International Law

Real Business Risk

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Cataloguing the States' and FTC's lawsuits against business opportunity scammers could be depressing - the very same fraud works time and time again.

The simplicity of the fraud - the sale of distributorships of over priced machines (candy vending, payphones, dvd vending, etc.) accompanied by non-existence locating services - works over and over.  

Why?  Is this fraud unique to people of limited business experience?

No, and this is one reason to catalogue business opportunity fraud. The biz op scheme works because an ordinary economic heuristic - minimize risk- is being exploited by the con criminal.

Usually, we think that minimizing risk is a good idea: we like guarantees, money back, and warranties.

But, the biz op schemer knows that the naive purchaser would not purchase a vending machine because the naive purchaser knows that they know nothing about where to locate the machine.

So, the biz op schemer, anticipating the naive purchasers response, offers a locating service. Ordinarily, this would seem to be reducing the purchasers' risk.

But since the locating service is non-existent or next to useless, the offer simply masks over the risk.

Thinking about the very notion of a "locating service" should reveal the fraud - if the biz op scammer actually knew where to place the vending machines, they could borrow money from a commercial bank at a rate cheaper than going to private lending - unless the private lender is a moron. (And that would be you.)

Full post as published by Misleading Advertising Law on November 24, 2008 (boomark / email).