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Crackdown On Bogus Business Schemes

Federal and state agencies are launching a nationwide crackdown on phony business operations.

Authorities say the scams promise big money to consumers, but the truth is, every year Americans waste tens of millions of dollars on these bogus opportunities.

Business opportunity scams pitch everything from online commerce to old-fashioned envelope stuffing.

A typical ad promises $50,000 a year for doing medical billing from your own computer. Another claims you can take in $10,000 monthly by owning and operating pay phones.

Eileen Harrington of the Federal Trade Commission tells CBS News Consumer Correspondent Herb Weisbaum that people sometimes invest "their life savings, their retirement savings, their children's college funds. It's really a serious problem."

The Federal Trade Commission, the Justice Department, several state attorneys general and securities officials say they have filed complaints against 68 operations they accuse of deceiving consumers about work-at-home and other business ventures, such as vending machine chains.

More than 100 newspapers have agreed to include their own classified ads informing consumers of what to look for in a legitimate business promotion, officials said. Additionally, more than 85 of the papers have agreed to screen out deceptive ads, such as those that make earnings claims without any disclosure of how much consumers have actually made.

The promoters targeted consumers with short teaser ads that promised the chance to make money in various business plans from working at home to buying vending machines. Consumers who called for more information received a deceptive pitch about how much help they would get in setting up their business and how much money they would make, said Steve Gurwitz, assistant director in the Division of Marketing Practices at the FTC.

Ken Jarvis of Seattle paid $360 to a firm that said he could make a killing doing medical billing on his home computer.

Jarvis said: "If I go on their calculations, you can make two, three, four thousand dollars a month. You could make some serious money."

But in the end, Jarvis says he didn't make him anything. The company still has his money, and he can't get it back.

In other cases, consumers paid as much as $5,000 to $7,000 to buy vending machines or pay phones they were told they could operate for profit. But the companies advertising these ventures often furnished people with old equipment and could not secure them the kinds of locations that would actually bring them any money, officials said.

Typically, big, established companies that place many vending machines are given the prime spots, leaving a limited number of lucrative locations for individuals. And in at least a few instances, consumers never even got the phones or machines for which they had paid thousands of dollars.

Federal rules require companies selling franchises and other business ventures t provide potential customers with disclosure information that includes the identities of current and former franchises. The rules also require that claims about potential earnings be substantiated.

The complaints filed today would force the targeted promoters to change their business practices and provide consumers with the required information.

The FTC filed 13 cases in federal court, nine of which resulted in a temporary restraining order with the business' assets frozen to provide monetary refunds to consumers. The Justice Department filed another 22 complaints for the FTC in federal court, seeking civil penalties. State officials filed the remaining 33 actions.

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