Creative Consumer: Business 'Opportunities' or Scams?

Oct. 15, 2007 — -- The Federal Trade Commission has just shut down a company that was selling bogus business opportunities. The FTC said the owners persuaded 1,300 consumers to pay amounts ranging from $5,000 to $25,000 for "dealerships" selling business cards and other paraphernalia. It's just one more reminder that in the quest for financial freedom, many folks go down the wrong path.

Vending machines. Display racks. FCC radio licenses. Medical billing businesses. Internet kiosks. These are some of the most common fraudulent business opportunities offered by con artists.

What makes them scams? High startup costs, grossly overestimated earnings potential, small or poor-quality territories and products nobody wants. Fraudulent business opportunities are advertised in newspapers and magazines, on the Internet and through infomercials.

The people pushing these "opportunities" promise you can earn big money even if you have no experience. They claim the opportunity is only going to be available for a short time so you need to make a quick decision. They say it's a "sure thing" that will set you up for life. They gush that you can work from home and set your own hours. They promise to coach and support you every step of the way. And they tell you the very same program made them rich.

If you're still skeptical, they give you a few references to call. The company pays these fake references or "shills" to say glowing things about the opportunity. If that's not enough to draw you in, the promoter promises you can get your money back if you're not satisfied. But good luck getting a refund.

The FTC sues business opportunity promoters every couple of years.

Do Your Homework

Type the name of the company into an Internet search engine and see what comes up. If you see a lot of complaints from unhappy participants, run!

Do a background check on the company by contacting the Better Business Bureau, your county and state consumer protection offices and your state attorney general. Ask if the company has any unresolved consumer complaints.

If the company makes earnings claims, get them in writing. If the company refuses, don't buy into the business.

If the business opportunity involves selling name-brand products, call the company that manufactures those products and confirm that it has a relationship with the company offering the business opportunity.

Ask the company for a list of every person who has purchased the business opportunity. Don't accept a narrow list of references, as they may be shills. Choose from the list of participants at random and visit them where they work to verify that they really are involved in the business.

Many business opportunities are considered franchises, and as such they're required to follow the FTC's franchise rule. Ask to see the company's franchise disclosure document. It includes a profile of the company's executives, the total number of franchises in your area and their locations, the number of franchises terminated or canceled the previous year, company revenue and profit information, lawsuits by former franchisees and details of any claims about your potential earnings.

How to Complain

If you have a problem with a fraudulent business opportunity, contact your county and state consumer protection offices and your state attorney general. Send a copy of your complaint to the BBB. Also contact the FTC. The FTC can't mediate your individual case, but FTC lawyers want to hear about fraudulent opportunities.