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Recently a friend of mine invited me to hear about “an interesting chance to simply earn money.” Basically we and other invited people drove to a meeting room where a speaker told us about a growing startup where you could invest money in a field where similar investments had an ROI of apparently 1000 times the investment in 6 years. Afterwards there was coffee and small talk together, during which they also indoctrinated people saying, they should avoid talking to people talking bad about the investment (or saying it is scam) because you can't gain money from them and they just want to destroy your business.

You earn money if you invest money and if you refer friends who invest money up to multiple levels. The more you invest yourself the greater percentage you earn for your referrals.

Since I had already seen other ponzi-/MLM-schemes and I am from the field it is based in, I recognized that there is no real product and it is a ponzi-/MLM-scheme. Later I found its name on the official scam warning list of multiple countries.

From what I understand, my friend has already invested multiple months or years worth of income; and is earning an amount of money through referrals that would mean scamming other people directly or indirectly through referrals for possibly several $100,000's per month to earn an additional bonus. He also wants to use his position as a respected member of multiple local youth groups and other community groups to get their members as referrals or in his words “…to give them the opportunity to also simply earn money.”

I tried to convince him that it is just a ponzi scam with my knowledge in this field but he answered with the indoctrinated speech “You don’t need to know the details if it makes you rich or use it. You also don't know how every detail of a smartphone works?”/“My sponsor already earned $x with this” or “If you don't believe in this, just stop talking about it to me and other people or do you want to ruin me, my business and my investments?.” So basically this means I can either make his investment worthless/let him lose everything (he also quit his job) or let him scam other people and motivate them to scam other people.

At the moment you can only withdraw small amounts of money out of it because the company invented some reason but you will be able to withdraw all of it “soon” (=most likely never).

What is the best way to resolve this situation (best meaning with lowest loss of money for everybody)?

Edit: The founders are known names in Ponzi schemes or convicted for crimes like fraudulent bankruptcy and many of their claims are technically impossible or proven to not exist with very high probability according to sites about ponzi schemes. But of course they say "Every bigger company has their scandals".

You can't trade the bought virtual coins outside the company and the only product you can buy can be bought anywhere else for less than 10% of the price without the logo.

When I met other friends they mentioned that they got invitations for the same meeting. I just stated to them that I already went to one and told them the name of the company (which was not stated on the invitation) and that I will not invest in it because there are official warnings that this is a scam.

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    Is there a product or service involved with this MLM? – JTP - Apologise to Monica Jul 30 '16 at 21:42
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    @JoeTaxpayer no physical product or any service. The product they are offering is purely virtual and even that is faked. They can only claim ownership to some virtual product where the company sets the price (some kind of virtual currency which is only tradeable on the website of the owner and related sites). This is disguised through some fake companies). But even the fake product doesn't exist as every person knowledgeable in this field can tell when thinking about the descriptions) – H. Idden Jul 30 '16 at 23:51
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    If there's any chance they'll trust official sources, this may help. It lists the red flags that point to a scam, and many of them are going to be present. Also, the "do you know how a smartphone works?" question is bogus. If you were going to invest in a company that made smartphones, you had better damn well know how the smartphone market works, what it takes to make a smartphone, who your competitors are, and so on. – David Schwartz Jul 31 '16 at 2:24
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    “You don’t need to know the details if it makes you rich or use it. You also don't know how every detail of a smartphone works?” Here, just stand on that corner and sell this white powder. – acpilot Jul 31 '16 at 20:07
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    Not knowing "how every detail of a smartphone works" has an easy counter: I know enough that if someone tried to sell me a smartphone claiming that although it doesn't do anything now, if I keep using it for months it will develop the ability to teleport me around, I would be highly skeptical. However, even this might not work on your friend if he is indoctrinated enough. Many such schemes save face at their inevitable collapse by claiming it would have worked but it was ruined by a government conspiracy or by corrupt politicians, so some victims can be persuaded to join the next one. – vsz Aug 1 '16 at 6:10

15 Answers 15

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Go to the police. This is fraud and is illegal. Sure, this will hurt your friend but better now then when he starts abusing of his position to fraud even more people...

Original comment by Bakuriu sorry for not giving credit

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    @H.Idden You need to stop him before he scams more people, sure it will be hard to turn him in, But you'll be saving other people and possibly your friend's life – abrad1212 Jul 31 '16 at 0:25
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    @H.Idden You aren't really turning him in. You are stopping him from making a bad situation much worse for himself. You may want to talk to him first. If he really thinks it's perfectly illegal, he shouldn't have an issue. Also warn him that recipients of fraudulent transfers, which are what these are, are on the hook to repay any funds they receive. Have him punch "clawback" into his favorite search engine. – David Schwartz Jul 31 '16 at 2:26
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    @H.Idden Your friend might not get charged if it's a first offense. Aside from which you'd be helping anyone else he might try to rope in and in the long run, it would help him by showing him these kinds of things are dodgy and to stay clear of them. It's probably fair to prove to him that it's illegal first and if he chooses to ignore it - then go to the police anonymously. – Pharap Jul 31 '16 at 3:00
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    How on earth is this the top-voted answer? Not only was this copied from a comment without any improvement (the correct verb is "defraud" by the way), it's not even correct as many MLM-schemes are legal. – Lilienthal Aug 2 '16 at 9:48
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    @Lilienthal That's why I didn't post this as an answer. It ought to integrate some more legal information. In any case: there is a difference between MLM-schemes and pyramid schemes (i.e. the former are legal, the latter aren't). From what the OP said I believe that his friend is in a pyramid scheme even though this "company" will try as hard as possible to make it look as MLM. – Bakuriu Aug 2 '16 at 20:48
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If this is your friend, and he that convinced he will "get rich" from this then there's really nothing you CAN do. You've obviously done your best to explain the situation to him, but he's been caught up in their sales pitch, and that's more convincing to him.

I worked in sales for many years, and the answers he gives you (the one about not needing to know the details of how your smartphone works is a classic variation of typical objection-handling that salespeople are taught) proves that he has been sucked in by their scheme.

At this stage, all you're going to do is ruin your friendship with him if you continue to press the matter, because he has made it clear he can't be convinced that this is anything other than legitimate. The reality is, he is probably in too deep at this stage to just walk away from it, so he has to convince himself that he made a wise choice.

Schemes like this use a "scarcity" approach (there's only so much to go around, and if you don't get yours now then someone else will get it) coupled with ego-boosting (boy, Mr. Prospect, this is such a great opportunity, and you're one of only a few who are sophisticated enough to understand and take advantage of it) to get people to lower their guard and not ask a whole lot of probing questions.

Nobody wants to feel stupid, and they don't want others to think they're stupid, so these schemes will present the information in such a way that ordinarily prudent questions come across as sounding dumb, making the questioner seem not so smart. Rather than walking away from it, peoples' pride will sometimes make them double down on it, and they'll just go along with it to come across as though they get it, even when they really don't.

The small payouts at early stages are a classic sign of a Ponzi scheme. Your friend will never listen to you as long as those little checks continue to come in, because to him they're absolute proof he's right and you're wrong. It's those checks (or payouts, however they're doing it) that will make him step up his efforts to recruit other people into the scheme or, worse yet, invest more of his own money into this.

Keep in mind that in the end, you really have no power to do anything in this situation other than be his friend and try to use gentle persuasion. He's already made it clear that he isn't going to listen to your explanations about why this is a scam, for a couple reasons. First (and probably greatest), it would be an admission that he's dumb, or at least not as smart as you, and who wants that? Second, he continues to get little checks that reinforce the fact this must be "real", or why else would he be getting this money? Third, he has already demonstrated his commitment to this by quitting his job, so from his point of view, this has become an all-or-nothing ticket to wealth.

The bottom line is, these schemes work because the sales pitch is powerful enough to overcome ordinary logic for people who think there just has to be an easy way to Easy Street.

All you can do is just be there as his friend and hope that he sees the light before the damage (to himself and anyone else) gets too great. You can't stop him from what he's doing any more than you can stop the sun from rising as long the message (and checks) he's getting from other people keep him convinced he's on the right path.

EDIT

After reading the comments posted in this thread, I do want to amend my statements, because many good points have been raised here. You obviously can't just sit by and do nothing while your friend talks others into taking the same (or worse) risks that he is. That's not morally right by any measure

At the same time however, be VERY careful about how you go about this. Your friend, as you stated, sounds pretty much like he's all in with this scheme, so there's definitely going to be some serious emotional commitment to it on his part as well. Anyone and everything that threatens what he sees as his ticket to Easy Street could easily become a target when this all comes crashing down, as it inevitably will. You could very well be the cause of that in his eyes, especially if he knows you've been discouraging people from buying into this nightmare.

People are NOT rational creatures when it comes to money losses. It's called "sunken costs", where they'll continue to chase their losses on the rationale they'll make up for it if they just don't give up. The more your friend committed to this, the worse his anxieties about losing, so he'll do whatever he has to in order to save his position. This is what gamblers do and why the house does so well for itself.

Some have suggested making anonymous flyers or other means of communicating that don't expose you as the person spreading the message, and that's one suggestion. However, the problem with this is that since the receiver has no idea who sent the message, they're not likely to give it the kind of credibility or notice that they would to something passed to them by a person they know and trust, and your anonymous message will have little weight in the face of the persuasive pitch that got your friend to commit his own money (and future).

Another problem, as you've noted, is that you don't travel in the same circles as the people he's likely to recruit, so how would you go about warning them? How would they view their first contact with you when it comes with a message not to trust what someone else they already know is about to tell them? Would they write it off as someone who's butty? Hard to tell.

Another huge ploy of these schemes is that they tend to preemptively strike at what you propose doing -- that is, warning people to stay away. They do this by projecting the people giving the warnings as losers who didn't see the opportunity for themselves and now want to keep others away from their own financial success. They'll portray you as someone who isn't smart enough to see this "huge opportunity", and since you can't understand it, you don't think anyone else does either. They'll point out that if you were so good with finances, why aren't you already successful?

These guys are very good, and they have an answer for every objection you can raise, whether its to them or to someone else. They've spent a long time honing their message, which makes it difficult for anyone to say something persuasive enough to sway others away from being duped. This is a hard path, no doubt.

I hope you are able to warn others away. Just be aware that it may come at a cost to you as well, and be prepared for what that might be.

I hope this helps.

Good luck!

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    One small point: the OP's friend could also be on the hook to return those small checks, if they were paid out as part of a Ponzi scheme and not as a return on an investment... – DJohnM Jul 30 '16 at 15:32
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    @H.Idden Your friend might have to pay all "return of investment" checks back after the police closes this ponzi scheme in future, because they are profit from his illegal activities. But this obviously depends on the local laws, and the court decision in this particular case. – user39263 Jul 30 '16 at 17:38
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    I disagree with this answer. The question indicates the "friend" intends to use his position in community groups to recruit others into the network. Even if there is nothing that can be done to save the friend, there may be something that can be done to prevent others from being scammed as well. How much should be done in this area depends on an assessment of how vulnerable the target audience is, how much the friend's endorsement will sway them, and how much the friendship is valued, but this entire dimension of the situation is unaddressed in your answer. – BrenBarn Jul 30 '16 at 18:18
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    BrenBarn, the problem is that what you propose is a guarantee of a lost friendship (the friend has already clearly stated this is not a subject for discussion and has already created a problem), with no assurance that anyone will listen to advice or reason either. People have to make their own decisions, ask their own questions, and sometimes make their own mistakes. All that can be done is to advise people to be careful and hope that's sufficient warning for them to think about it before they get themselves involved. You DO make a good and valid point, though. – Daniel Anderson Jul 30 '16 at 20:16
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I will disagree with some of the other answers here. In my view, the most important dimension of the situation is not your friend's potential loss but the potential losses of the people he may convince by using his position as youth group leader, etc., to draw more them into the scam.

Exactly how to handle this depends on many factors that aren't mentioned in your question (and probably rightly so, as this aspect of the situation moves beyond personal finance). For instance, if your friend is a "pillar of the community" who is widely trusted, and you are not, there may be little you can do, since people will believe him and not you. If you have some influence over the groups he is trying to recruit, you can attempt to provide a counterweight to his recruitment activities.

Again, how to do this depends on other factors, such as how he is recruiting them. If he is just privately contacting individuals and inviting them to these meetings, you may have to just keep your eyes peeled for anyone who seems tempted and try to dissuade them before they suffer the "brainwashing". If he actually tries to do some sort of public recruitment (e.g., holding a meeting himself), you could try to inject doubt by, e.g., attending and asking probing questions to expose the dangers. If you think the danger is widespread, you could consider taking some more public action, like writing a column in a local paper about this organization.

Of course, another major factor is how much you think people stand to lose by this. However, in your question you indicated that your friend has invested "multiple month or years of income". If he intends to pressure others to invest similar amounts, this sounds to me like enough danger to warrant some preventive action. Few people can afford to lose months or years of income, and sadly those most vulnerable to a scammer's siren song are often those who can least afford it. It doesn't sound like a situation where you'd have to devote your life to the cause of stopping it, but if I knew that dozens of people in my community stood to lose years of income, I'd want to make at least a small effort to stop them, rather than just keep my mouth shut.

In doing this, you may lose your friendship. However, you stated that your goal is to resolve the situation in a way that is "best with lowest loss of money for everybody". If you really take this utilitarian view, it is likely that you may have to give up on the friendship to prevent other people from losing more money.

  • I can only tell for one of the communities since I don't have connections to the others. He is more a honorable member since he is out of the age but he still regularly joins them to help them with his knowledge, experience and his help and he has been the leader for many years before. So most of the current members respect him. I am about the same age as him but I have only lose contact to some of the members. I can try to talk to the current leaders at the next opportunity. He wants to make the meeting in the club house, – H. Idden Jul 31 '16 at 0:04
  • most likely connected to a regular meeting of the community with a professional speaker from the company. The investments start from 100$ and the most promoted investment is 5000$. Most of the members of the youth community either earn nothing because they attend school or between 300 and 1300$. I already tried raising objections at the meeting I have been but they were trained answers for every question I asked (from purely invented reasons to "you don't know the details to sell it). – H. Idden Jul 31 '16 at 0:11
  • I will think about how I can warn them without directly exposing myself. – H. Idden Jul 31 '16 at 0:14
  • @H.Idden You could create anonymous fliers. You just need to include an eye-catch and then a more detailed description of the danger, and mention that even smart people have been tricked. You can place some of them in stalls in public restrooms to catch people when they're more likely to be bored. To protect anonymity, you'd need to imagine what would happen if someone else had posted the fliers, then act like that happened. You saw them around. Someone else is on your side. Maybe you even picked some up off a stack to share when discussing it. – Keen Jul 31 '16 at 3:29
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    Just be cautious that this doesn't somehow boomerang back onto you, H.Idden. With what your friend has already invested, he has so much at stake that there's no telling how he'll react when he learns you're "undermining" (in his eyes) his ticket to financial riches. When this all comes falling down, you could be the one he blames, since you kept him from recruiting the people he believes he needs to reach his goal. This is a VERY touchy situation, and I agree with others you can't sit idly by and do nothing, but help with your own eyes wide open to the potential dangers for you. – Daniel Anderson Jul 31 '16 at 12:50
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Even though this is really a psychology question, I'll try to give you an answer. You do nothing but stay away.

What's going on is too small to matter. Bernie Madoff took investor's money and scammed them for $15B. That's B, billion, 9 zeros (Yes, I realize the UK Billion has 12, these are US Billion). Harry Markopolos was on to him, and presented his evidence to the government, but "No one would listen." In quotes because that's the title of the book he published on his experience. Even Barron's had an article suggesting that Madoff's returns were impossible. Eventually, it came to light.

In my own experience, there was a mortgage acceleration product called "Money Merge Account." It claimed to help you pay off your mortgage in a fraction of the time "with no change to your budget." For two years or so, I was obsessed with exposing this scam, and wrote articles, nearly every week discussing every aspect of this product. Funny how even though mortgages are math that's pretty easy to explain, few sellers wanted to talk about the math. Using the same logic that you don't need to understand how a car works as long as you know how to drive. There were some people that would write to tell me I saved them the $3500 cost of that product, but mostly I argued with sellers who dismissed every word I wrote as if the math were incomprehensible to anyone but the software guys who wrote it. In the end, I had compiled a PDF with over 60 pages of my writing on the topic, and decided to call it quits. The product was recycled and now is sold as "Worth Unlimited," but the software is the same.

This is all a tangent to your problem. It simply offers the fact that the big scam, Bernie, continued for a long time, and people who were otherwise intelligent, fell for his promises, and didn't want to believe otherwise. The mortgage software had many bloggers writing. Searching on the web found a lot of discussion, very easy to find.

People will believe what they wish. Tell an Atheist that God exists, or a believer that He doesn't, and your words will fall on deaf ears. Unfortunately, this is no different.

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    Ole Bernie Madoff would probably still be going strong if it hadn't been for the economic downturn of 2008 that forced so many people to seek redemptions from him to cover their other losses and margin calls. I'm going to download and read your PDF because I'm curious, Joe! – Daniel Anderson Jul 30 '16 at 14:49
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    I once worked for the mortgage division of Lehman Brothers, so I was familiar with the concept that people bought into about paying off mortgages early for the same monthly payment by paying their mortgage in two bi-weekly installments rather than one monthly, which supposedly changed the interest calculation and dramatically lowered the overall amount the borrower would pay in the long run. I'm interested to read your stuff to see if it tracks with that and what your analysis on it is. – Daniel Anderson Jul 30 '16 at 15:05
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    I don't agree that this is too small to matter, or that you can't dissuade others. The friend has invested "multiple months or years of income". That is a lot of money for the victims involved. It's true there may be fewer victims than in the Madoff case, but the damage to each victim may still be significant. Also, it's likely that the OP can have more of an effect than people writing anti-Madoff books/columns, if he focuses on his local community, and especially on those who have not yet drunk the kool-aid. His local voice could be a meaningful force against the local voice of his "friend". – BrenBarn Jul 30 '16 at 18:37
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    @DanielAnderson It's absolutely true that paying bi-monthly or early in any way will pay off your mortage faster (with payments near the beginning having much greater weight than those near the end). However, this in practice this works if and only if you have been able to explicitly ensure or arrange that the creditor will apply any extra/early payments to your account as soon as they are received, and not just apply them to the next due payment as of that payment's due date (legal, and common practice). – ErikE Aug 6 '16 at 0:23
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    @JoeTaxpayer How surprising. A 30-year loan of $338,739.07 at 6% fixed yearly, compounded daily but calculated only when a payment is applied (using the maximum precision of my calculating tool but rounding interest to the nearest cent when it is charged, on the date of a payment), credited on the 1st and 15th only saves $2,568.27 and pays off the loan 1 month early with a final payment of $431.69. It's still a worthwhile amount of money to save if you get paid twice a month. But it's very unlikely for mortgage interest to be compounded daily. – ErikE Aug 6 '16 at 1:58
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First, there are MLM businesses that are legitimate and are not Ponzi schemes; I actually work with one (I will not name it lest I give the impression of trying to sell here).

One thing I learned was how to respond when a prospect raises objections related to the actual scams, which are abundant; the answer being to point out, and you mentioned this yourself, that in an illegitimate scheme, there is no actual product being offered - the only thing money is ever spent on is the expectation of a future profit.

Ask your friend, "Would you buy the product this company sells, at the price they ask, if there were not a financial opportunity attached to it?"

If not, "How can you expect anyone else to buy it from you?" There are only 3 ways he can respond to this question: he can realize that you're right and get out now; he can change the subject to the concept of making money by climbing the ranks and earning off of a salesforce, in which case it's time to educate him on Ponzi; or he can claim to be able to sell something he doesn't believe in, in which case you should run fat, far away.

If he does indicate that he would be a customer even without the chance to sell the product, then offer him the chance to prove it, by giving you one sales pitch on the condition that he is not allowed to breathe a word about joining the business. Do him the courtesy of listening with an open mind, and decide for yourself whether you could ever be a customer. If the possibility exists, even if not today, he has found one of the few legitimate MLM companies, and you should not try to stop him. If not, you'll have to determine whether it's because the product just isn't for you, or because it's inherently worthless, and whether you should encourage or discourage your friend going forward.

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    +1, but see the comment to the question. There is no product. – JTP - Apologise to Monica Jul 30 '16 at 23:57
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    It sounds to me like there is a product, though it's obvious that OP perceives the product as worthless (and maybe it is). But the description given, "virtual currency which is only tradeable on the website of the owner", could easily be applied to e.g. Xbox points. We can attribute a value to them based on the point costs vs. cash prices of Xbox games, but the points have no inherent value and can only be used in the Xbox store. – Dan Henderson Jul 31 '16 at 1:02
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    @DanHenderson But with the Xbox store, there is a product (Games, content, etc.) – Revetahw says Reinstate Monica Jul 31 '16 at 6:57
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    @Fiksdal It is not tradable outside the company and you cannot buy anything but both coming "soon" (since 2 years) except since recently for an item which usally costs 1% of the price anywhere else, so more or less a pseudo product. – H. Idden Jul 31 '16 at 8:16
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    @H.Idden ok, thanks for clarifying. In that case, this answer does work - you'd be asking your friend "Would you still buy this virtual currency, which can't yet be exchanged for anything, for the price they ask for it, if it didn't have the promise of being able to [insert alleged profit avenue] attached to it?" and continue as described. – Dan Henderson Jul 31 '16 at 8:34
16

So here's the sad truth. He might actually be making a return on his investment. Not because it's right or because the system works, but in all these schemes there are a range of people that actually do make money.

In addition to that, there is that fact that he "believes" that he is doing a good thing, and is unwilling to discuss it.

So, if he is making, even a tiny return, and really believes that he is making a large return, or that that large return is just around the bend, your never going to convince him otherwise.

You have two real options;

  1. If he will listen, go though and look at money in v.s. money out. If money out is larger then money in, your screwed. Make sure to point out that he should look at real money in (left a bank account) and real money out (deposited to a bank account). Again be prepared for the fact that he is actually making money. Some people in the pyramid will make money, it's just never as much, or as many people as they make it out to be. Don't attack the system, attack other aspects. Try and argue liquidity, or FDIC insurance. Again not trying to show why the system is bad, but why a investment in foo instead may be better. If nothing else, go with diversify. Never put all your money in one spot, even if it's a really good spot. At least in that case he will have some money left over in the end. That said, your friend may not go for it. May just put on blinders, and may just stick finger in ears. Move to option two.

  2. Respect his wishes, and set boundaries. "Ok, I hear you, you like system X, I won't bring it up again. Do me a favor, don't you bring it up again either. Let's just leave this with religion and politics." If he continues to bring it up, then when he does, just point out you agreed not to discuss the issue, and if he continues to push it, rethink your friendship. If you both respect one another, you should be able to respect each others' decisions. If you can't then, sadly, you may need to stop spending time with one another.

  • In the first month he made 5 times of the original invested small sum which he reinvested. At least on his virtual account at the company he made at least 4 digit figures through his "investments". I don't know if and how much he withdraw but it can't be much because of the current limits for withdrawel in this scheme (1% of the earnings) – H. Idden Jul 30 '16 at 17:25
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    Unless you can get him to focus on Withdraws and Deposits from his bank account, there's not much you can do. – coteyr Jul 30 '16 at 18:44
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    the thing is, even if he is profitable, the likely time investment/pissed off friends greatly outweighs the profit...spending 40 hours to make $300 is a bad use of time except to the MLM guy....he sees it as his effort starting to show fruit. – deek Jul 30 '16 at 19:53
  • Sadly since he wants to maximize his earnings he rather reinvests than withdraw the money – H. Idden Jul 30 '16 at 23:53
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    @H.Idden So basically, his returns are virtual. An example: He gives the "company" $100. They respond, "Great, you just increased your investment 5-fold, so you now have $500. You may withdraw $5." He is still down $95, because his returns are not liquid. – GalacticCowboy Aug 1 '16 at 18:41
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I believe the only thing you haven't mentioned to him is the possibility that his activity is criminally fraudulent. I would sit him down, and say something substantially similar to the following:

We've talked about your investment before, and I know you believe it's fine. I just want to make sure you understand that this is very likely fraudulent activity. I know you believe in it, but you've said you don't understand how or why it works. The problem with that is that if it is a fraud you can't protect yourself from criminal prosecution because you didn't understand what you were doing. The prosecutor will ask you if you asked others to give you or the organization money, and then they will convict you based on trying to defraud others. It doesn't matter whether you did it on purpose, or just because you believed the people you are investing in.

So I very strongly advise you to understand exactly what the system is, and how it works, and then make sure with a lawyer that it's legal. If it is, then hey, you've learned something valuable. But if it's not, then you will save yourself a whole lot of trouble and anguish down the road if you step away before someone you attract to the investment decides to talk to their accountant or lawyer. A civil lawsuit may be bad, but if you're criminally prosecuted it will be so much worse.

Now that I've said my piece, I won't talk to you about it anymore or bother you about it. I wish you luck, and hope that things work out fine.

I wouldn't talk to the police or suggest that I'd do anything of that nature, without proof then there's no real way to start an investigation anyway, and unfortunately scams like this are incredibly hard to investigate, so the police often spend little to no time on them without a high level insider giving up evidence and associates. Chances are good nothing would happen to your friend - one day the organization will disappear and he won't recover any more money - but there's a distinct possibility that when that happens, the people below him will come for him, and he won't be able to look further up the chain for help.

Perhaps the threat of illegal activity will be enough to prevent him from defrauding others, but if not I think at least you can let it go, and know that you've done everything for him that might work.

  • I will try it but since he didn't believe me that the whole thing is fake the chances to accept it is fraudulent are slim. – H. Idden Jul 31 '16 at 8:46
7

The title of your question basically asks:

What can I do?

And you state this regarding the meeting and “advice” they gave towards criticism of their method:

While this they also indoctrinated that you should avoid talking to people talking bad about it (or say it is scam) because you gain no money from them and they just want to destroy your business.

First, you really cannot do anything to “save” your friend if they have bought this nonsense. You are right, it’s a scam. But past stating as such to your friend, there is not much you can do past shielding yourself.

The reality is this: Any scenario you are in where you cannot ask basic questions and get a reasonable response or are given—at least—the option to walk away unscathed or uninsulated is basically a cult-like mentality. Simple as that. If the first thing someone tells you is “Don’t listen to others, just listen to me…” then you need to excuse yourself to go to the bathroom or something and just leave.

From my personal experience meeting people who are successful and have power, they always—and I mean always—ask questions and are critical of things they invest in… Whether that investment is time, money or just basic mental energy. Rich people are just like you and me! Except they have more money so they can take bigger risks. Critical thinking and the ability to walk away from something are key life skills.

Now others have talked salesman psychology which is on point. But here is something else you brought up in your question:

He also wants to use his position as respected member of multiple local youth and other communities to get their members as referals or in his words “…to give them the oppurtunity to also simply earn money.”

Okay, so you can set personal boundaries between you and this clown, but you cannot stop him. But if he plans on targeting people and organizations in your community, you can warn them about him and his behavior and this scam. Chances are other people will know right away it’s a scam, but honestly if you feel the need to help others, that’s the most reasonable thing you can do to help them.

But whatever you do, don’t take any of this emotional crap personally. If anything, maybe you can learn some reverse salesman techniques to get this “friend” to disengage. Such as only meeting with them in public and if they say something really vile to you, repeating what they said back to them as a question… Maybe even louder so everyone can hear. Remember a harsh reality of life: Public shaming can work to change someone’s behavior but you never want to do something like that unless you have utterly no choice.

That last bit of advice is pretty harsh, but the reality is at some point you need to do something to “smack” reality into the situation.

  • With the last sentence do you mean let him continue until he fails hard because he cannot sell to enough people? – H. Idden Jul 30 '16 at 17:21
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    @H.Idden Nope I’m not saying that. Your comment still shows you are connecting yourself to him. Here is the reality in a nutshell: You alone will never change this guy’s mind. You with an army will not change this guy’s mind. The last sentence is advice from me to you on how you must establish boundaries between you and this person because they will become toxic to your life. Your desire to help them is admirable, but you need to think of this as someone who is jumping in front of a train and has tied a rope to you: You need to cut that rope and face they fact that their fate is not yours. – JakeGould Jul 30 '16 at 21:17
  • Yes (and also some others after I discussed my research with them) made clear to him that we are not interested in it. – H. Idden Jul 30 '16 at 23:56
  • @H.Idden Well, like I said at some point in a relationship—whether it is deep or superficial—you need to make a decision. And honestly, my advice stands: You need to cut this guy off and only offer help to him if he’s willing to help himself. – JakeGould Jul 31 '16 at 4:34
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As others have stated, it will be very difficult for you to turn your friend around. He has already demonstrated great commitment.

What can I do?

There may be other people (perhaps mutual friends of you and this man) who are in danger. He may try to get them into this (as he apparently tried to with you). If this was me, I would try to warn the mutual friends of me and him. It's easier to get to them before they have been exposed to the brainwashing.

So I would:

  1. Make it clear to my friend that I think it's unwise to engage in this "business" and that I'm likely to warn anyone involved in such activities. Make a small attempt to convince him (while being prepared for it to fail.)
  2. Call mutual friends to warn them. (Being willing to risk this spoiling the friendship between me and him, if those friends tell him about the calls.)
  3. Does this man have a wife or girlfriend? Never underestimate the power of a woman close to a man. She probably knows about the activity, but she's probably only heard about it from his perspective, so she might not know what it actually is. Tell her the truth about it. (Again, this may very well spoil your friendship with him.) But she deserves to know. She may even be one of the few people who can have a slim chance of getting through to him.

Yes, I realize this means you're going behind his back, talking to his friends, etc. But I believe these people also deserve to be warned. They are in danger of being adversely affected by what he is doing.

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    1) done already except threatening to warn others. – H. Idden Jul 31 '16 at 0:23
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    +1 for point three, that's good and potentially workable advice. Too bad it didn't work in this case per @H.Idden's comment. – Wildcard Aug 2 '16 at 18:46
6

Chances are high your friend isn't in it for the money, but the community or some vague dream of having a future income-generating side business because he can't get a loan for a 7-11 franchise. I run a few successful online businesses and had an import/export so naturally I run into these guys looking for advice on selling their MLM wares easier.

I always point out they can make a lot of money cutting out the middle man MLM distributor and buy the same products from eBay or the same local supplier the MLM uses for a fraction of costs...then collect all the profit sans kickbacks to their host MLM goon/sponsor/father.

I've never had anyone that bailed on the MLM, but I could see their eyes gloss over after they realized their own middle man is holding them back from making a lot of money (assuming they could offload that stuff).

People actually in it for the money tend to bail (better sales job exist, MLM dreams don't pay rent, etc.) so you'll probably just need to isolate your friend from these losers somehow.

You could investigate his sponsor and find out how much money he's actually making....if he tells your friend he's rich, but you find out he lives in the slums with his mom, your friend might bail on friendship/association with the group out of sheer disgust.

It's the friends, not the logic you need to attack. His MLM friends would consider it a betrayal if he left them so you need to show him it's the MLM group that's betrayed his friendship. Point out all the long-term members driving junky cars to events who brag about their $$$. Laugh at the piss poor finance credentials of the local group leaders....ask where the investor perks are and suggest the sponsor/leaders are just hording them. Point out that he's a success and the fellow team members are just milking him to prop up their failing investments/sales/recruitment numbers.

Nobody wants to let a team down....but the team isn't good enough for him.

Deep down he knows the logic is questionable or at least risky/improbable, but his faith in the good intentions of his MLM cohorts is high.....crush that faith and all he's left with is bad finance tips or cheap protein shakes.

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    He actually stated he liked th meeting for his peers because ir's fun meeting them. I don't know the name of his sponsor (they even restrict access to marceting material from non-investors). The others come in suits to the meeting (can also be with money from earlier jobs. The numbers most likely exist but only in the account at the company and as long they don't withdraw.They even work together so they can improve their earning with different trcks. – H. Idden Jul 31 '16 at 0:39
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    What is "7-11"? 7-Eleven? Or something else? – Peter Mortensen Jul 31 '16 at 0:55
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    @H.Idden go with him and you'll be able to find out their names. The fact they come in suits means they likely DON'T have money and/or run the meetings/sponsor people. Over dressed participants is a sign of desperate people looking for a leg up in life or selling something. Chances are he likes the meetings becuase he thinks he's finally getting good financial advice for once in his life in a fun environment. He likely will ignore your suggestions becuase he thinks they're legit financial advisor. If he talks to a real financial advisor he might change his mind. – deek Aug 1 '16 at 3:55
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    @PeteMortensen it's a convenience store chain. Many people who want a small business want one of these then find out franchise chains cost $100k-$1 million to join. MLMs target people by offering low initial investment business opportunities. – deek Aug 1 '16 at 3:58
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    @deek I got the 2 names of the hosts of the last meeting and matches my memories. A search for their names didn't show any information about them. They don't claim to be financial advisors but everyday joes who are getting millionaries with it. One claimed to be a former one man company sales person and the other to have been a normal employee. Rags-to-riches stories – H. Idden Aug 4 '16 at 9:43
6

The one thing your friend needs to understand is for every dollar paid out, there is somebody paying that dollar in. The mark of a Ponzi scheme is that it feeds on itself.

The stock market has trade volumes where it almost meets the definition of a Ponzi scheme. However, it deals with shares in actual production facilities (rather than only financial institutions) and provides means of production in return for large amounts of the profits. So there is someone legitimately expecting to pay back more than he gets out, in return for the availability of money at a time where he could not finance matters except by credit.

With your friend's scheme, there is nobody expected to pay more than he gets out.

Nail him down with that: every dollar paid out has to be paid in. Who is the one paying?

At this point of time, it sounds like there will be two possible outcomes. You'll be visiting your friend in debtors' prison, or you'll visit him in criminal prison. If you highly value your friendship, you might get him out of the former with your own money. You won't be able with the latter. And if you let him exploit his standing for scamming his community, make no mistake, it will be the latter.

I don't envy you.

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    The stock market is not at all a Ponzi scheme. In a Ponzi scheme, early investors get paid out from new investors' contributions. No value is created, and the whole thing stops only when there fail to be new investors, or when too many old investors ask for a return of capital (which is what happened with Bernie Madoff, where too many people asked for money after the global financial crisis started). In the stock market, that money is ultimately invested in real businesses (either directly during an IPO, or indirectly by providing liquidity to the market afterwards), which do create value. – Grade 'Eh' Bacon Aug 8 '16 at 15:27
2

If this 'scam' has a name, address and/or phone number, I forward it to the FBI anonymously. That is my advice. You may also wish to consult a lawyer.

  • Why does OP need a lawyer? – JTP - Apologise to Monica Jul 31 '16 at 2:54
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    The OP doesn't need a lawyer but discussing the situation with a lawyer may provide the OP with some suggestions. – tale852150 Jul 31 '16 at 6:02
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    The scam is known to police in about every country. There were even arrests in China and ofiicial anti-fraud authorities warn against .But in Western countries they can't do anything without profe and the company has enough laywers to know how rig everything that you can't prove them anything from outside. The company itself is in a country where the police will not do anything. Even to access their official marketing material you need to be a paying member. – H. Idden Jul 31 '16 at 8:28
1

Your friend is investing time & money in a business that does not list an address or phone number on its website, not even in its 'press kit'. Even when they make a press release about moving into a new building, it does not list the address or even the street! C'mon, this is obviously a scam. No real business acts like this.

1

I don't want to repeat things that have already been said as I agree with most of them. There's just one little thing I'd like to add:

If things go the way we're all expecting, this guy will eventually be in desperate need of a friend as he is extremely likely to lose most of his friends sooner or later.

Perhaps all you can do is signal that you will not support him now (for obvious reasons), but that you'll be there for him when he may need you in the future...

1

If you go to the police, you will lose your friend, but you will save the man.

If you won't go to the police, you will lose the man, and most likely your friend will be homeless.

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