Consumer Fraud in the United States (FTC)

This document is VERY dry, but here is an excerpt on Fraudulent Business Opportunities and Pyramid Schemes. (Caution, 128 pages long)

http://www.ftc.gov/opa/2007/10/fraud.pdf

Fraudulent Business Opportunities and Pyramid Schemes

Another change was made to the questions about two of the money making
opportunities that were included in both surveys – fraudulent business opportunities and pyramid schemes.

Pyramid scheme promoters often claim that purchasers will operate their own
businesses selling a particular product or service and that they will make money both from their own sales and from those of others they recruit to join the program. Although such a business may look like a legitimate multi-level marketing program, it differs because the income earned by participants comes ultimately from recruiting, rather than the sale of products or services to consumers. Most participants in pyramid schemes lose money because the program really just transfers money from those who have joined most recently to those who have been involved for a longer period of time. At any point in time, the vast majority of those who have joined the program – often 90 percent or more – will not have recouped the money they paid to join.

Business opportunity offerings also involve consumers operating their own
businesses selling particular products or services. Business opportunity offerings
generally include some package of information, equipment, and services that purportedly will enable the consumer to establish and operate a successful business. Such offerings often appeal to consumers who have little or no business experience because they supposedly provide everything needed to own and operate the business. However, fraudulent business opportunity offerings often involve false promises that purchasers will make a large amount of money. Similarly, sellers sometimes make false promises that they will provide purchasers with assistance in finding customers or locations. For example, sellers of fraudulent vending machine business opportunities may promise to provide high-volume locations where purchasers can place their machines. Promises that the business is certain to make at least a specific income or that customers will be provided can lead potential purchasers – particularly those without experience operating their own businesses – to believe that there is little risk in purchasing the business. Potential purchasers believe they will not have to do a lot of selling and they are highly likely to be successful.