Skybiz and PAS
The SEC announced on September 27th 2006 that
"it has filed a Complaint and Application for Emergency Relief in the United States District Court for the Northern District of Georgia to halt an ongoing pyramid-scheme fraud by William M. Osterhout ("Osterhout") of Citrus Heights, California and his company Prosperity Network, Inc. ("PNI"), also located in Citrus Heights, California. In the Complaint, the Commission charges that, since at least July 2005, Osterhout and PNI, an entity he controls, have conducted an unregistered and fraudulent offering of securities through the sale of membership interests in the so-called Prosperity Automated System ("PAS") - a supposed web-based "marketing portal" that Osterhout and PNI have claimed to investors will generate "substantial passive income" with "[n]o prospecting," "[n]o advertising," and "[n]o selling." In fact, PAS is nothing more than a fraudulent pyramid-scheme that is destined to collapse and leave the vast majority of investors with substantial losses. The Complaint alleges that the defendants, using a series of approximately 25,000 interconnected PAS websites, have sold more than $15 million in PAS memberships to more than 5,000 individual investors."
This once again demonstrates the weirdly undead aspect of pyramid schemes. In June of 2001, the FTC shut down a similar scheme called Skybiz. From the FTC's press release, June 18th 2001: 'In papers filed with the court, the FTC alleges that since late 1998, the defendants have promoted a work-at-home business opportunity with claims of quick riches. One SkyBiz presentation claimed, "This system was put together by a gentleman named Eric Rasmussen who basically joined SkyBiz and six months later was able to retire with an income of about 400,000 a month. Currently, [he] lives in the Gold Coast of Australia and he's making 76,000 a week and growing." In in-person sales presentations, seminars, teleconferences, Web site presentations and in other marketing material, the defendants touted the opportunity to earn thousands of dollars a week by recruiting new "Associates" into the program. They provided CD-Roms, computer disks, videos and books promoting the SkyBiz programs and they provide a PowerPoint presentation on their website that can be downloaded to aid in recruiting new members. The cost to join the SkyBiz Program is $125, ostensibly used to buy an "e-Commerce Web Pak," but in reality was to purchase the right to receive compensation for recruiting additional participants. Participants were urged to invest in more than one "Web Pak," to maximize their earning potential."
Why are pyramid schemes so attractive? One of the initial attractions is the apparent low entry cost, and the easy rationalization of the scheme using a variant of Pascal's wager. "Well, it is possible that I could make hundreds of thousands against an initial "investment" of only $125 or $300. I don't want to be greedy even, tens of thousands would do." Having talked oneself into the possibility that their personal phantom dream is about to come true, it becomes easier to justify the increased investment as "maximizing earnings potential."
Pyramid schemes are attractive for the same reason that gambling is attractive. We are not sure why some human brains seem to be hardwired to enjoy gambling, but there is no doubt that for a significant percentage of the population gambling is an intrinsic pleasure, not something enjoyed as a means to an end. Professional gamblers will tell you that their work is actually hard, long and boring in trying to exact their small technical advantages. But for others gambling seems to be an intrinsic pleasure, which can override common sense.
Now many people who would not gamble can be tricked into experiencing the same hedonistic delight by dressing the scheme up as an "investment" . Currently, the biggest schemes are on the internet, variants of the 12Daily Pro autosurf program. These autosurf, paid to read, and other variants are nothing more than simple gambles, with the odds stacked against most the individuals. If the current mood in the United States wasn't so hostile to online gaming, they would realize that it would make more sense to legalize this autosurf gambling programs and run them as state or federal lotteries.
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