Enforcement Crackdown on
by: Cary Christian
For those of you who haven't heard, the Federal Trade
Commission, SEC, and other Federal and state law enforcement agencies filed
criminal and civil charges against 45 alleged Internet scammers and
deceptive s p a ^ m e r s this week. Additionally, the FTC and 21 other U.S.
and international agencies launched an initiative to get organizations in 59
countries to close the open relays s p a m ^ e r s use with such impunity.
Historically we have seen this level of enforcement only
against the largest pyramid schemes online. The big difference here is
that smaller business opportunities have been targeted and there is a very
real indication that more enforcement activity is on the way that will
include not only the owners of these programs but those who promote them as
affiliates as well. This could affect many of you.
At this time, the FTC and other federal and local enforcement
agencies are looking very closely at business opportunities that make
unrealistic promises of income, depend on recruiting other members to make
the amount of money promised, and do not contain adequate disclosures
related to the promises made.
Also of note is their crackdown on those who sell
prescription drugs online without a prescription. As you know, those
programs are all over the place. If you're in one of those, get out
now! There is nothing else I can tell you to help you protect
yourself. No amount of disclosure or adherence to fair and
non-deceptive business practices is going to help you with these types of
But getting back to the crackdown on business opportunities,
let's take a look at the allegations leveled against Instant Internet
Empires as an example. Before I start, however, let me make it clear
that the charges against this company are allegations that have not been
proven in court. They are merely in the complaint stage at this point.
They do, however, offer a good look at what the enforcement agencies are
looking to prosecute. I'll refer to this company as IIE from this
For those of you who are not familiar with IIE, the company
sold a product that included five, ready-made Internet sites to sell ebook
products. You pay the fee, set up your sites, sell ebooks and recruit
others to buy the IIE package. This is fairly typical of 90 percent of
online business opportunities. It is important to note that it was
NOT an MLM program.
Here is a summary of the four counts alleged by the FTC in
Count 1 - In their advertising the company
represented, either directly or by implication, that consumers who
purchase their product are likely to realize substantial income from
those products. The FTC alleges that in truth and in fact many
consumers who purchase those products are not likely to earn substantial
income from those products. Therefore, the representations are deemed
false and deceptive.
Notice that the deceptive representations include implied
Count 2 - This allegation builds on the first.
The FTC cites again that the company represents that consumers who purchase
their product are likely to earn substantial income. Count 2 deals
with the fact that the company did not tell consumers that the nature of
their products and the nature of the marketing structure ensure that
many people will not earn substantial income and that this information would
be material in helping a consumer decide whether or not to buy the product.
This failure to disclose is deemed to constitute a deceptive act and
Count 3 - The company solicits payment from consumers
by promising financial gains based on payments from future participants.
The consumer's ability to realize financial gains is dependent on the
consumer being able to recruit additional participants. The structure
of the program ensures that the majority of participants will be unable to
achieve those financial gains. This type of scheme is known as a chain
marketing scheme and constitutes a deceptive act or practice.
Notice that while IIE is not MLM, it can still be
characterized as something very similar since a substantial amount of
participant's income is dependent on recruiting.
Count 4 - IIE provides participants in the program
with copies of their website advertisement to be used in recruiting new
participants. As described in Counts 1 and 2, the website contains
false and misleading representations. By providing participants
with a copy of their website, defendants have provided others with the means
for commission of deceptive acts and practices.
Count 4 should send shivers up and down your spine as you
read it. The FTC is clearly stating that business opportunity
promoters who use false and misleading representations in their websites and
allow you to use those websites to recruit or sell are making you an
accomplice in their scheme. Therefore, you could be charged with the
same illegal acts!
You should note that IIE's bank accounts and assets, and the
bank accounts and assets of the OWNER have been frozen. For
those of you who are unfamiliar with government's ability to freeze bank
accounts, let's just make it real simple: you wake up one morning and have
no access to your money. And you won't have access for, usually, quite
a long time if ever! Once you are targeted there is a very large and
real possibility that you could be absolutely ruined financially.
Is it worth the risk? I think not.
If you are interested in reading the entire complaint against
IIE, and I think you should to get the full flavor of the case, you can find
Now is the time to take a good hard look at the programs you
promote as an affiliate. Ask yourself these questions:
1. Does the program make claims of income that
seem unreasonable? What does it take to earn the income claimed to be
possible? Is recruiting a large part of the income potential?
Programs that rely on recruiting for income are going to be hard targets.
Most, if not all, will be deemed to be false and misleading because basic
mathematics dictates that the majority of the affiliates will be unable to
2. Does the program attempt to sell people by
showing examples of bank statements, PayPal statements, etc. to demonstrate
how much money the owner is making? This will nearly always be deemed
a false and misleading representation because it is. The first person
to sell any product will always make more money than those who follow.
As more and more affiliates are added, there is much more competition for
the already limited market which means that it will be nearly impossible for
any affiliate to earn the type of income the owner is representing as
3. Do you see the program being advertised by s
p a m ^ e r s? If it is advertised in this manner, it will be a more
high profile target.
4. If the program does include some claims on
its website that seem unrealistic, does the site also include proper
disclosures with respect to these claims that could limit potential
For example, if the program states that it is possible to
$20,000 per month with the program but then includes disclosure that only
the top producers with access to effective targeted marketing will make that
amount and that most others will make much less, then the disclosure
might protect the program from prosecution.
But the disclosure must be near enough to the claim, easy to
find and read, and must not negate the claim in order to be effective.
If the disclosure has the effect of totally reversing the claim, then the
claim must be modified. The disclosure would not help.
Additionally, you and I probably do not have the legal
expertise to determine if the disclosures are adequate. If the program
must rely on disclosures to modify its unreasonable claims, I would pass on
it. You have too much at risk to take chances.
If you find yourself getting too many negative answers to the
above questions as you evaluate the programs and products you represent, you
should seriously consider dropping your affiliation with that product or
program immediately. The most important point I can make to you in
this article is that YOU could be held responsible if you are
promoting the program or product even though you are not the owner.
I hate to say it, but probably 90 percent or more of all the
business opportunity programs online are going to fail the test miserably.
That's one reason why I constantly counsel you to get your own products and
run your own business. That way, you have control. There are
still many requirements to be met to keep your site legal, but at least you
are not relying on someone else for compliance.
If you have questions or reservations about a particular
program you belong to and need help with your evaluation, send me an email.
I'll be happy to help you with the analysis.
(c) copyright 2003