Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 7, 1995 TAG: 9508070087
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: F.J. GALLAGHER STAFF WRITER
DATELINE: LENGTH: Long
According to the telephone sales pitch, buying baskets of jams and jellies from a Tennessee-based company helps pay for anti-drug efforts sponsored by the Virginia State Police Association.
And in 1993, the last complete year for which figures from the company are available, Virginians responded by purchasing nearly $4 million worth of the $35 packages manufactured and marketed by the telemarketer, Smoky Mountain Secrets Inc., which had offices around the state, including one in the Roanoke Valley.
But the police association's tax returns, which disclose how the money was spent, tell a different story, and drug education efforts are not a big part of it. In fact, most of the money went elsewhere: to politicians' campaign coffers; for travel expenses to conventions; as salaries for the association's staff; and to the telemarketers, who retained the lion's share of the proceeds.
Ultimately, only a small amount of the money collected by Smoky Mountain in 1993 "to help police fight drugs" - about $80,000 - was spent on anti-drug programs in Virginia. Most of it, some $3.4 million, went to the telemarketers.
The association's membership is composed of sworn state police officers, but is not directly related to the state police, said Col. Wayne Huggins, state police superintendent. In addition to providing services for troopers, he said, the association functions as a lobbying organization to represent troopers' interests in the state legislature.
The association, he said, supports itself and its activities through dues paid by the members and through commercial activities, including lending its name, for a price, to telemarketing campaigns conducted by Smoky Mountain.
And it is this activity that has drawn the scrutiny of Virginia Attorney General Jim Gilmore.
Last September, prompted by scores of consumer complaints and inquiries about the telemarketing company's sales tactics, Gilmore began looking into the relationship between Smoky Mountain and the state police association. On Feb. 14, attorney general's spokesman Don Harrison said, Gilmore filed suit in Richmond Circuit Court against the telemarketers seeking, among other sanctions, a permanent injunction barring the firm from doing business in Virginia again.
An attorney for the telemarketers contends the firm's agents did not intentionally misrepresent themselves to consumers and that the company has done its best to correct any violations of state law brought to its attention.
"We [Smoky Mountain] handle 2 million calls a year," attorney David Harless said. "We're not going to stand here and say that periodically we don't have someone that steps off the paved surface, so to speak. We can't monitor 2 million calls."
A hearing date has not yet been set, Harrison said.
But the telemarketers stopped making calls under the Smoky Mountain name and incorporated a new company called Special Programs Inc. Documents obtained from the State Corporation Commission show that the same officers listed on the original Smoky Mountain incorporation documents are the principals of the new company.
According to a royalty agreement between the two telemarketing companies obtained from the Virginia Department of Consumer Affairs, Special Programs began making calls for the state police association in July 1994, after buying the state police contract from Smoky Mountain for $10. That was just before the attorney general's office formally opened its investigation.
"We got handed the paperwork on the investigation in September 1994," Harrison said, although work began before that date. "It's our understanding that they changed their name and continue to do business."
From the second floor of a nondescript office building behind the Lancerlot health club in Vinton, it's business as usual. The same employees make the same calls selling the same merchandise for the same customer: the Virginia State Police Association.
Which doesn't surprise Fran Stephanz, the executive director of the Roanoke Better Business Bureau. Telemarketing companies facing litigation, she said, very often change names and move offices, yet retain the same personnel and tactics.
"It happens all the time," Stephanz said, "and unfortunately, there's not much that the law can do."
The law, she said, can't hold the new company accountable for the actions of the old. To take action against the new firm, the whole investigative process must begin again, this time naming the new operation.
Harless, whose Richmond law firm represents the telemarketers, said the Smoky Mountain businessmen had always operated Special Programs and merely incorporated the second firm in 1994 at the behest of state officials.
"Special Programs is a separate company altogether," Harless said, "but I'm certain that they [Smoky Mountain and Special Programs] are working together."
On July 28, attorneys representing Special Programs and Smoky Mountain filed a suit in federal court seeking to overturn the state's charitable solicitations act, the law that protects Virginia consumers. The lawyers contend that because the Red Cross is not subject to the law, forcing Special Programs to comply constitutes discrimination and is thus unconstitutional.
"As a result," the suit says, "the Virginia Solicitation of Contributions Act burdens the Virginia State Police Association's and Special Programs' free-speech rights."
\ Originally chartered in Tennessee on Feb. 25, 1983, Smoky Mountain has solicited money for state police associations in Tennessee, North Carolina, Alabama, Pennsylvania, Minnesota, West Virginia and, since Aug. 29, 1985, in Virginia, where the company had offices in Alexandria, Bristol, Manassas, Richmond, Roanoke and Virginia Beach, according to Gilmore's suit. Special Programs, while keeping the same office managers, has closed the Bristol, Manassas, and Roanoke offices, opening them instead in Fredericksburg, Dale City and Vinton.
Typically, the company would set up several telephone "boiler rooms" in each state, tiny offices equipped with nothing more than a few desks, telephones and maps depicting targeted areas. From these rooms Smoky Mountain solicitors launched aggressive, year-round telemarketing sales campaigns on behalf of the state police association.
The telemarketers' efforts paid off - big time. As a result of those calls, the police association has received nearly $3 million from Smoky Mountain since 1989, almost $500,000 a year.
Most of that money, according to the association's tax returns, paid for a variety of expenses, including travel, conferences, conventions, lobbyists and political contributions.
In fact, in 1993, the state police association spent almost twice as much on wages as it did on anti-drug efforts. Similarly, expenses for travel, conventions and conferences dwarfed substance-awareness spending. Politicians got a piece of the telemarketing action on a par with that of the drug programs, in the form of support for "legislation to contribute to the Political Action Committee and to governmental candidates whose ideas support and advocate the causes set forth by the VSPA," according to the tax return.
Ultimately, of every $34.95 package purchased by Virginia consumers in 1993, 70 cents went to the stated cause of anti-drug education efforts.
And 1993 was not unusual. Year after year since Smoky Mountain, and now Special Programs, began working for the state police association, the final accounting reports and the tax returns show the same pattern of spending and priorities.
Association President H. Dallas Church had no comment regarding his organization's use of the telemarketing funds.
\ In most of the states in which Smoky Mountain has operated, attorneys general have sought to hold the telemarketing firm accountable for apparently violating consumer-protection laws.
In addition to Gilmore's Virginia litigation, suits have been filed against the company in Tennessee, Pennsylvania, Minnesota and West Virginia.
In fact, the attorneys general in Pennsylvania and Minnesota went a step further than Gilmore, naming the state police associations as co-defendants and alleging that only a tiny portion of the revenue went to the expressed cause: drug education programs.
"The bottom line is that for every dollar people give to fight drugs, only a few pennies eventually goes to the association's anti-drug program," Pennsylvania Attorney General Ernie Preate Jr. said in announcing his February 1994 suit.
The Pennsylvania litigation is still pending, but in Minnesota the court ordered Smoky Mountain to pay nearly $188,000 in fines for failing to register as a charitable solicitor.
Gilmore's suit charges that the Smoky Mountain sales pitch routinely included the use of fraudulent or deceptive practices, including:
Falsely stating or implying the callers were state troopers or employed by the state police association.
Telling customers goods would be delivered by a uniformed patrol officer or by a patrol car.
Falsely stating customers would be entitled to an income tax deduction for the amount of the purchase price.
Incorrectly informing contributors that 75 percent of the proceeds from each sale, or 75 percent beyond the "cost" of the goods, would go to the police association and that all amounts given to the troopers' organization would be used for drug-abuse prevention programs.
The complaint asks Richmond Circuit Judge Melvin R. Hughes Jr. to order Smoky Mountain to comply with state law and to accurately account for all the money it received from solicitations.
It further seeks damages of $5,000 for each violation of state law. The money would be used to establish a trust fund to benefit charitable organizations that conduct drug-abuse prevention and awareness programs.
State police officials had no comment regarding the association's relationship with Smoky Mountain, Special Programs, or the litigation other than to say they weren't surprised by the name change. The association, Church said, will decide whether to continue its relationship with the telemarketers based on the outcome of the court case.
Smoky Mountain representatives refused to comment on the charges, but attorney Harless denied the allegations, adding the state failed to abide by the terms of an agreement reached in 1988. That pact required the state to provide notice to the telemarketers that it had received complaints and to allow the company time to address them.
"The state turned up its nose at the agreement," Harless said, adding the company had implemented measures to monitor its representatives and handle consumer complaints.
Gilmore, in a Richmond Circuit Court filing dated April 20, maintained the company was made aware of violations in a letter dated Jan. 10 and again at a meeting Jan. 26. The suit, according to the filing, is a result of Smoky Mountain's continued disregard of the complaints.
The telemarketers, Harless said, made every effort to address complaints brought to its attention, including hiring additional personnel to periodically monitor solicitors' calls.
\ Anita Shirley, a consultant with a North Carolina company that helps nonprofit corporations develop fund-raising programs, said name changes and other tactics in the face of litigation are common in the charitable contribution business.
"There's very little regulation in that whole sector and it's become very controversial," Shirley said. "Unfortunately, it's happening everywhere and it really gives fund-raisers a bad name. It really requires the consumer to be aware."
What regulation exists, Stephanz of the BBB said, is often time-consuming and hard to enforce.
"It's a very slow process," she said, "and a company can do a lot of soliciting before the [Department of Consumer Affairs] gets onto them."
The best defense against a disreputable telemarketer, she said, is a wary consumer.
"All they [the consumers] have to do is pick up the phone," Stephanz said. "We'll tell them whether or not the company meets Better Business Bureau standards or not."
Editorial assistant Kate Fleming contributed to this report.
by CNB