Direct Mail Fraud Targeted in Joint Effort

Taking aim at direct-mail solicitors, the Federal Trade Commission said Wednesday that a strike force of federal and state officials has brought 190 civil or criminal fraud actions against operators of direct-mail schemes, including 10 in California.

The strike force took over an Encino computer repair firm last week, put a five-time felon behind bars in Orange County for misdemeanor fraud, and collected $500,000 from an Irvine firm that used more than 200 business names to collect $100 million from sweepstakes mailings.

The coordinated effort is the first of its kind to attack fraudulent solicitations mailed to consumers nationwide, said Collot Guerard, an FTC attorney coordinating the effort.

Wednesday, officials revealed the formation of the strike force and its operation, which they dubbed Project Mailbox.

“It’s just very, very clear that even though authorities are focusing on telemarketing and Internet fraud, snail mail is as prolific as ever,” Guerard said. “We didn’t want direct mail solicitors to think we weren’t looking at them any more.”

The strike force, consisting of the FTC, the FBI, the Postal Inspection Service, state attorneys general and local authorities, is getting help from 1,500 senior citizens who are turning in suspect mail to the American Assn. of Retired Persons.

“Seniors are the special target for mail and telemarketing con artists,” Wisconsin Atty. Gen. Jim Doyle said in prepared remarks.

They already have helped Wisconsin and other states, as well as the FTC, take down fraudulent telemarketing schemes offering sweepstakes prizes, discounted vacations and time-share sales.

In the actions announced Wednesday, the FTC initiated two, both against Southern California companies.

The agency won a court order last week appointing a receiver to take over the operations of National PC Systems in Encino and freezing the assets of its owner, Jeffrey L. Rayden, and operators.

Calling itself a computer repair service with “1,200 convenience centers located coast to coast,” National PC sent mailings that appeared to be bills for computer service contracts to organizations that had not ordered the services, according to the FTC suit.

Neither Rayden nor his lawyer could be reached for comment.

“Many of those solicited were paid by mistake, and half of them are churches or charitable organizations,” said Joel N. Brewer, an FTC attorney. National PC refused to repay funds once the companies realized they had made mistakes, he said.

In addition, its centers were merely mail drops, he said, and its 20 employees couldn’t handle a nationwide scheme that brought in more than 20,000 responses.

In its other action, the FTC said it has received $500,000 to settle its investigation into Direct American Marketers Inc. in Irvine, which allegedly misled consumers with its direct-mail advertising.

DAMI, using names like Audit Control Bureau and ACG Clearinghouse, had flooded the mailboxes of millions of Americans with fliers, many of them authentic-looking checks marked “Not Valid.”

The company offered prizes to those who dialed its 900 pay-per-call telephone number. Those who didn’t read the small print on the back of one of the enclosures failed to realize that the calls typically cost $30 each.

Some Missouri residents paid up to $400 on calls, according to that state’s civil suit. A judge in July found that DAMI had misled consumers and ordered it to pay $9 million. Instead, a month later, the company filed a bankruptcy petition as it appealed the case.

The FTC said it will file the settlement along with a lawsuit in Bankruptcy Court and U.S. District Court in Los Angeles. As part of the settlement, DAMI closed its sweepstakes operations, and no other federal action is expected.

The company also is a target of lawsuits and investigations in several other states.

In another case, prosecutors in Orange County brought misdemeanor fraud charges against Gregory Allen Sherman of San Diego.

Sherman, who pleaded guilty last summer, blanketed the Southland with about 100,000 fliers from a company he called State Taxation Auditors, said Wendy Brough, a deputy Orange County district attorney.

The fliers looked like property tax bills, she said, and police in Orange intercepted 600 responses, most of them filled with $12 each. Sherman targeted people with Latino surnames, she said, and one of them happened to be a captain on the police force.

Sherman’s lawyer, Donovan Dunnion, said his client pleaded guilty to three misdemeanors to avoid more serious charges, largely because of his criminal past.

Dunnion said the idea of helping homeowners qualify for tax exemptions was legitimate, but he acknowledged that it was ill-advised for Sherman to make his pitch in letters that looked like tax bills.

Postal authorities and several state attorneys general also took civil actions against seven other California direct mailers and their operators:

* Liberty Financial Credit Services Inc. in Berkeley and its owner, Chad Sebastian Arrington, face cease-and-desist orders for making allegedly false representations on credit repair services.

* Conrad Germain of Los Angeles faces a false representation order for alleging charging $20 to tell consumers the winning lottery numbers.

* Larry Lynch and Bud Lemke consented to orders halting them from sending false billings for their Political Pulse and California Corridors newsletters in Sacramento.

* Second Chance Marketing Group in San Leandro was ordered to halt an advance fee credit card scheme.

* County Tax Examiners Inc. in San Diego agreed to a judgment halting it from issuing government look-alike solicitations on how to lower property taxes.

* Colonial Financial Services in Woodland Hills faces a civil fraud complaint in an advance fee credit card scheme.

* U.S. Purchasing Exchange in North Hollywood agreed to refund $15,000 to 18 consumers to settle a complaint over allegedly unlawful fees in its prize promotions.

Times staff writer E. Scott Reckard contributed to this report.