PREPARED STATEMENT OF
THE FEDERAL TRADE COMMISSION ON

"FRAUDULENT MARKETING SCHEMES"

Before the

SUBCOMMITTEE ON COMMERCE, JUSTICE, STATE AND THE JUDICIARY

of the

SENATE APPROPRIATIONS COMMITTEE
UNITED STATES SENATE
Washington, D.C.

February 5, 1998

I am Robert Pitofsky, Chairman of the Federal Trade Commission. I am pleased to appear before you today to present information about the Commission’s activities with regard to fraudulent marketing practices, especially those that affect the elderly.(1) The Federal Trade Commission is the primary federal consumer protection agency, with wide-ranging responsibilities over nearly all segments of the economy. In pursuing its mandate of protecting consumers, the Commission enforces the Federal Trade Commission Act,(2) which broadly prohibits unfair or deceptive acts and practices, as well as more than twenty other consumer protection statutes(3) and thirty regulations(4) that address such matters as consumer credit, telemarketing, and the sale of funeral goods and services. Combating fraud has been a top priority in fulfilling that mandate for over a decade. In particular, the Commission has committed significant resources to the war against telemarketing fraud -- a type of fraud that frequently victimizes the elderly.

Fraudulent marketing schemes change over time, but they share one thing in common: they all involve the use of deceptive or unfair practices to separate consumers from their money. Many fraudulent operations use the telephone as the primary means of communicating with their victims. Estimates of losses specifically caused by fraudulent telemarketers range from at least $3 billion to as much as $40 billion annually. The Commission’s law enforcement experience shows that telemarketing fraud victimizes consumers of all ages, levels of income, and backgrounds. The elderly, however, are disproportionately represented among victims of telemarketing fraud, and in some scams, 80 percent or more of the victims are 65 or older. The elderly often are the deliberate targets of fraudulent telemarketers who take advantage of the fact that many older people have cash reserves or other assets to spend on seemingly attractive offers. Older Americans seem especially susceptible to fraudulent offers for prize promotions and lottery clubs, charitable solicitations, and investment offers.(5)

Sections 5 and 13(b) of the Federal Trade Commission Act(6) provide the Commission with several important tools to combat various types of marketing fraud. These provisions authorize the Commission to file civil actions by its own attorneys in federal district court and to seek an immediate halt to illegal activity. The Commission also seeks to obtain restitution for injured consumers, if possible; if not, disgorgement to the U.S. Treasury of defendants’ ill-gotten monies. Typically, the Commission seeks an ex parte temporary restraining order, asset freeze and the appointment of a receiver to halt ongoing fraudulent activities and preserve assets for consumer redress. This extraordinary relief is appropriate to immediately halt fraudulent telemarketing or other fraudulent schemes. Every year the Commission uses these law enforcement activities to prevent hundreds of millions of dollars in fraud losses, and in the past five years, has collected over $37 million on judgments for consumer redress or disgorgement to the Treasury.

In 1994, Congress passed the Telemarketing and Consumer Fraud and Abuse Prevention Act (the "Telemarketing Act"), giving the Commission additional authority specifically to attack telemarketing fraud. At Congress’ direction, the Commission promulgated the Telemarketing Sales Rule, which became effective on December 31, 1995. The Rule defines and prohibits deceptive telemarketing practices and prohibits other abusive telemarketing practices.

One very important feature of the Telemarketing Act is that it permits a joint federal-state telemarketing enforcement strategy by enabling state Attorneys General to go into federal court to enforce the Telemarketing Sales Rule, to halt fraudulent schemes through nationwide injunctions against companies or individuals that violate the Rule, and to obtain restitution for injury caused to the residents of their states by the Rule violations. This grant of authority to the states has provided the Commission with an enormous opportunity to coordinate and leverage federal law enforcement resources with the states for maximum effect.

The Commission, working with its counterparts on the state level and its sister federal agencies, has developed a strategy of law enforcement "sweeps," in which multiple, simultaneous actions are filed all across the country against companies and individuals engaged in a particular type of fraud. Concentrating federal and state resources on a particular type of fraud in this way to bring dozens of law enforcement actions at one time not only sends an emphatic warning to others engaged in the same fraud, it also captures the attention of the media, and provides a springboard to raise dramatically consumer awareness of that particular type of fraud.

Since 1996, just after the Telemarketing Sales Rule went into effect, the Commission has led twenty cooperative law enforcement efforts focused upon the most prevalent types of fraud, including fraud that targets older consumers. These sweeps comprised a total of over 730 federal and state actions, including 112 cases brought by the Commission. I will describe some of these sweeps more specifically, as I discuss common varieties of marketing fraud.

Deceptive Prize Promotions and Lottery Clubs

One type of telemarketing fraud in which the victims are disproportionately elderly is the deceptive prize promotion. Typically, the consumer receives a call or mail solicitation enthusiastically congratulating him or her on having been selected to receive a valuable award -- often described as thousands in cash, a car, a vacation, or jewelry. However, there is a "catch" that requires the consumer to send payment, often by an overnight courier service, in order to receive the prize. Then, although the consumer sends the payment as instructed, he or she does not receive the promised valuable prize. If the consumer receives any award at all, it is generally an item of little or no value, such as inexpensive costume jewelry or a travel certificate that requires huge outlays of cash to redeem. Losses per consumer for telemarketed prize promotions generally range from a few hundred dollars to thousands of dollars. In some instances, consumers have lost their entire life savings to such scams. While prize promotion telemarketers often ask for only a small amount initially, in a process referred to as "reloading," phone crooks request ever increasing amounts from consumers, promising ever more valuable awards. Once marked as receptive to this type of scam, a consumer often is bombarded nonstop with similar fraudulent offers from a host of scam artists.

Prize and sweepstakes promotions generate more consumer complaints in the Commission’s complaint database than any other type of telemarketing. Accordingly, fraudulent prize promotions have been a frequent target of Commission enforcement efforts. The largest such effort, named "Project Jackpot," was carried out in July 1996. This Commission-led joint federal and state law enforcement sweep included 56 enforcement actions against 79 defendants in 17 states, all aimed against alleged fraudulent prize promotions.(7)

Prize promotions are not conducted exclusively through the telephone. In many cases, direct mail is used to capture the attention of the consumer. The Commission has taken action against several direct mail prize promoters, and recently joined other agencies in "Project Mailbox," announced in October 1997. Project Mailbox included all types of fraudulent direct mail solicitations, but many of the actions targeted prize promotions. Project Mailbox involved the combined efforts of the FTC, the U.S. Postal Service, and 25 state Attorneys General and local law enforcers, resulting in a total of 190 actions.

In an emerging fraud, which is essentially a variation on the prize promotion scheme, telemarketers call consumers offering to sell them memberships in lottery clubs. Telemarketers mislead consumers into believing that by “pooling their resources” through such a club, they will enhance their chances of winning big payouts from various government-run lotteries around the world. The Commission recently brought two actions targeting lottery schemes, both of which involved Canadian telemarketers, highlighting the growing problem of cross-border fraud, which I will subsequently discuss more fully.(8)

Telefunders or Bogus Charities

Another type of telemarketing fraud, sometimes referred to as fraudulent "telefunding," targets consumers, often older citizens, willing to donate money to charitable causes.(9) Fraudulent telefunders, often employing prize promotions, either raise money for bogus charities, misrepresent the amount of donations that go to a bona-fide charity, or make other material misrepresentations about how the donor’s money will be used. The Commission has brought several actions attacking alleged telefunding fraud.(10) "Operation False Alarm," a major law enforcement sweep launched in April 1997 and including five FTC cases and 52 state enforcement actions, targeted telemarketers who allegedly misrepresent that consumers’ donations would be given to a police fund or other local civic organization. Agencies from all 50 states joined this effort, either by bringing actions or participating in a related public education initiative.

Investment Fraud

Investment fraud is yet another category of telemarketing scam which often affects elderly consumers. Telemarketers promise consumers huge returns on a low-risk investment. Investment fraud involves high individual losses per consumer, generally ranging in the thousands to tens of thousands of dollars. Some elderly consumers may lose their entire life savings to a single telemarketer. The Commission has brought dozens of cases against investment fraud, covering many different types of purported investments, from gemstones to FCC licenses.

A recent wave in investment fraud centers around "high-tech" scams. In January 1996, the Commission together with the North American Securities Administrators Association (“NASAA”) initiated "Operation Roadblock," a joint federal/state sweep against alleged investment scams involving 900-numbers, and paging licenses. The FTC joined 20 state agencies to bring a total of 85 actions. A subsequent sweep in July 1997, "Project Field of Schemes," also centered around alleged "high tech" investment schemes, many of which involved the Internet or were promoted on it. The alleged scams included purported investments in Internet “shopping malls,” gambling cruise ships, stamps, Internet pyramid schemes, movie productions and gold, among other things. In Project Field of Schemes, the FTC joined with NASAA, securities regulators in 21 states, the Securities and Exchange Commission, and the Commodity Futures Trading Commission to bring 61 law enforcement actions.

Business Opportunity Fraud

Many consumers -- particularly recent retirees or workers who have lost their jobs through corporate downsizing -- are attracted to advertisements touting opportunities for individuals to operate their own small businesses or to work from home. In many cases, these business opportunities involve distributing products or services through vending machines or retail display racks. Would-be entrepreneurs responding to these advertisements are connected to a telemarketer, who glowingly describes the opportunity and the amount of money that can be made by following the company’s business plan. To clinch the sale, the telemarketer often provides the consumer with the names and telephone numbers of other people who have purportedly purchased the business opportunity and from whom the consumer can receive a supposedly objective opinion. In fact, these purported purchasers are "singers" -- individuals who are paid by the telemarketer to lie about the success of the business venture. After the consumer pays anywhere from hundreds to tens of thousand of dollars to become a distributor or to receive the business plan, he or she learns that the revenue projections of the telemarketer were highly inflated and that the only people who make money through the business opportunity are the telemarketers themselves.

Every year, the Commission brings numerous cases against purveyors of fraudulent business opportunities. In fact, the Commission’s first major coordinated law enforcement initiative against fraud, "Project Telesweep," targeted such operations. Project Telesweep, launched in July 1995, used the combined efforts of the FTC, the U.S. Department of Justice, and several states to bring nearly 100 actions against alleged fraudulent business opportunities. The project was so successful that it served as a template for future telemarketing sweeps. In a follow-up enforcement effort, "Operation Missed Fortune," which was made public in November 1996, the Commission joined 25 state agencies in bringing 75 actions in a broad-based attack against schemes involving allegedly fraudulent multi-level marketing, business opportunities, and work-at-home plans.(11)

Recovery Scams

"Recovery" scams once plagued older consumers,(12) but this type of scam now appears almost to have vanished, due to aggressive enforcement efforts and tighter regulations.(13) Recovery scams were particularly egregious because they re-victimized consumers who had already fallen prey to one or more earlier scams. In a recovery scam pitch, the fraud operator offered to help the consumer obtain prizes promised in an earlier scam or to recover money lost in an earlier scam. After paying the fee for the recovery, the consumer never again heard from the recovery scammer -- no refund, no prize, just the loss of more money. In some cases, the recovery scam operation was run by the very same individuals who previously defrauded the consumer. Losses per consumer victimized by recovery rooms ranged from a few hundred dollars to thousands of dollars.

Since the fall of 1994, the Commission has brought eight cases against fraudulent recovery scam artists.(14) These enforcement actions, combined with provisions in the Telemarketing Sales Rule tailored specifically to prevent this type of fraud, have led to a dramatic drop in the number of consumer complaints. The Commission’s consumer complaint database shows that complaints about recovery scams plunged by 95 percent from their high point in 1995 to their current low level.

The Internet

To date, most of the fraud affecting the elderly has been perpetrated through the telephone. As the elderly begin to use the Internet, fraud operators can be expected to find them through this new channel of communication and commerce. The Internet offers a novel and exciting means for all consumers to purchase both innovative and traditional goods and services faster and at lower prices, to communicate more effectively, and to tap into rich sources of information that were previously difficult to access and that now can be used to make better- informed purchasing decisions.

The Internet’s promise of substantial consumer benefits is, however, coupled with the potential for fraud and deception. Fraud is opportunistic, and fraud operators are always among the first to appreciate the potential of a new technology. After buying a computer and modem, scam artists can erect and maintain a site on the World Wide Web for $30 a month or less, and solicit consumers anywhere on the globe. Most Internet fraud has clear antecedents in telemarketing fraud. What is different is the size of the potential market, and the relative ease, low cost, and speed with which a scam can be perpetrated.

The Commission believes it is important to address Internet fraud now, and in a manner that does not discourage legitimate commercial growth by undermining consumer confidence in the Internet as a safe mode of commerce. Toward that end, the Commission has filed more than 25 lawsuits against defendants whose alleged illegal practices used or involved the Internet. Most of the cases have involved alleged old-fashioned scams dressed up in high-tech garb.(15) Some scams, however, exploit what can be done only on the Internet. For example, in FTC v. Audiotex Connection, Inc., CV-97 0726 (DRH) (E.D.N.Y. filed Feb. 2, 1997), the Commission challenged a scheme that allegedly hijacked consumers’ computer modems by surreptitiously disconnecting them from their local Internet service provider (such as AOL) and reconnecting them to the Internet through a high-priced international modem connection, purportedly going to Moldova but actually terminating in Canada. On various Internet sites, the defendants offered access to free computer images through a special “viewer” program. If a consumer downloaded and activated the viewer software, the alleged hijacking automatically ensued, and an international long-distance call (and the charges for it) continued until the consumer turned off the computer -- even if he or she left defendants’ sites and moved elsewhere on the Internet, or left the Internet entirely to use a different computer program.

Commission staff were first alerted to this scheme by security experts at AT&T. The United States Secret Service assisted staff in ascertaining how the viewer software worked, and AT&T lent further assistance in tracing the software back to specific web sites. With this help, the Commission’s staff completed its investigation, filed a complaint, and obtained an ex parte temporary restraining order and asset freeze against the defendants within just 31 days of learning about the alleged scam. The lawsuit was recently resolved by entry of a stipulated permanent injunction against the main defendants named in the Commission’s complaint and the issuance of a virtually identical administrative order against additional parties found to have played a role in the alleged scam. Under the two orders, the defendants and administrative respondents are barred from engaging in the alleged unlawful practices, and over 38,000 consumers should receive full redress worth an estimated $2.74 million.(16)

Additional Approaches to Combating Fraud

Assisting Criminal Authorities

The Commission also combats telemarketing fraud by providing substantial resources to enforcement efforts coordinated by criminal authorities. Recently, the FTC contributed eight attorneys to the Chattanooga, Tennessee Telemarketing Fraud Task Force. Chattanooga had

become a leading center of fraudulent telemarketing activity, particularly prize promotions. The overwhelming majority of the victims of the Chattanooga operations were elderly. The FTC attorneys were cross-designated as Special Assistant U.S. Attorneys and brought criminal actions against telemarketers operating in the area. By the end of 1996, the Chattanooga Task Force largely had completed its work. The Task Force obtained fifty convictions and combined prison sentences against fraudulent telemarketers totaling over 1,695 months and restitution orders in excess of $35 million.(17)

The FTC also contributed resources to Operation Senior Sentinel, announced in December 1995, which, with over 400 arrests in 14 states, was the largest criminal crackdown ever on telemarketing fraud. This enforcement effort was led by the U.S. Department of Justice and focused specifically on telemarketing scams targeting older Americans. Estimates indicate that nearly 80 percent of the victims in the underlying prize promotion and recovery room cases included in Senior Sentinel were older people. The FTC contributed valuable consumer complaint information to Senior Sentinel through the Telemarketing Complaint System,(18) and also filed five civil cases in federal district court -- four against alleged fraudulent prize promotions and the fifth against an alleged recovery room.

Treasury Collection

In many cases involving fraud, the Commission receives judgments against the defendants and it attempts to collect on these judgments with the goal of returning money to injured consumers. Collection is often difficult because, in many cases, the defendants do not have identifiable assets subject to execution. The Commission recently began working with the U.S. Treasury for assistance in collecting judgments owed to the Commission. The Commission was the first agency to refer its uncollected judgments to Treasury’s Financial Management Services Division, which will use its collection expertise to aggressively collect for consumers amounts owed by fraudulent telemarketers. In cases where Treasury is unable to collect after diligent effort, it will report to the Internal Revenue Service that the uncollected debt should be treated as income to the defendant, subject to taxation. The Treasury’s collection program should assist the Commission in obtaining additional money to refund to consumers.

Improved Information Gathering and Sharing; Cross-Border Cooperation

The Commission is aware that telemarketing fraud is becoming a global problem. In particular, we have in particular seen a rise in Canadian-based telemarketers targeting U.S. victims, often elderly ones, and U.S. telemarketers targeting Canadians. The Commission has been tackling this problem on several fronts, in cooperation with other U.S. and Canadian law enforcement agencies. In 1996, the Commission co-sponsored two conferences on cross-border fraud and established a task force on cross-border fraud with Industry Canada, the Canadian government agency whose function is roughly analogous to that of the Commission. In 1996, the Commission also brought its first enforcement actions against Canadian telemarketers, one as part of an enforcement sweep against alleged advance fee loan scams(19) and another as part of an enforcement sweep against alleged fraudulent prize promotions.(20)

In 1997, we followed up with further enforcement actions involving cross-border activity.(21) We also continued our cooperative law enforcement efforts as part of the United States-Canada Working Group on Telemarketing Fraud. This Working Group, established at the direction of President Clinton and Canadian Prime Minister Chrétien as a result of their April 1997 meetings, produced a report in November 1997 outlining the key elements of a bi-national strategy to fight cross-border fraud. We continue to work with our U.S. and Canadian law enforcement partners to act on this blueprint for addressing legal issues, consumer education, information sharing, and coordination.

Consumer Sentinel and the Consumer Response Center

The Commission has been particularly active on the information-sharing front. Last month, we announced to fellow law enforcers the launching of Consumer Sentinel, a database of consumer complaints and various other useful information now available to law enforcement personnel through a secure, password-protected site on the Internet. This is a joint project of the National Association of Attorneys General (“NAAG”) and the Federal Trade Commission, in cooperation with the Canadian partners “Phonebusters” and “Canshare,(22) and builds on the existing NAAG-FTC Telemarketing Complaint System. The Commission has voted to expand this information-sharing project to include Canadian law enforcers as well. We are pleased that the Ontario Provincial Police has already signed up as the first Canadian member of this network.

We are also working hard to improve the job we do in using the valuable information that consumers give us about telemarketing and other frauds. Last year, we created the FTC Consumer Response Center to streamline our handling of consumer complaints and inquiries. As a result, we are able to respond more promptly and helpfully to consumer inquiries, whether by phone, mail, or e-mail. We have also redesigned our computer databases so we can capture and use more of the information consumers provide us about suspect telemarketers. With this system, which is completely integrated with the Consumer Sentinel database, we can better share and use telemarketing complaint information, both with our own staff and with other law enforcement agencies.

Cooperative Efforts with Older Consumers

The Commission and other law enforcement agencies have taken advantage of the fact that many older consumers are eager to help combat fraud. In an effort that began several years ago with the Federal Bureau of Investigation and several state Attorneys General, many older consumers, whose names had found their way onto lists used by fraudulent telemarketers, have agreed to tape record telemarketing calls they receive or to turn over their old telephone numbers so that undercover investigators can tape the telemarketers’ pitches. When a law enforcement agency receives a tape of a telemarketer, the agency notes that a tape of the encounter is available and shares that information with other law enforcers through a program known as the National Tape Library. The Commission and other law enforcement agencies have used these tapes very effectively in law enforcement actions because they are often very incriminating and capture precisely the misrepresentations made by the telemarketer. Through the Commission’s Consumer Sentinel database, the index of the National Tape Library is now accessible by means of the Internet to authorized law enforcement agencies, making it significantly easier for consumer protection agencies to learn of and share this incredibly valuable evidence.

In a similar effort to enlist older consumers in the fight against fraud, the Commission has joined with other law enforcers and AARP to form a public/private strike force to collect and review direct mail for future law enforcement purposes. Volunteers have agreed to send suspicious or fraudulent direct mail offers to AARP, where information about the offers will be entered into a database shared with law enforcement authorities.

Consumer Education

To leverage expertise and limited resources, the FTC has developed the Partnership for Consumer Education. The partnership is a cooperative umbrella effort among over 90 corporations, trade groups, consumer organizations, and federal agencies that have joined with us to help provide effective consumer education materials against fraud. With the assistance of our partners, the Commission has arranged for messages about fraud to appear in such diverse locations as sales catalogs, billing statements, classified advertising, and even on public transit buses.

Consumer education is important because a well-informed, alert consumer can avoid falling prey to many types of telemarketing con artists. It is important for older consumers to know their rights and to assert those rights when dealing with companies over the telephone. They should feel comfortable hanging up on any offer that sounds too good to be true.

The Commission’s consumer education publications advise that it is an unlawful practice for a telemarketer to call a consumer who has indicated that he or she does not wish to receive calls from the selling organization. Our publications advise that if a consumer does not wish to receive subsequent calls from a particular company, the consumer should let those wishes be known by asking to be placed on the company’s "do-not-call" list. The Commission’s consumer education materials further inform that by law telemarketers that call consumers must disclose the seller’s identity and that the purpose of the call is to sell goods or services. The materials state that consumers should be extremely wary whenever they receive a call from a telemarketer who does not promptly disclose this information.

One theme that is stressed in our consumer education materials is that consumers should hang up on any telemarketer who tells them that they need to send in payment to receive an award or to participate in a prize promotion. The Commission attempts to get the message to consumers that they do not have to pay to play. Another important theme is that consumers should never divulge their credit card numbers or checking account numbers over the phone unless they have agreed to make a purchase and they understand the terms of the purchase. The only reason a company ever needs a consumer’s credit card or checking account number is to bill the consumer for the purchase. Also, the Commission’s consumer education materials note that whenever possible, consumers may wish to make purchases by credit card so that they will have the protections afforded to such transactions by federal law. If the company fails to deliver goods or services paid for by credit card, the consumer is entitled to dispute the charge with the organization that issued his or her credit card, which is obligated to conduct an investigation of the consumer’s complaint. Depending upon the result of that investigation, the consumer may be eligible for a credit or refund of the purchase price.

Another important point stressed in the Commission’s consumer education materials is that consumers should be on the alert for high-pressure tactics or demands from a telemarketer for an immediate purchasing decision. Our materials also advise consumers to consider carefully any offer, to review any written materials, and to seek out advice from family or friends before making an expensive purchase.

If consumers are interested in reducing the number of solicitations they receive in the mail or by telephone, they may wish to contact the Direct Marketing Association ("DMA"), a private trade association that voluntarily maintains and supplies to its members lists of consumers who have indicated they do not wish to receive solicitations. Not all direct marketers use the DMA list to screen out consumers. Therefore, contacting DMA will not eliminate the receipt of mail and telephone solicitations, but it may help reduce the volume. The DMA’s address is available via the Internet on the Commission’s web site or through the Commission’s Consumer Response Center.

The Federal Trade Commission or the state Attorneys General are the places consumers can contact if they lose money to a company engaged in fraud or even if they receive a solicitation which they believe is misleading or suspicious. While the Commission does not intervene in individual disputes, consumer complaints provide vital information that the Commission uses in developing its enforcement agenda and in determining whether a particular company is engaged in a pattern of deceptive practices or fraud, making it a suitable target for legal action.

Conclusion

The Commission’s fraud program is of special interest and importance to this country’s senior citizens, because the elderly often find themselves victimized by such operations. The Commission will remain alert to new schemes that target senior citizens and will continue its aggressive campaign against telemarketing fraud to prevent injury to all consumers, including the elderly.

(1) The views expressed in this statement represent the views of the Commission. However, my oral testimony and responses to questions are my own and do not necessarily reflect the Commission’s views or the views of any other Commissioner.

(2) 15 U.S.C. §§ 41 et seq.

(3) E.g., the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., which mandates disclosures of credit terms; the Fair Credit Billing Act, 15 U.S.C. §§ 1666 et seq., which provides for the correction of billing errors on credit accounts; the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq., which establishes rights with respect to consumer credit reports; and the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301 et seq., which provides disclosure standards for consumer product warranties; and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101-08, which authorizes the Commission to promulgate rules defining and prohibiting deceptive telemarketing practices and other abusive telemarketing practices.

(4) E.g., the Telemarketing Sales Rule, 16 C.F.R. Part 310, which defines and prohibits deceptive telemarketing practices and other abusive telemarketing practices; the Care Labeling Rule, 16 C.F.R. Part 423, which requires the provision of care instructions for wearing apparel; the Franchise Rule, 16 C.F.R. Part 436, which requires the provision of information to prospective franchisees; the Mail and Telephone Order Merchandise Rule, 16 C.F.R. Part 435, which gives consumers certain rights when ordering products through the mail; and the Funeral Rule, 16 C.F.R. Part 453, which regulates certain pricing and sales practices by funeral providers.

(5) Recent survey research conducted on behalf of the American Association of Retired Persons (“AARP”) shows that there is no ready answer explaining why a disproportionate number of telemarketing fraud victims are elderly. The research rebuts the notion that the elderly are vulnerable because they are socially isolated, ill-informed, or confused. The survey shows, however, that older people who fall for telemarketing scams tend to believe the pitches they hear -- that they have a good chance of actually winning the grand prize, and that the products touted are worth the price charged for them. Ninety percent of respondents report awareness of consumer fraud; yet two-thirds said it is hard to spot fraud when it is happening. The survey also shows that elderly victims find it difficult to terminate telephone conversations, even when they say they are not interested in continuing a conversation. They are also reluctant to seek advice or assistance from others about financial matters in general.

(6) 15 U.S.C. §§ 53(b) and 57b.

(7) The eight cases the Commission brought in connection with Operation Jackpot have all concluded and have resulted in the defendants paying more than $550,000 in consumer redress or disgorgement to the U.S. Treasury.

(8) FTC v. Woofter Investment Corp. et al., CV-S-97-00515-LDG(RLH) (D. Nev. filed April 24, 1997) and FTC v. Pacific Rim Pools International, C97-1748R (W.D. Wash. filed Nov. 7, 1997).

(9) The Commission examined demographic data on the victims of five telefunding operations the Commission sued in 1994 and found that out of 143 consumers interviewed, 85 percent were at least 65 years of age.

(10) See FTC v. Leon Saja, d/b/a Southwest Publishing, Civil Action No. CIV 97-0666 PHX sm (D. Ariz. filed March 31, 1997); FTC v. The Baylis Co., Civil. No. 94-0017-S-LMB (D. Idaho filed Jan. 10, 1994); FTC v. NCH, Inc., Civil No. CV-S-94-00138-LDG (LRL) (D. Nev. filed Feb. 14, 1994); FTC v. International Charity Consultants, Civil No. CV-S-94-00195-DWH (LRL) (D. Nev. filed Mar. 1, 1994); FTC v. United Holdings Group, Inc. (D. Nev. 1994); FTC v. Voices for Freedom, Civil No. 91-1542-A (E.D. Va. filed Oct. 21, 1991).

(11) A number of the Commission’s cases sought injunctions against the defendants’ failure to comply with the Commission’s Franchise Rule, 16 C.F.R. Part 436, which reduces fraud by requiring sellers of franchises and business opportunities to provide prospective purchasers with disclosures covering 20 specified material topics, including the names and addresses of current and former owners of the franchise or business opportunity.

(12) In its investigation of one recovery room case, SCAT, Commission staff interviewed 43 consumers who were allegedly victimized or approached by SCAT telemarketers. Of these individuals, 81 percent were at least 65 years of age; 47 percent were at least 75; and 23 percent were at least 80. Similar percentages have been found in other recovery room cases.

(13) The Telemarketing Sales Rule expressly prohibits telemarketers from requesting or accepting payment for “recovery” services until 7 business days after the promised goods, services, or cash have been recovered and delivered to the consumer. 16 C.F.R. § 310.4(a)(3).

(14) FTC v. Telecommunications Protection Agency, Inc., No. CIV-96-344-5 (E.D. Okla. filed July 24, 1996); FTC v. Desert Financial Group, Inc., No. CV-S-95-0151-LDG (D. Nev. filed Dec. 5, 1995); FTC v. Meridian Capital Corp., No. CV-S-96-00063-PMP (D. Nev., transferred to D. Nev. Jan. 23, 1996, originally filed in D.D.C Aug 17, 1995); FTC v. USM Corp., No.CV-S-95-0668-LDG (D. Nev. filed July 12, 1995); FTC v. PFR, No. CV-S-95- 000745-HDM (D. Nev. filed Jan. 25, 1995); FTC v. Thadow, Inc., No. CV-S-95-00074-PMP (D. Nev. filed Jan. 25, 1995); FTC v. United Consumer Services, No. 1:94-CV-3164-CAM (N.D. Ga. filed Nov. 30, 1994); FTC v. Richard Canicatti, d/b/a Refund Information Services, CV-S-No. 94-859-HDM (D. Nev. filed Oct 11, 1994).

(15) E.g., Alleged pyramid scam: FTC v. Nia Cano d/b/a Credit Development Int., et al., No. 97-7947 IH (AJWx) (C.D. Cal. filed Oct. 29, 1997). Alleged credit repair scams: FTC v. Corzine, No. CIV-S-94-1446 (E.D. Cal. filed Sept. 12, 1994); FTC v. Consumer Credit Advocates, No. 96 Civ. 1990 (S.D.N.Y. filed Mar. 19, 1996); Martha Clark, d/b/a Simplex Services, Docket No. C-3667 (consent order, June 10, 1996); Bryan Coryat, d/b/a Enterprising Solution, Docket No. C-3666 (consent order, June 10, 1996); Lyle R. Larson, d/b/a Momentum, Docket No. C-3672 (consent order, June 12, 1996); Rick A. Rehem, d/b/a NBC Credit Resource Publishing, Docket No. C-3671 (consent order, June 12, 1996). Alleged business opportunity scams: FTC v. Intellicom Services, Inc., No. 97-4572 TJH (Mcx)(C.D. Cal. filed June 23, 1997); FTC v. Chappie (Infinity Multimedia), No. 96-6671-CIV-Gonzalez (S.D. Fla. filed June 24, 1996); Timothy R. Bean, d/b/a D.C. Publishing Group, Docket No. C-3665 (consent order, June 10, 1996); Robert Surveys, d/b/a Excel Communications, Docket No. C-3669 (consent order, June 12, 1996); Sherman G. Smith, d/b/a Starr Communications, Docket No. C-3668 (consent order, June 12, 1996). Alleged deceptive cash grant matching service: Randolf D. Alberton, d/b/a Wolverine Capital, Docket No. C-3670 (consent order, June 12, 1996). Alleged deceptive advertising of health product: Global World Media Corp. and Sean Shayan, Docket No. C-3772 (consent order, Oct. 9, 1997). Alleged misrepresentations about product characteristics: Zygon International, Inc., Docket No. C-3686 (consent order, Sept. 24, 1996). Alleged non-delivery of ordered merchandise: FTC v. Brandzel, 96 C. 1440 (N.D. Ill. filed Mar. 13, 1996).

(16) The Commission would like to acknowledge the assistance of AT&T and MCI in administering the redress program. AT&T and MCI will distribute refunds to most consumers in the form of telephone credits on their long-distance telephone bills.

(17) In recognition of the FTC’s contributions, the U.S. Department of Justice honored the FTC attorneys with its John Marshall Award for inter-agency cooperation in support of litigation in 1996.

(18) The Telemarketing Complaint System is a database of consumer complaint information that the FTC maintains in cooperation with the National Association of Attorneys General. The database is available to many law enforcement agencies and it a very valuable tool in identifying fraudulent telemarketing operations.

(19) FTC v. Ideal Credit Referral Services Ltd. et al., C96-0874R (W.D. Wash. 1996).

(20) FTC v. 9013-0980 Quebec Inc., d.b.a. Incentives Int’l, 1:96 CV 1567 (N.D. Ohio 1996).

(21) FTC v. Pacific Rim Pools International, C97-1748R (W.D. Wash. 1997); FTC v. The Tracker Corporation of America, No. 97-CV-2654-JEC (N.D. Ga. 1997).

(22)” “Phonebusters” is a national Canadian task force, supported by various governmental and private entities, that collects consumer complaint information through an 888 toll-free number. Its website is at “www.gov.on.ca/Phonebusters/index/htm.” “Canshare” is a joint project of Industry Canada and the provincial governments to share consumer protection information.