Groups Band Together to Crack Down on Telemarketing Fraud

Steven Michaels has a smooth, friendly voice and an engaging manner. No matter what your interests, you’d find he, too, was interested--especially when he had something to sell. Capitalizing on his targets’ patterns and weaknesses, Michaels coaxed hundreds--maybe thousands--of individuals to entrust their money to him.

“Not one person who invested with me over 20 years--and people invested millions and millions of dollars--ever saw a return on their money,” he admits. “If they ever got their initial investment back, I’d convince them to put it in something else.”

Michaels, who uses a pseudonym to protect his identity, is a former con man who now works with the law enforcement officials he once tried to foil. He is part of a multifaceted effort to combat telemarketing fraud, which law enforcement officials believe to be a $40-billion industry, accounting for roughly 10% of all items sold by phone. California leads the nation in telemarketing scams, although the scams target people nationwide.

While telemarketing fraud is by no means new, consumer advocates are concerned because more operations are originating in other countries, making it virtually impossible to catch the perpetrators. In addition, because the elderly make up a disproportionate number of victims and because the U.S. population is aging, the ranks of potential victims are burgeoning.

As a result, such groups as the American Assn. of Retired Persons, the National Consumers League, postal inspectors, attorneys general and sheriffs have teamed up to find ways to curtail this form of fraud. With the same fervor as the crooks, these groups are sponsoring anti-fraud seminars, “reverse boiler rooms” designed to alert potential victims of fraud, and other informational campaigns.

“Prize promotion scams and other telemarketing schemes targeting U.S. citizens are one of the fastest-growing frauds perpetrated by con artists based outside this country’s borders--especially in Canada,” says Martin Biegelman, a Los Angeles postal inspector. “These fraudsters know how hard it is to bring prosecutions outside the United States. Thus, this nationwide [anti-fraud] effort is even more important now than ever before.”

Last month, the AARP gathered 175 volunteers in Florida to call people nationwide who appear on telemarketer “mooch” lists, which consist of people considered most vulnerable to a bogus pitch. Some are repeat victims; others simply fit a telemarketer’s ideal profile--someone who is greedy, gullible and willing to give up control. These lists get passed from con artist to con artist, with some paying up to $200 per name for a good list of victims, experts say.

AARP, which was able to get a handful of these lists, orchestrated a preemptive strike, alerting people that they were likely to be hit by fraud. They also shared with the potential victims tools to combat con artists.

The main thing victims need is a healthy dose of skepticism. Generally, victims see fraudulent telemarketers as nothing more than pushy salespeople. It doesn’t occur to them that the person on the other end of the line is actually a crook, says Susan Grant, director of the National Fraud Information Center, a fraud-reporting hot line sponsored by the National Consumers League.

Consequently, the victim is reluctant to be rude, hang up or refuse to provide requested information.

The courtesy of victims works to their disadvantage, Michaels says.

“I have a tape of an actual phone conversation where somebody threatened to hang up on me 27 times. But because he only threatened and didn’t actually hang up, I was able to get what I wanted,” he says. “Every sale that I ever made started with the customer saying ‘no.’ I’m glad when they say no, because that’s when the battle begins.”

Michaels explains that con artists usually start by trying to learn something about you. They’re friendly, beguiling and interested in whatever you have to say. Sometimes, they’ll end a conversation without pushing you to buy something. Later, they’ll call back and use the information you gave them in the previous conversation to lure you into a bogus deal.

The key to confounding the crooks is simple: Don’t cooperate.

Don’t provide any information to someone you don’t know. If someone wants to sell you something, require them to mail the information to you and give you time to think about it. Anyone whose investment opportunity won’t wait a week is almost certain to be a crook.

Don’t give your bank account numbers or credit card numbers to someone who calls you. If you think a product or service sounds interesting enough to consider, ask for the caller’s name and phone number so you can call back when you’re ready to order. If the caller is reluctant to leave a number, that person is waving a red flag.

“If the [victim] is not forthcoming--they won’t share information with me--or if they have an accountant or lawyer that they are going to consult before investing, I exit stage left,” Michaels says. “If a guy says he’s going to discuss this with his wife, I make one crack at breaking that down. But if I can’t, I say ‘great,’ and they never hear from me again.”

If the victim does answer questions, the con artist quickly establishes whether they’re greedy or gullible. They mine for your interests, bigotries and foibles.

“Whatever human frailty they have, you can exploit it,” Michaels says. “I’ve sold to doctors, lawyers, state legislators, people who have gone on to be governors. All you are looking for is someone you can control.”

His final word of advice to potential victims--and that means everyone--is to heed the advice given to children: “Don’t talk to strangers.”

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Kathy M. Kristof welcomes your comments and suggestions. Write to her in care of Personal Finance, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail to [email protected]

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Telemarketing Fraud

Hundreds of thousands of people nationwide--particularly the elderly--are targeted by telemarketing scams each year. California is the top location for fraudulent boiler-room operations, but a growing number are originating outside the United States. Here are the top locations for bogus telemarketing operations in 1996:

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California: 4,017 Florida: 1,847 Quebec: 1,497 New York: 1,155 Texas: 1,057 Nevada: 857 Georgia: 805 Ontario: 560 British Columbia: 530 Illinois: 420 Nova Scotia: 368 Washington state: 362 Missouri: 345 Other non-U.S.: 230 Arizona: 206 Colorado: 179 Pennsylvania: 162 New Jersey: 160 Ohio: 153 Tennessee: 143

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Source: National Fraud Information Center