That is very true. I am in the Corporate Audio Visual field and have been to various meetings “as part of my AV duties” and listened to all these scams.

It does seem as this business model is the base for all things Wasatch. I help them carry the message through amplified sound and jumbo trons.

I have seen all models from large companies such as Nike and Starbucks to the Wasatch companies whom I won’t name. The models vary greatly and of course so does the success.

Thanks to this post, all my key Utah-valley investors just called to cancel!

DKL,

You know, the famous Ponzi house is just up the road from you in Lexington…

KLC,

I am guessing that these groups of Koreans do not promise outrageous returns.

It’s probably worth noting that even the most high-flying hedge funds don’t claim a profit of better than maybe 25-30% a _year_ (which itself is probably exaggerated) and the best index funds in a bull market do maybe 10-12% annually. It’s not that you can’t beat the market, but 360% annually where everybody else is doing 12% should probably raise at least a red flag or two.

And mike d.–the value real estate may be (may have been) grossly inflated, but there was something of underlying value (a house, land, etc.) underneath that inflated price. In Ponzi schemes, the only underlying value is the money of the next people who buy in (which would seem to be why Avon and NuSkin aren’t Ponzi schemes–whatever you think of MLM, at least, at the end of the day, there’s a product there).

arJ, can you enlighten those of us far from Utah about what the latest scheme you’ve been hearing about is?

sam, imho the real estate values in many areas of the country have risen to such ridiculous levels that they have become like a ponzi scheme, dependent on a new pool of buyers to prop up the prices, since when measured by any of the traditional fundamentals the values make no sense. a lot of people bought into the idea that RE “only goes up” and that high demand was driving prices higher, rather than psychology, fear, greed, and mostly, loose lending. once prices get to a point where people won’t or can’t buy prices will collapse down to more reasonable levels, leaving the buyers who arrived late to the game holding the bag.

so sure, by a strict definition it’s not a true ponzi scheme, but in a lot of ways it feels like one to me.

Sam B,

You are right that there is a distinction between a pyramid scheme (MLM as those pushing it like to call it) and a Ponzi scheme.

Briefly, in a pyramid scheme you are recruited to sell some product but the real money is supposed to come from recruiting others under you to buy products from you to resell and hope that they do the same. The product is secondary to creating the hierarchy and in a pure pyramid scheme there is no product, just a chain letter directing you to send money to those above you in the hope that those below you will do the same. There are also “cash party” scams where you throw a party and everybody gives you cash in order to be able to throw a similar party themselves. Note that even if you participate in one of the more legitimate MLM programs it turns you into a pushy jerk.

Ponzi schemes are not based on hierarchy. Instead the person running the scam purports to have discovered some new resource, invention, or investment technique that is going to pay off big. They just need some money to get it going, and because the idea is so great they can pay outrageous interest. They focus on the promised returns rather than the idea itself in order to get you to invest and encourage you to get friends and family to invest as well in order to share in the amazing returns. They might well be investing in something, but the real idea is to simply show people returns on paper while simply collecting more and more money from investors. Investors are encouraged to not pull their money out because compound interest makes for spectacular returns and people start to get greedy. If a few pull out that is ok, and maybe even desirable because you can pay those pulling out with the money that the new people have put in. They’ll tell their friends that they made real money on it leading to even more investors. At some point the person taking the money in skips town or gets arrested and the investors are left with nothing.

Note that 30% interest per month, compounded means that at the end of a year you’ll have 23 dollars for every dollar you invested. Now if you stop and think for a moment, if someone had a method of making that much money, why on earth would they need your help? Even if they could go to a bank for some reason they could simply apply for a bunch of credit cards, max them all out and get maybe $100,000, and then within a year have $2.3 million. In two years they’d have over $50 million. So why do they need investors?

I don’t want to go into great detail about the situation that I just heard about, probably because of the death threat made against my dad back in the day. But I will say that people are using church connections to recruit investors, people are taking equity out of their homes to put money in to this scam, and that the people who have taken their money (plus the generous interest) out of the plan have been told to not account for it properly on their taxes. It isn’t clear even to the investors what it is that the company in question is doing with their money, but they have office space and some employees and they’re spending money like crazy on fancy cars and such.

The people running the “business” are members of the church.

Wow–if the 30% monthly interest didn’t raise the red flags, the “don’t account for it properly on your taxes” takes away whatever shred of excuse the promoters’ marks (err–investors) had.

And I agree about the pushy jerk thing. Back in 2000, when I was about to graduate from college, I was doing an internship in San Diego, and some I worked with said she had a business proposition for me. Turns out, her business proposition was some pyramid thing where I’d buy toiletries and other necessities from a website, and recruit my college roommates to do the same, and I’d get a kickback, etc., etc., and we’d all be rich because everybody needs toilet paper. But that’s the only time I’ve been approached about something like this (and I note that it was a native San Diegan, not a church member, who approached me).

And mike d–I agree with the inflated thing; it feels more like Dutch Tulip Bulb bubble of the 16th century to me (i.e., an investment bubble/crash–I understand why that feels Ponzi to you, but I feel like speculation and Ponzi, though related, have some substantive difference).

Good article ARJ. I think that LDS are susceptible just as annegb said. I also think that somehow in our doctrine ( IMHO false doctrine) that the righteous are blessed with wealth. LDS members try hard to be righteous; all they need is Faith and that is where the scam artists are able to get them.