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 3 of 6)
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a single paper flower back to the company that promised that they
would buy them. And you have many other examples of this.

College students, for example, seem to be particularly suscepti-
ble, because they are given great opportunities to make a lot of
money. Some of the a£ you have probably seen say $1,800 a day,
taking photographs with your own camera, and if you do not have
a camera, they will sell you one for $49.95. Ck)llege students are
susceptible to that kind of operation.

There are others that you have touched on, compiling a mailing
list at home, taking professional pictures at home. The one I like is
reviewing restaurants and having free meals and doing restaurant
reviews, or whatever they do, and making a lot of money at that.

There are comments elements. This is one of the things that dis-
turbs me, as we discuss more about accepting the advertisements.
All these advertisements have common elements. They are very,
very easy to spot. They make very dramatic claims, the $1,800 a
day claim, for example.

One that I just read this morning that was given to me by my
staff is "win $26,000 in 19 days by entering lotteries and get horse
racing tips" and things of that nature. There is another one that
says, "If you have courage enough to answer this ad, you will be a
millionaire in 180 days" — a million dollars in 180 days. I am will-
ing to try it.

Senator Dorgan. Could we get that particular ad?

Mr. Barton. Yes, I will xerox it for you.

Senator Dorgan. Thank you.

Senator Lieberman. That may be a unique way to deal with the
National deficit.

Mr. Barton. I think it sounds wonderful.



17

The graphics — these are not very good graphics here, but you can
see some of them where the graphics are very dramatic. They have
fabulous testimonials. There is no experience needed, which is one
of the cruel parts of these scams. There is no experience needed to
make all of this money. But the last one, in every single case, is up-
front money before you ever get an5rthing or any clue, as a matter
of fact, to how you are going to do these things. $49.95 seems to be
a very common amount, but it varies across the board.

So it is really not difficult for people who accept ads to spot
these. I will have to be frank about it, it has been a little bit of a
disappointment to the Direct Marketing Association in working
with other organizations, dealing with newspapers and magazines.
We have not been able to make better inroads into tougher accept-
ance of ads by magazines and newspapers. They have their reasons,
and it is not an attack on them, but it is very important to toughen
ad acceptance standards.

Three ways that the Direct Marketing Association tries to work
with many people in eliminating these scams are the traditional
ways we need to do better on. One is on self-regulation within the
industry, the second is developing even better systems of consumer
information, and the third, of course, is tighter law enforcement
and regulation.

While we believe very strongly in the value of self-regulation,
particularly in the direct marketing business, we have also had a
strong stand that we will work with law enforcement agencies to
develop regulations and laws that can support self-regulatory ac-
tivities and make them stronger.

The first area in self-regulation that I will emphasize, which you
have already mentioned, is in advertising standards. We have put
out four different booklets, three within the Direct Marketing As-
sociation and one in conjunction with the Postal Inspection Service,
which teach people in broadcast advertising, in the print media
and those who rent mailing lists — this is a very important part of
it, if you can dry up these people's mailing lists, often you can dry
up some of their business — as to what misleading advertisements
are, what the common elements are, and what the advertising
medium should do in terms of strengthening its programs to assure
that you are not getting misleading or fraudulent advertisements
in m£igazines, newspapers, or in broadcasts.

We feel that it is very important for the advertising media to rec-
ognize that they have a responsibility to the consumer in the same
way that our businesses have a responsibility to the consumer. So
we would press very strongly for the advertising media, whether it
be broadcast, print or any other, to work even more closely with
organizations like us and the Council of Better Business Bureau, to
try to eliminate a lot of this false advertising that we are very con-
cerned about.

We also have in self-regulation within the Direct Marketing As-
sociation, £uid the Council of Better Business Bureaus have an ex-
ample of self-regulation in the industry, not one, but two ethics
committees. We may be unique in that. One of our ethics commit-
tees is called the Committee on Ethical Business Practices, which
hears complaints against businesses who are either operating
fraudulently or unethically by DMA standards. We have almost a



18

semi-judicial operation there, with a lawyer, in hearing these com-
plaints, and then following up and using peer pressure to try to
press businesses we think are acting unethically to shape up.

We have some success in that. We obviously have not had much
success in the work-at-home schemes, but we have a series of com-
plaints and we do work on them and with the businesses that are
involved in it.

If we conclude, and it can be very quickly concluded in many of
these cases, that these operations are not just unethical, but that
they are fraudulent and illegal, we then turn all of our material
over to the Postal Inspection Service or to state attorneys general
who are very active in this area, and we will work with them to try
to eliminate that particular scam and to work with them, too, in
how they can spot the scams as they are coming down the pike.

The second ethics committee develops standard ethical policies
and guidelines for the industry which the Committee on Ethical
Practices enforces.

The second area is consumer education, and this is a very big
area. The Better Business Bureaus, of course, are involved in it. We
work very closely — this is an incestuous business, in a way — with
the Better Business Bureau. In fact, our Director of Consumer Af-
fairs was formerly in a similar job at the Council of Better Busi-
ness Bureaus. We work with National Consumer League and other
organizations in trjdng to get across to the consumer the things
that they need to look for to avoid being defrauded by scams such
as work-at-home scams. We can do a lot better in consumer infor-
mation.

We have put out, again with the Postal Service, a consumer in-
formation pamphlet on how to shop by mail and how to spot oper-
ations like this and to avoid them. But we can do a lot better, and I
think probably the government, through the U.S. Office of Con-
sumer Affairs and other consumer affairs organizations within the
various departments, can do better in teaching the consumer what
to look for in fraudulent activities.

Finally, we are strong supporters of strong law enforcement in
this area. As a former attorney general, Senator Lieberman, you
will be interested in our support for more money for attorneys gen-
ergd. We support stronger enforcement on the state and federal
level. There are plenty of laws on the books, but it is a matter of
resources, and we think that we need more.

In the past, we have worked with the Postal Inspection Service
to increase their law enforcement authority in the area of mail
order scams, and the Postal Inspection Service is now seeking new
legislation to further increase it. And even though we have just in-
formally discussed these with the Postal Inspection Service, I
expect that we will support a fairly large part of their package.

So that is it. These are bad scams, they seem to be getting worse
in some areas, particularly in the area of work-at-home, and we
would like to see a stronger program of self-regulation in the indus-
try, better consumer information and stronger law enforcement.

Thank you, Mr. Chairman.

Senator Lieberman. Thank you, Mr. Barton.

I think I will run a 5-minute clock on us and we will keep going
along as we have questions for you. Again, your testimony seems to



19

confirm what Mr. Mcllhenny said on the earlier panel, which is
that there really are no legitimate work-at-home opportunities of
the kind we are talking about, with the exception of the ones you
described, where somebody will go in and be interviewed by a com-
pany or have a special skill that they can work in connection with
a company or with a computer.

Mr. Barton. As far as I know, that is absolutely true, yes.

Senator Lieberman. Since that is true — again, we heard what
Mr. Mcllhenny said on the specific case of this envelope stuffing,
that those are just always ripoffs — I keep wondering whether there
is not some way we could better encourage the media that are ac-
cepting these ads to follow some guidelines, at least to warn. I un-
derstand the problem that a publication cannot check every adver-
tiser, but in this case where the testimony seems to be that every
one of these is a fraud, whether we can at least urge publishers to
warn people about that fact.

I appreciate that you have published guidelines on ethical prac-
tices for newspapers and magazines. Would you just take a minute
and describe in a little more detail than you have already what
your experience with those guidelines has been and what more you
think we might be able to do to encourage that kind of coopera-
tion?

Mr. Barton. The experience has been inconsistent, in a sense.
We distribute this material to the media, to newspapers, magazines
and to the broadcast media. We generally get a positive response,
in the sense that they do not want to be involved in advertising
which is fraudulent. But in the long run, as Mr. Mcllhenny pointed
out, for most of them, for various reasons, the cost of checking
these things out as opposed to the costs of what they would get in
the ads is prohibiting, and there are First Amendment consider-
ations, also.

I think that the enforcement of advertising standards has not
been in this area, at least, what it could be. Now, we have met in
the past with representatives of the Magazine Publishers Associa-
tion, with what was the American Newspaper Publishers Associa-
tion, is now the Newspaper Association of America, and have had
successful meetings with advertising executives around the country
in promoting these guidelines.

Again, I think we obviously have to do much better and we
really have to emphasize to the media that it is a good part of their
responsibility to stop this kind of fraudulent activity. How we do
that, I do not know. I think probably we can, either from a govern-
ment viewpoint or maybe from an industry viewpoint, sponsor
more forums and seminars for advertising executives, to impress
upon them their responsibility in this area, also.

Senator Lieberman. Have you ever notified a publisher that they
are running a particular ad that you know is for an illegitimate
company?

Mr. Barton. I believe so, but let me ask Marsha Goldberger, our
Director of Ck)nsumer Affairs. Have we lately talked to publishers
about this?

We are just beginning to do that now.



20

Senator Lieberman. I am curious as to whether any of these
work-at-home companies has ever tried to join the Direct Market-
ing Association?

Mr. Barton. Not to my knowledge. I do not know of any of these
companies that are members. In fact, generally, if you look at these
ads, you do not even know what the company is. You send it to a
post office box and you are really not sure who they are.

Senator Lieberman. Right.

That is all for me. Senator Cochran?

Senator Cochran. I am curious about one aspect of all of this.
You mention in your statement that there are plenty of laws on
the books and what we need is to channel more resources into the
enforcement of those laws. I wonder, do we have a law on the
books now, Federal, or is this common-place in the States, making
it illegal to offer for publication one of the ads that we see dis-
played here?

Mr. Barton. I do not know one that would specifically say that
you could not have a work-at-home ad, for example. There are

Senator Cochran. It occurs to me that, if every ad that we have
been shown today — and we have copies of these in our briefing
book here — if every ad here really is a fraudulent representation,
that there is no legitimate work-at-home opportunity that is de-
scribed by these ads, nobody knows of one, I do not see why we
don't make it illegal to offer such an ad for publication and to pub-
lish it.

The newspapers and magazines are working hand-in-glove with
those who are offering the ads, by knowingly publishing ads that
are fraudulent. If all of these are fraudulent, and that is what ev-
erybody says, well, the publishers have to know that, too. Maybe
we ought to just make it a blanket rule that you cannot publish
something like this. What is your reaction to that?

Mr. Barton. I am not a lawyer, so I do not know what a lawyer
would say about the constitutionality of something to that effect. I
certainly would be willing to put our lawyers on the case to work
with the appropriate government officials or whoever to try to
work out something like that.

Senator Cochran. I am not trying to pick a fight with the pub-
lishers. I know they are going to scream and hold their hands up in
holy horror.

Mr. Barton. I am not, either. They are all members of mine.

Senator Cochran. I just wonder about that. You know, if they
are all fraudulent and if these are schemes to defraud people of
money in an illegal way, and fraud is illegal, and actionable fraud
is punishable under most State laws, the fact is that publishing in-
formation that directly resulted in that fraudulent act to me ought
to be against the law, too.

Mr. Barton. As I say, I would be happy to see if we could work
out passable legal language for something like that.

Senator Cochran. Thank you.

Senator Lieberman. Thank you, Senator Cochran.

I think you have asked the right question here, and if the testi-
mony is as we have received it, which is that there are just not any
of these that are legitimate, then publishers are accomplices to this
fraud, which would not occur without their cooperation.



21

Senator Dorgan?

Senator Dorgan. It is an excellent point. I suppose the same
people would hang the notice on the bulletin board of a laundro-
mat, but publishing it certainly distributes it more widely.

I got some information from the Attorney General's office in
North Dakota and notice from the information I received from
them that this problem does not know any geographic boundaries.
It is a problem in both urban areas and rural areas. It is interest-
ing that many of the instances that result in complaints are never
really resolved. It is very hard and costly to pursue this.

I am guessing, and the Attorney General's office suggested that
often the most vulnerable people who are caught in these circuna-
stances are those who are sort of looking for some extra opportuni-
ty for some income because they have had trouble and they are
down and out. So they see an ad that catches their eye and it pulls
them in and takes their last $49. This really is fraud, even if it is
small-time fraud and is never resolved.

So I appreciate your testimony and I hope there are ways to alert
people to the dangers of this and also to try to deal with and re-
spond to those who perpetrate this fraud. I think some of the sug-
gestions you have made are good suggestions. I support this hear-
ing's efforts to highlight this as a problem and try and explore
what approaches can be used to respond to it,

Mr. Chairman, thank you very much.

Senator Lieberman. Thank you, Senator Dorgan.

Mr. Barton, I do not have any further questions. Thank you very
much for your time and your cooperation.

Mr. Barton. Thank you.

Senator Lieberman. The final panel are Alvin Lamden, Manag-
er, Fraud and Prohibited Mailings, U.S. Postal Inspection Service,
and Jennifer Angelo, Chief Counsel for Consumer Protection, U.S.
Postal Inspection Service. These are the folks that have been doing
the work thus far on this matter, and we look forward to their tes-
timony.

Mr. Lamden, would you like to begin.

TESTIMONY OF ALVIN F. LAMDEN, » MANAGER, FRAUD AND PRO-
HIBITED MAILINGS, U.S. POSTAL INSPECTION SERVICE; AC-
COMPANIED BY JENNIFER ANGELO, CHIEF COUNSEL FOR CON-
SUMER PROTECTION, U.S. POSTAL INSPECTION SERVICE

Mr. Lamden. Good morning, Mr. Chairman, Senator Cochran
and Senator Dorgan.

I am Al Lamden, Manager of the Fraud and Prohibited Mailings
Branch of the Postal Inspection Service. I am accompanied by Jen-
nifer Angelo, Chief Counsel for Consumer Protection. We are
pleased to have this opportunity to discuss the current efforts of
the U.S. Postal Service to combat work-at-home schemes.

The Postal Inspection Service is the investigative and audit arm
of the U.S. Postal Service. There are 2,000 inspectors nationwide
who are responsible for protecting postal employees, the mails and
postal facilities from criminal attack, and for protecting the Ameri-



The prepared statement of Mr. Lamden appears on page 39.



22

can public from being victimized by fraudulent schemes involving
the mails.

We are also responsible for keeping postal management informed
of operating conditions within the Postal Service and for protecting
the Postal Service against fraud, waste and abuse. We have per-
formed these duties for over 200 years and are one of the oldest
Federal law enforcement agencies.

A number of statutes allow us to take action against fraudulent
practices involving the use of the mails. Our primary weapons are
two statutes originally enacted over a century ago, the criminal
mail fraud statute and the civil postal false representation statute.

The mail fraud statute defines as a felony any intentional use of
the mails to defraud. Violators are subject to fines and imprison-
ment, and where the proceeds of the crime are used to further the
scheme, we have authority under the money laundering statutes to
forfeit those proceeds or property they were used to acquire.

The false representations statute allows the Postal Service to
take administrative action to return to the sender all mail sent in
response to any false advertisement which seeks to obtain money
or prop)erty by mail and to order the promoter to cease and desist.
Because these proceedings are time-consuming, two Federal injunc-
tion statutes allow us to take prompt interim action against decep-
tive mail practices.

In addition, two other statutes allow us to detain mail addressed
to false or fictitious names or addresses used to conduct mail fraud
schemes until the claimant identifies himself or herself and proves
their entitlement to the mail.

Work-at-home promotions are among the most common and en-
during forms of mail order schemes. In times of higher unemploy-
ment, more individuals become vulnerable to these promotions. We
pursue these schemes under our civil statutes, and, when the cir-
cumstances of the case permit, we seek criminal prosecution, as
well.

We also obtain voluntary discontinuance agreements from a
large number of promoters. The first half of this fiscal year, we
filed 24 civil complaints and obtained 23 cease and desist orders
against work-at-home schemes. We also obtained over 1,000 volun-
tary discontinuance agreements. We currently have 82 open inves-
tigations of work-at-home promotions.

A typical work-at-home promotion begins with a classified adver-
tisement offering free information on how to earn hundreds or
thousands of dollars weekly by working at home performing such
duties as stuffing envelopes, assembling products, reading books or
typing. ,

Individuals who request the free information are sent a circular
or given a telephone pitch that describes the program in glowing
terms, promising high incomes, regardless of experience, and giving
the impression that, for a fee, participants will receive £dl materi-
als they need to immediately iDegin making money. The fees gener-
ally r£inge from $20 to $50, and some more sophisticated programs
can cost hundreds.

What consumers receive in exchange for their money varies, but
these work-at-home programs are almost always a fraud. They do
not generate the promised income, and frequently they require par-



23

ticipants to invest substantially of their own money or to deceive
others.

The most common work-at-home scheme is envelope stuffing. We
are aware of no envelope stuffing promotion that ever produced
substantial income. In practically all businesses, envelope stuffing
has become a highly-mechanized operation, using sophisticated
mass-mailing techniques and equipment which eliminates any
profit potential for an individual doing this t3T)e of work at home.

Nevertheless, promoters of these schemes advertise that partici-
pants can earn hundreds weekly" stuffing envelopes, or $3 per en-
velope stuffed. They represent that participants will be provided all
materials they need to earn these amounts. Most victims believe
they will be sent envelopes to stuff and that their income will be
limited only by the amount of time they want to spend stuffing en-
velopes.

Once victims have paid the $20 or $30 fee to participate, they re-
ceive no envelopes or any other materials. Instead, they receive a
pamphlet, usually entitled "The Complete Home Mailers Pro-
gram," which instructs them to place and pay for work-at-home
classified advertisements like the one that they responded to.

The only way these victims get envelopes to stuff is to generate
responses to these advertisements. The participant must essential
start his or her own business to obtain envelopes. Moreover, the
only material stuffed into these envelopes is the circular describing
the home mailers program. In most work-at-home schemes, there is
never any product being sold other than the work-at-home program
itself.

In one notable envelope stuffing case, the Postal Service worked
with the United States Attorney in Brookl)^! to freeze the assets of
William Savran, whose corporation was bringing in $50,000 a
month. Savran's promotion was called "Successful Systems," and
he charged his victims $27 to participate.

The District Court enjoined Savran from sending out mailings or
advertisements in connection with the successful systems business,
directed the Postal Service to return Savran's incoming mail to
sender, and ultimately ordered that $400,000 of Savran's assets be
returned to Savran's victims. The Better Business Bureau of New
York has taken on the task of executing those refunds.

We took criminal action against Eric Rajnior, who was men-
tioned earlier, last year in connection with another envelope stuff-
ing scheme. He sent direct mail advertisements falsely represent-
ing that he ran a loan company that needed to expand its business
by reaching more potential borrowers. He offered to provide all
supplies a person would need to stuff envelopes for him and prom-
ised 50 cents per envelope stuffed, or an average of $500 per week.
Like many shady promoters, he told his customers, "This is not a
get-rich scheme, but an honest opportunity."

We received over 1,000 complaints about Mr. Raynor. We esti-
mate he victimized over 15,000 people. Mr. Raynor was arrested by
postal inspectors and charged with mail fraud in April of 1992. In
May of this year, he entered a guilty plea. Sentencing is pending.

Other work-at-home schemes involve assembling or making prod-
ucts. We took criminal and civil action against one such scheme, in
which Peter Ingram, under the name P&I Enterprises, induced



24

people to send $29 to $80 for woodworking or jewelry kits. Ingram
promised that some workers would earn $216 to $256 per week,
either assembling necklaces or carving wood blocks into cupids
arrows. In fact, Ingram's assembly instructions were difficult to
follow. Persons who attempted to follow them found that Ingram
would reject the products they made, telling them they were flawed
or otherwise incorrectly assembled, and none of his home workers
made money as promised.

I do have a sample of the wood block that he sent and I assure
you it was virtually impossible to make anything that would be
worthwhile for him to accept.

The Postal Service Law Department filed a civil administrative
complaint against Ingram, obtaining his agreement to cease and


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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 3 of 6)