Sunday, May 2, 2010

Dreaming of easy money? Don't be fooled

by Max Jarman - May. 2, 2010 12:00 AM
The Arizona Republic

With unemployment high and people desperate for money, work-at-home, credit-repair and business-opportunity scams are proliferating, with Arizona home base for many of them.

Regulators say Arizona is a hotbed of boiler rooms where skilled telemarketers sell vulnerable people business opportunities that can drain their bank accounts and max out their credit cards. Smooth-talking salespeople offer victims a chance to get out of debt, stop foreclosures and live on easy street for up-front fees that can start small and grow exponentially.

Most of those calls are made to people out of state, who would find it harder to track down the companies.

Last month, U.S. Postal Service inspectors shut down four Phoenix-area boiler rooms operated by Merchant Referral Solutions and affiliate Bankcard Empire and arrested one of the principals on fraud and forgery charges.

In February, the Federal Trade Commission shut down Government Careers Inc., a Tucson business that sold exam-study materials and career-counseling services to help people get government jobs that don't require an exam and often didn't exist.

Government Careers Inc. was rounded up with seven other businesses around the country in "Operation Bottom Dollar," which targeted employment-opportunity and work-at-home scams.

Work-at-home scams can involve everything from stuffing envelopes, assembling trinkets, processing medical billings and selling products and services through websites. The websites, which can require tens of thousands of dollars in marketing support, are currently some of the most prevalent get-rich-quick schemes.

After its recent enforcement activity, the government estimates there could be thousands of victims similar to Eric Grayson of Kentucky and Lynn Weed of Idaho, who say they lost $10,000 and $110,000, respectively. Regulators estimate that as many as 80,000 people handed over millions of dollars to skilled Arizona-based telemarketers in recent cases. These operatives are masters at gaining access to and then maxing-out victims' credit cards.

The elderly are increasingly targeted, say regulators, who note that telemarketers also are increasingly becoming threatening and verbally abusive to victims who balk at their scams or try to get their money back.

"People need to be extremely cautious," said Nancy Anger, an assistant Arizona attorney general who specializes in investing work-at-home and business-opportunity scams. "These people are real pros."

Rising concern

Betsy Lordan, a spokeswoman for the Federal Trade Commission, said that business-opportunity, credit-repair and other scams that target cash-strapped Americans have soared since the economy turned south in late 2007.

Many scams involve websites that the victims can set up for free themselves and exorbitantly priced marketing services, such as e-mail and call blasts, that are supposed to drive traffic to the websites, but rarely deliver the promised results.

Lordan said Arizona has traditionally been a center for business-opportunity boiler rooms.

Those who are without a job and who are behind on bills are particularly vulnerable to the scams that offer big money for little work. Sometimes they stumble into one scam, then another as they try to recover from the first.

Eric Grayson of Louisville, Ky., paid Phoenix-based Bankcard Empire $500 for an Internet business opportunity about a year ago, shortly after he had been laid off. Then he handed over $10,000 for marketing services to draw traffic to the website, which sold credit-card-processing services to merchants. He bought into Bankcard Empire's promise of $5,000 a week for little work.

"This guy was one of the most professional-sounding people I have ever talked to," he said of the telemarketer.

Like others, Grayson has seen no return on his money. When he disputed the $10,000 charge on his credit card, he said he was threatened by his Bankcard Empire "marketing coach" with a lawsuit.

American Express turned his account over to a collection agency, and in desperation, Grayson fell into another scam, paying someone $1,700 for debt-consolidation services he could have received free.

Lynn Weed of Salmon, Idaho, said that he has racked up $110,000 in credit-card debt for online-marketing services from a number of Arizona businesses. He's preparing to file for bankruptcy.

He said he spent $30,000 for a website and marketing services from Bankcard Empire, $40,000 for similar services from Webtech Strategies and Consolidated Business Opportunities, and another $40,000 to Freedom Online and America's Webmall.

"I was desperate to make money to pay off the debts and fell into one scam after another," said Weed, 68.

Don Lapre's legacy

Some say Arizona boiler-room culture started with Phoenix-based television pitchman Don Lapre and has morphed into a small industry.

Lapre made millions of dollars selling 900-number business opportunities and, later, the "Greatest Vitamin in the World," a product whose effectiveness was challenged by the U.S. Food and Drug Administration.

"Most of the people running the rooms in Phoenix today started with Don," said Denise Hunter, a veteran of a number of Phoenix-area boiler rooms, who now lives out of state. "They saw how much money he was making and said, 'Hey, I can do this myself.' "

The businesses continue to multiply, Anger said.

"All you need is a script and a telephone," she said. "You shut one down and arrest a couple of people, and you turn 25 more people loose who have the script and the skills to set up their own operation."

Call centers are supposed to register with the state and post a $100,000 bond to settle complaints, but Anger said many never do.

Fortunately for locals, the Arizona-based boiler rooms don't tend to prey on people in their areas.

"It's too easy to track them down," Anger said.

How it works

Grayson and others say the telemarketers seemed to know about their available credit.

Hunter said once clients give their credit-card number, telemarketers call the issuer and get the available credit line. Sometimes when a victim contacts a credit-repair or debt-consolidation business for help, information about credit cards and available credit is taken and sold as business leads to telemarketers.

Money from selling leads and commissions on $10,000 credit-card charges can support a lavish lifestyle for top-notch telemarketers.

"They have flashy cars, go to Vegas and live very flamboyant lifestyles," Anger said.

"When the money's spent, it's hard to recover anything to repay the victims."

In 2006, the state seized a luxury house in Troon North in north Scottsdale and sold it to partially repay victims who paid Brent Emerson and his National Pharmaceutical Network millions of dollars for online pharmaceutical websites and marketing services.

The Results Group, another Phoenix business that sold websites and advertising plans, scammed people out of an estimated $19.5 million, authorities said. But the state was able to recover only $435,000 after the principals' personal property was sold.


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