UP to $15 billion a year is being swindled from the pockets of
uninformed consumers by the growing number of illicit "boiler-room"
operations around the United States and the world.
According to a recent two-year congressional study of
telemarketing fraud, the problem is growing because federal and
state law enforcement agencies have limited funds and manpower
devoted to stopping fraud.
Nor have agencies coordinated prosecution efforts on a
continuing basis. "The problems are complex and, like the drug
problem, almost out of control," said a state government official
One of the recommendations in the study is for Congress to
establish a federal telemarketing clearinghouse for information on
fraud cases and require all agencies to cooperate.
The lure of the grand prize
At the heart of the problem are uninformed consumers. Swindlers
often target the elderly, who are swayed by high pressure tactics
over the phone and promised quick wealth or prizes.
In an economic recession, the lure is often hard to resist.
While legitimate telemarketing companies will allow time to
consider products or offers, swindlers promise the moon and badger
consumers to act quickly.
"This is an age of lotteries and grand prizes," said Cleo
Manuel, a spokesperson for the Alliance Against Fraud in
Telemarketing in Washington, D.C., "and people want to believe it
can happen to them. Everybody wants the magic bullet that is going
to solve all their woes. They want to think they have been picked.
But we tell consumers to cool off; if the offer sounds too good to
be true, it usually is."
Operating in offices known as "boiler rooms," salespeople have
computer lists of names to call to offer investments and goods.
Boiler-room operations are heavily concentrated in Sun Belt states
such as California, Arizona, Florida, and Texas.
Dozens of scams exist. One in use now is the "advance fee loan"
scam. People respond to ads in the paper offering low interest
loans regardless of credit history. They pay a "processing" fee of
$200 or $300, then told several days later they didn't qualify, or
they are sent standard bank loan application forms.
According to Alliance Against Fraud in Telemarketing, the Better
Business Bureau in Phoenix, Ariz., received over 1,000 complaints
in one month last year about advance fee loans.
Another scam is misuse of 900 numbers. A company in New Jersey
recently collected over $650,000 in three months when consumers
called one of several 900 numbers taken from a green postcard
disclosing that an undelivered package was waiting for them. The
cards looked like US Post Office cards. Those who called paid
anywhere from $9.95 to $28 for a call of a few minutes. …