Elderly Are Most Often the Victims
In testimony today before a Senate Subcommittee, Federal Trade Commission Chairman Robert Pitofsky, speaking on behalf of the Commission, outlined how the agency is fighting telemarketing fraud which costs consumers at least $3 billion to as much as $40 billion annually. The chairman pointed out that such telemarketing scams and other schemes frequently target elderly consumers who sometimes represent 80 percent or more of the victims.
While Pitofsky noted that "[t]he Commission's law enforcement experience shows that telemarketing fraud victimizes consumers of all ages, levels of income, and backgrounds," he stated that the elderly often are the deliberate targets of fraudulent telemarketers because of the fact that many older people have cash reserves or other assets to spend on seemingly attractive offers. He noted that older Americans seem especially susceptible to fraudulent offers for prize promotions and lottery clubs, charitable solicitations, and investment offers.
In presenting the Commission's testimony before the Senate Subcommittee on Commerce, Justice, State and the Judiciary, Pitofsky said that combating fraud has been a top priority for the agency. He noted that the Commission has worked with state and local officials to coordinate "sweeps," in which multiple, simultaneous actions are filed all across the country against companies and individuals engaged in a particular type of fraud. The Chairman outlined 20 cooperative law enforcement efforts aimed at the most prevalent types of fraud, including deceptive prize promotions, lottery clubs, and fraudulent schemes related to investments and business opportunities. According to the testimony, these sweeps comprised a total of over 730 federal and state actions, including 112 cases brought by the Commission.
"Concentrating federal and state resources on a particular type of fraud in this way to bring dozens of law enforcement actions at one time not only sends an emphatic warning to others engaged in the same fraud, it also captures the attention of the media, and provides a springboard to raise dramatically consumer awareness of that particular type of fraud," Pitofsky explained.
According to the testimony, in the past five years the agency has successfully recovered over $37 million in consumer redress from these fraudulent operators and has prevented hundreds of millions of dollars in losses caused by fraud.
Telemarketing fraud is becoming a global problem and the Commission has been addressing it on several fronts. As an example, the testimony cites the agency's work with Canadian law enforcement officials. In addition to working closely with Canadian counterparts, the Commission has brought enforcement actions against Canadian telemarketers as part of an enforcement sweep against alleged fraudulent prize promotions.
Pitofsky also noted, "To leverage expertise and limited resources, the FTC has developed the Partnership for Consumer Education. The partnership is a cooperative umbrella effort among over 90 corporations, trade groups, consumer organizations and federal agencies that have joined with us to help provide effective consumer education materials against fraud. With the assistance of our partners, the Commission has arranged for messages about fraud to appear in such diverse locations as sales catalogs, billing statements, classified advertising, and even on public transit buses."
Prize promotions and lottery clubs
Pitofsky said deceptive prize promotion schemes often result in losses per consumer of anywhere from a few hundred dollars to thousands of dollars and, in some cases, consumers have lost their entire life savings to such scams.
The Commission testimony notes that prize and sweepstakes promotions generate more consumer complaints in the FTC's complaint database than any other type of telemarketing. Therefore, the agency often focuses its enforcement efforts in this area, Pitofsky said. For example, the Commission led a law enforcement effort, named "Operation Jackpot," in July 1996 that included 56 enforcement actions against 79 defendants in 17 states, the testimony states.
The Commission also has taken action against several direct mail prize promoters, and recently jointed other agencies in "Project Mailbox" in October 1997, which resulted in a total of 190 enforcement actions, the chairman said.
According to the testimony, telefunding fraud raises money for bogus charities, misrepresents that amount of donations that go to a bona-fide charity, or makes other misrepresentations about how the donor's money will be used. To combat this type of fraud, Pitofsky said the Commission has brought several actions under "Operation False Alarm," a joint federal/state law enforcement effort that targeted telemarketers who misrepresented that consumers' donations would be given to a police fund or other local civic organization. The effort resulted in five FTC cases and 52 state enforcement actions.
The chairman noted that investment fraud often affects elderly consumers. For example, in some cases, elderly consumers have lost thousands to tens of thousands of dollars to a single telemarketer, he said. The Commission has brought dozens of investment fraud cases, covering everything from gemstones to Federal Communications Commission licenses, Pitofsky added.
According to the testimony, "a recent wave in investment fraud centers around 'high-tech' scams." In January 1996, the FTC and the North American Securities Administrators Association joined 20 state agencies in bringing a total of 85 actions in "Operation Roadblock." A subsequent sweep, "Project Field of Schemes," in July 1997 resulted in 61 law enforcement actions, it states.
Business Opportunity Fraud
Recent retirees or older workers who have lost their jobs through corporate downsizing often are attracted to advertisements touting opportunities for individuals to operate their own small businesses or to work from home, Pitofsky noted. According to the testimony, the Commission brings numerous cases against purveyors of fraudulent business opportunities. The agency's first effort, "Project Telesweep," launched in July 1995, included the FTC, Department of Justice and several state agencies and resulted in 100 actions against marketers of fraudulent business opportunities. "This project was so successful that it served as a template for future telemarketing sweeps," Pitofsky said. A follow-up effort, "Operation Missed Fortune," was a broad-based federal/state attack that resulted in 75 actions against schemes involving multi-level marketing, business opportunities and work-at-home plans, he added.
"To date, most of the fraud affecting the elderly has been perpetrated through the telephone. As the elderly begin to use the Internet, fraud operators can be expected to find them through this new channel of communication and commerce. The Internet offers a novel and exciting means for all consumers to purchase both innovative and traditional goods and services faster and at lower prices, to communicate more effectively, and to tap into rich sources of information that were previously difficult to access and that now can be used to make better-informed purchasing decisions," Pitofsky said.
On the other hand, he noted, the Internet's promise of substantial consumer benefits is coupled with the potential for fraud and deception. "Fraud is opportunistic, and fraud operators are always among the first to appreciate the potential of a new technology. After buying a computer and modem, scam artists can erect and maintain a site on the World Wide Web for $30 a month or less, and solicit consumers anywhere on the globe. Most Internet fraud has clear antecedents in telemarketing fraud. What is different is the size of the potential market, and the relative ease, low cost, and speed with which a scam can be perpetrated," he explained.
The testimony states that the Commission believes it is important to address Internet fraud now. "Toward that end, the Commission has filed more than 25 lawsuits against defendants whose alleged illegal practices used or involved the Internet. Most of the cases have involved alleged old-fashioned scams dress up in high-tech garb. Some scams, however, exploit what can be done only on the Internet."
In conclusion, Pitofsky said, "The Commission will remain alert to new schemes that target senior citizens and will continue its aggressive campaign against telemarketing fraud to prevent injury to all consumers, including the elderly."
The Commission vote to authorize the testimony was 4-0, with Commissioner Mary L. Azcuenaga not participating.
A copy of the full text of the Commission's testimony is available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD 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 File No. P950101)
Office of Public Affairs