Work-from-home jobs often too good to be true

By Michael Tsai
Advertiser Staff Writer

They appear suddenly and mysteriously, like mushrooms in an open field after a warm, wet summer night. And, like certain families of fungi, they can cause hallucinations if swallowed.

According to the Better Business Bureau, work-from-home operations are the No. 1 source of consumer inquiries and complaints in Hawai‘i, ahead of sweepstakes scams. Richard Ambo • The Honolulu Advertiser • • • Spotting a scam Considering a work-from-home job? The Better Business Bureau suggests you stop and ask these questions first: • In what state is the company incorporated? • What is the total cost of the program including training, supplies, equipment and special fees? • Exactly what materials and support services do I receive for my investment? • If I have products I cannot sell, will the company buy them back from me? • What tasks will I be required to perform? • When and how will I be paid? By salary, commission, or work completed? • Who will pay me? • Will I be responsible for finding my own customers? • Exactly what are the required standards my work must meet? Also, be sure to ask for written or printed credit and financial references. If you are asked to sign a contract or other documents, you may wish to consult a lawyer.

"International Company seeks Motivated Professionals."

"$1,000-5,000 weekly."

"No Experience Necessary."

"Will train."

They're the offers you might be able to refuse, but you can't help wondering about. Earn thousands a month just for stuffing envelopes, really? Help people lose weight AND become a millionaire, really?

"Take one!"

"Take one!"

The typical work-from-home pitch is difficult to ignore, in part because it thumbs its nose at reason and, very often, simple math. Why, for example, would a company pay you $2 to stuff an envelope when a machine could do the same work faster and cheaper? And assuming you really could earn $10,000 a month doing medical billing from your living room, how exactly would that make you a millionaire in five years, as one telephone pitchman boasted to The Advertiser?

And yet, every time a new crop of photo-copied come-ons appears tacked on to community bulletin boards, fastened to telephone poles, planted in the grass near highway off-ramps or slipped beneath your windshield wiper, you can be sure of one thing: Someone else has bought into it.

According to the Better Business Bureau, work-from-home operations are the No. 1 source of consumer inquiries and complaints in Hawai'i, ahead of sweepstakes scams.

In 2001, the BBB in Hawai'i fielded 7,500 inquiries and 39 formal complaints about work-from-home business practices.

"Year after year, they're the uncontested leader among questionable business practices," says Anne Deschene, Hawai'i BBB president. "And it's escalating. I think it's a sign of the economy, and the clever are getting greedy."

Deschene says most illegitimate work-from-home businesses operate from out of state through Internet or classified advertising. Some have telephone numbers with the local 808 prefix, but calls are routed to toll-free numbers.

"About 20 percent will actually come here for one or two months," Deschene says. "We're lucky if we can catch word of them from other bureaus, provided they use the same name. They'll work the market here for a short time then disappear somewhere else."

In researching this article, The Advertiser responded to 15 randomly selected work-at-home solicitations culled from signs, fliers, cards, Internet billboard postings and classified ads. Of these, 11 were linked to individuals associated with Herbalife, an international company that distributes an assortment of health and weight-loss products and operates under a controversial "multi-level marketing" system.

One advertisement was placed by a national work-at-home "information" company. Another came from the previously mentioned medical billing recruiter. The remaining three businesses contacted did not return repeated calls, and the nature of their businesses could not be determined based on the information given.

Work-from-home operations may be perfectly legal, but that doesn't mean they deliver on a would-be entrepreneur's expectations. Unlike crooked sweepstakes operations, which are likely to cost victims a lot of money — sometimes thousands of dollars at a time — work-from-home scams make their money off of volume — taking less money from more victims, according to the BBB.

"The typical work-from-home scheme (costs victims) $30 to $50," Deschene says. "Thirty bucks may not seem that much to some people, but for others, it's all they have. The people behind these schemes make their profits on volume, but it's on the backs of people who can't afford it."

It's no accident that a high concentration of work-from-home advertising appears near military bases, college campuses, immigrant centers and shopping malls. Work-from-home recruiters typically aim their easy-money rhetoric at military wives, students, seniors, people with low-income jobs and mothers who want to stay at home with their children, Deschene says.

"It's less about greed than availability," she says.

The Advertiser found work-from-home advertisements at or around Kapi'olani Community College, Leeward Community College, Pearl Harbor, Schofield Barracks and Ala Moana Center, as well as near freeway ramps from Manoa to Kalihi.

Not all work-from-home businesses are scams. Deschene says that legitimate businesses, such as Tupperware or Mary Kay Cosmetics, have been around for many years.

However, Deschene says, there has been a nationwide escalation in the number of work-from-home operations that lure investors with big promises that are never delivered.

From legal to illegal

When work-from-home operations cross the line into fraudulent, deceptive or otherwise illegal activity, they're subject to legal action under a variety of state and federal consumer protection and securities provisions.

It's important to note that multi-level marketing, sometimes called network marketing, is legal and can be profitable for participants who are able to build and maintain a large, stable clientele.

The difference between legitimate multi-level marketing and a pyramid scheme depends on the focus of the business. The emphasis for a legitimate business should be on selling the product, the BBB advises.

In a pyramid scheme, however, greater emphasis is placed on recruiting new investors to keep the money flowing upward. As the market gets saturated, investors at the bottom are unable to make money selling their products or recruiting new investors, and the system collapses.

"A major Mainland company might have a legitimate business, but they may have renegade distributors doing their own thing locally," says Patricia Moy, senior enforcement attorney with the Securities Enforcement Division. "The company may not condone it, but they are still responsible for overseeing how things are being run."

The Securities Enforcement Division, part of the state Department of Commerce and Consumer Affairs, has jurisdiction over pyramid operations and other scams that wrongfully compromise the investments of recruited participants.

In the past year, the division has investigated 12 alleged pyramid schemes. It does not distinguish between illegitimate work-from-home scams and other pyramid-style operations. They pursued one cease-and-desist order against a so-called women's gifting circle.

Style over substance

In the past decade, the Internet has proven to be fertile ground for work-from-home operations, both legal and illegal. More than half of the work-from-home advertisements collected by The Advertiser referred interested parties to personal Web sites, usually constructed from common elements provided by the host company — presumably for a fee.

The pages typically include testimonials to the benefits of working at home. Like infomercials, these Internet marketing pieces are long on enthusiasm and immeasurably short on information.

A person who types in crankwealth.com, for example, will be re-routed to quickcashnow.com, then treated to quotes from "Francisco" (no last names, here) on the joys of being a work-at-home multimillionaire.

How did Francisco do it?

"Wonderful products and the excellent business format."

Similarly obscure pitches are offered at hundreds of Web sites affiliated with the International Home Business Network, a recruiting center for Herbalife. The Advertiser visited 14 IHBN sites with Hawai'i billing addresses. Nowhere on any of these sites was there any clear description of the type of business opportunity being offered. On the last page of each site is an order form for an information package (usually $39).

As of last week, the national BBB Web site had 154 Herbalife company reports in its searchable archives. Each report relates to a specific business that incorporates "Herbalife" in its name. Many of the companies included in the BBB reports had "clean" or "satisfactory" histories with the BBB, which is to say, no reported pattern of complaints. Others were noted for not providing basic information about their business or for having "unsatisfactory" histories of complaints.

A search of the Hawai'i BBB site yielded no results for "Herbalife." However, a BBB representative said this may be because distributors do not mention Herbalife in their business materials.

Victims need to talk

In 2000, the BBB joined the U.S. Postal Inspection Service in a yearlong study of 112 work-from-home companies. The study concluded that none of the companies came through on their promises of easy wealth.

In fact, said Kathryn Conklin, president of the BBB in Chattanooga, Tenn., "most people pay more up front than they ever earn doing the work advertised."

The release of the study findings coincided with a state and federal crackdown on phony business opportunities. The operation, named Project Biz-illion$, involved the Federal Trade Commission, the Department of Justice and law enforcement officials from 29 states, including Hawai'i.

Still, work-from-home scams are difficult to pin down and, often, problematic to prosecute given the reluctance of victims to come forward and the relatively small amount of money lost in each individual case, Moy says.

"We need to have live bodies that are willing to testify about how much money was spent, how much they lost, and what sort of representation was made to the individual," Moy says. "We have to be able to go into an administrative hearing and prove our case.

Moy says awareness of how work-from-home operations work is key to preventing their spread

"We can take action against individuals, but we never seem to get to the people higher up," she says. "We get people who are at the middle or low levels who are often victims themselves. The people at the top of the food chain get out early."

The BBB recommends that victims of work-from-home schemes first try to resolve their complaint with the company. If that doesn't work, the next step would be to file a complaint with the BBB, the state Department of Commerce and Consumer Affairs and the local attorney general's office. If mail was used during the correspondence, the Postal Inspection Service can also investigate.