P.S. Docket No. 6/111
November 30, 1978
In the Matter of the Complaint Against
G. R. PARO, G. R. PARO,
PRESIDENT, THE APARTMENT SELECTOR, INC.,
THE APARTMENT SEEKERS, INC, T. A. S. INVESTMENTS,
SHEPHERD PUBLISHING, PARO PUBLICATIONS,
THE NATIONAL MAIL ORDER, CONSULTANT'S CORPORATION,
NATIONAL CONSULTANT DIVISION, NATIONAL REPRESENTATIVES DIVISION,
EXECUTIVE SALES MARKETING DIVISION, FINANCIAL PUBLICATIONS DIVISION,
DOLLAR POWER,
750 North Salina Street at
Syracuse, New York 13208,
101 Kristin Road at
North Syracuse, New York 13212 and
208 Grenadier Drive at
Liverpool, New York 13088
P.S. Docket No. 6/111
November 30, 1978
William A. Duvall Chief Administrative Law Judge
Thomas A. Ziebarth, Esq.,
Law Department
United States Postal Service
Washington, D.C. 20260, for Complainant
Sandra C. McFeeley, Esq.,
Law Department
United States Postal Service
Washington, D.C. 20260, for Complainant
Emil M. Rossi, Esq.,
Jerry, Rossi, Tisdell & Moore,
University Building, Suite 615,
Syracuse, New York 13202 and
Eric M. Alderman, Esq.,
Alderman, Alderman, Samuels & Schepp,
512 Loew Theatre Building,
Syracuse, New York 13202, for Respondent
Before: William A. Duvall, Chief Administrative Law Judge
INITIAL DECISION
On June 26, 1978, the United States Postal Service, acting through the Consumer Protection Division of its Law Department (Complainant) filed a Complaint against G. R. Paro; G. R. Paro, President; The Apartment Selector, Inc.; The Apartment Seekers, Inc.; T. A. S. Investments; Shepherd Publishing; Paro Publications; The National Mail Order Consultant's Corporation; National Consultant Division; National Representatives Division; Executive Sales Marketing Division; Financial Publications Division, and Dollar Power at 750 North Salina Street, Syracuse, New York 13208; 101 Kristin Road, North Syracuse, New York 13212, and at 208 Grenadier Drive, Liverpool, New York 13088 (hereinafter referred to collectively as the Respondent).
The specific charges set forth in the Complaint will be quoted and discussed later in this decision. In general, Count One of the Complaint contains allegations setting forth the elements of the conduct proscribed by 39 U. S. Code 3005. In Count Two, Complainant alleges that Respondent knowingly participates, and encourages others to participate, in a scheme which contemplates that Respondent's materials will be used by second parties to obtain money through the mails from third parties on the basis of misrepresentation.
In a timely Answer Respondent denied each and every allegation in the Complaint.
The matter was heard in Washington, D.C., on July 25 and 26, 1978. Both parties were represented by counsel who participated in the examination and cross-examination of witnesses and by whom written proposed findings of fact and conclusions of law together with supporting arguments have been submitted.
INTRODUCTORY STATEMENT
To provide a background for the discussion of this case, the evidence of record in this proceeding, which has been considered and will be fully set forth, discloses that the manner in which this Respondent conducts its business is substantially as will now be stated.
In its essential features, the business in which Respondent is engaged is much like a chain letter operation. (Hereafter in this introductory statement Respondent is referred to as "A".)
One phase of "A's" business begins with the mailing by "A" of a direct mail advertising circular or flyer (CX-4). In this circular, "A" represents that it has originated a plan by means of which persons responding to the circular and following the plan may experience large financial gains with but little expenditure of their own money. In this illustration, a reader (hereafter "B") remits the required $19.95 to "A" to learn the details of "A's" marvelous new money-making idea. In return "B" receives a book, "The Apartment Selector", (CX-1) describing a plan for providing information to persons interested in renting homes or apartments. In the back of the book, there is, in addition, an order blank which "B" is to use if he is interested in becoming an "exclusive book distributor" for "A".
If "B" fills in this blank and returns it to "A", "B" receives, without charge, a publication entitled, alternatively, "How to amass wealth on a grand scale" or "Executive Mail Order Report No. 1" (CX-3). In this publication "A" describes a plan for direct mail selling of his book (CX-1, above). In carrying out this plan, "B" is to use advertising circulars, mailing envelopes, return envelopes, and mailing lists, all of which "B" is to purchase from "A". The foregoing materials are put to use by "B" in his efforts to induce third persons to become distributors, each of whom, in turn, is to buy one of "A's" books in which he is encouraged to purchase similar materials for use in attracting others to become distributors. For every book sold each member of a succeeding level of distributors makes remittances of $10.00 to "A", with the distributor retaining $9.95.
Another method by which persons may be introduced to this distributorship program is through the representations found in advertisements bearing the caption "How to amass wealth on a grand scale". These advertisements may be in the form of circulars distributed by mail or they may appear in various publications. (CX-2) The person who reads this advertisement is told of the benefits of engaging in the "T.A.S. INVESTMENTS distributorship program," for which he must remit $10.00. In return for his remittance the reader receives the publication "Executive Mail Order Report No. 1" (CX-3, mentioned above). From this point, the enterprise proceeds as described above.
Respondent has several distributorship programs which it promotes, but in operation they are variations on the theme of the operation above described. These additional programs involve the sale through the mail of different items, but the methods of sale follow substantially the same plan.
Following this preliminary statement, the case will now be more fully considered.
Count One
The issues under Count One of this proceeding are:
1. Does the Respondent, under its various names and addresses, engage in business and solicit remittances of money through the United States mails?
2. Does Respondent advertise in publications of general circulation, direct mail circulation, and publications sold by Respondent?
3. Does the Respondent make the representations charged in paragraph (3) of Count One of the Complaint?
4. Are the representations, if made by Respondent, material representations and are they false?
These issues will be disposed of in the order in which they have been stated.
Issue No. 1. In view of the variety of names and addresses set forth in the style of this proceeding, it will be well to give references to exhibits in which the use of such names and addresses will be found. The names with exhibit numbers or other citations are: 1/
G. R. Paro - CX-1; G. R. Paro, Pres. - CX-3; The Apartment Selector, Inc. - CX-3, p. 8; The Apartment Seekers - EX. A att. to inside back cover of CX-53; T.A.S. Investments - CX-2; Shepherd Publishing - CX-6; Paro Publications - CX-9, last printed page; The National Mail Order Consultant's Corporation - CX-10; National Consultant Division - CX-9, last printed page; National Representatives Division - CX-11, 17th printed page; Executive Sales Marketing Division - CX-13, last printed page; Financial Publications Division - CX-25, p. 47; and Dollar Power - CX-15.
The use of the addresses listed in the style hereof is illustrated as follows (only one citation out of many possible ones is shown):
750 North Salina Street, Syracuse, New York 13208 - CX-1, last page; 101 Kristin Road, North Syracuse, New York 13212 - CX-4; and 208 Grenadier Drive, Liverpool, New York 13088 - CX-8.
The many advertisements in evidence in this proceeding (of which Complainant's Exhibits 2-4, 6-8, 10-12, 14, and 15 are examples) establish that the Respondent is engaged in conducting a business, and solicits remittances of money through, and by means of, the mails. (Tr. 7-8)
Issue No. 2. That the Respondent advertises various promotions in publications of general circulation is established by Exhibits CX-28 through CX-34 which are copies of advertisements which have appeared in March 1978 "Spare Time", Summer 1978 "Science and Mechanics", December 1977 "Income Opportunities", November 1977 "Specialty Salesman and Business Opportunities", October 1977 "Salesman's Opportunity", "Directory of Money-Making Ideas" - 1977 Ed., and "Sales and Small Business Directory" - 1976 Ed. Respondent's advertisements appear in its own publication, "Dollar Power", as seen in Complainant's Exhibits 14, and 25 through 27. An example of direct mail advertising is CX-4.
Issue No. 3. The next issue to be addressed is whether the Respondent makes the representations which are set forth in paragraph (3) of Count One of the Complaint. Each of the charges in paragraph (3) will now be quoted, and each is followed immediately by language quoted from Respondent's literature which forms, or may form, all or part of the basis for such charge. The exhibits contain such an abundance of language which easily might form the basis of the various charges that only a few out of many possible such excerpts are quoted in connection with each charge.
Charge : (3)(a) The "certified" mail order distributorship programs featured in Respondent's promotional materials are "proven sales plans" in which the participating distributor is assured of profits ranging from $1000 to $3000 within thirty days for only a few hours work;
Bases : "Absolutely under no circumstances should you confuse my certified distributorship money making method with any of those ridiculous books, franchises or gimmicks that require you to virtually stand on your head to make just a few dollars." (CX-3, p. 5)
"If I am not satisfied completely with your offer or proven sales plan, I am under no further obligation and may keep everything you sent me." (CX-1, last printed page)
"Make $1000.00 in 30 Days
GUARANTEED'
Or Money Back]" (CX-6, caption)
"WHAT YOU STAND TO EARN, IF YOU CAN HONESTLY QUALIFY:
$1,000 in your pocket for just mailing 1 thousand advertisement brochures each month.
$2000 in your pocket for just mailing 2 thousand advertisement brochures each month.
$3000 in your pocket for just mailing 3 thousand advertisement brochures each month.
Figures based on 10% response." (CX-3, p. 9)
Charge : (3)(b) The "proven money making distributorship[s]" featured in these promotional materials involve "absolutely no major risks";
Basis : "What's so special about my proven money making distributorship and what can it do for you?
It's a proven money making distributorship based on a principal that's now being used successfully by numerous rich men throughout the world. Personally, I'm making a fortune using this method without having to take any far fetched chances, nor did I invest 1 cent in merchandise. I took absolutely no major risks. I've mastered the right moves, and I'm going to show you just how it's done." (CX-3, p. 6)
Charge : (3)(c) The mail order distributorship programs featured in Respondent's promotional materials involve the same method utilized by Gary R. Paro in "making a fortune" even when he was "away on a 3 month vacation or at home in bed with a cold";
Basis : "Thanks to my proven money making distributorships, the orders keep pouring in by the thousands whether I'm away on a 3 month vacation or at home in bed with a cold." (CX-3, p. 8, last para.)
Charge : (3)(d) The "guaranteed" potential income projections set forth in Respondent's promotional materials are based on an actual "test analysis ... and active classified ad participation";
Basis : "We stand 100% behind our claims. We guarantee a $1,990.00 profit within 30 days of your first order, based upon our test analysis of our 2,000 mailer program and active classified ad participation.
Only our complete confidence in the materials we have to offer could allow us to make such a bold guarantee. We believe in what we have to sell and believe in those we accept to be representatives for us." (CX-7, p. 2, para. 5)
Charge : (3)(e) Respondent's mail order distributors will be furnished with the names and addresses of "fresh, guaranteed mail order buyers" already typed on gummed labels;
Basis : "Yes, it's true that you will receive fresh, guaranteed mail order buyers names supplied on tear off perforated gummed labels." (CX-3, p. 11, para. 5)
Charge : (3)(f) Respondent's mail order distributors will be furnished with "proven" direct mail circulars "absolutely guaranteeing [a] $1,990 profit within 30 days";
Bases : "When you receive your money making package from T.A.S. Investments you will have in your possession the most powerful mail order success tools we believe in existence today] So powerful in fact, that we can stand 100% behind our claim of absolutely guaranteeing you $1,990 profit within 30 days on your first order (2,000 mailer program) or we will refund the initial payment $10. in full you paid for this entire distributorship program subscription. (CX-3, p. 3, 2nd para.)
"***We will supply you with the proven mailing materials that you will need to assure you of success as a distributor of 'Winning In Mail Order'. You simply mail these and collect the money as it comes in. How could anything be less difficult?" (CX-11, p. 11, 7th line from bottom of page)
Charge : (3)(g) Respondent's advertising circulars, when mailed by participating distributors to the persons whose names and addresses appear on the gummed labels furnished by Respondent, are assured of a response rate of at least 10% thereby providing the distributor with a minimum gross return of one dollar for each circular that is mailed;
Bases : "HERE'S WHAT YOU HAVE TO DO:
"I expect your mailings of 2000 to 5000 brochures to pull at least 200 orders within three or four weeks. This response represents a drawing power of only 10%. This is a fairly modest estimate of what potentially can be realized. Remember, my money-making advertisement was designed to produce fast and high profit sales.
"When customers order THE MILLION DOLLAR IDEA, they send you the full price of $15.00 as advertised. Ten dollars will go into your pocket. Five Dollars will be forwarded to me. Let's look a little more closely at that breakdown. Supposing 200 copies are ordered. That represents a conservative order of 10% based on a 2000 mailing. This would yield $3,000, $2,000 of which would go into your pocket. I will trust you to forward the remaining $1,000 to me." (CX-7, p. 9)
"For example: How much cash can you earn?
I expect your mailing of 2,000 brochures to pull at least 200 orders within three or four weeks. This response represents only a 10% draw. Don't forget, these are bonafide mail order buyers, plus the fact that my proven big money advertisement was professionally designed to produce fast and high profit sales." (CX-3, p. 11)
Charge : (3)(h) Persons who elect to become an "Executive Sales Marketing Coordinator" by investing in an inventory of Respondent's books are assured of substantially higher profits than those to be realized by ordinary distributors.
Basis : "OUR METHOD OF MARKETING:
"Five hundred men and women will be selected to form our marketing team. 500. No more and no less. This will be a very select group and will share equally in our special marketing process--and the exceptionally substantial profits.
"These special 500 persons will be operating on a very high business level which many will not previously have been privileged to. All materials will be available at cost. Sales literature, mailing lists, printed materials, everything]
"The profits promise to be spectacular and of the very special 'exclusive source' caliber. When underway, weekly profits to each individual team member should approximate a minimum of $800.00." (CX-13, pp. 4-5)
The representations set forth in the Complaint as having been made by Respondent are based upon, and in fact incorporate much of, the language used by Respondent in its advertising circulars, books and other publications.
A number of cases have established guidelines for use in considering and interpreting statements appearing in advertising literature. Some of these guidelines are expressed as follows:
Donaldson v. Read Magazine , 333 U.S. 178, 188-9 (1948)
"Advertisements as a whole may be completely misleading although every sentence separately considered is literally true. This may be because things are omitted that should be said, or because advertisements are composed or purposefully printed in such way as to mislead. Wiser v. Lawler , 189 U.S. 260, 264; Farley v. Simmons , 99 F.2d 343, 346; see also cases collected in 6 Eng. Rul. Cas. 129-131. That exceptionally acute and sophisticated readers might have been able by penetrating analysis to have deciphered the true nature of the contest's terms is not sufficient to bar findings of fraud by a fact-finding tribunal. Questions of fraud may be determined in the light of the effect advertisements would most probably produce on ordinary minds. Durland v. U. S. , 161 U.S. 306-313, 314; Wiser v. Lawler , supra at 264; Oesting v. U. S. , 234 F. 304, 307. People have a right to assume that fraudulent advertising traps will not be laid to ensnare them. 'Laws are made to protect the trusting as well as the suspicious.' Federal Trade Commission v. Standard Education Society , 302 U. S. 112, 116."
Borg-Johnson Electronics v. Christenberry , U.S.D.C., S.D.N.Y., 169 F. Supp. 746, 751. (1959)
"When it appears that an advertiser deliberately induces its patrons to purchase its product in the belief that its value far exceeds its true worth it is sufficient to support a finding that a fraudulent scheme was being conducted. Leach v. Carlile , 1922, 258 U.S. 138, ***. This is so, even where there is a promise to refund the purchase price should the article sold prove unsatisfactory. Farley v. Heininger , 70 App. D.C. 200, 105 F.2d 79, 84, cert. den. 1939, 308 U.S. 587, 60 S. Ct. 110, 84 L. Ed. 491."
Vibra Brush Corp. v. Schaffer , U.S.D.C., S.D.N.Y., 152 F. Supp. 461, 465 (1957)
"It is not each separate word or a clause here and there of an advertisement which determines its force, but the totality of its contents and the impression of the entire advertisement upon the general populace. *** The ultimate impression upon the reader results not only from the total of what is stated but also from what is reasonably implied."
G. J. Howard Co. v. Cassidy , 162 F. Supp. 568, 572, U.S.D.C., E.D.N.Y. (1958).
"It is the net impression which the advertisement is likely to make upon purchasers to whom it is directed which is important, and even if an advertisement is so worded as not to make an express misrepresentation, if it is artfully designed to mislead those responding to it the mail fraud statutes are applicable. Cates v. Haderlein , 7 Cir., 1951, 189 F.2d 369, 373, reversed on other grounds 1951, 342 U.S. 804 ***."
In addition to the specific quotations taken from Respondent's advertising materials, it must be pointed out that in all of Respondent's sales material the presentation by Respondent is so forcefully asserted, and so repetitively droned into the eye and mind of the reader, that a pervasive aura is created which tends to lull the reader into the belief that Respondent has created plans for engaging in mail order selling by means of which one can, and will, with little investment of his own money, reap extraordinary financial gains. This impression upon the mind of the reader is formed not only by (1) what is said, but, also, by (2) what is suggested, although not said, by (3) the context in which the statements or suggestions are made, and by (4) the cumulative impact of all of the foregoing elements.
Applying the criteria quoted earlier herein from the various Court decisions, it is found as a fact that Respondent does make the representations attributed to it in paragraph (3) of Count One of the Complaint.
Issue No. 4. In determining whether the above representations, if made, are true or false, it is necessary to examine further the nature of the enterprise operated by Respondent. Although the business will be examined later in somewhat more detail, it is appropriate to get a general idea of the Respondent's business operations. The person best equipped to give this description is Postal Inspector Frank W. Kormann who investigated this case, and whose testimony reads, or is paraphrased, as follows:
WITNESS: Briefly, Mr. Paro has three distributorship plans; each one centering upon one of his publications. He has three publications which, I believe, are already into evidence.
One, is "How to begin and operate the apartment select-a-business", [also known as "The Apartment Selector"] the other is the "Million Dollar Idea", and the third is "Winning In Mail Order."
He has, for each of these publications, a distributorship solicitation which is mailed to people and gives them the opportunity to invest money in the particular distributorship plan that it relates to.
In other words, they could receive a distributorship plan for the Apartment Selector book and one for each of the other books, all of which are similar in contents, that involve the distributor, himself, investing, anywhere from approximately $60 to several hundred dollars, to purchase flyers in quantities ranging from 250 to 10,000 each.
Mr. Paro sells his three publications direct through the use of advertisements, which we have already seen. He has designed three additional advertisements to promote his distributorship solicitations.
When a distributor invests in the particular solicitation, he receives the same flyer, or the same advertisement, used by Mr. Paro to sell the book; however, it is printed with the distributor's name rather than Mr. Paro's name. This is the flyer that the distributor sends out with the mailing envelopes to the mailing list.
Mr. Paro has a fourth plan which involves a combination of the three individual distributorships into one, giving an investor the option to sell all three books, rather than just one.
* * * *
Exhibit 13 is the solicitation for the fourth plan which I have described which points out to people the benefits of becoming a distributor, or of selling all three of Respondent's books, rather than just one.
* * * *
The main advantage [of the fourth plan] that is pointed out is reaping higher profits.
* * * *
When the individual invests his money in promotion four, which is titled, I believe, "Executive Sales Marketing Coordinator," he receives a supply of Respondent's publications, the three books that I named earlier, and is given the opportunity to sell these publications through direct mail advertisements.
* * * *
With respect to promotions numbers one, two and three, the plan is that for each sale that he makes, the mailorder distributor takes his commission, sends the balance as required to Respondent, who, in turn, drop ships the order. (Tr. 138-140)
Inspector Kormann also identified, and testified with respect to, certain exhibits showing that Respondent advertises in its own publications (Exs. CX-25, 26 and 27) and in publications of national circulation, such as "Spare Time", "Science and Mechanics", "Income Opportunities" and others (Exs. CX-28 through 34; Tr. 138-144).
The inspector gave the following more detailed account of the steps he took in connection with the investigation of this case and of the results that were realized.
Beginning early August, 1977, he began responding to various advertisements used by Respondent. In connection with this activity he invested in four of the distributorship programs using four different test names. For Promotion No. 1, which is the distributorship to sell the book, "The Apartment Selector", he used the name Richard Keener, and the business name Keener Enterprise. He used, also, the name Amy DiFucci, and the business name DiFucci Home Industries, in connection with The Apartment Selector. For Promotion No. 2, which is the distributorship to sell the book, "The Million Dollar Idea", he used the name of Eric Lockhart, and the business name of Lockhart Express. For Promotion No. 3, which is the distributorship to sell the book entitled, "Winning In Mail Order", he used the name Wayne LaTulip and the name W.L.T. Mail Opportunities. These test purchases began on or about August 1, 1977, and continued through late April or early May of 1978. (Tr. 158)
In connection with Promotion No. 1, Inspector Kormann followed the instructions in the "MONEY" flyer, of which CX-4 is an example, and remitted $19.95. This circular is vague and offers only an "incredible idea and complete business guide" which the reader is assured is worth "100 times its cost." In return he received the book entitled "The Apartment Selector" (CX-1), which in its current version is called "Rental Information Service" (CX-52). The last printed page of each of these books is a coupon or order blank which the reader must return to Respondent in order to receive "FREE details, advertisement samples and everything [he needs] to know about becoming an exclusive book distributor." In return for mailing this coupon to Respondent the reader receives "Executive Mail Order Report No. 1" or "How to amass wealth on a grand scale" (CX-3; hereinafter sometimes "Report").
Another way in which persons may begin their relationship with Respondent is by remitting $10.00 to "T.A.S. Investments" as a result of reading its advertisement, of which CX-2 is an example. This remitter will receive the same "Executive Mail Order Report No. 1" for which the first remitter paid $19.95. (CX-3)
This Report is the place at which the "hard sell" is at one of its highest pitches. The distributorship is described in glowing terms, and the claims and suggestions of unusual financial returns are elaborated. The reader is furnished with an order blank for use in ordering various numbers of mailing envelopes, reply envelopes, MONEY circulars, and "names of guaranteed mail order buyers typed on gummed labels." It is obvious that the reader is to utilize these materials in attracting others to the business in the same manner and by the same means that he was. The cost to the new purchasers of Program No. 1 is $19.95. Of this amount, the distributor is to retain $9.95 and forward $10.00 to Respondent.
In the Report, the reader is referred to three businesses which are said to be dealers in mailing lists if the reader prefers to use these businesses as sources for names and addresses. Also in the Report are two alternative plans, one of which involves expense to the reader but no investment with Respondent. The other plan involves a one time $5 payment to Respondent for complete, camera-ready art which the reader may print in the desired quantity and mail as he sees fit. In both of these plans it is contemplated that the reader of the Report will advertise and sell "The Apartment Selector" and make the standard $10.00 remittance for each sale made.
As indicated earlier, this program is designed to, and does, operate, but in a more devious and complicated manner, like a chain letter enterprise, with each set of investors, or "distributors," selling to a new group which, in turn, is to sell to another new group, ad infinitum .
Plans, or programs, Nos. 2 and 3 follow the same pattern as has just been described for Program No. 1. In Program No. 2, the purposes described above for Exhibits CX-2 and CX-4 are served by Exhibits CX-6 and CX-8; the functions of CX-3 and CX-1, described above, are performed through Exhibits CX-7 and CX-5; the distributor in Plan No. 2 receives a circular similar to CX-45(a) (bearing his own name and address) to serve the purpose of the re-use of CX-4(a) described above. In Program No. 3, exhibits serving similar purposes to those served by exhibits in Program No. 1 are identified as follows:
Program No. 1 Program No. 3
CX-4 CX-12
CX-2 CX-10
CX-1 CX-9
CX-3 CX-11
CX-4 - - (for re-use by distributor) - - CX-12
Program No. 4 is one in which the distributor purchases from Respondent, at wholesale prices, an inventory of books which he is to re-sell through his own distributorship.
Inspector Kormann related his dealings in connection with the various distributorships as follows:
The first order I placed was under the name of Keener Enterprise, and I ordered the 500 quantity distributorship. The actual response to the advertisement was made in August of 1977. Several months later I received a copy of Exhibit number three, which is "Executive Mail Order Report Number One," the distributorship solicitation. I responded to that solicitation remitting enough money to cover the 500 quantity distributorship and received, again several months later, approximately 500 fliers imprinted with the name Keener Enterprise, 500 mailing envelopes, and 500 reply envelopes printed with the address Keener Enterprise. (Tr. 162)
At the time I submitted my distributorship orders for Keener Enterprise in the amount of 500 fliers, I remitted enough money to include a mailing list. The mailing list arrived sometime after the distributorship materials themselves, the fliers and envelopes, but I did receive it. [The following exhibit numbers are photostatic copies of mailing lists associated with the test name indicated: CX-48 - Keener; CX-49 - DiFucci; CX-50 - Lockhart; and CX-51 - W.L.T., Tr. 166] I made a point of following the instructions that were contained in the distributorship solicitation and I mailed out 500 envelopes containing the fliers and the return envelopes at Rochester, New York. (Tr. 162-163)
Within roughly 30 days, within several weeks at any rate, I received 122 of these returned by the Post Office as being undeliverable. I should point out that all of these were mailed with first class postage, and although the mailing envelopes were not furnished to me bearing my return address, I rubber stamped each one with my return address to facilitate delivery. 122 of the 500 were returned within several weeks as undeliverable by the Post Office. I received five orders for the product, which was the "Apartment Selector" book in this case. (Tr. 163)
Complainant's Exhibit 47 is a table that I compiled based on my actual test mailing of fliers in accordance with the distributorship instructions. This lists two test mailings made under promotion number one, which is the "Apartment Selector" distributorship; one test mailing made under promotion number two, which is "The Million Dollar Idea" distributorship; and one test mailing made under promotion number three, which is the "Winning In Mail Order" distributorship. It details the money that I invested, the size of the order, and the results of my mailing. (Tr. 164)
Complainant's Exhibit 47 shows that under The Apartment Selector enterprise, the Inspector "invested" $328.00 under the names "Keener" and "DiFucci" for 1000 mailing envelopes, flyers and business reply envelopes. Of the 999 mailings under these names 24% of the Keener mailings, and 2% of the DiFucci mailings could not be delivered as addressed; he received a total of 6 orders; and he lost the sum of $273.10. Under the name "Lockhart" the investment was $110.05 for 250 pieces of material, all of which were mailed; 12% could not be delivered as addressed; there were no orders received; and the entire $110.05 was lost. The experience with the mailings under the name "W.L.T." was substantially the same as in Lockhart except that only 4% of the mailings could not be delivered as addressed. The entire W.L.T. investment of $116.88 was lost. Counting only the above items the loss in the four test cases amounted to $500.03 out of a total investment of $554.93.
A publication entitled "Rental Information Service" was received in evidence as Complainant's Exhibit No. 52. With respect to this exhibit, Inspector Kormann testified:
This publication was received as a result of a test purchase made under the name of Amy DiFucci. My review of the exhibit indicates it is an updated version of the book entitled, "How to Begin and Operate the Apartment Selector," and is now the book which distributorship number one relates to. (Tr. 166)
Received in evidence as Complainant's Exhibit No. 53 was a folder containing as a first item a letter bearing the logo of National Mail Order Consultant's Corp., 750 North Salina Street, Syracuse, New York 13208. Concerning this exhibit Inspector Kormann accurately stated:
This is the solicitation for becoming an "Executive Sales Marketing Coordinator" which is, as I have explained, a combination of three individual distributorships, and if you invest as a coordinator you have the right to market all three of Mr. Paro's publications. This is an updated version of Complainant's Exhibit 13.
Another witness called by Complainant was Mr. Alfred Ortiz, 2/ Program Coordinator in the Continuing Education Department of the University of the District of Columbia. Mr. Ortiz graduated from the University of Texas with a B.A. degree in International Relations and Government and from Johns Hopkins University with an M.A. degree in the same field. (Tr. 35)
Mr. Ortiz saw one of Respondent's advertisements (CX-2) in a publication known as "Free Enterprise." As a result of reading this advertisement Mr. Ortiz remitted the required $10 to Respondent, in return for which he received the current edition of the pamphlet called "How to amass wealth on a grand scale" or "Executive Mail Order Report No. 1." After reading that pamphlet he was aware that Respondent offered at least three programs: The Apartment Selector; the "No Investment Plan"; and a program under which the purchaser would pay a one-time $5.00 fee to Respondent and receive "camera-ready art" which the purchaser would have printed in the quantity desired and he would then use them to mail out for the purpose of making sales of Respondent's merchandise. (CX-3)
Mr. Ortiz noted that most of the pamphlet was devoted to the first program, the sale of The Apartment Selector book, and that this booklet "gives you all the details and all the enticements and so forth as to how this will work." His reading of the pamphlet caused him to believe that if he selected the first program the promoter "guaranteed me 100 per cent success on it." (Tr. 41)
From a number of choices as to quantity and type of materials to be purchased, Mr. Ortiz decided to buy 1000, each, of mailing envelopes, reply envelopes imprinted with his return address, and advertising circulars. Mr. Ortiz used as his return address the following business style: Adelante, Inc., 9412 Gamba Ct., Vienna, Virginia 22180. These materials cost $135. Mr. Ortiz ordered, also, a mailing list for which he believes he paid $50.00. (Tr. 27)
After some delay, the materials were delivered. Complainant's Exhibits 17(a), (b) and (c) are examples of these materials and the circular (CX-17(b)) bears the caption "MONEY] beyond your wildest dreams ..." This circular talks glowingly of a money-making idea and solicits orders for the idea, with remittances to be sent to Mr. Ortiz's chosen name "Adelante, Inc." The remittance sought is $19.95, of which amount Adelante, Inc. was to send $10.00 to the Respondent, with the remainder to be kept by Adelante, Inc. (CX-3, p. 12)
Mr. Ortiz mailed these 1000 circulars at the first-class postage rate of 13 cents, for a total of $130.00 for postage. Of this number, 200 envelopes were returned as undeliverable for a number of reasons, including the fact that the addressees were not at the stated addresses and there were no forwarding addresses, or because the addresses were not legible. (Tr. 32) Mr. Ortiz received three complaints from persons to whom he had sent the solicitation, and there was one person who responded by remitting $19.95 as urged in the circular. (Tr. 30) Mr. Ortiz, being concerned, discussed the matter with his attorney and decided to return the remittance to the sender. (Tr. 32-33)
In sum, Mr. Ortiz's costs in this venture totaled, at least, $325.00, his total return amounted to $19.95 (which he sent back to the remitter), and his loss was $305.05.
The experience of another witness, Mr. Barry Gimble, 3003 Van Ness Street, N.W., Washington, D.C. was almost equally dismal. (Tr. 7-21) Mr. Gimble is self-employed at the Rock Art Shop. Mr. Gimble also responded to an advertisement of which Complainant's Exhibit 2 is an example. The advertisement bears the caption "How to amass wealth on a grand scale." After sending in his ten dollar initial fee, he received a pamphlet similar, or identical, to Complainant's Exhibit 3, one title of which is "Executive Mail Order Report No. 1." After reading this literature, he, also, decided to pursue the first program presented, namely, The Apartment Selector.
Mr. Gimble ordered 5000 circulars, envelopes and names, but he decided to test the water before making the plunge, so he mailed only 500 of the circulars, which, as in the case of Mr. Ortiz, were captioned "MONEY] beyond your wildest dreams ..." The cost of 5000 of the materials is shown in CX-3 to be $375.00. Postage of $7.50 and Mr. Gimble's original remittance of $10.00 indicate an initial total cost of $392.50. He received four or five orders at $19.95 each, of which amount he retained $9.95 of each order and forwarded $10.00 of each order to Respondent. These figures, plus whatever additional expenses he had, caused Mr. Gimble to estimate that he lost about $400.00 in this undertaking. (Tr. 15) Mr. Gimble was aware that there was information in the pamphlet telling where mailing lists could be purchased from sources other than Respondent, but he chose to buy his list from Respondent.
Mr. Roger H. Lourie, Manager of New Product Development, Mail Order Sales Department, Time-Life Books, was called by Complainant to testify. Mr. Lourie received the following academic degrees from the indicated institutions of higher learning: Bachelor of Science in Engineering - Rensselaer Polytechnic Institute; Master of Business Administration - Columbia University; and Master of International Affairs - Columbia University. Mr. Lourie has held a number of positions involving direct mail sales of merchandise. He belongs to the Direct Mail Marketing Association and the Direct Marketing Club of Washington. He was recently program chairman of Direct Marketing Day in New York - the largest one day marketing convention in the United States. Mr. Lourie has published several articles in the "Reporter of Direct Mail," the magazine of the direct marketing industry, and he has written a book for the Direct Mail Marketing Association entitled "The Handbook of Direct Marketing." Also for the last-mentioned Association, out of their five last annual meetings, he has spoken at four, and he has also chaired panel discussions at these meetings. (Tr. 57-63)
Based upon the foregoing background Mr. Lourie stated that in the direct-sales-by-mail industry a range of rate of response by addressees of sales literature of from .5 to 2.0 per cent is considered to be an "acceptable and a very good rate". (Tr. 71) It is the generally accepted range by those engaged in the sale by mail of business opportunities, self-improvement or money-generating programs. (Tr. 75)
Mr. Lourie examined a circular used by Respondent bearing the caption "HOW TO MAKE A MILLION DOLLARS" (CX-22(b)), another captioned "How I Lost $7,000 in 30 days" (CX-23(b)), and another captioned "MONEY] - beyond your wildest dreams ...". (CX-16(b)) He classified these circulars as having a strong appeal and if the people to whom these circulars are sent are not business opportunity seekers, and if the list of addressees is kept current, a response rate of 1 per cent could be anticipated. People who are known, recent business opportunity seekers would probably respond at a 2 per cent rate. (Tr. 77, 80) He did not think that either piece of advertising material would produce a response rate of higher than 2 per cent. Persons who are known purchasers of mail order merchandise or books would probably respond to these circulars at a rate of from .7 to 1.0 per cent. (Tr. 83)
If a mailing list contains four to five percent of names to which mail is undeliverable (nixies), it is regarded as acceptable by the mail order industry. A list with 10% nixies is a bad list, and a list containing 20% nixies is a "dirty" list, (Tr. 85) and is probably unacceptable in the industry. (Tr. 86)
Mr. Lourie said it is his opinion that despite the fact that these circulars have a strong sales appeal it is neither possible nor feasible to achieve a 10 per cent response rate by the use of Respondent's sales pieces which are exemplified by Complainant's Exhibits 16(b), 22(b) and 23(b). (Tr. 89)
Ms. Leslie A. Coon, a witness called by Complainant, is a pre-school teacher. Ms. Coon worked for Gary Paro, Respondent's President, during the summer of 1977 and during the 1977 Christmas holidays. There were times when mailing lists were not available to be sent to people who responded to Respondent's solicitations. When lists of names were available, one of Ms. Coon's duties was to make three xerox copies of the names. She would put one copy, each, in the places used to keep materials for "Winning In Mail Order," "Shepherd Publishing," and "T.A.S." or The Apartment Seeker. The last-mentioned program was the one in which responses were much greater, so there usually were numerous copies of mailing lists available for "Winning In Mail Order" and "Shepherd Publishing." (Tr. 173) Thus, a given list of names would be sent out for use in three separate programs, but T.A.S. exhausted its supply much faster than did the other two. The lists used by "Winning In Mail Order" and "Shepherd Publishing" could have been in their respective boxes a long time before being sent out. (Tr. 182)
Respondent's presentation was limited to the cross-examination of the Complainant's witnesses and the calling of one witness whose testimony will be discussed later. Respondent did point out that with the literature advertising the various plans calling for outlays of from $60.00 upwards to several hundreds of dollars, there was also notification that plans with lesser ($5.00), or no, direct investment with Respondent are available. (Tr. 190-192) This point sought to be made by Respondent is literally true, but in terms of space and strong sales psychology devoted to their presentation these plans appear far less attractive to the prospective distributor. For illustration, CX-3, the "Report," contains 26 printed pages. Of these pages, one is devoted to the $5 plan, two describe the "no investment" plan, and 23 pages are devoted to Program No. 1, the Apartment Selector.
Similarly, Respondent sought to establish that the distributor is supposed to engage in an "active classified ad participation" in the promotion of the plan which he has undertaken. (Tr. 193) This effort by Respondent was based on a paragraph in Respondent's literature, a portion of which reads --
"* * *
We stand 100% behind our claims. We guarantee a $1,990.00 profit within 30 days of your first order, based upon our test analysis of our 2,000 mailer program and active classified ad participation." (CX-7, 2nd complete printed page, par. 5)
Aside from the obscurity of meaning in the phrase "active classified ad participation" in the above context, Respondent's point is vastly weakened by the sentence following the foregoing quotation which reads --
"Only our complete confidence in the materials we have to offer could allow us to make such a bold guarantee. We believe in what we have to sell and believe in those we accept to be representatives for us."
Thus, Respondent's guarantee of success is based, not upon the distributor's assistance in the form of an obliquely suggested classified advertising campaign, but upon the sheer merit of the materials Respondent sells. The Respondent's active ad participation was part of the basis on which Respondent extended its guarantee. The average reader would not conclude that he, also, had to engage in such a campaign because the viability of the program previously had been established. Respondent's point is not well taken.
Respondent brought out, also, that Inspector Kormann did not complain to Respondent about the number of sales letters that were undeliverable because of various inadequacies in the mailing lists. The private citizen witnesses stated that they engaged in the programs in the belief that they would get usable, current materials. No one, including the investigating Inspector, undertook the relationship with Respondent anticipating that he would have to correspond with Respondent until such time as defective materials were replaced with current, bona fide merchandise or "clean" mailing lists.
There is one further matter under Count One of the Complaint to be disposed of, and it relates to an evidentiary question. In the course of his investigation, Inspector Kormann caused a "mail cover" to be placed on Respondent's mail for a period of 30 days. A mail cover is effected by observing the incoming mail to a certain address and noting the information on the outside of such mail before it is delivered to the addressee. From this exercise a list was prepared of 366 persons who corresponded with Respondent during the 30-day period. A questionnaire (CX-24) was sent to these, and other, people asking them to relate the histories of their participation in any of Respondent's programs. Additionally, during the course of the investigative phase of this matter, the Inspector received complaints, by mail, by telephone, and by reference from other postal sources, from some of Respondent's distributors. Questionnaires were sent, also, to these people. Of the 390 persons to whom the questionnaire was sent, 159 responded. (Tr. 194)
For various reasons, such as inadequate responses to the written questions, or insufficient information in direct complaints received by the Inspector, the total number of persons whose comments reasonably could be tabulated was 31. The data about these people and their comments were broken down by the various programs Respondent was promoting and incorporated in Exhibits CX-35 through CX-42. For example, one exhibit (CX-35) is labeled as showing the names and addresses of persons who subscribed to Promotion No. 1 (refer to CX-17). A companion exhibit (CX-39) tabulates the "Summary of Complainant Experiences" of the persons whose names appear on CX-35. This arrangement, although with different promotions and different people, is followed with Complainant's Exhibits 36 and 40; 37 and 41; 38 and 42. Thus the eight exhibits are composed of information about persons who complained directly to the Postal Service or to Inspector Kormann and furnished information in form suitable to be tabulated, as well as information about persons discovered by the mail cover who gave answers in the questionnaire that were sufficiently responsive that they could be used in the summaries of their experiences. (Tr. 153)
A problem arose in that it was not known how many persons' names appeared on the exhibits (1) as a result of the mail cover or (2) as a result of their calling or writing directly to the Inspector, or to the Postal Service. Inspector Kormann was of the belief that the great majority of the names on the exhibits were names of those people who responded to the survey, but Inspector Kormann, in all candor, stated that he could not "immediately give the exact number" of names from each source. (Tr. 149, 152)
When exhibits CX-35 through 42 were offered into evidence objection was made to them on the grounds that, (1) because of the unsolicited comments reflected in them, the exhibits contained inadmissible hearsay and (2) they included views of those persons known to be hostile to Respondent because of their complaints to the Inspector or to the Postal Service. It was felt that the results of the survey were unduly skewed in a manner unfavorable to Respondent. The ruling on the objection was withheld subject to the Complainant's right to re-offer them if the information concerning those who responded to the questionnaires could be tied in with a specific person whose name became known by reason of the mail cover. (Tr. 155, 157) In this way, that information could be segregated from the "call-in," "write-in" data, and considered.
Complainant did not pursue the matter further at the hearing. In the post-hearing Brief, however, Complainant states:
"***In the afternoon following the first day's hearing, counsel for Complainant furnished to counsel for Respondent all the completed questionnaires and other raw data used to construct CX-39 3/ through -42, so that Respondent would be able to use them in cross examination of Inspector Kormann. Despite having all the raw data, no part of Respondent's cross examination went to the content of either the questionnaire or the summaries. We respectfully renew our request that CX-39 through 42 be admitted and made a part of the record in this case." (Comp. Brief, p. 3)
Respondent, of course, had neither the desire, nor the burden, to make the required connection between the proffered exhibits and the mail cover. The exhibits set forth information inimical to Respondent's position and interests in this proceeding and, if received, would have been damaging. Respondent's lack of enthusiasm for establishing the required nexus is thoroughly understandable. Since Complainant failed to lay a proper foundation for these exhibits, the request that the rejected exhibits be now admitted to the record is denied. 4/
The only witness called to testify on behalf of Respondent was Professor William Wasserman, Chairman of the Quantitative Methods Department in the School of Management, and Professor of Business Economics and Statistics, Syracuse University. Professor Wasserman's educational background includes a Bachelor's Degree from Rutgers University in Economics, a Master's Degree from Rutgers University in Economics and Statistics, and a Ph.D. from Syracuse University in Economics and Statistics. Professor Wasserman's additional impressive qualifications are set forth in detail at pages 199-202 of the transcript.
Professor Wasserman said, with respect to Mr. Lourie's testimony concerning response rates of .5 to 2.0 percent to direct mail sales efforts, that he "would feel very uneasy about
any attempt to extrapolate the information he (Mr. Lourie) had to the highly specialized segment of the direct mail industry under discussion here." That Professor Wasserman would "feel very uneasy" with Mr. Lourie's testimony is not necessarily significant when one realizes that Mr. Lourie makes his living in mail order business; he gave his views unequivocally; and he stated without serious contradiction that his views on the subject of the response rate are consonant with the views of trade associations and other industry representatives. Mr. Lourie stated, further, that there are general principles applicable to the mail-order sales of Time-Life Books which are applicable to the mail-order sales of "tables or business opportunity programs or anything." (Tr. 62) On the matter of response rates, I unhesitatingly accept Mr. Lourie's testimony.
Otherwise, Professor Wasserman's testimony dealt exclusively with Complainant's Exhibits 35 through 42. Needless to say, he was not called upon to establish the required connection between these exhibits and the "mail cover" names on which, in some unknown part, the exhibits are based. Nor did he otherwise lend his considerable powers of persuasion to the proponents of the admissibility of those exhibits. Since Professor Wasserman's testimony related largely to those exhibits, and since they remain outside the record, there is no need to discuss Professor Wasserman's testimony in greater detail.
In the light of the record in this case, it is now possible to decide whether the representations set forth in paragraph (3) of the Complaint are made, and, if so, whether they are false. All of the representations in paragraph (3) are of the kind that would cause persons who are in the market for such employment to be attracted to the ideas presented, and, as shown by this record, numbers of them would invest. These are material representations.
Charge (3)(a) is the one in which the Respondent talks of his "certified distributorship" programs and "proven sales plans" in which the reader is assured that he will realize profits ranging from $1,000 to $3,000 within thirty days for only a few hours work.
This representation is obviously false in its major features. The programs may be "certified" but the certification, if it exists, is issued by Respondent. If the "proven sales plans" are anything, they are proven money losers for many, if not most, people except the Respondent. Instead of earning profits of $1,000 to $3,000, the witness Ortiz lost approximately $300.00; Mr. Gimble lost nearly $400.00; and Inspector Kormann, engaging in four separate programs, lost amounts ranging from $110.05 to $156.73. This claim of Respondent's for its programs is addressed to all persons into whose hands this material may come. Each and every reader of Respondent's advertisements -- not just some, not just a percentage, but all readers are assured of these profits if they will only follow the steps prescribed by Respondent. This record establishes conclusively that this representation is false.
The representation in (3)(b) of the Complaint is the one in which Respondent assures the reader that his "proven money making distributorships" involve "absolutely no major risks." The "proven money making" aspect of Respondent's distributorships has been discussed above in connection with the charge in paragraph (3)(a). What was said above in connection with the results received by every witness who related his experience with the different programs disposes, also, of the question of the risks involved. The losses realized by Messrs. Ortiz and Gimble and by Inspector Kormann indicate that when they are measured in proportion to the sums invested, the risks clearly are "major" ... indeed, enormous. This representation is false.
Paragraph (3)(c) of the Complaint is the charge that Respondent represents the promotional materials in this case as being the methods used by Gary R. Paro in "making a fortune" even when he was "away on a 3 month vacation or at home in bed with a cold." When considered in the light of the evidence received at this hearing, this statement may be the most nearly true of all of the hundreds of statements made by this Respondent in its sales literature.
During a 30-day period of a mail cover, Respondent received 366 pieces of incoming mail. It is not known how many of these letters contained orders accompanied by checks or how many contained complaints, but there is obviously enough revenue coming in to cause Respondent to want to continue in this business. In any event, Complainant failed to bear its burden of proving that this representation is false. Although there is no proof of the literal falsity of this charge, the statements by the promoter concerning the ease with which his materials enable him to make money unquestionably have an impact upon the reader, causing him to become more willing than ever to participate in Respondent's distributorship programs.
Paragraph (3)(d) of the Complaint contains the representation that the "guaranteed" lucrative results of following the steps in Respondent's materials are based on actual "test analysis ... and active ad participation."
This record causes one to believe that 91) there was no test analysis of Respondent's materials assisted by an active classified ad participation, or (2) if such activities actually occurred, the results obtained thereby lead to conclusions contrary to those expressed by Respondent in its advertising material. Complainant offered no proof as to whether Respondent did or did not perform, or arrange to obtain, a test analysis, and an active classified campaign. The testimony of Mr. Lourie, however, was that, with conditions being ideal, no greater than a 2.0 per cent rate of response could be anticipated with respect to any of Respondent's advertising materials. Respondent's promised rate of response far exceeded 2.0 per cent and the figure 10% frequently was used by Respondent. A 10% rate of response to Respondent's solicitations was described by Mr. Lourie as being neither "feasible" nor "possible." Representation (3)(d) is false.
The charge in paragraph (3)(e) of the Complaint relates to Respondent's statement that it would supply its distributors with the names and addresses of "fresh, guaranteed mail order buyers" already typed on gummed labels.
The lack of validity of the mailing lists is established by the following statement of the experience of the amounts of undeliverable mail returned to the various named distributors concerning whom such information is available:
Mailer No. Mailed No. Undeliverable
Ortiz 1000 200 (20%)
Keener 500 120 (24%)
DiFucci 499 11 (2%)
Lockhart 250 30 (12%)
WLT 254 12 (4%)
With respect to the "guaranteed mail order buyers" to whom solicitations were sent by the various distributors, orders were received as follows:
Mailer No. Mailed No. Orders Received
Ortiz 1000 1 (.001%)
Gimble 500 5 (1%)
Keener 500 5 (1%)
DiFucci 499 1 (.2%)
Lockhart 250 0
WLT 254 0
The representation in paragraph (3)(e) is false.
What has just been said with respect to paragraph (3)(e) of the Complaint is equally true with respect to paragraph (3)(f), containing Respondent's assurance to distributors that they will be furnished "proven" direct mail circulars "absolutely guaranteeing [a] $1990 profit within 30 days."
In this instance, Respondent is guaranteeing the efficacy of its materials in producing sales at a stated level. The rate of receipt of orders established the falsity of this representation. (See tabulations of results under charge (3)(e)).
Representation (3)(g) of the Complaint relates to the Respondent's assurance to its distributors that the use of its materials will produce a response rate of 10 per cent.
Under the discussion of Issue No. 3, above, it was shown that at numerous places in its advertising materials, Respondent's readers are led to believe that they may anticipate orders from 10 per cent of the persons whose names will be furnished to the readers when they become distributors. For example, a return of 10% is described as "a fairly modest estimate" of what can be realized (CX-7, p. 9); in the same exhibit an order rate of 10% is described as "conservative"; and readers of other material are told, also, that they should receive 200 orders from a mailing of 2000 brochures, and this is followed by the statement "This response represents only a 10% draw." (CX-3, p. 11) The suggestion is, of course, that higher responses may reasonably be anticipated.
These representations are contrary to the credible testimony of the witness Lourie, who testified upon the basis of his training, his experience in his employment, his information based upon data available to him through the Direct Mail Marketing Association, and his knowledge based upon his association with people who are active in and familiar with the direct-sale-by- mail industry. Mr. Lourie testified that response rates ranging from .5 to 2.0 per cent are considered to be "acceptable and a very good rate". (Tr. 71) The best rate Mr. Lourie would anticipate from the best of Respondent's materials is 2%. This rate would be achieved only if the mailing list to which the selected material is sent is composed of a select list of prospects and if the list is kept current.
The testimony of Mr. Lourie is convincing evidence that Respondent's holding out the hope and the assurance of a 10% rate of response to his advertising materials is false. Representation (3)(g) is false.
The charge in paragraph (3)(h) of the Complaint is that persons who elect to act as salesmen for a number of Respondent's books are assured of substantially higher profits than those to be realized by ordinary distributors.
The financial results of handling just one of Respondent's books are made clear in the discussion of charge (3)(e). Based upon the evidence in this record, these results can only be made more disastrous if one undertakes to promote more of Respondent's programs. The representation in paragraph (3)(h) of the Complaint that increased profit would result from acting as distributor for a group of Respondent's books, rather than just one of them, is false.
CONCLUSION OF LAW - COUNT ONE
It having been found as a fact that:
1. Respondent is engaged in business and solicits remittances of money through the mails;
2. Respondent advertises its business in publications of general circulation, by direct mail circulation, and in publications sold by Respondent;
3. Respondent makes the representations set forth in paragraph (3) of the Complaint; and
4. The representations set forth in paragraphs (3)(a), (3)(b), (3)(d), (3)(e), (3)(f), (3)(g) and (3)(h) are material representations and they are false, it is concluded as a matter of law that Respondent is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations within the meaning of section 3005 of Title 39, United States Code. Unique Ideas, Inc. v. United States Postal Service , 416 F. Supp. 1142 (1976).
COUNT TWO
Count Two of the Complaint is as follows:
5. The allegations of the introductory paragraph, supra , are realleged and incorporated herein by reference;
6. Attention is attracted to this scheme by means of direct mail circulars and advertisements appearing in Respondent's publication, DOLLAR POWER, all of which are calculated to induce the readers thereof to remit money through the mail;
7. Attached hereto and made a part hereof as Exhibits
"14" and "15" are copies of recent advertising materials used by Respondent which are typical of those referred to in paragraph (6), supra ; 5/
8. By and through the use of such advertisements and promotional materials Respondent offers to sell and, in fact, does sell participating interests in the profits generated through advertising contained in the publication, DOLLAR POWER;
9. By means of the scheme described herein, Respondent knowingly seeks money through the mails to finance the distribution of false advertisements of the type described in COUNT ONE, supra .
In Complainant's Exhibit 14 at pages 36 and 37 and in Complainant's Exhibit 15, Respondent advertises, among others of its programs, an item it calls a "Co-Op Advertisement." This program is described, defined and illustrated by Respondent as follows:
* * * *
It is not necessary for you to have your own display advertisements or classified ads to actively participate as an advertiser in DOLLAR POWER] As most readers of this ad are already aware, the National Mail Order Consultant's Corporation and its many subdivisions, T.A.S. Investments, Paro Publications, Shepherd Publishing Company, and many more, publish many fine financially-oriented publications. Most of these publications are available to book wholesalers and distributors on a drop shipment-type arrangement. Currently we have 12 full page co-op advertisements and over 200 classified ads on the co-op type.
What is a Co-Op Advertisement ?
A co-op advertisement (classified or full page) is exactly the same advertisement that we have used so successfully in the past to solicit orders for various publications. The big difference is that we substitute your name or company name on the coupon instead of ours or in some instances we simply assign you an advertiser's service number which appears in the coupon and instantly designates the orders received as yours]
* * * *
EXAMPLE: Assume you purchased a full page co-op ad with our total readership of 900,000 - the cost to you is $6,000.00.
We select for you our MONEY] ad which sells a book that retails at $19.95 each. For every $19.95 sale your ad generated we would deduct $10.00 for cost and shipping. The remaining $9.95 would be credited to your account for payment every thirty days directly to you. Suppose within 90 days your $6,000.00 co-op ad generated sales in the area of $18,000.00 - this would leave you a big $9,000.00 - your share of the cash - for this single insertion advertisement purchase] You can easily see that one full page co-op advertisement purchased each month could net you a very sizeable profit within the space of just one year.
The above example is outlined only to make prospective DOLLAR POWER] advertisers aware of the huge money-making potential that exists for co-op advertisers within the pages of our new media]
We cannot, and do not, guarantee this rate of sales in response to your advertisement. We can and do make available upon request, written testimonials from past DOLLAR POWER] advertisers...which speak for themselves]
We do Guarantee you a profit on your advertisement purchase or your money back
* * * (CX-14, p. 36)
It is noted that Respondent suggests, as a possibility to anyone interested in the Co-Op Advertisement plan, that Respondent may select its "MONEY] ad." This is the circular (CX-16(b)) which bears the caption "MONEY] beyond your wildest dreams...", and persons who respond to this advertisement are importuned to invest in The Apartment Selector program.
In consideration of COUNT ONE the evidence of record established that the program which was Respondent's biggest seller is "The Apartment Selector," sometimes referred to as TAS. The low rates of responses to solicitations in respect to this program, the high number of names on the mailing lists to which mail containing solicitations was undeliverable, and the large loss percentages incurred by those investing in the TAS program are matters which Respondent either knows, or has the duty to know. If Respondent lacks knowledge that the results of engaging in his programs are such losing undertakings as are disclosed by this record, then Respondent displays such a reckless disregard for what the truth may be that such knowledge on his part may be inferred. Parker v. Summerfield , 265 F.2d 359 (1959); Darnall v. Darnall , 200 F.2d 747 (1952); United States v. Sylvanus , 192 F.2d 96, 105 (1950), cert den. 342 U.S. 943; Schwinn v. United States , 112 F.2d 74 (1940), aff'd. 311 U.S. 616; Lehigh Zinc & I. Co. v. Bamford , 150 U.S. 665 (1893); Cooper v. Schlesinger , 111 U.S. 148 (1883) 30 Am. Jur. 2d Fraud and Deceit 203; United States v. Cooperative Grain & Supply Co. , 476 F.2d 47 (1973); Jones v. Fenton Ford, Inc. , 427 F. Supp. 1328 (1977).
It is found and concluded that by advertising The Apartment Selector program, and his other similar programs, in his own publication, "Dollar Power," Respondent is knowingly engaged in a scheme which contemplates the making of misrepresentations by the recipients of his materials, by means of which misrepresentations third parties are deceived. United States v. International Term Papers , 477 F.2d 1277 (1973). This scheme of operation is the very essence of Respondent's business.
Proposed findings of fact and conclusions of law submitted by the parties have been carefully considered. To the extent indicated herein, those proposed findings of fact and conclusions of law are adopted. Otherwise such proposed findings of fact and conclusions of law are rejected for the reasons stated or because they are contrary to the evidence or because of their immateriality.
An order as provided in 39 U. S. Code 3005, substantially in the form attached, should be issued against the names shown in the style hereof.
1/ These names appear at other places, but the citation of each name once is sufficient.
2/ Mr. Ortiz's dealings with Respondent are related in Tr. 21-57.
3/ Complainant appears to be under the impression that the ruling applied only to CX-39 -42, but the transcript makes it clear that the ruling applied to CX-35 -42.
4/ The rejected exhibits may accompany the record in the event of appeal.
5/ CX-15 and 16 to the Complaint do not accompany this decision.