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Rosetta Stone – The Biggest Ponzi Scheme Around

|Includes: Rosetta Stone Inc. (RST)

The idiocy of the American consumer is proverbial around the world… Just drive around one of those many anonymous neighborhoods where templatized suburbanite idiots consume their existence and watch how many Americans own a house with a two car garage and yet park their cars in the driveway because their garages are filled to the brim with forgotten crap that some marketing scheme at some point in medieval history convinced them that they need or want…

The idiocy of the American investor is almost as famous and well documented also. After sending the whole world into an economic tailspin, the world understood that Wall Street, and all it symbolizes, is not this unattainable Everest of intellectual refinement, where rarefied oxygen is the vital substance of high finance brains, but rather a low valley of crooks, petty speculants, and opportunistic cretins. American professional investors are straining themselves in the attempt to prove their quality of idiotic leaches. Case in point: Rosetta Stone - the greatest Ponzi scheme around.

I was sitting in a Starbucks shop in the mall one lazy Sunday afternoon when my attention was drawn to a Rosetta Stone stand nearby. The shiny yellow boxes reminded me in a flash of some great advertising clip I've seen on TV not long ago. I did not remember anything from that advertising clip, except that it was a good clip, that Rosetta Stone was supposedly the best language learning software that money can buy and that, therefore, I should pay some exorbitant amount if I wanted to learn Chinese. Not having anything better to do I pulled my iPad out and started reading about Rosetta. If the masses are willing to pay $500 for a yellow cardboard box that's supposed to teach you Chinese, it must be extraordinary… or the American consumer is a complete idiot. Now it starts to get good!


So, what is the value proposition that Rosetta Stone thinks will elicit millions of American consumers to shell out $500 for a cardboard box with a couple of DVDs containing pictures that are supposed to magically teach them Chinese (while most of them don't even speak English properly)? Listen to this and you'll agree that we live in a country of idiots. Rosetta's main value proposition is: "learning through immersion, [supposedly] the same way a Chinese baby learns her language. No grammar needed, no explanations, just practice and context…" … That sounds awesome... except that the last time I checked, I was not a baby in China… and I also did not have 24 hours a day to "immerse" myself into Rosetta Stone pictures in front of a computer… Imagine Chinese babies who "immerse" themselves into two hours of Chinese every day, and then 22 hours of English… If they did, they would all be speaking English, not Chinese…


OK, so here's a company with a value prop that is completely preposterous because it is a logical impossibility. So, you would think that the idiotic American consumer buys into the flashy TV adds, purchases the yellow box, tries it out, realizes that it is the stupidest thing he's ever done and then re-sells it on eBay to another idiot… That's exactly how a free market environment would and should work, but wait! Not so fast! Rosetta Stone knows that it is selling crap, and that eventually even the dumbest idiot will realize that he has been scammed, so they prohibit the disposal in ANY WAY (except through the trash can) of their software. Yup - you heard me! YOU CANNOT RESELL THE $500 BOX! You live in free America, you just stupidly spent $500, and the box you just opened says this in the EULA (of course you don't know that until after you open the box!): "Licensee [this is you, the idiot] may not sell, rent, or [even] loan (!) this Rosetta Stone product." This is the mother of all constitutional rights infringements: you spent your own money to buy a product (whatever it is) and you are now forbidden from even loaning that product to your twin sister!!! Congratulations: you've just been promoted from "idiot" to " idiot who has been scammed," courtesy of Rosetta Stone!

This whole story fits perfectly the definition of a large-scale scam, right under everyone's nose…

OK, let's recap. This is the second completely preposterous step in a consumer's experience with Rosetta Stone… First, they take you for an idiot and sell you a logical impossibility. Second, they prevent you from ever recuperating any of your expenses…

Well, you might think, many companies have ridiculous EULA but, who cares, nobody enforces those. Think again. Do a quick Google search and you will be blown away by the aggressiveness with which Rosetta Stone enforces this unreasonable arrangement… Better yet, try to post a perfectly legitimate box of Rosetta Stone software on eBay and see what happens. Within 48 hours the Rosetta Stone police will be knocking on your door.

The best story of all, and the most illustrative, is Rosetta's lawsuit against Google (which Rosetta has been losing again and again now for several years). Rosetta is blaming Google for the fact that some users are putting up AdWords on trademarked terms - sometimes pointing to unauthorized versions of Rosetta Stone's software. Here's another, lower yet, facet of this demented company's reckless behavior in the marketplace. Rosetta Stone's CEO said:

"Think of Google as the gateway for criminals into America, as it's currently configured,"

Wow - that's great logic! - right in line with Rosetta's great "immersion" value proposition. Well, of course Google, and the internet in general, is a gateway for criminals - it is a gateway for EVERYONE - which is what makes it so great (and what Rosetta hates). It is a gateway for criminals the same way a highway is a gateway for criminals, much in the same way the water the city sends to homes is supplying water for criminals and it is, therefore a gateway for criminals….

I would like to take this bit of wisdom from Rosetta Stone's brightest mind and propose the following for the advancement of our society (beside, of course, closing down Google, or at least censoring it to death):

  1. Immediately close and destroy all highways in the US. Highways are means of transporting drugs and illegal products, they are gateways for criminals and drug dealers. Meanwhile, we should start holding the contractors liable for any criminal activity on any highway in the US.
  2. Ban the use of concrete. Most crimes in cities happen on concrete. Obviously this material is a draw for criminal activity. As such, concrete should be outlawed and removed from all major cities in the US - for the sake of our children.

The cretins at Rosetta Stone decided that the best way to run a business in 21st century America is to invest heavily in advertising a pseudo-product with a preposterous value proposition, and then to vigorously blame and prosecute anyone they can, from the single mother of three who tried to sell a genuine copy of Rosetta Stone on Craigslist, to Google, for copyright infringement. Rosetta Stone decided that promoting and supporting censorship is a great business model in 21st century America!


OK, so now we have just re-stated the obvious: the American consumer is a complete moron, getting raped by Chinese toy manufacturers who kill our children with lead-loaded toys and also by scams like Rosetta Stone - a pseudo-business that charges ridiculous amounts on preposterous claims and then disappears with your money leaving you empty handed… So, what?

So, sipping my third white mocha latte, I gazed in awe at the booth filled with yellow boxes and I thought to myself: "consumers are morons, but what about Wall Street? Aren't they supposed to be managing your 401k wisely… professionally… scientifically… ethically? Isn't the main reason we willingly fuel their shamelessly lavish lifestyles the fact (or hope) that they are detached from the world of the average American idiot, that they are above the flashy TV ads…? Isn't this wise "detachment" that which gives us the hope that they will succeed in preserving the value of our hard-earned money so that we can retire with enough weight in our IRAs to avoid starvation? Aren't they the ones who understand "fundamentals"? If that's the case, how can a scam like Rosetta Stone survive on the NYSE for more than a couple of months? (well, yeah, if Groupon can, then anything is possible…). What "fundamentals" are the morons who are holding this stock looking at?! Now it gets really juicy - keep on reading and it will blow your mind away!

If you want to know who the morons who are holding this stock are, here they are (check your 401K now!). Also, note that as the stock price moves over $10/share, they are unloading vast amounts of shares onto the dumb money as fast as they can… Morons and speculants tied together in a disgusting dance…

So, I went to the "investor" section of Rosetta Stone's website and pulled their latest earnings release. Shockingly (maybe?) their earnings release presentation looks and feels like a 9th grader put it together the night before it was due… It exudes an overwhelming aroma of a bootstrapped business, filled with speculants and cretins, with complete lack of concern for professionalism (or geometry). Maybe part of their cost control strategy was to outsource their Finance department to the local high school? Here are a few samples from their earnings release presentation. Laugh or cry?

I have serious concerns regarding the inner balance of the individual who created this monstrosity… Their "fourth quarter business overview" is a cartoonish slide with three oddly colored boxes that tell you nothing. Wow! Is this a joke? It cannot be the earnings release presentation of a company listed on NYSE!!!

Look at this next page's layout! Insufficient level of consideration for the investors' sense of geometry to prompt the idiot at Rosetta (or the local high school) who slammed this slide together to remove the gray outline around the graph and to show time from left to right (2010 should be the first bar and 2011 the second, to the right), since in America most people (still) read from left to right… Or maybe the intent was to fake growth by showing the taller bars to the right, betting that their investors are as idiotic as their buyers?

Oh, by the way, great financial results as well! Their Free Cash flow went from $12M to $5 - run and buy some stock!

Check out the Q1-12 guidance! They're "only" planning to waste another $10-$11 million of your money. (What's up with the blue blocks in the slide? Are those supposed the make up for the fact that the table is not centered?)

What their earning release does not tell you is that the Rosetta Stone bucket has hundreds of holes and they are bleeding money like crazy. They don't seem to care too much (and you'll see why in a second). A quick recap of their "stellar" performance: Q4 2011 revenues were at $80.5M, versus $74.3M the year before. Operating loss was $3.3M vs. operating profit of $2.6M in prior year. (So they "bought" their revenue by paying more than a dollar per dollar of revenue - interesting!). Net loss was $5M, net operating cash flow in last quarter was $7.4M, vs. $15 in prior year… You get the picture - the trend only looks positive if you draw the graph from right to left, as Rosetta did in their earnings presentation.*

So, why does this company even exist? It exists because it is a great Ponzi scheme.


I think you got the picture by now (if you didn't't, you're a complete moron, so stop reading) - I don't want to bore you with any more details - go check your 401k and clean up all the funds that own this stock because they're either complete idiots, or they're reckless in the way they manage your money. But there's one last question I have to answer: why did I call Rosetta Stone a Ponzi scheme? How does all of this make it a Ponzi scheme? I'm glad you asked. Take a quick look at their SEC filings. In case you don't know, SEC filings are required formal documents submitted by publicly traded companies (among other entities) to the U.S. Securities and Exchange Commission (SEC). The reason SEC filings are very important is because this is the main way in which investors and financial professionals are receiving company information they rely on to evaluate their investment decisions.

One of the very important forms filed with the SEC is Form 4. Form 4 relates to insider trading. Any changes in insider ownership (company officers, directors, owners of more than a certain percentage of a class of equity securities, etc) must be disclosed and reported on Form 4. So, if an officer of the company is compensated with shares of stock or stock options, that must be disclosed in a Form 4.

OK - now let's check Rosetta Stone's SEC filings here:

Surprise, surprise!!! What you find is that 80% of Rosetta Stone's SEC filings are Form 4 filings, stating that officers of the company received stock options as compensation. If you look at the amounts, you will note that these bastards (sorry, technical term) are paying themselves some handsome amounts to manage this pseudo-business for idiotic investors. See an excerpt below. For a full two-year report, click here:

See how this goes?

1. Bogus, irrational value proposition and extortionate prices, driven by huge marketing budgets

2. Stuck buyers who have no exit options, thus the non-existence of a secondary market

3. Aggressive litigation to preserve the illusion of a large primary market

4. Funds are diverted to a few insiders, therefore the company is always unprofitable and most investors do not get compensated

5. Investors will bear the costs of bankruptcy when the bubble bursts

Now go judge for yourself. Don't be an idiot!

*Data from S&P Analyst Report



Below is a very short summary, selected from hundreds of articles and videos, that most eloquently articulate why Rosetta Stone's ridiculously priced language learning software is outdated and does not work.


Rosetta Stone spends ungodly amounts of money on (false) advertising, trying to convince morons that theirs is the ONLY language learning system out there. That is obviously incorrect and wrong, but in line with a Ponzi scheme strategy. Below is a very short list containing onlya few of the very many options available - better quality and (much) better prices than Rosetta Stone. Don't be fooled - google your language and you will find dozens of options.

1. Mango: - fantastic program that you can access for free at your local library. Even if you purchase your own, it is significantly cheaper than Rosetta.

2. Pimsleur: - the language learning system that most resembles Rosetta Stone's (antiquated) DVD system. Pimsleur is relatively expensive - cheaper than Rosetta tough, and it is rated higher than Rosetta by most consumers. A huge plus for me: you can purchase it used on amazon and YOU CAN RESELL IT ONCE YOU'RE DONE!!!

3. LiveMocha: - a commercial online language learning community, providing instructional materials in 38 languages and an on-line platform for speakers to interact with and help each other learn new languages. According to the site, it has approximately 12 million registered members from 196 countries around the globe. Over 400,000 users visit the site daily.

4. EduFire: - a distance education platform and social networking service for live tutoring through text and video chat. It was originally promoted as a language learning engine, however, as it has grown, it has expanded to offer preparation for tests such as the ACT, SAT, and GRE, as well as other topics such as computer technology training.

The program has a huge following among youngsters - check out YouTube for a funny commercial:

5. Myngle: - a live online language learning website, based in Amsterdam (Netherlands). Myngle allows students and teachers to get one-on-one real time online lessons from wherever they are. This has resulted in students and teachers participating in over 150 countries.

6. -

7. - an online tutoring, homework help, career services and education company founded in 1998 by George Cigale. Headquarters are based in New York City, but many employees and tutors (who are independent contractors) work remotely. was awarded a Parents' Choice Gold Award in 2008 and 2009, named to Deloitte's Technology Fast 50 Program for the New York Region in 2006 and 2007, was honored as one of the 25 Best Small Companies for Women 2007 by Working Mother and ranked in the Inc. Magazine's 5,000 list of the fastest growing private companies in America in 2007 and 2008. is also a Microsoft Gold Certified Partner.