From the March 2000 issue of Startups

If you've been using the Internet for any length of time, there's a pretty good chance that one or two or 20 e-mail messages bearing one of these teasers has landed in your in-box. The senders of these messages promise "financial freedom" or "independence from paychecks" with homebased business opportunities ranging from envelope stuffing to designing Web sites. And all that stands between you and freedom from your dull office job and mean-spirited boss is one small payment . . .

Financial freedom sounds great. But are these so-called business opportunities too good to be true?

At first, Lesley Fountain didn't think so. After running a successful medical transcription service out of her Oceanside, California, home for 20 years, Fountain went looking for a homebased business opportunity that would allow her to spend more time with her young daughter. One day, she received an unsolicited e-mail message (a.k.a. spam) offering a seminar that would train her to build lucrative e-commerce Web sites. Fountain spent nearly $3,000 to register for the seminar, only to find that the five days of training left her ill-equipped to write the complex computer code required to build a working site.

The company was more than happy to give her the extra training she needed-for an additional $2,000 paid upfront. Refused a refund, Fountain turned to the Web, where she found a number of newsgroups and message boards filled with outraged comments about business opportunity scams, some of which sounded very similar to the seminar she had attended. It was then that she realized she wasn't the first (or the last) person to be taken by unscrupulous Internet scammers. "After I got on the Net and saw some of the complaints, I realized I wasn't as stupid as I thought and that other people had suffered the same fate," says Fountain, who has since started her own anti-scam information site (http://www.scams101.com).

So why would otherwise intelligent people give thousands of dollars to unseen strangers promising wealth without work? Fountain attributes it to naiveté. "Everyone can use more money, and these scams are sold as being foolproof. Many people believe if you have a good product and do what you're supposed to do, you can't fail, and that's why they get taken in."

From comments logged on her Web site, Fountain learned that victims often lose far more than money. They also lose hope.

"When people who are looking for a genuine homebased business get scammed, they sometimes decide it's just not realistic to think they can do it-then they just give up on the whole dream," says Fountain. "A lot of people just roll over and die. I know people who went bankrupt or got divorced . . . people actually told me they didn't see any other option than suicide. It's an even bigger crime than stealing the money."

To add insult to injury, scam victims get little sympathy from family, friends or authorities. "A popular misconception," says Fountain, "is that people who get scammed don't want to work-that they just want to lay out and have money dropped on them and therefore deserve whatever they get."

Historical Perspective

Of course, business opportunity scams are nothing new. Prior to the dawn of the Internet Age, ads for envelope stuffing, home electronics assembly, multilevel vitamin sales and other dubious opportunities could be found in the classified sections of newspapers and grocery store "throw-away" magazines. The difference is that, by advertising with spam and banner ads on Web sites accessible from anywhere in the world, scammers are now able to get their message out to a far larger segment of the population than ever before.

Frauds involving homebased business opportunity schemes are among the most common consumer complaints made to the National Consumers League's Internet Fraud Watch, which offers victims advice and transmits complaints to law enforcement agencies. According to Susan Grant, director of the Internet Fraud Watch, many recent scams involve medical billing opportunities that promise people they can set up a lucrative home business providing billing services for doctors and insurance companies. This sort of opportunity is appealing because it seems plausible that companies would contract out this type of work, but Grant says it just isn't so.

And unlike older schemes such as envelope stuffing, which can set victims back $50 to $100, some fraudulent medical billing setups can cost the unwary thousands of dollars in outdated software and inadequate training materials.

How To Identify Scams

Distinguishing between a legitimate homebased business opportunity and a scam (for instance, an on-the-level medical billing service and one of the scamming variety) designed to separate you from your money is much easier than you'd think. While no two scams are exactly alike, a few common denominators should raise immediate skepticism.

-Unrealistic Promises. Just as there's no such thing as a free lunch, there's no such thing as a successful homebased business that requires little or no work. Turnkey scams that offer you "everything you need" to operate a business, including materials and training, often claim to have a built-in customer base. As anyone who has ever tried to run a legitimate business knows, finding and keeping customers requires serious effort, and can make or break the business.

-Time Pressure. Act now before it's too late! Offer expires within 24 hours! Limited time offer! Often, those behind a business opportunity scam will demand that you send money before you have time to think the deal through or research the company with your local chapter of the Better Business Bureau. A company offering a legitimate business opportunity won't ask you to make snap decisions involving large sums of money.

-Unusual Business Models. If it's not clear where or how the company offering the business opportunity makes a profit, it's likely you, in fact, are that source of profit. For example, if a company sells you a starter kit containing a product and sales training manuals, and then offers you no other support (advice or additional training), it's because they've already made their profit off of you. They don't really care if you succeed or fail because, either way, they got their money upfront.

You've Been Scammed! Now What?

Sadly, even if you report a business opportunity scam to an agency like the National Consumers League, there's very little chance of getting your money back, according to Grant. "We don't make any promises about getting money back from them," she explains. "We do stress the importance of reporting actual fraud whether or not they get the money back, because that's what law enforcement needs to take action against the scammer and make sure it doesn't happen to someone else. And most consumers are happy to give that information."

Of course, documenting your interaction with the scammer is the best way to increase your chances of recovering money from them and provide the FTC and law enforcement with evidence that may be vital to their investigation, says Fountain. "Every conversation, everything you do, document it with notes. Whenever I interact with a company, I write down what took place and put it into a registered letter and send it to them, saying, 'This is to confirm the conversation in which you said so and so.' "

Fountain also suggests organizing with other victims. "There's power in numbers. It's important to find others who have been scammed and organize if you really want to take action. The Internet is a good forum for that."

Perhaps the best advice on dealing with scams comes from Jeff, a homebased business owner who lost nearly $6,000 in a 15-month period to a multilevel marketing scheme promoted by one scheming company. "You should think the opportunity through more thoroughly then I did," says Jeff, who declined to give his last name for this article. "I wanted to believe their promises because they just sounded so good, even though my intuition was telling me something wasn't right."

The company that gave Jeff problems was eventually investigated by the FTC, and declared bankruptcy in late 1999. The lesson? Trust your instincts.

Scam Stoppers

The FTC takes complaints about suspicious or fraudulent business-opportunity schemes. Although the Commission can't resolve individual problems for consumers, it can act against a company if it sees a pattern of possible law violations. File a complaint with the FTC by contacting the Consumer Response Center at (877) 382-4357; or by writing Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, DC 20580. Or simply visit their Web site at http://www.ftc.gov.

The Web site of the National Consumers League's Internet Fraud Watch division (http://www.fraud.org) offers tips on how to spot possible scams, links to other scam-related sites and online incident report forms that allow the League to transmit your complaint to the appropriate law enforcement agency.

Lesley Fountain's Scam 101 Web site (http://www.scams101.com) discusses her experiences at the hands of Internet scammers, and gives updates on the latest scams to hit consumers. There's also a message board where you can complain or commiserate with other scam victims.

While it doesn't focus exclusively on Internet-based scams, the Web page of the Council of Better Business Bureaus (BBB), http://www.bbb.com, has links to local chapters of the BBB, allowing you to check the names of companies you're considering doing business with against online databases of consumer complaints. Still, just because a company isn't on file with the BBB doesn't guarantee it's legitimate.