What Is Telemarketing Fraud?
Telemarketing fraud is a term that refers generally to any scheme to defraud in which the persons carrying out the scheme use the telephone as their primary means of communicating with prospective victims and trying to persuade them to send money to the scheme. When it solicits people to buy goods and services, to invest money, or to donate funds to charitable causes, a fraudulent telemarketing fraud operation typically uses numerous false and misleading statements, representations, and promises, for three purposes:
(1) To make it appear that the good, service, or charitable cause their telemarketers offer to the public is worth the money that they are asking the consumer to send. Fraudulent telemarketers, by definition, do not want to give consumers fair value for the money they have paid to the telemarketers. Because their object is to maximize their personal profits, even if the consumer suffers substantial financial harm, they will typically adopt one or both of two approaches: to fail to give the consumer anything of value in return for their money; or to provide items of modest value, far below what the consumer had expected the value to be on the basis of the telemarketers' representations. When the item is supposed to be a tangible "gift" or "prize" of substantial value, as in charity schemes or prize-promotion schemes, fraudulent telemarketers will instead provide what they term a "gimme gift." The "diamond watch" that the consumer thought would be worth many hundreds or thousands of dollars, for example, proves to be an inexpensively produced watch with a small diamond chip, for which the fraudulent telemarketer may have paid only $30 to $60.
(2) To obtain immediate payment before the victim can inspect the item of value they expect to receive. Regardless of what good or service a fraudulent telemarketer says he is offering -- investment items, magazine subscriptions, or office supplies, for example -- a fraudulent telemarketer will always insist on advance payment by the consumer before the consumer receives that good or service. If consumers were to receive the promised goods or services before payment, and realized that the good or service was of little or no value, most of them would likely cancel the transaction and refuse payment.
Fraudulent telemarketers therefore routinely make false and misleading representations to the effect that the consumer must act immediately if he or she is to receive the promised good or service. These representations may suggest that the opportunity being offered is of limited quantity or duration, or that there are others also seeking that opportunity. In addition, fraudulent telemarketers usually persuade the victims to send their money by some means of expedited delivery that allows the telemarketers to receive the victims' payments as quickly as possible. For victims who have checks or money orders, the telemarketers use nationally advertised courier delivery services, which will deliver victims' checks by the next business day. For victims who have credit cards, the telemarketers obtain merchant accounts at financial institutions, so that the credit-card number can be processed immediately.
(3) To create a aura of legitimacy about their operations, by trying to resemble legitimate telemarketing operations, legitimate businesses, or legitimate government agencies. Magazine-subscription schemes, for example, often tell consumers, "We're just like" a nationally publicized magazine-distribution organization, and in some cases have simply lied to consumers by stating that they are the nationally publicized organization. Telemarketers in "rip-and-tear" schemes or "recovery-room schemes" often falsely impersonate federal agents or other government officials to lend greater credibility to their demands for money.
Another factor that distinguishes fraudulent from legitimate telemarketing operations is "reloading." "Reloading" is a term that refers to the fraudulent telemarketer's practice of recontacting victims, after their initial transactions with the telemarketer, and soliciting them for additional payments. In prize-promotion schemes, for example, victims are often told that they are now eligible for even higher levels and values of prizes, for which they must pay additional (nonexistent) "fees" or "taxes." Because "reload" transactions typically demand increasingly substantial amounts of money from victims, they provide fraudulent telemarketers with their most substantial profits, while causing consumers increasingly large losses that they will never recoup voluntarily from the fraudulent telemarketers.
A third factor that distinguishes fraudulent from legitimate telemarketing operations is the fraudulent telemarketer's general reluctance to contact prospective victims who reside in the state where the telemarketing operation conducts its business. Fraudulent telemarketers recognize that if they contact victims located outside their state, any victims who later realize that they may have been defrauded are likely to be uncertain about which law enforcement agency they should contact with complaints, and less likely to travel directly to the telemarketing operation and confront the telemarketers about their losses.
Although many consumers apparently find it difficult to believe that there are people who will contact them on the telephone and lie and misrepresent facts in order to get their money, the reality is that at any given time, there are at least several hundred fraudulent telemarketing operations -- some of them employing as many as several dozen people -- in North America that routinely seek to defraud consumers in the United States and Canada. Moreover, these schemes generally do not choose their victims at random. Fraudulent telemarketers routinely buy "leads" -- that is, listings of names, addresses, and phone numbers of persons who have been defrauded in previous telemarketing schemes (and typically the amount of their last transaction with a fraudulent telemarketer) -- from each other and from "lead brokers," companies that engage exclusively in buying and selling fraudulent telemarketers' leads. Although leads are relatively costly to the fraudulent telemarketer -- as much as $10 or even $100 per lead in some cases -- they also indicate to the fraudulent telemarketer which consumers are most likely to be persuaded to send substantial amounts of money that will far exceed the cost of the leads.
Firms giving references may provide the names of "touts" or "singers." "Touts" and "singers" are people who praise the telemarketer's services, but who actually are part of the scheme. Telemarketers also sometimes give as a reference an organization with a name similar to the "Better Business Bureau" ("BBB"), but which in reality has nothing to do with a legitimate local BBB.
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