Online gift exchanges are bogus, illegal

via Moak: Online gift exchanges are bogus, clarionledger.com, 12/9/2015

PDF: Gift scams

Every year around this time, various messages start appearing on social media and email with something that sounds like a really great idea: send a gift to a person on some list, and you’ll be showered with gifts in return! With the season of giving upon us, a lot of folks seem ready to gleefully join in. But be warned: Not only is this scheme unlikely to send the mailman to your door laden with gifts from perfect strangers, the whole thing is illegal.

The “Secret Sister Gift Exchange” (SSGE) is just one of many of this type of solicitations making the rounds on Facebook and other social media. According to Snopes.com, several similar schemes are making the rounds, including ones in which you can allegedly send books to kids.

“SSGE encourages you to mail a gift worth $10 to a stranger at the top of the list,”explains the Federal Trade Commission’s Carol Kando-Pineda. “Supposedly, in return, you’ll get a pile of presents from other participants. SSGE and come-ons like it encourage you to hop on board an enticing cash- or gift-giving experience. Sounds like a good time, right? Sorry, Blitzen, stop that sleigh!”

SSGE, Kando-Pineda explains, is just another version of a pyramid scheme, the well-worn ploy to get people to send money or items to a person at the top of a list, in exchange for the potential of receiving lots of money. But according to many sources, the U.S. Postal Service considers these schemes to be illegal gambling.

A related ploy is the chain letter, which often warns you to ignore it at your peril. Earlier this week, I even saw a Facebook chain post that asked you to “repost this on your wall if you love Jesus; keep scrolling if you don’t.” I sure do love Jesus, but I’m not falling for such silliness. (In fact, didn’t Jesus tell us to show us we love him by serving others in his name, not by guilting people into reposting some Facebook message? I mean, who are the people who cook this stuff up?)

Now, to be clear, there are legitimate (and fun) ways to help people during the holidays that don’t involve participation in some sketchy Internet pyramid scheme. Here are five:

  1. Buy a gift card for somebody and find sneaky ways to make sure they get it, but don’t know who gave it to them.
  2. Help out at a local charity that feeds, clothes or supports people in need. (If you really want to make an impression, you could commit to helping at other times, too.)
  3. Instead of giving gifts that will be forgotten in a few days, take the money you would have spent on that person and give it to your favorite organization in their name. (But be wise about it; check out the charity on give.org, Charity Navigator or similar sites.)
  4. Perform an act of service for a shut-in or neighbor in need. Bushes need trimming, leaves need raking; houses need straightening. Such service will not only benefit the person receiving it, you’ll reap the rewards, too.
  5. Spend quality time with your family. As someone once said, “There is no present like time.”

Feds say Vemma is a pyramid scheme

via Moak: Feds say Vemma is a pyramid scheme, clarionledger.com, 9/1/2015

It seemed like a perfect solution for cash-strapped college students and young adults. You could make lots of money through a company called Vemma, without having to go to a 9-to-5 job by selling products that supposedly can provide energy and nutrition. But the Federal Trade Commission threw a flag on that play Thursday, when they obtained a federal court order to stop the company’s operations and seize its assets.

“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “We are also alleging that Vemma is an illegal pyramid scheme.”

According to the FTC’s court order, the operation earned the company more than $200 million annually in 2013 and 2014. Vemma had “affiliates” in more than 50 other countries, some of which (Italy, Austria, Switzerland and others) had been investigating accusations it was a pyramid scheme.

As a reminder, a pyramid scheme is a business that purports to sell a product or service by using a network of participants, but in reality, is just designed to enrich people at the top of the pyramid by recruiting new members. Few — if any — products are actually sold, and participants at the bottom of the operation usually lose the money the invested.

The FTC alleges Vemma used its “affiliates” to promote its health and wellness drinks. According to the complaint, Vemma promised affiliates could earn substantial income by enrolling others as affiliates or customers, but Vemma focuses on recruitment rather than retail sales of its products to generate this income. “The vast majority of participants make no money, and most of them lose money,” the FTC noted.

Luring potential members involved the use of social media and websites, which showed young people living prosperous lifestyles, with “luxury cars, jets, and yachts,” while claiming participants could earn as much as $50,000 per week. “The defendants allegedly claim that affiliates’ earning potential is limited only by their own efforts and that Vemma provides young adults an opportunity to bypass college and student loan debt,” the agency noted. To participate, Vemma requested an initial investment of $500-$600 for an “Affiliate Pack” of products and business tools, and affiliates had to buy $150 in Vemma products each month to remain eligible for bonuses. At the same time, Vemma offered no meaningful discounts or incentives to encourage retail sales.

So, how do you know if a business is a pyramid scheme, vs. traditional network marketing? It’s hard to tell, but here are a few red flags:

  • Your income is based mainly on the number of people you recruit (the “downline”), and the money those new recruits pay to join the company — not on the sales of products to consumers.
  • You’re required to buy lots of inventory.
  • You’re forced to buy other things you don’t want or need just to stay in good standing with the company.
  • Be skeptical of “rags-to-riches” stories, or images of extravagant lifestyles. Even if true, these are unlikely to reflect the average customer’s experience.

Finally, before signing on with any company, check it out thoroughly. Don’t rely on the company’s own website or testimonials; the information is unlikely to be objective, and is designed to make participation attractive. For more on how to recognize a pyramid scheme, visit https://www.consumer.ftc.gov/blog/telltale-signs-pyramid-scheme.

Nationwide Pyramid Scheme Shut Down

Originally published in the Clarion-Ledger on 5/16/2014.

PDF: Nationwide pyramid scheme shut down

Pyramid schemes have been blossoming all over the United States since the nation hit hard times a few years ago. Of course, pyramid schemes are not anything new; these scams have been around in some form or other for decades.

But there is occasionally some good news, as a scheme is shut down by the authorities. Since Wednesday, at the request of three states and the Federal Trade Commission, there is one less pyramid out there.

Kentucky-based Fortune Hi-Tech Marketing, which allegedly targeted more than 100,000 consumers in the U.S. and Canada, is accused of claiming consumers would earn “significant income” by selling products and services from companies such as Dish Network, cellphone providers and the company’s own line of health products.

“Despite FHTM’s claims,” noted the FTC in a release, “nearly all consumers who signed up with the scheme lost more money than they ever made. To the extent that consumers could make any income, however, it was mainly for recruiting other consumers, and FHTM’s compensation plan ensured that most consumers made little or no money.”

In January 2013, a federal court froze FHTM’s assets, and this week’s judgment demands payment of $169 million, much of which will be suspended if the operators of the scheme produce $7.75 million. The scope and size of the FHTM operation makes it one of the largest such schemes shut down. The FTC joined the attorneys general of Illinois, Kentucky and North Carolina in asking a federal court to halt the practices of the company.

“Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC’s Midwest Region. “At any point, most people must and will be underwater financially.” Consumers typically paid between $100 and $300 per year and up to $400 a month to get recruiting bonuses and commissions.

FHTM’s scheme is fairly typical, allegedly promoting itself to hard-hit consumers as a way to achieve financial independence. Through the use of “shills,” or fake testimonials, representatives would aggressively promote the company.

According to the complaint, recruits were told they could earn high commissions by selling products to people outside the operation, but instead only minimal compensation was paid for sales to nonparticipants, and few products were ever sold to anyone other than participants. The scheme provided much larger rewards for recruiting people than for selling products.

“This is the beginning of the end for one of the most prolific pyramid schemes operating in North America,” Kentucky Attorney General Jack Conway said. “This is a classic pyramid scheme in every sense of the word.”

People often are confused when trying to distinguish between what may be an actual opportunity and a pyramid scheme. It’s intentionally confusing, and representatives are often cagey about answering questions. But generally, remember three basics:

  • If the primary source of earnings is the number of people you recruit to the plan and not the products you sell, it’s a pyramid scheme.
  • Don’t assume that even if a company has celebrity endorsers or sell familiar products that it is on the level.
  • “Rags-to-riches” stories are common in such schemes and don’t typically match the real stories of most people who join the program.

“A successful legitimate company will portray an honest picture of the opportunity, including the possible risks, rewards and challenges and usually tend to treat the experience like running a small business,” noted Mississippi Attorney General Jim Hood. “A pyramid scammer, however, will happily sell you on the promise of making tons of money with little effort, pressuring the consumer to make a decision which is uncomfortable to them.”

(A Google search of Fortune Hi-Tech Marketing locations in Mississppi turned up contacts in Bassfield, Brookhaven, Clinton, Long Beach, Magee and Pearl.)