Net-Based Business Opportunities:
Are Some Flop-portunities?
Scam artists selling fraudulent Internet-related business opportunities are trying to cash in on the
Internet’s potential. Don’t let them fool you. Although the Internet has vast
commercial possibilities, every entrepreneur who buys into an Internet
"opportunity" doesn’t automatically find a pot of gold at the end of the
rainbow.
You’ll see fraudulent Internet-related business opportunities promoted on Web
sites and through e-mail solicitations. But these frauds are also marketed through more
traditional methods, including infomercials, classified ads and "advertorials"
in major newspapers and magazines, telemarketing, trade show presentations, seminars, and
direct mail solicitations. Many of the scams are targeted to individuals who are not
technologically savvy. Indeed, many pitches even seem designed to take advantage of an
entrepreneur’s "Internet innocence."
The Federal Trade Commission has found that scam artists use many different methods to
pitch a variety of business opportunities. Here are a few examples:
Company A promises that consumers can earn
thousands of dollars a month if they join its multi-level marketing plan.
The Pitch: Recruit people to sell devices that enable television access to the Internet.
The Problem: Everyone pays to
join the program. The program compensates participants based on how many people they
recruit into the program, not on their retail sales of products to consumers. That makes
it an illegal pyramid scheme, not a bona-fide multi-level marketing plan. Pyramiding
generally is regarded as illegal because by mathematical necessity, nearly everyone who
participates will lose their money. Compensation is based on recruiting, not on product
sales. When there are no new recruits, the pyramid collapses.
Company B says consumers can earn big money by providing access to the Internet
The Pitch: Sell machines or kiosks that provide walk-up access to the Internet, for a fee, in
public places like airports, upscale hotels, and shopping malls. Consumers spend thousands
of dollars for the machines, which the company promises will generate "amazing"
earnings. What’s more, the company promises plenty of profitable locations to place
the machines.
The Problem: Rather than the
high-traffic locations the scam artists promise, the machines are placed in bars and pizza
joints. Consumers can’t possibly make the earnings they were guaranteed.
Company C advertises that consumers can earn more than $150,000 as "Internet
consultants."
The Pitch: Free seminars to teach consumers how to "make money on the Internet."
The Problem: The seminar really is a high-pressure sales pitch for Company C’s Internet yellow
pages or Internet mall advertising business opportunities. The company promises to deliver
Internet and sales training for a fee of several thousand dollars. Consumers hoping to
launch a lucrative enterprise never get the promised training and frankly, never earn
the promised amounts.
The FTC urges you to investigate Internet-related business opportunities as carefully
as you would check out any business opportunity. Before you invest or buy into any
business opportunity:
- Realize that seminar "trainers" or "consultants" often are there to
sell you a business opportunity, not teach you Internet basics. In fact, they may be
counting on your lack of experience with computers or the Internet.
- Investigate all earnings claims. Talk to others who have purchased the opportunity to
see if their experience verifies the claims. Visit them in person.
- Demand to see the company’s claims in writing. In fact, get all promises in
writing.
- Keep your eyes and ears open for "shills" or phony references. Don’t
accept a list of references selected by the company that offers the business opportunity
as a substitute for a complete list of franchise or business opportunity owners.
- Ask for a disclosure document if you are interested in a franchise. This document is
required by law. It should provide detailed information to help you compare one business
to another. Be skeptical of companies that do not have disclosure documents.
- Check out the company with your state securities agency, attorney general, local
consumer protection agency, and the Better Business Bureau where you live and where the
company is located. A check with the BBB may not be foolproof, but it is prudent
nonetheless.
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