Cyber Swindle

Beware the Net Racket

illustration by Roy Tompkins
The scam works something like this: Innocent consumer is tempted, by an e-mail or website, into calling for information about some product or service, or often, a job opportunity. He is given a toll-free 800 number to call, and thinking that there is no charge, he dials it up. Innocent consumer is left on hold forever and eventually (sometimes after up to 20 minutes) hangs up irritated. At least he's only wasted some time -- or so he thinks.

In reality, the owner of the 800 number, unknown to the consumer, has forwarded the call to a number with an 809 area code (or a dozen other new codes). This area code sounds innocuous, like it might be Kansas City, but actually covers the Caribbean and works much like a 900 pay number -- only these charges reportedly run up to a whopping $25 per minute.

When innocent consumer's phone bill arrives, the awful truth comes out, and by that time, the scam artist is long gone. Variants on this scenario include mass pages to people with beepers and automated "fax back" systems, too.

It's real, it's frightening, and it all started on the Internet.

Now, the Internet is probably the most useful innovation in recent history, providing very inexpensive entertainment, information, and access to the avenues of commerce. But, as with anything these days, there's a dark side to all of this, and we're not just talking about the porn. Rather, the Internet has become the ultimate feeding ground for a new breed of racketeers, and it isn't going to go away by itself.

Techno-paranoia aside, the ease of setting up and administrating schemes like these, combined with the impersonal and arm's-length nature of online dealings, has created an explosion of online scams that are giving legitimate Web-based businesses a bad name. For starters, take a look at what's been out there for awhile:

The chain e-mail. The simplest and least creative (and most likely unsuccessful) of the bunch, the chain e-mail is a simple begging for cash, usually coupled with threats of divorce, air disasters, and uncontrollable hair loss if the chain is broken. If you send the requested cash and the additional copies of the letter, you are promised vast riches within 30 days. It's an old game, but, in true bottom-feeding fashion, the more sophisticated scam artists now sell software to help the enterprising chain e-mailer to manage his mailing list.

The sponsor banner. Maybe the biggest bandwidth hog on the net, banners are the seldom-clicked ads that you see on virtually every website now. While legitimate companies like Amazon Books or CDNow pay flat rates to websites in return for the exposure, seedier ventures operate a bit differently. First, they convince site creators to add a teaser banner ("CLICK ME!") in return for a small commission any time someone actually clicks on that link and/or it results in a immediate sale of their useless merchandise. This is annoying enough, but many times, even when the rare sale is generated, these commissions are never paid, and often, commission offers are suddenly withdrawn entirely. This basically amounts to loads of free advertising for the seller and a big waste of time for you and me.

The home-based business. While not as altogether glamorous as the ads state ("freedom!" is always a big selling point), some of these opportunities are legitimate, involving word processing, envelope stuffing, or piecework sewing. Of course, most are what you'd expect: telemarketing jobs selling any and everything. The catch is always the "startup fee," which is often passed off as a "processing charge," the price of "how-to" books, or the cost of telephone leads.

The MLM scheme. This is the most prevalent scam on the Internet, the most outrageous, and the most dangerous. MLM, or multi-level marketing ( also known as network marketing) is jargon for what we call the pyramid scheme -- Amway, Equinox, you've heard the stories -- where the head hancho hires five salesmen who in turn hire five more and so on resulting in commissions biased to the top of the pyramid. Now that realspace is saturated, the predators have taken to the Internet looking for naïve prey with some of the most outrageous promises (and arcane language) imaginable.

Many MLM schemes are based on selling rip-off phone service and, now, Internet access, but basically, no industry is safe. MLMs have been known to sell anything from digital pagers to herbal remedies. In fact, one MLM company on the net, GMI, doesn't even tell its potential recruits what they're selling, and I have a feeling that it doesn't really matter.

While most Internet schemes are just nuisances, the MLMs are a truly frightening group of scam artists. The World Plus Group uses the following introduction to its service: "This important information should be printed out so you can truly comprehend the marketing concept we are about to reveal to you. We have a great concept we'd like you to listen to that could change your life." This "great" concept turns out to be hawking vitamins. In fact, the MLM phenomenon has become so widespread that America Online (AOL) has even created an MLM Forum devoted to the subject (presumably to keep the pathetic and nonstop MLM ad blitzes off of legitimate business forums).

WOW! Entertainment (not affiliated with the now-defunct WOW! online service and not affiliated with anything entertaining, either) promises that sellers can receive "Over $15,000 in Commissions over and over" (or a television, your choice) by selling digital TV services. WOW!'s compensation plan is described on a page titled "The Power of the Trinary" (scared yet?), a text-rich document which uses language including the Fast Start Bonus, the 3x2 Matrix (Total of 12), Free Permanent Phase One Re-Entries, and Dynamic Roll-Up. Even with a Master's degree in business, reading this page is still like trying to decipher ancient Greek. WOW! reminds me of the Freemasons, with its arcane code words, entry sponsorships, and, I'd imagine, initiation rituals and secret handshakes -- not that you'd ever want to meet another WOW! salesman in person.

If you're curious (and brave) and you'd like to find out more about these scams or browse them for yourself, just check out the biz.marketplace newsgroup on Usenet, where virtually every one of the hundreds of messages posted daily is an offer to join one MLM scheme or another. The phenomenon's prevalence is almost surreal.

The problems with fraudulent business ventures like these are complex and far-reaching. The fact that thousands of people are being taken advantage of is really just a surface issue, a second to the daunting reality that Internet commerce is largely unchecked and schemers may ply their trade on the Web with virtually no fear of reprisal. With no regulatory body to monitor this, how is a consumer to know what is a legitimate business (and there are thousands of them out there) and what is not?

It's a fine line to walk, as the Internet scam issue instantly raises concerns over consumer protectionism versus freedom of speech issues, and the state of Internet regulation is getting more and more confused every day. The bottom line is that people are going to have to rely on their wits to protect them, at least for now.

While very few have stepped up to protect the consumer, at least a little progress toward exposing Internet scams has been made in recent months. AOL reports on the occasional government crackdowns against MLM scams (the most recent, Operation Missed Fortune, was a Federal Trade Commission bust of dozens of MLMs throughout the country) and tries to warn its subscribers to carefully research the MLM opportunities posted on the service.

Thankfully there is at least one private group looking into net rip-offs. Internet ScamBusters ( is an organization that provides a free service warning unsuspecting Web surfers about the latest trends in online scams. ScamBusters reports on a number of alarming, and often quite sophisticated, schemes to part hapless net travellers from their money.

One current scam involves a company which sells "an electronic box which gives users free long distance" for $180. (Seriously.) Another concerns a company which promises to send en masse e-mailed sales pitches, but actually only sends fake "Yes, I'm interested" responses from other people the company had scammed in the past. There are dozens of reports of fake prize giveaways, overpriced consulting work that is never delivered, and -- get this -- scams run by companies claiming to expose other scams. ScamBusters puts out a free semi-monthly newsletter with the latest on schemes like these, and if you're at all interested in the subject, consider subscribing. The group also sponsors a small contest where readers can report the most outrageous scams they've seen (a favorite winner includes a sweepstakes where a $1 million prize is paid out at $2 every 500 years). It's a great way to keep up with stories from people who've found themselves in similar circumstances.

Sissi Haner, a ScamBusters staffer, says, "It's going to get worse before it gets better. It's as if all of the direct mailers have converged on the Net -- a new territory." A brave new world, indeed. Looks like a little paranoia might be a good thing after all.

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