Irvine Sweepstakes Firm Fights Legal Battles on 3 Fronts

IRVINE —  Fighting off a new wave of legal woes, a local sweepstakes promotions company is being sued by the attorney general of Florida, is awaiting a trial verdict in Missouri and is under investigation by the state of Oklahoma and the Federal Trade Commission for alleged fraud, authorities said Monday.

The Florida suit accuses Direct American Marketers Inc., or DAMI, of violating the state’s Unfair and Deceptive Trade Practices Act as well as its lottery laws and seeks to recover more than $27 million in damages.

DAMI long has been a target of the Irvine Police Department, the Orange County district attorney and the California Attorney General, who sued the company several years ago and forced it to make changes. Now, it is being scrutinized by other states.

“We’ve had a number of inquiries over the last several months from outside California, and our own attorney general [in California] has had them under review,” said Bob Gannon, supervising deputy district attorney for consumer affairs in Orange County.

Operating out of an industrial park on Hale Avenue, DAMI is one of the fastest-growing telemarketing companies in North America with more than $100 million in gross annual revenues.

Anthony C. Brown, the chief executive officer of the 11-year-old company, said he remains “highly optimistic that, when all the facts surrounding the [Florida] matter are made public, the company will prevail.”

Brown said “the same holds true” for the civil trial in Missouri, the criminal investigation in Oklahoma and the “deceptive trade practices” inquiry by the FTC, all of which he confirmed.

“Clearly, there is no reasonable basis for their investigation,” he said, referring to the probe in Oklahoma. “And again, we are very confident that, when all the facts will come to light, the company will be found innocent of any wrongdoing--just as we were when the U.S. Postal Service investigated us in 1991 and 1992 for criminal wrongdoing and declined to go forward.”

Will Haselden, an assistant attorney general in Florida, said the civil suit in his state covers the period from 1992 through 1995, during which his office investigated more than 200 complaints from predominantly poor and elderly Floridians who felt “they’d had their pockets picked” by DAMI.

Haselden said the company’s “highly deceptive” direct-mail fliers victimized more than 3,000 in Tallahassee, Fla., alone in 1995 by “leading them to believe they’d won large amounts of cash” and then urging them to call a costly 900 number to determine the amount.

“Usually,” he said, “it was no more than a dollar. We figured out that, by calling 3,000 people--whose 900 calls averaged $30 a pop--they made $90,000 off Tallahassee alone! This is a scam that does nothing more than play on the desperation and need of innocent people.”

Jeanette Anderson, 27, an administrative assistant for the Florida League of Cities, said in an interview Monday that she came home from work one day and found what resembled a government check in the mail. It was, she said, “the same color as the income-tax [refund] check,” and was made out to her for $1,500.

She said the mailer instructed her to call a 900 number for “further information and led me to believe that there was more money to follow.” But after an 8-minute call, Anderson had run up a phone bill of $32--which she paid.

For Zona Burgess Wigglesworth, 53, a retired cancer patient in Tallahassee, her DAMI experience became a hardship. On a fixed income, Wigglesworth received two mailers telling her she’d won $1,500, for a total of $3,000.

She made two 900 calls, she said, spending more than $75.

“They’re just taking your money and ripping you off,” Wigglesworth said of the Irvine company. “It’s fraud, and I learned the hard way.”

Haselden said the alleged victims in Tallahassee also included an elderly Alzheimer’s patient who ran up $400 in 900 calls to DAMI.

The Florida suit accuses DAMI of using phrases that are “crafted to mislead a reasonable consumer into the belief that they have been specially selected by a bank, accounting firm or independent search company as a prize winner.”

One Floridian received what appeared to be a check for $8,500 from Equity Funding Group. Both the agency and the check are fictitious, said Haselden, who explained that Equity Funding Group is a “dba” for DAMI--meaning the Irvine company is also “doing business as” Equity Funding Group.

Such missives usually come from an exotic-sounding postmark, such as La Jolla or Laguna Niguel, Haselden said, “which only enhances the appeal for people all the way across the country. These things are so egregious: They hit all the right buttons.

“To hear you’ve won $8,500, well, that’s a windfall,” he said. “Who wouldn’t want to believe it? We all need the money, and these people really make you believe you’ve won. But all you’ve usually won is a headache, or at the very least, a much bigger phone bill.”

Oklahoma is investigating DAMI in connection with alleged criminal violations involving fraud and deceptive trade practices, according to sources in the Oklahoma Attorney General’s office--and confirmed by Brown, who said he was “mystified” by the inquiry.

Brown said the company is “cooperating fully” with the FTC and that he’s confident of being exonerated by that agency as well.

He said he was “concerned” about the wave of litigation but defended the company’s track record of paying out $4 million a year in sweepstakes winnings. He noted that 70% of all customers who phone the 900 number do so more than once--implying that they don’t feel deceived--and said “more than half” of its customers respond to DAMI’s mailers by sending a postcard, which costs them only as much as a stamp.

“Sure, I’m troubled by the number of consumer complaints,” Brown said, “but do believe we offer a high level of customer satisfaction.”

In Missouri, in a bench trial concluded this month, the Irvine sweepstakes giant was accused of “many misrepresentations--and on a widespread scale,” according to Scott Holste, spokesman for the Missouri Attorney General.

The Missouri suit seeks civil penalties and restitution but does not specify a dollar amount. The judge in the case is expected to make a ruling by May, Holste said, but has issued a preliminary injunction preventing DAMI from distributing its materials in that state.

Missouri is seeking the more binding order of a permanent injunction, Holste said, noting that numerous “witnesses at our trial testified to honestly believing they’d won $7,500 and then promptly made a 900 call to claim the prize.”

The information at the end of the call failed to inform them “that what they were making was a very expensive call,” Holste said, “and then they find out that all they had won at most was $1.”

DAMI officials refused to disclose sales figures but said they mail out 100 million to 200 million offerings yearly. The company’s gross annual revenues are more than $108 million, according to Dunn & Bradstreet, a leading marketer of business information and services.

The California Attorney General’s office has sued DAMI on two occasions, ending up with a court order that forced the company to sharpen its fine-print disclosure to conform with the law.

DAMI now makes clear, albeit in small type, that postcards are an equally good method of determining a winning prize; that everyone wins something, even if it’s only $1; and that the odds of winning the featured prize are about 5 million to one.