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v\ CONSUMER FRAUD PREVENTION ACT OF 1995 ^ Y 4. J 89/1:104/97 Consuner Fraud Prevention ftct of 19... HillAKlJNG BEFORE THE SUBCOMMITTEE OX CRIME OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION ON H.R. 1499 CONSUMER FRAUD PREVENTION ACT OF 1995 APRIL 18, 1996 Serial No. 97 v\ CONSUMER FRAUD PREVENTION ACT OF 1995 Y 4. J 89/1:104/97 Consuner Fraud Prevention Act of 19... hLJllAKlJNG BEFORE THE SUBCOMMITTEE OX CRIME OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS SECOND SESSION ON H.R. 1499 CONSUMER FRAUD PREVENTION ACT OF 1995 APRIL 18, 1996 Serial No. 97 COMMITTEE ON THE JUDICIARY HENRY J. HYDE, Illinois, Chairman CARLOS J. MOORHEAD, California JOHN CONYERS, Jr., Michigan F. JAMES SENSENBRENNER, Jr., PATRICL\ SCHROEDER, Colorado Wisconsin BARNEY FRANK, Massachusetts BILL McCOLLUM, Florida CHARLES E. SCHUMER, New York GEORGE W. GEKAS, Pennsylvania HOWARD L. BERMAN, California HOWARD COBLE, North Carolina RICK BOUCHER, Virginia LAMAR S. SMITH, Texas JOHN BRYANT, Texas STEVEN SCHIFF, New Mexico JACK REED, Rhode Island ELTON GALLEGLY, California JERROLD NADLER, New York CHARLES T. CANADY, Florida ROBERT C. SCOTT, Virginia BOB INGLIS, South Carolina MELVIN L. WATT, North Carolina BOB GOODLATTE, Virginia XAVIER BECERRA, California STEPHEN E. BUYER, Indiana ZOE LOFGREN, California MARTIN R. HOKE, Ohio SHEILA JACKSON LEE, Texas SONNY BONO, CaUfornia MAXINE WATERS, California FRED HEINEMAN, North Carolina ED BRYANT, Tennessee STEVE CHABOT, Ohio MICHAEL PATRICK FLANAGAN, IlUnois BOB BARR, Georgia Alan F. Coffey, Jr., General Counsel/StaffDirector Julian Epstein, Minority StaffDirector Subcommittee on Crime BILL McCOLLUM, Florida, Chairman STEVEN SCHIFF, New Mexico CHARLES E. SCHUMER, New York STEPHEN E. BUYER, Indiana ROBERT C. SCOTT, Virginia HOWARD COBLE, North Carolina ZOE LOFGREN, California FRED HEINEMAN, North Carolina SHEILA JACKSON LEE, Texas ED BRYANT, Tennessee MELVIN L. WATT, North Carolina STEVE CHABOT, Ohio BOB BARR, Georgia Paul J. McNulty, Counsel Glenn R. Schmitt, Counsel Daniel J. Bryant, Assistant Counsel Nicole F. Robilotto, Assistant Counsel Tom Diaz, Minority Counsel (II) CONTENTS HEARING DATE Page April 18, 1996 1 TEXT OF BILL H.R. 1499 3 OPENING STATEMENT McCollum, Hon. Bill, a Representative in Congress from the State of New York, and chairman. Subcommittee on Crime 1 WITNESSES Barker, John F., vice president, National Consumers League, and director. National Fraud Information Center 93 Brendel, Evalyn, vice chair. North Carolina State Legislation Committee, AmericanAssociation ofRetired Person 98 Cincotta, Tony, officer, Montgomery County Police TrainingAcademy 73 Dembin, Mitchell D., Chief, General Crime Section, U.S. Attorneys Office, Southern District ofCalifornia 48 Downs, MaryAnn, telemarketing victim, Raleigh, NC 10 Martin, James L., president, 60 PlusAssociation 102 Owens, Charles L., Chief, Financial Crimes Section, Federal Bureau ofInves- tigation 36 Ritchey, Ann Marie, daughter oftelemarketingvictim, Reston, VA 20 Thompson, R. Bruce, II, special counsel. North Carolina Department ofJus- tice 78 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING Barker, John F., vice president. National Consumers League, and director, National Fraud Information Center: Prepared statement 94 Brendel, Evalyn, vice chair, North Carolina State Legislation Committee, AmericanAssociation ofRetired Person: Prepared statement 99 Dembin, Mitchell D., Chief General Crime section, U.S. Attorneys Office, Southern District ofCalifornia: Prepared statement 52 Downs, Mary Ann, telemarketingvictim, Raleigh, NC: Prepared statement .... 14 Heineman, Hon. Fred, a Representative in Congress from the State ofNorth Carolina: Prepared statement 9 Martin, James L., president, 60 PlusAssociation: Prepared statement 104 Owens, Charles L., Chief, Financial Crimes Section, Federal Bureau ofInves- tigation: Letter dated August 25, 1995, to Chairman McCollum, from Andrew Fois, Assistant Attorney General, Offiice ofLegislative Affairs, Depart- ment ofJustice 59 Prepared statement 38 Ritchey, Ann Marie, daughter oftelemarketing victim, Reston, VA: Prepared statement 22 Schumer, Hon. Charles E., a Representative in Congress from the State ofNewYork: Prepared statement 31 Thompson, R. Bruce, II, special counsel. North Carolina Department ofJus- tice: Prepared statement 79 (III) IV Page APPENDIX Statement of Hon. Sheila Jackson Lee, a Representative in Congress from the State ofTexas Uj ,._ CONSUMER FRAUD PREVENTION ACT OF 1995 THURSDAY, APRIL 18, 1996 House of Representatives, Subcommittee on Crime, Committee on the Judiciary, Washington, DC. The subcommittee met, pursuant to notice, at 9:42 a.m., in room 2237, Rayburn House Office Building, Hon. Bill McCollum (chairman ofthe subcommittee) presiding. Present: Representatives Bill McCollum, Howard Coble, Fred Heineman, Steve Chabot, Charles E. Schumer, Robert C. Scott, Zoe Lofgren, and Melvin L. Watt. Also present: Paul J. McNulty, chief counsel; Nicole F. Robilotto, assistant counsel; and Tom Diaz, minority counsel. OPENING STATEMENT OF CHAIRMAN McCOLLUM Mr. McCollum. The Subcommittee on Crime is called to order. The subject matter today is the growing problem of telemarketing fraud and victimization of the elderly. Older Americans have rapidly become the preferred targets of fraudulent telemarketers. These victims come from an era when a person's word, like a hand shake, could be trusted. Because of the difficulty in telling a legiti- mate telephone pitch from an illegitimate one, they fall prey to these conniving callers. As a result, their losses are often staggering. The Federal Trade Commission estimates that telemarketing fraud costs consumers about $40 billion a year. One Ohio widow lost $240,000 to over 50 different telemarketers. She believed that she was donating to charitable organizations. A 92-year-old California woman gave more than $180,000 to telemarketers. She then lost over $5,000 more to another telemarketer who told her he could recover her originally lost money in return for a large advance fee. Some sen- iors have unwittingly given their enter life savings to telefrauds. Fraudulent telemarketers are constantly refining their cons. If one pitch doesn't work, they smoothly switch to another one. They pressure and conjole until their overwhelmed victim finally surren- ders the money. If necessary, these telephonic muggers become abusive and threatening. When they're finished wringing money from their victims, the telemarketers sell the victim's name to another operation, and the calls begin anew. This isn't to say that telephone calls are the only way our senior citizens have been victimized by swindlers. Home improvement fraud, for example, is rapidly becoming the "con de jour" all across the country. Not only homeowners are targeted by scam artists (1) who convince the homeowner that repairs are necessary and even critical. They begin with minor repairs or cleanings, and then they find rotten roofs, collapsing decks, loose chimneys, termites. The list is endless. Most of the homeowners are unfamiliar with home repair prob- lems of physically unable to inspect themselves. Like the victims of fraudulent telemarketers, these victims are too often embar- rassed to report. The good news is that law enforcement is beginning to fight back. In December, the Department of Justice, with the aid of State and local law enforcement officials, arrested over 400 people in 15 States on fraud charges. These arrests were the results of an undercover operation known as Senior Sentinel. The sentinels were elderly volunteers who allowed law enforcement agents to record phone calls from dishonest telemarketers. The volunteers played the role ofinnocent victims, and the tapes were the basis of the arrests. To strengthen the Federal attack against scam artists, my good friend from North Carolina, Mr. Heineman, has introduced legislation which speaks to this important issue. H.R. 1499, the Consumer Fraud Prevention Act, will establish forfeiture for any property obtained from proceeds ofa fraud offense and will also en- sure that a payment of restitution has priority over any fine or forfeiture penalties. The bill also directs the U.S. Sentencing Commis- sion to increase the offense level for fraud crimes committed against vulnerable victims or committed from a foreign country in order to impede prosecution. I commend the gentleman for his efforts to combat this serious problem, and I hope that today's hearing will offer a useful and important information tool on the tricks and scams of telephone con artists. I also expect the subcommittee will be enlightened on what programs currently exist to protect and educate older Americans about telemarketing fraud. [The bill, H.R. 1499, follows:] 104th congress H.R. 1499 1st Session To improve the criminal law relatingto fraud against consumers. IN THE HOUSE OF REPRESENTATIVES April 7, 1995 Mr. Heineman (for himself, Mr. C!oble, Mr. Taylor ofNorth Carolina, Mr. Burr, Mr. Jones, Mrs. Myrick, Mr. Ackerman, Mr. Blute, Mr. Bono, Mr. Bryant of Tennessee, Mr. Calvert, Mrs. COLLINS of Illi- nois, Mr. COOLEY, Mr. Cunningham, Mr. Fox of Pennsylvania, Mr. HoKE, Mr. HOLDEN, Mr. King, Mr. LiPlNSKi, Mr. McHUGH, Mr. Metcalf, Mr. Paxon, Mr. Sensenbrenner, Mr. Smith ofTexas, and Mr. Ballenger) introduced the following bill; which was referred to the Committee on theJudiciary A BILL To improve the criminal law relating to fraud against consumers. 1 Be it enacted by the Senate and House ofRepresenta- 2 tives ofthe United States ofAmerica in Congress assembled, 3 SECTION 1.SHORTTITLE. 4 This Act may be cited as the "Consumer Fraud Pre- 5 ventionAct of 1995". 1 2 1 SEC.2.FORFEITURE OFFRAUD PROCEEDS. 2 (a) Civil.—Section 981(a)(1) of title 18, United 3 States Code, is amended by adding at the end the follow- 4 ing: 5 "(G) Any property, real or personal, con- 6 stituting, derived from, or traceable to, any pro- 7 ceeds obtained directly or indirectly to a viola- 8 tion of section 2326. Notwithstanding any other 9 provision of law, any property forfeited under 10 this subparagraph, or the proceeds of such 1 property, shall be used, to the extent needed, as 12 determined by the Attorney General, for the na- 13 tional information hotline estabhshed under sec- 14 tion 250008 of the Violent Crime Control and 15 Law Enforcement Act of 1994 and other en- 16 forcement of section 2326.". 17 (b) Criminal.—Section 982(a) of title 18, United 18 States Code, is amended by adding at the end the follow- 19 ing: 20 "(6) The Court, in sentencing an offender 21 under section 2326, shall order that the offender 22 forfeit to the United States any real or personal 23 property constituting or derived from proceeds that 24 the offender obtained directly or indirectly as a re- 25 suit of the offense. Any property forfeited under this 26 paragraph, or the proceeds of such property, shall be •HR 1499 IH