What Kinds Of Telemarketing Schemes Are Out There?
In one sense, the nature and content of a telemarketing scheme to defraud is limited only by the ingenuity and skill of the scheme's organizers. Fraudulent telemarketers who observe that certain types of business, or certain business trends, are widely publicized in news media will incorporate references to such reports in their solicitations of victims. In practice, most fraudulent telemarketers operate one or more of the following types of schemes: charity schemes, credit-card, credit-repair, and loan schemes, cross-border schemes, Internet-related schemes, investment schemes, lottery schemes, office-supply schemes, "prize-promotion" schemes, "recovery-room" schemes, and "rip-and-tear" schemes.
Charity Schemes
Many people have a laudable desire to help those who are less fortunate by making donations to charitable causes. Fraudulent telemarketers have often exploited that desire, by devising schemes that purport to raise money for worthy causes. At various times, fraudulent telemarketers have falsely claimed, for example, that they were soliciting funds for victims of the Oklahoma City bombing or Mississippi Valley flooding or for antidrug programs. In one type of charity scheme, known as "badge fraud," fraudulent telemarketers purport to be soliciting funds to support police- or fire department-related causes.
Some of these schemes simply lie outright to would-be donors and give none of their proceeds to charity. Other schemes, to help maintain their aura of legitimacy, will donate a modest amount of their proceeds -- typically no more than 10 percent -- to a charitable cause so that they can show some evidence of their "legitimacy" to law- enforcement or regulatory authorities who may have received complaints about the schemes. In one scheme that resulted in successful federal criminal prosecutions, the schemes' organizers tried to enhance their appearance of legitimacy by sending the would-be donors "gimme gifts" and mounted plaques that thanked them for their contributions to a particular "foundation" (which was in fact an organization, run by former fraudulent telemarketers, that did nothing for people in need).
Credit-Card, Credit-Repair, and Loan Schemes
Certain telemarketing schemes are devised to victimize people who have bad credit, or whose income levels may be too low to allow them to amass substantial credit. In many credit-card telemarketing schemes, telemarketers contact prospective victims and represent that they can obtain credit cards even if they have poor credit histories. The victim who pays the fee demanded by the telemarketer usually receives no card, or receives only a credit-card application or some cheaply printed brochures or flyers that discuss credit cards. In a variant of these schemes, the credit card that some consumers are given, after paying the fee to the telemarketer, requires the consumer to pay a company located outside the United States $200 or $300 and limits the consumer's charges on that card to an amount no greater than the amount of money the consumer has paid to the offshore company.
In advance-fee loan schemes, persons with bad credit are promised a loan in return for a fee paid in advance. Victims who pay the fees for the guaranteed loans have their names referred to a "turndown room" -- that is, an operation, affiliated with the telemarketer, whose sole function is to notify the victims at a later date that their loan applications have been rejected.
Another way that fraudulent telemarketers try to take advantage of people with poor credit histories is by promising to "repair" their credit. Firms that promise that they can remove bankruptcies, judgments, liens, foreclosures and other items from a consumer's credit report, irrespective of the age or accuracy of the information, are misstating the facts. Judgments, paid tax liens, accounts referred for collection or charged off, and records of arrest, indictment, or conviction, may remain on a consumer's report for seven years, while bankruptcies may remain on the report for ten years. Credit reporting agencies are obligated by law to correct mistakes on consumers' reports. People with real errors on their reports can deal directly with the reporting agencies, or obtain assistance from the Federal Trade Commission with their problems. Credit repair agencies cannot generally succeed in eliminating accurate negative information from credit reports, despite the contrary claims of some firms.
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Cross-Border Schemes
Cross-border telemarketing schemes consist of telemarketing schemes -- usually advance-fee loan schemes, investment schemes, lottery schemes, and prize-promotion schemes -- where the scheme's operators conduct their telemarketing activities in one country and solicit victims in another country. Cross-border telemarketing schemes are appealing to some telemarketers because it further enhances the difficulties for consumers in reporting complaints and for law-enforcement agencies in investigating and prosecuting these schemes. To obtain certain kinds of evidence that they can use in legal proceedings, and to have criminal suspects extradited from foreign countries, law enforcement and regulatory authorities in the United States must use legal procedures that have been established by bilateral treaties with those countries. In some cases, those procedures provide opportunities for the criminal suspects to create substantial delays in legal proceedings by challenging the U.S. authorities' right to the evidence or the extradition of the suspect. A few fraudulent telemarketers have admitted to law enforcement authorities that they believe these delays can last long enough for victim-witnesses to die before they have an opportunity to testify in legal proceedings and receive some restitution of their losses.
Internet-Related Schemes
Many of the schemes to defraud that have been conducted exclusively by telemarketing are now being conducted partly or exclusively by the Internet. Consumers who have Internet access now regularly receive "spammed" E-mails -- that is, unsolicited E-mails that purport to offer business or investment opportunities or opportunities to purchase computer-related or other goods or services. Much of the "spamming" invites consumers to telephone a particular telephone number, to visit a particular Webpage, or to mail funds to a particular address.
Many of these spammed E-mails, however, are sent by fraudulent schemes. In the past year, for example, federal and state authorities have actively pursued fraudulent schemes advertising on the Internet that included promotions for charities, investments such as pyramid schemes and Ponzi schemes, degrees from a fictitious educational institution, illegal raffles, and opportunities to sell coupon certificate booklets or to earn money at home by clipping coupons. According to the Internet Fraud Watch, a project of the National Consumers League, fraud reports to the Internet Fraud Watch increased substantially from an average of 32 per month in 1996 to nearly 100 per month in 1997. The Internet Fraud Watch also reported that for the period January-July, 1997, the top ten categories of Internet-related fraud complaints were:
(1) Internet and online services that were misrepresented or never delivered;
(2) General merchandise that was never delivered or not as advertised;
(3) Auctions of items that were never delivered or whose value was inflated;
(4) Pyramid- and multilevel marketing schemes in which profits are made from fees to join the scheme rather than sales of actual items;
(5) Business opportunities that were substantially less profitable than advertised;
(6) Work-at-home schemes that sold materials to consumers with false promises to pay for the work performed;
(7) Prizes and sweepstakes schemes in which prizes were never awarded;
(8) Credit-card offers in which consumers never received the promised cards;
(9) Sales of self-help manuals that were misrepresented or never delivered; and
(10) Magazine subscriptions that were never delivered or for which the scheme's affiliation with legitimate publishers was misrepresented.
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Investment and Business-Opportunity Schemes
Since the 1970s, many fraudulent telemarketers have offered a wide variety of spurious investment opportunities to would-be investors. The nature of the purported investments varies largely with what the telemarketers perceive, from widely publicized reports on business matters, to be the trends that less experienced or less sophisticated investors are most likely to consider attractive for high-profit investment. In the 1980s, for example, many telemarketing schemes offered "investments" in rare coins, precious metals, and so-called "strategic metals." In the 1990s, many telemarketing schemes turned to offering "investments" in items as diversified as "investment-grade" gemstones, ostrich farms, and telecommunications technology such as wireless cable systems for television broadcasting.
Where the investment item that the victim purchases is small enough to be held, such as gemstones or rare coins, fraudulent telemarketers often seal the items in a plastic container and ship the sealed container to the victim. The telemarketer also warns the victim not to open the container, as that would void the telemarketer's guarantee on those items. The true purpose of sealing the items in the container is to dissuade the victim from having the items independently appraised, as a genuine appraisal would inform the victim that the real market value of the items is far below what the telemarketer had represented. Where the investment items are too large to be provided directly to the victim, such as oil and gas wells, bars of precious metals, or wireless cable systems, the telemarketers often lie to the victims about the fact that the investment item in fact does not exist or is not yet developed enough to turn a profit.
In a number of investment telemarketing schemes, the operators "reload" their victims by representing that they have prospective buyers who are interested in the investment that the victim has made with the telemarketer, and that the victim must buy more of the same item, or a particular type of item (such as more gemstones), to "round out" their investment portfolio. The victim is later told that the prospective buyer decided not to purchase the victim's investment, leaving the victim with still greater losses and no realistic prospect of recouping those losses.
Business-opportunity schemes are a variant of investment schemes. These prey on people who would like to be in business on their own. Telemarketers frequently promise to set consumers up in business using a formula or method that is supposed to be virtually certain to guarantee success. Many of these businesses involve installing vending machines, toy carousels, computer or video games, pay telephones, and the like. Purchasing such business opportunities can cost many thousands of dollars, but often leaves the consumer with a basement full of products and machines he or she was unable to sell.
A common method of operation is for the telemarketer to take out ads in local newspapers, with an 800 number for interested consumers to call. The ad may or may not make exaggerated earnings claims, like "Earn $100,000 in your spare time." Consumers who call the 800 number often hear more about potential earnings, and lots of promises regarding the success of the business. All too often, unfortunately, there is nothing to back up these claims.
A legitimate seller of franchises will provide consumers with detailed information about others who have purchased the franchise, the basis for earnings claims, and other similar information. The list of franchisees provided to the consumer should include at least the 10 franchisees closest to the consumer, if there are 10 franchisees. Consumers should talk to other franchisees to learn about the business. Generally speaking, promises of a lot of money for little effort only describe what the telemarketer will get, not what a consumer will end up with.
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Lottery Schemes
Fraudulent telemarketers have often used offers of "investing" in foreign lottery tickets or chances as a vehicle to defraud consumers. Although federal laws forbids the importation, interstate transportation, and foreign transportation of lottery tickets or chances, many fraudulent telemarketers routinely contact people in the United States, through mailings, advertisements, and telephone calls, to solicit their involvement in foreign lotteries such as the "Australian Lottery" or "El Gordo." Victims often begin by paying as little as $5 or $10 for lottery chances. Many of those who do are later contacted by telemarketers who hold themselves out as "experts" in "investing" in lottery chances, and who solicit the victims for larger and larger amounts of money. Law enforcement authorities in the United States and Canada are aware of many instances in which victims have sent thousands, tens of thousands, and even hundreds of thousands of dollars to lottery telemarketers, after hearing repeated promises or guarantees of vast returns.
In reality, the telemarketers invest little or none of the victims' money in the lottery tickets or chances, and keep the money for themselves after paying salaries and other expenses of their fraudulent business. In some instances, where victims had been given certain lottery numbers by the telemarketers, and later learned independently that their numbers had won a real lottery, the victims were told that their winnings had been "invested" in other lottery tickets rather than being paid to them directly.
Magazine-Promotion Schemes
A number of fraudulent telemarketing schemes in recent years have turned to offering magazine subscriptions, in part because of the apparent popularity of several nationally known magazine-promotion businesses that send mailings throughout the United States that advertise their multimillion-dollar prize contests. In a typical fraudulent magazine-promotion scheme, a telemarketer contacts a prospective victim and tells the victim that he or she has won a highly valuable prize or is to be given a highly valuable "gift," and falsely implies that the victim must purchase multiple magazine subscriptions to receive the award or gift. The victim is told the total price for the package of subscriptions, which can range from several hundred to several thousand dollars, but is not told which magazines he or she is to receive when the victim agrees to send money to the telemarketer. Instead, the telemarketer, after receiving the victim's money, sends the victim lists of magazines on which the victim can check off the magazines that he or she wants to order and which the victim then mails back to the telemarketer.
Although magazine-promotion schemes typically claim that they are "just like" the nationally advertised magazine-promotion businesses, consumers should note that there are three critical differences between fraudulent and legitimate magazine-distribution companies:
(1) Advance Disclosure of Prices. In the promotional materials that they mail to consumers, legitimate magazine-promotion companies typically disclose the newsstand price, the discounted price, and the savings to the consumer in advance of any magazine purchase by the consumer. In contrast, fraudulent magazine-subscription schemes do not disclose the newsstand price or the true price per issue that they are charging their victims; to disclose those two prices to the prospective victim would immediately inform the victim that the price is far above even the newsstand price or, in some cases, that the magazine being offered is free and has no subscription price.
(2) Advance Disclosure of Magazine Titles. Legitimate magazine-promotion companies clearly inform consumers of the magazine titles that they can order, before the consumer has to send any money. In contrast, fraudulent magazine-promotion schemes do not disclose these titles in advance; to do so would reveal that many of the most widely circulated and popular magazines are not available through the scheme.
(3) Provision of All Magazines Promised. Legitimate magazine-subscription companies provide all of the magazines that a customer has ordered, and for the full duration of the subscription. In contrast, when they solicit prospective victims, fraudulent telemarketers -- sometimes telling prospective victims that no one can read dozens of magazines each month -- represent to victims that their company will donate the magazines to a local hospital or hospice, so that less fortunate people can benefit from the victims' purchase. In reality, fraudulent telemarketers frequently choose not to subscribe to any magazines at all in the victim's name, or submit the victim's subscription for one year rather than two and pocket the remainder of the victim's money.
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Office-Supply Schemes
One type of fraudulent telemarketing scheme that is directed specifically at the business community is the office-supply or "toner" scheme. In a typical toner scheme, an employee of the telemarketer first contacts a business under false pretenses to learn the make and model number of the copier used at that business. Within a day or two, a telemarketer then recontacts the business, this time falsely representing himself to be a representative of the copier company whose copier is being used at that business. The telemarketer falsely states that his company is about to increase the price of their toner, but that the company is prepared to offer the business a shipment of toner at the then-current price before the price increase goes into effect. If the business employee who answers the telemarketer's call agrees to have the toner shipped, the business thereafter receives an invoice for the toner without the toner, or receives a shipment of toner with the invoice.
In the latter case, the toner is not only priced far higher per unit than the real copier company charges for its product, but also is mislabeled to leave the impression that it can be used in the type of copier in use at the business. In fact, the toner is usually what is known as "graymarket" toner -- that is, toner that does not meet the quality specifications and requirements of legitimate copier companies. Businesses who use the graymarket toner often find that it clogs their copiers, requiring them to call their copier company for service. In many cases, businesses do not discover the true extent of the fraud until the copier company's service people repair the copiers and inform the businesses that the toner is not their company's toner and that there was no planned price increase.
Prize-Promotion Schemes
Over the years, law-enforcement and regulatory authorities have observed at least three varieties of telemarketing schemes that purport to offer prizes, awards, or gifts to consumers if the consumers buy certain goods or services or make supposedly charitable donations:
(1) The oldest of these schemes, which still is carried out in some areas of both the United States and Canada, involves a simply false statement to a prospective victim that he or she has won a particular highly valuable item, such as a car. Because the explicit promise of a valuable item that is never delivered provides clear evidence of fraudulent intent, participants in a number of these schemes were successfully prosecuted in the 1980s and 1990s.
(2) More recently, beginning in the late 1980s and early 1990s, some fraudulent telemarketers began conducting so-called "one-in-five" schemes. In a "one-in-five" scheme, the telemarketer contacts a prospective victim and represents that the victim has won one of five (sometimes four or six) valuable prizes. The telemarketer then lists the prizes for the victim. All but one of the promised prizes would in fact have substantial value if awarded (such as a nationally known U.S.-manufacture car, a $3,000 cashier's check, and a $5,000 cashier's check); the remaining prize, however, was a "gimme gift" such as inexpensive "his and hers diamond watches," plastic dolphin statues, and gold rings.
Many telemarketers, in reading the award list to victims, deliberately included the "gimme gift" between two items of much higher real value, to make the victim believe that the "gimme gift's" value was somewhere between the value of the other two items. Although most "one-in-five" schemes invariably gave away only the "gimme gift," the telemarketers typically told victims who asked which prize they would be receiving that they could not give out that information because it would be "collusion" or "bribery." These explanations, while nonsensical, were developed to avoid having to tell prospective victims clearly false information about the prizes' value and the victims' chances of winning the far more valuable items.
(3) A variation on the "one-in-five" scheme is the so-called "mystery pitch" or "integrity pitch" (the latter term being more favored by fraudulent telemarketers). In a "mystery pitch," the telemarketer would tell a prospective victim that he or she had won something of substantial value, but refuse to tell the victim what the prize was because of professed concerns about "collusion" or "bribery." Some telemarketers apparently adopted the "mystery pitch" after seeing that other telemarketers were being successfully prosecuted in "one-in-five" schemes where the prizes were specifically listed for the victims.
In each of these variations of "prize-promotion" schemes, the telemarketers routinely "reload" victims by telling them that they have now qualified for higher levels of prizes, but that they must accordingly pay still more money to the telemarketers to cover the "fees" or "taxes" that the telemarketers claim are due on the prizes.
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"Recovery-Room" Schemes
So-called "recovery-room" telemarketing schemes are schemes that often are extensions of other telemarketing schemes. As one or more telemarketing schemes gradually deprive victims of most of their funds, the victims become increasingly desperate to try to recover a portion of their losses, and increasingly concerned about the embarrassment that they would feel if they had to report the true extent of their losses to law enforcement. A telemarketer for a "recovery room" contacts the victim, and invariably claims some affiliation with a government organization or agency that is in a position to help telemarketing victims recover some of their past losses. Some telemarketers have falsely impersonated FBI, IRS, and Customs agents or attorneys in law firms, while others use more nebulous language to suggest a connection to a government agency (such as "I'm working with the court [or the district attorney]") in a particular city.
Because the telemarketers may have worked for the scheme that had previously defrauded the victims, they are well-equipped to disclose information about the amounts of the victims' past losses. This in turn gives the telemarketers additional credibility with the victims, who apparently believe that only a legitimate law-enforcement or other government agency could have access to such information. The telemarketers, posing as government officials, then tell victims that they must send a fee to them so that their money can be released by "the court" or otherwise delivered to the victims. This allows the telemarketer to deprive victims of even more money, while simultaneously encouraging the victims to believe that something is being done to protect their interests and causing the victims to postpone the filing of complaints with real law-enforcement or regulatory authorities.
"Rip-and-Tear" Schemes
As law-enforcement and regulatory authorities have become more vigorous in prosecuting fraudulent telemarketing, some fraudulent telemarketers have increasingly engaged in what are known as "rip-and-tear" schemes. What distinguishes a "rip-and-tear" scheme from other telemarketing schemes is simply the methods that the fraudulent telemarketers use to minimize the risks of detection and apprehension of the authorities. Instead of conducting their telemarketing from a single, fixed place of business, "rip-and-tear" telemarketers conduct their calls from various places, such as pay telephones, residences, and hotel rooms. Their contacts with prospective victims -- who usually are repeat victims of past telemarketing schemes -- involve explicit promises that the victims have won a valuable prize or is entitled to receive a portion of their past losses.
"Rip-and-tear" schemes often insist that the victims send the required "fees" to commercial mailbox facilities or by electronic wire transfer services, which create far less substantial paper trails than checks or credit cards and which allows the telemarketers to receive the victims' payments in cash. To create further difficulties for law enforcement, "rip-and-tear" telemarketers often hire persons to act as couriers to pick up the payments from the mailbox drop or wire transfer office; if law-enforcement agents pick up the payments and arrest the couriers, the organizers of the scheme are not tied directly to the delivery of the victims' funds. In some instances, law-enforcement authorities have reported that telemarketers appeared to be conducting countersurveillance -- that is, watching to see whether they were under surveillance at pickup points, and engaging in evasive behavior.
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