THE BIZOP NEWS

Here is an interesting song, about the 419 con criminals from Nigeria,

ectoplasmosis » “I Go Chop Your Dollar”: Anthem of the Nigerian 419 Spammer

The music video for ‘I Go Chop Your Dollar’ by Nikem Owoh, an ‘extremely popular’ song in Africa that describes in verse after plaintive verse the trials and travails of the Nigerian 419 / Advance Fee fraudster, who sends spam after spam to ungrateful whites as his own personal attack on the White Hegemony that has kept the poor African spammer down in the gutter for so very long.

Lyrics after the jump. Everybody! Sing along!

I’ve been through hard times
Even though I’m very smart.
I’ve had a fair share of poverty.
But now, I’ve found the right business.
419 is not stealing,
It’s just a game
And everybody can play a part.
If anybody is so stupid, my brother,
I will scam him.
The national airport, I own it.
Even the nation stadium, I built it.
The president is my sister’s brother.

You are the big fool,
I am the master,
My dear white friend
I will eat your dollar,
I will take your money and disappear.
419 is just a game
You are the loser,
I am the winner.
The refinery is mine,
I will award you the contract.
Just give me some money for paperwork
You are the big fool,
I am the master…
It’s I that’s the master!

If a white man commits a crime
He’s hailed as being smart.
But when a black man does the same
People reach for his throat, want to kill him dead.
But white men are greedy.
They’re greedy,
I insist, they’re greedy!
They are greedy
And I know them too well!
That’s why when they fall into my trap
I love to show them fire!

This is song is more likely to resonate than my old saw about there isn't something for nothing. But note the typical con criminal justification -greedy individuals can be trapped liked wild animals and there is nothing wrong with that. Don't be a greedy animal, trust and then verify without a confirmation bias.

Update, thanks to a tag by Michael Davis Thomas,

Nigerian comedian and actor Nkem Owoh was one of the 111 suspected 419 scammers arrested in Amsterdam recently as part of a seven month investigation, dubbed Operation Apollo...

Owoh became internationally known for his song "I Go Chop Your Dollar", the anthem for 419 scammers ("Oyinbo man I go chop your dollar, I go take your money and disappear 419 is just a game, you are the loser I am the winner", full lyrics here), which was banned in Nigeria after many complaints.

Posted by michael webster at 9:32 AM | Permalink | Comments (0) | TrackBacks (0)

There was some interesting reactions to the The Wall Street Journal's piece, on July 6th, about Texas Suing Mannatech Over Claims

Kim Klaver picked up on the piece, observing that

"This is not about the quality of the products. Nor is it about what the products may have done for people. This is about people making promises. Claims. The curse of our industry.

Where is a company with good products, where reps do not make claims and promises to sell their products?"

I am assuming that what she means is that are there network marketing companies with honest representatives who don't exaggerate the value of the product. But read the comments at site.

Tracy Coenen also picked up on the WSJ piece, pointing out that

"Also contained in the suit is a mention of the site glycoscience.com, which supposedly provides information on glyconutrients and attempts to present “scientific studies” that would appear to legitimize Mannatech’s products. The suit says that most of the “studies” on the site are actually papers prepared by Mannatech employees or affiliates, and have not been published anywhere or peer reviewed."

"Mr. Caster would not comment beyond the company's statement. Dr. McDaniel said customers were responsible for the health claims. The company, he said, doesn't "condone or promote. But… when people get results when everything else has failed, they think from everything they've seen that they've been treated and been cured. Over and over again."

Posted by michael webster at 7:34 PM | Permalink | Comments (0) | TrackBacks (0)

The criminal's "approach was always the same, according to the detectives. He would move in to town, join a church or temple with a large congregation... Newcomers always attract attention and stimulate curiosity, and Sam's seemingly endless energy, unwavering sincerity, and positive outlook led many parishioners to seek him out for friendship ... In so many words, Sam explained that he was once a high flying investment banker who realized the shallowness of his chosen career only after his young wife and infant daughter died in a horrible car accident. His resulting bout with depression, alcohol, and pills finally led him to understand that Creator had some thing more in store for his life. Sam quit his job and moved out of his family penthouse apartment to fulfill his newly found purpose. Because he continued to do well with his investments, he didn't have to work but could dedicate his life to helping others, and give back to community in the name and spirit of his lost family."

The story story had this type of ending. AHN | Federal Jury Convicts A Kansas City Man For Committing $1. 5 Million In Fraud Against A Church And Individuals | May 11, 2007

Why are churches and temples so prone to affinity fraud? And what can they do about it? There are three factors, or principles of decision making, which make it easy to concoct an affinity fraud. First, although the congregation has to be large to maximize the chances of finding the rich suckers, there are only a few individuals who typically have to be conned -those individuals who provide the leadership to the congregation. Although they provide spiritual leadership, they are unlikely also to have the necessary practical skepticism needed for the investment industry - a tankful of large sharks would be hard to find. Enough people in congregation will defer their decision making to what the "most spiritual" leader is recommending.

A painful reminder of this group myopia can be gleaned from reading the various books on Alan Eagleson's involvement with the NHL Hockey Player's association. Eagleson only had to obtain the friendship of several of the top NHL players in order to control the entire group. Mean spirited and vicious, Eagleson would challenge any attack on his authority by demanding to know what the "f**k you ever did in the league"?

What is the solution to this problem, the problem of affinity fraud? Again, as with any attack of a predator the goal must be to minimize losses --you will never eliminate the loss because psychopath predators are superior at using people solely as means to an end. Churches and temples remain at risk because after the predator strikes, they have no early warning system to alert other similarly placed churches or temples. Without such a system, churches and temples remain at risk.

I will also make a prediction - for the next ten years, the most unreported ponzi criminal frauds will take place in mosques across United States and Canada. The pitch will be for some brand new sharia approved investment vehicle, complete with vague references to empowering Muslims throughout the world. Most of these won't be reported, but many mosque leaders will end up driving brand new hummers."

Posted by michael webster at 8:52 AM | Permalink | Comments (0) | TrackBacks (0)

We are a story telling people. Stories encapsulate a large amount of information and pass it on efficiently, more efficiently than mere logical or rational justification can. Our ancestors sitting around on the savanna plain did not have the luxury to engage in deep machinations of logic and so devised stories, parables or allegories as the method for passing on social wisdom. Rational decision making is incomplete because it ignores the power of stories, myths or parables as method of delivering important information.

In fact, one recent author, Christopher Booker, the Seven Basic Plots, claims that there are really only seven basic wisdom stories.

As neatly summarized over at onlyagame,

"Booker believes we tell stories as a mechanism of passing a model for life from generation to generation; that in essence, all stories are archetypal family dramas, and that their core message is that we must resist selfish evil (Booker doesn't use this term, preferring 'ego-centred', according to his Jungian framework). I find this a lovely belief system, although it will likely be quite unpalatable to those who idolise testability." (my emphasis)

Are the above paragraphs ture, just a story, false but important, or something else? I don't know. Did story telling develop in tandem with the ability to count in different ways? Did story telling evolve from stock stories to variants in which it wasn't possible to tell what the plot was before the final paragraphs ended? Is rational decision making just a hard skill to learn in the same way being a concert pianist is hard? Again, I don't know. I don't know because I have no idea what evidence would count against the hypothesis being true, stories being more efficient than rational decision making.

But I do know that there is a tremendous amount of poor reasoning about correlations because we don't employ on a regular basis a simple analysis, what academics would refer to as a two by two covariation table.

When we ask whether A's are related to B's there are two distinct questions that we could be asking. First, in a world full of A's, what is the ratio of B's to non B's? Second, in a world full of B's what is the ratio of A's to non A's? These are distinct questions.

Let's take a concrete example. Let A = statements I believe, and B = statements that are true. Consider only 20 statements. We can diagram the relation as follows:

Now, how do we tell if I am an oracle? The usual focus is on the first cell, how many of my beliefs are true. Surely if A is high, then I am an oracle. My beliefs are true. But that is not true. Suppose that C = 3, D = 5, while A = 7 and B = 5. Then in the world only of true statements, I believe A/A+C or 7/10 and incorrectly disbelieve 3/10. Similarly, in a world only of my beliefs, A/A+B or 7/12 of my beliefs are true, while 5/12 are false. So in this case, I am pretty good at detecting a true statement, but almost half of my beliefs are false. That is if something is true, there is a 70% chance I will believe it, but if I believe something, it only has about a 60% chance of being true.

We don't have to limit the table to belief versus truth. There are a number of other interesting dichotomies, attractiveness of belief versus truth, social consistency versus truth. Basically, we want to use these tables when we are dealing with the interaction between the way the world is reported and the way the world is.

Now what makes using these tables hard is that we don't focus on all four cells, and usually completely ignore D, something explored in great detail by Thomas Gilovich in "How We Know What Isn't So." In discussing why bad interpersonal strategies persist, Gilovich considers someone who thinks that is necessary to push at all costs. We have a table like the following, using the dichotomy be pushy versus personal gain.

It isn't that I hate stories; I read them to my three year children. As a result of reading the cat book, my young son now says he has three cats, black, pink and purple that he has to feed. But let's leave the stories to children and move on to evidence based business making decisions.

Posted by michael webster at 8:37 AM | Permalink | Comments (0) | TrackBacks (0)

By coincidence, I purchased 60 Minutes' book "Con Men" just a day before the tawdry ending of one of the largest pyramid U.S. based pyramid scheme International Heritage and Stan Van Etten.

As announced yesterday,

"United States Attorney George E. B. Holding announced that Stanley H. Van Etten, 45, of Windemere, Florida, has been sentenced to ten years in federal prison for bilking thousands of investors out of over $165 million dollars. On Tuesday, November 21, 2006, United States District Judge Terrence W. Boyle ordered Van Etten to serve two 60-month terms in prison and to make restitution in the amount of $14,339,820 to the victims of the now defunct Mayflower Venture Capital Fund III."

"The prosecution involved two schemes. The first scheme was the multi-level marketing company International Heritage (IHI), involving over 150,000 individuals and gross receipts of over $150,000,000 at its peak. The second scheme, Mayflower Fund III, a Raleigh-based capital venture fund was supposed to invest in the BuildNet IPO. It was discovered that 120 investors were defrauded of over $15,000,000 when Mayflower funds were used for other purposes without the investors knowledge. United States Attorney Holding said of the convictions, "Stanley Van Etten's Raleigh-based pyramid scheme, International Heritage, and his other frauds have finally come to an end with a 10-year sentence in federal prison. Federal regulators previously called International Heritage one of the biggest pyramid schemes they'd ever seen. Today's sentence is a just end for the man who, with the help of his co-conspirators, built his pyramid and investment schemes on the backs of over 150,000 victims."

Stan Van Etten was prominently covered in "Con Men", a term which should be replaced by "Con Criminal". I had planned on doing some research about him, just prior to reading the SEC's news release.

Although Van Etten had reached a settlement agreement in the civil action by the SEC, in which he was ordered, " barred from association with any broker or dealer" for two years, the criminal action dragged on for nearly ten years; here is the original SEC complaint against International Heritage and Stan Van Etten.

Now, why does a pyramid scheme attract participants? Evidence against the viability of this scheme seemed overwhelming, according to this list from the http://www.cageyconsumer.com/ihilinks.html. So how in the face of this overwhelming evidence, could Van Etten and his chums continue to recruit?

I believe that the answer lies in Leon Festinger's concept of cognitive dissonance. Roughly, we can expect social proof -usually in the form of cheering, emotional testimonial revivals - to overwhelm an individual's gut feeling of wrongness, when:

1. The individual has committed irrevocable actions consistent with his/her belief in the pyramid scheme. The more irrevocable, the deeper the commitment.
2. The individual perceives and is aware of real world events which disconfirm his/her belief. This induces uncertainty in the individual.
3. The individuals in the scheme deal with the dissonance produced by real world events by trying to rally more people to their side, since as Cialdini put it, "The principle of social proof says: The greater the number of people who find any idea correct, the more the idea will be correct." If the facts on the ground cannot be ignored, then look to facts in the air.

If Cialdini is correct, then we may be able to contain the viral outbreak of cancerous pyramid schemes, not by educating the irrational consumer, but by breaking down their irrevocable actions which lead to commitment. How can we do this?

Noah Goldstein, www.influenceatwork.com, has an intriguing observation. In discussing advertising, Noah notes that cigarette advertising was banned from the airwaves about 30 years ago, a ban enthusiastically supported by the cigarette companies. Why?

Prior to the ban, "The Federal Communications Commission had enacted the "fairness doctrine," which ordered radio stations and television networks that broadcasted controversial messages of public importance to also provide free air time to those with opposing views. Anti-tobacco groups capitalized on this ruling by initiating an ad campaign that provided viewers with effective counterarguments that refuted each purported benefit of cigarettes "demonstrated" in Big Tobacco's commercials. The anti-tobacco commercials' potency was further enhanced by the ads' inclusion of mnemonic links to easily recognizable characters, settings, themes, and narrations that were appearing in cigarette ads at the time. The counter-advertisements proved to be enormously successful; per capita cigarette consumption dropped almost 10 percent in the following three years, most of which has been attributed to the counter-ads."

One clever example cited is the counter ad in which, "one Marlboro Man-type saying to another, "Bob, I've got emphysema." The next time individuals see a real life ad for Marlboros, they are more likely to automatically conjure up the counterargument and therefore become more resistant to the cigarette ad's message."

To effectively combat pyramid schemes we need more "Poison Parasite" advertising. We do not need educate individuals about the mathematics of pyramid schemes because although the math is correct, math challenged consumers are not problem. Unchecked deceit is the problem.

Posted by michael webster at 12:25 PM | Permalink | Comments (0) | TrackBacks (0)

It is common to believe that our generation, has a monopoly of all the wisdom that is worth acquiring. But one of the great advances in social networking is the potential for rapid delivery of wisdom lost, from previous generations. Thomas Bayes was a 18th century philosopher who published small mathematical treatise on conditional probability. The practical import of his theorem was divined earlier by David Hume, who realized that when we are presented with testimonials that seem extraordinary we should focus on the possibility that the person testifying to this rare event is mistaken. That is, we should compare in our minds the chances that a "miracle" happened with the chances that the person was honestly mistaken about what they saw or reported.

In the late 1970's Amos Tversky and Daniel Kahneman rediscovered various interesting failures of individuals to use Bayes theorem - which they called the "Base Rate" problem, which might be thought of as the unrecorded chances of a miracle happening.. Gigerenzer & Hoffrage, in the mid 90's, challenged Tversky and Kahneman's assertion that individuals did not pay attention to the base rate, by recasting some their experiments and coming to different conclusions.

Over at the Science and Law Blog, the importance of Bayes theorem is stated this way.

"The importance of understanding base rates and Bayes' Theorem cannot be overstressed, particularly in the case of many types of medical and scientific testimony. The importance of base rates is seen in the following problem: A disease occurs in 1% of the population, and a test has been developed which has an 80% accuracy rate (i.e., if you have the disease, there is a 80% chance the test will pick it up), and a 9.6% false positive rate (i.e., if you don't have the disease, there is a 9.6% chance of getting a positive result anyway). Sam tests positive for the disease. What is the probability that Sam has the disease?

The general inclination is perhaps to say 90.4%, because the false positive rate is 9.6%. This conclusion, however, is wrong because it does not account for the rarity of the disease in the general population. (As doctors are often trained to think, if you hear hoofbeats, think horses, not zebras.) Using Bayes' Theorem--and here I will spare the reader the mathematical details--one can show that the probability that Sam has the disease is 7.8%. Intuitively, this is because given the rarity of the disease, it is more likely that Sam is actually one of the false positives than one of the people with the disease. Short of being a math genius, however, crunching the numbers is extremely difficult to do intuitively, and merely plugging values into Bayes' formula has a certain mystical quality that might make jurors (or judges) skeptical.

Psychological research by Gigerenzer & Hoffrage, however, suggests that people find analyzing the problem from a frequentist perspective far easier than from the probabilistic perspective shown above. We can see this by transforming the example above to series of frequencies: A disease afflicts 10 out of 1000 people in the population. For people with the disease, 8 out of 10 will have positive test results. For people without the disease, the test will still (erroneously) yield a positive result 95 out of 990 times. Sam tests positive for the disease. What is the probability that Sam has the disease?

The answer follows far more simply. Out of a population of 1000 people, 8+95=103 people will test positive. And of these 103 people, only 8 actually have the disease, so the probability that Sam has the disease is 8/103 = 7.8%."

For the mathematically annoyed, it is helpful to look at the following chart.

There are 1000 people, which explains the lower right corner. Since only 1% of the population gets the disease, then the last column must be 10 and 990. Finally, since the test is only 80% accurate, then the left to right diagonal must be 80% of last column. So if the test is positive, column 1, we have 103 individuals of which only 8 have the disease, 7.8% -which is more than 1%, but considerably lower than 80%.

The moral of the story is this: if a rare event (10/1000) is reported by a very reliable witness (80/100), the chances that the rare event happened is closer to its base rate (10/1000) than the accuracy of the reliable witness (80/100).

Technorati Tags: bayes theorem, thomas bayes, daniel kahneman, conditional probability, david hume, wisdom, social networking, amos tversky, treatise, philosopher, monopoly, miracle

Posted by michael webster at 11:45 AM | Permalink | Comments (0) | TrackBacks (0)

Business Opportunities and Job Placement Scams and How they Work. A business opportunities criminal demands a large amount of capital, $19,900 is the new minimum number, up from $9,900 in the late 90's, for ATMs, vending machines, internet kiosks, or other self serve kiosks. The FTC notes that:

"The very amount of capital requested can bolster the illusion that the business opportunity is a legitimate investment. Victims of these scams often believe they are investing in highly developed businesses. In fact, scam artists take the consumers' investment as profits and commissions, and provide them unprofitable business plans in return. The injuries to consumers can be devastating, not only in terms of the dollars they lose, but also in the time they invest in unprofitable enterprises. For example, one victim in a recent FTC case estimates that he spent $75,000 in an attempt to make such a business opportunity profitable."

But, once you have decided, because of the money that you have previously spent, that this is a real business, you will continue to try to fool your gut by spending more money. The brain believes that the continued investment in the scam will soothe the rumblings in the gut - which by the way is screaming "run away, run away."

Technorati Tags: internet kiosks, ftc case, business opportunity, business opportunities, vending machines, scams, consumers, unprofitable business, business plans, scam artists, job placement, atms, bolster, illusion, legitimate, invest

Posted by michael webster at 9:22 AM | Permalink | Comments (0) | TrackBacks (0)

Over the many years I have counselled business opportunities distributors, I have been struck by the number of smart and successful people who were ripped off by a biz op scammer. How could smart people do stupid things? One of the things that smart and successful people don't have plenty of is time.

Typically, they are rushed and harried. But does this lead them into a hasty decision?

No.

Are they too smart not to check up throughly on the distributorship?

No.

Are they greedy?

No.

Was the opportunity too good to be true?

No.

Well, then what was the reason for their error?

Technorati Tags: smart people, successful people, confirmation bias, biz op, part time work, scammer, distributorship, hasty, greedy, ripped, framing, business opportunities, resolve, stupid, aware

Continue reading "Why Smart People do Stupid Things" »

Posted by michael webster at 4:37 PM | Permalink | Comments (0) | TrackBacks (0)

Almost 25 years ago, J. Edward Russo and Paul J.H. Schoemaker wrote "Decision Traps: The Ten Barriers to Brilliant Decision-Making and How to Overcome Them". I believe that the book is out of print, but there are plenty of used book sellers who have it. Two of their decision traps are particularly prevalent amongst business opportunities or distributorship purchasers: a) overconfidence,"failing to collect key factual information because you are too confident in your assumptions and opinions., b) shortsighted shortcuts, relying inappropriately on "rules of thumb" such as implicitly trysting the most readily available information or anchoring too much on convenient facts."

Here is how these two decision traps end up cost purchaser a great deal of money. A person will attend a trade show and see an admittedly neat idea: it may be a new internet kiosk or atms located in casinos. The individual will self generate a great deal of excitement about the opportunity, forgetting that over optimism is only required for implementing a well researched out decision,and is no substitute for careful, skeptical and through examination. Being over confident can be a good thing, but only after you have been more than skeptical, asked all the right disconfirming questions, and identified and removed the anchors in your assumptions.

Given this, does the the new FTC rule help, hinder, or is neutral with respect to purchasers of business opportunities?

Technorati Tags: traps, used book sellers, internet kiosk, admittedly, rules of thumb, neat idea, distributorship, anchoring, atms, purchaser, prevalent, russo, shortcuts, assumptions, business opportunities, casinos, excitement, confident, brilliant

Continue reading "Decision Traps and Due Diligence" »

Posted by michael webster at 4:02 PM | Permalink | Comments (0) | TrackBacks (0)

We have all experienced the giddy rush of adrenaline when buying that must have item, only to have our expectations cruelly dashed several days later when using the damn thing. To forestall overall loss of confidence in the marketplace, consumer laws generally provide a 2 or 3 day cooling off period, a time to reflect away from the marketplace pressures. We need to be protected from our base urges.

In Ontario, there is even a 10 day cooling off period for purchasers of new condominiums, no doubt a testimony to the persuasiveness of real estate sales agents.

The FTC has proposed a cooling off period for the purchase of a business opportunity; seven days before any money is sent to the operator, or operator's affiliates, the purchaser must receive the operator's business opportunity disclosure document. After the seven days are up, the transaction can proceed.

Is seven days enough time for the purchaser to conduct due diligence? What we know is that the purchaser will not review the disclosure document except to find evidence that confirms his or her belief in the efficacy of the system and will downgrade any evidence to the contrary as not being "reliable". Once a person has committed to the purchase, objective information will be systemically treated as confirming the "wisdom" of the purchase. This phenomena is well studied in business takeovers: the winner generally pays too high a price. All that lovely confirming evidence for "synergy" was too attractive to ignore.

What would be a better solution for the FTC to adopt? We have to make a distinction between what is needed for due diligence and the need for a cooling off period. What is needed for the marketplace to perform its magic is public information, at a minimum. The new business opportunity disclosure documents have to be public, much in the same way that the franchise disclosure documents are public at the California Corporations Site. Second, the cooling off period should not prevent a person from engaging in the opportunity, or preventing the transaction from occurring. Rather, the cooling off period should a period in which the purchaser can evaluate if the opportunity is worthwhile on a risk free basis - 90 days with a guaranteed return of 75% of the purchase price and inventory if it is not working out. Finally, require the business opportunity seller to deposit 75% of the distributor fee in a trust account for 90 days, only to be put in the business opportunity seller's general account after the 90 trial period. In consumer world, it is called a charge back.

Technorati Tags: cooling off period, purchaser, business opportunity, real estate sales, due diligence, disclosure document, marketplace, ftc

Posted by michael webster at 8:03 AM | Permalink | Comments (0) | TrackBacks (0)

Mr. Minkow's thoughts on critical thinking are worth reviewing, I used to give a special lecture in Professor Paul Thagard's Critical Thinking at the University of Waterloo. Mr. Minkow identifies three factors an individual could use in making an investment decision, which makes the individual a target. First, the individual relies upon the testimony or authority of a close friend or relative, who appears to making a substantial amount of money. Second, the individual cannot know very much about actual market conditions or have access to detailed information about the market. Third, there must be "blind and unsubstantiated" acceptance that the returns are significantly higher than the "current, underachieving returns" of the victim.

What would be the easiest due diligence step, if you wanted to filter out frauds and scams?

Technorati Tags: investment fraud, zzzz best, university of waterloo, target, barry minkow, critical thinking, us senate, senate special committee, investment decision, investigative journalism, paul thagard, discovery institute, professor paul, frauds, accountability, terrific

Continue reading "Due Diligence for Seniors" »

Posted by michael webster at 10:31 AM | Permalink | Comments (0) | TrackBacks (0)

People generally evaluate positive evidence for their favourite hypothesis favourably, and negative evidence is given less weight. But people tend to rational consistency, so that negative evidence tends to be scrutinized more in order to dispel it. This was illustrated by a study in which the effectiveness of capital punishment as a determent was given to people, who were known to be either supporters or opponents of capital punishment. For half the participants, they read studies showing the effectiveness of capital punishment within a particular state, while the opposing argument used statistics between states. For example, Study A would show that before capital punishment, State X would have a murder rate of Y, while after capital punishment the rate would drop to Z, less than Y. The opposing study B, would review an number of states to see whether Study A held up or not. That information was given to 1/2 of the participants. The other half would get similar information but with the roles of Study A and B reversed. "Thus, for both proponents and opponents of capital punishment, half of them had their expectations supported by one type of study and opposed by the other, and the other half were exposed to the opposite pattern of data."

What was the net result of exposing individuals to a balance of information? Gilovich reports that "exposure to a mixed body of evidence made both sides even more convinced of the fundamental soundness of their beliefs." Instead of simply ignoring unfavourable evidence, "participants cognitively transformed it into evidence that was consider relatively uniformative and could be assigned little weight." (my emphasis)

What does this have to do with gas pills?

Technorati Tags: capital punishment, negative evidence, charming book, state, murder rate, hypothesis, rational, bias, consistency

Continue reading "Capital Punishment and Gas Pills" »

Posted by michael webster at 2:57 PM | Permalink | Comments (2) | TrackBacks (0)

"Two persons have agreed to settle Federal Trade Commission charges for their roles in a fraudulent business opportunity scheme targeted in early 2005 as part of "Project Biz Opp Flop," a crackdown on violations of the FTC's Franchise Rule, which requires that prospective franchisees must be given a full disclosure document about business opportunities they are offered, and Section 5(a) of the FTC Act, which prohibits unfair and deceptive acts or practices affecting commerce."

These two individuals scammed consumers of a total of over $31 million according to the FTC. As part of the settlement, the two individuals agreed to

"judgments representing the amounts of consumer injury attributed to the two defendants - more than $30.7 million for Rinaldo and more than $491,000 for Holden."

Geez, no jail time but 100% restitution for consumers. Pretty good, eh? No, not really.

Continue reading "Business Opportunities Scam - the FTC to the rescue?" »

Posted by michael webster at 7:12 PM | Permalink | Comments (1) | TrackBacks (0)

"Persuading someone that his judgment turns on a misperception that he cannot see, and that neutral third parties cannot see, will be vastly more difficult than pointing out a logical slip which becomes undeniable once it is pointed out."

For example, it is very typical of investors in what the FTC calls business opportunities frauds to have performed the following "due diligence": check with the local BBB, and possibly order a Dun and Bradstreet Report. The first step is always commented on with pride by the disappointed investor. "How could I have possibly known more than the BBB?"

What has happened in these cases is that the investor has fallen afoul of a complex Wason effect. A bad BBB report does mean that the company in question has reputational problems; but a silent BBB report is not a recommendation of the company. Interestingly, my clients refuse to accept at face value what the BBB websites all state: "We don't recommend companies": The FTC disclosure package for franchises says a similar thing about franchises. Both are routinely ignored.

How the potential investor dilute the Wason Effect and avoid being a litigation client?

Continue reading "Wason Effect and Due Diligence" »

Posted by michael webster at 10:14 AM | Permalink | Comments (0) | TrackBacks (0)

"They wanted a regulator to review the quality of disclosure given to franchisees, an inexpensive system to resolve disputes, rules to govern contractual relationships and penalties for breaking franchise law.

"We support this bill, but on the clear understanding that this is only the first step and not the last step towards franchise legislation," Municipal Affairs Minister John Gerretsen said in the Legislature May 17, 2000.

Toronto franchise lawyer Ben Hanuka, chairman of the joint subcommittee on franchising for the Ontario Bar Association, says he thinks it's about time the Liberals brought forward new legislation.

Some franchisors are not giving adequate disclosure, and franchisees who have already invested a life's savings at the age of 40 or 50 are having to spend $50,000 to $100,000 to enforce their rights under franchise law to rescind their contracts and recover payments. In some cases, the franchisor will not have the money to refund payments, or to compensate the franchisee for his legal costs to win a judgment.

"When a franchisee files a notice of rescission, the franchisor says: `Sue me'," Hanuka said. "If the franchisor is bad enough not to give you a disclosure document to begin with, most likely he will not refund the money,'' as we have seen with 3 for 1 Pizza & Wings (Canada) Inc. and Pizza One Group Inc.

The Toronto Star reported this week that former franchisees are waiting to collect about $1.1 million in court awards, plus legal costs and interest, from Reza (Anthony) Solhi of Richmond Hill, his former 3 for 1 Pizza franchise chain and related companies.

Meanwhile, Solhi and his family are facing a new string of lawsuits and default judgments and a police investigation at Pizza One, the first of three new franchise operations they have marketed from offices in Thornhill since 2004."

Would a regulator have helped Solhi and his family?

Continue reading "Franchise Regulator in Ontario" »

Posted by michael webster at 6:52 PM | Permalink | Comments (0) | TrackBacks (2)

The SEC's "alert" in my opinion is pointless, and in some cases will do more harm than good. Business opportunities frauds will use the alert as "proof" the that SEC has said that autosurf programs are legal. This will become common knowledge around net: "first there were bad programs, but now the SEC regulates autosurf programs and they are all legal."

It is also pointless in its generality. Here is the SEC's advice:

* If it sounds too good to be true, it probably is. Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you'll get substantially more could be highly risky --- and that means you might lose money.

* Check out the company before you invest. Contact the secretary of state where the company is incorporated to find out whether the company is a corporation in good standing. Also call your state securities regulator to see whether the company, its officers, or the promoters of the opportunity have a history of complaints or fraud. If a supposedly upright business lists only a P.O. box, you'll want to do a lot of work before sending your money!

* Steer Clear of Testimonials. Watch out if the company's promotional materials, contain "testimonials" from supposedly satisfied customers, especially if all the "testimonials" are full of praise.

* "Guaranteed returns" aren't. Every investment carries some degree of risk, and the level of risk typically correlates with the return you can expect to receive. Low risk generally means low yields, and high yields typically involve high risk. If your money is perfectly safe, you'll most likely get a low return. High returns represent potential rewards for folks who are willing to take big risks. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are "guaranteed" or "can't miss." Don't believe it.

As academic philosophers like to say, everything the SEC says which is true doesn't matter, and what does matter the SEC is wrong about.

Continue reading "12Daily Investigation V and the SEC Warning" »

Posted by michael webster at 7:36 AM | Permalink | Comments (0) | TrackBacks (1)

The two authors are professors at Communication Arts and Science Program at Calvin College, who mission is:

The CAS Department seeks to understand, engage, and renew human communication from a Reformed Christian perspective.

Although the book they were reviewing is over 30 years old, and the review over 15 years old, copycats infect the net. There is a similar looking book being pitched at amazon.com. Most amusingly, some fellow sponsored a link of this book to this site. The authors might have been analyzing the techinques being used at the website. Read their review and then visit the website.

But the article is also important because it highlights exactly what is wrong with how public regulators deal with business opportunties fraud.

Continue reading "Linguistic Analysis of Get Rich Quick Pitches" »

Posted by michael webster at 4:33 PM | Permalink | Comments (0) | TrackBacks (0)

The history of failed Ponzi schemes is similar to the failure of business opportunities frauds. After the fraud is discovered, or there is an announcement of an official nvestigation, investors all of a sudden become super slueths in their due diligence. I have seen this phenomena time and time again: after a investor say in USA Beverages becomes convinced that the business oportunity is a fraud or scam, they find it very easy to do the proper due diligence! They know all about the FTC and the franchise rule, and have even learned how to google "vending fraud".

Why do people know how to research and discover that a business opportunity is a scam or fraud after they have been defrauded but not before? When investing $20,000 or more, why would a person who obviously can perform due diligence not do so? If you know how to perform due diligence after the fact, what prevents you from accessing that knowledge when it is most needed?

Continue reading "The Discovery of a Fraud or Scam and Post Facto Due Diligence" »

Posted by michael webster at 9:49 AM | Permalink | Comments (0) | TrackBacks (0)

The internet has seen the return of an old news scam: the paid press release. Anyone can release their own press release on prweb.com. PRWEB makes the following disclaimer:

"PR WEB does not warrant or guarantee 1) the accuracy, adequacy, quality, currentness, validity, completeness, or suitability of any Information for any purpose; 2) that the Information will not contain adult-oriented material, or material which some individuals may deem objectionable; or 3) that the functions or services performed by PR WEB will be uninterrupted or error-free or that defects in PR WEB will be corrected."

In conjunction with websites designed only for Google's adsense programs, PR WEB allows business opportunities promoters to promote silly ideas like BioPerformance with impunity. Note that the Hispanic website does not carry the disclaimer on the PR WEB site. Do you wonder why?

Posted by michael webster at 9:50 PM | Permalink | Comments (6) | TrackBacks (0)

Interestingly, Super FuelMax's misrepresentations were identified by the FTC sometime in 2001. In particular,

"A certified EPA laboratory reports an amazing 27% in increased mileage and 42% reduction in harmful pollutants. Since the Super FuelMAX is used by trucking fleets and transportation departments around the world, it's exactly what I need to reduce my fuel costs today without worrying about how high they'll raise oil prices in the Middle East tomorrow."

was shown to be false. It took the FTC until November, 2003 to shut down this business opportunities scam. But by then there was a completely different set of defendants, all seemingly unrelated to the original sellers. The new defendants used the internet instead of catalogue ads in order to get the message out.

Why does the ad, from 2001, work?

Continue reading "Super FuelMax Revisited" »

Posted by michael webster at 5:19 PM | Permalink | Comments (0) | TrackBacks (0)

"Executives are leaving their jobs and buying franchises because they think it's safer than starting their own business. They need to think again", says new article in Fortune Magazine.

The article goes on to point that individuals are overwhelmed by the information in the UFOC disclosure documents, yet do not hire compentent a franchisee attorney to review it.

Is this the entire story: smart executives don't pay for competent professional advice?

Continue reading "Risks of Franchising" »

Posted by michael webster at 2:19 PM | Permalink | Comments (0)

Why is so hard to avoid fraud in buying a business opportunity or a franchise?

I have spent over six years interviewing several hundred people in the U.S.A. and Canada who have lost their entire investment when purchasing a business opportunity. The investments range from payphones, vending machines, and various distributorships/franchises.

There are common flaws to their due diligence.

For example, I always ask if they contacted their local BBB or some other BBB. Over 85% proudly state that this was part of their "due diligence".

They report that since the BBB didn't have anything bad on the company, then they felt comfortable with investing. I have explained elsewhere why this is a poor approach, contacting the BBB is unlikely to detect fraud.

Continue reading "Due Diligence: Why it fails." »

Posted by michael webster at 3:33 AM | Permalink