For immediate release - Thursday, March 3, 2005.
Contact Bob Brammer - 515-281-6699.
A.G. asks Court to Order List Broker to Respond to
Telemarketing Fraud Probe
State asks court to order list-broker "Walter Karl, Inc." to cooperate with consumer protection
investigation of direct mail and telemarketing schemes.
DES MOINES. Attorney General Tom Miller said today that the Consumer Protection Division of his office has asked the
Polk County District Court to order Walter Karl, Inc. -- a major U.S. list broker and list management service based in
Pearl River, NY -- to provide information in response to the State's investigation of direct mail and telemarketing
"Telemarketing schemes continue to harm Iowans, especially elderly Iowans, and they often rely on well-established U.S.
businesses that facilitate what they know or should know is unlawful predatory activity," Miller said.
"In this instance, our investigation seeks to determine whether Walter Karl's services are used by fraudulent operators,
and whether the list-broker should have known of such activities. Our overall objective is to deny deceptive telemarketers
access to the crucial tools they need," he said.
In a filing
made yesterday in Polk County District Court, Miller's office told
the Court that, "After a period of cooperation - albeit slow and fitful
cooperation - Walter Karl refused to provide certain key information"
in response to the Consumer Protection Division investigation. The Attorney
General's filing asked the Court to order Walter Karl to respond fully,
under oath, within 30 days to specific investigative questions posed earlier
by the Consumer Protection Division.
The filing seeks information such as what Walter Karl knows about how lists were created, how lists were used and by
whom, and steps the company takes to ensure that persons using a list are not defrauding people on the list.
- 30 -
[For more background and details, see below.]
Background on the Walter Karl enforcement action:
"Fraudulent telemarketers continue to plague Iowans, but most of the worst schemes now operate from Canada and other
countries. They are hard to stop," Miller said.
"But Federal Trade Commission rules give us a strong tool. The FTC Telemarketing Sales Rule prohibits anyone from
providing substantial assistance or support to a telemarketer when they know or should know that the telemarketer is
using certain deceptive or abusive tactics, and we have authority to enforce the rule," he said.
"So now we are focusing on U.S. businesses that may provide crucial 'cooperating infrastructure' to deceptive
telemarketers - companies that make the automatic withdrawals from consumers' bank accounts, for example," Miller
said. "In this instance, we are investigating whether Walter Karl's list brokering and management services are used by
fraudulent operators - and whether the company knew or should have known as much."
Today's filing is called an "Application for Order Enforcing Attorney General's Civil Investigative Demand." It asks the
Court to prohibit Walter Karl from doing business in Iowa if it fails to comply with a Court order to fully respond to the
The court filing explains
that the Consumer Protection Division came to focus on Walter Karl, Inc.,
as the division sought to track down the source of fraudulent-appearing
sweepstakes-prize mailings received by an elderly Iowan in late 2003 and
2004 - mailings an investigator recognized as resembling or appearing
to be "screening mailings" designed to create a list of vulnerable consumers
who would be good targets for subsequent telemarketing fraud. (Click here
for investigator Barb
Blake's affidavit filed 3-2-05 with the Application to Enforce.)
Further investigation established a link between the questionable mailing enterprises and the list management business of
Walter Karl, Inc., where lists developed by the mailing enterprises were being rented. Sweepstakes mailings provided to
the Court were traced to "Granite Wholesalers" and "Skypoint," both believed to be located in Canada and Australia. The
Walter Karl website advertised a Granite Wholesalers list of 118,966 names characterized as "avid sweepstakes players,"
according to the filing, and a Skypoint list of 108,894 names characterized as "sweepstakes enthusiasts."
According to the State filing, other lists offered at the Walter Karl website included lists described as "cash-hungry
individuals," "impulsive buyers. . . primarily mature," "hard core sweeps fanatics," "credit-seeking
individuals...looking...for ways to regain a good credit standing," and sweepstakes contestants "over the age of 40, with
household income of approximately $25,000."
Last year, the Consumer
Protection Division issued a formal "Civil
Investigative Demand" under the Iowa Consumer Fraud Act to determine
the extent to which Walter Karl's list brokering and management services
are used by fraudulent operators. Yesterday's filing asked the Court to
order Walter Karl to fully respond to the Civil Investigative Demand.
The court filing contains numerous pages detailing what information is being sought and why, and how Walter Karl has
"refused to provide certain key information, including information it had earlier agreed to provide."
The filing says: "Details regarding who rented lists of ostensibly vulnerable (and often elderly) consumers, and for what
purposes those lists were rented, is a core part of the Attorney General's inquiry. For example, it would be important to
learn whether telemarketers in Canada submitting suspect telemarketing scripts are nevertheless able to obtain lists of
demonstrably vulnerable retirees identified as having an acute interest in prize promotions."
The suspected links between sweepstakes mailings and high-stakes telemarketing fraud:
The Consumer Protection Division filing discusses how "low-stakes" sweepstakes mailings may be connected to higher-stakes deceptive telemarketing. Iowans may receive mailings that appear to indicate they may be winners of large
sweepstakes prizes (say, $1 million), if they only will pay some kind of "authorization fee" or "report fee" or "transfer
fee" of, say, $29.95 or $24.99.
The division believes that persons who respond to such mailings often are put on lists used by Canada-based deceptive
telemarketers. (Consumers also lose the "fees" they paid.) A typical big-ticket telemarketing scam from Canada might
involve a call to a vulnerable older Iowan, a pitch that the Iowan had won millions in a lottery or sweepstakes or prize
promotion - and a requirement that the Iowan pay $1,000 or $5,000 or even more to collect the prize. (The schemes use
many ruses to justify the advance payment the victim must make to receive the millions in prize money - paying taxes in
advance, customs fees, etc.) Victims win no big prize, and they lose what they pay.
Background on efforts to investigate "facilitators" of telemarketing fraud:
The Consumer Protection Division has undertaken other action to tackle problems of deceptive mailings and deceptive
telemarketing, including challenging businesses that may "facilitate" such schemes:
- Last April, a Polk County
District Court Judge completely banned a direct mail and telemarketing
operation owned by Richard Panas from doing any business in Iowa. In
late 2003 and early 2004, Miller's office obtained an impound order
and seized about 22,000 pieces of mail that were headed to Panas and
his businesses based in Rock Hill, SC -- via a mail "drop box" in Clive,
Iowa. The Consumer Protection Division alleged the mail was from vulnerable
older people all over the country who had been tricked into sending
checks to Panas in response to his bogus prize mailings - and alleged
that names of people who responded would go on lists used by other con-artists
for big-ticket fraud schemes.
(Click here for April 30, 2004, news release.)
Among other items, the Attorney General's filing yesterday asks the Court to order Walter Karl, Inc., to provide details
and documents relating to Walter Karl's management or brokering of lists for Panas, and vice versa.
- Last September
3, the Consumer Protection Division obtained a court order to impound
or seize mail coming to another commercial mail-drop box in Des Moines,
interrupting an alleged scheme to deceive elderly consumers into thinking
they were winners of huge sweepstakes prizes. Mail coming to the box
- which was then shipped to businesses based in Vancouver, Canada --
would make a 'hot list' for telemarketing fraud or other schemes. (Click
here for Sept. 3, 2004, news release.)
- Last September
17, the Attorney General's Office filed suit in Federal District Court
alleging that an Arizona electronic withdrawal company "facilitated
consumer fraud" by enabling deceptive telemarketers to automatically
withdraw money from people's bank accounts without proper authorization.
On October 7, the Court entered a preliminary injunction ordering "Teledraft,
Inc." to comply with federal and Iowa laws concerning telemarketing
fraud and other abuses while the lawsuit is pending. (Click
here for Sept. 17, 2004, news release.)
- On Feb. 15, 2005,
Attorney General Tom Miller announced that "Electracash, Inc.," a
third-party ACH or automated clearing house processor located in Signal
Hill, Cal., "has stepped up to the plate and agreed to take many positive
steps to avoid processing withdrawals for fraudulent schemes." The company
also paid a total of $15,774 to 56 Iowa victims of a telemarketing scam.
Electracash did not perpetrate the scam, but the con-artists used the
company to access people's bank accounts through the ACH system. (Click
here for Feb.15, 2005, news release.)
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