The "work-at-home" offers are everywhere now, from business cards stuck on ATMs to fliers tacked to telephone poles to newspaper ads and e-mail spam. Pay a modest fee and, they promise, you'll earn big money doing an unskilled job from home.
Last week the Federal Trade Commission, working with the Department of Justice, the U.S. Postal Inspection Service and state law enforcement agencies, announced a major sweep of promoters of illegal work-at-home schemes and business opportunities. The crackdown nabbed more than 200 operations and charged the promoters with fraud and violating consumer protection laws.
One Pennsylvania promoter caught in the dragnet lured an estimated 30,000 people to pay $50 for registration and a kit to assemble "kitty cat refrigerator magnets." Promising earnings of $800 a week, the operator then rejected most or all of the consumers' work for quality reasons, the FTC alleges, and the victims lost their upfront money.
Eileen Harrington, associate director of the FTC's Marketing Practices Division in the Bureau of Consumer Protection, says an FTC survey last year estimated 950,000 people in the United States are victims of such business fraud scams annually. The FTC cases alone amount to hundreds of millions of dollars lost.
"For people looking for that American Dream, owning and investing in a business," she says, "this is a perilous problem."
Some of these scams required less than $100 to buy in; others required thousands. "We've got victims who lost upwards of $40,000 to $50,000," Harrington says. Most hinge on "false and misleading statements."
In a surplus-goods brokerage business scam that was busted, the swindlers exaggerated product demand. In a vending machine business scam, they overstated how much assistance they would provide. All of the scams touted inflated earnings.
"What they all have in common is that these opportunities are pitched as proven formats and systems that will enable people who invest money and follow the instructions to earn substantial amounts of money," she says. "The truth is, in every instance, that was a lie."
Harrington thinks crooks will notice this law enforcement sweep because several defendants are being criminally charged and face federal jail time. "We in law enforcement are getting better at going after the bad guys who run these scams, but these are problems that persist," Harrington says.
There are telltale signs for avoiding the scams: One "real red flag," she says, is an "unqualified or guaranteed promise that you are going to earn a lot of money or a certain amount of money." Another: a pitch that says you are going to earn a lot of money without spending a lot of time operating the business.
"Watch out for business opportunities that are marketed in part by providing references that the prospective investor is urged to call," she says. "Telephone references are no guarantee that you are talking to somebody who actually operated one of these businesses. In a lot of cases, they are paid shills."
Besides being wary of all work-at-home offers, Harrington says anyone thinking of investing in a business or franchise should visit the business on-site. "Contact other owners and arrange to meet them. There is no substitute for checking it out in person, on the ground, face-to-face, kick the tires, do the whole bit," she says, "or you are going to wind up losing a lot of money."
For information on work-at-home schemes, see the FTC's consumer brochure at www.ftc.gov/bcp/conline/pubs/invest/homewrk.htm.
For information on business opportunities fraud, see www.ftc.gov/bizop/index.html.
To file a complaint in English or Spanish, or to get free information on any of 150 consumer topics, call 877-FTC-HELP or go to www.ftc.gov and use the online complaint form.
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