Telemarketers Hit Jackpot Running Mail Sweepstakes : Drawings: The operations, many based in O.C., are legal, but prizes are usually worth less than price of call.
They arrive in the mail, in official-looking envelopes, bearing promises of riches and exciting awards: “[The recipient] is guaranteed to receive a 1995 Pontiac Grand Am or $15,000 cash!”
Just above that enticing headline, however, is the fine print that thousands of consumers somehow never see or fail to comprehend: “ If you submit the pre-selected grand prize winning number . . . . “
To find out how lucky they are, recipients are told to call a 900 number, which costs $3.98 per minute for an average of seven minutes, giving them a bill of almost $30. At the end of the automated conversation, the “winner” often learns that the prize is only $1.
Such direct-mail and telemarketing gambits have exploded, law enforcement experts say, and have yet to exploit their next frontier: cyberspace. But even in their current form, such mailbox temptations are proliferating throughout North America, with law enforcement agencies cracking down on so-called “boiler-room” operations, especially in Orange County.
Even through the mail, such schemes are scoring a fortune off consumers. Americans now lose more than $40 billion a year to direct-mail enticements because they neglect to read the fine print, want something for nothing or simply don’t know their rights, according to Polly Baca, director of U.S. Consumer Affairs and special assistant to the President.
Irvine resident Eugene R. Cox, 80, was a willing player for years in hopes of supplementing his retirement income. As a former salesman living in a mobile home, Cox decided a year and a half ago to wage an all-out campaign to win big in direct-mail sweepstakes competitions.
Eighteen months later, he estimates having spent about $900 on dozens of contests and, in return, has received “a $2 check, which I returned, a whole bunch of junk--stupid little trinkets, really, all from foreign countries--and a battery-powered can opener that has yet to open a single damn can!”
What Cox and many Southland residents don’t know is that numerous sweepstakes drawings spread east and north from Southern California--specifically Irvine, the headquarters of Direct American Marketers Inc., which the California attorney general’s office calls the largest business in the country using 900 telephone numbers as the method of informing “winners” what they’ve won.
Company officials refuse to disclose their sales figures but say they mail out between 100 million and 200 million offerings a year and that 60% of those who respond do so by calling the 900 number rather than sending a postcard--which costs only as much as a stamp. Direct American Marketers defines its “market” as all 50 states plus Canada.
The state attorney general’s office has sued Direct American Marketers--or DAMI, as it calls itself--on two occasions, ending up with a court order that forced the company to sharpen the language of its fine-print disclosure to conform with the law.
DAMI now makes clear, albeit in small type, that postcards are an equally good method of determining a winning prize; that everyone wins something, even if it’s only $1; and that the odds of winning a lavish prize are about 5 million to one.
“We’re doing great,” said Anthony C. Brown, 53, the chief executive officer of the 10-year-old company, “and we are within the boundaries of the law. We’re no different from any business, except that we have a lot to offer a few very lucky customers.”
Said Paul Jessup, an investigator with the Irvine Police Department, whose agency has kept a vigilant watch on DAMI for years: “They’re now conforming with the laws of the state of California only because they’ve managed to fine-line their rules and regulations to make them conform.”
Asked if DAMI is currently being investigated, Albert Shelden, the supervising deputy attorney general of the state’s consumer law section, answered carefully.
“Let’s just say we’re looking at them constantly and always monitoring and reviewing their material,” he said. “I don’t know that you’d call that a full-scale investigation. But it’s not like we don’t know who they are. We’re very familiar.
“We’ve sued them twice, once to force them to make clear that sending a postcard--for free--was just as much of an option as calling that expensive 900 number to find out what you’ve won, and most of the time you win nothing. No more than $1 at best.”
Southern California is home not just to DAMI but to “hundreds” of imitators, Shelden said, all of whom use the ZIP codes of San Clemente, Laguna Niguel and La Jolla as fictional headquarters for prize distribution centers. All of the prizes still emanate from companies such as DAMI, which is housed in an Irvine industrial park.
Shelden calls it one of many tactics to cultivate a client base, which consists predominantly of out-of-state residents, many of whom live in the Farm Belt states of the upper Midwest.
“A number of years ago, Marina del Rey was the big magnet, then it moved into Newport Beach and Irvine,” he said. “La Jolla is a good address. They try to pick places that, in calls to the East and Midwest, sound intriguing, exciting, romantic . . . That’s why none of the mailers are from Santa Fe Springs.”
Since the recession, which hit especially hard in California, more and more “boiler-room” operations, as police often call them, are springing up all over the Southland, particularly Orange County.
Last year alone, county authorities shut down a telemarketing boiler-room operation in Newport Beach that allegedly bilked investors of more than $5 million. Earlier this year, six Orange County men were convicted of defrauding 1,500 mostly elderly people, from all over the country, of more than $15 million.
Brown, the charismatic head of DAMI, concedes that his is a “tarnished industry.” Even so, he said, “This is a fun business, a form of entertainment . . . not just for me but for the consumer. Most of our clients love the competition. There’s so much creativity involved, and for those who do win, it’s thrilling.”
“At one time,” Jessup said, “a stretch of MacArthur Boulevard between Irvine and Newport Beach was known to law enforcement as the ‘Maggot Mile’ because of all the boiler rooms. We’ve cleaned up a lot of it, but DAMI is alive and kicking--and tiptoeing within the bounds of the law.”
Jessup admits that, technically, DAMI’s current practices fall within legal limits. He simply calls it a “moral judgment” that such activities, however legal, “don’t do right by consumers.”
Nevertheless, the direct-mail enterprise is reaping substantial profits, according to both law enforcement officers and company CEO Brown, whose office is resplendent with burnished mahogany, Leroy Neiman originals and ringside photographs of the sport Brown loves--professional boxing.
Brown, who declined to be photographed, made available a list of winners from 1992 through 1994. According to the information, most won no more than $50, with a sprinkling of rare exceptions: A Cleveland Heights, Ohio, woman won $42,000 in 1993; a Cherry Hill, N.J., man won $37,802 in 1993; and a Miami man won $12,500 in 1993.
All were impressive victories, considering the remote odds of winning any DAMI sweepstakes. As per its legal agreement with the attorney general’s office, DAMI is required to list the consumer’s chances of winning. As the small print on the back of one recent mailer notes, the odds of claiming its $10,500 grand prize were 4,998,486 to one.
“We always make sure the consumer gets something of value, even if it’s only a coupon book,” Brown said. “Over half of our customers are repeat customers, and we depend on customer satisfaction.”
Brown insists the company will refund the money of any customer who gets a telephone bill and is upset over how much he or she is being billed in 900 calls to Direct American Marketers.
“Most consumers don’t realize it,” Brown said, “but they don’t even have to pay the 900-number charges on their own bill if they choose not to.”
Which is only partly accurate.
“Under law, you cannot have your local phone service cut off for failure to pay a 900 bill,” Shelden said. “However, the 900 company can sue you. Brown is right about this much, though--Direct American Marketers has evolved to the point where, if they get a complaint from someone, they will give them a refund, and everybody wins at least $1.”
But Jessup, the Irvine investigator, said that failure to pay a 900 charge usually results in the customer not being able to call 900 numbers at any point in the future. His advice on how to handle sweepstakes mailers:
“Throw ‘em in the trash,” he said. “They send out this stuff all the time, making you think you’re a winner, that there’s big money just sitting in the bank for you. Every scam has a different twist to it, and on the face of it, none of it’s true.”
Brown said the fine print doesn’t lie and that, for that matter, DAMI does business no differently from American Express, Visa or anyone else trying to tap the vast and lucrative market of eager consumers--including the California State Lottery, which law enforcement officials say has made life easier for telemarketers and the peddlers of sweepstakes.
In a recent speech, Jim Doyle, the attorney general of Wisconsin, said the public perception of sweepstakes has changed, and he blamed state-sanctioned lotteries for making people receptive.
“The public used to believe that, if your chances were one in a million, that meant you had no chance,” Shelden said. “But because of the plethora of sweepstakes competitions and state lotteries, the public now believes that if their chances are one in a million that must mean, ‘It’s me!’ I think subconsciously a lot of people believe, ‘If it’s OK with the state, well, hey, it must be OK.’ ”
Orange County Deputy Dist. Atty. Bob Gannon, who supervises a consumer fraud unit, said that sweepstakes competitions are sharply on the rise.
“The elderly,” he said, “are exploited in an appalling manner. I’ve seen some of them lose their life savings or retirement funds merely at the whim of a sweepstakes drawing or by giving in to these aggressive telemarketers who exploit these 900 numbers for incredible profits.”
Many companies seek “clients” not in California, but rather in New Jersey, North Carolina, Wisconsin--”any state that gives them a safe distance,” Gannon said. “The more sophisticated purposely target at a distance, knowing the states involved don’t have jurisdiction or the ‘victim’ may not bother to fly to California to seek compensation.”
Gannon said the district attorney’s office is not able to prosecute telemarketers and sweepstakes gurus as aggressively as it once did or would like to. In recent years in particular, the enforcement of boiler-room operations has given way to more serious offenses, such as homicide, rape, burglary and child abuse.
The district attorney’s office, he said, has received complaints about DAMI in the past and that most are turned over to the Irvine Police Department and the state attorney general’s office, “which maintains an active file.”
Part of the creativity for Brown’s staff--which includes a stable of lawyers--is thinking up contests that persuade consumers to indulge an impulse and call that 900 number to see if indeed their name rests atop the ultimate grand prize.
In one competition, consumers received in their mailbox what appeared to be a check for $7,500. In tiny letters in the lower left-hand corner of the check were the words “not valid.” The check came from the Audit Control Bureau of 1 NCC Plaza in Laguna Hills. A post office box was also listed.
The post office box was legitimate, but Brown said that both the Audit Control Bureau and 1 NCC Plaza were fictional creations. The fine print on the back of the rear page noted that all of it came from Direct American Marketers in the 16000 block of Hale Avenue in Irvine.
Another letter, which began, “We are holding a cash award payment for you . . .” came from the Department of Consumer Entitlements at 1 Marquette Plaza in Irvine--again, both are other names for DAMI, a fact Brown confirms, calling it a “legal fiction.”
Still another mailer from DAMI uses threats rather than lures to try to snare the consumer. “STOP PAYMENT ORDER” reads the type on the entry form. “BE ADVISED,” it continues. “If you do not claim your award check before the current period deadline, we will be forced to issue a stop payment order to the disbursements division.”
Cox, the retired trailer-park resident, fully understands such tactics. For him, sweepstakes were nothing more than a painful, expensive lesson.
“You see these headlines that say you’ve got a million dollars coming, and if you’re elderly and need some money, you tend to think, ‘Why not?’ ” said Cox, whose wife now forbids him to play the games. “But then they’re always dangling the carrot, farther and farther away. It’s a super rip-off. What I had to learn was that P.T. Barnum was right--there’s a sucker born every minute.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Only Advice Is Free
If a gift sounds too good to be true, it probably is. Investigators have two simple rules for avoiding scams: Throw away all flyers and mailers and politely hang up on telephone solicitors. Other tactics to avoid questionable prize giveaways:
* Beware of huge returns promised for a small investment.
* Never give money to telephone or door-to-door solicitors without verifying their tax-exempt number, solicitor’s name, business name, phone number and business address.
* Never send cash, check or a money order to solicitors; instead, ask to pick up prize in person.
* Be wary of responding to mailers, especially if they require you to call a 900 number to claim a prize. These numbers usually cost $3 per minute.
* If a prize is to be claimed with an 800 number, beware of punching in a code, as it typically crosses over to a 900 number.
* Read all contractual paperwork carefully; inform solicitor of your intent to have an attorney read all paperwork.
* Be wary of responding to giveaways through on-line computer services such as Prodigy, CompuServe or America Online.
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IF YOU GET STUNG
Here’s what to do:
* Call police to report what happened. Have available any information you have about the solicitor: name, company name, address and phone number, etc.
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To file a complaint, or for more information, contact:
* Orange County district attorney’s office, consumer protection unit: (714) 568-1200
* National Fraud Information Hotline: (800) 876-7060
Sources: Times reports, Irvine Police Department
Researched by APRIL JACKSON / Los Angeles Times
