You Can't Cheat an Honest Man - James Walsh [113]
MLM on the WWW Multi-level marketing programs—both legit and not—abound on the Internet.
The Health Club Network, which called itself “A Price Club for Health,” used the Internet to accomplish the near-impossible. It combined sex and multi-level marketing. The company claimed that Internet users would get a special discount of 60 percent off the price of products and make money 24 hours a day, “even while you’re sleeping!” Among Health Club Network’s products: Passion Tonic, which was supposed to improve orgasms, overcome female frigidity and male impotence and release libidos. Though perhaps not in that order.
For Ponzi perps, the advantages of plying their trade on-line are many. For a few hundred dollars—and sometimes less—their scams are delivered straight into a person’s home or business with all the glitz of a Fortune 500 company.
California-based Dennis Enterprises told Internet users that its system of auto-responders could send out 10,000 e-mail messages a day for a single client. For an up-front fee of between $12 and $200, an aggressive Internet MLM entrepreneur could send out over three-and-ahalf million e-mails a year. This electronic version of junk mail is what on-line enthusiasts call “spamming.”
But one user’s spam is another’s filet mignon. With just a tenth-of-1 percent response rate, the e-mail barrage would mean 3,500 sales. The Dennis Enterprises pitch was for selling computer hardware, peripherals...and even the company’s own e-mail services. But some MLM programs don’t seem to care much about what they’re selling.
In general, Ponzi perps would rather focus on the size and shape of the pyramid—and the money at the top—than pestering details like product line specs. That’s why so many Internet Ponzi schemes involve surprisingly low-tech pitches.
Fortuna Alliance was an alleged pyramid scheme based on the Fibonacci numbers sequence (each number is the sum of the two preceding numbers). Fortuna—which started in Washington state and quickly spread through the Pacific Coast—promised investors profits of up to $5,000 instantly.
According to the FTC, Fortuna separated more than $6 million from roughly 17,000 members and diverted at least $3.5 million to a bank in the Caribbean.
Some Simple Issues Persist
However an investment is promoted—in person, by mail, telephone or over the Internet—the SEC recommends that an investor ask the following questions before plunging in:
• Is the investment registered with the SEC and state securities regulators—or is it subject to an exemption?
• Are the people pitching the investment registered with the securities regulators? If so, is there a record of any complaints against them?
• Who is running the company? What experience do they have? Also, how long has the company been in business?
• How liquid is the investment? Can an investor sell his or her position easily—without paying unusual penalties or premiums?
• What level of detail does the company offer about itself in promotional literature? Also, does it make reviewed or audited financial statements available to investors?
Generally, if the answers to these questions are no, not yet, it’s unclear or no one else in the business does that, you should steer clear of the investment.
A note: There are many legitimate start-up companies that are using the Internet to raise development capital inexpensively. But, these companies tend to talk about themselves to a fault. They’ll usually post detailed biographies of principals, business plans (even if these are largely prospective) and information on money raised to date.
Be careful of any investment opportunity offered over the Internet that’s in any way vague about the people involved or how money raised will be spent. According to Russell Damtoft, an assistant regional director in the FTC’s Chicago office, “Most of the scams on the net are old wine in new bottles. They’re Ponzi schemes, creditrepair scams, vacation frauds.