Boiler-Room Operator Faces Civil Suits as Individuals, Banks Try to Recover Losses : The Telephone Script That Went Awry

The phone calls would be placed in the evening to small towns across the country. “Hi (name), this is (salesman) with the Resort Exchange U.S.A. I’m calling to give you some good news . . . can you stand a bit??? (get response). (Name), you still have a current Visa or Mastercard, right??? (If yes, continue. If no, thank you. You don’t qualify, goodbye) . . . Because as a current card holder you’re going to receive one of five awards worth up to $3,000. . . . So congratulations.”

According to the U. S. Department of Justice, that’s how one of the most sophisticated credit card boiler-room scams in California would begin, with salesmen reading from a prepared script to the person who answered the phone.

Laurence Jack Brandon, 58, was the alleged mastermind who operated 21 companies, mostly out of a Hollywood office that was effectively shut down when government agents raided it in January, 1986. The government filed suit against Brandon, claiming that he routinely put through unauthorized credit card charges, leaving behind a paper trail of $1.7 million in bad credit card drafts with 11 banks in five states, including the Bank of Granada Hills, plus other local businesses, including a Tarzana travel agency.

“Brandon is considered one of the premier boiler-room operators in Southern California,” said Richard Small, of the Justice Department’s Los Angeles strike force.

Brandon, who is 6-3 and 240 pounds, has a soothing voice on the telephone. A mention of Small’s name, however, triggers a burst of anger. “Lies and distortions,” Brandon said about the government’s charges in an interview. Brandon said he operated “above board and legal. I’m not saying we had not caught salesmen at different times misrepresenting things. And fired them.”

Four Years in Prison

Whether Brandon was actually a credit card fraud artist, or simply ran a company that sold merchandise that left behind more than a few unhappy customers, his case offers a rare insight into how telemarketing firms use a carefully scripted pitch to net what Brandon calls the “impulse sale.” It also points out the potential peril for banks and businesses that accept large volumes of unsigned credit card drafts.

If the government had a major, crackerjack fraud case against Brandon, however, it never got to trial.

Last May, in an agreement with prosecutors, Brandon pleaded guilty to two counts of a 29-count indictment. The offenses were relatively minor--using illegal long distance telephone access codes pirated from U.S. Sprint. He also pleaded guilty to possession of two guns in his home, which is illegal because he is a convicted felon. He served 15 months in prison during the mid-1960s stemming from a mail fraud case.

Small said the government accepted Brandon’s pleas to save the expense of a lengthy trial. But as part of the plea bargaining, the government asked U.S. District Judge Stephen V. Wilson to order Brandon to repay $1.7 million that prosecutors say Brandon owes the alleged victims. Wilson, however, said the circumstantial evidence wasn’t strong enough to link Brandon with the credit card fraud allegations. That could be dealt with in civil suits, he said. And so, on Oct. 26 Wilson sentenced Brandon to four years in prison.

Brandon must report to prison by Dec. 1, but he isn’t through with the courts. He faces at least eight lawsuits filed in Los Angeles Superior Court by banks and businesses who claim they were stuck with Brandon’s bad credit card drafts. Complainants include Bank of Granada Hills (which claims a loss of $36,000), Bank of Orange County ($261,000), Redwood Bank ($178,000), and Farmers and Merchants Bank ($43,000).

Another who has filed suit against Brandon is Richard Decker, a Northridge resident and former president of the now defunct Travel Management Systems in Tarzana. The company, Decker said, was driven out of business as a result of $125,000 worth of bad credit card charges rung up by Brandon in two months.

In court papers the government said the $1.7 million didn’t “vanish” and tried to produce evidence that Brandon had access to large amounts of cash. Where is it? “We made some attempts to find it. It’s not as easy as it looks on TV,” Small said.

Nonsense, said Brandon. “There was no money taken. Every dime went into the company,” he said.

During his palmier days, Brandon said, his business showed a $180,000 a year profit on $2.5 million in sales. Brandon paid himself $2,500 a week. Now, Brandon says he is broke. He was defended by a court-appointed attorney and his various firms have long since gone bankrupt.

One of the reasons it is hard for Decker to believe Brandon’s claim of poverty is because he remembers Brandon walking around with wads of $100 bills and driving a Rolls-Royce (leased by Brandon’s company). Twice, Decker said, Brandon took him and several others out to expensive French restaurants. Brandon ordered Dom Perignon, Decker recalled, and picked up the tab with a platinum American Express card. Brandon also was a member at Pips, a private backgammon club in Beverly Hills.

“When he gets out I won’t hire a private investigator to find his wealth. It’s too hard to trace if it’s in cash,” Decker said.

In court documents, the government presented samples of the telemarketing scripts that Brandon’s 60 salesmen, often unemployed actors, would use. To get the listener’s attention, his salesmen would immediately say they had won a gift such as an inflatable two-man fishing boat with a motor, movie camera or a six-piece designer luggage set. To qualify, Small alleged, all someone had to do was to provide their credit card number.

Customers also were charged $49 to $59 to cover freight charges for their “gifts,” enabling Brandon to turn a small profit, Small said. The wholesale cost for the plastic boats, including shipping, was $45 each, the luggage set $26, Small said. Brandon put the total, including administrative costs, much higher.

Then Brandon’s salesmen launched into a pitch for a year’s supply of vitamins, priced at $298 and higher, or a Hawaii travel package. Once the salesman elicited a credit card number, the government alleged, Brandon charged customers whether or not they wanted to see Hawaii or eat some vitamins.

Small contends Brandon skillfully took advantage of the 30- to 60-day credit card billing cycle. Brandon would deposit unsigned credit card slips into his company’s credit card bank account. Often they would be credited within 24 hours, and then Brandon would start withdrawing from the account, Small said.

By the time customers got their credit card statement and told their own bank they wouldn’t pay the charge, that bank would then inform Brandon’s bank that the money would not be paid. Brandon’s bank would then charge back Brandon for the loss. Although banks keep a 4%-to-5% reserve of credit card drafts against charge-backs, it wasn’t enough, Small said, because Brandon had already drained the money from his accounts, leaving his banks to eat the loss.

Ready Answers

The salesmen’s script also had answers for the most likely questions that doubtful consumers would ask. For example:

Why do you need my card number? The scripted response was: “This limited promotion is only for major credit card holders, and of course we need to verify your card is not lost, stolen or expired.”

Is your company listed with the Better Business Bureau? The prepared answer read: “The BBB recommends never to buy anything over the phone. Being a travel-oriented business, 99% of our business is over the phone, so it wouldn’t make much sense to pay their annual dues and have them tell our customers not to buy from us, would it?”

For those who complained they had been burned by scams before, the script read: “Unlike a scam, where you’re lucky if you receive anything at all . . . or where you receive a ‘gift’ or a ‘prize’ that costs you more for shipping than it’s worth, these are not boiler-room boobie prizes. These are valuable guaranteed awards.”

Robert Gillum of Mainville, Ohio, didn’t think so. He got a call from one of Brandon’s companies. “They told me I’d won all this stuff,’ Gillum said in an interview. “It was the biggest rip-off I’d ever seen in my life and ended up costing me $375. I got a plastic boat you can buy for $20 and a little old movie camera.”

Robert Bartels of Lincoln Park, N.J., also got a call saying he had won two gifts, and if he ordered some vitamins, he also would win a week’s lodging for two in Hawaii and one free round-trip air ticket. “It sounded very good,” he said.

The vitamins arrived. “I thought they looked old,” Bartels said. He never got his free gifts, even though he paid for shipping costs. To claim his Hawaii vacation package he discovered he had to buy one round-trip ticket from a designated travel company. The price was $1,500, Bartels said--considerably more than it would cost elsewhere.

“This was a big farce,” he said. Bartels and his wife didn’t go to Hawaii.

Peter Reis of Dickinson, N.D., said he heard the pitch about the vitamins and free gift and was told the whole thing would cost him $100. He got a credit card bill for $500. He paid it, grudgingly, but called up the company to say, “It would be the last time you do business with me.” It wasn’t. The next month, Reis said, he was billed again for $500. This time he refused to pay and his bank gave him credit for the unauthorized second charge.

In an interview, Brandon said his customer returns amounted to 8% to 12% of all orders. In court, Brandon’s attorney, Manuel Araujo, said charge-backs were more like 25%. Small claimed it was at least 50%.

Araujo conceded, “There were problems shipping some of these products out. There were some delays.”

Asked about the inflated price of the airline tickets to Hawaii, Brandon said he was selling a package put together by a Hong Kong company. “It wasn’t my program. I sold it for them,” he said. “It was my understanding they got a good deal.”

According to the strike force, Brandon or his associates in an 18-month span converted the credit card charges to cash by opening credit card accounts for a dozen different businesses at 11 banks in five states. All of the banks closed Brandon’s accounts, most because of excessive charge-backs. Brandon then “bank hopped,” Small said, setting up a new account at another bank until he was again closed down.

“I was not running a scamming operation. I did not defraud any banks,” Brandon said. He admits he owes some money to the banks, but he puts much of the blame on another telemarketer who paid Brandon a fee to deposit his credit card drafts into Brandon’s account. Brandon says he lost $360,000 on the arrangement.

No Banks for Brandon

It wasn’t only bankers who came to regret doing business with Brandon.

In mid-1985, Decker had placed an ad to sell his Tarzana travel agency. Brandon answered the ad and struck a deal to buy Travel Management Systems for $100,000. Decker remembers Brandon telling him he needed a travel agency to help put together airline packages. To help pay for the closing costs of the sale, Decker said, Brandon asked him to add Brandon’s company to the agency’s credit card account at Bank of America and with American Express.

It was arranged. In July and August of that year, Brandon put through $250,000 to $300,000 worth of credit card drafts through TMS’s accounts, Decker said, of which $125,000 were charged back to the travel agency.

Brandon disputes the loss amount, adding that Decker’s travel agency misrepresented its finances and mishandled some of the travel packages. “He caused my company a great deal of harm,” Brandon said.

By late 1985, Brandon couldn’t find any banks who would let him open a credit card account. In October, 1985, according to court papers, a businessman introduced Brandon to Ann Keith, who owns Horse & Jockey, a Los Angeles firm that sells tips on horse races. Brandon and Keith struck a deal. She would deposit Brandon’s credit card drafts into her firm’s bank account. In return, Brandon would pay Keith 9% of his credit card drafts, with another 3% set aside to cover any charge-backs, 3% for the bank’s fee and 3% as a finder’s fee to the other businessman.

In January, 1986 Security Pacific froze Keith’s bank account because of excessive credit card charge-backs. Keith said she eventually repaid the bank $248,000 by taking out another mortgage on her home, borrowing from her family and selling jewelry. Keith has filed suit against Brandon in Los Angeles Superior Court, as well as the businessman who introduced her to Brandon.

Keith blames herself for being greedy, she blames Brandon for the rest. “This con man has caused me so much grief,” she said.

Brandon says he doesn’t know how much of Keith’s charge-backs are his because she never presented a detailed breakdown of the bills.

The weight of the high fees he was paying Keith, and others, to deposit his credit card charges, Brandon said, plus harassment by the Secret Service, drove him under. In January, 1986, various businesses Brandon operated filed for Chapter 7 liquidation under the U.S. Bankruptcy Code. Resorts Exchange U.S.A. listed $302 in cash and debts of $119,613. Western Marketing Systems cited $42.87 in cash, office equipment worth $6,161, against $20,391 in overdue federal payroll taxes, and other debts totaling $327,000.

Before being sentenced last week on the long distance telephone codes and gun charges, Brandon tearfully told Judge Wilson about his group therapy sessions.

“I’ve learned I’ve got a character disorder. I’ve got to do bad to do good,” Brandon said. “They’re starting to get through to me.” He said he brought a copy of the government’s sentencing memorandum, which described him a career con man, to his group therapy meeting. He told them, “I want you to realize I’m not a thief. My doctor said, ‘No. You’re half a thief.’ ”