In the Matter of the Complaint Against HENRY KAKEMBO P. O. Box 9133 Silver Spring, MD 20906-0993 and HEK AND HGK Box 9266 Silver Spring, MD 20906-0995 and HGK Box 9133 Silver Spring, MD 20906-0993 and I. M. STALLINGS 18171 Diaz Road Prairieville, LA 70769-9517 01/31/86 Bernstein, Edwin S. APPEARANCES FOR COMPLAINANT: H. R ichard Hefner, Esq. Ben A. Kilgrow, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260-1100 APPEARANCES FOR RESPONDENT: Henry Kakembo, pro se Duvall, William A. APPEARANCE FOR COMPLAINANT: Sandra C. McFeeley, Esq. Law Department Consumer Protection Division United States Postal Service Washington, DC 20260-1112
14204 Weeping Willow Drive, #24
Silver Spring, MD 20906-2549
I. M. Stallings
18171 Diaz Road
Prairieville, LA 70769-9517
The General Counsel of the United States Postal Service (complainant), filed a Complaint alleging that respondents, doing business under 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; (2) identifying some of the names and the addresses under which the business of the respondents is conducted; (3) quoting some advertisements used by respondents in the printed media; and (4) reviewing some of the steps in the operation of respondents' business, complainant, in paragraphs 5 and 6 of the Complaint, describes some of the pertinent activities of the respondents (hereafter sometimes referred to collectively as respondent) in substance as follows:
5. By means of the classified advertisements referred to above and quoted later herein, the circulars attached hereto as Appendices A and B, and other similar materials, respondents represent to members of the public, directly or indirectly, by affirmative statements, omissions or implication, that:
a. Participants in respondents' Home Mailer's Program may reasonably expect to earn substantial sums of money, e.g., more than one hundred dollars ($100.00) per week for work consisting principally of stuffing envelopes.
b. The work required of participants in respondents' Home Mailer's Program consists principally of stuffing or otherwise physically handling envelopes.
c. The only cost to the participant in respondents' Home Mailer's Program is the initial payment of twenty dollars ($20.00) requested by Exhibits 1 and 2 App. A and B.
d. The speed and ability of the participant in stuffing and mailing envelopes are the principal determinants of his or her income in respondent's Home Mailer's Program.
6. The representations set forth in paragraph 4 sic, should read 5 above are materially false as a matter of fact.
Complainant requests that appropriate orders of the types authorized in 39 U.S.C. § 3005(a)(1), (2), and (3) be issued against respondents.
Each respondent filed a separate Answer to the Complaint, but concerning certain of the allegations the respective portions of the Answers were the same or the same in substance. The portions of the Answers that were substantially the same will be stated first:
Opening paragraph. Both respondents deny that complainant has reason to believe that respondents are engaged in conducting a scheme or device to obtain money or property through the mail by means of false representation.
Allegation 1. Both respondents admit that the U.S. Postal Service has jurisdiction over this proceeding.
Allegation 6. The allegation that the representations in paragraph 4 5 of the Complaint are materially false as a matter of fact is denied by both respondents.
Prayer for Relief. Both respondents request that the relief sought by complainant be denied.
The respondents replied somewhat differently to the remainder of the Complaint, but there are similarities even in these portions of their Answers.
Respondent Stallings denies allegation 2 of the Complaint, and states that respondent Kakembo placed the advertisements, only the last of which relates to a program run by respondent Stallings. Mr. Kakembo states that the "Hundreds Weekly" advertisements (CX 1) stopped running as of May 7, l985, and that the program to which they related was discontinued at the same time.
Allegation 3 relates to the mailing of the circulars. In the Stallings Answer it is denied insofar as it relates to Appendix A, but the part related to Appendix B is admitted. This allegation is admitted by Mr. Kakembo.
Allegation 4 relating to the invitations in Appendices A and B that the readers participate in the "successful mailing association," is admitted. It is said by both respondents to be incomplete, however, for the reason that it is not stated in the allegation that the $20.00 application fee is refundable. Respondent Stallings adds that in Appendix B there is an unconditional guarantee that the participant will be satisfied with the program.
Allegation 5a is admitted, except that respondent Stallings denies that "envelope stuffing" is mentioned in Appendix B. Respondent Kakembo states that the representation as to possible earnings is true, and that during a six-months' participation in the program his earnings exceeded the amount (more than $100.00 per week) stated in this alleged representation.
Both respondents deny allegation 5b and state that Appendices A and B and the "Home Mailer's Program," itself, give directions on "SECURING, PROCESSING AND MAILING ENVELOPES."
Both respondents deny making the representation stated in allegation 5c concerning the cost of participating in the program, and respondent Kakembo refers to statements related to cost which appear in the booklets (CX 3 and 6).
Allegation 5d is denied by both respondents.Respondent Stallings adds that "individual involvement and ability to follow instructions are always determining factors in any program." Mr. Kakembo refers to other statements made in instructions contained in CX 3 and CX 6.
Allegation 7 relates to the division of the $20.00 fee between respondents Stallings and Kakembo, by both of whom the allegation is admitted. Respondent Stallings adds that the booklet (CX 6) advises the reader that the program can be returned within up to one year from purchase for full refund, while Mr. Kakembo states that the allegation does not include the fact that by following the instructions in the booklet, interested parties may, by request, obtain free materials from the company.
In resolving this question the representations will be stated, and, if found to be made, some but not necessarily all of the language in the advertising literature on which the representations may be based will be quoted.
Rep. 5a. Participants in respondents' Home Mailer's Program may reasonably expect to earn substantial sums of money, e.g., more than one hundred dollars ($100.00) per week for work consisting principally of stuffing envelopes; and
Rep. 5b. The work required of participants in respondents' Home Mailer's Program consists principally of stuffing or otherwise physically handling envelopes.
"HUNDREDS WEEKLY stuffing envelopes. Rush stamped envelope: HEK, Box 9266, Silver Spring, MD 20906" (CX 1, 3rd advertisement)
"WOULD YOU STUFF
1000 ENVELOPES
FOR $1,000"
"SIMPLE, PLEASANT WORK YOU CAN DO AT HOME]]"
(CX 2, p. 1, caption)
"TWO WATCHES FREE - with an earn-at-home program, many excellent income opportunities. $1000's possible. Rush SASE: HGK, 9266R, Silver Spring, MD 20906."
(CX 4, left-hand col., 3rd ad under "Business Opportunities")
"WOULD YOU PROCESS
1000 ENVELOPES
FOR $1,000"
"SIMPLE, PLEASANT WORK YOU CAN DO AT HOME]]"
(CX 5, p. 1, caption)
"Many have made much more than $1,000 per 1,000 envelopes from this program by following the easy directions on securing, processing and mailing envelopes - a simple and excellent opportunity for you to make the extra money you need."
(CX 2, p. 1, par. 3)
"ALL BUSINESS IS DONE BY MAIL. You will be supplied with the materials to be stuffed. The envelopes will be already stamped and addressed. All of the money will be sent to you for handling - orders will be filled by us at no cost to you. We give complete assistance at every step to insure the success of this program."
(CX 5, p. 2, 1st par.)
"***I understand that after I have stuffed 1000 envelopes according to directions and have not made at least $1000.00, I can return the STARTING KIT for a full refund of the purchase price and may keep the watches at no further cost." (CX 5, p. 2, "Application Form," 2nd sent.)
The advertisements above from CX 1 and 2 relate to the first of respondent's two programs, while those from CX 4 and 5 relate to the second program.
Respondent Kakembo admits the making of these two representa tions, and his testimony that he followed the plan, including the "envelope stuffing", and made "more than one hundred dollars ($100.00) per week" was uncontroverted.
Respondent Stallings denies the making of so much of the repre sentations as includes "stuffing envelopes." As has been shown above, however, after the prospective participant has been wooed on page 1 of CX 5 with the prospect of "securing, processing and mail ing envelopes", he is told in plain talk at the top of page 2 of the circular that what those seductive words really mean is simply that the plan basically involves "stuffing envelopes." The average reader would believe that to be the fact in any event because in a business enterprise there is just so much one can do with an envelope.
Respondent makes the representations in paragraphs 5a and 5b of the Complaint.
Rep. 5c. The only cost to the participant in respondents' Home Mailer's Program is the initial payment of twenty dollars ($20.00) requested by Exhibits 1 and 2. App. A and B
"$1,000 for 1,000 ENVELOPES
OK, here's the part you've been waiting for, how much? Well as you know this idea of stuffing envelopes for huge profits attracts a lot of attention. The problem is that many people just don't go through with it, this wastes our valuable time and theirs. Due to our advertising and printing cost, we have established a registration fee of $20.00. This weeds out most people who are "just curious". For this registration fee you will receive the necessary instructions and the directions you need to start making the tremendous profits right away]."
(CX 2, p. 2)
ENCLOSED IS $20.00 FOR THE COMPLETE HOME MAILER'S PROGRAM, I UNDERSTAND THAT MY $20 IS REFUNDED AS SOON AS I SUBMIT MY FIRST 100 ENVELOPES ACCORDING TO YOUR DIRECTIONS.
(CX 2, p. 2, Application Form)
"YOURS FREE]]] The only cost is Postage and Handling fee of $5.00 which is included in the $20.00 cost of the HOMEMAILERS PROGRAM. Choose any two you like - one ladies and one gents, or two ladies, or two gents. Either of these watches retail for $14.95. You get $29.90 worth of watches and the HOMEMAILERS PROGRAM for two thirds of what the watches cost. It's a bar gain]] And you will make money as well. If you would like more information on the watches, write for further details and a special price list. This offer is limited so hurry, don't delay, don't miss out on this once in a lifetime offer by waiting too long."
(CX 5, p. 2)
"APPLICATION FORM
MAKE CHECK OR MONEY ORDER PAYABLE TO: Henry Kakembo
P. O. Box 9133
Silver Spring, MD 20906
No C.O.D.'s or orders sent without payment.
Canadian residents pay in U. S. Funds only.
Enclosed is my $20.00 ____ Money Order, ____ Cash, ___Check. I am to receive two five function LED Watches of my choice, NUMBERS ____, as well as My Home Mailers Program, both shipped by first class mail***.
Application Fee, Starting Kit & Watches....$15.00
Postage and Handling.......................$ 5.00
Total Payment Enclosed.....................$20.00"
(CX 5, p. 2)
In addition to the foregoing repeated references to the entirety and completeness of its Homemailers Program and the $20.00 fee charged for it, prospective participants are told in both CX 2 and 5, in boxes captioned "Why Is This Possible?", that they will "serve a company that pays good commissions to have their circulars mailed." That is the program for which the fee is to be paid. There is no suggestion that other steps are involved in participation in the program - particularly and especially since both CX 2 and 5 advise their readers in large type that
"NO EXPERIENCE OR SPECIAL SKILLS are REQUIRED."
(CX 2 and 5, p. 1, par. 3)
Respondent makes the representation in paragraph 5c of the Complaint.
Rep. 5d. The speed and ability of the participant in stuffing and mailing envelopes are the principal determinants of his or her income in respondents' Home Mailer's Program.
"NO EXPERIENCE OR SPECIAL SKILLS REQUIRED. Our HOMEMAILER'S PROGRAM is designed especially for people with little or no business experience and provides step-by-step instructions to show you how to cash in on" the particular plan.
(CX 2 and 5, p. 1, par. 3)
"We invite you to take part in our success. The money you earn is up to you. We do not require that you mail a certain number of pieces each week. You can take on whatever amount of business that fits your schedule, and you can quit whenever you want. There are no obligations. Some people are interested in earning only $200 per week, while others devote more time to it and earn $500 or more."
(CX 2 and 5, p. 1, in box captioned "WHY IS THIS POSSIBLE?", last par. The last sent. is in CX 5, only.)
Respondent makes the representation 5d of the Complaint.
While it is true that the following of the programs described in CX 3 and CX 6 involves envelope stuffing, that activity is by no means the principal part of the work involved in following those programs. The participant is told to place his name and address in the order blank of the circular, which the participant is to have "reproduced at any quick print shop." If there is no print shop available the entrepreneur offers to have the circulars printed for the participant.
When the circulars (similar to Appendices A and B, or others which are represented by samples, or which are said to be obtain- able free of charge from lists of businesses) are on hand, the participant is then instructed to insert advertisements like those of CX 1 and CX 4 in various publications. If and when the inquiries for information begin to come in, each accompanied by a self-addressed, stamped envelope (called SASE), the participant mails to the inquirer the circular then in use which, in substance, says that the participant, for $20.00, is going to let the inquirer in on the program. (App. A)
Upon receipt of the $20.00 for the program the participant deducts his fee (in this case $14) and sends the order and $6 to the entrepreneur. Thus, the inquirer becomes another participant and a new cycle is started. (CX 3, p. 4)
A variation or alternative program is suggested at the bottom half of page 4 of CX 3, as follows:
STEP 2: Upon your request, DCS will send to you, your first 200 circulars with DCS, Inc. name and address. You place an ad (same as the one worded in Step 1) with your name and address. When the inquiree (sic) sends you a SASE (self-addressedstamped envelope), simply stuff the envelope with the DCS circular and other provided materials. Send the stuffed and sealed envelope; along with the letter of inquiry, to DCS and you will receive $1 for each one.
NOTE: All materials to be stuffed are sent to you by UPS with shipping cost paid on your end. (approx. shipping cost is $2)" (See CX 3, pp. 4-5)
What has been described of the programs to this point relates to the Diversified Consumer Services, Inc. program as the one followed by Mr. Kakembo in early 1985 to and including May 7 of that year. The other program engaged in by Mr. Kakembo is the one bearing the stamped name and address of I. M. Stallings, 18171 Diaz Road, Prairieville, LA 70719 as entrepreneur. (CX 6) The way to engage in this program is explained on pages 2-7 of CX 6, and the Stallings program is quite similar to the Diversified Consumers Services program. In essence, both programs are aimed at persuading readers of the advertisements, circulars, and instructions to engage in persuading others to engage in persuading others and so on ad infinitum to do the same things Mr. Kakembo had done or was doing.
From a reading of the program set forth in CX 3 and CX 6 it is obvious that in order to participate in these programs much more than envelope stuffing is required. Mr. Kakembo, himself, testified that he was aware that people found the advertising misleading and he said he had received inquiries on this aspect of the programs (Tr. 16). Under the Stallings program instructions (CX 6, pp. 2-7), which are received after the person has paid his $20.00, the participant is told that he will have to do a number of things in addition to stuffing envelopes, including, but not necessarily limited to, finding an appropriate medium, inserting advertisements, renting mailing lists or compiling his own list, and paying for the printing of circulars. The emphasis on envelope stuffing in the advertising circulars is not dispelled by the use of such words as "securing, processing and mailing."
The representations in paragraphs 5a and 5b of the Complaint are false.
Part of the above discussion relative to the representations in paragraphs 5a and 5b is applicable to the charge in paragraph 5c in which respondent represents that the $20.00 initial fee will be the participant's only cost. When it is learned that the participant has to engage in advertising, renting mailing lists, and paying for printing, it is obvious that the payment of the $20 fee is just the beginning of the costs. One positive bit of evidence of the falsity of this representation is found in Mr. Kakembo's testimony when he said that persons who responded to the advertisement, received the circular, and paid the required $20.00 fee, later told him that they did not know that they would have to pay for advertising (Tr. 46, 47).
The representation in paragraph 5c of the Complaint is false.
The representation in Complaint paragraph 5d is that the amount of income to be received by participants in respondent's Home Mailer Program is determined principally by their skill and ability in stuffing and mailing envelopes.
It has been seen that the newspaper advertisements and the circulars used by respondents in promoting their program stress envelope stuffing more frequently than any other task that is men tioned. (CX 1; CX 2, caption; CX 5, p. 2, 1st par.; and Application Form) In addition, the readers of the circulars are emphatically told that the program involves "SIMPLE PLEASANT WORK YOU CAN DO AT HOME]]" for which there are "NO EXPERIENCE OR SPECIAL SKILLS REQUIRED."
Since the work to be performed is represented to be no more demanding than just described, little is left for the reader to believe are determinants of income except speed and ability in stuffing envelopes. In reality, however, if it is possible for one to achieve a degree of financial success in the operation of the HOME MAILER'S PROGRAM, a number of factors should exist, such as sufficient capital to enable one to open the business; money for printing, advertising, and postage; skill in record-keeping; and, it would appear, dogged determination. The evidence of record indi cates that Mr. Kakembo possesses all of the necessary qualifica- tions. On the other hand, as Mr. Kakembo recognizes and indicated, many people are disappointed when they receive the instructions. He said: "***a lot of people *** receive the material and forget about it. There is no incentive to go and work the program.***" Thus, it is apparent that one's income from participation in respondent's program is determined by many more factors than just the partici pant's speed and ability in stuffing and mailing envelopes.
The representation in paragraph 5d of the Complaint is false.
1. Respondent Henry Kakembo is an individual whose address is 14204 Weeping Willow Drive, #24, Silver Spring, Maryland 20906. Kakembo Answer § 2; Tr. 3.
2. Respondent I. M. Stallings is an individual whose address is 18171 Diaz Road, Prairieville, Louisiana 70769. Stallings Answer § 3; CX 6, p. 1.
3. Respondent Kakembo placed the following advertisement in newspapers and other publications, including the Globe and the National Inquirer, until May 7, l985:
HUNDREDS WEEKLY, stuffing envelopes. Rush stamped envelope: HGK Box 9133, Silver Spring, MD 20906. (or HEK or HGK, Box 9266, Silver Spring, MD 20906).
Kakembo Answer § 2; Tr. 4-5, 7-8; CX-1.
4. Respondent Kakembo placed the following advertisement after May 7, l985, and up to the time of the hearing:
TWO WATCHES FREE - with an earn-at-home program, many excellent income opportunities. $1000's possible. Rush SASE: HGK, 9266, Silver Spring, MD 20906.
Kakembo Answer § 2; Tr. 4-5; CX 4, left-hand col., 3rd ad under "Business Opportunities."
5. To persons who respond to the HUNDREDS WEEKLY ad, Mr. Kakembo sends CX 2. To persons who respond to the TWO WATCHES FREE ad, Mr. Kakembo sends Exhibit 5. Kakembo Answer § 3; Tr. 4-5, 24.
6. The original copy of Exhibit 5 was provided to Mr. Kakembo by I. M. Stallings. Kakembo Answer § 3; Stallings Answer § 3.
7. Exhibits 2 and 5 (Apps. A and B) invite persons "to earn extra money working at home by becoming an active participant of our successful mailing association," also called a Home Mailer's Program. Stallings Answer § 4; Kakembo Answer § 4.
8. The application form on CX 2 instructs persons to send $20 to HGK at P. O. Box 9133, Silver Spring, MD 20906. CX 2, p. 2 states:
...Make check or money order payable to or send cash: HGK P. O. Box 9133, Silver Spring, MD 20906 . . . Enclosed is $20.00. . ."
9. The application form on CX 5 instructs persons to send $20 to Henry Kakembo at P. O. Box 9133, Silver Spring, Maryland 20906. On page 2 of CX 5 appears: "Fill in the coupon below. MAIL IT ... NOW]]] ... Make check or money order payable to: Henry Kakembo, P. O. Box 9133, Silver Spring, MD 20906 ... Enclosed is my $20.00."
10. When Henry Kakembo receives an application form taken from CX 5 and the $20 payment, he keeps $12 and mails $8 to I. M. Stallings at 18171 Diaz Road, Prairieville, Louisiana 70769. For each $8 payment identified in the preceding sentence, respondent Stallings sends to the person by or for whom the $20 fee was paid a 15-page instruction booklet for the Home Mailer's Program. Stallings Answer § 7; Kakembo Answer § 10; Tr. 21-22, 24-29, 33.
11. Respondent makes the representations set forth in para graphs 5.a. through 5.d. of the Complaint.
12. The representations found to have been made by respondent are material representations.
13. The representations found to have been made by respondent are false as to matters of fact.
14. 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 purpose of 39 U. S. Code § 3005 is to protect the public, both the wary and the gullible, and the Postal Service is an instrumentality through which this protection is to be provided. Lynch v. Blount, 330 F. Supp. 689, S.D.N.Y. (1971), aff'd 404 U. S. 1007 (1972); 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 Barrells 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***. Advertise ments 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 (l954).
The meaning of advertising representations is to be judged from a consideration of the advertisement in its totality and the impres sion it would most probably create in ordinary minds. Donaldson v. Read Magazine, Inc., 333 U. S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. l957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. l959). Express repre sentations 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.
2. Application of the foregoing criteria to respondent's sales materials requires the conclusion that the respondent, in the advertising matter received in evidence in this proceeding, makes the representations alleged in paragraph 5 of the Complaint.
3. Persons of ordinary mind, on reading respondent's advertise ments, would interpret them substantially as expressed in paragraph 5 of the Complaint.
4. 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 advertis ing. Chaachou v. American Central Insurance Co., 241 F.2d 889, 893 (5th Cir. l957).
5. The material representations herein found to have been made by respondent are false.
6. 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).
7. If, as respondent Kakembo stated, promotion of the use of one of the programs has been abandoned, that fact would act as no bar to this proceeding as it relates to the abandoned promotion, because, if that were not 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 (1953), and the cases there cited; Hampton v. Mow Sun Wong, 426 U. S. 88, 98 (l976).
8. 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. 1978); Wilmont Products, P.S. Docket No. 6/46 (P.S.D. l979); Gard, Jones on Evidence, § 30:4 (l972); Wigmore, Evidence, § 2498 (3d ed. 1940).
9. 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, should be issued against the respondents.