Business-Fraud Crackdown Under New Rule Announced by DOJ and FTC
By David Stout | November 15, 2012 1:11 pm

If they did not involve vulnerable people, like the elderly,  homeowners facing foreclosure and would-be entrepreneurs reaching for the American dream, the business-fraud cases described on Thursday by the Department of Justice and the Federal Trade Commission — the first cases to be filed under a new FTC rule — would be good for laughs.

There was the California outfit that promised investors they could make “thousands of dollars monthly for working just 2 to 4 hours a week from home.” There was an Oregon enterprise that promised participants they could make up to $38,943 tracking down people who were eligible for refunds on their federal mortgage loan-insurance premiums. (It wasn’t clear how the $38,943 figure was arrived at. Was the odd number supposed to sound authentic?)

Civil Division acting chief Stuart Delery testifies before a House Judiciary subcommittee on May 31, 2012. Photo by Elizabeth Murphy/Main Justice

And there was a Texas concern that promised big money selling jewelry after an initial investment of $12,950 (again, note the odd number), and references to back up the promises. Alas, the references were bogus, the DOJ said.

Or for those wanting to sell candy in vending machines, there were promises of big profits after an initial investment of “only” $10,000, an investment that was supposed to bring professional training and help placing machines. Sadly, as Principal Deputy Assistant  Attorney General Stuart Delery, head of the Civil Division noted, “there were no professional locators, the vending machines generated little business, and customers lost all or nearly all of their investments.”

“Even the candy was often stale or rotten,” Delery said.

“In an attempt to lure wary consumers, fraudsters have crafted business opportunity schemes that promise what appear to be more realistic returns backed up by false success stories,” said Tony West, Acting Associate Attorney General.

The “get rich quick” schemes described by the DOJ and FTC had an air of familiarity, but there was something new. As Delery noted, these were the first filed by DOJ enforcing the FTC’s amended Business Opportunity Rule, which calls for business-opportunity sellers to state, in plain English, what the investors are getting and what they are risking.

“The scam artists the FTC shut down lied to people trying to make an honest buck, and robbed them of their money as well as their hopes,” said David C. Vladeck, Director of the FTC’s Bureau of Consumer Protection.  “We brought these cases on behalf of millions of people who wanted to jump-start their incomes and rebalance their budgets – people who placed their hopes in a business opportunity so they could better provide for their families.”

Fourteen individuals face criminal charges in the government’s latest crackdown on questionable business schemes. The DOJ named four businesses facing criminal charges and three others facing civil actions.

The officials at Thursday’s news conference said phony business schemes cost vulnerable Americans millions of dollars a year.  Although the 0fficials didn’t say so, it can be assumed that many victims are too embarrassed to report their experiences. It can also be assumed, the officials said, that more schemes will pop up as the perpetrators move from state to state, sometimes changing names.


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