Avoiding Scams Is Less Tricky Than You Think

Posted by | Filed under Business | Sep 2, 2015 | Tags: , | No Comments

asiltA HOME-BASED BUSINESS OWNER, YOU HAVE A RISK-taking attitude that can culminate in great profits. Alas, this pioneering spirit can also tempt unwary home officers into the jaws of a wide variety of scams, schemes, and nefarious business deals spawned by modern-day Fagans. But if you’re forewarned, and exercise some caution and common sense, most of them can be avoided.

“The work-at-home, make-big-money, buy-large-cars, I-will-tell-you-how-to-make-it-rich-overnight multi-level-marketing offers are largely schemes, if not scams,” says Lindsey Krause, who worked in the corporate marketing department of a multilevel marketing company (MLM) for more than a year before she discovered its unsavory business tactics and quit. (Krause asked us not to reveal her real name for fear of reprisals.) She says hundreds of people left the company each month, disillusioned and broke, while a core group collected outrageous sums of money.

The bait comes in many forms–savings on office supplies, incredible sales, membership in exclusive trade organizations. And despite the dire warnings of attorneys general and consumer groups, people still fall prey to shady work-at-home business opportunities.

“When people were looking for a little extra cash or an at-home opportunity because of family or physical limits, they were preyed on relentlessly,” maintains Krause. “Single moms were their easiest targets.”

There are two main reasons why home-based business owners are particularly susceptible to scams, according to James Walsh, author of You Can’t Cheat an Honest Man: How Ponzi Schemes and Pyramid Frauds Work and Why They Are More Common Than Ever ($20; Silver Lake Publishing). One is logistical and the other is psychological.

Logistically, home-based businesses offer fewer layers of resistance between an outside promoter and the decision-maker. “Often, the decision-maker is the same person who picks up the phone,” Walsh says. “Even if you are just starting a one-person shop and feel as broke as can be, you’re still an ideal mark for a scammer because you’re easy to reach.”

The psychological reason is that some home-based business owners feel a kind of institutional insecurity, as if they need to pay attention to every business proposal that comes their way in order to compete. “If anything, the opposite is closer to the truth,” Walsh says. “A home-based business should be even pickier about the proposals they entertain.”


The first thing you must do to protect yourself from scammers is gather information. Too often, consumers work with companies on the assumption that they are legitimate. “More than scams and cons, it is a lack of awareness that causes fraud,” says David Horowitz, host of the weekly radio show Fight Back, a consumer advocacy program (www.fightback.com).

Horowitz says that before you do business with a company, you need to check them out completely. Call their 800 and local telephone numbers to make sure they work. If the company has a Web site, check it out to get more information about how they operate. You can also search Web-based and Usenet message boards for complaints about the company. Even if the company doesn’t have its own Web site, customers often post warnings about disreputable firms on other sites. Some good places to start include www.fightback.com and www.scambusters.com.

The next thing you should do is become acquainted with some of the more common scams. There are countless schemes afoot out there, but here are a few general types of which home workers should be particularly wary.


The most lucrative (at least for the perpetrators) and potentially dangerous scam is the multilevel marketing scheme. These pyramid schemes will come to the home-based business dressed up as marketing opportunities or guaranteed networking systems.

“Sometimes they will suggest that you market their product–pre-paid phone cards, soap, coins–while getting your business off the ground,” Walsh says. “Other times, they will suggest that their system can generate sales and clients for your business.” In both cases, they’re out to get “start-up fees” or “management licenses” from you, as well as everyone you can recruit into the scheme.

Krause was involved in a vitamin venture that also sold weight-loss and beauty cream products. She says the company made a good deal of its money by selling high-priced products of inferior quality. “Most of the products are extremely overpriced compared to purchasing them on the Internet or in a superstore,” Krause says.

While the sign-up fees for most programs are minimal, MLMs often encourage new members to purchase large amounts of product. When you join, you are often required to have a three- or even six-month supply shipped–and charged to your credit card–each month.

In addition to paying for the products, these schemes usually require you to incur a great deal of overhead expense. Unlike an employee in a corporate setting, you have to pay for everything, including sales brochures, meeting spaces, photocopying, gas, phone service, conferences, training, and more. Before long, Krause says, your expenses can get wildly out of control. “That’s why you see the word `independent’ all the time,” says Krause. “It doesn’t mean freedom from work: it means you pay for everything on your own.”

If you are thinking about joining a MLM or franchise, you need to be extremely careful. To avoid falling victim to scams, you need to dig up lots of information about the business, its principals, and your risk.

Walsh says there are some fundamental things you must know before committing any money to a marketing channel or “business opportunity.”


First, make sure you understand how the business makes money. What is the product or service being exchanged for value? Are you guaranteed to receive a quality product, or do you have to work with what you have?

You also need to know the people with whom you are working. Do you know all or most of your business partners, or are there producers, license-holders, or others that you haven’t met? At the very least, you need to know whether your new partners have had legal trouble in the past.

Third, where did this opportunity come from? Scammers don’t just wait for marks to come to them; they seek them out. Trust opportunities that you find and research yourself, and be wary of those that find you.

“Ask to meet principals and read prospectuses–including complete ownership information–before committing any money to a business opportunity,” advises Walsh. “Make sure you understand who’s involved and where they are located.”


The second-most-common type of con is the effort to sell office supplies or equipment to a home-based business at a “discount.” The offer can come via e-mail or by phone, and it usually begins with the salesperson asking what kind of PC, printer, and fax machine you have. “Once they get you to tell them about your equipment, you are finished,” says Horowitz.

Once they know what you need, the scam artist will quote you prices that are far below those offered by the legitimate competition.

“People who have their offices at home are usually pretty frugal about what they buy,” Horowitz says. “But when prices are so low, some of these people–in their infinite wisdom–will buy six of everything.” In some cases, the products simply never arrive. In others, the goods arrive, but are of inferior quality and cannot be returned. “The reason they deliver is so they won’t be pursued by the federal authorities,” says Horowitz.

Other office supply schemes require a home-based business to pay a membership fee or participation fee in order to get amazingly low prices. “The business pays the fee, and the scammer disappears,” says Walsh.

In another variation, a shipment of office supplies that the home-based entrepreneur never ordered arrives–along with a bill. When the business owner calls to dispute the charge, they are threatened with an adverse credit report if they do not pay.


The Federal Trade Commission (FTC) settled two high-profile cases of office supply fraud in late 2000.

According to the FTC, David, Moreno, doing business as Continental Business Systems (also known as United Products), based in Huntington Park, Calif., used deceptive tactics to get businesses to pay for the supplies he sent to them. He falsely represented that he was the businesses’ regular toner supplier and that they had ordered the toner he had shipped, and for which he had billed them. Under the terms of the settlement, Moreno must refrain from future telemarketing sales and turn over all of the company’s assets to the state.

In a similar case, the FTC found that International Business Network Inc., based in Tarzana, Calif., would call businesses on some phony pretext to obtain information about their victims’ photocopiers and the names of personnel responsible for ordering supplies for the copiers. They used this information to convey the impression that they regularly supplied toner for the victim’s copier. Once the victim paid one bill, additional shipments and bills were sent, reflecting outrageous prices.

The FTC settlement in this case banned the company principals, Danny Yahalom and Oren Ben Elkanah, from telemarketing sales and required them to pay $85,000 to the business owners they had ripped off.


Another similar scam revolves around sales of big-ticket items such as computers and copy machines. Horowitz says users should be particularly wary of computers that were assembled or rebuilt outside the United States. Even if the components are delivered as advertised, the warranty may be invalid and leave you hanging if you run into trouble. “Manufacturer warranties on these systems will not be honored because they were assembled in Europe,” says Horowitz.

In fact, the source of your warranty may be as important as who made the product. Federal law guarantees you the right to read the warranty before you buy a personal computer, according to Horowitz. “You want to make sure to get a factory warranty,” he says. “Dealer and third-party warranties are troublesome because they don’t always perform their own repairs.”

The Federal Trade Commission offers a number of tips for small businesses that want to avoid becoming victims of office supply scams. Clearly, you are not responsible for products that you did not order. In fact, the law allows you to treat them as a gift! When shipments arrive, you should inspect them immediately to ensure you receive the quantity and quality of items that you ordered. You should also check your bill for charges for items you did not order.


One relatively new scam involves the selling of bogus domain names. Although many top-level domain names (TLDs) are taken, the Internet Corporation for Assigned Names and Numbers (ICANN) is in the process of authorizing new TLDs, such as .biz, .info, .pro, and others.

According to the FTC, consumers are receiving fax and e-mail solicitations to secure new top-level domain names–for a fee–as soon as they become available to the public. The promise may guarantee a new top-level extension or some kind of preferential treatment in the registration process; either way, the claims are bogus.

At press time, however, ICANN had not yet authorized the new extensions, and the FTC says it is misleading for any service or entrepreneur to offer pre-registration or accept fees for domain names that may never exist. It is also likely that ICANN will establish rules and regulation regarding the distribution of new TLDs when–and if–they become available.

The FTC advises consumers to protect themselves by avoiding any pre-registration service that asks for fees up-front or guarantees particular top-level domain names or preferential treatment in the assignment of new, top-level domain names. It also recommends that consumers look carefully at any offers that come in unsolicited. To check the current status of new TLDs, check out the ICANN Web site at www.icann.org.

It is also a good idea to protect yourself against the registration of domain names that may infringe on your trademarks or copyrights. Horowitz says he had this problem after he established fightback.com. “I found somebody had registered fightback.org and wanted to sell it for $999,” says Horowitz. “We went out and registered 20-something domain names so someone doesn’t rip off my trademarks.” Horowitz also recommends using a well-established registration service, such as Network Solutions (www.networksolutions.com).


Even if you’ve taken all conceivable precautions, there’s always the chance a particularly wily scammer will catch you napping. If you become a victim, there is nothing to be ashamed of–and reporting the incident quickly could help spare others.

The best thing to do if you think you’ve been taken by a scam is contact your state Attorney General’s office. “These are the law-enforcement agencies that usually keep the best tabs on con men and Ponzi swindlers,” says Walsh. The U.S. Justice Department also has an office that focuses on Ponzi schemes and business swindles.

But although the state attorneys general work hard to battle scams, don’t expect them to get your money back for you. Many law enforcement officials at the local level consider scams “victimless crimes,” and, therefore, low priorities. “In the D.A.’s office in Los Angeles County, you need to sustain at least a $100K loss before the office will take action,” says Horowitz. “Sometimes, if you pool resources with other victims, you can reach that level, but it can be hard.”

A cautionary note: Although many blame the Internet for the number of scams out there, most scams work just as well by phone as they do online, and use the same methods. In effect, however, the Internet allows scammers to reach a larger number of potential marks while incurring less expense. “Ponzi scammers have always used direct mail to find marks … the Internet is, among other things, a very efficient form of direct mail,” says Walsh. “The underlying mechanics of the schemes haven’t changed, and probably won’t.”

Horowitz agrees and adds that the best defense against scams is the same as always: common sense. Issuing a well-worn but nonetheless valid warning, he says, “If it looks like a scam, sounds like a scam, smells like a scam–it’s a scam.”


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