In the Matter of the Complaint Against PROFIT, and CHURCHES OF THE NEW OCTAVE, P. O. Box 13238, P. O. Box 13328 and P. O. Box 2606 at Phoenix, Arizona 85502 P.S. Docket No. 6/5 09/21/77 Duvall, William A. Chief Administrative Law Judge Daniel S. Greenberg, Esq. Law Department United States Postal Service Washington, D. C. 20260 Michael I. Christson, P. O. Box 13238, Phoenix, Arizona 85502 Before: William A. Duvall, Chief Administrative Law Judge
On May 20, 1977, the Consumer Protection Office, Law Department, United States Postal Service, (Complainant) filed a complaint in which it charged that Profit, 1/ P. O. Boxes 13238, 13328 and 2606 at Phoenix, Arizona, (Respondent) 2/ is engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations within the meaning of 39 U. S. Code 3005.
The Complaint, as amended and on which the matter went to hearing, charges the Respondent with making the following allegedly false and material misrepresentations:
"(a) In return for the required remittances, complete information will be furnished to enable the remitter to obtain employment stuffing envelopes.
"(b) Persons responding to the aforementioned advertisements will be employed by stuffing envelopes for which they will be compensated on the basis of either the quantity of envelopes stuffed or the period of time worked.
"(c) dismissed without prejudice
"(d) Persons investing substantial sums of money with Respondent are certain to receive a three hundred percent return on such money."
The following Answer to the Complaint was timely filed by Respondent:
"1. Public attention is attracted to the sale of information thru advertising, the sale of information is not to the best of our knowledge illegal.
"2. The advertising which is limited to 'MONEY MAKING OPPORTUNITIES' or Personal Colums (sic) states that money can be made at home stuffing or mailing envelopes and many other ways.
"3. No offer of employment is made of any nature that would constitute any but Independant (sic) self-employment as an independant (sic) advertiser selling information. PROFIT furnishes the sales material free to persons amounting to 2 out of 100 responding to the original ad and who wish to become such independant (sic) sales persons.
"4. Such persons do employ themselves stuffing envelopes with their freely furnished and expensive sales material and are paid through their ad responses plus the commission on the material they sell from the sales material, and or are paid according to contract for running such ads on a per piece per ad basis.
"5. Documentary evidence that the amounts suggested as possible earnings are in fact materially true will be furnished at the hearing.
"6. Sales material and productivity material will be offered in evidence that will demonstrate that the basis for PROFIT's mail order business is religious teaching in accordance with the Holy Bible and that the purpose of said mail order business is the disemination (sic) of THE WORD OF GOD. PROFIT is the Missionary ARM of The Churches Of The New Octave Inc."
At the hearing held on June 30, 1977, the following, among other, exhibits were received in evidence:
"GUARANTEED $8.00 hour at home addressing envelopes part time. Rush $1.00 (refundable): 'Profit', Box 13238, Phoenix, Az. 85002."
(CX-1)
"Earn $800 monthly in spare time stuffing envelopes. Information. Rush 25 and self-addressed stamped envelope to Skyline Profit Box 724 Mesa, Arizona 85201."
"Earn $80 weekly at home addressing envelopes. Information rush 50 and stamped self addressed envelope to: Financial Miracles, P. O. Box 31489, Phoenix, Ariz.
85046."
(CX-2)
Complainant's Exhibit 4(b). 3/ On the inside of this circular there is the following language on the left- and right-hand sides, respectively, of the folder:
3/ This circular has not been
used since April 24, 1977, on order of the Superior Court of the
State of Arizona in and for the County of Maricopa. (Tr. 110)
"TURN $25.00 INTO $100.00 IN 70 DAYS]]"
and
"TURN $250.00 INTO $1,000.00
IN 90 DAYS"
This circular then proceeds to advise readers to send either
$25.00 or $250.00 to Respondent. When the money is received, the
circular continues, sums of $100.00, in the case of $25.00
remittance, or $1000.00, in the case of $250.00 remittance, will be
deposited in a "Special Investment Account", and a "Certificate of
Guarantee" in the face amount of either $100.00 or $1000.00 with
respective maturity dates of 70 or 90 days from the date of deposit
will be issued. The readers are told that at the end of the
maturity period they will receive payment of the full face amount
shown on the "Certificates of Guarantee".
The envelope-addressing portion of Respondent's business
involves a number of steps which now will be outlined.
A person who sees CX-1, above, and responds to it by remitting
$1.00 to Respondent receives a group of circulars received in
evidence as Exhibits CX-3(a) - 3(d). In general, these circulars
tell the readers of the great merit of Respondent's system of
addressing envelopes for others and specifies varying amounts of
money that can be realized by following different system - details
of which may be obtained by sending $1.00 to Respondent. (Other
plans with this group cost the remitters varying amounts of money.)
Many of the pieces of advertising matter employed by Respondent
are interlarded with quotations of scripture and there are
occasional references to "The Most Rev. Michael I. Christson, D.D.,
Bishop of Phoenix (Church of the Word) Churches of the New Octave,
Founder, Director General of 'Profit'".
In the investigation of this case, Complainant ordered plans 2
and 15 from CX-3(b).
Plan 2 is described in the following language:
"$25.00 Per 100 Stuffing Envelopes. You can do this in your
spare time at home. No addressing or postage required. You
receive the envelopes and the money for doing the work all by
mail at home. Complete starting kit and instructions for
$1.00."
Plan 15 is described as follows:
"$800.00 or More a Month Mailing Envelopes in Your Spare Time
at Home. This is a very simple work which is paid in advance,
requires some addressing, and a very small investment start.
Less than five dollars and you probably can get that on credit
if you have a telephone. Complete starting kit and
instructions . . . $1.00."
In return for the two $1.00 remittances, Complainant received
two more pamphlets and a card addressed to Respondent for use by
anyone wanting to become a "Plan 'D' Agent" of Respondent's. These
items were CX-4(a) - 4(c). The substance of the pamphlet which is
CX-4(a) is that the remitter is to insert in various media
advertisements similar to those in CX-1 and CX-2 to attract others
to respond just as the remitter did to Respondent.
It is in CX-4(b) that the reader is offered the opportunity to
turn $25.00 into $100.00 in 70 days and to turn $250.00 into
$1000.00 in 90 days.
Returning to the advertising language used by the Respondent
and considering it in the light of the criterion for interpreting
such language established in Donaldson v. Read Magazine, 333 U.S.
178, 189, it is found that the language of paragraphs II(a) and
II(b) of the Complaint express the impression the advertisements
would most probably produce on ordinary minds.
With respect to the charge in paragraph II(a) of the Complaint,
no person who responds to Respondent's advertisement is given
complete information that will enable him to obtain employment
stuffing envelopes. What he receives is information as to how to
try to induce others to respond to advertising inducements similar
to those used by Respondent. The representation in charge II(a) of
the Complaint is false.
Similarly, in regard to the charge in paragraph II(b) of the
Complaint, no person answering Respondent's advertisements will be
employed stuffing envelopes on any compensatory basis. The proof
of the falsity of this representation goes back to the Answer to
the Complaint in which Respondent admits that no offer of
employment is made except that of self-employment. (Ans., par. 3)
The material supplied by Respondent to remitters in no way
constitutes remunerative employment of the type suggested by the
advertisements. Finally, Respondent's statements on page 79-A of
the transcript of the hearing constitute an admission that persons
who respond to CX-1 will not be employed stuffing envelopes, but
that they must spend additional amounts to insert other
advertisements. (See also Tr. 79-L, lines 1 and 2; Tr. 79-M, lines
21-25) The representation in paragraph II(b) of the Complaint is
false.
The security, or covenant, program formerly offered by
Respondent in which a 300 per cent return in 70 or 90 days was
promised has been briefly described above. While these programs
were in operation, Respondent used some of the money received from
new investors to pay old investors. As much as 90 per cent of
newly incoming funds were used to pay existing obligations to
earlier investors (Tr. 72-73, 107-108). According to Respondent,
there is one investor to whom $1,077,000.00 was to become due in
September 1977, but that Respondent was advised in a telephone
conversation with this individual that he, the investor, would
"much rather we just let it lie around for three years and get to
be $4 million * * *". (Tr. 71-72) At the time of the hearing
Respondent stated that the securities program had liabilities of
$2.4 million. (Tr. 78) He made no specific estimate of his
assets, but he listed a magazine called "The Balance Sheet" for
which there were 40 subscribers at $12, each, per year.
Advertising in this publication sells for $50 a page and at the
time of his testimony he had sold 3 1/2 pages for a total
advertising income of $175.00, plus perhaps some other incidental
advertising income.. (Tr. 104, 106-107)
Mr. James Sell, a Certified Public Accountant who is an
auditor-investigator for the Arizona State Securities Commission
presented a statement, prepared by him, of the current assets and
current liabilities of the Respondent as of April 29, 1977.
(CX-7(a), (b) and (c)). This statement shows that, as of the date
stated, Respondent had assets of $9,496.53 and liabilities totaling
$2,095,667. Actually, the picture is less favorable than these
figures indicate because of procedures adopted by Mr. Sell due to
the unorthodox accounting and bookkeeping procedures followed by
Respondent.
Mr. Sell stated that there are various tests to determine
insolvency, among which are: (1) inability to meet current
obligations as they come due; (2) inability to meet one's
obligations as they will come due in the next 12 months; and (3)
long-term insolvency, or the indication that a company will never
be able to meet its current obligations (Tr. 38) All three of
these tests would show the Respondent to be insolvent. (Tr. 45)
It is obvious that the Respondent is not now, and never has
been, able to fulfill its promised 300 per cent return on sums
deposited with it. It is just as obvious that under its management
and its system of operation it never will be able to live up to the
representation set forth in paragraph II(d) of the Complaint. That
representation is false.
As previously stated there are quotations of scripture, various
religious references and designations of the founder and director
of Profit and the Churches of the New Octave as the "Bishop", the
holder of a Doctor of Divinity degree, and similar matters. The
Doctor of Divinity degree is one purchased by Respondent from a
mail order house for one dollar; and the Respondent is the "chief
presiding officer" of the Churches of the New Octave "under the
authority of the Holy Order of Melchizadek" (Tr. 53-54). These
pseudo-religious phrases are designed to serve principally as an
attempt to engender the belief in the prospective customer or
investor that he is dealing with a person of deep religious
conviction and to increase the customer's or investor's
vulnerability.
Regardless of the effort to cloak the Respondent under a
garment of religious texture, it has been held that "a religious
ingredient is no better defense to a charge of fraud than to a
charge of murder." Fields v. Hannegan, 162 F.2d 17 (D.C. Cir.,
1947)
Without further belaboring the matter, it is found as follows:
1. Respondent is engaged in a scheme or device involving the
use of the United States mails to obtain remittances of money;
2. In the conduct of the said scheme or device, Respondent
makes the representations set forth in paragraphs II(a), (b) and
(d) of the Complaint;
3. The representations found to have been made by Respondent
are material representations; and
4. The representations found to have been made by Respondent
are false.
On the basis of the foregoing findings of fact, 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 United
States mails by means of false representations within the meaning
of 39 U. S. Code 3005.
A mail-stop order should be issued against the names appearing
in the style of the Complaint.
___________________
1/ The complaint was later
amended to include the name "Churches of the New Octave" as a
Respondent.