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 4 of 6)
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desist from the scheme. Ingram then bled guilty to State criminal
charges, made restitution of $57,300 to his victims, and was put on
probation for 2V2 years.

Mr. Chairman, I appreciate your offer of legislative initiatives
that could bolster our efforts to attack work-at-home and other em-
ployment schemes. We have included several proposals in our writ-
ten testimony.

Finally, we want to thank you for introducing S. 279, which, as
you know, would greatly enhance our weapons against advance fee
loan schemes.

Mr. Chairman, this concludes my testimony. I would be happy to
answer any questions you may have.

Senator Lieberman. Thank you, Mr. Lsimden.

Ms. Angelo, I take it you do not have separate testimony, but you
are available for questioning.

Ms. Angelo. That is correct.

Senator Lieberman. Thank you.

Thanks for what you have been doing. The PIS is really a too
little known agency of government and, in my opinion, one of the
most important protectors of consumers. It has a long and proud
history.

Historically, I am curious if you know when these work-at-home
scams began to appear. How long have they been in evidence?

Mr. Lamden. Mr. Chairman, I have been in the Postal Inspection
Service 24 years and it has been a top priority of our service ever
since I have been in, and I know it goes back a lot further.

Senator Lieberman. Before that?

Mr. Lamden. Yes.

Senator Lieberman. Again, from your testimony, work-at-home
scams increase with economic difficulties in the country.

Mr. Lamden. Yes.

Senator Lieberman. People are preying on other people, essen-
tially?

Mr. Lamden. That seems to be the trend.

Senator Lieberman. Again, your testimony confirms what we
heard from the two earlier panels, which is that you really do not
find legitimate work-at-home business opportunities through the
classified ad sections.

Mr. Lamden. Certainly not any ad where they request money up
front, we have found virtually no promotions that were legitimate.



25

Senator Lieberman. You have had some success in closing down
a significant number of these operations. Who are these folks? Are
these people who generally have had criminal records or records of
being con artists? Who are they?

Mr. Lamden. They run the gamut. We have had some major
criminal investigations where people have had prior criminal
records and are opening up new fraudulent schemes. Others are
people that have just tried to make a get-rich-type promotion, take
up a little fast money and then move on.

Senator Lieberman. Basically, it does not take them too much to
get into business, I take it.

Mr. Lamden. No, it does not, just simply taking out an ad and
making up a promotion.

Senator Lieberman. Low investment.

Mr. Lamden. Very low investment.

Senator Lieberman. Once you close them up, do the people tend
to reappear somewhere else?

Mr. Lamden. A lot of the people, as I said, are people that have
decided on possibly a get-rich-type promotion. We have issued, like
I mentioned, over 1,000 voluntary discontinuances this year. We
have put people on notice that what they are doing could be illegal.
It is impossible for me to say if those people repeat, but I would say
to a large extent that is a one-time shot. We have other people, as I
mentioned, that we have put out of business, taken criminal action,
and then they crop up again.

Senator Lieberman. Is there any evidence that this is organized,
that there is any relationship between these work-at-home ripoff
artists and organized crime?

Mr. Lamden. I am not aware.

Senator Lieberman. So they tend to be more individual con art-
ists?

Mr. Lamden. Yes, that has been my experience.

Senator Lieberman. In their testimony, the Council of Better
Business Bureaus say that some of its bureaus are under the im-
pression that the Postal Inspection Service will not go after a com-
pany, unless consumers have collectively lost about a quarter of a
million dollars. Is that correct?

Mr. Lamden. There is nothing in writing. I do not believe you
will find anything in writing in any particular judicial district with
that specific threshold. Obviously, there are some major metropoli-
tan areas where the amount of money lost, the threshold may be
different as far as what prosecution would take place. But if a case
is worthy of prosecution, I do not believe a specific threshold is in
effect.

Senator Lieberman. Just one or two more questions, if I could.
Do you cooperate at all with the Federal Trade Commission? Do
you know if they have been involved in this matter at all?

Mr. Lamden. We work very closely with the Federal Trade Com-
mission, exchange information, and we both have basically the
same aims in this area.

Senator Lieberman. I gather there is one State we know of,
Maryland, that has a statute that is related to this problem and
they prohibit anyone who "places any advertisement that repre-
sents that any person can earn money at home by stuffing or ad-



26

dressing envelopes, mailing circulars, clipping newspaper or maga-
zines articles, or, performing similar work from requiring any
money up front." That is the prohibition there. I do not know if
you are familiar with the statute, but I am curious about what
your opinion of it is.

INSERT FOR THE RECORD

Sec. 13-314 Annotated Code of Maryland

§ 13-314. Work-at-home advertisements.

A person who places any advertisement that represents that any person can earn
money at home by stuffing or addressing envelopes, mailing circulars, clipping
newspaper or magazine articles, or performing similar work:

(1) Shall pay compensation to others for performing the represented tasks; and

(2) May not require the persor who wUl perform the represented tasks to advance
any monetary payment or deposit to the person who placed the advertisement on
any instructional booklets, brochures, kits, programs or similar information materi-
als, mailing lists, directories, memberships in cooperative associations, or other
items or services. (1980, ch. 371.)

Mr. Lamden. I am not familiar with that. I do not know if you
have.

Ms. Angelo. We have seen the statute, and if all 50 States en-
acted it, it would be an excellent idea. On the Federal law, we al-
ready have the authority that we need to at least call these promo-
tions fraudulent, so this would simply make more specific things
that we already call fraudulent under existing Federal laws.

On the other hand, as some kind of a trade regulation, say a Fed-
eral Trade Commission trade regulation, I think it could be very
beneficial as a deterrent, putting people on notice.

Senator Lieberman. It might help. Thank you.

My time is up. Senator Cochran?

Senator Cochran. I notice in your testimony you mention the
mail fraud statutes as being very useful tools and weapons in the
battle to do something about these unlawful schemes, and I want to
commend you for being aggressive and having the conscientious
commitment that you obviously do to bring these con artists to jus-
tice. You have a good record of doing that.

You also suggest that these statutes could be expanded to apply,
as well, to private courier services and also to give you the power
to get at telephone records that may give you information about
who is using the telephones to perpetuate these scams. I am sure
the fact that private courier services are used for a lot of legitimate
operations and legitimate passing of information might trouble
some about extending the power of the Postal Service to private
services of that kind.

Is there any statute that you know about already on the books
that applies to the private courier services that gives you the right
to do what you want to do under this statute?

Mr. Lamden. I am not aware of any. Senator.

Senator Cochran. You mentioned that sometimes telephone
companies do not respond to subpoenas that are issued under the
lawful powers that you have. Do you have any kind of power to
compel compliance with subpoenas? I thought we had those powers
under the law.



27

Mr. Lamden. What we would be seeking is civil investigative de-
mands to move in quickly and obtain records from the telephone
companies prior to getting a subpoena, if we do not have enough
evidence developed to obtain a subpoena.

Ms. Angelo. In the criminal context, where we already have sub-
poena authority, we do have ways of enforcing subpoenas through
the U.S. Attorneys office. What Mr. Lamden just mentioned was a
civil investigative demand authority that we have actually request-
ed be inserted into our civil statute, because we have no subpoena
authority under the civil false representations statute right now.

Senator Corhran. Well, these are interesting challenges and we
do have to be careful to balance individual rights and protections
of privacy and that kind of thing and lawful business activities that
may use courier services. But I am in full agreement with you that
we need to use all the lawful and constitutional powers that are
available to us to do something to protect innocent consumers and
those who are taken advantage of in these unlawful activities.

I think the Chairman is certainly doing a great job to help bring
this information to the attention of the general public in schedul-
ing and convening this hearing and inviting you to be here to help
us understand what we can do, as the branch of the government
that makes the laws, to strengthen our laws in this area and make
sure that we have what we need to do the job.

Thank you, Mr. Chairman.

Senator Lieberman. Thank you. Senator Cochran, for your kind
words and for your partnership in this effort to protect American
consumers, particularly those who are a little more vulnerable
these days, because of the economy, and, again, are not looking for
a free ride, just for an opportunity to work at home and make a
little extra money.

I have two more brief questions. One goes to this question that
has been raised earlier about the obligation of newspapers and
magazines that publish these ads, which again we have heard over
and over today are just about almost always frauds.

I wonder whether the Postal Inspection Service ever notifies
newspapers and magazines that they are running ads for oper-
ations that you have found to be fraudulent?

Mr. Lamden. Well, I guess I should not speak to it, because I
cannot speak to any specific instances. I think we have in the past
conferred with publishers regarding frauds in ads, but I cannot
really mention any specific instances.

Senator Lieberman. Do you think it would be a good idea and an
appropriate exercise of your authority?

Ms. Angelo. I think contacting them, without telling them that
they are violating or potentially violating the law, might exceed
our enforcement authority in spirit. On the other hand, I think it
is not a bad idea, as soon of a cooperative effort.

Senator Lieberman. That is the tone of which I was thinking of
it, and I urge you to consider that.

Finally, of the recommendations that you make in your prepared
statement about additional authority that you think might help
you pursue these cases, do you want to go into any more detail on
any of those?



28

Mr. Lamden. Well, we have some specifics, I believe you do, Jen-
nifer.

Ms. Angelo. The main thing — and this would help us in all of
our cases, not just work-at-home — the main legislation that we are
interested in is a bill that was introduced in the last session by
Senator Pryor which would expand our authority in a number of
ways. It would give us the civil investigative demand authority, it
would permit us to go into district court and not only seek to im-
mediately detain incoming mail responding to a scheme, but also to
seek an order just stopping the business altogether. So if it were a
telemarketing business, it would be yank the phones out of the
wall. If it were direct mail, it would be stop mailing.

Under the civil statute right now, all we can do is get the money
that is coming in after the scheme has run its course, and this leg-
islation would give us an extra jump on the promoters.

Senator Lieberman. That is very important. So the general au-
thority that is being asked for in Senator Pryor's legislation would
obviously help you to protect people in these cases?

Ms. Angelo. Absolutely.

Senator Lieberman. Thank you very much.

It seems to me, just to sum up very briefly, that this is a serious
problem with substantial economic consequences, half a billion dol-
lars a year has been testified to. Really, every case we have heard
is a ripoff, and presents enforcement difficulties, because of the
small mounts of money that are generally lost by people.

So I want to mention just four areas of discussion that the sub-
committee will pursue that have been mentioned here today. One
deals with the whole question of who publishes and why, and the
suggestion made by Senator Cochran that we may want to think
about prohibiting these ads, because they always seem to be fraud-
ulent, understanding, as he said, that we have got constitutional
questions and others that we would want to look at. At a mini-
mum, we would want to see how we might better encourage the
publishers to self-regulate here, or at least to warn consumers.

Secondly, there was a mention of possible FTC regulation in this
area that would put people on notice. Third is the possibility of
other State statutes like the one in Maryland, and finally the rec-
ommendations that you have made for expanding the authority of
the Postal Inspection Service to even do better than you have al-
ready done at pursuing these con artists.

So the subcommittee will consider all of those and try to remain
constructive. Obviously, in some measure we hope, as Senator
Cochran said, that the publicity attendant to a hearing like this
will send a warning out across the country and that consumers will
self-protect by not responding to these ads.

Again, I thank Senator Cochran, the ranking member of the sub-
committee. I thank all the witnesses today. The record of the hear-
ing will remain open for an additional two weeks for any addition-
al testimony that anybody would like to submit.

The hearing is adjourned.

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]



APPENDIX



Prepared Statement of James H. McIlhenny

Good morning, Mr. Chairman. My name is James McIlhenny, and I am president
of the Council of Better Business Bureaus. I ask that my statement be included in
the formal record of these proceedings.

Let me begin by applauding you, Senator Lieberman, for calling pubUc attention
to the growing problem of work-at-home scams. These scams, considered "nickel and
dime" crimes by many in the law enforcement field, take advantage of the eager-
ness of people to e«im money by doing work at home. Victims of these swindles are
generally not looking for "something for nothing." Folks attracted to these offers
are, by and large, eager to do honest work for honest pay. They just find it difficult,
sometimes impossible, to locate or hold a job outside their home because of famUy
obligations (many victims are stay-at-home mothers), health considerations (that's
why the elderly and disabled are easy targets for such scams) or level of education
(poorly-educated or low-income people have £m unusually rough time finding jobs in
today s tough marketplace).

Too often work-at-home scams 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 hovering around $40. That doesn't seem
like a significant amount of money, but you have to realize that it probably repre-
sents the week's grocery money for many victims.

And, it's not unusual for a person to fall victim to two or three or four such
scams, before they finedly realize that they are not going to receive actual employ-
ment from such offers. Most people want to believe that the work-at-home promo-
tion that has captured their attention actually might be legitimate.

I think we need to ask ourselves: Who commits the greater crime — a person who
steals $40,000 from one compgmy, say in a bank robbery, or one company that steals
$40 from 1,000 individuals, which is not an uncommon feat for work-at-home pro-
moters? The Eunount of money involved— $40,000 — is the seune, but there's a huge
difference in the number of people who wind up victimized.

The Scope of the Problem

A nationwide investigation by the Council in 1980 of 55 work-at-home promotions
revealed that consumers who wanted to supplement their income by investing in
work-at-home opportunities were losing their money to unscrupulous promoters
using misleading advertising claims. It's now 13 years later and the situation today,
unfortunately, is much the same, or worse.

Work-at-home companies received the largest number of inquiries — more than
176,000 — of any of the 327 types of businesses included in the Council's 1992 Annual
Inquiry and Complaint Summary. The Work-at-Home category has ranked among
the top 10 most-asked-about businesses for the past 5 years; it ranked number 2 in
1991 and 1990, number 6 in 1989 and number 8 in 1988. However, the past 3 years
have witnessed a significant leap of 20 percent in the number of inquiries.

A special survey conducted by the Council this spring found that Bureaus across
the Nation are reporting that work-at-home schemes now account for their Isirgest
or fastest-growing category of inquiries. In fact. Bureau responses to the survey indi-
cate that 1993 inquiry totals will exceed last year's totals. Boston received 4,393 in-
quiries about work-at-home companies in 1992, and fielded 2,125 inquiries during
the first 3 months of this year. Bryan, Texas, which handled 177 inquiries in 1992,
reports that it surp£issed that figure by May of this year. Pittsburgh reported 680
inquiries in 1992 and received 509 inquiries by June 1 of 1993. Albuquerque handled
2,454 inquiries in 1992, and 1,152 in the first 4 months of 1993.

You'll note from the attached stete-by-state breakdown that work-at-home promo-
tions are as prevalent on the Eiast Coast (Baltimore reported "at least" 1,117 inquir-

(29)



30

ies in 1992; Philadelphia fielded more than 3,000 inquiries; Miami — jxist over 1,000)
as they are on the West Coast (BBB Sacramento — 1,034 inquiries; Portland — 1,603
inquiries; BBB Los Angeles — 11,000 inquiries). The schemes are as common in the
North (the St. Paul Bureau reported 1,200 inquiries in the first 4 months of 1993
alone) as they are in the South (Lafayette, LA — more than 2,500).

Even the center of our country is not immune ft-om work-at-home pitches. In fact,
it seems to be a special favorite of such promoters. Wichita reports that work-at-
home schemes topped their inquiry list for January and February of this year. The
Topeka Bureau reports that more people call to ask about work-at-home opportuni-
ties than any other single item. Topeka fielded 1,300 inquiries last year; Chicago re-
ported 5,204 inquiries; Ft. Wayne, IN — 1,022 inquiries; Omaha — 3,000 inquiries and
Toledo— 2,000 inquiries.

Residents of small towns are as likely to inquire about such promotions as are
residents of big cities. That's why the smaller Bureaus (such as Asheville, NC with
554 inquiries; Tyler, TX with 650, Boise with 567 and Pueblo CO with 152) consider
these promotions to be as serious a problem as do the larger Bureaus. The New
York City Bureau, which fielded over 3,000 inquiries last y«ar, reports that of the
Bureau's top 25 most inquired about companies, two are work-at-home scams. De-
troit fielded over 5,000 and Seattle handled 4,000 inquiries.

Why the Concern?

Why are we so concerned about work-at-home schemes? As you may know, the
Council of Better Business Bureaus (CBBB) promotes ethical standards of business
practices and protects consumers through voluntary self-regulation and monitoring
activities. We have a very strong grassroots presence in the world of consumer pro-
tection.

The entire Bureau system is supported through the membership of private busi-
ness; we are not a government agency and our consumer-oriented programs are not
supported by tax dollars. CBBB 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 mar-
ketplace.

Folks who receive offers by phone or mail — offers that sound too good to be true
and are from companies they ve never head of — usually turn first to their Better
Business Bureau for help and information. Bureau staff members have become all
too familiar with the scam artists and unethical promoters who prey on an unsu-
specting public. Bureaus are on the front-line every day working to identify and
alert the public to the fraudulent schemes that continue to proliferate. Work-at-
home schemes are a perennial. They never quite go away . . .such schemes
appear, disappear and reappear periodically to bilk a fresh group of victims.

What's more, our survey results tell us such schemes are not likely to go away
any time soon. When Bureaus were asked why work-at-home schemes continue to
proliferate, the cause most frequently cited was the uncertain economy emd continu-
ing unemplojmaent. Tough or uncertain economic times, which we are experiencing
now, breed work-at-home schemes. Other reasons why these schemes continue to be
a problem, according to BBBs, are the lure of easy money; a popular belief that
what is printed in the newspaper must be true, the fact that newspapers continue to
accept these misleading/false advertisements and little government enforcement at
any level. Several Bureaus attributed the continued success of these fraudulent com-
panies to consumers who do not complain or seek refunds. Consxmiers often write
off the amount of their loss as insignificant or they may be too embarrassed to
admit to being taken.

Each of these causes need to be addressed if we are to make headway against
these scams. And, as much as we'd like to, the BBB can't crack down on these
crooks by ourselves. We must work together with other interested parties — law en-
forcement, publishers, consumer groups, senior citizen associations — to educate the
public about "work-at-home" promotions, and to convince victims to file a complaint
when they get taken.

How Do Such Scams Work?

There are basically two tjrpes of work-at-home "jobs" — the envelope^tuffing
scheme and the craft assembly type offer. Bureaus report that the vast majority of
work-at-home "jobs" offered are for stuffing envelopes. In fact, 96 percent of the Bu-
reaus that responded regularly advise consumers on the pitfalls of envelope-stuffing
opportunities.

The envelope-stuffing scheme urges people to send away for information which
will enable them to "make $650 a week stuffing envelopes. Instead of receiving en-
velopes to stuff, inquirers receive promotional materials asking for more money in



31

order to receive additional details on money-making plans. The plans encourage
placement of ads with similar fraudulent offers to recruit others for the same busi-
ness of offering a work-at-home plan. Such schemes require expending several hun-
dred dollars for advertising, postage, envelopes and printing. This system is one
which feeds on continuous recruitment of persons, and by such geometric progress,
would soon involve everyone in the country.

The second most popular work-at-home "job" as reported by 58 percent of the Bu-
reaus was craft assembly. Assembly offers include assembling circuit boards;
making hair bows, baby bibs, Christmas ornaments; making stuffed animals, paint-
ing novelty items, guit£u - stringing assembly; and offers to get started processing
medical claims on your home computer.

Assembly work-at-home schemes often require the investment of hundreds of dol-
lars in instructions, materials and equipment and many hours of time to produce
items for a company that has promised to buy them. Once the supplies have been
purchased and the work completed, the company refuses to pay for the assembled
items because it clsiims the work doesn't meet certain "standards." Victims of such
schemes are then stuck with having to find customers for the items they've already
made.

Other popular types of work-at-home scams reported by the Bureaus include trac-
ing unclaimed government funds, reading books or taking photographs or videos for
pay and selling lists and directories of work-at-home opportunities.


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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 4 of 6)