FTC Stops Internet Business Opportunity Scam

Two Internet-based companies and their principals are permanently barred from misrepresenting any product or service, and will pay refunds to their consumer victims to settle Federal Trade Commission charges that their business practices violated federal laws.

In a complaint filed in February 2005, the Commission alleged that, in the course of marketing and selling Internet-based business opportunities via direct mail and telemarketing, the defendants, Wealth Systems, Inc., Ecommerce Network.com, LLC, and their principals, Martin Wilson and Shane Roach, enticed consumers to become what the defendants called “Web brokers.” The FTC’s complaint alleges that the defendants claimed that consumers could earn $20,000 to $50,000 “next year” by purchasing “Web broker packages” priced from about $300 to $1,400 or more. Consumers received a mailing with testimonials from “Web brokers,” one of whom claimed to have made “over $300,000 in a little over a year.”

According to the FTC, the defendants offered advertising “coaches” and advertising packages costing “as low as two dollars” to help purchasers. Once consumers purchased a Web broker package, the advertising coaches allegedly used high-pressure sales tactics to persuade consumers to buy advertising services from them, stressing the need to spend as much money as possible on advertising in order to make a profit. Some of the advertising packages cost tens of thousands of dollars. The defendants allegedly claimed that one person had earned more than $12,000 in a month, and another person had invested only $300 and was receiving his first earnings check for $680.

As alleged in the complaint, few, if any, consumers who purchased the defendants' business opportunity and/or advertising services made any money, and few consumers received refunds. According to the Commission, consumers were not given any pre-sale disclosure documents with information about Wealth Systems, such as names, addresses, and telephone numbers of Wealth Systems members and their earnings; or an earnings claim document stating a reasonable basis for defendants' earnings claims; or the number and percentage of prior purchasers who had achieved results as good as or better than the represented earnings.

The defendants allegedly violated the FTC Act and the FTC’s Franchise Rule in connection with the marketing of their Internet-based business opportunities. Under the terms of the stipulated order settling the Commission’s charges, the defendants may not misrepresent any fact affecting a consumer’s decision to purchase any product or service, or fail to disclose details of any refund policy, before consumers pay. Regarding sales subject to the Franchise Rule, the defendants may not fail to: 1) provide a complete and accurate disclosure document, 2) have a reasonable basis for any earnings claim at the time the claim is made, 3) immediately disclose that material constituting a reasonable basis for any earnings claim is available to the consumer, or 4) provide an earnings claim document as the Rule requires. The order also prohibits the defendants from selling, renting, or otherwise disclosing personal information about their purchasers or prospective purchasers in connection with the Wealth Systems business opportunity.

The defendants will pay approximately $80,000 for consumer redress. A judgment of almost $15 million, representing the amount of consumer injury, will be suspended due to defendants’ inability to pay. The judgment will be imposed if they are found to have misrepresented their financial condition. The Commission vote approving the consent agreement was 4-0. The FTC filed the stipulated final order in the U.S. District Court for the District of Arizona on November 10, 2005. It was entered on November 14, 2005.

The stipulated final order stopping the defendants’ allegedly illegal conduct was a result of “Project Biz Opp Flop,” a criminal and civil crackdown on promoters of illegal business opportunity and work-at-home schemes by the FTC, the U.S. Department of Justice, the U.S. Postal Inspection Service, and law enforcement agencies from 14 states. More than 200 operations were targeted for engaging in fraud and/or violating consumer protection laws.

NOTE: The stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the complaint and stipulated final order are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. X050030)