How Ponzi Schemes disguise themselves

Ponzi in 1920 (Photo credit: Wikipedia)

Ponzi schemes have plagued human existence for nearly 100 years, and it proliferated ever since due to better communications. They have managed to survive due to disguises they adopted thus avoiding detection until it's too late for the victims.

Just in April 2012, the self-proclaimed "youngest black CEO in publicly traded company", Ephren Taylor III, was charged by SEC as peddling a ponzi scheme to black churches and black investors.

And who can forget Bernard Madoff's "largest Ponzi in US history", involving 170 BILLION dollars over 20+ years.

Every day you hear about even more Ponzis, from small ones (a couple guys got cheated out of a few hundred thousand) to big ones like Alan Stanford who may have bribed an entire island.

What makes Ponzi schemes so resistent to detection?

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Cognitive bias: the "anecdotal" fallacy

Kobe Bryant subs out vs the Washington Wizards (Photo credit: Wikipedia)
If he endorsed a car, does the
car perform any better? No! 

MLMers are very fond of the "anecdotal fallacy", where they use either personal experience, or a single (or a few) instance(s) to "prove" that their "opportunity" is great.

Very often, this is used in conjunction with the "it paid me" argument, as testimonials. In other instances, it's to "prove" the prowess of whatever product or service the MLM is pushing. For example:

This product really works! I have been taking it for a month and I feel much better! I lost 20 pounds and my allergies are gone! I recommend this to all my friends! 

Not an actual comment, but you have all read or heard things like that. You probably see it on TV or hear it on radio every day. It is a normal propaganda technique.

The person advertising the item should not change the value of the item. If Kobe Bryant (NBA basketball star) or any other professional sports star (except race car drivers) is endorsing a car, it does not make it perform any better than without his endorsement.

(NOTE: This is DIFFERENT from "authority", where an expert like Kobe Bryant endorse a pair of basketball shoes,  he would be considered an expert on such shoes so his claim would count more. We will discuss "authority" or "expert testimony" later)

Same with a business opportunity. Just because one person say it's great doesn't mean it's great for EVERYBODY. There is no proof that you can replicate their "success", or their success is not an exception to the rule. You need a far larger sample size than "one" or "several" to prove anything. There can be a LOT of factors that affect the outcome.

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.

"I still believe", or the "true believer syndrome"

Cover of The Psychic Mafia
Psychics are believed even after
they admit they were fully
fake. True believers will
ignore facts to continue
to believe. 

Someone who have their loved one recruited into a scam asked, how is it that this scam has such total control over his loved one, so much so that the loved one, even when confronted with evidence that it's a total scam, refuse to accept the truth?

There is an explanation, but there is no solution.

In the book "The Psychic Mafia" (1976) by M. Lamar Keene, a supposed psychic medium named "Raoul", who had many believers, openly admitted to being a complete hoax and fraud. However, many people persist in believing that this psychic is genuine and created various excuses for that statement, like "he was pressured into it" and so on.

The point is proven when James Randi, famous magician and skeptic, in cooperation with an Australia news program, staged a hoax in 1988, where an actor named Jose Alvarez was to "channel" a 2000 year old spirit named "Carlos" in front of live audience, then the entire performance was revealed to be a staged hoax. There was no Carlos. However, many in the audience were not dissuaded.

Randi remarked:

no amount of evidence, no matter how good it is or how much there is of it, is ever going to convince the true believer to the contrary

The "so is everything else" variant of "tu quoque" fallacy

A case of Tu quoque: "By Jove, what extraordinary headgear you women do wear!"—ironic reference in Punch (Photo credit: Wikipedia)

One of the general "defense" used MLMers to defend their opportunity is the "tu quoque", or "You too!" fallacy. I call it "so is everything else" argument. This is best illustrated by an example.

A: BizX is a ponzi because of ____, _____, and _____. 

B: But so is Social Security! Insurance! Banking System! Federal Reserve! (Everything else!)

Really, that's a COMMON defense. Here's one actual example:

[Defending Zeekrewards which may be a Ponzi scheme] B. For those who think that money is coming from the investors….. it is!! So does money you borrow from the bank. You deposit your money into bank, bank holds federal minimum in bank vault and/or the fed… the rest well they make money by giving it to someone else for more money… sound familiar?? 

This is bogus because it doesn't deny that Zeekrewards may be a Ponzi. Instead, it is trying to argue that Ponzi scheme is all around us (and thus, not really a big deal). It is arguing something completely irrelevant. It's considered a "red herring".

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.

Analysis of Wazzub May Announcement: fallacies and propaganda

Previously a post here in "A MLM Skeptic" highlighted Wazzub's "May 2012 announcement" as a prime example of "bandwagon fallacy" as it was used no less than FOUR TIMES in that single announcement.  It is also full of other logical fallacies, omission of truth, and other problem as well. We will go through the announcement with a fine-toothed comb and see how much real info is there and how much propaganda, by applying a little skepticism.

Full screenshots will be taken to prove that the words were not taken out of context.

There are no less than EIGHT problems in their announcement, IN ADDITION to the four bandwagon fallacies we've identified earlier.