FTC Continues Crackdown on Scholarship Search Service Con Artists

A federal district court judge has issued an order temporarily halting the businesses of two Florida firms which, law enforcement officials alleged, falsely promised college-bound students and their families scholarship funds. The cases are part of the Federal Trade Commission's "Project $cholar$cam," a nationwide crackdown on fraudulent scholarship search services that was announced in September 1996. Bogus scholarship search services obtain lists of high school and college students and mail postcards to millions of parents with claims of access to "billions of dollars" in scholarship funds provided by private companies. The firms typically guarantee specific amounts of "free" money in return for up-front fees, but few if any consumers receive any scholarships.

The two Florida firms, National Scholarship Foundation and National Grant Foundation, made telephone pitches guaranteeing students at least $1,000 in scholarships or grants for an up-front fee of $179 or $189, the FTC alleged. The agency said, however, that the companies did not have access to any scholarship funds and only provided lists of scholarships -- lists which usually are of no use to consumers because the scholarships and grants have expired, contain sources that are nonexistent, or have conditions that cannot be met. The federal court orders not only temporarily halt the companies' businesses but also freeze their assets pending a trial on the FTC allegations. In order to bolster their credibility, both companies claimed to be non-profit corporations, the FTC said. In reality, the Commission alleged, the defendants kept their profits for personal use.

These schemes are not unlike those the FTC saw in its prior "Project $cholar$cam" cases. Today, once again, Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, warned consumers that a guarantee of scholarship money is a clue to fraud, and suggested consumers be wary of claims that a search service will do all the work, that it has special access to scholarship information, or that millions of dollars worth of unclaimed scholarship money is available to the first in line.

The FTC complaint detailing the charges in the National Scholarship Foundation case also names D.B.F., National Business Reporting Bureau (NBRB) and a number of NSF's corporate officers. The complaint alleges that the NSF has sent hundreds of thousands of postcards nationwide to potential college students and their families to solicit NSF's scholarship search services. The postcard lists an 800-number to call for information and "immediate confirmation." When a consumer called the 800-number, a company representative would tell the caller that NSF could guarantee one thousand dollars worth of free grants and scholarships for a student if the caller paid a fee. The caller was told that NSF would refund its $189 fee to anyone who did not receive $1,000 or more in scholarship money through NSF within one year, the complaint alleges.

According to the complaint, however, these and other statements falsely represented that (1) NSF will provide its customers with a personal portfolio of scholarship and grant sources from which they are likely to obtain at least $1,000 in grants or scholarships, and (2) that NSF will refund its fee to any consumer who purchases NSF's services and does not obtain at least $1,000 in scholarships or grants. In fact, the defendants sent to the consumer only general information about applying to college and the costs of college education, a list of scholarships awarded by the college or university, or scholarships awarded by state or local governments. Many of the sources were not scholarships or grants, but prize contests, loan programs, or work-study programs and often the deadlines had passed or the consumer did not meet the qualifications, the complaint alleges. In addition, NSF did not honor its refund guarantee but rather attempted to impose prohibitive additional conditions that were not disclosed before the consumers purchased NSF's services, the FTC charged.

The complaint further alleges that defendants claimed that NSF is approved by NBRB, and that NBRB is an independent, third-party reporting organization that provides objective and reliable reports that accurately describe NSF's business practices. The complaint alleges this description of NBRA is false, and that NBRB, in fact, is owned or controlled by individuals who own or control NSF.

The complaint detailing the charges in the National Grant Foundation case also names Grant Research and Publishing, and a number of principals of NGF and GRP. Two of NGF's principals also were involved with two companies sued last year by the FTC, Student Assistance Service and College Assistance Services, as were three defendants who provided telemarketing services to NGF. The complaint alleges that the defendants have conducted a program to telemarket college scholarship services to high school and college students, and have mailed more than 1.6 million postcards advertising their college scholarship services to the parents of these students. The postcard gives a toll-free number and says that the student is eligible for a college scholarship or grant. When the consumers called NGF's toll-free number, they were told that, in exchange for an up-front fee of $179, the company would guarantee at least $1,000 in grant or scholarship funds from large private companies or they would refund the fee, the FTC said.

The complaint alleges that the defendants, by these and other means, falsely represented that NGF would provide its customers with names of "sources" from which they were likely to receive at least $1,000 in scholarships or grants. In fact, the complaint alleges, once consumers paid their fees and completed their applications, they merely received address lists of "sources" of financial aid for which the consumers had to apply on their own, as well as several pre-printed form letters addressed to a number of those sources. NGF directed consumers to send the form letters to the scholarship source to request an application for any scholarship or grant offered by the source. According to the FTC, the lists contained only scholarships awarded by the college or university the students attended, or scholarships awarded by the students' state or local government -- not private sources of "free" financial aid. Many of the sources were actually contests, loans, or work-study programs and often no longer existed or had expired deadlines.

The FTC also announced that its multi-faceted consumer education effort has distributed more than 2.9 million pieces of consumer education materials for "Project $cholar$cam," including posters, bookmarks, and flyers that have been circulated to college financial aid offices, high school guidance counselors, state grant and aid program administrators, and college book stores nationwide. These materials are available on the FTC's web site at: www.ftc.gov.

The complaint in the National Scholarship Foundation case also names as defendants Eleanor Morse, Calvin Morse, Dorothy Beam, Sandra K. Brown, James P. McKenna, and Timothy Quinn.

National Grant Foundation's complaint names as additional defendants Wallace Millman, Anthony Consalvo, Dennis Colonna, Anthony Lucca, Harriet Kaye, Beverly Jansen, and Carol Clough.

The state of Florida's Office of the Comptroller; the Delray Beach, Florida, Police Department; the Better Business Bureau of West Palm Beach; the Office of the Broward County Sheriff; the Sunrise Police Department; and the Oregon Department of Justice provided valuable assistance to the FTC's investigation.

The FTC vote to file the complaints was 4-0. They were filed under seal in the U.S. District Court for the Southern District of Florida on Nov. 3.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Press releases and consumer materials associated with Project $cholar$cam are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov and from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261.

Copies of the complaints in these two cases also will be available on the FTC's web site. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710.