From FTC release March 5, 1998 on Dorian Reed
Copyright 1998 Post-Newsweek Business Information Inc.
Newsbytes
March 5, 1998, Thursday
LENGTH: 1159 words
HEADLINE: FTC Halts Internet Bogus Businesses
DATELINE: WASHINGTON, DC, U.S.A.
BODY:
(NB) -- By Bill Pietrucha, Newsbytes. Three businesses that used the allure of the Internet and hi-tech products to peddle fraudulent business opportunity and pyramid scams have been charged by the Federal Trade Commission (FTC) with violating federal laws.
The charges follow an unrelated suit filed against Internet Business Broadcasting Inc., Thomas Maher, Dorian Reed, and Audrey Reed in the US District Court of the District of Maryland, Northern Division, is asking for a permanent injunction and "other equitable relief."
In that case, which appears to be the first law enforcement action targeting fraudulent, unsolicited commercial e-mail, or spam, the FTC asked a federal district court judge to permanently prohibit the company from making false promises via spam mail and on its Web site to tout its bogus business opportunity scheme.
According to Jodie Bernstein, director of the FTC's Bureau of Consumer Protection, one of the three firms charged with peddling fraudulent business opportunities and pyramid scams used the Internet to promote a pyramid scam disguised as a legitimate business marketing Internet access devices.
A second firm promoted a purported "turnkey" business opportunity as an "Internet Consultant" to sell advertising space on the firm's cybershopping mall, while the third firm sold business opportunities based on an Internet access kiosk designed to allow the public to walk-up, pay a fee, and access the Internet in hotel lobbies, airports, and other public locations.
The FTC alleged that all three operations made fraudulent earnings claims, and has asked federal district courts to halt the allegedly bogus business practices and refund consumers' investments, Bernstein said.
"Twenty-first century technology and Internet accessibility can help disguise plain, old-fashioned pyramids and get-rich-quick scams," Bernstein said. "The FTC is on the beat, and is taking on operators who use the Internet to con consumers."
According to one of the FTC complaints, Valencia, California-based Future-Net, Inc. claimed its recruits could earn substantial income for the rest of their lives by joining a multi-level marketing program selling Internet access devices.
Consumers paid fees ranging from $195 to $794 to become Future-Net distributors in the scheme, which was promoted on the Internet.
But, according to the FTC, a major portion of the income the defendants promised was not based on sales of the devices, which are easily available at other retail distributors, including Sears and Circuit City, at comparable or lower prices. Instead, the promised income came from fees paid by newly recruited distributors who would then bring on more recruits to provide a non-stop "downstream" of paying members.
Future-Net claimed that their "Internet Consultants" would receive $200 to $400 when they personally recruited another consultant, and $25 to $50 when a person in their downline recruited a new member.
The FTC, however, charged that the income from the plan did not depend on sales of the devices, but on recruitment, the typical profile of an illegal pyramid. Since almost 90 percent of investors in any pyramid program actually lose money, the defendants' earnings claims were false, and violated federal law, the FTC alleged.
The court issued a temporary restraining order on February 23 against Future-Net, freezing its assets and appointing a receiver for the corporate defendants. The court has scheduled a March 9 hearing on the FTC's request for a preliminary injunction to halt the scam. The FTC also is seeking a permanent injunction against future violations and refunds for investors.
In the second case, TouchNet Inc., Touchtone Telecommunications, and their used ads that claimed investors could earn $15,000 a month by becoming "Internet Consultants" and charged a $3,195 fee for "in depth" training that would allegedly allow consumers to design World Wide Web pages for businesses that could advertise in their "World Virtual City," the FTC complaint alleges.
"For their investment, consumers received a 'training workshop' that provided no real training and a booklet containing basic Internet information readily available from public sources," according to the FTC's complaint.
Prior to the "Internet Consultant" business, the FTC said Bellevue, Washington-based TouchNet sold two other business opportunities through seminars: a pay-per-call 900 number business venture and a prepaid phone card business.
Both business opportunities claimed that inexperienced consumers could make thousands of dollars a month. But according to the FTC, few, if any, of the purchasers made the income promised in the sales pitch. In addition, the agency charged, TouchNet and its principals did not provide disclosure documents required by the FTC's Franchise Rule.
The Franchise Rule requires a franchiser to provide prospective franchisees with a complete and accurate basic disclosure statement containing 20 categories of information, including information about the history of the franchiser, and the names and addresses of other franchisees. Disclosure of this information enables a prospective franchisee to assess any potential risks involved in the purchase of the franchise.
The FTC asked the court for a preliminary injunction to halt the scams, a permanent injunction against future violations, and redress for consumers. On February 18 the court entered a stipulated temporary restraining order halting the conduct, pending trial.
In the third case, Hart Marketing Enterprises Ltd. Inc., a Tampa, Florida-based firm, and its principals promoted and sold free- standing computer kiosks with cash acceptors designed to allow customers to access the Internet, for a fee, from public locations such as hotels, airports, or bookstores.
According to the FTC complaint, the principals claimed that consumers who invested in the kiosks could expect earnings between $500 to $700 per kiosk, per week, and that Hart would provide assistance in finding suitable, profitable locations in which to place the kiosks they had purchased by recommending "professional locators" to place the machines.
"In fact," the FTC said, "few, if any purchasers earned the income Hart projected; and the 'locators' recommended by Hart did not find profitable locations, and, in some cases, failed to place the purchasers' kiosks in any location.
As in the other cases, the FTC asked the court to grant a preliminary injunction, a permanent injunction, and to provide refunds for consumers.
Reported by Newsbytes News Network: newsbytes.com
<P>13:38 PM CST
(19980305/Press & Reader Contact: Claudia Bourne Farrell, Federal Trade Commission, 202-326-2181)
LANGUAGE: ENGLISH
TYPE: NEWS |
