I was planning on writing this article a couple of months ago, but I got busy (yes that Le-vel thing again.) Fortunately, my wife got a phone call that reminded me to write this. I didn't hear the call, but she quickly hung up and said, "Some kind of tax scam" when I asked who it was.
"Typically, con artists falsely claim that refunds are available even if the victim went to school decades ago. In many cases, scammers are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money."
I think there are two main defenses you can use to protect yourself against this fraud. First, it is helpful to grow that critical thinking muscle in your head. Yes the brain. If it sounds too good to be true, it probably is. If someone is calling you up on the phone to offer you something, and you don't know them, it's probably not a good idea. (Incidentally, these are also the kinds of things that can help you avoid many MLM/pyramid scheme scams.)
The second thing you can do is file your taxes sooner. If you get your taxes done quickly, it gives someone less time to steal your identity and beat you to the punch. Unfortunately, this advice comes too late this for this year's taxes. The best way to get them done quickly? In my opinion, TurboTax is the way to go for most people.
Happy Consumer Protection Friday. (If I keep writing it perhaps others will join in and make it a real thing.)
Typically, I cover MLM scams because I find it interesting how they confuse victims into thinking they are legitimate business opportunities. This week I'm switching it up. I'm going to look into car donation charities. You've probably heard those annoying, earworm, jingles sung by kids on the radio (yes Kars4Kids I'm looking at you... and please make an attempt to learn to spell).
Are they good charities or should you put your money elsewhere? Let's find out.
To start, I should mention that I normally wouldn't have thought about car donation companies being scams. I've gotten rid of one car in the last 15+ years and it was a sale as a private party. I don't remember how I moved the cars before that.
It's not very often that I hear about Attorneys General suing companies. It is less often that those companies are charities. The article was full of information that I didn't know. This was perhaps the gem: "...car donation organizations give a much smaller portion of the donations they receive to charity than similar sorts of fundraising campaigns, spending nearly two-thirds on salaries for their own employees and other administrative costs."
So if you donate a car worth $9,000, you are really only giving $3,000 to the people who need it.
Is that really a scam? I say that a scam is in the eye of the beholder and my opinion of a scam is not necessarily going to be yours. That said my opinion allows for a very broad definition.
These car charities definitely fit my opinion of a scam. Why? Simply because it isn't what a consumer (or in this case the charity gifter) would expect. It feels to me that the organization exists to create well-paying jobs for the people who work at the organization... and maybe give away some money to help others in need in order to sleep well at night. Aside from the salaries at the charity, there are also high advertising costs (the radio airtime on those jingles isn't free) to bring in the money for the jobs and the recipients of the charity. Finally, I presume that the cars often need to be fixed up before being passed on to the recipient.
So then I went to look for more articles. I found this one on Kars 4 Kids, which said:
"According to [Doug White, professor at Columbia University], many car-donation-based charities that operate under this simple model 'hoodwink' the public, losing a large portion of the money raised from the sale to the middlemen who recycle the car or sell it on behalf of the charity. Kars 4 Kids is one of the few that does most of the work in house and thus avoids many of these losses."
I'd definitely call "hookwink" the same as "scam", wouldn't you? However, it at least sounds like Kars for Kids might be a good charity because it doesn't use the middleman, right?
"Financial statements for two nonprofits associated with Kars 4 Kids show the charity lost more than $5 million on real estate investments in 2010. In the same time frame, Kars 4 Kids spent about $6 million on programs for children."
That makes it sound like it's "Kars 4 Real Estate Investments" doesn't it? There's also this:
"In 2009, attorneys general in Pennsylvania and Oregon forced Oorah to pay $130,000 in fines for failing to disclose the religious purpose in ads."
You didn't realize that Kars 4 Kids (which gives its money to Oorah and Joy of Our Youth) is a religious organization. I didn't either. It's fine to donate to religious organizations, but maybe people would donate to a religion of their own faith... if the jingle actually disclosed it.
Fortunately, it looks like I'm not the only one to cover this. It seems like BankRate has a consumer warning. About.com is very blunt: "The ads that you see everywhere that offer to help you make a car donation to charity are almost always rip-offs."
So how do you avoid these car donation scams? I'd personally just avoid donating cars and money to them. If you have a car that is working condition, perhaps you can sell it for cash. Then donate the cash to a reputable charity that you've researched and vetted. This way, you know where your money is going.
Years ago I created a car site with a friend's help. I had forgotten about it until this article. It turns out that How to Donate a Car is one of the most popular articles. Now I have to go back and see if the author I hired was accurate.
Over the last year or two, I've been using Friday as a day to write about "scams." I didn't consciously make a decision about it, it is something that kind of just evolved. A lot of readers ask me questions, I do some research to answer them. I figure this information may help other people, so I write an article with my findings.
I think scams are often overlooked in personal finance. It's great to save money for retirement, have an emergency fund, and all that, but it is also important to not lose your money to some scheme. Saving and growing money is important, but don't forget about protecting it. That protection may directly save people tens or hundreds of thousands of dollars.
I particularly like covering scams because it gives me a chance to exercise my critical thinking muscles. I hope readers enjoy exercising those muscles with me.
When I started writing about scams, I didn't think much about the word. Readers know I write in a conversational tone. So my writing is often a reflection of what I'd say to a friend, a colleague, or anyone else if they asked me about my opinion on something.
It never occurred to me that "scam" may mean different things to different people. The other day someone told me that it implies illegal activity. That was very, very surprising to me. Here's why:
Wikipedia redirects the word "scam" to Confidence Trick, which I feel is very appropriate as they have the same meaning to me. Wikipedia further defines Confidence Trick (and scam):
"A confidence trick (synonyms include confidence scheme, scam and stratagem) is an attempt to defraud a person or group after first gaining their confidence, used in the classical sense of trust. Confidence tricks exploit characteristics of the human psyche such as dishonesty, honesty, vanity, compassion, credulity, irresponsibility, naïveté and greed."
I've heard people whine when I cite Wikipedia as a source, but it was deemed as accurate as Encyclopedia Britannica back in 2005 and has only gotten better since then... especially in cases like this one where the article has many more than 500 edits dating back to 2002. In such cases, it represents the collective wisdom of hundreds of people, which I think is more powerful than a dictionary. So please don't whine about my reliance on Wikipedia with regard to this specific case.
If you are going to extend "scam" to imply illegal activity, I believe you are making a statement about what is and what isn't legal. I have ideas of what is legal and what is illegal, but I don't possess a 100% understanding of all laws. I don't even think judges know ALL laws. They may be able to look them up, but in the context of writing an article under deadline, it simply isn't practical. Furthermore, laws and their interpretations change over time. Finally, since this blog is accessible worldwide, I obviously don't know what your laws are in your area.
So to the person who told me that "scam" implies illegal activity, I'd say that it can imply illegal activity, but I'm not sure it has to. For example, I'm fairly sure that reducing the amount of propane you are refiling a tank with is legal, but I would say it is confidence trick or scam to not tell people you are putting in less propane in tank. And I certainly don't know if there is a law on the books about the disclosure of the amount of propane in tanks.
Am I going to say that consumers are getting "scammed" by it? Sure, but that's because it is my opinion based on the information I have available and doing my very best to disclose in my articles.
"Scam" and the Law
I'm not a lawyer. I don't even play one on TV. However, I'm pretty good with research (thanks Google!) and I think my computer science background gives me a strong grasp of logic. When something isn't logical, it irks me... in that way, I'm a little like Sheldon in Big Bang Theory. I think that most of the time the law is right. Judges generally make good decisions and fair precedent is set. That's not true all the time as I don't like to get into absolutes, but it's just my opinion.
I'm usually very careful to ask if something is a "scam", until I feel that there's so much overwhelming evidence that my opinion is that it is indeed a scam. I ask because reader feedback is very important in helping me. I try to put a ton of research into my articles, but if a reader comes up with a rock-solid explanation for why I am wrong in my research, I'm happy to say, "Nope, no scam here."
If the day arrives that asking questions is anything other than free speech in the United States... well it would be the darkest day in our nation's history.
Getting back to The Consumerist's list above. I have never tried to say a false statement on Lazy Man and Money. If any reader finds a false statement, I challenge them to point it out in the comments so I can correct it. (If your opinion is different than mine, it doesn't mean that my statement is false). I admit that I have been wrong. I'm fallible like any other human out there.
I also can get in heated discussions about the scam articles I cover. This happens particularly when the person commenting is using false statements when they should, as representatives of the company, know better. I think about the misinformation and disinformation that they are spreading to lure in unsuspecting victims into the scheme. (See the point about Sheldon above being irked by this.) Sometimes I use hyperbole in these situations to get people to understand exactly how far off they are. In general, I focus mostly on customer service and that means getting back to people as soon as possible, even if I see the comment late at night. This is the way I've always blogged, get information out there as fast as possible, even if it isn't quite polished. Most publishers don't reply back to comments at all. I want to do better than that. Some 99.999% (maybe more "9"s) of the time this works out awesomely. For the rest of the time, go back to the previous paragraph about being fallible.
Moving on, statements of opinion are protected speech. As I covered above, my use of "scam" is always of my opinion. The Consumerist specifically cites this court case as precedent that "running scams" is a matter of opinion.
So again, while I'm not a lawyer, this information helps me form the opinion that using the word "scam" isn't an issue. That is unless you want to believe all these courts and media outlets got it wrong.
Sometimes some government authority sanctions a company or operation validating my opinion. Sometimes they don't. I know people have been speaking out against Herbalife for more than a dozen years and it only has gotten attention from authorities until recently. Fortune Hi-Tech Marketing (FHTM) got shut down by the FTC years after USA Today reported they may be a pyramid scheme.
When USA Today asked the question if a FHTM was a pyramid scheme, they were ahead of the law enforcement system... same with the people calling out Herbalife a decade ago.
I don't mean to disparage the law enforcement system, but it seems like they've got too much to do and not enough money to do it with. It doesn't make sense that I could call the scheme two years in advance and consumers have to be victimized while the law enforcement gets its act together.
By signing up to be an MLM, you've placed your entire company under scrutiny. To the best of my knowledge there is pending litigation on ViSalus, MXI Corporation, and Stream/Ignite all MLMs alleged to be pyramid schemes.
So my best advice to these companies is ditch the questionable pyramid behavior. It is extremely easy to do. You can run a legitimate affiliate program if you want to reward people for marketing your products.
If you don't ditch the questionable pyramid behavior people should rightly ask "WHY?!?!" and presume you are guilty. If your company is legit, simply act legit.
My best advice to prospective entrepreneurs is not to get mixed up in MLM shenanigans as the FTC could shut down the business at any time. Why attempt to build a business on something that appears to be illegal? They could leave you and you'd be left with no business.
Sorry for the rant. If you are reading this, you are a saint for sticking through nearly 1700 words of this. If you couldn't tell, much of this has come from personal experience. However, I've also seen dozens of well-meaning consumer advocates get shut down by fear or something else, when they legally shouldn't have been. That means that people are getting robbed of the information they need to make an informed decision, which is never a good thing.
A couple of months ago, a regular reader sent me an interesting email. His wife is pregnant with their first child. (Congrats!) Like most expecting mothers, she is dealing with morning sickness. Her doctor told her to suck on Preggie Pops, and if that doesn't help, to come back for another visit, and she would prescribe her something for the nausea.
After driving all over town looking for Preggie Pops, the couple came home empty-handed. They turned to the internet to order some. It isn't instant relief, but it is better than nothing. Like all brilliant consumers, they looked to see what the active ingredient is so that they can look for an equivalent generic and save some money. It was then that they discovered that the active ingredient in Preggie Pops was... nothing. There is no active ingredient. He wrote me:
"[They are] an over-priced piece of candy placebo on a stick, marketed to pregnant women! My wife (who is a doctor herself) was more than a little insulted. Ingredients: Sugar, corn-syrup, corn-starch, natural flavors.
To top off his frustration, it was another hour trip to see the doctor for the nausea medicine.
His frustration is understandable, right? No one likes wild-goose chases. It's a lot of running around for sugar and corn-syrup.
Finally, let's just say that I'm not a fan of marketers lying to consumers to make a buck. I believe there is a simple word for it, "fraud."
What Makes Preggie Pops Different?
I had a gut feeling that Preggie Pops weren't nearly as bad as the pyramid schemes selling snake oil. It took a little thinking to bring my gut feeling into words that I can use to explain it.
The pyramid schemes selling snake oil use a Groupthink and financial bias (through a financial fraud) to coerce its cult-followers that the products work. Preggie Pops do nothing of the sort. No one joins the Preggie Pop cult. When Scarlett is trying Preggie Pops, she's not thinking "If this works for me I can make money recommending it to Candice", which would logically increase the placebo effect.
As if avoiding a cult isn't important enough, there are the other considerations. If your doctor is recommending it, it doesn't undermine the doctor-patient relationship.
Morning sickness is also a special case. Its very nature is fleeting with the advancement of the pregnancy. No one goes through life with a chronic case of morning sickness.
One of the other problems with placebo is that they can prevent people from getting real medical treatment during which time the condition may worsen. In this case, the condition isn't likely to worsen.
Finally, until very recently there didn't exist real medical treatment out. This Reuters article points out that this morning sickness drug is the first the FDA approved in 50 years.
(Interesting side story: It was taken off the market in 1983 after mothers filed a ton of lawsuits claiming it hurt children. It wasn't that it was shown to cause harm or be ineffective, but the company didn't have the money for a legal defense. Reminds me a little of the witch-hunt with vaccinations, except they have the money and scientific community.)
According to the Reuters article, this new medication, Diclegis, "consists of two main ingredients: doxylamine succinate, which is contained in several over-the-counter antihistamines; and pyroxidine hydrochloride, also known as vitamin B6."
We'll get back to the B6 in a bit.
Understandably, expecting mothers aren't going to rush to take medication. We are all very, very careful with such little lives. Many of the safest medications specifically state to consult your doctor. My wife, a pharmacist, not only stayed away from every medication known to man, she extended her boycott to anything that she considered a chemical such as high-fructose corn syrup or artificial sweeteners.
Given this, I can understand and appreciate the appeal of a sugar candy to alleviate a temporary symptom.
So Do Preggie Pops Work?
If you want to know if something is clinically effective, you do studies as described here. These studies properly blind patients and researchers to avoid bias as well as take other safeguards to ensure the science is accurate. I couldn't find any such studies on Preggie Pops.
The closest thing we have to that (which isn't that close) are the Amazon reviews Preggie Pops. There are currently 139 ratings that average 3.6 out of 5 stars. That's very underwhelming as far as Amazon reviews go.
The Wall Street Journal reported on the lollipops as well. They bring in gastroenterologist Patricia L. Raymond, an assistant professor of clinical internal medicine at Eastern Virginia Medical School in Norfolk, Va, who said, "there is insufficient proof that any of the candies are effective."
The article goes a little further to explore the company's claims. In particular Preggie Pops contain two ingredients that may help with nausea.
The first is ginger. Preggie Pops contain 62mg of ginger according to the article. A Dr. Leung has reviewed studies which seemed to show that 750 to 2,500 milligrams may help with morning sickness. It is dangerous to make conclusions on a few studies and of course, Preggie Pops contain far less of the ingredient than in the research.
I noticed that only one of Preggie Pops flavored were ginger. It wasn't clear to me if there was ginger in their other flavors. However, these Ginger Tummydrops are better rated than Preggie Pops with a 4.2 rating across 366 reviews. So maybe people's reviews of Preggie Pops are dependent on the flavor.
The Wall Street Journal also mentioned that a couple of studies showed that 10mg of B6 or more may help with morning sickness. Again, these studies are sparse, but it is worth noting that Preggie Pops do contain 10mg of vitamin B6 and a competing brand has 25mg.
If you remember, one of the two ingredients in the recently approved prescription medicine above was vitamin B6. Again, the research in general appears to be paper thin.
So what about the cost of Preggie Pops
This website is about money, so I need to talk about the money aspect. This might also help people who can't locate Preggie Pops locally or don't wish to wait for them to be shipped over the internet.
Preggie Pops and Tummydrops on Amazon cost around 32 to 37 cents a piece. It doesn't sound like much, but it could be a a buck per day for a couple of months.
This Source Naturals Vitamin B-6, 50mg, 250 Tablets is 3 cents per does, about 1/10th cost... and it has twice as much vitamin B6. If you have a pill splitter handy, you could make that 500 pills of the same amount of B6 in some of the drops or pops. The pills also state that they are used for morning sickness.
What about the Ginger? The Ginger Tummydrops seems to contain 15mg of ginger even less than the Preggie Pops 62mg. However you can get 550mg of Ginger Root for 5 cents a pill. That's a lot more ginger than you can in drops.
If it's sucking on sugar that helps, add in a bag of Jolly Ranchers for really cheap for another penny or two.
For a total of around 8 or 9 cents a dose you can get a lot more ginger and B6 than what you'd get with the drops. That's better than 32 or 37 cents right?
If those two ingredients are really effective, the 7 cents seems like the right way to go, right?
I usually reserve Friday for exposing an MLM/pyramid scheme scam, but today I thought I'd take a lighter-natured look at different kind of "scam." I'm putting it in quotes, because I'm not sure many people intelligent people are tricked by it. It also doesn't directly cost them any money. However, it does fall into the category of a "confidence game."
In New England, one of the biggest grocery stores is Shaw's. Following on the heals of McDonald's popular Monopoly game, Shaw's has launched their own Monopoly game. For some reason, I didn't notice it last year. This year, it caught my attention.
It's a bit of a kooky game. It doesn't have properties that you collect like McDonalds. Instead it has pieces such as 122C and 187J. They don't limit you to collecting 2 or 3 pieces, but it varies. The big prizes have 6 pieces to collect.
That's not why I'm writing the article today. I'm writing it for two reasons:
You Have Almost Zero Chance of Winning Shaw's Monopoly Game
I think everyone knows from the McDonalds' game that there's a rare piece. That's what limits the company (I should say the insurance company) from paying out billions of dollars.
As Savings Advice points out McDonalds doesn't pay out the million dollars very often. They explain why in detail, but the gist is:
1) The Boardwalk piece may never get shipped to a store... they make more pieces than necessary so they don't run out before the end of the game.
2) It may never get served to a customer.
3) The customer may never open the piece.
4) The customer may throw away Boardwalk not realizing it is the magic piece.
5) They have to go get the easy Park Place place as well.
The last two are probably not too limiting, but the first three are. It's a little scammy (as in "confidence game"), but not the kind of thing I'd waste my time writing about.
So let's get to the Shaw's version of the game...
When you spend a certain dollar amount or buy special Monopoly ticket items you get game pieces. Every time I have gone to Shaw's, they ask me if I'm playing the game before giving me the game pieces. They aren't automatically served to customers. From what I've seen, I'd estimate that 80% of customers reject the game pieces.
I figured I'd play the game. Figuring that there are rare pieces like McDonalds, I went on a search for a list of the rare pieces. Fortunately, Boston on Budget had what I was looking for.
However, I found something I wasn't expecting... for the bigger prizes there appear to be TWO rare pieces.
We just covered how hard it is to find Boardwalk... and people know to look for it. People don't know to look for 107A... pieces aren't getting consistently served... customers may throw it out. They have to collect 6 total pieces.
But then they have to find the rare 105A piece as well.
(All this is according to Boston on Budget's list, which comes with the disclaimer that I can't verify the information.)
It is almost like having to pitch a perfect game in baseball and then them saying, "Well now you need to go out and pitch a no-hitter."
Therein lies the scam/confidence game. The image you see above of $80,000,000 in prizes is tempting consumers to come in and play. It even tempts them to buy products that they might not otherwise to earn extra game pieces. Yet Shaw's will very likely only pay out a small percentage of the money... and I highly doubt they pay out the million.
I'd be more harsh on the scam, but with so few playing the game, it doesn't seem to be a big temptation.
However, perhaps the real reason I'm writing this is because I decided to play the game in hopes of getting one of the small prizes. I thought I might even be lucky enough for an instant winner prize similar to the free food that McDonalds gives away.
I was lucky. I pulled one of the instant winner prizes:
Before I go any further, I want to highlight that not all prizes are listed there. There are many smaller prizes and the odds are here. Shaw's made that point, but it isn't exactly clear if that's the 2014 or 2015 numbers. If I had to guess I'd say it is 2015 due to the copyright at the bottom (2015).
However, they only pointed me to that page of prizes claimed, so I can only go on that. To the best of my knowledge I have no way of knowing how many $25 grocery gift cards were awarded.
What's interesting is that this Playmonopoly.us is not Shaw's website. It appears as if the game is run across the grocery chain's many brands. This means that it is possible they could limit winners by shipping different rare pieces to different geographic regions and pairing them with the "more rare" pieces to other chains.
All that said, I'm going to present the data from the link they suggested a few different ways.
Of the "over $55,000,000 in prizes and money saving offers":
Overall: There were 77 people who won $600,500 in prizes represented on the page.
Winnings from game pieces: There appear to be 63 people who won a total of $73,500.
Second Chance Winnings: One person won $500,000 which only came into play as a second chance winning because none of the top 6 prizes were claimed. (the rare pieces on Boston on Budget no one won when there were two rare pieces... just as one would expect and as I wrote.
My analysis is that a little more than 1% of the over 55 million in prizes was awarded. The amount won from game pieces themselves appears to be 0.13% of the marketed $55 million number. (Again, this all comes with the caveat that it doesn't include smaller prizes.)
I'm not one to nitpick, but at this point I figure I'm in for a penny, why not be in for a pound? Of the $100,500 in non-second chance prizes awarded, $42,000 or 42% of it was in the form of groceries or gift cards. It's a fine prize and actually what I was hoping to win when I decided to play the game. However, it is worth noting that the $42,000 is value to consumers, not the value that Shaw's has to pay. We know that it is much cheaper for McDonalds to give out free food than cash. No one thinks it costs McDonalds $1.25 for a soda or a $1.50 for fries... we are all smart enough to understand margins, right?
Last November, I got an interesting letter in the mail. It had no return address, which I always consider a little fishy.
I opened it up to find that US Airlines has given me two free tickets to fly anywhere in the United States. You can see the letter here, but I'll quote it for those not interest in the click:
Note: You must respond no later than December 1st, 2014
I am pleased to inform you that you have qualified for an award of 2 round-trip airline tickets. Congratulations! These tickets are valid for travel anywhere in the continental U.S. from any major international airport. The retail value of this award is $1,375.00. Certain restrictions apply.
We have attempted to contact you several times without success. This is our final attempt. If we do not hear from you soon, we may need to issue the ticket vouchers to the alternate.
Please call me today at 1-877-741-7882.
Customer Relations Manager
I have to give credit to my wife who knew it was a scam, even before I did. She pointed out that US Airlines doesn't exist. It's a mash-up of US Air and American Airlines.
No one had actually called the number on the letter, so News 8’s Brian Roche did. He spoke to a woman named Dusty who would only tell me she worked for a marketing firm in Arizona...
She told him the tickets were not free, they were complimentary, as long as he went to a presentation for a travel agency...
Dusty made an appointment for Roche to attend the presentation at 52 Grumbacher Road in York. So News 8 went to the address and found an empty parking lot and an unmarked building...
News 8 learned that anyone responding to this would get the same sales pitch to attend a presentation at the address in York. One viewer who did attend told News 8 that she and her husband were asked to join a travel club and pay more than $11,000. As they tried to leave, the price dropped below $1,500...
While it may be easy to call this a scam, News 8 is going to stop just short of that. What it really seems to be is a promotional campaign designed to get people to join a travel club....
The most surprising thing of the article is how News 8 stops short at calling this a scam. I'm sure their lawyers told them that they should play it safe.
Seriously though... they invented an airline that doesn't exist! They are wording the letter like a prize announcement ("Congratulations!") They neglect any mention of a required sales pitch or a vacation club! They push you to act right away for fear that you'll miss out on the (non-existent) "prize." They send people to an empty parking lot and an unmarked building and ask people to pay $11,000 for something only to drop it to below $1,500.
It is a scam according to every definition of scam that I've ever read. Usually the definition centers around a confidence game, and that is clearly what "US Airlines" is using here. It's sad that I have to refer to them as US Airlines, because there isn't information on what the real vacation club name is.
P.S. I have to give credit to this guy on YouTube who called up the company to call them out on the scam:
Update: Dr. Oz got eviscerated by comedian John Oliver. This should be required watching. I'm putting it at the top of the article, so you can set it up while you read:
Let me recap what's going on for those who don't want to click over to read the articles.
Senator Claire McCaskill, chairwoman of the Subcommittee on Consumer Protection, Product Safety and Insurance is looking at false advertising for weight-loss products. The committee found that there is a "Dr. Oz Effect" that when he mentions a supplement being healthy online scammers jump on it and illegally promote the supplement with claims that have little or zero credible scientific evidence behind them.
McCaskill went straight at Dr. Oz, "The scientific community is almost monolithic against you in terms of the efficacy of the three products you called 'miracles'... I don't get why you need to say this stuff when you know it's not true. When you have this amazing megaphone, why would you cheapen your show? ... With power comes a great deal of responsibility."
I added a emphasis on an important part.
His response is that he passionately believes in these products and would recommend them to his family. In psychological terms, I think this line of thinking would be called cognitive dissonance. I describe cognitive dissonance as creating your reality to settle inner conflict. The Wikipedia page gives an example where the snake oil salesman will believe in his products, because he has to. If he doesn't he has to confront the possibility that he's simply a bad person defrauding people out of their money. Few people are comfortable with thinking of themselves in that way.
Dr. Oz painted himself as a victim, saying that it isn't his fault that the scammers use his words and image to promote the products. He goes further to say that he hasn't endorsed the products or receive money from them. In fact, I wrote years ago how Oprah and Dr. Oz sued MonaVie, because their distributors were taking Oz's words about the acai berry and using it to promote the juice.
Specifically Dr. Oz admitted that he used "flowery" language which was "not helpful but incendiary providing fodder for unscrupulous advertisers."
Playing the victim is a good plan, but it isn't altogether accurate. Clips of the Dr. Oz show have him saying that he has "the #1 miracle in a bottle to burn your fat." This goes beyond "flowery" language in my book.
He also said, "I concede to my colleagues at the FTC that I am making their job more difficult."
Pressed further on the topic, he admitted that his show is about providing hope:
"My job, I feel, on the show is to be a cheerleader for the audience, and when they don't think they have hope, when they don't think they can make it happen, I want to look, and I do look everywhere, including in alternative healing traditions, for any evidence that might be supportive to them."
This is really the problem. There are millions of studies done on millions of products... and many of them have conflicting results. This NY Times article explains it well. If you only show the results that bring hope, you aren't giving an accurate view of the science.
"Dr. Oz’s predicament is quite understandable. He wants to be a doctor, but at the same time, he wants to be a talk show host and entertain people.
But the truth of the matter is that sometimes, medical information is boring. And over the years, I’m sure that mounting pressures from his producers to increase ratings have transformed Dr. Oz into less of an educator, and more of an entertainer.
Yet throughout the years, he has forgotten what made him a great doctor: truthful medical information.
Over time on his show, he’s included fewer genuine medical professionals, who spend countless days healing the most detrimental medical conditions in this country. Instead, he replaced them with snake oil salespeople – vitamin gurus, nutritional experts, beauty consultants and more – and all of this razzle dazzle has ultimately led to Congress’ stern criticism.
Dr. Oz knows perfectly well that there’s no miracle pill for anything. He knows perfectly well that the only miracle 'pill' for weight loss is modifying one’s lifestyle habits, whether it’s through diet, exercise or meditation. And to his credit, Dr. Oz does talk about taking these measures. But as I said before, he has to entertain and create sensationalism in his show in order to compete in the same timeslot as Judge Judy, a very tough hour for daytime TV."
I want to finish up with one more thing that was mentioned in this CNN video:
The end of the video makes note that the government simply doesn't have the funding to go after all the scammers who pop-up. You may have heard this before, but we have a big deficit issue here in the United States. It's up to us to protect ourselves from these scams.
How do you do that? You have to develop critical thinking skills. You have to know that Dr. Oz is an entertainer and as part of that he has to give the audience what they are looking for, hope that there's a quick fix... even if it doesn't exist.
Some might say that this isn't a scam. However, I've seen "scam" defined in many places (such as Wikipedia) as a "confidence trick."
When multiple people cite that the medical profession doesn't back him up and that he knows better and his response is that he's a cheerleader instead of taking responsibility as a doctor... well... I call that a "confidence trick."
Update: I usually don't update an article on the same day, but I'll make an exception this time for further reading. This is far from the first time that Dr. Oz has been called out for promoting quackery.
It seems like everyone knows that Dr. Oz is a scammer himself except for the most important people... his audience.
Update 2: Canadian researchers have reviewed the claims on the Dr. Oz show and the results aren't pretty in the LA Times' words. In particular the article wrote that based on the research: "Only one-third of claims made on 'The Dr. Oz Show' can be backed by medical evidence" and "11% of the recommendations made by Dr. Oz or his guests contradict medical facts." This leads to a conclusion of "Viewers of 'The Dr. Oz Show' should be skeptical about advice given on the program."
When I wrote about the MonaVie Scam more than 5 years ago, I was amazed to get over 6,500 comments. Over time, the indisputable information from dozens of researchers lead me to make the easy conclusion, "MonaVie is a grossly overpriced product, with little nutritional value, wrapped in a poor business opportunity that appears to be illegal pyramid scheme, fraudulently supported by nonsensical 'scientific' studies, and illegal medical claims from its paid salesforce."
What does all this have to do with Vemma? In the past couple of months, I've been getting comments about Vemma being the next big MLM scam. In particular, commenter Jeff in that ViSalus article has been giving updates of his friend adventures in ViSalus, from when he got a BMW to when he lost his business because the people under him quit when they couldn't recruit others. Jeff explains that his friend left ViSalus and joined Vemma and how MLM has managed to destroy just about everything important in his life. Jeff also tells of how his friend has been three other MLMs and lost $10,000 in them, but what caught my attention is that the latest, Vemma, is "specializ[ing] in recruiting college and high school students to sell their energy drink" and "train[ing] their distributors how to sign up high school students without their parents knowing." I share his conclusion: "That’s a special level of MLM scumminess."
It's interesting MLMers are going back to Vemma. It's essentially the same juice scam that MonaVie was, but with Mangosteen as its "special ingredient" instead of acai berries. It's still an obscenely expensive product that is a dollar an ounce or more... . I'm sure Vemma distributors are going to hate this comparison. However, these posts have a way of getting very long and spending a lot of words on the topic isn't worth it. Most importantly, it's worth noting that juice, in general, is not healthy. There's really no need to split hairs with Xango, Xowii, Nopalea, Jusuru, MonaVie, Zrii, and Vemma distributors about the merits of their particular juice scam. If you don't believe me, Dr. Johnny Bowden debunked them all years ago. File this article away in your memory, because we'll be coming back to it later.
Sorry for the lengthy introduction about why I am writing the article. MLM distributors always claim that I pick on companies to personally profit from them and it couldn't be further from the truth. It doesn't take a rocket scientist to figure out that spending nearly $40 on a small bottle of juice and getting tricked into a scheme that costs nearly everyone thousands of dollars is exactly the kind of topic that attracts consumer advocates like me. If you are a distributor and don't want your company picked on, grab your pitch fork and run to Vemma's headquarters for fueling the fire.
Vemma's Product and Marketing Scam
Remember that article from Dr. Johnny Bowden that I mentioned above? If you haven't read it, give it a read now, I'll wait. Done? Good. Now you are prepared to understand why Vemma's marketing of ORAC scores is complete bunk. Vemma brags about 4800 units of ORAC per 2 ounce serving, but a small amount of cinnamon, oregano, or cloves can do the same job. They brag that "Vemma boasts superior antioxidant protection...", but fail to mention that research is showing that antioxidants are simply not helpful as science has hoped. However, it's a big industry, and companies like Vemma need to sell their $37 bottle of juice.
It gets worse as Vemma uses what I call the Total cereal advertising scam. Remember those funny commercials in the 80's that it would take X bowls of Brand X cereal to equal the nutrition in one bowl in Total? If not here's one example starting George Jefferson (okay it was the actor who played George). The logic is that brand X may only have 25% of the RDA of Riboflavin, so you'd have to eat 4 bowls to get the 100% in Total. Lost in the marketing is that you might end up getting 20 times the vitamin C, 5 times the fiber, 3 times the protein and a bunch of other good things in those 4 bowls of another brand. Raisin Bran could have pulled the same marketing trick on Total saying that you need to eat 3 bowls of Total to equal the fiber in a bowl of Raisin Bran.
Now that we've established the ridiculousness and deceptiveness of this type of advertising here are some examples from Vemma's marketing page:
"55 eggs to equal the amount of Vitamin D"
"62 oz of cheddar cheese to equal the amount of Vitamin B-12"
"61 cups of tomatoes to equal the amount of Folate"
That sounds impressive, right? Let's take the first one, the 55 eggs for the vitamin D in Vemma. If you look up Vemma's Supplement Facts (note that they aren't Nutritional Facts, because it's marketed as a supplement, not a food or juice), you'll find that Vemma has 1,000 IU of Vitamin D per 2 ounce serving (16,000 IUs per 32 ounce bottle). Sounds incredible until you realize that this Liquid Vitamin D has 2,000 IU per drop and is $20 for 900 servings. That's 2.2 cents per serving for double of what's in Vemma. Vemma is effectively putting 8 drops, or less than 18 cents worth of Vitamin D supplement in every bottle. You can bet that Vemma is getting better bulk pricing than we are on Amazon.
Vemma has 15 mcg of Vitamin B-12, per 2 ounce serving (that's the 62 ounces of cheddar cheese). Amazon has 100 lozenges, with each having 2,000 mcg of B-12 for $8. One lozenge alone would be enough to supplement 133 servings (8 and a third bottles) of Vemma.
I shouldn't need to go further into these examples. The bottom line is that a good multivitamin could supply all this for a fraction of the cost. Notonly that, but you shouldn't be buying vitamins and supplements anyway.
One final product thought , in all the food mentioned there, there's a lot of calcium (cheese, spinach, etc.) and I couldn't find any on the Vemma label (though Vemma does list that there's calcium in their FAQ). Score one for the food.
Here I'll take a break an address a big problem with this disclosure. It uses the words "generate a profit", when it should say, "earns an income." The numbers used are clearly from Vemma's Income Disclosure Statement (PDF). No MLM even attempts to track distributor profit, because they don't care about these expenses... they vary from distributor to distributor. So those people earning an income between $667 and $1326 will likely end up spending more than that in juice, conferences (fees for the conference, hotel, flight, food, etc.), training materials for themselves and their downline, samples, and other associated costs. That's not a profit, but a loss.
So to put this in perspective, let's imagine 100,000 people in at a football stadium and they all decide to become Vemma distributors. If we apply the MonaVie's 85% inactive number, since Vemma doesn't seem to give their own, only 15,000 would make the income disclosure statement at all. From there some 75% would earn an income between $667 and $1326, which likely isn't profitable after expenses. Of the original 100,000 you are now left with 3750 people or 3.75% that might be actually generating a profit for their time spent. I would classify the other 96.25% as people who are wasting their time not generating a profit - a minimum wage employee at McDonalds would be more profitable.
And if you are looking to replace your own income, your odds are much, much lower - obviously depending on your income. The Paid at Home site mentions that this "require[s] hard work, desire, diligence, leadership and talent." So why anyone would want to take such an incredibly risky gamble to hopefully get to where they already are while still working hard is beyond me.
Finally don't get me started on how the website displays a "Positive SSL Secure" logo on its website without actually using SSL. Can you say positive fraud? I thought so.
Vemma's Business Opportunity
I went into this in more detail than I originally intended in the Paid at Home section above. That example should give you a good idea of what to expect. However, I suggest you read this article on the business of MLM to truly understand how bad of a business opportunity Vemma, an MLM, is.
Vemma's Young People Revolution Scam
As mentioned in the beginning, Vemma is now purposely targeting high school and college kids. The idea is that these minds are easy to mold and they likely haven't been subjected to MLM scams before. As MLMs churn through millions of people each year, the older generations have already been burnt, they need fresh blood and the next generation or expanding to a new country is the only place to get it.
The aforementioned ViSalus really went after the youth market with it's The Pyramid Thing video essentially flaunting their scheme. However, in the past year (as I write this in August 2013), ViSalus has lost half it's distributors from a year ago and haven't been able to replace the churned people.
You don't have to do any real research to figure out that Vemma's Young People Revolution is an illegal pyramid scheme. The first 30 seconds of this video makes it quite clear:
"The person who invited you today... is not trying to sell you two cases of anything. I can guarantee you that. They are just trying to present you with an opportunity to get you out whatever financial situation you are in into the one you want."
Why does that make it clear it is an illegal pyramid scheme? Here's the FTC words:
"Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."
So yeah, the Young People Revolution isn't going to bother you by being legal and selling a product. Instead they are going to focus on recruiting you into an "opportunity" where the money you make is based on the number of people you recruit and your sales to them. Boom illegal pyramid scheme.
Because of this, there's a big chicken vs. egg problem that allows these schemes to continue. The FTC only acts when a number of people complain they've been defrauded by these schemes. People believe that if the schemes were fraudulent they would have been shut down by the FTC long ago and don't waste their time complaining about it.
"Its easy to toss the word pyramid around and I can tell you the real reason why all these companies are NOT pyramid schemes; they have a real product and in the case of Vemma’s Verve there is a demand for it."
MLMers tell themselves that a company with a product can't be a pyramid scheme. They are wrong and simply lying to themselves. The FTC has an educational page about MLMs and pyramid schemes, which says:
"Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."
Note that there is no mention about whether the product is real. The question of demand is important though. Are the people making money from recruiting people who sell to those recruits (i.e. making money from the downline) or are they selling the product to the average person not involved in Vemma? It's not likely you'll get that data from Vemma. If you see them tout someone making a million dollars, they must really be hustling to do those sales outside of Vemma or it would seem to be a pyramid scheme according to the FTC.
So now that we understand why overpriced products can lead to pyramid schemes, it's worth looking at Vemma's pricing of the Verve product. I did a little math using the publicly available and well-known Amazon.com website (pricing as of 2/3/2014):
The price for Vemma is almost twice as much as the most expensive energy drink I typically can find in the store. If you read my article Save Money on Energy Drinks (and Caffeine), you'll know how you can energy drinks, such as the popular brand Amp, with twice the serving size for only a dollar. That's ~6 cents a ounce vs. ~33 cents an ounce for Verve. One can certainly see why the FTC suggests, "Many companies that market their products through distributors sell quality items at competitive prices. But some offer goods that are overpriced... Find out what will you be selling. Are similar products on the market? Is the product priced competitively?"
Is the Vemma Verve, like the $100 Pen Pyramid Scheme? Let's put it to a challenge and see if Verve sells in stores at 33 cents an ounce. Let's see if there is natural demand for the product when purchasing product isn't a de facto requirement for entry into a "business opportunity."
Some History on the Vemma's Founder, BK Boreyko
This isn't the first time that BK Boreyko has scammed people. The FTC has caught him defrauding people in the past. That time it was New Vision International (sounds like Young People's Revolution, right?) and the product was God's Recipe. In that case Boreyko was caught pitching the product as treating ADD and ADHD without the necessarily scientific evidence.
Given all the above, is this really the kind of person you think will make you rich, legally?
It is a great article and a must read for anyone considering it in any country. Here are some interesting statistics from the article:
Only 27% of associates were eligible for bonuses by regularly ordering products from Vemma.
Fewer than 100 individuals on average generated six-month sales commissions higher than €1,000 (about $1,300 in June 2013), while nearly all the other associates received quite low or even paltry compensation.
A significant portion of the orders consisted of purchases made by associates themselves, presumably for their own consumption, which in the network are known as “autoship” sales.
Approximately 20% of the total income generated from product sales was obtained from the sale of expensive Vemma packages called “Builder Packs” that cost €599 or €999 (about $700 to $1,300 in June 2013), and over 60% was generated from autoship sales.
Only about 16% of the income was generated from the sale of products to third parties.
Only 24% of associates had a VAT number, which would enable them to sell products to third parties.
Remember that FTC quote above? With only 16% of sales coming from third parties it is clear that the money people make is not based on such sales. Instead it seems to come from the 80% of "Builder Packs" and monthly autoship to distributors. Using those guidelines, it is easy to why Italy would declare it a pyramid scheme.
Truth in Advertising further reports that the watchdog organization found, "A synergistic role in enhancing the effectiveness of Vemma’s pyramid scheme is generally the misleading representation of the supplements, so as to make them more attractive by attributing to them properties they do not possess..."
Truth in Advertising also quotes the Vemma saying two contradictory statements:
"If your goal is to become a household brand, it only makes sense to make a few more necessary operational and compensation plan changes to complete the move. To be more like Amazon.com and less like Amway."
"Vemma’s Compensation Plan won’t change; we’ll just describe it differently in updated terms to better explain how we do business."
Truth in Advertising's final conclusion was:
"Truth be told, as a practical matter Vemma’s new compensation plan still suffers from many of the multiple faults that Italy’s AGCM found with the old pyramid plan."
Final Thoughts on Vemma
Typically when I write about MLM, I'll get a distributor who tries to find one area where the article isn't 100% accurate, points it out, and then suggests that I shouldn't write about things that I don't know about or haven't researched. Typically, the article is accurate and the distributor is the one mistaken about his/her own business. Secondly if one minor piece of information is incorrect, it doesn't mean the article as a whole is incorrect. Third Vemma, like all MLMs seems to purposely make its compensation difficult to understand with its own terminology not used in other businesses. Finally, this space is intended as a place where we can all learn more about Vemma. As you can tell, I've put a ton of research into Vemma. I shouldn't even have to write this, but I've found that people who get tricked into being MLM distributors often lack the critical thinking skills to understand this.
I could go on and on, but anyone with an IQ over 80 should have known more than a thousand words ago that this is a huge scam and to stay away from it. I took the expression beating a dead horse to the ultimate level with this one.
Update: Now NBC News is writing about Vemma: Controversial energy drink company targets students as sellers. Interestingly the person the news team interviewed told a typical story of recruitment and got immediately suspended by the company. That's what happens if your claims are high profile to an undercover news team. If it had been to you or me, Vemma would never have known or suspended him.
We called up the RainSoft representative and explained that we weren't looking for the highest quality product at the highest price (which was his marketing pitch). I said that we were looking for more of a budget solution. Of course almost anything would be a budget compared to the $4888 EC4 unit he was trying to sell. That price didn't include an $1200 reverse osmosis system under the sink for cooking and drinking water.
The RainSoft representative said he'd talk to his boss and see if there's anything he could do. He called back 5 minutes later and said that by happenstance his boss was calling him about something unrelated. He was able to negotiate us an EC4 system at the price of their TC4 system, which is the same filter, but with a time-clock instead of their $1000 computer managing the water filtration. That's a complicated way of saying that he took $1000 off of his original quote. As I wrote in my original RainSoft article, there were reports of people getting $2200 off when they balked at the price. So I can confirm that even if you want RainSoft system, it pays to negotiate on pricing a bit. This sales tactic made me want a RainSoft even less.
What may be more interesting is that I had the idea of taking a trip to Lowe's and telling them that Home Depot will only connect me with this shady RainSoft company that they've partnered with. They weren't willing to show me a range of filtration systems from various manufacturers and explain the strengths and weaknesses of each. The Lowe's representative in plumbing was shocked. He took me to the wall where there were at least 4-5 different types of water softeners and 5-6 different types of reverse osmosis systems. He asked if I have city water or well water. I told him that I have city water. He said that most likely either a PUR faucet water filter or a Brita water pitcher would be fine. Since have both and have been using both that was pretty comforting. He suggested that I buy a $25 PurTest Home Water Analysis Test Kit (I don't know why Amazon charges so much for it), find out if anything is a problem, and if so, buy an appropriate product for it. Makes sense right? If something is broken you fix it.
While I was there, I noted the prices of the water softeners and reverse osmosis systems. The cheapest water softener was around $250 and the most expensive was $499. The cheapest reverse osmosis system was around $100 and I think that went up to around $250. The combination of the two most expensive products and Lowe's installation was just a shade under $1000. I told the Lowe's employee how much the RainSoft system was and he almost fell over. He couldn't even imagine what would be in $5000-6000 system.
Now I'm sure the RainSoft people will say that it isn't apples to apples and that the EC4 does more than soften water. That may be true, but if it does their salesperson failed to explain it and instead tried to focus on the magic tricks and bad logic on how it would save us money as mentioned in the previous article.
I still feel the same way about RainSoft. Their product does appear to work, but the price is so excessively high that they can give people a $1000 discount and offer $2700 in free soap (hint, that's the retail price, not the price you would probably pay for it)... and even then it still seems high. Is that a scam? Given their sales tactics (claiming it will save me thousands when it won't), I'm leaning towards yes, but you are free to make your own decisions.
Before this, I really liked Home Depot as a company. For most things, I still do like them. However, I can't believe they'd choose to partner exclusively with such a partner rather than present its customers with a range of afford options that suit their needs.
A couple of days ago, I got an email from my friend Evan who runs My Journey to Millions asking if I've heard about Rippln. I hadn't. Turns out it's super-new... as in the company seems to have been putting out their main promotional videos this week (though there were some going back to middle of April). Specifically this promotional video from the company caught my attention:
I was going to pick this video apart, but it seems like the nice people at TechCrunch have already done it for me. Their reaction was similar to mine, when I read it: "Thanks to my job, I get to see a lot of stupid bulls**t. Most gets filtered out, but every now and then something just rises up that is so ridiculously stupid, it’s just begging to be called out." The article breaks down 17 ridiculously stupid points in the video, explaining what not to do in a start-up video. Here are a few samples:
"Don’t tell us that your app is going to be viral before it’s even friggin’ released."
"Don’t expect the press to cover your stupid app before it’s even friggin’ been released. Except for maybe in posts parodying it."
"Don’t say your stupid app is going to change the way we communicate, or call it 'The biggest breakthrough since email.'"
"Don’t promise (again) that your stupid app is going to go viral. Don’t compare its growth to Facebook, or Twitter."
"Don’t make your stupid app sound like some sort of exclusive club with an 'inner circle' and talk about how lucky we were to be invited and s**t."
"Don’t say that there’s just a brief window for me to join!"
TechCrunch called out the video for including Adam D’Angelo of Facebook fame, but it missed the most obvious scam in this video. The video shows how Mr. D'Angelo's 0.8% of Facebook is worth hundreds of millions of dollars. Well, that's nice. Is Rippln giving you 0.8% ownership of the company? No. They aren't give you any ownership. You would be a user of the app the same as if you were a user of Facebook's app. Putting that aside, if Rippln was really going to give you the cut that D'Angelo got, 0.8%, they could only have 125 people getting it, before they've given away 100% of the company. Is the media and news really going to cover something with 125 users? Nope.
When Evan told me about Rippln he also included this promotional video from the company.
The video has adds a few more red flags. Specifically, the marketing in it is just plain slimy. First they say that we are in "hand-chosen few" that are behind the "velvet ropes", but then make a big point that they can't say too much about what they are doing. It sends a clear message: We are going to say that you are important to get you to sign up, but you aren't important enough to know what you are really signing up for.
The other part of this video that got to me is that they push the "you are making Facebook and Twitter rich, but you get nothing for your efforts." This is a common pitch in the MLM world. It sounds good on the surface, but let's remember two things: 1) users get to use these companies great products and technology for free and 2) if Twitter and/or Facebook were to share their billions with its users, each person wouldn't get a lot of money, just a few dollars.
If a company honestly thinks that they are going to share more than with you they aren't a very smart company. So either Rippln isn't very smart or they are trying to scam you with misleading marketing. I think it's clear that both are true.
Rippln's Founders and Company Information
Let's dig a little deeper into this mysterious company. Here are the major players:
Brian Underwood - CEO - Underwood was a Master Distributor at Burnlounge, which the the FTC has shut-down and sued for being a pyramid scheme. He then went on to co-found iZigg, an MLM company that promised wealth based on text message advertising. In this video from June of 2010, he claims that iZigg is "launching the biggest brand name in mobile media history." Have you heard of iZigg? Is it talked about in the news or blogs? Nope. Looks like iZigg failed to attract attention, and all those people who bought in were essentially kicked to the curb with Underwood starting Rippln, an extremely similar MLM, mobile company to try to create buzz from scratch.
Terry LaCore - Co-Founder - LaCore is the founder of b:hip, an MLM company that sells "lotions and potions" like many of the other MLMs that I've covered here in the past. Their products include a bunch that promise to repair your DNA and other outlandish claims that they can't and don't prove.
If you are going to compare yourself to Twitter, Facebook, or Instagram, you should have extensive background in technology start-ups. None of these people have that. There is no venture capital from the founders of Paypal (or similar) like you see with Facebook and Twitter.
All that matters is that people sign up?
Jonathan Budd has been commenting on critics websites, which is something I give him credit for. Most of the MLMers know better than to make themselves look that foolish like Jusuru's VP did on my article. Budd commented on the aforementioned TechCrunch's article saying (amongst other things): "It's difficult to deny the effectiveness of our opening marketing at this point, judging by how we are having this conversation on techcrunch's blog... so say whatever you will about that." and "However unlike most companies, we believe the user deserves to share in the rewards of their word of mouth marketing. A concept that our users believe in too, as we've just crossed 200,000 people in our first 10 days." and "If you dislike our marketing... that's your opinion. But we're proud of the buzz we've created in the marketplace, and will continue to test new direct response concepts, ideas, & media as we roll out more of our company in the future. Hopefully there will be something other technology companies seeking to get buzz might be able to learn."
He also commented on the great site BehindMLM saying, "When someone criticizes how you market... that’s not a fact, it’s an opinion." Update: he's actually left a few comments on the site. One of them claimed: "If you think you could do a better job getting 210,000+ users in 11 days, by all means... I encourage you to leave the world of commenting & go become an entrepreneur." (I shouldn't nitpick, because there are so many big problems with Rippln, but they haven't released a product and thus have zero users.)
Call it opinion if you want, but the FTC has clear opinions on what legal marketing is. As they've written in the past, endorsers have to "Clearly and conspicuously disclose the generally expected performance in the depicted circumstances." Rippln is clearly misrepresenting the opportunity that they are presenting when they cite Adam D'Angelo Facebook stock money.
There's a term for this Mr. Budd. It's called "fraud." It's not my opinion, you can look it up: "...fraud is intentional deception made for personal gain..."
I could go on for a week about Budd's comment in the Behind MLM article. It switches from: "We believe that the world’s social graph is missing transparency" to "The criticism so far for our model, is frankly something we cannot fathom to us because no one knows any details yet. After the model is fully released..." to "Have actual information to base your opinions from" to "Give us a little time, and we will gladly take care of you, and answer any question you might have" to "If anyone has true critical analysis of our model, products, plan, or has questions... please post them here and as soon as time permits, I or someone from my team will address them."
So they are trying to be transparent, but they can't release their model. Yet we are supposed to have actual information (which they haven't released) to base our opinions on? They want a little more time, yet they continue to take sign-ups and release misleading videos. Budd invites us to post "true critical analysis of the model", but remember what he said previously, "no one knows any details of the model."
The rest of his comment is pretty much generated from the bad MLM argument generator. In this case the generator must have produced, "you’re just out to get hits for your blog", "You’re just negative", and "You just don’t understand it." May be there are some others that I missed.
But Really, What About the Model
As Budd made clear, they are still working on it. That should give you a lot of confidence, right? That aside, we know a lot of things that they've worked on and even released, so it is worth discussing those as it gives valuable insight as to where the company is going with this.
There are numerous reports that people can pay $300 to be a Domestic affiliate and $600 ($900 total) to be a Global Affiliate. In addition, it seems that comes with a $49/mo. fee for the right to distribute the mobile application. If true, and again, I've seen multiple reports so it seems credible, it's going to be a slam dunk to show that Rippln is an illegal pyramid scheme. It doesn't seem like Rippln intends to sell anything other than the business opportunity to recruit more people to Rippln. It's not like the product is the app, because that's supposed to be free. Update: it looks like Rippln is going to try sell in-app purchases and tracking of them.
That's very interesting because in this 11 minute video from Rippln explaining the compensation plan, it definitely seems like the money comes from recruiting people who pay to become "players." It surely doesn't look that Rippln is interested in focusing on the in-app purchases from the video, which is a major red flag for it being a pyramid scheme.
At around the 9:40 point they explain the All-Star Bonus. It seems like this person collects any bonuses that weren't collected by new people. The example they give is a person joins last month and only qualifies for payment on 4 Ripples. You'd get the money he would have made if he had 10 Ripples. It's complex and their explanation is clear as mud, but it seems like the All-Stars will pick up a majority of the money. This also sounds like the way that they give the hand-picked early adopters big cash, since at some point, mathematically there will be many, many people who won't be able to fill up their Ripples. It's the nature of any kind of pyramid recruiting scheme that there is simply no one left to recruit at some point.
One my favorite parts of the video is at 10:40 when after a ridiculously confusing explanation of where all the money is being sent through this system, it adds, "there's a more complete explanation about the comp. plan inside the 'inner circle'." Wait, it gets even more complicated requiring further explanation?!?!
Again, don't quote me on these statements being entirely accurate, because as Rippln's co-founder Budd said, it hasn't put out the details of the compensation plan (even though there's a video) . So either the company is A) not transparent enough to disclose the true compensation or B) has their priorities messed up to the point where marketing an app without a business model or C) is lying about not having put out a compensation plan. It's probably a little of all three.
About this Mobile App
Apple has been pretty strict in what apps it allows. If there's a compensation plan behind it where people are making money from recruiting others, you can be very certain, it won't get approval. Google Play is a little more loose with it's restrictions, but it too probably wouldn't approve such an app. I'm not as familiar with Windows Phone and Blackberry 10 apps, maybe Rippln plans to take on Facebook and Twitter with the less than 5% market share those smart platforms have? With a plan like that, how can it fail?
In the end, when I look at Rippln, I see the following:
Laughably-bad marketing. Worse marketing designed to misleading its potential users
A compensation plan that appears to be a clear pyramid scheme...
A product that doesn't exist and probably can never exist the way they hope (due to app store policies)
Rippln is already on defensive about the past of CEO Brian Underwood. Jonathan Budd commented in the aforementioned TechCrunch article and was quick to throw the defamation word out there from well-meaning commenters. In addition Rippln's lawyer took to their Facebook page saying, "The allegations of Brian Underwood being sued or investigated by the SEC or in another lawsuit are false." Given how MLM lawyers have threatened me with legal action in my other articles (such as One24), it probably won't be too long before they come after me with a Strategic lawsuit against public participation (SLAPP).
In which case, I really invite them to do their worst. I would be happy to sit in a court room and discuss the FTC's guidelines on endorsements.
I'm going to close with this, a video from another person who smells a rat with Rippln, Chris Voss. On his show, he dug up a lot of dirt on Rippln, including information that they don't seem to be doing business from real office space. There's a good deal more and I don't want to spoil the fun.
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