Three businesses that used the allure of the Internet and hi-tech products to peddle fraudulent business opportunity and pyramid scams have been charged by the Federal Trade Commission with violating federal laws. One of the firms used the 'Net' to promote a pyramid scam disguised as a legitimate business marketing Internet access devices according to the FTC. A second firm promoted a purported "turnkey" business opportunity as an "Internet Consultant" to sell advertising space on the firm's cybershopping mall. The third firm sold business opportunities based on an Internet access Kiosk designed to allow the public to walk-up, pay a fee and access the Internet in hotel lobbies, airports and other public locations. The FTC alleged that all three operations made fraudulent earnings claims, and has asked federal district courts to halt the allegedly bogus business practices and refund consumers' investments.
"Twenty-first century technology and Internet accessability can help disguise plain, old- fashioned pyramids and get-rich-quick scams," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "The FTC is on the beat, and is taking on operators who use the Internet to con consumers."
According to one of the FTC complaints, Valencia, California-based Future-Net, Inc. claimed that its recruits could earn substantial income for the rest of their lives by joining a multi-level marketing program selling Internet access devices. Consumers paid fees ranging from $195 to $794 to become Future-Net distributors in the scheme, which was promoted on the Internet. But, according to the FTC, a major portion of the income the defendants promised was not based on sales of the devices, which are easily available at other retail distributors, including Sears and Circuit City, at comparable or lower prices. Instead, the promised income came from fees paid by newly recruited distributors who would then bring on more recruits to provide a nonstop "downstream"of paying members. Future-Net claimed that their "Internet Consultants" would receive $200 - $400 when they personally recruited another consultant, and $25 - $50 when a person in their downline recruited a new member. The FTC charged that the income from the plan did not depend on sales of the devices, but on recruitment -- the typical profile of an illegal pyramid. Since almost 90 percent of investors in any pyramid program actually lose money, the defendants' earnings claims were false, and violated federal law, the FTC alleged. On February 23, the court issued a temporary restraining order, freezing the defendants' assets and appointing a receiver for the corporate defendants. The court has scheduled a March 9 hearing on the FTC's request for a preliminary injunction to halt the scam. The FTC also is seeking a permanent injunction against future violations and refunds for investors.
Another company used ads that claimed investors could earn $15,000 a month by becoming "Internet Consultants." TouchNet, Inc., Touchtone Telecommunications and their principals charged a $3,195 fee for "in depth" training that would allegedly allow consumers to design World Wide Web pages for businesses that could advertise in their "World Virtual City." For their investment, consumers received a "training workshop" that provided no real training and a booklet containing basic Internet information readily available from public sources, according to the FTC's complaint. Prior to the "Internet Consultant" business, Bellevue, Washington-based TouchNet sold two other business opportunities through seminars: a pay-per-call 900 number business venture and a prepaid phone card business. Both business opportunities claimed that inexperienced consumers could make thousands of dollars a month. According to the FTC, few, if any of the purchasers made the income promised in the sales pitch. In addition, the agency charged, TouchNet and its principals did not provide disclosure documents required by the FTC's Franchise Rule. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing 20 categories of information, including information about the history of the franchisor, and the names and addresses of other franchisees. Disclosure of this information enables a prospective franchisee to assess any potential risks involved in the purchase of the franchise. The FTC asked the court for a preliminary injunction to halt the scams, a permanent injunction against future violations, and redress for consumers. On Feb.18 the court entered a stipulated temporary restraining order halting the conduct, pending trial.
Hart Marketing Enterprises, Ltd., Inc., a Tampa, Florida-based firm, and its principals promoted and sold free-standing computer kiosks with cash acceptors designed to allow customers to access the Internet, for a fee, from public locations such as hotels, airports or bookstores. The principals claimed that consumers who invested in the kiosks could expect earnings between $500 - $700 per kiosk, per week, and that Hart would provide assistance in finding suitable, profitable locations in which to place the kiosks they had purchased by recommending "professional locators" to place the machines. Potential investors were encouraged to call references -- previous investors -- to hear how profitable the investment could be. In fact, according to the FTC, few, if any, purchasers earned the income Hart projected; the "locators" recommended by Hart did not find profitable locations, and, in some cases, failed to place the purchasers' kiosks in any location, at all; and in many cases the "references" were not actual, previous investors. In addition, the FTC alleged, Hart's principals violated the Franchise Rule. As in the other cases, the FTC asked the court to grant a preliminary injunction, a permanent injunction and to provide refunds for consumers.
The Commission votes to issue the complaints were 4-0, with Commissioner Mary L. Azcuenaga not participating.
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. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaints, a free Consumer Alert and consumer brochure "'Net Based Business Opportunities: Are They Flop-portunities?", are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 972-3259 - Hart Marketing Enterprises Ltd., Inc.; Internet Space Station; Four Seasons Distributing, Inc.; James Weems; Robert Lemcke aka Mark Walker; and Edward Patrick Evans aka Patrick Evans and Edward Adams.)
(FTC File No. 972 3254 -TouchNet, Inc.;Touchstone Telecommunications & Advertising, Inc.; Eric Carino; and Malissa Carino.)
(FTC File No. 972 3230 - FutureNet, Inc.; FutureNet Online, Inc; Alan J. Setlin; Roberty Depew; and Chris Lobato.)