Scam Victims Get Some Money Back as U.S. Agencies Go After Cheaters

To Alvin Richards of Carmichael, Calif., the offer from Leland Industries seemed to be worth making a $6,000 investment.

At the time, the Interior Department was holding monthly lotteries to award oil and gas leases on some of its land at nominal fees. Anyone could apply, and Leland was offering--for a fee--to help Richards do just that. One of Leland’s high-pressure telephone salesmen told Richards that he was almost sure to be awarded a lease, which he could then sell to an oil company for a lucrative profit.

What Leland did not tell Richards was that there were far fewer lottery winners than applicants. In fact, according to the Federal Trade Commission, Leland filed 42,000 applications with the Interior Department in 1982 alone, but won only 70 leases. Richards was not one of the lucky ones, and he was out his $6,000.

“It was money I could have saved if I hadn’t been conned,” said Richards, 63, a retired Air Force officer who was working in real estate when the salesman for Leland called.

Some Now Get Refunds

Now the government has some good news for Richards and thousands of other people like him. Recently, working through a New York bank, it quietly mailed checks totaling $2.7 million to Richards and his fellow fraud victims.

Richards and others who have verified claims are getting back only about 10% of what they lost, however. “I wish we could have recovered more of the money,” he said, “but we’re probably fortunate to get anything back.”

Years ago, Richards and other targets of schemes such as Leland’s would have had no hope of getting back any of their money. Today, under a special redress program operated by the FTC, they have a chance to recover at least a portion of their losses.

A host of government agencies levies fines against violators of federal laws and regulations, and this money usually goes into the federal Treasury, but a handful of federal agencies actually returns some of the money to the victims.

For example, the Securities and Exchange Commission, which last November charged Wall Street speculator Ivan Boesky with illegal trading on inside information, intends to use $50 million of the allegedly illegal profits--half of the $100-million penalty that Boesky has agreed to pay--to reimburse investors who can demonstrate that they lost the money Boesky gained in his various deals.

Fuel Overcharges Recovered

In the biggest such operation, the Energy Department has already distributed about $4.8 billion of the $5.7 billion it collected to correct oil company overcharges during the period of price controls, from 1973 through 1981. Most of that money has been distributed to states for redistribution to individuals, but claims have also been made by businesses, school districts and other large purchasers of oil.

The FTC has recovered more than $25 million since 1982 in at least 14 actions against fraudulent telephone solicitations--”telemarketing.” These schemes involved not only oil and gas leases but diamonds, rare coins, cellular telephone systems and other valuables. Altogether in that period, it has sued the operators of schemes whose aggregate sales have totaled $590 million and involved 72,000 consumers, and some of those cases are still pending.

“Telemarketing has become a major vehicle for con artists to sell their fraudulent schemes,” said FTC Chairman Daniel Oliver. “Everyone in America who owns a phone is vulnerable.”

Most Money Is Lost

While the commission can recover millions of dollars from fraudulent marketers through court proceedings, the sums rarely exceed 10% to 15% of the total amount invested. Typically, the operators of the scams use most of the investors’ money to run their operations--and to support their own lavish life styles.

“By the time we get our hands on what is left, it’s usually a pretty small amount,” said Michael C. McCarey, associate director for service industry practices in the FTC’s Bureau of Consumer Protection.

Los Angeles-based American National Cellular, which charged $5,000 to prepare applications for cellular licenses being awarded by lottery at the Federal Communications Commission, recently agreed to a settlement with the commission under which the company and two of its officers will refund an estimated $1 million to customers. According to FCC officials, it will probably be a year before the 5,500 investors see any of their money returned.

FTC staff member John A. Crowley said the commission culls the names of bilked investors from the files of the companies and then looks for canceled checks or other proof of amounts invested. This process, Crowley said, often takes many months.

Assets, Properties Lost

Over the years, Crowley said, he has heard myriad sad tales from people who invested their life savings, children’s college funds or business assets. One of the saddest, he said, concerned a woman in her 70s who mortgaged her farm to raise investment capital. After she read a newspaper article describing the operation she had invested in as a scam, she suffered a fatal heart attack. Her four children are trying to pay off the mortgage and keep the farm.

After the commission compiles a list of validated claims and the court approves a distribution plan, the recovered money can be returned. The size of an individual’s reimbursement usually depends on the amount invested.

When the commission recovers money from fraudulent companies, it deposits it in the J. Henry Schroder Bank & Trust Co. in New York.

The interest earned on the account increases the amount of money available to reimburse defrauded investors. In the case of Leland, interest on the $2.2 million recovered by the commission had increased the fund to $2.7 million by the time the checks were sent.