Get-rich schemes often mean unwitting investors get poor Con artists are targets of investigations, suits

November 24, 1996|By BLOOMBERG BUSINESS NEWS

WASHINGTON -- Robert Burke used the money he had saved in his 401(k) plan to buy five pay phones for about $2,400 each after seeing an advertisement that "guaranteed" a weekly intake of $1,750.

A year and a half later, he's out his initial $12,000 investment, plus the money he doled out for monthly phone bills that ended up exceeding, in most cases, the amount the phones collected. Now he has five pay phones that he can't sell cluttering up his basement.

Burke, of Elmwood Park, N.J., is one of thousands of Americans who have become victims of get-rich-quick business schemes that promise that minimal effort will yield lucrative rewards that are never reaped.

The company that sold Burke the phones, and more than 70 other companies and operators, are the targets of one of the largest efforts by federal and state consumer-protection officials crack down on schemes that have cost consumers millions of dollars.

"These are very sophisticated con artists who paint a picture of legitimacy while stringing investors along," said Eileen Harrington, associate director of the Federal Trade Commission's Bureau of Consumer Protection.

Through "Operation Missed Fortune," the FTC, responsible for enforcing federal consumer-protection laws, filed 11 civil suits, alleging that the companies and people involved overstated earnings potential, among other things. In 10 of these cases, the agency got courts to freeze assets in an effort to recoup some of the investors' losses.

Officials in more than 20 states filed another 23 suits, as well as cease-and-desist orders, injunctions and other actions.

"When it comes to the kind of scams we're talking about today, instead of getting rich quick, most people go broke," said Mark Griffin, president of the National American Securities Administrators Association Inc., which represents state securities regulators.

These "business opportunities" have spread quickly as out-of-work people, with personal computers at home and access to the Internet, look for new ways to earn a buck, the FTC said.

The schemes involved a range of businesses, including the sale of Breathalyzer equipment to convicted drunk drivers in California and wheelchairs and other medical equipment to recipients of Medicare and Medicaid federal health coverage.

"After months and months of working, I had piled up huge bills and not received a dollar in Medicaid and Medicare reimbursements" that were promised, said Steven Bellissimo, who estimates he was duped out of $75,000 by a Boca Raton, Fla., company that said he could sell at least $300,000 in equipment during the first year.

Many of the law enforcement actions were taken against pyramid schemes, which promise participants will make money if they pay a certain amount and get one or more others to do the same. The FTC found some pyramid schemes operating on the Internet.

In one case, an Arizona company charged with making false earnings and refund claims advertised that by making a $70 initial investment and paying $50 each month, contributors could raise money for a charity and pocket as much as $89,700 a month, the FTC said.

Participants made money by bringing in new contributors.

Pub Date: 11/24/96

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