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States Rein In Sweepstakes, Game Operators

July 3, 1995

Every year for nearly 20 years, C. Floyd Anderson’s North Kansas City, Mo., companies have mailed out millions of contest entry forms. Every year, about 2 percent to 5 percent have been returned, along with entry fees ranging from $3 to $35. ``It was the slickest operation you ever saw,″ says a local businessman.

But now states, responding to what they believe is wide-scale fraud on the part of some contest and sweepstakes operators, are monitoring operators like Mr. Anderson more closely.

At least 13 states have either passed or tightened prize-notification laws in recent years, requiring fuller disclosure of rules, odds and the retail value of prizes. And the states are following through with enforcement: Iowa has already collected $322,000 from mass mailers, while West Virginia last year sued 106 sweepstakes and contest companies, charging misleading and deceptive practices.

Even Publishers Clearing House, known for its million-dollar giveaways, has been caught in the web: Last August, it agreed to pay $490,000 to 14 states and to change some of its language, better defining terms like ``finalist″ and ``tie breaker.″ It has also begun to disclose the odds of winning its prizes.

In Iowa, officials discovered an 87-year-old Des Moines woman had lost $600,000 on direct-mail contests and sweepstakes. The retired college teacher had received hundreds of entry forms for games with names like Bucket O’ Bucks, and she often entered the same contest dozens of times. The officials brought civil actions against the contest operators, who provided restitution and agreed to changes in their operations.

Such contests, in which players must answer questions to win, often start out being simple and cheap: One, for example, charged $5 and asked for the name of the ocean bordering California. A year, several rounds and $50 or so later, though, contestants were asked to solve an extremely complex crossword puzzle.

To keep people entering, contest operators often refer to contestants as finalists even though there are tens of thousands of them. Players are also encouraged to spend an additional $10 to $30 because, they are told, if they eventually win, having paid extra will make the final prize larger.

Sweepstakes offers don’t require fees like contests, but they are often tied to merchandise, as when Publishers Clearing House solicits paid magazine subscriptions as it distributes sweepstakes forms.

Probably the most ambitious legal actions are taking place in West Virginia, where prosecutors first sued four direct-mail companies in state court and then expanded the dragnet.

All but seven of the companies involved settled the suits or ceased operations in West Virginia. Suarez Corp. Industries, a North Canton, Ohio, sweepstakes concern, is one of the companies that decided to fight it out.

Prosecutors allege that a Suarez subsidiary, Lindenwold Fine Jewelers, misled people when it sent out notices saying that recipients had won up to $10,000 or a car. To get the prize, recipients first had to claim a gift _ usually a cubic zirconia ``diamond″ _ and pay $20 to have it mounted, or call an 800 telephone number (it wasn’t clear the call wasn’t free). According to a petition filed by the prosecution, Robert Rogers of Fairmont, W.Va., made the call after he was notified he had won $6,000. All he got in return was an $8 bill for the phone call.

The state claims that the Lindenwold gifts were virtually worthless and that recipients didn’t win a prize but merely became eligible to win if they paid to have the ring mounted.

But Suarez sued in federal court, claiming that the state’s action against it was depriving it of its civil rights. In newspaper advertisements and mailings, the company also took potshots at Attorney General Darrell V. McGraw Jr. ``The attorney general filed a totally bogus lawsuit,″ says Benjamin D. Suarez, chairman of the closely held concern. ``He tried to portray us as selling shoddy, overpriced products.″

At the moment, a West Virginia state court has enjoined Lindenwold from doing business in the state, and Lindenwold is challenging the injunction before the West Virginia Supreme Court.

Unlike Mr. Suarez, Mr. Anderson, the Kansas City operator of Opportunities Unlimited Publications Inc. and Contest America Publishers Inc., has chosen to settle with states. Minnesota regulators first targeted him in 1993, taking issue with phrases like ``You are in first place!″ and ``Guaranteed Cash Prizes.″ He has since halted operations in West Virginia, Oregon, Iowa and Minnesota and paid more than $200,000 in fines and other fees. And his promotional material now more fully discloses the odds of winning, offers a refund and clearly states the value of the prize at stake.

Nonetheless, Mr. Anderson’s companies still routinely send out a million entry forms at a time. ``I know the contest business is not looked on favorably by some people,″ he says. ``I’d like to think I’ve tried to appease these people, but at some point you have got to make a sales pitch.″

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