In a massive crackdown that is the broadest federal-state coordinated effort of its type, the Federal Trade Commission and enforcement officials from 25 states today announced that they have taken more than 75 law enforcement actions actions so far against get-rich-quick self-employment schemes, including work-at-home scams, pyramid schemes often pitched on the Internet, and pre-packaged small businesses involving everything from vending machine frauds to sophisticated medical billing services.
The actions are the result of "Operation Missed Fortune," launched early last summer. This federal/state effort targets scam artists who capitalize on downsizing, the growth of computers in consumers' homes and other trends by promising people "proven" and "lucrative" opportunities to gain financial independence and to "be your own boss." The firms charge up-front fees ranging from $30 to tens of thousands of dollars. Officials said the fraudulent companies make false promises about high earnings, sometimes refer consumers to phony references or "shills" who give glowing, but false, reports about the business, and frequently fail to provide consumers with detailed business disclosure documents required by federal or state law. The FTC staff estimated that consumers lose tens of millions of dollars to get-rich-quick business scams every year. Officials will be filing more actions as part of this project in the coming weeks.
"When a business opportunity knocks, consumers today have to take more than a quick look before opening the door and investing," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "It's not easy to examine an offer thoroughly, especially when firms use phony references and offer detailed charts showing likely earnings. But the extra legwork could prevent substantial losses. One victim in an FTC case lost more than $70,000; others have lost as much as $40,000 or more each."
"Several factors are likely contributors to the exploding losses we're seeing today," Bernstein continued. "One is government and corporate downsizing that creates a pool of people searching for a safe place to invest their nest eggs; another is the Internet, a new way for con artists to dress up pyramids and other old schemes in new lingo so they can victimize vast numbers of consumers. New or not, some old advice applies: the promise of substantial earnings with minimal effort or training is a sure warning sign of fraud."
"Get-rich-quick self-employment schemes that promise a sure path to financial independence touch a chord in many of us, " said Mark Griffin, president of the North American Securities Administrators Association, Inc. (NASAA), which represents state securities regulators. "Unfortunately, the crooks behind the fraudulent scams are the only ones who get rich quick. The purpose of Operation Missed Fortune is to try and put a stop to these people whose victims, instead of getting rich quick, go broke quick."
Examples of the schemes targeted by Operation Missed Fortune include:
Of all the actions brought under Operation Missed Fortune (see attached list), 11 are FTC complaints filed in federal district courts around the nation. The FTC alleged in each of these cases that the defendants greatly overstated the earnings consumers were likely to make, and in five of its cases, that the defendants failed to give consumers key pre-purchase information required by the FTC's Franchise Rule. The FTC said this rule is essentially an anti-fraud rule designed to give consumers information about a firm, its financial and legal history, and current and former franchisees, that can help the consumer identify discrepancies or prior problems with the business opportunity before they pay any fee. The FTC is seeking redress for consumers in each of its cases, as well as injunctive orders prohibiting the defendants from making false earnings claims and, as appropriate, using phony references or other deceptive business practices and from violating the Franchise Rule.
Another 23 actions have been brought by NASAA members enforcing state securities laws. These include violations of anti-fraud statutes, failure to file disclosure documents, as well as failure to register franchises and business opportunities. The remaining actions include requests for injunctions filed in state courts, investigative subpoenas, cease and desist orders and other actions initiated by state Attorneys General or other state consumer protection officials.
In addition to this massive law-enforcement effort, Operation Missed Fortune includes a national consumer education campaign. As part of the campaign, an Investor Alert from NASAA, and five brochures, a consumer alert and a tip sheet from the Federal Trade Commission will be distributed free to consumers from law-enforcement offices and via the Internet at the FTC's World Wide Web site (http://www.ftc.gov). Consumers also can call the FTC for these brochures at 1-800-554-5706. Tips listed in the alert and the brochures include:
The FTC urged consumers to report fraudulent get-rich-quick self-employment schemes to the National Fraud Information Center, a project of the National Consumers League, at 1-800-876-7060, 9 a.m. to 5:30 p.m. (Eastern) Monday through Friday, or via the Internet at http://www.fraud.org (no period). Complaint information from the NFIC helps the FTC and state AGs track and identify fraud operators.
The Federal Trade Commission votes to authorize filing of its 11 cases were all 5-0, and the complaints were filed in U.S. District Courts as noted on the attached list.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendant has actually violated the law. Each case will be decided by the relevant court.
Copies of the list of Operation Missed Fortune cases and the "get-rich-quick" consumer education materials are available on the Internet at the FTC's World Wide Web site at http://www.ftc.gov (no period). These documents and the complaints in the FTC cases also are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Bureau of Consumer Protection
Director of Public Affairs