Wrong Side of the Net

There aren't any sirens in the night, but the Web does have its seedy underbelly. Protect yourself from the grifters, the scammers and the crooks.
Magazine Contributor
6 min read

This story appears in the July 2000 issue of Entrepreneur. Subscribe »

Psst! hey, buddy, you wanna get rich? Here's a deal for you. I'LL SHOW YOU HOW HOT SCANDANAVIAN BEAUTIES WILL MAKE YOU RICH JUST FOR BREATHING.

Whoa there, hold your horses! Read "Net Alert" before you get suckered into a scam.

OK, I made that up. It's not a legitimate business opportunity. But IF YOU ACT RIGHT NOW and send me a mere $49.95 (plus $8.95 for shipping and handling), I'll show you how to start your own method for making big bucks by charging other people $49.95 to learn my secrets. Does this sound too good to be true? What if I told you that this offer is ABSOLUTELY RISK-FREE and that you have my UNCONDITIONAL GUARANTEE? Did I mention that this is a GROUND-FLOOR OPPORTUNITY that unlocks the potential of THE EXPLOSIVE GROWTH OF THE INTERNET?

Now I've got you. It was the mention of the Internet, wasn't it? Like a rotting pile of meat, the Internet has created a buzz attracting all the world's vermin, vultures and parasites, with the naive surfer performing as the host. We've all read about the successes of those who made an early entry and claimed some turf on the Net. The lure to jump on this cyber gravy train is compelling, to say the least. Fortunes have been made for those who own the right dotcom, but, for the rest of us, does the Web hold the keys to our next fortune...or the poor house?

According to the National Consumers League (www.fraud.org), consumers reported to the organization more than $3.2 million lost to Internet fraud during 1999. Overall, the NCL marked a 38 percent increase in Internet fraud complaints and revealed that the average consumer who filed a complaint was bilked for as much as $580. "Many consumers shop online and have good experiences," says Susan Grant, director of the Internet Fraud Watch, "but the increases we've seen in the number of complaints and the amounts of money lost point to the need for more consumer protection and education."

How The Scams Work

Scam artists love the Internet because it's inexpensive to go online and requires no verification of identity to register a Web domain or to secure the use of an ISP. By sending unsolicited e-mail, a scammer can reach millions with little effort. In addition, an Internet site can be opened and closed with a few clicks, enabling the scammers to stay a step ahead of the law. A sophisticated scammer can even monitor his Web site to see if any hits are coming from government sources.

Do you own an e-commerce business? Read "Scram, Scam!" and dodge those pesky scammers.

The glitz, sparkle and momentum of the Internet has added a new twist to some of the age-old "opportunities" now foisted on us by the e-huckster. According to Charles S. Neal, assistant director of the enforcement division of the Texas State Securities Board, "the problem arises because consumers tend to lend credibility to anything they see in broadcast media."

Included among the so-called business opportunities we're now seeing on our computer screens is the classic pyramid scheme, where participants make money by recruiting other suckers. An ad for this type of deal could simply read, "Learn How To Make Big Money From Your Home Computer," or "Earn Thousands As A Homebased Internet Consultant." Sure, these ads are innocent enough, but, on further investigation, if you start to witness promises that you'll get rich quick, get away quick.

In fact, the New Jersey Bureau of Securities recently ordered a chain-mail scheme out of business that was really a front for an e-mail chain letter where participants were promised earnings potential of $60,000 in just a few weeks by sending one dollar to each of five people on an on-line list. Unfortunately, you can be sure something like it will surface again.

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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