Scam Tactic: "Don't knock it until you try it" slogan is very bad advice

One of the most common arguments for income schemes is "don't knock it until you try it", i.e. "it paid me so it works". This is actually a VERY flawed argument. Recently I came across the Skeptoid episode: don't try it until you knock it. While that's about general skepticism, it works very well for financial scam debunking as well, as it destroys all the variations of the bad argument.

Don't Knock It Until You Try It?  Nah. 

Personal experience is "sample size of one". It is noise. It subject to sunk cost fallacy, subjective validation, self-superiority bias, confirmation bias, and all the other cognitive biases. Mankind invented science and scientific process to counteract such biases.  Personal observation is subjective, and therefore biased information. Advocating one to "try it" simply proves nothing.

Yet MLMers love to fly this particular argument. They value personal experience over all others, the exactly opposite of scientific process trying to filter out bad data. It is basically fully faith-based.

I was skeptical until I tried it

A true skeptic would know NOT to try it due to all the reason discussed above. The proper way to evaluate something is through scientific and statistical process from a large sample set, not through a single subjective personal experience.

Falling for a dare / lure to "try it" just makes you gullible, not skeptical. Yet MLMers selling nutritional supplements or unproven "treatments" love to fly this particular argument.  (also see "What's the harm" below)

I know it works, because it worked for me

So somehow, you're God, and what you experienced is the universal truth for everybody, eh? It's just your subjective experience, based on your circumstances at the time, and based on all your PRIOR memory and experiences. If any one else had different life history, experienced the same thing at a different time, under different circumstances, or any combination of such, the experience will be different.

What you experienced is only good for yourself. It is not a data point. It is anecdote.

Where do these MLMers get their "facts"? Certainly not from this reality.

In attempting to engage with some MLMers regarding their unbridled enthusiasm, I've since found out they seem to be armed with a lot of... nonsense from somewhere. They surely don't seem to have just... invented it. But where did they get such nonsense that they perceive as "facts"?

Here are a random sample of  several "not-facts" thrown out for sake of argument by these MLM supporters, all the while chanting "Worre pwn'ed Ramsey!" in the Youtube comments of a Dave Ramsey show where Ramsey provided some realistic outlook on MLM.

It makes one wonder, do they just make up "facts" as they go along?


S1. "MLM works for thousands of people around the world"

S2. "Amway Japan is the biggest company there and has been trading for over 55 years."

A1. I never said anything about "MLM doesn't work", but that's ignore that for the moment, as he did. He put up a strawman, then cited a non-sensical fact in support. "Thousands of people around world" found MLM to be working...

DSA estimates that there are 20.2 million (per 2015 fact sheet, DSA.org) in the US alone, and probably 100 million around the world, in MLM. If only "thousands" found it works, that would suggest TENS OF MILLIONS found it did not work, doesn't it?

Factualness rating: D, true, but not placed in context. A system that works for a tiny minority cannot be considered a working system.

A2. Even a modicum of logic should tell you this is impossible. The biggest corporations in Japan, the haibatsus are hundreds of billions big.  Toyota's revenue from 2013 was 224 BILLION dollars.  This guy seriously thinks Amway in Japan can beat 224 billion? How old did he thinks Amway is any way? Amway Wiki states clearly that Amway Japan opened in 1979. That makes it 37 years old, certainly quite a bit off from 55. And its revenue, as per Amway was 1.1 billion USD (2006) again, AmwayWiki.

Factualness rating: F, completely false in every facet

Eric Worre is wrong about Dave Ramsey: or, why MLM advocates only knows truthiness, not truth

If you are in the US, you probably heard of Dave Ramsey, who had been giving financial advice for decades as a radio call-in show (i.e. he goes live on air and lets normal people call him and he gives answers immediately) since 1992. He does not fully endorse multilevel marketing, but instead, advocates caution and realistic outlook, something that is inherently anti-faith, but based on evidence and reality. 

On August 10th, 2016, at about the 7:48 point, a "Sarah from Cincinnati Ohio" called in and asked about joining "It Works!" MLM.  Ramsey urged caution and be absolutely aware what she wants to do going in. His message was "... You will be in the recruiting business. There is nothing really inherently bad or evil about it, Your real job is training salespeople, in a high turnover environment, because most of them don't make it... I have friends that makes 7 figures in that business... But for every one of those, I know a thousand (chuckles) that didn't last 90 days, with six boxes of makeup in the garage they are still paying off on credit card... Is this really your calling if you had lost everything and starting from scratch? ... You ought to really thinking about what you're getting into. But if you want to give it a run, I will support you on it... " 

The MLM sphere went nuts as they reacted with venom. So-called MLM 'leaders' started posting videos 'Dave Ramsey is Wrong'. Here's a typical reaction from Eric Worre of networkmarketingpro.com:

Dave (Ramsey) went on to pour cold water all over the hopes and dreams of this young woman, and pigeon holed the Network Marketing profession into his very limited understanding of what it is all about.

So what exactly is Eric Worre mad about? He claims that Ramsey made multiple mistakes. 

• Risk is minimal in MLM, w/ the buyback policies in place
• It's not recruiting, it''s expanding your network
• Failure? So what? 90% of traditional businesses fail
• Bothering friends? They''re doing it wrong

Mr. Worre's final message is: basically "why don''t you just be honest and admit you hate network marketing? Innuendo doesn't suit you". 

Go look in a mirror, Mr. Worre. Innuendo does not suit you either. 

Let's examine the factors at play... who''s really wrong or right? But with a skeptical attitude and fact-checking. 

Just how risky is MLM?

Eric Worre claims that Dave Ramsey exaggerated the risk involved in MLM, and most people don''t have "6 boxes of makeup sitting in the garage getting paid off on credit card".  He claims that with the 90% buyback policy in place in most major MLMs (esp. DSA members), financial exposure is minimal.

The problem with Mr. Worre's statement is there are NO stats available from the MLMs that such policies have been utilized. Yes, DSA members do have at least a 90% buyback policy for at least six months, i.e. if you want to return all the stuff you haven''t sold within 6 months, you get 90% back. Some even go as far as a year. However, there are various caveats not discussed. 

Is there any stats available on how often such policies had been invoked? How many hoops do people have to jump through to get such returns processed? 

Nope. Nada. Zero. Zilch. Nothing. 

In fact, it's been documented in Mary Kay that any attempts to quit an return inventory would trigger an "intervention" from your upline and other people in your group (because she would be notified as any returns means her commission from your purchases will be clawed back) who will want to meet with you then shame and guilt you into staying in past the refund deadline, or to delay you in order to ensure you will get as minimal refund as possible. 

Mary Kay sales directors and recruiters are notorious for using misinformation or unethical tactics to stop consultants from returning inventory. This includes lying about the program or otherwise delaying the consultant’s return so that less product can be returned under the “last 12 months” rule. -- PinkTruth.com

It's hard to imagine the same does not happen in other MLMs as well. 

There are other tricks that can be done as well, like refresh products at less than 12 month cycles. That way when you try to return product it had already been phased out and thus cannot be returned. 

Sure there's a policy on the books, but a policy that's never used / enforced is no policy at all. 

Mr. Worre's hypothetical "white elephant" MLM only exists in his imagination. 

Cognitive Bias: Status Quo Bias

Status quo bias goes by many names, but to put it simply, "if it works why change anything"   Any change form the current situation is judged to be unacceptable.

Scam victims often suffer from status quo bias, esp. after they learned the scheme they've latched onto or recruited into isn't on as firm legal and financial footing as they were lead to believe. Even when presented with all the evidence that they are in a scam, they will keep saying "I don't know if XXX is a scam. Time will tell." They don't want anything to change, even when more viable alternative such as attempt to withdraw from the scheme, report fraud to the police, and so on seem to be more reliable method of dealing with the fraud.

Status quo bias is often mixed up with other biases, such as loss aversion, sunk cost fallacy, longevity (appeal to age fallacy), endowment effect, regret avoidance, and more.

Why Do We Have Status Quo Bias

Behavioral Economists Kahneman and Tversky published a paper back in 1982 that found people feel greater regret for bad outcomes that result from new actions taken, than for bad consequences that are the consequences of inaction. In other words, if doing something is bad, and not doing anything is also bad, people tend to do nothing. One possible explanation is people can then blame circumstances (I didn't change anything, circumstances changed) rather than take responsibility for their own choices. This is a fallacy, of course, since choice to do nothing is still a choice.

How Status Quo Bias interacts with other biases

Endowment effect is also known as "divestiture aversion" in behavioral economics. Basically, people ascribe more value to things merely because they own them. It's also related to "mere ownership effect" in social psychology.  It can be described simply as "once you have it, you will want to keep it than give it up".

Sunk Cost fallacy is related, in that "once you started on a course of action, you justify your continual involvement by claiming you already spent effort and resources (sunk costs) and you cannot let it go to waste when it seems more prudent to cut the losses and change course."

As an example of endowment effect, people will often pay more to retain something they own, than to obtain something they do not own, even when there is no reason for attachment, and even when the object was obtained merely minutes ago.

Dan Ariely and Ziv Carmon did a test on hypothetical selling price (willingness to accept) NCAA Final Four tournament tickets. They found that the ratio of WTA (willingness to accept) vs WTP (willingness to pay) is 14 to 1. In other words, those who have the ticket want 14 times higher the price those that don't have the tickets are willing to pay.

SEC Halts Traffic Monsoon Ponzi Scheme, Reasserts that "Autosurf Ponzis" are illegal

The internet buzz on July 28th 2016 was the press release that SEC has halted the $207 Million Ponzi scheme called Traffic Monsoon.

Traffic Monsoon was operated by Charles Scoville, as a combination "internet traffic exchange and pay-per-click program" that solicited money from all over the world. It accepted money from at least 162000 investors primarily in US, India, and Russia by claiming to be a "highly successful advertising company", when in reality, more than 99% of the revenue was paid into the system by new investors, making it a classic Ponzi scheme.  Traffic Monsoon LLC is a Utah company. Scoville is believed to be in Dubai. SEC's motion to have an temporary freeze and receiver to take over the company has been granted.

Traffic Monsoon's primary product (which accounted for 99.6% of all revenue) is the "Adpack". At $50 each, purchaser is supposed to get 20 clicks on the banner (either they provide, or they can use one provided by Traffic Monsoon) and 1000 visitors from the traffic exchange, as well as "share in Traffic Monsoon's profit". In reality, TM was never able to fulfill the visitor promise. By its own counter, it can only provide about 1/10th of the visitors. In reality, TM operated as a $50 in, $55 out HYIP.

Those that track scams, such as the MLMSkeptic, would notice that this is structurally IDENTICAL to 12DailyPro (2005-2006) or Ad Surf Daily (2006-2008), both were also prosecuted as autosurf ponzi schemes.

What's more interesting is Charles Scoville himself has been observed operating several predecessors to Traffic Monsoon. There's TVIBUX, and there's AdHitsProfits, both are slight variations on the same ideas. Neither, however, made it big to hundreds of millions of dollars.

But first, let's explain what an autosurf is, and what an investment autosurf.

What is an autosurf? 

Autosurf is a type of Internet website traffic exchagne that automatically rotate advertised websites in the web browser.  Imagine leaving a browser window open to constantly display banners from all the other websites, which changes periodically. Each "view" earns you a "credit" which allows your site's banner some display time in other people's browser window.

Autosurf can operate as a "ponzi scheme" even if no money changes hands, if overall credits earned is in excess of total pageviews delivered, thus ensuring that there will always be credits left over.

Autosurf that involve money are known as Investment autosurfs.

OPINION: With HLF consenting to reforms, and Burks of ZeekRewards Guilty, justice prevailed, but work is never done

July 2016 has been a busy month.

On July 15, 2016, news was released that Herbalife has reached a settlement with the Federal Trade Commission where HLF agreed to a LONG list of reforms and pay a $200 million fine / reimbursement to the victims.

Then on July 22, 2016 Federal Court in North Carolina passed down the verdict... a Federal jury has convicted Paul Burks of ZeekRewards of all four counts of fraud and conspiracy to commit fraud.

MLMSkeptic has long criticized both schemes, both here on the blog, and on BehindMLM.com.

MLMSkeptic had analyzed the various comments, retorts, criticisms, and cheers of Ackman's epic short of Herbalife at end of 2012 and the subsequent PR war, and pointed out problems with such arguments.  Most of the critics of Ackman then believed that HLF was "too big to fail", or perhaps "not egregious enough to die, maybe fined".

So it is with much amusement and facepalming when "journalists" loudly proclaimed "FTC says Herbalife not a pyramid", when FTC said no such thing.

How did CNNMoney got it so wrong?
FTC never said HLF is not a pyramid scheme... 

You are welcome to search the actual FTC complaint and stipulation agreed to by HLF. "Pyramid scheme" was nowhere in the documents. Furthermore, when questioned by the press at the news conference, FTC Chairwoman Edith Ramirez was asked at least FOUR SEPARATE TIMES whether HLF is a pyramid scheme, and Ramirez repeatedly dodged the question (probably as a part of the settlement).

Q: I know that you’re not going to put any labels on this, but it seems to me if we look at the BurnLounge case, that while this complaint does not use the words “pyramid scheme”, would you agree that a prima facie case of a pyramid scheme is alleged with the allegations within the complaint?

A:  Again, I will leave it up to you to draw that conclusion. Our focus in this complaint was in addressing the core issues

When asked outright about HLF's own announcement... That FTC have determined HLF to be NOT a pyramid scheme...

Q: Did you review the language in their (Herbalife’s) press-release that sort of affirmatively said that they were not declared to be a pyramid scheme? Because they’re sort of having that as an outright headline.

A: I do not agree with that statement. The word “pyramid” does not appear in our complaint that is true, but um again the core facts that we’ve alleged, that we consider to be problematic with their compensation structure, are set forth in detail in our complaint. And again, I will leave it to readers to draw their own conclusions. But that they were determined to not be a pyramid… that would be inaccurate.

And indeed, checking the HLF website no longer shows any sort of language that claimed "FTC determined HLF not pyramid scheme"...

So you know which way the CNNMoney article was written... They were written from HLF's press release, not the FTC press release. It is... biased.  Shame, CNN. Shame on you for lazy reporting.

I am not listing all the changes that FTC managed to squeeze out of HLF. You can read the documents linked above yourself. It is a LONG list of reforms, and it will likely become a new standard much as Amway's settlement with FTC created the modern MLM back in 1979.  And that pretty much tells you the fact: HLF was a scam that required reforms so it is no longer operating as a scam. Any one who argues otherwise is simply denying reality.

I may do my own analysis later on these changes, but HLF is no longer the same company. They believe they can continue to thrive (or else they would not agreed to these changes), but we shall see.

Then we come to Zeek Rewards, and Paul Burks.

How to spot shady opportunities V2.0: a 10 item checklist

NOTE: This was a rewritten version of the guide back in 2014.

World is full of Shady Opportunities that want you to put in money with promises of payback. Here are ten signs of shady schemes. Obviously a scheme probably would not have all ten, but the more signs you spot, the more likely it will be a scam.

1. Clickbait-y Slogan
2. Misinterpreted results
3. Conflict of interest(s)
4. Correlation vs. Causation
5. Weasel words
6. Bad Samples
7. (Lack of) Control Group
8. Unverifiable testimonial and Improper disclosure
9. Cherrypicked and unreplicable results
10. Paid or fake media coverage and reviews

Clickbait-y Slogan

EVERYBODY hates clickbaits... They are headlines written with intentional hyperbole and tease to get you to tease. Shady opportunities are the same. Does the scheme make incredulous claims such as "On our team everyone makes money"? Or they somehow "Pay One time $289 and get a minimum of $1040 back Guaranteed!" perhaps?  Before you say "nobody is stupid enough to make this sort of stupid claims"... think again:

Screen cap of Google Search results, yes, someone promised and guaranteed that
$289 will magically grow to $1040 and more. It's obviously clickbait.

As Carl Sagan said before, "extraordinary claim requires extraordinary evidence".  If they made such extraordinary claim, then they should supply the extraordinary evidence to support their claim. And since there are so many ILLEGAL ways of making money... Making money in itself is no proof. 

It doesn't matter if the claims are repeated by the people you trust. They could have been duped and/or brainwashed. If they didn't ask for extraordinary evidence and is convinced of such, then you should not trust their judgement, esp. when they are in no position to evaluate such. 

Misinterpreted Results

We are all affected by confirmation bias to one extent or another. If we hear some evidence, we are going to interpret them based on your experiences, while someone else may see the same data and interpret them very separately. Here's another example:

Monty comic / Is it going to be McCain or Obama?  (old joke on confirmation bias)

The sales pitch is designed to say "just enough" so you think it applies to you, and NOT tell you that parts that "this may not apply to you"... so you can misinterpret the results to be relevant.

Your mindset affects how you interpret the results, and willful blindness, Dunning-Kruger effect, and self-serving bias will lead you down the wrong path. 

Conflict(s) of interest

Most MLM companies in the "lotions and potions business" (nutritional supplements and cosmetics) employ scientists to carry out and publish research... But remember, those scientists may have conflict of interest, and if they did not disclose so, that is a huge ethical violation, as research can be misrepresented for personal or financial gain.

The worst example of which is (former doctor) Darryl M. See, who previously was a researcher at UC Irvine. He wrote a paper touting a Mannatech (MLM) product that he claimed has proven results in his study, and got it published in pretty famous American medical journal on nutrition. However, he never disclosed that 1) he had resigned from UC Irvine months before publication to pursue a career endorsing Mannatech (and was paid thousand per day for speaking gigs), 2) his wife had been a Mannatech rep for years, and 3) he made dozens of audio tapes sold at Mannatech conventions and seminars touting Mannatech products  4) His father was a personal friend of the journal's publisher.

When the news broke, UC Irvine had NO RECORD of any such study had occurred, but Mannatech's president already announced such to its legion of reps. In the end, Mannatech sued See, who jumped to a different company, before eventually forced to give up his medical license due to multiple medical ethics violations.

If someone suggests MLM as a way to solve your financial needs, you need to consider... Are they really doing it because they think it's the right thing for you to make some money... or is it because THEY, by recruiting you, will make some money off of you joining?

Stay skeptical of any and all claims, esp. when it is done with the ultimate aim to recruit you. 

Correlation vs. Causation

When two things happen together, it does NOT mean one caused the other, despite how much you feel one *must* have caused the other.

XKCD... Did cell phone cause cancer... or did cancer cause cell phones? 

Don't get the joke? Following is a 100% true graph...

Is there relation between Autism and Organic Food? They correlate to the third decimal point!?!?!

Yep, that's right, Organic food sales correlate with autism over 10 year period. Real data. But of course there's no causation... Yet that's the point: just because two things happen together doesn't mean one caused the other. It likely to be a mere coincidence.

Yet many MLMers want you to believe that their nutritional supplement made them healthier, their magic rub took away their pain, their magic juice / tea / coffee took away their diabetes, and so on, because those effects "only" appeared when they started using those stuff.

For those of you who watch Stephen Colbert, this is related to the difference between the truth... and truthiness. Or as Colbert himself puts it:

Truthiness is 'What I say is right, and [nothing] anyone else says could possibly be true.' It's not only that I feel it to be true, but that I feel it to be true. There's not only an emotional quality, but there's a selfish quality.

If you BELIEVE it's causation, you'll never accept it's merely correlation. If you believe your nutritional supplements made you feel better, or that special widget increased your car's mileage by 15%, you'll never believe accept that the supplement's merely placebo effect, and the widget is relying on your lighter foot as you FEEL less need to speed and get better mileage. You believe truthiness (There is an effect and I caused it!) instead of the truth (It's just correlation and coincidence).

Correlation is NOT causation (until proven otherwise).