Sweepstakes Scams
Telemarketing Fraud
Sweepstakes as an Industry
Even "legitimate" sweepstakes companies have become
masters at creating a web of deception. The headlines, the words,
everything about their mailers are calculated to get people to
buy products they wouldn't otherwise buy.
American Family Publishers, a subsidiary of Time, Inc., blankets
the country with sweepstakes entries to promote its magazine subscription
offers.
Sweepstakes companies prey on a generation that are very trusting.
These mailings are carefully designed to look like official government
documents. With convincing personal notes and endorsements
by Ed McMahon and Dick Clark it's difficult for anyone not to believe
they're a winner, especially with devices such as preauthorization
of the manner of the prize payoff and associated publicity release
forms.
"How shall we deliver your money? In an armoured truck
or straight into your bank account for the rest of your life?"
Ripe for Picking
Some seniors suffer from social isolation as a result of illness,
impaired mobility, and the breakdown of social networks due to
death and relocation. These people are particularly vulnerable
to solicitations that falsely intimate friendship and individualized
concern.
Seniors suffering from cognitive and perceptual impairments are
also particularly vulnerable to deceptive advertising practices.
The external packaging and envelopes of sweepstakes solicitations
often use deceptive text and graphics to create the false impression
that the document is urgent and legally important, when in fact
it is simply a mass-market mailing.
Companies misrepresent the likelihood of actually winning through
the sophisticated use of graphics which manipulate font, type size,
color, layout, and text to hide contest conditions while emphasizing
the likelihood of winning. The actual chance of winning a major
prize in a sweepstakes is approximately one in fifty million.
Keep Buying to Win!
Publishers Clearinghouse, which sells magazine subscriptions,
videos, collectible figurines, sports memorabilia, coins, household
and personal care items, along with books and tapes, has stated
the number of respondents over the age of 65 who purchase its products
is 30%, or twice the national average. In one year, more than 450
of these consumers, in West Virginia alone, ordered at least $2,500
worth of merchandise "each", and ten of those spent over
$10,000.
Of those consumers who had sent PCH more
than $2,500 during 1997, 150 people sent approximately $570,326
during that single year. Of these, five purchased approximately
$5,000 in merchandise, two spent more than $7,000, three spent
more than $8,000, one spent more than $9,000, and one spent in
excess of $12,000. The average age of the consumers on the list
was 74. The average amount spent was $3,800.
One woman in her 70's spent $400 to $500 a month over five years
on products purchased from sweepstakes companies. A woman in her
80's spent half of her Social Security check each month entering.
Totally Convinced
Many of these victims are too embarrassed to come forward once
they find out they've been duped. One California man, unable to
convince his elderly father he was not a winner, flew with him
to Florida to "claim" his prize only to find out it was
all in vain.
A 78-year-old woman, so convinced she had won the big prize after
being asked for a map to her home, "so the Prize Patrol could
find her", put a welcome sign for it in her front yard, ordered
a cake and was ready to celebrate her great fortune with friends.
Like the California man, she didn't win either.
"They'd send you letters saying "Be home on this day." so
you actually thought, "Maybe I am a winner."" After
receiving such a letter, which even indicated that flowers had
been ordered for her at the local florist for the big day, she
waited expectantly, but in vain, for her check to arrive.
The elderly are targeted not because they want the trinkets being
sold, but because they are misled into believing that the more
merchandise they buy the better their chances of winning.
But it's not only the elderly that fall
for the lure of these sweepstakes come-ons. One professional woman
in her 50's was surprised to find she had spent $3,400 in one year
on magazines and other gifts. She bought because she was convinced
it gave her a better chance to win.
Once people purchase something, they
keep getting more and more sweepstakes mailers and promises of
even greater winnings. Many people are on multiple mailing lists.
Two of the companies sent out 130 separate mailers per year to
some individuals. They also used deceptive billing practices to
entice customers into paying two or more times for the same subscription.
The companies have also:
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created a false
sense of urgency to respond to the sweepstakes so as to prevent
someone else from claiming their prize;
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implied that purchasing
a product was a requirement or improved the chances of winning;
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indicated that
recipients were part of a select group vying for a prize
and;
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falsely claimed
that the sweepstakes were endorsed by the state or federal
government.
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Sweepstakes for Sale
Publishers Clearing House was founded in 1953 and has been holding
sweepstakes since 1967. The company has given out about $137 million
in major prizes and awards. In 1997 and 1998, the company had annual
sales of about $375 million.
These companies started out in the business of selling magazines
but are now in the business of selling sweepstakes, and instead
of people being sold the benefits of the magazines, they're sold
on being a winner, finalist, or having a better chance to win.
The director of consumer affairs at Publishers Clearing House
says that the majority of people who return their sweepstakes entries
do so without ordering and that the majority of their millionaire
winners —23 of 30 —did not order with their winning
entry.
Not Everyone is Pleased
Regardless of their assurances of propriety, one of the nations
largest sweepstakes operators, American Family Publishers, which
uses Ed McMahon and Dick Clark as its spokespersons, has agreed
to pay various states $1.25 million for violations of consumer
laws as well as stop the use of illegal promotional tactics.
"There's a line between hype to sell a product and deception," said
Attorney General Christine Gregoire. "They crossed over that
line by suggesting consumers were one of only two recipients with
the winning numbers."
The Ohio attorney general's office has wrested settlements from
sweepstakes companies including Publishers Clearing House, Reader's
Digest Association, United States Purchasing Exchange (also known
as United States Sales Corp.) and Time Inc. who agreed to repay
approximately 4,000 Ohio consumers who spent large amounts of money
buying magazines, knickknacks and other items, believing the purchases
would boost their chances of winning.
One class action settlement was reached with private attorneys
who represent a group of consumers who received mail or purchased
merchandise from one such company between 1992 and 1999.
Out of a $10 million settlement, attorneys fees and other costs
took away almost $6 million of that amount. Only $4 million was
potentially available to the consumers who spent more than $1 billion
for magazines and merchandise during that time.
It's now illegal for sweepstakes to require players to pay money
or make purchases in order to win a prize. Sweepstakes companies
are also prohibited from mailing non-negotiable checks and telling
people they're winners unless they actually have won a prize. Plus,
if consumers request it, sweepstakes companies have to take the
players' names off their mailing lists.
From Fantasy to Fraud
The widespread use and consumer acceptance of sweepstakes to sell
legitimate merchandise has provided unscrupulous telemarketers
with an opportunity to defraud people using the same concept. They
usually go that one step further though and fail to deliver anything
but false promises in return for the victim's money.
A survey commissioned by the National Consumers League found that
92% of adults had at one time or another received a postcard or
letter in the mail informing them that they had won "free
prizes. " Nearly one-third, or 54 million people, responded
to those offers, and less than 20% of those received their prizes
without buying products or paying fees.
Sweepstakes scams have many variations but can generally be described
as an "advance fee" scam which attempts, through deception,
to get you to send in money, with or without your knowledge or
consent, to pay for taxes, products or duties for a non-existent
or misrepresented prize.
Such deceitful callers may ask for your credit card details because
their "marketing company" has a "free gift for credit
card holders", and "if you can just verify the credit
card number, the gift will be on its way."
FTC SETTLEMENT IN "PRIZE" SCHEME NETS $900,000 IN
REDRESS, PERMANENTLY BARS THREE FROM SIMILAR PROMOTIONAL EFFORTS
4/20/94
One Las Vegas-based "prize" scheme which allegedly used
deceptive claims to get consumers to purchase a variety of merchandise
worked out a settlement with the FTC which involved paying $900,000
to be used for redress to consumers -- many of them elderly --
and to be bound by numerous restrictions and disclosure requirements
on future telemarketing efforts.
Defendants in the case were Denny Ray Mason, Benedict
Spano, and Anthony Della Iacono, who all agreed not
to participate in any future promotional prize scheme.
Mason was listed as an officer or director of S.E.C. Enterprises,
Inc., American Health Associates, Inc., New Image Way, Future
World, Inc., and National Health Care Associates.
Benedict Spano was named as an officer or director of New Image
Way, American Health Associates, Inc. and AA Investments.
Anthony Della-Iacono, also known as Anthony Della, was president
of National Health Care Associates; Fletcher McKamie, secretary/
treasurer of National Health Care Associates; Michael Minetti,
president of American Health Associates, Inc; Patrick Brett, secretary/treasurer
of New Image Way; Ricky Mason, manager of National Health Care
Associates; Randy Mason, also manager of National Health Care Associates;
and David Jordan, president of S.E.C. Enterprises Sales.
According to the complaint, they mailed out "Certificate
of Award Guarantees" and made unsolicited telephone calls,
falsely telling people they had won one of four or five valuable
listed prizes (one of which was often a car) as part of a special
promotion, then used a variety of misrepresentations to get them
to purchase cosmetics, vitamins, "environmentally safe" cleaning
products, water puri fiers or other products.
The ensuing sales pitch to entice consumers to purchase their
promoted merchandise included a host of deceptive claims, including
misrepresentations as to the value of the prizes -- which typically
turned out to be of nominal value, such as inexpensive watches,
jewelry or home electronics products, for which they had paid less
than $60 each.
These techniques included seeking photographs and testimonials
from "satisfied" or joyous consumers before they even
received their prize or merchandise and placing repeated calls
to elderly individuals who initially declined to purchase -- in
some cases, several times an hour or on a daily or weekly basis
for weeks -- and threatening legal action when they tried to cancel
their orders.
People then ended up paying $399 or more, some spending tens
of thousands when they were solicited to buy again -- or "reloaded" --
before they even had a chance to see the first prize they had won,
based on promises that additional purchases would make them more
likely to win even more valuable prizes.
One of these "advanced-level" prizes was a "big
screen projection system," which turned out to be a large,
clear sheet of plastic to be placed in front of a television set
to simply and crudely magnify the picture.
Similar charges were alleged of Sierra Pacific Marketing,
Inc., which also does business as American Premier Products;
Legacy Unlimited, Inc., of Nevada and Legacy Unlimited,
Inc., of Arizona; Steven Morris Rowe, president of
both Sierra Pacific and Legacy-Nevada, and a co- owner of Legacy-Arizona; Gary
D. Hosman, vice president of Sierra Pacific; and Robert
Morris Rowe, a director of Legacy- Nevada and president of
Legacy-Arizona (collectively, Sierra Pacific).
In addition to the Las Vegas operations, Sierra Pacific also
operated telemarketing rooms in Fort Smith and Little Rock, Arkansas;
Tulsa, Oklahoma; and, doing business as American Premier Products,
in Atlanta, Georgia. In the past, it operated in Colorado
Springs, Colorado; Tempe, Arizona; and Portland, Oregon.
The principal officers agreed to pay $500,000 each for redress
to consumers, and neither the officers nor their companies could
play a future role in any type of sweepstakes or prize-promotion
scheme. Restrictions on other marketing efforts were also
implemented.
FTC File Nos.: Denny Mason -- 922 3215 Sierra Pacific -- 922 3368
Civil Action Nos.: Denny Mason -- CV-S-93-135-PMP Sierra Pacific -- CV-S-93-134-PMP
NOTE: This consent judgment was for settlement purposes only and
did not constitute an admission of a law violation. Consent
judgments have the force of law when signed by the judge.
The defendants in the Pioneer Enterprises, Inc. case recently
agreed to halt their questionable practices and to pay $1.5 million
in consumer redress as part of a settlement agreement.
Texas and Illinois enacted new sweepstakes laws that took effect
November 1, 2001, and January 1, 2002, respectively.
The Texas law applies to sweepstakes conducted through
the mail with a grand prize worth $50,000 or more, with some exceptions. In
general, the law makes it unlawful to
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require
an individual to purchase or order a good or service in order
to enter; |
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automatically
enter an individual in a sweepstakes who has purchased or
ordered a good or service; |
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solicit
business using an order form that is related to a sweepstakes; |
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use
an entry form that does not state “Buying will not
help you win. Your chances of winning without making
a purchase are the same as the chances of someone who purchases
something. It is illegal to give any advantage to buyers
in a sweepstakes.”; |
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offer
through the mail any non-sweepstakes prize or giveaway, or
an opportunity to enter another sweepstakes, for 30 days
after the end of the sweepstakes; |
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require
an individual to comply with a restriction or condition in
order to enter, unless all individuals must comply with identical
restrictions or conditions; |
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use
a scratch-off device or any other game piece that suggests
an element of chance to convey information about the sweepstakes; |
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state
that an individual’s chances of winning will be affected
by some event that has no relation to how a winner is selected; |
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state
that an individual is a winner, unless that is true; |
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publish
different advertisements for the same sweepstakes that contain
inconsistent descriptions of the grand prize; and |
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award
multiple prizes unless all prizes are awarded on the same
date and through the same selection process. |
The Illinois law applies
very broadly to “a written promotional offer”that
is:
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made
to a person in Illinois; |
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used
to induce or invite a person to come to Illinois to claim
a prize, attend a sales presentation, meet a promoter, sponsor,
salesperson, or agent, or conduct any business in Illinois;
or |
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used
to induce or invite a person to contact by any means a promoter,
sponsor, salesperson, or agent in Illinois. |
It is unclear if the law is limited
to sweepstakes conducted through the mail (like the federal sweepstakes
law) or whether it applies more broadly to any print advertisement
for a sweepstakes or contest. In general, the Illinois
law makes it unlawful to:
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require
an individual to pay the sponsor money as a condition of
receiving, using, competing for, or obtaining information
about a prize; |
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representing
that a person has won or will unconditionally be the winner
of a prize (unless the person is given the prize without
obligation, is notified at no expense within 15 days of winning
the prize, and such representation of winning is not false,
deceptive or misleading). |
The law also recognizes that such
a “written promotional prize offer" must contain the
following disclosures in a clear and conspicuous statement
at the onset of the offer:
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the
name(s) and address(es) of the sponsor(s); |
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the
retail value of each prize and the odds of receiving each
prize; |
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no
purchase is necessary to enter and will not increase chances
of winning; |
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whether
a person must pay the actual shipping or handling fees or
any other charges to obtain or use a prize, and the nature
and amount thereof; |
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a
description of any restrictions on the receipt of the prize; |
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any
eligibility limitations; |
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the
number of people in a group such as “finalists”, “specially
selected”, “first place”or any other limited
group of persons with an enhanced likelihood of receiving
a prize. |
Additionally, any sponsor who represents that a person has been
awarded a prize shall, within 30 days of such a representation,
provide that person with one of the following: (i) the prize, (ii)
a voucher or certificate awarding the person the prize, or (iii)
the retail value of the prize in the form of cash, a money order,
or certified check.
Worldly Scam Covers Four Countries
05/13/04 - The Tomah Wisconsin Police Department is warning residents
of a mail fraud scam.
Someone reported receiving a letter in the mail from Global Network
LTD in Australia. Along with the letter, the individual received
a check for $4,500 indicating that person was a winner. The letter
directed the person to deposit the check in the bank, then contact
another person in New York. Immediately after placing the check
in the bank, the recipient began getting phone calls from another
person saying the check was sent by mistake.
Because of the mistake, the recipient was to send money via Western Union
to another subject in Canada. According to Tomah police, it is believed
the $4,500 check
is fraudulent and used in an attempt to solicit money from people.
Sweepstakes Scam Fraudster Pleads Guilty to Crime Against Elderly
05/06 - CEDAR RAPIDS --- A New York man has pleaded to his role
in a bogus sweepstakes scheme that bilked an elderly Iowa woman
out hundreds of thousands of dollars.
Michael A. Van Houten, 39, of Brooklyn, N.Y., was scheduled to
go to trial May 30 for 18 counts of wire fraud, but he pleaded
to a single count in U.S. District Court in Cedar Rapids.
So far, Van Houten is the only one indicted in connection with
the scam, but records filed in his case note the investigation
is ongoing and mention possible co-defendants.
His plea agreement remains sealed.
The victim's hometown hasn't been disclosed, but records state
she wired money to New York from Waterloo, Hudson and Cedar Rapids.
Authorities have so far declined to talk about Van Houten's specific
role in the scheme, although records state he and others picked
up money wired to New York.
Records said the scam started sometime in July 2002 when those
taking part in the crime called the woman and told her she won
a large cash sweepstakes.
But before she could claim her prize, they told her, she needed
to pay fees upfront.
In the year that followed, she paid about $200,000 in "taxes" and "advance
fees" in installments of between $3,500 and $8,000 by using
MoneyGram and Western Union.
They asked her to wire cash payments to New York City using Western
Union and Money Gram.
To avoid detection, people involved in the scam sometimes asked
her to use a false name when sending the money and told her not
to mention the sweepstakes to anyone, including police, because
doing so would disqualify her from the prize.
Van Houten faces up to 20 years in prison and sentencing will
be at a later date. Until then, he remains free on $50,000 bond
and continues to reside in New York.
WCFCourier.com
For more on Sweepstake
Scams.
Examples of Overpriced
Promotional Sweepstake Prize Product Offerings
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