Scouting out wealth-building scams.

Get-rich-quick opportunities can be disastrous

Have you ever received an unsolicited e-mail, fax, or letter from a Nigerian telling you that he wants to give you a large sum of money in exchange for your help?

If so, you're not alone. "Last year, the Nigerian money offer was No. 7 on our Internet fraud list and No. 10 on our telemarketing scam list," says Holly Anderson, director of communications at the National Consumer League (NCL). "In one case, a consumer was told that an individual in Nigeria needed to move $52 million out of the country [by transferring the money into his account]. For providing assistance, [the consumer] would receive 30%, but he needed to supply a personal bank account number and meet the offering party [in person] for a discussion about the funds." Fortunately, the consumer contacted the NCL, which intervened and identified the offer as a hoax. But some people are victimized.

The Federal Trade Commission (FTC) says that biz-op fraud is the fastest-growing fraud in the United States. Plus, the NCL reported that victims of wealth-building scams lost an average of $1,425 in 2000, up from $975 in 1999. They also found that consumers taking the bait of deceptive offerings through e-mails and Websites lost, on average, $412 in 2000, up from $310 in 1999.

"Although the Nigerian money offer scam is the biggest international income-producing fraud, more people are exploited in other business-opportunity scams," insists Ardith Morgan, author of Business Opportunities: Secrets Revealed (Business Basics Inc., $39.95; www.bizsuccess forum.com). She says the "biz-op" scam industry is worth billions of dollars every year in the U.S. alone. The tricky thing is that some of the people who perpetuate the crimes aren't always aware that they're doing anything wrong because they've been tricked themselves, either by people they know or by other reliable sources. According to Morgan, once you join an unscrupulous business opportunity, you're usually convinced to encourage your family, friends, and associates to join too. "At some point, when you realize you're not making money, you should stop, quit, and walk away before you lose more. But you're encouraged to bring in more people to recoup your investment."

Morgan says biz-op scams are based on active investments, which require you to physically work within a business structure, and passive investments, which also require your money but no labor on your part. The list of unethical active moneymaking schemes is long. Among them are three types of fraudulent entrepreneurial ventures that could (1) sell you false documentation or services for a business startup, (2) lure you into plunging your money into a faulty existing business, or (3) draw you into a false franchise, multilevel marketing scam, or pyramid. The key thing to remember when assessing a multilevel marketing opportunity is that "there should be enough retail sales to support the commission structure. The company's rewards shouldn't be based on recruiting but on actual retail sales," cautions James Kohm, assistant director of the Division of Marketing Practices for the FTC.

Passive investment schemes can lure you into pumping money into companies or opportunities that don't even exist through penny stocks, distributorships, or Ponzis (a scheme that relies on a constant supply of new members to provide existing members with high returns on their initial investment). "Just because a company is listed on a stock exchange such as the NYSE or Nasdaq doesn't mean it's a legitimate company for investment purposes," warns Morgan. "You can still get scammed."

Other schemes include offers to invest in rare coins or foreign currencies, as well as various work-at-home plans (see "Schemes on the Home Front," Shopsmart, October 2000). Generally, several factors go into a successful con: (1) you're roped in by someone you know or a resource you trust, (2) there is a sense of urgency, so you have little time to investigate the opportunity, (3) the opportunity is so new or innovative that there is no information on it to be researched, (4) it sounds exciting, (5) the investment is a cash cow that is only available to a select few (so you're made to feel special as a participant), and (6) once scammed, you're too embarrassed to tell others or report it to the authorities.

But how do you know when an offer to get-rich-quick is the real deal? The answer is if it sounds too good to be true, it's probably a scam. Here are some other cautionary recommendations:

* Don't respond to unsolicited e-mails or letters. According to Anderson, "If you're getting spammed by someone, it's junk mail, so you should ignore it."

* Be leery of ground-floor opportunities. You should never rush into unproven opportunities, and beware of testimonials, advises the FTC.

* Avoid greed. "Consumers fuel the fire and make it easy for con artists, because some consumers are gullible and greedy," advises Brian Wizard, author of Nigerian 419 Scare "Game Over!" (www.brianwizard.com), a novel largely based on 14 months of his personal experience with this scam. Adds Wizard, "Once you give your money away, you will never see it again."

* Guard your personal information. "If you have to give your bank account number for any reason, that's a big red flag," cautions Anderson. Avoid becoming a victim of identity theft by safeguarding your Social Security number, bank account number, credit card number, home address, birth date, and other personal information (see "Protect Your Identity," Shopsmart, January 2000).

* Do your research. Before you fork over your cash, consult with organizations and Websites that offer consumer information and can evaluate potential scams. Contact the NCL (202-835-3323; www.natlconsumersleague.org), National Fraud Information Center (800-876-7060; www.fraud.com), Better Business Bureau (703-276-0100; www.bbb.org), FTC (202-326-2222; www.ftc.gov), and your local Consumer Protection Agency. Adds Morgan, "If you can't afford the research, you can't afford the investment."

* Be a skeptic. "Get everything in writing and read all contracts. If you're still leery about a fast-money-making opportunity, err on the side of caution, and never jeopardize your life," emphasizes Anderson. "Think about the offer and ask yourself some questions. Out of all of the people in the world, why did that person pick you?" If you can't come up with a logical reason, you should probably pass.