THE BIZOP NEWS

The Chicago Tribune reports on a study, which scanned the brains of volunteers as they donated money to a food bank, showed that the pleasure centers of the brain were activated by the act of giving. Even more interesting, not all people responded in the same way. The study showed that people whose brain reacted more to being given money were less willing to make donations, from the Consumerist.

"In the study, female college students were given $100, then told either that a mandatory transfer would go from their account to a local food bank or that they could make a voluntary donation to the same charity. At the end of the study, the women were allowed to keep the remainder of the money.

Using MRI, the investigators found that both mandatory and voluntary transfers increased activity in brain areas called the nucleus accumbens and the caudate nucleus. These areas have previously been associated with the brain's response to rewarding stimuli, such as taking street drugs or viewing pictures of loved ones.

The reward reaction was more intense with the voluntary giving, which the authors argue supports the notion of a "warm glow" phenomenon."

Fraudulent distributorships often this effect, when pushing their scam. They will arranged to have a fake or dubious charity "attached" to the product, typically vending, kiosks or internet terminals. The purchaser is told to donate some of the earnings from the machine to the charity -this device deflects doubt about the seller's integrity. It is also a huge red warning flag. Don't let your warm glow stand in the way of due diligence.

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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."

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During the Korean War, the Chinese Communists, in contrast with their North Korean Allies, were able to persuade more American POW's to engage in some sort of collaboration with the enemy. The most extreme of these collaborations involved statements from the soldiers denouncing the American involvement in the Korean war.

How did the Communists achieve this? The American soldier was well trained to give nothing more than their rank and serial number. But the Chinese realized that if they got the POW to commit to some mild statements, such as "America is not perfect", then it would be easier for the Chinese to obtain further commitments. Robert Cialdini, one of my favourite authors on influence, explains this in more detail.

What does this have to do with influencing people and making sales?

Cialdini also discusses the "quintessential American compliance setting", the Tupperware party. It is his view that there are four "weapons of influence" being used at the typical party demonstration. First, at the beginning of the party or demonstration, a number of silly games may be played and those persons not "winning" the game will be offered a loot bag -reciprocity. Second, is commitment: everyone is asked to declare how Tupperware will change their lives. Third, one the selling begins, and everyone at the party sees other people re-affirming their the value of the Tupperware product, social proof kicks in. All of these people cannot be wrong can they?

Finally, what Cialdini calls the "real power" of the party is that fact that the request to buy comes from a friend, whom you presumably like well enough to at least attend their party or demonstration. The sales pitch is not from a "professional" but an amateur neighbour. Even when you know that your friendship is being pitched for a sale, you comply. Interesting.

But Cialdini, who wrote this originally in 1984, has not kept up with evolution of the party or demonstration systems. He doesn't explain the further attraction of the network marketing aspect, at its worst the pyramid scheme illusion. Nor does his explanation resonate with why Tupperware has failed to keep sales consultants in their system in North America for the past seven years.

Any ideas as to why Tupperware or the party sales system is faltering in North America?

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One of the unintended consequences of Google's wildly popular adsense program is that a number of websites sincerely aimed at providing consumer protection now carry google ads for scams. How do these webmasters explain why they allow such ads. Here are some sample justifications from these webmasters.

Webmaster 1: In answer to my questions about enabling fraud.

My Question: Given that this site, among others, attempts to educate, warn and advise individuals of bogus opportunities, how appropriate to have Ads byGoooooogle on the site which may lead to bogus, fraud or scams?

Reply: That's why I didn't do it for so long... then I decided to put a warning in plain sight and stop throwing money away. (It's the first time in my life I've put making my mortgage payment ahead of my obsessive-compulsive "value system" and I think I've been a fool for too long.)

My Question: The site has credibility, and it is one of the few consumer sites that I have my blog link to, but I worry about the difference between the message and the ads.

Reply: Three people said it best. Like I said, the thread is gone, but this is the gist of their messages:

"You can't be everybody's mother."

"If they read Scams 101 AND the warnings AND the board and they still get scammed, it isn't your problem; if they didn't click on the scam here, they would have clicked on it somewhere else.

"Do you honestly believe that reputable newspapers and magazines worry for one second about whose ads they're carrying?" (No, they don't. Witness the envelope-stuffing schemes that used to fill a page in T.V. Guide.) (my emphasis)

Webmaster 2: From their FAQ.

"Why are there ads on your site?

The ads are the only source of revenue our Web site has. Without them, it would not exist. Our site is very large and handles a lot of traffic each day. It is very expensive to maintain. We also spend a lot of time (and money) fighting off companies that try to shut us down, sue us or intimidate us into silence.

One of the things that makes our country great is a free press, supported almost entirely by advertising. In totalitarian countries, the government controls the press. Bad news.

I see ads for companies that are criticized on your site. What's that all about?

We don't control which ads appear on our site. They are placed by outside agencies. A crafty consumer understands that ads are not an endorsement, they are paid propaganda. The fact that an ad appears on our site by no means indicates we approve of the product. Same thing's true for an ad in the newspaper, or on television or radio.

We would suggest that you should be worried about whether we have to kowtow to individual advertisers. This would make it tempting to go easy on those who advertise on our site. With our third-party arrangement, we have no contact whatsoever with the companies advertising on our site and could not care less whether they approve or disapprove of what we say about them.

This seems wrong. How can you take money to advertise products you don't approve of?

It's a free country. Companies, even the ones we don't much like, have as much right to advertise as we do to publish our site, just as we have the right to publish critical comments about them. There are government agencies that can and do prosecute companies who make false advertising claims.

I'd rather depend on a government agency for my news.

Fine. We're not the only game in town and don't want to be. Keep in mind that governments publish an "official" version of the news, which tends to be mostly about what a great job the government has done for you today. If you want to believe that, be our guest.

Why don't you get rid of the ads and raise money from foundations and corporations?

Foundations, especially those backed by big companies, want to control the content of Web sites and publications they underwrite. We have sat at tables where big drug companies dictated, line for line, what a not-for-profit agency would say in a publication financed by a supposed "unrestricted educational grant" from the foundation. This goes on every day. We don't trust anything any big not-for-profit organization says. Most of it is corporate propaganda disguised as unbiased truth. This is much worse than advertising, which is at least clearly identified as such.

service. We're not set up to handle written or telephone complaints. We forward the written complaints to the lawyers for their review but at the moment, that's as far as it goes. It would be too labor-intensive and expensive to type them into the database or actually print out a response and mail it. Sorry". (my emphasis)

Webmaster 3: In response to my question.

It hit us on Day 1, when the very first ad that came up in AdSense was a Pure Trust scam. So, we moved the AdSense ads off the front page and to some back pages where at least people would have time to read the warnings before seeing the advertisement, and then we try to make sure they understand that it is an advertisement.

The best that this site can do is to educate and try to teach people what a scam is or isn't. At the end of the day, they will have to choose. I can't tell you how many e-mails we get per week the have the tenor of "I saw your site before I invested, and wished that I had listened to you earlier."

For a financially very small non-profit like [true sponsers of site], raising even minimal money is difficult and AdSense seems to be an easy way to do it. But people are still going to have to look out for themselves, hopefully just a little smarter after reading some of our warnings.

Any ideas or suggestions appreciated; please don't think that we haven't given this any thought. (my emphasis)

Is it futile to complain about scams, frauds and business opportunities when you are indirectly enabling them? And why are there adsense ads on www.bizop.ca?

I want you to click on ads which look like scams or frauds, and report them.
Just that simple.

Click and report. Click and report, repeat until the scam ads vanish from the internet.

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"Most management books, the author says, focus on the question, "What leads to high performance?" But Phil Rosensweig asks a different question: "Why is it so hard to understand high performance?"

To get at the answer, The Halo Effect focuses on nine "delusions" that Rosenzweig claims wrongly influence business thinking -- including one for which the book is named, the halo effect. A company's performance creates a halo, either good or bad, that influences the way the firm is perceived, he notes. When a company is performing well -- sales are brisk, the stock is rising -- people are quick to conclude that the firm has visionary leaders, a superb strategy and a corporate culture that brings out the best in employees. When performance goes down, the company's leaders are suddenly seen as arrogant, their strategy is perceived to be too risky and the corporate culture is stifling."

You have to enjoy a book named the "Halo Effect and Eight Other Delusions" when after finishing the book you can only remember the Halo Effect -which is neat demonstration of the book's main thesis. Rosenzweig argues, effectively with examples, that when we rank outcomes with various attributes, we tend to simply the process by focussing on a single dimension or attribute. For example, if we want to rank the leadership abilities of two companies the tendency is to use the attribute or value dimension of profitability. If one company is more profitable, then we will tend to rank or compare the companies with respect to other attributes using profitability as the proxy measure. In short, profitable companies are winners on every dimension of value. Which is both absurd and prevalent thinking.

Here is a nice example, from my favourite MLM site, Mary Kay Cosmetics on Champions. Here is a Mary Kay description of Champions.

"I've studied champions for many years, and I want to share 10 qualities that I've found to be consistent among them:

1. The victory is won in their head and heart before the work is done.

2. Champions know the rules of the game and they're willing to play better than they've ever played before.

3. Champions believe the risk of victory is worth more than the disappointment of failure.

4. Champions have champion mentors.

5. Champions know there's nothing more powerful than a winning attitude.

6. Champions are motivated by their dream, but are made by their routine.

7. Champions focus on maximizing their strengths, not protecting their weaknesses.

8. Champions have unquestionable integrity.

9. Champions are extra-milers. They don't do just enough to get by; they do the and then some.

10. Champions NEVER give up! I'd like to elaborate a little further on a couple of points. Take #1, for instance: The victory is won in their head and heart before the work is done.

Over the years, I've seen many Sales Directors miss a goal simply because they never believed they could achieve it. These Sales Directors said all the right things to others, but they hadn't convinced themselves that they deserved the victory, or they simply weren't willing to put forth the effort needed to achieve the goal."

Notice how you cannot determine who is a Champion until you see the results of their sales - from which it follows that they must have superb on the other nine attributes. It also appears that Champions are unable to detect fallacies - effect, therefore cause.

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What the heck was Richard Gere doing creating a Buddhist controversy over kiss?

"As pictures of Richard Gere kissing Shilpa Shetty on her cheeks and embracing her was flashed across the country's newspapers Shiv Sena, a conservative Hindu group burnt effigies of Richard Gere and set fire to glamorous pictures of Shetty.

Richard Gere bent and swept the popular Bollywood actress Shilpa Shetty into his arms and several times kissed on her cheeks before a cheering crowd at the Aids Awareness event in New Delhi.

Observers said it was ironic for Richard Gere to be at the center of such anger in the country of Buddha's birth. The actor is known as the most famous Buddhist in the United States who meditates daily, and as a compassionate man who is extremely keen in eradicating Aids/HIV from India."

Is it all about Richard Gere? Is this just another example of the Ugly American?

No, it is a spectacular display of breaking rules in order to be persuasive. Gere

"got utmost publicity as it was done before a press conference which was held to spread AID /HIV awareness especially among the New Delhi truck drivers as the disease is spreading among them rapidly." (my emphasis)

Brilliant and what you expect out of an actor. Even if you know that Gere has calculated this effect in advance -the publicity and outrage- it is going to advance his goal of making advancing AID/HIV awareness.

Sellers of income earnings opportunities -franchises, distributorships, and network marketing- instinctively know that it is all about the client. As a consequence, they are excellent mimics -sometimes so good that they make us instinctively uncomfortable.

Unconscious mimicry is known to be an effective tool of persuasion.

But sometimes you have to know when to break the rules.

Posted by michael webster at 9:20 AM | Permalink | Comments (2) | TrackBacks (0)

Canada's award winning investigative journalism show, W5, has an excellent piece on affinity fraud.

The W5 summary of their investigation into affinity fraud can be read here. There is also a broadband connection to the actual television show, in which I am interviewed about affinity fraud.

According to W5, the four elements of an affinity fraud are:

"Affinity Fraud is a scheme that has four main ingredients. Which mixed together, can produce the perfect crime. Ingredient Number One - a trusting group of victims. Because church goers are trusting by nature this group had been particularly hard hit.

The front man is the second ingredient, someone who acts as a salesman within the group.

Which brings us to the third essential ingredient--the trusted insider. Someone within the church who will vouch for "the front man" Without the insider, the Affinity Fraud often could never occur. Not just anyone can walk into a church and win people over. Sometime he's an accomplice, sometimes just a patsy.

And the final ingredient -- the master mind. The person who orchestrates the scheme and after the money is collected, generally spirits it offshore where it can't be found by authorities."

This is a good description of the mechanics of the affinity fraud.

The picture can be made more clear by focussing on the first element. Why does a group who trust each other on one dimension, say religious beliefs, then come to trust each other on a another dimension, say investment advice?

On the surface, there is no connection. Yet, con criminals take advantage of this "halo effect" all of the time.

But there is also another logical confusion or illusion at work, something that we have talked about before, the confusion between "My friend is trustworthy and so is not lying to me" versus "My friend is trustworthy and could be mistaken".

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.

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Pink Truth: Facts, opinions, and the real story behind Mary Kay Cosmetics has a nice discussion about the Mary Kay scripts used. The whole post is worth reading, especially for the comments.

But I wanted to focus on single example, which I believe is not correctly understood.

After you have placed your order,

"She will now bag up your products, take your money, give you a receipt. If you don't buy, she will give you a bag with a book so you aren't embarrassed. Then she will ask you if you will assist her with her training." (my emphasis)

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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.

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The Securities and Exchange Commission ("Commission") announced that on October 17, 2006, Judge Polster of the United States District Court for the Northern District of Ohio entered a Final Judgment against Gregory Applegate ("Applegate") in which Applegate consented to the entry of an order of permanent injunction enjoining him from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

Several months earlier, April 2006, the SEC announced, that Gregory Applegate had been sentenced to 5 years in prison and ordered to repay almost $3 million in restitution, in connection with his Ponzi scheme. According to the complaint,

"From about 2001 through August 2005, Applegate solicited at least 140 investors to invest at least $5.8 million in a supposed "hedge fund" and other investment vehicles. Applegate guaranteed an annual rate of return to these investors and promised to make up any losses out of his own pocket. The Complaint alleged that in reality, Applegate's "hedge fund" was a Ponzi scheme in which Applegate misappropriated investor funds, using them to finance an unrelated personal business, pay personal expenses, and reimburse or pay "investment returns" to earlier investors. To further this Ponzi scheme, Applegate mailed to investors false monthly client statements reflecting securities holdings and returns that did not exist."

How was Mr. Applegate able to "send false monthly client statements"?

Here is where the story turns more interesting than the SEC's dry recital of facts.

In a story Businessweek did last October, they state that the SEC claimed Applegate was:

"able to gain investors' trust, in part because he showed them business cards from Westerville, Ohio-based, Regis Securities, a brokerage where he had been working since January. Applegate told investors that he was running a hedge fund for Regis called Applegate Investments, and produced false monthly client statements for them, the SEC alleges". (my emphasis)

Business cards?! Jim Rockford had a fistful of business cards to establish his numerous false identities!

And what of the Regis Securities connection? Well according to the article,

"Regis Securities' president, Robert Cargin, said that Applegate's alleged scheme had been going on for years, beginning at another brokerage. "He had this program basically concealed when he joined our firm," Cargin said." (my emphasis)

So Regis Securities innocently facilitates a fraud by allowing their reputation to be used to gain trust, could this be a cause of action in tort? Should Regis have been more careful in checking what their broker was sending out? How did they supervise Mr. Applegate?

Technorati Tags: ponzi scheme, applegate, investors, personal expenses, personal business, hedge fund, investment vehicles, investment returns, investor funds, restitution, sentenced, invest

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The Competition Bureau took five years to shut this website down, which "used testimonials" from people who did not exist. Strangely, this is not legal.

Five years on the job and no restitution to any consumers.

On the other hand, the Competition Bureau did receive a $100,000 fine. Nice work.

But, why do testimonials work? Here is a marketing guru's take on testimonials:

"Most of us would rather act on a referral from a friend than make a purchase based on a sales pitch alone. We want to know that the product actually works before we take the leap to buy, and we're bound to put more trust in someone who has already used the product successfully than the person trying to convince us to buy it."

I agree that this is a psychological truth, but it really doesn't make any sense as a decision strategy. Why is it so compelling to "act on a referral from a friend"? Especially when it can be easy to fake the testimonials?

Technorati Tags: job seekers, competition bureau, testimonials, sales pitch, psychological truth, restitution, leap, guru, salaries, referral, promises, consumers, marketing

Continue reading "How to Avoid Believing Weird Things" »

Posted by michael webster at 9:05 AM | Permalink | Comments (0) | TrackBacks (0)

Kim Klaver, a network marketing consultant, who writes about persuasive marketing scripts, shall we dump "I'm so excited"? as a sales technique.

"I suggest dumping the "I'm so excited about" cliche when introducing your business or product. It's a dead giveaway that you're selling. Plus no one cares how we feel. We're selling it, after all."

Excitement works when it is shown and not said; when shown it is a reliable signal, but when merely said it has no persuasive power. In terms of due diligence, there is a time and place to be enthusiastic about your new business opportunity - after you have been resolutely skeptical for several months and have researched in spades all what could, should and probably will go wrong. But both prospective franchisees and distributors leave serious due diligence as an after thought, to be accomplished in the 10 days after they receive their disclosure document. It is simply not possible to conduct in 10 days the necessary skeptical review of a franchise or business opportunities disclosure document in the 10 days, which is the minimum required by law.

Technorati Tags: due diligence, re selling, skeptical review, marketing consultant, network marketing, disclosure document, persuasive power, business opportunity, new business, kim klaver, dead giveaway, franchisees, spades, cliche, dumping, enthusiastic, cares, excitement

Technorati Tags: due diligence, re selling, skeptical review, marketing consultant, network marketing, disclosure document, persuasive power, business opportunity, new business, kim klaver, dead giveaway, franchisees, spades, cliche, dumping, enthusiastic, cares, excitement

Posted by michael webster at 6:40 AM | Permalink | Comments (0) | TrackBacks (0)

"How much is my blog worth?" asks Dane Carlson at www.business-opportunities.biz. He provides a clever little answer to the intriguing question by calculating the value of the back links into the blog. Mr. Carlson also conveniently provides the html code for the above caption. However, I have used it to prove a slightly different point. Taken at face value, Mr. Carlson would seem to be providing authority for the proposition that www.bizop.ca is "worth" $4.4 million, and his assumptions behind the calculation may be checked out at his site. Since www.business-opportunities.biz ranks very highly on certain keywords that are common to www.bizop.ca, then surely the calculation must be highly authorative and persuasive?

Well, it would be if I hadn't cheated with the html code provided by www.business-opportunities.biz. I simply ran his script calculating the value of his own blog, generated the html, and then edited it appropriately. It is very easy to fake authority on the internet, obtain fake backlinks from .gov sites, appear to be highly popular, and other tricks that utilize various aspect of social proof. Every one of these tricks must be analyzed when reviewing a business opportunity's website.

Technorati Tags: blog, html code, business opportunities, carlson, biz, intriguing question, www business, conveniently, face value, back links, caption, assumptions, clever, asks

Posted by michael webster at 7:10 AM | Permalink | Comments (0) | TrackBacks (0)

The SEC is reporting a new ponzi scheme, which started in 1999 and was directed at senior citizens.

The SEC "filed an action charging Renaissance Asset Fund, Inc., Ronald J. Nadel, and Joseph M. Malone with fraudulently raising over $16 million from more than 190 investors nationwide. The Commission's complaint, filed in the United States District Court for the Central District of California in Orange County, alleges that Renaissance and its principals operated a Ponzi scheme and used investor funds to pay lavish personal expenses. Many of their victims were elderly and were solicited through Jehovah's Witnesses congregations." (my emphasis) The full complaint can be read here.

This is an interesting fraud involving solicitations made to Jehovah Witnesses, which I suppose may strike some agnostics as a proof for the existence of a deity who has a mean sense of humour. Perhaps the God from the Old Testament.

This ponzi scheme lasted about 5 years, with promise of 17% - 24% yearly returns. So the five year period is entirely predictable.

It appears that only $2.3 million of the $16 million is readily identifiable as assets to return the "investors". But the SEC complaint only identifies $1 - $2 million that was repaid to "investors". This will be interesting to follow.

Technorati Tags: ponzi scheme, jehovah witnesses, renaissance, sec, seniors fraud

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In an amusing and enlightening description of the attraction of MLM, Kim Klaver writes about attending a recruitment meeting for a MLM product:

"It was a Tuesday evening years ago, and my friend and I watched in awe as the young man in front of the room showed everyone his month's checks - a little over $90,000.

I immediately thought, "Boy, if HE can do that, I MUST be able to do that!

My friend agreed. "Yes!" she said, "You can do that too! Probably better!" The acquaintance who'd brought us beamed.

So far, my brain was fully engaged. My reaction was totally typical of me then (and now).

It's during the first days of the training that my brain had to be manually shut off. And it went without a whimper. Here's what they taught us:

1. It's easy, anyone can do it. Look at me, a former waiter.

2. Talk to anything that moves. Anyone who can fog a mirror.

3. The product sells itself. " (my emphasis)

Keep in mind, Ms. Klaver, according to her blogger profile, is an accomplished salesperson, a Harvard graduate and was selling real estate at the time. She does not fit the profile of someone who could not see what was too good to be true.

Let us suppose that the former waiter is not lying, not a shill, and really did accomplish his selling prowese. What does the $90,000 a month suggest to you? It is easy? This product sells it self?

Technorati Tags: harvard graduate, brain, kim klaver, acquaintance, salesperson, waiter, awe, amusing, fog, mlm, checks, mirror

Continue reading "The Psychological Attraction behind Network Marketing" »

Posted by michael webster at 9:35 PM | Permalink | Comments (0) | TrackBacks (0)

Here is a really bad idea for a biz op scammer: pretend that the local Attorney General is giving testimonials supporting your scheme. The local Attorney General of Texas. Today, Sun Travel Country found out just how really bad this idea was when it and its owner Jerry Macdonald were fined $64 million in a jury trial. According to the press release,

"Sun Country, also known as Vavro, McDonald, Kennedy and Associates, L.L.C., and Travel Partners, L.L.C., had offices in Arlington, Carrollton and Houston. It was sued by the Attorney General in February 2003 after investigators became aware of the company's claims to consumers that the Attorney General and the Better Business Bureau endorsed its business practices as a travel agency.

Sun Countrys principals David G. Vavro, Jerry L. McDonald Sr. and Jerry L. McDonald Jr., were also named in the suit and found liable.

The company's telemarketing pitches falsely offered "completely free" vacation packages to lure consumers to a 90-minute presentation describing the company's "discount" travel services. The telemarketers, however, omitted information about a variety of fees, deposits, airline and hotel taxes and other costs linked to these "free" vacations, plus the company placed tight restrictions on when these trips could be taken.

The "free" vacation offers were only valid for one year, and reservation requests had to be submitted by consumers at least 90 days in advance of the departure dates. The company disclosed neither of these restrictions until after the presentations and consumers had signed up".

The actual findings of the jury can be read here.

Technorati Tags: sun travel, sun country, travel country, travel partners, travel agency, better business bureau, attorney general of texas, mcdonald, arlington carrollton, consumers, idea, local, business practices, biz op, scammer, jury trial, free vacation, pitches, telemarketing

Posted by michael webster at 3:45 PM | Permalink | Comments (0) | TrackBacks (0)

The SEC has announced that they have obtained a temporary restraining order against Universo Foneclub alleging that the Foneclub was pyramid scheme. According to their press release: "The Commission's papers charge Sanderley R. De Vasconcelos and Victor Sales with promoting a pyramid scheme known as "FoneClub" that targets Brazilians and Brazilian-Americans living in the area of Framingham, Massachusetts. The Commission alleged in its complaint that the defendants falsely promised members of the Brazilian community that they would earn substantial sums of money by paying approximately $2,000 to $5,000 to become members of a company referred to as the FoneClub that purportedly sells prepaid telephone calling cards through a multi-level marketing structure. However, the complaint alleged that the defendants, who have emphasized to potential investors that neither they nor the company will earn profits from the sale of phone cards, are in reality luring victims into a pyramid scheme in which its members only make money through the recruitment of new members. The complaint alleged that the defendants emphasized in their sales pitch, which was given in Portuguese, that God wanted the Brazilian community to prosper financially and that the FoneClub would provide the opportunity for it to do so." (my emphasis)

According to the SEC complaint, the defendants actually told the individuals they were recruiting that there was no way to make money by selling the FoneClub products and they could only make money by bringing in new marks, or sorry, new recruits. I suppose that they cannot be prosecuted for deception, stupidity explains why this scam lasted only from April, 2006. I suppose that many of the Brazilians wanted to know which members of the their community God wanted to prosper financially?

Here is some corporation background on the company and directors. Here are the directors in Universo Foneclub, which merged with Universo Gospel US Inc, earlier this year. None of the directors of the later company have been charged by the SEC, and only two of the directors of Universo Foneclub have been charged.

Congratulations to the SEC and all involved for shutting this down within several months of its existence.

Technorati Tags: pyramid scheme, phone cards, calling cards, promised members, multi level marketing, framingham massachusetts, brazilian community, brazilians, vasconcelos, restraining order, sums, universo, press release, victor

Posted by michael webster at 9:04 PM | Permalink | Comments (2) | TrackBacks (0)

Approximately 10 years ago, Chuck Whitlock wrote up his experiences exposing scams, frauds and cons. There are two important stories that Whitlock wrote about which are pertinent to due diligence for business opportunities. First, he describes giving a lecture at a business opportunity trade show explaining how individuals could get material information from the local state authorities which regulate business opportunities. He states "some opportunities are only opportunities for con artists to rip you off." One audience member was very attentive and asked Whitlock a number of questions. After his talk, Whitlock donned a disguises and started hawking a franchise for Platinum 1000 - a light bulb that never burns out. Whitlock collected $14,000 in a few hours and that attentive member for the audience? Buyer..

The second story may surprise readers. Whitlock attended a seminar which was promoting an illegal pyramid scheme promoted by a company called "Gold Corp". A Linda Chapman was presenting this wonderful opportunity and Whitlock was appalled by how many people were falling for the pitch, since it was an obvious pyramid. (Whitlock had done some previous research on the company prior to attending the seminar.) Whitlock jumped to his feet and exposed the scam. The crowd went wild - but, they were angry with Whitlock! He had stolen the fig leaf off this fraud, but everyone desperaedly needed to believe that this was "the one for them". As Cialdini eloquently explained in his book, for these individuals the disclosure of true and material facts just made them act irrationally quicker!

What do these two examples show about the FTC's proposed Business Opportunities Rule?

Technorati Tags: illegal pyramid scheme, whitlock, audience member, business opportunities, due diligence, pertinent, business opportunity, light bulb, con artists, surprise readers, gold corp, opportunity trade, state authorities, disguises, frauds, hawking, scams, regulate, rip

Continue reading "The FTC's Proposed Business Opportunities Rule Part II" »

Posted by michael webster at 6:53 PM | Permalink | Comments (0) | TrackBacks (0)

The Attorney General of Illinois published an alert of a fake cashier cheque scam. According to the press release, "Madigan said individuals who accepted the bogus position received cashiers' checks sent in the mail from a location in Atlanta, Georgia. The victims were instructed to deposit the cashiers' checks into their personal bank accounts and wait until the funds were made available, then withdraw a portion of the money and send it using Western Union to an account in the Ukraine. The victims found out a few days later that the deposited cashiers' checks were fraudulent and that the deposited money would be removed from their bank accounts, but by this time they already had withdrawn funds from their accounts and sent them to the fake charity account in the Ukraine. The victims reported losing between $500 and $2,000 in this scheme."

There are two consumer websites devoted to tracking to down the websites engaged in this scam, http://www.peopleschronicle.org/ and http://www.webnetpresence.com/ According to these two websites, the scam is now being operated from this website: http://www.eliciahome.org/index.php A whosis on the latter website reveals this.

Why does this particular scam or fraud work, given that it is directed through a seemingly genuine website such as careerbuilders?

Technorati Tags: cashiers checks, personal bank accounts, withdrawn funds, western union, charity account, consumer websites, cashier, bogus, fraudulent

Continue reading "Fake Cashier Cheques and Charity Scam" »

Posted by michael webster at 8:40 AM | Permalink | Comments (1) | TrackBacks (0)

Several weeks ago, WESH 2 I-Team reporter Michelle Meredith did some fine under cover works and reported on one of the Bioperformance "pep rallies". The article was posted on or around May 5th, 2005 but she pointed out some some interesting aspects of Bioperformance. Several points are worth highlighting.

Point 1. "Meredith said she can honestly say that she's never seen a happier, more excited bunch of people. "Everybody say, 'I'm ready. I'm ready,'" Mims told the crowd."

I'm ready?! Boy, I do like this language. This is similar to the sense of entitlement employed in the Cambodia ponzi scheme in which the founder told the marks that "it was there turn, now." We are never ready for bad things, so if we are ready, then something good must be going to happen.

Point 2. "Testimonials flowed like manna from heaven. In fact, the whole weekend had a religious feel. To hear them talk, the little green pill is the perfect package. They said it can save you money, save the planet, keeps money out of the Saudi's hands and it's "All American."

This is awfully clever too - the little green pill is the ecological answer to America's problems and solves the war on terrorism. But what I like about this as a social compliance technique is that it would be hard to be in favour of sending the money to the Saudis, wouldn't it? (Well, I suppose if they sent it back by buying US Treasuries and allowing more individuals to purchase homes because of low interest rates, it might not be so bad.) The appeal here is the well known fallacy of disjunction: either Bioperformance works, or you just want to send money to the Saudis. But both disjuncts can be false.

Point 3. "Is this too good to be true? Are you running interference?" Meredith asked him. "We have to protect ourselves. Like Barbara Bush says, we have to watch you all like the plague," Mims said."

This is pretty good, too. I don't remember what Barbara Bush was talking about if she used this language, but I pretty sure she was not supporting a MLM fraud. But, again Mims has got a line that is hard to respond logically to. Should we not protect ourselves? Should we argue against Barbara Bush, not knowing what she was talking about?

We can see why this language might overwhelm reason and provide us with too much gas to go.

Technorati Tags: pep rallies, ponzi scheme, manna from heaven, meredith, mims, entitlement, cambodia, crowd, testimonials

Posted by michael webster at 10:02 PM | Permalink | Comments (0) | TrackBacks (2)

On May 22nd, 2006 the SEC announced that "the Honorable K. Michael Moore, United States District Judge for the Southern District of Florida entered a default judgment of permanent injunction against Jean Fritz Montinard (Montinard) for his involvement in an affinity fraud that targeted members of the Haitian-American community in Miami through local radio programs and presentations to Haitian-American church congregations." The default judgment means that Mr. Montinard likely chose not to defend the SEC action.

The SEC started their action against Focus Financial Associates Inc and some of its directors in June, 2005. The SEC alleged that "from February 2002 to July 2004, the Focus Companies and their principals raised approximately $6 million from about 600 Haitian-American investors living in South Florida. The Defendants offered twelve-month term notes that purportedly generated "guaranteed" annual returns of 15 to 20%. The Defendants told prospective investors that the funds they invested would be distributed to companies operating under a related "Focus" name, including an airline providing direct flights between Miami and Haiti, a tax return preparation service, a chiropractic center, a landscaping service, an auto dealership, and two auto repair shops, among others."

What are the chances that any of these business existed?

Technorati Tags: haitian american community, sec action, default judgment, american investors, prospective investors, american church, radio programs, district judge, injunction

Continue reading "Affinity Ponzi Scheme Limps to an End" »

Posted by michael webster at 8:40 PM | Permalink | Comments (0) | TrackBacks (1)

The Wall Street Journal is reporting that the FBI arrested Kirk S. Wright, the missing hedge fund manager who allegedly "misplaced" $100 million of his clients money. Very little of the money has been recovered, around $200,000. According the article, "Mr. Wright's arrest may offer some optimism to former clients. "The hope is that Mr. Wright will now lead us to the tens of millions of dollars that are still missing," said Timothy Mungovan, an attorney with Nixon Peabody LLP in Boston who represents former investors in Mr. Wright's funds."

Now perhaps we might see an fight between the state receiver and the private investors looking for the missing loot. This should prove to be interesting.

Technorati Tags: nixon peabody llp, wall street journal, private investors, hedge fund manager, money, fbi, loot, optimism

Posted by michael webster at 9:24 PM | Permalink | Comments (5) | TrackBacks (0)

The Fraud Discovery Institute has an interesting approach to detecting white collar fraud: combine the practical skills of a former fraudster with professionals who specialize in fraud detection, lawyers and examiners. The underlying premise behind Mr. Barry Minkow's enterprise is that the existing educational materials have not and will not prevent corporate fraud, but his checklist program will. He states that there are always three elements to a fraud: a) failure to disclose material facts, b) diversion, and c) drawing big conclusions from little evidence. Apparently, his checklist program is designed to identify these features in an interactive method.

I have not reviewed the checklist program, but I did listen to Mr. Minkow's introduction to it, you can listen to it here. As an example, Mr. Minkow suggests that his checklist program would have prevented the auditors from signing off on the New Era Philanthropy Ponzi scheme, a scheme masterminded by John G. Bennett.

The New Era scheme, as discussed by Stephen Pressman saw:

"In the early 1990s, hundreds of nonprofits gave large sums of money to Bennett. Some were prominent nonprofit organizations such as the American Red Cross, the Salvation Army, and elite academic institutions such as Harvard, Princeton, and Brown Universities. When New Era folded, these institutions all lost the money they had on deposit. John Brown University in Siloan Springs, AK, lost $2 million, close to 4 percent of its endowment. The big loser, however, appears to be Lancaster Bible College in Lancaster, PA, which had $16.9 million deposited with New Era."

How did this scheme work? In the early 80's Bennett set up a corporation which advised which non-profits or charitable organizations corporations should give donations to. It was called the "Center for New Era Philanthropy". By the late 80's, Bennett had turned to "fund raising" for the non-profits; he promised them returns of 100% within six months. Bennett claimed that he had access to a group of secret investors who would match the non-profits "investment" with the Center. The group of investors was secret because they wanted to donate anonymously - efforts to contact them would lead to them to withdraw their support for the Center.

Very bright, knowledgable and serious individuals accepted Bennett's explanation at face value. Mr. Minkow argues that this "diversion" or wall of secrecy is a huge red flag and must be investigated further or real due diligence cannot proceed.

Is Mr. Minkow right or is this just a case of reasoning after the facts, having acquired that wonderful hindsight vision which comes to all investors when they discover they have been defrauded?

Technorati Tags: white collar fraud, corporate fraud, fraud detection, ponzi scheme, barry minkow, era philanthropy, apparently, discovery institute, new era, diversion, premise, disclose, conclusions

Continue reading "Fraud Discovery Institute's Checklist Program" »

Posted by michael webster at 8:53 AM | Permalink | Comments (0) | TrackBacks (1)

A picture of the MLM scheme Morethantraffic and 12DailyPro Ponzi. For more information on the former, see here.

Technorati Tags: mlm scheme, ponzi

Posted by michael webster at 9:51 AM | Permalink | Comments (0) | TrackBacks (0)