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The Political Economy of the Pyramid Scheme


Source: Wikipedia

The political gambit of the financial pyramids

Source: Jornal do CommercioBrasilianas

By: Giovanni Sandes

Telexfree and BBom: the political game of the alleged pyramid schemes

Electoral side of the issue discussed in a public session in the lower house of the national congress.

How many pyramid schemes does it take to elect a federal deputy? How many does it take to ensure that a legislator will not be reelected? For the companies or against them, the political and electoral game involving Telexfree and BBom was debated openly this Wednesday in a public audience at the federal Chamber of Deputies.

You might compare the degree of popular support to that enjoyed for decades by the black-market bicho lottery, whose leadership has always been good to the escolas de samba — Carnaval societies — for example.

The numbers demonstrate the seriousness of the issue. These two companies alone have reached more than 1.2 million, a public that took out loans and even resigned from jobs to invest in the high profits and rapid payout of the companies,  which are currently closed by court order while suspicions are investigated that they are financial pyramid schemes — a crime against the economy.

In the Northeast, the scheme has assumed aspects of a cargo cult. In São Paulo, a small demonstration of support by 200 marchers.

The two companies say they use Internet marketing, or more specifically multilevel marketing, to advertise and sell their products. In the case of BBom, vehicle trackers. In that of Telexfree, Internet telephony plans. Interested parties pay between R$ 600 and more than R$ 100,000 to participate in the networks, but are not required to sell anything in order to realize a return of 30%, 40%  And they earn a bonus for bringing new members into the network.

The official view is that the principal source of income of these companies are not the products they offer but the adherence of new network members, which defines these as pyramid schemes — a “business” model that yields losses for many more persons than those who profit.

During the audience, which lasted for four and a half hours, both sides argued as expected: technocrats from the Treasury and Justice da Justiça repeated the signs of a pyramid scheme while representatives of the two companies denied them. It was left to participating legislators to make speeches to the audience present — filled with natives of the state of Acre — and more importantly the TV audience.

We, as legislators are bombarded by our constituents,” said Pastor Eurico, of the PSB-PE. “We came here to debate without being accused of opportunism,” Eurico said.

A fellow Pernambucan, Sílvio Costa (PTB) created controversy at several points, such as when he called for a parliamentary inquiry (CPI) on the topic. “I am the one who convened this hearing and I did not come here to make speeches. I came to ask questions, not to score easy political points,” said Costa, who began by questioning the two  companies but ended up defending Telexfree, as he has been recently.  “I am convinced that BBom is a pyramid. As to Telexfree, I am not convinced,” Costa stated.


BBom, above:

By order of the federal court, BBOM is prevented from signing up new associates, whether through its own or its associates’ Web sites, as well as receiving the monthly payments charged to preexisting associates.”

Google has cut off site access to Google Maps as well — whatever that mans.

Legal Victory

Globo has just reported on an indicative legal victory by Telexfree, as follows:

A judge in Cuiabá decided to dismiss a petition for reimbursement filed by a marketer of Telexfree against the company, accusing it of practicing a pyramid scheme in various Brazilian states. The decision was handed down on Tuesday and puts an end to a suit for R$27,000 for alleged failure to perform on a contract.

The attorney for the marketeer said he will appeal to reinstate the case

The marketeer invested some R$  6,500 in the purchase of the so-called “kits” produced by the company, which says it is the operator of a VoIP telephone and multilevel marketing business.

Attorney André Luiz Rufino explained that his client — an unemployed 20-year-old … trusted that the contract, which called for payments to the marketer of between US$ 100  and US$ 200 would be honored.

Parliamentary Front

EXAME — as is often the case — explains the phenomenon thoroughly and objectively in an article datelined August 22 (yesterday). I will translate a passage.

São Paulo – The battle waged by TelexFREE and BBom, both accused by prosecutors of mounting a financial pyramid scheme, has arrived in Brasília, not to petition the federal judiciary but to face questions from Congress. In a crowded public hearing yesterday, convened by three diferent committees and attended en masse by participants in the schemes, deputies took turns demonstrating support for both companies and their associates. Some, however, preferred to remain cautious.

“I wishthe prosecutor who tried to ban it (petitioning for an injunction in an Acre court ) would come here and explain why,” the federal deputy said, adding that there are thousands of persons in financial difficulties.

The legislators in question have beaten the judiciary  — which has not yet issued a decision on the two companies — to the punch. The companies currently have their assets frozen since June and July, respectively. which prevents them from selling products or paying vendors. Between the two of them, they involved 1.2 million marketers or associates.

Not only did the public hearing attract an uncommonly large audience, but it also proved popular online, with nearly 1,000 persons watching and debating using an online tool provided by the House, which is not accustomed to such scrutiny.

But as Perpétua Almeida (PCdoB-AC) said, unlike what many had hoped,  the hearing did not have and will not have any influence on the issue of the frozen assets.

Pressured by the audience, lawmakers announced the opening of a Parliamentary Front for the Support and Regulation of Multilevel Marketing in Brazil.

The group wants to define clearly what a pyramid scheme is — when a company grows and profits from adding new vendors rather than from actual sales — and what a multilevel marketing scheme is — ….

The Front will be led by Acelino Popó.

Given the amount of time needed to create and approve a bill of this size, however, there is no action the group can take to benefit the two companies while their cases are still pending.

EXAME goes on to identify supporters of the schemes in the Congress.