Consumer Law at Your Fingertips
Business Opportunity Frauds
Many promoters urge consumers to invest in business or money-making ventures. Some of these offers are legitimate, but others may be frauds.
- Fraudulent schemes can take many forms, including phony securities investments, franchise investments, multi-level marketing plans, “pyramid” schemes, work recruitment schemes, vending routes and work-at-home schemes.
- Fraudulent schemes typically promise big returns for little effort. Ads promise profits, but fail to disclose costly investment requirements. Promoters may overstate potential profits, overstate the likelihood of success, and fail to disclose known obstacles.
- “Pyramid” schemes promise big investment returns based on the constant growth of “downline” recruit networks, not sales. The chain of new recruits inevitably breaks, and newer recruits lose their investment.
- Unscrupulous promoters may use classified ads and “infomercials.” Ads may invite consumers to business opportunity “seminars” that are really high-pressure promotional pitches. The promoter may paint a glowing picture of the business venture, and may cite phony success stories. Once the consumer is lured in, the promoter may require costly investments and training. The promoter may add more costs later, and may fail to deliver on promises to help.
Wisconsin has specific laws related to securities, franchise investments, “pyramid” schemes and work recruitment schemes (see below). Business opportunity promoters must also comply with general state laws prohibiting unfair and deceptive business practices. Schemes that overstate earnings potential, fail to disclose investment requirements, misrepresent investment terms, or fail to carry out promises may violate these general laws. For more information about these general laws, see Consumer Law topic, Advertising and Sales Claims.