“Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.” – Eric Hoffer
A newspaper colleague approached me in the 1990s, beseeching me to meet about a sure-fire business opportunity.
He wouldn’t tell me what it was.
When we finally met, he spent about 20 minutes telling me how smart, affable and motivated I was. I’d be great at this. I could make a lot of money. I had plenty of connections that could make this happen. I just had to hear him out.
Finally, I beat it out of him.
Amway.
I was the business editor of the Colorado Springs Gazette at the time, and more than a tad insulted. Did he really think I was this stupid? Did I really want a garage full of soap that I couldn’t sell to my friends and family?
People called it Scamway for a reason.
My colleague accused me of being “negative.” To be successful at this, I was going to have to be “positive.” Isn’t that what they always say when you don’t buy the bunk they’re selling?
What I couldn’t understand was why this thing was even legal.
Turns out, Amway had a hall pass. In 1979, the Federal Trade Commission ruled that it wasn’t an illegal pyramid scheme.
The regulator concluded that Amway had rules designed to ensure its distributors actually sold products rather than simply recruiting more distributors to buy the stuff and stack it in their garages.
Nearly half a century later, the FTC is finally taking another look at how that worked out.
And wouldn’t you know it?
The agency now alleges that Amway and two of its biggest recruiting organizations pressured distributors to buy products they didn’t want and couldn’t sell. Worse, they allegedly instructed distributors to report sales that never happened.
Why? According to the government, it helped create the appearance that Amway was about selling products rather than recruiting more people to buy Amway products.
On Thursday, the FTC announced that Amway and the two groups had agreed to pay $225 million to settle the allegations. They dispute the allegations but are paying up just the same.
It is the largest monetary recovery the FTC has ever obtained in a multilevel-marketing case.
And Amway has to pay in cash — not health, beauty, fitness and home-care products that anybody could buy almost anywhere else.
One eyebrow-raising detail from the government’s complaint: Until recently, Amway priced a case of 24 ordinary 16.9-ounce bottles of water at $52. Distributors got a 10% discount.
Try selling that to your clueless cousins.
They’re not that clueless.
(Have you been approached by someone selling Amway? Have you tried to sell Amway? Share your experience with Business Blunders. This story begs for a deeper dive.)
Weapons of mass hallucination
The bad decision-making at the Department of War got a boost from an AI chatbot that almost started a war with China, according to an exclusive report from CNN this week.
During our seemingly misguided war with Iran this spring, a U.S. special-operations analyst asked an AI chatbot to analyze intelligence about the cargo on a Chinese ship traveling through the Middle East.
The chatbot concluded that the ship was carrying components for nuclear weapons. The analyst then used AI again to turn the findings into a standard intelligence report, which was circulated through the military.
Call it chatbot diplomacy: Armed U.S. personnel prepared to board the Chinese vessel. Military aircraft were already in the air.
There should have been a qualifier: “This War May Contain Inaccurate Information.”
I use AI to generate Business Blunders cartoons and for help with research. By my rough reckoning, it’s about 80% accurate. And when it’s wrong, it can be way, way wrong. You have to check everything. And if you’re sending armed troops after a Chinese ship, maybe you should check twice.
Fortunately, somebody did before someone started World-War-III-GPT.
CNN quoted one source called the report “entirely false.” Another said it “almost started a war.”
Add this episode to the past couple weeks of extraordinary AI panic.
Anthropic CEO Dario Amodei warned last weekend that the industry needs to slow down, saying increasingly autonomous AI agents could pose catastrophic risks.
Ya think?
OpenAI CEO Sam Altman also called for slower pacing and greater coordination on safety. As have other AI luminaries.
President Donald Trump dismissed such warnings as a “HOAX.” And Congressional Republicans haven’t allowed Democrats to do anything about a rogue president, so why would they let them mess with a rogue AI?
California Gov. Gavin Newsom signed an executive order on Friday to step up AI safeguards, including independent oversight and AI “kill switches.”
“The federal government’s abject failure to create any form of meaningful AI oversight or accountability should alarm every American, especially when AI CEOs themselves are begging for regulation.” – Gov. Gavin Newsom
We’ve already seen several incidents in which AI models escaped from isolated testing environments and gained unauthorized access to real computer systems. We’ve seen them lie, cheat and steal – just like some top corporate executives – to accomplish nefarious goals.
Read More: AI Gets A Performance Review (Business Blunders)
The latest AI misadventure came to light on Friday when The Wall Street Journal reported that Gemini broke out of a cybersecurity test in May and hacked into three companies.
In one case, Gemini repeatedly guessed the passwords until it got in. Think your bank accounts are safe? Think your crypto will never be hacked? AI is still in its infancy and the baby is already a prodigy.
This is no longer an apocalyptic sci-fi movie. This could be humanity’s final blunder.
Anthropic reported earlier this month that malicious actors have already used Claude in cyberattacks, surveillance and conventional-weapons development. Researchers found cases involving guided rockets, drone swarms and targeting software.
Dr. Strangelove never had it so easy.
The chatbot didn’t need self-awareness to misidentify a nuclear cargo. It didn’t need to formulate a plan to Ctrl-Alt-Delete humanity.
One source CNN quoted framed what could be the end in brilliantly simple terms: “AI allows you to get to a bad idea faster.”
This week’s Ponzi
Kansas City Chiefs star Travis Kelce knows how to spot a hole in a football play. Just not in an investment opportunity.
Kelce was among 64 victims of a Ponzi scheme run by Siddharth Jawahar, 38, founder of Texas-based Swiftarc Capital. Having married pop star Taylor Swift, was it the coincidental name of the firm that threw him off his game?
Prosecutors say Jawahar, who was in the U.S. illegally, took in more than $35 million from investors between 2016 and 2023 but invested only about $10 million. The rest went toward paying earlier investors and financing luxury apartments, private jets and expensive outings.
A Ponzi scheme is one of the oldest cons in The White Collar Playbook, and yet slickster salesmen keep finding victims.
On Tuesday, a federal judge sentenced Jawahar Tuesday to 11 years in prison and ordered him to pay $31.35 million in restitution.
Kelce’s losses have not been disclosed.
It was truly 100% organic. Give or take 100%.
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So, the movie 'Fail-Safe' from 1964 wasn't that far from predicting the future...except it was a Chinese ship.
What happens when AI decides fiction is reality? Just like a kid who only learns parts of history from movies?