Fraudulent Sweepstakes Techniques
One in Five Prizes
"You're going to get one of these top five prizes, guaranteed!"
"These are the big awards that we don't even like to give
out, we just simply have to do it."
In a one-in-five scheme, the telemarketer tells you that you have
been chosen for one of five "valuable" prizes; however,
you are first pressured into buying a promotional product at an inflated
price. You are told that the "small amount of money" you
are required to send in will pale in comparison to the value of the
prize you will win.
In reality, however, the promotional product along with the prize
actually awarded, typically a relatively cheap "gimmie gift",
are worth, at most, about 30% of the remitted payment.
What's to Lose?
Deceptive prize promotion schemes often result in losses per consumer
of anywhere from a few hundred dollars to thousands of dollars and,
in some cases, people have lost their entire life savings to such
One witness at a Senate hearing testified that she lost over $74,000
to fraudulent telemarketers over a one year period. One 80-year-old
woman sent in her entire month's income only because the salesman
had assured her she had won a large cash award.
In one case, victims were told that for a one-time
fee, they were guaranteed one of the major prizes, a bonus watch,
and a three-year membership in a credit card protection plan. The
offer was accepted by 18,527 people, all of whom provided their
bank account and credit card numbers. Using this information, the
company received $1,158,228 from successful debits.
Out of this, the operation spent a total of $34,523
on credit card protection service for some of the victims, obtained
through a legitimate business, which for a $10 fee per person,
recorded the victim's credit card numbers and notified the appropriate
companies if the cards were lost or stolen, along with an additional
$7,750 spent on "bonus" watches.
Some Purchases Required
In a flurry of dizzying double-talk they say all of the prizes are
large and valuable, but in order to receive your prize they may insist
you pay a processing fee for handling, customs duties or taxes, and
you must send a check or money order to them by overnight mail.
They may want to leave you with something you perceive as commercially
tangible, after they have taken your money, so in order to claim
your valuable "mystery prize", "one-in-five prize" or "award" you
are told that you will first have to purchase something. They will
sound quite reasonable when they express that:
"Of course great contests wouldn't be possible, and the
company couldn't very well stay in business long, without some
sales along the way".
"You need to buy something to comply with the sweepstakes
"It's only fair to get something after winning such a great
prize. Don't you think?"
"You'll get a wonderful free bonus if you buy our product."
Depending on the operations choice it may vary, but will likely
include some of the following:
and letter opener sets
subscriptions which you may not even receive
trinkets of minimal value compared to the payments made
No to Drugs" items like hats, pens, Frisbees and lapel
contribution to bogus charities
merchandise or services
coupons or vouchers
The impressive-sounding brand names defy after-the-fact comparison
shopping, they are so obscure. All of the items are provided to
you at what turn out to be grossly-inflated prices. One telemarketer
conceded that he sold pen sets, vitamins, and makeup for $299 to
$999 when their cost ranged from $10-200.
Magazines for Life
You may be told you will win an additional watch or a camera and
will also be entered into an "all cash sweepstakes" with
a grand prize of $50,000 and an early bird prize of $5,000, but
only if you purchase or renew a magazine subscription.
Callers may offer "free," "prepaid," or "special" deals
on magazine subscriptions. The total cost is never mentioned, merely
that you will get the magazines for "just pennies per week",
But you end up paying hundreds of dollars for subscriptions that
normally sell for much less. Some consumers who ordered or renewed
multiple subscriptions for more than one year, spent several hundred
dollars on a single transaction.
"We've extended this amazing offer just one more day,
and we have to receive your money by midnight tonight. But don't
worry, you can meet the deadline. Just give me your bank account
number and I can process your order for the four magazines you
want to start receiving, right away."
Some sweepstakes firms may even tell you to write "magazines" or "magazine
package" on the memo lines of your check or money order so
as to hide the fact you have had to pay to enter a sweepstakes.
They may also tell you to call back to confirm that you have sent
your payment. Once you call to confirm that you have sent the required
amount, they ask for the air bill number for the package containing
it. This is both to ensure that you've sent your money and also
provides an opportunity to divert it to a mail drop location.
You may then receive a magazine order form from them that requests
you select a number of magazines from a preprinted list. In the
end however, you may not even receive the selected magazines.
Multinet Marketing mailed out prize certificates to consumers
telling them they had won two of five prizes, such as automobiles,
vacations, or diamond bracelets, as well as, food coupons, travel
awards and other prizes allegedly totaling more than $1,200 in
The solicitations stated that to obtain these prizes, you needed
to purchase magazine subscriptions from American Readers Service,
costing you $598. The mail-out asked you to respond by calling
a 1-800 number. When you called in, they tried to obtain authorization
to bill your credit card for the magazine subscriptions and prizes.
"We need your financial information so we can verify eligibility
and "deposit your winnings" directly to your account."
For a better idea of subscription rates do a search.
The Odds Are Great
The five guaranteed awards may consist of one of these groupings
depending on your level of advancement in the contest, which, through
repeated calls, can go on for months or years:
- a Ford Explorer
- a satellite TV dish
- a diamond & sapphire pendant
- airfare for two to Hawaii
- a cellular telephone
In this first grouping of "guaranteed" prizes no one
will win the Ford Explorer or the satellite dish. Everyone receives
one of the same three awards: the diamond & sapphire pendant,
the airfare for two to Hawaii, or the cellular telephone.
However, so many terms and conditions apply to the airfare to
Hawaii and to the cellular phone, that they have essentially no
value, and the diamond & sapphire pendant is comprised of a
low value commercial grade diamond and a microscopic size sapphire.
In the second grouping you are assured of winning one of:
- a vacation for two
- a grandfather clock
- a sport fishing boat
- a diamond ring
- a food processor
The vacation for two is a certificate for inexpensive small town
lodging and it includes so many restrictions and hidden charges
that it's worthless. The grandfather clock is made of cardboard
and plastic. The "sport fishing boat" turns out to be
an inflatable raft. The diamond in the ring is the size of a pinhead
and the food processor is actually a hand-operated food chopper
last sold in the sixties.
The third offering is for:
- an exotic Hawaiian vacation for two
- a genuine fur coat
- an all terrain vehicle
- a 21' luxury boat
- an investment depository instrument
The "exotic vacation" is for a 3 day midweek, off-season
trip at the cheapest accommodation possible. The "genuine" fur
coat is a dyed rabbit pelt worth about $30. The "all-terrain
vehicle" arrives as a lawn chair with wheels and the 21' luxury
boat turns out to be a retired dingy from a mothballed cruise liner.
The "investment depository instrument" you might have
guessed by now, is a "piggy bank".
Gimmie Gifts to
Be wary if they list nice-sounding prizes like "designer" or "diamond" watches.
They are likely to be cheap or practically worthless junk. The
prize will not come close to being worth what you pay for its "processing".
Often you never get a prize. If you do get one, it is typically
an inferior, overpriced, or grossly misrepresented piece of merchandise,
often called a "gimmie gift" by U.S. telemarketers and
a "cheap gift" by Canadian telemarketers. Invariably,
they always describe the "prize" as being worth more
than the price of what they're asking you to buy.
Sometimes they mask the award under the title of "mystery
prize" to lure you in with your own imaginings rather than
by their fabrications. They may say that you have been selected
to receive a valuable prize but they are "prohibited by law" from
disclosing what it is.
"I can't tell you what you won, but I know you're going
to be very happy and want to give me a kiss," while
jingling car keys in the telephone mouthpiece.
In fact, no federal or state law prohibits truthful disclosures
of prizes or awards.
In addition, they will also deceptively describe vacation prizes
to attract customers to sales meetings for land or vacation timeshares.
As a rule, if you have to pay to receive your "prize," it's
not a prize. You haven't won anything.
One victim testified that when he agreed to send in $840 for taxes
and fees on a "home entertainment center" and an "IBM laser
PC-3" computer, he was expecting to receive a large entertainment
center and a computer that were worth over $2000.
The entertainment center was a "boom box" which included
a small 5" black and white television which cost $129. The
computer received was actually a derelict dumb terminal from the
Another person's "free" stereo system prize, that he
paid a $50 shipping and handling charge to win, turned out to be
a plastic transistor radio. When a cash prize is promised, it turns
out to be a certificate that cannot be redeemed unless you buy
hundreds of dollars' worth of overpriced, substandard merchandise
Who's our Lucky Winner?
Elderly persons constitute the main group targeted as susceptible
by fraudulent telemarketing organizations because they are easily
accessible by phone, usually intent on enlarging their savings
for the benefit of grandchildren, often less suspicious, sometimes
possess poor memories, and are usually too embarrassed to inform
family or law enforcement should they even recognize the deceit.
These people are thought to be predisposed to sending money in
the hope of striking it big; therefore, they are good prospects
for fraudulent telemarketers. A survey of one company's victims
revealed that 75% of the respondents, equaling approximately 70%
of all victims, were older than age 62.
Who Really Wins?
Telemarketers keep track of their victims with sales order forms.
A typical sales order form will indicate the date of the contact,
the telemarketer's real name, any aliases used on the phone with
a particular customer, the customer's name, address, and telephone
number, the amount charged, and the "gift or award" item
that was to be sent.
When employees are paid they receive a "commission statement" along
with their paychecks. These statements inform the telemarketers
of the date on which a particular victim's check was received,
the victim's name, the amount they paid, the deduction for overhead
expenses ( 7% of the amount paid by the victim), and the actual
cost of the item sent, known as the "pad".
Telemarketers know the price paid for the junk being sent because
their commission is 25% of the amount stolen, after the cost of
overhead and the item itself are deducted. For awards under $50,
most operations do not even deduct this cost from a telemarketer's
To maximize the commission earned, they will try to convince victims
to send large amounts of money for the award. For example, one
victim received a sculpture worth about $200 after placing a $21,000
order for 130 space pens and other miscellaneous items.
After deducting this $200 plus $1000 for the pens, the telemarketer
would receive a 25% commission on $19,800 or $4950 just for smooth-talking
some "stupid old lady". The head of the operation
would net about $14,500. Thus, telemarketers have a great incentive
to provide victims with cheap merchandise rather than an actual
car, motor home, sail boat, or some other expensive award.
Through the accumulation of personal checks or money orders ranging
from $50 to $699, one company alone had gross sales totaling $2,743,470,
with net proceeds, or an almost pure profit of $2,449,118.
Out Of This World
Telemarketing salespersons for the Space Universal Life Church
told victims that if they made a contribution, they would win thousands
of dollars in prizes commensurate with their donation.
They had victims believing that SULC was
a religious charity that had selected a limited number of individuals
to receive a valuable "gift" if the person donated money.
But, in fact, more than 99% of the victims received only an inexpensive
During a second "reloading" solicitation, salespersons
told victims they were from SULC's accounting department, and that
they had your unclaimed prize money, then went on to say that all
you had to do to claim the prize was to make another donation.
Investigators discovered records which revealed that in just one
year a total of $840,403 had been deposited into their "church" bank
account. By the time officials learned of it, only $12,790
A Real Work of Art
Legendary Concepts' sales personnel called people who previously
had responded to direct mail offerings, to persuade them to buy
exorbitantly overpriced products, such as cosmetics, cleaning supplies,
fire safety kits, Fisher "space" pens, and "Say
no to drugs" promotional goods.
The price of these goods far exceeded what they paid for them.
For example, the "Say no to drugs" product package, which
included such low-cost items as Frisbees, baseball caps, rulers,
calculators, and desk clocks, was sold to victims for between $1,299
The Fisher "space" pens, which they had acquired for
just $7.70 each, sold for $159.95. Over a thirteen month period
they took in a total of $13.1 million but the company spent only
$53,000 on prizes for their "contest winners."
In one promotion the "guaranteed" and "valuable" prizes
included $3,000 in cash, a Whirlpool appliance package, a "limited
edition artwork," $5,000 in cash, and a brand new Ford Taurus.
They told each customer that the prize would be selected randomly
by a computer. In reality, the customers would always "win" the
least valuable award, or a "gimmie gift." In this promotion
it was the "limited edition artwork," a framed lithograph
by J.W. Scott for which they had paid less than $75 apiece.
The telemarketers would not disclose that it was a mass-produced
lithograph. Even when asked specifically about the value of the
prizes, they refused, citing the company's policy against such
One of the most accomplished salespeople trained other sales staff
and was a "takeover man" who joined the phone calls of
less experienced staff to consummate sales. A master of deception,
he would suggest that the "valuable" piece of artwork
might be worth "somewhere in the ball park " of $50,000.
Once a year, they would award to certain customers the "real" prizes,
such as the cash awards or the Ford Taurus, but not by random computer
selection. Instead, either an employee of the company or the owners
themselves picked the winner, who was always a customer who had
purchased a substantial amount from the company.
Although the sales pitch included an initial disclaimer notifying
customers that they were "under no obligation to make a purchase," a
number of victims testified that sales personnel had told them,
or had led them to believe, that they had to buy products to win
a prize, or that their odds of winning a prize would improve if
they made a purchase.
People contacted by Midwest Marketing were informed that they
were "guaranteed winners" of one of five prizes which
included: 1) a Mazda Miata, 2) $5000 in cash, 3) five dream vacations,
4) a home entertainment center, and 5) $1000 in cash.
The "winners" were then told that in order to receive
their prize they would simply have to pay certain promotional fees
and taxes on the prize.
The telemarketers made a "sale" when someone agreed
to pay these fees and taxes. Of course, none of this money actually
went to pay any promotional fees or taxes, and the "customers" were
never told that they were purchasing anything.
Some were told what their prize would be, while others agreed
to send in the requested money without knowing which of the items
they were going to receive. After people sent in their money,
they would generally receive five vacation vouchers, though some
people were sent a bracelet and many received nothing at all.
The company would purchase the vacation packages for $45 and the
bracelets for $50 from Premium Research, a company that specialized
in selling such items to telemarketers. Persons who "won" these
prizes, however, were asked to send in more than $200 for taxes
and fees. The average amount requested for the vacation package
People were naturally quite disappointed by the vacation packages
they were sent, since the five one-week packages did not include
airfare or any transportation expenses, did not cover food, taxes,
or other costs, and had other restrictions. Essentially the "packages" were
certificates for one week of lodging at specific hotels, in specific
cities, with no guaranteed availability. Most victims considered
the vouchers worthless.
Those who received a "Cash Awards Bureau" solicitation
were told the company was an official agency charged with locating
sweepstakes winners and that the recipient had won a large cash
prize. To claim their prize, the "winner" had to fill
out and return what was actually a highly deceptive order form
for discount coupons and a long distance calling card.
Recipients of a "Disbursement Center" mailing were informed
they had won a home entertainment center. In order to receive their
prize, winners were instructed to send $79.83 for "insured
delivery." Most consumers sending payments received nothing,
while others received only a cheap 5" television with a built-in
Continental Distributing Company would list their awards in the
following order: a new car, a speed boat, the open award, and cash.
The "open award" was worth substantially less than the
other awards. Typically, it was a very inexpensive piece of merchandise
such as a lithograph, a JFK coin set, or
a cheap sculpture.
The object of the scheme was to convince the victim that they
had won some really fabulous award and then get them to pay substantially
more for the award than CDC had paid for
it. In addition to the open award, they also sent victims a "mixed
box of products," which were essentially worthless trinkets
or products like letter openers, space pens, and frisbees.
CDC found its victims, often referred to as "mooches," by
buying what are known as "leads lists" from lead brokers
in Las Vegas though some telemarketers brought their own lists
with them. Those lists contained the names of elderly people who
had previously purchased products over the telephone from some
other company, usually spending large amounts of money to do so.
CDC, like most telemarketing companies, organized its telemarketers
into "fronters" and "reloaders." The fronters
called the leads, told them about the one-in-five promotion and
that they had been selected as winners.
On the first call, the fronters normally pushed to have the customers
send in an amount under $1000 in exchange for the open award which
would be a lithograph or coin set that only cost $50 to purchase.
Then the reloaders took over for additional sales which required
their professionally efficient touch.
Gold Dust Memo
To: Call Centre Staff
From: Legal Department
Although current laws for mail fraud now include commercial carriers
like UPS, call center staff will continue
to request this mode of delivery for customer remittances due to
the greater likelihood of postal inspection intervention while
in the slower transit mode.
One Point Five for a One of Five
A $1.5 million settlement stems from FTC charges filed against Pioneer
Enterprises Inc. of Las Vegas, which also does business as Vita
Tek Marketing, Pro Life Marketing, 21st Century II, and Sunshine
Promotions; 21st Century Marketing, Inc; Great Western Printing,
Inc; Regency Marketing Enterprises, Inc. (New York); Premier
Marketing of America, Inc., ( Buffalo, New York); VitaSystems
Enterprises, Inc. of Buffalo; and Richard J. Secchiaroli and Christopher
A. Easley, both of Las Vegas and both officers of each of
these companies, who allegedly ran a deceptive prize-promotion
telemarketing scheme to induce consumers to buy a variety of
The FTC alleged that, beginning in 1988 or earlier, the defendants
made unsolicited calls and mailed notifications to consumers, stating
that the consumers had won valuable awards such as a luxury Cadillac,
$5000 cash, a diamond watch, or a Hawaiian vacation.
When you responded to the notifications, they allegedly made numerous
false and misleading statements to induce you to purchase vitamins,
water purifiers, or other merchandise at prices ranging from hundreds
to thousands of dollars -- prices that far exceeded the value of
the prizes typically awarded.
In some cases, they used 900 numbers or other pay-per-call exchanges,
telling you that, by calling such a number, you could receive your
promised award without purchasing the merchandise.
More than 46,000 consumers in fifty states will receive partial
refunds ranging from $5 to around $600 from the $1.14 million dollar
proceeds of the settlement. 9/13/93
The proposed order contains a general prohibition on the making
of any false or misleading statement about any product, service,
or incentive items the defendants offer, and specifically prohibits
false or misleading claims. It also contains various disclosure
requirements such as that the prize is being offered in connection
with a sales promotion.
Further, the defendants would be required to monitor their employees
and fire any person who they know, or should know, has violated
the settlement provisions three times within an 18-month period.
The FTC alleged that, in addition to running their own scheme,
they aided and abetted other telemarketers to run similar deceptive
schemes by providing marketing, order shipment, credit-card processing,
and customer services. Thus, the settlement also would require
the defendants to take steps to assure that other telemarketers
or direct mailers they deal with comply with the order.
In addition to providing the FTC with the names of those they
sell lists to they would also have to "seed" any customer
lists they sell to other marketers with names provided by the FTC
so that their compliance could be monitored.
NOTE: Consent judgments are for settlement purposes only and
do not constitute an admission by the defendant of a law violation.
Consent judgments have the force of law when signed by the judge.
12/02/92 FTC Matter No. X920055 Civil Action No.: 92-615-LDG-RJJ
News articles discussing the "one in five" sweepstakes scam.