Fraudulent Business Opportunity
Many consumers —particularly recent retirees or workers
who have lost their jobs through corporate downsizing —are
attracted to ads touting opportunities for individuals to operate
their own small businesses or to work from home. In many cases,
these business opportunities involve distributing products or services
through vending machines or retail display racks.
Would-be entrepreneurs responding to these ads are connected to
a telemarketer, who glowingly describes the opportunity and the
amount of money that can be made by following the company's business
To clinch the sale, the telemarketer often provides you with the
names and telephone numbers of other people who have "purchased" the
business opportunity and from whom you can receive a supposedly
objective opinion. In fact, these purported purchasers are often "singers" or "shills" —individuals
who work for, or are paid by, the telemarketer to lie about the
success of the business venture.
After you pay anywhere from hundreds to tens of thousands of dollars
to become a distributor or to receive the business plan, you learn
that the revenue projections of the telemarketer were highly inflated
and that the only people who make money through the business opportunity
are the promoters themselves.
Ads for fraudulent business opportunity schemes may appear in
otherwise reputable television programs, newspapers and magazines.
Investors incorrectly assume that since the media outlet is reputable,
the advertisers are as well, not realizing that the media may not
screen its advertisers. Fraudulent business opportunity ads frequently
appeal to people who have few job skills and are desperate for
money. Examples include work-at-home and animal-raising schemes.
Be wary of business deals that require you to sign
non-disclosure or non-circumvention agreements. These are
designed to prevent you from independently verifying the bona-fides
of the people with whom you intend to do business. Con artists
will often use these agreements to threaten you with a civil
suit if you report your losses to law enforcement.
Getting Out of
Your Contract Before and After Three Day "Limit"
Profits as Fast as the Product
Action was taken against U.S. Snail which sold unregistered business
opportunities that involved the sale of breeding snails for snail
ranching. According to the company's sales literature, "Helliculture
(snail ranching) has become one of the newest and fastest growing
business fields in the U.S.;" a "financially
rewarding experience" for housewives, retired people, the
unemployed, or business people." Advantages are that "snails
are easy to breed, easy to handle and multiply rapidly."
For two years the owner of the Apex Company ran a scheme purporting
to distribute millions of dollars in "free money" in
the form of grants or venture capital, in amounts ranging from
$500 to $5,000,000, to members of the public through the Grant
Trust Program, the Venture Capital Trust Program, and similar entities.
They would say they needed "regional centers" to process
mail generated by the distribution of the "free money";
that your only responsibility was to open and forward mail consisting
of the applications and fees of those persons applying for the "free
money"; and that you would be one of only 400 "brokers".
They also required that you pay for mailers, sold by them, in order
to become an "exclusive dealer".
These mailers would indicate to those who apply through you, the "exclusive
dealer" for grants or venture capital from Apex, that in order
to receive the money they in turn would have to become "point
dealers," who were obligated to buy the mailers which Apex
was to send out.
Despite assurances that a certain number of mailers were being
produced, they never printed or sent out the mailers paid for by "point
dealers," and did not distribute "free money" grants
or venture capital. He did however obtain more than $5 million
from people induced to send money.
The vast majority of grant-making foundations require that applicants
for funds meet very specific guidelines and that the funds be used
for specific projects that the foundation wishes to support. The BBB is
unaware of any foundation that is set up to assist you in paying
off your personal debt or taking a vacation.
Gaining Access to Your Money
After being told you can earn up to $45,000 per year inspecting
businesses for violations of the Americans with Disabilities Act
(ADA) —a federal law requiring most businesses to improve
access for people with disabilities --- you purchase an ADA license
from the National Consulting Institute, Inc. (NCI) for $10,000.
Using a standardized form, you inspect businesses and for a $100
fee send the form back to the company for processing. When the
form reveals potential violations, you charge between $400 and
$1000 to tell the business what steps it has to take to avoid a
You also purchase, for storage, skid resistant adhesive chemicals
to be used by businesses seeking to become safer for wheelchair
users. Although there is no specific requirement for skid resistance
under the ADA you pay an additional $10,000
and are told that the promoter's salesmen will sell the chemicals
to businesses in your area and you will make $5 or more on each
After you purchase the chemicals, the company submits small orders
of about $100 each for a few months. By the time you realize the
orders are fake, the company has hidden behind a layer of sham
corporations and can not be located. The skid resistant chemicals
which you have stock-piled actually make surfaces more dangerous
for wheelchair users.
Federal agents have seized $3.1 million in cash and property and
seven defendants have pleaded guilty and now face up to a maximum
of five to ten years in prison. The Justice Department has
sent out about 800 letters to individuals who invested in these
scams notifying them that they may be able to get some of their
The ADA, passed in 1990, prohibits discrimination
against persons with disabilities. One part of the ADA does
require existing business facilities to be made more accessible
where it is readily achievable, or can be done without much difficulty
or expense. Whether a business must remove barriers to access depends
on the size and resources of the business, as well as the cost.
Associate Attorney General John Schmidt says "We will not
permit con artists and swindlers to scare businesses into thinking
the ADA requires more than is reasonable." The
law does not authorize licenses for inspection purposes.
Fresh Out of Money
For a minimum investment of $10,000 Spring Fresh sold 55 gallon
drums of soap along with hundreds of bottles to fill with a promise
to buy back filled bottles for a 100% profit. They stopped buying
back the product once enough investors had been lured in, duped
by the apparent success of the earlier investors, many of whom
increased their stake prior to the collapse.
900 Ways to Lose Money
One company promotes a pay-per-call (900-number) business venture
which appeals to you.
The pay-per-call lines include "psychic lines," "date
lines," "sports scoreboards," "fantasy lines," "party
lines," "joke lines," "gardening help line," "soap
opera review," and a "pet hotline." They offer advertising
packages for pay-per-call telephone lines, with the pay-per-call
lines thrown in for free —or for a nominal amount —and
other services necessary to operate the lines.
Your revenue is to be generated by fees paid by callers for the
information or entertainment program they hear when they dial these
numbers. Fees for the programs are charged to the callers' phone
bills. The promoters promise to collect the revenue generated by
the calls and distribute to you your portion each month.
You start small and pay $2,236 for the business venture, which
is to include at least one month's advertising, advertising copy,
and one pay-per-call line. They offer a variety of advertising
packages, which vary greatly in price, depending upon where the
ads are placed.
They encourage you to spend what you can on advertising, explaining
that your profits will be directly related to your advertising
efforts. They are also to provide you with additional services,
such as sending you weekly call count reports that list the activity
on your pay-per-call lines, along with proof of advertising placed
on your behalf.
They say you can expect to earn a multiple of (such as 1.3 to
1.7 times) your advertising budget on a monthly basis. ( i.e.,
if you spend $1,000 per month in advertising, you can expect to
receive revenue of between $1,300 and $1,700 per month).
You end up not making any money because they do not send you;
a monthly check, consisting of the agreed-upon portion of the revenue
generated by your pay-per-call lines; weekly call counts reports,
which reflect your pay-per-call activity; or proof of the advertising
placed on your behalf.
Only a small percentage of your money goes to develop the business,
while the bulk of the proceeds go to pay sales commissions to the
Don't Bother Phoning Home
10/24/02 Paul Charbonneau, cheated 866 people out of $10
million in 1996 by convincing them to invest in pay-per-use telephone
lines which turned out to be fake was sentenced to 8 1/2 years
in prison for fraud.
Court of Queen's Bench Justice Phil Clarke said the con man deserved
near the maximum sentence for such a large-scale crime.
"It appears the sole motivation of the accused in this case
was one of greed and his own personal aggrandizement," Clarke
said. "He wanted the jury to believe he was the victim of
the service providers."
In the seven months he ran Mid West Marketing Group Ltd.,
the Edmonton man convinced people, mainly in Alberta and British
Columbia, to pay $3,100 apiece for one-year leases on what were
primarily 1-900 telephone sex lines.
His first victims were two of his brothers, soon followed by his
mother and father. None of the lines existed, but like any ponzi
scheme, early investors received huge cheques that convinced other
people to join. The payouts came from other investors rather
than the profits he claimed to be generating.
Charbonneau, who once ran pay-per-use wrestling lines, used the
money to buy a $16,000 baby grand piano, $10,000 worth of jewelry,
two watches in Las Vegas for about $1,000 each, and a Harley-Davidson
motorcycle worth $23,500.
In addition, he bought a tanning salon and put $900,000 into satellite
dishes and a money-losing scratch-and-win game. The rest
went to run the firm, was paid out to participants by Mid West
to keep the scam going or was spent to support a high lifestyle.
Charbonneau has said he's now bankrupt.
Investigators estimated investors recovered about 35 per cent
of their money, after bank and Alberta Securities Commission officials
shut down Mid West in early 1997. The biggest victims were
several charities set up by former St. Paul Roman Catholic Bishop
Raymond Roy to help the poor.
Roy put $1.1 million of charity money into the scam after Charbonneau,
who'd known the bishop since high school, assured him it would
help pay for a bible school.
A Bent Turn-"Key"
For several years one company has sold business opportunities
involving the sale of advertising space on directory boards which
are placed in hotel lobbies. Each board contains sixty slots to
hold the advertisements of local businesses, that might appeal
to hotel guests, such as restaurants and airline offices. Guests
can contact the advertised businesses by dialing a telephone attached
to the board that has been pre-programmed with a code for each
They say you can reasonably expect to achieve $91,800 annually
by selling advertising space to local businesses. The directory
board promoters say they will provide you with a "turn-key" business
( pre-packaged ), complete with location assistance and sales support.
You find you do not attain the specific level of earnings represented
and they do not provide you with a complete "turnkey" business
opportunity with ongoing support services. They fail to locate
the boards in prime locations, such as the promised Marriott, Sheraton,
and Ramada hotels; nor do they provide you with a sales manager
or train a sales force capable of obtaining advertisers for the
directory boards as promised.
They began selling their business opportunities in Montana under
the name Retail Sales & Marketing, then moved operations to
Nebraska. Without notice to existing purchasers, they then moved
their operations to Missouri and began selling under the name Automated
Guest Directories, Inc.
Just Add Air and Water
What could be more exciting than a career in the travel industry!
Well for $495, one company sells a travel tutorial kit that purports
to give sufficient training and support to open and operate a functioning
at-home travel business venture.
As a bonus they tell you that the independent "travel agent
identification card" they provide will entitle you to discounts
and upgrades, of the type generally available to travel agents,
on your own travel accommodations. Also, through its affiliates
they say they will provide travel accommodations at the most competitive
For an additional $49, they also offer you their network marketing
kit. For this fee, you qualify as an "account executive" and
are authorized to sell their travel tutorial, thereby creating
a downline stream of independent travel agents.
You can earn $100 for each $495 travel tutorial that you sell
and also receive an override commission on the travel sold by your
downline agents. Creating a downline stream is a viable business
venture, they say, because of the excellent marketability of their
travel tutorial, including the independent travel agent credentials.
As an individual account executive you sell the kits using the
same pitch given by them at large recruiting meetings and
contained in their marketing materials.
When all is said and done, you find you cannot receive discounts
and upgrades on your own travel accommodation of the type available
to travel agents because the independent travel agent identification
card provided by them is not recognized by travel industry service
Most airlines, hotels and car rental companies have policies that
require a travel agent to possess a valid International Airlines
Travel Agents Network ("IATAN") card to obtain discounts
and upgrades for personal travel accommodations.
The promoter cannot obtain these cards for you and the kits themselves
do not provide you with sufficient training and support to open
and operate a functioning at-home travel business venture so you
fail to make any money.
World Class Network, Inc., a multi-level marketer of travel agent
credentials and a work-at-home travel agency business opportunity,
which was charged by the Federal Trade Commission in a March 1997
crackdown on travel-related fraud, has agreed along with four individual
defendants in the case to pay more than $3 million into a consumer
The money will be used to provide refunds to many of the more
than 51,000 consumers who purchased their travel tutorial. The
FTC says that of those drawn into one such scheme, 43,000 made
nothing or lost money; 4,000 made less than $50, and only six made
To Serve and Protect
You answer an ad on the web for an organization seeking "those
individuals interested in owning and operating a local agency." In
exchange for a minimum investment of $6,000, they promise training,
licensing, certification, and support to become the local "Consumer
Protection Agency" for the city or county chosen by you.
Upon successful completion of a training course, you also receive
the right to use their trademark and logo and other identifying
information in the sale of USCPA membership
services to local businesses. According to their promotional materials
this offer is made available to the public pursuant to the U.S.
Consumer Protection Agency's "directive to decentralize
its responsibilities nationally. . ."
They say that, as a franchise owner, you can earn a profit by
selling your membership services to businesses within your franchise
area for an initial charge of $149 plus a yearly fee of $250. Apparently,
even a small "agency" should initially earn $6,000 weekly
gross income, for a total yearly gross income of $303,240. They
base this claim on the experience of an "actual" agency.
They have designed their web site to accept instantaneous applications
to purchase a USCPA franchise. Once your
application is completed and electronically submitted, you are
immediately presented with a payment page. You are strongly urged
to use "SPEEDPAY," an electronic
demand draft, to submit your payment of $6,000 over the Internet.
An address is also provided to submit payment by check, "for
those that feel they must take the chance of lost or misdirected
They also provide with this opportunity, for you and the businesses
you sign up, the right to place a "U.S. Consumer Protection
Agency" seal of approval on your Internet web pages and other
To get you to purchase an agency, they falsely imply that USCPA is an agency of the Federal Government. They masquerade as a government
agency through the prominent and repeated display of the name "U.S.
Consumer Protection Agency" along with a seal which is closely
modeled upon that of the Federal Trade Commission, as well as claims
that you will be issued certification, licenses, a set of vehicle
seals, a badge, and other claims of government affiliation.
Their income projections are just as bogus.
With the Web being so hot you plan to get involved with the following
opportunity. The ad states that for an initial investment of $5,000
they will offer you the products, services, and marketing support
to enable you to market Internet access opportunities, as Internet
service providers, through "affiliates."
They also have other programs with startup franchise fees of $3,000,
$5,000, or $10,000, in addition to monthly maintenance fees of
up to $250 per month. For the $5,000 fee, you will receive 200 "Internet
Business Marketing Systems," which you can sell to affiliates
for up to $199 each.
You pay for and place ads in newspapers and magazines soliciting
affiliates. You are also asked to pay additional fees and to purchase
air time for a "soon-to-be-aired" infomercial to entice
affiliates to purchase the system.
They figure you will sell these 200 marketing systems within
90 days, for a gross profit of almost $40,000. Based on their plan,
you may personally sell the marketing systems to affiliates and
retain the entire $199, or you may opt to have their "Call
Center" handle prospective affiliates responding to your ads.
In that case, you earn $100 per sale and their call center takes
You are also encouraged to sell the marketing systems, without
websites, to affiliates for only $29.95, with that entire amount
going back to them. According to them, you will thereby initially
attract more affiliates, who will then purchase the $200 package,
including web site. Once you sell the 200 marketing systems, they
promise to provide you with additional systems for $15 each, thereby
allowing you a net profit (less advertising costs) of up to $35,000
per month in sales to affiliates.
Affiliates are then to sell the public unlimited Internet access
for $15.95 per month, using CD ROM software supplied and marked
with their name. Then affiliates earn $2 per month per Internet
access user, and you earn an additional $4 per month per user.
You are also promised residuals when the affiliates sell web site
development services, TV Internet boxes,
computers, or on-line dating services.
Your sales of the "Internet Business Marketing Systems" to
affiliates and residuals from their affiliates' sales are said
to allow you to "realistically" earn $100,000 in the
first year of business and $300,000 in the second year.
"Obtaining up to 100,000 Internet access subscribers and
thereby earning up to $400,000 per month in residual income is
easily achievable and realistic." When you call
one of their "satisfied franchisees", as a reference,
they claim to have made $10,000 the first month and over $50,000
from March through November that year as a purchaser of the business
According to the FTC, few, if any investors achieved the income
levels touted by the defendants and one or more of the "satisfied
customers" were actually shills.
A company in California markets a franchise that sells a patented
analyzer to measure alcohol content of the breath. The devices
are installed in vehicles to monitor and record the driving habits
of convicted drunk drivers.
They are mandated in California for everyone convicted of a second DUI offense.
Estimates are that 50,000 California residents will be ordered
by courts to use such devices. The initial fee is $25,000 for a
franchise, plus an additional $5,000 for equipment necessary to
install the ignition interlock systems.
The company's advertising projects revenues of $288,648 per year
for each franchisee by the third year. The prospectus documents
do not disclose that competition in the industry is heavy. The
Department of Corporations has ordered the company to stop selling
the franchises until they are properly registered and can substantiate
any earnings claims.
Grandma Bells' Cast-offs
AT&T PAYPHONE ROUTE
45 AT&T payphones at hi-traffic
hotels, earns $13,500/mo. Will
sell all or part
1-800-596-1875 24 hours
This company markets public payphone franchises through newspaper
ads and trade shows. They sell the franchises for between $12,756
and $41,320, depending upon the number of telephones that comprise
a package. They say they offer high traffic through secured and
established payphone routes.
They claim to be a manufacturer of pay telephones and will ship
within seven days of receipt of your order. They promise you "guaranteed" minimum
income levels from the phones and assure you that profitable locations
are plentiful. They also promise to find you "Ma Bell" takeover
Having paid $14,500 for five payphones you are offered a zero
percent financing program for additional units and are told that
they will install them. They say you are guaranteed a minimum income
of $200 per month per phone, or an annual income of $28,560.
The telephones you eventually receive are old, unusable and without
the necessary circuitry to make them operable. They disclaim any
obligation to find locations for the phones and refuse to give
a refund. The glowing references, which you checked, came from
employees who posed as successful investors in the payphone business.
Their phones can not generate anywhere near the guaranteed income
represented by the company's ads, salespeople, promotional materials,
or contract. Their income this year, however, is estimated at $4
Deserves To Be Stoned
A Minneapolis, MN man, Robert J. Kane, pleaded guilty (10/01)
to orchestrating a $2.3 million mail-fraud scheme involving the
sale of opal distributorships, mostly through newspaper ads.
More than fifty people paid him between $10,000 and $96,000 for a distribution
territory and inventory of gems which they were told came from his opal
mine in Australia and could be sold for $90 per carat.
In fact, they were actually thin slices of opal glued to other cheaper
stones, known as "doublets," which came from a Des Moines gemstone
distributor and cost him less than $1.50 per carat.
Kane also pleaded guilty to conspiracy to commit fraud and tax evasion
while his "national sales director," Gloria J. Quinn, pleaded
guilty to conspiring in the scheme.
They await sentencing.
For a listing and brief summary of FTC enforcement actions against
Franchise and Business Opportunity offers go to 1999-2000
Michael Webster, a lawyer at a Canadian law firm dealing with Business Opportunity Frauds and Scams provides some valuable insights and information on the topic which you should read before investing
in such opportunities.
"Legitimate" Franchises Compared To Outright Scams
Former franchisees rarely identify that (1) the franchise pre-sale
process and "scam" process is very similar, (2) their
fate was sealed the moment they signed the agreement and (3) the
franchisee is mostly responsible.
A nasty twist is that the former franchisee will be required to
sign two documents at the end (to get their 10% of their investment
back in a re-sale to a new franchisee or the franchisor). A waiver
of legal rights and a confidentiality or gag orders.
Of the two, the gag order (confidentiality agreement) is the nastiest,
most vile thing that happens in franchising, in my opinion. Most
franchisees believe they can't talk to anyone about their experiences
for the rest of their life. Kind of like internalizing rage,
depression, self-loathing, etc. that manifests in serious physical
illnesses in the future.
There is a book called "The Franchise Fraud" by Robert
Purvin that, while, US-based, identifies the main deception which
suggests franchised businesses have less risk than independent
Canadian Alliance of Franchise Operators
A Taxing Experience
I received a tax marketing letter regarding a program to learn
how to develop and maintain a successful practice in the IRS problem
niche in something called “the MD-477 program.”This
letter stated that the practice would allow me lots of personal
time and build a successful practice helping IRS problem clients.
The promotional material for the course made it sound as if this
would be a fairly simple process. Additionally, I was told that
the amount of materials I received would be a "bargain" compared
to what I would pay if they were bought individually.
I talked to the owner who was worried that I wouldn't have enough
funds to be able to market myself. He also stated that I should
continue my criminal law practice. I asked about references
and was told not to contact any of the supposedly happy customers.
Instead I was sent to one Larry Lawler for a reference on the program.
Reassured, I signed an agreement and purchased the program with
a one time payment of $5997 rather than two installments. The agreement
stated that there would be no refunds whatsoever for this course
I received several binders of course materials to learn that the
course required doing a significant amount of "marketing" and
looked far from being as productive as the promotional material
portrayed the course as being. In fact, it seemed as if most
of the marketing needed to be done through the promoter and according
to their formula.
Prior to the course starting I said that I needed to bail out
since this was not for me. I was again told that there were
no refunds. I sent another message requesting that the company
allow me to return the course materials and refund my money.
The happy ending came about after filing a small claims court
complaint here in Pennsylvania as well as a professional complaint
with the Colorado licensing board. The out of court settlement
happened a couple of days before the licensing board hearing with
me managing to get my whole money back.
I discovered that anyone can become a "certified IRS agent" and
there is no "niche market." Most people with IRS problems
have many other problems, one of which is paying. Most of the material
they use is copied from IRS manuals, which are available for free.
Business opportunity scams tend to operate along a similar scheme
("Make big money in a niche market"). The material tends
to be impressive, but not really worth the money. There are several
ways to get your money back from these scams, but the best way
seems to be avoidance.
Also, most business opportunities are considered franchises under
FTC rules, which requires that the person offering the business
opportunity provide information (one of which is whether it has
settled any lawsuits for fraud).
Michael Bannerman, Pennsylvania 04/07/01
05/29/03 (Reuters) - A finance subsidiary
of Microfinancial Inc. has agreed to forego $24 million in court
judgments to settle charges that it had deceived customers.
The Federal Trade Commission
said Microfinancial's Leasecomm subsidiary had agreed
to cancel the judgments and "reform" the financing
contracts that it offers to would-be entrepreneurs.
Leasecomm violated both
federal and state laws by using "shady agents,
deceptive contracts, and false claims," the
The federal agency and eight states said the company got customers to sign finance contracts with provisions "purporting to waive consumers' defenses and allowing Leasecomm the right to sue consumers in Massachusetts, where it is based, rather
than where consumers lived and purchased the business opportunity."
States of America (for the Federal Trade Commission) v. Nationwide
Premium Cigar & Distributors Corp.
The Federal Trade Commission announced a settlement in this matter. Among
other things, the settlement prohibits the defendants from violating
the Franchise Rule and making false and misleading representations in
connection with the sale of business opportunities. In addition, the
settlement contains a $90,000 judgment, which will be suspended upon
payment of $5,000. The Department of Justice (DOJ), at the request of
the FTC, filed a suit against the defendants as part of "Project
Busted Opportunity," a nationwide crackdown on fraudulent work-at-home
and business opportunities.
By Carson Walker - Rapid City Journal
SIOUX FALLS -11/06 - A Sioux Falls man indicted on charges that
he swindled more than $500,000 from 15 people and a bank is scheduled
to stand trial in February at U.S. District Court.
Patrick Vincent Sanders Jr., 42, pleaded not guilty to one count
of access device fraud, one count of bank fraud and 32 counts of
The maximum punishment if he's convicted is 30 years in prison
and a $1 million fine.
According to the indictment:
-- On May 19, Sanders used American Express and Visa cards belonging
to two people to buy more than $1,000 worth of items.
-- In December 2005, Sanders presented false documentation to
First Premier Bank in Sioux Falls in order to get a $75,100 loan.
He said he had an agreement to sell his automatic teller machine
business for $2.4 million and pledged as collateral 43 ATMs. Sanders
owned neither the business nor the machines.
-- Between June 2004 and April 2006, Sanders made 32 deposits
from 13 people through a scheme that sold investments in the ATMs
that didn't exist. He deposited the checks into his account. Amounts
ranged from $5,000 to $30,000. Most investments were for $10,000
or $20,000. The total deposited was $445,300.
In the scheme, Sanders told the investors that he owned 500 to
1,000 ATMs, according to the indictment.
"The defendant promised large returns on investments and
guaranteed investors their money back," the indictment stated.
Firm running scam - investment returns promised
in business opportunity ads are unfounded, Feds say
By Pamela Manson - Salt Lake Tribune 12/06
"Immediate Cash Flow! Incredible Return on Investment! The
Perfect Home Based Business!" proclaims Universal Advertising
Inc. of Centerville in promoting its franchises.
"Bogus business opportunity," responds the Federal Trade
"Lacking a reasonable basis for each claim," adds the
U.S. Department of Justice.
The federal agencies on Dec. 6 filed a civil lawsuit in U.S.
District Court in Salt Lake City that accuses Universal of harming
consumers and the public interest.
It is the only Utah action among more than 100 taken nationwide
in Project FAL$E HOPE$, an FTC crackdown on alleged franchise and
The suit alleges Universal has violated the Franchise Rule that
requires franchisers to have a reasonable basis for earnings claims,
to provide complete and accurate financial information to potential
buyers and to disclose the number of prior purchasers who achieved
the same or better results as touted in promotional material.
The lawsuit seeks monetary civil penalties, refunds to franchisees,
rescission of contracts and an injunction prohibiting future violations
of the Franchise Rule and FTC regulations. Named as defendants
are Universal and Paul E. Porter, the company's president.
Porter declined to comment on the suit or say how many franchises
the company has sold.
The franchise works this way: By spending at least $3,995, franchisees
buy a display rack called a Profit Center that holds business cards
and brochures. Either by themselves or by paying a professional
locator, the franchisees then set up racks in restaurants, hair
salons, hotels, car repair centers and other places where people
The franchisees then charge advertisers an annual or monthly
fee to put their business cards or brochures on the racks, which
carry the label "Outstanding Businesses." With 33 compartments
for business cards and three compartments for brochures, a display
rack "can produce a very handsome income," the Universal
Web site says.
By charging monthly fees of $10 for card space and $30 for brochure
space, the owner of a Profit Center can generate $5,040 a year,
the site says.
Universal also claims that it conducted a survey that shows the
majority of 49 franchisees charge between $11 and $40 a month to
place cards on the rack and $30 to $75 a month for brochures.
This claim, contained in small print in a footnote at the bottom
of the Web page, also states that Universal makes no representation
or guarantee that the buyer will achieve the same or similar results.
The page still doesn't meet legal standards, according to the
"Despite the purported disclaimer, however, Universal does
represent - repeatedly, throughout its Web site - that a purchaser
will earn a substantial income with the Profit Centers," the
Project FAL$E HOPE$ was conducted by the FTC, the Department of Justice,
the U.S. Postal Service and law enforcement agencies in 11 states.
Among others, the targeted business opportunities involved vending
machines, ATM and Internet terminals, display racks for coffee
and ink cartridges, envelope stuffing and medical billing.
"If a business opportunity promises no risk, little effort
and big profits, it almost certainly is a scam," FTC Chairman
Deborah Platt Majoras said in a written statement. "These
scams offer only a money pit, where no matter how much time and
money is invested, consumers never achieve the riches and financial
Other cases filed as part of Project FAL$E HOPE$ allege:
The Results Group in Phoenix took between $99 and $599 to build
and host Web sites "affiliated" with the sites of Fortune
500 retailers, such as Overstock.com and Amazon.com. Buyers of
the services were to receive a commission for sales made through
their affiliated sites. The retailers were unaware of any affiliation.
HBG Publications in California charged a $40 "registration
fee" to send customers everything they needed to earn $7 for
every envelope they stuffed, along with a promise to refund the
fee after the first 100 envelopes. Instead, the customers received
instructions on how to buy their own ads and collect $7 from each
person who responded.
EDI Health Claims Network, operating in northern Ohio, made misrepresentations
when selling work-at-home electronic medical billing business opportunities
by promising buyers the name of their first medical billing client
or lists of potential clients. After consumers paid $5,985, EDI
told them to find their first client on their own by looking in
the Yellow Pages. The vast majority never found a single client.
Route Wizard in Montgomery, Ala., advertised that customers could
make $1,710 a week after buying a candy vending machine business.
The business cost from $7,000 to $59,000 to purchase and the earnings
claims were false.
Phoenix company swindled $19.5M on promise of online
by Andrew Johnson - The Arizona Republic
08/07 - A Phoenix company swindled $19.5 million from unsuspecting customers
in exchange for the promise of being able to get rich quick through the
Internet, according to state and federal investigators who have shut
the business down.
Arizona Attorney General Terry Goddard and the Federal Trade Commission
said Tuesday that the Results Group LLC and two of its top managers
have been ordered to pay almost a half million dollars in fines
for violating fraud and telemarketing laws.
Edward Longoria and Amber Halvorson, Results Group's owners, have
been prohibited from running any telemarketing businesses or any
enterprises that offer business opportunities. Their assets have
been seized and authorities said some victims may be reimbursed.
"They preyed upon folks who were looking for a possible new
career or way to make money at home, and unfortunately this is
a common scheme, especially with the economy being not as strong
as it has been," Goddard said at a news conference Tuesday.
According an Arizona Superior Court judgment, Longoria and Halvorson
reeled in victims by advertising work-at-home opportunities using
pop-up ads that appeared on job posting Web sites. They and their
employees contacted the people and sold them Web sites that would
link to other businesses, including Amazon.com and casino Web sites.
The company charged between $100 and $600 to set up a Web page,
telling customers they could earn $1,000 a week, or as much as
In addition to the Web pages, the Results Group sold customers
advertising packages that cost up to $10,000 annually to funnel
traffic to their sites.
But, based on the investigation, no customers earned any money
from the sites, and when they tried to get refunds from the Results
Group the company refused, according to the judgment.
Goddard said investigators do not know how many people the Results
Group may have victimized, but a joint investigation with his office
and the Federal Trade Commission turned up victims from across
Under the Arizona judgment, Longoria and Halvorson must pay the
state $40,000, including $25,000 for consumer fraud education and
$15,000 for attorneys' fees.
In addition, the company, Longoria and Halvorson were ordered
to pay the federal government $435,000 under a separate federal
order. Some of that money will be used to reimburse victims.
The fines were determined after the government liquidated Longoria
and Halvorson's personal property, which included a luxury sports
car, real estate and life insurance policies, said David Griggs,
an attorney for the FTC's southwest region.
The Attorney General's office and FTC first filed their complaints
against the company in November. At the time, the FTC announced
a federal sweep cracking down on business-opportunity scams.
Longoria and Halvorson incorporated the Results Group in August
2004, according to documents filed with the Arizona Corporation
Commission. The state court order said the company operated primarily
from a boiler room at 2845 E. Camelback Road.
Business opportunity scam articles.