Enforcement Actions Taken Against More Than 200 Operations
In a massive criminal and civil crackdown on promoters of illegal business opportunity and work-at-home schemes, the Federal Trade Commission, the Department of Justice (DOJ), the U.S. Postal Inspection Service (USPIS), and law enforcement agencies from 14 states have taken action against more than 200 operations for engaging in fraud and/or violating consumer protection laws. Business opportunity and work-at-home fraud causes substantial consumer injury. In the FTC’s cases alone, the defendants caused tens of thousands of consumers to lose a total of more than $100 million.
“The dream of owning a business is as American as apple pie, but business opportunity scammers spoil the recipe for success,” said FTC Chairman Deborah Platt Majoras. “Scam artists have a choice – get out of the fraud business and stay out – or you, too, will have an opportunity of a lifetime: doing time behind bars.”
The enforcement sweep, known as “Project Biz Opp Flop,” contains four key components: (1) criminal prosecutions against business opportunity fraud artists; (2) civil enforcement actions filed by the FTC; (3) civil penalty actions filed by the DOJ on behalf of the FTC; and (4) enforcement actions filed by state enforcement agencies.
CRIMINAL ACTIONS UNDERTAKEN WITH FTC ASSISTANCE
Working with the FTC’s Criminal Liaison Unit, the USPIS and DOJ’s Office of Consumer Litigation, the U.S. Attorney’s Office for the Southern District of Florida, has recently filed criminal charges against 14 individuals in connection with their involvement in business opportunity scams. The FTC has provided hundreds of hours of investigative support on these
cases and has assigned two of its attorneys to serve as Special Assistant U.S. Attorneys to work on these and other criminal matters.
In addition, recent criminal actions brought by the Office of Consumer Litigation have resulted in significant prison sentences for promoters of business opportunities whose schemes violated the FTC Act or the Franchise Rule, including:
- 70 month sentence for Jeffrey Salley and four years’ probation for Terri Salley for criminal contempt. United States v. Salley (S.D. Fla. Jan. 7, 2005).
- 84 month sentence for Dennis Vaughan for criminal contempt, wire fraud, and money laundering, upheld by Tenth Circuit. United States v. Vaughan (10th Cir. Dec. 21, 2004).
- 125 month sentence for Robert Ferrera for criminal contempt. United States v. Ferrera (W.D. Mo. Nov. 30, 2004).
CIVIL ENFORCEMENT ACTIONS FILED BY THE FTC
Project Biz Opp Flop includes 16 FTC actions against 31 corporate defendants and 33 individual defendants. The operations range from refrigerator magnet, medical billing, Web design, and envelope-stuffing work-at-home schemes to vending machine businesses. In some cases, such as a surplus goods brokerage business, the sellers overstated the demand for the products, according to the FTC. In others, like vending machine businesses, the operators allegedly misrepresented the amount of assistance they would provide to the franchisee. All but one of the operators targeted by the FTC were allegedly characterized by one key element: unsubstantiated or deceptive earnings claims.
In most of the FTC’s cases announced today, investigators identified suspect business opportunity advertisements in print, broadcast and electronic media. In the typical case, the investigators contacted the promoters and listened to sales pitches from operators who hyped the business opportunity and touted its earnings potential. The sales staff gave investigators “references”– supposedly successful owners and operators of the business opportunity who could verify the earnings claims. In many instances, the investigators uncovered evidence that some of the “references” did not own or operate a business. Instead, they were “shills” – paid actors posing as successful owners.
The FTC alleges that the corporate and individual defendants cited in the ten actions announced today violated the FTC Act, the Franchise Rule, the CAN-SPAM Act and/or the Telemarketing Sales Rule. In each of the following six new cases, a federal judge issued a temporary restraining order, instructing the defendants to stop any unlawful conduct. According to the FTC, the promoters’ statements about their opportunity, including those listed below, were false or misleading.
- American Entertainment Distributors and related parties, based
in Hollywood, Fla., allegedly offered a fraudulent DVD movie rental vending
machine business opportunity. The defendants induced consumers to buy
their vending machines by promising substantial earnings potential and location
assistance. The defendants charged consumers $28,000 to $37,500 for one machine and allegedly told consumers that they could expect to earn between $60,000 and $80,000 a year or to recoup their initial investment in six to 14 months. The court-ordered receiver has calculated that in less than one year consumers invested nearly $20 million in this program.
- Medical Billers Network and related parties, based in New York City and Las Vegas, Nev., sold medical billing work-at-home business opportunities, charging between $200 and $295 per consumer. The defendants allegedly told consumers that they could earn $500 per week working part time or as much as $2,500 per week working full time. The defendants also told consumers that they would get the necessary training to process medical bills electronically while working at home, and they would have access to local doctors who need the service.
- National Home Assemblers and related parties, based in Mainesburg, Pa., sold a work-at-home opportunity involving the assembly of kitty cat refrigerator magnets. The defendants ran ads seeking “honest” and “serious homeworkers” for “SIMPLE WORK/TOP PAY.” The defendants’ written materials promised up to $800 per week, or $3,200 per month, for assembling products at home, with “NO SPECIAL SKILLS REQUIRED.” Consumers paid $38 for registration and a starter kit, and an additional $12 inspection fee. The FTC alleges that in many, if not all, instances, the defendants rejected consumers’ work for “quality” reasons, and the consumer lost all the money spent. An initial estimate indicates that more than 30,000 people brought into this alleged scam.
- Sun Ray Trading and related parties, based in Sunrise, Fla., offered an envelope-stuffing employment opportunity through unsolicited e-mail (spam) and Internet Web sites. The spam allegedly contained subject headings with deceptive claims of employment and/or substantial potential income, such as “Homeworkers Needed Today. Earn 550 dollars or More.” Consumers were told that, after paying a registration fee ranging from $65 to $160, they would receive a package of supplies that would enable them to earn $10 for each envelope stuffed and mailed for a potential weekly income of $550 to $3,000.
- Wealth Systems and related parties, based in Phoenix, Az., allegedly operated a deceptive Internet-based business opportunity. The defendants, through their “Web-broker” program, purport to design, set up, and host the prospective purchaser’s own Web page that “teams” the purchaser up with Fortune 500 companies’ Web sites. Consumers were told that they could buy the defendants’ Web-broker package at one of three levels: Silver, Gold, and Platinum – for prices ranging from $300 up to $1,400 and more. According to the FTC, the
defendants told consumers that they could earn a substantial income through commissions for every new member recruited, commission on sales through affiliate links to the Fortune 500 companies’ Web sites, and for each eBook sold via an eBookstore link.
- World Traders Association and related parties, based in Burbank, Ca., allegedly operated under several different business names to sell a surplus goods work-at-home opportunity involving overstocked or discontinued merchandise. According to the FTC, the defendants told consumers that they would be supplied with “pre-qualified” clients – existing customers that the defendants’ representatives have called – who have expressed a willingness to purchase
surplus goods. The defendants’ sales representatives promised consumers who buy the business venture that they would secure 200 customers and that they would be provided with a list of references to call. These references were portrayed as current, successful brokers who purchased the defendants’ business opportunity and agreed to talk to prospective buyers. The FTC alleges that consumers made an initial payment ranging from $4,000 to $7,950, but failed to recoup their investment. When consumers complained or tried to warn others, the defendants allegedly threatened and even filed retaliatory lawsuits against some of them.
In addition to issuing a temporary restraining order, each court in the American Entertainment Distributors, Wealth Systems, and World Traders Association cases ordered that a temporary receiver take over the businesses.
The FTC received invaluable assistance in its cases from the USPIS, including its Los Angeles, Las Vegas, Miami, Philadelphia and Pittsburgh offices, the Arizona Attorney General’s Office, the California Attorney General’s Office, the Florida Attorney General’s Office, the Florida Department of Agriculture and Consumer Services, and Better Business Bureaus and local police departments nationwide.
In recent months, the FTC also previously announced major developments in six other cases against the following corporate or individual defendants:
USS Elder Enterprises, d/b/a Compañía Americana and related parties. The defendants offered an easy product assembly work-at-home opportunity primarily to Hispanic consumers. The FTC sued the defendants in September 2004, and obtained a preliminary injunction. This case was announced as part of the FTC’s Hispanic Law Enforcement and Outreach Initiative – a comprehensive campaign to identify and halt fraud targeting Spanish-speaking consumers in the United States. (See press release dated October 6, 2004.)
Financial Resources Unlimited and related parties. The defendants offered an envelope-stuffing business opportunity. The FTC accepted a settlement to end this litigation in November 2004. Under the terms of that settlement, the defendants were permanently barred from selling work-at-home business opportunities, and ordered to pay $420,000 in consumer redress. (See press release dated November 18, 2004.)
Gregory Bryant, Jr. and related parties. The defendants offered an envelope-stuffing business opportunity. The FTC sued the defendants in October 2004, and obtained a temporary restraining order and froze the defendants’ assets. (See press release dated October 5, 2004.)
The Stefanchik Organization and related parties. The defendants offered courses in the business of selling privately held mortgages. The FTC sued the defendants in August 2004, and obtained a preliminary injunction in January 2005. (See press release dated January 19, 2005.)
Vinyard Enterprises and related parties. The defendants offered an envelope-stuffing business opportunity. The FTC accepted a settlement to end this litigation in December 2004. Under the terms of that settlement, the defendants were barred from pitching any home-based business opportunities or helping others to market such opportunities, and required to pay $110,000. (See press release dated December 20, 2004.)
We the People Forms and Service Centers USA. The defendant offered a legal document preparation franchise. The FTC accepted a settlement to end this litigation in December 2004. Under the terms of that settlement, the defendant was required to pay a $286,000 civil penalty and agreed to mandated training of its staff to assist it in complying with the Franchise Rule. (See press release dated December 13, 2004.)
CIVIL PENALTY CASES FILED FOR THE FTC BY DOJ
The FTC is also announcing today the referral of four new civil penalty cases to DOJ for alleged violations of the Franchise Rule. The complaints in these cases, which were filed in federal district court by the DOJ on February 14, 2005, allege, among other things, that the defendants failed to provide required earnings claims documents, failed to have a reasonable basis for their earnings claims, and failed to disclose materials which constitute a reasonable basis for the claims made.
- American Merchant Technologies and its principal, based in Miami, Fla., sells Internet kiosk and automatic teller machine terminal business ventures. The defendants’ telemarketers allegedly told consumers that they could earn as much as $21,000 per year.
- Elite Designs and its principal, based in North Providence, RI., sells fashion jewelry display rack distributorships. The defendants’ ads contained statements such as: “ACCOUNT REP/LOCAL ROUTE. No selling. Make $100K/yr. restocking in store displays. $12,950 investment includes inventory & territory.”
- Gold Leaf Distribution and its principals, based in Miami, Fla., sell cigar distributorships. The defendants allegedly claimed that they would assist prospective purchasers in finding locations for their cigar humidors and would refer purchasers to a locating company who claimed to have a 90-day policy to relocate any sales sites that were not performing. The defendants’ least expensive cigar distributorship cost $7,700.
- Money Movers and its principal, based in Vero Beach, Fla., sell automated, self-service, coin-change machine distributorships. The defendants promote their
business ventures through several franchise Web sites. Consumers were urged to call a toll-free number for more information. When consumers called, the defendants allegedly told consumers that their business ventures may generate revenues of approximately $29,000 per year.
[See attached list of all FTC cases and contacts.]
ENFORCEMENT ACTIONS FILED BY STATES
As part of the sweep, enforcement agencies in 14 states are announcing actions against business opportunity, franchise, and work-at-home promoters. These actions consist primarily of cease and desist orders, consent agreements, and fines. Also included are civil lawsuits, criminal lawsuits, and a ban. The defendants are located in 24 states and Canada, with the greatest number of targeted defendants residing in Florida (26), California (11), and Arizona (7). [See attached listing of state actions].
The FTC has launched a new “teaser” Web site to reach consumers who use the Internet to find business opportunities. Teaser sites mimic real Web pages, using common buzz words and making claims frequently used by fraudulent business opportunity promoters. At first glance, the new teaser site looks like a pitch for a “can’t miss” business opportunity for “Sundae Station,” an ice cream sundae vending machine. The site contains typical claims of fast money with minimal effort. Once consumers click on any of the links, they learn the ad is actually a consumer education piece posted by the FTC to warn consumers about business opportunity rip-offs. The Biz Opp Flop teaser site can be found at: www.wemarket4u.net/sundaestation.
The FTC has the following tips for consumers before they invest in any new business venture or work-at-home opportunity:
- Does the ad promise big money for little effort? Fraudulent ads use similar bait: Fast cash. Minimal work. No risk. And the advantage of being your own boss or working from home.
- Before promoters can accept money from potential investors, the law requires that they give investors important disclosure documents. If the promoter does not make the document readily available, find another opportunity.
- Talk to current investors, but beware of paid “shills.” Visit other business sites in person. And get professional advice if you need it. Do not lose your life savings just because you did not spend a few hundred dollars to talk to a lawyer, an accountant, or another expert.
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 filed by the FTC and the DOJ are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
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