Comment Before the United States Sentencing Commission Concerning Proposed Amendments to the U.S. Sentencing Guidelines

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Office of the Secretary
COMMENT OF THE FEDERAL TRADE COMMISSION
REGARDING PROPOSED AMENDMENTS TO THE U.S. SENTENCING
GUIDELINES
United States Sentencing Commission
One Columbus Circle, N.E.
Suite 2-500
Washington, D.C. 20002-8002
The Federal Trade Commission (“FTC”) submits this comment advocating enhanced sentences for telemarketing
fraud offenses. The FTC concurs with the position the U.S. Department of Justice has advocated to the Sentencing
Commission on this issue: that telemarketing fraud is a distinctive form of fraud, and that the current sentencing
guidelines fail to recognize the seriousness of telemarketing fraud. The FTC therefore encourages the Sentencing
Commission to amend the sentencing guidelines to correspond to the statutory enhancements enacted by Congress
in the Senior Citizens Against Marketing Scams Act, (SCAMS), 18 U.S.C. §§ 2325-2327.
The FTC is the primary federal consumer protection agency, with wide-ranging responsibilities over nearly all
segments of the economy. In pursuing its mandate of protecting consumers, the FTC enforces the Federal Trade
Commission Act,(1) which broadly prohibits unfair or deceptive acts and practices, as well as more than twenty other
consumer protection statutes and thirty regulations that address such matters as consumer credit, telemarketing, and
the sale of funeral goods and services.(2)
Combating telemarketing fraud has been a top priority for the FTC for the past decade. The FTC has committed
significant resources to the war against telemarketing fraud -- a type of fraud that frequently victimizes the elderly.
Prior to 1994, the FTC brought civil injunctive actions against fraudulent telemarketers alleging they had engaged in
unfair and deceptive acts and practices in violation of Section 5 of the FTC Act. In 1994, Congress passed the
Telemarketing and Consumer Fraud and Abuse Prevention Act , 15 U.S.C. §§ 6101- 08 (“Telemarketing Act"), giving
the FTC additional authority specifically to attack telemarketing fraud. At Congress’ direction, the FTC promulgated
the Telemarketing Sales Rule, 16 C.F.R. Part 310, which became effective on December 31, 1995. The Rule defines
and prohibits deceptive telemarketing practices and prohibits other abusive telemarketing practices.
Typically, the FTC enforces Section 5 and the Telemarketing Sales Rule against fraudulent telemarketers by seeking
an ex parte temporary restraining order and asset freeze to halt ongoing fraudulent activities and preserve assets for
consumer redress. The FTC’s ultimate objective in its enforcement actions is to obtain restitution for injured
consumers, if possible; if not, disgorgement to the U.S. Treasury of defendants’ ill-gotten monies. Violators of the
Rule are also subject to civil penalties. The FTC refers civil penalty cases to the Department of Justice, in the first
instance, but may prosecute them if the Department declines to do so.
One very important feature of the Telemarketing Act is that it empowers the state Attorneys General to go into federal
court to enforce the Telemarketing Sales Rule, to halt fraudulent schemes through nationwide injunctions against
companies or individuals that violate the Rule, and to obtain restitution for injury caused to the residents of their
states by the Rule violations. This grant of authority to the states has provided the Commission with an enormous
opportunity to coordinate and leverage federal law enforcement resources with the states for maximum effect.

With the Telemarketing Sales Rule as part of our law enforcement arsenal, the FTC has led twenty cooperative law
enforcement efforts focused upon the most prevalent and harmful types of telemarketing fraud, including
telemarketing fraud that targets older consumers, since the Rule’s promulgation in 1996. These law enforcement
sweeps comprised a total of over 730 federal and state actions, including 112 cases brought by the FTC.
This concerted and aggressive response to deceptive telemarketing has provided the FTC with substantial expertise
in this area. The FTC’s law enforcement experience has revealed that while telemarketing fraud victimizes
consumers of all ages, levels of income, and backgrounds, the elderly are disproportionately represented among
victims of telemarketing fraud; and in some scams, 80 percent or more of the victims are 65 or older.(3) Fraudulent
telemarketers often deliberately target the elderly and take advantage of the fact that many older people have cash
reserves or other assets to spend on deceptively attractive offers. Older Americans seem especially susceptible to
fraudulent offers for prize promotions and lottery clubs, charitable solicitations, and investment offers.(4)
In addition to coordinating with other civil enforcement agencies, as part of its battle against telemarketing fraud, the
FTC routinely coordinates with, assists, and receives assistance from federal and state criminal authorities. For
example, when the Department of Justice launched operation Senior Sentinel in December, 1995, a law enforcement
project aimed at telemarketing boiler rooms that targeted the elderly, the FTC complemented its effort by filing
simultaneous civil actions against numerous fraudulent telemarketers. Very often, criminal prosecutions of fraudulent
telemarketers follow on the heels of FTC civil actions. FTC attorneys have also actively prosecuted fraudulent
telemarketers as Special Assistant U.S. Attorneys.(5) The most notable example of this occurred in Chattanooga,
Tennessee, where FTC attorneys were cross-designated as Special Assistant U.S. Attorneys and prosecuted
criminal actions against telemarketers operating in the area. By the end of 1996, the Chattanooga Telemarketing
Task Force had completed its work, having obtained fifty convictions and combined prison sentences against
fraudulent telemarketers totaling over 1,695 months.(6)
Notwithstanding the multi-front offensive launched by federal and state civil and criminal law enforcement agencies,
fraudulent telemarketing still plagues society, at great cost. Estimates of losses specifically caused by fraudulent
telemarketers range from $3 billion to as high as $40 billion annually. The FTC’s experience shows that these
telemarketers are aware of the constant law enforcement scrutiny upon them. Nevertheless, they continue their
relentless assault upon our nation’s elderly population.
Telemarketing fraud goes beyond the simple taking of money: it also destroys lives. The FTC’s experience shows
that the vast majority of fraudulent telemarketing operations depend upon “reloading.(7) Telemarketers purchase
names of people who have been victimized by their cohorts and then repeatedly victimize those same people for
larger amounts of money.(8) We have observed that many operations have separate rooms where their best
“reloaders” can work undisturbed. These reloaders are skilled at identifying all the available assets of a victim and
then continuing to defraud that same vulnerable victim until the victim’s life savings are gone.
Tape recordings made by victims reveal the particularly vicious nature of this crime. Telemarketers engage their
victims in a war of attrition, peppering them with non-stop phone calls that are often replete with verbal abuse if the
victim resists. They often convince their victims to take out loans, run up high credit card debt or sell their valuables.
Many victims, who had previously been financially secure, are reduced to destitution. The victims are very often
humiliated by their losses, and, further, unwilling to tell their family of their financial distress. This only leaves them
even more vulnerable to the next call where the reloaders assure them that if they trust the telemarketers just one
more time, they will recoup all the funds that they have lost.
Telemarketing fraud is also unique in that it is not an isolated crime; rather, it is a distinct and pervasive criminal
industry. The FTC has found that people who engage in telemarketing fraud treat it as a profession. In order to
perpetrate their scheme, they recruit and train others to that same criminal profession. Once these new telemarketers
have been “trained,” they set up their own telemarketing establishments, and begin the cycle again. When a boiler
room is shut down by state or federal authorities, the telemarketers working at that room do not leave the industry,
they merely find another establishment at which to practice their trade. When there have been criminal convictions,

they see their colleagues sentenced to short terms of imprisonment, and are not deterred. As the Sentencing
Commission points out in its notice requesting comment on this issue, and as the FTC’s experience corroborates,
these relatively short sentences result even after courts have enhanced the sentence under Section 3A1.1 of the
guidelines (the vulnerable victim enhancement). Based upon its extensive experience, the FTC believes that stronger
sanctions are necessary for those who engage in telemarketing fraud to make the threat of criminal prosecution more
than just the “cost of doing business.” The FTC believes that nothing less than the threat of lengthy incarceration will
effectively deter this group of people who have made fraud their livelihood
Vigilant civil enforcement by the FTC and state Attorneys General has led to the successful lawsuits against
numerous telemarketing operations, shutting down their operations and providing restitution for the victims in some
cases. However, fraudulent telemarketing will remain a problem of epidemic proportions as long as the benefits to the
perpetrators outweigh the costs. Currently, the costs are low enough that fraudulent telemarketing still flourishes as
its own criminal industry. Higher sentences should help to raise those costs, deter law violations and punish
appropriately those who use the telephone to bilk the public. Accordingly, the FTC urges the Sentencing Commission
to amend the sentencing guidelines to require enhanced penalties for those convicted of telemarketing fraud.
By Direction of the Commission
Benjamin I. Berman
Acting Secretary
DATED: March 11, 1998
Endnotes
(1) 15 U.S.C. §§ 41 et seq.
(2) E.g., the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., which mandates disclosures of credit terms; the Fair
Credit Billing Act, 15 U.S.C. §§ 1666 et seq., which provides for the correction of billing errors on credit accounts; the
Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq., which establishes rights with respect to consumer credit reports;
and the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301 et seq., which provides disclosure standards for consumer
product warranties; the Care Labeling Rule, 16 C.F.R. Part 423, which requires the provision of care instructions for
wearing apparel; the Franchise Rule, 16 C.F.R. Part 436, which requires the provision of information to prospective
franchisees; the Mail and Telephone Order Merchandise Rule, 16 C.F.R. Part 435, which gives consumers certain
rights when ordering products through the mail; and the Funeral Rule, 16 C.F.R. Part 453, which regulates certain
pricing and sales practices by funeral providers.
(3) The owner of one boiler room testified that 99 percent of the victims were over sixty and that 90 percent were over
seventy. Transcript of Trial, United States v. Brown, Cr. No. 1-96- 50 (E.D. Tenn. 1996) at 45 [testimony of Craig
Heaps].
(4) Recent survey research conducted on behalf of the American Association of Retired Persons shows that there is
no ready answer explaining why a disproportionate number of telemarketing fraud victims are elderly. The research
rebuts the notion that the elderly are vulnerable because they are socially isolated, ill-informed, or confused. The
survey shows, however, that older people who fall for telemarketing scams tend to believe the pitches they hear --
that they have a good chance of actually winning the grand prize, and that the products touted are worth the price
charged for them. Ninety percent of respondents report awareness of consumer fraud; yet two-thirds said it is hard to
spot fraud when it is happening. The survey also shows that elderly victims find it difficult to terminate telephone
conversations, even when they say they are not interested in continuing a conversation. They are also reluctant to
seek advice or assistance from others about financial matters in general.

(5) These prosecutions have included not only traditional prosecutions for mail fraud and wire fraud, but also
prosecutions for criminal contempt when telemarketers violate the terms of injunctions obtained in FTC civil actions.
See, e.g., United States v. Jordan, No CR-S-96-113- LCL (D. Nev. 1996).
(6) In recognition of the FTC’s contributions, the U.S. Department of Justice honored the FTC attorneys with its John
Marshall Award for inter-agency cooperation in support of litigation in 1996. This project was cited by Representative
Goodlatte, the author of the House-passed version of H.R. 1847 (105th Cong., 1st Sess.), The Telemarketing Fraud
Prevention Act of 1997, to show the need for enhanced penalties for telemarketing fraud. See, Cong. Rec. p. H4870
(daily ed. July 8, 1997)(statement of Rep. Goodlatte).
(7)” See e.g., FTC v. Thomas E. O’Day, No 94-1108-Civ-Orl-22 (M.D. Fla. 1994); FTC v. Best Marketing, No. 96-
6781-Civ-Zloch (S.D. Fla. 1996); United States v. Brown, Cr. No.1-96- 50 (E.D. Tenn. 1996).
(8) Proof of this can be found in the words of telemarketers themselves. One professional telemarketer, for example,
testified that the name of one victim was found in every boiler room in which she had worked.