The opinion of the court was delivered by: Spatt, District Judge.
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
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 onetime only, small registration fee of
register you as one of our Preferred Independent
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.
Lisa Michaels (Vice-President)
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
McDermott testified that this plan is in the nature of a
chain letter because the first level of consumer pays $27 and
advertises to the second level of consumer who pays $20. Of
this $20, the first level consumer
keeps $10 of the $20. The second line consumer gets the same
manual (Plaintiff's Exhibit 2) and they, in turn, place ads and
bring in a third level consumer. According to Inspector
McDermott, "after approximately ten levels, you will run out of
the number of people on earth that could qualify as purchasers
. . ." and such a plan is in the nature of a chain letter or
pyramid scheme. The Court notes that chain letters violate the
mail fraud statute (see, e.g., United States v. Armantrout,
411 F.2d 60, 61-62 [2d Cir. 1969], citing Blachly v. United States,
380 F.2d 665, 672 [5th Cir. 1967] [other citations omitted]).
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:
"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!
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!
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
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 money-order
and I'll RUSH you my business plan and FREE BONUS
FAST FIRST CLASS MAIL!! . . . Shipping is FREE! .
. . Don't MISS OUT! . . . Do it NOW!
. . . 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!
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
Cash ? Check ? Money-Order ?
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:
"People who responded to this, your Honor, are
retired, single mothers, people
on limited income. And on face value it seems that
these people would be able to earn a legitimate
income from their home. Unfortunately, when they
received the booklet, the Home Mailing Program
from Successful Systems, a large number of them
were able to see that there was no product
involved and requested their money back, and were
unable to do so, were unable to get it back.
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
"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 public, so I
returned their material. They have not returned my
money. I have written them twice.
/s/ Clara Dillinger"
(emphasis in original).
The Ellis complaint, also handwritten, reads, in part, as
"I received this kit on Monday 11/13/89; I was not
impressed with it, as I saw that the `Successful
Systems' program involved a lot of newspaper
advertising expense on my part which their sales
letter made no mention of. I then promptly
returned their starting kit materials to them . .
. and requested my $27.00 back . . . To date, I
have heard or received nothing. Please help me get
my money back from this rip-off.
/s/ George W. Ellis 12/4/89"
Based upon his experience as a postal inspector, in the
opinion of Inspector McDermott, the "Successful Systems"
program "is nothing more than a chain letter pyramid scheme in
which no product is involved, and is only sustained by
recruiting other members to sell in essence the same nothing
program" (Tr. p. 54).
Further, in his opinion as a postal inspector, the initial
solicitation sent out by "Successful Systems", Plaintiff's
Exhibit 1, "is filled with deceptions and misrepresentations"
in that: (1) it mentions nothing about advertising costs; (2)
it mentions nothing about the major thrust — to recruit others
to join and sell similar programs; (3) it says nothing about
the product involved; and (4) it promises a refund within
On cross-examination, Inspector McDermott testified that he
did not know how much of the $410,000 in the seized bank
account constituted monies derived from the "Successful
Systems" program. While on cross-examination he summed up his
analysis of the defendants' program as follows:
"Q Tell me, how did this scheme work?
A Again, when somebody answers an advertisement in
the hopes that they would be employed stuffing
envelopes, they receive a program, a booklet.
After paying $27 they receive this booklet which
tells them to spend additional money advertising
essentially the same program in which you can make
up to $500 a day."
Although counsel for the defendants vigorously tried to bring
out that the Association was selling two products, namely, (1)
a pamphlet entitled "How to `erase bad credit' and reprint
rights", and (2) mailing lists, McDermott stated:
"A In answering an ad in a way to make $500 a day.
That's what they are answering. They are not
answering to buy mail order lists. Nowhere in that
ad does it say send a dollar to buy a coupon to
buy mail order lists, no one would buy it then."
(Tr. p. 96).
"A Sir, when they paid the $27 they were not aware
that they would have to spend additional money for
advertising, period." (Tr. p. 101).
It is significant that while the defendants' fliers state
that they have a way consumers could make $500 per day, they
never mention the report on "How to erase bad credit" as
the product. In sum, for $27, the customer received a brochure
telling them to pay to advertise a nebulous and concealed
b. The Defendants' Case.
Th e sole witness for the defendants was the defendant
William J. Savran, a duly licensed dentist who was in practice
from 1971 to 1986, at which time he left dentistry to enter the
"Medicard ID" business. In November 1987, he incorporated his
business as William Savran & Associates, Inc. Dr. Savran (and,
apparently, Associates) presently have only one commercial bank
account in which he deposits all income received by him from
whatever source derived. Included in the deposits is income
from his Medicard ID business and the "Successful Systems"
business, among other ventures. Also, from this account he pays
all of his business expenses, including rent, salaries,
advertising and postage expenses. In addition, he pays income
taxes, withholding taxes and even his child support from this
single account. Material to this discussion, he also pays
refunds on the Successful Systems "product" from this account.
The payments of these expenses by Associates and Dr. Savran
have been severely disrupted by the seizure and freezing of the
account by the plaintiff.
Dr. Savran admitted that he previously was involved with a
chain letter scheme, when, after a complaint was issued by the
postal inspector, he discontinued the prior plan.
In November 1987 he entered into an oral agreement with Julia
Picard, doing business as Mail Depot, Ltd., to perform "mail
order" work for him, including the mailing of refunds. He
received the consumers' complaints and referred them to Ms.
Picard. On November 1, 1990, Associates purchased Mail Depot
Ltd. from Julia Picard for $35,000. Dr. Savran blames Julia
Picard for the failure to make timely refunds as to the
Successful Systems plan.
As to the "Successful Systems" phase of his business, Dr.
Savran developed the idea in "probably 1988, around the
beginning of 1989". He was looking for distributors "to help me
sell my mailing lists and my other offer of $500 a day" (the
brochure to erase bad debts). Dr. Savran personally prepared
the brochure "How to erase bad credit" over a six week period,
and had obtained a registered copyright.
Dr. Savran explained the purpose of his original letter
(Plaintiff's Exhibit 1), as follows:
"Q And in that letter could you explain, what was
the purpose of that letter?
A To get distributors who would be salesmen for me
selling my products.
Q And what product did you have to sell?
A Well, I had two products.
Q What were the products?
A One was the reports on How to Erase Bad Credit
and the other was mailing lists. I had been
selling that report on credit for several years
very successfully. I figured if I get distributors
to do the same thing I would duplicate my efforts.
Q When you did them and you sent them, and they
answered your ads, they contacted you. And what
did you send them then? This particular letter?
A The letter, yes, sir.
Q Was there a fee for them to do something further
A Yes. If they have [sic] wanted to participate
they would have to send a $27 fee and they would
receive the home mailing kit.
Q Now, when they became a distributor how were
they to earn any money on this?
A They would earn money by making sales and
getting a commission on each and every sale.
Q What kinds of sales did they make?
A They made two types of sales. One was for the
erase bad credit program, which is a program that
somebody can actually sell and make money each
time they do it. That was one. And the other thing
they could sell if they wish, was the mailing
Q Now, in the literature you send to them did you
explain to them anything that they would have to
outlay any money for themselves in order to take
part in the program?
Q Now, when they sent out the particular letter in
here was there anything in your original ad that
said anything about advertising?
A No, there wasn't."
(Tr. pp. 142-43, 147; emphasis supplied).
Although they were not previously advised, in order to
continue in the plan, the consumers were required to place ads
at a cost of from $6 to $100 per week.
In early 1990, Dr. Savran began having problems with Julia
Picard, with regard to consumers who were not getting requested
refunds. According to Dr. Savran, he had no control over the
activities of Julia Picard and she allegedly embezzled his
postage money. When he discovered this problem, he immediately
fired her, wrote out the refunds and eventually purchased her
business. Oddly, even though Ms. Picard failed to make refunds
and stole monies from him, Dr. Savran purchased her business
Dr. Savran testified that he never received a "cease and
desist" order from the Postal Service and that he first became
aware of any complaints when he was arrested (Tr. p. 154). He
testified that Associates made refunds to all of the people
named in the Government's papers. He further stated he had no
intent to defraud anyone or to misrepresent anything to anyone.
He stated that today, people are still ordering and reordering
from him; that "hundreds and hundreds" of people are satisfied
with his products and "several" make good livings from his
mailings (Tr. p. 158).
On cross-examination, Dr. Savran testified that "probably 25
percent" of the proceeds in the seized bank account is
attributable to Successful Systems (Tr. p. 163). He is the only
person who works for Successful Systems although his wife Lisa
Savran helps him once in a while. The "Lisa Michaels" mentioned
in the fliers (Plaintiff's Exhibit 1) and manual is his wife,
who is Vice President of Associates (Tr. pp. 168-69).
Dr. Savran had another bank account at the Roosevelt Savings
Bank which he closed in July 1990 because the bank officials
were concerned about the number of complaints from consumers
who had not received refunds.
As to the initial letter to the consumers (Plaintiff's
Exhibit 1), the following testimony of Dr. Savran may help
explain the mysteries of the "Successful Systems" program, and
is significant evidence:
"Q Dr. Savran, I would like you to take a look now
at a document marked yesterday as Government
(Handed to the witness.)
Q Now, I believe you testified yesterday that this
was an initial letter that Successful Systems sent
out to consumers?
Q And I believe you also testified that once the
persons paid $27 to Successful Systems the person
would then receive a document marked Government
Exhibit 2 which is entitled, Successful Systems
Home Mailing Program Procedure and Manual?
Q You further testified that enclosed in
Government Exhibit 2, which is the manual, there
was an instruction book instructing the persons
how to sell a circular which has been marked as
Exhibit 3, which says a No Nonsense Way to $500 a
Day, to other consumers.
Q And that's accurate?
Q And you further testified that Government
Exhibit 3, a No Nonsense Way to $500 a Day, was
advertising to sell either mailing lists or a
booklet regarding how to prepare your bad credit
Q And that's all accurate?
A That is correct.
Q Now, addressing your attention again to
Government Exhibit 1, show me where in that letter
it says that what is being offered to the first
level of customers is an opportunity to be a
distributor to sell mailing lists or booklets
regarding repairs to credit damage.
A It doesn't say that.
Q It doesn't say that anywhere?
Q You testified yesterday that you spent a month
or a significant period of time carefully writing
out Government Exhibit 1, which is the initial
letter from Successful Systems. If what you are
selling is a distributorship to sell mailing lists
and booklets for credit repair why isn't that
stated in your initial letter?
MR. LAMB: Objection, Your Honor.
THE COURT: Overruled.
A Because it wasn't mentioned.
Q Why wasn't it if that's what you were selling?
A Is there a reason it should be?
Q Well, normally isn't it normal when somebody
advertising something to sell, that they describe
what is being sold?
A Not all the time.
Q Not all the time.
Did you intentionally draft Government Exhibit 1
so that it was not clear that what was being sold
was a distributorship for mailing lists or bad
A You have to repeat the question.
MR. RIEGEL: Can I have it read back, please?
THE COURT: Yes.
(Whereupon, the court reporter reads the
Q You did?
Q Why did you do that?
A It is a technique used in the mail order
Q Now you testified that you intentionally drafted
this so that it didn't state what was being sold.
A That is correct" (Tr. pp. 191-94; emphasis
"Q You did say that you intentionally omitted
information from Government Exhibit 1 as to the
very nature of what you were offering and selling?
MR. LAMB: Objected to, your Honor.
THE COURT: Overruled.
A I left out what the product is, yes" (Tr. p.
"THE COURT: Why did you do it?
THE WITNESS: It is a technique used in selling
business opportunities where people list the
advantage of it.
THE COURT: It is a technique not to tell the
potential distributors the product they were
supposed to distribute?
THE WITNESS: Correct. And they are free not to
Q But they don't even know what they are buying;
isn't that true?
Q Let me ask you, would you think a consumer
reading this letter would get from it that what was
being sold was a right to a distributorship to sell
mailing lists and credit report?
A Not specifically, no.
Q They would not?
A Correct" (Tr. p. 195; emphasis supplied).
"Q Looking again at Government Exhibit 1, does it
state anywhere in there, directly or indirectly,
that a consumer paying $27 will receive a kit which
instructs the consumer to spend additional money to
place ads, or to send out direct mail in order to
sell your products?
A Does it say that anywhere?
A That they have to place an ad, no. But there is
always advertising and promotions for anything you
do. It doesn't say everything in the world would be
free. It says the supplies would be free. There is
no intimation that there would be no other expense
for ads or anything else" (Tr. p. 197; emphasis
supplied). (Tr. pp. 191-197; emphasis supplied).
As to the amount Associates was receiving from consumers in
the "Successful Systems" program, Dr. Savran testified that
"[i]t could be as much as $50,000" per month (Tr. p. 203).
Dr. Savran was further questioned about Plaintiff's Exhibit
1 which in the third paragraph states "This is not a get rich
scheme". Yet on page 7 of the Successful Systems Manual, sent
out to consumers who respond to Exhibit 1, it says "Strike it
Dr. Savran further conceded that even in Defendants' Exhibit
A, which is sent in response to the manual, there is no mention
of the "improve your bad credit" pamphlet. It says it is "a
no-nonsense way to $500 a day".
"Q Does it say anywhere to make — the way to make
$500 a day, a No Nonsense Way, was to market
Defendant's Exhibit A, How to Erase Bad Credit and
Q Why didn't you say simply in Government Exhibit
3, the way to make $500 a Day is to try to market
a report regarding erasing bad credit?
A I didn't mention it.
Q Isn't the reason because if you had said it
accurately the amount of response you would have
gotten, it would be negligible compared to what
you have gotten?
A I don't know that to be true.
Q With respect to Government Exhibit 1, the
initial Successful Systems letter, isn't it
accurate to say that if you had stated in there
the truth of the matter what you were selling
would be the distributorship to sell a bad credit
report and mailing lists, and the amount of
mailing you got which you said before as much as
50,000 a month would be much less than that
MR. LAMB: Objection, your Honor.
Asked and answered. The question was asked
before and responded to.
THE COURT: Overruled.
A I don't know if it would or wouldn't I never
did it the other way, so I don't know" (Tr. pp.
Dr. Savran could not estimate the amount of income he
received from Successful Systems in 1989, although he guesses
that it would be "[m]aybe 25 percent" of his total income (Tr.
pp. 224-25). He doesn't think he has any business records that
itemize his income or separately delineate the Successful
With regard to the probability of anyone making $300 or $500
a day by using the "Successful Systems" program, Dr. Savran
stated the following:
"Q So your statement that they can receive up to
$500 a day has no basis in fact?
A Yes, it does. I was marketing the report and
making about $500 a day or more when I first
started marketing it myself.
Q Do you know anyone who is making 300 or $500 a
Day [sic] every day they work on this?
A Personally, no. Myself, yes, sir. I have done it
Q Just yourself?
A Yes" (Tr. p. 230).
III. ADDITIONAL FINDINGS OF FACT
In addition to the findings of fact set forth above, the
Court makes the following further findings:
1. Upon a review of all the fliers, manuals and enclosures
mailed by the defendants in the "Successful Systems" program,
this Court finds that the central thrust of these documents was
to present a vague, confusing and incomprehensible sales
promotion without mentioning the product to be sold or the real
method of distribution. The Court further finds that these
documents were intentionally designed to mislead and to induce
innocent and unwary consumers to part with money — and so, the
documents contain fraudulent misrepresentations. The flyer and
manual solicit people to send in $27 — for what, they could
2. The defendant intended to create confusion and to
misrepresent the truth in the solicitations, and thereby obtain
a greater number of initial $27 responses from the consuming
3. The solicitation (Plaintiff's Exhibit 3), expressly states
that "there is NEVER anything else to buy for this business
from me or ANYONE ELSE!". This is not only misleading but the
Court finds it expressly false.
4. The unconditional refund offer does not ameliorate this
situation. First, there were a substantial number of unhappy
customers who never received refunds. Second, it is reasonable
to infer that only a small percentage of unsatisfied consumers
even request a refund, so that the defendant is able to retain
many of the $27 payments sent by customers who, after receiving
the manual, do not go to the next step.
5. The use of the mails and United States Postal Service was
and is an integral part of the defendants' business, and the
defendant therefore used the mails in furtherance of the
fraudulent "Successful Systems" plan.
6. The intentional nondisclosures and affirmative
misrepresentations made by the defendants in the "Successful
Systems" solicitations were material.
7. Harm and/or injury to the consuming public was or at least
should have been reasonably foreseeable as a result of the
advertisements and direct mailings and substantial monetary
responses, ranging to as much as $50,000 per month.
IV. THE APPLICABLE LAW
a. Availability of Preliminary Injunctive Relief Under
18 U.S.C. § 1345.
On this motion for a preliminary injunction, the plaintiff
seeks relief under 18 U.S.C. § 1345, which provides in
"Whenever it shall appear that any person is
engaged or is about to engage in any act which
constitutes or will constitute a violation of [the
mail fraud statute, 18 U.S.C. § 1341] . . . the
Attorney General may initiate a civil proceeding in
a district court of the United States to enjoin
such violation. The court shall proceed as soon as
practicable to the hearing and determination of
such an action, and may, at any time before final
determination, enter such a restraining order or
prohibition, or take such other action, as is
warranted to prevent a continuing and substantial
injury to the United States or to any person or
class of persons for whose protection the action is
brought. A proceeding under this section is
governed by the Federal Rules of Civil Procedure,
except that, if an indictment has been returned
against the respondent, discovery is governed by
the Federal Rules of Criminal Procedure."
To support an application for a preliminary injunction under
18 U.S.C. § 1345, the Government must demonstrate that
"probable cause" exists to believe that the defendant is
currently engaged or about to engage in a fraudulent scheme
violative of either the mail, wire or bank fraud statutes (see
United States v. Belden, 714 F. Supp. 42, 45-46 [N.D.N.Y.
Fraudulent Scheme Must be Ongoing.
Injunctive relief is authorized under section 1345 only when
the alleged fraudulent scheme is ongoing and there exists a
threat of continued perpetration; the statutory equitable
remedy is not available for solely past violations (see United
States v. Cen-Card Agency, No. 88-5764, slip op. at p. 14 [3d
Cir. Mar. 23, 1989] [872 F.2d 411-414 (tables)]; United States
v. New Frontiers Real Estate Co., No. CV-89-2585, slip op.
[E.D.Pa. May 8, 1989] [1989 WL 49519, 1989 U.S.Dist. LEXIS
5073]; United States v. Jones, 652 F. Supp. 1559, 1560
As the evidence adduced at the hearing amply demonstrates,
the alleged violations of mail fraud are ongoing and threaten
to continue. The defendants solicited orders for the Successful
Systems plan, which initially put the alleged pyramid scheme in
motion. Orders from unwary consumers have been and continue to
be placed with Savran. In fact, Savran testified that he still
continues to receive orders. Those consumers who continue to
participate in the scheme, perhaps unwittingly by simply
following Savran's instructions, are ultimately increasing
Savran's receipts from this fraudulent plan and continue to
perpetrate its existence. The defendants are currently
receiving thousands of orders (and dollars) per week in
response to their mailings and advertisements. Finally, the
Court finds it significant that there has been no indication
from counsel for the defendants that the dissemination of
mailings and advertisements would cease pending the outcome of
the related criminal case.
Accordingly, the Court finds that this alleged fraudulent
scheme is ongoing, and therefore preliminary injunctive relief
pursuant 18 U.S.C. § 1345 is available at this juncture.
Irreparable Harm Not Necessary Under Section 1345.
The statute itself is silent as to whether the traditional
elements, including "irreparable harm", must be demonstrated in
order to obtain a preliminary injunction under 18 U.S.C. § 1345.
In view of the plain meaning of the statute, such a
showing is not required. Although it has been stated that
"irreparable harm" need not be demonstrated to obtain an
injunction under section 1345 (see, e.g., United States v.
Belden, supra, 714 F. Supp. at p. 45), the Third Circuit, in an
unpublished opinion, expressly declined to address the issue,
since in that case such harm was actually demonstrated by the
Government (see United States v. Cen-Card Agency, No. 88-5764,
slip op. at p. 10 n. 4 [3d Cir. Mar. 23, 1989] [872 F.2d 411,
The legislative history of section 1345 indicates a
Congressional concern over the possibility that the consuming
public could be victimized by permitting the continuance of a
fraudulent scheme while a related criminal investigation or
prosecution is underway, which, oftentimes could be a rather
lengthy or protracted process:
"While present law provides limited injunctive
relief [under 39 U.S.C. § 3005(a)], this relief is
inadequate. First, the relief is restricted to the
detention of incoming mail. It does not reach the
situation where letters continue to be sent to
further a scheme and remittances are collected
personally from the customer or to fraudulent
schemes which do not entail the use of the mails.
Second, the required administrative proceedings
entail considerable delay which is compounded by
the extra time and energy necessary to bring an
injunctive suit in the district court while the
administrative proceedings are pending. Since the
investigation of fraudulent schemes often takes
months, if not years, before the case is ready for
criminal prosecution, innocent people continue to
be victimized while the investigation is in
For these reasons, the Committee has concluded
that whenever it appears that a person is engaged
or is about to engage in a criminal fraud offense
proscribed by chapter 63 [including mail fraud],
the Attorney General should be empowered to bring
suit to enjoin the fraudulent act or practices"
(S.Rep. 225, 98th Cong., 2d Sess. 401-02,
in 1984 U.S. Code Cong. & Admin. News 3182, 3539-40
In United States v. Belden, supra, Chief Judge Munson
observed that courts have traditionally not required a showing
of irreparable harm to obtain a preliminary injunction under 39
, rather only "probable cause" need be
demonstrated. The court further noted that 18 U.S.C. § 1345 was
"intended to make it easier for the government to obtain
preliminary injunctions as a means of terminating fraudulent
schemes during the pendency of criminal investigations than had
been possible under 39 U.S.C. § 3007" (United States v. Belden,
supra, 714 F. Supp. at p. 45).
In other areas where Congress has provided for Governmental
enforcement of a statute by way of an injunction, the courts
have consistently held that irreparable harm need not be
demonstrated, and that so long as the statutory conditions are
met, irreparable harm to the public is presumed (see, e.g.,
United States v. Odessa Union Warehouse Co-op, 833 F.2d 172,
175-76 [9th Cir. 1987] [in action under Food, Drug and Cosmetic
Act, Government need not demonstrate irreparable harm to obtain
preliminary injunction]; Government of the Virgin Islands v.
Virgin Islands Paving, Inc., 714 F.2d 283, 286 [3d Cir. 1983]
["when a statute contains, either explicitly or implicitly, a
finding that violations will harm the public, the courts may
grant preliminary equitable relief on a showing of a statutory
violation without requiring any additional showing of
irreparable harm"]; Securities & Exchange Comm'n v. Management
Dynamics, Inc., 515 F.2d 801, 808 [2d Cir. 1975] [in SEC
enforcement action, proof of irreparable harm unnecessary to
obtain injunction]; United States v. Cappetto, 502 F.2d 1351,
1358-59 [7th Cir. 1974] [not necessary to establish likelihood
of irreparable harm in RICO action brought by Attorney
General], cert. denied, 420 U.S. 925, 95 S.Ct. 1121, 43 L.Ed.2d
395 *fn3; United States Postal Serv. v. Beamish,
466 F.2d 804, 806 [3d Cir. 1972] [common-law requirement of
irreparable harm and likelihood of success are inapplicable to
injunctions sought under 39 U.S.C. § 3007]; United States v.
Schmitt, 734 F. Supp. 1035, 1048-52 [E.D.N.Y. 1990] [Government
not required to demonstrate irreparable harm to obtain
preliminary injunction under Rivers and Harbors Appropriation
Although the Government must prove that the defendant had a
specific intent to defraud (see, e.g., United States v. Amrep
[2d Cir. 1977], cert. denied,
, 54 L.Ed.2d 759 ), a showing of evil
motive on the part of the defendant is not necessary (see
United States v. Simon,
, 808-09 [2d Cir. 1969],
, 25 L.Ed.2d 420
), and such intent may be inferred through circumstantial
evidence (see United States v. Panza,
, 1149 [2d
For the reasons above set forth at length and in detail in
the Court's findings of fact, this Court finds that the
Government has established that the defendants have engaged and
continue to engage in a scheme or artifice to defraud in
violation of 18 U.S.C. § 1341. The Successful Systems plan and
the solicitations in connection with its implementation are
intentionally vague, ambiguous and calculated to create
confusion among unwary consumers in an attempt to fraudulently
obtain $27 by misrepresenting the true nature of the "product"
(if any) and the means to sell the product.
Additionally, the Court finds that this "product" is nothing
more than a pyramid or chain-letter scheme. It is well settled
that such a "pyramid" or "chain-letter" scheme constitutes mail
fraud (see, e.g., United States v. Armantrout, 411 F.2d 60,
61-62 [2d Cir. 1969], citing Blachly v. United States,
380 F.2d 665, 672 [5th Cir. 1967] [other citations omitted]).
Further, evidence that the mails were used to facilitate or
further Savran's "Successful System" business is
uncontroverted. In fact, use of the mails is not merely
"incident", it is the essential nature of the defendant's
business to utilize the mails to solicit and receive orders and
Accordingly, the Court finds that the plaintiff has
demonstrated probable cause to believe that the defendant "is
engaged or about to engage in" mail fraud violative of
18 U.S.C. § 1341, and therefore is entitled to a preliminary
The Court must now fashion an appropriate remedy.
The plaintiff seeks the following ultimate relief in
connection with this action brought pursuant to 18 U.S.C. § 981,
1956 and 1957, 18 U.S.C. § 1345 and 28 U.S.C. § 1355:
1. Preliminary injunction preventing the defendants from
soliciting orders in connection with the Successful Systems
2. Permanently enjoining the defendants from engaging in
fraudulent mailing schemes in the future.
3. Restitution of the monies received from consumers.