For Immediate Release:

March 8, 2001

FOR FURTHER INFORMATION CONTACT:

Genene Morris 973-504-6327





Reader's Digest Enters Into Multi-state
Sweepstakes Agreement

Agrees to Pay $6 Million in Consumer Restitution

NEWARK-Reader's Digest Association, Inc., ("Readers Digest"), one of the largest sweepstakes operators in the United States, has entered into an agreement with New Jersey, 31 other states and the District of Columbia, to pay $6 million in restitution and make significant changes in its sweepstakes mailings to settle allegations that its sweepstakes promotions are misleading and deceptive, Attorney General John J. Farmer, Jr., and Consumer Affairs Director Mark S. Herr announced today.

The agreement, known as an Assurance of Voluntary Compliance, establishes a fund of $6,081,000 to be used by the Attorneys General for restitution payments to consumers in their states who were "High-Activity" sweepstakes customers in any one of Reader's Digests fiscal years ending 1998, 1999 or 2000. In addition, Reader's Digest will pay the states and the District of Columbia $2.1 million to cover attorneys fees and costs stemming from the states' investigation. Affected New Jersey consumers will share approximately $300,000 in restitution. New Jersey will also receive $75,000 for its attorneys fees and costs. This settlement brings the total amount of restitution and costs recovered through multi-state agreements that New Jersey has been involved with to nearly $75 million.

Reader's Digest sends out millions of pieces of mail annually, most of which offer consumers the opportunity to enter a sweepstakes and to subscribe to its publication, Reader's Digest or other magazines. Reader's Digest also sells books, audio tapes or video tapes as part of these mailings. The sweepstakes offers are also combined with skill contest offers that require the recipient to buy something to take part in the game.

"As far as sweepstakes go, you dont have to pay to play," Attorney General Farmer said. "Purchasing magazine subscriptions or other merchandise does not improve your chances of winning. In fact, it is unlawful for sweepstakes promoters to require you to buy anything to enter their contests."

"Our agreement with Reader's Digest will help protect our citizens, often the elderly, from spending money needlessly in hopes of improving their chances of winning a sweepstakes," he said.

"According to the Federal Trade Commission, mail with deceptive and fraudulent promotions costs consumers and businesses millions of dollars a year. In fact, in 1999, alone, the FTC received more than 10,000 complaints from consumers about gifts, sweepstakes and prize promotions. That same year we received 203 sweepstakes-related complaints," Herr said.

"We have made fighting sweepstakes abuse one of our top priorities. This is the eighth sweepstakes case we have entered over the last five years to combat practices which are troubling, Herr added. With each agreement, we are chipping away at the deceptive sweepstakes market and are ensuring that consumers are not suckered by ridiculous but enticing come-ons that make them feel obligated to enter the sweepstakes and purchase products they have no interest in owning."

Without admitting any wrongdoing, Reader's Digest must refrain from misleading consumers into believing that they have won, are about to win or that they have a better chance of winning a sweepstakes.

In addition, Reader's Digest must:

In cases where Reader's Digest automatically renews consumers' subscriptions, the company has agreed to provide consumers with advance notification that the subscription will be automatically renewed unless the consumer cancels. If consumers do not cancel after the notification, the first bill they receive will also explain that they can still cancel and receive a full refund.

"This agreement requires Reader's Digest to conduct its sweepstakes promotions in a fair and honest way so that consumers are not cheated," Herr said.

In recent years, New Jersey has entered into six other settlement agreements and one prosecution over sweepstakes promotions.

In 1998, American Family Publishers agreed with New Jersey and 31 other states to change the way it promotes its sweepstakes and magazine subscription offers to consumers and to pay the states a total of $1.25 million.

Also in 1998, New Jersey helped to negotiate a $1 million multi-state agreement with Travel Opportunities, Inc., which ran a vacation contest scheme in which entrants were misled into believing they had "won" free trips to Florida and the Caribbean.

In 1999, New Jersey filed suit against Eagle Promotions, Inc., accusing the Hackensack sweepstakes promoter of deceiving consumers into believing they had won thousands of dollars in sweepstakes prizes only to defraud them out of their own money. Eagle Promotions later entered into an agreement with New Jersey, 47 other states and the District of Columbia to stop its unlawful practices and to pay $31.8 million for consumer restitution and the states legal fees.

In 2000, New Jersey also helped to negotiate separate multi-state agreements with Time, Inc.; American Express; and U.S. Sales Corporation, which does business as United States Purchasing Exchange, stemming from the promoters sweepstakes practices. In total, the companies agreed to pay nearly $40 million for consumer restitution and to cover attorneys fees and costs.

In a seventh case, New Jersey and 18 other states filed separate lawsuits in 2000 against Publishers Clearing House alleging that it unlawfully enticed millions of consumers nationwide into purchasing its merchandise by misleading them into believing that those purchases would greatly improve their chances of winning large sums of cash or prizes. New Jerseys suit against the sweepstakes promoter, filed in Essex County Superior Court, is still pending and a trial date has been scheduled for August 8, 2001.

Farmer and Herr ask that consumers heed the following advice from the Federal Trade Commission:

To determine if an elderly loved one has become the victim of sweepstakes fraud, The American Association of Retired Persons advises consumers look for the following warning signs:

In addition to New Jersey and the District of Columbia, the following states participated in the agreement: Alabama, Alaska, California, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington, and Wyoming.

Deputy Attorney General Jodi Krugman of the Division of Law handled the Reader's Digest matter for the State.


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Posted March 2001