In the Matter of the Complaint Against GEORGE M. ERNST, JR. d/b/a MANY INTERESTED SAVERS, INC. P. O. Box 361 at Georgetown, KY 40324-0361 P.S. Docket No. 13/88; 06/09/82 Grant, Quentin E. APPEARANCE FOR COMPLAINANT: Hilda Rosenberg, Esq. Steven B. Caver, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260 APPEARANCE FOR RESPONDENT: George M. Ernst, Jr. Pro Se P. O. Box 361 Georgetown, KY 40324-0361
Respondent, in a Complaint filed on March 25, l982, is alleged to be violating 39 U.S.C. § 3005 by engaging in a scheme to obtain money through the mails by means of false representations concerning a club operated by Respondent and, in a second count, by urging and causing others to make such representations to third parties.
Complainant's specific allegations of materially false repre sentations made by Respondent are as follows:
"3. By means of such materials the advertisement set forth or described in Findings of Fact, below and others similar thereto, Respondent represents, directly or indirectly, in substance and effect, whether by affirmative statements, implications or omissions that:
(a) he is receiving over $100.00 per month from a club which requires a $16.00 investment to join;
(b) persons submitting $16.00 to Respondent will become members of this club and thereafter receive $100.00 per month; and
(c) Respondent's promotion of this club will not culminate in market saturation because sufficient numbers of non-members are continually available to provide the opportunity for profit."
By amendment of the Complaint granted at the hearing he follow ing two alleged representations were added to paragraph 3 of the Complaint:
(d) all persons joining Respondent's club will receive at least $500 as a result of a $16 membership fee.
(e) all members of Respondent's club will receive $500 for each additional card purchased.
A hearing was held at which both parties presented evidence. Complainant has submitted proposed findings of fact and conclusions of law, and written argument, all of which have been considered in arriving at my decision. To the extent indicated, they have been adopted. Otherwise they have been denied as irrelevant, immaterial, or contrary to the evidence.
Respondent did not choose to file proposed findings and conclusions although it was made clear to him at the hearing that he could do so if he wished. Also he was given notice by the Recorder under date of May 12, l982, that he had through May 25, l982, to do so.
1. Respondent George M. Ernst, Jr., seeks remittances of money through the mails for membership in a club called Many Interested Savers, Inc., (Tr. 13; CX-2; 4A, 5A-C, 6A-B, 14B).
2. Respondent's initial newspaper advertisement for this promotion reads as follows (CX-2):
WE ARE NOW RECEIVING
over $100 per month from a Club which cost us $16 to join. Send me $16 and I will get you a membership. For details only send stamped self-addressed envelope to George M. Ernst, Jr., P. O. Box 361, Georgetown, KY. 40324-0361. This club is legal.
3. Persons responding to the above advertisement with a request for details receive a letter signed by Respondent George M. Ernst, Jr., which states in relevant part as follows (CX-4A):
"2. With the last check on September 15, l981, that means that each February member had received $35.00 for each card they owned in February. They received $5.00 per month for 7 months. When the October 15, l981 payment is made, they will have received $40.00 from each February card they owned. Their original dues of $16.00 entitled them to receive $500 from the other members, then each time they donated $14.00 to the other Club members, they are to receive another $500 from other members. After they receive their $500, that card is retired to the 'Dead Card File', but if they want another $500 for any reason, all they have to do is donate another $14.00 to the other members and they will be entitled to receive another $500.
"3. A person can only come into the Club through another member. Since I am a member, you can come in through me unless you know another member who you would like to join this Club through. If so, I would advise you to do so because he or she may be working to become an Active Member."
This letter also contained reproduction of three checks. One, numbered 1406, reflected payment by Respondent of $515 to a payee whose name was deleted from the reproduction. The other two checks, numbered 1415 and 1416, showed payments of $375 and $20 to George M. Ernst, Jr. and Lena N. Ernst, respectively, as joint payees. Preceding the reproductions appeared the following paragraph:
"Check Nos. 1415 and 1416 were earned by systematically putting in 4 or more memberships since February, l981 through July 1981. Every time we thought of something we needed or wanted that cost $500 or less, we put in a card for it; if it cost $500, we put in enough additional cards to eventually pay for that, like for a new home and card."
4. Persons remitting to Respondent the sum of $16 for member ship in Respondent's club receive a letter from Respondent reading in relevant part as follows (CX-6A):
"Congratulations for becoming a member in our most worthwhile Club. You are now in Inactive Member and will begin receiving not less than $5.00 per payment beginning Nov. 15, l981. We will attempt to make this minimum payment monthly after this date and HOPE to be able to increase it before long.
"We highly recommend you consider becoming an Active Member as soon as possible because of the ease in doing so and for the benefits derived from becoming an Active Member.
"As an Inactive Member, you are not required to bring any new members into the Club. But, to become an Active Member, you will be required to bring in 4 new members. If you wish to become an Active Member, you must notify the Club that this is your desire so it can begin tallying your card with the new members you bring in. You are never required to become an Active Member.
"If you do decide to bring in 4 new members or more, the Club asks that you collect $16.00 from the person wishing to join through you. You send the Club only $14.00 of this $16.00 and you keep the other $2.00 for helping us find another needy person who is willing to help themselves. No one may join the Club except through another member."
5. In a newspaper advertisement dated March 25, l982, Respondent stated as follows (CX-14B):
"This club was formed for the purpose of helping anyone who wishes to join us for a lifetime membership of $16.00 if that is all you want. This membership will get you a card in the files of the club that is worth not less than $500 sometime. When you will get this $500 depends entirely on whether or not enough members can and will help one another to get $500 for each card they have in our files. If they are unable to, of sic do not care to help one another, then, I, as Chairman of the Board of Directors, will have to recommend to the Board that we convert this club into another investment club instead of keeping it as the charitable club that it was for almost a year when most of the members stopped following the president's suggestions for one reason or other. This, of course, is their right as is their right to help their fellow club members, thereby helping themselves at the same time; or not to help their fellow club members whichever they choose.
"No one may come into this club except through another member. But, if you don't know another member, then you can send your $16.00 lifetime membership dues payable to me at P. O. Box 361, Georgetown, KY 40324 and I will see that you get a membership card in the mail from the club.
"The best way to find out if this club works is to become a member and learn about it from someone who worked for a year now and as the advertising spreads around the world, it will grow even more, which I want since we already have over 200 members in several countries and states.
"My wife and I are paying for this ad, but we will get cards in this most worthwhile club for the cost of it that will more than pay us back for it. That is the beauty of this club, if you want $500 for anything, or if you want $50,000 for anything, all you have to do is put cards in the files of this club and wait until it piles up in the bank as the payments come in to you at $5, $10, $15 or more per month once enough of the members begin following their president's suggestions again.
"There, you have the TRUTH about this club and the TRUTH about me is that I am Christian by word and action. A Christian by word and action could not possibly be a crook or be deceptive in any way whatsoever.
"If you need financial help for any reason, join us for $16.00 and see what peace of mind you will receive if you will but follow the president's suggestions which rich and poor alike can do if they WANT to.
George M. Ernst, Jr. - President
Many Interested Savers, Inc."
6. During most of the year 1981, persons becoming members of the club or purchasing additional cards from the club received monthly payment at the rate of $5.00 per card. But in January, 1982 the monthly payment decreased to $1.70 per card and no payments were made thereafter up to the date of the hearing, April 30, l982 (Tr. 34; CX-10A, 11A, 14A).
7. According to the testimony of Respondent Ernst, the success of the plan depends on a constant inflow of new members at $16 per membership or the purchase of additional cards by present members at $14 per card (Tr. 28). According to Mr. Ernst, if this does not occur the plan will not work and he plans to convert the operation to a standard form of investment club (Tr. 29, et seq.)
8. Mr. Ernst testified that for the plan to work it would take the cooperation of at least 50 percent of members by way of purchasing additional cards, securing new members, and putting half of their income from the club into new memberships. He stated that so far the Club had received such cooperation from less than half of one percent of the members (Tr. 28).
9. No member has received $500 for an individual card as of the date of the hearing (Tr. 36). The earliest members, those joining in February, 1981, had received approximately $65.00 per card in $5.00 monthly payments as of April, l982 (Tr. 33).
10. Mr. Ernst mentioned the hope that interest income from a safety, or reserve, fund, in the present amount of $10,000, to be increased according to his plan to $50,000, would help to pay off, eventually, $500 for each membership card (Tr. 35, 36). But there is no evidentiary basis for a finding of the likelihood of the creation of a safety fund of an amount adequate to make any signifi cant contribution to that objective.
11. The majority of the cards in the club are owned by two corporations of which Mr. Ernst was the first president, and by Mr. Ernst and his wife (Tr. 39).
12. According to calculations placed in evidence, it is mathematically impossible for every member of the Club to be paid $500 for each card purchased at $16 and $14 (Tr. 25, 26, 41; CX-15).
For example it would take 31.25 new memberships at $16 each to pay off $500 on a single card. For the 31.25 new members to receive $500 on their $16 investments, 976 new members would have to join. Carried to ridiculous, but illuminating, extremes, it would require almost 30 million new members for 1 million members to receive $500 per card and 29 billion new members for 1 billion members to receive $500 per card.
13. As of December, l981 the Club had 19 active members and 168 inactive members holding a total of 2,045 cards. At that time Mr. Ernst and his wife held more than 300 of these cards (CX-a6). Calculations reveal that approximately $1,000,000 of income from the sale of new cards at $16 each, (or nearly 64,000 new members) would be required to pay $500 on each of the 2,045 outstanding cards. In turn $32,000,000 (or 2,000,000 new members) would be required to pay $500 to each of the 64,000 new members.
The meaning of advertising representations is to be judged from a consideration of an advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. l957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959). Express representations are not required. It is the net impression which the advertisement is likely to make upon purchasers to whom it is directed which is important, and even if an advertisement is so worded as not to make an express representation, if it is artfully designed to mislead those responding to it the mail fraud statutes are applicable. G. J. Howard v. Cassidy, 162 F. Supp. 568. See also Virginia State Board of Pharmacy v. Virginia Citizens Council, 425 U.S. 748 (1976).
The ultimate impression on the reader results not only from what is stated but also from what is reasonably implied therefrom. Vibra-Brush Corp. v. Schaffer, supra; Aronberg v. Federal Trade Com mission, 132 F.2d 165 (7the Cir. l942).
Applying the foregoing principles of interpretation to Respon dent's advertisements I find that they make the representations alleged in the Complaint. The representations that Respondent is receiving over $100 a month from a club which requires only $16.00 to join and that persons submitting $16.00 to Respondent will receive $100.00 per month are effectively made (CX-2) only to persons remitting $16.00 without requesting details of the club's operation. Those who request details are advised that the plan of operation calls for payments of $5.00 per month for each card held by a member and are then aware that purchase of 20 cards would be necessary in order to receive $100.00 per month.
The representations concerning the receipt of $500 for a $16.00 membership fee and for each additional card purchased are found in paragraph 2 of Respondent's letter to persons requesting details before payment of the $16.00 membership fee (CX-4A).
The representation concerning no market saturation is implicit in the assurance that members will receive $500 for each card purchased.
All of these representations are false. Even if Respondent made good on its assurance of payment of $5.00 per month on each card, a member would have to pay not just $16.00 to receive $100 per month, but rather $282.00 ($16.00 for initial membership card plus $266.00 for 19 additional cards at $14.00 each). As for the representations concerning each member's receipt of $500 for each card purchased, the evidence shows this to be a mathematical impossibility if payments are made from fees received for new cards, each of which, in turn, is to bring in $500. Respondent's testimony that a signi ficant source of fund for the retirement of card would, eventually, be interest or dividends from investments was far from persuasive although Respondent Ernst appeared sincere in his opinion that such would be the case. He appeared equally sincere in his belief that all that is required to make good on the promise of $500 per card is the unremitting cooperation of members, present and future, to effect the never-ending purchase of new cards.
The representations found are material in that their natural tendency is to cause readers to purchase memberships and additional cards in Respondent's club.
Complainant has proved the second count of the Complaint by evidence that Respondent seeks to obtain money through the mails by urging and causing others to make the same representations to third parties. See United States v. International Term Papers, Inc., 477 F.2d 1277 (1st Cir. l973).
1. Respondent is engaged in conducting a scheme to obtain remittances of money through the mails by means of materially false representations in violation of 39 U.S.C. § 3005.
2. An order in the form attached should be issued against Respondent.