In the Matter of the Complaint Against H. MONACO S.,$109,000 CLUB, ENROLL ME TODAY, VACATION GIFT, 1730 South Bumby Avenue, Orlando, Florida 32806 and H. MONACO S., 3000 Town Center - S2390, Southfield, Michigan 48075, and at 32 Giles Boulevard, East Windsor, Ontario N9A4B5 and at Via REPRESENTION EN ETATS-UNIS d'AMERIQUE, One Parklane Boulevard - P102, Dearborn, Michigan 48126 P.S. Docket No. 7/14 April 13, 1979 William A. Duvall Chief Administrative Law Judge Thomas A. Ziebarth, Esq. Law Department United States Postal Service Washington, D.C. 20260, for Complainant Terry S. Freedman, Esq. Suite 510, 151 Wymore Road, Altamonte Springs, Florida 32701, for Respondent Before: William A. Duvall, Chief Administrative Law Judge
This case was initiated on January 25, 1979, by the filing of a Complaint, which Complaint was later amended, so that it includes the following names and addresses: H. Monaco S., $109,000 Club, Enroll Me Today, Vacation Gift, at 1730 South Bumby Avenue, Orlando, Florida 32806; H. Monaco S., 3000 Town Center - S2390 at Southfield, Michigan 48075; Via Represention en Etats-Unis d'Amerique, One Parklane Boulevard - P102, Dearborn, Michigan 48126 USA; and 32 Giles Boulevard, East, Windsor, Ontario.
In the Answer to the Complaint Respondent admitted that Exhibit 1 to the Complaint is a genuine copy of the original, but
Respondent denied all of the remaining allegations of the Complaint.
The named Respondents are charged with conducting a scheme or device for obtaining money or property through the mail by means of misrepresentation within the meaning of Section 3005 of Title 39 of the United States Code.
In this type of proceeding there are three basic issues, which are:
1. Does the Respondent, in the conduct of his business, use the United States mails to seek remittances of money?
2. Does Respondent, in the conduct of his business, make the representations which are attributed to it in the Complaint? In this case the charges are set forth in paragraph (3), in subparagraphs (a) through (g) of the Complaint.
3. Are the representations, if made, materially false as matters of fact?
For the sake of ease of expression, the Respondent will be referred to as if it is singular.
Complainant properly pointed out that the Complainant, as the moving party, has the burden of proof with respect to all of the foregoing issues. The testimony by the Postal Inspectors who testified at the hearing, and the exhibits received in evidence in conjunction with their testimony, clearly establish that the Respondent, in the conduct of his business, does utilize the mail in soliciting remittances of money.
In determining whether the Respondent makes the representations set forth in paragraph (3)(a) of the Complaint, it is necessary to refer to some of the exhibits that were offered and received in evidence.
The first representation which Complainant charges that Respondent makes falsely is in (3)(a) of the Complaint, as follows:
"Persons who enroll in 'Phase One' of the $109,000 CLUB will receive the details of a secret 'system' which will assure them of a $109,000 profit during their first year of membership."
This charge obviously is based upon a statement in the first paragraph of Complainant's Exhibit 1. 2/ This statement reads as follows:
"One of the numerous benefits will be the opportunity to profit by $109,000 during your first year of membership."
The second charge in the Complaint is in paragraph (3)(b), and it reads:
"Based on thousands of actual tests, the 'system' referred to in subparagraph (a) above is always astoundingly successful."
This charge is based on a statement on page 2 of Exhibit 1, and this statement reads:
"Still the skeptic, I tested this system for months and thousands of times. The results were always the same -- astoundingly successful."
Charge (3)(c) of the Complaint reads:
"The 'system' requires no investment on the part of the member."
This representation is based upon a statement in the third paragraph on page 3 of Exhibit 1, which reads as follows:
"Except for a small token membership fee, you will never be asked for money again. Nor is there ever an investment on your part except for money you will receive as a result of your membership, even then you get the lion's share and all the fun of seeing the cash pour in to your hands."
The charge in paragraph (3)(d) of the Complaint is that:
"Persons electing to become members of the $109,000 CLUB incur no risks since they are protected by a 'complete money back guarantee'."
This representation is based upon language appearing at the bottom of page 4 of Complainant's Exhibit 1 under a crown, which appears slightly to resemble a coat of arms, in which there is this language:
"NO RISK OFFER
COMPLETE MONEY BACK GUARANTEE
Upon receipt of packet, follow instructions. If you decide this is not for you, return the entire packet within 5 days for a full refund of your token membership fee. You have my word for it. Remember, this club is not for everyone and unless you are in a position to take full advantage of its benefits you should not be a member, and I prefer that you ask for a prompt refund."
The representation in paragraph (3)(e) of the Complaint is that:
"The testimonials set forth in Respondent's advertising material describe the true experiences of actual persons."
One place where certain testimonial material appears is on page 4 of Exhibit 1, where there are four such testimonials. These testimonials relate the successful experiences of different people who have followed the system being sold by the Respondent.
The representation in paragraph (3)(f) of the Complaint is that:
"Persons who elect to become 'Phase Two' members will receive the details of another secret 'system' which will enable them to earn twice as much in half the time."
This representation is based upon language which appears in the next to the last paragraph in the body of the circular accompanying Complainant's Exhibit 4. This paragraph reads as follows:
"My Vacation Gift to you will not only save you up to $100, but will give you the opportunity to enter Phase Two where I can show you how to win twice as much money in half the time." (The last phrase, "how to win twice as much money in half the time" is in italics.)
The charge that is in paragraph (3)(g) of the Complaint is that:
"The $109,000 CLUB offers many ways other than gambling whereby the members can multiply their money."
This representation is based upon language found in the second paragraph at the top of the third page of Complainant's Exhibit 1, wherein the Respondent states:
"Money is only one, the first phase, of benefits derived from membership in the $109,000 Club."
Among the many expressions of the criteria to be used in determining the meaning and effect of advertising statements, the following is appropriate and concise:
"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. *** The ultimate impression upon the reader results not only from the total of what is stated but also from what is reasonably implied." Vibra Brush Corp. v. Schaffer, 152 F. Supp. 461, 465, U.S.D.C., S.D.N.Y. (1957)
From a comparison of the statement of the charges in the Complaint with the statements made by Respondent in its solicitation material, and being mindful of the criterion stated in the Vibra Brush case, above, it is obvious that the Respondent does make the representations which are set forth in paragraphs (3)(a) through (g) of the Complaint.
There remains to be determined the issue of whether the representations found to have been made are false as to material matters of fact.
A witness in this proceeding was R. Phillip Harker, who is a Special Agent of the Federal Bureau of Investigation, and who is in the Gambling Unit of the FBI Laboratory in Washington, D.C. Mr. Harker was graduated at the University of Indiana with a Bachelor of Arts degree and he has a Doctor of Jurisprudence degree from the University of Louisville. He has spent nine years as an investigator of various types of gambling offenses. He has interviewed professional gamblers. He has participated in the seizure of gambling evidence of various types. He has intercepted, with court approval, conversations relating to gambling. He has conducted training of police officers from all over the world who specialize in gambling cases. He is a member of various societies, and he has written articles for publication in various related publications. He is thoroughly qualified to testify as an expert witness in this particular proceeding.
The evidence in this case developed that, briefly stated, what the Respondent is selling is a system for playing roulette. The system is represented as one which would produce highly favorable results for the player who follows the system.
Exhibit 6 is a photograph taken from directly above a roulette wheel. The wheel has thirty-eight different compartments which are numbered in alternate form from 1 to 36, and there are two other compartments that are labeled zero and double zero. The zero and double zero are colored green, and the numbers are colored alternately red and black. As the wheel is spun in a counterclockwise direction a small ball is tossed in the opposite direction.
Exhibit 7 is a photograph of the playing surface of a roulette table on which the players can make various types of bets. For each compartment on the wheel there is a correspondingly colored number on the table. There are other spaces on the table, but they relate, primarily, to various kinds of bets that may be made. (Tr. 59, 60)
After explaining that if the ball comes to rest in either the zero or the double zero slot, all number, color and even/odd bettors lose. Mr. Harker continued ...
"All other types of bets, with the exception of one rather peculiar type of bet, and there are almost dozens of types of bets that can be made by the knowledgeable use of this type of layout by the strategic placing of chips different places -- all of them have a mathematical house advantage of five and five-nineteenths percent. This house advantage is created by the fact that the house pays off these various types of bets as if there were thirty-six compartments in the wheel, whereas there actually are thirty-eight. So that if a person puts his bet on a corner of the wheel that gives him four different numbers to win, the house pays off as though he had four chances in thirty-six, which is the same thing as one chance in nine, and would have paid him off at eight-to-one odds. There are not thirty-six holes; there are thirty-eight. It's those two extra holes that mathematically give the house the advantage on all but one of these types of bets of five and five-nineteenths percent.
"This one peculiar type of place where one can put down money that the house has an advantage of something over seven percent.
"The various different bets pay off at different rates, but the mathematical advantage in each of these cases is about five-and-a-quarter percent. That's generally how the game is played.
"The material in the [Respondent's] Phase One gave some general discussion of how roulette is played. There was also a consideration of various types of so-called systems that have been devised over the years undertaking to beat the game of roulette.
"One of the systems discussed in the material is what is called a martingale system, or progressive type of betting system. And a very large majority of betting systems where people systematically try to beat some gambling game involve a type of progressive betting. The main theory is that all gambling games are so constructed that sometimes you'll lose and sometimes you'll win, but in a progressive system you try to in some form or other increase your bets so that even when you lose you continue to increase the bets in such a manner that when you eventually do win you will win back the money you've already lost up to that time, plus some kind of profit. A simple martingale or progressive system involves simply the doubling of each of your bets when you lose, so that if one bets a dollar on the first event and loses it, the next bet would be at two dollars. And if he loses, the next bet of four dollars, eight dollars, and each time doubling his bet whenever he loses.
"Whenever he wins, at any stage of the game, he would have recouped his loss up to that time, plus made one dollar. So that after ten losses he would have some one thousand twenty-three dollars invested, and if he won at that time he would get back one thousand twenty-four dollars. He'd recoup all of this loss plus a dollar. That's a simply type of progressive system."
In connection with Mr. Harker's testimony, there were received in evidence two exhibits, namely, Complainant's Exhibits 8 and 9. Complainant's Exhibit 8 is a computerized test of a system in which alternate letters E and O were programmed as if they had places on a roulette wheel where the black and red colors are placed. And in ten thousand spins of this wheel, one of the systems being sold by this Respondent was employed.
This system follows generally the plan that the player is to watch the wheel as it is spun, and after a period in which the same color wins five consecutive times, the player places a five dollar bet that it will not occur on the next spin. If the player won that bet, he would win five dollars. He would take his profit from that win and then wait until one color or the other had come up 5 consecutive times again. If that five dollar bet lost, he would immediately increase the next bet, continuing to bet that the same color did not come up. On this second bet he would wager twenty-five dollars. If he won, he would take his profit, which, at that point, would be a twenty dollar net profit.
Mr. Harker continued:
"If he lost, he then would bet seventy dollars on the next bet. And if he lost that, he would then bet two hundred dollars on the, in effect, his fourth bet in the series, so he would bet in progression five, twenty-five, seventy, two hundred. If that last one lost, he would then have lost a net of three hundred dollars, or a cumulative amount of three hundred dollars. He would then stop and wait -- he would quit betting at that point and wait for one color again to occur 5 straight times, and then he would start all over at five again and progress five, twenty-five, seventy and two hundred; the theory being that the long-run expectancy of these chains of losses to occur is for the player, so that somewhere between these five and nine occurrences he is going to win. *** in any one of those four times that he bet, if he did win he would recoup his loss up to that point in that chain of betting, plus have some type of profit.
"Now, the trouble -- there are two difficulties with this -- any type of progressive system. Theoretically, if one had an infinite amount of money, and if he were able to progress and increase his bets in some proportionate amount, whatever type of thing he were betting on he could eventually win and make some kind of profit, albeit the investment of millions and millions of dollars.
"If he could continue to double up his bets in some form or other, he would finally win, if it's betting on the long shot at the racetrack or whatever, he would eventually, if he had enough money to do this, he would eventually win.
"The one difficulty with that is simply having that amount of money, and this particular betting progression stopped at two hundred dollars as a maximum bet, in which case if that bet lost, the player would have lost a total of three hundred dollars on that particular progression. So that the difficulty comes in in a player, the times he makes the first bet and wins five dollars, he will do that predictably, numerous times, frequently. He waits, enters the betting picture, and makes five dollars.
"There will be a lesser amount of times predictably when he'll bet -- go into the second bet, bet twenty-five dollars, and have a net of twenty dollars. And so forth lesser times that he may be able to bet the seventy and make even a bigger profit. Or if he bets the two hundred dollar scale and wins that, he will have a net profit in those four bets of a hundred dollars.
"But there predictably will be quite a number of times in the long run where it will exceed those four bets, in which case he's lost his whole three hundred dollars and would start all over again. There are predictably enough times that occur to more than wipe out the fact that he's won in various of these levels. That's a simple -- maybe not simple, but it's a mathematical probability that although we don't expect in the long run a large amount of these losing trains to occur, there are enough of them that totally wipe you out when it does.
"The other problem that occurs in many types of progressive betting systems, and would be a problem in increasing these bets beyond two hundred dollars, is the casino maximum bet limit. And all casinos have various types of maximum betting, and the maximum amount of bets allowed on various types of betting propositions and on various types of games are put there for the sole purpose of stopping the use of this type of progressive system. Casinos will allow bets to increase in amount, but only to a maximum limit. And this type of bet at the roulette wheel is referred to as the 'outside bets,' the essentially even money type of bets. The casino limits will vary from two hundred, very commonly three hundred as a maximum bet, and seldom that I've ever seen over five hundred.
"That is, whenever the casino increases the maximum amount of bets one could make at any one bet, they will also proportionately increase the minimum bet. Frequently casinos will have very large maximum bets on these outside bets, but at the same time when they do that they increase the minimum allowed bet, again trying to prevent the probabilities of the players being able to double up, so to speak, or progress his bets so that he can defeat them.
"So that would be, with the scale I gave, the initial betting scale of five, twenty-five, seventy, and two hundred, the player, to the best of my knowledge -- most casinos, to the best of my knowledge, at all of them he would be able to make all of those bets, but the probabilities are that in the long run there would be so many times that he wouldn't win within one of those five bets, that he would be expected to lose substantially." (Tr. 67-70)
In the test that was run by means of the computer, with the result being shown on Complainant's Exhibit 8, the game was entered three hundred eighty times. The game was won three hundred fifty-one times. The result after ten thousand spins using this system was, in this instance, a loss of seven hundred and five dollars. If one includes the one dollar that one must bet in order to stay at the table, 3/ the additional loss was forty dollars, making the total amount of the loss seven hundred and forty-five dollars.
On Complainant's Exhibit 9 a test similar to the test which is represented in Complainant's Exhibit 8, was run ten times for a total of one hundred thousand spins of the roulette wheel. This exhibit reveals that there were some instances in which the player would have won, the maximum of the winning being thirteen hundred and ten dollars; the maximum of the losses amounted to seventeen thousand nine hundred and forty-five dollars. But, overall, for the ten games of ten thousand spins each, the loss was forty-six thousand seven hundred and forty-five dollars.
These tests were run so that they would be based on random selection of numbers, which would be the way in which the ball would be likely to fall in an actual roulette game. Thus, while there are some relatively small profits, they occurred in only four out of the ten games; the losses, which on the whole were much larger than the profits, occurred in six out of the ten times.
Exhibits 8 and 9 demonstrate that the average person who might buy this program from the Respondent and employ it, is much more likely to be a substantial loser than he is to be a winner.
Attention is invited to the fact also that, while it is true that the Respondent says that the persons are being offered the opportunity to profit by a hundred and nine thousand dollars, no mention is made of the likelihood or even of the possibility, of the player losing as a result of his employment of this system.
Clearly, representation (3)(a) is false as to material fact.
The same may be said with respect to the charge that is paragraph (3)(b) of the Complaint, wherein the Respondent represents that he had "tested this system for months and thousands of times and that the results were always the same -- astoundingly successful." That representation again indicates that one may readily expect to be successful if he follows the system. There is certainly no mention of any likelihood of loss, whereas the testimony in this case is to the effect that the ore one follows this system the more likely he is to lose. Any profits that have occurred, if any, are profits that occur only when the system is employed on the short-run basis. Even in those cases a large measure of good fortune is involved.
The charge of paragraph (3)(c) of the Complaint, namely, that the system requires no investment on the part of the member, is false for the reason that in order even to buy the system the player must have remitted to the Respondent the sum of either thirty or thirty-three dollars, which the Respondent variously charges for his system.
Furthermore, in order to play this system for any extended period of time, the player must have sufficient capital in order to be able to sustain losses over a long period of time. The rub is that the longer the person plays it, the less likely he is to win and the more likely he is to lose greater amounts of money.
Charge (3)(d) of the Complaint, that persons "incur no risks" when they want to participate in the employment of this system, because they are protected by a complete money back guarantee, was refuted by testimony of an Inspector who participated in the investigation of this case. He said that he sent in the thirty-three dollars to buy the system; he didn't hear from that; he wrote to the Respondent that he had not received what he ordered. The Inspector asked for either the product or a refund, but he never received a reply to that letter.
The falsity of this representation is further clearly demonstrated by the testimony of the Inspector who, in the conduct of his investigation, received complaints from people who stated that they also attempted to get their money refunded and were not successful. Not everybody complained that they did not get a refund, and Respondent was careful to point that out. The fact that some refunds were made does not in any way diminish the gain which the Respondent has experienced by virtue of his misrepresentation to others that he would give a refund, when in fact he did not give such a refund.
The next charge is (3)(e) of the Complaint, which is that the testimonials set forth in Respondent's advertisements described the true experiences of actual persons. In examining these testimonials, which appear on page four of Complainant's Exhibit 1, it appears that each one of these individuals did employ this scheme on a short-term basis. One of them talked of two days, and another one spoke of an hour. The third one said that he made the two thousand four hundred and seventy dollars profit over the first weekend, and the fourth one said he won ten thousand dollars in three days. He didn't say he played roulette, following this system, continuously for three days. He said that in the three-day period, at such times as he did play, he made ten thousand dollars. There is no proof in this record that these persons did not achieve the results which these testimonials indicate. In addition to that, there is proof in the testimony of Complainant's witness that if this game is played on a short-run basis and if the person is blessed with great good fortune, it is within the realm of possibility that winning could be achieved.
Taking into consideration all of these facts and circumstances, it is found that there is insufficient proof of the falsity of the charge which is set forth in (3)(e) of the Complaint.
Charge (3)(f) of the Complaint is that persons who elect to become Phase Two members will receive the details of another secret system which will enable them to "earn twice as much in half the time."
Respondent argues that by selling persons a second system, which the expert testimony in this proceeding indicates is just another form of the first system, he does give these persons the opportunity to win twice as much in half the time. (Of course, the person would have to play both systems simultaneously.) But the sad truth is that he's also giving the majority of the people the opportunity to lose twice as much in the same period of time.
Charge (3)(g) of the Complaint is that Respondent falsely represents that the $109,000 Club offers many ways other than gambling whereby the members can multiply their money. Complainant's Exhibit 5 appears to be another opportunity which is offered by the Respondent to people who are members of Phase Two. There was no testimony about the nature of what this third opportunity is. While it is regarded that the third opportunity is extremely unlikely to be a vast improvement over opportunities one and two, I suppose that it is possible -- in the sense that anything is possible -- that this third opportunity being offered by the Respondent may conceivably produce some beneficial result to some fortunate individual. Therefore, on that rather diaphanous and infirm basis, I find that the Complainant has not borne its burden of proof with respect to paragraph (3)(g) of the Complaint.
Summarizing, it is found that the representations which are set forth in paragraphs (3)(a), (3)(b), (3)(c), (3)(d) and (3)(f) are, upon the basis of the evidence in this proceeding, found to be materially false as to matters of fact. On the same basis it is found that the Complainant's burden of proof has not been borne with respect to paragraphs (3)(e) and, hesitantly, (3)(g) of the Complaint.
Upon the basis of the facts heretofore found, it is concluded as a matter of law that Respondent is engaged, as charged, in conducting a scheme or device for obtaining money or property through the mail by means of false representation, within the meaning of Section 3005 of Title 39 of the United States Code.
It follows, therefore, that an Order in substance like the one attached to this decision should be issued against this Respondent.
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1/ This decision was rendered orally at the close of the hearing. It has been edited and transcribed for formal issuance.