Lazy Man and Money

So Claw Machines are a Confirmed Scam?

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It’s been awhile since I’ve written a good article on scams. I used to cover MLM scams all the time, but since now everyone does it, it doesn’t seem like I need to any more. However, I recently read about claw machines being a scam and figured that I need to write about it.

We’ve all been there. Or maybe you’ve just been smart enough to avoid the claw machines in the first place.

Claw Machine Scam
Claw Machine: Sure, smile while I scam you out of your money!

I can’t remember ever really playing with one… until recently. When you have a 4 and 5 year old, a fun game to get an awesome toy is a great idea. I give them each one shot at the local arcade and they oh so close every time.

I figured that the claws were rigged to never work. I’ve never seen anyone win. At least I’ve seen people win at carnivals.

What I never knew is that the claw machines are rigged, but they DO work a small fraction of the time. What appears to be a game of skill is actually essentially a slot machine that relies totally on the luck of machine picking you as the winner.

Don’t believe me? Watch the video:



Or if you don’t happen to be a good place to watch a video, you can read the Vox article Claw machines are rigged — here’s why it’s so hard to grab that stuffed animal.

If you are too lazy to do either, I’ll give my short version of the story. Claw machines can by programmed by the operator to throttle the number of times that the claw has any actual gripping strength. There are things like “drop percentages” backed into the machines. So essentially the machine owner can set whatever profit level they want by using the price of the toy, the cost per play, and the percentage of having the claw work properly.

Of course, when Vox reported that these document were available online, BMI Gaming took them down.

I’m curious how this is legal. It seems little different than just a slot machine. Maybe you don’t get money directly, but you get something of value. At least the slot machine doesn’t deceive people into thinking it is a game of skill… it’s pretty obvious that it’s a game of luck, right?

Finally, this scam is often played on children. That’s pretty low. So little Johnny or Jill start a lemonade stand to make a few dollars and then get tricked out of it by a grocery store or restaurant owner? It’s almost literally taking candy from a baby.

Am I making too much of this? Let me know in the comments.

Looking for further reading? Kotaku had a detailed this back in 2012. There’s also some good news as some game companies promised not to rig them any more.

Beware: Supremo Call Center Scam

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Yesterday I got a call from a scammer saying that my computer was infected with a virus. If anyone ever calls you saying such a thing, it’s a scam 99.99% of the time. I’d say 100% of the time, but it might be a call from your workplace IT. The rest of the time, the person on the phone will try to get you to download some software that will give them control of your computer.

Ars Technica outlines the scam here. Another blogger details his call.

Note: Supremo itself is a legitimate company with legitimate software for good and useful purposes. However, it seems that if a computer operator gives permission to a nefarious third party, they do some really bad things. It’s a little like how a hammer can be used as a tool to help build a home, or a weapon to inflict damage. This isn’t a criticism of Supremo, but the only way to describe the scam is through the software.

I kept the scammers on the line for awhile playing dumb. This is the only way I can think to really “harm” these scammers. A minute that they are on the phone with you is a minute they aren’t defrauding someone else. It’s really easy to keep them on the phone by asking them repeat stuff. You can even do it while you are doing some other activity.

Eventually, I let them talk me into entering “www.supremo.com” into the search bar (which for Firefox is a separate bar that initiates a search). They asked what I saw and I went with the Ars Technica result that explained that call centers are scamming people.

They hung up as soon as I mentioned that.

Look Out for (and Avoid) Tax Scams

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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.

There’s a lot of tax fraud out there. The IRS lists a “Dirty Dozen tax scams”.

I’ll give you a minute to click and review the list.

For those who didn’t take the time here are a couple of common ones. There’s identity theft where someone else uses your identity to claim a refund. This is probably the biggest tax scam out there.

Second on the list was the phone call that my wife was referring to.

New scams are always creeping up on the IRS radar. For example the IRS warns people of this one. In short:

“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.

Is Donating My Car a Scam?

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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.

Car donation scams cross my radar when this LA Times headline piqued my interest: California Atty. Gen. Kamala Harris sues to shut down 2 car donation charities.

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?

Not so fast.

NBC’s New York affiliate found:

“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.

P.S.

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.

What is a Scam Anyway?

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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 much, much 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:

Defamation is:

  • 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 my opinion. The Consumerist specifically cites this court case as precedent that “running scams” is a matter of opinion.

Update (4/2/2018):

And if you need more evidence of it being a matter of opinion, let’s take a famous example. Trump: Amazon ‘scam’ costing Postal Service ‘billions’

If this was a blind test, any sane person would agree that comparing a mutually agreed upon Amazon/USPS arrangement a “scam” would be a thousand times more defamatory based on falsity more than someone asking a question if a consumer is getting treated honestly by a company. I don’t know how anyone can be held accountable for defamation in a truthful attempt to protect consumers while others are clearly not held accountable for “post-truth” comments that can and do hurt people.

Moving on from that update…

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.

Finally, a high Colorado state court said that “scam” was not libelous.

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.

Final Thoughts

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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