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^ MAIL FRAUD
Y 4, P 84/10:103-11
Hail Fraudi Serial No. 103-11, 103-.,.
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
POSTAL OPERATIONS AND SERVICES
OF THE
COMMITTEE ON
POST OFFICE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
MAY 19, JULY 21, AND OCTOBER 6, 1993
Serial No. 103-11
Printed for the use of the Committee on Post Office and Civil Service
JUL , ^
■f^jV?V
ISSif
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-04A084-X
\^
MAIL FRAUD
,P 84/10:103-11
Fraudi Serial Ho. 103-11, 103-
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
POSTAL OPERATIONS AND SERVICES
OF THE
COMMITTEE ON
POST OFFICE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
MAY 19, JULY 21, AND OCTOBER 6, 1993
Serial No. 103-11
Printed for the use of the Committee on Post Office and Civil Service
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-0A4084-X
COMMITTEE ON POST OFFICE AND CIVIL SERVICE
WILLIAM L. CLAY, Missouri, Chairman
PATRICIA SCHROEDER, Colorado JOHN T. MYERS, Indiana
FRANK McCLOSKEY, Indiana BENJAMIN A. OILMAN, New York
GARY L. ACKERMAN, New York DON YOUNG, Alaska
THOMAS C. SAWYER, Ohio DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania CONSTANCE A. MORELLA, Maryland
ELEANOR HOLMES NORTON, District of THOMAS J. RIDGE, Pennsylvania
Columbia THOMAS E. PETRI, Wisconsin
BARBARA-ROSE COLLINS, Michigan SHERWOOD L. BOEHLERT, New York
LESLIE L. BYRNE, Virginia JIM SAXTON, New Jerseyi
MELVIN L. WATT, North Carolina
ALBERT RUSSELL WYNN, Maryland
GREG LAUGHLIN, Texas
SANFORD D. BISHOP, Jr., Georgia
SHERROD BROWN, Ohio
ALCEE L. HASTINGS, Florida
Gail E. Weiss, Staff Director
Robert E. Lockhart, General Counsel
Doris Moore-Glenn, Deputy Staff Director
Joseph A. Fisher, Minority Staff Director
SUBCOMMITTEE ON POSTAL OPERATIONS AND SERVICES
BARBARA-ROSE COLLINS, Michigan, Chairman
MELVIN L. WATT, North Carolina DON YOUNG, Alaska
SANFORD D. BISHOP, Jr., Georgia BENJAMIN A. OILMAN, New York
Meredith Cooper, Subcommittee Staff Director
(Resigned September 13, 1993.
(U)
CONTENTS
May 19, 1993
Page
Hearing held in Washington, DC, May 19, 1993 1
Statement of:
Byrne, Emma, director. New Jersey Consumer Affairs; accompanied by
Peg Mullen, NJ Consumer Affairs for Victims of Mail Fraud; Wenona
Russo, victim of mail fraud; Eric Friedman, investigator, Montgomery
County Consumer Affairs; Leona Roderick, victim of mail fraud 33
Desai, Mike, victim of mail fraud; accompanied by Michelle Davidson,
Brett Emmerson, Julie Campbell, victims of mail fraud 3
Morella, Hon. Constance A., a Representative in Congress from the State
of Maryland 2
Prepared statements, letters, supplemental materials, et cetera:
Byrne, Emma, director. New Jersey Consumer Affairs, prepared state-
ment of 35
Campbell, Julie, victim of mail fraud, prepared statement of 24
Davidson, Michelle, victim of mail fraud, prepared statement of 4
Desai, Mike, victim of mail fraud, prepared statement of 28
Emmerson, Brett, victim of mail fraud, prepared statement of 16
Friedman, Eric, investigator, Montgomery County Consumer Affairs, pre-
pared statement of 134
Morella, Hon. Constance A., a Representative in Congress from the State
of Maryland, prepared statement of 3
Roderick, Leona, victim of mail fraud, prepared statement of 140
Russo, Wenona, victim of mail fraud, prepared statement of 131
Silbert, Myra, New Jersey Consumer Affairs for Victims of Mail Fraud,
prepared statement of 129
July 21, 1993
Hearing held in Washington, DC, July 21, 1993 143
Statement of:
Carter, Cynthia, Tennessee attorney general's oflRce/NAAG 158
Golodner, Linda, president. National Consumers League 145
Hearst, Kenneth, Deputy Chief, Postal Inspector Service 201
Jones, Stephen, vice president, law and policy. Better Business Bureau .... 166
Shapiro, Esther, director, Detroit Office of Consumer Affairs 153
Urgenson, Laurence, Acting Deputy Assistant Attorney General, Depart-
ment of Justice 227
Verinder, Frederick, Deputy Assistant Director, White Collar Crime, Fed-
eral Bureau of Investigation 221
White, Christian, Director, Consumer Protection Bureau, Federal Trade
Commission 174
Prepared statements, letters, supplemental materials, et cetera:
Andrews, Hon. Thomas H., a Representative in Congress from the State
of Maine, prepgired statement of 233
Carter, Cynthia, Tennessee attorney general's office/NAAG, prepared
statement of 161
Collins, Hon. Barbara-Rose, a Representative in Congress from the State
of Michigan, prepared statement of 144
Golodner, Linda, president. National Consumers League, prepared state-
ment of 149
Hearst, Kenneth, Deputy Chief, Postal Inspector Service, prepared state-
ment of 204
(III)
IV
Page
Prepared statements, letters, supplemental materials, et cetera — Continued
Jones, Stephen, vice president, law and policy. Better Bxisiness Bxireau,
prepared statement of 169
Shapiro, Esther, director, Detroit Office of Consumer Affairs, prepared
statement of ••• •■—•■ 155
Urgenson, Laurence, Acting Deputy Assistant Attorney General, Depart-
ment of Justice, prepared statement of 228
Verinder, Frederick, Deputy Assistant Director, White Collar Crime, Fed-
eral Bureau of Investigation, prepared statement of 224
White, Christian, Director, Consiuner Protection Bureau, Federal Trade
Commission, prepared statement of 178
October 6, 1993
Hearing held in Washington, DC, October 6, 1993 245
Statement of: ^ t,
Brosan, Dennis, security director. Visa International; Gary Bugge, News-
paper Association of America; Alan Armstrong, area franchiser. Mail
Boxes, Etc.; Tom Caiazza, customer services. Federal Express; and
Richard Barton, vice president, Direct Marketing Association, Inc 246
Prepared statements, letters, supplemental materials, et cetera:
Armstrong. Alan, area franchiser. Mail Boxes, Etc., prepared statement
of 272
Barton, Richard, vice president. Direct Marketing Association, Inc., pre-
pared statement of •••••• 287
Biigge, Gary, Newspaper Association of America, prepared statement of ... 256
Caiazza, Tom, customer services, Federal Express, prepared statement
of 278
Snowe, Hon. Olympia J., a Representative in Congress from the State
of Maine, prepared statement of 249
MAIL FRAUD
WEDNESDAY, MAY 19, 1993
House of Representatives,
Committee on Post Office and Civil Service,
Subcommittee on Postal Operations and Services,
Washington, DC.
The subcommittee met, pursuant to call, at 10:09 a.m., in room
304 Cannon House Office Building, Hon. Barbara-Rose Collins,
(chairwoman of the subcommittee) presiding.
Members present: Representatives Collins, Morella, Oilman, and
Bishop.
Miss Collins. The Subcommittee on Postal Operations and Serv-
ices will come to order.
Good morning. Mail fraud is a problem affecting millions of
Americans annually. Individual scams promoted through the mail
have been known nationally to affect over 15,000 victims at a time
and causing hundreds of millions of dollars in consumer losses an-
nually.
Mail fraud is defined as follows. Any scheme designed to inten-
tionally deprive someone of his or her property through false or
fraudulent pretenses or representations where the use of the U.S.
mail is an essential aspect of the scheme violates the Mail Fraud
Statute.
Individuals who violate the statute are guilty of a felony and are
subject to a fine and imprisonment. There are numerous reports of
mail fraud schemes taking place on a daily basis and the range of
such schemes is enormous. However, most mail fraud scams have
certain key elements. Usually a consumer is mailed a letter or
postcard indicating that they have won a prize or cash but stating
that the consumer must first remit a certain amount of money to
receive their prize. After the consumer has complied with the re-
quest to send money, they never receive the promised prize and
they never see their money again, even if a refund is requested.
I would like to state that this morning's hearing is the first in
a series of planned hearings dealing with the issue of mail fraud.
Future hearings will be addressing the various solutions to this
rapidly increasing problem and the involvement of Federal, State,
and local government agencies in combating this epidemic. How-
ever, the main focus today will be on the victims of mail fraud. We
will hear from seven actual consumers who have been victimized
by mail fraud. Their losses range from $25 to $200,000. Three were
involved in travel scams, one was involved in an appliance scheme,
and another will share the experience of a computer scam. The
other two were victims of fraudulent sweepstakes scams. We will
(1)
also be hearing this morning from the Director of the State of New
Jersey's Division of Consumer Affairs and from a representative of
the State of Maryland's Montgomery County Office of Consumer
Affairs who will share a few preliminary suggestions on how to
combat the problem of mail fraud.
I would like to welcome all of you here today. I thank you for
taking the time to share your views with us and I look forward to
your testimony.
I am very pleased to have been joined by Representative Connie
Morella from the great State of Maryland and, at this time, we'll
hear your opening statement.
STATEMENT OF HON. CONSTANCE A. MORELLA, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MARY-
LAND
Mrs. Morella. Thank you. Thank you, Madam Chair. A very
brief opening statement, but I want to thank you for your invita-
tion to join you this morning on this hearing on mail fraud.
I want to welcome all the witnesses who are scheduled today
and, as you pointed out, on this first panel is Mr. Eric Friedman
who represents Montgomery Coimt/s Office of Consumer Affairs,
and that's the jurisdiction that I'm honored to represent. I want to
thank the other witnesses who are going to be discussing with us
the personal experiences that they've had to allow us to come up
with the suggestions and recommendations and follow through.
I believe that there are two others from my congressional district
who are scheduled to testify, Ms. Julie Campbell and Mrs. Leona
Roderick. I want to welcome them personally as their representa-
tive, too.
It's really criminal and unjust for charlatans to cheat innocent
people of their hard earned money, particularly those who can least
afford it. Indeed, most hard working people try to use their money
wisely. They cut coupons, read newspapers for bargains at the gro-
cery store, airline fares, hotel/motel rates, appliances, and so forth.
They also depend on truth-in-advertising.
I appreciate the suggestions which we will be hearing which will
be put forth by the witnesses, and I do want to applaud. Madam
Chair, Montgomery County, MD, for the first step in notifying com-
mercial mailbox firms that mailbox patrons cannot use the box
number to portray a suite or office. This prevents the misrepresen-
tation of the commercial firm's address and box number as a legiti-
mate address. Until this concept is put in the Federal code, I would
encourage local jurisdictions to follow in Montgomery County's
path.
Madam Chair, I will need to leave rather soon, after hearing
some of the testimony, for another hearing of the Post Office Civil
Service Committee on Compensation and Employee Benefits on leg-
islation I've introduced on leave sharing, but I will read the entire
testimony.
Thank you.
[The prepared statement of Hon. Constance A. Morella follows:]
Prepared Statement of Hon. Constance A. Morella, a Representative in
Congress From the State of Maryland
Madam Chair, I appreciate your invitation to join you this morning during the
hearing on mail fraud.
I would like to welcome all the witnesses schedviled today, particularly my con-
stituents Ms. Julie Campbell, Mrs. Leona Roderick, and Mr. Eric Friedman of the
Montgomery County Consumer Affairs, which is doing an outstanding job in protect-
ing county residents from misrepresentation and fraud.
It is criminal and unjust for charlatans to cheat innocent people of their hard
earned money, particularly those who can least afford to lose a dime. Indeed, most
hard working people try to use their money wisely — they cut coupons, they read the
newspapers for bargains at the grocery store and airline fares, hotel/motel rates, ap-
pliances, and so forth. They also depend on truth-in-advertising.
I appreciate the suggestion which will be put forth by the witnesses, and I ap-
plaud^ Montgomery County for the first step of notifying commercial mail box firms
that mail box patrons cannot use the box number to portray a suite or office. This
prevents the misrepresentation of the commercial firm s address and box number as
a legitimate address. Until this concept is put in the Federal code, I would encour-
age local jurisdiction to follow in Montgomery Count)r's path.
I will need to leave fairly soon, Madam Chair, as I have to attend another sub-
committee meeting regarding federal leave-sharing.
Thank you, again. Madam Chair, for giving me this time to say a few words.
Miss Collins. All right. Thank you very much and, without ob-
jection, all written testimony will be entered into the record.
I apologize for the lack of committee members. President Clinton
is addressing the Democratic caucus at this time and I imagine
they'll come over as soon as he's finished.
Panel No. 1 consists of Ms. Michelle Davidson, a victim of mail
fraud from Arlington, VA, Ms. Brett Emmerson from Alexandria,
VA. Ms. Campbell is not here yet. Oh, she is here. OK. We sub-
stituted with Mr. Friedman but I'd like you to — would you mind,
Mr. Friedman, if we put Ms. Campbell back where she belongs?
Julie Campbell from Wheaton, MD, and Mr. Mike Desai.
STATEMENT OF MIKE DESAI, VICTIM OF MAIL FRAUD, ACCOM-
PANIED BY MICHELLE DAVIDSON, BRETT EMMERSON, JULIE
CAMPBELL, VICTIMS OF MAIL FRAUD
Mr. Desai. Desai.
Miss Collins. Desai, from Columbia, SC. You've come a long
way and I thank you very, very much.
First, we'll hear from Ms. Michelle Davidson.
Ms. Davidson. Thank you for the opportunity to testify. I am
here to let you know what happened to me. My name is Michelle
Davidson. I am a nurse.
Mrs. Morella. You may want to pull the microphone a little
closer.
Ms. Davidson. I am 24 years old, and I was a victim of mail
fraud.
It happened last year. I am a newlywed, and my husband and
I were going to take a delayed honeymoon. The week before Christ-
mas I saw an ad in the paper for Caribbean cruises with a com-
pany called Bonus Vacations. The ad said you got 8 days and 7
nights, all for $850 for two. I called the number and spoke to a
man who said that he got the packages in bulk. He said he bought
50 cruises at a time and that he sold them to businesses. That was
why they were so cheap, and that he had five left.
I was told I had 10 days to examine the package, and it looked
good, so I allowed him to come by and pick up my check. He came
by my work, and I paid $850 in total. We were supposed to fill out
a voucher and send it in. We were to pick three separate dates and
write them on the voucher. Then we would receive one of the dates
for the date of the vacation along with the tickets.
I filled in the dates we wanted on the vouchers the man gave me
and sent it all off to a Wisconsin company that did the booking. I
mailed the vouchers off, but never received the travel package or
the tickets. We just never heard anything. Then I finally heard the
Wisconsin company was raided by the FBI.
I tried to contact the man that sold me the tickets originally, and
no one ever answered the phone. Finally, the phone was discon-
nected. I wrote the Wisconsin company for my money back, but I
never heard from him. I called the company's phone number and
it rang and rang and then it, too, was disconnected.
I then called the Montgomery County police, and they gave me
the Montgomery County Consumer Affairs Division. When I talked
to Montgomery County Consumer Affairs people, they said that I
had been taken. I wanted to press charges against the people in
Wisconsin but they were in a different State, so I didn't get very
far.
I ended up writing the post office. It was 3 months before I heard
from them, and then I received a complaint form to fill out.
I never got my money back, and my husband and I never got to
go on that honeymoon. We never went anywhere. I hope this sub-
committee will look into these occurrences. It has sorely tested my
faith in our system. It upsets me that you can't believe what you
read in the paper.
Thank you for inviting me. I would be happy to answer any ques-
tions you may have.
By the way, I did hear from one of my patients who is a judge
that they did catch the man who sold the package. He was arrested
by the FBI. His name was Michael Barson.
[The prepared statement of Ms. Davidson follows:]
Prepared Statement of Michelle Davtoson, Victim of Mail Fraud
Thank you for the opportunity to testiiy. I am here to let you know what hap-
pened to me. My name is Michelle Davidson. I am a nurse. I am twenty-four years
old, and I was a victim of mail fraud.
It happened last year. I am a newlywed, and my husband and I were going to
make a delayed honeymoon. The week before Christmas I saw an ad in the paper
for Caribbean cruises with a company called "Bonus Vacations". The ad said you got
an eight-day, seven-night cruise for two all for $850.00. I called the number, and
spoke to a man who said that he brought the packages in bulk. He said he bought
fifty cruises at a time and that he sold them to businesses. He said that was why
they were so cheap and that he had five left.
I was told I had ten days to examine the package, and it looked good, so I allowed
him to come by and pick up my check. He came by my work, and I paid $850.00
in total. We were suppose to fill out a voucher and send it in. We were to pick three
separate dates and write them on the voucher, and then we would receive one of
the dates for the date of the vacation along with the tickets.
I filled in the dates we wanted on the vouchers the man gave me and sent it all
off" to a Wisconsin company that did the booking. I mailed the vouchers off, but
never received the travel package or tickets. We just never heard anything. Then,
I finally heard that the Wisconsin company was raided by the F.B.I.
I tried to contact the man that sold me the tickets originally, and no one ever
answered the phone. Finally, the phone was disconnected. I wrote the Wisconsin
company for my money back, but I never heard fi:t)m them. I cgJled the company's
phone number and it rang and rang, and then, it too was disconnected.
I then called the Montgomery Pohce, and they gave me the Montgomery County
Consumer Affedrs Division. When I talked to the Montgomery County Consumer Af-
fairs People, they said I had been taken. I wanted to press charges against the peo-
ple in Wisconsin, but they were in a different State, so I didn't get very far.
I ended up writing to the Post Office. It was three months before I heard from
them, and then I received a complaint form to fill out.
I never got my money back, and my husband and I never got to go on that honey-
moon. We never went on a honeymoon. I hope this subcommittee will look into these
occurrences. It has sorely tested my faith in our system. It makes me angry that
you just can't believe what you read in the paper.
Thank you for inviting me. I would be happy to answer any questions you might
have. By the way, I did hear from one of my patients who is a judge that they did
catch the man that sold me the package. He was arrested by the F.B.I. His name
was Michael Barson.
THtiM.AvMAMtt.iw ■ raDh»hlrtfthtnntimftQ«t
2 Charged
In Bogus * /
f^cRtions
FBisap 16. 0^ Fairfax Couple Charged With Fraud
SM Dream hdmga ^j. Allegedly Selling Bogus Vacations
By Robert CTtaitow Jr. ________ diviL CooBimer officab in Fiirfax When tomeooe responded
•nd Moaticnienr coonties ay the ptuoe number in the ad. often a toO-
VACATwminMiCi
A Fairfax County coiqile wbo al- the Banont must Eve at their boae Baraoos' operatico became quite free 800 number, the Banoos or
lege<By sold bogus vacatioa pack- in Reston. auiiender their pass- wel known to them in recent their employees would describe the
ages to people looking for cut-rate potts and wear special electronic months. packages or reassure skeptkal call-
deals were arrested by FBI agents gumtaring derkes. They abo have FBI investigators and consumer era, authorities said. In the end.
at their Reston hofiie yesterday and ^^^ prahiliited from discussing ^^^^^_^_^^^^^^.^ callers were toH they couW get the
charged with federal wire fraud. u,^ 5, going near travel agen- ^^— ^^-^■^^^^^^■^ packages below market rate for ad-
The couple, who worked 01 o<- ,^^ ^ preliminary hearing is "IX niir ]mntnlo/iir/> vanced payment in cash, money or-
6ces throughout the Wastogtoo .cbeduled for Monday. 10 OUT KtlOWieOge, jers or cashier's check,
jrea. has taken more than»«l 000 jf coivicted. each woukl face i» nnhndv\pVPJ- WSflt After paying, the caUers dH re-
from amaners (or vaaoons Aey «, j,, ,^ j„ j^ ^ , ,1,000 nOOOOy \eVer WCTU eeive a package from the Barsons,
an affidavit Oed q^ O VOCOtionl It *»^ ^.^^ ^'^1^'^
Court in Alexan- . -win ortented videotape, some brochures
1 21 atalea *«^ *e Baraoos roamed the Wash- UXJS inWOSSwle. "xl » voucher for the trip they
mbia love ii«loa siibiat*, doing fc~i~— from ' u^,-^ ug. wanted, court records sakL Airline
in^ragen- Bethes*. Vienoa and the» Reston m-onw sfto i«llipt!I '**'"
vouchers, they found they bad to go
to another company that wnuU not
respond. Or they faced some other
! ads in several newspapers.
ag The Washington Pott, of ■
group of eight friends in Iowa, who j^ Banon laed at lenTie dif- b^g' outings in the Bifaamu and sible," aaid 1
spent »4,000 in a bid to vaotion fato^ ctmrm, ntatt. locb »s Sa trips to Meiioo. One <fier. for in- tigator for the Montgomery County
togeth«niCancun,ajidaRoclnffle Bteeae Enterprise* and Fantasy stance, was for a fivfr^ trip to office o< consumer afUira. which re-
profMsiooa^ wbo ^ $1,200 OBh y^^^^,^,^^,^o,„rtJ Cancun for »U9. inchiding round- cently aaked the Baraons to give
to take eight members of his family • ' . . - . ._
on an inexpensive Caribbean cruiae.
Two newlyweds from Fals
Church, who had struggled far
months to get time ofi together,
fost $850 they bad saved for a hoo-
eymooo cruise in December.
It sounded really nice," said Mi-
cfaele Davidson, 23, whose hooe^
moon is on hold indefinitely. 1 re-
ally don't think well get the money
Federal agents charged Midiael
C. Baraon. 42, and hia wife, Sdeia
H. Baraoo. 33. yesterday with one
count each of wire fraud. The Bar-
Magistiate'* Court in Alexandria
and releaaed on $60,000 bond, aaid
Frank Scafidi. an FBI qnkeamaa.
Under the terms of their rekaae.
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ouihied In the brochue) to C>WCUM, M£)a(>7 plus four rights aHxrnimxlatians
at The Fh»-St^ OUAUW mt CMJNDACENTRO. Accomociaaona is basaa on
doMe occupancy. TTw hotel is corweniertfy located in waMng (isianoa to Via
market wtwre there are (ver 200 shops to sea the wortds finest goods.
Internationally farTMus night dubs, watersklng. deep sea fisMng. mj
tours can tM arranged throus^ the (rant desk. FVI wM i» piaasad to i
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7505 Toll court
Alexandria, VA
How To Request Your Reservations
1 . Connplelely fiH out the reservation request form. At least 60 days In advance of your requested vacation date.
2. Ma1 request, and three different choices of vacation dates to FANTASY VACAVONS, INC. At least 21 days
must separate each requested date.
3. Upon receipt of reservation request form, FANTASY VACATIONS, INC. will process your request and send
you a written confirmation end additional information concerning your vacation.
4. PleaM refer any querton* or requMU drectty to FANTASY VACATIONS. INC. In writing.
Fantasy Vacations, Inc. -? . , "^ o c. u :
11160 VlersMlU Road 1^15. #333 "^
Sliver Spring. Maryland 20902
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10
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Fantasy Vacations, Inc.
11160 Viers Mill Road, L-IS #333
Silver Spring, MO 20902
Date 09-26-91 FVI #002187
Brett Emmerson
7505 Toll Court
Alexandria, VA 22306
Dear FVI Traveler:
Ue received your package in the mail. Unfortunately, we cannot
accept it.
Your package was not sent via certified mail. This requirement
is for your protection as well and ours. Please resubmit your
reservation request to our office within 21 days of the above date
via certified mail or this offer is void.
Clerical Staff
Fantasy Vacations, Inc.
(301) 899-4899
11
American expregg'iWonep #rter -- -^ |
56-253000591 fj
PAY THE SUM Of , MONE HUNMtED PHS/OOnpO DOLLARS"
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i DOLLAR VALUE
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liaMd by Anwne«n E«fSSTciy«l R<
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Great American Travel Club
310 H. Maple
Suite ■'53
Vienna, Va. 22180
Kay & ''rett Emerson
75''5 Toll Ct.
Alexandria, VA 2''106
12
Miss Collins. Thank you, Ms. Davidson. You were expecting to
receive the dates for the vacation through the mail?
Ms. Davidson. That's correct, along with the tickets.
Miss Collins. Along with the tickets. And what contact did you
have with the U.S. postal inspectors?
Ms. Davidson. >\^en I didn't receive the tickets, I wrote to them
and 3 months later I got a complaint form, and I filled it out and
then I didn't hear fi^m them again.
Miss Collins. You haven't heard from them to date?
Ms. Davidson. No. It's been almost a — over a year.
Miss Collins. We've been joined by Congressman Stanford Bish-
op from Georgia. And at this time, Mrs. Morella, do you have any
questions you wanted to ask Ms. Davidson?
Mrs. Morella. That's a terrible story. You never got your money
back at all and you didn't go on a honeymoon and you pursued it
in all the channels that you saw available. How did the FBI learn
about him? Was it because of some of the complaints that you filed
that the FBI got wind of it or the Consumer Affairs reported it to
the FBI?
Ms. Davidson. I don't think so. I had a patient who was a judge
in the District.
Mrs. Morella. What do you do? You have a patient. Are you a
doctor?
Ms. Davidson. I'm an infertility nurse clinician.
Mrs. Morella. I see.
Ms. Davidson. And the patient referred me to a friend of hers
who worked at the FBI who said he would look into it and, when
he looked into it, he saw that there was about $65,000 that had
been taken in a period of a couple of months by this man, and they
did an investigation, and he was later arrested.
Mrs. Morella. So he had been perpetrating this scam through-
out the country evidently and had accumulated $65,000 but you
had no recourse because he filed bankruptcy or whatever it might
be so that you got nothing.
Ms. Davidson. That's correct.
Mrs. Morella. Do you have a suggestion about what should be
done about this besides tar and feathering?
Ms. Davidson. Well, a lot of the replies from the government of-
ficials said that there were really no laws, that there were loop-
holes in the laws with wire fraud and with the mail fraud and that
they needed stricter laws to prosecute these people and stop this
from happening, so if there could be laws in place. The wire fraud
in our case was also because he — it was over three States, Mary-
land, Virginia, and the District of Columbia. So if there would be
stricter laws on those two issues, I felt like maybe we could have
gotten some action taken so that he could be stopped because a lot
of people suffered after. We weren't the only victims.
Mrs. Morella. Obviously, we'll look into that, and it's also dis-
couraging that you didn't hear from the postal system, which is
something I know that our chair will be pursuing.
Thank you very much.
Miss Collins. We certainly will. In fact, at the second hearing,
we'll have the postal inspectors and people from the Postal Service
here testifying.
13
Tell me, what will you do the next time you see an ad or in the
paper? What steps would you take to make sure that it was legiti-
mate?
Ms. Davidson. Well, I would check with the Better Business Bu-
reau initially and then with ASTA, the Association for Travel, to
see if they're certified through that agency. You know, we just saw
the ad in the paper, and I had a friend who saw a similar ad who
went on a cruise and didn't have any problems.
Miss Collins. You assume if it's in the paper it's legitimate.
Ms. Davidson. Exactly.
Miss Collins. That the newspapers wouldn't accept a scam.
Ms. Davidson. Exactly. And I would go through a travel agency
that was well established.
Miss Collins. Mr. Bishop, do you have any opening statement?
Mr. Bishop. No. Not at this time.
Mrs. Morella. Madam Chair, may I just ask her one more ques-
tion.
Miss COLUNS. Yes.
Mrs. Morella. Was the Office of Consumer Affairs of Montgom-
ery County, MD, helpful to you? Maybe it was too late. I don't
know.
Ms. Davidson. When I dealt with them, they were not because
I was very persistent and they told me that I could face harass-
ment charges if what I was sa3dng was not backed up, and I felt
that I was the victim and the woman I dealt with, I don't know
her name, but I didn't feel like she was cooperative. Virginia and
the FBI was much more cooperative and sympathetic. So I was —
I'm not a Maryland resident. I was disappointed with the system.
Mrs. Morella. Thank you.
Miss Coluns. You felt intimidated by that, didn't you?
Ms. Davidson. I did. I was the one who gave him the check.
Newly married, and gave them the check. So luckily my husband
was understanding, but I wasn't happy to be the one to hand over
our newly joined money.
Miss Collins. Do you have any questions, Mr. Bishop?
Mr. Bishop. Ms. Davidson, I read your testimony. I'm sorry I
wasn't here to hear you deliver it personally. I do have a question.
You indicated that you heard that the FBI finally raided this com-
pany. Is that correct?
Ms. Davidson. Yes.
Mr. Bishop. Do you know for a fact that it took place? Were you
ever contacted for prosecution purposes?
Ms. Davidson. I was not contacted. I saw the Wisconsin com-
pany on a file tape from Channel 9 news and they were being raid-
ed and at the time, Channel 9 did a story and that's when it really
came to light and that the government agencies really got involved,
when Channel 9 did the story. And then they showed him being ar-
rested along with his wife.
Mr. Bishop. So he was arrested?
Ms. Davidson. He was arrested.
Mr. Bishop. And it was the same man that had taken your
money?
Ms. Davidson. Yes, it was.
14
Mr. Bishop. What is it that you feel that the post office could
have done to have prevented what happened to you?
Ms. Davidson. Well, I felt like he had used a post office box and,
you know, I don't know how you would go about regulating that,
but he did use a post office box. It was more when they were dis-
covered and there was hard evidence that nothing was done be-
cause they were — I was told that there were no laws, strict laws,
in place to really prosecute.
Mr. Bishop. The post office — ^you never communicated to the post
office box, or you communicated to a post offiice box in Wisconsin.
Ms. Davidson. Correct. Correct.
Mr. Bishop. You sent your
Ms. Davidson. My voucher.
Mr. Bishop. You sent the voucher.
Ms. Davidson. Correct. There.
Mr. Bishop. But he never sent you anything in the mail.
Ms. Davidson. No. He brought it to me in person.
Miss Collins. Mr. Bishop, she stated to a previous question that
she contacted the postal inspector and 3 months — did you hear
that?
Mr. Bishop. I read it.
Miss Collins. All right. And 3 months later she got a — what was
it? A complaint form.
Ms. Davidson. A complaint form.
Miss Collins. And she has not heard from them since.
Thank you very much.
Ms. Davidson. Thank you.
Miss Collins. Ms. Emmerson from Alexandria.
Ms. Emmerson. My name is Brett Emmerson, and thank you for
inviting me to testify today.
I am 28 years old, and I'm also a nurse, and I'm here to tell my
story as a victim of mail fraud also. I was going back to school to
get a bachelors of science in nursing in 1990 and wanted to take
a vacation before I started working full-time after graduating. I
was short of cash and I plunked down all I had at that time for
a vacation plan that turned out to be a scam.
It started in August 1991 when my mother saw an ad in the
paper. The ad said that Great American Vacations was offering a
Cancun vacation for $199 per person, including air fare and 5 days
and 4 nights accommodation at a five star hotel. It sounded great,
didn't it?
It was supposed to be the Great American Travel Club. You join
the club and then you get the reduced fare. My mother and father
were going to go on this vacation and told me about it, and I fig-
ured my cousin and I could go, too, and we could meet them in
Mexico and have a family vacation.
My mother called the number listed in the ad, and she was put
through to a man by the name of Christopher. He told her that he
could send her the Great American packet by mail and that she'd
have to pay a shipping cost of $12. We thought this was strange
because we live in Alexandria and this travel club was listed as Vi-
enna, so we thought the $12 was a little steep for postage. So, in-
stead of paying for the postage, we decided to go to the Vienna of-
fice and join the club. While we were there, my mother filled out
15
a form with the assistance from the Christopher that she spoke
with at the office, and also at that time she filled out a form for
Fantasy Vacation, Inc., with an address on Viers Mill Road in
Maryland and also selected dates that she — three dates, the same
as Michelle, and she gave him a check for $398 and we left.
I took the form home with me and I filled it out for myself and
my cousin and made a check out for the same amount. I was told
that we would be informed in the mail if the dates we had filled
out were acceptable.
The way the scam worked was as follows. They would place ads
in the papers for vacation packages and when someone responded
to the 800 number, they would be told that they could have the
package below market rate for advanced payment in cash, money
order, or cashier's check. After paying, the consumers would get a
video, brochures, and voucher but no airline tickets. Then when the
consumers tried to cash in the vouchers. Fantasy Vacations would
not respect the travel vouchers.
Two weeks after I filled out my travel form, my mother received
a computer form letter that said they could not accept her form be-
cause she had not sent in $25 as a processing fee. So my mother
sent in the $25 along with the packet again. And then in between
I received another notice that said I had not sent the reservation
in by certified mail, so I was disqualified and had to send the pack-
et back in.
At this point, I went to my mother, and she had just gotten sm-
other form letter saying that she had not sent all her money in by
cashier's check so they were sending it all back to her with her
original personal check.
At this point, I realized there was something wrong. My mother
told me that she had tried to get a hold of the guy at the office
that she spoke with originally, Christopher, where we had picked
up the forms, but she had not been able to get a hold of him. When
I realized she hadn't been able to get a hold of anyone, I blew up.
She'd just been getting an answering machine over and over again.
Together, my mother and I went to the office where we had
picked up the forms, and there was no one there. There was an-
other travel agency below their office, and they said they had seen
them boxing up shop, and the Fairfax County Consumer Affairs
had been there to investigate. We went directly to consumer affairs
from the office.
I spoke with Fairfax County Consumer Affairs in September and
filled out a complaint form. We were told that many other com-
plaints had been filled out against Great American Travel and its
owner, Michael Barson. This is when we found out that the man
at the office who gave us the original application forms was Chris-
topher Barson, Michael Barson's brother.
I called the numbers for Fantasy Vacations, Great American
Travel, and Michael Barson after that regularly and only got an-
swering machines. One day in the mail I received a $200 money
order made out to myself and my mother, so we each got $100
back. Then I heard from Fairfax County Consumer Affairs Bureau
that Mr. Barson was arrested by the FBI and that they had also
confiscated numerous stacks of letters with checks in them that
16
had not been opened. We were told at that time that some of those
checks dated back 6 months.
I still get letters from people who also lost money. It was very
upsetting to me because some of their letters are just distressing
to me because they had so much more to lose. I've also received
calls from California, Texas, New York, Washington State, and Col-
orado, all with the same stories. These people have all been offered
trips to different places and all have the same story. They an-
swered newspaper ads.
Apparently the man that took our money also had 16 different
names for his companies with names like Sea Breeze Travel and
Blue Water Travel. I read an article that said he had taken in
more than $60,000 for vacations he never intended to provide and
iDilked at least 99 people from 21 States and the District of Colum-
bia. I have brought the article with me and I also brought copies
of the voucher forms that we filled out and the form letter if you'd
like to have them and I'd like to submit them for the record. And
if you have any questions, I'd be happy to answer them.
[The prepared statement of Ms. Emmerson follows:]
Prepared Statement of Brett Emmerson, Victim of Mail Fraud
I am 28 years old and a nurse. I am here to tell my story as a victim of mail
fraud. I was going back to school to get a bachelors in nursing in 1990 and wanted
to take a vacation before I started working full-time after graduating. I was short
of cash, and I plunked down aU I had at the time for a vacation plan that turned
out to be a scam.
It started when my mother saw an ad in the paper. This must have been in Au-
gust of 1991. The ad said that Great American Vacations was offering Cancun vaca-
tions for $199.00 per person, including air fare, and five days four nights accom-
modations at a five star hotel.
It was suppose to be the Great American Travel Club. You join the club, and then
you get the reduced fair. My mother and father were going to go on this vacation
and told me about it. I figured my cousin and I could go too, and we could meet
my parents in Mexico.
My mother called the number listed in the ad, and she was put through to a man
by the name of "Christopher." He told her that he could send her the Great Amer-
ican Packet by mail, but that she'd have to pay the shipping costs of $12.00.
We thought this was strange, because we live in Alexandria, and $12.00 was a
little steep for postage. So, my mother and I stopped by the Vienna office promoting
the club to join the club. My mother filled out a form with assistance from Chris-
topher Barson at the office. We filled out a form for Fantasy Vacation, Inc. with an
address on Viers Mill Road in Maryland and also selected dates. Then she gave him
a check for $398.00, and we left.
I took the form home with me and I filled it out for me and my cousin and made
a check out for the same amount. I was told that we would be informed in the mail
if the dates we had filled out were acceptable.
The way the scam worked was as follows. They would place ads in newspapers
for cruises, and when someone responded to the 800 number, they would be told
they could have the package below market rate for advance payment in cash, money
order or cashier check. After paying, consumers would get a video, brochiires, and
a voucher, but no airline tickets. Then, when consumers tried to cash in their vouch-
ers, Fantasy Vacations would not respect the travel vouchers.
Two weeks after I filled out my travel forms, my mother received a computer let-
ter that said they could not accept her form because she had not sent in $25.00 as
a processing fee. So, my mother sent in the $25.00, along with the packet. Then,
I received the next notice. It said that I had not sent the reservation by certified
mail, so I was disqualified and had to send in the packet again.
At this point, I went to my mother's, and she had just gotten another letter saying
she had not sent all her money in by a cashier's check, so they were sending it ah
back to her with her personal check.
At this point I realized there was something wrong. My mother told me that she
had tried to get a hold of the fellow at the office where we had picked up the forms,
17
but that she had not been able to get a hold of him. When I realized my mother
had not been able to get a hold of anyone, I blew up.
My mother and I went over to the office where we had picked up the forms origi-
nally, and there was no one there. There was another travel agency right below
their office, and they said that they had seen them boxing up the shop and that
the Fairfax County Consumer Affairs had been there to investigate. We went di-
rectly to consumer affairs.
I spoke with Fairfax County Consumer Affairs in September and filled out a com-
plaint form. We were told that many other complaints were filled out agsdnst Great
American Travel and its owner, Michael Barson. That is when we found out that
the man at the office who gave us the original application forms, Christopher
Barson, was Michael Barson's brother.
I called Fantasy Vacations and Michael Barson after that regularly, and only got
answering machines. One day, in the mail, we received a $200 money order made
out to myself and my mother, so we each got $100 back. Then I heard from the Fair-
fax County Consvmier Affairs Bureau that Mr. Barson was arrested by the F.B.I,
and that they had also confiscated numerous stacks of letters with checks in them
that had not yet been opened.
I still get letters from people that lost money also, and it's very upsetting to me,
because they had even less to lose. I have received calls from California, Texas, New
York, Washington, and Colorado. These people had all been offered trips to different
places, and all had the same story. They answered the newspaper ad.
Apparently the man that took ovir money had 16 different names for his compa-
nies, with names like "Sea Breeze Travel" and "Blue Water Travel." I read an arti-
cle that said he had taken in more than sixty thousand doUars for vacations he
never intended to provide and bilked at least 99 people from 21 states and the Dis-
trict of Columbia. I have it here, and would like to submit it for the record.
If you have any questions, I would be glad to answer them for you.
Miss Collins. How many people did you talk to who had similar
experiences?
Ms. Emmerson. What happened was Fairfax County Consumer
Affairs was — unlike your story — ^they were very helpful. When I ini-
tially went to consumer affairs, they told us that our only recourse
was to go to small claims court and file.
Miss Collins. Is that in Montgomery County?
Ms. Emmerson. No. This is in Fairfax County.
Miss Collins. OK.
Ms. Emmerson. So I did that. But what happened was I didn't
understand the system well enough that you had to file against ei-
ther the owner, if it's not incorporated, or the company. And I filed
against the owner, and he had incorporated a week before I gave
him my check, so my claim was thrown out. And that's the first
time I met Michael Barson. Then when I heard that he was ar-
rested by the FBI, Fairfax County Consumer Affairs gave me the
address of 60 individuals who had also been scammed by Michael
Barson, so I wrote everybody a letter informing them that he had
been arrested and that there was a preliminary hearing, asking
them to come to the preliminary hearing. I also asked them at that
time if they wanted to join together in a civil suit and file against
Michael Barson, because I called the state attorney in Virginia and
there's no such thing, I guess, as — I can't remember what it's called
now. Class action. Thank you. And as a result, the FBI was refer-
ring people to me thinking that I had a lawsuit going, and I still
get calls. A week ago, I got a call.
Miss Collins. Did anyone join in with you?
Ms. Emmerson. You know, I wrote 60 people and I think people
are gun-shy about putting money forward. I mean for all they
knew, I was a scam, too, saying join a lawsuit and we'll file against
him. Only six people responded. But I still get letters. There was
18
another couple that I had talked to that was also going to go on
their honeymoon. Never went. Families that bought packages for
the whole family, like eight family members, never went on their
vacations.
When I went to the preliminary hearing, Mr. Barson had one
man come forward and testify that he actually did go on a vacation,
but for the rest of us, I don't think anybody that I know or that
I have spoken with has ever been on a vacation, and I consider my-
self one of the lucky ones since I got a partial return.
Miss Collins. Where did the packet — where was the packet
shipped from? You received a packet in the mail.
Ms. Emmerson. It was shipped from their Vienna office, and it
was my understanding that they used Federal Express. They also
used other deliveries, and that's what the shipping cost was. But
they also did mail out information. Like their form letters were all
mailed out and that they asked for certified mail for them to re-
ceive it. And his argument in his preliminary hearing was the rea-
son that nobody ever went on a vacation is they never filled out
the forms correctly or the three dates that they selected were never
correct.
Miss Collins. How much mail correspondence did you have?
Ms. Emmerson. With the company?
Miss Collins. With the company.
Ms. Emmerson. I never received their original packet in the mail
since we didn't want to pay the $12 and we went there in person.
Then all the correspondence that I received from them was through
the U.S. mail, all their form letters sending back our checks saying
that we had filled out the information incorrectly. Please resubmit
it.
Miss Collins. Did you talk with the U.S. postal inspectors?
Ms. Emmerson. No. I never had any idea that they would be in-
volved, but I did speak with a man in Georgia who contacted his
state attorney and his postmaster and they had a conference call
on the phone, and I guess the Georgia postmaster was concerned
about it, but only after this man's persistence. As far as I know,
nothing came of that.
Miss Collins. All right. Mrs. Morella?
Mrs. Morella. You know, if you went to small claims court, I
mean that would be great because I think small claims court is
very appropriate. But you would then have the responsibility of col-
lecting the money.
Ms. Emmerson. I can tell you what happened related to that. I
went back to small claims court and I went through their files to
see how many people had filed against him and how many people
won judgments against him and how many people — I guess you're
supposed to notify the court if you actually receive your money so
that the case will be considered closed. Nobody ever got their
money back, even though that they won judgments against him.
And I did — I asked them what happened when people tried to gar-
nish his bank account, and the letter back from the bank was al-
ways that there were no funds to garnish. You never get your
money back.
Mrs. Morella. That's it. You win in principle but you don't win
in terms of collecting.
19
Ms. Emmerson. Right, you have a judgment on paper. That's it.
Mrs. MORELLA. Exactly. I'm curious about the regulation that
Montgomery County has that I mentioned in my opening statement
with regard to mail box, post office boxes, having to make sure that
they let people know that they are not an office and what kind of
business they're involved in.
Ms. Emmerson. Right.
Mrs. MoRELLA. Do you think that kind of regulation, if expanded
into other jurisdictions, is of any help?
Ms. Emmerson. I think it would help. You know, I never went
to the address on Viers Mill Road, which was the address that we
sent the vouchers in for Fantasy Vacations, but I was told that that
was just a mail drop-off. It wasn't like a post office box number but
that it was just a mail drop. You know, I think that would make
you more skeptical before you sent your money in to just a post of-
fice. Usually you expect when you send something in to a company
that there are people working there.
Mrs. MoRELLA. Absolutely.
Ms. Emmerson. There's somebody to answer your questions over
the phone if you call instead of getting an answering machine over
and over again. I think I would have thought about that again. You
know, we even called the Better Business Bureau. I don't think the
Better Business Bureau is the place to go either because the only
way that they will be able to tell you if there's a problem is if
they've received a complaint. If they haven't received a complaint,
they'll tell you, well, we don't have anything on record. You know,
my best bet, I think if I had called consumer affairs first, since
they had on record all the complaints filed, I would have been bet-
ter off.
Mrs. MoRELLA. So I guess we have to make people be skeptical
and cynical rather than trustworthy, as we usually are as Ameri-
cans.
Ms. Emmerson. Yes. I mean it's disappointing to think that but
that's true.
Mrs. MORELLA. Thank you for taking the leadership with regard
to the number of other victims of mail fraud and appearing before
us.
Thank you. Madam Chairman.
Miss Collins. Mr. Bishop.
Mr. Bishop. Ms. Emmerson, were you able to determine what re-
lationship there was between Great American and Fantasy? Were
they both phantom companies or was one of them legitimate and
the other not?
Ms. Emmerson. The way it was explained to me was Fantasy
Vacations was his base company, his fraudulent base company, and
then he created several other companies like Sea Breeze Travel,
Great American Travel Club, Blue Water Travel, and those would
be the front agency that you would talk with over the phone, and
then they would have you fill out the voucher for Fantasy Vaca-
tions. Instead, for Michelle, she filled out one for the Wisconsin
clearinghouse which was separate. It was my understanding until
today that Michael Barson wasn't related to that, but now I hear
otherwise. But they're both fraudulent companies.
20
Mr. Bishop. Do you know whether or not they were actual cor-
porations or were they just names that were pulled out of the air?
Ms. Emmerson. Great American Travel was incorporated in Vir-
ginia on August 7, 1990, because I finally — I got a hold of the
record that he had incorporated but when you called, there was no
board related to this corporation. There was only a lawyer. I can't
remember what you call them.
Mr. Bishop. A registered agent.
Ms. Emmerson. A registered agent. That was your contact per-
son.
Mr. Bishop. My final question is similar to what I asked Ms. Da-
vidson. Is there anything that you could suggest that we might do
in the form of some law or regulations that you believe would pre-
vent the incident that occurred with you — the problem that oc-
curred with you?
Ms. Emmerson. Right.
Mr. Bishop. How do you think we could get at that?
Ms. Emmerson. I think part of it might be what Mrs. Morella
said. Making consumers more skeptical about post office box num-
bers or postal box numbers where it's just a drop where your mail
is going some place where there's not really a person. It's not really
an office. It's just where somebody can come through and pick up
and then they can change box numbers again and they really have
no face to it, even with the post office. The information that I un-
derstand that you can fill out on a form for a post office box doesn't
always have to be entirely correct and you'll get a post office box.
Maybe that might have been one step for me in being a little
more skeptical about filling it out and sending it in, but for all in-
tents and purposes, it looked like an office to me.
Mr. Bishop. You mean if more information were required to get
a post office box?
Ms. Emmerson. To obtain one. Yes.
Mr. Bishop. OK I'm trying to grapple with the practical effect
of how to
Ms. Emerson. Sure.
Mr. Bishop [continuing]. Implement something like this and I'm
trying to weigh what happened to you and to Ms. Davidson against
all of the other postal patrons who have post office boxes
Ms. Emerson. Right.
Mr. Bishop [continuing]. Who don't engage in fraud and who oth-
erwise use their boxes legitimately and trying to balance that, and
I'm wrestling with that. But I just wanted to
Ms. Emerson. I think it's difficult because there are more areas
involved than just the Postal Service. I don't think the Postal Serv-
ice can do this all on their own. There's no way. I don't understand
what regulations are about getting a post office box, but it's my un-
derstanding that it's very easy to obtain one. You know, it would
be too difficult for me to say, well, do a background check on him,
because I know he had a lot of— he had a record already against
him for fraudulent businesses, not just travel companies. But I
don't see how you can do that. It would seem too time consuming
and it wouldn't always work out that somebody's record would ac-
tually show something that would make you hesitant to give them
21
a post office box number. I think this is why it's so easy to do this
scam.
Miss Collins. You know, we're going to have to look into that.
It seems as though every county or state has different regulations
for post office boxes because Mrs. Morella said that there's some-
thing in Montgomery County on post office box. I have one in De-
troit and I had to have a street address before I could get the post
office box, and someone came by my home to check that street ad-
dress before I got a PO box number.
Ms. Emmerson. That's interesting.
Miss Collins. And so we'll have to check into it and see if there's
a difference when it's a business and see just what the regulations
are. Is it up to the postmaster of each post office branch? We'll
have to check into that.
It also seems to me sort of amazing that consumer agencies and
the Better Business Bureaus don't cooperate.
Ms. Emmerson. Very much so.
Miss Collins. In getting these names together. Also that this
person could incorporate when he already had been convicted of
fraudulent practices.
Ms. Emmerson. He had run a construction company that I found
legal records of suits filed against him in small claims and in — I
forget what the next division up from small claims is. Again, no-
body had any results from those as far as getting money back.
Miss Collins. And this fraud could have been much more than
$60 or $65,000. That's the amount that was reported.
Ms. Emmerson. It was my understanding that was money that
he had only taken in a 5-month period that they had record of.
Miss Collins. I see.
Thank you very much.
Ms. Julie Campbell from
Mrs. Morella. From Montgomery County, MD.
Ms. Campbell. It just occurred to me. Fantasy Vacations. I won-
der how long the brothers laughed about that name.
Ms. Emmerson. The fantasy?
Ms. Campbell. Yes. And what was the other one? Great World
or Great American Vacation?
Ms. Emmerson. You know, you'll laugh even more. He had
aliases that he used where his first name would be Skip and his
last name was Town. Skip Town. So I'm sure it was all a lark to
them.
Ms. Campbell. Well, I'm here. My name is Julie Campbell and
I'm here to speak on behalf of Mrs. Evelyn James, who herself is
a victim of mail fraud, and she regrets not being able to be here
today.
I'm a neighbor and close friend of Mrs. James and, because of our
relationship, I'm intimately familiar with the horrendous experi-
ence she had with mail fraud through a company called Worldwide
Travel and Tours, Inc. I'm happy to speak with you because I was
incensed at the distress and financiad loss this fraudulent travel
agency has caused this family and clearly other people.
Mrs. James was very excited when she first contacted Worldwide
Travel because she felt their advertised discount travel rates would
make it possible for her and her family to attend her son's wedding
22
in Arizona. I also remember how devastating it was when World-
wide Travel sent her a bill for $11,500 more than she had origi-
nally agreed to, was quoted, and set about paying.
Worldwide Travel, a self-proclaimed discount travel company
based in Florida, is in fact a post office box in Florida. Mrs. James
found this alleged business through an ad in the Washington Post.
She was prompted to call Worldwide Travel because of the descrip-
tion of the deep discounted travel package available through them.
Early in February 1992, Mrs. James discussed with Mr. Bob
Saflin, a Worldwide Travel representative, her group airline and
hotel needs.
During that first phone call, which was 9 months in advance of
her proposed travel, Mrs. James agreed to pay $700 for airfare for
18 people. At that time, she reserved hotel rates of $39 per person
per room. Mr. Saflin told Mrs. James to pay the total airfare costs
by VISA during that phone conversation. He also promised to mail
her travel brochures with her trip details and reservation request
forms. Mrs. James was also told to fill out the names and address-
es of each member of her travel party on the reservation forms to
be returned to Worldwide Travel, then to mail this information
back to Worldwide Travel to confirm and finalize her travel plans.
Mrs. James was happy with the discount trip package that she
was promised and she felt she was able to afford to bring along
four additional friends. Several days after her first call to World-
wide Travel, she called again and discussed with two different rep-
resentatives the cost for four additional airfares.
Mrs. James was told her total airfare charges for 22 people — 8
of which were children — would be $900 round trip, so you can
imagine her glee. At that second call, she okayed another $200
VISA charge for the additional four people. It was her understand-
ing that she was now paid full up for the entire cost of airfare for
her group.
Mrs. James believed that Worldwide Travel was a legitimate
business. She had spoken to three of their travel representatives,
each of whom confirmed her group rates for airfare and hotel. She
also independently called the hotel that she planned to reserve
rooms in to confirm that that rate was available to her.
In late February she received by mail the promised travel bro-
chure and the application reservation form. Nothing in these pa-
pers even remotely approximates what anyone would expect in a
travel brochure. Here's the travel brochure. It is red. There are no
pictures. One talks about Hawaii. She never mentioned going to
Hawaii. One just lists hotels around the world. It doesn't say they
can get you there. Just lists hotels around the world. And this one
is a sample that I'd like to read to you because of its lack of clarity
and relevance regarding Mrs. James. She keyed into one figure
here and, other than that, she thought this sounded fine.
Worldwide Travel and Tour Inc. is proud to present vacation packages to almost
anywhere. We provide airfare for two, round trip with hotel stay of seven nights.
Our vacation packages are the hottest in American today. We guarantee all travel
as long as all terms and conditions are met. Our certificates are approved by the
Attorney General, the State of Florida Consumer Affairs, the Better Business Bu-
reau, Dunn and Bradstreet, and the Chamber of Commerce. We've been in business
about 10 years traveling tens of thousands of travelers. We are also proud to say
we are 100 percent guaranteed travel. There are no blackout times. We use all the
23
scheduled air carriers such as Delta, American, Continental, Pan Am, Northwest,
Air Canada, Air Hawaii, TWA, et cetera. We also carry a $6 million bond, $1 million
in each field. We are the only travel agency in the world as far as we know that
provides this. What does it mean?
Indeed, what does it mean?
All of ovu- vacation packages are numbered and registered with Attorney General
and the State of Florida to guarantee travel. We also use only first class accom-
modations such as the Marriott, Sheraton, Hilton, Holiday Inn, Best Western, Save
Inn, Days Inn, Travel Lodge, et cetera. All of our rooms are $39 to $99 per person
per night double occupancy.
Thirty-nine dollars. That's what she had agreed to per person.
That sounded fair to her. Sounded great to her. She could then
take 22 people to her son's wedding, and she thought because she
was doing this so far in advance, she was truly getting the discount
of the mother of all discounts. She's not sophisticated and doesn't
travel much. We'll allow some — of this. OK. I won't finish that one.
Now, I'd also like to read you the form she was to fill out for each
of those traveling. This is it. She got one of them. Twenty-two peo-
ple to travel. She was sent one of these xerox forms. I think this
is relevant because of the detailed information it requests. I believe
this information is often used by these companies to find future
consumers to victimize. Basically, it just says fill it out and it asks
for the name, travel companion, your address, and your destination
one, destination two, your signature. At the bottom though, it says
"Comments or special instructions should be listed on a separate
sheet of paper and be sent along with this reservation request
form." So on the bottom of the application form, it says the cus-
tomer should include on a separate piece of paper — not the reserva-
tion form but a separate piece of paper— just what their specific
traveling plans are.
Mrs. James, not wanting this separate piece of paper to become
lost, xeroxed 22 of these, typed out the specific information on all
of them, including the rate, room rate that she had agreed to, the
hotel and address she agreed to stay in. They must have been
stunned when they got it back and it wasn't separate. So she did
put all this information, specific information for her trip, on each
form and she typed in the requested information on identical forms
for each person accompanying her.
She also indicated the hotel reservation and rate she accepted on
all the reservations forms, even though, as I've read, Worldwide
Travel requested it be put on a separate sheet of paper. She sent
in these reservation forms along with checks totaling $824 as re-
quested for the hotel deposit.
I think consumers are told to indicate their desired travel speci-
fication separately from the xeroxed reservation form that World-
wide provided because the consumer can then be told no such par-
ticular and specified travel requirements were ever received by the
company.
On March 31, 1992, Worldwide Travel mailed Mrs. James a let-
ter informing her that the total cost of her travel package was
$13,731. This was the beginning of a year long nightmare to get
her deposits returned. Also, Worldwide Travel claimed Mrs. James
had given them only $550, even though checks and VISA charges
which had been accepted by the company by that time totaled
$1,724.25.
24
Mrs. James, I am happy to report, had partial success in getting
her money returned through VISA, which allowed a full charge
back of the $900 on airfare. However, she lost $850 on airfare and
dropped. And they additionally dropped this particular alleged
business from their vendor/merchant status.
Mrs. James, after this company was in receipt of her money, she
was not able to correspond with anyone in authority at Worldwide
Travel, and this has taken place over a year.
I hope through hearing such as this mail fraud and the resultant
consumer abuse can be stopped. And Mrs. James also wishes to
thank the Montgomery County Office of Consumer Aifairs for their
very diligent efforts on her behalf, and I'd like to thank you for the
opportunity to testify. And the one thing she did get that maybe
no one else did was a Gold Card. It makes a nifty bookmark. Other
than that, it has no value.
[The prepared statement of Ms. Campbell follows:]
Prepared Statement of Julie Campbell, Victim of Mail Fraud
Good morning. My name is Julia Campbell. I will be speaking today on behalf of
Mrs. Evelyn James, who regrets being unable to be here herself.
I am a neighbor and a friend of Mrs. James, and because of our close relationship,
I am intimately familiar with the horrendous experiences she had with mail fraud
through Worldwide Travel and Tours, Inc. I am happy to speak with you today, be-
cause I am incensed at the distress and financial loss this fraudulent travel agency
has caused this family and no doubt others.
Mrs. James was very excited when she first contacted Worldwide Travel, because
she felt their advertised discount travel rates would make it possible for her and
her family to attend her son's wedding in Arizona. I also remember how devastating
it was when Worldwide Travel sent her a bill for $11,500 more than the amount
she was originally quoted and agreed to pay.
Worldwide Travel, a self proclaimed discount travel company based in Florida,
was in fact just a post office box in Florida. Mrs. James found this alleged business
through an ad in the Washington Post. She was prompted to call Worldwide Travel
because of the description of the deep discount travel packages available through
them.
Early in February 1992, Mrs. James discussed with Mr. Bob Saflin, one of the
Worldwide Travel representatives, group airline and hotel arrangements that would
make it possible for Mrs. James' friends and family to attend the wedding of her
son.
During that first phone call 9 months in advance of her proposed travel, Mrs.
James agreed to pay $700 for airfare for 18 people. At that time she reserved hotel
rates of $39 per person per room. Mrs. Saflin told Mrs. James to pay the total air-
fare costs by her VISA during that phone conversation. Mr. Saflin promised to mail
her travel brochures with trip details and specific reservation request forms there-
after. Mrs. James was also told to fill out names and addresses of each member of
her travel party on the travel forms to be sent. She was then to return this informa-
tion to confirm and finalize her travel plans.
Mrs. James was so happy with the discount trip package promised by Worldwide
Travel that she felt she was able to afford to bring another four friends. Several
days after her first call to Worldwide Travel, she called again and discussed with
two different Worldwide Travel representatives the costs for the four additional air-
fares.
Mrs. James was told her total airfare charges for 22 people — (seven or eight of
which were children) — would be $900 round trip, total.
At that second call she okayed the additional $200 VISA charge for the additional
four people. It was her understanding that this took care of the entire costs of air-
fare for her group.
Mrs. James believed that Worldwide Travel was a legitimate business. She had
spoken to tliree of their travel representatives, each of whom confirmed her group
rates for airfare and hotel. She also called the hotel to confirm the hotel rates.
In late February she received by mail the promised travel "brochure" and applica-
tion reservation form. Nothing in those papers even approximated what anyone ex-
25
pects in a travel brochure. There were no pictures, just loose xeroxed papers. I
would like to read you one. (reads brochure)
I would also like to read you the form she was to fill our for each of those travel-
ing. I think it relevant, because of the detail of information it requests. I believe
this information is often used by these companies to find future consumers to vic-
timize, (reads application)
On the bottom of this application form, here, it says customers should include on
a separate piece of paper just what their specific traveling plans are. Mrs. James
put the specific information for her trip on each form, not separately, and typed in
the requested information on identical registration forms for each person accom-
panying her. She also indicated the hotel location and rates she accepted on all res-
ervation forms, even through Worldwide Travel requested it be put on a separate
sheet of paper. She sent in these reservation forms along with checks totalling the
$824.45 requested for the hotel deposit.
I think consumers are told to indicate their desired travel specifications sepa-
rately fit)m the xeroxed form Worldwide Travel provides, because the consumer is
then told that no such particular specified travel requirements were ever received
by the company.
On March 31, 1992, Worldwide Travel mailed Mrs. James a letter informing her
that the total costs of her travel package was $13,731.00. This was the beginning
of a year long nightmare to get Mrs. James' deposits returned. Worldwide Travel
claimed Mrs. James had given them only $555.00, even though checks and VISA
charges accepted by the company by that time totaled $1,724.45.
Mrs. James, I am happy to report, had partial success in getting her money re-
turned through VISA, which allowed a full charge back of the $900.00 airfare. How-
ever, she lost over $850.00, and when she discovered the prices offered by legitimate
travel companies, only five of her relatives were able to attend her son's wedding.
Worldwide Travel was a fi-aud and a scam. After they were in receipt of Mrs.
James* money, Mrs. James was not able to correspond with anyone in authority at
Worldwide Travel and never got all her money back. I hope through hearings such
as this type of mail fi-aud and abuse can be stopped.
Mrs. James also wishes to thank the Montgomery County Office of Consumer Af-
fairs for their diligent effort.
I thank you for the opportunity to testify.
Miss Collins. I think Ann Landers says, if it's too good to be
true — if it seems too good to be true, it's too good to be true.
Ms. Campbell. That's my thought. This is a woman who owns
a small business, catering business. She has for 30 years. She's
trusting, honest. She does business with people that know her and
her contracts are oral. If someone's not happy, she makes it right
or she doesn't charge them and so that unfortunately, at 64 years
old, she's still thinking the world works that way.
Miss Collins. How did you find out that Worldwide Travel was
just a post office box?
Ms. Campbell. When they sent the brochure, it is listed under
their name as a post office box in Sunrise, FL with a phone number
and a fax number. In the advertisement in the Post was just listed
there that they were in Florida and their phone number.
Miss Collins. But you don't know then whether they have an of-
fice or not?
Ms. Campbell. When I called Florida, they said — ^the people in
the Better Business office said they couldn't find them as having
an office.
Miss Collins. It's just that post office box.
Ms. Campbell. Oh, and I also wanted to say Mrs. James feels
that she has seen their ad again in the Washington Post but with
a slight name change.
Miss Collins. Was it reported to the Washington Post?
Ms. Campbell. Yes. They said that particular company by that
particular name would no longer be allowed to.
Miss Collins. So they changed the name slightly.
26
Ms. Campbell. Yes, slightly. Oh, and they're incorporated, too,
so I think the incorporating may just be kind of something basi-
cally you can do at the drop of a hat and little bit of money.
Miss Collins. Did Mrs. James talk to the mail inspectors during
all
Ms. Campbell. No.
Miss Collins. She never issued a complaint to them?
Ms. Campbell. No.
Miss Collins. How about the Better Business Bureau?
Ms. Campbell. Perhaps through Montgomery County, they did
it, but I wrote the letters for Mrs. James and I know that I did not
write to the Better Business Bureau.
Miss Collins. We've been joined by Congressman Oilman. And
did you have an opening statement?
Mr. Oilman. Yes. I want to commend you, Madam Chair, for
your concern and your interest in the issue of fraud and what we
can and should be doing in the Congress to bring it under control.
We've heard from a number of our constituents about these cases
of fraud and I think it's important to increase public awareness
about the continuing growth of this kind of fraud in our society.
This committee has addressed these issues in past Congresses
adopting more stringent laws regarding types and designs of mail
matter and prohibitions against mail and matter resembling Grov-
ernment documents such as social security checks. As one member
of this committee, I stand ready to assist you in addressing these
matters and we look forward to hearing more from the witnesses
today. I want to welcome the witnesses who have been willing to
take their time to help us focus on this issue.
Thank you. Madam Chair.
Miss Collins. Thank you very much.
Mr. Bishop.
Mr. Bishop. I just want to say to Ms. Campbell that I am very,
very sjonpathetic because it's information that needs to be known.
We need to bring it up so that we can enact whatever policy is
within our jurisdiction to enact to try to prevent these kinds of
things from continuing to happen, so thank you for coming.
Miss Collins. Thank you.
Mr. Mike Desai from Columbia, SC.
Mr. Desai. Oood morning. My name is Mike Desai. I'm an indus-
trial engineer from South Carolina. I'm 23 years old and I was a
victim of mail fraud. I'm here today to let you know what happened
to me and I hope that you can stop it from happening to others.
In December 1992, I decided to buy a computer for work. I made
the mistake of calling up a company called PC Liquidators located
here in Washington. I had seen an ad for the company in the State
newspaper and I assumed that it was legitimate. After seeing the
ad, I called National PC Liquidators on the phone for information
and was told someone would call me back. I was then called and
spoke to a person by the name of Mike Reilly. In response to my
questions for information about National PC Liquidators, Mr.
Reilly told me that it had been operating for about 9 months and
had six to nine sales representatives and that the company was
selling IBM clones from $1,200 to $3,500 each depending on the
system.
27
However, the company seemed a little odd to me because Mr.
Reilly informed me that the only method of payment they could ac-
cept was by wire transfer or money order in the mail. They told
me this was because they could not guarantee a price unless they
ordered the components from the wholesaler the day they made the
sale. That's the line they used on all people that they gave. I was
suspicious about this fact that they only accepted this form of pay-
ment, so I called the Better Business Bureau here in Washington,
DC. When I called the business bureau, there was no record of any
complaints against the company, so I figured the company was le-
gitimate.
Actually, I find out later that the complaint was first filed with
the company in October 1992 but the Better Business Bureau had
not recorded it or put it into their system, so it was 2 months be-
fore I had called them that they had received their first complaint.
After speaking with National PC Liquidators several more times,
I decided the product sounded like a good deal. The people I spoke
to over the phone at National PC Liquidators had all the technical
information on computers so that made me feel that the company
was legitimate. The prices certainly weren't cheap but they seemed
correct. I mean it wasn't an outstanding deal but it was a good
deal. So I decided to buy the computer.
Also, a big part of my decision to buy the computer was that Na-
tional PC Liquidators gave me a reference upon request. This was
a prior customer who was quite satisfied with their product. I
called this customer and he told me that he was satisfied with his
computer but that the only problem was that it tended to take a
long time for it to arrive. I spoke a few more times with the sales
representative at PC Liquidators and they were very friendly but
also quite aggressive. I finally decided to buy and placed an order
for a computer. $2,525 was wired to National PC Liquidators on
December 14 in their account here in Bethesda.
About 2 weeks after that, I tried to call National PC Liquidators
again to order a little more equipment and to see when the com-
puter would arrive, but I only received their answering service.
After this, I called continuously, almost on a daily basis, but no one
ever returned my calls.
Originally, the people at National PC Liquidators had said it
would take at least 2 to 4 weeks to receive the computer but after
6 weeks and not receiving the computer, I decided to call my ref-
erence and see if I could get any information from him. I called this
fellow and he had told me that he had, since speaking with me the
last time, ordered more equipment but he hadn't received it. He
also told me that he had been contacted by other consumers who
had complained about not receiving their computers. Finally, he
gave me the name of a postal inspector who was conducting an in-
vestigation of the company.
I had my brother call National PC Liquidators to see if he could
extract some information from them. National PC Liquidators solic-
ited him and tried to get him to buy a computer as well. I also con-
tacted Best Data Systems which was National PC Liquidators' ven-
dor at that time, and they had told me that they had not received
payment for services they had rendered to National PC Liquida-
tors.
28
I contacted the postal inspector and he notified me that there
was an ongoing investigation. Two months ago, I heard from the
postal inspector that their investigation was closed and that he had
forwarded all the information to an Assistant Attorney General
here in Washington. Since then, I have also contacted the FBI, the
South Carolina Department of Consumer Affairs, and the Postal
Inspection Service here in Washington.
I have not received any of my money and I believe that this
money is gone for good. I'm pretty sure I won't get it back. At this
point, I'm not sure that I'll ever get it back.
I would like to get the names of other consumers involved to get
a class action suit started but I've been told that this information
is confidential by the postal inspector, so I can't pursue that ave-
nue.
I hope this subcommittee can do something about this problem.
To my knowledge. National PC Liquidators is still operating even
though they have received, I believe, 98 complaints so currently as
we're speaking they could be soliciting more customers and accept-
ing money and the least I hope we can do out of this is stop them
by some legal device.
Thank you.
[The prepared statement of Mr. Desai follows:]
Prepared Statement of Mike Desai, Victim of Mail Fraud
My name is Mike Desai. I am an industrial engineer from South Carolina. I am
23 years old, and I was a victim of mail fraud. I am here today to let you know
what happened to me, in hopes that you can stop it ftx)m happening to other people.
In December 1992, I decided to buy a computer. I made the mistake of calling
up a company called 'T.C. Liquidators" after seeing an ad in the paper. Their offer
sounded to me like a good deal, and the people I spoke to over ^e phone had all
the technical information on computers; so I figured they were legitimate. I spoke
to the compan^s vendors, and they sounded Uke they knew what they were talking
about too. At first they were pretty aggressive, and I was a Uttle skeptical; but then,
they were very friendly and gave me a reference of a prior customer, who was quite
satisfied with their products. For these reasons, I figured the company was legiti-
mate. However, I also took the step of calling the Better Business Bureau, and the
company had no bad record; so, I decided to buy a computer through "National P.C.
Liquidators."
I wired the money. This was in December. I then received a fax in January on
why I didn't get my computer. Then, after this, they wouldn't retiuTi my phone call,
and I finally received a letter indicating that they would not return my money.
My brother called the same number I did sometime later, and they tried to solicit
him as weU. I contacted the F.B.I., the South Carolina Department of Consumer Af-
fairs and the Postal Inspection Service in Washington. I never did get my money
back.
I hope this subcommittee can do something about this. There are a lot of legiti-
mate companies out there, but a lot of fraudvdent companies. It is hard for consum-
ers to tell the difference. I would be happy to answer any questions you might have.
Miss Collins. Mr. Desai, you saw an ad in the paper.
Mr. Desai. That's correct.
Miss Collins. Going over your testimony, I don't see any mail.
What was the mail involved?
Mr. Desai. They accepted orders through the mail or by wire
transfer.
Miss Collins. Oh, I see. And the money was by wire.
Mr. Desai. That's correct. I was quite hesitant at first and, look-
ing back, rightfully so but I decided the wire transfer would be the
easiest way and the fastest way.
29
Miss Collins. You decided to do that because of the one person?
Mr. Desai. Well, I spoke with the reference, I spoke with the
Better Business Bureau.
Miss Collins. They gave you that name. Is that right?
Mr. Desai. That's correct. And it turns out that this reference
has now also filed a complaint because of the past order they had.
Miss Collins. I see. ^
Mr. Desai. And I also spoke with their vendors in Santa Clara,
CA and it checked out with them, too, that they were
Miss Collins. Legitimate.
Mr. Desai. Yes.
Miss Collins. But they couldn't tell you anything about the com-
pany.
Mr. Desai. That's correct.
Miss Collins. What did the FBI do?
Mr. Desai. The FBI in South Carolina basically just contacted
the FBI here and they found out that there was already an inves-
tigation going, so that was the end of it. /
Miss Collins. Do you know what's become of that investigation?
Mr. Desai. I spoke with Inspector Larry Fryer. He's the one that
was conducting the investigation. And he told me he has closed the
investigation 2 months ago and forwarded this informatiopf to the
Assistant Attorney General and, as of yet, nothing hasjiappened.
Miss Collins. So they're still operating. Do you still^see the ads?
Mr. Desai. No. No, I don't. I'm sure they've placed ads in other —
the other 98 complaints from far as Texas to North Carolina to
Kentucky, so I think what they do is just jump around from State
to State.
Miss Collins. Was it a daily newspaper?
Mr. Desai. That's correct.
Miss Collins. I see. And then your brother called?
Mr. Desai. Yes. I had him call to see if this company would con-
tinue to solicit other people. At first, I thought maybe they were
filing for bankruptcy but, if that was the case, then they couldn't
solicit more customers so
Miss Collins. Where's the company located?
Mr. Desai. On Wisconsin Avenue. I'm going to try to visit them
right after this hearing.
Miss Collins. So they have a street address?
Mr. Desai. Yes. They have a street address and a suite number.
I don't know if it's a false front or not, but I'll find out.
Miss Collins. Did they recommend that you sue or
Mr. Desai. They told me I could sue but, being from South Caro-
lina, to file a suit out of State would probably cost more than the
computer itself I'm trying to get a class action suit started. That
way we could all afford it. But there's no way for me to get the
names of everyone else that was involved.
Miss Collins. Because the postal inspector said that was con-
fidential.
Mr. Desai. That's correct. I also called the bank that this com-
pany banks at and warned them that, you know, watch for unusual
transactions, but they couldn't give me any information as well be-
cause of confidentiality.
Miss Collins. Did they receive your information?
30
Mr. Desai. Yes.
Miss Collins. Did they welcome your information?
Mr. Desai. Yes.
Miss Collins. The inspector you spoke with was the FBI.
Mr. Desai. No. He was a postal inspector.
Miss Collins. Postal inspector?
Mr. Desai. That's correct.
Miss Collins. Did he say whether or not he was seeking a mail
stop order?
Mr. Desai. No, he didn't.
Miss Collins. He did not.
Mr. Desai. No, he didn't. But
Miss Collins. He's the one who turned it over to the Assistant
Attorney General?
Mr. Desai. That's correct. As far as I know, the company wasn't
stopped because for the past 7 months I've been calling continu-
ously and their number is still valid so
Miss Collins. Is that right?
Mr. Desai [continuing]. I assume that they're still operating.
Miss Collins. Mr. Bishop.
Mr. Bishop. Yes. You indicated that the reference had received
some computer equipment
Mr. Desai. That's correct.
Mr. Bishop [continuing]. From the company and, based upon
that, you assumed — and subsequent the fact that the reference in-
dicated that he was also filing a complaint that he had lost money,
do you assume that the reference was not connected with the
scam?
Mr. Desai. That's correct, because the reference was also in-
volved in this investigation. I believe the scam was that they had
one person and they gave them their computer or two people pos-
sibly, and then they used this person over and over again as a ref-
erence.
Mr. Bishop. The other question. Do you think that the company
may have been a legitimate company that for some reason experi-
enced financial difficulty and then was not able to deliver?
Mr. Desai. I considered that but, if it was the case, then it would
not be right for them to solicit more customers knowing they
couldn't fulfill their orders so I could pursue criminal action that
way. And there was no bankruptcy claim filed so
Mr. Bishop. But basically what has happened is it has been in-
vestigated criminally.
Mr. Desai. That's correct.
Mr. Bishop. But your bottom line is you're out of pocket.
Mr. Desai. I'm out of pocket and I've pretty much resigned the
fact that I will not get my money back but I would at least like
to see some justice taken and at least stop this company from solic-
iting more customers because I'm sure there's still other people
that call and if they send their money in, it's guaranteed they're
not going to get it back, so why have more and more people lose
their money? I mean I've learned an expensive lesson, but I'd hate
to have more people learn quite an expensive lesson.
Miss Collins. Mr. Oilman.
31
Mr. Oilman. Thank you. How much did you pay for your com-
puter?
Mr. Desai. $2,525.
Mr. Oilman. And in what manner did you make that payment?
Mr. Desai. A wire transfer from my Nation's Bank account to
their account here in Bethesda.
Mr. Oilman. And did you get a receipt of your check having been
endorsed?
Mr. Desai. Yes. I have a receipt, a purchase order that was faxed
to me at work and I also received a fax saying that they were sorry
it was late and that they would get the computer to me in the fol-
lowing 2 weeks. And I caught them in a lie, as a matter of fact,
because the letter said that the reason I hadn't got it was my sales
representative was on vacation, but my brother spoke to that sales
representative on the time he was on vacation, so I'm pretty sure
that it's just a scam.
Mr. Oilman. Are any of the principals still around, do you know?
Mr. Desai. No, I don't.
Mr. Oilman. They just closed up shop completely?
Mr. Desai. That's correct. I tried to get his home phone number
but it's unlisted. There are three Mike Reillys here in Washington
and the other two weren't it.
Mr. Oilman. And what did the postal inspector report to you?
Mr. Desai. All he told me was that when it does go to trial he'll
report it to me and, after the conclusion of the trial, he'll post a
warning in the newspaper and send out a letter. By that time, it'll
be too late.
Miss Collins. That's not the postal inspector. That's the Attor-
ney Oeneral, isn't it?
Mr. Desai. No. That's the postal inspector.
Miss Collins. Oh, the postal inspector.
Mr. Desai. I asked him for the Attorney Oeneral's name and
number but he said it probably wouldn't do me any good to speak
with him.
Mr. Oilman. Which Attorney Oeneral?
Mr. Desai. The Assistant Attorney Oeneral here in Washington.
That's what he told me.
Mr. Oilman. He is with the Justice Department?
Mr. Desai. That's correct.
Mr. Oilman. He didn't give you the name of the prosecutor?
Mr. Desai. No, he didn't.
Mr. Oilman. Did they ask you to appear as a witness?
Mr. Desai. He said I might be called as a witness and to start
tracking my phone calls to the company, so I've been doing that
but, as of yet, I haven't received any notification to appear.
Mr. Oilman. How long ago was it that he informed you that
there would be a prosecution?
Mr. Desai. About a month and a half, 2 months.
Mr. Oilman. And you haven't heard any word since that time?
Mr. Desai. No, I haven't.
Mr. Oilman. Thank you.
Miss Collins. I have one final question. In your written testi-
mony you said you finally received a letter indicating you would
not get your money back.
32
Mr. Desai. That information is incorrect. I received a letter say-
ing I would get the computer within 2 weeks, but I didn't get the
computer.
Miss Collins. Did you aslc for your money back?
Mr. Desai. Yes, I did. In fact, I sent — I faxed them a letter, a
quite threatening letter, telling them that I was going to pursue
criminal action, but I haven't received any response at all.
Miss Collins. This committee would be interested in knowing
what happened when you visit Wisconsin Avenue. We'd like to —
you'll give him our number. We'd like to know if in fact a legiti-
mate company is there or that's just a drop — ^what do you call it?
A mail drop.
Mr. Desai. Well, it has a suite number to it so I assume it's an
office, but it could be an empty office.
Miss Collins. What's the address? Do you know?
Mr. Desai. Yes. I have it right here. 4427A Wisconsin Avenue,
suite 200.
Miss Collins. Thank you very much. I have to tell you, this com-
mittee is very grateful for you taking the time and effort to come
and testify. I believe that your problems are just legion in this
country. Everyone just could not come from all over the country to
testify and so we commend you very much for taking the time and
effort and the expense to come. Hopefully we will have some legis-
lation come out of the hearings. I believe there will be at least one
other hearing, possibly two.
Yes?
Ms. Campbell. May I offer a recommendation?
Miss Collins. Yes.
Ms. Campbell. The letter that was sent to Mrs. James and I as-
sume all of you inviting us to come and testify is read, I think, by
not a few people as intimidating, particularly when you have a
half-inch file and the request is that you make 100 copies of what
people assume is their half-inch file and that starts — they think,
Grod, I got shafted by this mail fraud and now I've got to go fork
over a lot of money to be able — ^when I called and found out that
was not necessarily true, that help could be provided, it certainly
made a difference and I just assume there are plenty of people that
don't bother to call.
Miss Collins. That could be. Generally when we have hearings,
they're usually companies or Government agencies and we ask for
so many copies so all the committee members can receive copies
and then the people who attend the hearings can receive copies.
Ms. Campbell. Right. But some of us, for instance, aren't Eliza-
beth Taylor.
Miss Collins. But if there's a phone number there, hopefully the
constituents will call and inform us that they're unable to give us
the copies and I'm sure that my staff will work with them. That's
what happened, isn't it?
Ms. Campbell. For me it is. I just wondered how many others
perhaps just looked at the letter and said, oh, my, I can't do this.
Miss Collins. I don't know.
Ms. Cooper. I don't think very many, right, because we did offer
that assistance if you could not. We'd be more than happy. But
33
that's just committee rules that we have to ask for a certain
amount.
Miss Collins. Thank you very much.
Our second panel consists of Ms. Emma Byrne, Director of New
Jersey Consumer Affairs. Congresswoman Rosa DeLauro from Con-
necticut called us. She is not able to be with us, but she gave you
high commendations.
Ms. Byrne. Thank you. Madam Chair.
Miss Collins. Ms. Peg Mullen, New Jersey Consumer Affairs for
Victims of Mail Fraud. Ms. Wenona Russo, victim of mail fraud,
Flemington, NJ. And then Mr. Eric Friedman, Investigator, Mont-
gomery County Consumer Affairs and Ms. Leona Roderick. Wel-
come to the hearing. We look forward to your testimony, and thank
you very much for traveling to the city to testify and share your
concerns with the other people who've suffered mail fraud also.
STATEMENT OF EMMA BYRNE, DIRECTOR, NEW JERSEY
CONSUMER AFFAIRS; ACCOMPANIED BY PEG MULLEN, NEW
JERSEY CONSUMER AFFAIRS FOR VICTIMS OF MAIL FRAUD;
WENONA RUSSO, VICTIM OF MAIL FRAUD; ERIC FRIEDMAN,
INVESTIGATOR, MONTGOMERY COUNTY CONSUMER AF-
FAIRS; LEONA RODERICK, VICTIM OF MAIL FRAUD
Miss Collins. Ms. Emma Byrne, Director of the New Jersey Di-
vision of Consumer Affairs.
Ms. Byrne. Thank you. Madam Chair. I'm very grateful this
morning to have the opportunity to appear before you and to speak
to you about a problem that I believe is larger than most people
recognize.
The issue is mail fraud, but defined as sweepstakes or contests
or lotteries. I believe it's fair to say that the sweepstakes direct
mail business in this country today is a multi-million dollar a year
industry. Speaking from our experience in New Jersey, direct mail
sweepstakes solicitations have reached epidemic proportions. That
mail is not simply a nuisance. It's not simply junk mail. In too
many cases it's outright consumer fraud and in too many cases it
causes severe financial harm to those who are the most vulnerable,
the elderly.
Since I began speaking about this New Jersey epidemic, I've
heard stories which I would have found unbelievable had we not
investigated and obtained proof. The niece of an 83-year-old
Woodbridge, NJ, man came to us to say that since she had begun
helping her uncle to do his bookkeeping and to pay his bills — his
household bills — she realized that during 1992 alone he had spent
over $20,000 on sweepstakes contests and foreign lotteries. I have
with me today the 22 pounds of mail that this gentleman received
just in the month of January of 1993 alone. Since he would enclose
a check with each envelope that he received, he began receiving up
to seven or eight duplicates a day, as you can see that these are
color-coded. It is illegal in New Jersey to notify someone that they
have won a prize and then require them to pay money to get it.
I would suggest this morning that if this is not consumer fraud
and a consumer protection issue, it's certainly an environmental
protection issue.
34
I'm joined here this morning by a New Jersey consumer who
wanted to tell her story and a member of our staff who's here on
behadf of an 80-year-old consumer who was scheduled to be here
this morning but who became ill and could not make the trip.
Let me tell you about two others who could not be here today.
A son helping out his hospitalized father found over $45,000 worth
of canceled checks written to sweepstakes companies. The father
had written so many checks he didn't bother to even record them
in his checkbook. The friend of a 90-year-old woman told us that
prior to entering a nursing home, her elderly friend spent $49,000
entering sweepstakes that was advertised as expensive merchan-
dise in order to win a prize. We went to the woman's home and we
now have a small room full at New Jersey Consumer Affairs of the
merchandise she had to purchase in order to become eligible to win
a prize. Costume jewelry, pens, cleaning fluid, coupons, combs. All
of it together can't possibly be worth more than $1,000 but she
spent $49,000 to get it.
What drives this epidemic? I believe it's list brokering. The buy-
ing and selling and trading of lists. Lists containing age and zip
code data overlaid with census data, current census data, other
donor lists, volunteer lists, veterans lists, department store credit
customer lists, cable TV subscriber lists, and credit reporting agen-
cy lists containing some of the most sensitive consumer information
available.
It is my view that the buying and selling of these lists is the
cause of more consumer fraud than virtually any other single fac-
tor. Telemarketing fraud is driven by list fielding, 900 number op-
erations, postcard solicitations, direct mail, the 900 number activ-
ity, advance fee loan broker activity, and I could go on. And it's not
just the private sector that's selling, that's selling lists and selling
names and data. New Jersey happens to be one of a very few num-
ber of States that does not sell its motor vehicle data for commer-
cial purposes and they never have. Even the postal service unfortu-
nately sells lists of consumers who have registered a change of ad-
dress.
I believe the consumers have a right to know information that
they are giving to a business or to government is going to be sold
and consumers should be given the opportunity to opt out. Some
companies already offer opt out options. I urge the postal service
to join that list. Before a company or an agency makes a list avail-
able, they should be required periodically to ask consumers to af-
firmatively opt out.
My second suggestion to you would be to help us crack down on
foreign lottery solicitations and some of this mail contains those so-
licitations. There are at least a dozen foreign lottery mail appeals
in this 22 pounds. Requesting money to buy foreign lottery tickets
is a violation of both New Jersey and Federal law, but we are pow-
erless to take action against foreign operators. We have no ability
to enforce judgments or to request injunctions. The postal service
can issue false representation orders against illegal mailings from
foreign operators and these orders will allow the postal service to
intercept any mail sent to the foreign lottery, stamp on it false rep-
resentation and return it to the sender.
35
The State of New Jersey additionally could use a liaison in the
chief inspector's office to help process these complaints, be the
central repository for that communication and to issue orders
where appropriate.
And finally, Federal law suits. States are currently discouraged
from going after companies located in other States because of dif-
ficulties enforcing judgments across State lines, and I heard your
first panel discuss and describe that interstate difficulty. Our abil-
ity to combat mail fraud would be greatly enhanced if we were al-
lowed to take action against fraudulent sweepstakes in Federal
courts.
New Jersey consumers have been plagued by volumes of decep-
tive and misleading sweepstakes offers and other promotions and
I know that we are not alone.
We thank you this morning. Madam Chair, for your willingness
to help us find solutions.
[The prepared statement of Ms. Byrne follows:]
Prepared Statement of Emma Byrne, Director, New Jersey Consumer Affairs
Madam Chairwoman, I am very grateful for the opportunity to be able to appear
before you today to speak to you about a problem I beUeve is larger than most peo-
ple recognize.
The issue is mail fraud — ^but defined as sweepstakes, or contests or lotteries. I be-
lieve it's fair to say that the sweepstakes direct mail business in this country today
is a multi-million dollar a year industry. Speaking from oxir experience in New Jer-
sey^^iirect mail sweepstakes solicitations have reached epidemic proportions.
That mail is not simply a nuisance. It is not simply junk mail. In too many cases
it's outright consumer fraud. And in too many cases it causes severe financial harm
to those who are the most vulnerable — the elderly.
Since I began speaking about this "New Jersey epidemic", I have heard stories
which I would have found unbelievable had we not investigated and obtained proof.
The niece of an 83-year old Woodbridge, New Jersey man came to us to say that
since she had begun helping her uncle do his "bookkeeping" (paying household bills)
she realized that during 1992 alone, he had spent over $20,000 on sweepstakes, con-
tests and foreign lotteries.
I have with me the 22 pounds of mail this gentlemen received just in the month
of January, '93. Since he would enclose a check with each envelope, he began receiv-
ing up to seven and eight duplicates a day. It is illeggd in New Jersey to notify
someone they have won a prize and then require them to pay money to get it.
Madam Chairwoman, if this is not a consumer protection issue, it certainly is an
environmental protection issue.
I am joined here today by 2 New Jersey consumer's who wanted to tell their sto-
ries. Let me tell about two others who could not be here today.
A son helping out his hospitalized father, found over $45,000 worth of canceled
checks written to sweepstakes companies. The father had written so many checks,
he didn't even bother to record them all in his checkbook.
The friend of a 90 year old woman told us that prior to entering a nursing home,
her elderly friend spent $49,000 entering sweepstakes and buying "expensive" mer-
chandise in order to win a prize. We went to the woman's home and we now have
a small room full of the merchandize she had to purchase in order to become eligible
to "win" a prize. Costiune jewelry, pens, cleaning fluid, coupons, — all of it together
can't possibly be worth more than $1,000. But she spent $49,000 to get it.
What drives this epidemic? List brokering. The buying, selling and trading of
lists. Lists containing age and zip code data, overlayed with census data, donor lists,
veterans lists * * * department store credit card customer lists, cable T.V. subscrib-
ers, credit reporting agency lists containing the most sensitive consumer information
available.
It is my view that the buying and selling of lists is the cause of more consumer
fraud than any other single factor. Telemarketing fraud, 900 number operations, ad-
vance fee loan broker activity, and so on.
And it's not just the private sector that's selling. New Jersey is one of a very small
number of states that does not sell its motor vehicle data for commercial purposes.
36
Even the postal service sells lists of consumers who have registered a change of ad-
dress.
Consumers have a right to know information they are giving to a business or to
government is going to be sold and consxuners should be given the opportunity to
"opt out."
Some companies already offer opt-out options. I urge the postal service to join that
list. Before a company or an agency makes a list available, they must be required
periodically to ask consumers to affirmatively "opt out".
My second suggestion to you would be to help us crack down on foreign lottery
soUcitations. There are at least a dozen foreign lottery mail appeals in this 22
pounds. Requesting money to buy foreign lottery tickets is a violation of both New
Jersey and Federal law. We are powerless to take action against foreign operators.
We have no ability to enforce judgements or request injunctions. The Postal Service
can issue foreign Fraud Orders against illegal maiUngs from foreign operators.
These orders wiU allow the Postal Service to intercept any mail sent to the foreign
lottery stamp on "Foreign Fraud" and return to sender. The State of New Jersey
could use a liaison in the Chief Inspector's Office to help process these complaints
and issue orders where appropriate.
Finadly, Federal suits. States are currently discouraged from going after compa-
nies located in other states because of difficulties in enforcing judgements across
state Unes. Our ability to combat mail fraud would be greatly enhanced if we were
allowed to take action against fraudulent sweepstakes in Federal coiuls.
Miss Collins. Thank you very much. Groing to your foreign lot-
tery tickets, you say it's against the law, both Federal law and New
Jersey law to request money for lottery but you're unable to do
anything about the mail that comes in. Isn't the mail usually writ-
ten on the front of the envelope that it's a lottery?
Ms. Byrne. We could go through some of this and I will leave
some of this for your committee. The lottery in New Jersey, be-
cause we have such an active lottery, prohibits competing lottery
activity. I believe the problem exists when consumers, if it is not
clearly marked in terms of envelope solicitation and direct mail,
that when they send these checks and return to foreign addresses,
that is, I think the point where we need to have the post office at-
tempt to intercept, once some of these have been identified and be
able to be returned.
Miss Collins. I brought my own show and tell. I got a sweep-
stake notification and if I had matched one of five numbers I'd won
about $50,000 I think, and I matched one of the numbers, but I
didn't have to send any money. They just encouraged me very
strongly to buy a piece of jewelry for $18. And I read this carefully.
I read this as carefully as I do legislation and I still believe I won.
According to all of this stuff, I'd won.
Ms. Byrne. And it doesn't require your participation by purchas-
ing?
Miss Collins. Actually, I believe they're getting quite smart be-
cause, "Furthermore, although no purchase" — no. It's $5,000 cash
award. "Although no purchase or obligation is required in order to
win and claim the $5,000 cash award, please order at least one."
Then there's an affidavit claim form. A five thousand dollar affida-
vit claim form. So I guess I won.
Ms. Byrne. Well, I think it goes beyond though. First of all, I
think most customers are probably very familiar with a nationally
known sweepstakes offer solicitation that thousands of those re-
turned claim forms were found along a highway in Long Island and
in that case, I believe it was a magazine entry. And so while the
solicitation as your received said "No purchase required in order to
be entered into the contest," these mail bags of entry forms were
37
found along the highway and the company entered and made a spe-
cial effort and was required in the settlement to compensate and
to enter those people in that drawing in a separate drawing.
I think what consumers need to know, in addition to what you
have read in that particular solicitation, is really I think an enor-
mous amount of consumer disclosure in any of these solicitations.
What are the odds of winning in terms of therefore what are the
number eligible, what's the size of the universe that's eligible that's
entered or a reasonable estimate thereof? What is the date of the
drawing? How long does this contest go? How long are we going to,
you know, use this promotion before we determine and pick a win-
ner? What is the value of the prizes and by value it should be what
an item really actually costs in a local market for sale, a realistic
price. And then the requirement, I think, to disclose you must pay
X number of dollars to win this item in very clear, conspicuous and
easy to read, easy to fmd, easy to understand terms, or you must
pay to make a purchase to receive this item, if that's the case. So
I think what we need to be moving toward is more consumer disclo-
sure. But, beyond that, I think you need to fmd root causes and
root causes, I believe, are the sale, the list, the trading, the buying
of lists, and where government is involved in helping to foster and
to feed this kind of activity where public sector is involved, whether
it's motor vehicle divisions or postal service, that's where I feel that
we have an obligation to step in and to ask questions.
Miss Collins. Also the census. The census sells their lists.
Ms. Byrne. Exactly. Sells data which is then overlaid on other
data lists, databases, and you can very easily target age. Age is a
very valuable commodity to buy. Current zip code data is a very
valuable commodity. Income levels. Socio-economic.
Miss Collins. Do you think they prey on the elderly?
Ms. Byrne. There's no question in my mind. There's no question
in my mind.
Miss Collins. These sweepstakes, almost as though if someone
says "Send this money in now," they just automatically send it in.
I know — just to get personal — my mother is so conscientious about
paying bills that she pays her bills before she pays her rent. So if
someone sends a notice like a bill
Ms. Byrne. Exactly.
Miss Collins. I'm so fearful that she would just pay that, and
I had to catch the hospital bills because they send the bills, even
though Medicaid is paying or the Blue Cross is paying but they
still bill the senior citizen. And I called one day to ask "Why did
you send my mother this bill?" and they said "Well, just in case
Medicaid doesn't pay it quickly enough, she can pay it and then
they'll reimburse her." But they won't reimburse her unless she
asks them to reimburse her. And that's a type of mail fraud and
that's perpetuated by hospitals.
Ms. Byrne. Exactly. That's really, I think, the
Miss Collins. And doctors, and this is really far-reaching, isn't
it?
Ms. Byrne. I characterize it as an epidemic and that's why 900
number telephone activity was so tough to fight because you're ab-
solutely right. Seniors, particularly when it comes to their tele-
phones and they don't want their telephones closed, so if there is
38
a 900 number to call. We closed down an operation in New Jersey
last year. There was a massive direct mail campaign directed
through a 900 number telling people you had a package waiting for
you, a delivery, final notice. And it was done on a green look-alike
post office, U.S. Post Office look-alike package delivery waiting
postcard. Final delivery attempt. All of the right language. And call
this 900 number and you will receive delivery on your package. We,
because of telephone records that we were able to subpoena from
MCI, long distance carriers, AT&T, over three quarters of a million
dollars on only four of those promotions in 4 months. Three quar-
ters of a million in 4 months, and they had 29 other promotions
going at the same time.
Miss Collins. Were they prosecuted?
Ms. Byrne. They certainly were.
Miss Collins. They were?
Ms. Byrne. They absolutely were. The attorney general's office
in New Jersey certainly absolutely took action.
Miss Collins. So they were in New Jersey?
Ms. Byrne. No. No. They do not mail in New Jersey. The format
is you do not mail in the State in which you have your corporate
address. You mail out of state and, therefore, you know, there are
companies — I mean advance fee loan broker operations. Again,
local ads in local newspapers that these folks described to you ear-
lier in terms of travel scams. These we called recession rip-offs.
Tight credit, and you would find these ads in local newspapers and
weekly shopper type newspapers. Need money? Tight credit? Need
cash? Guaranteed credit approval over the phone. Sure. And we
closed 11 of those operating in New Jersey, none of whom were
calling New Jersey consumers, but calling out of the State.
Miss Collins. Mr. Oilman?
Mr. Oilman. Thank you. Madam Chair.
What's the penalty in New Jersey?
Ms. Byrne. The New Jersey Consumer Fraud Act penalties, as
a matter of fact, were tripled last year by our Oovemor and so for
a first offense, it's a $7,500 penalty and we can define offense as
liberally as we choose, and up to $15,000 per offense for second and
subsequent violations.
Mr. Oilman. Is each mailing a separate offense?
Ms. Byrne. We can so determine.
Mr. Oilman. Have you determined that? They sound like pretty
reasonable fines to me, like there's not too much of a concern.
Ms. Byrne. We attempted to — ^in fact, when the attorney gen-
eral's office took action against this 900 number direct mail oper-
ation that I described to you, this package delivery service, this
post office look-alike, we went to superior court in a local county
where the business was located and we were told by the judge, in
fact, that we were too greedy. So our settlement offer was modified,
if you will, but we attempt to not make this a cost — fines and pen-
alties, not make it the cost of doing business and allowing people
to just build it into the cost of doing business. We want it to cost
real money and we want consumer restitution. We had attempted
to do that with these solicitations.
Mr. Oilman. What's the heaviest fine that you've imposed?
39
Ms. Byrne. It had to do — well, in the history of our agency, it
had to do — last year our Office of Consumer Affairs conducted a 4
month undercover investigation of the auto repair industry in our
State and that resulted in the Sears Roebuck settlement agreement
and it has cost Sears multi-millions of dollars to do consumer res-
titution. That is probably the largest case that we certainly have
ever had but it's had national implications. Beyond that, I would
presume that this direct mail, this 900 number activity, was a
§100,000 settlement and that is, I think, the largest in the 22-year
history of consumer affairs.
Mr. Oilman. Aside from the fine, is there any criminal violation?
Ms. Byrne. We did not prosecute this — ^the attorney general's of-
fice did not prosecute this direct mail — ^this 900 number activity
criminally.
Mr. Oilman. Is there a criminal violation on your books?
Ms. Byrne. Our attorney general's office could impose criminal —
could impose. For fraud, yes, there are criminal sanctions.
Mr. Oilman. And had those been utilized at all?
Ms. Byrne. Not in this particular case.
Mr. Oilman. In any of the consumer mail cases that you're aware
of, has the criminal
Ms. Byrne. This is really something that we and that I've just
begun to focus on and to identify the scope and the size of the prob-
lem as it exists in the State I would say within the past 6 or so
months and have been stunned by the number, by the proportion
of activity, by the volume of activity and the depth of personal
consumer harm.
Mr. Oilman. Ms. Byrne, is there something that you would rec-
ommend to this committee that we can be more helpful in what
you're doing?
Ms. Byrne. I would suppose that my recommendations would be
that the Postal Service, I mean particularly having to deal with
this committee, that the Postal Service and all public entities con-
sider very carefully the need, the necessity to sell data and that it
must be available by virtue of right-to-know laws and public infor-
mation requirements, then that consumers be allowed the oppor-
tunity periodically to opt out and if it's by way of a checkoff either
through your department store credit cards periodically, do not sell
my name, I do not wish my name to be bought and sold. Check
that box. That if a post office, the Postal Service sells consumer
names, that consumers be so notified and be allowed the oppor-
tunity to say no. And that both public and private sector be re-
quired to offer that.
Mr. Oilman. To your knowledge, is the post office selling any
lists?
Ms. Byrne. Yes. In the instances of change of address requests.
Mr. Oilman. Besides change of address requests?
Ms. Byrne. Beyond that, I'm not aware of any other selling.
Mr. Oilman. You had stated that the State of New Jersey could
use a liaison in the chief inspector's office to help process com-
plaints. Can you share with us the procedure that you presently
use when bringing these matters to the attention of Postal Inspec-
tion Service?
40
Ms. Byrne. That we have a postal — regional postal inspector
that we deal with and my sense is that there needs to be some
central repository, that if we had an established liaison, particu-
larly for foreign lottery mail, and that was the context within
which I had made that recommendation.
Mr. Oilman. And what's been the response?
Ms. Byrne. But for — I'm sorry.
Mr. Oilman. What has been the response to that request?
Ms. Byrne. I'm making this request to this committee today.
Mr. Oilman. Oh, you hadn't made it previously?
Ms. Byrne. Formally, no, not prior to this.
Mr. Oilman. What you're essentially saying is a postal inspector
assigns someone to this kind of fraud.
Ms. Byrne. Yes. To be the central repository for this type of ac-
tivity nationally.
Mr, Oilman. Is there that much activity that would require a
full-time person to address these problems?
Ms. Byrne. This is the mail for one gentleman for the month of
January alone. I think it's an enormous problem.
Mr. Oilman. Is that box filled with just foreign mail?
Ms. Byrne. No. That box is filled with everything. It is 22
pounds of all types of sweepstakes offers. I think the box contains
11 different foreign lottery appeals. A dozen. I'm sorry. Foreign lot-
tery mail-ins in this 22 pounds.
Mr. Oilman. Based upon the experience of your office and the
knowledge you have, could you prepare for our committee a break-
down of the various kinds of solicitation?
Ms. Byrne. Oh, absolutely. We've done that with this package
here and we'd be happy to send you that profile.
Mr. Oilman. I'd appreciate receiving that. With your permission,
Madam Chair, I'd like to make it part of the record.
Miss Collins. Yes.
Mr. Oilman. Thank you. Thank you. Madam Chair.
Miss Collins. Thank you very much.
[The information referred to follows:]
41
#tat* of 5Jeui dersey
DEPARTMENT OF LAW AND PUBLIC SAFETY
ROeEHTJ.DELTUFO
DIRECTOn
IILING ADDRESS
JUN21ig93
9{m.9af6am4(fstCotBtis
June 15, 1993
Representative Barbara-Rose Collins, Chairperson
Postal Operations and Services Subcommittee
406 Cannon House Office Building
Washington, DC 20515-6246
Dear Representative Collins:
I again would like to thank you for inviting me to speak before your committee on
May 19. Since that time, the Division has continued to gather information on illegal direct
mail solicitations.
Attached is a list of foreign lottery companies that have been soliciting money from
New Jersey residents. I have forwarded this list to the Inspector General of the Post Office.
I also have attached a catalogue of the 426 letters that David Gerity of Woodbridge,
New Jersey received in a one month period. As I mentioned before your committee, he
eventually spent over $20,000 on these offers. I will send you additional information on our
investigations as they progress.
Again, thank you for your interest in this matter.
Sincerely,
Emma N. Byrne
Director
Qoe^-^\^)' <o|^
iVew Jersey Is An Equal Opportunity Employer
42
Foreign Lottery Companies Soliciting in the U.S:
1. Winning Advantage, Queensland, Australia
2. Winning Advantage Australia, Richmond, B.C. Canada
3. Winner's Marketing Inc. Vancouver, B.C. Canada
4. Winner's Circle International, Vancouver, B.C. Canada
5. Project Rainbow, Vancouver B.C. Canada
6. Australian Lottery Billionaires Club, Vancouver, B.C. Canada
7. New Eagle/Gail Howard, Vancouver, B.C. Canada
8. Canadian International Lottery Agency,Vancouver B.C. Canada
9. Intercontinental Millionaires Club, Burnaby, B.C. Canada
10. Australian International Lottery Federation, Fortitude Valley,
Australia
43
State of New Sersey ^iiHZl MOa
DEPARTMENT OF LAW AND PUBLIC SAFETY ^^
EMMA N BYRNE
LOCATION:
124 HALSEY SmEET, 7TH FLOOH
June 9, 1993
Chief Postal Inspector
Kenneth J. Hunter
475 L'Enfant Plaza. SW
Washington, D.C. 20260-2100
Dear Mr. Hunter,
I recently testified before the Postal Operations and Services
Subcommittee of the House of Representatives concerning a number of
seniors in New Jersey who have lost large sums of money entering
contests, sweepstakes, and foreign lotteries. Attached are examples of 10
mailings encouraging New Jersey residents to purchase foreign lottery
tickets. They were mailed by:
1. Winning Advantage, Queensland, Australia
2. Winning Advantage Australia, Richmond, B.C. Canada
3. Winner's Marketing Inc. Vancouver, B.C. Canada
4. Winner's Circle International, Vancouver, B.C. Canada
5. Project Rainbow, Vancouver B.C. Canada
6. Australian Lottery Billionaires Club, Vancouver, B.C. Canada
7. New Eagle/Gail Howard, Vancouver, B.C. Canada
8. Canadian International Lottery Agency, Vancouver B.C. Canada
9. Intercontinental Millionaires Club, Bumaby, B.C. Canada
10. Australian International Lottery Federation, Fortitude Valley,
Australia
New Jersey Is An EquaJ Opportunity Employer
44
I appreciate any efforts you can make to assist us in stopping these
solicitations. Thank you for your cooperation.
Sincerely,
Emma Byrne Q
Director
New Jersey Division of Consumer Affairs
Enclosures
cc: Congresswoman Barbara-Rose Collins v
45
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46
$29.95 for lottery tickets
$9.95-$81.00 for lottery tickets
$29.95 for lottery tickets
$9.95-$81.00 for lottery ticket packages
$29.95 for lottery tickets
$29.95 for lottery tickets
$20-$50 for lottery tickets
$29.95 for lottery tickets
$29.95 for lottery tickets
$89-$399for loltBry tickets
$29.95 for lottery tickets
$59-$399 for lottery tickets
$29.95 for lottery tickets
i
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1
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$15 membership fes
$29.95 for Gin-sing
$35-$350 for lottery tickets
$3S-$350 lottery tickets
$35-350 for lottery tickets
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Washington D.C.
DC, Washington
DC, Washington
DC, Washington
Florida
FUDania
FL, Miami Beach
Delta
Delta
Delta
Delta
Delta
Richmond
Vancouve
Vancouve
Vancouve
Vancouve
Vancouve
Vancouve
Vancouve
S > > ;
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
,Britlsh Columbia
iiii
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Winning Advantage , Australia
Fortunes Unlimited
Winning Advantage Australia
Fortunes Unlimited
Winning Advantage Australia
Winning Advantage Australia
Project Rainbow
Winner's Mariteting Inc.
Winner's Circle
Customer SeniiceB
Can-Win
ThB Lotttsry Connection
Winners Circle International
1
1
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Office of Lottery IntBlligBnce
Jenasol
Australian World Lotto Syndacale
AWLS
AWLS
47
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$1-$25 elgibility fee
$1 - $15 elgibility tee
$1- $35 entry fee
$1- $25 entry tees
$1-25 entry fee
$2-30 entry fee
$1-35 registration
$1-35 registration
$5-20 registration fee
$5-25 judging fee
$1-35 registration
Ask for donation
.4o-$1.50 a week
$29.97 for a book
$5-$25 for crossword
$5-$30 for crossword
$5-$25 for crossword
$5-$25 for crossword
$5-$30 for crossword
$5-$30 for crossword
$5-$30 for crossword
tie breaker contest fee of $1.00
$5-$25 tor crossword
$5-$25 for crossword
$5-$30 for crossword
$5-$30 tor crossword
$5-$30 for crossword
$5-25 tor crossword
$5-$25 for crossword
$15-$20 judging fee
$S-$30 tor crossword
5-30 for crossword
5-30 for crossword
|$15 Judflinfl fee 1
« cc.., « „.<o. ..„.,«......«.
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
North Kansas City
Montana
Ashland
New Jersey
East Hanover
Springfield
Nevada
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Vegas
Las Veqas
Las Vegas
I9lil9lil9l9lililililililil 1^1 \M\ Iilglili1i1glilililililllil§lil§lilil
Contest America Publishers
Contest and America Publishers
Opportunities Unlimited Publications
Contest and America Publishers
Opportunities Unlimited Publications
Opportunities Unlimited Publications
Opportunities Unlimited Publications
Opportunites Unlimited Publications
Contest and America Publishers
Opportunities Unlimited Publication
ST. Labre Indian School
Winner's Network
Boardroom Classics
Cash and Merchandise Claim Dept.
Cash Express
Mega Bucks
MegaBud<s
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept
Contests Winners Circle
Mega Bucks
Cash and merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Calim Dept
Mega Bucks
Cash and Merchandise Claim Dept.
Cash and Merchandise Calim Dept
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
49
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$5-30 swsepstakes
$5-30 sweepstakes
$5-30 for crossword
$5-30 for crossword
$6.97 processing fee
$5-30 for crossword
$5-30 for crossword
$5-30 for crossword
$5-30 for crossword
$5-30 for crossword
$5-25 for crossword
$5-30 for crossword
$15 registration
$5 accounting fee
$5 judging fee
$5-30 for crossword
$52-980 tickets
$5-$25 for crossword
$5-$25 for crossword
$11.97 for necklace
$11.97 for necklace
order items from catalog/register for contest
cost of perfume
$25- $100 for meat
Ask for donation
$4.95-$6.95 for perfume
$7-19 processing fee
price of videotapes
$7-$19 entry fee
$21.95 lottery tickets
Book Offer
Ask for donation
$2-$14 for lucky numbers
$10-$20 donation for sweepstakes
NV. Las Vegas
NV. Las Vegas
NV. Las Vegas
NV, Las Vegas
NV, Las Vegas
NV, Las Vegas
NV, Las Vegas
NV, Las Vegas
NV, Las Vegas
NV, Las Vegas
NV. Las Vegas
NV. Las Vegas
NV, Las Vegas
NV. Las Vegas
NV. Las Veqas
NV. Las Vegas
NV, Las Veqas
NV, Las Veqas
NV. Las Vegas
NV. Las vegas
NV. Las vegas
New York
NY, Bohemia
NY, Bohemia
NY. HicksvillB
NY. Hicksville
NY, New York
NY, New York
NY, Niaqna Falls
NY, Pamona
NY, Pleasantville
NY, Pomona
NY. Ronkonkoma
Pennsylvania
PA, Camp Hill
PA, Philedelphia
Panama
Cash and f^terchandisB Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Prize Payout Office
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim DepL
Cash and Iwterchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Cash and Merchandise Claim Dept.
Mega Bucks
Howard R. Mathews
Howard R. Mathews
CVP Sweepstakes Department
Comptrollers Dept.
Franciscan Missionary Union
Franciscans Missionary Union
Hallbrook Productions
Sweepstakes Direct
Readers Digest
Sweepstakes Direct
Irish Marketing Board
Book of the Month Club
Missionary Servants from Philly
Cancer Fund of Amertea
51
$46.40 for meat
$19.95 lucky «-s
$29.95 for lottery tickets
$15-25 judging fee
donation for a $5000 drawing
$29.95 tickets
Panama, Zone 1
Tennessee
TN, Knoxvllle
Utah
UT, Rtehmond
Virginia
VA, Fairfax
VA, Sterling
Washington
WA, Blaine
WA, Blaine
WA, Seattle
WA, Seattle
Harrington's
United Seniors Assoc. Inc.
Center on Numerology Studies
The Lottery Connection
The Lottery Connection
P«rfic West cancer Fund
Cancer Center for Detection
52
53
54
WFTKBY TICKETS THAI CAW ]
Aufltralian Lotto
6/48Tlck«U:
Canadian Provincial
TlekeU:
Australian
Scratch 'NTmn
This is an incredible new game that gives you a special "bonus"
chance of winning on every ticket. Each ticket is worth
1 MTT.T.Tnw DOT J .A BR and you choose 6 numbers per ticket. But
what makes this such a "winnable" game is that the Australian
Government draws 6 numbers plus two bonus numbers.
Plus... there are cash payouts even if you hit as few as 3
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even if you don't hit the jackpot!
Here's a game that you'll probably never see in U.S. Lotteries.
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each ticket is valid for 4 CONSECUTIVE WEEKS. That meajis you
have 4 chances to win. And again - there are cash payouts for
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These tickets are great fun but what makes them even more
exciting is that you can win $25,000.00 instantly on everv
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money immfidiatfilS. millions OF DOLLARS... immediately... VnTH NO WAITING. No
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BOW WOULD YQ? UM TO BBCQME A $ 10 Mn.T.TON POT.T.AB
maiAHT LOTTEgY WXWMiSat
Maine rp at.t. happictj tqdaY BY REQTSTKRTWn AS A CHABTEB MmwroiTO OF THTi
■T.Tmganiw'H «nnT.n nT.TTH" nw «htt.vht» hi.tth"!
You now have your choice of registering as a "Gold Club" or "Silver Club" Member - and
in so doing - taking advantage of a limited opportimity to enter the Canadian Lottery and win
up to $10 MILLION DOLLARS or morel This offer is not available to the U.S. General Public
at large. It is for select friends of WINNING ADVANTAGE only and you are now being
officially notified of your eliglbUlty.
To ticcept, simply peel off the stamp of your choice on the other side of this letter (either
"Gold Club" or "Silver Club") and affix it to the appropriate place on your Registration Form.
Then follow the instructions and mail your Registration Form along with your payment in
the courtesy reply envelope provided. OR FOR FASTEST SERVICE, CALL TOLL-FREE
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Either way, you'U be making a wise decision by JOININQ NOW, whUe WINNING
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Sincerely,
Allan Hinton, President
WINNING ADVANTAGE AUSTRALIA
P.8. Look for your special INSTANT SCRATCH-OFF Ticket foimd Inside this envelope. It could
be worth $80,000.00 tc you... so make siire you playll
55
CONFIDENTIAL INTERNATIONAL LOTTERY REGISTRATION LETTER
No. 990, 5010 • 48th. AvMMM. Delta, B.C. Canada V4K4V6
OFFICIAL NOTICE OF PLAYER SELECTION AND ELIGIBILITY
DAY: Tuesday, 10:30 a.m.
AUTHORIZED BY: Allan Hinton
ATTENTION
■tional law and !• Intended Mleiy
the United States
of America
YOU ARE NOW ELIGIBLE TO WIN UP TO
$10 MILLION DOLLARS
OR MORE AND THE BEST PART IS...
Ifs TAX-FREE and Paid In ONE LUMP-SUM
GOLD
CLUB MEMB
GotocLOBOfloenpu— .
FOR SELECT U.S. CITIZENS ONLY
Not Avallabto to Uw U.S. General PuMIe at large
DRQENT:
Your name has been selected and you are now eligible to enter the International Lottery
where you can win up to $10 Million Dollars or more, with all cash guaranteed by the
Government and paid to you in T.TTMP-fiTTM. TAX-iyRKF! money.
Already U.S. Citizens who have entered have won nearly two milUon cash prizes with
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And just think... when you win in the International Lottery, you will receive a Certified
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no more rat race and no more living from month to month. YOU'RE A MILLIONAIRE! I
WHY HAVR YOn RECEIVED THIS OFFICIAL LETTER?
You're probably wondering why you have been mailed this International Letter? It's
because your name was on our special list of U.S. Lottery Players marked "PRIORITY"... and
that means as an avid lottery player and friend of WINNING ADVANTAGE you are among the
first to be notified when new opportuniUes for winning $10 MilUon Dniinrg or more are made
available.
Your exclusive ellglbUlty status allows you to now join WINNINO ADVANTAGE as a
Charter "Gold Club" or 'BUver Club" Member.
Please notice above the two stamps which are marked GOLD CLUR m^mrbr and SILVER
r.T.rm mf-mbbr respectively. These are your personal, non-transferable "eligibility" stamps
which aUow you to officially join WINNING ADVANTAGE as a "Gold Club" or "Silver Club"
Member. With either membership your chances have never been greater for winning
MILLIONS OF DOLLARS In lump-sum, tax-free moneyl
The reason Is simple. There are a limited number of Memberships now being offered to
friends of WINNING ADVANTAGE and those who take advantage immftriiatoiy have an
incredible opportunity to get PJCHI
With either a "Gold Club" or 'Silver Cltib" Membership, the assortment of Lottery
Tickets which you will receive will automattcally put you In a position to become an Instant
MULTI-MILLIONAIRE.
56
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MARK 6 NUMBERS IN EACH OF THE 10 BOARDS BELOW
ll0 2o[x!40
MILLIONAIRE'S
"GOLD" CLUB
Here's how to pick your
Lotto 6/45 Numbers...
3io
20
30
40
Qio
20|X40
10
20
3o!40
010^3^
20130
40
1
21
22
31
32'
41
42
111
21131141
V11
^
3141
l^iV
3141
ijii
21J31
41
iy2b42
2h2 22
32142
2|l2i22
32 42
212
22:32
42
3 13
23
33
43
3 13 2313343
3ll3!23'33i43
|3|l3|23
33 43
3 13
23I33
43
44
24 34 44
7*14
24 34144
4 ■ ■ '
14l24
34144
|4|14|24
34 44
4 14
24134
44
5 15
25 3545
5115
25 35145
s
15|25
35 45
5 15 25
35 45
55
25135
45
6 16
26 36
6 16
26 36|
e
16126
36
!6|16
26
36
6 16
26!36
7 17
27 37
7 17
27 37|
7
17J27
37
7jl7
27
37
7 17
27 37
8 18
Wm
8 18
28 381
8
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38
8118
28
38
8 18
28|38
9 19
29 39
9 19
29 391
9
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29|39
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uE&iidli]
i. ON EACH BOARD CHOOSe 6 NUMBERS FROM 1 TO 45
BY PLACING A VERTICAL PEN STROKE IN THE
APPROPRIA TE BOX AS SHOWN.
3. RETURN THIS COMPLETED ENTRY FORM ALONG WITH
YOUR «9.95 PA YMENT IN THE COURTESY RETURN
ENVELOPE PROVIDED.
OR fOR FAST SAUE-OA Y SERVICE ON CKeOTr CARD ORDERS.
CALL TOLL-FREE: 1 •800^28-5825 Ext 18
[H Check Box Here If You Would Prefer Your
Numbers To Be Computer-Selected For You.
5 aixVor changes 10 al
Detach and return this Top HaK of Order Form if joining as a '^old Club" Member
IN EACH OF THE 8 BOAMIS BELOW
Hh» An Your Austnllan LOTTO V45 GAME BOABDS
H You An Registering As A Cftartsr Mcmtier Of TTW
MILLIONAIRE'S
"SILVER" CLUB
ONE MILLION
DOLLARS!
TAX-FREE..LUMP-SUM
Here's how to pick your
Lotto 6/45 Numbers...
Toa
2. ON EACH BOARD CHOOSE 6 NUMBERS FROM 1 TO 45
BY PLACING A VERTICAL PEN STROKE IN THE
APPROPRIATE BOX AS SHOWN.
3. RETURN THIS COMPLETED ENTRY FORM ALONG WITH
YOUR t29.9S PA YMENT IN THE COURTESY RETURN
ENVELOPE PROVIDED.
OP FOR FASTS^ME-Oi Y SERVICE ON CREOfT CARO OflDMS.
CAU TOLL-FREE: 1-800-828-5825 Ext. 18
; "I Check Box Here H You Would Prefer Your
Numbers To Be Computer-Selected For You.
NOTICE: We n
Detach and return this Bottom Half of Order Form if joining as a *^ih/er Club" Member
61
OFflCtAL MTtRNATIOHAL LOTTtHY RtiilSTRAIIQN OOCKtl fOR
MILLIONAIRE'S "GOLD" CLUB ORDER FORM
THIS COMMUNICATION IS RESERVED EXCLUSIVELY FOR:
SPECIAL "GOLD" CLUB OFFER INCLUDES:
e Australian Lotto 6/45 Tickets
2 Canadian Provincial Ticket
10 Australian Scratch N' Win Tickets
PLUS 2 FREE LOTTO 6/45 TICKETS
AND 1 FREE SCRATCH N' WIN TICKET
TOTAL U.S. PRICE:
David Gerity
160 Bergen St
Woodbridge NJ
CONFIDENTIAL
OmCIALNOTlCE
IMPORTANT: THIS IS THE ORDER FORM YOU SHOULD USE IF YOU ARE REGISTERING
AS A CHARTER MEMBER OF THE MILLIONAIRES "COLD" CLUB.'
***SEE OTHER SIDE TO COMPLETE YOUR "GOLD" CLUB LOTTERY GAME BOARDS!***
rH YES! I want to become an tNSTANT OVEHNIGHT MILLlONAinE In the International
Lottery. Phase enroll me as a Charter Member ot your exclusive Mlt-L10NA1R6S "GOLD"
Charter Member of the
MILLIONAIRE'S
GOLD CLUB
m
■•JIJ.mJ^!lJ^!4iHJ!l.l,MJ:!A'iANJH
n I have encloaeO a Check or Money Ofdw in the amount otMS.SS, payable to: I.I
Please charge my D Visa D MasterCard O American Ejqorass
I I I I I I I I I I I I I I I I I
TTT1
SIGNATURE (X)
Do you have a credit card (a MasterCard or Visa)? G Yes D No
For Same Day Service On Credit Card Order*,
CALL TOLL-FREE: 1-800-828-5825 Eirt. 18
OFFICIAL mraiHATIOMAL LOTTBftY REOISTfUTfON DOCKET FOH
MILLIONAIRE'S "SILVER" CLUB ORDER FORM
THIS COMMUNICATION IS RESERVED EXCLUSIVELY FOR:
SPECIAL "SILVER" CLUB OFFER INCLUDES:
• 6 Australian Lotto 6/45 Tickets
• 1 Canadian Provincial Tickets
• 5 Australian Scratch N' Win Tickets ^^
• PLUS 2 FREE LOTTO 6/45 TICKETS of
TOTAL U.S. PRICE: $29.^5
CONFIDENTIAL
David Gerity
160 Bergen St
Woodbridge NJ
OFFICIAL NOTICE
IMPORTANT. THIS IS THE ORDER FORM YOU SHOULD USE IF YOU ME REGISTERING
AS A CHARTER MEMBER OF THE MILLIONAIRES "SILVER" CLUB.'
***SEE OTHER SIDE TO COMPLETE YOUR "SILVER" CLUB LOTTERY GAME BOARDS!***
MiLLIONAiRE'S
SILVER CLUB
I J YES! I want to become an INSTANT OVERNIGHT MILLIONAIRE in the !i
l."ttory. Please enroll me «s a Charter Member of your ercluslve MILUONAIRE'S "SILVEH"
* CLUB and process my order ImmedUrtely, I understand when I win the International Lottery
1 one Lump-Sum and ft will be pah) In lull Tax-Freel
rrrm
j IhaveeocksedaCha-.k!
Ple»« charae my LJ Visa
Money Order In the amount of S!«.95, payable to. LBM. Corp.
. ' tSflitsrCard ■ .. AfT'Srican Express
cnxriixi:
Tu.n
M'm.
Do you havo a credit card (a MasterCard or Visa)?
For Same Day Service On Credit Card Ordera,
CALL TOLL-FREE. 1-800-828-5825 Ext. IS
^
FSOK eouwM
62
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Australian Lottery Confirmation Certificate
l^^nning Advantage Australia
No. 94632, 6871 No. 3 Road, Richmond, B.C. Canada V6Y 3X3
ACCOUNT NUMBER
Jan 14/93
David Gerity
160 Bergen St
Woodbridge NJ
OFFICIALLY ENTERH) INTO ALL LOTTO 6/45 DRAWS
FROM: Jan 23/93 TO: May 05/93
07095-1803
I CONGRATULATIONS and welcome to Winning
1 Advantage Group Play Plan. You are now a part
i of an odds-beating group of 250 Lotto 6/45 Players.
„_„, ' Your group has thousands of chances at winning your
YCOl j^e „f niore than 300 MILLION DOLLARS! You
1 have actually improved your odds of winning
Australia's celebrated Lotto 6/45 by 250 TIMES!
The 84 sets of mathematically selected numbers for your group are listed below. These numbers are entered for the
next 30 Lotto 6/45 prize draws. Our computer system will track every winning number drawn and all wiimings will
be automatically credited to you. Then, every 10 draws you can watch your mailbox for the most exciting pwt of «U...
the official list of winning numbers and a statement of your winnings!
8 23 25 33 34 35
8 23 25 33 34 38
8 23 25 33 34 42
8 23 25 33 34 45
8 23 25 33 35 38
8 23 25 33 35 42
8 23 25 33 35 45
8 23 25 33 38 42
8 23 25 33 38 45
8 23 25 33 42 46
8 23 25 34 35 38
8 23 25 34 36 42
8 23 25 34 35 45
8 23 25 34 38 42
8 23 25 34 38 45
8 23 25 34 42 45
8 23 25 35 38 42
8 23 25 35 38 45
8 23 25 35 42 45
8 23 25 38 42 45
8 23 33 34 35 38
8 23 33 34 35 42
8 23 33 34 35 45
8 23 33 34 38 42
8 23 33 34 38 45
8 23 33 34 42 45
8 23 33 35 38 42
8 23 33 35 38 45
8 23 33 35 42 45
8 23 33 38 42 46
8 23 34 35 38 42
8 23 34 36 38 45
8 23 34 35 42 45
8 23 34 38 42 46
8 23 36 38 42 46
8 25 33 34 35 38
8 25 33 34 36 42
8 26 33 34 35 45
8 25 33 34 38 42 •
8 25 33 34 38 45
8 25 33 34 42 45
8 25 33 36 38 42
8 25 33 36 38 46
8 25 33 36 42 45
8 26 33 38 42 45
8 26 34 35 38 42
8 25 34 36 38 46
8 25 34 36 42 45
8 25 34 38 42 45
8 25 35 38 42 45
8 33 34 35 38 42
8 33 34 35 38 45
8 33 34 35 42 45
8 33 34 38 42 45
8 33 35 38 42 46
8 34 36 38 42 46
23 25 33 34 35 38
23 25 33 34 35 42
23 25 33 34 35 45
23 26 33 34 38 42
23 26 33 34 38 46
23 25 33 34 42 45
23 25 33 36 38 42
23 26 33 35 38 45
23 26 33 35 42 46
23 26 33 38 42 46
23 25 34 36 38 42
23 25 34 35 38 45
23 2S 34 35 42 45
23 25 34 38 42 45
23 25 36 38 42 45
23 33 34 36 38 42
23 33 34 35 38 45
23 33 34 35 42 45
23 33 34 38 42 46
23 33 36 38 42 45
23 34 35 38 42 45
26 33 34 35 38 42
25 33 34 35 38 46
25 33 34 36 42 45
25 33 34 38 42 45
25 33 35 38 42 45
25 34 35 38 42 46
33 34 36 38 42 46
/ REFEBENCE
DESCRIPTION
PBIZE
C«»GE
AMOUNT ^
100027*043
1 LOTTO 6/45 GROUP PLAY PLAN NO: 100395
Encloied ii your FREE prize - 1 Free Strike it Rich
Your FREE personal 6/45 Ticket nuabert for 01/23/93 are:
4 22 24 29 32 42
(Page 1 of 1)
29.95
mEVK)US»l>»CE 1 C>5HF0RP»IES | PlYKENTSOH/ICC- | K-Mi { PU«»>SES | C»R^ES
NtWBAUNCE
-29.95 1 + 29.95 j 29.95 .
VI 1 II 1
You owe u« 1 -29.95
1 y
To be eligible, mail this certificate with t/oi<r paid lottertf order before:
February 8, 1993
Register fo;V37024245 YCOl
David Gerity
160 Bergen St
Woodbridge HJ 07095-18
Total potential prize sum of
IT E ]\r JVT I L L I CZ> KT
FREE LOTTO ENTRY
$10,000,000.00
ry izy L L ^^ n s
This FREE LOTTO ENTRY for a $10,000,000.00 Jackpot is reserved especially for you!
Detach and return this certificate with a Winning Advantage order and payment
and YOU are automatically in the draw.
64
THIS IS^itrtJKTeMGIAt^UStRAUAN L^
Keep this handy Instruction Sheet.
INSTANTStrnfdi
With an eraser or coin, rub off the "Scratch n Win" patches. You will
uncover 6 pnze amounts. If the same amount appears three times on
the same ticket, i Ol r, \ that amount.
For example - iif $10 appears three times on the same ticket vou win
$10. These cash prizes (from $2 up to $25,000) are all Instant Win
Prizes and can be claimed immediately. Remember, as these are
instant games, no winners' lists are necessary.
SHARE the WEALTH
LOTTERY GROtPriAl TLW
You are made part of an odds-beating group of 250 Lotto 6/45 players. Each group will have 84 sets of 6
numbers - all mathematically selected by our computer. Then we enter those numbers for the next 30
Lotto 6/45 prize draws. Each group will have 2,520 chances at winning a share of more than 300
MlLl K"i\ DOM ARS As soon as we receive your entry, we'll send you a complete list of your groups
numbers. Then every 10 draws (5 weeks) vou will automatically receive an Official Winning Numbers
List and a statement of your winnings to date. Once all 30 draws have taken place you will receive a F ina
Notice and a statement of your total w'
L wiimings.
Lotto 6/45
Lotto 6/45 prize numbers are drawn twice a week on Australian Television.
Each prize drawing is made up of a combination of 6 WINNING NUMBERS
and 2 BONUS NUMBERS. U any 3 numbers plus either of the bonus
numbers match on ONE BOARD you win $10.00. 1/ 4 numbers on ONE
BOARD match, you win a bigger cash prize. And so on up to b numbers. If
all 6 numbers on ONE BOARL) match aU 6 WINNING NIJMBERS, 'i Ol iVIS
IHt lACkl'Ol: You can also win a big cash Bonus Prize if on ONT BOARD,
you match 5 out of 6 drawn Winning Numbers and either of the 2 Bonus
Numbers drawn
Triple Stakes Jackpot
Your entered in to 3 of the World's biggest loHeries...Australian Lotto 6/45, .New York's Lotto 6/54, and
Canada's Lotto 6/49. You get a whoppmg 2,520 chances to win over a 20 week play period. Your teamed
up with 249 other Americans, and your group will be given 42 sets of numbers per cfraw. That's 252
chances per week and an incredible 2320 chances. As soon as your play period ends, we II send vou a
complete list of all the winning numbers drawn and a sutement of your total w innings.
Winners 200 Club
When you play the Budget, Regular, or Deluxe Plan, you pool your luck and your chances of winning
with 199 other players. We pUy your numbers for you automatically. All you have to do is sit back and
let us enter thousands of combinations for you. Every 5 weeks we automatically send you an official list of
winning numbers. Then, oiKe all 30 draws are complete, we will send you another wiiming numbers list
along with a statement showing your total winnings. We personally guarantee that your club wins a
minimum of $3,000.00 for the Budget Plan or $4300.00 for the Regular Plan or $6,000.00 for the Deluxe
"Kotiiii!\i ;,');■<.■.- our iv,";;\?,;.'i/ nior. . iikin'^ Amcncivi^
\C(\il!ln, pliniiii': lotto 6,45in:d Ir.r .\u<ii:]iuiii Lotteries."
Albn Hwlon. Presutenl.
Because Australian lottery winnings are TAX-FREE
when you win the jackpot, and you get to take
it all home in one LUMP-SUM.
Not like winning a U.S. lottery where you can lose your prize
money to taxes! What will you do with your share?
Cars, houses, vacations, clothes.. .imagine all the possibilities.
65
WINNING ADVANTAGE AUSTRALIAN ENTRY FORM
SliAEE iheWi
YES, I want to be a part of a winning group of Lotto
6/45 players wtio could share up to S - .1 f itl^ON.
□ 1 Group Entry for S2S 95 U.S. - 2,520 chances
D 2 Group Entries for S55 CO U.S. - 5,040 chances
(SAVE $4.90)
G 3 Group Entries for S81 .00 U.S. - 7,560 chances
(SAVE $8.85)
All prices tn U S tunds Handling charges included
MaKe check of money order payaDie to: l«DtM. Cof P
or CALL TOLL-FREE 1-800-828-5825 Ext. 18
1 am enclosing my personal lj Check or LJ Money Order or
cnarge my Cj VISA or i2 MasterCard or O American Express
n
n
->^--
->?--
Lotto 6/45
YES, I want to hit the JACKPOT!
□ 1 Board for 14 Draws (14 weeks) for $19.95 U.S.
(PLUS 2 extra draws FREE!)
□ 1 Board for 25 Draws {25 weeks) for $37.00 U.S.
(PLUS 5 extra draws FREE!)
□ 1 Board for 50 Draws (50 weeks) for $72.00 U.S.
(PLUS 10 extra draws FREE!)
Fill in the boxes below with your 6 lucky numbers from 1-45:
n □ □ □ n [j
or, leave it blank and our computer will pick numbers for you.
Match th« winning numbers...and YOU'RE A WINNER!
CVEHY PHIZB IS PAID OUT IN LUMPSUM, TAX-FREE CASH!
All prices in U S lunds Handling charges included
Make check or rrx^ywderpayat* 10 I.D.M. COfp
or CALL TOLL-FREE 1-800-828-5825 Ext 18
I am enclosing my personal [J Check or □ Money Order o>
oha/ge my n VISA or □ MasterCard or Q American Express
1 1 1 1 1 n M I iLnun
xg
INSTANT
fe Senate^
YES, I want to Scratch and Win INSTANTLY!
D 10 tickets for $15.00 U.S.
U 20 tickets for $29.00 U.S. - SAVE $1.00
D 50 tickets for $70.00 U.S. - SAVE $5.00
It's so easy to play, and you know
Instantly how much you've won!
EVERV PAIZE t% PAID OUT IN LUMPSUM, TAX-FREE CASH!
M pnces in u S tunds. Handling charges Included
Makecheck or moneyorderpsyablelo: I.D.M. COfp
or CAU TOLL-FREE 1-800-828-5825 Ext 18
Please have your credit card number and expiry dale handy,
I am enclosing rrry personal D Check Of O Money Order or
charge my Q VISA or D MasterCard o. D American Expri
1 1 1 1 M 1 i 1 1 M 1 II M 1
CREDfTCABO EXPIRY OAIt SIGNAtUHE
DO YOO HAVE A CREDIT CARDT Q YES D MO
TRIPLE STAKES
JAGKPOT
YES, I want to be a part of a winning group of
International Lotto players who could stiare up to
$300 MILLION.
D 1 Group Entry for $29.95 U.S. - 2,520 ctiances
D 2 Group Entries for $55.00 U.S. - 5,040 ctiances
(SAVE $4.70)
D 3 Group Entries for $81.00 U.S. - 7,560 chances
(SAVE $835)
I will r^eiva th* official Winning Numbor* ll«t* ovory 5
ENTER TODAY fo^ your chanco to WIN MILLIONS!
1Y PRIZE IS PAID our IN LUMP-SUM, TAX-fREC CASH!
ichecnorTxneyortMpayabhlKl.D.M. Corp
orCAUTOiLntEC 1-800-SM-S825 Ext ^« ,
gl*lenclosin9n
bMteKfcM.4i^.»4aAi?to..,«.a^
WINNING ADVANTAGE AUSTRALIAN ENTRY FORM
WEM:n[H
LOTTERY GROtJP PLAY PLAN
Enter 2
Get thousands of chances to WIN LUMP-SUM,
TAX-FREE CASH in Lotto 6/45 Australia's biggest
game for players who want to WIN MILLIONS.
But wait tiere's how you can get a bigger share in that $300 Million Prize Pool.
as little as $55.00 or enter 3 groivis for $81 .00! it's that simple, it's that easy!
Beat the odds and increase your chances of mailing your dreams come true with
Australia s Lotto 6/45 and Winning Advantage Group Play Pian.
When we receive your order, our computer wS! join you with 249 other players m a system caiculatecl to beat the odds Your Group will have
84 sets of 6 numbers Then we'll enter those numbers (or the .next 30 Lotto 6/45 prize draws. As soon as we gel your entry, we II send you a
complete listing of your Group's nuT*«s. Then once an 30 draws have taken place you can watch your mailbox for the most exciting
part of all. ..the Officii Wmung Numbers drawn and a statement of your TOTAL WINNINGS!
SEE OVER TO WIN TAX-FREE, LUMP-SUM CASH! ^'
Lotto 6/45
Pick your own lucky numbers and YOU COULD WIN
OVER $19 MILLION DOLLARS IN CASH
Thousands of big prize
winners are drawn every weelc.
100 NEW MILLIONAIRES THIS YEAR...
YOU COULD BE ONE OF THEM.
Choose your 6 lucky numbers and play the game.
Match 3 and you're a guaranteed Australian Lotto 6/45 winner!
SEE OVER TO WIN TAX-FREE, LUMP-SUM CASH!
"*fJ^"^
JUST SCRATCH...iMATCH.«
AND YOU'RE A WINNER! UP TO
$25,000.00 CASH INSTANTLY.
Over $6,000,000.00 in total prize rrwney in every issue. Just rub off
all the squares on your ticket, match 3 the same and you win
the amount shown on the matching squares.
t's the easiest game to play, and you find out instantly how much you've won!
SEE OVER TO WIN TAX-FREE, LUMP-SUM CASH!
TRIPLE STAKES
lACKPOT ^
Get into 3 of the World's Biggest Lotteries...
New York, Canada, Australia... 3 of the biggest
games for players who want to WIN MILLIONS!
But wait.hefe's how you can get a bigger share In that $300 Million Prize f^l:
forasntttoas$5&00ormitM'3gn>upsfor$81.00{ It'* tiwt simpia, K's that Msyl
Beat the odds and Inaease your chances of n«kjng your dreams come true with
Australia's Lotto 6145, New Yoric's Lotto 6/54 and Canada's Lotto 6/49.
From the moment v»e hear from yoo, the odds wii be stacked In your favor tor the HUGE PAYDAY! Thaf s because yoult have a
whopping 2.520 CHANCES to win over a 10 week play period. And youll be playing three o( the biggest kjtteries goir^. ..the New
York totto, Australian totio and Canadian toBo. Youl be teanwd up with 249 other Americans, and your group will be given 42 sets
01 nufnbers per draw. THArS 252 CHANCES PER WEEK AND AN INCREDIBLE 2.520 CHANCES OVER YOUR PtAY PERIOOI
SEE OVER TO WIN TAX-FREE, LUMP-SUM CASH! i
67
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Canada's B-I-G Prize Lotto 6/49, we know that some of that money
will be coining your way.
J^
Tell UB your own lucfcy nuMbera.
They could win you 101 wore tickets free I
Look for the lucky number stickers we've enclosed with this
mailing. Use them to tell us what your favorite lucky numbers
are. They could win you an extra 101 tickets free. That means
you have an extra 101 chances to strike it rich!
As soon as we receive your Activation Form, all your lottery
tickets will be entered for you automatically in 20 consecutive
Lotto 6/49 drawings. You'll receive a confirmation of all your
numbers. You'll know exactly what your combinations are, and you
can even watch the drawings on Canadian TV.
You'll get a list of all the winning numbers on a regular
basis. Right after the last drawing you'll be informed as to
exactly how much money you've won. Imagine the thrill of
discovering that vou ' re a winner in Canada's B-I-G Prize Lotto
6/49.
It's not a fantasy. For you, it can be a dream come true. If
you've experienced the frustration of playing United States
lotteries, now you can discover what it's really like to be a
winner. And if you've never played the lottery because the odds
are so high and tickets are so expensive, now you can play... and
win... for less than 3 cents a chance.
Win an all-expenses paid
vacation for tt<o in Canada!
Come see our B-I-G glorious country that gave you Canada's
3-I-G Prize Lotto 6/49. You'll spend a week each in any two
cities you choose. That's two exciting fun-packed weeks in alll
You might choose the rustic charm of Halifax, Nova Scotia, or
maybe you prefer Montreal, the Paris of North America. How about
the metropolitan sophistication of Toronto, or the Rocky Mountain
splendor of Calgary? You can even visit Vancouver, the heart of
the Pacific Northwest, or any other Canadian city of your choice.
An exciting vacation in any two of these exciting cities can
be yours if you win our Bonus Sweepstakes. We'll even give you
$1,000 in spending money. Or you can choose $5,000 in cash
instead of the vacation.
Send in your Activation Form now.
Your participation in Winner's is already approved. All you
have to do is activate it. Simply enter the necessary
information on the Activation Form, and return it in the envelope
provided, along with your check or money order.
If you prefer, you can charge it on your Visa or Mastercard.
Better yet, simply call toll-free 1-800-333-2857. But do it now
before this incredible opportunity slips away.
Imagine! A share of $100,000,000 for only $29.95. You have
so many chances of winning that it's practically a sure thing!
Don't miss out. Get in on the action... and the winnings .. .NOW!
I look forward to writing to you again soon - to tell you that
you're a winner in Canada's B-I-G Prize Lotto 6/49.
Sincerely yours,
WINNER'S
per: G<:^^Xh./v\^§T'YVpXL^(K^
(y JoAnn Simpson
Awards Director
P.S. I simply can't stress it enough. There are so many cash
prizes in Canada's B-I-G Prize Lotto 6/49 that we can almost
guarantee you'll be a winner. Don't miss out on your share of
$100,000,000. Activate your Winner's group play now!
70
WINNER'S MARKETINO INC ("WINNER'S")
Winners
This ticket in
Canada's BIG
Lottery has your
name on it
It Could Be Worth
January 22, 1993
Dear David Gerity,
Those are the numbers on a lottery ticket in Canada's lucrative
B-I-G Prize Lotto 6/49. "Hiat ticket has already been purchased. . .and
I've reserved it for you.
But there's more! Much more! Because that ticket is only one of 50
B-I-G Prize Lotto tickets I have reserved in your n2une. That's right,
50 tickets, with 50 different combinations.
And there's still more! Each of those 50 tickets is yours through
twenty consecutive drawings. "Riat's 1,000 lottery tickets in all...
with a chance to win a huge share of $100,000,000.
You read that figure right. One Hundred Million Dollars! And with
a thousemd different chances, and so many cash prizes in each drawing,
it's almost impossible for you not to come out a winner.
Could you buy a thousand tickets in your own state lottery? Of
course not. It would cost you a thousand dollars. So what do you do?
You buy one, or maybe two or three tickets at a dollar apiece, then hope
against hope that you'll come out a winner.
But vrtiat if you could buy a thousand tickets? What if you were
^U^le to get them not for a dollar apiece, but for less thctn 3<? each?
Wouldn't you jump at that chemce?
Well, that's exactly what WINNER'S is all about. And you've
already been selected to be a player. Yes, those 1,000 lottery tickets
already have your name on them, and they won't cost you $1,000. They're
yours - all of them - for only $29.95.
And remember, this isn't just any lottery.
Each drawing yields many cash prizes.
_ This is Canada's B-I-G
Prize Lottery 6/49. Each drawing yields many cash prizes. The jackpot
is never less them $1.5 Million, and has actually gone as high as $19.7
Million. The best part is that now you're in on it!
1000 chancea to win milliona
for lesB than 3 cents each?
How IB that possible?
The secret is really quite simple. You get matched up with
199 other people, to play together and win together. In the next
few weeks, 100 Million Dollars or more will be given away, and
you could have a share of that immense wealth.
And when you win Canada's famous B-I-G Prize Lotto 6/49, you
really win. Your money isn't spread out over twenty years like
it is in the States. You get it all. . .immediately. . .in one huge
lump sum. There aren't even any taxes to eat into your winnings.
Every penny is yours to keept
Imagine having an opportunity like this for only $29.95.
That's all you pay... $29. 95 for 1,000 chances to strike it rich.
If you don't think you're lucky, consider this. Only a tiny
percentage of people in the United States have been selected to
join WINNER'S, and you're one of them. That already makes you a
winner I And with the nany cash prizes distributed each week by
71
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This card is the property of the issuer and must be returned upon request.
Playcard enters person in 10 to 25 AUSSIE 6/45 Drawings.
FORM OF PAYMENT
Use of Ihis Card consliiules acceptance by the Gold
Card Player of the terms and conditions of this Card
and player agrees to pay for Lottery Tickets as
checked below:
, 10 PLAYS $20.00 U.S.
I 15 PLAYS $30.00 U.S.
[ 25 PLAYS $50.00 U.S.
_ Check or Money Order enclosed, payable to
PROJECT RAINBOW
Or Charge my Z MASTERCARD VISA
Credit Card No.
YOUR Signature
BEST
.PLAY! o^_,
) often notify our winners by phone.
To order, or for questions about plav, -t 0£\i\ '^'2/1 f 1 "^ 1
payment, collection of prizes, call TOLL-FREE ± 'OXtXj' ZtJ^' ^ L ^ A
^ Detach, complete front and back of cartj .
I. and return in enclosed reply envelope today! J
BEATS THE U.S. PAYOUTS B7 MILLIONS! $8 TO $10 MILLION A WEEK ON AVERAGE
WEEKLY JACKPOT: $1,500,000.00 U.S.!
We're introducing Americans to the thrills of AUSSIE 6/45. This cash
cow pumps $8 to $10 MILLION in prize money weekly to Americans in on its
secret — tax-free!
WHY ARE WE ALERTING YOU TO AUSSIE 6/45 TODAY?
The time is right. In the next 100 days AUSSIE 6/45 will give away
one special jackpot of $9,000,000.00. Your Gold Card makes you eligible to
win this super jackpot outright if you play your Gold Card today!
LUMP SUM, TAl-FREE PAYOUTS BEAT U.S. PLAY!
If the numbers you pick are winners, Project Rainbow will track your
winnings and send you checks in U.S. dollars on request. The checks will
be for your entire prize.
Unlike U.S. lotteries, AUSSIE 6/45 does not take out winnings for
taxes. AUSSIE 6/45 does not defer payments over 20 years. AUSSIE 6/45
pays its winners the full amount--CASH up!
PAY LESS TO PLAY. WIN
GET BETTER ODDS!
If you love lotto, now is the time to get in AUSSIE 6/45! Shoot for
your share of a weekly $10 MILLION pool, with jackpots from $1.5 MILLION to
a $9 MILLION SUPERPOT! AUSSIE 6/45 not only makes lotto dollars count! It
gives better odds! You only pick numbers from 1 to 45 to win!
WIN CASH WITH ONLY 3 CORRECT NUMBERS PLUS EITHER BONUS NUMBER (IN AMY
ORDER) .
Pick all 6 and you win the jackpot! Every week when you have 3 plus
either bonus number, 4 or 5 correct you could win a prize. As much as
$5,000.00, $25,000.00, $100,000.00--and it mounts up!
SOUNDS LIKE FUN? YOU BET!
When you play AUSSIE lotto 6/45, we'll send you confirmation of the
numbers you select on your Gold Card, and enter them in the Saturday AUSSIE
6/45 draws.
Be a believer by signing and returning your Gold Card today! Or
enroll toll free, 1-800-234-5121 to play instantly! GOOD LUCK, MATE!
PHOJECT RAINBOW
,^^.^^^ Sr2^^
Robin Sutcliffe
F.f^S'. l/(/f^/a*< U^ui^Aa. u/«eJc(/^ ouiUtaJL c/'par-MeuA fU^ ^^^ -fi*-
83
AUSSIE 6/45
$9,000,000.00
GOLD CARD
Sanper Hotdlngs I
PRESENTING THE DAVID GERTTY
$9 MILLION RAINBOW GOLD CARD
PLACE AN "X" IN ANY 6 BOXES TO PUY YES. enier my 6
FOR $8 MILLION OR MORE EVERY WEEK, diedtedindie
AUSSIE LOTTO 6M5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
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42
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I hive aulhanjBd fbnn of
O 10 WEEKS -S20.00U.S.
a 15 WEEKS -$3aOOU.S.
R1940H
David Gerity
160 Bergen St
Woodbridge, NJ
U.S. A 07095-1803
n 25 WEEKS- $50.00 U.S.
t 1. Pick 6 Numbers. 2. Sign the back.
December 30, 1992
3. Mail it and Play it!
SOiPB) HOLDINGS LIMITED ('Proiect Ralnbo«r)
IMMEDIATE PLAY REQUEST MUST BE RECEIVED BY
January 28, 1993 FOR FREE PLAYS.
You could win $9,000,000.00 TAX FREE in 100 days with the Gerity
Gold Card! Plus you may have already won FREE PLAYS!
Dear David Gerity,
$2 to win $9 million dollars!?!?! What a deal!
Project Rainbow, the international lotto "master," has the right to put
the Gerity name into one of the world's
richest tax-free lotteries in the land down under: fabulous AUSSIE Lotto 6/45
for the price of a cup of coffee!
Hay we play your favorite numbers, David Gerity
in vrtiat could be the hottest, richest 100 days in AUSSIE 6/45 history,
beginning now?
We have issued this $9,000,000.00 David Gerity Gold Card
that gives you 10, 15 even 25 weeks of play in this lottery for the incredible
low price of $2.00 a week!
All you do is pick the 6 numbers on the Gold Card you want going when
AUSSIE 6/45 gives away $9 million to one lucky person! Pill in the
Gerity Gold Card emd get in the money!
LOOK FOR THE FABULOUS "FIVER" CARD! YOU HAY ALREADY HAVE WOM A FIRST TIME
PLAYER BONUS OF MORE FREE PLAYS.
Go to the fabulous fiver slot machine card enclosed — scratch off the
payout window! Project Rainbow will give you up to 3 weeks more free plays!
Come in with us in the next 14 days to win big-money in AUSSIE Lotto 6/45
without leaving Woodbridge. Play the Gerity
Gold Card now. Write in the Gerity phone number, too — if you wish
to know the instant we know you have won a prize of $1,000.00 or more!
$2 A PLAY! 71
You pay only $2.00 U.S. a week to have a chance to win $9 Million tax-free
emd you have the same chance every Saturday to share in the cash-rich weekly
pools awarded every 7 days!
9,000,000.00 S
PROJECT RAINBOW
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Meet Gail Howard .
Her revolutionar>"
Lotto strategies have
produced 29 docu-
mented Grand Prize
Winners . . . and now
she's ready to work
for YOU!
The Lotto Winning
Champion of the World,
Gail Howarc^ could change your life.
N2489M
David Gerity
160 Bergen St
Woodbridge, NJ
U.S.A. 07095-1803
NewEagleP proud to combine forces with the world's most successful lottery
systems expert, to take aim at Canada's government-guaranteed Lotto Jackpots.
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(■NewEagle*!
Dear David Gerity,
Is there really a system that can beat the lottery?
Ask Sharon J. of Reading Center, New York. Her life changed
when she won $13.8 Million Dollars in the New York State
Lottery — using Gail Howard's lottery winning system!
29 LOTTO JACKPOT WINNERS HAVE WON $71.3 MILLION DOLLARS
...YOU could be next!
Gail Howard's system is no fluke! It has won an astonishing
$71.3 million dollars in jackpot wins alone! Prizes of
$100,000.00 or less, won by players using her system, are too
numerous to count!
CLUSTERING - KEY TO THE GAIL HOWARD WHEEL
Gail Howard's scientific wheeling system tracks winning
numbers and creates clusters of numbers most likely to be drawn.
From these clusters, she will choose combinations in Lotto 6/49
that will give NewEagle players a chance to WIN MORE PRIZES, MORE
OFTEN, week after winning week!
As a serious Lotto player, David Gerity, I'm sure
you know that: 1) You've got to be in it to win it. 2) You can't
consistently beat the odds without using a proven, valid system.
Why wait for dumb luck? It makes sense to play smart! Try Gaxi
Howard's scientific system with NewEagle NOW
Ah
If you spend $40 a month on 40 tickets in your state's
lottery, you will be surprised to know that for less money, you
could have 5,000 (or up to 30,000) chances to win in North
America's richest tax-free lottery. And Gail Howard will use her ',
expert skills to scientifically choose your numbers for you. ^
Accept this exclusive Invitation from NewEagle, North g
America's most respected lottery group. Gail Howard will select ,1
every set of Lotto numbers to be played for you for the next 10 §
weeks in Canada's rich Lotto 6/49. ,^§
Why Lotto 6/49, NewEagle and Gail Howard now?
Lotto 6/49 tax-free inillion$ are paid in a cash lump sum.
NewEagle is an old, established lottery company. And Gail Howard
is a PROVEN WINNER! The secret behind Gail's system is clustering
and combining! Gail isolates more than six numbers, and plays
special sets of combinations of the numbers most likely to come up
as winners .
The Lotto 6/49 winning numbers are drawn every Wednesday and -"^
Saturday on national TV. Jackpots start at $1.5 million and roll
over to $5 million the next drawing, and $10 million after that:. u2ii7
Thousands of other cash prizes are given away each drawing.
96
^
NE\VtLA.Gl.K CONr JlObXiiU.N hOK.Vi i
9yl / ^ want my share of the Millions. Tve
-^« checked below the group plan I prefer.
check: GROUP PUN
CKANC-fSTOWIN
PER ?:^.
r(kJFAY{US)
SAVINGS
: BUDGET
5.040
1.9<
S8900
: REGULAR
10.080
i-5e
$149.00
$29 00
1 DELUXE
30.240
i3e
$399.00
Si 35.00
.BONUS
SONUS: 5FR
E Scratch Tickets
-Insumwi
up 10 $10,000
Id addition, I have inchided $22JS0 for Gail
Howard's book "How to Wheel A Fortune'.
Find enclosed CHECK MONEY ORDER ! — — — '
iPayabte lo Newtaatei It
or Bill my VISA MASTERCARD '
us
CABO NUMBER
HI
B
it
It
i « U1«T«T10NS TO iWiHT
AFFIX
YOUR
EARLY
BIRD
BONUS
STAMP
HERE
izesO
Unlike most OSA lotteries, Canada Lotto 6/49 pays off pri;
in full, in one Tax-Free LUMP SUM. And recently. Lotto 6/49
jackpots have been as high as $19.7 million dollars!
When Gail was looking for a lottery to beat, she chose Lotto
6/49 because of the high CASH jackpots. And she chose NewEagle
because of our long-standing good reputation in the lof-ery
industry. According to Gail, "Lotto 6/49 was my first choice, and
NewEagle was my only choice!"
She has found us to be reliable and she knows our computer
technology is just what she needs to maximize the jackpot winning
potential of her scientific systems. Gail decided to pick winning
numbers for us, and for you, because of NewEagle 's outstanding
customer service. NewEagle services over 130,000 players a year
and has been in the lottery management business for over 10 years.
Gail and NewEagle — an unbeatable combination.
We record and document your winnings each week of your 10-week
playing cycle. Once your 10-week cyile is completed you are
contacted and informed of your win total. *
3 WAYS TO PLAT FOR PENNIES A CHANCE I
So, what will it be, more of the same lotto games for you —
hoping to get lucky — or do you want to get serious and let GAIL
HOWARD HELP YOU WIN?
You can have thousands of chances to win with Gail every week
as one of 199 customers in a Gail Howard NewEagle Group — for as
little as 1.5 cents a chance. (See NewEagle brochure.) Get up to
30,240 chances to win over TEN WEEKS for only $399 — or, 10,080
chances to win for $149 — or, as many as 5,040 chances for $89.
This is less than most regular players spend on their state lotto
games in four weeks.
Do Tou Hant Gail Howard's Syst^ working for Tou?
You Bet Tou Dot
Gail Howard and NewEagle do all the work. We send you the
numbers Gall has chosen for your group. We track your winning
credits. Make your group plan choice and RSVP by returning your
NewEagle Confirmation Form in the enclosed envelope.
Call toll-free, 1-800-888-8079 to enroll now!
Good luck with Smart Luck,
NEWEAGLE
per: ■
Richard Kennedy, Prize Di^ctor
P.S. Act fasti Be one of the first 500 NewEagle players to respond,
and you'll receive — ABSOLUTELY FREE — Gail Howard's Pocket
Guide to Lottery Winning Syateaa. This handy 64-page booklet
gives you TEN winning Lotto systems — including the very system
James Shivley used to win $9.48 million dollars. The enclosed U2i
Bonus sticker, when affixed above, will claim your copy.
97
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Here's what they're saying about NewEagle's Special Advisor
Che ^civ Vovk
m
tines
Augxist 9 & 25. 1985 - LoUo players
"may want to buy a chance (■n the
great Amencan dream," but they
don't live in a dream world The
consensus of must Lotto players i;
that they would rather have a
chance of winning SI million than
no chance of winning S50 million
Miss Howard said the emphasis
on big prizes had squeezed out the
smaller prizes, and fewer and fewer
people had the chance of winning
anything.
The small prizes are important,.
Miss Howard said, because they
keep people interested and keep
them buying tickets.
It was letters about the lack of
winners that prompted iNew York
Lotteo' Director! Mr. Quinn to
institute the emergency change last
month. The change added a fourth
prize category that was designed to
create a large pool of small
winners."
Newsweek
Sept. 2, 1985 - Most lottery officials
say the surest way to keep up the
e.xcitement is to create even larger
jackpots - a trend that worries
some experts, since it means
lengthening the odds on winning.
"Each state is trying to one-up the
other," says Gail Howard, who
advTsed her readers about this
situation. Howard feels that ever-
growing odds will discourage
regular players and ultimately
Forget Lady Luck - Gail
Howard - the nation's
leading "handicapper"
has a system...
(The Jl^ashinaton (Eiittfs
ickf
ales
(jTail Howard is a former stock-
broker and commodity futures tra-
„der who dended to put her predic-
tive skills to work in the lottery busj- ^
-- and with 8-tounding results. ^
, to turn players into f
making lottery his- ']
jii 1- credited with 29 •?
. u> • jui^ ^ivv 1. Lotto Jackpot winners
^...their total winning- $71,294,399.00. J
S Howard's systems have proved to ^
^be the most succes-ful tools at break-
.ing the Lotto odd.- - regardless of
^the size of the number field. Not only '
'are they effective, but they are
jsimple and as eas\ to use as A-B -C '-.
l Gail has appeai ed on hundreds of '
radio and tdevjsion shows including '
the Today sSiow an d Good Mom i ng ,
America In addition to her ever-
gpopular book "LOTTO - How to .
Whtsl A Fortune'', .she has authored '
several newsletters, numerous ar-
ticles and a 64-page Pocket Guide
that is also m great demand. All in
all, Ms. Howard has created a truly :
mathematical breakthrougii for the
serious lottery player. . .and now for
_l^ewEagle Network participants,
laisweS. ■ , *
Newsday
I UPI ' June 3. 1986 - A housewife
who used a tip sheet to become the
sole winner of the $13.3 million said
yesterday she would stop playing
the game and give others a chance
to get rich.
Sharon Jaynes, 45, of Reading
Center, a tmy Finger Lake hamlet
near Watkins Glen, said she used a
booklet she bought, "State Lotteries:
How to Get In It... and How to Win
It" by Gail Howard to pick her win-
ning combination, 8-10-20-41-42-48,
Insight
September 16, 1986 - "Gail Howard
has a message for all you hapless
-ouls who dream of winning riches
in the state lottery. You can win, and
she has the system that can help
you do It. There is no denying that
she IS luckier than most people.
How does she account for her suc-
ces^'' "1 track randomness, which
forms patterns that are predictable
to a certain e.xtent," she says.
Howard's theories have one simple
goal lowering the odds confronting
a lottery player. The first way to im
prove your chances, she says, is by
.-electing games in which the odds
of winning are greater.
After game selection comes number
-election "and that's my specialty,'
^ays the handicapper, who charts
past winners in order to find "hot
numbers,"
The final strategy involves a
"wheeling system," a numencal instru-
ment that allows players to choose a
group of more than six numbers, pla>
a special set of combinations of thosf
numbers and get a win guarantee,"
A( / quickly and you could own Gail Howard's Pocket Guide FREE
100
lotto:
Questions? . . .
Call our friendly citsUmicr service free
of charge at:
1-800-888-8079
Mon-Fri 7:00 am to 7:30 pm
Saturday 8:30 am to 1:30 pm.
(Pacific Time)
Call us today and join the
winning team with the best odds.
lied 4^**^'
,^031430,
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101
YOURS
REE!
FREE!
Take this 64-page pocket
guide to help you wheel
your way to a fortune in
your state lottery!
Gail shares with you how
to develop a wheel that will
dramatically increase your
odds of winning!
FREE TO THE FIRST 500
GROUP PLAYERS!
Punch out this sticker and
place on your confirmation to i
receive your FREE BOOK!
!,"'"m
,."u;\: ,
'^iV/Zl/S
I^PUNCH OUT
this sticker and moisten
the back of it to attach
to your confirmation.
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[DTTONEWS
VOLUME 10 -NUMBER 4
A SHOT IN THE ARM
FOR 6/49 WINNERS!
'ihflly and ( mo Pannua mnnery ofni er iUX) IKHI (W
You jusi ne\er know whs.n_oodnt \sis miund ihn.onKr.
ShelK P inuLLi told us W n k) in l ictumtd In me Iroiii ihe dcKlor's olTicc
where her tha;. \eir old \tm hod Ixen _i\(.ii his shois \htn she disc<nered
her fiiimti il sinjluin had rtLtiN^d a sh i iii llu un isv^ll
ITial's when he li. inicd tli il tkr 1 niii h 4') numbers m ilehed 5 nulol (i
plus ihe txmus nunibei K \Mn '' 1 1 P i'*'^ J i
ShelK s niolhtrand i ler in I iw inr\ed rm nients I ikr and had no idea
what all the eommotion v>. is iNiuI As ShtlK r call I w is juniping .iround
the room 1 iUj_hini and enin^ at the s une iniie I w is so Lontused and exeited
thai all I eould sis is that I won the lotler\
Next she phoned hei hush md Giro at work but w ts so i.iiiolional she
couldn't i.tl hei words out \ ii!essij.e wentloCnn
woman" w ls on tlie phone tor hini WTilii the _ood
rushed home lo eelebntt
When asked aKiut iheir decision tii pla\ Oma re
told him lo enter Now ShelK and Gino iit li leiiin. to
them to build their dre ini home and lo keen ol i>.in^ C
. Iha
I h\steneal
ws I in illy sank in he
lied th It "a little \oiee"
I Ihe \oiee that's lellms
Lotto 6/49' "
RETIRED COUPLE WINS
5107,595.20
For Gi>rd ;ind Aliee H\iies.
persisienec reall\ paid off.
The\ d been plaxiiii; the same
numbers tor lour >ears when out ol
the blue the) niaiehed 5 numbers plus
the bonus to elaiiii an identical pn/e
to the Pannuei's. At 5107.395.20.
winninL!s eeilainK made the
wailuonhubile'
Gord. a retired Air Force
ser\ iceman, and his wite Alice were
o\ eno\ ed at the ne-w s Thes lost no
lime in phoniuj; family menilx-rs.
uho 'Aened and sercjiiied" when
incN found out about the Canadian
lottery pn/e.
With ihiee children and three
vrrandchildren. ihe celebrations were a
fixeK event Bui Alice uas sulj
uonderinj! -can I realK bc-lie%e this'.'"
With their check in hand, the
lies' realK did Iv-lieve il! Alter the
bii; bank deposit the\ plan to sit back
and decide hou the\ 'd like lo spend
II. l1ieN've.iKva\suanledto\isil
iairope and can now look foni aid to
: Iha
TABLE OF CONTENTS
6/49 Winners
Ret?red Couple Wins &g
NufTrter Feequency Ctiart
Wheel Pr^e Breakdown
Whars In A Number
Wfnnmg Number
Keno Winners
Australian 6/49 Fans
MAKE A NEW YEAR'S RESOLUTION TO
BECOME A MULTI-MILLIONAIRE!
i
104
Lotto 6/49
off times numbers drawn (excluding bonus numbers)
From July 4. 1982 to Jan. 9. 1993
1
I
1
1_
1
1
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.
1
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234Se7agi0 11l2 13l4 15 16l7iaig20212223242S»27 2e2«303l323334353e37 38MM414243444S4<47 4<4S
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•— SISSJ!
M>-im4M«f|im
• MM tmiinimniir&t
WHAT'S IN A NUMBER
WHO PLAYS LOTTERIES?
Of all the hobbies and pastimes enjoyed around the world, lotteries have
the most universal appeal. People of all ages and all backgrounds share the
same dream of becoming an instant millionaire. In fact most people have
purchased at least one lottery ticket in their lives.
Studies have shown that, on average, lottery players have middle incomes
and a level of education ranging from grade nine to the third year of college.
About equal numbers of women and men play lotto games, but men tend
to spend more on tickets (this may be due to a hi^r disposable income).
Age doesn't seem to reflect participation levels either. Of any age group
questioned, over 80% have been lifetime players.
A little over half the population are serious players who spend about $300 a
year on lotteries. There has been a tremendous increase in the number of
participants, and today almost every country in the world offers lotteries of
some form.
Perhaps the most appealing aspect of entering a lottery is that EVERYO^fE
has a fair shot of winning. This is one instance where power and influence
count for nothing. Lady Luck has no favorites.. ..but the more you play, the
better your chances of winning.
Call TOLL-FREE
1-800-537-4477
or fax your
order to:
1-604-879-5942
Use VISA,
MasteiCard,
or
American Express
105
W I N N I N G NUMBERS
Loim
} \
D
m
K
f
lonwe
DATE
THE < WINNING
NUMBERS WIN ,2^
IN ANY ORDER
m 1=
"iss::?
TlC«£TW»e
€s^
Sent. 23. 199:
19
21
34
,36
47
49
42
$19.0
$71.70
Sect. 26. 199!
16
17
20
21
29
35
41
$6,002,325.70
$18.0
$137,684.20
$2,326.10
$73.10
Sept.30.199i
14
35
40
43
46
47
CARRIED OVER
$2.2
$140,187.70
$3,282.40
$94.90
Oct. 3, 1992
11
15
16
22
27
34
12
CARRIED OVER
$6.0
$132,453.30
$1,744.20
$58.90
Oct. 7. 1992
8
17
25
26
38
42
14
$3,583,605.90
$11.0
$94,606.50
$1,518.00
$54.30
Oct. 10. 1992
ft
1?
??
39
40
44
17
CARRIED OVER
$3.0
$85,633.50
$2,297.50
$77.10
Ocl. 14. 1992
3
1?
,^')
4?
43
45
$6,498,953.00 '
$6.0
$143,959.60
$80.10
Oct. 17. 1992
2
13
15
«
33
35
39
$571,157.00
f2.8
$171,347.10
$1,012.40
$50.30
Oct. 21. 1992
7
18
26
35
38
48
49
CARRIED OVER
$2.2
$89,980.10
$1,548.00
$56.20
Oct. 24. 1992
11
22
25
33
42
49
28
$5,814,954.40
$5.8
$146,377.80
$1,871.50
$60.80
Oct. 28, 1992
3
11
13
15
20
39
32
$2,441,386.80
$2.4
$104,630.80
$2,170.10
$67.30
Oct. 31. 1992
??
?8
29
30
36
47
16
$3,021,704.60
$3.0
$151,085.20
$3,021.70
$92.50
Nov. 4. 1992
12
14
19
26
40
42
3
$2,434,014.00
$2.4
$146,040.80
$2,384.30
$62.80
Nov. 7. 1992
R
9
14
3ft
4?
49
41
$1,440,900.60
$2.8
$86,454.00
$2,461.30
$80.00
Nov. 11,1992
12
19
28
31
41
47
16
$1,141,063.30
$2.2
$68,463.80
$1,869.30
$65.80
Nov. 14, 1992
2
6
7
8
30
37
47
$2,648,145.30
$2.6
$132,407.20
$2,011.20
$60.50
Nov. 18, 1992
3
7
11
29
45
48
8
CARRIED OVER
$2.3
$44,608.00
$1,343.00
$49.50
Nov. 21. 1992
5
6
7
12
35
39
29
$5,109,612.80
$5.1
$53,433.60
$1,670.50
$57.90
Nov. 25. 1992
18
2H
29
30
46
49
7
$2,555,134.20
$2.5
$383,270.10
$2,587.40
$95.30
Nov. 28. 1992
10
19
20
35
38
43
48
$1,455,960.00
$2.9
$174,715.20
$2,504.80
$86.60
Dec. 2, 1992
2
16
22
24
27
45
42
CARRIED OVER
$2.3
$94,642.60
$1,468.10
$57.00
Dec. 5. 1992
3
21
23
41
43
4S
1
$2,709,967.50
$5.4
$34,410.10
$1,780.10
$68.80
Dec. 9, 1992
1
5
10
16
44
45
23
$2,237,501.80
$2.2
$134,250.10
$1,858.10
$68.00
Dec. 12.1992
15
18
29
30
37
47
44
$927,754.00
$2.7
$119,282.60
$3,180.80
$93.00
Dec. 16. 1992
2
32
33
48
49
CARRIED OVER
$2.2
$231,079.40
$2,183.40
$75.90
Dec. 19, 1992
8
9
13
27
28
38
7
$2,603,204.80
$5.2
$45,720.20
$1,707.50
$56.20
Dec. 23. 1992
7
14
32
36
39
44
43
$1,208,021.60
$2.4
$120,802.10
$1,464.20
$60.90
Dec. 26, 1992
11
13
16
17
19
20
37
$581,113.00
$2.3
$87,166.90
$1,341.00
$55.50
Dec. 30, 1992
11
23
30
31
34
46
17
$2,396,507.20
$2.3
$143,790.40
$2,847.30
$78.80
Jan. 2, 1993
7
15
19
28
29
30
43
$1,123,479.90
$2.2
$112,348.00
$1,116.50
$48.30
Jan. 6. 1993
3
16
20
22
37
39 31
$1,171,411.00
$22
$175,711.60
$2,267.20
$78.80
Jan. 9, 1993
6
14
18
21
34
35 22
$1,209,686.80
$2.4
$145,162.40
$1,849.20
$58.10
In the event ot a discrepancy between this list and the olflcal winning nunnbers list, the latter shall prevail.
106
AUSTRALIANS ARE BIG LOTTO 6/49 FANS!
As clients of C.I.L.. residents of the United Slates can enjo\ the
convenience of playing Caruidian Lotto 6/49 through the mail but an Aussie""
couple travelled all the \v a\ to Canada before lhc> could bu\ their tickets.
Mike and Su^an Allen were \ i-.iling some friends here in Vancouver who
recommended our famous lonerv, so tliev bought a Computer Pick at a local
store Then the) left the ticket v\ iih their hosts, the Brodericks. v,h\k tliey
headed off to spend tlie rest of their vacatic^n in England and Wales.
The drawing look place - and much to the Bnxlericks' surprise, the ticket
purchased bv the Aliens matched ."> out of 6 plus the bonus number to win
S77.:o2.5o:'
Tracking down the luckv couple wasn't easv. however. First thev phoned
.Australia to ask tiic Aliens" children how to find them. Then thev contacted the
Aliens themselves in Wales and broke the gocxl news, but Mike Allen thought
it was a jokel It look a gtxid deal of convincing before he accepted the fact that
he was over seventy-five thous;ind d(i!lars richerl
The Aliens play lotterv' games in .Australia but never had the success they
expeneiKcd w iih Canadian Lotto fa/49.
They're using rhe pn/e to pay olTtheir home just outside of Sidney, sharing
w ith their children - and coming buck to Canada for ;inother holidav.
Luckily. C.I.L. clients can play Lotto 6/49 w ithout ever lea\ ing home'
TOU ASKED US
Why is the amount won showti
on my statement different (rom
ttie amount printed on my cheek?
Q.
A The Canodlan lottery is based on
/% Canadian dolloi?, so that is whot
we show on your statement. For
your convenience we convert
prizes of SI ,000 or under into
U.S. dollars at tt« current
exchange rote - so you receive
your winnings in your own
cun-ency. This is ttie ONLY
reoson for the difference in the
two amounts; C.I.L. does not toke
commission or any other port of
I would like to watch
Lotto 6/49 drovflngs live on
Satellite TV. Which station ore
they on, and when?
The program is called "Lotto Night
in BC and Is televised live on
BCTVChonnel 11,a1 6:49pm
(Pacific time), Wednesdoy and
Soturdoys. If you phone your locol
TV station they con tell you which
Sotellite chonnel the show is
received on In your area.
We v.'elcome '/our auestwns. Pleose
wnie to us at C I L wid address your
ietter lo l»i€ News Eoikx
We wish you a
HAPPY
NEW YEAR
and a
PROSPEROUS
19931
CANADIAN
INTERNATIONAL
LOnO AGENCY
Winning numbers line
1-604-270-8402
LOTTO 6/49 - Press I
KENO-Pre»2
GENERAL INFOftMAnON
l-«04-«79-«995
107
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IT COULD HAPPEN TO YOU TOO!
USE OUR SPECIAL LOTTO 6/49
FORM AND INCREASE YOUR
CHANCES TO WIN THE BIG ONE.
The fabulous Canadian 1-otlo 6/49 game gets bigger and better.
The jackpot starts at $1.5 million. If it's not won, it goes up to a
guaranteed $5 million, then SIO miHion,and keeps increasing until
it is won. In fad. Canada holds the record for the world's largest
single lump-sum ta,x free jackpot — $13.9 million dollars!
lOnO 6/49 SUBSCiaPTION sfunandeasv
to play. .Ail you do is pick your own six lucky numbers from 1 to 49
on each board you wish to play 'you can play up to fiw boards at one
time ). Then you pick how long you want to keep your hand in, You
can subscribe for 13. 26 or 52 week plans (at two draws es-ery week,
that's 26, 52 or 104 draws). If you match ajlsa numbers on any
board, you wm the jackpot! Ani it's paid out ta.\-free in one giant
payment! You can also win valuable cash prizes by matching 5, 4 or
3 correct numbers, and the odds ire that sooner or later your
numbers will come up.
WHEEUNG SYSTEMSare an exciting way to
increase the number of times you can win on Lotto 6/49. When your
numbers come up. you win over and overa^in! Here's how the
systems works:
Y'ou choose a "wheel " consisting of yonr byorife 7, S or 9 lucky
numbers. They are then entered Into the official Lotto 6/49
computer which scienlifif ally calculates every possible combination
of those numbers. In this way you covereich draw in 7, 28 or 84
different ways (depending on the size ofssmr wheel). If your
numbers are among tho.se drawn you win up to 84 times! That
means you can take home the jackpot pri«, PLCS prizes for
matching 5, 4 and 3 numbers on each ticket!
Wheeling systems are changing the way lotteries are played all owr
the world! Try this mathematicaily-proven technique for multiple
wins and multiple prizes!
JOIN THE WINNERS Hundreds of people arc
millionaires now, because they played the great Canadian Lotto
games. .Vow you can join them too! Join Irene and .Al Kangas,
pictured above, who won one of the biggest lottery prizes ever when
they played Utlo 6/49, Their jackpot win was $13!964,107.40 ta.x-lree
dollars! Just by putting their winnings in the bank, the Kanga^es
would receive over $3,000,00 in interest every day!
There are hundreds and hundreds more winners like the Kangases.
Every week more winning numbers are picked and every week more
people become millionaires. People just like you!
So hurry! Enter your lucky numbers today using the Lotto 6/49
Entry Form on the reverse. The sooner you do, the sooner you can
become a millionaire!
^ )Yon could be the next multi-)^ „ ^ ^
millionaire when you play the'Canadian Lotteries!! '
OETACH AND KtEP FrifS PORTION F
Canadian International Lotto Agency
Your 7-Part Guarantee
\ ou will receive "Coniimatioo'' (rf
your numbers and draw data.
\ou «ill be tntered in the ftiB nmbec
of draws indicated on your order.
Each draw your numbers are checked
by computer and all winnings are
automatically credited to yoa
4. Evety 5 weeks we will send
Subscription players a statement of
winnings and a copy of "Canadian
Lotto News" which contains the up to
date drawing results.
5. .All players viill be sent a "Final
Statement of Winnings" al the
expiration of your subscriptjoa
6. You will be notified immediately by
telephone of all wins of $500,00 or
more so that we may receive
instructions on payment,
7. We provide all setviccs on a
personalized and confidential basis.
gAJUSTU^^JOOA-rXv.
A. 'A J
no
I Canadian JNTERWATiONAL Lotto AoENCY |
New toll-free order line for credit card hoWers; 1-800-537-4477
MFiatlUyTT0M9EIITRYF0RM
imomtsmcamm "~"
Thereaie Sboards below. Oneachboardyou wish to play, mikBnmbeis
wtthapenorpencilTimchooseasubscriptionpbnmtheiiglft
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26 DRAWS (13 WEEKS)
1 Board $ 52 G 4 Boards $208 :
2 Boards $104 U 5 Boards $260 [
3 Boards $156 □
52 DRAWS (26 WEEKS)
INCL UDES TuneE DRUNS FREf
1 Board $ 98 D 4 Boards $392 G
2 Boards $196 G 5 Boards $490 G
3 Boards $294 G
104 DRAWS (52 WEEKS)
INCLUDES SIX DR/IWS FREE
1 Board $196 n 4 Boards $784 G
2 Boards $392 □ 5 Boards $980 G
3 Boards $588 G
e eveni ol > discrepancy b
men numbers are considered final.
i0m6l49mEElS
Mark 7, 8 or 9 numbers
on the board at right
to make a 7, 8 or 9
number wheel. Then
choose a wheeling
plan below.
^tm
2
3
4
5
6
7
8
rr
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
7-NUMBER WHEELING
PLAN
D Play 4 (jraws for $56
n Play 8 draws for $112
PlaySdrnvsandget
ooe extra (Iravifreel
8-NUMBEB WHEELING
PLAN
D Play 4 draws for $224
D Play 8 draws for $448
Play 8 draws and get
one extra draw treel
9-NUIVIBER WHEELING
PLAN
n Play 4 draws for $672
D Play 8 draws for $1344
PtaySdrawsmdeet
one extra draw freel
., ..! 1 1 i 1 1 1 1 1
Mr/Mrs
'
r^
7,p! 1 M 11 M 1
i I«_(l M DM 11 1 1 i 1 1
PleaM make payment In U.S. Dollars to C.I.L AGENCY
and mall In ttte envelope provided.
Payment By. ZJ Check/Money Order Q Visa O MastefCard
u Diners Club C Amertcan Express
Credit Card Num!>er;
II 1 1 M 1 M M 1! 11
^r ^
. s:s»mm
DET»CM ANO KEtC THIS BOnOM PORTION FOR YOUR RECORDS
Entry Receipt
(Subject to confirmation)
REGISTERED TO:
METHOD OF PAYMEhIT:
~Ch«ck/Money Order CjVtsa uMaslerCanS
Z Differs Out u Ametican tifvess
1
BoanJl
Board 2
Board 3
Board 4
Boards
■■
n 26 Draws D 104 Draws
113 weeks) (52weeks|
D 52 Draws
(26 weeks)
7 NUMBERS
:
MM
1 1 1
8 NUMBERS
M 11 11 M 1
9 NUMBERS
M 11 11 11 1 1
ii^HmNJII!ltlJI:l.'IJItl!l^iflil
7 Numbers ■
8 Numbers ■
9 Numbers •
4 Draws D
4 Draws D
4 Draws D
8 Draws D
8 Draws n
8 Draws D
CANADIAN INTERNATIONAL LOnO AGENCY
Questions? Call: l-604^79«995 Fax: 1-604^79-5942
Ill
t\ o
■pmo
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Australian htemational
Ljrttery Fedetation
Oder Processing Cemer Priviite MaU Bdg 4010. Fortitude Valley 1006, Australia.
Telephone; 01 1-61-7-2»«97 Fax: 011-61-7 221-7766
ToM free Hne for aedh card oiderv l-ax)- 392 7586
David F Gerity
160 Bergen Street
Woodbridge, NJ
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w
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gpirfiiiaii Lotto ciws Sutegiptioii farm
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David P Gerity
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07095
Choose 6 ntnnbm below and mark each one with an X'.
10 11 12 13 14 15 16 17 18
122
You'll piobably relate to the following
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123
124
125
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126
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wmmmmmMMMMi
AushafianlntOTiatioiriUHBiYFedeiaBoii
Unconditional Giiaiantec
As a registered and established lottery
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WECUARANTEE
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3* All prizes are paid to you in a lump
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4. No Australian taxes are deducted from
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5. We keep customer information strictly
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permission of winners.
ra
C1992 AUS-007B
127
NETWORK CONSULTANTS
GENEVA • LONDON • NEW YORK
Dear Lotto Player,
If you haven't yet decided to enter Australian Lotto 6^45,
remember these three important facts:
1. The odds of winning Aussie Lotto 6/45 are better than:
• Pick 6 in New Jersey • Lotto 47 in Michi^
• California Lotto • Super Lotto in Ohio
• New York Lotto • The Missouri Lotto
• Lotto America • The Illinois Lottery
• Wild Card Lotto • Lotto 6/49 in Rorida, Maryland,
in Pennsylvania Massachusetts, and Washington
2. Most U.S. lotteries have no bonus number (only five states
do have one). In comparison, Austrahan Lotto 645 has TWO bonus
numbers.
3. Austrahan Lotto &45 gives back up to one third more money
to players. In our opinion, this makes it a superior lotto game.
Just something to think about...
y^tU>^ 6/.¥Wv*./<n.^
John Chambers, BCom, MBA, C J»A
International Lottery Consultant
128
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129
Miss Collins. Ms. Peg Mullen representing the testimony of
Myra Silbert.
Ms. Mullen. Madam Chairman, thank you for this opportunity
to appear. My name is Margaret Mullen and I'm reporting for Myra
Silbert. Myra is 80 years old and it's her husband, Dr. Sidney
Silbert, who has been victimized by operators of sweepstakes.
Beginning in March 1992 through January 1993, her husband
wrote checks to numerous sweepstakes companies. The amount
total exceeded $18,000. In some cases, as many as six or seven
checks were written to the same company on the same day. It is
impossible for her to tell you all the distressing details of the var-
ious sweepstakes. However, one sweepstakes prize comes to mind.
It was $100 prize coupon awarded towards the purchase of a cam-
era for which he had to send an additional $61 to receive the cam-
era that was allegedly valued at $169. To her dismay, it was
shipped directly from Japan and he had to pay an additional
$11.20 duty at the post office before he received the prize. Once he
received the camera, it was clearly visible that this was not worth
$169.00 and barely worth $19.00.
In addition, he had received cheap zircon diamonds on incredibly
thin chains for $49.
To date her husband has written 810 checks — we have them
here — ^totaling $18,000. To one company alone he wrote 155 checks
totaling more than $4,000.
She's directing her plea to you in the hopes that a way will be
found to halt these ever growing scams directed at the elderly who
have become victims because of delusions of grandeur or whatever.
She'll be happy to answer any questions you may have in the fu-
ture. At the present moment, she's at St. Bamham's Hospital be-
cause of emphysema.
[The prepared statement of Ms. Silbert:]
Prepared Statement of Myra Silbert, New Jersey Consumer Affairs for
Victims of Mail Fraud
Thank you for this opportunity. My name is M5Ta Silbert. My husband Sidney
Silbert has been victimized by operators of sweepstakes.
Beginning in March 1992, through January 1993 my husband wrote checks to nu-
merous sweepstakes companies. The amount total exceeded $18,000. In some cases
as many as six or seven checks were written to the same company on the same day.
It is impossible for me to tell you all the distressing details of the various sweep-
stakes, however one Sweepstakes Prize comes to mind. It was a $100.00 prize cou-
pon awarded towards the pxirchase of a camera, for which he had to send an addi-
tional $61.00 to receive a camera valued at $169.00. To my dismay it was shipped
directly from Japan and he had to pay an additional $11.20 duty at the Post Office
before he received this prize. Once he received the camera, it was clearly visible that
this was not worth $169.00.
In addition he has received cheap Zircon Diamonds on incredibly thin chains for
$49.00.
To date my husband has written 810 checks totaling $18,000 to one company
alone then wrote 155 checks totalling more than $4,000.
I am directing my plea to you in the hopes that a way will be found to halt these
ever growing scams directed at the elderly who have become victims because of de-
lusions of grandeiu". I will be happy to answer any questions.
Miss Collins. She's in the hospital right now?
Ms. Mullen. She's in the hospital.
Miss Collins. Her husband is how old?
Ms. Mullen. Eighty-five-years old. He's a dentist.
130
Miss Collins. He wrote over 900 checks. There was no one in
his family that could monitor or that was aware of what was going
on?
Ms. Mullen. When I asked his wife, it seems that all through
their married life, 60 years, they've had a unique relationship. He
simply wrote checks. He never recorded them in a register. She an-
ticipated his needs and always made sure that there was enough
money in the checking account to cover the checks. That's how she
became aware of the problem was because she was notified by the
bank that there were checks being bounced all over the place.
Miss Collins. I see. Did your office file complaints with the Fed-
eral agencies?
Ms. Mullen. No. As a matter of fact, we had contacted one post-
al inspector and he indicated an interest and we did send him cop-
ies of some of the solicitations. We also have sent out cease and de-
sist orders to 11 States to companies in 11 States.
Miss Collins. Did they cease?
Ms. Mullen. Six of them entered into the cease and desist or-
ders and have refunded consumers. The one company that he wrote
155 checks to, he did receive a check for $4,852.
Miss Collins. Was that because of your office?
Ms. Mullen. Yes, ma'am.
Miss Collins. If he had written on his own, would he have re-
ceived it, do you think?
Ms. Mullen. That I can't tell you.
Miss Collins. What about the shipment from Japan? Was that
through an American company?
Ms. Mullen. There was no indication that you were dealing with
a Japanese company. It was a sweepstakes. I believe that was the
Cash and Carry Sweepstakes and that national promotion comes
out in Nevada.
Miss Collins. Out of Nevada?
Ms. Mullen. Nevada. We can match up the solicitation and the
prize, if that's of any interest to you.
Miss Collins. I imagine that's similar to the person who had a
room full of prizes.
Ms. Mullen. Yes.
Ms. Byrne. Yes. Absolutely. We'd be happy to give you the pro-
file of that activity.
Miss Collins. All right. Thank you. I'd like to put that in the
record. Enter that into the record.
Ms. Wenona Russo, a victim of mail fraud from Flemington, NJ.
Ms. Russo. Thank you. Madam Chairman. Thank you for this
opportunity to testify. I am here to let you know what happened
to me. My name is Wenona Russo. My participation in various
sweepstakes and promotions has resulted in my losing over
$235,000 in the last 3 years.
Let me tell you about one such promotion. A company contacted
me by telephone in September 1992 telling me I had won $1 mil-
lion, but first I had to send a check of $14,600 to purchase products
to prove that I was their customer. The only prizes I received were
two Oleg Cassini watches which had a $195 sticker on each box
and a Windmere Air Filter worth about $100.
131
I also signed a prize release form stating I would accept a big-
screen television and an oriental rug. I received a 20" television
and 4x6 oriental rug.
These people promised a chance to win big money by participat-
ing in their promotions and I was deceived. I get mail and I still
get mail in boxes like that but now some of it is thrown away at
the post office and I get about this much in the bottom. Before, I
used to get one just like that regularly every day.
It's my hope that my testifying will in some way prevent others,
particularly apparently the elderly, from becoming victims of un-
scrupulous sweepstakes operators. I'm willing to answer any ques-
tions that you have.
[The prepared statement of Ms. Russo follows:]
Prepared Statement of Wenona Russo, Victim of Mail Fraud
Thank you for the opportunity to testify. I am here to let you know what hap-
pened to me. My name is Wenona Russo. My participation in various sweepstakes
and promotions has resvilted in my losing over $200,000 in one year.
Let me tell you about one such promotion. A company contacted me by telephone
in September of 1992 telling me I had won a million dollars, but first I had to send
a check for $14,600 to purchase products. ^ ^ , * ^„ . ,
The only prize I received were two Oleg Cassini watches which had a $195 sticker
on each box and a Windmere Air Filter worth about $100.
I also signed a prize release form stating I would accept a big screen television
and an oriental rug. .
These people promised a chance to win big money by participating in their pro-
motions. Alas, I was deceived. .
It is my hope that my testifying will, in some way, prevent others, particularly
the elderly, from becoming victims of unscrupulous sweepstakes operators. I am
willing to answer any of your questions.
Miss Collins. Ms. Russo, why does the post office throw away
most of the mail now? Was it at your request?
Ms. Russo. No. One of my daughters went up.
Miss Collins. So it was at her request then?
Ms. Russo. Yes.
Miss Collins. What prompted you to continue to participate in
the sweepstakes after your initial experience?
Ms. Russo. Well, I participated because my husband was quite
ill and I stayed home to take care of him and you have to do some-
thing and these things were sort of interesting so I did it and I lost
the register from my checkbook so I didn't really realize how much
I was spending.
Miss Collins. They're exciting, aren't they? The letters they
send you are so exciting telling you, you won.
Ms. Russo. I just thought they were interesting and it gave me
something to do. You can't read a story because you're interrupted
too much, but you can do these contests that they send. And the
money that I spent was money that I had inherited so it was sort
of gift money going out.
Miss Collins. Did the company that telephoned you saying you
had won $1 million indicate how soon after sending the check for
$14,600 you would be receiving the million?
Ms. Russo. I didn't receive anything afterward.
Miss Collins. But did they tell you how soon? Did they mention
when you
Ms. Russo. No. They said as soon as they got the check it would
come out and many of these others also say if you send back so
132
much money, you will immediately get it, and you don't ever see
it.
Miss Collins. Did you ever try to stop payment on the checks?
Ms. Russo. No, I didn't because, as I say, I was confined at home
during that time. I had to have — to have somebody come in later
to stay with my husband to just go to the grocery store.
Miss Collins. Did you or your daughter contact the U.S. Postal
Inspectors?
Ms. Russo. No, I don't think so. I'm not sure whether they did
or not.
Miss Collins. So then no complaint has been filed against those
companies as yet. Is that right?
Ms. Russo. No. I haven't started.
Miss Collins. Thank you very, very much.
Ms. Russo. I didn't know I could do that.
Miss Collins. Pardon me?
Ms. Russo. I didn't know I could do that.
Miss Collins. So, as far as you know, they're still operating.
Ms. Russo. Yes, I still get some. In fact, these are dated 3-30-
93, 3-27, 3-27 and 4-26 and they look just like the ones in that
box. I have a set of bookcases that are about 4' high and I would
say 12-15' long filled with those in one room.
Miss Collins. Is that right?
Ms. Russo. Because maybe I need something for proof sometime.
I think I'll give them to the department of consumer protection in
New Jersey.
Miss Collins. Thank you very much.
Ms. Russo. Thank you.
Miss Collins. Mr. Eric Friedman, investigator for Montgomery
County Consumer Affairs.
Mr. Friedman. Thank you, Madam Chair. My name is Eric
Friedman. I'm an investigator and an attorney with the Montgom-
ery County Government Office of Consumer Affairs. I'm pleased
today to testify on behalf of Barbara Gregg, the director of our of-
fice, before the House of Representatives Subcommittee on Postal
Operations and Services.
Our office receives many complaints each year from consumers
who've been victimized by fraud and deception through the U.S.
Postal System. As a local office, we have the extremely difficult
task of both attempting to terminate such fraudulent practices and
attempting to obtain restitution for consumers.
Our experience over the last 21 years has clearly taught us two
things in this regard. First, it is a markedly better allocation of
scarce resources to concentrate on preventing deception and fraud-
ulent marketers from entering the consumer marketplace than it
is to try to get money back for consumers who've been victimized.
Second, the best strategy for attacking the problem is to focus
scarce prevention resources on the few enabling root causes rather
than the multitude of boiler room operators. Examples of such ena-
bling root causes are: the postal system, credit card companies,
telephone companies, printing and mailing operations.
These otherwise legitimate institutions are all, to one degree or
another, wittingly or unwittingly, part of the problem. They are re-
ceiving substantial amounts of financial compensation from the
133 ^
very merchants who are proHferating fraud and deception. In fact,
fraudulent marketers would be extremely hard pressed to continue
to operate if not for the assistance of these legitimate institutions.
The financially rewarding symbiotic relationship which presently
exists between these institutions and marketers engaged in fraud
and deception must come to an end. These institutions must be-
come part of the solution rather than continue to remain on the
sidelines as if they are no more than disinterested on-lookers.
My message today is to urge the subcommittee to direct those
agencies with regulatory authority to aggressively use all available
avenues to prevent the U.S. Postal System from being used for
fraud and deception. The following five suggestions are respectfully
submitted.
First, increase use of the fraud injunction statute. An effective
enforcement tool already exists by which fraudulent mailings can
be easily stopped before consumers are victimized. Under this stat-
ute, mailing of clearly fraudulent material can be enjoined at the
time they are brought to a post office bulk mail processing unit.
The U.S. attorney need only show that there is probable cause that
the marketer is about to engage in a fraudulent scheme. The fre-
quency of enforcing this statute must be dramatically increased
and any enforcement action should broadly be publicized.
Second, establish mechanisms to identify fraudulent marketers.
Current procedures used by the post office do not enable consumer
protection regulatory agencies to quickly identify a deceptive mar-
keter. The bulk mail stamp or permit number on a mailing does
not necessarily identify the person responsible for mailing the ma-
terial. A bulk mail permit number is typically issued to a mailing
house which does mailings for hundreds of different merchants.
Our investigative capabilities would be greatly enhanced if the ac-
tual source of the mailing, the individual marketer, could be read-
ily obtained from the post office records or receipts.
Third, enable the post office to respond to court orders. Cur-
rently, the post office does not have an effective mechanism that
enables its bulk mail receiving units to swiftly respond to court or-
ders prohibiting a deceptive marketer from mailing into certain
areas. To cite a recent example, two States obtained court orders
enjoining a fraudulent marketer in Texas from mailing into their
State. However, the bulk mail receiving post office in Texas had no
procedure to flag those enjoined zip codes in order to effectively en-
force the court orders. This problem existed despite the fact that
the post office required the mailer to sort the mail by zip code. It
is imperative that a comprehensive mechanism by which such
mailings can be flagged be established as soon as possible.
Fourth, require credit card companies and telephone companies
to effectively screen merchants primarily engaged in mail solicita-
tions before they grant vendor status. Fraudulent marketers typi-
cally use the postal system to initiate contact with consumers by
sending direct mail solicitations. Much of the money obtained by
these marketers is received via credit card or through a pay-per-
call — 900 — telephone arrangement. Consequently, credit card com-
panies and telephone companies should be required to take ade-
quate steps to insure the legitimacy of such businesses before they
I
enter into contractual arrangements to collect moneys from con-
sumers on behalf of these merchants.
And finally, fifth, prohibit commercial mail firms from allowing
merchant subscribers to misrepresent their mail drop as a suite or
office. A merchant's return address can provide consumers with in-
formation upon which consumers rely in determining if the mer-
chant is a legitimate business. Some deceptive marketers have
rented mailboxes at commercial mail drop firms and misrepre-
sented their address as a suite or office on a well known street
when, in fact, it is nothing more than a mailbox. Montgomery
County has soUcited agreements with major commercial mailbox
firms to prohibit this practice. Such a prohibition should be done
nationwide. Private mailbox firms should not allow merchants to
do that which the U.S. post office would prohibit them from doing
if they rented a post office box.
In reviewing these recommendations, one overriding principle
should remain paramount. Prevention resources should be allo-
cated in such a way that they serve to solve the problem in the
most cost effective manner. Clearly, focusing on the entry way to
the postal system as well as the points where the marketers are
granted access to legitimate collection mechanisms — credit cards,
telephone, electronic debiting of checking accounts — ^is much more
cost effective than having many consumer protection agencies at-
tempt to solve the problem at the other end. Such after the fact law
enforcement activity, despite significant and longstanding efforts
by numerous governmental agencies, has not resulted in the Amer-
ican public being adequately protected from the high cost of mail
fraud. It is time for Congress to take the lead and bring about a
systemic change in the way mail fraud is viewed and in the nature
of the enforcement tools used to present it.
Thank you.
[The prepared statement of Mr. Friedman follows:]
Prepared Statement of Eric S. Friedman, Investigator, Montgomery County
Consumer Affairs
Good morning. My name is Eric Friedman and I am an Investigator and attorney
with the Montgomery County Government Office of Consumer Affairs. I am pleased
today to testify before the House of Representatives Subcommittee on Postal Oper-
ations and Services.
Our Office receives many complaints each year from consumers who have been
victimized by fraud or deception through the U.S. mail system. As a local Office we
have the extremely difficult task of both attempting to terminate such fraudulent
practices and attempting to obtain restitution for consumers.
Our experience over tihe last 21 years has clearly taught us two things in this re-
gard. First, it is a markedly better allocation of scarce resources to concentrate on
preventing deceptive and fraudulent marketers from entering the consumer market-
place than it is to try to get money back for consumers who have been victimized.
Secondly, the best strategy for attacking the problem is to focus scarce prevention
resoiu-ces on the few enabling root causes rather than on the mviltitude of boiler-
room operators. Examples of such enabling root causes are: tiie postal system, credit
card companies, telephone companies and printing/mailing operations. The con-
centration of prevention resources on these enabling root causes will maximize the
effectiveness of our efforts.
These otherwise legitimate institutions are all, to one degree or another, wittingly
or unwittingly, part of the problem. They are receiving substantial amounts of fi-
nancial compensation from the very merchants who are proliferating fraud and de-
ception. In fact, fraudulent marketers would be extremely hard pressed to continue
to operate if not for the assistance of these legitimate institutions. The financially
rewarding symbiotic relationship which presently exists between these institutions
135
and marketers engaged in fraud and deception must come to an end. These institu-
tions must become part of the solution rather than continue to remain on the side-
lines as if they are no more than disinterested on-lookers.
My message today is to urge the Subcommittee to direct those agencies with regu-
latory authority to aggressively use all available avenues to prevent the U.S. mail
system from being used for fraud or deception. The following suggestions are re-
spectfially submitted:
1. INCREASE USE OF THE FRAUD INJUNCTION STATUTE
The Fraud Injunction Statute (18 U.S.C. § 1345) currently enables the U.S. Attor-
ney to prevent a fraudulent marketer from sending deceptive mailings by refusing
to process such maiUngs. In other words, an effective enforcement tool already exists
by which fraudulent mailings can be easily stopped before consumers are victimized.
Under this Statute, mailing of fraudulent materials can be enjoined at the time they
are brought to a Post Office bulk mail processing unit. The U.S. Attorney need only
show that there is probable cause that the marketer is about to engage in a fraudu-
lent scheme. It is not necessary to demonstrate irreparable harm as is usually the
standard to obtain injunctive reUef. Many of the fraudulent mailings seen by my Of-
fice are deceptive on their face. Consumers would have been best protected if the
mailings had been stopped when they were brought to the Post Office and never
distributed at all. The frequency of enforcing this Statute must be dramatically in-
creased and any enforcement action should be broadly publicized.
2. ESTABLISH MECHANISMS TO IDENTIFY FRAUDULENT MARKETERS
Current procedures used by the Post Office do not enable consumer protection reg-
ulatory agencies to quickly identify a deceptive marketer. The bulk mail stamp or
permit number on a maiUng does not necessarily identify the person responsible for
mailing the material. A bulk mail permit number is typically issued to a mailing
house which does mailings for hundreds of different merchants. Our investigative
capabiUties would be greatly enhanced if the actual source of the mailings, the indi-
vidual marketer, could be readily obtained from Post Office records or receipts.
3. ENABLE THE POST OFFICE TO RESPOND TO COURT ORDERS
Currently, the Post Office does not have an effective mechanism that enables its
bulk mail receiving units to swiftly respond to Court Orders prohibiting a deceptive
marketer fi-om mailing into a certain area. To cite a recent example, two States ob-
tained Court Orders enjoining a fraudulent marketer in Texas from mailing into
their States. However, the bulk mail receiving Post Office in Texas had no proce-
dure to flag those enjoined zip codes in order to effectively enforce the Court Orders.
This problem existed despite the fact that the Post Office required the mailer to sort
the material by zip code. It is imperative that a comprehensive mechanism by which
such mailings can be flagged be established as soon as possible.
4. REQUIRE CREDIT CARD COMPANIES & TELEPHONE COMPANIES TO EFFECTIVELY
SCREEN MERCHANTS PRIMARILY ENGAGED IN MAIL SOLICITATIONS BEFORE THEY
GRANT VENDOR STATUS
Fraudulent marketers typically use the postal system to initiate contact with con-
sumers by sending direct mail sohcitations. Much of the money obtained by these
marketers is received via credit card or through a pay-per-call (900#) telephone ar-
rangement, consequently, credit card companies and telephone companies should be
required to take adequate steps to insure the legitimacy of such businesses before
they enter into contractual arrangements to collect monies from consumers on be-
half of these merchants.
5. PROHIBIT COMMERCIAL MAIL FIRMS FROM ALLOWING MERCHANT SUBSCRIBERS TO
MISREPRESENT THEIR "MAIL-DROP" AS A "SUITE" OR "OFFICE"
A merchant's return address can provide consumers with information upon which
consumer's rely in determining if the merchant is a legitimate business. Some de-
ceptive marketers have rented mail boxes at commercial "mail-drop" firms and mis-
represented their address as a "suite" or "office" on a well known street when, in
fact, it is nothing more than a mail box. Consumers may be more Ukely to send
money to a business if they are led to beUeve the merchant maintains a prestigious
address. Montgomery County has solicited agreements with the major commercial
mail box firms to prohibit this practice. Such a prohibition should be done nation-
136
wide. Private mail box firms shovild not allow merchants to do that which the U.S.
Post Office would prohibit them fix)m doing if they rented a Post Office Box.
In reviewing these recommendations, one overriding principle should remain
paramount. Prevention resources should be allocated in such a way that they serve
to solve the problem in the most cost effective manner. Clearly, focusing on the
entry way to the postal system as well as the points where marketers are granted
access to legitimate collection mechanisms (i.e., credit card, telephone, electronic
debiting of checking accounts, etc.) is much more cost effective than having many
consumer protection agencies attempt to solve the problem at the other end. Such
after the fact law enforcement activity, despite significant and longstanding efforts
by numerous governmental agencies, has not resvdted in the American public being
adequately protected fix)m the high cost of mail fraud. It is time for Congress to take
the lead and bring about a systemic change in the way mail fraud is viewed and
in the nature of the enforcement tools used to prevent it.
137
Montgomery County Government
NEWS RELEASE
0D/DB/vw:84 90-97 Contact: Judy Doctor or
Eric Friedman. 217-7373
CONSUMER AFFAIRS HARNS THAT
BUSINESSES CANNOT USE
POSTAL BOX FOR ADDRESS For Iwnedlate Release: Harch 14, 1990
Montgomery County's Office Of Consumer Aff»1r$ Is notifying commercial
mall box firms that serve as a mati box or nail drop for various businesses
that they must cease the practice of allowing a business to represent a return
address as a "suite" or office when. In fact, 1t Is only a mall drop.
"Misrepresenting a 'postal box' as a business address Is a violation of
County Consumer Protection Law," said Consumer Affairs Executive Director
Barbara B. Gregg. "Khen a business gives the Impression that it 1$ physically
located at a particular address, consumers assume that U a problem occurs
they can go to that address and deal face to face with a representative of the
business.
"We are writing to all County firms and are pleased that they ar«
voluntarily changing their practices," Gregg added.
The problem came to OCA's attention when a consumer attempted to have a
business served with a summons for a Small Claims Court case and the business'
address turned out to be a postal box location.
# # f
138
^•vc -^7
f County Bids For Good Publicity
April 9. 1990 • Monigome'
f Tb« county! OffK* of Eto-
r. i»Bu« DtveJopiDeM ii lookioi
» for »ome tood PR. which miy cr
XJ m»y o» iae«o rtpUcin| iu ourci*
" cootrnci wi(b (he WtthiDtioo-
butd pwbtic rcltliont «te(xy
OED'i thftc-yctr $140,000
connct wiib MifidiDt. Sclvije A
Le« e»(>lre« iune JO tnd ibe county
it joxpcin J bid* from odief fmn*.
Joe Cituon. Mu>nin(, Stlvt(e
ft L««'i m»n«tm| di/ectflf. uid
thebidtfinipuuhhrinnm
petitivc lunoe (o fiuin one of the
couoiy'l mow Klive pgblKiiy—
letkm.
"Aaytime yov go ioio conpcd^
tioe. y<i«*re looW «t »» ooe of il<
crowd." Okuoe uid.
Tb« fiiB. which ia November
««e ■ $200,000 coanci rcaewil
fof (be SOvtr SfriAl Ufttii Di«>
Ifict. uid be c*a'l tfTord lo be.
coflv wthaveirinncommjtmtnltoeco-
"It't htid fou|hi ill (be wty."
Ik uid. "We do feel tiU we htve
iome *dvtiii*ge( in ihat we htve
wotted with tfte cooMy a»d IhM
Cle*ioa uid he doetn'l know
wh«t hU compctilion ii. beciuM
the c«ua^ bu i clo<ed bid pcoc-
e«. •',
••We weo^i know who clu U
biddint until we go in there June
30 U)d ue who elie it (inin| in the
lobby," Gle«ton uid.
Receady, OEO dinctor Dyin
L. BntingtOB gained iniliti
ipprovit from t county budget
lubcommittee to rcuia ber pro-
posed funds (0 hire • public leli-
liOM firm.
Mailbox Inadequate Business Address
X
County bujineuej ihit rent po-
e port office borer must comply
' ..lb rtneier ruoduds on bow the
boxer we ured u iddrerser.
7>>e eouniy't Consumer Affriri
Office diftcted businesses that rent
eommereitl mtil borer to tell
cuslofficn that the address is t fo%t
office boi and not an office loea-
lioa. Leading customerr to believe
a poM office bo« ir i suite o« an
office ir a violation of the naie
conrumer proieciion »i»iuie.
eouety coerumer iffairr onWialr
Friedman, an investigator for the
county Consumer Affain Office.
•But there art definitely some
merchanu who fxn using there
borer as a front or a way lo shield
their identity."
Friedman said the new regula-
ijoe win not affect the majority of
(he merchants who rent pnvatc
post office boxer However, fmrn
ihjt insinict clients to use the lefm
"suiie^^ ia addresses instead of
"post office box" will no longer
be allowtd to do so.
Mail Box Etc. a Urge commerc-
ial mailing fina. is one of the com-
••Tbere'r oothmg wrong »hh use the urm
using a port office box."" Mid Erie Ross
KLM Approved for BWI—
Amsterdam Route
said the new standards will bun the
credibility of businesses that have
followed that practice.
The regulation has only been ad'
opted in Montgomery County, but
Fncdman predicts other counties
will do the vime.
He uid Pennsylvania recently
adopted a similar law.
RMR Wins
Atlanlix Contract
Atlaniix Corporsuoa Ifonncrly
CocoNei. Inc.) of Boej Riton. F)
has announced that RMR A
Associates, Inc., ■ full service ad-
vertising agency bated in Rock-
ville. will be the agency of record
to promote Ailaniix Corporation
Oovcrnor William Doasid
Schaefer hu announced that KLM
Royal Dutch Airlines hM been
-tnie^ approval by the US De-
ment of Transporiatioa
(1>»D0T) to inaugurate servic*
frotn Ballimoie/Washlngtoa to-
lemtfiaoal Aiiroit (BWI) to Am-
letratiotial Krvice coofoms Maiy*
lands potential ia the world mar-
ketplace."'
One month ago. Oovernor
Schaefer. akxig with Paul Sar-
banes. Sea Barbara Mikubki, and
Winiaa Hudaoa. Executive Dircc*
lor, Btaineu Dcvclopneai from
WcetiAghouse enpliasiied dte hn-
of
Mart land snd ibe ruM<
ithefintairiineiorp- portanee of laiensaiiooal bsislness
Ailantii Corporation, which
was founded in I9g9 by Tony|,
Ardolino. signed a niulti-millioa
dollar investment deal with the
Perot Croup, a vcaiure-cspital
company headed by high-
•cchnology entrepreneur H. Rest
Perot, in January 1990. The com-
puter software company provides
inicgratioo of UNIX woikrutiona
with ioduiiry standard PC-LANs.
AdtMix. after the conridertiioa
of various national advertising
firms, decided lo use RMR ft
Shanno
BEOBmB
i-jfi-;'
22,
at 7i
Mr
rep
ShannonlJ
Commcrci ^
ia<^>-'
QfEr
nMHSSlHppMtWv
MurM t Son«*< ;
~'^M&^iS^^i^^^^^^^^r0^^..
■i^Swrf?**"
140
So Ms. Leona Roderick, victim of mail fraud from Wheaton, MD.
Ms. Roderick. Yes. Thank you for inviting me to testify and I'm
delighted that we're holding this hearing on mail fraud because it's
unbelievable how many people that this has happened to and we're
all really gullible as far as these sweepstakes bits are concerned
and how, you know, we fall for them. Of course, I am happy to say
that I didn't — I really feel bad for the other people, but I didn't get
involved very deep in it which I'm glad.
Prior to July 3, 1992, I received a letter from a company, so I
assumed it was a company, center for refund services, stating that
I had won $5,178. I was to mail them $9.97 for mail charges to get
this to me. I did send them the money and I waited and I didn't
hear from this company so I wrote them a letter and their response
was that "I have not received your money for mailing fees and you
need to send $9.97." After receiving my canceled check, I then
knew better than to send another $9.97, and I have copies of the
correspondence with them and a copy of the canceled check.
Miss Collins. Is that the one that said it was an Internal
Revenue
Ms. Roderick. No, this is another one.
Miss Collins. This is another one.
Ms. Roderick. This is another one. I later received a letter from
what's called U.S. Product Testing and that they had a number of
products for your selection. It was a John Deere tractor lawn
mower, a Singer sewing machine, ladies and gentlemen's watch, a
freezer, a TV, a VCR, and Craftsman's tools. You could make your
selection and send them $14 for the mailing cost. So you make your
selection, mail them the check for $14. You don't hear from them.
You contact them and you get the same story. We have not re-
ceived your money for mailing cost. I tried contacting these people.
I wrote them a letter. No response. And I'm looking at my canceled
checks and these people have a Florida address, but when these
checks are stamped, it says on the back of them Philadelphia. If
they have a legitimate business in Florida, why would they be
sending these checks to be cashed in Philadelphia?
Miss Collins. You sent the checks to Florida?
Ms. Roderick. Yes. I am 60 years of age and I'm rearing a
grandson. I lost $25 between the two of them, which isn't much but
it's $25 more than I could really afford because it's something that
I could have spent doing something for my grandchild.
And you may have these if you wish, if you like. It's the cor-
respondence from these companies and copies of my canceled
checks.
Miss Collins. All right. Thank you very much.
Ms. Roderick. And hopefully with what's happening here today
will help other people, other victims, not to be victimized in these
so-called sweepstakes things.
[The prepared statement of Ms. Roderick follows:]
Prepared Statement of Leona Roderick, Victim of Mail Fraud
Thank you for inviting me to testify. I am delighted you are holding hearings on
mail fraud, a problem which has become quite rampant in the last few years. I sin-
cerely hope this subcommittee can do something about this problem. I am here
today to tell you my story.
141
My name is Leona Roderick. I am sixty years old and live on a low fixed income.
I have to pinch pennies to make ends meet, because I am rearing a young grandson.
I am from the Baltimore-Washington area.
I have been the victim of mail fraud twice. There were two letters that I received
by mail. The first stated that I had $5000 due me from the I.R.S., and that I should
send nine dollars for them to mail it to me. I think this was in July. So, I sent them
$9.75. That was the first instance. I received a notice shortly thereafter saying that
they had not gotten the check, and saying this was why I could not get my refund.
But I had my cancelled check, so I knew that they had received it. I did not send
them any more money, although they indicated I had to send more. That was the
first time. ^ , ™, . r.
The second time I got taken was through the United States Product Testing Com-
pany. I received a letter that said that they were conducting a survey on appliances.
The letter arrived in a brown envelope with a card and a return envelope inside.
You were to check the card to indicate what appliance you would like them to bring
to your house to test and send it oflF with your money. If you sent them fourteen
dollars, then they would drop off the appliances. The appliances were all sorts of
things: washers and dryers, TVs, lawn mowers. Basically, the letter said that if the
appliance they were testing was still in your household after a year and that if it
was still working that it was automatically yours and you could keep it.
However, after I sent my money, no appliances arrived. First I wrote the company
asking them why they had not sent the appliance I had requested. Then, I contacted
them by phone. The company said they said that they had not received my money.
That was when I realized it was just a gimmick. I later found out both letters were
from the same people.
I ended up filing a complaint with the Montgomery County Consumer Affairs and
eventually got in touch with the Postal Service. Apparently, there had been lots of
complaints. I spoke to the people with the Postal Service that indicated that it's
often older people that are the victims.
In total I lost $25.00, which may not seem like much, but which was $25.00 I
could not afford to lose.
In the past I had received tons of paper from these people, but had never re-
sponded. I have copies of the cancelled checks and other records that I would like
submitted for the record. I hope that something will be done about this type of theft.
I think they are preying on the elderly, and I think it must be stopped. The whole
experience was very upsetting to me.
Miss Collins. Were the letters sent to you individualized letters?
Were they addressed to you or were they occupant?
Ms. Roderick. No. They were addressed to myself.
Miss Collins. How do you think they got your name? The U.S.
Consumer Product Testing Co.?
Ms. Roderick. I have no idea. I didn't realize until sitting here
in this hearing realizing that these different people, you go fill out
applications for a credit card, for instance, or have a change of ad-
dress at the post but you have no idea that these people are selling
this information. They tell you when this is taking place, this is
confidential. We're the only ones that will have this. No one else.
But they're selling it to each on down the line, and evidently this
is how they're getting the information on these people because it
shows here on the correspondence with these companies that my
name and address is here on them.
Miss Collins. Did you contact any agency or the post office
when you realized it was a scam?
Ms. Roderick. When I realized it was a scam, I contacted
consumer affairs in Rockville. They were very helpful. I did contact
the postal inspectors, discussed this with them, and then they're
telling me, you're not the only complaint. We have thousands of
complaints.
Miss Collins. Did they do anything?
Ms. Roderick. They tell you that they're going to investigate this
but thus far I haven't had any other contact except a letter stating
142
that someone in Tennessee or some place is investigating this.
They give me a gentleman's name and I haven't had any other cor-
respondence with them.
Miss Collins. Well, I commend you for coming to testify and I
commend you for going forward. A lot of people would say $25 isn't
worth the effort but, of course, it is worth the effort and hopefully
all of this great testimony will help us enable this committee to
draft legislation. We have one or two more hearings and then we'll
see what kind of legislation can be drafted that will help. Once
that's drafted, we're going to need your help in coming to testify
before the committee to try to get the legislation passed. Isn't that
correct?
I thank you very much, Mr. Friedman, for such concrete, written
recommendations to us.
This oversight hearing on mail fraud is now completed and I
think we did it very timely. The House went into session at 12
noon and so we're right on time. And again, I give you my thanks
for coming.
Hearing is adjourned.
[Whereupon, at 12:10 p.m., the subcommittee adjourned.]
MAIL FRAUD
WEDNESDAY, JULY 21, 1993
House of Representatives,
Committee on Post Office and Civil Service,
Subcommittee on Postal Operations and Services,
Washington, DC.
The subcommittee met, pursuant to call, at 10 a.m., in room 311,
Cannon House Office Building, Hon. Barbara-Rose Collins (chair of
the subcommittee) presiding.
Members present: Representative Collins.
Miss Collins. The Subcommittee on Postal Operations and Serv-
ices will now come to order.
Today we are having our second in the hearings on mail fraud.
I would like to welcome the witnesses to this hearing.
The first mail fraud hearing was held May 19, 1993, and it fo-
cused on the testimony of the mail fraud victims. The Subcommit-
tee heard testimony on the various ways mail fraud is perpetrated
and the debilitating effects on its victims. We heard some real hor-
ror stories about individuals losing hundreds of thousands of dol-
lars after responding to fraudulent scams that were advertised
through the U.S. mail service, especially the senior citizens.
It was clear from the testimony that most of the victims, whose
background and ages varied, had suffered financial loss by sophisti-
cated schemes facilitated through the U.S. mail service.
The victims' loss and embarrassment was further compounded by
the frustration encountered when they were shuffled from one law
enforcement agency to another. In some instances, independent in-
vestigations revealed that individuals continued to be defrauded by
these scams even after Government agencies were notified.
Today's hearing will focus on the Federal, State, and local agen-
cies that have the responsibility for combating this ever-growing
problem and how enforcement efforts are now being coordinated.
We are here to determine what, if any, technological advances are
being utilized to assist consumers in the reporting of mail fraud in-
cidents.
With the number of fraudulent scams growing at alarming rates,
agencies that are responsible for enforcing the law as it relates to
mail fraud should become more efficient and economical in ways to
combat this problem.
Today we hope to learn how the various agencies coordinate mail
fraud referrals. We would like to know how the process for report-
ing mail fraud cases can be coordinated so that complainants of
mail fraud are not transferred from agency to agency, only to find
that no agency is prepared to help them.
(143)
144
While we realize, in general, all Grovernment enforcement agen-
cies are facing the reality of limited funding, there must be some
unified effort implemented to deal with the reporting of mail fraud
scams. Today we hope to hear of some innovative ways to accom-
plish this objective.
To assist and help guide us in achieving this goal, I am delighted
to have with us today representatives of the Postal Inspection Serv-
ice, the Federal Trade Commission, the Department of Justice, the
Federal Bureau of Investigation, the National Association of Attor-
neys General, the Better Business Bureau, and the National Con-
sumers League.
All of these organizations will share with us how they process
mail fraud complaints from the initial reporting to the final disposi-
tion. Hopefully, we will learn how efforts are coordinated with
other consumer advocate groups and agencies. In addition, some
suggestions on how Congress can be of assistance in eliminating
the problem of mail fraud would be appreciated.
[The prepared statement of Hon. Barbara-Rose Collins follows:]
Prepared Statement of Hon. Barbara-Rose Collins, a Representative in
Congress From the State of Michigan
I would like to welcome the witnesses to the second in our series of subcommittee
hearings on the issue of mail fraud.
The first mail fraud hearing, held May 19, 1993 focused on the testimony of mail
fraud victims.
The subcommittee heard testimony on the various ways mail fi-aud is perpetrated
and the debilitating effects of its victims. We heard some real horror stories about
individuals losing hundreds of thousands of dollars after responding to fraudulent
scams that were advertised through the U.S. Mail Service.
It was clear from the testimony, that most of the victims, whose background and
age varied, had suffered financial loss by sophisticated schemes facilitated through
the U.S. Mail Service. The victim's loss and embarrassment was further
compounded by the frustration encountered when they were shuffled from one law
enforcement agency to another. In some instances, independent investigations re-
vealed that individuals continued to be defrauded by these scams even after Govern-
ment agencies were notified.
Today's hearing will focus on the Federal, State and local agencies that have the
responsibility for combating this ever growing problem and how enforcement efforts
are being coordinated.
We are here to determine that, if any, technological advances are being utilized
to assist consumers in the reporting of mail fi-aud incidents.
With the number of fraudulent scams growing at alarming rates, agencies that
are responsible for enforcing the law as it relates to mail fraud, should examine
more efficient and economical ways to combat this problem. Today, we hope to learn
how the various agencies coordinate mail fraud referrals. We would like te know
how the process for reporting mail fraud cases can be coordinated so that complain-
ants of mail fraud are not transferred from agency to agency, only to find that no
agency is prepared to help them.
While we realize, in general all Government enforcement agencies are facing the
reality of limited funding, there must be some unified effort implemented to deal
with the reporting of mail fraud scams. Today, we hope to hear of some innovative
ways to accomplish this objective.
To assist and help guide us in achieving this goal, I am delighted to have with
us today, representatives of the Postal Inspection Service, the Federal Trade Com-
mission, the Department of Justice, the Federal Bureau of Investigation, the Na-
tional Association of Attorneys' General, the Better Business Bureau and the Na-
tional Consumer's League.
AU of these organizations will share with us how they process mail fraud com-
plaints, from the initial reporting to the final disposition. Hopefully, we will learn
how efforts are coordinated with other consumer advocate groups and agencies. In
addition, some suggestions of how Congress can be of assistance in eUminating the
problem of mail fraud, would be appreciated.
145
On a personal note, I am extremely pleased and happy to welcome Ms. Esther
Shapiro, Director, of the Department of Consumer Affairs and the city of Detroit,
Michigan. Ms. Shapiro is a good friend and I appreciate her taking the time from
her busy schedule to be here today.
Additionally, I want to thank all of the witnesses for being here today. I am look-
ing forward to your testimony and hope that it will serve to enlighten us on the
success of interagency task forces, educational awareness programs, centralized
databases, forfeiture provisions and other innovative efforts in combating mail
fraud.
Miss Collins. On a personal note, I am extremely pleased and
happy to welcome Ms. Esther Shapiro, director of the Department
of Consumer Affairs for the city of Detroit, whom I have known for
many, many, many years. Ms. Shapiro is a good friend and I appre-
ciate her taking her time from her busy schedule to be here today.
Additionally, I want to thank all of the witnesses for being here
and I am looking forward to your testimony and hope that will
serve to enlighten us on the success of interagency task forces, edu-
cational awareness programs, centralized databases, forfeiture pro-
visions and other innovative efforts in combating mail fraud.
Our first paneUst will be Linda Golodner, president of the Na-
tional Consumers League. Welcome, Linda. Thank you for being so
patient.
STATEMENT OF LINDA GOLODNER, PRESmENT, NATIONAL
CONSUMERS LEAGUE
Ms. Golodner. Thank you. My name is Linda Golodner and I
am president of the National Consumers League. It is America's
oldest consumer organization. I am pleased to appear before your
subcommittee today to discuss our views on the growing problem
of mail fraud as well as steps we beUeve that can be taken to bring
this problem under control.
I want to commend the subcommittee and its staff for undertak-
ing this set of hearings to hear our views on mail fraud.
I sincerely believe that the mail fraud statute is perhaps the
most important anti-fraud weapon in our Nation's legal arsenal. It
is such a powerful weapon that most con artists will go to great
lengths to avoid use of U.S. mails in pursuit of fraudulent activity.
Only when it is unavoidable or they can work out a way to operate
within the law do they trust the postman, the postal worker.
The mail fraud statute is only as good as the agency which en-
forces it. And here again, we find that con artists will go to any
length to avoid contact with the U.S. Postal Inspection Service. The
National Consumers League has had a long association with the
Service and its agents.
We administer the Alliance Against Fraud in Telemarketing, a
100-member international coalition of public and private organiza-
tions working to combat consumer fraud. I am proud to say that
the U.S. Postal Inspection Service has been an active member of
this coalition since it began and the individual who represents the
Service on the Alliance Against Fraud in Telemarketing also serves
as a member of its steering committee.
The U.S. Postal Inspection Service is also actively involved in a
more recent project of the National Consumers League — the Na-
tional Fraud Information Center. And I want to describe briefly the
146
work of the Center and the USPIS's role in helping to bring high
tech weaponry to play in the war against fraud artists.
Last year, several major American corporations awarded a grant
to the National Consumers League to begin to apply high tech to
the growing problem of consumer fraud. Our best estimate is that
more than $50 billion each year is stolen by sophisticated con art-
ists using the latest computer technology and telecommunications
to bilk the American public.
We believe that by taking a lesson from the con man's book — ^by
adapting the latest in telecommunications and computer technology
to the fight against fraud — we could cut down significantly on the
relative ease at which the criminals operate.
We were prompted to some extent by a remark made to one of
our staff" members by an FBI agent stationed inside San Diego.
When asked if he had heard about a new type of telemarketing
fraud, the agent replied, "If I have heard about, it is at least 6
months old."
If we could cut down the time it takes for law enforcement and
regulatory authorities to detect fraud and begin to build criminal
and civil cases against perpetrators, we would make a significant
contribution to the fight against fraud.
I am pleased to report today that we have made some significant
progress. We have established here in Washington the National
Fraud Information Center which provides both consumers and en-
forcement authorities a variety of sophisticated services and tech-
nology to assist in early detection and apprehension of con artists.
We have in place a national toll-free consumer assistance service
which provides consumers a place to call to find out information
about offers they receive in the mail or over the phone. We assist
them in evaluating these offers and we warn them when they are
about to become defrauded.
For those who have already become victims, we offer a variety
of services. Last year, when we were designing a consumer assist-
ance service, we engaged the services of Lou Harris and Associates
to conduct a nationwide random sample survey of consumer fraud
issues. Out of that survey, came some very enlightening and some
very disturbing statistics.
One particularly disturbing revelation contained in the Harris
survey was the fact that very few Americans actually do report
fraud. One reason for this is that very few people know where to
report it. Only 5 percent of Americans, for example, know that
there are State, county, and municipal agencies to provide assist-
ance to consumers to report the fraud. Only about 25 percent of
adult Americans are aware of Better Business Bureaus.
Therefore, one of the major services we provide is a sophisticated
system to locate specific agencies in a caller's community or State
which can provide assistance or which can receive consumer com-
plaints. The consumer is referred to that agency which can help.
More than 80 percent of the calls coming in to the fraud center
are handled and completed with one call. The center handles more
than 100,000 consumer inquiries and we figure, in one year, it will
handle about 100,000.
Already, the calls and information coming in to the center are
providing significant information to victims and those who are
147
about to become victims. But that is not all. From the beginning
of a project, we believed that the information coming in to the cen-
ter would provide an invaluable resource to law enforcement.
Information from a consumer complaining about a phone call
from a new boiler room in Butte or any other city could provide
early detection of a new telemarketing scam. Other calls could pro-
vide information about an illegal operation, for instance moving
from Houston to Phoenix. All this data was potentially an invalu-
able intelligence resource for law enforcement.
All the complaints and incident reports coming in to the fraud
center are monitored and evaluated by staff experts. At the end of
each working day, these complaints are electronically filed with the
Federal Trade Commission's telemarketing fraud database.
The FTC, along with the National Association of Attorneys (Gen-
eral, has established this database which is available to Federal
enforcement and regulatory agencies, State law enforcement offi-
cials, as well as regional officers of the Commission. Several agen-
cies which monitor and evaluate criminal justice intelligence also
use the database as an information and statistical resource.
At this point, the fraud center is the major data contributor to
the national network at the FTC. Where it once took weeks for
news of a new illegal operation or a new scam to work its way
around the country, today the information is available almost im-
mediately.
The center recently installed a new electronic watchlist which
provides even better referral services for law enforcement and reg-
ulatory agencies. If a regional office of the U.S. Secret Service, for
example, needs information on a particular company operating in
its jurisdiction, it can contact the center and ask to have the name
put on the watchlist.
The watchlist scans the entire complaint database every 2 min-
utes looking for that company and others which have been entered
in the system. If one of our consumer assistance counselors, for ex-
ample, receives information about that company over the phone
and enters that company name, the watchlist finds the company
within the 2 minutes and reports it to our monitors.
We can then alert the Secret Service immediately and forward
the complaint to the agency. Within 2 or 3 weeks, our system will
be able to forward the information immediately and automatically
to the agency which requested it.
The FBI agent in San Diego who used to wait 6 months to hear
about a scam can now get the information in seconds.
The National Consumers League believes that its fraud center
can make an important contribution to the fight against fraud. We
are pleased that a number of Federal agencies, including the U.S.
Postal Inspection Service, have expressed an interest in linking up
with the FTC/NAAG electronic database.
Our data indicates that U.S. mail is still an important vehicle for
the perpetration of fraud. Our Harris survey indicated, for in-
stance, that more than 92 percent of adult Americans have received
postcards announcing that they are a grand winner in a fabulous
contest. More than 30 percent have actually responded.
There is no doubt that the U.S. mail is an important vehicle for
the con artist, but as postal inspectors become more and more alert
148
to these scams, the con artist is seeking different ways to get the
message to the consumer and to receive the funds.
We have seen a growing incidence of direct debit from checking
accounts. We have seen a growing use of Western Union electronic
money orders and we have seen a healthy growth in the use of pri-
vate mail carriers to transport checks from victims to con artists.
The use of private mail carriers has become the No. 1 challenge
for law enforcement. If a con artist uses one of half a dozen major
private carriers, the U.S. Postal Inspection Service lacks jurisdic-
tion. Private carriers who want to report these con artists are not
always sure who, if anyone, does have jurisdiction in these cases.
There is some argument that transporting funds in pursuit of a
fraud by a private carrier is no crime.
The private carrier industry and organizations like ours are
working to educate the consumer that sending a check by way of
a private express service is foolish. It prevents the postal inspectors
from investigating and if later it turns out that a crime has been
committed, it gives the consumer very little time to stop payment
on a check. And it is important to recognize that these carriers
have no official status and cannot protect the consumer's money or
provide refunds if the offer turns out to be bogus.
Our studies indicate that the consumer has increased confidence
in the con man who asks to have the check or money order sent
by way of a private carrier. We asked respondents in our Harris
survey if they would be suspicious if a caller asked them to send
the money immediately. More than 89 percent indicated that this
would increase their suspicion. If they were told to send the money
by way of Federal Express, however, their suspicion decreased.
The National Consumers League is working to secure enactment
of legislation which would enable postal inspectors or other Federal
enforcement authorities to investigate fraud cases involving the use
of private carriers.
This provision is contained in legislation currently under consid-
eration by the Senate Judiciary Committee. The bill, S. 568, would
create criminal penalties similar to those contained in the mail
fraud statute for transport of funds in pursuit of a fraud via pri-
vate carrier.
Passage of this legislation would put a stop to the growing use
of private carriers by con artists. We also believe that the posted
authority should educate consumers about the dangers of sending
U.S. postal money orders for merchandise or for any other purpose,
for that matter. As it is, there is very little, if any, protection when
money orders are used.
From our vantage point, we see a growing spirit of cooperation
among the various Federal and State law enforcement and regu-
latory agencies investigating fraud cases. We held a 2-day retreat
earlier this month for the enforcement and regulatory community
during which we discussed ways in which we can all work more
closely to combat mail fraud and similar offenses.
The Justice Department is now meeting on a regular basis with
its colleagues in other agencies. The postal inspectors are talking
to the FBI, and agencies which have criminal jurisdiction are be-
ginning to compare notes with civil enforcement authorities. I see
every indication that this cooperative spirit will continue.
149
I want to thank this subcommittee and its staff for its interest
in and concern for the millions of Americans who are victims of
mail fraud each year. We look forward to working with you. We
feel that the con artists are out there every day defrauding con-
sumers and we would like to work with you to try to make it more
difficult for them.
Thank you very much.
[The prepared statement of Ms. Golodner follows:]
Prepared Statement of Linda Golodner, PREsroENT, National Consumers
League
Madam Chairman and Members of The Subcommittee:
My name is Linda Golodner. I am President of the National Consumers League,
America's oldest consumer organization. I am pleased to appear before your sub-
committee today to discuss our views on the growing problem of mail fraud as well
as steps we beUeve can be taken to bring this problem under control.
I want to commend the subcommittee and its staff for undertaking this set of
hearings to hear witnesses' views on mail fraud. I sincerely believe that the mail
fraud statute is perhaps the most important anti-fraud weapon in our nation's legal
arsenal. It is such a powerful weapon. Representative Collins, that most con artists
will go to great lengths to rvoid use of the U.S. mails in pursuit of fraudulent activ-
ity.
Only when it is unavoidable— or they can work out a way to operate within the
law — do they trust the postman.
The mail fraud statute is only as good as the agency which enforces it. And, here
again, we find that con artists will go to any length to avoid contact with the U.S.
Postal Inspection Service. The National Consumers League has had a long associa-
tion with the U.S. Postal Inspection Service and its agents. We administer the Alli-
ance Against Fraud in Telemarketing, a 100-member international coalition of pub-
lic and private organizations working to combat consumer fraud. I am proud to say
that the U.S. Postal Inspection Service has been an active member of this coalition
since it began and the individual who represents the Service on the Alliance Against
Fraud in Telemarketing also serves as a member of its steering committee.
The U.S. Postal Inspection Service is also actively involved in a more recent
project of the National Consumers League— the National Fraud Information Center.
I want to describe briefly the work of the center and USPIS's role in helping to
bring high tech weaponry to play in the war against fraud artists. , t.t •
Last year, several major American corporations awarded a grant to the National
Consumers League to begin to apply high technolo^ to the growing problem of
consumer fraud. Our best estimate is that more than $50 billion each year is stolen
by sophisticated con artists using the latest telecommunications and computer tech-
nology to bilk the American pubhc. We believed that, by taking a lesson from the
con man's book— by adapting the latest in telecommunications and computer tech-
nology to the fight against fraud— we could cut down significantly on the relative
ease with which these criminals operate. We were prompted, to some extent, by a
remark made to one of our staff members by an FBI agent stationed in San Diego.
When asked if he had heard about a new type of telemarketing fraud, the agent
replied: "If I've heard about it, it's at least six months old."
If we could cut down the time it takes for law enforcement and regulatory au-
thorities to detect fraud and begin to bviild criminal and civil cases against perpetra-
tors, we would make a significant contribution to the fight against fraud.
Representative CoUins and members of the subcommittee, I am pleased to report
today that we have made significant progress. We have established here in Wash-
ington the National Fraud Information Center, which provides both consumers and
enforcement authorities a variety of sophisticated services and technology to assist
in early detection and apprehension of con artists. We have in place a national toll-
free consumer assistance service, which provides consumers a place to call to find
out information about offers they receive in the mail or over the phone. We assist
them in evaluating these offers and we warn them when they are about to be de-
frauded. ^ . ^ ^ T i.
For those who have already become victims, we offer a variety of services. Last
year, as we were designing a consumer assistance service, we engaged the services
of Lou Harris and Associates to conduct a nationwide random sample survey of
consumer fraud issues. Out of that svu^ey came some very enlightening and some
very disturbing statistics. One particularly disturbing revelation contained in the
150
Harris Survey was the fact that very few Americans report fraud. One reason for
this is that very few people know where to report. Only five per cent of adult Ameri-
cans, for example, know that there are many state, county, and municipal agencies
which provide assistance to consumers who want to report fraud. Only about 25 per
cent of adult Americans are aware of Better Business Bureaus.
Therefore, one of the major services we provide is a sophisticated system to locate
specific agencies in a caller's community or state which can provide assistance or
which can receive consumer complaints. The consumer is referred to an agency
which can help.
More than 80 per cent of the calls coming in to the National Fraud Information
Center are handled and completed with one call. The center will handle more than
100,000 consumer inquiries and requests for assistance each year. Already, the calls
and information coming in to the center are providing significant assistance to vic-
tims and those who are about to become victims.
But that is not all. From the very beginning of our project, we believed that the
information coming in to the Center would provided an invaluable resource to law
enforcement. Information from a consumer complaining about a phone call from a
new boiler room in Butte could provide early detection of a new telemarketing scan.
Other calls could provide information that an illegal operation had moved from
Houston to Phoenix. All this data was potentially an invaluable intelligence resource
to law enforcement.
All the complaints and incident reports coming in to the National Fraud Informa-
tion Center are monitored and evaluated by staff experts. At the end of each work-
ing day, these complaints are electronically filed in the Federal Trade Commission's
telemarketing fraud database. The FTC, along vnth the National Association of At-
torneys General, has established a sophisticated database network which is avail-
able to federal enforcement and regulatory agencies, state law enforcement officials,
as well as regional offices of the Commission. Several agencies which monitor and
evaluate criminal justice intelligence also use the database as an information and
statistical resource.
At this point, the National Fraud Information Center is the major data contribu-
tor to the nationwide network. Where it once took weeks for news of a new illegal
operation or a new scan to work its way around the country, today the information
is available almost immediately.
The Center recently installed a new Electronic Watchlist which provides even bet-
ter referral services for law enforcement and regulatory agencies. If a regional office
of the U.S. Secret Service, for example, needs information on a particiilar company
operating in its jurisdiction, it can contact the Center and ask to have the name
put on the Watchlist. The Watchlist scans the entire complaint database every two
minutes looking for the company and other which have been entered in the system.
If one of our consumer assistance counselors receives information about that com-
pany over the phone and enters the name of that company in our complaint system,
the Watchlist finds that company within two minutes and reports to our monitors.
We can then alter the Secret Service immediately and forward the complaint to the
agency. Within two or three weeks, our system will be able to forward the informa-
tion immediately and automatically to the agency which requested it.
The FBI agent in San Diego who used to wait six months to hear about a scam
can now get 3ie information in a nanosecond.
The National Consumers League beUeves that its National Fraud Information
Center can make an important contribution to the fight against fraud. We are
pleased that a number of federal agencies, including the U.S. Postal Inspection
Service, have expressed an interest in linking up to the FTC/NAAG electronic
database.
Our data indicates that the U.S. Mail is still an important vehicle for the per-
petration of fraud. Our Harris Survey indicated, for example, that more than 92 per
cent of adult Americans have received postcards announcing that they are the grand
winner in a fabulous contest. More than 30 per cent have responded.
There is no doubt that the U.S. mail is an important vehicle for the con artist.
But, as Postal Inspectors become more and more alert to these scams, the con artist
seeks different ways to get the message to the consimier and to receive the funds.
We have seen a growing incidence of direct debit fi^m checking accounts. We have
seen the growing use of Western Union electronic money orders. And we have seen
a healthy growth in the use of private mail carriers to transport checks from victims
to con artists.
This use of private mail carriers has become the number one challenge for law
enforcement. If a con artist uses one of half a dozen major private carriers, the U.S.
Postal Inspection Service lacks jurisdiction. Private carriers who want to report
these con artists are not always sure who, if anyone, does have jurisdiction in these
151
cases. There is some argument that transporting funds in pursuit of a fraud via pri-
vate carrier is no crime.
The private carrier industry and organizations like ours are working to educate
the consumer that sending a check via a private express service is foolish. It pre-
vents the Postal Inspectors from investigating if it later turns out that a crime has
been committed. It gives the consumer very little time to stop payment on a check.
And it is important to recognize that these carriers have no official status and can-
not protect the consumer's money or provide refunds if the offer turns out to be
Our studies indicate that the consvuner has increased confidence in the con man
who asks to have the check or money order sent via private carrier. We asked re-
spondents in our Harris Svu^ey if they would be suspicious if a caller asked them
to send the money immediately. More than 89 per cent indicated that this would
increase their suspicion. If they were told to send the money via Federal Express,
however, their suspicion decreased.
The National Consumers League is working to secure enactment of legislation
which wovdd enable Postal Inspectors or other federal enforcement authorities to in-
vestigate fraud cases involving the use of private carriers. This provision is con-
tained in legislation cimrently under consideration by the Senate Judiciary Commit-
tee. The bill, S. 568, would create criminal penalties, similar to those contained in
the mail fraud statute, for transport of funds in pursuit of a fraud via private car-
rier.
Passage of this legislation would put a stop to the growing use of private earners
by con artists. We also believe that the Postal authorities should educate consumers
about the dangers of sending U.S. Postal money orders in payment for merchandise
or for any other purpose, for that matter. The money order is really nothing better
than cash payment. As it is, there is very Uttle, if any, protection when money or-
ders are used.
From our vantage point, we see a growing spirit of cooperation among the various
federal and state law enforcement and regulatory agencies investigating fraud cases.
We held a two-day retreat earlier this month for the enforcement and regulatory
community during which we discussed ways in which we can all work more closely
to combat mail fraud and similar offenses. The Justice Department is now meeting
on a regular basis with its colleagues in other agencies. The Postal Inspectors are
talking to the FBI. And agencies which have criminal jurisdiction are beginning to
compare notes with civil enforcement authorities. I see every indication that this co-
operative spirit will continue.
I want to thank the Subcommittee and its staff for its interest in and concern for
the millions of Americans who are victims of mail fraud each year. We understand
the frustration of consiuners who complain about the inability of our Postal Service
to stop the flood of postcards and sweepstakes awards coming into the home each
day. We understand the frustration of Postal Inspectors who investigate the flood
of postcards and must try to sort out the most egregious offenders of our mail fraud
statutes.
And we appreciate yoiu" oversight of this agency and its programs to insure that
the Postal Service is meeting the needs of its customers.
Neither rain nor snow nor sleet, Representative Collins, seems to deter the con
man. But we believe that, with early detection and some new legislation, with the
cooperation of the Congress, and with a sincere desire to cooperate with other agen-
cies, the Postal Inspectors can at least dampen their enthusiasm.
Thank you very much.
Miss Collins. Thank you. That is exciting testimony, the
database. I had several questions to ask you. On page 7 of your tes-
timony, you said it is important to recognize that the private car-
riers have no official status and cannot protect the consumers'
money or provide refunds. So the U.S. Postal Service can't do that
either?
Ms. GOLODNER. U.S. Postal Service will investigate. With the pri-
vate carriers, I know they are very frustrated.
Miss Collins. I know they can't investigate, but the U.S. Postal
Service can't provide refunds if it is bogus.
The National Fraud Information Center, how do you advertise
that to the general public and law enforcement agencies?
152
Ms. GOLODNER. We have good cooperation with the law enforce-
ment agencies, make information available to them and we speak
to them, regularly on the phone. As far as letting consumers know
that it exists, we mostly work through the press and we found that
they have been very cooperative in distributing the number.
Miss Collins. Is there an 800 number?
Ms. GrOLODNER. It is an 800 number, yes. It keeps our phones
very busy. Just letting the press know and working through
consumer agencies and others to get the number out.
Miss Collins. And that is how you are building your database?
Ms. GrOLODNER. That is right. We get calls every day and then
we give those calls, if they are fraudulent calls, directly to the FTC/
NAAG database. Some of the calls are just inquiries. Some are peo-
ple who have not been defrauded yet. They are potential victims,
so we try to explain to them what the pattern of a fraud is. We
also send them information.
Every call that comes in gets a brochure. Most of them have been
created by the Federal Trade Commission, developed by their
Consumer Affairs Office and on various frauds so that people are
at least getting some information on how to combat fraud.
Miss Collins. Your 2-day retreat that you held earlier this
month for enforcement and regulatory groups, are you satisfied
with the results of that meeting?
Ms. GrOLODNER. Yes. I feel that we have been able to develop a
good communication among consumer groups, other public interest
groups, and with the regulatory and enforcement agencies. And I
think we all feel that it is important to have that open communica-
tion.
Miss Collins. Was — are you at liberty to say what coordination
efforts were agreed to?
Ms. GOLODNER. I think probably if you talk with the regulatory
agencies, they would be more appropriate to answer that question.
I think we all agreed, however, that technology is important and
that enforcement agencies have to improve their own technology
and offices like Esther Shapiro's office in Detroit certainly needs
higher tech available to her, computers or modems and faxes, and
items that we find common, we need it in every consumer agency
in the country, I think so that they can exchange information and
receive information from our center and from the Federal Trade
Commission.
Miss Collins. Had you a comment in your statement that you
didn't read, neither rain, nor snow, nor sleet seems to deter the con
man. And I noticed you changed that to con artist with no genders.
And isn't it amazing how one scam can cross the entire country so
quickly? You wonder, do they — are they this telepathic communica-
tion with each other. The crook is ever diligent on new ways.
Ms. Gk)LODNER. They are very sophisticated. This is their job.
They have been doing it for a long time and sometimes it passes
on from generation to generation.
Miss Collins. But it seems as though maybe they have a
database that
Ms. Gk)LODNER. Absolutely, yes.
Miss Collins. They do?
153
Ms. GOLODNER. Yes. They have databases and there is something
we call the reload scam. If you have been conned once, you will be
conned again and people get on this database. They call to even up-
grade their database to find out more information about an individ-
ual and then sell that database from boiler room to boiler room.
Miss Collins. So that is how it goes across the country, then.
It is really a sophisticated business.
Ms. GrOLODNER. One important thing is that consumers are actu-
ally making those calls themselves. They receive the postcard in
the mail or they see a number to call in the newspaper and they
make the call themselves, so therefore, you are sorting out thpse
people that might be at least curious, and that really cuts down on
the number of calls that the con artist has to make.
Miss Collins. I have noticed with some of the testimony we had
at the last hearing that, as you say, they have sort of left the U.S.
mails and they have gone to the telephone. And I received one my-
self, fantastic, 3-night, 4-day trip to Orlando, FL. Free.
And well, I will save my comments until later, but it seems to
me as though the Internal Revenue Service could be more diligent
with some of these scam artists because I doubt if they pay income
taxes because they move on so quickly.
But, nevertheless, we will go to our next panelist, Mrs. Esther
Shapiro, from the great city of Detroit, MI.
STATEMENT OF ESTHER SHAPIRO, DIRECTOR, DETROIT
OFFICE OF CONSUMER AFFAIRS
Ms. Shapiro. Thank you. My name is Esther Shapiro and I am
director of the Detroit Consumer Affairs Department, a position I
have held since the agency was founded in July 1974. I appreciate
the opportunity to testify before this body and am especially
pleased that it is chaired by my own representative from Detroit,
the Honorable Barbara-Rose Collins.
Any case studies I could present would mirror what you already
know. Examples of travel, sweepstakes, investment, and work-at-
home frauds have been in my files since the office was opened 19
years ago. The sad thing is that enforcement efforts, indictments,
and publicity have not stemmed the tide.
I can assure you, Congresswoman, that even as I speak, someone
is on the phone right now in my office telling an investigator, "I
have this postcard I want to ask you about." A staff member must
then spend time that could be put to better use by explaining that
it is a fraud, that the caller was not singled out for a prize, that
the word "guaranteed" has no legal status and that they should not
respond.
The only change in the pattern of frauds is that they are adapted
to reflect economic conditions. As unemployment rises and credit
tightens, we see increased activity in job and credit repair frauds.
The guaranteed job opportunity, the guaranteed loan, the guaran-
teed credit card, and the guaranteed record clearance are among
our leading contenders at charges ranging from $35 to $2,000. The
fact that these take money from unemployed victims who can least
afford it makes the crime more despicable.
My department is funded by the city of Detroit and we have no
jurisdiction outside the city. We take complaints by mail, phone, or
154
walk-in from any Detroit resident. We also process a complaint
from anyone who has made a purchase from a Detroit vendor. At
the charge given us by Mayor Coleman Young, we will provide in-
formation, publication, and advice to anyone outside our limits who
contacts us.
In the 1970's, when we first opened. Federal LEAA grants made
it possible for a number of county prosecutor offices to establish the
consumer protective divisions and many in our State did so. These
divisions died when the funds ran out. Two years ago, the Michi-
gan Consumer Council was closed by budget cuts. There is pres-
ently only one other small local consumer protection office in
Washtenaw County. This places an enormous burden on my office.
We must then turn to other State and Federal agencies for as-
sistance. Two years ago, a coordinating committee was set up con-
sisting of the Better Business Bureau, State enforcement agencies,
and local representatives of the U.S. Postal Service and the U.S.
Secret Service. It meets every few months and the exchange of in-
formation and advice has been helpful.
We still, however, do not have the full coordination of all Federal
agencies, and given the range of fraud, total cooperation is essen-
tial. Our greatest asset has been the Detroit-based office of the
Postal Service. An emplo5rment marketer has been advertising non-
existent airline jobs in classified sections of newspaper all over the
country outside of Michigan. Because the return address is in De-
troit, we get the complaints. Mark Venanzi and his colleagues in
the Postal Service are working with us to gather evidence that will
put these vultures away. We also exchange information on other
frauds.
Jim Huse and his staff in the Secret Service have been very help-
ful in our consumer education work, particularly in the area of
credit card fraud. They cannot, however, enter cases unless there
is a considerable monetary loss, and most consumer cases do not
fit their category.
We have had only one contact with the FBI and that was not a
postal case. They raided the office of a so-called credit repair clinic
about 4 years ago but never revealed the outcome to us.
In the testimony sent to this panel by Barbara Gregg, executive
director of the Montgomery County Office of Consumer Affairs last
May, Ms. Gregg offered a number of recommendations that would
tighten up current laws and enforcement potential. I heartily rec-
ommend all of her recommendations, certainly the testimony you
have just heard from Linda (Jolodner substantiates much of that.
And we again are in complete accord with the recommendations by
the National Consumers League.
I have, however, only one problem on the National Fraud Infor-
mation Center which is an invaluable instrument and one with
which we communicate. However, the statistics they generate can
only be accessed by computer and my office has no computer.
Congress woman, if that seems like a plea for Federal support of
local consumer agencies, believe me, it is. We do not have the funds
to keep up with the electronic age and that is absolutely essential
if anyone is to participate, be assisted, or be aided by these new
advances.
155
Public information is our first line of defense. We need not only
stricter enforcement, but more open exchange of information and
joint efforts between all agencies. The consumers who call us want
only to know 4f the offer they received in the mail is legitimate. We
need to know that so that we can reply. If they have been stung,
they want restitution first and then vengeance of the civil action
in the courts is slow and often too late.
I would hope that the concept of fraud under your consideration
will be broadened. The mail is only one avenue. A case can start
with a postcard in the mail, followed by a phone call, with the pay-
ment by the victim made either through Western Union credit card
or a pick-up by a private courier service.
It is for the last reason that Federal Express has begun a pro-
gram by which a courier can identify a potential victim about to
send out a check, and provide information that might discourage
the act.
National boundaries do not stop fraud. We have an investment
scheme that started on our coast, moved to a Caribbean Island, and
is now based in Toronto. An island off the coast of Australia will
allow the establishment of a bank for $150 — a wonderful outlet for
money laundering. I have attached to my testimony a letter from
Nigeria which was sent rather successfully to consumers in several
cities.
New communication technology is developing faster than we can
keep up with it. Letters sent by mail are being replaced by fax, E-
mail, and computer bulletin boards. New techniques bring new po-
tential for fraud. I hope that your body will broaden your mandate
to include jurisdiction over these new avenues of communication so
that we, in turn, can take proactive rather than reactive measures
when our consumers turn to us for help.
Thank you very much.
[The prepared statement of Ms. Shapiro follows:]
Prepared Statement of Esther K. Shapiro, Director, Detroit Office of
Consumer Affairs
Good morning. My name is Esther K. Shapiro, and I am director of the Detroit
Consumer Affairs Department, a position I have held since the agency was formed
in July 1974. I appreciate the opportunity to testify before this body, and am espe-
cially pleased that it is chaired by my own representative from Detroit, the Honor-
able Barbara-Rose Collins.
I have read the testimony you heard a few months ago, and have been meeting
and corresponding with my counterparts in other states. Any case studies I could
present would mirror what you already know. Examples of travel, sweepstake, in-
vestment and work-at-home frauds have been in my files since the office was opened
19 years ago. The sad thing is that enforcement efforts, indictments and publicity
have not stemmed the tide. I can assure you that, as I speak, someone is on the
phone right now telling an investigator. "I have this postcard I want to ask you
about. * * *" Someone then must spend time that could be put to better use by ex-
plaining that it is a fraud, that the caller was not singled out for a prize, that the
word "guaranteed" has no legal status, and that they should not respond.
The only change in the pattern of frauds is that they are adapted to reflect eco-
nomic conditions. As unemployment rises and credit tightens, we see increased ac-
tivity in job and credit repair frauds. The "guaranteed" job opportunity, the "guaran-
teed" loan, the "guaranteed" credit card and the "guaranteed" credit record clear-
ance are among our leading contenders, at charges ranging from $35 to $2,000. The
fact that these take money ft^m unemployed victims who can least afford it makes
the crime more despicable.
My department is funded by the City of Detroit, and we have no jurisdiction out-
side the city. We take complaints, by mail, phone or walk-in, from any Detroit resi-
156
dent. We will also process a complaint from anyone who has a made a purchase
from a Detroit vendor. At the charge of Mayor Coleman A. Young, we will provide
information, publications and advice to anyone outside our limits who contacts us.
In the 1970's when we first opened, federal LEAA grants made it possible for a
number of county prosecutor offices to establish the consumer protective divisions,
and many in our state did so. Those offices died when the funds ran out. Two years
ago the Michigan Consumer Council was closed by budget cuts. There is presently
only one other small local consumer protection office in Washtenaw County. This
places an enormous biu-den on my office.
We must then turn to other state and federal agencies for assistance. Two years
ago a coordinating committee was set up, consisting of the BBB, state enforcement
agencies, and local representatives of the U.S. Postal Service and the U.S. Secret
Service. It meets every few months, and the exchange of information and advice has
been helpful.
We still, however, do not have the fall coordination of all federal agencies, and
given the range of fraud, total cooperation is essential. Oiir greatest asset has been
the Detroit based office of the Postal Service. An "employment" marketer has been
advertising non-existent airline jobs in classified sections of newspapers all over the
country, except for Michigan. Because the return address is in Detroit, we get com-
plaints. Mark Venanzi and his colleagues in postal are working with us to gather
evidence that will put these vultures away. We also exchange information on other
frauds.
Jim Huse and his staff in the Secret Service have been very helpful in our
consvuner education work, particularly in the area of credit card fraud. They cannot,
however, enter cases unless there is considerable monetary loss, and most consumer
cases do not fit their category.
We have had only one contact with the FBI, and that was not a postal case. They
raided the office of a so-called credit repair clinic about four years ago, but never
revesded the outcome.
In the testimony sent to this panel by Barbara Gregg, Executive Director of the
Montgomery County Office of Consumer Affairs last May, Ms. Gregg offered a num-
ber of recommendations that would tighten up current laws and enforcement poten-
tial. I heartily endorse all her recommendations, Linda Golodner, President of the
National Consumer League, who has just appeared before you, described the enor-
mous information gathering project set up by the National Fraud Information Cen-
ter. I have only one problem. The statistics can only be accessed by computers, and
my office has no computer.
Public information is our first line of defense. We need not only stricter enforce-
ment, but more open exchange of information and joint efforts between all agencies.
Those who call us want only to know if the offer they received in the mail is legiti-
mate. We need to know that so that we can reply. If they have been stung, they
want restitution first, then vengeance. Civil action in the courts is slow, and often
too late.
I would hope that the concept of fraud under yoiu" consideration wiU be broad-
ened. The mail is only one avenue. A case can start with a postcard in the mail,
followed by a phone call, with the payment by the victim made either through West-
em Union, credit card, or pick-up by a private courier service. It is for the last rea-
son that Federal Express has begun a program by which a courier can identify a
potential victim about to send out a check, and provide information that might dis-
courage the act.
National boundaries do not stop fraud. We have an investment scheme that start-
ed on our coast, moved to a Caribbean island, and is now based in Toronto. An is-
land off the coast of Australia wiU allow the establishment of a bank for $150 — a
wonderful outlet for money laundering. I have attached a letter fi-om Nigeria, which
was sent to consumers in several cities.
New communication technology is developing faster than we can keep up with it.
Letters sent by mail are being replaced by fax. E-mail and computer bulletin boards.
New techniques bring new potential for fraud. I hope that your body will broaden
your mandate to include jurisdiction over these new avenues, so that we in turn can
take proactive rather than reactive measures when our consumers turn to us for
help.
Lagos, Nigeria, January 10, 1993.
Attention: Chief Executive.
Dear Sir: It is my pleasure contacting you for a worthy business. I got your con-
tact address through a friend of mine who hails your country this my friend holds
157
you at high esteem because of your transparant honesty and sincerith. Based on
this, I wish to propose this business windfail which is of mutual benefit to both of
us (both side). , t, , ^
I hold the post of chief accountant with the Nigeria National Petroleum Corpora-
tion (NNPC). I was mandated to seek your assistance and permission to transfer
some money into your bank account. The money involved is US$49,000,000 (Forty
nine million U.S. dollars), this money was extracted from overbills we prepared for
some foreign and local firms that executed contracts for my corporation (NNPC) few
years back. Those firms have been settled their payments in full while this excess
of US$49,000,000 (Forty nine million U.S. dollars) is still in our surplus account to
be disbursed into any foreign company's account of our choice. It was on this prom-
ise that I was mandated to write to you since you are a trust worthy fellow.
It may also interest you to know that the controller of foreign exchange transfer
department, Alhaji Bello Adamu of Central Bank of Nigeria (CBN) is my partner
in this business. Be aware that all necessary documentation to effect the transfer
of this money into your account overthere will be done by us locally here.
All that we require from you now is to confirm your interest in this business after
which we shall arrange for a meeting to reach certain legal agreements to protect
each others interest when the money gets in your bank account.
We expect you to keep this business highly confidential. We have agreed that this
money gets into your bank account, 30% will be yours, 60% is for us while 10% is
for such expenses to be incurred during the transfer processes.
This transfer is expected to last for only three working weeks after you have con-
firmed your interest and we hold the meeting in Nigeria as it is very important be-
fore the business takes off.
Always contact me on fax no. 234-1-2669943 or 234-1-2640016.
I expect to hear from you soon.
Regards.
Yours sincerely,
Dr. Prince Micheal Nwofia.
Miss Collins. Thank you, Ms. Shapiro. Tell me, are all local
consumer agencies locally financed.
Ms. Shapiro. Those that are city agencies — and in Michigan that
just means one — we are funded by the city of Detroit.
Miss Collins. Are you the only one in the State of Michigan?
Ms. Shapiro. The only one that is left. There is a small agency
in Washtenaw County which works closely with the Better Busi-
ness Bureau. I believe they are county funded. There are consumer
protection divisions in one or two prosecutor's offices, but they tend
to be small and they usually tell consumers we are busy chasing
murderers and heavy work, why don't you go to court and sue? And
most consumers can't do that.
Miss Collins. And there is a Michigan Consumers Agency, the
State, right?
Ms. Shapiro. Michigan Consumer Council was closed in a budget
cut 2 or 3 years ago.
Miss Collins. Did you participate in Ms. Golodner's retreat?
Ms. Shapiro. I did, and it was extremely valuable.
Miss Collins. Were you able to make your plea for interagency
cooperation?
Ms. Shapiro. Actually, the kind of conference, the kind of work
done by the National Consumer League has been very helpful, but
I think that we need a broader central clearinghouse to which we
could feed and from which we could gain information.
The major outlet we have now and the major assistance we have
now is through the Fraud Information Center and through the Na-
tional Consumer League. There are other agencies. For example.
National Association for Consumer Affairs Administrators,
NACAA, which is an organization of people like myself who head
consumer agencies has also been a wonderful network and a good
158
clearinghouse, but a lot is missed. A lot falls through the cracks be-
cause we cover different jurisdictions, because the ability to pick up
information can sometimes be pretty well scattered.
Miss Collins. I am appalled in this day and age with the need
so great that there is only one local consumer agency in Michigan.
Ms. Shapiro. We are considered a nice fringe benefit, but when
government agencies are hurting and other major government serv-
ices are cut, we are not considered as essential. Actually, I think
the monetary loss in the kind of crime we see mostly due to lack
of information, would be as great as that that comes from other
more violent crimes.
I think it is because we are not subject to violent crimes makes
it less reactive in terms of government support. That really is not
true. There are people who die because of what happens to them.
Miss Collins. Absolutely. Absolutely. Taking the liveUhood of
people. The horror stories with senior citizens losing every penny
they have in savings. They get bills and they pay their bills. Even
though they are fraudulent invoices, they appear to be invoices.
And Ms. Golodner, are there any national agencies that you
know of that are funded, govemmentally funded?
Ms. GtoLODNER. National consumer agency? U.S. Office of
Consumer Affairs is a national consumer agency, but it doesn't re-
ceive complaints such as we are talking about the local consumer
agencies.
Miss Collins. I was just wondering if there was some way with
the budget cuts that the President is asking for trying to lower the
Federal deficit. This asking for funding for local consumer groups
will go over like a lead balloon, but I was wondering if there was
some mechanism by which local consumer agencies could be fi-
nanced or at least get your computer. I mean, we do have some of
those floating around. We will put our thinking cap on. Thank you
very much.
Next, we will hear from Cynthia Carter, Tennessee attorney gen-
eral's office, NAAG.
STATEMENT OF CYNTHIA CARTER, TENNESSEE ATTORNEY
GENERAL'S OFFICE/NAAG
Ms. Carter. I am Cynthia Carter. I am the assistant attorney
general for the consumer protection agency of the Tennessee attor-
ney general's office. I am here on behalf of Attorney General
Charles W. Burson, who is president-elect of the National Associa-
tion of Attorneys General. He is also the chair of the NAAG/FTC
working group.
I am a member of the NAAG executive committee of the
telemarketing fraud task force. Specifically, I am the chair of the
Federal/State relations subcommittee for the telemarketing fraud
task force. I also represent Tennessee on the Federal Department
of Justice Telemarketing Fraud Working Group.
I thank you for the opportunity to speak with you briefly this
morning on behalf of General Burson who regrets that his schedule
would not allow him to be here today.
State attorneys general have played a legitimate and active role
in combating mail and telemarketing fraud. As you know, much of
telemarketing fraud includes the use of mail in the commission of
159
the fraud. State attorneys general actively and aggressively enforce
unfair and deceptive trade practice laws against fraudulent
telemarketers. In fact, collectively, over 150 cases have been
brought against telemarketers by State attorneys general since
1987.
Due to the mobile nature of these operations. States have regu-
larly worked together to combat mail and telemarketing fraud. His-
torically, the States have worked most often with the Federal
Trade Commission when teaming with Federal agencies to battle
telemarketing fraud. Recently, thanks in part to leadership of
Chairman Steiger and the NAAG/FTC working group, the spirit of
cooperation and coordination is becoming more commonplace be-
tween States and the Federal Trade Commission.
Building upon this cooperative spirit, we were pleased in Novem-
ber 1992 when the Department of Justice Telemarketing Fraud
Working Group invited the States to participate in their group.
As a representative of the States, I along with Emmitt Carlton
of the staff of the NAAG have been participating in the quarterly
meetings of that working group. It is apparent that that working
group is carrying forward the attitude of coordination and coopera-
tion that is developing among the Federal agencies and in State
and Federal regions as we combat telemarketing fraud.
In recognition of significant consumer injury caused by tele-
marketing fraud, in March of this year, the National Association of
Attorneys General passed a resolution addressing telemarketing
fraud. This resolution created the NAAG telemarketing fraud task
force. Thus far, 34 States have volunteered to participate in the
telemarketing fraud task force.
This task force is broken down into a number of subcommittees
which focus on areas such as coordinating multi-state litigation, ad-
dressing legitimate and illegitimate means and instrumentalities
used to further these fraudulent schemes, monitoring and drafting
Federal and model State legislation, educating consumers, coordi-
nating and establishing Federal/State working relations, and work-
ing with consumer and industry groups. Because telemarketers'
schemes are often targeted at the elderly, we also have a special
subcommittee dealing with issues effecting the elderly.
Given that telemarketers have worked together to scam niillions
of consumers each year, we should follow their model and join Fed-
eral and State authorities to effectively combat the problem
telemarketers. During the Department of Justice Telemarketing
Fraud Working Group, Federal authorities, including the Postal
Service, directly indicated that they wanted to learn more about
what the States were doing in the telemarketing area and that
they were seeking out more cooperative activities.
The NAAG/FTC working group and the NAAG Federal/State re-
lations liaison subcommittee of the telemarketing fraud task force
organized a formal meeting between appropriate Federal authori-
ties and groups of attorneys general to discuss ways that we can
work cooperatively to combat telemarketing fraud.
We invited representatives from the Federal Trade Commission,
the Department of Justice, the Federal Bureau of Investigation,
U.S. Secret Service, U.S. Postal Inspection Service, and U.S. attor-
160
neys offices to meet with the NAAG/FTC working group in Chicago
at the National Association of Attorneys General meeting.
On July 9, 1993, the meeting was successfully held and all the
invited Federal agencies, including the Postal Inspection Service,
eagerly came to discuss how State and Federal authorities can bet-
ter work together to battle telemarketing fraud. I believe that
meeting signaled the beginning of a new nationwide cooperative ef-
fort between State attorneys general and Federal authorities across
the board working together to battle telemarketing fraud.
In fact, at that meeting, we committed to have regional meetings
hosted by the NAAG telemarketing fraud task force, Federal/State
liaison subcommittee, and the Federal Trade Commission begin-
ning with the Atlanta FTC regional office in November.
In Atlanta, representatives from Alabama, Florida, Georgia, Mis-
sissippi, North Carolina, South Carolina, Tennessee, and Virginia
State attorneys general offices and Federal authorities responsible
for those areas will be invited to meet to discuss how to improve
Federal/State coordination and cooperation of the telemarketing
fraud battle in their region.
We believe that we will have participation from all the Federal
agencies that attended the Chicago meeting including the Postal
Inspection Service. The goal is to conduct meetings in all 10 re-
gional offices by April 1994. We urge this subcommittee to provide
the necessary funding to permit the Postal Inspection Service and
other Federal authorities to attend these crucial regional meetings
and to participate in following activities.
We hope to hold these meetings on a regular basis to facilitate
and foster the sharing of information, the conducting of joint inves-
tigations and prosecutions of telemarketing fraud, the joint train-
ing of Federal and State staff" committed to battling telemarketing
fraud and the coordinating of consumer education to prevent
consumer injury.
As we know, telemarketers have very eff*ectively worked together
to steal from millions of American consumers. Now, Federal and
State authorities must work together to combat fraudulent
telemarketers by joining our resources, skills, and enforcement
powers to battle the biggest consumer problem in America.
The State attorneys general, through the National Association of
Attorneys General, have worked with the FTC to establish an elec-
tronic database designed to expedite the exchange of consumer
complaint information as well as law enforcement comments and
data.
As technology continues to develop, the implementation of a
workable electronic network among law enforcement officials be-
comes crucial. We applaud the National Consumer League for regu-
larly inputting complaint information received by its National
Fraud Information Center through its consumer assistance service.
We encourage all Federal agencies, including the Postal Service,
to participate in such a centralized database and to commit re-
sources to input data into the system to aid in the detection and
prevention of fraud. We also urge you to provide financial support
for this centralized database. Telemarketers have been successfully
sharing their target lists for years. We must share our victim and
161
other enforcement information among Federal and State authori-
ties to best use our enforcement powers.
Enforcement actions alone will never be sufficient to remedy the
injury caused by fraudulent telemarketers. Effective consumer edu-
cation is essential if injury is to be prevented on the front end. The
Postal Service dramatically demonstrated the type of contribution
it can make through consumer education by its postcard edu-
cational program. This creative consumer education program which
targeted those most in need of its message, was applauded by Gen-
eral Burson at our Chicago meeting.
In summary, clearly we must work together to creatively tackle
the momentous telemarketing fraud problem. I urge this committee
to continue to support and fund ingenious programs such as Oper-
ation Disconnect and the Postal Service's postcard educational pro-
gram. These efforts were high points this year in the Federal battle
against fraudulent telemarketing. Necessary funding for Federal
and State authorities to meet regularly to provide the opportunity
for us to tackle telemarketing fraud together must be provided.
Finally, we urge Congress to pass strong telemarketing fraud
legislation that will provide for even more effective Federal/State
enforcement actions against fraudulent telemarketers. I thank you
for this opportunity to voice our hope that Federal and State au-
thorities can work together to combat telemarketing fraud, includ-
ing mail fraud, so that the consumers will be the big winners and
the fraud operators the big losers.
[The prepared statement of Ms. Carter follows:]
Prepared Statement of Cynthia Carter, Tennessee Attorney General's
Office/NAAG
Madam Chairwoman and members of the subcommittee, I am an Assistant Attor-
ney General in the Consumer Protection Division of the Tennessee Attorney Gen-
eral's Office. I am here on behalf of Attorney General Charles W. Burson who is
President-Elect of the National Association of Attorneys General and Chair of the
NAAG/FTC Working Group. I am a member of the NAAG executive committee of
the Telemarketing Fraud Task Force. Specifically, I am the chair of the federal/state
relations subcommittee for the telemarketing fraud task force. I also represent Ten-
nessee on the federal Department of Justice Telemarketing Fraud Working Group.
I thank you for the opportunity to speak with you briefly this morning on behalf
of General Burson, who regrets that his schedule would not allow him to be here
today.
State Attorneys General have played a legitimate and active role in combatting
mail and telemarketing fi-aud. As you know much of telemarketing ft-aud includes
the use of mail in the commission of the fi-aud. State Attorneys General actively and
aggressively enforce unfair and deceptive trade practices laws against fraudulent
telemarketers. In fact, collectively over 150 cases have been brought against
telemarketers by State Attorneys General since 1987. Due to the mobile nature of
these operations states have regularly worked together to combat mail and
telemarketing fraud. Historically, the states have worked most often with the Fed-
eral Trade Commission when teaming with federal agencies to battle against
telemarketing fraud. Recently, thanks in part to the leadership of Chairman Steiger
and the NAAG/FTC Working Group, the spirit of cooperation and coordination is be-
coming more commonplace between the states and the Federal Trade Commission.
Building upon this cooperative spirit, we were pleased that in November of 1992,
the Department of Justice Telemarketing Fraud Working Group invited the states
to participate in their working group. As a representative of the states, I along with
Emmitt Carlton of the staff" of the National Association of Attorneys General have
been participating in the quarterly meetings of that working group. It is apparent
that the working group is carrying forward the attitude of cooperation and coordina-
tion that is developing among the federal agencies and in state and federal relations
as we combat telemarketing fraud.
162
In recognition of significant consumer injiiry caused by telemarketing fi-aud, in
March of 1993 the National Association of Attorneys General passed a resolution
addressing telemarketing fraud. (Attached as an exhibit to this testimony.) This res-
olution created an NAAG Telemarketing Fraud Task Force. Thus far, 34 states have
volunteered to participate in the Telemarketing Fraud Task Force. This task force
is broken down into a number of subcommittees which focus on areas such as: co-
ordinating multistate litigation, addressing legitimate and illegitimate means and
instrumentalities used to further these fraudvilent schemes, monitoring and drafting
federal and model state legislation, educating consumers, coordinating and estab-
lishing federal/state working relations and working with consumer and industry
groups. Because telemarketers' fraudulent schemes are often targeted at the elderly
we also have a special subcommittee dealing with issues effecting the elderly.
Given that telemarketers have been working together to scam millions of consum-
ers each year, we should follow their model and join federal and state authorities
together to more effectively combat the problem telemarketers. During the Depart-
ment of Justice Telemarketing Fraud working group, federal authorities including
the Postal Service directly indicated that they wanted to learn more about what the
states were doing in the telemarketing area and that they were seeking out more
cooperative activities. The NAAG/FTC Working Group and the NAAG federal/state
Relations Liaison Subcommittee of the Telemarketing Fraud Task Force organized
a formal meeting between appropriate federal authorities and groups of Attorneys
General to discuss ways that we can work cooperatively to combat telemsu-keting
fraud. We invited representatives from the Federal Trade Commission, the Depart-
ment of Justice, the Federal Bureau of Investigation, U.S. Secret Service, United
States Postal Inspection Service and United States Attorneys Office to meet with
the NAAG/FTC Working Group at the Chicago meeting of the National Association
of Attorneys Greneral.
On July 9, 1993, the meeting was successfully held and all of the invited federal
agencies including the postal inspection service eagerly came to discuss how state
and federal authorities can better work together to battle telemarketing fraud. I be-
lieve that meeting signalled the beginning of a new nationwide cooperative effort
between State Attorneys General and federal authorities across the board working
together to battle telemarketing fraud. In fact at that meeting, we committed to
have regional meetings hosted by the NAAG Telemarketing Fraud Task Force fed-
eral/state Uaison subcommittee and the Federal Trade Commission beginning with
the Atlanta FTC regional office in November.
In Atlanta, representatives from Alabama, Florida, Georgia, Mississippi, North
Carolina, South CaroUna, Tennessee and Virginia State Attorneys' General offices
and federal authorities responsible for these areas will be invited to meet to discuss
how to improve federal/state coordination and cooperation of the telemarketing
fraud battle in their region. We believe that we will have participation from aU the
federal agencies that attended the Chicago meeting including the postal inspection
service. The goal is to conduct meetings in all 10 regional offices by April of 1994.
We urge this subcommittee to provide the necessary funding to permit the postal
inspection service and other federal authorities to attend these crucial regional
meetings and to participate in following activities.
We hope to hold these meetings on a regular basis to facilitate and foster the
sharing of information, the conducting of joint investigations and prosecutions of
telemarketing fraud, the joint training of federal and state staff committed to bat-
tling telemarketing fraud and the coordinating of consumer education to better pre-
vent consumer injury. As we know telemarketers have very effectively worked to-
gether to steal fi-om millions of American consumers, now, federal and state authori-
ties must work together to combat fraudulent telemarketers by joining our re-
sources, skills and enforcement powers to battie the biggest consumer problem in
America.
The State Attorneys General through the National Association of Attorneys Gen-
eral have worked with the FTC to establish an electronic database designed to expe-
dite the exchange of consvuner complaint information as well as law enforcement
comments and data. As technology continues to develop, the implementation of a
workable electronic network among law enforcement officials becomes critical. We
applaud the National Consumer League for regularly inputting complaint informa-
tion received by its National Fraud Information Center through its consumer assist-
ance service. We encourage all federal agencies including the postal service to par-
ticipate in such a centralized database and to commit resources to input data into
the system to aid in the detection and prevention of fraud. We also urge you to pro-
vide financial support for this centralized database. Telemarketers have been suc-
cessfiilly sharing their target lists for years. We must share our victim and other
163
enforcement information among federal and state authorities to best use our en-
forcement powers.
Enforcement actions alone will never be sufficient to remedy the injury caused by
fraudulent telemarketers. Effective consumer education is essential if injury is to be
prevented on the front end. The Postal Service dramatically demonstrated the type
of contribution it can make through consumer education by its postcard educational
program. This creative consumer education program, which targeted those most in
need of its message, was applauded by General Burson at the Chicago meeting.
In summary, clearly we must work together to creatively tackle the momentous
telemarketing fraud problem. I urge this committee to continue to support and fund
ingenious programs such as Operation Disconnection and the postal service's post-
card educational program. These efforts were high points this year in the federal
battle against telemarketing. Necessary funding for federal and state authorities to
meet regularly to provide the opportunity for us to tackle telemarketing fraud to-
gether must be provided.
Finally, we urge Congress to pass strong telemarketing fraud legislation that will
provide for even more effective federal/state enforcement actions against fraudulent
telemarketers. Thank you for this opportunity to voice our hope that federal and
state authorities can work together to combat telemarketing fraud including mail
fraud so that the consvuners will be the big winners and fraud operators the big los-
NATIONAL ASSOCIATION OF ATTORNEYS GENERAL
adopted at spring meeting, march 28-30, 1993, washington, d.c.
Resolution on Telemarketing Fraud
Whereas, telemaketing fraud continues to be a major national problem, costing
consumers billions of dollars annually; and
Whereas, from a single location, fraudulent telemarketers are able to victimize
consumers located throughout the country; and
Whereas, among the most common fraudulent schemes is the use of "prize pro-
motions" to lure consumers into buying grossly overpriced and unwanted merchan-
dise over the telephone; and
Whereas, some fraudulent telemarketing is directed at vulnerable populations, es-
pecially senior citizens, who are often victimized more than once by one or more
telemarketers; and
Whereas, fraudulent telemarketers often use "legitimate" vehicles through which
to obtain payment from consumers, including credit card charges, unsigned demand
drafts, electronic funds transfers, and pickups of personal checks at consumers'
homes by common carriers, and ofl^n use merchant accounts other than their own
to factor credit card charges resulting in losses to financial institutions and consum-
ers alike: and
Whereas, state Attorneys General, who are among the principal enforcement ofli-
cials attempting to curb telemarketing fraud, have been critically hampered in their
ability to reduce telemarketing fraud by the artificial constraints of jurisdictional
boundaries, by the absence of any forum in which to obtain multistate relief, by in-
adequate procedural mechanisms to achieve coordination among the states and with
federal agencies, and by a lack of adequate resources; and
Whereas, Congress is considering legislation such as H.R. 868, the Consumer Pro-
tection Telemarketing Act, and S. 568, the Telemarketing and Consumer Fraud and
Abuse Prevention Act, both of which were drafted to allow state Attorneys General
to enforce, in federal covirt, a Federal Trade Commission (FTC) Rule proscribing
fraudulent telemarketing;
Now, therefore, be it
Resolved, That the National Association of Attorneys General:
1. Urges Congress to adopt federal legislation such as H.R. 868 and S. 568, which
would allow state Attorneys General to enforce a federal telemarketing Rule in fed-
eral court as quickly as possible; .
2. Urges that such legislation authorize state Attorneys General to (a) obtain na-
tionwide injunctive reUef and consumer restitution on behalf of the residents of all
states whose Attorney General has authorized said Attorney General to seek such
relief and (b) obtain civil penalties and fees and costs;
3. Directs the Attorneys General who serve on the NAAG-FTC Working Group
to work with the FTC to help ensure the promulgation of a strong and effective ad-
ministrative Rule which provides, among other things, that it shall be a violation
164
of the Rule for any telemarketer to represent to a consumer that the consumer is
a "winner" or has been "selected" or is otherwise being included in a select group
for receipt of a prize or an opportunity or that a person is entering a "contest,"
"sweepstakes," "drawing," or other competitive enterprise ftx)m which a winner or
select group of winners will receive a prize or opportunity when, in fact, the enter-
prise is a promotional scheme designed to make contact with prospective customers
and all or a substantial number of those "entering" receive the same "prize" or "op-
portunity;
4. Directs the Consumer Protection Committee Chair to appoint a Telemarketing
Fraud Task Force charged with the following mission:
Develop and implement specific strategies to address the use of credit cards, un-
signed demand drafts, electronic funds transfers, common carrier pickups and other
"legitimate" means of eflfecting payment form consumers to fraudulent
telemarketers;
Coordiante the dissemination of information concerning fraudulent telemarketers
among state Attorneys General and the FTC, increasing investigations and legal ac-
tions against fraudiUent telemarketers as well as coordinating these efforts with
similar efforts by other state and federal agencies;
Encourage coordination and communication between federal criminal law enforce-
ment agencies and state Attorneys General in specific enforcement actions and oper-
ations;
Coordinate efforts with the FTC Working Group regarding the development of
!)rotocol and procedures for joint federal/state information sharing, training and en-
brcement initiatives;
Devise strategies to address the particular problem of fraudulent telemarketing
directed at senior citizens, including coordination of federal, state and local law en-
forcement efforts, and encourage development of federal and state legislation en-
hancing civil and criminal penalties for deceptive telemarketing targeted at the el-
derly; and
Encoruage development of federal legislation to appropriate funds for innovative
state programs designed to combat telemarketing fraud and state and local enforce-
ment of civil and criminal statutes against deceptive telemarketers: and federal
credit card factoring legislation making the factoring of a credit card draft by any-
one other than the merchant a criminal felony offense and extending the definition
of "mail" to private mail carriers for the purposes of enforcement of federal mail
fraud statutes.
5. Authorizes the Executive Director and General Counsel to transmit these views
to Members of Congress, the Federal Trade Commission, other federal and state en-
forcement agencies, industry groups, and to other interested parties.
Miss Collins. Thank you very much. I thank you for including
the resolution from your meeting and it seems as though this is
something new coming together. July 9, 1993, was what? Last
week?
Ms. Carter. Yes, it was.
Miss Collins. Better late than never. Is this same type of co-
operation going on across the country or is the one in Atlanta the
first?
Ms. Carter. I think what we found in Chicago is that there is
eagerness across the country, and what we needed to do was to
pick a place to start and so Atlanta is our beginning point. And we
have tried to set a goal by April to have literally, across the coun-
try, similar meetings so we can all meet face to face to talk about
what we can do about telemarketing.
Miss Collins. You stated that your organization established a
special subcommittee to deal with the elderly with issues affecting
the elderly. Could you briefly describe the activities of the sub-
committee, and do you contemplate establishing any other sub-
committees to deal with specific groups?
Ms. Carter. That subcommittee is somewhat of an outgrowth of
another subcommittee on elderly issues that Attorney General
Butterworth from Florida has been very involved with. And basi-
cally what happened, it was fairly clear from a number of statistics
165
that the elderly, for whatever reason, are targeted and also are
heavily impacted by telemarketing fraud.
That working group is looking at things from consumer education
that can target that group, also the Arkansas Attorney General has
been real active in discussing enhanced penalties when a victim is
the elderly.
Miss Collins. Increased penalties?
Ms. Carter. Increased penalties. For instance, civil penalties
that are greater if your victim is a senior citizen. And they have
been actively working on that. As far as whether we will have
other committees for other targeted victims, I think that as you can
tell, we are just getting started with the resolution in March, and
I think that the task force has been created to be flexible so that
as we see problems arise, we are going to have to be fluid because,
clearly, these scam artists are very quick to learn new methods and
we are going to need to be prepared to create subcommittees to
deal with the new issues as they come up.
Miss Collins. Please describe your procedure for determining
whether there are other existing complaints against a fraudulent
promoter?
Ms. Carter. First, I can say that the NAAG/FTC data base is
a very important improvement in which the National Consumer
League inputs into. On a State level, we contact our consumer af-
fairs office to find out what kind of complaints they have.
The other thing we can do on a State level is we have an E-mail
system. I can send out an E-mail message to the States on the sys-
tem sa5dng, "Do you have a problem with this company? We have
this problem."
We also will use faxes, the standard letter, write a letter to a
group of people sajdng, you know, write me back if you have a
consumer complaint. The nice thing about the data base, it is
quicker than that process. And then there is the old-fashioned
phone calls, and that is other way we can deal also with the Fed-
eral agencies, we can write them letters and send them faxes and
we can call them.
We hope that these meetings coming up will help speed that
process, because one of the problems, as I am sure you are aware,
when you try to get information, you can get passed around to
seven or eight people before you get to the right party. And by
meeting one another and getting to where you know each other, at
least you will have someone to call that can help you get the right
person quicker.
Miss Collins. What about that FTC data base?
Ms. Carter. There are about 30-some-odd States that are par-
ticipating in that and we have access to it, and one of the great
things is not only can we get complaint information, but we can
also find out — since we are a law enforcement authority, we can
find out if other agencies have inputted that they are investigating
that company so that we can coordinate our resources.
I think it is going to be invaluable because the bottom line is, we
need to know who is working on what so that we can share the in-
formation and we are looking at the same people.
Miss Collins. It seems clear to me, because you have to use so
many different avenues to get information, that this database will
166
only become as good as the information that the fraud victims and
the other agencies feed into the database.
Ms. Carter. That is true.
Miss Collins. Because if you are still having to call around and
send faxes and E-mail, the database can become an all-encompass-
ing informational source if everyone can get in the habit of feeding
in. It reminds me of the — is it TRW and Equifax. If we could be-
come as sophisticated in gathering data as, say, the credit report-
ing bureaus are, and I know they are not always accurate, but they
have voluminous files on individuals. If you can get the database
that encompassing, then perhaps we will have a chance.
Ms. Carter. Obviously, as more of us participate in it, informa-
tion will be, as you are saying, larger which will even be more help-
ful.
Miss Collins. That is right. Thank you very much.
Our next panelist is Stephen Jones, vice president of law and
policy, Better Business Bureau. Welcome.
STATEMENT OF STEPHEN JONES, VICE PRESmENT, LAW AND
POLICY, BETTER BUSINESS BUREAU
Mr. Jones. Thank you very much, Madam Chairwoman. My
name is Stephen Jones. I am vice president of law and policy at
the Council of Better Business Bureaus, and I am pleased to be in-
vited to testify before this subcommittee on the Better Business
Bureau processes for handling complaints in matters of mail and
other types of fraud commonly encountered in Better Business Bu-
reau work.
Better Business Bureaus are private, independent, nonprofit or-
ganizations funded by over 500,000 business members, large and
small, throughout the United States.
We were first formed in 1912 to combat false advertising and
have grown into organizations that are uniquely capable of han-
dling and resolving consumer complaints and of providing
prepurchase information on the reliability of businesses to millions
of consumers annually.
In 1992, bureaus fielded over 9.2 million inquiries on the reliabil-
ity of businesses and handled over 1.7 million complaints.
Our activity as a prepurchase source of information about busi-
nesses, offers, and promotions, what have you, is a major source of
information about fraud for both the public and the Government
agencies with which Better Business Bureaus often cooperate.
Many inquiries come from consumers who have been approached
by phone or through the mail by companies or individuals they do
not know with wonderful sounding offers.
The BBB is often the first source they turn to for information.
In fact, the Roper study a couple years ago showed that we ranked
highest with consumers as the most helpful organization to deal
with consumer problems. It is from these inquiries that BBBs often
first get wind of a potential scam.
Once the bureau learns of a new or dubious promotion from pub-
lic inquiries or other sources, it tries to find out more about it,
starting with the promoters themselves, and continuing with in-
quiries of other Better Business Bureaus and the government agen-
cy if the company isn't forthcoming or their principals have run
167
afoul of the law. The BBB's report those facts as part of their regu-
lar business reporting program.
It is these records that are read or sent to millions of inquirers
as a warning of frauds such as advance fee loan offers, bogus vaca-
tion certificates and worthless employment services.
Complaint handling, on the other hand, while very important to
EBB activity, does not in itself greatly effect fraud. Certainly, we
learned a great deal about fraud from receiving complaints and try-
ing to resolve them, but most complaints, however, we receive, re-
sult from disagreements between consumers and legitimate busi-
nesses.
The perpetrators of fraud are not likely to respond to complaints
much less resolve them. Although there are instances when the
scammer may believe that he can keep the Better Business Bureau
off his back, for example, and will refund the money he has taken
from the consumer, who has complained to the BBB and no one
else.
Nevertheless, the fact that we helped some victims get their
money back does not deter or even delay the BBB from exposing
fraud to the public and to law enforcement agencies.
Being a private organization, dedicated to self-regulation, BBB's
give consumers and businesses, both members and nonmembers
help, encouragement to settle problems without resorting to law en-
forcement agencies and the Courts. This dedication to self-regula-
tion does not, however, foolishly extend to scammers and other law
breakers.
BBB staff members, based on years of familiarity with frauds,
can often detect something fishy about a new promotion simply
from the pitch used on the consumer. Once they do, they will begin
an investigation process that includes information sharing through
the network of over 150 Better Business Bureaus and branches in
the United States, consulting with State and local law enforcement
agencies and regulators, and if warranted, consulting with Federal
agencies such as the FTC, the IRS, the SEC, or the Food and Drug
Administration.
Better Business Bureaus will also conduct their own investiga-
tions which can include shopping of promotions. For example, a
better business employee or volunteer posing as a potential cus-
tomer for an investment fraud or a multi-level fraud or other kinds
of get-rich-quick schemes which we see every day.
Also of great value to us is the interviews that we will do with
victims or potential victims of frauds to find out exactly what is
being pitched to them and how the pitches work. Not being a gov-
ernment agency, we don't have the subpoena powers or investiga-
tive tools that are available to them. Nevertheless, BBB's record
over the years of exposing scams to the public and bringing them
to the attention of law enforcement is one of which we are proud.
There are basically two ways BBB's historically have worked
with law enforcement and regulatory agencies, first being personal
relationships and the second being structured communication. The
more common, by far, is to establish and nurture personal relation-
ships between BBB staff and management and government agency
counterparts.
168
Though the government agencies, of course, are hmited by law
in what they can divulge to private parties about investigations,
and we are certainly a private party, there have been many in-
stances of highly successful cooperation and trust between BBB's
and Government.
For example, the recent FBI Operation Disconnect began in Salt
Lake City after the Salt Lake City, UT, and Idaho Falls, ID, Better
Business Bureaus uncovered some scammers operating in their
areas. The Better Business Bureau cooperated with the FBI to the
point of creating a phony file on the FBI's sting company and it
was a great success, obviously.
In that case, the Salt Lake City Better Business Bureau presi-
dent has had a long-standing relationship with the local FBI office
to the point where there was an agent in charge, there was always
an agent who was assigned to be the liaison with the Better Busi-
ness Bureau in Salt Lake City.
Another example is within the last 2 weeks. The FBI seized oper-
ations of a phone job scam in the Orlando area. The perpetrator
had set up fake Better Business Bureaus in his area to which he
referred doubting customers. The Orlando Better Business Bureau
and the Council of BBB's were instrumental in working with the
FBI and local law enforcement agencies in Volusia County, FL, to
bring this to a successful conclusion.
The agencies which, to our knowledge, were imaware of this
scam until we told them about it because they were mostly preying
on Canadians. While it would not be fair to draw broad conclusions
from the necessarily anecdotal experience of Better Business Bu-
reaus, they are all separate organizations with separate people.
We do see patterns of BBB relationships with government agen-
cies. Over the years, many BBB's have reported a particularly coop-
erative experience with the U.S. postal inspectors. Many have felt
they are the most responsive CJovemment agents with whom they
work.
Another example is the Federal Trade Commission. Many Bu-
reaus have expressed the belief that relations with the FTC have
improved significantly over the last year or so. After a long period
of apparent lack of Commission interest in scams identified by the
Better Business Bureaus, the FTC fraud data bank notwithstand-
ing.
Rarer than the person-to-person relationships, but very effective,
is a structured relationship BBB's have built up with law enforce-
ment agents. The Houston, TX, BBB since the middle 1970's, has
had meetings attended by representatives from the Houston Police
Department, Harris County attorneys, U.S. Immigration and Natu-
ralization Service, FBI, Department of Labor, and it goes on and
on.
These regular monthly meetings have proved invaluable to the
BBB and to the aigencies in helping the efficient coordination in
stemming frauds. This plan has been replicated from several bu-
reaus quite successfully.
As a private organization with so many years of experience in ex-
posing scams and frauds, the Better Business Bureaus are anxious
to support changes and actions that would result in costly criminal
activity.
169
Our experience has shown that where individuals at the BBB's
and law enforcement agencies develop strong, trusting working re-
lationships or where the relationships are more institutionalized, a
great deal of good can result. We would urge, therefore, even great-
er cooperation and information exchange among those of us in the
public and private sectors who daily see the unhappy effects of
fraud.
Our experiences led us to conclude that regular, broadly inclusive
forums of some kind, structured so as not to compromise confiden-
tial investigations, be encouraged where they exist and instituted
where they do not. Today's global economy, where scams know no
boundaries and swindles literally with the speed of light, we cannot
afford the luxury of not sharing information with efforts of others
with like missions.
Thank you.
[The prepared statement of Mr. Jones follows:]
Prepared Statement of Stephen Jones, Vice President, Law and Policy,
Better Business Bureau
Madam Chairman and members of the Subcommittee, my name is Stephen Jones,
I am vice president for Law & Policy at the Council of Better Business Bureaus.
I am pleased to be invited to testify before this subcommittee on the Better Business
Bureau process for handling complaints from consumers in matters of mail and
other types of frauds commonly encountered in Better Business Bureau work.
In order to better understand the process of Better Business Bureau handling of
fraud and other complaints, I think it would be helpfiil to briefly describe the nature
of the Better Business Bureau system.
First and foremost. Better Business Bureaus are private, independent, non-profit
businesses, large and small throughout the United States. First formed in 1912 to
combat false advertising, BBBs, have grown into an organization that is uniquely
capable of handUng and resolving consiuner complaints and of providing
prepurchase information on the reliability of businesses to millions of consumers an-
nually. There is no other organization in this country, neither public nor private,
that provides these services nationwide.
The Council of Better Business Bureaus is the umbrella organization for the 153
Better Business Bureaus and branches in the U.S. Local Bureaus are our members,
as are national corporations. As owner of the trademark "Better Business Bureau,"
the Council of BBBs sets standards for the operation of member BBBs, but does not
oversee their day-to-day operations. Each Bureau is an independent, non-profit orga-
nization governed by its own board of directors and funded by membership dues.
Handling inquiries and complaints from consumers is a major activity of Better
Business Bureaus. In 1992 Bureaus fielded over 9.6 million inquiries about the reli-
ability of businesses and handled over 1.7 million complaints.
The Better Business Bureaus' activity as a pre-purchase soiirce of information
about businesses, offers and promotions is a major source of information about fraud
for both the public and the various government agencies with which they often co-
operate.
As I noted earUer, BBBs receive millions of inquiries every year from consimiers.
Many of these come from folks who are made offers over the telephone or through
the mail that sound wonderful— frequently too good to be true— but that come "out
of the blue" from someone or some company they have never heard of It is usually
to the BBB that such consumers will first turn for help and information. In fact,
a recent study by the Roper Organization ranked the BBB highest with consumers
as the most helpful organization to deal with consumer problems.
These inquirers are the BBBs' first line eyes and ears. When a Bureau starts get-
ting inquiries about a new company or promotion, it tries to develop information on
it to provide subsequent inquirers. The Bureau contacts the company seeking basic
information about its principals, years in business, nature of business and pro-
motional activity. Bureaus will also routinely check to see if the company is properly
licensed and is known to other BBBs and, in apparently questionable promotions,
law enforcement authorities. If the company is not forthcoming, the Bureau reports
that fact to the public. If the firm or its principals have a record of past trouble
170
with law enforcement or regulators, that is also included in the Bureaus' public re-
ports.
It is these reports, which are read or sent to the millions of inquirers that act
as a tocsin to consumers, warning them of the frauds such as advance fee loan of-
fers, bogus vacation certificates and worthless employment services.
Complaint handling, on the other hand, while a very important BBB activity, is
not one that so greatly affects fraud. The complaints Bureaus handle deal largely
with disagreements between legitimate companies and consumers. The Bureau com-
plaint procedures make possible the expeditious resolution of these disagreements
and in doing so play a vital role in the marketplace.
The perpetrators of fii^uds, however, are not likely to respond to complaints, much
less settle them. What help the complaint process does provide comes about because
the fraudulent promoters may think they can delay detection and exposure by, for
example, refunoing money paid by the individuals who complain to tne BBB— con-
sidering it a cost of doing business — while keeping the scam operating in hopes of
attracting more victims who will not complain to the BBB. In this way individual
victims may be helped, the problem is not attacked head on.
The complaint process works like this. T^ically a consumer will call to complain
to the BBB about a transaction gone sour. The BBB staff will first determine wheth-
er the company complained of is in the area served by the Bureau. If it isn't, the
caller is referred to the BBB that is in the company's area. If it is, the caller is sent
a complaint form (I have included a sample form with this testimony) which asks
to particulars of the complaint and the resolution the consumer seeks.
When the Bxireau receives the completed form it forwards it to the company com-
plained of seeking its side in the dispute and encouraging a resolution. Most compa-
nies respond and most complaints — over 65% — are settled to the parties's satisfac-
tion. In many instances, where compliant is not easily resolved, the Better Business
Bureau will offer no-cost mediation or arbitration under special BBB alternate dis-
pute resolution programs.
Having been founded on, and being dedicated to, the principle of self-regulation,
BBBs give the businesses, both members and non-members, help and encourage-
ment to settle consvuner problems without resort to law enforcement agencies and
the courts. This dedication to self-regulation does not, however, foolishly extend to
unlawful activities by businesses ana promoters, who, as noted earlier, usually are
not likely to cooperate in the self-regulatory process anyway.
Better Business Bureau staff members over the years have become all too familiar
with the scam artists and unethical promoters who prey on a sometimes
unsuspecting or uninformed pubUc. In fact, we believe that most often it is the Bet-
ter Business Bureau that is the first to identify the fraudulent schemes that con-
tinue to proliferate both nationally and internationally.
It is common for experienced Bureau staff to detect something fishy about a new
promotion simply ftx)m the pitch used on consiuners. In these cases, staff will do
what it can to find out as much as possible about it, hoping to bring the scam to
light. Bureau staff typically will ask other Bureaus around the country if they know
of the promotion throughout the Council published bi-weekly information exchange
and computer bulletin board. Simultaneously they will check with and state and
local regulators, such as the attorney general, district attorney or securities regu-
lator and, if warranted, will seek information from federal agencies such as the Fed-
eral Trade Commission, the IRS or the SEC. Whatever information the BBB can
docvmient about a questionable business it will include in its pubUc report.
Besides checking with others as to the background of and experience with a given
scheme, the BBB will often conduct their own investigations. These can include
"shoppings" of promotions in which, for example, BBB employees or volunteers pose
as potential psulicipants in a business opportunity offer that could be an unlawful
pyramid scheme and submit to sales pitches in a supposed seminar. Staff also con-
duct extended interviews with potential and actual victims of the scams. Bureaus,
of course, are not government agencies with subpoena powers and other investiga-
tive tools. Nevertheless, their record over the years of exposing frauds and scams
to the public — and bringing them to the attention of law enforcement agencies — is
one of which we are proud.
Decades of BBB experience law enforcement and regulatory agencies have shown
that there are two ways the Better Business Bureaus have worked well with law
enforcement and regulatory agencies: personal relationships and structured commu-
nications. The more common, by far, is to establish and nurture personal relation-
ships between BBB staff and their government agency counterparts. Of course attor-
neys general, the FBI, the IRS district attorneys and others are severely limited in
what they can divulge about investigations to private parties such as the BBB, and
we know that. Nevertheless, the existence of mjriad examples of highly successful
I
171
BBB/agency cooperation and trust clearly indicate that efficient cooperation and in-
formation sharing make for quick public exposure and prosecution of frauds.
For example, the recent highly successful FBI sting against hundreds of
telemarketing fraud boiler rooms, "Operation Disconnect" began in Utah after the
BBBs in Salt Lake City and Idaho Falls, Idaho cooperated with the FBI early on
in the operation to identify telephone scammers and to help create a believable BBB
"file" on the FBI's bogus company. In Salt Lake City, the BBB president William
Beadle, had a longstanding relationship with the FBI office. In fact, for several
years there had been an FBI agent assigned to keep in regular contact with the
BBB.
Within the past two weeks, the FBI seized the operations of an individual in the
Orlando, Florida, area who was running a phony job scam, promising work to car-
penters and others who would pay several hundred dollars up front to get nonexist-
ent employment in unnamed Caribbean countries. To give an aura of legitimacy to
the fraud, the promoter referred victims, mostly Canadians, to phony Better Busi-
ness Bureaus he set up in Florida. Of course they gave callers glowing fake BBB
reports on his companies. In that case, the Orlando BBB and the Council of BBB's
were instrumental in bringing the scam to the attention of the FBI and local law
enforcement agencies, which had been unaware of the scam.
Other Bureaus have had similar experiences based simply on the goodwill and
common goals of the parties involved. Many BBBs report a particularly cooperative
relationship with the Postal Inspection Service. In Dallas, Texas, for example the
BBB and USPIS have worked closely over the years to expose and prosecute the
promoters of advance fee loan swindles. The Postal Inspectors and Bureau staff
have come to exchange helpful information about individuals and companies as a
matter of course. In fact, more than a few BBB CEOs have expressed the view that
the Postal Inspectors, in general, are the most responsive government agents with
whom they deal regularly.
We do to see patterns in BBB relationships with government agencies. For exam-
ple, a number of Bureaus have expressed the belief that cooperation in some areas
with the Federal Trade Commission has improved significantly in the past year or
so, after a long period of apparent lack of Commission interest in scams identified
by BBBs. It would be unfair, however, to draw any broad conclusions from the gen-
erally anecdotal experiences of the BBBs in regard to any one federal or state agen-
cy. As I have noted, the relationships between Bureaus and federal, state or local
law enforcement agencies ofl«n depend on the individuals involved and the relation-
ships they have built up over time.
The structured communications arrangements have, to our knowledge, been initi-
ated by Better Business Bureaus. They have developed from the realization that the
best way to coordinate activities that can most efficiently and svdftly put an end
to fi-audulent schemes is for all those involved to talk to each other on a regular
The Better Business Bureau in Houston, Texas, has the longest running arrange-
ment of this type. Since the mid 1970s, the Bureau president, Mr. Richard McClain,
has hosted regular monthly meetings of various agencies whose duties include
consumer protection. Attending meetings are representatives from: the Texas Attor-
ney General's office, the Harris County District Attorney, the FBI, the FTC, the
Harris County Appraisal District, the Harris County Attorney, the Houston Police
Department, the IRS, the Postal Inspector, the Texas State Bar, the State Securities
Board, U.S. Customs Service, the U.S. Department of Labor, the INS, the U.S. Pro-
bation Office, the Texas Department of Health, the state Department of Licensing
and Regulation, the Texas Education Agency, the Texas Real Estate Commission
and, representing the private sector, the Better Business Bureau.
These meetings have proved invaluable to all concerned and serve as an excellent
example of organizations, both in and out of government, working together to serve
the public. Several other Bureaus have replicated the Houston model to varying de-
grees and have reported great satisfaction with the results; the meetings work. The
BBB can present information it has developed on questionable schemes that has
just come to their attention and may well be news to government agencies. The BBB
may also be able to obtain what information on the identity and nature of scams
(that is publicly available) that they can pass along to the public to steer them clear
of frauds. Moreover, such structured regular meetings probably make it possible for
agencies to coordinate among themselves the actions that are necessary to success-
fully prosecute fraud and related cases— and use the resources of the BBB in doing
While, the Better Business Bureau, is the largest private organization in the U.S.
that works to help consumers resolve disputes with business and to avoid being vie-
172
tims of all kinds of scams and frauds, we, obviously, Eire not the only private
consumer oriented organization working on the problem of consumer fraud.
We are members of the Alliance Against Telemarketing Fraud, and group of in-
dustry, non-profit and government representative that primarily work toward edu-
cating the public about telemarketing scams.
For the past eleven years we have jointly operated the Investor Alert project with
the North American Securities Administrators Association. This is an educational
program that issues regular bulletins and other materials warning investors about
investment frauds and explaining the often confusing aspects of modem financial
instruments and markets.
Another initiative to combat fraud, the Consumer Fraud Information Center, is
a worthwhile endeavor. Its activity, however, consists mainly of gathering informa-
tion from a toll-free number for transfer to the FTC's database and referring poten-
tial or actual fraud victims to others for help. The Better Business Bureaus have
Erovided, and still provide, data to the FTC and others, and have been helping mil-
ons of consumers with their problems for over 80 years.
As private organizations with so many years of experience in exposing the scams
and frauds the Better Business Bxireaus are anxious to support changes and actions
that would reduce this costly criminal activity.
Our experience has show us that where individuals at the BBBs and law enforce-
ment agencies develop strong, trusting working relationships or where the relation-
ships are more institutionalized, a great deal of good can result.
We would urge, therefore, even greater cooperation and information exchange
public and private sectors who daily see the unhappy ef-
fects of fraud. Our experience leads us to conclude that regular, broadly inclusive
among those of us in the
forums of some kind — structured so as not to compromise confidentiality of inves-
tigations— ^be encouraged where they exist and instituted where they do not.
In todays global economy where scams know no boundaries and swindles spread
literally with the speed of light, we cannot afford the luxury of not sharing our in-
formation and efforts with olJiers with like missions.
Miss Collins. Thank you very much. How is the Better Business
Bureau financed or funded?
Mr. Jones. Each local Better Business Bureau is a separate non-
profit and is funded almost exclusively by the membership dues of
their members who are local businesses, both large and small.
Miss Collins. So it is mostly local. That fraudulent company
that set up their own Better Business Bureau, where was that, in
Orlando?
Mr. Jones. Yes.
Miss Collins. They had an office?
Mr. Jones. They had a telephone in the man's office, but they
got the phone company to list them as a Better Business Bureau.
And when people called up, the job offer which was in an Ottawa
and other Canadian newspaper, they would be told, if you don't be-
lieve us, call the Better Business Bureau at this number.
Miss Collins. I see. And that is not illegal?
Mr. Jones. Yes, it is.
Miss Collins. To have a phone number under a registered name,
I mean.
Mr. Jones. We own the trademark Better Business Bureau, and
they don't have any right to form a Better Business Bureau. It is
not a generic name. It is a trademark that they may not use. And
we tried to put them on notice of it, but they were — they flout the
law continually.
Miss Collins. But the telephone company probably had no
mechanism for verifying it either?
Mr. Jones. I believe they didn't.
Miss Collins. There are over 100 Better Business Bureau
branches and each is independent and an independent organiza-
tion.
173
Mr. Jones. About 153 total of bureaus and branches.
Miss Collins. Is there an information sharing process among the
group?
Mr. Jones. Yes, there is. We do have a bulletin board, an elec-
tronic bulletin board that Better Business Bureaus can access.
Those are computerized, and 60 of the Better Business Bureaus re-
main fully computerized.
We also have an information sharing bulletin that goes out from
us, the Council in Arlington, VA, which is the umbrella organiza-
tion for them. There is a constant sharing of information.
Miss Collins. Do you have the same guidelines in each Better
Business Bureau on how to share information with Federal agen-
cies or how you contact Federal agencies? Does each one develop
their own procedures?
Mr. Jones. I think each one has developed their own procedures.
We set guidelines to Better Business Bureaus for reporting and in-
vestigations. However, they each have developed over the years
their own expertise and way of doing things in their relations in
their own areas with the local law enforcement and Federal law en-
forcement people.
Miss Collins. What is the Council of Better Business Bureau's
position on sharing information with other consumer groups like
the National Consumers League?
Mr, Jones. We are not — ^feel no great proprietary feeling about
information. We are interested in combating fraud and we have
had discussions with the National Consumers League about infor-
mation on their database as well, so our interest is in cleaning the
market up and not in holding back any information.
Miss Collins. Did you participate in the retreat?
Mr. Jones. I didn't. We have participated with similar retreats
with NCL.
Miss Collins. It seems to me, when such two giants get to-
gether, it will be formidable.
Mr. Jones. We have worked with the NCL in the alliance of
telemarketing and other areas and we are always willing to do so.
Miss Collins. Something else that was disturbing in your testi-
mony, that the Federal Trade Commission was not much interested
in consumer fraud until recently, did you say?
Mr. Jones. That has been the feeling that I have gotten from dis-
cussions with many Better Business Bureaus for the purpose of
this testimony that they had felt that in past years, in the 1980's,
particularly, that the FTC had shown us a rather— some lack of in-
terest in the information that Better Business Bureaus would bring
to them.
Miss Collins. But you said in the past, it has improved.
Mr. Jones. In the past year or more, they have noticed a distinct
improvement and greater interest in combating the scams that the
bureaus brought to their attention, yes.
Miss Collins. Thank you very much.
Mr. Jones. Thank you.
Miss Collins. That completes this panel, panel No. 1. I want to
thank you all very much and, Ms. Shapiro, can you stay a little
while?
Ms. Shapiro. Yes, of course.
174
Miss Collins. OK. Thank you.
I will hear from panel No. 2. Christian White, Kenneth Hearst,
Frederick Verinder, and Laurence Urgenson.
Good morning and welcome. Christian White, Director of
Consumer Protection Bureau, Federal Trade Commission. I know
you are going to explain to us your more recent concern, right? J
STATEMENT OF CHRISTIAN WHITE, DIRECTOR, CONSUMER 1
PROTECTION BUREAU, FEDERAL TRADE COMMISSION
Mr. White. Yes, indeed. Madam Chairwoman. I am Christian S.
White. I am Acting Director of the Bureau of Consumer Protection
at the FTC. I appreciate the opportunity to be here and talk with
you about the interests of the subcommittee in mail fraud and, in
particular, the Commission's law enforcement activities as they re-
late to mail fraud.
In the interests of time, I won't read the statement on behalf of
the Commission. I would like to highlight several areas that I un-
derstand are of particular interest to this subcommittee. And as we
have heard here this morning, and those are coordination of our
law enforcement efforts with those of other Federal and State and
local agencies.
And in particular, I will talk a little bit about the NAAG/FTC
telemarketing fraud database which others have mentioned and
which we certainly concur is a critical part of helping us all get the
most impact out of our limited enforcement resources.
I think it ^vould be useful to begin with a very brief comment on
the Commission's statutory authority. And let me just say, we are
a civil law enforcement agency with a very broad mandate under
the Federal Trade Commission Act to take action against unfair or
deceptive acts or practices that are in or that affect commerce.
Because this jurisdiction is so broad, you should not be surprised
that the Commission often targets unlawful operations that use the
mails.
Much conduct that might violate the FTC Act does not rise to the
level of fraud and would not likely fall within the ambit of mail
fraud statutes. I will leave that important part of our work aside.
As I understand the focus of your interest, an example of
nonfraud part of the Commission's jurisdiction is the enforcement
of its trade regulation on mail order merchandise which provides
remedies for consumers in terms of notice and information about
delayed delivery or failure to deliver. That is an important part of
our civil enforcement, but a matter that does not arise to fraudu-
lent conduct.
As the others this morning have mentioned to you, the key as-
pect of our work as it relates to your concerns is the Commission's
effort to combat fraudulent telemarketers whose deceptive or unfair
schemes are conducted, at least in part, through the mail and those
actions which, under our enforcement scheme, would amount to
civil fraud.
The Commission brings actions against such fraud operators and
scams in Federal district court under section 13(b) of the FTC Act.
The objective of these actions is to bring an immediate halt to the
telemarketers' illegal practices and to obtain redress for injured
consumers, or where that is not possible, disgorgement of the ill-
175
gotten gains which, as you know, can be very substantial in these
cases.
In bringing these cases, the Commission often seeks and obtains
assistance from other Federal agencies, particularly the Postal
Service. Parenthetically, I should say that we want to convey a
word of appreciation for the postal inspector's contribution to the
excellent working relationship that has developed, forged in past
years between the FTC and the Postal Service.
To give you an idea of what we are about, and to respond to your
question about some of the statistical information, I would just say
that since 1984, the Commission has filed somewhat more than 100
civil lawsuits involving consumer fraud around the country. And
those cases involve about 620 defendants.
We don't keep statistics on which of those lawsuits particularly
concern mail fraud because we don't have specific jurisdiction in
that area, but I asked the staff to take a look at telemarketing
cases that we have filed since the beginning of fiscal year 1991 and
there are 41 of those cases.
In 21 of those 41 cases, the Commission staff had worked in
some way with the postal inspectors. In 15 of those 21 cases, the
postal inspectors also had an investigation initiated either before or
after the FTC's. And in 6 of those 15, there were subsequent crimi-
nal proceedings initiated by the postal inspectors or at their behest.
Our telemarketing cases run the gamut of those that you have
heard already this morning, unlawful schemes to promote free
awards and prizes and sell such diverse products and services as
fraudulent travel packages, employment assistance services, rare
coins, and stamps as investments, art, gemstones. The list is quite
a long one of fraudulent business opportunities that are promoted
through telemarketing scams.
A favorite tactic for telemarketers is, of course, to make initial
contact with potential victims through the mailing of deceptive
postcards to induce them to call in where the fraudulent pitch can
be provided over the telephone.
In recent years, the Commission has attempted to focus its lim-
ited resources in a strategy that would maximize the effectiveness
of what we can do. We have stepped our attacks on what we call
"roots", that is, those companies that in the background in some
cases indirectly support fraudulent telemarketing boiler rooms with
a variety of services they need to successfully run a scam. Provid-
ing false or misleading promotional materials, helping to distribute
them, providing access to credit card payment and collection sys-
tems through what we call the "factoring" of credit card trans-
actions, providing the deceptive merchandise that is used in these
scams, and the like.
The idea behind this root strategy is that a particular operation,
a successful action against a root, can disable many, many scores
of individual telemarketing boiler rooms. There was an interesting
discussion of this type of case in the Sunday Post magazine, one
of our art fraud cases, and it illustrates the two points that I think
are critical.
The success and the utility of having a good cooperative working
relationship also in that case with the relevant postal inspectors
176
and also the importance of going after the roots, the aiders and
abettors and not just the front line boiler room operations.
Much has been said this morning about coordination and co-
operation between the enforcement agencies. The Commission is by
no means the sole or arguably not even the major actor in this.
There are many other State and Federal law enforcement agencies
involved. The Commission and its staff has long recognized that in
order to confront a problem as large as telemarketing fraud, the
best use of all of our resources has to be made.
The Commission has worked closely with Federal and State en-
forcement officials, the U.S. attorneys offices, the FBI, the Postal
Inspection Service, the Secret Service, the Commodity Futures
Trading Commission and with States attorneys general to name a
few on the government's side of the ledger.
We have worked very closely with the National Association of At-
torneys General, NAAG, through the formal working group that
you heard about earlier this morning. We have worked very hard
to provide information sharing and joint training to help the States
implement their own root enforcement strategies between fraudu-
lent telemarketing.
I want to say, during my very short tenure as being Acting Direc-
tor of the Bureau of Consumer Protection, I have been enormously
pleased to work with General Burson of Tennessee, president-elect
of NAAG, and chair of the formal working group.
I won't repeat what Assistant Attorney General Carter has said
about the future plans. Suffice it to say, we are pleased that that —
that the meeting schedule has gone ahead or will go ahead starting
this fall and think that those are useful ways to develop better
working relationships and tighter coordination.
Chairman Steiger has made it a principal objective at the Fed-
eral Trade Commission to improve working relationships and co-
ordinate government enforcement agencies and private groups that
are concerned with consumer fraud and we are working very hard
in that regard.
The Commission's work with NAAG on the telemarketing fraud
database is a critical piece of this work, and I will just briefly de-
scribe it for you. You have heard a number of participants discuss
how it might be helpful to them.
The database is simply an electronic system for sharing informa-
tion on telemarketing fraud. There are currently 52 participants,
including the offices of 33 State attorneys general, several other
Federal agencies, including the Postal Service and the Secret Serv-
ice, as well as other State and local consumer protection officials.
Ms. Golodner, of the National Consumers League, has described
the critical input from the National Fraud Information Center.
That is a large store of information about consumer complaints and
other matters that arrive electronically at the FTC on a daily basis
and is then available for all participants in the system who are law
enforcement agencies and can certify they have a law enforcement
purpose. And we think that system provides a valuable piece of the
puzzle here, a solution to combatting telemarketing fraud.
The database will help identify those fraudulent telemarketers
generating the greatest number of complaints, or the largest dollar
volume of complaints. We can run, if you will, "top 10" lists and
177
compare to see whether a particular scam that may have surfaced
for the first time is large in relative orders of magnitude or small
and try to help ourselves and the other enforcers make good deci-
sions about where to put their resources.
The database will also provide information on what other partici-
pating offices have indicated enforcement interest in a particular
suspect, allowing discussions and coordination to happen effec-
tively.
A very useful aspect of the system is that it will provide lists of
consumers who have voiced a complaint by target and their tele-
phone numbers and those can be used for searching for potential
witnesses against prospective law enforcement targets.
Finally, the database will allow some analysis of what trends
may be occurring in the types of law violations or in the geography
of particular law violations and help us to see whether there are
new areas and aspects that we need to pursue.
We now have in the system information, I understand, currently
some 13,000 consumer complaints and information about some
1,200 law enforcement actions by members. There are some 1,000
complaints per month being entered in the database from the Na-
tional Consumer League's hotline.
In terms of other cooperative efforts, we are participating in the
Department of Justice's Federal telemarketing fraud work group
and, where appropriate, some of our regional offices will participate
in both Federal and State multi-agency task forces combatting
telemarketing fraud such as those operating in Los Angeles, San
Diego and south Florida, those areas where telemarketing seems to
be quite prevalent.
I think at this stage, I should conclude my comments. I would
be pleased to talk further about specific issues that you have and
answer questions about our activities and about the database. We
are working very hard to make it more user friendly and a better
source of information to combat a very serious public problem.
Thank you.
[The prepared statement of Mr. White follows:]
178
Prepared Statement of Christian White, Director, Consumer Protection
Bureau, Federal Trade Commission
Madam Chairwoman and members of the Subcommittee: I am Christian S.
White, Acting Director of the Bureau of Consumer Protection of the Federal Trade
Commission. I appreciate the opportunity to appear before you today on behalf of the
Commission to discuss the use of the U.S. mail for deceptive or fraudulent purposes,
and the Commission's law enforcement objectives, as they relate to combatting mail
fraud.'
The Federal Trade Commission's Consumer Protection Mission
The Commission is a civil law enforcement agency with a very broad mandate
under the Federal Trade Commission Act, 15 U.S.C. §§ 41 et seq., to take action
against unfair methods of competition^ and "unfair or deceptive acts or practices in or
affecting commerce."^ The Commission's jurisdiction under the Act extends, with
certain specific exceptions,* to virtually every sector in the nation's economy. In
addition to the FTC Act, the Commission enforces some thirty other consumer
' The views expressed in this statement rq)resent the views of the Commission. My
response to any questions you may have are my own and do not necessarily reflect the views
of the Commission or any individual Commissioner.
^ The basic purpose of our competition mission is to preserve the benefits of competitive
markets for consumers by enforcing the antitrust statutes, specifically the FTC Act and the
Clayton Act. The Commission's antitrust enforcement program is aimed at preventing or
eliminating unlawful restraints on competition resulting from anticompetitive mergers or
acquisitions, as well as from collusion, monopolistic and other anticompetitive single-firm
behavior, and other activities that distort the workings of a free and fair marketplace. The
Commission's competition law enforcement activities do not entail issues that are common to
enforcement of the mail fraud statutes.
^ I 5(a) of the FTC Act, 15 U.S.C. § 45(a).
* Certain entities, such as banks, savings and loan associations, and common carriers, as
well as the business of insurance are exempt from Commission jurisdiction. See Section
5(a)(2) of the FTC Act, 15 U.S.C. § 45(a)(2) and the McCarran-Ferguson Act, 15 U.S.C.
§ 1012(b).
I
179
protection and antitrust statutes, such as the Magnuson-Moss Warranty Act* (which
provides disclosure standards for consumer product warranties) and the Truth in
Lending Act (which mandates disclosures of consumer credit terms).* The
Commission also enforces trade regulation rules that it has adopted.^ The
Commission, however, is not authorized to enforce the mail fraud statutes,* although
it frequently brings actions under Section 13(b) of the FTC Act seeking to enjoin
unfair or deceptive acts or practices that are in the nature of civil fraud. In these
actions, as discussed in more detail later in this testimony, the Commission often seeks
and receives assistance from other federal agencies, particularly the U.S. Postal
Service. In this regard, the Commission values very highly the positive and
mutually productive working relationship forged between this agency and the Postal
Service.
The Commission has strong and effective tools to enforce the statutes and rules
for which it is responsible. The Commission is empowered to issue administrative
complaints and to conduct administrative adjudications that may result in the issuance
of cease and desist orders barring continuation of practices found to be unfair or
' 15 U.S.C. § 2301 et seq.
* 15 U.S.C. §§ 1601 er seq. Other examples are the Comprehensive Smokeless
Tobacco Health Education Act of 1986, 15 U.S.C. § 4401 et seq. , which requires the FTC
to regulate warning labels on smokeless tobacco products; the Fair Credit Billing Act, 15
U.S.C. § 1666 et. seq., which provides for the correction of billing errors on credit
accounts; the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. , which establishes rights
with respect to consumer cr^lit reports.
' Kg., the Franchise Rule, 16 C.F.R, Part 436, the Funeral Rule, 16 C.F.R. Part 453,
and the Used Car Rule, 16 C.F.R. Part 455.
* See, 18 U.S.C. § 1341; 39 U.S.C. § 3005.
2
180
deceptive. In appropriate cases, the Commission may file suit in federal district court'
to obtain preliminary and permanent injunctive relief, redress for injured consumers,
or disgorgement of ill-gotten gains.' In addition, the Commission may request the
United States Attorney General to file actions in the appropriate federal district court
seeking civil penalties for violations of its administrative orders or trade regulation
rules, and may file those actions on its own behalf if the Department of Justice
declines to do so in the name of the United States.'" The Commission may also seek
the assistance of the Department of Justice in filing criminal contempt proceedings
against persons who violate orders obtained by the Commission, or in filing criminal
actions in egregious fraud cases."
Not surprisingly, in view of the broad jurisdiction the FTC confers upon the
Commission, conduct within the scope of the Commission's consumer protection law
enforcement efforts may sometimes involve use of the U.S. mails. Much of this
conduct, although in violation of the FTC Act, does not rise to the level of fraud, and
would not likely fall within the ambit of the mail fi-aud statutes. The best example of
the Commission's activity in this area is enforcement of its Trade Regulation Rule on
Mail Order Merchandise, 16 C.F.R. Part 435. The Commission promulgated the
Mail Order Rule to address certain specific problems in the mail order industry, such
' Section 13(b) of the FTC Act, 15 U.S.C. § 53(b).
"> Section 19 of the FTC Act, 15 U.S.C. § 57b.
" For example, at the Commission's request the Department of Justice initiated criminal
contempt proceedings against Dean S. Vlahos, the individual defendant in an allegedly
decq)tive 900 number scheme, FTC v. U.S. Sales, No. 91 C 3893 (N.D. 111.). On June 23,
1992 the court issued an order to show cause for criminal contempt tused on Vlahos'
resumption of activities prohibited by the consent judgement issued earlier by the court.
181
as failure to deliver merchandise, late delivery of merchandise, failure to make prompt
refunds, and failure to answer customer inquiries about delayed or lost orders. The
Mail Order Rule imposes several duties and requirements upon direct mail sellers to
prevent such problems. The Rule, however, was not designed to address mail fraud,
and, therefore. Commission enforcement actions brought under the Rule generally do
not target individuals or businesses involved in such conduct.'^
Other Commission consumer protection law enforcement efforts, however, do
target conduct that not only violates the FTC Act's prohibition of unfair or deceptive
acts or practices, but may also violate one or more of the mail fraud statutes.
Specifically, I am referring to the Commission's efforts against fraudulent telemar-
keters, whose deceptive or unfair schemes are conducted, at least in part, through the
U.S. mail.'^
Fraudulent telemarketing is one of the three principal areas in which the
Commission focuses its consumer protection resources, the other two being deceptive
advertising and rule and special statute enforcement. The House Committee on
Government Operations estimates that consumers' losses to fraudulent telemarketers
'^ Several enforcement actions under the MaU Order Rule have involved, in addition to
Rule violations, violations of Section 5 of the FTC Act that were allegedly fraudulent in
nature. V.S. v. Sheldon FriedUch Marketing. Inc., No. 85 Civ 130 (S.D.N.Y filed Jan. 7,
1985); U.S. V. Encore House, No. 85-7385 (S.D.N.Y filed Sept. 20, 1985). In fact, the
postal authorities brought their own action against the defendants in the latter case.
" Although telemarketing fraud is the area of the Commission's activity most likely to
involve conduct that also may violate the mail fraud statutes, other non-telemarketing cases
may also involve such conduct. See discussion of FTC v. Amiel Publishers, No. 459
(E.D.N.Y. 1991), supra, at 14.
182
range from at least $3 billion to as much as $40 billion annually.'" The Federal
Trade Commission continues to devote significant law enforcement and consumer
education resources to combat this problem.
Since 1984, the Commission has initiated, under Sections 5 and 13(b) of the
FTC Act, more than one hundred civil lawsuits in federal district courts throughout
the United States against some 620 defendants to enjoin unfair or deceptive telemar-
keting practices and obtain redress for victims of telemarketing fraud or the
disgorgement of the defendants' ill-gotten gains. The unlawful conduct that the
Commission seeks to enjoin in these actions may also be subject to the mail and wire
fraud statutes, but since the Commission does not have authority to enforce those laws
it does not make a determination in each case as to whether the facts presented
constitute mail fraud within the meaning of the statutes and applicable case law.
Thus, the Commission does not maintain formal statistics on the number of FTC cases
that involve violations of the mail fraud laws. However, the staff has reviewed the 41
telemarketing cases filed from the beginning of fiscal year 1991 until the present and
has determined that in 21 of these 40 cases Commission staff have consulted with the
Postal Inspectors to explore the possibility of mail fraud violations or to otherwise
share information or coordinate activities regarding a specific proposed defendant or
group of defendants. Moreover, in 15 of these 21 cases the Postal Inspectors also had
an investigation, either before or after the Commission initiated its investigation, and
'* House Committee on Government Operations, the scourge of telemarketing
FRAUD:WHAT CAN BE DONE AGAINST IT? H.R. Rep. No. 421, 102nd Congress, 1st Sess., at
5.
183
in six of these 15 where there were concurrent investigations, the Postal Inspectors
initiated formal criminal proceedings.
The Commission's telemarketing fraud cases have involved schemes for such
diverse products and services as rare coins and stamps, art, gemstones, precious
metals, FCC wireless cable television lottery application filing services, and business
and employment opportunities.'' In addition, the Commission has continued its
pursuit of telemarketing operations that sell fraudulent travel packages and
employment assistance services, and promote "free" awards and prizes." The
Commission also has been active in the area of credit card and credit services fraud.
" E.g., FTC V. Cambridge Exchange. Civ. No. 93-6300 Civ-King (S.D. Fla. filed April
15, 1993) (animation eel art and allegedly fraudulent appraisals of their value); FTC v.
North and South Associates, Inc., No. 93 6250 CIV-ZLOCH (S.D. Fla. filed Mar. 30, 1993)
(employment opportunity scheme); FTC v. World Mde Classics, Inc., Civ. No. 92-3363
TJH (EEX) (CD. Cal. filed June 4, 1992) (stamps); FTC v. American Microtel, Civ. No.
92-178 (D. Nev. filed March 2, 1992) (wireless cable television lottery applications); FTC v.
DuPont Model Management, Inc., Civ. No. 90-7695 (E.D. Pa. Jan. 22, 1992) (employment
opportunities; litigated order with $2.3 million in consumer redress); FTC v. Morgan
Whitney Trading Group, Inc., Civ. No. 90-4887 RSWL (Sx) (CD. Cal. Aug. 28, 1991)
(precious metals and commemorative medallions; $1.6 million consumer redress consent
judgment); FTC v. Newport Gems, Civ. No. 90-2001R (CD. Cal. Dec. 6, 1991) (gem-
stones; $3.4 million consumer redress).
'* E.g., FTC V. U.S. Hotline, No. 93-C-444B (D. Utah May 10, 1993) (business
opportunity promotion scheme); FTC v. Fitness Express, Inc., et al., CV-S-93-00561-LDG
(RJJ) (D. Nev. filed June 16, 1993) (prize promotion scheme); FTC v. Denny Mason, CV-S-
93-135-PMP (D. Nev. filed Feb. 22, 1993) (prize promotion scheme); FTC v. Sierra Pacific,
CV-S-93-134-PMP (D. Nev. filed Feb. 22, 1993) (prize promotion scheme); FTC v. Voices
for Freedom, No. 92-1542-A (E.D. Va. July 13, 1992) (consent judgment with $120,000
disgorgement; allegedly decq)tive fiindraising for phoney charity through sales of "desert
stonn" bracelets); FTC v. Pioneer Enterprises, Inc., Civ. No. CV-S-92-615-LDG-RJJ (D.
Nev. Dec. 4, 1992 ) (prize promotion scheme, $1.5 million consumer redress consent
judgment); FTC v. Passport Intemational(e), Civ. No. 92-275-CIV-ORI^22 (M.D. Fla. filed
Apr. 1, 1992) (travel promotion scheme).
184
suing, among others, firms allegedly selling phony credit repair services or "gold"
credit cards through 900 numbers."
These cases reveal that ft-audulent telemarketers may solicit consumers through
print or broadcast advertising or through "cold" telephone calls. A common method
of making their initial contact with their victims, however, is through mass mailing of
deceptive letters or postcards containing false and misleading promises of a luxury
car, a dream vacation, or similarly desirable "prizes," "awards," or purported
giveaways. By use of such "door openers," fraudulent telemarketers entice consumers
to call their boilerrooms. Consumers who call these boilerrooms to claim their awards
— often incurring charges for long distance or 900 number calls ~ are subjected to
deceptive sales pitches by highly skilled telemarketers. These telemarketers also
frequently use the mails for making subsequent sales to consumers, sending
merchandise or further correspondence to consumers, or conducting other basic
functions of their businesses. In other cases, these fraud operators employ private
parcel delivery or overnight courier services in an apparent attempt to sidestep the
mail fraud statutes.
In recent years, the Commission has adopted a strategy designed to maximize
the effectiveness of its limited law enforcement resources devoted to telemarketing
fraud. The Commission has stepped up its attacks on the "roots" that support the
" E.g., FTC V. American Standard Credit Sys., Inc., No. CV-93-2623LGB(JRX) (D.C.
Gal. filed May 5, 1993) (credit services through 900 number); FTC v. Tamona Enterprises,
No. HAR-92-2198 (D. Md. Aug. 10, 1992) (credit services; $300,000 consumer redress
consent judgment); FTC v. Interactive Communications Technology, Inc., Civ. No. CV-
F-91018 RED (E.D. Cal. June 11, 1992) (credit services through 900 number; $800,000
consumer redress consent judgment).
185
fraudulent boilerroom networks - that is, the firms that knowingly provide one or
more of a variety of services necessary to the successful operation of a deceptive
telemarketing scheme. These services include providing boilerrooms with the
following: false or misleading promotional materials and the means of distributing
them; "how-to" guidance and sales scripts; financial assistance; access to the Visa and
Mastercard payment and collection systems through so-called "factoring" of credit
card transactions;'* and deceptive merchandise, such as ineffective water filters, or
"awards" such as junk jewelry that can only be peddled, at the astronomical prices
fraudulent telemarketers charge, though misrepresentation and deceit. While the
impact of an action filed against a single isolated boilerroom is limited to that
particular operation, a successful action against a "root" organization can disable a
score of individual telemarketing boilerrooms.
A good example of the Commission's "root" approach to telemarketers is the
Passport International case." Passport, a classic telemarketing "root," sustained
scores of client boilerrooms by allegedly providing them with everything necessary to
run a successful fraud. Passport sold its client boilerrooms travel certificates -
'* Fraudulent telemarketers obtain unauthorized access to a credit card payment and
collection system, such as Visa or Mastercard, through a "factor" ~ a person who possesses
what is known as a "merchant account" with a Visa or Mastercard member bank or other
financial institution and is willing to use the merchant account to dqwsit the telemariceters'
credit card charge slips. Dqwsiting credit card charge slips in a merchant account initiates
the process that converts the charge slips into cash. By contract and, in some states, by law,
a merchant account holder is authorized to dqwsit in the account only credit card charge
slips generated by such person's own sales transactions. Factors provide access to merchant
accounts for fraudulent telemarkrters and others who do not themselves have, and probably
caimot meet the criteria to obtain, a merchant account.
'» FTC V. Passport Imemational(e), No. 92-275-CIV-ORI^20 (M.D. Fla. filed April 1,
1992). The State of Florida also sued Passport shortly after the Commission filed its case.
186
vouchers purportedly redeemable for a "luxurious" vacation - as well as "awards"
that telemarketers promise consumers in order to lure them into purchasing some other
item at an inflated price. Passport allegedly provided numerous client boilerrooms
with deceptive sales scripts, lists of prospective consumer victims, and postcard "door
openers" designed to induce consumers to call to claim a promised luxurious vacation,
and handled all post-purchase dealings with consumers. In many instances. Passport
allegedly mailed both the solicitations and travel packages for its clients. Finally,
Passport furnished its client telemarketers access to the credit card collection and
payment system through a network of individuals and businesses that brokered credit
card factoring services.
On June 22, 1993, the court approved a final order against Passport perma-
nently banning the defendants from selling any travel-related products or services
through any independent telemarketers. By obtaining such an order against Passport,
the Commission dealt a disabling blow to as many as seventy-five boilerrooms, each
of which allegedly had been deceiving hundreds or thousands of consumers every
week.^
Cooperation with Federal and State Authorities
The Subcommittee has indicated that coordination between the Commission and
other agencies with respect to mail fraud is an area of interest. As the foregoing
discussion indicates, the Commission's law enforcement efforts that bear on mail fraud
^" The final order also requires Passport to disclose fuUy to consumers all of the costs,
restrictions, terms, and conditions of any travel-related products or services that the defen-
dants market directly to consumers, and to provide the exact trip as represented at the time
of sale to any consumer who purchases any travel certificate or voucher from Passport.
187 \ V
\
are those directed at the problem of fraudulent telemarketing. The Commission is not
the sole law enforcement agency pursuing fraudulent telemarketers. On the contrary,
many other state and federal law enforcement agencies are contributing to the fight
against fraudulent telemarketing ii^ very significant! ways. The Commission and its
staff have long recognized that in order to confront such a huge problem, the best use
must be made of law enforcement resources available on all levels. Accordingly, the
staff of the Commission have worked closely with other federal and sUte law enforce-
ment officials in the investigation and prosecution of a number of Commission cases.
During the past few years, the Commission has coordinated its law enforcement
efforts witii such agencies as United States Attorneys' Offices, the FBI, the Postal
Inspection Service, the Secret Service, the Commodity Futures Trading Commission,
and with state attorneys general.
The Commission also works closely with the National Association of Attorneys
General (NAAG) through a formal working group that generates joint enforcement
and training projects.^' A prime example of this cooperation is the joint NAAG/FTC
Telemarketing Fraud Database, an electronic system for sharing information on
telemarketing fraud. The database's fifty-two participants include thirty-three states'
attorneys general, several federal agencies besides the FTC ~ including the U.S.
Postal Service and the Secret Service - as well as other state and local consumer
protection officials. In addition, non-governmental consumer groups such as the
National Consumers League submit consumer complaint data into the system on a
*' The Commission has worked together with NAAG and state agencies to help the
states to implement their own "root" enforcement strategy against fraudulent telemarketing
similar to the Commission's.
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188
daily basis. Because these organizations are not law enforcemfent agencies, however,
they have no access to data once it is delivered to the system.
The database allows users to identify the following: the fraudulent telemarketers
generating the greatest number of complaints or the largest dollar volume of
complaints; othejr governmental offices investigating a particular suspect; potential
witnesses against prospective targets; and recent trends in law violations. In a related
endeavor, the Commission is working with federal criminal law enforcement agencies
to encourage their participation in the database and to develop special procedures that
are sensitive to their particular requirements for confidentiality.
Commission staff also participate in the Federal Telemarketing Fraud Work
Group and commend the Department of Justice's initiative in creating this
multi-agency task force. Additionally, the staff of the Commission participate in
federal and state multi-agency task forces, such as those operating in Los Angeles,
San Diego, and South Florida. For example, the Commission's Los Angeles Regional
office, through its participation in the San Diego boilerroom task force, assisted in the
FBI's recent "Operation Disconnect," a nationwide sweep of scores of allegedly
fraudulent telemarketing boilerrooms that took place in March of this year. As a part
of the sweep, the Commission filed an action against Can-Do Worldwide Marketing,
Inc.^
Can-Do ran a sweepstakes promotion scheme. The company allegedly repre-
sented to consumers, many of whom were elderly, that they had won $25,000,
$10,000, or $5,000 in cash, and that upon purchase of Can-Do's cosmetics or other
" FTC V. Can-Do Worldwide Marketing. Inc., Civ. No. 93-336R(LSP) (S.D. Gal. filed
Mar. 2, 1993).
11
189
merchandise, they would receive "bonuses" or "premiums" ~ a travel certificate and a
piece of jewelry. Can-Do allegedly represented the travel certificate as a "ft-ee"
vacation or "ft-ee" airfare, when in fact consumers had to purchase lodging at inflated
rates in order to redeem the certificate. Can-Do also provided customers with a piece
of jewelry bearing a certificate of appraisal of $489, when the company's own records
showed that Can-Do paid only $30 for each piece.
As a result of the Commission's action, Can-Do is now under a court order that
prevents the alleged unlawful activity and freezes the assets of both the company and
its principal. The Commission is pleased to have contributed to Operation Discon-
nect, and commends the work of the FBI and the Department of Justice in making this
impressive criminal law enforcement effort a reality.
While Operation Disconnect was an important battle in the war against telemar-
keting fraud, other examples of cooperation between the Commission and other law
enforcement agencies are common. A recent example of the joint efforts among the
FTC, the Postal Service, and United States Attorneys' offices is our coordinated action
against Pioneer Enterprises, Inc.," allegedly one of Nevada's largest root organiza-
tions that served a variety of independent boilerrooms and operated its own
boilerrooms as well. In July 1992, the Commission filed a complaint charging that
Pioneer operated a fraudulent nationwide "prize" promotion telemarketing scheme,
initiated by a mail solicitation guaranteeing that the recipient had won a car, a
vacation or some other valuable item.
" FTCv. Pioneer Enterprises, Inc., CV-S-92-615-LDG-RJJ (D. Nev. July 20, 1992).
12
190
Pioneer and its client telemarketers allegedly lured consumers into buying
whatever it was selling — water filters, vitamins, vacation certificates — with promises
that, in addition to the product offered, purchasers would receive a fabulous prize
worth more than the $395 to $695 price of the product. According to the complaint,
the promised prizes typically included Cadillacs, $5,000 cash payments, Hawaiian
vacatioris, and diamond watches. Many consumers complained that Pioneer told them
they were "guaranteed" to win the Cadillac. According to the complaint, in virtually
all instances, consumers instead received a watch or other item of jewelry that
allegedly cost Pioneer a maximum of about $40.
Coordinating their efforts, the Commission and the Postal Inspection Service
moved against Pioneer. The Postal Inspection Service executed an extensive search
warrant against Pioneer and its sister companies at the same time that the Commission
filed its complaint and obtained an ex pane temporary restraining order and asset
freeze against them. The Commission staff also worked closely with the office of the
Nevada Attorney General and the Las Vegas Office of Consumer Affairs. In Decem-
ber 1992, the Court approved a settlement in the FTC's case requiring the Pioneer
defendants to pay as consumer redress $ 1 .5 million - virtually all the unencumbered
assets they possessed - and imposing a comprehensive package of strong injunctions
upon them.
The Commission works with other federal agencies on cases similar to Pioneer,
and its work with the Postal Inspectors has not been restricted to prize promotion
telemarketing schemes. The Commission worked closely with the FBI in another
recent case against telemariceters using a deceptive prize promotion scheme similar to
13
191
Pioneer's," and has worked with the Postal Inspectors on a number of cases against
fraudulent telemarketing schemes involving deceptive sales of consumer products, such
as water filters."
The Commission also has worked closely with other federal agencies in
pursuing telemarketing networks engaged in investment fraud. The Commission's
case against T.G. Morgan, Inc. and Michael W. Blodgett^' involved a deceptive coin
investment scheme conducted both by mail and telephone. Early in its investigation,
the Commission notified the U.S. Postal Inspection Service and the U.S. Attorney's
office in Minnesota of possible criminal law violations by the proposed defendants.
As a result, the Postal authorities opened a simultaneous investigation into the parties'
alleged mail and wire fraud violations, and were able to obtain and execute an
extensive search warrant at the same time the Commission obtained an ex parte
temporary restraining order and asset freeze against the defendants.
The benefits of cooperative efforts like these are clear. In the T.G. Morgan
case, the Commission shared with the Postal Inspector in St. Paul documentary
evidence and expertise it has developed in coin investment cases that facilitated quick
preparation of a search warrant request. The Commission, on the other hand.
^ FTC V. David Wetherill, No. 92-2295 DT (EEx) (CD. Gal. Apr. 15, 1992). The
Commission also received assistance from the United States Attorney in Las Vegas and the
Office of International Affairs of the Department of Justice in tracking certain of the
defendant's assets to the Cayman Islands.
^E.g.. FTC V. C&L Industries, No. CA4-90-125Y (N.D.Tex, filed Feb. 19, 1990);
FTCv. GTP Marketing, No. CA4-90-123K (N.D. Tex. Feb. 19, 1990).
^* FTC V. T.G. Morgan and Michael W. Blodgett, No. 4-91-638 (D. Minn, filed Aug.
21, 1991).
14
192
obtained information and assistance from the Postal Inspector that allowed the
Commission to locate and freeze the defendants' assets and to strengthen its
documentary evidence supporting its case. The Commission froze several million
dollars of the defendants' assets which were subsequenUy released to a bankruptcy
trustee for distribution to injured consumers and other creditors. The United States
Attorney later was successful in convicting the defendants of eighteen felony counts,
including mail and wire fraud.
Similarly, the Commission cooperated extensively with the Postal authorities
and the United States Attorney for the Eastern District of New York and the Northern
District of Illinois in the pre-litigation investigation of a network of fraudulent art
dealers, known as Amiel Publishers. Again, the Postal authorities obtained and
executed their search warrant at the same time the Commission filed its complaint and
obtained an ex parte temporary restraining order and asset freeze against the defen-
dants.^^ The Commission obtained a prelinunary injunction against all of the named
defendants prohibiting the allegedly unlawful conduct; Uie United States Attorney
obtained criminal pleas from several of the defendants and expects to go to trial
shorUy against the remaining defendants on several counts of mail fraud.
In other instances, the Commission refers matters to federal or state agencies
with criminal enforcement authority when information obtained through litigation
indicates that defendants may be engaged in criminal activity. For example, in the
case of FTC v. Dupont Model Management, Inc. , the Commission sued the defendants
" FTC V. Amiel Publishers, No. 459 (E.D.N.Y. 1991).
15
193
for operating a deceptive modeling scheme." While the FTC's case was limited to
the charge that the defendants' conduct violated Section 5 of the FTC Act, the
Commission provided the U.S. Attorney in Philadelphia with evidence indicating that
the principal defendant had engaged in mail fraud and money laundering. The
Commission obtained an order from the court permanently banning the defendants
from engaging in any modeling-related businesses and a judgment of $2.3 million for
redress to injured consumers. The Philadelphia United States Attorney recently
indicted the principal defendant on eighteen counts of mail and wire fraud and money
laundering.
In addition to its coordinated efforts with federal agencies, the Commission
cooperates closely with state and local governments in combatting telemarketing fraud,
among other types of deceptive business schemes. The Commission routinely shares
information and refers cases and, in some instances, brings cases in tandem with state
authorities. One of the many examples was the joint effort in the Listworld case^'
where the Commission received information from state attorney general offices in
Alabama, Colorado, Oregon, and Texas, and was assisted by the Alabama Attorney
General in seizing the defendants' assets. Oregon also filed its own action against
Listworld shortly after the Commission's case was filed.
In the recent Andrisani case,^ involving a deceptive business opportunity
scheme, the Commission obtained assistance from the police departments of two
^ FTC V. Dupont Model Management. Inc., No. 90-7695 (E.D. Pa. 1990).
» FTC V. Ustworld, Inc., Civ. No. CV-91-N-0979-NE (N.D. Ala. stipulated permanent
injunction Nov. 12, 1991).
^ FTC V. O'Rourke, Civ. No. 93-6511 (S.D. Fla. June 21, 1993).
16
194
Florida counties in serving the defendants with an ex parte temporary restraining order
and order for asset freeze and gaining access under the terms of the TRO to the
defendants' business records for inspection and copying. In addition, the Commission
was assisted in its investigation by state and local officials in Florida and Michigan
and by the Canadian government.^'
Finally, Commission efforts to coordinate available resources against telemar-
keting fraud, and other unlawful schemes that may involve the mails, are by no means
restricted to other governmental agencies. Commission staff work to develop and
maintain lines of communication with private organizations like MasterCard, Visa,
long distance telephone carriers, and private courier services to help identify likely
frauds and to anticipate emerging unlawful schemes. The Commission also works to
promote consumer education and other mutual goals with consumer groups like the
Alliance Against Fraud in Telemarketing.
Recommendations on How to Eliminate the Problem of Mail Fraud
" There are numerous other examples of FTC-state cooperation. The Florida Attorney
General's office helped the Commission bring a case against telemarketers who allegedly
aided and abetted fraudulent telemarketers of vacation certificates. FTC v. Passport
International, Inc., 92-275-CIV-ORL-22 (M.D. Fla. filed April 1, 1992). The Nevada
Office of Consumer Affairs helped the Commission to build its case against Pioneer
Enterprises, as discussed supra. FTC v.Pioneer Enterprises, Inc., CV-S-92-615-LDG-RJJ
(D. Nev. filed April 1, 1992). The Commission worked with the New Mexico Attorney
General's office and the Clovis, New Mexico District Attorney's Office to pursue telemar-
keters'who used a decq)tive prize promotion scheme. FTC v. David Wetherill, 92-2295 DT
(EEx) (CD. Cal. Apr. 15, 1992). The Attorneys General in Oregon and Texas assisted the
Commission in bringing a case against a 900 number "root" operation allegedly engaged in
deceptively marketing credit card information packages. FTC v. MDM Interests. Inc., Civ.
No. H-92-0485 (S.D. Tex. Feb. 18, 1992).
17
195
The Subcommittee has asked for the Commission's recommendations on
eliminating mail fraud. Based upon its experience in pursing telemarketing fraud the
Commission would agree that mail fraud is all too prevalent and is a scourge upon
consumers. The Commission believes, however, that specific recommendations that
might be advanced by those agencies that have primary responsibility and expertise to
enforce existing mail fraud statutes are likely to be of greatest value to the Subcom-
mittee in this area. However, in considering how to eliminate this problem, federal
and state agencies must keep in view the fact that mail fraud ~ the use of the mails to
defraud ~ is only one part, albeit a critically important one, of the larger problem of
predatory fraud operators exploiting consumers by any and every means. The mail
fraud statutes are an essential tool for combatting fraud but they alone cannot solve the
problem .
The problem facing law enforcement is not simply the fraudulent use of the
mails or even the telephone, but the continuous progression of ever-changing fraudu-
lent marketing schemes perpetrated on hundreds of thousands of Americans. The
Commission's caseload for the last several years demonstrates that industrious
scammers continuously evolve and refine their pitches, their products, and their
collection and payment methods to keep their unlawful means of gaining a livelihood
up to date. Fraud operators are great believers in technological progress. They are
always the first to recognize the fraudulent potential of any new advancement, and to
exploit it to the fullest. The great wave of 900 number scams that followed in the
wakeof the introduction of pay-per-call services in recent years is a prime example.
In no time fraud operators realized the fraud potential in the novelty of 900 numbers -
- and the potential for evading the protections afforded consumers by the Fair Credit
18
196
Billing AcP^ inherent in billing and collection through consumers' telephone bills
rather than through credit cards.'^ The advent of infomercials provides yet another
example of how some unscrupulous marketers have exploited a new technology to sell
such age-old nostrums as baldness cures, impotence remedies, and diet devices.^
Fraud operators are endlessly inventive in developing media and schemes through
which to achieve their unlawful goals.
As discussed here today, many fraudulent schemes involve the use of the U.S.
mail to some extent. However, they often are carried out through a combination of
media such as 900 number pay-per-call services, 800 number toll ft-ee services, debit
drafts, commercial courier services, and or wire transfers. Recent increases in the use
of commercial courier services such as Federal Express to transact fraudulent schemes
is evidence that these businesses know how to circumvent the mail fraud statute.
There are various recommendations before Congress on how to expand
existing federal legislation to keep pace with the practices of deceptive telemarketers
and direct mail marketers, and these warrant serious consideration.^^ The Commis-
" 15U.S.C. § 1666 eiseq.
" See, supra, note 14.
^ A number of Commission cases have targeted deceptive infomercials. E.g., Media
Am Intemanoml, Ltd., FTC File No. 9023177 (consent order, June 14, 1993); CC Pollen
Co., FTC Docket No. C-3419 (consent order, March 23, 1993; Synchronal Corporation,
FTC Docket No. 9251 (consent agreement subject to final approval, June 30, 1993); Nu-Day
Enterprises, Inc., FTC Docket No. C-3380 (consent order, April 22, 1992); FTC v.
California Pacific Research. Inc., CV-N-88-602 BRT (D. Nev.) (consent judgment, June 22,
1992).-
'* For example, the House Subcommittee on Oversight and the House Subcommittee on
Social Security has issued a repon on decqjtive mailings that adversely affect consumers,
(continued...)
19
197
sion is aware of efforts to expand the mail fraud statute to include commercial mail
carriers and facsimile transmissions. With regard to the Commission's enforcement of
the FTC Act, the Commission has generally supported pending legislative efforts to
expand the tools available to the agency to combat telemarketing fraud. Insofar as the
Commission's efforts against fraudulent telemarketers target the same individuals and
businesses that engage in mail fraud, these legislative efforts will contribute to the
overall battle against mail fraud. In particular, the Commission has supported the
provision in the "Telemarketing and Consumer Fraud and Abuse Prevention Bill"
proposed by Senators Bryan and McCain^' that would make credit card factoring^' -
- more correctly credit card laundering ~ an illegal practice. The Commission also
supports the provisions in the proposed bill that would broaden venue for the
Commission's district court actions, expand the Commission's civil investigative
demand authority to include physical evidence, amend the Right to Financial Privacy
Act to enhance the Commission's ability to prevent dissipation of defendants' assets,
and authorize the Commission to prosecute its own criminal contempt actions.
''(...continued)
particularly the elderly. These include "Social Security Information" services, "Medicare
Information" services, fraudulent insurance solicitations, mailings that appear to be official
correspondence from govemmeut agencies, and mailings that appear to be from tax-exempt
educational or charity organizations. House Subcommittee on Oversight and the House
Subcommittee on Social Security, deceptive solicitations, H.R. Rep. No. 102-45, 102d
Cong. 2d Sess.
'*■ S. 568, the Telemarketing and Consumer Fraud and Abuse Prevention Act. Similar
legislation is also pending in the House. H.R. 868, the Consumer Protection Telemarketing
Act.
^ See, supra, note 15.
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198
There are other ways in which the Commission, the U.S. Postal Service, and
other state and federal agencies can help to reduce the number of frauds perpetrated
upon consumers by means of the mail, telephones, or otherwise. For example, law
enforcement agencies, both on the federal and local level, should continue to strive for
better cooperation, coordination, and information sharing in the investigation and
prosecution of offenders.
Consumer education is another method for hindering the success of fraudulent
operators. The Commission is committed to increasing consumer awareness of the
perils of telemarketing fraud and other deceptive marketing schemes. Independently,
and with other organizations and businesses, the Commission has produced several
publications in English and in Spanish alerting consumers about the scams they should
avoid. ^' The Commission distributes these publications to consumers as well as to
state and local officials, the media, private consumer awareness groups, and others in
a position to educate the public about such matters.
On behalf of the Commission, I thank the Subcommittee for this opportunity to
provide the Commission's views on the use of the U.S. mail for deceptive or fraudu-
lent purposes, and the Commission's law enforcement objectives, as they relate to
combatting mail fraud. I would be happy to answer any questions that members of
the Subcommittee may have for me at this time.
'* These publications include, among others: Swindlers are Calling; Telemarketing
Travel Fraud; Art Fraud; Magazine Telephone Scams; Dirt Pile Scams; Buying by Phone;
Fraud by Phone; '900" numbers; Job Ads, Job Scams, and 900 Numbers.
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199
Miss Collins. Thank you very much. I am — I must confess to
some confusion. I got the impression from the previous panel that
the database was accessible to the consumer groups, but in your
testimony, I see it is only available to other law enforcement agen-
cies.
Mr. White. Under the Commission's statutes, the information
that we obtain of a law enforcement nature can be shared with
those who can certify a law enforcement purpose.
Miss Collins. Then, how is that beneficial to consumer groups?
Do they have to go to their local police department to get the infor-
mation? How can they check to see if a company has had a prior
complaint against them? It seems like it is a one-way situation.
The consumer groups can feed information into the database, but
they can't receive any back.
Mr. White. It is, at this stage, principally a tool for law enforc-
ers, that is right. It may be possible to generate from the database
some statistical information that might be useful, and certainly we
use that and try to get out to consumers and consumer advocates
information about trends and current activities. But as I have said,
it is principally a law enforcement coordination tool.
Miss Collins. Are there any plans or do you have any other pro-
grams that consumer groups can have access to some information?
Mr. White. We are engaged in, as I believe all the other agencies
that you will hear from, in consumer education efforts and
Miss Collins. No, no, I am
Mr. White. Your question goes to specific data about specific law
enforcement targets. And the answer to that, until those potential
targets become actual targets and there is public information about
them, that — ^we are barred under our statutes from sharing that in-
formation.
Miss Collins. Well, not necessarily. I am not asking about po-
tential litigants or criminal cases.
Mr. White. To the extent that there is in the database public in-
formation, that we would not be barred from sharing that. But the
vast majority of it is information about potential targets.
Miss Collins. Well, you see, if the consumer groups are feeding
information into the database, and what they are feeding in is that
they have had complaints against this company selling bogus tray-
el, then that is in your database and this consumer group is in
Michigan, and a consumer group in Illinois calls up to ask, "Have
you had any complaints about such and such a company's name?",
you are precluded from telling them, yes, there is one instance.
Mr. White. That is right, unless that information concerns a
case that is already itself public.
Miss Collins. That is already public, you say?
Mr. White. That is right. If a case has been filed and there is
public information about that.
Miss Collins. Do you plan — ^you cannot, because of your stat-
utes, you can't?
Mr. White. That is correct.
Miss Collins. It seems very unfair.
Mr. White. I think the background is the distinction between in-
formation that concerns potential law violation, which is typically
maintained in confidence, and information about public actions,
200
which, of course, we have a very strong interest in getting out to
the public as well as we can.
Miss Collins. Is the U.S. Consumers Council under your juris-
diction?
Mr. White. No, it is not.
Miss Collins. What are they under?
Mr. White. The U.S. Office of Consumers Affairs.
Miss Collins. Yes. Who are they?
Mr. White. That is a component of the Department of Health
and Human Services.
Miss Collins. Of Health and Human Services. They didn't re-
spond to our invitation to testify today, as far as I know, so we may
have to have a hearing with just them. It just seems to me that
this Federal Government should have some agency that can serve
as a focal point for all of the consumer groups out there trydng to
protect U.S. citizens.
Mr. White. Indeed, and we at the Federal Trade Commission, in
particular its Consumer Protection Bureau, work very hard to pro-
vide, to participate wherever possible in the
Miss Collins. But you are limited because of the legal system.
And so it seems to me that we need something else. What you are
doing is good and very necessary, but we need some agency that
will interact with the consumer groups.
Mr. White. Well, as I say, I think we are doing that actively
wherever possible and having very good working relationships with
consumer groups in combating this problem in framing consumer
education efforts, generally, to try to help people prepare them-
selves to resist this kind of fraud.
We participated in the retreat that Ms. Grolodner discussed and
found that very valuable, so I would say we are working very hard
to reach out to consumer groups as well to find ways to work to-
gether. It is true that the information flow in the database is, as
you describe it, to some extent one way because of the law enforce-
ment purpose and the restrictions on our statute.
Miss Collins. What about the BBB? Are you going to have bet-
ter relationships with Better Business Bureaus. You mentioned all
the agencies. You didn't mention that one.
Mr. White. I have to say we have been working with the BBB's
in various ways for all of my career at the FTC, which is, almost
22 years now. We have received help from BBB's in many of our
cases, not just telemarketing fraud. Certainly we have been com-
mitted, and Chairman Steiger in particular has seen it as a critical
function to establish effective working relationships with every
group that can help in the battle against consumer fraud.
Miss Collins. It seems that I read in your statement that you
cooperate with IRS also.
Mr. White. We have received help from IRS in connection with
several matters. There are, of course, restrictions on t3rpes and na-
ture of information that the IRS can share.
Miss Collins. Well, I am sorry we only have about four commit-
tee members. It is hard for us to get many of them here, but I wish
they were here, because it seems to me that IRS could really be
a bulldog in our fight against consumer fraud and investigating,
even if it is just information you send to them. Getting them, you
201
know, like the FBI did, was it with Capone, they couldn't get him
on criminal charges, so IRS got him on income tax.
Mr. White. True, although here it seems there are ample crimi-
nal remedies available. We find that there is criminal interest in
our civil telemarketing fraud cases in the vast majority of cases,
and the testimony includes some examples of very effective cooper-
ative work to investigate and to pursue various telemarketing oper-
ators.
Miss Collins. Mr. White, I don't want to appear naive, but you
can go into many of the fast food restaurants and see pads of forms
that the consumer fills out to win a trip to Hawaii or a trip to Dis-
ney World, and months later, they get a phone call that they have
won.
And the consumer has forgotten about filling out those forms. So
they said, "How did I win? How did you get my name." "Oh, did
you ever fill out a form, ever in your life?" And I would suspect
that most of the people who fill out a form eventually win. This is
a fraudulent trip and only have to pay, what is it they call it, oper-
ating fees.
Mr. White. Processing costs, right. I certainly have seen cases of
that nature.
Miss Collins. You have seen those all over in legitimate busi-
nesses, those pads are there. Well, it seems to me that some agency
can pick up those pads and investigate those companies and stop
the fraud before it gets to the point that the consumer is called.
Mr. White. Well, I think that we are looking for ways to get
Miss Collins. Can you send agents out? Do they pick up those
kinds of things? Are they ever alerted to that?
Mr. White. We are often in a position where information will be
provided to us by consumers or by other law enforcement agencies.
We do conduct our own independent investigations. What we are
trying to do is focus on the firms that broker the lists of potential
consumers or who provide the services and facilities that these peo-
ple— so that these people used to target the consumers.
Miss Collins. What you call boiler rooms.
All right. So you are trying to get at the roots of it?
Mr. White. Exactly.
Miss Collins. OK. Thank you very much. This was good testi-
mony.
Mr. White. I appreciate the opportunity to be here.
Miss Collins. Mr. Kenneth Hearst, Deputy Chief Postal Inspec-
tor. And you have gotten a lot of kudos today, I am happy to hear.
STATEMENT OF KENNETH HEARST, DEPUTY CHIEF, POSTAL
INSPECTOR SERVICE
Mr. Hearst. For which we are very pleased, I assure you.
Madam Chairman, as you know, we submitted a rather lengthy
testimony because we wanted to be fully responsive to the concerns
of this committee. I would like to take about 5 minutes and sum-
marize that testimony.
As you indicated, I am Deputy Chief Postal Inspector for Crimi-
nal Investigation. I have asked Jennifer Angelo, our Chief Counsel
for Consumer Protection, to join me this morning in the event that
202
we get into any of our issues concerning some of our civil activity
to combat consumer fraud.
We are very pleased to have the opportunity to discuss the cur-
rent efforts of the U.S. Postal Service to combat mail fraud. And
we believe that hearings such as this one are absolutely key in
helping to educate consumers and the public, and we appreciate
the service that you are doing by having this hearing.
Miss Collins. Thank you.
Mr. Hearst. The Postal Inspection Service is the investigative
and audit arm of the U.S. Postal Service. Therefore, 2,000 inspec-
tors nationwide who are responsible for protecting postal employ-
ees, the mails, and postal facilities from criminal attack and for
protecting the American public from being victimized by fraudulent
schemes involving the mails.
We are also responsible for keeping postal management informed
of operating conditions within the Postal Service and for protecting
the Postal Service against fraud, waste, and abuse. We have per-
formed these duties for over 200 years and are one of the oldest
law enforcement agencies.
We enforce a number of statutes which allow us to take action
against fraudulent practices involving the use of the mails. Our pri-
mary weapons are two statutes originally enacted over 100 years
ago of the criminal mail fraud statute and the civil postal false rep-
resentation statute. The mail fraud statute defines as a felony any
intentional use of the mails to defraud. Violators are subject to
fines and imprisonment, and where the proceeds of the crime are
used to further it or are concealed, we have authority under the
money laundering statute to forfeit those proceeds or property they
were used to acquire.
The false representation statute allows the Postal Service to take
administrative action to return to the senders all mail sent in re-
sponse to any false advertisement which seeks to obtain money or
property by mail and to order the promoter to cease and desist.
Because these proceedings are time consuming, two Federal in-
junction statutes allow us to take prompt, interim action against
deceptive mail practices. In addition, two other statutes allow us to
detain mail addressed to false or fictitious names or addresses used
to conduct mail fraud schemes until the claimant identifies himself
or herself and proves their entitlement to the mail.
A pitch that can be delivered by mail can, of course, be delivered
by telephone or television, and we are seeing more and more of
that. Victims can part with their money just as easily by calling an
800 or 900 number or by charging their credit card as they can by
sending a check in by mail.
The difference in enforcement is that the inspection service has
jurisdiction only if the mail is used. Oftentimes, fraudulent opera-
tors attempt to avoid use of mail — as you heard some of panelists
this morning discuss — due to the effectiveness of the statutes that
we enforce, and we believe because of the excellent reputation of
postal inspectors.
Over of the past 2 years, the inspection service has increased its
work hours devoted to mail fraud, including consumer fraud. Last
year, we dedicated almost 23 percent of our resources to mail fraud
even with all the other heavy responsibilities that we have.
203
During that time, we have obtained State or Federal convictions
of over 1,600 persons on fraud charges. Of that number, approxi-
mately 29 percent related to consumer fraud. In connection with
consumer fraud cases, criminal penalties of $20.9 million were re-
ceived. Restitution of almost $65 million was made in civil pen-
alties or fines of over several hundred and $24,000 were imposed.
In consumer fraud cases, we give high priority to medical fraud
cases, schemes directed toward the elderly and minorities, mer-
chandise misrepresentation schemes, and cases which have a sub-
stantial public impact.
We learn about potential frauds primarily from consumer com-
plaints we received directly from members of the public or from
public and private consumer protection agencies and organizations
such as those that were represented in the first panel. All told, we
received approximately 142,000 complaints and inquiries related to
consumer fraud last year.
We also actively seek to identify fraudulent schemes by employ-
ing a clipping service which reviews nationally circulated maga-
zines and newspapers for suspicious advertisements. Whether or
not a complaint triggers an investigation in ultimately civil or
criminal proceedings depends on a number of factors, including the
number of consumer complaints, if any, and the amount of dollar
loss to victims.
Whether the class of victims or the type of scheme is one that
has been assigned a high priority, our ability to prove a suspect's
intent to defraud, which is a required element in criminal cases,
the identity and history of the promoter, and whether in the past
they have been willing to resolve consumer complaints.
Whether another agency has an active investigation against the
promoter. And finally, the prosecutive climate in the area where
the case would be presented.
The inspection service shares information and resources with
other Federal agencies for joint investigations and on an ongoing
basis, as a participant of a number of task forces and other orga-
nized groups which exchange information and develop antifraud
strategies and which are listed in some detail in our written testi-
mony.
The inspection service is a member of the Department of Justice
multi-agency task force on insurance fraud, boiler rooms,
telemarketing, securities fraud, and national health care fraud.
Other member agencies include, among others, the FBI, Secret
Service, Federal Trade Commission, and the Department of Justice.
These groups meet quarterly to share information to stay informed
about changes in the laws and recent court decisions and to discuss
enforcement strategies.
In addition, postal inspectors participate in regular events spon-
sored by the Law Enforcement Coordinating Committee which is
an organized effort run by the U.S. attorneys to coordinate law en-
forcement in each judicial district.
On a local level, we have good working relationships, as you
heard this morning, with consumer protection agencies and Better
Business Bureaus. Those organizations give us valuable informa-
tion on schemes and often provide us with potential witnesses for
our cases.
204
We recognize that we do not have the resources to proceed
against every fraudulent scheme and we try to address that prob-
lem with our prevention program which is designed to attack the
problem by educating the public, to keep them from being victims
of fraud.
Our prevention strategies include a public awareness project that
produces public service announcements, brochures, and posters
warning consumers about the signs of fraud and other presen-
tations.
We have recently taken our deceptive advertisement to the public
in order to reach those most likely to be victimized. Individuals
who respond to our phone advertisements hear a message from an
inspector warning not to fall for similar advertisements in the fu-
ture, and while that may be frustrating to them, we feel that it is
better they hear from us than some con artist.
I would like to express again our appreciation for your offer to
help us obtain legislative improvements in the statutes we use to
combat fraud and misrepresentation and to consider other legisla-
tion. We have included several proposals in our written testimony.
Again, we also believe these hearings are very important in edu-
cating the public. Again, I would like to say thanks to those wit-
nesses from the consumer protection agencies on behalf of all post-
al inspectors working in mail fraud investigations for their com-
ments. I will pass that word on to the people in the field working
on these important cases.
Thank you very much.
[The prepared statement of Mr. Hearst follows:]
Prepared Statement of Kenneth Hearst, Deputy Chief, Postal Inspector
Service
Madam Chairwoman, I am Kenneth M. Hearst, deputy chief postal inspector for
criminal investigations. I am accompanied by Jennifer Y. Angelo, Chief Counsel for
Consumer Protection. We are delighted to have this opportunity to discuss the cur-
rent efforts of the United States Postal Service to combat mail fraud.
The postal inspection service is the investigative and audit arm of the U.S. Postal
Service. The postal service employs 2,000 postal inspectors, who £u-e responsible for
protecting postal employees, for protecting the mails and postal facilities from crimi-
nal attack, and for protecting the American pubUc from being victimized by fraudu-
lent schemes involving the mails. Under our duties as the Inspector General of the
Postal Service we also are responsible for keeping postal management informed of
operating conditions within the postal service and for protecting the postal service
against fraud, waste auid abuse. We have performed these duties for over two hun-
dred years and are one of the oldest Federad law enforcement agencies.
We enforce a number of statutes which allow us to take action against fraudulent
practices involving the use of the mails. Our primary weapons are two statutes
originally enacted over a century ago: The criminal mail fraud statute (18 U.S.C.
§ 1341) and the civil postal false representations statute (39 U.S.C. §3005).
The mail fraud statute defines as a felony any intentional use of the mails to de-
fraud. Violators are subject to fines and imprisonment, and where the proceeds of
the crime are used to further it or are concealed, we have authority under the
money laundering statutes (18 U.S.C. §§1956, 1957) to forfeit those proceeds or
property they were used to acqviire.
The false representations statute allows the postal service, after completing ad-
ministrative proceedings, to return to the senders all maU sent in response to any
false advertisement wWch seeks to obtain money or property by mail and to order
the promoter to cease and desist. Failure to obey a cease and desist order can result
in fines of $10,000 per day (39 U.S.C. §3012). Because these proceedings are time-
consuming, two Federal injunction statutes allow us to take prompt, interim action
against deceptive mail practices: One provides for a mail detention pending conclu-
sion of the administrative litigation (39 U.S.C. §3007); the other allows the Federal
205
District Courts to issue injunctions against the continuation of mail fraud schemes
(18 U.S.C. § 1345). The former is used in civil proceedings, while the latter is based
on reason to beheve that criminal fraud is being, or about to be committed. In addi-
tion, two other statutes allow us to detain mail addressed to false or fictitious
names or addresses used to conduct mail fraud schemes until the claimant identifies
himself and proves his entitlement to the mail (39 U.S.C. §§ 3003, 3004).
Con artists are successful because they gain the confidence of a trusting public.
And while the particular match between swindles and targeted victims varies, the
techniques used by the con artists tend to be very similar in that they play on the
fears or the dreams of the public. During the hundred-plus years that the mail
fraud statute has existed, the types of fraudulent schemes have repeated them-
selves, with the major variable being the amount of doUar loss associated with each
scheme. While the mails are used in the cases we investigate, the same con games
can be conducted outside the mail. A pitch that can be delivered by mail can be de-
livered by telephone or on television, as by infomercial. Victims can part with their
money just as easily by calling an 800 or 900 number or by charging their credit
card as by paying by mail. The difference in enforcement is that if the mail is used
the inspection service is involved, but if the mail is not used, we have no jurisdic-
tion. Oftentimes, fraudulent operators attempt to avoid use of the mail due to the
effectiveness of the statutes postal inspectors enforce and, we believe, because of the
excellent reputation of oiu- inspectors.
Over the past two years the inspection service has increased its work hours de-
voted to fraud. Last year we dedicated almost 23 percent of our resources to fraud.
During that time we obtained State or Federal convictions of 1663 persons on fraud
charges; of that nimiber, approximately 29 percent or 475 related to consumer fraud.
This was an increase of 24.5 percent over total fraud convictions for the previous
year, and an 18.5 percent increase in consumer fraud convictions. In connection
with the consumer fraud cause, criminal penalties of $20.9 million were assessed,
court-ordered restriction of $56.85 million and voluntary restriction of $7.65 million
was made, and civil penalties or fines of $724,628 were imposed.
Under our civil administrative actions program we obtained 246 cease and desist
orders. In all cases where we obtain cease and desist orders where there was mail
coming in to operators of a scheme, mail containing remittances was returned to
consumers either by judicial order or by consent agreement. We also withheld deliv-
ery of mail to 94 persons who were using fictitious names in connection with fraud
schemes.
Postal service anti-fraud efforts are directed from national headquarters and have
been broker down into five primary groups: consumer fraud, frauds against busi-
ness, (such as insurance fii^ud), frauds against the postal service (such as contract
fraud), frauds against the government (such as false applications for loans or the
filing of false Medicare claims) and miscellaneous other frauds. Within each of those
programs, we prioritize types of cases based on a number of criteria. In consumer
fraud cases, the largest single group, we give high priority to medical fraud cases;
schemes directed toward the elderly and minorities; merchandise misrepresentation
schemes; and cases which have a substantial public impact (either a large number
of victims and dollar loss or schemes which target a particular class of vulnerable
persons, such as hurricane victims).
Because cases and circumstances vary, I can describe tjT)ical, but not universal,
procedure and standards that determine whether potential mail fraud cases are in-
vestigated, and whether criminal, civil, or both criminal and civil action are taken.
1 will first describe how we become aware of fraudulent schemes, and then discuss
the process that inspectors go through in determining how an investigation will be
conducted.
We learn about potential frauds primarily from consumer complaints received di-
rectly from members of the public; from local, state or federal consumer protection
and law enforcement agencies; from organizations such as the better business bu-
reau; from postal employees; and from members of Congress on behalf of their con-
stituents. We can also learn about a scheme from a United States Attorney or from
an employee of a company who becomes suspicious of the company's activities and
contacts the inspection service. All told, we received approximately 142,000 com-
plaints and inquiries related to consiimer fraud last year.
We also actively seek to identify fraudulent schemes through our publication mon-
itoring program. We employ a clipping service which reviews nationally-circulated
magazines and newspapers for suspicious advertisements. Through this program we
target specific types of ads which seek payment through the mail for frequently mis-
represented products or services such as weight loss pills, work-at-home programs,
credit cards, and advance fee loan offers.
206
Consumer complaint and inquiry letters are forwarded to inspection service sup-
port offices in Chicago, Newark and Memphis. The information on the complaints,
including the name and address of the company, the person complaining, and any
amount of money the complaining consumer has lost, is entered into our database.
The support office sends a letter to each person who has complained, acknowledging
the complaint and letting the complainant know whether the inspection service is
currently investigating the company or that a case has been filed against it.
We recently redesigned our computer database, changing it from a group of re-
gional systems to a national database where all complaint information is recorded.
We have updated and augmented the standard letters we send to complainants, to
make them more responsive.
When complaints about a particular company begin to arrive, the support group
usually writes to the company in an attempt to resolve the complaints. The majority
of complaints are resolved this way and are never referred to fraud investigators
in the field for further attention. While we cannot force companies to make refunds,
most companies voluntarily comply with our request that they do so.
Investigations of fraudulent schemes are initiated in different ways, but most
begin as the result of complaints. In many cases early complaints are ambiguous.
An isolated complaint may indicate a business error such as misdelivery or unin-
tended failure to fill an order. The support group normally uses the threshold of 10
complaints or compladnts representing $1,000 in dollar loss before referring a matter
to an inspector for preliminary review. Or it may refer a matter immediately if the
nature of the complaint suggests fraud or concerns a high priority case such as med-
ical fraud or fraud against the elderly.
The inspector assigned to review tiie complaint is instructed to conduct a prelimi-
nary investigation within thirty days, which usually includes checking with the local
better business bureau or consumer protection agency to determine whether they
have received complaints or other evidence suggesting a pattern of false or fraudu-
lent activity. After evaluating the matter, the inspector will either formally open an
investigation or conclude that further investigation is not warranted and return the
matter to the support group. If the matter is closed the information remains in our
database, and if we receive additional complaints, we will again send it to an inspec-
tor for review.
At the point that an inspector decides to open an investigation he or she does not
generally know whether the case will be civil or criminal. Major factors an inspector
considers at this point, both in deciding whether to proceed with a case and deciding
whether to proceed civilly or criminally, are as foUows.
1. The number of consumer complaints, if any, and the amount of dollar loss to
victims. Generally, the larger the number of victims and dollar loss, the more com-
pelling the need to take action. However, a full investigation may be appropriate
even when few complaints have been received if other factors are present.
2. Whether the class of victims or the type of scheme is one that has been as-
signed high priority.
3. The ability to prove a suspect's intent to defraud. The major distinction be-
tween civil and criminal cases is that in criminal cases the Government must prove
that the defendant intended to defraud his victims. Intent is difficult to prove in
many instances, because it ultimately requires an ability to prove beyond a reason-
able doubt a promoter's reasons for conducting a given promotion.
Thus, while medical fraud cases are a high priority, they are rarely pursued crimi-
nally because a promoter's alleged intent to defraud often can be countered by the
existence of a scientific study, however outdated or weak, that he has relied upon
in making claims for a product. Another situation where intent often is not clear
is when a promoter is not shipping merchandise quickly to all customers. While cus-
tomers are clearly victimized by this failure to deliver, it may be due to poor busi-
ness practices which must be distinguished from actual intent to deceive customers.
4. The identity and history of the promoter. A scheme conducted by a recidivist
can provide convincing evidence of criminal intent.
5. Whether the promoter in the past has been willing to resolve consumer com-
plaints.
6. Whether an agency, such as the Securities and Exchange Commission, the Fed-
eral Trade Commission, the FBI, or a State consumer protection agency has an ac-
tive investigation against the promoter. To avoid duplication of effort, the inspection
service might defer to another agency which has already made substantial progress
in their investigation, and offer to provide assistance rather than initiate its own
action. For example, if another agency is several months into an investigation and
the postal service has just begun, we might offer assistance rather than taking a
lead in the case. In a recent Florida case, we discontinued a criminal investigation
207
because the Federal Trade Commission was preparing to file a civil action based on
their lengthy investigation.
7. The prosecutive climate in the area where the case would be presented. That
climate depends in large part on the resources, workload and priorities of a given
United States attorneys office.
If Federal prosecution or other action is declined, an inspector may seek State or
local prosecution. This approach also varies with the resources and aggressiveness
of local district attorneys. Many States will not pursue a case if the operation or
the victims are out of State. For this reason, sophisticated operators, particularly
those running boiler rooms, do not victimize persons in the State where their oper-
ation is located.
If intent would be difficult to prove the inspector may pursue the investigation
as a civil administrative action directly through the postal service law department,
independently from the United States attorney. These cases are first sent to inspec-
tor attorneys, who evaluate their merits, draft proposed pleadings, and forward
them to the law department. Prior to submitting the case to the law department,
an inspector attorney may obtain a consent agreement fix)m the promoter. These
agreements typically require the promoter to discontinue the challenged practice, re-
turn remittances to victims and agree to cease and desist fi-om continuing or resum-
ing the scheme. If a promoter refuses to sign an agreement, the case is referred to
the law department for action. Most of these cases are ultimately settled prior to
hearing, and cease and desist orders are issued against the promoter.
In ongoing schemes where the promoter is receiving a high volume of mail, the
inspector attorneys and the law department work with U.S. attorneys to obtain in-
junctions under 39 U.S.C. §3007 and/or 18 U.S.C. § 1345. Section 3007 is useful only
where the promoter is seeking to obtain money or property through the mails. Sec-
tion 1345 is particularly useful in cases where consumers' money is being received
by promoters by means other than by mail, for example by 900-number or credit
card; when a promoter is receiving mail in many different States and thus a section
3007 injunction in one district will not be effective; or when a scheme has victimized
so many consimiers that a restitution order under section 1345 is the only adequate
remedy. While section 1345 is brought as a civil action, it is based on a violation
of the criminal mail fraud statute and thus requires proof of intent.
The inspector attorney or a law department attorney often assists the assistant
U.S. attorney in preparing cases under sections 3007 and 1345. Last year, district
court judges issued 36 temporary restraining orders under section 3007, which de-
tained incoming mail responding to false representations, and 14 cases were brought
under 18 U.S.C. § 1345.
A relatively new option in consvuner fraud cases is asset forfeiture under the
money laundering and forfeiture statutes. Forfeiture is used when we are able to
identify assets of a promoter which can be traced to the illegal activity and are not
encumbered by liens, for example, bank accounts or real property. Because a forfeit-
ure action includes no remedy other than seizure of funds, a concurrent criminal
or civil action under the fraud statutes normally accompanies any forfeiture action.
In two consumer fraud cases in which large sums were forfeited— ^1.4 million in the
case against Finderhood, Inc., and $3.5 million in the case against Joel Nadel et
al. — accompanying district court orders piirsuant to 18 U.S.C. § 1345 provided that
the promoters would not resume their fraudulent activity and that a refund account
would be established for the defendants' thousands of victims. The postal service for-
feited $10.8 million in assets in connection with consvuner fraud last year.
On the other end of the spectrum are circumstances involving few complaints, low
mail volume, and no health risk to the pubUc. We typically handle these schemes
without a formal legal action, but instead by obtaining a voluntary discontinuance
agreement in which a promoter agrees to discontinue the scheme. These letters have
no enforcement provisions, and if a promoter does not keep his agreement the in-
spection service seeks formal action under the criminal or civil statutes.
Voluntary discontinuance letters are used against individuals involved in smaller
schemes, for example, chain letters, shortpaid postage and work-at-home pro-
motions. The inspection service obtained 5,201 voluntary discontinuances for
schemes identified through its publication monitoring program in 1992, and 42,999
voluntary discontinuances of chain letters.
INVESTIGATIONS— CRIMINAL
Each investigation is different, but inspectors typically obtain evidence in criminal
cases by interviewing victims, suspects and other potential witnesses such as ex-
perts. Inspectors obtain documents pertaining to fraud schemes by one of three
means:
208
1. Grand jury subpoenas of documents relating to a scheme
2. Inspector general subpoenas (available only in investigations of fraud, waste
and abuse against the postal service)
3. Search warrants Grand jury subpoenas and search warrants are obtained
through the United States attorney, while inspector general subpoenas are issued
by the agency. The decision to use a particular tool depends upon the operation, the
hkelihood that the operators will provide information via a subpoena, the likelihood
that the information will not be destroyed once a subpoena is issued, and the chance
that the operation may cease to operate overnight.
At the conclusion of the investigation, the inspector writes a presentation letter
outlining the facts of his investigation and requesting formal prosecution, which he
sends to the United States attorney. Once a case is presented, sole discretion to pro-
ceed is vested in the U.S. attorney and, if he or she proceeds, the prosecution is han-
dled by the United States attorneys office. If the case is accepted for criminal pros-
ecution the decision to move forward civilly is held in abeyance pending the outcome
of the criminal matter.
CIVIL INVESTIGATIONS
Civil investigations under the postal false representations statute differ from
criminal in that the inspection service has no subpoena authority except in cases
of frauds against the postal service, and search warrants are not authorized. Thus,
inspectors must rely upon publicly available documents (such as postal service per-
mit and box applications and corporate docimients), test or demand purchases of
products, and voluntary interviews of the subject, his employees or his victims.
COORDINATION AMONG AGENCIES
The inspection service shares information and resources with other Federal agen-
cies. We also work closely with State attorneys general, particularly against
telemarketing fraud.
The inspection service is a member of the Department of Justice multi -agency in-
surance task forces on fraud, boiler rooms, telemarketing, securities fraud, and na-
tional health care fraud. Other member agencies include the FBI, Secret Service,
Federal Trade Commission, Department of Justice, and in some cases the Internal
Revenue Service and commodities regulators. These groups meet quarterly to share
information, to stay informed about changes in the law and recent court decisions,
and to discuss enforcement strategies.
The health care fraud task force was formed in the fall of 1991. Its members in-
clude representatives from the Departments of Justice, Labor, Defense, and Health
and Human Services, the Drug Enforcement Administration, the FBI, US Attorneys
Offices, and others. An example of Federal enforcement coordination arising from
that task force is the recent criminal case against Michael and David Smushkevich.
The defendants operated rolling laboratories in California and Missouri which of-
fered free physicals to elderly and other individuals. Before providing any services
they induced patients to sign insurance forms; they then bUled the patients' Medi-
care, Medicaid and private insurance for tests that they had not performed, or for
unnecessary tests and procedures. The Government has accepted guilty pleas from
individuals involved in the fraud. While the postal service was the lead agency in
the investigation, we received extensive assistance and information from other mem-
bers of the health fraud task force.
The insurance fraud task force also was formed in September of 1991. Its mem-
bers include the Department of Justice, Internal Revenue Service, the Customs
Service, the FBI, the Department of Labor, and other agencies. It was formed to de-
velop strategies to combat the fraud which was contributing to a potential insurance
industry coUapse like that which occurred in the savings and loan industry. Among
the results of the task force was the development of a single form that insurance
companies can now file with the FBI when they suspect fraudulent claims. This in-
formation is available to all members of the task force.
The recent case against F.D. Roberts Securities, Inc. for its massive stock manipu-
lation scheme resulted from the coordinated efforts of several law enforcement agen-
cies. F.D. Roberts was jointly investigated by the FBI (as the lead agency) and,
among others, the Securities and Exchange Commission, the Internal Revenue Serv-
ice, the Postal Inspection Service and the New Jersey Bureau of Securities. The in-
vestigation culminated in over 30 criminal prosecutions by the U.S. Attorneys Office
and successful civil enforcement and administrative law proceedings by the New
Jersey Office of the Attorney General. A restitution account has been established
for victims of the scheme.
I
209
The inspection service participates in regular events sponsored by the Law En-
forcement Coordinating Committee (LECC). The LECC is run by the United States
Attorneys in each judicial district, and the number of LECC activities varies widely
among districts. In areas where the LECC is active, monthly meetings are held
among United States Attorneys, Federal law enforcement agencies and local police
and prosecutors. These meetings are used to exchange information and discuss
strategies for particular types of cases.
An example of typical coordination and information-sharing on the local level is
the close working relationship the Detroit division of the inspection service has with
the Detroit Office of Consiuner Affairs. Esther Shapiro, the director of the Detroit
Office of Consumer Affairs, is also testifying at this hearing.
The Detroit division has successfully pursued a number of fraudulent schemes in
the Detroit area with evidence and other assistance from Ms. Shapiro's office. The
actions we have coordinated include a $30,000 forfeiture action against Perone Asso-
ciates for their fraudulent credit offer; an administrative action against an employ-
ment scam run by Universal Cruises; an ongoing investigation of Ralph Shotanus
and BeU Industries for their computer sales promotions; an ongoing civil investiga-
tion of Jack Wein for a modeling jobs advertisement; and niunerous work-at-home
schemes.
In Philadelphia, the inspection service is the lead agency on a major working task
force on insurance fraud which includes nine member agencies, including the Phila-
delphia Police, FBI, United States Attorney and a number of insurance companies.
The task force carries an open case load of more than 70 cases, and in most of these
cases a doctor, lawyer or organized crime figure is the primary target. The task
force and the inspection service recently received the prestigious Gold Medal Award
from the Philadelphia Federal Executive Board for the outstanding professional per-
former-group.
I am on the board of governors of the National Health Care Anti-fraud Association
(NHCAA), whose members include hundreds of insurance companies, the FBI, De-
partment of Justice, U.S. Department of Health and Human Services, Health Care
Financing Administration, National Association of Medicaid Fraud Control Units,
and the Florida Medicaid Fraud Control Unit. The NHCAA's mission is to improve
the detection, investigation, civil and criminal prosecution, and prevention of health
care fraud. Its goals include improved coordination and information-sharing between
the government and the private sector to aid investigation and prosecution of health
care fraud.
The inspection service regularly coordinates with the Secret Service, which has ju-
risdiction over credit cards, in telemarketing investigations. We regularly share in-
formation with them and when we have concurrent investigations of a telemarketer,
we get them in touch with our investigator, and they do the same for us. We have
offered this service to other agencies as well.
The inspection service does not typically conduct joint consumer fraud investiga-
tions with the Federal Trade Commission. The authority under which each agency
operates is distinct. We often are exercising criminal investigative authority involv-
ing grand jury secrecy restrictions which preclude a sharing of information. In cases
not subject to these constraints we share information and seek to be aware of each
©tiler's activities.
PREVENTION
We recognize that we do not have the resources to proceed against every fraudu-
lent scheme, and to address that problem the inspection service places emphasis
upon its prevention program designed to attack the problem from the other end: by
educating the public to keep them from being victimized by these schemes. I would
like to share a few examples of our prevention efforts with you.
A recent poll conducted by Louis Harris and Associates found that virtually all
American adults (92%) had received a post card or letter informing them that they
were a definite winner of a free prize, and that 29% of those had responded to the
mailing. Based on that information, the inspection service recently mailed to
200,000 persons a postcard congratulating them for winning a sweepstakes prize.
The notice, which was developed in cooperation with the Federal Trade Commission
and the Direct Marketing Association, is attached to this testimony as attachment
1. It resembles a tjrpical fraudvdent sweepstakes notice and guarantees the recipient
one of five valuable prizes. The card instructs recipients to call an 800-number for
information on their prize. When consumers called the number, instead of learning
what prize they had won, they heard a taped message from the inspection service
explaining that most prize offers are fraudulent and warning consimiers never to
210
pay money to receive a prize. A transcript of the tape is attached to this testimony
as attachment 2.
This prevention mailing was very successful; to date, approximately 55,000 or
28% of those who received the post card have called and heard the taped message.
The inspection service plans to use similar mailings in the future to educate the
public.
A similar prevention program was conducted a couple of years ago. We placed ad-
vertisements offering loans to people with poor credit. The ads were similar to those
used by scam artists who conduct advance fee loan swindles where an up-front fee
is charged for a loan that never materializes and the victim is in no position to sus-
tain further losses. When the potential victim called the toll free number in the ad,
he or she listened to a message from a postal inspector explaining how many adver-
tisements of this type are scams.
The inspection service participates in a number of other prevention activities, in-
cluding appearing on radio and television programs aimed at educating the public
about fraud, producing anti-fraud pubhc service announcements, assisting action
line and other consumer reporters in their education efforts, setting up booths and
displays at conventions and conferences, putting up posters in post offices warning
customers to beware of offers that seem "too good to be true," and participating in
educational activities as a member of the crime prevention coalition. Ovu" inspectors
in charge are engaged in an active program to meet with mailer and consumer
groups to warn them of current scams and explain how they can obtain assistance
from the inspection service. The inspection service publishes brochiu^s in English,
and in some cases also in Spanish, warning people about common frauds. Attached
to this testimony as attachment 3 is an inspection service brochure entitled "don't
take the bait!"
In addition, the inspection service recently has sought assistance from mailers
groups like the Direct Marketing Association and the Advertising Mail Marketing
Association. We have asked their members to help protect public confidence in direct
mail marketing by telling us ways that mailers defraud the public, and to give us
advance warning when tiiey are aware of fraudulent mailings that are being dis-
seminated. We are hoping that this cooperation will help us to identify frauds even
before we begin receiving complaints from victims.
Madam Chairwoman, I would like to express our appreciation for your offer to
help us obtain legislative improvements in the statutes we use to combat fraud and
misrepresentation and to consider other legislation. Among the changes we have
been working on is an amendment of the mail fraud statute to allow us to forfeit
property fraudulently acquired and, consistent with an agreement we have with the
Department of Justice, to allow the postal service to retain the proceeds of mail
fraud forfeitures resulting from its criminal investigations. Under cvurent law, be-
fore we can seize and forfeit assets, we must prove that, in addition to fraud, the
promoter violated the money laundering statutes. In my judgment, taking the prof-
its away from the con artists is the best way to discourage these scams.
To enable us to improve the use of our civil misrepresentation statute, we have
recommended that we be given the authority to issue civil investigative demands
for documents and testimony. The lack of such authority seriously hampers our abil-
ity to deal with some types of fraud schemes — phony charities being a prime exam-
ple— and delays our abUity to obtain injunctions in many of our cases.
S. 3376, introduced in the last Congress by Senator Pryor contains the legislative
changes we have discussed in this testimony and others. We would, of course, be
pleased to work with your staff regarding legislative changes that we believe would
be of help.
In addition, we have supported congressional efforts to enact a private courier
fraud statute separate from the mail fraud statute. Such legislation would prohibit
the use of private courier services to avoid violations of the mail fraud statute, but
it would not address that issue as part of 18 U.S.C. § 1341. We feel a separate stat-
ute addressing private courier service would best maintain the integrity of mail
fraud precedents which are based on the postal service's government identity, while
still making the substantive provisions of the mail fraud law applicable to private
couriers.
The inspection service and other law enforcement agencies could take action more
quickly against telemarketers if we were authorized direct access to telephone sub-
scriber information from telephone companies and 800- and 900-number service bu-
reaus. This would provide access comparable to that available under postal regula-
tions, which grant public access to information on post office box applications when
the apphcant is doing business with the public. Currently, we need a subpoena to
obtain this information from a telephone company. While subpoenas may be avail-
211
able in some cases, in civil investigations they are not; moreover, companies do not
always comply with subpoenas.
We woula also encourage legislation to require telemarketers to post a bond as
a condition of obtaining multiple telephone lines, so that funds for victim refunds
would automatically be available if a telemarketer left town. Legislation along these
lines was discussed last year.
Congress could also bolster the mail fraud statutes by requiring businesses using
commercial mail receiving agencies to identify their addresses as boxes, and not as
"suites" or "offices."
Finally, we support H.R. 868, the telemarketing bill which as been passed by both
the House and the Senate. Among the bill's provisions is a section which instructs
the Federal Trade Commission to estabUsh a clearinghouse for inquiries made to
Federal agencies about telemarketing. We support the House version of this provi-
sion because it immunizes information providers from liability for information they
provide to the line as long as they believe the information to be correct. This would
encourage more people to provide information.
At this time, I would be pleased to answer any questions you may have.
212
NatlonaJ Unclaimed Sweepstakes
Notlfkadon Bureau
P.O. B<Mr837
Columbus. OH 43216-0837
This is your OFHCIAL PRIZE NOTIFICATION
and it won't cost you a penny!
FIRST OASS UAV
POSTAGE & FEES PAD
USPS
PERMIT NO. G-10
Do not throw
this notification
awayl
THAT COULD
COST YOU
PLENTil!
You are a winner! CONGRATULATIONS!!
WIN CLAIM NO.
67-897-00-B-3
National Unclaimed Sweepstakes Prize
Notification Bureau has great news for
you today! You are a confirmed winner of
one of the prizes listed below:
1. CASH MONET...CoiiId you use a $10,000 cashless check?
2. FREE VACATION IN PARADISE... Would you be interested
inHawaU?
3. 1993 LUXURY AUTOMOBILE...Plit yoursey' behind the
wheel
4. DIAMOND NECKLACE..^ timeless treasure for the lady.
5. HOME ENTERTAINMENT CENTER OF YOUR DREAMS..
35" Stereo TV. VCR and more.
For important infonnation about your FREE PRIZE OFFER,
•" 1»800»44S»5656
Washington. DC residents call 202 •268 • 5656
213
tETISED POSTCARD AUDIO SCUPT
Thank you for calling our toll free 800 nunber. Please take a minute to
look carefully at that pink postcard in front of you. Take a hard look.
It says you're a confirmed winner of a fantastic free prize, and
suggests that all you have to do to claim it is pick up the phone and
call a toll free number. Do you really think you're going to get off
that cheap? Not likely.
The hard fact is that these kinds of postcards and letters usually
require you to pay your hard-earned money before you receive anything.
You may find that your prize it not what you expected, or you may not
receive anything at all.
When you receive free prize notifications, sweepstakes entry forms,
travel offers or similar gimmicks, ask yourself a few tough questions
before you part with your cash. Ask yourself:
"That do I know about this fiza's reputation and integrity?"
*Do I have to pay money or buy something before Z receive my
"free prize?"
"Can I take time to tbink this over? Or are they pressuring
me to make a decision right away?"
"Vby are they asking for my credit card number before I agree
to buy anything?"
If you cannot get satisfactory answers to these questions, throw that
postcard or letter in the trash, and save yourself money and grief.
The pink postcard you received was mailed by the O.S. Postal Inspection
Service. Ve investigate federal mail fraud violations and we want to
warn people about questionable offers that coma In the mail.
Postal Inspectors are using a fictitious company nasw and address and
this pink pMtcard to attract attention to our 800 nuaber. thy?
Because «* iwtt to deliver aa important warning to the innocent people
most oftm Tictlalsed by these scams. Ve hope our efforts save you ox
soMone yov knov froa losing aoney to fraudulent proaoters. For aore
inforaatioa, or a copy of this aessage, call our toll free Hotlin*
nuliber at 800-654-8896.
Tliank you.
214
Consumer Fraud,.,
by phone or mail!
t T.
Published by
The United States
Postal Inspection Service
Congressional & Public Affairs Branch
475 LEnfant Plaza. SW
Washington. DC 20260-2160
215
Dont take the baW S^^r:SrbS!!"^"""*^'°"
• Vitamins
• Louxxtst vacations
• Magazine subscriptions
• Office supplies or promotional items
• Club memberships
» Surejire investments
Do they saj...
TouVe just won a contest, and \f you pay
^shipping and homlling' or a Ismail gift tax,'
its all yours.''?
Do they want...
Tour credit card number?
If SO. you may be the victim of a BOILER ROOM FRAUD.
Direct Bfarketing is the sale or goods and services by direct
contact with the consumer by telephone or mall.
DIRECT MARKETING Bofler Room Fraud costs consumers nearly a billion dollars a
TTG year. Boiler Room Ftaud Is the use of the phone or the mail by unethl-
cal companies who only want to take your money. It Is a growing
BOILER ROOM FRAUD proWem for both indhrtduals and businesses. The best way to protect
youradf Is to learn to recogntee the warning signs.
• Most cans come from flmis located out-of-state. "Hie anns worit out of
large rooms with rows of phones staffed by soUdtora trained to repeat a WHO ARE
• Sometimes these Brros send you an enticing or oadal-kjoklng letter THE BOILER ROOM
or postcard In the mall urging you to call them. COMP^ANIE^?
• Sometimes 900 numbers are used so youTl be billed Just for calling them. vxwwaa^x»i^*»,»»^ »
even if you decide not to purchase anything.
216
WHAT DO THE
SALESPEOPLE
SAY?
Here are some common phrases:
• Toulue been specially selected, to hear this offer."
• 'You'll get a wondetfulfree bonus if you buy our product."
• 'You've won a valuable free prize."
• 'This investment is low-risk and provides a higher return
than you can get anywhere else."
• 'You have to make up your mind right aiuay."
• "You can just put the shipping and handling charge on
your credit card."
The callers use well-rehearsed sales pitches designed to sound believable.
You may be transferred from person to person, so It sounds Uke a genuine
business setting. A "vice-president" may even call you back to Uy to convli>ce
you to buy. Beware of high pressure pitches that require decisions r^ht nowl
Legitimate Qrms will always give you time to think It over.
If you are the victim of a Boiler Room Fraud, you may later find:
• The merchandise you bought is overpriced and poor quality.
• The Jree gift" never arrives, or it's worthjust afrvuction of the
"sMpping and handling" or "gift tax" you paid.
• The investment turns out to be non-existent, or a loser.
• The donation you thought was going to charity goes into the
Jitndraiser's pocket
• Unauthorized charges start appearing on your credit card
bUls.
• 900 number telephone charges are much higher than you
expected.
WHAT IF YOU
FALL FOR THE
BOILER ROOM
SALES PITCH?
217
HOW CAN YOU
PROTECT
• Taktyour dm*.
• DontbufimomMliingmtrtliibeemfyou-Uatayramgi/t.-
• O^aau\formation In wrUb\gb^fan you agna to buy.
• Check out th«oinar«raoanf«iUhtll«iUtorTieyCcricrai1iQ0lc*aiufth«
• Ooni gfaw uour eracUt conl numbc
YOURSELP? * <^'^***'><^<^ '*'''**» '>^fi>^ you gb». AAaeharlty how much qf your dotiiUlon
actually go— to the charity.
^tKt bwtotmtnt la a ooairUy, check ivith ttau o£fielal» to sec (fie U properly
'. (ftargt amounts journey are Owolvtd, check with your ItgtU or
Deny oendmanag by mewmenger or oaemighttnaa.V you use money rathor than
a credU cart In the tnnuactian. you may looe your r(«ht to dlspuUfrauOulent j
Bang up Instead qf being preatured to buy.
IT it •otmds too 0004 (o be true, it prolMMiv (a.
HTiU they aend m< itDOnrOKU, nFORKATRWr thnm^h the nutO. putting
their •totenunta and promises in ivritin^, or do they Mf/iiae? DON'T TAKE
AnthtylnMlManaonmyatEDrrCMDORCSBlCXnnAaXUirTmjMaEllti^ht TKxrtp. -O K-WT^* I
ixUl/ oAll! I
y the ansioer to any ynt qfOiae questions ts yes... BEWARE!
Take time to eonaider the qfptr, get additional li^formation and adaloe, and racist
the tola it or IcoDS if high presaura toetles so o/tenuaed by boiler room pitches.
218
For more helpful information about the
firm or offer you are considering, contact amy
of the following, preferably in the city or state
where the firm is located:
State and Local
Consumer Protection Agencies
Better Business Bureau
State Attorney General
Chamber of Commerce
State Securities Regulator
Federal Trade Commission
Federal Bureau of Investigation
OR
The U.S. Postal Inspection Service
If you think you are the victim of a boiler
room fraud, save all documentation of the
transaction, including postcards, cancelled
checks, telephone bills, credit card state-
ments and mailing envelopes. Make detailed
notes of your telephone conversations by
date and time, and write down the important
statements made by each individual who
spoke with you.
If any part of your transaction took place
through the U.S. Mail, including the receipt
of promotional literature or the mailir\g of
payment, we urge you to contact the nearest
postal inspector. If necessary, your local
postmaster can provide the inspectors
address, or write directly to:
THE CHIEF POSTAL INSPECTOR
475 L'ENFANT PLAZA SW
WASHINGTON DC 20260-2160
Prepared In cooperalion with
Vw Economic Crime Task Force. Betleviie. Washington.
Notice 28 1. July 1992.
219
Miss Collins. Thank you, Mr. Hearst. I would like to know, is
there a cooperation with the U.S. postal inspectors and the FCC
and the FTC?
Mr. Hearst. Yes. We work with all of those agencies.
Miss Collins. Closely?
Mr. Hearst. Not all of our cases overlap, of course. I think that
we find ourselves working more with the FTC in the plague of boil-
er rooms that we see erupting. Sometimes I feel akin to the people
back in my hometown of St, Louis now that are fighting off the
flooding waters of the Mississippi,
There is just more fraud out there all the time, particularly in
some of these boiler room operations. They are like snakes nests.
You stamp one out and they spread out and they go somewhere
else, and it is very frustrating for law enforcement. We do work
very closely with the FTC and the FBI in those cases because we
have just got to work together. And even with that, I feel that you
know we have got a lot of work to do to keep focusing on those hei-
nous kinds of fraud.
Miss Collins. Medical scams have been a high priority with
your agency. Are any other consumer people here. Are you still
here?
I have seen something that constitutes fraud, to my way of
thinking, but it is not illegal. And that is that some of the medical
insurance companies bill senior citizens at the same time they bill
Medicaid, And the senior citizens, because of their mind-set, you
know, strong work ethic, they pay bills. If it looks like a legitimate
bill, they are going to pay it.
And I personally called a medical insurance company to ask why
they had sent that bill and would not Medicaid pay that bill? And
they said, yes, they will, but they are so slow paying the bill, that
they bill the consumer or the patient. And then they said the pa-
tient can apply to Medicaid for reimbursement.
But nowhere does it say, if you pay this bill, you should apply
to Medicaid for reimbursement. So consequently, that company is
getting paid twice because Medicaid does not know that the patient
has paid the bill.
Doesn't that seem fraudulent to you?
Mr. Hearst. I don't know if it would specifically be fraudulent
as defined in the mail fraud statute, because intent is an important
element there. But it certainly is a troubling kind
Miss Collins. You know it happens, don't you?
Mr. Hearst. Absolutely,
Miss Collins. And they are getting paid double probably by mil-
lions of people in this country,
Mr, Hearst, Presumably, they should make adjustments once
they get the subsequent payment. But whether or not they do, I
don't know. You know, that is a problem and I — actually, I think
those kinds of things would be more under the jurisdiction of
Health and Human Services, and I would encourage maybe contact
with them as to what kind of a problem they have.
Miss Collins. I have got something better. I am going to ask my
good friend. Chairman John Dingell to look. Maybe we can stop
that. Because whereas it may not be criminal in the legal system,
220
it is criminal in what happens and the results. Staffers make a
note. Maybe that is one thing we can put a stop to.
Mr. Hearst. I like that kind of direct action.
Miss Collins. Thank you. Let's see.
How do you decide what types of consumer mail fraud gets prior-
ity for investigation? Is it the number or the — is it the amount of
money involved or the number of complaints that come in?
Mr. Hearst. It is those things and more. As I indicated, we have
something like only 350 postal inspectors devoted to mail fraud.
Last year, we made 2,000 arrests in those cases. We currently have
about 5,000 ongoing investigations. So you can divide those num-
bers and see that our inspectors are very, very busy.
We do look at the number of complaints, the amount of loss, the
impact on the economy, the impact on consumers. We also look at
the kind of victims. You mentioned elderly people. We are very sen-
sitive to mail fraud schemes directed at the elderly because, you
know, we do know that they are very often targeted.
I have an elderly father-in-law and, you know, he has responded
in spite of my counsel to him to some of these sweepstakes kinds
of things. And once they respond, they get inundated, they get con-
fused. It is really a difficult problem.
Miss Collins. They get on a hst.
Mr. Hearst. Right. We do work very hard on those kinds of in-
vestigations. Also, you know, you find in things like I mentioned
the flood earlier. When there is a natural disaster, sometimes it is
amazing how fast some of these scam operators move into some of
these areas and promote various kinds of schemes to defraud. We
aggressively try to focus on those.
We also work closely with the Justice Department to try to make
sure that we are considering their priorities and the national prior-
ities of the administration with regard to fraud. So all of those
kinds of things help us to focus our efforts, we think, in the best
way possible.
Miss Collins. Did you participate in the retreat?
Mr. Hearst. We did indeed, and it was very helpful.
Miss Collins. Very good.
What happens to the forfeited proceeds that you collect?
Mr. Hearst. Those, we either share them with other agencies
who may have assisted us in this investigation.
Miss Collins. Federal agencies?
Mr. Hearst. Actually, primarily State and local agencies.
Miss Collins. Can you get a computer to Mrs. Shapiro.
Mr. Hearst. Unfortunately, they are not a law enforcement
agency.
Miss Collins. Only law enforcement agency?
Mr. Hearst. We do some sharing there. I might also say that the
money that we were able to identify and forfeit last year went to
the Postal Service, so we actually were able to cover a substantial
portion of our budget with those kinds of funds. So we are able to
apply those back into law enforcement.
Miss Collins. You can't help the local consumer agencies?
Mr. Hearst. Wish we could, but we can't.
Miss Collins. Is that by law?
Mr. Hearst. Yes.
221
Miss Collins. I wonder if — there is like a finder's fee when you
report some fraudulent or — ^yes, criminal activity where half of the
proceeds go to the person who reported it. I read that recently. I
think it was something in Florida, like a finder's fee.
I wonder if we could have legislation, perhaps, to do something
likewise when the local consumer agencies make the report to the
FTC or the Postal Service, and in fact money is recovered, that
does not go to the victim, that some of the money is shared with
the reporting agency.
Mr. Hearst. I think that is something worth looking into.
Miss Collins. OK. Thank you very much.
Mr. Hearst. Thank you.
Miss Collins. I am probably taking too long, but I think we are
getting some valuable information.
Mr. Frederick Verinder, Deputy Assistant Director, White Collar
Crime, FBI.
STATEMENT OF FREDERICK VERINDER, DEPUTY ASSISTANT
DIRECTOR, WHITE COLLAR CRIME, FEDERAL BUREAU OF
INVESTIGATION
Mr. Verinder. (Jood morning. Madam Chairman. Thank you for
providing the FBI the opportunity to appear before your committee
today to provide information on an important matter. As you are
aware, the FBI has broad jurisdictional matters.
Miss Collins. Excuse me. The reporter is having problems hear-
ing you. You want to bring the mike very close to you.
Mr. Verinder. As you aware, the FBI has broad jurisdictional in-
vestigative responsibility across lines of white collar crime, drugs,
organized crime, violent crimes, and terrorism.
The use of the Federal mail fraud statute cuts across the bound-
aries of all of these programs. However, it is the mail fraud statute
along with the wire fraud statute that works so well, hand in hand,
to provide the FBI a nexus into criminal violations not specifically
covered by the other Federal laws. The mail fraud and wire fraud
statute are two of our primary weapons to fight consumer swindles.
Examples would include telemarketing fraud, insurance fraud,
security fraud, Ponzi schemes, advance fee schemes, and an endless
list of confidence games. But as you are aware, in those limited
specific instances where fraud scheme involves only the violation of
mail fraud, the primary jurisdiction would rest with the U.S. Postal
Inspection Service.
Due to the broad application of the mail fraud statute, the FBI
collects limited statistics as they specifically relate to mail fraud.
As of the close of the second quarter of fiscal year 1993, the FBI
had in excess of 20,000 white-collar crime investigations pending.
It is our estimate that between 10 to 20 percent of the white-collar
crime cases, when charged, will eventually use the mail fraud stat-
ute.
Mail fraud, simply put, is the use of the U.S. mail in the further-
ance of a scheme to defraud or attempt to defraud something of
value from an individual or entity. The statute has been applied in
many different types of prosecutions.
A recent example of how the FBI and Justice Department have
applied the mail fraud statute in a criminal matter can best be
222
seen in the dramatic conclusion of our three-year undercover oper-
ation code named Operation Disconnect. This undercover operation
attempted to direct the limited FBI resources against the growing
national crime problem of telemarketing fraud.
As of March 4, 1993, Operation Disconnect identified 120 illegal
telemarketing operations and more than 540 individuals who re-
main fraudulently obtaining money from victims in almost every
State in this country.
On the initial take-down day, we arrested 210 individuals and
searched 79 locations. I am pleased to report that as of last week.
Operation Disconnect is responsible for over 300 individuals having
been charged in Federal court for their participation in the fraudu-
lent telemarketing operations.
Of these 300 subjects, 33 percent were charged with violations of
the mail fraud statute. The remaining subjects were charged with
violating the fraud by wire statute.
I want to point out that the telemarketing fraud crime problem
is estimated to cost the American public up to $40 billion per year.
At the FBI, we see telemarketing fraud as a significant crime prob-
lem, but we would not characterize it as solely a mail fraud prob-
lem.
Miss Collins. Excuse me a moment, Mr. Verinder. What is the
wire? Is that telephone or television, the wire fraud.
Mr. Verinder. Telephone, where it is used primarily in these
telemarketing but they are backed up with the use of the mail. For
the most part, the U.S. mail, but on occasions, we found in Oper-
ation Disconnect using the private carriers.
Miss Collins. Yes. All right. Thank you.
Mr. Verinder. Which then takes it out of the Federal arena. But
we were able to come in with other areas of investigation to tie it
together.
Miss Collins. Thank you.
Mr. Verinder. Every day, each of the FBI's 56 field offices and
over 400 resident agencies receives complaints of fraud from the
general public. In addition, criminal referrals are received from the
Federal, State, and local prosecutors. State regulatory agencies,
consumer affairs groups, and from many other sources.
Today, in order to more effectively and efficiently address a par-
ticular crime matter or an identified crime problem, local FBI of-
fices have established working relationships with their many Fed-
eral, State, and local law enforcement and regulatory counterparts.
To further facilitate this effort, liaison has been established at
the FBI's headquarters level to better coordinate national initia-
tives. This is evidenced by our participation in national working
groups such as the Attorney General's insurance fraud working
group, the health care fraud working group, the bank fraud work-
ing group, and telemarketing fraud working group.
I would like to provide you with some insight into just one of
these working groups, the national telemarketing fraud working
group. This working group, chaired by the Department of Justice,
is comprised of numerous Federal law enforcement agencies. Na-
tional Association of Attorneys General, various assistant U.S. at-
torneys, and other outside interested parties.
223
Through this working group, a forum has been established to ad-
dress the telemarketing fraud crime problem from a national per-
spective.
As a result of participation in this working group and through
continued liaison with the Federal Trade Commission in Washing-
ton, DC, the FBI is in the process of seeking approval for full par-
ticipation in the National Association of Attorneys General, FTC
telemarketing fraud data base. I will comment on that later.
Through the FBI's participation in this system, FBI field offices
will have better access to information about telemarketing oper-
ations that are generating consumer complaints throughout the
United States.
Madam Chairwoman, after a very successful operation and work-
ing very closely with the FTC on Operation Disconnect, the use of
this data base came to our attention in the spring of 1993. Our Los
Angeles field office participated with very important results. In the
fall of 1993, we hope to have our 56 field offices able to access the
information, and very shortly thereafter, the FBI will provide input
into the system.
The form has been revised for input, so we have no violations of
informant information or grand jury information, so the informa-
tion that will go in would be acceptable under law enforcement pro-
visions. We look forward to that database and sharing information
across the board with all Federal and local law enforcement agen-
cies.
In addition, the FBI will provide key information from the com-
plaints that are received into this database for the FTC to input
into the telemarketing fraud database. The FBI believes this sys-
tem, when fully implemented, will assist all members.
However, the best level of cooperation between law enforcement
agencies begins in our 56 field offices. In the battle against
consumer fraud, it is my opinion that at the FBI, we have an excel-
lent working relationship with the U.S. Postal Inspection Service
and with other Federal, State and local law enforcement agencies.
For example, when we receive a complaint, the FBI field super-
visor will consider the need to contact another investigative agency
in order to coordinate a response or to refer, if it does not meet a
case we are working on, to that agency. The FBI field supervisor
makes a decision based on the national priorities, identified local
crime problems, and the guidelines developed with the local U.S.
attorney.
If the decision is made to pursue an investigation unilaterally, a
full field investigation is quickly begun. Logical investigative leads
will be pursued in an effort to uncover the facts surrounding the
allegations set forth in the original complaint.
During the investigative process, consideration will be given to
which particular Federal statutes and elements would best apply.
However, the final determination is left to the U.S. attorney.
Today, the very nature of a typical fraud scheme necessitates the
need for criminals to utilize the U.S. mail, and as I mentioned ear-
lier, private courier services, and the public telephone system to
move information and documentation to and from their intended
victims.
224
The U.S. mail service is still the most popular means of moving
physical documentation from one individual to another. However,
in recent years, we have noted that a trend has developed. Due to
the effective use of the mail fraud statute by the Federal prosecu-
tors, the criminals have attempted to circumvent the violation by
using private carriers or wire services.
If a criminal is successful in avoiding the use of the U.S. mail,
the FBI will build a case satisfying the elements constituting a vio-
lation of the wire fraud statute or other Federal statutes.
The FBI has had great success in utilizing the mail fraud statute
in addressing many different types of fraud and related matters.
This statute has proven effective in white-collar crime prosecutions
and, therefore, will continue to be prominently considered during
the course of our investigations.
Madam Chairwoman, that concludes my comments, and I will be
happy to answer any questions you might have.
[The prepared statement of Mr. Verinder follows:]
Prepared Statement of Frederick Verinder, Deputy Assistant Director,
White Collar Crime, Federal Bureau of Investigation
Good morning Madam Chairwoman. I am pleased to appeeir today before this com-
mittee on behalf of the FBI and provide some comments on the FBI's use of the Fed-
eral mail fraud statute.
The FBI has broad jurisdictional investigative authority to include white-collar
crime, organized crime, violent crime, drugs, terrorism, and other Federal criminal
matters. The use of the Federal mail fraudf statute cuts across the boundaries of all
of our investigative programs. However, it is the mail fraud statute, along with the
wire fraud statute, tnat work hand in hand to provide the FBI a nexus into criminal
violations not specifically covered by other Federal laws. The mail fraud and wire
fraud statutes are two of our primary weapons to fight consiuner swindles. Exam-
ples would include telemarketing fraud, insurance fraud, securities fraud, Ponzi
schemes, advance fee schemes, and an endless list of confidence games. But, as you
are aware, in those limited specific instances in which a fraud scheme involves only
the violation of the Federal mail fi:^ud statute, primary jurisdiction would rest with
the United States Postal Inspection Service.
Due to the broad application of the mail fraud statute, the FBI collects limited
statistics as they specifically relate to mail fraud. As of the close of the second quar-
ter of fiscal year 1993, the FBI had over 20,450 white-collar crime investigations
pending. Based on a recent sample, it is oxu* estimate that between 10% and 20%
of all white-collar crime cases when charged will eventually involve the use of the
mail fraud statute.
Mail fraud, simply put, is the use of the U.S. mail in furtherance of a scheme to
defraud, or an attempt to defraud, something of value from an individual or entity.
The statute was written very broadly and has been applied in many different types
of prosecutions resulting in abundant case law. A recent example of how the FBI
and the Justice Department have applied the mail fraud statute in a criminal mat-
ter can best be seen in the dramatic conclusion of a three year undercover operation
code name "Operation Disconnect." This undercover operation attempted to direct
limited FBI resources against the growing national crime problem of telemarketing
fraud. As of March 4, 1993 "Operation Disconnect" had identified 120 illegal
telemarketing operations and more than 540 individuals who were fraudulently ob-
taining money from victims in almost every State in the Country. On the initial
take-down day we arrested 210 individuals and searched 79 locations. I'm pleased
to report that as of last week, "Operation Disconnect" is responsible for over 300
individuals having been charged in Federal court for their participation in fraudu-
lent telemarketing operations. Of these 300 subjects 33 percent were charged with
violations of the mail fraud statute. The remaining subjects were charged with vio-
lating the Federal wire fraud statute. I want to point out that the telemarketing
fraud crime problem is estimated to cost the American consumer up to $40 billion
per year. At the FBI we see telemarketing fraud as a significant crime problem, but
we would not categorize it as solely a maU fraud problem.
Every day each of the FBI's 56 field offices and over 400 resident agencies re-
ceives complaints of fraud from the general public. In addition criminal referrals are
225
received from Federal, State and local prosecutors, State regulatory agencies,
consumer affairs groups, and from many other sources. Today, in order to more effi-
ciently and effectively address a particular criminal matter or an identified crime
problem, local FBI field offices have established working relationships with their
Federal State, and local law enforcement and regulatory counterparts. To further
faciUtate this effort, liaison has also been established at the FBI's headquarter level
to better coordinate national initiatives. This is evidenced by out participation in na-
tional working groups such as the Attorney General's insurance fraud working
group, the health care fraud working group, the bank fi-aud working group, and the
telemarketing fraud working group. I woiild like to provide you with some insight
into just one of these working groups, the National Telemarketing Fraud Working
Group. This working group, chaired by the Department of Justice, is comprised of
numerous Federal law enforcement agencies, the National Association of Attorneys
General, various assistant United States attorneys, and other outside interested
parties. Through this working group a forum has been established to address the
telemarketing fraud crime problem from a national perspective.
As a result of participation in this working group and through continued liaison
with the Federal Trade Commission in Washington, DC, the FBI is in the process
of seeking approval for full participation in the National Association of Attorneys
General — FTC, telemarketing fraud database. Through the FBI's participation in
this system, FBI field offices will have better access to information about
telemarketing operations that are generating consumer complaints throughout our
country. In addition, the FBI will also provide key information taken from com-
plaints received from the public and provide that information to the FTC for input
into the telemarketing ft-aud database. The FBI believes this system, when fully im-
plemented, will assist those member law enforcement agencies in combating
telemarketing fi-aud.
However the best level of cooperation between law enforcement agencies begins
at each of our field offices. In the battle against consumer fraud it is my opinion
that at the FBI we have an excellent working relationship with the U.S. Postal In-
spection Service and with other Federal, State, and local law enforcement agencies.
For example when we receive a complaint the FBI field supervisor will consider the
need to contact another investigative agency in order to coordinate a response or
to refer to a particular criminal matter to that agency. The FBI field supervisor
makes this decision based on our national priorities, identified local crime problems,
and with guidelines developed with the local United States attorney. If the decision
is made to pursue an investigation unilaterally, a full-field investigation will quickly
begin. Logical investigative leads will be pursued in an effort to uncover the facts
surrounding the allegations set forth in the original complaint. During this inves-
tigative process, consideration will be given to which particular Federal statutes and
their elements would best apply to the prosecution of the subjects identified. How-
ever, the final determination of what will be charged in court is left to the ultimate
discretion of the prosecuting assistant United States attorney.
Today the very nature of a typical fraud scheme necessitates the need for crimi-
nals to utilize the U.S. Mail Service, private courier services, and the public tele-
phone system, to move information and documentation to and from their intended
victims. The U.S. Mail Service is still the most popular means of moving physical
documentation from one individual to another. However, in recent years we have
noted that a trend has developed, due to the effective use of the mail fraud statute
by Federal prosecutors, in which criminals have attempted to circumvent violation
of the mail fraud statue by using private mail carriers and or wire services. If a
criminal is successful in avoiding the use of the U.S. Mail, the FBI will build a case
satisfying the elements constituting a violation of the wire fraud statute or other
Federal Statutes.
The FBI has had great success in using the mail fraud statute in addressing
many different types of fraud and related matters. This statute has proven its effec-
tiveness in white-collar crime prosecutions and, therefore, will continue to be promi-
nently considered during the course of our investigations.
That concludes my statement, Madam Chairwoman. I would be happy to answer
any questions you may have.
Miss Collins. All right. Thank you very much. I am very pleased
at the level of cooperation that you stated in your testimony. Again,
I have to profess some confusion about this database.
Now, Mr. White tells me that it is available to all law enforce-
ment agencies, but you are telling me — ^you just came on board in
1993, was it?
226
Mr. Verinder. In the spring of 1993 with our Los Angeles office.
Fall of 1993, we will move forward with our 56 field offices.
Miss Collins. Right. Why is that, Mr. White? Did they know
about it? Is that the idea?
Mr. White. Yes, they did. And they were conducting a pilot pro-
gram to determine whether it would serve their needs and whether
it could be arranged, the specific input could be done in a way that
didn't trench upon their restrictions on their sharing criminal infor-
mation.
Miss Collins. A bureaucracy is phenomenal, the laws governing
all the different agencies and what you can do and what you can-
not do.
Mr. White. There is certainly a complex set of restrictions on the
sharing of law enforcement information, but I think that we have,
since the system was initiated in 1987, built up a good record. We
found ways to improve the system, make it more user friendly and
participation, I believe, is growing. And that growth will make it
even a more useful system over time.
It is true. Madam Chairwoman, that it doesn't happen overnight,
and it takes an awful lot of hard work, but that work is well under
way. And I think you are hearing about the progress that is being
made.
Miss Collins. Well, Mr. Verinder, how long will it take for all
of your offices to come on line.
Mr. Verinder. By the fall of 1993, all 56. We plan to use our in-
formation technology center as a focal point, so our 56 offices will
go there and they will go right into the FTC.
Miss Collins. So it is immediate by the fall?
Mr. Verinder. By the fall for — now, by the fall for us to have ac-
cess to, not by the fall for us to be putting in. Hopefully, shortly
thereafter, with the revised form that satisfies legally what we can
provide, we will be doing that immediately. We are trying to find
the best device, either 56 offices individually feeding the system or
again going through our one central point.
There is going to be a vast amount of the data. There is going
to be a lot of duplication. And again, a lot of complaints I receive,
as you know, are not necessarily the basis for opening a case. This
information will be provided into the system when enough informa-
tion about a particular boiler room operation or whatever the fraud
problem would be would trigger an investigation.
We need to notify the system we are opening a case and we need
to have better coordination, so we are working through those is-
sues. But information sharing is the only way to go and just what
you are mentioning.
Miss Collins. Absolutely.
Mr. Verinder. If I could mention, this is a pending case. I have
to be careful of how much I can provide. The national Florida infor-
mation center has a 1-800 number, and during Operation Dis-
connect we provided it. Lots of information has come in. Through
this information, they were able to give us a very strong indicator
of a crime problem that has international aspects.
Postal and the FBI are looking to address that with an under-
cover operation. We have got a ways to go, but it is new. I know
you are concerned about information sharing, but this is a 1-800
227
number with the National Fraud Information Center where the in-
formation is coming from people that were being victimized provid-
ing information to law enforcement that has indicated to us to open
an investigation.
Miss Collins. That is wonderful. That is the coordination and
outreach that we really need. The 1-800 numbers make it easy, I
think, for constituents to call in with no cost, because long distance
frightens a lot of people. So I imagine you were constrained be-
cause yours are always criminal investigations.
Mr. Verinder. Yes, ma'am.
Miss Collins. And I don't quite understand the ramifications,
but I know — it just seems to me that government agencies should
have just automatic access to one another. But yours might be civil;
is that right?
Mr. White. That is correct.
Miss Collins. OK I am beginning to understand more. Thank
you very much for your testimony.
Let me ask you the big question: Did you participate in the re-
treat 2 months ago, the National Consumer League retreat?
Mr. Verinder. The meeting?
Miss Collins. The FBI?
Mr. Verinder. Yes, ma'am.
Miss Collins. Very good. Thank you.
And our final panelist, Mr. Laurence Urgenson, Acting Deputy
Assistant Attorney General, Department of Justice.
Welcome, and thank you for coming.
STATEMENT OF LAURENCE URGENSON, ACTING DEPUTY
ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF JUSTICE
Mr. Urgenson. Thank you. I am very pleased to be here. Madam
Chairwoman. I would appreciate having my statement be made
part of the formal record so that I can proceed with a brief oral
summary and would be more than happy to respond to any ques-
tions.
Miss Collins. Without objection, so ordered.
Mr. Urgenson. The mail fraud statute is the core component in
the Department's white-collar crime enforcement effort. It is re-
ferred to as having a special place in the hearts of prosecutors as
a true love, a Cuisinart, a Stradivarius.
It is the most useful, broadly applicable tool that we have. The
statistics back that up. At the current rate of productivity, we an-
ticipate by the end of 1993, we will have brought 1,255 cases using
the mail fraud statute involving some 2,300 defendants.
It is a tool of general applicability. As has been made evident
today, it applies to telemarketing fraud as probably one of the most
useful, along with wire fraud, tools that we could use. It is also
used across the whole spectrum of white-collar matters, financial
institution fraud, insurance fraud, investment fraud, health care
fraud. The mail fraud statute is the core, essential tool that the de-
partment uses in the enforcement effort.
We have had within the 1980's, we have had— and early 1990's—
a number of increasing appearances of white collar crimes. There
was the HUD scandal. The financial institution fraud scandal m-
volving losses of $500 billion, and health care fraud is estimated to
228
cost $70 billion a year. And we are well aware and have been
aware for some time that increasing telemarketing fraud is also an
area requiring additional attention.
For that reason, we have made telemarketing fraud a special em-
phasis area in the Department of Justice which means that it re-
ceives centralized attention from our Economic Crime Council
which advises the Attorney General on these issues, and that effort
is reflected in two ways you have already heard about today.
On the operational side, it would be the investigation that Fred
Verinder just discussed, Operation Disconnect, which was a
proactive nationwide telemarketing investigation. By proactive,
what I mean that the Department of Justice at this time, through
the FBI, goes out in an effort through undercovers to make cases.
It is not reactive. We don't just sit and wait. And it produced excel-
lent results.
On the programmatic side, we are involved in the working group
which you have already heard about. All of the people on the panel
today participate in the working group. And one of the topics that
we are working together on is working to share information in the
database — and I should add that we did attend the conference that
you are referring to and we were very pleased, especially pleased.
Now that we did so, we are committed to prosecuting, vigorously,
telemarketing fraud. Part of the process of case selection and estab-
lishing priorities is to listen to what people have to say. We have
listened to the consumer group advocates here. We are aware of
the congressional concern and that is one of the factors that has
to be considered in establishing and enhancing priorities.
And we look forward to working with the committee in the effort
to attack telemarketing fraud.
Thank you.
[The prepared statement of Mr. Urgenson follows:]
Prepared Statement of Laurence Urgenson, Acting Deputy Assistant
Attorney General, Department of Justice
Madam Chairwoman and Members of the Subcommittee: I am pleased to present
testimony on behalf of the Department of Justice concerning the mail fraud statute,
18 U.S.C. § 1341. As the department charged with conducting criminal prosecutions
of mail fraud and filing civU actions for injunctive relief against mail fi-aud schemes,
the Department has a strong interest in ensvuing the continued efficacy of the mail
fraud statute in combating fraud.
Background
While mail fraud has long been part of the arsenal of federal criminal statutes
directed at fraud, it occupies a special place in the hearts of federal prosecutors. As
one legal commentator put it, "[t]o federal prosecutors of white collar crime, the mail
fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our
Cuisinart — and our true love."i The Department of Justice often uses mail fraud
charges in successfully prosecuting a wide range of criminal activities. Those activi-
ties routinely include contracting fraud (both defense procurement and non-defense
procurement), financial institution fi-aud, HUD fi-aud, insurance fi-aud, investment
fraud, health care fraud, public corruption, securities fi-aud (including both insider
trading and market manipulation), and telemarketing fraud.
Moreover, the Department prosecutes numerous criminal cases that involve mail
fraud charges. According to statistics that the Department's Executive Office for
United States Attorneys maintains. United States Attorneys' Offices in recent years
have routinely been using mail fi-aud in charging criminal cases. In the first seven
I Jed S. Rakoff, The Federal MaU Fraud Statute (Part I), 18 Duquesne L. Rev. 771, 771 (1980).
229
months of FY 1993, for example, those offices had a total of 1,385 defendants in 732
cases who were charged by indictment or information with mail fraud charges, and
a total of 979 defendants in 699 cases who were convicted by guilty plea or verdict
after trail. Although many factors can affect the speed with which cases can be re-
solved by plea agreements or trails, at their current rate of productivity the United
States Attorneys' Offices would have, by the end of FY 1993, a total of 2,374 mail
fraud defendants in 1,255 cases charged by indictment or information, and a total
of 1,678 defendants in 1,198 cases who were convicted by guilty plea or verdict after
trail.
Other components of the Department, such as the Fraud Section of the Criminal
Division, also frequently use mail fraud in criminal prosecutions and civil actions.
The Office of Consumer Litigation of the Civil Division has also used mail fraud to
prosecute odometer and health fraud. In addition, the Antitrust Division in recent
years has made greater use of mjiil fraud charges in conjunction with criminal anti-
trust charges that it prosecutes under the Sherman Act.2
I would now like to summarize the process by which the Department and United
States Attorneys' Offices receive and handle matters in which mail fraud may be
implicated.
RECEIPT AND HANDLING OF MAIL FRAUD MATTERS
Both the Federal Bureau of Investigation and the Postal Inspection Service have
jurisdiction to investigate mail fraud violations. As a result, Assistant United States
Attorneys or Departmental trail attorneys may be contacted by agents from either
agency with information about possible mail fraud violations. In addition, investiga-
tions that the Department initiates for possible criminal violations other than mail
fraud may ultimately develop evidence of mail fraud violations as well.
The Department's general policy on mail fraud prosecutions is set forth in the
United States Attorney's Manual. The policy is that
[o]rdinarily prosecutions should not be undertaken if the scheme employed
consists of some isolated transactions between individuals, involving minor
loss to the victims, in which case the parties should be left to settle their
differences by civil or criminal litigation in the state courts. On the other
hand, if the scheme is in its nature directed to defrauding a class of per-
sons, or the general public, through the mails, with a substantial pattern
of conduct, serious consideration should be given to prosecution. 3
In particular cases, the basic standard for determining whether the Department
win seek an indictment or file an information charging an individual with mail
fraud is the same standard that the Department would apply in determining the
appropriateness of charges involving any t3T)e of federal criminal offense. That
standard, as set forth in the Department's Principles of Federal Prosecution, is that
the prosecutor should recommend federal prosecution "if he believes that the per-
son's conduct constitutes a federal offense and that the admissible evidence will
probably be sufficient to obtain and sustain a conviction. * * *"*
To determine whether a person's conduct constitutes a mail fraud violation, and
whether the admissible evidence at trial would probably be sufficient to obtain and
sustain a conviction, the prosecutor must compare all available evidence to the ele-
ments of the offense. Federal criminal investigations rarely yield evidence that is
uniformly strong or uniformly favorable in all significant respects for criminal pros-
ecution. As documents become mislaid, as witnesses' recollections of events become
less specific and certain or begin to reflect certain patterns or biases, portions of in-
vestigations, and sometimes even entire investigations, may be viewed as less prob-
ably sufficient to secure a just conviction. In these cases, the prosecutor's profes-
sional judgment and experience, coupled with the judgment and experience of the
agents and other prosecutors with whom he or she works, provide the most reliable
guidance for those determinations and evaluations of evidence.
I would now like to turn to the issue of how the Department coordinates with
other federal and state agencies on matters and cases involving mail fraud.
2 15U.S.C. §1.
3 United States Attorney's Manual §9-43.110.
*U.S. Dep't of Justice, Principles of Federal Prosecution 5-6 (1980). Exceptions to this general
rule may be made if, in the prosecutor's Judgment, prosecution should be declined because
(a) no substantial federal interest would be served by prosecution;
(b) the person is subject to effective prosecution in another jurisdiction; or
(c) there exists an adequate non-criminal alternative to prosecution. Id. 6.
230
COORDINATION WITH OTHER AGENCIES
In investigating white-collar crime matters that may implicate mail fraud, United
States Attorneys' Offices and litigating sections of the Department rely not only
upon routine meetings between prosecutors and agents in particular investigations,
but also upon more formal mechanisms for coordination and resolution of common
interests and concerns.
One of these mechanisms is the task force concept. The term "task force" typically
refers to a group of federal prosecutors and agents who are dedicated to investigat-
ing and prosecuting a partioilar type of crime, such as financial institution fraud
or telemarketing fraud, over an extended period of time. Task forces have often
proved highly effective in white-collar crime investigations because they facilitate
the development of expertise among the prosecutors and agents assigned to them,
and foster efficiency by encouraging the setting of investigative priorities and the
concentration of specialized resoxirces on matters and cases warranting the highest
priority.
Another mechanism, for matters requiring more general interagency coordmation
such as policy and resource commitments, is the interagency working group. At the
local level. United States Attorneys' Offices have sometimes established working
groups to address such matters as financial institution fraud, securities fraud, or
other criminal activities of particular importance in that area. In addition, since
1984, the Department of Justice has made increasing use of the working group con-
cept at the national level to improve coordination between agencies and facilitate
effective enforcement activities on particular types of white collar crime.
Since December, 1984, when a national-level interagency Bank Fraud Working
Group was established, the Department has encouraged and participated in the es-
tablishment of other national-level interagency Working Groups in the areas of
health care fraud, insurance fraud, securities and commodities fraud, and
telemarketing fraud. Although none of these Working Groups devotes itself exclu-
sively to mail fraud, each of these Working Groups deals with issues in which mail
fraud often plays an important role.
Since its formation in April, 1992, for example, the Telemarketing Fraud Working
Group has expanded its membership to include more than a dozen federal depart-
ments and agencies,^ as well as the National Association of Attorneys General and
the North American Securities Administrators Association. These members, through
the Working Group, have established a number of goals and priorities for more ef-
fective interagency cooperation and communication. These include the enhancement
and expanded use of the NAAG/FTC Data Base on telemarketing fraud complaints
and pubUc enforcement actions; improvement of pubUc awareness and education
about telemarketing fraud; establishment of a liaison committee with private-sector
organizations, including non-profit consumer groups; collection of information on the
impact of the federal Sentencing Guidelines on telemarketing fraud; and encourage-
ment of proactive investigative techniques. Subcommittees of the Working Group
are now in operation to pursue each of these goals and priorities.
The Department is committed to prosecuting those who violate the Federal crimi-
nal fraud statutes to the ftillest extent possible. We stand ready to work with the
members of this Subcommittee and the Congress to insure that the citizens of this
country are protected from those who engage in unscrupulous enterprises and who
target the unsuspecting consumer through mail fraud.
Thank you for your interest in the Department's continuing efforts to combat mail
fraud. I will be pleased to respond to any questions that the Subcommittee may
have.
Miss COLLINS. Thank you very much.
According to your procedures, you don't really prosecute minor
losses. What is the dollar value? What constitutes a significant
case?
Mr. Urgenson. It varies from district to district. One of the
things we avoid doing is publishing a threshold because we don't
6 These include (1) federal criminal law enforcement agencies (i.e., the Department of Justice,
the Federal Bureau of Investigation, the Internal Revenue Service, the Postal Inspection Serv-
ice, and the United States Secret Service; (2) federal regulatory agencies (i.e., the Commodity
Futures Trading Commission, the Federal Communications Commission, the Federal Reserve
Board, the Federal Trade Commission, the Office of the Comptroller of the Currency, and the
Securities and Exchange Commission); and (3) other federal departments and agencies (i.e., the
Department of Commerce and the Office of Consumer Affairs).
231
want to let the chiselers know that there is a certain safe haven
and it varies very much with the districts.
The U.S. attorneys often make decisions on white-collar enforce-
ment priorities across a particular district, a fraud of a particular
size, even though the dollar amount may be nothing for Los Ange-
les, might be significant in their district. In addition, as has been
pointed out, it may involve special features, such as vulnerable vic-
tims if it impacts upon the elderly.
It could involve a recidivist, someone who in this particular case
it might not warrant prosecution, but because this is someone who
has been involved in prior incidents, we want to prosecute him and
significantly. It involves the quality and the extent of the local en-
forcement effort.
Consumer fraud is an area where you have concurrent jurisdic-
tion, both the local and the Federal prosecutors can prosecute
consumer fraud. Unlike something like defense procurement fraud
where the Feds, if we don't take the ticket, it doesn't get done.
Very often, there can be a vigorous local enforcement which we
know we can have confidence will address the problems, so we try
to reserve the use of Federal jurisdiction for multi-State cases, pat-
tern cases, large-dollar cases. And what we hope to do is to work
together to use the database that has been referred to throughout
the discussion this morning as a tool to identify the most important
national cases, the repeat violators, the big dollars, the patterns,
so that when we use our resources they are applied in the way that
makes the most effective example.
Miss Collins. When you say multi-States, would that be a case
where, say, the criminal is in New York but they prey on people
in Detroit?
Mr. Urgenson. That would be one example. One example could
be where the headquarters is in one State and the victims are in
another. Another example would be just a large operation which is
headquartered in one place and seeks victims in the host State and
other States as well. Because one of the key factors in identifying
a case that is appropriate for Federal jurisdiction is multi-State in-
volvement, because it shows that it has significant size, it has im-
pact on commerce, and the Federal laws are more effective than
local laws when you haVe to cross State lines. We have national ju-
risdiction, we have Federal statutes. If you have a multi-State vio-
lator. Federal court is usually the best place to handle it.
Miss Collins. Well. I thank you very much. We have received
such great testimony today. I would like to have all of this com-
piled into a report. I don't know how long it will take us to do that
because the Congress, as you know, has a full plate.
But anyone who might be interested in receiving that report, the
panelists, you will automatically get it. And anyone else here who
is interested can call the subcommittee's office to get on the list.
And I hope we come out with it before the end of the year. I think
we have gotten a lot of good testimony today and hopefully we will
have some remedies or projected remedies in that report.
I thank you for your patience and I thank you for your fine testi-
mony.
232
I have a statement from Congressman Tom Andrews that will
become a part of the record.
[The prepared statement of Hon. Thomas H. Andrews follows:]
Prepared Statement of Hon. Thomas H. Andrews, a Representative in
C!oNGRESS From the State of Maine
STATEMENT OF CONGRESSMAN THOMAS H. ANDREWS
Before the Subcommittee on Postal Operations and Seivices
The Honorable Barbara-Rose Collins, Chair
Mail Fraud
July 21, 1993
Ms. CHAIRWOMAN, thank you for giving me the opportunity to bring to the
committee's attention a mail fraud scam using postal money orders which has been going
on for probably 15 years, and my concern that United States Postal Service is not laJcing
adequate steps to make sure that its potential victims are given the infonnation they need to
protect themselves.
The scam is operated out of Parchman State Prison in Mississippi. The targets are usually
women who have placed personals adverrisements, although gay males have been taigeied
as well. Prison inmates correspond with these individuals, gain their confidence and
propose long-temi personal relationships. They tell the "mark" that they need cash in a
hurry (presumably to bribe the guard and obtain an early release) and convince them to cash
a number of the inmate's postal money orders, usually in the amount of $700 each. The
mark cashes the money orders at their own local bank, then sends the cash to the inmate -
usually care of the inmate's "lawyer" (a co-conspirator outside the prison).
What the mark doesn't know is that these money orders were originally purchased from the
Postal Service for $1 apiece, smuggled into the prison, atid illegally altered by the inmates
to show a $700 face value. The typical mark cashes about $15,000 wonh of these altered
money orders and sends the money back to the inmate who, not surprisingly, stops writing
shonly thereafter.
Most of these marks do not have much in the way of financial resources, so the financial
institution that negotiates the fradulent money orders ends up taking the financial hit.
This scam appears to have been going O" for at least 15 years. I am concerned that,
because the Postal Service itself is held hiirmless from any financial obligation, it has not
had the incentive to move quickly and decisively to put an end to the scain. or at least to
educate financial institutions as to how to protect themselves.
According to information I have received, this scam cost financial institutions
approximately $875,000 in 1992.
I have attached a chronology of my year-long correspondence with the USPS about this
issue " a very frustrating experience which I feel has failed to generate meaningful
improvements in their handling of this siniation. That is why I am coming to you.
Several banks in the State of Maine have been hit by this scam over the past few months.
My guess is. if you contact the Bureau of Banking in your state, you may find evidence
that it has happened there, too.
I began my investigation of this scam when I learned that Noi^vay Savings Bank of
NoI^vay, Maine, had just been hit for $17,475. A local woman who had been a customer
with the bank since 1989 brought several money orders to the bank, each with the
maximum face value of $7(X). The bank was somewhat concerned and called the local
Postmaster. The postmaster assured them that, as long as the $700 face-value limit was not
exceeded, everything was "'fine".
But of course everything wasn't "fine". The money orders had been expertly altered by
Parchinan State Wson inmates. It took the USPS approximately 6 weeks to notify the
bank that the money orders were fraudulent, but by that time the $17,475 was long gone.
The bank couldn't go after the customer -- she had no real assets. The USPS notified them
that, as the last negotiator of the instrument, they were responsible for reinibursing ilic
USPS for the difference between the actual value and the altered value.
The bankthen came to me. I shared their concern about the situation, so 1 wrote to USPS
asking three basic questions:
1. What steps had the USPS taken to make financial institutions aware of
this scam prior to the time Norway Savings Bank was hit?
2. What steps were they taking to make alteration more difficult?
3. Was USPS working with law enforcement officials at the state and local
levels to shut down the scam at its source?
Throughout my lengthy correspondence with them. USPS has only been able to
satisfactorily answer question number two. They have, indeed, introduced a new money
order, which .should be even tougher to alter. But it's important to note tliat they
introduced a "new, tougher-to- alter" money order in 1991 , and Norway Savings Bank was
hit only a year later.
I feel strongly that the only real solution to this problem is a comprehensive, conunuing
effort to notify financial institutions about this scam, and about the steps they can take to
protect themselves. My office wrote to the USPS on five scperate occasions requesting
that they list the steps they have taken to notify financial institutions about the scam. We
received the following;
A. "We have notined all postal employees and Federal Reserve
members of changes" in the postal money order.
This means that a flyer was sent out touting the features of ilic new money
order. USPS never mentions the Parchman scam on thin Jlyer. It never
mentions the seam's warning signals (maximum value money orders, single
female "marks") or how a financial institution might protect itself from the
scam.
B. "We have issued a 'Money Order Publicity Campaign' in
major newspaper markets"
Same as above. This campaign only mcndons the new money order. It
never mentions the Parchman scam.
235
C. "We have publicized problems with money order altering in
the media"
As far as I have been able to ascertain, this means scattered stones in sinall-
niarket newspapers, a letter to Ann Landers, one story on National Public
Radio, ajid a recent story on CBS' "Street Stories". At best this is
haphazard. I would certainly not categorize this as a coordinated media
campaign.
I continue to feel that the nx)St efficient and effective way to put a stop to
this is by contacting and educating financial institutions across the country.
This could be done through state banking bureaus and major trade
associations. Despite my making this suggestion to the USPS no fewer
ifianfive times, I have not yet received a response.
D. "We have nolined all postal employees and Federal Reserve
members of these changes."
This is simply not true. My staff contacted the Boston Federal Reserve and
the Federal Reserve Board in Washington, D.C. Both stated that members
of the Federal Re.serve System had not been notified about the Parchman
scam.
Clearly, not all postal employees were notified, either. As I mentioned
earlier, when Norway Savings Bank went to their local Postmaster to
inquire about large numbers of maximum- value postal money orders being
presented for negotiation (a sure tipoff for someone familiar with the
Parchman scam), he indicated that as long as the maxiinum face value was
not exceeded, everything was "fine".
E. "Posters and other training materials have been distributed
to the public."
Having never seen these anywhere, 1 can't vouch for the validity of this
statement. / continue to feel, however, that the most effective means of
shutting down this scam is by directing educational efforts to banking'
Uisii nil ions
The last two letters I have received from the USPS on this issue were form letters, which
simply restated the excuses listed above The scam continues to operate out of Parchman. I
am coming to this conunittee for help because I feel certain that without your intervention it
will be impossible to obtain the cooperation of the USPS in initiating the following
proposals:
1. Direct the USPS to notify all financial institutions of the
Parchman scam, and let them know what steps they can lake to
protect themselves.
Do this through state bureaus of banking, the Federal Resen-e System, and all
tnajor trade associations ■■ being careful to include credit unions and savings
institutions. This needs to he a comprehensive, thorough effort.
2. Re-notify every two years until there is evidence that the scam is
no longer operable.
236
3. Change postal regulations which require the last negotiator of the
money order to make a refund to the USPS of the amount of the
alteration (Domestic Mail Manual section 941.86) in cases involving
the Parchman scam.
This would give tlie USPS additional incentive to prevent further losses through the
continuing education of financial institutions and cooperation with law enforcement
officios.
4. Direct the USPS and the FBI to increase their efforts to shut down
this scam at its source -- Parchman State Prison.
It is unconscionable ttiat, only three weeks ago, a Parchman inmate was convicted
in a Mississippi court of participating in this scam and received tlie lightest possible
sentence. He was even sent hack to Parchman to complete this sentence!
I appreciate your providing mc with this opportunity to bring my concerns to you. Let'
take care of it now, so we don't have to wait another 15 years and SB miillion.
237
Chronology
August 1992 My office was approached by Norway Savings Bank, which had just been
"hit" by the scam. Their auditor, Gerald Donovan, indicated that his
research showed the scatn had been going on for at leasi ten years, and that
tlierc was an ongoing investigation of it by the USPS -- but that neither his
bank nor atiy other financial insitution in Maine that he was aware of had
ever heard of it.
My staff contacted the USPS Government Relations Deparcnient (See
Attachment A) to ask:
1. What steps had been taken by USPS to make financial institutions
aware of this scam?
2. Would it be possible to change the money order to make alteration
more difficult?
3. Was USPS working with law enforcement officials at the state and
federal levels to shut down the scam at its source?
9/9/92
USPS Government Relations Office responds with a letter saying:
1. That they have turned over their investigations of similar scam
victims to federal prosecutors.
2. They began issuing new money orders in 1991 that had "additional
safeguards against altering" and had notifled all postal
employees and Federal Reserve members of these
changes. (See Attachment B)
3. That they had "publicized problems with money order altering in
tl^e media".
9/25A>2 Mr. Donovan notifies my office and the USPS that Norway Savings Bank
had never received any notification about this scam from any source.
Neither had the Maine Bureau of Banking, or the state's two banking trade
associations.
10/5/92 My staff again wrote to the USPS Governmental Relations Depanment to
request more specific information regarding the following (Attaciiment C):
1. Not all financial institutions are members of the Federal Reserve
Sy.stem. Is the USPS in communication with credit unions, etc.?
2. Tlie State of Maine Bureau of Banking and the trade associations in
the state knew nothing about this. Shouldn't USPS make an effort to
notify at least the state banking agencies?
3. If USPS has known about Parchman for 15 years, why haven't we
been able to shut down die scam?
238
Ai ihi'i point, my office was discovering (hat the media publicity the
USPS was talking about consisted of an Ann Landers column and
isolated stories in newspapers like the Morristown (NJ) Daily Record.
10/5/92 I notified then-Chairman Frank McClosky of this subcominittee as well as
Rep. Carroll Hubbard, Chair of the Banking Subconuniitee on General
Oversight and Investigations, about this situation, and my concerns that the
USPS was not making adequate effons to disseminate infomiation about
this scam to fuiancial institutions.
10/15/92 Norway Savings Bank receives notification from the USPS tliat this is its
last opponunity to reimburse the USPS for the altered money orders, and
that the next step would be a collection agency.
10/16/92 We receive infomiarion that another bank in Maine has been hit by the
scam.
1 1/5/92 My office receives a letter from USPSaddressed to another member of
Congress, which appears to be a response to our letter of October 5th. It is
a generic letter, which appears to have been prepared as a response to
inquiries about the Parchman scam. It does not address the specific
questions raised in our previous letter.
USPS did enclose a copy of its "Press Coverage Report" on its Money
Order Publicity Campaign (Attachneni D). It is important to note that
this was generic information about the new money order and
did not include information about the Parchman scam
1 1/13/92 My office provides Chairmen McClosky and Hubbard with a copy of our
October 5th letter to USPS.
1 1/1 3/92 My office writes to the USPS Disbursing Office to request that USPS waive
the order to Norway Savings Bank to reimburse for the altered money
orders until the Congressional Inquiry is concluded. This is based on my
concern that USPS was continuing its policy of requiring victimized banks
to make good on the nwney orders, despite what I felt was an inadequate
effort to notify banks regarding the Parchman scam and meamres they
could take to recognize the scam and protect themselves.
1 1/13/92 My office writes to the USPS Government Relations Office to request
a response to the specific questions raised in our letter of October 5th.
1 1/30/92 USPS Disbursing Office agrees to waive the 30-day payment deadline for
Norway Savings Bank pending the resolution of the Congressional inquiry,
12/1/92 USPS responds to our letter of November 13th, bucking us to the Postal
Inspection Service.
12/1 1/92 My office writes to K.J. Hunter, Chief Postal Inspector, again requesting
thai the USPS respond to our questions of October 5th
12/15/93 My office learns that several other banks in Maine hav,; been victimized by
this .scam within the last year.
1/15/93 Due to my concern that the USPS was not giving this matter adequate
attention, my office writes to Joe Ncale, Manager of the USPS Accounting
Service Center, requesting that the USPS consider a policy change,
exempting financial insitutions which have been victimized by this scam
from the repayment requirements.
1/27/93 K.J. Hunter, USPS Chief Postal Inspector, responds to my letter of
December 1 1 th by scheduling a February 9th meeting in Maine between
Inspector Aaron Greene. Congressional staff and Norway Banic officials.
2/9/93 At the meeting, USPS indicated:
1 . A telephonic warning has been placed on phone lines leading out of
the prison warning about the scam -- USPS is hopeful it will
discourage future "marks".
2. USPS is again revising its money order to make it even harder to
alter.
3. USPS will make a video about the scam available to Chambers of
Commerce.
USPS still does not indicate what specific steps they will
take to contact financial institutions and warn them about
the scam.
2/l8/?3 The Maine Congressional delegation sends a letter to Postmaster General
Marvin Runyon indicating concern about the potential impact of this scam
on financial insrimtions in Maine and across the country, and urging the
USPS to take steps to improve communication with financial institutions,
improve the training of USPS and bank personnel in recognizing this scam,
and work with law enforcement personnel to shut down the scam at its
source.
2/22/93 USPS notifies my office that they have contacted the Savings and
Community Bankers of America about tlie scam.
My concern remains that this is only one of several trade associations, and
that a comprehensive approach to the problem has not yet been
made.
2/25/93 CBS "Street Stories" carries a story about the Parchman Scam.
Again, my concern remains thai, although this is nice, it is not part of a
comprehensive effort to notify financial institutions of their
potential exposure.
3/1 <^3 Postmaster General Runyon responds to delegation letter. He indicates that
USPS has recommended lo Congress that a provision be included "in the
crime bill to improve the laws relating to altering money orders and
'washing* postage stamps". A general reference is made to "posters arid
Other training materials" having been distributed to the public to assist in
identifying altered money orders.
240
. This is the same argument the USPS always makes when pressed to
improve communications about the Parchman scam However, at no time
have they made a consistent eft'on to make the public aware of the scam.
These "public intbmiation campaigns" are intended to talk only about the
redesigned money orders -- nnt the reason ihey keep having to redesign
them every two years. No response is made to our requests that
the USPS engage in efforts to improve current communications
with financial institutions (Attachment E).
4/16/93 American Bankers Association is notified of the scam by USPS.
4/26/93 My office sends updates on the progress of our inquiry to Post Office and
Civil Service Chairman Bill Clay and Banking Subcommitee on General
Oversight and Investigations Chairman Hubbard.
4/1 5/93 Norway Savings Bank is notified that USPS has detemiined that USPS
may not waive the reimbiu^ement of the outstanding amount of the altered
money orders.
USPS notes that "under the normal course of doing business (Norway
Savings Bank) was in the best position to detect unlawful conduct..."
Norway Savings Bank Auditor Gerald Donovan disputes this, saying that
bank personnel contacted the local Postmaster to indicate their concern that a
number of postal money orders were being presented at a high face value,
but were told by the Postmaster that, as long as the legal limit of $700 per
money order was not exceeded, there should be no problem. The USPS
employee failed to warn the bank of a potential .scam despite
being directly questioned by the bank.
5/31/93 My office writes to Postmaster General Runyon regarding this decision,
requesting that USPS reconsider its decision based on the fact that, at the
time Norway Savings was being victimized, the USPS had nude no effort
to inform any Maine bank ahiout the Parchman scam, nor did it alert the
bank to the problem when it was directly questioned by bank personnel.
USPS personnel were clearly unaware of the scam and failed to alen the
bank even when given a chance to do so.
6/3/93 Chairman Bill Clay responds to my April 26th letter, indicating that he had
contacted the USPS to inquire about this matter. He received a response
indicating that the USPS "has worked extensively with financial insiiutions.
associations, publications, and agencies to publicize the scheme among their
membership and readership" and indicates that bank tellers are being
provided with videos on how to spot altered money orders.
6/21/93 My office receives a letter from Marvin Runyon in response to ourMay 3 1 st
letter. This is a word-for-word copy of the letter to Chairman
Clay and fails to respond at ail to my specific concerns and
suggestions raised in the letter of May 31st.
7/9/93 My office learns that Karl Thomp.son. arrested and convicted of
participation in the scam at Parchman State Prison, was sentenced to 8
months to be served in Parchtmn State Prison, a $50 fine, and $725
241
restitution to Norway Savings Bank. This is the minimwn sentence
available under the court guidelines, which increases my coiiccm that this
scam is not being taken seriously by the judicial system.
7/16^3 My staff contacts legal counsel at Boston's Federal Reserve System which
states that the Fed has not been notified about the Parchman scam by the
USPS. The D.C. Federal Reserve Board confirms that it was never asked
by USPS to notify all member institutions about tlic scain. USPS did
request that the Ffed office in St. Louis "outsort" all large face-value money
orders earlier this year, and then advised tliem of the scam. According to
the Federal Reserve Board staffer we contacted, thev were under the
Impression that they were not supposed to talk about If, as it
was under investigation by the USPS.
242
H. ANOREWS
Congress of the Birttti »tatts lldU/mJ-C^
iMmt of TUprtitwattoti f hf»— "^"^
Octobers. 1992
Judy Principe
Nonheast Region • Govcmmem Relations Depamnem
U.S. Postal Service
Room 10533
475 LEnfant PUm West. SW
Washington. D.C. 20260-3526
Dear Ms. Principe;
Thank you for your most recent response regarding altered USPS money orders.
As per our telephone conversation of last week, I have a few additional questions I would
like to a<ik regarding this issue. First, in your letter of September 9th, vou suted that the
USPS Inspection Service has publiciied problems with money order altering in the media,
and that a USPS mailing describing the secuntv features of the new mone^ order was
distrbuted by the Federal Reserve to all membtf institutions. My concern u that this
notiftcaiion process is not nearly as comprehenave as it ite^ Id be, given that a Ivge
number of flnancial institutions (espcially credit unions and savings banks) arc not
members of the Federal Reserve. Even members of the Federal Reserve, when contacted
by this office, evidciKcd no knowledge of this situation, and could not recall receiving such
a message from the Federal Reserve.
1 might suggest that die USPS work closely widi the suses on this issue, since each state
regulates all financial insiitutiont within its borders and undoubtedly maintains a listing of
those institutions. By using these lists, a much more compi^lmtsive notiTication process
can be develc^. In addition, the USPS should obtain a comwehensive listing of the
major trade associations which serve the banking industry, boui on a national and siate-by-
siate basis, and keep these associations infomied of the pifDblems and proptss associated
with this scam. I should nvention that I conacted both the Maine Association of
Community Bankers and the Maine Bankers Association, and neither grot^) had received
any information about this scam until my call. Both were extremely concerned afier
hearing about what had happened to Norway Savings, and indicated that they would take it
up with their security comminecs.
Given the seriousness of the problem, and the devastating fiaandal impact this can have -
especially on the smaller insntutions - 1 would urge the USPS to take a much nnore
proactive stance on this issue and significantly ex^uid iu itottficadM effom. I am
forwarding a copy of this letter to bodi the BM Office and Ovil Service and the Banking
243
Judy Principe
United States Postal Service
Page 2
Comnuttees to encourage iheir oversight of and involveinem in the resolution of this matter.
Which brings me to my second concern. If the USPS has known about this scam for
several years, and if (as it is my understanding) it seems to be emanating almost exclusively
from Parchtnan State Prison, why have we not been able to shut down this operation?
What information does the USPS have on contacts within and outside the prison? The
possibility has been raised by those familiar with the scam that postal personnel may be
involved in making available large quantities of money orders, despite USPS memos to
personnel to look on such orders with suspicion. Has the USPS investigated this
possibility? If so, what have you found?
With respect to the Norway Savings Bank (Norway, Maine) investigation, I am enclosing a
list of potential suspects in that particular scam. The list was supplied to me by the bank.
The "mark" (Joyce Brown) cashed the altered money orders and sent them to the listed
individuals. While the names are probably fictitous, has the USPS visited the addresses or
interviewed personnel in the Post Office where Spencer Bums' deliveries were made?
What are your findmgs? Can we expect arrests?
I would appreciate your further review of this matter. Thank you for your assistance, and
please direct your response to the Portland address listed above.
Representative Th^pas H. Andrews
Enclosure
244
Miss Collins. And the journal, in fact, we will leave it open for
any of the other members of the subcommittee who want to give-
submit statements for the record.
There will be one final hearing on mail fraud. This subcommittee
is now adjourned.
[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
MAIL FRAUD
WEDNESDAY, OCTOBER 6, 1993
House of Representatives,
Committee on Post Office and Civil Service,
Subcommittee on Postal Operations and Services,
Washington, DC.
The subcommittee met, pursuEint to call, at 10:15 a.m., in room
311, Cannon House Office Building, Hon. Barbara-Rose Collins
(chair of the subcommittee) presiding.
Members present: Representatives Collins and Young.
Miss Collins. Good morning and welcome to the Subcommittee
on Postal Operations and Services.
This is our third hearing on mail fraud. The subcommittee's first
hearing on this subject was in May to hear from the victims of mail
fraud. Our second hearing took place in July and focused on coordi-
nation efforts between government agencies and consumer groups.
Today, we will hear from representatives of the private sector re-
garding their efforts to combat mail fraud. We will hear from Visa,
Federal Express, the National Newspapers Association, the Direct
Marketing Association, and Mail Boxes, Etc.
Most of these organizations have been actively involved in anti-
fraud efforts with Federal agencies and have been actively working
with consumer groups on this growing epidemic. Many of these or-
ganizations have also been victims of scams themselves.
According to the Federal Trade Commission, mail-order and tele-
phone-order merchandise sales amount to $48 billion in consumer
spending annually, that is $48 billion. Estimates of consumer
losses due to mail fraud are estimated to be several billion dollars
each year.
We are here today to determine what steps these organizations
are taking to combat the problem. I would, again, like to welcome
all of you here today, and to thank you for taking the time to tes-
tify. I look forward to your testimony.
We have testifying today Dennis Brosan, security director from
Visa International; Gary Biigge, Newspaper Association of Amer-
ica; Alan Armstrong, area franchiser for Mail Boxes, Etc.; Tom
Caiazza, customer services, Federal Express; and Richard Barton,
vice president. Direct Marketing Association, Inc.
So we will hear from Dennis Brosan first. Thank you and wel-
246
STATEMENTS OF DENNIS BROSAN, SECURITY DIRECTOR, VISA
INTERNATIONAL, GARY BUGGE, NEWSPAPER ASSOCIATION
OF AMERICA, ALAN ARMSTRONG, AREA FRANCHISER, MAIL
BOXES, ETC., TOM CAIAZZA, CUSTOMER SERVICES, FEDERAL
EXPRESS, AND RICHARD BARTON, VICE PRESIDENT, DIRECT
MARKETING ASSOCIATION, INC.
Mr. Brosan. Madam Chairwoman, members of the subcommit-
tee, my name is Dennis Brosan and I am director of security at
Visa, USA. Visa would Hke to thank the subcommittee for the op-
portunity to testify about the important national problem of mail
fraud. We commend the subcommittee and its leadership for their
role in addressing this issue.
As this subcommittee knows, mail fraud often is a component of
telemarketing fraud. This is the case when postcards and other di-
rect mail solicitations are sent through the mail with fraudulent of-
fers, inviting consumers to respond by telephone and pay with their
credit cards.
Visa, USA is highly concerned about telemarketing fraud, as well
as mail fraud. To help combat telemarketing fraud, Visa supports
H.R. 868 and its Senate companion, S. 568, as well as the Senate
criminal legislation, S. 557 and urges their passage in this session
of Congress.
Telemarketing fraud is a serious and growing problem that, ac-
cording to a recent Louis Harris study, defrauds millions of inno-
cent consumers each year. Telemarketing fraud losses are esti-
mated to be in the billions of dollars by the National Association
of Attorneys General and the Federal Trade Commission.
Fraudulent telemarketing is the term used to describe the solici-
tation of cardholder information by telephone or mail for fraudu-
lent use. Fraudulent telemarketers often obtain credit card account
data from cardholders through contests or offers of merchandise or
services at no cost or reduced rates.
In some cases, telemarketers announce that consumers have won
vacations to exotic places such as Hawaii or Acapulco, or they ofTer
vitamins, water purifiers, or travel packages at a discount. Fre-
quently the contest or product is available for a limited time only.
Telemarketers use high pressure sales techniques to close the sale
quickly before consumers can ask for more information. Card-
holders are then billed for the merchandise, which is never deliv-
ered or is vastly different from what was originally represented.
Telemarketing fraud has clearly increased over the past few
years and we see no end to this growth unless and until Congress
enacts Federal laws to combat the problem.
A 1992 Harris survey conducted for The National Consumers
League found that millions of Americans become victims of
telemarketing fraud every year. As a result of this survey, we now
know that more than 90 percent of all adult Americans have had
some contact with telemarketing fraud.
Over 5 million people believe that they have been defrauded by
unscrupulous telemarketers. The elderly, the trusting, and other
susceptible population groups make up a large share of the victims.
This survey provides dramatic evidence that Congress must act
quickly to prevent more Americans from becoming victims.
4
247
Visa's member financial institutions generally reimburse
telemarketing fraud victims who paid with a Visa credit card. If
the financial institution cannot locate the fraudulent telemarketer,
the member institution bears the cost of the telemarketing fraud.
As a result, our financial institutions lose approximately $300 mil-
lion per year to this t5rpe of fraud.
In addition, our member institutions spend millions of dollars in-
vestigating individual cardholder complaints and pursuing particu-
lar fraudulent telemarketers.
Visa has instituted extensive internal procedures to detect fraud-
ulent merchants and eliminate them from the credit card system.
However, fraudulent telemarketers develop new and sophisticated
ways to evade detection, such as the laundering of sales drafts in
order to promote their scams.
Laundering or factoring refers to the depositing of sales drafts by
a legitimately-signed merchant on behalf of an operator who does
not have a merchant agreement with a financial institution. Usu-
ally, such operators cannot obtain a merchant agreement with an
acquiring institution, thus they approach legitimately signed mer-
chants to launder sales for them. Sometimes they employ a broker
to approach legitimate merchants.
In exchange for depositing the drafts, a legitimately signed mer-
chant is given a percentage of the value of the drafts, and it usu-
ally ranges in the vicinity of somewhere from 1 to 20 percent. In
many instances, the fraud operator without an agreement launders
with the legitimately signed merchant for several weeks before
moving on to another legitimate merchant and before any
chargebacks start piling up.
To address today's newer kinds of telemarketing fraud. Visa ad-
vocates updating our criminal laws with much needed amendments
to the Credit Card Fraud Act.
In addition, Visa h£is undertaken extensive programs to educate
our member financial institutions, merchants and consumers about
telemarketing fraud. Finally, we work closely with Federal, State
and local law enforcement authorities to investigate and prosecute
fraudulent telemarketers, and to ensure that these law enforce-
ment agencies have sufficient resources to pursue the
telemarketing fraud.
Visa is pleased that H.R. 868 contains three elements we believe
are essential for civil telemarketing fraud legislation. They are the
requirement that the FTC develop rules defining fraudulent
telemarketing activities; the creation of a private right of action to
permit victims to sue fraudulent telemarketers; and the express
grant of authority allowing State attorneys general to bring en-
forcement actions directly in Federal court.
S. 557 includes the Visa-sponsored amendments to the Credit
Card Fraud Act of 1984 which was in the omnibus crime bill last
year but failed to achieve passage in Congress. The Credit Card
Fraud Act would be amended to criminalize credit card laundering,
specifically that the act expressly covers telemarketing fraud, and
criminalize the solicitation of consumers for bank cards without the
issuers' permission.
Recognizing the enormity of the fraud problem. Visa has taken
an active role in the area of education. Our efforts are directed at
248
consumers, merchants, and our more than 15,500 financial institu-
tions in the United States.
In the consumer realm. Visa has conducted media education
tours through several of the Nation's top-20 markets to raise the
awareness of fraud among the news media and the consumers. We
also regularly accept requests to participate in talk shows and
consumer call-in programs around the country. In addition. Visa
representatives accept speaking engagements before various groups
on the topic of fraud.
In 1990, Visa established a fraud hotline, a free service to con-
sumers who, by calling a toll free telephone number, can obtain in-
formation on how to identify a scam and what to do if they have
been victimized.
We also work closely with the National Consumers League based
here in Washington, DC, and we are a founding sponsor of the
NCL's National Fraud Information Center and the Alliance Against
Fraud in Telemarketing.
The National Fraud Information Center, a private, nonprofit or-
ganization, working to combat the growing menace of consumer
fraud, helps consumers with information and referral services. It
also provides assistance in filing complaints. As a founding spon-
sor. Visa USA has provided a considerable sum in grant money to
establish and operate the center, and to fund the 1992 Harris sur-
vey that I mentioned earlier.
The Alliance Against Fraud in Telemarketing, coordinated by the
NCL, is an international coalition that promotes cooperative edu-
cational efforts aimed at alerting the public to high incidence of
telemarketing fraud, and steps which can be taken to protect po-
tential victims. Founded in 1988, it serves as a clearinghouse for
information on current and evolving telemarketing fraud. Visa
USA is a charter member of the AAFT and sits on its steering com-
mittee.
In addition, to our involvement with these two organizations.
Visa directly sponsors two educational initiatives that address the
area of fraud. First, "Choices and Decisions: Taking Charge of Your
Life," is a financial and life skills educational program for high
school students. Using the interactive multimedia approach, the
Choices program includes a 12-chapter learning curriculum that, in
addition to financial management topics, also addresses consumer
awareness, the types of fraud that can be perpetrated and how to
spot and avoid them. Choices and Decisions is a program that is
free to high schools, donated by nearly 600 Visa member financial
institutions.
By the end of this fall, the program will be taught in nearly
10,000 high schools in all 50 States, that is about half of our Na-
tion's high schools. Choices and Decisions was developed by Visa in
conjunction with the U.S. Office of Consumer Affairs and the Na-
tional Consumers League.
Visa also offers "Credit Cards: An Owners Manual" to consum-
ers. This free brochure was developed using illustrations by the
cartoonist Cathy Guisewite who authors the "Cathy" cartoon strip,
and specifically covers credit card fraud. Nearly half-a-million cop-
ies of this informative brochure have been distributed since it was
introduced one year ago, many of them through the Better Busi-
249
ness Bureau. Fraud-related tips, which have been taken from
Visa's owner manual, are also presented each week during the
CNBC-TV program, "Money Talk".
Later this month, during the week of October 25, Visa will par-
ticipate in the National Consumers Week, sponsored by the U.S.
Office of Consumer Affairs. The theme of this year's National Con-
sumers Week is fraud. Visa will promote credit card safety meas-
ures through a public relations program.
Finally, Visa is currently working with a California-based
consumer organization. Consumer Action. Our idea here is to cre-
ate telemarketing fraud informational pamphlets that will be pro-
duced in eight languages and distributed nationwide.
The educational efforts of Visa are also directed at our own mem-
bers through bulletins, letters and other publications, as well as
publications of our rules.
In order to ensure proper communication with our members, our
risk management and security division has conducted a series of
merchant seminars on fraud for our members. They address
telemarketing fraud and electronic data capture fraud, which is a
favorite tool of the telemarketer; the methods to prevent it and the
methods to detect it, and how to utilize programs available to them
to monitor and prevent this type of activity. This is an ongoing pro-
gram.
Even with these extensive educational programs, we still need
the added force of the telemarketing mail fraud legislation cur-
rently pending before the Congress.
I thank you. Madam Chairwoman, for allowing Visa the oppor-
tunity to present our views to this subcommittee.
That concludes my prepared testimony. I would be happy to an-
swer your questions.
Miss Collins. Thank you very much, Mr. Brosan. I do have
questions for you, but we have been joined by our ranking sub-
committee member Mr. Don Young from Alaska.
Mr. Young.
Mr. Young. Thank you. Madam Chairman. I have no questions.
I would, though, ask unanimous consent at this time for a subniis-
sion of testimony by Congresswoman Snowe from Maine concerning
an incident that happened in her district. I would ask to submit it
for the record at this time.
Miss Collins. Without objection. Thank you.
[The prepared statement of Ms. Snowe follows:]
Prepared Statementt of Hon. Olympia J. Snowe, a Representative in Congress
From the State of Maine
I would like to share with you the experiences of Norway Savings Bank, a bank
in my district, to highlight the urgent need to crack down on a national mail fraud
operating out of a state prison is Mississippi. »,.... ,
A convict at the Mississippi State Penitentiary in Parchman, Mississippi, cul-
tivated a pen pal relationship with a woman of Umited financial means in Norway,
Maine. He created an engaging and sympathetic persona for himself and skillfully
gained my constituent's confidence. He professed to be in love with my constituent,
and spoke of sharing his future with her upon his release. ,. .^, ^ , , ..
Once he gained her trust, he announced that he was ehgible for early release if
he paid a legal fee. He told her that he needed her to deposit the "pay off money
into her checking account until he told her where to send it. The con\^ct then sent
her an official-looking letter, supposedly fi-om an attorney, contaimng five $700 dol-
lar U S Postal Money orders which he asked her to deposit in her account. The
250
money orders, however, were low denomination money orders which had been fraud-
ulently altered and raised to $700. Over the course of several weeks, my constituent
continued to deposit altered money orders on behalf of her pen pal, which she subse-
quently withdrew and sent to a third party specified by the convict.
Several weeks later, the Money Orders were recognized as fraudulent. My con-
stituent is of limited financial means and unable to bear her financial loss. Con-
sequently, Norway Savings Bank incurred liability to the Postal Service for $20,271.
This is unconscionable. It is even more shocking because this scam has operated
for nineteen years and has cost innocent victims and financial institutions millions
of dollars. Inmates at the Parchman penitentiary have defrauded women living in
Elsbury, Missouri; Norway, Maine; Mountlake, Washington; Elyria, Ohio; and
Cleveland, Ohio. This is clearly a national issue.
It is imperative that the U.S. Postal Service concentrate its preventive efforts in
three areas: 1. Improve its security measxu-es, 2. Increase efforts to instruct banks
on how to recognize and prevent this scam, and 3. Attempt to curtail the scam at
its source, Parchman State Prison. Thank you for the opportunity to share my con-
cerns. I hope that every effort will be made to protect vulnerable women and finan-
cial institutions from this financially and emotionally devastating scam.
Miss Collins. Mr. Brosan, I have several questions, but I will
start off by asking you what is electronic data capture fraud?
Mr. Brosan. Electronic data capture fraud is a method whereby
you have an electronic terminal and you can either swipe your
credit card through and it will transmit the information down line,
or you may key the information, into the terminal. Many of the
fraudulent telemarketers, those that use the mail fraud, will then
enter the cardholder's number by key entering it into the data cap-
tion terminal.
Miss Collins. OK. What qualifications, if any, must a merchant
demonstrate before it is given the ability to accept Visa?
Mr. Brosan. The merchant applies to a financial institution, and
there are certain standards that must be followed for the financial
institution. They must pass a scrutiny of their past financial data,
by passing credit reports, supplying tax records, et cetera. The
premises is to be inspected, and they must at least inquire of the
Visa/Master Card database to see if the merchant has a previous
fraud record with either organization.
Miss Collins. They have to have a permanent facility?
Mr. Brosan. Yes.
Miss Collins. I have noticed that at a lot of conferences, you
have the exhibition rooms and a lot of the vendors there use credit
cards, so they must have a store or facility somewhere?
Mr. Brosan. They have to have a facility and pass an inspection.
Now, they may take their show on the road and so on, but there
is a central depository physical location.
Miss Collins. What do you do when you find that a legitimate
Visa merchant is laundering? What do you do to that merchant?
Mr. Brosan. First, we would notify the acquiring bank. Together
we would investigate. If it was found to be true, the merchant's
contract would be canceled with Visa and Master Card, and law en-
forcement authorities and the Federal Trade Commission would be
notified.
Miss Collins. I see. Are they usually prosecuted?
Mr. Brosan. No, they are not usually prosecuted and that is one
of the reasons why we would advocate that the laundering of the
sales drafts would be made a criminal offense.
Miss Collins. H. 868 will be so good.
251
Mr. Brosan. Yes, it would. It would be very helpful in identify-
ing those people. What they do, by not signing directly with Visa
or Master Card, they go and they will find a legitimate merchant
to deposit for them and give that merchant a commission for depos-
iting for them. So they really don't have a direct relationship with
either Visa or Master Card, but they find some soul out there who
does, and then they offer him money to deposit for them, giving
them various excuses.
Miss Collins. Are the merchants aware that this is illegal?
Mr. Brosan. Yes. It is part of their contract with the Visa/Master
card members, and we are now recommending that each member
when they sign a merchant have that particular merchant initial
that part of the contract to ensure that they have actually seen it
and understand it.
Miss Collins. It seems to me that, that would really be a great
laundering scam for organized crime or for the drug trade, even.
Mr. Brosan. We have not yet seen that, although we do now face
the problem where the telemarketing fraud people are laundering
their sales drafts oversees, Europe, Asia, Pacific
Miss Collins. Are what?
Mr. Brosan. Are laundering their sales drafts, they don't deposit
them in this country. They are defrauding United States consum-
ers; they are taking the sales drafts overseas, in Europe, Asia Pa-
cific, and Latin America and depositing them over there. The
charges then come through from an overseas merchant.
Miss Collins. I see. Finally, what is Visa's position on sharing
information on fraudulent activities with other credit card compa-
nies or law enforcement agencies or consumer groups?
Mr. Brosan. We are very, very active in all areas with the
consumer groups. We are a charter member and a member of the
Steering Committee Against Fraud in Telemarketing. Some of the
individuals on the panel with me have been engaged in joint
projects. We have an ongoing daily relationship with the Federal
Trade Commission and with law enforcement agencies.
We are also members of the International Association of Credit
Card Investigators and we share information with all Federal and
foreign enforcement agencies, as well as the regulatory agencies,
and consumer groups. We contributed quite a bit of funds to the
consumer groups to aid in the education process.
Miss Collins. OK. Thank you.
Mr. Young.
Mr. Young. Just out of curiosity. All of you appearing here today
are pretty much in agreement with the testimony that the gen-
tleman just gave?
Have you met one another before?
Mr. Armstrong. No, we haven't.
Mr. BUGGE. Some of us have met before, some of us have not.
Mr. Young. But you are working to try to eliminate this prob-
lem?
Mr. Armstrong. Wherever we can.
Mr. Young. Do you think that legislation is necessary, or do you
think it can be done by regulating the existing program?
Anybody who wants to comment.
252
Mr. Brosan. I think that legislation is necessary. We have had
a number of regulations on the varying industries, but when they
skirt the issues and keep going on, they are defrauding banks and
consumers.
Mr. Young. When they do that, though, see, my concern is when
we pass a law, it is already they are breaking a law, are they not?
I mean they are already breaking laws.
Mr. Brosan. In some instances.
Mr. Young. I mean when they break a contract, they are break-
ing a law. I am just saying if we pass another law, what are we
adding?
Mr. Brosan. Well, for instance, they will take and operate in a
particular State, in one State. They will make calls out of that
State. They will never contact a consumer within the State that
they are located in.
Now, what happens? All of your victims are out of State. How
does that attorney general handle that? How does he bring those
victims in?
Does his budget allow him to bring all of those people into his
State to be witnesses in this prosecution? So we have got problems
along that nature. That is one of the reasons why we ask that the
law be amended so that the attorney general be allowed to bring
this type of case into Federal court. Those are some of the in-
stances why we think that it is necessary for legislation.
Mr. Young. All right. Sometimes I think we look for a simple so-
lution when they are already breaking the law — laws. You know,
I wish we could educate people to never give anybody a credit card
number. That always helps out too. I never do that. I know people
do it, pick up the phone, give them a credit card number.
Mr. Brosan. I know.
Mr. Young. I will say, talking about mail fraud, I think probably
the biggest mail fraud conveyed upon the public is mail sent off by
those seeking elections sometimes too.
I don't have any other questions. Madam Chairman. I want to
make one suggestion, though. I appreciate the testimony and I
have gone and read the rest of the testimony.
If you can, if there is any duplication, cut it a little shorter for
the rest of the witnesses here. I know I am — we have a busy sched-
ule and I am not going to be able to stay for the full hearing and
it would be nice to stay for each one of you, if possible. So do what
you can. The last one was very good, but a little long.
Miss Collins. You know, I believe the difference is that >yhen
you break a contract, it is civil offense, but when it is criminalized,
then it becomes a felony or whatever, and I think that makes the
big difference.
I think that you made a great suggestion. If you could summa-
rize your statements, your statements are all very good, and they
will be entered into the record in their entirety. So if you could just
summarize them.
Mr. Gary Biigge?
Mr. BUGGE. In the interest of speed, I will take the parts which
refer specifically to background information and speak quickly. If
I am going too fast, please stop me. Good morning. Madam Chair-
woman and members of the subcommittee.
253
I am Gary Biigge and I am here today on behalf of Media Adver-
tising Credit Services, the International Newspaper Financial Ex-
ecutives and the Newspaper Association of Ajnerica. One of the
groups that I am representing this morning, MACS, is a sub-
scriber-based media credit and collection service which dissemi-
nates information concerning consumer and commercial fraud
schemes. MACS is also a member of the Alliance Against Fraud in
Telemarketing, where I serve on the Consumer Education Sub-
committee.
I would like to commend the Chair and the subcommittee for
holding the hearings. Mail fraud is an issue that touches the heart
of all American communities and it is of particular concern to the
three groups I represent here today.
Before I start, I would like to make one correction. It is just a
minor modification. On page 7 of the third full paragraph of my
prepared testimony, written testimony, the number should be
$41,500, and not $841,500.
Newspapers are constantly combating fraud in advertising in a
variety of ways. All newspapers have ad acceptance policies dealing
with types of ads which can and cannot be published in their publi-
cations. Many newspapers have employee committees whose re-
sponsibility it is to ensure that — to the best of their ability, ads are
truthful and accurate.
Many newspapers are in constant contact with better business
bureaus, local consumer groups, and local law enforcement agen-
cies on fraud issues. Efforts of MACS, INFE, and NAA to stop
fraudulent advertising focus on educating the media to recognize
and deal appropriately with this tjrpe of advertising on fraud is-
sues.
Now, it is important to understand that for the most part, scams
or ads for scams are not deceptive on their face, and that without
some indication on the face of an ad that it is part of a scam, a
newspaper has no way of telling the bad ads from the good ads.
There is no little red flag out there saying, "I am a scam, I am a
scam, I am a scam". Unfortunately, that just doesn't happen.
Fraudulent advertising is of great concern to the newspaper in-
dustry because the newspaper's financial success depends in large
part upon its reputation and its relationship with its readers.
Today newspapers are doing everything we can think of to eradi-
cate fraudulent advertising from our publications. We have exten-
sive informal networks and are in constant communication with
local State and national agencies so as to ensure that newspapers
continue to provide an excellent forum for truthful and accurate ad-
vertising.
Madam Chairwoman, I would like to turn to an issue of fraud
which is of great concern to the newspaper industry today. We call
it, "bogus invoicing". Newspapers like the Detroit Free Press, the
Atlanta Journal Constitution, the News and Observer in Raleigh,
NC, just to name a few, face this type of fraud. "Bogus invoicing"
operates against newspapers and their advertisers in the following
manner:
I will summarize as briefly as I can.
Individuals or companies reprint without permission classified
advertising in questionable publications. The ads are generally em-
254
plo3anent advertising and appears as if they were originally pub-
lished in the local newspaper. The publications look like legitimate
publications, but in reality, have either little or no circulation. If
anybody would like to view one, I have an example of a publication
which does come out, and this is allegedly over 200 pages of help
wanted advertising.
These publications then have little or no circulation. They solicit
the advertiser who placed the publication in the newspaper by
mailing to the advertiser's account payable department a solicita-
tion form. The solicitation looks an awful lot like an invoice that
the newspaper would send an advertiser who has placed the classi-
fied advertisement. The advertiser's accounts payable department
is frequently unaware of when the ad was placed, where it was
placed, and often pays the solicitation instead of and sometimes in
addition to the newspaper invoice when it finally gets there.
We believe these solicitations are deceptive and fraudulent. First,
in addition to the invoice, the advertiser is often sent a tear sheet
of the advertisement as it appeared in the publication. This is de-
ceptive because newspapers only use tear sheets to verify that an
ad has run, never to solicit advertisers. Second, the **bogus invoice"
is timed to arrive at the advertiser's accounts payable department
around the time that the newspaper's invoice arrives and often be-
fore the newspaper's invoice, so as to be mistaken for the news-
paper's invoice.
Finally, the mandatory disclaimer language indicating the piece
is a solicitation and not an invoice is inconspicuous, often printed
in very light yellow ink which is extremely difficult to read and
does not photocopy well. As an example, I do have an invoice which
I received just last Friday; it certainly looks like an invoice. I will
pass it up. Down here there is a yellow part and it has a dis-
claimer, that this is a solicitation, this is not a bill. I took the lib-
erty of photocopying it on a reasonably good copy machine and you
can see how well it then comes across.
It is the photocopy of the bill, now without the disclaimer, which
is sent to another department for pajonent approval. "Bogus
invoicing" generates in the aggregate a significant amount of
money for those running these scams. As I described in my written
testimony, the amount of money these companies could pull in, if
only one percent of those solicited sent a check is approximately
$64 million. That is just what we know about. Yesterday I received
a phone call and have information that now there is another com-
pany that has been identified doing this.
Newspapers have asked these publications to stop soliciting their
advertisers in this form. These publications have refused, stating
that they are operating within the letter of the law. As a result,
newspapers have turned to the U.S. Postal Inspection Service for
assistance, with some success.
Just to sidetrack for a very brief second. Congressman Young,
what we have here is a situation where the State of North Carolina
took these people into State court and they said, you can't do this
any more, and they said to the State, "Well, how are you going to
stop us?," in essence. "We are going to continue to do it. We don't
see anything wrong; we are going to continue to do it anyway."
I
255
To be more successful, postal inspectors must have the essential
resources and enforcement backup necessary to do their job. For in-
stance, postal inspectors who have successfully proven that a par-
ticular company has committed mail fraud need to have cease and
desist orders signed in a timely manner so that these companies
do not continue defrauding advertisers.
This is not happening and we believe it is beyond the control of
the Postal Inspection Service. While we in the industry are doing
what we can to stop "bogus invoicing", it continues. Getting cease
and desist orders signed in a timely manner will help, but it will
not alleviate the problem. A concerted national effort between the
inspection service and other Federal agencies to effectively combat
"bogus invoicing" is needed.
In conclusion, we urge the subcommittee to do all it can to pro-
vide the investigative and enforcement tools necessary to combat
these problems. We appreciate the opportunity this committee has
presented to our industry to express our concerns and relay our ex-
periences with fraud. I will be happy to answer any questions you
may have.
[The prepared statement of Mr. Biigge follows:]
256
Statement of Gary H. BOgge on Behalf of Media Aovestising Credit Services,
International Newspaper Financial Executives, and the Newspaper Associa-
tion OF America
Uood Morning Madam Chairwoman and members of the Subcommittee. I am
Gary BUgge, and I am here today on behalf of Media Advertising Credit Services,
International Newspaper Financial Executives, and the Newspaper Associadon of
America.
I am vice president of operations for Media Advertising Credit Services (MACS).
MACS is a subscriber-based media credit and collection service which addresses the
needs of media advertising credit departments. In addition to performing the typical tasks
of an industry credit and collection service, MACS also disseminates information
concerning consumer and commercial fraud schemes and other questionable advertising.
MACS is a wholly owned subsidiary of the International Newsps^)er Financial Executives
(INFE), a trade association of newspaper financial executives. INFE serves more than
1,000 members in all 50 states, Canada and internationally.
The Newspaper Association of America (NAA) is a non-profit corporation
serving approximately 1,250 member newspapers in the United States and Canada. The
majority of NAA members are daily newspapers accounting fcM" nnore than 80 percent of
the daily newspaper circulation. In addition, nearly 200 individuals and companies allied
with the newspaper industry are associate members of NAA.
NAA is a relatively new organization and was formed out of the merger of seven
fraternal organizations in 1992 •. In this new organization, NAA's Qassified Advertising
Council has assumed the role of the former Association of Newspaper Classified
'Those organizations were the American Newspaper Publishers Association. Newspaper Advertising
Bureau, International Circulation Managers Association, Association of Newspsqier ClassiHed Advertising
Managers, International Newspaper Advertising and Marketing Executives, Newspaper Advertising Co-op
Network and Newspaper Research Council.
J
Advertising Managers. The "bogus invoicing" scam that I discuss below is one of their
major issues. NAA, through its various publications and committees, very carefully
follows fraud issues in the newspaper industry and disseminates information in this area.
Both MACS and NAA conduct seminars and training session on advertising and the
problems associated with advertising fraud.
MACS is currently a member of the Alliance Against Fraud in Telemarketing
(AAFT), which is coordinated by the National Consumers League and is a coaUtion of
trade associations; labor unions; industrial groups; law enforcement and regulatory
agencies; consumer reporters; local; state; and federal consumer protection agencies and
nonprofit organizations. I serve on the AAFT Subcommittee on Consumer Education. In
the past 18 years, I have held positions in credit management, and have dealt with
industry related issues with the Hearst Corporation and with Fairchild Publications, a
division of Capital Cities/ABC.
I would like to commend the chair and the subcommittee for holding these
hearings on mail fraud. This is an issue that touches the heart of all American
communities and is of particular concern to the media. While both MACS and NAA are
studying the Senior Citizen Against Marketing Scams Act of 1993, neither organization
has taken a position on this bill.
FRAUDULENT ADVERTISING
At the outset, let me state that any form of fraudulent advertising is of great
concern to the newspaper industry. Newspapers take very seriously the responsibility of
seeing that what they print is as true and accurate as possible, and that the advertising
they publish is not deceptive. A newspaper's reputation, and ultimately its livelihood,
depend on it.
In today's advertising market, businesses and their advertisers have an
unprecedented ability to reach greater numbers of people through a whole range of print.
258
electronic and broadcast media. As a result, advertisers — both honest and dishonest —
have more opportunities to target audiences. While this has positive implications for the
honest advertiser, it is also a windfall for the dishonest advertiser who is able to target
vulnerable audiences through legitimate media.
Because most fraudulent schemes are local, a community's newspaper is on the
front lines of the batde against fraudulent activity. When an advertiser places an ad widi
the newspaper, the newspaper generally scans it for so-called "red flags" indicating an ad
is unacceptable for publication. These red flags may include ads for racially
discriminatory housing, certain mail-order merchandise, vending machines, X-rated
movies, fortune tellers, tobacco, certain 900 telephone services, firearms, work-at-home
jobs, certain financial schemes, certain medical products and escort services, or anything
else outlined in an individual newspaper ad acceptance policy. If there are other
indications that an ad is intent on causing harm, a newspaper generally acts as a
conscientious citizen of the community and the ad will not run. In addition, a call may be
placed to the local Better Business Bureau and/or the appropriate state agency to verify
past problems with the advertiser and to alen them to new potential problems.
Of course, some bad ads do slip into newspapers, but the number of deceptive
advertisements are very few, given the vast number of classified ads placed each day
throughout the country. On a typical Sunday, for example, more than 69,000 classified
ads appear in the pages of just The New York Times, the Los Angeles Times and The
Washington Post. When one takes into account that there are more than 7,000 daily and
weekly, paid and free circulation newspapers in the United States, plus hundreds of
shoppers, it is a testament to the industry's vigilance that more bad ads don't slip in.
Newspapers are very much aware that adverrisemenu placed in dieir publications
may be the starting point for fraudulent schemes. One typical scam that uses newspapers
works like this: An unsuspecting newspaper customer reads an ad for an excellent travel
opportunity in their local paper. The advertisement may contain a company name
-3-
(generally fictitious), a phone number and an address, or sometimes just a phone number.
In order to take advantage of this great travel offer, the reader is instructed to call the
company. Once the reader makes the call the scam really begins. The company instructs
the reader to send money in order for the reader to take advantage of this great deal. The
reader does not go on that wonderful trip or receive a refund because the company has
closed up shop, changed its address and/or changed phone numbers and taken off with the
money.
Schemes like this appear in all types of newspapers, and if newspapers knew how
to weed out the bad ads from the good, they would do so. Unfortunately, most ads for
scams are not deceptive on their face. They contain no red flags and appear as a
legitimate advertisement. These types of ads are almost impossible to weed out. Without
some indication on the face of the ad indicating that it is part of a scam, or without some
prior knowledge that the company, address, or phone number in the ad is associated with
a particular scheme, a newspaper has no way to tell the bad ads from the good. Given the
tens of thousands of ads that are placed each day across the country, newspapers
practically cannot investigate each and every classified advertisement submitted to the
paper. For one, the classified and display ad departments of most newspapers typically
operate with small staffs who place ads within a tight time frame. And, a newspaper
could not afford to spend one hundred dollars of staff time to investigate an ad for which
it will receive twenty-five dollars.
This is not to say that newspapers are not out there attempting to combat fraud in
advertising. They are. Many newspapers have employee committees whose
responsibility it is to ensure to the best of their ability that ads are truthful and accurate.
Various newspapers do have employees whose primary responsibility is to catch
fraudulent advertising before it is printed and often have staff who act as an advertising
acceptance coordinator for display and classified advertising. As a safety net, many
newspaper advertising credit departments review ad content prior to approving credit
260
worthiness. Finally, many newspapers through one department or another are in constant
contact with Better Business Bureaus, local consumer groups, and local law enforcement
officials.
In addition to combating the use of advertisements to commit fraud at the local
level, information networks exist at the state level as well. Press associations exist in a
majority of states and generally have 95-100 percent newspaper membership. As a
matter of course, member newspapers will alert the press association about fraudulent
advertising they have discovered. The press associations will in rum alert the rest of the
membership through their bulletins. In addition, the press association will read about
advertising scams in other states which also will be passed on to their members. There
are regional press associations who operate in the same manner.
MACS plays a leading role in the national struggle to alert the media to recognize
and deal with fraudulent advertising when it is presented for publication. We work
closely with local, state, and federal agencies as well as private associations such as the
Alliance Against Fraud in Telemarketing, as pan of a "fraud prevention team." MACS
conducts seminars designed to help a newspaper learn when it's staff should suspect that
advertising may be fraudulent and what steps a newspaper can take to protect themselves
and their readers.
INFE alerts its membership about the impact of fraud through its trade publication
the Newspaper Financial Executive Journal and the NAA alerts member organizations of
wide-spread fraudulent schemes through its various publications which include NAA's
trade magazine, Presstime®, and its Advertising and Classified Updates, publications
directed specifically at the advertising and classified departments of newspapers.
All industry groups — the state and regional press associations, MACS, INFE, and
NAA — participate in an informal network, keeping each other abreast of local, state, and
national schemes.
261
BOGUS INVOICING
While the industry has devoted more resources to combating fraud over the years,
it is unfonunate that newspapers have seen significant growth in recent years in an
advertising scam directed at themselves and their advertisers throughout the United
States.
The newspaper industry calls this form of fraud "bogus invoicing." It also occurs
in other areas of print advertising. "Bogus invoicing" operates against newspapers and
their advertisers in the following manner: Individuals or companies reprint without
permission classified advertising in "questionable" publications. The ads are generally
employment advertising and appear as they were originally published in a newspaper.
These publications look like legitimate publications but have either no circulation or
nominal circulation. The "questionable" publications then "solicit" the advertiser by
mailing to the advertiser's accounts payable department a "solicitation" form. This
solicitation form, however, looks like an invoice a newspaper would send an advertiser
who has placed a classified ad. The advertiser's accounts payable department is often
unaware of where the ad was placed, and frequently pays the solicitation instead of (or
sometimes in addition to) the newspaper invoice.
These solicitations are deceptive and fraudulent in three ways. First, in addition
to the invoice, the advertiser is often sent a tearsheet of the advertisement as it appeared
in the "questionable" publication. Newspapers use tearsheets to verify that an ad has run.
Newspapers never use tearsheets to solicit advertisers. Second, the "bogus" invoice is
timed to arrive at the advertiser's accounts payable department around the time the
newspaper's invoice arrives. Often it arrives before the newspaper's invoice so as to be
mistaken for the newspaper invoice and it is paid on the presumption it is the newspaper's
invoice. Finally, disclaimer language indicating the piece is a solicitation and not an
invoice is inconspicuous, often printed in very light yellow ink. This ink is extremely
difficult to read and does not photocopy well. It is the photocopy of the bill, now without
262
the "disclaimer," which is sent to another department for payment approval. As a result,
the advertiser can easily mistake this "bogus invoice" for an actual invoice from the
newspaper and then pay the amount to the wrong company.
The deceptive schemes these publications practice threaten a newspaper's
integrity, injure it's goodwill with advertisers, and reek havoc on well planned
advertising efforts. "Bogus invoicing" causes scarce advertising dollars to pay for
services that were neither solicited nor requested, causing budget problems for the
advertisers and depriving a newspaper of potential revenue.
Evidence gathered by MACS and NAA indicates that there are af a minimum 16
documented companies operating "bogus invoicing" schemes and their scams are
widespread. Newspapers in California, Georgia, Indiana, Michigan, New Jersey, North
Carolina, Ohio, Washington and the District of Columbia, just to name a handful, have
alerted my organization or the NAA to scams against their advertisers.
"Bogus invoicing" generates, in the aggregate, a significant amount of money for
those running these scams. Individual "solicitations" generally ask anywhere from $138 -
$166 per column inch. One tearsheet which I was able to examine had 250 column
inches and the publication apparently contained at least 188 pages. Assuming that the
various publications mimic one another, that works out to $841,500 per page or $7.8
million per issue. If only one percent of those "solicited" sent a check in error, one of
these publications would receive $78,000 per issue each week or over $4 million per year.
If all 16 documented publications are similar in size and published weekly, the amount of
money is $64 million per year.
By using the mail system as their primary vehicle to deliver these invoices, these
publications violate 39 U.S.C. §3005, the postal false representation statute and arguably
are nonmailable under 39 U.S.C. §3001(d), mailing solicitations in the guise of invoices.
As this Committee is well aware, combined, both these statutes protect mail customers
-7-
ftom individuals and companies that solicit business or money in a manner that could be
reasonably construed or interpreted as a legitimate bill or invoice.
We believe that the solicitations or invoices sent by these companies, which have
been examined by advertisers, newspapers, MACS and NAA, do not meet the
requirements of §3005 which states that when soliciting business through the mail, the
solicitation must be conspicuous and of legible type in contrast by typography, layout and
color. While the invoices contain the required statements, the invoices are designed to be
deceptively similar to a real invoice in general appearance. Most importantly, the
required statement is printed in inconspicuous light yellow type which is hardly readable
and tends not to reproduce when copies of the invoice are made for payment approval.
Attempts to work with these publications on an informal basis have proven
fruitless. Newspapers have asked them to refrain using forms that are similar to
traditional newspaper invoices. They have refused contending that they are operating
within the letter of the law. Because informal avenues have been ineffective, newspapers
have turned to the United States Postal Inspection Services for assistance — wiUi some
In United States Postal Service v. Professional Opportunity Magazine, Inc.,^ a
postal administrative law judge determined that one of these publications clipped
employment ads from newspapers without the prior knowledge or approval of the
advertiser, and sent a form that was deceptively similar to an invoice to the advertisers
accounts payable department in a scheme that was likely to deceive. The judge
concluded that continuation of the scheme would be to the substantial detriment of the
public and specifically found probable cause to believe that the defendant was in
violation of 39 U.S.C. §3005, the postal false representation's statute, and temporarily
enjoined one publication from continuing this aspect of their operations.
2 Case No. S A CV 91-01696 LT (U.S. Dist. Ci. for the Central District of CA).
-8-
264
Additional proceedings have been brought by the United States Postal Inspection
Service. Some have been settled while others continue to move through the formal
adjudicative proceedings. While newspapers have an ally in the United States Postal
Inspection Service, we have found that there is a serious administrative "glitch" that is
preventing the Inspection Service's diligent efforts from being fully effective. Although
the Service has proven that several companies have violated §§ 3001(d) and 3005, many
of their cease and desist orders are not being signed in a timely manner by the Postal
Service's Judicial Officers. As a result these companies are continuing to defraud
advertisers. Efforts to speed up the process have been initiated but more can and should
be done.
Not only has the U.S. Postal Inspection Service gone after these companies, but
also newspapers themselves have pursued legal action. The Orange County Register,
(California) was successful in their suit to enjoin several publications from using
classified ads placed in their newspapers^. Unfortunately, successful attempts to enjoin
these publications have had a limited affect. If the publication is enjoined, generally it is
enjoined from using a particular newspaper's classified advertising, not every
newspaper's classified ads. There is nothing to stop these publications from instigating
the same deceptive practices against a newspaper in another community. In addition, it is
very easy to stop using a particular name for a publication and start soliciting under a new
name. Changing names allows the scam to continue because any successful injunctions
against the "old" publications are not enforceable against these new entities.
Efforts at the state level also have limited impact. In August of this year, the State
of North Carolina sought a permanent injunction, and as of now, has received a
temporary restraining order against Employment Classifieds a publication practicing this
type of scam in the state^. The Attorney General for Nonh Carolina successfully argued
'Freedom Newspapers. Inc. dba The Orange County Register v. Professional Opportunity Magazine, el.
al., (No. 661301, CA Super. Cl, Oct 28, 1991).
''State of North Carolina v. Employment Class fieds. et al. (93 CVS 7328, N.C. Super. CU. Wake County).
-9-
265
that the publication violated the state's Unfair and Deceptive Trade Practices Act. While
a temporary restraining order was issued and the case is proceeding, the order has no
effect on the other publications coming into the state. Nor does it have any legal effect on
this publication in any other state.
Because there are limited resources devoted to ceasing these scams, the practice
of "bogus invoicing" continues. Individual newspapers must decide if they want to
expend valuable resources to fight these publications. Many newspapers simply cannot
afford to fight But even if they could, the effects of a successful fight are limited. As for
national initiatives, MACS docs it's part by collecting information and alerting subscriber
newspapers and other trade associations to these scams. MACS also conducts seminars
on how to deal with the problem of "bogus invoicing" and how to cooperate with
regulatory and law enforcement agencies. In addition, MACS has testified as an expert
witness at cease and desist hearings brought by the United Postal Inspector Service.
NAA assists by alerting its membership through its association magazine,
Presstime®, and other NAA publications including the Advertising Update and Classified
Update. In addition, NAA has contacted the Federal Trade Commission, the White
House, and the United States Postal Inspection Service to highlight the problem and
discuss strategies.
As "bogus invoicing" spreads across the country, a concerted national and unified
effort to effectively combat this problem must be undertaken. Without such an effort, the
problem will not go away. Because these publications use the mail as the primary means
of solicitation, the US Postal Service is the appropriate agency to battle this pervasive
problem. In particular, the United Postal Inspection Service, the agency mandated to
prosecute individuals and companies who violate the various sections of the postal code,
should continue its imponant role in prosecuting these companies.
In order for Postal Inspectors to do their job, they must be given the resources and
the authority to effectively prosecute businesses who are intent on using the mail system
•10-
to commit firaud. We urge this committee to do all it can to provide the postal inspectors
with all the investigative and enforcement tools necessary to combat these problems
CONCLUSION
We appreciate the opportunity this committee has presented to our industry to
express our concerns and relay our experiences with fraud. I will be happy to answer any
questions the Committee may have.
■11-
267
Miss Collins. Do either of the two — does either of the two pieces
of legislation deal with the 'Tjogus invoicing"?
Mr. BUGGE. Not specifically, no. We haven't had the opportunity
to truly study those and take a position on it.
Miss Collins. Maybe we need to put a friendly amendment in.
The Senate has already passed 568, and 868 passed the House in
March.
Mr. BUGGE. There are elements of the legislation which would
hit certain areas, but I would say that it has not specifically been
dealt with. Certainly the postal authorities having everything that
they need to truly complete their job from the beginning right
through to the end would help.
Miss Collins. You spoke on the red flags, that community news-
papers won't accept those ads when they see the red flag. Is there
a procedure for referring those ads to the authorities?
Mr. BuGGE. Each newspaper has its own individual policy, which
is consistent with, you know, the philosophy that newspapers cher-
ish, the first amendment free speech rights. However, through edu-
cation, especially over the last few years, there have been many ef-
forts on the part of the newspaper community in general through
disseminating information and educational seminars, through State
press associations, through associations like NAA and INFE and
MACS, to take any information that we do get and get them to
the — people that we have been dealing with, which may be Better
Business Bureaus, it may be the attorney general, what we will do
is pass our information along to whichever appropriate agency
seems likely to handle it.
However, there is still, I would say, not a complete network
chain of command that I get this, something looks suspicious, let
me call this agency. There is consumer — Better Business Bureaus
have a lot of lines which are no longer in existence. I spoke with
Esther Shapiro yesterday in Detroit, Department of Consumer Af-
fairs, and she still is overloaded with complaints that come in, and
it is like trying to tread water and then to filter them to the appro-
priate level and agencies. State, local or Federal.
Mr. Young. I am interested in this thing. This is an amazing
piece of deception.
Mr. BuGGE. We think so.
Mr. Young. I think I have pretty good eyesight, but they have
scrambled, if you look real careful at this, it says this is not a bill,
et cetera. The only thing to defend themselves; they put it on the
back, right?
Mr. BuGGE. Correct.
Mr. Young. You are saying most people, it comes to a newspaper
during the end of the month paying bills, et cetera.
Mr. BuGGE. Let me clarify, it doesn't come to the newspaper, it
comes to the advertiser.
Mr. Young. I am a clothing store.
Mr. BuGGE. You are the clothing store, you are running an ad-
vertisement in your local newspaper, they run the advertisement,
these people then cut the ad, paste it up, or in some instances do
not have a tear sheet, they just send the bill out which is timed
to arrive at your clothing store at about the same time that the
newspaper invoice would get there. It is identified by maybe a tele-
268
phone number or by the first Une in the sentence, you see that or
the accounts payable person or the level of management that is
going to agree with this and sign off on it to pay it, they say you
ran an ad, there it is, cut the check.
Then the newspaper calls and says where is our money, and they
say but we paid you, here is the canceled check. For a few hundred
dollars, most newspapers don't want to incur the wrath of their
good, solid advertisers.
Mr. Young. The fraud occurs on the newspaper because I pay
the bill, I think I pay the bill.
Mr. BUGGE. Yes. Well, it occurs on the newspaper where the
newspaper does not get payment. It certainly occurs on the adver-
tiser and also on the consumer, because they — technically, they
should be paying it twice. They should not have paid this bill. They
should have paid only the legitimate bill.
Mr. Young. Can you identify the company that is doing this?
Mr. BuGGE. Yes. There are 16 different companies that we have
identified so far. I believe that we may have now identified 17th.
And the postal authorities are aggressively pursuing it. They do
have a hearing at the end of October with the principals of this
company and at least one other company.
Mr. Young. What happens when — ^we have a lot of — do the news-
papers have the ability to be suspicious when an ad is placed in
the paper concerning another State? Let's say I am a Chicago
newspaper or New York Times and someone comes in and puts an
ad in, employment in Alaska, $80 an hour, huge benefits, send $25
for the information. That is a fraudulent ad, but they do that.
Mr. BuGGE. Each newspaper has certain guidelines that they do
follow, and based upon their size and their location, they might
pick up on an ad like that very quickly.
However, the New York Times, the Los Angeles Times, and the
Washington Post put out 69,000 classified ads, you know, on any
given Sunday. So the likelihood of getting every single one is not
great.
The newspaper on a local basis, on a smaller newspaper, doesn t
have the staff to review every ad that comes in, and especially if
it comes in and doesn't have certain obvious problems. Some adver-
tisements you see do have obvious problems. They get through, and
we are trying to find ways that would allow newspapers to see
their buzz words, that if you see that, you should at least look fur-
ther.
Mr. Young. Madam Chairman, the reason I bring it up, we had
a case this summer where there was an ad placed in, I think it was
the Los Angeles Times, about high-paying fishing jobs, and send
$35 for the information. Of course, it got up to the State, we found
out about it, and what it was was a list of all the boats that had
been registered with the Coast Guard.
Mr. BUGGE. Right. Unfortunately on its face that is not nec-
essarily illegal.
Mr. Young. Right, but it is fraud, because it was information al-
ready there, and we had a lot of people very upset.
Mr. BuGGE. I take my newspaper hat off and put on my
consumer hat and I will definitely tell you on a personal basis that
if you have to send money to get information, you should be sus-
269
pect. There may be a legitimate reason to do so, but you shouldn't
just see it and say, wow, I think I am going to write a check or
pay by credit card. So I put my newspaper hat back on now.
Mr. Young. OK. I have no other questions.
Miss Collins. Thank you very much. Mr. Armstrong, Alan Arm-
strong, area franchiser for Mail Boxes, Etc.
Mr. Armstrong. Thank you, Madam Chairwoman. First of all, I
have taken, at the suggestion of two representatives, I have taken
certain portions of my testimony out, but I will be prepared to an-
swer any questions on that portion at the end.
Madam Chairwoman and members of the subcommittee, my
name is Alan Armstrong and I am here today as a franchisee of
Mail Boxes, Etc. We are an international franchiser with approxi-
mately 2,000 MBE centers located throughout the United States
and more than 100 MBE centers located in other countries. Mail
Boxes, Etc. is the largest entity in the Commercial Mail Receiving
Agency, CMRA, industry.
Our principal customers are small businesses and individuals
who value service and want assurance that their needs are taken
care of quickly and efficiently. A large volume of our business is
conducted with long-term customers, often a small businessman or
woman, who needs a private mailbox and the additional services
supporting that mailbox which we provide.
MBE considers itself a leader in helping to reduce mail fraud oc-
curring at its centers. All MBE franchises receive extensive train-
ing prior to opening their MBE center. That training includes a
briefing on commercial mail fraud and suggestions on how to recog-
nize and prevent it. Our policy is to cooperate completely with all
efforts by U.S. postal inspectors and any law enforcement agency
in any criminal investigation concerning fraud occurring at an
MBE center.
As with the Postal Service, we have unfortunately found that
there are scam artists who attempt to use the mail and private
mailboxes for fraud. To help prevent this, our franchises have co-
operated with State and local law enforcement agencies and
consumer agencies to combat such fraud.
Another matter that I would like to touch upon concerns pro-
posed legislation: while a CMRA is required by U.S. postal regula-
tions to obtain personal identification information from all
boxholders and disclose that information in a USPS form 1583,
which is then filed with the local post office, it is our experience
that the form oftentimes cannot be located or made available to law
enforcement agencies.
Accordingly, what we would recommend is a requirement in Fed-
eral law that a CMRA shall not provide mailbox receiving service
to any customer until it obtains from that customer at least two
pieces of identification. Thereafter, in addition to filing the form
1583 with the local post office, the CMRA should also be required
to keep a copy of the form 1583 on file at the CMRA. The form
1583 should then be made available for inspection and copying
upon request of any law enforcement agency.
And as before, we would urge that a provision be added to the
law to make clear that the CMRA itself not be made liable for any
illegal use of its mailbox facilities by its customers. Again, just as
270
a Postal Service is not liable for unlawful acts by others, and the
local telephone company is not liable for the misuse of the tele-
phone, the CMRA owner should not be liable for the misdeeds of
its customers.
In addition, we would also recommend that as an aid to law en-
forcement authorities, the USPS be directed to maintain a current
listing of all CMRA's identifying the CMRA's by full name and ad-
dress, and U.S. Postal Service facilities which provide mailbox re-
ceiving services. Such a list would be immediately useful to law en-
forcement agencies in identifying or locating individuals who might
use such mail receiving facilities for unlawful purposes.
We have also recently been contacted by representatives of major
credit-card companies regarding concerns these companies have
with credit-card fraud. This issue involves the use of post office and
private mailbox rentals to defraud the credit-card companies
through issuance of credit-cards under false pretenses. We are
working with the credit card companies to develop an approach to
issue updated information which the companies need to be made
available to them.
There is one area of Postal Service policy which if changed could
assist in combating mail fraud. This involves the forwarding of
mail by the CMRA's such as MBE's franchise owners. When a store
owner becomes a commercial mail receiving agent, that store owner
is required to fill out a USPS form 1583 for each mailbox rented,
which we discussed earlier.
This form authorizes the CMRA to receive mail for the individual
who filled out the form. This process works well and efficiently so
long as that individual maintains the MBE center as his address.
However, when that customer moves or otherwise decides to dis-
continue his use of the CMRA as his address, the Postal Service
will not forward his mail to the new address. Unlike with private
addresses or with post office boxes rented from USPS at post of-
fices, the Postal Service requires that the CMRA do all the mail
forwarding. No change of address form can be filled out by an indi-
vidual or the CMRA on his behalf.
As members of the committee can readily see, this causes a num-
ber of problems. In addition to extra work for the Postal Service
because it must deliver mail twice, first to the CMRA and then to
the new correct address, this has increased the potential use of pri-
vate mailboxes for improper purposes because the Postal Service
does not have an accurate address for an individual who no longer
uses a CMRA.
In our meetings with the credit card companies, they have
stressed the absolute importance of accurate and updated informa-
tion to permit them to police their own efforts to combat credit card
fraud. Our suggestions to them include changing this policy of mail
forwarding so that accurate information and mail delivery can be
assured.
Mail Boxes, Etc., also urges this committee to look at this issue
in any legislation on this matter. The first defense in any effort to
combat mail fraud must be accurate information for the Postal
Service, law enforcement, CMRA's, and Postal Service users.
271
I thank you for your attention and I would be happy to answer
any questions you may have.
[The prepared statement of Mr. Armstrong follows:]
272
Prepared Statement of Alan Armstrong, Area Franchiser, Mail Boxes, Etc.
Testimony of Alan Armstrong
; Committee
Before House Post OfBce and Civil Service Committee r~
October 6, 1993 ' ^
Madame Chairwoman and members of the Subcommittee, my name is Alan
Armstrong, and I am here today as a Franchisee of Mail Boxes Etc. Mail Boxes Etc. is an
international franchisor, with approximately 2,000 MBE Centers located throughout the
United States and more than 100 MBE Centers located in other coimtries. Mail Boxes Etc.
is the largest entity in the Commercial Mail Receiving Agency (or CMRA) industry.
Our industry is based upon service for our customers. We provide a variety of
services, including private mailbox rental, photo copying, mailing, packaging and shipping
and retail sales of office supplies. We are also the largest agent organization for Western
Union and are beginning to serve as sales agents for commercial airline ticketing.
Our principal customers are small businesses and individuals who value service and
want assurance that their needs are taken care of quickly and efficiently. A large volume
of our business is conducted with long term customers, often a small businessman or woman,
who needs a private mailbox and the additional services supporting that mailbox which we
provide.
Virtually all of the Mail Boxes Etc. Centers are individually owned by franchisees,
with the franchisor owning and operating only a single MBE Center in San Diego for R&D
purposes. There are approximately 2,000 MBE centers in states fi-om Alaska to Florida and
Hawaii to Maine. More recently, MBE has also begun to expand internationally with
centers being opened in Europe, South America, and Asia.
Mailboxes Etc. appreciates this invitation to testify before this Committee on S.557
and commercial mail fraud generally. Our testimony will concentrate primarily on general
principals. Our business is not really involved in telemarketing so we don't have much to
say about S.557 specifically. However, as a preliminary matter, I would like to say that
among the services we offer is express courier service through virtually all major companies,
including the U.S. Postal Service, Federal Express, United Parcel Service, and others. We
are therefore quite interested in the portion of the bill which would expand the scope of the
commercial maU fraud statutes to include private courier services.
273
I did not attend the prior hearings, but I assume any testimony which you received
from representatives of those companies stressed the need to assure that the services
themselves not be made liable for any illegal customer use of their service, just as the US
Postal Service is not held responsible for any misuse of its mailing services. Mail Boxes Etc.
would echo such testimony and urges the Committee to insure that any legislation on this
subject provide that separation and assurance.
MBE Efforts to Combat Mail Fraud
MBE considers itself a leader in helping to reduce mail fraud occurring at its centers.
All MBE franchisees receive extensive training prior to opening their MBE Center. That
training includes a briefing on commercial mail fraud and suggestions on how to recognize
and prevent it.. Our poUcy is to completely cooperate with all efforts by U.S. Postal
Inspectors and any law enforcement agency in any criminal investigation concerning fraud
occurring at an MBE Center.
As with the Postal Service, we have unfortunately found that there are scam artists
who attempt to use the mails and private mailboxes for fraud. To help prevent this, our
franchises have cooperated with state and local law enforcement agencies and consumer
agencies to combat such fraud.
One of the issues that has arisen in the CMRA industry is how mailbox customers
address their mail. When the industry started more than a dozen years ago, it was
widespread and common practice for mail box customers to use a "suite no." instead of a
"box no." in their address. The intent of the mail box customer, who was oftentimes a small
business person working out of his home, was to have a more "prestigious address", so that
he could more effectively compete in the marketplace. Unfortunately, there were instances
in which the small business person renting a mail box may not have been operating a
legitimate business, and we did receive a few complaints from state or local governments.
One was from Montgomery County, Maryland and the second was from the State of
Pennsylvania. In resolving the issue with the Attorney General of the State of Pennsylvania,
MBE decided to eliminate the problem to the greatest extent possible, and accordingly,
directed its entire network of franchisees to refrain from using a "suite" address.
Accordingly, MBE Center owners have been advised that the proper designation for the
address of a mail box customer is "box # " or simply "# ".
274
Proposed Ugislatipq
Another matter that I would like to touch upon concerns proposed legislation.
While a CMRA is required by U.S. Postal regulations to obtain personal
identiJScation information from all boxholders and disclose that information in a USPS Form
1583, which is ±en filed with the local post office, it is our experience that the Form
oftentimes cannot be located or made available to law enforcement agencies.
Accordingly, what we would recommend is a requirement in federal law that a
CMRA shall not provide mailbox receiving service to any customer imtil it obtains from that
customer, at least two pieces of identification- Thereafter, in addition to filing the Form
1583 with the local post office, the CMRA should also be required to keep a copy of the
Form 1583 on file at the CMRA. The Form 1583 should then be made available for
inspection and copying upon request of any law enforcement agency. And, as before, we
would urge that a provision be added to the law to make clear that the CMRA itself not be
made liable for any illegal use of its mail box facilities by its customers. Again, just as the
U.S. Postal Service is not liable for unlawful acts by others, and the local telephone
company is not liable for misuse of the telephone, the CMRA owner should not be liable
for the misdeeds of its customers.
In addition, we would also recommend that as an aid to law enforcement authorities,
the USPS be directed to maintain a current listing of all CMRA's (identifying the CMRA's
by full name and address) and U.S. Postal Service facilities which provide mailbox receiving
services. Such a list would be immediately useful to law enforcement agencies in identifying
or locating individuals who might use such mail receiving service facilities for imlawful
purposes.
We have also recently been contacted by representatives of major national credit card
companies regarding concerns these companies have with aedit card fraud. This issue
involves the use of Post Office and private mailbox rentals to defraud the credit card
companies through issuance of credit cards under false pretenses. We are working with the
credit card companies to develop an approach to issue updated information which the
companies need to be made available to them.
Mail Forwarding
There is one area of Postal Service policy which if changed, could assist in
combatting mail fraud. This involves the forwarding of mail by the CMRA's such as MBE's
franchise owners. When a storeowner becomes a Commercial Mail Receiving Agent, that
storeowner is required to fill out a USPS form 1583 for each private mailbox rented. This
form authorizes the CMRA to receive mail for the individual who filled out the form. This
275
process works well and efficiently so long as that individual maintains the MBE center as
his address. However, when that customer moves or otherwise decides to discontinue his
use of the CMRA as his address, the Postal Service will not fonvard his maQ to his new
address. Unlike with private addresses or with post office boxes rented from the USPS at
post offices, the Postal Service requires the CMRA to do all the mail forwarding. No
change of address form can be filled out by an individual or the CMRA on his behalf.
As members of this committee can readily see, this causes a nimiber of problems.
In addition to extra work for the Postal Service because it must deliver mail twice-first to
the CMRA and then to the new correct address-this has increased the potential use of
private mailboxes for improper purposes because the Postal Service does not have an
accurate address for an individual who no longer uses a CMRA In our meetings with the
credit card companies, they have stressed the absolute importance of accurate and updated
information to permit them to police their own efforts to combat credit card fraud. Our
suggestions to them include changing this policy of mail forwarding so that accurate
information and mail delivery can be assured.
Mail Boxes Etc. also urges this committee to look at this issue in any legislation on
this matter. The first defense in any effort to combat mail fraud must be accurate
information for the Postal Service, law enforcement, CMRA's and postal service users.
I thank you for your attention and would be happy to answer any questions you may
have.
276
Miss Collins. Why won't the post office — ^you have been in dia-
logue with them I am sure. Why won't they forward the mail?
Mr. Armstrong. It is in their regulations that commercial
CMRA's have that responsibility. I am not sure of the logic behind
that, but it is in their regulations requiring that.
The practical effect is that it makes it much more difficult in the
process of people changing addresses — I mean they are used to
going to the post office and filling out an address card and leaving
that, and oftentimes they don't recognize the fact that that — noth-
ing happens when they do that. Sometimes the post offices take
those cards and get rid of them; other times they will do — ^they will
send them to us.
I don't understand the logic, Madam Chairwoman. But it is the
way they do business.
Miss Collins. I am looking at your page 2. Tell me how would
a letter addressed to CMRA— does it just say John Doe? Just tell
me how it would be addressed.
Mr. Armstrong. I understand. It would come: John Smith, and
then there are several different ways it could come. It may come
with the next line box 218 or 333 or whatever it might be, or it
may come with the address, the address line, and the address line
is the physical address of our store. In my case it would come with
8640 M Guilford Road, Columbia, MD on it.
Miss Collins. With a box?
Mr. Armstrong. Yes, ma'am. Sometimes the way it will work is
8640 M Gilford Road, number 218, or box 218. All of our customers,
although we give them a specific way to do it, they tend to kind
of do it their own way in most cases.
Miss Collins. There is a post office box or P.O. box?
Mr. Armstrong. No, ma'am. We are not permitted by the Postal
Service to put post office in there.
Miss Collins. I know you are not. But do you get addresses —
do you get letters saying P.O. box?
Mr. Armstrong. Yes, ma'am, sometimes that happens.
Miss Collins. But the post office knows how to deliver it any-
way? Is that because of the zip code?
Mr. Armstrong. Well, it is because of the physical line to the
8640 Gilford Road.
Miss Collins. So they all have the address on them?
Mr. Armstrong. Yes, ma'am.
Miss Collins. Well, we can inquire to the Postal Service why.
You know, we hear their side of the story of why they won't for-
ward it. Do you have a policy with respect to referring mail fraud
cases to the Federal enforcement — law enforcement agencies?
Mr. Armstrong. Yes, ma'am. Beginning with our training in
California, where all new franchises must go, they receive a half-
hour training at that — on initial training in California where they
address all of those issues and give examples of scams that have
been run in the past, and we encourage it. In fact, in most of our
cases, we are small business people, and it is important for us to
keep our credibility in our local communities, and we know— by
and large we know the local police officials and that sort of thing.
We get to know sometimes the postal officials and the Secret Serv-
ice people, and we tend to work very closely with them.
277
Miss Collins. If there is a scam, do you notify all 2,000 of your
franchises?
Mr. Armstrong. It depends on what the nature of the scam is.
Sometimes there are local scams, in which case we wouldn't nec-
essarily notify the entire network, and that has happened upon oc-
casion. There have been several scams that have been particularly
East Coast oriented where they use, try to use mailboxes kinds of
facilities and a private mailbox and we try to keep our people
ahead of what is going on in that area; yes, ma'am.
Miss Collins. Do any of your scams use the money, say Western
Union? You say you have a lot of Western Union
Mr. Armstrong. Yes, ma'am. Most of our stores are Western
Union agents and that opens up really a — there are a significant
number of possible scams in that area. And Western Union has an
excellent network for dealing with it. But the imagination of some
of our customers is just unbelievable in that regard.
Miss Collins. I Imow. The criminal mind is creative.
Mr. Armstrong. Yes, ma'am.
Miss Collins. Well, thank you very much.
Mr. Armstrong. Thank you.
Miss Collins. Next we have Mr. Thomas Caiazza, managing di-
rector for customer service, Federal Express. Welcome.
Mr. Caiazza. Good morning. Thank you. Madam Chairwoman.
The first thing I would like to do is commend everyone in the or-
ganizations represented at this table for taking the united front to
combat the issue. It is nice to know that we are altogether and fo-
cused.
As you said, my name is Tom Caiazza, managing director of cus-
tomer service for Federal Express. We have a reputation for reli-
ability, efficiency, and dependability and it makes us the express
carrier of choice for thousands of telemarketing firms and hundreds
of thousands of other firms. Most are legitimate companies with, as
you know, fine products. We want their business.
Unfortunately, some dishonest operators use telemarketing to de-
fraud customers, as we have heard. Federal Express is concerned
about this, obviously, and has taken a number of steps on behalf
of consumers to address this, and it is a growing problem. Federal
Express has joined the Alliance Against Fraud in Telemarketing,
an agency of the National Consumers League. We meet regularly
with the NCL to discuss ways we can help address this issue. In
addition, Federal Express has just donated 20 computers to the
NCL.
We have established a hotline that assists our customers who are
unsure about sending money to requesters. Federal Express' hot-
line employees inform customers with questions of the telephone
number of the Consumer Affairs Department in their State's attor-
ney general's office, and we offer to transfer customers with ques-
tions to those offices at our expense.
We have adopted processes to discontinue doing business through
an ethics policy with companies that have a documented history of
legal complaints against them.
Whenever a customer has questions about a recipient, we advise
them that Federal Express is not affiliated with any specific recipi-
ent to correct any misrepresentation that may have occurred.
278
We cooperate fully with law enforcement agencies by providing
documentation when appropriately requested. Grovemment and law
enforcement agencies we currently work with include the Federal
Bureau of Investigation, the Federal Trade Commission, various
State attorneys general and the Association of State Attorneys
General.
Federal Express warned consumers about the problem in the
March 1992 issue of Priorities, a monthly mailout to hundreds of
thousands of FedEx customers.
We have participated with other businesses, Government agen-
cies, and consumer groups in conferences which seek to warn con-
sumers about the problem of telemarketing fraud. We advise cus-
tomers that Federad Express does not accept cash.
Federal Express has produced brochures which inform our cus-
tomers of fraudulent telemarketing sales tactics. Starting August 1,
our couriers deliver these brochures to certain customers request-
ing pickups on a nationwide basis. These brochures can also be
found on the counters of our stations and our business service cen-
ters.
Regarding Senate bill 557, we strongly support section 8 of the
bill which is, as you know, broadening application of mail fraud
statute. We believe the application of the mail fraud statute to
commercial interstate carriers will help significantly in the battle
against telemarketing fraud.
We would also urge the creation of a national clearinghouse for
handling these types of calls and some immunity from liability
being provided for entities supplying information for enforcement.
Once again, thank you very much. Madam Chairwoman. I tried
to keep my statement brief and at this point if there are any ques-
tions, I would be happy to answer them.
[The prepared statement of Mr. Caiazza follows:]
Prepared Statement of Tom Caiazza, Customer Services, Federal Express
Madam Chairwoman and Members of the Subcommittee:
My name is Tom Caiazza. I am Managing Director of Customer Service — Eastern
Region for Federal Express. We are very pleased to appear before your subcommit-
tee today to discuss what Federal Express is doing to combat the growing problem
of telecommunications fraud.
Federal Express' reputation for reliability, efficiency, and dependability makes us
the express carrier of choice for thousands of telemarketing firms. Most are legiti-
mate companies with fine products. We want their business.
Unfortunately, some dishonest operators use telemarketing to deft-aud consumers.
Federal Express is concerned about this problem and has taken a number of actions
on behalf of consumers to address this growing problem. To name a few:
Federal express has joined the Alliance Against Fraud in Telemarketing, an agen-
cy of the National Consumers League (NCL); we meet regularly with the NCL to
discuss ways we can help address the problem. In addition, Federal Express has just
donated 20 computers to the NCL.
We have estabUshed a hotline that assists our customers who are unsure about
sending money to requesters; FedEx hotline employees inform customers with ques-
tions of the telephone nimiber of the Consumer Affairs department in their State's
Attorney General's office and we offer to transfer customers with questions to that
office at our expense.
We have adopted processes to discontinue business with companies that have a
documented history of legal complaints against them.
Whenever a customer has questions about a recipient, we advise them that Fed-
eral Express is not affiliated with any specific recipient to correct any misrepresen-
tation that may have occiured.
279
We cooperate fully with law enforcement agencies by providing documentation
when appropriately requested. Government and law enforcement agencies we work
with include the F.B.I. , the Federal Trade Commission, the various State Attorneys
General, and the Association of State Attorneys General.
Federal Express warned customers about the problem in the March 1992 issue
of Priorities, a monthly mailout to hundreds of thousands of FedEx customers.
We have participated with other businesses, government agencies, and consumer
groups in conferences which seek to warn consumers about this growing problem.
We advise customers that Federal Express does not accept cash.
Federal Express has produced the attached brochures, which inform our cus-
tomers of telemarketing fraud sales tactics. Starting August 1, our couriers deliver
these brochures to certain customers requesting pick-ups on a nationwide basis.
These brochures can also be found on the counters of our Stations and Business
Service Centers.
Regarding Senate Bill 557, we strongly support section 8 of the Bill, "Broadening
Application of Mail Fraud Statute." We believe the appHcation of the Mail Fraud
Statute to commercial interstate carriers will help significantly in the battle against
telemarketing fraud.
We also would urge the creation of a national clearinghouse for taking the calls
and the immunity from liability being provided for entities supplying information.
Again, thank you very much Madam Chairwoman for allowing us to come before
yoiu- subcommittee today. At Federal Express, we treat telemarketing fraud as a
very serious problem. We stand ready to help you and your subcommittee fight and
defeat these scam telemarketers.
I would be happy to answer any questions.
280
FEDERAL EXPRESS
CAUTIOUS
BEWARE OF:
& High-pressure sales tactics and demands
that you send money or checks fast
1st Callers who stay on the Une to help you
call Federal Express
8 "Free" gifts that require you to pay
"shipping and handling," "redemption
fees" or "taxes" before delivery
1st Offers that sound too good to be true
Q Callers who refuse to send information
about the product or organization
sa^^.
281
B fc W M H fc g
lililMI
BE A
VICTIM
OF
Do you ever get calls saying you've won a
prize — but first you must send money?
What kind of prize is that? Federal Express
wants you to know we are not a pari of or
affiliated with any organizations offering
prizes, special purchases, loans or invest-
ment opportunities.
If you have any questions or concerns
about a check or money you've been asked
to send via Federal Express, call:
1
If you have already sent your package, we
may still be able to help if you call us
immediately. Have your FedEx airbill handy.
282
CAUTIOUS
Federal Express wants you to know we are not
a part of or afiSIiated with any organizations
offering prizes, special purchases, loans or invest-
ment opportunities.
Dont be a victim of telemarketing fraud.
Beware of:
Q High-pressure sales tactics and demands that
you send money or checks fast
Q Callers who stay on the line to help you call
Federal Express
Q "Free" gifts that require you to pay "shipping
and handling," "redemption fees" or "taxes"
before deUvery
Q Offers that sound too good to be true
& Callers who refuse to send information about
their product or organization
Contact your local Consumer Affairs Office or, if
you have questions about a check or money you've
been asked to send via Federal Express, call
1-800-238-5355.
283
Have you ever heard that you have won a
wonderful prize, only to be told that you
must first send hundreds or even thousands of
dollars for "taxes" or "delivery?" This kind of
offer may be fraudulent.
Many successful and respected businesses use
telephones to sell their products or services.
However, telemarketing also can be used to
defraud consumers.
FEDEX LOSES, TOO
Unscrupulous telemarketers sometimes use
Federal Express® to avoid federal criminal
statutes, quickly get your money before you
change your mind or take advantage of the trust
you place in a FedEx courier.
TAKING STRONG STEPS
Federal Express has acted to combat tele-
marketing fraud.
@ We are a member of the Alliance Against
Fraud in Telemarketing
& We staff a separate telephone line
(1-800-238-5355) to assist customers with
questions about requests to send checks or
money via Federal Express
@ We discontinue business with companies
that have a verified history of complaints
against them
Q We provide law enforcement agencies
requested documentation
284
Miss Collins. Thank you very much. Do you have a stringent
criteria, or is it easy to set up c.o.d. accounts, for merchants to set
up c.o.d. accounts?
Mr. Caiazza. It is fairly easy to arrange any type of account with
Federal Express. But as a matter of fact, that does not inhibit us
from identifying these fraudulent operators. It actually enhances
our ability, because an account number is an identifier. It gives us
the ability to more easily identify people who are defrauding the
public.
Miss Collins. Under what circumstances will Federal Express
terminate a merchant's account for suspected fraudulent activities?
Mr. Caiazza. I am not exactly sure. Madam Chairwoman. In the
case of our local customer representatives in no case can they be
empowered currently to discontinue using — or discontinue someone
using Federal Express. We do have a credit hotline that identifies
those customers who have been repeat offenders in violation of our
third-party pickup, which is an option that is most often used by
companies engaging in telemarketing fraud. And those people in
the credit hotline, plus anyone above the level of vice president can
choose to discontinue doing business with an account, but only
those people.
Miss Collins. These are good brochures.
Mr. Caiazza. Thank you.
Miss Collins. They are very good. Thank you very much.
I don't have many questions because you answered them all in
your testimony.
Next we have Mr. Richard Barton, vice president, Direct Market-
ing Association, Inc. Welcome, Mr. Barton.
Mr. Barton. Madam Chair, I was going to say Mr. Young, but
in absentia, Mr. Young, it is a real pleasure to be here today to dis-
cuss with you the activities which the Direct Marketing Association
and direct marketers in genersd are engaged in very actively in try-
ing to combat fraud, both in the mail and by telephone, and to also
combat what we consider unethical activities in the business, which
may not go over into the area of fraud, but which are disturbing
to us nonetheless. I too, as Tom said, want to thank you for making
us a part of a distinguished panel which does show to you that I
think various aspects of business are very aggressively trying to
combat fraud, because it hurts us all.
The Direct Marketing Association is an association of about 3,000
companies in the United States. We have about 700 abroad also,
who are involved in all types of direct marketing and all aspects
of it, from catalogs to telephone marketing operations to list bro-
kers to service bureaus, people who put together the mail and mail
it to printers, and one thing they all have in common is that they
participate in this direct marketing discipline which goes straight
to the consumer to sell goods and services and to raise money.
We think that it is very important to us that we work hard to
get rid of fraud, and also unethical activities, because the nature
of our business is that it is sort of an arm's-length transaction. You
don't have a clerk that you can go in and get mad at and you don't
have a physical store there that you can go in and bang down the
doors when they do something bad.
285
Also, when you find you are defi-auded in some way or another,
in a retail context, people don't stop going to stores, but if you are
defrauded over the phone or through the mail, your tendency is to
never do that again, so it is very important to us, and for the whole
76 years of the existence of this association we have been actively
involved in this.
I don't think I need to emphasize any more than to say it, what
you already know, is that telemarketing activities and mail order
activities are an extremely important part of our economy. Gen-
erally hundreds of billions of dollars of sales. And we think this is
an important point to make.
I think we might be a little bit unusual in the trade association
business in that we have not one, but two ethics committees. Our
committee on ethics policy is actually in charge of putting together
ethical policies for the business of direct marketing.
And the staff has several pamphlets: Our bible which is the
guidelines or ethical business practices, our guidelines for mailing
list practices, our guidelines for marketing by telephone, our guide-
lines for personal information protection, and we also, in connection
with the newspaper testimony, put out guidelines for acceptance of
advertising, so that you can spot fraudulent advertising or ques-
tionable advertising both in print, and in broadcast advertising.
And in connection with this the Direct Marketing Association also
has, in conjunction with the Postal Inspection Service, printed I
think a very interesting pamphlet called Misleading Advertise-
ments and What You Can Look For, both as somebody accepting
advertising and as somebody reading advertising, the questions
that you should ask before you respond to an advertisement that
is fraud.
We work very closely on almost a day-to-day basis with the
major agencies that deal with fraud: The Federal Trade Commis-
sion— they have been mentioned here — the National Association of
Consumer Affairs, Consumer Agency Administrators, the Justice
Department, the National Association of Attorneys General. We,
too, are a Postal Inspection Service, of course, too. We, too, are a
founding member of the Alliance Against Fraud in Telemarketing
and very actively support all of those programs.
On top of that in mail fraud and telephone fraud, we also pub-
lish, and I didn't bring them all here with me, many consumer edu-
cation booklets on how to shop by mail and how to shop by tele-
phone and how to spot scams that you can avoid.
We have consistently supported — we have consistently supported
the idea of self-regulation. In our second ethics committee, by the
way, the Committee on Ethical Business Practices, which takes
those guidelines you see there and attempts, to the extent that you
can under antitrust laws, to enforce those codes, in essence.
We have a large committee which hears complaints against mail
orderers and telemarketers and if they feel that they have been en-
gaging in unethical activity, we will go after that company in the
sense of using peer pressure to contact the CEOs and talk to them
about how they can correct their activities. When we come across,
as we often do, fraudulent activities, we turn all of our material
over to the appropriate law enforcement agencies and work with
286
those law enforcement agencies in order to try to eliminate the
fraud.
We like self-regulation to the extent that we can do it, but we
recognize that particularly in this business, and this is sort of di-
rected somewhat to Mr. Young, that some regulations and laws are
necessary, and we feel particularly in the area of growing
telemarketing fraud, which is a difficult thing to get your hands
around, that in fact some of the new laws and regulations are good.
It has been pointed out that we have a telemarketing fraud bill
which has passed both the House and the Senate which we support
and we are anxiously awaiting its passage, and we also support the
basic thrust of S. 557 which you asked us about, the scams bill.
I would particularly point out that this is a step forward from
our viewpoint, at least as far as senior citizens are concerned by
interjecting criminal penalties over a system which is essentially
civil penalties.
We also support extending the scope of the mail fraud statutes
to cover fraud involving sending or delivering something by private
or commercial interstate carriers, along here with Federal Express
I presume. Mailbox Associates, and United Parcel. We think it just
adds another tool in the quiver, I guess you could say, arrow in the
quiver of the Postal Inspection Service and other law enforcement
officials to combat fraud.
So again I would just say it is a real pleasure to be here. We look
forward to working with this subcommittee and other members of
Congress in tightening up fraud laws and working with Federal
agencies and State agencies to combat fraud in mail order and
telemarketing.
Thank you.
[The prepared statement of Mr. Barton follows:]
287
Prepared Statement of Richard A. Barton, Vice President, Direct Marketing
Association, Inc.
Madame Chairman and Members of the Subcommittee:
My name is Richard A. Barton, and I am Senior Vice President
for Government Affairs for the Direct Marketing Association. I am
delighted to accept your kind invitation to appear here today to
discuss the DMA's efforts to combat mail fraud and telemarketing
fraud, and to present the DMA's views on S.557, the Senate-passed
"Senior Citizens Against Marketing Scams Act."
THE DMA AND TELEMARKETING
The Direct Marketing Association ("DMA"), with offices in New
York City and Washington, D.C, is a national trade association
representing over 3,000 companies and organizations that market
products and services through the mail, electronic and print media,
and through telemarketing.
The DMA embraces a broad range of companies and organizations
that share an interest in any legislation which is designed to
combat telemarketing fraud and related mail fraud practices. Some
DMA members, such as L.L. Bean, engage in "in-bound" telemarketing,
as an order-taking service for customer convenience, in conjunction
with their mailing of merchandise catalogues. Others, such as Olan
Mills, focus on "out-bound" telemarketing as their primary means
to promote and sell their products and services. Still other DMA
members, such as DialAmerica Marketing, are service bureaus which
advertise and sell the products and services of other companies
through telemarketing.
These DMA members — and the many charitable, religious,
educational, and political organizations that are DMA members who
widely make use of telemarketing for fund-raising and membership
campaigns ~ demonstrate day after day how important telemarketing
has become to businesses, consumers and the economy.
THE VALUE OF TELEMARKETING TO BUSINESSES, CONSUMERS AND THE ECONOMY
Companies in nearly every sphere of the business world use
telemarketing to advertise and sell their goods and services. As
evidenced by the "Congressional Findings" in the Telephone Consumer
Protection Act of 1991, there are tens of thousands of businesses
that currently employ millions of individuals and generate billions
of dollars in annual sales through telemarketing.
While telemarketing is clearly a successful, cost-effective
method for DMA members to advertise and sell goods and services,
the benefits of telemarketing for consumers and the economy must
not be overlooked. Many of the millions of American consumers who
shop by phone do so merely as a matter of convenience; for others,
however, such as the millions of individuals who have disabilities
^ Section 2 of the TCPA, P. L. 102-243, which was enacted in
December 1991, includes Congressional Findings that over 30,000
businesses actively telemarket goods and services, more than
300,000 "solicitors" call more than 18,000,000 Americans every day,
and "total U.S. sales generated through telemarketing amounted to
$435,000,000,000 in 1990, a more than four-fold increase since
1984." The DMA has no way to ascertain the accuracy of the figures
in these findings, but we note that their reference to "goods and
services" and "sales" probably means that they do not account for
the fund-raising, membership, and other telemarketing activities
of the educational, charitable, political and other tax-exempt,
nonprofit organizations that are largely exempted from the TCPA.
289
or responsibilities that prevent them from easily traveling to the
merchants and stores that may sell the goods and services of their
choice, the ability to learn eibout the availability of such goods
and services, and to purchase them and arrange for their delivery,
all over the telephone is a necessity without which the quality of
their lives would be significantly diminished.
At the same time, telemarketing is clearly a growth industry
which continues to generate a uniquely flexible range of employment
opportunities for millions of individuals who might otherwise be
unable to find suitEible employment. The offer of full- or part-time
employment, at different times of the day or week, and at different
levels of training and productivity, explains why telemarketing is
viewed as an attractive and accommodating field of employment for
students, single parents, senior citizens, and other individuals
who cannot or do not want to undertake jobs with more conventional
schedules. With proper training and equipment, telemarketing offers
jobs to individuals whose physical disabilities prevent them from
pursuing work requiring physical mobility and labor. It also offers
jobs to individuals whose employment opportunities may otherwise
be limited by a lack of higher education or more technical career
skills. Finally, it offers experienced workers portability in a
type of employment that can be found and resumed after relocation
to virtually anyplace in the United States.
By affording such specialized marketplace access and
employment opportunities where neither might otherwise be found.
telemarketing has helped to bolster the health of the U.S. economy
through its contributions to personal and corporate income, tax
revenues, product and service development, and consumer demand. It
is indisputable that the benefits of doing business by phone extend
to the consumer and the economy, as well as to the businesses and
other organizations involved.
THE DMA WORKS ACTIVELY TO COMBAT TELEMARKETING FRAUD
The public's confidence in the legitimacy and reliability of
telemarketers is essential to the continued success and growth of
this form of marketing. Obviously, legitimate telemarketers have
a strong incentive to support reasonable government regulatory and
law enforcement efforts to combat telemarketing abuses, as well as
to mount their own initiatives to maintain the integrity of common
telemarketing practices.
As part of its overall approach to responsible self -regulation
and regard for customer service needs, the DMA has been actively
working with the Federal Trade Commission ("FTC") , the National
Association of Attorneys General ("NAAG"), the U.S. Office of
Consumer Affairs, the Department of Justice, the Council of Better
Business Bureaus, the National Consumers League ("NCL") and other
interested parties to develop consumer education and other programs
to rid the industry of fraudulent telemarketers.
For example, the DMA has been an active participant in the
FTC's Telemarketing Fraud Database Program since its inception in
1987.
291
The DMA was also a founding member of the NCL-coordinated
"Alliance Against Fraud in Telemarketing" ("AAFT") . The DMA is
currently on AAFT's Steering Committee and has helped to produce
AAFT's "Consumer Protection Handbook," which is used by consumer
and regulatory agencies nationwide.
The DMA recognizes that the best weapon against any fraudulent
telephone activity is an informed and vigilant consumer public. To
this end, the DMA has committed extensive association resources to
educating consumers on how to protect themselves in their telephone
transactions. For example, the DMA frequently distributes "Action
Line Reports" on telemarketing fraud to consumer media across the
country. The DMA has also produced helpful consumer pamphlets, such
as its "Tips on Telephone Shopping," which was one of the first
consumer education booklets to specifically address shopping by
telephone. In 1990, as part of the DMA's activities for National
Consumers Week, the "Tips" booklet was revised to include material
about pay-per-call, or 900-number, telephone services, and was
published in six languages; more recently, the booklet was revised
again to provide updates on new developments in telephone fraud.
The DMA's Committee on Ethical Business Practice was
established to examine and investigate offerings throughout the
direct marketing field in an effort to improve business practices
and promote consumer protection. Complaints are referred to the
Committee by consumers, "Action Line" reporters, and industry
292
members. Companies that are found to be in violation of the DMA's
"Guidelines for Ethical Practice" are contacted by the Committee
and given an opportunity to correct the practice in questionl. In
cases involving possible law violations and a lack of company
cooperation, the complaint files are turned over to the FTC, the
office of the Attorney General in the marketer's home state, the
U.S. Postal Inspection Service, or some other law enforcement
agency, as appropriate. Recently, the Committee dealt successfully
with several complaints against pay-per-call service providers.
In order to more broadly advance ethical practices in the
direct marketing arena, the DMA established its Ethics Policy
Committee, which is responsible for reviewing and revising the DMA
Guidelines, as necessary, and for developing the DMA's Dialogue
Series. The Dialogues are regional meetings held twice a year
between direct marketing professionals and consumer affairs
regulatory officials across the country. They provide exceptional
opportunities for participants to discuss issues of mutual concern,
and to work together to provide effective consumer and industry
educational materials. As a result of the Dialogue program, the DMA
and the U.S. Postal Inspection Service are now completing work on
a booklet to educate consumers about sweepstakes, contests and
prize promotions, which we hope to jointly publish during National
Consumers Week later this month.
THE aSA ALSO WORKS ACTIVELY TO COMBAT MAIL FRAUD
Because so many DMA members engage in direct marketing by
mail, the DMA is equally active in helping marketers, consumers and
regulatory officials combat mail fraud, including use of the mails
to execute fraudulent telemarketing schemes.
"Make Knowledge Your Partner in Mail Order Shopping," one of
several DMA consumer education publications on this subject, was
written in cooperation with the Federal Trade Commission to provide
consumers with tips on how they can keep alert for fraud and avoid
other potential problems when purchasing goods through the mail.
For a number of years, DMA publications have urged telephone
marketers to abide by the FTC's "Mail Order Merchandise (30-Day)
Rule" when shipping prepaid merchandise. In testimony before the
FTC last November, the DMA once again expressed its general support
for rulemaking proposing to apply this rule to shipments of prepaid
merchandise ordered by telephone. As you may know, the amendments
to the rule, making it applicable to both mail and telephone order
merchandise, will become effective on March 1, 1994.
The DMA's Mail Order Action Line, which was instituted more
than twenty years ago to act as an intermediary between consumers
and direct mail marketers regarding consumer complaints, is also
used to help consumers with telephone marketing problems, and the
DMA has revised its "Mailing List Practices Guidelines" to include
advertising acceptance standards covering telemarketing offers.
294
THE DMA SUPPORTS S.557
Although justifiably proud that its leadership in developing
effective programs for self-regulation has minimized the need for
government regulation to protect consumer interests in the direct
marketing arena, the DMA agrees that providing constimer protection
and redress against marketing fraud requires the active involvement
of Federal and State government officials and the exercise of their
criminal and civil law enforcement authorities.
Over the past two years, the DMA has worked closely with the
House and Senate Commerce Committees to craft federal legislation
that will provide additional weapons to support Federal and State
civil law enforcement efforts against telemarketing fraud. These
cooperative efforts have sharpened the focus of the pending bills
(H,R.868 and S.568) and removed a nvimber of industry concerns
regarding the legislation's potential adverse impact on legitimate
telephone marketing practices.
Today, the DMA is pleased to voice its support for legislation
which recognizes that telemarketing fraud is intentional criminal
conduct and should be treated as such. As passed by the Senate in
July, S.557 would make interstate telemarketing fraud a federal
crime; provide enhanced criminal penalties for telemarketing fraud
aimed at senior citizens; apply criminal forfeiture and restitution
requirements to telemarketing fraud offenses; authorize rewards for
persons who provide the Government with information leading to
telemarketing fraud convictions; extend the credit card fraud laws
to cover "factoring" and unauthorized solicitation for the purchase
of credit cards; and, establish a national toll-free "hot-line" by
295
10
the Attorney General for inquiries about telemarketers.
In addition, the SCAMS bill would broaden the scope of the
federal mail fraud statute (18 U.S.C. 1341) to cover fraud which
involves an effort to send or deliver something by any private or
commercial interstate carrier. The DMA, which includes Federal
Express and the other major private carriers among its most active
members, applauds this proposal in recognition of the increasing
volume of interstate deliveries that are now handled by entities
other than the U.S. Postal Service. The DMA has worked closely with
its carrier members and the U.S. Postal Inspection Service to help
consumers understand the relationship that sometimes exists between
telemarketing fraud and advertisements or orders for purchase which
are delivered by mail or private express carrier. Telemarketers who
fraudulently prey upon consumers should not escape the consequences
of their criminal actions merely because they use private carrier,
rather than U.S. Postal Service, delivery to help perpetrate their
offense.
CONCLUSION
The DMA will be happy to work with the Subcommittee to further
the common interests of direct marketers and consumers in fighting
the unscrupulous few who exploit the convenience and efficiency of
telemarketing to commit acts of fraud. Although the Subcommittee's
jurisdiction may be limited to those portions of S.557 which deal
with the mail fraud statute and related offenses, we believe that
those provisions are extremely important and deserve our support.
296
Miss Collins. Thank you, Mr. Barton. Your association deals
with most of the catalogs? Are most of the catalogs members of
your association?
Mr. Barton. Yes, I would say so. I mean certainly 90 percent of
the catalog business goes to members of our association in one way
or another. There are a lot of little ones out there, I am not sure
that they are all members. But yes.
Miss Collins. Most of the big ones. Do you know what I think
constitutes a type of mail fraud from legitimate companies is that
many times they leave something out of the order. And when you —
very few consumers will write the company back.
They don't have really a mechanism whereby you could call and
get satisfaction, because the 1-800 number is for taking orders, not
for taking complaints. And if you have a $100 order, there is a $10
item not included in the order, it is very difficult to get redress,
when you think that it is in the billions of dollars, hundreds of bil-
lions of dollars of catalog ordering, you wonder if perhaps some
companies are making a lot of money.
Mr. Barton. Well, I hope not.
Miss Collins. And I don't know if that would be considered a
scam or something that DMA would tell a company, we are getting
complaints. Well, a consumer wouldn't know to complain to you.
Mr. Barton. We do have what we call mail order action line in
which we get several thousand calls a year on complaints. It is
publicized essentially through local consumer affairs officials. We
don't set ourselves up as a better business bureau, but we will take
complaints and we do try to advertise it. Though, as you say, I
don't think it is really broadly known, and we want to push it.
Interestingly enough, 90 percent of the complaints are precisely
what you say they are, they are slow delivery, nondelivery, the
leaving out of items. There are laws and regulations preventing
that, and if you have — if you can — we can find in DMA, and of
course law enforcement officials can find that there is a regular
pattern, a consistent pattern of a company leaving out items and
being very slow or not providing them later on, then there is re-
dress through the Federal Trade Commission.
In fact, the Federal Trade Commission has had a couple of ac-
tions against companies not so much for not sending the material,
but when they cannot provide it, because they have run out of
stock or whatever it is. The refunds don't — sometimes they do not
provide what you would call a full refund.
In other words, they have postage and handling. So I recognize
the fact that that is a problem, I hope it is not a very big problem.
I think in most cases when that happens a company has legiti-
mately run out of stock and will do their best to supply it to you —
will supply it to you later. If they cannot do that, they are supposed
to conspicuously, after a certain period of time, offer you a refund.
If they don't do that, we would encourage people to call the Direct
Marketing Association. Of course, then there are complaints to the
Federal Trade Commission or their local State AG's office. It
shouldn't happen.
Miss Collins. Well, you know, I hate personalizing things too
much.
Mr. Barton. Gk) ahead. We will help you out.
297
Miss Collins. One particular company that I just love to do
business with, I have done business with them three times and
each time it is such a small item, you know, that is not included;
and the invoices or the packing slips are very difficult to under-
stand whether something on back order or whether it has been
sent or whether it is going to be sent later.
In the meantime, your credit card bill comes in with the full
amount, and I think as a public official I am going to send a strong
letter to my favorite company.
Mr. Barton. I think you should.
Miss Collins. And let them know. I am just wondering if that
is something that happens — ^for myself, maybe it is just $10. But
if you multiply that by the hundreds of thousands of people who
order through that catalog, you are talking about millions of dol-
lars.
Mr. Barton. If the company ultimately does not refund your
money in a case like that, then they are breaking the law; and I
would like to hear about it, and I am sure the FTC would like to
hear about it.
Just very briefly, we have a regulation which is now getting
ready to apply to telephone orders to the Federal Trade Commis-
sion. We call them the mail order rule, which says that if you don't
tell a customer when to expect to receive something, then it must
be shipped within 30 days. If it can't be shipped within 30 days or
within the specified time, say 6 weeks or, you know, sometimes
they will say we can't get this to you for 6 weeks for one reason
or another, then they are supposed to send you a very clear and
conspicuous notice sa3dng they can't provide it and giving you an
opportunity for a refund.
And usually you say, well, I will wait and get it. If the second
time around they still can't provide it for one reason or another,
they are supposed to give you a refund, period, unless you specifi-
cally say, I don't want one.
So there are rules and regulations on that. And if you find a com-
pany that is consistently violating them, then I think I would like
to loiow.
Miss Collins. I get the impression that some of those
telemarketing companies are like sweat shops, that
Mr. Barton. None of them are our members, Miss Collins.
Miss Collins. Maybe they are not. But you can hear a lot of
voices in the background, and you wonder if they are taking orders
for a lot of different catalogs or a lot of different companies.
Mr. Barton. In some cases they are. They have — ^they are not
necessarily sweat shops. I mean there are quote sweat shops.
Miss Collins. I just used that term thinking of a large room full
of people, you know.
Mr. Barton. It is. It typically would be, say, a room this size,
not with these high ceilings, but this size in which you have cubi-
cles, usually fairly comfortable cubicles, maybe a hundred or so.
They are somewhat soundproof. But you can hear them, each with
a separate line. The calls are controlled, incoming calls or outgoing.
But in this case, you are talking about incoming calls controlled
by a big computer, and they are taking orders. And in some cases,
in a telephone service bureau, when they work for more than one
298
ilillillili
3 9999 05982 748 3
organization, they will be taking orders for more than one catalog
or more than one advertisement.
Miss Collins. Have you ever seen those telephone service bu-
reaus, maybe some of them unethical, that maybe they get your
credit card number, Mr. Brosan, and instead of using it just for the
order that the consumer has called in, they use it for other orders
or pass that number on to other companies where the consumer be-
comes inundated with offers, and maybe becomes confused, not
knowing which one was the company they did business with?
Mr. Barton. The simple answer to that is, yes.
It is not a legitimate way of doing business in passing credit card
numbers back and forth and charging for unordered merchandise.
It certainly is not legitimate. That is fraudulent.
We have just — in recognition of some of the problems of this, our
board of directors has offered a fairly strong ethical guideline that,
except for very legitimate business purposes, that it is considered
an unethical practice to exchange a credit card number with an-
other company.
Miss Collins. How about
Mr. Barton. Or with another crook.
Miss Collins. How about exchanging that consumer's telephone
number and address?
Mr. Barton. Yes. But our — ^yes, that is done.
And in fact, it is a regular very extensive business in the rental
of lists of customers to other people so you can solicit them.
Our guidelines are strong, and we have a whole new program
now in the Direct Marketing Association to enhance and strength-
en the enforcement of these guidelines.
If you do that, we believe that the companies have an obligation
to tell you in some way or other that they are going to do that and
to give you an opportunity to say, no, I don't want my telephone
number or I don't want my address passed.
American Express, for example, is very well-known for this. Peri-
odically, in your bills you will get a separate thing saying that
American Express will rent your names to other marketers for
products we think you will like; but if you don't want us to do this,
then please check off this box and mail it back.
We also — if you look in most of your catalogs — they should be in
all of them — ^but if you look in most of your catalogs, they will have
a provision there on the order form or near the order form saying
that if they rent their list of customers to others and they are giv-
ing you an opportunity to get off the list, we very strongly believe
that that should be the case.
The Direct Marketing Association also, 25 years ago, founded
what we call the Preference Service, which is a national service in
which if you write in to us here in Washington, we will put your
name on a list, ironically enough, and distribute it to the major —
most all of the major national mail advertisers.
And we can, if you don't order anything else through the mail for
a while, get your name off of most national advertising lists. We
have about 3 million names on that list that are current names
that we continue to use.
299 r
So there are some mechanisms. To the extent that it is not being
done, it should be done. And we think that you ought to have an
opportunity to get off of these Hsts very easily.
Miss Collins. I agree.
Well, I want to thank you all very much. I think it is Mr. Biigge
who was talking about the invoices?
Mr. BUGGE. Yes.
Miss Collins. Even the Congress has been victims of bogus
Mr. BuGGE. With the yellow pages?
Miss Collins. How did you know? I wasn't going to mention any
names. You know, I am trying very carefully not to mention names.
Mr. BuGGE. Yellow pages is generic.
Miss Collins. Is that generic?
Mr. BuGGE. The fingers do the walking sign is not a trademark,
so anyone can use it; and that is one of the problems with that type
of invoice scam.
Miss Collins. Yes. My office received two invoices, one in June
and one in August. The June invoice was from Philadelphia. The
August invoice was from New York. And I could not understand
why my office would advertise in the yellow pages.
But yellow pages is not AT&T or the telephone company?
Mr. BuGGE. No. Yellow pages and the fingers do the walking in-
signia are not trademarked items, so anybody can call themselves
yellow pages. It is Yellow Pages of Virginia, it is U.S. Yellow Pages,
it is American Yellow Pages, not necessarily C&P Yellow Pages or
AT&T. There are many, many yellow pages which are legitimate.
But it is easy just to put the logo up there, put yellow pages, and
then wherever you want the money to go to deposit the check and
do that.
Some say it is a solicitation. Some actually just bill you and say
here, pay this amount.
Miss Collins. So out of 535 members of Congress, you know, I
wonder how many paid the $138 invoice?
Mr. BuGGE. Well, if you haven't got a copy of at least one of the
companies when they send out their product, it is a small book of
yellow pages and the tops of the pages aren't even cut. So you have
to rip it apart, and your name will be listed there, because they lift
it off a legitimate yellow page ad prior to sending it to you.
Miss Collins. I see.
Mr. BiJGGE. As a matter of fact, it is one of those hearings which
was held with the postal authorities over a year ago where there
still is something which is not signed by the judicial officer. It may
not be for many reasons. But it is a year plus. So they have had
a whole year to go back and do it again.
Miss Collins. Isn't that chutzpah? I mean that is nerve to send
a fraudulent invoice to the U.S. Congress. A crook has no
Mr. BuGGE. No scruples.
Miss Collins. No scruples whatsoever. They are very brave peo-
ple. And I think we ought to ask the FBI what they have done
about that.
It is just amazing what chance does an ordinary citizen or
consumer have against those crooks? It is — ^we have had three —
this is the third hearing. We had the FBI. The FBI is very much
involved in working with the consumers in working with your asso-
300
ciations. But it is almost like stopping a trickle when there is an
ocean of crooks out there.
Mr. BuGGE. Once it works, then there is just proliferation. Some-
body who worked for the company that had the brainstorm and
made a very popular spinoff on their own.
This is what we fear is happening with the type of invoice we
brought to you earlier. We know of two basic companies, each with
multiple titles; and just within the last month we heard of another
one that had started up, we don't know if there is a relationship.
And just within the last day or so, I heard of still another one with
a new address. And it may be the same people, or it may be some-
one who worked for them, said this is a great idea, I am going to
do it by myself.
Mr. Armstrong. Madam Chairwoman, I might mention, that
small business people which I am, we are inundated with that sort
of thing. I mean it is not a daily occurrence, but I bet within a
course of a week, it is not unusual to get one or two of that sort
of thing.
When you are getting a lot of bills in a small business, you are
not vigilant; you can miss that and end up spending a lot of money.
It is becoming a big problem, I think.
Mr. BuGGE. My wife works with a children's center in Virginia,
and just yesterday, as I was getting into the car leaving, she ran
out and said, here, look at this; do something. And it was a yellow
page bill that they received, not from any yellow pages they ever
dealt with.
Miss Collins. I think I will direct staff to check with the agen-
cies to see what has been done about the yellow pages, if nothing
else, at least the yellow pages. I know House Administration asked
us not to pay those bills and to turn them in, and there were some
law enforcement agency investigating. Let's find out what they
have gotten.
Mr. BiJGGE. I know the postal authorities also have done inves-
tigations at least on one major company with many, many different
titles.
And I am sure that they also have investigated other companies.
But there are many of them, and they are not associated with le-
gitimate, generic yellow pages through the telephone companies, et
cetera.
Miss Collins. Well, gentlemen, I thank you very much for com-
ing. You have added a great deal to this series of hearings. All of
your testimonies will go into the record and will be disseminated
to all of the committee members. Thank you very much.
This hearing is adjourned.
[Whereupon, at 11:40 a.m., the subcommittee was adjourned.!
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