12:11 PM Los Angeles Time, Saturday August 18, 2012
Yesterday I was surfing the net, working on something (right now I can’t even remember what it was) when I saw an article come across my toolbar that the SEC just closed down another Ponzi Scheme – this time, to the tune of $600 million dollars.
I was in shock.
Just two days before a very good friend of mine had set up a conference call between me, her and her upline so that I could hear all about this incredible opportunity.
Interestingly enough, it was on my conference line so I have a recording of the entire call. I think I’ll go back and re-listen to the call in light of the new information.
For 50 minutes, this guy and I went back and forth on the legitimacy of this company.
I come from a unique background when it comes to evaluating companies. First, I’ve been in the financial planning industry for over 12 years. I own and operate an investment advisory firm (by the way, I’m not giving investment advice here!).
Also, as a marketing consultant, I’m brought in to look at companies to see how to improve their sales.
For those that don’t know, Zeek was supposedly a Penny Auction site powered by network marketing.
If you aren’t aware, here’s how Penny auctions work-
The company puts up a high value item like an iPad for auction. Retail price of $799. They start the auction at $0.00. Bids are done in 1 cent increments. After each bid, the clock counts down from 20 seconds. Every new bid restarts the clock. When the counters hits zero, the last bidder wins the item.
Sounds great right? Wrong.
I did a penny auction one time and discovered what a scam it is. You see, in order to place the bid, it costs you money. With Zeek, I was told it costs an average of $0.65 a bid.
So get this, the $800 iPad sells for $384. That means the company made, are you ready for this, $25,344!!!! (minus the cost of the iPad which they don’t even order until someone wins)
How do they make all that moeny? First, $384 that was collected from the winning bidder. Second, 38,400 bids at $0.65 each = $24,960.
What a rip-off!
On this conference call, to recruit me, I was told that penny auctions were legal and akin to gambling. Since gambling is legal, penny auctions were the next gambling thing.
The problem with that statement is that gambling isn’t legal in most of the country. The US government has gone after internet gambling companies that have customers in the US. (But that’s a story for another post) The fact is that the government doesn’t care if the one’s running a gambling site don’t live in the US or operate their company from within the US, they still go after them and put them in US jails.
For whatever reason, I accepted the false premise that gambling was legal in the USA – maybe it’s because I live so close to the Las Vegas strip.
My argument was that I’ve personally seen the Federal Trade Commission (FTC) walk in and close down a company. I’ve been there when this has happened. I’ve seen the government bury good men and women in a lawsuit that can’t even hope to win.
If there’s one thing I learned from watching others go through this, it’s don’t play in the gray. Ever.
My argument was that I thought the FTC would close down Penny Auctions sites. I still feel that will happen at some point. Maybe Zeeks involvement with that industry will cause that to happen that much sooner.
Now here’s the interesting thing, I was so focused on the FTC side of things (mainly because I deal with FTC issues more than SEC issues) that I totally ignored the obviously fraudulent actions of the core company.
I totally missed that the core company was a Ponzi Scheme. (Though if I’d spent anymore time thinking about it, I’m sure I would have arrived at that conclusion).
I knew from a timeshare company that I consulted with that talking about selling something that also happens to produce an income is considered a unregistered security and the SEC will be all over you for that if you aren’t properly licensed and don’t handle those transactions correctly.
That should have been a HUGE red light to me because that is what Zeek was doing.
With Zeek, you could invest $10 to $10,000 and start getting an income in 90 days. Your money would grow at 1%-2% a day! All you had to do was go to sites like craigslist and put up ads that drove people to the auction site to bid on products.
Now, Zeek’s representative that was talking to me was saying things like, “we aren’t a bank so we can’t call it compounding…”. The SEC, FTC and every other regulatory body doesn’t care at all what YOU call it.
If it walks like a duck, quack’s like a duck, OR the g-man wants to call it a duck – it’s a duck.
Losing money always sucks. Especially when you lose it like this. The only thing that you can ever really be sure about is something that you built. Your own company. Your own deal.
Despite the line that every MLM uses that you are “in business for yourself, not by yourself”, it just isn’t true. You don’t own the company. You have no control over a single thing. You are at the whim of those that do own and run the company.
So, what’s the marketing lesson in all of this? Ya know, since this is a marketing site…
Don’t let others control your future. Learn everything you can’t about real marketing and apply it to your own business.
If you are wondering, no, I didn’t buy into Zeek and had no plans to do so.