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Mon, May 22, 2000
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Authorities Cracking Down on Phony
Business Opportunities

By Kalpana Srinivasan   Associated Press
WASHINGTON — One classified ad guarantees that by stuffing envelopes at home, you can easily earn thousands of dollars. Another promises $50,000 a year for doing medical billing from your own computer. A third claims you can take in $10,000 monthly by owning and operating pay phones.

But consumers are actually losing millions of dollars a year responding to such phony business opportunities touted in published ads and on the Internet, said government authorities, who are filing a wave of cases against those behind the scams.

The Federal Trade Commission, the Justice Department, several state attorneys general and securities officials are announcing today they have filed complaints against 68 operations they accuse of deceiving consumers about work-at-home and other business ventures, such as vending machine chains.

More than 100 newspapers have agreed to include their own classified ads informing consumers of what to look for in a legitimate business promotion, officials said. Additionally, more than 85 of the papers have agreed to screen out deceptive ads, such as those that make earnings claims without any disclosure of how much consumers have actually made.

The promoters targeted consumers with short teaser ads that promised the chance to make money in various business plans — from working at home to buying vending machines. Consumers who called for more information received a deceptive pitch about how much help they would get in setting up their business and how much money they would make, said Steve Gurwitz, assistant director in the Division of Marketing Practices at the FTC.

Rich Torland of San Antonio, a full-time college student, wanted to earn some money while working his own hours, when he responded to an ad offering him just that for doing medical billing from his home computer.

"The idea of being able to come home and work on my own time and make some money, it was worth checking out," said Torland. "At first the way the ad was worded I thought I would actually be working for a business."

But after he paid $350 for the software to do the billing, Torland learned that the promoter was not going to provide him with any clients. He asked for a refund, but was put off time and again. When Torland set up a Web site detailing his experience, he received e-mails from others with similar tales. He eventually lodged his complaint with regulators, but said he is still waiting to get his money back.

In other cases, consumers paid as much as $5,000 to $7,000 to buy vending machines or pay phones they were told they could operate for profit. But the companies advertising these ventures often furnished people with old equipment and could not secure them the kinds of locations that would actually bring them any money, officials said.

Typically, big, established companies that place many vending machines are given the prime spots, leaving a limited number of lucrative locations for individuals. And in at least a few instances, consumers never even got the phones or machines for which they had paid thousands of dollars.

Federal rules require companies selling franchises and other business ventures to provide potential customers with disclosure information that includes the identities of current and former franchises. The rules also require that claims about potential earnings be substantiated.

The complaints filed today would force the targeted promoters to change their business practices and provide consumers with the required information.

The FTC filed 13 cases in federal court, nine of which resulted in a temporary restraining order with the business' assets frozen to provide monetary refunds to consumers. The Justice Department filed another 22 complaints for the FTC in federal court, seeking civil penalties. State officials filed the remaining 33 actions.

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