Court upholds telemarketing fraud convictions

Wednesday, Sept. 8, 1999 | 5:27 a.m.

THE ASSOCIATED PRESS

SAN FRANCISCO - A federal appeals court on Wednesday upheld the fraud convictions of owners of a Las Vegas telemarketing firm that bilked people out of $13 million in exchange for virtually worthless gifts.

The company, Legendary Concepts, used high-pressure salespeople to contact customers who had previously responded to mail offerings and talk them into buying products at grossly inflated prices between March 1993 and November 1995, said the 9th U.S. Circuit Court of Appeals.

One product, a "Say no to drugs" package, consisting of such items as Frisbees, baseball caps, calculators and desk clocks, was sold for between $1,299 and $3,999. A writing implement marketed as a "space pen," which cost the company $7.70, sold for $159.95.

Customers, many of them elderly, were led to believe they had to buy a product to win a valuable prize, the court said. They were guaranteed one of a series of prizes, including a new car, home appliances and $5,000 in cash, but always won the least-valuable prize, such as a "limited edition artwork" that was actually mass-produced and cost less than $75.

One customer a year would win a valuable prize, such as a car, but the winner was handpicked from among large purchases of company products, the court said.

The company's top executives, Carl R. Hanley, Randall E. Moore and William B. Scott Jr., were convicted of wire fraud, money laundering and conspiracy and sentenced to 10 years and a month in prison. Salesman John William Fry was sentenced to three years and 10 months on lesser charges.

All were granted bail during their appeals, but Hanley, the company president, chose to start serving his sentence and is in prison, said his lawyer, Anthony Sgro.

"In 1993, these guys would have done less time if they killed somebody," Sgro said.

Their appeal challenged the fraud convictions on the grounds that the buyers could have easily discovered the true value of the products. Some other courts have allowed that argument as a defense, but Wednesday's ruling said it couldn't be justified in this case.

Legendary Concepts provided customers with no information that would have allowed them to "comparison shop," and its salespeople refused to disclose the value of the prizes when asked, the court said.

The owners also challenged the money laundering convictions, which added five years to their sentences, Sgro said. They noted that prosecutors were unable to trace all the money in 17 bank transfers, which were the basis of the convictions, to the proceeds of identified fraudulent sales, as required in most laundering cases.

But the court said tracing wasn't necessary because the jury could have concluded, based on the evidence, that Legendary Concepts was an entirely fraudulent enterprise.

"The proof at trial painted a picture of a company whose only purpose was to sell exorbitantly overpriced products to unwitting customers through means of deceits, misrepresentations and half-truths," said Judge Susan Graber in the 3-0 ruling.

The case is U.S. vs. Hanley, 98-10010.