Operation "Show Time" Targets Seminars Selling Fraudulent Business Opportunities and Investments

Thousands of consumers throughout the country have attended "seminars" in hotel rooms or other public forums where they are persuaded to invest in fraudulent business opportunities and investments, according to the Federal Trade Commission and 11 state law enforcement agencies. Typically, consumers are lured to the seminars by infomercials or letters promising instruction in how to operate a home-based business, how to buy and sell real estate, how to trade in securities, or invest in foreign currencies, among other things, in order to earn big income. At the seminars, however, consumers learn very little, if anything, about how to run a business or make profitable investments. Instead, they are treated to slick sales pitches for schemes that are essentially worthless. Often consumers succumb to these pitches because the seminar hucksters create the impression that anyone, regardless of experience, can buy their program and earn a lot of money.

"Seminar scam artists are smooth operators," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Most have the gracious manner and impeccable grooming that projects an image of respectability, legitimacy and prosperity. And they should seem prosperous, because in the past few years, seminar hucksters have bilked consumers out of millions of dollars -- and they're claiming new victims every day."

Generally, seminar programs are conducted in stages over a period of several hours in an environment conducive to gaining consumer confidence that ends with a pitch to buy the huckster's phoney goods. A common ploy of hucksters is to lace their sales pitches with folksy yarns, personal anecdotes and "success stories," to establish rapport with consumers and reinforce the notion that they can earn substantial income.

In an ongoing campaign to combat fraud perpetrated through seminars, law enforcement officials in 25 states and the FTC have joined forces to bring law enforcement actions against perpetrators and to educate consumers to protect themselves from being the victims of fraud. The first round of cases in this sweep has been completed with a second round slated for completion later in the year. In the first round of Operation "Show Time," eleven states have taken the lead in bringing eighteen cases against seminar operators selling a variety of business and investment schemes.

The Office of Attorney General of Texas and the Texas State Securities Board filed a lawsuit on May 1, 1998, against Wade B. Cook and Wade Cook Seminars, Inc., for failing to provide consumers with a 3-day cancellation notice for sales conducted in hotel rooms in Texas, in violation of the Texas Deceptive Trade Practices and Consumer Protection Act. Additionally, the lawsuit alleges that the defendants deceptively fail to disclose to consumers the high risk of financial loss entailed by the financial strategies taught at their seminars. Contact: Ron Dusek at (512) 463-2082.

The Michigan Attorney General's Office issued a Notice of Intended Action and Opportunity to Cease and Desist to a company selling a variety of business opportunities involving pre-paid phone cards, coupon distribution, and Internet consulting. The Office also issued a cease and desist order against a company selling an illegal pyramid scheme involving trading in commercial paper and debt instruments.

The California Department of Corporations filed actions against five companies and individuals for unlicensed selling of securities and falsely representing that money paid by consumers was being invested in foreign currencies in violation of state securities law. The actions named PCI Data, Inc., INET International, Inc., Data Financial Services, Paul Mok, et al., and David Alfred Tetley. Contact: Bill McDonald at (213) 736-3704.

The Illinois Securities Department obtained cease and desist orders under its Business Opportunity Law of 1995 against Home Business Group and Visions Group of America selling a range of business opportunities involving vending machines, trading cards, pre-paid phone cards, grocery coupons, mortgage foreclosures, use of the Internet, and a "virtual office" multi-level marketing scheme, among others. Contact: Dirk May at (217) 785-4934.

The Oklahoma Department of Securities obtained a cease and desist order against American International Auction Network for offering business opportunities and assistance in starting and operating public auctions in violation of the Oklahoma Business Opportunity Sales Act. Contact: Gretchen Harris at (405) 280-7700.

The Florida Department of Agriculture and Consumer Services found Q Comm, seller of a pre-paid phone card business opportunity, in violation of state law requiring sellers of business opportunities in trade show settings to give disclosures three days prior to accepting money from purchasers. The seller was fined for violating the state's Sale of Business Opportunities Act. Contact: Liz Compton at (850) 922-7913.

The Arizona Corporation Commission filed actions under the Arizona Securities Act against Real Estate Link, Inc., for selling a fraudulent real estate investment program and Federal Funding Foundation Corp., for engaging in racketeering in the sale of securities. Contact: Sharon Fox or Kurt Merritt at (602) 542-4242.

The Massachusetts Attorney General's Office obtained a temporary restraining order against National Affordable Housing Coalition, Inc., for conducting itself as a mortgage broker without a license and using unfair and deceptive practices that violate consumer protection laws. Contact: John LaMontaigne at (617) 727-2200, ext. 2601.

The Nevada Attorney General's Office filed a lawsuit against National Affordable Housing Coalition, Inc., under the Nevada Trade Practices Act alleging eleven causes of action, including deceptive advertising that "anyone," regardless of low income or poor credit standing, could quickly buy a home to induce consumers to attend defendants' seminars where they were pitched a home buyers program. Press contact: Eleanor Minsky at (702) 688-1958. Consumer contact: Better Business Bureau of Reno, Nevada at (702) 322-0657.

The Kentucky Attorney General's Office has obtained a restraining order against Home Buyers of America for failing to register and using deception in its offer of training to consumers in buying and selling distressed real estate for profit. Print ads promoting the company's program represent that a "millionaire" would contribute his own money to assist consumers in operating the business. Contact: Jennifer Schaaf at (502) 696-5300.

The Maryland Division of Securities obtained an order requiring iMall Consulting, Inc., to cease and desist violating the Maryland Business Opportunity Act in the future in its sale of training and marketing materials enabling purchasers to create a web site and make money selling advertising on the web. The order also requires the company to notify the Division of any written complaints from Maryland residents and to notify Maryland buyers of the protections under the Maryland Business Opportunity Act. Contact: Frank Mann at (410) 576-6357.

The FTC also recently filed complaints in U.S. District Courts against two seminar companies, Summit Photographix, Inc., and AmeraPress, Inc., alleging violations of the Federal Trade Commission Act. These cases were part of "Operation Money Pit" recently conducted by the FTC's Dallas Regional Office. Summit Photographix sold business opportunities in pre-paid trading cards and postcard business ventures. AmeraPress, in concert with The Home Business Group, Inc., sold business ventures involving the sale of pre-paid calendars, business cards, trading cards, and similar items. On April 17,1998, the FTC announced that AmeraPress, Home Business, and two other corporate defendants agreed to pay $500,000 in consumer redress to settle FTC charges that they had violated the FTC Act, which prohibits unfair and deceptive practices.

In addition, a number of other investigations are underway by the FTC and state agencies targeting seminar operations selling business and investment opportunities involving real estate foreclosures, pre-paid calling cards, distressed merchandise, grocery coupons, advertising on the Internet, travel agencies, trading in securities and commercial paper, vending machines, tax liens, merchant accounts, and home locating and financing services.

To help educate consumers about how to protect themselves from seminar hucksters, the FTC has published a new brochure, titled The Seminar Pitch: A Real Curve Ball. For instance, the FTC recommends that you take the following precautions before purchasing a business or investment opportunity pitched at a seminar:

• Take your time. Don't be rushed into buying anything at a seminar. Avoid high pressure sales pitches that require you to buy now or risk losing out on the opportunity. Remember, solid opportunities are not sold through nerve-racking tactics.

• Investigate the business you're considering investing in. Talk to experienced business people and experts in the field before spending your money.

• Be wary of "success stories" or testimonials of extraordinary success. The seminar operation may have paid "shills" to give glowing stories.

• Be cautious about purchasing from seminar representatives who are reluctant to answer questions, or who give evasive answers to your questions. Remember that legitimate business people are more than willing to give you information about their investment or sales opportunity.

• Ask about how much money you need to qualify for the investment or sales opportunity, and ask about the company's refund policy. Get this in writing. Keep in mind that you may never recoup the money you give to an unscrupulous seminar operation, despite the operator's stated refund policies. Taking precautions before you invest is a more effective way to safeguard your money than trying to get a refund after the investment's been made.

Copies of the FTC brochure, "The Seminar Pitch: A Real Curve Ball," ([PDF]) are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.