Sweepstakes and Prize Promotion Schemes

Each year the Better Business Bureau is flooded with inquiries about thousands of sweepstakes and promotions that are being received in the mail. While many of these promotions are from legitimate reputable companies, a large number are from operators that defraud thousands of unsuspecting people. According to the Federal Trade Commission, Americans lose billions each year to phony sweepstakes and prize promotion schemes.

Sweepstakes Schemes 
By definition, a sweepstakes is an advertising or promotional device by which money or prizes are awarded to participating consumers by chance, with no purchase or “entry fee” required in order to win.

Lotteries are different than sweepstakes in that they offer prizes to members of the public by chance, but require some form of payment in order to participate. Lotteries are illegal except when conducted by states and certain exempt charitable organizations.

While there are fees for lotteries, absolutely no purchase is necessary in order to enter or win a sweepstakes. Operators send fraudulent sweepstakes promotions to unsuspecting consumers describing valuable prizes that they can win after sending back the completed form plus a fee (or after making a purchase) to enter. When there is no actual sweepstakes drawing or prizes, consumers lose all the money they send. To add insult to injury, if the product is received, it is usually of poor quality.

Being aware of what to look for in authentic written sweepstakes promotions will help you avoid being caught by a fraudulent operation. Be on the lookout for:

  • Procedures for entry
  • The termination date for eligibility in the sweepstakes
  • The number, retail value, and complete description of all prizes offered,
  • The approximate odds of winning a prize.
  • All eligibility requirements, if any.
  • The method by which the winners are announced.
  • Dates when winners will be notified.
  • Provision of a list of winners of prizes over $25 in value.

Prize Promotion Schemes
Prize promotions, also known as premium promotions, are often confused with sweepstakes. The promotions begin by congratulating a consumer for being the winner of a valuable prize or cash award. It follows by requiring the consumer to pay money in order to receive the prize. This is done in a number of different ways. One way to make the intended victim pay is by charging them a large amount of money for the shipping and handling of the prize. Another way that fraudulent operators make their consumers pay is by requiring them to call a 900 number in order to learn what “prize” or “award” they have won. The victim most likely will be charged heavily for the phone call. Operators of the scheme also request that intended victims send in a “pre-payment” of taxes or make a “refundable” deposit for their prize.

The operators of these promotions make money because the “valuable” prizes that are offered in the promotion turn out to cost significantly less than the fee that are collected from the target through the methods above. The victim is mislead into believing that the prizes are more valuable than they are in reality because of false descriptions made in the promotions. For example, a prize described in a promotion as a speedboat may actually be a rubber raft, or a prize described as a full length fur coat worth thousands of dollars may actually be dyed rabbit pelt with a retail value of less than fifty dollars.

Foreign Lotteries
A newer scheme involves foreign lotteries. Consumers receive solicitations through the mail or from telemarketers, promising prizes in lotteries outside the U.S. Sometimes, the operators of the scheme tell the consumer that they have won a large amount of money, and ask for hundreds or thousands of dollars for supposed “taxes” or “fees.” Other schemes involve companies that claim they will buy tickets in foreign (or domestic) lotteries on your behalf, and share in the winnings. Consumers should be aware that all of these schemes are illegal. It is illegal to sell lottery tickets outside of a state registered lottery agent. The companies usually are small operations that open and close quickly to stay ahead of the law, and never send the promised winnings to consumers.

Free Vacation Promotions
Another promotion used frequently misleads consumers into believing that they have won a complimentary trip to an exotic vacation destination. When first contacted through the mail, the consumer is asked to call the company to claim the vacation. A company representative then informs the person of a non-refundable processing and handling fee. In many cases, once the consumer’s credit card information is verified, the consumer learns of additional charges- if the consumer learns of them at all before he or she arrives at the destination. Other costs lurk in meals, lodgings and transportation which are often not known to the consumer beforehand. Before the victim notices it, he or she has spent hundreds or thousands of dollars to go on a trip that is supposed to be a “free prize.”

Some free vacation promotions are also used to sell timeshares. To be eligible for the vacation, consumers may be required to make a purchase or attend a sales promotion. Consumers may also have to meet other eligibility conditions, such as age, income and marital status. The promoters may pressure consumers who go on these types of vacations into signing long-term timeshare contracts. The promoters mostly use post office boxes to do their business and open and close operations very quickly to stay ahead of the law. (For more information on timeshares see our vacation timeshares report.)

Recovery Scams
Unfortunately, consumers that are bilked out of their money through sweepstakes and prize promotion scams also run the risk of being conned again by organizations who contact them claiming to be able to recover the money lost.

Scam artists buy and sell “sucker lists” with the names, addresses, phone numbers and other pertinent information of people who have lost money in fraudulent promotions. The scam artists operate under the notion that if the victim can be fooled once they can be fooled again.

The victim is first contacted by the operator and told that for a fee they will recover the money that was lost or the prize that was never received. They misrepresent themselves as being affiliated with reputable companies or government agencies in an attempt to gain the trust of the victim. Some of the operators claim that they will file the necessary paperwork for the victim or even say that they have money for the victim. Operators even charge the victim large sums of money for the addresses of government agencies that the victim needs to contact in a search for lost money.

There are ways to avoid becoming a victim of recovery scam operators. Be skeptical of people who offer to recover money, merchandise, or prizes, especially those that want their fee in advance. It is illegal for a recovery operator to request or receive payment until seven days after you receive the recovered item or money. Before you purchase any recovery services by phone, ask what specific services the company provides and the cost of service. Also check out the company with local law enforcement and consumer agencies.

How To Avoid Becoming a Victim of Sweepstakes and Prize Scams

  1. Beware of any sweepstakes that charges money for entry.
  2. Beware of any prize promotion that requires you to send in a payment or makes you buy merchandise.
  3. Be aware that it is not the prize promoter’s responsibility to charge the winner for tax. If the promoter is authentic, it will just report your winnings to the Internal Revenue Service and the IRS will bill you for the appropriate taxes.
  4. Be aware that the description of the prizes may not be accurate.
  5. Do not be swayed by high-pressure sales tactics of promoters.
  6. If you do not remember entering a sweepstakes or buying a ticket in a lottery, you most likely have not won a prize.

For More Information
For more information on sweepstakes and prize promotions, or to file a complaint against a company operating through the mail, contact:

U.S. Postal Inspection Service
P.O. Box 555
New York NY 10116-0555