Don't let scam artists trap you: more victims have been snared by business opportunity schemes. Here's how you can avoid being taken - Business Opportunities

Black Enterprise, Feb, 2003 by Donald Jay Korn

WHEN JOHN CUMMINGS DECIDED TO BECOME AN ENTREPRENEUR LAST YEAR, HE HAD LITTLE IDEA HE'D lose money in an alleged scam. Like many unsuspecting proprietors, Cummings was bilked out of thousands of dollars when he became involved with Accent Marketing, an outfit just outside of Mobile, Alabama, that sells vending and gaming machines.

"I was looking for a way to increase my income," says Cummings, a 44-year old mortgage broker who lives in Stockbridge, Georgia. "My partner and I visited the company's headquarters. We were impressed by the management and by the game machine they had, which was supposed to be the next Pac-Man."

Cummings was so taken with the product that he purchased $36,000 worth of machines. As part of the agreement with Accent, Cummings paid another $2,000 to a company-approved "locator company," a firm that places machines in venues such as bars and arcades. "We were the first ones in the Atlanta area to have these machines," he says, "so we thought we could place them easily."

Cummings says he and his partner thought they'd see a 600% return on their money after one year. Accent's ads had promised customers they could earn as much as $18,000 a month from the game machines. But for Cummings, the machines never made it out of his garage. Shortly after he reached out to the locator company provided by Accent, it folded. When Cummings complained, Accent gave him the name of a second company, which Cummings says gave him fraudulent information.

Accent then agreed to replace the games with candy vending machines, which Cummings believed would net him higher profits. But before the deal was done, the Federal Trade Commission (FTC) stepped in. "In early 2002, we had just received our second batch of candy machines when time ran out. The FTC got a court order to freeze all of Accent's assets, charging that it was just a scam."

The move against Accent was part of a year-long sting operation conducted by the FTC, the U.S. Department of Justice, and 17 state law enforcement agencies, which had been targeting business-opportunity and work-at-home scams. "In the case of Accent Marketing, we couldn't find anyone who had made nearly as much money as the company claimed its investors would make," says Michael Mora, an attorney with FTC's Bureau of Consumer Protection. "We have obtained an injunction and brought a civil case against the company."

Unfortunately, one federal-state sweep is unlikely to stop such ripoffs. "During an economic downturn, people are vulnerable to these schemes," says Mora. "If people are out of work and having a difficult time finding a new job, investing in a business may sound very attractive."

Cummings is just one of thousands who has been fleeced by this new wave of operators. In today's sluggish economy, more people than ever are vulnerable to swindles and Ponzi schemes. A number of unemployed and underemployed professionals have been eager to create their own jobs or supplement their incomes. Many have become susceptible to frauds set up to look like bona fide business opportunities.

AN ARRAY OF SCHEMES

For months BLACK ENTERPRISE researched these schemes and how swindlers targeted victims and then pocketed their hard-earned cash. Knowing how these scams work can help you avoid getting ensnared in a con artist's trap.

FTC's Mora places scams into two categories:

* Work-at-home scams. How often have you seen ads promising thousands of dollars for working at home in your spare time? If you've answered one, you may have been a mark in a work-at-home scheme. These con jobs tend to require less in the way of up-front cash and, as the name indicates, lure people intrigued by the idea of working from home.

Work-at-home scams rank No. 2 on the National Fraud Information Center's Top 10 List, right behind bogus credit card deals. In fact, the Council of Better Business Bureaus fielded more than 460,000 inquiries regarding work-at-home offers in 2001, up 70% from 2000. The organization has also received roughly 20,000 complaints in 2001, up 20% from 2000. "I don't know of many work-at-home offerings that are genuine," says Susan Grant, director of the National Fraud Information Center, a project of the Washington, D.C.-based National Consumers League. "Very few companies are going to hire you and set you up with customers the way these promoters often promise. The bottom line is that there's no way to easily make money by staying home. No one is going to pay you for stuffing envelopes."

* Business opportunity schemes. Generally, these are frauds where investors can lose more than $500. "People might buy overpriced equipment or software packages to go into business," says Mora. "Investors are given false and misleading ideas as to how much money they can earn. Often, phony references are given to show that others have been successful. After they put their money into the deal, investors find out that there's no real demand for that product or service."

So what types of scams are derivative of work-at-home and business opportunity cons? They fall into the following subcategories: