This year's amendment to the FTC's Business Opportunity Rule (Amended Business Opportunity Rule) which expanded the scope and form of business relationships subject to its regulatory provisions was a reminder to all that the investigation and elimination of new business opportunity scams remains a focus of the FTC.
Another reminder is the recent recovery by the FTC of approximately $3 million from its prosecution efforts of an investment scheme that promoted video rental machines as a business opportunity. The prosecution stemmed from "Project Bizz Opp Flop" the 2005 wide ranging inter-agency effort to crackdown on fraudulent business opportunity scams.
Legitimate Video Rental Boxes do, of course, exist – I’m sure many of you have seen or heard of Redbox. In this case, however, the defendants promised investors a return of $60,000 to $80,000 per year in exchange for an initial investment of $28,000 to $37,500. The FTC believes the defendants bilked investors out of approximately $19.2 million. Ten defendants were prosecuted for their role in the scheme. Nine of the defendants were convicted of varying offenses and received various penalties pursuant to consent decrees (e.g., the defendants did not actually admit to violating any law), ranging from injunctive relief to monetary damages. The litigation against one defendant remains ongoing, complicated by his death during the litigation.
The FTC will pursue business opportunities which defraud investors. As is the usual advice to those thinking of investing in a business venture - DO YOUR HOMEWORK. Go out and kick the proverbial tires to make sure they actually exist! Speak to current business owners and customers. Most importantly, ask questions of the promoters and review detailed information before investing.
For those thinking of starting a business opportunity, make sure you are fully aware of the disclosure and other regulatory requirements of the Amended Business Opportunity Rule. Even if you establish a legitimate business investment venture, you must still comply with the requirements of the Amended Business Opportunity Rule. Otherwise you may find yourself under investigatory eye of the FTC.