What Are The Cleverest Scams You Have Come Across? Episode V
One of the classic problems with scamming people for a living is that, at some point, it involves taking money from people for a good or service that you either have no expectation of delivering, or deliver poorly or know to be worthless, and not refunding it. This is called fraud, and its how many scammers get prosecuted.
But what if you could avoid that? How can scammers eat their cake and have it too (which is how the expression actually goes)?
One way has been alluded to in some other answers here: make a refund contingent on the person who wants the money having to embarrass themselves in some way few people would choose to do, usually by printing the refund checks out with something that leaves no doubt the money was used for some shameful purpose.
Well, Berkeley Nutraceuticals, the makers of Enzyte, a purported penis-enlargement pill, found an even better gimmick.
Americans might remember the company for its late-night TV ads featuring “Smilin’ Bob”, whose, ah, social life was supposed to have been vastly improved by the company’s product, a pill consisting of a few standard herbal remedies. It wasn’t the only thing they sold, but it was the best seller. For a while.
As Slate explains:
Berkeley didn’t make most of its cash from people looking to try a single box of Enzyte tablets; it made most of its cash from putting callers into a renewal program that sent them a $70 supply of Enzyte every two months until canceled. Many customers had no idea that they had even signed up for such a renewal program, however, and canceling was (purposely) difficult.
So, as the BBB and FTC began to close in on them, the company got creative. They took the return mailing address off the boxes, forcing customers to call them so they could, in founder Stephen Warshak’s words, “work some deals”. When the amount of disputed credit card charges led to warnings from V/MC and Amex that they would be cut off (if a merchant’s “chargeback”, or disputed transaction, rate goes above a certain very low percentage a month, the card-services agreement gives the card companies the right to stop processing all the merchant’s transactions if it wants), they began splitting up the transactions, billing separately for the product and shipping, so the rate would go back to something within the limit.
The best part was that if customers really wanted a refund, they had to submit a notarized letter from a physician attesting that Enzyte had failed to enlarge their penis. Yes, this letter would not only have to be written by a third party, but signed in front of a fourth. As you can imagine, in the Venn diagram where one circle is “men so desperate for a bigger penis but so secretive about that desire they will mail-order a product promising to do it based on a late-night TV ad” and the other “men who will shamelessly admit this to a physician and then let a notary public read this same letter in order to get their money back” … well, the circles do touch but you would need a microscope to find the sliver of common area.
Even a federal appellate judge who sat on the panel upholding Warshak’s eventual conviction had to give credit where credit was due: “The admittedly ingenious idea behind the policy,” wrote Danny Boggs of the Sixth Circuit, “was that nobody ‘would actually go and have anything notarized that said that they had a small penis.’”
So, is it really a scam if very few customers take you up on your refund policy, despite massive dissatisfaction, just because they don’t want to take the necessary steps for fear of self-humiliation?
Warshak’s case, ironically, wound up setting a major electronic-privacy precedent when his defense lawyers discovered that the FBI and federal prosecutors had been reading his email for months before they arrested him because … they just went to the ISP and asked, which was perfectly legal at the time. While the prosecutors therefore got qualified immunity, ever since then the government has needed a warrant to read your email if they’re investigating possible criminal activity on your part.
That leads to another scam that led to a memorable federal court decision: Prenda Law, which likewise preyed on male embarrassment.
Ostensibly, Prenda was a Chicago IP law firm. In reality, its principals used various cutouts and shell companies to obtain (for a song) the copyrights on various minor old porn films from the 1970s, cutouts who they then took on as clients. They then made sure these films were available on BitTorrent or other services, and found ways to track down the men who inevitably watched them that way.
Those men then received ominously-worded letters from Prenda informing them they had infringed their “client”’s copyright and that all sorts of (legally possible but practically unlikely) bad bad things could happen to them, including criminal prosecution … unless they took the rightsholder up on its very reasonable settlement offer, which was ever so conveniently just a little less than what they might reasonably expect to pay to retain a lawyer to represent them. Not surprisingly, Prenda was able to keep itself in business just cashing a lot of these personal checks.
Some of those pirates, however, did decide to retain lawyers nevertheless, which ultimately led to the discoveries that were referred to the office of the U.S. Attorney for the Central District of California (IOW, Los Angeles and environs; the Southern District of California is San Diego) where Prenda’s principals were ultimately indicted, prosecuted and convicted.
It wasn’t easy; the Prenda lawyers used every squirmy little trick in the book. They changed their name and began filing cases in state courts so they couldn’t be so easily tracked. In court they availed themselves of whatever motions they could file that could drag the case out, no matter how preposterous the reasoning.
But then they crossed a serious line when they purposely ignored the orders of Otis Wright, the presiding judge, quashing subpoenas they had issued to various ISPs to find the names of more subscribers to blackmail.
You don’t do that and not expect serious repercussions, unless you’re an unrepentant scammer who just doesn’t care. In 2013 Wright came down on them hard. His sanctioning order is famous for all its Star Trek references:
It was when the Court realized Plaintiffs engaged their cloak of shell companies and fraud that the Court went to battlestations…. As evidence materialized, it turned out that Gibbs was just a redshirt…[Though] Plaintiffs boldly probe the outskirts of law, the only enterprise they resemble is RICO. The federal agency eleven decks up (the U.S. Attorney’s office on the 13th floor of the Los Angeles federal courthouse) is familiar with their prime directive and will gladly refit them for their next voyage.
The best part, though, wasn’t the in-jokes. It was the sanctions themselves. In one of the best legal uses of irony, ever, Judge Wright paid full tribute to the cleverest aspect of Prenda’s copyright trolling: he set the fine at just below the minimum of what it would cost in attorney’s fees to appeal his ruling.
As the Klingons would say, revenge is a dish best served cold.
I live for the moment. Love to write about random topics that catches my fancy and makes people happy. Keyword: fascinating. Abraços