The Cruelest Scam: How One Guy Got Taken

Last Updated Mar 4, 2011 10:36 AM EST

"Operation Empty Promises" is the name of the Federal Trade Commission's latest crack-down on schemes that fraudulently promote guaranteed jobs and sure-fire business opportunities. The agency along with the Postal Inspection Service and eleven states announced that it had launched 90 civil actions, including three lawsuits against companies that, according to the FTC, defrauded customers of nearly $50 million. In six cases, the agency had already obtained judgements and fines totaling $14.6 million. All that doesn't include another batch of criminal actions filed by the Department of Justice which have netted 16 guilty pleas, three convictions and seven cease-and-desist orders. Nineteen defendants received sentences totaling 56 years.

That's about three years per con artist, and not nearly enough to compensate defrauded customers for their broken hopes and empty bank accounts.

Such frauds aren't exactly new. But they prosper mightily when the economy turns south and people lose their jobs. Con artists know that the unemployed are a soft touch for almost any pitch that holds out hope of an income; and they have no compunction about cruelly wringing every last dollar out of their victims -- and leaving their lives in a shambles.

Take Tom Bernard, 56, an aeronautical engineer with NASA. In 2009, he was laid off along with hundreds of other workers when the space agency decided to retire its shuttle fleet. Engineering has historically had ups and downs; so he had saved a year's worth of expenses to see himself through a long stretch of unemployment. But his job loss came in the depths of the financial crisis. He wasn't hopeful about finding a new spot soon.
Perhaps that's why he was susceptible to an email from Vianet Webzone, a company that offered help in starting a home-based Internet business. "The idea was to set up a website selling merchandise," says Bernard. What kind of merchandise? He had no clue, and neither did the company rep who called to sell him a training and marketing program. "He said that I should choose something I had a passion for," says Bernard.

Vianet promised Bernard webinars that would teach him how to build a website -- for $29.95 a month. A marketing program to buy key words on Google and get his site listed more prominently in Internet search results ranged in cost from $6,880 to $20,880. (The more you invest, the more marketing help you'll get, he was told.) Bernard protested that he couldn't possibly afford even the minimum -- he was out of work, after all. But the rep suggested he put $6,880 on his credit card. "By the time you get the bill, your business will be up and running," the rep declared. According to court papers, prospects like Bernard were promised that they stood to earn up to $10,000 a week working only five to ten hours a week. Anyway, Vianet had another program to offer, one that would help him create a limited liability corporation to qualify him for a low-interest business loan that would pay off his credit card. That would cost another $5,600.

After nearly an hour of pounding by the sales rep, Bernard signed on. When he hung up, he says, he was "under the impression that the $6,880 and $5,600 charges would be deferred until my website was running." The only item to be immediately charged to his credit card would be $29.95 for training.

Getting access to the webinars was a hassle. Links weren't provided and then didn't work. When he finally got into the first, he says, "It was all about how to learn in a webinar." The second -- where to go to learn about building a website -- he found incomprehensible. By the third session, he'd had it. He decided to cancel the program. Calls to the company went unreturned, however.

Then he got his credit card bill. Not only was he charged $29.95 for the webinars, but $6,880 for the marketing program and $5,600 for lending services. When he finally reached a client relations official at the company, which turned out to be owned by Ivy Capital in Las Vegas, he learned that cancellations had to be made within three days of purchase -- even though, as Bernard says, "It took two weeks to get the webinars." Nobody had told him about the refund policy during the initial sales pitch. He learned that the $29.95 monthly charge was for web-hosting, even though there was no website to host. Bottom line: the company refused to refund his money.

He appealed to his credit card company, but they said that he had agreed to the charges; so they wouldn't remove them -- though they did lower his interest rate for four months. A year and a half later, his savings have run out and he's been living on unemployment compensation and 401(k) funds. Complicating his financial problems is the fact that about $320 each month -- about $190 to $210 of it interest -- must go to his credit card company to pay off his Vianet debt. Now he's truly desperate. He's moved to a new city to find a job -- any job, but so far had no success.

Late in February, the FTC filed a complaint against Ivy, 20 related companies, president Kyle G. Kirschbaum and seven other officials (among others) for a multitude of violations: misrepresenting the program's earning potential, the value of the goods and services offered and for failing to disclose the company's refund policy. The agency also filed a temporary order that halted Ivy's "unlawful practices," froze its assets and appointed a receiver. So far, Ivy's lawyer has not responded to a request for comment.

Bernard wasn't the only person claiming that Ivy hoodwinked him. Dozens of other customers wrote about their dissatisfactions and trepidations on an Internet consumer website. In response Ivy responded: "As a company we have always vigilantly worked to satisfy our customers and support the services that we provide. We stand by our committment [sic] to any new entrepreneurs success and realize that with or with out help it can be a frustrating a tough process to start a new business."
Whether customers will receive restitution isn't clear at this point. Emily Cope Burton, an FTC attorney, says the agency will track down all the assets it can, but "there's a question of how much there is." If the company's owners have spent all the money, there isn't much to be done.

No doubt about it, Bernard was naive to think he could succeed at a web business without even knowing what he wanted to sell. But that hardly excuses those who set out to bamboozle him and steal his money and his hope.

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  • Marlys Harris

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