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Dialing for dollars.


The sign on the window of the shabbybuilding in Silver Spring, Maryland reads "positions available: telephone solicitations.' In the basement office, three dozen people sit under flourescent lights at folding tables placed against the walls. Each works a yellow push-button phone. Some are fundraising for a local Kiwanis Club; others are calling those who have let their magazine subscriptions lapse. In subdued, conversational tones like those of late night DJs, they work from scripted pitches, though most of them also ad lib. They work 4-to-6 hour shifts and make between $5 and $10 an hour. "We've got a low overhead philosophy here,' explains a 30-year-old in jeans and sneakers named Bill Taliaferro, one of the owners of Nevus Communications Group, the telemarketing firm. "That beautiful operator from Time/Life who you see on TV, with her computer screen and her plush office; she's in telemarketing, too,' his partner, Paul Holland, explains. "But believe me, most telemarketing firms don't look like that; they look like this.'

Telemarketing is very likely the fastest growingindustry in America. Banks, real estate firms, stock brokerages, insurance companies, sporting goods manufacturers, distributors--nearly every industry in America is "into telemarketing.' Arts, charities, and other non-profit groups are, too. "Telemarketing really has become the lead method of marketing in the arts,' Joanne Steller, director of marketing for Washington's National Symphony Orchestra, told The Washington Post recently. "It went from not being done to everybody doing it in the last four years.' Political organizations are also on to the trend: telemarketing is eclipsing direct mail as a means of canvassing and fundraising. For last month's midterm elections, the Republican party hired a private telemarketing firm to contact an estimated 11 million voters in what party officials describe as the largest telemarketing effort by a political party in history. (For lack of money, the Democratic Party went the traditional route and relied on volunteers to do most of its phone canvassing.)

Only in recent years has the longstanding practiceof doing business over the phone become an industry. The best estimates of telemarketing's size and growth are staggering. In 1983, companies generated $56 billion in revenue through the systematic use of telephone sales and marketing. This year telemarketing revenues are expected to be more than double that amount: $118 billion. There were 1,650 companies employing 4,500 people in telemarketing in 1980. Today, 140,000 companies employ over 2 million telemarketers. Marvin Cetron, author of Jobs and the Future, puts telemarketing at the top of his list of fastest growing fields and predicts 8 million Americans will be employed in it by the year 2000.

Not everyone is pleased with the telemarketingrevolution. Many consumers simply don't like receiving telephone solicitations at home. A number of states have considered legislation to restrict the practice, although industry lobbyists have blocked most attempts. Also, the growth of telemarketing has brought an explosion in telefraud. Usually operating out of low-rent offices called "boiler rooms' or "bucket shops,' the con artists behind telephone frauds use the same kinds of carefully crafted scripts, the same phone call technology that honest telemarketers do. Travel packages, health spas, college scholarships, satellite dishes, investments, charities--if it can be sold over the phone, there's a good chance somebody is selling it fraudulently.

Telephone fraud has even slipped into politics:phone solicitation is the chief source of campaign contributions to the Lyndon LaRouche organization. According to John Mintz of The Washington Post, LaRouche supporters have sold subscriptions to a LaRouche magazine over the phone, convinced people to pay for it with their credit card, and then made unauthorized withdrawals from their accounts. The wife of a World War II veteran and stroke victim told Mintz that the LaRouchies got $5,000 from her husband by calling him as often as ten times a day and saying it was his patriotic duty to contribute. A 75-year-old widow living in a mobile home complained to the Federal Elections Commission that she lost $30,000, her life savings, in "loans' to a LaRouche affiliate organization.

No one knows for certain how many peopletelephone scammers defraud each year, but law enforcement officials agree that this kind of fraud is on the rise. In 1982, the Senate permanent subcommittee on investigations estimated that investment phone scams alone took in $200 million. Two years later the subcommittee raised that estimate to $1 billion. Federal efforts to crack down on telefraud have been largely sporadic and uncoordinated. Though Washington has helped some states in their efforts to put boiler rooms out of business, few investigators think they have made more than a dent in the problem.

Calling the obstetricians

The telemarketing industry awaits its historian,but as far as anyone knows, the crooks seem to have preceded more legitimate users. Boiler rooms date back to the 1920s, when the purveyors of worthless penny stocks first discovered that a few dozen phones set up in a basement gave them the power to cheat and deceive on a national scale. Only in the 1950s did legitimate companies in fields such as publishing begin to utilize inhouse phone sales staffs. With AT&T's introduction of the WATS line in 1961, a few companies began to specialize in contract phone sales work for other companies. Such firms, however, were few and small, and telemarketing techniques and technology were still rough. Commercial transactions were still done in person: consumers shopped at stores; companies hired salesmen to make rounds to customers and clients.

Things began to change in 1967 when AT&Tintroduced the toll-free 800 number. That led airlines and other corporations to expand their phone reservation and consumer service departments, and gave managers experience organizing "in-bound' telephone staffs. The rise of the polling and market research industries were giving others experience managing "out-bound' phone surveying organizations. At the same time, the direct mail business, having grown like kudzu in the late sixties and early seventies, was beginning to experience diminishing returns by the late seventies as consumers' mailboxes became crammed with junk mail. To gain extra attention, direct marketers began to print toll-free 800 numbers on their letters and to follow up with phone call campaigns. Seeing the benefit in the expansion of these operations, in 1980 AT&T began operating training centers for customers interested in boning up on the latest telemarketing skills and technology. An industry was born.

Businesses love telemarketing for the simplereason that selling over the phone is less costly than keeping armies of salesmen in the field. The jobs created are nothing to scoff at either. They may not be sought after by the graduates of Wharton or Radcliffe, but for those with lesser credentials and opportunities, careers in telemarketing aren't a bad choice. Dialing the phone and reading a scripted pitch hundreds of times a day can be mind-numbing work; facing rejection by uninterested, rude, and irate listeners can tax the ego. But the money can be excellent: annual salaries for phone sales reps average over $15,000 a year and, with commissions, can exceed $50,000; salaries for sales managers average $30,000 and can hit six figures. Telemarketing also provides much-needed part-time work with flexible hours, and it is that rare industry in which the vast majority of managers and owners come from the ranks.

The best telemarketing sales representatives,say people in the business, are out-of-work actors. Not suprisingly, an inordinate number of telemarketing firms (and fraudulent boiler-room operations) are located in California. In fact, telemarketing has grown by tapping a work force increasingly skilled in "communications.' It is the service sector's safety net.

The very thing that makes telemarketing sosuccessful, however, also makes it troublesome. Dante Cirilli, vice president of Grolier Communications, a pioneer telemarketing firm, explains it this way: "[W]e, the general public, have been conditioned to sit up and listen when the phone rings in our home. How natural it is for us to turn the television down, or even move into another room to give the caller our undivided attention. And when the caller is a telemarketer, the result is a concentrated commercial message to which we have no other choice but to respond.'

Few of us will let a phone just ring; it is oftenthe way we communicate with our family and friends. So it's annoying to have to leave the dinner table and respond to some phone salesman trying to interest you in aluminum siding, lawn care, insurance, auto accessories, periodicals, credit cards, coupon books, investment ideas, or health and travel club memberships--especially when it's a computer-dialed call that plays you a recorded message. Telemarketing has turned what was once a private device--the telephone-- into an advertising medium, and one that is uniquely intrusive. You can throw out an unwanted piece of junk mail without opening it, or turn off the TV or radio. But a telemarketing pitch is like a TV that turns itself on just to play a commercial.

Beyond its special intrusiveness, telemarketingalso opens up fresh possibilities for deception. Anyone who has sold both in person and over the phone, as I have, knows that the anonymity of telemarketing is an open invitation to deceive. Television advertisers can deceive in their commercials, but they do so in front of millions of viewers simultaneously, among them competitors and government officials. Telemarketing messages are less public, and virtually impossible to monitor.

A common telemarketing trick is to pretend todo a poll or survey, only to shift into a sales pitch halfway into the interview. As firms that do legitimate market research are discovering, this practice is becoming increasingly irritating to the public. It is a key cause of rising "refusal rates'-- the percentage of people who won't cooperate with pollsters.

The investment business is another field inwhich deceptive telemarketing has made large inroads. "Certain kinds of brokers have been making cold calls ever since they invented telephones,' explains a stock broker at a big-name firm in Boston, "but it's only in recent years that the large, respected firms have gotten into the boiler room tactics.' Prior to that, he says, a young broker just starting out would be told by his manager "to join the YMCA, the Rotary Club, teach adult education courses--anything to meet prospective clients. That's how you built up your business. Today they give a kid a list of obstetricians and say, "Here, make 40 cold calls before lunch.''

"It's the scripted spiel and the special cold callingrooms; that's what's new,' agrees a Dallas broker who worked for a major Wall Street house before starting his own firm. "Sure it's deceptive. The most popular pitch works like this: First, the broker will tell you "one of the partners' asked him to call, when really they got your name from some list they bought. Then he'll talk about the "three or four outstanding investment opportunities our research department uncovers every year,' and "can I send you some information?' Of course, the broker calls you back a week later, which is enough time that you've received the literature but haven't forgotten about the broker. And, lo and behold, the broker tells you of this "very hot stock,' one of those "four or five outstanding investment opportunities,' which is probably some stock that's been on ice in the firm's inventory for months.'

Even the most respectable companies can'tseem to resist using small deceptions in their telemarketing. This spring the Justice Department questioned AT&T regarding certain phone techniques it was using to get customers to make "the right choice' when picking their equal-access long distance company. "In particular,' wrote the Justice Department in a brief before the U.S. District Court for the District of Columbia, "AT&T was submitting pre-subscription orders for residential customers who had answered "yes' to the question: "May I continue to identify you as an AT&T customer?'' The AT&T manager who approved these scripts admitted to Justice that a "yes' response did not necessarily mean the customer wished to choose AT&T as its long distance carrier. AT&T agreed to rewrite its phone scripts.

Most telemarketing firms pay sales reps oncommission, thus setting up another incentive for phoners to write down "yes' when the person being called really meant "maybe' or even "no.' Honest firms try to validate orders, but abuses happen nonetheless. "The temptation to cheat is always there if you're being paid by how many pledges you get over the phone,' explains an exsales rep for a well-known Washington, D.C. company that raises funds for charities, PACs, and other non-profit groups. "So a lot of notices go out to people thanking them for memberships they didn't ask for and contributions they never agreed to make.'

Fundraising telemarketers employ other milddeceptions. Sales representatives may pretend to be members of the non-profit groups that have hired the for-profit direct-marketing firm. "One night you're on the phone pretending to be on the staff of some liberal senator's leadership PAC,' says the ex-phoner, "the next night you're vice president of an abortion rights group.'

"People's instinct on the phone is to say "I'llthink about it,'' explains another ex-phoner. "So the company writes all kinds of false scenarios into the script to build a sense of urgency. "All the white tigers are in their breeding season, so we have to act fast,' or "we need your pledge immediately to fight a bill in Congress.' Of course, we knew the money was mainly just going to fund the organization.' Lauri Burhler, spokeswoman for the American Telemarketing Association, says the public tends to be surprisingly credulous. "We used to be suspicious of people who tried to sell us things over the phone. Now there's almost a gullibility or trust. We're used to giving our credit card numbers to faceless voices over the phone. People will buy land over the phone; it just amazes me.'

Yakkers and mooches

At least six times a year The WashingtonMonthly gets phone calls like this: "Hey, how you doin' today? This is Sharon, from International Supply Center. We're the parent company of the firm that has been supplying you with toner for your Minolta EP 450 Z copier.'

"Hi Sharon, what can I do for you today,'replies the person taking the call. "Well,' she continues, "we weren't able to contact you to let you know that the price of toner is going up tomorrow from $219 a case to $279. I'm sorry for this late warning. But what I've done is set aside five cases for you at the old price. We're doing this as a courtesy for our good customers. Now, if you can't take all five cases right away, let me send you one and you can order the rest at the old price as you need it. I'm sorry about this, but, you know, we can't hold your order past today, so I'm going to put you down for one case, Okay?'

The person answering cuts in and askssuspiciously, "Now, what company did you say you were from again?' "CLICK,' goes the phone at the other end.

Sharon is a con artist--a "toner phoner.' InternationalSupply Center is not the parent company of our regular toner supplier. $219, the "old price,' is about $50 more than we have been paying for toner. For $219, we would in all likelihood have received a case of useless, third-rate graphite that would gum up the copier. Toner-phoner fraud is big business. One operator indicted in Los Angeles last year ran six boiler rooms employing 250 people and grossing $18 million a year. Toner-phoners not only rip off buyers of copy supplies; they've created havoc for legitimate copier suppliers as well. "We conservatively estimate that 20 percent to 30 percent of the market has been raped and pillaged by these guys,' claims Jim Charles, former president of the Office Machine Dealers Association.

There is something about telemarketing thatseems to attract con artists. The tricks of phone fraud are easy to learn, and boiler rooms, with their dozens of callers, are like schools for scammers. Fifteen years ago, when developing South Florida's swampland was a booming business, companies like Gulf American Properties and Land Services Inc. started high-pressure boiler rooms to sell the lots. Gulf American was censured by the Florida Land Sales Board for teaching salesmen to mislead investors. By the late 1970s, many of the salesmen for these companies were into investment scams involving precious metals, oil-and-gas lease-lotteries, commodity futures contracts, and the like. The tactics got more intense, the deceptions more flagrant. By 1983, over 100 boiler rooms were operating out of Florida, swindling investors nationwide out of millions.

Jack Rose is a legend in this field. A seasoned?? man who spent time in prison for home improvement fraud, Rose discovered boiler rooms in 1980. As executive sales manager of Universal Precious Metals in Fort Lauderdale, Rose coached a team of slick "yakkers' who defrauded hapless investors ("mooches') out of their life savings. Rose specialized in a hard-sell tactic called the "take away': if the mooch backs away from buying into the scam, accuse him of being too stupid to see a great deal and refuse to let him in on it. Other well-known boiler room tricks Rose's yakkers used included clicking a stapler to sound like a teletype machine sending up-to-the-minute market information, and putting the phone and the phoner's head into a desk drawer to get an echo effect while claiming to be in the vault with the investor's precious metal. The $5.8 million investors sent Universal in 18 months was never invested; Rose and his gang simply stole it.

In 1982, the company was raided by the FBI.Within a few days, Rose had set up a new firm, Atlantic Gold Coins, in his garage, using Universal's records, sales pitch, and victims list. By the time the FBI and the Commodities Futures Trading Commission (CFTC) shut him down for good in August of 1984, Rose had set up a nationwide network of boiler rooms with offices in Florida, New York, California, and Louisiana.

Other swindlers play not on people's greed, buton their altruism. The story of Richard J. Garden, president of Extravaganza, Inc., is a case in point. According to officials in five states, as well as the U.S. Postal Service--all of whom have filed suit against Garden--his racket involved selling tickets to circuses and ice shows staged by companies he owned. Phone salesmen hired by Garden, pretending to represent police or civic organizations, would tell the listener that proceeds from the show will help further the organizations' charitable efforts, and that, if the listener wishes, he can even donate his tickets so that handicapped and underprivileged kids can go to the show in his place. Officials, however, allege that Extravaganza has some bad habits: selling far more tickets than there are seats, failing to arrange for donated tickets to be given to disabled and disadvantaged kids, and allowing various expenses to eat revenues, leaving only a small fraction left for the sponsoring charity-- which in some cases didn't even exist.

Officials believe Garden, despite all the suitsagainst him, is still operating this scam. There are dozens, perhaps hundreds of promoters like him. Like the toner phoners, they hurt more than their victims. They "make the whole idea of charity look cheapened,' complains Judith A. Maneval, president of the direct mail marketing firm of Sanky Perlowin Associates. "The scandals coming out are a problem for everyone in fundraising.'

The main reason the federal government is noteffectively putting most boiler rooms out of business is that no one agency has full responsibility for dealing with phone fraud the way that the Postal Inspection Service handles mail fraud. Instead, a half a dozen separate bureaucracies-- the Federal Trade Commission, FBI, Securities and Exchange Commission (SEC), the Secret Service, the CFTC, as well as the Postal Inspectors and the Justice Department--split the jurisdiction up. This affords boiler room operators the opportunity to work scams that fall between jurisdictional cracks. "Deferred delivery' commodity contracts, for instance, were popular ripoffs a few years ago because neither the SEC nor the CFTC was charged with regulating them; rare coins seem to be the favored scam these days for the same reason. No one agency, with the possible exception of the tiny CFTC, has made cracking down on boiler rooms a top priority. The SEC would rather fight insider trading; the Justice Department is too busy with its war on drugs.

So government crackdowns on boiler roomsusually take place at the state level. Florida and a few other states have successfully shut down many crooked operations. State officials say, however, that the nature of boiler rooms--the ease with which they can set up to run nation-wide swindles from one location--demands a stronger federal role. "Boiler rooms are a national problem,' says Lawrence Fuchs, head of investigations for the Florida Comptroller. "If we run them out of Florida, they just set up shop in California or Nevada or wherever.'

Telemarketers are quick to agree thatsomething must be done to shut down fraudulent boiler rooms--they give legitimate telemarketers a bad name. Most will also admit that the smaller abuses--computer-dialed recorded messages, calling people at dinnertime--are also bad for the industry.

Dozens of bills have come before statelegislatures in recent years that would make it illegal for businesses to call people who have told the phone company or a government regulatory body that they don't want to be called. Such bills, however, have never passed. Instead, the competing interests of businesses and organizations that use the phone have created a classic case of political gridlock. Business-to-business telemarketers would probably not oppose such measures, but their lobbyists do because they also represent companies that engage in the more intrusive business of consumer telemarketing.

Yet even consumer telemarketers have theirscruples; the more responsible of them, at least, oppose random-dialed cold calling, especially the kind done with computers and recorded messages. "When a salesperson indiscriminately programs such computerized dialers and haphazardly calls tens of thousands of people only to arrive at a handful of viable sales prospects,' writes Nadji Tehrani, the publisher of Telemarketing magazine, "he or she is committing an act that cannot be condoned by the telemarketing community.' Jack Heinritz, vice president of TBS International, a manufacturer of telemarketing equipment, agrees that randomly-dialed taped messages do "abuse consumer's rights to privacy . . .. As a legitimate industry, telemarketing cannot afford this situation to continue, any more than legislators can allow it to continue.'

One reason legislators have allowed it to continueis that they are some of its biggest users. Before the elections in Pennsylvania last month, Republicans all over the state received computer-dialed phone calls. "Please hold for the president of the United States,' went the recorded voice, followed by a taped message from Ronald Reagan asking the listener to vote Republican.

Politicians who try to respond to consumerpressure to restrict the commercial use of their phones are quickly reminded of the perils of doing so. A group of consumers recently approached Michigan State Rep. David Hollister with a plan to have the phone company list the names of all Michigan residents who didn't want to receive unsolicited calls, and to make it illegal for companies to call them. Hollister happily drafted a bill and introduced it on the floor. Lobbyists from the telemarketing industry had a fit. Even more outraged, according to Hollister's administrative assistant David Wiener, were lobbyists for opinion polling and market survey companies. "They said "Do you realize what this will do to our ability to do polling?' Wiener recalled. Because they do "scientific research,' pollsters tend to look down on telemarketers, whom they say poison the public's attitude towards uninvited calls. Hollister's bill would have restricted them, rendering their polls less accurate. "We got the same message from the Democratic Party,' Wiener continued. "Since Representative Hollister uses polling in his own campaigns and elsewhere, we began to think twice about the legislation. It was never something the representative was wedded to.'

Telemarketers complain about the cost ofcross-checking their prospect lists against the lists of people who don't want unsolicited calls. But those costs would disappear if the government would require phone companies to use technologies, most of them available now, that would give consumers the option of screening out certain kinds of calls just by pushing a few buttons on their phones.

Abuses could best be limited if the federalgovernment put more money and manpower into investigating boiler rooms, prosecuting phone fraud, and regulating the small deceptions of legitimate telemarketers. If corporations and politicians want to use the phone system as an advertising medium, they should be made to conform to the same truth-in-advertising rules that govern the airwaves.

Politicians, pollsters, corporations, non-profitorganizations, phone companies and other groups reap the benefits of organized phone campaigns. If telemarketing abuses grow unchecked, these groups will have to make an ever greater number of calls to find people who aren't so annoyed at the intrusion or so suspicious of a fraud that they slam down the receiver.

Goodwill towards telemarketers is already falling,as Bill Taliaferro and Paul Holland of Nevus Communications Group are finding out. "Eleven percent of the people we call these days will simply not listen to what we have to say, because they just don't like getting called at home,' says Holland, whose own home phone number is unlisted. "I can sympathize with people,' agrees Taliaferro. "I'm in the telemarketing business; I spend my whole day on the phone. The last thing I want to do is spend my free time at home on the phone listening to a sales pitch.'
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Title Annotation:telemarketing industry
Author:Glastris, Paul
Publication:Washington Monthly
Date:Dec 1, 1986
Previous Article:The search for government efficiency; from hubris to helplessness.
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