Consumers Group Consumer Protection

In a record-setting financial settlement, a home-based computer business opportunity firm has agreed to pay $5 million in redress to settle Federal Trade Commission charges that the firms ad claims about potential earnings and profits were false and misleading. In addition to the financial settlement, Computer Business Services, Inc. (CBSI), would be barred in the future from misrepresenting the success rates or profitability of its clients and from using deceptive testimonials or other deceptive statements to entice consumers to buy its products and would be required to disclose that federal laws restrict the use of certain automatic telephone dialing systems it sells.

CBSI ads touted its “turnkey” business opportunity — a collection of computer hardware and software that cost investors between $3,000 and $16,000 — claiming investors could “Earn $4000 Per Month From Your Home With A Computer!” In fact, according to the FTC complaint detailing the charges, the vast majority of investors never earn $4,000 a month and never even earn $4,000 over the duration of their business. In fact, “. . . it is rare for CBSI Center Owners to recoup even their initial investments,” the complaint says. The claims appeared in magazines, newspapers, and postcards, and also appeared on commercial online services, including CompuServe and America Online. The deceptive claims were amplified in information packets mailed to those who responded to the ads, the FTC alleged. Since 1991, the firm has sold its products to approximately 15,000 consumers.

“This is a significant settlement that reflects the significant difficulties of overstated business opportunities promising sky-high earnings,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “?Downsizing,’ ?right-sizing,’ ?streamlining,’ and plain old layoffs in business, industry and government have created a large pool of people with a little money and an interest in becoming independent entrepreneurs. Companies that appear to guarantee income from business opportunities prey on those people and countless others,” she said. “Tens of thousands of consumers invest in schemes like this one and lose their money — 15,000 invested in this one, alone. Some invest their life savings — some borrow money in the belief that they can take charge of their economic destiny and make money independently. All too often, money’s being made — unfortunately not by the investors.”

CBSI marketed computer hardware and more than 40 different software programs that it claimed investors — called CBSI “Center Owners” –could use to sell services to businesses and individual consumers in their communities. The services ranged from computerized monitoring for seniors and latchkey children to voice mail service. According to the FTC complaint, CBSI ads and marketing material carried claims such as:

• “Each one of the programs. . .provides a needed service to the people or organizations in your community. Each program is a proven money-maker, and is now being operated successfully by our present center owners”;
• “We right now have 30 services you can perform. We have thousands of center owners already earning good money”;
• “Our programs really work, and you can earn more money than you ever dreamed possible if you will work our programs”; and,
• “Each of these services is a proven money-maker in large cities, small towns and rural communities throughout the country.”

Through such claims, CBSI represents that “Center Owners” ordinarily operate profitable businesses out of their own homes. In fact, the FTC alleged, CBSI Center Owners do not ordinarily operate profitable business and it is rare for them to recoup even their initial average investment of approximately $9,000. Contrary to ad claims that Center Owners can earn substantial income and can reasonably expect to achieve a specific level of earnings, such as $4,000 per month, investors can’t expect to earn substantial income and the vast majority never earn $4,000 per month or $4,000 over the entire duration of their business. The claims also are deceptive, according to the complaint, because the company did not have substantiation for the earnings claims.

CBSI also used marketing materials that displayed endorsements by purported center owners to suggest that ordinary consumers could successfully start up and operate their own home-based businesses with CBSI hardware and software. The endorsements touted high income from businesses using CBSI products. In fact, according to the FTC complaint, the endorsements don’t reflect those Center Owners’ actual experience, and don’t reflect the typical experience of investors who have attempted to use CBSI’s products or services. Therefore, the claims are false or misleading.

The FTC complaint also alleges that promotional material for an automatic telephone dialing system CBSI sold Center Owners for unattended pre-recorded outbound sales pitches failed to disclose that federal law prohibits use of the system in unattended mode for unsolicited advertisement without the prior approval of the party being called. Because this fact would have been material to consumers’ decisions about whether to purchase the system, the failure to disclose the information is deceptive, the complaint says.

To settle the FTC charges, Sheridan, Indiana-based CBSI and three of its principals, Andrew L. Douglass, Matthew R. Douglass and Peter B. Douglass would pay consumer redress of $5 million — the largest FTC consumer redress settlement obtained prior to the filing of an administrative or court complaint. In addition, the settlement would bar them from misrepresenting the earnings or success rate of investors; the existence of a market for their products or services; the amount of time it would take investors to recoup their investments, and also would prohibit them from making any representation about the performance, benefits, efficacy or success rate of any product or service unless they possess reliable evidence to substantiate the claims. The settlement also would prohibit the use of misleading testimonials or endorsements and require that ads for automatic telephone dialing systems disclose federal restrictions on their use.

The Commission vote to accept the proposed consent agreement was 5-0. The proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. This matter was handled by the FTC’s Chicago Regional Office.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint and consent are available from the FTC’s Public Reference Branch, Room 130, at the address listed above; 202-326-2222; TTY 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. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

Posted under Home Business Scams

The Minnesota Attorney General Hubert H. Humphrey III provided the following CONSUMER ALERT entitled, “Attorney General Warns Consumers of Claims of Marketing Company Operating in Minnesota.” Here are quotes and summations of AG Humphrey’s statement:

“Attorney General Hubert Humphrey III is warning consumers not to believe claims that his office has “approved” of a marketing plan now operating in Minnesota known as “Trudeau Marketing Group.” According to dozens of calls to the Attorney General’s Office from all across Minnesota, marketing representatives have claimed that the Minnesota Attorney General’s Office and other attorney generals around the country have “approved” the company’s business plan.

” ‘ If someone says that my office approved this or any other marketing plan, it’s simply wrong,’ Humphrey said. ‘We don’t lend our stamp of approval to any business conduct or pre-approve any type of marketing programs. Consumers should be highly suspicious of any companies that make these types of claims.”

“According to information provided by consumers, Trudeau Marketing promotes itself as a multi-level marketing company. Some consumers have called the Attorney General’s Office to ask whether Trudeau Marketing runs a legitimate marketing plan, or is an illegal pyramid scheme. Humphrey says his office is reviewing information it has received from consumers but has made no determination about the company’s status.”

Humphrey points out the distinction between an MLM and a pyramid scheme by saying that a legimate marketing plan emphasizes the selling of products while a pyramid scheme emphasizes recruiting new members. And, he cautions that many illegal pyramid schemes try to appear as legitimate MLM’s ‘by using a line of near-worthless products or newsletters and claiming to be in the business of selling them. In such cases, there may be little or no demand for the products and they are incidental to the recruitment of new members, who keep the pyramid alive by paying large fees to join.

“If you make money by bringing in new members, rather than selling a real product, it’s an illegal pyramid,’ Humphrey said. ‘All pyramids eventually collapse because they require an infinite supply of new members. The promoters may make a lot of money, but others down the line will end up holding the bag.’

“The Attorney General also cautioned consumers to be wary of paying large up-front fees to purchase products in any multi-level marketing plan… [that] generally requires each new participant to pay hundreds, or sometimes thousands, of dollars for products that they may have difficulty in selling.’

“The Minnesota AG advises MLM prospects to: (1) Take your time and don’t succumb to high-pressure tactics, including promises of high income potential; (2) Carefully review any contracts; (3) Be cautious about any large upfront fees or products purchases for resale; (4) Find out about the competency and experience of the company and its officers, the products and your market, start-up fees, buy-back provisions, and actual earnings of current distributors; (5) Check to ensure that the products are actually being sold; and (6) “Don’t ever believe that a program has been examined and approved by the Attorney General’s Office.” If you hear this contact your AG’s office. Such claims are illegal in many states.

“Trudeau is the leading Nutrition for Life distributor.”

Posted under Home Business Scams

TALLAHASSEE — Attorney General Bob Butterworth, Comptroller Bob Milligan and Statewide Prosecutor Melanie Ann Hines today filed criminal and civil actions against a California-based pyramid scheme whose activities have affected as many as 17,000 Floridians.

Criminal charges were filed in Duval County Circuit Court against two individuals and two corporations. The defendants are International Metals and Trade Corporation (IMTC) of San Diego, Calif; Global Marketing Services Inc., of Nevada; IMTC president and principal Neil H. Phillips, also of San Diego, and IMTC vice president Robert Charles Benzing of Daytona Beach.

In addition, IMTC and Phillips were charged in a civil complaint with deceptive trade practices and operating a pyramid scheme. At the attorney general’s request, the court today issued an injunction prohibiting IMTC from conducting any business in Florida, including accepting distributorship applications, disposing of assets and destroying records.

The civil complaint also asks the court to require that IMTC issue refunds to all Florida investors who request them. As many as 17,000 Floridians are believed to have participated, many of whom never received any products. More than 100 participants have complained to the Attorney General’s Office about IMTC’s refusal to issue refunds, even though some of the requests were made within the required three-day recision period.

“The true damage of these kinds of schemes is more than just their financial impact,” said Butterworth. “They encourage consumers to recruit their friends and family members. When it all collapses, the social fabric is torn in ways that can be very hard to mend.”

Florida’s statute against pyramid schemes requires that sales commissions be based primarily on the sale of products from distributors to consumers. According to the complaint filed today, IMTC investors were required to pay $200 for a “distributorship” that entitled them to receive items from various catalogs — but only after they first sold an additional 50 distributorships to individuals they recruited.

Under this scheme, the initial $200 would sit in a “layaway account” and the purchase could not be concluded until the 50 additional distributorships had been sold. The initial participant would then receive a recruiting bonus of $2,000 or more, depending on the number of distributorships sold.

The attorney general’s complaint further alleges that the consumer funds held in “layaway accounts” were not in any type of escrow account and, in fact, were used to pay recruitment bonuses to other participants.

In February, investigators from the Attorney General’s Office, Florida Department of Law Enforcement and Florida Comptroller’s Office executed a search warrant at IMTC’s San Diego headquarters.

All four defendants were criminally charged with racketeering, conspiracy to commit racketeering, securities fraud, organized fraud and operating a lottery via a pyramid scheme. IMTC and Phillips were additionally charged with approximately 100 counts of unregistered sale of securities.

The civil complaint was prepared by Assistant Attorneys General Richard Fishkin and Eugene Castagliuolo. The criminal complaint was prepared by Assistant Statewide Prosecutor Crystal Broughan.

Posted under Home Business Scams

The Associated Press

Infomercial guru William J McCorkle and wife were each sentenced in Orlando to 24 years, four months for swindling real-estate customers.

McCorkle appeared stoic and wife, Chantal, cried silently in response to U-S District Judge Patricia Fawsett’s sentence for scamming thousands of people out of 28 (M) million.

Two of McCorkle’s associates were sentenced earlier in the day to five years each for fraud conspiracy.

In addition to the 24-year-and-four-month sentence, McCorkle and his wife were also ordered to perform 60 hours of community service.

McCorkle’s associates, Brian Higgins and Herman Venske, received 5-year prison sentences.

“I made a grave error to give my loyalty to someone simply who did not deserve it,” Higgins said. “The sense of betrayal I feel is total. Practically nothing about the product was true.”

The boyish-looking McCorkle was a familiar face to viewers of late-night television. In 28-minute infomercials, he would talk enthusiastically about how he had gone from a poor child who was once evicted from his family’s home to a real-estate millionaire.

With a near evangelistic zeal, he claimed he could help customers “Pay off your debts, lower your taxes and retire in two years or less …”

Television viewers saw the fruits of his wealth: yacht, luxury home, helicopter. For his defense, McCorkle hired famed attorney F. Lee Bailey.

McCorkle advertised for customers to go down to the local courthouse and find pre-foreclosed or depressed property for sale at half its equity. He would then put up his own money for its purchase and split any profit when the property was sold.

The couple claim they had thousands of satisfied customers and only a few unhappy ones were behind the indictment.

An estimated 1,124 people put their faith in McCorkle, who before getting a real estate license and starting his businesses in 1990 had worked as a busboy and exotic dancer.

McCorkle said he would help his clients with any problems via a telephone support service and he offered a no-questions-asked money-back guarantee. Prosecutors said, however, that never happened when customers went to the courthouse and came back empty-handed.

“Basically I got suckered,” Jeff Dunlap of Charleston, S.C., said as the McCorkles went to trial last fall. Dunlap spent more than $11,000 on McCorkle’s tapes and booklets and then was denied a refund.

(Copyright by The Associated Press. All rights reserved.)

Posted under Home Business Scams