United States. Congress. Senate. Committee on Gove.

At-home business opportunity scams : hearing before the Subcommittee on Regulation and Government Information of the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, first session, July 28, 1993 online

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S. Hrg. 103-238

AT-HOME BUSINESS OPPORTUNin SCAMS

Y 4. G 74/9: S. HRG. 103-238

At-Hone Business Opportunity Scansi . . .

^ RING

BEFORE THE

SUBCOMMITTEE ON KEGULATION AND
GOVERNMENT INEORMATION

OF THE

COMMITTEE ON
GOVEENMENTAL AEFAIES
UNITED STATES SENATE

ONE HUNDRED THIRD CONGRESS

FIRST SESSION



JULY 28, 1993



Printed for the use of the C!ommittee on Governmental Affairs




DPC3 1993



U.S. GOVERNMENT PRINTING OFFICE
71-705 ±f WASHINGTON : 1993

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-041681-7



f



S. Hrg. 103-238

AT-HOME BUSINESS OPPORTUNIH SCAMS

Y 4. G 74/9: S. HRG, 103-238



At-Hone Business Opportunity Scans>...

RING

BEFORE THE

SUBCOMMITTEE ON REGULATION AND
GOVERNMENT INFORMATION

OF THE

COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE

ONE HUNDRED THIRD CONGRESS

FIRST SESSION



JULY 28, 1993



Printed for the use of the C!ommittee on Governmental Affairs



6r'''




DEC 3 833



U.S. GOVERNMENT PRINTING OFFICE
71-705 t* WASHINGTON : 1993

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-0A1681-7



COMMITTEE ON GOVERNMENTAL AFFAIRS

JOHN GLENN, Ohio, Chairman

SAM NUNN, Georgia WILLIAM V. ROTH, Jr., Delaware

CARL LEVIN, Michigan TED STEVENS, Alaska

JIM SASSER, Tennessee WILLIAM S. COHEN, Maine

DAVID PRYOR, Arkansas THAD COCHRAN. Mississippi

JOSEPH I. LIEBERMAN, Connecticut JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii
BYRON L. DORGAN, North Dakota

Leonard Weiss, Staff Director

Franklin G. Polk, Minority Staff Director and Chief Counsel

Michal Sue Prosser, Chief Clerk



SUBCOMMITTEE ON REGULATION AND GOVERNMENT INFORMATION

Joseph I. Lieberman, Connecticut, Chairman

SAM NUNN, Georgia THAD COCHRAN, Mississippi

CARL LEVIN. Michigan WILLIAM S. COHEN. Maine

BYRON L. DORGAN, North Dakota JOHN McCAIN, Arizona

John Nakahata, Staff Director

Nina Bang-Jensen, Chief Counsel

James Lofton, Minority Staff Director

(n)



CONTENTS



Opening statements: Page

Senator Lieberman 1

WITNESSES

Wednesday, July 28, 1993

James H. McDhenny, President, C!ouncU of Better Business Bureaus, Inc 3

Kimberly Cole, Hurlock, MD 7

George Matthews, Hurlock, MD 9

Bernard Rooney, Alexandria, VA 10

Richard A. Barton, Senior Vice President, Governmental Affairs, Direct Mar-
keting Association 15

Alvin F. Lamden, Manager, Fraud and Prohibited Mailings, U.S. Postal In-
spection Service; accompanied by Jennifer Angelo, Chief Counsel for Con-
sumer Protection, U.S. Postal Inspection Service 21

Alphabetical List of Witnesses

Barton, Richard A.:

Testimony 15

Prepared statement 37

Cole, Kimberly:

Testimony 7

Lamden, Alvin F.:

Testimony 21

Prepared statement 39

Matthews, George:

Testimony 9

McDhenny, James H.:

Testimony 3

Prepared statement 29

Rooney, Bernard:

Testimony 10

APPENDIX

Prepared statements of witnesses in order of appearemce 29

At-home business opportunity ads 44

(m)



AT-HOME BUSINESS OPPORTUNITY SCAMS



WEDNESDAY, JULY 28, 1993

U.S. Senate,
Subcommittee on Regulation and

Government Information,
Committee on Governmental Affairs,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:05 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman,
Chairman of the Subcommittee, presiding.

Present: Senators Lieberman, Dorgan, and Cochran.

OPENING STATEMENT OF SENATOR LIEBERMAN

Senator Lieberman. Good morning and welcome to this hearing
of the Subcommittee on Regulation and Government Information.

Today we are going to examine a business scam that is fast be-
coming one of the top money traps facing the average American
consumer. Each year millions of Americans buy into newspaper
and magazine advertisements that guarantee them easy money for
work that they can do at home, only to find that their pockets are
being picked, not lined. By some estimates, these work-at-home
scams, as they are commonly known, are fleecing people out of a
half a billion dollars a year.

The United States Postal Inspection Service tells us that virtual-
ly all of these work-at-home operations are frauds, and I want to
stress that. The Postal Inspection Service says that virtually every
one of these work-at-home operations is a fraud. The con artists
who place these ads offering thousands of dollars for people to do
work at home uniformly require the consumer to pay money up
front for supplies or information that deliver little, if an)^hing, in
the form of income. When a consumer complains, the con artist dis-
appears behind a wall of small print and technicalities.

The Council of Better Business Bureaus of America will be re-
vealing this morning, for the first time, the results of a survey that
document just how prevalent these fraudulent work-at-home oper-
ations are. The survey shows that work-at-home companies now
rank number one in complaints received from Better Business Bu-
reaus coast to coast. The Council survey also supports this conclu-
sion: As the economy continues to lag, the appeal of work-at-home
schemes continues to gain strength.

With many Americans being forced to make do with less because
of layoffs, fixed incomes, crushing student loans, and a host of
other pressures, it is not surprising that so many people succumb
to pitches that sound too good to be true. The fact that these ads

(1)



appear in respectable publications that people inherently trust
only makes matters worse by conferring a legitimacy that they
don't deserve.

We have some examples on display here of fraudulent ads which,
unfortunately, can easily be found in popular newspapers and mag-
azines with national circulations.

The most common group of people attracted to these ads, the
Better Business Bureau study shows, are mothers who want to
work at home. These are women who need to supplement their
one-salary family incomes, and view the work-at-home offers as an
attractive and convenient opportunity.

Indeed, what makes these work-at-home scams especially insidi-
ous is that they prey on vulnerable Americans who w£uit to work.
Along with young mothers, work-at-home scams also target the el-
derly, the unemployed, the underemployed, and the disabled.

The con artists who promote work-at-home scams have one other
important factor working for them besides the sorry state of our
economy, and that is the lack of a uniform, comprehensive, nation-
al crackdown by law enforcement officials. It is extremely difficult
to track, close down, and bring these rogue companies to justice, as
officers of the Postal Inspection Service will testify today. And be-
cause most consumers end up getting taken for a relatively small
amount of money, U.S. attorneys are rarely willing or able to get
involved, nor do local law enforcement agencies. According to the
Better Business Council, only 23 percent of the bureaus responding
to their survey reported any law enforcement actions taken against
work-at-home scams in their area, despite the fact that 93 percent
of the bureaus around the country have received complaints about
these scams.

The Postal Inspection Service has been quite successful in using
civil remedies to shutdown these businesses, apparently closing
down 3,500 of them in one 12-month period. But civil action is not
a permanent remedy. These companies are incredibly resilient, and
quickly sprout up again in one area after being shut down in an-
other.

I hope this hearing will educate the public about the dangers
posed by these work-at-home scams by exposing their stemdard
mode of operation. Our message to consumers is this: If you are
looking for extra money, stay away from work-at-home scams. Oth-
erwise, your income will unfortunately soon be outgoing.

We also want to explore today how Grovernment and especially
law enforcement personnel can work with the consumer to block
these work-at-home scams from exploiting those who can least
afford to lose money. We are going to hear from the Council of
Better Business Bureaus President James Mcllhenny, who will be
presenting the results of the Council's survey of work-at-home com-
panies.

As Mr. Mcllhenny will tell us, these schemes call for a wide vari-
ety of tasks, including assembling products such as earrings, pic-
ture frames, and toys. Consumers usually pay outrageously inflated
costs for kits that include the components that they are supposed
to use. Then once they send back the toys, for instance, that they
assemble or the booties that they knit, the work-at-home companies
typically reject the products as defective.



Some consumers have lost thousands of dollars on these schemes,
but the average victim gets taken for about $40. Now, that may not
seem like a lot of money, but to the hard-pressed family, it is a lot.
And, of course, it is also a heartbreak and an embarrassment as
well.

When you add it up, from the point of view of the work-at-home
scam artists, it is a multimillion-dollar ripoff of the American
people. These are not people who want something for nothing, the
folks who are responding to these advertisements. They are decent
people who want to work and whose circumstances make them sus-
ceptible to work-at-home schemes.

We are going to be hearing from three such consumers today
who were victimized, and we are particularly grateful to them for
coming in because they can tell us firsthand about the traps in-
volved here. Then we will hear from Richard Barton, an executive
from the Direct Marketing Association, which is an industry group
representing legitimate companies that sell products by mail.
Lastly, we are going to hear from Alvin Lamden and Jennifer
Angelo of the Postal Inspection Service, who will testify about the
Service's experience in fighting these work-at-home operations.
They will also provide us with some insight into how best to curb
their growth.

I appreciate very much the presence of all witnesses, and now I
would call first on our first panel, which is composed of Mr. Mcll-
henny from the Council of Better Business Bureaus, Kimberly
Coles, George Matthews, and Bernard Rooney.

Mr. Mcllhenny, why don't you begin.

Mr. McIlhenny. I will.

Senator Lieberman. Thank you again for being here, and thanks
for what you do for consumers throughout this country.

TESTIMONY OF JAMES H. McILHENNY,i PRESIDENT, COUNCIL OF
BETTER BUSINESS BUREAUS, INC.

Mr. McIlhenny. Thank you. Good morning, Mr. Chairman. My
name is James Mcllhenny, and I am president of the Council of
Better Business Bureaus. To my right is Holly Cherico, who is our
director of Public Affairs and has been instrumental in developing
much of the information I will be discussing.

Let me begin by applauding you, Senator Lieberman, for calling
public attention to the growing problem of work-at-home scams.
These scams take advantage of the eagerness of people to earn
money by doing work at home. Folks attracted to these offers are,
by and large, willing to do honest work for honest pay. They just
find it difficult, sometimes impossible, to hold a job outside their
home because of family obligations, health considerations, or lack
of education.

Too often work-at-home sceuhs are dismissed as petty nuisances.
Bureaus report that the amount of money lost by a work-at-home
victim ranges anywhere from $5 to hundreds of dollars, with the
average, £is you said, hovering around $40. That doesn't seem like a
significant amount of money, but it can represent a week's worth



' The prepared statement of Mr. Mcllhenny appears on page 29.



of groceries to a victim. And it is not unusual for a person to fall
victim to two or three or four such scams before they finally realize
that they are not going to receive actual employment from such
offers.

A nationwide investigation by the Council of Better Business Bu-
reaus in 1980 of 55 work-at-home promotions revealed that consum-
ers who wanted to supplement their income by investing in work-
at-home opportunities were losing their money to unscrupulous
promoters. It is now 13 years later, and the situation today, unfor-
tunately, is much the same, or worse.

Work-at-home companies receive the largest number of inquiries
of any type of business — and if I may, sir, it is important to stress
the word "inquiries." Inquiries are calls made by people who want
to know something about a company or business. Somebody gave
you the information that work-at-home companies receive the larg-
est number of "complaints." It is the number of inquiries that 1^
to work-at-home companies being ranked number one.

Senator Lieberman. I appreciate that clarification.

Mr. McIlhenny. It was our error, I am sure.

Work-at-home companies received the largest number of inquir-
ies — more than 176,000 — of any of the 327 tjrpes of businesses in-
cluded in the Council of Better Business Bureau's 1992 Annual In-
quiry and Complaint Summary. It is more than any of the other
businesses. The work-at-home category has ranked among the top
10 most-asked-about businesses for the past 5 years. The past 3
years alone have witnessed a significant leap of 20 percent in the
number of inquiries.

A special survey conducted by the Council of Better Business Bu-
reaus this spring found Better Business Bureaus across the Nation
reporting that work-at-home schemes now account for their largest
or fastest growing category of inquiries. In fact, most BBB's are
forecasting that 1993 inquiry totals will exceed last year's totals,
and we have provided separate information for you in our report
on that.

You will note from the report a State-by-State breakdown that
shows that work-at-home promotions are prevalent across the
Nation. Better Business Bureaus from every geographic area re-
ported that these misleading advertisements are attracting unsu-
specting consumers.

Why are we so concerned about work-at-home schemes? The
Council of Better Business Bureaus promotes ethical standards of
business practices and protects consumers through voluntary self-
regulation and monitoring activities. We have a very strong grass-
roots presence in the world of consumer protection.

The entire Better Business Bureau system is supported through
membership of private businesses. We are not a Government
agency, and our consumer-oriented programs are not supported by
tax dollars. Council of Better Business Bureau members include
major businesses and 170 Better Business Bureaus and branches in
the United States. And those 170 Bureaus are supported by almost
a quarter of a million businesses interested in an ethical market-
place.

Folks who receive offers by phone or mail, offers that sound too
good to be true and are from companies they have never heard of,



usually turn first to the Better Business Bureau for help and for
information. Bureau staff members have become all too familiar
with the scam artists who prey on the unsuspecting public.

Work-at-home schemes are a perennial. They never quite go
away. Such schemes appear, disappear, and reappear periodically
to bUk a fresh group of consumers.

What is more, our survey results tell us that such schemes are
not likely to go away any time soon. When Better Business Bu-
reaus were £isked why work-at-home schemes continue to prolifer-
ate, the cause most frequently cited was the uncertain economy
and continuing unemployment. Other reasons why these schemes
continue to be a problem, according to our Bureaus, are: the lure of
easy money; a popular belief that what is printed in the newspaper
must be true; the fact that publications continue to accept these
misleading advertisements; and the lack of Government enforce-
ment at any level.

Several Better Business Bureaus attributed the continued success
of these fraudulent companies to consumers who do not complain
or seek refunds. Consumers often write off the amount of their loss
as insignificant; they may be too embarrassed to admit being
taken.

Each of these causes needs to be addressed if we are to make
headway against these scams. And as much as we would like to, we
of the Better Business Bureau system can't crack down on these
crooks by ourselves. We must work together with other interested
parties — law enforcement, publishers, consumer groups, senior citi-
zen associations, and everyone — to convince the public that work-
at-home promotions do not offer real jobs.

I have brought with me today a few complaint letters local
Better Business Bureaus received from people cheated by work-at-
home scams. The vast majority of work-at-home offers are for stuff-
ing envelopes. In fact, 96 percent of the Bureaus that responded to
our survey regularly advise consumers on the pitfalls of envelope-
stuffing opportunities.

The second most popular work-at-home "job," as reported by 58
percent of the Better Business Bureaus, was product assembly. As-
sembly offers include assembling circuit boards, making hair bows,
baby bibs, Christmas ornaments or stuffed animals, painting novel-
ty items, guitar-stringing assembly, and even offers to process med-
ical claims on your home computer.

Other popular types of work-at-home scams reported by the
BBB's include tracing unclaimed Government funds, reading books
for pay, tgiking photographs or videos for pay, and selling lists and
directories of work-at-home opportunities.

Our survey reveals that the two largest groups victimized by
scams are stay-at-home mothers and the elderly. Other groups like
to be duped by work-at-home offers include college students, per-
sons with disabilities, the unemployed, and low-income families.
Several BBB's noted that victims of such scams include full-time
workers who are searching for ways to supplement their income.

Our survey asked Better Business Bureaus how consumers hear
about work-at-home opportunities. Ninety-three percent of the Bu-
reaus report that such offers appear in classified ads, most often in
free weekly newspapers or * shopping" newspapers. However,



BBB's often cite legitimate, respectable newspapers and periodicals
that run misleading work-at-home ads. Many Bureaus noted that
most classified work-at-home ads are not placed by local companies.
Instead, companies advertise in States other than where they are
located to escape the scrutiny of local law enforcement agencies.

Other methods of promotion include direct mail, cable television,
and directories of work-at-home opportunities.

Some scam artists now use bulletin boards in grocery stores, cafe-
terias, and laundromats to avoid mailing out work-at-home offers.
That way they can avoid the scrutiny of the U.S. Postal Service.

Work-at-home schemes are easy to spot, but hard to stop. Better
Business Bureaus routinely bring such scams to the attention of
law enforcement agencies. But our survey results show that despite
receiving thousands of inquiries and complaints annually, law en-
forcement officials rarely crack down on the operators that run the
scams because the amount of money is seemingly insignificant.

Only 23 percent of the BBB's reported any actions by law en-
forcement agencies. In most cases, crackdown efforts were made by
the U.S. Postal Inspection Service, distantly followed by State at-
torneys general, the Federal Trade Commission, and local district
attorney offices.

Better Business Bureaus also attempt to combat such schemes
with information. We preach, "Investigate before you invest." The
BBB issues millions of reliability repjorts on work-at-home and
other businesses and attempts to educate the public through pam-
phlets, news release warnings, radio and TV appearances, speeches
before business and community groups, newsletters to member
businesses, and — thank you — ^this opportunity as well.

BBB's urge those victimized by work-at-home offers to file a com-
plaint. Remaining silent only allows others to be victimized by the
same scam. Better Business Bureaus report that they are some-
times, but not always, effective in helping victims receive their
money back. Our experience shows that companies that offer prod-
uct assembly jobs are more responsive to complaints when present-
ed to them than companies that offer envelope-stuffing opportuni-
ties.

As I mentioned, it is not unusual for even the most respectable
newspapers and magazines to run ads for work-at-home schemes.
Publishers have the power to block such advertisements, but only a
few do. Many BBB's offer help to local publications to check out
the legitimacy of such offers before publication.

Not too long ago, Ann Landers ran a column reciting the experi-
ence of a 73-year-old man who had been "taken" by a work-at-
home scheme. Ms. Landers invited Better Business Bureaus to re-
spond to her belief that BBB's aren't cracking down on these opera-
tors. Thankfully, she printed my response detailing on-going efforts
by us to combat such schemes.

But I now receive several inquiries a week from readers of Ann
Landers asking if I personally know of any legitimate work-at-
home companies. While we forward such letters to BBB's which
keep records on individual companies, I have to tell them and I
have to say it is rare for any company that is on the "up and up"
to employ a complete stranger to work from their home and ask



them to pay something for the privilege. So my simple answer is:
no, there aren't any.

The best piece of advice I can offer to those interested in pursu-
ing work-at-home opportunities is to carefully evaluate any such
promotion and to check it out with the local Better Business
Bureau to ascertain the reputation of the company. Consumers
shouldn't assume that the offer doesn't warrsmt checking out be-
cause it involves only a small fee. That is the attitude that allows
work-at-home scam artists to prosper.

Mr. Chairman, I commend you for focusing the attention of Con-
gress on the ageless, timeless work-at-home scam. The Council of
Better Business Bureaus will be pleased to assist you in evaluating
how best to combat this serious problem. Our members want to see
the consumer protected.

Thank you.

Senator Lieberman. Thank you, Mr. Mcllhenny.

I want to welcome the ranking member of the Committee, Sena-
tor Thad Cochran of Mississippi.

We will now go on with the three other witnesses who have been
victims of these work-at-home schemes. I would like to begin with
Kimberly Cole and ask you, Ms. Cole, just to describe in your own
words what happened, how you got involved, and how it all ended
up. Thanks for taking the time to be here. I know it is not easy to
do that.

TESTIMONY OF KIMBERLY COLE, HURLOCK, MD

Ms. Cole. I was looking through the TV Guide, and in the back
they have a classified section. They run it about once a month. And
I saw it under "Business Opportunities" this Pace Corporation, and
it said call and leave your name and number and your address, and
it said you would get money for sending in names and addresses.

Senator Lieberman. Let me take you back a little bit, just to in-
dicate where you live.

Ms. Cole. Hurlock, Maryland.

Senator Lieberman. In Maryland?

Ms. Cole. Yes.

Senator Lieberman. And are you employed or unemployed?

Ms. Cole. I am employed, yes.

Senator Lieberman. So this was a desire to make a little extra
money at home?

Ms. Cole. Yes. It was around Christmastime last year, and so I
figured it would help me out.

I called the number and, of course, it was an answering machine.
You left your name and your number, and they told you that they
would send you a brochure. A couple weeks later, I received a bro-
chure, and I read it thoroughly. And I was always leery about send-
ing in money to things that I have seen, but I read this and I fig-
ured, there was no way possible that it could be a gimmick.

Senator Lieberman. What did the brochure ask you to do?

Ms. Cole. They wanted names and addresses. That is basically
all they wanted, was just the names and addresses. There was no
specific way to get them. You send it in. You were to get 50 cents
for each name, and you sent in an initial fee of $49.95. When you



8

sent in the 100 names, they would send you back 50 cents for each
name plus double your money back, so it was supposed to be $99.90
that I was supposed to receive back, plus 50 cents for each name.

I sent them 200 names and addresses, and so I waited, and I fi-
nally received something, and it wasn't what I expected it to be.
They told me that the names and addresses I sent to them was not
eligible for what they wanted it for. They wanted me to place an ad


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Online LibraryUnited States. Congress. Senate. Committee on GoveAt-home business opportunity scams : hearing before the Subcommittee on Regulation and Government Information of the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, first session, July 28, 1993 → online text (page 1 of 6)