HUMOR: Suspect Credential Translator

July 29, 2015, 7:02 am

≫ Next: The Real Motivation: It's Magical Thinking

≪ Previous: Scam Tactics: Two-face... being very different things to different people

A lot of scams misrepresent their "credentials" by inflating what they do, piling on euphemisms, and stretching the definition of the term to be something that's barely relevant.

MLMSkeptic has compiled the following terms and show you the real meaning behind the fancy terms.

They say: US based company!

Reality Says: I registered this online in Nevada (or Delaware) for $149 (or less)!

They say: Renowned Investment Group!

Reality says: I registered more than one companies online!

They say: International Conglomerate!

Reality says: I registered companies online in more than one country / continent!

They say: Decades of experience in the industry!

Reality says: I spent decades amounting to nothing (which is why I'm STILL at it!)

They say: Internet advertising platform!

Reality says: I know how to deploy a free banner rotation script!

They say: We have investments in biotech!

Reality says: I sell some nutritional supplements I got from some no-name factory in Asia!

They say: Experienced Internet entrepreneur!

Reality says: I launched multiple failed schemes one after another!

They say: We have signed contract, making everybody a ton of money!

Reality says: A memorandum of understanding... i.e. "intent", not a contract, can be backed out at any time.

They say: We have resort on _____!

Reality says: We have a piece of rocky beach that nobody would bother build a resort on.

They say: We have a golf course!

Reality says: We have a CLOSED golf course we *want* to redevelop!

They say: We are backed by Bank ______ (and Bank ______!)

Reality says: That's not a bank... (UDBP Bank in Thailand)

They say: Your income is guaranteed! I bought insurance for it!

Reality says: Uh... that's a REQUEST FOR QUOTE for insurance, not acceptance.

They say: Our mines are surveyed by so and so!

Reality says: Who? They said they never heard of you!

They say: We are a legal sweepstakes! Not a lottery!

Reality says: I never asked a lawyer to check, so I don't know what I'm talking about!

They say: Celebrity ______ is involved in this company!

Reality says: You mean the leader managed to get a photo with a celebrity? Like some yahoos cornered Will Smith, and how Phil Ming Xu cornered Al Gore and Steve Wozniak for a photo?

They say: Our _____ was invited to attended a prestigious economic conference!

Reality says: We bought him a seat for 50K to sponsor the dinner where he gets to recite a short speech that nobody was listening to!

They say: Join the young people revolution! Be a brand ambassador to promote product!

Reality says: Buy $150 bucks every month, and recruit 3 people who also buy $150 a month! Buy product! BUY PRODUCT!

They say: Our products really work, as proven by clinical studies!

Reality says: Two studies each involving less than 100 test subjects over only 30 days.

They say: We can't be a scam! We own an airline!

Reality says: An airline that only operated for six months, right....

They say: We can't be a scam! We hired Paris Hilton as DJ!

Reality says: No you didn't. You resold tickets with 60% markup where she hit play on a DJ table and collected tens of thousands of dollars for couple hours of doing nothing.

They say: We have business relations with the biggest travel network in the world!

Reality says: We relist stuff from Travelocity

Do you have more examples of "scamspeak"? Feel free to add them to the comments.

↧

The Real Motivation: It's Magical Thinking

August 7, 2015, 10:25 am

≫ Next: MLM Myth: How Mary Kay Ash incorporated the Bumblebee Myth into company culture

≪ Previous: HUMOR: Suspect Credential Translator

Motivation is a form of magical thinking in which you imagine that
your words can turn useless people into high achievers.

http://dilbert.com/strip/2015-08-07

↧

MLM Myth: How Mary Kay Ash incorporated the Bumblebee Myth into company culture

August 7, 2015, 10:35 am

≫ Next: JM Ocean Avenue: Why did Ocean Avenue merge with a suspect scheme out of China called JM International?

≪ Previous: The Real Motivation: It's Magical Thinking

A bit of link surfing on bad arguments brought me to an unexpected link... the Bumble Bee Myth, and its link to Mary Kay Ash of Mary Kay Cosmetics.

Diamond Bumblebee
pin award (photo credit:
Mary Kay Website)

Mary Kay Ash was quoted saying "Aerodynamically, the bumble bee shouldn't be able to fly, but the bumble bee doesn't know it so it goes on flying any way."She told the story in 1970 Seminar, where she started presenting the top sellers with the diamond bumblebee pin. (see right)

The problem is there had been NO physicist, scientists, or aerodynamicist that ever claimed bumble bee shouldn't be able to fly. Folklorists and historians have been trying to track down this myth for decades. It's obviously bull****, since we see bees fly every day.

People have "heard" of this myth, as it was variously attributed to various "leaders" (who repeat the bull****), various scientists (never authenticated), and celebrities / politicians (such as Mitt Romney). Nobody can find the actual claim, paper, quote, or whatever. The closest historians can get was a single sentence in an old etymologist book Le Vol des Insectes (1934) by Antoine Magnan, where he claimed an assistant told him insect flight is impossible given law of air resistance. Bumble bee was NOT mentioned.

Mary Kay Ash
(Photo credit: Wikipedia)

In other words, this is another myth, perpetuated by MLM. It is not real.

But it is necessary to create a cult of personality, where myth is built up around the leader of the cult through heroization / idolization of the leader, often by enforcing a dress code and perpetuating ideological myths.

And the bumblebee myth is one of them. It is positive thinking mumbo-jumbo, about how you should IGNORE other people's advice, by citing a myth of something nobody ever said.

There is no denying that Mary Kay Cosmetics is a personality cult that enforces a dress code. You didn't know that? NO PANTS in Mary Kay. Founder hated pants. Everybody must wear skirts. That's right, skirts only. NEVER wear pants to any Mary Kay function, or you're forever be ostracized as troublemaker. In fact, it's #2 of "14 Nevers" on a MK Checklist. Oh, there's even "get a new hairstyle". Really.

Control types of clothing and hairstyle is #4 on "Behavior Control", one of four pillars of cult mind control.

And misquoting statements and/or using them out of context from non-cult sources? #5b of Information Control, another pillar of cult mind control.

Why is there a no-pants policy? A new recruit was given the following spin: "The founder of the company, Mary Kay Ash, did research and found that sales increased significantly and people take you more seriously when you wear a skirt."

This is where the recruit's crap detector started wailing. Mary Kay Ash was born in 1918, and Mary Kay Cosmetics was founded in 1963. When was this research done? 1950's or 1960's? It's now 21st century, folks.

But if you bring that up in a MK meeting? You are no longer welcome.

That's #8 and #9 in Thought Control, one of four pillars of cult mind control.

#8 is rejection of rational analysis, critical thinking, and constructive criticism.

#9 is forbid critical questions about leader, doctrine, or policy.

So to conclude: Mary Kay Ash incorporated a myth into company culture, much like other MLM myths based on positive thinking, or "faith", and cult-like tactics were used to enforce the faith.

↧

JM Ocean Avenue: Why did Ocean Avenue merge with a suspect scheme out of China called JM International?

August 7, 2015, 12:35 pm

≫ Next: Scam Tactics: How Do Scammers Identify What You Need?

≪ Previous: MLM Myth: How Mary Kay Ash incorporated the Bumblebee Myth into company culture

Ocean Avenue *was* a nutritional supplement based MLM that started in roughly 2012. After a rough tossle with Visalus due to some people jumping ship, which culminated apparently with a theft of laptop from Ocean Avenue office in 2013, Ocean Avenue apparently merged with a Chinese company called JM International in 2014, according to a member:

OK JM International did a take over of Ocean Avenue back in 2014.
JMOA is part of Joy May who is owned by Joe Zhou, Bruce Fang and Jackie Zhang – JMOA is a $2 Billion company based out of china.
The Ocean Avenue managment stayed after the take over but it was not a happy merger and although Hop Rocket was initially going to be part of JMOA, it was decided that the US team would relinquish their interest in JMOA and everyone in the US office wanted to move to Hop Rocket which soft launched just 1 week ago.

Comment posted by Dottie Lotto on 6-AUG-2015

But who/what is JM International? Seems all we know are some Americanized names, and "it's out of China". (The 2 billion can't be trusted as it's unclear it's revenue, profit, products sold, cumulative or single year, etc.)

So who is JM International? If you search for JM International, , you will find ONLY "JMOA" (JM Ocean Avenue). In fact, you can't even find what JM stands for.

What's really interesting is how the "board of directors" change depending on which site you access, as you can't tell which is official and which is not. Some pages include Tim Richerson and Fred Ninow, others included two other Chinese names (Peter Li and Gary Ren).

However, after a bit of searching, I found an alternate domain, jmtop.com, which appears also to be a global corporate site. However, what's REALLY interesting is for a company allegedly started in China, it has NO CHINESE WEBSITE. It has Hong Kong and Taiwan, but none for Mainland China.

JM Ocean Avenue "select country" page as of 7-AUG-2015 ... No China?

Next stop... Youtube, as I need to find the CHINESE name of this allegedly Chinese company, so I can research it on Chinese media. Searching for "JM International" found an alleged official channel, and following videos:

So we now know that the Chinese name for JM International is 中脉国际

So what does the Chinese Media Say about them?

With a bit of search, we found their Chinese website, jmtop.cn, which is where we got what JM stands for... "Joymain". They used to go by "Joy Life Global", but that's been abandoned.

There is absolutely NO MENTION of "JM Ocean Avenue" on the Chinese website. In fact, they even keep a different JM Logo altogether.

This is their ORIGINAL logo:

This was the Joy Life logo (no longer in use, can be still found):

This is JM International Logo (no longer in use, can be still found, such as on Youtube)

This is JM Ocean Avenue Logo (jmoceanavenue.com, but also jmtop.com)

And this is current JM's Chinese Logo (jmtop.cn) :

What exactly does JM sell, besides nutritional supplements? According to their website, magnet everything... mattress tops, pillows, comforters, shirts, supports, even $11500 USD lounge chairs.

There are reports that the magnet enhanced underwear are selling for between 4000 to 6500 RMB (link in Chinese) (644 USD to 1045 USD). Downlines are encouraged to buy a pack of 8 (29800 RMB) to join and recruit additional downlines who do the same, and they will be rewarded with commission for the sales (15% for first level downlines, then 3% for lower levels). (You can buy them from JMOA now as "JMR4 series")

The magnet blankets and whatnot are available now from JMOA as "JMS3 series".

Yet other products marketed by JM includes magnet tea mug, magnet seat cushion, magnet cooking pans, magnet hot water pots, and so on.

At least one victim claimed to have spent millions of RMB to join at "diamond level" (link in Chinese) and did not get the promised returns. Company claims they have refunded the victim. However, the victim continues to insist that she put in over 4.7 million (link in Chinese), not 1.6 mil claimed by the company. She also refused to sign settlements that proclaimed she has nothing further to do with the company.

Various government agencies around China are looking into this issue, according to news.

Analysis by MLMSkeptic

Taking the above data points in aggregation, it seems to explain why JM Ocean Avenue would want to distance itself from JM China, even had JM China change its logo. Multi-level sales is illegal in China as it's considered a type of pyramid scheme. Direct sales is allowed.

Keep in mind that news reports have described multi-level commission and even heavy front-loading (forcing new members to buy large packs that cannot be explained as "self-consumption"... who buys 8 pack of $1000 USD each underwear for personal use?)

Even assuming this is created by "rogue reps" it certainly does NOT bode well for the company in China. However, JM had apparently cleaned up its image in 2014 from these news reports. I can not find any further mention of alleged pyramid sales in China. However, it's also interesting that 2014 is also when JM merged with Ocean Avenue.

Are the prices just as outrageous out of China as it were in China? The answer is... not that crazy. I have a hard time looking for the prices as they are rarely public, but a few sources I managed to find shows that the "knee protector" (i.e. a knee brace with magnets) is about 45 quids, or $70 USD, retail. Given that knee brace can be purchased at any proper pharmacy such as Walgreens or CVS for between $15 and $25 USD it's still way overpriced, but not as outrageous as it was in China, assuming products are prices roughly at the same "level".

So where does that leave you, the JMOA rep?

If you believe in quackery such as magnet therapy, then by all means, push it on your friends and family. Have them overpay for stuff 300%-700% more, even at the non-crazy prices.

But this JM merger is hardly "joining forces". JM needs to take its MLM act out of China, and you've been volunteered by your OA leaders to be the guinea pigs.

↧

Scam Tactics: How Do Scammers Identify What You Need?

August 11, 2015, 10:33 am

≫ Next: Scam and Religion: What does Islam Say About Scammers (and MLM?)

≪ Previous: JM Ocean Avenue: Why did Ocean Avenue merge with a suspect scheme out of China called JM International?

How does a conman pick up on what does the victim needs, and thus, tailor the scam to fit? There are five different techniques. If you are aware of these techniques, then you can watch out for when they are used on you. Let MLMSkeptic explain the five techniques.

The techniques are:

1) Pre-screening

2) Probing questions

3) The tease

4) The Please

5) Trial Close / Seize

Pre-Screening

Your identity is known on the internet. Somebody out there has a profile on you, more than one if you have used multiple names and/or multiple identities. Credit agencies definitely have one on you (and there are several of them). If you're a professional you have professional profiles somewhere. And those can be accessed. That's just your public profile.

Then there's your "hidden profile". Your behavior online is part of your profile. If you give out your name and email address at capture pages that goes into a profile somewhere, and shady businesses will share that info (even if they promise never to do so) with other shady businesses and that's a part of your profile.

If you ever applied for a loan you will get solicitations for loan offers for MONTHS. They shared your info. And they're legit. Imagine what the ILLEGITIMATE scammers and conman will do...

If you ever asked for more info on suspicious "make money fast" type schemes, or clicked on teaser videos that says "sign up for my ____ for more info" and entered your email for "more info", your name is now on a "sucker list" to be marketed with more **** in a similar genre, because you have shown a preference for such topics.

Scammers (and legitimate salespeople) pay $$$ to buy leads that may be interested in such things, and the lead list is pre-screened for people who are at least interested to whatever s/he's trying to sell. As the joke goes, you don't sell ice to Eskimos or sand to Arabs. By pre-screening the prospects, conversion is much easier.

The prospect generally doesn't see this step, as it's done long before the scammer meets the prospect. To counter this, simply don't be surprised when you got invited / solicited for sales pitch which seems to be exactly what you want. People already "know" you.

Probing Questions

Probing questions are pretty easy... Ask them what *do* they want. Due to pre-screening, you already have a decent idea on WHAT they want. However, there can be a little distance between what they say they want, vs. what they will settle for now. And asking questions will clarify that.

If the presentation is pretty much a monologue, then the salesperson will be asking rhetorical questions, like "Are you looking for financial security in an insecure world?""Are you looking toward better health?" then answer them him- or herself, "the answer is ________!" And scammer will watch the reactions and see if s/he needs to change the speech.

The salesperson will almost always frame the question so the answer is "yes". By answering things in the affirmative, prospect will have influenced him- or herself to answer "yes" later.

The prospect should remain neutral for this part, not only to deny the presenter any clues on how to proceed, but to remain neutral mentally rather than "psyched up", in order to evaluate facts rather than emotions.

The Tease

The tease require a bit of mystery, and a commitment from the prospect to find out more. A "capture page" where the prospect watch a video and enter their info is such a tease if there's no details. The idea is to pique your interest, without telling you much.

Tease works on relatively naive people who are not used to the various sales techniques, but not on veterans. Veterans will simply demand the information they need to make the decision, and will not waste time waiting for your "big reveal".

The prospect should again, remain neutral when confronted with the tease. You are after facts, not teases with no solid info.

The Please

After the tease, where your interest had been piqued, the salesperson then goes for the "please", where they attempt to describe (even altering the script if needed) their product or service as absolutely PERFECT for your needs. If they have done their homework, they should be able to explain why it's perfect without you saying a word. And how it will benefit you and be absolutely worth every penny (and much more) you will pay for it. (And it'll be discounted, just today!)

This is where they will strive to answer the questions you *may* have, even before you asked them. However, they'll do so in a rapid fire manner similar to the "Gish Gallop", to overwhelm you with information, "good" information, and gloss over any bad ones. They don't really want you to ask questions, but rather, let their own shills ask the questions. This may appear to be spontaneous, but is in fact, highly scripted.

Once they are sure you've been sufficiently pleased, it's time for the "seize", where they get you to commit to the sales.

The prospect should take notes on the points offered (both positive and negative) for fact checking later. Again, you need facts, or at least talking points.

The "Trial Close", i.e. "Seize"

The "trial close" is where they try to nail you down on the exact terms you will accept. This is best shown in a car sales showroom. The salesman is going back and forth with a customer, like

"how much can you afford per month?"

"I think I can swing about $300."

"If you will pay only $300 a month for this car, will you buy it today?"

That is the "trial close", where they "probe" you for whether you will accept those terms and close the deal. They want to "seize" you for the final step: Squeeze you for the money.

Prospect should again, refuse to commit to anything. Claim you need to talk it over with your wife / partner, you need to consider it with your advisor, esp. If they start to mumble "offer only available today", walk out. High pressure sales tactics are to be avoided.

Conclusion

I hope you have understood the five tactics sales people (and scammers) identify what you need, and how they appear to have exactly what you need. I've offered you some suggestions on how to counter such tactics. I hope they are of some help to you to avoid such.

↧

Scam and Religion: What does Islam Say About Scammers (and MLM?)

August 20, 2015, 1:56 am

≫ Next: MLM Basics: Just What is Deductible in MLM, and what is NOT?

≪ Previous: Scam Tactics: How Do Scammers Identify What You Need?

Ban_pyra.gif (No to network marketing). (Photo credit: Wikipedia)

Previously, MLMSkeptic has covered how the Christian Bible has prohibitions against scams. Then a reader asked, what about Islam?

Good question! Some research is required to answer this, and one of the best resource is Islamqa.info (however, it is also known for issuing its own fatwas, something frowned upon in Saudi Arabia, but that's something else entirely). In it, we were able to locate Fatwa 42579 as issued by the Standing Committee as established by the Sovereign of Saudi Arabia to be the definitely authority for all Sunni Islamic matters.

To make a long story short... Network Marketing is PROHIBITED under shariah law. It is haram.

Why? Here's my summary, but you can read the full decision.

1) If you have to buy a product / kit to join, and you earn "commission" by recruiting others who also buy the kit, you have engaged in two forms of riba, aka usury / interest, and riba is considered haram. Specifically, riba al-fadl (exchange of goods of same type but different quantity) and riba al-nasi'ah (deferred payment of larger amount than if paid immediately, i.e. get 10 now, or 12 later). The product / kit purchased is considered a smokescreen for the riba.

2) If you are promised pay for recruiting X number of people, it is considered gharar, or "ambiguous transaction", also forbidden, because there is a chance you will be unable to recruit the number of people needed to be paid.

3) The transactions are fundamentally insincere and thus, forbidden, as the transaction benefits primarily the company and some participants encouraged to misrepresent the true nature of transaction.

4) The transaction itself also involves lying and cheating by promising participant wealth they do not usually earn.

In counter-arguments, Network Marketing is NOT considered brokerage, since an initial payment is involved. Brokerage fee (commission) is paid strictly for sale of the product. If you have to buy the product first, it cannot be considered brokerage (and thus you are paid commission). Furthermore, there is no true sales as in a brokerage someone actually wanted the product, whereas in network marketing, recruit primarily wants the promised income, not necessarily the product.

Network Marketing commission payments cannot be considered a "gift". A gift given for a loan is considered riba and if the "gift" obligates you to something it is not a true gift.

----

Further research brought up a few more interesting bits:

* Shariah law prohibits use of Allah's name for business transactions (Yet how many Christians use God's name to cheat their followers?)

* Shariah law prohibits cheating, which includes false eulogy and concealment of defects (yet nobody ever mentions the failure or low income of network marketing, do they?)

* Exploitation of ignorance is also prohibited (lie to the ignorant about the product's true worth)

So, if you are a Muslim, and considering network marketing... don't. Free free to ask your imam and consult the documents I linked to. A true Muslim will never touch network marketing... and remain a true Muslim.

↧

MLM Basics: Just What is Deductible in MLM, and what is NOT?

August 23, 2015, 2:08 pm

≫ Next: FTC shuts down Vemma for being a $200 million pyramid scheme...

≪ Previous: Scam and Religion: What does Islam Say About Scammers (and MLM?)

One of the "advantages" of opening your own business, MLM proponents touted, was that you can deduct a lot expenses as cost of doing business. But can you really?

In terms related to MLM, can you deduct the trips (tickets, hotels, travel expenses, etc.) to attend meetings all over the country?

Under rules in the Federal Tax Code, Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business. The taxpayer has the burden of proving entitlement to a business expense deduction. The deductibility of their MLM expenses depended on whether their activity was engaged in for profit.

To determine whether an activity is engaged in for profit, Section 183 provides a list of factors for the court to consider: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer's history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.

This brings us to the case of the Olletts in 2004. They joined Amway in 1996. They kept their day jobs and made about $100K in 1999 and 2000 respectively, and claimed Amway expenses of $17500 in 1999 and $23000 in 2000, both year with losses (-1450 in 1999 and -3235 in 2000). IRS denied their deductions and it went into tax court, where they were ruled against (i.e. deductions are disallowed) in 2004. Do you know why? The hints are listed above, but let's be specific...

So why were Olletts denied their deduction of tens of thousand yearly? Here's a few facts

1) After YEARS in Amway (1996-2000), Olletts only have 5 downlines, average of ONE downline a year.

2) Olletts admit 70-75% of the alleged sales they made were consumed by themselves.

3) Olletts claimed over $15000 tax deduction as "business travel" to attend training seminars hosted by their parent upline organization, and even purchased a Cadillac ($6000 deduction) as they prefer to drive rather than fly. And they went all over the country on those trainings as well as trips that yielded no results (i.e. no one recruited), where their training had not resulted in more recruitment or sales.

4) At least two trips were to Illinois were Olletts daughter was attending college... and one trip was to where their parents lived, though all were deducted as business trips. When questioned, Olletts claimed they brought their promotional material along and did tried to talk to a few people on the way.

5) There were almost $1500 purchase of training material like books, CDs, training manuals, and whatnot. Olletts have no explanation on why they needed training in their FOURTH year in business, with no appreciable improvement in any sort of metrics, and unlikely to improve in any time in foreseeable future.

The tax court ruled against the Olletts, that they had repeatedly misrepresented personal expenses as deductible business expenses, have no expected profit, and thus, not only were the deductions improper, Olletts are not even eligible to deduct the losses suffered from Amway from their REGULAR employment income.

-----

So where does that leave you, the MLM participant?

A) IRS is watching for excessive and illegal deductions, such as "training trips"

B) If you didn't make profit for years, IRS may pay special attention to you

Now you may say, this may be a special case? Nope, Tax Court is well aware of people trying to join MLM and use it to hide expenses as deductible costs. Here's a few more Tax Court rulings, involving primarily Amway, but can be ANY MLM:

LOPEZ v. COMM., Cite as 94 AFTR 2d 2004-7075
Jorge N. Lopez, et ux. v. Commissioner , TC Memo 2003-142

Tax Court properly determined that engineer and wife weren't entitled to business deduction for expenses incurred in connection with their Amway products distribution activity because they didn't engage in activity for profit: although taxpayers showed proof of profit motive, such wasn't sufficient to override govt.'s evidence that included their failure to keep businesslike records, their failure to alter unprofitable methods, their non-dependence on activity income, and their use of activity to socialize with friends and family.

OGDEN v. COMM., Cite as 87 AFTR 2d 2001-1299
Michael A. Ogden, et ux. v. Commissioner, TC Memo 1999-397
Contrary to the Ogdens' contention, evidence of profit is not determinative of whether a profit motive exists. See id. at 876 (no single tax regulation factor, nor the existence of a majority of factors, is determinative of whether a profit motive exists). There is overwhelming evidence in the record that, if believed, supports a conclusion that the Ogdens maintained their Amway activity for deductions, personal pleasure and to offset wages. The tax court did not abuse its discretion in denying the motion for reconsideration.

ELLIOTT v. COMMISSIONER, 90 TC 960

Deductions denied for business expenses and depreciation connected with Amway distributorship. Activities were conducted in unbusinesslike manner, taxpayers maintained full-time jobs, and little distinction was made between Amway activities and personal social activities.

Roger S. Campbell, et ux. v. Commissioner, TC Memo 2011-42

Activities not for profit—profit objective—distributorship and direct marketing activities. Code Sec. 183 deduction limits applied to expenses pro se married real estate and construction business operators claimed in connection with Amway distributorship activity that they engaged in without requisite profit objective. Lack of profit objective was shown by facts that taxpayers commingled expenses, had no idea if they were making profit for any given year until they filed that year's return, didn't keep complete records, and otherwise didn't conduct activity in businesslike manner.

Kenneth C. Theisen, et ux. v. Commissioner, TC Memo 1997-539

Full-time IRS agent and travel agent-wife didn't operate Amway distributorship for profit, so weren't entitled to deductions from activity: taxpayers didn't conduct activity in business-like manner where they didn't have business plan, perform break-even analysis or have budget; admitted that benefits included ability to buy discounted products for personal use; testified that distributorship was for financial gain and personal purchases were more than purchases acquired for resale; reported losses for 5 consecutive years; couldn't explain how or when distributorship would become profitable or why auto and telephone expenses increased without corresponding revenue increase; kept income and expense ledger for substantiation purposes only; and intentionally excluded cost of motivational tapes from costs of goods sold to avoid disclosing negative gross income on returns

There are dozens more cases like this, dating back 20 years, and yes, one of those was an IRS agent.

Beware when you tried to "deduct" cost of MLM as losses. It may trigger an audit and if your expenses were disallowed, you may lose a LOT more than you expect.

The rest of you may want to consider... If MLM was used as a LOSS to hide regular income, is MLM really as profitable as people claimed it to be?

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FTC shuts down Vemma for being a $200 million pyramid scheme...

August 27, 2015, 9:27 pm

≫ Next: What do you repost? Think about it a little...

≪ Previous: MLM Basics: Just What is Deductible in MLM, and what is NOT?

It brings me no joy to see this news, which was a surprise even to me... I expect action, but not this fast.

But to summarize, Vemma's assets has been frozen and operation stopped based on temporary restraining order as issued by court based on lawsuit brought by the Federal Trade Commission.

Quoting AP / CNBC story:

The Federal Trade Commission said Wednesday that Vemma Nutrition has been temporarily shut down for operating a pyramid scheme that promised college students riches if they sold its nutritional drinks, but most ended up losing money.

The consumer protection agency said that Vemma told recruits that they could make as much as $50,000 per week selling its nutritional beverage Vemma, energy drink Verge or protein shake Bod-e. An initial investment of $600 was paid for products and business tools and $150 in Vemma products had to be bought each month to receive bonuses. The FTC said Vemma provided little help on how to sell its products and instead rewarded them for recruiting more people.

Vemma earned $200 million a year in 2013 and 2014, according to the FTC.
A representative from Vemma, which is based in Tempe, Arizona, did not immediately respond to a request for comment.

A full copy of the complaint and the 5 summary points are available at BehindMLM.com:

Count 1 – Vemma is an “illegal pyramid” scheme

Defendants promote participation in Vemma, which has a compensation program based primarily on providing payments to participants for the recruitment of new participants, not on the retail sale of products or services.

Defendants’ promotion of this type of scheme, often referred to as a pyramid scheme, constitutes a deceptive act or practice.

Count 2 – Income Claims

In numerous instances in connection with the advertising, marketing, promotion, offering for sale, or sale of the right to participate in the Vemma program, Defendants have represented … that consumers who become Vemma affiliates are likely to earn substantial income.

In truth and fact … consumers who become Vemma affiliates are not likely to earn substantial income.

Count 3 – Failure to Disclose

In numerous instances … defendants have represented … that individuals have earned substantial income from participation in the Vemma program, and that any consumer who becomes a Vemma affiliate has the ability to earn substantial income.

In numerous instances … Defendants have failed to disclose, or disclose adequately, that Vemma’s structure ensures that most consumers who become Vemma affiliates will not earn substantial income.

This additional information would be material to consumers in deciding whether to participate in the Vemma program.

Count 4 – Means and Instrumentalities

By furnishing Vemma affiliates with promotional materials to be used in recruiting new participants that contain false and misleading representations, (Vemma) have provided the means and instrumentalities for the commission of deceptive acts and practices.

Count 5 – Relief Defendant

Relief Defendant Bethany Alkazin, has received … funds or other assets from (Vemma) that are traceable to funds obtained from (Vemma’s) customers through the deceptive acts or practices described herein.

Relief Defendant will be unjustly enriched if she is not required to disgorge the funds or the value of the benefit she received as a result of (Vemma’s) deceptive acts or practices.

But what does this mean to you, the Vemma affiliate, other MLM participants, and so on? What will happen on the hearing on September 3rd?

Here's a few layman's speculations. Remember, I'm not a lawyer, and I have no insider information. (Lack of such, however, has not stopped various Vemma "leaders" from issuing feelings, such as "Vemma doesn't deserve to be shut down""It's just a complaint, not a lawsuit""The lawsuit is a joke", "FTC bit off more than it can chew" and so on)

But let's be realistic here... If you want people to lie to you and tell you everything will be alright, go read whatever verbiage your upline put out. You're here for some real analysis.

Analyzing the 5 Charges levied against Vemma

Of the five counts, the first and fourth are probably the most damaging, particularly the first: that Vemma is a pyramid scheme.

As I've explained many times on this blog, often with excerpts from various Vemma affiliate websites, and widely documented via popular media such as various campus newspapers around the nation, even Rolling Stones magazine, Vemma has minimal retail. Which college student can afford to pay $3 (or more) for a can of Verve (and that's price directly from Vemma, no markup) when one can get Red Bull for as low as $1.60 off Amazon with free shipping? It's pretty obvious that most people who signed up are out to sign up more people JUST LIKE themselves... they are buying Verve simply because they have to in order to earn from recruiting people. There is no other logical explanation. No college kid with a brain will willingly pay twice the price for a no-name energy drink unless he thinks it'll benefit him (or her) in OTHER ways, such as put money in his own pocket by recruiting others (who will go on to recruit others... like the Borg, or pyramid scheme).

The fourth charge is providing misleading material to enable the affiliates to engage in further fraud. That just means the material needs to scrapped (and rewritten).

But one can't change the business model without scrapping the entire company.

The second and third charges are basically the same charge: bogus income claims with omission of relevant data that constituted fraud. These two can be easily fixed by writing better marketing materials (but then the affiliates will have a MUCH harder time signing up people if they have been told the whole truth, right?)

But everything revolves around the main charge: it's a pyramid scheme.

Does Vemma have any chance of resuming operations on September 3rd, 2015?

My personal opinion: slim to none. Why? FTC don't bluff. They must have massed ENOUGH evidence to nail Vemma and they would have high confidence of that before they went ahead and obtained the temporary restraining order. This case will likely drag on for YEARS, much like Burnlounge. It's unlikely the TRO can be lifted, as it is impossible to separate "retail" from self-consumption by the affiliates.

But what does this mean for the rest of the MLM "industry"? There's a major paradigm shift coming.

I had written before that DSA, and MLM industry had lost its soul years ago... when it claimed that affiliates have the RIGHT to self-consume as much as they want. It's illogical, and stupid. The question that nobody wants to answer, but lies at the heart of the problem, is a simple one: WHY is the affiliate buying the product? Is it because s/he needs to "qualify" for commission? Or is it because s/he genuinely likes the product?

However, "guessing" at the intent is a complex set of questions as people often lie, either to themselves or to others.

Majority of DSA's major players have business model similar to Vemma. If Vemma goes, the entire MLM industry will go.

IMHO, Vemma will likely ask for a settlement and pay a huge fine in order to constitute some sort of reforms, much like Amway did back in 1979 with the FTC, by creating the Amway Safeguard rules which all subsequent MLM was to have adopted.

But Vemma that we knew? That's done.

↧

What do you repost? Think about it a little...

September 3, 2015, 12:31 pm

≫ Next: Bad Argument: Blame game and god-complex

≪ Previous: FTC shuts down Vemma for being a $200 million pyramid scheme...

Specifically... did you fact check it first?

A: "Did you fact check this before reposting it?"
B: "I don't need to. It agrees with my preconceived views and biases so it must be true!"
from thelogicofscience.com

↧

Bad Argument: Blame game and god-complex

September 5, 2015, 11:41 am

≫ Next: MLM Basics: Six Factors to Consider When Evaluating an Income Opportunity

≪ Previous: What do you repost? Think about it a little...

God-complex is a psychological condition where the afflicted has inflated belief of personal ability, privilege, or infallibility. It is not a clinical term but it was coined by psychoanalysis pioneer Ernest Jones. Basically the afflicted believe that one's a minor deity.

And MLM, due to its persistence in "positive thinking", as well as tap into one's innate belief that one "deserves better", often encourages participants to develop god-complex: that the individual is better at sales than s/he actually is, that the individual deserves to be treated with respect (more than s/he has earned), and the individual is infallible and any proof to the contrary must be wrong.

Here's a very clear example of such: You all are wrong, I am right (trust me).

A person that goes by screenname Shufel posted the following on BehindMLM about Lyoness, a suspect ponzi scheme on multiple continents.

You are all very , but very wrong. My respectful advice is to check everything very well before you do some statement. Do not collect your information from some random blog in internet or you may be collecting wrong information (Like in this one) .

Shufel posted the message twice, without providing ANY proof for his viewpoint (i.e. "you are all wrong") and merely insinuated, with a lot of condescension, that whatever posted at BehindMLM was not the truth, without providing anything to prove such.

Shufel expect you to believe him or her without proof, which is faith, and ignore any evidence to the contrary. Thus, a nearly perfect example of god-complex.

But it points at something slightly deeper... the "blame game"... as demonstrated by Shufel in the same post later:

if some one have a big Lifeline (translation: group of Lyoness downlines) and don’t have income that’s only one option : He is not doing is work right. (sic)

Ah, the familiar "if you fail, it must be your own fault" blame game in MLM.

Consider the slightly restated version of Shufel's accusation:

if someone who build a large downline at Lyoness still don't have income, he's not doing it right.

How does s/he know 'someone' is not doing it right? Why can't it be the environment? Lyoness? His upline didn't teach him? Why did Shufel immediately accuse the participant of being the cause of failure? Again, asking you to believe without proof... faith again. And it was quite common.

What's worse, this sort of accusation does NOT even ATTEMPT to find the root cause of the failure.

Cause is automatically assumed to be the participant. The leader and organization are infallible.

Any evidence to the contrary is "negativity" and are to be avoided.

These are signs of cult mind control, specifically

8. Rejection of rational analysis, critical thinking, constructive criticism
9. Forbid critical questions about leader, doctrine, or policy allowed
10. Labeling alternative belief systems as illegitimate, evil, or not useful

People in the organization who bring up other potential causes of the failure were silenced through gaslighting and other forms of hazing and group shaming, and sometimes threatened with expulsion and forced surrender of their invested money or effort. Any other system of thought to the contrary, i.e. "___ is a pyramid scheme" is automatically labelled "wrong" or sometimes, "not useful", with slogans such as "you can't be positive while thinking negative thoughts".

(Use of slogans to stop thought is yet ANOTHER sign of cult mind control)

So where does that leave you?

Up ****'s creek, without a paddle.

Beware of people with god-complex, and quick to assign blame rather than do a proper failure analysis.

↧

MLM Basics: Six Factors to Consider When Evaluating an Income Opportunity

September 7, 2015, 10:59 am

≫ Next: What is Business Porn, and Why Is It Bad For You?

≪ Previous: Bad Argument: Blame game and god-complex

There are always new income opportunities launched daily. Many of them are downright... WTF? How can any one put money into something like that? While others do look pretty legitimate.

However, it seems nobody bothered to compile a list of things you should know BEFORE you even consider an income opportunity, i.e. basic financial competence... or even basic critical thinking competence.

So here a list of six factors for you think about before you even go to any seminars or such:

One or two examples are noise, not proof

Everybody puts their best face forward, but the emphasis is always on being the "authentic self". If you are poor, you won't come across as a millionaire for long. Same thing with income opportunities. The talkers will usually parade their top earners, but how many of them are there, and do they have an income disclosure statement? How many people actually made decent amount of money?

Most MLMs participants (90% or more) make minimal money. Average sales (not profit) as per DSA for 2014 is about $2000 per year per participant. If a few people made six or seven figures, then the vast majority made practically nothing. And since you're starting, you'll make practically nothing for a few years. Is it worth the time to "try it out" for a few years? Can you afford to?

There are no "secrets" nowadays

In the age of Internet there are no 'secret' ways to make money. ANYTHING can be researched. Something you have no data on, you can Google. If even Google can't find much on it, you either have a language barrier (the "opportunity" started as something in a different country, like China), or it's so new there is nothing on it (who? what? WTF?). NEITHER of which you should touch, no matter how much it had been talked up.

Most likely, the opportunity involves selling something you don't understand, but think you do... Amber, Bitcoin, other cryptocurrency, and so on. As you have no information to judge, you will tend to rely on the PR copy, and that's when you run into problems, as PR copies do not have to be the truth or the whole truth.

Distrust Promotional (PR) Material

Promotional material are often mis-represented or designed to mislead.

One company was found to have promoted a study that later turned out to be possibly faked.

Another company used two studies of less than 100 people each in China to "prove" that their supplement is good for everybody around for world, any age, in any form (shake or energy drink).

Yet another company used a hypothetical paper written by the founders themselves to justify a supplement they sell that had not been proven to do anything.

Beware of people telling you to ignore negative information

Because there are no more "secrets", some promoters have started to teach "avoidance", i.e. "avoid negativity", and claim it means avoiding any information that would have triggered "caution". Such avoidance is often accompanied with slogans such as following quote from Zig Ziglar.

Positive thinking will let you do everything better than negative thinking will.

The problem is this is a misquote, and it does not have the context. Instead, here's the entire quote, from Zig Ziglar's book "Raising Positive Kids in a Negative World", that explains what was REALLY meant by the quote:

What Positive Thinking and Negative Thinking Do: No, positive thinking won't let you do anything; but it will
let you do everything better than negative thinking will. Positive thinking enables you to more effectively use the
ability, training, education, and experience you have.... -- Zig Ziglar, from "Raising Positive Kids in a Negative World"

What's left unsaid: If you don't have the necessary ability, education, training, or experience, you are NOT going to succeed whether you have positive thinking or not.

Negative thinking is thinking in pessimistic terms, like "we'll never find enough customers", etc. This is very different from information that warns of negative results like, "here's proof that this company is not as legitimate as it claimed to be" or "you don't have the experience or the ability you need to succeed".

People who tell you to ignore "negative" information, even warnings like "you lack the training, ability, education, or experience", are reciting a slogan they do NOT understand, and expect you to follow blindly, like sheeple.

Beware of Reality Inversion

Often in suspect scam opportunities, the reality had been inverted, and words you thought mean one thing had been redefined to mean something else, but you won't realize this until you have already joined.

What does "promote" mean to you? It should be "marketing", "trying to sell", "advertise", and so on.

But at some companies, promote means buy, and not just buy, but autoship, i.e. have stuff shipped to your door every month (and your credit card automatically charged), because your job is, according to some promo material is to buy stuff for "some to drink and some to share" (i.e. give away).

The fact that the company automatically reclassifies you as a "customer" if you cannot recruit additional downlines should make their intent quite clear: recruit and buy (for yourself), not sell.

Find Smart Allies

Smart allies are the ones who will tell you, to your face, that the battle is lost and it's time to cut your losses and run, or you're going down a path that can lead nowhere, and WHY, in "5-year-old" terms (like ELI5 topics on Reddit). They are the ones who can explain things to you when you run into something you don't understand, and when applicable, admit when they don't understand, and find other experts who do.

People who tell you yes, you are smart, you have to be to recognize the potential.... who always sound understanding, and so on, blah blah blah... have a good chance of being sycophants and yesman/yeswoman... who wants your MONEY and time and sweat... by fluffing your ego.

There is a Chinese saying: honest advice is difficult to accept 忠言逆耳

Know how to tell the difference between smart (and honest) allies... and sycophants.

Conclusion

Hope you find these tips helpful in not get "taken for a ride" and came back with lighter wallets and a dazed look.

↧

What is Business Porn, and Why Is It Bad For You?

September 10, 2015, 1:53 pm

≫ Next: Scam Psychology: How Context Makes You Irrational (even though it made sense to you... at the time)

≪ Previous: MLM Basics: Six Factors to Consider When Evaluating an Income Opportunity

Ever wonder who writes those books about MLMs? Or "how to become a millionaire" type books?

Probably nobody you ever heard of.

G.K. Chesterton once wrote in his essay The Fallacy of Success, "...On every bookstall, in every magazine, you may find works telling people how to succeed. They are books showing men how to succeed in everything; they are written by men who cannot even succeed in writing books. To begin with, of course, there is no such thing as Success. Or, if you like to put it so, there is nothing that is not successful. That a thing is successful merely means that it is; a millionaire is successful in being a millionaire and a donkey in being a donkey."

Don't get me started on Robert "Rich Dad"Kiyosaki... As I've written about his bargain with MLM, and how his success is due to selling to MLM, not due to his own success. He had f***ed over at least two of his partners. His advice on MLM doesn't even fit his own quadrant system. And he doesn't understand what Ponzi is but managed to write about it any way for Yahoo Finance.

Yet people seem to regard him as some sort of financial genius. Why?

Frankly, Kiyosaki, and many of these so-called business advice writers, write "business porn".

Do you know what is business porn? No? Do you know what regular porn is? It's sex, with the boring parts edited out and dressed up to look the most exciting that few if any sane people would f*** that way.

Porn is fake. It's a SIMULATION of sex. Business porn is the same... books that explain to you the bloody obvious: making money is good. Stock photos that you wish your office look like, and so on. It's NOT REAL.

People who buy these books think there's "that one thing" they will "realize / get" to suddenly turn failure into "success". Often it's something about "attitude" (or mindset), or "gadget" or tool or system, or certain behavioral gimmicks that somehow symbolizes "leadership". They put up the stock photos that their business would never look like, or sprout cliche slogans like "you have to fake it to make it".

But just as porn is not real sex, business porn is not real business advice, even though they sure sound like real advice.

Business porn doesn't have to be books. Network marketing LOVES business porn, but they call it "mentoring" or "upline training" or some such, and can be live or video or audio or seminar or even video conferencing. Remember, "Rich Dad Poor Dad" was business porn adopted by Yager Group, an Amway Motivational Organization. Before its adoption, Kiyosaki was a no-name seminar speaker who went bankrupt (remember his 'surfer wallet' biz?) and resorted to talking about success he never had. Media was also fond of business porn when they ran out of news and started doing "feel good" pieces instead.

In business porn, the advisors are fond of giving examples, like "I did A, then B happened. (So I caused B)" Tom Peters are pretty famous for his "randomly hug an underling" advice (somewhat taken out of context).

In fact, I'd go as far as repeating a different saying: "Self-help is basically porn for wannabe entrepreneurs."

Porn addict lacks the social skills to interact with the members of the gender of his/her preference, but s/he has the desire (and the hormones)... thus, porn. Most of the fun, none of the responsibility. Put them in a target rich environment, like a night club, and the porn addict would not even know what to do.

Business porn addicts (i.e. a wannabe entrepreneur, the average MLM prospect) get a rush from listening and/or reading all the success stories from his or her uplines, from the books and videos, etc. etc. But they don't actually *do* anything with that knowledge. Why do you think "attraction marketing" which is "Laws of Attraction" (i.e. do nothing, just think positive thoughts) mixed with MLM, was so popular? Give them a room of prospects and they can't sell anything.

The really sad ones are the people who not only read business porn, but BAD business porn (such as Kiyosaki, who accused all sorts of things, such as stock market, of being a Ponzi). And then they go around thinking they know more than you do. Often they've been subjected to reality inversion (i.e. "promote = buy")

It's as if they learned sex from reading... Fifty Shades, and think it's normal. That good sex is supposed to hurt.

That they believe they deserved to fail because they think recruiting is the key to success in selling.

Pathetic, ain't it?

↧

Scam Psychology: How Context Makes You Irrational (even though it made sense to you... at the time)

September 16, 2015, 1:14 am

≫ Next: Vemma Lost Injunction Fight. Now What?

≪ Previous: What is Business Porn, and Why Is It Bad For You?

Obamacare Protest at Supreme Court (Photo credit: southerntabitha)

We are all affected by context of a question than we care to admit, and by presenting certain things with the wrong context, scammers lead us into making irrational decisions, such as join a scam and hand over money.

Let's take the subject "Affordable Care Act", for example, otherwise known as "Obamacare".

Did you know that more people support "Affordable Care Act" than "Obamacare", even though it's the SAME THING? 46% oppose Obamacare, but only 37% oppose Affordable Care Act. People even protested at the US Supreme Court.

[Source: USA Today quoting CNBC poll]

This is ignorance. And this is in the general public.

Scammers LOVE this, which is why there are Obamacare scams. Just as there are scams about everything.

So why are more people against "Obamacare"? Because the term was used by Republicans as as derogatory term. Never mind that it's actually Mitt Romney (Republican) that really came up with it for his own state of Massachussetts, leading to a new term, "Obamneycare".

In short, Affordable Care Act doesn't have the "context", the derogatory meaning that Obamacare has.

The lesson is very simple: you have to be knowledgeable and ignore context to make rational decisions.

In business and investment, that's called due diligence, which is really just "fact checking" and "critical thinking". You get all the facts and look beyond the context.

And scammers want you to throw due diligence out the window... by hitting you with slogans to ignore due diligence as well as give you skewed context (that are half-truths, misunderstandings, embellishments, conflicting info, logical fallacies, outright lies, etc.) to lead you into their scam.

Let us take a very classic example: Zeek Rewards ponzi scheme.

Zeek Rewards claim to be the rewards program of the Zeekler penny auction.

Except it doesn't work that way. You don't get 'rewarded' for playing Zeekler penny auctions. You get 'rewarded' for buying Zeekler bids, and GIVE THEM AWAY, and get daily reward (up to 1.8% of the amount you bought, for up to 90 days) (but weekly withdrawals)

That makes absolutely no sense at all. But the promoters (such as the now settled scammer Dawn Wright-Olivares) provided a new context "Oh, it's for promotion! You are giving away the bids to people who signed up to receive free bids!"

Most people just accepted this context and stopped asking questions. Never mind that this makes absolutely no sense.

Think about it... if there are long lines of people waiting to give away bids (to participate in the daily profit share), where is the profit coming from? If there are this many bids being given away, who's actually buying bids? Answer: just these people who's participating in the "rewards program" are buying bids.

Then some scammers started floating another context... That penny auctions are profitable.

That's a half-truth. Penny auctions may be profitable, but there's no proof that Zeekler is profitable.

Indeed, just by counting the number of auctions, and the bids spent on each, proves that it could NOT be generating the amount of revenue that the "profit share" is paying out.

Turns out Zeekler didn't even have an auction license until April 2012, even though it had been operating auctions, both as itself, and as FSC Auctions since 2009!

There are too many red flags around Zeek Rewards before it was finally closed by SEC in August 2012, and the red flags had been there all along. However, the victims had been presented with skewed context to lead them into participating, often by "judas goat" promoters, with a dose of FOMO (fear of missing out). And once they are in, sunk cost, Ikea effect, and other cognitive biases kept them in.

Some even invented skewed context to delude themselves.

Do your due diligence. Research the information, and look beyond the context, so you can think critically and make the proper rational decisions. That is the way you can outsmart scammers.

↧

Vemma Lost Injunction Fight. Now What?

September 19, 2015, 5:14 am

≫ Next: Will US Recognize a new mental disorder: Cult Sales Addiction?

≪ Previous: Scam Psychology: How Context Makes You Irrational (even though it made sense to you... at the time)

If you haven't heard, Vemma lost its attempt to reverse the temporary restraining order put in by FTC when it was shut down. The judge found that the claims and evidence supporting such as put forth by FTC to have merit and Vemma's counter-argument and evidence insufficient to counterbalance such evidence.

As a result, Vemma will have to change:

...prohibition of the sale of Affiliate Packs, and the linking or tying of an affiliate’s eligibility for bonuses or accumulation of qualifying points to their own purchases of Vemma product, whether through participation in the auto-delivery program or otherwise.

The injunction will also encompass the “Two & Go” Program, which falls under the above prohibition.

In other words, buying drinks no longer counts as qualifying criteria.

What are the points to take away from this decision?

1. Affiliates are not customers

Affiliates' job are to FIND customers, and be compensated for doing so. They should not be customers themselves, who want product for product's value.

Yet there's no doubt that affiliates are making the purchases in Vemma. That leads us to the next item...

2. By reclassifying low-performing affiliates as customers, Vemma is a fraud

Judge Tuchi wrote:

(Vemma) have offered no evidence to support a finding that a Vemma participant who intended to be just a customer accidentally identified himself or herself as an Affiliate, or had any motivation to do so...

...Indeed, the present data shows that, between January 2013 and August 2015, more than 73% of Affiliates who received commissions did not earn enough to recoup their investment in Vemma’s programs.

3. Vemma does not enforce its own compliance efforts

Amway, in 1979, in its settlement with FTC (and established modern MLM) created three rules, that came to be known as "Amway Safeguard Rules". Vemma did not follow ANY of them, and indeed, encouraged bending and breaking them.

a. 10 retail customer rule -- Amway requires each rep to sell to 10 different retail customers every month. Vemma only requires one to sell to oneself every month (120 PV)

b. 70% reorder rule -- Amway requires each rep to sell off at least 70% of inventory before ordering more. Vemma bypass this by encouraging self-consumption and self-certification. 15 affiliates every month (out of about 90000 affiliates) are called with a question "are you selling or consuming more than 70% of products before reordering?" and even for this simple step they are 5 months behind, and there's no audit at all.

c. Refund rule -- Amway allows up to 6 months to return inventory for 90% refund. Vemma encouraged self-consumption so there's nothing to refund, thus end-running their own rule.

4. Vemma made (and allowed) false and misleading representations

Vemma presentations, as given by affiliates including print, web, audio, video, and live presentations of affiliate earnings, many of them exorbitant, has NO disclaimer, or only flashed for a few seconds. FTC guidelines for prominent disclosure started in 2014 and clearly Vemma did not bother teaching its affiliates to comply.

Given how lax its compliance efforts are, it's not really a surprise.

Conclusion from Vemma decision

Vemma will be allowed to continue rather than a stranglehold that the receiver held in order to preserve operational data that will determine Vemma's guilt (or innocence). A somewhat looser "monitor" has been appointed and if Vemma can remove the pyramid-scheme aspects of its comp plan it will continue to live.

The real question is can the company actually make the pivot after being a pyramid scheme for so long.

↧

Will US Recognize a new mental disorder: Cult Sales Addiction?

September 20, 2015, 11:08 am

≫ Next: Scam Tactics: Using Cultural Preconceptions and Stereotypes for Affinity Scam

≪ Previous: Vemma Lost Injunction Fight. Now What?

While researching a different topic, I came across this interesting article in Changsa, China, where the local hospital had to treat at least two cases of a mental disorder that was previously unrecognized: addiction to cult sales.

The story can be read here in Chinese, but I'll give you the gist of it:

Hunan Province 2nd People's Hospital Addiction Treatment Center back in December 2014 had to treat a patient who was apparently brainwashed by a cult sales (pyramid sales / pyramid scheme ) organization. The victim, 27-yr old female, lost her job in October 2014 when her company lost the product distributorship, and was recruited by a friend to go to Nanning where supposedly things are better. About two months later, she called home and want her mom to come along and make lots of money. Her mom went for a visit, and realized victim was in the clutches of a pyramid sales organization and had been brainwashed for two months and is totally under their control, with full personality shift.

(article continues after this break)

The victim was an introvert before and rarely use more than two sentences at once. Now she'll go on and on, even supplemented by hand gestures and pacing. And she kept asking mom for money, more money, more money to invest... Mom had to lie about she had money at home to drag her home.

Upon reaching home, even intervention by the entire family, plus uncles, aunts, friends, and so on, the victim cannot be persuaded, and kept planning escape, all the while proclaiming "even if you imprison me for years I am still going back to Nanning, and I will take all of you along so we can all get rich!" Then she went on a hunger strike. Mom and pop tried feeding her, but there was no love there, and she sometimes even verbally and physically abused her parents, which is unheard of in China.

At their wit's end, mom and pop had no choice but to remand her to addiction treatment center, where the doctors diagnosed her with paranoid disorder. The doctor interviewed her and she's perfectly coherent and cooperative, until anything that had to do with pyramid sales was mentioned. Then her personality shifted, including attempt to recruit the doctor and nurse about following her to make money money money. Furthermore, she can't sleep at night, just tosses and turns in bed. The treatment center managed to sufficiently deprogram her after ten days of intensive treatment, so she can feed herself and no longer hate her parents.

The resident chief of the treatement center said this was the second case EVER he had treated like this. Earlier in 2014 he had to treat a 20-something male who was also remanded by his family for similar addiction to pyramid cult sales.

The doctor further analyzed that people who are vulnerable to pyramid sales shows certain personalities traits.

1) They are more emotionally manipulatable than average,
2) They are irrational optimists, in that they believe they can gain sudden riches, and pyramid sales offer exactly what they crave.
3) pyramid sales have a carefully designed system to emotionally manipulate people. There are various "award ceremonies" and "recognition" when you get your pay check, sales leader, and so on. When one "wins" such, everybody claps. This sort of recognition, even if artificial, is uncommon in society, and that makes it that much more addicting.
4) University students don't have the social experience to spot such scams, is optimistic about the future, may even be hungry for "opportunity".

What do you think? Was the doctor right? Should younger people be declared vulnerable population?

Vemma specifically went after high school kids and college kids.

In Israel Tzachi Gozali organized a cult around Herbalife complete with separate compound, uniforms, regimented living, celibacy (unless the girls want to f*** him instead) mandatory weight loss, mandatory 5 shakes a day, only communicate with "elders" (not outside nor each other)... He was eventually suspended by Herbalife.

When will the US recognize the danger of cult sales addiction? This happened many times before in the US. There were several deaths in the 90's and 2000's linked to Amway that I recall.

↧

Scam Tactics: Using Cultural Preconceptions and Stereotypes for Affinity Scam

September 22, 2015, 3:22 pm

≫ Next: Scam Tactic: Speak in Half-truths, or how Vemma is trying to create value out of bull****.

≪ Previous: Will US Recognize a new mental disorder: Cult Sales Addiction?

As the Gemcoin scam reached national stage, a video surfaced recently of Steve Chen and company throwing some sort of USFIA Club party at a McMansion owned by one of his real estate companies (AHome) ostensibly as some sort of reward for "top performing" USFIA participants.

During the event, Steve Chen was wearing a light blue polo with some sort of a badge on left breast, a photo badge clipped on the right breast, and was wearing a gunbelt with holster (and gun), with some sort of shield/badge on the belt in public display. The caption identified him as chairman, USFIA club. (lit: US Royal Club)

Vidcap from video, red caption by Oz, BehindMLM.com
white caption says: USFIA Club Chairman

A later picture shows the gun and the rest, belt shield, shoulder patch, and photo ID badge and its close-up, where it clearly says: GREAT WALL, photo, badge, name, number, date, and "Public Safety".

Photo of Steve Chen cutting ribbon of his own place, close up of badge
brown and green markup by Oz, behindmlm.com,
Steve Chen is obviously dressed as security guard, ID'ed so by badge

Search of LA Area for "Great Wall" yielded a company called Great Wall Security Training Center, in San Gabriel, CA, not far from Arcadia.

Great Wall Security Training Center banner from their own website

Where, as you can guess, they train security guards, including armed guards, gun permits, pepper spray permits, billy club permits, body guard permit, concealed carry permit, and other related stuff.

Why did a chairman demote himself to security guard just to carry a gun around? On a grand-opening ceremony of his own club? For that, you have to understand Chinese culture.

China prohibits private ownership of guns. Guns can only be held by military, paramilitary, law enforcement, and security organizations, and a few sporting and research organizations. Thus, any one holding a gun is assumed to be in a position of power, either authorized by law, or so powerful law looks the other way.

Chinese who moved to the US may read and understand 2nd amendment, about "right to bear arms", but they don't quite realize it to the point of taken it to heart. They hear, but they don't fully comprehend how EASY it is to obtain a gun permit in the US. And Steve Chen used this preconception GUN=POWER to his advantage. By wearing a gun, he is counting on Chinese to assume he is in a position of power, and ignore the fact that he can only wear the gun as a security guard (for his own place).

Thus is the power of cognitive dissonance. And that's hardly the only time Steve Chen played fast and loose with the facts. The so-called 9 facts statement is hilarious in that it basically denied reality and relied on word games (it's not USFIA, it's one of the OTHER Steve Chen companies).

The hilarious part is how we got the full name of John Bao Ping Zhang, body guard / security guard / gem appraiser. Yes, one of those professions doesn't fit. Yet that's exactly how he was presented to the public in January 2015 in Toronto USFIA sales event. They didn't even bother giving him a pseudonym.

Screencap of Toronto event as covered by local media in January 2015

But really, how do you know a guy's a gemstone appraiser... or a security guard? If you dress up a guard in a fancy suit, and told everybody he's a gem appraiser, people will believe you... Until you see pictures of the SAME GUY in security uniform, like this:

Screencap of ChineseDailyUSA.com coverage of May 2015 promo event
where Steve Chen hired a bus and formed a motorcade to visit his own closed
golf course for some cheerleading and target practice

I'm sure everybody's heard of the joke about the driver and the professor.

That's why Steve Chen have to keep tight with John Wuo, ex-mayor of Arcadia. In China, a mayor is a major post. In fact, even the city secretary (mayor's chief of staff) is a very important post, because he handles all the paperwork, and can help or ruin anybody should he prove to be corrupt. That's why Steve Chen kept tight with Wuo... Wuo was being used... with his own permission. Chinese idiom is "one eye open, one eye closed". American equivalent is "turn a blind eye", and the legal term is "willful ignorance", i.e. I don't know the details and I don't want to know.

Don't believe everything you see with your own eyes. Your preconceptions, cultural or otherwise, may cloud your thinking.

↧

Scam Tactic: Speak in Half-truths, or how Vemma is trying to create value out of bull****.

September 25, 2015, 10:48 pm

≫ Next: Scam Tactics: Two-Face, revisited

≪ Previous: Scam Tactics: Using Cultural Preconceptions and Stereotypes for Affinity Scam

Speaking in half truths is the best way to scam. You sound as if you are telling the truth, esp. if that's all the truth you know. You can't be lying if you don't even know the other half, right?

That's why you should fact-check any PR claims, esp. those without any links for you to verify the claims, and if the evidence themselves need to be fact-checked.

Let's take one recent example, when a Vemma fan (what I'd refer to as a Vembot) posted basically a cut-n-paste PR speech "how dare you compare Verve to Red Bull". Okay, I made up that title, but that is accurate. His words in blue, my comment will be in red.

For those trying to do a cost comparison with Red Bull, you are obviously missing the entire concept of Vemma.

Oh, I think we understand you all too well. It is you who don't understand Vemma...

The clinically studied nutritional supplement Vemma cost about $2.00 per serving, if you purchased the stand alone Vemma product.

But did you actually read the two "clinical studies"? (NOTE 1)

Verve has the same 2 ounces of Vemma, plus the components of the energy drink. Yes the price is about $2.80 a can, but $2.00 is the Vemma supplement. So the energy drink component is really only $.83.

You set your own prices. You can say it's worth $1000 if you'd like. There's nothing to compare it to. In fact, there's not even any proof that mangosteen has any benefit on the body. But more on that later. (NOTE 2)

You show me where red bull has 12 vitamins, 63 minerals, mangosteen, aloe vera and green tea. Show me where Red Bull paid 250000 to run full clinical studies to see exactly what happened in your blood after drinking it.

You show me what those "63 minerals" are, and what effect they have on the body. Show me how ECGC is not harmful to the body. Show me how two little studies in China, on self-reported results prove "what happened in blood". (NOTE 3 again)

Until you can show me that trying to compare the to is like comparing a Ford Fiesta to a Ford Mustang. They are both Fords (energy drinks), but they are not the same thing and they dont cost the same thing.

Vemma is no-name energy drink with an unproven secret ingredient. The analogy is bull****.

Now let's look at the footnotes...

NOTE 1: The "Clinical Studies"

Vemma fans (Vembots) kept blabbing about "clinically studied"... but notice that they did not say "clinically proven", because there were only two clinical studies. This somehow was changed to 4 in mid-2015, though I have not seen the other two studies published.

Of the two I've seen, one is the "Immune Function Study". It's full title is actually Effect of a Mangosteen Dietary Supplement on Human Immune Function: A Randomized, Double-Blind, Placebo-Controlled Trial, by Miwako Kondo, Hong-Ping Ji, Yan Kou, and Boxin Ou

The name of the researcher should give you a clue... This study was NOT done in the US. However, searching through the entire paper and you will not find where the test subjects were recruited from. The only clue is that the study was sponsored by University of Beijing. That's in China (duh).

You will also have to read the paper to realize that the entire sample size was 59. 29 took the supplement, and 30 got the placebo (control group). Yes, Vemma claimed these 29 Chinese middle aged or Chinese seniors somehow prove their mangosteen ingredients works on everybody.

Furthermore, Vemma claimed that any CRP > 1 mg/L is high risk. The problem is American Heart Association found that average middle-aged American has a CRP of 1.5 mg/L, and >3 mg/L as high risk. Basically Vemma made up this bull****.

There's supposedly a Verve study as well, but the actual study was never published, so can't comment on something that doesn't exist (nor should any one cite such a study... if there is one).

The other study is known as the "Bioavailability Study", also by the same folks who did the "Immune Function Study". The claim was the mangosteen formula is readily absorbed by the body, i.e. bioavailability. Does it really though? Because what they don't tell you is that this study consists of... 20 people, TOTAL. 10 male, and 10 female, half of which took placebo, also recruited in Beijing, this time, they got Beijing university students.

Vemma repeated touted something about 4800 ORAC units of antioxidants per serving. However, they are too chicken to show you what the FDA says about ORAC:

...mounting evidence that the values indicating antioxidant capacity have no relevance to the effects of specific bioactive compounds... ORAC values are routinely misused by food and dietary supplement manufacturing companies to promote their products and by consumers to guide their food and dietary supplement choices.

What's even MORE hilarious is this study actually concluded that their mangosteen, green tea, as well as vitamins C and E has NO contribution the ORAC values.

So to sum up the two studies... which can be fact-checked... the mangosteen don't do anything, the graph and claims are bull****, the studies are too small to be significant, making their applicability elsewhere highly doubtful. AND ORAC has no use except for bogus nutritional supplement companies have something to claim.

NOTE 2: Do Mangosteen actually have any helpful effects on the body?

As explained earlier, Vemma's own study actually proved that mangosteen has NO effect on antioxidant values.

Furthermore, the consensus of experts, including editor-in-chief of Harvard Women's Health Watch, Dr. Celeste Robb-Nicholson, concluded that any health benefits are UNPROVEN, in a May 2012 Q&A on the newsletter.

In the marketplace, mangosteen is promoted as a way to improve the balance of bacteria
in the body, boost the immune system, and relieve conditions such as diarrhea, urinary
infections, tuberculosis, eczema, and menstrual disorders. These purported health
benefits are unproven in humans.

The compilers of the Natural Medicines Comprehensive Database – an exhaustive
compendium of evidence-based information on alternative treatments – have determined
that there’s not enough evidence to support the use of mangosteen for treating
infections or inflammation or for inhibiting cancer cell growth

WebMD is clear enough"there is no scientific evidence to support any of those claims [of various conditions]"

Enough said.

Oh wait, someone who noticed the same problems I did actually did something about it... He launched a class-action lawsuit against Vemma. Some of the details cited here came from that lawsuit.

NOTE 3: 63 minerals and blah blah blah

He cited 63 minerals. Did he ever ask what those are, and why are they in the drink?

Because if you study a Verve label, you will NOT find the list of all 63 minerals. In fact, you'll just find a reference to "proprietary plant-sourced Major, Trace, and ultra-trace mineral blend".

Actual Verve nutritional label, from caffeineinformer.com

Do you want to know what are those '63 minerals'? Here's a copy of the old label... and its closeup:

original Verve nutritional label (gee, it's much longer!) and look at all those minerals! (from Caffieneinformer.com)
Why do you need to consume chloride, bromide, fluoride, iodine, niobium, aluminum, silica, strontium, titanium... WTF?!

How about aloe vera? The label only specified "mix" of aloe vera gel, mangosteen extract and juice, and green tea of 26 grams in a whole can. Doesn't say how much aloe you're getting. I'm guessing, not that much. Besides, aloe is only proven to help with blood sugar, and maybe cholesterol. As for green tea... while it appears to have wide range of benefits, is there enough to make a difference here? And wouldn't it be cheaper to make your own tea? In other words, isn't this really pixie-dusting?

So to sum up what Verve claimed (as by affiliates), and what it really is...

Vemma Verve was (at best, minimally) clinically studied (twice, with tiny sample sizes), with ingredients of (dubious) value (as agreed by experts) of (no) benefit as antioxidant containing 63 minerals (many of which does not belong in a human body) as well as aloe and green tea (that we can buy for much cheaper elsewhere). Thus the higher price compared to well known national brand such as Red Bull is (not) justified.

By leaving out so many words, you have not gotten the full picture.

That's why you cannot accept presentations and claims without fact-checking them, unless they came from reliable sources. PR material is NOT reliable.

↧

Scam Tactics: Two-Face, revisited

September 27, 2015, 1:18 am

≫ Next: USFIA Update: Turns out USFIA itself is a reload scam... Successor to Amkey

≪ Previous: Scam Tactic: Speak in Half-truths, or how Vemma is trying to create value out of bull****.

Previously MLMSkeptic has covered "two-face", i.e. present two separate distinctive personalities to different audiences, as an Herbalife tactic. Tell government and Wall Street 72% of participants do NOT want income, while holding a convention cheering on those who did profit and entice those who haven't joined with prospects of income.

But there is an even simpler version of two-face... present someone NOT as who they are, by simply dressing them up as something else.

And there's an update later about how Gemcoin / USFIA is being condemned in Vietnam... but first...

Those of you who keep up with the USFIA / Gemcoin developments should recognize this guy (photo from May 29th 2015 USFIA event):

Live ammo shooting coach Security Guard Chang (Zhang, actually) Right 5, photo with fans

With a bit of help from the newspaper ChineseDailyUSA (owned by Sho Tay of Arcadia, BTW) we've determined the guard's surname is Zhang (yes, I misspelled it in the translation).

And with a different photo, where the guard is now... "international jewelry appraiser", was identified as John Zhang.

Life412.com / Professional Gem Appraiser John Zhang (Right 2), Company VP Leonard S. Johnson (Right 3)
international market president Alicia Gesier (Right 4) and Toronto International Market President eric Wu (Right 7)

If you're wondering why did the translation differ... I'm just going with original material, man.

But recently I came across a different coverage of the same Toronto event...

torcn.com / USFIA VP Leonard S. Johnson announcing USFIA Currency Fund Gemcoin's formal release and introducing
Alliance Financial Group (AFG) background and its affiliate USFIA Currency Fund
the guy on the right is, according to placard: John Zhang, international jewelry appraiser

So we have his full name, "John Zhang", and a search at Bureau of Security and Investigative Services, who licenses security guards and investigators, and you get "ZHANG JOHN BAO PING" of West Covina, CA.

The logical conclusion is the "jewelry appraiser" and "security guard" are the same person: the security guard was dressed up as "jewelry appraiser" for the Toronto event, and possibly for the other events in various Chinatowns as well.

That is two-face, at its most basic: present one face, the guard face, to the locals, then at where people don't know you, you can be other people, like "appraiser".

And the Toronto event and its coverage belies the recent "denial" of USFIA, where they claimed they don't even operate Gemcoin.

Here's the title of Toronto news as covered by local media

富豪货币基金在大多伦多面向华裔推虚拟货币

Word for word breakdown would be

富豪 Royal
货币 currency
基金 fund
在 at
大多伦多 Greater Toronto
面向 toward
华裔 overseas Chinese
推 promote
虚拟货币 cryptocurrency / virtual currency

Add it together, you have "Royal/USFIA Currency Fund, at Great Toronto, promoted virtual currency toward overseas Chinese"

So what is "Royal"? That's the 2nd Chinese name picked by USFIA, i.e. 美国富豪

Still don't believe me? Let's look at the first paragraph, i.e. summary:

2015年1月17日 2015-JAN-17
美国富豪货币基金 / USFIA currency fund
在多伦多钓鱼台国宴 / at Toronto Premiere Ballroom & Convention Centre
举行了大型的新闻发布会 / operated a large press conference
暨新年联欢晚会。/ and Chinese New Years celebration
发布会上公司副总裁 / at the conference company VP

Leonard S. Johnson

宣布了美国富豪货币 / announced USFIA Currency
基金珍宝币的正式发行，/ fund gemcoin's formal launch
并介绍了美国AFG集团公司 / and introduced US AFG (Alliance Financial Group)
的背景及旗下富豪货币基金 / background and its affiliate USFIA Currency Fund
所发行的珍宝币的升值潜力及展望。/ and its Gemcoin's appreciation potential and outlook

Any one still want to debate whether USFIA owns Gemcoin or not?

Vietnam seems to have no such doubts. (Link in Vietnamese)

↧

USFIA Update: Turns out USFIA itself is a reload scam... Successor to Amkey

September 27, 2015, 11:35 pm

≫ Next: USFIA Update Continued

≪ Previous: Scam Tactics: Two-Face, revisited

Some readers have posed the question... How did Steve Chen got so big, involving possibly hundreds of millions of dollars?

The answer is... he's been at this for much longer than USFIA. USFIA (as either "American Royal 美洲富豪" or "American Mining 美洲礦業") was only his latest scheme. His previous scheme was "Amkey 安旗" , which started in 2004, and was basically forced to exit China after repeated scandals, but continued in Asia for many more years.

So what exactly was Amkey? According to Amkey's website...

A leading nutritional supplement products corporation, Amkey, Inc, is the provider of the world’s only cell renewal and protection products with multiple international patents. We are a US company established in June 2003 headquartered in Los Angeles, California. We are an e-commerce network marketing company combining R&D, production and the sales of high-tech nutritional supplement products, skin care products and daily sundry items.

It claims to be a member of the Direct Selling Association (US), but searching through DSA.org as of today (27-SEP-2015) shows no such company listed. Searching through news archives seems to indicate that Amkey was accepted by DSA in June 2005, but there is no press release about when it was ejected.

Current US address is the Steve Chen building... 135 E. Live Oak, Arcadia. But let's start from the very beginning...

Amkey in China

Amkey entered China in October 2004 by registering "Amkey (Beijing) Technology Development Ltd." 安旗（北京）科技发展有限公司 in a business park in Beijing. It apparently bought some factory in Shenzhen in 2005 and started selling its products after approval process.

According to an expose penned by an ex-member, Amkey was guilty of multiple misrepresentations.

On 14-SEP-2005, Premier Hu Jintao, attending a UN meeting, apparently met with over 600 local who's-who in the Chinese community, and Steve Chen was apparently among the crowd.

This was immediately plastered all over the Amkey news channels as "Premier Hu and Wife Welcomed By Amkey US CEO, Chinese-American Elite Merchant Council Chairman Steve Chen", claiming that 7 members of the company representing the three branches of Amkey (US, Beijing, and Hong Kong) to attend "US-China CEO Summit", claiming only the top 50 CEOs of the world can attend and they got 3 out of the 50 seats.

So what's the reality? According to the expose writer, Amkey attended a "US China Commerce Summit" at the Waldorf, not the Top 50 CEO summit. As for "welcomed Premier Hu"? A photo of Hu's motorcade driving past an Amkey banner streamed along the route was the "proof" provided by Amkey's website.

Another bout of hilarity ensued regarding the 2004 "Xiamen Direct Sales Legislation Proposal Seminar" 厦门直销立法座谈会. Twenty-two companies were invited to talk with Chinese legislators about what sort of legislations and regulations the direct sales industry needs in China. Amkey, who was NOT among the 22 invited companies, falsely claimed to be among the attendees by inflating the company count to 23 (link in Chinese). This was not done by affiliates, but by Amkey corporate website. The officials were not amused. Furthermore, the only time Amkey appeared in the news is it was on a BLACKLIST of 20 companies that was investigated for possible pyramid schemes.

A different article cited an ex-Amkey in China, Mr. Wei, who claimed that at an recruitment seminar in November 2014, the promoter assured everybody that Amkey will be the first to get direct sales license. At that seminar Amkey sold over 300 distributorships, which costs 50000 RMB each, which gets them 100K RMB worth of merchandise, supposedly. We'll get back to the merchandise later.

There are additional problems with the way Amkey represented its business.

One of Amkey's products, CellGen, claimed to reverse aging, some blah blah about patented, unique in the world, etc. When questioned how is their product related to Juvenon who apparently really was founded by Nobel prize winning scientists and patented even earlier, Amkey allegedly claimed that Amkey owned the patents, but cannot provide a patent number until December 2005, which apparently was not a valid number at the time, according to original author. Searching US Patent database today for Amkey shows only keyboard related patents that belong to Amkey of Andover MA, a completely unrelated company that makes keyboards.

The original author then went on to claim various transgressions by Amkey on its distributors, such as no-notice changes in policy, randomly raising prices or shrinking packaging, pricing items well beyond market price of equivalent products, refused to pay out bonuses until they reach 100 USD, even if members offer to pay transaction fees, forming distributor council but made major policy shifts without consulting them, and so on and so forth. Apparently company signed up a lot of reps to open retail stores, but can't deliver the products, with one excuse after another. It's the factory, it's shipping, it's customs, then when the stuff finally arrived months later, it suddenly costs 40% more, or the contract was changed unilaterally, or the buy-one-get-one-free offer was suddenly withdrawn... The list of shady dealing goes on and on, but other than the online complaints left behind by betrayed distributors, cannot be verified.

A different article, citing an ex-distributor Mr. Wei said that he joined Amkey as a "store owner" that put down 50K RMB for 100K RMB worth of merchandise (to be paid later) in November 2014. Except no merchandise showed up until September 2015, TEN MONTHS LATER, and only in dribbles. Company offered one excuse after another. They need to make Chinese packaging and so on. What's even funnier is the merchandise eventually received was STILL in English.

Mr. Wei quit Amkey when Amkey revamped the comp plan and sales model in early 2006, when suddenly they announced the cancellation of the store concept and instead will go for "small teams". Personal bonuses are cancelled, replaced with team matching bonuses. Basically, Mr. Wei was ruined as they already spent tens of thousand in preparing the store and now, no more store, and hundreds, perhaps, thousands are ruined alongside him. Some tried to transition, but due to the fluctuating prices, failed one by one. Amkey claimed the price changes are due to custom duties, but 43% surcharge was believed to be excessive and possibly fraudulent.

Checking PR material on Chinese website dsbaike (Direct Sales Encyclopedia) shows that Amkey made some outrageous promises in August 2005 (link in Chinese), after the direct sales laws have been passed by Chinese legislature. They claimed they will established 100 "Amkey Way" 安旗模式 flagship stores, and in three years expand that to 1000 stores, as well as make Beijing the Asia HQ... even BEFORE they have received direct sales license. As you have read Mr. Wei, they changed that plan in a hurry, and gave all the distributors whiplash.

In 2004 when Amkey entered China, it apparently also promised distributors that it will IPO soon, and they are selling "protostocks" 原始股, basically having a pre-sale on stocks before the IPO even take place, to the members. There's even attempt to make the more exclusive by limiting people who joined late to only smaller amounts. Supposedly 90% Amkey distributors bought in. Due to the various problems with Amkey, many distributors attempted to sell the protostocks back to the company, and while some succeeded, vast majority failed to get any money back.

Amkey vanished from China around 2006, having never received the direct sales license they promised their minions, leaving the outrageous promises unfulfilled. However, Amkey continued in Singapore, Malaysia, Vietnam, Indonesia, and nearby nations for many more years, which we will discuss next.

DSBaike (China) claimed that Wang Wei 王薇, former actress, once nominated for Best Actress in the BaiHua (Hundred Flowers) award, is Beijing President of Amkey during this period.

Wang Wei (center, brown stripes) posing with Singaporean Amkey group, dated 11/20/2009
photo courtesy of Amkey Singapore team

Nowadays Wang Wei hangs out in Steve Chen's arcadia office making presentations to USFIA folks.

Another who represented Amkey during this time is Kim R. Holland, credited as "Amkey Asia Chief Representative".

安旗公司亞洲區首席代表 Kim R. Holland 發言
Amkey Asia Region Chief Representative Kim R. Holland giving a speech
Photo courtesy of Amkey Greater China 安旗大中華
photo date 25-SEP-2005 (Amkey Taiwan 1 Year Anniversary)

Kim was spotted in late 2014 or early 2015 making announcements at a Gemcoin seminar.

Kim R. Holland, at a Gemcoin presentation in a Hilton (unknown which one)
date unknown, probably late 2014 or early 2015
Photo courtesy of Gemcoin fandom

Amkey "Global #2" leader was apparently "Connie Cheng" (first on left) in a photo dated 14-NOV-2009

Amkey "Global #2" Connie Cheng (first on left) with two unidentified individuals of Amkey Singapore Team
photo courtesy of Amkey Singapore Team

Connie is believed to be in the US, at the USFIA office in Arcadia. Here's a presentation slide of Connie, as of March 2015, making presentation in USFIA office to the USFIA Singapore Team.

Screenshot of PDF created by USFIA Singapore Team, also showing "Connie"
and two unidentified saleswomen of USFIA

A PDF of the original Chinese expose, as published in a Chinese magazine, will be made available for browsing later (PDF host is not accepting uploads at the moment). A separate article by DSBlog.net (China) is also available.

Next post will discuss how did Amkey fare outside of China, how Steve Chen used another bogus Chinese name to defraud Chinese, and why the rumor that "Steve Chen founded China Unicom" persists even today. HINT: It's NOT TRUE, but there's a kernel of truth in there.

↧

USFIA Update Continued

September 29, 2015, 10:28 pm

≫ Next: USFIA Raided by SEC, FBI, etc. on 29-SEP-2015, assets frozen, company seized

≪ Previous: USFIA Update: Turns out USFIA itself is a reload scam... Successor to Amkey

Previously, we have covered how Amkey exited China after series of scandals (product problems, repeated changes of comp plan, sudden reversal of "opening stores" plan) and never received the direct sales license it needed to operate in China, leaving thousands of distributors stranded and disillusioned.

What was surprising though is Amkey continued to operate outside of China, and attracted a following in Singapore and nearby countries.

Amkey and AllianceNGN

Despite Amkey quietly withdrawing from China, it apparently enjoyed several years of continued growth, or at least fast recruitment, in places such as Singapore, Malaysia, Taiwan, and places that speaks Chinese, mainly by adding something called "NGNTalk", an IP talk product for long distance calling without the long distance fees.

NGN Talk's parent company, Alliance NGN, has a very intriguing Chinese name 美国联邦环球通which literally translates to US Federal Global Talk. Really official sounding, isn't it?

Various Chinese fan websites claimed that "Alliance NGN" has received FCC and EC certification. Searching FCC website shows no such certification.

The NGNTalk fan sites (in Chinese, example here, and here), and blogs littered all over the place about NGNTalk hinted at the level of recruiting. The deeper the tree, the higher the share (up to 20% if you go beyond level 8) as well as direct reward for recruiting per head, and so on.

If you look at the main menu of the alliancengn.com, it was actively soliciting investments. Why else would it have "Investor Guide" on its website as a main menu item?

Alliance NGN website, courtesy of web designer MartinMa
Note the section above: Investor information

This was confirmed when one digs into Alliance NGN's innards, where you discover that you can sign up and "invest" and even trade and receive "guidance".

Alliance NGN backoffice screenshot courtesy of MartinMa
Apparently one can invest money into "brokerage accounts" at Alliance NGN, which
was supposed to be a "telecom" company... Hmmmm....

Here's a promotional video of an award ceremony and celebration of various reps with Steve Chen in attendance, believed to be 2008 or 2009.

There seem to be locally registered Amkey companies in Singapore and Malaysia. Apparently Steve Chen took some time to travel to Singapore and Malaysia in 2009. There were many photos of Steve Chen from that trip, with Steve Chen wearing a purple Amkey polo.

Amkey Singapore Team, photo of Steve Chen (leftmost) and unknown individuals, dated 20-NOV-2009

Amkey Co., Ltd. was sanctioned in Taiwan in 2009, where the Fair Trading Commission ruled that Amkey violated Fair Trade Law for repeated failures to file reports of alterations to its sales system to the Commission. According to a separate news article, it was fined 300000 NTD (link in Chinese) (roughly 9000 USD based on current exchange rate) for charging "transaction fees" and various violations of laws in relation to multilevel marketing in Taiwan.

Amkey Singapore apparently declared bankruptcy and closed sometime in late 2009 and was liquidated by court order after a management company sued.

Amkey Singapore ordered closed by court in late 2009,
may have skipped out on rent or building costs?

Amkey website is still active today, but there seems to be no member activity in the past 5 or so years.

Amkey in the US

Amkey was in SoCal, and apparently moved a lot, as there were multiple addresses listed for it, including

2570 Corporate Place, Monterey Park
1111 Corporate Center Dr. Suite 105, Monterey Park
2570 Corporate Place Suite E1, Monterey Park (variation of first)
12801 Schabarum Ave, Baldwin Park, CA
12801 Schabarum Ave, Irwindale, CA (same as above?)
135 E. Live Oak Ave, Arcadia, CA (current, same as all other Steve Chen companies)

That's at least four separate addresses, even if you discount the possible duplicates.

Searching through Google on Amkey showed a surprising result... On May 24th, 2010, Amkey was accused by Environmental Research Center (ERC) of California for Prop 65 violation: poisoning the public with stuff containing lead... Products "Fem Essence, OPC Plus, Kidney Boost, Royal Propolis, and Biolin" all contain lead and thus are in violation of California Health and Safety code. Apparently no action was taken, and a second warning was issued by ERC to Amkey about another product, "P2H" containing lead on October 8, 2010. It is not know what did Steve Chen do to resolve this, as there was no record of settlement or judgment filed with the Office of Attorney General.

No one heard much about Amkey after 2010

So, did Steve Chen really found China Unicom?

There were repeated claims, even today, that Steve Chen, i.e. Chen Li　陳力, allegedly founded China Unicom in 1993.

screencap from gemcoin.ch, "Steve Chen... in 1993... created China Unicom"

So what was the truth? Turns out, Steve Chen did not create China Unicom. China Unicom is a state-owned enterprise of China, and was formally created on July 19, 1994, not 1993.

But to explain WHY he claimed so, we have to go back to Steve's... career. You see, Steve Chen really was in telecom. And he was pretty good at it too... at first.

Steve Chen, from 1989-1992, was in charge of a telecom upstart in Beijing called 北京凯奇通信技术公司 Beijing ~~Kaichi~~ Catch Communication Technology Company ("Beijing Catch"), a pager company, which evolved from a city funded telecom research institute.

From here on the story got a little murky. As far as I can tell, the city of Beijing, with a major stake in the telecom business through Kaichi, chose Steve Chen as a representative for some sort of advisory committee to establish China Unicom next year, among unknown number of members. There were mentions of representatives from Ministry of Energy, Ministry of Railways, and so on meeting in December 1993, but I was not able to locate any details.

According to a Bloomberg profile on "Steve L. Chen", Steve Chen 陈力 (aka Li Chen / Chen Li) was "instrumental in the start-up of China United Telecommunications Co ('China Unicom') and served as one of its founding directors of the board". How was he instrumental is a good question, as he was not among the list of executives that I can find for China Unicom circa 1994. It is possible that as head of "Beijing Catch" he was selected to represent Beijing in the first board of directors. However, it is not known how many directors there were in the founding. And in any case, he certain did not "found" China Unicom.

I was able to locate a Chinese slideshow explaining the structure of China Unicom and it mentioned ~~Kaichi~~ Beijing Catch as a stakeholder / stockholder along with various cities and other telecom companies, as well as Bank of China and so on. However, I was unable to locate ANY official document or citings that directly linked Steve Chen (陈力) with China Unicom.

Thus, at best, Steve Chen was a "I was there at the founding" guy, rather than a "founder". How can a single person claim to have founded a state-owned enterprise? But apparently people in the west don't have concept of "state-owned enterprises" down properly. They seem to think that all companies must have a founder when such is not the case.

There are reports that Steve Chen left China right after 1993, right after he supposedly "founded" China Unicom. As far as any one knows, Steve Chen had never stepped foot in China ever since, not even for major events like Amkey's grand opening in China or anniversaries. No one seem to know the reason.

There's no word on what happened to ~~Kaichi~~ Catch Comm except for a blurb in 2002, when it was reported that ~~Kaichi~~ Catch Comm had been issued a court judgement that it owed over 90 million (link in Chinese) to Bank of China for outstanding loans that was due back in 1997 and 1999. It was not known whether it was able to repay the debt.

So what happened after China Unicom?

According to the Bloomberg profile, Steve Chen apparently moved to the US in 1993/1994 and became Vice Chairman of the Board of AMTEC Inc, in the US. Unfortunately I was unable to find out what exactly was AMTEC Inc. as it is a popular name. The most likely candidate is a "leading manufacturer of auto and semi-auto custom machines" but I really have no other information.

Steve Chen then jumped ship to become Vice Chairman of the Board of Directors of ASPAC Communications in year 2000. ASPAC is listed as an internet provider in California, and it was somehow merged with a "USA International Chemicals Inc." of Encino. Aspac is long closed.

Is there a gap between NGNTalk and USFIA?

According to information alleged by victims of Steven Chen, Steve Chen launched a scam based on his umbrella company "Alliance Financial Group", supposedly solicited money for real estate investments and REITs (real estate investment trust).

While there are many REITS among the frozen accounts registered by Steve Chen, I have not personally seen any recruiting seminars or records of such thus this is unconfirmed.

There are also allegations that Amkey, AFG, NGNTalk AND USFIA all offered protostocks, but so far, only Amkey and USFIA can be confirmed by newspaper and other reports that they indeed offered protostocks. I have no confirmation that AFG and NGNTalk also did so.

Summary and Timeline (estimated)

1989 -- Steve Chen became CEO of Beijing Catch

1993 -- Steve Chen became member of China Unicom pre-board of directors

1993? -- Steve Chen left China for the US

1996 -- Steve Chen became vice COTB of AMTEC Inc.

2000 -- Steve Chen became vice COTB of ASPAC Communications

2003 -- Steve Chen founded Amkey, selling supplements

2004 -- Amkey entered China

2005 -- China drafted direct sales legislation, all direct sales companies must be licensed

2006 -- Amkey exited China quietly after repeated controversy and failure to obtain direct sales license, but Amkey continued in Vietnam, Korea, and other Asian countries

2008 -- Alliance NGN / NGNTalk started, as some sort of "Next gen network"but acts more like a brokerage, according to sample screenshots.

2009 -- Amkey Taiwan sanctioned, Amkey Singapore closed by court order (bankruptcy?)

2010 -- Amkey warned of lead in all its major products in California, unknown resolution

2013 -- USFIA started, along with UCCA, started recruiting members, and reached China by end of year. It appears to contain the same top players from Amkey.

2014 -- USFIA in China attracted attention of authorities due to lack of direct sales license, and when their meetings started to attract hundreds, perhaps thousands of people.

Victims started going to police in May, and arrests started in June.

Two escaped to Thailand, and continued recruiting, but was arrested and extradited by "Operation Foxhunt" to apprehend overseas criminals.

Gemcoin was announced in September 2014

2015 Leonard S. Johnson, standing in for Steve Chen, presented at various Chinatowns around north America touting how AFG backed US "Royal" Currency Fund Gemcoin is backed by amber and so on

September 29 USFIA reportedly closed by SEC and other authorities.

EDIT: Updated Steve Chen's years between 1993 and 2000.

Conclusion

As I was finishing up this blog post, news came that SEC, FBI, and a host of other alphabet agencies have shut down USFIA and Steve Chen.

Finally, but "it ain't over until the fat lady sings".

There is always another scam out there. Don't let your guard down.

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So what happened after China Unicom?

Is there a gap between NGNTalk and USFIA?

Summary and Timeline (estimated)

Conclusion

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