THE BIZOP NEWS

Pretexting on Face Book

2009-12-16T14:52:34Z

The Overstock saga continues. As reported by Tracy Coenen and Gary Weiss, Mr. Bagley attempted, with some success, to infiltrate Facebook to "befriend" various people who have been critical of Patrick Byrne and his company Overstock.

Mr. Bagley's goal was to show the people who were critical of Mr. Byrne were also connected to each other by their Facebook site.

Mr. Bagley is described as an investigative reporter by Mr. Bryne.

Unfortunately, Mr. Bagley created a false identity on Facebook, using this image.

As Mr. Weiss tells it, he believes that Mr. Bagely has committed identity theft, under the Gramm-Leach-Bliley Act.

"The identity theft element comes from the fact that Bagley used a photograph of a person who did not give his consent, as I described in my last item.

Keep in mind that this was not some hobby photo; it was the work of a professional.

Yet it was obscure, not some famous photo in the public domain.

The identity theft victim and the photographer, whose picture was used for nefarious purposes without his consent, in violation of the Lanham Act, [sic] have been notified. It will be up to them whether they want to press charges."

I am not sure this act of deception by Bagley is a violationg of the Gramm Leach Bliley Act, no matter how stupid it is otherwise.

Recall that pretexting is aimed at getting parts of sensitive consumer information, usually from different institutions with the goal of getting enough private information to engage in identity theft and credit card fraud.

From the FTC website, it is illegal, prextexting, to:

use false, fictitious or fraudulent statements or documents to get customer information from a financial institution or directly from a customer of a financial institution.
use forged, counterfeit, lost, or stolen documents to get customer information from a financial institution or directly from a customer of a financial institution.
ask another person to get someone else's customer information using false, fictitious or fraudulent statements or using false, fictitious or fraudulent documents or forged, counterfeit, lost, or stolen documents.

There doesn't seem any question that Mr. Bagley impersonated someone else, but I don't see this as an attempt to get customer information from Mr. Weiss.

It is a pointlessly stupid thing to do, given that the photo was so easily identified, but I don't see it as illegal pretexting.

The Future of News - Living

2009-12-10T14:45:19Z

This is a novel development in my opinion. Google has partnered with the New York Times and Washington Post to provide serious background content to major issues, which are updated. There is a chronology, simple time line at this point, which sets out the major events in the issue. You can subscribe to updates, via email or RSS, to the issue.

This will be a terrific way to present the details of a legal case, the issues involved, and how the case moved from beginning to end.

The Affiliate Summit Facebook Panel Smackdown Continues

2009-12-04T14:52:17Z

Image via Wikipedia

The all out war between Jeremy Schoemaker and Dennis Yu continues, with Markus Frind jumping in to defend himself.

Most of the drama is insider baseball stuff - Yu claims Schoemaker used unethical marketing techniques for Facebook, and Schoemaker claims Yu is a scum bag.

Both allegations could be true, false or somewhere in between.

There is, however, an interesting due diligence angle here. Dennis Yu and Jeremy Schoemaker were scheduled to appear on a panel at the Affiliate Summit in January.

Danny Sullivan, a very well known speaker, wrote about Yu's appearance at the Affiliate Summit:

"I think it's worth reminding everyone that just because someone speaks, that's not an endorsement that you should hire them. Certainly that's true for SMX, and I think it's good advice for any show."

One of the commentators responded by saying:

"I disagree. I think that people spend $2000 to get into these shows (myself included) because you can have a reasonable expectation that the speakers are not extortionists.

Speaking at an esteemed event is an implicit endorsement, regardless of fine print.

Due diligence and reference checks are a good idea as well obviously, but if the speakers aren't safe to hire, or worth hiring, why are they there?"

This is an excellent demonstration of the limitation of the consumer warning: buyer beware. Mr. Sullivan recommends that one "check out the references" of anyone whom you hear speak, no matter how prestigious the conference. But checking references simply means asking what other people are saying: and conference organizers are lending their authority to their speakers.

It is amusing to hear Mr. Sullivan complain that "we can vet material to some degree, but conference organizers are not the Better Business Bureau in terms of investigating business operations." The BBB never investigates a business; it investigates complaints about a business.

On the other hand, the commentator asks for too much - essentially a blank check for reputation from the conference organizers. Oh, this person appeared as a speaker - he or she must be worth and able for my particular purposes.

There is no magic trick to due diligence - Yu might be a slimeball who nonetheless can teach you something; Schoemaker might be a dubious Facebook marketers who nonetheless can teach you something. But, their appearance at a conference only signals that they had something of interest for the conference organizers. Heck, in this case the organizers might only be interested in the all out war between Jeremy Schoemaker and Dennis Yu!

Happy Thanksgiving

2009-11-26T13:46:11Z

Image by thinkpanama via Flickr

From the SEC press release on the Cook and Kiley ponzi scheme.

The SEC alleges that from at least July 2006 through at least July 2009, Cook and Kiley, through the Defendant Companies, raised at least $190 million from at least 1,000 investors through the sale of unregistered investments in a purported foreign currency trading venture by misrepresenting that they would deposit each investor's funds into a separate account in the investor's name to trade in foreign currencies and generate annual returns of 10 percent to 12 percent.

They also misrepresented that their foreign currency trading program involved little or no risk and that investors' principal would be safe and could be withdrawn at any time.

The SEC alleges that Cook and Kiley did not place each investor's money into a segregated account in the name of the investor.

Instead, they pooled the investors' funds in bank and trading accounts in the names of entities that they controlled, including the Defendant and Relief Defendant companies.

The SEC alleges that Cook and Kiley misappropriated $42.8 million of investors' money, including $18 million that Cook used to buy ownership interests in two trading firms; $12.8 million that Cook and Kiley transferred to Panama to purportedly finance the construction of a casino; $2.8 million that Cook used to acquire the Van Dusen Mansion and $4.8 million that Cook lost through gambling.

Cook and Kiley also misspent approximately $51 million to make Ponzi-like payments to earlier investors.

The SEC further alleges that Cook and Kiley placed $108 million of investors' funds into banking and trading accounts in the names of their various shell companies and used some of this money to trade foreign currencies, resulting in losses of at least $48 million.

FTC Settlements Bar Deceptive Online Marketing

2009-11-20T02:31:07Z

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From the FTC Press Release on Commerce Planet's deceptive negative option plan.

An online marketer of purportedly "free" Internet auction kits, which automatically charged unwitting consumers $59.95 a month for enrollment in an "online supplier" program for Internet auctions, has agreed to settle Federal Trade Commission charges that its actions violated federal law.

The separate proposed court settlements with the company and two of its former executives bar them from similar deceptive conduct in the future, and require them to make specific disclosures to ensure consumers are aware of any recurring-fee plans (also known as "continuity plans" or "negative option plans") for which they are signing up or being charged. The proposed court settlements also require the settling defendants to pay a total of what could be more than $1 million.

According to the FTC's complaint, Commerce Planet operated a Web site offering consumers a free "online auction kit" that included information about how to start a business selling products on online auction sites such as eBay. Commerce Planet claimed the kit would provide consumers with "an easily managed online business that has the potential to supplement, or even replace" their current source of income.

Although Commerce Planet allegedly told consumers they would be charged as little as $1.95 shipping and handling for this "free" trial offer, consumers had to provide their credit card information, and many were unwittingly signed up for the company's $59.95 per month "Online Supplier" program.

The FTC contends that over an 18-month period Commerce Planet did not clearly and conspicuously disclose that, by registering for the "free offer," consumers also were agreeing to be enrolled in the "Online Supplier" program and would be charged a "membership fee" of up to $59.95 per month unless they canceled within a few days of ordering.

The terms and conditions of the program, including information about the recurring $59.99 fee, were difficult to find on Commerce Planet's Web site.

They appeared on a separate page from the trial offer that could only be accessed by a link, or on the payment page, but below the bottom of the visible screen.

Most consumers did not even realize they had been enrolled in "Online Suppler" until their credit cards were repeatedly charged, after which many requested refunds.

Most consumers had difficulty getting a refund, frequently calling the company multiple times, and sometimes had to contact an attorney or ask their credit card companies to reverse the charges.

The FTC's complaint charged Commerce Planet with violating federal law by:

1) failing to disclose that consumers who ordered their online auction kit would be signed up for a continuity program; and

2) unfairly charging consumers for the "Online Supplier" program without getting their express informed consent to do so.

Schoemaker and Yu Make Up

2009-11-20T01:37:18Z

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Mr. Schoemaker and Mr. Dennis Yu have been making up stories about each other. Mr. Schoemaker accuses Mr. Yu of being a confidence criminal.

"A couple days ago I posted my personal story with Dennis Yu. The post I wrote was the longest post ever written on ShoeMoney.com.

Over 4,000 words.

This guy is a very dangerous person and I wanted to tell the entire story in as much detail as possible even if some of it was really embarrassing to me.

You CAN'T give con men any room to go anywhere and the only real way to stop them is to get the truth out."

Mr. Yu had said earlier, in his article about scamming Facebook, published at Techcrunch, that

"One of the largest Facebook advertisers (I'm not going to out you, but you know who you are) employs this technique to this day, using a white-listed account. Our supposition is that it makes too much money for Facebook to stop him.

Believe me, we have brought this to Facebook's attention on several occasions. Here's what this fellow does--he submits tame ads for approval, and once approved, redirects the url to the spammy page.

To be fair, players like Google AdWords have had years more experience in this game to close such loopholes."

Oddly, Mr. Schoemaker responded to Mr. Yu's tame observation with:

"Ya so if you have not guessed it... its me he is talking about. I like how he doesn't want to "out" me in public. I mean then he might actually have to back up facts... nice try weasel.

I actually never even saw the TC post until 2 days after it was originally posted. I started getting all these crazy random emails from people.

Everything from what a lying weasel Dennis Yu was to companies actually saying he never made NEAR the money he claimed.

Once I saw the post I saw what all the fuss was about. Incredible."

At this point, nobody knows the truth of any of these allegations, except perhaps a select few.

For the purposes of this article, I am going to assume that Mr. Schoemaker is correct and Mr. Yu is wrong - I had wrote an earlier article querying as to Mr. Schoemaker's motive for attacking Mr. Yu as opposed to refuting the content of his message.

What is interesting is this. Mr. Schoemaker has, by his own account, gone off the deep end because he believes that he was tricked by a confidence man.

Now why? And what should the rest of us learn about this?

Mr. Schoemaker's identity is one of a being a smart affiliate marketer, somebody skilled in persuasive techniques.

That identity is being challenged or even shattered. Mr. Schoemaker claims to have been conned, and to further enabling a con. Something a smart affiliate marketer would not fall for.

Mr. Schoemaker, to avoid the cognitive dissonance of thinking he is a smart marketer and having evidence that he has fallen for a con, has to do something to right his own ship - thus the violent and unwise attacks on Mr. Yu.

It is painful for Mr. Schoemaker to accept, what all good readers of this blog know, that anyone call fall for the tricks of a confidence man. We are equally open to be used by a predator - never think that you have sufficient skill, experience or knowledge to avoid the predator's gaze. The day you think that a con criminal couldn't take you is the day the Greek gods take note, and send you a message of humility.

(I write this without making any assertions about Mr. Yu's character, except I should add he has a very good post on Mr. Shoemaker's website about Facebook quality scores, and one of his many detractors at Mr. Schoemaker's website, has a link to his site lauding Mr. Yu.)

What is the Con Here?

2009-11-18T00:16:50Z

Image by Getty Images via Daylife

I will walk you through how these online scams work on Facebook and other social networks - the mechanics of how the money is made, some of the people involved, and who is actually clicking on ads. If you're reading this article, there is a good chance that you are not the type of person actually clicking on these spam ads, but are you curious as to who actually is?

This is from Techcrunch, Dennis Yu confessing to using deceptive marketing tactics to make money from advanced phishing techniques.

I found the article moderately interesting. Social engineering techniques mixed with brute force and opt out deceptive programs will make you a bunch of money. So will counterfeiting. Yu's article was moderately interesting, partly for the fact that he did not seem to want to identify the genesis of the Facebook phishing tricks. Perhaps he doesn't know.

Where the story got interesting was with Jeremy Sdhoemaker's uncharacteristically long and articulate complaint against Dennis Yu as a confidence man. Mr. Schoemaker is a marketeer who made money as the result of the early and lax regulations regarding ringtone offers - he was a very successful affiliate, or third party reseller, of ringtone offers. Many of these ringtone offers had deceptive marketing terms associated with them - but, Mr. Schoemaker was not responsible for these terms. There is no suggestion that Mr. Schoemaker was anything other than a clever online affiliate marketeer.

Now oddly, for a man who likes to speak his mind, Mr. Schoemaker's complaint against Dennis Yu was simply that Yu had conned him - not that any of Yu's phishing techniques were false. Indeed, Mr. Schoemaker outs himself as the target of Yu's complaint:

"One of the largest Facebook advertisers (I'm not going to out you, but you know who you are) employs this technique to this day, using a white-listed account.

Our supposition is that it makes too much money for Facebook to stop him. Believe me, we have brought this to Facebook's attention on several occasions.

Here's what this fellow does--he submits tame ads for approval, and once approved, redirects the url to the spammy page. To be fair, players like Google AdWords have had years more experience in this game to close such loopholes."

Nobody would have known that Mr. Schoemaker was Yu's target but for Mr. Schoemaker's post.

Now, here is what I don't understand. Why is Mr. Schoemaker, and others, making such a big deal out Yu being a confidence man, how they were scammed, instead of focusing on how to prevent the phishing techniques? Is there some reason Mr. Schoemaker wishes us to focus on the messenger and not the message?

(See also the comments on Mr. Schoemaker on Paul Schlegel's blog on Work at Home Truth.)

The Con and the Professor

2009-11-09T01:03:37Z

"In a new series of blog posts over the next few months, [Sam Antar] will document why Sarbanes-Oxley should be strengthened with added reforms to protect the integrity of our capital markets. For starters, please read the letter below that [Sam Antar] submitted to the SEC and PCAOB Roundtable on Internal Control Reporting Requirements in 2006."
"SOX was a misbegotten, inadequately debated, debacle from the beginning. I saw this as evident from the beginning, and after three years of theory and evidence. Still later, Henry Butler and I wrote a monograph detailing the SOX debacle. I've continued covering the Act on this blog, including this 2008 critique of a previous Floyd Norris foray into SOX-land."

Sam Antar, a convicted con felon, disagrees with Professor Larry Ribstein about the value of Sarbanes-Oxley Act of 2002.

Specifically, they disagree about the wisdom of reducing the scope of SOX: Antar wants it strengthened, and Ribstein believes that it has failed its purpose.

One issue is whether the SOX requirements should apply to small market capitalization companies.

"There have been people advocating exempting or relaxing Sarbanes Oxley regulations for companies with small market capitalizations (under $125 million).

As stated previously, Crazy Eddie went public with a market capitalization of $40 million (already built on a skimming fraud) and its market capitalization eventually rose to over $600 million in less than two years.

Therefore, Crazy Eddie would have been subject to the SOX exemption when it went public." Sam Antar

But, Ribstein argues that SOX should not apply to small market firms.

"SOX presents significant problems for small firms, since their compliance cost per dollar of capitalization is much higher than for larger firms.

Moreover, SOX's disproportionate impact on these firms is entirely unwarranted, since the corporate meltdowns that led to it were a phenomenon of large corporations.

To the extent that SOX addresses the problems in the latter, its provisions are not necessarily appropriate for small firms.

In particular, small firms may have far less need for extensive internal controls provisions throughout the organization."

Remember that Antar presided over the largest stock market fraud at the time with the Crazy Eddie IPO.

The difference between Ripstein and Antar may be over not whether internal controls are required but whether SOX compliance is really a defence against the Antars of the world.

Sam says:

"Even today there are many complaints by companies and critics of Sarbanes Oxley relating to the auditors review of internal controls in that they are merely filling in boxes in their work papers.

Like the auditors of Crazy Eddie, today's auditors have not been adequately prepared for conducting these reviews.

The solution is very fundamental. It is about education.

Competence cannot be legislated, though it can be learned.

Sarbanes Oxley, the PCAOB and new accounting regulations instituted by the American Institute of Certified Public Accountants (AICPA) (SAS Number 99, for example) have placed much emphasis on internal controls and detecting fraud.

A significant majority of accounting students still do not take a single dedicated college level course to gain a complete understanding of these new requirements.

They are often simply learned as part of a general auditing course and are covered within a day or two of the semester."

Most accountants will end up providing consulting services for their client: they will not be in an adversarial role that is needed for the public audit. For them, the fraud courses will be a waste of time.

In my view, Barry Minkow's video's which alerted individuals to the types of tricks that con criminals use was very valuable - much more valuable than a simple checklist of due diligence.

The problem that Professor Ribstein, and most academics, face is that they have no familiarity with intra species predators - the con criminals. In essence, those conducting public audits are the equivalent of warriors. Protecting the integrity of information which flows to the market. We don't skimp on military defense and we cannot skimp on defending marketplaces either.

MoneyGram Scam and Gate Keeper Liability

2009-11-03T17:42:08Z

MoneyGram International, Inc., the second-largest money transfer service in the United States, will pay $18 million in consumer redress to settle FTC charges that the company allowed its money transfer system to be used by fraudulent telemarketers to bilk U.S. consumers out of tens of millions of dollars.

MoneyGram also will be required to implement a comprehensive anti-fraud and agent-monitoring program.

The FTC charged that between 2004 and 2008, MoneyGram agents helped fraudulent telemarketers and other con artists who tricked U.S. consumers into wiring more than $84 million within the United States and to Canada - after these consumers were falsely told they had won a lottery, were hired for a secret shopper program, or were guaranteed loans.

The $84 million in losses is based on consumer complaints to MoneyGram - actual consumer losses likely are much higher.

The FTC charged that MoneyGram knew that its system was being used to defraud people but did very little about it, and that in some cases its agents in Canada actually participated in these schemes.

According to the FTC's complaint, MoneyGram knew, or avoided knowing, that about 131 of its more than 1,200 agents accounted for more than 95 percent of the fraud complaints it received in 2008 regarding money transfers to Canada; a similarly small number of agents was responsible for more than 96 percent of all fraud complaints to the company in 2006.

Finally, MoneyGram will pay the Commission $18 million, which will be used to provide redress to consumers.

This is an important change in emphasis by the FTC. In seeking to stop those who enable fraud from profiting, the FTC has signaled its willingness to go beyond simply getting unenforceable default judgments against con criminals who have skipped on to the next con project.

MoneyGram is an legitimate company, who purpose is to transfer money between individuals who know each, but may not have equal access to a banking system. Like Western Union, these companies operate because of the vacuum of an international banking system. But the monies that are transferred through MoneyGram and Western Union are very difficult if not impossible to trace.

"Funds transferred through system can be available to recipients within as little as ten minutes of the sender's transfer. Once MoneyGram's agents have disbursed the funds, the sender cannot obtain a refund of the amount transferred even if the sender is the victim of fraud. Unlike with credit card charges, consumers who send money transfers through MoneyGram's system cannot obtain chargebacks from MoneyGram.

The FTC's complaint against MoneyGram is a straightforward application of their powers under Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce.

MoneyGram had the right to terminate any of its agents who were failing to abide by all applicable laws, and had adopted the equivalent of a Know Your Agent policy to avoid having its agents involved in money laundering schemes.

But, the FTC alleged that "MoneyGram has not adhered to its own KYA policy with respect to its agents in that it has failed to conduct adequate background checks of prospective agents; failed to adequately train and monitor agents; failed to investigate, suspend, or terminate suspicious agents; and failed to adopt other reasonable measures to prevent fraud-induced money transfers."

"Thus, the 131 Canadian agents for which MoneyGram had five or more fraud complaints in 2008 accounted for 79.4% of all of the money transfers of $1000 or more that were sent by U.S. consumers to Canada that year and 95.4% of the fraud complaints MoneyGram received about the same. MoneyGram's Canadian agents responsible for paying out fraud-induced money transfers from U.S. consumers have permitted fraudulent sellers or telemarketers to use fake or non-existent identifications to collect money transfers of $900 or more."

This is a fairly significant fraud case in which the FTC is using the breach of MoneyGram's statutory duty under the Bank Secrecy Act to adopt a Know Your Own Agent as the grounds for an action under Section 5(a) of the FTC Act to go after MoneyGram which enabled this fraud, instead having to sue the 131 Canadian agents and try to collect from them. (And the FTC alleges that 65 of these agents have already been sued by the FTC for Telemarketing Fraud.)

Expect that the FTC will be looking at more enablers of fraud, and very closely at their compliance programs.

Avoid Responsibility and Live Better

2009-11-02T13:34:38Z

"When you can blame someone else (or the gods of spite, chance and bad luck) it's emotionally safer than it is to acknowledge you made a lousy choice.

If the weather is freakishly bad on your vacation, you can embrace pity from your friends, and spend your angst cursing the storms.

On the other hand, if you book a trip in the middle of hurricane season, you've got no one to blame but yourself." Seth Godin on Responsibility

Acknowledging that you made a mistake challenges your sense of identity.

I could not have bought this ridiculous business opportunity because I am not a foolish person. Must be someone else's mistake: may be the Government for not protecting me from fraud.

I could not have bought this really dumb franchise because I am not a really dumb person. Must be someone else's stupidity: may be the Government for not protecting me from fraud.

I could not have been defrauded because I am not a mark or a mooch.

But, for any given circumstance, we all could turn out to be a mark - the object of a human predator.

Watch out and be careful who you trade with.

The Franchise Wars: Apple v Windows

2009-10-22T16:03:42Z

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In the franchise war between Apple and Windows, I am a Mac fan. I wasn't always a Mac guy, I used a PC from the earlier 1980's up until 1997.

I still have the second Mac I ever bought, a Power Mac 7300. It runs some games, and old teaching programs for our small children. Mostly, however, they use a very old G3 Beige Tower for games and teaching programs.

Don't get the wrong idea, I do work on PC's and have a couple of them lying around, running the latest version of XP. But the machines are over 8 years olds, and I was looking to replace them, probably with the latest iMac.

So imagine my surprise when Walter Mossberg, the perennial supporter of Mac OS X wrote:

After using pre-release versions of Windows 7 for nine months, and intensively testing the final version for the past month on many different machines, I believe it is the best version of Windows Microsoft has produced. It's a boost to productivity and a pleasure to use. Despite a few drawbacks, I can heartily recommend Windows 7 to mainstream consumers.

Holy crap, not even close to April 1st, either.

And in case the point was crystal clear, Walt goes on to say:

In recent years, I, like many other reviewers, have argued that Apple's Mac OS X operating system is much better than Windows. That's no longer true. I still give the Mac OS a slight edge because it has a much easier and cheaper upgrade path; more built-in software programs; and far less vulnerability to viruses and other malicious software, which are overwhelmingly built to run on Windows.
Now, however, it's much more of a toss-up between the two rivals. Windows 7beats the Mac OS in some areas, such as better previews and navigation right from the taskbar, easier organization of open windows on the desktop and touch-screen capabilities. So Apple will have to scramble now that the gift of a flawed Vista has been replaced with a reliable, elegant version of Windows.

High praise for Windows 7 coming from a certified Mac fan, Walt Mossberg.

Be Your Own Boss

2009-10-20T05:17:25Z

I had posted this before, but I wanted to included some testimony from Jim Vitale, the swarthy looking con criminal in this FTC video. Pay close attention to Vitale's description of method, because it is relevant to more than simply buying business opportunities.

Compare the pithiness of Vitale's advice: Fast no's and slow, slow yeses, to the FTC's advice about getting the disclosure document.

From Vitale's testimony to the FTC

My name is Jim Vitale. I was involved in sales of business opportunities for seven years.

I participated in a lot of illegal and fraudulent activities that surround the sales of business opportunities.

After an investigation and some covert operations by the Federal Government we were arrested and prosecuted. I was sentenced, sent to prison and as a result I have a heavy restitution pay for the rest of my life for the damage that I did to the public.

What happens is company buys spots, local cable spots, national fees whatever it is.

If you're targeting the country or individual states and you want a 30 second spot commercial usually with a lot of bullets in it, by bullets I mean sales points, things like stay at home, no real leg work required, turnkey business opportunity, things that get people's attention and then they call in.

Some people at the end of the day I was amazed that they book.

College professor,attorneys, blue-collar workers, schoolteachers, law enforcement, butchers, people who come from money who want to make more money. You never saw me in your life.

You saw a commercial on TV, got on the phone with me, you spoke with me ten seconds I gave you names to call and some things to look up and you called me back three days later and you wrote me a check for $50,000. Does that sound a little screwed up? The two most important buttons are greed and need.

You're an airline pilot. You're comfortable. I know that. You're living very comfortable.

But you tell me that your 23-year-old son is graduating from school and he has no direction.

So as a gift to him for graduation you're trying to put him into a business that he can grow and won't require much application of the stuff he hasn't learned in college for the last four years. There's need.

Now I flip into I use that to my strength and I tell him how easy it's going to be for him but how responsible he has to be to run the business and how he has to interact and the potential for growth is unlimited. There's need.

Then I talk to the electrician, union electrician who has a 401(k) who is trying to put himself in a better place and all it's about to him is the money. He wants to keep his job, he wants a lazy man's business opportunity where he doesn't require a lot of attention, he can service it maybe 5 to 7 hours a week. And make an additional income as if they were two of him working on the job as an electrician. Now it's greed.

So now I just throttle up on that side. It's great. It's fantastic. What time you get off work Jim? 7 o'clock. Perfect. Most stores are open until 9:00. You can leave your job two days a week, pick up the money, say hi to the person behind the counter and move to the next location. Perfect for you. Greed.

The money is the catalyst into the business and then you're in a little social setting, it's a small group. You want to be the king of the mountain. You want everybody to respect you so it becomes more than the money and the actual act of is a rub of adrenaline.

It's a feeling, it's hard to explain. When you start to -- when a person turns the corner and you have been doing it as long as I had, you'd know. You just know that he's in my hand -- that's it. You know.

BlogMasterMind, Testimonials and Seller Assisted Marketing Plans

2009-10-19T21:43:30Z

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This is a post designed to show the interactions between a) an internet marketing program, b) the FTC new rule on testimonials, and c) a particular State business opportunity rule, in this case, the California "Seller Assisted Marketing Plans" Act.

Paul Schlegel, who writes a very useful blog, called WorkatHomeTruth, has wondered why nobody by me, apparently, is pointing out to affiliate marketers their legal liabilities under the US State's business opportunities acts.

Most of the affiliate marketers have also misunderstood the FTC's new rule on testimonials and the removal of the "safe harbor" for representations that are a) out of the ordinary, and b) for which there is no typical consumer information available. The new FTC rule, in effect says, no typical consumer information about, say, earnings potential, means that you cannot suggest any earnings potential.

I have chosen Yaro Starak's new website, BlogMasterMind, to make these two points in more detail.

Bear in mind that I have nothing pro or con to say about Yaro Starak's BlogMasterMind website. I am simply analyzing the content of the website for compliance.

What does the California Seller Assisted Marketing Plans Act require, if you are selling to California residents?

"The law, California Civil Code Section 1812.200 et seq., requires Seller Assisted Marketing Plans (SAMPs) to register with the Attorney General's Office, to provide significant disclosure statements to potential buyers prior to signing any contracts, and to provide the buyer specific contractual rights after a purchase has been made."

So, does Yaro have to register and provide a disclosure document? Well, let's review the elements of a SAMP.

Roughly, if you sell any product or services that costs between $500 and $50,000, and Yaro either:

(1) Represented that the purchaser will earn, is likely to earn, or can earn an amount in excess of the initial payment paid by the purchaser for participation in the Seller Assisted Marketing Plan.
(2) Represented that there is a market for the product, equipment, supplies, or services, or any product marketed by the user of the product, equipment, supplies, or services sold or leased or offered for sale or lease to the purchaser by the seller, or anything, be it tangible or intangible, made, produced, fabricated, grown, bred, modified, or developed by the purchaser using, in whole or in part, the product, supplies, equipment, or services which were sold or leased or offered for sale or lease to the purchaser by the Seller Assisted Marketing Plan seller.

then Yaro may be a SAMP, who needs to register and disclose. At the very least, Yaro should get expert legal advice on this matter.

Now, let's turn to the new FTC Rule on Testimonials. On Yaro's pitch page, he states that he is going to show you:

The precise model I used to create several $100,000+ a year memberships, formulated into an easy-to-follow method I'll reveal to you - for FREE.

But, he then takes away this representation about earnings on Yaro's terms and conditions page, where he says:

"I do not guarantee any income or result whatsoever as a result of your participation in Blog Mastermind. I provide the tools and education, you are responsible for your results."

The problem here is that Yaro Starak probably has no idea about how much the typical consumer of his program earns, and so there is no safe harbor for the original earnings representation provided by the disclaimer.

I have chose Yaro Starak's program, and I could chose many others, precisely because it likely contains decent contain, worth the price, and is recommended by many seasoned marketers.

But, he is likely outside of compliance both the California SAMP Act, and the FTC Rule.

Is your internet marketing program in compliance? If not, what are you going to do about it?

The Russian Criminal System

2009-10-13T02:32:23Z

I know very little about the Russian version of capitalism. But I am willing to bet that Robert Amsterdam does. Here is a decent overview of the capitalism as fraud system which permeates Russia.

Testimonials and Disclaimers

2009-10-09T03:44:33Z

Megan McArdle clearly doesn't understand the FTC's position on testimonials. She is not alone, neither does Jack Shafer writing for Slate, who thinks that the FTC is bent on a power grab.

Some background is needed to educate both Megan and Jack.

For those of us who watch and write on business opportunity fraud regularly, the failure of the FTC to pass their revised Business Opportunity Rule was a source of disappointment.

Worse was the exclusion of direct marketing from the scope of the new Business Opportunity Rule.

Too many of these sellers of business opportunities use deceptive tactics and one of the worst is misleading earnings claims.

The revised Business Opportunity Rule was very strong on misleading earnings claims, and I among many others was disappointed when the scope of the Business Opportunity Rule was scaled back by the FTC.

However, with today's announcement by the FTC about their revised rules about testimonials, misleading earnings claims are about to be quashed by the FTC.

In order to understand the FTC's litigation strategy, you need to know how expensive it is for the FTC to prove that a) some consumer relieved upon a representation, and b) that representation was false, and c) the consumer suffered damages because of the falsity and not some other intervening event.

It is hard for the FTC to spend money on litigating every deceptive advertising fraud case because they need to have so many witnesses and the recovery rates are so low.

This is why the FTC use of the Business Opportunity Fraud laws was so effective: no registration, then there were deemed misrepresentations and so no need for an extensive witness list.

Now, marketers who sell schemes to make money online are about to feel the same legal pinch.

Shoemoney has part of the FTC strategy correct.

Now here is the part nobody is reporting on but I feel will have the most impact. If you are going to report earnings they now have to be accurate. This also goes for any sort of "results".

Obviously this is totally targeted at the fake news and blog websites. I think we will see heavy enforcement in these areas from these new rules.

Shoe is right in his first paragraph, but wrong with his analysis of the target.

Prior to today, a marketer could make atypical representation and then disclaim them: your earnings may not be the same, sort of thing.

But after today, the FTC has removed this safe harbor for disclaimers. If the testimonial is an outlier, then the company has to report "the typical consumer experience".

For most marketers, they have no idea about the "typical consumer experience" because they don't keep any data about their sucker's, I mean, customer's profit after taking their marketing course.

This means that they cannot make any earnings claim because they don't have any typical consumer experience data.

But they will continue to make these claims, making it an easy case for the FTC to prosecute.