Schemes, Scams, Frauds.

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Fraudulent Business Opportunity Scams

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 plan.

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."

Financial "Free"dumb

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 lawsuit.

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 gallon sold.

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 money back.

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 telemarketers.

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 advertised business.

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 prices.

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 providers.

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 redress fund.

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 $100,000.

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 mail."

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 promotional materials.

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.

Inaccessible Affiliation

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 $99.

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 opportunity.

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.

Blowing Smoke

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 sites.

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 million.

continue QuickTour

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 Franchise Cases.

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 businesses.

Les Stewart
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 material.

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 FTC said.

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."

Ant Farm Scammer Put to Death

BEIJING 02/07 — A Chinese business executive was sentenced to death for swindling $385 million from investors in a bogus ant-breeding scheme.

Wang Zhendong, chairman of Yingkou Donghua Trading Group Co., had promised returns of up to 60 percent for buying kits of ants and breeding equipment from two companies he set up. He promoted his products through advertising and drew in more than 10,000 investors between 2002 and June 2005 when investigators shut down his companies.

While ants are used in some traditional and high priced Chinese medicinal remedies, Wang sold the kits, which cost $25, for $1,300. Prosecutors told the court in northeast China that one investor committed suicide after realizing he had been duped, and only $1.28 million of the swindled money had been recovered by the time the case was filed with the court last June.

Fake investments and pyramid investment schemes have become common during China's transition from a planned economy to a free market. Chinese leaders have tried to eradicate the scams, fearing widespread losses could add to already percolating social unrest.

The death penalty is used broadly in China. Though usually reserved for violent crimes, it is also applied for nonviolent offenses that involve large sums of money or are deemed to have a pernicious social impact. Fifteen managers of the company were given prison terms ranging from five to 10 years and fined from $12,800 to $64,000.

Federal Trade Commission v. Associated Record Distributors, Inc., et al.
The Federal Trade Commission announced settlements in this matter. The initial complaint alleged that the defendants made false earning claims, used "shills," and made other misleading representations in the sale of a music business opportunity. Among other things, the settlements bar one defendant from engaging in any business opportunity or franchise businesses in the future, bar the other defendants from misrepresenting franchise or business opportunities, and provide $300,000 in consumer redress. This case was originally filed as part of "Project Busted Opportunity."

United 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.

United States of America (for the Federal Trade Commission) v. Merchant Payment Solutions, Inc. et al.
The Federal Trade Commission announced the settlement of this matter.The settlement requires the defendants to pay a $22,000 civil penalty and it prohibits them from making any future material misrepresentations in connection with the sale of any business opportunity or any income-generating good or service. The Department of Justice, 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.

$3M ATM scam alleged

TX - 12/04/03 - Austin Business Journal -

A South Austin businessman is in custody with bail set at $1 million after being accused of securities fraud in a scam that involved luring investors with promises of high returns on automatic teller machines, according to the Travis County District Attorney's Office.

Larry Don Johnson has been arrested, and warrants have been issued for two alleged accomplices, Danny Ray Digman and Lori Lea Burrow, according to the District Attorney's Office.

The scam attracted more than $3 million in investments with the promising that the ATMs -- which sold for $3,000 each -- would yield returns of 41 percent or more annually, according to the District Attorney's Office.

The three men have operated a company called Payment Works, which sold the ATMs. The company, which also has done business as XPress Pay ATM, has an office at 12110 Manchaca Road.

No one could be reached for comment at Payment Works or Xpress Pay ATM.

Man accused of swindling cash in ATM scam

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 wire fraud.

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 Commission.

"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 work-at-home scams.

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 wait.

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 lawsuit.

"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 suit says.
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 freedom promised."

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.

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 $100,000 annually.

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 the country.

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.

Boiler Room Telemarketers Sentenced Over $18 Million Scam - US Attorney Reports Telemarketers Sentenced in Business Opportunity Scam

11/06 - LAWFUEL - R. Alexander Acosta, United States Attorney for the Southern District of Florida, and Henry Gutierrez, Postal Inspector in Charge, United States Postal Inspection Service, announced that two boiler room telemarketers were sentenced today by United States District Court Judge Jose E. Martinez in connection with their participation in fraudulent business opportunity sales at a Miami firm called Pantheon Holdings, a/k/a Internet Machine Company (“Pantheon”).

Jeffrey Kuba, a/k/a “Jeffrey Cooper” was sentenced to one hundred and eighty-eight (188) months' imprisonment, three (3) years of supervised release, and ordered to pay $18,064,018.78 in restitution.

Blake Ladenheim was sentenced to sixty (60) months' imprisonment, three (3) years of supervised release, and ordered to pay $1,944,805 in restitution.

Michael Press was sentenced to thirty-four (34) months’ imprisonment, three years of supervised release, and ordered to pay $1,962,645 in restitution.

According to charging documents, Pantheon promoted the business opportunities to consumers across the country through television commercials, the Internet and other media, misrepresenting the profits that could be earned by purchasing a Pantheon distributorship, and urging consumers to call a telephone number that appeared in the advertisements.

Potential purchasers were told that for a purchase price of approximately $18,000, Pantheon would, among other things: perform all the legwork of the business and the purchaser only needed to plug in the kiosk and wipe it down periodically; find appropriate, viable, and high-traffic locations to place the kiosks; relocate any kiosk that underperformed; place national advertisements on the kiosk; and only sell distributorships in a limited geographic area.

Pantheon salespeople falsely represented to potential purchasers that they would earn their investment back in nine months to a year.

Defendant Jeffrey Kuba, a/k/a “Jeffrey Cooper,” was also the lead customer service representative who handled the most vocal and dissatisfied customers whose complaints were not satisfied by other customer service representatives Pantheon employed.

Defendant Kuba reassured purchasers of Pantheon’s intentions to ship kiosks to viable locations and to make purchasers’ business opportunities profitable. These assurances lulled purchasers into a false sense of security, postponed inquiries and complaints, and made the transaction less suspect. Defendant Kuba also converted complaints into additional sales or “loads.”

Defendant Blake Ladenheim was a Pantheon “closer.” Closers made several misrepresentations about the profit that would be generated by the business, territorial limitations, the viability of locations, and ongoing customer support and technical assistance that Pantheon would be providing.

Defendant Michael Press was a Pantheon salesman known as a “Back-from-the-Dead,” or “BFD” salesman. If a closer was unsuccessful in closing a deal, Press called the potential purchaser back within a few days or weeks in an attempt to resurrect the deal.

Press typically falsely represented that another person had cancelled a large order of kiosks for personal reasons and that, as a result, Pantheon could offer these kiosks to the purchaser for a substantially reduced price.

Jeffrey Kuba, Blake Ladenheim, Michael Press, and their co-conspirators fraudulently induced approximately 738 consumers to invest a total of more than $18 million in Pantheon.

A boiler room president was sentenced on December 19, 2006, in connection with his participation in fraudulent business opportunity sales at a Miami firm called Pantheon Holdings, a/k/a Internet Machine Company (“Pantheon”). United States District Court Judge Alan S. Gold sentenced Alan Glaubman to 78 months' imprisonment, three (3) years of supervised release, and ordered him to pay $18,135,958.78 in restitution.

According to charging documents, defendant Glaubman was made the nominee president of Pantheon by the firm's undisclosed principals. Defendant Glaubman knew that he was named president because the principals needed someone with a clean record to serve as the front for the business. Glaubman pled guilty to conspiracy to commit mail fraud, in violation of 18 U.S.C. § 1349, on October 6, 2006.

Mr. Acosta commended the investigative efforts of the Postal Inspection Service. This is one of a series of cases in which defendants have been convicted of similar schemes involving the sale of various fraudulent business opportunities involving Internet terminals, movie rental terminals, "cashless ATM machines" (which provide a receipt which consumers convert to cash at the register of the store where the machine was located), and other worthless "opportunities." The Pantheon cases are being prosecuted by Jill Furman and Richard Goldberg, Trial Attorneys, United States Department of Justice, Office of Consumer Litigation.

A copy of this press release may be found on the website of the United States Attorney's Office for the Southern District of Florida at www.usdoj.gov/usao/fls . Related court documents and information may be found on the website of the District Court for the Southern District of Florida at http://www.flsd.uscourts.gov/ or on http://pacer.flsd.uscourts.gov/

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