In the Matter That                                                   )
                                                                               )
TENPEN SALES CORPORATION                            )
                                                                               )
at                                                                            )
                                                                               )
Charleston, South Carolina                                    )
and                                                                         )
St. Petersburg, Florida                                           ) P.O.D. Docket No. 2/35
                                                                               )
is engaged in conducting a scheme                      )
for obtaining money through the mails                   )
in violation of 39 U.S.Code § 4005.                        )

APPEARANCES:
Saul J. Mindel, Esq. &
H. Richard Hefner, Esq.
Office of the General Counsel
Post Office Department
the Appellee

H. J. Ziglar
789 Placido Way
St. Petersburg, Florida
the Appellant
appearing on his own behalf

Bosone, Reva Beck

DEPARTMENTAL DECISION

Upon recommendation for the issuance of a Fraud-Lottery Order No. 61-97 or alternatively for an order impounding the mail and setting a time and place for a hearing dated April 19, 1961, by the Appellee, an order was issued by the Judicial Officer on April 20, 1961, and forwarded to the Postmasters at Charleston, South Carolina and St. Petersburg, Florida. Said order forbids the Postmasters at Charleston, South Carolina and at St. Petersburg, Florida to pay any postal money order drawn to the order of said Tenpen Sales Corporation, its agents and representatives, and directs each Postmaster to inform the remitter of any such postal money order that payment thereof has been forbidden, etc. The Postmasters are instructed to hold all letters, except those which can be identified on the face of the envelope or wrapper as not relating to this above-mentioned enterprise, etc. All mail not so identified shall be held for twenty-four hours after its receipt, etc. The Postmasters are to stamp the words "Lottery Mail" upon the outside of all mail connected with the fraudulent enterprise and return it to the Postmasters at the offices where it was mailed to be returned to the senders, etc. (See attached copy of order).

The Appellee's recommendation stated that the Appellant, Mr. H. J. Ziglar, had violated an affidavit signed by him on December 6, 1960, wherein he agreed to discontinue the above-named enterprise and not to resume the same under the above name or any other name.

Upon recommendation of the Appellant and good cause being shown, the Judicial Officer issued an order impounding all mail of the Appellant on April 26, 1961, and said order was forwarded to the Postmasters at Charleston, South Carolina and St. Petersburg, Florida.

The Appellant came to see the Judicial Officer and the General Counsel on April 27, 1961, and requested a hearing on the Fraud-Lottery Order No. 61-97 of April 20, 1961, as soon as possible. His request for an early hearing was granted and the matter was set down for a hearing at 2 p.m. on April 28, 1961 in the Hearing Room of the Post Office Department, 12th and Pennsylvania Avenue, Washington, D.C.

On April 27, 1961, a stipulation signed by H. J. Ziglar, doing business as Tenpen Sales Corporation at Charleston, South Carolina, and as Tenpen Sales Corporation at St. Petersburg, Florida and Richard S. Farr, Assistant General Counsel, Fraud and Mailability Division as Counsel for Appellee was filed.

At the hearing on April 28, 1961, the Appellee was represented by Mr. Saul J. Mindel and Mr. H. Richard Hefner and the Appellant, Mr. H. J. Ziglar, represented himself.

At the conclusion of the arguments by both parties each submitted a brief on proposed conclusions of law.

The Appellant admitted the facts as set out in Exhibits B-1,B-2, C, D and G.

The Appellant was charged with engaging in a fraud and a lottery through the mails in violation of 18 U.S. Code § 1302, 18 U.S. Code § 1341 and 39 U.S. Code § 4005.

In this case the Appellant operates a sales plan set out in a contract which requires the buyer to purchase one pen at $1.00 to be used as a sample. He then must purchase five pens at $1.00 each which he should sell to five others. Each of the five receives an order blank and a contract. Each of the five sells to five others and so on. There is a commission scale that is broken down into seven sections. Each of the names on the top of the order pad will receive five percent of the money that comes in with the same contract. This makes a total of 35 percent. In each stage there is a designated title: Salesman, Jr. Key Man, Key Man,Sr. Key Man, Bronze Key Man,Gold Key Man and Diamond Key Man. The plan also extends laterally. As the plan is set up it would appear there is no limit to the amount of commissions a buyer may receive. Just a glance on the back of Exhibit C and Exhibit G will indicate the limitless extent of the plan. Exhibit B-2 presents the potential earnings of $24,413.75 that can be made from continuing sales of units of five. The Appellant has discontinued using this particular circular but the diagram on the back of Exhibit G sets out the extent to which the plan may operate. (See attached copies of exhibits.)

The question before the Judicial Officer is whether or not the Appellant through this plan is engaged in a lottery and a fraud.

The essential elements of a lottery are (1) consideration, (2) prize and (3) chance.

For the consideration of $5.00 according to the plan, the salesman could receive commissions of thousands of dollars. For him to receive these commissions, thousands of buyers would have to buy thousands of pens.

"A typical 'lottery' is a scheme in which tickets are sold and prizes are awarded among the ticket holders by lot. See Stone v. Mississippi, 101 U.S. 814. A typical 'gift enterprise' differs from this in that it involves the purchase of merchandise or other property; the purchaser receives, in addition to the merchandise or other property, a 'free' chance in a drawing. See Horner v. U.S., 147 U.S. 449. But whatever may be the factual differences between a 'lottery', a 'gift enterprise', and a 'similar scheme,' the traditional tests of chance, prize, and consideration are applicable to each. ... F.C.C. v. A.B.C., supra, at page 290, note 8.

Prize 'as applied to a lottery scheme ... may be anything of value offered as an inducement to participate in the scheme.' U.S. v. Rich, et al., 90 F.Supp. 624.

Chance in a lottery is not limited to schemes in which there are fixed prizes and a drawing to determine the winners. 'In such case the word lot or chance attaches only to the name or number of the ticket drawn, and not to the amount of the prize, but the statute covers any scheme for the distribution of money by lot or chance, as well as by drawing ...' Public Clearing House v. Coyne, 194 U.S. 497.

'It is not chance in general with which we are concerned, but the chance of winning a prize, whether that chance be as to any return or merely as to the amount or value of the return.' J.C. Martin Corp.v. Federal Trade Commission, 242 F.2d 530.

'Chance may exist notwithstanding the scheme contemplates some return to each of the participants.' 54 Corpus Juris Secundum § 2, p. 846.

'The element of certainty (may go) hand in hand with the element of lot or chance, and the former does not destroy the existence or effect of the latter.' Horner v. U.S., 147 U.S. 449.

Consideration is present under the lottery law even when the purchaser receives his merchandise or other property in addition to his chance at a prize. F.C.C. v.A.B.C., supra; Horner v. U.S., supra."

In Public Clearing House v. Coyne, 194 U.S. 497 - a prevailing case -

"the plan contemplates that each person who becomes a member or cooperator pays three dollars as enrollment fee, and agrees to pay the sum of one dollar per month for sixty months or five years; and also agrees to cooperate by inducing other members or persons to become cooperators,shall receive his pro rata share of the total amount, realized when entitled to a 'realization' as provided at the end of five years; or in case he shall have secured three new members in any one year, he may realize or receive at the end of each year one fifth of the amount which he would be entitled to receive at the end of five years, assuming that the growth of the five years continued at the same rate. The plan also contemplates that in the end the member who secures new members, and the one who does not, shall receive the same amount. All members joining the league during the same month constitute a class by themselves and are entitled to realize in all respects precisely the same amount and at the same time, excepting the member who obtains new cooperators may receive his realization in yearly installments instead of in one lump at the end of the five years' period.

The success of the plan depended upon constantly and rapidly increasing the number of subscribers or cooperators. The amount of such return depends so largely, and indeed almost wholly, upon conditions which the member is unable to control, that we think it fulfills all the conditions of a distribution of money by chance."

As in this case and in the Appellant's plan, "the profits depend principally upon the exertions of others, over whom he, the salesman, has no control and with whom he has no connection."

The court held "that because of this the amount realized is determinable by chance."

The intent and purpose is in this type of case significant. The Appellant's plan holds out rosy promises of making a lot of money out of the investment of an insignificant amount of only five dollars. In the light of the years of experience in business and as a salesman, admitted and described by the Appellant, he must have known his plan was not what it was represented to be - but a design to defraud.

New v. Tribond Sales Corp., 19 F.2d 671 is a prevailing case in this area of lottery law. Tribond was engaged in the sale of merchandise (hosiery) and contracts; it promised benefits dependent upon subsequent sales in a chain progression with an earlier cut-off so that a buyer could obtain hosiery worth $10.00 at a cost of as much as $10.00 or as little as $1.00, contingent upon his success in selling contracts and in his buyers' selling to others, etc.

Exhibit G which represents the sales plan of the Appellant leads one to believe that there are "literally thousands upon thousands of part-time salesmen each selling to a few of their own friends." This exhibit also leads one to believe that the Appellant Corporation has had extensive experience based upon years of experience with such chance operations.

In the hearing of April 28, 1961, the Appellant described his many years of experience as a salesman and businessman. Within the experience of the Appellant he must know that some of the participants in his sales plan would receive nothing and be stuck with five ball point pens. Since a ball point pen is the product to be sold, it should be within the knowledge of the Appellant that the ball point pen is a very common commodity nowadays which is available in stores, drugstores and is distributed by people in all kinds of campaigns. With this in mind the Appellant represents his sales plan to amass large sums of money upon an investment of nothing more than $5. Such representations by a man of the sales and business experience admitted to by the Appellant shows a fraudulent intent which may be inferred from his obvious awareness of facts to the contrary. As in the aforementioned case of Tribond, supra, the plan of the Appellant is fraudulent. The court there upheld the Postmaster General's findings of lottery and fraud.

It is the opinion of the Judicial Officer that the Appellant is engaging in a fraud and a lottery in violation of 18 U.S. Code § 1302, 18 U.S. Code § 1341, and 39 U.S. Code § 4005.

The order of April 20, 1961, is hereby affirmed, to become effective thirty (30) days from this date during which period the mail for the Appellant, Tenpen Sales Corporation, shall continue to be impounded by the Postmasters at Charleston, South Carolina and at St. Petersburg, Florida.

It is further ordered that if Appellant files suit in the United States District Court during said thirty (30) day period, the mail shall be impounded until further order by the Court or the Judicial Officer.