EXAMPLES OF BUSINESS OPPORTUNITY SCAMS
Lured by deceptive promises of independence and easy income, many would-be entrepreneurs are jumping into the arms of con artists who claim: "we are not just selling you a business, we put you IN business." The following Project Telesweep cases illustrate the nature and extent of the business opportunity fraud epidemic in America:
Major financial losses. A Pennsylvania woman 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.
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!
Tennessee Attorney General Charles W. Burson commented: "These scams really hurt. They inflict major economic hardship. Generally, when promises of profits seem to be exceptionally attractive or when there is a hard-sell to sign up immediately or risk losing the opportunity, just say 'no,' walk away, or hang up."
"The Department of Justice is committed to enforcing the full disclosure requirements mandated by federal law and to ensuring that persons selling business opportunities do not induce consumers to invest before they have all of the facts," said Frank W. Hunger, Assistant Attorney General in charge of the Civil Division, U.S. Department of Justice.
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Rev. February 7, 1996
geh