Federal, State Law Enforcers Complete Fraudulent Business Opportunity Sweep
Crackdown Includes More Than 100 Law Enforcement Actions
December 12, 2006
The Washington State Department of Financial Institutions (DFI) and the Federal Trade Commission (FTC) today announced Project FAL$E HOPE$, a federal and state law enforcement sweep targeting fraudulent business opportunities and work-at-home scams. The crackdown includes more than 100 law enforcement actions by DFI, the FTC, the Department of Justice (DOJ), the United States Postal Inspection Service (USPS), and law enforcement agencies in 11 states, including Washington.
“Washington residents should contact DFI to see if a business opportunity is registered with the state,” Michael Stevenson, Securities Administrator for the State of Washington, said. “It is important that consumers receive a disclosure document prior to investing as required by the Act.”
“Bogus business opportunities trample on Americans’ dreams of financial independence,” said FTC Chairman Deborah Platt Majoras. “If a business opportunity promises no risk, little effort, and big profits, it almost certainly is a scam. These scams offer only a money pit, where no matter how much time and money is invested, consumers never achieve the riches and financial freedom promised.”
“When the states and the federal government, civil and criminal enforcers, all work together – sharing information, partnering resources, and coordinating our efforts – we can make very significant progress against these unlawful businesses,” said Peter D. Keisler, Assistant Attorney General for the Justice Department’s Civil Division. He went on to describe 23 fraud convictions obtained in 2006, and the sentencing of 25 defendants to a total of over 160 years’ imprisonment for causing over $86 million in consumer loss. Project FAL$E HOPE$ includes new cases announced today, developments in existing cases, criminal convictions, and state actions, as well as new education materials for advertising sales staff on screening ads for bogus business opportunities.
Washington State Actions Announced
Smart Advertising, Inc. and Brad Lober (PDF)* - On May 18, 2006, the Securities Division entered a Final Order against Smart Advertising, Inc.; and Brad Lober (collectively "Respondents"). The Division entered a Statement of Charges and Notice of Intent to Enter an Order to Cease and Desist on April 4, 2006. Respondents offered and sold unregistered business opportunities to at least three Washington residents. The business opportunity involved the sale of a marketing plan and website which sells third party products. The investors resided in Pierce and Snohomish counties. Respondents also violated the disclosure document and anti-fraud provisions of the Business Opportunity Fraud Act of Washington in connection with the offer and sale of such business opportunities. The Securities Division ordered Respondents to cease and desist from violating the registration, disclosure and anti-fraud provisions of the Business Opportunity Fraud Act of Washington. Respondents have a right to request judicial review of this matter.
Press-A-Print, International, LLC (PDF)* - On October 11, 2006, the Securities Division entered into a Consent Order with Press-A-Print, International, LLC (“Press-A-Print”). Press-A-Print sold a business opportunity to own and operate a business that sells specialty printed merchandise to residents of the state of Washington while not registered as a business opportunity under the Washington State Business Opportunity Fraud Act of Washington. Pursuant to the terms of the Consent Order, Press-A-Print agreed to cease and desist from violations of the registration, disclosure, and the anti-fraud sections of the Business Opportunity Fraud Act of Washington, agreed to disclose the consent order to prospective purchasers of the business opportunity, and agreed to provide disclosure documents to prospective purchasers. Press-A-Print waived its right to a hearing in the matter and judicial review of the matter.
Global Resources, Inc; Stuart Pope; and John Maginnis (PDF)* - On October 23, 2006, the Securities Division entered a Statement of Charges and Notice of Intent to Enter Order to Cease and Desist (“Statement of Charges”) against Global Resources, Inc.; Stuart Pope; and John Maginnis. The Statement of Charges alleges that Respondents sold a business opportunity to own a business selling prepaid cellular telephones from a vending machine to a resident of the state of Washington while not registered as a business opportunity under the Washington State Business Opportunity Fraud Act of Washington. The Statement of Charges further alleges that Respondents were engaged in a course of business which operates as a fraud by selling the business opportunity and failing to ship the product and by requesting additional funds after the program has been purchased to ship the product. Respondents have a right to request a hearing on the Statement of Charges.
Holiday Enterprises, Inc., Richard J. Morrell aka Nick Morrell, Andrew DeVoe, and Sherri Albano (PDF)* - On November 22, 2006, the Securities Division entered a Statement of Charges and Notice of Intent to Enter Order to Cease and Desist (“Statement of Charges”) against Holiday Enterprises, Inc., Richard J. Morrell aka Nick Morrell, Andrew DeVoe, and Sherri Albano. The Statement of Charges alleges that Respondents sold a business opportunity to own a business selling computer printer ink cartridges from display racks to at least three resident of the state of Washington while not registered as a business opportunity under the Washington State Business Opportunity Fraud Act of Washington. The Statement of Charges further alleges that Respondents violated the anti-fraud provision by making misrepresentations and omissions to Washington residents, including omitting support for estimated and projected earnings statements, omitting the number of business opportunities sold or leased and the number of business opportunities that have failed, and failing to provide financial statements. Respondents have a right to request a hearing on the Statement of Charges.
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Federal Actions
The bogus business opportunities targeted in the FTC cases include vending machines, ATM and Internet terminals, display racks for coffee and ink cartridges, Internet-based businesses, envelope stuffing, medical billing, and others.
The Federal Trade Commission announced nine new cases, and three new referrals to DOJ for filing, as well as developments in another 13 cases. DOJ also obtained numerous criminal convictions as part of the sweep, putting business opportunity scammers behind bars. In the past year, USPIS was active against business opportunity scams perpetrated through the mail, obtaining cease and desist orders, restitution, and other remedies.
See lists of FTC, DOJ (PDF)*, and UPSIS cases (PDF)*.
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Other State Enforcement Actions
State law enforcement actions were announced by the Arizona Attorney General’s Office; California Attorney General’s Office; California Department of Corporations; Connecticut Department of Banking, Securities and Investments Division; Florida Department of Agriculture & Consumer Services; Indiana Attorney General’s Office; Kentucky Attorney General’s Office; Louisiana Attorney General’s Office; Maryland Attorney General’s Office, Securities Division; Texas Attorney General’s Office; Washington State Department of Financial Institutions, Securities Division; and Wisconsin Department of Financial Institutions. The Wisconsin Department of Agriculture, Trade and Consumer Protection also personally warned consumers to beware of bogus business opportunities.
See list of state enforcement actions (PDF)*.
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Educational Materials
The FTC has new guidance for publishers, offering them help to screen out deceptive ads for business opportunities. The alert, “Ads for Business Opportunities: How to Detect Deception,” suggests advertising sales staff to give an extra look at ads that make claims such as:
“No risk! Guaranteed” “Quick and Easy!” “Earn $2,000 a month.”
The alert warns that legitimate business ventures involve risks, start-up businesses require a lot of work to get off the ground, and that the law requires earnings claims in ads be accompanied by the number and percentage of previous purchasers who achieved the income.
Consumers should visit the FTC’s Web site at www.ftc.gov/bizopps for information in English and Spanish on spotting and avoiding business opportunity scams. The site includes an e-card consumers can use to warn their friends about business opportunity scams.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
NOTE: A stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.
* This document is a PDF file, and you will need Adobe Acrobat Reader to view it. If you don't already have Acrobat Reader installed on your computer, you may download it for free from Adobe.
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