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U.S. v. WILLIAM SAVRAN & ASSOC.

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 warrant 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, en- velopes,
      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 onetime 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 money-order
  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 public, so I
  returned their material. They have not returned my
  money. I have written them twice.
      Sincerely,
      /s/ Clara Dillinger"

(emphasis in original).

The Ellis complaint, also handwritten, reads, in part, as follows:

  "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 thirty days.

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 ...


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