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Lead Generation Techniques Used by Con Artists for Direct Mail Fraud and Telemarketing Scams

List Brokers Facilitate Fraud with Target Marketing of Fraud Victims

03/05 - DES MOINES. Attorney General Tom Miller said today that the Consumer Protection Division of his office has asked the Polk County District Court to order Walter Karl, Inc. -- a major U.S. list broker and list management service based in Pearl River, NY -- to provide information in response to the State's investigation of direct mail and telemarketing schemes.

"Telemarketing schemes continue to harm Iowans, especially elderly Iowans, and they often rely on well-established U.S. businesses that facilitate what they know or should know is unlawful predatory activity," Miller said.

"In this instance, our investigation seeks to determine whether Walter Karl's services are used by fraudulent operators, and whether the list-broker should have known of such activities. Our overall objective is to deny deceptive telemarketers access to the crucial tools they need," he said.

In a filing made yesterday in Polk County District Court, Miller's office told the Court that, "After a period of cooperation - albeit slow and fitful cooperation - Walter Karl refused to provide certain key information" in response to the Consumer Protection Division investigation. The Attorney General's filing asked the Court to order Walter Karl to respond fully, under oath, within 30 days to specific investigative questions posed earlier by the Consumer Protection Division.

The filing seeks information such as what Walter Karl knows about how lists were created, how lists were used and by whom, and steps the company takes to ensure that persons using a list are not defrauding people on the list.

"Fraudulent telemarketers continue to plague Iowans, but most of the worst schemes now operate from Canada and other countries. They are hard to stop," Miller said.

"But Federal Trade Commission rules give us a strong tool. The FTC Telemarketing Sales Rule prohibits anyone from providing substantial assistance or support to a telemarketer when they know or should know that the telemarketer is using certain deceptive or abusive tactics, and we have authority to enforce the rule," he said.

"So now we are focusing on U.S. businesses that may provide crucial 'cooperating infrastructure' to deceptive telemarketers - companies that make the automatic withdrawals from consumers' bank accounts, for example," Miller said. "In this instance, we are investigating whether Walter Karl's list brokering and management services are used by fraudulent operators - and whether the company knew or should have known as much."

Today's filing is called an "Application for Order Enforcing Attorney General's Civil Investigative Demand." It asks the Court to prohibit Walter Karl from doing business in Iowa if it fails to comply with a Court order to fully respond to the State investigation.

The court filing explains that the Consumer Protection Division came to focus on Walter Karl, Inc., as the division sought to track down the source of fraudulent-appearing sweepstakes-prize mailings received by an elderly Iowan in late 2003 and 2004 - mailings an investigator recognized as resembling or appearing to be "screening mailings" designed to create a list of vulnerable consumers who would be good targets for subsequent telemarketing fraud. (Click here for investigator Barb Blake's affidavit filed 3-2-05 with the Application to Enforce.)

Further investigation established a link between the questionable mailing enterprises and the list management business of Walter Karl, Inc., where lists developed by the mailing enterprises were being rented. Sweepstakes mailings provided to the Court were traced to "Granite Wholesalers" and "Skypoint," both believed to be located in Canada and Australia. The Walter Karl website advertised a Granite Wholesalers list of 118,966 names characterized as "avid sweepstakes players," according to the filing, and a Skypoint list of 108,894 names characterized as "sweepstakes enthusiasts."

According to the State filing, other lists offered at the Walter Karl website included lists described as "cash-hungry individuals," "impulsive buyers. . . primarily mature," "hard core sweeps fanatics," "credit-seeking individuals...looking...for ways to regain a good credit standing," and sweepstakes contestants "over the age of 40, with household income of approximately $25,000."

Last year, the Consumer Protection Division issued a formal "Civil Investigative Demand" under the Iowa Consumer Fraud Act to determine the extent to which Walter Karl's list brokering and management services are used by fraudulent operators. Yesterday's filing asked the Court to order Walter Karl to fully respond to the Civil Investigative Demand.

The court filing contains numerous pages detailing what information is being sought and why, and how Walter Karl has "refused to provide certain key information, including information it had earlier agreed to provide."

The filing says: "Details regarding who rented lists of ostensibly vulnerable (and often elderly) consumers, and for what purposes those lists were rented, is a core part of the Attorney General's inquiry. For example, it would be important to learn whether telemarketers in Canada submitting suspect telemarketing scripts are nevertheless able to obtain lists of demonstrably vulnerable retirees identified as having an acute interest in prize promotions."

The suspected links between sweepstakes mailings and high-stakes telemarketing fraud:

The Consumer Protection Division filing discusses how "low-stakes" sweepstakes mailings may be connected to higher-stakes deceptive telemarketing. Iowans may receive mailings that appear to indicate they may be winners of large sweepstakes prizes (say, $1 million), if they only will pay some kind of "authorization fee" or "report fee" or "transfer fee" of, say, $29.95 or $24.99.

The division believes that persons who respond to such mailings often are put on lists used by Canada-based deceptive telemarketers. (Consumers also lose the "fees" they paid.) A typical big-ticket telemarketing scam from Canada might involve a call to a vulnerable older Iowan, a pitch that the Iowan had won millions in a lottery or sweepstakes or prize promotion - and a requirement that the Iowan pay $1,000 or $5,000 or even more to collect the prize. (The schemes use many ruses to justify the advance payment the victim must make to receive the millions in prize money - paying taxes in advance, customs fees, etc.) Victims win no big prize, and they lose what they pay.

The Consumer Protection Division has undertaken other action to tackle problems of deceptive mailings and deceptive telemarketing, including challenging businesses that may "facilitate" such schemes:

* Last April, a Polk County District Court Judge completely banned a direct mail and telemarketing operation owned by Richard Panas from doing any business in Iowa. In late 2003 and early 2004, Miller's office obtained an impound order and seized about 22,000 pieces of mail that were headed to Panas and his businesses based in Rock Hill, SC -- via a mail "drop box" in Clive, Iowa. The Consumer Protection Division alleged the mail was from vulnerable older people all over the country who had been tricked into sending checks to Panas in response to his bogus prize mailings - and alleged that names of people who responded would go on lists used by other con-artists for big-ticket fraud schemes.

Among other items, the Attorney General's filing yesterday asks the Court to order Walter Karl, Inc., to provide details and documents relating to Walter Karl's management or brokering of lists for Panas, and vice versa.

* Last September 3, the Consumer Protection Division obtained a court order to impound or seize mail coming to another commercial mail-drop box in Des Moines, interrupting an alleged scheme to deceive elderly consumers into thinking they were winners of huge sweepstakes prizes. Mail coming to the box - which was then shipped to businesses based in Vancouver, Canada -- would make a 'hot list' for telemarketing fraud or other schemes.

* Last September 17, the Attorney General's Office filed suit in Federal District Court alleging that an Arizona electronic withdrawal company "facilitated consumer fraud" by enabling deceptive telemarketers to automatically withdraw money from people's bank accounts without proper authorization. On October 7, the Court entered a preliminary injunction ordering "Teledraft, Inc." to comply with federal and Iowa laws concerning telemarketing fraud and other abuses while the lawsuit is pending.

* On Feb. 15, 2005, Attorney General Tom Miller announced that "Electracash, Inc.," a third-party ACH or automated clearing house processor located in Signal Hill, Cal., &has stepped up to the plate and agreed to take many positive steps to avoid processing withdrawals for fraudulent schemes." The company also paid a total of $15,774 to 56 Iowa victims of a telemarketing scam. Electracash did not perpetrate the scam, but the con-artists used the company to access people's bank accounts through the ACH system.

Articles on telemarketing fraud lead generation.

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