In the Matter of the Complaint Against JAMES EDWARD MAHER d/b/a MAHER MATRIX SVCS OR SERVICES, P. O. Box 152895 at Tampa, FL 33684-2895 and 2312 W. Waters Avenue, Suites 9 and 10 at Tampa, FL 33604-2752 and JIM MAHER MULTI-LEVEL MARKETING CONSULTANT, P. O. Box 151234 at Tampa, FL 33684-1234 and JIM MAHER, 2312 W. Waters Ave., Suite 7 at Tampa, FL 33604-2751 P.S. Docket No. 26/163 August 27, 1987 Edwin S. Bernstein Administrative Law Judge APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq. Alan B. Ostroff, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260-1112 APPEARANCE FOR RESPONDENT: Roger V. Rigau, Esq. Rigau & Rigau, P.A. 200 W. Buffalo Avenue Tampa, FL 33603-3697 BEFORE: Judge Edwin S. Bernstein
Complainant alleged and Respondent denied that Respondent is engaged in a scheme to obtain money through the mail by false representations and is engaged in a lottery in violation of 39 U. S. Code 3005.
The Complaint alleged at Paragraph 6 that Respondent's solicitations and oral presentations falsely represent that:
(a) Respondent has sufficient funds avail- able to indefinitely distribute the financial assistance for which "contributions" are sought.
(b) Persons making a financial "contribu- tion" to Respondent will receive a return of 200% within 30 days.
(c) All loans made to Respondent will be quickly repaid within a relatively short period of time.
A hearing was held in Tampa, FL. Beverly Kay Malmquist, Ruth Johnston, Barbara J. Hays, and Nancy E. McGee testified for Complainant and Dutch Thomas, Jean W. Cummings and Nancy Jean Wheeler testified for Respondent. The parties filed proposed findings of fact, proposed conclusions of law and briefs. All of these have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence.
Respondent James Edward Maher, doing business as Maher Matrix Services and as Jim Maher Multi-Level Marketing Consultant solicits remittances of money through the mail in connection with financial programs that he offers to customers. Respondent mailed newsletters which were designed to elicit financial contributions (CX-1A, 1B, 1E, 1H, 2D, 5C, 6). Attached to the newsletters was a form to be used by participants to mail money to Respondent (CX-3F) and Respondent also provided participants with pre-printed envelopes to be used to mail contributions (CX-3K)
(a) Respondent has sufficient funds avail- able to indefinitely distribute the financial assistance for which "contributions" are sought.
(b) Persons making a financial "contribution" to Respondent will receive a return of 200% within 30 days.
(c) All loans made to Respondent will be quickly repaid within a relatively short period of time.
The uncontradicted testimony of Complainant's witnesses and Respondent's witnesses support findings that representations (b) and (c) were made but do not support a finding that representation (a) was made.
Beverly Kay Malmquist heard from a relative that if she partici- pated in Respondent's program, she could double her money. On August 26, l986, she visited Respondent's office and attended Respondent's public meeting (Tr. 15-16) Ms. Malmquist testified that at the meeting, Mr. Maher stated that by furnishing him money for his 10/20 program an investor could double her money (Tr. 18). Three days later on August 29, Respondent's Office Manager, Carol Chancey told Ms. Malmquist the same thing - that she could double her money in 30 days. For instance, if she invested $100 she would "get back $200 in 30 days" (Tr. 20). In reliance, Ms. Malmquist gave Respondent $3,200 that day (Tr. 21).
Thirty days later, Ms. Malmquist, together with her sister, visited Respondent's office to pick up her money. Mr. Maher asked her how much she "had coming to her." She told him that it was double $3,200 or $6,400. He agreed and promised to send her a check for $6,400 in a few days (Tr. 78-79).
Ms. Malmquist also sent Respondent $130 under his 10/20 Program (Tr. 26) This program began in November 1986. She doubled her money under this program and received $260. Respondent had given this program various names in his newsletters such as Christmas Club, Good News, and 10/20 Program (CX-2A).
Mrs. Malmquist said that one of the main inducements to her to give money to Respondent in August were the statements made to her by Mr. Maher (Tr. 18) and Ms. Chancey (Tr. 20, 80). Initially she could double her money and joining Carco was necessary only if she wanted to reinvest (Tr. 58, 59).
Ruth Johnston, Beverly Malmquist's sister, testified that she and her husband invested a total of $8,066 in Respondent's program and that Mr. Maher told her that she was entitled to receive $4,000 for her first $2,000 investment but if she chose to "roll it over" she would receive double the $4,000 or $8,000 in 30 days (Tr. 92-93).
Barbara Hays also heard of Respondent's plan from a relative. Her brother-in-law told her that she could double her investment in Mr. Maher's program. On August 16, l986, when she asked Mr. Maher and his employee, Jim Chancey if she could double her investment in his program, Mr. Maher answered "I've never failed to double it" (Tr. 139). As a result, she invested $3,000 in the program. She testified that she received a notice or receipt from Respondent dated September 18, l986 (CX-4A) which confirmed that there was now double that amount or $6,000 in her account (Tr. 140). In addition, at Respondent's meeting in November 1986, she was told by Mr. Maher that if she contributed $10, within 10 working days she would receive $20 in return (Tr. 142).
Nancy E. McGee also attended Respondent's August 26, l986 meeting. After the meeting, in answer to her question, Mr. Maher told her that if she invested money with him she could double it (Tr. 179). She and her husband invested with Respondent based upon that representation.
Respondent's witnesses also confirmed that the representations were made. Dutch Thomas stated that he invested $1,000 and 30 days later he received a check for $2,000 (Tr. 222). Jean W. Cummings stated that she invested $4,500 with Respondent in August 1986 and she received $9,000 back in September 1986 (Tr. 260) She kept $3,000 of this same and reinvested $6,000. She was told that she would double her investment (Tr. 274).
Nancy Jean Wheeler testified that she understood that if everything went as planned she would double her money but that there were no guarantees. She invested $1,000 and at the end of 30 days, she received a check for $2,000 (Tr. 294). She also did not think that it would create a problem if an investor decided to withdraw his money and not reinvest it (Tr. 291).
The witnesses testified that they understood from Respondent's newsletters and statements that the monies were to be used for "financial assistance."
These representations are not nullified by Respondent's disclaimer in RX-1A, a form that participants completed, which states "For those who do send a personal loan, do so only on the condition that I am not required to repay it within a particular period of time, or repay an amount greater than the amount of the loan." In the light of Respondent's oral representations and his actions of telling participants after 30 days that they had doubled their money and asking them if they would like "to roll it over" and double their money again, this language was in effect a pro forma boiler plate caveat which many participants ignored. Whether the moneys given to Respondent for his program were called an investment or were called a loan does not change the effect of these misrepre- sentations.
Thus, the evidence shows that Respondent represented that (b) Persons making a financial contribution to Respondent will receive a return of 200% within 30 days and (c) All loans made to Respondent will be quickly repaid with a relatively short period of time. However, the evidence does not support a finding that the representation alleged in subparagraph 6(a) of the Complaint was made.
Representations (b) and (c) are false. Mrs. Malmquist testified that she did not receive a 200% return on her investment. In fact, she did not even receive her initial $3,200 back. Mrs. Johnston did receive some payments on her investments. But ultimately she did not receive double the $4,000 investment that she made in September and October 1986. Mrs. Hays did not receive double her investment of $3,000. Mrs. McGee, after repeated attempts to get back her money from the Financial Assistance Program, did receive her initial investment. However, the money that she put into the 10/20 Program ($500) was never returned or doubled.
Respondent's witnesses also have contributed money to various programs that have not been doubled or refunded (Tr. 236, 274-5).
Respondent's programs were called various names such as Financial Assistance, Financial Help, Good News, 10/20 Club, or Loan Program. Participants were called Club Members, Investors, Contributors, or just members. Many contributors in Respondent's programs did initially receive a return of double their contribution. But it became obvious in 1987 that Respondent's financial obligations to the public were mathematically staggering. The October 17 letter sent to contributors spelled out this problem. It told those who contributed before October 1, l986, that Respondent could not fulfill his obligations to double their money (CX-2D), although Respondent continued to solicit money after that time.
Both Respondent's newsletters and presentations to the public relate the requirement that to participate and receive financial assistance from Respondent a participant must join Carco.
Witnesses for both parties testified that they did not particularly want to join Carco and were not interested in multi- level programs. They were required to purchase products for their own use each month. Respondent's newsletters (CX-1E, CX-1F) referred to the extent of participation in Carco as being determinative of whether financial assistance would be forth- coming. Respondent told participants that he would establish their downline in this multi-level organization. Participants would not control their earnings in the typical fashion in multi-level of recruiting new members and selling products (Tr. 213, 214). Dutch Thomas testified that he knew it was a gamble going in (Tr. 215). Nancy Wheeler testified that she did not have any people in her downline (Tr. 285).
The lottery aspect of Respondent's programs is borne out by the the uncontradicted testimony that some investors received money and some did not. Investing in Respondent's programs was a proposition full of chance.
Essentially, Respondent required people to give him money and promised a chance at receiving greater sums. The classic elements of consideration, chance, and prize are present in Respondent's scheme. The consideration was a "contribution" to Respondent. The prize was being able to receive double your money or more. The chance was that Respondent could not fulfill his obligations and differing sums (sometimes nothing) were forthcoming to contribu- tors. His printed materials did not state that a particular amount would be forthcoming.
1. Postal Service False Representation Orders to not violate the First Amendment of the Constitution. Donaldson v. Read Magazine, Inc., 333 U. S. 178 (1948); Lynch v. Blount , 330 F. Supp., 689 (S.D.N.Y. 1971); Hollywood House International, Inc. v. Klassen , 508 F.2d 1276 (9th Cir. l974); and United States Postal Service v. Beamish , 466 F.2d 804 (3d Cir. l972). In the latter case, the Court held, "Advertisers possess no constitutional right to disseminate false or misleading materials. Therefore, Congress has the power to prohibit such deceptions through appropriate legislation." p. 807. See also ; Bolger v. Young's Drug Products Corp. , 463 U. S. 60 (1983).
2. A representation must be considered as a whole and its meaning will be determined in the light of its probable effect on persons of ordinary minds. Donaldson v. Read Magazine, Inc. , supra ; Vibra-Brush Corp. v. Schaffer , 152 F. Supp. 461 (S.D.N.Y. 1957). Rev.d on other grounds , 256 F.2d 681 (2nd Cir. l958).
3. Express misrepresentations are not required. It is the net impression that the advertisement as a whole is likely to make upon individuals to whom it is directed that is important. Even if a solicitation is so worded as to not make an express representation, but is artfully designed to mislead those responding to it, the false representation statute is applicable. G. J. Howard Co. v. Cassidy , 162 F. Supp. 568 (E.D.N.Y. l958); See also , Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council , 425 U. S. 748 (1976), quoting United States v. 95 Barrels of Vinegar , 265 U. S. 438, 443 (1924): "It is not difficult to choose statements, designs and devices which will not deceive." In Vibra-Brush Corp. v. Schaffer , supra , the Court stated:
It is not each separate word or clause here and there of an advertisement which determines its force, but the totality of its contents and the impression of the entire advertisement upon the general populace. p. 465.
Similarly, in American Image Corp. v. United States Postal Service , 370 F. Supp. 964 (S.D.N.Y. l974) the Court held: "The Similarly, in American Image Corp. v. United States Postal Service , 370 F. Supp. 964 (S.D.N.Y. l974) the Court held: "The cases are clear that such advertisements are to be viewed not with a lawyer's eye to 'fine spun distinctions' but with an eye to their over-all effect on the average reader."
4. Where an solicitation is ambiguous or capable of more than one meaning, if one of those meanings is false, the solicitation will be held to be misleading. Rhodes Pharmacal Co., Inc. v. F.T.C. , 209 F.2d 382, 387 (7th Cir. l953); Ralph J. Galliano , P.S. Docket No. 19/15; (P.S.D. May 2, l985); Bruce Roberts Co. , P.O.D. Docket No. 3/78 (I.D., August 16, l971); Moneymakers, et al. , P.S. Docket No. 16/1 (I.D., June 20, l983).
Although an astute person might not be deceived by an solici- tation, this does not detract from the solicitation's tendency to "deceive the ignorant, gullible and less experienced." Gottlieb v. Schaffer , 141 F. Supp. 7, 6 (S.D.N.Y. 1956). The false representa- tion statute was intended to protect such persons as well. Donaldson v. Read Magazine, Inc. , supra .
6. Applying the foregoing standards, the average person would interpret Respondent's solicitations substantially as characterized in subparagraphs 6(b) and (c) but not as characterized in subparagraph 6(a) of the Complaint. Representations (b) and (c) are false.
7. As expressed in Chaachou v. American Central Insurance Co. , 241 F.2d 889, 893 (5th Cir. l957), a representation is material if it would ". . .cause the [other party] to do other than that which would have been done had the truth been told." Applying the Chaachou test, Respondent's representations are material because they have the effect of inducing individuals to remit money to enroll in his programs.
8. A promise to refund if a customer is dissatisfied will not dispel the effect of false advertisements. Farley v. Heininger , 105 F.2d 79, 84 (D.C. Cir. 1939); Borg-Johnson Electronics, Inc. v. Christenberry , 169 F. Supp. 746, 751 (S.D.N.Y. 1959). Similarly, a small inconspicuous disclaimer will not cure the falsity of a representation. Vibra-Brush v. Schaffer , supra.
9. Respondent is engaged in conducting lottery or schemes from the distribution of money by chance in violation of 39 U.S.C. 3005. Under 39 U.S.C. 3005, a lottery, gift enterprise or similar scheme, has three necessary elements: (1) the offering of a prize; (2) the furnishing of consideration made to receive the prize; and (3) the distribution of the prize by chance rather than entirely upon a basis of merit. Brooklyn Daily Eagle v. Voorhies , 181 F. Supp. 579, 581 (E.D.N.Y. 1910); Federal Communications Commission v. American Broadcasting Company, Inc. , 347 U. S. 284, 290 (1954). The scheme conducted by Respondent contains these three elements.
10. Therefore, Respondent is engaged in the conduct of a scheme for obtaining the remittance of money through the mail by means of false representations and in conducting a lottery in violation of 39 U.S.C. 3005. Accordingly, a False Representation Order and a Cease and Desist Order in the form attached should be issued against Respondent.