Telemarketers Convicted For Fraudulent Sales Techniques

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JULY 12, 1999 VOLUME 7, NUMBER 2

Thomas Mullen and 28 other defendants were charged with telemarketing fraud in New York federal court. At trial, the jury convicted Mullen on two of four counts, but the trial judge decided that there had been insufficient evidence of Mullen’s intentions and set aside the conviction. The government appealed, arguing that there was sufficient evidence to support the jury’s decision and Mullen should be found guilty.

The Second Circuit Court of Appeals decided this week that Mullen’s conviction on one of the two counts should be upheld, but that the second count should be dismissed. His case was returned to the federal district court judge for sentencing on the one count.

Although the details of Mullen’s conviction and appeal are interesting, what is really revealing is the court’s description of the work of a telemarketer. Since the central legal question was whether Mullen realized he was involved in actually defrauding the (often elderly) customers he contacted by telephone, the appellate court described the practices of Mullen and his coworkers in detail.

Mullen worked for RFG Group, which sold water and air filters, vitamins, fire retardant sprays, cosmetics, cleaning supplies and promotional items such as pens and key chains. RFG salespersons would call a prospective customer and explain that he or she had been selected for a special promotion by the product’s “sponsor.”

Although callers were carefully coached not to ever say that purchase of the firm’s products was necessary to qualify for the promotional prize, the pitch was (as the Court of Appeals described it) “intentionally worded to imply that such a connection existed.” The customer would be assured that he or she would win one of several valuable prizes, to be chosen at random; the prizes supposedly included Hawaiian vacations, valuable art, new automobiles, cash and jewelry.

“Such extensive effort,” wrote the Court of Appeals, “might not normally be necessary to sell cosmetics or cleaning products…. However, RFG Group was at a competitive disadvantage, as its products were sold at an enormous mark-up from their wholesale cost. For example, RFG sold a six-month supply of vitamins for between $259 and $399, even though the vitamins cost RFG less than $12.” Similar mark-ups were made on water filters (from a cost of $56 to a sales price of $799) and cosmetics (a one-year supply cost RFG Group $81, but was sold for up to $899).

The prizes, of course, were not as described by the callers. The Hawaiian vacation, for example, was actually a certificate for lodging at a motel in Hawaii, and was worth about $45, and the “valuable art” a $47 lithograph or a ceramic dolphin statue. “Only once was a new car awarded, and it was purposely given to an elderly man who made a small purchase so as to negate criticism that RFG targeted the elderly or gave substantial awards only in return for even more substantial purchases.”

RFG’s outrageous practices hardly stopped there, however. Once a buyer had been induced to purchase vitamins or cleaning supplies the first time, his or her name was moved into a different category. Thereafter, he or she would hear regularly from a special corps of RFG salespeople, known as “reloaders.” This elite group of telemarketers, chosen for their ability to close sales, made repeat calls to former clients, since the company found that subsequent purchases tended to be for larger amounts than the first sales. U.S. v. Guadagna, July 6, 1999.

Mullen, along with 24 of his 27 codefendants, was ultimately convicted of wire fraud in the federal court. Unfortunately, the practices described in the Court of Appeals opinion are far too common, in spite of the efforts of law enforcement.

Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

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Matthew M. Mansour

Attorney

Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.