Anatomy Of A Scam How to recognize a fraudulent sales pitch before it costs you.

How to recognize a fraudulent sales pitch before it costsyou.

As she picked up her home-office phone in Naperville, Illinois,Barbara Brabec's first impression was that the man's voiceon the other end held sincere concern. He claimed to be callingfrom Visa International, then said, "I'll bet youdon't know that if you give your credit-card number out overthe Internet, you can't get your money back after 24hours." This sounded like news to Brabec, who listened furtheras the man described a type of credit-card insurance he was willingto sell her for $3 per quarter or $12 per year. When he asked forher credit-card number, Brabec's intuitive credibility alarmkicked in. "I don't know you," she told him. "Ineed to check out your business further." The man gave her atoll-free number to call back--but told her she could only call atcertain times."When I asked about the times, he said he had tofree up the computer to get my file online."

Today Brabec, author of Homemade Money (see "WorthReading" on page 10 for ordering information), a book thatincludes a section about homebased-business fraud, laughs at howclose she came to becoming the victim of a scam. "When Itracked it down, I found he was using a business name that belongedto someone else," she says. "During the phone call,I'd also temporarily forgotten that even if somebody getsaccess to your credit-card number and makes fraudulent charges, themaximum fee you pay is $50. So no one would need credit-cardinsurance."

Many experts believe there are more business scams today thanever--and that many of these scams con homebased-business ownersout of millions of dollars each year. Perpetrators design scams toappeal to the common concerns of all homebased entrepreneurs andinclude truthful elements to make the scams seem plausible. Scamartists' pitches are designed to resemble authentic businessesas closely as possible--often with names similar to well-known,established companies. The following suggestions may help youidentify--and protect yourself from--homebased-business scams.

Many work-at-home scams claim it's possible to easily earnhundreds of dollars per week at home, in your leisure time. Whilesome work-at-home plans are legitimate, many are not, says HowardShapiro of the Federal Trade Commission (FTC).

"Home-employment schemes are among the oldest kinds ofclassified advertising fraud," says Shapiro.

"Consumers deceived by these ads have lost thousands ofdollars in addition to time and energy." He explains that manyads don't say you may have to work many hours without pay, orthat there may be hidden costs. Countless work-at-home schemesrequire you to spend your own money to place newspaper ads, makephotocopies or buy the envelopes, paper, stamps and other suppliesor equipment you need to do the job.

Do Your Homework

Shapiro explains that legitimate work-at-home program sellersshould tell you--in writing and for free--what's involved. Hesuggests asking a potential business opportunity seller thefollowing questions:

• What tasks will I be required to perform? "Ask the programsponsor to list every step of the job," says Shapiro.

• Will I be paid by salary or straight commission?

• Who will pay me?

• How long before I receive my first paycheck?

• What is the total cost of the pro-gram, including supplies,equipment and membership fees? What will I get for my money?

"The answers to these questions may help you determinewhether a work-at-home program is legitimate, and guard againstfinancial loss," says Shapiro.

Ask for samples, references and other information to help youmake an informed decision.

Graham Mott, a realtor for twenty years, lost $30,000 to a scamin which he was supposed to sell coupon books that allowed peopleto buy music CDs and audiocassettes at a two-for-one savings. Hebelieved he was buying a protected territory and would be the onlymaster distributor in his native Colorado.

"I thought I could sell the books to schools and otherorganizations that needed fundraising," says Mott. "IfI'd taken my product to the marketplace in advance, I wouldhave discovered that the schools in my area had tried it threeyears before and it didn't sell. I'd also have found outthat the company sold other distributorships in my area at the sametime they sold mine."

Mott suggests asking for information about the service andconducting a market analysis. He says he was initially reluctant totell others about his new business opportunity, feeling he risked"giving away the secret." Mott admonishes,"Don't be afraid to talk to friends, neighbors andcompetitors in similar industries. If it won't work, it'sbest to find out before you start."

He also advises being cautious about companies that pressure youto sign up today. "If the opportunity is real, the sameoffer will be available the next day, a month from now and probablya year from now," Mott says.

It's safer not to buy a business opportunity basedout-of-state, Mott believes, because there's less recourse inthe case of a scam. He initially tried to take the company thatscammed him to court in his home state, because that's wherehe'd done business with them. When a Colorado judge threw hiscase out of court and ruled that he had to sue the company inits home state, Mott dropped the lawsuit.

"Even if I found an attorney in the company's homestate to take the case on a contingency basis, it would still meanthe extra expenses of travel, lodging and meals when I traveled[there] to testify," says Mott.

He suggests that if you choose to invest in a businessopportunity, invest the smallest amount possible. While Mott paid$20,000 to be a master distributor, others lost only $1,000 orless.

Shirley Rooker is president of Call For Action, a national,nonprofit, consumer help line she has worked with in Bethesda,Maryland, for the last 21 years. She also compiles daily consumerreports for a nationally syndicated radio broadcast. Rooker relatesone case in which a home-based-business owner who specializes incorporate personnel counseling lost her entire yearly advertisingbudget to a scam artist purporting to be publishing a directory ofhuman resources companies for corporations. The book was neverpublished. Another entrepreneur paid to be published in a directoryfor a union. The union knew nothing of the phony directory.

Rooker advises homebased entrepreneurs who receive such offersto follow up by asking for references. "If the referencesaren't with companies or other organizations that you feel sureare reputable and established, try also to check the credibility ofthe references," she says. "Some scam artists pay`shills' to give recommendations for them." Shills, or"singers," are usually friends or relatives of the scamartist. They earn their money by lying about the product you arehoping to buy. A singer probably only has samples of a product, buthe'll tell a prospective victim he has 10 high-grossing storeshandling it and he's considering purchasing enough product for10 more stores, or a similar story.

Along with references, consult the Better Business Bureau (BBB)for previous complaints. Each state, within its attorneygeneral's office, also maintains a department of consumerprotection that monitors and investigates consumer complaintsagainst businesses. The FTC also operates a public reference linethat lists complaints against companies.

Rooker says if you're thinking of starting your ownbusiness, you might visit your local chamber of commerce, or thesmall-business department of your local university, to become moreinformed about whether a particular business is likely to succeedin your area, and how stiff the competition might be. Rooker alsoencourages anyone who has invested in a business opportunity orother investment that they feel may be fraudulent to call Call ForAction at (301) 657-8260 for a free situation assessment and a listof actions to take to get their money back.

Not What They Seem

Be aware that the following business formats are frequentlycover-ups for scams:

• Business opportunities that require "registration"or "qualifying" costs up front. Most of these scamsare assembly-oriented. Companies purport to offer an opportunity towork at home, assembling kits ranging from necklaces to electronicgadgets to Christmas ornaments. Others promise you'll makemoney by reading books or proofreading. Shapiro explains that,after requesting that you send for free information, these programsoften require you to invest hundreds of dollars in equipment orsupplies. All "assemble-at-home" programs have inspectionor time clauses. If the business opportunity is fraudulent, theperson running the scam can simply reject your work as beingsubstandard or completed late, thereby voiding the money-backguarantee. "Unfortunately, no work is ever up to standard,leaving workers with relatively expensive equipment and suppliesand no income," Shapiro says. "To sell their goods, theseworkers must find their own customers."

• Envelope stuffing. "Now that companies can commandcomputerized machines to stuff 10,000 envelopes with only akeystroke or two, why would they need to pay homebased workers todo it?" asks Cynthia Brower, a regional director at theNational Homebased Business Association. This question applies toany business opportunity you might investigate. Consider asking thecompany why it is cost- and/or time-effective for them to hireemployees from out of state.

Regardless of its illogical premise, the lure of stuffingenvelopes to earn $1,000 per week is still alive and well inclassified ads. Once a potential home-based worker pays aregistration fee of $35, he receives a letter telling him to run anad similar to the one he responded to: "Make $1,000 weeklystuffing envelopes. Send stamped, self-addressed envelope to . .." In other words, he's instructed to perpetuate the samescam to which he just fell victim. "When it's too late,you find out the promoter never had any employment to offer. Theonly way you'll earn money is if people respond to yourwork-at-home ad," says Shapiro.

"When the main emphasis is to bring people into the programrather than sell the product," warns Rooker, "people whoparticipate risk not only losing money, but finding themselves onthe wrong side of the law for participating in pyramidschemes."

• Selling non-existent secrets or lists of fake jobopportunities. Mott explains that, in the classified sectionsof local newspapers and some national magazines, there arehelp-wanted ads for homebased workers that require calling a 900number. "These teaser ads get you to call for information bymaking a long-distance call on a 900 number," he says."In most cases, when you call the number, the position isalready filled." If you call on a toll-free number, thecompany sells you on paying them an upfront fee. Once you'vepaid, there is little recourse. This ploy is especially distressingbecause the ads are often listed alongside sincere ads placed byreputable companies.

• Fake invoices for products you never ordered orreceived. Aside from business-opportunity scams, there is anassortment of other business frauds that target homebasedbusinesses. A typical example is the phony-invoice scam. In thisscam, falsified invoices for classified ads or Yellow-Pages ads aremailed to potential victims, requesting payment as soon aspossible. Many scam artists use the fingers-walking logo to givethe invoice more legitimacy. Office products, health services,insurance and subscriptions to trade magazines are all subject tophony invoices. In a prevalent type of phony-invoice scam, conartists convince businesses to pay for overpriced laser printercartridges they never ordered. Sometimes a friendly telemarketerwill call first and ask for serial numbers and the like. When aninvoice arrives with such information, the business owner orbookkeeper may feel inclined to pay it, particularly if thebusiness has more than one employee who takes phone information.One way to avoid this scam is to keep a written record ofeverything you order and to check all invoices against this record.You should also guard against giving out personal information suchas credit-card numbers, calling-card numbers and serial numbersover the phone.

Fight Back

"Complain to the responsible company as soon as possible.The longer you delay, the greater the chances that the company willmove someplace else and start ripping off a bunch of newpeople," says Rooker. If possible, also stop your payment bycalling your bank or credit-card company immediately. If the chargehas already been put on your card, you can dispute it, under theFair Credit Billing Act, and request a charge-back within 60 daysof receiving your bill. To do this, immediately write to yourcredit-card company and include documentation such as a copy ofyour order, the date you ordered the material and the name andphone number of the company that sold you the goods.

Report the fraud to your local, state and federal consumerprotection agencies, the BBB and the FTC. While the BBB can onlycheck for local complaints about a company and can't tell youif a company is "good" or not, complaints are still awarning sign to investigate further. The FTC won't tell you ifthere have been complaints or that a company is currently underinvestigation, but will inform you if the agency has taken formalaction against a particular company, Shapiro says. "Even ifyou can't get your money back," Rooker says, "yourcomplaint could protect others."

Scam Alert

Shirley Rooker, president of Call For Action, a nationalconsumer help line, says think twice if you are considering abusiness deal that includes any of the following:

1. A company refuses to give you references or send you writteninformation about the offer.

2. A telemarketer acts as if he has done business with youbefore.

3. A "prize" is delivered by an alternative carrier,not the U.S. Postal Service; many con artists use alternativecarriers in order to avoid postal-fraud charges.

4. A company representative requires you to act on an offer thesame day.

5. A company asks you to pay a fee before you receive goods,services or information.

6. A telemarketer or a company advertising on the Internet asksfor your calling-card number as identification for purchases, oryour credit-card number to qualify you for a "prize."

Contact Sources

Barbara Brabec, P.O. Box 2137, Naperville, IL 60567, (630)717-4188.

Call For Action Inc., 5272 River Rd., #300, Bethesda, MD 20816,(301) 657-8260.

Graham Mott, 4343 W. Ponds Cir., Littleton, CO 80123, (303)797-6116.

National Association of Home-Based Businesses, P.O. Box 30220,Baltimore, MD 21270, (410) 363-3698.