Telemarketing Schemes and Scams

While the total amount of business dollars lost to telemarketing schemes is impossible to calculate, since many of these frauds are not reported, the Federal Trade Commission (FTC) has estimated that telemarketing scam artists take in billions of dollars each year.

According to 1993 Better Business Bureau (BBB) statistics, over 343,000 prepurchase inquiries were received requesting information about "fraud- prone" telemarketing sectors, while complaints in these categories increased almost 60% from the previous three years.

Every type of business and professional office is a potential target for a "telescam," and even highly sophisticated business people have been swindled. The first step in protecting your business is to educate yourself and your employees about the most common telemarketing scams.

Office Supply Schemes and "Paper Pirates" 
Illicit telemarketers usually are agents of"boiler room" and "WATS-line" operations. These telephone hustlers operate from crowded offices with a dozen or more salespeople crammed in a room, each placing hundreds of calls a day. Their victims' names may come from telephone directories or from "sucker lists" acquired from other "boiler room" operations.

Some unethical telemarketers attempt to sell substandard office equipment and supplies to businesses by posing as their regular suppliers and offering what they claim are tremendous discounts from the regular prices. The "paper pirate" or "toner-phoner" first learns what brand and model of photocopy machine is in a particular office, usually by calling and asking employees to "verify" make and model numbers. Once that information has been obtained, the "pirate" may claim the supplier is being forced to liquidate stock and then pressure the company into making a hasty purchasing decision.

When the supplies arrive, the product, which allegedly is 'just like the brand name item," is usually inferior in quality. It may also cause damage to the business machine, and possibly void the warranty. Once your business is billed, it is usually very difficult to have the office supply company adjust the invoice, and you may even be threatened with legal action to make payment.

The Better Business Bureau recommends that businesses should not deal with a new office supplier until the company's existence and reliability have been verified through the local BBB, particularly when you have been contacted on the telephone by a stranger.

In a twist on the office supply telemarketing scheme, some scam operators have swindled businesses out of thousands of dollars by turning a telescam into "teleblackmail."

Typically, in a "teleblackmail" scam, boiler room operators talk unsuspecting victims into purchasing off- brand office supplies. Once several orders have been placed and paid for, the operator tells the victim that, as a valued customer, he or she is entitled to receive a "free" gift, such as a tape recorder or VCR.

If the victim later refuses to place additional orders or to pay invoices for goods never ordered or received, the "teleblackmailer" threatens to inform management at the company that the employee accepted "free" gifts in exchange for the orders.

How to Protect Your Business

  • Education and awareness are your best defenses against "paper pirate" and office supply swindles. It is critical to train your employees on the proper handling of telephone sales calls. Also, keep up-to-date supplier lists by the telephones for employees to double-check when vendors call.

  • Never buy from a new supplier by telephone or mail until you have verified the company s existence and reputation. Ask for references and check them out. Contact your local BBB for a reliability report.

  • Find out how long the firm has operated out of its present location and, if possible, visit the company.

  • Do not accept Cash on Delivery (COD) shipments. Insist on open account billing so that if there is a problem, you have some leverage.

  • Never accept or pay for shipments without making certain they were authorized.

  • Insist on sending written purchase orders.

  • Designate purchasing agents for ordering, receiving, and paying for supplies.

  • Inform all employees about your organization' s purchasing, receiving, invoicing, and payment systems.

  • Alert employees, including receptionists and seasonal workers, to the various office supply schemes, and advise them not to give out information on makes and models of office equipment over the telephone.

  • Be wary of cold calls asking for verification of the name of the office manager, or any other employee likely to make office supply purchases.

Phony Invoice Schemes
Phony invoicing schemes typically prey on the inefficiency of targeted businesses. While there is no set formula for these invoice schemes, most involve the use of an initial telephone contact. The call helps the swindler obtain the names of key business contacts, as well as some important details about the operation of the business and its products or services.

The con artist's next contact with the intended victim usually comes in the form of a phony invoice sent through the mail. Many of these phony invoices are for directory or publication listings. The invoice, which includes names, figures, and other details that add to the appearance of legitimacy, may be paid unwittingly along with a number of other routine bills.

How to Protect Your Business

  • The best protection against phony invoice scams is knowledge and vigilance. Your company's accounting department, or the individuals responsible for paying bills, should be made aware of phony invoice scams, solicitations disguised as invoices and other dubious bills from unfamiliar companies.

  • Never place an order over the telephone, unless there is no doubt that the firm you are dealing with is reputable. Obtain the organization's name, address, and telephone number, as well as its representative' s full name and position. Then check on the company's reliability with your local Better Business Bureau.

  • Be cautious of invoices being sent from overseas. There have been reports of phony invoices originating in foreign countries.

  • Establish effective internal controls for the payment of invoices.

  • Channel all bills through one department.

  • Insist that employees fill out pre-numbered purchase orders for every order placed.

  • Check all invoices against purchase orders and against goods or services received. Make certain that order numbers correspond with the invoices.

  • Verify all invoices with the person who gave written or verbal authorization.

  • Clear all invoices with the appropriate executives.

  • If the invoicing company claims to have a tape recording of the order, insist on hearing it.

"Telefunding" Scams
Fraudulent fund-raising by telephone, or "telefunding" scams, is another type of telemarketing crime perpetrated against business owners. The unethical telefunder's solicitation appeal may falsely claim that the tax-deductible charitable donation will benefit a police or firefighter group or some other non-profit organization.

Or, the telefunder may imply that the donation will entitle the company to special treatment or status, and offer the business owner a window sticker or decal to display, indicating support for the charity.

How to Protect Your Business

  • When someone calls or appears at your place of business to ask for a donation, ask for the charity's full name and address, and whether your contribution would be tax deductible.

  • The caller should also identify his or her relationship with the organization (volunteer or paid solicitor). If the solicitation is made in person, ask to see some form of identification.

  • Ask if the charity is licensed by the appropriate state and local authorities. Also, remember that appropriate registration does not mean that the state or local government endorses, or recommends, the charity.

  • If you are asked to buy magazines, tickets, or candy in conjunction with the appeal, ask what portion of the funds the charity will receive.

  • Do not be pressured into making an immediate giving decision. If a fund raiser uses high-pressure tactics such as threats of economic retaliation, or repeated harassing calls or visits, contact the local BBB, or state attorney general.

  • Always pay your contribution by check, and make the check out to the full, official name of the charity, not to the individual collecting the donation.

  • Keep records of your donations, such as receipts and cancelled checks, so you can document your charitable giving at tax time.

  • Check out local soliciting organizations with your local Better Business Bureau, and with the local charity registration office (usually a division of the state attorney general's office).

  • For information on national charitable organizations, contact the Philanthropic Advisory Service (PAS) of the Council of Better Business Bureaus at 4200 Wilson Boulevard, Arlington, VA 22203.

Investment Frauds
Investment opportunities peddled to business owners by telescam artists have included rare coins, gemstones, artwork, oil and gas leases, precious metals such as gold and silver, and strategic metals such as chromium and indium. Also common are telemarketing frauds involving securities and commodity futures investments and penny stocks.

Like other fraudulent telemarketing operations, investment telescams usually are carried out by boiler room operators, who may target those who have indicated an interest in other investments by responding to a newspaper ad or filling out an information request card.

Another common target of fraudulent telemarketers known as "reloaders," is the individual already victimized by an earlier scam, whose name and number appears on a "sucker" list. The con artist knows that someone who has been defrauded and is hoping to "recover" previous losses may be particularly vulnerable to being "double-scammed."

Telescam operators often find a receptive audience among the millions of investors who are accustomed to conducting legitimate stock and bond transactions through their brokers by telephone. These persuasive operators often weave together half-truths and facts in a pitch that guarantees large profits and low risk. They may claim that the prospect has been specially selected to participate in an unusual investment opportunity.

Often they will urge the victim to pay money immediately to "get in on the deal," and they may quote phony statistics to demonstrate the need for fast action. A messenger may even be dispatched to pick up funds before the target has a chance to investigate or reconsider the offer.

Also, with the increased reliance on computers and bulletin boards to conduct business, many telescammers are using on-line computer services to commit investment fraud.

"Cyberfraud," as it is commonly known, may include stock manipulation where messages by a fraudulent promoter appear on the computer bulletin board "hyping" a thinly traded, low-priced penny stock as a good investment with high earnings potential, or it may involve misleading advice where misrepresentations about "hot" investment opportunities are made on the bulletin boards by alleged financial "experts" with "inside information."

The following examples outline the more common telemarketing investment scams and how they work:

  • In an art print scam, an investor hoping to cash in on the rising value of limited edition prints by popular artists finds that he or she is actually 'in possession of counterfeits. Overwhelmed by the "feverish" sales pitch of a boiler room operator purportedly calling from an art gallery-a pitch that may include the claim that the artist's health is failing and the value of the artist's work about to skyrocket-investors have paid thousands of dollars for nearly worthless photomechanical reproductions.

  • In securities and commodity futures investment schemes, most criminal activities center around the sale of misrepresented properties. Examples include: the sale of counterfeit or stolen securities; schemes that rely on the deceitful practices of traders or employees inside" stock and bond clearinghouses; and international schemes involving the sale of securities in nonexistent foreign companies. Fraudulent commodity sales operations often use glossy brochures touting trading "successes." They may adopt a legitimate sounding name and an impressive mailing address that in reality is nothing more than a mail drop or rented back office.

    Most of these questionable operations are not members of legitimate exchanges and are not registered with any regulatory agency, even though, in most instances, registration with a regulatory body such as the Commodity Futures Trading Commission or the National Futures Association is mandatory for firms dealing with customers in commodity futures or options transactions.

  • In penny stock scams, telephone hucksters often pass themselves off as brokers with inside information on a "hot" new stock issue. Typically, the prospectus contains no indication of exactly where or how the money invested will be put to work, if at all. The investor "goes in blind," relying on the promoter' s exaggerated claims of large returns for a small investment. The one who makes the quick and easy profits, however, usually is not the investor but the promoter. In a typical scam, the promoting company's officers, brokers, and other insiders purchase stock at a fraction of what the public pays. Once boiler room sales have driven up the price, the promoters sell out at a large profit, the stock prices collapse, and investors are left holding the bag.

  • In foreign bank investment scams, telemarketing con artists extol the benefits of investing in loans, certificates of deposit, insurance, currency speculation programs, and other financial offerings of foreign banks. False claims are made regarding the high returns guaranteed from such investments. Profits are anything but guaranteed. In most cases, the investor's money goes no farther than the promoter' s pocket.

How to Protect Your Business

  • Be particularly skeptical of unsolicited calls offering any form of investment opportunity, particularly from out-of-state salespeople.

  • Carefully scrutinize investment offerings made via on-line computer services. Do not assume that your online service polices its investment bulletin boards for frauds.

  • Do not be high-pressured into buying. A warning that "you must buy now or forever lose the opportunity" should alert you to the possibility of fraud. If you have any doubts, make no promises or commitments, no matter how tentative.

  • Be wary if the caller claims that the investment is "risk-free," or that you can double your money or even expect a high return within a short time. Also be suspicious of testimonials, which are easily fabricated, and claims of "inside information."

  • Only put your money in investment offers you know something about. Get all the information you can about the company and then verify the data. Ask for a prospectus, make sure you completely understand all its details, and review it with your attorney, stockbroker, or other reliable consultant.

  • Check the company's reputation and the seller's status with your local Better Business Bureau and the appropriate state agencies and organizations. If, for example, you have questions about securities dealings, you should contact your state securities administrator listed in your telephone directory, and the U.S. Securities and Exchange Commission's (SEC) Office of Consumer Affairs, or your regional SEC office.

  • For questions involving commodity futures, contact the Commodity Futures Trading Commission (CFTC) or your regional CFTC office. You may also contact the National Futures Association, a self-regulatory organization in which membership is mandatory for any firm involved in commodity sales.

Advertising Specialty Product Promotions
Advertising specialty products, items such as pens or desk calendars imprinted with a business' name and address, can be effective promotional tools. Unfortunately, these products also have proven to be an effective tool in the hands of the telemarketing con artist.

The fraudulent telephone sale of advertising specialty products often is coupled with the promise of a "free" gift or prize, such as a personal computer, a VCR, or an exotic vacation as an incentive to order.

In fact, these "gifts" are of far less value than represented. The personal computer may turn out to be a hand held calculator and the "free" vacation could end up costing thousands of dollars in transportation or hotel fees.

Often, a "redemption charge," shipping and handling fee, insurance fee, or other hidden cost is added to the invoice, with the costs exceeding the value of the prize. Furthermore, the advertising specialty products ordered may be of inferior quality and much higher in price than similar merchandise available from local vendors.

How to Protect Your Business

  •  Before placing an order with an advertising specialty product supplier who is selling products by telephone, check out the supplier with your local BBB.

  • Ask for the company's street address and telephone number. When you call back, a person-not a recording or answering machine-should answer.

  • Compare prices for similar merchandise from local suppliers, and ask the caller for a sample of imprinted goods.

  • Be cautious of "one-time-only" offers requiring an immediate decision, especially when you are requested to give your credit card number over the telephone.

  • Consider accepting the offer only if you are interested in the products for sale, not because you are tempted by a prize or "free" gift.

  • Be aware that the law covering Cash on Delivery (COD) shipments was amended to allow recipients of COD packages to pay the charges with a check made payable to the sender rather than to the U.S. Postal Service. This enables you to stop payment on your check if you think the goods you receive were misrepresented.

900-Number Rip-Offs
While there are legitimate 900-numbers being used to promote products and services, many businesses have also become targets of telemarketing scams involving 900-numbers. Callers to telephone numbers with prefixes such as 900, 976, and 540 may be charged anywhere from 50 cents a minute to 50 dollars a call. Furthermore, many 900-number scam operators hike their profits by putting callers on hold or otherwise prolonging the call to multiply their per-minute charges.

Businesses have found thousands of dollars charged to their telephone bills when employees have been targeted with prerecorded telephone messages promising that a "gold" card or some other desirable service is just a telephone call away. Typical scams have involved TV ads and recorded telephone messages promising services, such as:

  • Real estate or job listings. Callers usually end up paying to listen to a recording of listings taken from local newspapers or other publicly available sources.

  • A "gold" credit card. Often these so-called gold cards can be used only to buy over-priced merchandise from the promoter's own catalog-and there may even be an extra charge for obtaining the catalog.

  • A bank credit card, available "regardless of credit history." All the caller usually receives is a list of banks offering low interest or secured credit cards. The list the caller receives, usually for a very high price, often can be obtained at far less cost through financial magazines, newspapers, or legitimate credit organizations. In another typical scam, the caller may be sent a "how- to kit" of virtually worthless generic information on reestablishing credit.

  • Bank loans. Again, the caller usually receives nothing but a list of lenders, or a generic information package on applying for a loan.

How to Protect Your Business

  • Your best defense against excessive 900-number charges is to establish a firm policy regarding office telephone use and make sure employees are aware of it.

  • Employees should be briefed on 900-number scams and reminded not to confuse 900-numbers with toll-free 800-numbers. Remember that not all 800-number telephone services are free. Some 800-number services charge for calls.

  • Also make sure employees know what a 900-number call will cost before dialing, since federal law requires such disclosures.

  • Remember, it is possible to adjust telephone systems so that outgoing 900-number calls cannot be made. However, blocking 900 or 976 numbers does not restrict unauthorized calls to 800 or international numbers.

PBX Fraud
Businesses also have fallen victim to a form of telemarketing fraud perpetrated through their corporate switchboards, known as private branch exchanges, or PBXs.

PBX fraud operators use a variety of means to obtain the two numbers needed to make use of a PBX's remote access capability: the 800-number or seven- or ten- digit telephone number assigned to the Remote Access Unit or Direct Inward System Access feature of the PBX, and the password or authorization code employees must use when away from the office to place calls through the switchboard. Some perpetrators listen to employees using public pay phones, others search a company's garbage dumpsters, and still others may use a computer to try thousands of numerical combinations in search of working codes.

Once in possession of the access numbers, the telescam artists can place hundreds of calls anywhere in the world, all charged to the company s bill. Some scam operators sell the access codes they obtain, thus expanding their profits and multiplying the victim's losses, which in the case of large corporations can run into hundreds of thousands of dollars.

PBX fraud operators can be nearly impossible to track down. Some use a technique known as looping, in which calls are placed using two different PBXs, to evade detection. And often, by the time the unauthorized charges appear on a victim's bill, the PBX fraud operator has moved on to a new location and a new crop of corporate victims.

How to Protect Your Business

  • Learn all you can from the vendor who sold or services your PBX about the capabilities of the equipment, including its fraud defense features.

  • Delete all authorization codes programmed into the PBX for testing or service, and change active PBX codes frequently.

  • Limit PBX access to only employees who really need it, and make sure those employees understand the need to keep authorization codes confidential.

  • Use randomly selected authorization codes, not numbers based on personal information such as social security numbers.

  • Watch out for telescammers who misrepresent themselves to learn more about your telephone system.

  • Block the PBX from making international calls if employees have little need to telephone overseas, and consider cutting off remote access during non-business hours.

What to Do If You Are Scammed
If you believe you have been the victim of a fraudulent telemarketing transaction, contact your local Better Business Bureau and the appropriate law enforcement authorities. Fast action is imperative---delays can allow the promoter to change name and locale, making apprehension, prosecution, and recovery even more difficult. If the fraud is discovered in time, you may be able to stop payment on your check or contest charges on your credit card bill.

Regardless of the nature of the fraud, you can help law enforcement officials combat telemarketing crime by sending a complete complaint with details on the suspect company to: the local BBB; the offices of your state attorney general and local district attorney; and the Federal Trade Commission, Room 200, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20580.