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.
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Rev. February 7, 1996