Pulling the Plug on Phony Pitches : Fraud: Consumers are bilked out of billions of dollars through telephone scams. Using common sense is the best way to avoid being victimized.


Just get a telephone pitch about a fantastic vacation you’ve won? Before you start packing your suitcase, remember this: If it sounds too good to be true, it probably is.

Although the nation’s consumers spend about $200 billion a year on goods ordered by phone from legitimate companies, they also lose between $1 billion and $10 billion to phone swindlers, the majority of whom are based in Southern California, Nevada and Florida.

Ask Henry Zacharias, a Bay Area solar contractor who lost $220 to telephone fraud, also called “boiler room” scams because they often operate out of warehouses or storefronts.

“The bottom line is, I got conned,” Zacharias said in a telephone interview last week. “Now I don’t buy anything anymore on the phone, even if it is legitimate.”


Recounting his experience, Zacharias said he received a phone call informing him he had won a $2,500 cruise to the Bahamas and two diamond-studded Omega watches worth $500 each. The caller said he would have the watches delivered by Federal Express after receiving a certified check for $220 to cover tax on the watches, Zacharias recalled. Tickets for the cruise package would be sent later, the caller said.

“I told him I thought they should send me the whole package before I paid them, but they talked me into it,” Zacharias said. “I got the watches and had them checked out. They had foil-backed glass that looked like diamond chips. They were worth about $10, and I never heard any more about the cruise.”

Zacharias reported the scam to the state attorney general’s office, which located the con artist in Illinois. Investigators are still trying to help Zacharias and others recover their money, but experts say that isn’t likely.

“Usually we can’t recover the money because they’ve spent it,” investigator Jerry Smilowitz said of phone scam operators. Smilowitz, with the attorney general’s office in Los Angeles, is a member of the Southern California Fraud Task Force, a group of federal, state and local agencies under the auspices of the local Office of the United States Attorney.

Smilowitz said there are two kinds of scams: investment and merchandise. In one of his current cases, a consumer lost $19,000 in a coin scam.

“Most of the high-powered ones--precious metals, coins, off-shore banks--come out of the Newport Beach area. There’s a lot of that going on in Orange County, and some investment schemes (are based) in the Century City area. Culver City and the (San Fernando) Valley have a lot of office supply fraud,” he said.

Fraud experts call office supply scams “toner phoners,” Smilowitz explained, because the caller usually tries to get an office manager to buy cases of toner for the copy machine at inflated prices.

“People just have to exercise common sense,” he said. “A guy calls up somebody in Pennsylvania, for example, and says, ‘We’re selling these leases on a mineral field in Oklahoma because we have this inside information.’ But what investors don’t ask themselves is, ‘If this is so valuable, why are they selling it to me?’ ”

Vacation swindles, Smilowitz said, usually offer some kind of “prize and a vacation for two to Hawaii. But the vacation really is only rooms, and you have to buy the air fare through a specific travel company at inflated fares. We get a million of these,” he said.

Beware, too, of “watch prizes,” he counseled, because they’re usually a cheaper grade of an expensive name brand or fakes, such as the ones Zacharias received.

A recent case involved Lucien Piccard watches, he said. “What people don’t know is that there are two kinds. The European line is expensive, and that’s what they think they’re getting. But there’s an American line worth about $30,” he explained.

California law also requires telemarketing companies to state the odds of winning offered prizes. If they don’t, watch out, experts caution. You may be about to be swindled.

Also be suspicious if a caller offers an item costing $394, $395 or $398. He may simply be trying to avoid prosecution for grand theft, which under California law means $400 or more.

Telephone fraud is “universal,” said Sue Frauens, an attorney who heads the consumer fraud office of the Los Angeles city attorney, “because people are all looking for a bargain, and they all believe it’s out there.”

But if the first thing you hear on the other end of the phone is: “ ‘Congratulations, you’ve just won . . .’ that should put people on notice,” said Frauens.

Consumers who think they’ve been victimized should contact authorities immediately. “Con artists go in and out of state like a wave. They’ll do a quick solicitation in an area for 30 days and split. If people call early, we or the police department may be able to see a fraud pattern building up before they’re gone.”

The top 10 scams in the country, according to a recent study by the Washington-based National Consumers League, which operates the Alliance Against Fraud in Telemarketing, are: prize offers (vitamins and water purifiers), penny stocks, business-to-business (toner phoners and paper pirates), magazine subscriptions, credit repair (schemes to get you out of debt), precious metals (coins and gems), travel, employment (work-at-home offers), business opportunities (franchises, limited partnerships) and art.

Sara Cooper, senior program associate with the National Consumers League, also warned that calling some 900 numbers can cost you money--even if you don’t bite on the scam.

“Indications I’ve gotten are that con artists will increase the use of the 900 numbers in the ‘90s,” Cooper predicted. “A lot of consumers still don’t understand the 800 number is free and the 900 is not,” she continued. “They can be quite expensive, and if they don’t know what that call is costing, they shouldn’t make it. A legitimate company will tell you up front what it is.”

For their part, telephone companies are trying to get the word out about tele-fraud, said Tony Lloyd, executive director of telemarketing services for Pacific Bell. “We’re not all that sure we can stop it from occuring, but it’s our responsibility to educate the public about it.”

Lloyd said Pacific Bell and other phone corporations are working with the National Consumers League to establish a national hot line for telemarking fraud “to serve as a centralized tracking agency and give people advice and referrals to the appropriate agencies.” For most consumers, Lloyd added, “the telephone in the home is a very friendly instrument. People do not look at it as something that can hurt them. But they’ve got to be wary of these crooks. When in doubt, check it out. And always be in doubt.”

If you think you’ve been a victim of telemarketing fraud, contact the following agencies for more information:

California Attorney General’s Office, Public Inquiry Unit, (800) 952-5225.

Los Angeles City Attorney’s Consumer Protection Section, (213) 485-4515.

Los Angeles Police Department, bunko/major fraud, (213) 485-3795.

Los Angeles District Attorney, (213) 974-3971.

Los Angeles County Consumer Affairs, (213) 974-1452.


* If interested in a sales call, ask questions about a company, then request information by mail. If the caller won’t supply it, don’t buy.

* Never send an advance payment or a deposit.

* Never give out credit card numbers unless calling a familiar firm, say, a known catalogue dealer. Never give credit card numbers for “verification” or “identification.”

* Ask what agencies a company must register with. In California, telemarketers, by law, must register with the state attorney general’s office--(213) 736-2457--which can tell consumers if a firm has complied--but not if it has complaints filed against it.

* After receiving sales brochures, check if a firm is listed in the phone book or in directory assistance. Be wary if its only address is a post office box.

* Check with the Better Business Bureau for complaints, but understand that businesses may have none filed against them because they are too new.

* Never give in to pressure sales tactics to buy now. If uninterested, simply hang up.

* Beware if a caller wants to send someone to pick up a payment; these often are criminals who hope to bypass the U.S. Postal Service or to get your money before you change your mind.

* Watch out for mail pitches requiring follow-up phone calls to claim “prizes.” Many are frauds; some are promotions tied to 900 numbers with hefty fees of $2 a minute or more.

* Don’t fall for slick, persuasive or pleasant conversation, especially from out-of-state callers. Remember, criminals prefer to be far away.

* Victimized? Call the authorities immediately. Many consumers wait too long to report tele-fraud firms--which already tend to be fly-by-night operations--making prosecution even tougher.