TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/040389/04038900.019

Text File | 1990-09-22 | 9.2 KB | 169 lines

BUSINESS, Page 38

Reach Out And Rob Someone

Scam artists who work the phones are bilking consumers of $1

billion or more a year

By Janice Castro


    When Dayton Searles heard the pitch, he figured he couldn't
lose. A telephone salesman representing a Las Vegas firm called
Vita Life told Searles that he had won a valuable prize. The St.
Paul retiree would receive a new car, a two-week vacation in
Hawaii, an imported French fur coat, a combination television-VCR,
or $3,000 in cash. To qualify, all he had to do was buy some
vitamins. Without a moment's hesitation, Searles agreed to order
an eight-month supply for $395. But when his prize of a fur coat
arrived 3 1/2 months later, Searles recalls, "my wife took one look
at it and was absolutely disgusted. It was imported all right, and
it was fur, but it was rabbit fur, probably made from scraps off
the floor. If you took a handful of it, you could hear it crinkle."

    Searles was taken by a telemarketing scam, but he has plenty
of company. In the shadow of the fast-growing telemarketing
industry, which sold more than $100 billion in legitimate products
and services over the phone last year, telephone swindlers are
springing up like mushrooms. Telescam artists are bamboozling
consumers with pitches about everything from fine art and exotic
vacations to time-share condos and precious-metals ventures.

    All told, the Federal Trade Commission estimates, con artists
working the phones got away with at least $1 billion last year.
Other fraud experts put the total as high as $10 billion.
Legislators and law-enforcement agencies have stepped up their
efforts to disconnect the crooks, but at the moment they are
operating almost with impunity. Says William Sullivan, chief of the
Illinois attorney general's consumer-protection division: "Lawyers,
doctors, policemen -- every spectrum of society is being taken in."

    New types of telemarketing cons are being hatched overnight,
sometimes abetted by front-page news that provides a convincing
sales pitch. After the 1987 stock-market crash shook investor
confidence in securities, con artists began pushing such
alternatives as rare coins, gold, oil and gas leases, and diamonds.
One Tulsa-based telemarketing company cleaned up by selling shares
in a "secret process" for converting volcanic sand on Costa Rican
beaches into gold. A swindler who had been convicted of selling
shares in a nonexistent gold mine continued to solicit new
investors from a pay phone in his Wyoming prison.

    Con artists have found a highly receptive audience among the
millions of U.S. investors who routinely conduct stock and bond
trades over the phone with their brokers. Because it is normal for
legitimate brokers to solicit new business by making cold calls,
crooks posing as Wall Streeters have talked elderly investors into
borrowing heavily against their home equity to buy into schemes
touted as surefire. "We are confronted with a national epidemic of
truly staggering proportions," says John Baldwin, president of the
North American Securities Administrators Association, a group of
state officials who regulate brokers and dealers.

    Fast-rising prices in the art market have inspired a hot new
trade in phony prints. Hundreds of people have paid as much as
$4,000, sight unseen, for "limited-edition" originals. The FTC has
sued Federal Sterling Galleries, a telemarketer in Scottsdale,
Ariz., for allegedly peddling photographs of artworks as authentic
prints by Salvador Dali.

    Millions of consumers have received postcards and telegrams in
a fast-growing sweepstakes con that is designed to prompt them to
call up the telemarketing crooks. "Mr. Quinn will definitely
receive a two-week, all-expenses-paid trip to London," such an
announcement begins. Winners are instructed to call for information
on how to collect their prize. But when they do, they are informed
that in order to "qualify," they must join an expensive travel club
and pay "handling fees" of $100 or more, or buy a companion ticket
at an inflated price. After the extra costs are added, such "free"
trips usually cost more than if they had been booked through a
travel agent.

    Other telescam artists pretend to be travel agents offering
extraordinary discounts. In Illinois, Scott Walker and his mother
started World Travel Vacation Brokers in their garage, mailing
flyers to consumers around the country that promised Hawaiian
vacations for just $29. Gullible customers who called in their
orders received a voucher entitling them to book a trip through the
agency, but at a cost of several hundred dollars more. By the time
FTC investigators took the company to court, the outfit had taken
in more than $6 million.

    Telescam groups in several states employ a "grand prize" hook
to sell useless water purifiers. Supposed prizewinners, who are
advised by mail to call an 800 number for information, are told
they will collect such awards as a diamond watch, mink coat and
luxury car if they buy a $398 system that removes pollutants from
drinking water. Consumers who buy the product receive a worthless
contraption containing two small charcoal tablets. Worse, the prize
never shows up.

    Some scam artists pitch legitimate-sounding items over the
phone at plausible prices, then send products that bear little
resemblance to the descriptions. "Car phones," for example, turn
out to be cheap telephones in the shape of a car. One "sewing
machine" looks more like a stapler, and the "piano" fits in the
palm of your hand. "Home stereo entertainment systems" turn out to
be tiny radios, and "satellite dishes" look suspiciously like
Chinese woks.

    Most telemarketing crooks insist on payment by credit card.
Reason: the vouchers can be cashed in at banks before the buyers
have second thoughts. Moreover, purloined credit-card numbers
enable con artists to compound the crime -- for example, by
charging victims several times for the products they purchase over
the phone. By the time the consumers receive a bill, the thieves
have disappeared, often without shipping any products.

    In a variation on this con, excited consumers who call to claim
prizes after receiving you-are-a-winner letters are asked for their
credit-card numbers and card-expiration dates "as verification."
The new car or microwave oven never arrives. But before long,
mysterious charges begin to show up on the cards. Joel Lisker,
MasterCard's vice president for security and fraud control,
estimates that thieves using such methods skimmed at least $105
million from the $120 billion in U.S. credit-card transactions last
year.

    Fraudulent telemarketers are particularly hard to catch because
they tend to keep their operations small. The typical setup is a
"boiler room" in which a dozen or more employees reading from sales
scripts feverishly work the phones, contacting hundreds of
potential victims a day. Thousands of boiler rooms are located in
the Sunbelt states stretching from Florida to California. At one
point, so many sprang up in part of Fort Lauderdale that federal
investigators dubbed the area "Maggot Mile."

    Boiler-room operators in Nevada and California begin the day
as early as 5 a.m., calling people on the East Coast. Then they
work their way westward, taking advantage of the changing time
zones to make the maximum number of calls. Consumers who call back
with questions are invariably told that the salesman is in a
meeting. Once stung, many victims are deluged with other offers.
Reason: boiler rooms sell sucker lists to one another.

    To elude detection by local authorities, these operations
usually solicit only out-of-state targets. On rare occasions local
officials are alerted by complaints from distant victims and manage
to track the money trail back to the boiler room. But the crooks
typically flee across state lines and start all over again.

    So far, few laws stand in the way of these scams, partly
because they have taken forms that were not anticipated when
current statutes were written. In addition, laws covering such
crimes as interstate wire fraud are difficult to use against the
relatively small swindles usually worked on consumers. The FTC has
now joined forces with consumer groups, telephone businesses,
securities regulators and banking officials in an organization
called Alliance Against Fraud in Telemarketing, which is pressing
for legislation to curb telescams. A House bill under consideration
would toughen FTC rules on telemarketing and allow state
law-enforcement officials, as well as companies and individuals,
to sue the crooks in federal courts.

    Several states have passed tough new legislation. Utah and
Florida have enacted laws against delivering deceptive sales
pitches by phone. California set up stringent new licensing
requirements for telemarketers. New York is considering a law that
would give consumers three days to cancel a telemarketing purchase.
But, say law-enforcement officials, the crooks keep inventing new
schemes to ensnare unsuspecting people who pick up the phone. For
now, the best defense is to keep in mind an old saying that covers
any kind of deal: If it sounds too good to be true, it probably is.


-- Mary Cronin/New York and Stacey Welling/Las Vegas, with other
   bureaus