THE BIZOP NEWS

FTC to Empirically Study Fraud - Finally!

2009-07-03T14:09:26Z

The FTC has finally decided to start studying fraud and not simply rely upon the discredited notion of disclosure for prevention.

The FTC held a workshop earlier in the year about consumer fraud.

From that workshop, the FTC made a decision to try empirically understand the deterimanents of consumer fraud.

The [FTC] Commission has also conducted telephone surveys in 2003 and 2005 designed to measure the proportion of the U.S. adult population that has fallen victim to various consumer frauds.

Despite this,surprisingly little is known about what determines consumers' susceptibility to fraud.

For example, the 2003 and 2005 FTC Consumer Fraud surveys found that education was not a significant predictor of fraud victimization.

Understanding when and why people are vulnerable to fraud would better inform the FTC's substantial, ongoing efforts to fight fraud through law enforcement and consumer education.

Any additional insights into how and why people fall victim to fraud could also help improve any future fraud surveys the Commission may undertake.

The study announced in this notice is a preliminary and exploratory step toward facilitating those efforts.

The study is not intended to lead to enforcement actions; rather, study results may aid the FTC's efforts to better target its enforcement actions and consumer education initiatives, and improve future fraud surveys.

Economic and psychological experiments have identified several decision-making biases, such as impulsivity, over-confidence, overoptimism, and loss aversion, that can cause inaccurate assessments of the risks, costs, and benefits of various
choices.

FTC staff proposes to conduct an economic laboratory experiment to study whether these types of decision biases are related to consumer susceptibility to fraudulent or deceptive marketing claims.

Staff intends to study consumers' assessment of potentially deceptive advertisements, in addition to their assessment of non-deceptive advertisements.

Staff seeks to understand which characteristics of individuals and advertisements predict consumers' ability to differentiate between apparently fraudulent materials
and apparently legitimate materials.

The experiments that the FTC has chosen are not the ones I would have used. IN my years of dealing with victims of business opportunity and franchise fraud, two biases stood out: confirmation bias and anchoring. Confirmation bias ensured that the victims did not look for negative features, and anchoring on unrealistic earnings claims persuaded the victims that this was the real deal, even after they had "discounted" the earnings claims by a factor of 1/2 or 1/3, just to be safe.

Nor do I accept the premise that reliance on the heuristics, sometimes described as decision making biases, always leads to inaccurate risk assessments.

Some heuristics make us smart, and others are just errors of reasoning. It will be difficult to learn from laboratory results when reliance on heuristics enables consumer fraud, precisely because the con criminals use the same compliance techniques that legitimate marketeers employ.

Influence: Science and Practice (5th Edition), written by Robert Cialdini, makes this point very well.

"The underlying theory is that people tend to be hardwired to respond to certain stimuli in predictable ways. The book tells you what those stimuli are, that is, how to push people's buttons."

To prevent fraud, we need to: a) be able to identify these hardwired situations in advance, b) develop a potential response, and c) be able to practice our responses.

Some of this work was already started by Anthony Pratkanis, who gave an overview to the Senate Committee on Aging about telemarketing fraud:

"First, we have learned that the weapon that is used in fraud crimes is social influence.

No one knowingly gives their hard earned cash to a con criminal - they think that they are making an investment, winning a prize, providing for charity, or some similar positive goal.

The con criminal is a master at using one high-powered influence tactic after
another to sell a deception.

Given that the weapon in a fraud crime is an invisible one -
social influence as opposed to a gun or a knife - there is a tendency by both victims and observers not to recognize economic fraud for what it really is - a crime.

Recently, Doug Shadel and I analyzed over 250 undercover tapes used in fraud investigations.

In these tapes law enforcement took over a victim's phone line and then tape recorded the con criminal's pitch.

In listening to these tapes, we found that con criminals would play different roles - authorities, friends, even dependents - to create a platform of trust.

They would then use many well-established social influence tactics to sell the crime."

Finally, it is my experience that combating the cognitive dissonance that sets in when bad evidence is discovered about a business opportunity is the only sure way to minimize the effects of fraud.

FTC on Business Opportunity Fraud

2009-07-02T15:50:15Z

The FTC has produced a very good video about business opportunity fraud, the buying of a job with unrealistic earnings claims, with Jim Vitale explaining how he personally conned people.

Again, however the FTC is relying heavily upon written disclosure to defeat fraud. There is no evidence which supports this view. I have been dealing with the victims of business opportunity and franchise frauds for over 10 years, and the lack of written disclosure is not the problem. (Although, it gives the regulator a handy tool

The biggest problem is that the psychological process of wanting to believe in financial success at certain times will produce cognitive dissonance: evidence that business opportunity is fake will actually push people into making a bad investment decision quicker!

I call this phenomena: The light was red, when I drove through it.

You are not going to prevent people from making these errors, but you can reduce the pain of the error with a simple step: pay for the business opportunity with your credit card.

There are several advantages to purchasing a business opportunity with your credit card:

a. You may be able to charge back the purchase, when it is shown to be a business opportunity fraud.

b. You are limiting your downside by your credit room.

c. Often the biz op scammer won't be able to take a credit card, not having established the merchant's bond.

d. There is a downside: you will be paying a heavy interest rate.

Easy Google Profit Scam

2009-07-02T15:17:01Z

One of my simple tests for fraud is this: when a website offering a business opportunity gets more attention than the FTC's site, the business opportunity is very likely a fraud.

This particular scheme, also known as "Google Easy Profit" uses a number of different websites:

miamigazettenews .com The Miami Gazette News.
nyguardian .com (New York Guardian)
theatlantatribune .com (The Atlanta Tribune)
detroittribunenews .com/homejobs (Detroit Tribune News)
detroittribunenews .com/myspace-jobs (Myspace Job Scam)
philadelphia-herald .com (Philadelphia Herald News)
fresh-off-the-press .com/featured/jobs-working-online-home-gold-rush/

to pitch a long news like description of something called "Google Easy Profit".

The FTC just shut down a similar scheme, relying only on Section 5 of the FTC Act, on July 1st, 2009.

The FTC brought an action against Google Money Tree, alleging that:

Google Money Tree, its principals, and related entities allegedly misrepresented that they were affiliated with Google and lured consumers into divulging their financial account information by advertising a low-cost kit that they said would enable consumers to earn $100,000 in six months.

They then failed to adequately disclose that the fee for the kit would trigger monthly charges of $72.21, the complaint states.

This case was filed in the U.S. District Court for the District of Nevada.

How similar is Easy Google Profit to Google Money Tree?

There are some similarities, and differences.

1. There is the same 7 day trial period, and if you don't opt out in time, you will be charged approximately $80.00 on ongoing monthly basis.

2. The ads which lead you to the website have unjustified earnings claims, $4800 a week for part time work on Alexa.

3. It is likely that the same abuse of the electronic payment system is going on because the company doesn't have a written pre-authorization for each monthly debit or charge.

4. The company states that it is not affiliated with Google, though why Google allows them to run these deceptive ads is beyond my comprehension.

5. There is the traditional disclaimer about earnings - earnings are not representative and the company suggests that you talk with a professional before purchasing their package.

There is no doubt that Easy Google Profit is a scam:

People have complained about noting being able to cancel the Easy Google Profit scheme.
On Google's own help page, there is a decent discussion about the scam.
Read the FTC complaint against Google Money Tree to see the similarities to the Easy Google Profit scheme.

From a legal perspective, the case against Google Money Tree is instructive. The FTC simply asserted under Section 5(a) of the FTC Act that Google Money tree had engaged in deceptive marketing practices: failing to disclose the material terms, that is the monthly fees; making deceptive earnings claims; and failing to disclose that they had no affiliation with Google.

My sense is that these allegations may be harder to prove against Easy Google Profit, and that the FTC may simply rely upon the Business Opportunity Rule, which requires that Easy Google Profit have a disclosure statement.

If this happens, all affiliate marketers who sell opportunities with earnings claims are going to have to be very careful and make sure that they have a disclosure statement and are complaint with all the US Business Opportunity laws.

(Aaron Wall, of SEO Book, has a good overview of Google's enabling fraud.)

The Michael Jackson Tributes

2009-06-28T20:28:41Z

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Stanton Peele has a good take on the Michael Jackson tributes:

"Some people, although revered in some respects, are more inconvenient alive. For example, when the mightily inconvenient Orson Welles returned to the U.S. to receive an honorary Academy Award in 1971, he hectored the audience for funding for his current work (Wells was persona non grata in Hollywood).

One member of the audience was heard to murmur, "We should have waited until he was dead to give him an award."

After Jackson's death, the tributes poured in from his legion of friends and fans - Liza Minnelli, Elizabeth Taylor (too choked up to comment), Quincy Jones ("I've lost my little brother"), Governor Schwarzenegger, President Obama - who even knew Jackson and Deepak Chopra were friends?

Released of their conflicted feelings over his corporeal presence, fans flocked into the streets, created shrines, and wrote love notes."

Even Tyler Cowen, an economist who I expect better analysis from, has jumped into the fray with his own Michael Jackson tribute.

Why are all of these people paying tribute, now and not then, to a man with clear mental health problems who hasn't performed in almost 20 years? What is social signal behind paying tribute to Michael Jackson? Most of individuals giving Michael Jackson tributes are simply forgetting or ignoring the broken human being Michael Jackson became.

However, the phenomena of a number of people testifying to "fact A" when there is ample evidence that contradicts fact A being true is the combination of social proof and cognitive dissonance, first made famous by Leon Festinger. In possibly Festinger's most telling observation, written up in "When Prophecy Fails", Festinger observed that it was hard to change a man with a conviction.

"What Festinger and his associates demonstrated in the end was that the failure of prophecy often has the opposite effect of what the average person might expect; the cult following often gets stronger and the members even more convinced of the truth of their actions and beliefs!"

When faced with the terrible fact that Mr. Jackson was no better than the average addict, addicted to pain killers, the cult of his "musical genius" had to grow to counteract the terrible truth. The Michael Jackson tributes are all the louder because in death he was shown to be a simple addict.

Is ACN a Pyramid Scam?

2009-06-25T13:22:30Z

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At the scam.com forum, there is considerable debate about whether ACN is a pyramid scam.

One poster cites, in support of his theory that ACN is an illegal pyramid scam, two Government announcements, one from Australia and the other from the Canadian Competition Bureau.

In the Australian Federal Court,

"On 15 November 2004 the ACCC instituted proceedings against Australian Communications Network Pty Ltd, a seller of telecommunications services, for alleged breaches of the pyramid selling scheme provisions of the Act.

On 23 March 2005 Justice Selway found that ACN participated in, promoted and induced or attempted to induce persons to take part in a pyramid selling scheme in contravention of section 65AAC of the Act, and that Mr Martin Paech, an ACN director, aided and abetted and was knowingly concerned in those contraventions.
The court also found that Mr Keith Janke and Mr Jonathon Gibbs, two ACN Independent Representatives, were knowingly concerned in and aided and abetted the contraventions, and Gibbschade Pty Ltd participated in the pyramid selling scheme, and attempted to induce other persons to participate in the scheme, in contravention of the Act."

And according to the Competition Bureau,

"The Competition Bureau alleges that ACN Canada, as it is known, and its participants, through its web sites and at public meetings, recruited new participants by exaggerating income expectations without disclosing the income of a typical participant. Under the Competition Act, it is illegal to make reference to earnings in a multi-level marketing plan without disclosing a typical participant's income. In addition, operators of a multi-level marketing plan must ensure that any income representation made by a participant in the plan includes disclosure of a typical participant's income."

There is a significant problem with relying on these two cases: the Australian Federal Court's decision was overturned, and the Competition Bureau's case did not survive the preliminary hearing. For the latter, you would have had to gone to Corey Lewis's website, a Manitoba Lawyer, to find this information out as it does not appear on the Competition Bureau's website.

I think that these decisions are probably correct, the deception in most modern MLM's relate to the level of average compensation, the number of drop-outs, and the losses that those drop-outs on average have sustained, concepts related to earnings claims. The usual criminal definition of a pyramid should by applied to concepts like Skybiz.

Notwithstanding that these cases no longer can be relied upon, a number of independent consumer watch sites continue to rely upon these two cases to show that ACN is a pyramid scam. For example, over at mlmwatchdog.com there is a report purporting to show that ACN is a pyramid scam - but it has not been updated to reflect the status of these two competition cases.

Does this mean that I think ACN is not employing deceptive marketing practices? Well, this commentator certainly believes that ACN is employing deceptive marketing practices.

But, my own view is that a proper analysis of ACN's marketing practices should start with the proposed 26 new deceptive marketing practices, proposed by the FTC in April, 2006.

Finally, tell me what you think about this product, ClickBank by Michael Jones.Click Here!Doesn't this sound too good to be true? This sounds again like a deceptive marketing practice - promising more than can be delivered. What do you say?

Advanced Money Management Ponzi

2009-06-25T02:11:12Z

From the SEC Press Release on Advanced Money Management Ponzi scheme:

The Securities and Exchange Commission today charged a Chula Vista, California resident and two entities he controls for operating a Ponzi-like scheme through five hedge funds.

The SEC alleges that Moises Pacheco, Advanced Money Management, Inc. (AMM), and Business Development & Consulting Co. (BD&C) raised $14.7 million from more than 200 investors over a 3½-year period, acting as investment advisers to the five self-described hedge funds -- AP Premium Value Funds I through IV and Capital Partnership Group. According to the SEC's complaint, Pacheco told investors that he had developed a lucrative investment strategy involving the purchase and sale of covered call options, and that the hedge funds exclusively relied upon this strategy to generate trading profits ranging from 30 percent to 48 percent per year.

In reality, Pacheco did not generate the returns he claimed to have made, and instead used investor principal to pay purported returns until the scheme collapsed.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of California, the hedge funds generated trading profits of only about $367,000, but paid investors purported returns of more than $9.7 million.

The SEC alleges that the defendants thus operated a Ponzi-like scheme and further misused investor principal by transferring their money to Pacheco, entities under his control, or numerous third parties for reasons having nothing to do with the purported trading.

The SEC alleges that Pacheco claimed that the hedge funds had generated returns ranging from 2.5 to 4 percent per month during their existence, and continued to claim that they generated returns in that range until January 2008, when he reduced the returns to 1.25 percent per month.

Pacheco told fund investors that the reduction was due to deteriorating economic conditions.

Most fund investors live in the Chula Vista, California area, and know either Pacheco, one of his friends or family members, or another investor. The SEC alleges that Pacheco made no effort to determine whether the hedge fund investors were accredited or sophisticated, and did not provide investors with financial statements.

Neither Pacheco nor his entities have ever been registered with the SEC.

Regan Ponzi

2009-06-25T02:08:05Z

From the SEC Press Release on the Regan Ponzi scheme.

The Securities and Exchange Commission today charged Michael C. Regan (Regan) and his firm, Regan & Company (Regan & Co.), for conducting a multi-million dollar Ponzi scheme that touted safe investments and provided lofty, but false, investment returns.

The Commission alleges that from 2001 through April 2008, Regan and Regan & Co. fraudulently obtained at least $15.9 million and ultimately caused investors to lose at least $6.69 million through Regan's misappropriation and trading losses.

Regan and Regan & Co. have agreed to settle the Commission's charges, without admitting or denying the allegations.

The Commission's action, filed in the U.S. District Court for the Southern District of New York, alleges that over an eight year period Regan offered and sold securities in his now defunct investment fund, dubbed the River Stream Fund, by falsely representing to investors that he would invest their funds in the stock market.

Regan also represented that, because of his trading expertise and successful investment record, investors could expect annual returns averaging twenty percent, with minimal risk to their principal.

Contrary to his representations, Regan did no securities trading at all for several years, used less than half of the funds entrusted to him for trading purposes, and suffered substantial losses on investments that he did make.

Regan repeatedly concealed his misconduct and deceived investors by preparing and sending them fictitious account statements and tax forms showing artificially inflated balances and returns.

Instead of protecting the investors' principal and delivering the promised returns, Regan misappropriated and used millions of dollars of investor funds to support his extravagant lifestyle and to satisfy withdrawal requests from some investors.

Expecting the Wrong things From Regulators

2009-06-22T14:55:36Z

"How did alleged con man "Sir" Allen Stanford go from being a failed Texas fitness-club owner to becoming Antigua's in-your-face answer to Bernard Madoff?

And how did the feds fail to catch him for so long? Those are the questions tackled by veteran investigative reporter Bryan Burrough in an 8,000-word article available exclusively in the July issue of Vanity Fair."

This looks interesting, partly for the take on regulators that they don't need anymore legal powers to do their job.

But, I fear that there is again a simplistic notion that regulators are failing if they fail to prevent a Stanford or Madoff. This is a simple mistake - what a society cares about from a regulator is that when our individual irrationality and greed allows a Stanford, Madoff or Enron to morph into a collective crime, the regulator calms us all down, allows us to get on with our businesses which require trading on trust.

Modern commerce would fail if the skepticism needed to route out a Standford, Madoff or other con criminal were our routine pose at the marketplace. We simply need more trust that ordinary evidence would support for modern commerce which takes place at many arm's length.

The regulator depends upon complaints, and as long as the marks aren't squawking or talking, then there is nothing for the regulator to do.

Freedom Foreclosure Busted

2009-06-22T14:41:41Z

Image by Getty Images via Daylife

From the FTC Press Release about a bogus mortgage foreclosure scheme:

"At the request of the Federal Trade Commission, a federal court has halted a bogus mortgage foreclosure prevention operation that misrepresented both the "loss mitigation" services it offered and the earnings potential of the business opportunity it sold.

The FTC seeks to end this deceptive scheme and make the defendants give up their ill-gotten gains. According to the FTC's complaint, the defendants sold "loss mitigation" services to homeowners at risk of foreclosure, falsely claiming they could prevent foreclosure in 97 percent of cases and misrepresenting that they would make a full refund if they failed.

Before performing any loss mitigation services, the defendants required homeowners to pay the equivalent of one month's mortgage payment. Their contracts instructed homeowners not to contact lenders or their contract and its money-back guarantee would be voided. In some cases the defendants' consultants told homeowners to stop making their mortgage payments while the defendants were working on their cases.

The FTC alleged that, contrary to the defendants' claims, they completed loan modification in only about 6 percent of cases and routinely failed to return consumers' repeated telephone calls. In numerous instances, the defendants had not contacted the consumers' lenders or had made only non-substantive contacts with them, resulting in late fees, penalties, and other costs for the homeowners. After failing to secure loan modifications, the defendants also failed to honor their refund policies.

The FTC's complaint also alleges that the defendants sold a "loss mitigation consultant" business opportunity for up to $1,500, falsely claiming that purchasers ("consultants") could earn various amounts, including up to $6,000 per week, by referring homeowners to them and by recruiting new consultants. In fact, throughout the defendants' entire operation, no consultant has earned that much money.

The defendants are charged with violating the FTC Act by misrepresenting that they would obtain a loan modification or stop foreclosure in all or virtually all instances; that they would give full refunds in all instances when they failed to obtain a loan modification or stop foreclosure; and that purchasers of their business opportunity could earn the levels of income claimed in their promotions."

I liked the "buy a job" aspect to this fraud. By engaging in "consulting" the homeowners are engaged by the principle of social proof and will not look carefully at the alleged loan modification program.

But in this case, the con criminals violated a well known principle - the pay-off to be a consultant should be relatively small in order for the homeowner to effectively change their minds about the adequacy of the loan modification program. True believers are cheap.

The 7 Habits of Highly Suspicious Funds

2009-06-22T13:55:35Z

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Rick Bookstaber has very interesting checklist for determining the riskiness of a hedge fund.

You've heard this story before: A trader at a bank is knocking the cover off the ball. His success garners political power within the bank.

He creates a fiefdom that insulates him from the rest of the firm; his trading group explodes in size. He lives a conspicuous, extravagant lifestyle.

His ego alienates the management and intimidates the support staff. Then the trader hits a rough patch. He uses all the tricks in the book to keep his poor results under raps while he tries to find a way to recoup.

Everyone is gunning for him, so he has to get back into the black, and fast.

Read the entire article on management of risk.

Stanford International Bank Ponzi

2009-06-19T23:38:15Z

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From the SEC Press Release on the Stanford Ponzi scheme.

On June 19, 2009, the Securities and Exchange Commission charged two accountants who produced bogus financial statements and an Antiguan regulator who took bribes to look the other way as Robert Allen Stanford conducted an alleged $8 billion Ponzi scheme.

The SEC previously charged Stanford and his companies -- Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management -- as well as SIB chief financial officer James Davis and Stanford Financial Group chief investment officer Laura Pendergest-Holt with securities fraud in an enforcement action filed in federal court in Dallas on February 17.

The SEC amended its complaint today to additionally charge Mark Kuhrt and Gilberto Lopez, accountants for Stanford-affiliated companies who allegedly fabricated financial statements to give investors the false illusion that their investments were solid, safe and secure.

The SEC also charged Leroy King, the administrator and chief executive officer of Antigua's Financial Services Regulatory Commission (FSRC), for accepting thousands of dollars per month in bribes to ignore the Stanford Ponzi scheme and supply Stanford himself with confidential information about the SEC's investigation.

King obstructed the SEC's case since 2005, when its investigation into Stanford began.

The SEC's additional charges today are in coordination with criminal authorities.

The U.S. Department of Justice (DOJ) today simultaneously announced federal fraud charges against Stanford, Davis, Pendergast-Holt, King, Kuhrt, and Lopez. The DOJ also charged King, Kuhrt, and Lopez with conspiracy to obstruct the SEC's investigation.

The DOJ previously charged Pendergast-Holt with obstruction of justice in the SEC's investigation.

According to the SEC's complaint, Kuhrt and Lopez used a pre-determined return on investment number (typically provided by Stanford or Davis) to reverse-engineer the SIB's financial statements and report investment income that the bank did not actually earn.

Information in SIB's financial statements and annual reports to investors bore no relationship to the actual performance of the bank investments.

The SEC's complaint alleges that King facilitated the Ponzi scheme by ensuring that the FSRC conducted sham audits and examinations of SIB's books and records.

In exchange for bribes paid to him over a period of several years, King made sure that the FSRC did not examine SIB's investment portfolio. King also provided Stanford with access to the FSRC's confidential regulatory files on him, including the SEC's requests for information from FSRC in its investigation.

King went so far as to allow Stanford to essentially dictate the FSRC's responses to the SEC on those information requests. King made false assurances that there was no cause for concern about Stanford International Bank. He collaborated with Stanford to withhold significant information being requested by the SEC.

According to the SEC's complaint, King is a citizen of the U.S. as well as Antigua and Barbuda, West Indies. He maintains residences in both Atlanta and Antigua. Lopez lives in Spring, Texas, and worked in SFG's Houston office as the chief accounting officer of SFG and its affiliate, Stanford Financial Group Global Management, LLC (SFGGM).

Lopez provided accounting services to many entities under Stanford's control, including SIB, SFG and SFGGM. Kuhrt is a resident of Christiansted, St. Croix, U.S. Virgin Islands, and is the global controller for SFGGM. He provided accounting services to many entities under Stanford's control, including SIB, SFG, and SFGGM. Kuhrt reported at various times to Lopez and Davis, but also directly to Stanford. Neither Lopez nor Kuhrt is a certified public accountant (CPA).

Churches Cheated

2009-06-19T15:16:57Z

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FTC Consumer Alert on Churches being cheated by con criminals.

There's no cost to your church. It may even make money to use for good works. It's a win-win situation, right?

Maybe not. In fact, it could be a scam.

Con artists with similar pitches are targeting African-American churches with so-called opportunity scams. Emphasizing a shared faith, culture, or concern for the community to win your trust, they offer the opportunity to use equipment or services that supposedly won't cost the church a thing.

Their goal?

To get access to your church's bank account, either by lifting account information from a check or by persuading you to sign up to have payments automatically deducted from the account.

Once they have access, they can make oversize withdrawals or completely clean out thes account.

Recently, scammers offered computer equipment to the staff of several churches, claiming the cost would be covered by a "sponsor."

The church staff simply had to sign an agreement to lease the equipment, make a regular payment, and deposit checks from the sponsor to cover the checks the church staff had written.

But in the end, the equipment didn't work, the sponsor checks started bouncing, and the churches had thousands of dollars taken out of their accounts.

How can you avoid a potential church opportunity scam?

The Federal Trade Commission, the nation's consumer protection agency, recommends remembering: A contract is a commitment. Before you sign a contract -- like a lease -- make sure you understand what it's saying. Don't rely on the person making the pitch to sum up the details. They may gloss over obligations outlined in the agreement that can cost your organization a lot.

If a contract says you're financially responsible, take it seriously.

A special payment arrangement where a third party reimburses you for payments you make is a sign of a scam.

Don't take someone's word that the language in the contract is "standard" or a "technicality."

Scammers may look legitimate.

They may direct you to websites they've created, or they may say they are working with other churches in your area.

Don't be swayed by an appearance of legitimacy.

Do research on an organization before you do business with it.

Never wire back money. In some schemes, scammers send a generous check, asking you to deposit it and wire back a portion or to make a payment right away. Days later when the bogus check bounces, the scammer will have made off with your money.

All States ATM Fraud

2009-06-18T04:13:40Z

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From the US Attorney General (San Diego) press release about the the All States ATM Ponzi fraud.

United States Attorney Karen P. Hewitt announced that today a federal grand jury sitting in San Diego handed up a fifteen-count indictment charging Richard M. Hersch with Mail Fraud and Conspiracy to Structure Financial Transactions.

Hersch was arrested by federal agents from the Federal Bureau of Investigation and Internal Revenue Service on April 16, 2009, at his residence pursuant to a criminal complaint charging him with one count of mail fraud.

He remains in custody pending a detention hearing scheduled for April 30, 2009, before U.S. Magistrate Judge Ruben B. Brooks.

According to the indictment, Hersch operated an investment scheme in which he recruited investors by promising returns of two to six percent per week on investments into his company, All States ATM, Inc.

Hersch told investors that All States ATM had contracts with major horse racing tracks in California and around the country to operate Automated Teller Machines (ATMs) on the "backside" of the racetrack, an area used by employees of the racetrack, horse owners, horse trainers and others, and not accessible to the general public.

According to the indictment, Hersch also claimed that the contracts his company had with the racetracks allowed him to operate a check-cashing or loan service on the back side of the track for the exclusive use of those with access to the backside of the tracks.

Hersch claimed that he had 160 employees and hundreds of ATM, and that his company was in its eighth year of business.

The horse racing tracks identified by Hersch report having no contracts with him or All States ATM to provide financial services of any sort.

Hersch and others recruited approximately 100 investors to invest approximately $20 million in All States ATM.

So 100 people each with $200,000, on average, couldn't type in "ATM fraud" or "ATM scam" and find out that no such ATM opportunity ever exists?

If Hersch had a cash flow of 2-6% per week, he would be operating a bank and not asking for loans.

I do like this take on the usual ATM ponzi scheme - the addition of a reason that you couldn't the see the ATM. Of course they were placed on the "backside" of the track.

My five year old son would have identified these machines as belonging to his "invisible friend" -someone he talks to, but isn't real, Dad.

How To Identify Good Turnkey Business Opportunities

2009-06-17T14:47:08Z

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Governments go to a great deal of trouble drafting and enacting laws to protect people who are "buying a job".

But if you are ignorant of your rights under the law, you are likely to end up defrauded.

For example if you are resident of California, interested in buying a business opportunity, or in essence buying a job, California protects those buyers with the Sellers Assisted Marketing Act.

"Running your own business is always hard work with long hours and substantial risks. People who are in business for themselves, or interested in starting their own business, should beware of any get rich quick schemes which promise riches and short work weeks as a result of buying into a business opportunity.

In 1978 the California Legislature, at the urging of this office, acted to regulate small business opportunity offerings.

It passed the "Seller Assisted Marketing Plan Act" in order to assist inexperienced or unsophisticated buyers in making an informed decision prior to investing in a business opportunity.

The law, California Civil Code Section 1812.200 et seq., requires Seller Assisted Marketing Plans (SAMPs) to register with the Attorney General's Office, to provide significant disclosure statements to potential buyers prior to signing any contracts, and to provide the buyer specific contractual rights after a purchase has been made."

You have to know this information to be able to use it.

It doesn't help that people like Travis Ristig can write an entire article about turnkey business opportunities and not once mention legal protections that are available to the purchaser. This is what he writes:

"If you're interested in buying turnkey business opportunities, you're going to find out fast that lots of the options out there are actually scams.

You'll be surprised at how many people end up falling prey to cheats and con artists when they're just looking for a good way to do business.

There are lots of real, legitimate opportunities out there, but there are also lots of scams, so you'll need to make sure you pick your opportunity with care."

But nowhere in his "article" does he mention the key facts: A number of states have some form of legal protection for anyone buying a job.

Before you investigate a business opportunity, contact your state to see if the seller is registered and get the disclosure package that you are entitled to.

Changes at The BizOp News

2009-06-16T15:36:54Z

Over the next couple of months, we are going to change the BizOp News, and diversify into three distinct areas.

First, the BizOp News will continue to follow those business opportunities which are governed by the FTC Business Opportunity Rule.

Traditionally, these business opportunities were vending, payphones, and other buy a job opportunities.

The FTC describes the problem with many business opportunities as follows:

Fraudulent business opportunity promoters use the classifieds and the Internet to tout all kinds of offers, from pay phone and vending machine routes to work-at-home businesses like medical billing and envelope stuffing.

Too often, these ads make promises - about earnings, locations, merchandise, or marketability - that sound great, but aren't truthful.

The result: consumers are getting ripped off, losing money instead of making it.

The big growth area in business opportunities, or the buy yourself a job market, is in affiliate marketing courses. None of the affiliate marketing courses I have reviewed are in compliance with local state business opportunity laws or the federal law. This is not a knock on their content, which varies wildly, but it is observation about compliance.

Once the FTC's business opportunity rule is in force, a number of these affiliate marketers will be shocked when the state turns up at their doors asking for significant money in fines.

Individuals selling a "buy yourself a job" are regulated as to what they can say or do, and the regulation is far more significant than regulations about testimonials.

The BizOp News will be following news in this market, as well as the traditional business opportunity frauds.

The second blog, the Franchise News, is going to be following the traditional business format franchises, commenting on legal trends, and particular lawsuits. We want to educate more people before they purchase a franchise about what to look for, but we also want to highlight some of the innovative thinking and actions that the Independent Franchisee Associations are engaged in.

We will also be focusing on dispelling some of the big myths about franchising, which are individuals unwittingly swallow.

Expect to find more use of the actual data from the Franchise Disclosure Documents which are available online or for purchase.

Finally, How Would You Play This?, will contain an eclectic mixture of game theory, negotiation, business strategy for franchise systems, and reflections on human rationality. While following the mainstream news about alternative dispute resolutions, How Would Play This will contain negotiation and strategic thinking puzzles.