Net Based Opportunities: Some are Flop-portunities

Are Some Flop-portunities?

March 1998

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.