Lazy Man and Money

Pizzagate and Financial Fraud

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[Editor’s Note: This article is written by Kosmo, our staff writer. If you didn’t know me better, you might think I’d apply this to some other financial fraud that I often write about, but I won’t do that.]

By now, almost everyone has heard of Pizzagate.  If not, here is it is in a nutshell.  Someone spun up an incredible tale that Hillary Clinton and John Podesta were running a child sex-trafficking run out of pizza restaurants in the DC area.  People noticed that the owner of one pizza joint had corresponded with Podesta in emails leaked by Wikileak (the restaurant owner had held some fundraisers for Hillary, hence the emails).  Even more damning, the emails contained words like “pizza”, which were obvious code words for pedophilia (alternate theory: it’s a code word for “pizza”).  Even in the universe of conspiracy theories, it’s pushing the envelope of credulity.  Even if you believe that Hillary would be running a pedophilia ring, why would she run it out of locations that are very visible to the public?  In the words of Bill Engvall, here’s your sign.

In early November, that restaurant began being targeted by conspiracy theorists, including death threats that arrived via text, Facebook, and Twitter.  On December 4, a man from North Carolina walked into the restaurant with an AR-15 and fired shots.  He was there to “self-investigate” the claims, since law enforcement was obviously involved in a cover-up.

Clearly, these types of conspiracy theories present a very real danger to the public – someone could easily have been seriously injured or killed as the result of a theory that was simply created out of thin air.

I believe there is also a more subtle secondary impact.  Conspiracy theories allow financial fraudsters to more easily target victims.  In the past, the most naïve among us had their naïveté shrouded in a cloud of relatively anonymity.  Unless you interacted with a person on a fairly regular basis, you might not realize how gullible a person was.  As a result, you might know who the most gullible people in your immediate social circle were, but you wouldn’t be able to pick them out of your broader circle.

The internet has changed that.  I’m friends with 355 people on Facebook.  Some of them I know very well; some of them I know more casually.  I can scroll down my feed and look for friends/acquaintances who are sharing bizarre conspiracy theories today and make a list of names.  A few days from now, I can repeat the practice.  After several iterations, I can compare notes and find the names that pop up repeatedly.  These are the people with a high gullibility index.  If I wanted to run a Nigerian Price scheme, these would be the people I would target.  Instead of casting a broad net, I could target people who had shown an inclination to believe utter [Editor’s note: bovine poop] and probably have a much higher success rate with my scams.

Naturally, I’m not actually going to do this.  While I won’t claim to be a saint, my moral compass isn’t far enough askew to commit financial fraud.  However, I am quite sure that there are people who would do this.  In fact, I would expect professional fraudsters to start spinning up conspiracy theories for the sole purpose of serving as bait – assuming that they aren’t already doing this.  They’ll set a theory loose into the wild and then track the people who share it.  The moral of the story – use your critical thinking skills before sharing something.  If it sounds too crazy to be true, the most likely explanation is that it simply isn’t true.

Nevada PUC Should Bloody Get Stuffed

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If the title wasn’t clear enough, I’m feeling surly today. A couple of years ago, I talked with a couple of British personal finance bloggers and I loved the way they casually would say sentences like in title and make it seem normal. This is a family blog, so for today, I’m going to borrow some British language to express how I feel.

[Yes, part of the reason why I’m surly is that Le-Vel is suing me for this review. I go out of my way to help consumers make informed choices and they through a frivolous lawsuit at me. That’s a topic for another day.]

I’ve been saving this article for a couple of months now.

There’s a battle going on in the world of solar energy. Even if you don’t have a dog in this fight, I think it is a very interesting debate. Let me set the table so we can get started.

When you have solar panels installed they produce power during the day when the sun is out and not at night. (Yes, this is really basic stuff.) People, however, use power round the clock. You can buy a battery to store the excess energy during the day to use at night. Unfortunately these are expensive and still not very efficient.

The solution to the problem has been something called “net metering.” This means that as your panels produce power it moves the electricity meter backwards as you “sell” power back to the grid. At night, the meter moves forward as you use electricity. So you only pay the electric company for the “net” amount that you use when the production is subtracted.

And this “net metering” solution made everyone happy… until it didn’t.

It turns out that the electric company can’t easily take this produced power and just move it to the next house. There’s a some grid infrastructure stuff that needs to happen. It wasn’t a big deal for a long time because few people had solar. Now that more and more people are getting solar power, include families like ours (read our solar journey), it becomes a big deal.

It’s become enough of a big deal in Nevada, that the Public Utilities Commission (PUC), changed the net metering rules. Instead of being able to “sell” back excess power at an equivalent rate, they’re only going to buy it back for 25 cents on the dollar.

The economics of going solar are fairly straight-forward. People put up an initial investment of tens of thousands of dollars based on analysis that it will save them money in the long run while helping the environment. When we bought our solar panels the math was pretty clear that they’d pay for themselves in year 7 or 8 and after that we’d be saving money.

The federal government encourages people to switch to solar by offering them a 30% tax credit. My state had grants to further lower the cost. The message that I was being sent by both levels of government was pretty clear, “We want consumers to adopt this technology so much we are going to cover half the cost ourselves.”

If my state were to institute the same net metering math of Nevada the panels we bought would break even probably sometime after their 25-year life expectancy passed. We, like most people, made the buying decision based on a hundred factors (such as location of roof, trees blocking the roof, typical sun, cost of local energy, etc.) none of which anticipated a net metering change.

In order to qualify for the state grant, the power company had to tour my home and make sure that we weren’t going to waste the power by using our energy inefficiently (old light bulbs, refrigerators, etc.). I don’t know if Nevada offers (or offered) state grants. At a minimum they should have had a similar process of meeting with the customer and telling them the risk of changing the net metering agreement. As best I can tell this never happened.

Maybe the power companies were blindsided by the problem, but now they are passing it onto consumers. As SolarCity said in the article above, “The Nevada government encouraged these people to go solar, and now the government is putting them at great financial risk.”

That article makes the point that, “The PUC staff has said customers generally understand that utility rates are subject to change, and the state never promised unchanging prices, even if solar companies did during the sales process.”

This is why the Nevada PUC should get stuffed. Everyone expects prices of electricity to change. That’s one of the main reasons why people choose solar. By producing electricity through solar, the cost is zero due to the initial outlay. When the cost of electricity goes up, the value of the power by the solar panels should go up too. This isn’t Nevada changing utility rates. This is changing a core policy. I wonder if the Nevada PUC highlighted this risk when the net metering was entered into. If it was, you’d think they would have said, “We informed all customers entering a net metering agreement that the rates at which you ‘sell’ energy back to us can change to whatever we see fit.”

Imagine if the government next year passes some kind of legislation that amounts to them saying, “We are going to tax all Roth IRA withdrawals at 75%. We don’t expect this to be an issue because the American public generally understands that tax rates change.”

Assuming that the typical Lazy Man and Money reader has been putting money in Roth IRAs for years, I think we’d be pretty upset. I think that’s probably what the solar customers of Nevada must be feeling right now.

And while this article has focused on Nevada, it isn’t just happening in Nevada. Many states have this issue of infrastructure expenses. The result of Nevada’s action has lead to a potential federal law to protect those who have already bought from such changes.

The other hope is that the batteries get better. Tesla has introduced a product it calls the Tesla Powerwall, which has a lot of potential.

I don’t know where all this is going to end up, but as Terrell Owens used to say, “Getcha popcorn, ready!”

You are Easily Fooled!

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A couple of weeks ago, I came across my favorite article of the year:

I Fooled Millions Into Thinking Chocolate Helps Weight Loss. Here’s How.

This article should be required reading by every student… every year. Non-students should be required to read it too.

I’ll give you time to read it now. Got it? Good.

For the few people who still didn’t take the time to read it, it is exactly what the title says it is.

A journalist decided to see if he could fool millions of people with bunk science and he did. Here’s how:

1) He created a fake “institution” that sounded credible. He’s also a doctor, but not a medical doctor as most people assume when they think doctor.
2) He ran a clinical trial on a small number of people testing for a lot of different things… essentially throwing poop at the wall to see what sticks. Statistically a few things are always going to stick.
3) He found a bunch of journals that sounded professional. They are known to publish anything plausible with almost no questions as long as they are being paid.
4) He cooked up a juicy press releasing the “results.”
5) A bunch of magazines and news shows took the bait and rushed to highlight those great “results.”

I bet there are millions people who today think that eating chocolate helps you lose weight.

The takeaway from the journalist himself:

We journalists have to feed the daily news beast, and diet science is our horn of plenty. Readers just can’t get enough stories about the benefits of red wine or the dangers of fructose. Not only is it universally relevant — it pertains to decisions we all make at least three times a day — but it’s science! We don’t even have to leave home to do any reporting. We just dip our cups into the daily stream of scientific press releases flowing through our inboxes. Tack on a snappy stock photo and you’re done.

If there was a silver lining it was this: “… many readers were thoughtful and skeptical. In the online comments, they posed questions that the reporters should have asked.”

I’m often asked why I cover MLM scams so much. One of the reasons is that this kind of junk science is used to push the pyramid scheme and get people to pay so much more than they should. Here are a few examples:

  • MonaVie – The first time I encountered clear junk science was this “study.” It used 5 people and essentially concluded nothing helpful. It was also conducted by a doctor who was employed as MonaVie’s “Chief Science Officer.”
  • LifeVantage Protandim – I wish I could write about more about this… but this is why I can’t.

    What I can say is that you should be very careful of ABC Primetime videos you see. For example, ABC Primetime covereda faith healer named John of God, and edited out James Randi’s clear explanations. It was a time in history when Primetime’s ratings were at an all-time low. It seems like mystery is a better story and delivers better ratings than throwing a wet blanket of truth on it.

  • Xocai – This company produced a study that would lead you to believe that their chocolate helps you lose weight. I’m not making this up. They had 50 people which is at least a little more. They gave them lifestyle intervention which included many things including financial rewards for people who lost the most weight. Of course they also gave them a high antioxidant chocolate drink. There was no control variable and the conclusion was that all the stuff together works.

    Of course we already know that financial incentives help people lose weight. They could have added watching an episode of Seinfeld to the study and conclude that Seinfeld helps you lose weight too. Brainwashed Xocai people actually presented this to me as scientific proof that consumers should buy their chocolate.

    Recently a law-firm contacted me about their class action lawsuit against Xocai. Their exposure of the pyramid scheme in the lawsuit (PDF) was amazing to read. I study MLMs and the lawsuit spends 50 pages on just the pyramid scheme aspect… not even getting to the junk science.

  • Nerium – As one commenter pointed out via Nerium’s study: “This will NEVER be published by a respectable journal it is so flawed. No P-value is listed. They don’t say what kind of blinded study it is and the bias is so obnoxious it is embarrassing. No self respecting company with ‘real science’ would ever put this out. Show me a triple blinded study with over 1,000 subjects in a multiple center design, with a P-value under .05%. Have the results measured with a cutometer or a corneometer. Then have it published in the JDD, the JAAD or any other reputable Dermatology Journal. Until then don’t believe any ‘study’ they put out.”

    The company conducting the study claims that they “help build a strong, science-based, product portfolio”, which is exactly what it seems they did. The study was approved for publishing by someone who worked at the same place as one of Nerium’s employees and author of the study.

You can usually go through each of the MLMs and see the “doctor” (or Chief Science Officer) who is compensated handsomely to assert that the products “work.”

Ocean Spray doesn’t need a doctor to sell its juice like MonaVie. Hershey’s doesn’t need a doctor to sell it’s chocolate like Xocai.

Kudos to io9 for publishing this article and telling the story about how can be tricked. Now if only mainstream organizations would shine a light on some of the companies that are using the same tactics to trick consumers every day. Unfortunately, it takes a more work than just “dipping their cups into the daily stream of scientific press releases.”

Why You Shouldn’t Trust the Better Business Bureau (BBB)

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For years, the Better Business Bureau was perceived as a great source for consumers to learn about reliable companies. Unfortunately that’s no longer true and I now I question whether it ever was true. Until recently, I thought they were a government-run organization. After all the FBI, is a “Bureau” (Federal Bureau of Investigation), right? However, as Wikipedia says, “Although it has ‘Bureau’ in its title, the Better Business Bureau is not affiliated with federal, state, or local government, and has no direct affiliation with any consumer protection government authority. The BBB, as a privately held corporation, has no governmental authority over businesses.”

The BBB is not to be confused with the FTC, the government’s consumer protection agency. The BBB is a private nonprofit organization, much like Mozilla, who makes my favorite web browser, Mozilla Firefox. In some ways, the very name “Better Business Bureau” invokes a false sense of trust as most people wouldn’t confuse Mozilla with being a government-run organization.

The BBB may be best thought of as a collection of franchises, in the same way that collection of McDonalds restaurants that comprises McDonalds corporation. You can buy a hamburger at McDonalds, but there can be differences between stores. They are owned separately from the global corporation, which is different than Wal-Mart stores, which are all owned by the global corporation. The BBB is like McDonalds with 100+ franchises that are primary funded through its members. (This is an important point that we’ll come back to).

In 2009, the BBB switched its grading system from satisfactory/unsatisfactory to a letter grade: A+ through F. There were 16 factors that a company could be rated on a 17th factor, accreditation that could earn a company four extra points if they paid a yearly fee.

An ABC News investigation in November, 2010 found a number of problems with the new system:

  • The BBB gave an A- to a fictional company – ABC News found that “A group of Los Angeles business owners paid $425 to the Better Business Bureau and were able to obtain an A minus grade for a non-existent company called Hamas, named after the Middle East terror group” and that “the BBB also awarded an A minus rating to a non-existent sushi restaurant in Santa Ana, California.”
  • Paying Members get A+ ratings – ABC News also found that a a white supremacist website called Stormfront received an A+. Two companies were able to upgrade their C- grades to A+ overnight by submitting their credit card numbers
  • You must pay for the A+ rating – The only way to get the A+ rating was to get the four extra point for paying the yearly fee. This supposedly has changed and non-accredited businesses can get an A+ rating, but it’s unclear whether paying for accreditation boost your grade in point system (aside from the cases where merchants were able to simply buy their way from a C- to an A+ score.

This lead to Connecticut Attorney General Richard Blumenthal saying, “Right now, this rating system is really unworthy of consumer trust or confidence.” He sent an official demand letter asking the BBB to discontinue the ratings system because it is “potentially harmful and misleading.” The BBB has changed it’s grading system.

I should also mention that previous to the ABC News investigation, the Los Angeles Times reported that accredited business seem to receive favorable grades

The paying for accreditation where it impacts grades is particularly problematic, since the BBB’s funding comes from these fees. The system is completely untrustworthy if a business can pay a fee of around $400 a year and receive an A+ rating. I found this out when MonaVie, an MLM scam/pyramid scheme that I exposed awhile back went from a C- to an A+ in the span of about a month: Did MonaVie Pay For a Better Grade from the Better Business Bureau?

It is this experience that has me writing about the BBB today. When MonaVie got that A+ rating from the BBB, MonaVie and/or its distributors flocked to Wikipedia to trumpet how it was now a reputable company. They ignored the fact that it was a D- recently (the BBB doesn’t give a chart of grades over time, so this was easy for MonaVie to ignore). I should have probably written about the BBB then, but I wasn’t aware of the full extent of the problem.

A couple of days ago this came up in my exposing of Youngevity, yet another scammy MLM company. It didn’t matter that the “doctor” responsible for pushing the vitamins was a veterinarian pitching himself as a medical doctor or that he was making outrageous claims about people in China living to reach their 250th birthday. It didn’t matter than I could show people who to buy nearly equivalent products for a quarter of the price on Amazon. A Youngevity-proponent ignored these facts and left a comment that I must be wrong because Youngevity had an A+ rating with the BBB.

Ugh…

I guess I can’t expect consumers to have done the research on the BBB and find out that it isn’t the reputable rating agency that we all would like it to be. This concerns me greatly because there are a number of people who would have bought into the Youngevity scam on the basis of its BBB rating being reputable. Thousands of dollars later, perhaps they’d find my article and my response to the commenter and realize that they got scammed by both Youngevity and in trusting the BBB.

In the end, I think that Clark Howard has good advice for consumers about the BBB:

“Here’s what you need to know: I want you to use the BBB as a veto, not as a green light. If an organization has a bad rating, that alerts you to potential danger. But just because they don’t have a bad record, that’s not the seal of approval.

It’s the same thing with a CARFAX report. A bad CARFAX is a veto, not a green light to buy, that’s why you need a mechanic to inspect any used car purchase.”

In the case of MonaVie, Youngevity, ViSalus or many other MLM companies, I try to be that mechanic to inspect the company, since it is fairly easy for them to spend the $400 a year to remove that veto.

Fortunately for me, I’m not listed with the BBB, because after this article, I’d find out first hand that by criticizing the Better Business Bureau, they’ll likely pull my accreditation.

Update: It appears that that CNN Money has exposed the BBB as well. It has a great story about companies guilty of fraud that earned the highest rankings in BBB. They even have a nice little app here. They also explain how the BBB makes nearly $200 million a year in revenue – mostly by selling businesses on the need to be members, plaques, and other things that sound like Mafia-style protection money.

Hewlett-Packard Hates the Environment and Your Wallet

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… or maybe they just have it out for me. I’m not sure. Read on and let me know in the comments.

This story starts when I as a junior in high school. Realizing that I’d have to write a number of papers in college, I went out an bought one of the best laser printers printers on the market. I used $600 of my money from working at Papa Gino’s and bought a Hewleet-Packard LaserJet 4L. I knew it was a lot of money upfront, but it was 7 years before I had to buy any more ink… and I printed all my papers and many friends’ papers. I still have the printer today. It works like a dream… if only I could get it to work with today’s computers that tend to only have USB ports. (I’ve tried a converter cable, but I haven’t been one of the 4 people on the Internet who were able to get it to work.) I’m not the only either as you can still buy the printers on Ebay.

When I couldn’t get that printer working, my wife and I realized that we should move on to something newer and better. We chose to go with one of the All-In-One printers, copiers, scanners, fax-machines, and dog groomers (just checking if you were paying attention). The other benefit I got was the ability to finally print in color. I wanted that Dororthy stepping into Oz experience. Of course since Hewlett-Packard did a great job before, they earned my business again.

We sprang for the HP L7650, which was around $300 (Having a blog is a great way to keep track of your purchases). Like my previous HP printer, it’s still in good working order. So what’s my problem?

Unknown to me, the L7650 has printer heads that require replacing every two years. There is an expiration date on them. We were able to get more than two years out of them, but a couple of weeks ago, my printer just shut-down and said, “No more. I’m not going to use these print heads any more” It wasn’t going to use those printer heads any more. At least you get a warning with low ink.

My wife and I went on Ebay to look to see how much the printer heads. You can save a good amount of money buying printer ink on Ebay, so it was a natural place to look. The cheapest printer head was $55 after shipping. I probably should have mentioned it before, but the printer requires two printer heads – one for black and yellow and another for magenta and cyan.

The cheapest solution to getting this printer back working was going to $110. If I wanted to get genuine HP parts, it would be $140, plus shipping. I looked at OfficeMax online and a HP J4500 was available less than $80. We called up HP and asked if there was anything they could do. We don’t want to recycle a perfectly good printer that simply needs two parts the size of a deck of cards – it is a waste and it’s not environmentally friendly. HP told us that was the only option. Also, the ink cartridges that they used less than three years ago can not be used in any of the current models. I didn’t realize that ink cartridge technology advanced so fast. (I’m being sarcastic as I think HP simply discontinues sizes every now and again to keep you throwing out and buying new ink every time you change printers. It only stands to reason because they have what seems to be a hundred variations of catridges.)

I’d like to say that we did the smart thing and voted for another brand with our wallet. However, that HP J4500 that we went with was by far the cheapest that fit our needs. It really is a shame that the printer companies decided to go with the cheap razor and expensive razorblade model… especially when they make it cheaper to buy new razors and dispose of old working ones.