Opening Statement By Jodie Bernstein, Director Bureau of Consumer Protection Federal Trade Commission on "Internet Pyramid Surf Day" December 12, 1996

Thank you for being here today. The people you see before you represent over 70 law enforcement officers in 24 states and local jurisdictions, four federal agencies, and private sector organizations that have joined together to put Internet scam artists on notice: they should clean up their act or close down their sites. And we plan to follow up to make sure that they do. In addition to the law enforcement surveillance sweep we announce today, we also are unveiling a new education message, offering tips for consumers that will help them avoid these scams.

I am very pleased to mention the partners who joined us in this extraordinary effort:

• Twenty-five state Attorneys General and state securities regulators participated in “Surf Day”
• Securities and Exchange Commission
• The U. S. Postal Inspection Service
• Federal Communications Commission
• Four California District Attorneys
• Interactive Services Association and its Project Open.
• The Council of Better Business Bureaus

This past Monday, “Internet Pyramid Surf Day,” these federal, state and local agencies visited hundreds of web sites to see what consumers confront when they surf the Internet looking for networking business opportunities. On just one day we identified 770 sites of concern.

By some accounts these schemes now constitute the fastest growing type of Internet scams. And there’s an alarming irony in this. Ten years ago, pyramid scams were all but a thing of the past. Today we have a new marketplace, the Internet, which is hot and hi-tech. And here come the pyramid scams again: as old as Methuselah; disguised in electronic garb and new-age jargon--trying to make a comeback.

“Internet Pyramid Surf Day” was intended to send cyberspace con artists a message, and we did just that. Of the 770 sites we visited , we located over 500 possible pyramid operations, we sent e-mail responses telling them we are law enforcement agencies who had visited their site. We reminded them that pyramid schemes are illegal; we described the elements of illegal pyramids and we provided the FTC’s home page address to help them distinguish between illegal pyramids and legal multi-level marketing campaigns. We are doing this to help educate Internet entrepreneurs about the law on pyramids and to let deliberate, determined scammers know that we’re determined to enforce the law. We want to ensure consumers that this wonderful technology -- the Internet -- is not going to be a new marketplace where con artists roam free.

And we will follow up. Our sweep was a quick review. But we will return to the sites we visited. We already have downloaded data we will need and if necessary, we will take further action.

The state Attorneys General have played a very active role in this effort. Here today representing New York State Attorney General Dennis Vacco is Andrew Kandel, Chief of the Investor Protection and Securities Bureau of the Office of the New York State Attorney General.

(-- Mr. Kandel will make brief remarks)

We’ve developed a set of education materials for consumers and a special website that replicates a pyramid site. We hope to help consumers avoid these pyramid schemes by offering tips on what to watch for -- especially money making schemes that claim that you will make money just by recruiting new members or “distributors.” Interactive Services Association and its Project Open have developed a voluntary mechanism to help us get our message out. To tell you more about this aspect of our initiative, I’d like to introduce Glee Harrah Cady of NETCOM, who is here today representing Project Open, a wonderful initiative by ISA. We are all grateful for the cooperation and support of five major online Internet companies who are ISA members -- America Online, AT&T, CompuServe, Microsoft and NETCOM.

(-- Ms. Cady will make brief remarks)

Finally, I’d like to introduce Steven Cole, Senior Vice President, General Counsel and Corporate Secretary of the Council of Better Business Bureaus. The BBB has initiated an innovative program to help consumers looking for legitimate business opportunities on the Internet.

(-- Mr. Cole will make brief remarks)

I think we’d all agree that the dramatic growth of the Internet has brought us new opportunities, new options and new challenges. Unfortunately, it has also brought us new hazards. A small investment allows an entrepreneur to advertise its wares to countless thousands of consumers with breathtaking speed. That makes it especially important that this brand new marketplace does not become a safe haven for scam artists. Working together, we’ve sent a message that we’re not going to tolerate illegal pyramid schemes on the “net.” We’re also sending a message to consumers that they can protect themselves. We want the cyberworld to know that we intend to do everything we can to keep the electronic marketplace free and fair.

We would also like to recognize some others who are in attendance and who are available to answer your questions: John Stark, Special Counsel for Internet Projects at the SEC; Phil McKee, Coordinator of the National Consumer League’s Internet Fraud Watch Project; Erik Grimmelman, WorldNet Services Service Realization Vice President at AT&T; and John Ryan, who is Assistant General Counsel at America OnLine.

 

* This may not be an exact transcript.