The Video Concierge Scam Revealed

We live in a world where every other commercial offering is for a product making claims that are patently false. Each consumer contract and offer has to be poured over to detect a catch. There are folks out there who make their entire livings peddling lies. In fact, entire industries have been based on the promotion of falsehood.  Defending the general public from the harms of these deliberate acts is a legitimate role of government. Exposing fake claims, bogus clauses, trickery and outright theft by misrepresentation should be a staple of the free press.

In a fairy tale, maybe. In the real world,  legalisms and litigation protect the scam artists and there is little or no incentive to reward such actors who might wish to shine the light of day onto those various venues feats of skullduggery take place.  This is not to say things are all for the worst. The rule of law protects us all. No one should feel free to destroy another person’s livelihood on the basis of unsupported opinion, unfounded allegation or malicious rumor. For reasons of protecting innocent parties from unsubstantiated charges, the rules are weighted on the side of the party producing a product. Moreover, having something worth protecting usually means having  the resources to do so.  The money advantage is almost always on the fraudster’s side.

Until now. In a rare turn of events, one William Ackman seems to have turned the tide on at least one major  fraudster. Ackman’s really no hero (although with enemies like Carl Icahn, he can’t be all bad*1), but his tactics may be useful to any real do-gooder who chooses to study them. At the very least, he’s come up with a way of evening out the cash equation—of creating a market incentive for exposing the creeps.

Ackman is a Hedge Fund operator, itself one of those dubious things belonging to a realm of capitalism wherein nothing is ever created or destroyed. In the best light, hedge funds act as proactive insurance vehicles; a method for keeping the rich rich, even if their other investments tank. Hedge funds utilize a quiver of derivative financial instruments to make contrary bets on the direction of securities, equities and commodities. In short, they place seemingly bad wagers on the price of stuff. In Ackman’s case, he’s using stock options to bet that the price of a certain stock will fall. He and his fund have it set up so that they can make money on this stock, even if it falls to zero. Moreover, Ackman is actively rooting on his target’s demise.

All public trust corporations (companies who issue stock traded on an exchange) are vulnerable to this type of manipulation. Most companies are protected from being run down too much—or run to zero—by something called a Book Value. Short form, this is the value of the company’s assets minus its obligations divided by the number of shares it has issued. It’s a rare publically traded firm that can be taken to zilch without being delisted or declared insolvent long before that happens.

Ackman’s target Herbalife is just such a rare company. Herbalife is the Multi Level Marketing Network Get Rich Quick scam from central casting. Everyone knows Network Marketing is a scam and all of the firms involved in the field, great or small, are crooked enterprises. As a scam, Herbalife really cashed out the moment it became an IPO and issued stock. The initial operators walked away long ago, having reached the promised land of selling the trappings of an illegal scheme for cash fed to them by soul-challenged portfolio managers. There can be no doubt in the minds of the heartless people currently operating Herbalife that its business exists to sell false hope to the desperate and the unlucky. Fund managers, being what they are, watch the PE ratio and the macro mysticism of the dismal science and treat it like another thing—all stocks being things and all things in the market being ruled by ROI, to be held or disposed of at the whim of idiosyncratic operational theory. It doesn’t matter to them whether you’re peddling cement, cigarettes or broken dreams. All things that can be owned with  positive ROI and/or income streams are equally good.

As far as stock things are concerned, Herbalife is in the rife with dubious claims nutrition sector. It makes a diet drink. The diet drink is then sold through independent agents, supposedly to the public. The way the scheme actually works is that the agents spend most of their time trying to recruit more distributors. In schemes like Herbalife, much of the product winds up in the unsold inventory of failed distributors. The real business is in the constant churn and burn of these distributors, who in scam terms are the end marks. What constitutes the assets of Herbalife, beyond its income stream, are its  nebulous product and the legal ability to  perpetuate the lie that average distributors can make a living selling it.

All of that gets shot to hell if the FTC or another authority declares Herbalife’s method of doing business fraudulent. The FTC has already shut down identical rackets throughout the country. And outlawing Network Marketing is becoming a trend throughout the developed world. Tellingly, Herbalife’s only growth potential has been in emerging markets and other places where the rule of law has yet to cover get rich quick schemes such as this.(*2) Now that Ackman has presented to the world a 300 page report detailing the ins and outs of Herbalife’s misdeeds, it seems only a matter of time before the authorities are shamed into action. Should the FTC declare Herbalife’s utterly deceptive method of sales distribution illegal, the firm would become valueless overnight.

Ackman and his hedge fund are, of course, getting richer and richer as the heat on Herbalife increases. In a fairy tale, they continue to make money right until the moment Herbalife is delisted. In real life, Herbalife has lawyers and publicity agents and sociopathic stock touts on its side. (*3) So far, Herbalife is hanging in there, hoping plutocrats with holdings in similar businesses will reverse the trend in cracking down on this scam. That’s their only hope. The FTC being none too quick on the trigger despite Ackman’s paint by numbers portrait of Herbalife’s crimes is also giving comfort to the corrupt.  As of this writing, it seems more likely that Ackman’s tactics will be outlawed well before any crackdown should come Herbalife’s way. If so, that would be a shame and a blow to the rule of law.

 I hope that I am wrong.

You don’t need to tune in CNBC to be bombarded by the world of retail fraud. Numerous get rich quick schemes ply the airwaves with wild abandon. The Hotel Video Concierge is a new one currently making the late night cable rounds.

There’s nothing all that new about the underlying racket, but the props are slightly unique. In true scam form, most of the pitch’s face time is spent showing you flashy cars and luxury homes. Cut away to Joe and Susan Sixpack, who claim to have been made rich by this wondrous new opportunity. And for an investment of as little as $7000.00 you can, too. Although it doesn’t use the tried and true pitch line “All I do is sit home and count the money” it does trot out the old “I can’t wait to get another one” and “You’ll soon be seeing them pop up everywhere.”

At least it’s not a mini mink farm this time.

What It Seems To Be:  Video Concierge is an automated kiosk that enables travelers to locate restaurants and other attractions in the Hotel’s vicinity. By tapping a touch screen, visitors are given directions to their selected destination. In theory, the attractions pay to advertise on this machine. The company sponsoring this opportunity has lined up various venues willing to have this machine installed. Also handled for our prospective automated concierge millionaires is the sale of advertising for these kiosks as well as all of the billing functions. All the prospect needs to do is purchase the machine.  For bonus points, our scam operators are offering a variety of machines to choose from. Implied in their pitch is that the nicer the machine you choose, the better the venue it will be in and hence the more money you will make.

Of course, nothing could be further from the truth.

What It Is: This is our pal, the Vacancy Scam done in short form. We covered this on the Hil-Gle website under the heading of The DVD Rental Machine Business Opportunity Scam. In the traditional version of this scheme, the mark is purchasing some form of capital retail equipment, usually a vending machine. The way the scam works is that the mark overpays for a vending machine which promptly becomes useless. Eventually the mark realizes that he is in for more than he thought he had invested and walks away from the machine. The scam artist then sells the machine for whatever he can get to another party. In the case of the Hotel Video Concierge, the scam isn’t anywhere near as complex.

Before we go on, let me state emphatically that no legitimate business would ever attempt to use this mechanism to raise capital for expansion. The entire song and dance belongs to the world of scams exclusively. If the Hotel Video Concierge business were in any way viable, the major outlay would be in contracting with the venues and selling the advertising. Purchasing and operating machines, even in the ultra secure ATM world, is an afterthought expense. Having laid the groundwork for an operation as complex as Video Concierge would be if legit, no going concern would troll the late night cable looking for cash infusions at seven grand a pop. So it’s all basically a fairy tale.

And it’s not all that good, as fairy tales go. At least with the DVD Rental Scam, the operators could point to Red Box as an (erroneous) example of the type of business you are attempting to get into. With Hotel Video Concierge, there are no functioning examples to point to. And they won’t be popping up at hotels and sports arenas anytime soon, either. If you do ever run into an example of something like Video Concierge still in existence on your next hotel stop, it will probably be unplugged and defaced.

There are reasons that ideas like Video Concierge don’t work as viable businesses and wind up in the domain of scam trappings. (We list these on HIL-GLE.com in the Ajax Telegraph section under the listing $2000.00 Plus Your Dignity.) This one falls under the broad heading of “This ship has sailed.” Not only has this ship sailed, but it sank.

Numerous hotel chains have tried systems similar to Video Concierge. In fact, there were two competing systems, one a kiosk like what the scam artists are selling and a second system based on the rental room’s television remote. Neither system ever really had a chance. Technology leap frogged the idea before it could roll. It mutated into ads on the hotel’s home page for wi-fi access. Even there, the hotels had problems getting anyone to buy the advertising. By the time touch screen kiosks became affordable, cell phones, I pads and other personal digital devices had become the norm. So no one is going to bother with your little touch pad kiosk when they can look up the same information on whatever it is they are carrying around. Certainly no one is going to advertise with you. Which leads us to wonder exactly what the scam artists behind Video Concierge are attempting to sell you.

WHAT IT IS: It’s a bright box with all sorts of nifty lights on it. Just the type of thing that suckers are willing to buy. But mostly it’s a prop in a whale of a tale. The story is that the system will eventually allow people to purchase movie tickets and airline tickets and tickets to all sorts of other events through the system. Or that it will spit out coupons. At that point you will be able to charge a nice processing fee. If you don’t think about it too hard, it’s a nice idea. If you do think about it, you know that all of these fine services are already provided by your tablet, computer or cell phone. And no one is ever going to pay you diddly squat for any of these services, even if they did exist. This part of the story is there to enable the upsell—to determine how much money you are willing to invest. The more you pony up, the more “potential” for upgrade your machine is going to have.

Rest assured that there is no special sales force at work trying to get you advertisers. And no army of lawyers attempting to bypass the ticketing agreements sports venues were locked into long ago. Any reference to such is fiat of the scam artist’s imagination. What your machine displays is a web page template with Google advertising on it. Like any other person with a web page, you will be paid on click throughs when and if someone clicks on an ad. Whatever fees you are then due are split between the scam operator, the hotel and you. As for your machine, it’s a version of a lap top with a touch screen plus about three dollars worth of plastic. Moreover, its continuing ability to function is at the whim of hotel management—who are going to unplug and chuck the thing once they become dissatisfied with their cut.

Even at the minimal “investment” of seven grand, the mark up on this scam is fantastic. The computer display costs $700.00 at most and the web hosting under $100.00. If they do nothing else, selling you a lap top and a web template at this price makes the whole thing worthwhile. There’s no reason to play any of the other tricks normally associated with Vacancy Scams. All of the effort is going to be in getting you to buy the most expensive box they can. After that, they could care less what happens.  

In a more perfect world it may make some sense that you could net serious  cash if your terminal is in a specifically high traffic area. But in a more perfect world electricity costs no money and unattended computer thingies are never vandalized by vacationing children. Here on Earth, your seven thousand dollar video touch screen will fall victim to teen spirit or changes in venue management long before you see a profit.

In the completely illegitimate version of this scam, the operator is claiming to rent space from the hotel and will take all advertisement revenues until the monthly nut is met. Although that is a possible condition, I don’t think it’s probable with most versions of the racket.

In the end, you are counting on the scam operator to pay you your cut from the advertising. As with scams of this nature, the operator might send you a very high payment at first. Unless he shows you an actual click through report from Google (or whatever service) (*4), assume the money is a lure. The idea is to get you to buy more machines.

There is no high end hotel chain that will allow devices like these to be placed within their lobbies. You are going to be in venues under the management of independent operators. In general, there is no contract with these operators. They too are giving the thing a chance. The moment your kiosk loses its luster as a potential profit center, it becomes an electric sucking waste of floor space with the dustbin as its destination. So long seven grand.

Scams like this are always very short term. I am fairly certain this one will be gone in no more than 18 months.

Notes:

*1. Carl said Ackman reminded him of all those weak little Jews who used to get beat up in the school yard. He spewed this as opposed to making any attempt to refute the logic or data incorporated in Ackman’s findings. (Icahn is also Jewish, but I still find it bad form. Reports state Icahn won the debate, but I didn't see it that way.)

*2.   The same can be said for Avon, Amway and Tupperware. All Network Marketers and big time polluters seek third world havens to foster “growth.”

*3. And watching the parade of whores on CNBC has done nothing to disabuse me of my already low opinion of stock touts. I note that none of them disputed that it was a scam. It appears that an industry designed to pick on losers is as valid as any other sector listed. Now I have to go check my own 401k to see if I am also enabling evil.

*4. Google owns the advertising industry. Beware of any firm saying they are using their own service. There just isn’t one. But that might give you an out, in case you want to get these suckers thrown in jail. It’s at least another criminal wire fraud count.

Note: Shooting what little credibility I have, previous versions of this post spelled Ackman's name Ackerman. Also, he typically goes by Bill as opposed to William. I will now go back and soak my pointed head, or whatever it is I do. Speaking of which...

Note: I have been working on a novel for the past few weeks. I am hoping to have it ship shape and out to agents sometime after March. Hil-Gle and this Blog Post have now been hit in excess of two million times and are coming off our best traffic month ever. Thank you all for your support!