Don't lose your life's savings
Watch Out for Opportunity Scams
Are you tired of the 9-5 rat race? Have you been laid off, downsized out of a job, or taken early retirement to avoid a layoff in coming months? Need a second income? Think maybe it's time to be your own boss and put money worries aside?
If you've said "Yes" to any of those questions, be on your guard. You are a prime target for a growing number of work-at-home and business opportunity scams
A 1995 Federal Trade Commission (FTC) report puts the dollar loss from phony pre-packaged business scams at $100 million or more.
Beyond that figure, though, are the millions of dollars more lost by people who buy into "opportunities" offered by companies who have learned how to dance just an inch beyond the reach of law-enforcement authorities. "Opportunities" that fall into this classification often feature "computer" businesses and business concepts that sound like worthwhile service buisnesses. Unfortunately it's not until after the unsuspecting plunk down thousands of dollars for business "plans" that they discover either that there are too few customers for the service to make the business profitable, or that the cost of reaching potential customers makes the business unprofitable to run.
BE ON YOUR GUARD
Typical business opportunities involve vending machines, amusement games, pay telephones, and display racks for such items as greeting cards and CD ROM computer software. They usually lure unsuspecting opportunity seekers with exaggerated income claims and claims that they aren't selling a business, but "putting you in business."
Typically, however, the only people who make any money from these business "opportunities" are the companies that foist them on would-be entrepreneurs. Take the case of a Pennsylvania woman who responded to an advertisement for a pizza vending machine business opportunity. The promoter promised huge earnings and the best locations in the area. The woman ended up losing her entire investment of $72,000. In order to make up the loss, she and her husband had to mortgage their home and sell off a dairy cow herd. They are now working multiple jobs in a struggle to avoid losing their family farm.
Swindlers seem adept at turning almost any type of business concept into an opportunity scam. So, there's no one type of business to steer clear of. However there are a number of tell-tale signs that the "opportunity" being offered is really just an oppportunity to make the promoter rich.
Among the tactics the FTC has found in its investigations into business opportunity scams are these:
Promises of instant riches. One trademark of a business opportunity scam is an overblown promise of easy money. In one ad for a pay telephone scheme, a promoter promises: "Get 96 sites for $7,795. Then Retire! Call 1-800/XXX-XXXX." A brochure for a Utah snack vending machine company reads: "Many People Earn $36,000\year in Income, But . . . Very Few Earn $30,000/year working only five-six hours per week." In another case, a promoter for a gumball machine business opportunity claimed that one operator had earned $14,000 from four machines . . . in just seven days!
Unproven concepts. A promoter touting a vending machine known as the "Alcohol Neutralizer" offered investors packages of five machines for $4,500. Installed in taverns and other places where liquor is served, the "Alcohol Neutralizer" was to dispense an herbal pill containing an active ingredient that was supposed to be able to reduce blood alcohol count (BAC) levels. Supposedly, the pills had been endorsed as safe and effective by the Food and Drug Administration and were backed up by the work of Harvard Medical School researchers. In fact, the FDA had taken action to stop the manufacturing of the pills and the Ivy League scientists in question denied ever having produced the supportive findings linked to them by the promoter. An independent study by an Indiana University scientist found that the herbal ingredient in the pills might actually keep BAC levels higher for a longer period of time than if a drinker had never taken the pill!
The FTC reports that business opportunity scams are most often promoted at trade shows and through small ads that appear in the classified sections of newspapers and magazines. In addition, opportunities are increasingly being promoted through slick telemarketing operations.
Look Out For These Tactics
While there is no one industry that all opportunity scams fall into, they tend to be promoted in similar ways. Here are some tactics identified by the FTC as being commonly used by scam artists:
They use classified ads that urge the prospect to call an "800" number.
They make wild and unsubstantiated claims about potential earnings.
They include claims about "proven" concepts.
They suggest that no experience is necessary.
They promise exclusive territories.
They rely on high-pressure telemarketing sales techniques to pressure a victim into turning over his or her money.
They make assurances about good locations for vending machines or display racks, or the assistance of a professional locator.
They hype references handpicked by the company (instead of providing a list of all current business opportunity owners in the region).
They fail to provide prospective investors with a complete disclosuredocument containing pre-sale disclosures about their experience, lawsuit history, audited financial statements, and substantiation for any representations made about earnings.
STEPS YOU CAN TAKE TO PROTECT YOURSELF
The Federal Trade Commission and the North American Securities Administrators Association are now making available a free brochure, "Business Opportunity Fraud" in conjunction with the massive state-federal assault on business opportunity scams. Key advice contained in the brochure includes:
Be skeptical about earnings claims that sound too good to be true. The "bait" on the "hook" of a business opportunity scam is that a person with no experience may be able to work only a few hours a week and earn $50,000, $100,000 . . . or more . . . a year. The truth is that making money almost always requires hard work . . . and lots of it.
Exercise caution when it comes to newspaper and magazine ads that contain little more than glowing promises and an "800" number. This is very likely a "come-on" pitch to lure you into calling a high-pressure telemarketing boiler room operation! Keep in mind that just because an ad appears in a reputable newspaper or magazine does not mean that the information it contains is accurate or legitimate.
Obtain and review the required disclosure document before money changes hands. Keep in mind that business opportunity and franchise promoters are required to present you with a disclosure document before you sign a contract or pay a fee. If this document is not made readily available, beware!
Make sure that the business opportunity has complied with applicable state registration laws. Even if a business opportunity promoter complies with the laws in your state governing such deals, there is no guarantee that you will make money. However, it is one easy way to screen out bogus operators who are trying to "fly below radar" in order to evade detection by regulators.
Talk to current investors . . and watch out for "singers." You should always take the time to speak with several people who are current investors in the business opportunity that you are considering. The disclosure document must contain a list of the business opportunity's current operators. But be on your guard! A scheming promoter of a bogus business opportunity may line up "singers" who provide phony testimonials. You should visit their business sites, as well.
Research the business and the market. Make sure that you have a clear grasp of how the business opportunity will work and what demand (if any) there is likely to be in your territory. Don't rely only on glowing promises from telemarketers who claim that consumers are clamoring to get your product. In one case where a business opportunity claimed to have a "worst case" net return of $1,220 a month, investigators found that the investor who was doing the best only made about $200-$300 monthly.
Get professional advice if you need it. Don't lose your life savings just because you failed to spend a few hundred dollars to talk to a lawyer, an accountant or other expert. These people will sometimes be able to spot key details that you are missing. Since they are not caught up in your dream and hope for success, outsiders are also in a better position to review a business opportunity from a neutral vantage point.
To file a complaint with the Federal Trade Commission, write to: Division of Marketing Practices, Federal Trade Commission, Washington, D.C. 20580. Or call: 202/326-2222.
Free information on business opportunities and franchising is available from the International Franchise Association, 1350 New York Avenue, N.W., Suite 900, Washington, D.C. 20005. The FTC also has other publications available to the public on business opportunities and franchises.
Article by JFASCAM2
--Attard Communications