Besides pyramid schemes, many people receive messages offering them fabulous moneymaking opportunities that can be done at home. Here are some typical scams.
The most common work-at-home business scam claims that you can earn hundreds of dollars stuffing envelopes in your spare time.
First of all, who in their right mind would want to spend their life stuffing envelopes for a living? If this logic still escapes you, and you actually send money for information on how you can earn money by stuffing envelopes, you need to seriously examine your dreams in life. If you do send money, you'll probably receive the following:
A letter stating that if you want to make money, just place your own ad in a magazine or newspaper offering to sell information on how others can make money by stuffing envelopes. In this case, stuffing envelopes is just a pretense to get you to send the company your money in the first place.
Information about contacting mail-order companies and offering to stuff their envelopes for them. Unfortunately, the money you can make stuffing envelopes is so trivial, you'll soon find that stuffing envelopes pays less than making Third World wages. See? They tricked you into thinking that you could actually make money doing mindless work without getting a government job.
Another work-at-home business scam offers to sell you a kit (like a greeting card kit) at some outrageous price. You're supposed to follow the kit's instructions to make custom greeting cards, Christmas wreaths, flyers, or other useless products that people are supposed to buy. The business may sound legitimate, but the kit is usually worthless, and the products that it claims you can sell will rarely earn you enough money to recoup the cost of your original investment.
If you don't want to stuff envelopes or make custom greeting cards, why not pay to work as an independent contractor (once again, at a phenomenally inflated wage)? This scam typically claims that a company is willing to pay people thousands of dollars a month to help the company build something, like toy dolls or baby shoes. All you have to do is manufacture these items and sell them to the company.
What usually happens is that the work is so boring that most people give up before they even have a chance to sell one product. For those stubborn enough to actually manufacture the products, the company may claim that the workmanship is of poor quality and thus refuse to pay you for your work. Either way, someone else now has your money.
People have been fooled into buying shoddy or nonexistent products for years. The Internet just provides one more avenue for con artists to peddle their snake oil. Two popular types of fraudulent sales involve "miracle" health products and investments.
Miracle health products have been around for centuries, claiming to cure everything from cancer and impotence to AIDS and indigestion. Of course, once you buy one of these products, your malady doesn't get any better—and may actually get worse. In the meantime, you're stuck with a worthless product that may consist of nothing more than corn syrup and food coloring.
Investment swindles are nothing new either. The typical stock swindler dangles the promise of large profits and low risk, but only if you act right away (so the con artist can get your money sooner). Many stock swindlers are frequent visitors to investment forums or chat rooms on America Online or CompuServe, and they scout these areas for people willing to believe that the stock swindler possesses "groundfloor" opportunities, which entices people to hand money to complete strangers.
Like worthless miracle health products, investment scams may sell you stock certificates or bonds that have no value whatsoever. Typically these investments focus on gold mines, oil wells, real estate, ostrich farms, or other exotic investments that seem exciting and interesting but prove to be nonexistent or worthless.
One of the oldest and more common investment scams is a variation on a pyramid scheme known as the Ponzi scheme, named after post—World War I financier Charles Ponzi, who simply took money from new investors and used it to pay off early investors. Because the early investors received tremendous returns on their investments, they quickly spread the news that Charles Ponzi was an investment genius.
Naturally, as this news quickly spread, new investors rushed forward with wads of cash, hoping to get rich too. At this point, Charles Ponzi took the new investors' money and disappeared.
Ponzi schemes can usually be spotted by the promise of unbelievably high returns on your investment within an extremely short period of time. If anyone claims that they can double or triple your money with no risk in a week or two, be careful. You may be about to lose your money in a Ponzi scheme.
Any time you receive a letter or email from a stranger who wishes to help you for no apparent reason, watch out. Many con games start by offering a victim something for nothing, which immediately plays off the victim's greed and willingness to cut corners (proving the adage "You can't cheat an honest man").
In this investment scam, a "broker" may contact you and offer you an investment prediction at no charge whatsoever. The purpose is simply to demonstrate the broker's skill in forecasting the market. The broker may tell you to watch a particular stock or commodity—and sure enough, the price goes up, just like the broker claimed.
Soon you may see another message from the same broker, offering still another prediction that a stock price or commodity is about to drop. Once again, the broker simply wants to convince you of his infallible forecasting abilities—and once again, the price does exactly what the broker predicted.
Finally you may receive a message offering a third prediction, but this time giving you a chance to invest. Because the broker's previous two predictions seemed accurate, most people are likely to jump at this chance for a "sure thing," often by giving the broker as much money as possible. At this point the broker takes the money and disappears.
What really happened was that in the first letter, the broker contacted 100 people. In half of those letters, the broker claimed a stock or commodity price would go up; in the other half, that the price would go down. No matter what the market does, at least 50 people will believe that the broker accurately predicted the market.
Out of these remaining 50 people, the broker repeats the process, telling 25 of these people that the price will go up and 25 people that the price will go down. Once more, at least 25 of these people will receive an accurate forecast.
So now the con artist has 25 people (out of the original 100) who believe that the broker can accurately predict the market. These remaining 25 people send the broker their money—and never hear from the broker again.