Ky. Authorities Cracking Down on Fraud Scams

February 23, 2005

In a massive criminal and civil crackdown on promoters of illegal business opportunity and work-at-home programs, the Kentucky Office of the Attorney General, the Federal Trade Commission, the Department of Justice (DOJ), the U.S. Postal Inspection Service and state law enforcement agencies from 14 states have charged more than 200 operations for engaging in fraud and/or violating consumer protection laws.

Business opportunity and work-at-home fraud causes substantial consumer injury. In the Kentucky cases alone, the defendants caused at least 64 consumers to lose a total of more than a million dollars.

“This crackdown sends a strong message to those who would profit by offering Kentucky consumers illegal business opportunities,” said Attorney General Greg Stumbo. “State and federal governments have joined forces to put a stop to those who defraud others of their life savings by hawking fraudulent business schemes. But Kentuckians must be vigilant. We urge consumers to contact this Office and the Better Business Bureau before they part with thousands of dollars for the purchase of a business opportunity.”

The enforcement sweep, known as “Project Biz Opp Flop,” contains four key components: (1) criminal prosecutions against business opportunity fraud artists; (2) civil enforcement actions filed by the FTC; (3) civil penalty actions filed by the DOJ on behalf of the FTC; and (4) enforcement actions filed by state enforcement agencies.

In January, 2004, an individual named Dennis Lee, of New Jersey, who was doing business as United Community Services of America, Better World Technologies, and International Tesla Electric Company, pled guilty in Jefferson Circuit Court to the lesser charge of attempting to sell business opportunities in Kentucky without registering as required by law. Mr. Lee had made sales demonstrations offering business opportunities for dealerships for selling machines which could generate electricity for personal household use and resale to the public. Several experts who reviewed Mr. Lee’s claims reportedly dismissed them as unscientific.

“Project Biz Opp Flop” includes 16 FTC actions against 31 corporate defendants and 33 individual defendants. The operations range from refrigerator magnet, medical billing, Web design, and envelope-stuffing work-at-home schemes to snack and soda vending machine businesses. In some cases, such as a surplus goods brokerage business, the sellers overstated the demand for the products, according to the FTC. In others, like vending machine businesses, the operators allegedly misrepresented the amount of assistance they would provide to the franchisee. All but one of the operators targeted by the FTC was allegedly characterized by one key element: unsubstantiated or deceptive earnings claims.

In most of the FTC’s cases announced this week, investigators identified suspect business opportunity advertisements in print, broadcast and electronic media.

In the typical case, the investigators contacted the promoters and listened to sales pitches from operators who hyped the business opportunity and touted its earnings potential. The sales staff gave investigators “references”- supposedly successful owners and operators of the business opportunity who could verify the earnings claims. In many instances, the investigators uncovered evidence that some of the “references” did not own or operate a business. Instead, they were “shills” – paid actors posing as successful owners.

As part of the sweep, enforcement agencies in 14 states are announcing actions against business opportunity, franchise, and work-at-home promoters. These actions consist primarily of cease and desist orders, consent agreements, and fines. Also included are civil lawsuits, criminal lawsuits, and a ban.

The defendants are located in 24 states and Canada, with the greatest number of targeted defendants residing in Florida (26), California (11), and Arizona (7).

In Kentucky, the Attorney General’s Office received two default judgments in 2004 against Combined Resource Systems and its principals, who enticed consumers with promises of easy profits from worm farms. At least 60 consumers lost a total of more than one million dollars to this business opportunity scheme.

The FTC has launched a new “teaser” Web site to reach consumers who use the Internet to find business opportunities. Teaser sites mimic real Web pages, using common buzz words and making claims frequently used by fraudulent business opportunity promoters.

At first glance, the new teaser site looks like a pitch for a “can’t miss” business opportunity for “Sundae Station,” an ice cream sundae vending machine. The site contains typical claims of fast money with minimal effort.

Once consumers click on any of the links, they learn the ad is actually a consumer education piece posted by the FTC to warn consumers about business opportunity rip-offs. The Biz Opp Flop teaser site can be found at:

Consumers should visit the FTC’s Web site at or for information in both English and Spanish to help spot and avoid business opportunity scams.

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