Thursday, April 14, 2011

All About Sweepstakes

Sweepstakes have earned a spurious reputation. I've been steeped in sweepstakes scams for so many years, it's difficult to believe that there was a time when they weren't around. Most lotteries of any kind were illegal from the early 1900s until the 1960s. In April 1963, New Hampshire passed a law that allowed the first legal lottery in the United States since 1894 [1]. Missouri also passed an amendment to their state lottery laws in the same year.  It took a few more years for the courts to hammer out how to interpret the newly formed laws. Because there were so few lotteries for so long, scams had nothing to mimic. Because scammers couldn't take advantage of the existence of legitimate lotteries, they didn't bother much with creating fake ones until lotteries were again legalized. I couldn't find a single reference to Sweepstakes or illegal lotteries in 50 years worth of BBB files (approx. 1920-1970).

In 1970, the FTC opened an investigation on Reader's Digest, who allegedly misled their sweepstakes entrants about the likelihood of winning, the amount they could win, that most tickets are some sort of winner, and that they underrepresented the difficulty in obtaining the winnings. When the FTC prepared to charge Reader's Digest with violating section 5 of the Federal Trade Commission Act, 15 USC 45.1, Reader's Digest chose to sign a voluntary compliance agreement to correct its allegedly deceptive advertising and pay a penalty of $1.75 million. By doing so, Reader's Digest admitted no wrong doing. The FTC accused Reader's Digest of violating the agreement in 1973, 1974, 1976, 1978 and 1980 (more or less continuously) before the United States Appellant court ultimately upheld government's original complaint [2].

It was all downhill from there.  Misleading advertising branched out, incorporating new elements such as advance fees. Scams grew. New technology increased the size of the pool from which to lure victims. New incentives such as ID theft caused the creation of phishing scams claiming to be lotteries. Since I have worked for the BBB, Sweepstakes/Lotteries has been on our top ten scams list every year. There are countless variations of sweepstakes scams and they are quick to evolve. I will mention the most prominent.

Sweepstakes that require fees. There is a long list of the different reasons they give for asking for these fees. They also ask for quite disparate amounts. It could be as low as $5.00 or as high as $10,000.  Low cost sweepstakes are far more common, as they are less likely to attract the attention of law enforcement and can quickly issue refunds if a consumer raises too many alarms. Consumers are also unlikely to report a scam to authorities if they lose ten or twenty bucks.  Even if they did, consumer protection agencies have bigger fish to fry.  Most sweepstakes also meet superficial legal requirements and only with great difficulty can law enforcement determine if they are doing something illegal (besides the deceptive advertisements). Unless the violations of law are obvious or pointed out, consumer protection agencies may choose not to spend their resources on going after a sweepstakes company.

Several sweepstakes companies say that the fee is for a packet of information.  They intentionally advertise in a way that makes it appear that mailing recipients have already won a prize. They then ask for money. When pressed, some admit that they don't offer any winnings; they sell a packet of information about companies that might offer winnings. So, when their mailing states that people have been pre-selected to get $2,000,000, the mailing recipient not only has't won anything, they haven't even entered a drawing or contest yet.

The mailings are carefully worded to give the distinct impression that mailing recipients have already won. The recipient believes that all they would have to do is contact the award company and pay a nominal fee, then the fortune will be mailed.  Here's an example of how they word the mailing: "We will begin payout authorization directly after deadline transferring your "Potential Status" to "Confirmed Winner" of $1,000,000.00 (One Million Dollars) according to the terms and conditions of this letter if you have and provide the original preselected winning number."  If read literally, it says that the mailing recipient has not yet won a million dollars. That's all. It doesn't say that they will win a million dollars or that they are likely to. It explains what would happen if someone theoretically won a million dollars.  It doesn't even say it will pay the winner a million dollars.  It says that they will "begin payout authorization," which translates to: "we can pay you if you win." The sentence is so convoluted that it cancels out everything in it, leaving the recipient with a completely vacant statement.

Here's another common example of careful wording. "We are pleased to inform you that we have identified $1,151,212.00 (One Million One Hundred Fifty-One Thousand Two Hundred And Twelve Dollars) in pending, unpaid cash award opportunities as recorded in the most recent documentation that is now CONFIRMED and GUARANTEED to you."  Translation? It is possible for you to enter our contests where we have $1,151,212 that we may someday pay winners. And that is if the recipient enters each and every contest they have to offer.

The mailings are on thick card stock paper, with expensive, colored ink that mimics the appearance of certificates, money, degrees and other official documents.  They have large dollar amounts all over the paper. It makes several people believe that unless they won serious money, a company wouldn't spend so much on high quality mailings.

Contests of Skill - Paying to enter a prize drawing competes with state lotteries and is illegal, so sweepstakes companies had to come up with a way around this.  They turned lotteries into contests of skill.  Consumers must complete simple math problems or something like that to participate in a drawing. Some companies offer rounds in which entrants must pass a mathematical problem to reach the next round.  Every round costs money to enter, but the first few rounds are extremely simple math problems, such as 5 x 5 = ?  This guarantees that most, if not all, entrants will participate in, and pay for, more than one round. I wouldn't have problems with these types of contests if they didn't horrendously mislead all the entrants with mailing like those described above.

Foreign Lotteries - This one is easy. If any lottery or sweepstakes from another country contacts you and tells you that you've won money, throw the mailing away, hang up the phone, spit in its face, whatever.  All foreign lotteries are illegal.

Fraudulent Check Sweepstakes - Sometimes people get random checks in the mail.  They never entered a contest and they've never heard of the company that sent them the check.  The check is usually between $750 and $3000.  The check is fraudulent.  Enclosed with the fraudulent check is a letter explaining that the recipient has won a sweepstakes.  The letter explains check is to cover the cost of taxes on the winnings.  The  company asks the recipient to wire money back to them.

At this point, alarm bells should be sounding in the check recipient's head, but much of the time, the desire for large amounts of money overcomes caution.  That's what scammers count on.  It will take banks about ten days to figure out a check is fake.  That gives scammers ten days to convince people to send them thousands of dollars. It frequently works.

[1] History of the Sweepstakes. 1996. p.158. http://www.thehistoryofsweepstakesparttwo.com/
[2] United States v. Reader's Digest. 1981. http://openjurist.org/662/f2d/955/united-states-v-readers-digest-association-inc

2 comments:

  1. Can you comment on church/school raffles and other such local fundraisers, where "chances" are purchased to increase your odds of winning a prize?

    ReplyDelete
    Replies
    1. No matter what, they should tell you the rules before they sell you raffle tickets. However, schools and churches do not have product sales as the primary objective of their operation. Many of the rules that apply to sweepstakes companies don't apply to local raffles.

      For instance, local raffle administrators cannot inform anyone what the chances of winning are. They could not know until all the tickets are sold.

      Delete