In the Matter of the Complaint Against

KENNETH D. SINKS, JR.
d/b/a ROCKY MOUNTAIN TRADERS

and

ROCKY MOUNTAIN TRADERS
FUTURE MILLIONAIRES SOCIETY
125 East 32nd Street, Suite 810
Durango, CO 81301-4232

P.S. Docket No. 22/124

Bernstein, Edwin S.

APPEARANCES FOR COMPLAINANT:
H. R ichard Hefner, Esq.
Ben A. Kilgrow, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1100

APPEARANCE FOR RESPONDENT:
Kenneth D. Sinks, Jr., Pro Se
1606 Kenwood Circle
Farmington, NM 87401-7349

BEFORE: Judge Edwin S. Bernstein

SUPPLEMENTAL INITIAL DECISION

By Initial Decision dated January 31, 1986, I found that Respondent solicits remittances of money through the mail at 125 East 32nd Street, Suite 810, Durango, CO 81301 in connection with his sale of memberships in the Rocky Mountain Traders Future Millionaires Society and that Respondent's sales plan constitutes a lottery in violation of 39 U.S. Code § 3005.

By Order dated March 11, 1986, the Judicial Officer stated that neither party filed an appeal from the Initial Decision within the time allowed. The Judicial Officer, therefore, issued a Cease and Desist Order against Respondent with respect to the lottery deter mination. However, the Judicial Officer remanded this matter to me for the issuance of findings and conclusions with respect to the false representation issues and, if appropriate, a recommended order on the false representation issues.

Upon consideration of the entire record and the parties' pro posed findings of fact and proposed conclusions of law, I make the following additional findings, conclusions, and recommendation:

FINDINGS OF FACT

Paragraph 4 of the Complaint alleged that Respondent's adver tising solicitation (CX-1) makes the following representations:

a. Members who participate in Respondent's plan are likely to become "Society Directors" and receive substantial profits or earnings, for example, up to $98,415.00 in 12 weeks;

b. Each successive downline member who participates in Respondent's plan is likely to become a "Society Director" and receive substantial profits or earnings, for example, up to $98,415.00 in 12 weeks; and

c. Members who participate in Respondent's plan are likely to be able to sponsor three new members.

Paragraph 5 alleges that these representations are false. In his Answer, Respondent denied that he makes the above representa tions and also denied the allegation in Paragraph 5 of the Com plaint. I find that Respondent makes all of these representations in his advertising brochure for the following reasons.

a. Members who participate in Respondent's plan are likely to become "Society Directors" and receive substantial profits or earnings, for example, up to $98,415.00 in 12 weeks.

The heading of CX-1 reads:

START RECEIVING UP TO $98,415 IN AS LITTLE AS 12 WEEKS]

-GUARANTEED-

The brochure continues:

We are not promising you a million dollars, but...as a member of our society you can start receiving up to

$98,415 in as little as 12 weeks] All that you have to do is assist us in our membership drive by introducing 3 of your friends or relatives to our unique society.

The language "as a member of our society you can start receiving up to

$98,415 in as little as 12 weeks", especially in conjunction with the word "GUARANTEED" in the heading, conveys the impression that such earnings or other substantial earnings can reasonably be expected. See, Weider Distributors, Inc., P.S. Docket No. 3/27 (P.S.D. Nov. 4, 1974); Iso-Tensor Plan, P.S. Docket No. 3/30 (P.S.D. May 23, 1975); The New Body Boutique, Inc., P.S. Docket No. 10/169 (P.S.D. July 7, 1982); W.G. Charles Company, et. al, P.S. Docket No. 19/104 (P.S.D. Sept. 10, 1985).

b. Each successive downline member who participates in Respondent's plan is likely to become a "Society Director" and receive substantial profits or earnings, for example, up to $98,415.00 in 12 weeks.

The brochure explains that a new member begins in a number nine position. As he sponsors new members and as members sponsored by his members and on down the chain sponsor new members, he moves successively to lower numbered positions until, after his name appears on 19,683 membership forms, he has received $5. per form or $98,415 and then becomes a Society Director. The brochure repre sents that each successive member, in turn, can reach the Society Director level and earn $98,415.

c. Members who participate in Respondent's plan are likely to be able to sponsor three new members.

The brochure states that success is quite easy to achieve. It states:

"This is a multi-level marketing plan that is so quick and powerful that we can almost guarantee our member's success."

I further find that the representations alleged in Paragraph 4 are false.

Mr. John Brady testified for Complainant as an expert witness in the field of multi-level marketing. Mr. Brady is the Supervisor of Major Case Studies at the Georgia Police Academy. Prior to that, he was employed by the Postal Inspection Service and the Postal Service for 32 years (Tr. 48, 49). As a Postal Inspector, Mr. Brady held several increasingly responsible positions including positions with investigatory, supervisory and policy-making authority with regard to the Inspection Service's mail fraud programs which included multi-level marketing promotions. The positions held by Mr. Brady included Assistant Inspector-in-Charge for fraud, Manager of the Fraud Branch at Postal Service national headquarters and Assistant Regional Chief Inspector for investigations that included fraud(Tr. 50). Mr. Brady has also been an instructor and lecturer on mail fraud and multi-level marketing at the undergraduate and graduate levels at state universities as well as at law enforcement agencies and academies around the country (Tr. 55).

I found Mr. Brady to be a knowledgeable and reliable witness. Mr. Brady reviewed Respondent's Handbook (CX-2) and described Respondent's plan as a typical endless chain-type promotion (Tr. 66). He analyzed Respondent's plan in a three page memorandum (CX-4). As Mr. Brady indicated, each member must pay $15. - $5. to his sponsor to become a member, $5. to his Society Director when he orders a handbook and $5. to the Rocky Mountain Traders for annual dues.

As Mr. Brady's analysis and particularly the chart at page 3 demonstrates, as one plan progresses to the 16th to 18th levels, the number of participants required for such a plan exceeds the popula tion of the United States. Mr. Brady explained at page 2:

The subject chart shows what happens when only one new member is enrolled into this program. I realize that a limit of nine levels (i.e. 19,683 members/participants) has been placed on each new member. How- ever, as the chart shows, those 19,683 members must seek other prospects to recoup their investment and receive the $98,415.It is their seeking those new members that quickly exhausts the population of the United States and therefore, makes it impossible for each to recoup his original investment-much less receive the $98,415 prize.

Mr. Brady testified:

In order for the individuals who are solicited, who are encouraged, enticed to get into the promotion to buy into the promo- tion, to receive their $15. investment and then, perhaps, share in the $98,415 prize, the promotion cannot stop. If it does, then, it's blatantly fraudulent in nature. It must go on. That is the sheer nature of this type of promotion which makes it so fraudulent in nature. That's the very core of this type of promotion (Tr. 70).

Mr. Brady stated that, based upon his experience with hundreds of similar promotions, it is extremely unlikely that participants will accrue substantial profits and usually only the initial pro moters receive any benefit from this type of promotion (Tr. 72, 73).

For the same reasons, Mr. Brady felt that it is extremely unlikely that participants will be able to sponsor new members since members receive little for their $15. at the time that they enroll (Tr. 74, 75). Thus, while some members may be able to sponsor three new members, most projected members will not be able to accomplish this.

Respondent presented no evidence to contradict Mr. Brady's expert opinion. Based upon Mr. Brady's analysis and conclusions, which I find plausible, I conclude that Respondent's representations as set forth in Paragraph 4 of the Complaint are false.

Complainant also alleged in Count II of its Complaint:

7. The materials described in paragraph 3 CX-1 encourage the recipients to become "sponsors" and cause further distribution of materials which are the same or substantially similar to Exhibit 1 CX-1 .

8. The materials distributed as a result of participation in Respondent's plan contain the same false representations as those enumerated in paragraph 4 of this Complaint.

9. By means of this scheme Respondents knowingly seek remittances of money through the mail as a result of the further distribution of the materials made by Respondent's "sponsors" at its express direction.

The evidence demonstrates that these allegations are true. The entire thrust of Respondent's plan is to encourage recipients to become sponsors and distribute Respondent's materials to other potential participants. The materials distributed by participants make the same representations set forth in Paragraph 4 of the Complaint and by means of this scheme, Respondent knowingly seeks remittances through the mail as a result of the further distribution of materials made by Respondent's sponsors at Respondent's express direction.

Respondent's post-hearing submission attached a motion to strike. That motion is denied for the reasons previously stated during the hearing.

CONCLUSIONS OF LAW

1. An advertisement must be(, as a whole and its meaning will be determined in the light of its probable effect on persons of ordinary minds. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), Rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958).

2. The impression of promotional representations on the ordinary mind generally is a question for the judge to determine. Expert testimony on interpretation is not required, but it is within the discretion of the judge to permit such testimony. Vibra Brush Corp. v. Schaffer. The impression of advertising on the ordinary mind may be determined by the trier of fact solely on the basis of the advertising itself. Vibra Brush Corp. v. Schaffer; Delta Enterprises, P.S. 14/72 (P.S.D. July 3, 1984).

3. Express misrepresentations are not required. It is the net impression that the advertisement as a whole is likely to make upon individuals to whom it is directed that is important. Even if a solicitation is so worded as to not make an express representation, but is artfully designed to mislead those responding to it, the false representation statute is applicable. G. J. Howard Co. v. Cassidy, 162 F. Supp. 568 (E.D.N.Y. 1958). See also, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976), quoting United States v. 95 Barrels of Vinegar, 265 U.S. 438, 443 (1924): "It is not difficult to choose statements, designs and devices which will not deceive." In Vibra Brush Corp. v. Schaffer, supra, the court stated:

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. p. 465.

Similarly, in American Image Corp. v. United States Postal Service, 370 F. Supp. 964 (S.D.N.Y. 1974) the Court held: "The cases are clear that such advertisements are to be viewed not with a lawyer's eye to 'fine spun distinctions' but with an eye to their overall effect on the average reader."

4. Where an advertisement is ambiguous or capable of more than one meaning, if one of those meanings is false, the advertisement will be held to be misleading. Rhodes Pharmacal Co., Inc. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953); Ralph J. Galliano, P.S. Docket No. 19/15 (P.S.D. May 2, 1985); Bruce Roberts Co., P.O.D. Docket No. 3/78 (I.D., August 16, 1971); Moneymakers et al., P.S. Docket No. 16/1 (I.D., June 20, 1983).

5. Although an astute person might not be deceived by an adver tisement, this does not detract from the solicitation's tendency to "deceive the ignorant, gullible and less experienced." Gottlieb v. Schaffer, 141 F. Supp 7, 16 (S.D.N.Y. 1956). The false representation statute was intended to protect such persons as well. Donaldson v. Read Magazine, Inc., supra.

6. Applying the foregoing standards, the average person who reads Respondent's advertisements would interpret them substantially as characterized in Paragraph 4 of the Complaint.

7. Respondent's solicitations make the representations alleged in Counts I and II of the Complaint and these representations are materially false.

8. As expressed in Chaachou v. American Central Insurance Co., 241 F.2d 889, 893 (5th Cir. 1957), a representation is material if it would ". . . cause the other party to do other than that which would have been done had the truth been told." Applying the Chaachou test, the representations are material because they have the effect of inducing individuals to remit money through the mail to participate in Respondent's plan.

9. A promise to refund if a customer is dissatisfied will not dispel the effect of false advertisements. Farley v. Heininger, 105 F.2d 79, 84 (D.C. Cir. 1939); Borg-Johnson Electronics, Inc., v. Christenberry, 169 F. Supp. 746, 751 (S.D.N.Y. 1959).

10. Therefore, Respondent is engaged in the conduct of a scheme to obtain money through the mail by false representations in violation of 39 U.S. Code § 3005. Accordingly, a False Representation Order and a Cease and Desist Order in the forms attached should be issued against Respondent.