Current Shareware 1994 January/SHAR194.ISO/textfile/crmftr1a.zip/CRIMEFTR.015

Text File | 1993-07-14 | 23KB | 421 lines

                Rewards for Conviction of Mail Order Fraud,
                       Cons, Scams, Bait and Switch,
                   False Advertising, and Pyramid Schemes

Every year some new scheme, and many old ones, succeed in bilking people
out of their hard-earned money.  CrimeFighters can help bring the
perpetrators to justice and collect rewards for doing so.

A common method used to defraud the public is the use of a phoney lottery
operated via telephone boiler rooms (telemarketing), or by direct mail.
The scam is, you are told you have won a fantastic prize, but to qualify
you have to make a small purchase -- often costing a few hundred dollars.
Needless to say, the junk you receive isn't worth the money you had to pay
to get them, and of course you never see the big prize. Boiler rooms and
mailboxes are easily set up to get into business, and simply closed down
when the scam has run its course or the law starts nosing around.

A recent newspaper article mentions that experienced con artists and scam
operators are well aware of the postal inspectors powers and arrest rate.
To avoid violating postal laws, they often insist on delivering the offer
or receiving the money in person, or by sending or receiving it via Federal
Express. Possibly, anyone who is reluctant to use the postal service when
delivering the solicitation, the offer, the merchandise, or receiving the
money or any part of the transaction, may be a scam operator trying to
avoid postal inspectors. Look for that as an indication of a scam.

Another scam is a phoney lottery that may be registered as a non-profit
corporation that has obtained permits to lend credence to the scam.
Incorporation, registration, and permits may be impressive but provide no
guarantee of legitimacy. The phoney lottery rigs the contest to favor the
owners, a confederate, or a fictitious person who "wins" the big prize.

Another example is an illegal tax shelter plan, where the corporation sells
shares in a multimillion-dollar condominium. If the IRS later finds such a
scheme unauthorized and illegal, the property could be forfeited because it
was the instrument used to make the fraud effective.

Often with a fine, there is also a forfeiture of the property used to
commit the crime, especially if the property was essential to the fraud or
crime committed.  For example, if the prize in an illegal lottery was a
$125,000 Rolls Royce automobile that was essential for the perpetration of
the fraud, the Rolls can and probably would be seized and forfeited. A
CrimeFighter instrumental in conviction would receive, in addition to half
of the fines, half of the value of the automobile.

                   Spotting Mail Order Scams and Frauds

Here's an easy job for stay-at-home CrimeFighters. Read classified ads to
spot illegal mail order scams, investigate to obtain the required evidence,
report fraudulent schemes, and collect the rewards.  When you find a get-
rich quick scheme that looks too good to be true, it usually is and may
also be illegal. The TV program "Deals and Steals" is worth watching for
examples of scam operations. Another one is "20/20."  The following scams
occur over and over.

                   Multi-Level Marketing Schemes (MLMs)

There are legal and illegal multi-level marketing schemes. AMWAY and a few
other similarly operated businesses are legal MLMs because they pay over-
ride commissions based on ongoing and repeat-sales of actual products at
various distribution levels throughout their chain. Paying override
commissions to sales managers and distributors is a common business
practice. MLMs take it to its maximum degree possible.

Illegal MLMs do not expect continuing retail sales of expendable items,
such as soap powder or vitamins. Their only source of continuing income is
additional lump-sum amounts paid up-front as membership or distributorship
fees from new recruits. Various names are used by illegal MLMs for each
level of distribution or management to make them sound plausible. When they
run out of recruits, they run out of income to pay override commissions and
the MLM collapses. The people at the top make money at the expense (and
chagrin) of the people at the bottom.

A new MLM wrinkle is to sell "reports". The sales pitch tells the mark to
mail a thousand or more letters to names found on mailing lists. The sales
letter describes the operation as a bonafide MLM. The "product" is a group
of five reports which sells for $5. The person who buys them can copy them
and do the same thing and sell them to umpteen more marks, and so on.

No one wants to continue to buy the reports again and again (as they do for
vitamins or cosmetics). The money paid to the man at the top of the list
(or the first to mail a few thousand letters) has to come from the pockets
of marks. Somewhere down the road, the second and subsequent levels of
marks won't be able to find any more suckers. The last few thousand people
who joined the MLM will never get their money back. They've been stung!

The sale of the reports supposedly legitimize the use of the MLM name. The
actual value of the reports is questionable, but the main problem with the
illegal MLM is that it does not sell "repeat" items such as those sold by
legitimate MLMs. They do not expect a continuous flow of income and so
cannot pay commissions.  Instead, payments to each new con man in the scam
must come from new marks, who try to sell five sheets of paper to other
marks, and so on.  The "reports" are just a ruse to rationalize the scam.
As any lawyer will tell you, a rose is a rose, no matter what you call it.

By the same token, paper reports (costing less than $1) or like items of
insignificant value become sham sales. Selling them would be determined by
the courts as simply a ruse to make the scam plausible to gullible people.

More and more phoney MLMs are making the rounds. Every week someone hatches
a new one. Look for them, and prosecute them. However, before you jump the
gun and possibly make false accusations (or false arrests), check them out
first with a lawyer or the FBI.

                   Chain Letters Called by Various Names

In chain letters, or similar dressed-up MLM schemes, it's not possible for
everyone in the pyramid to get their money back, let alone make a profit.
That means new recruits who pay into the scheme at a later date can't get
paid as promised. Those who initiate the scheme and their immediate
followers have a good chance of collecting more than they put into it, but
the majority of investors wind up losers. That's fraud, which falls under
RICO statutes.

You don't have to catch the person who originated these scams. Each and
every person involved in and participating in pyramid schemes is guilty of
breaking the law. If you can establish an audit trail of names, you may be
able to snare a few hundred to a few thousand violators.

The list of names on the chain letter doesn't contain the names of everyone
involved, only the current list. However, each person on the letter may be
"persuaded" to produce the list they received (and probably kept) to
provide an audit trail back to almost all of the people involved.

Police, prosecutors, and the courts are far too busy to be enthusiastic
about the huge chore to convict every person on a pyramid scheme. But if a
CrimeFighter wanted to, he could "volunteer" (Qui Tam law) to prosecute a
few hundred or a few thousand (felony) lawbreakers. Even if the reward paid
is only $100 per person (under 3059), you qualify for Qui Tam. That puts
you in the driver's seat to lay charges and do the plea bargaining. You can
also file a $1,000 personal lawsuit at the same time to collect for your
time and expenses involved.

Lay criminal charges under RICO as well as a personal civil suit for $1,000
against each lawbreaker. Using the Rules of Discovery and interrogatories
and depositions, you can obtain the names and addresses of participants
from list-to-list all the way to the top. There's usually a few hundred to
a thousand or more participants in most chain-letter schemes. If you track
them down, and prosecute 1,000 of them, using RICO and civil suits, at
$1,000 each you could wind up with a million dollars!

By now you should know how to use plea bargaining on pending criminal
charges as leverage to settle your civil suit for $1,000. An out-of-court
settlement lets you dismiss the criminal charges with a warning for first
time violators. I believe 99.9% would be happy to settle out of court.

Arizona Revised Statutes, under Trade and Commerce, which follows, can be
used as an example. All states have similar statutes. Look them up.

                ARS 44-1731 (pyramid schemes) Definitions.

In this article, unless the context otherwise requires:

1. "Compensation" includes a payment based on a sale or distribution made
to a person who either is a participant in a pyramid promotional scheme or
has the right to become a participant upon payment.

2. "Consideration" means the payment of cash or the purchase of goods,
services or intangible property but does not include:

(a) The purchase of goods or services furnished at cost to be used in
making sales and not for resale.

(b) Time and effort spent in pursuit of sales or recruiting activities.

3. "Pyramid promotional scheme" means any plan or operation by which a
participant gives consideration for the opportunity to receive compensation
which is derived primarily from any person's introduction of other persons
into participation in the plan or operation rather than from the sale of
goods, services or intangible property by the participant or other persons
introduced into the plan or operation.

                  ARS 44-1732  Violation; classification

A. Any person who violates any of the provisions of this article is guilty
of a class 6 felony.

B. The attorney general or county attorney, or both, shall institute the
criminal actions to enforce provisions of this article.

An act or practice in violation of this article constitutes an unlawful
practice under 44-1522. The attorney general may investigate and take
appropriate action as prescribed by chapter 10, article 7 of this title
(Section 44-1521 et seq.)

ARS 44-1735  Pyramid promotional scheme; prohibition; defenses excluded.

A. A person shall not establish, operate, advertise or promote a pyramid
promotional scheme.

B. A limitation as to the number of person who may participate or the
presence of additional conditions affecting eligibility for the opportunity
to receive compensation under the plan or operation does not change the
identity of the scheme as a pyramid promotional scheme nor is a defense
under this article that a participant, on giving consideration, obtains any
goods, services or intangible property in addition to the rights to receive
compensation."
                                * * * * * *

Selling five flimsy reports (or any other item or providing services of any
kind, of any value) does not make an illegal pyramid scheme legitimate. The
test is that if there are no repeat sales to generate a normal profit from
which distributors can actually earn their commissions, it's probably a
pyramid scheme. Check it out.

                            Fraud and Deception

There is a subtle difference between falsity and deception. Blatantly false
statements such as "the best burger in the world" is not considered false
advertising, no matter how true or untrue the statement is (who knows?).
These generalized statements are classified as "puffery" and often used to
some extent by many companies. Hardly anyone takes them seriously.

However, a false or unproven statement that says, in effect, one product
will do something better than a competitive product may, comes under the
scrutiny as a false advertising claim. And when something is knowingly and
willfully done to deceive the public into buying a product, it's illegal.

For example, a well-known company advertised a can of shaving cream as
their competitor's brand ("brand X") to demonstrate how quickly brand X
evaporated compared to their brand. The deception was that brand X didn't
contain shaving cream but a concoction that foamed like shaving cream and
evaporated quickly.

A famous brand of "chunky style" Soup was once advertised on TV using a few
marbles in the bottom of a soup bowl to make it appear as though the soup
was "brim-full" of meat and vegetables. The use of marbles in soup was done
"knowingly and willfully" to deceive the public. That's illegal.

                        Bait and Switch Advertising

Another type of fraud is accomplished by a company or individual that
advertises to sell a product for a very low price. People who ask for the
item are often advised, "sorry, we just sold the last one."  They're
steered to a more expensive product the company really wants to sell.
Having just one or two of the products available and advertised at a low
price won't get the company off the hook for bait and switch advertising
unless the number of units available is mentioned in the ad. Fraud occurs
when the intent was not to sell the advertised item(s) but simply to lure
the public into the place of business to buy higher-priced items.

Example: A few years ago I wanted to buy some furniture. A bedroom suite
was advertised for about half the usual price. When I went to the store I
was shown a bedroom set of flimsy furniture. For what I had in mind, the
price was O.K. so I decided to purchase it anyway - to the consternation of
the salesman. It turned out that bedroom set was their one and only. It was
used as "bait."  They didn't expect to sell it and didn't want to sell it.
They tried to talk me out of it by "discounting" a better-looking group. I
didn't realize it at that time, but they were using a bait and switch
operation.

Bait and switch is very common. It's also against the law because it's
"deceptive advertising."  Used car dealers are notorious for bait and
switch advertisements ("creampuffs" turn out to be clunkers) but they
lure you to their salesroom so they can work on you to sell you a
different, higher-priced vehicle.

Another incident: Many years ago I read an advertisement offering a low-
cost automatic transmission drain and refill plus a free inspection. After
the truck was up on a rack and the transmission partially disassembled, I
was shown the "burnt" oil and parts and was strongly advised to have an
overhaul done. I couldn't afford the $300 or so they said it would cost, so
I told them to just put it back together as I had no problem with it
before. The mechanic worked on me, the head mechanic worked on me, and the
sales manager worked on me - trying to convince me to have it "overhauled."
It took almost an hour to convince them I was absolutely not going to be
coerced into expensive repairs when I felt none was necessary. (The truck
transmission never gave me any problems afterwards.)

It was a typical bait and switch operation. The company was later charged
and convicted for this illegal practice. If I had known the law at that
time, I would have reported it and collected a reward -- and might have
been able to buy a new truck!

Automotive repair chains that offer "free inspection" are sometimes used
like bait and switch ads. Free inspections often lead to expensive repairs.
Some may be required, some not.

                                Ghost Cars

Occasionally, news reporters will take a "ghost" car, which has been
checked by a couple of reliable mechanics and certified that no repairs are
necessary, to a franchised shop for inspection.  They find that quite a few
mechanics claim the car needs expensive repairs. The undercover investiga-
tion or sting operations by reporters always make a good news story.
If you're a reporter, remember that you can also collect a reward!

If you're mechanically inclined, get an older car, have it checked out and
verified as mechanically sound by two certified mechanics who know what
you're up to. Advise them they may be required to be "expert witnesses."
(They get paid for their time.)  Then set up your auto-mechanic sting
operation, and snare a dozen or so dirty-dealing garage-mechanic bandits!

The supply of garage-mechanic bandits is unlimited. If they're part of a
franchise chain, so are the fines!  In a large city there's enough
business for a full-time garage-buster. If you go after the franchise
chains, and snare a few dealers, it could lead to megabuck fines, of which
you can get half when you prosecute under RICO civil suits.

                                * * * * * *

                             False Advertising

Look for intentionally misleading wording that seems to promise one thing,
but delivers another -- sometimes by implying what isn't stated but leading
readers to believe they will get what seems to be promised, but which is
never intended to be delivered.

According to Section 15 of the Federal Trade Commission Act, deceptive
advertisements are those that are "misleading in material respect," which
has been interpreted by the courts to mean the deceptive advertisement must
somehow affect the purchasing decisions of the customer.

If the wording is designed skillfully, knowingly and willfully to entice
buyers by implying something that isn't true, but coaxes the purchase by
deliberate omission of the true facts, or play of words, it's deceptive
advertising.

For a complete definition of what constitutes fraudulent practices, look up
your state laws concerning trade and commerce. State law books, usually
called "Revised Statutes," cite a few cases for quick reference. They will
help you decide the type of evidence you need and help you analyze the
strengths and weaknesses in the potential fraud case you may have
discovered.
                                * * * * * *

                         U.S. Post Office Rewards

This section isn't about the "Wanted" posters hanging in the U.S. Post
office. It's about rewards offered for information leading to the arrest
and conviction of persons violating postal laws.

This law is long and humdrum for CrimeFighters, so I'll skip the many pages
that lead up to the reward clause.

                         Title 39 USCS 101 et seq.

404. Specific Powers.

"(a) Without limitation of the generality of its powers, the Postal Service
shall have the specific powers, among others:

(skipped (1) through (6) the non-reward paragraphs)

(7) to investigate postal offenses and civil matters relating to the postal
Service;

(8) to offer and pay rewards for information and services in connection
with violations of the postal laws, and, unless a different disposal is
expressly prescribed, to pay one-half of all penalties and forfeitures
imposed for violations of law affecting the Postal Service, its revenues,
or property, to the person informing for the same, and to pay the other
one-half into the Postal Service Fund; and ..."  Unquote.

                                * * * * * *

While almost all of the wording in it pertains to postal property, stamps
and mail, it covers almost all crimes that uses postal services in one way
or another. Almost all scams either use the mails to distribute their
offerings, or to receive money though the mails. (More on that at the end
of this chapter.)

The key words are "to pay one-half." Under this law, negotiations aren't
required to qualify for 50% of the resultant fines and forfeitures. At
least that's what appears to be the case.

                 Protecting Your Claim for Postal Rewards

I mailed the evidence of a pyramid scheme letter I received to the postal
authorities in California. I didn't get a reward. The inspector I dealt
with brushed me off and didn't answer my letters requesting a follow up. In
other words, I was stonewalled -- a common occurrence from bureaucrats.

I was told by a U.S. Postal Agent that the Service has no provision to pay
rewards for fraud cases even if it's called "mail fraud."  According to the
person I dealt with,  Title 39 USCS 404 refers only to the crimes listed on
Notice 96 (below). After reading the words and phrases in USCS 404 (above)
you may agree I was eligible, but just stonewalled by a petty bureaucrat at
the bottom of the decision-making ladder.

Their rationale is, I suppose, they're saving taxpayers' money. While that
may be true, it also discourages any further disclosures. In this case, a
thousand dollars "saved" might well mean many postal violations and many
thousands of dollars worth of potential fines and forfeitures are lost.
In England, that's called being penny-wise and pound foolish.

My mistake was in not negotiating first and keeping the evidence. I felt
that if I provided the information, rewards would be paid without any
hassle. Unfortunately, that's not how bureaucrats think. In most cases,
they begrudge paying citizens for what they feel is their duty. It doesn't
matter if there is a law saying rewards will be paid. If they can avoid
paying it, they'll stonewall your requests and letters of inquiry, and
simply brush you off.

If you receive or obtain evidence of any kind of mail fraud, do not mail it
to postal authorities (or any other law enforcement agency). Make a brief
preliminary disclosure of the details but don't provide the name and
address of the person or company. Negotiate for a reward, and get the
promise to pay in writing.

Also, another thing to look out for: be sure the person who promises to
pay a reward has the authority to legally bind the agency to the payment.
If the person who makes the promise isn't authorized to make any such
promises, the promise can be swept aside. To avoid that problem, insist
that the promise to pay a reward (and a share of the fines and forfeitures)
also includes a separate paragraph that clearly states the person offering
the reward is duly authorized to pay the reward as outlined in the letter
to you. If the person who signs such a statement isn't authorized (and
knowingly lies) you can sue him personally, as well as the department he
represents, for breach of promise.

If you want the largest reward possible, prosecute the case yourself under
Federal RICO law. If that's too much trouble, keep in mind that almost all
felonies are covered by their own respective Federal laws according to the
crime committed. Use them instead of Postal laws for prosecution. Or,
contact the FBI or U.S. District Attorney for those few cases where RICO
doesn't apply. The FBI has proven to be more generous in paying rewards
than the Postal Service, and welcomes information from CrimeFighters.

                            F9 for Next Chapter