[Senate Hearing 105-695]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-695


 
                            MARKETING SCAMS

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

                      COMMITTEE ON APPROPRIATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                               __________

         Printed for the use of the Committee on Appropriations


                               


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                                 senate

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                        COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington             DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana                TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire            HARRY REID, Nevada
ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
               James H. English, Minority Staff Director
                                 ------                                

   Subcommittee on Commerce, Justice, and State, the Judiciary, and 
                            Related Agencies

                  JUDD GREGG, New Hampshire, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
PETE V. DOMENICI, New Mexico         DANIEL K. INOUYE, Hawaii
MITCH McCONNELL, Kentucky            DALE BUMPERS, Arkansas
KAY BAILEY HUTCHISON, Texas          FRANK R. LAUTENBERG, New Jersey
BEN NIGHTHORSE CAMPBELL, Colorado    BARBARA A. MIKULSKI, Maryland
                                     ROBERT C. BYRD, West Virginia
                                       (ex officio)
                           Subcommittee Staff
                              Jim Morhard
                             Kevin Linskey
                               Paddy Link
                               Dana Quam

                         Scott Gudes (Minority)
                              Emelie East


                            C O N T E N T S

                              ----------                              

                       NONDEPARTMENTAL WITNESSES

                                                                   Page

Statement of Walter L. Maroney, senior assistant attorney 
  general, State of New Hampshire................................     1
    Prepared statement...........................................    10
Telemarketing fraud on the elderly as a form of domestic abuse...    11
Illustrative stories.............................................    11
Law enforcement..................................................    12
Canada and cross border issues...................................    14
Statement of Harold Phillips, detective, sheriff's department, 
  Charleston County, SC..........................................    15
Statement of Helen Boosalis, chair, board of directors, American 
  Association of Retired Persons.................................    18
    Prepared statement...........................................    21

                        FEDERAL TRADE COMMISSION

Statement of Hon. Robert Pitofsky, Chairman......................    29
    Prepared statement...........................................    29
Deceptive prize promotions and lottery clubs.....................    31
Telefunders or bogus charities...................................    31
Investment fraud.................................................    32
Business opportunity fraud.......................................    32
Recovery scams...................................................    33
The Internet.....................................................    33
Additional approaches to combating fraud.........................    34
Consumer education...............................................    36
Consumer sentinel binational telemarketing network...............    39
Home.............................................................    39
Cooperative United States-Canada effort..........................    39
Contacts.........................................................    43
Publications.....................................................    43
Letter from Officer John F. Stewart, TRIAD coordinator, Keene 
  Police Department.........................................48

                                  (iii)


                            MARKETING SCAMS

                              ----------                              


                       THURSDAY, FEBRUARY 5, 1998

                           U.S. Senate,    
    Subcommittee on Commerce, Justice, and 
                                     State,
               the Judiciary, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Judd Gregg (chairman) presiding.
    Present: Senators Gregg, Stevens, and Hollings.

                       NONDEPARTMENTAL WITNESSES

STATEMENT OF WALTER L. MARONEY, SENIOR ASSISTANT 
            ATTORNEY GENERAL, STATE OF NEW HAMPSHIRE

    Senator Gregg. We will start this hearing dealing with 
telemarketing and fraudulent market schemes generally as they 
affect people. It is a pleasure today to have a number of 
witnesses joining us, and we especially appreciate them taking 
the time from their busy schedules to be here.
    We have Walter Maroney, who is from the New Hampshire 
Attorney General's Office. We have Harold Phillips, from South 
Carolina and the sheriff's department in Charleston, and Helen 
Boosalis, who is the head of the American Association of 
Retired Persons [AARP]. These are individuals who have major 
impact and involvement in the issue of scams that are being run 
against especially senior citizens. This committee is very 
concerned about what we see as proliferation of the activity of 
using the Internet and the telephone in developing programs 
that take advantage of people.
    These telemarketing schemes, unfortunately, are very hard 
to track and hard to convict, but there are things that we can 
do to try to address them, and the same is true of the 
Internet. As we have seen the explosion of technology in this 
country, the law enforcement side has to keep abreast of ways 
that they can address making our citizens aware of the uses of 
this technology. So, that is what this hearing is about, and I 
especially appreciate our ranking member joining us and will 
yield to him for any comment.
    Senator Hollings. Well, I thank you very much, Mr. 
Chairman, for your persistence on this particular score and 
your leadership. As you know, we passed in 1991 the 
Telemarketing Act title in the Automated Consumer Act, and we 
authorized the attorneys general to go into the Federal courts 
to deal with this kind of fraud and we gave further powers to 
the Federal Trade Commission, the lead agency on this 
particular kind of fraud. So I thank you for the hearing, and I 
am delighted to hear the witnesses now.
    Senator Gregg. We will also be hearing from Chairman 
Pitofsky, who has joined us, after this panel. So why don't we 
begin right off with the witnesses. We will start with Walter 
Maroney.
    Mr. Maroney. Thank you, Senator Gregg. Senators, my name is 
Walter Maroney. I am a senior assistant attorney general, and I 
am the chief of the Consumer Protection Bureau in the New 
Hampshire Attorney General's Office. I am particularly grateful 
for the opportunity to speak to you today. I am actually quite 
honored to have an opportunity to speak before you on these 
issues, Senator Gregg, because you actually appointed me to the 
job I hold today.
    Senator Gregg. A good decision. One of my few, but when I 
do it right, I do it well.
    Mr. Maroney. Appointing an assistant attorney general may 
not have been the most memorable highlight of your tenure as 
Governor of the State of New Hampshire, but it certainly was 
one of the most memorable moments in my public career, because 
I really love the job that you have appointed me to. And I love 
this job because it gives me the opportunity to use the powers 
of government to do something to help, assist, and make lives 
somewhat better for people who are victims of any number of 
unfair or deceptive trade practices, including the real tragedy 
of telemarketing crimes on the elderly of this country, and I 
appreciate the opportunity to speak to you and to Senator 
Hollings and to the committee today about this particular 
issue. Thank you very much.
    I am here to talk to you today about telecommunications 
fraud and the abuse and the victimization of elderly citizens 
in New Hampshire and around the Nation. Now, these remarks are 
going to be delivered from the perspective of a small attorney 
general's office in one of our smaller States. Our consumer 
protection office is really a two-lawyer, three- or four-
paralegal operation, and in conjunction with the other 
attorneys general, with the Federal Trade Commission [FTC] and 
the Department of Justice and other law enforcement agencies 
and local law enforcement agencies in the State of New 
Hampshire, we have got our hands full dealing with the issue of 
telemarketing fraud.
    My remarks are intended both as a confession of some 
weakness and an admission of some significant successes in the 
ongoing battles by my office and by 49 other State attorneys 
general's offices, by countless law enforcement offices and 
Federal agencies into telemarketing fraud, sweepstakes, and the 
concomitant abuse of our elders.
    Now, in discussing the issues of telemarketing fraud and 
the abuse of the elderly, I think it is important to place 
these issues in a proper and human context. And I would suggest 
to the members of the committee that one important context in 
which to place the issue of telemarketing fraud on the elderly 
is the context of domestic abuse.
    No; fraud on the telephone does not involve violence. It 
does not involve the emotional horror inflicted on victims of 
abusive domestic situations. And, no, telemarketing fraud does 
not take away people's lives in the tragic ways that too often 
result from violence in the home. But at the same time, 
telemarketing fraud, sweepstakes, and other abuses directed at 
the elderly in our society do result in terrible and 
irremediable losses to victims of money, of dignity, and of 
security.
    Telemarketing abuse also shares with domestic abuse four 
disturbing characteristics that make it in some cases hard to 
enforce against. First, the abuse occurs in the privacy of 
one's home where, in a more perfect world, our elders ought to 
have the right to feel safe and secure, and it takes away that 
feeling of safety and of security.
    Second, the principal victims of this form of abuse in New 
Hampshire and around the country--possibly as many as 50 
percent of victims of some forms of telemarketing fraud, 
according to AARP data, are among our most vulnerable 
citizens--our older citizens. These are our parents and our 
grandparents, whom we are absolutely and morally obligated to 
protect and defend. Because they are older, victims of 
telemarketing fraud and sweepstakes abuse, they are often 
afraid to come forward and admit that they have been 
victimized, possibly because of embarrassment of the fear that 
admitting to having been victimized is tantamount to admitting 
to a diminishment of capacity.
    And, finally, our law enforcement structures are not in all 
cases adequate to neatly or effectively redress or prevent the 
injuries caused to victims of telemarketing or other forms of 
fraud. Nor do law enforcement agencies such as mine possess an 
immediate ability to address the broader social needs for 
assistance and services that are often critical elements in 
assisting elderly victims of this form of abuse.
    Now, to illustrate these points, let me talk briefly to you 
about a few New Hampshire citizens whom I know have been 
victims of telemarketing abuse. Let me talk to you, Senator, 
about a woman named Edna, who is an unmarried woman in her late 
70's who lives alone in a small community in New Hampshire. 
When Edna presented herself to the attorney general's office--
this was in early 1996--she was asking us for one thing and 
that was to make the phone stop ringing.
    When we investigated, when we went to her house, we found 
out that she had been regularly responding to a wide, wide--an 
infinite variety of telemarketing calls--and she had spent 
between $10,000 and $20,000 in such responses over about a 2-
year period. This was nearly all the money she had in the 
world. Her house was filled to overflowing with useless, 
worthless prizes--knick-knacks, pen sets, letters of 
congratulations for participating in some mythical war on 
drugs. And her phone was ringing over and over and over and 
over again, virtually all day.
    You see, Edna's name had made it on to what the industry 
refers to as a sucker list. She was somebody who responds, and 
responds positively, and gives away her money and that means 
that her name and that list had been sold and transferred and 
transferred and sold again from telemarketer to telemarketer to 
telemarketer, some of them legitimate, many of them not.
    Now, imagine, if you will, the fear that this elderly woman 
had. This is an elderly woman of clearly diminishing capacity. 
She knows at some level that she may be, or is being taken 
advantage of every time that phone rings in her home. And 
imagine again that phone ringing time after time after time, 
day after day after day after day.
    Or Louise, an elderly woman who came to our attention 
through the good auspices of a clerk at a Western Union office 
in Laconia, NH, who noticed that Louise was appearing regularly 
in that office to wire transfer hundreds of dollars to a person 
named--and I am putting this in quotes--``Juan Garcia,'' in San 
Antonio, TX. That is the moral equivalent of ``John Smith.''
    Upon intervention by our office, we determined that Louise 
had spent in excess of $8,000 to a voice at the other end of a 
telephone line which had befriended her. In this case, he had 
started by pretending to sell her magazines and had moved up, 
befriending her, befriending her, befriending her, telling her 
a story about a mythical life that he led. In the end, she was 
sending him money so he could finish, she thought, his final 
year in college. Good luck.
    Alf, an elderly man who appeared in our office this past 
year, who was widowed a couple of years ago, in the past 2 
years, Alf has spent between $20,000 and $40,000 of his 
lifetime savings of slightly over $50,000 on sweepstakes 
promotions. Notwithstanding the fact that Alf has received 
several hundreds of promotions declaring him by name to be a 
winner, he has yet to win that $1 million prize that he has 
been promised over and over again. He is, however, absolutely 
convinced, and he is convinced today that he has won any number 
of prizes. He contacted the Consumer Protection Bureau in New 
Hampshire, not because he thought he was being scammed, but for 
help in collecting his winnings.
    Joan is an elderly woman of significant means, but also of 
diminishing capacities. After a few bounced check incidents, 
her adult son, who lives over in New York, visited her. He 
reviewed her bank accounts and he learned, to his utter horror, 
that she had contributed in excess of $200,000 over a 6-month 
period to a fringe political group which, just like the Juan 
Garcia story, had contacted her over the telephone, and again, 
using that technique of befriending, befriending, befriending, 
had talked her into an enormous and continuing set of 
contributions.
    I choose to tell you these stories about these people 
today, Senators, because they are real. These folks live in New 
Hampshire today. Each of these older citizens has been 
victimized in exactly the way I am describing to you. I am not 
making anything up on this. Also, they illustrate, I think, the 
breadth of the problem, that the victims of telemarketing or 
sweepstakes abuse can be men or women maintaining or suffering 
varying levels of capacity or incapacity. They can live either 
on the knife edge of poverty or they can be people of means. 
They can be people of tremendous attainment during their 
younger lives.
    As I was getting up this morning and looking over this 
speech, I noticed, for example, several news stories about the 
fact that President Reagan is about to reach his 87th birthday 
tomorrow and is suffering from Alzheimer's disease, and, 
therefore, a diminishment of capacity. If President Reagan were 
picking up his own phone today, a telemarketer would think of 
him as having the word ``victim'' written all over his head.
    Each of these people, so different in lifestyle and 
background, are similar. They are similar because they have all 
been robbed of their money and their dignity, and their lives 
have been profoundly damaged at a time in their lives when that 
should not and must not be tolerated. Now, what are we doing 
about that in law enforcement? What are we doing about that 
kind of victimization? The easy and simple answer is we are not 
doing enough.
    The easy and simple answer is we are not doing enough at 
this point in terms of law enforcement and in terms of helping 
our elderly citizens. But a somewhat more complex and I think a 
somewhat truer answer is that, however imperfect our efforts 
are today and whatever the limitations we are suffering under, 
our efforts today are much, much more coherent and much more 
effective than they were 2 and 3 and 4 years ago, and they are, 
in part, because of the actions of the Senate in approving the 
Telecommunications Act in 1994 and 1995, and in large part 
because of actions that have happened under the aegis of the 
FTC, the Department of Justice, the National Association of 
Attorneys General, in the years following the passage of that 
act to coordinate and make coherent law enforcement efforts.
    This point is perhaps illustrated by talking about a law 
enforcement effort engaged in my office approximately 3 years 
ago involving a particularly nasty form of telemarketing fraud 
known as the reload or the recovery room. In summary, this one 
involves criminals who get money from people in the first place 
through traditional telemarketing fraud, through sweepstakes 
fraud, through charities fraud, through calling up and 
befriending, through getting their money in one way or another, 
and then--well, let me tell you this particular group had 
engaged in that kind of activity. They had engaged in active 
telemarketing fraud up in Maine. I think they were in Wells, 
ME, which is not far across the New Hampshire border. And they 
had been closed down in a civil action, with a limited asset 
seizure accomplished by the Maine attorney general.
    Immediately after that setback--immediately, within a 
matter of weeks or months--these guys moved across the border 
to Portsmouth, NH. Physically, they moved 5 miles, and they 
started calling the same people that they had called before, 
only this time they were pretending to be a government or 
quasigovernmental agency which was dedicated to getting money 
back from people who had already lost money to telemarketing 
scamsters. They would do that service for a mere $475 or $490 
additional payment, payable in cash or money order, but not 
necessarily by credit card.
    The New Hampshire Attorney General's Office, like the Maine 
Attorney General's Office, moved quickly, upon learning of this 
operation, to secure a civil court order closing down the 
operation and attempting to seize any cash or assets which 
could be located in New Hampshire, and we closed that 
operation. However, the money generated by that operation was 
no longer in New Hampshire and the individuals themselves who 
ran the operation--because we did not seize them criminally and 
get their bodies, they disappeared. They disappeared from the 
State of New Hampshire immediately after our lawsuit began, and 
they have not, to my knowledge, been heard from again.
    I look back on this case as being a partial failure by my 
office, and I raise it to illustrate three points which I think 
characterize law enforcement efforts against telemarketers back 
in the early 1990's. One was that there was a failure of 
effective communication between the New Hampshire and the Maine 
Attorney General's Office with respect to this incident. The 
second was that neither Maine nor New Hampshire chose back in 
1993 or 1994 to invoke our criminal jurisdiction to arrest and 
incarcerate the people who were stealing from our citizens this 
way. I don't think we had been educated in the way that AARP is 
educating law enforcers around the country and individual 
citizens to look on telemarketing fraud as the crime that it 
is. And, three, the ability of these particular perpetrators to 
fade away from two jurisdictions, two State jurisdictions in 
which they had been discovered, presumably to export this stuff 
off to another jurisdiction and start doing it all over again. 
It provides to my mind a very stark illustration of how 
desperately we needed and still need continued Federal and 
State coordination in the prosecution of telemarketing fraud.
    As a result of this lack of coordination between State and 
Federal authorities back, we are talking 3 or 4 years ago now, 
the crooks who operated this scam got away with it in two 
States. They got away with an undetermined amount of money from 
citizens from our and from other States, and they may still be 
in business. But let me emphasize that that occurred in what I 
still think of as the infancy of our efforts and the efforts by 
other State attorneys general and of Federal law enforcement 
agencies to really focus on telemarketing fraud.
    Over the last 3 years, the issue of telemarketing fraud, 
sweepstakes, and other forms of abuse of the elderly have 
become an extremely high priority in the offices of attorneys 
general throughout the States in local law enforcement offices, 
with the National Association of Attorneys General, with the 
FTC, the Department of Justice, the U.S. Postal Service and 
other Federal law enforcement agencies, and there has been a 
marked shifting emphasis from civil to what I believe is more 
appropriately criminal enforcement against telemarketing scam 
artists.
    I am sure Chairman Pitofsky will talk at length about the 
excellent history of coordinated efforts that have resulted in 
hundreds of civil and criminal actions, spear-headed by FTC and 
the Department of Justice, against individual and corporate 
defendants throughout the United States and Canada over the 
last couple of years. I will mention only a few: Operation 
Senior Sentinel, which targeted telemarketing and elder fraud; 
Operation Pay-Back, targeting credit repair fraud; Projection 
Loan Shark, targeting advance fee loan scams; Operation Copy 
Cat, targeting a highly lucrative but not often noticed process 
by which people try to do fraudulent sales of office and 
cleaning supplies; Project Jackpot, targeting fraudulent prize 
promotions.
    Each of these was a highly publicized, coordinated series 
of actions brought and announced on or about the same day--
actions and consumer education efforts brought on or about the 
same day, spear-headed by Federal agencies with significant 
participation by State attorneys general and local law 
enforcement agencies throughout the United States. They were 
and are intended to send a powerful signal to the people who 
inflict telemarketing fraud on our citizens that we aren't 
working alone anymore and the days of uncoordinated activity 
are coming to an end. You can run from one State, but you can't 
hide in another.
    In addition, the FTC has taken the lead in establishing a 
coordinated data base of telemarketing complaints available to 
Federal and State law enforcers within the United States, to 
which New Hampshire has itself just signed up to be a 
contributor. That data base and other services, and Internet 
service under the name of Consumer Sentinel, is now being 
broadened to include information regarding telemarketers and 
other fraudulent enterprises emanating out of Canada. That is a 
huge and important step forward, and I will defer to Chairman 
Pitofsky to tell you more about that really, really positive 
step in law enforcement.
    Similarly, NAAG, FTC, and DOJ have been instrumental in 
establishing linkages among law enforcement agencies through 
the identification of agency contacts, through State and 
Federal conferences on telemarketing fraud and enforcement, 
including two regional conferences on cross-border fraud and 
two criminal law training conferences sponsored by NAAG under a 
DOJ grant of funds which are scheduled to take place this 
spring. The bottom line is that we are very much, on a State 
and Federal level, getting our act together to coordinate and 
bring consolidated actions, learn where the criminals are, and 
not be constrained either by civil law or by State borders in 
finding and prosecuting the people who do this kind of 
activity.
    The last few years has also been marked by an emerging 
public-private partnership designed to promote public awareness 
of the issue of telemarketing and sweepstakes abuse of the 
elderly. The National Fraud Information Center of the National 
Consumers League is a publicly available data base of criminal 
complaints available to anyone who wants to use the Internet.
    AARP has been enormously, enormously helpful in 
establishing, through research and advertisement--research 
first--a comprehensive and meaningful profile of the scope of 
the problem and the kinds of people who can be victimized by 
this problem. And, in addition, their advertising program 
designed to tell people that telemarketing fraud is a crime and 
you can put down that phone is also a major, major step in the 
right direction.
    The National Association of Attorneys General has sponsored 
such activities as reverse boiler rooms, in which the attorneys 
general of various States, using sucker lists, call up people 
on those sucker lists and tell them how their name has come to 
the attention of law enforcers, and again providing them with 
information and warnings about the problems that may exist at 
the other end of a phone.
    The telecommunications acts of 1994 and 1995, the FTC's 
telemarketing sales rule--they include enhanced penalties for 
people who prey on the elderly and that is very, very 
important. They do give--as Senator Hollings said originally--
they do give the State attorneys general the ability to go into 
Federal court and use the jurisdictional reach of the Federal 
courts to bring actions against fraudulent telemarketing 
activities that occur far from a home State.
    In addition, the proposed Telemarketing Fraud Prevention 
Act of 1997, of which I understand Senator Jon Kyl of Arizona 
is a principal sponsor in the Senate, contains provisions which 
would enhance penalties for telemarketing crimes committed 
across national borders. In view of some of the things that I 
am going to tell you about cross-border fraud, I strongly 
suggest to the committee that you may want to look favorably on 
provisions that address that issue of cross-border 
telemarketing fraud.
    In my small office, this culture of cooperation among State 
and Federal agencies can, I think, be most clearly seen by 
comparing the results of two of the cases that I talked about 
at the beginning. In the case of Louise, the woman who was 
victimized by the man who called himself Juan Garcia, our 
office lost valuable time--this was 2\1/2\ years ago--our 
office lost valuable time in trying to find and establish 
working relationships with local law enforcement and/or the FBI 
in San Antonio, TX.
    We did establish those relationships. With the help of the 
Federal Bureau of Investigation branch office down in San 
Antonio, we were able to establish a surveillance of the 
Western Union office in San Antonio, to which the wire 
transfers had been made. But by the time this effort was put 
into place--it took, actually, a good couple of weeks--Juan 
Garcia had disappeared--no surprise--so had the victim's money.
    By contrast, in the present environment, my office was able 
to take significant steps quickly, using the kinds of contacts 
that have been created between State and local law enforcement 
agencies and Federal law enforcement agencies, to assist Joan, 
the woman who had contributed the $200,000, at least, to a 
political organization via phone contacts. We were able quickly 
to determine that the organization in question was already 
under investigation by the Federal Bureau of Investigation and 
a U.S. attorney's office in another jurisdiction, immediately 
referred that matter to authorities conducting that ongoing 
investigation, assisted them in the conduct of the 
investigation, at least as respects this particular claimant.
    We have been informed of a projected settlement of that 
investigation which is going to result in a return of money to 
this victim, as well as others. In fact, upon further 
investigation, it turns out that this particular victim may 
have spent as much as $500,000 or $600,000 in contributions, 
and it appears today that she and her family are going to see 
much of that money returned.
    Finally, it is important to emphasize that for all the 
progress that has been made over the past several years, there 
is one major problem of effective law enforcement response to 
telemarketing fraud that remains. The issue of cross-border 
telemarketing fraud is now becoming a serious and vexing 
problem for law enforcers in the United States and in the 
various States.
    The most recent publicly available statistics from the 
National Fraud Information Center, for example, indicate that 
the Province of Quebec now ranks third, after only Florida and 
California, as sources of origin for fraudulent telemarketing 
calls into the United States. British Columbia is No. 8; Nova 
Scotia may be No. 11. In our own anecdotal experience in New 
Hampshire, it indicates that this trend is particularly true in 
border States such as New Hampshire, Maine, Vermont, and New 
York.
    I believe this development has occurred for two reasons. 
One is that the enhanced penalties and jurisdictional reach 
provided to this office by the Telecommunications Act of 1994 
may well have prompted an exodus of criminal telemarketers 
outside of the formal jurisdictional reach of the United 
States. The second is that these guys aren't dumb. They know 
very well that the processes for investigation, arrest, 
detention, extradition, and the seizure of assets in either a 
civil or criminal venue are way more difficult when you are 
doing it across national borders than when you are doing it 
between Maine and New Hampshire.
    Now, as with the development of State and Federal 
cooperation, the process for establishing protocols for 
international cooperation in combating telemarketing fraud is 
already underway. In 1997, the FTC, the Department of Justice, 
NAAG, and the Canadian Government issued a report which 
identified a number of the problems and began putting into 
place solutions to the complex enforcement issues posed by 
cross-border telemarketing fraud. Among the recommendations of 
that report was to explore the use of remote testimony in 
criminal proceedings in either the United States or Canada by 
videoconferencing or other means which would both reduce the 
cost of telemarketing prosecutions--and that is a real issue--
and to reduce the obstacles to elderly victims in testifying in 
such prosecutions, which is another major issue in actually 
putting together and prosecuting these cases as a practical 
matter; to examine the regulation of telephone services in the 
United States and Canada and to explore options for denying 
telephone services to known or convicted telemarketing 
offenders; to consider expanding the scope--and this is 
crucially important, Senators--of existing mutual legal 
assistance arrangements and treaties to more effectively deal 
with telemarketing fraud cases; and what is already going on, 
to coordinate strategies to control telemarketing fraud at all 
enforcement levels.
    The working group is continuing to do its work and is 
likely to provide further recommendations to you, Senators. I 
would suggest that to the extent that they make recommendations 
to the President or to the U.S. Senate which require 
modification of existing extradition or mutual cooperation 
treaties to streamline or expedite the processes for 
extradition, and in particular for the freezing or seizing of 
assets across national borders, that you take a good, hard look 
at that. Let me just explain that briefly.
    In order to seize assets in a noncriminal case where there 
isn't a crime going on in Canada, it is necessary essentially 
even for an attorney general's office to go in, seek Canadian 
counsel, do what is called a--I think it is a Mareva petition, 
but I may not get that right--but do a petition for seizure of 
assets across national borders under international protocols. 
Generally, under Canadian law, you have to post a bond to do 
that, and the States have to post a bond just like anybody 
else.
    Depending on how large a set of assets you are looking for, 
we may be asked to post a bond in the $25,000 or $50,000 level. 
That is a huge chunk of the whole litigation budget for an 
office of my size and makes bringing that kind of an action 
enormously difficult, somewhat risky, and possibly prohibitive 
to an office like mine. If and to the extent the working group 
is able to identify ways in which, consistent with the rights 
of the citizens of each nation, that process may be streamlined 
or may be made easier for law enforcers in the United States 
and Canada, support it, support it, support it, please.
    But let me just tell you that this effort, like the efforts 
of law enforcement offices to coordinate efforts within the 
United States, is, I would like to emphasize, beginning to 
really pay off, too. In the past several months, there have 
been at least three large-scale actions against Canadian 
telemarketers conducted through the concerted efforts of State 
attorneys general and Canadian Federal or provincial 
authorities.
    These have involved an action by Washington Attorney 
General Gregoire and the British Columbia Ministry of Attorney 
General against two Vancouver-based foreign lottery 
telemarketers. Illinois Attorney General Jim Ryan indicted a 
telemarketer based in Toronto and that person was arrested by 
Canadian officials on the basis of the United States 
indictment. Ohio Attorney General Betty Montgomery and Canadian 
authorities cooperated to break up a ring of a Toronto-based 
telemarketer and 20 confederates----
    Senator Gregg. Walter, we are unfortunately going to have 
to move along.
    Mr. Maroney. I will be happy to shut up in one second. Let 
me just say that all of those things mean one real thing and 
that is that the level of cooperation is really starting to pay 
off at this point among Federal, State, and now Canadian 
governments. We aren't winning this battle at this point, but 
we are fighting this battle very, very hard.
    Let me just say two things. One is that we were able to get 
some money back for that woman named Edna and that was a good 
thing, partial help. But there is that man, Alf, out there and 
he doesn't know today that he isn't going to win. And I would 
ask you to keep that in mind as you consider this whole issue 
because there are a lot of men and women like him out there, 
and they are in desperate need of support, of education, and 
protection. They are personifications of the fact that we have 
still got a lot of work to do.
    I would like to thank you very, very much for the 
opportunity to speak to you about these issues. I will be happy 
to answer any questions you have got.

                           prepared statement

    Senator Gregg. Thank you very much. I appreciate that in-
depth review. It was very useful and very informative.
    [The statement follows:]
                Prepared Statement of Walter L. Maroney
                              introduction
    I am here today to speak about telecommunications fraud and the 
abuse and victimization of elderly citizens in New Hampshire and around 
the nation. These remarks are delivered from the perspective of a small 
Attorney General's Office in one of our smaller states and is intended 
both as a confession of some weakness and of some significant successes 
in the ongoing battles by my office and 49 other state Attorney 
Generals Offices, and by countless local law enforcement offices, and 
federal agencies, including the Department of Justice, the Federal 
Trade Commission and the Federal Bureau of Investigation, into 
telemarketing fraud, sweepstakes, and the concomitant abuse of our 
elders.
     telemarketing fraud on the elderly as a form of domestic abuse
    In discussing the issues of telemarketing fraud and abuse of the 
elderly, it is important to place the issues of telemarketing fraud and 
abuse of the elderly in a proper and human context. And I would suggest 
to the members of this subcommittee that one important context in which 
to understand these issues is that of domestic abuse. No, fraud on the 
telephone does not involve violence or the emotional horror inflicted 
on victims of abusive domestic situations; and no, telemarketing fraud 
does not take away people's lives in the tragic ways that too often 
result from violence in the home. And yet, telemarketing fraud, 
sweepstakes and other forms of fraud on the elderly do result in 
terrible and irremediable losses to victims--of money, of dignity, of 
security. And telemarketing abuse shares with domestic abuse four 
disturbing characteristics:
  --The abuse occurs in the privacy of one's home where in a more 
        perfect world our elders should have a right to feel safe and 
        secure;
  --The principal victims of this form of abuse--possibly more than 50 
        percent of victims according to AARP data--are among our most 
        vulnerable citizens: our older citizens, our parents and 
        grandparents, whom we are absolutely and morally obligated to 
        protect and defend;
  --Victims of telemarketing fraud and sweepstakes abuse are often 
        afraid to come forward because of embarrassment or the fear 
        that admitting to having been victimized is tantamount to 
        admitting to a diminishment of capacity; and
  --Our law enforcement structures are not in all cases adequate to 
        neatly or effectively redress or prevent the injuries caused to 
        victims of telemarketing or other forms of fraud. Nor do law 
        enforcement agencies, such as mine, possess an immediate 
        ability to address the broader social needs for assistance and 
        services which may be critical elements in assisting elderly 
        victims of this form of abuse.
                          illustrative stories
    To illustrate this point, let me talk briefly about four 
individuals with whom my office has been involved during the past two 
years:
    Edna.--Edna is an unmarried woman in her late 70's, who lives 
alone. When Edna presented herself to the Consumer Protection Bureau of 
the New Hampshire Attorney General's Office in early 1996, her reason 
for contacting us was to ask that we make the phone stop ringing. In 
fact, on investigation, which included a visit to her home, we found 
that Edna had been regularly responding to a wide variety of 
telemarketing calls and had spent between $10,000 and $20,000 in such 
responses over a prior two year period.
    Her house was filled to overflowing with useless and worthless 
prizes--pen sets, knickknacks, letters of congratulations for 
participating in a mythical war against drugs. And her phone was 
ringing. Over and over and over again, virtually all day. You see, 
Edna's name had made it onto what the industry refers to a ``sucker 
list'' and that name and those lists had been sold and transferred from 
telemarketer to telemarketer to telemarketer, some legitimate, many 
not. Now, imagine if you will the fear of an elderly woman of 
diminishing capacity who knows at some level that she is being or may 
be taken advantage of every time the phone rings in her home. And 
imagine again that phone ringing time after time after time, day after 
day, after day, after day.
    Louise.--Louise is an elderly woman who came to our attention 
through the good auspices of a clerk at a Western Union office in 
Laconia, NH who noticed that Louise was appearing regularly in that 
office to wire transfer hundreds of dollars to a person named ``Juan 
Garcia'' in San Antonio, Texas. Upon intervention by our office we 
determined that Louise had sent in excess of $8,000 to a voice at the 
other end of her telephone line which had befriended her.
    Alf.--Alf is an elderly man in his early 80's who was widowed two 
years ago. Since then, Alf has spent between $20,000 and $40,000 of his 
lifetime savings of slightly over $50,000 on sweepstakes promotions. 
Notwithstanding the fact that Alf has received several hundreds of 
promotions declaring him by name a winner, Alf has yet to win the 
million dollar prize that he has been promised over and over and over 
again. He is, however, convinced that he has won any number of prizes. 
He contacted Consumer Protection in New Hampshire for help in 
collecting his ``winnings.''
    Joan.--Joan is an elderly woman of significant means but 
diminishing capacities. After a few bounced check incidents, her adult 
son, who lives in New York, visited her, reviewed her bank accounts and 
learned that she had contributed more than $200,000 over a six-month 
period to a fringe political group which had contacted her over the 
telephone, and again, using the technique of befriending, had talked 
her into enormous and continuing contributions.
    I choose to tell you these stories became these people are real. 
They live in New Hampshire today. Each of these older citizens has been 
victimized in exactly the way that I am describing over the past few 
years from a variety of sources. Also, they illustrate the breadth of 
the problem: that the victims of telemarketing and sweepstakes abuse 
can be men or women, maintaining or suffering varying levels of 
capacity or incapacity, can live either on the knife edge of poverty or 
be people of means. Yet in all cases these people, so different in 
lifestyle and background, are similar. They are similar in that they 
have been robbed of their money and their dignity and their lives have 
been profoundly damaged at a time in their lives when that should not 
and must not be tolerated.
                            law enforcement
    Now what are we in law enforcement doing about this kind of 
victimization? The simple answer is, not enough. A more complex and 
true answer is that our efforts today, while imperfect, are far more 
coherent and effective than they may have been only two and three and 
four years ago.
The move toward coordinated, criminal enforcement strategies
    This point is illustrated by a law enforcement effort engaged in by 
my office approximately three years ago involving a peculiarly nasty 
form of telemarketing fraud known as the ``reload'' or ``recovery'' 
room. In summary, this involves criminals who manage to steal from 
their victims once, usually by telephone, using standard telemarketing 
fraud techniques--sweepstakes claims, false charity claims, etc. This 
particular group had been engaged in active telemarketing fraud in 
Maine, and had been closed down with a limited asset seizure in a civil 
case initiated by the Maine Attorney General.
    Immediately after that set-back, they moved across the border to 
Portsmouth, New Hampshire--about a five minute drive from their 
previous base of operation--and started calling the same people that 
they had called before holding themselves out as a law enforcement 
agency, dedicated to recovery of money stolen from people by 
telemarketing scam artists, a service which they would provide for an 
additional payment of $490.
    The New Hampshire Attorney General's Office, like the Maine 
Attorney General's Office, moved quickly upon learning of this 
operation to secure a civil court order closing down the operation and 
attempting to seize any cash or assets which could be located in New 
Hampshire. We closed the operation. However, the money was not in New 
Hampshire. We don't know where it went. The individuals themselves who 
ran the operation disappeared from the State of New Hampshire 
immediately after our law suit was begun and have not, to my knowledge, 
been heard from again.
    I believe this case was a partial failure by our office and I raise 
it to illustrate three points which I believe characterized law 
enforcement efforts against telemarketers in the early 1990's:
  --The failure of effective communication between the New Hampshire 
        and the Maine Attorney General's Office with respect to this 
        incident;
  --The fact that neither Maine nor New Hampshire chose, three years 
        ago, to invoke our criminal jurisdiction to arrest and 
        incarcerate the people who were stealing from our citizens in 
        this way; and
  --The ability of the perpetrators of this particular scam to fade 
        away from two jurisdictions in which they had been discovered 
        presumably to export their activities to other states, provides 
        a stark illustration of the need of federal and state 
        coordination in the prosecution of telemarketing and other 
        forms of elderly fraud.
    As a result of this lack of coordination among enforcers, the 
crooks who operated this scam got away with it in two states, got away 
with an undetermined amount of money from the citizens of our and other 
states, and may still be in business.
    But I emphasize that that situation occurred during what I think of 
as the infancy of the efforts by my office and many other offices to 
address telemarketing crimes. Over the last three years, the issue of 
telemarketing fraud, sweepstakes fraud and other forms of abuse of the 
elderly have become a high priority in Attorney General's offices 
throughout the United States, with the National Association of 
Attorneys General, with the FTC, and with the Department of Justice, 
the U.S. Postal Service and other federal law enforcement agencies. 
There has been a marked shift in emphasis from civil to, more 
appropriately, criminal enforcement against telemarketing scam artists.
    In 1996 and 1997, state and federal law enforcers have conducted 
several coordinated enforcement efforts, resulting in hundreds of civil 
and criminal actions against individual and corporate defendants 
throughout the United States and Canada. These included Operation 
Senior Sentinel (Dec. 1995) targeting telemarketing and elder fraud, 
Operation Pay-Back (April 11, 1996) targeting credit repair fraud; 
Project Loan Shark (June 10, 1996) targeting advance fee loan scams; 
Operation Copy Cat (July 9, 1996) targeting fraudulent sales of office 
and cleaning supplies; and Project Jackpot (July 25, 1996) targeting 
fraudulent prize promotions. These actions have sent a powerful signal 
to the purveyors of telemarketing and sweepstakes fraud that the days 
of individual and uncoordinated actions by states are over.
    Similarly, NAAG, FTC, and DOJ have been instrumental in 
establishing linkages between state and federal agencies involved in 
enforcement of telemarketing laws, by identification of agency 
contacts, through state and federal conferences on telemarketing fraud 
and enforcement, including two regional conferences on cross-border 
fraud, and two criminal law training conferences sponsored by NAAG 
under a DOJ grant of funds, scheduled to take place this Spring.
    In addition, the FTC has taken the lead in establishing a 
coordinated data base of telemarketing complaints available to federal 
and state law enforcers within the United States, a data base to which 
New Hampshire will shortly be a contributor. That data base, under the 
name ``Consumer Sentinel,'' is now being broadened to include 
information regarding telemarketers and other fraudulent enterprises 
emanating out of Canada. This development is responsive to the recent 
upsurge in Canadian telemarketing fraud which is discussed below.
Public Awareness
    The last few years have also been marked by an emerging public-
private partnership designed to promote public awareness of the issue 
of telemarketing and sweepstakes abuse of the elderly.
    The work of the National Fraud Information Center of the National 
Consumers League in establishing a publicly available data base and 
resource center to alert consumers about the dangers of telemarketing 
fraud is an important step forward. The AARP's extensive research 
projects have provided enforcers and the public with a clearer 
understanding of the profile of persons who have been or are likely to 
be victimized by telemarketing fraud. Similarly, the advertising 
campaign sponsored by AARP which is designed to hammer home the concept 
that telemarketing fraud is a crime and that our elderly citizens can 
and should simply hang up that phone is also an enormous stride toward 
increasing public awareness of the breadth and moral horror of this 
issue.
    The National Association of Attorneys General has sponsored such 
activities as ``reverse boiler rooms'' in which the Attorneys General 
of many states have placed calls directly to persons whose names appear 
on seized ``sucker lists'' to warn them about the danger of 
telemarketing fraud.
    At the same time, the FTC has entered into several partnerships 
with such private groups and organizations as the Association of 
Chamber of Commerce Executives, Readers Digest, American Express, the 
Direct Marketing Association and others to find innovative ways to 
communicate with consumers about the ongoing dangers of telemarketing 
fraud.
Enhanced Penalties
    The Telecommunication Act of 1995 and the FTC's telemarketing sales 
rule included enhanced penalties for persons who prey on the elderly by 
telephone and granted state Attorneys General the ability to bring 
actions directly in federal courts against distant companies who prey 
on our citizens over the telephone wires. Similarly, the Telemarketing 
Fraud Prevention Act of 1997 (Sen. Jon Kyl, AZ) (H.R. 1847) contains 
provisions which would enhance penalties for telemarketing crimes 
committed across national borders. I urge the Committee to consider and 
adopt such measures.
Practical Effects
    In my office, the results of this culture of cooperation among 
state and federal agencies can be most clearly seen by comparing the 
results of two of the cases that I spoke to you about before. In the 
case of Louise, the woman victimized by the man who called himself 
``Juan Garcia,'' our office lost valuable time in locating contacts and 
establishing a working relationship with local law enforcement 
authorities in San Antonio, Texas. Ultimately, we were able to 
establish a relationship with the Federal Bureau of Investigation 
branch office in San Antonio, which resulted in a surveillance of the 
Western Union Office in San Antonio to which the wire transfers had 
been made. However, by the time this effort was put into place, ``Juan 
Garcia'' had disappeared. So had the victim's money.
    By contrast, in the present environment, my office was able to take 
significant steps to assist Joan, the woman who had contributed at 
least $200,000 to a political organization due to phone contacts. Using 
the web of telemarketing contacts in all 50 states and agencies of the 
Federal government established under the aegis of NAAG, the DOJ and the 
FTC, our office was quickly able to determine that the organization in 
question was already under investigation by the Federal Bureau of 
Investigation and a U.S. Attorney's Office in another jurisdiction, and 
immediately referred that matter to authorities conducting that ongoing 
investigation.
    We have been informed of a projected settlement of that 
investigation which will result in a return of moneys to this victim as 
well as others. In fact, upon further investigation, it turned out that 
this particular victim may have spent as much as $600,000 in 
contributions. It appears today that she and her family will see much 
of that money returned.
                     canada and cross border issues
    Finally, it is important to emphasize that, for all the progress 
that has been made over the past several years in interstate and state-
federal cooperation, problems of effective law enforcement response to 
telemarketing fraud remain serious and ongoing. In particular, the 
issue of cross-border telemarketing fraud is one that faces us now and 
in the future.
    The most recent publicly available statistics from the National 
Fraud Information Center indicate that the Province of Quebec may now 
rank third, after only Florida and California, as a place of origin of 
telemarketing fraud calls into the United States. British Columbia is 
number eight and Nova Scotia number eleven. Our own anecdotal 
experience indicates that this trend is particularly true in states 
such as New Hampshire, which border on one or more Canadian provinces.
    I believe this development has occurred for two reasons. First, the 
enhanced penalties and jurisdictional reach provided to the Offices of 
Attorneys General by the Telecommunications Act of 1995 may well have 
prompted an exodus of criminal telemarketers outside the formal 
jurisdiction of the United States. In addition, these criminals know 
that the processes for investigation, arrest, detention, extradition, 
and the seizure of assets in either a civil or criminal venue are 
markedly more complicated across national borders--even the relatively 
open borders of the United States and Canada--than across borders of 
states within the United States.
    As with the development of state and federal cooperation, the 
process for establishing protocols for international cooperation in 
combating telemarketing fraud is already under way. In 1997, the United 
States-Canada Working Group on Cross-Border Telemarketing Enforcement, 
which consisted of representatives of the Federal Trade Commission, the 
Department of Justice, NAAG and the Canadian Government, issued a 
report which identified a number of the problems and began the process 
of putting into place solutions to the complex enforcement issues posed 
by cross-border telemarketer fraud. Among the recommendations of the 
working group report were: to explore the use of remote testimony in 
criminal proceedings by video conferencing or similar to reduce the 
cost of telemarketing prosecutions and to reduce the obstacles to 
elderly victims testifying in such prosecutions; to examine the 
regulation of telephone services in the United States and Canada and to 
explore options for denying telephone services to telemarketing 
offenders; to consider expanding the scope of existing mutual legal 
assistance arrangements to more effectively deal with telemarketing 
fraud cases; and to coordinate strategies to control telemarketing 
fraud at all enforcement levels.
    The working group is continuing its efforts and is likely to 
provide further recommendations to the respective Canadian and American 
governments. I would strongly urge the Committee to give active 
consideration to any proposals made by or on behalf of the working 
group which may require some measure of modification of existing 
extradition or mutual cooperation treaties to streamline or expedite 
the processes of extradition and, in particular, the freezing or 
seizure of assets across national borders.
    This effort--like the efforts of law enforcement authorities to 
coordinate efforts within the United States--is paying off. In the past 
several months, there have been three large scale actions against 
Canadian telemarketers by concerted efforts of state Attorneys General 
and Canadian federal or provincial authorities.
  --Washington Attorney General Christine Gregoire has announced a 
        joint action between her office and the British Columbia 
        Ministry of Attorney General against two Vancouver based 
        foreign lottery telemarketers. In connection with that action, 
        a Canadian court has issued an order freezing the corporate and 
        individual assets and ordered them to cease and desist from 
        violating Canadian law, while a Washington court simultaneously 
        issued a temporary restraining order precluding the defendants 
        from selling false or fraudulent lottery tickets within the 
        United States and terminating their toll-free phone service 
        into the United States.
  --Illinois Attorney General Jim Ryan indicted a Toronto-based 
        telemarketer for allegedly defrauding an 84 year old woman out 
        of $980,000 by telling her she had won $13,000,000 in a 
        Canadian lottery but would have to pay close to a million 
        dollars to cover taxes and fees on her winnings. The individual 
        indicted in Illinois was arrested by Canadian officials.
  --Ohio Attorney General Betty Montgomery and Canadian authorities 
        cooperated to arrest a Toronto-based telemarketer and 20 
        confederates in connection with a ``guaranteed loan'' scheme 
        involving at least 163 victims, 30 of whom resided in Ohio.
    These actions should be read as an effective declaration of war 
against telemarketers who hope to use national borders as a shield 
against law enforcement.
                               conclusion
    In conclusion, I am not here to say that the Attorney General of 
New Hampshire or any Attorney General is winning this fight, but to say 
that we are fighting very hard against the abuse of our elders through 
the phone or through sweepstakes and other forms of fraudulent 
promotions. Our successes, and they have been significant, have come 
over the past several years in direct proportion to our ability to work 
together as state and federal law enforcers and increasingly to work 
with our counterparts in Canada and its Provinces to ensure that 
criminals who prey on our citizens may not hide behind national 
borders.
    Telemarketing, sweepstakes and other forms of abuse on our elderly 
citizens are strange crimes. They occur in silence and secrecy across 
great distances, across state borders, and increasingly across 
international borders. We face a significant challenge in the years 
ahead to insure that our efforts as law enforcers and on a more 
personal level as the sons and daughters and grandchildren of our 
elderly citizens continue to keep pace with the efforts with those who 
would hurt them and that we continue our efforts to warn our elders of 
the dangers that may lie on the far end of a phone.
    In that connection, I would note, in closing, the resolution of the 
remaining two cases I discussed at the beginning of my remarks. Through 
our office's intervention and the work of the Direct Marketing 
Association, which monitors no-call lists for its members, Edna's phone 
number was changed and she is no longer subject to around the clock 
phone calls. We were able to recover some, but not all, of her money.
    Alf, on the other hand, still believes he is going to win a prize 
someday that will make everything better. Our office has made referrals 
of his case to appropriate state service agencies, but he remains in 
desperate need of support and education. He is still a victim and he 
is, in the end, the personification of the fact that we all have 
further work to do.
    I wish to thank the Committee for this opportunity to speak to you.
STATEMENT OF HAROLD PHILLIPS, DETECTIVE, SHERIFF'S 
            DEPARTMENT, CHARLESTON COUNTY, SC
    Senator Gregg. Mr. Phillips.
    Mr. Phillips. Yes, sir. Thank you for inviting me to speak 
to you this morning. My name is Harold Phillips. I am a 
detective with the Charleston County Sheriff's Office. The 
population of the county where I work is approximately 280,000 
people, and I am the only white collar crime investigator in my 
office. I would just like to give a perspective from where I 
sit and the things that I have to deal with and the hurdles 
that I face.
    The attorney general has made mention of these very high-
profile cases where there are large amounts of money that are 
lost. In many cases that I see or that are brought before me, 
we are looking at between $3,000 and $5,000, which in the big 
scheme of things does not seem like much, but to older 
Americans especially, that could be their life savings. Once 
that is gone, that is more devastating than a lot of things 
that could happen to them.
    One of the biggest hurdles we have is, as the attorney 
general alluded to, these now become more prevalent with out-
of-State suspects. They are communities from out of State, and 
it is very hard for us to have the manpower and resources to 
say, ``Sergeant, I have to go to New York and beat the bushes 
with a fellow detective and see what we can find out about this 
particular case,'' and the loss is between $3,000 and $5,000. 
It is just not going to happen.
    And beyond that, even getting to that point, for instance, 
if you are lucky enough to get a phone number from a caller 
I.D. and you find out a number, if it is an out-of-State phone 
company, lots of times they won't recognize our subpoenas or 
search warrants, or if they do, it takes them several weeks, if 
not months, to give us back the information, which hinders our 
investigation.
    Even if you come to a point where you are lucky enough to 
put out an arrest warrant for somebody and they are caught in 
that State--for instance, Florida, New York, or California 
where a lot of these are now taking place--local prosecutors do 
not have the resources to extradite that person, especially 
when you are looking at a loss of maybe $3,000 to $5,000, and 
so the chance of that person ever being brought to justice in 
our jurisdiction is not very good.
    I think in the big picture of things, I feel like white 
collar crime--there are a lot of crimes that fall under that 
umbrella and this is one of them, and being that the 
telemarketing scams have become more prevalent as our 
population has grown older, it is very hard for local law 
enforcement people to keep up with that. We are doing the best 
we can to keep our head above water as it is, and this is a 
small part of what my job is. So between the manpower and 
resources, these are just major hurdles that we have to bring 
people to justice in these types of crimes.
    I think if you look at the amount of people that are being 
scammed or are having losses, it would be pretty substantial if 
you put that all together. If I could--I won't speak very much 
longer--I would just like to give you a real quick case that we 
recently in the last 3 or 4 weeks have had some problems with. 
This is by no means a new scam, but one that has hit our area. 
My department, as well as others in my jurisdiction, have come 
across cases such as this.
    On January 14, 1998, at approximately 1 a.m., a 54-year-old 
Charleston woman received a collect call from an individual who 
identified himself as a law enforcement officer with the Myrtle 
Beach Sheriff's Office. The caller stated that he had two 
subjects in custody who had used the victim's credit card 
number. He further stated that numerous charges had been made 
and asked if she had recently lost any credit cards. The victim 
stated she may have, since she mistakenly left her purse at a 
church function earlier that same evening.
    The caller then asked which was the closest sheriff's 
office to her and arranged to meet her at 10 o'clock the 
following morning at that sheriff's office. The caller then 
stated the first thing that needed to be done was to 
immediately contact the credit card company to have the account 
frozen. The subject then offered to contact the company for 
her, to which she agreed. The victim was placed on hold briefly 
and after being reconnected was told that she was involved in a 
three-way call with the credit card company. The third person 
identified himself as a representative of Visa and told the 
victim that there was approximately 1,000 dollars' worth of 
charges on her credit card and the only way to freeze the 
account was to immediately wire $655 to a New York address.
    She was told that this money would act as a deductible for 
the loss. The victim told the caller that she did not have that 
kind of money, at which time the caller asked how much money 
she could come up with. The victim advised that she may be able 
to obtain $250. The victim was again placed on hold for several 
minutes and both subjects came back on the line and stated that 
the minimum the credit card company could accept in order to 
freeze the account was $275. The victim stated that she needed 
to use an ATM machine to get the money, and they suggested a 
local Western Union office location for her to wire the money.
    At this time, the victim's husband became suspicious and 
his wife gave him the telephone. The subject who was presenting 
himself as a Visa employee then told the victim's husband in a 
very excited voice exactly how important this transaction was 
if they wanted to freeze their account. When the husband asked 
if this could be handled during normal business hours, the 
subject stated that if it made the victim feel more 
comfortable, he would send a Charleston police officer to the 
victim's house for verification. He also stated while the 
police officer was en route to the residence, his wife needed 
to be on her way to wire the $275.
    The husband hung up the phone and his wife immediately 
called the Charleston County Sheriff's Office and informed us 
of the situation. The Charleston County deputy sheriff 
contacted the Myrtle Beach Police Department in an attempt to 
confirm the situation. He spoke with a Myrtle Beach police 
officer who stated that they had several calls with reference 
to people identifying themselves as Officer David Johnson of 
the Myrtle Beach Police Department. He further stated that they 
did not have an officer named David Johnson, nor was anyone in 
custody for credit card fraud.
    While our deputy was obtaining that information, the victim 
contacted Visa using a telephone number from one of her 
previous bills. The actual Visa representative stated that 
there was no charge to cancel or freeze her credit card and 
that he would be able to place a freeze on her account. 
Amazingly, the Visa representative made no mention to the 
victim that the incident sounded like a scam and did not make 
any attempt to pursue details of the alleged scam.
    Immediately after that call, our officer informed her that 
he had contacted the Myrtle Beach Police Department and learned 
that this was a scam. He told her not to send money to anyone. 
Because of concerns about her purse being misplaced in the 
church and the attempted phone scam, the victim contacted the 
Charleston Police Department, whereupon an officer responded to 
the victim's house. Upon the officer's arrival at approximately 
3 a.m., the victim's phone rang once again. At this time, the 
officer answered the telephone and acted as if he was the 
victim's husband.
    Again, a subject presenting himself as the Visa employee 
asked if the money had been wired, to which the officer stated 
no. The subject then asked where his wife was and the officer 
responded she had gone to bed. The call was then terminated by 
the alleged Visa representative. The caller I.D. indicated that 
the originating phone number was in New York City. Through 
further investigation, the Charleston County Sheriff's Office 
learned that the South Carolina State Law Enforcement Division, 
SLED, was investigating similar scams throughout South 
Carolina. The information on this case was turned over to SLED, 
as well as the FBI.
    The Charleston County Sheriff's Office publicized this 
incident through the local media and learned from other 
agencies of similar cases in their jurisdictions. For example, 
the Mount Pleasant Police Department has received eight such 
cases recently. We believe the publicity educated citizens in 
the Charleston area and probably kept potential victims from 
falling prey.
    Unfortunately, many times the victims in these cases will 
not come forward due to embarrassment of being flim-flammed, or 
the victim may feel the incident is not important enough to 
report. Obviously, the work of this subcommittee and my 
presence here attests to the importance and seriousness of 
crimes of this nature.
    Although it may in this setting sound unbelievable that 
somebody would fall for this, I would like to tell you that in 
this particular situation, if it wasn't for her husband taking 
the time and calling the sheriff's office to confirm what was 
going on, she was on her way out the door to get that money and 
send it to them. These particular people are calling in the 
middle of the night or real early in the morning, and when you 
listen to how they are presenting themselves, although it is a 
collect call, which should send up red flags immediately, they 
sound pretty legitimate.
    Although this is not a very complicated scheme, it is not 
very complicated as some of these other cases that have been 
told here today, but it is something that is happening, and 
happening at a large rate. This is something very easy for 
somebody to do, and if somebody hangs up on them, they just go 
to the next call. At this time, I can't tell you how they were 
able to get this number, and it just so happened the victim 
happened to leave her purse at the church that night. But I 
believe this is an example that could be pretty standard across 
the country.
    Thank you for having me here today. If I can answer any 
questions, I will be happy to.
    Senator Gregg. Well, thank you. That was an excellent 
example and we appreciate it.
    Ms. Boosalis.
STATEMENT OF HELEN BOOSALIS, CHAIR, BOARD OF DIRECTORS, 
            AMERICAN ASSOCIATION OF RETIRED PERSONS

    Ms. Boosalis. Good morning. Thank you. My name is Helen 
Boosalis and I chair the Board of Directors of the American 
Association of Retired Persons [AARP]. On behalf of AARP, I 
thank you, Mr. Chairman, for inviting us to discuss the impact 
of telemarketing fraud on older Americans and the importance of 
continued Federal support for law enforcement's efforts to 
deter these fraudulent practices throughout the country.
    Telemarketing fraud is a major concern for AARP because of 
the severe effect it has on our members, who are victimized in 
disproportionate numbers. We have launched a campaign against 
telemarketing fraud that involves research examining older 
victims and their behavior, formed partnerships with 
enforcement and consumer protection agencies and repeated 
delivery of a consistent research-based message, and that is 
fraudulent telemarketers are criminals, don't fall for a 
telephone line.
    In 1993, an extensive undercover FBI operation found that 
older consumers were the largest single group of individuals 
specifically targeted by fraudulent telemarketers. Two years 
later, AARP sponsored the first large-scale survey of 
telemarketing fraud victims. The purpose of the survey was to 
learn more about how the crime affects older Americans. We 
found that older people are victimized much more frequently 
than young people are. More than one-half of the victims of 
telemarketing fraud are over age 50, although only 36 percent 
of the population is in that age group. While only 7 percent of 
the population are age 75 or older, 14 percent of victims are 
in that age group.
    AARP's survey found that victims typically are not, as you 
heard, socially isolated, ill-informed, confused people 
described anecdotally. Victims are just as likely to be 
relatively affluent, well-educated, and informed. They are 
active in their communities and express many of the same 
attitudes toward telemarketers as do nonvictims.
    We found that older Americans, men as well as women, who 
fall for telemarketing schemes seem to believe the story the 
telemarketer is pitching. They find it hard to tell a 
legitimate sales pitch from a fraudulent one and often lack the 
skills to end the call when they feel pressure from the person 
on the other end of the line.
    Additional AARP qualitative research revealed that although 
older consumers knew telemarketing fraud was wrong, they found 
it hard to believe it was a crime. Our research suggests that 
older consumers must be convinced that fraudulent telemarketers 
are criminals before they will exercise greater caution. AARP 
used this knowledge to shape its message, ``Fraudulent 
telemarketers are criminals, don't fall for a telephone line,'' 
and AARP has repeated this warning to consumers through public 
service announcements, educational workshops, and program 
activities for 18 months.
    In December 1996, AARP, in partnership with the FBI, the 
National Association of Attorneys General, the U.S. Postal 
Inspection Service, and others, launched a unique activity to 
advise consumers that they might be targeted by illegal 
telemarketers. AARP and its partners turned the criminals' own 
tactics against them and created the Nation's first reverse 
boiler room, called Operation Unload.
    This activity was a joint effort with attorneys general 
from 30 States where volunteers called more than 2,000 people 
nationwide advising them that their names had been found on the 
mooch lists you heard Attorney General Maroney talk about 
seized from the fraudulent telemarketers. Ninety-four percent 
of the potential victims we reached stayed on the line to 
listen as the volunteers shared information informing them 
about telemarketing fraud, and almost 60 percent of the people 
we spoke with asked us to send followup information.
    Based on the positive response to Operation Unload, AARP 
created a reverse boiler room replication manual. The manual is 
a step-by-step guide to planning and executing a reverse boiler 
room, with a sample script, answers to frequently asked 
questions, a research summary, and more. The association has 
distributed more than 400 copies of this manual to law 
enforcement agencies, including the FBI, attorneys general, and 
aging and consumer protection agencies. The manual has been 
well received and widely used by AARP volunteers and partners, 
like the attorneys general and local law enforcement. Since 
December 1996, AARP and other volunteers have organized a dozen 
reverse boiler rooms nationwide and delivered warnings to more 
than 8,600 potential victims.
    In November 1997, the United States-Canada Working Group on 
Cross-Border Telemarketing Fraud issued a report to President 
Clinton and Canadian Prime Minister Jean Chretien. The report 
states that victims are chosen for certain characteristics, 
especially age. The working group noted that persons who have 
already been victimized are at the greatest risk of being 
victimized again. Offenders reuse and sell victim information, 
as you heard, and target a victim repeatedly until all of his 
or her assets are gone. The report details the financial, 
psychological, and physical effects of telemarketing fraud on 
older victims and their families, and provides concrete 
recommendations for further action by Government and the 
private sector. AARP was gratified to find that the working 
group identified reverse boiler rooms as one of two success 
stories in the fight against telemarketing fraud.
    In the coming year, we plan to continue our efforts with 
our partners, the Department of Justice, the FBI, the attorneys 
general, the U.S. Postal Inspection Service, law enforcement 
agencies at the local level, and the Administration on Aging 
and State units on aging, to create and implement consumer 
education programs and fortify our message that telemarketing 
fraud is a crime, with suggestions on how to plan ahead to 
respond to fraudulent calls and spread that message through 
public service announcements and editorial coverage.
    We plan to implement the recommendations of the United 
States-Canada Working Group on Telemarketing Fraud and to 
assist the National Association of Attorneys General with a 
Department of Justice-funded training initiative focusing on 
prosecution and investigation of telemarketing fraud aimed at 
older consumers. We will continue to support volunteers working 
for legislation and regulations that align with acceptable 
telemarketing standards, will support litigation related to 
telemarketing fraud, and finally we will educate volunteers to 
present fraud-fighter training in their communities.
    Mr. Chairman, AARP encourages this committee to consider 
the importance of the other success story cited by the working 
group--telephone hotlines. Presently, Government and privately 
funded hotlines answer consumer questions and provide critical 
information to those who have been harmed by telemarketing 
scams. At the same time, they gather complaints to be used in 
investigations and enforcement. Educators can use the voluntary 
information gathered by hotlines to refine materials and 
program activities.
    Hotlines are the best source of information on emerging new 
scams and telemarketing pitches, and provide an enormous 
service to both individual consumers and to the fraud-fighting 
agencies that help them. We believe an even greater benefit 
would be realized by increasing the funding for 1-800 hotlines. 
Additional resources could be used to provide an enhanced 
training, expand staff, and provide needed computer equipment 
for law enforcement agencies who lack access to complaint data 
bases.
    A well-funded centralized hotline for complaint handling 
and data gathering offers consumers a rapid, one-call response 
to questions and complaints. It would also permit States with 
limited consumer protection funds to concentrate spending on 
enforcement and coordination with other States, and would 
facilitate more efficient prosecutions. Fraudulent 
telemarketers by nature are mobile and chameleon-like. A well-
organized complaint response and data collection center would 
be a powerful tool for consumers and enforcement alike.
    AARP also recommends adequate funding to achieve a greater 
saturation of consumer education materials and programs in 
geographically and ethnically diverse communities. This can be 
accomplished through partnerships with Government aging 
organizations and consumer advocacy groups. A number of 
agencies have worked hard on this issue and received extensive 
press coverage over the last 2 years. However, there is a 
continuing need for a consistent, large-scale education 
campaign to warn potential victims about this crime.
    Early last year, AARP conducted a second annual survey of 
persons aged 50 and above to investigate their perceptions and 
responses to fraudulent telemarketing. The survey involving 
over 900 respondents found several important changes from the 
preceding year in some areas and uncovered a number of positive 
trends. For example, those surveyed reported that they received 
significantly fewer telemarketing calls in 1997 than the year 
before. Also, in 1997, significantly more people aged 50 and 
older reported that they don't buy anything over the phone. 
This survey will be repeated later this year.
    Mr. Chairman, AARP is encouraged by the positive trends in 
consumer understanding and behavior indicated in our research. 
We also applaud the attention telemarketing fraud is receiving 
at various levels of government and are pleased to see the 
detailed recommendations of the United States-Canada Working 
Group.

                           prepared statement

    On behalf of AARP, I thank you for the opportunity to 
provide the committee with background and recommendations on 
this critical issue that impacts so many Americans, 
particularly older Americans, so severely. We look forward to 
continuing our partnerships on consumer education and advocacy 
and cross-border fraud and other emergency issues for years to 
come, and appreciate your committee's continued support of this 
very important endeavor.
    I look forward to responding to your questions.
    Senator Gregg. Thank you.
    [The statement follows:]
                  Prepared Statement of Helen Boosalis
    Mr. Chairman and Members of the Committee: My name is Helen 
Boosalis, and I Chair the Board of Directors of the American 
Association of Retired Persons (AARP). On behalf of AARP, I thank you 
for inviting us to discuss the impact of telemarketing fraud on older 
Americans and the importance of continued federal support for law 
enforcement's efforts to deter these fraudulent practices throughout 
the country.
    Telemarketing fraud is a major concern for AARP because of the 
severe effects it has on our members, who are victimized in 
disproportionate numbers. We have launched a campaign against 
telemarketing fraud that involves research examining older victims and 
their behavior, partnerships with enforcement and consumer protection 
agencies, and repeated delivery of a consistent research-based message. 
That is: ``Fraudulent telemarketers are criminals. Don't fall for a 
telephone line.''
    In 1993, an extensive undercover FBI operation found that older 
consumers were the single largest group of individuals specifically 
targeted by fraudulent telemarketers. Two years later, AARP sponsored 
the first large scale survey of telemarketing fraud victims. The 
purpose of the survey was to learn more about how this crime affects 
older Americans. We found that older people are victimized much more 
frequently than young people are. More than half of the victims of 
telemarketing fraud are over age 50, although only 36 percent of the 
population is in this age group. While only 7 percent of the population 
are age 75 or older, 14 percent of victims are in that age bracket.
    AARP's survey found that victims typically are not the socially 
isolated, ill-informed, confused people described anecdotally. In fact, 
victims are just as likely to be relatively affluent, well-educated and 
informed. They are active in their communities and express many of the 
same attitudes towards telemarketers as do non-victims.
    We found that older Americans, men as well as women, who fall for 
telemarketing schemes seem to believe the story the telemarketer is 
pitching. They find it hard to tell a legitimate sales pitch from a 
fraudulent one and often lack the skills to end the call when they feel 
pressure from the person on the other end of the line.
    Additional AARP qualitative research revealed that though older 
consumers knew telemarketing fraud was wrong, they found it hard to 
believe that it was a crime. Our research suggests that older consumers 
must be convinced that fraudulent telemarketers are criminals before 
they will exercise greater caution. AARP used this knowledge to shape 
its message: ``Fraudulent telemarketers are criminals. Don't fall for a 
telephone line.'' AARP has repeated this warning to consumers through 
public service announcements, educational workshops and program 
activities for eighteen months.
    In December 1996, AARP in partnership with the FBI, National 
Association of Attorneys General (NAAG), U.S. Postal Inspection Service 
and others launched a unique activity to advise consumers that they 
might be targeted by illegal telemarketers. AARP and its partners 
turned the criminals' own tactics against them, and created the 
nation's first reverse boiler room, called ``Operation Unload.''
    This activity was a joint effort with attorneys general from 30 
states where volunteers called more than 2,000 people nationwide, 
advising them that their names had been found on ``mooch'' lists seized 
from fraudulent telemarketers.
    Ninety-four percent of the potential victims we reached stayed on 
the line to listen as a volunteer shared information informing them 
about telemarketing fraud, and almost sixty percent (58 percent) of the 
people we spoke with asked us to send follow-up information.
    Based on the positive response to ``Operation Unload,'' AARP 
created a reverse boiler room replication manual. The manual is a step-
by-step guide to planning and executing a reverse boiler room, with a 
sample script, answers to frequently asked questions, a research 
summary and more. The association has distributed more than 400 copies 
of this manual to law enforcement agencies including the FBI, Attorneys 
General, and aging and consumer protection agencies. The manual has 
been well-received, and widely used by AARP volunteers and partners 
like the attorneys general and local law enforcement.
    Since December 1996, AARP and other volunteers have organized a 
dozen reverse boiler rooms nationwide and delivered warnings to more 
than 8,600 potential victims.
    In November 1997, the U.S.-Canada Working Group on cross-border 
telemarketing fraud issued a report to President Clinton and Canadian 
Prime Minister Jean Chretien. The report states that ``victims are 
chosen for certain characteristics, especially age.'' The working group 
noted that persons who have already been victimized are at the greatest 
risk of being victimized again. Offenders re-use and sell victim 
information, and target a victim repeatedly until all his or her assets 
are gone.
    The report details the financial, psychological and physical 
effects of telemarketing fraud on older victims and their families, and 
provides concrete recommendations for further action by government and 
the private sector.
    AARP was gratified to find that the working group identified 
reverse boiler rooms as one of two ``success stories'' in the fight 
against telemarketing fraud.
    In the coming year we plan to:
  --Continue our efforts with our partners, the Department of Justice, 
        the FBI, the Attorneys General, the U.S. Postal Inspection 
        Service, local law enforcement and the Administration on Aging 
        and state units on aging to create and implement consumer 
        education programs;
  --Fortify our message that telemarketing fraud is a crime, with 
        suggestions on how to plan ahead to respond to fraudulent 
        calls, and spread that message through public service 
        announcements and editorial coverage;
  --Implement the recommendations of the U.S.-Canada Working Group on 
        telemarketing fraud;
  --Assist the National Association of Attorneys General (NAAG) with a 
        Department of Justice-funded training initiative focusing on 
        prosecution and investigation of telemarketing fraud aimed at 
        older consumers;
  --Support volunteers working for legislation and regulations that 
        align with acceptable telemarketing standards;
  --Support litigation related to telemarketing fraud; and
  --Finally, we will educate volunteers to present fraud fighter 
        training in their communities.
    Mr. Chairman, AARP encourages this committee to consider the 
importance of the other ``success story'' cited by the working group--
telephone hotlines. Presently, government and privately-funded hotlines 
answer consumer questions and provide critical information to those who 
have been harmed by telemarketing scams. At the same time, they gather 
complaints to be used in investigations and enforcement. Educators can 
use the voluntary information gathered by hotlines to refine materials 
and program activities.
    Hotlines are the best source of information on emerging new scams 
and telemarketing pitches and provide an enormous service to both 
individual consumers and to the fraud-fighting agencies that help them.
    We believe an even-greater benefit would be realized by increasing 
the funding for 1-800 Hotlines. Additional resources could be used to 
provide and enhance training, expand staff, and provide needed computer 
equipment for law-enforcement agencies who lack access to complaint 
databases. A well-funded, centralized hotline for complaint handling 
and data-gathering offers consumers a rapid, one-call response to 
questions and complaints. It would also permit states with limited 
consumer protection funds to concentrate spending on enforcement and 
coordination with other states, and would facilitate more efficient 
prosecutions. Fraudulent telemarketers by nature are mobile and 
chameleon-like. A well-organized complaint response and data collection 
center would be a powerful tool for consumers and enforcement alike.
    AARP also recommends adequate funding to achieve a greater 
saturation of consumer education materials and programs into 
geographically and ethnically diverse communities. This can be 
accomplished through partnerships with government aging organizations 
and consumer advocacy groups.
    A number of agencies have worked hard on this issue and received 
extensive press coverage over the last two years. However, there is a 
continuing need for a consistent, large-scale education campaign to 
warn potential victims about this crime.
    Early last year, AARP conducted its second annual survey of persons 
age 50 and above to investigate their perceptions and responses to 
fraudulent telemarketing. The survey, involving over 900 respondents, 
found several important changes from the preceding year in some areas, 
and uncovered a number of positive trends.
    For example, those surveyed reported that they received 
significantly fewer telemarketing calls in 1997 than the year before. 
This survey will be repeated later this year.
    Mr. Chairman, AARP is encouraged by the positive trends in consumer 
understanding and behavior indicated in our research. We also applaud 
the attention telemarketing fraud is receiving at various levels of 
government, and are pleased to see the detailed recommendations of the 
U.S.-Canada Working Group.
    On behalf of AARP, I thank you for the opportunity to provide the 
committee with background and recommendations on this critical issue 
that impacts so many Americans--particular older Americans--so 
severely.
    We look forward to continuing our partnerships on consumer 
education and advocacy, cross-border fraud, and other emerging issues 
for years to come, and appreciate your Committee's continued support of 
this important endeavor.
    I look forward to responding to your questions.

    Senator Gregg. I have a question for you, Mr. Maroney. One 
of the big issues here is how we deal with this interstate, 
intracountry issue, and we have got the Canadian attempt going 
forward. What specifically should the Congress do in this area? 
Is there any specific legislation the Congress needs to pursue?
    Mr. Maroney. I don't think I am prepared to suggest 
specific legislation to you at the moment, except to sort of 
reiterate my prior comments that the toughest issue out there 
is the seizure of assets across a border. If there is no crime, 
for example, taking place in Canada and if the telemarketer is 
not at the same time preying on Canadian citizens, but is only 
using Quebec City or Montreal, in New Hampshire's experience, 
as a locus to call in, then we may need some assistance, 
possibly not in the form of legislation itself, but in the form 
of negotiation of treaty protocols and passage of those treaty 
protocols by the Senate to permit us an easier and more 
efficient access to the civil seizure process or the criminal 
seizure process in a foreign jurisdiction.
    In addition, one of the recommendations of the cross-border 
working group is to look at the issue of whether and to what 
extent persons actually convicted of some form of telemarketing 
fraud may be denied access to the use of international 
instrumentalities such as either telephone or to some extent 
international wire transfer. That is a tall order and which I 
suspect requires a heck of lot more thought and analysis at the 
operational level before we could make that recommendation in 
terms of legislation. But those are areas that I think need to 
be looked at very hard.
    Let me just take my hat off for a moment to local law 
enforcement, too, which is that quite apart from legislation at 
the Senate level, a lot of the cross-border stuff that we see 
in our border States can be dealt with through cooperation with 
local law enforcement as well. That money goes to drop boxes in 
the first instance. It is not necessarily being sent to Canada 
and it is not necessarily being wired to Canada.
    Checks and cash are being sent to drop boxes in Manchester, 
in Plattsburgh, NY, and in the northeast kingdom in Vermont. 
Partnerships with local law enforcement--this is something that 
we need to do at the State and local level to identify the drop 
box places and do just plain old-fashioned good police work to 
close those down. That is also a major part of this process.
    Senator Gregg. Ms. Boosalis, on the 1-800 number issue, 
does the AARP have an 800 number in this area?
    Ms. Boosalis. Not in this area.
    Senator Gregg. Is there one? I know the FTC has some 
structure, and we can hear this from Mr. Pitofsky, but I was 
wondering, is there an 800 number that addresses this issue?
    Ms. Boosalis. Yes; the National Consumer Fraud Center in 
Washington, as I understand it, has an 800 number that people 
can call. And then, of course, all the attorneys general, as 
you heard, have their own numbers at the State level that 
people can call. People are encouraged, but so often they 
aren't sure where it is they should call. So if there is one 
national 800 number with enough funding to support it that they 
can call, it will not only help the individual, but help us 
accumulate the kind of information we need to be able to fight 
this effectively.
    Senator Gregg. Senator Hollings.
    Senator Hollings. Ms. Boosalis, let me commend you. I heard 
about the problem from the attorney general in the first 
testimony. It seems you have given the best solution, and that 
is trying to educate, trying to inform--``don't fall for a 
telephone line,'' recommending additional funding for the 1-800 
hotlines and everything else like that.
    The reason I say this is because certainly at this 
particular point here in the Congress, the big complaint we get 
is that you folks are just up there politicking; you are 
federalizing every State crime in the world. We have judges 
coming out of our ears. The budget, Chairman Gregg and I know, 
has gone up in 10 years on Justice Department from $4 billion 
to $19 billion. Everyone wants to cut the size of Government, 
but we are enlarging it in this particular area every day.
    And we just can't catch up with the old admonition of P.T. 
Barnum that a fool is born every minute, and yet it is a 
serious problem. So I think that, as with drugs, in my opinion, 
you can't build enough jails to hold all the drug offenders. 
You have got to educate them. No one is smoking in here today. 
When I started 30 years ago, everybody up at the rostrum here 
would have an ashtray, putting out a cigarette. Education is 
going to have to be a big part of the solution, so I commend 
the AARP for their efforts to educate. I have to defend the 
AARP on the floor of the Senate from time to time, and this 
will give me a good case where you are just not asking for more 
money for senior citizens or Social Security, but actually 
really making a wonderful contribution to society.
    Detective Phillips, thank you very much. I am impressed 
with your testimony. Let me ask, is this just a singular case 
in the Charleston area, in my own hometown, or are there 
multiple cases of this kind that come to your attention?
    Mr. Phillips. Sir, at this time, multiple cases have 
recently occurred here in the last 3 or 4 weeks. These type of 
scams occur periodically and they will hit for a month, month-
and-a-half's time, where they use up their victims and they go 
on to another State or another part of the State.
    Senator Hollings. And as you indicate, you can't get the 
information from the distant telephone company or data base, or 
they won't honor the subpoena or otherwise are rather tardy in 
getting you the information and everything else. So it is very 
difficult to prosecute, is that right?
    Mr. Phillips. Yes, sir; it certainly is.
    Senator Hollings. Talking about education, what about 
education in our own backyard, South Carolina? Is the AARP down 
there cooperating, or other consumer groups? What is the 
situation from your experience?
    Mr. Phillips. I know that from time to time--and it seems 
to be very infrequent, in my opinion, though it is mostly 
around Christmas--you will see commercials on TV from the 
Governor's office talking about being alert for scams and 
different telephone marketing crimes. But I honestly do not see 
the effort being put forth through the media, or definitely at 
least through promotional campaigns to let the community know.
    I know, on our part, what we try to do, especially as in 
this case--and we think it prevented more victims--was as soon 
as we found out about it, we let the media know about it, and 
the newspaper, and the local news channels did let the 
community know.
    Senator Hollings. They did put it on?
    Mr. Phillips. Yes, sir.
    Senator Hollings. I know I have seen it myself back home on 
the weekends, and so forth. Well, I really commend you. I think 
that perhaps we are going to have to get a more severe penalty.
    You mentioned, General Maroney--and I do agree that you are 
the best appointment Governor Gregg ever made.
    Mr. Maroney. There are many in New Hampshire who would 
dispute you on that one.
    Senator Hollings. But right to the point, in your testimony 
you have summed up the entire case. Now, what would you do? 
Suppose you were a Senator. What would you do about it?
    Mr. Maroney. I think I would unquestionably support the 
imposition of enhanced penalties for persons who prey on the 
elderly and for persons who prey on the elderly from outside of 
the country. I think that is a short and easy fix for some of 
the problems, and ultimately you can't be putting people in 
jail as a way to make them stop and as a potential deterrent.
    Any piece of legislation, I suppose, has a certain--there 
is a certain law of unintended consequences, and I suspect that 
the enhanced penalties of the Telecommunications Act of 1994 
and 1995 probably did have the unintended consequence of 
sending a lot of these folks up to Canada just to escape those 
enhanced penalties in the first place. I think there is some 
real virtue to sending a signal to those people that that 
tactic in and of itself isn't going to work and that those 
enhanced penalties are going to follow them.
    Senator Hollings. Well, I would agree with you. I heard you 
say Senator Kyl, and it could be that we haven't been able to 
find a bill introduced by Senator Kyl on the computer system, 
but we have a bill of Congressman Goodlatte, who put it in and 
revised it upwards with even increased penalties as of November 
this past year. I am going to contact him and coordinate with 
him and coordinate with our chairman here to put in a similar 
bill here on the Senate side, particularly with the Canadian 
problem, because you folks live with that right up there.
    Mr. Maroney. That is a real issue. I appreciate your 
attention to it.
    Senator Hollings. We have not provided for that particular 
problem and we have got to get together with the Canadian 
authorities and work more closely on it. We have got to do 
something to get around this $50,000 bond. Like you said, it 
would take your budget to handle one case, and they will run 
you out of office if you take on one case with your entire 
budget just on fraud, because the general public attitude is 
the expression I used of Barnum. Wait a minute, we have got 
drugs, we have got serious crime, we have got this, we have got 
that, and if people can't pick up the telephone and have sense 
and give away their money, we have got serious crime in this 
country. And that is the public attitude, and we are not going 
to provide for the attorney general or the detectives or law 
enforcement. The public realize they contribute to the hotlines 
and the AARP because that is the valid, very economical way to 
get at this particular problem. I think they will do that. But 
you won't see too much more money to chase after telephone 
crime and fraud. They will put more money to get the drugs and 
serious crime and everything else. That has been my experience.
    Thank you very much, Mr. Chairman.
    Mr. Maroney. I will just say that with the money that folks 
have got so far, the Federal agencies and NAAG have created a 
pretty effective partnership at this point.
    Senator Hollings. Is that databank that the Federal Trade 
Commission has good now?
    Mr. Maroney. Consumer Sentinel is really just up in the 
last month or two.
    Senator Hollings. Just up in the last month?
    Mr. Maroney. As an Internet site. I mean, they have had an 
existing law enforcement data base available to law enforcement 
officers for several years now. But Consumer Sentinel is just 
up and it is, (a) beautiful; (b) relatively easy to use; (c) it 
is easy Internet access to a host of information about--a data 
base on criminals and victims, and it is good.
    Senator Hollings. We should enhance it. I mean, that is 
economical. We can afford that.
    Mr. Maroney. Yes; and that kind of centralized stuff is 
enormously useful.
    Senator Hollings. Ms. Boosalis.
    Ms. Boosalis. I just want to say that just mentioning 
Internet, when you consider the potential that is there for 
fraud--it is already there, but the future potential for fraud 
on that, it is even more important to recognize the value of 
educating people of how to protect themselves against that kind 
of fraud before it gets to that point.
    Senator Hollings. We have had two cases of ongoing fraud on 
the Internet already with Dallas and the Wall Street Journal 
here in the last 48 hours.
    Thank you, Mr. Chairman.
    Senator Gregg. Well, I think we have gotten some excellent 
information from this panel, and basically the need for public 
education is critical. This issue of teaching people to just 
hang up their phone when they get a request which seems a 
little out of sorts is absolutely essential, and the need to 
address stiffer penalties for people who are committing these 
crimes outside the United States and making sure that we have 
the adequate protocols to work with our neighboring States and 
other countries is something we want to follow up on.
    I am sure that our next speaker is very happy to hear your 
assessment of their efforts, and so we will turn to the next 
panel here, and we thank this panel for their time and for 
especially coming up from South Carolina and down from New 
Hampshire and out from Nebraska.
    Ms. Boosalis. Yes, Lincoln, NE.
    Senator Gregg. All right. Well, thank you very much.
    Mr. Maroney. Thank you very much, Senators.
    Senator Hollings. Thank you.
                        FEDERAL TRADE COMMISSION

STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN
ACCOMPANIED BY HUGHES STEVENSON, DIVISION OF MARKETING PRACTICES

    Senator Gregg. Our next witness--and I appreciate his 
willingness to participate--is Chairman Pitofsky of the Federal 
Trade Commission [FTC]. I was going to say it is tough to have 
to sit for an hour or so, but in this case you got great 
praise, so it could have passed rather easily. Obviously, the 
FTC is the lead agency on this whole issue of consumer crime, 
but specifically on telemarketing issues that are really the 
focus of this hearing, and how it affects especially the 
elderly. So we look forward to hearing your comments, Mr. 
Chairman.
    Mr. Pitofsky. Thank you, Mr. Chairman. I am delighted to be 
here. I want to compliment you, Senator Hollings, and other 
members of the committee for holding hearings on this important 
subject which sometimes doesn't get as much attention as it 
should, and that is marketing fraud, and particularly marketing 
fraud as it applies to the elderly.

                           prepared statement

    With your permission, what I would like to do is submit the 
Commission's testimony for the record and summarize it briefly.
    Senator Gregg. Of course.
    [The statement follows:]
                 Prepared Statement of Robert Pitofsky
    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.
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    \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. Sec. Sec.  41 et seq.
    \3\ E.g. the Truth in Lending Act, 15 U.S.C. Sec. Sec. 1601 et 
seq., which mandates disclosures of credit terms; the Fair Credit 
Billing Act, 15 U.S.C. Sec. Sec. 1666 et seq., which provides for the 
correction of billing errors on credit accounts; the Fair Credit 
Reporting Act, 15 U.S.C. Sec. Sec. 1681 et seq., which establishes 
rights with respect to consumer credit reports; and the Magnuson-Moss 
Warranty Act, 15 U.S.C. Sec. Sec. 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. 
Sec. Sec. 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.
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    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\
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    \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.
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    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.
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    \6\ 15 U.S.C. Sec. Sec. 53(b) and 57b.
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    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\
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    \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.
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    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\
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    \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).
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                     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.
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    \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).
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                            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\
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    \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.
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                             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.
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    \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. Sec. 310.4(a)(3).
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    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.
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    \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).
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                              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.
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    \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. III. filed Mar. 13, 
1996).
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    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\
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    \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.
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                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\
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    \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.
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    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.
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    \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.
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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\
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    \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 ID. Ohio 1996).
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    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 Chretien 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.
---------------------------------------------------------------------------
    \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).
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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.
---------------------------------------------------------------------------
    \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.
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    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.

    Mr. Pitofsky. As you know, the FTC is the primary agency at 
the Federal level authorized to challenge fraud and deception. 
We do so under section 5 of the Federal Trade Commission Act, 
and also we have been authorized by Congress to enforce about 
20 other statutes mainly relating to credit practices, credit 
reporting, and other behavior that can affect consumers in the 
marketplace.
    In recent years, we have paid special attention to various 
forms of marketing fraud, especially telemarketing, but also 
the new but growing trend toward fraud on the Internet. Victims 
of these frauds are of all ages, income levels, and background, 
but the elderly, perhaps because they have accumulated some 
money during a lifetime, perhaps for other reasons, are 
particular targets of this kind of fraud.
    I have seen estimates that telemarketing fraud victimizes 
consumers to the tune of up to $40 billion a year. We are not 
talking about small potatoes here by any means. And I should 
say that the Federal Trade Commission was immensely aided in 
its enforcement efforts in 1994 when Congress enacted the 
Telemarketing and Consumer Fraud and Abuse Act and authorized 
the FTC to adopt a rule which defined and prohibited particular 
types of telemarketing fraud. An unusual and critically 
important element of that statute was the idea that the 
Commission would establish the rules, but then the Commission 
or State AG's could go into Federal court and enforce that 
rule. That has turned out to be an extraordinarily successful 
initiative and led to productive Federal-State partnerships in 
challenging telemarketing fraud.
    Since 1996, we have brought over 100 cases attacking the 
most prevalent kinds of these frauds. We often do so in the 
form of sweeps. That is a strategy in which Federal and State 
authorities bring multiple simultaneous actions against 
particular kinds of fraud. In the last 2 years, there have been 
something like 20 sweeps and a total of 730 Federal and State 
enforcement actions. Among the sweeps that we have challenged 
most aggressively are prizes and sweepstakes promotions. Those 
seem to rise to the No. 1 spot in fraud year after year. Bogus 
charities, where the charity doesn't exist at all or the claim 
is the money is being contributed to some local charity, but 
the money never gets there. I must confess that I have been a 
victim of that particular kind of fraud more than once.
    Investment and business opportunity frauds, the so-called 
get-rich-quick schemes, which I think target the elderly 
disproportionately, and recovery scams, which I think in some 
ways is the most pernicious of these kinds of frauds. What 
these people do is obtain a list of previous victims and then 
they call the victim up and say, ``We are ready to bring a 
class action on your behalf to get the money back from your 
first fraud.'' And, of course, what they are doing is 
revictimizing the same people all over again.
    Some of these frauds are astonishingly raw. There is one I 
heard about--we didn't bring the case because it was filed 
criminally--in which a group of telemarketers got hold of a 
list of people with early Alzheimer's problems and would call 
these folks up and say, ``Where is the check? You forgot to 
send us a check.'' And they would collect money from these 
people. Now, that was prosecuted criminally, as it should have 
been.
    For all the virtues of the Internet as the technology of 
the future, we also want to ensure that it doesn't become the 
hottest arena for garden-type frauds that I have just 
mentioned. We don't want people to get the idea that the intent 
is the unregulated frontier and anything goes there. So far, 
just in the last year or so, we have brought 25 cases involving 
fraud on the Internet, trying to nip these trends as early as 
possible, and mostly these are garden-variety frauds that have 
just migrated over to the Internet.
    Let me mention briefly what we do when we decide to bring 
an action. It is usually in Federal court, and typically what 
we will try to do is obtain a temporary restraining order, get 
an asset freeze immediately, and induce the court to appoint a 
receiver. As far as the remedies are concerned, our principal 
remedy is to try to put these people out of business, to ban 
their activities, and we have been very successful on that 
score.
    Another priority is to try to get the money back for the 
people who have been defrauded. We have had some success in 
that area. Over the last several years, we have managed to 
retrieve $37 million and restored it to consumers. But I must 
tell you, in all candor, most of the time, dealing with people 
like this, by the time we catch up with them, the money is gone 
and restitution is very difficult to achieve. I, therefore, 
believe that increasingly, in the more blatant types of these 
frauds, we should turn to criminal enforcement and that is what 
we have been doing. An outstanding example of that was a task 
force put together in Chattanooga about 1\1/2\ years ago in 
which we participated along with State and Federal criminal 
authorities, and that task force alone obtained 50 convictions.
    Enforcement is not enough. I have heard several of the 
witnesses and you gentlemen say that in the long run, we have 
to think about consumer education, and I agree with that. I 
agree with that not just because it restrains the growth of 
Government, but because in the long run consumers can protect 
their own interests, if they understand about these frauds, 
better than the Government can do coming along later on.
    We have initiated a partnership for consumer education with 
something like 90 corporations, trade groups, consumer 
organizations, and other Federal agencies. I think we have 
reached some success in raising the sensitivity of people to 
the existence of these kinds of frauds, but we have a long way 
to go. It is also critical that consumers know that they have a 
place to complain. In that connection, we set up recently a 
Consumer Response Center at the agency and we now process 
something like 3,000 consumer complaints per week at the FTC.
    Finally, there has been a reference to Consumer Sentinel. I 
think when these complaints come in, it is important that they 
go into a data base available to other enforcement authorities. 
The information is critical in identifying trends in fraud, 
targeting resources, knowing where we are and who the people 
are who are conducting these frauds. Just 1 month ago, the FTC, 
along with the National Association of State Attorneys General, 
set up something we call Consumer Sentinel. That is a data base 
which incorporates a great deal of the kind of information that 
I have described. And with your permission, Hughes Stevenson, 
who is an Assistant Director in our Division of Marketing 
Practices, is here and I would like to take a few minutes, if I 
can, to demonstrate this new Consumer Sentinel project.
    Senator Gregg. Well, we would certainly like to see it. We 
have heard some good things about it.
    Mr. Stevenson. Thank you. Consumer Sentinel, which Mr. 
Maroney had also referred to in his testimony, is a multiagency 
project. This is something that was developed as part of the 
United States-Canada Working Group on Telemarketing and Cross-
Border Fraud that was set up last year and that the earlier 
witnesses referred to.
    The aim of this project and of the forerunner NAAG-FTC 
project is to build a law enforcement network infrastructure 
for law enforcers to share information about consumer fraud. 
The data for this network comes in from several sources in the 
United States, and now Canada, including the FTC's Consumer 
Response Center. The data goes out to law enforcers through a 
secure Internet web site.
    [The information follows:]
           Consumer Sentinel Binational Telemarketing Network
                                  Home
                cooperative united states-canada effort
    Consumer Sentinel is a joint project of the National Association of 
Attorneys General and the United States Federal Trade Commission, in 
cooperation with CanShare and PhoneBusters. The goal of this 
telemarketing enforcement initiative is to share consumer protection 
information among law enforcers throughout the United States and 
Canada.
    Access to this secure website is restricted to law enforcement 
personnel whose agencies have executed a confidentiality agreement and 
who have registered for site access with the Federal Trade Commission.
    The About page describes in greater detail the databases and 
features of Consumer Sentinel.
    Talk to Us. Your questions and comments are welcome.
    [GRAPHIC] [TIFF OMITTED] T11FE05.002
    
    [GRAPHIC] [TIFF OMITTED] T11FE05.003
    
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    [GRAPHIC] [TIFF OMITTED] T11FE05.006
    
                                Contacts
    List of Member Organizations that have executed a confidentiality 
agreement.
    List of Individual Users.
    List of agencies and personnel interested in pursuing cross-border 
fraud.
    List of Video Conferencing Facilities.
                              Publications
    FraudBusters, a newsletter by and for the users of the Consumer 
Sentinel.
    NAAG Telemarketing Bulletin, a bi-monthly publication including 
items on state and federal telemarketing fraud laws, lore, news, 
initiatives, and trends.
    FTC Consumerline, consumer publications on a variety of issues from 
the FTC Office of Consumer and Business Education.
    U.S. Consumer Gateway, consumer information and links organized 
into categories covering food, health, product safety, your money, and 
transportation.
    Cross-Border Fraud Report of the United States-Canada Working Group 
on Telemarketing Fraud.
    We welcome your suggestions for additional publications. Talk to 
us.

    Mr. Stevenson. Now, this is what the web sites looks like. 
This is the home page of the web site. The real, live data is 
just now up on the Internet. It is password-protected, 
encrypted, and the access to it is limited to law enforcers. 
What this site provides is the ability to jump-start a 
telemarketing investigation and to coordinate that 
investigation with the many other cops on this particular 
enforcement beat.
    Now, what in country terms can you do here? Let us imagine 
that you are investigating a company called Millions 4 Nothing 
and you are a New Hampshire AAG or FBI agent or postal 
inspector. The first thing you can do is search for consumer 
complaints. You can search a data base of 100,000 consumer 
complaints. You can search by location, by subject matter, by 
various other criteria, and in our simulation here we are 
showing a search by the name of the company on the live site. 
The search would typically take 5, 10 seconds, and what it 
comes back with is a summary of the information that is 
available on the site. You click on the company name for each 
of those complaints and you get all the details that have been 
entered. What this gives investigators and attorneys is a road 
map, a list of potential witnesses, of potential victims. And 
then once you have got your witness list, you can go to the 
tapes functionality and you can search here an index of more 
than 11,000 undercover tape recordings. These are tapes when 
victims such as the ones that Mr. Maroney described have been 
repeatedly hit, forward their calls to law enforcers who pose 
as victims and tape the sales pitch. This can be devastating 
evidence--in fact, has been devastating evidence in a lot of 
criminal and civil injunction matters.
    Then once you have got your tapes and your witness list, 
you can send out an alert to the other law enforcers online and 
say, for example, ``I am investigating Millions 4 Nothing,'' or 
``I am investigating the sales reps involved,'' or any other 
information you want to share with the other people online. You 
can also search the other alerts that have been entered. Has 
anybody else expressed an interest in this company, in this 
kind of practice, or what have you?
    Well, now let us suppose that Millions 4 Nothing is located 
in Edmonton, Alberta, and if you are an AAG, you don't have 
much cause to know the law enforcement in Edmonton, Alberta. 
Indeed, Mr. Maroney suggested the problems of making a quick 
contact with somebody in Texas. What you can do here is go to 
the contact lists and find helpful people where the company is 
located or where the drop box is located, and what have you, 
and the relevant law enforcement organizations and take that 
information so you have someone on the ground where the company 
is located.
    Well, now let us further suppose that Millions 4 Nothing 
involves a kind of fraud you have never investigated before, 
never prosecuted before, you haven't dealt with. You can go to 
the publications page here and search a variety of newsletters 
and consumer bulletins and other material that describe the 
various kinds of fraud, describe the various steps that other 
people have taken. For example, you can look at FraudBusters, 
which is the Consumer Sentinel newsletter, and in that you find 
articles written by attorneys and investigators from a variety 
of law enforcement agencies and other organizations on the 
various trends in fraud and the kinds of steps, enforcement 
sweeps and that kind of thing, that people have taken to combat 
that.
    So, basically, what you have gotten is you have got the 
makings of a case, the beginnings of a case. You have got a way 
to coordinate the investigation of that case and the 
prosecution of that case. And you have gotten that not in weeks 
and not after dozens of phone calls, but you have gotten that 
in hours, maybe even a matter of minutes. And what this means 
as a bottom line is that the con-artist's basic game plan of 
staying one step ahead of law enforcement just got harder.
    Thank you.
    Senator Gregg. Thank you. That is effective and up and 
running now?
    Mr. Stevenson. Yes, it is, and we are just in the process 
of getting the individual users hooked up. We have a 
predecessor NAAG-FTC system where we had it already hooked up, 
hundreds of users, and we are moving toward this system which 
is more data, more user friendly, and it is up and running now.
    Senator Gregg. You say it is limited to passwords. Wouldn't 
the first thing that a really sophisticated telemarketing scam 
person would do is to break into the system?
    Mr. Stevenson. They might try to do that, and for that 
reason we took extra pains to develop not just a password-
protected system, but an encryption-protected system. We are 
using encryption software that one has to obtain from us in 
order to access the system. So we have that double check to 
prevent just the kind of thing that you are talking about.
    Senator Gregg. But, of course, to make it successful, you 
have to make it broadly available. So how do you adjust to 
those two competing interests?
    Mr. Stevenson. Well, with today's technology, it is 
possible to use this kind of software and deliver it to the 
people we have identified--for example, our existing users, the 
several hundred existing users--and get the instructions for 
getting the software to them, so that the process is not that 
elaborate and yet it is a firewall against the kind of 
intrusion that we have to worry about from telemarketers.
    Senator Gregg. Now, Mr. Maroney has said this is a great 
boon to the effort. So do you need anything from this committee 
to make it even more successful?
    Mr. Pitofsky. I don't think so, Senator. It is not an 
expensive proposition. It is just imagination and good work by 
the staff here. It has only been up for 1 month. I think we 
ought to let it run. It is very promising and let us see how it 
works out.
    Senator Gregg. We talked a little bit with Ms. Boosalis 
about the 800 number issue. You don't have an 800 number at 
FTC, do you?
    Mr. Pitofsky. We do not.
    Senator Gregg. Do you have the capacity to handle an 800 
number? Where should this 800 number--should you have one, 
should the consumer group have one, should AARP have one, or 
should there be one central----
    Mr. Pitofsky. Well, I certainly think it would be a useful 
thing. We have a Consumer Response Center and we are processing 
3,000 calls a week, I believe it is, but I think it would be 
better if we had an 800 number. It is really a matter of 
budget. It is not in our appropriation.
    Senator Gregg. What type of resources would you need to 
support such a number, and would you do it in conjunction with 
the AARP, for example?
    Mr. Pitofsky. Well, I would think we would do it in 
conjunction with other groups. I am not sure how we would work 
it out. I am told by the staff that in the first year, there 
would be some startup costs. It would probably run between $2 
and $3 million to set up an 800 number. I think it would be a 
good investment and in later years, it would be slightly less 
costly.
    Senator Gregg. Well, it is basically people intensive, 
except that now they have all these answering services. But, 
still, at some point you have got to talk to a person because 
that is the whole concept behind this one especially, right?
    Mr. Pitofsky. Exactly.
    Senator Gregg. Senator Hollings.
    Senator Hollings. Chairman Pitofsky, in addition to the 800 
number and in addition to the increased penalties that you have 
attested to, is there anything else that we can do? What else 
would you have us on this committee do to help you?
    Mr. Pitofsky. I don't think there is more to be done with 
respect to legislation. I think Congress did what was necessary 
when it passed the Telemarketing Regulation Act 2 or 3 years 
ago. It is really a matter of our enforcing the law. I don't 
think another law is going to solve this problem. I do think 
aggressive enforcement, a high level of cooperation between the 
States and the Federal Government, which we have now, is 
essential. And I think, long term, we have to use our 
imagination and resources on consumer education.
    One of the reasons we engage in these sweeps is because 
they get a higher level of publicity and the newspapers 
essentially carry our message that you have to worry about 
certain kinds of frauds. We ran a sweep quite recently--it 
really doesn't affect the elderly especially--but where the 
suggestion over the phone would be that there is scholarship 
money just waiting to be claimed by young, poorer people coming 
out of high school. Now, as a matter of fact, their list was 
obsolete. There was virtually no money there and, of course, 
they would ask you for a certain amount of money in order to 
obtain access to this list.
    What we did is, first of all, we challenged the people who 
were engaging in this illegal behavior. We also got in touch 
with as many high school career advisers as we possibly could 
and let them know that this fraud was in the air. It is a 
particularly pernicious fraud because there is money out there; 
there is scholarship money out there and young people do need 
it. But you have got to deal with reputable people, and I think 
we were quite successful in alerting these high school advisers 
as to what the problem was.
    Senator Hollings. What has been the sentence of those 
convicted in your cases, and so forth? I am trying to get a 
grasp of this. You have caught me. Now, I get 1 year in jail, 
10 years, or don't get a jail sentence or I get probation and a 
pat on the back, or what?
    Mr. Pitofsky. Well, first of all, let me be clear about 
this. We have no criminal enforcement authority, so we are 
limited to civil remedies. Criminal enforcement would require 
the Department of Justice, or I guess some States could engage 
in that.
    Senator Hollings. I should have asked the attorney general. 
Do you have any idea what the sentence is right now?
    Mr. Pitofsky. I don't. I think the sentences are getting 
more serious.
    Senator Hollings. General Maroney is gone, I guess.
    Senator Gregg. No; I think he is sitting back there.
    Mr. Maroney. I don't have a really coherent answer to that 
across the board. I think the issue is going to depend a great 
deal on the amount of money taken in any given situation. You 
know, you are going in with a straight felony.
    Senator Hollings. Or the recidivist nature; in other words, 
running from Maine to New Hampshire to the next State and the 
next State.
    Mr. Maroney. And they will depend to some extent on whether 
it is being brought as a Federal crime under the Federal 
sentencing guidelines or whether they are being brought in 
State court. And, quite frankly, I suspect--although we have 
not brought a pure criminal action in New Hampshire--I suspect 
that some level of education is going to be necessary even at 
that level to convince our State court judges, who have greater 
discretion than some of the Federal court judges may in 
sentencing, that we are dealing with a serious crime even if we 
are walking in with, as the detective pointed out, a $3,000, 
one-time, seemingly small-potatoes penalty. You know, that may 
not even be a jail-time penalty at the State level the first 
time a court sees it. If you had some recidivism or that kind 
of thing, you may be able to jack yourself up into some jail 
time, but it is not guaranteed.
    Senator Hollings. Thank you, Mr. Chairman.
    Senator Gregg. Thank you.
    Mr. Pitofsky. Senator Hollings, in the one joint effort on 
criminal enforcement, the Chattanooga task force, I am told by 
the staff that the average penalty--there were 50 convictions--
the average was 3 to 4 years.
    Senator Hollings. Three to 4 years?
    Mr. Pitofsky. Yes.
    Senator Hollings. Make it longer by far. They don't mind.
    Senator Gregg. Well, I thank you, Mr. Chairman. I certainly 
recognize that you folks are doing a good job in trying to 
address this issue, and we congratulate you for that and the 
purpose of this committee is to support you in that. So if you 
have ideas or additional initiatives that you want to pursue, 
please tell us about them. Our purpose here is to make it very 
clear that the Federal Government and the agencies which the 
Federal Government is able to bring to bear on the issue of 
telemarketing crime and Internet crime and other types of 
scams, especially those run against senior citizens, are going 
to be addressed aggressively, and we intend to do that. We have 
to do it through public relations efforts and obviously through 
messages like ``just hang up.'' We have to do it also through 
making it clear to the perpetrators that they are at risk. 
Certainly, the FTC is aggressively pursuing that course.
    We congratulate the State agencies which are playing such a 
vital and critical role on this, and certainly thank Mr. 
Maroney and Mr. Phillips for coming and testifying today and 
reflecting on some of the specific instances, but also some of 
the ways that we can try to work better with our neighbors in 
Canada and our neighbors in Massachusetts and Maine. In South 
Carolina's instance, it appears some problems are occurring in 
New York City. So this cross-jurisdictional issue is a major 
issue that we also need to focus on and will be focusing on.
    But, again, congratulations for the effort the FTC is 
putting into this and the AARP is putting into this. Our 
purpose is to work with organizations like the AARP and the FTC 
and State attorney general offices to make sure that we are 
committing the resources necessary and doing the education 
necessary to bring people up to speed that there are folks out 
there who are abusing the use of the telephone and the use of 
the Internet. People have to be on their toes before they start 
sending anybody any money as the result of a telephone 
conversation or a communication over the Internet.
    Thank you very much.
    Mr. Pitofsky. Thank you, Senator.

           letter submitted from Keene, NH, police department

    Senator Gregg. The subcommittee received a letter from 
Officer John F. Stewart of the Keene Police Department which 
will be inserted in the record at this point.
    [The information follows:]
 Letter From Officer John F. Stewart, TRIAD Coordinator, Keene Police 
                               Department
                                                  February 2, 1998.
Senator Judd Gregg,
C/O Matthew Leahy,
Concord, NH.
    Dear Mr. Leahy: I am in receipt of your fax and have forwarded the 
information to the Captain of Operations. I will get back to you 
tomorrow with an answer as to whether or not I will be able to attend 
the hearing. I am enclosing some information that may be of some help 
to Senator Gregg. This is some of the information that I would have 
presented at the hearing.
    As you know in May 1995, the Keene Police Department, in 
conjunction with the Cheshire County Sheriff's Department and the 
members of the Keene Senior Center, signed a TRIAD Agreement. It was 
implemented as an additional program to combat the victimization of the 
Senior Citizens here in Cheshire County. Within this TRIAD, there is a 
S.A.L.T. Council, which stands for Seniors and Law Enforcement 
Together. This S.A.L.T. Council consists of myself, a member of the 
Cheshire County Sheriff's Department, and members of the Keene Senior 
Center.
    We have come a long way since the implementation of this program. 
We are now considered a non-profit organization under our parent 
organization, the Keene Senior Center. We have received numerous 
monetary contributions from local area businesses and private 
organizations which has allowed us to provide various services to the 
senior citizens of Cheshire County, which otherwise would not have been 
possible. For example: we recently purchased 2,500 File of Life, 
refrigerator cards which contain pertinent medical information about 
senior citizens. If ambulance or emergency personnel are to respond to 
a senior citizen's home and find that the individual is unable to 
provide medical information, they can now locate this information on 
the File of Life refrigerator card, thus saving valuable time.
    We have given numerous informational seminars and lectures to 
various organizations that deal with elderly citizens and various 
senior citizen housing complexes within Cheshire County. These have all 
been very well received.
    Some of the areas we have focused on are: What the TRIAD Program is 
all about, Scams and Frauds, Personal Safety, and Home Security to name 
a few.
    I have received some very interesting responses from the senior 
citizens I have spoken to regarding their views on Scams and Frauds. 
Many of the Seniors are familiar with the more familiar scams such as 
the Fake Contest used to get their Credit Cards numbers, Bank Account 
number, or Social Security numbers, the Roofing Scams, or the City 
Inspector Scams, but many are not knowledgeable in the specifics of 
each kind and how many of each there actually are.
    For example: In my lectures I use the example of the psychic 
hotlines that state they are giving free readings for ``X'' amount of 
time. Of course the seniors say they realize what those are and say 
they would never call them, others have called before.
    I explain that you first need to call a 1-800 number and are then 
given a 1-900 number to call for the actual reading. Many don't realize 
they are now actually calling a 1-900 number and getting charged for 
the call. Now scam artists may realize this also and develop a way to 
get you to call their 1-900 number by masquerading their scam as a 
psychic hotline. They are amazed that this actually happens. Many do 
not realize that they get charged for the 1-900 number dialed because 
they originally dialed a 1-800 number.
    I also inform them that at the time of the actual scam, this is 
probably not the first time they have ever been contacted by the scam 
artist. Scam artists usually try to get information about their 
potential victim prior to the actual scam taking place. This could be 
done through mailing lists, the internet and surveys. I explain that 
many of the surveys will ask general questions in the beginning of the 
survey, such as, ``Do you own a home * * *.'' ``Do you drive a car * * 
*.'' ``How far do you drive to work.'' The scam artist will then get 
into specific questions like, ``Do you have a checking account * * *.'' 
``Do you use an ATM machine often * * *.'' ``Do you have a Mastercard 
or Visa * * .'' ``Which bank do you bank at * * *.'' The answers to 
these questions can tell a lot about a person and their habits. I 
always get one or two people that do not think it could happen to them, 
but I only ask one or two questions and I have all the information I 
need to start my scam on them.
    I explain that the first 4 digits of a certain credit card number 
is specific to that credit card organization. The numbers 5424 is 
specific to Mastercard, 6011 is specific to a Discover Card etc. * * * 
I explain that if the scam artist has these 4 numbers they have a third 
of your credit card number. The question, ``Where were you born and 
raised * * *'' will tell the scam artist the first 3 digits of your 
social security card. The question, ``When you were born * * *'' will 
give them the necessary info to gather the rest of the number if they 
are persistent enough to look for it. I tell them that we now live in 
the information age, if someone wants to get your info, all they need 
is a small amount of information from you to begin the search.
    Another example I use is the charitable scams. I explain that all a 
scam artist needs to do is read the obituaries. All the necessary 
information they need to have is located there. Who are the living 
relatives and where do they live? What the person died from. Where they 
lived prior to their death.
    I explain that if a loved one recently died of cancer they may 
receive a call or a letter from a scam artist stating they are from the 
United States Cancer Association looking for contributions for their 
charitable organization. The victim, wishing they could have helped 
their loved one, feels that maybe by giving to the charity, they will 
have done some good. What they do not immediately realize is that the 
United States Cancer Association is a fraudulent organization, but 
sounds like the legitimate organization called the American Cancer 
Society. Many victims have fallen into this trap but never even 
realized they had been scammed.
    This is a common concern amongst seniors. Many seniors do not know 
the fraudulent organizations from the legitimate ones. Many legitimate 
organizations mail out pamphlets and brochures telling them about the 
specifics of their organizations, but so do scam artists who create 
pamphlets and brochures to mimic these organizations. With the use of 
computers and software, scam artists can practically duplicate a 
pamphlet from a legitimate organization right from their own home. 
People who are not familiar with these will be taken.
    One way to combat this type of victimization is to pass legislation 
that prohibits persons and or organizations to mimic or otherwise try 
to pass themselves off as other persons and or organizations, without 
first warning the person that they are not associated with any other 
organization. For example, The National Football League is a very well 
known organization. It would be illegal for an organization called the 
National Football Association to solicit money or items from a person 
or organization who believed that the National Football Association was 
related in some way to the National Football League.
    The new legislation would state that ``Any person and/or 
organization that tried to solicit funds or other items using a name 
similar to that of another person and/or organization, in that a 
reasonable person would be lead to believe that the said organization 
was actually another, would be illegal, unless said organization stated 
either verbally or in writing that it was not associated in any way to 
the organization it closely resembled.''
    Many law enforcement organizations make informational pamphlets and 
brochures that target these specific concerns, but because there are so 
many variations to each of these scams, it is impossible to write a 
brochure or pamphlet to document all of them.
    To combat this problem the Keene TRIAD Program has turned to 
personal lectures and informational seminars on the subjects of Scams 
and Frauds. By utilizing these types of lectures, seminars as well as 
informational pamphlets and brochures, it gives us the opportunity to 
answer specific questions from seniors and the ability to pass out 
general information at the same time.
    We recently had a scam letter going around the Keene area from 
Nigeria asking for money to be sent to a specific organization. The 
victim needed to send money to this organization in order to receive a 
substantial amount of money in return. Realizing this was a scam, the 
TRIAD Program placed a copy of the actual letter in the newspaper. As a 
result of this, we received numerous phone calls regarding this letter. 
With this information, we were able to track the progress of the scam 
and the exact locations it was being sent to. I believe that the letter 
was unsuccessful in this area as we have not had any complaints 
regarding this letter for some time now.
    However, there was a ``copy cat'' letter that was similar to the 
one sent from Nigeria that we receives several questions on regarding 
its legitimacy. Even though the letters were similar in style and 
intent, many people felt that since it was not from Nigeria, it may be 
a valid letter.
    I realize that I am unable to provide you with all of the aspects 
of the Keene TRIAD Program and what we have to offer the senior 
citizens of Cheshire County in this letter. If you have any questions 
regarding the program please feel free to contact me at the Keene 
Police Department at 357-9815.
    Thank you for your interest in this program and what it has to 
offer. It is interest such as yours that keeps programs like this alive 
and available to the citizens who need it most.
            Sincerely,
                                   Officer John F. Stewart,
                        TRIAD Coordinator, Keene Police Department.

                         conclusion of hearing

    Senator Gregg. If there is nothing further, the 
subcommittee will stand in recess.
    [Whereupon, at 11:35 a.m., Tuesday, February 5, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]