Business scams

Most home-based businesses are legitimate. However some are just interested in promoting a scheme. Learn what precautions will help you avoid a scam.

Prevalence

Throughout the United States, thousands of individuals are starting home-based businesses every day. The Small Business Administration estimates that more than half of all U.S. small firms are home-based businesses.

Because of the growing interest in home-based business, a large number of individuals and companies have organized to meet the needs of budding entrepreneurs. Many of these are legitimate companies, however, many are simply interested in promoting a scheme. While such schemes are not new, the use of telecommunications has provided the means for new business opportunity scams to develop over the past few years The main targets of work-at-home schemes are people with young children at home, the elderly, the unemployed and individuals with disabilities. Fees for work-at-home schemes range from $5 to $30 on the low side, to more than $30,000 on the high side.

Types of scams

Two holdover schemes we have seen over the years involve envelope stuffing/mailing services and assembly/craft work. Typically, when someone responds to an ad for envelope stuffing, all they receive for their investment are instructions to place a similar ad. Think about it. With modern equipment and mailing techniques, there is really no demand for workers to stuff envelopes in their homes. Assembly/craft work are also frequently advertised opportunities. These often require an investment in equipment or supplies. When the investor completes the work, they often find that they are expected to sell the finished goods on their own or they are told that the workmanship is not up to “standard.” Unfortunately, no work is ever “up to standard.”

“Business opportunities” which have become popular recently include products and services such as the sale of business and trading cards, medical billing, website design and hosting, vending machines, Internet marketing and prepaid phone cards. The Federal Trade Commission (FTC) has investigated many of these opportunities. Often the violation which is cited involves the “misrepresentation that purchasers could reasonably expect to achieve a specific level of earnings.” You can easily access cases the FTC has investigated.

A number of companies travel throughout the United States selling home-based business “opportunities” such as the sale of distressed merchandise, discount travel memberships, T-shirts, vitamins or scholarship search services. They usually sell the opportunity for a special price only at the time of the seminar and they are almost always are from out of state. FTC investigations suggest that “few, if any, consumers who purchase the business ventures make any substantial money.”

In the past six years the FTC has taken law enforcement actions against more than 200 business opportunity schemes. It is estimated by the FTC that losses due to these scams are conservatively valued at $200 billion per year. The lost per investor averages between $5,000 and $10,000.

Work-at-home schemes

“Be part of one of America’s Fastest Growing Industries! Earn thousand of dollars a month — from your home — Processing Medical Billing Claims.”

You can find ads like this everywhere — from the streetlight and telephone pole on your corner to your newspaper and computer. While you may find these ads appealing, especially if you can’t work outside your home, proceed with caution. Not all work-at-home opportunities deliver on their promises.

Many ads omit the fact that you may have to work many hours without pay. Or they don’t disclose all the costs you will have to pay. Countless work-at-home schemes require you to spend your own money to place newspaper ads; make photocopies; or buy the envelopes, paper, stamps, and other supplies or equipment you need to do the job. The companies sponsoring the ads also may demand that you pay for instructions or “tutorial” software. Consumers deceived by these ads have lost thousands of dollars, in addition to their time and energy.

Classic work-at-home schemes

Several types of offers are classic work-at-home schemes.

Medical billing. Ads for pre-packaged businesses — known as billing centers — are in newspapers, on television and on the Internet. If you respond, you’ll get a sales pitch that may sound something like this: There’s “a crisis” in the health care system, due partly to the overwhelming task of processing paper claims. The solution is electronic claim processing. Because only a small percentage of claims are transmitted electronically, the market for billing centers is wide open.

The promoter also may tell you that many doctors who process claims electronically want to “outsource” or contract out their billing services to save money. Promoters will promise that you can earn a substantial income working full or part time, providing services like billing, accounts receivable, electronic insurance claim processing and practice management to doctors and dentists. They also may assure you that no experience is required, that they will provide clients eager to buy your services or that their qualified salespeople will find clients for you.

The reality: you will have to sell. These promoters rarely provide experienced sales staff or contacts within the medical community.

The promoter will follow up by sending you materials that typically include a brochure, application, sample diskettes, a contract (licensing agreement), disclosure document, and in some cases, testimonial letters, videocassettes and reference lists. For your investment of $2,000 to $8,000, a promoter will promise software, training and technical support. And the company will encourage you to call its references. Make sure you get many names from which to choose. If only one or two names are given, they may be “shills” — people hired to give favorable testimonials. It’s best to interview people in person, preferably where the business operates, to reduce your risk of being mislead by shills and also to get a better sense of how the business works.

Few consumers who purchase a medical billing business opportunity are able to find clients, start a business and generate revenues — let alone recover their investment and earn a substantial income. Competition in the medical billing market is fierce and revolves around a number of large and well-established firms.

Envelope stuffing. Promoters usually advertise that, for a “small” fee, they will tell you how to earn money-stuffing envelopes at home. Later — when it’s too late — you find out that the promoter never had any employment to offer. Instead, for your fee, you’re likely to get a letter telling you to place the same “envelope-stuffing” ad in newspapers or magazines, or to send the ad to friends and relatives. The only way you’ll earn money is if people respond to your work-at-home ad.

Assembly or craftwork. These programs often require you to invest hundreds of dollars in equipment or supplies. Or they require you to spend many hours producing goods for a company that has promised to buy them. For example, you might have to buy a sewing or sign-making machine from the company, or materials to make items like aprons, baby shoes or plastic signs. However, after you’ve purchased the supplies or equipment and performed the work, fraudulent operators don’t pay you. In fact, many consumers have had companies refuse to pay for their work because it didn’t meet “quality standards.”

Unfortunately, no work is ever “up to standard,” leaving workers with relatively expensive equipment and supplies — and no income. To sell their goods, these workers must find their own customers.

Questions to ask

Legitimate work-at-home program sponsors should tell you — in writing — what’s involved in the program they are selling. Here are some questions you might ask a promoter:

  • What tasks will I have to perform? (Ask the program sponsor to list every step of the job.)
  • Will I be paid a salary or will my pay be based on commission?
  • Who will pay me?
  • When will I get my first paycheck?
  • What is the total cost of the work-at-home program, including supplies, equipment and membership fees? What will I get for my money?

The answers to these questions may help you determine whether a work-at-home program is appropriate for your circumstances, and whether it is legitimate.

You also might want to check out the company with your local consumer protection agency, state Attorney General and the Better Business Bureau, not only where the company is located, but also where you live. These organizations can tell you whether they have received complaints about the work-at-home program that interests you. But be wary: the absence of complaints doesn’t necessarily mean the company is legitimate. Unscrupulous companies may settle complaints, change their names or move to avoid detection.

The seminar pitch: a real curve ball

Earn up to $100,000 per year!

At the world’s most successful seminar, we’ll show you how to multiply your money in 6 months or less — with little risk.

Our experts will teach you the latest insider secrets for making money fast.

You can’t afford to pass up this valuable opportunity.

What a pitch! You may have received a letter or seen an infomercial promoting a seminar or conference that promises to help you make a lot of money. Seminar hucksters say they’ll give you valuable information about how to invest successfully or operate a profitable business. Their “success stories” and testimonials seem to show that anyone who attends the seminar can make money from the investment and business program they’re selling. Some promoters may even claim to have gotten rich from their own investment in the program.

If you attend one of these seminars, you’ll hear a series of sales pitches for a variety of business opportunities and investments. Consumers who invest in these “opportunities” frequently find that the pay-off isn’t as promised — and they can’t recoup the money they spent.

Don’t get hit by the pitch

Promises of quick, easy money can be a powerful lure. If you buy into a business opportunity at a seminar, you may find that the products and information you purchased are worthless and that your money is gone.

Evaluating a “business opportunity”

The FTC suggests that individuals be wary of the seminar squeeze. An individual looking at a home-based business opportunity should ask the following questions before moving forward:

  • Does this offer sound too good to be true?
  • You can earn big money fast, regardless of your lack of experience or training.
  • The deal is a “sure thing” that will deliver security for years to come.
  • The program worked for other participants — even the organizers.
  • Am I being pressured to buy today? Can I afford to lose my investment?
  • What do I really know about this individual or company?
  • If any of the answers to these questions are negative; buyer beware!

The FTC has developed these seven basic precautions:

  1. Study the required disclosure statement and proposed contracts carefully.
  2. Consult with an attorney or other professional advisors before making a binding commitment.
  3. Be sure all promises made by the seller are written into a contract.
  4. Talk with others who have already invested in the business.
  5. Investigate all earnings claims carefully and insist that earning claims be in writing.
  6. Comparison shop other franchises or business opportunities.
  7. Request information from consumer protection agencies and the Better Business Bureau in your area.

To file a complaint

There is recourse if you have invested money in a company that you feel is not legitimate. First, contact the company and request a refund. Let company representatives know that you plan to notify officials about your experience. If you can’t resolve the dispute with the company, you can seek assistance from the following agencies.

  • The Federal Trade Commission works for the consumer to prevent fraud and deception. Call 877-FTC-HELP (877-382-4357) or visit  www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
  • The Attorney General’s office in your state or the state where the company is located. The office will be able to tell you whether you’re protected by any state law that may regulate work-at-home programs. The Missouri Attorney General’s Office offers more information. You can also contact the Attorney General’s Consumer Protection Hotline at 800-392-8222.
  • Your local postmaster. The U.S. Postal Service investigates fraudulent mail practices. Visit postalinspectors.uspis.gov.
  • The advertising manager of the publication that ran the ad. The manager may be interested to learn about the problems you’ve had with the company.
  • Your local Better Business Bureau.
  • Your local consumer protection offices.
  • The advertising manager of the publication that ran the ad. The manager may be interested to learn about the problems you’ve had with the company.

To learn more about home-based businesses, download How to Start and Manage a Home-based Business. For personalized assistance, contact a business specialist at a Small Business & Technology Development Center. Visit our calendar of events for a listing of business training events in Missouri.



X
- Enter Your Location -
- or -