Oh My Fraud

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Greg Kyte: Her friends and her family. Not influencers, but normal people she knew were slapping down literally thousands of dollars on their coffee table, saying, I made all this money in five days and you can do it too. The fundamental claim and lie of a pyramid scheme is that we're all in this together, and if we all work really hard and make a few sacrifices, we can help each other and we can achieve our dreams. So shut [00:00:30] up. Give me your $400 and make a goddamn vision board.

Earmark CPE: If you'd like to earn CPE credit for listening to this episode, visit earmark Cpcomm. Download the app, take a short quiz, and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.

Caleb Newquist: Hello [00:01:00] and welcome to Oh My Fraud, a true crime podcast.Where the pyramids are built by sleazy hucksters instead of aliens. I'm Caleb Newquist.

Greg Kyte: And I'm Greg Kite. We want to get right into the episode, but first, uh, please take a second to write us a review, even if it's, uh, just your favorite swear word and five stars. Uh, that would be awesome. We would read that on an episode if it was just like, fuck, five stars. It's it's on. Uh, so, so do that. I'm just saying the reviews, [00:01:30] the reviews have kind of slowed down. We need your help right now.

Caleb Newquist: I mean, I mean, even if it was, you know, God damn it, and it was four, I'd be like, oh, that's fine. Yeah.

Greg Kyte: Still still worth worth putting on the episode.

Caleb Newquist: Absolutely, absolutely. Okay. And also reminder that we do in-house training and keynote addresses at events and conferences. So if you want information on pricing and availability, send us an email at oh my fraud at earmark cpe.com.

Greg Kyte: Awesome. So Caleb, get into it. [00:02:00] Yeah. Uh, you know, of mlm's multi-level marketing companies. Um, and I want to know if, like, what has been the intersection of your life and multi-level marketing companies have have have you ever been in one? Has a friend or family member ever been one? Have you ever been pitched to to join one? What what's been your experience with, uh, with the MLM world?

Caleb Newquist: Funny you should ask, Greg, because I have an exciting opportunity for our [00:02:30] listeners.

Greg Kyte: Jesus, please.

Caleb Newquist: No, no no.

Greg Kyte: No, this is the last of my fraud episode. We have we have we have a new oh, my fraud, uh, supplement, uh, brand.

Caleb Newquist: Supplements.

Greg Kyte: Brand. And you can become a distributor for just a simple buy in of $1,500.

Caleb Newquist: Yeah, yeah, I've got a few stories. Uh, the one I'll tell, um, is about when I was in college and I was working as a line cook in a Tex-Mex restaurant. It was a it was a fun job. [00:03:00] Lots of cool people work there. And one of these cool people was a guy that I was pretty friendly with, but I wouldn't say we were friends. Um, just, you know, friendly, you know, and maybe would have a beer occasionally after work. Um, but not close by any means. But in any case, I don't really remember why, but he approached me once to say that he had a business opportunity for me. And if you're not watching on video, I'm doing the scare quotes right now. Uh, [00:03:30] so. And I, I didn't know what to make of that, but, um, I was intrigued enough. And he was dating somebody that I was interested in, so I figured this was a good way to get closer to this, to this young woman.

Greg Kyte: I'll hear your weird sales pitch as long as I can swoop in on your girl. Right? Nice.

Caleb Newquist: Precise. Um, and. But, you know, I just figured this is a decent way to get closer to her. Even though if I had no chance of this. Of the swoop in. [00:04:00] Okay, but anyway. So I go to his apartment, and I don't really remember who was all there. I don't even remember if the girl I was interested in was there, but. So alrighty, because this is already my plan is falling apart.

Greg Kyte: She's already gotten the pitch. She's like, pass, this is horrible, right?

Caleb Newquist: So, um, anyway, so he starts telling me about the opportunity and it soon becomes clear that I was going to have to turn around and convince other people of this opportunity. Yeah, even though [00:04:30] I didn't, it took me a while to to fully understand like what it was. And I thought of this earlier today, Greg, but I may have been high. So. So imagine the the interior monologue that's going on.

Greg Kyte: And I like I like this just going back going, dude, come to my place. We'll, we'll, we'll light up a couple totally. And then, and then we'll talk about how we're going to, uh, achieve financial [00:05:00] independence.

Caleb Newquist: That's right. Yeah, yeah. And it was kind of to the best of my recollection, it was really kind of feel filled with kind of the, the stereotypical kind of, uh, multi-level marketing scripts, like financial independence, being your own boss, setting your own hours. You know, the the opportunity to make lots of money and then and say, oh, well, this is I don't know about those pyramid schemes business, but what [00:05:30] I can tell you about this is bla bla bla bla bla bla bla. Anyway, it was just the whole thing was weird and I managed to weasel my way out of there without uh, committing to anything. And, uh, I felt good about not doing anything. Yeah, because.

Greg Kyte: We're, like, relieved.

Caleb Newquist: Yeah, relieved because it was just like one of those things where, like, the whole notion of me trying to have to recruit. Look, Greg, I don't [00:06:00] I we know everyone knows Greg's kind of like, uh, a journey with religion. I grew up in the church also. Uh, but I abandoned it at relatively young age, about the time Greg was going in.

Greg Kyte: Going in deep, deep.

Caleb Newquist: I was getting the hell out. And so I remember being a young person and I went to I went to, like, an evangelical, you know, evangelical for the 80s, not evangelical. Today. It's a totally different thing. It feels like it's a totally different thing. Yeah. It's pretty in those [00:06:30] days, like it was a pretty still the evangelical kind of like, you know, uh, denominations were still pretty like, hey, you, you go, you, you get out there and you tell other people about Jesus. And from the jump, I don't know, the first time I remember hearing about people like, like grown adults, like telling like a child, like you go out there and tell tell people about Jesus. That freaked me the fuck out. And so like for the all of my like youth and into my early [00:07:00] adulthood, the notion of like taking something that I was already unsure about and going to tell other people about it. Yeah, that was fucking scary as shit. Yeah. And nothing I wanted to do with. And so the notion that the business opportunity was essentially the same thing. No fucking thank you like I was, I there was nothing about it that interested me at all. Riches or no riches or whatever. I just, I was like, nope, that is that does [00:07:30] not sound like something I want to do.

Greg Kyte: Well, the reason we're talking about MLMs is because today's episode is all about pyramid schemes, and many multi-level marketing companies are absolutely pyramid schemes. Ponzi schemes are pyramid schemes. But what a lot of people aren't aware of is that there are very, very dangerous, pure, quintessential pyramid schemes that target vulnerable communities during vulnerable times.

Caleb Newquist: As [00:08:00] you probably know, all Ponzi schemes are pyramid schemes, but not all pyramid schemes are Ponzi schemes. We've covered a lot of Ponzi schemes on this podcast from our second episode, where we covered Joel Steiner and the Mutual Benefits Corporation.

Greg Kyte: Still one of my favorite episodes ever.

Caleb Newquist: What? What was that insurance product again, Greg.

Greg Kyte: Uh viatical. Settlements.

Caleb Newquist: Yes, sir.

Greg Kyte: Yeah. Where you're where [00:08:30] you're you're buying somebody's life insurance policy from them and just hoping they'll die.

Caleb Newquist: Yeah, well, waiting. Waiting.

Greg Kyte: Well, but hoping. Because the sooner they die, the more the quicker your money. You're. Yeah, the less. Yeah. There you go.

Caleb Newquist: Right. Uh, and as recently as episode 57, where we covered Darren Berg and the Meridian Group, along with several in between, like we said earlier, there are at least two types two other types of pyramid schemes [00:09:00] multi-level marketing organizations, as well as pure quintessential pyramid schemes. But before we get to those, we're going to give a quick refresher on what a pyramid scheme is and why they are bad.

Greg Kyte: Yeah, because I, I feel like a lot of people don't understand that.

Caleb Newquist: I agree with you completely. Yeah.

Greg Kyte: Because because some people are like it's a pyramid scheme because the organizational chart looks like a pyramid. Yes. And it's like, yeah, but have you all [00:09:30] organizational all org charts look like pure pyramids? So that's not what makes a pyramid.

Caleb Newquist: Pretty sure the federal government is a pyramid, right. Pyramid shaped.

Greg Kyte: Right. Exactly. So it is. Yeah. So yeah. So I think it's important.

Caleb Newquist: It is, it is. So a pyramid scheme is a system of making money where the primary source of income comes from recruiting new people into the system rather than legitimate investment income or legitimate sales of products or services. [00:10:00] So that's why a Ponzi scheme qualifies as a pyramid scheme. Bernie Madoff told people that he would invest their money, and that they should receive a return of 10 to 12% per year. But he didn't invest the money. He stole the money, but he still paid people the 10 to 12% that he promised. And he did that by getting new investors. But instead of investing their money, he used it to pay what he promised to prior investors. I mean, he stole some of it, and he used some of it to pay what he promised [00:10:30] to prior investors.

Greg Kyte: If it's not obvious why this is bad, it's because it's unsustainable. I mean, there's also the stealing. So that's bad too. Yes. The stealing. Yeah, but but listen, even if Bernie Madoff didn't take any of the money, his investment company still would have imploded. And lots of people would have still lost lots of money because let's let's just do a thought experiment. Caleb. Okay. Um, let's say that we want to start [00:11:00] a benign Ponzi scheme.

Caleb Newquist: So a benign a benign.

Greg Kyte: Yeah, yeah, a benign Ponzi scheme. So, so we're not taking any of the money for ourselves, okay? We're not. There's no stealing involved in this at all. Oh. So, yeah, so that.

Caleb Newquist: Benign Ponzi.

Greg Kyte: Scheme. So. Yeah, we're just trying to help people here. Uh, and so.

Caleb Newquist: I think if you follow the definition of benign, just not harmful.

Greg Kyte: Right, right. Yeah. Yeah.

Caleb Newquist: Helping just not harmful.

Greg Kyte: Okay, okay. All right. You see.

Caleb Newquist: The distinction.

Greg Kyte: There I do see. [00:11:30] So what's what's a better term than benign a benevolent a benevolent Ponzi scheme. Uh, okay. All right. All right. To too far to the other way. Probably. Yeah, but but listen, here's what I mean by that, okay? So we're not stealing any money, but let's say we start off with an initial investor who gives us a million bucks. And and we we promise that we're going to give them an 11% return every year. Okay? Okay. Over the next 24 years, we would need to get $10 million more [00:12:00] invested with us just to pay the 24 years of promised returns. And I'm not just talking promised returns to the original investor, but any new investors also going to want those same returns? Sure. So we'd need so we'd need 10 million more dollars over 20 years just to pay out the 11% to everyone that we've promised, 11% to you. Okay. And and, and and realize that at the end of that, the $10 million additional that we got is gone. We don't have it. [00:12:30] We use that's what we paid that out to everybody as the return. We still have that original $1 million that didn't get touched, but the other ten. So we should have we should be sitting on $11 million at least. But we're sitting on $1 million. Um, and that's it. So. And we and we did pay those returns to our investors, but, uh, but yeah, we only have the one asset.

Greg Kyte: And you might be thinking, well, if you could get $1 million in your first year, then it shouldn't be too hard [00:13:00] for us to get $10 million over the next 24 years. And you're probably you're probably right, especially if we're given consistent 11% returns. We could probably get another $10 million in. Yeah, but what you're forgetting is that in those 24 years, no one can withdraw more than $1 million, so nobody can cash. It's like your money comes in and it never goes out. But you get these 11% returns. Um, and for anyone who does withdraw anything more than a million bucks, [00:13:30] that means we got to raise even more new investor money to cover any withdrawals that happen. And then we'd have to raise still raise more to cover that 11% from the investors, right. Are you with me? I am perfect. So we begin our Ponzi scheme and? And it's going to work out great. As we just discussed, this is yes, our our benign slash benevolent Ponzi scheme is gonna is gonna crush it. As long as people are eternally happy with [00:14:00] 11% return and nobody ever wants to withdraw any money, then we're we're great. Right? Yeah. No, no. Wrong, wrong. Because it's totally fucking unsustainable. Because even if no one ever withdrew your money, I did the math after 127 years, which is a long time, a long time.

Greg Kyte: It's a long time. But after 127 years, you would need the entire wealth of the entire world invested in our pyramid scheme just to pay the returns. [00:14:30] Wow. So the next year and the next. So. So let's say we hit year 126. The entire wealth of the world is invested in our Ponzi scheme, but we paid it all out to everybody. Then year 127 that there's no more money. The money's gone to the we can't get 11% more than the entire wealth of the world invested back into the Ponzi scheme. So at that point, our Ponzi scheme implodes. And every and everybody at, you know, if they're 11%, [00:15:00] if they if you've been making 11% for 126 years. Yep. And in year 127, you make 0%, you're gonna be like, hey, I think I want my money back. Yeah. And even though we collected and this was the this is the entire wealth of the world right now, $450 trillion. All we have in the bank because it's a benign, benevolent Ponzi scheme. Yes. All we got in the bank is a million bucks, so we ain't got your money. So the Ponzi scheme fails, and [00:15:30] everybody who's invested at that point is going, where's my $450 trillion? And we're like, it's not here.

Caleb Newquist: So let's move on from Ponzi schemes to multi-level marketing companies.

Greg Kyte: Yeah, let's do it. I hate those mofos.

Caleb Newquist: Some of them are unquestionably, uh, legit. Yeah. Tupperware, for example, is a multi-level marketing company. Even [00:16:00] today, in the age of online shopping, the majority of Tupperware sales come from independent distributors throwing Tupperware parties, which is amazing.

Greg Kyte: Yeah, right. If you listen, Caleb, if you if you were like, we need some Tupperware around my house. Yeah. What would you how would you pursue Tupperware?

Caleb Newquist: I don't know, go to the Container Store. I think I'd go to the Container Store.

Greg Kyte: I just go to to, like, Amazon and type in Tupperware.

Caleb Newquist: Is that what we're doing?

Greg Kyte: I'd go to tupperware.com or something like that. [00:16:30] I, I yeah, I had no idea that Tupperware. Yeah.

Caleb Newquist: I mean bed Bath and Beyond is out of business. So that's not an option, right?

Greg Kyte: Right.

Caleb Newquist: So anyway, all right, um, Tupperware is an MLM, but it has great products, and it's always been focused on the product, not on recruiting new distributors.

Greg Kyte: Right? Right. Yeah. Right. Because that's because even I mean, I don't I never have you you've never been to a Tupperware party, have you? I mean.

Caleb Newquist: I was probably a kid. I mean, I don't know, like. Yeah, my mom [00:17:00] probably dragged me along.

Greg Kyte: Yeah, I don't I don't remember ever going to one. But I do remember that it seemed like people legitimately enjoyed just going to them. Yeah. And and I think that's because everybody needed a new piece of Tupperware. So go, go and get the thing.

Caleb Newquist: And there was probably snacks and there was.

Greg Kyte: There was probably snacks. There was probably booze. Yeah. There was, yeah, it was probably a really good, probably fun. But you know what I've got and this is just an assumption. I'm going out [00:17:30] on a limb here, but I got to assume there wasn't some high pressure sales pitch to start your own Tupperware. You know, right. To be to become a distributor of Tupperware.

Caleb Newquist: Yeah. In fact, you know, you I mean, I mean, just picking up from what our discussion here. I doubt any of those, you know, Tupperware ladies wanted to recruit too many because then they'd have more competition, right?

Greg Kyte: Right. Right. Right. Right. Exactly. [00:18:00] Yeah. When you see a 711 across the street from another 711, you're like, this is probably a bad decision on the part of 711. Corporate and Tupperware ladies were probably the same. The same thing I my and even I that was the thing. Now that you mention it, I think the way that most Tupperware ladies did it was instead of trying to recruit people to become new distributors, they tried to talk friends into letting them host a Tupperware [00:18:30] party. And we give them, like a cut or a taste or yeah, would just be like, it'd be fun for, you know, I'll I'll, uh, you know, I'll throw a party for you and your friends. Just let me do the Tupperware thing. So. And I think that's kind of how they they extended their reach rather than trying to get new distributors right.

Caleb Newquist: In contrast, there's Amway, right? Yeah. Amway is not Tupperware. No. Amway is known for pushing recruitment harder than the sales of its product.

Greg Kyte: That's absolutely. [00:19:00] When? When? Yeah, Tupperware is fun. Amway is like, buckle up Amway in like a timeshare. Sales pitches are kind of on the same level. Yeah.

Caleb Newquist: Can you, Greg.

Greg Kyte: Do you, do.

Caleb Newquist: You. Can you tell me anything that Amway sells?

Greg Kyte: Like a specific product. Like a.

Caleb Newquist: Product. Yeah.

Greg Kyte: No.

Caleb Newquist: Right. Because Amway isn't known for its products as a result of this focus on distributors and recruitment, the Federal Trade Commission [00:19:30] FTC, brought charges against Amway, but in 1979 they ruled that Amway was not a pyramid scheme. Okay, but the ruling was the origin of what's called the 70% rule. And here's how Forbes magazine describes the 70% rule. For an MLM to be compliant, it must adhere to the 70% rule that at least 70% of all goods sold must be purchased by non distributors. [00:20:00] That means consumers outside the company need to be buying the majority of a company's products, rather than downstream in the distributor network or with the distributors themselves stocking up on inventory. But the 70% rule is incredibly hard to track. The only reason a distributor would stock up on inventory in their garage would be to sell it to people outside the company, and since distributors are generally not trained in accounting or inventory management, when they're [00:20:30] asked if 70% of their products were sold to outsiders, they'll probably just say yep, and the MLM takes them at their word.

Greg Kyte: Caleb, as you know, I live in Provo, Utah. Yes. Which, according to a nature documentary I watched, is the natural breeding ground for the North American MLM.

Caleb Newquist: Oh, it's native. It's native to Provo, Utah.

Greg Kyte: It's at least this is. Well, maybe it's an invasive species. It's hard to really tell what it is, but, [00:21:00] uh, from what I understand, uh, I mean, obviously I haven't been in an MLM myself, but here in Utah, apparently MLM also stands for Mormons losing money. That's, uh, that's how pervasive it is. Uh, and, uh, interesting fact, since 2018, there have been about 70 MLMs operating in Utah. Wow. Uh, arguably the most notorious of those, uh, include doTERRA, which is an essential oils company. Uh, LuLaRoe, [00:21:30] which is a women's clothing company, Young Living, which is another essential oils company, and Nuskin, which is a beauty and wellness company. Have you heard of any of those four companies before this very moment?

Caleb Newquist: I have heard of LuLaRoe and I have heard of Nuskin. Yes.

Greg Kyte: Okay. Gotcha.

Caleb Newquist: Yeah.

Greg Kyte: Gotcha. Uh, are you the.

Caleb Newquist: And I have heard of essential oil. I mean, essential oils. Essential oils, I feel like is 21st century snake oil. Yeah it is, it really is. Yeah [00:22:00] yeah.

Greg Kyte: Yeah. And and that's the thing that the doTERRA essential oils people, I think in my mind they're the most annoying. It's like, those are the ones where I, I'd be like, oh.

Caleb Newquist: Please, I'm really missing out.

Greg Kyte: Please stop. Yeah, yeah. Uh, but but of of those four, I, you know, and again, it's hard to really make an apples to apples comparison of these guys. But but I'd say nuskin is is arguably maybe the, the worst of, of the batch. Oh nice. They're they're they're a real piece of work. During the Great Recession. [00:22:30] Uh nuskin. Stock price jumped from $9 per share up to $54 per share. Because pyramid schemes tend to thrive when the economy is in the toilet. Uh, new New Skin has battled numerous claims that it's a predatory pyramid scheme. Uh, here's what they said about new skin in a mother Jones article. They said. In one 1991 case, a former Nu Skin distributor in California filed a class action lawsuit [00:23:00] asserting that as many as 100,000 people lost $75 million by signing up with the company. Uh Nu Skin settled in 1992 and gave the distributors $16 million in refunds for merchandise that they were sitting on. Mhm. A group of Canadian distributors brought a case against Nu Skin that was settled in 20, uh, in 2001, with a similar outcome in 1994. The Federal Trade Commission cracked down on Nuskin for making false claims about its products, including [00:23:30] weight loss supplements and baldness cures, and misrepresenting what new distributors can earn. Later that year, Nuskin signed a consent order with the FTC, promising not to engage in false advertising and to cease misleading potential distributors. But three years later, Nuskin paid $1.5 million in civil penalties for violating that orders and not to give too much away. Caleb. [00:24:00] But if you have to pay $1.5 million for violating your don't be a pyramid scheme order, then you're a fucking pyramid scheme.

Caleb Newquist: You certainly are. Yes.

Greg Kyte: Yeah. Case closed. Yeah. That, uh, that 1994 order also required that Nuskin disclose the average earnings of its distributors, which in 2010 was $119 a month. That was the that was the average earnings of all [00:24:30] of the Nuskin distributors in 2010. Uh, and that doesn't even factor in the cost borne by nuskin skin distributors, like the initial buy in for distributor starter pack back in 2010 was around 1200 bucks. So your first ten months of average earnings would basically get you to break even for your $1,200 starter pack. And Caleb, just curious, how hard do you think you would work for an extra 120 bucks a month?

Caleb Newquist: Uh, [00:25:00] how? I mean, I'm I'm I'm imagining that this is no less no fewer than ten hours a day. Seven days a week. Yeah.

Greg Kyte: Uh, I bet you you could do less than ten hours a day. Oh, okay. Yeah, yeah, yeah, but but at the same time, I mean, if you, I mean, if you do, if you work 20 hours in a month, you're, you're making less than minimum wage for your skin distributorship. So I mean, that's and minimum wage is garbage anyway. Anyways. Yeah. Uh, and a lot of these [00:25:30] folks work as much for that $120 as they do at their full time jobs. And that's because the sales pitch is that with enough hard work, they could make $10,000 per month.

Caleb Newquist: Okay, Greg, let's say you were presented with an opportunity to turn $1,400 into $11,200 in just a few weeks. Does it sound too good to be true?

Greg Kyte: That absolutely sounds too good to be true.

Caleb Newquist: Does it sound too good to be true if a family member [00:26:00] was able to do it already?

Greg Kyte: Uh, well, no. Then it wouldn't. It wouldn't seem too good to be true because it was true for someone. Yes, it at least seem more reasonable, right?

Caleb Newquist: So if you're able to turn $1,400 into 11,200 in just a few weeks, would you try to do it again?

Greg Kyte: So like if it worked for me once, would I try making it work again? Yeah. Oh hell yeah. And yeah.

Caleb Newquist: Okay. And would you tell other people about the opportunity uh.

Greg Kyte: Would I, it [00:26:30] depends on if that would mess up my chance of it working for me. Right. So yeah. Yeah.

Caleb Newquist: Okay. Yeah. All right.

Greg Kyte: Fair. I might be, I might be stingy if, uh. Yeah, I, I maybe just showed that I'm a, that I'm a worthless piece of shit that doesn't care about anybody else except me. Right. So.

Caleb Newquist: Yeah. All right, so it's the pandemic. You're scared. Everybody is scared. You hear about a faith based wealth building organization called blessings in no time. Um, all you had to do is give a gift of $1,400 [00:27:00] to someone on what's called a blessing loom. By doing so, you get a spot on a blessings loom and then get two other people to give gifts of $1,400. Okay, then all you have to do is wait, because your two people would collectively recruit four people to each, and then those four people would collectively recruit eight people still to each for everybody. [00:27:30] And who receives the gift from those eight people? You do. Greg. Me? Yes. It's that easy. Praise the Lord. Yeah.

Greg Kyte: So I just so I just give, give a gift of 1400 bucks. Yes to somebody. So basically, I'm one of eight people giving a gift of 1400 bucks to some rando. Yes. And then by by spreading the good news about blessings in no time. Then eventually, eight people will give me. Give me those gifts.

Caleb Newquist: That's right.

Greg Kyte: And [00:28:00] I just gave 1400 bucks. But I end up getting 1400 bucks times eight, which is that 11,200 bucks?

Caleb Newquist: Yes. If you give a gift of $1,400 in faith and have patience and share the good news of the blessing loom, you will be blessed. Eight fold.

Greg Kyte: The The.

Caleb Newquist: Problem, as Greg well knows, is the math.

Greg Kyte: Math always. That always gets.

Caleb Newquist: You. After 33 cycles of one person recruiting two more people, you run out of people on earth to join. Okay.

Greg Kyte: That [00:28:30] that seems because that crazy. Yeah. Because there's 8 billion people on Earth. Yeah. Well. And only.

Caleb Newquist: Ballpark.

Greg Kyte: Yeah, yeah. And so. Right, isn't it? What is it? I don't know, is it. Yeah I guess yeah I yeah eight.

Caleb Newquist: 8,000,000,008.1.

Greg Kyte: 8.1. So 3033 of just going from one person to two people 33 layers down. It's everybody on the whole damn planet. That's that's, that's that's the what [00:29:00] counter-intuitiveness of exponential growth.

Caleb Newquist: Right.

Greg Kyte: It really?

Caleb Newquist: Absolutely. So blessings in no time was a quintessential pyramid scheme. And in real life it takes far fewer than 33 cycles for this quintessential pyramid scheme to collapse. The big winners are, of course, the people who organize them. Because when you think about it, the first people on the loom don't have anyone ahead of them to give their money to. So they have zero [00:29:30] financial outlay before they start to receive their blessings.

Greg Kyte: Right. So they're not giving a gift.

Caleb Newquist: No to they're just collecting.

Greg Kyte: They're just they're just receiving gifts. Yes. But what they give to people is the opportunity. That's right. To participate. Yeah.

Caleb Newquist: That's right.

Greg Kyte: Nice.

Caleb Newquist: The organizers of blessings In No time were Marlon Moore, aka prosper DJ and his wife Lashonda Moore. Their pyramid scheme targeted the African American community during the pandemic. Eventually, people stopped [00:30:00] getting their $11,200 payout and couldn't get a refund for the $1,400 gift they gave. All told, around 8000 people were scammed in Texas and around the country. But if you do the math, if 8000 people were scammed, that means 1000 octuple their money, right?

Greg Kyte: So a thousand people actually got blessed in no time or in minimal time.

Caleb Newquist: Well, they must have been right with the Lord.

Greg Kyte: Yeah, [00:30:30] those are those. Those are the ones who had a real relationship. Yeah. With with their heavenly father.

Caleb Newquist: Yeah. With their Lord and Savior. Okay. A grand jury found the Moors guilty of wire fraud, conspiracy to commit wire fraud and money laundering. Although they each faced up to 50 years in prison, they received no jail time. But they were ordered to pay $10.7 million of restitution.

Greg Kyte: Oof, that's a lot of. That's a lot of restitution. I [00:31:00] personally didn't know anything about quintessential pyramid schemes until my fiance got caught up in one during the pandemic. Caleb. Oh, no.

Caleb Newquist: Yeah, she she succumbed to the.

Greg Kyte: Well no she's. No, no, she didn't succumb. No it's crazy. Well, first off just just for the listeners, my fiance's name is Krystal. We're getting married in September in Hawaii. She's amazing. It's going to be rad. Uh, but but anyways, one day during the pandemic, Krystal gets home from work and [00:31:30] tells me about how her cousin bought her into a blessings board. And my first question was, uh, what is a blessings board?

Caleb Newquist: Because that's that's my first question.

Greg Kyte: Yeah, because I had no idea. And so she explained, uh, that in a blessing board, she had to give a gift of $400, $400 to someone ahead of her on the blessing board. But then after eight people came onto the board after her, she would end up cashing out with [00:32:00] $3,200. So the idea is you gave a gift of 400 to somebody else. Later on, eight people are going to give a gift of $400 to you, eight times $403,200. That's how the math works. But here was the thing. She didn't get herself tangled up in this, Uh, her cousin actually paid the $400 for her because her cousin was already in with the blessings board thing. Um, all that Crystal had to do was pay him back after she [00:32:30] cashed out. And if she never cashed out, she didn't have to pay anything back to this guy. Uh, the only kind of catch was that she needed to, like, hype it up on social media, because the whole idea was to get eight more people on the board, and I've got to assume the cousin's motivation was he's just out of friends and family to try to talk into, right? Being on the board. So he's like, thanks, thanks cuz. Exactly. But, but but no, that's the thing I think I think that the [00:33:00] cousin thought it was like just a legit generous thing to do. Kind of a this will help you because you'll be able to cash out. It'll help me because I need some more people in behind me to get me to cash out.

Caleb Newquist: So I what I need you to do is annoy all of your Facebook friends. That's what I need you to do.

Greg Kyte: Yeah, well, see, sort of, because that's the other thing, because Crystal also showed me some Instagram stories of these people that were slapping down, I swear, thousands of dollars in cash, like on their coffee table [00:33:30] while explaining what they did and how how they did it. Like they were just like slapping stack after stack of cash on the coffee table, going, I made all this money in five days and you can do it too. That that kind, I mean, and it was. And it was crazy because these people, they weren't strangers, even though it wasn't just like a rando on Instagram. They were members of Krystal's family. So it's like people that she knew. So she had zero financial risk. [00:34:00] She didn't have to put out any money. Her cousin did that for her. And the way it played out in like two weeks, she she netted the 2800 bucks so that she got the 3200 paid her cousin back. She got her 2800 bucks. Uh, but because of her social media posts, one of my buddies from college who is still a close friend of mine, he sent in 400 bucks to get on the blessings board. But check this out. After like one week the dude got cold feet and he like, demanded to [00:34:30] get his money back from these relatives because like I said, it was he. He only saw it because he follows Krystal on social media, but he didn't really. It wasn't one of those things like Krystal where it's like, well, this is like, these are family members for him. He just paid it to an absolute stranger and had no idea. And then he's like going, oh, I made a bad idea, give me my money back. And weirdly enough, they sent him his money back. That that was that was very unexpected to [00:35:00] for me.

Caleb Newquist: Gosh, I didn't realize I most pyramid schemes you would think the no boxes was, uh, like totally uh, that's like, that's the standard operating procedure, like axes.

Greg Kyte: Part of the contract. Yeah. They don't have contracts, but yeah, the, uh. Yeah. No backseat. No, that's absolutely true. But I think that some pyramid schemes do include like that's part of the verbiage where it's like if you if you need your money back before you cash out, we will get you your money back. But [00:35:30] that's still. While the pyramid scheme is in its heyday and has lots of money kicking around to where they can if they if they're just out of cash. Obviously you're not getting your $400 back. But in my story with I mean, this is the closest I've ever come to a pyramid scheme. It's the only time I've ever come close to a pyramid scheme.

Caleb Newquist: So your buddy's in. He's in, but you're not in, Greg.

Greg Kyte: Oh heck no no no no no, because, well, we'll get to that in a second. Okay. But but what was weird is I had two people who [00:36:00] were close to me who were involved in the same pyramid scheme. And like I said, one of them, Crystal, netted 2800 bucks of free money and the other one got in and got out without losing any money. But the big question is, at what cost? Because there's no free money. So if you do the math, there's seven people out there. We'll never know exactly who, but those seven people got screwed out of $400 each. And that's where the 2800 [00:36:30] bucks came. Yep. That crystal got. Yeah. And my friend well, that was that's the other thing I like like I said before, I'm like 100% convinced that that okay, I'm like 98% convinced, okay, that that the that this pyramid, this blessings board thing that it was started benevolently I, I am I am convinced that this is the most likely thing that uh that the people who started it got into it truly believing [00:37:00] that it was just a way to help others while they helped themselves, that they just, you know, like we said earlier, it's like it's this whole geometric growth that most brains don't understand how quickly the entire world is going to run out of money.

Greg Kyte: If everybody has to pony up $400 and you have to recruit eight more people to do that. So, so I think, uh, I don't think, uh, that they thought anyone was going to get screwed. Um, I think that they were thinking the [00:37:30] only people who might get screwed are the people who don't work hard enough to get more people to buy into the board. Like, like if you buy in and you don't have enough hustle to go and try to convince other people to get in, then yeah, you might not get your 400 bucks back, but that's on you. The rest of us who are out there hustling, we're going to be fine. Um, and then and and then on top of that, I mean, in terms of just my theory of the benevolent nature of the origins of this pyramid scheme, I think that's backed up by the fact that they gave my my buddy his money back because they're like, oh, we're not trying [00:38:00] to screw anybody here. We're just trying to its blessings, man, this is blessings. It's just right. It's this.

Caleb Newquist: Isn't. Don't imagine, don't imagine a conspiracy board in some detective's office. That's not what this is at all.

Greg Kyte: But but no, I don't think that they thought that was it. But the funny thing is, if you're making all the money, like, again, if you've gone through this board like 2 or 3 times already yourself, yeah, you're kind of going, okay, I've tested it. I've it's this is legit. The world's not going to run out of money. This is going to keep going. And, and [00:38:30] and I think consciously you try to suppress. How is this a horrible thing? Uh, you know, how could this be a bad thing? And instead you're just going I'm making, uh, and it's the pandemic. You're going, I'm making money. I need money because it's a it's a global pandemic. My friends and family, they're making money. And that's good because it's a global pandemic. You just don't realize that it's just a finite thing and that there's a vast majority of people are going to be there.

Caleb Newquist: Were there weren't, there were there was no shortage of bad ideas during the pandemic.

Greg Kyte: Good point. We all [00:39:00] yeah.

Caleb Newquist: As far as pyramid schemes go, that seems pretty garden variety for bad ideas. During the pandemic.

Greg Kyte: We all panic shopped and many people hoarded toilet paper very unnecessarily. But yeah, uh, but yeah, there was some bad but but here, getting back to your your comment that I did not I did not buy into this board. Okay. Um, that is because because and this, this is really did you know.

Caleb Newquist: Instantly you're just like, this is not. Yeah, yeah.

Greg Kyte: You're like you're.

Caleb Newquist: Like, babe.

Greg Kyte: Babe, this [00:39:30] is illegal. Babe.

Caleb Newquist: You can't this This is not good. This is not.

Greg Kyte: Good. Right. Well, not not only that, like I was, I remember telling her I was like, I was like, uh, like I, I mean, instantly I'm like, I've never seen a pyramid scheme. I, you know, other than, like the ones we already discussed, like Ponzi schemes and MLMs. Yeah. I don't think I even knew what a quintessential pyramid scheme was before that. But as soon as she described it, I was like, oh shit, this is exactly that shit. This is 100% illegal. Yeah. And And I was even worried. And I remember telling her this where I was like, yeah. So let's say [00:40:00] you get this 3200 bucks if if the cops get involved and this gets prosecuted, there's a possibility because this was this was a little bit naive of me, but I think it's technically accurate is that there was a possibility that she could. She gets her 3200 bucks. She spends all her 3200 bucks because people get money and they spend it. And then the cops are like, hey, that was that was illegally gotten money. You need to cough all of that up. We're going to need that. Yeah, exactly. And then you don't have it. And then what do you do then you're screwed. So [00:40:30] but but like the reason why I'm saying it was naive is because I also know that there's not really enough resources in law enforcement to look at the likely hundreds of people who are involved in this scheme and go, okay, who who didn't get screwed and who who cashed out. And, you know, I'm sure there's not enough records even to piece that together. So the likelihood of that happening was pretty slim. But but I still think it was accurate. But but here's the crazy thing is me. Me. I felt like an asshole [00:41:00] for bringing it up. I felt I felt like, no, listen, this I did some, I did some thinking, and I felt like this is how I felt recently.

Caleb Newquist: Or then.

Greg Kyte: No recently, trying to identify what it was like, how I felt. And this is what this is the best I came up with is I felt like I'm that dork who's on an elevator where there's a little sign that says that the maximum capacity is 12 people. He goes, um, excuse me? There happens to be 13 people on this elevator. So I'm afraid one of [00:41:30] you is going to have to leave. It's that that's what it is. Where it's like, you know, it's like, this is. This is not okay. This is going to implode. You need to not do this. But they're like going, but it's not imploding right now. Everything seems perfectly fine right now. Why are you inconveniencing us with with this information or it's or it's like somebody. I mean, the other thing I was thinking is like, it's like somebody who walks up to a complete stranger and is like, um, smoking is very harmful. You should think about quitting.

Caleb Newquist: But [00:42:00] does that happen?

Greg Kyte: Yeah. Uh, yeah. Um, my mom did it on, uh, 4th of July. What? Yeah. Yes. She absolutely a.

Caleb Newquist: Stranger. She walked up to a stranger to a smoking and told him that it was not good for him.

Greg Kyte: To a relative stranger. We had a little gathering at my house, and there was some friends that she'd never met before who were like, we need to go outside and take a smoke break. And she's like, I mean, again, my mom's the sweetest person in the world. So. Sure. So she was like, um, I used to be a pharmacist. And just so you know, I would strongly encourage you to, to not [00:42:30] smoke. And, and my and my friends were just like, okay. And like, what do you do? But that's what that's what I was where it was just like, um, this is a horrible thing. And so, uh, so, so yeah, it was just it was just really weird to be like, this is bad, but everybody's going, we're doing great.

Caleb Newquist: You're the. So you're the wet blanket.

Greg Kyte: 100% on.

Caleb Newquist: This little on this little blessings board party and uh, and, and so [00:43:00] um, so, uh, so what were you ostracized? Were you, uh, were you like, what? How did that resolve itself?

Greg Kyte: No, it it I mean it. Well, like I said, the way it was because I, I said that immediately after I found out that what Krystal was involved in. Yeah. And I was kind of like going, you need to tell your friends and family everybody's going to get screwed, that kind of thing. But I was like, no one's going to listen to the message. I can't deliver it directly because these weren't like, this is we're not like talking brothers and sisters. [00:43:30] These are more like second cousins kind of stuff because. Gotcha. Um, yeah. So it was it was it was more extended family. But again, it was family that she personally knew. Yeah. Like I said, it wasn't strangers. So there was no direct way for me to communicate it to them. And again, I wasn't particularly I wasn't like, I must talk to all of your friends and family to make sure that they understand the dangers of, you know, right, I did that felt I mean, again, should I what do you think I should have done that?

Caleb Newquist: Uh. [00:44:00] Um.

Greg Kyte: Yeah, that's I mean, it's hard.

Caleb Newquist: It's it's it's hard to imagine an intervention where you're intervening. The group is the one being intervened on rather than the individual.

Greg Kyte: Right. Like a.

Caleb Newquist: Reverse intervention. Exactly. Like that's a that's a that's a that's a tough room, Greg. Totally, totally. And you've seen and you've seen some tough rooms, right?

Greg Kyte: And I didn't even tell Crystal. It's like, hey, you just need to walk away from this because. Because again. And I didn't even tell. I was [00:44:30] like, stop promoting it on social media. She did do this after I told her the thing, she very much because she felt obligated to pimp it out on social media because just the structure of how she got in. So she very much felt the obligation to her cousin to and to her other families who were involved in the board to try to get other people in the board. But she definitely started changing. She definitely had a different tone with her stuff than any anyone else where she if people like, hey, tell me more about [00:45:00] this blessings board thing, she's like, hey, listen, think of it like gambling you might not get. So she gave him like a very like a surgeon general's warning before they gave their $400 into the whole thing where it's like, you might, hey, if you need this money for rent, don't don't do this. Please don't, because you might not be able. So she so I really I appreciated that but that was really the in terms of changed behaviors. That was really the only thing that happened right there. The other the other funny thing is, once Crystal did [00:45:30] cash out with the 3200 bucks, there was tons of pressure from the other people in these boards to be like, dude, you just cashed out.

Greg Kyte: That's so cool. You put some more money back in another board and do it again, because again, they got to feed this beast. So it's like. And like there was pressure for her to put everything that she just won back into the boards. So, uh, yeah, kind of kind of kind of kind of weird with that. But the, the other thing that that really amazed me with this and going back to those videos I was telling you about is that I am amazed at the [00:46:00] power of social media to fuel these pyramid schemes, as I saw, because obviously pyramid schemes have been around much, much longer than social media. But when you watch people, you know, slap down all that real money that is incredibly persuasive. Uh, like I was like, maybe I should give. I mean, I mean, I can't I can't say that I wasn't like, I could maybe put in my four, $400 and get in and get out before the thing falls apart. [00:46:30] It it crossed. It crossed my mind. Um, but but the funny thing is, too, is that you got to think nobody's going on social media to explain how after six months, they're finally giving up on the $400 that they put into this scheme. That didn't pay off, mostly because they didn't have enough hustle.

Caleb Newquist: All right, Greg, did we learn anything?

Greg Kyte: Yeah, we we did. Were you not listening? [00:47:00]

Caleb Newquist: Uh, yeah, I was listening. Uh, but if you didn't catch what we learned, we listened just to the whole episode. And just maybe not at one and a half times speed.

Greg Kyte: Right? Right. That that that should that should catch you up.

Caleb Newquist: Yeah. Go to go down to 75% and just, you know.

Greg Kyte: Listen to an extra slow and then. Yeah what we learned. All right. Well that's it for this episode. Remember uh, essential oils may not take away your digestive issues, but if you sell them, it definitely will take away your money and your friends. [00:47:30] And if you're doing it right, probably your soul.

Caleb Newquist: And also remember when someone at church asks you if you want to get rich, remind them that it's easier for a camel to go through the eye of a needle than it is to make money in a multi-level marketing scheme.

Greg Kyte: That's from the sermon on the Mount, man. You can't, can't, can't argue with that.

Caleb Newquist: Word of the Lord.

Greg Kyte: Uh, if you want to drop us a line, uh, send us an email at omnifrog. At earmarks. Com. Caleb, if people want to get Ahold of you, how can they do so?

Caleb Newquist: Linkedin slash Caleb Nyquist. Greg, [00:48:00] I saw you on LinkedIn the other day. Greg.

Greg Kyte: You saw me on there?

Caleb Newquist: Well, you posted something I.

Greg Kyte: Did, I did, yeah, I did. I think this week there was a not just my, my once a week. Let's go through all my DMs. Let's, let's actually throw something up there.

Caleb Newquist: No you're right. Like it looks like it looks like you got ChatGPT to write something for you.

Greg Kyte: I yeah, that probably. Yeah, there's probably a chat. Gpt wrote something for somebody else and they told me to put that on my LinkedIn.

Caleb Newquist: Plug it into your LinkedIn.

Greg Kyte: Maybe, I don't know, [00:48:30] maybe that's what happened. Hard to tell. That's that's harder to audit than the, uh, 70% rule. Uh, but, uh, but yeah, LinkedIn. I'm I'm Greg Kyte CPA on, uh, LinkedIn. So go find me there, drop me a DM. I will eventually find it and read it and get back to you.

Caleb Newquist: Oh my fraud is written by Greg Kite and myself. Our producer is Zach Franc. Rate review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, you can earn free CPE credit, accountant, CPE credit, uh, and actually [00:49:00] if you subscribe, if you get like a subscription, this is a subscription. Greg, I don't even.

Greg Kyte: It's a subscription.

Caleb Newquist: Yeah. So if you subscribe to earmark for $129, you can get unlimited CPE credit. But price is soon going up to 149, so don't mess around.

Greg Kyte: Yeah, get it now if you want.

Caleb Newquist: You want to get it. Yeah. Get get it for 129.

Greg Kyte: Yeah.

Caleb Newquist: And do yourself a.

Greg Kyte: Favor and I'll tell you what. Here's here's the thing, Caleb, I, I have a subscription to earmark. And because of that [00:49:30] subscription, I already I, I as of literally was it. Yes. Yeah. It was literally yesterday as of literally yesterday I got, I finished my 80 hours for my reporting period and it my reporting period not not it doesn't it's not over for six more months. I'm not I'm not trying to cram my 80 hours into the last six months of the reporting period. Bam! I'm like going I'm just skipping and whistling for the next six months.

Caleb Newquist: Greg Kite pitch man. Well done.

Greg Kyte: Yeah, it's. [00:50:00] It was so easy. Awesome.

Caleb Newquist: Well, see, there you go. Be like Greg, everybody. Join us next time for more average swindlers and scams from stories that will make you say, oh my God.