I’d like to thank the FTC, and particularly David Vladeck, for inviting me to speak today.
As head of the Civil Division at the Department of Justice, I am particularly proud of our work to combat financial fraud and other scams.
Financial fraud affects people every day and can be devastating for victims. Business opportunity schemes prey on people who want to work to support themselves and their families. But instead of getting meaningful employment, victims are defrauded out of their money, their credit, and their time.
For this reason, we are using all the civil and criminal tools at our disposal to fight these scams, and are using events like this one to warn members of the public about the deceptive tactics used to attract victims.
Although years of criminal law enforcement attention have disrupted and deterred many fraudulent business opportunity schemes, some perpetrators have not yet heard the message – that defrauding entrepreneurial Americans out of their hard-earned money will result in stiff penalties.
Today, we are pleased to announce that the Justice Department has filed the first civil penalty cases enforcing the FTC’s amended Business Opportunity Rule, as well as the filing of criminal cases against fourteen individuals involved in four different fraudulent business opportunity schemes.
In the cases announced today, we see some of the tricks used to lure people. In “Smart Tools,” a civil action filed last week, the government has alleged that the defendants promised an opportunity to earn “up to $38,943 per year” as a “Government Insurance Refund Processor.” But the only one who was sure to make a profit was Smart Tools – because they charged people $29.99 per month for lists available on government websites for free.
In one of the criminal cases, we allege that a company called “Mark Five” promised that, for an investment of $12,950, they would set people up with their own lucrative jewelry display racks – like the kind you often see in malls. They said they would provide a product “that sells itself” and they would find the best locations to ensure high foot traffic.
As set forth in the charging documents, we allege that Mark Five encouraged prospective buyers to call “references” who raved about their real life success stories. But those references were actually paid salespeople using phony stories and sometimes false names.
In another case, “Vendstar” offered the hope of financial freedom. As set forth in the criminal indictments unsealed last month, for just under $10,000, Vendstar promised to provide opportunity-seekers with everything they’d need to own their own candy vending machine business – from the machines, to the product, to professional locators and ongoing training.
But we allege that this was a scam. Once people bought in to this so-called “opportunity,” there were no professional locators, the vending machines generated little business, and customers lost all or nearly all of their investments. Even the candy was often stale or rotten. These schemes and others like them have defrauded thousands of customers across the country.
But because of our coordinated efforts, the owner of that jewelry display scheme has been indicted and awaits trial, and we’ve gone after those who provided phony references and false promises in these cases – including getting indictments against ten defendants in the Vendstar case, from the CEO to the salesmen.
Now before I conclude my remarks, I want to commend my colleagues for their leadership and cooperation. The FTC has been an indispensable partner to the Justice Department in these cases. The U.S. Postal Inspection Service has provided extensive criminal investigative support, without which this enforcement sweep would not have been possible.
Equally critical is the work of the state Attorney General offices – their enforcement activity complements federal efforts and makes clear that both federal and state authorities are acting to bring the perpetrators of consumer fraud to justice.
And of course, we have worked closely with the relevant U.S. Attorney offices around the country. Their collaboration, as always, was invaluable.
All of the agencies in this initiative are members of the Consumer Protection Working Group. This working group is part of the Financial Fraud Enforcement Task Force, which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.
Through efforts like these, we will continue leveraging our collective resources to protect Americans from consumer fraud.