After reading Consumer Watch columns that emphasize money-making scams and the crudballs who victimize folks who are caught in the economic crisis, the advocacy organization National Consumer League’s Carol McKay updated me on the most current schemes.

Everyone take notice.

With nearly a third of Americans saying the recession has made them more likely to consider a home-based business offer, fraudulent pyramid schemes disguised as legitimate business opportunities are posing a greater threat than ever to consumers’ wallets and financial health.

multilevel marketing shams

While pyramid and Ponzi schemes have received some media attention recently, with Bernard Madoff’s allegedly fraudulent investment scams making headlines, it’s clear that even the most sophisticated consumers are vulnerable to business opportunity scams. (And, no, we don’t have to have pots of money to become victims.)

Pyramid schemes have existed for more than a century and masquerade behind lots of exciting but misleading disguises.

Despite their differences, however, pyramid schemes usually share ingredients, including a focus on recruitment of new members, promises of unrealistic or “guaranteed” returns and — always — the inevitable threat of collapse. The more sophisticated operations try to camouflage their scams as multilevel marketing, or MLM, opportunities through the sale of questionable products or services with little or no established market.

On the other hand, legitimate MLM businesses, also known as networking marketing, operate legally and offer goods and services through independent distributors. In legal MLMs, the focus of the business is on sales of products, not the recruitment of new members into the business.

at risk segment of earners

In the Opinion Research Corp. telephone survey of people 18 or older conducted Feb. 12-15, many respondents revealed themselves to be at risk of falling for pyramid schemes disguised as legitimate work-from-home opportunities.

According to the ORC and NCL, lower-income consumers who reported income less than $35,000 per year were found to be more likely to mistake pyramid schemes for legitimate ways to provide supplemental income.

They were also least likely (61 percent), as compared with all respondents (66 percent), to correctly identify pyramid schemes as a scam. Likewise, according to those surveyed, African-American (46 percent) and Hispanic (48 percent) consumers were more likely to consider a home-based business than the average (31 percent); unfortunately, they also were less able to identify a pyramid scheme as a scam.

“Guaranteed income”

“In a time like this, when many are struggling to make ends meet, some consumers may lower their guard and find themselves considering offers that — under other circumstances — they would rightfully identify as sketchy and high-risk,” said Sally Greenberg, NCL executive director.

“(Our) fraud center is alerting consumers to use their heads when it comes to searching for new offers of income. Scammers advertise pyramid schemes as businesses that provide ‘easy money’ or ‘guaranteed income.’ The National Consumers League (as well as other advocates) warn consumers to keep a level head, even when times are tough, and remember the old adage that if something sounds too good to be true, it probably is.”

NCL’s Fraud Center (www.fraud.org), tracks consumers’ reports of suspected and confirmed telemarketing and Internet fraud, publishes information about new scams and prevention tips, and forwards reports to appropriate law enforcement in the United States and Canada, and has launched a new guide about pyramid schemes. Offering tools to differentiate between bona fide businesses and frauds, the new pages include checklists for evaluating home-based-business offers, information about common types of pyramid schemes, and warning signs. For complete survey results, or to check out NCL’s new pyramid schemes education content for consumers, visit www.fraud.org/pyramids.

tax update

Mea Culpa, Mea Culpa! I hope the IRS hasn’t carted off any of you because of the errors in last week’s Tax Tip. Thanks to an alert Signal Mountain reader and several others, I realized I had some inaccurate figures. So here goes with the correct information.

For 2008, married couples filing jointly can deduct $10,900. However, if you’re either 65 or older, you can help yourselves to an extra $1,050 each for a total of $13,000; if only one person is 65 or plus, add the solo $1,050. (The added $1,050 also applies if you’re 65 or over and married filing separately or you’re a qualifying widow.)

Tax Tip: Uncle Sam gives a great deduction to some folks who itemize. Of particular interest to Tennesseans because we pay no state income tax is the deduction of our state and local sales taxes. Check with your accountant or online tax preparations.

Ellen Phillips is a retired English teacher who has written two consumer-oriented books. Her Consumer Watch column appears on Saturdays in the Business section of the paper. An expanded version is at www.timesfreepress.com under Local Business. E-mail her at consumerwatch@timesfreepress.com

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