Cognitive Dissonance, Ponzi Schemes, and Reload Scams

One of the more bizarre human behavior is how human deal with cognitive dissonance, when one suddenly have two conflicting truths, often one long-held and the other undeniable but recent discovery. There are three ways to resolve cognitive dissonance. You believe in one, the other, or rarely, you somehow meld the two together into an amalgamated third. The abusive relationship is a common cognitive dissonance. To an outsider, if the victim suffers abuse, the victim should leave. However, the victim, who had long lived under the abuser’s control and the fiction that the abuser “loved” the victim, often believes that he or she is at fault for angering the abuser, and thus “deserve” the abuse, and everybody else “just don’t understand” the abuser, who is “not a bad person”. This condition is commonly known as “battered spouse syndrome”.

The same thing happens in the financial world, when victims don’t believe they were scammed, and/or attack the authorities for stopping the scam. The victims are also especially vulnerable to reload scams (i.e. another similar Ponzi scheme). One prime example was the Ad Surf Daily Ponzi.

Ad Surf Daily Ponzi started in 2006 as a clone of yet another Ponzi scheme called 12DailyPro. Ad Surf Daily was closed by the US Secret Service in August 2008. The Ad Surf Daily ponzi can be best described as “you put money in, and you’ll get back a small percentage (between 0.5 and 1%) every day… forever!” The fiction was you buy “ad units” that will be watched by other members, and other members do the same. Somehow, this generates a “profit” of which 50 to 60% will be distributed to all the people, and the profit can be used to buy even MORE ad units (i.e. “rollover”). When it was closed by the authorities in 2008 it had consumed 110 million dollars from thousands of victims, and having earned endorsement from multiple lawyers and consultants, some of whom testified in court that they do NOT see a Ponzi scheme in Ad Surf Daily.

Some of the more bizarre Ad Surf Daily victims are the duo of Todd Disner and Dwight Owen Schweitzer. Disner was supposedly co-founder of Quiznos sandwich chain, while Schweitzer was a disbarred lawyer. It was unclear what initiated their contact with a Ponzi scheme, but after Ad Surf Daily was shut down in 2008 the duo formed “ASD Justice”, then proceed to file multiple “motion to dismiss”, then when that was denied, multiple appeals. Their latest defeat came in 2012. They sued everybody, from trustee to court officers to police, using some of the most bizarre logic possible. Here’s a website which collected all their court motions. (Thanks to Don at ASDUpdates.com for maintaining this list): https://sites.google.com/a/asdupdates.com/files-website/asd-justice-case

With that sort of mentality, that a Ponzi scheme is a legal and profitable enterprise that needs to be protected FROM the authorities, it is no wonder that Disner and Schweitzer would soon get involved in yet ANOTHER Ponzi scheme. Those who study scams call this a “reload”. Why? The scammer shoots the victim, who does NOT run away. That gives time for scammer to reload the weapon, and shoot the victim again.

And indeed, Disner and Schweitzer found themselves fronting yet ANOTHER Ponzi scheme, this time Zeek Rewards, which ran from 2010 to August 2012, when it was closed by the SEC. Again, the mechanism is eerily similar: you put in money (buy bids for giveaway), then every day you get back a small percentage (from 0.7 to 1.8%). This one had some variations, like your “VIP points” expire after X days, and it was supposedly to promote a “penny auction”, but the overall mechanism was essentially the same.

Disner and Schweitzer may have provided support to a third individual, Robert Craddock, who then went on to claim to have hired various big name law firms to sue the SEC and reopen Zeek Rewards (just like Disner and Schweitzer did for ASD), but never delivered. When interviewed by WRAL news in Feb 2013, neither Disner nor Craddock have any comment on the advice of their attorneys. (NC company accused of swindling customers, yet no charges filed)

(Craddock had filed a bogus “takedown” order that resulted in the Hubpages article above going offline for 2 weeks prior to the SEC shutdown, but that’s another story for another time)

It is also worth noting that both Craddock and Disner/Schweitzer solicited donations from victims of the Ponzi to “defend” the Ponzi from the government, and to recover victim’s money, and both claim to have gathered thousands of dollars in the “defense fund”.

The trustee in the ASD case was able to return most of the money that all victims who filed a claim got 100% of their money back. However, Zeek Rewards receiver is reporting that out of the 700+ million involved in Zeek Ponzi (initially reported as 600 million) he was only able to recover about 300 or so million, and will have to initiate many clawback lawsuits (similar to the one Irving Picard did against the “winners” in the Madoff Ponzi) to get back the rest already paid out to various “winners”, and it is likely those winners had already moved the money into yet some OTHER Ponzi schemes they are now pushing on various Internet forum through straw shills and net puppets.

Victims of Ponzi schemes often react to the cognitive dissonance that whatever they had been promoting / participating is a scam, that they often end up sympathizing with the scammer. In fact statistics puts the chances at roughly 50% that the victims will not recover their assets, but instead, walk away, negotiate with the scammer, or actually join the scammer in fighting the government and the other victims. Thus, it can be argued that a significant number of them do NOT know what they’re doing. (Cognitive dissonance theory and the recovery of stolen assets)

Google searches today still showed various comments left by Zeek Rewards sympathizers, esp. around late August and early September 2012, after Zeek was closed, that many of them suffered symptoms almost identical to the battered spouse syndrome. Many of them claimed that Zeek was just misunderstood, and Paul Burks (head of Zeek) wouldn’t hurt a fly, no way he would operate a scam, and so on and so forth. Others let their imagination run wild, like “Zeek will reopen soon in Europe” or “SEC made a mistake, but is too embarrassed to admit it, so it’s a conspiracy to suppress the truth.”

They need to hear that Paul Burks, who’s also a magician, really think about the victims. Paul Burks, former head of Zeek, when asked by a reporter if he had something to say to his victims… replied

“I never told anyone to invest more money than they could afford,” Burks snapped. “I didn’t tell them to do that. Never.”
He said if they lost money, “it’s their fault. Not mine. Don’t blame me.” (Authorities: $600M scheme incubated in NC town)

In other words, it’s the victim’s fault. They WANT to be cheated, so they should have only put in money they expect to lose. That is known as the “slut defense” in rape trials, and that doesn’t fly at all.

Yet “the victim knew what they were doing” was a common defense for narcissistic scammers… the victims are BEGGING to be cheated. Back in January 2012, Dennis Bolze got news that the 3-judge panel denied his appeal that his jail sentence was too severe. Why did he believe his 22-year sentence was too severe? The lower court ruled that he deserved a two-level “vulnerable victim” sentence enhancement because his victims where primarily seniors. Bolze argued that because the seniors put in their money willingly, and “they know what they’re doing”, they are not really “victims”, but someone who took a risk and lost. The court denied the motion.

All in all, cognitive dissonance often result in what third-party observers can only call “bizarre” behavior. However, such behavior, when involving finances, can result in serious and immediate consequences. Many victims of Zeek mortgaged their house or withdrawn retirement / college savings to fund the scam. Now they will be lucky to get back 60%, and will have to wait years to do so, not to mention having their dreams demolished, and hear or see “I told you so” even when none was actually said. It is a dangerous condition that may result in them being further victimized by reload scams when they are especially vulnerable.