State Attorneys General and U.S. Postal Service Join Effort
“Project Jackpot,” a major enforcement effort targeting firms that fraudulently offer purportedly valuable prizes to consumers to induce them to purchase products, was announced today by federal and state officials. The joint investigation, coordinated by the Federal Trade Commission, has resulted in 56 enforcement actions against 79 defendants in 17 states. Additionally, in what marks the first effort to combat prize promotion telemarketing fraud across the border, the FTC brought charges against a company located in Montreal, Quebec, Canada. Prize promotion scams, which historically have been some of the most plentiful scams in the United States, are now one of the fastest growing scams outside the country targeting U.S. citizens. The FTC filed eight actions, the State Attorneys General filed 43 actions, and the U.S. Postal Service filed five actions.
Prize promotions continue to be the number one source of complaints reported to the National Fraud Information Center -- the federal-state telemarketing fraud database. In 1995 through June 1996, fully half of all complaints reported were prize-promotion scams.
The cases announced today share a common thread of the classic "You Have Won" sales pitch. Bogus prize promoters, either through telemarketing or by printed mailers, typically promise either one of several valuable prizes or a single "mystery" prize to entice consumers to purchase their goods (such as “Say No to Drugs” paraphernalia or magazine subscriptions). In such schemes, the prizes almost always are not as valuable as they are represented to be, and consumers pay far more than what they receive in return. In fact, in those promotions where several prize possibilities exist, the telemarketers rarely, if ever, award the valuable prizes. Instead, almost every consumer receives one or two inexpensive prizes such as a vacation certificate with hidden costs, inexpensive jewelry, or -- as in two of the Project Jackpot complaints -- a license to use inaccessible, undeveloped land in Mexico.
According to Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection, "The FTC is delivering two messages today. First, for consumers who’ve been led to believe they have hit the jackpot, but end up on the losing side, the message is: You do not have to pay to play and you do NOT have to pay to win. Legitimate sweepstakes never require a purchase in order to play. Second, to the bogus prize promoters, you can run across the border, but you cannot hide. Canadian and American officials are pursuing these operators on both sides of the border."
"Con artists know that all of us would love to strike it rich by winning a valuable prize," Wisconsin Attorney General James E. Doyle said. "When you have to pay to win a prize, you are bound to end up with a piece of junk. Consumers in my state and elsewhere lose millions of dollars each year from these scams." Doyle, who is president-elect of the National Association of Attorneys General, advises: "If the offer comes over the telephone, hang up. If it comes in the mail, throw it away."
Further, the FTC today announced the participation of Publishers Clearing House in the Partnership for Consumer Education -- a cooperative effort among federal agencies, private industry, and consumer organizations to provide effective consumer education campaigns against fraud. As part of this campaign, Publishers Clearing House, working with the FTC, has developed educational materials to distribute in its various prize promotion mailings and Sunday supplements. Messages emphasize that consumers don’t have to “pay to play,” and that “the best things in life are free.” In addition, the FTC recently released an updated prize promotion Facts for Consumers brochure.
Seven of the eight FTC civil cases in which charges have been filed involve fraudulent promotions of prizes or awards. In each case, the telemarketers promised consumers valuable prizes or awards that allegedly were never delivered or, if delivered, were worth a fraction of their claimed value. The eighth case involves a "recovery room," in which the defendants are charged with falsely claiming that they will recover most, if not all, of the money that consumers have previously lost in prize promotion or other scams perpetrated by fraudulent telemarketers. In addition to charging these defendants with deceptive practices, most of the defendants have been charged with violating the FTC’s Telemarketing Sales Rule. The Rule, effective December 31, 1995, requires telemarketers offering a prize promotion to provide clearly and conspicuously to consumers, before payment, several items of information, including the fact that no purchase is necessary to enter, how consumers who do not wish to make a purchase may enter the prize promotion, and the odds of receiving the prize where there are several prizes. Missouri, Texas, Vermont and Wisconsin joined the FTC as co-plaintiffs in two of these actions.
The complaints in seven of the FTC’s cases were filed under seal this week and last. Seals have now been lifted in the following cases:
(1) American Exchange Group, Inc. (File No. 962 3215), based in Las Vegas, allegedly promises consumers that they will receive a large award or gift on the condition that they purchase magazine subscriptions or pens, and tells consumers that their awards will be worth more than they pay. The complaint alleges that the awards consumers receive are not worth more than the consumers pay. The defendants also are charged with failing to disclose, clearly and conspicuously, that no purchase or payment is required to win a prize or to participate in a prize promotion. The complaint names Todd Bishop and William S. Kelly as defendants.
(2) Oasis Southwest (File No. 952 3375), is another Las Vegas-based prize promotion telemarketer. Oasis allegedly promises consumers that they will receive an award on the condition that they purchase “Say No To Drugs” paraphernalia. Consumers are told that the award will be worth more than the consumers are asked to pay. The complaint alleges awards received by consumers, if any, are not worth more than the consumers pay. Oasis also allegedly fails to disclose, clearly and conspicuously, that no purchase is necessary to win a prize. Defendant Ray Jojola is the president and sales manager of Oasis. Defendant Michael A. Portalatin is the president, secretary, treasurer, and director of Oasis.
(3) Family Publishers Clearing Center (File No. 962 3213), which has done business as American Publishers Clearing Center and American Publisher Clearing Center, is a telemarketer located in Woodland Hills, California.
(4) Publishers Award Bureau (File No. 962 3227), is located in Orange, California. Family Publishers and Publishers Award Bureau run virtually identical prize promotions. These companies solicit consumers by sending them a "Certificate of Award" in the mail. The certificates inform consumers that they are "absolutely guaranteed to win" one of five seemingly valuable awards, including items such as a 1996 Pontiac Grand Am, a 31" television/VCR, a 6,724 square foot building lot, and cash prizes of $1,000 and $2,000. In fact, when consumers call either Family Publishers or Publishers Award Bureau to claim their award, they are told that they must pay several hundred dollars for magazine subscriptions to be eligible for an award. Moreover, according to the FTC, almost everyone who "wins" anything from Family Publishers or Publishers Award Bureau gets the “building lot” -- which is nothing more than a license to use land located in Baja, Mexico, accessible only by off-road vehicles, with no water, and no electricity. Both companies misrepresent the nature and value of the award and fail to disclose, clearly and conspicuously, that no purchase is required to win a prize. They also fail to disclose the method whereby consumers can participate in the prize promotions without making a purchase.
The complaint in Family Publishers also alleges that Family Publishers and American Enterprise List, Inc., doing business as Warner Lists and Warner List, Inc., operate as a common enterprise and that Warner Lists provides substantial assistance and support to Family Publishers, in violation of Section 310.3(b) of the Telemarketing Sales Rule, by supplying them with customer lists, arranging the mailing of Certificates of Award, handling Family Publishers’ bookkeeping, and paying some of its bills. The FTC’s complaint in Family Publishers names both companies, Family Publishers' president Ken Caparoni, Family Publishers' owner Phil Katz, as well as Warner Lists’ president, Sheldon Katz, and vice-president, Michael Weiss. The FTC’s complaint against Publishers Award Bureau names Mark Duboise, Jerry E. LaFrance, and Kenneth E. Nelson as defendants.
(5) Best Marketing, Inc. (File No. 962 3186), is a Florida corporation headquartered in Lauderhill, Florida. Best allegedly telemarkets to small businesses and sole proprietors, claiming that they will win one of five “premiums” if they order advertising speciality items, such as “Say No to Drugs” ballpoint pens or magnetic calendars. The FTC’s complaint charges that Best telemarketers also represent that every prize is worth at least $1,200, or that the prize is worth more than what the consumers pay. In fact, the complaint alleges, the prize the businesses actually receive -- usually a low-quality ring or an inferior vacation package -- is worth less than what they paid and less than $1,200. In addition, the complaint alleges that Best fails to disclose, clearly and conspicuously, to consumers that those who win a "vacation" will have to pay hundreds of additional dollars to redeem the prize. Edward Hexter, also known as David Best, is the president and a director of Best, and is named in the FTC’s complaint as a defendant.
(6) Multinet Marketing, LLC (File No. 962 3182), and related companies are Texas-based telemarketers. They send out mailers telling consumers that they have won prizes. When consumers call, Multinet telemarketers request their credit card number to charge between $300 and $600 to receive one or two “major” prizes listed on their certificate, other promotional items, and magazine subscriptions. According to the FTC’s complaint, however, the “vacation” prize is a certificate that does not include airfare, and imposes so many additional, previously undisclosed costs and conditions, that few, if any, consumers have taken it. In addition, the complaint alleges that Multinet misrepresents the value of the prizes it awards. Further, according to the FTC, defendant American Readers Service sponsors the Multinet prize promotion, provides customer service, and appears on consumers’ credit cards as the merchant in the transaction. The FTC has charged ARS with assisting and facilitating Multinet under the Telemarketing Sales Rule. The FTC’s complaint names Clarence Jack Servaes, who serves an officer of Multinet, as a defendant. Jack Michael Servaes, an officer of Multinet and a director of the defendant company providing the vacation certificates to Multinet. World Class Vacations, Inc., is also named in the complaint.
(7) Incentive International 9013-0980 Quebec Inc., doing business as Incentive International, Incentives International, and Pegasus Industries (File No. 962 3231) is a company located in Montreal, Quebec, Canada. The FTC charged that this firm engages in cross-border telemarketing fraud. Incentive calls senior citizens in the United States and tells them they have won valuable prizes. In fact, according to the FTC, consumers receive travel certificates, radios, or air purifiers worth a fraction of the hundreds or thousands of dollars that consumers pay to Incentive. The company allegedly also fails to disclose, clearly and conspicuously, that no purchase is necessary to win a prize, the method to enter the prize promotion without purchase or payment, and the odds of winning each potential prize. Defendant Ofer Baazov owns Incentive, and defendant Joshua Baazov is an officer of Pegasus Industries. Both individuals are named as defendants in the FTC’s complaint.
The following FTC action was not filed under seal:
(8) Telecommunications Protection Agency, Inc. (File No. 962- 100) is an Oklahoma corporation located in Muskogee, Oklahoma, that telemarkets recovery services. TPA tells consumers that, for an up-front fee of $500 or more, it will assist them in recovering monies lost in previous telemarketing scams. TPA claims that it has recovered significant amounts of money in the past for its customers and that it can likely recover a substantial portion of the money they have lost. In fact, in most if not all instances, TPA has not recovered money for its consumers. The FTC’s complaint names Charles Fulton, the president of TPA, and Jennifer Fulton, who operates the company on a daily basis, as defendants.
The FTC has sought and obtained temporary restraining orders and asset freezes against the corporate and individual defendants in seven cases. In all eight "Project Jackpot" cases, the FTC has asked the court for permanent injunctions and consumer redress.
The FTC received assistance in Project Jackpot from the National Association of Attorneys General, the National Fraud Information Center, the United States Postal Service, and Project Phonebusters in Ontario, Canada. The FTC’s regional offices in Dallas and San Francisco led the investigation in two of the matters announced today. The Commission vote to approve the filing of these matters in federal district court was 5-0.
The FTC has a number of consumer brochures available about prize promotions, sweepstakes, and cross-border scams. Copies of "Prize Offers," and the Consumer Alert, "Border-Line Scams are the Real Thing," are available from the address below. To report telemarketing fraud, consumers should contact the National Fraud Information Center Hotline at 1-800-876-7060 or http://www.fraud.org
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.
Copies of the complaints, and the consumer brochures are available 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 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326- 2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov
Office of Public Affairs
Howard Shapiro or Brenda Mack
202-326-2176 or 202-326-2182
Bureau of Consumer Protection
Dean Graybill, 202-326-3284
(for Publishers Award Bureau and Best Marketing)
Eileen Harrington, 202-326-3127
(for Family Publishers Clearing Center, Multinet Marketing, LLC, and Incentive International 9013-0980 Quebec Inc.)
Thomas Carter or James Golder
Dallas Regional Office
100 North Central Expressway
Dallas, Texas 75201
(for Telecommunications Protection Agency)
Jerry Steiner or Ralph Stone
San Francisco Regional Office
901 Market Street, Suite 570
San Francisco, California 94103
(for American Exchange Group and Oasis Southwest)