Online Financial Dreams That Didn't Come True
By SKIP KALTENHEUSER
For Donald and Robyn Rogers, a retired
couple living on a fixed income in St. Johns,
Ariz., the opportunity to drive their "dream car" free
while earning extra income had boundless appeal.
Their ticket to wheels and riches, they were told in
numerous advertisements spotted on the Internet,
would come from the purchase of a "consultant
membership" in the Five Star Auto Club of
Poughquag, N.Y. All they had to do was pay an
initial fee of $395 and monthly payments of $100
and recruit others to join.
But the couple, who signed up two summers ago,
said they never received a free lease on the maroon
Chevrolet Lumina they had picked out, and all they
earned for the six months spent trying to sign up
new members through postcard mailings, county fairs and craft shows
was $300, or $100 for each of their three recruits. They said they ended
up laying out $2,000 in membership fees, travel costs and other
expenses, including the cost of setting up a promotional Web site bought
through another Five Star member.
They were not alone in their disappointment. After receiving complaints
from other club members, the Federal Trade Commission last year sued
Five Star and its principals, Michael and Angela Sullivan of
LaGrangeville, N.Y.
Last month, Judge Colleen McMahon of Federal District Court in White
Plains agreed with the F.T.C's contention that Five Star's operation
amounted to a pyramid scheme that duped most of its 8,200 members.
The Sullivans were ordered to cease operations and to cumulatively pay
back $2.9 million to members. They were also banned for life from all
multilevel marketing businesses. Their lawyer, Michael Meth of Benjamin
Ostrer & Associates in Chester, N.Y., said he planned to appeal.
The move against Five Star is part of an F.T.C. effort to detect and
eliminate get-rich-quick schemes on the Internet. The agency said it
received 18,600 consumer complaints of Internet fraud in 1999,
compared with fewer than 1,000 just two years before; accusations of
online abuse now account for about one-quarter of all fraud complaints.
The National Consumers League in Washington estimates that the
average victim of Internet fraud lost $580 last year.
"The Internet is proving a con artist's gold rush," said Len Hansen, a
journalist from Durango, Colo., who used a research fellowship to
investigate various schemes. "Con artists are quick to embrace new
communications technologies."
By typing in "get rich quick" on
any search engine, consumers
can plug into a variety of Web
sites guaranteeing huge profits
if they invest some money or
get others to do the same:
"Make $50,000 per month!"
"Take home a six-figure
income." "Earn a 50 percent
return on your money."
Experts in fraud detection say
the Internet provides scam
artists, who used to operate through old-fashioned "boiler rooms" with
rented phone lines and dozens of cold callers, with a new cloak of
anonymity while making it easier to lure larger numbers of victims
worldwide. Well-constructed Web sites give the appearance of being
above board, which was what helped convince the Rogers to invest in
Five Star.
"We thought that a Web site, up for all to see, was a badge of
legitimacy," said Mrs. Rogers, 60, a retired child-care provider and
school custodian, who was a novice Internet user looking for ways to
supplement her fixed income when she came across the Five Star site.
"Because of our remote location, it seemed key for building our
business," she said of the Web.
Mr. Hansen said that as more people go online, "con artists can hit their
marks faster and cheaper than ever."
"As scam operations set up shop around the world," he added, "law
enforcement and victims will not find justice comes easy."
To attack the problem, the F.T.C. has organized "surf days," in which
dozens of law enforcement agencies collectively surf the Net looking for
questionable sites. Some 22 such events have been held over the last four
years; the largest and most recent was conducted from Feb. 28 to March
10 and called "GetRichQuick.con." Bringing together 150 consumer and
law enforcement organizations in 28 countries on five continents, it
yielded 1,600 suspect sites.
Mr. Hansen says many Net schemes are aimed at older Americans on
fixed incomes and unsophisticated young adults.
"My favorite come-on is: 'Wow. So easy, my children could do it,' " he
said. "You have to wonder why something so sure-fire is urgently shared
with tens of thousands of strangers. It's an old saw, but in or out of
cyberspace, if it sounds too good to be true, it is."
Nick Ortwein, a 20-year-old student at Mesa College in San Diego,
bought into the Five Star idea in June 1998. Dreaming of a red Ferrari,
he bought a $395 membership and sent out recruiting ads on the Internet
while a friend spent much time designing a Web site geared to college
students. But Mr. Ortwein, who said he failed to recruit anyone during his
one-year membership and never received his dream car, abandoned his
effort after he was unable to contact anyone at the company. He said he
never got more than a telephone recording.
Mr. Meth, the Sullivans' lawyer, says Five Star "simply grew too fast and
got away from Michael Sullivan." He said Five Star had many satisfied
customers and had offered refunds to those who were unsatisfied.
ames Kohm, a lawyer for the
F.T.C., countered that "customer
satisfaction and cooperation must be
loosely defined, as well over 90 percent
of the members lost money, and 98
percent of people eligible for a free car
did not get one, which is what one would
expect from the math of any pyramid
scheme this blatant."
One of the F.T.C.'s largest Internet cases
to date involved the Equinox
International Corporation of Las
Vegas. Three months ago, the company
agreed to a settlement that would use an
estimated $40 million in assets to pay
back the thousands of recruited
distributors who lost money trying to sell
health and beauty product lines and
water filtration products, the agency said.
Many people do not complain about
losing money on get-rich Internet
schemes, Mr. Kohm said, because they
are too embarrassed or blame
themselves for their failure to achieve
marketing goals. "They don't understand
that they were always up against
impossible odds," he said.
Mr. Rogers, 70, a retired employee of the Apache County treasurer's
office in Arizona, said the worst part of the ordeal was knowing that his
credibility was hurt, and that the three people he and his wife had
recruited, including their son, lost money.
"Though we tried very hard," Mrs. Rogers added, "we're glad we weren't
more successful." |
