Las Vegas Sun

May 24, 2019

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Disconnecting the Telemarketers

Telephones slam, hotlines ring and the salesman's voice shakes with ... fear?

For years, law enforcement officers waged war against telemarketing fraud, fighting many battles in Las Vegas. They eavesdropped on telephone lines, busted boiler rooms (a common name for telemarketing offices), and still the smooth-talking, high-pressure telephone scams continued.

Desperate for a lasting crackdown on fraud, 1 1/2 years ago federal and state authorities launched a national assault on telemarketers, obtaining about 400 arrest warrants -- half of them in Las Vegas. The crooked salespeople thrived in this city, multiplying amid the 24-hour nightlife of high stakes and big money until Las Vegas became known as a capital of telemarketing fraud.

The big attack -- aptly named Operation Senior Sentinel for law enforcement's reliance on elderly volunteers who impersonated consumers and taped the fraudulent conversations -- was a thunderous success, authorities said.

Las Vegas' telemarketing industry, which included a large community of salespeople who moved from boiler room to boiler room throughout the valley, virtually ground to a halt, business insiders said.

Today, little more than a dozen telemarketing companies are known to operate in Las Vegas and at least one owner has found it difficult to hire additional salespeople.

"Telemarketing, as everybody knew it in the state, no longer exists," federal prosecutor Colette Rausch said. "The whole subculture that was thriving no longer exists. They're gone."

Con-artist haven

In 1995, about 25 licensed telemarketing firms and an unknown number of bogus companies, called rip-and-tears, were operating in Clark County. Using multiple aliases, telemarketers placed calls from telephone booths, motel rooms and cheap offices located downtown or in industrial areas.

The ringing phones were picked up in California, Ohio and Massachusetts by unsuspecting and often elderly people, who were gullible to promises of wealth and good fortune. Bank accounts were dipped into and millions of dollars wired to Las Vegas.

One widow lost her life savings of $240,000 to more than 50 telemarketers. A 92-year-old lost $180,000 and an additional $5,250 in "recovery fees" to a man who promised to get her money back. Another elderly woman sent $60,000 from her and her husband's retirement fund and then took out a $13,000 loan and sent that too.

Locally, law enforcement officials estimated millions of dollars were being made through illegal sales. Nationwide, the telemarketing industry made more than $500 billion, of which 8 percent or $40 billion was obtained illegally.

But Las Vegas law enforcement, like their colleagues throughout the country, could do little but harass the criminal element. Telemarketers were difficult to snare due to their numerous aliases, fictitious business names and mobile locations.

Las Vegas authorities raided boiler rooms and then retreated, creating a hit-and-miss approach to telemarketing fraud that allowed companies to re-establish themselves under new names and resume their fraudulent ways, said Assistant U.S. Attorney John Ham.

From 1994 to 1995, just 56 telemarketers had been convicted or were awaiting federal trial in Las Vegas.

Searching for a way to raise the number of arrests and convictions in their states, local and federal authorities joined forces and seized upon a novel investigative technique, code-named Operation Disconnect, which was being used in San Diego.

Using trained volunteers with the American Association of Retired Persons and retired FBI agents to impersonate elderly consumers, authorities taped illegal sales pitches. The tapes were hard evidence of fraud and strengthened prosecutors' cases because they corroborated victims' accounts and helped defeat con artists' usual defenses -- such as "a rouge salesman made the claims without my knowledge" or "the customer was confused; I never said that."

Rooms similar to the one operating in San Diego were re-created in a number of states, which then sent the incriminating tapes -- many linked directly to Las Vegas boiler rooms -- to a national tape library where they were indexed and catalogued.

In the early morning of Dec. 7, 1995, Metro Police and federal agents arrested 134 Las Vegas telemarketers and were searching for about 60 more. The magnitude of the arrests was lauded by U.S. Attorney General Janet Reno and forced Las Vegas federal judges to hold bail hearings at the National Guard Armory.

"Those who cheat the unknowing, those who would cheat the frail and unwary should be put on notice," Reno said in Las Vegas that day.

Two years later, the grim warning issued by the nation's top prosecutor has come to fruition. But the financial toll shouldered by the judicial system, and the loss in reputation suffered by legitimate telemarketing, raises the question: Was it worth it?

Business suffers

Las Vegas' legitimate telemarketing companies have struggled, with little success, to distance themselves from their fraudulent colleagues since the 1995 bust. Industry sales are down and it is hard to hire new salespeople, said one Las Vegas businessman.

"When I lose somebody it's tough to replace them," said Steve Sisolak, owner of American Distributing Co. "I used to put an ad in the paper and I'd have 50 people coming down. Now I get five or 10.

"And it's customers as well. There's a perception that there was a lot of unscrupulous business done over the phone and people just don't want to be bothered.

"Unfortunately, if that means my business has to suffer in order to get rid of the problem, I can accept that because the problem was getting so bad."

Sisolak's company, which sells coffee cups, pens and other promotional items to businesses, has been able to remain afloat with some work. Other companies are not so lucky.

The state Consumer Affairs Division reported that from 1995 to 1996 the number of telemarketers registered with the state dropped from 1,406 to 481. Statewide, 14 businesses closed their doors permanently.

"If you don't count sports books, I wouldn't think there was more than six to 10 left in Las Vegas," said Sisolak, who has testified at state and national hearings devoted to finding a solution to telemarketing fraud. "At its peak there were 30, 40, 50 -- I mean a bunch."

Court burdened

Easy money burns quick, and telemarketers turned thousands of dollars to smoke in supporting gambling habits, drug addictions and lavish lifestyles, authorities and insiders said.

"I saw the street person who would do or say whatever they wanted to say to keep up whatever habits they had -- gambling, drugs," said one telemarketer who escaped indictment.

"Then you went up the ladder and there were a few people who you thought were halfway decent, and then there were the big shots who were out at night blowing their money."

But at their arrests, at least three-quarters of the 157 of the locally prosecuted telemarketers said they were too poor to afford a lawyer. The result: Taxpayers have footed the legal bills for owners who allegedly took home six-figure salaries and new employees who had earned just one week's pay.

"I hate telemarketing cases. They're time consuming and wasteful of everyone's money," said Las Vegas defense attorney Karen Winckler.

By not staggering arrests -- a move that would have decreased the burden on the court system, but minimized public exposure -- additional staff was needed by prosecutors and defense lawyers.

"The (magnitude of cases) has about broken the system," one Las Vegas defense lawyer said in the weeks following Operation Senior Sentinel's arrests. "We are stacked up. We are backed up in discovery through Xeroxing costs. From what I understand, they have just about busted the (public defender's) budget."

And as telemarketers were released on bond pending trial, additional officers were needed in order to adequately monitor the defendants' activity.

"It doubled the workload of the officers at that time," said Chief Pretrial Services Officer Jim Marsh. "I probably could have used four more officers ... but my staff was able to handle it. We worked long hours and pulled together."

Legal costs escalated as attorneys spent hours listening to tape-recorded conversations and sifting through reams of paperwork seized during the raids. Again and again, trials were postponed.

After 17 months, this is what has happened:

* 69 telemarketers maintain their innocence. (Two have had the charges dismissed.)

* 40 telemarketers have admitted to breaking the law or were convicted by a jury and sentences are pending.

* 45 telemarketers have been convicted, with 24 serving from three years to four months in prison. The remaining 21 telemarketers were sentenced to probation, time in a halfway house, house arrest or pretrial diversion, a program that allows a defendant to erase the felony record if he or she stays out of trouble.

One reason for the light to moderate sentences is that most of the telemarketers pleaded guilty. Judges are more likely to give defendants a break if they accept responsibility for their crimes.

* Three have died of drug overdoses or illnesses.

On average, the 45 convicted telemarketers were ordered to pay about $5,600 in fines or restitution to victims. The highest amount was $268,000, the lowest $550.

When the penalty for fraud against elderly is a maximum 10 years in prison, are these short sentences worth the effort? Yes, replies the U.S. attorney's office. Prosecutor Ham said law enforcement's goal was not to just lock up the worst telemarketers, but to slap the hands of those who had just joined the industry and educate the public.

An anomaly within the telemarketers -- who worked for four to six months prior to the arrest -- are the eight with a week or less on the job and the six whose first day coincided with the arrests.

In some of the taped and allegedly incriminating conversations, the new employees were making the sale under the watchful ear of a supervisor, one defense attorney said.

But that did not mean the new employee was unaware that his or her statements would be considered illegal, according to the lawyer and a former telemarketer.

The telemarketer: "We were told to look for seniors and look for their weaknesses."

The lawyer: "They knew what they were doing and they knew the business. It only takes one fraudulent contact with the customer to get you charged. It's like a virgin -- sometimes the first time you do get pregnant."

Of the 14 telemarketers with a week or less on the job, eight have admitted to breaking the law and six say they are not guilty.

Encouraging trends

In 1996, Nevada logged 776 consumer complaints about telemarketing fraud, down form the 1,022 taken in 1995.

The state now ranks sixth in the nation for having the highest number of fraudulent telemarketing companies, down from 1995's No. 5 ranking, according to the National Consumers League's Fraud Information Center.

State and federal authorities credit these downward trends to not only Operation Senior Sentinel, but the follow-up investigations that occurred throughout 1996. In the past year, the FBI arrested 158 Las Vegas telemarketers. (A few were first indicted under Senior Sentinel but continued the alleged criminal behavior).

Among the post-Senior Sentinel prosecutions:

* Las Vegans Christopher Easley and Richard Secchiaroli, owners of telemarketing giant Pioneer Enterprises Inc., and 15 of their employees. Pioneer, now bankrupt, was once considered to be among the largest telemarketing firms in the country, employing hundreds.

* Five top salespeople and company executives of 21st Century Marketing. They admitted to selling customers vitamins, air and water purifiers and Frisbees at inflated prices based on the false guarantee of a "fabulous award." But 99 percent of the customers did not receive the promised cash or car but a cheap award valued from $8 to $30.

As more of the large firms like 21st Century Marketing and Pioneer Enterprises are shut down, law enforcement is turning its attention to rip-and-tear operations, often run by former employees of those big rooms.

When these telemarketers lost their jobs they were able to walk away with lists of customer names and telephone numbers, ensuring they could continue to make their pitches, authorities said.

The majority of the 134 post-Senior Sentinel telemarketers convicted in 1996 were running rip-and-tear scams and that trend has continued this year, said an FBI spokesman. In the past two weeks, a handful of people were indicted or arrested on rip-and-tear charges.

But even as authorities bust the rip-and-tear callers, crooked telemarketers move to newer scams, such as offering lottery chances or promising investments that are too good to be true.

"It's so easy to pick up the phone and with the power of your voice get people to send hundreds of thousands of dollars," prosecutor Rausch said.

Consumer advocates and state and federal authorities agree the only way to permanently reduce telemarketing fraud is through continuous law enforcement and consumer awareness.

"I think Operation Senior Sentinel made a dent but it can't be our magic bullet," said Consumers League spokeswoman Cleo Manuel. "We need to keep educating about fraud and stay a step ahead of the con artist."

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