Posts Tagged ‘RFG Group’

Telemarketers Convicted For Fraudulent Sales Techniques

JULY 12, 1999 VOLUME 7, NUMBER 2

Thomas Mullen and 28 other defendants were charged with telemarketing fraud in New York federal court. At trial, the jury convicted Mullen on two of four counts, but the trial judge decided that there had been insufficient evidence of Mullen’s intentions and set aside the conviction. The government appealed, arguing that there was sufficient evidence to support the jury’s decision and Mullen should be found guilty.

The Second Circuit Court of Appeals decided this week that Mullen’s conviction on one of the two counts should be upheld, but that the second count should be dismissed. His case was returned to the federal district court judge for sentencing on the one count.

Although the details of Mullen’s conviction and appeal are interesting, what is really revealing is the court’s description of the work of a telemarketer. Since the central legal question was whether Mullen realized he was involved in actually defrauding the (often elderly) customers he contacted by telephone, the appellate court described the practices of Mullen and his coworkers in detail.

Mullen worked for RFG Group, which sold water and air filters, vitamins, fire retardant sprays, cosmetics, cleaning supplies and promotional items such as pens and key chains. RFG salespersons would call a prospective customer and explain that he or she had been selected for a special promotion by the product’s “sponsor.”

Although callers were carefully coached not to ever say that purchase of the firm’s products was necessary to qualify for the promotional prize, the pitch was (as the Court of Appeals described it) “intentionally worded to imply that such a connection existed.” The customer would be assured that he or she would win one of several valuable prizes, to be chosen at random; the prizes supposedly included Hawaiian vacations, valuable art, new automobiles, cash and jewelry.

“Such extensive effort,” wrote the Court of Appeals, “might not normally be necessary to sell cosmetics or cleaning products…. However, RFG Group was at a competitive disadvantage, as its products were sold at an enormous mark-up from their wholesale cost. For example, RFG sold a six-month supply of vitamins for between $259 and $399, even though the vitamins cost RFG less than $12.” Similar mark-ups were made on water filters (from a cost of $56 to a sales price of $799) and cosmetics (a one-year supply cost RFG Group $81, but was sold for up to $899).

The prizes, of course, were not as described by the callers. The Hawaiian vacation, for example, was actually a certificate for lodging at a motel in Hawaii, and was worth about $45, and the “valuable art” a $47 lithograph or a ceramic dolphin statue. “Only once was a new car awarded, and it was purposely given to an elderly man who made a small purchase so as to negate criticism that RFG targeted the elderly or gave substantial awards only in return for even more substantial purchases.”

RFG’s outrageous practices hardly stopped there, however. Once a buyer had been induced to purchase vitamins or cleaning supplies the first time, his or her name was moved into a different category. Thereafter, he or she would hear regularly from a special corps of RFG salespeople, known as “reloaders.” This elite group of telemarketers, chosen for their ability to close sales, made repeat calls to former clients, since the company found that subsequent purchases tended to be for larger amounts than the first sales. U.S. v. Guadagna, July 6, 1999.

Mullen, along with 24 of his 27 codefendants, was ultimately convicted of wire fraud in the federal court. Unfortunately, the practices described in the Court of Appeals opinion are far too common, in spite of the efforts of law enforcement.

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