The company that operated an alleged online pyramid scheme that promised hundreds of surfers big cash returns on donations to charities settled with the Federal Trade Commission today over false-advertising charges.
The Web site run by the Global Assistance Network for Charities had been shut down under a temporary restraining order by the FTC in November. Today's settlement will retrieve monthly fees of $50 to $70 that unwitting consumers paid to earn more than "$89,000 a month" or their money back.
The FTC has been cracking down on multilevel marketing investment offers on the Net that promise members more money for each new person they bring into the plan. The people on the top of such pyramid schemes often earn quick returns, while those on the bottom lose their money when the new recruit pool dries up.
As a part of the settlement, the Global Assistance Network for Charities only will have to pay a total of $5,000 to members who didn't make any money. Participants who received some payback will not get any money from the settlement.
The site's creators, Belear and Cedrick Robles of Arizona, will be prohibited from selling membership to any pyramid-like plan, or charitable donation program in the future. The settlement is not an admission of guilt.
"Some charities may have gotten some donations, but the real problem was that they made outrageous claims to consumers in regards to the type of return they would get," said Tara Flynn, staff attorney for the FTC's Bureau of Consumer Protection.
Many participants weren't only looking to help out charities.
"Schemes like this are targeted toward people who are looking to get ahead of the game. Maybe they look at it as way to get out of financial restraints," she added.
Even though the FTC will recover some funds, pyramids are the No. 1 form of online fraud, according the National Consumers League Fraud Information Center.
"If you really want to believe in the offer, you're more likely to err on the side of loosing a couple of bucks in order to get a lot of money back," said Cleo Manuel vice president for public affairs for the National Consumers League.
"People might also know someone who made money through a multilevel marketing program so they want to believe it's their turn to get lucky," she added.
The settlement today comes after the FTC went after 75 "get-rich-quick" Web sites in 25 states last November, some of which racked up millions from unknowing consumers. Sites offering self-employment or work-at-home opportunities and prepackaged small businesses such as vending machines or medical billing services were also targeted for not being able to prove the investment returns they advertised.
"No investment can guarantee you money. If you have an offer in front of you, call us up and talk to a counselor so they help you figure out the legality of the offer and whether it's worth it," Manuel of the National Consumer's League said.