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May 10, 2007

Alleged 'VoIP Pyramid Scheme' Making the Rounds?

By Patrick Barnard, TMCnet Assignment Editor

The other day an acquaintance was telling me about a “VoIP pyramid scheme” which has been making the rounds in the US for the past couple of years. I was really surprised to hear about this and found the news rather alarming.

Basically, the thing works like most other pyramid schemes: It promises that you’ll make millions of dollars from re-selling VoIP services – not so much on your own but rather through a stable of “sales representatives” who you recruit yourself – and who in turn go out and recruit even more sales reps, ultimately making millions for you. The premise is that this “new and promising technology” called VoIP can make you a millionaire practically overnight. But according to what I’ve read, VoIP really has little or nothing to do with this scheme. It is really just the bait used to lure you in.

The alleged pyramid scheme takes the typical approach of making an offer that sounds entirely plausible - but at the same time is almost too good to be true. After the sales representatives get you interested, they proceed to try to make you think you’ll end up looking like a fool if you miss out on this once-in-a-lifetime opportunity. According to those who have encountered the scheme, you will be “brainwashed” into believing that you will never have to work again if you just pay a “modest fee” up front (about $500) for some training and a “start up kit” provided by the company making the offer.

Curious about this, I did some investigating and lo and behold, I found a fairly good amount of information online. It seems that the “representatives” who are involved in these alleged schemes – typically teenagers or college students working on behalf of the companies– are presenting themselves as legitimate businessmen offering other unsuspecting young people an “opportunity” to make fast money and change their lives forever.

Interestingly, one of the companies mentioned is ACN – a legitimate multi-level marketing (MLM) company that supposedly helped launch Comcast (News - Alert) years ago. Founded in 1993 and based in Farmington Hills, Michigan, ACN reportedly offers local calling, long distance, Internet, wireless and digital phone services to consumers and small businesses in the US, Canada, Europe and Asia Pacific. It reportedly launched operations in Europe in 1999 and in the Asia-Pacific in 2004 - and also has offices in The Netherlands, Sweden, Australia and Poland. It is also reportedly a member of the Direct Selling Associations in North America and Europe.

According to what I’ve read, ACN has been under scrutiny for a while now because most of its revenues are derived not from selling telecommunications services (i.e. VoIP), but rather from the fees collected from new and incoming “representatives.” The company apparently ran into some legal problems in Australia in 2004 due to its questionable business practices – and was subsequently investigated by the Australian Competition and Consumer Commission (ACCC) for alleged breaches of the Trade Practices Act 1974 (particularly with regard to provisions in the act relating to pyramid schemes). In 2005 an Australia court reportedly ruled that ACN was operating an illegal pyramid scheme – however the company appealed the ruling and it was reversed after an appeals court determined that the alleged “recruitment payments” did not fall under the definitions of the law.

Another company which is allegedly engaging a “VoIP pyramid scheme” is Grouphone. Once again it is entirely arguable whether the company’s activities are illegal – and, to be fair, there is no mention of this company having any legal troubles stemming from its business practices anywhere online. The alleged scheme they’re running sounds very much the same as the one previously mentioned. Basically, unsuspecting parties are led to believe that they’ll make millions – but then the company takes your money and you learn the ugly truth that it is really only paying you to find new “representatives” to re-sell its services. You ultimately come to learn that you can only make really big money once you reach the top of the pyramid - which is almost impossible to achieve (in fact, it is reported that more than 95 percent of all the “sales reps” hired for these schemes drop out of the program after just a few weeks). Once again the scheme is modeled after the multi-level marketing approach used by companies like Amway (Quixtar) – so, in that sense it is difficult to point a finger and say with certainty that the whole thing is a scam.

The acquaintance who told me about these alleged “scams” said he learned about them after was recently “taken” by another “VoIP pyramid” company which just recently came onto the scene (however, I didn’t have a pen at the time and now I can’t remember the name of the company). Apparently, this company puts a new twist on the pitch: They tell you that their VoIP technology works in such a way that it is NOT in violation of Verizon’s (News - Alert) patents, and that therefore you are all but guaranteed to get a giant slice of the VoIP market pie all for yourself.

For me, the really interesting thing here is that the scheme involves VoIP. Whether these companies are engaging in illegal activities or not, it is amazing to me that someone could be suckered into believing that they can make millions from VoIP without any knowledge of how the technology works (or network technology in general) or even the basic steps involved in deploying a consumer VoIP service. Personally, I am disgusted to hear that VoIP is being used to purport this type of thing – and I urge everyone reading this to check out the links below and tell your friends and neighbors about this before someone else is robbed of their hard-earned $500.

And if any of you have similar stories to share about how you (or someone you know) was taken by one these supposed schemes – or if you have any thoughts on this at all – I urge you to write your comments below in the section that says “Add to the Discussion.”

Meanwhile, I am continuing my investigation into this and will follow up once I learn additional details.



Patrick Barnard is Assignment Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page.

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