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Paying for Popularity Can Be Fraud (bloomberg.com)
281 points by Ice_cream_suit 3 months ago | hide | past | web | favorite | 131 comments



This is the trick for popular restaurants/take-out food in NYC: Buy a really small shop so only 3-5 people can fit inside and the rest have to form a line outside. Then take orders and serve people really slowly so the line builds. Pick up the phone even if it doesn’t ring and pretend you are taking orders, etc. Pretty much a textbook strategy. Food must still be good, but the anticipation from a long line makes it taste better and attracts a lot more customers.


I used to run club nights in the 2000s, where I'd take over a night at a club and do some kind of event, I'd ticket the door, so people would pay like $5 to come in.

Clubs always have a front and a backdoor..... I'd get 20-50 of my friends to line up, the security guy would know who's who... The line would move slowly, the person who went in, would go to the bar grab a small drink, and then exit out the back and re-join the line. The best part is, we would only have to do this for 20-30mins at max.

The queue would grow organically, and the security guard would start letting my friends in at a faster pace, and then slow it down once everyones in.. where we would all have a few more drinks.

With zero marketing I could fill a club by just making the line look big.. Here's the big kicker, the traditional marketing in the day (posters around town + getting people to hand out flyers at other clubs in the morning) cost MORE than just giving a couple free drinks to your friends who waited in line.


I worked the door for a friend for a charity event. It was super early, and there was a regular bouncer. This skinny kid comes up and asks if he can go in. I said sure and let him in.

The bouncer comes up and says "what are you doing?!"

Keep in mind, this is my friend's event, for charity. I know all the people involved, and I know it is empty.

"What do you mean?" I ask.

"You can't just let him in."

"What should I do?" I was really curious.

"Ask him if he is on the list. Look at your pad. Go in and check. Then finally let him in."

"Why?"

"It makes him feel better about getting in."

Its like an open secret everyone in the industry knows.


That's like weirdly sweet in a way


What a strange human custom.

If I've made the effort of traveling to a destination, the last thing on my mind would be to much more more I would enjoy it after I was made to jump these hoops by a power tripping gatekeeper.

It wouldn't ruin my day, but it won't make me feel better - that's certain.


I think the "enjoyment" doesn't come from thinking that you passed some test, but rather, that you were allowed in while (it's implied that) others might not be let in. It makes it feel a little more exclusive, like you belong to some special privileged group.


I know this works - it's the same reason restaurants fill window tables first - but I've never really understood why this motivates people: a huge queue is, without fail, a massive turn-off for me.

I suppose popularity is interpreted as a signal of quality/excitement but, to me at any rate, it's usually a signal of boredom and frustration.

It works better with restaurants: I mean I want to see there's somebody in there eating the food but if it looks too busy, I'm out.


People go to nightclubs to hook up. They want to know that there are going to be lots of options before paying a cover.

I used to do event promotion and in a real sense the crowd is the product, not the music or the drinks or anything else.

What you work really hard at is cultivating a loyal audience who will show up week after week no matter who you book, and who know how to dance and bring energy in with them.

Clubbing is about people more than anything else.


I understand the feeling and mostly share it. But if you are wise about that, would I be mistaken in assuming you are also wise with your spending? Perhaps wiser than what the restaurant owners desire.

Therefore it's probably in their best (financial) interest to select for those who will look for popularity and happily blow away money on high-margin items on the menu.


I used to notice this in shops too, as a teenager. We had a sort alternative mini shopping zone, like a slightly upscale indoor market. As soon as me and a couple of guys went into any empty stall, within a couple of minutes other people would crowd in too. We'd then pick somewhere else and watch the same thing happen. Always amused us.


You're talking about Social Proof: https://en.wikipedia.org/wiki/Social_proof


I have a general rule with restaurants, I won't wait an hour to just be seated... I don't feel that any restaurant is worth that. In general, I'd rather go to #2 or #3 on the list and get in faster. It just depends.

It's kind of like when you get middle of the road food, but the price is right, and you get in and out fast for lunch. My time has value... often more than the price of the restaurant.


My own opinion - this comes down to sheepish mentality of majority of the people, maybe combined with rather extrovert personality. Many people want to be told what to wear, what to listen to and watch, and generally what is popular and 'in'.

These people feel great in the crowd, so what is better than seeing a big crowd already trying to get to some bar? They can't be all wrong, right?

I am same as you, too many people put me off(not afraid of the crowds in any way, it just means loud subpar experience). And I agree that totally empty places feel a bit weird (that's probably a tiny sheep in me)


Could it be linked to the "Fear Of Missing Out" as well?


I briefly had a (failed) startup in this area, and I did a lot of research. There are certainly a ton of clubs that do this, and there's an obvious reason why: in nightclubs, your product is your customers. They don't show up for your mediocre DJ or overpriced drinks from a bartender that takes an hour to get to you, they show up because there are people there...and a line communicates that there are people there.

So yes, the reasoning behind this is solid, but the problem is that the results aren't. What happens when the person who has waited an hour in line finally gets in and the club only has 20 people in it? They see right through your sham, and they never wait in your line ever again.

I've interviewed quite a few managers of successful clubs and tons of managers of unsuccessful clubs. The unsuccessful clubs are the ones trying to create the illusion of a packed house by creating lines outside, or other illusory shams like guerilla marketing. The successful ones definitely do most things better (food, drinks, ambiance, music, etc.) but they also rely extremely heavily on a similar illusion: they don't pay people to wait in line, they pay people to drink and dance inside the club. They literally have a Rolodex of professional partiers...typically young and attractive, mostly female but not exclusively so. They are people that don't mind dancing and having a good time when nobody is around. Successful clubs pay them to get there early and create the illusion of a party that is already started. They skip past the need for a first follower [1] by starting the night with 20 followers.

Paying people to stand in line may trick people into thinking a club is popular, but it won't trick them into having a good time in an emtpy club that they waited hours to get into.

[1] https://getlighthouse.com/blog/first-follower-principle-lead...


This, I think, is what a Philz Coffee did when it opened near me. The very first day, or week, there were a bunch of really attractive people there in indoor and outdoor seating. After a few days the quality dropped off.


The quality of people?


I used togo to those clubs back in the day. The lines were very long or sometimes there was a HUGE crowd. The drag queens would then "pick" who was worthy of getting in and who is "not" worthy. it was all about who is gonna spend money and who is not gonna spend money inside. There was also a guest list with nobody on it. The larger the crowd / longer the line the greater the demand to get into the club and it made it feel like the club was PACKED with girls or people or celebs. And we HAD to get in! as did everyone else. They would let girls in with no problem and if you came with a group of guys you would have to wait unless our friend was working at the door then we'd get in with no problem. One time we went out and the Drag queen at the door said to my friend " Go do your laundry" to mean, your not dressed to come in this club tonight.Ha ha.


I have seen the lack of social proof bury all kinds of promising businesses. We live in an age where people demand authenticity and unique experiences but few are willing to take even moderate chances to gain those experiences.


"20-50 of my friends" on every club night?


I believe it, I used to be involved with an 'ultra lounge' here in Indy and the owner and I had tons of people in our contact list we'd call and send text messages to when we were having a slow night, mostly mid 20's women. We'd tell them to come out, give them a few house shots free which were mostly orange juice with a splash of alcohol, and then people that would walk in would be far more inclined to stay instead of immediately leaving, the girls would often get a drink or two bought for them off walk ins too then they'd usually leave within an hour or two to places more in their price range on the same block and we'd have effectively drawn a self-sustaining crowd.

We'd also put out the brass posts and rope sometimes on slow nights, simply appearing like it was going to be busy enough to have to manage a line was often enough to get people to linger longer.

If a big group came in, like a bridal shower doing a bar craw, we'd usually keep them around longer with a couple of rounds of the house shot too just to keep the female to male ratio up. Eating a few bucks per round of IVs was almost always a good spend in that case.


I'd take the term "friends" loosely. A club promotor likely has a ton of people they know and could call on.


Exactly this.

These are "friends" in the sense that we both mutually want something from eachother, they want free drinks and VIP access, I want them to do free shit for me.

edit: remember this is pre social networking.


If they were in college, university or first real world job, it’s very likely they had lots or acquaintances they could tap for mutually beneficial help.


Man, I wish I had this kind of genius. Not that it's virtuous or not, but just that you had the option available to you because you knew it.


I had a friend who waited in a line assuming it was something cool. ... It was the line for a food kitchen.


Fascinating strategy.


The vast majority of tiny takeout places in NYC will never have a line of people outside, and they rent those places because real estate is expensive, not because they’re trying to appear more popular than they are. And if you watch the staff behind the counter and in the kitchen of the truly popular ones with lines, they’re definitely NOT taking their time. The throughput of tiny NYC restaurants is impressive. Occam’s razor applies here, even if it’s less interesting.


I remember taking a friend to Tacos Moreno in Santa Cruz. The line was around the block, despite the super fast service - when we got to the front, I had my burrito before he was done placing his (straightforward) order.


We’re talking about different places.


"I mean the true Scotsman!"

You definitely presented it as the strategy for popular takeout places in NYC. And it's not.


I will try to be more clear next time.


Don't tell this to marketing gurus. It destroys all of the castles they build in the sky.


I wouldn't say it's the same.

What these shops are doing is create scarcity based on real demand. While it is somehow artificially created, the customers are real. The exclusivity of the experience then creates more demand.

What the article describes is different. They would be the same only if these restaurants would be paying friends to keep the restaurant busy, to later sell it at a higher price.


True.


There are a number of ice cream places that do this in SF (Bi-Rite comes first to mind). Basically they encourage everyone to slowly make up their mind while sampling every flavor, so the wait takes at least 20 minutes.


That's a marketing strategy and not just nice service?


It can be both.


Sounds like win-win to me.


Unless you're at the back of the line ;)


Because we all know rent is free and it is better to be seen as cool selling to 30 customers than selling to 300.

That's the kind of marketing that makes places have "Marshall's Legal Possession" papers attached to the door.


In Poland, during communist times, there were often shortages of basic necessities at stores. Long lines of people were a signal that something rare was on sale. This led to people getting conditioned that if there is a queue, you get in and wait and only then ask what is being sold.

Queues are much more rare now and when they happen, it's for a different reason. However, I still sometimes get the "What's on sale?" question from passerby's.


You reminded me my childhood. When I was about 6 years old, I'd be sent to the shop about 30 minutes before it opens. There was already queue in the morning of elderly people waiting for an hour or longer. Every single morning.

Nothing was for sale. It just that local bakery would supply only about 200 loaves of bread so it would be sold out pretty quick after opening. When you came home with fresh bread, it did feel like an achievement and the day was only about to start!

Nobody in those times would question why bakery can't bake more if there is more demand. It was just the way it was. Centrally-planned economy where someone higher up has decided 200 a day will be the supply for the area.


This is the quintessential Eastern bloc experience.


Absolutely. It's interesting how it engrained itself in the human psyche, even after almost three decades have passed.


Yeah, fascinating. "Eastern Bloc" countries certainly have cultural memories from those lines. But.. the UK and probably some other places have a special cultural relationship with queues too.


There were a lot of jokes about 2 people lining up behind nothing, watching as 20 people join the queue and then walking off.


This is one of those things that always gets repeated, but I have some strong doubts about how successful it could be. You are deliberately slowing your revenue stream by limiting your throughput, and losing customers due to the long line deterrence. Popularity may get you in the news, but it doesn't pay the bills by itself...you need to actually sell stuff to do that.

I have doubts that it would even work as a way to get your name on the map. If you have a new restaurant, your arrivals are going to be so slow that if you even tried to limit your speed to the point where you build a line out the door, your customers are going to see right through it. Initial 1-star reviews for things like taking too long to get your food to the customers would be far more damaging to your business than the benefit of having a line out the door as some sort of quality signal.

If it were possible to know the opportunity costs of the strategy, it would make for an interesting optimization problem. As it stands, I can't help but think it's purely a losing strategy. The restaurant industry is counterintuitive for almost everybody...shitty restaurants can stick around forever, and extremely popular restaurants regularly go out of business. Cash flow is King. If you are sacrificing cash flow in exchange for popularity, you may succeed in becoming popular, but good luck sticking around and making money.


I wonder the same thing. But I watch and see the super successful places start by doing this. So either they care more about fame than about profits, or it works. Of course, for some places this absolutely won't work. If the product isn't unique, it won't work. People will just leave the line and go to another place. So I assume the key metric would be what % of people wait vs. leave the line.


>This is the trick for popular restaurants/take-out food in NYC: Buy a really small shop so only 3-5 people can fit inside and the rest have to form a line outside.

Isn't there some t-shirt store there like that, always has a ridiculous line that requires police to oversee just to sell some t-shirts?


You may be thinking of "Supreme", a brand that makes money off of scarcity. The ridiculous line comes from very limited supply and insane resale value of their clothing.


Yup that looks like it.


Tangential to the article, but on-topic to the title:

I saw the Dutch documentary #followme [0] the other day, about the incredible fakeness of Instagram, where for a couple of dollars you can buy 1,000's of Likes / Followers. And everyone - up to the kids in high school - is doing just that, to buy popularity (the metrics have actually become the determining factor for real-life popularity for many people).

Apparently one of the big shots in this shady industry is a Dutch guy (multi-millionaire now), who manages tens of popularity-boosting websites directly or indirectly (and not only for Instagram). He caters to celebrities as well, who sometimes buy millions of followers. For these high-profile actions they arrange special events, according to the docu, like publishing 'fakish' news articles to established news sites (Forbes was mentioned) to coincide with the artificial boost in popularity.

This can be considered fraud too, as 'popular' users benefit from influencer marketing deals (free clothing, travel, tickets, money, etc.) and there is a continuous cat and mouse game between illegit popularity boosters and marketeers. Professional investigative companies jumping on this train to filter out the bad apples, etc.

[0] https://www.instagram.com/tv/BqcnFY8gEgH/


My wife recently had an event that caused significant organic growth in her Instagram, and immediately afterwards she was followed by approximately 1000 accounts with no connection to her profession. Then she got an email saying, "I just gave you a free boost. Would you like to buy more?"

I can see buying followers being a status symbol for a certain set of teenagers. It's just another way of spending your parents' money.


3-4 years ago this would have been a huge opportunity for an emerging brand. Back then high level execs knew followers mattered but were not themselves on platforms like IG.

Now, everyone is aware of this. When doing influencer deals you get their story open rates and swipes. Everyone knows to look at the ratio of comments + likes to followers.

Kids who do this for their personal IG, certainly, get called out. A guy I used to work with bought around 10,000 followers and boosts all his posts to 500-700 Likes.

It's so ... obvious. Like bad plastic surgery.

Humans are funny.


"Everyone knows to look at the ratio of comments + likes to followers"

If likes can be fake then so can comments, right?


This was actually in the documentary too. There is a Russian site or app called Commenter, where you can buy positive on-topic comments. Also common practice to do this to e.g. boost some products in SMB webshops, etc.


Not sure if available outside the Netherlands, however there's a version on the NPO 3 website with 16:9 aspect ratio: https://www.npo3.nl/followme/22-11-2018/VPWON_1291086


Is there an English subtitled version of the documentary?


Not yet, that I know of. But I have sent a inquiry / request to the producer Nicolaas Veul. I agree it would be great if that was added.


He only lived in Netherlands, he wasn't dutch. I think you talk about this guy: https://www.linkedin.com/in/lorenzo-green-86161610/


I don't know, could be. He was masked, anonymous and spoke Dutch.


Somewhat related, it seemed like Netflix (and many others) was carrying out a similar strategy to inflate their number of subscribers to show investors, by allowing users to sign up for endless free trials through creating new email addresses. Only recently did they announce their banning of this come January, in an earnings call, IIRC, which I'm assuming is due to investors catching on and potentially being more skeptical following the recent drops in the NASDAQ.

Not to say that they don't offer a solid service of value, just that it seemed like they enabled this as a means of inflating their numbers for investors.

Random side note, people used to be able to do this with Seamless to get their sign up discount with any order, using a combination of creating a new email address, adding the new email address to a single PayPal account, generating a new Google Voice number associated with the new email address, and providing a random name. It appears they've picked up on it and have taken measures to prevent people from doing this. Might've previously allowed it for inflation reasons, but likely stopped due to their gain in momentum and it being too costly to allow with little to gain


This is also why I think the idea of combating fake reviews is not really viable. I sell a widget for $20 with real costs of $8. I expect positive reviews will increase my ranking as well as purchase rate the order of let's say $5million+. I give my widget to 10,000 people on the condition that they agree to write a positive review for it. I just spent $80,000 (and then some change to get in contact with those 10,000 however) to make $5 million+. And those reviews are "real".

The whole point is that as we enter into an ever more connected world popularity of views start to mean less and less because "popularity" can be so easily faked. Imagine once there are bots that can compellingly market products (or ideas/politicians/etc) in language to the standard of a Tweet, which isn't exactly a high bar. Suddenly now you could have literally millions of "people" advocating for something that perhaps only a handful actually want or believe in. It's also perhaps presumptuous to imply that this technological milestone has not already been reached.

Even draconian ideas like trying to remove anonymity would likely do little to nothing since, as in the reviews example, people can simply be incentivized to play ball for what amounts to peanuts compared to the stakes for those doing the incentivizing.


This is the most positive thing I've read in a while. Perhaps we'll reach a point where it becomes ingrained in society that popularity in numbers actually means nothing. Quantities of shallow praises become worthless once the praises are indeed exactly equal to zero.

Then maybe our tribal instincts will kick back in and we as a society will return to seeking few but high quality praises, from people we trust and with whom we are connected on a human level—ie. deeper, multi-faceted connections.


There's a fool born every minute, so I doubt such knowledge will become common organically. Better yet, have a class on basic tropes used to manipulate your decisions aimed at teens taught at some of the free online universities (e.g. Khan Academy). I don't want to suggest rolling it into an actual high school class, because I don't think official regulated school classes are agile enough to handle the rapid change of the online landscape.


Heh I live near the Supreme store in nyc and every weekend without fail people start to queue up around the corner in the morning. Everything about this brand (down to its Logo which was “appropriated” from Barbara Kruger “I shop therefore I am”) is about appropriating other designs. So they’re essentially selling hype at huge markup via tiny store and line round the whole block. I see people stand in this line all day in the winter! Although some of them are enterprising individuals who re-sell these items at 500% profit


Supreme is one of the original new york streetwear lines, it's practically an institution. I used to work in that exact building for years and I couldn't disagree with you more. I think there is something really cool about the kids lining up to get a drop, if you go chat with them for a while, they know every supreme, who inspired it, and given the massive lines are usually always collaborations - why the collab is special. Given Supreme has been operating in the city for 25 years and not much has changed outside of the collabs they do, I don't think you're correct about them being "about appropriating other design". Even the Barbara Kruger comment is a huge stretch, inspiration and appropriation are not the same things.


The founder "acknowledged the Supreme logo was based directly on Kruger's work."

https://www.complex.com/style/2013/05/supreme-court-the-12-g...


The fact Supreme is 50% owned by the Carlyle Group, a massive private equity firm, is kind of a joke no? It's the total antithesis of what street/skate culture stands for.


Certainly Supreme is not a small company and their standard lines have huge huge distribution and are not particularly unique. The OP was referencing the lines outside of the Supreme store on Lafayette, this is the supreme store regardless of the fact that there are many supreme stores, the original supreme store in Manhattan releases limited one time short run series of Supreme only available at this store. This is pretty much the standard streetwear MO, regardless of how small or large, even folks like ader error who I believe are held by the founders yet have global distribution still drop original and limited in this manner, if I want one of their drops I have to pay someone in Korea to line for me or wait for it to arrive on the secondary market for some insane markup.


Sounds like most ICOs: the founders can buy their own supply at no cost, making all cryptocurrencies that ICO'd (Ethereum, EOS, etc.) inherently insecure and centralized.

This is why blockchains that distributed their supply via PoW work: you cannot buy your supply without proving you put in the work. The founder cannot fake hash power, so the distribution is "fair."

Despite everyone trying to "improve Bitcoin," I can count on one hand coins that didn't have a significantly worse distribution than Bitcoin, which makes them dead-on-arrival. This applies to coins such as Cardano and Nano as well whose distribution was insecure, making them inherently unsafe.


True. And because I haven't seen any proof that cryptocurrencies based on something else than PoW can work, I believe they all need to be burned to the ground. PoW cryptocurrencies are an environmental hazard.


That doesn't necessarily follow from what I said: my comment was strictly about the distribution of incentives. A PoS-based cryptocurrency can bootstrap a fair distribution through airdrops over PoW-distributed cryptocurrencies, sidestepping both the shortcomings of ICO distribution and the environmental impact of PoW coins.


The article offers one example buried within its rant about private equities and crypto offerings

I thought that was funny

Basically all they had to do was disclose to investors that they were buying downloads. This can be done in a variety of ways such as mentioning a contract with the firm or service providers, and that is enough information for potential investors to look up the company.


Yes, but the whole point of buying eyeballs is to deceive investors. If you tell potential investors, "I have 14 million unique monthly users, but I pay for 13 million of them", they're just gonna stare at you blankly and not invest.


Thats why you dont word it like that

But you can do it compliantly, like some of the examples in the article did


I though this was basically the main business plan on flippa, like an open secret. And I have even heard that some books on "new york times best seller list" are just books moving between warehouses to generate invoices.


> And I have even heard that some books on "new york times best seller list" are just books moving between warehouses to generate invoices.

This probably doesn‘t help. The “The New York Times Best Sellers“ is a curated list. High sales don’t guarantee a placing on the list.

This is not even a secret: When William Blatty sued the New York Times because The Exorcist had only been on the list, he lost the case. The defense was that “the list did not purport to be an objective compilation of information but instead was an editorial product.“ [1]

[1] https://m.huffpost.com/us/entry/us_11409822?guccounter=1


>The Exorcist had only been on the list

Think you meant "had not been". p.s. Enlightening article, thanks.


I thought he sued because he was on the list only for a very short time when sales numbers justified a longer time. This is wrong and I should have written "had not been". Thanks for the hint.


Many newspapers do this to inflate subscriber numbers and sell ads.


I love their emails

"Dog diaper changing article site making 70 billion dollars a month! Only 12k$!" Uh huh, sssssuuuurrrreeee.


You don't even need a "buddy". Because, if you know what you're doing, you can be the buddy. Or thousands of them. Whatever it takes.


I don't understand where the "fraud" line is. I suspect many more don't either.

It's common knowledge that to get a good network startup going, you need to sock-puppet the hell out of it. It's common knowledge that Amazon is full of scam reviews. It's common knowledge that many Twitter followers are fake, or bots. It's common knowledge that Instagram pics are photoshopped-up.

So when you see a picture of an attractive person on Instagram using some product, go to your Twitter to see a famous person recommend it, then click over to Amazon to read raving reviews, is that fraud? Because that's how the web works. It's the same exact game, you just don't give the money directly to your buddy.


I think I have the opposite view from you. I see how this is not technically fraud, but I don't understand why isn't it. It should be. All the companies that engage in such practices can go to hell; I do my best to never do business with any that I know does that.

It's sad that lying to people and exploiting them is not only accepted, but considered a legitimate standard practice.


My view is that I don't understand. It looks like you do. Yay!

I will try to explain to you why I don't understand. Maybe you can help.

Computers are an extension of our brains. What I think is happening is that people doing a whole bunch of immoral things online: lying, sock-puppeting, and so forth. But there's a not direct person-to-person link where money trades hands and the other person gets screwed. Instead it's much more subtle than that.

When you add it all up, yes, we agree, a lot of this looks like fraud to me. But maybe it's fraud in the moral sense and not fraud in the criminal sense? If I tell my Uncle Amit that his new suit looks good on him, even though it doesn't, then goes out and buys a dozen, is that fraud? What if 100 people he doesn't know participate in the same kind of lie only using a lot of different tech?

My point is that simple lying is not a crime. So it can't all be a crime. And now I'm back to trying to figure out where the line is.

ADD: As I typed this, I noticed that my FB notification went off in one of my browser tabs. I click over -- and FB is notifying me of something it already notified me of. But got me to click! I'm seeing a lot of social sites doing this double-notification stuff. I understand about distributed databases, that there might be a reason for it. But after a while, this starts to look like a whiny, pathetic attempt just to get me back looking at more Facebook.

Is that fraud? How about when Facebook both shows more of my stuff and more of the people I interact with to me -- while we're all online together, hoping that we'll start interacting directly -- and staying on FB?

There's an enormous amount of this online. FB is only used here as an example. How about when you hellban people and they think they're typing comments into a forum but they're really not? You're directly taking their time and energy away from them by lying.

I hate all of this. I'm just not sure it should be a crime.


> But maybe it's fraud in the moral sense and not fraud in the criminal sense?

Yes, that's what I meant. It's not fraud in criminal sense, but it's definitely immoral - and I often find myself wondering, why some of those practices aren't considered legal!fraud?

> But there's a not direct person-to-person link where money trades hands and the other person gets screwed. Instead it's much more subtle than that.

Sometimes there is. I complain a lot about dishonest ads and telemarketers, because in those cases there's a direct link - a telemarketer manipulates a poor person into buying stuff that they don't need, and that doesn't perform as well as advertised. That person is then left with mostly useless paperweight, less money for their real needs, and a sense of shame that makes it hard to admit they were duped. Yes, I know of such cases first-hand. There are degrees to this, and ultimately, it usually doesn't result in life-threatening problems, but then again me punching you and taking your lunch money also doesn't cause you more harm than hurt feelings and going hungry for the day.

Step above that are faked and bribed reviews. Again, one can say it's just noise, but then just imagine a person who needs an appliance, and can't afford to make a bad purchase. All this noise suddenly makes it very likely that whatever they buy will be crap, and they'll get an utterly suboptimal deal. I've been in that situation in the past, and though these days I can afford to pay premium and buy a branded product just to avoid dealing with this bullshit, most people I know can't, and thus shopping is often a lottery of regrets.

> My point is that simple lying is not a crime. So it can't all be a crime. And now I'm back to trying to figure out where the line is.

Same as I do. It's a hard problem; doubly so if you include enforcability and cost/benefit into calculation.

--

Come to think of it, maybe I'm just too sensitive about people's feelings? Maybe I mistakenly want to hold our modern civilization to much higher standards than warranted? Maybe it's still really a jungle, a dog-eat-dog world, and hoping for a society of friendly cooperation is too much?


Why don't you curse at people when you see them in the street? It's not illegal. Why are we nice to people at all?

I keep getting back to morals. We don't do a lot of things because we want to be good people, not because it's illegal.

I still don't know where the line is, but I've been convinced for some time that we need a common set of morals to hold ourselves and businesses to online. If nothing else, "The computer should never lie to me" is a good starting point. That is, whatever I perceive the computer to be telling me had better reflect what the programmers know. Anything else is bullshit. (And perhaps illegal)


> Why don't you curse at people when you see them in the street? It's not illegal. Why are we nice to people at all?

Right? But why do we expect ourselves to be nice, and other people to be nice, in direct interpersonal relationship, but we allow - hell, glorify - being malicious in business setting?

> "The computer should never lie to me" is a good starting point. That is, whatever I perceive the computer to be telling me had better reflect what the programmers know. Anything else is bullshit. (And perhaps illegal)

I very much like this idea.


The bigger question is not about the businesses exploiting this system to drum up demand but rather that the platforms could stop this but have a vested interest to not do so. There is also our complicity in the situation, we have to stop chasing likes and saving pennies on amazon despite the human cost.


So a crime isn't a crime if it is commonly perpetrated?


I don't know. I'm honestly confused.

The best I can tell from the article, if it looks too directly like fraud, it's fraud

If you involve a few players and do it indirectly, it's marketing?

The danger here, which I guess needs to be explicitly-stated is that if public perception becomes a big part of the decision whether to prosecute or not, we've fallen completely into political crime territory, where the ultimate bad thing to do is look bad. That's not going to work.


I'm with it until "I sell 5 percent of the company to investors for $100 million and spend it on yachts."

Aren't investors going to notice that during the bankruptcy proceedings, the $100 million is nowhere represented among any assets of the company and the founder suddenly has 10 yachts? That wouldn't raise any red flags? Wouldn't you have to produce some sort of accounting records showing where the money was spent on salaries, office space, Facebook ads, etc?

I know there's a ridiculous amount of money sloshing around Silicon Valley, but I still find it hard to believe that $100 million is going to disappear and nobody is going to bother asking about where it went.


s/yachts/salaries

They're not _actually_ advocating buying company yachts. But a CEO salary? Sure. You can buy your yachts with that.


Sure, but nobody is going to be suspicious that you paid yourself $10 million/year while the company was losing money?


I’m sure they’ll be furious, and your punishment will be a $200m severance.


How much was Bezos making while Amazon was in the red? Or Jack Dorsey?


Amazon and Twitter eventually went public and made their investors umpteen billions of dollars, so I'm sure they don't care now.

If they had gone bankrupt instead, and Amazon was nothing but a static HTML page while Bezos was building his own marina I imagine someone would have been asking some questions.


They're all looking for the same windfall. Nobody wants to rock the boat.


When this was floated on Twitter the other day, a number of prominent VCs chimed in to say that due diligence would see this coming a mile away.


Sure, their VC firms might do the due diligence, but Giga Entertainment (in the article) has a form D showing there were at least 179 accredited investors who acquired shares. There's a lot of people not doing due diligence that you can defraud.


VC's always say that. I'm sure some do more than superficial due diligence, sometimes, but honestly I don't really believe them, at least not in the early stages. For companies at those stages I wouldn't be surprised if more than cursory DD had a negative ROI anyways.


Yep just look at Clinkle and (in particular) Theranos


Well they are hardly going to say the opposite :P


Fairly well know in old school business:

You buy a crappy house somewhere, and you sell it to a friend for a lot more. He might reciprocate, too.

You take your increased prices to the bank as evidence that you have more equity, which you use to back a loan.

You buy another crappy building.


> You buy a crappy house somewhere, and you sell it to a friend for a lot more

This is an inefficient way to inflate asset values. What you’d actually do is put your garbage house in a special purpose vehicle (SPV), sell 5% of the SPV to your friend at a stupid price, get the SPV appraised based on that transaction, have the SPV take out a non-recourse secured loan based on that appraisal value, pay your friend back (plus something for him) and then jingle mail away.

The key is leveraging the cash your friend has to put in. That’s the scarce resource.

Disclaimer: I am not a lawyer. This is not legal advice nor advice of any kind. Please don’t do this.


It's surprising that the banks can be fooled by that, once you explained it it seemed so obvious.


Surely you ruin your credit when you default on the loan?


Why would the bank loan you based on a house you just sold? Either way, bank lenders send appraisers.


Well let's see how appraisers fared here [0]:

"Intra-family flipping

In the past two years, the Soni family essentially created their own market in Santa Ana by flipping enough homes in a small area, said Lackner, the appraisal fraud specialist. In at least three cases, homes flipped from one family member to another – sales later used by appraisers to give credibility to high asking prices for other properties in the area."

[0] https://www.ocregister.com/2009/11/12/wamu-loaned-millions-t...


I don't know why, but sometimes they are not as thorough as they should be with due diligence.

Point is in illiquid markets, sometimes there's no price other than what a few people in the consortium have paid to swap stuff amongst each other.

Even if you sent an appraiser, he'd have to take traded prices into account.


>I pay my buddy $10 million to buy a million e-widgets from me.

>My buddy pays me $10 million for a million e-widgets.

How does this part work? Is this real money changing bank accounts or just promissory notes/credit?


Generally the e-widgets will be on app stores or somewhere like Amazon so real money will have to move. On a smaller scale companies will often use Paypal to send people the full cost of the item after a positive review is posted.


You hire a firm to download your app, watch an ad or make a purchase. The firms gets a bunch of people in a virtual sweat shop to do this. You lose some of the money to labor costs and fees. But you also make some of it back in "organics" because your app goes up the charts. There lots of companies that do this, but they dress up what they are doing as marketing.


It's a shame about the burger thing. If they'd found someone a bit savvy, they could have parlayed their fame into far more money than the cost of the tourist hordes, and been well places to either retire or re-set the business.


Curious though: if I give a lot of money to a friend, don't I have to somehow report this to the IRS or something? And when he goes on to buy this stuff, doesn't he have to report somehow where all this money came from?


Businesses only pay taxes on net earnings, not on gross revenues. As long as you both do not show a profit you won't have tax liability.


Businesses still need to report all revenue, even if they're only taxed on the profit.


Sure, you need invoices. But I don't think this is illegal with respect to the IRS. Though if your friend doesn't have $10 million in his LLC, then your friend will become insolvent and that might be illegal. On the other hand, if you net your invoices regularly, then maybe the time spent being insolvent is short. IANAA.


it is almost like people are too greedy to realize the con /s


Or they do realize the con, but they don’t care because pure speculation works anyway.


Pretty much most of marketing and nearly all of advertising then.


Growth hacks can be fraud. No surprise there.


Tangential, but I love when non-fiction writers have a strong writing style. I was about three sentences in when I thought “boy, this sounds like Matt Levine”, and so it was.


Even the titles have a distinct Matt Levine flavor to them.


Isn't paying for popularity the basis of advertising?


They mean that it's fraud to mislead people by gaming their assumptions about performance indicators.

Specifically, they're saying that paying for one kind of popularity (e.g., sales of widgets or good reviews on Amazon.com) is fraud when that popularity is meant to trick people into believing that it implies a subtly different kind of popularity (e.g., sales of widgets from independent third parties or good reviews on Amazon.com from unbiased reviewers).


Sure, in a certain sense. But the subject of the article is something fundamentally different in lots of the nuanced ways that a useful, complete mental model of the world so annoyingly and doggedly hinges on.


This isn't advertising. The article talks about a specific action, which is paying someone to buy cheap things from you, so you can tell investors that you have a lot of sales.


Number 7 though... :)))

"I sell 5 percent of the company to investors for $100 million and spend it on yachts."




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