Skip to: Content
Skip to: Site Navigation
Skip to: Search


Consumer fraud is still alive and pervasive

By Barbara BradleyStaff writer of The Christian Science Monitor / February 1, 1988



Washington

On Nov. 10, a California court closed a case and opened a Pandora's box. The case involved a company that was selling gold to investors. Investors would send $5,000 in return for 133 tons of ``dump ore,'' that is, dirt that presumably had gold in it, but had been left unprocessed. The company, headed by William Mitchell Moreland (who was under indictment for grand theft in early 1986, when the investment plan was first advertised), would make use of new technology to reprocess the ore. It guaranteed investors 20 ounces of gold, which worked out to $250 an ounce, considerably below the world price of gold.

Skip to next paragraph

The California Department of Corporations, which enforces the state's securities laws, didn't like the smell of the offering. For one thing, Mr. Moreland needed to sell 30,000 tons of the dirt - raising $1.1 million from investors - before he could build the reprocessing plant to refine the gold. So in March 1986 the department, saying that Moreland was selling ``unqualified securities,'' ordered him to quit offering the investment.

Moreland appealed, and eventually won. With an eye to a recent federal court decision that overturned 40-year-old securities case law, a California court ruled last August that what Moreland was selling was not a security but a commodity, and thus the securities laws did not apply to this type of investment. In November, the California Supreme Court refused to review the case.

``What this has done is to make the enforcement of securities laws against mining scams virtually impossible,'' says William McDonald, chief of enforcement at the California Department of Corporations. ``As we speak, `boiler rooms' are switching in droves to Moreland-type offerings, because they know that neither the SEC [Securities and Exchange Commission] nor our department can make an effective securities argument against them.''

For such operators, the timing could not be better: The swings in the stock market have left investors queasy, searching for some tangible investment like gold to park their money. These are the people who are most susceptible to fraud.

No doubt about it, fraud is alive and pervasive in America. Financial chameleons change investment schemes to complement the stock market, social mores, the latest claims about diseases. At a recent conference here sponsored by the American Newspaper Association (ANPA), government watchdogs and advertising representatives discussed some of the latest trends in fraud, their frustration in stopping con artists, and the first computerized steps to track them down.

Fraud for yuppies

The latest twist in life-style fraud caters to Americans' penchant for traveling.

``Travel scams happen to be the highest-profile scam going on right now,'' says Tom McClure at the United States Postal Inspection Service, which regulates advertising through the mail. ``Yuppies are making more money, they're mobile, and because of airline deregulation, [the prices offered] are believable.''

The Federal Trade Commission (FTC) recently sued two travel companies in Chicago for deceptive advertising. One, called World Travel Vacation Brokers, sold air fares to Hawaii for $29; it did not disclose, however, that the traveler had to purchase hotel accommodations from World Travel. The accommodations were so expensive that they boosted the cost several hundred dollars, erasing the airline ``discount.'' In December, the court ruled in favor of the FTC.

Watch that second air fare

In the other case, Amy Travel Service offered one air fare to Hawaii and lodging for two for $329. The other air fare, however, was Y-class, which usually costs three to five times more than a normal coach fare, says Larry Hodapp, senior attorney at the FTC's division of marketing practices. The court has indicated some liability on Amy Travel's part, and a ruling is expected in a month, Mr. Hodapp says.