In the Matter of the Complaint Against

SUCCESS INSTITUTE,
P. O. Box 1931 at
Atlanta, GA 30301,

CREATIVE GRAPHICS,
5501 Kingsport Dr., N.W. at
Atlanta, GA 30342,

UNIVERSAL LIFE INSTITUTE,
2285 Peachtree-Suite 200 at
Atlanta, GA 30309,

LARRY PHILLIPS,
2043 Kenwood Place at
Smyrna, GA 30080

and

UNIVERSAL OFFSET PRINTING,
2285 Peachtree Rd., N.W. - Suite 200
at Atlanta, GA 30309

P.S. Docket No. 6/72

May 23, 1978

Quentin E. Grant Administrative Law Judge

APPEARANCE FOR COMPLAINANT:
H. Richard Hefner, Esq.
Law Department U. S. Postal Service
Washington, D.C. 20260

APPEARANCE FOR RESPONDENT:
Stephen J. Sasine, Esq.
2101 National Bank of Georgia Bldg.
Atlanta, GA 30303

INITIAL DECISION

In a complaint filed on February 22, 1978, complainant alleged that respondent is engaged in conducting a scheme or device for obtaining money through the mails by means of false representations and is engaged in conducting a lottery in violation of 39 U.S.C., 3005. Specifically, complainant alleges that respondent invites public attention to such scheme by means of promotional material which invites the recipient to participate in a "Cooperative Advertising Program" upon payment of money to respondent by mail; that in such promotional material respondent expressly or impliedly represents, in substance and effect, (a) that persons who participate in the program are assured a substantial monetary return in a short time for a very small investment (Cplt. Par. III(a)), (b) that the names and addresses listed in such promotional material under the heading "CO-OP ADVERTISERS AD SECTION" are unrelated entities and bona fide participants in the program (Cplt. Par. III(b)), and (c) that the program conducted by respondent is legal (Cplt. Par. III(c)).

For respondent's convenience and on its motion, the location of the hearing was changed from Washington, D.C. to Atlanta, GA and the hearing was continued from March 27 to April 12, 1978. At the hearing on that date both parties presented evidence. They have filed proposed findings of fact and conclusions of law. The matter stands ready for decision.

FINDINGS OF FACT

1. Respondent Larry Phillips is engaged in conducting a scheme or device for obtaining money through the mails under the names contained in the caption of this proceeding (CX-1 through 4; Stip. Tr. 4).

2. In conducting such scheme respondent uses the promotional material attached to the complaint as Exhibits "A," "A-1," "B" and "B-1."

3. Respondent's scheme is described in a piece of its promotional literature entitled "The Letter" (CX-2). Among other things, "The Letter" contains a list of four names, numbered 1 through 4. These appear under the heading "CO-OP ADVERTISERS AD SECTION." Each of the four names purports to be that of an individual or firm from each of whom a "unique and valuable one-page report of useful money-making information" and the right to reproduce and sell such report may be obtained for the sum of $2.00. Under the heading "HERE'S HOW THE ENTIRE DEAL WORKS," "The Letter" outlines four steps for participants to follow which, summarized, are as follows:

a. Order the four reports from the four names listed as advertisers by sending each of them $2.00.

b. Type on a piece of paper your name and address and the names and addresses of the first three "advertisers." Cut out the four names and addresses and paste your name and address in the No. 1 position, and the other three names in the Nos. 2 through 4 positions, down one position from the one they occupy on "The Letter" as mailed by respondent. This instruction notes that the name originally in the No. 4 position is eliminated in this process but advises participants not to worry because that name was once in the No. 1 position and "has probably received several hundreds of thousands of dollars by now."

c. Have "The Letter" with the names inserted per the foregoing instruction printed in 500 (or more) copies, making no other alterations because they might "harm its pulling power."

d. Mail out the 500 (or more) copies of "The Letter" to friends, relatives, smart business people, or to names on lists obtained from mailing list brokers.

Following these instructions, participants are advised that the result of their mailings may be receipt of as much as $813,800 for an initial investment of $165 depending on the percentage of recipients of the 500 letters who elect to participate and the percentage of recipients of their letters who also elect to participate. Potential income is given for each stage of the scheme as the original participants' names move through the 4 positions on "The Letter."

4. A fair reading of respondent's promotional material discloses that it makes representations substantially as alleged in the complaint. I find the representation alleged in paragraph III(a) of the complaint in those parts of CX-1 which read:

"After 17 days we have received $337 (better than a 200% return on our original investment). After 37 days we have been flooded with an incredible $17,000. And it didn't stop there] We are still receiving the long green from the original letter, in greater and greater quantities."

* * *

"At the time of this writing, subscriber John Lewis is reported to be now sitting on $737,888 - all gained in less than five months on a single letter which is enclosed with this issue of the Millionaire's Newsletter.

"Well, our own five-week $17,000+ and John Lewis' three-quarters-of-a-million dollars in just five months sure don't say "maybe" -- do they?"

This representation is also found in that part of CX-2 which reads:

"You can actually EARN UP TO $813,800 IN THE NEXT 50 DAYS *** for a very low investment."

5. The representation alleged in paragraph III(b) of the complaint is implicit in the description of the "Co-op Advertising Program" contained in CX-2 and was in effect acknowledged by respondent Phillips in his testimony that he used names other than his own in three of the four "Co-op Advertiser" positions because it conveyed a good impression and appearance and enhanced the profitability of the scheme from his standpoint (Tr. 47, 48).

6. The representation that the scheme is legal is expressly made in CX-1 and CX-2.

7. I find that all of the representations alleged in paragraph III of the complaint and found above are materially false in fact. Realization of a substantial monetary return from participation in the program is entirely a matter of chance, depending on the number of recipients of the "The Letter" and accompanying literature mailed by a so-called "Co-op Advertiser" who choose to participate in and continue the scheme. Respondent Larry Phillips' own experience based on mailing of about 7000 pieces containing one of his names in all four positions producing a return of approximately $160 in the form of "report orders" over a six-month period (Tr. 41) speaks for itself. Such a slight return for a considerable effort and investment and with four times the potential of the average participant for financial gain (due to one of his names appearing in all four positions) and employing Phillips' special knowledge of the psychology of obtaining responses to mail order promotions (Tr. 37, 39, 40) makes it apparent that a substantial monetary return will probably not be realized by the average participant.

8. Obviously, the names and addresses listed in the "CO-OP ADVERTISERS AD SECTION" of respondent's promotional material (CX-2) are not unrelated entities and bona fide participants in the scheme. All names listed are those of respondent (Tr. 4; Resp. Proposed F. of F. No. 12).

9. A lottery is defined as a scheme or device for the distribution of prizes by lot or chance or an event or affair whose outcome is or seems to be determined by chance (Webster's Third New International Dictionary; see also 18 U.S.C., 1301, 1302). The scheme employed by respondent offers a prize -- the receipt of "orders" accompanied by $2.00 payments -- dependent in whole or in part on the chance that recipients of respondent's literature will place such "orders." The element of consideration is found in the purchases of "reports" required for participation in the scheme.

CONCLUSIONS OF LAW

1. Respondent is engaged in conducting a scheme or device for obtaining money through the mails by means of representations materially false in fact in violation of 39 U.S.C., 3005.

2. Such scheme is also a scheme for the distribution of money by chance thus falling within the definition of lottery as found above. See Zebelman v. U.S. , 339 F.2d 484 (10th Cir. 1964). As such the scheme also violates 39 U.S.C., 3005.

3. In essence the scheme is nothing more or less than the well-known chain letter. The fact that participants are to receive for each $2.00 invested a one-page "money making" report is obviously only an unsuccessful attempt to camouflage the principal characteristic of the scheme as a chain letter, or lottery.

4. An order pursuant to 39 U.S.C., 3005 in the form attached should be issued against respondent.