Is the FTC ready to take on pyramid schemes?

It’s been more than a year since Bill Ackman publicly made a billion-dollar bet that Herbalife — a nutritional supplement company based in Los Angeles that’s traded on the New York Stock Exchange and brought in more than $4 billion in revenue in 2012 — is an illegal pyramid scheme. As The Verge outlined last month, Ackman’s billion-dollar bet has not gone well for the controversial hedge fund manager; Herbalife’s stock price has increased by about 230 percent in the last year, and Ackman is at least $500 million in the hole as a result. But in a court filing on Friday, the US Federal Trade Commission (FTC) took a step toward clearly defining a pyramid scheme. That filing could put every multi-level marketing (MLM) company in the United States — including Herbalife, as well as Avon, Amway, Vemma, ViSalus, Nutrie, and a host of others that contribute to the $30 billion-per-year industry — at risk of a major lawsuit from the nation’s foremost consumer protection agency. If the FTC had taken the advice from Ackman’s three-hour, 342-slide presentation last December to shut Herbalife’s doors, the company’s stock would’ve plummeted, Ackman would’ve made a bundle of cash, and every other MLM operating in the US would’ve been in trouble, too. With regard to Herbalife, the FTC remained silent. But on Friday, it made a clear statement in the ongoing case of Kevin Trudeau. The FTC is finally defining pyramid scheme A notorious and prolific fraud, Trudeau has been tracked by the FTC since at least 1998, when the consumer protection agency filed a sprawling lawsuit against the author and late-night infomercial pitchman who claimed, among other things, that his "Sable Hair Farming System" would "finally end baldness in the human race." Though Trudeau has somehow managed to continue hawking his weird and obviously fake "solutions" in between stints behind bars, the FTC keeps an exhaustive record of his products, filing court action against him when regulators feel he’s attempted to market something newly counterfeit. That’s what happened Friday: the FTC alleged that he’d been running a pyramid scheme called Global Information Network (GIN). The company sold discounted products (including a "Success Mastery Course") along with a business opportunity (which amounted to the privilege of selling such products to others). To define GIN as a pyramid scheme, the FTC needed to define what exactly a pyramid scheme is. For years, that’s been a problem. In 2004, the FTC released a "staff advisory opinion" about pyramid schemes. But it was vague. Lawyers and scholars argued that it did more to muddle a pyramid scheme’s definition than clarify it. The opinion said, for example, that "for each person who substantially profits from the scheme, there must be many more losing all, or a portion, of their investment to fund those winnings." It didn’t say, however, what it meant by "many more." Dr. Jon Taylor, a pyramid scheme scholar, estimates that 99.92 percent of Herbalife’s participants lose money. Does that count as "many more"? Until this year, the FTC hasn’t said. Bait and switch But Friday’s FTC filing did. It says Trudeau's company, GIN, was "almost certainly operating as a pyramid promotional scheme" because it involves "perpetual recruitment" that "dooms the vast majority of the participants (well above 90 percent) to financial losses by the very design of the compensation plan." What makes GIN and Herbalife similar is "a form of ‘bait and switch’ where the ‘bait’ is the potential for life-changing wealth, and the ‘switch’ is the reality of an improbable opportunity," says dean of the College of New Jersey’s business school, William Keep. "The success stories on their websites are heavily skewed toward telling the stories of the very few who do achieve life-changing income," he says. "Ironically, in the case of MLMs operating pyramid schemes, the very strength of trust developed through face-to-face selling gets perverted for the purpose of endless recruiting." Since Herbalife provides discounted products along with a business opportunity (which amounts to the privilege of recruiting and selling such products to others), the company certainly seems to fit the FTC's definition of a pyramid scheme. But Trudeau is an easy target — an obvious fraud with decades of overt violations to his discredit. What we don't yet know, though, is whether the FTC will be willing to apply the same definition to harder targets like Herbalife.

Acer appoints chipmaking veteran Jason Chen as CEO

After abolishing its CEO position last month, Acer announced today that it's reinstating it and bringing in a chip industry veteran to take the reins. Beginning January 1st, Jason Chen take over as Acer's CEO. Chen was previously vice president of sales and marketing for chipmaker TSMC, and he had a long stint at Intel serving in sales and marketing positions prior to that. Q3 losses prompted the executive shuffle Though chipmaking may not be Acer's current focus, sales and marketing are likely the big appeal to Chen. Acer has been unable to recreate the success it found with netbooks several years ago, and it's now trying to cut employees as losses mount. After posting a $446 million net loss for Q3 last month, then-CEO and chairman J.T. Wang announced his resignation from Acer, while company founder Stan Shih came out of retirement to take control. Though the CEO position was initially abolished in order to give Shih more direct power, Acer doesn't say why it's quickly moving away from that strategy. It does note, however, that Chen has strong experience in management. "We consider [Chen] to be the ideal executive to lead our transformation with his wealth of new thinking, international perspective, and willingness to face this challenge," Shih says in a statement. What that thinking and strategy will look like isn't clear yet, but Acer would almost certainly prefer to return to being a leader when it comes to Windows machines, rather than just one of the industry's many players.

Apple continues quiet acquisition spree with BroadMap and Catch

While the world continues to wait for Apple to buy an enormous and powerful company with its stockpile of cash, the tech giant just keeps quietly snapping up smaller ones instead. The latest: BroadMap and Catch, two completely different tech companies that focused on mapping technologies and productivity, respectively. BroadMap is a geographic information systems-maker with products aimed at both enterprise companies and small to medium sized businesses. Catch was a company with a multi-platform note-taking app that mysteriously shut down just four months ago. News that the pair were acquired by Apple came from 9to5Mac today, which pointed to changes in job listings by a handful of employees on LinkedIn. All Things D later got confirmation from Apple that it, in fact, bought both. The latest in a series of quiet purchases The two companies add to a growing list of businesses Apple's picked up during 2013 — acquisitions that have come without any official announcements, but that could strengthen the company's existing products and services. On just the maps side, that list includes Locationary, local-navigation company Hopstop, and transit app-maker Embark. All those are expected to help bolster Apple's mapping service, which had a disastrous roll out last year. There's also Oakland-based Passif Semiconductor, video guide and social recommendation service Matcha.TV, and 3D-sensing company PrimeSense, the last of which Apple snapped up as part of a reported $360 million deal.

The 'Star Wars Holiday Special' you don't want to watch

The Star Wars Holiday Special was only shown once in the US. The two-hour show aired just before Thanksgiving in 1978, and told the story of A New Hope's Chewbacca and his family on "life day," an invented celebration of friendship and general niceness. The Holiday Special was designed to keep Star Wars in the minds of the toy-buying populace as audiences waited for The Empire Strikes Back. It was so excruciating that George Lucas once said if he had time, he'd like to smash every copy left in the world with a sledgehammer. Thirty-five years later, and of all the baffling things that came together to make the Star Wars Holiday Special so infamous, the inclusion of four-armed chef Gormaanda feels perhaps the most egregious. She appears on screen someway into the special, instructing Chewbacca's wife Mallatobuck in the best way to "whip and stir" her "bantha surprise," the Wookiee's chosen dish for the celebration of life day. The show's official production notes called Gormaanda "The Julia Child of the Milky Way." This reference to the now-deceased TV chef is confusing on two counts: firstly, the first shot of the first scene of the first Star Wars movie establishes the story is set in a galaxy — you may remember — far far away; and secondly, Julia Child, living as she did on Earth, already was the Julia Child of the Milky Way. George Lucas wanted to smash every copy of the 'Star Wars Holiday Special' with a hammer But Gormaanda isn't even the worst thing about the holiday special. There's an uncomfortably sexual interlude in which Chewbacca's aging father Itchy — likely more than 350 years old, given an average Wookiee's lifespan — is serenaded by an apparently naked Diahann Carroll from inside a kaleidoscope. "Oh yes. We are excited, aren't we?" she whispers to the 7-foot tall, silver-haired alien as he smacks his lips in a chair. There's Carrie Fisher, singing a song about love and friendship to the tune of John Williams' iconic Star Wars theme, her voice making the words as her eyes glaze over. There's Harrison Ford, hugging his fluffy co-stars like someone who's only ever had a hug explained to him in passing. There's entire minutes of wordless grunting as the special's Wookiee co-stars try their best to communicate their family-friendly points with body language and animalistic noises while clad in stifling fur suits. George Lucas blames the production team for the special's problems, saying in 2005 that the show "really didn't have much to do" with him or the team responsible for the Star Wars movies. Lucas does, however, admit that he dreamt up the special's Wookiee-centric storyline, perhaps explaining the existence of a few moments of narrative clarity. Chewbacca kept his family, his dad Itchy and his son Lumpawarrump — later changed to Lumpawaroo — through a library of expanded universe novels and comics. But as quickly as these sensible sections appear in the show, they're whisked away and replaced with more inanity. The holiday special marks the first canonical appearance of Boba Fett, the bounty hunter who would relentless chase Han Solo across the galaxy before encasing him in carbonite and installing him on a wall. In the animated skit that introduces the character, Fett rides a giant orange dinosaur and is quick to offer help to his "friend" Luke Skywalker. We have the internet to thank for the proliferation of the Star Wars Holiday Special. The show only made it to air once before being disavowed, forcing curious fans and masochists of the '80s and '90s to hunt for VHS bootlegs. Even now, the versions available are unofficial recordings, captured by small TV stations across the US at the time of broadcast. One commonly found copy was recorded in Des Moines, Iowa, another in Baltimore. As much as George Lucas might want to smash every copy, the holiday special is now part of internet folklore, readily available to watch in its entirety. At two hours long, it's a grueling experience — but worth it if only to correct the mistaken belief that Jar Jar Binks marked the franchise's lowest point.

AK-47 inventor Mikhail Kalashnikov is dead at 94

Mikhail Kalashnikov, the inventor of the iconic AK-47, has died at the age of 94. The announcement was made today on Russian state television, reports the BBC. According to RT, Kalashnikov had long suffered from heart-related problems, and was staying in intensive care at a facility in Izhevsk, Udmurtia, not far from the Izhmash plant where his rifles are designed to this day. One of the most recognized guns in history Kalashnikov, born on November 10th, 1919, will be best remembered for his contribution to assault rifle manufacture, with his Avtomat Kalashnikova model 1947 becoming one of the most widely recognized — and used — rifles in history. While serving as a tank commander in World War II, RT reports, he discovered an aptitude for designing small arms after recuperating from an injury. By 1949, the Soviet Armed Forces had adopted the AK-47 based on its ease of use, reasonable accuracy, and durability. Since then, the AK's presence in both war and popular culture has been nearly unavoidable — especially since manufacturing the gun is simple enough to have spread worldwide. The rifle now adorns the flags of both Mozambique and Hezbollah. Meanwhile, movies like Lord of War and Quentin Tarantino's Jackie Brown lavish praise on the weapon. Kalashnikov, for his part, was in the end proud of his invention, though he lamented its deadly potential. "I'm proud of my invention," he said, "but I'm sad that it is used by terrorists."

Cloud and robots: creative data storage solutions

Late November in Chicago: The snow flurries around the imposing gargoyles atop the Harold Washington Library. The Chicago Public Library (CPL) holds 5.7 million volumes in its stacks and millions of digital versions on its servers. Troves of TIFF files, high-res scans of the library’s extensive special collections, are held in dark storage. Outside data centers manage its growing information on patron use — data that is critical, librarians say, for proving their value amid strained public budgets. During the recession, the city slashed public spending through consolidation, creating a central IT department for public institutions called DO IT, the Department of Innovation and Technology, but taking away the CPL’s lone data-storage chief. Michelle Frisque, director of library technology at the Chicago Public Library, uses creative strategies to keep CPL’s data-storage costs down. At the same time, Michelle Frisque, CPL’s director of library technology, says innovative programs like a free 3D-printer workshop and tech incubator have increased patrons’ digital usage. So has the still-deflated economy, with cash-strapped households canceling pricey Internet connections at home. The CPL is preparing for a soft launch next year of Biblio Commons, a Serial Attached SCSI (SAS)-based solution that tries to engage users in the virtual environment through posting reviews and recommendations and improved search. DO IT’s new city-data portal hosts some of the library’s most important stats, such as the most popular titles in each neighborhood branch; how many kids participate in the summer reading program (60,232 in 2012, reading a cumulative 1.5 million books, 400,000 more than the previous year); or the library system’s WiFi usage (up to 400,000 sessions per month from 22,000 a year before). As the libraries’ digital use has grown, Frisque has developed a strategy to keep data-storage costs down. The two-pronged strategy combines moving tens of thousands of archives off the network server — where space comes at a premium because of the super fast processing time and high-res images — and into the cloud, a popular solution among small businesses; and outsourcing applications and user products to a SAS-based system. “We’d been running products in house on our servers, but as the product was sometimes slower than we expected, there was lots of maintenance. We’d have to add more hardware space, but then there was all this processing power that wasn’t being utilized. We needed something that could adapt and change with our changing needs,” Frisque says from her 10th-floor office at Harold Washington. Keeping costs down Will this data storage strategy turn out to be a cost saver? Frisque can’t say. Corporations and major institutions worldwide are exploring alternatives as storage needs outstrip traditional options. “When you’re talking about petabytes of information, that’s millions of dollars in management costs,” Phil Goodman, a principal architect at Cognizant Technologies, said during the Storage Decisions conference in Chicago last June. “You have an inverse relationship between the capacity of the device and its performance.” Goodman advises clients to explore automated tiering — placing a thin layer of solid-state drive (SSD) at the top — and software that detects how often files are being used; moving hot data from inexpensive, cold storage to the high-performing disk and back, once it cools. “If it’s Facebook and people post pictures but don’t look at them very often, you want something that doesn’t cost very much. If I’m buying something on Amazon, I probably want that to happen really quickly,” says Tom Coughlin, an electrical engineer and storage consultant. Library robots Some big academic institutions and media-and-entertainment companies have opted for the priciest solution to archive materials: robotic libraries. They rely on robots to locate, select, load and later shelve cartridges of magnetic tape. The University of Chicago’s Mansueto Library holds 3.5 million volumes in underground storage that can be accessed by robotic cranes. Like the data itself, storage is constantly evolving, with the costs dropping as the capacity rises. Today’s devices will probably be obsolete within a decade. “Organizations have to have a migration plan, and with the amount of content some of them have, it might be a continual migration,” says Couglin.

Cyber protection for executives proliferates

The bigger the paycheck, the bigger the target. As targeted cyber attacks become more of a worry for corporations than the unfocused, indiscriminate kind, executives are finding themselves the object of phishing and other social engineering scams designed to take advantage of their status. And in response, a host of tailored security solutions are on the market offering to make the CEO a tougher mark for would-be criminals.

Guidepost Solutions’ cyber forensics chief Kenneth Citarella says executives should shop around for the right level of digital security. In some ways, high-level executives are easier to scam than lower-level ones: they may skip security training that’s mandatory for their employees and rely on subordinates to filter their email or other data traffic. Top executives also have higher online profiles and may be more susceptible to run-of-the-mill phishing messages, CEO Rohyt Belani of security firm Phish.me noted in a Harvard Business Review article titled “Why your CEO is a security risk.” “If they see a message that contains an emotional trigger, such as ‘Company XYZ is filing a lawsuit against your company. Please find attached the details,’ they’ll click,” Belani wrote. That means digital security for executives requires monitoring what information is available about them on the Web, securing their devices, educating them about threats, and more. Reputation management solutions While security and IT staff at larger businesses take primary responsibility for protecting employees—top-level executives included—smaller companies might find themselves contracting with vendors for individual services such as identity theft prevention, reputation management and training. Reputation management services have been around for years, offering to bury unflattering information online or place favorable mentions more visibly. Now, some of those firms, as well as more traditional security contractors, are getting into the business of protecting the CEO on the Web—with their employers picking up the tab. Reputation.com, based in Redwood City, Calif., offers a premium privacy product alongside its standard reputation management service. Reputation.com will remove client data from online brokers that harvest personal details from databases, help prevent tracking on a client’s Web browser and remove their names from unwanted mailing lists, says CEO Michael Fertik. “It’s not just for identity theft,” Fertik says. “Security, compliance, and risk management teams are all very interested now in how to make sure that individual employees, middle management, and senior management are all as protected as reasonably can be.” While Reputation.com’s standard product starts at $99 annually, the premium products range $1,000 to $5,000 a year. Fertik notes that the reputation and privacy services are often bought together by companies on behalf of their executives. The company may expand its offerings to focus on mobile privacy and private communication solutions, he adds. Former law enforcement, boutique PR firms Kicking it up a notch, CEOs can hire security consultants like those at Guidepost Solutions LLC to audit their online reputation, remove personal data from the Web and train a client’s office staff and family about secure online behaviors and configuring devices for safe use. They’ll even walk them through recovery from an identity theft scenario and cultivate positive news and reviews to appear in search engine results. “The background of the leadership of Guidepost Solutions is all law enforcement at the state and federal level,” says Kenneth Citarella, managing director of investigations and cyber forensics at Guidepost. Citarella himself was a white-collar crime and computer crime prosecutor for 28 years. Joining Guidepost in 2010, he has worked to develop the company’s existing digital security services into a unique offering alongside the physical security services—bodyguards—offered by the 130-employee firm. “There are obviously other companies that offer [digital security services]. I’m not sure there’s anybody that offers them all in one package,” boasts Citarella, who declined to describe Guidepost’s fee structure but says it is tailored to meet each client’s requirements. Citarella adds that execs should shop around to see what services they really need. “A client may not be aware that they need social engineering awareness training both at home and at work,” he says. “Security is like a healthy lifestyle: it can be considered inconvenient, but the benefits are really worthwhile.” Maybe the Secret Service style of protection isn’t warranted. In that case, established public relations agencies and communications firms can help make sure that positive, but not personal, information is accessible online.

Boutique reputation management firms are competing for space with public relations firms that have expanded to digital services, says Rhea Drysdale, CEO of Upstate New York-based Outspoken Media. Outspoken Media consists of a seven-person team offering one-on-one consultations that cost around $3,000 and active reputation management starting at $3,500 per month New York reputation management firm BrandYourself is most known for its do-it-yourself reputation product but began offering a hands-on concierge service in May. CEO Patrick Ambron says companies will purchase the service—costing between $299 and $599 per month depending on the client—on behalf of an executive more often in advertising, finance, and professional service industries.