FTC FACTSfor Consumers

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hether it’s recruiting people to sell so-called Internet-access

devices, placing kiosks with Internet access in public places, or

dealing in other Internet-related activities, consumers are being

lured to the vast commercial potential of the Web by business promoters.

However, the Federal Trade Commission (FTC) says that many of these business opportunities are scams that promise more than they can possibly deliver.

The scam artists lure would-be entrepreneurs with false promises of big earnings

for little effort. They pitch their fraudulent offerings on the Web; in e-mail

solicitations; through infomercials, classified ads and newspaper and magazine

“advertorials”; and in flyers, telemarketing pitches, seminars, and direct-mail

solicitations.

Here are a few examples of Internet-related business opportunities that didn’t

live up to their promises:

Example 1: Providing TV access to the Internet

The Pitch: The promoter promises that you can earn thousands

of dollars a month by recruiting people to sell devices that

provide television access to the Internet.
Facts for Consumers

The Problem: The program claims to pay

participants based on how many people they

recruit into the program, not on their product

sales. That makes the program a pyramid

scheme — not a legitimate multi-level marketing plan. Pyramid schemes are illegal. Mathematically, nearly everyone who participates in

them loses their money. When there are no new

recruits, the pyramid collapses.

Example 2: Selling walk-up

Internet access

The Pitch: The promoter

claims you can earn big

money by selling machines or

kiosks that provide walk-up Internet access —

for a fee — in places like airports, hotels and

shopping malls. The machines cost thousands of

dollars, but the promoter says the cost can be

recovered because the machines generate

“amazing” earnings. And, the company promises to help find profitable locations for the

machines.

The Problem: Rather than the high-traffic

locations that the promoter promises, the

buyer’s machines get placed where demand for

Internet access is low. As a result, a would-be

entrepreneur can’t possibly make the promised

earnings.

Example 3: Giving seminars on

making money on the Internet

The Pitch: The promoter

advertises that you can earn

more than $150,000 as an

“Internet consultant” who sponsors free seminars to teach other consumers how to make

money on the Internet.

The Problem: The seminars really feature highpressure sales pitches for the promoter’s

Internet yellow pages or Internet advertising.

And, even though the promoter promises to

provide Internet and sales training to buyers —

for a fee of several thousand dollars — the

buyers never get the promised training. In the

end, they never earn the promised amounts.

The FTC offers this advice to consumers considering an Internet-related business opportunity:

● Consider the promotion carefully. If it

claims buyers can earn a certain income,

then it also must give the number and

percentage of previous purchasers who

achieved the earnings. If an earnings

claim is there — but the additional

information isn’t — the business opportunity seller is probably violating the law.

● Get earnings claims in writing. If the

business opportunity costs $500 or more,

then the promoter must back up the

earnings claim in a written document. It

should include the earnings claim, as

well as the number and percentage of

recent clients who have earned at least as

much as the promoter suggested. If it’s a

work-at-home or other business opportunity that involves an investment of under

$500, ask the promoter to put the earnings information in writing.

● Study the business opportunity’s franchise disclosure document. Under the

FTC Franchise Rule, many business

opportunity promoters are required to

provide this document to potential purchasers. It includes information about the

company, including whether it has faced

any lawsuits from purchasers or lawsuits

alleging fraud. Look for a statement

about previous purchasers. If the document says there have been no previous

purchases but the seller offers you a list

of references, be careful: the references

probably are phonies.
Facts for Consumers

● Interview each previous purchaser in

person, preferably where their business

operates. The FTC requires most business opportunity promoters to give

potential purchasers the names, addresses and phone numbers of at least 10

previous purchasers who live the closest

to the potential purchaser. Interviewing

them helps reduce the risk of being

misled by phony references.

● Contact the attorney general’s office,

state or county consumer protection

agency and Better Business Bureau both

where the business opportunity promoter

is based and where you live to find out

whether there is any record of unresolved complaints. While a complaint

record may indicate questionable business practices, a lack of complaints

doesn’t necessarily mean that the promoter and the business opportunity don’t

have problems. Unscrupulous dealers

often change names and locations to hide

a history of complaints.

● If the business opportunity involves

selling products from well-known companies, call the legal department of the

company whose merchandise would be

promoted. Find out whether the business

opportunity and its promoter are affiliated with the company. Ask whether the

company has ever threatened trademark

action against the business opportunity

promoter.

● Consult an attorney, accountant or other

business advisor before you put any

money down or sign any papers. Entering into a business opportunity can be

costly, so it’s best to have an expert

check out the contract first. If the promoter requires a deposit, ask your

attorney to establish an escrow account

where the deposit can be maintained by a

third party until you make the deal.

● Take your time. Promoters of fraudulent

business opportunities are likely to use

high-pressure sales tactics to get you to

buy in. If the business opportunity is

legitimate, it’ll still be around when

you’re ready to decide.

Reporting Possible Fraud

If you suspect a business opportunity promotion

is fraudulent, report it to:

● the state attorney general’s office in the

state where you live and in the state

where the business opportunity promoter

is based.

● your county or state consumer protection

agency. Check the blue pages of the

phone book under county and state

government.

● the Better Business Bureau in your area

and the area where the promoter is

based.

● the FTC. File a complaint online at

www.ftc.gov or call toll free 1-877-

FTC-HELP (1-877-382-4357).

The FTC works for the consumer to prevent

fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid

them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov

or call toll-free, 1-877-FTC-HELP (1-877-382-

4357). The FTC enters Internet, telemarketing,

identity theft and other fraud-related complaints

into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal

law enforcement agencies in the U.S. and

abroad.
Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

June 2002

F C EDERAL RADE OMMISSION T FTC OR HE ONSUMER

1-877-FTC-HELP www.ftc.gov

Facts for Consumers