Phone Scam Photoillustration
About a dozen years ago, Joseph L., age 70, entered a sweepstakes that included a three-year magazine subscription package with two years free plus a complimentary watch. Seemed like a good deal to the retired utility company worker in New Jersey. Instead, the offer turned into a decade of misery. He started getting phone calls offering a reduction on his $49.90 monthly payments, but after agreeing to the reduced payments, he spotted new charges on his credit card statement from magazine companies he didn’t recognize. By April 2011, seven different companies charged him a total of more than $1,350 for that month alone.
Then came the calls offering to cancel the subscriptions and wipe out the balance he owed for a one-time payment. So he paid $239.90 to General Subscription Services, a Fridley-based company. But the calls and charges kept coming. “I thought if I paid in full, it would end,” Joseph says. “It never did.”
The same thing happened to Phyllis S., age 65, in Maryland. After signing up for a magazine subscription, she began receiving several calls daily from companies posing as her subscription service, claiming she owed them money. She told the callers she wanted to cancel her subscriptions and gave them credit card information, hoping the harassment would finally end. Instead, the telemarketers used a partial recording of the call—that included her consent—to sign Phyllis up for more subscriptions. During a four-week period beginning in December 2017, 17 different magazine subscription resellers across eight states charged her more than $1,500.
Joseph and Phyllis are only two of more than an estimated 183,000 victims of a magazine scam that preyed primarily upon the elderly and otherwise vulnerable people over 20 years to steal more than $335 million. The roots of the elaborate scheme are deeply embedded in Minnesota, where, late last fall, then U.S. Attorney Erica MacDonald indicted 63 individuals from companies in 14 states and two Canadian provinces who “did knowingly conspire with each other” to defraud the elderly and vulnerable with lies and threats. What follows is the story of that scam and MacDonald’s prosecution of her office’s largest white-collar crime case. Unless otherwise noted, the narrative is based on the federal indictments, other court documents, and interviews with the investigators themselves.
Easy Marks
The telemarketing scam preyed upon the elderly because they prove to be ripe targets, say prosecutors and the FBI. According to the National Council on Aging, people over 55 make twice as many purchases by phone as the national average. They are more likely to answer when it rings and are often home to do so. They tend to be more trusting, more polite, less inclined to hang up. They are also more likely to have assets—life savings, home equity—that scammers aim to siphon with fast talk and pressure that overwhelms and confuses victims. This sort of scam has become so prevalent that the council calls it “the crime of the 21st century.”
The coronavirus only made the victims of the magazine subscription scheme more vulnerable, according to investigators, with many older people home alone, cut off from social contact, bored, and lonely. And once seniors have been taken advantage of, they often don’t want to admit it, for fear of losing their financial independence. “They’re embarrassed to report scams because if the family finds out they’ve fallen for one, they might take away their checkbook,” says Steven Eppley, supervisory special agent of the Financial Crimes squad in the FBI’s Minneapolis field office. This hesitance to report these crimes makes seniors even more desirable victims. Their silence was one factor that allowed the magazine subscription scam to continue as long as it did.
The consequences of their financial losses were devastating. For people who are retired and on a fixed income, their working years behind them, there’s often no recourse to recoup what’s been lost. “They exhaust their savings, then go into home equity, then friends or family for small loans—and get in over their heads,” Eppley says. “It takes away their dignity at the end of their lives.”
Search warrants indicate the scammers followed two basic techniques. The first, a “payment reduction” script, promised to lower the amount and number of monthly payments, say to $44.90 for 20 months, which adds up to $898. The callers positioned this as payment on existing subscriptions when they were in fact recording the customer’s consent to trick them into signing up for additional subscriptions. They persisted even when the customer explicitly asked, as Rose Cubur did: “Just to confirm, I’m not signing up for any new magazines. It’s just the ones that I’m already getting, and it’s just a reduction on my payments on those?”
“That is correct,” replied the telemarketer from Midwest Publishers Home Office, in St. Louis Park. In fact, this was a lie.
In the other technique, known as the “consolidation script,” the caller often claimed to be from the cancellation department—which got the attention of many victims who had tried in vain to cancel their mystifyingly multiplying subscriptions—and offered to stop the magazines and zero out their balance if they made a large lump-sum payment. For instance, in 2019, one telemarketer from Readers Pros of Mississippi told Jason Baxter that three magazine companies had him up for renewal on that Friday for another three years, costing an additional $514.87 on top of what he already owed (none of which was true), but he could get out for a consolidation fee of $507, which included the senior discount and another discount for having diabetes.
“This was out-and-out fraud,” says Joseph H. Thompson, the lead attorney with the U.S. Attorney’s Office in Minneapolis prosecuting the case. “It’s not just sketchy telemarketing practices; they’re flat-out lying to people to get this money.”
Predatory Tactics
The prosecutors estimate there were at least three dozen “megavictims,” like Joseph L. and Phyllis S., who had tens of thousands of dollars stolen from them by multiple companies. When victims tried to cancel their subscriptions, the companies told them the cancellation period had expired. Some victims cancelled their credit cards to stop autopayments, only to receive harassing phone calls from debt collectors. (Some companies in on the scheme serviced delinquent accounts for others; others pursued outstanding payment themselves.)
One woman reported to the Better Business Bureau (BBB) that when she called Viking Magazine Service, based in Burnsville, to complain she had not received a promised $250 gift card or any magazines, the man who took the call drove her to tears. A disabled woman also reported to the BBB that she had tried to cancel her subscription with Viking Magazine Service and allegedly was told to pay the magazine bill before her medical bills.
According to the federal government’s search warrants laying out the scam, Betty M., a 69-year-old woman in Texas, received a call in 2019 from a man claiming to be with a large international law firm based in Chicago. He offered to cancel her purported $1,100 debt to Family Readers Club if she paid $499. When she told him she needed to think about it, he snarled, “I’m not going to play games with you, Betty.”
Two minutes later, he called back, threatened legal action to secure payment of the full $1,100, and informed her that her subscription would renew for another three years. “So you’re going to receive magazines probably until the day you die. I hope that’s what you want. Have a great day.”
The desperation of victims escalated as the fraudulent companies passed customer lists among themselves. One son, whose mother had been trying unsuccessfully for ten years to escape the scam, wrote to investigators: “The $1,402.91/year is bad enough, but it’s the anxiety and stress that these predators cause her that is an even greater cost. . . . She is scared to death that their collector people will arrive at her doorstep!!”
A sampling of more than 70 uninvestigated complaints filed with the Better Business Bureau against Viking Magazine Service alleges the hardship the victims encountered:
- A woman who could no longer work because of multiple sclerosis tried to cancel her subscription, “But they will not let me cancel. The payment is $59.79 [a month] which doesn’t seem like much [unless your income is] $1,300 a month so it is causing me hardship.”
- Another woman, who said she was being charged $49.99 monthly when she had only requested a subscription to Reader’s Digest, was told she could not cancel. “I am elderly, sick and on a fixed income. I have to pay rent and medicine.”
- One person who wrote on behalf of their mother—who has dementia and did not realize she was signing up for a magazine subscription—said when they told Viking about their mother’s condition and tried to cancel, “They want medical documents.”
- A woman who tried to cancel her subscriptions and get a refund for any outstanding issues when she moved to a nursing home was still trying when she moved to hospice four months later.
- Another woman, after describing the scam, wrote simply, “Please help!”
The Rogues’ Gallery
It’s hard to read these accounts without getting angry. That fueled the government’s takedown effort. “As U.S. attorney, I have to stay dispassionate, but I, like every other person out there, am thinking, This could be my mom,” MacDonald says. “This is why we invested a tremendous amount of our resources—because we should be protecting those who are most vulnerable.”
The two-year-long investigation her office mounted uncovered a vast network of companies throughout the country and Canada and claimed in the indictment that “the defendants and other members of the conspiracy worked together to carry out the fraudulent magazine sales scheme.”
This included exchanging “lead lists” with names of potential victims. The most valuable lists—with consumers who are actively being billed for magazine subscriptions—sold for as much as $10–$15 per name. The companies traded lists with one another or purchased them from lead brokers. Telemarketers from the various companies involved in the scam called these people, reading from nearly identical scripts to offer either cancellations or reduction of payments. In some cases, they actually provided magazines—though not to the value of the amount victims were paying. In others, they did not. Either way, the bottom line was to trick unsuspecting subscribers out of money.
Prosecutors say the masterminds of the scheme were Rusty Rahm, 50, of Kansas City, Kansas, and David Moulder, 58, of Prior Lake. The federal indictment claims, “Rahm and Moulder provided customer relationship management software programs that tracked orders, sales, and other customer information for companies involved in the fraudulent magazine sales scheme.” It also asserts they provided lead lists of consumers, loaded sales leads onto automated voice dialers used by telemarketing call centers, and provided support services such as sending confirmation letters, bills, and collection letters.
Moulder owns Viking Magazine Service, mentioned earlier. In 2002, the State of Minnesota brought a civil action against Viking Magazine Service complaining about its business practices, naming Moulder and his wife, Mariannette, as defendants. He was convicted of failing to pay sales tax in 2004 and placed on two years’ probation. Authorities estimate Moulder made tens of millions in the scam over the years. In July, he and his wife sold their 5,750-square-foot home in a Prior Lake subdivision for $1.29 million and bought a slightly smaller house for $1.4 million on Prior Lake, according to Scott County transaction records.
Moulder’s older brother Tony Moulder, 60, who owns four magazine subscription companies that operated out of Cape Coral, Florida, was also charged with fraud. Their sister Rhonda Moulder, 61, of Cape Coral, managed the call center for Gulf Coast Readers and ARCO Media, two of Tony’s companies. She was one of 14 call center managers indicted. In 2014, after the Florida Attorney General’s Office raised concerns about the telemarketing practices of Gulf Coast Readers, Tony and Rhonda entered into an assurance of voluntary compliance, in which they agreed not to make “any misrepresentations, or false or deceptive statements, in any communications with consumers,” though they did not admit any guilt, according to the Rahm indictment. Two months later, Tony incorporated ARCO Media.
Tony’s ex-wife, Barbara Moulder, 55, worked as a telemarketer for ARCO Media and Gulf Coast Readers from her home in Minneapolis. She was one of 18 telemarketers indicted.
Per the Rahm indictment, other owners of Minnesota companies allegedly involved in the scheme include Stacey Persons, who owned General Subscription Services and Amerimag Services in Fridley; Eric Esherick, who operated Quality Readers out of his Andover home; and Jared Michelizzi, who owned West Side Readerz and Central Subscription Services in Fridley. Michelizzi also owned Pacific Beach Readers Club with Brian Williams. Williams owned Readers Club Home Office, Pacific Renewal, and Tropical Readers, which all operated call centers in South St. Paul.
Then there is the Hanssen family. The patriarch, Peter Hanssen, manages Great American Readers. His son Chris Hanssen is CEO of All American Readers. The federal government’s search warrant application identified both companies as being players in the fraudulent magazine scheme, though neither Peter nor Chris Hanssen was indicted. But Tim Hanssen—Peter’s son and Chris’s brother—and his wife, Monica Sharma-Hanssen, who together own Midwest Publishers Home Office, with a call center in St. Louis Park, were both indicted.
In 2011, the Star Tribune reported the BBB had given Midwest Publishers Home Office an F rating for shoddy sales practices, failure to deliver magazines, and poor customer service. Tim Hanssen called the BBB’s statement “preposterous” and rejected the majority of its claims. The BBB acknowledged Hanssen’s company actually did respond to customer complaints and settle their accounts, but noted, “Based on the pattern of complaints, the company has failed to correct the underlying cause of the complaints.”
Tim Hanssen, 54, who pleaded not guilty along with his wife, is a convicted felon. After serving 44 months in prison for robbery, kidnapping, and criminal sexual conduct in the fourth degree, he was released in 2008. The Moulders, Hanssens, and others avoided detection by doing business under the name of multiple companies, which allowed them to spread out liability. According to court and corrections documents, opening multiple accounts with credit card companies diffused the number of “chargebacks,” which safeguarded their accounts from being suspended or closed.
Some dodged authorities by registering out of state and using multiple mailing addresses. When state attorneys general pressured them—like they did with Tony Moulder—the owners incorporated a new company or relocated out of state. According to the indictment, two of the accused, Henry Aragon and Lucille Patterson, after pressure by the Colorado Attorney General’s Office to stop soliciting magazine sales in 2011, promptly opened new magazine sales companies in Texas and Arizona.
A Path to Justice
Federal prosecutors and investigators say the state attorneys general simply didn’t have the resources to go after all of those involved in the scam, though former Minnesota attorney general Lori Swanson did sue Wayne Dahl Jr. in 2016 for using deceptive sales tactics, winning a judgment of $20 million against him and another $20 million against his Your Magazine Service, which operated a call center in Chaska. That marked the beginning of the scheme’s dismantling.
Documents indicate Dahl would eventually admit in a plea bargain that he made over $11 million by defrauding more than 13,000 consumers—knowing that many of them were elderly and susceptible to deceptive sales tactics—from 2009 until Swanson filed her lawsuit. Yet two years passed without Dahl paying a cent of the $40 million judgment against him. Instead, a few months after the state requested records for its investigation, he moved out of his $700,000 Eden Prairie home and relocated to West Palm Beach, Florida. In late 2018, a grand jury indicted him on four counts of mail fraud and four counts of wire fraud. The case went to the U.S. Attorney’s Office in Minneapolis, where it was assigned to Joseph H. Thompson.
Joe Thompson graduated from Stanford Law School with distinction in 2004. In 2009, after clerkships in the Northern District of Illinois and the Republic of Palau, he became an assistant U.S. attorney in Chicago, and he moved to the Minneapolis office in 2014. His specialty is white-collar crime, but he had never come across anything like the bank statements of Dahl’s victims. “I had never seen [a scam] that targeted the elderly so systematically,” Thompson says.
The problem with a case like Dahl’s was that even though some of the victims lost more than $50,000, the amounts were small by federal white-collar crime standards—too small, the assistant U.S. attorneys on this case say, to justify the time spent to prosecute it. That was another factor that allowed the scheme to run as long as it did. Except something else in those bank statements caught Thompson’s eye: It wasn’t just Dahl’s company bilking the elderly, but companies all over the country that seemed to be targeting the same victims. He suspected they were interrelated, part of a larger network. Thompson got MacDonald on board to go after all of them together—which would prove to be a massive undertaking, eventually involving the FBI, U.S. postal inspectors, and the U.S. Treasury inspector general for tax administration.
Thompson worked on the case with fellow assistant U.S. attorneys Melinda A. Williams and Harry M. Jacobs. They believed if Dahl cooperated, he could flush out others involved in the fraudulent scheme. Although Dahl had an extensive criminal record, including four convictions for providing false information to the police, prosecutors believed Dahl’s cooperation was important to prosecuting the scam. Dahl admitted his guilt and explained how companies like his purchased lead lists with potential victim names. (The indictments included four lead brokers.)
Thompson and his team hatched an innovative plan that, to their knowledge, has never been used before: using bogus lead lists for Dahl to pass on to lead brokers, who in turn sold them to the companies involved in the scheme. The names on the lists would be fictitious with phone numbers assigned to phones answered by undercover agents. They recorded over 400 calls—like those mentioned earlier to Jason Baxter and Rose Cubur, who were actually imaginary characters played by undercover agents. As the calls came in, investigators were able to see how the lead lists had been disseminated among multiple companies, connecting the dots of the network. The recorded calls helped them gather evidence of the fraud and identify the various players involved in the scheme. “We have it all on tape—that’s what allowed us to break this case open,” Thompson says.
They also gathered evidence from interviews with a handful of telemarketers who had become disillusioned or felt guilty about their complicity and a whistleblower who had worked within one of Williams’s companies. The investigators obtained federal search warrants for more than 40 email addresses, which revealed how the network of fraudulent companies around the country exchanged lead lists. For instance, the government’s search warrant application states Stacey Persons, who owned two magazine subscription companies, sent a list of leads in an email to Dahl in 2010 with the subject line: “meow meow lets [sic] get rich bitches.” Records showed that Dahl’s Your Magazine Service and Persons’s General Subscription Services had both signed up the same 754 customers for magazine packages.
On February 19, 2020, investigators conducted a simultaneous physical search of all of the call centers and offices used by the companies they had identified, looking primarily for the scripts telemarketers were using to defraud victims. Thompson says having noted the similarities of the scripts in the hundreds of calls they recorded—basically the payment reduction script and the consolidation script—and the practice of recording the consumer’s consent, often given to a designated closer, helped the investigators establish the links among the companies and how they operated the scam. Eight months passed as they continued to put together the pieces of the case before they filed three separate indictments in October, charging that the conspirators had “victimized ten or more persons over the age of 55,” which violates the Senior Citizens Against Marketing Scams Act. It was the first time prosecutors in Minnesota had charged a case under the SCAMS Act.
Consequences
Per media reports and his plea agreement, Brian Williams, who owned four of the companies named in the government’s case, was at a Los Angeles airport about to board a flight for Canada on August 8. Over the past dozen years, his companies had reaped more than $29 million running the fraudulent schemes. He enjoyed the largesse in the form of a Breitling wristwatch, a 4,600-square-foot house on Lake Minnetonka, and property in Costa Rica. Federal agents arrested him before he could escape. On October 30, he became the first person involved in the scam to plead guilty, admitting to a single charge of fraud and agreeing to pay $29,262,249 in restitution. Williams faces up to a 30-year prison sentence. He did not respond to an interview request made through his attorney.
As of March 4, 28 of the 63 indicted have pleaded guilty.
Meanwhile, the Moulders, Michelizzi, Esherick, and the Hanssens have maintained their innocence with “not guilty” pleas. Attorneys for David Moulder, Tony Moulder, Wayne Dahl, and Stacey Persons declined requests for interviews of their clients. Tim Hanssen’s attorney, Brian Toder, expects the case could go to trial in late fall or early winter. Thompson and his team met their primary goal of largely shutting down a scam that had gone on two decades. Yet they know that scams targeting the elderly and other vulnerable people persist. In fact, during the course of their investigation, they discovered that multiple “fraudulent magazine companies have started selling identity theft protection, either as a standalone product or as part of an ‘up-sell’ at the end of a magazine sales call,” according to a search warrant application.
Most victims are not likely to get much of their money back. While the government has seized property and bank accounts, and the plea agreements stipulate payment of restitution, the prosecutors say the number of victims is so great that whatever is collected will be spread thin. Whatever they do get back will merely be a token of goodwill. “We want to give them the feeling someone’s looking out for them,” Jacobs says.
Originally published in the April 2021 issue.
