Published in The National on March 9, 2001
Making money on the Internet: Are we ready?
"EARN US$25,000 per week
through your Internet".
| By January 2001, they
had evolved into "PNG Global Success Team ... are you getting a piece of
the Internet explosion? Come attend our professional presentation at The
Islander Hotel". There was no more mention of the potential earnings.
My curiosity finally got the better of me. On Jan 31, I attended one of the weekly free presentations at The Islander Travelodge. I hoped it would turn out to be an inspiring homegrown initiative to explore and harness the wonders of the Internet to help Papua New Guineans progress into the future. I came away from the presentation taken by how easy and attractive the "business venture" appeared. At the back of my mind, however, I harboured the suspicion that Skybiz 2000 was a cleverly disguised pyramid scheme that was preying on the people's lack of IT and Internet knowledge.
Briefly, Skybiz 2000 is a United States-based company marketing a "webpackage" that hinges on computer software allowing you to "build" your own webpage (NOT website) step-by-step. There are also tutorials on basic computing and Internet applications. You can then publicise on your webpage whatever - your business, church, family photos, pets, stamp collection, etc. - up to 35MB (megabytes) of space worth. Skybiz claims that amount of space can accommodate up to 1,500 digitalised photos or 20,000 pages worth of text. As part of the webpackage, Skybiz will "host" your webpage for the year, and provide you with a 3MB mailbox for sending and receiving e-mail.
The cost of the "product" is US$125 (or about K416, including a registration fee of US$25) to be sent in the form of a bank draft payable to "Skybiz 2000" in the United States. After a year, you may choose to renew your "membership" for another US$100. Purchase of the webpackage entitles you to participate in the "Skybiz Business Plan" to earn commissions from sales of the webpackage as recommended directly or indirectly by you (becoming an "associate"). As long as you fulfill three conditions, claims Skybiz, you could be earning massive commissions to the tune of tens of thousands in US dollars.
The first condition is that you must establish two downlines - your "right leg" and your "left leg" - who sign up for the webpackage directly under you. You then go on to "help" your downlines establish and build up their own two downlines by getting new people to sign up under them. And so on. At any time, an "associate" can have only two "legs" for each webpackage bought, hence new recruits are "spilled over" to go under your downline's "legs". Alternatively, you can buy more than one webpackage and operate as many "business structures" for much more profit.
Once there are nine people under you - the second condition - Skybiz in the United States will send you your commission of US$70 (K233) in the form of a cheque. But this will not happen if you have not fulfilled the third condition - that your "weaker leg" must have at least one third of your total sales. For example, three out of nine sales; or four out of nine sales. This means that you must keep pushing or helping your less successful "leg" to recruit more people under him/her so that he/she does not fall short of one third of your total sales. Otherwise you won't get your commission.
You can keep track of your "genealogy" through your "Skynary" webpage - the 35MB space you bought as part of the webpackage - using your personal "tracking number" issued by Skybiz. Those at the presentation were treated to the recorded voice of an "Eric Rassmassen" extolling how effortlessly he and his wife "Patricia" were receiving exponential increases in their earnings in just a short time. They were earning US$20,000 per week in commissions just 77 days after joining the Skybiz Business Plan, he said excitedly.
Then we were shown a video presentation on how vital it is to be a part of the "Internet explosion" taking place globally; the downside of having your webpage hosted by portals which censor or carry unwanted advertisements on your webpage; and the aim of Skybiz to become the largest web network in the world. "In 18 months, the Skybiz network has grown from zero to 1.3 million webpages across 200 countries ... in the next one year it is going to become the world's largest distribution network with five million (customer members) online," flashed the mesmerising images touting the hundreds of millions of potential customers out there on the Net.
The next one hour or so of the video showed a recording of a presentation conducted by an Australian Skybiz promoter called "Alistair". It was not obvious when or where the video was recorded. With charts and diagrams, he explained in detail the Skybiz Business Plan. His personal testimony: 4,096 sales in the 12 months since he joined Skybiz. Of that figure, only 45 were his "personal" sales. The rest were sales made by his downlines without any effort on his part. Mr Alistair said his record was 3,000 sales a week with no personal sales.
Among the tricky details Mr Alistair explained was the rate of commissions; not US$70 for EVERY nine sales, as I was initially led to believe. You get US$70 for the FIRST nine sales, US$35 for the NEXT nine sales, another US$35 for the NEXT nine sales, then US$70 for the NEXT nine sales, before getting US$140 for the next five sales. You would have accomplished a total of US$420 (K1,400) in commissions for making an "orbit" of 50 sales.
Throughout the presentation, testimonies from "Skybiz associates" harped on how easy it was to chalk up sales anyway, thanks to the global reach of the Internet. Could that be possible here in PNG, where Internet access remains grossly inconvenient, horrendously expensive and limited only to expatriates and professionals who use their office facilities?
How easily can you recoup your initial K416 if you don't have access to an Internet-enabled PC, and when Internet cafe rates are some K20 per hour? Muddling your way around when you are new to computers or the Internet is going to take more an hour! What's going to happen to the work that you are paid to carry out if you are pre-occupied with conducting "outside business" at the office?
What about the embryonic understanding of Information Technology and the Internet among the general public? Already the fast money fiasco showed how gullible we can get in the face of financial hardship, greed and envy. Notice the success figures given in days and months? At which point does the pool of potential customers dry up when you are unable to "fish" among the hundreds of millions out there on the Net for whatever reason?
A colleague of mine noted: "The presentation made no mention of the 'maintenance costs' of utilising the webpackage that you have purchased ... you will need a PC, negative scanner for digitalising photos to upload onto your webpage, or a digital camera!"
"All these equipment cost thousands of kina that you are not about to recoup easily. Most Papua New Guineans won't be able to afford that to begin with," journalist Peter Miva said.
Mr Miva had attended the first Skybiz presentation conducted at the Gateway Hotel by the same marketer - well-known Mount Hagen businessman Epeo Tanda.
"It won't be so easy to get even nine sales for a product that people can't touch or see," Mr Miva observed. "What about the large scale outflow of funds to the United States? For nine sales made, you are looking at K3,744 flowing out of the country in return for only K233 coming back in as your commission.
"Are we so selfish to contribute to the weakening of the kina in our pursuit of personal wealth?"
Next: Answers to the Skybiz conundrum
Harnessing the power and reach of the Internet
A CHECK with the PNG Registrar of Companies revealed that Skybiz is not registered as a business in PNG, although its advertisements have been appearing in PNG since October 2000.
That's past the one-month "promotion" grace period allowed under the Companies' Act - the laws under which all businesses, even agents or branches of overseas-based businesses, must be registered with the Registrar of Companies. How was I to seek redress if complications or complaints arose from my purchase, usage or participation in the program?
A member of the 25-strong audience at the Islander Travelodge presentation I attended had raised this question, although I saw no indication that he knew Skybiz was not a registered business in PNG.
Confidently, the presenter, prominent Engan businessman Epeo Tanda replied: "As soon as you show us your bank draft, we will get you hooked up immediately to Skybiz in the United States in 30 seconds.
"After that you can make any queries through the main website or through e-mail direct to the Skybiz experts in the United States. And you will receive a reply within 24 hours."
In an e-mail response to my queries, Mr Tanda elaborates: "The technical support is fantastic. I have never received any complaints. We have an office in Melbourne, which we can ring or e-mail anytime for customer or technical support.
In the same e-mail he goes on to say: "All Skybiz personnel and equipment are based in the United States. All associates' contracts are entered into in the US regardless of where the associate is located."
"Because such contracts are accepted by Skybiz when its Internet server delivers the product (through the Internet), Skybiz is not operating in any other country.
"Marketers are not selling anything because all sales are between the purchaser and Skybiz.
Mr Tanda disclosed that he has himself earned around US$1,000 (K3,333) for marketing the product.
"Skybiz is NOT a pyramid scheme. It is a multi-level/network marketing company," he stressed.
Mr Tanda said he is unsure when the Skybiz program was brought into PNG by whom. He said he was introduced to it by friends in Australia and he subsequently purchased the webpackage directly from the Skybiz website.
"On average I get around 30 people at my presentations each week ... around two would sign up.
"I have personally marketed 200 webpackages in PNG. But how many in the country I can't tell you because this is the Internet. Anyone can access the site and purchase (the webpackage) on their own."
A call to the phone numbers given in the ads found me at Kai Kai Bilong Ting Ting, Hugo Canning, PNG Incentive Fund and Gordons police barracks.
A friend who attended another presentation on Feb 14 said half the crowd around him were UPNG students who had turned up after Mr Tanda went to the university campus to "personally invite" them. I remembered the UPNG pro vice chancellor's announcement on Feb 16 saying that the university was spending K330,000 to link up all its computers with Internet access.
I spoke with John, an accountant at one of the above organisations, during office hours on Feb 1. He said although he did not have a PC at home, he had made 12 sales since he signed up two weeks ago. However, he had yet to receive his cheque from Skybiz "because one or two of my downlines had not mailed their bank draft" to Skybiz.
Mr Tanda had said during the presentation that although Skybiz "associates" could sign up new downlines immediately, Skybiz must receive their bank draft within 30 days, or their registration will become invalid.
John admitted that he was not convinced initially, and it was several weeks before he signed up for the program through Mr Tanda.
"I was too busy. It takes time and effort to pursue this."
Not having easy access to an Internet enabled PC was also a hassle, he added.
"No, I advise you not to quit your real job. The Internet is new and there is no market in PNG. Unlike in Australia, where the Internet is common, advanced and cheap."
Outflow of foreign exchange
International services supervisors at nearly every commercial bank in the national capital confirmed having processed a significant number of outgoing bank drafts in US dollars payable to Skybiz 2000.
A supervisor at an ANZ branch noted that so many applications were coming in, especially in December, that the bank started insisting that the customers give the address and contact number of Skybiz 2000.
"Most of them couldn't, so they had to come back the next day," I was told.
More than one bank reported stop payment orders made in January. At the time of my query, an officer at the ANZ International Services headquarters' told me he noted in his records four stop payments orders on bank drafts for U$125 in the last week of January alone.
"I would advise you not to get involved," he said kindly.
Intrigued, I embarked on a websearch through the Internet. A wealth of material turned up based on the keywords "pyramid schemes", "Skybiz" and "Skynary". "Skynary" is the name of the "webpackage" that Skybiz is marketing, as well the name of the Skybiz website (http://www.skynary.com).
Among my more interesting findings were reports on government authorities in five countries warning that Skybiz might possibly be a pyramid selling scheme, and thus an illegal practice the world over. The five countries are Australia, Canada, New Zealand, Malaysia and South Africa.
Two individuals were reportedly arrested and charged in court with pyramid selling - one in the Canadian province of Saskatchewan (in June 2000) and one in the Western Australian capital of Perth (August 2000).
Other reports said Skybiz lawyers in the United States had filed a US$1.1 million (K3.66 million) defamation suit against the Royal Canadian Mounted Police for publicly calling Skybiz a pyramid scheme.
The earliest official warning came in February 2000, issued by Australia's Ministry of Fair Trading.
"Skybiz is presented as an Internet website for your family or business, and also a multi-level business that can be run from home. The (Skybiz) business plan ... may be 'referral selling' that is prohibited by the Fair Trading Act," the statement said.
A media release issued by the Australian Competition and Consumer Commission (ACCC) in August 2000 announced that proceedings had been instituted in the Federal Court against an individual named Kevin Ryan in Perth.
The ACCC alleged that Mr Ryan contravened Section 61 (2) of the Trade Practices Act 1974 by "attempting to induce others to become participants" in Skybiz, and to pay Skybiz US$100 per website "in order to obtain the prospect of participating in the scheme". Mr Ryan's first directional hearing was reportedly held on Sept 8, 2000.
In an e-mail reply to my queries, senior project officer Glenn Ross of the ACCC in Western Australia said that on Dec 7, 2000, the Federal Court made further orders on the filing of documents and witness statements and set the next directional hearing for March 21.
According to the Commerce Commission of New Zealand, its Fair Trading division began investigating Skybiz operations for possible violation of Section 20 (referral selling) and Section 24 (pyramid selling) of New Zealand's Fair Trading Act in June last year.
The commission said it had even sent out "warning" letters to individuals who have been identified as Skybiz participants.
On Feb 20, consumer law advisor in the New Zealand Ministry of Consumer Affairs, Pamela Rogers, replied to my e-mail declining to comment further pending the investigations.
"We are (nevertheless) suggesting to consumers who may be interested in the scheme to exercise caution," she said.
In July 2000, the Secretary General of the Malaysian Domestic Trade and Consumer Affairs Ministry, Pahamin Rajab, was reported by The Star's IT section "InTech" as saying that his ministry was investigating Skybiz. Ministry officials reportedly could not confirm this, and no further updates were available.
Also in July 2000, the South African Sunday Times reported that the Consumer Affairs Committee "recently issued a statement warning that Skybiz while advertising itself as a legitimate Internet business, had some characteristics which are commonly encountered in pyramid promotional schemes". Going by the articles I found from the Sunday Times, it looks like Skybiz stirred quite a hornet's nest in South Africa.
On March 1, Director of the National Inspectorate of Consumer Affairs in South Africa, Lana Van Zyl responded to my e-mail queries by forwarding a media release issued on Feb 1 by the Vice Chairperson of the Consumer Affairs Committee (CAC), Prof T.A Woker.
The statement said the committee has "resolved not to pursue the matter at this stage" pending discussions arising from the release of a government report on electronic commerce in November 2000; and that "a general investigation into these types of (Internet-based businesses similar to Skybiz) would be more appropriate".
This neither implies that the CAC is going to investigate such Internet-based schemes soon, "nor does it rule out a future investigation into Skybiz and/or similar schemes", the statement read.
Some websites to visit for a background check on possibly fraudulent schemes:
Let the buyer beware
A CHECK with Internet service providers in PNG found that basic web design and web hosting services alone could cost up to K3,000.
As such, the K416 (US$100 plus US$25 registration) for Skybiz 2000's webpackage might sound like a steal for those who don't know that they can design and put up their own webpage for FREE through websites like Tripod (www.tripod.com - 50MB worth of space with a user-friendly Site Builder) and Xoom (www.xoom.com - UNLIMITED space with an Easy Page Builder, hit counter, stats and chatroom ... Xoom is now incorporated into NBCI).
Other free web hosting service providers come at less than 35MB but provide many other options.
A websearch of "Skynary" webpages put up by Skybiz "associates" turned up amateurish and unimpressive webpages despite having the benefit of Skybiz's "educational tutorials".
Most simply advertise how much they were earning through the Skybiz Business Plan; the rest posted nothing more than their name and location.
What PNG authorities say
After studying various documents and a videotape I delivered to him, PNG Securities Commission (SC) chairman Reynold Pus finally concluded on Feb 9 that it is beyond the ambit of the SC to "investigate" Skybiz for possibly being a pyramid scheme.
This is because the SC's jurisdiction is limited to "investments", as evidenced by public notices resembling a prospectus, or issuance of shareholding certificates.
Besides, PNG does not have a law on pyramid schemes, although they are banned in most other countries.
"The Consumer Affairs Council Act 1993 does not specifically provide for pyramid selling like the Australian (Trade Practices Act)," CAC corporate secretary Willy Kambiam said in a statement to The National.
"However, the CAC has authority under Section 6 (b) (ii) 'Trade and Commerce' or (vi) 'Such Other Areas As May Be Relevant'. To apply this section to treat pyramid selling would depend much on consumer complaints," he added.
What PNG has is the Banking and Financial Institutions Act 2000, which prohibits unlicenced banking operations - i.e. taking deposits with the promise of repayment with or without interest.
This was the law that was used to nail fast money schemes like U-Vistract, Money Rain, Windfall, Gold Money and others last year, when the Bank of PNG declared them insolvent.
As such, we DO have laws on fast money schemes - pertaining to their unlicenced deposit taking. Just not on pyramid schemes per se.
The media should have used the term "Ponzi schemes" to describe the fast money schemes, because that was what they were; NOT pyramid schemes.
And, for the sake of argument, all three are "get-rich-quick" schemes, since participants are supposed to gain a lot of profit in a short time.
What are Ponzi schemes?
No less illegal, Ponzi schemes are named after Carl Ponzi, a fraudster who collected US$9.8 million from 10,550 people (including three quarters of the Boston police force) and then paid out US$7.8 million in just eight months in 1920s.
He offered returns of 50 per cent every 45 days to "investors" who joined the scheme in droves through word of mouth.
Participation in Ponzi schemes was not through active recruitment by individuals aiming to gain "rewards/benefits" from successfully recruiting new participants - the definition of what makes pyramid schemes illegal.
What made Ponzi schemes illegal was the payment of existing investors with money from new investors, without income generating business operations.
Not a Ponzi scheme
Ultimately, Skybiz does "sell" a product - software delivered over the Internet from the Skybiz "headquarters" in Tulsa, Oklahoma, US.
That appears to make it a multi-level marketing (MLM) scheme, like Amway, Avon or Tupperware, which are legal operations.
However, a key feature of multi-level marketing is the option of purchasing the product without becoming a distributor.
MLM products also come with a clause on refunds or returns of unsatisfactory products.
I asked Epeo Tanda, a prominent Mount Hagen businessman who has been publicly promoting the Skybiz program in PNG, about this and he replied: "Anyone can buy the product without becoming an associate. If the buyer wants to make some cash out of it ... it won't cost him any extra.
"What is the logic (of returns or refunds)? Can you buy a website (sic) with 35MB webhosting for that kind of price anywhere in the world?
"What is US$125 anyway? Don't you think the product is just a giveaway ... with the free home business package?" he added in his e-mail reply.
Again, PNG has no laws yet on multi-level marketing or direct selling schemes. Nor do we have laws on electronic commerce conducted through the Internet.
Consumer Affairs Commission (CAC) public relations officer Kaki Nason confirmed this on Feb 15.
According to CAC sources who declined to be named, a "Trade Practices Bill" is pending in Parliament. It is a "virtual copy of the Australian Competition and Consumer Commission (ACCC)'s Trade Practices Act", the source said.
Glenn Ross of the ACCC in Western Australia had outlined to me the relevant laws in the Australian Trade Practices Act 1974 - Section 57 (referral selling), Section 61 (pyramid selling) and Section 52 (misleading representation).
That means, once this bill is passed by Parliament, PNG will have laws against fraudulent schemes.
In an interview yesterday, CAC executive director Dan Kakaraya confirmed that preparatory work on the Consumer Protection, Competition and Trade Practices Bill 2000 is completed and the Bill is expected to be tabled at the next Parliament sitting.
"It contains proposed provisions on pyramid selling, referral selling and misleading representation in line with the ACCC's Trade Practices Act," Mr Kakaraya said. "Hopefully it gets passed."
Meanwhile, he urged dissatisfied consumers to come forward and file their complaints with the CAC.
"If sufficient grounds are found, the matter could be taken to court under general principles of common law dealing with 'unconscionable conduct'.
"Rest assured, we are closely monitoring this case and liaising with our Australian counterparts. My advice to consumers is: Don't get involved if you are not sure," Mr Kakaraya said.
What impressed me about Skybiz is how closely the sale of a product is tied up with recruitment of new "customer members".
Clearly there is an absence of concrete and detailed PNG laws to protect the people against various forms of get-rich-quick schemes which are finding fertile ground here.
You won't know when the pool of potential members/customers is exhausted until it is too late.
As such, until there is an authoritative statement that Skybiz activities are illegal, or a conviction in a court of law ... CAVEAT EMPTOR.
"Let the buyer beware!"
[N.B.: See www.fraud.org/aaft/aaftset.htm and www.ftc.gov/opa/1998/9811/huff.htm for the successful prosecution of FutureNet, an Internet-based distributorship offering Internet access devices and power service, in April 1998. The operators of FutureNet settled the charges filed against it by the United States Federal Trade Commission by, among other conditions, agreeing to pay US$1 million in consumer refunds and cease operations.]
Online and Multilevel Marketing Tips
- Sources: "Internet Fraud Watch", United States National Fraud Information Centre (NFIC) (http://wwwfraud.org/aaft/aaftset.htm); and US Federal Trade Commission (http://www.ftc.gov/bcp/conline/pubs/invest/mlm.htm).