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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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 2 of 6)
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in the paper or in the post office or on a bulletin board, and it had
something to do with either picture taking or cameras.

So I w£is upset, and

Senator Lieberman. So what did you understand to be the pur-
pose of the list of names that they wanted at the outset? Were
those other people who might work for them?

Ms. Cole. I guess they just wanted the names and the addresses.
I guess they wanted them on their mailing lists.

Senator Lieberman. Right.

Ms. Cole, Because they send out various t5rpes of information.
But it wasn't what I expected it to be.

Senator Lieberman. OK. So then they came back to you and said
the list was inadequate, and they wanted you to do these other
things they mentioned.

Ms. Cole. Yes. So I called them, and I actuadly got a person on
the phone from the company, and I asked her, you know — I said I
wasn't pleased with what I just received in the mail. I said, "This
wasn't the same thing that you sent me the first time." Well, she
tried to just shun me off by saying, "Well, you know, the first bro-
chure was just like an introductory brochure." I said, "Well, you
collected my $49.95 on that one, and that is what I expected it to
be." She said, "Well, no, it is not that. You have to place an ad." I
said, "Well, what about the names I sent you?" She said, "Well,
you have to write a request letter to get them back."

I figured if I wrote a request letter that they had probably al-
ready used those names and addresses. So I just didn't bother to do
that. And I wanted my money back. I requested it back, and she
told me no. And I said, "Why not? We haven't gone any further.
You got your names and addresses." And she got very perturbed
with me, and she bluntly told me, "No, you are not having your
money back." And I told her, "Well, we will see about that when I
contact the Better Business Bureau," and she hung up on me. And
that was it.

So I contacted the Better Business Bureau here in Maryland, and
they told me I had to contact the one in Chicago, Illinois.

Senator Lieberman. Which was where this company was locat-

Ms. Cole. They are located in Aurora, Illinois.

Senator Lieberman. OK.

Ms. Cole. So I went through with the paperwork. I filled out my
complaint form. I sent it in, and I think in February of this year I
received my $49.95 back.

Senator Lieberman. Good for you. Congratulations on being per-

Mr. Mcllhenny, I would guess that Ms. Cole was rare for having
persisted in that way.

Mr. McIlhenny. Very rare, and I am glad to hear that the
Better Business Bureau could be effective, because sometimes we
can't get the money back.

Senator Lieberman. OK. George Matthews is our next witness.
Thanks again for coming in, and we look forward to hearing your


Mr. Matthews. Basically, I contacted the same company that
Ms. Cole contacted. She is my girl friend. But I didn't send in the

Senator Lieberman. You did not send them the money?

Mr. Matthews. No. I was one step ahead. [Laughter.]

Senator Lieberman. Well, did you suspect something from the

Mr. Matthews. Well, I always suspect any of the — I call them
con artists.

Senator Lieberman. Yes, but you were still going to give it a try?

Mr. Matthews. Oh, yes. It looked very convincing. I am the type
that is a very thorough reader, and I read it two or three times
looking for clauses. And I saw none. It was just point blank you
send in names and addresses and you got 50 cents per name, and
that was all they told you.

My girl friend received a letter back from them, but it didn't give
her a whole lot of details as of yet. But they left a number. Well,
naturally, I took the number and made the call and questioned
them. Well, I came up with the same thing — names and addresses.
She had already sent her money off, so she was out as of then until
she contacted the Better Business Bureau. So, naturally, that let
me off the hook because I saw it was a scam. They basically told
me that I needed to place an ad, and I said no, that is more ex-
pense and I can see where an ad would go nowhere.

Senator Lieberman. What was the ad? The ad was going to be
basically to repeat the ad that you had responded to?

Mr. Matthews. No. We didn't even go to that extent. Once they
told me that I had to place an ad, I said no, I am not interested,
because I could see where I would have all the expense out and
nobody might not answer the ad. But if it was just names and ad-
dresses, I could see a profit.

I have contacted various other ads such as the one that was dis-
cussed earlier, stuffing envelopes, which I followed it through. I
think I paid something like $39. I can't remember the exact compa-
ny. It has been a year ago. And they sent a package of 100 printed
envelopes. It was more or less almost like a chain tj^e of thing
where you mail other people envelopes, and it basically came right
back to the original sender of the company. In other words, you
would send them envelopes; you would make $5 off of it, and they
would make $15. They would send the envelopes to them which
had a printed surface on it, stating get free envelopes. And that
was their stuffing letters, which basically was a dead end because I
tried it and it didn't go anywhere. I just lost my money, period.

Senator Lieberman. Yes.

Mr. Matthews. And I didn't pursue it anymore.


Senator Lieberman. You lost about $40 there?

Mr. Matthews. Somewhere around that figure, yes.

Senator Lieberman. That is the most common scam, according to
Mr. Mcllhenny's testimony, this envelope-stuffing scheme. But ba-
sically what they sent you was not really envelopes to stuff; it was
just material to send on to other people to try to get them involved.
It was a kind of pyramid.

Mr. Matthews. It was an envelope that you would put inside of
an envelope. In other words, this was a plain, regular, office-type

Senator Lieberman. I see.

Mr. Matthews. It was almost like a Xerox-printed surface on it.

Senator Lieberman. Right.

Mr. Matthews. And that is what they were selling you and the
people that would answer your ad or you could get a mailing list,
and they would give you various companies that sold mailing lists,
and you would have to buy the names — which I went to that point
as to buy a thousand names, so I was out more money.

Senator Lieberman. You did?

Mr. Matthews. Oh, yes.

Senator Lieberman. You bought the 1,000 names?

Mr. Matthews. I bought the 1,000, and I still have the majority
of them. I threw them in the trash.

Senator Lieberman. How much did that cost you?

Mr. Matthews. Oh, I am trying to remember. I think it was
somewhere around in the neighborhood of $50. I can't remember

Senator Lieberman. Sounds about right. Are you employed or

Mr. Matthews. I am employed.

Senator Lieberman. So here, again, this was an attempt to make
a little extra money.

Mr. Matthews. Right. That is correct.

Senator Lieberman. Mr. Matthews, thanks for coming in and
telling your story.

Senator Lieberman. Bernard Rooney, welcome.


Mr. Rooney. Good morning. Senator.

My involvement began approximately a year ago, when I was in
management consulting and I decided to leave that field and go
back into the educational environment, and I accepted a science po-
sition at a local school near my home and my wife supported me in
this. As a result, my income plummeted from about $50,000 a year
to the mid $20s, and we both agreed that it would be appropriate
for me to get into something else to supplement my income.

Shortly after that time, I received a packet of cards. In fact,
these came yesterday in the mail, and I keep getting these things
over the last year, and this one says

Senator Lieberman. You are on the list.

Mr. Rooney. Yes, I am on many lists. It says, "Free inside, 60
ideas on starting and running your own business." Most of the
things that I received were from companies advertising home busi-


nesses, and they would send information upon request. They did
not ask for money. These do not usually ask for money, and that is
how I started. I sent 10 cards back, but it did get me on other mail-
ing lists. And I do not even know whether the two that I actually
responded to came from the original 10 cards.

Since that time, I have received chain letters, and there is a
group here for chain letters. There are other businesses on ways to
save money. These are special reports that you can send for on how
to make money, mail order envelope stuffing and starting your own
business at home. A lot of these are network marketing as well as
pjrramid schemes.

What I ended up doing were two things I did receive, and they
seemed pretty concrete, but they were just one-page fliers and they
both involved stuffing envelopes. I sent $25 to an E. Raynor, and he
was in New York, but all I received back was a cancelled check
and no business start-up materials. I believe from recollection that
I should have received 500 envelopes to start out with.

Senator Lieberman. The theory there was

Mr. RooNEY. I would get 50 cents for each envelope.

Senator Lieberman. — ^you would stuff them with something and
return them to him?

Mr. RooNEY. Right, and get 50 cents for each envelope. I did call
the Better Business Bureau in New York and, again, from my
recollection they did say they had received a number of other com-
plaints about Raynor from individuals who also had paid the
money and never received any materials.

Since I had the cancelled check and it had his name on the back,
I also contacted the bank trying to get just a phone number. They
were unable to do that. So that is where I sort of left it. I said, well,
it looks like I am out $25. I did not go back to the Better Business
Bureau and try to pursue how to get back my $25.

I also sent a second letter to another stuffing envelope individual
and that came back with a change of address and no forwarding
address — ^but I did get it back, and again it was around $20 to $25.
That sort of told me that this one might have skipped town before
they got mine, so I decided that was it and I wasn't going to get
involved in any others.

For some reason I collected all this stuff over the last year;
maybe a voice was telling me to keep it and you will appear at a

Senator Lieberman. Thank you.

Mr. RooNEY. But I would like to acknowledge you. Senator, and
also this hearing, so that Americans will soon learn that this is not
the lemonade that they are looking for, but, rather, a lemon.

Thank you.

Senator Lieberman. Thank you, Mr. Rooney.

Let me ask a few questions and then I will yield to Senator Coch-

Mr. Mcllhenny, just to go back and stress something that you
mentioned in your testimony, ultimately, you can't think of any of
these work-at-home schemes that you have heard about that are le-

Mr. McIlhenny. I C£in't even think of any instantaneously, let
alone ultimately. I just do not know a single one that is legitimate.


Senator Lieberman. Now, I take it there are some, or are there,
companies that occasionally retain people who live around a com-
pany to do some work at home. Do you know of any?

Mr. McIlhenny. Yes, there are companies. Usually, however, the
employee has a relationship with the company. The employee has
come into the company, met with people there, been hired and
then it becomes possible to do work from home on a computer and
different kinds of things like that. There is — and some people
frown on it, but I am not making a judgment as to whether it is
correct or not — there is an entire industry of apparel assembly,
usually in the Northeast United States, up in Maine and else-
where, where this is done.

Senator Lieberman. Vermont, yes.

Mr. McIlhenny. And these people get paid for their work. But
we are not talking about that sort of thing — where somebody has
gone in to meet with the employer, made a business arrangement,
and then gets some work to do.

Senator Lieberman. At least had a face-to-face interview with
the employer and then goes to work.

Mr. McIlhenny. Yes, sir.

Senator Lieberman. In your testimony, you mentioned that pub-
lishers have the power to block these ads, but only a few do. Talk
to me a little bit more about that. I wonder if you could name any
publishers that you know of that have a policy not to run these

Mr. McIlhenny. Only one, but I have a self-interest in it. U.S.
News & World Report magazine has a policy not to run those ads.

Senator Lieberman. They do.

Mr. McIlhenny. That is the only one I know of for sure.

Senator Lieberman. Do you know why the publications — newspa-
pers, magazines, TV Guide was mentioned here — why they do not
try to self-censor these?

Mr. McIlhenny. It is very, very expensive to do so. The cost of
checking to see if an ad is for a legitimate business is more than
the money that the publication would receive from running the ad.

Senator Lieberman. In your testimony, you suggested that vic-
tims file complaints. Did you mean with the Better Business
Bureau or with other governmental entities?

Mr. McIlhenny. I think if somebody gets ripped off, they should
file a complaint with the Better Business Bureau and with the at-
torney general and with the local chief of police and anybody else
that can help. We want them, however, to inquire first. If they will
call the Better Business Bureau, we will be able to tell them to not
do business with these people, and then they will not have a com-

Senator Lieberman. Bottom line, that is your advice today, do
not respond to these ads?

Mr. McIlhenny. Call first, do not respond to these ads. If you
have that pent-up desire to try to make some easy money, please
call the Better Business Bureau first and check it out.

Senator Lieberman. Ag£iin, based on the numbers that you have
given us, it appears that these work-at-home scams are becoming
more popular, that is, there are more of them going on now as com-
pared to previous years.


Mr. McIlhenny. I was talking to Dick Barton before the meet-
ing, and we were discussing why this is happening. These people
"scammers" depend very much on being able to use 800 telephone
numbers, 900 numbers, computer-generated information. All of this
technology has become available over a recent period of time; cer-
tainly since 1980 use of this technology has increased quite a bit. I
suggest that it may be easier to run a profitable scam today than it
was 13 years ago.

Senator Lieberman. Because of the recession or because of some-
thing else?

Mr. McIlhenny. My answer to you is because technologically it
is easier to rip off a lot of people. I cannot tell you whether it is
because of the recession or not.

Senator Lieberman. Understood. A final question: Do you have
any recommendations for specific steps that the government might
take to stop these work-at-home scams?

Mr. McIlhenny. It is costly to close them down. There could be a
certain amount of public persuasion to get publishers to put at the
top of all business opportunity columns, as certain publishers do in
the Boston area, "Investigate these firms with your Better Business
Bureau, before you do business with them." I am not sure that we
can develop a technique to get at scams that are conducted in such
small increments as work-at-home scams are, so I think we need to
influence the transmitters of the information as much as we can,
still within the legal framework with which we live.

Senator Lieberman. Small increments, but as I believe your
report suggests, perhaps totalling as much as half a billion dollars
a year.

Mr. McIlhenny. I think it could be more than that. The interest-
ing thing about small increments is that, if you "take" $40 from
1,000 consumers who need it, we do not seem to have a law enforce-
ment system that can tackle that effectively. We have a law en-
forcement system that will go after one business losing $40,000, be-
cause it is an identifiable larger increment. It is a problem and we
have got to help the consumers.

Senator Lieberman. Thank you.

Senator Cochran?

Senator Cochran. Let me just ask Mr. McIlhenny a question or
two about the law enforcement side of this issue. You hear about
the FBI and other local law enforcement agencies setting up these
fences where they invite people to come in and provide goods, and
they get two tickets to the ball game or something like that and
they end up capturing a lot of folks who have committed crimes in
the way.

I wonder whether or not, if what you say is true — and I believe
you — that there is no legitimate advertising going on like this, that
invariably every advertisement that is placed for something like
this turns out to be a phony and a trap for an innocent person. If
we have a law against that kind of thing, punishable by fines or
incarceration, why couldn't we set up a situation where those who
are placing those ads in newspapers get a visit from the law en-
forcement agency and found out in that way, arrested and brought
to justice?

71-705 0-93-2


If these people are embarking on a widespread scheme of depriv-
ing innocent people of hard-earned money, it seems to me that
ought to be severely punished and we ought to develop some way to
cope with that through our law enforcement agencies.

Mr. McIlhenny. I would be delighted if we were to be able to do
that. As we all know within government and within any business
work at all, we all have priorities. We cannot do everjrthing we
would like to. If this meeting, if this hearing, raises the [law en-
forcement] priority on this particular scam, this incredible cheating
of a lot of people in the public, I will do nothing but cheer both of
you gentlemen.

Thank you very much.

Senator Cochran. Thank you. Well, your being here and giving
us this information is very, very helpful, and so is the information
we have gotten from the other witnesses. But it seems to me that
we need to take a tougher look at how we can combat this from the
government's point of view. I think you are doing a great job of
providing information and tr5dng to follow up and tell people what
they ought to do and how they ought to react to these invitations
to make easy money at home.

But I think we need to nail these guys who are behind it and
really get tough with them and put a few of them in jail or fine
them pretty hard and let that word get around, too. I think that
will have a depressing effect on the enthusiasm of these con artists.

Mr. McIlhenny. We would be delighted to form a partnership
with you, sir.

Senator Cochran. Let us work on it.

Senator Lieberman. Thank you. Senator Cochran. I agree with
you and I look forward to working on that.

We will have some good news from the Postal Inspection Service
when they testify, because they have, as your testimony indicates,
Mr.McIlhenny, had some success, but there is clearly a lot more to
do. The scope of this was amazing to me, as we got into it, and I
just want to verify that you testified that there were 176,000 com-

Mr. McIlhenny. Inquiries.

Senator Lieberman. Inquiries, I am sorry, inquiries to Better
Business Bureau offices around the country.

Mr. McIlhenny. That was in 1992, and right now, in 1993, we
are running significantly ahead of that £mnual rate. I would bet it
is going to be a quarter of a million inquiries in 1993.

Senator Lieberman. That is really amazing, and I would pre-
sume that that is a fraction of the total, because a lot of people are
either embarrassed to complain or the amount of money is an irri-
tation. As you said, $40 can be a week's food for a family, but it is
not as if they have lost everything they have. So my guess is that
the 176,000 inquiries is a fraction of what is happening.

Mr. McIlhenny. It is just the tip of the iceberg. Remember,
those people who inquire first are the ones who do not fall prey to
these schemes. The people who respond to these schemes — there
has got to be a large enough group of them to make this worth-
while for the rip)-off artist.

Senator Lieberman. Correct.


Mr. McIlhenny. So multiply it by 10, 15, 20, you are not going to
be able to really measure how big this thing is.

Senator Lieberman. And I take it that these businesses are set
up really throughout the country. It is not just in any region. Or to
put it another way, because of modern technology as you have de-
scribed it, and no matter where they are set up, they are working
throughout the country, they are working publications.

Mr. McIlhenny. Yes, and they are using mail drops. They are
going to be in another State, use another State's mail drop, and
this is a business that can be set up by one crook very easily. It is
not a big investment to run these ads in the various newspapers.

Senator Lieberman. OK. I appreciate very much the testimony
of this panel.

Senator Dorgan, would you like to make an opening statement

Senator Dorgan. No, I have no opening statement. I regret I
missed the first part of the panel, but I look forward to the rest of
the hearing.

Senator Lieberman. Thank you. Senator.

Let me thank Mr. McIlhenny, and particularly thank Ms. Cole,
Mr. Matthews and Mr. Rooney for taking the time to come in. I
take it that none of you will be responding to similar ads in the
future, but I am delighted that each of you is employed and I wish
you well.

Thank you very much.

Senator Lieberman. Let's call the second panel, which is one wit-
ness, Richard Barton, who is Senior Vice President, Governmental
Affairs, Direct Marketing Association.

Mr. Barton, Thanks for being here today. We welcome you and
look forward to your testimony now.


Mr. Barton. Mr. Chairman, Senator Cochran and Senator
Dorgan, it is a real pleasure to be here today, because this is a very
important subject to people in the direct marketing business. In
fact, it should be to anybody in business.

The Direct Marketing Association is an international trade asso-
ciation with approximately 3,000 domestic companies who are in-
volved in all aspects of direct marketing. Of course, this issue that
we are talking about today is of immense importance to our mem-
bers, because dealing directly with the consumer in what is an es-
sentially arm's length operation — it is not face-to-face, as you have
in the retail industry — we feel that it is extremely important that
the American consumer trust the process, trust the direct market-
ing process, trust the mail. And to the extent that frauds like this
succeed, it reduces the trust that people have in the process.

So we work very, very hard in the Direct Marketing Association
to try to establish and enforce ethical standards and also to work
with law enforcement agencies to eliminate these scams. As you
said already today, work-at-home scams seem to be some of the

1 The prepared statement of Mr. Barton appears on page 37.


most persistent of the frauds that we have been dealing with. They
are like dandelions in your law, you never seem to ever quite get
rid of them, no matter how hard you try.

I do want to underline something here, though, that you touched
on. There are some legitimate opportunities to work at home, not
necessarily direct marketing opportunities, but there are some, par-
ticularly working in computer operations, some on the telephone
and home-based offices and consulting, and there are organizations
that support those in-home services.

Though, as you pointed out, those opportunities are generally
pursued through a more traditional way in which you recruit
people, you have interviews, and the employees they have a person-
al relationship with a company. They are nothing like the kind of
scams we are talking about here.

But the fact that working at home in a legitimate way is becom-
ing more and more prevalent in our society is one of the other rea-
sons that work-at-home scams are growing. People feel that that
working at home is legitimate and they can get sucked into these
offers very quickly.

Of course, as we have also pointed out, these scams seem to prey
on the financially strapped, on the poor, and in many cases on
poorly trained people and, therefore, they can be particularly cruel.

For example, we had a case that came before our ethics commit-
tee. An Hispanic family, a poor Hispanic family, paid $400 for sup-
plies to make paper flowers and, you guessed it, they could not sell

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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 2 of 6)