Telemarketing Fraud Against Older Americans
"[The defendant] targeted elderly, infirm people, people who obviously did not understand or appreciate their rights or what he was attempting to do.... I have seen every conceivable kind of case in this Court and in 20 years on the bench this is probably as despicable an offense in its way as any that I have seen.... I have had before me 17 first degree murder cases, and in many respects this offense is more touching or more serious, the conduct of this man, his effect on these people, the fact that they are so, so defenseless to this kind of activity. At least when somebody is accosted in a barroom fight they have a chance to fight back. These people never had that chance."
Honorable Daniel B. Sparr, Judge
U.S. District Court for the District of Colorado(2)
"Because of the multi-state nature of crime, telemarketing fraud is a nationwide problem requiring the commitment of state and federal law enforcement.... Vigilant law enforcement is necessary to respond to telemarketing fraud, to punish those who perpetrate it, and to deter others from entering the arena."
Kathryn Landreth, U.S. Attorney for the District of Nevada
in testimony before the Senate Special Committee on Aging
The Scope of the Problem
It is not surprising that a fraud perpetrator would solicit an older American to capture a significant amount of money--often with a single phone call. After all, many senior citizens have worked diligently to build savings and retirement income. Lawmakers and public policy advocates recognize that "niche fraud"--the practice of marketing scams to a specific segment of the population--is a significant problem requiring an aggressive response.(3) In case after case filed by law enforcement officials in 1996, retired Americans testified that telemarketers had deprived them of tens, and sometimes hundreds, of thousand of dollars.
Scam artists are ruthless and relentless in their pursuit of older American consumers. Just last March, the U.S. Attorney for the District of Nevada testified before the Senate Special Committee on Aging about one convicted telemarketer in Nevada who routinely collected obituaries from newspapers to target widows and widowers during their time of mourning, hoping they would be less vigilant against scams.(4) Another convicted telemarketer testified:
"In the case of senior citizens, who in most cases, had their lives affected by having lived as children or younger adults through the Great Depression, the key is to work on the greed and insecurity caused by those times...because most senior citizens are more trusting of supposedly "caring" strangers, because they grew and matured in less threatening times, they are incredibly easy to con out of everything they have." (5)
Several sources confirm that telemarketing fraud against older Americans is substantial. A 1996 American Association of Retired Persons (AARP) survey of people 50 years or older revealed that 57 percent were likely to receive calls from telemarketers at least once a week. Moreover, the survey showed that college-educated older Americans with higher incomes may be more likely to receive telemarketing calls than their neighbors with lower incomes or less education. In addition, more than half the respondents indicated that they could not distinguish a legitimate telemarketer from a fraudulent one. Using the results of the survey to demonstrate the persistence and pervasiveness of deceptive telemarketers, AARP launched a consumer education campaign to raise awareness of the ruthlessness of fraudulent telemarketers. Its theme: "Fraudulent telemarketers are criminals."
Deceptive telemarketers targeted older consumers with a variety of scams and schemes in 1996.
As in years past, prize promotion scams generated the largest number of calls to the NFIC in 1996. And as of December 31, 1996, prize promotion complaints represented more than 40 percent of all the complaints logged in to the FTC/NAAG Telemarketing Complaint System.
Fraudulent prize promoters have disguised themselves as legitimate businesses for years. Though both legitimate and fraudulent prize promoters offer prizes in connection with promotions of services or subscriptions to magazines, fraudulent prize promoters never deliver any worthwhile goods or services to consumers, let alone prizes, for their money.
Older Americans may fall victim to such scams in disproportionate numbers. For example, when the FTC brought law enforcement actions charging fraud when companies solicited charitable contributions in return for a prize, 85 percent of a randomly selected group of victims were 65 or older.
Telefunding and other mimicry
Scam artists are using telefunding in a sophisticated twist on a legitimate marketing technique. Legitimate charities often offer prizes in connection with their fundraising efforts. Fraudulent "telefunders" claim to send the money they take for prize promotions to charities, too, but not all the charities are real. In fact, these con artists contribute little or nothing to actual charities and funnel most money from consumers into their own profits and "expenses."
Fraudulent prize promoters also are using ad agency savvy to mimic legitimate businesses and official organizations. Some package their scams in mailings styled to look like those used by prominent sweepstakes; others use mailings that look like they have the imprimatur of official, government organizations--like the lottery--or of legitimate parcel delivery services. Still others use envelopes that look like they contain telegrams or government checks. Many consumers have a hard time seeing through these schemes.
Reloading and Recovery Rooms
Telemarketers boast about their ability to "reload" consumers, borrowing a term from target practice to describe their tactic of barraging previous fraud victims with multiple sales pitches. Having scammed consumers out of money for fraudulent prize promotions and other schemes, these con artists place consumers' names on "sucker lists." Then they "reload" by targeting the same consumers with promises of even bigger prizes, letting the consumers believe they will make back the money they have already lost to fraud. In the mid-1990s, scam artists also bought sucker lists for recovery room schemes, in which more fraud promoters promised to help consumers recover their losses for a fee. Since the fall of 1994, the FTC has brought seven cases against these kinds of entities,(6) many of which brazenly concentrate their business practices on older Americans.(7)
Cross Border Fraud
Prize promotion scams targeting U.S. citizens now are among the fastest growing scams outside U.S. borders.(8) While prize promotion schemes may be decreasing in the U.S., the NFIC claims that Quebec and Ontario rank among the top 10 areas generating fraud complaints, with prize promotions among the most popular schemes.
The significant amount of telemarketing fraud directed at older people led the FTC to adopt a new collaborative approach to detection, apprehension, and enforcement in cooperation with an array of law enforcement agencies.
Operation Senior Sentinel
In 1996, U.S. Attorneys and more than a dozen state Attorneys General continued prosecution of Operation Senior Sentinel, a multifaceted effort led by the U.S. Department of Justice against telemarketing scams that specifically targeted older Americans. Nearly 80 percent of the victims in the underlying prize promotion and recovery room cases addressed in Operation Senior Sentinel were older people. Members of AARP posed as consumers to record fraudulent sales pitches for evidence. When the operation was launched in December 1995 with the simultaneous arrest of nearly 400 telemarketers, the FTC and other civil law enforcement agencies identified victims and witnesses for criminal law enforcement authorities, seized several fraud promoters' assets, and shut down boiler rooms in civil cases.
The 1996 results of Operation Senior Sentinel demonstrate the importance of the coordinated approach to enforcement. By the end of the year, the operation had led to the arrest and prosecution of more than 800 individuals charged with federal crimes for telemarketing, including mail and wire fraud and conspiracy to commit fraud. At least 161 of these people were convicted and sentenced to an average of 30 months in prison; at least 80 more have been convicted and are awaiting sentencing.
Federal officials in Nevada, where most of the defendants were located, report a significant downturn in the number of active boiler rooms since Senior Sentinel, as well as a "significant decrease in the complaints to local law enforcement from telemarketing victims."(9) According to Justice Department officials, law enforcement offices in Southern California and upstate New York (Buffalo) also report that prize promotion schemes and recovery rooms are on the wane following Senior Sentinel's hits on their bases of operation.
The Chattanooga Telemarketing Task Force
FTC attorneys, cross-deputized as Special U.S. Attorneys in the Eastern District of Tennessee, teamed with assistant U.S. Attorneys to create the Chattanooga Telemarketing Task Force to criminally prosecute fraudulent telemarketers in the state. To date, the Task Force is responsible for convicting and sentencing of 34 defendants. The Court increased several of the prison sentences of defendants who had targeted vulnerable people, including older Americans. In one case, the Court imposed a 10-year sentence on a notorious telemarketer. The Chattanooga Telemarketing Task Force defendants were ordered to pay more than $13 million in restitution. The Department of Justice (DOJ) says this project turned Chattanooga--one of the top centers of fraudulent telemarketing activity--into a city with little or no such activity. In recognition of this effort, DOJ honored the FTC with its John Marshall Award for interagency cooperation in support of litigation.
In July 1996, the FTC, the U.S. Postal Inspection Service, and 16 state Attorneys General launched a coordinated civil law enforcement "sweep" targeting fraudulent prize promotions and recovery rooms with 56 varied law enforcement actions. The FTC worked with these state officials to identify injured consumers and obtain evidence, including taped sales pitches, for use in over 40 state enforcement actions. Several FTC actions that were closely coordinated with the FBI and offices of U.S. Attorneys stopped over $20 million in annual sales.
Statistics indicate that cooperative and sustained law enforcement efforts are effective in reducing prize promotion fraud and raising consumer awareness. Every year, the National Association of Attorneys General surveys state consumer protection authorities for the top 10 consumer complaint categories. Prize promotion schemes ranked fifth on NAAG's Top 10 List in 1994-95, but did not even qualify for the 1995-96 list. While prize promotion complaints continue to be the largest category of complaints logged in to the FTC/NAAG Telemarketing Complaint System, the volume of complaints in 1996 dropped to half the record high volume recorded prior to Operation Senior Sentinel in December 1995.