Telemarketing Fraud One-In-Four Scheme Fronters and Reloaders

Continental Distributing Company (“CDC”) was a telemarketing company based in Chattanooga, Tennessee. The company targeted its telemarketing schemes at elderly people because the elderly tend to be most vulnerable to the various telemarketing tricks and ploys used by Continental Distributing Company. Ninety-nine percent of the calls CDC made were to people over the age of 60, and ninety percent of the calls were made to people over the age of 70. The company operated a one-in-four scheme whereby a telemarketer would call a victim and tell the victim that she had won one of four fabulous awards. The awards were usually stated in order of the least expensive to the most expensive. For example, the telemarketer, when speaking to a potential victim, would list the awards in the following order: a 1994 car, a speed boat, the open award, and cash. The telemarketers purposely listed the awards in this manner to disguise the fact that the “open award” (also known as the “gimmie”) was worth substantially less than the other awards. Typically, the open award was a very inexpensive piece of merchandise such as a lithograph, JFK coin set, or cheap sculpture.

The object of the scheme was to convince the victim that she had won some really fabulous award and then get the victim to pay substantially more for the award than Continental Distributing Company had paid for it. In fact, Continental Distributing Company would deduct the cost of the award, known as the “pad,” from the commission of the telemarketer. For example, a telemarketer would tell the elderly victim that she had won one of four great awards and then try to convince her to send Continental Distributing Company a large amount of money for the award (often as much as $15,000 or more). If the victim sent the money, then the telemarketer would ensure that the victim received a sculpture for which Continental Distributing Company might have paid $200. The owners of Continental Distributing Company would then deduct the $200 from the sales price and the telemarketer would receive a commission on $14,800 ($15,000 minus the $200). Thus, telemarketers at CDC had a great incentive to provide victims with cheap merchandise rather than a car, motor home, sail boat, or some other expensive award. This was so because the more expensive the award, the less commission the telemarketer would receive on the money sent by the victim to CDC.

Telemarketers at CDC did not have much to worry about because the odds were three in three thousand that a victim would win a major award; that is, 2,997 victims would definitely receive the open award, and the open award could be any cheap item the telemarketer wanted it to be. In addition to the open award, CDC also sent victims a “mixed box of products,” which were essentially worthless trinkets or products like letter openers, space pens, and frisbees. Accordingly, CDC made its money sending open awards and the mixed box of products to victims in exchange for enormous sums of money by convincing the victims that they had a real chance at winning a house or car.

CDC found its victims, often referred to as “mooches,” by buying what were known as “leads” lists from lead brokers in Las Vegas. Additionally some telemarketers, such as Terrance Daniel Brown, brought leads lists with them to CDC. Those leads lists contained the names of elderly people who had previously purchased products over the telephone from another company, usually spending large amounts of money to do so. CDC, like most telemarketing companies, organized its telemarketers into “fronters” and “reloaders.” The fronters called the leads, told them about the one-in-four promotion and that they had been selected as winners. On the first call, the fronters normally pushed to have the customers send in an amount under $1000 in exchange for the open award which would be a lithograph or coin set that only cost Continental Distributing Company $50 to purchase. Once the fronter sold the customer, the fronter would then pass the lead card containing the customer’s information (address, telephone number, what the person had purchased, and sales price) on to the reloader. The reloader would then call the victim and try to sell them again and again on succeeding promotions for larger and larger amounts of money until the victim was totally without funds.

Terrance Daniel Brown joined Continental Distributing Company as a reloader in January of 1994 and worked there until October of 1994. Terrance Brown had accumulated a wealth of experience as a reloader from having worked eight years in the telemarketing industry at companies using fraudulent schemes comparable to the one used by Continental Distributing Company. In fact, Terrance Brown was proud of the fact that he had been the top reloader at almost every company where he had worked. Things were no different at Continental Distributing Company where he quickly rose to become the top reloader, generating over $443,209 in the nine months he worked at Continental Distributing Company.

Terrance Brown also operated his own telemarketing company known as “Smokey Mountain Distributing” (“SMD”). Smokey Mountain Distributing was a one-person operation, but the object was the same: Terrance Daniel Brown focused on elderly leads who had previously purchased products over the telephone and thus were especially vulnerable to his nefarious tactics.

In January of 1995, a telemarketing task force comprised of the Federal Bureau of Investigation, Internal Revenue Service, Secret Service, and local law enforcement raided CDC’s operations and closed it. Six people, including Terrance Daniel Brown, were eventually indicted for conspiracy, wire fraud, mail fraud, use of fictitious name, and money laundering. Also, the government moved to forfeit assets. Everyone pleaded guilty except Terrance D. Brown, who demanded and received a jury trial.

Prior to his trial, but while under indictment, Terrance D. Brown continued to operate SMD, although he had ostensible employment as a salesperson for Advanced Cellular and Paging. Based on a tip from a confidential informant, an FBI agent obtained a search warrant for Terrance D. Brown’s home. The task force executed the search warrant and found numerous materials indicating that Terrance D. Brown had been operating a fraudulent telemarketing agency from his home. Subsequently, Terrance Daniel Brown filed a motion to suppress the evidence found in his home, a motion the court denied.

Special Agent Earl Burns of the FBI had conducted investigations into telemarketing fraud for the previous four years. He knew that a grand jury had indicted Brown on mail and wire fraud charges in connection with telemarketing activities. He also knew that Brown had worked at several other telemarketing agencies that had been investigated by law enforcement, including one in Chattanooga, Tennessee. A cooperating witness (“CW”) provided information that Brown was renting a residence at a certain street address and working at Advanced Cellular in Chattanooga, all of which the agent verified. The CW observed, firsthand, that Brown had two telephone lines with caller identification boxes and separate answering machines, had lead sheets scattered about (with dollar amounts of prior illegal telephone sales next to each victim’s name), and held himself out as being “self-employed” doing business as Smokey Mountain Distributing. The CW also provided, and Burns confirmed, information that Brown maintained three post office boxes for SMD and used a false social security number in his business dealings. From this information, having verified most of what the CW told him, and based on his four years of investigating telemarketing fraud, Burns concluded that Brown’s SMD had all of the indicia of a “rip and tear” operation whereby the person operating the business simply convinces people to send him money in exchange for some award or prize and never sends them anything. This kind of a business necessarily relies on anonymity, hence utilizing caller identification boxes, a fake social security number, and post office boxes.

At trial, two of Terrance Daniel Brown’s co-conspirators and several of his victims testified against him. Nevertheless, at the close of the government’s case, Terrance Daniel Brown moved for a judgment of acquittal, which the district court denied. The jury convicted Terrance Brown on all of the counts in the indictment for which he was charged. The district court sentenced him to 120 months’ incarceration (including a two-level upward departure and a three-level enhancement), three years’ supervised release, $450 special assessment, and $2,677,161.68 in restitution.

After his sentencing, Terrance Brown filed a timely notice of appeal. On appeal, Terrance Brown raises the following five issues: (1) the district court improperly admitted evidence of Terrance Brown’s activities at Smokey Mountain Distributing; (2) the district court erred in failing to suppress the evidence found at Terrance Brown’s home; (3) the district court improperly imposed a two-level upward departure and a three-level enhancement in sentencing Terrance Brown; (4) the district court erred in denying Terrance Brown’s motion for a judgment of acquittal on the mail fraud count of the indictment; and (5) there was insufficient evidence to support the guilty verdict.

Having rejected all of Terrance Brown’s challenges to his conviction and sentence, United States Court of Appeals, Sixth Circuit, affirmed the judgment of the district court.

The facts summarized above are excerpted from what was written by the United States Court of Appeals, Sixth Circuit. More information is available from the source documents: No. 97-5095, United States Court of Appeals, Sixth Circuit, June 8, 1998, opinion of Moore with Kennedy and Contie concurring.