Business opportunity or a bogus business?
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Studies show business opportunity scams are most often promoted at trade shows and through small ads that appear in the classified sections of newspapers and magazines.
However, the most successful business opportunity promoter remains the highly persuasive sales person or telemarketer who promise big earnings with little risk or no risks for investors.
In 2003, the BBB responded to a total of 131 inquiries about various business opportunities. You can imagine the concern when BBB monitored over 700 consumer inquiries during the first six months of 2004 on business opportunity offers. BBB records determined all consumer activity was focused on one company located in Lebanon offering telephone calling cards and multi-purpose public access Internet terminal business ventures to consumers nationwide.
Internet Marketing Group, operating from 300 North Maple, Lebanon, Tenn., hit our BBB radar in January 2004. The company used pre-recorded telemarketing messages inviting consumers to attend seminars and directed them to call a toll-free reservation number to receive seminar invitations, directions and discount certificates. Investments ranged in price from $15,435 to $127,495. BBB received no inquiries from Tennessee consumers and no complaints were filed by those who invested.
On June 28, 2004, the Federal Trade Commission charged Internet Marketing Group with violating numerous federal laws, engaging in deceptive practices and operating an illegal business opportunity scheme. The court in Nashville issued a temporary restraining order, appointed a temporary receiver and froze the company’s assets.
BBB commends the quick action of the FTC in this case and will update the status of Internet Marketing Group, and the fate of investors, after the courts preliminary injunction hearing.
There are risks inherent in any new business venture. However, there are some things a potential investor should consider before entering into any business opportunity:
• Always contact the Better Business Bureau www.bbb.org in the state where the company is located. After getting a BBB report for the company, ask that your name be retained for follow-ups by BBB should the report change or be updated.
• The FTC does not require filings of business opportunity disclosure statements. Twenty-three states require business opportunity disclosure filings and most states aren’t able to provide copies of these disclosures, but will let you visit their offices and review or copy the documents.
• Be skeptical about earning claims. The promise of many business opportunities is the claim of big earnings for a few hours of work a week. These promises rarely ever come true.
• Investigate claims about earning potential. Some companies may claim you will earn a certain income or that existing investors earn a certain amount. Companies making earning representations must provide you with the written basis for their claims. Ask to see in writing how it computed earnings claims.
• Sellers also must tell you in writing the number and percentage of owners who have done as well as they claim you will. Business opportunity promoters are required to provide a potential investor with a detailed disclosure document BEFORE you sign and agreement.
When you obtain the disclosure documents, review the sections dealing with risks, the business experience of the company, any administrative, civil or legal action again the company.
• Seek professional advice: Ask a lawyer, accountant or business advisor to read the disclosure document and contact. The money and time you spend on professional assistance, and research-such as phone calls to other investors could save you from fraud.
• Talking to investors: You should always talk to others already involved with the opportunity. But even then, be suspicious.Unscrupulous promoters have been known to provide “shills” to talk up the virtues of their scam. The disclosure documents require names, addresses, and phone numbers of investors in your area. Use these as a place to start but do not limit your contact to those provided by the company.
• Do your own research, and background checks. Remember, BBB had no customer complaints about the investment opportunity from those who invested with Internet Marketing Group. But all the yellow-flag warnings were present. Many times it’s two years or longer before investors realize they have invested in a bogus business opportunity. By that time the promoters and your investment will be long gone.
To obtain information on a product or service, contact the Better Business Bureau at (615) 867-0032 during regular office hours and 24 hours a day at (615) 242-4222. You can also visit our Web site at www.gobbb.org.