Beware Internet work-at-home scam

'Freebie trading,' an online marketing technique, has grown as an industry with disciples who say they make money, but critics say it's nothing but a rip-off.
[Related content: savings, consumer guide, income, free, fraud]
By Doug Dowson, The Big Money

Emily B.'s video testimonial is the first thing you see when you log on to ProjectPayday.com. "I am so excited that I found Project Payday," she tells the camera. "Finally I can make my ends meet. Finally I've got the money that I need. And it's all thanks to me finding this program."

* Are you over your head in debt?

Emily B. is just one of many Americans who have discovered Project Payday, an online moneymaking scheme based on something called "freebie trading." Although Emily B. doesn't mention it in her two-minute video, freebie trading involves using online forums, personal Web sites, YouTube videos and other marketing techniques to drive traffic to special Web sites that advertise various products and trial offers -- all in exchange for a fee.
What distinguishes freebie trading from traditional forms of affiliate marketing is that it is based on a trading model in which individuals agree to buy products from these special Web sites on one another's behalf in exchange for a cut of the resulting commission.

In the last few years, freebie trading has grown into a multimillion-dollar industry in which work-at-home professionals generate incomes of as much as $5,000 a month. As conditions continue to lag in the U.S. labor market, more and more people are turning to this controversial work-at-home business as a source of extra income. But behind the video testimonials and success stories lies an industry plagued by fraud that many insiders believe may be on the verge of collapse.
Gina Giangrasso of Poughkeepsie, N.Y., learned about freebie trading in February 2008. As a stay-at-home mom without the means to pay for day care, Giangrasso was looking for a way to make some extra money working from home. She hadn't had much luck with other work-at-home opportunities. "There are a lot of scams out there, envelope stuffing, rebates . . . and you make nothing."

Then Giangrasso found Project Payday. She was skeptical at first but liked the low cost of starting the program, a mere $4.95. "For five bucks, I figured why not?"

Since then, Giangrasso has completed more than 1,000 freebie trades and is now one of the top traders in the industry. Giangrasso has made an average of about $2,000 per month trading freebies. She made more than $5,000 in December 2008.

"There is so much money to be made, it's ridiculous," Giangrasso says.
'Incentivized freebie Web site'
So how does she do it?

It all starts with something called an IFW or "incentivized freebie Web site." IFWs are special Web sites that advertise hundreds of different products and trial offers and offer cash and prizes -- like Xbox 360s, plasma TVs and iPhones -- to people who sign up for their offers and get a few other people to do the same. These offers come from well-known companies such as Netflix, Blockbuster and The New York Times, as well as less-reputable companies, like payday lenders and online psychic services.

"Essentially, advertisers pay us and we have the money to actually buy you guys gifts for free," explained IFW owner Gabriel Hunter in an April interview with BlogTalkRadio.

Back in 2004, when IFWs like FreeiPods.com first became popular, it was all about the prizes -- especially iPods. But in the last couple of years, a new class of freebie entrepreneur has emerged -- people like Giangrasso who are less interested in prizes and more interested in making money.

While IFWs aren't allowed to pay you directly to try the products that they advertise, they can pay you to refer customers to them -- sort of like a finder's fee -- which you can then share with your referrals. That way everybody wins. These referral commissions can range anywhere from $40 to $120 per customer. That's how people like Giangrasso make upward of $5,000 a month.

There's an entire online community of freebie traders who do this on a regular basis. How many? It could be as many as 250,000.
A 'freebie savant'
Ken Sarner, from Hanover Township, Pa., is another freebie-trading success story. In February 2008, Sarner stumbled on Project Payday and began trading freebies part time. Six months later, he decided he wanted to quit his job as a Volvo salesman and become a full-time freebie trader.

Sarner's wife wasn't on board at first. "She wasn't thrilled," he says.

So they made a deal. "She told me, if you can make $10,000 by the end of the year trading freebies, you can do it full time. Otherwise you have to go back to selling cars." They made this agreement on Aug. 22, 2008. By the end of the year, Sarner had made $13,000, the equivalent of a $36,000 annual salary.

Today, Sarner, a self-described "freebie savant," estimates that he makes between $3,000 and $3,500 a month as a freebie trader. Sarner cautions, however, that his experience is not typical. "There aren't more than a couple people making as much money as I am," he says.

Not everyone who tries freebie trading is as satisfied as Giangrasso or Sarner. Some complain about having to give out too much personal information. Others have trouble completing trades and getting paid. Those who manage to get "credited" for their trades often find the process tedious and time-consuming. And if you sign up for a few trial offers and forget to cancel the ones you don't want, you could get stuck with painful charges on your credit card.

Users who get burned in the freebie-trading industry frequently air their grievances on Web sites and online message boards. RipOffReport.com, a consumer advocacy Web site, has received seven reports from users complaining about Project Payday. Scam.com has received eight.

None of the work-at-home experts I spoke with had heard of Project Payday or were familiar with freebie trading. They nonetheless labeled the business a scam. "It's just another get-rich-quick scheme," said Christine Durst, founder and CEO of Staffcentrix, a training company for home-based workers. "It reeks of pyramid and MLM," she said, referring to pyramid and multilevel marketing schemes.

"It's a scam," says Kate Lister, author of "Undress for Success: The Naked Truth About Making Money at Home," published in March 2009. "This one doesn't have all of the telltale signs (of a work-at-home scam), but it has most of them," she said, including upfront costs and a lack of accountability among the major companies in the industry -- like not providing a company address or phone number. "If it did work, everybody would be doing it," Lister added.

Continued: Recession makes it appealing