In the Matter of the Complaint Against CM/NA COMMISSION MAILERS OF NORTH AMERICA P. O. Box 464 Woodstock, IL 60098-0464 and P. O. Box 950 Woodstock, Il 60098-0950 and ISDC INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION P. O. Box 464 Woodstock, IL 60098-0464 and MICHAEL NARCUM 1954 Hilltop Ct. Woodstock, IL 60098-2539 and DIVISION HEADQUARTERS P. O. Box 464 Woodstock, IL 60098-0464 and ORACLE INTERNATIONAL DEPARTMENT H POLB 464 Woodstock, IL 60098-0464 and MAILERS P. O. Box 464 Woodstock, IL 60098-0464 Docket No. 20/33; 11/05/85 APPEARANCES FOR COMPLAINANT: Don A. Potter, Esq. H. Richard Hefner, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260-1112 APPEARANCE FOR RESPONDENT: Joseph P. Condon, Esq. Condon & Zopp, Ltd. 550 Crystal Point Drive Crystal Lake, IL 60014-8079
The General Counsel of the United States Postal Service (Complainant), filed a Complaint alleging that Respondents, doing business under certain of the names */ and at the addresses set forth in the caption hereof, are engaged in conducting a scheme or device to obtain money through the mail by means of false representations in violation of 39 U.S.C. § 3005.
After (1) alleging that the Postal Service has jurisdiction over this matter and (2) identifying (a) some of the names and the addresses under which the business of the Respondents is conducted and (b) the name and address of the individual, Michael Narcum, who is said to be the President of International Success Development Corporation (hereinafter sometimes ISDC) and the person who directs and operates Commission Mailers of North America (hereinafter some times CM/NA), Complainant describes the pertinent activities of Respondents (hereinafter sometimes referred to collectively as Respondent) as follows (starting with par. 4 of the Complaint):
4. Respondents attract attention to said scheme by means of classified advertisements appearing in publications of general circulation which are likely to induce the readers thereof to write an address sic, presumably the drafter meant to say "write to an address" given in the advertisements to obtain more information. A typical example of such an advertisement reads as follows:
ATTENTION: $360 weekly/up mailing circulars] No bosses/limits.
Sincerely interested send self addressed, stamped envelope: Division Headquarters, Box 464CG1, Woodstock, IL 60098.
(Of nine examples of Respondent's advertisements in the file, none is the original of which the language appearing above purports to be a copy.Accordingly, the last sentence of this allegation, starting with "A typical" and ending with "Woodstock, IL 60098" is stricken. In any event, it is immaterial. A copy of an advertisement actually used by Respondent appears on CX 10b, 1/ and it is Appendix A hereto.)
5. Persons responding to the above advertisement and others similar thereto receive a circular seeking the remittance of money through the mail to Respondents. A copy of one such circular used by Respondents is attached to the Complaint as Exhibit ONE. CX 2, Appendix B to this decision
6. By means of such advertisements and circulars and others similar thereto, Respondents represent, directly or indirectly, in substance and effect, whether by affirmative statements, omissions, or implications that:
(a) Respondents plan will enable the user thereof to make $360. or more per week;
(b) Very little work and time will be required to make $360. per week;
(c) The major expense involved is the purchase price to be sent to the Respondents for their plan;
(d) The work required by Respondents' program consists principally of mailing circulars; and
(e) The plan they sell is legal.
7. The representations set forth in paragraph 6 above are materially false as a matter of fact.
In Count II of the Complaint, it is alleged as follows:
9. Respondents, through their promotion and scheme, urge and cause participants to make the above misrepresentations to third parties, and thereby knowingly seek the remittance of money through the mail by means of false representations made by participants at Respondents' express direction. A copy of the instructions the Respondents mail to persons purchasing the Respondents' plan is attached to the Complaint as EXHIBIT TWO. CX 4, attached hereto as Appendix C
Complainant requested that orders of the types authorized in 39 U. S. Code § 3005(a)(1), (2), and (3) be issued against the Respon dents.
In the Answer to Complaint, Respondent admits that the Postal Service has jurisdiction over this matter, and that CM/NA, Commis sion Mailers of North America, is a division of Respondent Inter national Success Development Corporation, a corporation organized and doing business under and by virtue of the laws of the State of Illinois. Their address is P. O. Box 464, Woodstock, IL 60098-0464 and P. O. Box 950, Woodstock, IL 60098-0950.
Respondent further admits that Michael Narcum is an individual whose address is 1954 Hilltop Ct., Woodstock, IL 60098-2539; that he is the president of Respondent International Success Development Corporation; and that Respondent Michael Narcum also directs and operates Respondent CM/NA.
Because the remainder of the Answer is brief, portions of it will be quoted:
"4. Respondents deny they are engaged in a scheme. Respondent admits that it publishes advertisements in classified advertising sections appearing in publications of general circulation and further admits that said advertisements are likely to induce the readers thereof to write an address given in the advertisements to obtain more information. The Respondents deny that the examples sic set forth in the Complaint is typical.
"5. Respondents admit that persons responding to advertisements published by Respondents receive a circular; Respondents deny that the circular seeks the remittance of money through the mail to Respondents. Respondents deny that the copy of the circular attached to the Complaint is used by Respondents.
"6. The Respondents deny the allegations of Paragraph No. 6 and each of them including the allegations of Subparagraphs a, b, c, and d. The Respondents admit the allegations of Sub-paragraph e.
"7. Respondents deny the allegations of Paragraph No. 7 and each of them.
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"9. The Respondents admit that the copy of instructions Respondents mail to persons purchasing the Respondents' plan is, in fact, a copy of said instructions; and, the Respondents deny the balance of the allegations of Paragraph No. 9."
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Finally, Respondent requested that the relief sought by Complainant be denied.
The hearing was held before the undersigned on February 5, l985, in Chicago, Illinois. Both parties were represented by counsel who participated in the examination and cross-examination of witnesses, and who filed Proposed Findings of Fact and Conclusions of Law, together with supporting arguments.
In order better to state what this case is about, it is appropriate at the outset to give a description of Respondent's product and his methods of reaching and attracting purchasers. 2/
Respondent uses a two-step solicitation approach to obtain money or property through the mails for his work-at-home program. First, Respondent places classified advertisements (e.g., App. A) under such headings as "Business Opportunities" or "Moneymaking Opportunities" in publications of general circulation. These advertisements invite readers to write to Respondent for information about an opportunity to make money by mailing circulars. Second, to persons who respond to the advertisements Respondent sends a direct mail circular. (App. B) Respondent's direct mail circulars invite the readers to send money through the mails for a beginner's package and the right to participate in the CMA and CM/NA Plan B.
Respondent's "beginner's package" primarily seeks to persuade program participants to operate a commission mailing business simi lar to Respondent's. Insofar as this proceeding is concerned, the most important item in the "beginner's package" is the "Personal Success Manual." (App. C to this decision) The "Personal Success Manual" provides a detailed description of Respondent's program. It welcomes the reader to "the highly-profitable field of commission circular mailing and 'mail order'". (App. C, p. 2) It advises that "one of the most profitable fields" is "opportunity offers" selling "books or information about how to make money." (Id., p. 3, par. 1) It urges participants to sell products similar to Respondent's by means of "inquiry advertising" similar to Respondent's. (Id., p. 4, par. 3; p. 9, pars. 5 and 6)
Respondent advises his customers to use a two-step soli citation approach. (App. C, pp. 3, 4, 5) First, inquiries are sought by:
1) Placement of "posters on bulletin boards in college campuses, stores, laundromats, community centers and on telephone booths near entrances to large public buildings." (Id., p. 3, par. 6)
2) Placement of "small classified advertisements in local weekly papers" (Id., p. 4, par. 1) or in appropriate monthly magazines (Id., p. 4, par. 3), and
3) Placement of advertising circulars "in grocery stores and public places." (Id., p. 4, par. 1)
Second, money is sought through direct mail circulars sent to inquirers. (App. C, pp. 4-5) Respondent supplies his customers with sample classified advertisements (Id., p. 9), and he also supplies the names of other companies which are said to provide cir culars and a means of filling orders for these various opportunity offers. (Id., pp. 5, 8)
Complainant's witnesses were Donald Myers, his wife, Melba A. Myers, Wayne A. Hairston, Robert Bobowski and Postal Inspector Isiah Ward. Michael Narcum was a witness for the Respondents.
Mr. Myers and his wife are unemployed and they live on Route 2, Butler, Indiana. Their income from social security was $312 a month when they learned of the Respondent through an advertisement (CX 3) in the Evening Star, a newspaper published in the county seat of DeKalb County, Indiana. After reading Respondent's ad they believed that Respondent was offering employment consisting of stuffing advertising matter into pre-addressed envelopes and mailing them. They believed that they would be paid by the advertiser for this activity. (Tr. 6-7, 21) Mr. and Mrs. Myers wrote to the address shown in the ad and asked for information. In response to this request they received a circular (App. B) in which they were told, among other things, to send $19 to Respondents for "Association Rights and Free Beginner's Package" and that for $1 extra, their order would be given Special Handling and be sent by first-class mail.
The Myers sent a $20 money order (CX 6) to the address indicated on App. B (Tr. 8, 20) and in return received the pamphlet entitled "Personal Success Manual" (App. C). On page 11 of this publication, the reader is told of an --
"ADDITIONAL COMMISSION MAILING AND POSTING OPPORTUNITY
"You may be interested in putting up posters and flyers which result in a commission being paid directly to you on a regular basis. You can do this without having to stuff any envelopes. Through special arrangements made by the CMA with some firms which have these available, you can now take advantage of this additional opportunity. Simply send any or all of the coupons below, filled in neatly with your name and address, plus a #10 (business letter-size) SASE, to the addresses on them. You may also receive additional money-making offers as well when they reply.
"Whichever way you choose to earn your commissions, you'll enjoy the extra money you earn. The road to profits lies straight in front of you. May the greatest of success be yours."
One of the firms with which CMA had made "special arrangements" was Oracle International, Dept. H, POLB 464, Woodstock, IL 60098. In response to another advertising circular received as part of the "beginner's package," Mr. and Mrs. Myers sent a money order, CX 1a, for $15 to Oracle International. In return they received 100 enve lopes for 50 mailings, each mailing to contain a return envelope addressed to Mr. and Mrs. Myers. Mr. and Mrs. Myers received, also, some circulars to be delivered in the mailing, and some to be posted in various locations where they would be seen by the public. (Tr. 6-10, 14, 16-18, 20-24)
Mr. and Mrs. Myers mailed the 50 circulars to friends and neigh bors whom they hoped might be interested in this undertaking and they drove to various business places in five different towns in the county where they put up the posters. Including the $35 they had sent to Respondents, the $24 postage for mailing the circulars, and the money spent for gas to drive throughout the county, the Myers expended an estimated $150 to $160. (Tr. 11, 24) In return, the Myers received two responses, each containing $1 which the Myers were supposed to, and did, keep. (Tr. 10)
Mr. and Mrs. Myers registered a complaint against Respondent with the Postal Service. This complaint was acknowledged by Regional Chief Inspector R. L. Oldham, Central Region, Chicago, IL. (CX 1)
Complainant's next witness was Wayne A. Hairston, Gary, Indiana. Mr. Hairston saw an ad, similar to the one which is App. A, in the Globe, or some similar publication, containing classified advertising. When he mailed his letter of inquiry to Respondent he received the circular on the back of which is the solicitation of $19 for "Association Rights and Free Beginner's Package" all of which, for an extra dollar, will be given "Special Handling and First Class Mail." Upon receipt and reading of App. B, Mr. Hairston believed that his work would consist of receiving material from Respondent, putting it into envelopes, sending it out and getting paid by CMA. It was also his belief that the necessary envelopes would be furnished by CMA. (Tr. 30-32)
In due course, Mr. Hairston received from Respondent by Mail a booklet, but he was not sure that the one he received was entitled "Personal Success Manual, How To Make Hundreds as a Commission Mailer." (App. C) On his first reading of the booklet that he received from Respondent, Mr. Hairston did not understand it, but upon re-reading it he discovered that it contained a feature not mentioned in the classified ad or the circular previously men tioned. The new feature was the fact that he would have to adver tise to engage in this business venture, and that was something he did not wish to do. He, therefore, returned the booklet to the Respondent and asked for the refund of his money. (Tr. 34, 36)
Respondent replied to Mr. Hairston's request for a refund with an undated form letter which was received in evidence as CX 5a. (Tr. 36) It outlined a tedious program to be followed by one requesting a refund. Mr. Hairston complained to the Postal Service concerning his dealings with Respondent, as shown by CX 5d and e, a letter dated July 4, l984, from Mr. Hairston to the Postal Inspection Service in Chicago, and the reply thereto, dated July 24, l985, from Regional Chief Inspector Oldham. (CX 5)
The next witness called by Complainant was Robert Bobowski, Manager of Marketing Communications of Handelan Pedersen, an adver tising, marketing, and public relations agency of Chicago, Illinois. His present position, which he has occupied for two years, is in marketing communications, including corporate direct mail and various other aspects of communications devices. His specific functions include preparing marketing communications programs for large corporations, advertising agencies, and others.
Previously, he had been involved in the direct mail and direct response business for over two decades. His experience spans about 36 years in the advertising business and this involves his having been a vice-president with Jay Walter Scott Advertising and founding their direct response, direct mail division. He was also manager of direct response for N. W. Aaron, another large advertising agency, and has worked for Ken Erickson, another worldwide agency, specifi cally preparing direct mail programs for clients, large and small. His present office develops programs for the beginning stages of marketing a product or a service through the actual execution of it. It includes everything from the development of tests, the analysis of media, the preparation of the actual material, development of record keeping forms and systems, through the on-going testing and analysis required to assure a successful program. (Tr. 43-44)
Among his related activities, Mr. Bobowski currently is Chairman Emeritus of the Echo Awards Committee of the Direct Marketing Association in New York. As the past chairman, he had developed the worldwide standards for establishing credibility and evaluating direct mail programs around the world, and he still serves in that capacity and on that committee. He was also on the Board of Direc tors of the Chicago Association of Direct Marketing and he has helped to develop programs for the industry as to how to conduct such marketing programs. He also has taught an undergraduate and master's course at Roosevelt University in Chicago on direct mail marketing, as well as being a guest lecturer on the subject at the Universities of Minnesota, Wisconsin and Illinois. (Tr. 45)
Mr. Bobowski recently was made an Adjunct Professor of Direct Marketing at Roosevelt University. In lecturing to the various groups at these universities, as well as in conducting these courses, he speaks largely to people who are in the graduate and undergraduate class attempting to get into the direct marketing and direct mail industry. Most of that instruction is of a very basic nature, indicating the actual responsibilities and risks inherent in going into this business, as well as the very strict procedures and disciplines involved in maintaining such a company or operation. (Tr. 46-47)
By virtue of his long experience, practical, theoretical, and academic, in the mail order business and its organizations, Mr. Bobowski has come to know many, if not most, of the more successful companies in that business, as well as knowing through his teaching activities many persons who wish to enter the business and what their problems will be.
With regard to the "commission mailing sources" listed on page 8 of the Personal Success Manual, and recommended to the purchasers of Respondent's product as "those you need to succeed", Mr. Bobowski stated that he had never encountered any of them - a fact that he said is "unusual", but which provides no basis for an opinion as to their integrity. (Tr. 49, 68)
Except for the rare exception when envelopes are unwieldy or too bulky for machine handling, he knows of no companies that pay direct commissions to individuals to stuff envelopes in their homes. The latter practice is a very slow and expensive process, and it is employed in probably less than one percent of the cases. (Tr. 49-50) There are companies, known as letter shops, that have ware houses for the receipt of mailing materials and these companies will establish a system of inserting those materials into envelopes by means of machines that have been developed to reduce the cost of stuffing envelopes. These machines will address, stuff, seal enve lopes and prepare them for mailing. (Tr. 49-50)
Several components are required in order to provide a basis for potential success in a direct mail business involving the use of mailing lists. First, there would be the development of a list by searching from all of those that are available today for rental or that can be compiled combining several lists. Another aspect of it would be to develop a product that is saleable and can be tested for that saleability. A third would be the creation, or purchase, and production of advertising materials to convey to the prospective customers the message and benefits offered by that product or service via the mailing lists. The fourth part of it would be the medium by which this is transmitted, which could be advertising through print media or electronically, through the mails, posters, whatever seems to be the most cost-efficient. (Tr. 51)
Assuming modest costs of about $100 per thousand, if 4,000 advertising pieces were mailed and if a 2 percent response were received from persons ordering a $20 product, the result to the seller would be about $400. (Tr. 52-53)
Selling by the classified ad method is somewhat different. Classified ads are less costly than mailings but they produce far less in terms of response, and as a result, in terms of the number of educated responses. Thus, classified ads, generally, are con sidered as a two-step procedure, one being receiving what are commonly called leads, requiring a secondary communication to each prospective customer in which either written or verbal communication is provided to help acquaint that person with the offer being tendered.
In providing the classified ad material to various publications there is a risk as to which of those publications will work better or worse, and this makes it necessary that vast amounts of testing be undertaken. This testing is required whether the advertising is in media of the print type or whether in the medium of mailing. (Tr. 54)
Two factors are involved in determining whether printed or broadcast media or mailing would be the best choice to use in an advertising campaign. One is a basic background or knowledge of which medium historically has worked best. This would require attending information sessions, such as conferences or studying books written on this subject, so that one may proceed as quickly as possible into the testing of those media. The first part, the understanding of that, is something that requires quite a bit of money, because to attend these seminars can sometimes cost well over a thousand dollars a seminar.
Secondly, in order to understand how to proceed, one must test in various modes of either ads in print or television spots or mailers or other means. These various tests of one against the other in small quantities, are very expensive. Diligent record keeping must be performed to see which produced the best results before any further funds are expended. (Tr. 55)
The possibility that the average person, who does not have the specialized education and experience alluded to above, could start and successfully operate a mail order business in his own home and achieve an income of $360 per week is very, very small. According to Mr. Bobowski, the direct mail business is the same type of business, whether it is small or large. What had earlier been indicated as the four components are required whether one is doing it from his basement, on a kitchen table, or from the board room and using a word processing system. The disciplines of direct mail are not complex so far as the components are concerned. The disciplines of how they are used are very complex. Regardless of where the seller is located, he must adhere to those disciplines and they are alluded to in the Respondent's material. Anyone starting at home, unless there is an outstanding product, one that is unique, or unless a list is available to him by which he can reach people who have the predisposition to buy this item, far in excess of what is normally done, the person entering this business has very, very little chance of succeeding. Even the largest, most sophisticated mailing programs and companies will succeed only at perhaps a 2 per cent rate, which means there is a failure rate of 98 per cent. Therefore, in order to minimize that failure rate of 98 per cent, great efforts must be put forth to minimize the failure rate and, hence, to maximize the success rate. (Tr. 56-57)
It was the expert's opinion that the advertisements in this case are directed to people, according to demographic structures, in what is called the lower class. These lower-middle class people that this is addressed to will be in one of several categories. One is they are not making enough money with their full-time occupation to satisfy their needs so they are looking for more, or they are in dire straits and need some kind of income to keep them going, or they may have some mental attitude which indicates that they feel there is a shortcut to making large amounts of money. Generally, these are not directed to people who have a fair amount of business acumen or are businessmen or professionals in any sense. They are not directed to doctors or lawyers nor heads of companies, nor even people who are in retail businesses, et cetera. It is people who are looking for a way either to supplement income, to provide basic income or to provide some kind of a fast income. Some ads say, "Mailing circulars, no bosses." The implication there is that if you don't like working for "bosses" this is the kind of job for you, so there may be an implication of job dissatisfaction or whatever it is. The higher on the social economic scale one goes, the less this ad appeals to him/her. (Tr. 94)
Mr. Bobowski expressed the view that the average person who would be interested in the ads exemplified by App. A probably has a reading level of 2.8. Professional persons would have a reading level of about 3.2 and their perception of language would be greater, so they would be able perhaps to see through the fact that there is a great amount of money promised here, $360 weekly and up, for the simple, almost mechanical task of stuffing envelopes. It seems to be inconsistent with the degree of responsibility. The less one is able to understand the implications in this offer and less able to grasp the perceptions of management and operating a business, the more this may make one feel able to get into a busi ness very quickly with very little knowledge, et cetera. As most successful businessmen will say, that is simply not true. A great deal of acumen is needed today in what is probably the toughest business environment that has existed in some time. The number of bankruptcies of business is so great today, that it kind of indi cates that one has to be a little bit naive to assume that he can make this kind of money by simply stuffing envelopes. People who are making $360 a week have to be either very good typists or they must have a proficiency in some other skill, whereas this activity implies that one need have no skill whatsoever to earn what is a fair amount of money today.
The fact that persons of less skill and education may be attracted by ads of the type seen in this case does not mean that the requirements of engaging in direct mail business are any less stringent. The same disciplines are there and that fact creates even greater complications. In fact, it terribly handicaps the less educated person in that it puts a greater burden on them than it does on someone who at least had some perception of starting a business. In keeping records and in other matters, all of these things have to be as diligently carried out as in the most sophisti cated company. The methods of keeping records, not just the dili gence of them, but the methods of them are completely unknown to these people and it is doubtful, based upon the material, that they could possibly understand how to keep test records, for example. It was Mr. Bobowski's opinion that for persons of lesser training and experience to succeed by following Respondent's plan it would be just as difficult for them, if not more so. (Tr. 96)
Mr. Bobowski, when asked to identify the product sold by Respon dent, said:
"I don't see a product in here of any value to anyone but simply the implication that the respondent do exactly as this marketer is doing in perpetuating the hopes of making money without an actual tangible product being involved." (Tr. 58)
Mr. Bobowski was asked what likelihood there is that a company in the industry with which Mr. Bobowski is so well informed would pro vide direct mail circulars to individuals who had remitted $20 in order to be eligible to stuff the circulars in envelopes in their homes. The witness replied:
"It is nonexistent as far as I know in the general, professional part of the industry." (Tr. 59)
On cross-examination of Mr. Bobowski, it was brought out that in some places in Appendix C, particularly on page 4, "ads" and "clas sified ads" are mentioned. However, reference was not made during cross-examination to the fact that by the time purchaser gets a chance to see the booklet, he previously has parted with his money in reliance upon representations made in Appendix B. Mr. Hairston's experience amply demonstrates the difficulty -- futility is a more accurate term in Mr. Hairston's case -- encountered in attempting to extract a refund from Respondent. (Tr. 63-67)
Some effort was made by both parties to attach some importance to the matter of whether or not Mr. Bobowski knew the business entities listed on page 8 of Appendix C. Because of the nature of the issues of this case, the knowledge or the lack thereof concerning these businesses is immaterial and could not affect or influence the outcome of this proceeding.
Postal Inspector Isiah P. Ward was the last witness called by Complainant. Inspector Ward is assigned to the Chicago Division of the Central Region, United States Postal Service. He investigated this matter after receiving the Myers and Hairston complaints. (Tr. 99-100; CX 1 and 5 and sub-exhibits thereof) In addition, he bought CX 4 (App. C) directly from Respondent Michael Narcum, at the latter's residence, on or about October 29, l984. (Tr. 99, 102)
One of Inspector Ward's activities was an attempt to reach by telephone all of the 17 business concerns listed on page 8 of Appendix C. Only three of the firms had a telephone listing and Mr. Ward reached two of these with the following results: one had a recorded message on the telephone; and the man who answered the call at the other business told Inspector Ward to send him a self addressed, stamped envelope and he would use it to return the requested circulars. (Tr. 105-108) These facts are not surprising because the businesses are obviously and openly holding themselves out as concerns which conduct their business through the mails.
With the testimony of Inspector Ward, Complainant rested, and Respondent was called upon to present its case.
Prior to calling its witness, Respondent's counsel requested that official notice be taken of certain annual issues of Internal Revenue Service Publication No. 1131 and the request was granted. This publication, as indicated by counsel, consists of statistical tabulations of income tax returns filed by sole proprietorships, and attention was focused on these reports for the years 1979, 1980, and l981. The particular point of interest to Respondent was the number of mail order houses, both with and without net income, filing returns for those years. Copies of the reports were obtained; and they show - as stated by Respondent's Counsel - that in l979, 16,191 mail order houses operating as sole proprietorships filed returns; in l980, the number was 20,585; and in l981, the number was 13,844. (Tr. 149; excerpts from I.R.S. Publication No. 1131 for respective years are with the record)
The purpose of asking that official notice be taken of these reports was to bring into question Mr. Bobowski's qualifications or credibility, or both. At one point in his testimony, Mr. Bobowski seemed to be saying that he knows, and can remember, all of the approximately 5,000 members of the Direct Marketing Association of New York and, perhaps, other organizations. (Tr. 46) Actually, this was not Mr. Bobowski's testimony. During the time in which he has been, and is, an officer of various professional groups, he has gotten "to know the companies that you can expect information from or who can participate in the symposia or the conferences to share that kind of information. So I am familiar with hundreds of other companies, associations, people who are looking for or getting information ***." (Tr. 49) Later, in addressing the question of his knowing members of the organizations, he said:
"A lot of these business concerns are people who are not very active, they are onlookers on the sidelines. In other words, they may be copywriters in advertising agencies, they may be sales people from various kinds of companies.
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I need to know which are the major ones because the other ones are of a relatively less important nature. The state of the art generally rests with the larger companies.
"I am not implying that I know all of those people but generally the people over 20 years or more, that I have spoken with, lectured along side of, traveled with, been on committees with, you can tell the people that are sitting in positions of responsibility or authority or working in teaching or helping to conduct things, on boards of directors. The companies that are more--that have a higher profile are the ones generally that are more ethical and the more responsible and their names come up more frequently. I am not proposing to this court that I am infallible, I am simply saying I don't know those names and I feel that I have good grasp on some of the more important and ethical companies in this business. (Tr. 88-90)
The clarification in the foregoing testimony further underpins a previously established fact, namely, that Mr. Bobowski is a qualified and credible witness in this proceeding whose testimony shed much light on the issues in this case.
Michael Narcum was Respondent's only witness. He is the President of International Success Development Corporation (ISDC) and he conducted business under the name, among others, Commission Mailers of North America (CM/NA). In connection with his business he published certain classified advertisements in various publica tions in which he sought, and received, inquiries from members of the general public. (Some of those advertisements are in evidence as CX 3, 9 and 10) Mr. Narcum's response to the inquiries was to send a circular to the person making the inquiry. (CX 2, App. B) Upon receipt of $19 or $20 from the individuals responding to the circular he would send them the then current version of the Manual (CX 4, App. C), which he himself had prepared and which he had caused to be printed. Included with the Manual were, also, samples of circulars which he wrote. (Tr. 155-158)
Mr. Narcum stated that the circular which is App. B no longer is used in that form, but that it has been revised twice. He said that many people misinterpreted the circular in certain parts relative to (1) who might be their employer; (2) the refund provisions; (3) what actual work they would be expected to do; and (4) whether Respondent would furnish them with pre-addressed, stamped envelopes. (Tr. 160-164) Although Respondent admitted that readers may have been misled, and he claimed that the circular had been revised twice, no copy of a new or revised circular was offered to show the changes that were said to have been made.
Mr. Narcum identified the following Respondent's exhibits:
No. Substance
1. Questionnaires prepared by Narcum and sent to "commission mailers" in various locations. Many, if not most, of the names of addressees of these questionnaires appear on page 8 of App. C. The businesses are asked, inter alia, whether they use circulars in the conduct of their businesses; whether other people may use their names or the circulars and act, in effect, as agents; whether the owner of such a business provides free circulars for use by others; and, how much, per hundred, people can expect to make by mailing the circulars. (Tr. 158-9)
2. Responses to a test mailing sent by Respondent's employees to concerns listed on page 8 of App. C. (Tr. 161)
3.3/Summary of responses received from ads inserted in various publications covering different periods of time. (Tr. 166)
4. Summary of responses received from ads inserted in Tradin' America and Farmer Stockman for different periods. (Tr. 167)
5. Part of an envelope postmarked January 9, l985, at Wausau, WI, from Business Opportunities, P. O. Box 267, Schofield, WI, on which some cash payments to Plan B participant have been noted. The cash payment to this participant for a sevenday period totaled $418. (Tr. 169-170)
6. Copies of nineteen (19) I.R.S. Form 1099-Misc. forms reflecting various amounts paid by Respondent to 21 named recipients in l984 as income derived by following Respondent's marketing programs. These forms reveal payment in l984 of amounts ranging from $620 to $68,687.
The people represented by RX 6 put up posters on bulletin boards in community places, or on college campuses, and the posters generate inquiries in the same way classified ads do. These inquiries are coded with a key from the poster used by the person who did the posting and the inquiries are sent directly to Respondent. When they are received, the codes on the inquiries are noted on an "organizational response summary sheet" each week, the numbers of inquiries are recorded, together with the agent or associate to whom it is to be credited. Then the commission circu- lars are mailed to the inquirers, and when orders result, commis sions to the agents are paid on a weekly basis. (Tr. 171-175)
Mr. Narcum has been engaged in this type of business as a sole proprietor since l978. Without mentioning a date, he said that as of the last count of which he could be sure, he had received 240,000 inquiries to which he responded with a circular. From the mailing of the circulars he has received 70,000 orders, and he stated that he has had a complaint rate of less than 1/2 of 1 per cent. (Tr. 177) On the average, he makes commission payments to, at the most, 20-35 people per week. (Tr. l85)
Here, each representation will be separately stated and followed by some, by no means all, of the language from Appendices A and B on which the particular representation may be based.
(a) Respondents plan will enable the user thereof to make $360 or more per week;
$360 Weekly/Up, Mailing Circulars] No Quotas/bosses] Sincerely Interested send Self-Addressed Envelope: Mailers, Box 464F9, Woodstock, Illinois 60098
(App. A)
(b) Very little work and time will be required to make $360. per week;
EARN
EXTRA INCOME
WORKING AT HOME
IN YOUR SPARE TIME
You can Make Hundreds of Dollars Per Week in Your Own Home-Operated Circular Mailing Venture-Spare Time or Full (App. B)
(c) The major expense involved is the purchase price to be sent to the Respondents for their plan;
To get started, just fill in the order form and mail it to us with the $19 Association fee. This fee pays for your Association rights, participation and processing, and entitles you to receive your FREE Beginner's Package. (App. B, p. 2, par. 5)
(d) The work required by Respondent's program consists princi pally of mailing circulars;
We are offering you the opportunity to participate in one of the most profitable and fastest growing enterprises in North America today - THE MAILORDER BUSINESS] The work you will be doing is not difficult. Mainly, you will be stuffing commission circulars into pre-addressed, stamped envelopes and mailing them.
(App. B, p. 1, par. 1, and refs. cited under (a) and (b) above)
(e) The plan they sell is legal.
You will be doing this as an independent homeworker in the Commission Mailer's Association (CMA) and only need work a few hours a day. You can do this on your kitchen table, or even while watching television, following our established directions. The CMA provides the proven materials you need to do this, and they do not deal with anything objectionable.
(App. B, p. 1, par. l; see, also, Answer, par. 6)
The language of the representations charged as being misrepresentations so nearly follows the language of Respondent's advertising and sales literature that no argument or persuasion is necessary to establish that the representations in the complaint are based upon and accurately paraphrase the language of the promoter. Moreover, the technique employed in Appendix B is to so inundate the reader with glowing descriptions of the work to be done and the rewards to be won that the reader's eagerness to start can be almost irresistible. This statement could be particularly true with people who may be down on their luck through low pay or unemployment and who are ready to grasp at anything which they are told will help them improve their life. Mr. and Mrs. Myers, in fact, stated that they were having difficult getting along on their Social Security allowances and that they hoped to bridge the gaps with the income from the work that they believed Respondent to be offering.
Such phrases as "Many Firms Need Mailers", "Make Hundreds Weekly", "Extra Money", "No Experience is Necessary" and "For People Sincerely Interested in Making More Money" can only be calculated to stir to action people who, through no fault of their own, are on the lower end of the economic scale. The people who are the most dis tressed economically are the people who are the most vulnerable to the allure of what is presented as an easy and honorable way to better their condition. And these are the members of the public who will suffer the greatest harm from the persons who issue such alluring enticements.
There is solid evidence in this case that the representations found to have been made by Respondent are false. This evidence includes admissions by Michael Narcum that he is aware that people were "misinterpreting" and "confusing" and being misled to believe certain statements in the circular. (Tr. 163-4) It will be recalled that the Myers couple meticulously followed the instruc tions and received two dollars ($2) for their expenditure of time, effort, and about $150 to $160. It took Mr. Hairston two readings of the pamphlet which is App. C to learn that he did not want to participate in this enterprise. (Tr. 34) Even that bit of learning cost him $19 since he was never able to get a refund. And this, despite the fact that he returned to Respondent all of the materials he had received from the promoter.
Mr. Bobowski, whose career has been devoted to assisting people start or engage in successful, reputable mail-order businesses, stated that the chance of success of the average person, and the person who is most apt to be interested in Respondent's program, is very slight, indeed. That Mr. Bobowski's testimony was right on target is attested to by business statistics reported by Respon dent. Those statistics showed that he received 240,000 inquiries, out of which number there were 70,000 persons who became "associ ates." He mails commission payments "at the most" to 20-35 persons per week. That record, if known in advance, is scarcely an enviable success rate to anyone wanting a program said to be "For People Sincerely Interested In Making More Money." (App. B, language over order form)
These few recollections of the testimony of five witnesses establish that (a) Respondent's plan will not enable the user to make $360 or more per week; (b) the following of the instructions of the plan requires a great deal of time and work and there is no assurance that the income of the user will reach $360 a week; (c) expenses in addition to the purchase price are advertising costs, printing costs, postage and other expenses, depending on whether one decides to put up posters; (d) Respondent's program consists of much more than mailing circulars - rather than the claim as made, which Respondent, himself, said is misleading; and (e) the plan sold by Respondent is forbidden by law.
The testimony of Mr. and Mrs. Myers, Mr. Hairston and, in particular, that of Mr. Narcum establish that Respondent's are material misrepresentations. That over one-third of the persons who received App. B (the circular) ordered the product, showed that a large percentage of the readers of the circulars were persuaded to send their money to purchase the product.
The charge in paragraph 9 of the Complaint is that -
"Respondents, through their promotion and scheme, urge and cause participants to make the above misrepresentations to third parties, and thereby knowingly seek the remittance of money through the mail by means of false representations made by participants at Respondents' express direction. A copy of the instructions the Respondents mail to persons purchasing the Respondents' plan is attached as Exhibit TWO". App. C
The expert witness described the situation in respect of this question succinctly, but completely, in the language quoted herein at page 19, when he said that the product Respondent sells is to have others engage in the same activity in which he engaged and share the proceeds with him. Respondent, therefore, knowingly causes those who attempt to adopt his method of doing business to make to others the same misrepresentations as were originally made by Respondent.
The business of Respondent is a scheme or device conducted by him through the mails for the purpose of obtaining money or property by means of false representations.
1. Respondent Michael Narcum, 1954 Hilltop Court, Woodstock, IL 60098-2539 is the President of International Success Develop ment Corporation (ISDC) of which Commission Mailers of North America (CM/NA) is a division. The addresses of the last two entities are P. O. Box 464, Woodstock, IL 60098-0464 and P. O. Box 950, Wood stock IL 60098-0950. Also used in the conduct of Respondent Narcum's business are the names Division Headquarters, Oracle Inter national, and Mailers, the address of all of which names is P. O. Box 464, Woodstock, IL 60098-0464, with the additional address of POLB 464, Woodstock, IL 60098-0464 being used by Oracle Inter national.
2. Respondent places advertisements in publications of general circulation soliciting inquiries about a plan by which persons are said to be enabled to make $360 per week and more by mailing circu lars.
3. To persons responding to the advertisements Respondent sends or causes to be sent a circular in which the inquirers are told to send money through the mail to Respondent for which Respondent will send the remitter the details of the plan advertised.
4. In the circular, Respondent makes the representations set forth in paragraph 6 of the Complaint.
5. The representations made in the sales circular mailed to remitters are material representations.
6. Upon receipt of the purchaser's money, a booklet entitled "Personal Success Manual" is mailed to the purchaser by Respondent.
7. In the booklet, effort is made, among other things, to induce the purchaser to engage in the same type of activity as that by which the purchaser eventually purchased the booklet.
8. The material representations made by Respondent are false.
9. The activities of Respondent described herein constitute a scheme or device for obtaining money or property through the mails by means of false representations.
1. The Findings of Fact stated above are incorporated here by reference as fully as if set forth herein at length.
2. The purpose of 39 U. S. Code § 3005 is to protect the public, both the wary and the gullible, and the Postal Service is an instru mentality through which this protection is to be provided. Lynch v. Blount, 330 F. Supp. 689, S.D.N.Y. (l971), aff'd 404 U. S. 1007 (l972); Gottlieb v. Schaffer, 141 F. Supp. 7 at 15-16, S.D.N.Y. (1956). In Virginia Pharmacy Board v. Virginia Citizens Consumer Council, 425 U. S. 748, 772 fn. 24, (1975), quoting from United States v. 95 Barrels of Vinegar, 265 U. S. 438, 443 (1924), it was said: "It is not difficult to choose statements, designs and devices which will not deceive." "***Advertisements which are capable of two meanings, one of which is false, are misleading***. Advertisements which create a false impression, although literally true, may be prohibited." Rhodes Pharmacal Co. v. F.T.C., 208 F.2d 382, 387 (7th Cir. l953), modified on other grounds, 348 U. S. 940 (1954).
The meaning of advertising representations is to be judged from a consideration of the advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, Inc., 333 U. S. 178 (l948); 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. l959). 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.
3. Application of the foregoing criteria to Respondent's sales materials requires the conclusion that the Respondent, in the adver tising matter received in evidence in this proceeding, makes the representations alleged in paragraph 6 of the Complaint.
4. Persons of ordinary mind, on reading Respondent's advertise ments, would interpret them substantially as expressed in paragraph 6 of the Complaint.
5. The representations herein found to have been made by Respondent are material representations for the reason that they can, and do, cause readers of Respondent's advertising to buy
Respondent's product and to enroll in Respondent's programs, which the readers would not do had the truth been told in the adver tising. Chaachou v. American Central Insurance Co., 241 F.2d 889, 983 (5th Cir. l957).
6. The material representations herein found to have been made by Respondent are false.
7. A promise to refund if a customer is dissatisfied, will not dispel the effect of false advertisements. Farley v. Heininger, 105 F.2d 79 (D.C. Cir. l939); Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. l959).
8. If, as Respondent claimed, the advertising material has been so amended as to eliminate misrepresentation, that fact would act as no bar to this proceeding because if that were so, the Respondent would be left free to resume the use of the misleading and false representations at any time in the future. United States v. W. T. Grant Co., 345 U. S. 629 (l953), and the cases there cited; Hampton v. Mow Sun Wong, 426 U. S. 88, 98 (1976).
9. Complainant has established its case by a preponderance of the competent, reliable, and probative evidence of record. S.E.C. v. Savoy Industries, 587 F.2d 1149, 1168 (D.C. Cir. l978); S.E.C. v. National Student Marketing, 457 F. Supp. 682, 701 n. 43 (D.D.C. l978); Wilmont Products, P.S. Docket No. 6/46 (P.S.D. l979); Gard, Jones on Evidence, § 30:4 (l972); Wigmore, Evidence, § 2498 (3d ed. l940).
10. Under the method of operation employed by Respondent, he necessarily contemplates that the person who purchases from him will set in motion a scheme which involves misrepresentations to a third party based on the materials furnished by Respondent. Such know ledge by Respondent brings this scheme within the ambit of 39 U. S. Code § 3005. United States v. International Term Papers, Inc., 477 F.2d 1277, (1st Cir. l973).
11. Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mails by means of materially false representations within the meaning of 39 U. S. Code § 3005.
Proposed findings of fact and conclusions of law submitted by the parties in this case have been fully considered. Such proposed findings of fact and conclusions of law have been adopted to the extent herein indicated. Otherwise, such proposals are rejected because they are unsupported by or contrary to the law and the evidence in this case, or because of their irrelevance or immateriality.
Orders of the types authorized by 39 U. S. Code § 3005(a)(1), (2), and (3), and substantially in the forms submitted with the Complaint, and the amendments thereto, should be issued against the Respondents.
*/ Complaint amended at hearing to include the following parties: Division Headquarters (Tr. 134), Oracle International (Tr. 135), Mailers (Tr. 198).
1/ In an effort to provide an orderly means of identification, I have designated subparts of CX 1, 4, 5, and 10 as parts a, b, etc. of the respective prime exhibits.
2/ In another case, In the Matter of the Complaint Against Sammy Y. Ip, et al., P.S. Docket No. 20/65, I.D. July 5, l985, a number of the types of materials which were exhibits in that case are differently numbered exhibits in this case. Because of this identity of materials, portions of the descriptions of what the purchaser receives for his money in Doc. No. 20/65 have been adopted, with appropriate renumbering of exhibits, for this section of the decision in this proceeding.
3/ Respondent's Counsel inadvertently referred to this exhibit as "RX 4".