In and of itself, the ATM/Credit Card acceptance slot is an innocuous little device that reads magnetic
tape and places impulses onto a phone line. This is connected to a back end data processing unit,
such as First Data Resources, which connects it to a credit card co-processor which further connects
it to an electronic draft capture account. The electronic draft capture account is a bank account that
you hold jointly with the scam operator and the credit card co-processor. Normally these accounts are
somewhat pricey to obtain, but our scam operator is backing you out of the goodness of his black
heart. All you have to do is share all of your financial information with him. Heh, heh, heh.
(Don’t worry. Few scam operators will actually steal from you. This is just a method for seeing if you
are a good target for acceleration.)
There’s this fifty-three page merchant services agreement that the Visa/Mastercard system requires
which your ATM/Credit Card acceptance slot is in no way in compliance with. In fact, your entire
business does not comply with the merchant agreement. It frankly can’t. Your processing of credit and
debit cards is on the one way honor system, similar to that of a mail order merchant. You have the
right to charge $3.00 for a point of purchase rental and that’s it. Any attempt at recourse against the
customer for stealing your disk is beyond the terms of your agreement. Moreover, you automatically
lose any disputed charge of any kind at all, without appeal. On top of this your access fee--a nominal
amount of money charged by the co-processor for marking up the service of the back end data
processing unit-- and your discount rate-- the percentage of the total sale which Visa/Mastercard
confiscates because it can-- can go up without notice or be raised retroactively. Our pals at the
organization may also feel entitled to mark up further all of these charges as a pass through for their
expense of helping you set up as a merchant on the system. The vast sucking sound you hear is
coming from your electronic draft capture account-- AKA the claw-back-a-tron.
Claw backs do not happen as a regular part of business. Instead,
the claw backs are kept in the organization’s back pocket: to
spring on you when you are most vulnerable. Once Unlimited
Liability has worked its magic, out come the claw backs. At this
point you are ready to change your phone number and forget
about the whole thing. The organization may even threaten to sue
you on your way out.
Why are they doing this to a nice person like you? Because they already have your money and they
want to liquidate your machine while it is still functioning. All scams of this kind have a use by date
and, given the nature of this pretext, this one is on a very fast track. They are going to want to claw
back you out of your machine whether your location is successful or not.
Chances are, your location is simply a non goer. For some reason no one who shops at Rick’s is
interested in renting a movie. Maybe it’s because no one who shops there speaks English? In any
case, you have a paperweight. That’s tough luck. The organization is disappointed, because they
took something of a risk on you. As you and the scam operator are parting company, you offer to sell
the machine back to him at a loss. He declines, furthermore explaining that he can’t release you from
liability in case your machine falls over and kills someone or otherwise does something improbable.
Relocating the machine will cost you a couple of grand and the scam operator isn’t really pushing the
idea. What the scam operator will offer is to sell the machine for you, which will hopefully cover your
remaining fees. If you are lucky, that’s the end of it.
Given the ephemeral nature of this scam—and the fact that
there is no legitimate model by which it operates profitably—
there is every incentive on the operator’s part to accelerate it.
By accelerating here, I mean getting you to buy more machines.
Back when you were filling out paperwork for your electronic
draft capture account, our scam operator started measuring
you for a casket.*4 If you have $5000.00 to blow, you probably
also have $15,000.00. If you have 15,000.00 you can
probably get $50,000.00. You’re probably just testing the
waters with this first machine.
|Wow. The waters turn out to be very good. Instead of $100.00, your first machine pulls in $250.00
for two months in a row. Pretty soon you are speaking at sales presentations. Imagine what you could
do with two machines. As it should happen our operator has another two locations similar to Rick’s,
both ethnic grocery stores, that he’s sitting on for other investors. He shouldn’t do this, but he will let
you have them, provided you take them both. Bingo! These locations are both comparable to Rick’s.
$750.00 a month isn’t bad. If you had a few more of these, you could probably quit your job. Heck, if
you had another ten of them, you could pay off your mortgage early. It’s almost worth taking a second
mortgage out for. This is going really well. You take the plunge.
Boom! Unlimited Liability. Boom! Claw backs. Suddenly some of your locations aren’t doing so well.
Some of them are netting nothing. You don’t have the funds to cover the claw backs. Not that the
scam operator seems concerned. He’s just politely printing you up bill after bill and deducting your
charges from cash collection and your electronic draft capture account. Pretty soon you are running
at a negative. Now the operator, who has your fifty grand plus, is starting to sound stern. Time to get
your job back. Time to call the bankruptcy attorney. You’ve lost money so fast your head is spinning.
You can continue to pump money into this, but chances are our operator has
measured you right and you are strapped. You may think that the operator is
keeping two sets of books and that he’s trying to run you off to keep the good
locations, but I don’t think that’s the case. No one is that good, especially not a
scam operator. Long term, this business doesn’t work at all. If you are, by some
accident, actually making money, you are golden to him as a sales tool. He’s
going to parade your sorry rear end around to as many potential marks as he
can. He needs you at those meetings. He needs stories like yours for his
television commercials designed to bring in more investors. Because he knows
that this scam is going to burst like a soap bubble probably sooner than later.
All parts of this scam make money for the operator immediately. His core business is in selling
these machines. Obviously, they are marked up, although probably not as much as you think.
Right now he’s running a volume game and playing off a fad. He may not have a well thought out
end game. He doesn’t really need one.
People who run this type of scam are doing so because it is the only one they know. They excel
at the hotel sales presentation. They play executive well. When this fad goes bust, they go back
to playing at the Dynometer Scam. (Similar, but the pitch is to provide a specialized piece of
equipment to auto shops in the emissions fixing business. Less volume, but it’s 30K a pop.) Your
operator has a sixth sense to know when to fold shop and vanish utterly.
And that’s the end of your business, no matter how well it was doing. Don’t bother going after the
guy because he’s worthless. People like this justify looking like they live the high life as a sales
tool, but in reality they just like to live extravagantly for as long as they can.
|There is a half life to this scam which takes place long after you are out of the picture. It
somewhat follows the pattern I described with our coin operated high volume washing machine.
Sometime after all of the machines have gone winky and your money is merely a cocaine
memory, our operator (or a confederate) starts making the rounds of stores where these
machines were installed. In his hands are ethnic movies, the products of Bollywood, or the Latin
Film industry, or whatever demographic seems to match the store.*5 He approaches Rick.
“Hey, I see you got a video machine here. I distribute Polish movies. Polish people, the people
who shop here, like Polish movies. And I have all of them. All the latest titles. You get a pretty
good rental for them, too. I could set you up. Of course, you would have to own the machine. I
happen to know the people who own these.”
Cue Rick: who grumbles that he thinks he already owns the machine on the basis of storage or
whatever half-wit justification he can think up on a moment’s notice. He’s still a little miffed that
this thing has been gathering dust for eighteen months.
Our man explains “You have to program the thing. They’re not just going to give me the codes.
And I need the keys. If you’re interested, I could ask. I am sure they will take an offer.”
Now Rick can either let this thing rot or he can offer our scam artist some money. The only
reason Rick is motivated to part with any money is because our scam artist has shown up with
something that might potentially sell. Pity poor Rick if he actually buys the thing. Our scam pal
then loads it up with blank DVDs and color Xeroxes and is never seen again. It’s a shame too,
since the only near term purpose these machines will ever have is in renting out Hindi movies.
But the writing is on the wall for that business, too.
|There really isn’t a way to spot this scam on its face. You need to know something
about the movie industry and the nature of Vacancy Scams, otherwise it seems viable.
Sometimes a few little tell-tale clues will be sprinkled along the way. My eyes glaze
over when the catch phrase “do the math” is repeated over and over in a sales
presentation. You should beware of any investment indicating an even return related
to the retail industry. Nothing is more local and uneven than retail. Offers that have a
guaranteed return for an introductory period are a sure sign that you are being sold
quicksand. Finally, any functioning business wherein your only needed participation is
to pony up cash up front is a flat out scam, especially if it’s offered on television.
|We don’t know everything and we don’t claim to. If you have any comments, criticisms or updates,
please contact Ajax at Wunker2000 (at) Yahoo dot com.
*1. Netflix and firms like it are actually attempting to establish themselves as renters of a studio’s
back catalog. The new releases and direct to video business is very low margin for them.
*2. Unlimited Liability is an insurance term derived from the legal concept of Strict Liability. Here I
have mutated it in order to cover all aspects of unforeseen circumstances. Any time you place
any thing in a public space, especially a store, you become liable for any bad thing that may
happen because of it. If a drunk urinates on the thing and electrocutes himself, you are liable. If
the store burns down due to an electrical short, you can be found some percentage liable. This is
purely an American concept currently, but the world is following our lead. This is one of the
reasons our scam artist wants you to own the machine instead of him. Not that this really protects
the scam operator (inasmuch as lawyers will sue all parties), but murking up ownership buys our
operator time to fend off disputes.
*3. The store owner doesn’t really have the right to remove your machine and neither does his
landlord. There is a legal mechanism for either to eventually take ownership of your abandoned
video vendor, but few landlords or retail merchants are aware of it. (In my ten years of equipment
management experience, I have never encountered one retailer or landlord who had a clue on
this issue.) In short, they really can’t do anything with your machine because it’s NOT THIERS.
And they know it. Once the retailer has let the machine in he has to let it sit. That said, landlords
have been known to roll the things into the alley, the law be damned.
*4. The Credit Card terminal is just an excuse for getting a hold of your financial information. It is
by no means the only excuse the scam operator can use. He does have some justification for
probing you financially, since you are likely to incur expenses in excess of your initial investment.
Chances are the scam operator is going to tell you that this is a business relationship and he
needs to know about someone he is about to get in bed with.
*5. Some machines can be turned to purposes other than vending DVDs. This scam is now on its
fifth or sixth generation. It used to be that all of the machines were converted to handling West
Hollywood XXX material. Today the trend is ethnic movies.