Cyberspace pyramid schemes: Same old steal

Law enforcement cracking down on Internet racket.

The Associated Press

WASHINGTON -- It is an age-old racket getting a second wind on the Internet. But federal regulators warn that cyberspace versions of these so- called pyramid schemes are no better than the traditional ones. In the end, people still will end up throwing money into ventures that rarely live up to their promises of big returns. The Federal Trade Commission along with a number of state officials announced Thursday 33 law enforcement actions against 67 defendants promoting such Internet pyramid schemes. The commission also launched a sweep of the World Wide Web to locate sites that might be hosting illegal multilevel marketing scams. "We're committed to taking on the con artists who think they can use the Internet to promote illegal schemes," said Jodie Bernstein, director of the FTC's Bureau of Consumer Protection. The Internet has helped breathe new life into the schemes. A consumer merely has to type "get rich quick" into an Internet search engine and Web sites appear guaranteeing huge profits if they invest some of their money and can sign on others to do the same. "The first couple people may make money, but two or three levels down, the pyramid topples," said Holly Cherico, a spokeswoman for the Council of Better Business Bureaus in Arlington, Va. What distinguishes pyramid schemes from legitimate multilevel marketing ventures is that they focus on recruiting new members, not on selling products, she said. In one pyramid operation cited by the FTC, Five Star Auto Club Inc. of Poughquag, N.Y., promised online consumers an opportunity to lease their "dream vehicle" for free while earning anywhere from $180 to $80,000. All they had to do was pay an annual fee and $100 in monthly payments and recruit others to join. But the commission alleged that those who signed up received no free lease on a car and no earnings from the deal. The FTC has filed a lawsuit in U.S. District Court in White Plains, N.Y., against the Five Star Auto Club Inc. seeking a permanent injunction and consumer redress. "Basically, these schemes take your money to pay off some other people," said Cleo Manuel, of the National Consumers League. "Ultimately, someone is going to be left holding the bag." Manuel said con artists try to reassure consumers that the scheme is legitimate by using "shills" -- decoys who are paid by the company to say they made huge profits in the scheme. Officials warn that the Internet makes it easy for such fraudulent operations to hide, shut down or move when someone begins to catch on. Well-constructed Web sites might also give the appearance of legitimacy and be more convincing than newspaper advertisements making the same false claims. E-mail offers an alternative way to target consumers, while making the schemes more difficult for law enforcers to trace, said Jim Lanford, co-editor of Scambusters, an online magazine about Internet fraud. "There are lots of CD-ROMs with e-mail addresses on them. Some people just go in and harvest from a news group," Lanford said. Then individuals who buy into the operation e-mail others they know -- friends or family members -- to let them in on their big discovery. E-mail offers the possibility for easy mass targeting, he said. "It's the same old scheme. It's just cheaper to do," Lanford said. Officials say that as with anything that sounds too good to be true, it probably is. "The only people getting rich are the con artists," says Peter Hildreth, president of the North American Securities Administrators Association. "Ask yourself -- if it's such a great moneymaking idea, why is someone telling 100,000 of their closest friends about it on the Internet?"Approach 'opportunity' with cautionFederal Trade Commission offers these tips for consumers to guard themselves against illegal pyramid schemes:n Avoid any plan that offers commissions for recruiting additional distributors. - Beware of plans that ask new distributors to spend money on high-priced inventory. These plans can collapse quickly and may be illegal pyramids in disguise. - Be cautious of plans that claim you will make money through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- instead of through sales you make yourself. - Beware of "shills" -- decoy references that the promoter pays to describe fictional success in earning money through the plan. - Do your homework. Check with your local Better Business Bureau and state attorney general about any plan you are considering, especially if the claims about your potential earnings or the product sound too good to be true.

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