FTC Clamps Down on Web Fraud

WASHINGTON -- Two companies that sold nearly $15 million worth of packages falsely promising Web-based business opportunities will pay about $80,000 to former customers under a settlement with the Federal Trade Commission announced last week.

Customers paid the companies, Wealth Systems and Ecommerce Network.com, $14.8 million for bogus business opportunity packages, according to the FTC. A court judgment for the entire amount of consumer injury will be suspended due to defendants' inability to pay, the FTC said. The judgment will be imposed if they are found to have misrepresented their financial condition.

Recruited 'Brokers'

The companies and owners Martin Wilson and Shane Roach are permanently barred from misrepresenting any product or service under the FTC settlement, approved November 14 by the U.S. District Court for the District of Arizona. The FTC filed a complaint against the companies in February.

The two companies, registered as businesses in Nevada, used direct mail and telemarketing to pitch a program allowing customers to become "Web brokers," the FTC said. The companies told customers they could earn $20,000 to $50,000 "next year" by purchasing Web broker packages priced between $300 and about $1400. Potential customers received a mailing with testimonials from "Web brokers," one claiming to have made "over $300,000 in a little over a year."

Few, if any, of the companies' customers made profits, according to the FTC. Few customers received refunds, the agency said.

The companies offered advertising coaches and advertising packages for as little as $2 to help its customers, the FTC said. After customers purchased a broker package, the coaches used high-pressure sales tactics to persuade customers to buy advertising services from them, saying customers needed to spend as much money as possible on advertising in order to make a profit.

Some of the advertising packages cost tens of thousands of dollars. The defendants said one person had earned more than $12,000 in a month, and another person had invested only $300 and received his first earnings check for $680, according to the FTC.

Agencies Team Up

The FTC accused the defendants of violating the FTC Act and the FTC's Franchise Rule. Consumers were not given any required presale disclosure documents with information about Wealth Systems, such as names, addresses, and telephone numbers of Wealth Systems members and their earnings. Neither were they provided an earnings claim document stating a reasonable basis for defendants' earnings claims, as required by the Franchise Rule, the FTC said.

The court order stopping the companies' activities was a result of Project Biz Opp Flop, a criminal and civil crackdown on promoters of illegal business opportunity and work-at-home schemes.

The FTC was joined in the operations by the Department of Justice, the Postal Inspection Service and law enforcement agencies from 14 states. More than 200 operations were targeted for engaging in fraud or violating consumer protection laws.