Scam Alert! - Industry Trend or Event

Home Office Computing, April, 2001 by Dan Costa

CAVEAT EMPTOR: KNOWLEDGE, RESEARCH, AND A LiTTLE COMMON SENSE WiLL HELP KEEP YOU FROM BEiNG CONNED.

A HOME-BASED BUSINESS OWNER, YOU HAVE A RISK-taking attitude that can culminate in great profits. Alas, this pioneering spirit can also tempt unwary home officers into the jaws of a wide variety of scams, schemes, and nefarious business deals spawned by modern-day Fagans. But if you're forewarned, and exercise some caution and common sense, most of them can be avoided.

"The work-at-home, make-big-money, buy-large-cars, I-will-tell-you-how-to-make-it-rich-overnight multi-level-marketing offers are largely schemes, if not scams," says Lindsey Krause, who worked in the corporate marketing department of a multilevel marketing company (MLM) for more than a year before she discovered its unsavory business tactics and quit. (Krause asked us not to reveal her real name for fear of reprisals.) She says hundreds of people left the company each month, disillusioned and broke, while a core group collected outrageous sums of money.

The bait comes in many forms--savings on office supplies, incredible sales, membership in exclusive trade organizations. And despite the dire warnings of attorneys general and consumer groups, people still fall prey to shady work-at-home business opportunities.

"When people were looking for a little extra cash or an at-home opportunity because of family or physical limits, they were preyed on relentlessly," maintains Krause. "Single moms were their easiest targets."

There are two main reasons why home-based business owners are particularly susceptible to scams, according to James Walsh, author of You Can't Cheat an Honest Man: How Ponzi Schemes and Pyramid Frauds Work and Why They Are More Common Than Ever ($20; Silver Lake Publishing). One is logistical and the other is psychological.

Logistically, home-based businesses offer fewer layers of resistance between an outside promoter and the decision-maker. "Often, the decision-maker is the same person who picks up the phone," Walsh says. "Even if you are just starting a one-person shop and feel as broke as can be, you're still an ideal mark for a scammer because you're easy to reach."

The psychological reason is that some home-based business owners feel a kind of institutional insecurity, as if they need to pay attention to every business proposal that comes their way in order to compete. "If anything, the opposite is closer to the truth," Walsh says. "A home-based business should be even pickier about the proposals they entertain."

ARMED WITH INFORMATION

The first thing you must do to protect yourself from scammers is gather information. Too often, consumers work with companies on the assumption that they are legitimate. "More than scams and cons, it is a lack of awareness that causes fraud," says David Horowitz, host of the weekly radio show Fight Back, a consumer advocacy program (www.fightback.com).

Horowitz says that before you do business with a company, you need to check them out completely. Call their 800 and local telephone numbers to make sure they work. If the company has a Web site, check it out to get more information about how they operate. You can also search Web-based and Usenet message boards for complaints about the company. Even if the company doesn't have its own Web site, customers often post warnings about disreputable firms on other sites. Some good places to start include www.fightback.com, www.scambusters.com, and www.thepubliceye.com.

The next thing you should do is become acquainted with some of the more common scams. There are countless schemes afoot out there, but here are a few general types of which home workers should be particularly wary.

WHAT'S WRONG WITH THIS PICTURE?

The most lucrative (at least for the perpetrators) and potentially dangerous scam is the multilevel marketing scheme. These pyramid schemes will come to the home-based business dressed up as marketing opportunities or guaranteed networking systems.

"Sometimes they will suggest that you market their product--pre-paid phone cards, soap, coins--while getting your business off the ground," Walsh says. "Other times, they will suggest that their system can generate sales and clients for your business." In both cases, they're out to get "start-up fees" or "management licenses" from you, as well as everyone you can recruit into the scheme.

Krause was involved in a vitamin venture that also sold weight-loss and beauty cream products. She says the company made a good deal of its money by selling high-priced products of inferior quality. "Most of the products are extremely overpriced compared to purchasing them on the Internet or in a superstore," Krause says.

While the sign-up fees for most programs are minimal, MLMs often encourage new members to purchase large amounts of product. When you join, you are often required to have a three- or even six-month supply shipped--and charged to your credit card--each month.

In addition to paying for the products, these schemes usually require you to incur a great deal of overhead expense. Unlike an employee in a corporate setting, you have to pay for everything, including sales brochures, meeting spaces, photocopying, gas, phone service, conferences, training, and more. Before long, Krause says, your expenses can get wildly out of control. "That's why you see the word `independent' all the time," says Krause. "It doesn't mean freedom from work: it means you pay for everything on your own."