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Eleven telemarketers, who allegedly bilked older consumers during the last several years through fraudulent prize-promotion schemes, have been indicted and nine thus far arrested as part of a federal and state task force effort focused on halting the growing problem of telemarketing fraud nationwide.

The investigation, which was conducted by the Chattanooga (Tennessee) Telemarketing Fraud Task Force, resulted in the indictment of five sales operators who had worked for Continental Distributing Company and six sales operators who had been employed by International Health, Inc. Both companies operated out of the Chattanooga area, but targeted elderly consumers nationwide. The cases announced today represent the largest wave of arrests by the Chattanooga Task Force since it was formed in January 1995. This past summer, seven other people pled guilty to wire fraud charges and two other men were indicted as a result of the work done by the Task Force.

The Chattanooga Task Force is an unprecedented combination of federal and state law-enforcement and prosecutorial resources dedicated to combatting fraudulent telemarketers. Its members include the Tennessee Attorney General's office, the office of the U.S. Attorney for the Eastern District of Tennessee, the Federal Trade Commission, the Federal Bureau of Investigation, the U.S. Secret Service, the Internal Revenue Service's Criminal Investigation Division, United States Postal Service Inspectors, the Hamilton County District Attorney's Office, and the Tennessee Bureau of Investigation. The U.S. Attorney's Office, in conjunction with the Federal Trade Commission and the Tennessee Attorney General's office, whose attorneys have been designated as Special Assistant U.S. Attorneys, will prosecute the cases.

Carl K. Kirkpatrick, U.S. Attorney for the Eastern District of Tennessee, praised the joint effort, stating, "United in our common goal of eradicating the epidemic of telemarketing fraud and its ruthless victimization of the elderly, by combining forces we have been able to accom plish far more than any single element of our Task Force could alone. The success to date of this joint venture, I believe, is a good example of creative and productive reinvention of government' which applies combined resources to a heretofore intractable national problem that has cried out for federal and state action."

According to FTC Chairman Robert Pitofsky, "Americans everywhere are victimized by telemarketing fraud, to the tune of more than $40 billion a year, and that is why efforts like this one, which combine the resources, the information and the legal tools of federal, state and local officials, are extremely important and necessary. Much of the conduct we see in the telemarketing area is, in essence, criminal, and we are eager to provide assistance to ensure that allegations are investigated and pursued by state and federal criminal authorities."

Tennessee Attorney General Charles W. Burson cautioned that, "While legitimate businesses are always welcome in Tennessee, these types of scams will not be tolerated. This office will continue its efforts to provide a hostile environment for fraudulent telemarketers," General Burson stated. "The indictments announced today complement ongoing state and federal civil actions and warn telemarketers that they will be attacked on all fronts. Specifically, Tennessee is working cooperatively with federal and state authorities to bring civil and criminal cases to prevent these scams in Tennessee and elsewhere. While this type of task force is important, as always the best ally against such scams is an educated consumer."

The arrested individuals are: Lewis Mann, Rachel Phillips, Jady Hodge, and Michael Correia, all employees of Continental Distributing; and Thor Einar Andrews, Miles Jones, Cory Kohlhoff, Robert Reed, Jr. and Lisa Francine Vala, sales operators for International Health. Two other defendants remain to be arrested.

According to the grand jury indictments, which include a total of 171 counts of wire fraud, mail fraud and money laundering, the defendants targeted elderly consumers with phone calls, during which they said that the consumers had been selected as winners of "valuable" awards. In order to obtain their awards, however, the victims allegedly had to purchase "grossly overpriced" products, such as pen and pencil sets, cleaning products and lotions, or they had to send payments for some other "bogus purpose." The indictments assert that the "valuable" awards inevitably were small trinkets of minimal value compared to the payments that consumers made.

Moreover, according to both indictments, the defendants then would re-contact victims to obtain additional money. For example, the Continental Distributing indictment states that the defendants falsely represented that the consumers had been advanced to a larger promotion and had been selected to receive an even more valuable award, and also that defendants attempted to determine how much money victims had and to "exhaust those assets through repeated solicitations."

If the defendants are convicted, their sentences could be significantly enhanced with an additional 15 years in prison over and above the typical prison sentence for criminal fraud under a federal statute passed last September that boosts prison time for telemarketing scam artists who target consumers older than 55. Under the current federal system neither probation nor parole is possible with such a sentence. The Task Force's indictment of Randy Gene Ryan this summer was the first in the nation to employ this new statute.

The Chattanooga Task Force grew out of the joint efforts of Attorney General Burson and the National Association of Attorneys General (NAAG), the FTC and U.S. Attorney Kirkpatrick. Also instrumental in the formation of the Task Force was a regional conference on Telemarketing Fraud held in Atlanta, the first of several held all over the nation to coordinate the efforts of law enforcers -- both state and federal, both civil and criminal to combat telemarketing fraud.

As part of these conferences, the FTC and NAAG demonstrated a computer database dedicated to telemarketing fraud that gives law-enforcement officials desk-top access to information about consumer complaints, ongoing investigations, and active or recent cases against telemarketing fraud artists. Consumers can add their own complaints to this database, now available to nearly 100 law-enforcement members, by calling the National Fraud Infor mation Center at 1-800-876-7060, or by writing the FTC at the address below.

The regional telemarketing fraud conferences also signaled a redoubled commitment on the part of criminal authorities to prosecute fraudulent telemarketers. The actions of this Task Force are evidence of that commitment.

A free FTC brochure titled "Prize Offers" offers consumers tips on avoiding prize-promotion telemarketing scams. Copies of the brochure and the indictments in these cases are available rom the FTC's Public Reference Branch, Rm. 130, 6th St. and Pennsylvania Ave., N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases, consumer brochures, and other materials also are available on the Internet at the FTC's World Wide

Web site at: http://www.ftc.gov