Schemes, Scams, Frauds.
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Fraudulent Sweepstakes TechniquesOne in Five Prizes"You're going to get one of these top five prizes, guaranteed!" "These are the big awards that we don't even like to give out, we just simply have to do it." In a one-in-five scheme, the telemarketer tells you that you have been chosen for one of five "valuable" prizes; however, you are first pressured into buying a promotional product at an inflated price. You are told that the "small amount of money" you are required to send in will pale in comparison to the value of the prize you will win. In reality, however, the promotional product along with the prize actually awarded, typically a relatively cheap "gimmie gift", are worth, at most, about 30% of the remitted payment. What's to Lose? Deceptive prize promotion schemes often result in losses per consumer of anywhere from a few hundred dollars to thousands of dollars and, in some cases, people have lost their entire life savings to such scams. One witness at a Senate hearing testified that she lost over $74,000 to fraudulent telemarketers over a one year period. One 80-year-old woman sent in her entire month's income only because the salesman had assured her she had won a large cash award. In one case, victims were told that for a one-time fee, they were guaranteed one of the major prizes, a bonus watch, and a three-year membership in a credit card protection plan. The offer was accepted by 18,527 people, all of whom provided their bank account and credit card numbers. Using this information, the company received $1,158,228 from successful debits. Out of this, the operation spent a total of $34,523 on credit card protection service for some of the victims, obtained through a legitimate business, which for a $10 fee per person, recorded the victim's credit card numbers and notified the appropriate companies if the cards were lost or stolen, along with an additional $7,750 spent on "bonus" watches. Some Purchases Required In a flurry of dizzying double-talk they say all of the prizes are large and valuable, but in order to receive your prize they may insist you pay a processing fee for handling, customs duties or taxes, and you must send a check or money order to them by overnight mail. They may want to leave you with something you perceive as commercially tangible, after they have taken your money, so in order to claim your valuable "mystery prize", "one-in-five prize" or "award" you are told that you will first have to purchase something. They will sound quite reasonable when they express that: "Of course great contests wouldn't be possible, and the company couldn't very well stay in business long, without some sales along the way". "You need to buy something to comply with the sweepstakes rules." "It's only fair to get something after winning such a great prize. Don't you think?" "You'll get a wonderful free bonus if you buy our product." Depending on the operations choice it may vary, but will likely include some of the following:
The impressive-sounding brand names defy after-the-fact comparison shopping, they are so obscure. All of the items are provided to you at what turn out to be grossly-inflated prices. One telemarketer conceded that he sold pen sets, vitamins, and makeup for $299 to $999 when their cost ranged from $10-200. Magazines for Life You may be told you will win an additional watch or a camera and will also be entered into an "all cash sweepstakes" with a grand prize of $50,000 and an early bird prize of $5,000, but only if you purchase or renew a magazine subscription. Callers may offer "free," "prepaid," or "special" deals on magazine subscriptions. The total cost is never mentioned, merely that you will get the magazines for "just pennies per week", But you end up paying hundreds of dollars for subscriptions that normally sell for much less. Some consumers who ordered or renewed multiple subscriptions for more than one year, spent several hundred dollars on a single transaction. "We've extended this amazing offer just one more day, and we have to receive your money by midnight tonight. But don't worry, you can meet the deadline. Just give me your bank account number and I can process your order for the four magazines you want to start receiving, right away." Some sweepstakes firms may even tell you to write "magazines" or "magazine package" on the memo lines of your check or money order so as to hide the fact you have had to pay to enter a sweepstakes. They may also tell you to call back to confirm that you have sent your payment. Once you call to confirm that you have sent the required amount, they ask for the air bill number for the package containing it. This is both to ensure that you've sent your money and also provides an opportunity to divert it to a mail drop location. You may then receive a magazine order form from them that requests you select a number of magazines from a preprinted list. In the end however, you may not even receive the selected magazines. Multinet Marketing mailed out prize certificates to consumers telling them they had won two of five prizes, such as automobiles, vacations, or diamond bracelets, as well as, food coupons, travel awards and other prizes allegedly totaling more than $1,200 in value. The solicitations stated that to obtain these prizes, you needed to purchase magazine subscriptions from American Readers Service, costing you $598. The mail-out asked you to respond by calling a 1-800 number. When you called in, they tried to obtain authorization to bill your credit card for the magazine subscriptions and prizes. "We need your financial information so we can verify eligibility and "deposit your winnings" directly to your account." For a better idea of subscription rates do a search. The Odds Are Great The five guaranteed awards may consist of one of these groupings depending on your level of advancement in the contest, which, through repeated calls, can go on for months or years:
In this first grouping of "guaranteed" prizes no one will win the Ford Explorer or the satellite dish. Everyone receives one of the same three awards: the diamond & sapphire pendant, the airfare for two to Hawaii, or the cellular telephone. However, so many terms and conditions apply to the airfare to Hawaii and to the cellular phone, that they have essentially no value, and the diamond & sapphire pendant is comprised of a low value commercial grade diamond and a microscopic size sapphire. In the second grouping you are assured of winning one of:
The vacation for two is a certificate for inexpensive small town lodging and it includes so many restrictions and hidden charges that it's worthless. The grandfather clock is made of cardboard and plastic. The "sport fishing boat" turns out to be an inflatable raft. The diamond in the ring is the size of a pinhead and the food processor is actually a hand-operated food chopper last sold in the sixties. The third offering is for:
The "exotic vacation" is for a 3 day midweek, off-season trip at the cheapest accommodation possible. The "genuine" fur coat is a dyed rabbit pelt worth about $30. The "all-terrain vehicle" arrives as a lawn chair with wheels and the 21' luxury boat turns out to be a retired dingy from a mothballed cruise liner. The "investment depository instrument" you might have guessed by now, is a "piggy bank". Gimmie Gifts to Die For Be wary if they list nice-sounding prizes like "designer" or "diamond" watches. They are likely to be cheap or practically worthless junk. The prize will not come close to being worth what you pay for its "processing". Often you never get a prize. If you do get one, it is typically an inferior, overpriced, or grossly misrepresented piece of merchandise, often called a "gimmie gift" by U.S. telemarketers and a "cheap gift" by Canadian telemarketers. Invariably, they always describe the "prize" as being worth more than the price of what they're asking you to buy. Mystery Prizes Sometimes they mask the award under the title of "mystery prize" to lure you in with your own imaginings rather than by their fabrications. They may say that you have been selected to receive a valuable prize but they are "prohibited by law" from disclosing what it is. "I can't tell you what you won, but I know you're going to be very happy and want to give me a kiss," while jingling car keys in the telephone mouthpiece. In fact, no federal or state law prohibits truthful disclosures of prizes or awards. In addition, they will also deceptively describe vacation prizes to attract customers to sales meetings for land or vacation timeshares. As a rule, if you have to pay to receive your "prize," it's not a prize. You haven't won anything. One victim testified that when he agreed to send in $840 for taxes and fees on a "home entertainment center" and an "IBM laser PC-3" computer, he was expecting to receive a large entertainment center and a computer that were worth over $2000. The entertainment center was a "boom box" which included a small 5" black and white television which cost $129. The computer received was actually a derelict dumb terminal from the eighties. Another person's "free" stereo system prize, that he paid a $50 shipping and handling charge to win, turned out to be a plastic transistor radio. When a cash prize is promised, it turns out to be a certificate that cannot be redeemed unless you buy hundreds of dollars' worth of overpriced, substandard merchandise through them. Who's our Lucky Winner? Elderly persons constitute the main group targeted as susceptible by fraudulent telemarketing organizations because they are easily accessible by phone, usually intent on enlarging their savings for the benefit of grandchildren, often less suspicious, sometimes possess poor memories, and are usually too embarrassed to inform family or law enforcement should they even recognize the deceit. These people are thought to be predisposed to sending money in the hope of striking it big; therefore, they are good prospects for fraudulent telemarketers. A survey of one company's victims revealed that 75% of the respondents, equaling approximately 70% of all victims, were older than age 62. Who Really Wins? Telemarketers keep track of their victims with sales order forms. A typical sales order form will indicate the date of the contact, the telemarketer's real name, any aliases used on the phone with a particular customer, the customer's name, address, and telephone number, the amount charged, and the "gift or award" item that was to be sent. When employees are paid they receive a "commission statement" along with their paychecks. These statements inform the telemarketers of the date on which a particular victim's check was received, the victim's name, the amount they paid, the deduction for overhead expenses ( 7% of the amount paid by the victim), and the actual cost of the item sent, known as the "pad". Telemarketers know the price paid for the junk being sent because their commission is 25% of the amount stolen, after the cost of overhead and the item itself are deducted. For awards under $50, most operations do not even deduct this cost from a telemarketer's commission. To maximize the commission earned, they will try to convince victims to send large amounts of money for the award. For example, one victim received a sculpture worth about $200 after placing a $21,000 order for 130 space pens and other miscellaneous items. After deducting this $200 plus $1000 for the pens, the telemarketer would receive a 25% commission on $19,800 or $4950 just for smooth-talking some "stupid old lady". The head of the operation would net about $14,500. Thus, telemarketers have a great incentive to provide victims with cheap merchandise rather than an actual car, motor home, sail boat, or some other expensive award. Through the accumulation of personal checks or money orders ranging from $50 to $699, one company alone had gross sales totaling $2,743,470, with net proceeds, or an almost pure profit of $2,449,118.
Out Of This World Telemarketing salespersons for the Space Universal Life Church told victims that if they made a contribution, they would win thousands of dollars in prizes commensurate with their donation. They had victims believing that SULC was a religious charity that had selected a limited number of individuals to receive a valuable "gift" if the person donated money. But, in fact, more than 99% of the victims received only an inexpensive item. During a second "reloading" solicitation, salespersons told victims they were from SULC's accounting department, and that they had your unclaimed prize money, then went on to say that all you had to do to claim the prize was to make another donation. Investigators discovered records which revealed that in just one year a total of $840,403 had been deposited into their "church" bank account. By the time officials learned of it, only $12,790 remained. A Real Work of Art Legendary Concepts' sales personnel called people who previously had responded to direct mail offerings, to persuade them to buy exorbitantly overpriced products, such as cosmetics, cleaning supplies, fire safety kits, Fisher "space" pens, and "Say no to drugs" promotional goods. The price of these goods far exceeded what they paid for them. For example, the "Say no to drugs" product package, which included such low-cost items as Frisbees, baseball caps, rulers, calculators, and desk clocks, was sold to victims for between $1,299 and $3,999. The Fisher "space" pens, which they had acquired for just $7.70 each, sold for $159.95. Over a thirteen month period they took in a total of $13.1 million but the company spent only $53,000 on prizes for their "contest winners." In one promotion the "guaranteed" and "valuable" prizes included $3,000 in cash, a Whirlpool appliance package, a "limited edition artwork," $5,000 in cash, and a brand new Ford Taurus. They told each customer that the prize would be selected randomly by a computer. In reality, the customers would always "win" the least valuable award, or a "gimmie gift." In this promotion it was the "limited edition artwork," a framed lithograph by J.W. Scott for which they had paid less than $75 apiece. The telemarketers would not disclose that it was a mass-produced lithograph. Even when asked specifically about the value of the prizes, they refused, citing the company's policy against such disclosures. One of the most accomplished salespeople trained other sales staff and was a "takeover man" who joined the phone calls of less experienced staff to consummate sales. A master of deception, he would suggest that the "valuable" piece of artwork might be worth "somewhere in the ball park " of $50,000. Once a year, they would award to certain customers the "real" prizes, such as the cash awards or the Ford Taurus, but not by random computer selection. Instead, either an employee of the company or the owners themselves picked the winner, who was always a customer who had purchased a substantial amount from the company. Although the sales pitch included an initial disclaimer notifying customers that they were "under no obligation to make a purchase," a number of victims testified that sales personnel had told them, or had led them to believe, that they had to buy products to win a prize, or that their odds of winning a prize would improve if they made a purchase. People contacted by Midwest Marketing were informed that they were "guaranteed winners" of one of five prizes which included: 1) a Mazda Miata, 2) $5000 in cash, 3) five dream vacations, 4) a home entertainment center, and 5) $1000 in cash. The "winners" were then told that in order to receive their prize they would simply have to pay certain promotional fees and taxes on the prize. The telemarketers made a "sale" when someone agreed to pay these fees and taxes. Of course, none of this money actually went to pay any promotional fees or taxes, and the "customers" were never told that they were purchasing anything. Some were told what their prize would be, while others agreed to send in the requested money without knowing which of the items they were going to receive. After people sent in their money, they would generally receive five vacation vouchers, though some people were sent a bracelet and many received nothing at all. The company would purchase the vacation packages for $45 and the bracelets for $50 from Premium Research, a company that specialized in selling such items to telemarketers. Persons who "won" these prizes, however, were asked to send in more than $200 for taxes and fees. The average amount requested for the vacation package was $249.49. People were naturally quite disappointed by the vacation packages they were sent, since the five one-week packages did not include airfare or any transportation expenses, did not cover food, taxes, or other costs, and had other restrictions. Essentially the "packages" were certificates for one week of lodging at specific hotels, in specific cities, with no guaranteed availability. Most victims considered the vouchers worthless. Still Waiting Those who received a "Cash Awards Bureau" solicitation were told the company was an official agency charged with locating sweepstakes winners and that the recipient had won a large cash prize. To claim their prize, the "winner" had to fill out and return what was actually a highly deceptive order form for discount coupons and a long distance calling card. Recipients of a "Disbursement Center" mailing were informed they had won a home entertainment center. In order to receive their prize, winners were instructed to send $79.83 for "insured delivery." Most consumers sending payments received nothing, while others received only a cheap 5" television with a built-in radio. Training Ground Continental Distributing Company would list their awards in the following order: a new car, a speed boat, the open award, and cash. The "open award" was worth substantially less than the other awards. Typically, it was a very inexpensive piece of merchandise such as a lithograph, a JFK coin set, or a cheap sculpture. The object of the scheme was to convince the victim that they had won some really fabulous award and then get them to pay substantially more for the award than CDC had paid for it. In addition to the open award, they also sent victims a "mixed box of products," which were essentially worthless trinkets or products like letter openers, space pens, and frisbees. CDC found its victims, often referred to as "mooches," by buying what are known as "leads lists" from lead brokers in Las Vegas though some telemarketers brought their own lists with them. Those lists contained the names of elderly people who had previously purchased products over the telephone from some other company, usually spending large amounts of money to do so. CDC, like most telemarketing companies, organized its telemarketers into "fronters" and "reloaders." The fronters called the leads, told them about the one-in-five promotion and that they had been selected as winners. On the first call, the fronters normally pushed to have the customers send in an amount under $1000 in exchange for the open award which would be a lithograph or coin set that only cost $50 to purchase. Then the reloaders took over for additional sales which required their professionally efficient touch. Gold Dust Memo To: Call Centre Staff From: Legal Department Although current laws for mail fraud now include commercial carriers like UPS, call center staff will continue to request this mode of delivery for customer remittances due to the greater likelihood of postal inspection intervention while in the slower transit mode. One Point Five for a One of Five A $1.5 million settlement stems from FTC charges filed against Pioneer Enterprises Inc. of Las Vegas, which also does business as Vita Tek Marketing, Pro Life Marketing, 21st Century II, and Sunshine Promotions; 21st Century Marketing, Inc; Great Western Printing, Inc; Regency Marketing Enterprises, Inc. (New York); Premier Marketing of America, Inc., ( Buffalo, New York); VitaSystems Enterprises, Inc. of Buffalo; and Richard J. Secchiaroli and Christopher A. Easley, both of Las Vegas and both officers of each of these companies, who allegedly ran a deceptive prize-promotion telemarketing scheme to induce consumers to buy a variety of merchandise. The FTC alleged that, beginning in 1988 or earlier, the defendants made unsolicited calls and mailed notifications to consumers, stating that the consumers had won valuable awards such as a luxury Cadillac, $5000 cash, a diamond watch, or a Hawaiian vacation. When you responded to the notifications, they allegedly made numerous false and misleading statements to induce you to purchase vitamins, water purifiers, or other merchandise at prices ranging from hundreds to thousands of dollars -- prices that far exceeded the value of the prizes typically awarded. In some cases, they used 900 numbers or other pay-per-call exchanges, telling you that, by calling such a number, you could receive your promised award without purchasing the merchandise. More than 46,000 consumers in fifty states will receive partial refunds ranging from $5 to around $600 from the $1.14 million dollar proceeds of the settlement. 9/13/93 The proposed order contains a general prohibition on the making of any false or misleading statement about any product, service, or incentive items the defendants offer, and specifically prohibits false or misleading claims. It also contains various disclosure requirements such as that the prize is being offered in connection with a sales promotion. Further, the defendants would be required to monitor their employees and fire any person who they know, or should know, has violated the settlement provisions three times within an 18-month period. The FTC alleged that, in addition to running their own scheme, they aided and abetted other telemarketers to run similar deceptive schemes by providing marketing, order shipment, credit-card processing, and customer services. Thus, the settlement also would require the defendants to take steps to assure that other telemarketers or direct mailers they deal with comply with the order. In addition to providing the FTC with the names of those they sell lists to they would also have to "seed" any customer lists they sell to other marketers with names provided by the FTC so that their compliance could be monitored. NOTE: Consent judgments are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge. 12/02/92 FTC Matter No. X920055 Civil Action No.: 92-615-LDG-RJJ News articles discussing the "one in five" sweepstakes scam.
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