Filtering out the junk from the facts is hard, but it's not impossible.

http://lifehacker.com/5950871/how-to-spot-truth-in-the-sea-of-lies-rumors-and-myths-on-the-internet

Scam Tactics: How Do Scammers Identify What You Need?

How does a conman pick up on what does the victim needs, and thus, tailor the scam to fit?  There are five different techniques. If you are aware of these techniques, then you can watch out for when they are used on you.  Let MLMSkeptic explain the five techniques.

The techniques are:

1) Pre-screening

2) Probing questions

3) The tease

4) The Please

5) Trial Close / Seize


Pre-Screening

Your identity is known on the internet. Somebody out there has a profile on you, more than one if you have used multiple names and/or multiple identities. Credit agencies definitely have one on you (and there are several of them). If you're a professional you have professional profiles somewhere. And those can be accessed. That's just your public profile.

Then there's your "hidden profile". Your behavior online is part of your profile. If you give out your name and email address at capture pages that goes into a profile somewhere, and shady businesses will share that info (even if they promise never to do so) with other shady businesses and that's a part of your profile.

If you ever applied for a loan you will get solicitations for loan offers for MONTHS. They shared your info. And they're legit. Imagine what the ILLEGITIMATE scammers and conman will do...

If you ever asked for more info on suspicious "make money fast" type schemes, or clicked on teaser videos that says "sign up for my ____ for more info" and entered your email for "more info", your name is now on a "sucker list" to be marketed with more **** in a similar genre, because you have shown a preference for such topics. 

Scammers (and legitimate salespeople) pay $$$ to buy leads that may be interested in such things, and the lead list is pre-screened for people who are at least interested to whatever s/he's trying to sell. As the joke goes, you don't sell ice to Eskimos or sand to Arabs. By pre-screening the prospects, conversion is much easier.

The prospect generally doesn't see this step, as it's done long before the scammer meets the prospect. To counter this, simply don't be surprised when you got invited / solicited for sales pitch which seems to be exactly what you want. People already "know" you.

Probing Questions

Probing questions are pretty easy... Ask them what *do* they want. Due to pre-screening, you already have a decent idea on WHAT they want. However, there can be a little distance between what they say they want, vs. what they will settle for now. And asking questions will clarify that. 

If the presentation is pretty much a monologue, then the salesperson will be asking rhetorical questions, like "Are you looking for financial security in an insecure world?" "Are you looking toward better health?" then answer them him- or herself, "the answer is ________!"    And scammer will watch the reactions and see if s/he needs to change the speech. 

The salesperson will almost always frame the question so the answer is "yes". By answering things in the affirmative, prospect will have influenced him- or herself to answer "yes" later. 

The prospect should remain neutral for this part, not only to deny the presenter any clues on how to proceed, but to remain neutral mentally rather than "psyched up", in order to evaluate facts rather than emotions.

The Tease

The tease require a bit of mystery, and a commitment from the prospect to find out more. A "capture page" where the prospect watch a video and enter their info is such a tease if there's no details. The idea is to pique your interest, without telling you much. 

Tease works on relatively naive people who are not used to the various sales techniques, but not on veterans. Veterans will simply demand the information they need to make the decision, and will not waste time waiting for your "big reveal". 

The prospect should again, remain neutral when confronted with the tease. You are after facts, not teases with no solid info.

Scam Detector: What is "Cockroach Theory", and how does it apply to suspect schemes?

cockroach (Photo credit: TomSpinker)

Ever heard of the "cockroach theory"?

It's quite simple, actually. When you see one cockroach, there's probably a lot more hiding nearby.

When applied to investments and companies, it means when you see one problem, there's probably a lot more problems that you are not seeing. (And you should jump ship ASAP)

The theory is also applicable to potentially shady opportunities, actually. If you are smart enough to read the signs, and not ignore them.

Let's take one very obvious example: Zeek Rewards. They were shut down by the Feds in August 2012. But signs had been there for MONTHS that it was in trouble.

Zeekler, the auction, had been in operation since 2010 (as FSC auction and later Zeekler) without an auction license (required in North Carolina, their home state). They did not obtain an auction license until March 2012! But nobody checked. That may have been a roach but nobody saw it. Because everybody assumed it's all legal.

Did you know that Paul Burks, head of Zeek, was performing as "the singing magician" before he retired from performing and started MLMs instead? You know magic is just deception for entertainment, right? That may have been a roach but nobody saw it, because they've been distracted. 

In April 2012 Zeek Rewards suddenly banned a dozen or so European countries from participating, and gave several bogus reasons, one even blaming the US State Department Office of Foreign Asset Control (OFAC) uttered by the head Zeek Paul Burks himself. However, this was all proven to be lies only weeks later. Turns out they were both hit with thousands of stolen credit cards and by Denial of Service attacks. And their system can't handle it. The lie was pierced by BehindMLM within two weeks. Is that a cockroach you see? Did you miss it?  

By June 2012 they apparently got a local TV station to report on their "success", and even got the reporter to state that the North Carolina's Attorney General office had deemed the business legal. (Wonder whose palm they had to grease to have that happen?)  AG's office was so shocked, they demanded the video be taken down and the text changed on the TV station's website. Oh my, another roach! Did you miss this one too? Or is that "I see no roach (negativity)?"

Scam Psychology: The Illusion of Asymmetric Insight

Ever heard of "illusion of asymmetric insight"? No? Me neither, at least not until about a week ago, when I heard it on the "You're not so smart" podcast.

The premise is quite simple: let's say A and B have a difference of opinion on a certain issue. However, A thinks that he understands B's position better than B understands A's position. Sometimes, A thinks he understands B's position than B understands his own position.

The reverse is also true: A believe he knows his own position far better than any one ever could, certainly more than B's understanding of A's position, at least in A's own mind.

The problem is more often than not, this is an illusion, not reality.

Cover of Lord of the Flies, Educational Edition

Lord of the Flies

In 1954, a group of psychologists, posing as camp counselors, got 11 and 12-year old boys into a camp... on separate ends of the camp. The two groups don't even know each other exists as they arrived on separate buses via separate routes. As psychologists predicted, a social order quickly emerged, with leaders taking charge and the rest will serve the order in whatever roles needed. The two groups are nearly identical... except they are on separate ends of the camp.

So what happened when they met? Well, you can read the short account by David McRaney of "You are not so smart". Let's just say, one of the things each group obsessed on is trying to find differences between the two groups... and used that difference to "prove" (to themselves) that their own way is superior and the other group is inferior, even though such differences are trivial.

And the experiment almost got out of hand when... let's just say... knives were involved.

http://youarenotsosmart.com/2011/08/21/the-illusion-of-asymmetric-insight/

Duke University's Free Coursera Course on Critical Thinking: Take it!

Duke / Coursera has a free course on critical thinking. It can even lead to a certificate if you take a couple other classes, but by itself it's a great intro to critical thinking and proper arguments, as well as detect improper arguments being used on you.

https://class.coursera.org/thinkagain-003/lecture

Class is free, though they're already on Week 8, so you'll have a bit of catching up to do!

MLM Absurdities: Yes, Your Family Doctor Could Be Selling MLM stuff too

I was reading updates on Tracy Coenan's Sequence Inc. files when I came across a company called Metagenics, which seem to be nutritional supplements sold through doctor's offices (including doctor of chiropractics, i.e. chiropractors).

As most doctors are not nutritionists, one wonders if they are really qualified to do so... or is this just some sort of network marketing that had reached doctor's offices?

You'd think doctors, with proper health education (and I do mean M.D.s, not D.C's  doctor of chiropractics), would know enough to not do something questionable, but there's evidence of even HOSPITALS trying out devices based on pseudo-science.

But it's always possible they know something that we don't. So what can be found by Google?

A quick check revealed that they've been warned by the FDA to stop falsely advertising their product as "good for" (condition), and all there nutritonal supplements, normally classified as "food", had made sufficient claims to be considered DRUGS instead, and that's ILLEGAL!  (Drugs have MUCH more stringent testing criteria).

Here's the first two paragraphs:

WARNING LETTER

English: Logo of the FDA . (Photo credit: Wikipedia)

Dear Dr. Troup:

This is to advise you that the Food and Drug Administration (FDA) reviewed your website at the internet address www.metagenics.com in August 2013, and has determined that you take orders there for the products UltraClear®, UltraClear® Plus, UltraClear® Plus pH, UltraClear RENEW™, GI Sustain, UltraMeal® Plus, UltraMeal® Plus 360, UltraInflamX®, UltraInflamX® Plus 360, UltraGlycemX®, GlycemX™ 360, Ultracare for Kids®, BariatrX Essentials Bariatric Meal, and ArginCor. These products are labeled as “medical foods,” and the labeling claims on your website represent these products as medical foods for the dietary management of a variety of medical conditions.

Based on our review, we have determined that these products are misbranded under section 403(a)(1) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. § 343(a)(1)], because the labeling is false and misleading in that the products are labeled and marketed as medical foods but do not meet the statutory definition of a medical food in the Orphan Drug Act [21 U.S.C. § 360ee(b)(3)] or the criteria set forth in 21 CFR 101.9(j)(8). Furthermore, because these products are labeled and marketed as medical foods, but do not meet the statutory definition of a medical food, FDA has determined that these products are promoted for conditions that cause them to be drugs under section 201(g)(1)(B) of the Act [21 U.S.C. § 321(g)(1)(B)]. You can find the Act and its implementing regulations on FDA’s website at http://www.fda.gov.

Ouch, this is bad, having your product slapped by no less than the FDA for making irresponsible claims.  But wait, it gets worse:

MLM Dictionary: Omnitrition Case

The term "Omnitrition Case" refers to "Webster vs. Omnitrition" class action lawsuit that was argued in 9th Circuit Court (of Appeals) in 1996.

Explaining the Case

(editor's note: I am not a lawyer, so you can read the full case, and summaries by several MLM attorneys and MLM critics near the end.)

Omnitrition was started by Roger Daley, who had previously worked at Herbalife in the 1980's, and may have known Mark Hughes, founder of Herbalife, quite well. When Herbalife hit a rough patch, Daley went off on his own with a few close Herbalife fellow sellers and created OmniLife 4, a liquid supplement formula that became the foundation of Omnitrition International. Later, when Omnitrition hit a rough patch,  in the 1990's, he was served with multiple lawsuits, including the Webster vs. Omnitrition.

Shaun Webster and Robert Ligon worked for Omnitrition until they, in 1992, decided to sue Omnitrition International, a MLM selling vitamins and such supplements, charging it as a pyramid scheme. The case gained "class action' status, as it sought relief for all similar reps who had allegedly been cheated by Omnitrition. Webster also charged Omnitrition with violations of securities law as well as violations of California's "endless chain" (pyramid scheme) laws, as well as various other laws such as RICO (racketeering), wire and mail fraud, etc.

At the time, Omnitrition's comp plan has distributors (no multi-level commssion), and various ranks of supervisor. Lowest rank, "bronze supervisor" requires $2000 order in one month, or $1000 orders over two consecutive months. The order goes to Omnitrition.  (Omnitrition's comp plan is very similar to Herbalife's comp plan, because Daley used to work at Herbalife)

Omnitrition's defense is that it had followed Amway Safeguard Rules and thus it cannot be a pyramid scheme if Amway was ruled not a pyramid scheme by the FTC (per FTC vs. Amway).

District Court ruled in Omnitrition's favor in 1994, granting it a summary judgement ("Not pyramid scheme") and thus essentially dismissing the lawsuit. Webster appealed.

The 9th Circuit Court of Appeals reviewed the case in 1996 and found that the district court have ruled the summary judgement in error in not considering sufficient evidence. However, it had also ruled that some additional charges brought against Omnitrition's lawyers and such are not valid and the summary judgement issued by lower court for those are affirmed.

The Real Reasons Why Network Marketing Needs Reputation Management

It's interesting how the topics in this blog suggest themselves: why network marketing needs reputation management. It's not because there's a bunch of "meanies" out there... though there are. It's usually because they have some actions that looks shady, and people will point that out.

Recently, a company called BidForMyMeds was reviewed on BehindMLM. The company employed a whole slew of questionable conduct, including listing some other company's management as if it's their own, and implying a far tighter integration between the two companies than there actually is.  The truth is BidForMyMeds is a marketing company that markets BidRx through MLM. However, BidForMyMeds at many times implied that they are BidRX, and borrowed various BidRX media as if that is them.

So Oz / BehindMLM published the review with the questions, wondering if BidForMyMeds is really authorized to by BidRX as it is not behaving ethically. Within hours, Oz was sent a "cease and desist" email by BidForMyMeds' lawyer who demanded the review be taken down. Oz, who knows his rights, put the threat online instead, with even MORE questions and other information received, revealing that BidRX has multiple marketing partners, none of them pretended to be BidRX. And the MONTHLY fees ($7) that BidForMyMeds charged is almost 300% the cost charged elsewhere for BidRX ($2.50), and so on and so forth. AND if you pay even more ($17), you can benefit from recruiting other people who also pay the monthly fee.

That alone takes it into the potential pyramid scheme territory.

Then Kevin "The MLM Attorney" Thompson posted an entry on his blog about Cease and Desist.. cited Oz's reaction, then discussed when C&D should be used, and when it's an empty threat.

In the comments is a Mr. Jonathan Gilliam of Momentum Factor, touting their reputation defense can deal with "online Meanies".

...Our reputation defense team similarly serves
at the front end of a company's need to "do something" to combat online
Meanies. Lawsuits as you know are often just too distracting, involved and
expensive for some CEOs.
The good news is, companies CAN
defend themselves, often without the Meanie even knowing, via online
suppression strategies...

In other words, he just spam-commented a lawyer's blog with an ad for his firm. :)

And he basically claimed that he can "bury" negative comments through "suppression", which may or may not involve shill reviews. :)

But what's *really* surprising is what sort of people would employ Mr. Gilliam's firm...

MLM Dictionary: Pyramid scheme

A pyramid scheme is a type of financial fraud that usually disguises itself as a business, but the participants earn compensation by first paying into the system some sort of fee, in exchange of right to recruit additional participants and sell the product / service, and will be compensated primarily by the number of additional participants they recruit (who also pay the fee). Little if any of the compensation will be based on actual sale of the product or service.

The earliest pyramid schemes, and modern HYIP matrix schemes, are investment frauds, in that you pay in (buy a position), recruit others, then when enough people joined, you are "cycled out" and get the big payout. This has lead to much confusion in modern times where scammers insist on using the original definition of pyramid scheme and insist their business cannot possibly be a pyramid scheme (by the old definition).

In the US, pyramid scheme is defined by the Koscot Test.

Pyramid scheme is related to Ponzi scheme, but pyramid scheme requires participants to recruit in order to be compensated, whereas the Ponzi scheme do not require recruiting.  There are many other differences between pyramid scheme and Ponzi scheme.

Pyramid schemes are known by several names to law enforcement, including franchise fraud, chain referral / endless chain, matrix scheme, and pyramid selling.

Franchise Fraud 

Franchise fraud is mainly used by the US Federal Bureau of Investigations (FBI), it stated:

pyramid schemes — also referred to as franchise fraud or chain referral schemes — are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses

Basically, this sort of pyramid scheme sells the opportunity itself, rather than the products. Thus, it is a disguised pyramid scheme.

Note that franchises are governed by franchise laws, under the purview of the Federal Trade Commission (FTC), which also prosecutes pyramid schemes on the Federal level as consumer fraud.


Chain Referral / Endless Chain

In many US states, including California, "endless chain" is the same as pyramid scheme. The California Office of the Attorney General (OAG) writes:

Millions of Americans have lost money participating in pyramid schemes which are also known as "endless chains" - - because they cannot work unless the chain is endless and, of course, it cannot really be endless because at some point there are no more people willing to join the scheme.... An "endless chain" or an unlawful pyramid is a plan in which a person pays money or buys merchandise for the chance to receive money when additional participants are introduced into the scheme.

Chain referral scheme can also describe a fraudulent sales plan, where you order an item at the given price, but if you can make friends and family to also buy the same item, your price of the item will be reduced (possibly all the way up to free).  However, in reality, the item is vastly overpriced, and the demand for the item is vastly exaggerated. This was prosecuted many times by Postal Inspectors as mail fraud in the 1970's.

Please note that referral sales is ILLEGAL in the US, and if a company offers such a plan... It may be in legal trouble.

Scam Psychology: Why Scammers Use Testimonials, and Why You Should NOT Trust Positive Reviews

Why do advertisements almost seem to have testimonials? Because they do influence us.

Human beings are social creatures, and we do learn from each other, so when we hear testimonials, we pay attention. This is sometimes called 'social proof'. Some benefits from testimonials include:

• It builds trust
• It sound less sales-y
• It demonstrates the benefits of products/service

The problem happens when we do not apply "crap filter" to testimonials, and scammers start to seed the testimonials with fake entries. In fact, you can find people who will do fake testimonials for you for a mere $5.00 USD on Fiverr.com  Furthermore, in the modern world of information overload, people are less and less likely to fact-check or do "due diligence" on common stories.

Image via CrunchBase

It's estimated that in a few years, 20% of all reviews online (including testimonials) will be fake. The crowd-review websites such as Yelp, AngiesList, and so on who rely on testimonials and reviews are starting to combat this problem, and even government have started to notice such problems.

So you should NOT trust positive reviews, but seek to verify the claims.

And if you do find a sincere positive testimonial, it may STILL be "wrong"... in that the testimonial may be influenced by the five factors that result in a sincere but fake review.

Scam Absurdities: A Leopard Can't Change His Spots, A Scammer Can't Change His Ways

It is sometimes painfully obvious why would any one fall for a particular scheme, when all you need to do is look at the people involved in the scheme, and what were they doing before the scheme. Were they involved in scams? And if so, in what role? With power of Google and a few minutes on a computer, you can find a lot of information that can only save you from possible crooks.

Recently, TelexFree's "International Marketing Director" Steve Labriola released some sort of a video assuring there is no US investigation (that he knows about). About 3 minute in, there's this some sort of "assured revenue" thing:

In other words, you pay TelexFree, then you pay LifeRevs to do some work for you, and TelexFree will pay you big bucks. Pay in 15125, plus $924, and you get back 57200, and they even said it's "income claims", something that is very much verboten in the MLM industry.

But who runs LifeRevs? And this AdAssureLite? Turns out, it's related to Zeek Rewards ponzi.

MLM Mythbusting: Does Having a real product prove business is not a pyramid scheme?

One of the most often repeated myths spoken in the network marketing industry is "we have a product, therefore we are not a pyramid scheme". In fact, this position had apparently been adopted by Direct Selling Association itself. Here's one example:

Is this myth confirmed, plausible, or busted? Let's examine a few things:

• Is there an example (or more) where a proven pyramid scheme (closed by FTC or other authorities) have real, actual, non-woo products? 
• Does the definition of pyramid scheme precludes the existence of real non-woo products? 

Let's get started.

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

Source: http://www.theverge.com/2013/11/22/5133362/richard-branson-endorses-bitcoin-says-virgin-galactic-will-accept-the

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.

Source: http://www.theverge.com/2013/12/6/5181864/lamborghini-dealership-starts-accepting-bitcoin

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.

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
therefore
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.

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. 

MLM Absurdities: MLMers Encouraging College Kids to Drop Out and Do MLM Full-time... Crazy.

One of the most dangerous absurdities is the notion that MLM offers an even playing field, therefore you need NO education to succeed in MLM, and thus, college is not necessary and a complete waste of money (thus you should drop out). Plenty of people dropped out of college and went on to successful ventures.

This is often used by MLMs that concentrate on younger people, such as Vemma, with their Verve energy drink line, signing college kids and even some high school kids as their affiliates (formerly "brand partners").

We have to look at this myth in separate pieces.

• Does network marketing really offer a level playing field? 
• Can *any one* succeed in network marketing? Or is talent / education required?  
• Is College a waste of money? 
• Are the the successful college dropouts actually relevant to the premise? 

Does Network Marketing Really Offer a Level Playing Field for All? 

One of the often repeated myths is that NM is a level playing field, in that anybody can succeed. 

Frankly, that is absurd. The idea that you have an upline and s/he benefits from YOUR work should tell you this is NOT level at all. He got there first. 

Furthermore, there are a LOT of circumstantial evidence that the industry is plagued by insider advantage and cronyism... just like the "regular corporate America". 

Did you know that a mother-daughter team in Vemma, both "Ambassadors" (making 15000 a month in commissions) actually is related to the head motivational speaker for Vemma, and the speaker is a close friend of head of Vemma BK Boreyko and his parents? 

Did you know that a member of Herbalife's Board of directors has TWELVE family members and relatives among the top-tier "President's Team"?  

Network Marketing is not as level as they want you to think. 

Can any one succeed in network marketing?

I've had network marketing enthusiasts claim that the top income careers all require heavy education or extreme amount of physical talent, like doctors, engineers, sports stars, and so on... Except network marketing.  The claim is anybody can succeed in network marketing, and the playing field is even. 

At first glance, this sounds reasonable, as the top twenty income careers based on US Bureau of Labor Statistics are mostly medical and engineering careers. However, is it true that any one can succeed in network marketing? 

US Bureau of Labor Statistics 2010 "20 highest paying occupations, by median annual pay, 2010 census data"
The top entries are doctors, surgeons, engineers, lawyers, and very senior managers

The idea that you need no education to succeed in network marketing is actually quite ludicrous. At the minimum, you need to learn how to market. It is network MARKETING, after all. While some people have a talent for it, all people need some tests to assess their skills and add some remedial lessons for the areas they are lacking. In a Harvard Business Review blog entry, the author estimated that 70% of top salespeople have innate talent or natural instincts that give them an edge ins ales, while 30% had to learn to sell, having no such talent.   

It's safe to say that if you had not specialized in sales career before, you probably don't have much sales talent or instinct. Thus, let's assume that you have no such talent or instinct. What are your chances of 'success'?

According to the same author, given 100 people with no talent, 40% will fail, 40% will do average, and 20% will do above average, in a sales career.

Keep in mind that in network marketing, in almost every major MLM, "average" means making a lot less than 2000. This is the figure directly from Direct Selling Association (DSA). As of 2012...  15.9 million people sold 31.63 billion worth of stuff in the US.

Now if you do the math... 31630/15.9 = 1989.31 dollars... that's average RETAIL sold per person.

That's not profit. That's just retail sold. Profit would be less than half of that, perhaps a LOT LESS. That's less than $1000 PER YEAR PER PERSON.

Extrapolating from that 40/40/20... That means 40% of you will earn practically nothing. 40% of you will earn just a little (less than $90 a month), and maybe 20% of you will actually earn enough to call it a part-time job. And a tiny percentage of that 20% will really really earn a car or whatever.

Saying that you *can* succeed in network marketing without an education is like saying anyone born in the US of A can be president. While factually true, it is of no practical use. It's like saying any valid lottery ticket has a chance of winning. Duh!

The reality is you will have to spend time and money and effort to become a good salesperson... assuming you have the right personality traits to be one. And you will keep paying for seminars, meetings, training calls, workshops, and so on and so forth, just like any other education.

Also keep in mind that there are TWO colleges in the US that offers courses in network marketing.

New Years Resolution for Network Marketers (and Wannabes)

It's New Year's Eve, December 31st, 2013, and a New Year is almost upon us.

So I'd like to propose some new year's resolutions for the various network marketers and wannabes. Here are 7 simple items.

• I will not be hurried into making a decision I shall regret later. 
• I will not be swayed into making a decision after only hearing a one-sided presentation, no matter how good it sounds. 
• I will learn how promoters use psychological coercion on me and others so I can avoid such 
• I will not make bad arguments by using logical fallacies and irrelevant facts as that would only make me sound ignorant and stupid if I make such bad arguments. 
• I will fact-check and perform due diligence on claims I repeat. I shall remember 'Extraordinary claims require extraordinary evidence'. (Arthur C. Clarke)
• I will learn about pyramid schemes and Ponzi schemes from real sources, such as lawyers and scambusters, rather than people who don't know what they are talking about. 
• I will learn all I can about the career I an interested in, such as network marketing, even "negative" stuff that nobody seem to want to talk about because I don't want to be blind-sided by anything.  

All of these are for personal improvement, and none of them are very hard.

MLM Absurdities: Due Diligence is NOT Analysis Paralysis!

One of the more subtle reality inversion techniques used by scammers (and unethical sales people), and cloned by clueless MLM noobs, is misrepresenting "due diligence" as "analysis paralysis". 

Analysis paralysis usually refers to an organization attempting to analyze a certain proposed project or change and the effect it would have, but so much time and resource was spent on the analysis that the project never was actually adopted.  For an individual, it could be that s/he is attempting to reach a decision, but that decision has so many factors s/he was overwhelmed by combination of scope and interactions and end up making no decision at all.

However, a decision to "not participate because I clearly have no idea what I am getting into" is a decision, and reaching that conclusion is NOT analysis paralysis.

Yet many MLM veterans and noobs will mischaracterize their moment of commitment as "overcoming analysis paralysis". Here is one example from MLMBlonde(dot)com:

Or they may have been polite but also declined and you were crushed
SO you went into what I call "Analysis Paralysis".
You began to question if this could work for you. You start to analyze
your decision.
YOU FREEZE. You begin to think something may be WRONG with you
or you made a bad decision, after all, if those closest to you don't "GET
IT", how you possible speak to a stranger.
You sit back and think and think , and then you just NEVER
get up the nerve to move forward. You lose your excitement. You
just DO NOTHING. 

The problem is MLMblonde had NOT described analysis paralysis. She described "self-doubt paralysis", but slapped the "analysis paralysis" label on it. 

And she's not alone in doing so. Many MLM noobs seem to think any sort of doubt is analysis paralysis, even a full on analysis (i.e. "trust, but verify"). 

And due diligence is NOT doubt. 

Scam Psychology: The Problem of Willful Blindness, Recklessness, and Negligence

Horatio Nelson, origin of "willfully blind"?
 (Photo credit: Wikipedia)

In studying various reactions to criticism by MLM participants, it is interesting that so many of them are afflicted with "willful blindness", and it is a condition that can cause serious financial and legal problems.

The most popular example of "willful blindness" is an apocryphal story of Admiral Horatio Nelson in Battle of Copenhagen. When given a flag signal by a cautious fleet commander that Nelson may "withdraw at his discretion", and asked by a subordinate what shall he do, Nelson reported raised his spyglass to his blind eye (with an eye patch and all), then replied "I see no signal to withdraw", and continued the attack. The story was often told as if Nelson disobeyed a direct order, but the flag signal is "withdraw with commander's own discretion". This gave us the expression "turning a blind eye", and the term "Nelsonian Knowledge".

In modern times, "willful blindness" is defined as a situation where a participant INTENTIONALLY puts him- or herself in a situation where s/he cannot / does not know the facts that would make him/her liable for civil or criminal acts s/he had participated in. And it is a legal term. For example, traffic mules (those who smuggle contraband across borders) asked to be blindfolded during loading process so s/he does not know what's being trafficked. And thus, s/he want to argue they are innocent victims and thus should not be counted as accessory to trafficking.

The court had NOT accepted this defense, and has taken the position that willful blindness is merely legal sophistry, if it can be proven that the participant knows that such facts exist, and has taken deliberate steps to isolate him-/herself from knowing such facts. This case was even taken up by the Supreme Court back in 2011, when it ruled a file sharing service cannot disclaim responsibility for illegal acts of its users just because it doesn't want to see what's being shared, i.e. willfully blind to the copyright violations.

This is different from recklessness and negligence. Recklessness is knowing such risks of damaging facts do it any way, and negligence is "should have know such risks, but did not".

To illustrate with an example, using the smuggler mule as example:

recklessness: I know it's illegal, I'll take my chances

negligence: I should have known it's illegal, but I honestly thought those were nothing harmful...

willful blindness: I have no idea what they put in my luggage. I never asked. Don't need to know.

And many MLMers suffer from all three: recklessness, negligence, and willful blindness.