THE BIZOP NEWS

Roy Coooper, the AG of North Carolina announced that his office has shut down Mortgage Assistance of Carolinas, Inc. Mortgage Assistance is alleged to have preyed upon consumers whose mortgages were in default. Mortgage Assistance claimed that for an upfront fee it would negotiate with the consumer's bank and prevent the foreclosure. The AG's suit alleges that Mortgage Assistance obtain the list of consumers from reviewing the Court Documents, and that Mortgage Assistance simply pocketed the upfront fee without providing any services.

The AG's press release ends with some tips about how to avoid these type of scams. In particular, I want to focus on, a common element of in advance fee scams, the AG's advice that up-front payments for foreclosure assistance is not legal in North Carolina. The trouble with this law is that whilte it makes enforcement easy, it is at the expense of protecting consumers. Very few distraught consumers facing foreclosure are going to quibble about paying in advance for services - indeed it would strike them as odd, given their obvious credit problems, that anyone would take their case on for only a promised payment. Like the FTC Franchising Rule, this law is designed to maked enforcement easy whether or not the consumer is protected. It also is unlikley that anyone wish to provide these services would enter the marketplace under these conditions.

Technorati Tags: mortgage assistance, advance fee scams, foreclosure assistance, consumers, north carolina, upfront, distraught, court documents, negotiate, press release

Posted by michael webster at 6:43 AM | Permalink | Comments (0) | TrackBacks (0)

Over at the Neuroeconomics blog, they ask are we bad forecasters of loss? In the economic literature, loss aversion is described as turning down risks or gambles with large chance of loss, but with a positive expected value. For example, consider wagering $50 on a bet that returns $200 30% of the time and 70% of the time nothing. Even though the bet has an expected value of $60, which is greater than $50, most people will not play this bet. What is the basis for risk aversion?

Here is Neuroeconomics' conclusion:

Predications of emotional impact weigh heavily on decisions. In fact, people avoid risk even when faced with the prospect of large gain, predicting loss will hurt them much more than an equal gain will please them. If that is true, this phenomenon (termed loss aversion) is simply a rational product of accurate affective forecasting. Currently, research seems split on this question. Studies have indicated that loss induces more intense neural activity, indicating that our forecasting may be valid. However, behavioral economics generally proposes that we are bad forecasters, and studies show that we consistently overestimate the intensity of emotion from life tragedy.

In a new study, participants effectively minimized impact of loss after a game of luck using various coping mechanisms, such as dissonance reduction, self-affirmation, motivated reasoning, and positive illusions. Researchers found that "there was no evidence that losing actually had a greater emotional impact than winning," showing we are indeed poor loss forecasters".

Why is this relevant to the purchasers of franchises, business opportunities, and other income earning schemes that turn out to be frauds that bring about financial losses?

Well, this group of individuals provides a serious counter-example to the rosy thesis that after a loss, "we can minimize the impact with various coping mechanisms". Fraud is devastating to individuals, it goes to the root of their conception of society. A fraud exposes society as being comprised of indifferent regulators, poor laws, and predatory jackals which roam free. (Not to mention inefficient lawyers.) There is simply no coping with this type of loss when it also reveals a barbaric society.

Technorati Tags: loss aversion, risk aversion, bet, expected value, rational product, emotional impact, economic literature, gambles, wagering, forecasting, phenomenon, prospect, conclusion

Posted by michael webster at 7:21 AM | Permalink | Comments (0) | TrackBacks (0)

Translated version of http://www.oag.state.ny.us/press/2003/dec/sp/dec12b_03.html

" Attorney General Eliot Spitzer today issued a consumer warning about a foreign lottery scam preying upon New Yorkers with false promises of enormous winnings.

Numerous consumers have contacted Spitzer’s office about El Gordo Lottery from Madrid, Spain. Recipients of the lottery mailing and telemarketing scam report that they are informed by the "International Lotto Commission" that they’ve won hundreds of thousands of dollars in its lottery.

Consumers are then given various factitious reasons for sending money in advance of receiving their lottery winnings, including insurance or administrative costs, taxes and fees.

Other offers require that individuals provide personal and other banking information before the award is issued."

Damn, and I was all set retire the other day when I received my official announcement that I had won the Spanish Lottery.

Just read this:

"Due to impossibility to reach you, your award certificate has been deposited
with Seguridad Sansa S.A. registered to your file claim number. Please
forward your claim reference numbers to them because a payment bond has been
placed on your award, you are thereby advise to keep this award secret from
public notice until your claim has been confirmed and price remitted to your
account, this is part of our security protocol to all participant."

They couldn't reach me, but knew my email. Must be a European thing.

Posted by michael webster at 10:42 AM | Permalink | Comments (0) | TrackBacks (0)

On one of Kim Klaver's multi level marketing blog there is a series of podcasts talking about the customization of scripts in order to assist a seller into making more sales of the product that they are distributing. Although the podcasts cannot by their nature "give away" any secret compliance techniques, mainly because Cialdini has published most of them, there are a number of interesting insights which are valuable as due diligence tips when purchasing a business opportunity. I want to focus on one of them: the use of regret.

In podcast one, there is an exchange between Ms. Klaver and Ms. Medlock, a distributor for an weight loss product. Ms. Medlock apparently lost a great deal of weight using this program and appears to be genuinely enamoured of the product. But Ms. Medlock was having difficulty selling this great product to her customers. Ms. Klaver made a number of suggestions to Ms. Medlock about the words, or compliance techniques.

As I said, the one that interested me, because of its obvious misuse in business opportunities frauds, was this: Ms. Klaver admonished Ms. Medlock not use the phrase "this product will help you" because the implied promise is not lived up to and the general public is wise to this. So the response to this skepticism is to say instead, "if don't know if it will help, but what if it does?"

This reframing does work. We know that if a decision problem is framed with avoiding regret as the goal, individuals seek more risk to recover the status quo ante, than they would otherwise. So by framing the buy question as not what will you gain, but rather what you might lose if you don't make the purchase, the individual is focussed regret. And regret is a great motivator.

Technorati Tags: multi level marketing, due diligence, genuinely, podcasts, podcast, weight loss product, apparently, kim klaver, cialdini, business opportunity, customization, insights, scripts, blog

Posted by michael webster at 8:40 AM | Permalink | Comments (0) | TrackBacks (0)

A month ago, Amanda Cantrell, a CNNMoney.com staff writer, had a thoughtful piece on the difficulties in recovering assets from a fraud, in this case Kirk Wright's hedge fund fraud. She listed all of the standard difficulites, including trying to enforce a U.S. Judgment against offshore assets. Remember a judgment only allows the creditor to intercept funds owed to the debtor, if the jurisdiction which has the asset recognizes the underlying action as valid. Sometimes this can require a separate trial on the merits.

Business Opportunities frauds or scams are no different, but the recovery rate, at least from the FTC figures, is notably less. I estimate, using data that the FTC produced from 1993-2000, that the actual recovery to the public from Bizop scams is around 5 cents on the dollar. If the Bizop is a scam or fraud, then you are likely going to lose all your money. Think about that - Bizop frauds or scams are so bad that you might as well be throwing your money away -burn it, buy lottery tickets for non-existent lotteries, or buy swamp land. You are simply going to lose your money, if the scheme is a fraud or scam.

What is a even scarier number than 5 cents on dollar?

Technorati Tags: scams, fraud, cnnmoney, offshore assets, frauds, ftc, judgment, money, hedge fund, debtor, intercept, merits, enforce, business opportunities, jurisdiction

Continue reading "Recovery of Funds From a Fraud" »

Posted by michael webster at 4:31 PM | Permalink | Comments (0) | TrackBacks (0)

"Attorney General Madrid cautioned, "This scam plays on the fears and emotions of the victim by using the name of a loved one. As one victim said in her report, when you have a loved one in trouble, you will do whatever is asked of you as quickly as possible so you can help them. You don't think about the possibility that you could be the victim of a scam. This is one of the most egregious scams I have seen."

Two victims of this scam, a grandmother from Albuquerque and another from Los Alamos, lost $5,000 and $4,000, respectively. They both report receiving calls from a person who claimed to be their grandsons. In each case, the caller told his "grandmother" that he and some friends had been arrested for drinking and driving in Canada and were in need of money to post bail and for a plane ticket home. Both victims reported that the scammer called them, pleading to have money wired to a Canadian address. The victims did as they were told and wired money to the addresses they were given. Later, the victims' suspicions were raised and called their real grandsons, only to discover that neither grandson had made a trip to Canada nor were arrested. By the time the victims realized what had happened, they called the money transfer services only to be told the money had already been claimed in Canada."

"mother received a call from a person claiming to be a dispatcher from the Arizona Highway Patrol who said her name was Kathy Richardson. "Kathy" asked the mother if she had a son by the name of Andy. "Kathy" said there had been a bad accident and that Andy was unconscious, had lost a lot of blood and needed to be airlifted to "Tucson Memorial Hospital." "Kathy" also put a "Lieutenant Johnson" on the phone, who confirmed the accident. "Lt. Johnson" informed the mother that an 18-wheel truck had sideswiped Andy's car and that the driver of the truck was drunk.

"Kathy" told the mother that Andy's emergency contact information was found in his wallet and that he had insurance. "Kathy" then said insurance could not pay for the airlift, since it was a Saturday and the insurance company's office was closed. She informed the mother she would have to immediately wire $950 via Western Union to pay for the airlift. Kathy said the insurance company would reimburse the $950, plus the cost of the wire transfer on Monday. Kathy told the mother she was to wire the money to a 2737 Gilmore Road in Westland, Michigan, because this was the quickest way to pay for the airlift.

An Internet search of 2737 Gilmore Road in Westland, Michigan by the Attorney General's Office returned no results.

The mother reported that "Kathy" kept repeating how much blood Andy had lost and how time-critical it was for the mother to wire the money. "Kathy" even gave the mother the address of the nearest Western Union outlet in Los Lunas."

Technorati Tags: business opportunity scam, grandmother, fraud, egregious, mexico attorney, business opportunities, frauds, los alamos, scams, albuquerque, franchise, emotions, fears, madrid, plays

Technorati Tags: business opportunity scam, grandmother, fraud, egregious, mexico attorney, business opportunities, frauds, los alamos, scams, albuquerque, franchise, emotions, fears, madrid, plays

Continue reading "Call the Hospital and Send Money, or Just Send Money" »

Posted by michael webster at 3:50 PM | Permalink | Comments (0) | TrackBacks (0)

"The evidence showed that from 1996 through September 2000, EDWARDS, the founder of ETS Payphones, Inc. (ETS), raised capital to grow his coin-operated payphone business by using a network of independent insurance agents to sell payphones to investors throughout the United States for $5,000 to $7,000 per phone. EDWARDS convinced investors to buy payphones and lease them back to ETS for what EDWARDS claimed would be a recession-proof, guaranteed profit of approximately 14% per year. EDWARDS promised he would buy back their phones upon request, when, in fact, the company did not have the financial ability to do so. The scheme defrauded approximately 12,000 nationwide investors out of more than $400 million." (my emphasis)

"United States Attorney David E. Nahmias said of [the September 2005] verdict, "As the witnesses and the evidence proved at trial, this was a tragic case of fraud that victimized over 12,000 people, most of whom were retired and living on fixed incomes. The victims thought they were investing in a legitimate business, but it was in fact a Ponzi scheme, that netted EDWARDS over $21 million. We hope that the jury's verdict has brought some measure of justice to the many victims of this fraud."

How could anyone of the investors have determined that this was a Ponzi scheme? What simple due diligence could they had done which may have detected this scam or fraud? (Which apparently although too good to be true, didn't sound too good to be true. Thankfully.)

Continue reading "Criminal Sentencing in ETS Payphones Business Opportunities Fraud" »

Posted by michael webster at 8:45 AM | Permalink | Comments (5) | TrackBacks (1)

"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)

"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 Ponzi scheme can be described very simply. An investor pays $x in return for getting a large "yield" or return on his money, but the return comes from later "investors" buying the same opportunity.

Virtually every news story on ponzi schemes fail to explain why the schemes are so attractive- greed is the only explanation.

But greed is not a complete answer. There is at least one more complete explanation: our naive induction schemes are bad, incorrectly generalizing from a past series of events.

Here is a little test to take. If I said that I could manage $100.00 for you and give you a 10% return on your money, how months of getting this return would you need to believe me? Call that number "N".

Now, suppose I said that I didn't even need the $100.00, I would give you your 10% return, if you would contract with me to pay the $100.00 after N months? Is this a better or more sure idea?

Technorati Tags: ponzi schemes, ponzi scheme, greed, money, correct answer, naive induction

Continue reading "One allure of the Ponzi Scheme" »

Posted by michael webster at 4:55 PM | Permalink