What's the Department of Justice Doing About Telemarketing Fraud?

The Department also has filed numerous civil actions in recent years against businesses that violate Federal Trade Commission rules that regulate telemarketers. These actions have resulted in the imposition of civil penalties and numerous court orders that prohibit unfair trade tactics. People violating these orders are subject to contempt sanctions of fines or imprisonment. 

The Department also has a strong interest in furthering education and prevention efforts directed at telemarketing fraud. In addition to participating in ongoing discussions and meetings with public and private-sector organizations that are committed to combating telemarketing fraud, it has funded projects to train prosecutors and investigators, to assist telemarketing fraud victims, and to educate the general public about the problem.

Enforcement

In a typical telemarketing-fraud indictment that a federal grand jury would return, the Department of Justice includes charges under criminal statutes such as wire fraud (18 U.S.C. § 1343), mail fraud (18 U.S.C. § 1341), and conspiracy to engage in wire and mail fraud (18 U.S.C. § 371). Each of these statutes carries a maximum term of imprisonment of five years. Because the owners and operators of telemarketing schemes often use the proceeds to further the scheme -- for example, to pay the costs of their telemarketing business activities, such as payment of salaries and rent and purchases of "leads" and "gimme gifts" -- the Department has increasingly included charges under the federal money-laundering statutes (18 U.S.C. §§ 1956 and 1957). Each of these latter statutes carries a maximum term of imprisonment of twenty years and ten years, respectively, and provides the Department with a basis to obtain criminal forfeiture of the telemarketers' property. In some cases, where fraudulent telemarketers have misled banks when they applied for merchant accounts to proces victims' credit-card charges, the Department has also charged the telemarketers with financial institution fraud (18 U.S.C. § 1344). That statute carries a maximum term of imprisonment of 30 years.

In addition, under a statute enacted in 1994 as part of the Senior Citizens Against Marketing Scams Act (18 U.S.C. § 2326), federal courts can impose an additional term of up to five years' imprisonment where the mail, wire, or bank fraud offense was committed in connection with the conduct of telemarketing, and can impose an additional term of imprisonment of up to ten years' imprisonment if the offense targeted persons 55 and older or victimized ten or more persons 55 and older. As of March, 1998, the United States Sentencing Commission is now considering whether to increase the guidelines for sentences in telemarketing fraud cases.

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Telemarketers sometimes engage in unfair practices that may not rise to the level of criminal violations, but nevertheless harm consumers. In such cases, the Office of Consumer Litigation frequently initiates civil litigation at the request of Federal Trade Commission. These cases seek enforcement of FTC rules that govern the conduct of telemarketers. The FTC has a rule, the Telemarketing Sales Rule, that directly applies to telemarketers. It also has rules, such as the Franchise Rule, that regulate the practices of anyone, including telemarketers, selling franchise opportunities. 

These enforcement actions serve several purposes. First, they obtain court orders that prohibit misrepresentations and require the telemarketer to comply with the pertinent FTC rule. This frequently results in firms going out of business. Firms that remain in business provide more complete and accurate information to potential customers. Second, these actions may obtain civil penalties or consumer redress from violators, forms of monetary deterrence that can also benefit victims. Third, the individuals who are subject to orders in these cases risk charges of civil or criminal contempt of court if they violate the court orders. The Office of Consumer Litigation and the FTC, through "Operation Scofflaw," have sought and obtained terms of imprisonment against individuals who violate those orders. 

Operation Disconnect

In Operation Disconnect, FBI undercover agents pretended to sell a machine that would enable fraudulent telemarketers to dial as many as 12,000 calls per hour. Such a machine would have vastly increased the ability of telemarketing schemes to contact large numbers of prospective victims throughout the United States. By persuading the fraudulent telemarketers that they needed to know exactly how they conducted their telemarketing businesses - including specific information about their most successful telemarketing techniques - the undercover agents were able to obtain many damaging and revealing admissions from the telemarketers about the fraudulent and criminal nature of their business activities. As a result of Operation Disconnect, several hundred fraudulent telemarketers were successfully prosecuted, in some cases receiving prison sentences as high as ten years. 

Operation Senior Sentinel

In Operation Senior Sentinel, federal agents and investigators, who had taken over telephone numbers of people who had been repeatedly victimized by telemarketing schemes (or established undercover identities as victims), tape-recorded thousands of fraudulent and deceptive solicitations and conversations by fraudulent telemarketers. These tape recordings were of incalculable value in determining which schemes most warranted criminal investigation and in providing evidence for search warrants and criminal indictments and informations relating to federal criminal violations. To date, Operation Senior Sentinel has resulted in approximately 1,000 fraudulent telemarketers being charged with a variety of federal crimes. In some cases, sentences imposed in Operation Senior Sentinel prosecutions have ranged as high as 14 years or more.

Civil Investigations and Actions

The Department frequently works with the Federal Trade Commission on coordinated efforts involving both FTC- and Department-filed cases, as well as cases filed by various state authorities. Examples of these include "Operation Telesweep" (which targeted business opportunity sellers), "Trade Name Game" (which targeted sale of business opportunities involving well known trademarks), and "Eraser" (which targeted credit repair companies). Each of these targeted business that operate primarily through 800 number and Internet advertising, and sold products or services to callers without complying with statutes and rules that require fair dealing with consumers. In many instances, simply filing the case led to the closing of a business when its operators realized that they could not operate profitably if they complied with the law. In other cases, businesses continued in operation, but provided more complete and accurate information to consumers. 

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Public Education and Prevention

In addition, the Department occasionally issues reports and prepares public statements relating to telemarketing fraud. In November, 1997, for example, the Department co-chaired a United States-Canada Working Group on Telemarketing Fraud and issued a report to the President and the Canadian Prime Minister on the topic of cross-border telemarketing fraud. In February, 1998, representatives of the Department and other public organizations also testified before the United States Sentencing Commission, which issues guidelines for federal judges on sentencing in criminal cases, on telemarketing fraud. Finally, the Department often issues press releases in cases and matters relating to telemarketing fraud.

Official Department of Justice Publications

• United States-Canada Working Group on Telemarketing Fraud, Report on Cross-Border Telemarketing Fraud (November, 1997)

Official Department of Justice Statements

• Testimony Before the United States Senate Select Committee on Aging (March, 1996)

• Testimony Before the United States Sentencing Commission (February 10, 1998)

Press Releases

• Volunteer Retirees Go Undercover to Help Snare Dishonest Telemarketers

• Justice Department Seeks 13.7% Increase in FY 97 Budget

• Hundreds of Victims of ADA Business Scam to Get Money Back

• Briefing on U.S.-Canada Report on Cross-Border Cooperation Against Telemarketing Fraud

• U.S. and Canada Label Telemarketing Fraud Serious Economic Crime and Propose Recommendations to Fight Growing Problem 

• U.S. Obtains $340,000 from Bahamian Bank for Victims of Telemarketing Fraud Case

• U.S. Obtains Injunction Freezing $470,000 in Telemarketing Fraud Proceeds in Bahamas Bank

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