Wrong Side of the Net

Regulating The Scams

Although the Internet itself isn't regulated per se, a number of state and federal organizations are asserting jurisdiction over its content. The FTC, state attorneys general, Securities and Exchange Commission (SEC) and North American Securities Administrators Association (NASAA) are all concerned with the proliferation of fraud on the Internet. The SEC has formed a group of employees called the Cyberforce, who volunteer to search for possible violations of security law. But the Internet is growing faster than the government and, unfortunately, the general rule is still "buyer beware."

When the FTC finds a potential offender, it typically makes initial contact with an e-mail asking for substantiation of claims made at the Internet site. Many times those claims deal with earnings potential, so if you see something akin to "earn $75,000 to $150,000 your first year," make the promoter substantiate that in writing and get the telephone numbers of people already involved in that program. Don't make the mistake of just calling people the promoter refers you to. Those referrals could be "shills" paid by the perpetrator of the fraud to give you a glowing story. The hair on the nape of your neck should also stand up if the seller hides its identity through nondisclosure or the use of a P.O. Box, or requires you to act immediately in order to take advantage of a limited offer.

Despite all the scams out there, legitimate franchise and business opportunities do exist on the Web. For example, Quik Internet is a franchise chain that permits its franchisees to sell Internet connectivity, but the management at Quik Internet won't tell you that such a business requires no effort. The reality: No one is getting rich overnight at Quik Internet, but the system is growing steadily through the hard work of both franchisor and its franchisees.

Beware The Flop-Portunity

The FTC has coined the phrase "flop-portunity": a business that, while not necessarily a scam, is just simply a crummy business opportunity. At www.ftc.gov/bcp/conline/pubs/online/netbizop.htm, the FTC reveals how you can detect a flop-portunity and how to report one.

My personal advice, in a nutshell: Know who you're dealing with, check the appropriate agencies for complaints about the organizations and pay by credit card so you can later dispute the charges. In short, be skeptical and do your research.

Wham, Bam, You've Been Scammed

Those who invest in a franchise or business opportunity that turns out to be a scam might find it hard to receive a refund. Assuming you got a mailing address from the crooked franchise or business opportunity, your first step is to write a demand letter. It's also a good idea to print the Web pages that lured you.

In addition, report your troubles to the following Web sites. Report stock fraud to the SEC at www.sec.gov/enforce/comctr.htm. You can also call the FTC at (877) FTC-HELP or post a report at a site called Scampatrol (www.scampatrol.com), which also lists links to the Better Business Bureau and the National Consumers League.


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This article was originally published in the July 2000 print edition of Entrepreneur with the headline: Wrong Side of the Net.

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