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Deal Judge: Getting Suckers To The Market

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Ed. note: This is a new weekly column by Elie Mystal, Managing Editor of Above the Law Redline, wrapping up the week that was in law and finance. Elie is not a practicing attorney, and anything he says that you listen to can and will be used against you.

Issue #1: The law has to protect idiots. That's just what we do in a polite society. The SEC is now taking a look at online "direct sales" pyramid schemes. From the Wall Street Journal:

Direct-sales is more popular than ever: A record 16.8 million Americans—representing about one in every seven U.S. households—worked in the industry last year, most for companies that employ networks of people paid both for selling products and for recruiting new distributors, according to the Direct Selling Association. The group estimates the industry, which includes well-known public companies such as Avon Products Inc. and Nu Skin Enterprises Inc., racked up sales of almost $33 billion last year, up 3.3% from 2012...

Regulators say the industry is being exploited by Web-savvy con artists who are in fact running pyramid schemes—a fraud where the new money comes mostly from attracting new recruits, rather than legitimate product sales. Once the supply of recruits runs out, the scheme collapses, leaving most of its members nursing losses.

This is all happening because of Herbalife. But it's been exceedingly difficult to label Herbalife a "scam" in a legally actionable way. Going after "direct sales" seems like the SEC is trying to scoop up some of the low-hanging fruit out there as its Herbalfe investigation rolls on.

And that's good news for the people dumb enough to get mixed up with some of these companies. A person's desire to make money quickly often exceeds his mental capacity for self-preservation.

But I'll just point out that there's another way to go: "Sorry you lost all of your money by being a sucker in a Ponzi scheme. Here's a social safety net to cushion the blow."

Issue #2: I don't have a lot to add to the Deeb Salem coverage, beyond my sincere hope that his mother's uterus feels shame. But it feels like it should be stated clearly that implied verbal contracts for $13 million dollars do not exist.

It's possible, though bloody unlikely, that Salem was unfairly compensated for his contributions. But all this stuff about what he was told and who he told it to is pure crap. Neither he, nor his mother, determinately relied on an implied promise of a bonus far exceeding $8.5 million. You cannot memorialize a contract by telling your mother. That's not how this works. That's not how any of this works.

Issue #3: Check out this video of "Ponzi Princess" Laurie Schneider talking people out of their money.

So-called 'Ponzi princess' dethroned

What kind of freaking idiot gives her money? I mean, I know that what Schneider is doing is illegal and wrong and she's a very bad person or whatever. BUT WHAT KIND OF IDIOT GIVES HER MONEY? Mother of Christ. We need an entire regulatory scheme to protect these people? Schneider's victims are turkeys who drown in the rain.



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