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Transcribed from the Appendix of

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Chief Investigator and Senior Counsel
Permanent Subcommittee on Investigations

before the
July 20, 1999

Thank you Chairman Collins, Senator Levin, and Members of the Subcommittee.

The Subcommittee's investigation uncovered a breed of sweepstakes companies that is wholly different from those highlighted in the Subcommittee's March 1999 hearings. Although most consumers probably recognize the names Publisher's 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 deployed 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 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 focused on in March.

To give the Subcommittee a sense of what I mean by deceptive, I would like to show you several exhibits that are promotional mailings that the Subcommittee obtained during the course of this investigation. The first promotional mailings [sic] was mailed by North American Bureau of Assets, Inc. ("NABA"); it is Exhibit 8. Exhibit 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 entitledment 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." The language clearly implies that the consumer will receive vouchers for an additional two thousand dollars, 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 two thousand dollar value is the estimated value of obtaining every single discount available. To realize that retail value, the customer may actually have to purchase thousnads of dollars of goods and services from the vendors who are listed in the coupon book.

Moreover, the mailing does not offer the consumer an opportunity to purchase a discount coupon book for ten dollars. 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 and those that are the subject of this investigation. Unlike American Family Publishers of Publishers Clearing House, these small operators attempt to disguise both the solicitation and the product.

Exhibit 9 is another promotion from NABA that only hints that the mailing is actually a solicitation for a 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's the same coupon book and the same contest as Exhibit 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."

We also discovered that these smaller companies attempt to trick the consumer into thinking that, if they purchase one or more of these coupon books, their odds of winning the sweepstakes will improve. I'd like to show you Exhibit 10, 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."

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 "elective entitlement option" as it's called here, to winning the sweepstakes. This portion contains a box for the consumer to check to "take advantage" of the "elective entitlement option," reiterating that "most winners do," and 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" did purchase.

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 close inspection, the disheartened recipient -- who was 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 16. The fifth paragraph informs the recipient that "[u]pon procesing 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." Sounds pretty good. This language does not appear conditional; the recipient has won ten thousand dollars. Only by carefully reading the fine print below the P.S., 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 ten thousand dollars are one in three million and that the consumer is only guaranteed to win 25¢. Therefore, the bulk of consumers who responded to this promotion actually lost money because their guaranteed winnings were less than the cost of postage.

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'd like to show you one example of this practice that Subcommittee investigators uncovered. Exhibit 15 is a promotional mailing for a contest currently being conducted by R&R Marketing, Inc. You might be interested to know that there is an "Official United Sweepstakes of America." 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, S.E. #1135, Washington, D.C. Our investigators discovered that this is 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.

At the bottom of the page, the mailing does state that the sweepstakes "is an independent private sweepstakes, not affiliated with the United States government." It then coyly turns the disclaimer to its advantage, however, and says that "[a]s an independent private company, we can with good conscience and faith make the guaranteed promise to pay the official winning $10,000."

Our investigation 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's referred to as a "kicker." "Rush processing" does not mean that the recipient will receive a prize earlier, but only that the sweepstakes company will expedite sending its product, usually the discount coupon book. We found the 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, Inc. ("Eagle"), the U.S. Attorney for the District of New Jersey has commented that Eagle has not awarded a prize in its content. 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.

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 also to 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 smaller sweepstakes operators will form a corporation, send promotional mailings under that corporate structure for one or two 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 Mr. David Dobin, President of Lone Star Promotions, Inc. and Anthony Kasday, President of Neopolitan Consultants.

Mr. Kasday, who is the president of Neopolitan Consultants, Inc., has been in the promotional mailing business for 30 years. Although Mr. Kasday is not currently a shareholder, officer, director or employee of a sweepstakes company, the Subcommittee's investigation discovered that, through his consulting arrangements, Mr. Kasday makes a very lucrative income from the companies that he may direct.

I would like to direct the Subcommittee's attention to Exhibit 25. As you can see, 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. These companies are: North American Bureau of Assets or NABA; Royal Sweepstakes, Inc.; Cashorama, Inc.; Enwood, Pressman & Ingram; and Mellon, Astor & Fairweather.

Based upon sworn answers to interrogatories and affidavits submitted by these companies, Mr. Kasday's consulting firm received almost four hundred thousand dollars in 1998. Thus far in 1999, Neopolitan has received payments from these companies totaling over five hundred thousand dollars. Therefore, through Neopolitan alone, Mr. Kasday has been paid almost one million dollars over roughly the last year and a half.

I'd like to specifically discuss two of these companies: Enwood, Pressman & Ingram and Mellon, Astor & Fairweather. As you can see from Exhibit 25, Enwood, Pressman & Ingram and Mellon, Astor & Fairweather are owned by Nicole Kasday -- Mr. Kasday's niece. 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 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 instructed his office manager, Ms. Williams, to 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 companies would receive mail in response to their 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 the 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 mailing lists. Therefore, we believe that the evidence stronlgy 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 the 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."

If Mr. Kasday's primary motivation for creating these companies was an estate planning device for Nicole and her family, it's not working very well. Mr. Kasday told us that he receives 25% of the net profits for Enwood, Pressman & Ingram and the "lion's share" for Mellon, Astor & Fairweather.

Ms. Williams testified that she pays Nicole $1,000 per month from Enwood, Pressman & Ingram. Nicole also received a one-time distribution payment of a few thousand dollars from Enwood, Pressman & Ingram in Februrary of this year. Therefore, we believe that Nicole has received under $15,000 from these two companies. However, according to Mr. Kasday, from 1998 to date, he has received apprxoimately $60,000 in his personal capacity from the 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 the two companies and that the profits are being drained out of the companies' 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 in order to give her a source of income -- albeit modest -- in the coming years; 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, Mellon, Astor & Fairweather, or any of the other sweepstakes and prize promotion companies that he directs. If state or federal regulations 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 happened in our investigation -- we attempted to contact Nicole through the attorney for both companies only to learn that her uncle directs the operation.

This is a significant point, which I am sure the witnesses from the Postal Inspection Service can discuss in more detail. 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 exposting 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 toward 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 27, which is a chart prepared by our staff. The chart shows that, between December 30, 1994 and March 10, 1995, three companies were incorporated in the State of Nevada, which 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 the companies and each of these companies had the same address: 9030 West Sahara #171, 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 companies only existed for roughly three years, or less.

The chart also shows that Mr. Kasday's two other companies, 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 directs the operations of both.

With respect to the chart, you will note that Express Processing was terminated in December of 1998, six months after the incorporation of Enwood, Pressman & Ingram and Mellon, Astor & Fairweather. In her deposition to the Subcommittee, Sheilah Williams 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 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.

The question, of course, is why someone would open three corporations, run promotional mailings under their names for a few years, shut down the corporations, and then start up two new corporations only to conduct the same business in the same location. The state and federal authorities that we contacted said that different corporate entities and names make it much more difficult for law enforcemnet to detect promoters' activities or take meaningful action against them once they do. The Federal Trade Commission ("FTC") specifically expressed concern about this point when it responded to our request for complaint information on these smaller operators, noting 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 obtained 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 39. 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 of voluntary compliance.

Our second case study is Mr. 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 United States 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 United States 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. 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, offers three sweepstakes contests in the amounts of $5,000, $10,000, and $12,000, but he has utilized forty different trade names -- a different trade name for each promotional mailing. 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 8. This is a promotional mailing that appears to be an Original Affidavit from NWCG/Prize Payout Division in connection with a $10,000 Cash Opportunity Giveathon. If you will notice at the very bottom of this mailing, checks are to be made payable to NWCG. Next, let me show you Exhibit 9. This is a promotional mailing that appears to be a Declaration for Cash Winner from Cash Giveathon II in connection with a $10,000 sweepstakes. An attachment to this mailing directs the consumer to send payment to NABA. Finally, I'd like to show you Exhibit 10. 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.

As you can see, these three promotional mailings appear to be from different companies, NWCG/Prize Payout Division, Cash Giveathon II, and International Funding Distribution Center. The unsuspecting consumer might think that they had received 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 may not understand that this cryptic language means that the same contest may be promoted under completely different mailings. In fact, it is virtually impossible to discern that these different mailings are for the same contest.

I might add that the clever trade names utilized by these companies often are 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 CMRAs, Commercial Mail Receiving Agencies, which is shorthand for companies like Mail Boxes, Etc. 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 instance, the two companies that we know are run by Mr. Kasday, Enwood, Pressman & Ingram and Mellon, Astor & Fairweather, are headquartered in Las Vegas, but use multiple mailboxes in different states. Enwood, Pressman & Ingram receives mail at five different mailboxes located 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 their office in Las Vegas where it is processed.

Mr. Kasday's office manager, Sheilah Williams, testified in a Subcommittee deposition that she did not know why the companies use multiple mailboxes in different locations, but she assumed that it was to make sorting responses to various promotions easier for office 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 opened in different states. 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 to evade 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 sweepstakes 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 are broken down by the different addresses used by the company.

Charirman 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.

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