How family-owned businesses can navigate the complex network of marketplace scams

Fraudulent scams have grown ubiquitous across the legitimate marketplace, leaving a much more complex network of victims and challenging incorrect public perceptions about who is most at risk.

While a new report from the Better Business Bureau explores the latest demographics of those most likely to fall victim to scams — notably young, highly educated people who carry the illusion of being “invulnerable” — it also suggests that those doing legitimate business in the marketplace are also at a disadvantage.

“By every available measure, marketplace scam victimization has reached epidemic levels with no signs of abating,” according to the “Cracking the invulnerability illusion” report. “Individuals are not the only victims. Ethical businesses that strive every day to do the right thing rely on the marketplace to operate by a playbook where fair and honest practices are rewarded. Scammers break these rules, unfairly gaining the upper hand.”

The risks and potential impacts to small, family-owned businesses are becoming more complex, whether it’s falling victim to a scam themselves and the ensuing fallout, or the liability that comes with jeopardizing their customers’ personal information.

Experts say that while all businesses — big or small — are exposed to marketplace scams, smaller operations are more likely to face devastating, lasting impacts. Careful planning to understand the risks and building rapport with customers are ways family-owned businesses in particular can be prepared, experts say.

Phil Catlett, president of the West Michigan Better Business Bureau, said the main actions individuals or businesses can take are to be familiar with common types of scams and to practice due diligence before following up on offers.

“There are a few ways of looking at this, and one is just how a business chooses to run itself,” Catlett said. “With technology and big data now, it really is essential that businesses protect the privacy and the financial access to their customers.”

For businesses involved with taking payments online, “there are responsibilities to protect the people at the other end making those payments or donations, both for how they intentionally share information and how vulnerable they are to hacking,” he added.

The legal liability for business owners “continues to play itself out in courts,” Catlett said. The BBB also counsels businesses on becoming more cyber-secure, which includes identifying aspects of the operation that make it vulnerable, advising companies to train staff on cyber threats and then holding people accountable so it doesn’t impact others.

“Everybody is vulnerable. You’re only as good as the weakest link,” Catlett said. “I think where smaller businesses really need to look out is being spread too thin that you don’t have time to be an expert on everything. Unless the leader of an organization is really focused in on it, something bad is likely to happen.”

The legal liability also varies by industry and the type of regulations that must be followed, said Jennifer Puplava, an attorney at Mika Meyers PLC in Grand Rapids who specializes in technology and intellectual property law.

Complying with rules in highly regulated fields such as health care or education “may be difficult for smaller businesses because they might not have in place anti-fraud measures like bigger businesses do. Because there are so many people working for them, they may have checks and balances in place that are just not feasible for small, family-owned businesses,” she said. “By taking some additional protective steps, they can help avoid potential liability they could accidentally step into by virtue of (an employee) clicking on the wrong link or hiring the wrong employee. A lot of scams can come from internal problems, both innocent or malicious.”

Puplava also sees the risk when helping entrepreneurs apply for trademark status.

“Most of my clients receive solicitations that look like it’s coming from the U.S. Patent and Trademark Office, but they aren’t — they’re scams,” Puplava said. “I tell clients to be careful and know what they’re dealing with before you send money.”

While small-business owners can fall victim themselves to scams, it can also be difficult to navigate a legitimate business among marketplace fraudsters. According to the BBB report, losses from marketplace scams are estimated at more than $50 billion annually.

“Marketplace schemes and fraud are major sources of economic loss, the burden of which is borne by both the immediate victims and by the full range of actors in the legitimate marketplace,” according to the report. “The perpetrators of scams unfairly compete with legitimate businesses in a zero-sum game that undermines marketplace trust and throws a wrench into the gears of our economy.”

Maintaining that trust with customers can be an important tool for small, family-owned businesses, Puplava said.

“A lot of the value of a small business is based on that business’ reputation,” she said. “A business really does have to be constantly aware of what’s happening out there and what people may be saying — and that’s difficult to manage.”

Sidebar: Michigan Cyber Security Conference

The Michigan Small Business Development Center hosts an annual conference on cybersecurity and what small businesses can do to limit their risk of an attack.


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