[Senate Hearing 106-181]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 106-181


 
               THE HIDDEN OPERATORS OF DECEPTIVE MAILINGS

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


                                HEARING

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION



                               __________

                             JULY 20, 1999

                               __________

      Printed for the use of the Committee on Governmental Affairs


                                


                      U.S. GOVERNMENT PRINTING OFFICE
 59-577 cc                   WASHINGTON : 1999
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
         U.S. Government Printing Office, Washington, DC 20402



                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
             Hannah S. Sistare, Staff Director and Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                 Darla D. Cassell, Administrative Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                   SUSAN M. COLLINS, Maine, Chairman
WILLIAM V. ROTH, Jr., Delaware       CARL LEVIN, Michigan
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         MAX CLELAND, Georgia
THAD COCHRAN, Mississippi            JOHN EDWARDS, North Carolina
ARLEN SPECTER, Pennsylvania
          K. Lee Blalack, II, Chief Counsel and Staff Director
      Linda J. Gustitus, Minority Chief Counsel and Staff Director
                     Mary D. Robertson, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Durbin...............................................     4
    Senator Edwards..............................................    14
Prepared opening statement:
    Senator Levin................................................     3

                               WITNESSES
                         Tuesday, July 20, 1999

Glynna Christian Parde, Chief Investigator and Senior Counsel, 
  Permanent Subcommittee on Investigations, Committee on 
  Governmental Affairs...........................................     5
David Dobin, President, Lone Star Promotions, Inc., Merrick, New 
  York, accompanied by Peter J. Tomao, Esq., Garden City, New 
  York...........................................................    21
Anthony Kasday, President, Neopolitan Consultants, Inc., Las 
  Vegas, Nevada, accompanied by John Burns, Esq., New York, New 
  York...........................................................    26
Kenneth J. Hunter, Chief Postal Inspector, U.S. Postal Inspection 
  Service, and Robert G. DeMuro, U.S. Postal Inspector Attorney, 
  U.S. Postal Inspection Service.................................    43

                     Alphabetical List of Witnesses

DeMuro, Robert G.:
    Testimony....................................................    43
    Prepared statement...........................................    75
Dobin, David:
    Testimony....................................................    21
    Prepared statement...........................................    64
Hunter, Kenneth J.:
    Testimony....................................................    43
    Prepared statement...........................................    75
Kaskday, Anthony:
    Testimony....................................................    26
Parde, Glynna Christian:
    Testimony....................................................     5
    Prepared statement...........................................    55

                                Exhibits

* May Be Found In The Files of the Subcommittee


 1. Enwood, Pressman & Ingram, Inc. mailing, Acknowledgment 
  Voucher........................................................    87

 2. Enwood, Pressman & Ingram, Inc. mailing, Quick Bucks........    88

 3. Enwood, Pressman & Ingram, Inc. mailing, Notification of 
  Cash Payoff....................................................    91

 4. Enwood, Pressman & Ingram, Inc. mailing, Unidentified 
  Claimant Section...............................................    92

 5. Mellon, Astor & Fairweather, Inc. mailing, Car Offer........    93

 6. Mellon, Astor & Fairweather, Inc. mailing, Revocation Notice    97

 7. Mellon, Astor & Fairweather, Inc. mailing, ATM Express......    99

 8. North American Bureau of Assets mailing, Original Affidavit.   100

 9. North American Bureau of Assets mailing, Cash Giveathon II..   101

10. North American Bureau of Assets mailing, International 
  Funding Distribution Department................................   104

11. Lone Star Promotions mailing, Official Announcement Form....   106

12. Lone Star Promotions mailing, Registered Notification.......   107

13. Lone Star Promotions mailing, Champion Promotions Int.......   109

14. Lone Star Promotions mailing, Darwin American Selection 
  Services.......................................................   110

15. R & R Marketing mailing, Official United Sweepstakes of 
  America........................................................   111

16. R & R Marketing mailing, Unclaimed Cash Belonging To You....   112

17. Contest Express mailing, Asset Management & Distribution....   113

18. Justin Grant mailing, Proceed to Notify.....................   114

19. Millennium Sales mailing, Official Presentment of Award.....   115

20. Nordic Island Marketing Group mailing, National Disbursement 
  Center.........................................................   116

21. Mailworks International mailing, Wilson Perrie Corporation..   117

22. Mailworks International mailing, Monetary Awards Division of 
  CMS............................................................   119

23. a. Steppin' Out Coupon Book (pink) (over $1,000)............   121
    b. Steppin' Out Coupon Book (blue) (over $3,500)............   129

24. Five identical Cash Claim Service promotional mailings 
  reflecting five different return addresses.....................   137

25. The Role of Consultants in Sweepstakes Companies, chart 
  prepared by the Permanent Subcommittee on Investigations.......   138

26. Different Companies, Same Product, chart prepared by the 
  Permanent Subcommittee on Investigations.......................   139

27. Incorporated-Revoked Timeline, chart prepared by the 
  Permanent Subcommittee on Investigations.......................   140

28. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Cashorama, Inc., 
  dated June 15 and 30, 1999.....................................   141

29. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Corporate Prize 
  Headquarters, Inc., dated July 1, 1999.........................   177

30. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Enwood, Pressman & 
  Ingram, Inc., dated June 14 and 16 and July 6, 1999............   180

31. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Lone Star 
  Promotions, Inc., dated June 7, 8 and 21 and July 15, 1999.....   189

32. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Mellon, Astor & 
  Fairweather, Inc., dated June 16 and July 6, 1999..............   199

33. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Millennium Sales, 
  Inc., dated May 14, 1999.......................................   207

34. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from North American 
  Bureau of Assets, Inc., dated June 10, 15 and 17, 1999.........   209

35. Materials sent to Permanent Subcommittee on Investigations 
  in response to request for information from Royal Sweepstakes, 
  Inc., dated June 14, 1999......................................   225

36. Articles of Incorporation and Certificate of Incorporation 
  for Enwood, Pressman and Ingram, Inc. and Mellon, Astor & 
  Fairweather, Inc...............................................     *

37. Affidavit of Andrea N. Burrow, dated July 15, 1999..........   228

38. Affidavit of Robert Groce, dated July 15, 1999..............   230

39. Affidavit of Richard Kaufman, dated July 15, 1999...........   232

40. Answers to Permanent Subcommittee on Investigations' 
  interrogatories of Cashorama, Inc. and Corporate Prize 
  Headquarters, Inc., dated July 15, 1999........................   233

41. Answers to Permanent Subcommittee on Investigations' 
  interrogatories of Enwood, Pressman & Ingram, Inc. and Mellon, 
  Astor & Fairweather, Inc., dated July 15, 1999.................   235

42. Answers to Permanent Subcommittee on Investigations' 
  interrogatories of North American Bureau of Assets, Inc., dated 
  July 15, 1999..................................................   237

43. Answers to Permanent Subcommittee on Investigations' 
  interrogatories of Royal Sweepstakes, Inc., dated July 15, 1999   239

44. Answers to Permanent Subcommittee on Investigations' 
  interrogatories of Anthony Kasday and Neopolitan Consultants, 
  Inc., dated July 16, 1999......................................   241

45. Permanent Subcommittee on Investigations' Subpoenas.........     *

    #E02327--Subpoena for Personal Appearance of Sheilah Williams
    #E02328--Subpoena for Personal Appearance of Anthony Kasday
    #E02329--Subpoena for Documents of Enwood, Pressman & Ingram, 
      Inc.
    #E02330--Subpoena for Documents of Mellon, Astor & 
      Fairweather, Inc.
    #E02331--Subpoena for Documents of Neopolitan Consultants, 
      Inc.

46. SEALED EXHIBIT: Transcript of U.S. Senate Permanent 
  Subcommittee on Investigations' Telephonic Interview of Anthony 
  Kasday, June 18, 1999..........................................     *

47. SEALED EXHIBIT: Transcript of U.S. Senate Permanent 
  Subcommittee on Investigations' Deposition of David R. Dobin, 
  June 28, 1999, in Washington, DC...............................     *

48. SEALED EXHIBIT: Transcript of U.S. Senate Permanent 
  Subcommittee on Investigations' Deposition of Sheilah Williams, 
  July 7, 1999, in Las Vegas, Nevada.............................     *

49. Superseding Information, United States v. David Dobin and 
  Jeffrey Novis, No. 95 CR 0250 (TCP)............................   249

50. Letter from Peter J. Tomao, Esquire, dated July 19, 1999, to 
  Permanent Subcommittee on Investigations, regarding his client, 
  David Dobin....................................................   255

51. Transcript of Plea Proceedings of David Dobin, dated March 
  31, 1995.......................................................   256

52. Memoranda prepared by K. Lee Blalack, Chief Counsel & Staff 
  Director, Glynna Christian Parde, Chief Investigator & Senior 
  Counsel, and Emmett Mattes, Postal Service Detailee, Permanent 
  Subcommittee on Investigations, dated July 15, 1999, to 
  Permanent Subcommittee on Investigations' Membership Liaisons, 
  regarding July 20th hearing on Deceptive Mailings..............   282

53. Statement for the Record of James G. Huse, Jr., Acting 
  Inspector General, Social Security Administration..............   304

54. Supplemental Questions and Answers for the Record of David 
  Dobin, Lone Star Promotions, Inc...............................   309

55. Supplemental Questions and Answers for the Record of Kenneth 
  Hunter, Chief Postal Inspector, Postal Inspection Service......   325

56. Letter from R.L.T.M.R. to the Better Business Bureau of 
  Nashville/Middle Tennessee expressing regret that the 
  sweepstakes company would not be awarding its prize............   329



               THE HIDDEN OPERATORS OF DECEPTIVE MAILINGS

                              ----------                              


                         TUESDAY, JULY 20, 1999

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:34 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Subcommittee, presiding.
    Present: Senators Collins, Levin, Durbin, and Edwards.
    Staff Present: K. Lee Blalack, II, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Glynna Christian 
Parde, Chief Investigator and Senior Counsel; Kirk E. Walder, 
Investigator; Eileen Fisher, Intern; Kathy Cutler, 
Congressional Fellow; Emmett Mattes, Detailee/Postal Service; 
Elizabeth Hays, Staff Assistant; Linda Gustitus, Minority Chief 
Counsel and Staff Director; Leslie Bell, Congressional Fellow; 
Nanci Langley; Mark Carmel (Senator Specter); Felicia Knight 
(Senator Collins); Steve Abbott (Senator Collins); Dan Blair 
(Senator Thompson); (Senator Akaka); Marianne Upton (Senator 
Durbin); Maureen Mahon (Senator Edwards); and Diedre Foley 
(Senator Lieberman).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. The Subcommittee will please come to 
order.
    Last year, the Permanent Subcommittee on Investigations 
began an investigation into deceptive mailings. At our first 
hearings on deceptive sweepstakes in March, we heard 
troubling--at times heartbreaking--testimony about the 
aggressive and deceptive marketing practices used by the four 
largest sweepstakes companies to persuade consumers to buy 
products they neither needed nor wanted in the hope of 
increasing their chances of winning the big prize. Deceptive 
sweepstakes can induce trusting consumers to buy thousands of 
dollars of questionable merchandise--such as the magazine 
subscription extending to the year 2018 purchased by an 82-
year-old man through a sweepstakes promotion.
    In addition to financial losses, deceptive mail promotions 
exact an emotional toll on those misled by apparent promises 
such as ``You Were Declared One of Our Latest Sweepstakes 
Winners and You're About to Be Paid $833,337.00 in Cash.''
    The Subcommittee found that our senior citizens are 
particularly vulnerable to such deceptive mailings. At our 
earlier hearings, family members told of loved ones who were so 
convinced that they had won a sweepstakes that they refused to 
leave their homes for fear of missing the Prize Patrol. In 
fact, one woman from Maine wrote to me that she had canceled 
needed surgery in order to make sure that she would be home.
    The Subcommittee investigated many cases of seniors who, 
enticed by the bold promises in deceptive sweepstakes, spent 
their Social Security checks, squandered their life savings, 
and even borrowed money to buy unwanted magazines, trinkets, 
and other merchandise. I will never forget one of our witnesses 
who broke down in tears as he recounted how sweepstakes 
companies had deceived him into spending $15,000 for products 
that he really didn't want in an effort to win the big prize. 
Other witnesses explained that their elderly family members 
spent thousands of dollars in the vain hope that if they bought 
just one more trinket or one more magazine subscription, surely 
it would greatly improve their chances of winning. Of course, 
it never did.
    Our hearings prompted more than 1,000 individuals from 
across the country to write to me to share their own 
experiences with deceptive mailings. As we began to examine 
these mailings closely, we discovered a pattern of highly 
deceptive solicitations by dozens of smaller companies that 
previously had been unknown to us. In contrast to our earlier 
hearings, which concentrated on the four largest sweepstakes 
companies, our focus today is on these smaller operations, a 
largely unknown segment of the industry that nevertheless 
reaches millions of Americans.
    Those who followed our previous hearings know that I am 
outraged by the deceptive marketing techniques of the major 
sweepstakes companies. Despite these questionable marketing 
practices, however, these companies are legitimate companies. 
They are legitimate in the sense that they do award prizes, 
deliver the merchandise ordered, and do not seek to in any way 
conceal their identities. The Subcommittee's investigation of 
several smaller operators uncovered much more deceptive and 
shady business practices--including in some cases possible 
fraud--than we found with the larger companies.
    Many of these smaller companies tend to be fly-by-night 
operations that use multiple trade names to hide their 
identities and to confuse consumers. In some cases, they are 
run by promoters for a year or two and then shut down. The 
operator then starts up a new company under yet another name, 
often one specifically chosen to lend credibility to the 
contest or to further deceive consumers. These companies profit 
not only from their extremely deceptive mailings, but also by 
reselling the names of customers to other operators who then 
inundate the unlucky consumer with new mailings all over again. 
Unfortunately, the Subcommittee's investigation suggests that 
this business is quite lucrative.
    The companies investigated by the Subcommittee sent 
approximately 100 million promotional mailings in 1998 and 
received over 4 million purchases. The Subcommittee's 
investigators conservatively estimate that these purchases cost 
consumers more than $40 million. In return, most individuals 
received a discount coupon book that was frequently followed by 
numerous additional mailings urging the unwary contestant to 
send even more money to buy the exact same coupon book all over 
again.
    Anonymity, as our hearings will show, is crucial to the 
success of many of these small operators. They depend on 
working in the shadows and underneath the radar of State and 
Federal regulators. They are the ``stealth'' sweepstakes 
companies, difficult to detect, to track, and to stop. Our 
investigation discovered that most of these companies attempt 
to conceal their identity through multiple corporate names and 
various mailbox drops in different States. And as our hearings 
will show, often their mailings are designed to deceive even 
the most cautious consumer.
    During the hearing today, we will first hear from the 
Subcommittee chief investigator, who will review the results of 
the Subcommittee's investigation. We will next hear testimony 
from two of these sweepstakes promoters. Finally, we are 
pleased to have representatives from the U.S. Postal Inspection 
Service to discuss various types of deceptive mailings, such as 
government look-alike promotions and mailings that offer to 
sell a product that the government already provides for free.
    While our investigation has exposed some of these shady 
operators, an investigation alone will not solve this growing 
problem. It requires a comprehensive legislative solution. I am 
very pleased that our initial hearings in March prompted the 
Governmental Affairs Committee to approve legislation that I 
sponsored--along with Senators Durbin, Levin, Cochran, Edwards, 
the Chairman of the full Committee, and others--that would 
impose strong consumer standards on promotional mailings and 
provide for civil penalties up to $2 million for violations of 
those standards. Our legislation would also give the Postal 
Service much needed stronger authority to crack down on 
deceptive mailing operations.
    It is my hope that our hearing today, by revealing the 
complicated web of deception spun by hidden sweepstakes 
operators, will further build the case for prompt passage of 
our legislation by the full Senate.
    Senator Levin, our Ranking Minority Member, is delayed in 
arriving today. He does have an opening statement which I am 
going to ask unanimous consent be entered into the record.
    [The prepared statement of Senator Levin follows:]

              PREPARED OPENING STATEMENT OF SENATOR LEVIN
    During the Women's World Cup match a few weeks ago, I saw a 
commercial which demonstrates the determination these sweepstakes 
companies have to get people to open a mailing promoting sweepstakes. 
They know they can't sell a product unless the recipient opens the 
envelope, and since our hearings on deceptive sweepstakes promotions in 
March and the excellent work of the State Attorneys General in going 
after deceptive sweepstakes practices, press reports indicate that 
significantly fewer people are responding to sweepstakes promotions. 
More and more people are simply throwing away a mailing advertising a 
sweepstakes without even opening it.
    Publisher's Clearing House, apparently, decided to go on the 
offensive against this trend and is paying for a television ad that 
shows someone throwing away a sweepstakes mailing and then the 
announcer cautions the person not to do it--not to throw away the 
Publisher's Clearing House envelope because it may contain a real 
check--a check that can be cashed immediately, as is. ``Look for the 
green star,'' the ad says. If the envelope has a green star, according 
to the announcer, it could have a real check inside it. ``So,'' the ad 
urges, ``you shouldn't throw away that envelope.'' This is a device 
Publisher's Clearing House is using to entice people back into 
sweepstakes and into opening that envelope so they take the first and 
most important step towards buying something--because they think buying 
something will improve their chances of winning.
    So, even though we made some headway with our efforts in the last 
hearings, at least one sweepstakes company is fighting back with a 
national commercial on a program as watched as the Women's World Cup, 
telling people not to thrown out the Publisher's Clearing House 
envelope. As I said at our last hearing, and this emphasizes the point, 
sweepstakes promotions are not junk mail, they're big business.
    In the last hearing, we heard from the four biggest sweepstakes 
promoters that use sweepstakes to sell magazines and other products: 
American Family Publishers; Publisher's Clearing House; Reader's 
Digest; and Time, Inc. We saw their examples of truly deceptive 
promotions--in some cases, using direct false statements. But as bad as 
we thought those promotions were, the mailings from these smaller 
companies we are going to look at today are even worse.
    These mailings are worse for several reasons. They have claim forms 
calling themselves ``awards'' or ``entitlements.'' In reality, these 
claim forms are used to sell a product which itself is not clearly 
identified--a ``cash savings voucher folio,'' or a ``cash savings 
premium folio,'' or a ``special premium,'' or a ``special benefit.'' In 
each of these cases, the product for sale is a discount coupon book 
which has little value to most people. Some merchants who honor the 
coupons are not available locally. Some of the coupons require 
expenditures of significant sums of money to realize any savings. The 
books cost in the neighborhood of $10 to $15 and are supposed to 
contain savings of over $2,000, but you'd have to spend thousands of 
dollars on items you probably don't need to achieve that level of 
savings.
    Many of these promoters use a different name on each promotion and 
exist only long enough to collect the money, close up shop (sometimes 
without awarding prizes), and reopen elsewhere to start the scam anew. 
They are small but their reach is wide; cumulatively the Subcommittee 
has learned they produce over 100 million mailings a year. Because they 
often do not mail in the States in which they operate, they avoid 
prosecution by the State Attorney General. When they come under 
scrutiny by a State Attorney General or the U.S. Postal Service, they 
stop mailing to those States and change their mailings to comply with 
any stop order.
    Moreover, these companies thrive on the sale of mailing lists. The 
Subcommittee's investigation confirmed the rapid sale of names by 
various direct mailers. With each purchase, the buyer's name goes on 
the resale list of names, becoming a popular commodity for sale to any 
person desiring to buy the selling company's customer list through a 
list broker. And the buyer will also get resolicited from the first 
company another four to five times for each purchase made.
    These unscrupulous practices seem to cross the line of legality, 
and if they do, the Postal Service needs the enforcement tools to stop 
them. The legislation reported by the Governmental Affairs Committee 
should strengthen the hand of the Postal Service so these companies 
will no longer be able to operate. If they don't cross the line, then 
we have to reevaluate where the line is drawn and make the law more 
protective for the sake of our American consumers. I thank the Chairman 
for holding these hearings, and I look forward to hearing from our 
witnesses.

    Senator Collins. It is now my pleasure to call on my 
colleague, the Senator from Illinois, Senator Durbin. Senator 
Durbin has been a real leader on this Subcommittee as we have 
exposed and probed various kinds of consumer fraud and 
deception, and I am pleased to welcome him here today.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thank you very much, Chairman Collins. I 
think your hearing last March really focused on the big dogs, 
the big four, that really do account for a lion's share of 
deceptive mailings and questionable mailings across America. 
This hearing takes it to the next step, goes after the little 
dogs, but their bite is just as bad when it comes to the loss 
that many families feel as a result of their deception.
    I want to congratulate you for your leadership on this 
issue. Many people who are watching this don't understand 
really the inner workings of the Senate and how you can move a 
piece of legislation successfully. But I want to commend 
Senator Collins for her fine work, along with Senator Levin, in 
moving this bill forward. A bill that started with three or 
four cosponsors is now up to 34, if I am not mistaken, which is 
testament to the fact that it is a bipartisan undertaking and I 
think a clear message to everyone who is in this business that 
they better pay attention. Some changes are going to be made 
here to try to protect consumers across America, and these 
changes are based on common-sense solutions which apply in my 
home State of Illinois as well as the Chairman's home State of 
Maine, and suggest that people really are being deceived, that 
they are being victimized, and that has to come to an end.
    I am happy to join you at this hearing and look forward to 
the testimony.
    Senator Collins. Thank you very much, Senator Durbin.
    Due to time constraints, the Subcommittee was unable to 
invite everyone who had an interest in this issue to present 
oral testimony. This week we received a written statement from 
the Office of the Inspector General of the Social Security 
Administration.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 53 which appears in the Appendix on page 304.
---------------------------------------------------------------------------
    Without objection, that statement will be included in the 
printed hearing record, and the hearing record will remain open 
for 30 days for any additional statements.
    Senator Collins. I now want to welcome our first witness 
this morning. We have with us the Subcommittee's Chief 
Investigator and Senior Counsel, Glynna Parde, who will 
describe the results of the Subcommittee's ongoing 
investigation of deceptive mailings.
    Pursuant to Rule 6, all of the witnesses who testify before 
the Subcommittee must be sworn, so at this point, I would ask 
Ms. Parde to please stand and raise her right hand. Do you 
swear that the testimony you are about to give to the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Ms. Parde. I do.
    Senator Collins. Thank you. You may proceed, please.

TESTIMONY OF GLYNNA CHRISTIAN PARDE,\2\ CHIEF INVESTIGATOR AND 
   SENIOR COUNSEL, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS, 
               COMMITTEE ON GOVERNMENTAL AFFAIRS

    Ms. Parde. Thank you, Chairman Collins, Senator Levin, and 
Members of the Subcommittee.
---------------------------------------------------------------------------
    \2\ The prepared statement of Ms. Parde appears in the Appendix on 
page 55.
---------------------------------------------------------------------------
    The Subcommittee's investigation uncovered a breed of 
sweepstakes companies that is wholly different than those 
highlighted in the Subcommittee's March 1999 hearings. Although 
most consumers probably recognize the names Publishers Clearing 
House and Reader's Digest, our investigation found that there 
are dozens of smaller companies that attempt to remain hidden 
from consumers and below the radar screen of the regulators. 
The Subcommittee's investigation suggests that these smaller 
sweepstakes and prize promoters employ marketing tactics that 
are much more aggressive and deceptive to sell their products. 
Moreover, these companies have developed ingenious ways to 
remain undetected by the regulators. And even if they are 
detected, some have developed techniques to insulate themselves 
from effective enforcement action.
    Although the companies that we have examined are smaller 
than the big four in terms of total mailings and gross 
revenues, they nevertheless sent roughly 100 million pieces of 
mail last year. Though each mailing must be evaluated 
independently, we did find that, in general, the mailings from 
the smaller companies are much more deceptive than those sent 
by the companies the Subcommittee investigated in March.
    Now, to give the Subcommittee a sense of what I mean by 
deceptive, I would like to show you several exhibits that are 
promotional mailings. We obtained these during the course of 
this investigation.
    The first promotional mailing was mailed by North American 
Bureau of Assets, Inc., or NABA, and it is Exhibit No. 8.\1\ 
Now, Exhibit No. 8 appears to be an ``Original Affidavit'' from 
NWCG/Prize Payout Division in connection with its ``$10,000 
Cash Opportunity Giveathon.'' This mailing advises the consumer 
that ``[y]ou may not be aware that cash prizes are issued in 
the aforementioned amount of ten thousand, one thousand, one, 
one hundred, and fifty dollars, and additional vouchers 
entitlement in a two thousand dollar voucher pak. Said cashpak 
is released with mandatory release fee of ten dollars, and is 
over and above your previously mentioned cash winnings.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 8 which appears in the Appendix on page 100.
---------------------------------------------------------------------------
    Now, this language clearly implies that the consumer will 
receive vouchers for an additional $2,000, going so far as to 
call the ``voucher pak'' a ``cashpak.'' Only as an afterthought 
in the last sentence of the last paragraph does the mailing 
mention that the ``cashpak'' contains ``redeemable vouchers 
from national incentive guarantors, and good for food, 
entertainment, travel, merchandise, etc., when fully 
redeemed.''
    Even someone who was suspicious might not be able to tell 
that the ``voucher pak'' and the ``cashpak'' referred to in 
this mailing are really nothing more than a discount coupon 
book. The $2,000 value is actually the estimated value of 
obtaining every single discount available. To realize that 
retail value, the consumer may actually have to purchase 
thousands of dollars of goods and services from the vendors 
listed in the coupon book.
    Moreover, the mailing does not offer the consumer an 
opportunity to purchase a discount coupon book for $10. 
Instead, the consumer is told that he or she must pay a 
``mandatory release fee'' to get the ``cashpak.'' This mailing, 
therefore, illustrates one of the big differences between the 
promotions of the major sweepstakes companies and those that 
are the subject of this investigation. Unlike American Family 
Publishers or Publishers Clearing House, these small operators 
attempt to disguise both the solicitation and the product.
    Exhibit No. 9 \2\ is another promotion from NABA that only 
hits that the mailing is actually a solicitation for the 
product. The key paragraph states that ``[w]e have reserved in 
your name, a redemption packet valued in excess of $2,000.00 
when the value certificates are fully redeemed (see reverse for 
details). Your initials and release honorarium are required for 
shipment of this value packet.'' Even though it is the same 
coupon book and the same contest as in Exhibit No. 8, this time 
NABA calls the coupon book a ``redemption packet'' instead of a 
``cashpak,'' and the purchase price is a ``release honorarium'' 
rather than a ``mandatory release fee.''
---------------------------------------------------------------------------
    \2\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
    We also discovered that these smaller companies attempt to 
trick the consumer into thinking that, if they purchase one of 
these coupon books, their odds of winning the sweepstakes will 
improve. I would like to show you Exhibit No. 10,\1\ which is 
another sweepstakes promotion from NABA. The sixth paragraph of 
this promotion, which is highlighted at the bottom of the 
chart, reminds the consumer that the prizes NABA awards ``are 
determined from private lists of participants who entered a 
sweepstakes or were involved in a merchandise purchase by mail. 
It's that simple! Your response to direct mail offers has paid 
off for you, and we offer you our heartiest congratulations.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 10 which appears in the Appendix on page 104.
---------------------------------------------------------------------------
    The NABA mailing then confidently announces that the 
consumer will ``undoubtedly take advantage of the elective 
entitlement option described below'' because ``most winners 
do.'' The bottom portion of the promotion goes even further to 
connect the purchase of the coupon book, or the ``elective 
entitlement option,'' to the winning sweepstakes. This portion 
contains a box for the consumers to check to ``take advantage'' 
of the ``elective entitlement options,'' reiterating again that 
``most winners do,'' but then adding, ``[b]e sure and send me 
the check I have already won.''
    Despite strongly linking a purchase to the odds of winning, 
the promotion does state in small print at the top of the page 
that there is ``no purchase required.'' Even if a consumer read 
this disclaimer, however, the language used in the promotion 
suggests strongly that, although you don't have to purchase a 
product to win, it will greatly improve your odds since, as the 
mailing notes, ``most winners do.''
    The Subcommittee's investigation also found two other 
disturbing types of solicitations in these mailings. First, 
many of these companies imply in their promotions that the 
consumer has already won the grand prize and, in fact, is 
guaranteed to win. Upon much closer inspection, the 
disheartened recipient--who was only moments ago counting his 
money--will learn that he can only win the grand prize if he 
has and returns the winning number and is a guaranteed winner 
of only a nominal amount.
    For example, if I can direct your attention to Exhibit No. 
16,\2\ the fifth paragraph informs the recipient that ``[u]pon 
processing and completion of our Top Prize $10,000 Sweepstakes, 
the unclaimed cash will be delivered to the determined 
principal of record, which in this case is you.'' Now, that 
sounds pretty good. This language does not appear conditional; 
the recipient has won $10,000. Only by carefully reading the 
fine print below the postscript, which is highlighted at the 
bottom of the chart, and the rules on the back does it become 
clear that the consumer's odds of winning the $10,000 are 1 in 
3 million, and actually the consumer is only guaranteed to win 
25 cents. Therefore, the bulk of consumers who respond to this 
promotion actually lost money because their guaranteed winnings 
were less than the cost of the postage.
---------------------------------------------------------------------------
    \2\ See Exhibit No. 16 which appears in the Appendix on page 112.
---------------------------------------------------------------------------
    The second common practice utilized by these smaller 
companies is to imply that the promotion is authorized by or 
related to a government agency, thereby lending credibility to 
the sweepstakes. I would like to show you one example of this 
practice that the Subcommittee investigators uncovered.
    Exhibit No. 15 \1\ is a promotional mailing for a contest 
currently being conducted by R&R Marketing. You might be 
interested to know that there is an ``Official United 
Sweepstakes of America.'' Now, we know that the Federal 
Government does not sponsor sweepstakes. Yet this promotion 
adds to the deception that the Federal Government has sponsored 
this contest with a photo of the U.S. Treasury Building that 
references a mailing address at 611 Pennsylvania Avenue, 
Washington, DC. Our investigators discovered that this is 
actually the address for a Mail Boxes Etc. You will also note 
that the promotion claims to be from the Office of Treasury of 
Awards and is marked with the purported seal of the Official 
United Sweepstakes of America.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 15 which appears in the Appendix on page 111.
---------------------------------------------------------------------------
    At the bottom of the page, the mailing does state that the 
sweepstakes ``is an independent private sweepstakes, not 
affiliated with the U.S. Government.'' It then coyly turns the 
disclaimer to its advantage, however, and says that, ``[a]s an 
independent . . . company, we can with good conscience and 
faith make the guaranteed promise to pay the official winning 
$10,000.''
    Our investigation even uncovered evidence of simple mail 
fraud. For example, many of these smaller companies offer a 
service known as ``rush processing'' for an additional fee or 
what is referred to as a ``kicker.'' Now, ``rush processing'' 
does not mean that the recipient will receive a prize any 
earlier, but only that the sweepstakes company will expedite 
sending its product, usually the discount coupon book. We found 
that some companies may not even expedite the processing of the 
discount coupon book.
    Subcommittee investigators also discovered that, in a few 
cases, some sweepstakes companies completely failed to award a 
prize. In the case pending against Eagle Promotions, the U.S. 
Attorney for the District of New Jersey has commented that 
Eagle has not awarded a prize in its contest. The Subcommittee 
also obtained a copy of a letter from a sweepstakes operator 
named R.L.T.M.R. to the Better Business Bureau of Nashville/
Middle Tennessee expressing regret that the sweepstakes company 
would not be awarding its prize, a Chevrolet Blazer.\2\
---------------------------------------------------------------------------
    \2\ See Exhibit No. 56 which appears in the Appendix on page 328.
---------------------------------------------------------------------------
    Now, as I mentioned earlier, these small sweepstakes 
operators clearly want to remain underground and hidden. And as 
evidence of that goal, the Subcommittee's investigation 
uncovered a few practices that we believe could be attempts to 
not only evade detection by the regulators but to also insulate 
the principals in these sweepstakes companies from meaningful 
enforcement action.
    First, we believe that some of the most sophisticated of 
these small operators may rely on front companies to insulate 
themselves from tough enforcement action. Second, we believe 
that some small operators will form a corporation, send 
promotional mailings under that corporate structure for 1 or 2 
years, and then dissolve the corporation when they think that 
the company's promotions are coming to the attention of 
regulators. They then form a new company and begin the cycle 
all over again.
    The Subcommittee has developed case studies of two 
different sweepstakes operators whose business practices may 
illustrate these techniques. The two case studies involve David 
Dobin, president of Lone Star Promotions, Inc., and Anthony 
Kasday, president of Neopolitan Consultants.
    Mr. Kasday, who is the president of Neopolitan Consultants, 
has been in the promotional mailing business for 30 years. 
Although we are not aware of any sweepstakes company in which 
he is currently a shareholder, officer, director, or employee, 
the Subcommittee's investigation discovered that, through his 
various consulting arrangements, Mr. Kasday makes a very 
lucrative income from the companies that he directs.
    I would like to direct the Subcommittee's attention to 
Exhibit No. 25.\1\ As you can see from this exhibit, Mr. Kasday 
operates through his consulting company, Neopolitan, and 
through Neopolitan he received income in 1998 from at least 
five of the six different sweepstakes companies on this chart. 
These companies are: North American Bureau of Assets; Royal 
Sweepstakes; Cashorama; Enwood, Pressman & Ingram; and Mellon, 
Astor & Fairweather.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 25 which appears in the Appendix on page 138.
---------------------------------------------------------------------------
    Based upon sworn answers to interrogatories and affidavits 
submitted by these companies, Mr. Kasday's consulting firm 
received almost $400,000 in 1998. Thus far in 1999, Neopolitan 
has received payments from these companies totaling over 
$500,000. Therefore, through Neopolitan alone, Mr. Kasday has 
been paid almost $1 million over roughly the last year and a 
half.
    I would like to specifically discuss two of the companies 
on this chart: Enwood, Pressman & Ingram and Mellon, Astor & 
Fairweather. As you can see from Exhibit No. 25, Enwood, 
Pressman & Ingram and Mellon, Astor & Fairweather are owned by 
Nicole Kasday, who is Mr. Kasday's niece. The Subcommittee 
investigators interviewed Nicole Kasday and discovered that she 
is a college student who has no involvement in the operations 
of either company. She told us that Mr. Kasday approached her 
in 1998 about starting the two companies in her name. He asked 
Nicole for a copy of her driver's license and a copy of her 
signature. With those in hand, he had his office manager, 
Sheilah Williams, prepare a signature stamp with Nicole's 
signature on it. Ms. Williams testified that, at Mr. Kasday's 
direction, she used this signature stamp to open bank accounts, 
the mailboxes where the company received mail in response to 
its promotions, and to file the necessary paperwork for the two 
companies to do business in Nevada. Ms. Williams also testified 
that she uses this signature stamp on a regular basis to manage 
the affairs of the company, like signing checks for vendors or 
payroll.
    Mr. Kasday essentially conceded that Nicole knows nothing 
of the business and is not kept apprised of its activities. She 
does not review copy for the mailings or select the mailing 
list. Therefore, we believe that the evidence strongly suggests 
that Nicole merely acts as a front for Mr. Kasday, who is the 
hidden operator of Enwood, Pressman & Ingram and Mellon, Astor 
& Fairweather.
    When we asked Mr. Kasday why he had Nicole establish these 
two companies, he said: ``I didn't expect to be around very 
long and I figured this could be something for their future. So 
I talked to her about setting up two companies while I was 
still alive and then they would be hers and the income would be 
for her and her brother and her dad.''
    Now, if Mr. Kasday's primary motivation for creating these 
companies was an estate planning device for Nicole and her 
family, it is not working very well. Mr. Kasday told us that he 
receives 25 percent of the profits from Enwood, Pressman & 
Ingram and the lion's share of the profits from Mellon, Astor & 
Fairweather.
    Ms. Williams testified that she pays Nicole about $1,000 
per month from Enwood, Pressman & Ingram, and she also received 
a one-time distribution payment of a few thousand dollars from 
Enwood, Pressman & Ingram in February of this year. Therefore, 
we believe that Nicole has probably received under $15,000 from 
these two companies. However, according to Mr. Kasday, from 
1998 to date, he has received approximately $60,000 in his 
personal capacity from these two companies, and over $600,000 
through his consulting company, Neopolitan. These numbers show 
that Mr. Kasday and his consulting firm have received an 
overwhelming portion of the revenues generated by these two 
companies and that the profits are being drained out of the 
company's operational expenses as payments to consultants--the 
most important of which is Neopolitan.
    Mr. Kasday may indeed have incorporated the two companies 
in Nicole's name to give her a source of income, albeit modest; 
however, our interviews with the Postal Inspection Service 
suggest that there is another possible reason why Mr. Kasday is 
not an officer or director of Enwood, Pressman & Ingram, and 
Mellon, Astor & Fairweather, or any of the other sweepstakes 
and prize promotion companies that he directs. If State or 
Federal regulators ever track these companies down for sending 
deceptive or fraudulent mailings, Nicole Kasday will be the 
person that they initially contact. That is, of course, what 
actually happened to us. We attempted to contact Nicole through 
the attorneys for both companies, only to learn that her uncle 
actually directs the operations.
    Now, this is a significant point, which I am sure the 
witnesses from the Postal Inspection Service can discuss in 
more detail. But under current law, the Postal Inspection 
Service does not possess the subpoena authority to dig behind 
the veneer of the corporate structure that insulates a hidden 
operator. More importantly, current law does not give the 
Postal Inspection Service the authority to impose civil 
monetary penalties on a sweepstakes or prize promoter until 
they violate an existing order. Since the person who is likely 
to sign such an order is probably the president of a company, a 
consultant is likely to walk away from an action by the Postal 
Inspection Service without having an order entered against him, 
and more importantly, without exposing himself to a future 
threat of monetary sanctions for another violation. Thus, by 
characterizing the relationship with a company as ``consulting 
services,'' an individual may receive a lucrative income from 
the sweepstakes business but avoid potential enforcement 
actions by State and Federal authorities that would be directed 
towards the officers and owners.
    As I mentioned earlier, these smaller operators have 
another technique for remaining hidden from the regulators. We 
believe that some sweepstakes operators will form a 
corporation, send promotional mailings under that corporate 
structure for a few years, and then dissolve the corporation 
only to form a new corporation to send promotional mailings. I 
would like to direct the Subcommittee's attention to Exhibit 
No. 27,\1\ which is a chart prepared by our staff. There should 
be a copy in your book.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 27 which appears in the Appendix on page 140.
---------------------------------------------------------------------------
    The chart shows that, between December 30, 1994, and March 
10, 1995, three companies were incorporated in the State of 
Nevada. They had as their president a man by the name of Dan 
Anderson, whom we unfortunately have not been able to locate. 
Mr. Kasday was identified as the secretary and treasurer of 
each of these companies, and each company had the same address: 
9030 West Sahara, Las Vegas, Nevada. We believe that all three 
of these companies--National Prize Monitors, Express 
Processing, and Intercontinental Prize Distribution--were 
engaged in the promotional mailing business. You will note on 
the chart that each of these three companies only existed for 
roughly 3 years or less.
    The chart also shows that Mr. Kasday's two other companies 
that I mentioned earlier--Enwood, Pressman & Ingram and Mellon, 
Astor & Fairweather--were incorporated in the summer of 1998. 
As I mentioned earlier, Nicole Kasday, Mr. Kasday's niece, is 
the sole shareholder and officer of these two companies, but 
Mr. Kasday actually directs the operations of both.
    Now, with respect to the chart, you will note that Express 
Processing was terminated in December 1998, 6 months after the 
incorporation of Enwood, Pressman & Ingram and Mellon, Astor & 
Fairweather. In her deposition to the Subcommittee, Sheilah 
Williams, the office manager, testified that in the summer of 
1998, Express Processing became Enwood, Pressman & Ingram. She 
said that the employees who were working for Express Processing 
became the employees of Enwood, Pressman & Ingram. They 
remained in the same office space, kept the same telephone 
number, and answered to the same boss, Anthony Kasday. Based 
upon Ms. Williams' testimony, we believe that the change from 
Express Processing to Enwood, Pressman & Ingram was one of 
corporate form only.
    Now, the question, of course, is why someone would open 
three corporations, run promotional mailings under their names 
for a few years, shut those corporations down, and then start 
up two new corporations only to conduct the same business in 
the same location. Now, the State and Federal authorities that 
we contacted said that different corporate entities and names 
make it much more difficult for law enforcement to detect their 
activities or take meaningful action against them once they do.
    The Federal Trade Commission specifically expressed concern 
about this point when it responded to the Subcommittee's 
request for complaint information on these smaller companies, 
nothing that ``companies who engage in fraudulent activities 
often change names and locations when they become aware that 
law enforcement organizations have received a number of 
complaints concerning their activities. These moves can have a 
detrimental effect on potential law enforcement actions, making 
it difficult or impossible to track potential defendants or 
assets they fraudulently obtain from consumers.''
    Further support for this view can be found in an assurance 
of voluntary compliance between Richard Kaufman and the 
Attorney General of the State of Florida in connection with a 
promotional mailing sponsored by Mr. Kaufman's company, 
Millennium Sales, Inc. We sought to discuss this matter with 
Mr. Kaufman, but he declined to testify before the Subcommittee 
on the basis of his Fifth Amendment right against self-
incrimination. A copy of his sworn affidavit asserting his 
Fifth Amendment rights can be found at Exhibit No. 39.\1\ One 
of the key stipulations that the Florida Attorney General 
demanded of Mr. Kaufman was that he ``not effect any change in 
the form of doing business nor its organizational identity as a 
method of avoiding the terms and conditions'' of the assurance 
voluntary compliance.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 39 which appears in the Appendix on page 232.
---------------------------------------------------------------------------
    Our second case study is David Dobin, who currently is the 
president and sole shareholder of Lone Star Promotions, Inc., a 
sweepstakes company. In connection with the promotional 
mailings of his first company, Wellsworth Smythe Jewelers, the 
U.S. Attorney for the Eastern District of New York charged Mr. 
Dobin and his then partner with conspiring to use the mails as 
part of a scheme to defraud consumers by means of false and 
fraudulent representations. Mr. Dobin entered a guilty plea to 
conspiracy to commit mail fraud and is awaiting sentencing. In 
addition, Mr. Dobin entered into a voluntary cease and desist 
order with the U.S. Postal Service in connection with an 
administrative action alleging several material false 
representations.
    One of the allegations by the U.S. Attorney against Mr. 
Dobin involved the use of multiple trade names in connection 
with Wellsworth Smythe's sweepstakes. Now, unlike the major 
sweepstakes companies, these smaller companies do not have and 
are not seeking name recognition or brand loyalty. For example, 
Mr. Dobin's current company, Lone Star Promotions, Inc., offers 
three sweepstakes contests in the amounts of $5,000, $10,000, 
and $12,000. But he has utilized 40 different trade names. As a 
result, an individual may receive several promotional mailings 
that appear to be from different companies, but in actuality, 
all of them relate to the same contest.
    I think an illustration will make the point. If I can 
direct the Subcommittee's attention to Exhibit No. 8,\2\ this 
is the promotional mailing from NABA that appears to be an 
Original Affidavit from NWCG/Prize Payout Division in 
connection with its $10,000 Cash Opportunity Giveathon. If you 
will notice at the very bottom of this mailing, checks are to 
be made payable to NWCG.
---------------------------------------------------------------------------
    \2\ See Exhibit No. 8 which appears in the Appendix on page 100.
---------------------------------------------------------------------------
    Next, let me show you Exhibit No. 9.\3\ This is the 
promotional mailing that appears to be a Declaration for Cash 
Winner from Cash Giveathon II in connection with a $10,000 
sweepstakes. Now, an attachment to this mailing directs the 
consumer to send payment to NABA.
---------------------------------------------------------------------------
    \3\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
    Finally, I would like to show you Exhibit No. 10.\1\ This 
is a promotional mailing that appears to be from the Cash 
Release Department of the International Funding Distribution 
Center regarding unclaimed cash in the amount of $10,000. This 
mailing directs the consumer to send payment to the I.F.D.C.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 10 which appears in the Appendix on page 104.
---------------------------------------------------------------------------
    As you can see, these three promotional mailings appear to 
be from three different companies: NWCG/Prize Payout Division, 
Cash Giveathon II, and International Funding Distribution 
Center. Now, the unsuspecting consumer might think that they 
had opportunities to win three different prizes in three 
different contests. However, all three of these promotional 
mailings were sent by NABA and all three are for the same 
contest.
    I should note that these mailings only obliquely 
acknowledge that the trade names are not real. The rules on the 
back of the mailing state that ``different graphic 
presentations of this sweepstakes may be made at the discretion 
of the sponsor.'' However, a consumer reading this language may 
not understand that this really means that the same contest may 
be promoted under completely different names. In fact, it is 
virtually impossible to discern that these different mailings 
are from the same contest.
    I might also add that the clever trade names utilized by 
these companies are often misleading themselves. For example, a 
mailing may appear to come from a group that is trying to 
locate someone who has already won a prize or is the rightful 
owner of a cash award. These trade names include examples such 
as Unidentified Claimant Section, Public Winner Releasing 
Committee, Cash Release Office, and the Cash Claim and 
Disbursement Center. It is clear that by using such names, 
these operators are trying to confuse consumers into thinking 
that they have received a notice from a State unclaimed 
property division.
    Not only will these smaller companies use multiple trade 
names for each contest, but they also open multiple mailboxes 
at post offices or CMRA's, Commercial Mail Receiving Agencies, 
which is shorthand for Mail Boxes Etc. and other companies like 
that. Many of these smaller companies actually maintain 
mailboxes in multiple States and have the mail forwarded by an 
overnight courier service to their base of operations for 
processing.
    For instance, the two companies that we know are operated 
by Mr. Kasday--Enwood, Pressman & Ingram and Mellon, Astor & 
Fairweather--are actually headquartered in Las Vegas, but they 
use multiple mailboxes in different States. Enwood, Pressman & 
Ingram receives mail at five different mailboxes in New York 
and Pennsylvania for one sweepstakes and three skill contests. 
Mellon, Astor & Fairweather uses three different mailboxes in 
Illinois and New York for one sweepstakes and one skill 
contest. The mail from each of these locations is then 
forwarded to the office in Las Vegas for processing.
    Mr. Kasday's office manager, Sheilah Williams, testified in 
a Subcommittee deposition that she really did not know why 
these companies use multiple mailboxes in different locations, 
but she assumed that it was to make sorting responses to the 
various promotions easier for staff. This reason seems 
implausible, however, since there are not enough mailboxes to 
be reserved for each separate promotional mailing. In other 
words, multiple promotions are being sent to the same mailbox. 
Moreover, if it was purely a function of administrative 
convenience, it seems unlikely that the multiple mailboxes 
would be operated in different States. Now, although the use of 
separate mailboxes may prevent one post office or CMRA from 
being overwhelmed with responses, our discussions with the 
Postal Inspection Service, the FTC, and State authorities 
suggest that the principal reason for opening multiple 
mailboxes in different States is actually to avoid the 
regulators.
    Current law only allows the Postal Inspection Service to 
seek a temporary restraining order against a deceptive or 
fraudulent mailing from a specific mailbox. Thus, the Postal 
Inspection Service and a State Attorney General might be able 
to bring an enforcement action to stop a promotion in one 
State, but it would not prevent the sweepstakes operator from 
promoting the same sweepstakes and selling the same prize under 
another trade name that receives its mail in a different State. 
If State or Federal authorities close one mailbox, the 
sweepstakes company can continue its promotion under a 
different trade name at another location. As I mentioned 
earlier, the FTC cited this very reason for requesting that the 
Subcommittee not disclose information concerning the number of 
complaints against a sweepstakes company, which it breaks down 
by the different addresses the sweepstakes companies use.
    Chairman Collins, Members of the Subcommittee, I will be 
glad to answer any questions about the investigation that the 
Subcommittee might have and to report in greater detail our 
specific findings. Thank you.
    Senator Collins. Thank you very much for that very 
illuminating presentation. I appreciate all the work that the 
Subcommittee staff has done.
    First, before going to just one or two questions, I want to 
call on Senator Edwards who has joined us in case he has any 
opening remarks that he would like to make. Both he and Senator 
Durbin have been real leaders in the effort to protect 
consumers against deceptive practices, and I appreciate his 
participation in this hearing.

              OPENING STATEMENT OF SENATOR EDWARDS

    Senator Edwards. Thank you, Madam Chairman.
    What I would like to do first is thank Senators Collins and 
Levin for holding this important hearing which builds upon the 
efforts of this Subcommittee to combat the problem of deceptive 
sweepstakes mailings. These efforts and those of the U.S. 
Postal Inspection Service and groups like AARP, combined with 
legal measures being taken by various States Attorneys General, 
are clearly helping to make people aware of the deceitful 
practices some sweepstakes companies are engaging in, all in 
order to trick people into believing that buying products will 
increase their chances of winning a prize.
    During our hearings in March, the Subcommittee Members 
questioned witnesses from four of the largest sweepstakes 
promoters: Publishers Clearing House, American Family 
Publishers, Reader's Digest, and Time, Inc. These companies 
argued that people understand that purchases do not increase 
their chances of winning. For example, Publishers Clearing 
House stated in their testimony that, ``We believe that our 
promotions are clear and that no reasonable person could be 
misled by them.''
    I believe my colleagues disagree with this statement, as is 
evidenced by the fact that the Senate Governmental Affairs 
Committee recently voted unanimously to send our legislation, 
which would help put a stop to misleading sweepstakes mailings, 
to the full Senate for consideration.
    Our bill would require sweepstakes promoters to clearly 
indicate on all of their mailings that purchases do not 
increase the chances of winning. It would also require those 
companies to honor a person's request to stop sending them 
sweepstakes mailings. I believe these requirements are 
essential to our efforts to prevent people from being scammed.
    As Senator Collins mentioned, our bill would also give the 
U.S. Postal Inspection Service the tools it needs to enforce 
laws that are designed to prevent deceptive mailings. The North 
Carolina State Attorney General's Office told me recently--told 
me that currently enforcement is extremely difficult, partly 
because of what is known as rip and tear. Rip and tear refers 
to operations that collect as much money as possible in a short 
period of time and relocate before they are identified, if they 
are ever identified.
    I anticipate that this hearing will illustrate that these 
types of companies are still in existence and are quite 
prevalent.
    The Postal Inspection Service must be able to have the most 
effective enforcement tools at its disposal to pursue action 
against companies it believes are violating our laws. Detecting 
these companies is further complicated by the fact that they 
often utilize what are known as mail drops, commercial mail 
receiving agencies in which individuals or businesses lease 
post office boxes in order to receive mail and other 
deliveries. It is very difficult for the Postal Inspection 
Service to track the real addresses of fraudulent companies 
that can very quickly open and close post office boxes.
    I commend the Postal Service's attempts to issue new 
regulations that will help expose these fraudulent sweepstakes 
operators.
    As we heard during the course of the March hearings, the 
four sweepstakes companies I previously mentioned adamantly 
defended their sweepstakes promotional techniques, saying that 
they are used to ``generate excitement and the possibility of 
winning'' and raise interest in a product.
    It is true that sweepstakes is considered a legitimate 
marketing technique. However, what we find disturbing is the 
increased willingness of more legitimate companies to engage in 
practices formally only used by smaller, more deceptive 
operators. This hearing will also illustrate this problem.
    Finally, I am very concerned about the sale of names and 
addresses of individuals to other sweepstakes companies. Once a 
sweepstakes company engaging in deceptive practices compiles a 
list of customers who have purchased from the company, they can 
sell that list to other sweepstakes companies and telemarketers 
who may recognize that the list is comprised of particularly 
vulnerable people. These companies then flood the individuals 
on the list with even more misleading mailings and phone calls, 
enticing them to spend more money in the hopes of winning a 
prize. It is very important that we continue to educate people 
about the reality of these promotions and provide them with a 
simple way of preventing them from reaching their mailbox if 
they so choose.
    Again, I thank Senators Collins and Levin for bringing this 
serious problem of deceptive sweepstakes mailings to the 
attention of the Congress and the country.
    Thank you, Madam Chairman.
    Senator Collins. Thank you very much, Senator Edwards.
    Ms. Parde, when you were going through some of the 
exhibits--and I would like to have Exhibit No. 9 \1\ brought 
back up--you explained that one of the ways that the smaller 
operators differ from the large sweepstakes companies is that 
it is sometimes difficult to figure out exactly what it is that 
they are selling. And in the case of most of the mailings that 
you have reviewed, it turns out to be a discount coupon book.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
    But another problem--and you also point out that the 
language implies that if you buy the discount coupon book, 
assuming you can figure out what it is you are buying, that it 
increases your chances of winning. But isn't another problem 
with these mailings that it implies that the person has already 
won? Perhaps you could read us the first three sentences of the 
mailing that you examined earlier.
    Ms. Parde. Yes, Senator. In the first paragraph, the 
mailing starts off, ``Your name now appears on our winner's 
list. Unbelievable as it may seem, you have finally won. That's 
right. There's no mistake about it.''
    Senator Collins. So another problem with these deceptive 
mailings is that, without qualification, they are telling 
people that they have won.
    Ms. Parde. Yes, Senator, that is correct. If you actually 
look at the attachment to this, there is a box for the 
recipient to check: ``I am filing my claim for the cash prize I 
have already won.''
    Senator Collins. Is that typical of the copy that you have 
reviewed in the mailings that were sent to us by people across 
the Nation?
    Ms. Parde. Yes, Senator. This is a sample of one of the 
techniques that some of these different companies use to 
deceive the individual into thinking that they have already won 
the prize, when actually it may have only been a 25-cent check.
    Senator Collins. The second question I want to ask you 
about deals with these discount coupon books.\2\ I have looked 
at these two coupon books, and they appear to be identical 
except for two aspects: One is they are a different color, and 
the second more important difference is that one of them says 
that it has over $3,500 worth of money-saving coupons inside; 
the other one says that it has over $1,000 worth of money-
saving coupons inside.
---------------------------------------------------------------------------
    \2\ See Exhibits No. 23a and 23b which appear in the Appendix on 
pages 121-136.
---------------------------------------------------------------------------
    Was the Subcommittee able to determine--were you able to 
determine why there were different values placed on what 
appears to be an identical set of coupons?
    Ms. Parde. No, Senator, unfortunately, we were not able to. 
We attempted to contact the company that actually produces 
these coupon books, Steppin' Out, which is located in Las 
Vegas, Nevada, to ask them about that specific issue, the two 
coupon books that appear to be identical except for the 
different face amounts. However, the CEO informed us last week 
that, upon advice of their counsel, they were not going to 
respond to the Subcommittee's request. We will, of course, be 
following up on that, and we will let you know.
    Senator Collins. The Subcommittee investigators were 
unable, however, to find any differences in the coupons. There 
were no differences in the products represented or the 
expiration dates or anything that would explain the different 
value assigned to the book of coupons. Is that correct?
    Ms. Parde. That is correct, Senator. Even the page layouts 
are identical in both books.
    Senator Collins. Thank you. Senator Durbin.
    Senator Durbin. Thank you very much, Ms. Parde.
    Let me stick with that line of questioning for a moment 
there. Do we know the ownership of this Steppin' Out? Do you 
know the officers involved?
    Ms. Parde. No, sir, unfortunately, we do not have that 
information at this time. This is something that we will be 
continuing to pursue, and we will be happy to advise you once 
we obtain that information.
    Senator Durbin. Do we know how it works? I mean, they send 
a solicitation to people and say if you return a certain amount 
of money, you will be given these coupon books for discounts? 
Is that how it works?
    Ms. Parde. These are the coupon books that many of the 
promotional mailings that I discussed and that these smaller 
companies mention in their promotional mailings, this is the 
redemption packet, the cash savings folio that are mentioned in 
these promotional mailings. So a promotional mailing will be 
sent out actually soliciting a purchase for those coupon books 
for a release honorarium rather than a purchase price. The 
consumer will then receive----
    Senator Durbin. What do they call it, a release honorarium?
    Ms. Parde. A release honorarium. Yes, Senator.
    Senator Durbin. I wonder what that means. Go ahead.
    Ms. Parde. The consumer will then receive one of these 
coupon books which has regular coupons in it that can be cut 
out and redeemed for savings.
    Senator Durbin. And it was your testimony earlier that in 
order to get $1,000 worth of benefit out of it, you would have 
to spend a much larger amount of money. Is that not true?
    Ms. Parde. That is correct, Senator. Some of these coupons 
are for vacations, for example.
    Senator Durbin. You know what I find curious about this. 
Look at the companies that are in this coupon book: Royal 
Caribbean Cruise Lines, Avis Rent-a-Car, Celebrity Cruises, 
Sheraton Hotels, Kodak, AMC, Loewes, GMC, Earl Scheib, Jiffy 
Lube, Godfather's Pizza, Swiss Pretzels, and Dunkin' Donuts. In 
that list are some pretty substantial companies, and I wonder, 
if we ask these companies, do you know what is happening when 
you offer these coupon incentives, do you know what 
solicitations are being made and the companies that are using 
their coupons? Have we asked?
    Ms. Parde. No, Senator, we have not had an opportunity to 
ask them, but that is, again, something that we will be 
following up with in our investigation.
    Senator Durbin. Madam Chairman, I would like to do that. I 
would like to send a letter to these companies and ask them if 
they know that they are party to a scam, because, frankly, many 
of these are reputable companies that we respect across 
America, and these coupon books are being obviously misused.
    The next item that you have presented I would like to ask 
you about, and that is Exhibit No. 24,\1\ and I am trying to 
figure out what that is all about, this Cash Claim Service. Do 
you have that before you?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
    Ms. Parde. No, Senator, I do not.
    Senator Durbin. It is Exhibit No. 24 in the book of 
exhibits that we have been given. This was a fascinating 
little--Cash Claim Service, who are these people?
    Ms. Parde. This is actually from a company operated by 
Borden Barrows, which I believe the witnesses from the Postal 
Inspection Service will talk about later. As you can see, they 
are essentially the same notice for the same amount.
    Senator Durbin. How does their scheme work?
    Ms. Parde. This is not necessarily a sweepstakes. What they 
are trying to do in this one, Senator, is to entice the 
individual to return $9.97.
    Senator Durbin. That was $9.97?
    Ms. Parde. Exactly, for a product. The postcard that you 
receive, it looks like the certified mail receipt that you 
would receive normally from the post office. This is instead a 
solicitation where the consumer may see this and think for 
$9.97 they can obtain their product from the Postal Service as 
certified mail.
    Senator Durbin. Do you know what is the product involved 
here?
    Ms. Parde. I don't believe this actually says. Sometimes 
what these companies do is promote products like jewelry and 
other trinkets through this type of mailing.
    Senator Durbin. Well, the thing that intrigues me about 
these--I love this--``All U.S. Government payments are 100 
percent guaranteed.'' I wish that were true, incidentally. They 
are obviously trying to suggest to whomever receives it that 
there is some governmental involvement in this redemption of 
some claim and the like.
    Ms. Parde. I think that is correct, Senator. I think it 
adds to the overall deception that this is a certificate from 
the Postal Service for a certified mailing.
    Senator Durbin. Well, I think our postal inspectors will 
probably get a chance to address that directly.
    Let me ask you, like Mr. Kasday I think is going to testify 
later on, and you talked about the different companies that he 
is involved in, are most of these companies under investigation 
by States and their attorneys general?
    Ms. Parde. Well, as I mentioned, part of the problem is, 
because they use so many different trade names, the States may 
not actually know who the actual operator of the sweepstakes 
promotion is. So they may be able to stop a mailing under one 
trade name but never actually figure out the real company 
sending out the actual mailing itself.
    If there are active investigations, we obviously did not 
want to pursue those and interrupt those investigations.
    Senator Durbin. The use by Mr. Kasday of his niece, Nicole, 
the college student, was clever, but was it legal for him to 
list her as the major officer of the company?
    Ms. Parde. We did not see any illegality in setting up a 
corporation with Nicole as a sole shareholder and officer. It 
appears to be a legal corporation.
    Senator Durbin. And the use of a signature stamp, for 
example, would that be legal? Did you find any evidence that it 
was not?
    Ms. Parde. We didn't actually delve into that and look at 
the statutes in Nevada, for example, that would apply to the 
creation of the corporation and the use of her signature stamp. 
I might point out, though, there may be laws or regulations 
regarding the use of a signature stamp on things like a mailbox 
application which has an affidavit at the bottom of the 
application that the signer is certifying to the facts.
    Senator Durbin. OK. Thank you. Thank you, Madam Chairman.
    Senator Collins. Senator Edwards.
    Senator Edwards. Madam Chairman, I think I will reserve my 
questions for the next panel. I know we have a vote coming up 
soon.
    Senator Collins. Thank you, Senator Edwards.
    Just a couple of points of clarification on the chart that 
we have up.\1\ As I recall, I received this from a constituent 
in Washington County, and it was accompanied by a letter that 
appeared to be saying that the U.S. Government had cash that 
belonged to the individual that could be redeemed by sending in 
$9.97.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
    Now, of course, when we do have situations of unclaimed 
assets, usually held by State Governments, sometimes inactive 
bank accounts, there is no charge to redeem or to collect the 
money that the consumer is owed. So this is an example of a 
solicitation that is attempting to charge consumers for a 
service that is provided for free by the government, in this 
case State Government. But it has certainly been designed to 
imply that it has been sent by a governmental agency. So I just 
wanted to clarify that for the record. The Postal Service 
representative who will be testifying later will go into more 
detail on this.
    Just one final question, Ms. Parde, and that is, it is my 
understanding the Subcommittee investigators did call a couple 
of the companies that were listed in the coupon book \2\ to 
see--to try to get a feel for how much the discount was really 
worth, and it is my understanding that there was a paint 
company, for example, that was called. Could you explain what 
you found in your preliminary inquiries?
---------------------------------------------------------------------------
    \2\ See Exhibits No. 23a and 23b which appear in the Appendix on 
pages 121-136.
---------------------------------------------------------------------------
    Ms. Parde. Certainly, Senator. Our Subcommittee 
investigators contacted one of the companies listed in that 
book which advertised a discount on a ``Pro-Three'' paint job. 
Now, the discount price was approximately $250 advertised in 
the coupon book, which was about 50 percent off the normal 
retail price, according to the coupon.
    Now, our investigators actually contacted the paint shop. 
They were quoted the same $250 as in the discount coupon book. 
Now, the difference is you don't have to buy the coupon book in 
order to get that discount.
    Senator Collins. So, in other words, this was a normal sale 
price that was available without the coupon, so in this 
particular case, the coupon brought no additional value. Is 
that correct?
    Ms. Parde. That is correct, Senator.
    Senator Collins. We do not know that that is the case with 
every company listed, but that was the case with this one spot 
check of the information.
    Ms. Parde. That is correct.
    Senator Collins. I thank you very much for your testimony.
    We do have a vote that is going to begin at 10:30, so we 
will take a 15-minute recess and reconvene at 10:45.
    [Recess.]
    Senator Collins. The Subcommittee will reconvene. I know 
that Senator Edwards, Senator Levin, and Senator Durbin are all 
on their way, but in the interest of time, we are going to 
proceed.
    Our second panel of witnesses this morning includes two 
members of the promotional mailing industry. Anthony Kasday is 
the president of Neopolitan Consultants, Inc., and is appearing 
today pursuant to a Subcommittee subpoena. David Dobin is the 
president of Lone Star Promotions, Inc.
    Pursuant to Rule 6, all witnesses who testify before the 
Subcommittee must be sworn. It is my understanding that both 
witnesses are accompanied by counsel. If the counsels intend to 
testify in any way, you, too, need to stand and be sworn.
    At this time I would ask that all the witnesses stand and 
raise your right hand. Do you swear that the testimony you are 
about to give to the Subcommittee will be the truth, the whole 
truth, and nothing but the truth, so help you, God?
    Mr. Kasday. I do.
    Mr. Dobin. I do.
    Senator Collins. For the record, I would like to have the 
counsels who are accompanying Mr. Kasday and Mr. Dobin 
introduce themselves.
    Mr. Tomao. My name is Peter J. Tomao, and I am the attorney 
for Mr. Dobin.
    Mr. Burns. And my name is John Burns, and I am the attorney 
for Mr. Kasday.
    Senator Collins. Thank you very much. Mr. Kasday, I am 
unclear whether you have an opening statement or not. If you do 
have an opening statement, you are more than welcome to present 
it. We have allotted 10 minutes for opening statements by both 
you and Mr. Dobin. If you have an opening statement, you are 
welcome to proceed.
    Mr. Burns. May I respond to that, Madam Chairman?
    Senator Collins. Well, I would think that Mr. Kasday could 
respond to whether or not he has an opening statement.
    Mr. Burns. We are waiving the opening statement, but we 
would like to submit a statement at the end, in a couple of 
days.\1\
---------------------------------------------------------------------------
    \1\ Statement from Mr. Kasday was not submitted for the record.
---------------------------------------------------------------------------
    Senator Collins. That would be fine, and it will be 
included in the printed hearing record.
    Mr. Dobin, it is my understanding that you do have an 
opening statement that you would like to give?
    Mr. Dobin. Yes, I do.
    Senator Collins. I would ask that you limit your opening 
statement to 10 minutes, and we will put the full written 
statement into the hearing record. You may proceed.

 TESTIMONY OF DAVID DOBIN,\2\ PRESIDENT, LONE STAR PROMOTIONS, 
 INC., MERRICK, NEW YORK, ACCOMPANIED BY PETER J. TOMAO, ESQ., 
                     GARDEN CITY, NEW YORK

    Mr. Dobin. Thank you. Chairman Collins, Members of the U.S. 
Senate Permanent Subcommittee on Investigations, I wish to 
thank the Subcommittee for this opportunity to discuss with you 
the sweepstakes industry and the proposed legislation to 
control deceptive mailings.
---------------------------------------------------------------------------
    \2\ The prepared statement of Mr. Dobin appears in the Appendix on 
page 64.
---------------------------------------------------------------------------
    I am currently president of Lone Star Promotions, Inc., 
which is engaged in marketing coupon books using sweepstakes 
promotions. I first entered the direct marketing sweepstakes 
business in 1992. While I made some mistakes when I first 
entered the business, since 1994 I have operated my business 
with close attention to all legal requirements.
    I am gratified that the proposed legislation does not seek 
to outlaw the sweepstakes business. Sweepstakes are enjoyed by 
many Americans, and I fervently believe that they should be 
conducted fairly and in conformance with all laws.
    As I said, I first entered the direct mail sweepstakes 
business in 1992. Prior to that I was a partner in a successful 
automobile leasing business. I became friendly with one of my 
customers, Jeffrey Novis, who suggested that I go into the 
sweepstakes business with him. Another of my customers was 
already in the business and had offered to assist Mr. Novis and 
myself. We formed Wellsworth Smythe Jewelers, WSJ. In the 
beginning, we had a third partner, whom Mr. Novis and I 
subsequently bought out.
    We initially planned to sell jewelry by direct mail, as 
well; however, when our initial efforts were unsuccessful, we 
decided to focus on the sweepstakes business. We were aided at 
the time by the decision of another individual to leave the 
business. We were able to move into his business premises and 
hire his staff of experienced employees. He remained as a 
consultant and taught me how to write copy for WSJ's 
promotional mailings. Our efforts were rewarded with a 
successful business.
    However, as I said, I made a serious mistake for which I 
have pled guilty. Our mailings offered expedited processing and 
handling for an additional fee. While I collected that fee from 
many customers, I regrettably did not assure that these orders, 
in fact, were expedited. The postal inspectors searched my 
business on August 10, 1994, and seized not only our business 
accounts but my own bank accounts and those of my partner, Mr. 
Novis.
    The postal inspectors' investigation was a shock. We were 
accused of engaging in various fraudulent activities and 
misleading representations. These allegations were largely 
unfounded, but I could not deny that those people who paid for 
expedited handling did not receive it. So after much reflection 
and discussion with my family, I decided that I would agree to 
plead guilty to one count of conspiracy before any charges were 
filed against me.
    At the same time, I hired new counsel, including an 
attorney who recently became a Federal district court judge. I 
told my attorneys that since I wanted to stay in the 
sweepstakes business, I wanted to make sure that we 
scrupulously followed all the legal requirements. Since the 
search, I have personally written all of the promotions which 
we use in our business. I have done my best to assure that they 
are not misleading. We continue to offer expedited handling, 
but now I make sure that customers who pay for this service 
receive it. We have a no-questions-asked refund policy for 
anyone dissatisfied with either our product or our promotions. 
We ensure that people who do not want to receive our promotions 
are removed from our mailing list permanently.
    Currently, I am the president and sole shareholder of Lone 
Star Promotions, Inc. I formed Lone Star in February 1996. 
After the postal inspectors searched our business in 1994, Mr. 
Novis and I formed a new corporation called TriStar Promotions, 
Inc., which we continued to operate together until 1996. I was 
the vice president of both TriStar and Wellsworth Smythe.
    Lone Star is located in the village of Merrick, New York. 
We employ 12 people and mail approximately 5 million pieces of 
mail each year using sweepstakes promotions to sell coupon 
books.
    Lone Star's sweepstakes offer prizes in the amounts of 
$12,000, $10,000, and $5,000. Currently our odds are 1 in 3 
million. In other words, for each 3 million mailings, we award 
one prize. In 1998, Lone Star awarded three prizes. We did not 
reach the 3 million mark for the $5,000 drawing. Our 1998 
winners were: Kim Grace of Holyoke, Massachusetts, to whom Lone 
Star sent checks totaling $12,000 between December 22, 1997, 
and June 1, 1998; Donald Martin of Gardena, California, to whom 
Lone Star sent a check for $12,000 on December 18, 1998; Opal 
P. Clark of Maryville, Washington, to whom Lone Star sent a 
check for $10,000 on November 30, 1998.
    All of our promotional mailings clearly indicate to the 
consumer in several places that no purchase is required. I 
write the copy for Lone Star promotions. I have each new 
promotion carefully reviewed by Lone Star's attorneys in an 
effort to ensure that the promotions I mail are not misleading 
in any way.
    In addition, our official rules state the odds of winning 
in bold type on a separate line. I have tried to make the rules 
clear and understandable and use readily readable print. I have 
made changes over the years to improve the rules in this 
regard. I also make clear reference to the rules in my 
promotional copy.
    While Lone Star uses a different company name for each of 
its promotional mailings, we make no effort to hide the fact 
that Lone Star is the sponsor of these promotions. The name 
``Lone Star Promotions, Inc.'' and an address and telephone 
number at which we can be reached appear at the end of the 
Official Rules which are part of every mailing. Lone Star duly 
registers each of its trade names it uses as a ``DBA'' and 
reports those names to its banks and the U.S. Postal Service.
    Lone Star currently receives responses at post office boxes 
in three local post offices: Baldwin, Levittown, and 
Massapequa. They are all right in the same area. We do this to 
reduce the burden of our mail volume on the individual post 
offices. Each box is signed for by me as president of Lone Star 
Promotions, Inc.
    I am aware that this Subcommittee is concerned that 
sweepstakes companies target certain groups such as senior 
citizens. I am personally responsible for obtaining our mailing 
lists, and I can tell you unequivocally that Lone Star does not 
target any age group; rather, we focus our efforts on people 
who have previously participated in sweepstakes and skills 
games.
    We obtain our mailing lists from list brokers. List brokers 
purchase lists from sweepstakes companies and others to sell 
them to other companies. My only specifications to the list 
broker is that the list should be people who play sweepstakes 
and skills games. I do not specify any age group and do not 
believe that the list brokers with whom I deal do so for the 
lists they sell me.
    We generally purchase several lists, which we sent to a 
company which compiles a single mailing list for us which we 
refer to as the ``computer house.'' The computer house compiles 
our mailing list by eliminating any duplicates, as well as the 
addresses of anyone who has asked that we not send promotions 
to them or live in States to which we do not mail. This company 
also selects the winning number for each group of promotions. 
The computer house provides the pre-selected number to our 
attorney but not to Lone Star until that group of promotions is 
complete.
    We then send the list to another company, which we refer to 
as the mailing house. The mailing house personalizes and mails 
our promotions to those on the list. We generally send two to 
three mailings to these people. We refer to these initial 
mailings as ``front end'' mailings.
    When we receive the responses, we sort them into three 
categories: Those who made purchases, those who did not make 
purchases, and others.
    The names of those people who purchased our coupon booklet 
are further separated into the group that requested and paid 
for expedited handling and those who did not. These purchases 
in both groups are processed and the coupon books are sent out 
with the appropriate handling. We enclose with the coupon 
booklets a form letter thanking the customer for the purchase, 
requesting their comments, and advising them that they have 
been entered in the sweepstakes and will be notified if they 
have the matching pre-selected winning number.
    Any response that contains any additional correspondence, 
notations on the processing form, or anything in addition to 
the form and payment is placed in the ``other'' category and 
processed individually by our customer service department.
    Complaints and requests for refunds are addressed 
immediately.
    On occasion, we receive orders which make reference to 
increasing the entrant's chances of winning. In those cases, we 
return the order and payment to the customer with a letter 
reminding that customer that no purchase is necessary. Of 
course, we offer to sell the coupon book if that person still 
wishes to purchase it.
    The names of all the people who return our promotion 
whether or not they purchase anything are sent to the computer 
house to compare to the pre-selected number. Since historically 
only 12 percent of those receiving the promotions return them, 
the pre-selected number is generally not returned. In such 
cases, as provided by our official rules, the prize is awarded 
by a random drawing of all the entries received during the 
promotion period.
    We generally send additional promotions to individuals who 
make purchases. These promotions, which we refer to as ``back 
ends,'' also clearly state that no purchase is necessary. Of 
course, additional entries do increase the entrant's chances of 
winning. Generally, we send four to five ``back end'' mailings 
to each purchaser. If a person purchases again, we send that 
person another four to five ``back ends.''
    It is important to note that rules clearly state that 
purchases and expedited processing do not increase the chances 
of winning.
    Lone Star sends out the back-end mailings using its own 
staff. The back-end mailings are not personalized.
    When Lone Star completes a cycle of mailings, which usually 
takes 4 to 6 weeks, we sell the list. Lone Star does not 
conduct any market analysis on its lists.
    Lone Star sells the list to Heatherwood Associates, Inc., 
which in turn sells it to a list broker. Heatherwood is wholly 
owned and operated by my wife. Heatherwood pays Lone Star 
$5,000 per month for its lists and the use of Lone Star's 
employees. In addition, I have another company which leases the 
premises Lone Star uses from its owner and subleases it to Lone 
Star. Other than these companies, my wife and I and our 
children do not own any other businesses.
    Lone Star also sells the original return forms through a 
list broker who sells such information to other sweepstakes 
promoters or telemarketers. After the computer house has 
processed the return forms and removed all the relevant 
information, it returns these forms directly to Lone Star. Lone 
Star removes information regarding the promotion and then 
offers the forms for sale.
    I am aware that this Subcommittee is concerned that sending 
multiple mailings with different copy for the same sweepstakes 
contest implies that each promotion involves a different 
sweepstakes. However, in our case, we respectfully do not 
believe this is true. We use trade or DBA names to sort our 
promotions and track results. Each of our promotions lists Lone 
Star as the corporate sponsor. Our rules clearly state that 
Lone Star may use different copy and different promotional 
names in the same contest. Since I do my best to make the rules 
clear and make reference to them in the promotional copy, I 
believe that I should be able to rely on the entrants' reading 
them.
    Similarly, I am aware that this Subcommittee is concerned 
that subsequent mailings may entice customers to make excessive 
and unneeded purchases. I expect that Lone Star's back-end 
mailings will lead to additional sales and the statistics show 
that a greater percentage of recipients purchase on the back 
end. However, I do not agree that in the case of Lone Star's 
customers these purchases are either excessive or unneeded.
    Senator Collins. Mr. Dobin, your 10 minutes have expired, 
but if you are close to the end, why don't you take an 
additional minute or two to conclude your comments?
    Mr. Dobin. Thank you.
    Lone Star receives letters from its customers complimenting 
our product and asking where they could purchase additional 
coupon books. We also have a policy to give full refunds 
without question to anyone who asks. I don't know how anyone 
can complain that Lone Star unfairly enticed them to purchase 
something they didn't want when we clearly explain what we are 
selling and readily refund their money if they are 
dissatisfied.
    From my own experience and observations of the sweepstakes 
business, I believe that the most significant problems in the 
industry are: Promotional mailings which mislead the recipient 
into believing he or she has already won; use of facsimile 
checks; appearance that the government is involved in the 
sweepstakes; and non-fulfillment. I would like to address each 
one of these quickly.
    Some mailings suggest that the recipient has already won 
and need only return the form to collect the prize. For 
example, one promotion which I have seen tells the recipient 
that all they have to do to collect the prize is return the 
form and that guarantees that person's status as a winner.
    Lone Star's promotional mailings clearly advise the 
recipient that to win he or she must both have and return the 
matching pre-selected winning number.
    Some mailings also seem to promise that the recipients have 
won a large prize when, in fact, the prize is minimal, such as 
$1, and may require that if the winner does not make a 
purchase, he cannot use the claim form provided but must claim 
it in a different way, such as by sending a 3-by-5 card to a 
different address. Needless to say, Lone Star does not engage 
in this practice or use such statements in its promotional 
mailings.
    Some sweepstakes companies send out documents which look 
like real negotiable checks. I believe that this is also done 
to mislead recipients into believing that they have already 
won. When they discover that the check cannot be cashed, they 
may conclude that all they have to do is mail in the response 
form and they will receive the real check which they can cash.
    Lone Star does not use facsimile checks.
    As many other businesses in all industries, Lone Star uses 
terms like ``American'' and ``United States'' in its 
promotional mailings. However, some sweepstakes companies go 
too far through the use of language or official symbols and use 
promotional mailings which suggest that it is being sent by or 
with the approval of the U.S. Government. This is wrong and 
misleading.
    I know from my own experience that sweepstakes companies 
did not send me the product which was offered in their 
promotional mailing. I know this because either I or an 
employee filled out a form and paid for the item but never 
received it. Sweepstakes are a useful tool for selling products 
and a company using them should fulfill all orders. It is 
incumbent upon the companies in the sweepstakes business to 
fulfill all orders, provide refunds, and pay winners. In my 
opinion, this is something to which the Subcommittee should 
give close attention.
    There is another way in which sweepstakes recipients and 
sweepstakes companies may be victimized when criminals obtain a 
promotional mailing and/or a response and convince the 
recipient that they must pay a payment to obtain the prize. 
This happened to Lone Star and some of its customers last year. 
We learned about it when a recipient contacted us and 
complained that she had paid the fee for a prize but never 
received it. When I spoke to her myself, I learned that she had 
received a telephone call from someone pretending to be 
associated with Lone Star who had told her that she had won the 
prize. Later she received another call telling her that before 
the prize money could be given to her, she had to send a check 
to pay for the taxes. She did but she never received the prize 
check. She didn't receive it from Lone Star because she had not 
won. We immediately advised the postal inspectors who initiated 
an investigation. Subsequently, we received similar complaints 
which we also referred to the inspectors. I suspect that the 
people committing these crimes obtained copies of their 
responses sent in by the recipients perhaps from the leads Lone 
Star sold through list brokers. To avoid this problem, Lone 
Star initiated a process of removing information relating to 
the sweepstakes, such as the claim number, from the lead before 
it is sold. Prior to receiving these complaints, it had never 
occurred to us that this information could be used in this way.
    This completes my prepared remarks, and I am now available 
to answer any questions that you may have. Thank you very much.

TESTIMONY OF ANTHONY KASDAY, PRESIDENT, NEOPOLITAN CONSULTANTS, 
 INC., LAS VEGAS, NEVADA, ACCOMPANIED BY JOHN BURNS, ESQ., NEW 
                         YORK, NEW YORK

    Senator Collins. Mr. Kasday, earlier this morning we heard 
about two firms or two corporations whom you had asked your 
niece to register. One was the name Mellon, Astor & 
Fairweather. The second name was Enwood, Pressman & Ingram. Who 
is Mr. Mellon or Ms. Mellon?
    Mr. Kasday. There is no such person, Senator.
    Senator Collins. Is there a Mr. Astor or Ms. Astor?
    [Mr. Kasday shook his head side to side.]
    Senator Collins. What about Fairweather?
    Mr. Kasday. No.
    Senator Collins. What about Enwood?
    Mr. Kasday. No.
    Senator Collins. Or Pressman?
    Mr. Kasday. No.
    Senator Collins. Or Ingram?
    Mr. Kasday. No.
    Senator Collins. So these are completely fictitious names 
that you made up?
    Mr. Kasday. Yes.
    Senator Collins. How did you choose these names?
    Mr. Kasday. I don't know how to answer that, Senator. One 
has to register----
    Mr. Burns. May I consult with him?
    [Mr. Burns confers with Mr. Kasday.]
    Senator Collins. Mr. Kasday.
    Mr. Kasday. I don't know quite how to answer that, Senator.
    Senator Collins. It sounds to me like the names were chosen 
because they sound like prestigious accounting firms. It is an 
impression that is advanced by the copy that is included in the 
promotional mailing. Let's take a look at one of those. Let's 
take a look at Exhibit No. 5.\1\ And you have an exhibit book 
at your table if it is easier for you to follow in that regard.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 5 which appears in the Appendix on page 93.
---------------------------------------------------------------------------
    Now, this is a mailing that was sent by Mellon, Astor & 
Fairweather, which is one of the companies that we have just 
discussed. If you look at the upper left-hand corner of the 
mailing, where it says ``Trustee of Record,'' and below it 
states ``Offices of Mellon, Astor & Fairweather,'' it has an 
address listed as 736 N. Western Avenue, Suite 620, Lake 
Forest, Illinois. Do you see that?
    Mr. Kasday. Yes, I do.
    Senator Collins. Does Mellon, Astor & Fairweather, in fact, 
have offices at that address?
    Mr. Kasday. It is a Mail Boxes Etc.
    Senator Collins. So it is not the address of that firm. It 
is the address of a Mail Boxes Etc.?
    Mr. Kasday. It is the address of record of, I believe, a 
firm.
    Senator Collins. But the mailing says that the offices of 
Mellon, Astor & Fairweather are at that address, and that isn't 
correct, is it?
    Mr. Kasday. In that context, probably not.
    Senator Collins. What does it mean when it says that 
Mellon, Astor & Fairweather is the trustee of record?
    Mr. Kasday. I did not write this copy, Senator. I don't 
know what was in the mind of the copy writer at the time.
    Senator Collins. Did you approve the copy?
    Mr. Kasday. I did.
    Senator Collins. You did approve the copy?
    Mr. Kasday. Yes.
    Senator Collins. So you were not troubled by the fact that 
it says that this firm, which is made up of fictitious 
individuals, is listed as the trustee, which has obviously a 
legal meaning?
    Mr. Burns. Objection. May I consult with him, Your Honor? 
We want to--I am sorry. I am calling you ``Your Honor,'' 
Senator. I have been instructed by my client to try to help you 
get answers, but I have to consider his privileges, too, and I 
want to discuss them with him briefly.
    [Senator Collins nods head up and down.]
    [Mr. Burns confers with Mr. Kasday.]
    Mr. Burns. He may answer.
    Mr. Kasday. I am sorry, Senator. Would you rephrase the 
question, restate the question?
    Senator Collins. You had stated that you approved the copy 
for this promotional mailing.\1\ I asked you whether you were 
concerned about the use of the term ``trustee'' to describe 
this fictitious firm.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 5 which appears in the Appendix on page 93.
---------------------------------------------------------------------------
    Mr. Kasday. No, I was not.
    Senator Collins. And why were you not concerned about the 
use of the term ``trustee''?
    Mr. Burns. It is at that point that I have to assert his 
privilege, Your Honor--I am sorry--Senator.
    Senator Collins. Would you state for the record the 
specific privilege that you are asserting on behalf of your 
client?
    Mr. Burns. It is the Fifth Amendment privilege not to be 
forced to give testimony which tends to incriminate.
    Senator Collins. Mr. Kasday, will you assert the privilege 
personally?
    Mr. Kasday. Yes, I wish to take the Fifth Amendment on that 
question.
    Senator Collins. Mr. Kasday, let's move to a different part 
of this mailing. You will notice that there is a seal in the 
middle of the page on the right-hand side that purports to be 
that of Mellon, Astor & Fairweather, and right next to the 
seal--and it is in your book as well--it says ``J. Remington 
Astor, Prize Registrar,'' and it indicates that Mr. Astor's 
appointment expires August 29, 2000.
    Mr. Kasday, who is J. Remington Astor? And where did you 
get the seal?
    Mr. Kasday. The seal was an artist's creation, and there is 
no J. Remington Astor.
    Senator Collins. I want to show you the same promotion with 
an enlarged seal from Exhibit No. 5 and right next to it is an 
enlargement of a notary public seal on the certificate to do 
business that your other company, Enwood, Pressman & Ingram, 
filed with the State of Nevada. If you look closely, you will 
see that the two seals are identical, except that on your 
promotion MAF has replaced the State of Nevada on the seal, and 
the notary public's name has been replaced by that of J. 
Remington Astor. Is that correct?
    Mr. Kasday. I can't tell exactly by the reproduction, but 
that certainly was not the intention.
    Senator Collins. Why are you mimicking the seal of a notary 
public on this publication?
    Mr. Burns. Madam Chairman, may I consult with my client?
    Senator Collins. You may.
    [Mr. Burns confers with Mr. Kasday.]
    Mr. Burns. He may answer.
    Mr. Kasday. I don't know.
    Senator Collins. Are you trying to imply to the recipients 
of this promotional mailing that there is a trustee who is 
holding an award for the lucky consumer?
    Mr. Burns. At this point I do have to assert the same 
privilege we asserted before.
    Senator Collins. And, again, I would ask that Mr. Kasday 
assert the privilege for the record.
    Mr. Kasday. I claim the Fifth Amendment privilege.
    Senator Collins. I would like you to look at a second 
promotion from Mellon, Astor & Fairweather, and that is Exhibit 
No. 6.\1\ You will notice that it follows the same kind of 
pitch as the previous promotion. It once again lists Mellon, 
Astor & Fairweather as a trustee, and with a big heading, it 
states, ``Revocation Notice,'' and you inform the recipient 
that this matter is, ``Urgent, Urgent, Urgent.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 6 which appears in the Appendix on page 97.
---------------------------------------------------------------------------
    The promotion then reads, ``Dear [Addressee]: I have been 
instructed by my client to locate a certain [addressee] whose 
last known address was 1200 Oak Street. If you are this person, 
our client has authorized us to release your portion of the 
disbursement fund.''
    ``Our client has requested anonymity, as he wants to remain 
an anonymous benefactor.''
    Did you approve the copy of this solicitation?
    Mr. Kasday. Yes, I did.
    Senator Collins. Did you write it?
    Mr. Kasday. No, I don't believe I wrote this one.
    Senator Collins. But you did approve the writing that was 
submitted to you by the copy writer?
    Mr. Kasday. Yes, I did.
    Senator Collins. Who is the anonymous benefactor?
    Mr. Kasday. I guess technically it could be myself.
    Senator Collins. Why does this mailing say that the 
``client has authorized us to release your portion of the 
disbursement fund''?
    Mr. Burns. May I consult?
    Senator Collins. Yes.
    [Mr. Burns confers with Mr. Kasday.]
    Mr. Kasday. I don't know.
    Senator Collins. You don't know, yet you approved the copy 
for this mailing?
    Mr. Kasday. That is correct.
    Senator Collins. Do you know why it implies that there has 
been a search for the consumer by saying that the last known--
it is listing the last known address?
    Mr. Kasday. As I stated before, Senator, I did not write 
this particular promotion. I don't know what was in the mind of 
the copy writer when he wrote it.
    Senator Collins. But you did approve it, so you were not 
troubled by the fact that this appears to be misleading?
    Mr. Kasday. I am sorry. I don't consider it misleading.
    Senator Collins. You don't consider it misleading that it 
says, ``I have been instructed by my client to local [the 
addressee] whose last known address is 1200 Oak Street. If you 
are this person, our client has authorized us to release your 
portion of the disbursement fund''?
    Mr. Burns. May I consult?
    Senator Collins. Yes.
    [Mr. Burns confers with Mr. Kasday.]
    Mr. Kasday. I am not troubled by that, Senator.
    Senator Collins. The promotion goes on to say that a $10 
purchase fee is required for a $3,000 savings voucher folio. 
Are those the discount coupon books that we discussed earlier?
    Mr. Kasday. Yes.
    Senator Collins. How much do you pay for the discount 
coupon books?
    Mr. Kasday. I am not sure of the exact price. I think it is 
in the neighborhood of somewhere between 30 and 50 cents each.
    Senator Collins. I would note that in your interview with 
the Subcommittee staff, you stated that the cost of the coupon 
books cost between 25 cents and 30 cents.
    Mr. Kasday. That is quite possible. I did not check into 
the actual price.
    Senator Collins. I see that my time has expired for this 
round of questions, so I will next call upon the Subcommittee's 
Ranking Member, Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    Mr. Dobin, I would like you to take a look at Exhibits No. 
11 and 12.\1\
---------------------------------------------------------------------------
    \1\ See Exhibits No. 11 and 12 which appear in the Appendix on 
pages 106 and 107.
---------------------------------------------------------------------------
    Mr. Dobin. Yes, sir.
    Senator Levin. Are these promotions for the same prize?
    Mr. Dobin. Yes, these are two $10,000 prizes, and they 
would be for the same prize, yes.
    Senator Levin. No, these are one $10,000 prize.
    Mr. Dobin. The way we do it is----
    Senator Collins. Excuse me. Is there one $10,000 prize or 
two?
    Mr. Dobin. There is one $10,000 prize.
    Senator Levin. You said these are two $10,000 prizes. Do 
you want to correct that?
    Mr. Dobin. No, sir. There is one $10,000 prize, but there's 
two promotions. That encompass--if I could explain?
    Senator Levin. Because the time is limited, please just 
answer the questions that I ask of you.
    How many different formats did you send out for that same 
$10,000 prize?
    Mr. Dobin. I am not sure exactly how many I do with the 
$10,000. I never counted them up.
    Senator Levin. How many could it be?
    Mr. Dobin. A maximum could be 40.
    Senator Levin. And how many could one person get?
    Mr. Dobin. In a cycle, they could probably get maybe 20 or 
25. I can't say it's impossible for them to get them all if 
they continue to stay on the mailing lists.
    Senator Levin. If a person sends in some money and 
purchases what you called at one point a special benefit, then 
that is the front end. Is that correct? And then if that 
purchase is made, you would then send out back-end mailings to 
that person?
    Mr. Dobin. Well, if I access the name by buying lists----
    Senator Levin. No, forget how you do it. Someone buys 
something from you.
    Mr. Dobin. Well, but they could buy it on the back end as 
well as the front end. Initially, if I get it, it would be from 
a front-end piece. If they purchased that, then I would go and 
send them a back end.
    Senator Levin. And when you send the same person back-end 
mailings, how many different mailings could that same person 
get on the back end?
    Mr. Dobin. They could get 5, and if they purchased, they 
could get as many as 10 more.
    Senator Levin. So it could be as many as 15 mailings?
    Mr. Dobin. Through the whole cycle of my mailings, they 
could get 25 or 26 mailings.
    Senator Levin. And what percentage of your sales are back-
end mailings, approximately?
    Mr. Dobin. I have never broken it down.
    Senator Levin. Would it be a quarter, a half, three-
quarters?
    Mr. Dobin. I would be guessing. I could find that 
information out for the Senator.
    Senator Levin. All right. Why do you change the format to 
make it look as though it is a different sweepstakes for each 
of your mailings to the same person?
    Mr. Dobin. Well, we are trying for different looks. What 
may work for one person may not work for another.
    Senator Levin. I am talking about the same person. Why do 
you send the same person 5, 10, and 15 different mailings for 
the same prize?
    Mr. Dobin. These people enjoy to play the sweepstakes, and 
we continue to send them the promotions. They're our customers.
    Senator Levin. You are not answering my question, though. 
You are suggesting to that person when you send out a 
different, totally different sweepstakes item with a different 
name and a different claim number and a different format and a 
different company, all names of which you have made up, you are 
telling that person that these are different prizes. That is 
the clear impression that anybody reading 5 or 10 different 
items would get.
    Mr. Dobin. Well----
    Senator Levin. You are under oath here. Is that not your 
motive?
    Mr. Dobin. Senator, I put ``Lone Star Promotions'' on the 
back of each and every one of my promotions with the same 
address and the same phone number. Each and every one. I also 
have a thing in my rules that says that the contest can appear 
in different graphic presentations. That is not what I do, no.
    Senator Levin. Yes, but what you also do is tell people in 
each one of these that they can win $10,000. Isn't that 
correct?
    Mr. Dobin. They can win $10,000. That is correct.
    Senator Levin. They can't win more than $10,000, can they?
    Mr. Dobin. On that particular contest, no.
    Senator Levin. I am talking about that particular contest, 
even though it has 15 or 20 different sweepstakes offers. They 
only can win once. Isn't that correct, at the most?
    Mr. Dobin. They can only win once--in that universe.
    Senator Levin. Yes, in that universe. But like on Exhibits 
No. 11 and 12,\1\ that person receiving that isn't told that. 
That person is told that he can win on Exhibit No. 11, and then 
he is told he can win on Exhibit No. 12, is he not?
---------------------------------------------------------------------------
    \1\ See Exhibits No. 11 and 12 which appear in the Appendix on 
pages 106 and 107.
---------------------------------------------------------------------------
    Mr. Dobin. If he has and returns the matching pre-selected 
winning number.
    Senator Levin. He is told on each of them he can win 
$10,000----
    Mr. Dobin. That is correct.
    Senator Levin [continuing]. Is that not true?
    Mr. Dobin. That is true.
    Senator Levin. And that is a lie, isn't it?
    Mr. Dobin. No, it isn't.
    Senator Levin. He can't win more than one $10,000, can he?
    Mr. Dobin. But it also says that the more times they enter, 
the more chances they have of winning.
    Senator Levin. The first $10,000.
    Mr. Dobin. And it also explains----
    Senator Levin. Excuse me. Let me ask my questions.
    Mr. Dobin. I'm sorry, sir.
    Senator Levin. The person is told on the first one he can 
win $10,000. Isn't that correct?
    Mr. Dobin. Yes.
    Senator Levin. He is told on the second one he can win 
$10,000. Is that not correct?
    Mr. Dobin. Yes.
    Senator Levin. He is told on the third one he can win 
$10,000. Is that not correct?
    Mr. Dobin. Yes.
    Senator Levin. If he wins on the first one, he cannot win 
on the second one. Is that not true?
    Mr. Dobin. Yes. If he wins on the first one, he wouldn't 
win on the second.
    Senator Levin. But you don't tell----
    Mr. Dobin. But I'm saying he can----
    Senator Levin. You don't tell him that on the second. You 
tell him on the second one he can win $10,000 on that one. You 
tell him on the third one he can win $10,000 on that one. You 
tell him on the fourth he can win $10,000 on that one. You tell 
him on the fifth he can win $10,000 on that one. You tell him 
on each one he can win $10,000, and all of those but one is a 
lie.
    Mr. Dobin. I disagree, Senator. You're looking at it not 
the way it is. You're not looking at what we're saying in the 
rules and how I'm explaining it to the people. You're taking a 
point of view, but it isn't the full point of view, I 
respectfully say.
    Senator Levin. Will you admit that if the person wins on 
the first one, he cannot win on the second one? Will you admit 
that much?
    Mr. Dobin. If he had it in the universe of the three-winner 
universe----
    Senator Levin. That is correct.
    Mr. Dobin. He can only win one time.
    Senator Levin. He cannot win on the second one if he wins 
on the first one.
    Mr. Dobin. But I'm not saying he won. I'm saying if he has 
and returns the matching pre-selected winning number, then he 
will win. My promotions do not say you've won $10,000 and then 
I don't send another one saying you've won $10,000.
    Senator Levin. Can he win on each of them?
    Mr. Dobin. He cannot win on each of them, not in the 
universe.
    Senator Levin. You have told him on each of them he can 
win.
    Mr. Dobin. If he has and returns the matching pre-selected 
winning number.
    Senator Levin. He can't win on each of them.
    Mr. Dobin. But he may have the pre-selected winning number 
on the first one and not on the second, or he may get the first 
one and not have the pre-selected winning number and get it on 
the second.
    Senator Levin. Mr. Dobin, he cannot win on each of them.
    Mr. Dobin. That is correct.
    Senator Levin. He is told on each of them he can win.
    Mr. Dobin. He can win. That's correct.
    Senator Levin. He can't win on each of them, you've just 
told us under oath.
    Mr. Dobin. I disagree, sir.
    Senator Levin. No. You just told us he cannot win on each 
of them.
    Mr. Dobin. He cannot win on each of them.
    Senator Levin. You tell him on each of them he can win.
    Mr. Dobin. But he's been assigned a claim number. If I send 
him 10 and one of those has the winning number, obviously he 
can only win one time.
    Senator Levin. Let's go through two simple questions.
    Mr. Dobin. Yes, sir.
    Senator Levin. He cannot win on each of them, can he?
    Mr. Tomao. May I consult with my client?
    [Mr. Tomao confers with Mr. Dobin.]
    Mr. Dobin. OK. His odds of winning, no matter how many he 
gets, are still 1 in 3 million.
    Senator Levin. Now let me try my question. Is it not true 
that he cannot win on each of them?
    Mr. Dobin. In the same universe, he cannot win on each of 
them. That's correct.
    Senator Levin. But he is told in each of them he can win. 
Is that not true?
    Mr. Dobin. That he can win, that is true.
    Senator Levin. Therefore, he is told a lie in all but one.
    Mr. Dobin. I don't see it as a lie, Senator.
    Senator Levin. Therefore, it's deceptive. It is highly 
deceptive----
    Mr. Dobin. I disagree----
    Senator Levin [continuing]. What you were doing, and we 
will check with the postal folks because they are going to be 
up here, again, and be answering questions for the record.
    Mr. Dobin, this is fundamentally a tissue of lies. It is a 
fabric of lies. And what you are doing--and I think you are 
doing it purposely, is that you are sending out 5, 10, 15, and 
20 different-looking offers so that people will believe that 
they are entering different sweepstakes. And if that were not 
your motive, you would send them the same format over and over 
and over again. I believe it is deceptive. The thing you pled 
guilty to, the information that you pled guilty to, by the way, 
sets forth almost exactly that same set of circumstances, that 
you sent different sweepstakes offers for the same prize to the 
same person, that it looks different, has different claim 
numbers. That was all set forth in the information to which you 
pled guilty.
    After you pled guilty, you then formed Lone Star and 
continued that same pattern. I believe it should be stopped. I 
think under current law it is illegal. If it isn't--and we will 
check with our U.S. Attorneys General and our postal people on 
this--it ought to be illegal because it is so fundamentally 
deceptive what you are doing here. And I will tell you that 
straight up. I will look you in the eye and tell you that. It 
is shameful to me what you are doing. You are taking advantage 
of vulnerable people, gullible people, over and over and over 
again up to 25 times, your so-called back-end mailings. I don't 
know that you get it. I don't believe you do, but I do hope 
that if the U.S. Attorneys General, or the Justice Department 
informs this Subcommittee that what you do is not already 
illegal under law, as I believe it is, well, then, I do hope 
that the Congress will very promptly make it illegal because 
this is wrong. What you are doing is wrong and is a lottery. I 
believe it is very clearly a lottery. I think it is deceptive 
to boot. And I hope we can put you out of business.
    Thank you, Madam Chairman.
    Senator Collins. Senator Durbin.
    Senator Durbin. Thank you, Madam Chairman.
    Mr. Dobin, you have been involved in coupon book promotions 
that we discussed earlier in the hearing.\1\ Is that not 
correct?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 23a and 23b which appear in the Appendix on 
pages 121-136.
---------------------------------------------------------------------------
    Mr. Dobin. Yes, sir.
    Senator Durbin. Was Steppin' Out one of your products?
    Mr. Dobin. Yes.
    Senator Durbin. It is. Well, good, that makes this easier. 
How did you happen to lure Avis Rent-a-Car, Sheraton Hotels, 
Kodak, Earl Scheib, Jiffy Lube, Godfather's Pizza, Swiss 
Pretzels, and Dunkin' Donuts into your business?
    Mr. Dobin. Well, I don't own Steppin' Out. I purchase the 
books from Steppin' Out. How they do that I'm really not sure. 
I just know that those companies are in the book because that 
is the reason I like to offer the book for sale.
    Senator Durbin. Are they paid in order to be able to use 
their corporate trade names in the book?
    Mr. Dobin. That I have no idea about.
    Senator Durbin. So what is the name of the company--
Steppin' Out is a separate company, is it?
    Mr. Dobin. Steppin' Out, yes, sir.
    Senator Durbin. And where is Steppin' Out located?
    Mr. Dobin. They're in Las Vegas.
    Senator Durbin. In Las Vegas. Well, I want to pursue this 
because, frankly, I don't know if these major companies know 
that they are complicitous in what is going on here. But I 
think they ought to have an opportunity to come and tell us how 
they make a decision about whether or not Dunkin' Donuts will 
offer you three extra muffins if you buy three in one of these 
little mailings here. I think that is a legitimate question, 
and I would like to have an answer to it at some point.
    Let me follow this a little further. I want to try to 
figure out for a moment here the mailing business that you are 
in, why you decided to get in it. Clearly, it is profitable. 
But at one point in your testimony you said you mail about 5 
million pieces a year. Is that all your businesses together?
    Mr. Dobin. Yes, sir.
    Senator Durbin. OK, 5 million pieces a year.
    Mr. Dobin. I only have the one business.
    Senator Durbin. Lone Star?
    Mr. Dobin. Yes, sir.
    Senator Durbin. OK. Five million pieces. What is the return 
rate?
    Mr. Dobin. Out of every hundred I mail out, approximating, 
I get 12 promotions back. So 88 out of 100 don't respond to me.
    Senator Durbin. That is a 12 percent return. Now, you have 
a box on some of them that says you don't have to send any 
money back, just return it if you want to. So out of the 12 
percent return, how many come back with money in the envelope?
    Mr. Dobin. Between 4.5 and 5 percent.
    Senator Durbin. About 5 percent. And so what would you 
gross from 5 million mailings? What would be a good number to 
work with in terms of anticipated gross if 5 percent are 
returning the $10 or whatever it happens to be?
    Mr. Tomao. Can we just have a moment?
    Senator Durbin. Sure.
    [Mr. Tomao confers with Mr. Dobin.]
    Senator Durbin. I think 5 percent of 5 million is 250,000. 
Does anybody in the audience want to jump in? Does that sound 
right?
    Mr. Dobin. Yes, just about.
    Senator Durbin. Two hundred and fifty thousand returns 
coming back, each one of them with $10. Is that what you are 
asking----
    Mr. Dobin. It doesn't come out that way, though. That's 
what we're going to try to find for you.
    Mr. Tomao. One second.
    [Mr. Tomao confers with Mr. Dobin.]
    Mr. Dobin. Once again, we're using an approximation, but 
that should be very close to what it would be.
    Senator Durbin. Well, let's try this. Five percent of 5 
million is 250,000. If you get $10 a return, you get $2.5 
million gross revenue coming back.
    Mr. Dobin. Yes, sir.
    Senator Durbin. You keep an office open, you are paying 12 
employees, and you decided that every year you want to give out 
of that $2.5 million $34,000 in prizes.
    Mr. Dobin. Yes, sir.
    Senator Durbin. Is that right? Would 1998 reflect that is 
about how it works?
    Mr. Dobin. That's about it, yes.
    Senator Durbin. So this is a pretty profitable undertaking.
    Mr. Dobin. Well, we have--there are a number of costs in 
there, also, printing and mail. The post office bill is over $1 
million a year and things like that. But it's profitable, yes, 
sir.
    Senator Durbin. It clearly is.
    Let me ask you, Mr. Kasday, what percentage of the replies 
that come back from your mailings have no cash inside, just 
send it back and check off the box that says, yes, I want to be 
in the contest but, no, you can't have any money?
    Mr. Kasday. I'm not sure of the exact number, Senator. I 
can only guess. I'd say about 7 or 8 percent.
    Senator Durbin. Seven or 8 percent. And how many mailings 
come back with money in the envelope?
    Mr. Kasday. Between 5 and 6 percent.
    Senator Durbin. Pretty close to what Mr. Dobin testified 
to.
    Mr. Kasday. Yes.
    Senator Durbin. Kind of an industry standard on 
sweepstakes, it sounds like----
    Mr. Kasday. Yes.
    Senator Durbin [continuing]. Moving in that direction. 
Where do you get your mailing lists, Mr. Kasday?
    Mr. Kasday. We rent them.
    Senator Durbin. Rent them from?
    Mr. Kasday. From list management companies.
    Senator Durbin. Is there a major company that does list 
management?
    Mr. Kasday. Well, there are many.
    Senator Durbin. Can you give us the names of the largest 
ones?
    Mr. Kasday. Well, we rent our names primarily through 
Walter Carl.
    Senator Durbin. Based in what city?
    Mr. Kasday. They're in a small town in New York. New City, 
I think, but I wouldn't swear to it.
    Senator Durbin. Any other major sources?
    Mr. Kasday. Yes. I'm trying to think of a couple other 
names. Nothing is popping into my head right now.
    Senator Durbin. Well, Mr. Dobin, how about yourself? Where 
do you turn to for lists of people to mail these to?
    Mr. Dobin. I use a list broker called Saavoy, and they're 
located in New Jersey.
    Senator Durbin. And when you made your request to them for 
lists to use, what kind of criteria do you tell them: Here is 
what I'm looking for, don't send me people who are part of a 
garden club, that isn't what I'm doing here; I'm trying to find 
people who will send me 10 bucks if I send them an enticing 
offer. What do you tell your mailing list source?
    Mr. Dobin. Basically the lists that I use are either people 
that have played sweepstakes or skills games.
    Senator Durbin. So are you looking for those who have 
already done that or who are likely to do that, or both?
    Mr. Dobin. Really, both.
    Senator Durbin. Both. And it's our impression here, from 
letters that I get in my office, and I think Senator Collins 
might say the same, that some of the saddest and most tragic 
stories--and I have seen references from attorneys general in 
the States to back it up--are elderly folks who get to a point 
in life where they are so easily misled that they are sending 
money hand over fist. So do you have any policy to keep names 
off the list of certain age groups or to include certain age 
groups on lists?
    Mr. Dobin. I don't discriminate as far as age is concerned. 
I do agree that that can be a problem. How to stop that from 
being a problem, that I don't know. What I do is any letter 
that I get that says--and I've gotten them from people--my 
father spent $50, my father spent $100, whatever it is, we 
immediately refund it. We don't ask for the book back or 
anything else, and we immediately take them off our list.
    Also, if they request to be taken off the list, they're 
taken off the list as well.
    Senator Durbin. Out of the 5 million mailings a year, how 
many such requests do you get to have a name taken off the 
list?
    Mr. Dobin. It's a very small percentage, but we do get--I 
could give you that exactly.
    Senator Durbin. More than 100?
    Mr. Dobin. More than 100, but not a whole lot more, I don't 
believe.
    Senator Durbin. Out of 5 million?
    Mr. Dobin. Yes.
    Senator Durbin. Mr. Kasday, how about your own business? I 
mean, when you are looking for these mailing lists, do you have 
any standards that you use saying, listen, I don't want to take 
advantage of people over a certain age, so please don't send me 
their names? Do you cull it out and say I want to look for 
folks who would respond positively but not in certain 
categories?
    Mr. Kasday. We never do age selects, Senator, and we look 
for people who are experienced in sweepstakes or contests.
    Senator Durbin. I am asking from the other perspective. You 
don't do age selects, but do you tell your mailing list source, 
listen, don't send me folks who are over a certain age, we know 
that they are more vulnerable and by our experience we have 
heard about this? Is that part of your business?
    Mr. Kasday. Senator, I don't believe that most mailing 
lists are divided by age, so I'm not even sure if the list 
owner knows what the age of their constituents are.
    Senator Durbin. And when you say that you are soliciting 
those who have played sweepstakes, I guess there is a universe 
of mailing list source that you all traffic in, once you've 
gotten responses from 12 percent of--now we are going to do 
some more calculation here--5 million, so you have--stick with 
me--600,000 people who have responded. Do you then sell that 
list, Mr. Dobin, to others? Is that part of your business, too?
    Mr. Dobin. The lists are broken down two ways, buyers and 
non-buyers. OK?
    Senator Durbin. Those who send money and then those who 
don't?
    Mr. Dobin. That's correct. And we sell the list of the 
buyers. Some people have asked for the other list, but very 
rarely.
    Senator Durbin. So that 250,000-name list is something that 
you then have as an asset that you can turn around and sell?
    Mr. Dobin. Yes, sir.
    Senator Durbin. Mr. Kasday, same experience?
    Mr. Kasday. Yes, sir.
    Senator Durbin. Let me just ask, in terms of 
investigations--I know, Mr. Dobin, you have testified that you 
have been involved in some investigation by authorities. How 
many different States are actively investigating your mailings 
at this point? Do you know?
    Mr. Tomao. One moment.
    [Mr. Tomao confers with Mr. Dobin.]
    Mr. Dobin. We receive attorney general letters from time to 
time--which I have my attorney take care of. Right now there is 
one pending in Illinois.
    Senator Durbin. And any other State?
    Mr. Dobin. That is all, sir.
    Senator Durbin. That is the only one?
    Mr. Dobin. Yes, sir.
    Senator Durbin. OK. Mr. Kasday, how about yourself? How 
many different State Attorneys General or consumer protection 
agencies in those States are currently investigating your 
mailings?
    Mr. Kasday. I'm not aware of any attorney general 
investigations.
    Senator Durbin. How about other State agencies or local 
agencies?
    Mr. Kasday. I don't quite know how to answer that because 
consumer protection agencies, we may get a letter from time to 
time--which is answered. I don't know if that's considered an 
investigation.
    Senator Durbin. Well, but you would certainly understand a 
subpoena.
    Mr. Kasday. Yes, sir.
    Senator Durbin. And if a State, like Illinois, Missouri, 
Maine, or whatever it might be, decided to subpoena information 
from you, you would be aware of that. Has that happened to you 
in the course of your business?
    Mr. Kasday. Not to my recollection. Any business that I've 
owned, we've never--I don't believe we've ever been subpoenaed.
    Senator Durbin. One of the points made earlier by the 
investigator, Ms. Parde, is the fact that you operate under so 
many different names and appear to be changing addresses and 
moving. Is there a design, a strategy here to stay as elusive 
as possible, not to be pinned down? Reader's Digest, for 
example, came in in the first round here, and they kind of 
stick with the name. But you seem to--you have a pretty 
creative sense here when it comes to J. Remington Astor--is 
it?--J. Barrister Tipton, whatever you came up with there. Is 
it your idea that, you know, to be kind of quick on your feet 
so that they can't catch up with you?
    Mr. Kasday. Not at all, sir.
    Senator Durbin. Well, why do you keep operating under so 
many different names?
    Mr. Kasday. Well, we don't, really. There's three different 
companies currently operating, and there's the same name, and 
we'll remain the same name.
    Senator Durbin. The one that sounds--or the two that sound 
like Main Line law firms or accounting firms are the ones that 
you continue to operate under?
    Mr. Kasday. I don't believe that they sound like Main Line 
law firms or accounting firms. As a matter of fact, we put on 
our literature ``not a law firm.''
    Senator Durbin. I noticed that in very small print at the 
bottom of the letter.
    Let me see if I can clarify this for the record. The 
Lustigman firm, is that representing--Mr. Kasday, has that 
represented you?
    Mr. Kasday. No. Mr. Burns represents me.
    Senator Durbin. OK.
    Mr. Kasday. But we have used the Lustigman firm from time 
to time.
    Senator Durbin. There was a question asked of them on July 
6, 1999, in reference to some of your companies. Please provide 
a total of the attorney general's letters received. Enwood, 
Pressman & Ingram received 28 inquiries in 1999; Mellon, Astor, 
7.
    Mr. Kasday. I believe that is correct.
    Senator Durbin. OK. So when I asked earlier if there were 
letters of investigation or investigations underway, this would 
be more reflective, would it not? Or is your firm wrong in 
saying that?
    Mr. Kasday. I don't consider those investigations. Usually 
they're just asking for information or they're responding to a 
letter from one of their constituents. I presumed you were 
talking about an active investigation.
    Senator Durbin. So if they would write to you and say we've 
received a complaint from someone living in this State, they 
want to be taken off your list, for example, they don't want to 
be solicited anymore, you think Lustigman's referring to that 
sort of thing?
    Mr. Kasday. I believe so. If that happens, we take them off 
the list, and we respond to the----
    Senator Durbin. And when you turn around and sell that 
list, again, is their name on it?
    Mr. Kasday. The name is off it.
    Senator Durbin. The name is off.
    Mr. Kasday. Off the list. It's out of the computer.
    Well, when I say out of the computer, it's in a permanent--
what we call a kill file that we don't mail to, and we don't 
rent those names.
    Senator Durbin. I have run out of time here. I was going to 
try and delve into how you made your career choices here. I 
wanted to try to get an idea of how you decided to get into 
this business. But I don't have time. Madam Chair? Well let me 
find out.
    Mr. Kasday, how did you decide to get into this business?
    Mr. Kasday. It was a long, long time ago, Senator, and it 
was purely a fluke. It's a long story if you want to hear it.
    Senator Durbin. Give me the short version.
    Mr. Kasday. All right. I think it was about 28 years ago. 
Someone I knew who was a bridge player was very friendly with 
another bridge player who owned an advertising agency. He was 
looking for a business to get into because he didn't like what 
he was doing. She suggested the contest business. And he was 
rather inexperienced, and he approached me and said, Would you 
like to form a partnership? It sounded interesting, I examined 
it, and that was it.
    Senator Durbin. And your background before that, what had 
you done?
    Mr. Kasday. I've done a little bit of everything. I've been 
in sales. I owned with my wife a duplicate bridge club in Los 
Angeles. Nothing related to this field.
    Senator Durbin. Mr. Dobin, how about yourself? How did you 
happen to get in this business?
    Mr. Dobin. I had a customer of mine when I was in the 
automobile leasing business named Jeff Novis who was interested 
in getting into the business, and I knew another guy who was in 
the business. And I liked it. I thought that the hours were 
good, and I thought that it was a business that--I like to 
write and things like that. I thought it was a good business to 
go into, run properly.
    Senator Durbin. Well, if you can gross $2.5 million and pay 
out $34,000, it does sound like a pretty decent business to get 
into.
    Mr. Dobin. I don't get that in my pocket, unfortunately.
    Senator Durbin. Thank you very much. Thank you, Madam 
Chair.
    Senator Collins. Thank you, Senator Durbin.
    Mr. Dobin, I'd like to ask you some questions about Exhibit 
No. 14,\1\ if you could turn to that and if we could have the 
chart put up. Now, it is my understanding that this is one of 
Lone Star's promotions that uses the trading name of Darwin 
American Selection Services. Is that correct? It's one of your 
promotional mailings?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 14 which appears in the Appendix on page 110.
---------------------------------------------------------------------------
    Mr. Dobin. Yes, it is.
    Senator Collins. In the middle of the mailing in red are 
the words ``Guaranteed Prize Payout $5,000.00 CASH.''
    Mr. Dobin. Yes.
    Senator Collins. You see those words?
    Mr. Dobin. Yes, Senator.
    Senator Collins. Have you paid out the $5,000 in cash that 
is the guaranteed prize payout?
    Mr. Dobin. Not yet.
    Senator Collins. Why haven't you paid out the amount that 
is promised by this mailing?
    Mr. Dobin. Well, what happened was we selected a winning 
number in a range of 1 to 3 million, like we do for all our 
other promotions. But I don't send out that many $5,000 
solicitations. We wanted to do a test on $5,000. Of course, 
once it's out and we've already picked the number, we sort of 
got caught between and betwixt. We realized it was going to 
take longer to reach that 3 millionth name than we anticipated.
    Now, it does say in our rules that we're allowed to extend 
the deadline, and we should be awarding this prize within the 
next couple of months. But as of yet, we haven't done that.
    Now, what I'm going to do is change the rules, and that's 
completely unrelated to this Subcommittee meeting, and we were 
going to do this a long time ago because we realized it was 
taking too long to get to that number. We're probably going to 
drop the odds to maybe 2 or 1.5 million.
    Senator Collins. On the back of the mailing, it clearly 
states, ``The prize will be awarded''--this is the $5,000 cash 
prize--``on or about December 15, 1998.''
    Mr. Dobin. Yes.
    Senator Collins. That is 7 months ago.
    Mr. Dobin. Yes.
    Senator Collins. Can you show me where on this mailing it 
says that the prize will not be awarded if you don't send out 3 
million solicitations?
    Mr. Dobin. Yes. Where it says in the sentence, ``To enter 
without receiving special premium, after 1998, sponsor reserves 
the right to extend the deadline.''
    Senator Collins. It says it reserves the right to extend 
the deadline. It does not say that you are not going to award 
the prize.
    Mr. Dobin. Oh, we are going to award the prize, but it's 
got to be in the 1 to 3 million numbers, because, see, I 
don't----
    Senator Collins. Aren't you controlling the number of 
solicitations that are sent out? Aren't you the one who 
determines whether you get to 3 million?
    Mr. Dobin. Yes, I do determine that.
    Senator Collins. So if you wanted to meet the deadline that 
is listed in here of December 15, 1998, all you had to do was 
to send out 3 million solicitations by that date. Is that not 
correct?
    Mr. Dobin. Well, it's not so easy to get 3 million names 
sometimes to mail out. But our intention was not to deceive in 
any way, shape, or form. But what did happen--see, we pick a 
winning number. We don't know what it is. It goes to the 
attorney. When I say ``we,'' my computer house picks a winning 
number. He sends it to my attorney. I have no idea what the 
winning number is. If I were allowed to ask what the winning 
number was and it was in the universe that I'd already mailed 
out, I would have paid that winner. But I couldn't do that.
    Now, I may send some of these out----
    Senator Collins. Mr. Dobin, you're the one who determines 
whether or not 3 million solicitations are sent. Is that not 
correct?
    Mr. Dobin. That is correct, yes.
    Senator Collins. And you have told the contestants, the 
people who are entering your contest, that the prize will be 
awarded on or about December 15, 1998. Is that correct?
    Mr. Dobin. That's correct.
    Senator Collins. And yet you did not award the $5,000 prize 
on or about December 15, 1998. Is that correct?
    Mr. Dobin. That is correct. But we also do say that the 
sponsor reserves the right to extend the deadline in these type 
of circumstances.
    Senator Collins. Do you have the right to extend it 
indefinitely?
    Mr. Dobin. Well, my purpose is not to extend it 
indefinitely. My purpose is to pay the $5,000 when the 3 
million names come in.
    Senator Collins. But you are the one who controls when the 
3 million figure is reached.
    Mr. Dobin. Well, but you're asking--you're saying am I 
trying not to pay the winners, then you would be right, I'd be 
a bad guy. That's not what I'm trying to do. You know, my word, 
I mean, we do it on 3 million names.
    Senator Collins. Then why don't you put in for your 
deadline the date by which you are going to reach the 3 million 
solicitation mark?
    Mr. Dobin. Well, we try to guesstimate it as best we can. 
Unfortunately, with the $5,000 prize, it was the first time we 
offered a $5,000 prize. I didn't realize it was going out in 
such small quantities. When I did and I started to increase the 
mail-out, it extended beyond December 1998. It's really as 
simple as that.
    Senator Collins. Well, I don't think it is simple at all. I 
think it is highly misleading to tell consumers that a prize 
will be awarded on or about December 15, 1998, and then 7 
months later still not to have awarded the prize. I think that 
is very misleading. But let me ask you another question.
    Why is this mailing void in Indiana?
    Mr. Dobin. There are certain States which, from my 
understanding, sweepstakes companies do not mail into all of 
them. I've never really looked into why. I just know there are 
certain States that we do not mail into, and that's one of 
them.
    Senator Collins. Is that the same reason you say this is 
void in Connecticut, Minnesota, Louisiana, Florida, and Kansas?
    Mr. Dobin. Yes, I think it's illegal to mail into those 
States.
    Senator Collins. None of these States have prohibitions 
against sweepstakes per se. Is it that their laws would 
prohibit the kind of deceptive sweepstakes that you are sending 
out?
    Mr. Dobin. I thought that they had laws that prohibited 
that. I was wrong. That's the reason.
    [Mr. Tomao consults with Mr. Dobin.]
    Mr. Dobin. Also, Senator, we don't consider our pieces to 
be deceptive.
    Senator Collins. Well, I think that is something that we 
obviously have a profound disagreement on. I have no further 
questions for this panel. We may be submitting some additional 
written questions from myself and other Members of the 
Subcommittee for you to respond to. You will have 30 days to 
respond to those questions. You are excused.
    Mr. Tomao. Excuse me, Senator? May we also have the right 
to submit additional comments as you offered to Mr. Kasday at 
the beginning of the session?
    Senator Collins. You may.
    Mr. Tomao. Thank you, Senator.
    Senator Collins. I would now like to call our final panel 
of witnesses this morning. I want to welcome Kenneth J. Hunter 
and Robert G. DeMuro from the U.S. Postal Inspection Service. 
Mr. Hunter is the Chief Postal Inspector, and Mr. DeMuro is an 
Inspector Attorney. They will discuss some of the cases that 
the Postal Inspection Service has pursued recently and what, if 
any, new enforcement authorities are needed to help them 
effectively combat deceptive mailings.
    Pursuant to Rule 6, all witnesses are required to be sworn, 
so I will ask that you stand and raise your right hand. Do you 
swear that the testimony you are about to give to the 
Subcommittee is the truth, the whole truth, and nothing but the 
truth, so help you, God?
    Mr. Hunter. I do.
    Mr. DeMuro. I do.
    Senator Collins. Thank you.
    Mr. Hunter, I am going to ask you to begin, and you will 
have 10 minutes for your prepared testimony.

TESTIMONY OF KENNETH J. HUNTER,\1\ CHIEF POSTAL INSPECTOR U.S. 
POSTAL INSPECTION SERVICE, AND ROBERT G. DEMURO,\1\ U.S. POSTAL 
       INSPECTOR ATTORNEY, U.S. POSTAL INSPECTION SERVICE

    Mr. Hunter. Good morning, Chairman. As you said, I am Ken 
Hunter, Chief Postal Inspector, and accompanying me today is 
Postal Inspector/Attorney Bob DeMuro from Newark, New Jersey. 
We appreciate this opportunity to appear before your 
Subcommittee to discuss sweepstakes and government look-alike 
mailings. I want to thank you, Senator Levin, Senator Cochran, 
and Senator Edwards for the work that all of you have done to 
develop legislation to provide additional protections for 
consumers. We, too, are concerned that the adverse impact 
deceptive promotions can have is significant. I have submitted 
more detailed written testimony for the record and will simply 
summarize its main points today.
---------------------------------------------------------------------------
    \1\ The prepared combined statement of Mr. Hunter and Mr. DeMuro 
appears in the Appendix on page 75.
---------------------------------------------------------------------------
    For over 200 years, the Postal Inspection Service has been 
protecting postal employees, the mails, and postal facilities 
from criminal attack and protecting businesses and consumers 
from being victimized by fraudulent schemes and other crimes 
involving the use of the mails.
    Congress initially created the Nation's mail service to 
maintain a reliable, efficient, affordable, and secure means of 
communication. A recent Harris poll affirms that the American 
public feels significantly more confident about the security of 
the mail than telephones, fax, or Internet.
    Inspection Service employees are dedicated to preventing 
unscrupulous promoters from damaging public confidence in the 
U.S. mail. The Postal Inspection Service is not opposed to 
sweepstakes in general. They can be lawful, non-deceptive 
marketing programs. However, any sweepstakes promotion that 
does not clearly represent the true nature of the offer it is 
making in an effort to deceive and prey upon citizens deserves 
to be penalized.
    Thanks to the attention you and Senator Levin have drawn to 
this problem, we are all now more aware of the heartbreaking 
stories of citizens, many of them elderly, who have invested 
their fortunes in deceptive and sometimes fraudulent 
sweepstakes promotions, receiving virtually nothing of value in 
return. This is a disgrace.
    Unfortunately, the statutes that most readily address 
fraudulent and deceptive promotions are not adequate and 
provide little incentive for the operators to quit their 
promotions.
    One of our best-known remedies to address fraudulent 
schemes that utilize the mail is the criminal mail fraud 
statute. During the past fiscal year, 1,339 investigations were 
initiated by postal inspectors regarding possible mail fraud 
violations. We obtained 1,278 convictions resulting in prison 
sentences, fines in excess of $11.9 million, and court-ordered 
and voluntary restitution of over $311 million.
    Prosecuting fraudulent promoters under criminal statutes 
often occurs only after damage has been done to the victims. 
Additionally, many of the promotions that we address skirt the 
elements of guilty knowledge and criminal intent which are 
necessary to prove violations and sustain convictions under 
Federal and State criminal statutes.
    Most often, we address these activities under current civil 
mailability statutes in an attempt to stop the schemes and 
limit the number of victims. What often happens is that our 
actions deny promoters the fruits of their schemes--incoming 
mail containing money--and diminishes the likelihood of 
criminal prosecution due to the fact that we stem the victims' 
losses.
    This would be an acceptable situation if promoters were 
influenced to discontinue the operation of their deceptive 
promotions. Unfortunately, as you know, this is not the case.
    Current civil statutes concerning fraudulent promotions 
have been utilized by us to reduce victim losses related to a 
particular scheme. However, it is too easy for the promoter to 
set up new addresses and continue the scheme or start a new 
scheme.
    What is missing are possible sanctions that make promoters 
who have been shut down think twice before resuming business as 
usual.
    We remain committed to protecting consumers through any 
means available. However, it is time to quit trying to explain 
why our effectiveness is limited by weaknesses in the existing 
laws. As you have demonstrated, there is overwhelming evidence 
that people are misled by language allowed by the existing 
statutes. We need clear and unambiguous legislation to protect 
both consumers and businesses from deceptive promotions.
    We wholeheartedly support S. 335, which we believe will 
greatly enhance our ability to conduct investigations, shut 
deceptive promotions down, and decrease the likelihood of a 
promoter's recidivism. Provisions that you have included in the 
legislation will allow multi-district temporary restraining 
orders, establish significant civil penalties for mailing 
deceptive promotions or evading stop orders, and grant limited 
administrative subpoena authority to the Inspection Service for 
production of records relevant to the investigations. These 
provisions are key to more effective enforcement efforts.
    Also, the legislation will establish for the first time 
specific guidelines for solicitations involving sweepstakes, 
games of skill, and facsimile checks. In addition, government 
look-alike provisions will be better defined.
    While I am proud of our success in conventional law 
enforcement efforts, I am also convinced that arrests, 
convictions, and civil judgments are only part of the way to 
effectively deal with consumer fraud. The results of these 
efforts may only come after the victims have lost their money 
and the con artists have spent it.
    For this reason, we have been working closely with consumer 
groups and industry to develop fraud prevention strategies and 
share best practices. These efforts have produced dramatic 
results in the areas we have targeted. Last September, while 
testifying before the Subcommittee on International Security, 
Proliferation, and Federal Services, I announced that the 
Inspection Service had joined with the National Council of 
Better Business Bureaus to make a vision we share a reality. 
Assisted by other consumer and government agencies, including 
AARP, the Department of Justice, the Federal Trade Commission, 
and the Federal Bureau of Investigation, we plan to launch 
perhaps the most ambitious fraud prevention initiative ever 
undertaken, Project kNOw Fraud.
    In October, we will mail to every home in America a card 
containing valuable fraud prevention tips and providing a toll-
free number to call and an address to write for information. 
Also, there will be a dedicated web site which links to the 
participating agencies and organizations, and an informational 
video is being produced which will be available through 16,000 
public libraries and on the website.
    Senator the only way to reach everyone in this great 
country is through the mail, and that is what we intend to do.
    Now, this card is being designed to be displayed by the 
phone as a reference and prevention tool in hopes of helping 
citizens make informed decisions regarding mail and 
telemarketing solicitations and to help them avoid becoming 
victims of fraud. Of course, I would much prefer that they not 
ever receive those offers that this education is necessary for. 
And in that regard, I applaud you for the bipartisan effort 
that you are leading on this bill and certainly commend you for 
holding this series of hearings.
    We very much appreciate your interest in protecting the 
American public. We believe your bill is the most comprehensive 
legislation to date that relates to fraudulent and deceptive 
mailings. I assure you that the Postal Inspection Service will 
continue to combine aggressive investigations and widespread 
public awareness campaigns to rid the mail of fraudulent 
schemes. The American public's confidence in the mail is not 
only important to the Postal Service, but also to the millions 
of businesses that rely on the mail as an important 
communications and marketing tool.
    At this time, as you have requested, I would like to ask 
Postal Inspector Attorney Bob DeMuro to discuss a few examples 
of sweepstakes and government look-alike schemes that we have 
investigated. Thank you very much.
    Senator Collins. Thank you very much, Mr. Hunter.
    Mr. DeMuro.
    Mr. Demuro. Thank you, Senator. I would like to thank the 
Subcommittee for this opportunity to address them concerning S. 
335, the Deceptive Mail Prevention and Enforcement Act. The 
proposed legislation would enhance the Inspection Service's 
efforts in combating deceptive mail practices that are plaguing 
American consumers. Several aspects----
    Senator Collins. Excuse me for interrupting. Could you move 
the mike just a little bit closer to you? They are very 
directional, so you have to speak right into them. Thank you.
    Mr. DeMuro. I would like to illustrate some provisions of 
the proposed legislation with current and past investigation 
cases of how your legislation would have been very helpful to 
us.
    With respect to multi-district TRO authority, in the 
current investigation of Eagle Promotions, it was determined 
that after we filed for a TRO in New Jersey and that the 
promoter, James Bierman, was operating in 13 different trade 
styles, we discovered that he was also operating out of New 
York with a different corporation and in four different 
solicitations with different trade styles. Had we had multi-
district TRO authority, the TRO we received in New Jersey would 
have impacted on the New York operation.
    Typically, promoters do use multiple addresses, multiple 
trade names, as testified earlier. In a previous case, a person 
by the name of Borden Barrows operated four different 
sweepstakes promotions in four States under three different 
names. Now, again, if we had the TRO authority for multi-
district filing, if we were to have that authority, we could 
stop the future Barrows from operating with only one filing. 
This would promote judicial economy and it would help us to 
protect consumers better.
    With regard to Mr. Barrows, interestingly, when we 
approached him in 1993 in New York City, Mr. Barrows closed up 
shop, failed to award the prize, which was cash or a car, and 
moved on. He set up shop sometime later in Massachusetts. 
Again, postal inspectors approached him. Once approached, he 
closed up shop, failed to award the prize, which was cash and a 
car, and moved on.
    He then surfaced in Florida, again, incorporating under new 
corporations using new trade styles, and this time he started 
to solicit the public with a solicitation called Cash Claim 
Service and National Cash Distribution Bureau. The solicitation 
was a delivery notice. It represented that the U.S. Government 
was holding money for the addressee. Barrows had set up CMRA, 
commercial mail receiving agencies, addresses in Arizona, New 
York City, Washington State, Washington, DC, White Plains, New 
York.
    Senator Collins. Mr. DeMuro, I am going to have that put up 
since we do have that as Exhibit No. 24.\1\ It is this one that 
you are describing, I believe. Is that correct?
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    \1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
    Mr. DeMuro. Yes, it is.
    Senator Collins. Thank you. Please keep going.
    Mr. DeMuro. In the case of Cash Claim Service, each time 
Mr. Barrows was approached, he would merely stop--or we would 
stop him in one location, and he would merely move on to 
another location.
    Currently, the penalties that promoters receives are only 
after they have violated a cease and desist order and after the 
Postal Service has granted us a breach petition. Barrows had 
signed a settlement agreement with the Postal Service for Cash 
Claim Service and National Cash Distribution Bureau in November 
1997. Subsequently, he set up two addresses several months 
later, in April 1998 and June 1998, using a new trade style 
called Distribution Center. Barrows then solicited the public 
with a different delivery notice, violating the settlement 
agreement he signed with the Postal Service.
    In August 1998, the Inspection Service and the Postal 
Service Law Department sought and obtained a breach petition 
against Barrows. Barrows defaulted on the breach petition, and 
it was granted. Barrows simply ignored the agreement and the 
cease and desist order. The proposed legislation would have 
subjected Barrows to penalties for the initial violation, and 
it would have taken the profit out of his illicit promotions. 
It would also have subjected Barrows to a double fine for 
violating the cease and desist order.
    In another case, Mailworks International operated several 
sweepstakes out of Tempe, Arizona. Postal inspectors obtained a 
TRO in September 1998. Most of the defendants did settle in 
November 1998, except one, who has then become subject to a 
preliminary injunction. Interestingly, in March 1999, a company 
called Wilson Perrie Corporation operated from Nebraska. Now, 
Wilson Perrie Corporation was using a Mailworks sweeps 
solicitation substantially similar to a trade style called 
Monetary Fulfillment Agency out of Tempe, Arizona. If we had 
administrative subpoena authority, we would be able to identify 
the parties behind Wilson Perrie Corporation, established the 
links between Wilson Perrie Corporation and Mailworks, and 
determine the scope of the scheme and the volume of mail to 
assess penalties.
    In Eagle Promotions, again, we initially filed against them 
in New Jersey, but did not know about the New York operation. 
Had we had subpoena authority, we would have known very quickly 
about the New York operation and could have moved very quickly 
against it.
    Subpoena authority also helps us establish whether there 
are funds available for consumer restitution. In the area of 
government look-alike legislation, the current law is a 
subjective standard. In the Eagle case, the government has 
argued that 2 of the 13 promotions violate the law. It violates 
it as reasonably construed as implying a Federal Government 
standard--excuse me, a Federal Government connection. Your 
legislation would provide an objective standard which would 
strengthen it, and it would also provide penalties.
    The legislation calls for conspicuously listing on 
sweepstakes a no-purchase option. A clear and conspicuous no-
purchase option on the claim and entry form allows consumers to 
make an informed decision as to whether to participate in the 
sweepstakes. In the Eagle promotion and in the Mailworks 
promotion, the no-purchase option on the claim forms would have 
helped clear consumer confusion about whether they are 
obligated to send money to receive the cash award.
    Finally, with regard to working with State Attorney 
General's Offices, the Inspection Service has worked in 
cooperation with the State Attorney General's Offices and 
Consumer Affairs Divisions. In the Eagle Promotions 
investigation, we have worked jointly with the New Jersey 
Attorney General's Office and Consumer Affairs Division. We 
shared information, exchanged consumer complaints, and jointly 
developed consumer witnesses. We even coordinated the filing of 
our cases in Federal and State court.
    Promoters often do not solicit from consumers in the same 
State that they are operating from. In the Eagle Promotions 
case, it did not solicit New Jersey consumers with Eagle 
Promotions, and only with Lexington, which is located in New 
York. Promoters believe that the attorney generals do not have 
jurisdiction over them if they do not solicit consumers from 
their States or perhaps that the attorney generals will put 
them on a lower priority list.
    As in the Eagle Promotions case, the Inspection Service has 
worked jointly with the New Jersey Attorney General's Office to 
develop out-of-State witnesses for both of our cases. The 
proposed legislation would enhance the Inspection Service's 
ability to assist the Attorney Generals with their 
investigation as well.
    Thank you very much.
    Senator Collins. Thank you very much. I want to thank you 
both for your support for our legislation, for the excellent 
work that you have done to try to curtail deceptive mailings, 
and also for your technical advice and expertise which you have 
shared with the Subcommittee throughout our investigation and 
in drafting our legislation. That has been extremely helpful.
    When the Subcommittee first began looking into deceptive 
mailings, I was familiar with the four large sweepstakes 
companies. I had no idea that there was an underground 
operation of dozens of small operators who are also reaching 
millions of Americans with their solicitations. It troubles me 
greatly that we have people, these underground operators, what 
I call the stealth sweepstakes operators, which are very 
difficult to detect, to track, to close down, who have been in 
operation for decades. Why is it so difficult to identify these 
small promoters? Why are they able to stay in business so long, 
Mr. Hunter?
    Mr. Hunter. Well, I think probably there are hundreds who 
are operating and that many of them are operating, as you have 
heard today, under multiple names so that many of them have 
multiple branches. And it has been possible for a number of 
reasons, primarily centering on their anonymity, the ability to 
use so many different names, and also loopholes in the law that 
you are trying to close such that, for example, if a TRO is 
issued in one judicial district, it would apply even if they 
moved to other districts. As you have heard, it is very easy to 
use commercial mail receiving agencies and not even have a 
physical presence in those locations, just a business you pay 
to receive those payments and forward them to you. And, of 
course, if there were some penalties, if there were some teeth 
in these civil administrative proceedings, the financial 
penalties that you are proposing, because, frankly, people are 
in the business for the money.
    Likewise, the subpoena power would be very helpful, too, 
because as you heard today from the person responsible for your 
investigations, who has some of those powers, even then it is 
difficult to get this information. And we are hindered even 
further without the administrative subpoena power to learn more 
about the operation more quickly, and the victims, so that it 
can be shut down before further individuals are victimized.
    Senator Collins. Following up on Mr. Hunter's point, Mr. 
DeMuro, as we investigated Mr. Dobin's enterprises, we found 
out that he had 40 different trade names that he was using for 
only three sweepstakes. Is the use of this complex layer of 
different names and different companies for the same promotion 
common? And does that make detection that much more difficult?
    Mr. DeMuro. Yes, Senator, it is. It is very typical that 
promoters will use multiple names. Again, going to the Eagle 
Promotions case, there were 13 different trade styles in New 
Jersey and four in New York. Now, with the New York operation, 
we did not become aware of it until after we had filed. And 
Barrows, for instance, he had used three different sweepstakes 
operations in three different States.
    What the difficulty is is to link those particular 
solicitations back to Barrows, and because they are in 
different locations, the complaints go to different locations. 
And it is only really by conversations with other inspector 
attorneys or inspectors that we find that there is a link 
between the two.
    Senator Collins. We found that also in our investigation, 
that it took a great deal of work and digging to find out all 
of the multiple corporations, all the multiple DBAs, all of the 
fictitious names that were being used by these promoters. And 
we also found that there are companies that use straw owners 
who have nothing to do with the operations. So you think you 
have the individual who is the person responsible, and you find 
that you do not.
    Have you had experience with companies being run by straw 
owners as someone who really has little or no involvement with 
the company that is putting out the deceptive mailings?
    Mr. DeMuro. Yes, there's been numerous examples, Senator, 
where even the postal forms will have the names of individuals 
who are straw owners or third parties, and when you approach 
those third parties, they know little or nothing about the 
operation. But we at that point, through interviews of vendors, 
will try to reach beyond that straw person to reach the real 
promoter or the principal who actually directs and controls 
those corporations.
    Senator Collins. That was one of the challenges for us in 
getting into this whole matter, was finding out who really is 
pulling the strings and benefiting from the money that 
consumers deceived by these mailings are sending in.
    I think that is why the administrative subpoena power is so 
important that is in our legislation, as well as the ability 
for you to have multi-district TROs so that you can't have a 
Mr. Barrows just moving his operations to another State and you 
have to start all over again. Is that correct, Mr. Hunter?
    Mr. Hunter. I would agree those are very valuable tools.
    Senator Collins. Let me ask just one final question to you, 
Mr. DeMuro. On the exhibit that we have on the posterboard 
\1\--and this is the Barrows case, I believe--this really 
troubles me not only because it was received from one of my 
constituents, but because it is a perfect example of a 
government look-alike mailing that is deliberately using words 
associated with government to deceive consumers.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 24 which appears in the Appendix on page 137.
---------------------------------------------------------------------------
    For example, it says that all U.S. Government payments are 
100 percent guaranteed. True, but totally irrelevant to this 
mailing, is it not?
    Mr. DeMuro. That's correct, Senator.
    Senator Collins. It also says special notification--it 
appears to be designed to look like a postal document, one of 
those postcards that the Postal Service uses. Is that correct?
    Mr. DeMuro. That's correct. That's what we call a delivery 
notice scheme, if you will.
    Senator Collins. How common are these kinds of schemes?
    Mr. DeMuro. The ingenuity of the people, of questionable 
promoters, are unlimited. In this particular case, Senator, the 
fulfillment is a book of addresses, U.S. Government addresses, 
and when the consumer gets it, basically it is like a telephone 
book of free information.
    Senator Collins. Thank you very much. Again, I want to 
thank you for your very valuable assistance to the Subcommittee 
throughout our investigation. I am very hopeful that the 
hearings that we have held will result in the legislation that 
we have introduced being passed to give you the tools that you 
need.
    Senator Edwards.
    Senator Edwards. Thank you. Thank you both very much for 
being here.
    I want to follow up on a question that was asked by Senator 
Collins for just a minute. Could the two of you just comment on 
why you believe the administrative subpoena power that is in 
our bill is so important?
    Mr. Hunter. Sure. It gives us the ability under the 
constraints that are provided in the bill to quickly get in and 
to ascertain the significant details in terms of the extent of 
the scheme and to be able to make a determination for referral 
to the appropriate authority more quickly for appropriate 
action so that you avoid further victimization.
    Senator Edwards. Mr. DeMuro.
    Mr. DeMuro. Senator, I think the administrative subpoena 
power is the keystone of the bill in that it allows us to reach 
beyond and peel away the layers that protect the true 
principals that are operating, and most importantly because 
once we do obtain a cease and desist order, we want to be able 
to serve it on the true principal so that that principal could 
be assessed the penalties and they could be subject to further 
fines down the line.
    Senator Edwards. Both of you I think have advocated--
changing subjects, both of you have advocated there being real 
and meaningful separation between the processes used to enter a 
sweepstakes and the processes used for purchasing a product. 
Can I get the comments from the two of you on how you think 
that could be done most effectively?
    Mr. Hunter. Well, I think the key for both is the same in 
that people who are extending an offer to someone for something 
of value should be required to explain very clearly what the 
nature of the offer is and what the reasonable expectation in 
terms of an outcome is. If it is a sweepstakes, that it is a 
sweepstakes, what the odds are, what the term of the 
sweepstakes is, etc.; and likewise for products, a clear 
representation----
    Senator Edwards. If I can interrupt you just a minute, what 
about, for example, the idea of requiring separate addresses, 
separate envelopes for the two so that you can't--so they are 
both not part of the same envelope and same address?
    Mr. Hunter. You mean for the response back, that 
requirement?
    Senator Edwards. Buying a product versus entering the 
sweepstakes.
    Mr. Hunter. Well, I would encourage very clear information 
and uniform information on how you respond. If I understand you 
correctly, you are talking about if you are not going to buy, 
you follow some different procedure than if you are.
    Senator Edwards. Well, what I am really saying is you just 
have two separate envelopes, requiring that you have two 
separate envelopes, so that if you are responding to the 
sweepstakes, you send one envelope in; if you are responding to 
it by buying a product, you send a separate envelop in.
    Mr. Hunter. Very good. I emancipated myself from those 
types of responses a couple of years ago, and I've felt very 
free every since. But only if it would be very clear to the 
consumer what the ramifications are, because I think today that 
it is misleading often in those offers. So if the provision 
facilitated the rapid filling of an order, but it was very 
clear in the offer that that was the case, perhaps it would not 
be objectionable. But it would be very important that the 
legislation be such that the wording was very clear in that 
regard.
    Mr. DeMuro. I think, Senator, the no-purchase option 
clearly and in boldface on the entry form would probably be the 
best advice to permit consumers to check off that option. 
Currently what happens is on the reverse side of most of these 
sweepstakes, the consumer does have an option to send in a No. 
10 or a No. 9 envelope with a 3-by-5 card and/or the claim form 
if they don't want to participate by sending money. That is 
very confusing. I find that lawyers can kind of wiggle the 
language so that the consumer will remain confused. But I think 
on the claim form if you have in boldface no-purchase option 
and you just check that off, I think that is probably the best 
device to allow consumers to participate without sending money 
in.
    Senator Edwards. So basically just the most effective 
thing, you think, is just a clear, easily identifiable, 
conspicuous disclaimer.
    Mr. DeMuro. Yes, I do, particularly for our senior citizens 
who may not read the rules as astutely as someone else will.
    Senator Edwards. Can we get Exhibit No. 14 up, please?\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 14 which appears in the Appendix on page 110.
---------------------------------------------------------------------------
    I don't know if you all can read this from where you are, 
you have a copy in your book there. But if you look down at the 
lower right-hand corner of this exhibit, it says, ``Do you have 
a valid major credit card?'' Then there are two boxes to check, 
yes or no. Do you all have any idea why this information is 
requested? Or have you looked into that? What do they do with 
that information?
    Mr. DeMuro. Well, Senator, I could only speculate because I 
didn't investigate this particular case. But I think what they 
will end up doing is adding that to their mailing list, which 
then they will rent to other questionable promoters, and on 
there they will indicate that the consumer has a credit card, 
and then that consumer will suddenly be targeted either for 
legitimate or non-legitimate mail that will involve the use of 
credit cards.
    Senator Edwards. I understand that you haven't specifically 
investigated this particular case, but one reasonable 
interpretation of this would be that it would be used to make 
the list more valuable for selling it to other people or 
renting it to other people. Is that right?
    Mr. Hunter. To make either list more valuable, because 
there are a lot of schemes that extend credit to people or the 
ability to get credit to people who otherwise are unable to. So 
I don't know which names would be more valuable, those who have 
the valid credit card or those who don't who could be targeted 
in a scheme to get credit cards in which they don't get a card 
are valuable.
    Senator Edwards. But the information in any event is 
valuable, no matter how you use it. Is that correct?
    Mr. DeMuro. That's correct, Senator.
    Senator Edwards. Could we get Exhibit No. 9 up, please? \1\ 
About halfway down on this, there is a portion that says that 
this mailing is void, and then there is a list of States: 
Arkansas, etc.--my State of North Carolina is listed. Do you 
have any idea why they make their mailings void in those 
States? I think there are 21 States listed in here.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 9 which appears in the Appendix on page 101.
---------------------------------------------------------------------------
    Mr. DeMuro. Senator, in my experience, I have seen both 
situations where they don't list any States and those States 
where perhaps there are orders pending against that particular 
company where the State Attorney General's Office was 
successful. I can't answer the question specifically for these 
particular States, but it could be a combination of things. And 
one situation definitely is where the attorney general has 
taken action and the promoter signed a settlement agreement 
with that State.
    Senator Edwards. What about whether they are just under 
investigation in those States? Do they sometimes void them in 
those States, too?
    Mr. DeMuro. I don't believe so. I think they wait until 
there is some final action by the State before they void 
because it is too profitable for them.
    Senator Edwards. Mr. Hunter, do you have any comment about 
that?
    Mr. Hunter. My comment in general is that our country 
continues to have an adequate supply of attorneys, and I would 
encourage legislation that doesn't require you to be an 
attorney to understand it.
    Senator Edwards. Right.
    Mr. Hunter. But specifically these States on this offer, I 
don't know.
    Senator Edwards. Right. You ought to be able to figure it 
out without being a lawyer is what you are saying.
    Mr. Hunter. Yes, sir.
    Senator Edwards. Thank you both very much. We really 
appreciate your being here and participating. Both Senator 
Collins and I both feel this is very, very critical 
legislation, and your support of it is very important. Thank 
you.
    Mr. DeMuro. Thank you, Senator.
    Mr. Hunter. Thank you.
    Senator Collins. Thank you very much, Senator Edwards, and 
I thank our final witnesses for their tremendous contributions.
    I believe that the Subcommittee has learned a great deal 
from our investigation and the hearings that we held both in 
March and today. From today's hearings and investigations, we 
have learned that there is a largely unknown and hidden segment 
of the promotional mailing industry that does a very lucrative 
business with sweepstakes and skill contests that have involved 
at least in a 100 million mailings last year.
    Second, we have learned that these smaller operators engage 
in marketing tactics that are much more deceptive than those of 
the larger, more prominent sweepstakes companies and that in 
some cases border on outright fraud. And as those who have 
followed this issue know, I am very critical of the deceptive 
practices of the large companies, but it seems to me we have 
seen a whole new nature of deception in the mailings that we 
have examined through these hearings.
    Third, these smaller operators often pursue this lucrative 
business without detection and without fear of prosecution 
because they very craftily obscure their true identities so 
that neither the public nor the regulators can easily identify 
or pursue them.
    And, finally, we have learned that the Postal Inspection 
Service needs strong additional authority to meet the 
challenges presented by these hidden operators and their 
apparently endless capacity for new forms of deception.
    I do want to particularly thank our two witnesses from the 
Postal Inspection Service. You have been very helpful in giving 
us information on how to close the loopholes in current law.
    In light of the testimony we have received today, I believe 
the need for the comprehensive Federal legislation which 
Senator Levin, Senator Edwards, Senator Cochran, and I and 
others have introduced is more apparent than ever. I do hope 
very much that today's legislation will prompt consideration by 
the full Senate before we adjourn for the August recess.
    In closing, I want to thank our Subcommittee staff. They 
have worked extremely hard on a very difficult and complex 
investigation and to prepare this hearing. In particular, I 
want to thank Lee Blalack, Glynna Parde, who did an excellent 
job testifying for us today, Kirk Walder, Emmett Mattes, who is 
our detailee from the Postal Service, and we thank you for that 
as well; Kathy Cutler, Eileen Fisher, and Mary Robertson.
    In addition, I want to thank Senator Levin who has worked 
very hard on this issue. He has been a long-time leader in the 
attempt to crack down on deceptive mailings. And, again, thanks 
to Senator Edwards for his always very valuable contributions 
to the Subcommittee's hearings.
    The Subcommittee is now adjourned.
    [Whereupon, at 12:34 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

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