Lazy Man and Money

Is March Money Madness a Scam?

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Another day, another scam (maybe?). As Buffy the Vampire Slayer once famously said, “… must be Tuesday”. (Since it is actually Tuesday, I don’t mind referencing that twice in the last few posts.)

I got a Twitter shout out from Rob Wilson about a collaboration idea. He seems to run a reputable Rob Wilson TV channel, which has quite a few clips of him on his local news affilate as an expert. One of the videos mentions that Wilson is a founder of Blazer Capital Management. Rob Wilson passed the sniff test. He definitely does not fit the scammer profile.

I told him to email me with his collaboration idea. Wilson explained something called the March Money Madness Bracket Challenge. His idea was to create a “financial education tool with a gaming component to use sports as a way to educate people about finance and investing (topics many people don’t find fun or interesting).” This is a concept that I can certain back as I’ve felt that an entertaining game is a good way to learn personal finance.

It is patterned after the March Madness basketball brackets with 64 stocks in 4 regions: Consumer, Industrial, Financial and Technology seeds based on their YTD returns as of the end of Feb. “The “games” between the stocks in the bracket occur during one week in the real life stock market. The stock with the highest return during the week wins the “game” and so on until a champion is crowned.

At this point in the explanation, I start to have my doubts. How much financial education comes into play for Apple to beat Google in any given week? I would think that making money investing would be more motivating than a game such as this.

Where do I come in? I would be a VIP player and others could match wits against me in this tournament (I guess no one told Rob that it wouldn’t be much of a challenge.) The offer was on the table to give me incentives to get people to play the game.

As I looked into the March Money Madness (MMM) website a little further I saw that there was a $5 entry fee and the winner would get 50% of the entry fees. This seemed a little like a 50/50 raffle… and perhaps a bit of an illegal lottery. I did a little searching and found this for my state of Massachusetts:

“Q: Can a nonprofit organization hold a 50/50 raffle or distribute a prize from the money collected from the sale of raffle tickets?

A: A nonprofit organization may hold a raffle to award various prizes that are announced in advance, such as a motorcycle, trip or television. If, however, the prize is cash (such as in the case of a 50/50 raffle where the winner receives 50% of the proceeds) or a portion of the prize is derived from the raffle proceeds, the raffle may run afoul of the prohibition against pooling contained in M.G.L. 271, s. 16A and 17.”

As far as I know MMM isn’t a nonprofit, but the rest applies almost exactly as Wilson has designed it. You’d think that for-profit entities would be even more strict.

I expressed this concern to Wilson and he came back with “March Money Madness is not a pool, lottery or a game of chance. March Money Madness is a skill based game. As is the case with fantasy football, March Money Madness is not an illegal competition. The Unlawful Internet Gambling Act 0f 2006 (PDF) specifically excludes fantasy sports.” He also assured me that he worked with an attorney to ensure that the game is legal.

This reminded me that I read that office March Madness brackets every year are technically illegal. Surely, they would be a skill-based game. In fact, one could say that all betting on sports is skill-based to some degree. This was starting to remind me of bidding fee/penny auction scams where a strong case could be made that they are a game of chance while the ones running the auction claim it is a game of skill. In any case, since we had an easy parallel, I searched to see if the office pools were indeed legal as games of skill. Articles from LegalZoom and NPR confirm that they are not. The NPR one specifically states that making money off the bracket and crossing state lines are “almost certainly violating the law” as “virtually every state prohibits someone from conducting these types of gambling activities where they’re receiving profits for operating the gambling activity.”

I decided to check out the Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) and after about 30 seconds of getting annoyed at the legalese (sometimes I earn my Lazy Man name), I decided to do more research elsewhere. That’s where I came across some of my strongest evidence in a Forbes article: Why Is Gambling On Fantasy Football Legal? According to the article UIGEA,

“carves out a safe haven for any fantasy or simulation sports game that:

‘…has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events…

‘

In other words, fantasy sports are considered games of skill – not chance – if they can be won by successfully utilizing superior knowledge of the players involved. The Act adds that the game in question cannot have a prize that is determined by the number of players or amounts paid (think betting odds on game picks), but rather is established in advance of the game’s start.”

(I hope the quotes inside the quotes didn’t confuse you there.) At the very least this affirms the MA state law that the 50/50 part of the game is not legal as the prize would be based on the number of players and the price they paid.

The next question the article deals with is whether fantasy football counts as a game as skill, noting that losing a star player to injury could be considered bad luck. However, the article cites that this has been tested in the courts and they ruled “that fantasy sports are games of skill because players actively manage their teams, employing their sports knowledge and making strategic decisions.” So the skill would be in having good back-ups and navigating the bad luck that happens throughout the season. In the end, the author doesn’t seem to be believe that fantasy football counts as a game of skill noting that the high volatility of a player’s performance week to week could make it a game of chance. I have to agree. I played one season of fantasy football and I had the team that scored the most points overall in the league, but I finished with a 5-11 record as each week I got pitted against players who had their career days (Jahvid Best’s 220+ total yard game still stings.)

I strayed way too far from the yellow brick road there. Get back to the point, I don’t see how picking a bracket and submitting it once matches up with an active management. In fantasy football, there are many different options to deal with an adversity or under-performance such as pick up a free agent or make a trade. In MMM, if your top seed gets knocked out early, you can’t do anything about it except kiss your $5 goodbye.

Even if the UIGEA allowed it on a federal level, I would think that state laws would prohibit it. I realize that federal law supersedes state law. However, when a state makes something illegal like pumping your own gas in New Jersey, you can’t claim that safe-harbor due to the federal law.

As I publish this, I’m still waiting to hear back from Rob Wilson about the last several points. I suspect he’s slow in getting back because he’s getting a refund from his attorney. In any event, I won’t be participating in this scheme and I hope you don’t either.

Hotel’s “Broken Computer” Credit Card Scam

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Someone tried to steal our credit card information a couple of hours ago. It was a pretty ingenious scam too. I’m hoping that you’ll read this and share this story so that people won’t fall for it like we almost did.

As I mentioned we are moving to Boston and we are stay at a Marriott Residence Inn as temporary housing until we establish a more permanent residence. (Side Note: Residence Inns are great, highly recommend them.) We got a call at 6AM this morning on the hotel phone. My wife picked up the phone. The person on the other line was from the front desk explaining that the computers were down and that they lost our room reservation. They’d need to get some information manually in order accept credit card payments. The questions involved all the typical things that a hotel might need to know for their reservation: name, billing address, and credit card number.

My wife offered to come down with this information, but the scammer was prepared for this. He said that the wait at the front desk was an hour or two. That’s strong incentive to not get out of bed and go down to the front desk.

My wife said that the one thing that tipped her off was that the person spoke with a southern accent. In Boston, that’s really rare. We’d been staying at the Residence Inn for about a week now and there is not an “R” to be pronounced by any of the staff (I mean that in a good way.)

What should have tipped her off (and what should tip you off) is that you should never give an financial information to anyone calling you. You always call them back, because then you know they are who they say they are. For instance in this case, we just insisted in going down to the lobby with the information. Of course the people at the front desk were surprised to learn that their computers were down (because they weren’t) and our reservation was fine.

I inquired about how we’d go about catching this scammer and they didn’t have any answers. They claimed that they had no way to trace phone calls coming into the room. I realize they might not have caller ID, but you’d think they’d call up their phone company and get the record. They said that they’d post a flyer warning the guests, but clearly the scammer can go on to another hotel in a another city and try again.

Is ZeekRewards a Scam?

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A couple of days over the last week or two, I’ve been covering the the penny auction scam and in particular one company’s version, Zeekler. Those articles, particularly the Zeekler one, were building up to the article that I wanted to get to write about on Friday, ZeekRewards. However, I’m going to publish this very incomplete article right away, Thursday evening, due to recent events. If time warrants, I’ll go back and complete it.

A couple of weeks back, I wrote about how MonaVie turned to thought control to prevent a mass exodus from it’s program. A few of the very top distributors were going to something called ZeekRewards. It was an email my friend at Amthrax that asked if I had heard of it. I had heard something a few months before, but every couple of days I get an email about a new MLM scam. Soon after Amthrax’s email, a friend from college emailed me and asked if I had heard about it. Clearly something is going on here.

In the world of MLM, popularity is king. Since most of the real money is made by recruiting and being at the top, you need to pitch a company that is always popular and growing. And ZeekRewards is on a growth tear. The most popular MLM that I’ve written about is MonaVie and according to Google Trends, ZeekRewards is way more popular than MonaVie ever was. See the exponential growth in ZeekRewards (the blue line)?

ZeekRewards vs. MonaVie


And this is where I’d move on to the news of the night…

I just received a tip that Zeekler and ZeekRewards is being shut down by the North Carolina Attorney General. I did a little Google News search and it looks like it might be more than rumor and indeed the websites are down. It sure looks like the question in the title is getting a definitive answer from law enforcement.

[Update 8/17/2012] There’s lots of information on the Internet now of the SEC shutting down the Zeek for running a 600 Million dollar Ponzi scheme. As most people know lots of people lose lots of money in Ponzi schemes. However, there’s a small segment of people who are sucked in and truly believe they are a way to make money. One example of that is this petition to keep Zeek in business. Lots of people pleading that they need the scheme to continue to afford taking care of themselves and their family. Depending on a Ponzi scheme that’s barely been in business for a year is not a solid financial foundation and one that wasn’t going to last anyway.

Since we now know that it is has been shut down by the SEC, let’s get back to the scam. It’s interesting to watch this video with MLM advocate Troy Dooly with the Chief Operating Officer of Zeekler. He makes a point to say that they’ve done all the right things to proactively stay out trouble including hiring ex-members of the SEC. How’d that work out:

Zeekler, the Bidding Auction Scam

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A couple of days ago, I wrote why you should avoid the bidding fee/penny auction scam. If you haven’t read that article my conclusion after much research was that adding up the high probability of losing money, the potentially illegal lottery/gambling with penny auctions, and the potential for the fraud by the auction company itself, the only logical conclusion is that the Washington Post is dead on with bidding auctions, “the only winning strategy is not to play in the first place.”

Today, I’d like to explore one example of such a penny auction scam, Zeekler. Zeekler is your typical bidding fee auction. There’s nothing too unique or different then what I explained yesterday about other bidding fee auctions are. I’m singling out Zeekler to write about today to nail the point home about the scam and also as an introduction to tomorrow’s article (Yep, today’s article ends in a cliff-hanger). I could have easily written about Quibids and/or Skoreit. Quibids in particular has been running some advertising campaigns afoul with the FTC guidelines which I covered yesterday.

When looking at Zeekler, I found the things that the FTC warned consumers about that I covered in the previous article. In fact, it seems like Zeekler has purposely tried to hurt consumer through disinformation. This was clear in Zeekler’s How it Works FAQ. Specifically they say:

“Here’s how it works: Every person who bids on Penny Auction site Zeekler, purchases what is called a “Bid Pack.” Our bids cost the bidder 65 cents each. When a bid is placed on a penny auction item (let’s say for the sake of this example – it’s an Apple iPad.) the company receives that 65 cents on every bid. So, on a $10.00 item – 1000 bids were placed – and the company received the equivalent of $650.

We pay commissions and overrides up to .13c per bid – so the company now has $520 to work with. Then we purchase and ship the iPad to the winner which costs us $499. The company just retained $21, you just walked away for an iPad for $10 and the referring affiliates responsible for your coming to bid (and win) on Zeekler earn “thank you” commissions on the bids you purchased. That’s what we like to call… “A Win – Win – Win Proposition!” We are extremely dedicated penny auction site to our Fair Bidding Policy and to maintaining a fun, safe and profitable environment for our bidders and representatives.”

That sounds good in theory, but how does it work in practice? I clicked on one item that seemed interesting on the home page. It was an Intex Pool Set with a retail price of $149. As I write this the product has been bid up to $5.78. Because each bid raises it a penny, we know there have been 577 bids. At 65 cents a bid, Zeekler will collect $370 in bid fees, plus the $5.78 from the “winner.” Even if they only make 52 cents a bid by paying commissions of 13 cents, they collected $300 on a $149 product. In addition, I found the same set here for less than $125 shipped. Logically, the Zeekler can (and likely do) make the purchase from these discounters to ship to the “winner” lowering their cost from the retail.

In the win-“win-win proposition” the company forgot about the bidders who bought the lottery tickets for this “auction” and didn’t end up as winners.

In the time that it took me to give the above example the price of the pool is up to $7.54 and still going. Zeekler’s profit on the product is $242.56 after all its expenses (bid commissions and overrides and buying the product) and counting…

The example Zeekler gives of the Apple iPad getting them $21 does not seem to be the average. Instead it seems that the New York Times example previously mentioned of earning more than twice the product’s costs is playing out.

Our parent company Rex Venture Group has been in business 13 years and has historically paid its representatives in the field every commission check earned since its’ inception. “Is this a Pyramid Scheme?” Of course not!! “Pyramids” or “Money Games” are illegal and ask its’ participants to wrap money in tin foil and FedEx it to “someone else” with no exchange for product or service!

The pyramidal structure is actually the “model” structure of every corporation and even the U.S. Social Security system. Why then are pyramids illegal? Because there is no “exchange” of product or service for the money spent and the only ones who “collect” money are the people at the top of the pyramid. When there are no longer enough people coming and sending money “up” to move people thru the pyramid – the pyramid collapses. An example of a legal – yet collapsing pyramidal structure/system is what is happening to social security. The baby boomers are all coming of age to collect (at the top of the pyramid)- with not enough people paying in from the bottom!! The structure will then collapse. Every CEO is at the top of his/her company’s pyramidal structure. That’s why he/she makes so much more than a mailroom worker.

I don’t know of any pyramid schemes that have ever asked people to wrap money in tin foil and FedEx it with no exchange for product or service. While that may be part of some pyramid schemes, that isn’t how they typically work. Zeekler either clearly doesn’t understand what a pyramid scheme is or is purposely lying to others. I have documented many sources from the FTC that Multi-Level Marketing companies with products can be illegal pyramid schemes. One such example is the FTC’s case to shut down JewelWay back in 1997. JewelWay did indeed have a product, jewelery.

I already have a three part series on Social Security and how it isn’t a Ponzi scheme: Is Social Security a Ponzi Scheme? (Part 1: Ponzi History). The Social Security system is sustainable because it can sustain payouts indefinitely. The payouts might have to be reduced to match the workforce, but it isn’t a pyramid scheme where someone at the top gets the majority of money and many people at the bottom get nothing.

Zeekler then goes on to tell the other classic lie about pyramid schemes, that corporations are actually pyramid schemes. This lie is told so often that I had to write this article: Corporate America is Not a Pyramid Scheme. Disreputable companies like Zeekler are creating disinformation to confuse consumers about the differences of a hierarchical organization versus a pyramid scheme.

I’m not suggesting that Zeekler is a pyramid scheme. My point here is that it is dishonest to spread this false marketing… and it has no business at all in a FAQ about how Zeekler works. As we found with the previous article, bidding auctions can be seen as illegal gambling or an illegal lottery. Rather than an education on pyramid schemes, it would seem more prudent to address why this these might not apply to Zeekler. As best as I can tell they clearly do.

Intex Pool Update: It’s been about an hour and half since I first looked at the pool auction. That pool now is up to $17.42 meaning that at $0.52 cents a bit after paying out the commissions the 1741 bids have totaled $905.32 or $756.32 of bidder’s money after paying the expense of $149 for the pool to ship to the winner. The auction continues…

Continuing on with the Zeekler How it Works FAQ, the company then puts up some testimonials to try to make it seem like a legit company. One example is “Zeek=Verified Online Penny Auction!!” referring to this Pennyburners website (accurately named because participation in these schemes is like burning money). The first article I see on Pennyburners is this one about a Ford Mustang on Zeekler:

“Sometime Thursday morning, a long-running penny auction on Zeekler.com for a brand-new Ford Mustang finally ended! The final price? $4,077.07!

As this was a traditional penny auction, this final price means that there was a total of 407,707 bids placed during the auction. And, as this was a “VIP Auction”, every bid placed was worth $1 each – as compared to $.65/bid. On the surface, it looks like Zeekler raked in $407,707 total for the auction.

The winner of the auction goes by the username “Gloo”. S/he won the auction with a total of 105 bids – for $105!

Talk about a good day for both sides!”

You can see that auction on Zeekler here. It doesn’t take a genius to realize that it is a good deal for Zeekler as they grossed $407,706 (I presume it started at $1) in bids plus $4,077 from the winner for a total of $411,783. They “only” netted $391,783 after paying for the Mustang. Clearly it’s a good deal for the winner who ended up paying $4,182 for a $20,000 car. It’s just a gigantic loss for the people lost $390,000.

Getting back to the How it Works FAQ

There’s a Seal on the Zeekler page saying “Zeekler Receives the PennyAuctionList Seal of Approval.” The consumer may think this “seal of approval” is from a reputable organization that watches over these companies. Nope, it just goes to PennyAuctionList.com which according to their FTC disclosure is a resource maintained by penny auction bidders. The link to penny auction bidders is broken so there’s really no disclosure who they are. One thing is clear, their seal of approval carries no authority.

In a similar attempt to confuse consumers they display a PennyBurners.com “Verified Penny Auction” seal, which also is not from a reputable organization that provides any verification features.

After many hours the Intex pool auction finally ended at 30.80, or $1601.60 of bids (at 52 cents a bid) for a $150 product that it sold for $30. Zeekler spent at most $120 for $1601.60, while its customers lost $1481.60 of value. Deceptively Zeekler mentions that the item was won with 2 bids, which means that the winner only bid twice, concealing the 3078 losing bids.

If you thought that consumers got ripped off there, it’s nothing compared to this $100 Red Lobster Gift Card that was sold for $67.16. Consumers spent $4,365.40 in bids and one lucky person saved less than $33 on a gift card.

If it wasn’t obvious by now, participating in Zeekler auctions is simply making a very poor financial decision.

In a future article, we’ll explore Zeekler’s ZeekRewards program, which adds a multi-level marketing (MLM) that may be a pyramid scheme component to the mix.

Avoid The Bidding Fee/Penny Auction Scam

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Are you familiar with bidding fee auctions or penny auctions? If not, here’s a description of what they are how they work.

Sales scams are as old as humanity, but the Internet has introduced a whole new way to rip people off. Penny auctions are very popular because it seems like you can get something useful – cameras, computers, etc. – for way below retail. But you pay a small fee for each bid (usually $0.50 to $1.00) and if you aren’t the winner, you lose that bid money. Winners often are not even the top bidder, just the last bidder when time runs out. Although not all penny auction sites are scams, some are being investigated as online gambling. BBB recommends you treat them the same way you would legal gambling in a casino – know exactly how the bidding works, set a limit for yourself, and be prepared to walk away before you go over that limit.

This description was from the Better Business Bureau’s top ten scams of 2011. While I have said you shouldn’t always trust the BBB, the point was made that if they warn about something, you shouldn’t get involved. In short, the BBB just veto’d penny auctions as a way to save money or get a good deal.

The BBB isn’t alone.

The Washington Post goes into more detail about the bidding fee auctions in its coverage of Swoopo.com, a defunct bidding auction company with the same model as Zeekler. The article points out a number of reasons why it “may be the most devious way to separate folks from their money yet devised” including pitting buyers against each other, getting them to make snap decisions, and making it seem like they are spending much with relatively small bids. The article goes on: “In essence, what your 60-cent bidding fee gets you at Swoopo is a ticket to a lottery, with a chance to get a high-end item at a ridiculously low price…. the only winning strategy is not to play in the first place.”

The New York Times called Swoopo’s bidding auctions, “devilish” noting how the process allows for a business school professor to sell a $20 bill to educated college students and make $50 in bids. The article shows how Swoopo was able to auction a $1000 check and collect $2452 in total fees.

In fact these bidding fee auctions may be illegal lotteries. This NBC News article explains why:

“Doing something truly as a penny auction … there’s no doubt in my mind that’s an illegal lottery,” he said. “But I believe they could be conducted correctly. … Are there some operators doing things in addition to bidding that means they (satisfy) sweepstakes and lottery laws? It’s possible. Those things would have to be analyzed more deeply.”

There are three elements to an illegal lottery — prize, chance and consideration. In a basic penny auction, all three elements are satisfied, Lewczak said. The discount is the prize. There is chance involved, as the auction bidder does not know when an auction will end. And finally, there’s consideration: The bid fees.

Even the FTC has put out a consumer alert against these penny auctions (another name for bidding fee auctions). They agree that they are more lottery than auction saying, “But in many ways, penny auctions are more like lotteries than traditional online auction sites.” It warns that unscrupulous auction sites use computer programs that automatically bid on behalf of the website to extend the auction and keep people bidding (and spending money) as they chase the “win.”

When you add up the chance of losing money, the potentially illegal lottery/gambling, and potential for the fraud by the auction company itself, the only logical conclusion is that the Washington Post is dead on with bidding auctions, “the only winning strategy is not to play in the first place.” I previously only put bidding auctions as a 5 or 6 on Lazy Man’s Scam Scale, but after doing this research, I think I underestimated it.

Tomorrow, I will build on this illustrating one specific penny auction company that I’ve been looking into, Zeekler.