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Dialing for dollars: telemarketing firm raises $1 million; where's the money?

John Gorman stands at the front door of his North Little Rock office, watching as a reporter leaves following an interview.

The former executive director of the Arkansas Association of Chiefs of Police has one final comment.

"You know what you guys need to do?" he yells out. "You need to pay for lie-detector tests. I'll take one."

It's the second time Gorman has mentioned a lie detector.

He sounds desperate.

Gorman claims he is the scapegoat in a publicized lawsuit filed by the state attorney general's office.

The lawsuit alleges that Gorman, the AACP, Callan Publishing Inc. of Minneapolis and others were involved in telemarketing fraud. The suit claims that almost $1 million was bilked from Arkansans who thought the money was going to a drug-abuse program sponsored by the AACP. Attorney General Winston Bryant thinks most of the money went instead to Callan, the AACP and Gorman.

Gorman calls the lawsuit "a cheap shot by a man trying to run for governor."

Bryant fires back that the lawsuit is in no way a publicity vehicle.

"That's totally incorrect," Bryant says. "We're going to trial with this case for a number of reasons. We feel Callan Publishing and the other defendants ... have deceived and defrauded the people of this state."

The suit, filed in Pulaski County Chancery Court last June, makes 12 specific allegations of "willful and intentional fraud and misrepresentation" in connection with the solicitations.

The Details

Three points stand out, according to Bryant.

His office's consumer protection division found that the telemarketers, when asked, told potential donors:

* All the money would go to the so-called Drug Watch program sponsored by the AACP. It did not. In fact, the contract between Callan and the AACP stated that the professional fund-raising group would receive about 78 percent of the money raised. The other 22 percent? Bryant's office says only 3 percent has gone to Drug Watch.

AACP representatives contend the program has received 20 to 22 percent of the money raised. However, an AACP account summary showed $24,563 expended on the Drug Watch program from May 1, 1990, to Dec. 12, 1991. Almost $1 million was raised.

* The telemarketers were local law enforcement officers. They actually were paid telephone solicitors.

* The program had been approved by the attorney general. It was not.

The attorney general claims these were "high-pressure telephone solicitations." As any Arkansas resident who has tried to have a quiet dinner at home can attest, such high-pressure solicitations have become common.

More and more calls are coming from the boiler rooms. And often, those callers claim to represent police organizations.

It's the new way of dialing for dollars.

And it's raising millions nationwide.

Subsequent to the filing of the Callan lawsuit, a preliminary injunction was granted to halt the fund-raising activities for Drug Watch. At an Aug. 27 hearing, Pulaski County Chancellor Vann Smith modified the preliminary injunction. Smith allowed Callan to continue its fund-raising efforts on behalf of the AACP under several restrictive conditions, among them that the judge oversee the money raised and that the telemarketers adhere to a strict script. Refunds are being made to those who were misled.

A victory for Bryant's office?

It seems so. But the attorney general wants more.

Complaints about the solicitors have not stopped. And Gorman's involvement with the AACP and Drug Watch bears investigating.

Who is John Gorman?

In the often Byzantine world of North Little Rock politics, he is either friend or foe.

He was active in the political campaign of Mayor Patrick Henry Hays until the two had a falling out.

He has close ties to two aldermen, Cary Gaines and Ray Heck.

He now is campaigning for Gary Hogan as the University of Arkansas at Little Rock baseball coach prepares to run for mayor.

He is described as an influential political activist by some. Others call Gorman a political leech.

"All I want is for the general public to know what kind of a scumbag he is," says one North Little Rock city official.

Strong words.

But there are strong emotions surrounding this case and this man.

Gorman admits that "a lot of people don't like me over here."

A Background Check

Gorman was executive director of the AACP from October 1989 until April 1991, when he was fired for what AACP President Montie Sims calls a violation of his job description.

At the time Gorman was hired, he owed $12,000 to an individual who had made him a business loan several years earlier. The loan was for Gorman to operate a telephone answering business in Washington. The individual who loaned Gorman the money contacted North Little Rock attorney John Biscoe Bingham who, in turn, won a judgment from Gorman in 1986.

Gorman has yet to pay back the $12,000.

"I have a judgment against him, but I've not been able to collect it," Bingham says. ". . . I have not gotten him to agree to make any payments. I've not found him to have any assets."

Sims was an AACP board member when the position of executive director was created about three years ago. He says the AACP performed some background checks on Gorman before he was hired.

"At the time, we could find no blemishes whatsoever," Sims says. ". . . He said he would present a program to us . . . Drug Watch was part of the program.

"After working with Mr. Gorman, we found out about some of his indebtedness. We had a meeting and told him he would have to get his businesses in order or we would have to let him go."

The office at 501 W. 25th St. in North Little Rock from which Gorman served as executive director was also his residence. The location is commercially zoned in what is partly a residential area. According to the city's zoning code, it is unlawful for someone to reside in a commercially zoned area. A special permit would allow the property to be zoned for residential as well as commercial use.

Heck and Gaines co-sponsored a proposal at a December meeting of the North Little Rock City Council to allow Gorman to reside at his place of business. Hays has said he will veto any such measure.

A sign outside Gorman's office still reads "Arkansas Association of Chiefs of Police."

That is despite the fact Gorman has not been associated with the AACP since April. The AACP's new offices are in Sherwood.

Financial Discrepancies

In the 18 months Gorman worked for the AACP, he claims he made only $12,000. Gorman says his agreement with the organization was for him to receive 25 percent of all money raised, including that raised for the Drug Watch program.

During its investigation, the attorney general's office obtained the records from Twin City Bank of North Little Rock that relate to Drug Watch. Gorman provided his own Drug Watch financial statements.

During Gorman's first deposition in July, it was learned he wrote checks to himself out of the Drug Watch account. Gorman says he paid back the money.

Gorman's check register shows loan repayments. But not one of those repayments is reflected on the bank statement.

Where was the money going?

Was John Gorman lining his pockets?

Bryant thought so when he filed the lawsuit.

He said at the time that "97 cents of every dollar collected went to line the pockets of the publishing company, its solicitors and the former executive director."

Gorman says any money he took from the fund-raising was part of his 25 percent cut.

"I did take some of that as pay," he says. "Not very much."

Who Gets What

According to Bryant's office, the professional telemarketers hired by Callan raised $974,818 in Arkansas. Of that, Callan and its subsidiaries received $770,106. The AACP received $204,711.

Bryant says less than $30,000 has gone to Drug Watch.

"We feel we'll be able to substantiate that," he says.

Smith has set the week of April 27 for the trial. Originally, the case was to go to trial Jan. 13. However, the complexity of the lawsuit and Gorman's temporary lack of an attorney forced Smith to push the date back.

Meanwhile, Callan and Drug Watch are being closely monitored by Smith and the attorney general's office.

That's fine by the AACP, says Executive Director Jim Scott.

An attorney for Callan agrees.

"We want to do things that will satisfy the legitimate concerns of the attorney general and the state," says Little Rock attorney Cyril Hollingsworth, who represents Callan.

Watching Drug Watch

The AACP is headquartered in an office complex about a block off Kiehl Avenue in Sherwood. Scott says the organization soon will move into offices at the University of Arkansas at Little Rock's Criminal Justice Institute.

Scott will not discuss his relationship with his predecessor. He does, however, discuss the Drug Watch program. He claims drug-abuse prevention materials have been mailed to every high school, junior high school and police chief in Arkansas. A 30-second public service announcement about Drug Watch was sent to radio stations across the state. And Drug Watch posters were sent to schools, city halls and post offices.

When paid solicitors call potential donors these days, their conversations are taped, according to Scott. He says the attorney general's office has access to those recordings.

"We opened the books, and everything came out to the penny," Scott says.

Sims has been involved with the AACP since 1984 when he became Dardanelle's police chief. He says the organization's reputation has suffered since the lawsuit.

"We're looking forward to the end of the lawsuit, probably more than anyone else because our name is out front," Sims says.

Bryant admits the chiefs of police are "probably the victim."

Which brings the case back to John Gorman.

He's the one who approached the AACP and later Callan with the idea for the program. Drug Watch posters are scattered about Gorman's office.

Gorman continues to maintain the AACP owes him money. He says he is considering a lawsuit against the organization.

"I sent them a $65,000 bill," Gorman says. "Now, it's more like $100,000. I itemized it. I incorporated them. I charged them a couple hundred dollars for that. |I charged them~ rent they hadn't paid when I let them stay here free.

"You name it. That was a $65,000 bill, and it's going up ... Eventually, they are going to have to pay me 25 percent of everything they've collected."

Gorman claims his initial contact with Callan was the extent of his involvement with the telephone solicitations.

"As I understand it, this lawsuit is about solicitation," Gorman says. "I never got on the telephone."

The attorney general counters that Gorman "personally formulated, directed, controlled, supervised, managed or had knowledge of ... to such a degree as to make him personally liable."

Those at Bryant's office say Gorman dug himself into a deeper hole during his deposition.

The attorney general's office claims that "Gorman produced ... falsified bank records of Drug Watch ... and testified under oath that they were true and correct."

The office further alleges Gorman's bank records contained "phantom deposits."

Gorman apparently offered no explanation for having produced falsified documents and no explanation for having allegedly lied under oath.

At the time of Gorman's first deposition, he was represented by Little Rock attorney Morgan "Chip" Welch. Gorman now is represented by Mike Hankins.

Gorman recently was sued by the Arkansas Law Enforcement Athletic Association Inc. for allegedly taking the logo and name of the Arkansas Police Olympics.

But that's another story.

Consumer Fraud

Attorney General's Office Trying To Protect Those Who Have Fallen And Can't Get Up

The consumer protection division of the state attorney general's office has been aggressive in its pursuit of those who violate the state Deceptive Trade Practices Act.

Fraudulent telemarketing schemes fall under that act.

Here are the attorney general's actions against telemarketers during the past 12 months:

* Filed suit against Ronald Cool, Sharon Vice and the American Flag Foundation for misusing funds raised for the purchase of gift boxes for U.S. troops in the Persian Gulf.

The case is pending.

The operation netted about $30,000 for the gift boxes. Cool allegedly used the money for personal expenses such as house and car payments. The attorney general alleges he even paid for a child's birthday party.

Cool's operation has been shut down in Arkansas.

Cool is in trouble with the New Mexico attorney general's office, however. It is investigating a fund-raising operation for the Bernillo County Deputy Sheriff's Association.

* Filed suit against Gold Star Enterprises and others for deceptive practices involving coupon book sales.

The coupon books, sold by telemarketers in Fort Smith, were oversold. Those who allowed coupons to be inserted and those who purchased the books were overwhelmed.

The attorney general's office recently learned that the same people did the same thing in St. Cloud, Minn.

* Filed suit against Lifecall Inc. for fraud and deception.

Lifecall claims it can expedite emergency services for senior citizens who wear its warning devices.

The company has not responded to the complaint.

Lifecall settled a lawsuit by the Illinois attorney general's office in May, paying a $25,000 fine and agreeing to retrain its franchisees. It must exchange all the devices sold for models that comply with the law. The company, known for its extensive television advertising, also must obtain product liability insurance.

* Filed suit against Callan Publishing Co. of Minneapolis, the Arkansas Association of Chiefs of Police, John Gorman and others for misrepresentations in soliciting donations for a drug-abuse program.

The state obtained a temporary restraining order, which later was modified. The modification allows the telemarketing operation to continue under several conditions, including the taping of sales pitches.

* Joined 25 other attorneys general in urging the Federal Communications Commission to adopt rules protecting consumers from the growing abuse of 1-900 pay-per-call telephone services.
COPYRIGHT 1992 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:Callan Publishing Inc.; telemarketing fraud case
Author:Webb, Kane
Publication:Arkansas Business
Date:Jan 27, 1992
Previous Article:Reaching a plateau?
Next Article:Regulatory wrangling.

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