 illustration by Roy Tompkins |
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 na�ve 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 3×2
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 (http://www2.scambusters.com/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.
This article appears in January 24 • 1997 and January 24 • 1997 (Cover).