In the Matter of the Complaint Against FIRST NATIONAL CITY FUNDING, INC. FIRST NATIONAL CITY FUNDING 2413 West Main Street at Kalamazoo, MI 49007-3046 P.S. Docket No. 17/61; 12/09/83 Duvall, William A. APPEARANCES FOR COMPLAINANT: H. Ric hard Hefner, Esq. Law Department United States Postal Service Washington, DC 20260-1100 Steven B. Caver, Esq. Central Region United States Postal Service Chicago, IL 60607-5401 APPEARANCE FOR RESPONDENT: Garold A. Goidosik, Esq. 137 North Park, Suite 103 Kalamazoo, MI 49007-3728
In a Complaint filed August 12, 1983, the Consumer Protection Division, General Counsel's Office, United States Postal Service (Complainant) alleged that Respondent is engaged in a scheme or device to obtain money or property through the mails by means of false representations within the meaning of 39 U. S. Code § 3005. The scheme is alleged to involve the use of advertisements and telephone solicitations to induce persons to remit money to purchase gold or silver. Complainant alleged in paragraph 2 of the Complaint that in the aforesaid advertisements and telephone solicitations, Respondent makes, expressly or impliedly, the following representations, which in Complaint paragraph 3 Complainant charged are materially false in fact:
(a) Persons remitting money to Respondent for the purchase of gold or silver will receive a certificate stating the quantity purchased, the serial numbers of the gold and silver, and the location of said gold and silver.
(b) Respondent purchases gold and silver for persons upon receipt of the purchase price.
(c) Purchasers of gold or silver from Respondent may have Respondent sell said gold or silver upon demand.
(d) Respondent will act as the customer's broker or agent for the sale of gold or silver.
(e) Respondent will buy the customer's gold or silver or find a purchaser.
(f) Respondent is registered with the Commodity and (sic) Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant and can legally buy and sell futures. 1/
Respondent filed a timely Answer to the Complaint denying or admitting the allegations, in whole or in part, as now set forth. Respondent denied that it is engaged in a scheme within the purview of 39 U. S. Code § 3005. It denied paragraph No. 1 of the Complaint as alleged, but admitted it does utilize advertisements and telephone solicitation in the course of its business. Respondent stated that its customers remit payment by a variety of means, including the U. S. mail.
With respect to the various specific representations charged in paragraph No. 2 of the Complaint, Respondent admitted or denied them as follows:
Comp. Par. No. Respondent's Answer
2(a) Denied, but admitted that it did indicate to a limited number of prospective customers that if they purchased the "Executive Corner Stone Plan", they would receive a certificate which would evidence their ownership of the particular metal purchased; asserted that at no time did Respondent contemplate or represent that certificates would contain serial numbers or identify the location of said metal; and stated that said certificates are non-negotiable and non-transferable.
2(b) Denied.
2(c) Denied, and said that Respondent explicitly states that the company would not guarantee a market for the metal, although, obviously, the company would attempt to sell the metal if that was the customer's request.
2(d) Denied.
2(e) Denied, but stated that Respondent explicitly retained the right to have the first opportunity to purchase the customer's metal if said customer desired to sell the metal. However, Respondent explicitly stated in a variety of manners that the company did not guarantee a market for the metal.
Respondent specifically denies paragraph No. 3 of the Complaint, and continues that even assuming, arguendo, that any of the representations are made, Respondent denies that they are material or false.
A hearing was held on October 4 and 5, 1983, in Detroit, Michigan.
The testimony of some of the witnesses will be reviewed in detail in order to set forth the nature of Respondent's business and the manner in which it has been conducted. Other testimony will be reduced to its bare essentials in order to state briefly but fully the relevant and material portions of such testimony.
Earl Denby was the first witness called by the Complainant. Mr. Denby, a resident of Kalamazoo, Michigan, is a management trainee for Color Town, Incorporated. He graduated from Roger City High School, in Roger, MI, and he had six months study of law enforcement in the Community College in Alpena, MI. He has had a number of jobs with various companies, one of which companies was the Respondent in this case. Mr. Denby worked for Respondent beginning "around the last part of April," 1983, and ending in "the second week in August of the same year."
Mr. Denby was hired to sell precious metals over the phone. There was a training program of approximately four weeks for newly employed salespersons. The trainees were furnished a script to use in connection with the sale of a program called 90 day cash delivery program. During the training period the trainees met in a local hotel or motel where they would practice the script by speaking into a tape recorder. When one person worked with the recorder, the others would rest, and none left the room without permission after completing the exercise.
The 90 day cash delivery program (90 DCD) was one in which the investor could "put up a 32 per cent equity participation, and control a hundred per cent of the metal." An alternative was that the investors could send in whatever amount they wishes, and they could take immediate delivery of whatever quantity of metal the money would buy. After completing the training course, Mr. Denby actually started soliciting sales by telephone in about the last week in May, 1983. He was then an "account executive," and his final role with the company was that of office manager.
Mr. Denby identified the following exhibits which were mailed to prospective customers:
CX-1 - A pamphlet sent to persons interested in buying coins.
CX-2 - A brochure explaining the 90 DCD. (App. A hereto)
CX-3 - A form to be filled in by the investor giving,
primarily, certain financial data about the investor.
CX-4 - A client account agreement setting forth the general
rights and responsibilities of the investor and
Respondent. There are spaces for the signatures of
both parties. (Tr. 5-8) (App. B hereto)
Mr. Denby was told to say, when speaking with a prospective investor, that silver purchased under the 90 day plan could be sold at any time and that Respondent would buy back such silver. In practice, however, when a customer called and said he wanted to sell the silver previously bought, the effort was made to have the customer hold his silver as long as he could be persuaded to do so. As a result, there were delays in selling silver for customers, and there were numerous complaints from customers for whom sales had been made but who had not received their money for long periods of time. (Tr. 9)
During the remaining approximately 10 weeks of his employment with Respondent, Mr. Denby was never aware of any silver being purchased by Respondent, although he did see two 100-ounce bars that had been brought from the upper to the lower level of the quarters occupied by Respondent. He did not know whether those two bars were sold to a customer. In the office in which he worked there was a 400 lb. rollaway safe which he saw open on occasion. There were file boxes in the safe but he did not know what was in the boxes. (Tr. 10, 18)
Near the first of June, 1983, the 90 day program was discontinued and an Executive Cornerstone Purchase Plan was adopted. This plan was not described, except that customers were told that they would receive a certificate seven or ten days after the customers' checks had been cleared or after other payment was received. During the period of his employment with Respondent, Mr. Denby sold to only two customers, but 16 to 20 names of persons who had been customers of other account executives were assigned to him for servicing. He had no knowledge as to whether any certificates were mailed. He knew of no customer complaint about the nonreceipt of a certificate. (Tr. 11, 17, 18)
When a caller asked for a copy of Respondent's financial statement, Mr. Denby had been told to say that he would be glad to send one, but first, Respondent would like to see the caller's financial statement to establish that the potential customer was able to buy the metal. The usual response to this offer was that the prospect would either hang up or would not do business with Respondent. (Tr. 12)
Some of Mr. Denby's testimony was quite equivocal. For example, he testified at one point that the customers who complained to him were customers who had dealt with the Florida office of Respondent. (Tr. 19, lines 3-13) Later, he stated that not all the complaints he received came from persons who dealt with account executives in the Florida office. (Tr. 19, line 14 - Tr. 20, line 17) He then stated that not "any of these complaints" were from people "who sold should read "bought" the program from someone in the Michigan office" so far as he knew. He continued that Respondent had only two offices --one in Florida and one in Kalamazoo. (Tr. 20, lines 22-24) Thus, if none of the complainants had dealt with people from the Kalamazoo office, the only other place in which they could have traded with Respondent was the Florida office.
Another inconsistency is found in the testimony concerning the buy-back situation. Mr. Denby stated that he was told to say that if purchasers wanted to sell their silver, Respondent would buy it back from the customer. Mr. Denby later was asked whether it would "be more accurate to say that the solicitation, or presentation went --that customers were told that the market would not be guaranteed, but they would make the first opportunity --take the first opportunity to purchase back the metals. That they Respondent did not guarantee a market." To this question, Mr. Denby replied:
"That's true." (Tr. 22)
There is some discrepancy in the testimony of Mr. Denby in regard to the fees that prospective customers were told they would be charged in connection with their transactions with or through Respondent. (Tr. 24-26) There is no charge in the Complaint that is based upon or related to any such fees, however, so this question is of no relevance in this proceeding except to the extent it may bear upon the credibility or the accuracy of the memory of Mr. Denby.
Joe Tabarracci, Sacramento, California, is a construction contractor. His dealings with Respondent are reasonably typical insofar as this record shows, and an account of these dealings is informative.
He said that he first became aware of Respondent in April, 1983. Actually, exhibits in the record indicate that his first contact with the company occurred in March, 1983, when he received a telephone call from a man named Ted Levitt. Levitt wanted to interest Mr. Tabarracci (hereafter in this summary sometimes referred to as "Customer") in buying silver. Levitt said a lot of money could be made in this metal, the market price of which was said at that time to be $10.58 per ounce, but was priced by Levitt at $10.90. (CX-5A; Tr. 29, 45)
The customer did not purchase at that time, but he indicated an interest in the investment so Levitt said he would outline a transaction in writing and send it to the customer who could accept or reject the offer. Customer agreed with this suggestion and he later received a Transaction Statement (CX-5B) outlining an arrangement under which for the sum of $14,878.50 to be paid upon acceptance of the offer, customer would have the right in 120 days to take delivery of 6,500 ounces of silver, upon payment of the balance of the total sum of $70,833.10. Levitt said that Respondent would sell the silver for Customer at any time. Whatever profit resulted was to be paid to Customer. (Tr. 32-33) (CX-5B, Transaction Statement, is App. C hereto)
Other items Customer received with the Transaction Statement were a brochure describing the 90 Day Cash Delivery Program (90 DCD), (CX-5C); a Client Account Agreement setting forth, in general, the respective rights and responsibilities of Respondent and persons participating, in this instance, in the 90 DCD Program (CX-5D); a Client Information form calling for, principally, such information as the home and business addresses of the prospective investor, the type of business in which he is engaged, his financial status and the name and address of his bank (CX-5E); and a "Storage Record" on which transactions were to be recorded, giving Ted Levitt's name as the Account Executive, showing the Michigan and Florida office addresses and telephone numbers and an 800 number to use in reaching the Michigan office. (CX-5F) Mr. Tabarracci signed the Client Account Agreement and the Client Information sheet and returned them to Respondent. (Tr. 33-34)
On March 15, 1983, after he had received the Transaction Statement, Mr. Tabarracci was called again by Levitt who said that silver had gone up, that there was a profit in it already for Customer, nd Levitt asked if Customer wanted to go ahead with the proposal. Customer said he did want to purchase and he then went to his bank where he got a cashier's check dated March 15, 1983, in the amount of $14,878.50 which he mailed to Respondent at its address in Kalamazoo, Michigan (CX-5G). (Tr. 35)
In early June, 1983, Mr. Tabarracci was advised that the price of silver was up to about $13.57 per ounce. He called Respondent's Florida office and told Peter Randozzo, an account executive with Respondent, that he wanted to sell. Randozzo did not want Customer to sell and, in fact, wanted him to buy an additional 10,000 ounces of silver, saying that it should be between $15 and $16 within three weeks. After some prolonged discussion Customer told Randozzo that he was going to spend a weekend at Lake Tahoe. He told Randozzo that he would not be able to contact him for several days, but if the price of silver should decline, Randozzo was to sell. Upon his return to Sacramento the following week, Customer learned that the price had fallen to approximately $12.18. He attempted to call Randozzo, but was told that the latter had gone to New York and was not available. At the end of the week, Customer called Respondent's Michigan Office only to learn that Randozzo no longer worked for Respondent. He asked to speak with Tony Tucello, another of Respondent's employees whom he had met, and was told that he, too, no longer worked for Respondent. He was told that a new account executive, Mr. Denby, would be assigned to handle his account. Mr. Denby called him later in the day and indicated that it was a bad time to sell, even though the price was down to a little below $12, because a period of rising prices seemed to be underway. Customer was told that there was no cause for worry and that he should hold on to the silver he had bought. Mr. Tabarracci agreed to stay, but he told Denby that if the price should get down close to his purchase price of $10.90 he definitely wanted to sell. Denby said: "Okay. We'll keep in touch." (Tr. 36-38)
On or about June 21, 1983, Denby called the Customer, who told him he wanted to sell his holdings. Tabarracci said he needed some money to pay off some marginals which were being called. Denby told him that he would sell Tabarracci's silver and send him a check for the proceeds. Denby said the money would reach the Customer in five to seven days. Mr. Tabarracci called Respondent on several occasions after the June sale date, and he talked with Denby in July and with James Hathaway, Respondent's President. Each time he called to try to get Respondent to sell his silver holdings, regardless of the person with whom he spoke, he encountered either opposition to such sale or delaying tactics and evasive language to the effect that he should hold on a little longer, or he should be patient with Respondent --there was nothing to worry about because he was going to get his money back. (Tr. 42, 43, 44, 56, 61, 64) Despite these frequent requests for a check for the money he was due, Mr. Tabarracci never received a Transaction Statement evidencing the sale of the silver and he never received a check from Respondent. By his computations, which were not verified, Respondent owes Mr. Tabarracci about $24,000 in addition to the $14,878.50 which he remitted by check of March 15, 1983. (Tr. 44)
Mr. Tabarracci received in an envelope postmarked Denver, CO, July 17, 1983 (1) an anonymous letter suggesting that if he was having difficulty recovering money from Respondent it might be to his advantage to contact an unnamed government agency and to file complaints with the Attorneys General of California and Michigan; and (2) a form of letter that might be used to file a complaint with Postal Inspector Ed Reda, in Detroit, requesting "any help your agency can offer me in the recovery of my funds." He said the receipt of these materials caused him no concern about Respondent, and he took no action based upon them. (Tr. 55; RX-1A)
Glen Kegley, Complainant's next witness, is a pharmacist in Hutchinson, MN. In November 1982 he received some telephone calls at his place of employment from a female employee of Respondent who did not otherwise identify herself. She wanted to know if Mr. Kegley was interested in investing in commodities. The caller offered to send brochures of the company, with Mr. Kegley said he would like to examine. Subsequently, he received a brochure promoting transactions in diamonds and emeralds. (Tr. 68) He received another call about investing in diamonds and emeralds, but decided he did not want to make that kind of investment. (Tr. 67-68)
Shortly before Easter of 1983 Mr. Kegley was called by R. C. Lilly on behalf of Respondent and Mr. Lilly said "that the market was bullish on silver at that time" and wanted to know if Mr. Kegley was interested. Mr. Kegley understood that the company would act as his broker. He said that he understood, also, that Respondent had silver in its possession; that he would pay 31 per cent of the price of the amount of silver he wanted to invest in; and that whenever he wanted to sell, he could do so at the current market price. (Tr. 69)
Four days after the last call he decided he would invest in silver, so on April 4, 1983, he purchased 500 ounces of silver. He mailed his check for $1,718.95 to Respondent at 2413 Main Street, Kalamazoo, MI. (CX-6A) He later received a Transaction Statement confirming his purchase. (CX-6B, top half) Both Mr. and Mrs. Kegley executed a Client Account Agreement form and mailed it to Respondent. (CX-6C) He said that he read this agreement. (Tr. 81) A copy of the envelope in which he received the Transaction Statement and the Client Account Agreement is CX-6D. (Tr. 70)
On or about April 19, 1983, Tony Tucello, an account executive for Respondent, called and said that the silver market was bullish, and wanted to know if Mr. Kegley would like to invest in some more. Mr. Kegley was interested, but a bit short on cash at the moment so Tucello offered to see whether Kegley could buy some but make only a partial payment. Tucello called back and said that the company approved his buying another 500 ounces. He paid $1000 by bank wire and the remainder was to be paid in three or four weeks. He received a Transaction Statement confirming the deal and indicating a balance due of $994.08. (CX-6E) Mr. Kegley became a little concerned about what might happen if he did not have the balance ready in three or four weeks, but Tucello said that the timing was not that important. (Tr. 71-72)
Later that same day, Kegley called Tucello and requested him to sell the first 500 ounces Mr. Kegley had bought, and to use the proceeds of the sale to pay the balance due on the second 500 ounces of silver. Although he was reluctant to do so, Mr. Tucello finally agreed to accede to Mr. Kegley's request. The excess, if any, of funds remaining after the sale were to be paid to Mr. Kegley. Contrary to the terms of the agreement, however, Mr. Kegley received within the next seven to ten days a Transaction Statement advising him of a "settlement failure" with respect to the first purchase and a refund of $975 representing his initial payment of $1000 less a $25 Administration Fee. Mr. Tucello said that company policy prohibited Mr. Kegley from cancelling one transaction to set off against another. Mr. Kegley protested that he had not been advised of that policy and he testified that as of the date of the hearing he still had received no such advice. (Tr. 72-73; but see § 2.07 of CX-6C)
On June 6, 1983, Mr. Tucello returned an earlier call from Mr. Kegley, who told Tucello to sell at that time. Mr. Tucello quoted the current price of $11.63 and he said the sale would be executed. Mr. Kegley did not receive confirmation of the sale. Two or three weeks later he called Respondent and the call was referred to Earl Denby. Mr. Denby said he could not give Mr. Kegley the status of his account at that time. Kegley tried, apparently without success, to contact Denby two or three days later. On June 13, Mr. Kegley was advised that although Respondent had thought his account was closed with the return of the $975, when a check was made of the computer it revealed that there was still a record of the initial 500 ounces that Mr. Kegley had purchased. Mr. Kegley told Denby to sell and close out that account. (Tr. 74-75)
Mr. Kegley never received a Transaction Statement confirming the sale of this silver and he never received a check from Respondent for this sale. He stated that his investment with Respondent was $1,719. Based on his computation, taking into consideration fees of 3 per cent, 1 per cent, 4 per cent commission and the 10 1/2 per cent charge on the unpaid balance, Respondent owes him a total of a little over $2100.00. (Tr. 75-76)
Mr. Kegley said that in his initial conversations with Messrs. Lilly and Tucello, he was told that when he wanted to sell, the execution of it would be immediate. He added that he is aware that the market may not always be favorable and that sales may not always be capable of being executed immediately, but he was never given the impression that it would take very long. (Tr. 76) A somewhat more detailed account of Mr. Kegley's relationship with Respondent is in the record as CX-6F.
Postal Inspector Stephen Lokken, to whom this case had been assigned, was the next witness called by Complainant. Between September 16 - 19, 1983, Inspector Lokken interviewed five persons who had had business dealings with Respondent. Inspector Lokken included the statements of the witnesses in memoranda which were received in evidence as CX-7 through 11, with sub-exhibits in each instance. The testimony of each of the witnesses, while differing in details, was in a substantially similar vein. Each, after making contact with, or being reached by representatives of Respondent, gave instructions to purchase varying quantities of silver. So long as the instructions of the individuals were to purchase whatever quantities were desired, all went well. However, when the individuals told Respondent to sell and remit the proceeds to the individuals, there were delays which in most instances developed into failure (1) to issue Transaction Statements and (2) to make remittances of the investors' funds.
There were also received in evidence, as CX-12 and 13, testimony of two persons who were witnesses in a related court proceeding brought against the Respondent under 39 U. S. Code 3007. The histories of their dealings with Respondent generally paralleled those of the five persons interviewed by Inspector Lokken. Rather than to relate in detail the testimony of these witnesses and the persons interviewed by Inspector Lokken, the more critical and pertinent parts of their testimony have been set forth in the table which follows.
On cross-examination of Inspector Lokken it was pointed out that Mr. Moriarty (CX-10A, et seq.) had told Inspector Lokken that he had been improperly charged by Respondent for attorney fees and telephone bills. (CX-10A, § 3) On the other hand, there are several references in CX-10B to calls by Mr. Moriarty to Mr. Hathaway's attorney (under dates of 13, 15, and 16 June; 5, and 8 July, 1983) and there was a question as to whether the Inspector was aware that Mr. Moriarty called Respondent's toll free number approximately 40 times in one hour on a particular day. Furthermore, there are two instances (under dates of 15 June and 5 July) in which, respectively, Respondent's President and Respondent's attorney were told by Mr. Moriarty to add whatever charges they thought were "justified" and put it on the statement with the reason for the charge.
Concerning the matter of improper charging of fees, even assuming, without agreeing, that Mr. Moriarty's position on this question is correct, there is no charge in the Complaint raising this issue. Hence, if Mr. Moriarty's allegations were established by the evidence, which they are not, no mail-stop order could be issued on the basis of this situation alone.
During the course of the testimony of the witnesses, it became apparent that many, if not most, of the problems concerning which testimony was received arose in connection with sales made by employees of Respondent who worked in the Florida office. (Tr. 19-20, 127-128) In response to a question from Respondent's Counsel, Inspector Lokken said that the fact that most of the complaints received by the Postal Service which formed the foundation of this proceeding relate to Respondent's representatives in the Florida office "could" indicate where the trouble started. (Tr. 128)
In regard to most of the trouble originating with persons in Respondent's Florida office, it must be recognized for what it is - an unproven bit of speculation - since no sufficient evidence on this point was introduced or offered to support a finding of fact in Respondent's favor. There is no proof, for example, that Respondent's Florida representatives were or were not taught or permitted to make representations to prospective investors which representations later gave rise to some of the investors' complaints.
Three witnesses were called by Respondent, the first of whom was James Lustick, Kalamazoo, MI. Mr. Lustick became aware of Respondent in about April 1982 and he became interested in purchasing silver in May 1981. Mr. Lustick met James Hathaway about 22 years ago, knew him for a time, there was a period of about 15 years in which he did not know him, and he remet him a few years ago. Mr. Lustick wanted to buy some silver and he knew Mr. Hathaway sold it, so Mr. Lustick talked with Mr. Hathaway about it. Mr. Lustick decided to purchase through Mr. Hathaway and he bought under what he termed a 30, 60, or 90 day spot. As a result of this transaction there came a time when he took possession of the silver. Mr. Lustick wanted, and Mr. Hathaway obtained for him, a quantity of the particular brand known as Englehard silver. He had no complaints about the transaction. (Tr. 133-137)
Mr. Lustick was asked to, and did, display a silver piece described as "a small, thin wafer-shaped bar of approximately 2" x 1" that has stamped on it 1 Troy ounce fine silver, .999 plus with a name Englehard." There are "numbers on the bottom PT7,75737 on the one side, and on the opposite side on an angle the stamped name of Englehard." Mr. Lustick is convinced of the genuineness of the silver as being the product of Englehard, which he ordered. He paid for the silver and received it from Mr. Hathaway at a later date. He had no difficulty in getting the silver at his request. (Tr. 138-139)
Mr. Lynn J. Vanders, of Gladstone, MI, assistant manager at the Terrace Motor Inn in Escanaba, MI, was called as the next witness by Respondent. Mr. Vanders' first contact with Respondent was on November 4, 1982. It was explained to him that he could purchase silver or participate in a delayed delivery program. He made later purchases on November 7 and 12, 1982. In each instance he participated in what was referred to as the 90 day program, which he referred to as the "Thirty percent participation program." (Tr. 140-141)
He was told that he could sell silver at any time he wanted to and, also, that he could buy whenever he wanted to. He never really wanted to buy the silver, itself. On or about April 25, 1983, after the close of business, he instructed Respondent to sell all of his silver. The sell order was transmitted the following day, and he sold 1,793 ounces of silver at $12.29 per ounce. He received a check for something in excess of $8,600.00. He had sent to Respondent for the silver checks totaling approximately $5,300.00, with the result that he received a profit on his investment of about 52 per cent. (Tr. 142-143)
On cross-examination, Mr. Vanders said that he received a confirmation of purchase. His impression was that Respondent had actually purchased silver for him and was holding it for him, or, at least, that Respondent had the physical silver in Kalamazoo to cover the amount of his purchase. Mr. Vanders sent about $5,300 to Respondent by check in the mail. He was very satisfied in his dealings with Respondent and he had no complaint in this regard. Between March 3 and August 12, 1983, Mr. Vanders made 10 or 11 purchases through Respondent for control of a total of 1,400 ounces worth in excess of $16,000.00. (Tr. 143-145)
Mr. Vanders said that with every purchase he received a Transaction Statement on which was set forth all the information in which he was interested. (Tr. 148)
The third, and last, witness for Respondent was Monica Hathaway, daughter of James Hathaway, Respondent's President. Miss Hathaway did part-time work as a receptionist and typist in Respondent's Kalamazoo office while she was enrolled as a student in Kalamazoo Central High School. Four or five times while she was working she saw either large bags, small bags, or single bars of material she thought was silver or gold. She estimated the large bags to be about eight inches wide. She said that she had occasion to lift the bags and they seemed "very heavy" - as heavy as if they contained bricks. She thinks she saw both gold and silver, but more of the latter. (Tr. 149-151) She recalled one instance in which she saw silver in one such bag. (Tr. 159)
Tom Harker worked in Respondent's Florida office. He was the President of Respondent's metals division. He called Miss Hathaway frequently and directed her to send out certain mailings. There were occasions, also, when he told her to type on the Transaction Statement forms figures which he would give her. She was familiar with most of the computations that had to be made concerning those statements. Eventually, there came a time when Miss Hathaway questioned the propriety of what she was being directed to do. For example, some of the figures Mr. Harker gave her were not accurate, whereupon she would recompute the figures and ask her father or someone else to check her computation. She did not always recompute figures given to her by Harker, who, at times, became quite forceful in ordering her to do things. (Tr. 153-154)
Miss Hathaway did not know where the bags which she said she believed contained silver or gold were kept. She does not believe that there was a place in the office or in the house where the office is located where silver was stored. (Tr. 155)
She said she was familiar with certificates that were "to be mailed to customers stating that they did have silver in quantity *** where it was stored," and that she had seen such a certificate. She did not mail them, and she did not know what information was to be contained on them. (Tr. 156)
As part of her duties, Miss Hathaway answered all the telephones, including both toll free and local calls. She received customer complaints from people who were trying to get through to someone who was busy. Mr. Hathaway, Mr. Denby, and at times others told her to say that they did not want to talk to someone - possibly a customer of one of the men. She does not believe that she was ever advised by them to say things over the phone that were not true, about such things as meetings, the computer being down, and auditors being there. When asked if she remembered receiving calls from someone whom she considered to be harassing her she said "I believe a Mr Moriarty." (Tr. 157-159) She stated that on one occasion he called about every five or ten minutes until he had made "probably forty calls." (Tr. 160)
Most, possibly all, of the people who called the Kalamazoo office to complain, and with whom she spoke, originally had been introduced to Respondent through their dealings with representatives in the Florida office. Some of the people in the Florida office were discharged from the company by her father, including specifically, Messrs. Harker, Osborn, Lilly, and Levitt. (Tr. 160-161)
1. The Making of the Representations
Certain guidelines which are delineated in the decisions of various cases will be followed in deciding this case. First, there is the question as to whether the Respondent makes the representations with which it is charged in paragraph 2 of the Complaint. The following considerations form the bases for the making of this determination.
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. 1957); 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 Consumers Council, 425 U.S. 748 (1976).
2. The Materiality of the Representations
If a mail stop order is to be issued in a case brought under 39 U. S. Code 3005, the preponderance of the evidence must show not only that the representations alleged in the Complaint are made by the Respondent, but also that the representations are material. One way of determining whether representations are "material" is by asking the following questions with respect to them:
1. Is the natural tendency of the representations that of causing the readers or hearers thereof to do what the maker of the statements intends the readers or hearers to do such as, for example, buying a particular product or service? (In re Columbia Mint, P.S. Docket Nos. 15/98, 15/99, May 27, 1983, I.D., pp. 39-40)
2. Do the representations "cause the other party to do other than that which would have been done had the truth been told?" (Chaachou v. Central American Insurance Co., 241 F.2d 889, 893)
If the answer to both of these questions is in the affirmative, the representations are material.
1. Respondent conducts its business from locations in Kalamazoo, Michigan and Hollywood, Florida. (CX-5F)
2. Respondent, in the conduct of the business which is the subject of this proceeding seeks to obtain, and obtains, remittances of money to its Kalamazoo, MI office through the mail for certain metals, including gold and silver. (CX-5G, CX-6A)
3. In the course of its business Respondent solicits sales by means of advertisements and by telephone solicitation. (Ans., par. 1)
4. In the conduct of its business Respondent uses, and causes the use of the United States mail. (Ans., par. 1; CX-5B; Tr. 32; CX-5G; Tr. 35; CX-6D)
Are the Specific Representations Made?
Respondent makes, in whole or in part, or does not make the representations with which it is charged as will now be found. In the Complaint as filed it is alleged that Respondent makes in its sales solicitations six representations (Comp., pars. 2(a) through 2(f)) all of which, Complainant alleges, are materially false as to matters of fact. It has been pointed out that Respondent's Motion to Strike alleged representation 2(f) was granted. The remainder of the representations now will be restated, underscored, discussed, and found to be, or not to be made.
Charge 2(a)
(a) Persons remitting money to Respondent
for the purchase of gold or silver will receive a
certificate stating the quantity purchased, the
serial numbers of the gold and silver, and the
location of said gold and silver.
In Webster's New World Dictionary, College Edition, Copyright 1964, "certificate" is defined as --
"a written or printed statement testifying to a fact, qualification or promise***."
"Certificate" is defined in Blacks Law Dictionary, Fourth Edition, Copyright 1957, as --
"A written assurance, or official representation, that some act has or has not been done, or some event occurred, or some legal formality been complied with."
Respondent's Client Account Agreement, of which Appendix B is an example, contains the following, among other, provisions:
* * *
"Having carefully considered the substantial risk of loss, Client has decided to purchase and sell commodities subject to ordinary market conditions which may cause losses, and which routinely result in payment requests which, if not met, result in liquidation of Client Orders at a loss which Client shall pay; and
* * *
"Company. First National City Funding offers solely to reasonably perform Client's instructions from time to time, as subsequently used in this Agreement. Company means F.N.C.F. when performance is routinely allocated to it, provided that such allocations shall not be a defense to any claim by Client except as provided by law, and consequently, it is agreed:
"1. Purchase and sale. Client may issue orders from time to time to Company, subject to the terms and conditions of this Agreement and Company's routine practices.
* * *
5. Statements. Company shall from time to time issue Transaction Statements and Account Statements. Acceptance of such occurs 24 hours after deposit for delivery to Client, provided, however, that a shorter time shall apply if reasonable. Such statement shall be conclusive if accepted without immediate written notice of objection accompanied by all supporting writings. In any event to be given within 24 hours after acceptance of a Transaction Statement and within ten days after acceptance of an Account Statement.
"6. Transaction Statement means that writing prepared from time to time by Company subject to its routines and terms, which sets forth Client's Orders."
* * *
(App. B)
All of the persons whose testimony was given in, or has been incorporated in this record said that they contacted, or were contacted by representatives of Respondent, and that the topic of discussion was the purchase of some commodity - jewels, gold or silver. When actual transactions were made, all of them involved silver. The transactions involved amounts of money and quantities of silver that were of significance to the parties. The whole atmosphere surrounding these contacts clearly suggested in the conversations, and in the literature (received later, frequently) that a transaction was about to be entered into as a result of which some sort of confirming notice would be issued.
It is inadvisable and difficult today to buy even a package of chewing gum at a drug store, or to buy any other item, large or small, at any store without being urged to take a receipt for the purchase. The receipt is for the protection of the seller as well as the buyer, and the giving of a receipt is a generally known and widely accepted practice. The circumstances surrounding the negotiation and consummation of transactions of the kind found here carry with them and create in the minds of the buyers an assurance that they would receive such a confirmation.
Respondent's "Transaction Statement" is much more than a receipt and it is well within the definitions of certificate quoted earlier from a popular general dictionary and from a widely recognized dictionary of legal terms.
The record reveals that two persons, Mr. Denby and Ms. Roth, mentioned "certificates." Mr. Denby spoke of certificates in connection with a plan called, but otherwise not explained, the "Executive Cornerstone Purchase Plan." Some of Ms. Roth's money was invested in this Plan, as shown in CX-11B, bottom half, which is the standard form of "Transaction Statement" used by Respondent to confirm transactions made for its clients. Neither Mr. Denby, nor Ms. Roth, nor any other witness ever said that it was represented by Respondent or its representatives that the "certificate" would state "the serial numbers of the gold and silver, and the location of said gold and silver."
5. Respondent, by implication, makes that portion of representation 2(a) which reads "Persons remitting money to Respondent for the purchase of gold or silver will receive a certificate stating the quantity purchased."
6. Respondent does not make that portion of representation 2(a) which follows the phrase "stating the quantity purchased."
Charges 2(b), 2(c), 2(d) and 2(e)
(b) Respondent purchases gold and silver for persons upon receive of the purchase price.
(c) Purchasers of gold or silver from Respondent may have Respondent sell said gold or silver upon demand. (Denby, supra, p. 5; Levitt to Tabarracci, supra, p. 9, Lilly to Kegley, supra, p. 13)
(d) Respondent will act as the customer's broker or agent for the sale of gold or silver.
(e) Respondent will buy the customer's gold or silver or find a purchaser.
These charges are grouped together for the reason that they relate to functions that logically could and would be expected to be performed by those engaged in the type of business activity pursued by Respondent.
For the reasons stated earlier herein in respect to charge 2(a), and for the reasons stated immediately above, there would be created in the minds of readers or hearers of the sales solicitations of Respondent's literature and representatives the impression that when they became clients of Respondent, all of the foregoing acts indicated in charges 2(b) through 2(e) would be performed on their behalf by Respondent, upon payment by the clients of the required amounts of money or when they decided to sell their holdings.
While that portion of representation 2(e) relative to Respondent's repurchase of silver is made by implication as stated above, it was explicitly said by Roger May that he understood it to have been made by one of Respondent's representatives. (CX-13, p. 85)
On the other hand, the following disclaimer appears in the Client Account Agreement:
"1.04 --Markets. Company shall execute Client's orders under market conditions, to the extent that a market exists. Company shall have no obligation to make a market in any commodity or to purchase or sell any commodity or to deal in commodities for, or with, Client. Although Company may purchase or sell commodities for its own account on a continuous basis and intends to do so, Company may initiate or cease such trading or the execution of any order according to its routine practice." (App. B)
Obviously, "Company" has given itself the widest leeway to determine what it may or may not do in connection with trading with and for its customers. It may be said that the customers should have read the Client Account Agreement carefully so as to understand just what the customer/company trading relationship would be. The fact is, however, that no amount of study and analysis of the above short paragraph would equip a customer to know precisely what Respondent would do in trading with the customer under any given set of circumstances. Because there are insufficient facts in the record, one is left to wonder how many times the problem is further aggravated, as in the cases of Ms. Roth and Mr. May, by Respondent's sending the Client agreement, with its disclaimers, to the client after the client had sent the money to the Respondent. In those cases, therefore, it would not much matter what the agreement said, certainly insofar as the initial investment was concerned. Finally, in most instances the customer had been "softened up" by telephone calls by salesmen who had been, as indicated by Mr. Denby, practically incarcerated in a motel room rehearsing the pitch to be made in the sales solicitation. The amount of attention one would pay to printed matter after such personal, human persuasion is unknown and it will not be the subject of speculation.
7. In its written or oral sales solicitations, Respondent represents directly or indirectly, in substance and effect, by affirmative statements, implications or omissions that Respondent purchases gold or silver for persons upon receipt of the purchase price therefor.
8. In its written or oral solicitations, Respondent represents directly or indirectly, in substance and effect, by affirmative statements, implications or omissions that purchasers of gold or silver from Respondent may have Respondent sell said gold or silver upon demand.
9. In its written or oral solicitations, Respondent represents directly or indirectly, in substance and effect, by affirmative statements, implications or omissions that Respondent will act as the customer's broker or agent for the sale of gold or silver.
10. In its written or oral solicitations, Respondent represents directly or indirectly, in substance and effect, by affirmative statements, implications or omissions that Respondent will buy the customer's gold or silver or find a purchaser.
Materiality
11. The representations found to have been made by Respondent are material representations because they are of the kind and character that would, and did cause their readers or hearers to do what the Respondent wanted them to do --something that the readers and hearers would not have done had the truth been told to them.
Truth or Falsity
Respondent failed to supply Transaction Statements confirming sales of silver for all persons whose testimony was given in, or was incorporated into the record of this proceeding. The only charge in the Complaint related to the furnishing of "certificates," however, is limited to a transaction in which gold or silver was purchased.
12. The charge that Respondent falsely represents that persons remitting money to Respondent for the purchase of gold or silver will receive a certificate stating the quantity purchased is dismissed for want of proof. (Charge 2(a) as found to be made in F.F. 5, supra.)
13. With respect to the representation, found to be material and to have been made by Respondent, that Respondent purchases gold or silver for persons upon receipt of the purchase price, there is insufficient proof of falsity of this charge and it is dismissed for want of proof. (Charge 2(b))
14. Respondent's material representation that its customers may have Respondent buy and sell gold or silver upon demand is false in instance after instance with respect to customers' orders to sell, but it is true with respect to customers' purchase orders. (Charge 2(c))
15. Respondent's material representation that it will act as the customer's broker or agent for the sale of gold or silver is false. (Charge 2(d))
16. Respondent's material representation that it will buy the customer's gold or silver or find a purchaser is false. (Charge 2(e))
Respondent, First National City Funding, Inc., and First National City Funding, 2413 West Main Street, Kalamazoo, MI, is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations within the meaning of 39 U. S. Code § 3005.
Proposed findings of fact, conclusions of law and supporting arguments were submitted by both parties, orally, after the testimony had been completed. All of such proposals and arguments have been considered in arriving at this decision. To the extent herein indicated such proposed findings and conclusions have been adopted. Otherwise, they have been rejected for the reasons stated, or because they are unsupported by or contrary to the evidence, or because they are irrelevant or immaterial, or both.
A mail stop order as provided in § 3005 of Title 39, United States Code, and substantially in the form attached, should be issued against this Respondent.
1/ This charge was stricken at the hearing on motion by the Complainant.