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 tried to research "'scam' and law" and I came across some interesting cases. I'll start with a great resource on defamation by The Consumerist which states:
- A false statement of fact
- About the plaintiff
- That is publicized to a third party
- Causes some injury to the plaintiff
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.
Also as lawyer Eric Goldman notes in a big Gizmodo case, the court ruled that the use of "scam" wasn't an issue there either. Personally, I like Sequence, Inc's coverage because it made many more great points.
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.
Earlier this year the FTC halted Vemma alleging it was a pyramid scheme. That was nearly two years after I asked if Is Vemma a Scam?
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.
A Message to MLM Companies
If you are an MLM company, you are going to get people calling you a pyramid scheme. The FTC warns people about MLMs and pyramid schemes. The NY Times is going to write articles that read we can't know if your business is legit.
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.
[Originally Published: June 19, 2015]
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