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Be Aware of Internet Business Scams

At the request of the Federal Trade Commission (FTC), a federal court imposed a judgement of $18.9 million against operators of an internet business opportunity scam.

The federal court found the scam operators violated the FTC Act and the agency's Franchise Rule by duping hundreds of consumers into buying "Internet kiosk" business opportunities while promising lucrative earnings.

The Internet kiosks are free-standing machines that house a computer and a mechanism to accept payments from users. The kiosks were designed to allow the public access to the internet, for a fee, from locations such as airports, bowling alleys, hotels, and convenience stores.

The defendants misrepresented the earnings potential of these internet kiosks. In reality, the business venture was nothing more than an illegal Ponzi scheme in which "profits" paid to earlier investors were generated from payments made by later investors.

The FTC stated that over 450 consumers purchased thousands of internet kiosks. Only a small portion of them were ever even installed by the defendants, leaving the purchaser with a worthless stake in a non-existent business investment.

Consumers will be reimbursed more than $2 million as a result of the court's decision. This amount includes approximately $450,000 in funds that the court froze at the FTC’s request, as well as $1.5 million in funds that previously had been seized by the FBI and had been the subject of a civil forfeiture action brought by the Office of the U.S. Attorney.

The court previously found that some funds that the defendants paid to their attorneys should go to victims of the scheme as well. One attorney agreed to return $40,000. The court ordered the other attorney to return $238,000.

The court banned key defendants from promoting any future business opportunities and barred all defendants from making further misrepresentations. The two key defendants in the scam, Edward Bevilacqua and Charles Castro, are serving time in California state prison for felony securities fraud.

The FTC offers this advice to consumers considering an Internet-related business opportunity:
  • Consider the promotion carefully. If it claims buyers can earn a certain income, then it also must give the number and percentage of previous purchasers who achieved the earnings. If an earnings claim is there - but the additional information isn't - the business opportunity seller is probably violating the law.
  • Get earnings claims in writing. If the business opportunity costs $500 or more, then the promoter must back up the earnings claim in a written document. It should include the earnings claim, as well as the number and percentage of recent clients who have earned at least as much as the promoter suggested. If it's a work-at-home or other business opportunity that involves an investment of under $500, ask the promoter to put the earnings information in writing.
  • Study the business opportunity's franchise disclosure document. Under the FTC Franchise Rule, many business opportunity promoters are required to provide this document to potential purchasers. It includes information about the company, including whether it has faced any lawsuits from purchasers or lawsuits alleging fraud. Look for a statement about previous purchasers. If the document says there have been no previous purchases but the seller offers you a list of references, be careful: the references probably are phonies.
  • Interview each previous purchaser in person, preferably where their business operates. The FTC requires most business opportunity promoters to give potential purchasers the names, addresses and phone numbers of at least 10 previous purchasers who live the closest to the potential purchaser. Interviewing them helps reduce the risk of being misled by phony references.
  • Contact the attorney general's office, state or county consumer protection agency and Better Business Bureau both where the business opportunity promoter is based and where you live to find out whether there is any record of unresolved complaints. While a complaint record may indicate questionable business practices, a lack of complaints doesn't necessarily mean that the promoter and the business opportunity don't have problems. Unscrupulous dealers often change names and locations to hide a history of complaints.
  • If the business opportunity involves selling products from well-known companies, call the legal department of the company whose merchandise would be promoted. Find out whether the business opportunity and its promoter are affiliated with the company. Ask whether the company has ever threatened trademark action against the business opportunity promoter.
  • Consult an attorney, accountant or other business advisor before you put any money down or sign any papers. Entering into a business opportunity can be costly, so it's best to have an expert check out the contract first. If the promoter requires a deposit, ask your attorney to establish an escrow account where the deposit can be maintained by a third party until you make the deal.
  • Take your time. Promoters of fraudulent business opportunities are likely to use high-pressure sales tactics to get you to buy in. If the business opportunity is legitimate, it'll still be around when you're ready to decide.
If you suspect a business opportunity promotion is fraudulent, report it to:
  • the state attorney general's office in the state where you live and in the state where the business opportunity promoter is based.
  • your county or state consumer protection agency. Check the blue pages of the phone book under county and state government.
  • the Better Business Bureau in your area and the area where the promoter is based.
  • the FTC. File a complaint online at or call toll free 1-877-FTC-HELP.
The FTC is the nation's consumer protection agency against fraudulent, deceptive, and misleading business practices.

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Friday, 12 April 2024

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