Consumer Safety & Awareness Part 17

Advance Fee Scams: Introduction

One of the most common illegal schemes is called the “advanced-fee” scam. It involves getting payment or a product before giving anything of value, then disappearing. There are two main formats, the simple get-the-fee-and-run technique, and the counterfeit rebate scheme. The second, originally a “Nigerian 419” scheme, revolves around receiving a check, depositing it, and sending part of the amount to the scammer. The check is stolen or counterfeit. We will look at this in depth later.

Advanced fee schemes can arrive in the mail, by e-mail, through phone solicitations, personal visits, in newspaper and magazine ads, and even through paid television and radio commercials. They can earn the scammers enough to quickly pay for their upfront fees, generate a nice profit, and provide them with get-away cash. They know how to cover their tracks well.

All such scams are uninvited. You do not contact them, they contact you. The mass mailing available to Internet spammers provides a perfect venue. Let’s start off by analyzing an actual e-mail that people have received.


AWARD NOTIFICATION: FINAL NOTICE

Attn: Winner,

We are pleased to inform you of the lottery result winners of Australian International Lottery Programmes held on the 30th of July 2007 from the Australian International Lottery programme. Which is fully based on an electronic selection of winners using their e-mail addresses. Your name was attached to ticket number; 675061725 9356460902 Serial Number 67749137002. This batch draws the lucky numbers as follows 2-9-23-35-46 bonus number 14, which consequently won the lottery in the second category. You are here by having been approved a lump sum pay of US$400,000.00 in cash credit file ref: ILP/HW 46704/03 from the total cash prize shared amongst eight lucky winners in this category.

Due to mix up of some numbers and names, you are advised to keep your winning information confidential until your claims has been processed and your money remitted to your nominated bank. This is part of our security protocol to avoid double claims and unwarranted abuse of this programme by some participants. All participants where selected through a computer/mail balloting system drawn from Nine hundred thousand E-mail addresses from Canada, Australia, United States, Asia, Europe, Middle East, Africa and Oceania as part of our international promotions program which is conducted annually. This Lottery was promoted and sponsored by a conglomerate of some multinational companies and also the Australian Government as part of their social responsibility to the citizens in the communities where they have operational base. Further more your details (e-mail address) falls within our European representative office in Amsterdam, Holland, as indicated in your play coupon and your prize of US$400,000.00 will be released to you from our regional branch office. We hope with part of your prize, you will participate in our end of year high stakes for US$2.3 Million international draw.

HOW TO CLAIM YOUR PRIZE: Contact our Claims Office under the African Payment Centre, where your winnings fell.
Contact Person: Mr. Alexzander Evans(RCA) Phone_+234_80 666 70849
Email: agentalex.australianlotto@yahoo.com

TO FILE FOR CLAIM: Please quote your Date of draw, Reference Number, Batch Number and Winning Number, which can be found on the top-left corner of this message. Also, you should give in your telephone number to help locate your file easily. For security reasons, we advice all winners to keep this information confidential from the public until your claim is processed and your prize has been released to you and also to the public. This is part of our security protocol to avoid double claiming and unwarranted taking advantage of this programme by non-participant or unofficial personnel.

Note: All winnings MUST be claimed before the 30th of August 2007: otherwise all funds will be forfeited. Congratulations once again on your winning!

BEST REGARDS,
MR.DANIEL ROMAN
(LOTTERY COORDINATOR)

PLEASE DO NOT REPLY TO THIS EMAIL. CONTACT YOUR CLAIMS AGENT AT:
agentalex.australianlotto@yahoo.com

ANY BREACH OF CONFIDENTIALITY ON THE PART OF WINNERS WILL RESULT TO DISQUALIFICATION.

The catch is that when you call up or write to submit your claim, they ask you to pay a fee or to submit your credit card or bank account number to cover some expenses. It could be taxes, verification of identity, promotional costs, or some seemingly reasonable cause. Payment is usually through a money order, Western Union, or similar method that is not traceable to the actual scammers. They may not ask for gigantic sums. Occasionally, especially if they hope to con thousands, the fees may be a few hundred. They have been known to ask for thousands of dollars at a time.

Let’s analyze this letter.

1. It is called the “Australian International Lottery Programmes.” Google that phrase and you get around 200,000 hits. The first one may say “Congratulations, you have won, this is real.” All the others say that this is a scam. In fact, Goggling the phrase with “scam” after it leads to such sites as Fraud Aid, which contains a list of thousands of names used in scams.

2. “Your name was attached to ticket number; 675061725 9356460902 Serial Number 67749137002. This batch draws the lucky numbers as follows 2-9-23-35-46 bonus number 14” Too much detail. That is a technique scammers use. They believe that people will fall for official-sounding gibberish.

3. “US$400,000.00 in cash credit…from the total cash prize shared amongst eight lucky winners” Multiply that amount by the 8 winners and you get $3.2 million. Are you going to believe that the second place prize was that much?

4. “Due to mix up of some numbers and names, you are advised to keep your winning information confidential until your claims has been processed and your money remitted to your nominated bank.” Three things in this sentence. Any prize that asks you to maintain confidentiality is a scam. No questions about it. Secondly, this is a conglomerate of major corporations and the government. Would they get numbers and names mixed up? Last, they are already leading up to needing your bank account number. You give it to them and they can drain your entire savings.

5. “This is part of our security protocol to avoid double claims and unwarranted abuse of this programme by some participants” There are eight winners. Even if you include the first place and a few hundred minor winners, what are the chances their organization, especially since it was “promoted and sponsored by a conglomerate of some multinational companies and also the Australian Government” will be so disorganized that they cannot keep track of a few names?

6. “Drawn from Nine hundred thousand E-mail addresses from Canada, Australia, United States, Asia, Europe, Middle East, Africa and Oceania.” Why not Mexico and South America?

7. “Further more your details (e-mail address) falls within our European representative office in Amsterdam,” No North American representative? Seems unlikely.

8. “We hope with part of your prize, you will participate in our end of year high stakes for US$2.3 Million international draw.” Heads up! They are going to ask you to send money to play in this drawing before you get your prize. Interesting that their grand annual prize is $2.3 million, yet second place was $3.2 million.

9. “Contact our Claims Office under the African Payment Centre, where your winnings fell. Contact Person: Mr. Alexzander Evans(RCA) Phone_+234_80 666 70849
Email: agentalex.australianlotto@yahoo.com” Wow, there’s a bunch of give-away signs here. Why would someone in the United States, who has a “European representative” have to contact someone in Africa? Let’s Google that phone number. There are only a few results and the first screams “scam.” The second is written in Cyrillic letters, meaning the scam may have originated in a former Soviet Union country. International calling code “234” is Nigeria. Remember what we said earlier about this being a favorite of the “Nigerian 419” scams?

10. “Also, you should give in your telephone number to help locate your file easily.” How can they cross-reference to your telephone number when this was a random drawing using e-mail addresses? They do not have your phone number, but giving it to them will make it easier for them to scam you, or to sell the information to others who can try to trick you.

11. “We advice all winners to keep this information confidential from the public” A second such warning. They know if you tell anyone you will be informed it is a scam.

12. “PLEASE DO NOT REPLY TO THIS EMAIL” Because if you do, you will get a no-such e-mail return. They love using throw-away e-mail addresses. Use it once and then delete it. The same is true for using a “Yahoo,” “G-Mail,” “Hot-Mail,” or any other form of free e-mail service. Your contact is agentalex.australianlotto@yahoo.com. Agent X? And a Yahoo account? You would think that a bona fide lottery would have its own domain.

13. “ANY BREACH OF CONFIDENTIALITY ON THE PART OF WINNERS WILL RESULT TO DISQUALIFICATION” In case you did not catch it the first three times.

This is just an example. There are many other types of advanced-fee scams.

Consumer Safety & Awareness Part 16

Multi-Level Marketing and the Law -- Part 2

In 2007 a class action lawsuit was brought against both Amway and Quiztar. Amway refused to cooperate because all their distributors have to sign an agreement not to sue them, but rather to submit to binding arbitration. They get to pick the moderator and set the rules. The judgment went against them.

The suit is based on the same charges that the FTC brought against Equinox, SkyBiz and other MLMs that regulators shut down. It states that the Quixtar program – based upon selling products to recruits "for personal use", then authorizing them to recruit others to do the same while requiring them to maintain quota levels of monthly purchases, and then rewarding them in a multi-level compensation system – is a fraud. The suit also attacks Quixtar's infamous "tools" business as a second pyramid scheme perpetrated on new recruits.

Equinox International Corporation, and its founder, William Gouldd, operated a multi-level marketing company that encouraged consumers to become distributors for products including water filters, vitamins, nutritional supplements and skin care items. Equinox distributors ran classified ads in the "help wanted" sections of newspapers, which implied that a salaried position was being offered. Those who responded to the ads were instead given a sales presentation designed to recruit new distributors.

The suit claims that Equinox told potential distributors that they could earn money by selling products or recruiting additional participants but emphasized that the real way to make money is through recruiting, not through sales. New recruits were encouraged to purchase $5,000 worth of products to become a manager, rent desk space for $300 to $500 a month, obtain their own telephone line and attend training seminars that cost between $300 and $1,000. Participants were told that "financial gains were dependent upon the continued successive recruitment of other participants" and that retail sales are not required to make money.

Investigations determined that a very small percentage of distributors actually recoup their expenses. In reality, the majority of participants drop out of the program with little or no earnings despite the defendants' claims that everyone who participates in the program will receive substantial income. The courts closed down the business and ordered over $40 million in restitution.

The United States Postal Inspector made this statement:
Multi-level marketing is a system of selling in which you sign up other people to assist you, and they, in turn, recruit others to help them. Some entrepreneurs have built successful companies on this concept because the main focus of their activities is their product and product sales. However, there are many multi-level distributorship schemes that are nothing more than sophisticated chain letters. They operate as a "pyramid," claiming participants can earn lots of money by concentrating most, if not all, of their efforts on recruiting distributors rather than selling a product.

The success of a pyramid distributorship for each and every distributor depends on continuously getting additional people to join the pyramid. However, there is a practical limit to how many distributors can be found and to how many product units they can sell or use. To protect yourself against falling victim to a multi-level marketing scheme, note whether the basis of the promotion is the sale of a product at the retail level, as opposed to an emphasis on recruiting more and more distributors to help you increase your income.
There is no easy way to wealth. A multi-level marketing scheme is no exception, other than perhaps for the promoter who originates it and receives the large fees from unsuspecting victims.

Before you get involved in any business where you have to sell products to your friends, take the time to read the information at mlmwatch.org. They list governmental legal action against several dozen multi-level marketing companies including Amway, Herbalife, Nu Skin, Nature’s Sunshine, and Oxyfresh. Even Scientology has been classified as an MLM as members get paid for every new recruit they bring in.

The truth is that there are many legal companies that fall into this type of business, and it is possible, with a few of them, to become financially successful, but not without work. More important, from a consumer’s point of view, is that the value of the products they sell tend to be exaggerated or misrepresented.

As we have recommended before, when offered a product from anyone or any company, you should initially turn it down so that you can research it. If the product claims to be a cure, whether called natural, herbal, or scientifically proven, at very least have your doctor check for compatibility with any medication you are already taking. Copy the ingredients from the bottle or jar. If you feel you have a medical need for such a product, have your physician do a blood test to discover if there is a systemic cause for the problem. Often doctors can find inexpensive remedies as opposed to the month-after-month of using an unproven and possibly expensive product.

Before you purchase a perfume, skin cream, nail softener, or other cosmetic product, compare its price to both name brands and store brand products that have similar claims. MLM state their products are less expensive because of no middleman, but they do indeed have a multiple of middlemen, all of whom grab a profit. A truly honest salesperson will let you take the product in to your pharmacist so that you can seek advice.

Consumer Safety & Awareness Part 15

Multi-Level Marketing and the Law -- Part 1

Multi-Level Marketing makes the owners and the initial first few who join wealthy on top of the backs of those who come after. No matter how they sell it, MLM is economic slavery and thievery. The FTC classifies all multi-level marketing company as pyramid schemes. On May 13, 1998, the Federal Trade Commission stated:

The Commission took its first concerted action against pyramid schemes in the 1970's during a boom in home-based business and MLM or direct selling. One-on-one marketing became common for many consumer items -- from cosmetics to kitchenware, and Tupperware™ parties became an icon of the era. Unfortunately, the rise in legitimate multilevel marketing was accompanied by a surge in pyramid schemes. Those schemes played off the popularity of MLM or network sales but paid more attention to networking than to selling actual goods.

One of the Commission's first cases was In re Koscot Interplanetary which involved a company that offered the opportunity to become a "Beauty Advisor" and sell cosmetics. The company's incentive structure really did not encourage retail sales. Instead, it encouraged people to pay $2000 for the title of "Supervisor" and purchase $5400 in Koscot cosmetics, and then to earn bonuses by recruiting others to make the same investments. The Commission found that Koscot operated an illegal "entrepreneurial chain" and articulated a definition of illegal pyramiding that our agency and the federal courts continue to rely on.

The Commission found that pyramid schemes force participants to pay money in return for two things. First is "the right to sell a product", second is "the right to receive, in return for recruiting other participants into the program, rewards which are unrelated to sale of the product to ultimate users.” The Commission explained that paying bonuses for recruiting: “. . . will encourage both a company and its distributors to pursue that side of the business, to the neglect or exclusion of retail selling. The short-term result may be high recruiting profits for the company and select distributors, but the ultimate outcome will be neglect of market development, earnings misrepresentations, and insufficient sales for the insupportably large number of distributors whose recruitment the system encourages."

In In re Amway Corp, another landmark decision from the 1970's, the FTC distinguished an illegal pyramid from a legitimate multilevel marketing program. At the time, Amway manufactured and sold cleaning supplies and other household products. Under the Amway Plan, each distributor purchased household products at wholesale from the person who recruited or "sponsored" her. The top distributors purchased from Amway itself. A distributor earned money from retail sales by pocketing the difference between the wholesale price at which she purchased the product, and the retail price at which she sold it. She also received a monthly bonus based on the total amount of Amway products that she purchased for resale to both consumers and to her sponsored distributors.

Since distributors were compensated both for selling products to consumers and to newly-recruited distributors, there was some question as to whether this was a legitimate multilevel marketing program or an illegal pyramid scheme. The Commission held that, although Amway had made false and misleading earnings claims when recruiting new distributors, the company's sales plan was not an illegal pyramid scheme. Amway differed in several ways from pyramid schemes that the Commission had challenged. It did not charge an up-front investment fee from new recruits, nor did it promote "inventory loading" by requiring distributors to buy large volumes of nonreturnable inventory. Instead, Amway only required distributors to buy a relatively inexpensive sales kit. Moreover, Amway had three different policies to encourage distributors to actually sell the company's soaps, cleaners, and household products to real end users.

First, Amway required distributors to buy back any unused and marketable products from their recruits upon request. Second, Amway required each distributor to sell at wholesale or retail at least 70 percent of its purchased inventory each month -- a policy known as the 70% rule. Finally, Amway required each sponsoring distributor to make at least one retail sale to each of 10 different customers each month, known as the 10-customer rule.

In its conclusion, the FTC states:

Beware of any plan that offers commissions for recruiting new distributors, particularly when there is no product involved or when there is a separate, up-front membership fee. At the same time, do not assume that the presence of a product or service removes all danger. The Commission has seen pyramids operating behind the apparent offer of investment opportunities, charity benefits, off-shore credit cards, jewelry, women's underwear, cosmetics, cleaning supplies, and even electricity.

If a plan purports to sell a product or service, check to see whether its price is inflated, whether new members must buy costly inventory, or whether members make most "sales" to other members rather than the general public. If any of these conditions exist, the purported "sale" of the product or service may just mask a pyramid scheme that promotes an endless chain of recruiting and inventory loading.

(Continued next week)