Settlement reached in sweepstakes promotions.

A settlement was reached between Newport Creative Communication and the 19 states which alleged that sweepstakes mailings done by the agency on behalf of clients were deceptive, guaranteeing prizes or claiming that recipients had already won a prize, and not awarding prizes.

The agency admitted no wrongdoing in the case but will pay $400,000, which will be dispersed to defray the costs of the investigation, according to a statement released by California Attorney General Bill Lockyer.

Under the terms of the settlement, the Duxbury, Mass.-based Newport will no longer produce solicitations that claim that the recipient has already won a prize or will be guaranteed a prize by responding. It must include inserts in its mailings explicitly expressing that donating to the charity also will not improve chances for winning.

According to John Pannell, Newport's founder and president, the negotiated settlement involved Newport's voluntary compliance. Pannell said Newport provided a complete set of rules in its sweepstakes three times--on the letter, on the reply form and once in the rules--and included the statement that a person is not required to give in order to win and that giving will not increase chances of winning.

Newport was operating under federal sweepstakes guidelines and began to run into trouble when Arkansas "wanted to protect the person who was uneducated against potentially making a gift in anticipation of winning a prize," Pannell maintained.

"We used pre-selected winners," Pannell explained. "In pre-selection the winner is selected prior to the piece going into the mail. If the pre-selected person returns their entry by the deadline date, then the prize is awarded. If the pre-selected winner does not return the entry, then the prize goes unawarded. A post-selection winner is one who is drawn after the entry date from those entries submitted. We were not using post-selection but in order to satisfy the states we added a consolation prize to every sweepstakes that is post-selected."

The settlement should have no effect on Newport's traditional direct mail fundraising clients, which comprises 90 percent of its business, Pannell said. However, some clients already left the company anticipating that they would make less money from sweepstakes as a result of the new guidelines, he added.

"Commercial fundraising firms that solicit donations must employ tactics that do not deceive consumers or the charities they represent. This agreement will ensure that Newport's future solicitations are not misleading," Lockyer said in a statement.

The states involved in the settlement are: Arkansas, California, Kentucky, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin.