Avoiding Bogus Business Offers

Staten Island business bank says rule protects opportunity seekers



STATEN ISLAND, N.Y. – Important facts about buying into a business are intended to provide safeguards for assessing risk in the face of assertions about potential profit.

Victory State Bank, Staten Island's only community-based commercial bank, therefore offers a recap of guidance from the Federal Trade Commission (FTC). 

Maybe you've seen ads for at-home work like assembling crafts. Perhaps a company says it can help you set up a vending business. Before you sign up or send money to buy a business opportunity, find out about the multi-faceted Business Opportunity Rule, enforced by the Federal Trade Commission, the nation's consumer protection agency.

The rule puts safeguards in place to make sure you have the information you need to evaluate whether a biz opp is risky business.

The rule requires sellers to provide a one-page disclosure document outlining important facts about the opportunity. Moreover, if sellers make any claims about how much money you might make, they have to give you a separate paper with more specifics. Additionally, the Rule makes clear that certain practices are against the law.

The one-page disclosure document contains five key pieces of information. Use the information in the disclosure document to fact-check what the seller tells you about the opportunity and what you find out from your own research.


The document has to:


    • identify the seller;
    • tell you about certain lawsuits or other legal actions involving the seller or its key personnel;
    • tell you if the seller has a cancellation or refund policy. If so, what are the terms of that policy?
    • say whether the seller is making an earnings claim. If so, the seller has to give you another document called an earnings claim statement; and
    • give you a list of references.


The rule says that a seller has to give you the disclosure document at least seven days before you sign a contract or pay them anything. Use that time to check out the information in the disclosure document, including contacting references.

Be aware that some questionable biz opp promoters have been known to name "insiders" who give glowing – but bogus – recommendations. Don't just talk to the few people they suggest. Choose whom to contact.

What if what the seller is telling you is different from what's on the disclosure document or what you hear from another buyer? Step on the brake. An inconsistency could be a tell-tale sign of a rip-off, the FTC says.

In addition, the disclosure document has to be in the language the seller used in making the offer. If you discussed the deal in a language other than English, the document has to be in that language.

Also, the seller has to make it clear that if you buy a business opportunity, your contact information will be given to prospective buyers in the future.

If the seller makes a claim about how much money a person can earn, you are entitle to receive a separate document that says in big type across the top: EARNINGS CLAIM STATEMENT REQUIRED BY LAW.


This document has to include:


    • the name of the person making the claim and the date;
    • the specifics of the claim;
    • the start and end date those earnings were achieved;
    • the number and percentage of people who got those results or better;
    • any information about those people that may differ from you – for example, the part of the country where they live; and
    • a statement that you can get written proof of the seller's earning claims if you ask for it.


Because the Rule gives you the right to see written proof for the seller's earnings claims, savvy buyers exercise that right and study those materials carefully.

Compare that information to what the seller has told you about how much money people make. If the dollar amounts don't line up, the FTC advises your best bet is to walk away.

Like the disclosure document, the earnings claim statement has to be in the same language that the seller used to communicate with you.


The Business Opportunity Rule has recent revisions spelling out certain practices that are against the law. For example:


    • It's illegal for business-opportunity sellers to say anything that contradicts what's in their disclosure document and earnings statement.
    • Under the Rule, sellers can't claim they're offering you a job when they're really promoting a business opportunity.
    • The Rule makes it illegal for sellers to misrepresent the nature of the investment – for example, to claim they'll help you line up locations, outlets, accounts, or customers or that you'll have an exclusive territory if it's not true.


The revised Rule puts new protections in place for prospective buyers. But for added protection, take the time to find out what the Rule requires of sellers. If you spot a seller who isn't complying with the law, the FTC warns it's a red flag: You could be in the cross hairs of a scammer.

The FTC offers ideas on what else you can do for extra protection.

Study the disclosure document, the earnings claim statement, and the proposed contract.


    • Insist on seeing proof in writing for earnings claims, including statements like "Earn up to $10,000 a month!" Phrases like "up to" aren't a way out for the seller. It's an earning claim and it's your right to demand proof.
    • Interview current owners of the seller's business opportunity. Ask the tough questions – like if the information in the disclosure document matches their experience with the company.
    • Listen to sales presentations with a critical ear. They are – of course – trying to sell you something.
    • If a seller doesn't give you the information you know they have to provide, walk away.
    • Consider getting professional advice. Ask a lawyer, accountant, or business adviser to read the paperwork before you sign.
    • Check out the seller with your local consumer protection agency, state Attorney General's Office, and the Better Business Bureau. Do a few Internet searches by entering the company's name and "complaint" or "scam." You could get an eyeful. But be wary: No complaints doesn't necessarily mean the company is legitimate. And scammers have been known to post phony testimonials online.


If you suspect a business opportunity seller is fraudulent, report it to:


    • The state attorney general's office both where you live and where the business opportunity promoter is based.
    • Your consumer protection agency listed in the blue pages of the phone book under county and state government.
    • The Better Business Bureau in your area and the area where the seller is based.
    • The FTC [toll-free 1-877-FTC-HELP (1-877-382-4357).




About Victory State Bank

VSB Bancorp, Inc. (OTCQB: VSBN) is the one-bank holding company for Victory State Bank. As Staten Island, N.Y.’s only community-based commercial bank, Victory State Bank operates five full-service locations on the Island: The main office in the community of Great Kills, and branches in the communities of West Brighton, St. George, Dongan Hills and Rosebank.  For additional information, Victory State Bank may be reached at 718-979-1100 or visited online http://www.victorystatebank.com.

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