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U.S. v. WILLIAM SAVRAN & ASSOCIATES

January 29, 1991

UNITED STATES OF AMERICA, PLAINTIFF,
v.
WILLIAM SAVRAN & ASSOCIATES, INC., A NEW YORK CORPORATION, D/B/A "SUCCESSFUL SYSTEMS"; DR. WILLIAM SAVRAN; "JOHN DOES NOS. 1-10"; AND "JANE DOES NOS. 1-10", DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

OPINION AND ORDER

Seeking vulnerable consumers who, in the hopes of earning "exceptional money" in the comfort and safety of their own home, paid $27 for the "Successful Systems" product, William Savran & Associates, Inc. now finds itself the subject of a criminal indictment for mail fraud and the defendant in this related civil forfeiture proceeding. Before the Court at this time is the motion of the defendants to vacate the warran that seized a bank account, and the cross-motion of the plaintiff to freeze the defendants' assets, among other relief sought.

I. BACKGROUND

By a verified complaint in rem in a civil forfeiture action, dated December 17, 1990, the plaintiff United States of America ("the plaintiff") requested that a warrant be issued for the "arrest" of the defendant bank account at Citibank, 2-1 Park Plaza, Glen Head, New York. The action was brought pursuant to 18 U.S.C. § 981, 1956 and 1957, and also 18 U.S.C. § 1345 and 28 U.S.C. § 1355. A warrant for the arrest of the said bank account was issued on December 17, 1990 listing, as potential claimants: Dr. William Savran, William Savran & Associates, Inc. and Successful Systems. The warrant was executed and the bank account was seized and/or frozen in its entirety. Apparently the account was not physically seized, but only frozen.

By order to show cause dated December 26, 1990, the defendant William Savran ("Savran") moved for an order "vacating the warrant seizing" the said bank account. On December 27, 1990, the return date of the motion by Savran, the plaintiff also presented an order to show cause in support of a motion requesting a broad spectrum of relief including enjoining the defendant from sending out any mailings or advertisements from the "Successful Systems" business pursuant to 18 U.S.C. § 1345. The plaintiff also requested a temporary restraining order asking for a wide range of remedies similar to the request in the order to show cause.

An evidentiary hearing was held on both parties' applications on December 27, 1990 and December 28, 1990. Pursuant to Fed. R.Civ.P. 52(a), the following constitutes the Court's findings of fact and conclusions of law (see also Society for Good Will to Retarded Children, Inc. v. Cuomo, 902 F.2d 1085, 1088 [2d Cir. 1990]; Weitzman v. Stein, 897 F.2d 653, 658 [2d Cir. 1990]).

II. THE HEARING

The following is the evidence that was adduced at the hearing on the motions and the Court's findings of fact based thereon.

a. The Plaintiff's Case.

John McDermott, a United States Postal Inspector, testified that he investigated "Successful Systems", the defendants' business, since approximately September 1990 and reviewed the various documents mailed to potential consumers by the defendant William Savran & Associates, Inc. ("Associates"). McDermott explained the system used by Associates to effectuate the "Successful Systems" program, as follows:

The potential consumer is contacted in one of two ways: either by an advertisement in a magazine or by direct mail. The direct mail ad (Plaintiff's Exhibit 1 in evidence) is the first document the consumer receives. It consists of eight separate pages and an envelope. Nowhere in these single-spaced pages is there any mention of the product to be sold. At the outset the Court finds that on its face the document is intentionally vague, ambiguous, confusing and difficult to read and comprehend. A repetitive reading of the paper did not substantially improve the Court's comprehension. Relevant portions of the initial document, which bear quotation, are as follows:

"`SUCCESSFUL SYSTEMS'

Post Office Box 815

Horace Harding Station

Flushing, New York 11362

HOMEWORKERS NEEDED NOW!

  `Revolutionary' home-mailing program pays you up to $100 per
                          single order.
   You never have to buy stamps, envelopes, circulars, or any
                            supplies.

Dear Friend (if not now — soon!),

    If you're anxious to earn exceptional money (up to $300.00,
  or more, each day) doing simple, pleasant work in the comfort
  and safety of your own home, you're going to love what my
  company has to offer you.
    My name is Lisa Michaels. As Vice President of `Successful
  Systems', a reputable mail order firm, I am pleased to
  announce that we are looking for a limited number of
  `home-workers' to help us mail our offers out to the MILLIONS
  of people, who we could NEVER possibly reach, even if we were
  to work around the clock!
    At present there are many ordinary people, from all walks of
  life, who have no special skills or previous experience, who
  are earning up to $300/day or more, working as `INDEPENDENT
  HOMEWORKERS' under the expert guidance of our company! There
  people call our `HOME-MAILING PROGRAM' . . . `The fastest,
  easiest, and best way to make money without ever leaving your
  house or apartment.'
    What makes our program `UNIQUE' is the fact that with our
  system you will NEVER be required to purchase ANY postage
  stamps, envelopes, or circulars for as long as you stay in
  our program.
    We have the ONLY program available anywhere that pays you
  TWO WAYS! . . . Not only will you receive $1 for every
  envelope that you secure for us and STUFF with our offers
  . . . you will also receive 50% COMMISSION on every sale
  generated by your mailings! . . . Up to $100/ORDER!
  Commission checks are mailed out weekly!
    I can assure you that as a participant in our program, you
  will NEVER mail out anything objectionable or pornographic.
  There are no quotas to meet, and no-one will be looking over
  your shoulder. You can work as much or as little as YOU want.
  You are your own boss! There are no contracts to sign, and we
  further GUARANTEE that your name will never appear on any of
  our circulars. And don't forget, commission checks are sent
  out from our home office . . . EVERY WEEK! NO LONG WAIT.
   . . to get all the money you have coming!
    It doesn't matter where you live! Whether you come from a big
  city, or live on a farm . . . YOU can earn all of the extra
  money you need to catch up on those overdue bills, or simply
  to enjoy a BETTER LIFE with more spendable MONEY FOR YOU!
    THIS IS NOT A `GET RICH QUICK' SCHEME . . . It makes me so
  mad to know that several men and women who could greatly
  benefit from this outstanding opportunity will not do so
  because they are skeptical. Some questionable hit-and-run
  operations have given `homework' a black eye. Some have
  promised millions of dollars to their homeworkers! Believe
  me, you'll never become a multimillionaire working for my
  company, or any other firm. But, if you want to earn some
  very good money quickly, for easy to do pleasant work, we can
  help you! You're going to love this program . . . it works!
    `SUCCESSFUL SYSTEMS' OFFERS YOU IMMEDIATE PROFITS! We provide
  simple step-by-step instructions with your complete HOME
  MAILING KIT, easy enough for a child to understand. It
  doesn't matter where you live, big city or small town, in all
  50 states. Little space is required . . . a spare bedroom is
  great, but the kitchen table will also do just fine. Some
  people perform our homework tasks while watching TV.
    Just 1 or 2 hours a day (or evenings) will allow you to
  accomplish the simple at-home tasks required. I'm proud of
  the fact that many of our valuable homeworkers have called
  our program. `The easiest and best way to make money at
  home.' No contracts . . . nothing to sign. Your name will
  never appear on any advertising, but you can soon be
  receiving good money . . . paid weekly . . . for doing simple
  homework.
    If you're eager to make fast profits with this exceptional
  homework program, take action NOW! We require a one-time
  only, small registration fee of $25 to

  register you as one of our Preferred Independent Homeworkers.
    NO RISK MONEY-BACK GUARANTEE . . . You are the judge! You
  must be 100% pleased . . . absolutely delighted . . . or you
  may return all materials within 30 days, and we'll cheerfully
  refund your one-time registration fee.

Yours Truly,

Lisa Michaels (Vice-President)

`Successful Systems'

  P.S. It is important that you do act NOW! We seek only a
  limited number of new homeworkers. Avoid disappointment . . .
  take action right away! You'll be glad you did."

An additional sheet in the enclosure headed by the large darkened letters "Revolutionary Home-Mailing Program" reiterates that the consumer will be paid $1.00 for every envelope you stuff plus 50% commission on every sale (up to $100/order). Again, this page clearly states that the plan "NEVER requires you to purchase ANY envelopes, postage stamps or circulars for as long as you stay in the program."

What program? What product? The Court finds that by reading the initial eight-page inducement ad, a reasonably prudent person could not ascertain such information.

Also enclosed in the package is the "No-risk Homeworkers Application". For $25 plus $2.00 for "S & H", or a total of $27, "Rush me my complete Home-mailing Kit", with the right to an "immediate refund".

The Court finds that there are a number of false and/or misleading and/or deceptive statements in the ad.

First, the Court agrees with Inspector McDermott that any consumer who reads this ad would believe that he or she would be stuffing envelopes and get paid a commission based on such envelopes. In actuality, the "program" apparently has nothing to do with stuffing envelopes.

Second, nowhere in the ad is there any mention of any product whatsoever.

Third, and, significantly, nowhere in the ad does it say that the consumer will have to spend his or her own money to place ads in newspapers and periodicals. In fact, the ad implies that there will be no expense to the consumer ("You never have to buy stamps, envelopes, circulars or any supplies").

After reading the "come-on" ad (Plaintiff's Exhibit 1), the unwary consumer sends $27 to Associates and then receives Plaintiff's Exhibit 2, a brochure entitled, "`Successful Systems' Home-Mailing Program Procedure Manual, by Lisa Michaels". Now the consumer is advised that he or she will be a "registered distributor of our HOTTEST MONEY-MAKERS, specifically we offer a No-Nonsense way to $550 a day". Still no mention of the product or the program. On page two of the manual the consumer is again assured that he or she "never have to spend one cent on any circulars, envelopes or stamps".

On page two, the consumer is finally advised what to do — "Your only expense in this program will be for placing one or more inexpensive classified ads". The consumer is advised to place a classified advertisement, as follows:

  "`A NO-NONSENSE WAY TO $500 A DAY!' . . . $1  Self Addressed
  Stamped Envelope (SASE) . . . Your name and address."

When the consumer places the ad(s) he or she will then receive replies containing $1.00 in each reply and he or she will stuff the self-addressed stamped envelope. With what? With circulars (Plaintiff's Exhibit 3) that advertise "A No-Nonsense way to $500 a Day". Still no mention of the product to be sold. The second consumer fills out a coupon and sends $20 to the first consumer (with immediate refund rights). The coupon states, "Please rush me a copy of your `ultimate' home business plan". Still no mention of any product or program; only double-talk and evasive, confusing language for an anonymous product.

Plaintiff's Exhibit 3 is a document sent to the first consumer with the manual. In this document there are similar vague and misleading representations such as:

"NO INVESTMENT."

    "My ingenious, `FAST-PROFIT' income discovery is a `UNIQUE',
  and perfectly legal method of making HUGE AMOUNTS OF MONEY
  from home that has NEVER been advertised before! My method is
  100% LEGITIMATE and has absolutely NOTHING to do with
  Multilevel Marketing, Envelope-Stuffing, Gambling, Chain
  Letter Schemes, or any other GIMMICK!

ALL NEW!

    In fact, what I am referring to is an ENTIRELY NEW METHOD
  that makes use of a `little-known' professional secret
  developed by MILLIONAIRES to amass HUGE amounts of money
  FAST!; . . . It is very unusual and uniquely designed for
  each person that uses it! . . . In fact it is a `fool-proof'
  NEW WAY to earn up to $15,000 monthly WITHOUT having to work
  for it! . . . Believe me, ANYONE can do it! . . . EVEN YOU!
  . . . Because your age, prior experience, or place of residence
  simply DO NOT MATTER! . . . And the best part is you can work
  my plan from the comfort and privacy of your home, WITHOUT
  leaving your present job!

WORK FROM HOME!

     . . If you OWE MONEY, my program will have you `DEBT-FREE'
  in NO TIME FLAT!!
    . . . Just imagine opening your mailbox every week to find
  $3,000 worth of CASH, CHECKS, and MONEY-ORDERS all made out
  to YOU!! . . . With my program it WILL HAPPEN!

NO COMPETITION!

    The one thing you'll NEVER have to worry about using my
  system is COMPETITION! There are over 45,000,000 `NEW'
  prospects each and every year, throughout the United States
  and Canada, who DESPERATELY NEED what you will have to offer!
  . . . You'll be doing people a Real Favor! . . . You'll be a
  HERO! . . . Showing people how to obtain something that they
  DESPERATELY WANT and NEED, something that they are now GLADLY
  paying 100's of dollars OR MORE for . . . PRACTICALLY
  FREE!!!!!

COPY MY SUCCESS!

    If you can read English and follow simple, step-by-step
  instructions you can easily duplicate my success! . . .
  Everything has been CAREFULLY worked out for you! . . . You
  will be provided with EVERYTHING you'll need . . . NOTHING is
  left to CHANCE! . . . And the best part is, there is NEVER
  anything else to buy for this business from me or ANYONE
  ELSE!"

This flyer again emphasizes the "complete refund" available, which is the apparent "fail-safe" feature of this operation.

As to the "money" portion of the flyer (Plaintiff's Exhibit 3), it continues, as follows:

  "Simply PRINT your name and address CLEARLY on the NO-RISK
  COUPON below. Clip it and mail it to me along with ONLY $20 in
  cash, check, or moneyorder and I'll RUSH you my business plan
  and FREE BONUS REPORT via

  FAST FIRST CLASS MAIL!! . . . Shipping is FREE! . . . Don't
  MISS OUT! . . . Do it NOW!
                            ACT TODAY

   . . I don't care if you are a professional person, a
  housewife, a high school student, or a RETIRED senior citizen!
  . . . You owe it to yourself and your loved ones to CHECK ME
  OUT! . . . Completely at MY RISK! . . . I GUARANTEE THAT YOU
  HAVE NEVER SEEN SUCH AN `HONEST' plan, with absolutely NO
  CATCHES, that can produce income as quickly and effortlessly
  offered anywhere! . . . FOR ANY PRICE! . . . I PERSONALLY
  GUARANTEE IT!

30 DAY, NO-RISK COUPON!

`SUCCESSFUL SYSTEMS'

P.O. Box 815 Dept. (   )

Horace Harding Station

Flushing, New York 11362

  Please RUSH me a copy of your `ULTIMATE' Home Business Plan and
  FREE BONUS REPORT via FAST FIRST CLASS MAIL! I understand that
  if after trying your system for 30 days I am not ABSOLUTELY
  DELIGHTED for ANY REASON that I may return it for an IMMEDIATE
  REFUND! . . . On that basis here is my $20 in:

Cash [ ] Check [ ] Money-Order [ ]

Name

Address

City

State Zip_____"

All this verbiage and still no product named nor any explanation of any program or system.

Nowhere in Plaintiff's Exhibit 3 does it say that the consumer will have to place and pay for ads. In fact, as quoted above, the ad specifically states that ". . . the best part is, there is NEVER anything else to buy for this business from me or ANYONE ELSE!" (Exhibit 3).

So now we have the first consumer sending $27 to Associates and advertising, and the second consumer sending $20 to the first consumer, who keeps $10 and forwards the other $10 to Associates. All of this transpires without even the mention of a product, and with only an intentionally vague and unclear mention of the type of program involved. All of this is initiated by an implicit no-expense representation, which the Court finds to be intentionally false.

Plaintiff's Exhibit 3 is headed in large letters with the proclamation "A NO-NONSENSE WAY TO $500 A DAY". According to Inspector McDermott the only way a consumer could earn $500 a day under this plan would be to obtain 40 additional customers per day (1/2 of $20 is $10 times 50 people is $500 per day) and "arithmetically you would just run out of people as you get further down the line from the chain" (Tr. p. 39).*fn1

McDermott further testified that he had two boxes of consumers' complaints mailed to postal authorities with regard to "Successful Systems". There were "over 650 (complaints) with more arriving every day". He reviewed approximately two hundred complaint letters. There were two major types of complaints. First, the consumers thought they would be stuffing envelopes provided by "Successful Systems" and they (the consumers) would bear no expense. The second major source of complaint was that the promised refunds were never made. Some of the consumers wrote to Associates two or three times and did not receive a refund, as repeatedly and expressly promised in every circular.

When a consumer received the manual he or she discovered that there was actually no product involved and that further involvement on their part required the expenditure of money for ads. Commenting further on the complaint letters, McDermott testified as follows:

  A large number of these letters were very emotional. They said
  sometimes their last 25 dollars that they received a month from
  the VA or Social Security check was sent. And they were quite
  upset when they found out that it doesn't have a job; they
  didn't have any employment; and in fact the only way to make
  money was to deceive others and in fact to layout additional
  expense." (Tr. 43, 44; emphasis supplied).

Two of the letters in evidence are from Clara Dillinger (Plaintiff's Exhibit 4A) and George Ellis (Plaintiff's Exhibit 4B). The Dillinger letter, which is handwritten, reads as follows:

  "On July 29 I sent `Successful Systems' $27.00. I thought I was
  entering a program to mail their advertizing [sic] for a
  product.
  They stipulated that if I wasn't satisfied with their program I
  would return their material and they would refund my money.
  They don't sell anything. They just want people to send the
  same information they sent me to other people. To me that is
  cheating the ...

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