Cracking Down On 'Net Scams

Type "get rich quick" into an Internet search engine, and dozens of Web sites appear, guaranteeing big money in a short time.

But like the traditional versions of these so-called pyramid schemes, the cyberspace scams do nothing more than trick consumers into handing over their own cash, and rarely pay out any of the promised earnings, federal regulators said Thursday.

The Federal Trade Commission, along with a number of state officials, announced 33 law enforcement actions against 67 defendants promoting such Internet pyramid schemes. The commission also launched a "sweep" of the World Wide Web to locate sites that might be hosting illegal multilevel marketing scams.

"We're committed to taking on the con artists who think they can use the Internet to promote illegal schemes," said Jodie Bernstein, director of the FTC's bureau of consumer protection. Officials announced the fraud crackdown Thursday in San Diego.

Experts say the Internet has breathed new life into an age-old racket. Consumers are either contacted via email or notice a Web page touting a sweet deal: They invest some of their money, and if they can sign on others to do the same, they will get a huge return.

"The first couple people may make money, but two or three levels down, the pyramid topples," said Holly Cherico, a spokeswoman for the Council of Better Business Bureaus in Arlington, Va.

What distinguishes pyramid schemes from legitimate multilevel marketing ventures is that they focus on recruiting new members, not on selling products, she said.

In one pyramid operation cited by the FTC, Five Star Auto Club Inc. of Poughquag, N.Y., promised online consumers an opportunity to lease their "dream vehicle" for free while earning between $180 and $80,000. All they had to do was pay an annual fee and $100 in monthly payments and recruit others to join.

But the commission said that those who signed up received no free lease on a car and no earnings from the deal. The FTC has filed a lawsuit in U.S. District Court in White Plains, N.Y., against the Five Star Auto Club Inc., seeking a permanent injunction and consumer redress. A federal court already has temporarily shut down the operation.

"Basically, these schemes take your money to pay off some other people," said Cleo Manuel, of the National Consumers League. "Ultimately, someone is going to be left holding the bag."

Manuel said con artists try to reassure consumers that the scheme is legitimate by using "shills" -- decoys who are paid by the company to say they made huge profits in the scheme.

Officials warn that the Internet makes it easy for such fraudulent operations to hide, shut down or move when someone begins to catch on. Well-constructed Web sites might also give the appearance of legitimacy and be more convincing than newspaper advertisements making the same false claims.

Email offers an alternative way to target consumers, while makng the schemes more difficult for law enforcers to trace, said Jim Lanford, co-editor of Scambusters, an online magazine about Internet fraud.

Officials say that, as with anything that sounds too good to be true, it probably is.

"The only people getting rich are the con artists," says Peter Hildreth, president of the North American Securities Administrators Association. "Ask yourself: If it's such a great moneymaking idea, why is someone telling 100,000 of their closest friends about it on the Internet?"
  • CBSNews.com staff CBSNews.com staff

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