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Attorney General Lockyer Announces Results Of State-Federal Crackdown On "Business Opportunity" Scams

Enforcement Actions Filed Against More Than 200 Work-At-Home and Other Schemes
Tuesday, February 22, 2005
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced that a major state-federal crackdown on unscrupulous marketers of work-at-home scams and “business opportunity” plans has produced criminal and civil enforcement actions against more than 200 operations that have victimized tens of thousands of consumers in California and across the country.

“Consumers should be wary of television, radio or newspaper advertisements that promote can’t-miss ‘business opportunities’ that will bring them lots of money if they buy a product and resell it to the public,” said Lockyer. “The products often are very difficult to resell and have hidden costs. What’s worse, the victims of these scams can lose their life savings.”

The enforcement sweep, known as Project Biz Opp Flop, is a coordinated effort launched by Lockyer’s office, law enforcement agencies in 13 other states, the Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ) and the U.S. Postal Inspection Service (USPIS). To date, more than 200 operations have been charged with criminal or civil violations of fraud and consumer protection laws.

Business opportunity and work-at-home fraud can cause substantial consumer injury. In the FTC actions alone, consumers lost more than $100 million. In the California cases, the defendants defrauded victims out of more than $250,000.

Project Biz Opp Flop contains four key components: civil actions filed by state enforcement agencies; civil enforcement actions filed by the FTC; civil penalty actions filed by the DOJ on behalf of the FTC; and criminal prosecutions. The civil actions filed by law enforcement agencies in 14 states, including Lockyer’s office, have produced fines against fraudulent work-at-home promoters and orders requiring the defendants to provide restitution to victims. Additionally, these actions have resulted in cease and desist orders, consent agreements or judgments to end the unlawful practices. The defendants in these actions are located in 24 states and Canada, with the greatest number in California (11), Florida (26) and Arizona (7).

Lockyer has brought enforcement actions against a number of companies which marketed business opportunity plans to sell vending machines that dispense pre-paid telephone cards and pre-paid debit cards. Those lawsuits yielded court orders prohibiting the unlawful practices, requiring victim restitution and awarding civil penalties.

Project Biz Opp Flop includes 16 FTC actions against 31 corporate defendants and 33 individual defendants. The defendants marketed work-at-home opportunities involving refrigerator magnets, medical billing, Web design and envelope-stuffing, as well as snack and soda vending machine and surplus goods brokerage businesses. In some cases, the promoters overstated the demand for the products, according to the FTC. In others, such as vending machine businesses, the operators allegedly misrepresented the amount of assistance they would provide the franchisee. All but one of the operations targeted by the FTC allegedly shared one common element: unsubstantiated or deceptive earnings claims.

The FTC today also announced the referral of four new civil penalty cases to DOJ based on alleged violations of the Franchise Rule.

On the criminal side, the U.S. Attorney’s Office for the Southern District of Florida – working with the FTC’s Criminal Liaison Unit, USPIS and the DOJ’s Office of Consumer Litigation – recently filed charges against 14 individuals operating business opportunity scams.

Lockyer reminded California consumers that if they are considering investing in a business opportunity plan they should make sure they obtain all necessary information about the program before they sign a contract. California law, he added, requires franchise sellers to register with the state Department of Corporations, and requires sellers of other business opportunities to file with the Attorney General’s Office.

“Before investing, consumers should talk with a friend or financial advisor, and ensure the company is properly registered with the state and provides the disclosures required by California law,” said Lockyer.

Lockyer and the FTC also offered the following tips for consumers who may be considering investing in a work-at-home business opportunity:
Fraudulent ads use similar bait: Fast cash. Minimal work. No risk. And the advantage of being your own boss or working from home.
Before promoters can accept money from potential investors, the law requires that they give investors important disclosure documents. If the promoter does not make the document readily available, find another opportunity.
Talk to current investors, but beware of paid shills. Visit other business sites in person. And get professional advice if needed. Spending a few hundred dollars to talk to a lawyer, accountant or other expert is a wise move, especially when a life’s savings is on the line.
To help spot and avoid business opportunity scams, consumers should visit the FTC’s web site at www.ftc.gov/bizopps or www.ftc.gov/workathome for information in both English and Spanish. Consumers who believe they have been victimized by such scams can contact the Public Inquiry Unit of the Attorney General’s Office by writing to P.O. Box 944255, Sacramento, CA 94244-2550, or by visiting the Attorney General’s web site at http://www.ag.ca.gov/consumers/mailform.htm.

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