[Senate Hearing 106-181]
[From the U.S. Government Publishing Office]
S. Hrg. 106-181
THE HIDDEN OPERATORS OF DECEPTIVE MAILINGS
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HEARING
before the
PERMANENT
SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JULY 20, 1999
__________
Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
59-577 cc WASHINGTON : 1999
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Darla D. Cassell, Administrative Clerk
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PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
SUSAN M. COLLINS, Maine, Chairman
WILLIAM V. ROTH, Jr., Delaware CARL LEVIN, Michigan
TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico MAX CLELAND, Georgia
THAD COCHRAN, Mississippi JOHN EDWARDS, North Carolina
ARLEN SPECTER, Pennsylvania
K. Lee Blalack, II, Chief Counsel and Staff Director
Linda J. Gustitus, Minority Chief Counsel and Staff Director
Mary D. Robertson, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Collins.............................................. 1
Senator Durbin............................................... 4
Senator Edwards.............................................. 14
Prepared opening statement:
Senator Levin................................................ 3
WITNESSES
Tuesday, July 20, 1999
Glynna Christian Parde, Chief Investigator and Senior Counsel,
Permanent Subcommittee on Investigations, Committee on
Governmental Affairs........................................... 5
David Dobin, President, Lone Star Promotions, Inc., Merrick, New
York, accompanied by Peter J. Tomao, Esq., Garden City, New
York........................................................... 21
Anthony Kasday, President, Neopolitan Consultants, Inc., Las
Vegas, Nevada, accompanied by John Burns, Esq., New York, New
York........................................................... 26
Kenneth J. Hunter, Chief Postal Inspector, U.S. Postal Inspection
Service, and Robert G. DeMuro, U.S. Postal Inspector Attorney,
U.S. Postal Inspection Service................................. 43
Alphabetical List of Witnesses
DeMuro, Robert G.:
Testimony.................................................... 43
Prepared statement........................................... 75
Dobin, David:
Testimony.................................................... 21
Prepared statement........................................... 64
Hunter, Kenneth J.:
Testimony.................................................... 43
Prepared statement........................................... 75
Kaskday, Anthony:
Testimony.................................................... 26
Parde, Glynna Christian:
Testimony.................................................... 5
Prepared statement........................................... 55
Exhibits
* May Be Found In The Files of the Subcommittee
1. Enwood, Pressman & Ingram, Inc. mailing, Acknowledgment
Voucher........................................................ 87
2. Enwood, Pressman & Ingram, Inc. mailing, Quick Bucks........ 88
3. Enwood, Pressman & Ingram, Inc. mailing, Notification of
Cash Payoff.................................................... 91
4. Enwood, Pressman & Ingram, Inc. mailing, Unidentified
Claimant Section............................................... 92
5. Mellon, Astor & Fairweather, Inc. mailing, Car Offer........ 93
6. Mellon, Astor & Fairweather, Inc. mailing, Revocation Notice 97
7. Mellon, Astor & Fairweather, Inc. mailing, ATM Express...... 99
8. North American Bureau of Assets mailing, Original Affidavit. 100
9. North American Bureau of Assets mailing, Cash Giveathon II.. 101
10. North American Bureau of Assets mailing, International
Funding Distribution Department................................ 104
11. Lone Star Promotions mailing, Official Announcement Form.... 106
12. Lone Star Promotions mailing, Registered Notification....... 107
13. Lone Star Promotions mailing, Champion Promotions Int....... 109
14. Lone Star Promotions mailing, Darwin American Selection
Services....................................................... 110
15. R & R Marketing mailing, Official United Sweepstakes of
America........................................................ 111
16. R & R Marketing mailing, Unclaimed Cash Belonging To You.... 112
17. Contest Express mailing, Asset Management & Distribution.... 113
18. Justin Grant mailing, Proceed to Notify..................... 114
19. Millennium Sales mailing, Official Presentment of Award..... 115
20. Nordic Island Marketing Group mailing, National Disbursement
Center......................................................... 116
21. Mailworks International mailing, Wilson Perrie Corporation.. 117
22. Mailworks International mailing, Monetary Awards Division of
CMS............................................................ 119
23. a. Steppin' Out Coupon Book (pink) (over $1,000)............ 121
b. Steppin' Out Coupon Book (blue) (over $3,500)............ 129
24. Five identical Cash Claim Service promotional mailings
reflecting five different return addresses..................... 137
25. The Role of Consultants in Sweepstakes Companies, chart
prepared by the Permanent Subcommittee on Investigations....... 138
26. Different Companies, Same Product, chart prepared by the
Permanent Subcommittee on Investigations....................... 139
27. Incorporated-Revoked Timeline, chart prepared by the
Permanent Subcommittee on Investigations....................... 140
28. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Cashorama, Inc.,
dated June 15 and 30, 1999..................................... 141
29. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Corporate Prize
Headquarters, Inc., dated July 1, 1999......................... 177
30. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Enwood, Pressman &
Ingram, Inc., dated June 14 and 16 and July 6, 1999............ 180
31. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Lone Star
Promotions, Inc., dated June 7, 8 and 21 and July 15, 1999..... 189
32. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Mellon, Astor &
Fairweather, Inc., dated June 16 and July 6, 1999.............. 199
33. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Millennium Sales,
Inc., dated May 14, 1999....................................... 207
34. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from North American
Bureau of Assets, Inc., dated June 10, 15 and 17, 1999......... 209
35. Materials sent to Permanent Subcommittee on Investigations
in response to request for information from Royal Sweepstakes,
Inc., dated June 14, 1999...................................... 225
36. Articles of Incorporation and Certificate of Incorporation
for Enwood, Pressman and Ingram, Inc. and Mellon, Astor &
Fairweather, Inc............................................... *
37. Affidavit of Andrea N. Burrow, dated July 15, 1999.......... 228
38. Affidavit of Robert Groce, dated July 15, 1999.............. 230
39. Affidavit of Richard Kaufman, dated July 15, 1999........... 232
40. Answers to Permanent Subcommittee on Investigations'
interrogatories of Cashorama, Inc. and Corporate Prize
Headquarters, Inc., dated July 15, 1999........................ 233
41. Answers to Permanent Subcommittee on Investigations'
interrogatories of Enwood, Pressman & Ingram, Inc. and Mellon,
Astor & Fairweather, Inc., dated July 15, 1999................. 235
42. Answers to Permanent Subcommittee on Investigations'
interrogatories of North American Bureau of Assets, Inc., dated
July 15, 1999.................................................. 237
43. Answers to Permanent Subcommittee on Investigations'
interrogatories of Royal Sweepstakes, Inc., dated July 15, 1999 239
44. Answers to Permanent Subcommittee on Investigations'
interrogatories of Anthony Kasday and Neopolitan Consultants,
Inc., dated July 16, 1999...................................... 241
45. Permanent Subcommittee on Investigations' Subpoenas......... *
#E02327--Subpoena for Personal Appearance of Sheilah Williams
#E02328--Subpoena for Personal Appearance of Anthony Kasday
#E02329--Subpoena for Documents of Enwood, Pressman & Ingram,
Inc.
#E02330--Subpoena for Documents of Mellon, Astor &
Fairweather, Inc.
#E02331--Subpoena for Documents of Neopolitan Consultants,
Inc.
46. SEALED EXHIBIT: Transcript of U.S. Senate Permanent
Subcommittee on Investigations' Telephonic Interview of Anthony
Kasday, June 18, 1999.......................................... *
47. SEALED EXHIBIT: Transcript of U.S. Senate Permanent
Subcommittee on Investigations' Deposition of David R. Dobin,
June 28, 1999, in Washington, DC............................... *
48. SEALED EXHIBIT: Transcript of U.S. Senate Permanent
Subcommittee on Investigations' Deposition of Sheilah Williams,
July 7, 1999, in Las Vegas, Nevada............................. *
49. Superseding Information, United States v. David Dobin and
Jeffrey Novis, No. 95 CR 0250 (TCP)............................ 249
50. Letter from Peter J. Tomao, Esquire, dated July 19, 1999, to
Permanent Subcommittee on Investigations, regarding his client,
David Dobin.................................................... 255
51. Transcript of Plea Proceedings of David Dobin, dated March
31, 1995....................................................... 256
52. Memoranda prepared by K. Lee Blalack, Chief Counsel & Staff
Director, Glynna Christian Parde, Chief Investigator & Senior
Counsel, and Emmett Mattes, Postal Service Detailee, Permanent
Subcommittee on Investigations, dated July 15, 1999, to
Permanent Subcommittee on Investigations' Membership Liaisons,
regarding July 20th hearing on Deceptive Mailings.............. 282
53. Statement for the Record of James G. Huse, Jr., Acting
Inspector General, Social Security Administration.............. 304
54. Supplemental Questions and Answers for the Record of David
Dobin, Lone Star Promotions, Inc............................... 309
55. Supplemental Questions and Answers for the Record of Kenneth
Hunter, Chief Postal Inspector, Postal Inspection Service...... 325
56. Letter from R.L.T.M.R. to the Better Business Bureau of
Nashville/Middle Tennessee expressing regret that the
sweepstakes company would not be awarding its prize............ 329
THE HIDDEN OPERATORS OF DECEPTIVE MAILINGS
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TUESDAY, JULY 20, 1999
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:34 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Subcommittee, presiding.
Present: Senators Collins, Levin, Durbin, and Edwards.
Staff Present: K. Lee Blalack, II, Chief Counsel and Staff
Director; Mary D. Robertson, Chief Clerk; Glynna Christian
Parde, Chief Investigator and Senior Counsel; Kirk E. Walder,
Investigator; Eileen Fisher, Intern; Kathy Cutler,
Congressional Fellow; Emmett Mattes, Detailee/Postal Service;
Elizabeth Hays, Staff Assistant; Linda Gustitus, Minority Chief
Counsel and Staff Director; Leslie Bell, Congressional Fellow;
Nanci Langley; Mark Carmel (Senator Specter); Felicia Knight
(Senator Collins); Steve Abbott (Senator Collins); Dan Blair
(Senator Thompson); (Senator Akaka); Marianne Upton (Senator
Durbin); Maureen Mahon (Senator Edwards); and Diedre Foley
(Senator Lieberman).
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. The Subcommittee will please come to
order.
Last year, the Permanent Subcommittee on Investigations
began an investigation into deceptive mailings. At our first
hearings on deceptive sweepstakes in March, we heard
troubling--at times heartbreaking--testimony about the
aggressive and deceptive marketing practices used by the four
largest sweepstakes companies to persuade consumers to buy
products they neither needed nor wanted in the hope of
increasing their chances of winning the big prize. Deceptive
sweepstakes can induce trusting consumers to buy thousands of
dollars of questionable merchandise--such as the magazine
subscription extending to the year 2018 purchased by an 82-
year-old man through a sweepstakes promotion.
In addition to financial losses, deceptive mail promotions
exact an emotional toll on those misled by apparent promises
such as ``You Were Declared One of Our Latest Sweepstakes
Winners and You're About to Be Paid $833,337.00 in Cash.''
The Subcommittee found that our senior citizens are
particularly vulnerable to such deceptive mailings. At our
earlier hearings, family members told of loved ones who were so
convinced that they had won a sweepstakes that they refused to
leave their homes for fear of missing the Prize Patrol. In
fact, one woman from Maine wrote to me that she had canceled
needed surgery in order to make sure that she would be home.
The Subcommittee investigated many cases of seniors who,
enticed by the bold promises in deceptive sweepstakes, spent
their Social Security checks, squandered their life savings,
and even borrowed money to buy unwanted magazines, trinkets,
and other merchandise. I will never forget one of our witnesses
who broke down in tears as he recounted how sweepstakes
companies had deceived him into spending $15,000 for products
that he really didn't want in an effort to win the big prize.
Other witnesses explained that their elderly family members
spent thousands of dollars in the vain hope that if they bought
just one more trinket or one more magazine subscription, surely
it would greatly improve their chances of winning. Of course,
it never did.
Our hearings prompted more than 1,000 individuals from
across the country to write to me to share their own
experiences with deceptive mailings. As we began to examine
these mailings closely, we discovered a pattern of highly
deceptive solicitations by dozens of smaller companies that
previously had been unknown to us. In contrast to our earlier
hearings, which concentrated on the four largest sweepstakes
companies, our focus today is on these smaller operations, a
largely unknown segment of the industry that nevertheless
reaches millions of Americans.
Those who followed our previous hearings know that I am
outraged by the deceptive marketing techniques of the major
sweepstakes companies. Despite these questionable marketing
practices, however, these companies are legitimate companies.
They are legitimate in the sense that they do award prizes,
deliver the merchandise ordered, and do not seek to in any way
conceal their identities. The Subcommittee's investigation of
several smaller operators uncovered much more deceptive and
shady business practices--including in some cases possible
fraud--than we found with the larger companies.
Many of these smaller companies tend to be fly-by-night
operations that use multiple trade names to hide their
identities and to confuse consumers. In some cases, they are
run by promoters for a year or two and then shut down. The
operator then starts up a new company under yet another name,
often one specifically chosen to lend credibility to the
contest or to further deceive consumers. These companies profit
not only from their extremely deceptive mailings, but also by
reselling the names of customers to other operators who then
inundate the unlucky consumer with new mailings all over again.
Unfortunately, the Subcommittee's investigation suggests that
this business is quite lucrative.
The companies investigated by the Subcommittee sent
approximately 100 million promotional mailings in 1998 and
received over 4 million purchases. The Subcommittee's
investigators conservatively estimate that these purchases cost
consumers more than $40 million. In return, most individuals
received a discount coupon book that was frequently followed by
numerous additional mailings urging the unwary contestant to
send even more money to buy the exact same coupon book all over
again.
Anonymity, as our hearings will show, is crucial to the
success of many of these small operators. They depend on
working in the shadows and underneath the radar of State and
Federal regulators. They are the ``stealth'' sweepstakes
companies, difficult to detect, to track, and to stop. Our
investigation discovered that most of these companies attempt
to conceal their identity through multiple corporate names and
various mailbox drops in different States. And as our hearings
will show, often their mailings are designed to deceive even
the most cautious consumer.
During the hearing today, we will first hear from the
Subcommittee chief investigator, who will review the results of
the Subcommittee's investigation. We will next hear testimony
from two of these sweepstakes promoters. Finally, we are
pleased to have representatives from the U.S. Postal Inspection
Service to discuss various types of deceptive mailings, such as
government look-alike promotions and mailings that offer to
sell a product that the government already provides for free.
While our investigation has exposed some of these shady
operators, an investigation alone will not solve this growing
problem. It requires a comprehensive legislative solution. I am
very pleased that our initial hearings in March prompted the
Governmental Affairs Committee to approve legislation that I
sponsored--along with Senators Durbin, Levin, Cochran, Edwards,
the Chairman of the full Committee, and others--that would
impose strong consumer standards on promotional mailings and
provide for civil penalties up to $2 million for violations of
those standards. Our legislation would also give the Postal
Service much needed stronger authority to crack down on
deceptive mailing operations.
It is my hope that our hearing today, by revealing the
complicated web of deception spun by hidden sweepstakes
operators, will further build the case for prompt passage of
our legislation by the full Senate.
Senator Levin, our Ranking Minority Member, is delayed in
arriving today. He does have an opening statement which I am
going to ask unanimous consent be entered into the record.
[The prepared statement of Senator Levin follows:]
PREPARED OPENING STATEMENT OF SENATOR LEVIN
During the Women's World Cup match a few weeks ago, I saw a
commercial which demonstrates the determination these sweepstakes
companies have to get people to open a mailing promoting sweepstakes.
They know they can't sell a product unless the recipient opens the
envelope, and since our hearings on deceptive sweepstakes promotions in
March and the excellent work of the State Attorneys General in going
after deceptive sweepstakes practices, press reports indicate that
significantly fewer people are responding to sweepstakes promotions.
More and more people are simply throwing away a mailing advertising a
sweepstakes without even opening it.
Publisher's Clearing House, apparently, decided to go on the
offensive against this trend and is paying for a television ad that
shows someone throwing away a sweepstakes mailing and then the
announcer cautions the person not to do it--not to throw away the
Publisher's Clearing House envelope because it may contain a real
check--a check that can be cashed immediately, as is. ``Look for the
green star,'' the ad says. If the envelope has a green star, according
to the announcer, it could have a real check inside it. ``So,'' the ad
urges, ``you shouldn't throw away that envelope.'' This is a device
Publisher's Clearing House is using to entice people back into
sweepstakes and into opening that envelope so they take the first and
most important step towards buying something--because they think buying
something will improve their chances of winning.
So, even though we made some headway with our efforts in the last
hearings, at least one sweepstakes company is fighting back with a
national commercial on a program as watched as the Women's World Cup,
telling people not to thrown out the Publisher's Clearing House
envelope. As I said at our last hearing, and this emphasizes the point,
sweepstakes promotions are not junk mail, they're big business.
In the last hearing, we heard from the four biggest sweepstakes
promoters that use sweepstakes to sell magazines and other products:
American Family Publishers; Publisher's Clearing House; Reader's
Digest; and Time, Inc. We saw their examples of truly deceptive
promotions--in some cases, using direct false statements. But as bad as
we thought those promotions were, the mailings from these smaller
companies we are going to look at today are even worse.
These mailings are worse for several reasons. They have claim forms
calling themselves ``awards'' or ``entitlements.'' In reality, these
claim forms are used to sell a product which itself is not clearly
identified--a ``cash savings voucher folio,'' or a ``cash savings
premium folio,'' or a ``special premium,'' or a ``special benefit.'' In
each of these cases, the product for sale is a discount coupon book
which has little value to most people. Some merchants who honor the
coupons are not available locally. Some of the coupons require
expenditures of significant sums of money to realize any savings. The
books cost in the neighborhood of $10 to $15 and are supposed to
contain savings of over $2,000, but you'd have to spend thousands of
dollars on items you probably don't need to achieve that level of
savings.
Many of these promoters use a different name on each promotion and
exist only long enough to collect the money, close up shop (sometimes
without awarding prizes), and reopen elsewhere to start the scam anew.
They are small but their reach is wide; cumulatively the Subcommittee
has learned they produce over 100 million mailings a year. Because they
often do not mail in the States in which they operate, they avoid
prosecution by the State Attorney General. When they come under
scrutiny by a State Attorney General or the U.S. Postal Service, they
stop mailing to those States and change their mailings to comply with
any stop order.
Moreover, these companies thrive on the sale of mailing lists. The
Subcommittee's investigation confirmed the rapid sale of names by
various direct mailers. With each purchase, the buyer's name goes on
the resale list of names, becoming a popular commodity for sale to any
person desiring to buy the selling company's customer list through a
list broker. And the buyer will also get resolicited from the first
company another four to five times for each purchase made.
These unscrupulous practices seem to cross the line of legality,
and if they do, the Postal Service needs the enforcement tools to stop
them. The legislation reported by the Governmental Affairs Committee
should strengthen the hand of the Postal Service so these companies
will no longer be able to operate. If they don't cross the line, then
we have to reevaluate where the line is drawn and make the law more
protective for the sake of our American consumers. I thank the Chairman
for holding these hearings, and I look forward to hearing from our
witnesses.
Senator Collins. It is now my pleasure to call on my
colleague, the Senator from Illinois, Senator Durbin. Senator
Durbin has been a real leader on this Subcommittee as we have
exposed and probed various kinds of consumer fraud and
deception, and I am pleased to welcome him here today.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you very much, Chairman Collins. I
think your hearing last March really focused on the big dogs,
the big four, that really do account for a lion's share of
deceptive mailings and questionable mailings across America.
This hearing takes it to the next step, goes after the little
dogs, but their bite is just as bad when it comes to the loss
that many families feel as a result of their deception.
I want to congratulate you for your leadership on this
issue. Many people who are watching this don't understand
really the inner workings of the Senate and how you can move a
piece of legislation successfully. But I want to commend
Senator Collins for her fine work, along with Senator Levin, in
moving this bill forward. A bill that started with three or
four cosponsors is now up to 34, if I am not mistaken, which is
testament to the fact that it is a bipartisan undertaking and I
think a clear message to everyone who is in this business that
they better pay attention. Some changes are going to be made
here to try to protect consumers across America, and these
changes are based on common-sense solutions which apply in my
home State of Illinois as well as the Chairman's home State of
Maine, and suggest that people really are being deceived, that
they are being victimized, and that has to come to an end.
I am happy to join you at this hearing and look forward to
the testimony.
Senator Collins. Thank you very much, Senator Durbin.
Due to time constraints, the Subcommittee was unable to
invite everyone who had an interest in this issue to present
oral testimony. This week we received a written statement from
the Office of the Inspector General of the Social Security
Administration.\1\
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\1\ See Exhibit No. 53 which appears in the Appendix on page 304.
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Without objection, that statement will be included in the
printed hearing record, and the hearing record will remain open
for 30 days for any additional statements.
Senator Collins. I now want to welcome our first witness
this morning. We have with us the Subcommittee's Chief
Investigator and Senior Counsel, Glynna Parde, who will
describe the results of the Subcommittee's ongoing
investigation of deceptive mailings.
Pursuant to Rule 6, all of the witnesses who testify before
the Subcommittee must be sworn, so at this point, I would ask
Ms. Parde to please stand and raise her right hand. Do you
swear that the testimony you are about to give to the
Subcommittee will be the truth, the whole truth, and nothing
but the truth, so help you, God?
Ms. Parde. I do.
Senator Collins. Thank you. You may proceed, please.
TESTIMONY OF GLYNNA CHRISTIAN PARDE,\2\ CHIEF INVESTIGATOR AND
SENIOR COUNSEL, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
COMMITTEE ON GOVERNMENTAL AFFAIRS
Ms. Parde. Thank you, Chairman Collins, Senator Levin, and
Members of the Subcommittee.
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\2\ The prepared statement of Ms. Parde appears in the Appendix on
page 55.
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The Subcommittee's investigation uncovered a breed of
sweepstakes companies that is wholly different than those
highlighted in the Subcommittee's March 1999 hearings. Although
most consumers probably recognize the names Publishers Clearing
House and Reader's Digest, our investigation found that there
are dozens of smaller companies that attempt to remain hidden
from consumers and below the radar screen of the regulators.
The Subcommittee's investigation suggests that these smaller
sweepstakes and prize promoters employ marketing tactics that
are much more aggressive and deceptive to sell their products.
Moreover, these companies have developed ingenious ways to
remain undetected by the regulators. And even if they are
detected, some have developed techniques to insulate themselves
from effective enforcement action.
Although the companies that we have examined are smaller
than the big four in terms of total mailings and gross
revenues, they nevertheless sent roughly 100 million pieces of
mail last year. Though each mailing must be evaluated
independently, we did find that, in general, the mailings from
the smaller companies are much more deceptive than those sent
by the companies the Subcommittee investigated in March.
Now, to give the Subcommittee a sense of what I mean by
deceptive, I would like to show you several exhibits that are
promotional mailings. We obtained these during the course of
this investigation.
The first promotional mailing was mailed by North American
Bureau of Assets, Inc., or NABA, and it is Exhibit No. 8.\1\
Now, Exhibit No. 8 appears to be an ``Original Affidavit'' from
NWCG/Prize Payout Division in connection with its ``$10,000
Cash Opportunity Giveathon.'' This mailing advises the consumer
that ``[y]ou may not be aware that cash prizes are issued in
the aforementioned amount of ten thousand, one thousand, one,
one hundred, and fifty dollars, and additional vouchers
entitlement in a two thousand dollar voucher pak. Said cashpak
is released with mandatory release fee of ten dollars, and is
over and above your previously mentioned cash winnings.''
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\1\ See Exhibit No. 8 which appears in the Appendix on page 100.
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Now, this language clearly implies that the consumer will
receive vouchers for an additional $2,000, going so far as to
call the ``voucher pak'' a ``cashpak.'' Only as an afterthought
in the last sentence of the last paragraph does the mailing
mention that the ``cashpak'' contains ``redeemable vouchers
from national incentive guarantors, and good for food,
entertainment, travel, merchandise, etc., when fully
redeemed.''
Even someone who was suspicious might not be able to tell
that the ``voucher pak'' and the ``cashpak'' referred to in
this mailing are really nothing more than a discount coupon
book. The $2,000 value is actually the estimated value of
obtaining every single discount available. To realize that
retail value, the consumer may actually have to purchase
thousands of dollars of goods and services from the vendors
listed in the coupon book.
Moreover, the mailing does not offer the consumer an
opportunity to purchase a discount coupon book for $10.
Instead, the consumer is told that he or she must pay a
``mandatory release fee'' to get the ``cashpak.'' This mailing,
therefore, illustrates one of the big differences between the
promotions of the major sweepstakes companies and those that
are the subject of this investigation. Unlike American Family
Publishers or Publishers Clearing House, these small operators
attempt to disguise both the solicitation and the product.
Exhibit No. 9 \2\ is another promotion from NABA that only
hits that the mailing is actually a solicitation for the
product. The key paragraph states that ``[w]e have reserved in
your name, a redemption packet valued in excess of $2,000.00
when the value certificates are fully redeemed (see reverse for
details). Your initials and release honorarium are required for
shipment of this value packet.'' Even though it is the same
coupon book and the same contest as in Exhibit No. 8, this time
NABA calls the coupon book a ``redemption packet'' instead of a
``cashpak,'' and the purchase price is a ``release honorarium''
rather than a ``mandatory release fee.''
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\2\ See Exhibit No. 9 which appears in the Appendix on page 101.
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We also discovered that these smaller companies attempt to
trick the consumer into thinking that, if they purchase one of
these coupon books, their odds of winning the sweepstakes will
improve. I would like to show you Exhibit No. 10,\1\ which is
another sweepstakes promotion from NABA. The sixth paragraph of
this promotion, which is highlighted at the bottom of the
chart, reminds the consumer that the prizes NABA awards ``are
determined from private lists of participants who entered a
sweepstakes or were involved in a merchandise purchase by mail.
It's that simple! Your response to direct mail offers has paid
off for you, and we offer you our heartiest congratulations.''
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\1\ See Exhibit No. 10 which appears in the Appendix on page 104.
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The NABA mailing then confidently announces that the
consumer will ``undoubtedly take advantage of the elective
entitlement option described below'' because ``most winners
do.'' The bottom portion of the promotion goes even further to
connect the purchase of the coupon book, or the ``elective
entitlement option,'' to the winning sweepstakes. This portion
contains a box for the consumers to check to ``take advantage''
of the ``elective entitlement options,'' reiterating again that
``most winners do,'' but then adding, ``[b]e sure and send me
the check I have already won.''
Despite strongly linking a purchase to the odds of winning,
the promotion does state in small print at the top of the page
that there is ``no purchase required.'' Even if a consumer read
this disclaimer, however, the language used in the promotion
suggests strongly that, although you don't have to purchase a
product to win, it will greatly improve your odds since, as the
mailing notes, ``most winners do.''
The Subcommittee's investigation also found two other
disturbing types of solicitations in these mailings. First,
many of these companies imply in their promotions that the
consumer has already won the grand prize and, in fact, is
guaranteed to win. Upon much closer inspection, the
disheartened recipient--who was only moments ago counting his
money--will learn that he can only win the grand prize if he
has and returns the winning number and is a guaranteed winner
of only a nominal amount.
For example, if I can direct your attention to Exhibit No.
16,\2\ the fifth paragraph informs the recipient that ``[u]pon
processing and completion of our Top Prize $10,000 Sweepstakes,
the unclaimed cash will be delivered to the determined
principal of record, which in this case is you.'' Now, that
sounds pretty good. This language does not appear conditional;
the recipient has won $10,000. Only by carefully reading the
fine print below the postscript, which is highlighted at the
bottom of the chart, and the rules on the back does it become
clear that the consumer's odds of winning the $10,000 are 1 in
3 million, and actually the consumer is only guaranteed to win
25 cents. Therefore, the bulk of consumers who respond to this
promotion actually lost money because their guaranteed winnings
were less than the cost of the postage.
---------------------------------------------------------------------------
\2\ See Exhibit No. 16 which appears in the Appendix on page 112.
---------------------------------------------------------------------------
The second common practice utilized by these smaller
companies is to imply that the promotion is authorized by or
related to a government agency, thereby lending credibility to
the sweepstakes. I would like to show you one example of this
practice that the Subcommittee investigators uncovered.
Exhibit No. 15 \1\ is a promotional mailing for a contest
currently being conducted by R&R Marketing. You might be
interested to know that there is an ``Official United
Sweepstakes of America.'' Now, we know that the Federal
Government does not sponsor sweepstakes. Yet this promotion
adds to the deception that the Federal Government has sponsored
this contest with a photo of the U.S. Treasury Building that
references a mailing address at 611 Pennsylvania Avenue,
Washington, DC. Our investigators discovered that this is
actually the address for a Mail Boxes Etc. You will also note
that the promotion claims to be from the Office of Treasury of
Awards and is marked with the purported seal of the Official
United Sweepstakes of America.
---------------------------------------------------------------------------
\1\ See Exhibit No. 15 which appears in the Appendix on page 111.
---------------------------------------------------------------------------
At the bottom of the page, the mailing does state that the
sweepstakes ``is an independent private sweepstakes, not
affiliated with the U.S. Government.'' It then coyly turns the
disclaimer to its advantage, however, and says that, ``[a]s an
independent . . . company, we can with good conscience and
faith make the guaranteed promise to pay the official winning
$10,000.''
Our investigation even uncovered evidence of simple mail
fraud. For example, many of these smaller companies offer a
service known as ``rush processing'' for an additional fee or
what is referred to as a ``kicker.'' Now, ``rush processing''
does not mean that the recipient will receive a prize any
earlier, but only that the sweepstakes company will expedite
sending its product, usually the discount coupon book. We found
that some companies may not even expedite the processing of the
discount coupon book.
Subcommittee investigators also discovered that, in a few
cases, some sweepstakes companies completely failed to award a
prize. In the case pending against Eagle Promotions, the U.S.
Attorney for the District of New Jersey has commented that
Eagle has not awarded a prize in its contest. The Subcommittee
also obtained a copy of a letter from a sweepstakes operator
named R.L.T.M.R. to the Better Business Bureau of Nashville/
Middle Tennessee expressing regret that the sweepstakes company
would not be awarding its prize, a Chevrolet Blazer.\2\
---------------------------------------------------------------------------
\2\ See Exhibit No. 56 which appears in the Appendix on page 328.
---------------------------------------------------------------------------
Now, as I mentioned earlier, these small sweepstakes
operators clearly want to remain underground and hidden. And as
evidence of that goal, the Subcommittee's investigation
uncovered a few practices that we believe could be attempts to
not only evade detection by the regulators but to also insulate
the principals in these sweepstakes companies from meaningful
enforcement action.
First, we believe that some of the most sophisticated of
these small operators may rely on front companies to insulate
themselves from tough enforcement action. Second, we believe
that some small operators will form a corporation, send
promotional mailings under that corporate structure for 1 or 2
years, and then dissolve the corporation when they think that
the company's promotions are coming to the attention of
regulators. They then form a new company and begin the cycle
all over again.
The Subcommittee has developed case studies of two
different sweepstakes operators whose business practices may
illustrate these techniques. The two case studies involve David
Dobin, president of Lone Star Promotions, Inc., and Anthony
Kasday, president of Neopolitan Consultants.
Mr. Kasday, who is the president of Neopolitan Consultants,
has been in the promotional mailing business for 30 years.
Although we are not aware of any sweepstakes company in which
he is currently a shareholder, officer, director, or employee,
the Subcommittee's investigation discovered that, through his
various consulting arrangements, Mr. Kasday makes a very
lucrative income from the companies that he directs.
I would like to direct the Subcommittee's attention to
Exhibit No. 25.\1\ As you can see from this exhibit, Mr. Kasday
operates through his consulting company, Neopolitan, and
through Neopolitan he received income in 1998 from at least
five of the six different sweepstakes companies on this chart.
These companies are: North American Bureau of Assets; Royal
Sweepstakes; Cashorama; Enwood, Pressman & Ingram; and Mellon,
Astor & Fairweather.
---------------------------------------------------------------------------
\1\ See Exhibit No. 25 which appears in the Appendix on page 138.
---------------------------------------------------------------------------
Based upon sworn answers to interrogatories and affidavits
submitted by these companies, Mr. Kasday's consulting firm
received almost $400,000 in 1998. Thus far in 1999, Neopolitan
has received payments from these companies totaling over
$500,000. Therefore, through Neopolitan alone, Mr. Kasday has
been paid almost $1 million over roughly the last year and a
half.
I would like to specifically discuss two of the companies
on this chart: Enwood, Pressman & Ingram and Mellon, Astor &
Fairweather. As you can see from Exhibit No. 25, Enwood,
Pressman & Ingram and Mellon, Astor & Fairweather are owned by
Nicole Kasday, who is Mr. Kasday's niece. The Subcommittee
investigators interviewed Nicole Kasday and discovered that she
is a college student who has no involvement in the operations
of either company. She told us that Mr. Kasday approached her
in 1998 about starting the two companies in her name. He asked
Nicole for a copy of her driver's license and a copy of her
signature. With those in hand, he had his office manager,
Sheilah Williams, prepare a signature stamp with Nicole's
signature on it. Ms. Williams testified that, at Mr. Kasday's
direction, she used this signature stamp to open bank accounts,
the mailboxes where the company received mail in response to
its promotions, and to file the necessary paperwork for the two
companies to do business in Nevada. Ms. Williams also testified
that she uses this signature stamp on a regular basis to manage
the affairs of the company, like signing checks for vendors or
payroll.
Mr. Kasday essentially conceded that Nicole knows nothing
of the business and is not kept apprised of its activities. She
does not review copy for the mailings or select the mailing
list. Therefore, we believe that the evidence strongly suggests
that Nicole merely acts as a front for Mr. Kasday, who is the
hidden operator of Enwood, Pressman & Ingram and Mellon, Astor
& Fairweather.
When we asked Mr. Kasday why he had Nicole establish these
two companies, he said: ``I didn't expect to be around very
long and I figured this could be something for their future. So
I talked to her about setting up two companies while I was
still alive and then they would be hers and the income would be
for her and her brother and her dad.''
Now, if Mr. Kasday's primary motivation for creating these
companies was an estate planning device for Nicole and her
family, it is not working very well. Mr. Kasday told us that he
receives 25 percent of the profits from Enwood, Pressman &
Ingram and the lion's share of the profits from Mellon, Astor &
Fairweather.
Ms. Williams testified that she pays Nicole about $1,000
per month from Enwood, Pressman & Ingram, and she also received
a one-time distribution payment of a few thousand dollars from
Enwood, Pressman & Ingram in February of this year. Therefore,
we believe that Nicole has probably received under $15,000 from
these two companies. However, according to Mr. Kasday, from
1998 to date, he has received approximately $60,000 in his
personal capacity from these two companies, and over $600,000
through his consulting company, Neopolitan. These numbers show
that Mr. Kasday and his consulting firm have received an
overwhelming portion of the revenues generated by these two
companies and that the profits are being drained out of the
company's operational expenses as payments to consultants--the
most important of which is Neopolitan.
Mr. Kasday may indeed have incorporated the two companies
in Nicole's name to give her a source of income, albeit modest;
however, our interviews with the Postal Inspection Service
suggest that there is another possible reason why Mr. Kasday is
not an officer or director of Enwood, Pressman & Ingram, and
Mellon, Astor & Fairweather, or any of the other sweepstakes
and prize promotion companies that he directs. If State or
Federal regulators ever track these companies down for sending
deceptive or fraudulent mailings, Nicole Kasday will be the
person that they initially contact. That is, of course, what
actually happened to us. We attempted to contact Nicole through
the attorneys for both companies, only to learn that her uncle
actually directs the operations.
Now, this is a significant point, which I am sure the
witnesses from the Postal Inspection Service can discuss in
more detail. But under current law, the Postal Inspection
Service does not possess the subpoena authority to dig behind
the veneer of the corporate structure that insulates a hidden
operator. More importantly, current law does not give the
Postal Inspection Service the authority to impose civil
monetary penalties on a sweepstakes or prize promoter until
they violate an existing order. Since the person who is likely
to sign such an order is probably the president of a company, a
consultant is likely to walk away from an action by the Postal
Inspection Service without having an order entered against him,
and more importantly, without exposing himself to a future
threat of monetary sanctions for another violation. Thus, by
characterizing the relationship with a company as ``consulting
services,'' an individual may receive a lucrative income from
the sweepstakes business but avoid potential enforcement
actions by State and Federal authorities that would be directed
towards the officers and owners.
As I mentioned earlier, these smaller operators have
another technique for remaining hidden from the regulators. We
believe that some sweepstakes operators will form a
corporation, send promotional mailings under that corporate
structure for a few years, and then dissolve the corporation
only to form a new corporation to send promotional mailings. I
would like to direct the Subcommittee's attention to Exhibit
No. 27,\1\ which is a chart prepared by our staff. There should
be a copy in your book.
---------------------------------------------------------------------------
\1\ See Exhibit No. 27 which appears in the Appendix on page 140.
---------------------------------------------------------------------------
The chart shows that, between December 30, 1994, and March
10, 1995, three companies were incorporated in the State of
Nevada. They had as their president a man by the name of Dan
Anderson, whom we unfortunately have not been able to locate.
Mr. Kasday was identified as the secretary and treasurer of
each of these companies, and each company had the same address:
9030 West Sahara, Las Vegas, Nevada. We believe that all three
of these companies--National Prize Monitors, Express
Processing, and Intercontinental Prize Distribution--were
engaged in the promotional mailing business. You will note on
the chart that each of these three companies only existed for
roughly 3 years or less.
The chart also shows that Mr. Kasday's two other companies
that I mentioned earlier--Enwood, Pressman & Ingram and Mellon,
Astor & Fairweather--were incorporated in the summer of 1998.
As I mentioned earlier, Nicole Kasday, Mr. Kasday's niece, is
the sole shareholder and officer of these two companies, but
Mr. Kasday actually directs the operations of both.
Now, with respect to the chart, you will note that Express
Processing was terminated in December 1998, 6 months after the
incorporation of Enwood, Pressman & Ingram and Mellon, Astor &
Fairweather. In her deposition to the Subcommittee, Sheilah
Williams, the office manager, testified that in the summer of
1998, Express Processing became Enwood, Pressman & Ingram. She
said that the employees who were working for Express Processing
became the employees of Enwood, Pressman & Ingram. They
remained in the same office space, kept the same telephone
number, and answered to the same boss, Anthony Kasday. Based
upon Ms. Williams' testimony, we believe that the change from
Express Processing to Enwood, Pressman & Ingram was one of
corporate form only.
Now, the question, of course, is why someone would open
three corporations, run promotional mailings under their names
for a few years, shut those corporations down, and then start
up two new corporations only to conduct the same business in
the same location. Now, the State and Federal authorities that
we contacted said that different corporate entities and names
make it much more difficult for law enforcement to detect their
activities or take meaningful action against them once they do.
The Federal Trade Commission specifically expressed concern
about this point when it responded to the Subcommittee's
request for complaint information on these smaller companies,
nothing that ``companies who engage in fraudulent activities
often change names and locations when they become aware that
law enforcement organizations have received a number of
complaints concerning their activities. These moves can have a
detrimental effect on potential law enforcement actions, making
it difficult or impossible to track potential defendants or
assets they fraudulently obtain from consumers.''
Further support for this view can be found in an assurance
of voluntary compliance between Richard Kaufman and the
Attorney General of the State of Florida in connection with a
promotional mailing sponsored by Mr. Kaufman's company,
Millennium Sales, Inc. We sought to discuss this matter with
Mr. Kaufman, but he declined to testify before the Subcommittee
on the basis of his Fifth Amendment right against self-
incrimination. A copy of his sworn affidavit asserting his
Fifth Amendment rights can be found at Exhibit No. 39.\1\ One
of the key stipulations that the Florida Attorney General
demanded of Mr. Kaufman was that he ``not effect any change in
the form of doing business nor its organizational identity as a
method of avoiding the terms and conditions'' of the assurance
voluntary compliance.
---------------------------------------------------------------------------
\1\ See Exhibit No. 39 which appears in the Appendix on page 232.
---------------------------------------------------------------------------
Our second case study is David Dobin, who currently is the
president and sole shareholder of Lone Star Promotions, Inc., a
sweepstakes company. In connection with the promotional
mailings of his first company, Wellsworth Smythe Jewelers, the
U.S. Attorney for the Eastern District of New York charged Mr.
Dobin and his then partner with conspiring to use the mails as
part of a scheme to defraud consumers by means of false and
fraudulent representations. Mr. Dobin entered a guilty plea to
conspiracy to commit mail fraud and is awaiting sentencing. In
addition, Mr. Dobin entered into a voluntary cease and desist
order with the U.S. Postal Service in connection with an
administrative action alleging several material false
representations.
One of the allegations by the U.S. Attorney against Mr.
Dobin involved the use of multiple trade names in connection
with Wellsworth Smythe's sweepstakes. Now, unlike the major
sweepstakes companies, these smaller companies do not have and
are not seeking name recognition or brand loyalty. For example,
Mr. Dobin's current company, Lone Star Promotions, Inc., offers
three sweepstakes contests in the amounts of $5,000, $10,000,
and $12,000. But he has utilized 40 different trade names. As a
result, an individual may receive several promotional mailings
that appear to be from different companies, but in actuality,
all of them relate to the same contest.
I think an illustration will make the point. If I can
direct the Subcommittee's attention to Exhibit No. 8,\2\ this
is the promotional mailing from NABA that appears to be an
Original Affidavit from NWCG/Prize Payout Division in
connection with its $10,000 Cash Opportunity Giveathon. If you
will notice at the very bottom of this mailing, checks are to
be made payable to NWCG.
---------------------------------------------------------------------------
\2\ See Exhibit No. 8 which appears in the Appendix on page 100.
---------------------------------------------------------------------------
Next, let me show you Exhibit No. 9.\3\ This is the
promotional mailing that appears to be a Declaration for Cash
Winner from Cash Giveathon II in connection with a $10,000
sweepstakes. Now, an attachment to this mailing directs the
consumer to send payment to NABA.
---------------------------------------------------------------------------
\3\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
Finally, I would like to show you Exhibit No. 10.\1\ This
is a promotional mailing that appears to be from the Cash
Release Department of the International Funding Distribution
Center regarding unclaimed cash in the amount of $10,000. This
mailing directs the consumer to send payment to the I.F.D.C.
---------------------------------------------------------------------------
\1\ See Exhibit No. 10 which appears in the Appendix on page 104.
---------------------------------------------------------------------------
As you can see, these three promotional mailings appear to
be from three different companies: NWCG/Prize Payout Division,
Cash Giveathon II, and International Funding Distribution
Center. Now, the unsuspecting consumer might think that they
had opportunities to win three different prizes in three
different contests. However, all three of these promotional
mailings were sent by NABA and all three are for the same
contest.
I should note that these mailings only obliquely
acknowledge that the trade names are not real. The rules on the
back of the mailing state that ``different graphic
presentations of this sweepstakes may be made at the discretion
of the sponsor.'' However, a consumer reading this language may
not understand that this really means that the same contest may
be promoted under completely different names. In fact, it is
virtually impossible to discern that these different mailings
are from the same contest.
I might also add that the clever trade names utilized by
these companies are often misleading themselves. For example, a
mailing may appear to come from a group that is trying to
locate someone who has already won a prize or is the rightful
owner of a cash award. These trade names include examples such
as Unidentified Claimant Section, Public Winner Releasing
Committee, Cash Release Office, and the Cash Claim and
Disbursement Center. It is clear that by using such names,
these operators are trying to confuse consumers into thinking
that they have received a notice from a State unclaimed
property division.
Not only will these smaller companies use multiple trade
names for each contest, but they also open multiple mailboxes
at post offices or CMRA's, Commercial Mail Receiving Agencies,
which is shorthand for Mail Boxes Etc. and other companies like
that. Many of these smaller companies actually maintain
mailboxes in multiple States and have the mail forwarded by an
overnight courier service to their base of operations for
processing.
For instance, the two companies that we know are operated
by Mr. Kasday--Enwood, Pressman & Ingram and Mellon, Astor &
Fairweather--are actually headquartered in Las Vegas, but they
use multiple mailboxes in different States. Enwood, Pressman &
Ingram receives mail at five different mailboxes in New York
and Pennsylvania for one sweepstakes and three skill contests.
Mellon, Astor & Fairweather uses three different mailboxes in
Illinois and New York for one sweepstakes and one skill
contest. The mail from each of these locations is then
forwarded to the office in Las Vegas for processing.
Mr. Kasday's office manager, Sheilah Williams, testified in
a Subcommittee deposition that she really did not know why
these companies use multiple mailboxes in different locations,
but she assumed that it was to make sorting responses to the
various promotions easier for staff. This reason seems
implausible, however, since there are not enough mailboxes to
be reserved for each separate promotional mailing. In other
words, multiple promotions are being sent to the same mailbox.
Moreover, if it was purely a function of administrative
convenience, it seems unlikely that the multiple mailboxes
would be operated in different States. Now, although the use of
separate mailboxes may prevent one post office or CMRA from
being overwhelmed with responses, our discussions with the
Postal Inspection Service, the FTC, and State authorities
suggest that the principal reason for opening multiple
mailboxes in different States is actually to avoid the
regulators.
Current law only allows the Postal Inspection Service to
seek a temporary restraining order against a deceptive or
fraudulent mailing from a specific mailbox. Thus, the Postal
Inspection Service and a State Attorney General might be able
to bring an enforcement action to stop a promotion in one
State, but it would not prevent the sweepstakes operator from
promoting the same sweepstakes and selling the same prize under
another trade name that receives its mail in a different State.
If State or Federal authorities close one mailbox, the
sweepstakes company can continue its promotion under a
different trade name at another location. As I mentioned
earlier, the FTC cited this very reason for requesting that the
Subcommittee not disclose information concerning the number of
complaints against a sweepstakes company, which it breaks down
by the different addresses the sweepstakes companies use.
Chairman Collins, Members of the Subcommittee, I will be
glad to answer any questions about the investigation that the
Subcommittee might have and to report in greater detail our
specific findings. Thank you.
Senator Collins. Thank you very much for that very
illuminating presentation. I appreciate all the work that the
Subcommittee staff has done.
First, before going to just one or two questions, I want to
call on Senator Edwards who has joined us in case he has any
opening remarks that he would like to make. Both he and Senator
Durbin have been real leaders in the effort to protect
consumers against deceptive practices, and I appreciate his
participation in this hearing.
OPENING STATEMENT OF SENATOR EDWARDS
Senator Edwards. Thank you, Madam Chairman.
What I would like to do first is thank Senators Collins and
Levin for holding this important hearing which builds upon the
efforts of this Subcommittee to combat the problem of deceptive
sweepstakes mailings. These efforts and those of the U.S.
Postal Inspection Service and groups like AARP, combined with
legal measures being taken by various States Attorneys General,
are clearly helping to make people aware of the deceitful
practices some sweepstakes companies are engaging in, all in
order to trick people into believing that buying products will
increase their chances of winning a prize.
During our hearings in March, the Subcommittee Members
questioned witnesses from four of the largest sweepstakes
promoters: Publishers Clearing House, American Family
Publishers, Reader's Digest, and Time, Inc. These companies
argued that people understand that purchases do not increase
their chances of winning. For example, Publishers Clearing
House stated in their testimony that, ``We believe that our
promotions are clear and that no reasonable person could be
misled by them.''
I believe my colleagues disagree with this statement, as is
evidenced by the fact that the Senate Governmental Affairs
Committee recently voted unanimously to send our legislation,
which would help put a stop to misleading sweepstakes mailings,
to the full Senate for consideration.
Our bill would require sweepstakes promoters to clearly
indicate on all of their mailings that purchases do not
increase the chances of winning. It would also require those
companies to honor a person's request to stop sending them
sweepstakes mailings. I believe these requirements are
essential to our efforts to prevent people from being scammed.
As Senator Collins mentioned, our bill would also give the
U.S. Postal Inspection Service the tools it needs to enforce
laws that are designed to prevent deceptive mailings. The North
Carolina State Attorney General's Office told me recently--told
me that currently enforcement is extremely difficult, partly
because of what is known as rip and tear. Rip and tear refers
to operations that collect as much money as possible in a short
period of time and relocate before they are identified, if they
are ever identified.
I anticipate that this hearing will illustrate that these
types of companies are still in existence and are quite
prevalent.
The Postal Inspection Service must be able to have the most
effective enforcement tools at its disposal to pursue action
against companies it believes are violating our laws. Detecting
these companies is further complicated by the fact that they
often utilize what are known as mail drops, commercial mail
receiving agencies in which individuals or businesses lease
post office boxes in order to receive mail and other
deliveries. It is very difficult for the Postal Inspection
Service to track the real addresses of fraudulent companies
that can very quickly open and close post office boxes.
I commend the Postal Service's attempts to issue new
regulations that will help expose these fraudulent sweepstakes
operators.
As we heard during the course of the March hearings, the
four sweepstakes companies I previously mentioned adamantly
defended their sweepstakes promotional techniques, saying that
they are used to ``generate excitement and the possibility of
winning'' and raise interest in a product.
It is true that sweepstakes is considered a legitimate
marketing technique. However, what we find disturbing is the
increased willingness of more legitimate companies to engage in
practices formally only used by smaller, more deceptive
operators. This hearing will also illustrate this problem.
Finally, I am very concerned about the sale of names and
addresses of individuals to other sweepstakes companies. Once a
sweepstakes company engaging in deceptive practices compiles a
list of customers who have purchased from the company, they can
sell that list to other sweepstakes companies and telemarketers
who may recognize that the list is comprised of particularly
vulnerable people. These companies then flood the individuals
on the list with even more misleading mailings and phone calls,
enticing them to spend more money in the hopes of winning a
prize. It is very important that we continue to educate people
about the reality of these promotions and provide them with a
simple way of preventing them from reaching their mailbox if
they so choose.
Again, I thank Senators Collins and Levin for bringing this
serious problem of deceptive sweepstakes mailings to the
attention of the Congress and the country.
Thank you, Madam Chairman.
Senator Collins. Thank you very much, Senator Edwards.
Ms. Parde, when you were going through some of the
exhibits--and I would like to have Exhibit No. 9 \1\ brought
back up--you explained that one of the ways that the smaller
operators differ from the large sweepstakes companies is that
it is sometimes difficult to figure out exactly what it is that
they are selling. And in the case of most of the mailings that
you have reviewed, it turns out to be a discount coupon book.
---------------------------------------------------------------------------
\1\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
But another problem--and you also point out that the
language implies that if you buy the discount coupon book,
assuming you can figure out what it is you are buying, that it
increases your chances of winning. But isn't another problem
with these mailings that it implies that the person has already
won? Perhaps you could read us the first three sentences of the
mailing that you examined earlier.
Ms. Parde. Yes, Senator. In the first paragraph, the
mailing starts off, ``Your name now appears on our winner's
list. Unbelievable as it may seem, you have finally won. That's
right. There's no mistake about it.''
Senator Collins. So another problem with these deceptive
mailings is that, without qualification, they are telling
people that they have won.
Ms. Parde. Yes, Senator, that is correct. If you actually
look at the attachment to this, there is a box for the
recipient to check: ``I am filing my claim for the cash prize I
have already won.''
Senator Collins. Is that typical of the copy that you have
reviewed in the mailings that were sent to us by people across
the Nation?
Ms. Parde. Yes, Senator. This is a sample of one of the
techniques that some of these different companies use to
deceive the individual into thinking that they have already won
the prize, when actually it may have only been a 25-cent check.
Senator Collins. The second question I want to ask you
about deals with these discount coupon books.\2\ I have looked
at these two coupon books, and they appear to be identical
except for two aspects: One is they are a different color, and
the second more important difference is that one of them says
that it has over $3,500 worth of money-saving coupons inside;
the other one says that it has over $1,000 worth of money-
saving coupons inside.
---------------------------------------------------------------------------
\2\ See Exhibits No. 23a and 23b which appear in the Appendix on
pages 121-136.
---------------------------------------------------------------------------
Was the Subcommittee able to determine--were you able to
determine why there were different values placed on what
appears to be an identical set of coupons?
Ms. Parde. No, Senator, unfortunately, we were not able to.
We attempted to contact the company that actually produces
these coupon books, Steppin' Out, which is located in Las
Vegas, Nevada, to ask them about that specific issue, the two
coupon books that appear to be identical except for the
different face amounts. However, the CEO informed us last week
that, upon advice of their counsel, they were not going to
respond to the Subcommittee's request. We will, of course, be
following up on that, and we will let you know.
Senator Collins. The Subcommittee investigators were
unable, however, to find any differences in the coupons. There
were no differences in the products represented or the
expiration dates or anything that would explain the different
value assigned to the book of coupons. Is that correct?
Ms. Parde. That is correct, Senator. Even the page layouts
are identical in both books.
Senator Collins. Thank you. Senator Durbin.
Senator Durbin. Thank you very much, Ms. Parde.
Let me stick with that line of questioning for a moment
there. Do we know the ownership of this Steppin' Out? Do you
know the officers involved?
Ms. Parde. No, sir, unfortunately, we do not have that
information at this time. This is something that we will be
continuing to pursue, and we will be happy to advise you once
we obtain that information.
Senator Durbin. Do we know how it works? I mean, they send
a solicitation to people and say if you return a certain amount
of money, you will be given these coupon books for discounts?
Is that how it works?
Ms. Parde. These are the coupon books that many of the
promotional mailings that I discussed and that these smaller
companies mention in their promotional mailings, this is the
redemption packet, the cash savings folio that are mentioned in
these promotional mailings. So a promotional mailing will be
sent out actually soliciting a purchase for those coupon books
for a release honorarium rather than a purchase price. The
consumer will then receive----
Senator Durbin. What do they call it, a release honorarium?
Ms. Parde. A release honorarium. Yes, Senator.
Senator Durbin. I wonder what that means. Go ahead.
Ms. Parde. The consumer will then receive one of these
coupon books which has regular coupons in it that can be cut
out and redeemed for savings.
Senator Durbin. And it was your testimony earlier that in
order to get $1,000 worth of benefit out of it, you would have
to spend a much larger amount of money. Is that not true?
Ms. Parde. That is correct, Senator. Some of these coupons
are for vacations, for example.
Senator Durbin. You know what I find curious about this.
Look at the companies that are in this coupon book: Royal
Caribbean Cruise Lines, Avis Rent-a-Car, Celebrity Cruises,
Sheraton Hotels, Kodak, AMC, Loewes, GMC, Earl Scheib, Jiffy
Lube, Godfather's Pizza, Swiss Pretzels, and Dunkin' Donuts. In
that list are some pretty substantial companies, and I wonder,
if we ask these companies, do you know what is happening when
you offer these coupon incentives, do you know what
solicitations are being made and the companies that are using
their coupons? Have we asked?
Ms. Parde. No, Senator, we have not had an opportunity to
ask them, but that is, again, something that we will be
following up with in our investigation.
Senator Durbin. Madam Chairman, I would like to do that. I
would like to send a letter to these companies and ask them if
they know that they are party to a scam, because, frankly, many
of these are reputable companies that we respect across
America, and these coupon books are being obviously misused.
The next item that you have presented I would like to ask
you about, and that is Exhibit No. 24,\1\ and I am trying to
figure out what that is all about, this Cash Claim Service. Do
you have that before you?
---------------------------------------------------------------------------
\1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
Ms. Parde. No, Senator, I do not.
Senator Durbin. It is Exhibit No. 24 in the book of
exhibits that we have been given. This was a fascinating
little--Cash Claim Service, who are these people?
Ms. Parde. This is actually from a company operated by
Borden Barrows, which I believe the witnesses from the Postal
Inspection Service will talk about later. As you can see, they
are essentially the same notice for the same amount.
Senator Durbin. How does their scheme work?
Ms. Parde. This is not necessarily a sweepstakes. What they
are trying to do in this one, Senator, is to entice the
individual to return $9.97.
Senator Durbin. That was $9.97?
Ms. Parde. Exactly, for a product. The postcard that you
receive, it looks like the certified mail receipt that you
would receive normally from the post office. This is instead a
solicitation where the consumer may see this and think for
$9.97 they can obtain their product from the Postal Service as
certified mail.
Senator Durbin. Do you know what is the product involved
here?
Ms. Parde. I don't believe this actually says. Sometimes
what these companies do is promote products like jewelry and
other trinkets through this type of mailing.
Senator Durbin. Well, the thing that intrigues me about
these--I love this--``All U.S. Government payments are 100
percent guaranteed.'' I wish that were true, incidentally. They
are obviously trying to suggest to whomever receives it that
there is some governmental involvement in this redemption of
some claim and the like.
Ms. Parde. I think that is correct, Senator. I think it
adds to the overall deception that this is a certificate from
the Postal Service for a certified mailing.
Senator Durbin. Well, I think our postal inspectors will
probably get a chance to address that directly.
Let me ask you, like Mr. Kasday I think is going to testify
later on, and you talked about the different companies that he
is involved in, are most of these companies under investigation
by States and their attorneys general?
Ms. Parde. Well, as I mentioned, part of the problem is,
because they use so many different trade names, the States may
not actually know who the actual operator of the sweepstakes
promotion is. So they may be able to stop a mailing under one
trade name but never actually figure out the real company
sending out the actual mailing itself.
If there are active investigations, we obviously did not
want to pursue those and interrupt those investigations.
Senator Durbin. The use by Mr. Kasday of his niece, Nicole,
the college student, was clever, but was it legal for him to
list her as the major officer of the company?
Ms. Parde. We did not see any illegality in setting up a
corporation with Nicole as a sole shareholder and officer. It
appears to be a legal corporation.
Senator Durbin. And the use of a signature stamp, for
example, would that be legal? Did you find any evidence that it
was not?
Ms. Parde. We didn't actually delve into that and look at
the statutes in Nevada, for example, that would apply to the
creation of the corporation and the use of her signature stamp.
I might point out, though, there may be laws or regulations
regarding the use of a signature stamp on things like a mailbox
application which has an affidavit at the bottom of the
application that the signer is certifying to the facts.
Senator Durbin. OK. Thank you. Thank you, Madam Chairman.
Senator Collins. Senator Edwards.
Senator Edwards. Madam Chairman, I think I will reserve my
questions for the next panel. I know we have a vote coming up
soon.
Senator Collins. Thank you, Senator Edwards.
Just a couple of points of clarification on the chart that
we have up.\1\ As I recall, I received this from a constituent
in Washington County, and it was accompanied by a letter that
appeared to be saying that the U.S. Government had cash that
belonged to the individual that could be redeemed by sending in
$9.97.
---------------------------------------------------------------------------
\1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
Now, of course, when we do have situations of unclaimed
assets, usually held by State Governments, sometimes inactive
bank accounts, there is no charge to redeem or to collect the
money that the consumer is owed. So this is an example of a
solicitation that is attempting to charge consumers for a
service that is provided for free by the government, in this
case State Government. But it has certainly been designed to
imply that it has been sent by a governmental agency. So I just
wanted to clarify that for the record. The Postal Service
representative who will be testifying later will go into more
detail on this.
Just one final question, Ms. Parde, and that is, it is my
understanding the Subcommittee investigators did call a couple
of the companies that were listed in the coupon book \2\ to
see--to try to get a feel for how much the discount was really
worth, and it is my understanding that there was a paint
company, for example, that was called. Could you explain what
you found in your preliminary inquiries?
---------------------------------------------------------------------------
\2\ See Exhibits No. 23a and 23b which appear in the Appendix on
pages 121-136.
---------------------------------------------------------------------------
Ms. Parde. Certainly, Senator. Our Subcommittee
investigators contacted one of the companies listed in that
book which advertised a discount on a ``Pro-Three'' paint job.
Now, the discount price was approximately $250 advertised in
the coupon book, which was about 50 percent off the normal
retail price, according to the coupon.
Now, our investigators actually contacted the paint shop.
They were quoted the same $250 as in the discount coupon book.
Now, the difference is you don't have to buy the coupon book in
order to get that discount.
Senator Collins. So, in other words, this was a normal sale
price that was available without the coupon, so in this
particular case, the coupon brought no additional value. Is
that correct?
Ms. Parde. That is correct, Senator.
Senator Collins. We do not know that that is the case with
every company listed, but that was the case with this one spot
check of the information.
Ms. Parde. That is correct.
Senator Collins. I thank you very much for your testimony.
We do have a vote that is going to begin at 10:30, so we
will take a 15-minute recess and reconvene at 10:45.
[Recess.]
Senator Collins. The Subcommittee will reconvene. I know
that Senator Edwards, Senator Levin, and Senator Durbin are all
on their way, but in the interest of time, we are going to
proceed.
Our second panel of witnesses this morning includes two
members of the promotional mailing industry. Anthony Kasday is
the president of Neopolitan Consultants, Inc., and is appearing
today pursuant to a Subcommittee subpoena. David Dobin is the
president of Lone Star Promotions, Inc.
Pursuant to Rule 6, all witnesses who testify before the
Subcommittee must be sworn. It is my understanding that both
witnesses are accompanied by counsel. If the counsels intend to
testify in any way, you, too, need to stand and be sworn.
At this time I would ask that all the witnesses stand and
raise your right hand. Do you swear that the testimony you are
about to give to the Subcommittee will be the truth, the whole
truth, and nothing but the truth, so help you, God?
Mr. Kasday. I do.
Mr. Dobin. I do.
Senator Collins. For the record, I would like to have the
counsels who are accompanying Mr. Kasday and Mr. Dobin
introduce themselves.
Mr. Tomao. My name is Peter J. Tomao, and I am the attorney
for Mr. Dobin.
Mr. Burns. And my name is John Burns, and I am the attorney
for Mr. Kasday.
Senator Collins. Thank you very much. Mr. Kasday, I am
unclear whether you have an opening statement or not. If you do
have an opening statement, you are more than welcome to present
it. We have allotted 10 minutes for opening statements by both
you and Mr. Dobin. If you have an opening statement, you are
welcome to proceed.
Mr. Burns. May I respond to that, Madam Chairman?
Senator Collins. Well, I would think that Mr. Kasday could
respond to whether or not he has an opening statement.
Mr. Burns. We are waiving the opening statement, but we
would like to submit a statement at the end, in a couple of
days.\1\
---------------------------------------------------------------------------
\1\ Statement from Mr. Kasday was not submitted for the record.
---------------------------------------------------------------------------
Senator Collins. That would be fine, and it will be
included in the printed hearing record.
Mr. Dobin, it is my understanding that you do have an
opening statement that you would like to give?
Mr. Dobin. Yes, I do.
Senator Collins. I would ask that you limit your opening
statement to 10 minutes, and we will put the full written
statement into the hearing record. You may proceed.
TESTIMONY OF DAVID DOBIN,\2\ PRESIDENT, LONE STAR PROMOTIONS,
INC., MERRICK, NEW YORK, ACCOMPANIED BY PETER J. TOMAO, ESQ.,
GARDEN CITY, NEW YORK
Mr. Dobin. Thank you. Chairman Collins, Members of the U.S.
Senate Permanent Subcommittee on Investigations, I wish to
thank the Subcommittee for this opportunity to discuss with you
the sweepstakes industry and the proposed legislation to
control deceptive mailings.
---------------------------------------------------------------------------
\2\ The prepared statement of Mr. Dobin appears in the Appendix on
page 64.
---------------------------------------------------------------------------
I am currently president of Lone Star Promotions, Inc.,
which is engaged in marketing coupon books using sweepstakes
promotions. I first entered the direct marketing sweepstakes
business in 1992. While I made some mistakes when I first
entered the business, since 1994 I have operated my business
with close attention to all legal requirements.
I am gratified that the proposed legislation does not seek
to outlaw the sweepstakes business. Sweepstakes are enjoyed by
many Americans, and I fervently believe that they should be
conducted fairly and in conformance with all laws.
As I said, I first entered the direct mail sweepstakes
business in 1992. Prior to that I was a partner in a successful
automobile leasing business. I became friendly with one of my
customers, Jeffrey Novis, who suggested that I go into the
sweepstakes business with him. Another of my customers was
already in the business and had offered to assist Mr. Novis and
myself. We formed Wellsworth Smythe Jewelers, WSJ. In the
beginning, we had a third partner, whom Mr. Novis and I
subsequently bought out.
We initially planned to sell jewelry by direct mail, as
well; however, when our initial efforts were unsuccessful, we
decided to focus on the sweepstakes business. We were aided at
the time by the decision of another individual to leave the
business. We were able to move into his business premises and
hire his staff of experienced employees. He remained as a
consultant and taught me how to write copy for WSJ's
promotional mailings. Our efforts were rewarded with a
successful business.
However, as I said, I made a serious mistake for which I
have pled guilty. Our mailings offered expedited processing and
handling for an additional fee. While I collected that fee from
many customers, I regrettably did not assure that these orders,
in fact, were expedited. The postal inspectors searched my
business on August 10, 1994, and seized not only our business
accounts but my own bank accounts and those of my partner, Mr.
Novis.
The postal inspectors' investigation was a shock. We were
accused of engaging in various fraudulent activities and
misleading representations. These allegations were largely
unfounded, but I could not deny that those people who paid for
expedited handling did not receive it. So after much reflection
and discussion with my family, I decided that I would agree to
plead guilty to one count of conspiracy before any charges were
filed against me.
At the same time, I hired new counsel, including an
attorney who recently became a Federal district court judge. I
told my attorneys that since I wanted to stay in the
sweepstakes business, I wanted to make sure that we
scrupulously followed all the legal requirements. Since the
search, I have personally written all of the promotions which
we use in our business. I have done my best to assure that they
are not misleading. We continue to offer expedited handling,
but now I make sure that customers who pay for this service
receive it. We have a no-questions-asked refund policy for
anyone dissatisfied with either our product or our promotions.
We ensure that people who do not want to receive our promotions
are removed from our mailing list permanently.
Currently, I am the president and sole shareholder of Lone
Star Promotions, Inc. I formed Lone Star in February 1996.
After the postal inspectors searched our business in 1994, Mr.
Novis and I formed a new corporation called TriStar Promotions,
Inc., which we continued to operate together until 1996. I was
the vice president of both TriStar and Wellsworth Smythe.
Lone Star is located in the village of Merrick, New York.
We employ 12 people and mail approximately 5 million pieces of
mail each year using sweepstakes promotions to sell coupon
books.
Lone Star's sweepstakes offer prizes in the amounts of
$12,000, $10,000, and $5,000. Currently our odds are 1 in 3
million. In other words, for each 3 million mailings, we award
one prize. In 1998, Lone Star awarded three prizes. We did not
reach the 3 million mark for the $5,000 drawing. Our 1998
winners were: Kim Grace of Holyoke, Massachusetts, to whom Lone
Star sent checks totaling $12,000 between December 22, 1997,
and June 1, 1998; Donald Martin of Gardena, California, to whom
Lone Star sent a check for $12,000 on December 18, 1998; Opal
P. Clark of Maryville, Washington, to whom Lone Star sent a
check for $10,000 on November 30, 1998.
All of our promotional mailings clearly indicate to the
consumer in several places that no purchase is required. I
write the copy for Lone Star promotions. I have each new
promotion carefully reviewed by Lone Star's attorneys in an
effort to ensure that the promotions I mail are not misleading
in any way.
In addition, our official rules state the odds of winning
in bold type on a separate line. I have tried to make the rules
clear and understandable and use readily readable print. I have
made changes over the years to improve the rules in this
regard. I also make clear reference to the rules in my
promotional copy.
While Lone Star uses a different company name for each of
its promotional mailings, we make no effort to hide the fact
that Lone Star is the sponsor of these promotions. The name
``Lone Star Promotions, Inc.'' and an address and telephone
number at which we can be reached appear at the end of the
Official Rules which are part of every mailing. Lone Star duly
registers each of its trade names it uses as a ``DBA'' and
reports those names to its banks and the U.S. Postal Service.
Lone Star currently receives responses at post office boxes
in three local post offices: Baldwin, Levittown, and
Massapequa. They are all right in the same area. We do this to
reduce the burden of our mail volume on the individual post
offices. Each box is signed for by me as president of Lone Star
Promotions, Inc.
I am aware that this Subcommittee is concerned that
sweepstakes companies target certain groups such as senior
citizens. I am personally responsible for obtaining our mailing
lists, and I can tell you unequivocally that Lone Star does not
target any age group; rather, we focus our efforts on people
who have previously participated in sweepstakes and skills
games.
We obtain our mailing lists from list brokers. List brokers
purchase lists from sweepstakes companies and others to sell
them to other companies. My only specifications to the list
broker is that the list should be people who play sweepstakes
and skills games. I do not specify any age group and do not
believe that the list brokers with whom I deal do so for the
lists they sell me.
We generally purchase several lists, which we sent to a
company which compiles a single mailing list for us which we
refer to as the ``computer house.'' The computer house compiles
our mailing list by eliminating any duplicates, as well as the
addresses of anyone who has asked that we not send promotions
to them or live in States to which we do not mail. This company
also selects the winning number for each group of promotions.
The computer house provides the pre-selected number to our
attorney but not to Lone Star until that group of promotions is
complete.
We then send the list to another company, which we refer to
as the mailing house. The mailing house personalizes and mails
our promotions to those on the list. We generally send two to
three mailings to these people. We refer to these initial
mailings as ``front end'' mailings.
When we receive the responses, we sort them into three
categories: Those who made purchases, those who did not make
purchases, and others.
The names of those people who purchased our coupon booklet
are further separated into the group that requested and paid
for expedited handling and those who did not. These purchases
in both groups are processed and the coupon books are sent out
with the appropriate handling. We enclose with the coupon
booklets a form letter thanking the customer for the purchase,
requesting their comments, and advising them that they have
been entered in the sweepstakes and will be notified if they
have the matching pre-selected winning number.
Any response that contains any additional correspondence,
notations on the processing form, or anything in addition to
the form and payment is placed in the ``other'' category and
processed individually by our customer service department.
Complaints and requests for refunds are addressed
immediately.
On occasion, we receive orders which make reference to
increasing the entrant's chances of winning. In those cases, we
return the order and payment to the customer with a letter
reminding that customer that no purchase is necessary. Of
course, we offer to sell the coupon book if that person still
wishes to purchase it.
The names of all the people who return our promotion
whether or not they purchase anything are sent to the computer
house to compare to the pre-selected number. Since historically
only 12 percent of those receiving the promotions return them,
the pre-selected number is generally not returned. In such
cases, as provided by our official rules, the prize is awarded
by a random drawing of all the entries received during the
promotion period.
We generally send additional promotions to individuals who
make purchases. These promotions, which we refer to as ``back
ends,'' also clearly state that no purchase is necessary. Of
course, additional entries do increase the entrant's chances of
winning. Generally, we send four to five ``back end'' mailings
to each purchaser. If a person purchases again, we send that
person another four to five ``back ends.''
It is important to note that rules clearly state that
purchases and expedited processing do not increase the chances
of winning.
Lone Star sends out the back-end mailings using its own
staff. The back-end mailings are not personalized.
When Lone Star completes a cycle of mailings, which usually
takes 4 to 6 weeks, we sell the list. Lone Star does not
conduct any market analysis on its lists.
Lone Star sells the list to Heatherwood Associates, Inc.,
which in turn sells it to a list broker. Heatherwood is wholly
owned and operated by my wife. Heatherwood pays Lone Star
$5,000 per month for its lists and the use of Lone Star's
employees. In addition, I have another company which leases the
premises Lone Star uses from its owner and subleases it to Lone
Star. Other than these companies, my wife and I and our
children do not own any other businesses.
Lone Star also sells the original return forms through a
list broker who sells such information to other sweepstakes
promoters or telemarketers. After the computer house has
processed the return forms and removed all the relevant
information, it returns these forms directly to Lone Star. Lone
Star removes information regarding the promotion and then
offers the forms for sale.
I am aware that this Subcommittee is concerned that sending
multiple mailings with different copy for the same sweepstakes
contest implies that each promotion involves a different
sweepstakes. However, in our case, we respectfully do not
believe this is true. We use trade or DBA names to sort our
promotions and track results. Each of our promotions lists Lone
Star as the corporate sponsor. Our rules clearly state that
Lone Star may use different copy and different promotional
names in the same contest. Since I do my best to make the rules
clear and make reference to them in the promotional copy, I
believe that I should be able to rely on the entrants' reading
them.
Similarly, I am aware that this Subcommittee is concerned
that subsequent mailings may entice customers to make excessive
and unneeded purchases. I expect that Lone Star's back-end
mailings will lead to additional sales and the statistics show
that a greater percentage of recipients purchase on the back
end. However, I do not agree that in the case of Lone Star's
customers these purchases are either excessive or unneeded.
Senator Collins. Mr. Dobin, your 10 minutes have expired,
but if you are close to the end, why don't you take an
additional minute or two to conclude your comments?
Mr. Dobin. Thank you.
Lone Star receives letters from its customers complimenting
our product and asking where they could purchase additional
coupon books. We also have a policy to give full refunds
without question to anyone who asks. I don't know how anyone
can complain that Lone Star unfairly enticed them to purchase
something they didn't want when we clearly explain what we are
selling and readily refund their money if they are
dissatisfied.
From my own experience and observations of the sweepstakes
business, I believe that the most significant problems in the
industry are: Promotional mailings which mislead the recipient
into believing he or she has already won; use of facsimile
checks; appearance that the government is involved in the
sweepstakes; and non-fulfillment. I would like to address each
one of these quickly.
Some mailings suggest that the recipient has already won
and need only return the form to collect the prize. For
example, one promotion which I have seen tells the recipient
that all they have to do to collect the prize is return the
form and that guarantees that person's status as a winner.
Lone Star's promotional mailings clearly advise the
recipient that to win he or she must both have and return the
matching pre-selected winning number.
Some mailings also seem to promise that the recipients have
won a large prize when, in fact, the prize is minimal, such as
$1, and may require that if the winner does not make a
purchase, he cannot use the claim form provided but must claim
it in a different way, such as by sending a 3-by-5 card to a
different address. Needless to say, Lone Star does not engage
in this practice or use such statements in its promotional
mailings.
Some sweepstakes companies send out documents which look
like real negotiable checks. I believe that this is also done
to mislead recipients into believing that they have already
won. When they discover that the check cannot be cashed, they
may conclude that all they have to do is mail in the response
form and they will receive the real check which they can cash.
Lone Star does not use facsimile checks.
As many other businesses in all industries, Lone Star uses
terms like ``American'' and ``United States'' in its
promotional mailings. However, some sweepstakes companies go
too far through the use of language or official symbols and use
promotional mailings which suggest that it is being sent by or
with the approval of the U.S. Government. This is wrong and
misleading.
I know from my own experience that sweepstakes companies
did not send me the product which was offered in their
promotional mailing. I know this because either I or an
employee filled out a form and paid for the item but never
received it. Sweepstakes are a useful tool for selling products
and a company using them should fulfill all orders. It is
incumbent upon the companies in the sweepstakes business to
fulfill all orders, provide refunds, and pay winners. In my
opinion, this is something to which the Subcommittee should
give close attention.
There is another way in which sweepstakes recipients and
sweepstakes companies may be victimized when criminals obtain a
promotional mailing and/or a response and convince the
recipient that they must pay a payment to obtain the prize.
This happened to Lone Star and some of its customers last year.
We learned about it when a recipient contacted us and
complained that she had paid the fee for a prize but never
received it. When I spoke to her myself, I learned that she had
received a telephone call from someone pretending to be
associated with Lone Star who had told her that she had won the
prize. Later she received another call telling her that before
the prize money could be given to her, she had to send a check
to pay for the taxes. She did but she never received the prize
check. She didn't receive it from Lone Star because she had not
won. We immediately advised the postal inspectors who initiated
an investigation. Subsequently, we received similar complaints
which we also referred to the inspectors. I suspect that the
people committing these crimes obtained copies of their
responses sent in by the recipients perhaps from the leads Lone
Star sold through list brokers. To avoid this problem, Lone
Star initiated a process of removing information relating to
the sweepstakes, such as the claim number, from the lead before
it is sold. Prior to receiving these complaints, it had never
occurred to us that this information could be used in this way.
This completes my prepared remarks, and I am now available
to answer any questions that you may have. Thank you very much.
TESTIMONY OF ANTHONY KASDAY, PRESIDENT, NEOPOLITAN CONSULTANTS,
INC., LAS VEGAS, NEVADA, ACCOMPANIED BY JOHN BURNS, ESQ., NEW
YORK, NEW YORK
Senator Collins. Mr. Kasday, earlier this morning we heard
about two firms or two corporations whom you had asked your
niece to register. One was the name Mellon, Astor &
Fairweather. The second name was Enwood, Pressman & Ingram. Who
is Mr. Mellon or Ms. Mellon?
Mr. Kasday. There is no such person, Senator.
Senator Collins. Is there a Mr. Astor or Ms. Astor?
[Mr. Kasday shook his head side to side.]
Senator Collins. What about Fairweather?
Mr. Kasday. No.
Senator Collins. What about Enwood?
Mr. Kasday. No.
Senator Collins. Or Pressman?
Mr. Kasday. No.
Senator Collins. Or Ingram?
Mr. Kasday. No.
Senator Collins. So these are completely fictitious names
that you made up?
Mr. Kasday. Yes.
Senator Collins. How did you choose these names?
Mr. Kasday. I don't know how to answer that, Senator. One
has to register----
Mr. Burns. May I consult with him?
[Mr. Burns confers with Mr. Kasday.]
Senator Collins. Mr. Kasday.
Mr. Kasday. I don't know quite how to answer that, Senator.
Senator Collins. It sounds to me like the names were chosen
because they sound like prestigious accounting firms. It is an
impression that is advanced by the copy that is included in the
promotional mailing. Let's take a look at one of those. Let's
take a look at Exhibit No. 5.\1\ And you have an exhibit book
at your table if it is easier for you to follow in that regard.
---------------------------------------------------------------------------
\1\ See Exhibit No. 5 which appears in the Appendix on page 93.
---------------------------------------------------------------------------
Now, this is a mailing that was sent by Mellon, Astor &
Fairweather, which is one of the companies that we have just
discussed. If you look at the upper left-hand corner of the
mailing, where it says ``Trustee of Record,'' and below it
states ``Offices of Mellon, Astor & Fairweather,'' it has an
address listed as 736 N. Western Avenue, Suite 620, Lake
Forest, Illinois. Do you see that?
Mr. Kasday. Yes, I do.
Senator Collins. Does Mellon, Astor & Fairweather, in fact,
have offices at that address?
Mr. Kasday. It is a Mail Boxes Etc.
Senator Collins. So it is not the address of that firm. It
is the address of a Mail Boxes Etc.?
Mr. Kasday. It is the address of record of, I believe, a
firm.
Senator Collins. But the mailing says that the offices of
Mellon, Astor & Fairweather are at that address, and that isn't
correct, is it?
Mr. Kasday. In that context, probably not.
Senator Collins. What does it mean when it says that
Mellon, Astor & Fairweather is the trustee of record?
Mr. Kasday. I did not write this copy, Senator. I don't
know what was in the mind of the copy writer at the time.
Senator Collins. Did you approve the copy?
Mr. Kasday. I did.
Senator Collins. You did approve the copy?
Mr. Kasday. Yes.
Senator Collins. So you were not troubled by the fact that
it says that this firm, which is made up of fictitious
individuals, is listed as the trustee, which has obviously a
legal meaning?
Mr. Burns. Objection. May I consult with him, Your Honor?
We want to--I am sorry. I am calling you ``Your Honor,''
Senator. I have been instructed by my client to try to help you
get answers, but I have to consider his privileges, too, and I
want to discuss them with him briefly.
[Senator Collins nods head up and down.]
[Mr. Burns confers with Mr. Kasday.]
Mr. Burns. He may answer.
Mr. Kasday. I am sorry, Senator. Would you rephrase the
question, restate the question?
Senator Collins. You had stated that you approved the copy
for this promotional mailing.\1\ I asked you whether you were
concerned about the use of the term ``trustee'' to describe
this fictitious firm.
---------------------------------------------------------------------------
\1\ See Exhibit No. 5 which appears in the Appendix on page 93.
---------------------------------------------------------------------------
Mr. Kasday. No, I was not.
Senator Collins. And why were you not concerned about the
use of the term ``trustee''?
Mr. Burns. It is at that point that I have to assert his
privilege, Your Honor--I am sorry--Senator.
Senator Collins. Would you state for the record the
specific privilege that you are asserting on behalf of your
client?
Mr. Burns. It is the Fifth Amendment privilege not to be
forced to give testimony which tends to incriminate.
Senator Collins. Mr. Kasday, will you assert the privilege
personally?
Mr. Kasday. Yes, I wish to take the Fifth Amendment on that
question.
Senator Collins. Mr. Kasday, let's move to a different part
of this mailing. You will notice that there is a seal in the
middle of the page on the right-hand side that purports to be
that of Mellon, Astor & Fairweather, and right next to the
seal--and it is in your book as well--it says ``J. Remington
Astor, Prize Registrar,'' and it indicates that Mr. Astor's
appointment expires August 29, 2000.
Mr. Kasday, who is J. Remington Astor? And where did you
get the seal?
Mr. Kasday. The seal was an artist's creation, and there is
no J. Remington Astor.
Senator Collins. I want to show you the same promotion with
an enlarged seal from Exhibit No. 5 and right next to it is an
enlargement of a notary public seal on the certificate to do
business that your other company, Enwood, Pressman & Ingram,
filed with the State of Nevada. If you look closely, you will
see that the two seals are identical, except that on your
promotion MAF has replaced the State of Nevada on the seal, and
the notary public's name has been replaced by that of J.
Remington Astor. Is that correct?
Mr. Kasday. I can't tell exactly by the reproduction, but
that certainly was not the intention.
Senator Collins. Why are you mimicking the seal of a notary
public on this publication?
Mr. Burns. Madam Chairman, may I consult with my client?
Senator Collins. You may.
[Mr. Burns confers with Mr. Kasday.]
Mr. Burns. He may answer.
Mr. Kasday. I don't know.
Senator Collins. Are you trying to imply to the recipients
of this promotional mailing that there is a trustee who is
holding an award for the lucky consumer?
Mr. Burns. At this point I do have to assert the same
privilege we asserted before.
Senator Collins. And, again, I would ask that Mr. Kasday
assert the privilege for the record.
Mr. Kasday. I claim the Fifth Amendment privilege.
Senator Collins. I would like you to look at a second
promotion from Mellon, Astor & Fairweather, and that is Exhibit
No. 6.\1\ You will notice that it follows the same kind of
pitch as the previous promotion. It once again lists Mellon,
Astor & Fairweather as a trustee, and with a big heading, it
states, ``Revocation Notice,'' and you inform the recipient
that this matter is, ``Urgent, Urgent, Urgent.''
---------------------------------------------------------------------------
\1\ See Exhibit No. 6 which appears in the Appendix on page 97.
---------------------------------------------------------------------------
The promotion then reads, ``Dear [Addressee]: I have been
instructed by my client to locate a certain [addressee] whose
last known address was 1200 Oak Street. If you are this person,
our client has authorized us to release your portion of the
disbursement fund.''
``Our client has requested anonymity, as he wants to remain
an anonymous benefactor.''
Did you approve the copy of this solicitation?
Mr. Kasday. Yes, I did.
Senator Collins. Did you write it?
Mr. Kasday. No, I don't believe I wrote this one.
Senator Collins. But you did approve the writing that was
submitted to you by the copy writer?
Mr. Kasday. Yes, I did.
Senator Collins. Who is the anonymous benefactor?
Mr. Kasday. I guess technically it could be myself.
Senator Collins. Why does this mailing say that the
``client has authorized us to release your portion of the
disbursement fund''?
Mr. Burns. May I consult?
Senator Collins. Yes.
[Mr. Burns confers with Mr. Kasday.]
Mr. Kasday. I don't know.
Senator Collins. You don't know, yet you approved the copy
for this mailing?
Mr. Kasday. That is correct.
Senator Collins. Do you know why it implies that there has
been a search for the consumer by saying that the last known--
it is listing the last known address?
Mr. Kasday. As I stated before, Senator, I did not write
this particular promotion. I don't know what was in the mind of
the copy writer when he wrote it.
Senator Collins. But you did approve it, so you were not
troubled by the fact that this appears to be misleading?
Mr. Kasday. I am sorry. I don't consider it misleading.
Senator Collins. You don't consider it misleading that it
says, ``I have been instructed by my client to local [the
addressee] whose last known address is 1200 Oak Street. If you
are this person, our client has authorized us to release your
portion of the disbursement fund''?
Mr. Burns. May I consult?
Senator Collins. Yes.
[Mr. Burns confers with Mr. Kasday.]
Mr. Kasday. I am not troubled by that, Senator.
Senator Collins. The promotion goes on to say that a $10
purchase fee is required for a $3,000 savings voucher folio.
Are those the discount coupon books that we discussed earlier?
Mr. Kasday. Yes.
Senator Collins. How much do you pay for the discount
coupon books?
Mr. Kasday. I am not sure of the exact price. I think it is
in the neighborhood of somewhere between 30 and 50 cents each.
Senator Collins. I would note that in your interview with
the Subcommittee staff, you stated that the cost of the coupon
books cost between 25 cents and 30 cents.
Mr. Kasday. That is quite possible. I did not check into
the actual price.
Senator Collins. I see that my time has expired for this
round of questions, so I will next call upon the Subcommittee's
Ranking Member, Senator Levin.
Senator Levin. Thank you, Madam Chairman.
Mr. Dobin, I would like you to take a look at Exhibits No.
11 and 12.\1\
---------------------------------------------------------------------------
\1\ See Exhibits No. 11 and 12 which appear in the Appendix on
pages 106 and 107.
---------------------------------------------------------------------------
Mr. Dobin. Yes, sir.
Senator Levin. Are these promotions for the same prize?
Mr. Dobin. Yes, these are two $10,000 prizes, and they
would be for the same prize, yes.
Senator Levin. No, these are one $10,000 prize.
Mr. Dobin. The way we do it is----
Senator Collins. Excuse me. Is there one $10,000 prize or
two?
Mr. Dobin. There is one $10,000 prize.
Senator Levin. You said these are two $10,000 prizes. Do
you want to correct that?
Mr. Dobin. No, sir. There is one $10,000 prize, but there's
two promotions. That encompass--if I could explain?
Senator Levin. Because the time is limited, please just
answer the questions that I ask of you.
How many different formats did you send out for that same
$10,000 prize?
Mr. Dobin. I am not sure exactly how many I do with the
$10,000. I never counted them up.
Senator Levin. How many could it be?
Mr. Dobin. A maximum could be 40.
Senator Levin. And how many could one person get?
Mr. Dobin. In a cycle, they could probably get maybe 20 or
25. I can't say it's impossible for them to get them all if
they continue to stay on the mailing lists.
Senator Levin. If a person sends in some money and
purchases what you called at one point a special benefit, then
that is the front end. Is that correct? And then if that
purchase is made, you would then send out back-end mailings to
that person?
Mr. Dobin. Well, if I access the name by buying lists----
Senator Levin. No, forget how you do it. Someone buys
something from you.
Mr. Dobin. Well, but they could buy it on the back end as
well as the front end. Initially, if I get it, it would be from
a front-end piece. If they purchased that, then I would go and
send them a back end.
Senator Levin. And when you send the same person back-end
mailings, how many different mailings could that same person
get on the back end?
Mr. Dobin. They could get 5, and if they purchased, they
could get as many as 10 more.
Senator Levin. So it could be as many as 15 mailings?
Mr. Dobin. Through the whole cycle of my mailings, they
could get 25 or 26 mailings.
Senator Levin. And what percentage of your sales are back-
end mailings, approximately?
Mr. Dobin. I have never broken it down.
Senator Levin. Would it be a quarter, a half, three-
quarters?
Mr. Dobin. I would be guessing. I could find that
information out for the Senator.
Senator Levin. All right. Why do you change the format to
make it look as though it is a different sweepstakes for each
of your mailings to the same person?
Mr. Dobin. Well, we are trying for different looks. What
may work for one person may not work for another.
Senator Levin. I am talking about the same person. Why do
you send the same person 5, 10, and 15 different mailings for
the same prize?
Mr. Dobin. These people enjoy to play the sweepstakes, and
we continue to send them the promotions. They're our customers.
Senator Levin. You are not answering my question, though.
You are suggesting to that person when you send out a
different, totally different sweepstakes item with a different
name and a different claim number and a different format and a
different company, all names of which you have made up, you are
telling that person that these are different prizes. That is
the clear impression that anybody reading 5 or 10 different
items would get.
Mr. Dobin. Well----
Senator Levin. You are under oath here. Is that not your
motive?
Mr. Dobin. Senator, I put ``Lone Star Promotions'' on the
back of each and every one of my promotions with the same
address and the same phone number. Each and every one. I also
have a thing in my rules that says that the contest can appear
in different graphic presentations. That is not what I do, no.
Senator Levin. Yes, but what you also do is tell people in
each one of these that they can win $10,000. Isn't that
correct?
Mr. Dobin. They can win $10,000. That is correct.
Senator Levin. They can't win more than $10,000, can they?
Mr. Dobin. On that particular contest, no.
Senator Levin. I am talking about that particular contest,
even though it has 15 or 20 different sweepstakes offers. They
only can win once. Isn't that correct, at the most?
Mr. Dobin. They can only win once--in that universe.
Senator Levin. Yes, in that universe. But like on Exhibits
No. 11 and 12,\1\ that person receiving that isn't told that.
That person is told that he can win on Exhibit No. 11, and then
he is told he can win on Exhibit No. 12, is he not?
---------------------------------------------------------------------------
\1\ See Exhibits No. 11 and 12 which appear in the Appendix on
pages 106 and 107.
---------------------------------------------------------------------------
Mr. Dobin. If he has and returns the matching pre-selected
winning number.
Senator Levin. He is told on each of them he can win
$10,000----
Mr. Dobin. That is correct.
Senator Levin [continuing]. Is that not true?
Mr. Dobin. That is true.
Senator Levin. And that is a lie, isn't it?
Mr. Dobin. No, it isn't.
Senator Levin. He can't win more than one $10,000, can he?
Mr. Dobin. But it also says that the more times they enter,
the more chances they have of winning.
Senator Levin. The first $10,000.
Mr. Dobin. And it also explains----
Senator Levin. Excuse me. Let me ask my questions.
Mr. Dobin. I'm sorry, sir.
Senator Levin. The person is told on the first one he can
win $10,000. Isn't that correct?
Mr. Dobin. Yes.
Senator Levin. He is told on the second one he can win
$10,000. Is that not correct?
Mr. Dobin. Yes.
Senator Levin. He is told on the third one he can win
$10,000. Is that not correct?
Mr. Dobin. Yes.
Senator Levin. If he wins on the first one, he cannot win
on the second one. Is that not true?
Mr. Dobin. Yes. If he wins on the first one, he wouldn't
win on the second.
Senator Levin. But you don't tell----
Mr. Dobin. But I'm saying he can----
Senator Levin. You don't tell him that on the second. You
tell him on the second one he can win $10,000 on that one. You
tell him on the third one he can win $10,000 on that one. You
tell him on the fourth he can win $10,000 on that one. You tell
him on the fifth he can win $10,000 on that one. You tell him
on each one he can win $10,000, and all of those but one is a
lie.
Mr. Dobin. I disagree, Senator. You're looking at it not
the way it is. You're not looking at what we're saying in the
rules and how I'm explaining it to the people. You're taking a
point of view, but it isn't the full point of view, I
respectfully say.
Senator Levin. Will you admit that if the person wins on
the first one, he cannot win on the second one? Will you admit
that much?
Mr. Dobin. If he had it in the universe of the three-winner
universe----
Senator Levin. That is correct.
Mr. Dobin. He can only win one time.
Senator Levin. He cannot win on the second one if he wins
on the first one.
Mr. Dobin. But I'm not saying he won. I'm saying if he has
and returns the matching pre-selected winning number, then he
will win. My promotions do not say you've won $10,000 and then
I don't send another one saying you've won $10,000.
Senator Levin. Can he win on each of them?
Mr. Dobin. He cannot win on each of them, not in the
universe.
Senator Levin. You have told him on each of them he can
win.
Mr. Dobin. If he has and returns the matching pre-selected
winning number.
Senator Levin. He can't win on each of them.
Mr. Dobin. But he may have the pre-selected winning number
on the first one and not on the second, or he may get the first
one and not have the pre-selected winning number and get it on
the second.
Senator Levin. Mr. Dobin, he cannot win on each of them.
Mr. Dobin. That is correct.
Senator Levin. He is told on each of them he can win.
Mr. Dobin. He can win. That's correct.
Senator Levin. He can't win on each of them, you've just
told us under oath.
Mr. Dobin. I disagree, sir.
Senator Levin. No. You just told us he cannot win on each
of them.
Mr. Dobin. He cannot win on each of them.
Senator Levin. You tell him on each of them he can win.
Mr. Dobin. But he's been assigned a claim number. If I send
him 10 and one of those has the winning number, obviously he
can only win one time.
Senator Levin. Let's go through two simple questions.
Mr. Dobin. Yes, sir.
Senator Levin. He cannot win on each of them, can he?
Mr. Tomao. May I consult with my client?
[Mr. Tomao confers with Mr. Dobin.]
Mr. Dobin. OK. His odds of winning, no matter how many he
gets, are still 1 in 3 million.
Senator Levin. Now let me try my question. Is it not true
that he cannot win on each of them?
Mr. Dobin. In the same universe, he cannot win on each of
them. That's correct.
Senator Levin. But he is told in each of them he can win.
Is that not true?
Mr. Dobin. That he can win, that is true.
Senator Levin. Therefore, he is told a lie in all but one.
Mr. Dobin. I don't see it as a lie, Senator.
Senator Levin. Therefore, it's deceptive. It is highly
deceptive----
Mr. Dobin. I disagree----
Senator Levin [continuing]. What you were doing, and we
will check with the postal folks because they are going to be
up here, again, and be answering questions for the record.
Mr. Dobin, this is fundamentally a tissue of lies. It is a
fabric of lies. And what you are doing--and I think you are
doing it purposely, is that you are sending out 5, 10, 15, and
20 different-looking offers so that people will believe that
they are entering different sweepstakes. And if that were not
your motive, you would send them the same format over and over
and over again. I believe it is deceptive. The thing you pled
guilty to, the information that you pled guilty to, by the way,
sets forth almost exactly that same set of circumstances, that
you sent different sweepstakes offers for the same prize to the
same person, that it looks different, has different claim
numbers. That was all set forth in the information to which you
pled guilty.
After you pled guilty, you then formed Lone Star and
continued that same pattern. I believe it should be stopped. I
think under current law it is illegal. If it isn't--and we will
check with our U.S. Attorneys General and our postal people on
this--it ought to be illegal because it is so fundamentally
deceptive what you are doing here. And I will tell you that
straight up. I will look you in the eye and tell you that. It
is shameful to me what you are doing. You are taking advantage
of vulnerable people, gullible people, over and over and over
again up to 25 times, your so-called back-end mailings. I don't
know that you get it. I don't believe you do, but I do hope
that if the U.S. Attorneys General, or the Justice Department
informs this Subcommittee that what you do is not already
illegal under law, as I believe it is, well, then, I do hope
that the Congress will very promptly make it illegal because
this is wrong. What you are doing is wrong and is a lottery. I
believe it is very clearly a lottery. I think it is deceptive
to boot. And I hope we can put you out of business.
Thank you, Madam Chairman.
Senator Collins. Senator Durbin.
Senator Durbin. Thank you, Madam Chairman.
Mr. Dobin, you have been involved in coupon book promotions
that we discussed earlier in the hearing.\1\ Is that not
correct?
---------------------------------------------------------------------------
\1\ See Exhibit No. 23a and 23b which appear in the Appendix on
pages 121-136.
---------------------------------------------------------------------------
Mr. Dobin. Yes, sir.
Senator Durbin. Was Steppin' Out one of your products?
Mr. Dobin. Yes.
Senator Durbin. It is. Well, good, that makes this easier.
How did you happen to lure Avis Rent-a-Car, Sheraton Hotels,
Kodak, Earl Scheib, Jiffy Lube, Godfather's Pizza, Swiss
Pretzels, and Dunkin' Donuts into your business?
Mr. Dobin. Well, I don't own Steppin' Out. I purchase the
books from Steppin' Out. How they do that I'm really not sure.
I just know that those companies are in the book because that
is the reason I like to offer the book for sale.
Senator Durbin. Are they paid in order to be able to use
their corporate trade names in the book?
Mr. Dobin. That I have no idea about.
Senator Durbin. So what is the name of the company--
Steppin' Out is a separate company, is it?
Mr. Dobin. Steppin' Out, yes, sir.
Senator Durbin. And where is Steppin' Out located?
Mr. Dobin. They're in Las Vegas.
Senator Durbin. In Las Vegas. Well, I want to pursue this
because, frankly, I don't know if these major companies know
that they are complicitous in what is going on here. But I
think they ought to have an opportunity to come and tell us how
they make a decision about whether or not Dunkin' Donuts will
offer you three extra muffins if you buy three in one of these
little mailings here. I think that is a legitimate question,
and I would like to have an answer to it at some point.
Let me follow this a little further. I want to try to
figure out for a moment here the mailing business that you are
in, why you decided to get in it. Clearly, it is profitable.
But at one point in your testimony you said you mail about 5
million pieces a year. Is that all your businesses together?
Mr. Dobin. Yes, sir.
Senator Durbin. OK, 5 million pieces a year.
Mr. Dobin. I only have the one business.
Senator Durbin. Lone Star?
Mr. Dobin. Yes, sir.
Senator Durbin. OK. Five million pieces. What is the return
rate?
Mr. Dobin. Out of every hundred I mail out, approximating,
I get 12 promotions back. So 88 out of 100 don't respond to me.
Senator Durbin. That is a 12 percent return. Now, you have
a box on some of them that says you don't have to send any
money back, just return it if you want to. So out of the 12
percent return, how many come back with money in the envelope?
Mr. Dobin. Between 4.5 and 5 percent.
Senator Durbin. About 5 percent. And so what would you
gross from 5 million mailings? What would be a good number to
work with in terms of anticipated gross if 5 percent are
returning the $10 or whatever it happens to be?
Mr. Tomao. Can we just have a moment?
Senator Durbin. Sure.
[Mr. Tomao confers with Mr. Dobin.]
Senator Durbin. I think 5 percent of 5 million is 250,000.
Does anybody in the audience want to jump in? Does that sound
right?
Mr. Dobin. Yes, just about.
Senator Durbin. Two hundred and fifty thousand returns
coming back, each one of them with $10. Is that what you are
asking----
Mr. Dobin. It doesn't come out that way, though. That's
what we're going to try to find for you.
Mr. Tomao. One second.
[Mr. Tomao confers with Mr. Dobin.]
Mr. Dobin. Once again, we're using an approximation, but
that should be very close to what it would be.
Senator Durbin. Well, let's try this. Five percent of 5
million is 250,000. If you get $10 a return, you get $2.5
million gross revenue coming back.
Mr. Dobin. Yes, sir.
Senator Durbin. You keep an office open, you are paying 12
employees, and you decided that every year you want to give out
of that $2.5 million $34,000 in prizes.
Mr. Dobin. Yes, sir.
Senator Durbin. Is that right? Would 1998 reflect that is
about how it works?
Mr. Dobin. That's about it, yes.
Senator Durbin. So this is a pretty profitable undertaking.
Mr. Dobin. Well, we have--there are a number of costs in
there, also, printing and mail. The post office bill is over $1
million a year and things like that. But it's profitable, yes,
sir.
Senator Durbin. It clearly is.
Let me ask you, Mr. Kasday, what percentage of the replies
that come back from your mailings have no cash inside, just
send it back and check off the box that says, yes, I want to be
in the contest but, no, you can't have any money?
Mr. Kasday. I'm not sure of the exact number, Senator. I
can only guess. I'd say about 7 or 8 percent.
Senator Durbin. Seven or 8 percent. And how many mailings
come back with money in the envelope?
Mr. Kasday. Between 5 and 6 percent.
Senator Durbin. Pretty close to what Mr. Dobin testified
to.
Mr. Kasday. Yes.
Senator Durbin. Kind of an industry standard on
sweepstakes, it sounds like----
Mr. Kasday. Yes.
Senator Durbin [continuing]. Moving in that direction.
Where do you get your mailing lists, Mr. Kasday?
Mr. Kasday. We rent them.
Senator Durbin. Rent them from?
Mr. Kasday. From list management companies.
Senator Durbin. Is there a major company that does list
management?
Mr. Kasday. Well, there are many.
Senator Durbin. Can you give us the names of the largest
ones?
Mr. Kasday. Well, we rent our names primarily through
Walter Carl.
Senator Durbin. Based in what city?
Mr. Kasday. They're in a small town in New York. New City,
I think, but I wouldn't swear to it.
Senator Durbin. Any other major sources?
Mr. Kasday. Yes. I'm trying to think of a couple other
names. Nothing is popping into my head right now.
Senator Durbin. Well, Mr. Dobin, how about yourself? Where
do you turn to for lists of people to mail these to?
Mr. Dobin. I use a list broker called Saavoy, and they're
located in New Jersey.
Senator Durbin. And when you made your request to them for
lists to use, what kind of criteria do you tell them: Here is
what I'm looking for, don't send me people who are part of a
garden club, that isn't what I'm doing here; I'm trying to find
people who will send me 10 bucks if I send them an enticing
offer. What do you tell your mailing list source?
Mr. Dobin. Basically the lists that I use are either people
that have played sweepstakes or skills games.
Senator Durbin. So are you looking for those who have
already done that or who are likely to do that, or both?
Mr. Dobin. Really, both.
Senator Durbin. Both. And it's our impression here, from
letters that I get in my office, and I think Senator Collins
might say the same, that some of the saddest and most tragic
stories--and I have seen references from attorneys general in
the States to back it up--are elderly folks who get to a point
in life where they are so easily misled that they are sending
money hand over fist. So do you have any policy to keep names
off the list of certain age groups or to include certain age
groups on lists?
Mr. Dobin. I don't discriminate as far as age is concerned.
I do agree that that can be a problem. How to stop that from
being a problem, that I don't know. What I do is any letter
that I get that says--and I've gotten them from people--my
father spent $50, my father spent $100, whatever it is, we
immediately refund it. We don't ask for the book back or
anything else, and we immediately take them off our list.
Also, if they request to be taken off the list, they're
taken off the list as well.
Senator Durbin. Out of the 5 million mailings a year, how
many such requests do you get to have a name taken off the
list?
Mr. Dobin. It's a very small percentage, but we do get--I
could give you that exactly.
Senator Durbin. More than 100?
Mr. Dobin. More than 100, but not a whole lot more, I don't
believe.
Senator Durbin. Out of 5 million?
Mr. Dobin. Yes.
Senator Durbin. Mr. Kasday, how about your own business? I
mean, when you are looking for these mailing lists, do you have
any standards that you use saying, listen, I don't want to take
advantage of people over a certain age, so please don't send me
their names? Do you cull it out and say I want to look for
folks who would respond positively but not in certain
categories?
Mr. Kasday. We never do age selects, Senator, and we look
for people who are experienced in sweepstakes or contests.
Senator Durbin. I am asking from the other perspective. You
don't do age selects, but do you tell your mailing list source,
listen, don't send me folks who are over a certain age, we know
that they are more vulnerable and by our experience we have
heard about this? Is that part of your business?
Mr. Kasday. Senator, I don't believe that most mailing
lists are divided by age, so I'm not even sure if the list
owner knows what the age of their constituents are.
Senator Durbin. And when you say that you are soliciting
those who have played sweepstakes, I guess there is a universe
of mailing list source that you all traffic in, once you've
gotten responses from 12 percent of--now we are going to do
some more calculation here--5 million, so you have--stick with
me--600,000 people who have responded. Do you then sell that
list, Mr. Dobin, to others? Is that part of your business, too?
Mr. Dobin. The lists are broken down two ways, buyers and
non-buyers. OK?
Senator Durbin. Those who send money and then those who
don't?
Mr. Dobin. That's correct. And we sell the list of the
buyers. Some people have asked for the other list, but very
rarely.
Senator Durbin. So that 250,000-name list is something that
you then have as an asset that you can turn around and sell?
Mr. Dobin. Yes, sir.
Senator Durbin. Mr. Kasday, same experience?
Mr. Kasday. Yes, sir.
Senator Durbin. Let me just ask, in terms of
investigations--I know, Mr. Dobin, you have testified that you
have been involved in some investigation by authorities. How
many different States are actively investigating your mailings
at this point? Do you know?
Mr. Tomao. One moment.
[Mr. Tomao confers with Mr. Dobin.]
Mr. Dobin. We receive attorney general letters from time to
time--which I have my attorney take care of. Right now there is
one pending in Illinois.
Senator Durbin. And any other State?
Mr. Dobin. That is all, sir.
Senator Durbin. That is the only one?
Mr. Dobin. Yes, sir.
Senator Durbin. OK. Mr. Kasday, how about yourself? How
many different State Attorneys General or consumer protection
agencies in those States are currently investigating your
mailings?
Mr. Kasday. I'm not aware of any attorney general
investigations.
Senator Durbin. How about other State agencies or local
agencies?
Mr. Kasday. I don't quite know how to answer that because
consumer protection agencies, we may get a letter from time to
time--which is answered. I don't know if that's considered an
investigation.
Senator Durbin. Well, but you would certainly understand a
subpoena.
Mr. Kasday. Yes, sir.
Senator Durbin. And if a State, like Illinois, Missouri,
Maine, or whatever it might be, decided to subpoena information
from you, you would be aware of that. Has that happened to you
in the course of your business?
Mr. Kasday. Not to my recollection. Any business that I've
owned, we've never--I don't believe we've ever been subpoenaed.
Senator Durbin. One of the points made earlier by the
investigator, Ms. Parde, is the fact that you operate under so
many different names and appear to be changing addresses and
moving. Is there a design, a strategy here to stay as elusive
as possible, not to be pinned down? Reader's Digest, for
example, came in in the first round here, and they kind of
stick with the name. But you seem to--you have a pretty
creative sense here when it comes to J. Remington Astor--is
it?--J. Barrister Tipton, whatever you came up with there. Is
it your idea that, you know, to be kind of quick on your feet
so that they can't catch up with you?
Mr. Kasday. Not at all, sir.
Senator Durbin. Well, why do you keep operating under so
many different names?
Mr. Kasday. Well, we don't, really. There's three different
companies currently operating, and there's the same name, and
we'll remain the same name.
Senator Durbin. The one that sounds--or the two that sound
like Main Line law firms or accounting firms are the ones that
you continue to operate under?
Mr. Kasday. I don't believe that they sound like Main Line
law firms or accounting firms. As a matter of fact, we put on
our literature ``not a law firm.''
Senator Durbin. I noticed that in very small print at the
bottom of the letter.
Let me see if I can clarify this for the record. The
Lustigman firm, is that representing--Mr. Kasday, has that
represented you?
Mr. Kasday. No. Mr. Burns represents me.
Senator Durbin. OK.
Mr. Kasday. But we have used the Lustigman firm from time
to time.
Senator Durbin. There was a question asked of them on July
6, 1999, in reference to some of your companies. Please provide
a total of the attorney general's letters received. Enwood,
Pressman & Ingram received 28 inquiries in 1999; Mellon, Astor,
7.
Mr. Kasday. I believe that is correct.
Senator Durbin. OK. So when I asked earlier if there were
letters of investigation or investigations underway, this would
be more reflective, would it not? Or is your firm wrong in
saying that?
Mr. Kasday. I don't consider those investigations. Usually
they're just asking for information or they're responding to a
letter from one of their constituents. I presumed you were
talking about an active investigation.
Senator Durbin. So if they would write to you and say we've
received a complaint from someone living in this State, they
want to be taken off your list, for example, they don't want to
be solicited anymore, you think Lustigman's referring to that
sort of thing?
Mr. Kasday. I believe so. If that happens, we take them off
the list, and we respond to the----
Senator Durbin. And when you turn around and sell that
list, again, is their name on it?
Mr. Kasday. The name is off it.
Senator Durbin. The name is off.
Mr. Kasday. Off the list. It's out of the computer.
Well, when I say out of the computer, it's in a permanent--
what we call a kill file that we don't mail to, and we don't
rent those names.
Senator Durbin. I have run out of time here. I was going to
try and delve into how you made your career choices here. I
wanted to try to get an idea of how you decided to get into
this business. But I don't have time. Madam Chair? Well let me
find out.
Mr. Kasday, how did you decide to get into this business?
Mr. Kasday. It was a long, long time ago, Senator, and it
was purely a fluke. It's a long story if you want to hear it.
Senator Durbin. Give me the short version.
Mr. Kasday. All right. I think it was about 28 years ago.
Someone I knew who was a bridge player was very friendly with
another bridge player who owned an advertising agency. He was
looking for a business to get into because he didn't like what
he was doing. She suggested the contest business. And he was
rather inexperienced, and he approached me and said, Would you
like to form a partnership? It sounded interesting, I examined
it, and that was it.
Senator Durbin. And your background before that, what had
you done?
Mr. Kasday. I've done a little bit of everything. I've been
in sales. I owned with my wife a duplicate bridge club in Los
Angeles. Nothing related to this field.
Senator Durbin. Mr. Dobin, how about yourself? How did you
happen to get in this business?
Mr. Dobin. I had a customer of mine when I was in the
automobile leasing business named Jeff Novis who was interested
in getting into the business, and I knew another guy who was in
the business. And I liked it. I thought that the hours were
good, and I thought that it was a business that--I like to
write and things like that. I thought it was a good business to
go into, run properly.
Senator Durbin. Well, if you can gross $2.5 million and pay
out $34,000, it does sound like a pretty decent business to get
into.
Mr. Dobin. I don't get that in my pocket, unfortunately.
Senator Durbin. Thank you very much. Thank you, Madam
Chair.
Senator Collins. Thank you, Senator Durbin.
Mr. Dobin, I'd like to ask you some questions about Exhibit
No. 14,\1\ if you could turn to that and if we could have the
chart put up. Now, it is my understanding that this is one of
Lone Star's promotions that uses the trading name of Darwin
American Selection Services. Is that correct? It's one of your
promotional mailings?
---------------------------------------------------------------------------
\1\ See Exhibit No. 14 which appears in the Appendix on page 110.
---------------------------------------------------------------------------
Mr. Dobin. Yes, it is.
Senator Collins. In the middle of the mailing in red are
the words ``Guaranteed Prize Payout $5,000.00 CASH.''
Mr. Dobin. Yes.
Senator Collins. You see those words?
Mr. Dobin. Yes, Senator.
Senator Collins. Have you paid out the $5,000 in cash that
is the guaranteed prize payout?
Mr. Dobin. Not yet.
Senator Collins. Why haven't you paid out the amount that
is promised by this mailing?
Mr. Dobin. Well, what happened was we selected a winning
number in a range of 1 to 3 million, like we do for all our
other promotions. But I don't send out that many $5,000
solicitations. We wanted to do a test on $5,000. Of course,
once it's out and we've already picked the number, we sort of
got caught between and betwixt. We realized it was going to
take longer to reach that 3 millionth name than we anticipated.
Now, it does say in our rules that we're allowed to extend
the deadline, and we should be awarding this prize within the
next couple of months. But as of yet, we haven't done that.
Now, what I'm going to do is change the rules, and that's
completely unrelated to this Subcommittee meeting, and we were
going to do this a long time ago because we realized it was
taking too long to get to that number. We're probably going to
drop the odds to maybe 2 or 1.5 million.
Senator Collins. On the back of the mailing, it clearly
states, ``The prize will be awarded''--this is the $5,000 cash
prize--``on or about December 15, 1998.''
Mr. Dobin. Yes.
Senator Collins. That is 7 months ago.
Mr. Dobin. Yes.
Senator Collins. Can you show me where on this mailing it
says that the prize will not be awarded if you don't send out 3
million solicitations?
Mr. Dobin. Yes. Where it says in the sentence, ``To enter
without receiving special premium, after 1998, sponsor reserves
the right to extend the deadline.''
Senator Collins. It says it reserves the right to extend
the deadline. It does not say that you are not going to award
the prize.
Mr. Dobin. Oh, we are going to award the prize, but it's
got to be in the 1 to 3 million numbers, because, see, I
don't----
Senator Collins. Aren't you controlling the number of
solicitations that are sent out? Aren't you the one who
determines whether you get to 3 million?
Mr. Dobin. Yes, I do determine that.
Senator Collins. So if you wanted to meet the deadline that
is listed in here of December 15, 1998, all you had to do was
to send out 3 million solicitations by that date. Is that not
correct?
Mr. Dobin. Well, it's not so easy to get 3 million names
sometimes to mail out. But our intention was not to deceive in
any way, shape, or form. But what did happen--see, we pick a
winning number. We don't know what it is. It goes to the
attorney. When I say ``we,'' my computer house picks a winning
number. He sends it to my attorney. I have no idea what the
winning number is. If I were allowed to ask what the winning
number was and it was in the universe that I'd already mailed
out, I would have paid that winner. But I couldn't do that.
Now, I may send some of these out----
Senator Collins. Mr. Dobin, you're the one who determines
whether or not 3 million solicitations are sent. Is that not
correct?
Mr. Dobin. That is correct, yes.
Senator Collins. And you have told the contestants, the
people who are entering your contest, that the prize will be
awarded on or about December 15, 1998. Is that correct?
Mr. Dobin. That's correct.
Senator Collins. And yet you did not award the $5,000 prize
on or about December 15, 1998. Is that correct?
Mr. Dobin. That is correct. But we also do say that the
sponsor reserves the right to extend the deadline in these type
of circumstances.
Senator Collins. Do you have the right to extend it
indefinitely?
Mr. Dobin. Well, my purpose is not to extend it
indefinitely. My purpose is to pay the $5,000 when the 3
million names come in.
Senator Collins. But you are the one who controls when the
3 million figure is reached.
Mr. Dobin. Well, but you're asking--you're saying am I
trying not to pay the winners, then you would be right, I'd be
a bad guy. That's not what I'm trying to do. You know, my word,
I mean, we do it on 3 million names.
Senator Collins. Then why don't you put in for your
deadline the date by which you are going to reach the 3 million
solicitation mark?
Mr. Dobin. Well, we try to guesstimate it as best we can.
Unfortunately, with the $5,000 prize, it was the first time we
offered a $5,000 prize. I didn't realize it was going out in
such small quantities. When I did and I started to increase the
mail-out, it extended beyond December 1998. It's really as
simple as that.
Senator Collins. Well, I don't think it is simple at all. I
think it is highly misleading to tell consumers that a prize
will be awarded on or about December 15, 1998, and then 7
months later still not to have awarded the prize. I think that
is very misleading. But let me ask you another question.
Why is this mailing void in Indiana?
Mr. Dobin. There are certain States which, from my
understanding, sweepstakes companies do not mail into all of
them. I've never really looked into why. I just know there are
certain States that we do not mail into, and that's one of
them.
Senator Collins. Is that the same reason you say this is
void in Connecticut, Minnesota, Louisiana, Florida, and Kansas?
Mr. Dobin. Yes, I think it's illegal to mail into those
States.
Senator Collins. None of these States have prohibitions
against sweepstakes per se. Is it that their laws would
prohibit the kind of deceptive sweepstakes that you are sending
out?
Mr. Dobin. I thought that they had laws that prohibited
that. I was wrong. That's the reason.
[Mr. Tomao consults with Mr. Dobin.]
Mr. Dobin. Also, Senator, we don't consider our pieces to
be deceptive.
Senator Collins. Well, I think that is something that we
obviously have a profound disagreement on. I have no further
questions for this panel. We may be submitting some additional
written questions from myself and other Members of the
Subcommittee for you to respond to. You will have 30 days to
respond to those questions. You are excused.
Mr. Tomao. Excuse me, Senator? May we also have the right
to submit additional comments as you offered to Mr. Kasday at
the beginning of the session?
Senator Collins. You may.
Mr. Tomao. Thank you, Senator.
Senator Collins. I would now like to call our final panel
of witnesses this morning. I want to welcome Kenneth J. Hunter
and Robert G. DeMuro from the U.S. Postal Inspection Service.
Mr. Hunter is the Chief Postal Inspector, and Mr. DeMuro is an
Inspector Attorney. They will discuss some of the cases that
the Postal Inspection Service has pursued recently and what, if
any, new enforcement authorities are needed to help them
effectively combat deceptive mailings.
Pursuant to Rule 6, all witnesses are required to be sworn,
so I will ask that you stand and raise your right hand. Do you
swear that the testimony you are about to give to the
Subcommittee is the truth, the whole truth, and nothing but the
truth, so help you, God?
Mr. Hunter. I do.
Mr. DeMuro. I do.
Senator Collins. Thank you.
Mr. Hunter, I am going to ask you to begin, and you will
have 10 minutes for your prepared testimony.
TESTIMONY OF KENNETH J. HUNTER,\1\ CHIEF POSTAL INSPECTOR U.S.
POSTAL INSPECTION SERVICE, AND ROBERT G. DEMURO,\1\ U.S. POSTAL
INSPECTOR ATTORNEY, U.S. POSTAL INSPECTION SERVICE
Mr. Hunter. Good morning, Chairman. As you said, I am Ken
Hunter, Chief Postal Inspector, and accompanying me today is
Postal Inspector/Attorney Bob DeMuro from Newark, New Jersey.
We appreciate this opportunity to appear before your
Subcommittee to discuss sweepstakes and government look-alike
mailings. I want to thank you, Senator Levin, Senator Cochran,
and Senator Edwards for the work that all of you have done to
develop legislation to provide additional protections for
consumers. We, too, are concerned that the adverse impact
deceptive promotions can have is significant. I have submitted
more detailed written testimony for the record and will simply
summarize its main points today.
---------------------------------------------------------------------------
\1\ The prepared combined statement of Mr. Hunter and Mr. DeMuro
appears in the Appendix on page 75.
---------------------------------------------------------------------------
For over 200 years, the Postal Inspection Service has been
protecting postal employees, the mails, and postal facilities
from criminal attack and protecting businesses and consumers
from being victimized by fraudulent schemes and other crimes
involving the use of the mails.
Congress initially created the Nation's mail service to
maintain a reliable, efficient, affordable, and secure means of
communication. A recent Harris poll affirms that the American
public feels significantly more confident about the security of
the mail than telephones, fax, or Internet.
Inspection Service employees are dedicated to preventing
unscrupulous promoters from damaging public confidence in the
U.S. mail. The Postal Inspection Service is not opposed to
sweepstakes in general. They can be lawful, non-deceptive
marketing programs. However, any sweepstakes promotion that
does not clearly represent the true nature of the offer it is
making in an effort to deceive and prey upon citizens deserves
to be penalized.
Thanks to the attention you and Senator Levin have drawn to
this problem, we are all now more aware of the heartbreaking
stories of citizens, many of them elderly, who have invested
their fortunes in deceptive and sometimes fraudulent
sweepstakes promotions, receiving virtually nothing of value in
return. This is a disgrace.
Unfortunately, the statutes that most readily address
fraudulent and deceptive promotions are not adequate and
provide little incentive for the operators to quit their
promotions.
One of our best-known remedies to address fraudulent
schemes that utilize the mail is the criminal mail fraud
statute. During the past fiscal year, 1,339 investigations were
initiated by postal inspectors regarding possible mail fraud
violations. We obtained 1,278 convictions resulting in prison
sentences, fines in excess of $11.9 million, and court-ordered
and voluntary restitution of over $311 million.
Prosecuting fraudulent promoters under criminal statutes
often occurs only after damage has been done to the victims.
Additionally, many of the promotions that we address skirt the
elements of guilty knowledge and criminal intent which are
necessary to prove violations and sustain convictions under
Federal and State criminal statutes.
Most often, we address these activities under current civil
mailability statutes in an attempt to stop the schemes and
limit the number of victims. What often happens is that our
actions deny promoters the fruits of their schemes--incoming
mail containing money--and diminishes the likelihood of
criminal prosecution due to the fact that we stem the victims'
losses.
This would be an acceptable situation if promoters were
influenced to discontinue the operation of their deceptive
promotions. Unfortunately, as you know, this is not the case.
Current civil statutes concerning fraudulent promotions
have been utilized by us to reduce victim losses related to a
particular scheme. However, it is too easy for the promoter to
set up new addresses and continue the scheme or start a new
scheme.
What is missing are possible sanctions that make promoters
who have been shut down think twice before resuming business as
usual.
We remain committed to protecting consumers through any
means available. However, it is time to quit trying to explain
why our effectiveness is limited by weaknesses in the existing
laws. As you have demonstrated, there is overwhelming evidence
that people are misled by language allowed by the existing
statutes. We need clear and unambiguous legislation to protect
both consumers and businesses from deceptive promotions.
We wholeheartedly support S. 335, which we believe will
greatly enhance our ability to conduct investigations, shut
deceptive promotions down, and decrease the likelihood of a
promoter's recidivism. Provisions that you have included in the
legislation will allow multi-district temporary restraining
orders, establish significant civil penalties for mailing
deceptive promotions or evading stop orders, and grant limited
administrative subpoena authority to the Inspection Service for
production of records relevant to the investigations. These
provisions are key to more effective enforcement efforts.
Also, the legislation will establish for the first time
specific guidelines for solicitations involving sweepstakes,
games of skill, and facsimile checks. In addition, government
look-alike provisions will be better defined.
While I am proud of our success in conventional law
enforcement efforts, I am also convinced that arrests,
convictions, and civil judgments are only part of the way to
effectively deal with consumer fraud. The results of these
efforts may only come after the victims have lost their money
and the con artists have spent it.
For this reason, we have been working closely with consumer
groups and industry to develop fraud prevention strategies and
share best practices. These efforts have produced dramatic
results in the areas we have targeted. Last September, while
testifying before the Subcommittee on International Security,
Proliferation, and Federal Services, I announced that the
Inspection Service had joined with the National Council of
Better Business Bureaus to make a vision we share a reality.
Assisted by other consumer and government agencies, including
AARP, the Department of Justice, the Federal Trade Commission,
and the Federal Bureau of Investigation, we plan to launch
perhaps the most ambitious fraud prevention initiative ever
undertaken, Project kNOw Fraud.
In October, we will mail to every home in America a card
containing valuable fraud prevention tips and providing a toll-
free number to call and an address to write for information.
Also, there will be a dedicated web site which links to the
participating agencies and organizations, and an informational
video is being produced which will be available through 16,000
public libraries and on the website.
Senator the only way to reach everyone in this great
country is through the mail, and that is what we intend to do.
Now, this card is being designed to be displayed by the
phone as a reference and prevention tool in hopes of helping
citizens make informed decisions regarding mail and
telemarketing solicitations and to help them avoid becoming
victims of fraud. Of course, I would much prefer that they not
ever receive those offers that this education is necessary for.
And in that regard, I applaud you for the bipartisan effort
that you are leading on this bill and certainly commend you for
holding this series of hearings.
We very much appreciate your interest in protecting the
American public. We believe your bill is the most comprehensive
legislation to date that relates to fraudulent and deceptive
mailings. I assure you that the Postal Inspection Service will
continue to combine aggressive investigations and widespread
public awareness campaigns to rid the mail of fraudulent
schemes. The American public's confidence in the mail is not
only important to the Postal Service, but also to the millions
of businesses that rely on the mail as an important
communications and marketing tool.
At this time, as you have requested, I would like to ask
Postal Inspector Attorney Bob DeMuro to discuss a few examples
of sweepstakes and government look-alike schemes that we have
investigated. Thank you very much.
Senator Collins. Thank you very much, Mr. Hunter.
Mr. DeMuro.
Mr. Demuro. Thank you, Senator. I would like to thank the
Subcommittee for this opportunity to address them concerning S.
335, the Deceptive Mail Prevention and Enforcement Act. The
proposed legislation would enhance the Inspection Service's
efforts in combating deceptive mail practices that are plaguing
American consumers. Several aspects----
Senator Collins. Excuse me for interrupting. Could you move
the mike just a little bit closer to you? They are very
directional, so you have to speak right into them. Thank you.
Mr. DeMuro. I would like to illustrate some provisions of
the proposed legislation with current and past investigation
cases of how your legislation would have been very helpful to
us.
With respect to multi-district TRO authority, in the
current investigation of Eagle Promotions, it was determined
that after we filed for a TRO in New Jersey and that the
promoter, James Bierman, was operating in 13 different trade
styles, we discovered that he was also operating out of New
York with a different corporation and in four different
solicitations with different trade styles. Had we had multi-
district TRO authority, the TRO we received in New Jersey would
have impacted on the New York operation.
Typically, promoters do use multiple addresses, multiple
trade names, as testified earlier. In a previous case, a person
by the name of Borden Barrows operated four different
sweepstakes promotions in four States under three different
names. Now, again, if we had the TRO authority for multi-
district filing, if we were to have that authority, we could
stop the future Barrows from operating with only one filing.
This would promote judicial economy and it would help us to
protect consumers better.
With regard to Mr. Barrows, interestingly, when we
approached him in 1993 in New York City, Mr. Barrows closed up
shop, failed to award the prize, which was cash or a car, and
moved on. He set up shop sometime later in Massachusetts.
Again, postal inspectors approached him. Once approached, he
closed up shop, failed to award the prize, which was cash and a
car, and moved on.
He then surfaced in Florida, again, incorporating under new
corporations using new trade styles, and this time he started
to solicit the public with a solicitation called Cash Claim
Service and National Cash Distribution Bureau. The solicitation
was a delivery notice. It represented that the U.S. Government
was holding money for the addressee. Barrows had set up CMRA,
commercial mail receiving agencies, addresses in Arizona, New
York City, Washington State, Washington, DC, White Plains, New
York.
Senator Collins. Mr. DeMuro, I am going to have that put up
since we do have that as Exhibit No. 24.\1\ It is this one that
you are describing, I believe. Is that correct?
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\1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
Mr. DeMuro. Yes, it is.
Senator Collins. Thank you. Please keep going.
Mr. DeMuro. In the case of Cash Claim Service, each time
Mr. Barrows was approached, he would merely stop--or we would
stop him in one location, and he would merely move on to
another location.
Currently, the penalties that promoters receives are only
after they have violated a cease and desist order and after the
Postal Service has granted us a breach petition. Barrows had
signed a settlement agreement with the Postal Service for Cash
Claim Service and National Cash Distribution Bureau in November
1997. Subsequently, he set up two addresses several months
later, in April 1998 and June 1998, using a new trade style
called Distribution Center. Barrows then solicited the public
with a different delivery notice, violating the settlement
agreement he signed with the Postal Service.
In August 1998, the Inspection Service and the Postal
Service Law Department sought and obtained a breach petition
against Barrows. Barrows defaulted on the breach petition, and
it was granted. Barrows simply ignored the agreement and the
cease and desist order. The proposed legislation would have
subjected Barrows to penalties for the initial violation, and
it would have taken the profit out of his illicit promotions.
It would also have subjected Barrows to a double fine for
violating the cease and desist order.
In another case, Mailworks International operated several
sweepstakes out of Tempe, Arizona. Postal inspectors obtained a
TRO in September 1998. Most of the defendants did settle in
November 1998, except one, who has then become subject to a
preliminary injunction. Interestingly, in March 1999, a company
called Wilson Perrie Corporation operated from Nebraska. Now,
Wilson Perrie Corporation was using a Mailworks sweeps
solicitation substantially similar to a trade style called
Monetary Fulfillment Agency out of Tempe, Arizona. If we had
administrative subpoena authority, we would be able to identify
the parties behind Wilson Perrie Corporation, established the
links between Wilson Perrie Corporation and Mailworks, and
determine the scope of the scheme and the volume of mail to
assess penalties.
In Eagle Promotions, again, we initially filed against them
in New Jersey, but did not know about the New York operation.
Had we had subpoena authority, we would have known very quickly
about the New York operation and could have moved very quickly
against it.
Subpoena authority also helps us establish whether there
are funds available for consumer restitution. In the area of
government look-alike legislation, the current law is a
subjective standard. In the Eagle case, the government has
argued that 2 of the 13 promotions violate the law. It violates
it as reasonably construed as implying a Federal Government
standard--excuse me, a Federal Government connection. Your
legislation would provide an objective standard which would
strengthen it, and it would also provide penalties.
The legislation calls for conspicuously listing on
sweepstakes a no-purchase option. A clear and conspicuous no-
purchase option on the claim and entry form allows consumers to
make an informed decision as to whether to participate in the
sweepstakes. In the Eagle promotion and in the Mailworks
promotion, the no-purchase option on the claim forms would have
helped clear consumer confusion about whether they are
obligated to send money to receive the cash award.
Finally, with regard to working with State Attorney
General's Offices, the Inspection Service has worked in
cooperation with the State Attorney General's Offices and
Consumer Affairs Divisions. In the Eagle Promotions
investigation, we have worked jointly with the New Jersey
Attorney General's Office and Consumer Affairs Division. We
shared information, exchanged consumer complaints, and jointly
developed consumer witnesses. We even coordinated the filing of
our cases in Federal and State court.
Promoters often do not solicit from consumers in the same
State that they are operating from. In the Eagle Promotions
case, it did not solicit New Jersey consumers with Eagle
Promotions, and only with Lexington, which is located in New
York. Promoters believe that the attorney generals do not have
jurisdiction over them if they do not solicit consumers from
their States or perhaps that the attorney generals will put
them on a lower priority list.
As in the Eagle Promotions case, the Inspection Service has
worked jointly with the New Jersey Attorney General's Office to
develop out-of-State witnesses for both of our cases. The
proposed legislation would enhance the Inspection Service's
ability to assist the Attorney Generals with their
investigation as well.
Thank you very much.
Senator Collins. Thank you very much. I want to thank you
both for your support for our legislation, for the excellent
work that you have done to try to curtail deceptive mailings,
and also for your technical advice and expertise which you have
shared with the Subcommittee throughout our investigation and
in drafting our legislation. That has been extremely helpful.
When the Subcommittee first began looking into deceptive
mailings, I was familiar with the four large sweepstakes
companies. I had no idea that there was an underground
operation of dozens of small operators who are also reaching
millions of Americans with their solicitations. It troubles me
greatly that we have people, these underground operators, what
I call the stealth sweepstakes operators, which are very
difficult to detect, to track, to close down, who have been in
operation for decades. Why is it so difficult to identify these
small promoters? Why are they able to stay in business so long,
Mr. Hunter?
Mr. Hunter. Well, I think probably there are hundreds who
are operating and that many of them are operating, as you have
heard today, under multiple names so that many of them have
multiple branches. And it has been possible for a number of
reasons, primarily centering on their anonymity, the ability to
use so many different names, and also loopholes in the law that
you are trying to close such that, for example, if a TRO is
issued in one judicial district, it would apply even if they
moved to other districts. As you have heard, it is very easy to
use commercial mail receiving agencies and not even have a
physical presence in those locations, just a business you pay
to receive those payments and forward them to you. And, of
course, if there were some penalties, if there were some teeth
in these civil administrative proceedings, the financial
penalties that you are proposing, because, frankly, people are
in the business for the money.
Likewise, the subpoena power would be very helpful, too,
because as you heard today from the person responsible for your
investigations, who has some of those powers, even then it is
difficult to get this information. And we are hindered even
further without the administrative subpoena power to learn more
about the operation more quickly, and the victims, so that it
can be shut down before further individuals are victimized.
Senator Collins. Following up on Mr. Hunter's point, Mr.
DeMuro, as we investigated Mr. Dobin's enterprises, we found
out that he had 40 different trade names that he was using for
only three sweepstakes. Is the use of this complex layer of
different names and different companies for the same promotion
common? And does that make detection that much more difficult?
Mr. DeMuro. Yes, Senator, it is. It is very typical that
promoters will use multiple names. Again, going to the Eagle
Promotions case, there were 13 different trade styles in New
Jersey and four in New York. Now, with the New York operation,
we did not become aware of it until after we had filed. And
Barrows, for instance, he had used three different sweepstakes
operations in three different States.
What the difficulty is is to link those particular
solicitations back to Barrows, and because they are in
different locations, the complaints go to different locations.
And it is only really by conversations with other inspector
attorneys or inspectors that we find that there is a link
between the two.
Senator Collins. We found that also in our investigation,
that it took a great deal of work and digging to find out all
of the multiple corporations, all the multiple DBAs, all of the
fictitious names that were being used by these promoters. And
we also found that there are companies that use straw owners
who have nothing to do with the operations. So you think you
have the individual who is the person responsible, and you find
that you do not.
Have you had experience with companies being run by straw
owners as someone who really has little or no involvement with
the company that is putting out the deceptive mailings?
Mr. DeMuro. Yes, there's been numerous examples, Senator,
where even the postal forms will have the names of individuals
who are straw owners or third parties, and when you approach
those third parties, they know little or nothing about the
operation. But we at that point, through interviews of vendors,
will try to reach beyond that straw person to reach the real
promoter or the principal who actually directs and controls
those corporations.
Senator Collins. That was one of the challenges for us in
getting into this whole matter, was finding out who really is
pulling the strings and benefiting from the money that
consumers deceived by these mailings are sending in.
I think that is why the administrative subpoena power is so
important that is in our legislation, as well as the ability
for you to have multi-district TROs so that you can't have a
Mr. Barrows just moving his operations to another State and you
have to start all over again. Is that correct, Mr. Hunter?
Mr. Hunter. I would agree those are very valuable tools.
Senator Collins. Let me ask just one final question to you,
Mr. DeMuro. On the exhibit that we have on the posterboard
\1\--and this is the Barrows case, I believe--this really
troubles me not only because it was received from one of my
constituents, but because it is a perfect example of a
government look-alike mailing that is deliberately using words
associated with government to deceive consumers.
---------------------------------------------------------------------------
\1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
For example, it says that all U.S. Government payments are
100 percent guaranteed. True, but totally irrelevant to this
mailing, is it not?
Mr. DeMuro. That's correct, Senator.
Senator Collins. It also says special notification--it
appears to be designed to look like a postal document, one of
those postcards that the Postal Service uses. Is that correct?
Mr. DeMuro. That's correct. That's what we call a delivery
notice scheme, if you will.
Senator Collins. How common are these kinds of schemes?
Mr. DeMuro. The ingenuity of the people, of questionable
promoters, are unlimited. In this particular case, Senator, the
fulfillment is a book of addresses, U.S. Government addresses,
and when the consumer gets it, basically it is like a telephone
book of free information.
Senator Collins. Thank you very much. Again, I want to
thank you for your very valuable assistance to the Subcommittee
throughout our investigation. I am very hopeful that the
hearings that we have held will result in the legislation that
we have introduced being passed to give you the tools that you
need.
Senator Edwards.
Senator Edwards. Thank you. Thank you both very much for
being here.
I want to follow up on a question that was asked by Senator
Collins for just a minute. Could the two of you just comment on
why you believe the administrative subpoena power that is in
our bill is so important?
Mr. Hunter. Sure. It gives us the ability under the
constraints that are provided in the bill to quickly get in and
to ascertain the significant details in terms of the extent of
the scheme and to be able to make a determination for referral
to the appropriate authority more quickly for appropriate
action so that you avoid further victimization.
Senator Edwards. Mr. DeMuro.
Mr. DeMuro. Senator, I think the administrative subpoena
power is the keystone of the bill in that it allows us to reach
beyond and peel away the layers that protect the true
principals that are operating, and most importantly because
once we do obtain a cease and desist order, we want to be able
to serve it on the true principal so that that principal could
be assessed the penalties and they could be subject to further
fines down the line.
Senator Edwards. Both of you I think have advocated--
changing subjects, both of you have advocated there being real
and meaningful separation between the processes used to enter a
sweepstakes and the processes used for purchasing a product.
Can I get the comments from the two of you on how you think
that could be done most effectively?
Mr. Hunter. Well, I think the key for both is the same in
that people who are extending an offer to someone for something
of value should be required to explain very clearly what the
nature of the offer is and what the reasonable expectation in
terms of an outcome is. If it is a sweepstakes, that it is a
sweepstakes, what the odds are, what the term of the
sweepstakes is, etc.; and likewise for products, a clear
representation----
Senator Edwards. If I can interrupt you just a minute, what
about, for example, the idea of requiring separate addresses,
separate envelopes for the two so that you can't--so they are
both not part of the same envelope and same address?
Mr. Hunter. You mean for the response back, that
requirement?
Senator Edwards. Buying a product versus entering the
sweepstakes.
Mr. Hunter. Well, I would encourage very clear information
and uniform information on how you respond. If I understand you
correctly, you are talking about if you are not going to buy,
you follow some different procedure than if you are.
Senator Edwards. Well, what I am really saying is you just
have two separate envelopes, requiring that you have two
separate envelopes, so that if you are responding to the
sweepstakes, you send one envelope in; if you are responding to
it by buying a product, you send a separate envelop in.
Mr. Hunter. Very good. I emancipated myself from those
types of responses a couple of years ago, and I've felt very
free every since. But only if it would be very clear to the
consumer what the ramifications are, because I think today that
it is misleading often in those offers. So if the provision
facilitated the rapid filling of an order, but it was very
clear in the offer that that was the case, perhaps it would not
be objectionable. But it would be very important that the
legislation be such that the wording was very clear in that
regard.
Mr. DeMuro. I think, Senator, the no-purchase option
clearly and in boldface on the entry form would probably be the
best advice to permit consumers to check off that option.
Currently what happens is on the reverse side of most of these
sweepstakes, the consumer does have an option to send in a No.
10 or a No. 9 envelope with a 3-by-5 card and/or the claim form
if they don't want to participate by sending money. That is
very confusing. I find that lawyers can kind of wiggle the
language so that the consumer will remain confused. But I think
on the claim form if you have in boldface no-purchase option
and you just check that off, I think that is probably the best
device to allow consumers to participate without sending money
in.
Senator Edwards. So basically just the most effective
thing, you think, is just a clear, easily identifiable,
conspicuous disclaimer.
Mr. DeMuro. Yes, I do, particularly for our senior citizens
who may not read the rules as astutely as someone else will.
Senator Edwards. Can we get Exhibit No. 14 up, please?\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 14 which appears in the Appendix on page 110.
---------------------------------------------------------------------------
I don't know if you all can read this from where you are,
you have a copy in your book there. But if you look down at the
lower right-hand corner of this exhibit, it says, ``Do you have
a valid major credit card?'' Then there are two boxes to check,
yes or no. Do you all have any idea why this information is
requested? Or have you looked into that? What do they do with
that information?
Mr. DeMuro. Well, Senator, I could only speculate because I
didn't investigate this particular case. But I think what they
will end up doing is adding that to their mailing list, which
then they will rent to other questionable promoters, and on
there they will indicate that the consumer has a credit card,
and then that consumer will suddenly be targeted either for
legitimate or non-legitimate mail that will involve the use of
credit cards.
Senator Edwards. I understand that you haven't specifically
investigated this particular case, but one reasonable
interpretation of this would be that it would be used to make
the list more valuable for selling it to other people or
renting it to other people. Is that right?
Mr. Hunter. To make either list more valuable, because
there are a lot of schemes that extend credit to people or the
ability to get credit to people who otherwise are unable to. So
I don't know which names would be more valuable, those who have
the valid credit card or those who don't who could be targeted
in a scheme to get credit cards in which they don't get a card
are valuable.
Senator Edwards. But the information in any event is
valuable, no matter how you use it. Is that correct?
Mr. DeMuro. That's correct, Senator.
Senator Edwards. Could we get Exhibit No. 9 up, please? \1\
About halfway down on this, there is a portion that says that
this mailing is void, and then there is a list of States:
Arkansas, etc.--my State of North Carolina is listed. Do you
have any idea why they make their mailings void in those
States? I think there are 21 States listed in here.
---------------------------------------------------------------------------
\1\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
Mr. DeMuro. Senator, in my experience, I have seen both
situations where they don't list any States and those States
where perhaps there are orders pending against that particular
company where the State Attorney General's Office was
successful. I can't answer the question specifically for these
particular States, but it could be a combination of things. And
one situation definitely is where the attorney general has
taken action and the promoter signed a settlement agreement
with that State.
Senator Edwards. What about whether they are just under
investigation in those States? Do they sometimes void them in
those States, too?
Mr. DeMuro. I don't believe so. I think they wait until
there is some final action by the State before they void
because it is too profitable for them.
Senator Edwards. Mr. Hunter, do you have any comment about
that?
Mr. Hunter. My comment in general is that our country
continues to have an adequate supply of attorneys, and I would
encourage legislation that doesn't require you to be an
attorney to understand it.
Senator Edwards. Right.
Mr. Hunter. But specifically these States on this offer, I
don't know.
Senator Edwards. Right. You ought to be able to figure it
out without being a lawyer is what you are saying.
Mr. Hunter. Yes, sir.
Senator Edwards. Thank you both very much. We really
appreciate your being here and participating. Both Senator
Collins and I both feel this is very, very critical
legislation, and your support of it is very important. Thank
you.
Mr. DeMuro. Thank you, Senator.
Mr. Hunter. Thank you.
Senator Collins. Thank you very much, Senator Edwards, and
I thank our final witnesses for their tremendous contributions.
I believe that the Subcommittee has learned a great deal
from our investigation and the hearings that we held both in
March and today. From today's hearings and investigations, we
have learned that there is a largely unknown and hidden segment
of the promotional mailing industry that does a very lucrative
business with sweepstakes and skill contests that have involved
at least in a 100 million mailings last year.
Second, we have learned that these smaller operators engage
in marketing tactics that are much more deceptive than those of
the larger, more prominent sweepstakes companies and that in
some cases border on outright fraud. And as those who have
followed this issue know, I am very critical of the deceptive
practices of the large companies, but it seems to me we have
seen a whole new nature of deception in the mailings that we
have examined through these hearings.
Third, these smaller operators often pursue this lucrative
business without detection and without fear of prosecution
because they very craftily obscure their true identities so
that neither the public nor the regulators can easily identify
or pursue them.
And, finally, we have learned that the Postal Inspection
Service needs strong additional authority to meet the
challenges presented by these hidden operators and their
apparently endless capacity for new forms of deception.
I do want to particularly thank our two witnesses from the
Postal Inspection Service. You have been very helpful in giving
us information on how to close the loopholes in current law.
In light of the testimony we have received today, I believe
the need for the comprehensive Federal legislation which
Senator Levin, Senator Edwards, Senator Cochran, and I and
others have introduced is more apparent than ever. I do hope
very much that today's legislation will prompt consideration by
the full Senate before we adjourn for the August recess.
In closing, I want to thank our Subcommittee staff. They
have worked extremely hard on a very difficult and complex
investigation and to prepare this hearing. In particular, I
want to thank Lee Blalack, Glynna Parde, who did an excellent
job testifying for us today, Kirk Walder, Emmett Mattes, who is
our detailee from the Postal Service, and we thank you for that
as well; Kathy Cutler, Eileen Fisher, and Mary Robertson.
In addition, I want to thank Senator Levin who has worked
very hard on this issue. He has been a long-time leader in the
attempt to crack down on deceptive mailings. And, again, thanks
to Senator Edwards for his always very valuable contributions
to the Subcommittee's hearings.
The Subcommittee is now adjourned.
[Whereupon, at 12:34 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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