หาเงินทางเน็ต ทำรายได้ผ่านเน็ต Interanation Tranning Make Money E-currency Online

Adsentive

2007-08-23T07:51:00.001-07:00

adsentive

Donkeymails

2007-08-22T20:18:00.000-07:00

Donkeymails

Pending Withdraws
ID Payment Type Account Amount Options
You currently have no pending withdraws.

Withdraw for Paypal!

Paypal Payouts will be done 1 time per Week. In this case it can take up to 10 days to receive payout!

Current Earnings $0.1593
Minimum Withdraw: $1.0000

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Withdraw for AlertPay!

AlertPay Withdraw
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Current Earnings $0.1593
Minimum Withdraw: $1.0100

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Withdraw for NEW NEW OPTION UGOTPAID!!!

NEW NEW UGOTPAID! Low Fees so a low 10 Cent Minimum. CLICK HERE TO JOIN UGotPaid Your payment ID is your Email adress. Not yet an UGotPaid Member you can join using the follow link CLICK HERE TO JOIN UGotPaid

Current Earnings $0.1593
Minimum Withdraw: $0.1000

Payment ID

Withdraw Amount

Withdraw for E-GOLD!

E-Gold Payouts will be done ones per week! Please request your Payout every 2 weeks then wait till you get paid E-goldrequests payout again. This will speed up the payouts! NOTE : Your payment ID is your e-gold number. So please fill in only your E-gold number in the field and nothing else otherwise the payment not can be made. Not yet an E-gold Member you can join using the follow link CLICK HERE TO JOIN E-GOLD

Current Earnings $0.1593
Minimum Withdraw: $0.0100

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PTR Paid to Read

2007-08-22T19:55:00.001-07:00

ก่อนอื่นเลยนะครับเรามาทำความเข้าในเบื้องต้นเกี่ยวกับเว็บไซต์ประเภท PTR ก่อนนะครับ
หลาย ๆ ท่านคิดว่าเว็บ PTR จะทำรายได้ให้เราเป็นกอบเป็นกำ

บอกได้เลยครับว่าอย่าไปคิดอย่างนั้นเลยครับ เพราะมันจะทำให้เราท้อเปล่าๆ เพราะเว็บ PTR ส่วนมากจะให้รายได้กับเราไม่มากนักต่อหนึ่งคลิก ซึ่งบางครั้งกว่าเราจะสะสมจนถึงยอดจ่ายของมันจะนานมาก แต่มันก็เป็นจุดเริ่มต้นให้กับนักหาเงินมือใหม่ที่เข้ามาทดลองก่อน ซึ่งเว็บพวกนี้มักจะไม่ค่อยโกงเท่าไหร่ก็คือง่าย ๆ ครับมันจ่ายจริงนั้นแหละ
ผมก็เริ่มจากเว็บ PTR นี้แหละครับที่เป็นจุดเริ่มต้น

คราวนี้เราก็มาเข้าเนื้อหากันเลยก็แล้วกันครับ

1. ความหมายของเว็บไซต์ PTR ย่อมาจาก Paid to Read หรือก็คือมันจะจ่ายให้เราก็ต่อเมื่อมันให้เราอ่านนั้นเองครับปกติแล้วเราจะต้องอ่านจาก E-mail ของเราเองดังนั้นใครที่คิดจะทำเว็บไซต์ประเภท PTR จำเป็นจะต้องมีเนื้อที่ใน E-mail เยอะๆ และต้องรับจดหมายได้อย่างรวดเร็วซึ่งปกติควรจะเป็นของต่างประเทศนะครับ ส่วนของผมใช้ของ yahoo.com ครับเพราะให้เนื้อที่มากถึง 1 GB หรือใช้ของ gmail ก็ได้ครับซึ่งให้เนื้อที่มากถึง 2 GB เรื่องการสมัคร E-mail ผมคงจะไม่ต้องพูดถึงนะครับเพราะหลาย ๆ ท่านที่เข้ามาในหน้านี้ผมคิดว่าคงจะมีประสบการณ์ในการสมัคร E-mail มาแล้ว

2. เตรียมตัวรู้กลลวงของเว็บ PTR
ที่ผมเอาข้อนี้ขึ้นมาก่อนก็เพราะว่ามีสมาชิกหลาย ๆ ท่านมักจะสอบถามเข้ามาว่าเว็บไซต์นั้นจ่ายหรือไม่จ่ายหลักการง่าย ๆ ที่สมาชิกหลาย ๆ ท่านลงความเห็นกันมาแล้วก็คืออัตราการจ่ายต่อการอ่าน Email หนึ่งฉบับครับ ซึ่งตรงนี้เป็นแนวทางเท่านั้นนะครับก็คือ

2.1 การจ่ายเงินให้เราของ PTR ที่จ่ายเงินให้เราจริงต่อการอ่าน Email ต่อฉบับมักจะจ่ายตั้งแต่ 0.0001 - 0.01$ ครับหากเกินกว่านี้สันนิฐานเอาไว้ว่าเว็บนี้ไม่จ่ายครับ

2.2 นอกจากข้อ 2.1 แล้วก็คือยอดการจ่ายออกของเว็บไม่ควรจะมากจนเกินไปจนเราทำไม่ถึงยอดแน่ ๆ เช่น ให้เราคลิกทีละ 0.0001$ แต่ยอดจ่ายออก 20$ ก็เท่ากับว่าเราต้องอ่าน Email ถึง 200,000 ฉบับมันถึงจะจ่ายออกให้เรา คุณคิดว่าจะมีคนทำถึงหรือเปล่าละครับ ? นอกจากคน ๆ นั้นจะหา Downline เก่งจริง ๆ คุณถึงจะมีวันคลิกได้ถึง 2 แสนครั้ง

2.3 และที่สำคัญที่สุดคนที่จะทำ PTR จะต้องมีพื้นฐานและทักษะในภาษาอังกฤษพอสมควรหากมีไม่มากก็ให้หาโปรแกรมแปลภาษามาติดเครื่องเอาไว้สักหน่อยนะครับ เพราะเราจะต้องอ่าน Email เป็นจำนวนมากบางครั้งมันจะมีลิงค์หลอกให้เราคลิกได้ครับ

วันนี้คงจะแค่นี้ก่อนนะครับ
ฝากการบ้านให้มือใหม่ที่เข้ามาดูกลับไปคิดทบทวนเว็บที่ตนเองกำลังอยู่ และกำลังจะแนะนำให้คนอื่นทำมีลักษณะตามที่ผมได้เขียนไปหรีอเปล่านะครับ หากมีก็หยุดทำเว็บนั้นได้แล้วครับเพราะทำไปก็เสียเวลา เสียค่าไฟเปล่า ๆ ครับ

พรุ่งนี้หากไม่ติดธุระอันใดผมจะมาต่อเรื่องการสมัครเว็บไซต์ PTR นะครับ

และหลังจากนั้นจะเป็นการแนะนำเว็บไซต์โดยรวม และการหาเงินจาก PTR ล่ะครับ

Bux.to

2007-08-22T19:44:00.001-07:00

Bux.to

Adbux

2007-08-22T19:43:00.003-07:00

Adbux

Clixncash

2007-08-22T19:43:00.001-07:00

Clixncash

การสมัครเว็บ PTC PTS PTP PTR

2007-08-22T19:41:00.001-07:00

1.คลิกที่ Sign Up ใส่ e-mail ของคุณ
2.กลับไปที่ Inbox ใน e-mail ที่เราแจ้งสมัครไว้
เข้าไปเช็ค e-mailของคุณ จะพบ mail ใหม่สุดถ้าไม่พบให้ดูที่ junk mail
คลิกลอกอินใน URL ด้านล่างแถวแรกที่เป็นตัวหนังสือยาวๆได้เลย

จากนั้นจะมีแบบให้กรอกเป็นภาษาอังกฤษ
3. Username : ใส่ชื่ออะไรก็ได้ตามต้องการเพื่อใช้ Log
in ควรตั้งที่จำง่ายๆ แล้วจดเก็บไว้
4. First Name : ใส่ชื่อจริงของคุณ
5. Last Name : ใส่นามสกุลของคุณ
6. Address : ที่อยู่ที่ต้องการรับเช็ค ตัวอย่าง
“199/513 Moo..... Tumbol......Aumpher.......
7. City : ชื่อจังหวัด
8. state : เลือก N/A
9. ZipCode : รหัสไปรษณีย์
10. Country : Thailand
11. *** Referred by : DIno2529
12. ใส่เครื่องหมายถูกตรงช่องสี่เหลี่ยมเล็กๆข้างล่างให้หมด
13. select a payment method : E-gold
14. payment account ID : .ใส่รหัส E-gold ที่เป็นตัวเลข7หลักอะครับ ตอนเราสมัคร E-gold อะครับ เลขนี้สำคัญมาก
15. Password : ใส่ รหัส เพื่อใช้ log in ไม่ควรต่ำกว่า
5 ตัว
16. Confirm Password : ยืนยัน Password อีกครั้ง
17. กด Sign up
จากนั้นก็ login ได้เลย โดยคลิกที่ member
แล้วใส่ user name และ pass word ที่เรากรอกไว้ทีแรก

PTC paid to click

2007-08-22T18:57:00.001-07:00

PTC ย่อมาจาก paid to click แปลตรงๆๆ จ่ายเมื่อคลิก ( คลิกอ่านโฆษณา )

ส่วนมากเว็บแบบนี้จะมี - PTR - PTC - PTS - PTP อยู่ในเว็บเดียวกัน แล้วแต่เราจะเลือกเล่น

- PTR อ่านเมลล์
- PTC คลิกอ่านโฆษณา
- PTS รับจ้างสมัครเว็บ
- PTP จ้างโปรโมท

(ระวังจะมีช่องที่ไม่ควรใส่ เพราะเขาทดสอบความรู้ด้านภาษาของเรา) ช่องที่ควรระวัง มีดังนี้
- I Cheat in PTR Program หมายความว่าเราใช้โปรแกรมโกง
- I Cheat หมายความว่า เราโกง
- I use autoclick software
- I do not understand English หมายความว่าเราไม่เข้าใจภาษาอังกฤษ
- Delete Me หมายความว่าลบชื่อฉันเลย
- Using Cheat Software หมายความว่า เราใช้โปรแกรมโกง

PTS PAID TO SING UP

2007-08-22T18:52:00.001-07:00

PTS คือ PAID TO SING UP เป็นการกรอกใบสมัครจากทางเวปและทางเวปจะให้เปอร์เซ็นต์ในการสมัครเป็น ค่าตอบแทน จากส่วนตัวผมคิดว่าการทำ PTSนั้นจะได้ค่าตอบแทนมากกว่าการทำ PTC โดยให้ดูที่ข้อเปรียบเทียบข้างล่างนี้

PTC ต่อ 1 เมลล์ จะได้ผลตอบแทนอยู่ที่ 0.01 CENT - 0.05 CENT มักจะไม่เกินนี้

PTS ต่อ 1 ใบสมัครนั้น จะได้ผลตอบแทนอยู่ที่ 0.05 CENT - 0.20 CENT หรืออาจจะมากกว่านั้นแล้วแต่สปอนเซอร์ที่มาจ้างลงกับทางเวป

ข้อเปรียบเทียบนี้ไม่ได้แสดงว่า PTC จะได้เงินน้อยเพราะเวปประเภท PTC นี้ก็จะมีการทำ PTS อยู่ด้วยแต่มีเฉพาะบางเวปเท่านั้น

1. ขั้นตอนการสมัคร เป็นจุดเริ่มต้นของการทำทุกอย่าง เพราะฉะนั้นเรามาดูการสมัครกันครับ โดยมีขึ้นตอนไม่ยุ่งยากอะไรโดยผมจะแสดงเป็นรูปทีละขั้นตอนและอธิบายตามเพื่อความเข้าใจมากขึ้น โดยส่วนมากเวป PTS นั้นจะเหมือนๆกันครับ

จากรูปผมขอยกตัวอย่างที่เวป INTERNATIONAL OFFICE ก็แล้วกันเพราะเป็นเวปแรกที่ผมเริ่มทำ ให้ดูด้านบนนะครับเป็นจุดที่เราจะสมัครกับทางเวปให้กดเข้าไป แล้วก็จะได้รูปตามข้างบนก็ให้กรอกตามที่ผมใส่ตัวหนังสือไว้ครับ

รูปนี้เป็นจุดสุดท้ายของการสมัคร ขอให้ทำตามรูปนะครับจะทำให้การกรอกสมบรูณ์ หากไม่เรียบร้อยทางเวปก็จะให้คุณแก้ไขจนถูกต้องครับ

หลายคนคงสงสัยรูปนี้ว่าผมเอามาให้ดูทำไม ที่แสดงให้ดูจุดนี้เพราะสำคัญครับ ผมเคยสมัครกับเวปหนึ่งแล้วเกิดปัญหาผิดพลาด ตอนแรกก็ไม่รู้จะทำยังไงก็อาศัยอ่านทีละตัวจึงเข้าใจว่าเวปแบบนี้ไม่เหมือนกับเวปแบบ PTC ตรงที่การสมัครใหม่เพราะผมก็หาปุ่มที่จะลบ ACCOUNT กลับไม่มี ที่รู้ก็เพราะเข้าไปอ่านที่ HELP SYSTEM จึงเข้าใจในการลบ ACCOUNT ก็คือเขาให้เราส่งคำร้องไปหาทางเวป(เป็นภาษาอังกฤษนะครับ) เมื่ออ่านที่ HELP SYSTEM เข้าใจแล้วผมก็เข้าไปกดที่ CONTACT ก็จะได้รูปตามนี้ครับ

ให้กรอกตามที่ผมใส่ตัวอักษรไว้แล้วกดที่ CONTACT โดยรอประมาณ 1 วันก็จะมีเมลล์ตอบกลับมาที่เมลล์ของเรา โดยเขาจะบอกว่าทางเวปได้ทำการลบ ACCOUNT แล้ว เออผมเกือบลืมไปผมแจ้งทางเวปว่าระบบของผมมีปัญหาต้องการลบ ACCOUNT เพื่อที่จะสมัครใหม่ครับ เท่านี้ขั้นตอนการสมัครก็เป็นอันเสร็จสิ้นครับ

2.ขั้นตอนศึกษาเกี่ยวกับเวปที่เราสมัคร อันนี้ขอบอกว่าไม่ควรมองข้ามนะครับหากคุณไม่เข้าใจเวปของเขาแล้วจะทำให้คุณไม่มีหลักในการทำ PTS โดยผลที่ออกมาอาจจะไม่ได้รับค่าตอบแทนจากทางเวปเลย

โดยทั่วไปเวปแบบ PTS นั้นจะคล้ายๆกันอาจจะแตกต่างไปบ้างเล็กน้อย หากคุณได้ทำหลายๆเวปคุณจะเข้าใจเอง ส่วนรูปนี้เป็นการก่อนเข้าเวปโดยต้องใส่ USERNAME และ PASSWORD โดยมาจากที่คุณกรอกสมัครก่อนหน้านี้และที่ผิดไม่ได้คือ SECURITY CODE หากใส่ไม่ตรงกับตัวอักษรที่โชว์ก็จะเข้าเวปไม่ได้ครับ

เมื่อคุณเข้ามาในเวปได้แล้วก็จะเจอหน้านี้ โดยเป็นหน้าแรกของเวป ผมจะอธิบายตามตัวเลขที่อยู่ในรูปก็แล้วกัน

1. ACCOUNT BALANCE คือที่ไว้สำหรับเช็กข้อมูลต่างๆเช่น ยอดเงินที่ทำได้,ยอดเงินที่เบิกแล้ว,ประวัติการทำยอดและเบิกถอน,เช็กว่าเวปอนุมัติจ่ายเงิน ผมว่ายังไม่เข้าใจดูรูปเลยดีกว่า

หลังจากที่กด ACCOUNT BALANCE เข้ามาแล้วก็จะได้ตามรูปภาพนี้ โดยผมได้ใส่คำอธิบายไว้คงพอเข้าใจกันนะครับ

รูปนี้เรากดที่ WITHDRAW FUNDS เป็นการเช็กการจ่ายเงินของเวปว่าอนุมัติให้เราแล้วหรือยัง โดยจะมี 3 ปุ่มโชว์อยู่ที่คุณเห็น
PENDING คือ รออนุมัติ หากใครเล่นเวป HYIP จะรู้ดีว่ามันเป็นอะไรที่ต้องรออย่างเดียว
DENIED คือ ไม่อนุมัติ
COMPLETED คือ อนุมัติจ่าย ผมว่าหลายๆคนคงอยากให้ปุ่มนี้โชว์เร็วเพราะเป็นการยืนยันว่าทางเวปได้สั่งจ่ายให้เราแล้ว

รูปนี้เป็นการแสดงประวัติการทำยอดและเบิกถอนของเราที่ทำกับทางเวป

2. WITHDRAW เป็นการเบิกเงินจากที่ทางเวปอนุมัติใบสมัครเป็นที่เรียบร้อยแล้ว ส่วนการจ่ายเงินให้เราขึ้นอยู่กับทางเวปว่าจะจ่ายให้แบบไหน ส่วนของเวปนี้มีการจ่าย 2 อย่าง คือ E-GOLD และ PALPAL ส่วนของเวปอื่นก็คล้ายๆกันครับ

การกำหนดขั้นต่ำในการจ่ายก็ขึ้นอยู่กับทางเวปเป็นผู้กำหนด ว่าจะจ่ายที่เท่าไร ส่วนเวปนี้กำหนดจ่ายที่ E-GOLD อยู่ที่ 10 CENT แต่ถ้าเป็น PALPAL จะอยู่ที่ 1$ ขั้นตอนการเบิกก็ให้ดูในรูปนะครับผมได้อธิบายไว้แล้ว

3. EDIT ACCOUNT เป็นการแก้ไขข้อมูลที่เราสมัครครั้งแรก ที่ต้องอธิบายเพราะว่าบางคนอาจจะเปลี่ยน ID ของ E-GOLD ใหม่ หรือต้องการแก้ไขข้อมูลใหม่

รูปนี้เป็นขั้นตอนสุดท้ายในการแก้ไขข้อมูลส่วนตัว โดยที่ยกตัวอย่างช่วงนี้ก็เพราะว่าข้อมูลส่วนตัวของแต่ละคนไม่เหมือนกัน หากแก้ไขแล้วเสร็จสุดท้ายก็ต้องมากรอกตามรูปนี้เหมือนกัน

4. PTC ในส่วนของเวปแบบ PTS นั้นก็จะมีให้ทำ PTC ด้วยแต่ผลตอบแทนจะได้ไม่มากเท่ากับเวปที่ทำ PTC ให้ถือว่าเป็นการทำขั้นเวลาก็แล้วกัน แต่การทำ PTC นั้นบางเวปจะมีการจับผิดคนที่ไม่ได้อ่านอยู่ด้วย โดยผมจะกล่าวไว้ในหัวข้อต่อไป

5. PTS ทุกเวปนั้นจะมีการแบ่งหมวดหมู่ของใบสมัครเอาไว้ เมื่อเราไปดูที่หน้านี้ก็จะมีปุ่มให้เรากดเลือกดังรูปนี้

ส่วนรูปนี้จะบอกผลการอนุมัติของใบสมัครเราว่าผ่านหรือไม่ผ่าน โดยความหมายก็เหมือนกับปุ่ม WITHDRAW ครับ

เมื่อคุณได้อ่านผ่านมา 2 ขั้นตอนผมเชื่อว่าคุณสามารถที่จะทำ PTS ได้แล้ว เพราะฉนั้นขั้นตอนสุดท้ายนี้จะเป็นขั้นตอนการทำจริงซึ่งผมได้ทำให้ดูเป็นตัวอย่าง พร้อมกับตัวอย่างต่างๆที่ผมนำมาจากแต่ละเวปเพื่อจะได้เป็นแนวทางหลายๆอย่าง

3.ขั้นตอนการทำ PTS และตัวอย่างแบบต่างๆ ก่อนที่จะทำ PTS เรามาดูการทำ PTC กันซักนิดหน่อย เพื่อประดับความรู้ ดูที่รูปครับ

ที่ผมวงไว้เป็นค่าตอบแทนที่ทางเวปจะให้เราเมื่อเปิดครบเวลา โดยสังเกตุดูนะครับจะให้น้อยมากแนะนำให้ทำตอนที่ว่างหรือพักสายตาครับ

จากรูปป้ายที่พื้นสีเหลืองนั้นจะเป็นการจับผิดคนที่ไม่อ่านของทางเวป ซึ่งเขาจะบอกอยู่แล้วว่าอย่ากดหากคุณกดผลก็คืออาจจะถูกตัด ACCOUNT หรือก็ไม่จ่ายหลังจากที่คุณสั่งเบิกเมื่อคุณทำยอดได้ ระวังนะครับจุดเล็กๆก็ทำให้คุณไม่ได้เงินกับทางเวป

ต่อไปนี้เป็นขั้นตอนการทำ PTS โดยให้คุณอ่านและเลือกใบสมัครมาเพื่อที่จะกรอก ส่วนการที่จะบอกว่าเลือกอย่างไรนั้นต้องขึ้นอยู่กับคุณว่าทำมานานแค่ไหนหรืออ่านออกมากแค่ไหน

ส่วนรูปนี้ผมเลือกใบสมัครของ PTC มาหนึ่งเวป ซึ่งมีคนที่ต้องการหา DOWN LINE มาจ้างเวปนี้ลง เมื่อผมสมัครเสร็จและอนุมัติ ผมจะได้ค่าสมัครจากทางเวปจำนวน 5 CENT โดยให้กดไปที่ป้ายเพื่อจะได้เข้าไปกรอกข้อมูล

เมื่อคลิกเข้ามาแล้วรูปร่างหน้าตาก็เหมือนกับการที่เราสมัครทำกับเวป PTC

ขั้นตอนนี้สำคัญครับเมื่อคุณ COPY เมลล์มาวางแล้วให้ลบ PASSWORD ออก หากคุณไม่ได้ลบออกก็จะทำให้ใบสมัครของคุณไม่สมบรูณ์ และทางเวปจะไม่อนุมัติก็เท่ากับว่าคุณไม่ได้ค่าสมัครจากทางเวป

ส่วนรูปนี้เป็นการยืนยันจากทางเวปที่ส่งมาที่เมลล์ของคุณ โดยเขาจะบอกว่าเราได้รับการอนุมัติใบสมัครจากทางเวปเป็นที่เรียบร้อยแล้ว หากคุณต้องการเบิกก็ให้เข้าไปที่เวปแล้วกดเบิกเงินได้เลยครับ

ตัวอย่างของใบสมัครประเภทต่างๆ

ตัวอย่างนี้เป็นการสมัครเวปแบบ PTS ด้วยกันแต่จะแตกต่างตรงที่มีข้อระบุอยู่ที่ใต้ป้ายสมัคร บางป้ายก็จะบอกว่าเมื่อสมัครแล้วต้องทำใบสมัครกับทางเวปให้ได้ 6 ใบถึงจะได้ค่าตอบแทน หรือบ้างอันก็ไม่ได้ระบุก็จะได้ค่าสมัครเลยเมื่อทำการสมัครเป็นที่เรียบร้อยแล้ว ลองมาดูรูปข้างล่างนี้จะได้เห็นภาพชัดเจน

ส่วนตัวอย่างนี้เป็นเวปที่ทุกคนยังสงสัยว่าจ่ายหรือเปล่า แต่ผมจะบอกเลยว่าให้สมัครก่อนครับ จะทำหรือไม่ก็แล้วแต่บุคคลครับ เพราะยังไงก็ได้เมลล์ตอบกลับก็ให้เอาไปใส่ในใบสมัครเพื่อให้ได้ค่าตอบแทนดีกว่า

อันนี้เป็นการสมัครของเวปที่ทำแบบสอบถาม ที่เป็นอีกตัวหนึ่งที่ทำให้เราได้ค่าตอบแทน

ตัวอย่างนี้เป็นการสมัครของการซื้อของ ไม่อยากแนะนำให้ทำเพราะมันจะเกี่ยวกับบัตรเครดิส ถึงจะได้ค่าตอบแทนที่มากแต่ก็เสี่ยงกับการที่ถูกแฮ็กข้อมูลได้

อันนี้ก็เหมือนกันไม่แนะนำให้ทำเพราะเป็นเวปที่เล่นการพนัน

ตัวอย่างนี้ไม่มีช่องให้ใส่เมลล์ตอบกลับเพราะเป็นแบบอัตโนมัติคือ เมิ่อคุณสมัครกับทางเวปแล้วก็ให้มากดที่
MARK AS PENDING ส่วนมากเวปแบบนี้มักไม่ค่อยได้

หลายคนที่เริ่มทำเวปแบบ PTC ใหม่ๆมักจะมีคำถามว่าเวปนี้จ่ายหรือเปล่า เวปแบบ PTC ที่มักไม่จ่ายนั้นจะเป็นแบบให้ค่าตอบแทนที่สูงในการอ่านป้ายต่อครั้ง ที่ผมกล่าวมานี้มีเหตุผลครับเพราะผมได้เจอโดยบังเอิญคือจะมีคนนำเวปที่ไม่จ่ายเหล่านี้มาลง ผมไม่รู้ว่าเขาจะได้อะไรแต่ที่แน่ๆผมได้ค่าตอบแทนชัวร์ สมัครเลยครับไม่ต้องคิดมากและให้ได้เมลล์ตอบกลับมายิ่งดี โดยให้คุณนำเมลล์มาใส่ในใบสมัครแล้วกดส่งเท่านี้คุณจะได้ค่าสมัคร แต่ไม่ต้องไปทำนะครับเพราะยังไงเขาก็ไม่จ่ายอยู่แล้ว หรือเข้าไปเปิดดูบ้างก็ได้ จากที่ผมทำมาส่วนใหญ่จะได้เสมอ อันนี้ถือเป็นการแก้ลำเวปที่ไม่ยอมจ่ายทั้งหลาย

การทำ PTS นั้นไม่ใช่จะทำได้ทุกอันนะครับ เพราะบ้างเวปเขาก็กำหนดประเทศที่ทำได้เหมือนกัน จากรูปข้างบนผมได้มาเพราะผมเห็นว่าเวปนี้น่าจะทำให้ได้ค่าสมัครแต่กลับเป็นว่าเขากำหนดประเทศ ทำให้อดได้ค่าตอบแทนเลยครับ แต่ไม่เป็นไรยังมีอีกหลายใบสมัครรอคุณอยู่ให้เก็บเงินได้ครับ

เป็นยังไงครับจากขั้นตอนต่างๆที่ผมอธิบาย คงจะทำให้ได้ความรู้เรื่อง PTS ไม่มากก็น้อยนะครับ แต่ปัจจัยที่จะทำให้ได้มากก็ขึ้นอยู่กับคุณด้วยนะครับ ถ้าคุณทำหลายๆครั้งก็จะรู้เทคนิคต่างๆเองอย่างผม

ผมมีแถมให้อีกนิดนะครับ เวปประเภท PTC นั้นไม่ใช่ว่าจะมีแต่คลิกอย่างเดียวมีให้ทำ PTS ด้วยนะครับและค่าตอบแทนก็ได้พอสมควรเหมือนกัน ดูที่รูปครับ

รูปนี้เป็น PTS ที่ผมทำในเวปแบบคลิก ดูที่ผลตอบแทนนะครับได้พอกับเวป PTS เหมือนกันแต่ต่างกันที่การทำคือในเวปแบบคลิกนี้ตอนใส่เมลล์ตอบกลับนั้นจะไม่มีให้ใส่ E-MAIL ไม่เหมือนกับเวป PTS ที่ต้องใส่ แต่การอนุมัตินั้นขึ้นอยู่กับเวปอนุมัติโดยจะไม่ได้แจ้งให้เรารู้ต้องเข้าไปดูในเวปเอง

สุดท้ายนี้หากมีข้อผิดพลาดประการใดผมต้องขอโทษเอาไว้นะที่นี้ด้วยนะครับ เพราะที่เขียนขึ้นมาเพียงอยากให้ผู้สนใจในการทำ PTS มีแนวทางในการทำพร้อมทั้งได้เห็นตัวอย่างต่างๆของเวป

BY PARLAKAWONG

Home

2007-08-19T09:02:00.000-07:00

High Yield Investment Program, or HYIP, is a often type of pyramid scheme normally offered via the Internet. HYIPs typically accept deposits as low as $1 while promising astoundingly high returns.

Online HYIP schemes rarely last for the long term. Overwhelming number of cases suggest that HYIPs are Ponzi schemes, in which new investors provide the cash to pay a profit to existing investors, which they typically then withdraw. [citation needed] This approach allows the scam to continue as long as new investors are found and/or old investors leave their money in the scheme, known as compounding (because even higher profits are promised).

The introduction of e-currencies has made it possible for HYIPs to operate on the internet and cross international boundaries, and to accept large numbers of small investments. HYIPs usually accept deposits by either e-currency, like e-gold, e-bullion and INTGold, or use specialist third party payment processors like AlertPay, SolidTrustPay, CEPTrust, TriStarMoneyChangers and StormPay. HYIPs typically offer a significant incentive commission (for example, 9% of invested funds) for members to attract and refer new investors.

Most HYIPs disclose little or no detail about the underlying management, location, or other aspects of how money is to be invested (often because money is not actually invested), and relatively little information (other than asserting that they do various types of trading on various stock and other exchanges) on how they actually generate the returns they purport. They are sometimes presented with some form of an emotional appeal, appeals for faith, and promises that they will help investors achieve financial freedom.

Arguably, the largest HYIP scam that has existed on the internet was PIPS (People in Profit System or Pure Investors)[1][2]. The investment scheme was started by Bryan Marsden in early 2004, (according to the Wayback Machine record of http://pureinvestor.com) and spanned more than 20 countries. PIPS was investigated by Bank Negara Malaysia in 2005 which resulted in Marsden and his wife being charged in a Malaysian court with 97 counts of money laundering involving more than RM77 million - US$20 million - (copy of New Straits Times article dated 11 Oct 2006). Even after these charges were brought forth many of Marsden's followers/investors continued to support him and believe they would see their money some day. This behavior and denial could be seen and still is seen on hyip forums such as Talkgold Forum and others.

Interest rates

HYIPs typically claim to offer interest rates of 1% or more per day on invested funds; some claim to offer much higher daily rates exceeding 200% a day. Allegedly, the highest-return HYIP on record has offered 1,100% ROI in one day. Claims of astronomical returns without large capital outlay or background information are indicative of a Ponzi-structured HYIP program.

As a comparison with a typical 1% per day claim, Warren Buffett, one of the world's most successful investors, made around 30% per year during his most successful period; that is on average, less than 0.1% per day. As the claimed returns of 1% per day are extremely unlikely to be produced legitimately, all HYIPs are therefore likely to be Ponzi schemes, and so most investors will in due course lose their money.

HYIP games

As a result of online forums and monitoring sites which have made HYIP investors more aware of their nature, a different sort of "honest" HYIP began springing up in the early months of 2006. Basically, the HYIP owner calls his or her program a "ponzi-structured game" where one should "not invest money one cannot afford to lose", and where there is "never a guarantee of earnings or refunds". They promise to pay out up to (for example) 95% of deposits, the rest going to hosting or other fees and the owner's profit.

In such "games", the first participants ("investors") may make a good profit and are encouraged to refer other people to the program because of referral commission, the fact that they have already made back their principal and are playing with profit, and that the more people who deposit money, the more money can be paid out to participants. In theory, strategies can be developed to maximize profit using these games (but, of course, since this is a zero-sum game, such strategies work by taking advantage of ignorance or errors by others). Some forum users may gain a reputation whereby others will trust their word that they have been able to withdraw their profits, encouraging others to invest in the hopes that more will invest after them and that they can therefore make a profit. As these games are by definition Ponzi schemes, it is inevitable that the vast majority of investors who are not at the top of the pyramid will lose their money.

These "games" might be considered as lotteries. However, the odds of winning cannot be determined, as one cannot know whether one is playing early enough to win money (that is, whether a sufficient number of new participants will follow). Thus, these activities are unlike a lottery or other forms of gambling, where a player has an equal chance of winning no matter when a ticket is bought, or where the odds of the game are known.
[edit] HYIP monitors

HYIP monitors, or HYIP listing/rating sites, are websites that list and/or promote HYIPs for referral commissions. The monitor charges each HYIP a listing fee which is usually then invested into that program, although there exist free listings and occasionally monitors which invest their own money. The monitor then labels the HYIP as "Paying" or "Not paying/Scam" depending on whether interest is received within the terms specified by the program. Monitors also allow other HYIP investors to rate and comment on the programs, based on factors such as promptness of payouts and responsiveness of the HYIP administrator. Programs with higher ratings achieve higher rankings on the monitor sites, which coupled with a "Paying" status may entice more investors who rely on the monitor.

In most cases, HYIPs only pay monitor sites to keep their "Paying" status visible, but do not pay other investors. As HYIP monitors are not affiliated with the HYIPs themselves, they are unable to prevent investors from being scammed; they neither help to recover lost funds nor track down the scammers. Promoting or perpetuating Ponzi schemes is a criminal offense punishable by jail terms or fines in most countries. That the monitor sites place disclaimers saying that they "do not promote the programs advertised on their website" does not absolve them from criminal liability.

In order to generate a "paying" status early (so that future visitors will see it) and maintain it for the longest possible time, newly opened HYIPs list their site quickly as well as constantly pay monitors their interest on time. Added to the fact that many monitors invest the listing "fee", and that a commission is received on each deposit made by people who visit the HYIP via the monitor, they are the most likely to profit when a program runs out of funds.

HYIP owners can manipulate monitors and forums, by paying people to comment positively or by using a range of IP addresses or proxy servers in different locations so that "paying" votes appear to come from around the world. This allows the HYIP to rise up the rankings more quickly than others, giving investors a false sense of security. Additionally, even if they know it will scam in the future, some investors will also rate new HYIPs positively until the HYIP stops paying, because they want more people to invest after them in the hopes that the program will last longer. Future scammers can also build up a good reputation on forums for a large payoff once most forum members trust them.

Stored-value card

2007-08-19T07:17:00.002-07:00

Stored-value card
A stored-value card represents money on deposit with the issuer, and is similar to a debit card. One major difference between stored value cards and debit cards is that debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous.
The term stored-value card is usually a misnomer, as most indicia of the cards' value are maintained on computers affiliated with the card issuer.
The value associated with the card can be accessed using a magnetic stripe embedded in the card, on which the card number is encoded; using radio-frequency identification (RFID); or by entering a code number, printed on the card, into a telephone or other numeric keypad.
Typical applications
Typical applications of stored-value cards include transit system farecards, gift cards, and telephone prepaid calling cards.Gaining acceptance is the payroll card used to pay employees.
[edit] Transit system farecards
A vending machine sells farecards for the Washington Metro subway.
Transit system farecards are popular with passengers because they eliminate the need to fumble with money when entering (or exiting) buses, subway trains, etc. Transit Systems that use this type of ticket include the San Francisco Bay Area Rapid Transit (BART) and the Washington Metro in Washington DC.
Many transit system operators have implemented farecards because they can accurately track system usage; they are useful for charging different fares depending on the distance traveled; they can automatically discount fares for seniors and persons with disabilities; and passengers can in some cases replace them if they are lost, stolen, or damaged. The tracking characteristic has implications for privacy: if a card can be matched to an individual passenger, its usage history can reveal when and where the passenger has travelled.
[edit] Gift cards
Gift cards have all but replaced gift certificates in some places, can be purchased in various values, and are good at various shopping, dining, and entertainment establishments. They are usually anonymous and no refund is available if they are lost or stolen. Also, issuers profit from the interest or float that is earned between the time of purchase and the time of use. Gift cards are sometimes referred to as "closed loop" cards in the business as they can only be used at the merchant who issued it.
In some cases, gift cards are rechargeable. This means that once purchases have depleted the card's value, the cardholder can add more funding.
As with debit and credit cards, use of stored value cards spares both merchants and consumers the difficulties of dealing with small change.
[edit] Stored value credit cards
Image:Amex-Travelers-Cheque-Card.jpg
American Express Travelers Cheque Card
A Stored value credit card is not really a credit card, as no credit is offered by the card issuer: the card-holder spends money which has been "stored" on the card via his own prior deposit (though this is somewhat misleading as there is no actual value 'on' the card itself, but rather the card functions as an access device to the funds). These cards are similar to gift cards, but are issued with a credit card logo such as Visa or MasterCard and can, unlike gift cards, be used anywhere a Visa or Mastercard may be used. They are very similar to a debit or check card except that they don't require a checking account to be issued one. However, they do not have many of the benefits of the credit card. Things like product or service return/refund assistance, unauthorized purchase protection. They have been heavily marketed in the United States as a safe and responsible means for parents to give their children some spending power which is why they sometimes are referred to as teen cards. These cards are also sometimes referred to as "open loop" cards. Stored value credit cards are usually not anonymous. They have to be enrolled under the cardholder's name and are mailed by the issuer to the cardholder's address.
A variation on this are the PaidByCash virtual cards in the United States and the 3V cards issued in the Republic of Ireland. These consist only of a card number plus expiry date and verification number, so can only be used for customer not present transactions.
The Tobacco Card has undergone testing and is scheduled for nationwide introduction in Japan in 2008. It will contain an IC with information about the cardholder's age, and will be required for purchasing cigarettes from vending machines. It will have stored-value capability.
[edit] Neutral consumer resources
[edit] Canada
Because of the many fees that apply to obtaining and using a credit-card-brand stored-value card, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money"[1]. The Agency publishes a booklet, Pre-paid Cards[2], which explains the advantages and disadvantages of this type of stored-value card.
[edit] Payroll Cards
Payroll cards are used by employers to pay employees. The employee is issued a card that permits access to an account established by the employer. At the end of each pay period, the employee's ability to draw money from that account is increased by the amount of his or her wages. The card may be used at an Automated Teller Machine (ATM) to obtain cash, and, in some instances, may be used at a store to pay for goods purchased. The payroll card is particularly useful for employees who do not have a regular checking or savings account at a financial institution because they can access their wages conveniently. Also, if there is no charge for using the ATM, they avoid fees charged for cashing checks. The advantage to the employer is low cost of paying wages and efficiency. The Federal Reserve Board has adopted regulations affecting payroll cards that will become effective July 1,2007. 71 Federal Register 1473 (Jan. 10, 2006) Other types of stored value cards are not affected by the regulation and are generally unregulated by the federal government.

Adverse credit history

2007-08-19T07:17:00.000-07:00

Adverse credit history
Adverse credit history, also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and bad credit history, is a negative credit rating.
A negative credit rating is often considered undesirable to lenders and other extenders of credit for the purposes of loaning money or capital.
Reasons
A consumer or business' credit history is regularly tracked by credit rating agencies. The data reported by these agencies is primarily provided to them by creditors and includes detailed records of the relationship a person or business has with the lender. Detailed account information, including payment history, credit limits, high and low balances, and any aggressive actions taken to recover overdue debts, are all reported regularly (usually monthly). This information can be quite detailed and arduous to navigate by a potential lender dealing with a new applicant. To address this issue, credit scoring was invented.[citation needed]
All credit bureaus also offer a supplemental service called credit scoring. Credit scoring is the process of using a proprietary mathematical algorithm to create a numerical value that alleges to be a total picture of an applicants creditworthiness. Scores, frequently based on numbers (ranging from 300-850 for consumers in the United States), are alleged to statistically analyze a credit history, in comparison to other debtors, and gauge the magnitude of financial risk. Since lending money to a person or company is a risk, credit scoring offers a standardized way for lenders to assess that risk rapidly and "without prejudice."[citation needed]
Credit scores allege to assess the likelihood that a borrower will repay a loan or other credit obligation. The higher the score, the better the credit history and the higher the probability that the loan will be repaid on time; this theory purports. When creditors report an excessive number of late payments, or trouble with collecting payments, a "hit" on the score is suffered. Similarly, when adverse judgments and collection agency activity are reported, even bigger "hits" on this score are suffered. Repeated hits can lower the score and trigger what is called a negative credit rating or adverse credit history.
When a lender requests a credit score, it can cause a small drop in the credit score.[1][2]
[edit] Consequences
The information in a credit report is sold by credit agencies to organizations that are considering whether to offer credit to individuals or companies. It is also available to other entities with a "permissible purpose." The consequence of a negative credit rating is typically a reduction in the likelihood that a lender will approve an application for credit under favorable terms, if at all. Interest rates on loans are significantly affected by credit history—the higher the credit rating, the lower the interest while the lower the credit rating, the higher the interest. The increased interest is used to offset the higher rate of default within the low credit rating group of individuals.
In the United States, in certain cases, insurance, housing, and employment can also be denied based on a negative credit rating.
Note that is not the credit reporting agencies that decide whether a credit history is "adverse." It is the individual lender or creditor which makes that decision, each lender has its own policy on what scores fall within their guidelines. The specific scores that fall within a lender's guidelines is most often NOT disclosed to the applicant due to its nature as a trade secret. In the United States, a creditor is required to give a reason for denying credit to an applicant immediately and must also provide the name and address of the credit reporting agency who provided data that was used to make the decision.

Credit card fraud

2007-08-19T07:16:00.001-07:00

Credit card fraud
Credit card fraud is a wide-ranging term for theft and fraud committed using a credit card or any similar payment mechanism as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account. Credit card fraud is also an adjunct to identity theft.
The cost of credit card fraud reaches into billions of dollars annually. In 2006, fraud in the United Kingdom alone was estimated at £428.0 million (about $700-800 million).
Origins
The fraud begins with either the theft of the physical card or the compromise of the account information. The compromise can occur by many common routes, including something as simple as a store clerk copying sales receipts. The rapid growth of credit card use on the Internet has made database security lapses particularly costly; in some cases, millions of accounts have been compromised.
Stolen cards can be reported quickly by card holders, but a compromised account can be hoarded by a thief for weeks or months before any fraudulent use, making it difficult to identify the source of the compromise. The card holder may not discover fraudulent use until receiving a billing statement, which may be delivered only once per month.
[edit] Stolen cards
When a card is lost or stolen, it remains usable until the holder notifies the bank that the card is lost; most banks have toll-free telephone numbers with 24-hour support to encourage prompt reporting. Still, it is possible for a thief to make unauthorized purchases on that card up until the card is cancelled. In the absence of other security measures, a thief could potentially purchase thousands of dollars in merchandise or services before the card holder or the bank realize that the card is in the wrong hands.
In the US, federal law limits the liability of card holders to $50 in the event of theft, regardless of the amount charged on the card; in practice, many banks will waive even this small payment and simply remove the fraudulent charges from the customer's account if the customer signs an affidavit confirming that the charges are indeed fraudulent. Other countries generally have similar laws aimed at protecting consumers from physical theft of the card.
The only common security measure on all cards is a signature panel, but signatures are relatively easy to forge. Many merchants will demand to see a picture ID, such as a driver's license, to verify the identity of the purchaser, and some credit cards include the holder's picture on the card itself. Self-serve payment systems (gas stations, kiosks, etc.) are common targets for stolen cards, as there is no way to verify the card holder's identity. A common countermeasure is to require the user to key in some identifying information, such as the user's ZIP or postal code. This method may deter casual theft of a card found alone, but if the card holder's wallet is stolen, it may be trivial for the thief to deduce the information by looking at other items in the wallet. For instance, a US driver license commonly has the holder's home address and ZIP code printed on it.
Banks have a number of countermeasures at the network level, including sophisticated real-time analysis that can estimate the probability of fraud based on a number of factors. For example, a large transaction occurring a great distance from the card holder's home might be flagged as suspicious. The merchant may be instructed to call the bank for verification, to decline the transaction, or even to hold the card and refuse to return it to the customer.
[edit] Compromised accounts
Card account information is stored in a number of formats. Account numbers are often embossed or imprinted on the card, and a magnetic stripe on the back contains the data in machine readable format. Fields can vary, but the most common include:
• Name of card holder
• Account number
• Expiration date
• Verification/CVV code
Many Web sites have been compromised in the past and theft of credit card data is a major concern for banks. Data obtained in a theft, like addresses or phone numbers, can be highly useful to a thief as additional card holder verification.
[edit] Mail/Internet catalog order fraud
The mail and the Internet are major routes for fraud against merchants who sell and ship products, as well Internet merchants who provide online services. The industry term for catalog order and similar transactions is "Card Not Present" (CNP), meaning that the card is not physically available for the merchant to inspect. The merchant must rely on the holder (or someone purporting to be the holder) to present the information on the card by indirect means, whether by mail, telephone or over the Internet when the cardholder is not present at the point of sale.
It is difficult for a merchant to verify that the actual card holder is indeed authorizing the purchase. Shipping companies can guarantee delivery to a location, but they are not required to check identification and they are usually are not involved in processing payments for the merchandise. A common preventive measure for merchants is to allow shipment only to an address approved by the cardholder, and merchant banking systems offer simple methods of verifying this information.
Additionally, smaller transactions generally undergo less scrutiny, and are less likely to be investigated by either the bank or the merchant, since the cost of research and prosecution usually far outweighs the loss due to fraud.
CNP merchants must take extra precaution against fraud exposure and associated losses, and they pay higher rates to merchant banks for the privilege of accepting cards. Anonymous scam artists bet on the fact that many fraud prevention features do not apply in this environment. 3-D Secure™ is an authentication protocol developed by Visa and MasterCard to protect online card payments, in which the card owner has to register with the issuing bank.
[edit] Account Takeover Fraud
There are two types of fraud within the identity theft category, application fraud and account takeover.
Application fraud occurs when criminals use stolen or fake documents to open an account in someone else's name. Criminals may try to steal documents such as utility bills and bank statements to build up useful personal information. Alternatively, they may use counterfeit documents for identifications purposes.
Account take-over involves a criminal trying to take over another person's account, first by gathering information about the intended victim, then contacting their bank or credit issuer - masquerading as the genuine cardholder - asking for mail to be redirected to a new address. The criminal then reports the card lost and asks for a replacement to be sent. The replacement card is then used fraudulently.
[edit] Skimming
Skimming is the theft of credit card information by a dishonest employee of a legitimate merchant, manually copying down numbers, or using a magnetic stripe reader on a pocket-sized electronic device. Common scenarios for skimming are restaurants or bars where the skimmer has possession of the victim's credit card out of their immediate view. The skimmer will typically use a small keypad to unobtrusively transcribe the 3 or 4 digit Card Security Code which is not present on the magnetic strip. Many instances of skimming have been reported where the perpetrator has put a device over the card slot of a public cash machine (Automated teller machine), which reads the magnetic strip as the user unknowingly passes their card through it. These devices are often used in conjunction with a pinhole camera to read the user's PIN at the same time.
Skimming is difficult for the typical card holder to detect, but given a large enough sample, it is fairly easy for the bank to detect. The bank collects a list of all the card holders who have complained about fraudulent transactions, and then uses data mining to discover relationships among the card holders and the merchants they use. If many of the customers used one particular merchant, that merchant's terminal (the device used to process cards) can be directly investigated. Merchants must ensure the physical security of their terminals, and penalties for merchants can be severe in cases of compromise, ranging from large fines to complete exclusion from the merchant banking system, which can be a death blow to businesses such as restaurants which rely on credit card processing.
[edit] Carding
Carding is a term used for a process to verify the validity of stolen card data. The thief presents the card information on a website that has real-time transaction processing. If the card is processed successfully, the thief knows that the card is still good. The specific item purchased is immaterial, and the thief does not need to purchase an actual product; a Web site subscription or charitable donation would be sufficient. The purchase is usually for a small monetary amount, both to avoid using the card's credit limit, and also to avoid attracting the bank's attention. A website known to be susceptible to carding is known as a cardable website.
In the past, carders used to use computer programs called "generators" to produce a sequence of credit card numbers, and then test them to see which were valid accounts. Another variation would be to take false card numbers to a location that does not immediately process card numbers, such as a trade show or special event. However, this process is no longer viable due to widespread requirement by internet credit card processing systems for additional data such as the billing address, the 3 to 4 digit Card Security Code and/or the card's expiry date, as well as the more prevalent use of wireless card scanners that can process transactions right away.[1] Nowadays, carding is more typically used to verify credit card data obtained directly from the victims by Skimming or Phishing.
A set of credit card details that has been verified in this way is known in fraud circles as a phish (see Phishing). A carder will typically sell data files of phish to other individuals who will carry out the actual fraud. Market price for a phish ranges from US$1.00 to US$50.00 depending on the type of card, freshness of the data and credit status of the victim.

[edit] Other Fraud Types
Unsigned Credit Cards Stealing and using credit cards that have not been signed is another potential fraud. In other words, credit card thieves could steal your unsigned credit cards and then sign your name on the card in their handwriting. By doing so, they take your name as an alias and they will never have a problem writing and verifying their own signature. Reference
Protect your credit cards. When you receive a new or replacement card, sign the back of it as soon as it is activated. Always be sure to store it in a safe place. Cut up expired cards before disposing of them. Loss of Multiple Cards While shopping, you can easily be targeted by pickpockets. If your purse or wallet is stolen, you may lose all your credit cards at one time. Separate your cards. Only carry those cards with you that you plan to use. Also, check your cards from time to time and put aside those cards you don't use very often.
Strange Requests for Your PIN Numbers This form of fraud involves thieves who find creative ways to steal your credit or debit cards when you don't know about it. For example, sometimes people crawl behind rows in movie theaters and steal pocketbooks while you are watching a movie. When you return home they call you, identify themselves as bank security agents, and ask for your PIN numbers. If you hesitate, they simply ask you to phone their supervisor and give you an accomplice's phone number to call. By doing so, they are able to get your PIN numbers and use the stolen debit cards to withdraw cash and make purchases. Never reveal your PIN number to anyone. Also, never keep your PIN number in your purse or wallet. Don't write your PIN on your card either. Always try to memorize it.
[edit] Credit Card Crime Profits, Losses & Punishment
The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please improve this article or discuss the issue on the talk page.

[edit] Losses
U.S. Federal Law can hold the cardholder victim responsible for up to $50. Merchants in high-risk industries, like unattended automated fuel pumps or Internet sales, anticipate a certain amount of credit card fraud, and set prices accordingly. These higher costs are then passed onto the customer.
[edit] Credit Card Companies
In 2003, The Wall Street Journal estimated that the credit card industry generated US $500 million in annual revenue in research and investigation fees paid by consumers and businesses.[citation needed] This additional revenue offsets some of the costs incurred by credit card issuing and processing companies' when investigating chargeback claims. Since 2005, credit card fraud in the UK and America has increased by 350% on average according to Reuters.[citation needed]
Credit card merchant associations, like Visa and Mastercard, and their member banks receive profit from transaction fees, known in the industry as the "discount rate." The discount rate is a percentage of the amount of the transaction, with typical merchants receiving discount rates in the range of 2% to 4%. Merchant associations are thus motivated to pursue policies which increase the aggregate amount of money transferred by their systems. Many merchants believe this pursuit of revenue generation reduces the incentive for credit card banks to implement procedures to reduce credit card crime, particularly since the cost of investigating fraud is usually higher than the cost of a write-off. However, merchant associations are not assuming these costs; they are instead passed on to merchants as "chargebacks." This results in substantial additional costs: not only has the merchant been defrauded for the amount of the transaction, but he is also obligated to pay a chargeback fee, and to make matters worse, the merchant is not even reimbursed for his transaction fees.
Merchants have begun to request changes in State and Federal Laws to protect consumers and merchants from fraud, but the credit card industry has opposed many of the requested laws. In many cases, merchants have little ability to fight fraud, and must simply accept a certain percentage of fraud as a cost of doing business.
Because all card-accepting merchants and card-carrying customers are bound by contract law, according to the agreements they sign with their processing / issuing banks, respectively, State and Federal law has a smaller role in preventing merchants from being tricked. Payment transfer associations enact regulatory changes, and issuing / acquiring banks, merchants, and cardholders are contractually bound to these new regulations.
[edit] The Criminals
In the US, persons that commit credit card crime largely go unpunished and repeatedly victimize consumers and businesses. The Secret Service handles crimes involving the US money supply; they have a limit of $150,000 before investigating each crime. Most credit card criminals know this and keep purchases from any one business below $150,000. With credit card crime occurring across state lines, criminals often are never prosecuted because the dollar amounts are too low for local law enforcement to pay for extradition.
[edit] Reporting Credit Card Fraud
If you lose or have had your credit card stolen, you should immediately report it to your card issuer. Once you report the incident, you are no longer responsible for unauthorized charges made on your card.
In the US, credit card fraud can be reported to the Federal Trade Commission (FTC) and to local and regional authorities. It is the standing policy of the FTC not to investigate reports where the value of fraud does not exceed $2000. Local law enforcement may or may not further investigate a credit card fraud, depending on the amount, type of fraud, and where the fraud originated from.
If you are a merchant and you suspect orders have been placed for your products/services using stolen credit card information you will need to contact VISA/MC/AMEX/DISCOVER to obtain the issuing bank's phone number then call the bank to report that you suspect that their customer's credit card information has been stolen.

credit card

2007-08-19T07:15:00.003-07:00

A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user). It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard.
How credit cards work

An example of the front of a typical credit card:
1. Issuing bank logo
2. EMV chip
3. Hologram
4. Card number
5. Card brand logo
6. Expiry Date
7. Cardholder's name
An example of the reverse side of a typical credit card:
1. Magnetic Stripe
2. Signature Strip
3. Card Security Code
A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but sometimes a captive bank created to issue a particular brand of credit card, such as Chase Credit Card, Wells Fargo or Bank of America issues the credit.
When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a Card not present (CNP) transaction.
Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom commonly known as Chip and PIN, but is more technically an EMV card.
Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.
Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts.
Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.
For example, if a user had a $1,000 outstanding balance and pays it in full, there would be no interest charged. If, however, even $1.00 of the total balance remained unpaid, interest would be charged on the $1 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made that the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid...i.e. when the balance stopped revolving).[1]
The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, either to encourage balance transfers from cards of other issuers, or to encourage more spending on the part of the customer. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance (see external links for some on-line services).
Because of intense competition in the credit card industry, credit providers often offer incentives such as frequent flier points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their program.
Low interest credit cards or even 0% interest credit cards are available. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. However, services are available which alert credit card holders when their low interest period is due to expire. Most such services charge a monthly or annual fee.
[edit] Grace period
A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 30 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met. Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charge(s) incurred depends on the grace period and balance, with most credit cards there is no grace period if there's any outstanding balance from the previous billing cycle or statement (ie. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.
[edit] The merchant's side
An example of street markets accepting credit cards
For merchants, a credit card transaction is often more secure than other forms of payment, such as cheques, because the issuing bank commits to pay the merchant the moment the transaction is verified, whether the consumer pays their bill or not. The only exception would be the American Express card, which does not guarantee payment to the merchant if the consumer defaults on payment. For each purchase, the bank charges a commission (discount fee), to the merchant for this service and there may be a certain delay before the agreed payment is received by the merchant. In addition, a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges.
In some countries, like the Nordic countries, banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will instead have to show their passport, and the passport number will be written down on the receipt, sometimes together with other information. Some shops use the card's PIN code for identification, and in that case showing an ID card is not necessary.
[edit] This process involves the following parties:
Cardholder: the owner of the card used to make a purchase
Merchant: the business accepting credit card payments for products or services sold to the cardholder
Acquirer: the financial institution or other organization that provides card processing services to the merchant
Card association: a network such as VISA or MasterCard (and others) that acts as a gateway between the acquirer and issuer for authorizing and funding transactions
Issuer: the financial institution or other organization that issued the credit card to the cardholder
Affinity partner: some institutions lend their name to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. A typical affinity partner will be a sports team or a university
The flow of information and money between these parties—always through the card associations — is known as the interchange, and it consists of a few steps:
[edit] Authorization
When the cardholders pays for the purchase the merchant performs some risk assessment and may submit the transaction to the acquirer for authorization. The acquirer verifies with the issuer—almost instantly—that the card number and transaction amount are both valid, and informs the merchant on how to proceed. The issuer may provisionally debit the funds from the cardholder's credit account at this stage.
[edit] Batching
After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment (usually at the end of the day).
[edit] Clearing and settlement
The acquirer sends the transactions in the batch through the card association, which debits the issuers for payment and credits the acquirer. In effect, the issuers pay the acquirer for the transactions...
[edit] Funding
Once the acquirer has been paid, the merchant receives payment. The amount the merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction.
The entire process, from authorization to funding, usually takes about 2-7 business days. However, many merchant card processors offer next-day deposits to customers subject to type of banking account.
In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.
[edit] Secured credit cards
A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus if the cardholder puts down $1000, he or she will be given credit in the range of $500–$1000. In some cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases, the deposit required may be significantly less than the required credit limit, and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Credit card issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn't repay his balance.
The cardholder of a secured credit card is still expected to make regular payments, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows for rebuilding of positive credit history.
Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account which is less than 150 days delinquent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt.
Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened.
Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. They are often offered as a means of rebuilding one's credit. Secured credit cards are available with both Visa and MasterCard logos on them. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, however, for people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards can often be less expensive in total cost than unsecured credit cards, even including the security deposit.
[edit] Prepaid credit cards
A prepaid credit card is not really a credit card, as no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (Visa or MasterCard) and can be used in similar ways. As more consumers require a suitable solution to rebuilding credit, recent changes have allowed some credit card companies to offer pre-paid credit cards to help rebuild credit. They are hard to find and have higher APR fees and higher interest costs.
After purchasing the card, the cardholder loads it with any amount of money and then uses the card to spend the money. Prepaid cards can be issued to minors since there is no credit line involved. The main advantage over secured credit cards is that you are not required to come up with $500 or more to open an account. Also most secured credit cards still charge you interest even though you are not actually "borrowing" any money. With prepaid credit cards you are not charged any interest but you are often charged monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.[2]
Prepaid credit cards are often marketed to teenagers for shopping online without having their parents complete the transaction.
Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money"[3]. The agency publishes a booklet, "Pre-paid cards"[4], which explains the advantages and disadvantages of this type of prepaid card.
[edit] Features
As well as convenient, accessible credit, credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. Credit cards are accepted worldwide, and are available with a large variety of credit limits, repayment arrangement, and other perks (such as rewards schemes in which points earned by purchasing goods with the card can be redeemed for further goods and services or credit card cashback).
Some countries, such as the United States, the United Kingdom, and France, limit the amount for which a consumer can be held liable due to fraudulent transactions as a result of a consumer's credit card being lost or stolen.
[edit] Security
A smart card, combining credit card and debit card properties. The 3 by 5 mm security chip embedded in the card is shown enlarged in the inset. The gold contact pads on the card enable electronic access to the chip.
The low security of the credit card system presents countless opportunities for fraud. This opportunity has created a huge black market in stolen credit card numbers, which are generally used quickly before the cards are reported stolen.
The goal of the credit card companies is not to eliminate fraud, but to "reduce it to manageable levels", such that the total cost of both fraud and fraud prevention is minimized[citation needed]. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction.
Most internet fraud is done through the use of stolen credit card information which is obtained in many ways, the simplest being copying information from retailers, either online or offline. Despite efforts to improve security for remote purchases using credit cards, systems with security holes are usually the result of poor implementations of card acquisition by merchants. For example, a website that uses SSL to encrypt card numbers from a client may simply email the number from the webserver to someone who manually processes the card details at a card terminal. Naturally, anywhere card details become human-readable before being processed at the acquiring bank, a security risk is created. However, many banks offer systems such as ClearCommerce, where encrypted card details captured on a merchant's webserver can be sent directly to the payment processor.
Controlled Payment Numbers are another option for protecting one's credit card number: they are "alias" numbers linked to one's actual card number, generated as needed, valid for a relatively short time, with a very low limit, and typically only valid with a single merchant.
The Federal Bureau of Investigation and U.S. Postal Inspection Service are responsible for prosecuting criminals who engage in credit card fraud in the United States, but they do not have the resources to pursue all criminals. In general, federal officals only prosecute cases exceeding US $5000 in value. Three improvements to card security have been introduced to the more common credit card networks but none has proven to help reduce credit card fraud so far. First, the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder. Second, the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Third, an additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present" transactions. See CVV2 for more information.
The way credit card owners pay off their balances has a tremendous effect on their credit history. All the information is collected by credit bureaus. The credit information stays on the credit report, depending on the jurisdiction and the situation, for 1, 2, 5, 7 or even 10 years after the debt is repaid.
[edit] Profits and losses
In recent times, credit card portfolios have been very profitable for banks, largely due to the booming economy of the late nineties. However, in the case of credit cards, such high returns go hand in hand with risk, since the business is essentially one of making unsecured (uncollateralized) loans, and thus dependent on borrowers not to default in large numbers.
[edit] Costs
Credit card issuers (banks) have several types of costs:
[edit] Interest expenses
Banks generally borrow the money they then lend to their customers. As they receive very low-interest loans from other firms, they may borrow as much as their customers require, while lending their capital to other borrowers at higher rates. If the card issuer charges 15% on money lent to users, and it costs 5% to borrow the money to lend, and the balance sits with the cardholder for a year, the issuer earns 10% on the loan. This 5% difference is the "interest expense" and the 10% is the "net interest margin".
[edit] Operating costs
This is the cost of running the credit card portfolio, including everything from paying the executives who run the company to printing the plastics, to mailing the statements, to running the computers that keep track of every cardholder's balance, to taking the many phone calls which cardholders place to their issuer, to protecting the customers from fraud rings. Depending on the issuer, marketing programs are also a significant portion of expenses.
[edit] Charge offs
When a consumer becomes severely delinquent on a debt (often at the point of six months without payment), the creditor may declare the debt to be a charge-off. It will then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a charge-off.) It is one of the worst possible items to have on your file. The item will include relevant dates, and the amount of the bad debt.[5]
A charge-off is considered to be "written off as uncollectable." To banks, bad debts and even fraud are simply part of the cost of doing business.
However, the debt is still legally valid, and the creditor can attempt to collect the full amount. This includes contacts from internal collections staff, or more likely, an outside collection agency. If the amount is large (generally over $1500 - $2000), there is the possibility of a lawsuit or arbitration.
In the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.
[edit] Rewards
Qantas Frequent Flyer co-branded credit cards
Many credit card customers receive rewards, such as frequent flier points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses. Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spend. Networks like Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. However, most rewards points are accrued as a liability on a company's balance sheet and expensed at the time of reward redemption. As a result, some issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. Others encourage redemption for lower cost merchandise; instead of an airline ticket, which is very expensive to an issuer, the cardholder may be encouraged to redeem for a gift certificate instead. With a fractured and competitive environment, rewards points cut dramatically into an issuer's bottom line, and rewards points and related incentives must be carefully managed to ensure a profitable portfolio. There is a case to be made that rewards not redeemed should follow the same path as gift cards that are not used: in certain states the gift card breakage goes to the state's treasury. The same could happen to the value of points or cash not redeemed.
[edit] Fraud
Where a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of the charges that the customer has received for things they did not buy. These refunds will, in some cases, be at the expense of the merchant, especially in mail order cases where the merchant cannot claim sight of the card. In several countries, merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries.
The cost of fraud is high; in the UK in 2004 it was over £500 million.[6] Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill.
"Soft fraud" is fraud committed by the customer himself: getting a card and using it with no intention ever to repay the balance. Such customers are called "diabolicals" by the credit card companies, that try to avoid them at all cost.
[edit] Revenues
Offsetting costs are the following revenues:
[edit] Interchange fees
Interchange fees are charged by the merchant's acquirer to a card-accepting merchant as component of the so-called merchant discount rate (also referred to as "merchant service fee"). The merchant pays a merchant discount fee that is typically 2 to 3 percent (this is negotiated, but will vary not only from merchant to merchant, but also from card to card, with business cards and rewards cards generally costing the merchants more to process), which is why some merchants prefer cash, debit cards, or even cheques. The majority of this fee, called the interchange fee, goes to the issuing bank, but parts of it go to the processing network, the card association (American Express, Visa, MasterCard, etc.), and the merchant's acquirer. With a corporate card, the interchange is also often shared by the company in whose name the card is issued as an incentive to use that issuer's card instead of someone else's.
The interchange fee that applies to a particular merchant is a function of many variables including the type of merchant, the merchant's average transaction amount, whether the cards are physically present, if the card's magnetic stripe is read or if the transaction is hand-keyed or entered on a website, the specific type of card, when the transaction is settled, the authorized and settled transaction amounts, etc. For a typical credit card issuer, interchange fee revenues may represent about fifteen percent of total revenues, but this will vary greatly with the type of customers represented in their portfolio. Customers who carry high balances may generate low interchange revenue due to credit line limitations, while customers who use their cards for business and spend hundreds of thousands of dollars a year on their cards while paying off balances every month will have very healthy interchange revenues.
[edit] Contract terms
Credit card issuers reserve the right to change the terms of the contract at any time, even for customers who maintain a perfect payment record.
[edit] Industry jargon for customer categories
Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due date (that is, at the end of the "grace period") and are not in a promotional period owe interest ("finance charges") are known in the industry as "revolvers." Those who pay in full (pay the entire balance) are known in the industry as "transactors," "convenience users," or "deadbeats." Those that shift usage of their credit cards or transfer balances frequently are known in the industry as "rate surfers", "rate tarts" or "gamers."
[edit] Interest on outstanding balances
Interest charges vary widely from card issuer to card issuer. Often, there are "teaser" rates in effect for initial periods of time (as low as zero percent for, say, six months), whereas regular rates can be as high as 40 percent. In the U.S. there's no federal limit on the interest or late fees credit card issuers can charge; the interest rates are set by the states, with some states, like South Dakota, having no ceiling on interest rates and fees, inviting some banks to establish their credit card operations there. Other states, like Delaware, have very weak usury laws. The teaser rate no longer applies if the customer doesn't pay his bills on time, and is replaced by a penalty interest rate (for example, 24.99%) that applies retroactively. So customers should be wary of these offers, that usually contain some traps. Cash withdrawals will never carry the teaser rate, for example.
Note that for some banks, even if you had paid it off an outstanding balance along with interest fees, for the next two months, they will also charge you interest rates for anything you had purchased.
[edit] Fees charged to customers
The major fees are for:
• Late payments
• Charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake), called overlimit fees
• Returned cheque fees or payment processing fees (eg phone payment fee)
• Cash advances and convenience cheques (often 3% of the amount)[7]. Transactions in a foreign currency (as much as 3% of the amount). A few financial institutions do not charge a fee for this.
• Membership fees (annual or monthly), sometimes a percentage of the credit limit. Issuers love monthly fees as it allows them to charge substantial amounts without the customer realizing how expensive the charge really is (a monthly amount is perceived as half the price of the equivalent annual fee)[citation needed]
• Foreign Exchange Premium
[edit] Neutral consumer resources
[edit] Canada
The Government of Canada maintains a database of the fees, features, interest rates and reward programs of nearly 200 credit cards available in Canada. This database is updated on a quarterly basis with information supplied by the credit card issuing companies. Information in the database is published every quarter on the website of the Financial Consumer Agency of Canada (FCAC).
Information in the database is published in two formats. It is available in PDF comparison tables that break down the information according to type of credit card, allowing the reader to compare the features of, for example, all the student credit cards in the database.
The database also feeds into an interactive tool on the FCAC website.[1] The interactive tool uses several interview-type questions to build a profile of the user's credit card usage habits and needs, eliminating unsuitable choices based on the profile, so that the user is presented with a small number of credit cards and the ability to carry out detailed comparisons of features, reward programs, interest rates, etc.
[edit] History
The credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s, in the United States, specifically to sell fuel to a growing number of automobile owners. In 1938 several companies started to accept each other's cards.
The concept of using a card for purchases was invented in 1887 by Edward Bellamy[citation needed] and described in his utopian novel Looking Backward. Bellamy uses the explicit term "Credit Card" eleven times in his novel (Chapters 9, 10, 11, 13, 25 and 26) and 3 times (Chapters 4, 8 and 19) in its sequel, Equality.
The concept of paying merchants using a card was invented in 1950 by Ralph Schneider and Frank X. McNamara in order to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first "general purpose" charge card, which is similar but required the entire bill to be paid with each statement; it was followed shortly thereafter by American Express and Carte Blanche. Western Union had begun issuing charge cards to its frequent customers in 1914.
Bank of America created the BankAmericard in 1958, a product which eventually evolved into the Visa system ("Chargex" also became Visa). MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge. The fractured nature of the US banking system meant that credit cards became an effective way for those who were travelling around the country to move their credit to places where they could not directly use their banking facilities. In 1966 Barclaycard in the UK launched the first credit card outside of the US.
There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user credit cards, store cards and so on.
In contrast, although having reached very high adoption levels in the US, Canada and the UK, it is important to note that many cultures were much more cash-oriented in the latter half of the twentieth century, or had developed alternative forms of cash-less payments, like Carte bleue, or the EC-card (Germany, France, Switzerland, among many others). In these places, the take-up of credit cards was initially much slower. It took until the 1990s to reach anything like the percentage market-penetration levels achieved in the US, Canada or UK. In many countries acceptance still remains poor as the use of a credit card system depends on the banking system being perceived as reliable.
In contrast, because of the legislative framework surrounding banking system overdrafts, some countries, France in particular, were much faster to develop and adopt chip-based credit cards which are now seen as major anti-fraud credit devices.
The design of the credit card itself has become a major selling point in recent years. The value of the card to the issuer being related to the Customer's usage of the card. This has led to the rise of Co-Brand and Affinity cards - where the card design is related to the "affinity" (a university, for example) leading to higher card usage. In most cases a percentage of the value of the card is returned to the affinity group.
[edit] Controversy
There is some controversy about credit card usage in recent years. Credit card debt has soared, particularly among young people. Since the late 1990s, lawmakers, consumer advocacy groups, college officials and other higher education affiliates have become increasingly concerned about the rising use of credit cards among college students. The major credit card companies have been accused of targeting a younger audience, in particular college students, many of whom are already in debt with college tuition fees and college loans and who typically are less experienced at managing their own finances. A recent study by United College Marketing Services has shown that student credit lines have increased to over $6,000. Credit card usage has tripled since 2001 amongst teenagers as well. Since eighteen year olds in many countries and most U.S. states are eligible for a card without parental consent or employment, the likelihood of increased balances, unwise use of credit and damaged credit scores increases.
A 2006 documentary film titled Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders deals with this subject in detail.[8]
According to Larry Chiang of United College Marketing Services, an example of a credit card class action was where issuers were "rolling back" posting times to extract more late fees.[citation needed] The due dates were "rolled back" from 1pm to 10am because mail was delivered in the afternoon so due dates were actually rolled back to charge more late fees. The following banks are listed (with the amounts penalized) in this one particular class action.
• Providian: US$405 million
• Bank One: US$40 million
• Chase: US$22.2 million
• Citibank: US$15.5 million
Another controversial area is the universal default feature of many North American credit card contracts. When a cardholder is late paying a particular credit card issuer, that card's interest rate can be raised, often considerably. Universal default allows creditors to periodically check cardholders' credit portfolios to view trade, thus allowing the institution to decrease the credit limit or increase rates on cardholders who may be late with another credit card issuer. Being late on one credit card will potentially affect all the cardholder's credit cards. Citibank has changed and does not practice this anymore, while others do still.
Another controversial area is the trailing interest issue. Trailing interest is the practice of charging interest on the entire bill no matter what percentage of it is paid. U.S Senator Carl Levin raised the issue at a U.S Senate Hearing of the woes of millions of Americans who are slaves to hidden fees, compounding interest and cryptic terms. Their woes were heard in a Senate Permanent Subcommittee on Investigations hearing which was chaired by Senator Levin who said that he intends to keep the spotlight on credit card companies and that legislative action may be necessary to purge the industry.[9]
In the United States, some have called for Congress to enact additional regulations on the industry; to expand the disclosure box clearly disclosing rate hikes, use plain language, incorporate balance payoff disclosures, and also to outlaw universal default. At a congress hearing around March 1, 2007 Citibank announced it would no longer practice this, effective immediately. Opponents of such regulation argue that customers must become more proactive and self-responsible in evaluating and neogotiating terms with credit offerers. Some of the nation's influential top credit card issuers, who are among the top fifty corporate contributors to political campaigns, successfully opposed it.
[edit] Minimum payments
In the UK, there has recently been increasing concern about the minimum payments required on outstanding credit card balances. Until the mid-1990s the required minimum monthly payment was generally 5% of the outstanding balance, but competition in the last 15 years to attract customers has led to this figure being eroded on the premise that the minimum monthly payment to service a debt will be lower. Typically, credit card companies now only require a monthly minimum payment of between 2% and 3% of the outstanding balance, or a fixed cash fee, whichever is the greater. For example, on a debt of £1,000, the card holder can expect to pay back only £20 - £30 per month.
Unfortunately, some people are not aware of how long it can take to repay a debt when only paying the minimum each month. An example of this: by paying 2.5% of the debt each month, while accruing interest at 14% (in line with modern credit card interest rates), it can take over 14 years to pay back an original debt of £1,000, and roughly £10,500 will have been paid back.
It has recently been suggested that credit card companies include a warning on their statements discouraging customers from paying only the minimum, however few companies have so far acted upon this. Companies which do include a warning tend not to inform customers how long full repayment will take, i.e., they discourage users from making just minimum payments but do not explain why. Less financially savvy customers may ignore these empty warnings as a result.
Starting in 2006, most U.S. credit card companies regulated by the Office of the Comptroller of the Currency have been required to increase customers' minimum payments to cover at least the interest and late fees from the prior statement plus 1% of the outstanding balance. The reason is to avoid a negative amortization situation which may result when the previous 3% minimum was enforced. Negative amortization is when the payment to the creditor fails to cover the amount of interest charged during that period. This causes the consumer's credit card balance to continually increase.
[edit] Trailing interest
Trailing interest is an innovative method used to tack on hidden interest fees to a paid balance as consequence for late payment(s). For instance, regardless of whether a cardholder has paid off his or her balance in full (one whole payment rather than smaller, incremental payments), if the entire balance (with or without interest) was not paid by a specific date, interest will be applied to that particular paid balance beginning on the day after the cardholder's accounting period ended, and will continue to be applied (and thus rapidly accumulated, for interest is compounded upon the previous day's balance-plus-interest fee) until the payment is received.
[edit] Hidden costs
Merchants pay a negotiated fee -- typically 1-3% for larger merchants and 3-6% for smaller merchants -- to process credit payments. They must also bear the cost of providing a point-of-sale solution to enable the acceptance of card transactions and other card services related expenses. Credit card issuers understand full well that if card holders were aware of and made to pay these additional costs with their purchases it would tend to discourage credit card usage. As a consequence, businesses who accept credit cards often must sign a "merchant agreement" or contract with the acquirer that stipulates that they are not allowed to offer different prices for card and non-card transactions (sometimes referred to as surcharging) despite the additional costs to the business for accepting the cards. The prohibition on surcharging or cash discounts is enforced by law in some countries, although some governments are beginning to lift this restriction (see below).
Some critics have observed that this results in what is effectively a hidden tax on all transactions conducted by merchants who accept credit cards since they must build the cost of transaction fees into their overall business expense. Furthermore, cash and other non-credit card using customers are in effect made to subsidize credit card user purchases. The cost of the convenience and protections enjoyed by card holders and the profits taken from transaction fees by the card industry (which has come to rely increasingly on this revenue stream over the years) is in part borne by the non-card purchaser. Critics further note that the customers most likely to pay in cash are probably the least able to afford the additional expense, the argument going that card holders are more likely to be affluent and non-card holders less so.
A counterargument is that there are also costs to the merchant in other forms of payment. For cash payments these include frequent trips to the bank or use of an armored delivery service, theft, and employee error, such that cash is actually not cheaper for the merchant than credit cards. This argument is probably specious under most circumstances, however, considering that many merchants would offer a discount for cash-paying customers were they allowed, and indeed, do so where it is legal. The fact that laws exist or have existed that prohibit such practices and that the major card issuers strongly discourage such practices can be taken as an indicator that cash transactions do not have as much cost associated with them as credit card transactions.
To illustrate, some companies offer incentives or bonus coupons for using cash, such as Canadian Tire Money. Australia is currently acting to reduce this by allowing merchants to apply surcharges for credit card users. In the United Kingdom, merchants won the right through The Credit Cards (Price Discrimination) Order 1990[10] to charge customers different prices according to the payment method, but few merchants do so (the most notable exceptions being budget airlines and travel agents). The United Kingdom is the world's most credit-card-intensive country, with 67 million credit cards for a population of 59 million people.[11]
In the United States, until 1984 federal law prohibited surcharges on card transactions. Although the federal Truth in Lending Act provisions that prohibited surcharges expired that year, a number of states have since enacted laws that continue to outlaw the practice; CA, CO, CT, FL, KS, MA, ME, NY, OK, and TX have laws against surcharges. Regardless of what state one resides in or purchases a product, however, Visa & MasterCard have both publicly stated that surcharges on credit card transactions are against the rules. [12]
There also exists an economic argument that credit card use increases the "velocity" of money in an economy. The result, according to the quantity theory of money, is an effective increase in the money supply, as more money is flowing through the economy at a given time.
[edit] Credit card numbering
Main article: Credit card number
The numbers found on credit cards have a certain amount of internal structure, and share a common numbering scheme.
The card number's prefix, called the Bank Identification Number, is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first six digits for Mastercard and Visa cards. The next nine digits are the individual account number, and the final digit is a validity check code.
In addition to the main credit card number, credit cards also carry issue and expiration dates (given to the nearest month), as well as extra codes such as issue numbers and security codes. Not all credit cards have the same sets of extra codes nor do they use the same number of digits.
[edit] Credit cards in ATMs
Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card but many card issuers charge interest on cash advances before they do so on purchases. The interest on cash advances is commonly charged from the date the withdrawal is made, rather than the monthly billing date. Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the same bank as the card issuer. Merchants do not offer cashback on credit card transactions because they would pay a percentage commission of the additional cash amount to their bank or merchant services provider, thereby making it uneconomical.
Many credit card companies will also, when applying payments to a card, do so at the end of a billing cycle, and apply those payments to everything before cash advances. For this reason, many consumers have large cash balances, which have no grace period and incur interest at a rate that is (usually) higher than the purchase rate, and will carry those balance for years, even if they pay off their statement balance each month.
[edit] Credit cards as funding for entrepreneurs
Credit cards are a creative, yet often risky way for entrepreneurs to acquire capital for their start ups when more conventional financing is unavailable. It is rumoured that Larry Page and Sergey Brin's start up of Google was financed by credit cards to buy the necessary computers and office equipment, more specifically "a terabyte of memory". [13] Similarly, filmmaker Robert Townsend financed part of Hollywood Shuffle using credit cards.[14] Director Kevin Smith funded Clerks. in part by maxing out several credit cards. Richard Hatch also financed his production of Battlestar Galactica: The Second Coming partly through his credit cards. Famed hedge fund manager Bruce Kovner began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his credit card.
[edit] Collectible credit cards
Visa's "Happy Shoppers" credit card design
A growing field of numismatics (study of money), or more specifically Exonumia (study of money-like objects), credit card collectors seek to collect various embodiments of credit from the now familiar plastic cards to older paper merchant cards, and even metal tokens that were accepted as merchant credit cards. Early credit cards were made of celluloid, then metal and fiber, then paper and are now mostly plastic.
Charga-Plate
The Charga-Plate is an early predecessor to the credit card. They were issued by large-scale merchants, much like department store credit cards of today. In some cases, they were kept in the store. When an authorized user made a purchase, the clerk retrieved the plate from the store's files and then processed the purchase. This made it possible for stores to allow more specialized employees of their customers to use the cards, in addition to corporate officers and executives, who would normally have expense accounts and corporate credit cards. For example, an art-supply store that opened an account with a research institute might allow graphic artists employed by the institute to buy art supplies for ongoing projects. It would not be necessary for the research firm to issue a credit card to the artist: instead, a supervisor would simply say, "Go to Universal Art Supply and buy those supplies." The employee would go to the store and choose the appropriate supplies, and they would be charged to Central Institute for Research's account.

Credit rating agency

2007-08-19T07:15:00.001-07:00

CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. In most cases, these issuers are companies, cities, non-profit organizations, or national governments issuing debt-like securities that can be traded on a secondary market. A credit rating measures credit worthiness, the ability to pay back a loan, and affects the interest rate applied to loans. (A company that issues credit scores for individual credit-worthiness is generally called a credit bureau or consumer credit reporting agency.)
Interest rates are not the same for everyone, but instead are based on risk-based pricing, a form of price discrimination based on the different expected costs of different borrowers, as set out in their credit rating. There exist more than 100 rating agencies worldwide.
Credit rating agencies for corporations
For more information, see Bond credit rating.
Agencies that assign credit ratings for corporations include:
• A.M. Best (U.S.)
• Baycorp Advantage (Australia)
• Dominion Bond Rating Service (Canada)
• Dun & Bradstreet (U.S.)
• Fitch Ratings (U.S.)
• Moody's (U.S.)
• Standard & Poor's (U.S.)
• Sociedad Calificadora de Riesgo Centroamericana SCRiesgo (Costa Rica)
• UK Data Ltd (UK)
[edit] Uses of ratings by credit rating agencies
Credit ratings are used by investors, issuers, investment banks, broker-dealers, and by governments. For investors, credit rating agencies increase the range of investment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers and lenders. This in turn increases the total supply of risk capital in the economy, leading to stronger growth. It also opens the capital markets to categories of borrower who might otherwise be shut out altogether: small governments, startup companies, hospitals and universities.
Ratings use by bond issuers
Issuers rely on credit ratings as an independent verification of their own credit-worthiness. In most cases, a significant bond issuance must have at least one rating from a respected CRA for the issuance to be successful (without such a rating, the issuance may be undersubscribed or the price offered by investors too low for the issuer's purposes). Recent studies by the Bond Market Association note that many institutional investors now prefer that a debt issuance have at least three ratings. Issuers also use credit ratings in certain structured finance transactions. For example, a company with a very high credit rating wishing to undertake a particularly risky research project could create a legally separate entity with certain assets that would own and conduct the research work. This "special purpose entity" would then assume all of the research risk and issue its own debt securities to finance the research. The SPE's credit rating likely would be very low and the issuer would have to pay a high rate of return on the bonds issued. However, this risk would not lower the parent company's overall credit rating because the SPE would be a legally separate entity. Conversely, a company with a low credit rating might be able to borrow on better terms if it were to form an SPE and transfer significant assets to that subsidiary and issue secured debt securities. That way, if the venture were to fail, the lenders would have recourse to the assets owned by the SPE. This would lower the interest rate the SPE would need to pay as part of the debt offering.
The same issuer also may have different credit ratings for different bonds. This difference results from the bond's structure, how it is secured, and the degree to which the bond is subordinated to other debt. Many larger CRAs offer "credit rating advisory services" that essentially advise an issuer on how to structure its bond offerings and SPEs so as to achieve a given credit rating for a certain debt tranche. This creates a potential conflict of interest, of course, as the CRA may feel obligated to provide the issuer with that given rating if the issuer followed its advice on structuring the offering. Some CRAs avoid this conflict by refusing to rate debt offerings for which its advisory services were sought.
Ratings use by investment banks and broker-dealers
Investment banks and broker-dealers also use credit ratings in calculating their own risk portfolios (i.e., the collective risk of all of their investments). Larger banks and broker-dealers conduct their own risk calculations, but rely on CRA ratings as a "check" (and double-check or triple-check) against their own analyses.
Ratings use by government regulators
Regulators use credit ratings as well, or permit these ratings to be used for regulatory purposes. For example, under the Basel II agreement of the Basel Committee on Banking Supervision, banking regulators can allow banks to use credit ratings from certain approved CRAs (called "ECAIs" or "External Credit Assessment Institutions") when calculating their net capital reserve requirements. In the United States, the Securities and Exchange Commission (SEC) permits investment banks and broker-dealers to use credit ratings from "Nationally Recognized Statistical Rating Organizations" (or "NRSROs") for similar purposes. The idea is that banks and other financial institutions should not need to keep in reserve the same amount of capital to protect the institution against (for example) a run on the bank, if the financial institution is heavily invested in highly liquid and very "safe" securities (such as U.S. government bonds or short-term commercial paper from very stable companies).
CRA ratings are also used for other regulatory purposes as well. The U.S. SEC, for example, permits certain bond issuers to use a shorten prospectus form when issuing bonds if the issuer is older, has issued bonds before, and has a credit rating above a certain level. SEC regulations also require that money market funds (mutual funds that mimic the safety and liquidity of a bank savings deposit, but without FDIC insurance) comprise only securities with a very high rating from an NRSRO. Likewise, insurance regulators use credit ratings to ascertain the strength of the reserves held by insurance companies.
It is important to note that under both Basel II and SEC regulations, not just any CRA's ratings can be used for regulatory purposes. (If this were the case, it would present an obvious moral hazard, since an issuer, insurance company, or investment bank would have a strong incentive to seek out a CRA with the most lax standards, with potentially dire consequences for overall financial stability.) Rather, there is a vetting process, of varying sorts. The Basel II guidelines (paragraph 91, et al), for example, describe certain criteria that bank regulators should look to when permitting the ratings from a particular CRA to be used. These include "objectivity," "independence," "transparency," and others. Banking regulators from a number of jurisdictions have since issued their own discussion papers on this subject, to further define how these terms will be used in practice. (See The Committee of European Banking Supervisors Discussion Paper, or the State Bank of Pakistan ECAI Criteria.)
In the United States, since 1975, NRSRO recognition has been granted through a "No Action Letter" sent by the SEC staff. Following this approach, if a CRA (or investment bank or broker-dealer) were interested in using the ratings from a particular CRA for regulatory purposes, the SEC staff would research the market to determine whether ratings from that particular CRA are widely used and considered "reliable and credible." If the SEC staff determines that this is the case, it sends a letter to the CRA indicating that if a regulated entity were to rely on the CRA's ratings, the SEC staff will not recommend enforcement action against that entity. These "No Action" letters are made public and can be relied upon by other regulated entities, not just the entity making the original request. The SEC has since sought to further define the criteria it uses when making this assessment, and in March 2005 published a proposed regulation to this effect.
On September 29, 2006, U.S. President George W. Bush signed into law the "Rating Reform Act of 2006". This law requires the U.S. Securities and Exchange Commission to clarify how NRSRO recognition is granted, eliminates the "No Action Letter" approach and makes NRSRO recognition a Commission (rather than SEC staff) decision, and requires NRSROs to register with, and be regulated by, the SEC. On Feb. 2, 2007, the SEC proposed a rule on "Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations" that would implement the CRA Reform Act.
Recognizing their role in capital formation, some governments have attempted to jumpstart their domestic rating-agency businesses with various kinds of regulatory relief or encouragement. This may, however, be counterproductive, if it dulls the market mechanism by which agencies compete, subsidizing less-capable agencies and penalizing agencies that devote resources to higher-quality opinions.
Ratings use in structured finance
Credit rating agencies may also play a key role in structured financial transactions. Unlike a "typical" loan or bond issuance, where a borrower offers to pay a certain return on a loan, structured financial transactions may be viewed as either a series of loans with different characteristics, or else a number of small loans of a similar type packaged together into a series of "buckets" (with the "buckets" or different loans called "tranches"). Credit ratings often determine the interest rate or price ascribed to a particular tranche, based on the quality of loans or quality of assets contained within that grouping.
Companies involved in structured financing arrangements often consult with credit rating agencies to help them determine how to structure the individual tranches so that each receives a desired credit rating. For example, a firm may wish to borrow a large sum of money by issuing debt securities. However, the amount is so large that the return investors may demand on a single issuance would be prohibitive. Instead, it decides to issue three separate bonds, with three separate credit ratings -- A (medium low risk), BBB (medium risk), and BB (speculative) (using Standard & Poor's rating system). The firm expects that the effective interest rate it pays on the A-rated bonds will be much less than the rate it must pay on the BB-rated bonds, but that, overall, the amount it must pay for the total capital it raises will be less than it would pay if the entire amount were raised from a single bond offering. As this transaction is devised, the firm may consult with a credit rating agency to see how it must structure each tranche -- in other words, what types of assets must be used to secure the debt in each tranche -- in order for that tranche to receive the desired rating when it is issued.
Currently, there is some debate, particularly in France, about whether such consulting arrangements by credit rating agencies constitute a conflict of interest. Under this view, if a CRA has offered its consulting services in structuring such a financial arrangement (for which it charges a fee), that CRA may feel obligated to give each debt tranche the credit rating it suggested would result from their advice. Such criticism has intensified in the wake of large losses in the collateralized debt obligation (CDO) market that occurred despite being assigned top ratings by the CRAs. For instance, losses on $340.7 million worth of collateralized debt obligations (CDO) issued by Credit Suisse Group added up to about $125 million, despite being rated AAA or Aaa by Standard & Poor's, Moody's Investors Service and Fitch Group.[1]
The rating agencies respond that their advice constitutes only a "point in time" analysis, that they make clear that they never promise or guarantee a certain rating to a tranche, and that they also make clear that any change in circumstance regarding the risk factors of a particular tranche will invalidate their analysis and result in a different credit rating. In addition, some CRAs do not rate bond issuances upon which they have offered such advice.
[edit] Criticism
Credit rating agencies have been subject to the following criticisms:
• Credit rating agencies do not downgrade companies promptly enough. For example, Enron's rating remained at investment grade four days before the company went bankrupt, despite the fact that credit rating agencies had been aware of the company's problems for months.[2][3] Some finance scholars[citation needed] have documented in empirical studies that yield spreads of corporate bonds start to expand as credit quality deteriorates but before a rating downgrade, implying that the market often leads a downgrade and questioning the informational value of credit ratings. This has led to suggestions that, rather than rely on CRA ratings in financial regulation, financial regulators should instead require banks, broker-dealers and insurance firms (among others) to use credit spreads when calculating the risk in their portfolio.
• Large corporate rating agencies have been criticized for having too familiar a relationship with company management, possibly opening themselves to undue influence or the vulnerability of being misled.[citation needed] These agencies meet frequently in person with the management of many companies, and advise on actions the company should take to maintain a certain rating. Furthermore, because information about ratings changes from the larger CRAs can spread so quickly (by word of mouth, email, etc.), the larger CRAs charge debt issuers, rather than investors, for their ratings. This has led to accusations that these CRAs are plagued by conflicts of interest that might inhibit them from providing accurate and honest ratings. At the same time, more generally, the largest agencies (Moody's and Standard & Poor's) are often seen as agents of globalization and/or "Anglo-American" market forces, that drive companies to consider how a proposed activity might effect their credit rating, possibly at the expense of employees, the environment, or long-term research and development. These accusations are not entirely consistent: on one hand, the larger CRAs are accused of being too cosy with the companies they rate, and on the other hand they are accused of being too focused on a company's "bottom line" and unwilling to listen to a company's explanations for its actions.
• The lowering of a credit score by a CRA can create a vicious cycle, as not only interest rates for that company would go up, but other contracts with financial institutions may be affected adversely, causing an increase in expenses and ensuing decrease in credit worthiness. In some cases, large loans to companies contain a clause that makes the loan due in full if the companies' credit rating is lowered beyond a certain point (usually a "speculative" or "junk bond" rating). The purpose of these "ratings triggers" is to ensure that the bank is able to lay claim to a weak company's assets before the company declares bankruptcy and a receiver is appointed to divide up the claims against the company. The effect of such ratings triggers, however, can be devastating: under a worst-case scenario, once the company's debt is downgraded by a CRA, the company's loans become due in full; since the troubled company likely is incapable of paying all of these loans in full at once, it is forced into bankruptcy (a so-called "death spiral"). These rating triggers were instrumental in the collapse of Enron. Since that time, major agencies have put extra effort into detecting these triggers and discouraging their use, and the U.S. Securities and Exchange Commission requires that public companies in the United States disclose their existence.
• Agencies are sometimes accused of being oligopolists [4], because barriers to market entry are high and rating agency business is itself reputation-based (and the finance industry pays little attention to a rating that is not widely recognized). Of the large agencies, only Moody's is a separate, publicly held corporation that discloses its financial results without dilution by non-ratings businesses. The high profit on Moody's revenues (>50% gross margin), which are consistent with the high barriers to entry, do nothing to allay market fears of monopoly pricing.
As part of the Sarbanes-Oxley Act of 2002, Congress ordered the U.S. SEC to develop a report, titled Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Marketsdetailing how credit ratings are used in U.S. regulation and the policy issues this use raises. Partly as a result of this report, in June 2003, the SEC published a "concept release" called Rating Agencies and the Use of Credit Ratings under the Federal Securities Laws that sought public comment on many of the issues raised in its report. Public commentson this concept release have also been published on the SEC's website.
In December 2004, the International Organization of Securities Commissions (IOSCO) published a Code of Conduct for CRAs that, among other things, is designed to address the types of conflicts of interest that CRAs face. All of the major CRAs have agreed to sign on to this Code of Conduct and it has been praised by regulators ranging from the European Commission to the U.S. Securities and Exchange Commission.
[edit] Bibliography
• On the history and origins of credit agencies, see Born Losers: A History of Failure in America, by Scott A. Sandage (Harvard University Press, 2005), chapters 4-6.
• On contemporary dynamics, see Timothy J. Sinclair, The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness (Ithaca, NY: Cornell University Press, 2005).
• For a description of what CRAs do in the corporate context, see IOSCO Report on the Activities of Credit Rating Agencies and IOSCO Statement of Principles Regarding the Activities of Credit Rating Agencies
[edit] References
1. ^ Tomlinson, Richard & David Evans (2007-06-01), "CDOs mask huge subprime losses, abetted by credit rating agencies", International Herald Tribune
2. ^ {{Citation | last = Borrus | first = Amy | author-link = | last2 = | first2 = | author2-link = | title = The Credit-Raters: How They Work and How They Might Work Better | newspaper = BusinessWeek | pages = | year = 2002 | date = 2002-04-08 | url = http://www.businessweek.com/magazine/content/02_14/b3777054.htm
3. ^ Wyatt, Edward (2002-02-08), Credit Agencies Waited Months to Voice Doubt About Enron
4. ^ "Measuring the measurers", The Economist, 2007-05-31

Credit card hijacking

2007-08-19T07:14:00.001-07:00

Credit card hijacking
Credit Card Hijacking is the term used when a person’s credit card information is used for undesired charges for goods or services where the credit card owner has trouble reaserting control. This can occur in two major forms.

Credit Card Hijacking by Identity Theft
The first form of credit card hijacking is basically identity theft, which is the deliberate assumption of another person's identity. Identity theft is usually the result of serious breaches of privacy and often involves the thief compromising a great deal of financial and personal information allowing the thief to open up new credit card accounts in the name of the victim.
[edit] Credit Card Hijacking by Cancellation Barrier
The second form of credit card hijacking, which most people have fallen victim to, is the continued charging of a person’s credit card for a subscription to goods or services no longer desired by the credit card owner. This type of credit card hijacking was pioneered by major ISPs, credit monitoring services and online dating services, is perfectly legal, and is still common today in a wide range of subscription based goods and services. Credit card hijacking of this type came about as online subscription based marketers realized that traditional subscription systems, such as the annual subscriptions that paper magazines use, were an impediment to enrolling customers. A typical dial-up ISP, at US$24.95 per month, is US$299.40 annually. By breaking the subscription period into small units like months or quarters, and allowing direct monthly charging of the subscriber’s credit card, the psychological and economic barriers potential subscribers see are greatly reduced.
The issue which makes one subscription system a hijacking of the credit card is not the mode of entry into the subscription nor the billing interval, but the marketing organization creating barriers for the user to easily cancel the subscription. Organizations which use credit card hijacking as part of their marketing strategy make online registration for the subscription easy, enforce default automatic renewal policies, and create barriers to halting the subscription. (This is in contrast to traditional subscription based system such as paper magazines where the subscriber has to periodically proactively reauthorize the subscription, hence the default is to not renew.) The most common subscription exit barrier is to not provide any online subscription cancellation mechanism at all, but to instead require the user to cancel by telephone or by "on-line chats". Such organizations often add the additional barrier of making any subscription cancellation information difficult for the user to even find, thus creating an additional delay in the subscription cancellation. This is very common amongst ISP’s, who know the psychological barrier to making the call, which the subscriber anticipates will be unpleasant, is very high. It also allows the marketing organization to talk the subscriber into changing their minds and not cancelling the subscription. Another common subscription cancellation barrier is to have a relatively long subscription period, a no refund policy, and to require the user upon cancellation to forfeit all money covering the present subscription period. This is very common amongst online dating services.
This second form of credit card hijacking was created by marketers who recognized that subscription based services generally have relatively low periodic billings which will generally go unnoticed on any given credit card statement. So what happens is that long after the user loses interest in the subscription, they forget to cancel the subscription and because the periodic billing is so low, they don’t tend to notice it on their credit card statement.
[edit] Credit Card Hijacking by Negative Option Billing
Negative option billing is the practice of sending goods automatically and billing the recipient unless the recipient is proactive in declining the goods before they are sent. Negative option billing reverses the usual direcion of sales transactions. It assumes that unless you say 'no', you've agreed to have bought the goods. This is the common practice used in book clubs, record clubs, and magazine subscriptions with automatic renewal. Some practitioners of negative option billing prefer to call it "advance consent marketing."

Visa Cash

2007-08-19T07:13:00.001-07:00

Visa Cash
From Wikipedia, the free encyclopedia
Jump to: navigation, search
Visa Cash is a smart card electronic cash system owned by VISA.
Trialled in various locations Worldwide (including Leeds, UK in 1997), the system works via a 'chip' embedded in a bank card, and looks similar to the so-called 'Chip and PIN' cards issued in inter alia France and the UK.
The card is 'loaded' with cash via specialized ATMs, and the cash can later be 'spent' by inserting the card into the retailer's card-reader and pressing a button to confirm the amount. Neither PIN entry nor a signature is required, which makes for a speedy transaction for the card's owner.
Other competing cashless payment systems for micro-payments (small amounts) include Mondex.
A more successful smart card electronic cash system is the Octopus card system in Hong Kong.

Mon€o

2007-08-19T07:12:00.003-07:00

Mon€o
From Wikipedia, the free encyclopedia
Jump to: navigation, search

Reverse of a French bank card including the Moneo logo.
Moneo, branded as mon€o, is an electronic purse system available on French bank cards to allow small purchases to be made without cash.
The system is aimed at small retailers such as bakeries and cafés and intended for purchases of less than €30.
The card is inserted into a handheld Moneo reader by the merchant who enters the transaction amount for the customer. The customer then confirms the purchase by pushing a button on the keypad; the exact amount is debited from the card within a few seconds.
As well as the multipurpose bank card version, anonymous cards (also smart cards) are available for the use of people without bank accounts, such as children and tourists.
Supported by all French banks, Moneo was tested in Brittany in 2002, and from 2004 Moneo has been added to most French bank cards. However, it failed to catch and, apart from parking payment, it is considered as a complete failure.
[edit] See also

Large Group Awareness Training

2007-08-19T07:12:00.001-07:00

Large Group Awareness Training
Large Group Awareness Training (or LGAT) refers to the training methods used by some companies, in what has been referred to as the human potential movement. By using the LGAT techniques, these companies claim to increase self-awareness and manifest positive personal changes in individuals' lives.[1] These programs have been compared to group therapy [citation needed] and religious revival meetings[citation needed]. Langone referred to Large Group Awareness Training as new age trainings [2] and Philip Cushman referred to them as mass marathon trainings [3]
Most large group awareness training programs have psychiatrists and psychologists involved with them.[4] The training programs often involve more than two hundred people at a time. Though early definitions cited LGAT as being of unusually long duration, more recent texts cite the training as lasting from a few hours to a few days. About a million Americans have attended LGAT seminars.[5]
Definition

An unrelated conference hall filled with clapping people. Large Group Awareness Training often takes place in Conference halls or Hotels.
DuMerton described Large Group Awareness Training as "teaching simple, but often overlooked wisdom, which takes place over the period of a few days, in which individuals receive intense, emotionally-focused instruction." [5] Rubinstein compared Large Group Awareness Training to certain principles of cognitive therapy, such as the idea that people can change their lives by interpreting the way they view external circumstances[6]. And, in "Consumer Research: Postcards from the edge", when discussing behavioral and economic studies, the 'enclosed locations' used with Large Group Awareness Trainings were contrasted to the 'relatively open' environment of a 'variety store'.[7]
The Handbook of Group Psychotherapy described Large Group Awareness Training as focusing on "philosophical, psychological and ethical issues", as related to a desire to increase personal effectiveness in people's lives.[8]
Psychologist Dennis Coon's textbook, Psychology: A Journey, defined the term as referring to: "programs that claim to increase self-awareness and facilitate constructive personal change."[1] The textbook cites Lifespring, Actualizations, and the Forum as definitional examples of LGAT methods.[1] Coon further defines Large Group Awareness Training in his book Introduction to Psychology.[9]
[edit] Evolution
Lou Kilzer, in The Rocky Mountain News, claimed that Leadership Dynamics was the first of the genre of what psychologists termed "Large Group Awareness Training"[10].
Navarro described Mind Dynamics as the major forerunner of large group awareness trainings.[11] He went on to say that, although Mind Dynamics was itself only in existence for a short period of time, it was the impetus for the development of an industry of similar trainings.[11]
Lifespring, Erhard Seminars Training and The Forum have also been cited as examples of Large Group Awareness Training companies.[12] [13] [14]
[edit] Academic analysis, studies
"Large Group Awareness Training", a 1982 peer-reviewed article published in Annual Review of Psychology, sought to summarize literature on the subject and examine its efficacy and relationship to more standard psychology. This article was one of the first academic works to analyze and describe large group awareness training from a psychological perspective. Influenced by the work of humanistic psychologists such as Carl Rogers, Abraham Maslow and Rollo May and often considered part of the human potential movement, LGAT's are commercial trainings that took many techniques from encounter groups. Existing alongside but "outside the domains of academic psychology or psychiatry. Their measure of performance was consumer satisfaction and formal research was seldom pursued." Finkelstein's article explicitly mentioned Lifespring and Actualizations, using the example of Erhard Seminars Training ("est") as a typical LGAT.
The article describes an est training, and discusses the literature on the testimony of est graduates. It notes minor changes on psychological tests after the training and mentions anecdotal reports of psychiatric casualties among est trainees. The article considers how est compares to more standard psychotherapy techniques such as behavior therapy, group and existential psychotherapy before concluding that "objective and rigorous research" was needed and that unknown variables might have accounted for some of the positive accounts. Borderline or psychotic patients were advised by psychologists not to participate.[15]
Among the psychological factors cited by academics are emotional "flooding," catharsis, universality (identification with others), the instillation of hope, identification and what Sartre called "uncontested authorship."[15]
In 1989 researchers from the University of Connecticut received the "National Consultants to Management Award" from the American Psychological Association, for their study: Evaluating a Large Group Awareness Training.[16]
Psychologist Chris Mathe wrote that in the interests of consumer protection, potential attendees at LGAT's are encouraged to discuss such trainings with their current therapist or counselor, examine the principles upon which the program is based, determine pre-screening methods, the training of facilitators, the full cost of the training and any suggested follow-up care.[17]
[edit] Techniques
Yoga is a technique used in some LGATs.
Finkelstein's 1982 article provides a detailed description of the structure and techniques of an Erhard Seminars Training, noting the unusual authoritarian demeanor of the trainer, the physical strains of a long schedule on the participants and the similary of many techniques to those used in some group therapy and encounter groups.[15] The academic textbook, Handbook of Group Psychotherapy notes that Large Group Awareness Training organizations are "less open to leader differences", because they follow a "detailed written plan", that does not vary from one training to the next.[8]
Specific techniques used in Large Group Awareness Trainings include meditation, biofeedback, self-hypnosis, relaxation techniques, mind control, body touching, yoga, trance induction, visualization, neuro-linguistic programming[18] and attack therapy[4]. These techniques are applied during long sessions, sometimes called a marathon session when lasting for eight hours or more.[19]
In his book Life 102, LGAT participant and former trainer Peter McWilliams describes the basic technique of marathon trainings as pressure/release and asserts that "pressure/release is used in advertising all the time," as well as in "good cop/bad cop" police interrogations and in revival meetings. By spending approximately half the time making a person feel bad and then suddenly reversing the feeling through effusive praise, participants experience a stress reaction and an "endorphin high." McWilliams gives examples of various LGAT activities called processes with names such as "love bomb," "lifeboat," "cocktail party" and "cradling" which take place over many hours and days, physically exhausting the participants to make them more susceptible to the trainer's message, whether it is in the participants best interests or not.[20]
Although extremely critical of some LGAT's, McWilliams found positive value in others, asserting that it was not the technique which was positive or negative, but the way in which it was used.[20]
[edit] Evaluations of LGATs
Finkelstein noted the many difficulties in evaluating LGAT's, from proponents' explicit rejection of certain study models to difficulty in establishing a rigorous control group.[15] Some studies have been partially funded by the organizations they studied.[21]
Not all professional researchers view LGAT favorably. Researchers such as psychologist Philip Cushman[22] for example, found that the program he studied "consists of a pre-meditated attack on the self". A 1983 study on Lifespring [23] found that "although participants often experience a heightened sense of well-being as a consequence of the training, the phenomenon is essentially pathological", meaning that, in the program they studied, "the training systematically undermines ego functioning and promotes regression to the extent that reality testing is significantly impaired". Lieberman's 1987 study,[21] funded partially by Lifespring, noted that 5 out of a sample of 289 participants experienced "stress reactions" including one "transitory psychotic episode". He commented: "Whether [these five] would have experienced such stress under other conditions cannot be answered. The clinical evidence, however, is that the reactions were directly attributable to the large group awareness training."
In the psychology textbook, Introduction to Psychology, the author references many other studies, which postulate that many of the "claimed benefits" of Large Group Awareness Training actually take the form of "a kind of therapy placebo effect"[9]. DuMerton writes that "..there is a lack of scientific evidence to quantify the longer-term positive outcomes and changes objectively.."[5] Jarvis described Large Group Awareness Training as "educationally dubious" in the 2002 book The Theory & Practice of Teaching.[24]
Controversial tactics sometimes used by these groups have included physical violence, isolation, entrapment, brainwashing, and sexual experiences.[25] Tapper mentions that "some [unspecified] large group-awareness training and psychotherapy groups" are examples of non-religious "cults".[26] Benjamin criticizes these groups for their high prices and spiritual subtleties.[27] In an academic research paper on "Choices", a type of LGAT, researchers cited LGAT programs with having perhaps a million American attendees, many of whom give positive testimonials of "healing effects" and "positive outcomes in their lives".[5]
[edit] Compared to cults
The American Psychological Association commissioned, subsequently rejected,[28],and strongly criticized [29], the report by the APA Task Force on Deceptive and Indirect Techniques of Persuasion and Control, in which anti-cult psychologist Margaret Singer included large group awareness trainings as one example of what she called "coercive persuasion." The APA claimed that Singer's hypotheses "were uninformed speculations based on skewed data"[29] and that the report "lacked scientific rigor and an evenhanded critical approach to carry the imprimatur of the APA." The APA also claimed that "the specific methods by which Drs. Singer and Benson have arrived at their conclusions have also been rejected by all serious scholars in the field."[30] Singer sued the APA, and lost on June 17, 1994[31] After the report was rejected, Singer reworked much of the rejected material into the book Cults in our Midst: The Hidden Menace in Our Everyday Lives, which she co-authored with Janja Lalich.
Singer and Lalich claimed "large group awareness trainings" tend to last at least four days and usually five." The book mentions Werner Erhard's Erhard Seminars Training and its "new age" derivatives such as the Forum, "Lifespring, Actualizations, MSIA/Insight, PSI World, and the many affiliates of Transformational Technologies" inspired by Erhard.[4]
In her book, Singer differentiated between the usage of the terms cult and Large Group Awareness Training.[4] Singer also writes that employees taking part in a company-wide Large Group Awareness Training program not only complained about attempted religious conversion, but also objected to the specific techniques used.[4]
An article in Cult Observer by Michael Langone Ph.D. analysed Large Group Awareness Training .[2] Langone wrote that Large Group Awareness Training has been compared to "brainwashing" and "cults", and posited that many of these groups have an implied or even explicit religious nature to them[2]. Langone concluded by stating that he knew of no specific academic research which showed that Large Group Awareness Trainings have positive behavioral effects.[2] Langone cited a study which showed no difference between the Large Group Awareness Training test subjects and the control group[2][32]. The International Cultic Studies Association has grouped some Large Group Awareness Training organizations together with research about them.[33] Lorne Dawson stated in his book on cults and new religious movements that similar thought reform techniques are used in both cults and Large Group Awareness Training.[34]
[edit] In popular culture
The character Red describes "large group awareness training", in Reichs' 1999 forensic thriller novel, Death Du Jour.[35] In Pressure Points, a 2001 novel by Larry Brooks, one of the book's protagonists asserts that the programs developed by Werner Erhard, William Penn Patrick, and Alexander Everett all came from the same source[36].
The Program, a 2004 novel by Hurwitz, described a fictional large group awareness training called "The Program", and characters also used the term "LGAT" to refer to the course.[37] In the novel, the seminar leader had "married two cult models", which one of the protagonists described as a blend of the "psychotherapeutic cult", and the "self-improvement cult".[37] The character then tells his friend that "The Program", is similar to a combination of the Sullivanians and Lifespring.[37] Werner Erhard is quoted, prior to the opening of the prologue.[37]
[edit] References
1. ^ a b c Coon, Dennis (2004). Psychology: A Journey. Thomson Wadsworth, 520, 528, 538. ISBN 0534632645.
2. ^ a b c d e Langone, Michael (1998). "Large Group Awareness Trainings". Cult Observer 15 (1). ISSN 1539-0152.
3. ^ Mass Marathon Trainings, excerpted, The Politics of Transformation: Recruitment - Indoctrination Processes in a Mass Marathon Psychology Organization, St. Martin's Press 1993, Philip Cushman, Ph.D.
4. ^ a b c d e Intruding into the Workplace, Dr. Margaret Singer, excerpted from Cults in our Midst (book), 1995
5. ^ a b c d DuMerton, M.A., C. (July 2004). "Tragic Optimism and Choices: The Life Attitudes Scale with a First Nations Sample". (Master's Thesis) (Master of Arts, Graduate Counseling Psychology Program). Retrieved on 2007-04-14.
6. ^ Rubinstein, Gidi (2005). "Characteristics of participants in the Forum, psychotherapy clients, and control participants: A comparative study". Psychology and Psychotherapy: Theory, Research and Practice 78 (4): 481-492. DOI:10.1348/147608305X42721. ISSN 1476-0835.
7. ^ Brown, Stephen I.; Darach Turley (1997). Consumer Research: Postcards from the edge. Routledge, 279. ISBN 041515684X.
8. ^ a b Burlingame, Gary M. (1994). Handbook of Group Psychotherapy: An Empirical and Clinical Synthesis. John Wiley and Sons, 528, 532, 535, 539, 549, 550, 555, 556, 581, 583.. ISBN 0471555924.
9. ^ a b Coon, Dennis (2003). Introduction to Psychology: Gateways to Mind and Behavior. Thomson Wadsworth, Pp. 648, 649, 655.. ISBN 053461227X.
10. ^ Kilzer, Lou. "Desperate Measures Network of Behavior Modification Compounds Known as Teen Help Has Straightened Out Hundreds of Defiant Adolescents, But Its Methods Aren't For the Faint-hearted.", Rocky Mountain News, E. W. Scripps Company, July 18, 1999.
"The first of the genre psychologists call "large group awareness training" was the Leadership Dynamics Institute..."
11. ^ a b Navarro,, Espy M.; Robert Navarro (2002). Self Realization: The Est and Forum Phenomena in American Society. Xlibris Corporation, 54. ISBN 1401042201.
Page. 54. :
"Mind Dynamics, founded by Alexander Everett, was the major forerunner of large group awareness trainings. Although Mind Dynamics was only in existence for a few years, it sparked an entire industry of similar trainings."
12. ^ Brewer, Maryilyn B.; Miles Hewstone (2004). Applied Social Psychology. Blackwell Publishing, Pp. 81.. ISBN 1405110678.
13. ^ Tindale, R. Scott (2001). Group Processes: Blackwell Handbook of Social Psychology. Blackwell Publishing, 630. ISBN 1405106530.
"EST, FORUM and LIFESPRING are all examples of LGATs, for members seek to improve their overall level of satisfaction and interpersonal relations by carrying out such experiential exercises as role-playing, group singing and chanting, and guided group interaction."
14. ^ Zeig, Jeffrey K. (1997). The Evolution of Psychotherapy: The Third Conference. Psychology Press, Pp. 352, 357.. ISBN 0876308132.
"Training or T-groups, sensitivity training, and encounter groups spread and were followed by commercially sold large group awareness training programs, such as est, Lifespring and other programs."
15. ^ a b c d Finkelstein, P.; Wenegrat, B.; Yalom, I. (1982). "Large Group Awareness Training". Annual Review of Psychology 33: 515-539. ISSN 0066-4308.
16. ^ Fisher, Jeffrey D.; Silver, Chinsky, Goff, Klar (1990). Evaluating a Large Group Awareness Training. Springer-Verlag, 142. ISBN 0387973206 , ISBN 978-0387973203.
Page. vii. -- "The research reported in this volume was awarded the American Psychological Association, Division 13, National Consultants to Management Award, August 13, 1989."
17. ^ Choosing a Personal Growth Program: Ten questions to help you make an informed decision, Chris Mathe, Ph. D., 1999
18. ^ Partridge, C. (2004). New Religions: A Guide; New Religious Movements, Sects and Alternative Spiritualities. Oxford University Press, 407. ISBN 0-19-522042-0.
19. ^ Paglia, Carmen (Winter 2003). "Cults and Cosmic Consciousness: Religious Vision in the American 1960s". Arion 10 (3).
20. ^ a b Peter McWilliams, Life 102: What to Do When Your Guru Sues You (Prelude Press: Los Angeles, 1994). ISBN 0-931580-34-X., pp 6-7.
21. ^ a b Lieberman, "Effects of Large Group Awareness Training on Participants' Psychiatric Status", American Journal of Psychiatry v 144 p 460-464, April 1987.
22. ^ Cushman, "Iron Fists/Velvet Gloves: A Study of A Mass Marathon Psychology Training", Psychotherapy vol 26, Spring 1989.
23. ^ Haaken, J. and Adams, R., "Pathology as 'Personal Growth': A Participant-Observation Study of Lifespring Training", Psychiatry, vol 46, August 1983.
24. ^ Jarvis, Peter (2002). The Theory & Practice of Teaching. Routledge, 97. ISBN 0749434090.
25. ^ Weir, D., An Odyssey of Sexual/Gender Evolution: An Autoethnographical Study of the United States from the 1950s to the Present, April 2002, (available online)
26. ^ Tapper, A (September 2002). "The Impact of Cults on Health". Nursing Spectrum.
27. ^ Benjamin, Ph.D., Elliot (June 2005). "Spirituality and Cults". Integral Science.
28. ^ http://religiousmovements.lib.virginia.edu/cultsect/mdtaskforce/bserp_loomis.htm
29. ^ a b http://www.cesnur.org/testi/APA.htm
30. ^ http://www.cesnur.org/testi/molko_brief.htm
31. ^ http://www.cesnur.org/testi/singer.htm
32. ^ Hosford, Ray, E., Moss, C. Scott, Cavior, Helene, & Kerish, Burton. Catalog of Selected Documents in Psychology, 1982, Manuscript #2419, American Psychological Association
33. ^ Large Group Awareness Trainings (LGAT). Cultic Studies Journal, International Cultic Studies Association. Archived from the original on 2006-01-28. Retrieved on 2006-01-18.
34. ^ Dawson, Lorne L. (2003). Cults and New Religious Movements: A Reader. Blackwell Publishing, 149. ISBN 1405101814.
35. ^ Reichs, Kathy (1999). Death Du Jour. Scribner, 311. ISBN 0684841185.
36. ^ Brooks, Larry (November 29, 2001). Pressure Points. Onyx, Page 77. ISBN 0451410017 , ISBN 978-0451410016.
37. ^ a b c d Hurwitz, Gregg Andrew (2004). The Program. HarperCollins, 176. ISBN 0060530405.
[edit] Further reading
Books
• Singer, Margaret, Ph. D. (1996). "Intruding into the Workplace", Cults in our Midst. Jossey-Bass. ISBN 0-7879-0266-7.
• McWilliams, Peter (1994). Life 102: What To Do When Your Guru Sues You. Mary Book / Prelude Pr. ISBN 0931580345.
• Fisher et al (1990). Evaluating a Large Group Awareness Training: A Longitudinal Study of Psychosocial Effects. Springer-Verlag. ISBN 0387973203.
• Carroll, Robert Todd (2003). The Skeptic's Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions. John Wiley & Sons. ISBN ISBN 0471272427.
Articles
• Finkelstein, Peter; Brant Wenegrat; Irvin Yalom (January 1982). "Large Group Awareness Training"". Annual Review of Psychology 33: 515-539. Retrieved on 2007-05-26.
• Lieberman, MA (1987). "Effects of large group awareness training on participants' psychiatric status". American Journal of Psychiatry (144): 460-464. Retrieved on 2007-05-26.
• Fisher, Jeffrey (December 1989). "Psychological Effects of Participation in a Large Group Awareness Training". Journal of Consulting and Clinical Psychology 57 (6): 747-755. Retrieved on 2007-05-26.
• Klar, Yechiel (February 1990). "Characteristics of Participants in a Large Group Awareness Training". Journal of Consulting and Clinical Psychology 58 (1): 99-108. Retrieved on 2007-05-26.
• Lieberman, MA (1992). "Perceptions of changes in the self, the impact of life events and large group awareness training". Self change.
• Joyce, N (1992). "Self system factors as an index of change in large group awareness training". San Francisco State University.
• Philip Cushman, Ph. D. (1993). "Mass Marathon Trainings, excerpted, The Politics of Transformation: Recruitment - Indoctrination Processes in a Mass Marathon Psychology Organization". St. Martin's Press.
• Denison, Charles Wayne, Ph. D. (1994). "The Children of est: A study of the Experience and Perceived Effects of a Large Group Awareness Training (The Forum)"". University of Denver.
• Langone, Michael, Ph. D. (1998). "Large Group Awareness Trainings". Cult Observer 15 (1). Retrieved on 2007-05-26.
• Hughes, S (1999). "Developmental effects of participation in a large group awareness training". Dissertation Abstracts International.
• Odell, Susan (2001). "Large Group Awareness Training in the 1990s: The Participants' Perspective". University of Leeds (School of Medicine).
• Rubinstein, Gidi (December 2005). "Characteristics of participants in the Forum, psychotherapy clients, and control participants: A comparative study" (PDF). Psychology and Psychotherapy: Theory, Research and Practice 78 (4): 481-492. Retrieved on 2007-05-26.
• Cushman, Philip, Ph. D.. "Description of the Behavioral Structure of the Training". The Politics of Transformation.
• Neiman, K. "Negotiating the Self in Society: A Large Group Awareness Training Program as a Cultural Scene".
• Polaski, Mary. "The Mary Polaski "L" Series"
Media/Press
• Tennis, Cary (August 2, 2005). My therapist is hawking awareness training. Salon. Retrieved on 2007-05-26.
• Human Potential: The Revolution in Feeling. Time Magazine (November 9, 1970). Retrieved on 2007-05-26.

Holiday Magic

2007-08-19T07:10:00.001-07:00

Holiday Magic was a multi-level marketing organization, founded in 1964, by William Penn Patrick ( - 1973) in the United States. Originally the organization distributed goods such as home-care products and cosmetics.
Company distributors were encouraged to recruit other distributors in a multilevel marketing structure, which was later characterized as a pyramid scheme.
On May 16, 1974, a compromise settlement with approximately 31,000 class members, establishing a trust fund worth $2,600,381.00, was approved by the court.[2] The organization was dissolved in 1974, subesquent to the death of Patrick in 1973.
The company had been investigated by the Market Court of Sweden[3], United States Securities and Exchange Commission, the Federal Trade Commission, and the State of California. Holiday Magic is cited as an example in graduate level coursework on criminal justice and law journals.
Organization
[edit] Origins
In 1964, after a bankruptcy and several business failures, Patrick (age 33) was walking by a garage in San Rafael, California, and noted that fruit-scented cosmetics were being sold. Patrick bought all of the cosmetics supplies for about $16,000, and founded Holiday Magic, Inc. After the purchase, Patrick began selling distributorships in his new company[4].
Patrick, a student of Alexander Everett (founder of Mind Dynamics), used Mind Dynamics techniques as well as the Silva Mind Control Method in the Holiday Magic organization[5].
[edit] Legal Problems
The State of California filed suit against Holiday Magic, in December 1972[6].
In February 1973, Holiday Magic was sued by Avon Products. In the lawsuit, Avon Products' claimed that "Holiday Magic employees distributed leaflets accusing Avon of goon squads, paying off The District attorney's office.."[7]
In June 1973, the United States Securities and Exchange Commission filed a lawsuit against Holiday Magic[8], charging Patrick with "bilking some 80,000 people out of more than $250 million through his Holiday Magic cosmetics and soap empire."[9]
The company was investigated by the Federal Trade Commission[4][10], and in June 1973 the company was found guilty of deceptive trade practices[9]. The FTC found that Holiday Magic was in violation of section 5 of the Federal Trade Commission Act, and section 2 (a) of the Clayton Antitrust Act[3].
In 1973, Holiday Magic's proceedings were prohibited by the Market Court of Sweden, and a fine of 2 million kronor was imposed.[3].
[edit] Pyramid scheme
The company was termed as part of the "big three" scams, in a 1974 United States Senate hearing before the Consumers of the Committee on Commerce that dealt with pyramid sales[11]. 1974 hearings before the Congressional Oversight panel of the Federal Trade Commission described Holiday Magic as a "Multi-level marketer of cosmetics", that used an "unfair and deceptive pyramid distribution scheme"[12]. Holiday Magic was also labeled a "pyramid scheme" and a "multi-level distributorship" by the United States Bureau of Domestic Commerce, in their 1976 published book: Crimes Against Business: A Management Perspective[13].
The company was cited by the United States House of Representatives in a 1975 hearing[14] as an example of consumer fraud, again in 1977[15], and in 1991, in a hearing by the House Committee on Small Business[16]. Katz's Everybody's Business: An Almanac also referred to Holiday Magic as a "pyramid sales organization"[17]. Turner described it as one of the first "pyramid marketing" companies in America[18]. Clarke referred to the company as an "illegitimate" business[19]. Tobias poked fun at the pyramid nature of the organization, in his book The Only Investment Guide You'll Ever Need, telling readers to be wary of "..Holiday Magic - where the big money to be made was not in selling cosmetics, but in selling franchises to sell franchises (to sell franchises).."[20] Howe wrote in the San Francisco Chronicle that Holiday Magic was "..one of the largest of all pyramid schemes.."[21]
Holiday Magic is used as an example in graduate level criminal justice coursework to analyze the nature of corporate scams[22]. According to the Duke Law Journal: "Illegality permeated every facet of the promotion of the Holiday Magic marketing program."[23] One of the Holiday Magic Inc. cases was also cited by The University of Chicago Law Review[24] and the Columbia Law Review[25]. The Office of the State Attorney General in Maine, United States cites In re Holiday Magic, Inc., 84 F.T.C. 748 as an example of pyramid schemes[26]. Faltinsky described Holiday Magic as "..the largest pyramid scam of all time.."[27]
[edit] Related Companies
[edit] Leadership Dynamics
In 1967 , William Penn Patrick wrote a booklet, entitled Happiness and Success through Principle, and founded Leadership Dynamics based on those principles.[28] Holiday Magic distributors were invited, though not required, to attend the Leadership Dynamics Institute self-improvement sessions at a cost of $1000 each. Those in the positions of Instructor General, Trainer General, and Senior General were required to take the training. .[1] [5]. Navarro described the training as having "overtones of strict military training techniques[28].
Ben Gay, a high-level instructor at Leadership Dynamics, was President of Holiday Magic in the United States[5]. Though he claimed Leadership Dynamics was a separate company, "..in no way related to Holiday Magic, Inc.", Gene Church pointed out many inconsistencies in this statement, in his book The Pit: A Group Encounter Defiled[5][29].
[edit] Mind Dynamics
William Penn Patrick bought Mind Dynamics in 1970[5] [28]. The Mind Dynamics course was cited as providing "a means of achieving personal success through the conscious use of the subconscious mind".[1] Distributors for Holiday Magic, who took the course, have considered it as a Holiday Magic Business expense. ".[1]
[edit] Sales Dynamics
Sales Dynamics was another program of instruction for pay available to Holiday Magic Distributors to help them in their business activities.[1]
[edit] Ceased operations
In 1974, after almost 10 years in operation and tied to pyramid schemes and controversy, both Leadership Dynamics and Mind Dynamics ceased operations.[28].
[edit] Other Information regarding Company Executives and employees
CEO and President Roland R. Nocera pleaded guilty to securities fraud, in the case United States v. Nocera, et. al. (unrelated to Holiday Magic).[15]
Larry Stephen Huff, another key individual in the company, served two years in a Federal Prison, for charges related to a Ponzi scam (unrelated to Holiday Magic).[21].
Abe F. March held several executive positions for Holiday Magic and her parent company U.S. Universal:
• Regional Vice President, Canada (1971-1972)
• Vice President, Greece (1972-1973)
• Managing Director for Sta-Power, Germany (1973)
He subsequently bought exclusive rights for Middle East distribution of Holiday Magic cosmetics and formed his own company, "Beauty Magic", in Beirut, Lebanon In 2006 he published a book (To Beirut and Back - An American in the Middle East) dealing, in part, with his experiences.
[edit] See also
Wikisource has original text related to this article:
Holiday Magic
[edit] References
1. ^ a b c d e http://www.mlmlaw.com/library/cases/mlm/ftc/hldymagc.htm
2. ^ http://www.mlmlaw.com/library/cases/mlm/federal/9marshall.htm
3. ^ a b c Micklitz, Monazzahian, and Robler; Door to Door Selling, Pyramid Selling, Multilevel Marketing, CONTRACT NO. A0/7050/98/000156, A STUDY COMMISSIONED BY THE EUROPEAN COMMISSION, VOLUME II: ANALYSIS. November 1999.; Pages 196, 205, 209, 214, 215, 233.
4. ^ a b "The Role of Small Business in Franchising, Hearings Before the Subcommittee on Minority Small Business.", United States Congress. United States House of Representatives. House Permanent Select Committee on Small Business., 1973, P. 127, 137, 157, 203.
5. ^ a b c d e Church, Gene; Conrad D. Carnes (1972). The Pit: A Group Encounter Defiled. New York: Outerbridge and Lazard.
6. ^ Staff. "Holiday Magic was the sixth company brought to court..", Star-News, Pasadena, California, December 7, 1972.
7. ^ Staff. "Avon's Suit Cites Accusations", The Fresno Bee, February 23, 1973.
8. ^ Staff. "SEC Files Suit against 13 firms", The Fresno Bee, June 30, 1973.
9. ^ a b Staff. "Battling the Biggest Fraud", Time Magazine, July 16, 1973, pp. 2 pgs..
William Penn Patrick, a former mentor of Turner's, was charged last month by the Securities and Exchange Commission with bilking some 80,000 people out of more than $250 million through his Holiday Magic cosmetics and soap empire.
10. ^ Staff. "Mondaie Says Pyramid Selling Top Consumer Fraud Problem", The Coshocton Tribune, September 22, 1974.
11. ^ "Pyramid Sales: Hearing Before the Subcommittee for Consumers of the Committee on Commerce, United States Congress", 1974, United States Congress, Pp. 6, 19, 24., Library of Congress.
12. ^ Federal Trade Commission Oversight, Hearings, 1974, Pp. 83., March 1, 7, 14; May 9, 1974, United States Congress., Senate. Committee on Commerce.
13. ^ United States Bureau of Domestic Commerce (1976). Crimes Against Business: A Management Perspective. U.S. Dept. of Commerce, 103, 106, 114.
14. ^ "Equal Credit Opportunity Act Amendments and Consumer Leasing Act-1975., Hearings, United States Congress. Senate. Committee on Banking, Housing and Urban Affairs. Subcommittee on Consumer Affairs. 1975, P. 304., Hearings on S. 483, 1900, 1927, and 1961, and H.R. 5616.
15. ^ a b "Summary of Testimony and Findings and Conclusions Resulting from Hearings in New York on Drug Law.", United States Congress, Select Committee on Narcotics Abuse and Control, 1977, P.53.
16. ^ "Franchising in Hard Times: Hearing Before the Committee on Small Business, House of Representatives.", United States Congress. House Committee on Small Business, 1991, ISBN 0160368979 , P. 14, 90.
17. ^ Katz, Michael; Milton Moskowitz, Robert Levering (1980). Everybody's Business: An Almanac: An Irreverent Guide to Corporate America. Harper & Row, Pp. 243.. ISBN 0062506218.
"Shaklee tries hard to distinguish themselves from pyramid sales organizations, such as "Holiday Magic," that have run afoul of the law."
18. ^ Turner, Glenn W. (2007). All Things Are Possible. Xulon Press, Pp. 161-164.. ISBN 160034898X.
19. ^ Clarke, Margaret D. (2002). The Triumph of Louise Laurel & Successful Parenting/Nurturing: By the Hand of God. Xulon Press, Pp. 59.. ISBN 1591602777.
20. ^ Tobias, Andrew (1989). The Only Investment Guide You'll Ever Need. Bantam Books, Pp. 12.. ISBN 0553262513.
"Things that look like the cosmetics companies but are really chain letters in disguise, like Glenn Turner's Koscot International and Holiday Magic - where the big money to be made was not in selling cosmetics, but in selling franchises to sell franchises (to sell franchises).."
21. ^ a b Howe, Kenneth. "L.A. Con Artist Behind Alleged Electricity Scam: Pyramid scheme linked to coming deregulation", San Francisco Chronicle, March 10, 1998, pp. A 1.
"As far back as 1973, Huff helped start one of the largest of all pyramid schemes, a cosmetics marketing business called Holiday Magic, which defrauded investors of $250 million, according to the Securities and Exchange Commission."
22. ^ DeMuro, RG. "Holiday Magic Inc.: An Anatomy of a Scam", Rutgers University, NJN Brunswick - 1982 - Rutgers University. Graduate School of Criminal Justice
23. ^ Hildebrandt, Stephen A. (May 1975). "Heater v. FTC and the Federal Trade Commission Improvement Act: The FTC's Power to Order Restitution". Duke Law Journal 1975 (2): pp. 379-388. DOI:doi:10.2307/1371995.
24. ^ Merrill, Thomas W. (Autumn, 1976). "First Amendment Protection for Commercial Advertising: The New Constitutional Doctrine". The University of Chicago Law Review 44 (1): 205-254. DOI:doi:10.2307/1599265.
25. ^ Magaziner, Fred T. (June 1975). "Corporate Defamation and Product Disparagement: Narrowing the Analogy to Personal Defamation". Columbia Law Review 75 (5): 963-1008. DOI:doi:10.2307/1121559.
26. ^ Pyramid Schemes Are Illegal, Consumer Law Guide, Chapter 22: Consumer Rights And Multilevel Marketing (Pyramid) Schemes, Office of the State Attorney General, Maine, United States
27. ^ Faltinsky, Raymond J. (Spring 1992). "The Chaos of Multilevel Marketing and Pyramid Sales Laws: A Federal Remedy". Supervised Analytical Writing: Yale Law School: Pages 13, 14, 23, 35.
28. ^ a b c d Navarro,, Espy M.; Robert Navarro (2002). Self Realization: The Est and Forum Phenomena in American Society. Xlibris Corporation, 54, 55, 61, 62. ISBN 1401042201.
Page. 54. :
"Mind Dynamics, founded by Alexander Everett, was the major forerunner of large group awareness trainings. Although Mind Dynamics was only in existence for a few years, it sparked an entire industry of similar trainings."
29. ^ Church, Gene., The Pit, Pp. 2, 8.
"Ben Gay stated that leadership Dynamics Institute was a separate company, in no way related to Holiday Magic, Inc. (It must have been a coincidence that Ben Gay was at that time President of Holiday Magic in the United States. A coincidence that the founder of Holiday Magic, William Penn Patrick was co-owner of LDI. Coincidence that instructor Jerry Booz was National Vice-President for Holiday Magic Ltd. in Canada, that instrutctor Sharoll Shumate was Regional Vice-President for Holiday Magic in the United States Northeast, and that instructor Vance Powell was Regional Vice-President for Holiday Magic in the United States Southwest.)"
[edit] Further reading
Studies
• Door to Door Selling, Pyramid Selling, Multilevel Marketing, Study Commissioned by European Commission, November 1999.
Legal cases
• 84 F.T.C. 748 - IN THE MATTER OF HOLIDAY MAGIC, INC., ET AL., ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT AND SEC. 2(a) OF THE CLAYTON ACT , Docket 8834. Complaint, Jan. 18, 1971, Decision, Oct. 15, 1974
• Holiday Magic Inc. et al. v. Robert W. Warren et al. (Free Speech issue - dismissed), Civ. A. No. 71-C-659. United States District Court, E. D. Wisconsin. April 3, 1973.
• Holiday Magic, Inc. v. Warren., 497 F.2d 687., C.A.Wis. 1974., May 20, 1974
• Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1176 (C.A.9 1977).
• In re HOLIDAY MAGIC SECURITIES AND ANTITRUST LITIGATION., James J. Ward, et al. v. Holiday Magic, Inc., et al., N.D. California, Civil Action No. C-74-1067-LHB., No. 124., July 6, 1977.

Cypherpunk

2007-08-19T07:09:00.001-07:00

Cypherpunk
The cypherpunks (a portmanteau of cipher and punk based on cyberpunk) comprise an informal group of people interested in privacy and cryptography who originally communicated through the cypherpunks mailing list. The aim of the group was to achieve privacy and security through proactive use of cryptography. Events such as the GURPS Cyberpunk raid lent weight to the idea that private individuals needed to take steps themselves to protect their privacy. In its heyday, the list discussed the public policy issues related to cryptography, as well as more practical nuts-and-bolts mathematical, computational, technological, and cryptographic matters themselves.
A coderpunks list, open by invitation only, existed for a time. Coderpunks took up more technical matters and had less discussion of public policy implications.
The term cypherpunk was coined by Jude Milhon as a pun to describe cyberpunks who used cryptography. In November 2006, the word was proposed for inclusion in the Oxford English Dictionary.
The mailing list's best days have been behind it for some time, possibly peaking around 1997. A number of current systems in use trace their roots to this time, including Pretty Good Privacy, /dev/random in the Linux kernel (the actual code has been completely reimplemented several times since then) and today's anonymous remailers.
Cypherpunk, cypherpunks or cpunks are also occasionally used as a username and password on websites which require registration, especially if the user does not intend to return or does not wish to reveal information about himself. The account is left for later users.
The Cypherpunks included several notable computer industry figures.
[edit] Some well known cypherpunks
• Jon Callas (Technical lead on OpenPGP specification)
• Hugh Daniel (Former manager of the FreeS/WAN project)
• John Gilmore (One of the founders of the Electronic Frontier Foundation)
• Ian Goldberg (Assistant Professor, University of Waterloo)
• Lucky Green (Author of first free software implementation of ring signatures)
• Eric Hughes (Author of A Cypherpunk's Manifesto)
• Tim May (Former chief scientist at Intel, author of A Crypto Anarchist Manifesto)
• Jude Milhon (A founding member of the cypherpunks)
• Len Sassaman (Current maintainer of the Mixmaster Remailer software)
• Peter Shipley (A founding member of the cypherpunks)
• Philip Zimmermann (inventor of PGP)

Confidence trick

2007-08-19T07:08:00.001-07:00

Confidence trick
History
The first known usage of the term "confidence man" was in 1849; it was used by the press during the trial of William Thompson. Thompson chatted with strangers until he asked if they had the confidence to lend him their watches, whereupon he would walk off with the watch; he was captured when a victim recognized him on the street.[1]
[edit] Vulnerability to Confidence Tricks
Persons of any level of intelligence are potentially vulnerable to deception by experienced con artists. Confidence tricks exploit human weaknesses like greed, dishonesty, vanity, but also virtues like honesty, compassion, or a naïve expectation of good faith on the part of the con artist.
Just as there is no typical profile for swindlers, neither is there one for their victims. Virtually anyone can fall prey to fraudulent crimes. Movie actors and athletes, professional persons and successful business executives, political leaders and internationally famous economists have all fallen victim to investment fraud. Certainly victims of high-yield investment frauds may possess a level of greed which exceeds their caution as well as a willingness to believe what they want to believe. However, not all fraud victims are greedy, risk-taking, self-deceptive individuals looking to make a quick dollar. Nor are all fraud victims naive, uneducated, or elderly.[2]
Confidence tricksters often rely on the greed and dishonesty of the mark, who may attempt to out-cheat the con artist, only to discover that he or she has been manipulated into losing from the very beginning. This is such a general principle in confidence tricks that there is a saying among con men that "you can't cheat an honest man."[3]
However, some tricks depend on the honesty of the victim. In a common scam, as part of an apparently legitimate transaction, the victim is sent a worthless check, which the victim then deposits. The victim is then urged to forward the apparent value of the check to the trickster as cash, possibly keeping a small portion of the money as a commission, which they may do before discovering the cheque bounces. Another fashionable scenario (as of 2006) has the victim recruited as a "financial agent" to collect "business debts". Paper checks are not always involved: funds may be transferred electronically from another victim.
Sometimes con men rely on naive individuals who put their confidence in get-rich-quick schemes, such as "too good to be true" investments. It may take years for the wider community to discover that such investment schemes are bogus, and usually it is too late, as many people have lost their life savings in something they have been convinced to invest in.
The confidence trickster, con man, swindler, grifter, scam artist or con artist often works with one or more accomplices called shills, who help manipulate the mark into the con man's trick or dishonest plan. In a traditional confidence trick, the mark is led to believe that he will be able to win money or some other prize by doing some task. The accomplices may pretend to be random strangers who have won and benefited from successfully performing the task.
[edit] Well-known confidence tricks
Confidence tricks are difficult to classify, because they keep changing, and often contain elements of more than one type.
[edit] Get-rich-quick Scams
Get-rich-quick schemes are so varied they nearly defy description. Everything from fake franchises, real estate "sure things", how-to-get-rich books and wealth-building seminars, self-help gurus, sure-fire inventions, useless products, chain letters, fortune tellers, quack doctors, miracle pharmaceuticals, charms and talismans are all used to separate the mark from his money. Variations include the pyramid scheme, Ponzi scheme, Matrix sale, and Multi-level Marketing.
Salting is the term for a scam in which gems or gold ore are planted in a mine or on the landscape, duping the greedy mark into purchasing shares in a worthless or non-existent mining company.[4] For a 19th-century example, see the Diamond hoax of 1872; for a modern example, involving imaginary gold deposits in Borneo, see Bre-X. Popularized in the HBO Series Deadwood (TV) season 1 when Al Swearingen and E.B. Farnum trick Brom Garret in to believing gold is to be found on the claim Swearingen intends to sell him.
The Spanish Prisoner scam — and its modern variant, the advance fee fraud or Nigerian scam — take advantage of the victim's greed. The basic premise involves enlisting the mark to aid in retrieving some stolen money from its hiding place. The victim sometimes believes he can cheat the con artists out of their money, but anyone trying this has already fallen for the essential con by believing that the money is there to steal. See also Black money scam. Note that the classic Spanish Prisoner trick also contains an element of the romance scam (see below).
Many con men employ extra tricks to keep the victim from going to the police. A common ploy of investment scammers is to encourage a mark to use money concealed from tax authorities. The mark cannot go to the authorities without revealing that he or she has committed tax fraud. Many swindles involve a minor element of crime or some other misdeed. The mark is made to think that he or she will gain money by helping fraudsters get huge sums out of a country (the classic Nigerian scam). The mark cannot go to the police without revealing that he or she planned to commit a crime him- or herself.
A recent twist on the Nigerian fraud scheme, the mark is told he is helping someone overseas collect "debts" from corporate clients. Large cheques stolen from businesses are mailed to the mark. These cheques are altered to reflect the mark's name, and the mark is then asked to cash them and transfer all but a percentage of the funds (his commission) to the con artist. The cheques are often completely genuine, except that the "pay to" information has been expertly changed. This exposes the mark not only to enormous debt when the bank reclaims the money from his or her account, but also to criminal charges for money laundering. A more modern variation is to use laser-printed counterfeit checks with the proper account numbers and payer information.
[edit] Romance tricks
Romance fraud, when fraudsters seduce people only to target their money, is an old type of fraud. It received high attention in Sweden around 1950 when a man (Gustaf Raskenstam) had had relationships with more than one hundred lonely women, and been engaged with many of them, often several at the same time. He took a lot of money and went to prison for fraud. His contact ads usually had the headline "Sun and spring" ("sol och vår" in Swedish). This type of behaviour is since called "sol och vårande" in Swedish).
The traditional Romance scam has now moved into internet dating sites. The con actively cultivates a romantic relationship, which often involves promises of marriage. However, after some time it becomes evident that the Internet "sweetheart" is stuck in his home country, lacking the money to leave the country and thus unable to be united with the mark. The scam then becomes an Advance-fee fraud or a check fraud. A wide variety of reasons can be offered for the trickster's lack of cash, but rather than just borrow the money from the victim (Advance Fee fraud), the con man normally declares that they have checks which the victim can cash on their behalf and remit the money via a non-reversible transfer service to help facilitate the trip (check fraud). Of course, the checks are forged or stolen and the con man never makes the trip: the hapless victim ends up with a large debt and an aching heart. This scam can be seen in the movie Nights of Cabiria.
[edit] Gold brick scams
Gold brick scams involve selling a tangible item for more than it is worth; named after selling the victim a supposed gold bar that turns out to be gold-coated lead.
The 1883 "No Cents" Liberty Head nickel, a scam developed by con artists that electroplated Liberty Head nickels,intending to make storeowners believe that the gold-plated nickel was a $5 coin.
The Coin collecting scam is a scam that preys on inexperienced collectors, coins or otherwise. The con man convinces the mark by stating that a high-priced collection is for sale at a lower amount. The coin collector then buys the entire collection thinking it is actually valuable.
Pig-in-a-poke originated in the late Middle Ages, when meat was scarce, but apparently rats and cats were not. The con entails a sale of a "suckling pig", in a "poke" (bag). The bag ostensibly contains a live healthy little pig, but actually contains a cat (not particularly prized as a source of meat, and at any rate, quite unlikely to grow to be a large hog). If one "buys a pig in a poke" without looking in the bag (a common colloquial expression in the English language, meaning "to be a sucker"), the person has bought something of lesser value than was assumed, and has learned firsthand the lesson caveat emptor. It is also said to be where the phrase 'letting the cat out of the bag' comes from, although there may be other explanations.
The Thai gem scam involves layers of con men and helpers who tell a tourist in Bangkok of an opportunity to earn money by buying duty-free jewelry and having it shipped back to the tourist's home country. The mark is driven around the city in a tuk-tuk operated by one of the con men, who ensures that the mark meets one helper after another, until the mark is convinced to buy the jewelry from a store also operated by the swindlers. This scam has been operating for 20 years in Bangkok and is alleged to be protected by Thai police and politicians. A similar scam usually runs in parallel for custom-made suits. Many tourists are hit by con men touting both goods.
People shopping for pirated software, illegal pornographic images, bootleg music, drugs, firearms or other forbidden or controlled goods may be unable to report swindles to the police. An example is the "big screen TV in back of the truck"; the TV is touted as "hot" (stolen), so it will be sold for a very low price. The TV is in fact defective or broken, and has bricks inside its otherwise gutted case to give it heft. When it is plugged in, of course, it doesn't work - and the buyer has no legal recourse without admitting to attempted purchase of stolen goods.
[edit] Extortion or false-injury tricks
The badger game extortion is often perpetrated on married men. The mark is deliberately coerced into a compromising position, a supposed affair for example, then threatened with public exposure of his acts unless blackmail money is paid.
The Melon Drop is a scam in which the scammer will intentionally bump into the mark and drop a package containing broken glass that has already been broken. He will claim that the contents were broken by the clumsiness of the mark, and demand money to replace them. This con arose when artists discovered that the Japanese paid high amounts of money for watermelons. The scammer would go to a supermarket to buy a cheap watermelon, bump into a Japanese tourist and demand that they pay a high price.
The Hydrophobia lie was popular in the 1920s, in which the con man pretended to have been bitten by the mark's (possibly rabid) dog.
Insurance fraud is a scam in which the con artist tricks the mark into damaging, for example, the con artist's car, or injuring the con artist (in a manner that the con artist can exaggerate). The con artist fraudulently collects a large sum of money from the mark's insurance policy, even though they intentionally caused the accident.
[edit] Charity tricks
The con-man may pretend to have some injury or disadvantage to gain sympathy (and donations) e.g. a panhandler in a wheelchair, the woman with kids along the freeway off-ramp or the homeless veteran. In India in 2006, three doctors were investigated for offering to sever limbs in order to increase public sympathy toward their clients.[5]
The Just $5 trick is an abuse of charity scam: the conman approaches the victim and asks for "just $5" to help them achieve some goal that is almost within reach. The conman displays cash to prove they have "almost enough" and usually adds some props/window-dressing to add veracity: carrying a car part that needs repair/replacement or carrying a gas can (because the car ran out of gas and the wife/child is waiting).
[edit] Gambling tricks
Three-card Monte, 'Find The Queen', the "Three-card Trick", or "Follow The Lady", is (except for the props) essentially the same as the probably centuries-older shell game or thimblerig. The trickster shows three playing cards to the audience, one of which is a queen (the "lady"), then places the cards face-down, shuffles them around and invites the audience to bet on which one is the queen. At first the audience is skeptical, so the shill places a bet and the scammer allows him to win. This is sometimes enough to entice the audience to place bets, but the trickster uses sleight of hand to ensure that they always lose, unless the con man decides to let them win to lure them into betting even more. The mark loses whenever the dealer chooses to make him lose. This con appears in the Eric Garcia novel Matchstick Men.
In the Football Picks Scam - The scammer sends out tip sheet stating a game will go one way to 50 potential victims and the other way to another 50. The next week, the 50 who received the correct answer are divided into two groups and fed another pick. This is repeated until a small population have (apparently) received a series of supernaturally perfect picks - then the final pick is offered for sale. Despite being well-known (it was even described completely on an episode of The Simpsons), this scam is run almost continuously in different forms by different operators.
Lottery fraud by proxy is a particularly vicious scam, in which the scammer buys a lottery ticket with old winning numbers. He or she then alters the date on the ticket so that it appears to be from the day before, and therefore a winning ticket. He or she then sells the ticket to the mark, claiming it is a winning ticket, but for some reason, he or she is unable to collect the prize (not eligible, etc.). The particular cruelty in this scam is that if the mark attempts to collect the prize, the fraudulently altered ticket will be discovered and the mark held criminally liable. This con was featured in the movie Matchstick Men, where Nicolas Cage teaches it to his daughter. A twist on the con was shown in Great Teacher Onizuka, where the more than gullible Onizuka was tricked into getting a "winning ticket". The ticket wasn't altered, instead the daily newspaper reporting the day's winning numbers was rewritten with a black pen.
[edit] False reward tricks
The glim-dropper requires several accomplices, one of whom must be a one-eyed man. He goes into a store and makes believe he has lost his glass eye. Everyone looks around, but the eye can’t be found. He declares that he will pay a thousand-dollar reward for the return of his eye, leaving contact information. The next day, an accomplice enters the store and pretends to find the eye. The storekeeper, thinking of the reward, offers to take it and return it to its owner. The finder insists he will return it himself, and demands the owner’s address. Thinking he will lose all chance of the reward, the storekeeper offers a hundred dollars for the eye. The finder bargains him up to $250, and departs. The one-eyed man, of course, can not be found and does not return. (Described in A Cool Million, or, The Dismantling of Lemuel Pitkin (1934) by Nathanael West). Variants of this con have been used in movies such as The Traveller (1997) and Shade (2003).
The fiddle game uses the pigeon drop technique. A pair of con men work together, one going into an expensive restaurant in shabby clothes, eating, and claiming to have left his wallet at home, which is nearby. As collateral, the con man leaves his only worldly possession, the violin that provides his livelihood. After he leaves, the second con man swoops in, offers an outrageously large amount (for example, $50,000) for such a rare instrument, then looks at his watch and runs off to an appointment, leaving his card for the mark to call him when the fiddle-owner returns. The mark's greed comes into play when the "poor man" comes back, having gotten the money to pay for his meal and redeem his violin. The mark, thinking he has an offer on the table, then buys the violin from the fiddle player (who "reluctantly" sells it eventually for, say, $5,000). The result is the two con men are $5,000 richer (less the cost of the violin), and the mark is left with a cheap instrument. (This trick is also detailed in the Neil Gaiman novel American Gods and is the basis for The Streets' song "Can't Con an Honest John".)
[edit] Other confidence tricks and techniques
• The Undercover Cop Scam is a scam where a con man pretends to be an undercover police officer, usually by stopping their vehicle and showing a fake badge, and tells the mark about a case they are investigating, and that they are a suspect. The con man asks for money to be checked, when the mark is out of the vehicle, the con man gets into his car and drives away, leaving enough time to escape as the mark has to walk back to his vehicle. This scam is usually done to tourists, variations include their whole luggage being transferred to the con man's trunk "to be checked at a police station."
• David Maurer's 1940 book The Big Con: The Story of the Confidence Man, outlines what is now known as a Big Store scam. These scams often involved teams of dozens of con artists working together with elaborate sets and costumes.
• The Paranoia Scam is a scam that involves the con man telling the mark various lies about the different scams and instigating false attempts so that the mark (feeling worried and with no place to hide their money from fraud) turns to the con man for help.
• Change raising is a common short con and involves an offer to change an amount of money with someone, and at the same time taking change or bills back and forth to confuse the person as to how much money they are actually changing. The most common form, "the Short Count," has been featured prominently in several movies about grifting, notably Nueve Reinas, The Grifters, and Paper Moon. A con artist, shopping at a gas station for example, is given 80 cents in change because he lacks two dimes to complete the sale (for example, the sale cost is $19.20 and the con man has a 20 dollar bill). He goes out to his car, and returns a short time later with 20 cents. He returns them, saying that he found the rest of the change to make a dollar, and asking for a bill so he won't have to carry change. The confused store clerk agrees, exchanging a dollar for the 20 cents the con man returned. In essence, the mark makes change twice.
• The pigeon drop, also featured early in the film The Sting, involves the mark or pigeon assisting an elderly, weak or infirm stranger to keep their money safe for them. In the process, the stranger (actually a confidence trickster) puts his money with the mark's money (in an envelope, briefcase, or sack) which the mark is then entrusted with. The money is actually not put into the sack or envelope, but is switched for a bag full of newspaper, etc. The mark is enticed to make off with the con man's money through the greed element and various theatrics, but in actuality, the mark is fleeing from his own money, which the con man still has (or has handed off to an accomplice).
• In pseudoscience and snake oil scams, popular psychology confidence tricksters make money by falsely claiming to improve reading speed and comprehension using speed reading courses by fooling the consumer with inappropriate skimming and general knowledge tests. These popular psychology tricksters often employ popular assumptions about the brain and the cerebral hemispheres that are scientifically wrong, but attractive and easy to believe. A common myth is that we use only 10% of our brain.[6][7] Similar scams involve the use of brain machines to alter brain waves, and intelligence amplification through balancing the mind and body. See neurofeedback.
• Psychic surgery is a con game in which the trickster uses sleight of hand to pretend to remove bits of malignant growths from the mark's body. A common form of medical fraud in underdeveloped countries, it imperils the victims, who may fail to seek competent medical attention. The movie Man on the Moon depicts comedian Andy Kaufman undergoing psychic surgery.
• Phishing is a modern form of scam in which the artist communicates with the mark, pretending to be from an official organization that the mark is doing business with, in order to extract personal information that can then be used, for example, to steal money. In a typical instance of phishing, the artist sends the mark an email pretending to be from a company (such as eBay). This email is formatted exactly like email from that business, and will ask the mark to "verify" some personal information at their website, to which a link is provided. The website itself is also fake but designed to look exactly like the business' website. The site will contain an HTML form asking for personal information such as credit card numbers. The mark will feel compelled to give this information because of words in the email or the site stating that they require the information again, for example to "reactivate your account". When the mark submits the form, the information is sent to the swindler.
• Beijing tea scam is a famous scam in and around Beijing. The artists (usually female and working in pairs) will approach tourists and try to make friends. After chatting, they will suggest a trip to see a tea ceremony, claiming that they have never been to one before. The tourist is never shown a menu, but assumes that this is how things are done in China. After the ceremony, the bill is presented to the tourist, charging upwards of £50 per head. The artists will then hand over their bills, and the tourists are obliged to follow suit.
• Rip deal is a common swindle in Europe in which con artists present themselves as potential investors, then attract victims with under-the-counter payments.
• Pitiful fraud. The con artist may tell his or her mark pitiful lies about his or her family, children, etc. Hence the mark feels sorry for him or her and does not alert the police.
• Family member. Some con artists target their own families, who feel obligated not to contact authorities due to family ties.
• Embarrassing enterprise. If the mark loses a small sum only, he or she may be unwilling to contact the authorities if the circumstances are embarrassing, e.g. if the mark wishes to avoid revealing his or her pornography purchase to his or her spouse, notwithstanding its uselessness or worthlessness.
The above list is only a sample. Confidence games are continually evolving and subject to many variations and refinements.
Con games never remain stationary. The principle may be old, but the external forms are always changing, for con men know they must adapt their schemes to the times. This is especially true of the Big Con. A good grifter is never satisfied with the form his swindle takes; he studies it constantly to improve it; as he learns more about people, he finds a way to use what he has learned.
— From The Big Con, by David Maurer (Chapter 3)
[edit] Well known con artists
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[edit] Born in the 18th century
• Gregor MacGregor (1786-1845), Scottish conman who tried to attract investment and settlers for a non-existent country of Poyais
[edit] Born/flourished in the 19th century
• William Thompson (fl. 1840-1849), American criminal whose deceptions caused the term "confidence man" to be coined.
• Louis Enricht (1844-1923), U.S. chemist who claimed to have made a substitute for gasoline
• Lou Blonger (1849-1924), organized massive ring of con men in Denver in early 1900's
• Therese Humbert (1856-1918), of France in the 1880s took millions on the back of an "Inheritance" kept locked in a sealed trunk. Victims parted with funds in the belief that they would have a share of the inheritance. Many varying excuses were found to keep the trunk un-opened.
• Soapy Smith (1860-1898), infamous 19th century confidence gang boss. Denver, Colorado, Skagway, Alaska
• George C. Parker (1870-1936), who sold New York monuments
• Philip Arnold and John Slack, perpetrators of the "Diamond hoax of 1872" in San Francisco. William Ralston and other investots paid Slack and Arnold three hundred thousand dollars for their worthless diamond mines.
• Joseph Weil (1877-1975), also known as The Yellow Kid, one of the inspirations for the Academy-award winning film The Sting.
• Susanna Mildred Hill (ca 1880), U.S. woman who fooled potential suitors in 1960's.
• Charles Ponzi (1882-1949), who ran a pyramid scheme (though he did not invent them) and became so closely identified with them that they are also known as Ponzi schemes.
• Arthur Ferguson (1883-1938), Scottish con artist
• Victor Lustig (1890-1947), is held to have been one of the most talented confidence tricksters who ever lived. He is best known as "the man who sold the Eiffel Tower". He also scammed the famous gangster Al Capone.
[edit] Born/flourished in the 20th century
• Henri Lemoine (fl. 1905–1908), French diamond faker
• Eduardo de Valfierno, an Argentine con man who masterminded the theft of the Mona Lisa in 1911. The deal made the equivalent of $67 million today for him.
• Bernie Cornfeld (1927-1995) ran what is to date the greatest scam in history, taking in just under $2.5 billion in what was later realized to be a Ponzi scheme.
[edit] Living people
• Frank Abagnale (1948), a self-confessed former con man, masqueraded as a pilot, doctor and professor, but was most successful at forging checks. His autobiography, Catch Me If You Can, was made into a movie.[8]
• James Hogue (1959), US impostor who most famously entered Princeton University by posing as a self-taught orphan.
• Robert Hendy-Freegard (1971), British confidence artist who kidnapped people by telling them he was an MI5 agent and they were being hunted by terrorists, then took them on the run, conned them out of money and emotionally manipulated them; convicted in 2005.[9]
• John Rivera, self-proclaimed energy guru, being investigated by the SEC for fraud and evading lawsuits from private companies http://www.natchezdemocrat.com/news/2007/aug/04/suit-filed-against-rivera/
[edit] Notable confidence tricks in the movies and television
• The Lady Eve (1941) – the main character, Jean Harrington (Barbara Stanwyck), is a con artist.
• The Rainmaker (1956) – the main character, Bill Starbuck (Burt Lancaster), is a con artist.
• The Music Man (1962) – the main character, Harold Hill (Robert Preston), is a con artist.
• The Flim-Flam Man (1967) – the main character, Mordecai Jones (George C. Scott), is a con artist.
• The Producers (1968) – the main characters, Max Bialystock (Zero Mostel) and Leopold Bloom (Gene Wilder), are con artists.
• Skin Game (1971) – the main characters, Quincy Drew (James Garner) and Jason O'Rourke (Louis Gossett Jr.), con people.
• Paper Moon (1973), directed and produced by Peter Bogdanovich.
• The Sting (1973), directed by George Roy Hill; The Sting II (1983) sequel.
• Vabank (1981), directed by Juliusz Machulski; Vabank II (1985) sequel.
• House of Games (1987), produced by Michael Hausman and directed by David Mamet.
• The Vanishing (1988), directed by George Sluizer. A remake by Sluizer was released in 1993.
• Dirty Rotten Scoundrels (1988), directed by Frank Oz.
• The Grifters (1990), produced by Martin Scorsese and directed by Stephen Frears.
• Leap of Faith (1992)
• Diggstown (1992), directed by Michael Ritchie.
• Six Degrees of Separation (1993)
• Deadfall (1993), directed by Christopher Coppola.
• The Pest (1997), directed by Paul Miller.
• The Spanish Prisoner (1997), directed by David Mamet.
• Traveller (1997). Bill Paxton plays an Irish Gypsy confidence man.
• Following (1998), directed by Christopher Nolan.
• Blue Streak (1999), directed by Les Mayfield.
• Ed, Edd, n Eddy (1999), directed by Danny Antonucci
• Man on the Moon (1999), produced by Danny DeVito and directed by Miloš Forman.
• Nueve Reinas (Nine Queens) (2000), directed by Fabián Bielinsky; remade as Criminal (2004), directed by Gregory Jacobs.
• Boiler Room (2000), directed by Ben Younger.
• The Prime Gig (2000), directed by Gregory Mosher.
• Bandits (2001), directed by Barry Levinson.
• Birthday Girl (2001), directed by Jez Butterworth.
• Heist (2001), directed by David Mamet.
• Heartbreakers (2001), directed by David Mirkin.
• Ocean's Eleven (2001) remake of the 1960 film; and sequels Ocean's Twelve (2004), and Ocean's Thirteen (2007), all directed by Steven Soderbergh.
• The Score (2001), directed by Frank Oz.
• Catch Me If You Can (2002), directed by Steven Spielberg.
• Confidence (2003), directed by James Foley.
• Matchstick Men (2003), directed by Ridley Scott.
• Shade (2003), directed by Damian Nieman.
• Hustle (2004). A BBC series about a team of con artists.
• Stories of Lost Souls (2005), a presentation of six short stories. "Euston Road" stars Paul Bettany as a swindler.
• A Con (2005), created by Skyler Stone.
• Revolver (2005). One of the main characters, Jake Green, is a con artist, and the premise of the film is a con in itself.
• Bluffmaster (2005). The main character, Roy, is a professional conman by art.
• Colour Me Kubrick (2006), directed by Brian W. Cook.
• Lucky Number Slevin (2006)
• The Real Hustle (2006). Three actors playing a team of ex-grifters explain the secrets of the con to stop the public from being scammed. A spin-off of BBC Series Hustle.
• Lonely Hearts (2006)
• The Riches (2007), FX series about a nomadic, drifter family
[edit] Notable confidence tricks in literature
• Herman Melville's The Confidence-Man.
• "The Red-Headed League", a Sherlock Holmes story by Sir Arthur Conan Doyle, involves a sort of confidence trick used to enable a bank robbery.
• Thomas Mann's Confessions of Felix Krull, Confidence Man: The Early Years, an unfinished novel about a German con man.
• Many of the crime novels of Jim Thompson involve confidence artists.
• Joyce Carol Oates's My Heart Laid Bare features a family of confidence artists.
• Eric Garcia's Matchstick Men.
• Neil Gaiman's American Gods uses a two-man con as a major plot element.
• O. Henry's collection The Gentle Grafter describes a variety of confidence tricks.
• Slippery Jim - the protagonist of Harry Harrison's Stainless Steel Rat series - uses abundant schemes and frauds.
• The Big Con
• Judith Ivory's Untie My Heart
• Jenny Crusie's Faking It – features a family of confidence artists
• Children of Lieutenant Schmidt Society, a society of pretenders to be sons of Pyotr Schmidt
• Ostap Bender, the central character of Ilf and Petrov's The Twelve Chairs and The Little Golden Calf
• The Professor in Spider Robinson's Callahan Series
• John Constantine of DC Comics/Vertigo ongoing series, Hellblazer, created by Alan Moore uses confidence scams, trickery, and magick to outwit his opponents.
• Stephen J. Cannell's King Con features a confidence man who successfully performs many of the known tricks, as well as some very creative and impressive ones.
• Tim Krabbé's The Golden Egg (1984) features a chemistry teacher who employs confidence tricks for the purpose of kidnapping.
• Travis McGee in John D. MacDonald's series of novels frequently uses con games or has them tried against him.
• The novella The Space Merchants by Frederic Pohl and Cyril Kornbluth is replete with con games practiced by corporations.
• The novel The Brethren by John Grisham features a con run within a federal prison in which closeted gay men are targeted for extortion by three incarcerated judges.
• Terry Pratchett's Discworld novel Going Postal features a convicted and condemned con artist named Moist Von Lipwig, who is spared execution in exchange for taking on a hazardous government job, to which he applies the principles of the con.
• Brian Michael Bendis' crime graphic novels A.K.A. Goldfish and Jinx have a con man named David Gold, as a main character.
• Monsieur and Madame Thénardier of Victor Hugo's Les Miserables. cruel, wicked, money-hungry, the Thénardiers scam money from whomever they can. Schemes include robbery, fraud, and murder.
• The Duke and the King from Mark Twain's Adventures of Huckleberry Finn.
• The novel, If Tomorrow Comes, is a thriller by Sidney Sheldon, that has a con artist as a main character, and is mostly based on trickery and deception.
• Simon Templar, also known as The Saint in Leslie Charteris' novels and stories, often is involved in scams and cons, often turning the tables on the con artist.
• The Swedish movie Raskenstam from 1983, was about a man who starts relationships with a lot of women, often several on the same time. He then fools them to lend him money, which he steals. The movie was based on a true story.
• The Lies of Locke Lamora by Scott Lynch (author) is a fantasy novel that begins a series about a group of con-artists.
[edit] See also
• Advance fee fraud (also known as 'Nigerian scam' or '419 scam')
• Romance scam
• Bogus escrow – straightforward confidence trick in which a scammer operates a bogus escrow service
• Charlatan – person practicing quackery or some similar confidence trick in order to obtain money or advantage by pretense
• Get-rich-quick schemes – plan to acquire high rates of return for a small investment
• Pyramid scheme – non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered
• Quackery – term used to describe questionable medical practices
• White-collar crime – crime committed by a person of respectability and high social status in the course of his occupation
• White van speakers – scam sales technique in which a salesman makes a buyer believe he is getting a good price on audio merchandise
• Scams in intellectual property
[edit] Further reading
• Blundell, Nigel [1982] (1984). The World's Greatest Crooks and Conmen and other mischievous malefactors. London: Octopus Books. ISBN 0-7064-2144-2.
• Maurer, David W. (1940). The Big Con: The Story of the Confidence Man and the Confidence Game. New York: The Bobbs Merrill company. ISBN 0-385-49538-2.
• Maurer, David W. (1974). The American Confidence Man. Springfield: Charles C. Thomas, Publisher. ISBN 0-398-02974-1.
• Marek M. Kaminski (2004) Games Prisoners Play. Princeton: Princeton University Press. ISBN 0-691-11721-7
• Ball, J. Bowyer; Whaley, Barton (1982). Cheating and Deception. New Brunswick (USA), London (UK): Transaction Publishers. ISBN 0-88738-868-X.
[edit] References
1. ^ Karen Halttunen, Confidence Men and Painted Women, p 6 ISBN 0-300-02835-0
2. ^ crimes-of-persuasion.com Fraud Victim Advice / Assistance for Consumer Scams and Investment Frauds
3. ^ A Conversation with James Swain online
4. ^ Dan Plazak A Hole in the Ground with a Liar at the Top (Salt Lake: Univ. of Utah Press, 2006) ISBN 978-0-87480-840-7.
5. ^ online
6. ^ Do We Use Only 10% of Our Brain? online
7. ^ Snopes: The Ten-Percent Myth online
8. ^ Frank W. Abagnale Jr. with Stan Redding (1980) Catch me if You Can, New York, Simon & Schuster, ISBN: 0-671-64091-7.
9. ^ http://news.bbc.co.uk/1/hi/england/nottinghamshire/4114640.stm

Anonymous internet banking

2007-08-19T07:07:00.001-07:00

Anonymous internet banking
Anonymous Internet Banking is the name given to the proposed use of strong financial cryptography to make electronic bank secrecy (or more precisely pseudonymous banking) possible. The bank issues currency in the form of electronic tokens that can be converted on presentation to the bank to some other currency. This concept has a long history in which free banking institutions have issued their own paper currency often backed by a physical commodity. The Concept
• Adam wishes to send Zelda the secret documents.
• Adam requests a padlock from Zelda.
• Zelda sends an open padlock to Adam, but keeps the key.
• Adam padlocks the secret documents in a box and sends it to her.
[edit] The underlying mathematics
Let N=PQ where P, Q are large primes with a few additional properties, and thus N is a composite number. Computing the cube root of a number, A, modulo some large composite N is hard, at least compared to computing the cube of A modulo N.
Example: Suppose we're mod 55. Calculating the cube of something is easy, e.g.,
73(mod 55) = 343(mod 55) = 343 − (6 * 55) = 13.
But finding the cube root is tough; solve for x:
x3(mod 55) = 6
However if the factorization of N into two primes is known then both can be done with ease. In the following example all arithmetic is done modulo N.
We have two people, Alice and Bob. For simplicity we shall assume they are using the same bank. Alice wants to transfer $100 to Bob anonymously.
Only the bank has the ability to calculate cube roots modulo N (since only it knows the factorization of N), so the bank charges $100 for the service of finding the cube root of a number. The bank pays anyone who can calculate the cube root of an arbitrary number $100.
Bob asks the bank for several random numbers in anticipation that someone will want to pay him money. The bank remembers which numbers he was given so that it knows when Bob manages to calculate a cube root of one of them.
When Alice wants to pay Bob $100 she asks for one of these numbers R from Bob. She multiplies it by w cubed (W) and pays the bank $100 to cube root it. The bank returns the answer which is wr (where r is the cube root of R) so Alice divides it by w and sends Bob r. Bob now knows the cube root of R and can tell the bank what it is. The bank pays him $100.
Different composites N can be used for different denominations of currency so this system doesn't take appreciably longer for large transactions.
Note that if neither Alice nor Bob wishes the bank to know that they performed a transaction with each other then it is hard for the bank to find out. However, in order to ensure this is the case many people need to be making transactions at the same time. Otherwise the bank can figure it out by the timing of the transactions, using Traffic analysis.

Autosurf

2007-08-19T07:06:00.003-07:00

Autosurf
An autosurf is a type of Pyramid scheme. Autosurfs are traffic exchanges that automatically rotate advertised websites in one's Internet browser. Therefore, they are capable of bringing a large amount of traffic to the advertised websites. Members earn credits for each site that they view, which can then be spent to advertise members' sites by adding them to the autosurf rotation. Sites may additionally be added by external advertisers who pay the autosurf operators.
Concept
Autosurfing is a unique form of advertising: normally, advertisers pay intermediaries to display advertising to their target audience, and the advertising is presented to the audience in places where they are likely to see it, such as in public places, or packaged with entertainment. In this sense, no money changes hands between the audience and the advertiser.
In comparison, autosurfers are paid to view pure advertising (that is, advertisers' websites) for a certain amount of time (usually, less than 30 seconds). Interested viewers can pause the surf timer or open any site in a new window, giving themselves more time to peruse an ad. If the viewer is not interested and does nothing, the surf timer will restart after the specified period of time and a new site will be loaded into the browser. The surf rotation requires no feedbacks of any kind; in contrast to manual surfs, paid to read email or paid to click sites.
Autosurfing allows members to promote websites of their own choice, according to a system of credits earned by surfing. Members usually earn credits in a fixed ratio to the number of sites they view. Member-promoted websites may or may not be their own websites. If not, they are most often the members' referral page at another autosurf or an online money-making program. This is because many autosurfs are structured as pyramid schemes: members may earn a commission for each site that their referrals view, and are therefore encouraged to build a downline.
As autosurfs are run from websites, online payment processors are used for members to upgrade and withdraw their profits. The most popular form of e-currency used is e-gold or e-bullion. StormPay was a very popular payment processor until February 2006 but has now converted to an auction site.
[edit] "Investment" Autosurfs
A large number of autosurfs are investment autosurfs: to earn money surfing, members must pay a fee and are then promised a certain return on their fee. The "investment" is claimed to be a membership or upgraded membership fee and the "return", a per-site commission.
In the case of investment autosurfs, members either pay a fee to join and/or to upgrade their account level. This fee can usually vary from a few cents to thousands of dollars, and the minimum and maximum is set by the site operator. The program then offers a commission based on the member's account level for viewing a minimum number of sites, for example, for a period of X days, every day that the member views Y sites, Z% of the upgrade fee will be credited and can be withdrawn from the site. The product of Z% and X is always over 100% to ensure that the member makes a profit. Members also have even more incentive to build a downline because further commissions are received based on the amount of money that referred members put in or earn.
The investment autosurf concept is against PayPal's Acceptable Use Policy[1]. Historically, Paypal has blocked most autosurf programs' accounts.
[edit] Controversy
A large amount of controversy is concentrated over whether autosurfs are inherently structured as Ponzi schemes. Traffic-only autosurfs that involve no monetary transactions can also be Ponzis if more credits are earned than page views available; older members are promised a certain number of website hits which can only be fulfilled by newer members joining. Due to the precedent set by 12 Daily, there is a strong possibility that most investment autosurfs are Ponzi schemes, and thus breaking the law and/or deceiving their users; whereas paid to surf sites usually had a viable business model where advertisers pay for the site to be viewed but not earn money in return.
On the other hand, autosurfs which require an investment and promise to pay a profit must, to not be a Ponzi, have other sources of income which can yield the high percentages they offer. Therefore, they often come under attack for failing to reveal their income sources or not registering with the proper authorities as a legitimate investment company. Ponzi schemes will end when no new investors are found, and it follows that autosurf sites have rather short lifespans, existing from one week to a few years depending on the popularity and "investment plans" offered.
[edit] 12DailyPro
12DailyPro was one of the largest autosurfs in 2005. Promising a return of 12% daily for 12 days, funds invested went into the millions. In February of 2006, autosurfs reached the United States national news when funds of members of 12DailyPro were frozen by payment processor StormPay [2].
Rather than focus entirely on StormPay, news organizations such as ABC4 (Utah) and WTOC (Georgia) investigated the autosurf itself. In a statement released by the Georgia Government Consumer Protection Agency titled "Pyramid Schemes Never Die; Just Evolve", 12DailyPro was closely scrutinized. Media calls to 12DailyPro owner Charis Johnson went unanswered.
Later in February, 12DailyPro was given a cease and desist order by the SEC, who claimed that 95% of the program's funds came from new members. On February 28, the SEC filed a proposed stipulation, agreed to by the attorney for Charis Johnson, LifeClicks, and 12DailyPro, that these parties would turn over all assets and records to a permanent legal receiver. [3]
[edit] 2006-Present
After the demise of 12DailyPro, many other autosurfs collapsed as well; this is widely assumed to be because they invested member funds into 12DailyPro, causing a domino effect. Subsequently, autosurfs have become less popular and are more widely believed to be ponzi schemes. However, many still autosurf, either refusing to accept that they are ponzi structured, or knowingly using this to profit (through attracting new investors to prolong the life of the program). Also, some autosurfs have begun to focus on the advertising side of their business model, by, for example, converting to manual surf or by paying members bonuses that are not dependent upon the advertising fee. They have introduced disclaimers on their sites saying that purchases are solely for advertising, earnings are payments for viewing advertising and that there is no guarantee of earnings. However, disclaimers do not override the law and thus do not legalize an otherwise fraudulent program.
Money invested in 12DailyPro is currently being held by a court-ordered payment receiver [4].

Make money fast

2007-08-19T07:06:00.001-07:00

Make money fast
"Make money fast" is a title of an electronically forwarded chain letter which became so infamous that the term is now used to describe all sorts of chain letters forwarded over the Internet, by e-mail spam or Usenet newsgroups. In anti-spammer slang, the name is often abbreviated "MMF"
History
The original "Make Money Fast" letter was written around 1988 by a person who used the name Dave Rhodes. Biographical details are not certain — it is not clear that this is the person's actual name — it is often said Rhodes was a student at Columbia Union College, a Christian college in Maryland, who wrote a text file chain letter titled "Make Money Fast", and uploaded it to a nearby BBS[1]. It is often said [2] that Rhodes was convicted of some fraud-related crime and that as part of his sentence he had to create an anti-spam website, but no evidence of this has been found[3]. Sites like http://daverhodes.etee2k.netare apparently hoaxes.
The scam reached the Internet, where it was forwarded over e-mail and Usenet, although it was not until spamming became a major problem in 1994 that "Make money fast" exploded. It became one of the most persistent spams in existence and multiple variations have evolved, often by spammers who change the subject of their email to "This really works!" or "You are a winner!"
Mechanics and legality
The "Make Money Fast" chain letter encouraged readers of the email to forward one dollar in cash to a list of people provided in the text, and to add their own name and address to the bottom of the list after deleting the name and address at the top. Using the theory behind pyramid schemes, the resulting chain of money flowing back and forth would supposedly deliver a reward of thousands of dollars to the ones participating in the chain, as copies of their chain spread and more and more people sent one dollar to their address.
The text of "Make money fast" originally claimed to be "perfectly legal", citing Title 18, U.S. Code, Sections 1302 (which deals with postal lotteries) and 1341 (which deals with mail fraud).[1] The U.S. Postal Inspection Service cites 18 USC 1302 when it asserts the illegality of chain letters, including MMF:
[Chain letters are] illegal if they request money or other items of value and promise a substantial return to the participants. Chain letters are a form of gambling, and sending them through the mail (or delivering them in person or by computer, but mailing money to participate) violates Title 18, United States Code, Section 1302, the Postal Lottery Statute.[2]
It also asserts that "[r]egardless of what technology is used to advance the scheme, if the mail is used at any step along the way, it is still illegal."[3] The U.S. Postal Inspection Service asserts the mathematical impossibility that all participants will be winners, as well as the possibilities that:
• participants may fail to send money to the first person listed, and
• the perpetrator may have listed himself multiple times under different addresses and names, thus ensuring that all the money go to the same person.[4]
MMF parodies
The chain letters follow a rigidly predefined format or template with minor variations (such as claiming to be from a retired lawyer or claiming to be selling "reports" in order to attempt to make the scheme appear lawful). They quickly became repetitive, causing them to be bait for widespread satire or parody. For example, one parody claimed to be the first such chain letter[5] saying that palaeontologists recently deciphered a statement painted on a cave wall that begins "MAKE SPIKY CLUBS FAST!!!"
External links
• Make Money Fast Chain Letter discussion
• Chain letters
• US Postal Inspection Service on Chain Letters
• Make Money Fast Hall of Humiliation
Parodies
• Make Tenure Fast - Academic parody.
• More parodies

Marketing

2007-08-19T07:05:00.001-07:00

Marketing
Introduction
A market-focused, or customer-focused, organization first determines what its potential customers desire, and then builds the product or service. Marketing theory and practice is justified in the belief that customers use a product/service because they have a need, or because a product/service provides a perceived benefit.
Two major factors of marketing are the recruitment of new customers (acquisition) and the retention and expansion of relationships with existing customers (base management).
Once a marketer has converted the prospective buyer, base management marketing takes over. The process for base management shifts the marketer to building a relationship, nurturing the links, enhancing the benefits that sold the buyer in the first place, and improving the product/service continuously to protect the business from competitive encroachments.
Marketing methods are informed by many of the social sciences, particularly psychology, sociology, and economics. Anthropology is also a small, but growing, influence. Market research underpins these activities. Through advertising, it is also related to many of the creative arts.
For a marketing plan to be successful, the mix of the four "Ps" must reflect the wants and desires of the consumers in the target market. Trying to convince a market segment to buy something they don't want is extremely expensive and seldom successful. Marketers depend on marketing research, both formal and informal, to determine what consumers want and what they are willing to pay for it. Marketers hope that this process will give them a sustainable competitive advantage. Marketing management is the practical application of this process. The offer is also an important addition to the 4P's theory.
Within most organizations, the activities encompassed by the marketing function are led by a Vice President or Director of Marketing. A growing number of organizations, especially large US companies, have a Chief Marketing Officer position, reporting to the Chief Executive Officer.
The American Marketing Association (AMA) states, “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives".
Two Levels of Marketing
Strategic Marketing attempts to determine how an organization competes against its competitors in a market place. In particular, it aims at generating a competitive advantage relative to its competitors.
Operational Marketing executes marketing functions to attract and keep customers and to maximize the value derived for them, as well as to satisfy the customer with prompt services and meeting the customer expectations. Operational Marketing includes the determination of the marketing mix.
Four Ps
Main article: marketing mix
In popular usage, "marketing" is the promotion of products, especially advertising and branding. However, in professional usage the term has a wider meaning which recognizes that marketing is customer centered. Products are often developed to meet the desires of groups of customers or even, in some cases, for specific customers. E. Jerome McCarthy divided marketing into four general sets of activities. His typology has become so universally recognized that his four activity sets, the Four Ps, have passed into the language.
The four Ps are:
• Product: The product aspects of marketing deal with the specifications of the actual goods or services, and how it relates to the end-user's needs and wants. The scope of a product generally includes supporting elements such as warranties, guarantees, and support.
• Pricing: This refers to the process of setting a price for a product, including discounts. The price need not be monetary - it can simply be what is exchanged for the product or services, e.g. time, energy, psychology or attention.
• Promotion: This includes advertising, sales promotion, publicity, and personal selling, and refers to the various methods of promoting the product, brand, or company.
• Placement or distribution refers to how the product gets to the customer; for example, point of sale placement or retailing. This fourth P has also sometimes been called Place, referring to the channel by which a product or services is sold (e.g. online vs. retail), which geographic region or industry, to which segment (young adults, families, business people), etc.
These four elements are often referred to as the marketing mix.[1] A marketer can use these variables to craft a marketing plan. The four Ps model is most useful when marketing low value consumer products. Industrial products, services, high value consumer products require adjustments to this model. Services marketing must account for the unique nature of services. Industrial or B2B marketing must account for the long term contractual agreements that are typical in supply chain transactions. Relationship marketing attempts to do this by looking at marketing from a long term relationship perspective rather than individual transactions.
As a counter to this, Morgan, in Riding the Waves of Change (Jossey-Bass, 1988), adds "Perhaps the most significant criticism of the 4 Ps approach, which you should be aware of, is that it unconsciously emphasizes the inside–out view (looking from the company outwards), whereas the essence of marketing should be the outside–in approach". Even so, having made this important caveat, the 4 Ps offer a memorable and quite workable guide to the major categories of marketing activity, as well as a framework within which these can be used.
Seven Ps
As well as the standard four Ps (Product, Pricing, Promotion and Place), services marketing calls upon an extra three, totaling seven and known together as the extended marketing mix. These are:
• People: Any person coming into contact with customers can have an impact on overall satisfaction. Whether as part of a supporting service to a product or involved in a total service, people are particularly important because, in the customer's eyes, they are generally inseparable from the total service. As a result of this, they must be appropriately trained, well motivated and the right type of person. Fellow customers are also sometimes referred to under 'people', as they too can affect the customer's service experience, (e.g., at a sporting event).
• Process: This is the process(es) involved in providing a service and the behaviour of people, which can be crucial to customer satisfaction.
• Physical evidence: Unlike a product, a service cannot be experienced before it is delivered, which makes it intangible. This, therefore, means that potential customers could perceive greater risk when deciding whether to use a service. To reduce the feeling of risk, thus improving the chance for success, it is often vital to offer potential customers the chance to see what a service would be like. This is done by providing physical evidence, such as case studies, testimonials or demonstrations.

Web 2.0 and Marketing New 4Ps
The original 4Ps concept idea was developed to help marketers to manage the four most important aspect of marketing. With the Internet and the Web 2.0, marketers need to adapt a new perspective on these elements that is encompassing and strategic, not narrow and tactical. Author and consultant Idris Mootee came up with the concept of “New 4Ps” model in 2001 in his book High Intensity Marketing (SA Press 2001) to supplement the traditional marketing 4Ps. They are Personalization, Participation, Peer-to-Peer and Predictive Modeling. Today,these are the directions that cutting edge marketing is advancing.
The first “P” is the simple idea of “Personalization” which now takes on a whole new meaning. The author refers to customization of products and services through the use of the Internet. Early examples include Dell on-line and Amazon.com, but this concept is further extended with emerging social media and advanvced algorimths. Emerging technologies will continue to push this idea forward.

The second “P” is the concept of “Participation”, it is to allow customer to participate in what the brand should stand for; what should be the product directions and even which ads to run. This concept is laying the foundation for disruptive change that we have yet to see the full impact with the degree of democratization brought about by this idea. By enabling each of us to create and publish our own stories, the power of deciding what we read; listen and watch has spread from a handful of media companies to anyone with a camera, a connection and a computer.

The third “P” is “Peer-to-Peer” which refers to customer networks and communities where advocacy happens. The historical problem with marketing is that it is "interruptive" in nature, trying to impose their brand on the customer. This is most apparent in TV ad, which pushes out its own idea of what brand is without engaging the customers. These "passive customer base" will ultimately be replaced by the "active customer communities". Brand engagement happens within those conversations. P2P is now being referred as Social Computing and will likely to be the most disruptive force in the future of marketing.

The last “P” is “Predictive Modeling” which refers to neural networks algorithms that are being successfully applied in marketing problems (both a regression as well as a classification problem).
Beyond the 4 Ps
Resources, Relationships, Offerings and Business Models
Marketing in the past focused mainly on basic concepts like the 4 Ps, and primarily on the psychological and sociological aspects of marketing. Competitive advantage was created by directly appealing to the needs, wants and behaviors of customers, better than the competition. Successful marketing was based on who could create the better brand or the lowest price or the most hype. Marketing in the future will be based on a more strategic approach to competitive marketing success.[2] Marketers will consciously build and allocate resources, relationships, offerings and business models that other companies find hard to match. This does not mean the four P approach is dead, simply that it has been expanded upon.
Resources
Companies with a greater number of resources than their competitors will have an easier time competing in the marketplace. Resources include: financial (cash and cash reserves), physical (plant and equipment), human (knowledge and skill), legal (trademarks and patents), organizational (structure, competencies, policies), and informational (knowledge of consumers and competitors). Small companies usually have a harder time competing with larger corporations because of their disadvantage in resource allocation.
Relationships
Success in business, as in life, is based on the relationships you have with people. Marketers must aggressively build relationships with consumers, customers, distributors, partners and even competitors if they want to have success in today's competitive marketplace. There are four type of relationships (1)win-win (2)win-lose (3)lose-lose (4)lose-win.(customer-vendor)
Business Models
The concept of product vs. product in competitive marketing is dying. It's slowly becoming business model vs. business model. Business model innovation can make the competition's product superiority irrelevant. Business model innovation allows a marketer to change the game instead of competing on a level playing field.
Customer focus
Many companies today have a customer focus (or customer orientation). This implies that the company focuses its activities and products on consumer demands. Generally there are three ways of doing this: the customer-driven approach, the sense of identifying market changes and the product innovation approach.
In the consumer-driven approach, consumer wants are the drivers of all strategic marketing decisions. No strategy is pursued until it passes the test of consumer research. Every aspect of a market offering, including the nature of the product itself, is driven by the needs of potential consumers. The starting point is always the consumer. The rationale for this approach is that there is no point spending R&D funds developing products that people will not buy. History attests to many products that were commercial failures in spite of being technological breakthroughs.[3]
A formal approach to this customer-focused marketing is known as SIVA[4] (Solution, Information, Value, Access). This system is basically the four Ps renamed and reworded to provide a customer focus.
The SIVA Model provides a demand/customer centric version alternative to the well-known 4Ps supply side model (product, price, place, promotion) of marketing management.

Product -> Solution
Promotion -> Information
Price -> Value
Place ->Access

The four elements of the SIVA model are:
- Solution: How appropriate is the solution to the customers problem/need
- Information: Does the customer know about the solution, and if so how, who from, do they know enough to let them make a buying decision
- Value: Does the customer know the value of the transaction, what it will cost, what are the benefits, what might they have to sacrifice, what will be their reward?
- Access: Where can the customer find the solution. How easily/locally/remotely can they buy it and take delivery.
This model was proposed by Chekitan Dev and Don Schultz in the Marketing Management Journal of the American Marketing Association, and presented by them in Market Leader - the journal of the Marketing Society in the UK.
The model focuses heavily on the customer and how they view the transaction.
Product focus
In a product innovation approach, the company pursues product innovation, then tries to develop a market for the product. Product innovation drives the process and marketing research is conducted primarily to ensure that a profitable market segment(s) exists for the innovation. The rationale is that customers may not know what options will be available to them in the future so we should not expect them to tell us what they will buy in the future. However, marketers can aggressively over-pursue product innovation and try to overcapitalize on a niche. When pursuing a product innovation approach, marketers must ensure that they have a varied and multi-tiered approach to product innovation. It is claimed that if Thomas Edison depended on marketing research he would have produced larger candles rather than inventing light bulbs. Many firms, such as research and development focused companies, successfully focus on product innovation. Many purists doubt whether this is really a form of marketing orientation at all, because of the ex post status of consumer research. Some even question whether it is marketing.

• An emerging area of study and practice concerns internal marketing, or how employees are trained and managed to deliver the brand in a way that positively impacts the acquisition and retention of customers (employer branding).
• Diffusion of innovations research explores how and why people adopt new products, services and ideas.
• A relatively new form of marketing uses the Internet and is called internet marketing or more generally e-marketing, affiliate marketing, desktop advertising or online marketing. It typically tries to perfect the segmentation strategy used in traditional marketing. It targets its audience more precisely, and is sometimes called personalized marketing or one-to-one marketing.
• With consumers' eroding attention span and willingness to give time to advertising messages, marketers are turning to forms of Permission marketing such as Branded content and Reality marketing.
• The use of herd behavior in marketing.
In an article entitled "Swarming the shelves: How shops can exploit people's herd mentality to increase sales", The Economist recently reported a recent conference in Rome on the subject of the simulation of adaptive human behavior.[5] Mechanisms to increase impulse buying and get people "to buy more by playing on the herd instinct" were shared. The basic idea is that people will buy more of products that are seen to be popular, and several feedback mechanisms to get product popularity information to consumers are mentioned, including smart-cart technology and the use of Radio Frequency Identification Tag technology. A "swarm-moves" model was introduced by a Princeton researcher, which is appealing to supermarkets because it can "increase sales without the need to give people discounts." Large retailers Wal-Mart in the United States and Tesco in Britain plan to test the technology in spring 2007 .
Other recent studies on the "power of social influence" include an "artificial music market in which some 14,000 people downloaded previously unknown songs" (Columbia University, New York); a Japanese chain of convenience stores which orders its products based on "sales data from department stores and research companies;" a Massachusetts company exploiting knowledge of social networking to improve sales; and online retailers who are increasingly informing consumers about "which products are popular with like-minded consumers" (e.g., Amazon).
Criticism of marketing
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Some aspects of marketing, especially promotion, are the subject of criticism. It is especially problematic in classical economic theory, which is based on the assumption that supply and demand are independent. However, product promotion is an attempt coming from the supply side to influence demand. In this way producer market power is attained as measured by profits that would not be realized under a free market. Then the argument follows that non-free markets are imperfect and lead to production and consumption of suboptimal amounts of the product.
Critics acknowledge that marketing has legitimate uses in connecting goods and services to the consumers who want them. Critics also point out that marketing techniques have been used to achieve morally dubious ends by businesses, governments and criminals. Critics see a systemic social evil inherent in marketing (see No Logo, Bill Hicks, Marxism or Commercial Alert). Marketing is accused of creating ruthless exploitation of both consumers and workers by treating people as commodities whose purpose is to consume. (see Fashion victim)
Most marketers believe that marketing techniques themselves are amoral. While it is ethically neutral, it can be used for negative purposes, such as selling unhealthy food to obese people or selling SUVs in a time of global warming, but it can also have a positive influence on consumer welfare.[6]
The Observer’s survey among 1,206 UK adult consumers in 2001 highlighted some of the stark changes our society has gone through in the last two decades. This raises a question on the effectiveness of the CIM’s definition of marketing (anticipating, identifying and satisfying customer needs profitably), mainly in consumer marketing. There are similar concerns in industrial markets, also known as business-to-business or B2B. Industrial market segmentation attempts to provide some answers.
Core marketing elements such as segmentation, targeting and positioning are still relevant in the modern (or post-modern) world.[7] However, they are complex topics that need a high level of effort, intelligent thinking as well as resources to be implemented successfully. A definitive statement cannot be made whether the conventional marketing concept is applicable in today’s environment. Its relevance is very much situational and depends on many factors such as the product, the segment, time, location, political and economic conditions and the inner workings of a company.
However, some scholars such as Stephen Brown challenge the marketing concept in an extreme language. Their statements, sometimes unfair, are relevant, which is why Post-Modern Marketing 2 was chosen as a key reference point for this chapter.[8]
On the one hand Brown makes positive statements about marketing, e.g. “marketing is endowed with considerable personal charm and has enjoyed more than its fair share of conquests” (Brown, 1998:16); and “indeed, the increasing academic attention that is being devoted to marketing and consumption-related phenomena by non-business disciplines such as sociology, anthropology and history; far from being the second-hand rose of the scholarship, marketing is now something of a fashion leader” (p 17)[9]
On the other hand, he condemns marketing by saying “marketing has to decide whether to expose its intellectual nakedness or press itself against the searing heat of postmodernism” (p 17); and using quotes such as “mid-life crisis” (p 23); “in decline; failing; anachronistic; being abandoned; no longer appropriate; in an unprecedented state of crisis; delivered nothing of value; failure; confusion; misunderstanding; occasional inexplicable hitting of the jackpot” (p. 21).
This apparent love-hate relationship is proof in itself that even a skeptics find it difficult to deny the contribution that marketing has made and can make to customer satisfaction and economic value. It has contributed to both customers’ and suppliers’ quality of life by selecting profitable customer satisfaction as its sole objective. The marketing concept, together with other business disciplines, helped the UK to make the transition from a 19th-century manufacturing economy to a modern model of success in the service industry, creating an economic growth period never seen before in the United Kingdom.[citation needed]
Marketing has helped create value through customized products, no-questions-asked refund policies, comfortable cars, environmental attention, shopkeepers’ smile, and guaranteed delivery dates. Even some government departments address the public not as ‘the Queen’s subjects’ or ‘the applicants’ any more but as ‘customers.' Of course all of the above is done for economic or political gain, for better or worse. Despite all this achievement, to dismiss marketing as a failure is unfair.[citation needed]
Marketing also helps companies avoid unnecessary R&D, operational and sales costs by helping to develop products because customers want them, not for the sake of innovation. Another success is the now commonly implemented value-pricing principle, whereby a product or service is sold for the price the customer is willing to pay, not on a cost-plus basis. This way, both suppliers and customers get a fair deal.[citation needed]
In the context of segmentation, Brown suggests that “the traditional, linear, step-by-step marketing model of analysis, planning, implementation and control no longer seems applicable, appropriate or even pertinent to what is actually happening on the ground” (p. 23-24). If Mr. Brown had studied “the ground” before making his statement, he would have realised that companies are successful the world over precisely because they implement this model.
They segment their markets, relate their products and services to them, define their value proposition and serve their customers accordingly. Examples are General Electric, HSBC, PriceWaterhouseCoopers, Smiths Aerospace, BAE Systems, BOC Edwards, Weir Group and the BT Group to name but a few. A brief visit to their websites can make this point clear.
Stephen Brown also has a constructive suggestion: “I reckon we need more passion in marketing, not less; it is time we banished banishing passion from works of marketing scholarship” (p. 256). This refers mainly to promotion, which is only one element within the marketing concept. The truth is that marketing today leads the way in segmentation, innovation, pricing, product management, distribution, and last but not least, promotion.
After all the contribution as well as further potential, to deny its successes and try to reduce it to only promotion is a great injustice to the marketing profession as well as to academic insight. Contrary to Brown’s suggestion in his final paragraph (p. 257), we need objectivity, rigour, quantification, models, relationships, paradigm shifts and (some application of) science.
References
1. ^ "The Concept of the Marketing Mix" from the Journal of Advertising Research, June 1964 pp 2-7
2. ^ "Passionate & Profitable: Why Customer Strategies Fail and 10 Steps to Do Them Right!", Lior Arussy, John Wiley & Sons, 2005
3. ^ "Marketing Management: Strategies and Programs", Guiltinan et al, McGraw Hill/Irwin, 1996
4. ^ "In the Mix: A Customer-Focused Approach Can Bring the Current Marketing Mix into the 21st Century". Chekitan S. Dev and Don E. Schultz, Marketing Management v.14 n.1 January/February 2005
5. ^ "Swarming the shelves: How shops can exploit people's herd mentality to increase sales?", The Economist, 2006-11-11, p. 90.
6. ^ Marketing Nutrition: Soy, Functional Foods, Biotechnology, and Obesity (2005), Brian Wansink, Champaign, IL: University of Illinois Press
7. ^ "The Customer Driven Company: Moving From Talk to Action" R.C. Whiteley, Pfeiffer & Company, 2000
8. ^ Brown, Stephen (1993), „Postmodern Marketing?“, European Journal of Marketing Vol. 27 No. 4, pp. 19-34
9. ^ Brown, Stephen (1998), „Post-Modern Marketing 2 – Telling Tales“, Thomson Business Press.
See also
• Advertising
• Ad Tracking
• Advertising Research
• Article marketing
• Borderless Selling
• Brand
• Branded content
• Cause marketing
• The Chartered Institute of Marketing
• Claude C. Hopkins
• Coolhunting
• Copy testing
• Customer Engagement
• Engagement marketing
• Evangelism marketing
• Global Marketing
• Guerrilla marketing
• Integrated Marketing Communications
• Internet marketing
• Marketeer
• Marketing collateral
• Marketing co-operation
• Mass customization
• Master of Marketing Research
• Merchandising
• Mobile Marketing
• Multichannel Marketing
• One Source Multi Use
• Permission marketing
• Predictive analytics
• Digital marketing
• Reality marketing
• Sales techniques
• Search engine marketing
• Service-dominant logic of marketing
• Services
• Social marketing
• Sports marketing
• Upsell
• Viral marketing
• Behavioral marketing

Related lists
Wikibooks has more about this subject:
Marketing
Wikiquote has a collection of quotations related to:
Marketing
See list of marketing topics for an extensive list of the marketing articles
• List of management topics
• List of human resource management topics
• List of economics topics
• List of finance topics
• List of accounting topics
• List of information technology management topics
• List of production topics
• List of business law topics
• List of international trade topics
• List of business ethics, political economy, and philosophy of business topics
• List of business theorists
• List of economists
• List of corporate leaders

Gold exchange-traded fund

2007-08-19T07:03:00.001-07:00

Gold exchange-traded fund
Gold exchange-traded funds (or GETFs) are special types of exchange-traded funds (ETFs) tracking the price of gold. Gold exchange-traded funds are traded on the major stock exchanges including London, Paris and New York.

History
The idea of a gold ETF was first officially conceptualised by Benchmark Asset Management Company in India when they filed a proposal with the SEBI in May 2002. It was not launched since it did not receive regulatory approval. The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities (ticker symbol "GOLD"). Gold Bullion Securities (GBS) are fully backed by gold which is both deposited and insured. GBS was launched to give financial institutions and private investors the ability to own gold and gain exposure to the price, without the inconvenience of storing physical bars.
Fees
Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. In some countries, gold ETFs represent a way to avoid the sales tax or the VAT which would apply to physical gold coins and bars.
Funds
Exchange Traded Gold
Following the launch of Gold Bullion Securities on 28 March 2003 in Australia, a number of associated GETFs were soon launched on other stock exchanges. These GETFs are grouped under the name Exchange Traded Gold.
Exchange Traded Gold is listed under:
• Gold Bullion Securities (ASX: GOLD)
• Lyxor Gold Bullion Securities (LSE: GBS and Euronext: GBS)
• streetTRACKS Gold Shares (NYSE: GLD)
• New Gold Issuer (JSE: GLD)
Exchange Traded Gold is sponsored by the World Gold Council, and as of August 2007 held 627.92 tonnes of gold in storage [1]. streetTRACKS Gold Shares marketed by State Street Global Markets LLC, an affiliate of State Street Global Advisors, accounts for over 80 percent of this gold. As of 2007, streetTRACKS was the largest and most liquid GETF on the market.
iShares COMEX Gold Trust
The iShares COMEX Gold Trust was launched by iShares on 21 January 2005 and is listed on the New York Stock Exchange (NYSE: IAU). As of August 2007 the fund held 48.22 tonnes of gold in storage [2].
ZKB Gold ETF
The ZKB Gold ETF was launched on 15 March 2006 by Zürcher Kantonalbank and is listed in Switzerland (SWX: [3]). Shares are sold in 1 kg gold units, with a minimum purchase of one unit. As of August 2007, ZKB Gold ETF held 22.0 tonnes of gold in storage.
Central Fund of Canada
The Central Fund of Canada (TSX: CEF.A and NYSE: CEF) are a public corporation headquartered in Calgary, Alberta, Canada, mandated to keep the bulk of their net assets in a mixture of gold and silver with a small percentage of cash. The custodian of the gold and silver assets is the main Calgary branch of CIBC. As of August 2007, the Central Fund of Canada held 23.63 tonnes of gold and 1181.61 tonnes of silver in storage.
ETFS Physical Gold
In September 2006 ETF Securities launched ETFS Gold (LSE: BULL) which tracks the DJ-AIG Gold Sub-Index, and later in April 2007 ETFS Physical Gold (LSE: PHAU) which is backed by allocated gold bullion. As of August 2007 ETFS Physical Gold held 2.33 tonnes of gold in storage [4].
Future funds
Other countries, like India and Japan, are proposing to launch GETFs [5] [6] [7].
Criticism
Unlike physical gold bullion which is held in personally allocated storage, the investor will only become a general creditor if an ETF provider went into liquidation. Gold ETFs are a form of debenture.
During an economic crisis GETF assets may be subject to a compulsory purchase by governments, as seen in Executive Order 6102 of 1933 and the Gold Reserve Act of 1934.

Electronic money

2007-08-19T07:02:00.001-07:00

Electronic money
Electronic money (also known as electronic cash, electronic currency, digital money, digital cash or digital currency) refers to money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, the internet and digital stored value systems. Electronic Funds Transfer (EFT) and direct deposit are examples of electronic money. Also, it is a collective term for financial cryptography and technologies enabling it.
While electronic money has been an interesting problem for cryptography (see for example the work of David Chaum and Markus Jakobsson), to date, use of digital cash has been relatively low-scale. One rare success has been Hong Kong's Octopus card system, which started as a transit payment system and has grown into a widely used electronic cash system. Another success is Canada's Interac network, which in 2000 at retail (in Canada) surpassed cash [1] as a payment method. Singapore also has an electronic money implementation for its public transportation system (commuter trains, bus, etc), which is very similar to Hong Kong's Octopus card and based on the same type of card (FeliCa).
Alternative systems
Technically electronic or digital money is a representation, or a system of debits and credits, used (but not limited to this) to exchange value, within another system, or itself as a stand alone system, online or offline. Also sometimes the term electronic money is used to refer to the provider itself. A private currency may use gold to provide extra security, such as digital gold currency. An e-currency system may be fully backed by gold (like e-gold and c-gold), non-gold backed (like eeeCurrency), or both gold and non-gold backed (like e-Bullion and Liberty Reserve).
Many systems will sell their electronic currency directly to the end user, such as Paypal and WebMoney, but other systems, such as e-gold, sell only through third party digital currency exchangers.
In the case of Octopus Card in Hong Kong, deposits work similarly to banks'. After Octopus Card Limited receives money for deposit from users, the money is deposited into banks, which is similar to debit-card-issuing banks redepositing money at central banks.
Some community currencies, like some LETS systems, work with electronic transactions. Cyclos Software allows creation of electronic community currencies.
Ripple monetary system is a project to develop a distributed system of electronic money independent of local currency.
Virtual debit cards
Various companies now sell VISA, Mastercard or Maestro debit cards, which can be recharged via electronic money systems. This system has the advantage of greater privacy if a card provider is located offshore, and greater security since the client can never be debited more than the value on the prepaid card. Such debit cards are also useful for people who do not have a bank account. Generally cards can be recharged with either e-gold, e-Bullion, WebMoney, or via a wire transfer.
Advantages
Most money in today’s world is electronic, and tangible cash is becoming less frequent. With the introduction of internet / online banking, debit cards, online bill payments and internet business, paper money is becoming a thing of the past.
Banks now offer many services whereby a customer can transfer funds, purchase stocks, contribute to their retirement plans (such as Canadian RRSP) and offer a variety of other services without having to handle physical cash or cheques. Customers do not have to wait in lines; this provides a lower-hassle environment.
Debit cards and online bill payments allow immediate transfer of funds from an individual's personal account to a business's account without any actual paper transfer of money. This offers a great convenience to many people and businesses alike.
Disadvantages
Although there are many benefits to digital cash, there are also many significant disadvantages. These include fraud, failure of technology, possible tracking of individuals and loss of human interaction.
Fraud over digital cash has been a pressing issue in recent years. Hacking into bank accounts and illegal retrieval of banking records has led to a widespread invasion of privacy and has promoted identity theft. [citation needed]
There is also a pressing issue regarding the technology involved in digital cash. Power failures, loss of records and undependable software often cause a major setback in promoting the technology. [citation needed]Privacy questions have also been raised; there is a fear that the use of debit cards and the like will lead to the creation by the banking industry of a global tracking system. Some people are working on anonymous ecash to try to address this issue. The issue of providing anonymity to users itself introduces more problems, however; there is the distinct possibility that a fully anonymous digital cash system could permit the "perfect crime" - i.e., where a criminal uses someone else's electronic cash to make a payment, but cannot be traced - to occur. For this reason, 'revokable anonymity' is a suggested solution: a user is fully anonymous until they commit some crime, at which point authorisation is given for their identity to be revealed. However, critics of this policy point out that the anonymous users will never be caught and held trial (thus their identity will never be revealed) without tracing.[citation needed]
Future evolution
The main focuses of digital cash development are 1) being able to use it through a wider range of hardware such as secured credit cards; and 2) linked bank accounts that would generally be used over an internet means, for exchange with a secure micropayment system such as in large corporations (PayPal).
Furthering network evolution in terms of the use of digital cash, a company named DigiCash is at the focus of creating an e-cash system that would allow issuers to sell electronic coins at some value. When they are purchased they come under someone’s own name and are stored on his computer or under his online identity. At all times, the e-cash is linked to the e-cash company and all transactions go through it, so the e-cash company secures anything that is purchased. Only the company knows your information and will properly direct purchases to your location.
Theoretical developments in the area of decentralized money are underway that may rival traditional, centralized money. Systems of accounting such as Altruistic Economics are emerging that are entirely electronic, and can be more efficient and more realistic because they do not assume a zero-sum transaction model.

Private currency

2007-08-19T07:01:00.003-07:00

Private currency
A private currency is a currency issued by a private institution. It is often contrasted with fiat currency issued by governments.
In many countries, the issue of private paper currencies is severely restricted by law. However, in Scotland and Northern Ireland private sector banks are licensed by the government to print their own paper money.
Today there are several privately issued electronic currencies in circulation, such as digital gold currency, that function as money. Transactions in these currencies represent an annual turnover value in billions of US dollars.
History

A private $1 note, issued by the "Delaware Bridge Company" of New Jersey 1836-1841.
In the United States, the Free Banking Era lasted between 1837 and 1866, when almost anyone could issue paper money. States, municipalities, private banks, railroad and construction companies, stores, restaurants, churches and individuals printed an estimated 8,000 different monies by 1860. If an issuer went bankrupt, closed, left town, or otherwise went out of business the note would be worthless. Such organizations earned the nickname of "wildcat banks" for a reputation of unreliability; they were often situated in remote, unpopulated locales said to be inhabited more by wildcats than by people. Yet according to Lawrence H. White's article in The Freeman "it turns out that 'wildcat' banking is largely a myth. Although stories about crooked banking practices are entertaining—and for that reason have been repeated endlessly by textbooks—modern economic historians have found that there were in fact very few banks that fit any reasonable definition of wildcat bank." The National Bank Act of 1863 ended the "wildcat bank" period.
In Australia, the Bank Notes Tax Act of 1910 basically shut down the circulation of private currencies by imposing a prohibitive tax on the practice. Many other nations have similar such policies that eliminate private sector competition.
One example of a currency that lost government support but retained use amongst a community is the Swiss dinar.
Ithaca hours
The city of Ithaca in Western New York State has experimented [1] with barter [2] in which participating workers exchange services for Ithaca Hours which are used to buy goods and services forming a subprivate currency for a small locality. The scheme has been ruled legal provided all transactions are taxed.
Currency backing
Today many private currencies are backed by a commodity to increase asset security and nullify inflation, which can be caused by an issuer increasing money supply. Some use established and historic forms of money, such as silver or gold, as in the case of digital gold currencies or the Liberty dollar.
It is possible for privately issued money to be backed by any commodity, although some people argue that perishable goods can never be used as currency, other than in bartering.[citation needed] One criterion that is regarded as critical for any currency backing material is its fungibility. Alternative views suggest paper money backed by energy (measured for example in "joules of electricity" or "joules of oil"), transport (measured in kg•km/h), or food for instance, may be used in the future.

Digital currency exchanger

2007-08-19T07:01:00.001-07:00

Digital currency exchanger
From Wikipedia, the free encyclopedia
Jump to: navigation, search
Digital currency exchangers (DCEs, independent exchange providers or e-currency exchangers) are market makers which exchange fiat currency for electronic money, such as digital gold currency (DGC), and/or convert one type of digital currency (DC) into another, such as WebMoney into e-gold. Exchangers apply either a commission or bid/offer spread to transactions.
Some digital gold currency accounts, such as e-gold, do not provide an in-house service to purchase their private currency so it is necessary to use a third-party digital currency exchanger. According to e-gold's website the reason they do not provide an in-house exchange service is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. They claim e-gold Ltd. does not possess currency of any nation or even have a bank account.
Risks
There are no specific financial regulations governing DCEs, so they operate under self-regulation. However the Global Digital Currency Association (GDCA), who were founded in 2002, are a non-profit association of online currency operators, exchangers, merchants and users. On their website they claim their goal is to "further the interests of the industry as a whole and help with fighting fraud and other illegal activities, arbitrate disputes and act as escrow agent when and where required." [1]
It is possible for clients to purchase DGC by credit card, and therefore receive consumer protection from their credit card company. Various exchangers offer this service, although the exchange fees are typically higher than using a wire transfer [2].
Exchangers
Comparison of DCEs (as of October 2006):
Digital currency exchanger Date founded GDCA member Telephone helpdesk Digital currencies accepted Fiat currencies accepted Commission buying DC Commission selling DC Commission exchanging DC to DC
ExchEngine
2004 No Yes 5 ? ? ? ?
GoldExchange.eu
2005 Yes Yes 3 2 1.9 - 2.9% 1.9% N/A
GoldNow
1999 Yes Yes 3 9 0 - 2% 5% N/A
Goldtotem
2005 No Yes 4 3 3 - 5% 0.75 - 1.5% 1.5 - 3%
IceGold
2000 Yes Yes 1 9 2% 2% N/A
London Gold Exchange
2000 Yes No 8 ? 3 - 4% 1 - 4% 3 - 4%
NetPay
2001 No No ? ? ? ? ?
OmniPay
1996 No No (answerphone) 4 (all issued by e-gold) 7 2% 2% 0%
ROBOXchange
2002 Yes Yes 14 0 N/A N/A 1 - 5%
SpeedyExchange
2003 Yes No (answerphone) 7 3 8 - 13% 1.5 - 9% 0.3 - 4.4%
Regulatory issues
In September 2004 several Australian based e-gold currency exchangers voluntarily ceased operation as they did not hold an Australian Financial Services licence (AFSL) [3]. Australian based DCEs that elected to close, due to the Australian Securities and Investments Commission (ASIC) licencing requirements, included:
• goldex.net
• sydneygoldsales.com
• ozzigold.com
In July 2006 Gold Age was closed down by US government authorities following the arrest of the owners, Arthur Budovsky and Vladimir Kats, on account of not having a New York state "money transmitters" licence.
In April 2007 the US government seized the e-gold accounts of OmniPay, The Bullion Exchange, AnyGoldNow, IceGold, GitGold, The Denver Gold Exchange and GoldPouch Express, and forced G&SR (owner of OmniPay) to liquidate the seized assets [4].

Digital gold currency

2007-08-19T07:00:00.001-07:00

Digital gold currency
Digital gold currency (or DGC) is a form of electronic money denominated in gold weight. The typical unit of account for such currency is the gold gram or the troy ounce, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage.
Digital gold currencies are issued by a number of companies, each of which provides a system that enabled users to pay each other in units that held the same value as gold bullion. These competing providers issue independent currency, which normally carries the same name as their company. In terms of the most popular providers, e-gold has the greatest number of users and GoldMoney holds the greatest quantity of bullion (as of January 2007).
As of January 2007, DGC providers held in excess of 9.5 tonnes of gold as disclosed reserves, which is worth approximately $184 million.
Asset protection

e-gold is, according to their website, "100% backed by gold"
Unlike fractional-reserve banking, DGCs (such as e-gold and GoldMoney) hold 100% of clients' funds in reserves with a store of value. Proponents of DGC systems contend that deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency. It is also theoretically much harder for governments and/or creditors to seize or confiscate digital gold currency from someone, as most DGC companies are incorporated in offshore financial centres.
Bullion investing
Main articles: Gold as an investment and Silver as an investment
Digital currencies backed by gold are the most popular, although e-gold, e-Bullion and e-dinar also provide digital currency backed by silver, while GoldMoney and Crowne Gold also provide storage in silver. Other digital silver currencies include the eLibertyDollar and Phoenix Silver. In addition to gold and silver, e-gold supplies digital currency backed by platinum and palladium. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.
Exchanging fiat currency
Some providers, like e-gold, do not sell DGC directly to clients. In the case of an e-gold account, currency must be bought and sold via a digital currency exchanger (DCE). According to their website the reason they do this is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. DGCs are known as private currency as they are not issued by governments.
Non-reversible transactions
Unlike the credit card industry, DGC issuers generally do not bundle services such as repudiation. Thus having transactions reversed, even in case of a legitimate error, unauthorized spend, or failure of a vendor to supply goods is not possible. In this respect, a DGC spend is more akin to a cash transaction while PayPal transfers, for example, could be considered more similar to credit card transactions.
Universal currency
Proponents claim that DGC offers a truly global and borderless world currency system which is independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.
Risks
Digital gold currency is a form of commodity money as deposits are stored in gold units rather than fiat currency. The purchasing power of DGC therefore fluctuates in relation to the gold price. If the price of gold increases, then an account becomes more valuable, but if the price of gold falls, so does the value of the account.
There are no specific financial regulations governing DGC providers, so they operate under self-regulation. DGC providers are not banks and therefore do not need to comply with bank regulations. However the Global Digital Currency Association (GDCA), which was founded in 2002, is a non-profit association of online currency operators, exchangers, merchants and users. The GDCA is an example of the DGC industry's attempt at self-regulation. On their website they claim their goal is to "further the interests of the industry as a whole and help with fighting fraud and other illegal activities, arbitrate disputes and act as escrow agent when and where required." [1] Of the current DGC providers, only Pecunix and Liberty Reserve have become members of the association.
Following 27 April 2007, the United States Department of Justice forced e-gold to liquidate all the assets of 1mdc (which are held in e-gold), and is attempting to bring a case against e-gold [2]. e-gold has committed to counter what it considers groundless allegations [3]. Pecunix, GoldMoney, e-Bullion and other DGCs continue to operate normally,
Providers
Comparison of DGCs (as of January 2007):
Digital gold currency Date founded GDCA member Bullion stored Number of user accounts DCE transfers accepted Wire transfers accepted Annual storage fee Processing fee (when receiving from another user)
c-gold
2007 Yes 200 oz (as of 17 July 2007) Undisclosed No No 1% 1 - 5% (with min. 5% plus 0.0002 grams - max. 0.05 grams)
Crowne Gold
2002 No Undisclosed Undisclosed No Yes 1% 0%
e-Bullion
2000 No Undisclosed Undisclosed Yes Yes 4 gold grams 0%
e-dinar
2000 No Undisclosed Undisclosed No Yes 1% 1% (with max. 0.015 gold dinar)
e-gold
1996 No 111,779 oz gold, 138,567 oz silver, 400 oz platinum, 396 oz palladium 3,571,496 Yes No 1% 1 - 5% (with min. 5% plus 0.0002 gold grams - max. 0.05 gold grams)
GoldExchange
2006 No Undisclosed Undisclosed No Yes 1% $0.35 USD
GoldMoney
2001 No 193,921 oz gold, 3,229,907 oz silver Undisclosed No Yes 1.2 gold grams, 0.986% silver 1% (with min. 0.01 - max. 0.1 gold grams)
Liberty Reserve
2005 Yes Undisclosed Undisclosed Yes No 0% 1% (min. $0.01 - max. $0.25 USD)
Pecunix
2002 Yes 2,375 oz gold Undisclosed Yes No 0% 0.15 - 0.50% (with min. 0.0001 - max. 3.0 gold grams)
VirtualGold
2006 No Undisclosed Undisclosed No Yes 0% 1% (with min. $0.10 - max. $2.00 USD)
Criticisms
DGC providers and exchangers have been accused of being a medium for fraudulent HYIP schemes. In January 2006, BusinessWeek reported that ShadowCrew, an online gang, used the e-gold system in a massive identity theft and fraud scheme [4]. However, allegations that e-gold is a safe medium for crime and fraud are strongly denied by its Chairman and founder, Dr. Douglas Jackson [5].
Many DGC providers do not disclose the amount of bullion stored (see table) or allow independent external bullion audits, raising concerns that such companies do not maintain a 100% reserve ratio, or their currency is entirely virtual and not backed by physical gold at all.

PayPal

2007-08-19T06:59:00.001-07:00

From Wikipedia, the free encyclopedia
PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. It serves as an electronic alternative to traditional paper methods such as cheques and money orders. PayPal performs payment processing for online vendors, auction sites, and other corporate users, for which it charges a fee. On October 3, 2002, PayPal became a wholly owned subsidiary of eBay.[1] Its corporate headquarters are in San Jose, California, at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska; Dublin, Ireland; and Berlin, Germany.[2]
Contents
History
Beginnings
PayPal is the result of a March 2000 merger between Confinity and X.com.[3] Confinity was founded in December 1998 by Max Levchin, Peter Thiel, and Luke Nosek, initially as a Palm Pilot payments and cryptography company.[4] Both Confinity and X.com launched their websites in late 1999. X.com was founded by Elon Musk in March 1999, initially as an Internet financial services company. Both companies were located on University Avenue in Palo Alto. Confinity's website was initially focused on reconciling beamed payments from Palm Pilots [5] with email payments as a feature and X.com's website initially included financial services with email payments as a feature.
At Confinity, many of the initial recruits were alumni of The Stanford Review, also founded by Peter Thiel, and most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com side, Elon Musk recruited a wide range of technical and business personnel, including many that were critical to the combined company's success, such as Amy Klement, Sal Giambanco, Roelof Botha, Sanjay Bhargava and Jeremy Stoppelman.[6]
To block potentially fraudulent access by automated systems, PayPal devised a system (see CAPTCHA) of making the user enter numbers from a blurry picture, which they coined the Gausebeck-Levchin test. According to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented this system now in common use. Although, there is evidence AltaVista used a CAPTCHA as early as 1997, before PayPal existed.[citation needed] The neutrality of The PayPal Wars, which was self-published by Eric Jackson through his company World Ahead Publishing, funded in part by Peter Thiel, is disputed.[7]
eBay watched the rise in volume of online payments and realized its fit with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of Paypal. eBay made Billpoint the official payment system of eBay, dubbing it "eBay Payments", but cut the functionality of Billpoint by narrowing it to only payments made for eBay auctions.
For this reason, PayPal was listed in several times as many auctions as Billpoint. In February of 2000, there were approximately an average of 200,000 daily auctions advertising the PayPal service while Billpoint (in beta) had only 4,000 auctions. By April of 2000 there were more than 1,000,000 auctions promoting the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.
Acquisition by eBay
In October 2002, PayPal was acquired by eBay. PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay’s subsidiary Billpoint. eBay has since phased out its Billpoint service in favor of retaining the PayPal brand. Most of PayPal’s major competitors have shut down or have been sold; Citibank’s c2it service closed in late 2003, and Yahoo!'s PayDirect service closed in late 2004. Western Union announced the December 2005 shut down of their BidPay service but subsequently sold it in 2006 to CyberSource Corporation. Some competitors which offer some of PayPal’s services, such as Wirecard, Moneybookers, 2Checkout, CCNow and Kagi, remain in business.
PayPal’s total payment volume, the total value of transactions in Q4 2006, was US$11 billion, up 36% year over year. The company continues to focus on international growth and growth of its Merchant Services division, providing online payments for retailers off eBay.
Business today
As of the end of Q4 2006, PayPal operates in 103 markets (including China), and it manages over 133 million accounts. PayPal allows customers to send, receive, and hold funds in 17 currencies worldwide. These currencies are the U.S. dollar, Canadian dollar, Australian dollar, Euro, Pound sterling, Japanese yen, Chinese renminbi, Czech Koruna, Danish krone, Hong Kong dollar, Hungarian forint, New Zealand dollar, Norwegian krone, Polish zloty, Singapore dollar, Swedish krona, and Swiss franc. PayPal operates locally in 13 countries.
Residents in 48 new markets can now use PayPal in their local markets to send money online. These new markets include Peru, Indonesia, the Philippines, Croatia, Fiji, Vietnam and Jordan. A complete list can be viewed at PayPal's website.[2]
In China PayPal offers two kinds of accounts:[3]
• PayPal.com accounts, for sending and receiving money to/from other PayPal.com accounts. All non-Chinese accounts are PayPal.com accounts, so these accounts may be used to send money internationally.
• PayPal.cn accounts, for sending and receiving money to and from other PayPal.cn accounts.
It is impossible to send money between PayPal.cn accounts and PayPal.com accounts, so PayPal.cn accounts are effectively unable to make international payments. For PayPal.cn, the only supported currency is the renminbi.
PayPal’s operation center is located near Omaha, Nebraska and PayPal’s international headquarters is located in Dublin, Ireland. The company also recently opened a technology center in Scottsdale, Arizona.
Legal issues
In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California law. Most of the allegations concerned PayPal's dispute resolution procedures. The two lawsuits were merged into one class action lawsuit (In re PayPal litigation). An informal settlement was reached in November 2003, and a formal settlement was signed on June 11, 2004. The settlement requires that PayPal change its business practices (including changing its dispute resolution procedures to make them EFTA-compliant), as well as making a US$9.25 million payment to members of the class. PayPal denied any wrongdoing.
In August 2002, Craig Comb and others filed a class action against PayPal in Craig Comb, et al. v. PayPal, Inc.. They sued for alleged mishandling of customer accounts and customer services, with regards to PayPal's user agreement. Allegations included the up to 180-day restriction on deposited funds until disputes are resolved, forcing customers to arbitrate their disputes under the American Arbitration Association's guidelines (a costly procedure), and requiring users to file claims individually, restricting class action suits. The court deemed these actions unconscionable and ruled in favor of Comb.[8]
Bank status
In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. Although PayPal is not a bank, the company is still subject to and adheres to many of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act. However, on May 15, 2007, PayPal announced that it would move its European operations from the UK to Luxembourg, commencing July 2, 2007 as PayPal (Europe) S.à r.l. & Cie, S.C.A. This would be as a Luxembourg entity regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the FSA. PayPal Luxembourg will then provide the PayPal service throughout the European Union (EU).
Safety & Protection Policies
The PayPal Buyer Protection Policy[4] claims that customers may file a buyer complaint within 45 days if they did not receive an item or if the item they purchased was significantly not as described. If the buyer used a credit card, they might get a refund via charge back from their credit card company.
PayPal protects sellers in a limited fashion via the Seller Protection Policy[5]. In general the Seller Protection Policy is intended to protect the seller from certain kinds of chargebacks or complaints if seller meets certain conditions including proof of delivery to the buyer. PayPal states the Seller Protection Policy is "designed to protect sellers against claims by buyers of unauthorized payments and against claims of non-receipt of any merchandise". Note that this contrasts with the consumer protection they claim to offer. This policy should be read carefully before assuming protection. In particular the Seller Protection Policy includes a list of "Exclusions" which itself includes "Intangible goods", "Claims for receipt of goods 'not as described'" and "Total reversals over the annual limit". There are also other restrictions in terms of the sale itself, the payment method and the destination country the item is shipped to (simply having a tracking mechanism is not sufficient to guarantee the Seller Protection Policy is in effect).
The company—by its own admission—uses automated systems to verify tracking numbers. If a seller has an item not received claim filed against them, they are required to enter a tracking number for the item. If they fail to enter a valid tracking number that shows a successful delivery, or even mistype the number by one digit, they will lose the claim automatically without a real person ever adjudicating the claim. In general, if a valid tracking number is entered which can be accessed online and shows a successful delivery, the seller will automatically win the claim.
The item significantly not as described claim is a more complicated matter. In this situation, the buyer has acknowledged the receipt of the item but has found the item to be "significantly not as described." The multi-level process provides an initial period of time for the seller and buyer to attempt to reach an agreement on their own. If the seller does not respond to the initial dispute from the buyer, or if the seller is unable to offer a settlement which is agreeable to the buyer, the buyer then has the option of escalating the dispute to a claim. If seller does not wish to communicate with buyer, the seller also may choose to escalate a dispute to a claim. The escalation from dispute to claim is not automatic; if a dispute is not escalated it will be automatically closed after a certain period of time. By escalating the dispute to a claim, the party is asking a PayPal representative to review the claim and make a settlement decision. In most cases, if the seller has been found to have misrepresented the item in a significant way, the buyer will be required to return the item to the seller at buyer's expense — and provide a tracking number for the return shipment — in order to receive their refund for the transaction. This policy is criticized as being in favor of the fraudulent seller. A seller can exaggerate the condition of his items and the worst that can happen is that he has the item returned. The innocent buyer has to pay return shipping and ends up out of pocket for something that was not his fault. This is in line with criticism of eBay's general policy of putting sales and its own profits above buyer protection against fraudulent sellers (for instance shill bidding).
If the seller has not been found to have misrepresented the item in a significant way, then the buyer's claim will be denied and the buyer will have no further opportunity for claims of any type using Paypal's systems. The only recourse the buyer would possibly have at that point would be through their credit card company (if payment was made using a credit card) or by filing a claim against Paypal through the Better Business Bureau or another similar consumer protection organization.
Security Key
In early 2007, PayPal introduced an optional security key to its users. This adds an additional layer of protection when logging into a PayPal or eBay account. Once a user enters their login ID and password, they are prompted to press a button on the small security key, then enter the six digit number to complete the login process. There is a one-time US$5 charge for this device, with no ongoing fees, however business accounts get them free of charge.
Money Market
In 2000, PayPal began offering its customers the option of investing their funds in a Money Market account managed by Barclays plc. If a user activates it, the balance of their account begins earning monthly dividends. The rate fluctuates daily, but thus far has been around 5%, and this percentage is the same regardless of the account balance. Funds are not insured by the FDIC.
[edit] Entrepreneurship by former employees
A number of companies have been started and funded by former PayPal employees. This trend prompted the The New York Times to publish a story entitled "It Pays to Have Pals in Silicon Valley" that analyzes the connections between several PayPal employees who went on to become influential.[9]
• LinkedIn was founded by Reid Hoffman, a former VP at PayPal.
• Facebook received its first angel investment from Peter Thiel.
• Clarium Capital Management is a hedge fund run by Peter Thiel. Principal partners at Clarium include Ken Howery and Luke Nosek, both of whom were among the earliest employees at PayPal.
• Palantir Technologies was founded by Nathan Gettings, who developed PayPal's anti-fraud models. Palantir received funding from Peter Thiel.
• Slide was founded by Max Levchin, Jared Kopf, and former PayPal board member Scott Banister.
• Yelp was founded by Jeremy Stoppelmann, former VP of Engineering at PayPal, and Russ Simmons, one of the first employees at PayPal. Yelp is funded by Max Levchin.
• YouTube (now owned by Google) was founded by Chad Hurley, Steve Chen, and Jawed Karim, all of whom were early employees at PayPal. YouTube is funded by Sequoia Capital. Roelof Botha, the former CFO of PayPal, is a partner of Sequoia Capital who sits on YouTube's board of directors.
• Room 9 Entertainment, which produced the movie Thank You for Smoking, was founded by David O. Sacks, who founded PayPal's Product Group and later served as Chief Operating Officer (COO).
• Geni.com was also founded by David Sacks.
• SpaceX was founded by Elon Musk, who founded X.com and served as the CEO following its merger with PayPal.
• Fraudwall Technologies is run by Ken Miller, who was VP of Risk Management at PayPal and the architect of PayPal's anti-fraud system.
• Tesla Motors' principal owner and Chairman of the Board is Elon Musk.

Pecunix

2007-08-19T06:57:00.003-07:00

Pecunix is a digital gold currency founded in 2002 by Simon Davis. Similar to competing systems such as e-gold, Pecunix allows for the instant transfer of gold between user accounts.
Estimates at the end of 2004 suggest that there were over 6,500 funded accounts in the Pecunix system at that time. As of October 2006, Pecunix had 2375 oz (73,625 grams) of gold in storage, which is worth approximately $1,425,000 [1]. Pecunix gold bullion is stored with Mat Securitas Express AG in Zurich, Switzerland. Pecunix, Inc. is incorporated in the Republic of Panama.
Features
Pecunix provides an alternative to fiat currencies, as do the other competing digital gold currencies. One benefit claimed by many proponents of digital gold currencies is that by keeping assets out of fiat currencies, one avoids some inflationary risks. Another claimed benefit is low fees. Transactions made in the Pecunix system are charged a fee of 0.50% of the payment amount up to 100 grams of gold and 0.15% of any amount over 100 grams up to a maximum fee of 3 grams. The minimum fee payment is 0.0001 gram.
According to Jim Davidson, author of The Indomitus Report, Pecunix has never had a security breach of any kind and never had an account emptied by trojan or phishing attacks.[1] Its software integrates PGP in order to enhance privacy and security.
Exchanging fiat currency
Pecunix does not sell its currency directly to clients. Instead numerous digital currency exchangers act as market makers selling Pecunix in exchange for fiat currency and a transaction fee.

E-Bullion

2007-08-19T06:57:00.001-07:00

From Wikipedia, the free encyclopedia
e-Bullion is a digital gold currency founded by Jim Fayed and his wife, Pam Fayed. The company was incorporated in December, 2000, and launched on July 4, 2001. Similar to competing systems such as e-gold, e-Bullion allows for the instant transfer of gold and silverPanama. between user accounts. e-Bullion is a registered legal corporate entity of
Features

As with any digital gold currency, the main focus is keeping assets away from fiat currencies so as to avoid inflationary risks associated with such currencies.

* It has also moved its primary servers to Switzerland. The redundant servers and equipment are also outside of United States jurisdiction.
* Unlike e-gold, e-Bullion provides its own in-house currency exchange service. An e-Bullion account can be funded directly via wire transfer from a bank account.
* It is also the only digital gold currency (DGC) that allows direct funding to and redemption from an account with precious metals.
* e-Bullion was the first DGC to issue its own debit card linked to an account.
* e-Bullion was the first to use CRYPTOCard technology to physically protect user accounts.
* Goldfinger Bullion Reserve Corporation, a sister company of e-Bullion, hold the precious metals in bullion storage vaults located in either Los Angeles, Delaware, Zurich or Australia.
* Users can hold and transfer value in gold, silver, or US dollars which they designate as e-Currency. The amount of bullion or US dollars held in the e-Bullion system is undisclosed.

Criticism

Two of Goldfinger Bullion Reserve's vaults are located in the United States. One is in Los Angeles, and the other in Dover, Delaware. This is seen as a drawback by those who may be worried about possible asset seizure by U.S. authorities (see Executive Order 6102 and Gold Reserve Act).

The Better Business Bureau (BBB) currently rate e-Bullion.com "F" [1], which they define as:

We strongly question the company’s reliability for reasons such as that they have failed to respond to complaints, their advertising is grossly misleading, they are not in compliance with the law’s licensing or registration requirements, their complaints contain especially serious allegations, or the company’s industry is known for its fraudulent business practices.

However, it must be noted that the BBB have collected a minimal amount of data on e-Bullion over the last 36 months. As of February 27, 2007, this consisted of only five unanswered customer complaints. e-Bullion do not disclose their Panama or U.S. addresses on their website, so the BBB list their own address for e-Bullion.

In August 5th 2007, the Global Digital Currency Association issued a warning [2] regarding E-Bullion closing and freezing accounts without any court order.

Ripple monetary system

2007-08-19T06:46:00.001-07:00

Ripple is an open-source software project for developing and implementing a protocol for an open decentralized payment network. In its extreme form, the Ripple network could be a peer-to-peer distributed social network service with a monetary honor system based on trust that already exists between people in real-world social networks; this form is financial capital backed completely by social capital. On the other hand, it could be an extension of the existing hierarchical banking system, providing alternate payment routes that do not pass through a central bank.
Modern monetary systems are built on obligations of the participants to each other. Cash and bonds are government obligations, and loan agreements are the personal obligations of borrowers. Bank account balances are bank obligations, backed by borrower and government obligations. For an obligation to have value, the holder must trust that the issuer can supply that value. Thus the banking network can be described as a trust network.
The primary method of making payment to another participant in the system is by transferring ownership of bank obligations electronically over a chain of accounts in the banking network from payer to recipient. The banking network is essentially hierarchical, with banks acting as sole intermediary between its account-holders, and central banks acting as sole intermediary between banks. This structure means that it is simple to route payments to and from any participants, but is inherently full of single points of failure, which may also be characterized as single points of control.
The core idea of Ripple is that it should be possible to route payments through an open, arbitrary trust network, similar to how the internet routes packets of data through an open, arbitrary computer network. The advantages of such a system would be that it wouldn't be reliant on a small decision-making body at the center to set monetary policy for the entire nation; instead, it would be set in a more democratic fashion by all participants, and in theory be more responsive to regional and community needs. There would be no need to for a tightly-regulated institutional trust hierarchy to control the behaviour of those participants near the center: like the internet, but unlike the existing global monetary system, the Ripple network would be designed to weather the collapse of a large number of its nodes.
Note that the Ripple protocol itself wouldn't preclude a hierarchical payment structure evolving, it just allows for the possibility of other structures.
Put another way, Ripple is a system of free banking that separates the payment routing function from the credit aggregation function.
Comparison with other alternative payment systems
Other alternative payment/monetary systems already exist, including internet currencies such as PayPal, and local currencies, such as LETS. Ripple is fundamentally different from both these models in that it provides a level playing field that treats all participants equally. Both PayPal and LETS are modelled on a single central authority that issues obligations based on its policy, and handles the accounting of payments between leaf nodes. In Ripple, no node has any greater or lesser capability than any other node -- this is acknowledgement that every participant in a debt-based monetary system does in fact issue their own currency (or obligations). A node's connectedness is based on the trust of the other participants, and nothing else.
In a sense, every Ripple node is like a LETS or a PayPal unto itself. Ripple could be used to connect existing alternative and mainstream payment systems into a single network.

MMM (pyramid)

2007-08-19T06:45:00.002-07:00

MMM was a Russian company that perpetrated one of the world's largest pyramid schemes in the 1990s.[1] It involved at least two million people and collected as much as $1.5 billion. Notably, the MMM scheme is often compared to the alleged GKO Russian government pyramid scheme in terms of its success.
The company was established in 1989 by Sergey Panteleevich Mavrodi, his brother Vyacheslav Mavrodi, and Marina Muravieva, Vyacheslav's future wife. The name of the company was an abbreviation of the three founders' surnames.
Initially, the company imported computers and office equipment. In January 1992, tax police accused MMM of tax evasion, leading to the collapse of MMM-bank and problems getting loans. Faced with difficulties in financing its foreign trade, the company switched to the financial sector. It offered American stocks to Russian investors, but didn't achieve much success. Later, MMM-invest was created for collecting vouchers during privatisation, also with limited success.
The business that MMM is most remembered for started in mid-1993. The company started attracting money from private investors, promising annual returns of up to one thousand percent. It is unclear whether building the pyramid was Mavrodi's initial goal, as such nominal returns might have been possible during the hyperinflation in areas such as import-export operations.
The company grew rapidly. In February 1994, MMM reported dividends of 1,000% and started an aggressive TV ad campaign. Since the shares were not quoted on any stock exchange and the company itself determined the share price, it maintained a steady price growth of thousands of percent annually, leading the public to believe its shares were a safe and profitable investment.
An important factor of the scheme's success was word of mouth, but most of the company's success came from their extremely aggressive ad campaign, appealing to the general public by using "ordinary" characters viewers could identify with. The most famous of them, a "folk hero" of early 1994, was Lyonya Golubkov. Another notable marketing effort was the giving away of free Metro trips to all Moscow citizens during one day. MMM also was one of the first well-known companies in Russia with a logotype and slogans ("Flying from shadow to the light" and others).
At its heyday the company earned more than 20 billion rubles (about 11 million USD) each day from the sale of its shares to the public. According to estimates, between two and five million people "invested" in MMM.
Regular publication in the media of the growing MMM share prices led President Boris Yeltsin to issue a decree in June 1994 prohibiting financial institutions from publicising the expected income.
The "success" of MMM led to creation of other similar companies, including Tibet, Chara, Khoper-Invest, Selenga, Telemarket, and Germes. All of these companies were characterised by aggressive television advertisement campaigns and extremely high promised return rates (one company promised annual returns of 30,000 %).
On July 22, 1994, the police closed the offices of MMM for tax evasion. For a few days the company attempted to continue the scheme but soon stopped the operations. At this point, Invest-Consulting, one of the company's subsidiaries, owed more than 50 billion rubles in taxes (26 million dollars) and MMM itself owed between 100 billion and 3 trillion rubles to the "investors" (from 50 million to 1.5 billion dollars). In the aftermath at least 50 investors, having lost all their money, committed suicide.
Several organisations of "deceived investors" were formed, trying to return the investments, but Sergey Mavrodi manipulated their indignation and directed it at the government. In August 1994 Sergey Mavrodi was arrested for tax evasion, but soon he was elected to Russian State Duma, using the support of the "deceived investors", arguing that the government was responsible for people losing their money and promising to initiate a pay-back program. However, the amount paid back was extremely small compared to the amount owed.
In October 1995, the Duma cancelled his right to immunity as a deputy. In 1996, he tried to run for Russia's presidency, but most of the signatures he received were rejected. MMM declared bankruptcy on September 22, 1997.

Screenshot of a Stock Generation webpage
While it was believed that Sergey Mavrodi left Russia and moved to the United States, it is possible that he stayed in Moscow, using his money to change apartments regularly and employ a group of former special agents. With the help of a distant relative he started Stock Generation Ltd., another pyramid scheme based around trading non-existent companies' stocks in a form of the "stock exchange game" on the company's site, stockgeneration.com. Despite a bold-letter warning on the main page that the site was not a real stock exchange, between 20,000 and 275,000 people, according to various estimates, fell for the promised 200 % returns and lost their money. According to U.S. Securities and Exchange Commission, losses of victims were at least USD 5.5 million.
Mavrodi was found and arrested in 2003. While in custody, Mavrodi was given time until January 31, 2006 to read the documents in his case on financial fraud (the criminal case consists of 650 volumes, each 250-270 pages long). At the end of April 2007 Mavrodi was charged with fraud and given a sentence of 4 years and 6 months. Of these, Mavrodi had spent over four years in custody already. Less than a month later, on May 22, 2007, Mavrodi was released.
Vyacheslav Mavrodi started MMM-96, a smaller and apparently more legal pyramid scheme, but was arrested in 1998.
The MMM scandal led to increased regulation of the Russian stock market, although it was arguably too late, as most people became extremely suspicious of any joint stock companies

Matrix scheme

2007-08-19T06:44:00.001-07:00

A matrix scheme, also known as a Matrix Site, Elevator Scheme, Escalator Scheme or Ladder Scheme, is a business model[citation needed] involving the exchange of money for a certain product with a side bonus of being added to a waiting list for a product of greater value than the amount given.[1] Matrix schemes are also sometimes considered similar to Ponzi or pyramid schemes. [2] They have been called unsustainable by the United Kingdom's Office of Fair Trading. [1] The Matrix Scheme is also an example of an exploding queue in Queueing Theory.
History
The first known matrix scheme is widely believed to be EZExpo.com, which started the popularity of Matrix Schemes in 2002. [2] By 2003 more than 200 matrix schemes were in operation, including one which had the same owner as the payment processor Stormpay (TymGlobal). Subsequently TymGlobal and Stormpay were accused of running an illegal Ponzi scheme.[3] Stormpay later claimed to be independent of TymGlobal, and they no longer accept matrix schemes. Although many have since ceased trading, some schemes are still known to be operating worldwide.
Operation
The operation of matrix schemes varies, though they often operate similar to Ponzi schemes. [4] To move upward in the list, a person must wait for new members to join or refer a certain number of people to the list. This is accomplished through purchasing a token product of marginal value: usually e-books, cell phone boosters, screen savers, or shareware CDs. When a pre-defined number of people have purchased the token product the person currently at the top of the list receives their reward item, and the next person in the list moves to the top. The rewards for those at the top of the matrix list are usually high-demand consumer electronics, such as portable digital audio players, high-definition television sets, laptop computers, and cellular phones.
In many cases, the token product alone could not be reasonably sold for the price listed, and as such legal experts claim that, regardless of what is said, the real product being sold is the "reward" in question in those situations. Steven A. Richards, a lawyer who represents multi-level marketing (MLM) companies for Grimes & Reese in Idaho Falls, Idaho, has stated that often there are no clear legal tests for Ponzi schemes. But if the product sold has no value or very little value, and consumers wouldn’t buy it without the attached free gift, the scheme probably runs afoul of federal and state laws. [4]
The “Matrix List” by which the sites receive their name would be what is known as a straight-line matrix, or 1 by X matrix. This is similar to many MLMs that use Y by X matrices to fill a down-line.
For example, one situation may be a 1 by 10 matrix for a PS2 (which was quite common). In such a matrix the site would usually sell an e-book for $50 to be placed on the list. After 9 additional people purchased a spot, the first person would receive either a PS2 or cash value equivalent and would be removed from the list. The person who had been second would move up to the first spot and an additional 10 people would have to purchase in order for this person to receive a PS2. It is this orderly movement which has also given the name “Elevator Scheme” to these sites as people would move up the elevator (escalator, ladder) to the top at which they would then “cycle” out of the matrix.
In such a matrix, 9 out of 10 or 90% of all customers would never receive their reward item as eventually the matrix must reach a point by which it will be nearly impossible for new people added to the list to reach the top. Supporters claim that additional revenue streams from advertising are used to keep the lists moving. However, detractors claim that it is impossible to generate enough outside revenue. If the entire world were to join the list, 90% of the world would be unable to cycle if the site did not draw sufficient alternate revenue streams. Adding more people to the list does not change the fact that the majority would receive nothing without these streams.
Additionally, the amount of time needed before a given individual will receive the product in question is often mistaken. In a matrix in which 10 people are required before it will cycle, the first person to join only needs 9 additional sign ups, but the second person needs 18 additional sign ups, 8 more for the person above him, and then 10 more for himself. The third person on the list likewise needs 27 additional signups, 7 for the person on top of the list, 10 for the person directly above him, and then 10 for himself. And then the number of people required continues to grow for each new person joining the list. For the 10th person to cycle it would require 100 people total, and 1000 for the 100th, and so on.
Matrix Scheme in Queueing Theory
A Matrix Scheme is easily represented as a simple M/M/1 queue within the context of Queueing Theory In such a system you have a Markovian arrival, Markovian service, and one single server (F. S. Hiller and G. J. Lieberman. Introduction to Operations Research. McGraw-Hill, New York, 1995). In the standard Matrix queue service rates are a function of arrival rates since the time to cycle out of the queue is based off the entry fee into the matrix from arriving members. Also, since members move through the matrix in single file, it is easy to associate the single server.
The basic premise of queueing theory is that when service rates equal or exceed arrival rates overall waiting time within the queue moves towards infinity (Hiller and Lieberman).
The basic formulation includes three formulae. The traffic intensity, ρ, is the average arrival rate (λ) divided by the average service rate (μ):
ρ=λ/μ
The mean number of customers in the system (N):
N = ρ/(1-ρ)
And the total waiting time within the queue (T):
T = 1/(μ-λ)
It is possible to see that as arrival rates rise towards service rates the total waiting time (T) and mean number of customers in the system (N) will move towards infinity [5]. Since service time can never exceed the arrival time in the standard matrix, and total waiting time can only be defined if service times exceed arrival times, the only way for the matrix queue to reach stability is for outside income sources to exceed those being entered into the system.
Legality
Currently there are no laws specifically naming matrix schemes illegal in the US. However, the US Federal Trade Commission has issued warnings to the public about these sites. In the UK, the Office of Fair Trading has declared some of them to be illegal. On July 1, 2005, two matrix sites, pulsematrix.com and phones4everyone (themobilematrix.com), were declared to be running a form of illegal lottery. Additionally, the US Federal Trade Commission and the UK Trading Standards have issued warnings to the public regarding the ease with which these models can be manipulated for fraudulent purposes.
Many of the original matrix sites, including EZExpo.com, are no longer in operation; some of them closed down while defending civil lawsuits. In 2003 EZExpo and several payment processors were sued in the civil courts for running an illegal lottery in the state of California, with the payment processors abetting the scam.[6] [7][8] However, the civil case is still ongoing. One result of the lawsuit is that those payment processors and some others no longer accept matrix schemes as customers. Currently, no legal precedent exists regarding the matrix scheme in the US.
Notes
1. ^ a b Matrix Website Scheme stopped by Office of Fair Trading. Retrieved on 2006-08-05.
2. ^ a b $150 plasma TV site faces lawsuit. Retrieved on 2006-08-05.
3. ^ The Leaf Chronicle. Retrieved on 2006-08-10.
4. ^ a b $150 for a plasma TV? A bad bet. Retrieved on 2006-08-05.
5. ^ M/M/1 Queueing System. Retrieved on 2007-03-03.
6. ^ California Courts - Appelate Court Case Information -Docket Entries. Retrieved on 2005-08-06.
7. ^ Wage Law: Prop 64 Cases To Be Argued. Retrieved on 2005-08-06.
8. ^ The Antitrust Monitor: Prop 64 to the Rescue for Neovi, PaySystems, and PayPal But Not for Ginix. Retrieved on 2005-08-06.

Ponzi scheme

2007-08-19T06:43:00.001-07:00

Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi.[1] Overview
A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.
The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more and more investors become involved, the likelihood of the scheme coming to the attention of authorities will continue to increase.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in such a large amount of money that it was the first to become known throughout the United States. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit lapses in judgment arising from an investor's lack of information.
Hypothetical example

A mugshot of Charles Ponzi
An advertisement is placed promising extraordinary returns on an investment – for example 20% for a 30 day contract. The precise mechanism for this incredible return can be attributed to anything that sounds good but is not specific: "global currency arbitrage", "hedge futures trading", "High Yield Investment Programs" or something similar.
With no proven track record for the investors, only a few investors are tempted, usually for smaller sums. Sure enough, 30 days later, the investor receives the original capital plus the 20% return. At this point, the investor will have more incentive to put in additional money, and, as word begins to spread, other investors grab the "opportunity" to participate. More and more people invest, and see their investments return the promised large returns.
The reality of the scheme is that the "return" to the initial investors is being paid out of the new, incoming investment money, not out of profits. There is no "global currency arbitrage", "hedge futures trading", or "high yield investment programs" actually taking place. Instead, when investor D puts in money, that money becomes available to pay out "profits" to investors A, B, and C. When investors X, Y, and Z put in money, that money is available to pay "profits" to investors A through W.
One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return.
The catch is that at some point one of three things will happen:
1. the promotors will vanish, taking all the investment money (less payouts) with them;
2. the scheme will collapse of its own weight, as investment slows and the promotors start having problems paying out the promised returns (and when they start having problems, the word spreads, and more people start asking for their money);
3. the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise, they find that much of the "assets" that should exist, do not.
What is and is not a Ponzi scheme
• A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:
• In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).
• A Ponzi scheme relies on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
• A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it (Ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants).
• A bubble. A bubble relies on suspension of disbelief and an expectation of large profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.)
• Robbing Peter to pay Paul. When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other monies they have. It does not follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing") to cover payments to initial investors (as, again, Ponzi was not the first to do.)
Notable Ponzi schemes
Highest dollar schemes
The eponymous scheme was orchestrated by Charles Ponzi, who went from anonymity to being a well-known Boston millionaire in six months using such a scheme in 1920. Profits were supposed to come from exchanging international postal reply coupons. He promised 50% interest (return) on investments in 45 days or “double your money” in 90 days. About 40,000 people invested about $15 million all together (roughly $150 million in 2006 dollars); in the end, only a third of that money was returned to them.
Besides the Ponzi scheme other similar historic schemes include:
• Before Ponzi, in 1899 William "520 Percent" Miller opened for business as the "Franklin Syndicate" in Brooklyn, New York. Miller promised 10% a week interest and exploited some of the main themes of Ponzi schemes such as customers reinvesting the interest they made. He defrauded buyers of $1 million and was sentenced to jail for 10 years. When he was pardoned he opened a grocery store on Long Island. During the Ponzi investigation, Miller was interviewed by the Boston Post to compare his scheme to Ponzi's — the interviewer found them remarkably similar, but Ponzi's became more famous for taking in seven times as much money.[2]
• Between 1970 and 1984 in Portugal, a woman known as Dona Branca maintained a scheme that paid 10% monthly interest. In 1988 she was sentenced to 10 years in prison. She always claimed that she was only trying to help the poor, but in her trial it was proven that she had received the equivalent of 85 million Euro.[3][4]
• MMM was a Russian company that existed in the 1990s. It involved at least two million people and collected as much as $1.5 billion. The founder was sentenced to 4.5 years in prison in 2007.
• From 1993 until 1997 a church named Greater Ministries International in Tampa, Florida, headed by Gerald Payne bilked over 18,000 people out of 500 million dollars.[5] Payne and other church elders promised the church members double their money back citing Biblical scripture. However, nearly all the money was lost and hidden away. Church leaders received prison sentences ranging from 13 to 27 days.
• In autumn of 1994, the European Kings Club collapsed, causing a damage of about $1.1 billion. This scam was led by Damara Bertges and Hans Günther Spachtholz. In the Swiss cantons Uri and Glarus about every tenth adult invested into the EKC. The scam involved buying "letters" valued at 1,400 francs that entitled buyers to receive 12 monthly payments of 200 francs. The organisation was based in Gelnhausen, Germany[citation needed]
• In May 1995, Pennsylvania's attorney general moved to freeze the assets of the Foundation for New Era Philanthropy and its chairman, John G. Bennett, Jr. The organization had raised over $500 million from 1,100 donors. Participants, including the Red Cross, had believed they were participating in a matching-gifts program through New Era but, in fact it was simply a Ponzi scheme. Losses amounted to $135 million.
• In early 1996, the SEC filed a civil action against Bennett Funding Group, its chief financial officer, Patrick R. Bennett, and other companies Bennett controlled, in connection with a massive Ponzi scheme. The companies fraudulently raised hundreds of millions of dollars, purportedly to purchase assignments of equipment leases and promissory notes. [1]
• In 1997 the government of Albania officially endorsed a series of pyramid investment funds. When the inevitable end came, the people of Albania, who had lost $1.2 billion, took their protest to the streets in a revolt that toppled the government.
• In 2000, a Ponzi scheme perpetrated by Scientology minister Reed Slatkin came unraveled when the U.S. Securities and Exchange Commission regulators became aware that Slatkin was not a licensed investment adviser. Slatkin had raised some $600 million from over 500 wealthy investors, mostly Hollywood celebrities.
• In December 2005, in Los Angeles, California, Larry Toshio Osaki, who ran a gigantic Ponzi scheme and continued to offer bogus investments in accounts receivable "factoring" after being ordered to stop by a federal judge, was sentenced to 20 years in federal prison. In addition to the prison term, Judge Stephen V. Wilson ordered Osaki to pay more than $145 million in restitution to victims.
• In May 2006, James Paul Lewis, Jr. was sentenced to 30 years in federal prison for running a $311 million Ponzi scheme over a 20-year time period. He operated under the name Financial Advisory Consultants from Lake Forest, California
• In October 2006, in Malaysia, two prominent members of society and several others were held for running an alleged scam, known as SwissCash or Swiss Mutual Fund (1948). SwissCash offered a returns of up to 300% within a 15-month investment period. Currently, this HYIP investment is offered to citizens of Malaysia, Singapore, and Indonesia. It claimed investors’ funds were channeled to business activities ranging from oil exploration to shipping and agriculture in the Caribbean. The company claims to be operating out of New York and incorporated in Commonwealth of Dominica.[6] [7] [8]
• On Friday 13 April 2007 a person named Sibt-e-Hassan Shah aka "Double Shah" was arrested by government officials in Wazirabad, a small town of Pakistan. [2]. Sibt-e-Hassan claimed to double the money within 30 days in the beginning of his scheme and later 90 days. He is suspected to have gathered very large investments (approx US$ 1 Billion) in a very short time period.
• The Brothers was a large investment operation, eventually revealed to be a Ponzi scheme, in Costa Rica from the late 1980s until 2002. The fund was operated by brothers Luis Enrique and Osvaldo Villalobos. Investigators determined that the scam took in at least $400 million. Most of the clientele were American and Canadian retirees but some Costa Ricans also invested the minimum $10,000. About 6,300 individuals ultimately were involved. Interest rates were 3% per month, usually paid in cash, or 2.8% compounded. The ability to pay such high interest was attributed to Luis Enrique Villalobos’ existing agricultural aviation business, investment in unspecified European high yield funds, and loans to Coca Cola, among others. Osvaldo Villalobos’ role was primarily to move money around a large number of shell companies and then pay investors. In May 2007 Osvaldo Villalobos was sentenced to 18 years in prison for fraud and illegal banking. Luis Enrique Villalobos remains a fugitive. [3]
• On Wednesday July 4, 2007, the Bangko Sentral ng Pilipinas and the Securities and Exchange Commission (Philippines) cited FrancSwiss Financial Co. as a Ponzi scheme which targeted Overseas Filipino Workers.
• On August 17, 2007, the Phlippine National Bureau of Investigation filed syndicated estafa cases against 27 officers and investors of Francswiss Investment, a "Ponzi" pyramiding scam on the Internet. Charged were Michael Mansfield, chief financial officer; Kurt Sandelman, risk management team leader; Rupert Benedict Da Vinco, investment team leader; Julia Rodriguez, international banking team leader; Hector Willem Sidberg, marketing and international affairs; and Fernando Munoz, customer service leader; Roger Smith, the British chief operation officer of FS Investment in the Asia-Pacific region; Bensy Fong, the Singaporean system operation officer; Raymond Chua, Singaporean marketing officer; a certain Michelle and Mike, Filipino secretaries and collectors of money from investors; 16 investors, including arrested suspect Eleazard Castillo, 26, a native of Cabuyao, Ilocos Sur, allegedly one of the financial advisers of Francswiss Investment. 41 investors claimed they lost a total of $75,000 to the investment scheme. Francswiss deceived investors in the Philippines of P1 billion.[9]
Other notable schemes
Other notable (but lesser dollar) Ponzi schemes include:
• Sarah Howe, who in 1880 opened up a "Ladies Deposit" in Boston promising eight percent interest, although she had no method of making profits. This unique scheme was billed as "for women only". Howe disappeared with the money from her scam.[2]
• The novel Chance by Joseph Conrad depicted a Ponzi scheme in 1914 before Ponzi himself had hit the scene. Conrad's scammer "de Barral" offered ten percent interest on deposits in his operation "without system, plan, foresight, or judgement".
• On March 22, 2000, four people were indicted in the Northern District of Ohio, on charges including conspiracy to commit and committing mail and wire fraud. A company with which the defendants were affiliated allegedly collected more than $26 million from "investors" without selling any product or service, and paid older investors with the proceeds of the money collected from the newer investors. [4]
• In late 2003, a scheme by Bill Hickman, Sr., and his son, Bill Jr., was shut down. He had been selling unregistered securities that promised yields of up to 20 percent; more than $8 million was defrauded from dozens of residents of Pottawatomie County, Oklahoma, along with investors from as far away as California. [5] Hickman was sentenced to 160 years in state prison.
• In December 2004, Mark Drucker pleaded guilty to a Ponzi scheme in which he told investors that he would use their funds to buy and sell securities through a brokerage account. He claimed that he was making significant profits on his day trades and that he had opportunities to invest in select IPOs that were likely to turn a substantial profit in a short period of time. He promised guaranteed returns of up to fifty (50%) percent in 90 days or less. In less than two years of trading, Drucker actually lost more than $850,000 in day trading and had no special access to IPOs. He paid out more than $3.6 million to investors while taking in $6.3 million. [6] [7]
• In June 2005, in Los Angeles, California, John C. Jeffers was sentenced to 168 months (14 years) in federal prison and ordered to pay $26 million in restitution to more than 80 victims. Jeffers and his confederate John Minderhout ran what they said was a high-yield investment program they called the “Short Term Financing Transaction.” The funds were collected from investors around the world from 1996 through 2000. Some investors were told that proceeds would be used to finance humanitarian projects around the globe, such as low-cost housing for the poor in developing nations. Jeffers sent letters to some victims that falsely claimed the program had been licensed by the Federal Reserve and the program had a relationship with the International Monetary Fund and the United States Treasury. Jeffers and Minderhout promised investors profits of up to 4,000 percent. Most of the money collected in the scheme went to Jeffers to pay commissions to salespeople, to make payments to investors to keep the scheme going, and to pay his own personal expenses. [8]
• In February 2006, Edmundo Rubi pleaded guilty to bilking hundreds of middle and low-income investors out of more than $24 million between 1999 and 2001, when he fled the U.S. after becoming aware that he was under suspicion. The investors in the scheme, called “Knight Express”, were told that their funds would be used to purchase and resell Federal Reserve notes, and were promised a six percent monthly return. Most of those bilked were part of the Filipino community in San Diego. [9]
• On May 10, 2006, Spanish police arrested 9 people associated with Forum Filatelico and Afinsa Bienes Tangibles in an apparent Ponzi scheme that affected 250,000 investors from 1998 to 2001. Investors were promised huge returns from investments in a stamp fund. [10]
• 12DailyPro was a version of what is commonly known as a "paid autosurf" program where "investors" deposited money and received an extremely high profit (44%) within a short period (12 days). Charis Johnson created what authorities considered one of the largest modern day versions of the Ponzi scheme. She accumulated a total of over US$1.9 million from the program. More than 300,000 people joined over the course of 8 months, spending over $500 million [11]. When a federal investigation of 12DailyPro took place, its main payment processor, Stormpay, froze all funds related to it. Stormpay has since refused to return any of these funds. On February 24, 2006, the United States Securities and Exchange Commission (SEC) ordered 12DailyPro and its parent company to cease and desist all operations. On February 28, a Los Angeles judge ordered all company assets and records to be turned over to an appointed receiver for investigation. Charis F. Johnson now faces criminal and civil suits from both local and federal agencies.
Stormpay also used to collect usernames and passwords and try to use them in other legitimate online payment services like PayPal.
• High Yield Investment Programs are related to established economic rules such as supply and demand, material assets that appreciate based on value-added through high-end skills such as high-end electronics, buidings & estates, hotels, technology parks, museums, theater and organic systems such as businesses involved in producing the previously mentioned material assets. HYIPs could involve printing of cards as certificates, with units being transferable to third parties. The monetary value of units rises over time, so most holders of such cards won't want to transfer their units. At the same time, the card can be used as a means of exchange for value making it a form of money. It's like turning the HYIPs into a form of Central Bank and the units it issues become currency.
• Matteo Quintavalle is an italian scammer, who cheated investors with more than US$10 million by promising very high yield in Costa Rican real estates and hotels.
After grabbing the money in San Francisco,California, Mr. Quintavalle went to Costa Rica and bought hotels, resorts and even soccer players ' contracts and gave false contracts to the original investors let they think they were owning those properties in Costa Rica. Mr. Quintavalle is currently under arrest awaiting trial. [12]
• In August 2007, a bank in Second Life called “Ginko Financial” claimed it could give returns of 40% to 60%, collapsed and gone insolvent with with debts of L$ 200 million (around US$750 000). Some residents have lost amounts of L$ 2.5 million (around US$10 000) in the scheme. Due to this, there has been calls for a localised version of the SEC for the site. [10]
As a political metaphor
Some free-market economists, such as Thomas Sowell have argued that national social security systems, such as the Social Security system in the United States and the National insurance system in the United Kingdom, are actually large-scale Ponzi schemes.
Sowell and others point out that, under these national systems, incoming payments, made up of taxes and/or other kinds of non-voluntary contributions, are neither saved nor invested. Instead, current contributions (from one set of individuals, due benefits at a later time) are used to pay for current benefits (to another set of individuals).
Sowell and others claim that this "pay-as-you-go" system has begun to show its inherent flaws as North American demographics trend toward more pensioners and fewer workers, because of declining birth rates and increasing life expectancy.
Retirement programs run by national governments, though they involve the taxes paid in by workers being redistributed to pensioners, nevertheless differ in a number of basic features that are usually found in Ponzi schemes, but are not fundamental to them:
• Retirement systems, like Social Security, are openly declared for what they are. In a genuine Ponzi scheme, the perpetrators falsely claim that there is some business that generates the promised revenues. In Social Security, people know where the money comes from, and actuaries supply written predictions of future cash in-flows and out-flows.
• Retirement systems promise a stipend to the country's retired persons, not the quick and exorbitant profits to current investors that Ponzi schemes invariably offer.
• Retirement systems rely on the taxing power of the state to ensure continuous funding, as opposed to voluntary investor contributions. In practice, this taxing power has been used primarily for dedicated revenues (taxes), although in theory general tax revenues could be used to supplement worker payments into the systems. (Historically in the U.S., Social Security has almost always been in surplus, so this has not yet become an issue.) When and if the political process is used to raise required contributions via retirement taxes, or to reduce benefits (including raising the retirement age), there would certainly be opposition from those who would pay more or get less, but politicians have only those two choices (plus borrowing) if revenues are inadequate, aside from gradually ending the New Deal completely.
• The idea of making Social Security a "fully funded" system has been discussed several times but always floundered on the cost. The cost has gone up as making any fundamental change has been deferred.
• In the long run, retirement systems pay out an approximately equal amount to what was paid in, per contributor, plus interest [citation needed]. In the short run, pension surpluses can be used to cover a government's current general-revenue shortfall, as has been happening in the United States since Social Security contribution rates were increased in 1983.
• Retirement systems are in many ways insurance rather than investment systems. A person who dies before retirement gets no money back (regardless of what he/she paid in). Someone who lives to a very old age continues to get payments regardless of the amount of money he/she has paid in. And someone disabled, even at a relatively young age (well before he/she can make significant payments into the system, or have significant private investments), still receives payments until the end of his/her life. Due to this, the typical retiree who does not become disabled early sees a lower rate of return than the risk free rate.
• Unlike a Ponzi scheme, government receipts (taxes) and payouts (entitlements) can be calculated quite accurately in the short term (five to ten years), and predicted (with a range of assumptions) for periods beyond that timeframe. A sudden collapse is therefore unlikely [citation needed], depending on one's definition of "sudden".
The U.S. Social Security Administration provides the following response[11] to the "Ponzi scheme" accusation as applied to a pay-as-you-go system like Social Security:
There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go insurance programs in that in both money from later participants goes to pay the benefits of earlier participants. But that is where the similarity ends. A pay-as-you-go system can be visualized as a simple pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end. So we could [imagine] that at any given time there might be, say, 40 million people receiving benefits at the back end of the pipeline; and as long as we had 40 million people paying taxes in the front end of the pipe, the program could be sustained forever. It does not require a doubling of participants every time a payment is made to a current beneficiary. (There does not have to be precisely the same number of workers and beneficiaries at a given time--there just needs to be a stable relationship between the two.) As long as the amount of money coming in the front end of the pipe maintains a rough balance with the money paid out, the system can continue forever. There is no unsustainable progression driving the mechanism of a pay-as-you-go pension system and so it is not a pyramid or Ponzi scheme.
If the demographics of the population were stable, then a pay-as-you-go system would not have demographically-driven financing ups and downs and no thoughtful person would be tempted to compare it to a Ponzi arrangement. However, since population demographics tend to rise and fall, the balance in pay-as-you-go systems tends to rise and fall as well. During periods when more new participants are entering the system than are receiving benefits there tends to be a surplus in funding (as in the early years of Social Security). During periods when beneficiaries are growing faster than new entrants (as will happen when the baby boomers retire), there tends to be a deficit. This vulnerability to demographic ups and downs is one of the problems with pay-as-you-go financing. But this problem has nothing to do with Ponzi schemes, or any other fraudulent form of financing, it is simply the nature of pay-as-you-go systems.

Pyramid scheme

2007-08-19T06:42:00.001-07:00

Pyramid scheme

A pyramid scheme (or pyramid scam[1]) is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered, and is highly illegal. Pyramid schemes have existed for at least a century. Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive.

There are other commercial models using cross-selling such as multi-level marketing (MLM) or party planning which are legal and sustainable, although there is a significant grey area in many cases. Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking scams.

The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward. A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people, or receive bonuses through other people they refer. Each sale includes a fee to the original seller.

Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers. Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. To embellish the act, most such scams will have fake referrals, testimonials, and information.
Identifying features

The distinguishing feature of these schemes is the fact that the product being sold has little to no intrinsic value of its own or is sold at a price out of line with its fair market value. Examples include "products" such as brochures, cassette tapes or systems which merely explain to the purchaser how to enroll new members, or the purchasing of name and address lists of future prospects. The costs for these "products" can range up into the hundreds or thousands of dollars. A common Internet version involves the sale of documents entitled "How to make $1 million on the Internet" and the like. Another example is a product (such as a dial-up modem purportedly using higher speed and/or using Voice over IP) sold at higher than ordinary retail price for the same or similar products elsewhere. The result is that only a person enrolled in the scheme would buy it and the only way to make money is to recruit more and more people below that person also paying more than they should. This extra amount paid for the product is then used to fund the pyramid scheme. In effect, the scheme ends up paying for new recruits through their overpriced purchases rather than an initial "signup" fee.

The key identifiers of a pyramid scheme include the following:

* A highly excited sales pitch (sometimes including props and/or promos).
* Little to no information offered about the company unless an investor purchases the products and becomes a participant.
* Vaguely phrased promises of limitless income potential.
* No product, or a product being sold at a price ridiculously in excess of its real market value. As with the company, the product is vaguely described.
* An income stream that chiefly depends on the commissions earned by enrolling new members or the purchase by members of products for their own use rather than sales to customers who are not participants in the scheme.
* A tendency for only the early investors/joiners to make any real income.
* Assurances that it is perfectly legal to participate.

The key distinction between these schemes and legitimate MLM businesses is that in the latter cases a meaningful income can be earned solely from the sales of the associated product or service to customers who are not themselves enrolled in the scheme. While some of these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member. Nor does the absence of payment for recruiting mean that an MLM is not a cover for a pyramid scheme. The distinguishing characteristic is whether the money in the scheme comes primarily from the participants themselves (pyramid scheme) or from sales of products or services to customers who aren't participants in the scheme (legitimate MLM).
Market saturation

Over 90% of the people who get involved in pyramid schemes never recoup their initial investment.

The people on the bottom level of the pyramid, no matter how shallow or deep it goes, will always lose their money. It is easy to see that the number in the bottom level of the pyramid always exceeds the total of all those in the levels above no matter how many levels there are. If each level must recruit six more below them, the ratio of losers to winners is close to 5 to 1 - ~84% of all investors will lose their money. The pyramid in reality would not be perfectly balanced and some members might be able to partially fill their number of recruits, but the same principles apply.
"8-ball" model

Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, who must each recruit two others.

The 8-ball model contains a total of 15 members

The 8-ball model contains a total of 15 members

Prior instances of this scam have been called the "Plane Game" and the four tiers labeled as "captain", "co-pilot", "crew", and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert", "main course", "side salad", and "entree". A person on the "dessert" course is the one at the top of the tree. Another variant "Treasure Traders" variously used gemology terms such as "polishers", "stone cutters" etc. or gems "rubies", "sapphires" etc.

Such schemes may try to downplay their pyramid nature by referring to themselves as "binary systems", or "gifting circles" with money being "gifted". Popular scams such as the "Women Empowering Women" do exactly this. Joiners may even be told that "gifting" is a way to skirt around tax laws.

Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - the person at the top of this tree is the "captain", the two below are "co-pilots", the four below are "crew" and the bottom eight joiners are the "passengers".

The eight passengers must each pay (or "gift") a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they exit the scheme as a captain. This requires that 14 others have been persuaded to join underneath them.

As such, the bottom 3 tiers of the pyramid always lose their money when the scheme finally collapses. Consider a pyramid consisting of tiers with 1, 2, 4, 8, 16, 32 and 64 members. The highlighted section corresponds to the previous diagram.

No matter how large the model becomes before collapse, approximately 88% of all people will lose

If the scheme collapses at this point, only those in the 1, 2, 4 and 8 got out with a return. The remainder in the 16, 32, and 64 tier lose everything. 112 out of the total 127 members or 88% lost all of their money.

During a wave of pyramid activity, a surge frequently develops once a significant fraction of people know someone personally who exited with a $8000 payout for example. This spurs others to seek to get in on one of the many pyramids before the wave collapses.

The figures also hide the fact that the confidence trickster would make the lion's share of the money. They would do this by filling the first 3 tiers (with 1, 2, & 4 people) using phony names ensuring they get the first 7 payouts at 8 times the buy-in sum without paying a single penny themselves. So if the buy-in were $1000, they would receive $56,000, paid for by the first 56 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before the collapse.

Other cons may also be effective. For example, rather than using fake names, a group of seven people may agree to form the top three layers of a pyramid without investing any money. They then work to recruit eight paying passengers, and pretend to follow the pyramid payout rules, but in reality split any money received. Ironically, though they are being conned, the eight paying passengers are not really getting anything less for their money than if they were buying into a 'legitimate' pyramid which had split off from a parent pyramid. They truly are now in a valid pyramid, and have the same opportunity to earn a windfall if they can successfully recruit enough new members and reach captain. This highlights the fact that by 'buying' in to a pyramid, passengers are not really obtaining anything of value they couldn't create themselves other than a vague sense of "legitimacy" or history of the pyramid, which may make it marginally easier to sell passenger seats below them.

In early 2006 Ireland was hit by a wave of schemes with major activity in Cork and Galway. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic 8-ball model. Payments were made in Munich, Germany to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation [1]. Ireland has launched a website to better educate consumers to pyramid schemes and other scams [2].
Matrix schemes

Main article: Matrix scheme

Matrix schemes follow the same laws of geometric progression as pyramids and are subsequently as doomed to collapse as pyramid schemes. Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder etc. when a certain number of new people join the end of the queue. For example ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but worthless item such as an e-book for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with shill names that must be cleared before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal or may attempt to exaggerate a prospective joiner's queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.
Comparison with multi-level marketing

Main article: Multi-level marketing

Multi-level marketing (MLM) businesses function by recruiting salespeople to sell a product and offer additional bonus or sales commission on the volume of other salespeople they recruit, commonly known as their "downline". New joiners may be required to pay for their own training / marketing materials, or to buy a significant amount of inventory. Thus it is possible that an MLM may be considered a pyramid scheme if salespersons are more concerned with recruiting a downline or if they must buy more product than they are ever likely to sell. A commonly adopted test of legality is that MLMs follow the so-called 70% rule which prevents members "inventory loading" in order to qualify for additional bonuses. The 70% rule requires participants to sell 70% of previously purchased inventory before procuring new orders. There are however variations in interpretations of this rule. Some attorneys insist that 70% of purchased inventory should be sold to people who are not participants in the scheme, while many MLM companies allow for a significant part of the sales of a participant to be to themselves for their own use [3]. The Federal Trade Commission offers advice for potential MLM members to help them identify those which are likely to be pyramid schemes. [4].

HYIP

2007-08-19T06:40:00.001-07:00

HYIP

High Yield Investment Program

High Yield Investment Program, or HYIP, is a often type of pyramid scheme normally offered via the Internet. HYIPs typically accept deposits as low as $1 while promising astoundingly high returns.

Online HYIP schemes rarely last for the long term. Overwhelming number of cases suggest that HYIPs are Ponzi schemes, in which new investors provide the cash to pay a profit to existing investors, which they typically then withdraw. [citation needed] This approach allows the scam to continue as long as new investors are found and/or old investors leave their money in the scheme, known as compounding (because even higher profits are promised).

The introduction of e-currencies has made it possible for HYIPs to operate on the internet and cross international boundaries, and to accept large numbers of small investments. HYIPs usually accept deposits by either e-currency, like e-gold, e-bullion and INTGold, or use specialist third party payment processors like AlertPay, SolidTrustPay, CEPTrust, TriStarMoneyChangers and StormPay. HYIPs typically offer a significant incentive commission (for example, 9% of invested funds) for members to attract and refer new investors.

Most HYIPs disclose little or no detail about the underlying management, location, or other aspects of how money is to be invested (often because money is not actually invested), and relatively little information (other than asserting that they do various types of trading on various stock and other exchanges) on how they actually generate the returns they purport. They are sometimes presented with some form of an emotional appeal, appeals for faith, and promises that they will help investors achieve financial freedom.

Arguably, the largest HYIP scam that has existed on the internet was PIPS (People in Profit System or Pure Investors)[1][2]. The investment scheme was started by Bryan Marsden in early 2004, (according to the Wayback Machine record of http://pureinvestor.com) and spanned more than 20 countries. PIPS was investigated by Bank Negara Malaysia in 2005 which resulted in Marsden and his wife being charged in a Malaysian court with 97 counts of money laundering involving more than RM77 million - US$20 million - (copy of New Straits Times article dated 11 Oct 2006). Even after these charges were brought forth many of Marsden's followers/investors continued to support him and believe they would see their money some day. This behavior and denial could be seen and still is seen on hyip forums such as Talkgold Forum and others.

Interest rates

HYIPs typically claim to offer interest rates of 1% or more per day on invested funds; some claim to offer much higher daily rates exceeding 200% a day. Allegedly, the highest-return HYIP on record has offered 1,100% ROI in one day. Claims of astronomical returns without large capital outlay or background information are indicative of a Ponzi-structured HYIP program.

As a comparison with a typical 1% per day claim, Warren Buffett, one of the world's most successful investors, made around 30% per year during his most successful period; that is on average, less than 0.1% per day. As the claimed returns of 1% per day are extremely unlikely to be produced legitimately, all HYIPs are therefore likely to be Ponzi schemes, and so most investors will in due course lose their money.
HYIP games

As a result of online forums and monitoring sites which have made HYIP investors more aware of their nature, a different sort of "honest" HYIP began springing up in the early months of 2006. Basically, the HYIP owner calls his or her program a "ponzi-structured game" where one should "not invest money one cannot afford to lose", and where there is "never a guarantee of earnings or refunds". They promise to pay out up to (for example) 95% of deposits, the rest going to hosting or other fees and the owner's profit.

In such "games", the first participants ("investors") may make a good profit and are encouraged to refer other people to the program because of referral commission, the fact that they have already made back their principal and are playing with profit, and that the more people who deposit money, the more money can be paid out to participants. In theory, strategies can be developed to maximize profit using these games (but, of course, since this is a zero-sum game, such strategies work by taking advantage of ignorance or errors by others). Some forum users may gain a reputation whereby others will trust their word that they have been able to withdraw their profits, encouraging others to invest in the hopes that more will invest after them and that they can therefore make a profit. As these games are by definition Ponzi schemes, it is inevitable that the vast majority of investors who are not at the top of the pyramid will lose their money.

These "games" might be considered as lotteries. However, the odds of winning cannot be determined, as one cannot know whether one is playing early enough to win money (that is, whether a sufficient number of new participants will follow). Thus, these activities are unlike a lottery or other forms of gambling, where a player has an equal chance of winning no matter when a ticket is bought, or where the odds of the game are known.
[edit] HYIP monitors

HYIP monitors, or HYIP listing/rating sites, are websites that list and/or promote HYIPs for referral commissions. The monitor charges each HYIP a listing fee which is usually then invested into that program, although there exist free listings and occasionally monitors which invest their own money. The monitor then labels the HYIP as "Paying" or "Not paying/Scam" depending on whether interest is received within the terms specified by the program. Monitors also allow other HYIP investors to rate and comment on the programs, based on factors such as promptness of payouts and responsiveness of the HYIP administrator. Programs with higher ratings achieve higher rankings on the monitor sites, which coupled with a "Paying" status may entice more investors who rely on the monitor.

In most cases, HYIPs only pay monitor sites to keep their "Paying" status visible, but do not pay other investors. As HYIP monitors are not affiliated with the HYIPs themselves, they are unable to prevent investors from being scammed; they neither help to recover lost funds nor track down the scammers. Promoting or perpetuating Ponzi schemes is a criminal offense punishable by jail terms or fines in most countries. That the monitor sites place disclaimers saying that they "do not promote the programs advertised on their website" does not absolve them from criminal liability.

In order to generate a "paying" status early (so that future visitors will see it) and maintain it for the longest possible time, newly opened HYIPs list their site quickly as well as constantly pay monitors their interest on time. Added to the fact that many monitors invest the listing "fee", and that a commission is received on each deposit made by people who visit the HYIP via the monitor, they are the most likely to profit when a program runs out of funds.

HYIP owners can manipulate monitors and forums, by paying people to comment positively or by using a range of IP addresses or proxy servers in different locations so that "paying" votes appear to come from around the world. This allows the HYIP to rise up the rankings more quickly than others, giving investors a false sense of security. Additionally, even if they know it will scam in the future, some investors will also rate new HYIPs positively until the HYIP stops paying, because they want more people to invest after them in the hopes that the program will last longer. Future scammers can also build up a good reputation on forums for a large payoff once most forum members trust them.

E-Gold

2007-08-19T06:36:00.001-07:00

e-gold

e-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and is a system which allows the instant transfer of gold ownership between users. e-gold Ltd. is incorporated in Nevis, Lesser Antilles.

According to the company's website, as of April 2007, e-gold had 112,188 oz (3,489,436 grams) of gold and 138,567 oz (4,309,923 grams) of silver in storage, which is worth approximately US$86 million [1]. There are typically 66,000 e-gold spends each day totalling 15,000 oz (460 kilograms), which is about US$10.5 million. There are over three million e-gold accounts of which about one quarter are active [2].

On 27 April 2007, a federal grand jury in Washington, D.C. indicted e‑Gold Ltd and its owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business.[1] e-gold, however, considers the charges completely groundless, and has responded to the allegations in their own press release. [3]
History

e-gold was founded in 1996 by Dr. Douglas Jackson and Barry K. Downey [4]. Transactions using e-gold have grown dramatically since 2005. The total amount of gold bars (over three tonnes) in the e-gold system is approaching the size of the national reserves of smaller countries. e-gold now generates a substantial income from spend and storage fees — there is a charge of a few cents to make each e-gold "spend" and e-gold itself now earns well over a million USD per year from fees.

The number of e-gold accounts (as claimed by e-gold) grew from 1 million in November 2003 to 3 million on 22 April 2006. [5]
Role in global commerce

Many small businesses in the U.S., Europe and Asia, each with full-time staff now operate as "digital currency exchangers," doing nothing other than buying and selling digital gold currency for fiat currencies, as gold bugs term national legal tender currencies not backed by hard assets.

e-gold transactions — a "spend" — are completed electronically, usually using the web interface, and they always settle by weight of the metal even if denominated in some other way. A user may send (or "spend") a tiny amount of gold (a fraction of a gram, ounce or kilogram) to another user account instantly, anywhere in the world.

Even though e-gold is careful to not advocate any particular political agenda, as the Liberty Dollar does for example, e-gold could be viewed as a libertarian form of private currency [6].
Features
Asset protection

e-gold is, according to their website, "100% backed by gold"

Unlike fractional-reserve banking, e-gold holds 100% of clients' funds in reserves with a store of value. Proponents of the e-gold system contend that e-gold deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency.

The repository of the actual bullion bars with serial numbers and other data can be seen using the live "Examiner" function on the e-gold web site. Bullion is held in allocated storage with Brink's Global Services (part of The Brink's Company), Transguard Security Services (part of The Emirates Group) or MAT Securitas Express AG (part of the VIA MAT Group) [7]. Clients hold an unallocated share of this allocated bullion.

The user may take physical delivery of the precious metal upon payment of an additional fee, and provided the user has an available balance of at least the weight of the smallest individual item displayed in the Examiner. This is currently a 32 troy ounce gold bar, which is worth approximately $20,000. However in practice, most users permit the company to store the metal for them.
Bullion investing

Main articles: Gold as an investment and silver as an investment

e-gold is a form of commodity money, so it is subject to the price fluctuations of that commodity. If the price of gold drops versus a national currency, the value of e-gold drops in that currency. The account balance, which is denominated in gold grams, does not change, but its purchasing power will change in relation to the gold price.

This can, of course, work both ways. Proponents of the e-gold system would argue that the risk of significant price fluctuation is small compared to the risk of value fluctuations among fiat currencies. The opposite argument is that a typical user is more affected by changes in the price of gold than of fiat currencies; this is because most people are paid in and spend their local currency, while the use of e-gold will typically involve a foreign exchange transaction each time. In both cases, long-term shifts in the price of a currency or e-gold affect its owner, but anyone who frequently buys and sells e-gold will be exposed to short-term fluctuations as well. The price of gold has increased over the past five years [8], so this factor has worked out to the advantage of anyone holding e-gold over that period.

As well as digital gold, e-gold also offers e-silver, e-palladium and e-platinum. Funds can be switched between e-metals using their sister company OmniPay. Metal-to-metal (or M2M) exchanges are completed at spot price with no bid/offer spread.
Exchanging for currency

e-gold does not sell its e-metal directly to users. Instead digital currency exchangers, such as OmniPay (a sister company of e-gold), and numerous independent companies act as market makers selling e-metal in exchange for other currencies and a transaction fee. Conversely, these exchange providers will buy e-metal with other currencies, again taking a transaction fee. In this manner e-metals can be converted back and forth to a variety of national currencies. The amount of a particular currency or e-metal necessary to complete a transaction is determined by the spot price of the metal in relation to the value of the currency. e-gold is known as private currency as it is not issued by governments.

Compared to other systems like PayPal, the process of buying e-gold can be confusing to a person unfamiliar with the e-gold system. e-gold, unlike e-Bullion for instance, does not sell digital currency directly to the user. According to their website the reason e-gold does not provide an in-house exchange service is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. They claim e-gold Ltd. does not possess currency of any nation or even have a bank account.
Fees

e-gold charges an account fee (or Agio Fee) of 1% per annum (deducted in monthly payments) on all e-metal stored.

Spending e-gold is free, with processing fees (or Spend Fees) deducted from the recipient. As of 2007 these spend fees vary on a sliding scale from about 5% for spending 0.1 grams of gold to 1% for 5 grams of gold. Over 5 grams of gold, the fee is capped at 0.05 grams of gold (about $1.12 with gold at US$700 per ounce). [9]

e-gold spends clear instantly, in contrast to cheques or credit card transactions. Unlike other online payment systems such as PayPal, there are no distinctions between merchant and non-merchant e-gold accounts. Anyone can instantly create a "merchant account" (there is only one type of account). All e-gold accounts carry the same fees and have the same capacity to receive and transmit e-gold account holdings.
Universal currency

Proponents claim that e-gold offered the first truly borderless global currency system which was independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.
Incentive program

e-gold clients can place a referral link on a website to generate a few cents in referral income. If a new client sets up an e-gold account from someone else's referral link, it is harmless and does not cost the new client any money when performing future e-gold transactions [10]. An e-gold user who recruits a new user, is henceforth compensated with a percentage of all future processing fees that this new user pays. This is a legal multi-level marketing practice, as users are paid from actual payment processing fees rather than simply for recruiting new users.
Crime and fraud

e-gold has been perceived as the medium of choice for many online con-artists, with pyramid schemes and High Yield Investment Programs ("HYIPs") commonplace. This has been blamed on e-gold's policy of irreversible transactions. However, e-gold is now blocking accounts where fraud is proven or suspected [11].

e-gold and OmniPay have also been accused of being a medium for money laundering, although this is questionable given that there were only 24 customer accounts holding over 10kg of gold (approximate value $200,000) by April 2006 [12]. As digital gold currency providers are not banks, they are not legally required to perform various sorts of "know your customer" background checks. However, many legitimate e-gold exchange providers, for example GoldNow, may require a higher level of identification, generally more intrusive than a bank, for security purposes.

Opening an account at www.e-gold.com takes only a few clicks of a mouse. Customers can use a false name if they like because no one checks. With a credit card or wire transfer, a user buys units of e-gold. Those units can then be transferred with a few more clicks to anyone else with an e-gold account. For the recipient, cashing out — changing e-gold back to regular money — is just as convenient and often just as anonymous. [13]

In January 2006, BusinessWeek reported on the use of the e-gold system by ShadowCrew, an 4000-strong international crime syndicate involved in massive identity theft and fraud [14]. Omar Dhanani of Fountain Valley, California, connected to the ShadowCrew, is an e-gold customer and is reported to have moved amounts ranging from $40,000 to $100,000 a week from proceeds of crime through e-gold [15].

In response, Chairman and founder, Dr. Douglas Jackson published a letter which stated that "e-gold operates legally and does not condone persons attempting to use e-gold for criminal activity. e-gold has a long history of cooperation with law enforcement agencies in the US and worldwide, providing data and investigative assistance in response to lawful requests." He further noted that "Our staff has participated in hundreds of investigations supporting the FBI, FTC, IRS, DEA, SEC, USPS, and others." [16].

In August 2006, WORLDLawDirect lawyers announced e-gold Ltd. officials and their legal counsel to be the subject of a U.S. Federal Court subpoena. They believe e-gold Ltd. is subject to U.S. Federal Court jurisdiction and may be held liable for some or all of the investors' losses (and potential triple damages) in the Solid Investment (Solidinvestment.com) large scale HYIP scam [17].
2007 Indictment

See: DoJ press release and the full text of the indictment.

The essence of the allegations in the indictment is two-fold: 1) e-gold is an unlicensed money transmitting entity as defined by Title 18 USC Section 1960. 2) e-gold was a de facto means of moving money from illegal activities to wit: HYIPs which are Ponzi scams, credit card and identity fraud sites and retailers of child pornography.

The indictment alleges (paragraph 34) that the defendants knew of the activities associated with the accounts and noted those activities in the e-gold database with notations such as: "child porn", "Scammer", and "CC fraud".

The indictment further alleges that knowing that certain accounts were associated with illegal activities e-gold placed "value limits" on the accounts and suggested that the account holders open new accounts and placed no restrictions on the customer's ability to move funds out of the account.

In May 2007 the US government seized the e-gold accounts of e-gold Ltd., G&SR, The Bullion Exchange, AnyGoldNow, IceGold, GitGold, The Denver Gold Exchange, GoldPouch Express and 1MDC, and forced G&SR to liquidate the seized assets [18]. Partly due to this reason e-gold's gold bullion reserves have dropped from 112,188 oz in April 2007 to 84,856 oz by June 2007 [19].
Criticisms
Non-reversible transactions

Unlike credit cards, there is no way of having transactions reversed, even in case of a legitimate error or an unauthorized expenditure. e-gold's Terms of Use stipulate that all transactions are final and e-gold cannot be held responsible for any spend. In this respect, an e-gold spend is more akin to a cash transaction (except for the fact that there is a fee levied) while PayPal transfers, for example, could be considered more similar to credit card transactions.
Security

As with any online payment system, e-gold is vulnerable to various threats, notably phishing (for example, forged emails asking for login details) and malware (such as keystroke logging spyware).

e-gold offers no protection whatsoever if an attacker succeeds in obtaining:

* the user's e-gold account number
* the user's e-gold password
* access to the user's registered email account (web-based email accounts without a secure login are especially vulnerable)

as the e-gold account will then be completely open for malicious use.

All three pieces of information can be gathered with a trojan keylogger which monitors accesses to the e-gold web-site. All online services are affected by this security issue, but what makes e-gold especially vulnerable is that any losses resulting from a security breach cannot be undone since transfers are non-reversible and, unlike online banking, e-gold do not provide any insurance against such abuse. Also if funds are stolen, e-gold will not block a recipient's account without being issued with a court order. Since there is a lag time in obtaining a court order, the stolen funds can easily be withdrawn from the offending account and the e-gold system, rendering the recovery of any funds virtually impossible. This is not clearly stated in e-gold's user agreement, but an abused user will receive the following explanation from the company:

Unfortunately we will not be able to refund your money because all e-gold spends are final and not reversible as stated in the e-gold account user agreement. e-gold is also contractually prohibited from freezing e-gold accounts or releasing e-gold account information in the absence of a court order or subpoena. You might want to consider obtaining some combination of help from a legal professional or law enforcement to obtain a court order, if the size of your loss warrants expenditure of your resources (time and money) to resolve.

In 2005, the Los Angeles Times reported on a specially created trojan horse that compromised "dozens" to "the low hundreds" of e-gold accounts [20] . While trojans usually silently record the login details of the unsuspecting user, the trojan in question (Win32.Grams) emptied the accounts themselves by transferring the contents to the attacker's accounts.

To partly counter the threat from keystroke logging it is imperative that users never enter their password via a keyboard when logging-in, or authorising spends, if the computer they are using is potentially infected. Instead, users without a disability should always use a mouse and the popup window provided (SRK Passphrase Entry). However this is not a panacea as advanced spyware can take a screen shot and read the mouse clicks. Other security recommendations from e-gold include restricting access to a single IP address or browser (Account Sentinel) plus using Mozilla Firefox, a firewall and antivirus software [21].

Some competing DGCs offer similar features to combat typical, simple, "mass" phishing attacks and keystroke loggers. e-Bullion utilizes a two-factor authentication security token from CRYPTOCard, an alternative to RSA's SecurID. Pecunix has an extremely secure, somewhat complicated, log-in procedure. GoldMoney allow user certificates to be used. Most systems also include an optional or compulsory "email confirmation" type of process when logging-in or authorising spends.
Regulatory challenges and shortcomings

e-gold Ltd. was registered in Nevis, Lesser Antilles in 1999, but was temporarily removed from the register. e-gold cleared an administrative issue and as of July 14, 2006, it is properly registered in Nevis.

In September 2004, several Australian based e-gold currency exchangers ceased operation as they did not hold an Australian Financial Services licence (AFSL) [22]. Australian based digital currency exchangers that closed down voluntarily, due to the Australian Securities and Investments Commission (ASIC) licencing requirements, included:

* goldex.net
* sydneygoldsales.com
* ozzigold.com

Whilst exchange providers can still operate in Australia, many have found it impractical to do so due to licencing or proxy issues. Australian residents can exchange e-gold via exchangers in the U.S., Europe or other countries. There appears to be no issues about New Zealand citizens buying e-gold in NZ, and a number of AU citizens have opened NZ bank accounts, specifically to purchase e-gold from NZ based exchangers (even though e-gold doesn't denominate e-gold in NZD).

On 24 November 2006, e-gold suspended all accounts held by customers located in Iran. [2]
Bullion storage

As of November 2005, it is unclear if e-gold has an independent auditor of the physical bars, so there is no way of knowing if e-gold Ltd. really has the reserves to back the currency in the e-gold system. e-gold does maintain an "Examiner", a web page with updated statistics on outstanding liabilities and the total amount of each precious metal in its holding [23]. While proponents generally consider this assuring enough, critics remain skeptical as there is no way of determining if the web page's portrayal is accurate.
Limited use

Beginning January 2006, eBay has restricted buyers and sellers from using many online payment systems and encouraged them to use Paypal, which is wholly owned by eBay. eBay specifically named e-gold as one of the online payment systems that will result in them cancelling a seller's account if used [24]. e-gold runs a non-reversible transaction policy, meaning that there is no protection for purchasers if vendors fail to supply goods.