Pyramid Schemes, Affinity Fraud, and the Business of Politics

by on November 8, 2021 · 3 comments

in San Diego

By Mat Wahlstrom

A recent documentary series available online investigated LuLaRoe, a company that targeted women with the promise of gaining financial independence working from home, by selling quirkily patterned leggings and dresses, “creating freedom through fashion.”

In reality it was a pyramid scheme, wherein the real money was made by recruiting others into becoming sellers to recruit others to become sellers. The people at the top of a pyramid scheme get a cut of both that particular scheme’s actual product sales in addition to a cut of the buy-in fees new sellers pay to get in on it.

Eventually the market gets saturated and the income from the buy-in fees becomes greater than that from product sales. So the new money is cycled in to hide that the scheme is unsustainable and delay as long as possible the inevitable implosion.

A pyramid scheme is like a game of musical chairs: when the music ends, there’s only one person left with a place to sit. But it isn’t a game.

It’s a horror story ending in broken lives and bankruptcy, told by those blinded by greed and deceit who only regained their sight after losing everything else.

If this were all it was to them, then every pyramid scheme would be obvious and never get off the ground. Which is why they all depend on some form of affinity fraud.

Affinity fraud is when a schemer targets a specific group, of which they either are or pretend to be a member, with a message that promises them success specifically by virtue of their also being members of that group.

Religious and ethnic communities, English-as-a-second language speakers, the elderly, people in the same occupation — such as LuLaRoe’s stay-at-home moms — are the usual marks. But any shared characteristic or concern can be exploited.

In other words, affinity fraud is the trick needed to short circuit an individual’s critical thinking to make belief in the plausibility of the pyramid scheme possible.

And beyond the financial world, it’s a two-step evident when looking at the conduct of politics today.

Let’s start with the pyramid scheme.

Our existing system of electoral politics requires us to buy in to the idea that change — or continuity — can only be achieved by our participation. This requires us to believe that we can only get justice, progress, or anything at all, by voting.

But the only candidates on the ballot are those already at the top, the early investors as it were, who are where they are solely by virtue of convincing previous people to recruit others to buy what’s being sold, moving them up in the party pyramid.

And once elected, we’re told that *not enough* people voted for them and others in the same scheme — which is why we can’t yet have justice, progress, or anything at all. So we the people need to give more of our own money to and go out and find more voters for them.

And thus every movement and moment of electoral significance is cycled in to hide that the scheme itself is unsustainable.

Consider voting rights and infrastructure. This whole year we’ve heard the debate over them. And although legislation for both has long had majority approval ratings among the populace of voters and non-voters as a whole, the first is likely killed and the second shrunk so much — especially regarding climate change mitigation measures — as to be too little too late.

It’s not just a pyramid scheme, it’s a self-licking ice cream cone.

Affinity fraud plays off a host of natural cognitive biases that affect critical thinking, foremost affinity bias, or the tendency to believe those who have things in common with us. It targets this bias to get us to accept what we would reject if proposed by someone not in our group.

But affinity fraud takes it further. It sets up an in-group within the target group, a subset of the chosen who are privileged with special knowledge and therefore first among equals as well as superior to everyone else, who answer the call to share the gospel.

It propagates a cult mindset as a necessary condition for resolving cognitive dissonance.

Whatever real policy differences there might be between the two main political parties, it’s hard to see any practical difference between the ‘Vote Blue No Matter Who’ crew and the QAnon-MAGA-Trump faction. Each requires dismissing evidence when it shows those sharing their affinity don’t always (if ever) act in their objective interests or deliver what’s promised. And each rewards those members who to attack such messengers the most viciously.

There are signs that more people are becoming aware of the scheme. Among those who still believe in the system is the growing plurality of independent or no party preference voters. Certainly surveys of non-voters have consistently noted their prime reason for not participating is that ‘it doesn’t make a difference.’

Pyramid schemes and affinity fraud will likely always be with us. But the one that serves as our current system of governance need not. The big picture solution would be to take the business out of politics, to finally remove money from elections by publicly funding them. This would also free affiliation from being vulnerable to fraud.

We must ask hard questions and demand honest answers — both of ourselves and our electeds — ever wary of appeals to defer to scheme or fraud.

Until then, don’t be surprised when leggings fall apart and the Arctic melts.


{ 3 comments… read them below or add one }

Helen Rowe Allen November 8, 2021 at 2:09 pm

Sun-baked San Diegans are said to be especially susceptible to the siren song of quick riches, instant gratification, quick fixes, and go-a-long to get along. It’s a “no brainer” to go with the program: sloganeering, ad hominem attacks on character and sneering. Sneering is especially favored – so comfy, self-satisfying, and oh so very convenient. That said and done, we’re left with plenty of time for what we San Diegans do so very well: sit in the sun, watch the waves, BBQ and Twitter. Now that’s what I’m talking about.


Mat Wahlstrom November 8, 2021 at 2:28 pm

Well said, Helen. I had to resist the urge to call the roll of homegrown examples, as I already hit 900 words and even 9,000 wouldn’t cover them all. Thanks for summing up the ‘local angle.’


Frank Gormlie November 8, 2021 at 2:24 pm

And we must not forget our own pyramid schemer, Gina Champion-Cain who ran quite a network of restaurants. She was convicted of defrauding investors out of $300 million through American National Investments.

The 19-page civil complaint against Champion-Cain alleged she had misled investors into believing they could fund high-interest, short-term loans to people seeking California liquor licenses. Allegedly using forged documents, she used investors’ money to fund her restaurants, like The Patio chain, Saska’s, Surf Rider Pizzas, her rental properties and her high-flying lifestyle.


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