Sunday, May 24, 2009

Why so much fraud?

With the many Ponzi schemes, financial statement frauds and various schemes that keep coming to light, I've been asking myself why our society has so much fraud. I've come to the conclusion that it probably has something to do with the claim I've heard before that you can sell anything to 3% of the population. I don't know if it's 3% or some other percent but it seems like some people will buy anything. Like take the Pontiac Aztek. Who bought those cars anyway?! Perhaps a better question is who hired those designers and engineers to begin with?!

I believe that in certain segments of business the percentage of people who will buy anything is much higher than 3%. For example, fad diets and get rich quick schemes are sold to about 30% of the people I know. It seems that any product that claims to circumvent established laws of health and economics can be sold to a much higher percentage of the population than 3%. Why is that? Do these people think to themselves: "Never mind that science says that a balanced diet and exercise is the key to health, this diet says if I eat nothing but meat then I can play video games all day and still have washboard abs!" Or maybe they think to themselves: "I don't think economists know what their talking about since a friend of mine is able to make 12% per day by clicking on 7 websites!" Don't they ask themselves: "Why don't these people just employ all the population of India to click day and night and keep the profit themselves?!"

I'm convinced that when it comes to fad diets and get rich quick schemes, much more than 3% of the population will buy anything. The perfect recipe for a fraud seems to be to couple a fictitious health or diet claim with a get-rich-quick scheme. Many successful "entrepreneurs" do this with business models that aren't "technically" fraudulent. For example, how many multi-level-marketers are there who sell an unproven nutritional supplement at a price that is at least one order of magnitude higher than what you would pay for an equivalent product at Walmart?

Actually, many of these companies don't sell their products to end users; instead, they sell their products to other "distributors" who want to be a distributor so they can make their friends and family their downline. Yes, for many, the promise of getting rich quick is just too hard to resist.

1 comment:

  1. I had to go look up Pontiac Aztek, (the company spells it this way ),it's truly hideous. It's bulky and cheap looking, it looks like it was cobbled together from pieces of other vehicles.

    This article is prescient, it sounds as if it's being written about herbalife today. I guess things haven't changed much in the fraud business over the last five years. What are your thoughts on herbalife and the various investigations into their business practices?