<DOC>
[105 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:49546.wais]
S. Hrg. 105-695
MARKETING SCAMS
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HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
SPECIAL HEARING
__________
Printed for the use of the Committee on Appropriations
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COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire HARRY REID, Nevada
ROBERT F. BENNETT, Utah HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado PATTY MURRAY, Washington
LARRY CRAIG, Idaho BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
Steven J. Cortese, Staff Director
Lisa Sutherland, Deputy Staff Director
James H. English, Minority Staff Director
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Subcommittee on Commerce, Justice, and State, the Judiciary, and
Related Agencies
JUDD GREGG, New Hampshire, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
PETE V. DOMENICI, New Mexico DANIEL K. INOUYE, Hawaii
MITCH McCONNELL, Kentucky DALE BUMPERS, Arkansas
KAY BAILEY HUTCHISON, Texas FRANK R. LAUTENBERG, New Jersey
BEN NIGHTHORSE CAMPBELL, Colorado BARBARA A. MIKULSKI, Maryland
ROBERT C. BYRD, West Virginia
(ex officio)
Subcommittee Staff
Jim Morhard
Kevin Linskey
Paddy Link
Dana Quam
Scott Gudes (Minority)
Emelie East
C O N T E N T S
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NONDEPARTMENTAL WITNESSES
Page
Statement of Walter L. Maroney, senior assistant attorney
general, State of New Hampshire................................ 1
Prepared statement........................................... 10
Telemarketing fraud on the elderly as a form of domestic abuse... 11
Illustrative stories............................................. 11
Law enforcement.................................................. 12
Canada and cross border issues................................... 14
Statement of Harold Phillips, detective, sheriff's department,
Charleston County, SC.......................................... 15
Statement of Helen Boosalis, chair, board of directors, American
Association of Retired Persons................................. 18
Prepared statement........................................... 21
FEDERAL TRADE COMMISSION
Statement of Hon. Robert Pitofsky, Chairman...................... 29
Prepared statement........................................... 29
Deceptive prize promotions and lottery clubs..................... 31
Telefunders or bogus charities................................... 31
Investment fraud................................................. 32
Business opportunity fraud....................................... 32
Recovery scams................................................... 33
The Internet..................................................... 33
Additional approaches to combating fraud......................... 34
Consumer education............................................... 36
Consumer sentinel binational telemarketing network............... 39
Home............................................................. 39
Cooperative United States-Canada effort.......................... 39
Contacts......................................................... 43
Publications..................................................... 43
Letter from Officer John F. Stewart, TRIAD coordinator, Keene
Police Department.........................................48<greek-l>
(iii)
MARKETING SCAMS
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THURSDAY, FEBRUARY 5, 1998
U.S. Senate,
Subcommittee on Commerce, Justice, and
State,
the Judiciary, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 10 a.m., in room SD-192, Dirksen
Senate Office Building, Hon. Judd Gregg (chairman) presiding.
Present: Senators Gregg, Stevens, and Hollings.
NONDEPARTMENTAL WITNESSES
STATEMENT OF WALTER L. MARONEY, SENIOR ASSISTANT
ATTORNEY GENERAL, STATE OF NEW HAMPSHIRE
Senator Gregg. We will start this hearing dealing with
telemarketing and fraudulent market schemes generally as they
affect people. It is a pleasure today to have a number of
witnesses joining us, and we especially appreciate them taking
the time from their busy schedules to be here.
We have Walter Maroney, who is from the New Hampshire
Attorney General's Office. We have Harold Phillips, from South
Carolina and the sheriff's department in Charleston, and Helen
Boosalis, who is the head of the American Association of
Retired Persons [AARP]. These are individuals who have major
impact and involvement in the issue of scams that are being run
against especially senior citizens. This committee is very
concerned about what we see as proliferation of the activity of
using the Internet and the telephone in developing programs
that take advantage of people.
These telemarketing schemes, unfortunately, are very hard
to track and hard to convict, but there are things that we can
do to try to address them, and the same is true of the
Internet. As we have seen the explosion of technology in this
country, the law enforcement side has to keep abreast of ways
that they can address making our citizens aware of the uses of
this technology. So, that is what this hearing is about, and I
especially appreciate our ranking member joining us and will
yield to him for any comment.
Senator Hollings. Well, I thank you very much, Mr.
Chairman, for your persistence on this particular score and
your leadership. As you know, we passed in 1991 the
Telemarketing Act title in the Automated Consumer Act, and we
authorized the attorneys general to go into the Federal courts
to deal with this kind of fraud and we gave further powers to
the Federal Trade Commission, the lead agency on this
particular kind of fraud. So I thank you for the hearing, and I
am delighted to hear the witnesses now.
Senator Gregg. We will also be hearing from Chairman
Pitofsky, who has joined us, after this panel. So why don't we
begin right off with the witnesses. We will start with Walter
Maroney.
Mr. Maroney. Thank you, Senator Gregg. Senators, my name is
Walter Maroney. I am a senior assistant attorney general, and I
am the chief of the Consumer Protection Bureau in the New
Hampshire Attorney General's Office. I am particularly grateful
for the opportunity to speak to you today. I am actually quite
honored to have an opportunity to speak before you on these
issues, Senator Gregg, because you actually appointed me to the
job I hold today.
Senator Gregg. A good decision. One of my few, but when I
do it right, I do it well.
Mr. Maroney. Appointing an assistant attorney general may
not have been the most memorable highlight of your tenure as
Governor of the State of New Hampshire, but it certainly was
one of the most memorable moments in my public career, because
I really love the job that you have appointed me to. And I love
this job because it gives me the opportunity to use the powers
of government to do something to help, assist, and make lives
somewhat better for people who are victims of any number of
unfair or deceptive trade practices, including the real tragedy
of telemarketing crimes on the elderly of this country, and I
appreciate the opportunity to speak to you and to Senator
Hollings and to the committee today about this particular
issue. Thank you very much.
I am here to talk to you today about telecommunications
fraud and the abuse and the victimization of elderly citizens
in New Hampshire and around the Nation. Now, these remarks are
going to be delivered from the perspective of a small attorney
general's office in one of our smaller States. Our consumer
protection office is really a two-lawyer, three- or four-
paralegal operation, and in conjunction with the other
attorneys general, with the Federal Trade Commission [FTC] and
the Department of Justice and other law enforcement agencies
and local law enforcement agencies in the State of New
Hampshire, we have got our hands full dealing with the issue of
telemarketing fraud.
My remarks are intended both as a confession of some
weakness and an admission of some significant successes in the
ongoing battles by my office and by 49 other State attorneys
general's offices, by countless law enforcement offices and
Federal agencies into telemarketing fraud, sweepstakes, and the
concomitant abuse of our elders.
Now, in discussing the issues of telemarketing fraud and
the abuse of the elderly, I think it is important to place
these issues in a proper and human context. And I would suggest
to the members of the committee that one important context in
which to place the issue of telemarketing fraud on the elderly
is the context of domestic abuse.
No; fraud on the telephone does not involve violence. It
does not involve the emotional horror inflicted on victims of
abusive domestic situations. And, no, telemarketing fraud does
not take away people's lives in the tragic ways that too often
result from violence in the home. But at the same time,
telemarketing fraud, sweepstakes, and other abuses directed at
the elderly in our society do result in terrible and
irremediable losses to victims of money, of dignity, and of
security.
Telemarketing abuse also shares with domestic abuse four
disturbing characteristics that make it in some cases hard to
enforce against. First, the abuse occurs in the privacy of
one's home where, in a more perfect world, our elders ought to
have the right to feel safe and secure, and it takes away that
feeling of safety and of security.
Second, the principal victims of this form of abuse in New
Hampshire and around the country--possibly as many as 50
percent of victims of some forms of telemarketing fraud,
according to AARP data, are among our most vulnerable
citizens--our older citizens. These are our parents and our
grandparents, whom we are absolutely and morally obligated to
protect and defend. Because they are older, victims of
telemarketing fraud and sweepstakes abuse, they are often
afraid to come forward and admit that they have been
victimized, possibly because of embarrassment of the fear that
admitting to having been victimized is tantamount to admitting
to a diminishment of capacity.
And, finally, our law enforcement structures are not in all
cases adequate to neatly or effectively redress or prevent the
injuries caused to victims of telemarketing or other forms of
fraud. Nor do law enforcement agencies such as mine possess an
immediate ability to address the broader social needs for
assistance and services that are often critical elements in
assisting elderly victims of this form of abuse.
Now, to illustrate these points, let me talk briefly to you
about a few New Hampshire citizens whom I know have been
victims of telemarketing abuse. Let me talk to you, Senator,
about a woman named Edna, who is an unmarried woman in her late
70's who lives alone in a small community in New Hampshire.
When Edna presented herself to the attorney general's office--
this was in early 1996--she was asking us for one thing and
that was to make the phone stop ringing.
When we investigated, when we went to her house, we found
out that she had been regularly responding to a wide, wide--an
infinite variety of telemarketing calls--and she had spent
between $10,000 and $20,000 in such responses over about a 2-
year period. This was nearly all the money she had in the
world. Her house was filled to overflowing with useless,
worthless prizes--knick-knacks, pen sets, letters of
congratulations for participating in some mythical war on
drugs. And her phone was ringing over and over and over and
over again, virtually all day.
You see, Edna's name had made it on to what the industry
refers to as a sucker list. She was somebody who responds, and
responds positively, and gives away her money and that means
that her name and that list had been sold and transferred and
transferred and sold again from telemarketer to telemarketer to
telemarketer, some of them legitimate, many of them not.
Now, imagine, if you will, the fear that this elderly woman
had. This is an elderly woman of clearly diminishing capacity.
She knows at some level that she may be, or is being taken
advantage of every time that phone rings in her home. And
imagine again that phone ringing time after time after time,
day after day after day after day.
Or Louise, an elderly woman who came to our attention
through the good auspices of a clerk at a Western Union office
in Laconia, NH, who noticed that Louise was appearing regularly
in that office to wire transfer hundreds of dollars to a person
named--and I am putting this in quotes--``Juan Garcia,'' in San
Antonio, TX. That is the moral equivalent of ``John Smith.''
Upon intervention by our office, we determined that Louise
had spent in excess of $8,000 to a voice at the other end of a
telephone line which had befriended her. In this case, he had
started by pretending to sell her magazines and had moved up,
befriending her, befriending her, befriending her, telling her
a story about a mythical life that he led. In the end, she was
sending him money so he could finish, she thought, his final
year in college. Good luck.
Alf, an elderly man who appeared in our office this past
year, who was widowed a couple of years ago, in the past 2
years, Alf has spent between $20,000 and $40,000 of his
lifetime savings of slightly over $50,000 on sweepstakes
promotions. Notwithstanding the fact that Alf has received
several hundreds of promotions declaring him by name to be a
winner, he has yet to win that $1 million prize that he has
been promised over and over again. He is, however, absolutely
convinced, and he is convinced today that he has won any number
of prizes. He contacted the Consumer Protection Bureau in New
Hampshire, not because he thought he was being scammed, but for
help in collecting his winnings.
Joan is an elderly woman of significant means, but also of
diminishing capacities. After a few bounced check incidents,
her adult son, who lives over in New York, visited her. He
reviewed her bank accounts and he learned, to his utter horror,
that she had contributed in excess of $200,000 over a 6-month
period to a fringe political group which, just like the Juan
Garcia story, had contacted her over the telephone, and again,
using that technique of befriending, befriending, befriending,
had talked her into an enormous and continuing set of
contributions.
I choose to tell you these stories about these people
today, Senators, because they are real. These folks live in New
Hampshire today. Each of these older citizens has been
victimized in exactly the way I am describing to you. I am not
making anything up on this. Also, they illustrate, I think, the
breadth of the problem, that the victims of telemarketing or
sweepstakes abuse can be men or women maintaining or suffering
varying levels of capacity or incapacity. They can live either
on the knife edge of poverty or they can be people of means.
They can be people of tremendous attainment during their
younger lives.
As I was getting up this morning and looking over this
speech, I noticed, for example, several news stories about the
fact that President Reagan is about to reach his 87th birthday
tomorrow and is suffering from Alzheimer's disease, and,
therefore, a diminishment of capacity. If President Reagan were
picking up his own phone today, a telemarketer would think of
him as having the word ``victim'' written all over his head.
Each of these people, so different in lifestyle and
background, are similar. They are similar because they have all
been robbed of their money and their dignity, and their lives
have been profoundly damaged at a time in their lives when that
should not and must not be tolerated. Now, what are we doing
about that in law enforcement? What are we doing about that
kind of victimization? The easy and simple answer is we are not
doing enough.
The easy and simple answer is we are not doing enough at
this point in terms of law enforcement and in terms of helping
our elderly citizens. But a somewhat more complex and I think a
somewhat truer answer is that, however imperfect our efforts
are today and whatever the limitations we are suffering under,
our efforts today are much, much more coherent and much more
effective than they were 2 and 3 and 4 years ago, and they are,
in part, because of the actions of the Senate in approving the
Telecommunications Act in 1994 and 1995, and in large part
because of actions that have happened under the aegis of the
FTC, the Department of Justice, the National Association of
Attorneys General, in the years following the passage of that
act to coordinate and make coherent law enforcement efforts.
This point is perhaps illustrated by talking about a law
enforcement effort engaged in my office approximately 3 years
ago involving a particularly nasty form of telemarketing fraud
known as the reload or the recovery room. In summary, this one
involves criminals who get money from people in the first place
through traditional telemarketing fraud, through sweepstakes
fraud, through charities fraud, through calling up and
befriending, through getting their money in one way or another,
and then--well, let me tell you this particular group had
engaged in that kind of activity. They had engaged in active
telemarketing fraud up in Maine. I think they were in Wells,
ME, which is not far across the New Hampshire border. And they
had been closed down in a civil action, with a limited asset
seizure accomplished by the Maine attorney general.
Immediately after that setback--immediately, within a
matter of weeks or months--these guys moved across the border
to Portsmouth, NH. Physically, they moved 5 miles, and they
started calling the same people that they had called before,
only this time they were pretending to be a government or
quasigovernmental agency which was dedicated to getting money
back from people who had already lost money to telemarketing
scamsters. They would do that service for a mere $475 or $490
additional payment, payable in cash or money order, but not
necessarily by credit card.
The New Hampshire Attorney General's Office, like the Maine
Attorney General's Office, moved quickly, upon learning of this
operation, to secure a civil court order closing down the
operation and attempting to seize any cash or assets which
could be located in New Hampshire, and we closed that
operation. However, the money generated by that operation was
no longer in New Hampshire and the individuals themselves who
ran the operation--because we did not seize them criminally and
get their bodies, they disappeared. They disappeared from the
State of New Hampshire immediately after our lawsuit began, and
they have not, to my knowledge, been heard from again.
I look back on this case as being a partial failure by my
office, and I raise it to illustrate three points which I think
characterize law enforcement efforts against telemarketers back
in the early 1990's. One was that there was a failure of
effective communication between the New Hampshire and the Maine
Attorney General's Office with respect to this incident. The
second was that neither Maine nor New Hampshire chose back in
1993 or 1994 to invoke our criminal jurisdiction to arrest and
incarcerate the people who were stealing from our citizens this
way. I don't think we had been educated in the way that AARP is
educating law enforcers around the country and individual
citizens to look on telemarketing fraud as the crime that it
is. And, three, the ability of these particular perpetrators to
fade away from two jurisdictions, two State jurisdictions in
which they had been discovered, presumably to export this stuff
off to another jurisdiction and start doing it all over again.
It provides to my mind a very stark illustration of how
desperately we needed and still need continued Federal and
State coordination in the prosecution of telemarketing fraud.
As a result of this lack of coordination between State and
Federal authorities back, we are talking 3 or 4 years ago now,
the crooks who operated this scam got away with it in two
States. They got away with an undetermined amount of money from
citizens from our and from other States, and they may still be
in business. But let me emphasize that that occurred in what I
still think of as the infancy of our efforts and the efforts by
other State attorneys general and of Federal law enforcement
agencies to really focus on telemarketing fraud.
Over the last 3 years, the issue of telemarketing fraud,
sweepstakes, and other forms of abuse of the elderly have
become an extremely high priority in the offices of attorneys
general throughout the States in local law enforcement offices,
with the National Association of Attorneys General, with the
FTC, the Department of Justice, the U.S. Postal Service and
other Federal law enforcement agencies, and there has been a
marked shifting emphasis from civil to what I believe is more
appropriately criminal enforcement against telemarketing scam
artists.
I am sure Chairman Pitofsky will talk at length about the
excellent history of coordinated efforts that have resulted in
hundreds of civil and criminal actions, spear-headed by FTC and
the Department of Justice, against individual and corporate
defendants throughout the United States and Canada over the
last couple of years. I will mention only a few: Operation
Senior Sentinel, which targeted telemarketing and elder fraud;
Operation Pay-Back, targeting credit repair fraud; Projection
Loan Shark, targeting advance fee loan scams; Operation Copy
Cat, targeting a highly lucrative but not often noticed process
by which people try to do fraudulent sales of office and
cleaning supplies; Project Jackpot, targeting fraudulent prize
promotions.
Each of these was a highly publicized, coordinated series
of actions brought and announced on or about the same day--
actions and consumer education efforts brought on or about the
same day, spear-headed by Federal agencies with significant
participation by State attorneys general and local law
enforcement agencies throughout the United States. They were
and are intended to send a powerful signal to the people who
inflict telemarketing fraud on our citizens that we aren't
working alone anymore and the days of uncoordinated activity
are coming to an end. You can run from one State, but you can't
hide in another.
In addition, the FTC has taken the lead in establishing a
coordinated data base of telemarketing complaints available to
Federal and State law enforcers within the United States, to
which New Hampshire has itself just signed up to be a
contributor. That data base and other services, and Internet
service under the name of Consumer Sentinel, is now being
broadened to include information regarding telemarketers and
other fraudulent enterprises emanating out of Canada. That is a
huge and important step forward, and I will defer to Chairman
Pitofsky to tell you more about that really, really positive
step in law enforcement.
Similarly, NAAG, FTC, and DOJ have been instrumental in
establishing linkages among law enforcement agencies through
the identification of agency contacts, through State and
Federal conferences on telemarketing fraud and enforcement,
including two regional conferences on cross-border fraud and
two criminal law training conferences sponsored by NAAG under a
DOJ grant of funds which are scheduled to take place this
spring. The bottom line is that we are very much, on a State
and Federal level, getting our act together to coordinate and
bring consolidated actions, learn where the criminals are, and
not be constrained either by civil law or by State borders in
finding and prosecuting the people who do this kind of
activity.
The last few years has also been marked by an emerging
public-private partnership designed to promote public awareness
of the issue of telemarketing and sweepstakes abuse of the
elderly. The National Fraud Information Center of the National
Consumers League is a publicly available data base of criminal
complaints available to anyone who wants to use the Internet.
AARP has been enormously, enormously helpful in
establishing, through research and advertisement--research
first--a comprehensive and meaningful profile of the scope of
the problem and the kinds of people who can be victimized by
this problem. And, in addition, their advertising program
designed to tell people that telemarketing fraud is a crime and
you can put down that phone is also a major, major step in the
right direction.
The National Association of Attorneys General has sponsored
such activities as reverse boiler rooms, in which the attorneys
general of various States, using sucker lists, call up people
on those sucker lists and tell them how their name has come to
the attention of law enforcers, and again providing them with
information and warnings about the problems that may exist at
the other end of a phone.
The telecommunications acts of 1994 and 1995, the FTC's
telemarketing sales rule--they include enhanced penalties for
people who prey on the elderly and that is very, very
important. They do give--as Senator Hollings said originally--
they do give the State attorneys general the ability to go into
Federal court and use the jurisdictional reach of the Federal
courts to bring actions against fraudulent telemarketing
activities that occur far from a home State.
In addition, the proposed Telemarketing Fraud Prevention
Act of 1997, of which I understand Senator Jon Kyl of Arizona
is a principal sponsor in the Senate, contains provisions which
would enhance penalties for telemarketing crimes committed
across national borders. In view of some of the things that I
am going to tell you about cross-border fraud, I strongly
suggest to the committee that you may want to look favorably on
provisions that address that issue of cross-border
telemarketing fraud.
In my small office, this culture of cooperation among State
and Federal agencies can, I think, be most clearly seen by
comparing the results of two of the cases that I talked about
at the beginning. In the case of Louise, the woman who was
victimized by the man who called himself Juan Garcia, our
office lost valuable time--this was 2\1/2\ years ago--our
office lost valuable time in trying to find and establish
working relationships with local law enforcement and/or the FBI
in San Antonio, TX.
We did establish those relationships. With the help of the
Federal Bureau of Investigation branch office down in San
Antonio, we were able to establish a surveillance of the
Western Union office in San Antonio, to which the wire
transfers had been made. But by the time this effort was put
into place--it took, actually, a good couple of weeks--Juan
Garcia had disappeared--no surprise--so had the victim's money.
By contrast, in the present environment, my office was able
to take significant steps quickly, using the kinds of contacts
that have been created between State and local law enforcement
agencies and Federal law enforcement agencies, to assist Joan,
the woman who had contributed the $200,000, at least, to a
political organization via phone contacts. We were able quickly
to determine that the organization in question was already
under investigation by the Federal Bureau of Investigation and
a U.S. attorney's office in another jurisdiction, immediately
referred that matter to authorities conducting that ongoing
investigation, assisted them in the conduct of the
investigation, at least as respects this particular claimant.
We have been informed of a projected settlement of that
investigation which is going to result in a return of money to
this victim, as well as others. In fact, upon further
investigation, it turns out that this particular victim may
have spent as much as $500,000 or $600,000 in contributions,
and it appears today that she and her family are going to see
much of that money returned.
Finally, it is important to emphasize that for all the
progress that has been made over the past several years, there
is one major problem of effective law enforcement response to
telemarketing fraud that remains. The issue of cross-border
telemarketing fraud is now becoming a serious and vexing
problem for law enforcers in the United States and in the
various States.
The most recent publicly available statistics from the
National Fraud Information Center, for example, indicate that
the Province of Quebec now ranks third, after only Florida and
California, as sources of origin for fraudulent telemarketing
calls into the United States. British Columbia is No. 8; Nova
Scotia may be No. 11. In our own anecdotal experience in New
Hampshire, it indicates that this trend is particularly true in
border States such as New Hampshire, Maine, Vermont, and New
York.
I believe this development has occurred for two reasons.
One is that the enhanced penalties and jurisdictional reach
provided to this office by the Telecommunications Act of 1994
may well have prompted an exodus of criminal telemarketers
outside of the formal jurisdictional reach of the United
States. The second is that these guys aren't dumb. They know
very well that the processes for investigation, arrest,
detention, extradition, and the seizure of assets in either a
civil or criminal venue are way more difficult when you are
doing it across national borders than when you are doing it
between Maine and New Hampshire.
Now, as with the development of State and Federal
cooperation, the process for establishing protocols for
international cooperation in combating telemarketing fraud is
already underway. In 1997, the FTC, the Department of Justice,
NAAG, and the Canadian Government issued a report which
identified a number of the problems and began putting into
place solutions to the complex enforcement issues posed by
cross-border telemarketing fraud. Among the recommendations of
that report was to explore the use of remote testimony in
criminal proceedings in either the United States or Canada by
videoconferencing or other means which would both reduce the
cost of telemarketing prosecutions--and that is a real issue--
and to reduce the obstacles to elderly victims in testifying in
such prosecutions, which is another major issue in actually
putting together and prosecuting these cases as a practical
matter; to examine the regulation of telephone services in the
United States and Canada and to explore options for denying
telephone services to known or convicted telemarketing
offenders; to consider expanding the scope--and this is
crucially important, Senators--of existing mutual legal
assistance arrangements and treaties to more effectively deal
with telemarketing fraud cases; and what is already going on,
to coordinate strategies to control telemarketing fraud at all
enforcement levels.
The working group is continuing to do its work and is
likely to provide further recommendations to you, Senators. I
would suggest that to the extent that they make recommendations
to the President or to the U.S. Senate which require
modification of existing extradition or mutual cooperation
treaties to streamline or expedite the processes for
extradition, and in particular for the freezing or seizing of
assets across national borders, that you take a good, hard look
at that. Let me just explain that briefly.
In order to seize assets in a noncriminal case where there
isn't a crime going on in Canada, it is necessary essentially
even for an attorney general's office to go in, seek Canadian
counsel, do what is called a--I think it is a Mareva petition,
but I may not get that right--but do a petition for seizure of
assets across national borders under international protocols.
Generally, under Canadian law, you have to post a bond to do
that, and the States have to post a bond just like anybody
else.
Depending on how large a set of assets you are looking for,
we may be asked to post a bond in the $25,000 or $50,000 level.
That is a huge chunk of the whole litigation budget for an
office of my size and makes bringing that kind of an action
enormously difficult, somewhat risky, and possibly prohibitive
to an office like mine. If and to the extent the working group
is able to identify ways in which, consistent with the rights
of the citizens of each nation, that process may be streamlined
or may be made easier for law enforcers in the United States
and Canada, support it, support it, support it, please.
But let me just tell you that this effort, like the efforts
of law enforcement offices to coordinate efforts within the
United States, is, I would like to emphasize, beginning to
really pay off, too. In the past several months, there have
been at least three large-scale actions against Canadian
telemarketers conducted through the concerted efforts of State
attorneys general and Canadian Federal or provincial
authorities.
These have involved an action by Washington Attorney
General Gregoire and the British Columbia Ministry of Attorney
General against two Vancouver-based foreign lottery
telemarketers. Illinois Attorney General Jim Ryan indicted a
telemarketer based in Toronto and that person was arrested by
Canadian officials on the basis of the United States
indictment. Ohio Attorney General Betty Montgomery and Canadian
authorities cooperated to break up a ring of a Toronto-based
telemarketer and 20 confederates----
Senator Gregg. Walter, we are unfortunately going to have
to move along.
Mr. Maroney. I will be happy to shut up in one second. Let
me just say that all of those things mean one real thing and
that is that the level of cooperation is really starting to pay
off at this point among Federal, State, and now Canadian
governments. We aren't winning this battle at this point, but
we are fighting this battle very, very hard.
Let me just say two things. One is that we were able to get
some money back for that woman named Edna and that was a good
thing, partial help. But there is that man, Alf, out there and
he doesn't know today that he isn't going to win. And I would
ask you to keep that in mind as you consider this whole issue
because there are a lot of men and women like him out there,
and they are in desperate need of support, of education, and
protection. They are personifications of the fact that we have
still got a lot of work to do.
I would like to thank you very, very much for the
opportunity to speak to you about these issues. I will be happy
to answer any questions you have got.
prepared statement
Senator Gregg. Thank you very much. I appreciate that in-
depth review. It was very useful and very informative.
[The statement follows:]
Prepared Statement of Walter L. Maroney
introduction
I am here today to speak about telecommunications fraud and the
abuse and victimization of elderly citizens in New Hampshire and around
the nation. These remarks are delivered from the perspective of a small
Attorney General's Office in one of our smaller states and is intended
both as a confession of some weakness and of some significant successes
in the ongoing battles by my office and 49 other state Attorney
Generals Offices, and by countless local law enforcement offices, and
federal agencies, including the Department of Justice, the Federal
Trade Commission and the Federal Bureau of Investigation, into
telemarketing fraud, sweepstakes, and the concomitant abuse of our
elders.
telemarketing fraud on the elderly as a form of domestic abuse
In discussing the issues of telemarketing fraud and abuse of the
elderly, it is important to place the issues of telemarketing fraud and
abuse of the elderly in a proper and human context. And I would suggest
to the members of this subcommittee that one important context in which
to understand these issues is that of domestic abuse. No, fraud on the
telephone does not involve violence or the emotional horror inflicted
on victims of abusive domestic situations; and no, telemarketing fraud
does not take away people's lives in the tragic ways that too often
result from violence in the home. And yet, telemarketing fraud,
sweepstakes and other forms of fraud on the elderly do result in
terrible and irremediable losses to victims--of money, of dignity, of
security. And telemarketing abuse shares with domestic abuse four
disturbing characteristics:
--The abuse occurs in the privacy of one's home where in a more
perfect world our elders should have a right to feel safe and
secure;
--The principal victims of this form of abuse--possibly more than 50
percent of victims according to AARP data--are among our most
vulnerable citizens: our older citizens, our parents and
grandparents, whom we are absolutely and morally obligated to
protect and defend;
--Victims of telemarketing fraud and sweepstakes abuse are often
afraid to come forward because of embarrassment or the fear
that admitting to having been victimized is tantamount to
admitting to a diminishment of capacity; and
--Our law enforcement structures are not in all cases adequate to
neatly or effectively redress or prevent the injuries caused to
victims of telemarketing or other forms of fraud. Nor do law
enforcement agencies, such as mine, possess an immediate
ability to address the broader social needs for assistance and
services which may be critical elements in assisting elderly
victims of this form of abuse.
illustrative stories
To illustrate this point, let me talk briefly about four
individuals with whom my office has been involved during the past two
years:
Edna.--Edna is an unmarried woman in her late 70's, who lives
alone. When Edna presented herself to the Consumer Protection Bureau of
the New Hampshire Attorney General's Office in early 1996, her reason
for contacting us was to ask that we make the phone stop ringing. In
fact, on investigation, which included a visit to her home, we found
that Edna had been regularly responding to a wide variety of
telemarketing calls and had spent between $10,000 and $20,000 in such
responses over a prior two year period.
Her house was filled to overflowing with useless and worthless
prizes--pen sets, knickknacks, letters of congratulations for
participating in a mythical war against drugs. And her phone was
ringing. Over and over and over again, virtually all day. You see,
Edna's name had made it onto what the industry refers to a ``sucker
list'' and that name and those lists had been sold and transferred from
telemarketer to telemarketer to telemarketer, some legitimate, many
not. Now, imagine if you will the fear of an elderly woman of
diminishing capacity who knows at some level that she is being or may
be taken advantage of every time the phone rings in her home. And
imagine again that phone ringing time after time after time, day after
day, after day, after day.
Louise.--Louise is an elderly woman who came to our attention
through the good auspices of a clerk at a Western Union office in
Laconia, NH who noticed that Louise was appearing regularly in that
office to wire transfer hundreds of dollars to a person named ``Juan
Garcia'' in San Antonio, Texas. Upon intervention by our office we
determined that Louise had sent in excess of $8,000 to a voice at the
other end of her telephone line which had befriended her.
Alf.--Alf is an elderly man in his early 80's who was widowed two
years ago. Since then, Alf has spent between $20,000 and $40,000 of his
lifetime savings of slightly over $50,000 on sweepstakes promotions.
Notwithstanding the fact that Alf has received several hundreds of
promotions declaring him by name a winner, Alf has yet to win the
million dollar prize that he has been promised over and over and over
again. He is, however, convinced that he has won any number of prizes.
He contacted Consumer Protection in New Hampshire for help in
collecting his ``winnings.''
Joan.--Joan is an elderly woman of significant means but
diminishing capacities. After a few bounced check incidents, her adult
son, who lives in New York, visited her, reviewed her bank accounts and
learned that she had contributed more than $200,000 over a six-month
period to a fringe political group which had contacted her over the
telephone, and again, using the technique of befriending, had talked
her into enormous and continuing contributions.
I choose to tell you these stories became these people are real.
They live in New Hampshire today. Each of these older citizens has been
victimized in exactly the way that I am describing over the past few
years from a variety of sources. Also, they illustrate the breadth of
the problem: that the victims of telemarketing and sweepstakes abuse
can be men or women, maintaining or suffering varying levels of
capacity or incapacity, can live either on the knife edge of poverty or
be people of means. Yet in all cases these people, so different in
lifestyle and background, are similar. They are similar in that they
have been robbed of their money and their dignity and their lives have
been profoundly damaged at a time in their lives when that should not
and must not be tolerated.
law enforcement
Now what are we in law enforcement doing about this kind of
victimization? The simple answer is, not enough. A more complex and
true answer is that our efforts today, while imperfect, are far more
coherent and effective than they may have been only two and three and
four years ago.
The move toward coordinated, criminal enforcement strategies
This point is illustrated by a law enforcement effort engaged in by
my office approximately three years ago involving a peculiarly nasty
form of telemarketing fraud known as the ``reload'' or ``recovery''
room. In summary, this involves criminals who manage to steal from
their victims once, usually by telephone, using standard telemarketing
fraud techniques--sweepstakes claims, false charity claims, etc. This
particular group had been engaged in active telemarketing fraud in
Maine, and had been closed down with a limited asset seizure in a civil
case initiated by the Maine Attorney General.
Immediately after that set-back, they moved across the border to
Portsmouth, New Hampshire--about a five minute drive from their
previous base of operation--and started calling the same people that
they had called before holding themselves out as a law enforcement
agency, dedicated to recovery of money stolen from people by
telemarketing scam artists, a service which they would provide for an
additional payment of $490.
The New Hampshire Attorney General's Office, like the Maine
Attorney General's Office, moved quickly upon learning of this
operation to secure a civil court order closing down the operation and
attempting to seize any cash or assets which could be located in New
Hampshire. We closed the operation. However, the money was not in New
Hampshire. We don't know where it went. The individuals themselves who
ran the operation disappeared from the State of New Hampshire
immediately after our law suit was begun and have not, to my knowledge,
been heard from again.
I believe this case was a partial failure by our office and I raise
it to illustrate three points which I believe characterized law
enforcement efforts against telemarketers in the early 1990's:
--The failure of effective communication between the New Hampshire
and the Maine Attorney General's Office with respect to this
incident;
--The fact that neither Maine nor New Hampshire chose, three years
ago, to invoke our criminal jurisdiction to arrest and
incarcerate the people who were stealing from our citizens in
this way; and
--The ability of the perpetrators of this particular scam to fade
away from two jurisdictions in which they had been discovered
presumably to export their activities to other states, provides
a stark illustration of the need of federal and state
coordination in the prosecution of telemarketing and other
forms of elderly fraud.
As a result of this lack of coordination among enforcers, the
crooks who operated this scam got away with it in two states, got away
with an undetermined amount of money from the citizens of our and other
states, and may still be in business.
But I emphasize that that situation occurred during what I think of
as the infancy of the efforts by my office and many other offices to
address telemarketing crimes. Over the last three years, the issue of
telemarketing fraud, sweepstakes fraud and other forms of abuse of the
elderly have become a high priority in Attorney General's offices
throughout the United States, with the National Association of
Attorneys General, with the FTC, and with the Department of Justice,
the U.S. Postal Service and other federal law enforcement agencies.
There has been a marked shift in emphasis from civil to, more
appropriately, criminal enforcement against telemarketing scam artists.
In 1996 and 1997, state and federal law enforcers have conducted
several coordinated enforcement efforts, resulting in hundreds of civil
and criminal actions against individual and corporate defendants
throughout the United States and Canada. These included Operation
Senior Sentinel (Dec. 1995) targeting telemarketing and elder fraud,
Operation Pay-Back (April 11, 1996) targeting credit repair fraud;
Project Loan Shark (June 10, 1996) targeting advance fee loan scams;
Operation Copy Cat (July 9, 1996) targeting fraudulent sales of office
and cleaning supplies; and Project Jackpot (July 25, 1996) targeting
fraudulent prize promotions. These actions have sent a powerful signal
to the purveyors of telemarketing and sweepstakes fraud that the days
of individual and uncoordinated actions by states are over.
Similarly, NAAG, FTC, and DOJ have been instrumental in
establishing linkages between state and federal agencies involved in
enforcement of telemarketing laws, by identification of agency
contacts, through state and federal conferences on telemarketing fraud
and enforcement, including two regional conferences on cross-border
fraud, and two criminal law training conferences sponsored by NAAG
under a DOJ grant of funds, scheduled to take place this Spring.
In addition, the FTC has taken the lead in establishing a
coordinated data base of telemarketing complaints available to federal
and state law enforcers within the United States, a data base to which
New Hampshire will shortly be a contributor. That data base, under the
name ``Consumer Sentinel,'' is now being broadened to include
information regarding telemarketers and other fraudulent enterprises
emanating out of Canada. This development is responsive to the recent
upsurge in Canadian telemarketing fraud which is discussed below.
Public Awareness
The last few years have also been marked by an emerging public-
private partnership designed to promote public awareness of the issue
of telemarketing and sweepstakes abuse of the elderly.
The work of the National Fraud Information Center of the National
Consumers League in establishing a publicly available data base and
resource center to alert consumers about the dangers of telemarketing
fraud is an important step forward. The AARP's extensive research
projects have provided enforcers and the public with a clearer
understanding of the profile of persons who have been or are likely to
be victimized by telemarketing fraud. Similarly, the advertising
campaign sponsored by AARP which is designed to hammer home the concept
that telemarketing fraud is a crime and that our elderly citizens can
and should simply hang up that phone is also an enormous stride toward
increasing public awareness of the breadth and moral horror of this
issue.
The National Association of Attorneys General has sponsored such
activities as ``reverse boiler rooms'' in which the Attorneys General
of many states have placed calls directly to persons whose names appear
on seized ``sucker lists'' to warn them about the danger of
telemarketing fraud.
At the same time, the FTC has entered into several partnerships
with such private groups and organizations as the Association of
Chamber of Commerce Executives, Readers Digest, American Express, the
Direct Marketing Association and others to find innovative ways to
communicate with consumers about the ongoing dangers of telemarketing
fraud.
Enhanced Penalties
The Telecommunication Act of 1995 and the FTC's telemarketing sales
rule included enhanced penalties for persons who prey on the elderly by
telephone and granted state Attorneys General the ability to bring
actions directly in federal courts against distant companies who prey
on our citizens over the telephone wires. Similarly, the Telemarketing
Fraud Prevention Act of 1997 (Sen. Jon Kyl, AZ) (H.R. 1847) contains
provisions which would enhance penalties for telemarketing crimes
committed across national borders. I urge the Committee to consider and
adopt such measures.
Practical Effects
In my office, the results of this culture of cooperation among
state and federal agencies can be most clearly seen by comparing the
results of two of the cases that I spoke to you about before. In the
case of Louise, the woman victimized by the man who called himself
``Juan Garcia,'' our office lost valuable time in locating contacts and
establishing a working relationship with local law enforcement
authorities in San Antonio, Texas. Ultimately, we were able to
establish a relationship with the Federal Bureau of Investigation
branch office in San Antonio, which resulted in a surveillance of the
Western Union Office in San Antonio to which the wire transfers had
been made. However, by the time this effort was put into place, ``Juan
Garcia'' had disappeared. So had the victim's money.
By contrast, in the present environment, my office was able to take
significant steps to assist Joan, the woman who had contributed at
least $200,000 to a political organization due to phone contacts. Using
the web of telemarketing contacts in all 50 states and agencies of the
Federal government established under the aegis of NAAG, the DOJ and the
FTC, our office was quickly able to determine that the organization in
question was already under investigation by the Federal Bureau of
Investigation and a U.S. Attorney's Office in another jurisdiction, and
immediately referred that matter to authorities conducting that ongoing
investigation.
We have been informed of a projected settlement of that
investigation which will result in a return of moneys to this victim as
well as others. In fact, upon further investigation, it turned out that
this particular victim may have spent as much as $600,000 in
contributions. It appears today that she and her family will see much
of that money returned.
canada and cross border issues
Finally, it is important to emphasize that, for all the progress
that has been made over the past several years in interstate and state-
federal cooperation, problems of effective law enforcement response to
telemarketing fraud remain serious and ongoing. In particular, the
issue of cross-border telemarketing fraud is one that faces us now and
in the future.
The most recent publicly available statistics from the National
Fraud Information Center indicate that the Province of Quebec may now
rank third, after only Florida and California, as a place of origin of
telemarketing fraud calls into the United States. British Columbia is
number eight and Nova Scotia number eleven. Our own anecdotal
experience indicates that this trend is particularly true in states
such as New Hampshire, which border on one or more Canadian provinces.
I believe this development has occurred for two reasons. First, the
enhanced penalties and jurisdictional reach provided to the Offices of
Attorneys General by the Telecommunications Act of 1995 may well have
prompted an exodus of criminal telemarketers outside the formal
jurisdiction of the United States. In addition, these criminals know
that the processes for investigation, arrest, detention, extradition,
and the seizure of assets in either a civil or criminal venue are
markedly more complicated across national borders--even the relatively
open borders of the United States and Canada--than across borders of
states within the United States.
As with the development of state and federal cooperation, the
process for establishing protocols for international cooperation in
combating telemarketing fraud is already under way. In 1997, the United
States-Canada Working Group on Cross-Border Telemarketing Enforcement,
which consisted of representatives of the Federal Trade Commission, the
Department of Justice, NAAG and the Canadian Government, issued a
report which identified a number of the problems and began the process
of putting into place solutions to the complex enforcement issues posed
by cross-border telemarketer fraud. Among the recommendations of the
working group report were: to explore the use of remote testimony in
criminal proceedings by video conferencing or similar to reduce the
cost of telemarketing prosecutions and to reduce the obstacles to
elderly victims testifying in such prosecutions; to examine the
regulation of telephone services in the United States and Canada and to
explore options for denying telephone services to telemarketing
offenders; to consider expanding the scope of existing mutual legal
assistance arrangements to more effectively deal with telemarketing
fraud cases; and to coordinate strategies to control telemarketing
fraud at all enforcement levels.
The working group is continuing its efforts and is likely to
provide further recommendations to the respective Canadian and American
governments. I would strongly urge the Committee to give active
consideration to any proposals made by or on behalf of the working
group which may require some measure of modification of existing
extradition or mutual cooperation treaties to streamline or expedite
the processes of extradition and, in particular, the freezing or
seizure of assets across national borders.
This effort--like the efforts of law enforcement authorities to
coordinate efforts within the United States--is paying off. In the past
several months, there have been three large scale actions against
Canadian telemarketers by concerted efforts of state Attorneys General
and Canadian federal or provincial authorities.
--Washington Attorney General Christine Gregoire has announced a
joint action between her office and the British Columbia
Ministry of Attorney General against two Vancouver based
foreign lottery telemarketers. In connection with that action,
a Canadian court has issued an order freezing the corporate and
individual assets and ordered them to cease and desist from
violating Canadian law, while a Washington court simultaneously
issued a temporary restraining order precluding the defendants
from selling false or fraudulent lottery tickets within the
United States and terminating their toll-free phone service
into the United States.
--Illinois Attorney General Jim Ryan indicted a Toronto-based
telemarketer for allegedly defrauding an 84 year old woman out
of $980,000 by telling her she had won $13,000,000 in a
Canadian lottery but would have to pay close to a million
dollars to cover taxes and fees on her winnings. The individual
indicted in Illinois was arrested by Canadian officials.
--Ohio Attorney General Betty Montgomery and Canadian authorities
cooperated to arrest a Toronto-based telemarketer and 20
confederates in connection with a ``guaranteed loan'' scheme
involving at least 163 victims, 30 of whom resided in Ohio.
These actions should be read as an effective declaration of war
against telemarketers who hope to use national borders as a shield
against law enforcement.
conclusion
In conclusion, I am not here to say that the Attorney General of
New Hampshire or any Attorney General is winning this fight, but to say
that we are fighting very hard against the abuse of our elders through
the phone or through sweepstakes and other forms of fraudulent
promotions. Our successes, and they have been significant, have come
over the past several years in direct proportion to our ability to work
together as state and federal law enforcers and increasingly to work
with our counterparts in Canada and its Provinces to ensure that
criminals who prey on our citizens may not hide behind national
borders.
Telemarketing, sweepstakes and other forms of abuse on our elderly
citizens are strange crimes. They occur in silence and secrecy across
great distances, across state borders, and increasingly across
international borders. We face a significant challenge in the years
ahead to insure that our efforts as law enforcers and on a more
personal level as the sons and daughters and grandchildren of our
elderly citizens continue to keep pace with the efforts with those who
would hurt them and that we continue our efforts to warn our elders of
the dangers that may lie on the far end of a phone.
In that connection, I would note, in closing, the resolution of the
remaining two cases I discussed at the beginning of my remarks. Through
our office's intervention and the work of the Direct Marketing
Association, which monitors no-call lists for its members, Edna's phone
number was changed and she is no longer subject to around the clock
phone calls. We were able to recover some, but not all, of her money.
Alf, on the other hand, still believes he is going to win a prize
someday that will make everything better. Our office has made referrals
of his case to appropriate state service agencies, but he remains in
desperate need of support and education. He is still a victim and he
is, in the end, the personification of the fact that we all have
further work to do.
I wish to thank the Committee for this opportunity to speak to you.
STATEMENT OF HAROLD PHILLIPS, DETECTIVE, SHERIFF'S
DEPARTMENT, CHARLESTON COUNTY, SC
Senator Gregg. Mr. Phillips.
Mr. Phillips. Yes, sir. Thank you for inviting me to speak
to you this morning. My name is Harold Phillips. I am a
detective with the Charleston County Sheriff's Office. The
population of the county where I work is approximately 280,000
people, and I am the only white collar crime investigator in my
office. I would just like to give a perspective from where I
sit and the things that I have to deal with and the hurdles
that I face.
The attorney general has made mention of these very high-
profile cases where there are large amounts of money that are
lost. In many cases that I see or that are brought before me,
we are looking at between $3,000 and $5,000, which in the big
scheme of things does not seem like much, but to older
Americans especially, that could be their life savings. Once
that is gone, that is more devastating than a lot of things
that could happen to them.
One of the biggest hurdles we have is, as the attorney
general alluded to, these now become more prevalent with out-
of-State suspects. They are communities from out of State, and
it is very hard for us to have the manpower and resources to
say, ``Sergeant, I have to go to New York and beat the bushes
with a fellow detective and see what we can find out about this
particular case,'' and the loss is between $3,000 and $5,000.
It is just not going to happen.
And beyond that, even getting to that point, for instance,
if you are lucky enough to get a phone number from a caller
I.D. and you find out a number, if it is an out-of-State phone
company, lots of times they won't recognize our subpoenas or
search warrants, or if they do, it takes them several weeks, if
not months, to give us back the information, which hinders our
investigation.
Even if you come to a point where you are lucky enough to
put out an arrest warrant for somebody and they are caught in
that State--for instance, Florida, New York, or California
where a lot of these are now taking place--local prosecutors do
not have the resources to extradite that person, especially
when you are looking at a loss of maybe $3,000 to $5,000, and
so the chance of that person ever being brought to justice in
our jurisdiction is not very good.
I think in the big picture of things, I feel like white
collar crime--there are a lot of crimes that fall under that
umbrella and this is one of them, and being that the
telemarketing scams have become more prevalent as our
population has grown older, it is very hard for local law
enforcement people to keep up with that. We are doing the best
we can to keep our head above water as it is, and this is a
small part of what my job is. So between the manpower and
resources, these are just major hurdles that we have to bring
people to justice in these types of crimes.
I think if you look at the amount of people that are being
scammed or are having losses, it would be pretty substantial if
you put that all together. If I could--I won't speak very much
longer--I would just like to give you a real quick case that we
recently in the last 3 or 4 weeks have had some problems with.
This is by no means a new scam, but one that has hit our area.
My department, as well as others in my jurisdiction, have come
across cases such as this.
On January 14, 1998, at approximately 1 a.m., a 54-year-old
Charleston woman received a collect call from an individual who
identified himself as a law enforcement officer with the Myrtle
Beach Sheriff's Office. The caller stated that he had two
subjects in custody who had used the victim's credit card
number. He further stated that numerous charges had been made
and asked if she had recently lost any credit cards. The victim
stated she may have, since she mistakenly left her purse at a
church function earlier that same evening.
The caller then asked which was the closest sheriff's
office to her and arranged to meet her at 10 o'clock the
following morning at that sheriff's office. The caller then
stated the first thing that needed to be done was to
immediately contact the credit card company to have the account
frozen. The subject then offered to contact the company for
her, to which she agreed. The victim was placed on hold briefly
and after being reconnected was told that she was involved in a
three-way call with the credit card company. The third person
identified himself as a representative of Visa and told the
victim that there was approximately 1,000 dollars' worth of
charges on her credit card and the only way to freeze the
account was to immediately wire $655 to a New York address.
She was told that this money would act as a deductible for
the loss. The victim told the caller that she did not have that
kind of money, at which time the caller asked how much money
she could come up with. The victim advised that she may be able
to obtain $250. The victim was again placed on hold for several
minutes and both subjects came back on the line and stated that
the minimum the credit card company could accept in order to
freeze the account was $275. The victim stated that she needed
to use an ATM machine to get the money, and they suggested a
local Western Union office location for her to wire the money.
At this time, the victim's husband became suspicious and
his wife gave him the telephone. The subject who was presenting
himself as a Visa employee then told the victim's husband in a
very excited voice exactly how important this transaction was
if they wanted to freeze their account. When the husband asked
if this could be handled during normal business hours, the
subject stated that if it made the victim feel more
comfortable, he would send a Charleston police officer to the
victim's house for verification. He also stated while the
police officer was en route to the residence, his wife needed
to be on her way to wire the $275.
The husband hung up the phone and his wife immediately
called the Charleston County Sheriff's Office and informed us
of the situation. The Charleston County deputy sheriff
contacted the Myrtle Beach Police Department in an attempt to
confirm the situation. He spoke with a Myrtle Beach police
officer who stated that they had several calls with reference
to people identifying themselves as Officer David Johnson of
the Myrtle Beach Police Department. He further stated that they
did not have an officer named David Johnson, nor was anyone in
custody for credit card fraud.
While our deputy was obtaining that information, the victim
contacted Visa using a telephone number from one of her
previous bills. The actual Visa representative stated that
there was no charge to cancel or freeze her credit card and
that he would be able to place a freeze on her account.
Amazingly, the Visa representative made no mention to the
victim that the incident sounded like a scam and did not make
any attempt to pursue details of the alleged scam.
Immediately after that call, our officer informed her that
he had contacted the Myrtle Beach Police Department and learned
that this was a scam. He told her not to send money to anyone.
Because of concerns about her purse being misplaced in the
church and the attempted phone scam, the victim contacted the
Charleston Police Department, whereupon an officer responded to
the victim's house. Upon the officer's arrival at approximately
3 a.m., the victim's phone rang once again. At this time, the
officer answered the telephone and acted as if he was the
victim's husband.
Again, a subject presenting himself as the Visa employee
asked if the money had been wired, to which the officer stated
no. The subject then asked where his wife was and the officer
responded she had gone to bed. The call was then terminated by
the alleged Visa representative. The caller I.D. indicated that
the originating phone number was in New York City. Through
further investigation, the Charleston County Sheriff's Office
learned that the South Carolina State Law Enforcement Division,
SLED, was investigating similar scams throughout South
Carolina. The information on this case was turned over to SLED,
as well as the FBI.
The Charleston County Sheriff's Office publicized this
incident through the local media and learned from other
agencies of similar cases in their jurisdictions. For example,
the Mount Pleasant Police Department has received eight such
cases recently. We believe the publicity educated citizens in
the Charleston area and probably kept potential victims from
falling prey.
Unfortunately, many times the victims in these cases will
not come forward due to embarrassment of being flim-flammed, or
the victim may feel the incident is not important enough to
report. Obviously, the work of this subcommittee and my
presence here attests to the importance and seriousness of
crimes of this nature.
Although it may in this setting sound unbelievable that
somebody would fall for this, I would like to tell you that in
this particular situation, if it wasn't for her husband taking
the time and calling the sheriff's office to confirm what was
going on, she was on her way out the door to get that money and
send it to them. These particular people are calling in the
middle of the night or real early in the morning, and when you
listen to how they are presenting themselves, although it is a
collect call, which should send up red flags immediately, they
sound pretty legitimate.
Although this is not a very complicated scheme, it is not
very complicated as some of these other cases that have been
told here today, but it is something that is happening, and
happening at a large rate. This is something very easy for
somebody to do, and if somebody hangs up on them, they just go
to the next call. At this time, I can't tell you how they were
able to get this number, and it just so happened the victim
happened to leave her purse at the church that night. But I
believe this is an example that could be pretty standard across
the country.
Thank you for having me here today. If I can answer any
questions, I will be happy to.
Senator Gregg. Well, thank you. That was an excellent
example and we appreciate it.
Ms. Boosalis.
STATEMENT OF HELEN BOOSALIS, CHAIR, BOARD OF DIRECTORS,
AMERICAN ASSOCIATION OF RETIRED PERSONS
Ms. Boosalis. Good morning. Thank you. My name is Helen
Boosalis and I chair the Board of Directors of the American
Association of Retired Persons [AARP]. On behalf of AARP, I
thank you, Mr. Chairman, for inviting us to discuss the impact
of telemarketing fraud on older Americans and the importance of
continued Federal support for law enforcement's efforts to
deter these fraudulent practices throughout the country.
Telemarketing fraud is a major concern for AARP because of
the severe effect it has on our members, who are victimized in
disproportionate numbers. We have launched a campaign against
telemarketing fraud that involves research examining older
victims and their behavior, formed partnerships with
enforcement and consumer protection agencies and repeated
delivery of a consistent research-based message, and that is
fraudulent telemarketers are criminals, don't fall for a
telephone line.
In 1993, an extensive undercover FBI operation found that
older consumers were the largest single group of individuals
specifically targeted by fraudulent telemarketers. Two years
later, AARP sponsored the first large-scale survey of
telemarketing fraud victims. The purpose of the survey was to
learn more about how the crime affects older Americans. We
found that older people are victimized much more frequently
than young people are. More than one-half of the victims of
telemarketing fraud are over age 50, although only 36 percent
of the population is in that age group. While only 7 percent of
the population are age 75 or older, 14 percent of victims are
in that age group.
AARP's survey found that victims typically are not, as you
heard, socially isolated, ill-informed, confused people
described anecdotally. Victims are just as likely to be
relatively affluent, well-educated, and informed. They are
active in their communities and express many of the same
attitudes toward telemarketers as do nonvictims.
We found that older Americans, men as well as women, who
fall for telemarketing schemes seem to believe the story the
telemarketer is pitching. They find it hard to tell a
legitimate sales pitch from a fraudulent one and often lack the
skills to end the call when they feel pressure from the person
on the other end of the line.
Additional AARP qualitative research revealed that although
older consumers knew telemarketing fraud was wrong, they found
it hard to believe it was a crime. Our research suggests that
older consumers must be convinced that fraudulent telemarketers
are criminals before they will exercise greater caution. AARP
used this knowledge to shape its message, ``Fraudulent
telemarketers are criminals, don't fall for a telephone line,''
and AARP has repeated this warning to consumers through public
service announcements, educational workshops, and program
activities for 18 months.
In December 1996, AARP, in partnership with the FBI, the
National Association of Attorneys General, the U.S. Postal
Inspection Service, and others, launched a unique activity to
advise consumers that they might be targeted by illegal
telemarketers. AARP and its partners turned the criminals' own
tactics against them and created the Nation's first reverse
boiler room, called Operation Unload.
This activity was a joint effort with attorneys general
from 30 States where volunteers called more than 2,000 people
nationwide advising them that their names had been found on the
mooch lists you heard Attorney General Maroney talk about
seized from the fraudulent telemarketers. Ninety-four percent
of the potential victims we reached stayed on the line to
listen as the volunteers shared information informing them
about telemarketing fraud, and almost 60 percent of the people
we spoke with asked us to send followup information.
Based on the positive response to Operation Unload, AARP
created a reverse boiler room replication manual. The manual is
a step-by-step guide to planning and executing a reverse boiler
room, with a sample script, answers to frequently asked
questions, a research summary, and more. The association has
distributed more than 400 copies of this manual to law
enforcement agencies, including the FBI, attorneys general, and
aging and consumer protection agencies. The manual has been
well received and widely used by AARP volunteers and partners,
like the attorneys general and local law enforcement. Since
December 1996, AARP and other volunteers have organized a dozen
reverse boiler rooms nationwide and delivered warnings to more
than 8,600 potential victims.
In November 1997, the United States-Canada Working Group on
Cross-Border Telemarketing Fraud issued a report to President
Clinton and Canadian Prime Minister Jean Chretien. The report
states that victims are chosen for certain characteristics,
especially age. The working group noted that persons who have
already been victimized are at the greatest risk of being
victimized again. Offenders reuse and sell victim information,
as you heard, and target a victim repeatedly until all of his
or her assets are gone. The report details the financial,
psychological, and physical effects of telemarketing fraud on
older victims and their families, and provides concrete
recommendations for further action by Government and the
private sector. AARP was gratified to find that the working
group identified reverse boiler rooms as one of two success
stories in the fight against telemarketing fraud.
In the coming year, we plan to continue our efforts with
our partners, the Department of Justice, the FBI, the attorneys
general, the U.S. Postal Inspection Service, law enforcement
agencies at the local level, and the Administration on Aging
and State units on aging, to create and implement consumer
education programs and fortify our message that telemarketing
fraud is a crime, with suggestions on how to plan ahead to
respond to fraudulent calls and spread that message through
public service announcements and editorial coverage.
We plan to implement the recommendations of the United
States-Canada Working Group on Telemarketing Fraud and to
assist the National Association of Attorneys General with a
Department of Justice-funded training initiative focusing on
prosecution and investigation of telemarketing fraud aimed at
older consumers. We will continue to support volunteers working
for legislation and regulations that align with acceptable
telemarketing standards, will support litigation related to
telemarketing fraud, and finally we will educate volunteers to
present fraud-fighter training in their communities.
Mr. Chairman, AARP encourages this committee to consider
the importance of the other success story cited by the working
group--telephone hotlines. Presently, Government and privately
funded hotlines answer consumer questions and provide critical
information to those who have been harmed by telemarketing
scams. At the same time, they gather complaints to be used in
investigations and enforcement. Educators can use the voluntary
information gathered by hotlines to refine materials and
program activities.
Hotlines are the best source of information on emerging new
scams and telemarketing pitches, and provide an enormous
service to both individual consumers and to the fraud-fighting
agencies that help them. We believe an even greater benefit
would be realized by increasing the funding for 1-800 hotlines.
Additional resources could be used to provide an enhanced
training, expand staff, and provide needed computer equipment
for law enforcement agencies who lack access to complaint data
bases.
A well-funded centralized hotline for complaint handling
and data gathering offers consumers a rapid, one-call response
to questions and complaints. It would also permit States with
limited consumer protection funds to concentrate spending on
enforcement and coordination with other States, and would
facilitate more efficient prosecutions. Fraudulent
telemarketers by nature are mobile and chameleon-like. A well-
organized complaint response and data collection center would
be a powerful tool for consumers and enforcement alike.
AARP also recommends adequate funding to achieve a greater
saturation of consumer education materials and programs in
geographically and ethnically diverse communities. This can be
accomplished through partnerships with Government aging
organizations and consumer advocacy groups. A number of
agencies have worked hard on this issue and received extensive
press coverage over the last 2 years. However, there is a
continuing need for a consistent, large-scale education
campaign to warn potential victims about this crime.
Early last year, AARP conducted a second annual survey of
persons aged 50 and above to investigate their perceptions and
responses to fraudulent telemarketing. The survey involving
over 900 respondents found several important changes from the
preceding year in some areas and uncovered a number of positive
trends. For example, those surveyed reported that they received
significantly fewer telemarketing calls in 1997 than the year
before. Also, in 1997, significantly more people aged 50 and
older reported that they don't buy anything over the phone.
This survey will be repeated later this year.
Mr. Chairman, AARP is encouraged by the positive trends in
consumer understanding and behavior indicated in our research.
We also applaud the attention telemarketing fraud is receiving
at various levels of government and are pleased to see the
detailed recommendations of the United States-Canada Working
Group.
prepared statement
On behalf of AARP, I thank you for the opportunity to
provide the committee with background and recommendations on
this critical issue that impacts so many Americans,
particularly older Americans, so severely. We look forward to
continuing our partnerships on consumer education and advocacy
and cross-border fraud and other emergency issues for years to
come, and appreciate your committee's continued support of this
very important endeavor.
I look forward to responding to your questions.
Senator Gregg. Thank you.
[The statement follows:]
Prepared Statement of Helen Boosalis
Mr. Chairman and Members of the Committee: My name is Helen
Boosalis, and I Chair the Board of Directors of the American
Association of Retired Persons (AARP). On behalf of AARP, I thank you
for inviting us to discuss the impact of telemarketing fraud on older
Americans and the importance of continued federal support for law
enforcement's efforts to deter these fraudulent practices throughout
the country.
Telemarketing fraud is a major concern for AARP because of the
severe effects it has on our members, who are victimized in
disproportionate numbers. We have launched a campaign against
telemarketing fraud that involves research examining older victims and
their behavior, partnerships with enforcement and consumer protection
agencies, and repeated delivery of a consistent research-based message.
That is: ``Fraudulent telemarketers are criminals. Don't fall for a
telephone line.''
In 1993, an extensive undercover FBI operation found that older
consumers were the single largest group of individuals specifically
targeted by fraudulent telemarketers. Two years later, AARP sponsored
the first large scale survey of telemarketing fraud victims. The
purpose of the survey was to learn more about how this crime affects
older Americans. We found that older people are victimized much more
frequently than young people are. More than half of the victims of
telemarketing fraud are over age 50, although only 36 percent of the
population is in this age group. While only 7 percent of the population
are age 75 or older, 14 percent of victims are in that age bracket.
AARP's survey found that victims typically are not the socially
isolated, ill-informed, confused people described anecdotally. In fact,
victims are just as likely to be relatively affluent, well-educated and
informed. They are active in their communities and express many of the
same attitudes towards telemarketers as do non-victims.
We found that older Americans, men as well as women, who fall for
telemarketing schemes seem to believe the story the telemarketer is
pitching. They find it hard to tell a legitimate sales pitch from a
fraudulent one and often lack the skills to end the call when they feel
pressure from the person on the other end of the line.
Additional AARP qualitative research revealed that though older
consumers knew telemarketing fraud was wrong, they found it hard to
believe that it was a crime. Our research suggests that older consumers
must be convinced that fraudulent telemarketers are criminals before
they will exercise greater caution. AARP used this knowledge to shape
its message: ``Fraudulent telemarketers are criminals. Don't fall for a
telephone line.'' AARP has repeated this warning to consumers through
public service announcements, educational workshops and program
activities for eighteen months.
In December 1996, AARP in partnership with the FBI, National
Association of Attorneys General (NAAG), U.S. Postal Inspection Service
and others launched a unique activity to advise consumers that they
might be targeted by illegal telemarketers. AARP and its partners
turned the criminals' own tactics against them, and created the
nation's first reverse boiler room, called ``Operation Unload.''
This activity was a joint effort with attorneys general from 30
states where volunteers called more than 2,000 people nationwide,
advising them that their names had been found on ``mooch'' lists seized
from fraudulent telemarketers.
Ninety-four percent of the potential victims we reached stayed on
the line to listen as a volunteer shared information informing them
about telemarketing fraud, and almost sixty percent (58 percent) of the
people we spoke with asked us to send follow-up information.
Based on the positive response to ``Operation Unload,'' AARP
created a reverse boiler room replication manual. The manual is a step-
by-step guide to planning and executing a reverse boiler room, with a
sample script, answers to frequently asked questions, a research
summary and more. The association has distributed more than 400 copies
of this manual to law enforcement agencies including the FBI, Attorneys
General, and aging and consumer protection agencies. The manual has
been well-received, and widely used by AARP volunteers and partners
like the attorneys general and local law enforcement.
Since December 1996, AARP and other volunteers have organized a
dozen reverse boiler rooms nationwide and delivered warnings to more
than 8,600 potential victims.
In November 1997, the U.S.-Canada Working Group on cross-border
telemarketing fraud issued a report to President Clinton and Canadian
Prime Minister Jean Chretien. The report states that ``victims are
chosen for certain characteristics, especially age.'' The working group
noted that persons who have already been victimized are at the greatest
risk of being victimized again. Offenders re-use and sell victim
information, and target a victim repeatedly until all his or her assets
are gone.
The report details the financial, psychological and physical
effects of telemarketing fraud on older victims and their families, and
provides concrete recommendations for further action by government and
the private sector.
AARP was gratified to find that the working group identified
reverse boiler rooms as one of two ``success stories'' in the fight
against telemarketing fraud.
In the coming year we plan to:
--Continue our efforts with our partners, the Department of Justice,
the FBI, the Attorneys General, the U.S. Postal Inspection
Service, local law enforcement and the Administration on Aging
and state units on aging to create and implement consumer
education programs;
--Fortify our message that telemarketing fraud is a crime, with
suggestions on how to plan ahead to respond to fraudulent
calls, and spread that message through public service
announcements and editorial coverage;
--Implement the recommendations of the U.S.-Canada Working Group on
telemarketing fraud;
--Assist the National Association of Attorneys General (NAAG) with a
Department of Justice-funded training initiative focusing on
prosecution and investigation of telemarketing fraud aimed at
older consumers;
--Support volunteers working for legislation and regulations that
align with acceptable telemarketing standards;
--Support litigation related to telemarketing fraud; and
--Finally, we will educate volunteers to present fraud fighter
training in their communities.
Mr. Chairman, AARP encourages this committee to consider the
importance of the other ``success story'' cited by the working group--
telephone hotlines. Presently, government and privately-funded hotlines
answer consumer questions and provide critical information to those who
have been harmed by telemarketing scams. At the same time, they gather
complaints to be used in investigations and enforcement. Educators can
use the voluntary information gathered by hotlines to refine materials
and program activities.
Hotlines are the best source of information on emerging new scams
and telemarketing pitches and provide an enormous service to both
individual consumers and to the fraud-fighting agencies that help them.
We believe an even-greater benefit would be realized by increasing
the funding for 1-800 Hotlines. Additional resources could be used to
provide and enhance training, expand staff, and provide needed computer
equipment for law-enforcement agencies who lack access to complaint
databases. A well-funded, centralized hotline for complaint handling
and data-gathering offers consumers a rapid, one-call response to
questions and complaints. It would also permit states with limited
consumer protection funds to concentrate spending on enforcement and
coordination with other states, and would facilitate more efficient
prosecutions. Fraudulent telemarketers by nature are mobile and
chameleon-like. A well-organized complaint response and data collection
center would be a powerful tool for consumers and enforcement alike.
AARP also recommends adequate funding to achieve a greater
saturation of consumer education materials and programs into
geographically and ethnically diverse communities. This can be
accomplished through partnerships with government aging organizations
and consumer advocacy groups.
A number of agencies have worked hard on this issue and received
extensive press coverage over the last two years. However, there is a
continuing need for a consistent, large-scale education campaign to
warn potential victims about this crime.
Early last year, AARP conducted its second annual survey of persons
age 50 and above to investigate their perceptions and responses to
fraudulent telemarketing. The survey, involving over 900 respondents,
found several important changes from the preceding year in some areas,
and uncovered a number of positive trends.
For example, those surveyed reported that they received
significantly fewer telemarketing calls in 1997 than the year before.
This survey will be repeated later this year.
Mr. Chairman, AARP is encouraged by the positive trends in consumer
understanding and behavior indicated in our research. We also applaud
the attention telemarketing fraud is receiving at various levels of
government, and are pleased to see the detailed recommendations of the
U.S.-Canada Working Group.
On behalf of AARP, I thank you for the opportunity to provide the
committee with background and recommendations on this critical issue
that impacts so many Americans--particular older Americans--so
severely.
We look forward to continuing our partnerships on consumer
education and advocacy, cross-border fraud, and other emerging issues
for years to come, and appreciate your Committee's continued support of
this important endeavor.
I look forward to responding to your questions.
Senator Gregg. I have a question for you, Mr. Maroney. One
of the big issues here is how we deal with this interstate,
intracountry issue, and we have got the Canadian attempt going
forward. What specifically should the Congress do in this area?
Is there any specific legislation the Congress needs to pursue?
Mr. Maroney. I don't think I am prepared to suggest
specific legislation to you at the moment, except to sort of
reiterate my prior comments that the toughest issue out there
is the seizure of assets across a border. If there is no crime,
for example, taking place in Canada and if the telemarketer is
not at the same time preying on Canadian citizens, but is only
using Quebec City or Montreal, in New Hampshire's experience,
as a locus to call in, then we may need some assistance,
possibly not in the form of legislation itself, but in the form
of negotiation of treaty protocols and passage of those treaty
protocols by the Senate to permit us an easier and more
efficient access to the civil seizure process or the criminal
seizure process in a foreign jurisdiction.
In addition, one of the recommendations of the cross-border
working group is to look at the issue of whether and to what
extent persons actually convicted of some form of telemarketing
fraud may be denied access to the use of international
instrumentalities such as either telephone or to some extent
international wire transfer. That is a tall order and which I
suspect requires a heck of lot more thought and analysis at the
operational level before we could make that recommendation in
terms of legislation. But those are areas that I think need to
be looked at very hard.
Let me just take my hat off for a moment to local law
enforcement, too, which is that quite apart from legislation at
the Senate level, a lot of the cross-border stuff that we see
in our border States can be dealt with through cooperation with
local law enforcement as well. That money goes to drop boxes in
the first instance. It is not necessarily being sent to Canada
and it is not necessarily being wired to Canada.
Checks and cash are being sent to drop boxes in Manchester,
in Plattsburgh, NY, and in the northeast kingdom in Vermont.
Partnerships with local law enforcement--this is something that
we need to do at the State and local level to identify the drop
box places and do just plain old-fashioned good police work to
close those down. That is also a major part of this process.
Senator Gregg. Ms. Boosalis, on the 1-800 number issue,
does the AARP have an 800 number in this area?
Ms. Boosalis. Not in this area.
Senator Gregg. Is there one? I know the FTC has some
structure, and we can hear this from Mr. Pitofsky, but I was
wondering, is there an 800 number that addresses this issue?
Ms. Boosalis. Yes; the National Consumer Fraud Center in
Washington, as I understand it, has an 800 number that people
can call. And then, of course, all the attorneys general, as
you heard, have their own numbers at the State level that
people can call. People are encouraged, but so often they
aren't sure where it is they should call. So if there is one
national 800 number with enough funding to support it that they
can call, it will not only help the individual, but help us
accumulate the kind of information we need to be able to fight
this effectively.
Senator Gregg. Senator Hollings.
Senator Hollings. Ms. Boosalis, let me commend you. I heard
about the problem from the attorney general in the first
testimony. It seems you have given the best solution, and that
is trying to educate, trying to inform--``don't fall for a
telephone line,'' recommending additional funding for the 1-800
hotlines and everything else like that.
The reason I say this is because certainly at this
particular point here in the Congress, the big complaint we get
is that you folks are just up there politicking; you are
federalizing every State crime in the world. We have judges
coming out of our ears. The budget, Chairman Gregg and I know,
has gone up in 10 years on Justice Department from $4 billion
to $19 billion. Everyone wants to cut the size of Government,
but we are enlarging it in this particular area every day.
And we just can't catch up with the old admonition of P.T.
Barnum that a fool is born every minute, and yet it is a
serious problem. So I think that, as with drugs, in my opinion,
you can't build enough jails to hold all the drug offenders.
You have got to educate them. No one is smoking in here today.
When I started 30 years ago, everybody up at the rostrum here
would have an ashtray, putting out a cigarette. Education is
going to have to be a big part of the solution, so I commend
the AARP for their efforts to educate. I have to defend the
AARP on the floor of the Senate from time to time, and this
will give me a good case where you are just not asking for more
money for senior citizens or Social Security, but actually
really making a wonderful contribution to society.
Detective Phillips, thank you very much. I am impressed
with your testimony. Let me ask, is this just a singular case
in the Charleston area, in my own hometown, or are there
multiple cases of this kind that come to your attention?
Mr. Phillips. Sir, at this time, multiple cases have
recently occurred here in the last 3 or 4 weeks. These type of
scams occur periodically and they will hit for a month, month-
and-a-half's time, where they use up their victims and they go
on to another State or another part of the State.
Senator Hollings. And as you indicate, you can't get the
information from the distant telephone company or data base, or
they won't honor the subpoena or otherwise are rather tardy in
getting you the information and everything else. So it is very
difficult to prosecute, is that right?
Mr. Phillips. Yes, sir; it certainly is.
Senator Hollings. Talking about education, what about
education in our own backyard, South Carolina? Is the AARP down
there cooperating, or other consumer groups? What is the
situation from your experience?
Mr. Phillips. I know that from time to time--and it seems
to be very infrequent, in my opinion, though it is mostly
around Christmas--you will see commercials on TV from the
Governor's office talking about being alert for scams and
different telephone marketing crimes. But I honestly do not see
the effort being put forth through the media, or definitely at
least through promotional campaigns to let the community know.
I know, on our part, what we try to do, especially as in
this case--and we think it prevented more victims--was as soon
as we found out about it, we let the media know about it, and
the newspaper, and the local news channels did let the
community know.
Senator Hollings. They did put it on?
Mr. Phillips. Yes, sir.
Senator Hollings. I know I have seen it myself back home on
the weekends, and so forth. Well, I really commend you. I think
that perhaps we are going to have to get a more severe penalty.
You mentioned, General Maroney--and I do agree that you are
the best appointment Governor Gregg ever made.
Mr. Maroney. There are many in New Hampshire who would
dispute you on that one.
Senator Hollings. But right to the point, in your testimony
you have summed up the entire case. Now, what would you do?
Suppose you were a Senator. What would you do about it?
Mr. Maroney. I think I would unquestionably support the
imposition of enhanced penalties for persons who prey on the
elderly and for persons who prey on the elderly from outside of
the country. I think that is a short and easy fix for some of
the problems, and ultimately you can't be putting people in
jail as a way to make them stop and as a potential deterrent.
Any piece of legislation, I suppose, has a certain--there
is a certain law of unintended consequences, and I suspect that
the enhanced penalties of the Telecommunications Act of 1994
and 1995 probably did have the unintended consequence of
sending a lot of these folks up to Canada just to escape those
enhanced penalties in the first place. I think there is some
real virtue to sending a signal to those people that that
tactic in and of itself isn't going to work and that those
enhanced penalties are going to follow them.
Senator Hollings. Well, I would agree with you. I heard you
say Senator Kyl, and it could be that we haven't been able to
find a bill introduced by Senator Kyl on the computer system,
but we have a bill of Congressman Goodlatte, who put it in and
revised it upwards with even increased penalties as of November
this past year. I am going to contact him and coordinate with
him and coordinate with our chairman here to put in a similar
bill here on the Senate side, particularly with the Canadian
problem, because you folks live with that right up there.
Mr. Maroney. That is a real issue. I appreciate your
attention to it.
Senator Hollings. We have not provided for that particular
problem and we have got to get together with the Canadian
authorities and work more closely on it. We have got to do
something to get around this $50,000 bond. Like you said, it
would take your budget to handle one case, and they will run
you out of office if you take on one case with your entire
budget just on fraud, because the general public attitude is
the expression I used of Barnum. Wait a minute, we have got
drugs, we have got serious crime, we have got this, we have got
that, and if people can't pick up the telephone and have sense
and give away their money, we have got serious crime in this
country. And that is the public attitude, and we are not going
to provide for the attorney general or the detectives or law
enforcement. The public realize they contribute to the hotlines
and the AARP because that is the valid, very economical way to
get at this particular problem. I think they will do that. But
you won't see too much more money to chase after telephone
crime and fraud. They will put more money to get the drugs and
serious crime and everything else. That has been my experience.
Thank you very much, Mr. Chairman.
Mr. Maroney. I will just say that with the money that folks
have got so far, the Federal agencies and NAAG have created a
pretty effective partnership at this point.
Senator Hollings. Is that databank that the Federal Trade
Commission has good now?
Mr. Maroney. Consumer Sentinel is really just up in the
last month or two.
Senator Hollings. Just up in the last month?
Mr. Maroney. As an Internet site. I mean, they have had an
existing law enforcement data base available to law enforcement
officers for several years now. But Consumer Sentinel is just
up and it is, (a) beautiful; (b) relatively easy to use; (c) it
is easy Internet access to a host of information about--a data
base on criminals and victims, and it is good.
Senator Hollings. We should enhance it. I mean, that is
economical. We can afford that.
Mr. Maroney. Yes; and that kind of centralized stuff is
enormously useful.
Senator Hollings. Ms. Boosalis.
Ms. Boosalis. I just want to say that just mentioning
Internet, when you consider the potential that is there for
fraud--it is already there, but the future potential for fraud
on that, it is even more important to recognize the value of
educating people of how to protect themselves against that kind
of fraud before it gets to that point.
Senator Hollings. We have had two cases of ongoing fraud on
the Internet already with Dallas and the Wall Street Journal
here in the last 48 hours.
Thank you, Mr. Chairman.
Senator Gregg. Well, I think we have gotten some excellent
information from this panel, and basically the need for public
education is critical. This issue of teaching people to just
hang up their phone when they get a request which seems a
little out of sorts is absolutely essential, and the need to
address stiffer penalties for people who are committing these
crimes outside the United States and making sure that we have
the adequate protocols to work with our neighboring States and
other countries is something we want to follow up on.
I am sure that our next speaker is very happy to hear your
assessment of their efforts, and so we will turn to the next
panel here, and we thank this panel for their time and for
especially coming up from South Carolina and down from New
Hampshire and out from Nebraska.
Ms. Boosalis. Yes, Lincoln, NE.
Senator Gregg. All right. Well, thank you very much.
Mr. Maroney. Thank you very much, Senators.
Senator Hollings. Thank you.
FEDERAL TRADE COMMISSION
STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN
ACCOMPANIED BY HUGHES STEVENSON, DIVISION OF MARKETING PRACTICES
Senator Gregg. Our next witness--and I appreciate his
willingness to participate--is Chairman Pitofsky of the Federal
Trade Commission [FTC]. I was going to say it is tough to have
to sit for an hour or so, but in this case you got great
praise, so it could have passed rather easily. Obviously, the
FTC is the lead agency on this whole issue of consumer crime,
but specifically on telemarketing issues that are really the
focus of this hearing, and how it affects especially the
elderly. So we look forward to hearing your comments, Mr.
Chairman.
Mr. Pitofsky. Thank you, Mr. Chairman. I am delighted to be
here. I want to compliment you, Senator Hollings, and other
members of the committee for holding hearings on this important
subject which sometimes doesn't get as much attention as it
should, and that is marketing fraud, and particularly marketing
fraud as it applies to the elderly.
prepared statement
With your permission, what I would like to do is submit the
Commission's testimony for the record and summarize it briefly.
Senator Gregg. Of course.
[The statement follows:]
Prepared Statement of Robert Pitofsky
I am Robert Pitofsky, Chairman of the Federal Trade Commission. I
am pleased to appear before you today to present information about the
Commission's activities with regard to fraudulent marketing practices,
especially those that affect the elderly.\1\ The Federal Trade
Commission is the primary federal consumer protection agency, with
wide-ranging responsibilities over nearly all segments of the economy.
In pursuing its mandate of protecting consumers, the Commission
enforces the Federal Trade Commission Act,\2\ which broadly prohibits
unfair or deceptive acts and practices, as well as more than twenty
other consumer protection statutes \3\ and thirty regulations \4\ that
address such matters as consumer credit, telemarketing, and the sale of
funeral goods and services. Combating fraud has been a top priority in
fulfilling that mandate for over a decade. In particular, the
Commission has committed significant resources to the war against
telemarketing fraud--a type of fraud that frequently victimizes the
elderly.
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\1\ The views expressed in this statement represent the views of
the Commission. However, my oral testimony and responses to questions
are my own and do not necessarily reflect the Commission's views or the
views of any other Commissioner.
\2\ 15 U.S.C. Sec. Sec. 41 et seq.
\3\ E.g. the Truth in Lending Act, 15 U.S.C. Sec. Sec. 1601 et
seq., which mandates disclosures of credit terms; the Fair Credit
Billing Act, 15 U.S.C. Sec. Sec. 1666 et seq., which provides for the
correction of billing errors on credit accounts; the Fair Credit
Reporting Act, 15 U.S.C. Sec. Sec. 1681 et seq., which establishes
rights with respect to consumer credit reports; and the Magnuson-Moss
Warranty Act, 15 U.S.C. Sec. Sec. 2301 et seq., which provides
disclosure standards for consumer product warranties; and the
Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C.
Sec. Sec. 6101-08, which authorizes the Commission to promulgate rules
defining and prohibiting deceptive telemarketing practices and other
abusive telemarketing practices.
\4\ E.g. the Telemarketing Sales Rule, 16 C.F.R. Part 310, which
defines and prohibits deceptive telemarketing practices and other
abusive telemarketing practices; the Care Labeling Rule, 16 C.F.R. Part
423, which requires the provision of care instructions for wearing
apparel; the Franchise Rule, 16 C.F.R. Part 436, which requires the
provision of information to prospective franchisees; the Mail and
Telephone Order Merchandise Rule, 16 C.F.R. Part 435, which gives
consumers certain rights when ordering products through the mail; and
the Funeral Rule, 16 C.F.R. Part 453, which regulates certain pricing
and sales practices by funeral providers.
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Fraudulent marketing schemes change over time, but they share one
thing in common: they all involve the use of deceptive or unfair
practices to separate consumers from their money. Many fraudulent
operations use the telephone as the primary means of communicating with
their victims. Estimates of losses specifically caused by fraudulent
telemarketers range from at least $3 billion to as much as $40 billion
annually. The Commission's law enforcement experience shows that
telemarketing fraud victimizes consumers of all ages, levels of income,
and backgrounds. The elderly, however, are disproportionately
represented among victims of telemarketing fraud, and in some scams, 80
percent or more of the victims are 65 or older. The elderly often are
the deliberate targets of fraudulent telemarketers who take advantage
of the fact that many older people have cash reserves or other assets
to spend on seemingly attractive offers. Older Americans seem
especially susceptible to fraudulent offers for prize promotions and
lottery clubs, charitable solicitations, and investment offers.\5\
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\5\ Recent survey research conducted on behalf of the American
Association of Retired Persons (``AARP'') shows that there is no ready
answer explaining why a disproportionate number of telemarketing fraud
victims are elderly. The research rebuts the notion that the elderly
are vulnerable because they are socially isolated, ill-informed, or
confused. The survey shows, however, that older people who fall for
telemarketing scams tend to believe the pitches they hear--that they
have a good chance of actually winning the grand prize, and that the
products touted are worth the price charged for them. Ninety percent of
respondents report awareness of consumer fraud; yet two-thirds said it
is hard to spot fraud when it is happening. The survey also shows that
elderly victims find it difficult to terminate telephone conversations,
even when they say they are not interested in continuing a
conversation. They are also reluctant to seek advice or assistance from
others about financial matters in general.
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Sections 5 and 13(b) of the Federal Trade Commission Act \6\
provide the Commission with several important tools to combat various
types of marketing fraud. These provisions authorize the Commission to
file civil actions by its own attorneys in federal district court and
to seek an immediate halt to illegal activity. The Commission also
seeks to obtain restitution for injured consumers, if possible; if not,
disgorgement to the U.S. Treasury of defendants' ill-gotten monies.
Typically, the Commission seeks an ex parte temporary restraining
order, asset freeze and the appointment of a receiver to halt ongoing
fraudulent activities and preserve assets for consumer redress. This
extraordinary relief is appropriate to immediately halt fraudulent
telemarketing or other fraudulent schemes. Every year the Commission
uses these law enforcement activities to prevent hundreds of millions
of dollars in fraud losses, and in the past five years, has collected
over $37 million on judgments for consumer redress or disgorgement to
the Treasury.
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\6\ 15 U.S.C. Sec. Sec. 53(b) and 57b.
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In 1994, Congress passed the Telemarketing and Consumer Fraud and
Abuse Prevention Act (the ``Telemarketing Act''), giving the Commission
additional authority specifically to attack telemarketing fraud. At
Congress' direction, the Commission promulgated the Telemarketing Sales
Rule, which became effective on December 31, 1995. The Rule defines and
prohibits deceptive telemarketing practices and prohibits other abusive
telemarketing practices.
One very important feature of the Telemarketing Act is that it
permits a joint federal-state telemarketing enforcement strategy by
enabling state Attorneys General to go into federal court to enforce
the Telemarketing Sales Rule, to halt fraudulent schemes through
nationwide injunctions against companies or individuals that violate
the Rule, and to obtain restitution for injury caused to the residents
of their states by the Rule violations. This grant of authority to the
states has provided the Commission with an enormous opportunity to
coordinate and leverage federal law enforcement resources with the
states for maximum effect.
The Commission, working with its counterparts on the state level
and its sister federal agencies, has developed a strategy of law
enforcement ``sweeps,'' in which multiple, simultaneous actions are
filed all across the country against companies and individuals engaged
in a particular type of fraud. 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.
Since 1996, just after the Telemarketing Sales Rule went into
effect, the Commission has led twenty cooperative law enforcement
efforts focused upon the most prevalent types of fraud, including fraud
that targets older consumers. These sweeps comprised a total of over
730 federal and state actions, including 112 cases brought by the
Commission. I will describe some of these sweeps more specifically, as
I discuss common varieties of marketing fraud.
deceptive prize promotions and lottery clubs
One type of telemarketing fraud in which the victims are
disproportionately elderly is the deceptive prize promotion. Typically,
the consumer receives a call or mail solicitation enthusiastically
congratulating him or her on having been selected to receive a valuable
award--often described as thousands in cash, a car, a vacation, or
jewelry. However, there is a ``catch'' that requires the consumer to
send payment, often by an overnight courier service, in order to
receive the prize. Then, although the consumer sends the payment as
instructed, he or she does not receive the promised valuable prize. If
the consumer receives any award at all, it is generally an item of
little or no value, such as inexpensive costume jewelry or a travel
certificate that requires huge outlays of cash to redeem. Losses per
consumer for telemarketed prize promotions generally range from a few
hundred dollars to thousands of dollars. In some instances, consumers
have lost their entire life savings to such scams. While prize
promotion telemarketers often ask for only a small amount initially, in
a process referred to as ``reloading,'' phone crooks request ever
increasing amounts from consumers, promising ever more valuable awards.
Once marked as receptive to this type of scam, a consumer often is
bombarded nonstop with similar fraudulent offers from a host of scam
artists.
Prize and sweepstakes promotions generate more consumer complaints
in the Commission's complaint database than any other type of
telemarketing. Accordingly, fraudulent prize promotions have been a
frequent target of Commission enforcement efforts. The largest such
effort, named ``Project Jackpot,'' was carried out in July 1996. This
Commission-led joint federal and state law enforcement sweep included
56 enforcement actions against 79 defendants in 17 states, all aimed
against alleged fraudulent prize promotions.\7\
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\7\ The eight cases the Commission brought in connection with
Operation Jackpot have all concluded and have resulted in the
defendants paying more than $550,000 in consumer redress or
disgorgement to the U.S. Treasury.
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Prize promotions are not conducted exclusively through the
telephone. In many cases, direct mail is used to capture the attention
of the consumer. The Commission has taken action against several direct
mail prize promoters, and recently joined other agencies in ``Project
Mailbox,'' announced in October 1997. Project Mailbox included all
types of fraudulent direct mail solicitations, but many of the actions
targeted prize promotions. Project Mailbox involved the combined
efforts of the FTC, the U.S. Postal Service, and 25 state Attorneys
General and local law enforcers, resulting in a total of 190 actions.
In an emerging fraud, which is essentially a variation on the prize
promotion scheme, telemarketers call consumers offering to sell them
memberships in lottery clubs. Telemarketers mislead consumers into
believing that by ``pooling their resources'' through such a club, they
will enhance their chances of winning big payouts from various
government-run lotteries around the world. The Commission recently
brought two actions targeting lottery schemes, both of which involved
Canadian telemarketers, highlighting the growing problem of cross-
border fraud, which I will subsequently discuss more fully.\8\
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\8\ FTC v. Woofter Investment Corp. et al., CV-S-97-00515-LDG(RLH)
(D. Nev. filed April 24, 1997) and FTC v. Pacific Rim Pools
International, C97-1748R (W.D. Wash. filed Nov. 7, 1997).
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telefunders or bogus charities
Another type of telemarketing fraud, sometimes referred to as
fraudulent ``telefunding,'' targets consumers, often older citizens,
willing to donate money to charitable causes.\9\ Fraudulent
telefunders, often employing prize promotions, either raise money for
bogus charities, misrepresent the amount of donations that go to a
bona-fide charity, or make other material misrepresentations about how
the donor's money will be used. The Commission has brought several
actions attacking alleged telefunding fraud.\10\ ``Operation False
Alarm,'' a major law enforcement sweep launched in April 1997 and
including five FTC cases and 52 state enforcement actions, targeted
telemarketers who allegedly misrepresent that consumers' donations
would be given to a police fund or other local civic organization.
Agencies from all 50 states joined this effort, either by bringing
actions or participating in a related public education initiative.
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\9\ The Commission examined demographic data on the victims of five
telefunding operations the Commission sued in 1994 and found that out
of 143 consumers interviewed, 85 percent were at least 65 years of age.
\10\ See FTC v. Leon Saja, d/b/a Southwest Publishing, Civil Action
No. CIV 97-0666 PHX sm (D. Ariz. filed March 31, 1997); FTC v. The
Baylis Co., Civil. No. 94-0017-S-LMB (D. Idaho filed Jan. 10, 1994);
FTC v. NCH, Inc., Civil No. CV-S-94-00138-LDG (LRL) (D. Nev. filed Feb.
14, 1994); FTC v. International Charity Consultants, Civil No. CV-S-94-
00195-DWH (LRL) (D. Nev. filed Mar. 1, 1994); FTC v. United Holdings
Group, Inc. (D. Nev. 1994); FTC v. Voices for Freedom, Civil No. 91-
1542-A (E.D. Va. filed Oct. 21, 1991).
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investment fraud
Investment fraud is yet another category of telemarketing scam
which often affects elderly consumers. Telemarketers promise consumers
huge returns on a low-risk investment. Investment fraud involves high
individual losses per consumer, generally ranging in the thousands to
tens of thousands of dollars. Some elderly consumers may lose their
entire life savings to a single telemarketer. The Commission has
brought dozens of cases against investment fraud, covering many
different types of purported investments, from gemstones to FCC
licenses.
A recent wave in investment fraud centers around ``high-tech''
scams. In January 1996, the Commission together with the North American
Securities Administrators Association (``NASAA'') initiated ``Operation
Roadblock,'' a joint federal/state sweep against alleged investment
scams involving 900-numbers, and paging licenses. The FTC joined 20
state agencies to bring a total of 85 actions. A subsequent sweep in
July 1997, ``Project Field of Schemes,'' also centered around alleged
``high tech'' investment schemes, many of which involved the Internet
or were promoted on it. The alleged scams included purported
investments in Internet ``shopping malls,'' gambling cruise ships,
stamps, Internet pyramid schemes, movie productions and gold, among
other things. In Project Field of Schemes, the FTC joined with NASAA,
securities regulators in 21 states, the Securities and Exchange
Commission, and the Commodity Futures Trading Commission to bring 61
law enforcement actions.
business opportunity fraud
Many consumers--particularly recent retirees or workers who have
lost their jobs through corporate downsizing--are attracted to
advertisements touting opportunities for individuals to operate their
own small businesses or to work from home. In many cases, these
business opportunities involve distributing products or services
through vending machines or retail display racks. Would-be
entrepreneurs responding to these advertisements are connected to a
telemarketer, who glowingly describes the opportunity and the amount of
money that can be made by following the company's business plan. To
clinch the sale, the telemarketer often provides the consumer with the
names and telephone numbers of other people who have purportedly
purchased the business opportunity and from whom the consumer can
receive a supposedly objective opinion. In fact, these purported
purchasers are ``singers''--individuals who are paid by the
telemarketer to lie about the success of the business venture. After
the consumer pays anywhere from hundreds to tens of thousand of dollars
to become a distributor or to receive the business plan, he or she
learns that the revenue projections of the telemarketer were highly
inflated and that the only people who make money through the business
opportunity are the telemarketers themselves.
Every year, the Commission brings numerous cases against purveyors
of fraudulent business opportunities. In fact, the Commission's first
major coordinated law enforcement initiative against fraud, ``Project
Telesweep,'' targeted such operations. Project Telesweep, launched in
July 1995, used the combined efforts of the FTC, the U.S. Department of
Justice, and several states to bring nearly 100 actions against alleged
fraudulent business opportunities. The project was so successful that
it served as a template for future telemarketing sweeps. In a follow-up
enforcement effort, ``Operation Missed Fortune,'' which was made public
in November 1996, the Commission joined 25 state agencies in bringing
75 actions in a broad-based attack against schemes involving allegedly
fraudulent multi-level marketing, business opportunities, and work-at-
home plans.\11\
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\11\ A number of the Commission's cases sought injunctions against
the defendants' failure to comply with the Commission's Franchise Rule,
16 C.F.R. Part 436, which reduces fraud by requiring sellers of
franchises and business opportunities to provide prospective purchasers
with disclosures covering 20 specified material topics, including the
names and addresses of current and former owners of the franchise or
business opportunity.
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recovery scams
``Recovery'' scams once plagued older consumers,\12\ but this type
of scam now appears almost to have vanished, due to aggressive
enforcement efforts and tighter regulations.\13\ Recovery scams were
particularly egregious because they re-victimized consumers who had
already fallen prey to one or more earlier scams. In a recovery scam
pitch, the fraud operator offered to help the consumer obtain prizes
promised in an earlier scam or to recover money lost in an earlier
scam. After paying the fee for the recovery, the consumer never again
heard from the recovery scammer--no refund, no prize, just the loss of
more money. In some cases, the recovery scam operation was run by the
very same individuals who previously defrauded the consumer. Losses per
consumer victimized by recovery rooms ranged from a few hundred dollars
to thousands of dollars.
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\12\ In its investigation of one recovery room case, SCAT,
Commission staff interviewed 43 consumers who were allegedly victimized
or approached by SCAT telemarketers. Of these individuals, 81 percent
were at least 65 years of age; 47 percent were at least 75; and 23
percent were at least 80. Similar percentages have been found in other
recovery room cases.
\13\ The Telemarketing Sales Rule expressly prohibits telemarketers
from requesting or accepting payment for ``recovery'' services until 7
business days after the promised goods, services, or cash have been
recovered and delivered to the consumer. 16 C.F.R. Sec. 310.4(a)(3).
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Since the fall of 1994, the Commission has brought eight cases
against fraudulent recovery scam artists.\14\ These enforcement
actions, combined with provisions in the Telemarketing Sales Rule
tailored specifically to prevent this type of fraud, have led to a
dramatic drop in the number of consumer complaints. The Commission's
consumer complaint database shows that complaints about recovery scams
plunged by 95 percent from their high point in 1995 to their current
low level.
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\14\ FTC v. Telecommunications Protection Agency, Inc., No. CIV-96-
344-5 (E.D. Okla. filed July 24, 1996); FTC v. Desert Financial Group,
Inc., No. CV-S-95-0151-LDG (D. Nev. filed Dec. 5, 1995); FTC v.
Meridian Capital Corp., No. CV-S-96-00063-PMP (D. Nev., transferred to
D. Nev. Jan. 23, 1996, originally filed in D.D.C Aug 17, 1995); FTC v.
USM Corp., No. CV-S-95-0668-LDG (D. Nev. filed July 12, 1995); FTC v.
PFR, No. CV-S-95-000745-HDM (D. Nev. filed Jan. 25, 1995); FTC v.
Thadow, Inc., No. CV-S-95-00074-PMP (D. Nev. filed Jan. 25, 1995); FTC
v. United Consumer Services, No. 1:94-CV-3164-CAM (N.D. Ga. filed Nov.
30, 1994); FTC v. Richard Canicatti, d/b/a Refund Information Services,
CV-S-No. 94-859-HDM (D. Nev. filed Oct 11, 1994).
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the internet
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.
The Internet's promise of substantial consumer benefits is,
however, 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.
The Commission believes it is important to address Internet fraud
now, and in a manner that does not discourage legitimate commercial
growth by undermining consumer confidence in the Internet as a safe
mode of commerce. 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 dressed up in high-tech garb.\15\ Some scams, however,
exploit what can be done only on the Internet. For example, in FTC v.
Audiotex Connection, Inc., CV-97 0726 (DRH) (E.D.N.Y. filed Feb. 2,
1997), the Commission challenged a scheme that allegedly hijacked
consumers' computer modems by surreptitiously disconnecting them from
their local Internet service provider (such as AOL) and reconnecting
them to the Internet through a high-priced international modem
connection, purportedly going to Moldova but actually terminating in
Canada. On various Internet sites, the defendants offered access to
free computer images through a special ``viewer'' program. If a
consumer downloaded and activated the viewer software, the alleged
hijacking automatically ensued, and an international long-distance call
(and the charges for it) continued until the consumer turned off the
computer--even if he or she left defendants' sites and moved elsewhere
on the Internet, or left the Internet entirely to use a different
computer program.
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\15\ E.g. Alleged pyramid scam: FTC v. Nia Cano d/b/a Credit
Development Int., et al., No. 97-7947 IH (AJWx) (C.D. Cal. filed Oct.
29, 1997). Alleged credit repair scams: FTC v. Corzine, No. CIV-S-94-
1446 (E.D. Cal. filed Sept. 12, 1994); FTC v. Consumer Credit
Advocates, No. 96 Civ. 1990 (S.D.N.Y. filed Mar. 19, 1996); Martha
Clark, d/b/a Simplex Services, Docket No. C-3667 (consent order, June
10, 1996); Bryan Coryat, d/b/a Enterprising Solution, Docket No. C-3666
(consent order, June 10, 1996); Lyle R. Larson, d/b/a Momentum, Docket
No. C-3672 (consent order, June 12, 1996); Rick A. Rehem, d/b/a NBC
Credit Resource Publishing, Docket No. C-3671 (consent order, June 12,
1996). Alleged business opportunity scams: FTC v. Intellicom Services,
Inc., No. 97-4572 TJH (Mcx)(C.D. Cal. filed June 23, 1997); FTC v.
Chappie (Infinity Multimedia), No. 96-6671-CIV-Gonzalez (S.D. Fla.
filed June 24, 1996); Timothy R. Bean, d/b/a D.C. Publishing Group,
Docket No. C-3665 (consent order, June 10, 1996); Robert Surveys, d/b/a
Excel Communications, Docket No. C-3669 (consent order, June 12, 1996);
Sherman G. Smith, d/b/a Starr Communications, Docket No. C-3668
(consent order, June 12, 1996). Alleged deceptive cash grant matching
service: Randolf D. Alberton, d/b/a Wolverine Capital, Docket No. C-
3670 (consent order, June 12, 1996). Alleged deceptive advertising of
health product: Global World Media Corp. and Sean Shayan, Docket No. C-
3772 (consent order, Oct. 9, 1997). Alleged misrepresentations about
product characteristics: Zygon International, Inc., Docket No. C-3686
(consent order, Sept. 24, 1996). Alleged non-delivery of ordered
merchandise: FTC v. Brandzel, 96 C. 1440 (N.D. III. filed Mar. 13,
1996).
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Commission staff were first alerted to this scheme by security
experts at AT&T. The United States Secret Service assisted staff in
ascertaining how the viewer software worked, and AT&T lent further
assistance in tracing the software back to specific web sites. With
this help, the Commission's staff completed its investigation, filed a
complaint, and obtained an ex parte temporary restraining order and
asset freeze against the defendants within just 31 days of learning
about the alleged scam. The lawsuit was recently resolved by entry of a
stipulated permanent injunction against the main defendants named in
the Commission's complaint and the issuance of a virtually identical
administrative order against additional parties found to have played a
role in the alleged scam. Under the two orders, the defendants and
administrative respondents are barred from engaging in the alleged
unlawful practices, and over 38,000 consumers should receive full
redress worth an estimated $2.74 million.\16\
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\16\ The Commission would like to acknowledge the assistance of
AT&T and MCI in administering the redress program. AT&T and MCI will
distribute refunds to most consumers in the form of telephone credits
on their long-distance telephone bills.
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additional approaches to combating fraud
Assisting Criminal Authorities
The Commission also combats telemarketing fraud by providing
substantial resources to enforcement efforts coordinated by criminal
authorities. Recently, the FTC contributed eight attorneys to the
Chattanooga, Tennessee Telemarketing Fraud Task Force. Chattanooga had
become a leading center of fraudulent telemarketing activity,
particularly prize promotions. The overwhelming majority of the victims
of the Chattanooga operations were elderly. The FTC attorneys were
cross-designated as Special Assistant U.S. Attorneys and brought
criminal actions against telemarketers operating in the area. By the
end of 1996, the Chattanooga Task Force largely had completed its work.
The Task Force obtained fifty convictions and combined prison sentences
against fraudulent telemarketers totaling over 1,695 months and
restitution orders in excess of $35 million.\17\
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\17\ In recognition of the FTC's contributions, the U.S. Department
of Justice honored the FTC attorneys with its John Marshall Award for
inter-agency cooperation in support of litigation in 1996.
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The FTC also contributed resources to Operation Senior Sentinel,
announced in December 1995, which, with over 400 arrests in 14 states,
was the largest criminal crackdown ever on telemarketing fraud. This
enforcement effort was led by the U.S. Department of Justice and
focused specifically on telemarketing scams targeting older Americans.
Estimates indicate that nearly 80 percent of the victims in the
underlying prize promotion and recovery room cases included in Senior
Sentinel were older people. The FTC contributed valuable consumer
complaint information to Senior Sentinel through the Telemarketing
Complaint System,\18\ and also filed five civil cases in federal
district court--four against alleged fraudulent prize promotions and
the fifth against an alleged recovery room.
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\18\ The Telemarketing Complaint System is a database of consumer
complaint information that the FTC maintains in cooperation with the
National Association of Attorneys General. The database is available to
many law enforcement agencies and it a very valuable tool in
identifying fraudulent telemarketing operations.
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Treasury Collection
In many cases involving fraud, the Commission receives judgments
against the defendants and it attempts to collect on these judgments
with the goal of returning money to injured consumers. Collection is
often difficult because, in many cases, the defendants do not have
identifiable assets subject to execution. The Commission recently began
working with the U.S. Treasury for assistance in collecting judgments
owed to the Commission. The Commission was the first agency to refer
its uncollected judgments to Treasury's Financial Management Services
Division, which will use its collection expertise to aggressively
collect for consumers amounts owed by fraudulent telemarketers. In
cases where Treasury is unable to collect after diligent effort, it
will report to the Internal Revenue Service that the uncollected debt
should be treated as income to the defendant, subject to taxation. The
Treasury's collection program should assist the Commission in obtaining
additional money to refund to consumers.
Improved Information Gathering and Sharing; Cross-Border Cooperation
The Commission is aware that telemarketing fraud is becoming a
global problem. In particular, we have in particular seen a rise in
Canadian-based telemarketers targeting U.S. victims, often elderly
ones, and U.S. telemarketers targeting Canadians. The Commission has
been tackling this problem on several fronts, in cooperation with other
U.S. and Canadian law enforcement agencies. In 1996, the Commission co-
sponsored two conferences on cross-border fraud and established a task
force on cross-border fraud with Industry Canada, the Canadian
government agency whose function is roughly analogous to that of the
Commission. In 1996, the Commission also brought its first enforcement
actions against Canadian telemarketers, one as part of an enforcement
sweep against alleged advance fee loan scams \19\ and another as part
of an enforcement sweep against alleged fraudulent prize
promotions.\20\
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\19\ FTC v. Ideal Credit Referral Services Ltd. et al., C96-0874R
(W.D. Wash. 1996).
\20\ FTC v. 9013-0980 Quebec Inc., d.b.a. Incentives Int'l, 1:96 CV
1567 ID. Ohio 1996).
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In 1997, we followed up with further enforcement actions involving
cross-border activity.\21\ We also continued our cooperative law
enforcement efforts as part of the United States-Canada Working Group
on Telemarketing Fraud. This Working Group, established at the
direction of President Clinton and Canadian Prime Minister Chretien as
a result of their April 1997 meetings, produced a report in November
1997 outlining the key elements of a bi-national strategy to fight
cross-border fraud. We continue to work with our U.S. and Canadian law
enforcement partners to act on this blueprint for addressing legal
issues, consumer education, information sharing, and coordination.
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\21\ FTC v. Pacific Rim Pools International, C97-1748R (W.D. Wash.
1997); FTC v. The Tracker Corporation of America, No. 97-CV-2654-JEC
(N.D. Ga. 1997).
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Consumer Sentinel and the Consumer Response Center
The Commission has been particularly active on the information-
sharing front. Last month, we announced to fellow law enforcers the
launching of Consumer Sentinel, a database of consumer complaints and
various other useful information now available to law enforcement
personnel through a secure, password-protected site on the Internet.
This is a joint project of the National Association of Attorneys
General (``NAAG'') and the Federal Trade Commission, in cooperation
with the Canadian partners ``Phonebusters'' and ``Canshare,'' \22\ and
builds on the existing NAAG-FTC Telemarketing Complaint System. The
Commission has voted to expand this information-sharing project to
include Canadian law enforcers as well. We are pleased that the Ontario
Provincial Police has already signed up as the first Canadian member of
this network.
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\22\ ``Phonebusters'' is a national Canadian task force, supported
by various governmental and private entities, that collects consumer
complaint information through an 888 toll-free number. Its website is
at ``www.gov.on.ca/Phonebusters/index/htm.'' ``Canshare'' is a joint
project of Industry Canada and the provincial governments to share
consumer protection information.
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We are also working hard to improve the job we do in using the
valuable information that consumers give us about telemarketing and
other frauds. Last year, we created the FTC Consumer Response Center to
streamline our handling of consumer complaints and inquiries. As a
result, we are able to respond more promptly and helpfully to consumer
inquiries, whether by phone, mail, or e-mail. We have also redesigned
our computer databases so we can capture and use more of the
information consumers provide us about suspect telemarketers. With this
system, which is completely integrated with the Consumer Sentinel
database, we can better share and use telemarketing complaint
information, both with our own staff and with other law enforcement
agencies.
Cooperative Efforts with Older Consumers
The Commission and other law enforcement agencies have taken
advantage of the fact that many older consumers are eager to help
combat fraud. In an effort that began several years ago with the
Federal Bureau of Investigation and several state Attorneys General,
many older consumers, whose names had found their way onto lists used
by fraudulent telemarketers, have agreed to tape record telemarketing
calls they receive or to turn over their old telephone numbers so that
undercover investigators can tape the telemarketers' pitches. When a
law enforcement agency receives a tape of a telemarketer, the agency
notes that a tape of the encounter is available and shares that
information with other law enforcers through a program known as the
National Tape Library. The Commission and other law enforcement
agencies have used these tapes very effectively in law enforcement
actions because they are often very incriminating and capture precisely
the misrepresentations made by the telemarketer. Through the
Commission's Consumer Sentinel database, the index of the National Tape
Library is now accessible by means of the Internet to authorized law
enforcement agencies, making it significantly easier for consumer
protection agencies to learn of and share this incredibly valuable
evidence.
In a similar effort to enlist older consumers in the fight against
fraud, the Commission has joined with other law enforcers and AARP to
form a public/private strike force to collect and review direct mail
for future law enforcement purposes. Volunteers have agreed to send
suspicious or fraudulent direct mail offers to AARP, where information
about the offers will be entered into a database shared with law
enforcement authorities.
consumer education
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.
Consumer education is important because a well-informed, alert
consumer can avoid falling prey to many types of telemarketing con
artists. It is important for older consumers to know their rights and
to assert those rights when dealing with companies over the telephone.
They should feel comfortable hanging up on any offer that sounds too
good to be true.
The Commission's consumer education publications advise that it is
an unlawful practice for a telemarketer to call a consumer who has
indicated that he or she does not wish to receive calls from the
selling organization. Our publications advise that if a consumer does
not wish to receive subsequent calls from a particular company, the
consumer should let those wishes be known by asking to be placed on the
company's ``do-not-call'' list. The Commission's consumer education
materials further inform that by law telemarketers that call consumers
must disclose the seller's identity and that the purpose of the call is
to sell goods or services. The materials state that consumers should be
extremely wary whenever they receive a call from a telemarketer who
does not promptly disclose this information.
One theme that is stressed in our consumer education materials is
that consumers should hang up on any telemarketer who tells them that
they need to send in payment to receive an award or to participate in a
prize promotion. The Commission attempts to get the message to
consumers that they do not have to pay to play. Another important theme
is that consumers should never divulge their credit card numbers or
checking account numbers over the phone unless they have agreed to make
a purchase and they understand the terms of the purchase. The only
reason a company ever needs a consumer's credit card or checking
account number is to bill the consumer for the purchase. Also, the
Commission's consumer education materials note that whenever possible,
consumers may wish to make purchases by credit card so that they will
have the protections afforded to such transactions by federal law. If
the company fails to deliver goods or services paid for by credit card,
the consumer is entitled to dispute the charge with the organization
that issued his or her credit card, which is obligated to conduct an
investigation of the consumer's complaint. Depending upon the result of
that investigation, the consumer may be eligible for a credit or refund
of the purchase price.
Another important point stressed in the Commission's consumer
education materials is that consumers should be on the alert for high-
pressure tactics or demands from a telemarketer for an immediate
purchasing decision. Our materials also advise consumers to consider
carefully any offer, to review any written materials, and to seek out
advice from family or friends before making an expensive purchase.
If consumers are interested in reducing the number of solicitations
they receive in the mail or by telephone, they may wish to contact the
Direct Marketing Association (``DMA''), a private trade association
that voluntarily maintains and supplies to its members lists of
consumers who have indicated they do not wish to receive solicitations.
Not all direct marketers use the DMA list to screen out consumers.
Therefore, contacting DMA will not eliminate the receipt of mail and
telephone solicitations, but it may help reduce the volume. The DMA's
address is available via the Internet on the Commission's web site or
through the Commission's Consumer Response Center.
The Federal Trade Commission or the state Attorneys General are the
places consumers can contact if they lose money to a company engaged in
fraud or even if they receive a solicitation which they believe is
misleading or suspicious. While the Commission does not intervene in
individual disputes, consumer complaints provide vital information that
the Commission uses in developing its enforcement agenda and in
determining whether a particular company is engaged in a pattern of
deceptive practices or fraud, making it a suitable target for legal
action.
conclusion
The Commission's fraud program is of special interest and
importance to this country's senior citizens, because the elderly often
find themselves victimized by such operations. 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.
Mr. Pitofsky. As you know, the FTC is the primary agency at
the Federal level authorized to challenge fraud and deception.
We do so under section 5 of the Federal Trade Commission Act,
and also we have been authorized by Congress to enforce about
20 other statutes mainly relating to credit practices, credit
reporting, and other behavior that can affect consumers in the
marketplace.
In recent years, we have paid special attention to various
forms of marketing fraud, especially telemarketing, but also
the new but growing trend toward fraud on the Internet. Victims
of these frauds are of all ages, income levels, and background,
but the elderly, perhaps because they have accumulated some
money during a lifetime, perhaps for other reasons, are
particular targets of this kind of fraud.
I have seen estimates that telemarketing fraud victimizes
consumers to the tune of up to $40 billion a year. We are not
talking about small potatoes here by any means. And I should
say that the Federal Trade Commission was immensely aided in
its enforcement efforts in 1994 when Congress enacted the
Telemarketing and Consumer Fraud and Abuse Act and authorized
the FTC to adopt a rule which defined and prohibited particular
types of telemarketing fraud. An unusual and critically
important element of that statute was the idea that the
Commission would establish the rules, but then the Commission
or State AG's could go into Federal court and enforce that
rule. That has turned out to be an extraordinarily successful
initiative and led to productive Federal-State partnerships in
challenging telemarketing fraud.
Since 1996, we have brought over 100 cases attacking the
most prevalent kinds of these frauds. We often do so in the
form of sweeps. That is a strategy in which Federal and State
authorities bring multiple simultaneous actions against
particular kinds of fraud. In the last 2 years, there have been
something like 20 sweeps and a total of 730 Federal and State
enforcement actions. Among the sweeps that we have challenged
most aggressively are prizes and sweepstakes promotions. Those
seem to rise to the No. 1 spot in fraud year after year. Bogus
charities, where the charity doesn't exist at all or the claim
is the money is being contributed to some local charity, but
the money never gets there. I must confess that I have been a
victim of that particular kind of fraud more than once.
Investment and business opportunity frauds, the so-called
get-rich-quick schemes, which I think target the elderly
disproportionately, and recovery scams, which I think in some
ways is the most pernicious of these kinds of frauds. What
these people do is obtain a list of previous victims and then
they call the victim up and say, ``We are ready to bring a
class action on your behalf to get the money back from your
first fraud.'' And, of course, what they are doing is
revictimizing the same people all over again.
Some of these frauds are astonishingly raw. There is one I
heard about--we didn't bring the case because it was filed
criminally--in which a group of telemarketers got hold of a
list of people with early Alzheimer's problems and would call
these folks up and say, ``Where is the check? You forgot to
send us a check.'' And they would collect money from these
people. Now, that was prosecuted criminally, as it should have
been.
For all the virtues of the Internet as the technology of
the future, we also want to ensure that it doesn't become the
hottest arena for garden-type frauds that I have just
mentioned. We don't want people to get the idea that the intent
is the unregulated frontier and anything goes there. So far,
just in the last year or so, we have brought 25 cases involving
fraud on the Internet, trying to nip these trends as early as
possible, and mostly these are garden-variety frauds that have
just migrated over to the Internet.
Let me mention briefly what we do when we decide to bring
an action. It is usually in Federal court, and typically what
we will try to do is obtain a temporary restraining order, get
an asset freeze immediately, and induce the court to appoint a
receiver. As far as the remedies are concerned, our principal
remedy is to try to put these people out of business, to ban
their activities, and we have been very successful on that
score.
Another priority is to try to get the money back for the
people who have been defrauded. We have had some success in
that area. Over the last several years, we have managed to
retrieve $37 million and restored it to consumers. But I must
tell you, in all candor, most of the time, dealing with people
like this, by the time we catch up with them, the money is gone
and restitution is very difficult to achieve. I, therefore,
believe that increasingly, in the more blatant types of these
frauds, we should turn to criminal enforcement and that is what
we have been doing. An outstanding example of that was a task
force put together in Chattanooga about 1\1/2\ years ago in
which we participated along with State and Federal criminal
authorities, and that task force alone obtained 50 convictions.
Enforcement is not enough. I have heard several of the
witnesses and you gentlemen say that in the long run, we have
to think about consumer education, and I agree with that. I
agree with that not just because it restrains the growth of
Government, but because in the long run consumers can protect
their own interests, if they understand about these frauds,
better than the Government can do coming along later on.
We have initiated a partnership for consumer education with
something like 90 corporations, trade groups, consumer
organizations, and other Federal agencies. I think we have
reached some success in raising the sensitivity of people to
the existence of these kinds of frauds, but we have a long way
to go. It is also critical that consumers know that they have a
place to complain. In that connection, we set up recently a
Consumer Response Center at the agency and we now process
something like 3,000 consumer complaints per week at the FTC.
Finally, there has been a reference to Consumer Sentinel. I
think when these complaints come in, it is important that they
go into a data base available to other enforcement authorities.
The information is critical in identifying trends in fraud,
targeting resources, knowing where we are and who the people
are who are conducting these frauds. Just 1 month ago, the FTC,
along with the National Association of State Attorneys General,
set up something we call Consumer Sentinel. That is a data base
which incorporates a great deal of the kind of information that
I have described. And with your permission, Hughes Stevenson,
who is an Assistant Director in our Division of Marketing
Practices, is here and I would like to take a few minutes, if I
can, to demonstrate this new Consumer Sentinel project.
Senator Gregg. Well, we would certainly like to see it. We
have heard some good things about it.
Mr. Stevenson. Thank you. Consumer Sentinel, which Mr.
Maroney had also referred to in his testimony, is a multiagency
project. This is something that was developed as part of the
United States-Canada Working Group on Telemarketing and Cross-
Border Fraud that was set up last year and that the earlier
witnesses referred to.
The aim of this project and of the forerunner NAAG-FTC
project is to build a law enforcement network infrastructure
for law enforcers to share information about consumer fraud.
The data for this network comes in from several sources in the
United States, and now Canada, including the FTC's Consumer
Response Center. The data goes out to law enforcers through a
secure Internet web site.
[The information follows:]
Consumer Sentinel Binational Telemarketing Network
Home
cooperative united states-canada effort
Consumer Sentinel is a joint project of the National Association of
Attorneys General and the United States Federal Trade Commission, in
cooperation with CanShare and PhoneBusters. The goal of this
telemarketing enforcement initiative is to share consumer protection
information among law enforcers throughout the United States and
Canada.
Access to this secure website is restricted to law enforcement
personnel whose agencies have executed a confidentiality agreement and
who have registered for site access with the Federal Trade Commission.
The About page describes in greater detail the databases and
features of Consumer Sentinel.
Talk to Us. Your questions and comments are welcome.
[GRAPHIC] [TIFF OMITTED] T11FE05.002
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[GRAPHIC] [TIFF OMITTED] T11FE05.006
Contacts
List of Member Organizations that have executed a confidentiality
agreement.
List of Individual Users.
List of agencies and personnel interested in pursuing cross-border
fraud.
List of Video Conferencing Facilities.
Publications
FraudBusters, a newsletter by and for the users of the Consumer
Sentinel.
NAAG Telemarketing Bulletin, a bi-monthly publication including
items on state and federal telemarketing fraud laws, lore, news,
initiatives, and trends.
FTC Consumerline, consumer publications on a variety of issues from
the FTC Office of Consumer and Business Education.
U.S. Consumer Gateway, consumer information and links organized
into categories covering food, health, product safety, your money, and
transportation.
Cross-Border Fraud Report of the United States-Canada Working Group
on Telemarketing Fraud.
We welcome your suggestions for additional publications. Talk to
us.
Mr. Stevenson. Now, this is what the web sites looks like.
This is the home page of the web site. The real, live data is
just now up on the Internet. It is password-protected,
encrypted, and the access to it is limited to law enforcers.
What this site provides is the ability to jump-start a
telemarketing investigation and to coordinate that
investigation with the many other cops on this particular
enforcement beat.
Now, what in country terms can you do here? Let us imagine
that you are investigating a company called Millions 4 Nothing
and you are a New Hampshire AAG or FBI agent or postal
inspector. The first thing you can do is search for consumer
complaints. You can search a data base of 100,000 consumer
complaints. You can search by location, by subject matter, by
various other criteria, and in our simulation here we are
showing a search by the name of the company on the live site.
The search would typically take 5, 10 seconds, and what it
comes back with is a summary of the information that is
available on the site. You click on the company name for each
of those complaints and you get all the details that have been
entered. What this gives investigators and attorneys is a road
map, a list of potential witnesses, of potential victims. And
then once you have got your witness list, you can go to the
tapes functionality and you can search here an index of more
than 11,000 undercover tape recordings. These are tapes when
victims such as the ones that Mr. Maroney described have been
repeatedly hit, forward their calls to law enforcers who pose
as victims and tape the sales pitch. This can be devastating
evidence--in fact, has been devastating evidence in a lot of
criminal and civil injunction matters.
Then once you have got your tapes and your witness list,
you can send out an alert to the other law enforcers online and
say, for example, ``I am investigating Millions 4 Nothing,'' or
``I am investigating the sales reps involved,'' or any other
information you want to share with the other people online. You
can also search the other alerts that have been entered. Has
anybody else expressed an interest in this company, in this
kind of practice, or what have you?
Well, now let us suppose that Millions 4 Nothing is located
in Edmonton, Alberta, and if you are an AAG, you don't have
much cause to know the law enforcement in Edmonton, Alberta.
Indeed, Mr. Maroney suggested the problems of making a quick
contact with somebody in Texas. What you can do here is go to
the contact lists and find helpful people where the company is
located or where the drop box is located, and what have you,
and the relevant law enforcement organizations and take that
information so you have someone on the ground where the company
is located.
Well, now let us further suppose that Millions 4 Nothing
involves a kind of fraud you have never investigated before,
never prosecuted before, you haven't dealt with. You can go to
the publications page here and search a variety of newsletters
and consumer bulletins and other material that describe the
various kinds of fraud, describe the various steps that other
people have taken. For example, you can look at FraudBusters,
which is the Consumer Sentinel newsletter, and in that you find
articles written by attorneys and investigators from a variety
of law enforcement agencies and other organizations on the
various trends in fraud and the kinds of steps, enforcement
sweeps and that kind of thing, that people have taken to combat
that.
So, basically, what you have gotten is you have got the
makings of a case, the beginnings of a case. You have got a way
to coordinate the investigation of that case and the
prosecution of that case. And you have gotten that not in weeks
and not after dozens of phone calls, but you have gotten that
in hours, maybe even a matter of minutes. And what this means
as a bottom line is that the con-artist's basic game plan of
staying one step ahead of law enforcement just got harder.
Thank you.
Senator Gregg. Thank you. That is effective and up and
running now?
Mr. Stevenson. Yes, it is, and we are just in the process
of getting the individual users hooked up. We have a
predecessor NAAG-FTC system where we had it already hooked up,
hundreds of users, and we are moving toward this system which
is more data, more user friendly, and it is up and running now.
Senator Gregg. You say it is limited to passwords. Wouldn't
the first thing that a really sophisticated telemarketing scam
person would do is to break into the system?
Mr. Stevenson. They might try to do that, and for that
reason we took extra pains to develop not just a password-
protected system, but an encryption-protected system. We are
using encryption software that one has to obtain from us in
order to access the system. So we have that double check to
prevent just the kind of thing that you are talking about.
Senator Gregg. But, of course, to make it successful, you
have to make it broadly available. So how do you adjust to
those two competing interests?
Mr. Stevenson. Well, with today's technology, it is
possible to use this kind of software and deliver it to the
people we have identified--for example, our existing users, the
several hundred existing users--and get the instructions for
getting the software to them, so that the process is not that
elaborate and yet it is a firewall against the kind of
intrusion that we have to worry about from telemarketers.
Senator Gregg. Now, Mr. Maroney has said this is a great
boon to the effort. So do you need anything from this committee
to make it even more successful?
Mr. Pitofsky. I don't think so, Senator. It is not an
expensive proposition. It is just imagination and good work by
the staff here. It has only been up for 1 month. I think we
ought to let it run. It is very promising and let us see how it
works out.
Senator Gregg. We talked a little bit with Ms. Boosalis
about the 800 number issue. You don't have an 800 number at
FTC, do you?
Mr. Pitofsky. We do not.
Senator Gregg. Do you have the capacity to handle an 800
number? Where should this 800 number--should you have one,
should the consumer group have one, should AARP have one, or
should there be one central----
Mr. Pitofsky. Well, I certainly think it would be a useful
thing. We have a Consumer Response Center and we are processing
3,000 calls a week, I believe it is, but I think it would be
better if we had an 800 number. It is really a matter of
budget. It is not in our appropriation.
Senator Gregg. What type of resources would you need to
support such a number, and would you do it in conjunction with
the AARP, for example?
Mr. Pitofsky. Well, I would think we would do it in
conjunction with other groups. I am not sure how we would work
it out. I am told by the staff that in the first year, there
would be some startup costs. It would probably run between $2
and $3 million to set up an 800 number. I think it would be a
good investment and in later years, it would be slightly less
costly.
Senator Gregg. Well, it is basically people intensive,
except that now they have all these answering services. But,
still, at some point you have got to talk to a person because
that is the whole concept behind this one especially, right?
Mr. Pitofsky. Exactly.
Senator Gregg. Senator Hollings.
Senator Hollings. Chairman Pitofsky, in addition to the 800
number and in addition to the increased penalties that you have
attested to, is there anything else that we can do? What else
would you have us on this committee do to help you?
Mr. Pitofsky. I don't think there is more to be done with
respect to legislation. I think Congress did what was necessary
when it passed the Telemarketing Regulation Act 2 or 3 years
ago. It is really a matter of our enforcing the law. I don't
think another law is going to solve this problem. I do think
aggressive enforcement, a high level of cooperation between the
States and the Federal Government, which we have now, is
essential. And I think, long term, we have to use our
imagination and resources on consumer education.
One of the reasons we engage in these sweeps is because
they get a higher level of publicity and the newspapers
essentially carry our message that you have to worry about
certain kinds of frauds. We ran a sweep quite recently--it
really doesn't affect the elderly especially--but where the
suggestion over the phone would be that there is scholarship
money just waiting to be claimed by young, poorer people coming
out of high school. Now, as a matter of fact, their list was
obsolete. There was virtually no money there and, of course,
they would ask you for a certain amount of money in order to
obtain access to this list.
What we did is, first of all, we challenged the people who
were engaging in this illegal behavior. We also got in touch
with as many high school career advisers as we possibly could
and let them know that this fraud was in the air. It is a
particularly pernicious fraud because there is money out there;
there is scholarship money out there and young people do need
it. But you have got to deal with reputable people, and I think
we were quite successful in alerting these high school advisers
as to what the problem was.
Senator Hollings. What has been the sentence of those
convicted in your cases, and so forth? I am trying to get a
grasp of this. You have caught me. Now, I get 1 year in jail,
10 years, or don't get a jail sentence or I get probation and a
pat on the back, or what?
Mr. Pitofsky. Well, first of all, let me be clear about
this. We have no criminal enforcement authority, so we are
limited to civil remedies. Criminal enforcement would require
the Department of Justice, or I guess some States could engage
in that.
Senator Hollings. I should have asked the attorney general.
Do you have any idea what the sentence is right now?
Mr. Pitofsky. I don't. I think the sentences are getting
more serious.
Senator Hollings. General Maroney is gone, I guess.
Senator Gregg. No; I think he is sitting back there.
Mr. Maroney. I don't have a really coherent answer to that
across the board. I think the issue is going to depend a great
deal on the amount of money taken in any given situation. You
know, you are going in with a straight felony.
Senator Hollings. Or the recidivist nature; in other words,
running from Maine to New Hampshire to the next State and the
next State.
Mr. Maroney. And they will depend to some extent on whether
it is being brought as a Federal crime under the Federal
sentencing guidelines or whether they are being brought in
State court. And, quite frankly, I suspect--although we have
not brought a pure criminal action in New Hampshire--I suspect
that some level of education is going to be necessary even at
that level to convince our State court judges, who have greater
discretion than some of the Federal court judges may in
sentencing, that we are dealing with a serious crime even if we
are walking in with, as the detective pointed out, a $3,000,
one-time, seemingly small-potatoes penalty. You know, that may
not even be a jail-time penalty at the State level the first
time a court sees it. If you had some recidivism or that kind
of thing, you may be able to jack yourself up into some jail
time, but it is not guaranteed.
Senator Hollings. Thank you, Mr. Chairman.
Senator Gregg. Thank you.
Mr. Pitofsky. Senator Hollings, in the one joint effort on
criminal enforcement, the Chattanooga task force, I am told by
the staff that the average penalty--there were 50 convictions--
the average was 3 to 4 years.
Senator Hollings. Three to 4 years?
Mr. Pitofsky. Yes.
Senator Hollings. Make it longer by far. They don't mind.
Senator Gregg. Well, I thank you, Mr. Chairman. I certainly
recognize that you folks are doing a good job in trying to
address this issue, and we congratulate you for that and the
purpose of this committee is to support you in that. So if you
have ideas or additional initiatives that you want to pursue,
please tell us about them. Our purpose here is to make it very
clear that the Federal Government and the agencies which the
Federal Government is able to bring to bear on the issue of
telemarketing crime and Internet crime and other types of
scams, especially those run against senior citizens, are going
to be addressed aggressively, and we intend to do that. We have
to do it through public relations efforts and obviously through
messages like ``just hang up.'' We have to do it also through
making it clear to the perpetrators that they are at risk.
Certainly, the FTC is aggressively pursuing that course.
We congratulate the State agencies which are playing such a
vital and critical role on this, and certainly thank Mr.
Maroney and Mr. Phillips for coming and testifying today and
reflecting on some of the specific instances, but also some of
the ways that we can try to work better with our neighbors in
Canada and our neighbors in Massachusetts and Maine. In South
Carolina's instance, it appears some problems are occurring in
New York City. So this cross-jurisdictional issue is a major
issue that we also need to focus on and will be focusing on.
But, again, congratulations for the effort the FTC is
putting into this and the AARP is putting into this. Our
purpose is to work with organizations like the AARP and the FTC
and State attorney general offices to make sure that we are
committing the resources necessary and doing the education
necessary to bring people up to speed that there are folks out
there who are abusing the use of the telephone and the use of
the Internet. People have to be on their toes before they start
sending anybody any money as the result of a telephone
conversation or a communication over the Internet.
Thank you very much.
Mr. Pitofsky. Thank you, Senator.
letter submitted from Keene, NH, police department
Senator Gregg. The subcommittee received a letter from
Officer John F. Stewart of the Keene Police Department which
will be inserted in the record at this point.
[The information follows:]
Letter From Officer John F. Stewart, TRIAD Coordinator, Keene Police
Department
February 2, 1998.
Senator Judd Gregg,
C/O Matthew Leahy,
Concord, NH.
Dear Mr. Leahy: I am in receipt of your fax and have forwarded the
information to the Captain of Operations. I will get back to you
tomorrow with an answer as to whether or not I will be able to attend
the hearing. I am enclosing some information that may be of some help
to Senator Gregg. This is some of the information that I would have
presented at the hearing.
As you know in May 1995, the Keene Police Department, in
conjunction with the Cheshire County Sheriff's Department and the
members of the Keene Senior Center, signed a TRIAD Agreement. It was
implemented as an additional program to combat the victimization of the
Senior Citizens here in Cheshire County. Within this TRIAD, there is a
S.A.L.T. Council, which stands for Seniors and Law Enforcement
Together. This S.A.L.T. Council consists of myself, a member of the
Cheshire County Sheriff's Department, and members of the Keene Senior
Center.
We have come a long way since the implementation of this program.
We are now considered a non-profit organization under our parent
organization, the Keene Senior Center. We have received numerous
monetary contributions from local area businesses and private
organizations which has allowed us to provide various services to the
senior citizens of Cheshire County, which otherwise would not have been
possible. For example: we recently purchased 2,500 File of Life,
refrigerator cards which contain pertinent medical information about
senior citizens. If ambulance or emergency personnel are to respond to
a senior citizen's home and find that the individual is unable to
provide medical information, they can now locate this information on
the File of Life refrigerator card, thus saving valuable time.
We have given numerous informational seminars and lectures to
various organizations that deal with elderly citizens and various
senior citizen housing complexes within Cheshire County. These have all
been very well received.
Some of the areas we have focused on are: What the TRIAD Program is
all about, Scams and Frauds, Personal Safety, and Home Security to name
a few.
I have received some very interesting responses from the senior
citizens I have spoken to regarding their views on Scams and Frauds.
Many of the Seniors are familiar with the more familiar scams such as
the Fake Contest used to get their Credit Cards numbers, Bank Account
number, or Social Security numbers, the Roofing Scams, or the City
Inspector Scams, but many are not knowledgeable in the specifics of
each kind and how many of each there actually are.
For example: In my lectures I use the example of the psychic
hotlines that state they are giving free readings for ``X'' amount of
time. Of course the seniors say they realize what those are and say
they would never call them, others have called before.
I explain that you first need to call a 1-800 number and are then
given a 1-900 number to call for the actual reading. Many don't realize
they are now actually calling a 1-900 number and getting charged for
the call. Now scam artists may realize this also and develop a way to
get you to call their 1-900 number by masquerading their scam as a
psychic hotline. They are amazed that this actually happens. Many do
not realize that they get charged for the 1-900 number dialed because
they originally dialed a 1-800 number.
I also inform them that at the time of the actual scam, this is
probably not the first time they have ever been contacted by the scam
artist. Scam artists usually try to get information about their
potential victim prior to the actual scam taking place. This could be
done through mailing lists, the internet and surveys. I explain that
many of the surveys will ask general questions in the beginning of the
survey, such as, ``Do you own a home * * *.'' ``Do you drive a car * *
*.'' ``How far do you drive to work.'' The scam artist will then get
into specific questions like, ``Do you have a checking account * * *.''
``Do you use an ATM machine often * * *.'' ``Do you have a Mastercard
or Visa * * .'' ``Which bank do you bank at * * *.'' The answers to
these questions can tell a lot about a person and their habits. I
always get one or two people that do not think it could happen to them,
but I only ask one or two questions and I have all the information I
need to start my scam on them.
I explain that the first 4 digits of a certain credit card number
is specific to that credit card organization. The numbers 5424 is
specific to Mastercard, 6011 is specific to a Discover Card etc. * * *
I explain that if the scam artist has these 4 numbers they have a third
of your credit card number. The question, ``Where were you born and
raised * * *'' will tell the scam artist the first 3 digits of your
social security card. The question, ``When you were born * * *'' will
give them the necessary info to gather the rest of the number if they
are persistent enough to look for it. I tell them that we now live in
the information age, if someone wants to get your info, all they need
is a small amount of information from you to begin the search.
Another example I use is the charitable scams. I explain that all a
scam artist needs to do is read the obituaries. All the necessary
information they need to have is located there. Who are the living
relatives and where do they live? What the person died from. Where they
lived prior to their death.
I explain that if a loved one recently died of cancer they may
receive a call or a letter from a scam artist stating they are from the
United States Cancer Association looking for contributions for their
charitable organization. The victim, wishing they could have helped
their loved one, feels that maybe by giving to the charity, they will
have done some good. What they do not immediately realize is that the
United States Cancer Association is a fraudulent organization, but
sounds like the legitimate organization called the American Cancer
Society. Many victims have fallen into this trap but never even
realized they had been scammed.
This is a common concern amongst seniors. Many seniors do not know
the fraudulent organizations from the legitimate ones. Many legitimate
organizations mail out pamphlets and brochures telling them about the
specifics of their organizations, but so do scam artists who create
pamphlets and brochures to mimic these organizations. With the use of
computers and software, scam artists can practically duplicate a
pamphlet from a legitimate organization right from their own home.
People who are not familiar with these will be taken.
One way to combat this type of victimization is to pass legislation
that prohibits persons and or organizations to mimic or otherwise try
to pass themselves off as other persons and or organizations, without
first warning the person that they are not associated with any other
organization. For example, The National Football League is a very well
known organization. It would be illegal for an organization called the
National Football Association to solicit money or items from a person
or organization who believed that the National Football Association was
related in some way to the National Football League.
The new legislation would state that ``Any person and/or
organization that tried to solicit funds or other items using a name
similar to that of another person and/or organization, in that a
reasonable person would be lead to believe that the said organization
was actually another, would be illegal, unless said organization stated
either verbally or in writing that it was not associated in any way to
the organization it closely resembled.''
Many law enforcement organizations make informational pamphlets and
brochures that target these specific concerns, but because there are so
many variations to each of these scams, it is impossible to write a
brochure or pamphlet to document all of them.
To combat this problem the Keene TRIAD Program has turned to
personal lectures and informational seminars on the subjects of Scams
and Frauds. By utilizing these types of lectures, seminars as well as
informational pamphlets and brochures, it gives us the opportunity to
answer specific questions from seniors and the ability to pass out
general information at the same time.
We recently had a scam letter going around the Keene area from
Nigeria asking for money to be sent to a specific organization. The
victim needed to send money to this organization in order to receive a
substantial amount of money in return. Realizing this was a scam, the
TRIAD Program placed a copy of the actual letter in the newspaper. As a
result of this, we received numerous phone calls regarding this letter.
With this information, we were able to track the progress of the scam
and the exact locations it was being sent to. I believe that the letter
was unsuccessful in this area as we have not had any complaints
regarding this letter for some time now.
However, there was a ``copy cat'' letter that was similar to the
one sent from Nigeria that we receives several questions on regarding
its legitimacy. Even though the letters were similar in style and
intent, many people felt that since it was not from Nigeria, it may be
a valid letter.
I realize that I am unable to provide you with all of the aspects
of the Keene TRIAD Program and what we have to offer the senior
citizens of Cheshire County in this letter. If you have any questions
regarding the program please feel free to contact me at the Keene
Police Department at 357-9815.
Thank you for your interest in this program and what it has to
offer. It is interest such as yours that keeps programs like this alive
and available to the citizens who need it most.
Sincerely,
Officer John F. Stewart,
TRIAD Coordinator, Keene Police Department.
conclusion of hearing
Senator Gregg. If there is nothing further, the
subcommittee will stand in recess.
[Whereupon, at 11:35 a.m., Tuesday, February 5, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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