International Law

Business-Opportunity Fraud Advice from Monster Career Advice

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According to an article at Monster Career Advice:

"The Federal Trade Commission (FTC) says that fraudulent business opportunities consistently rank in the top 10 categories in its database of consumer fraud complaints"

In fact, if the frauds were ranked by amount lost, biz op scams would rank 1 or 2.

So what does the FTC recommend?  And why is it totally wrong?  And why cannot we expect better?

First, what does the the FTC get right?  Well, they are right about some of the warning signs:

"The FTC advises you keep the following in mind when considering a business opportunity:

If an ad includes an earnings claim -- but not the number and percentage of people who achieved it -- the seller is probably violating the law.

Search the business opportunity's franchise disclosure document for a statement about previous purchasers. If the document says there haven't been any but the seller offers a list of references, they probably are phony.

Get the list of 10 previous purchasers and interview each in person, preferably where their business operates."

The first advice is good; earnings claims with no back up, run away.  The next two recommendations are worthless.

Few, if any biz op's have a franchise disclosure document.  Second, where are you to get a list of the 10 previous purchasers, if there is no franchise disclosure document? 

But it gets worse, the FTC advises:

• If the opportunity involves selling products from a well-known company, call the company's legal department. Find out whether the promoter is affiliated with it and ask whether the company has ever threatened trademark action against this promoter or others. 
  
  
• Consult an attorney, accountant or other business advisor before you sign any papers or pay any money. If the promoter requires a deposit, your attorney can establish an escrow account until you close the deal. 
  
  
• Contact the attorney general's office, state or county consumer protection agency and Better Business Bureau both where the business-opportunity promoter is based and where you live to find out if there's any record of unresolved complaints. Remember that unscrupulous dealers will change names and locations to hide a history of complaints."

The first tip isn't bad, but without knowing how to access a trademark database it is useless to tell people to contact the trademark's counsel.

The second tip is stupid: few attorneys, and no accountants or business advisors is going to know about the other state's biz op laws and access the necessary registrations for you.

Finally, contacting the AG, BBB or anyone else is a dangerous game.  These people don't know about a fraud until it has been committed!  It is very dangerous to take advice from the BBB about fraud.

Full post as published by Misleading Advertising Law on August 19, 2008 (boomark / email).