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CNN Burden of Proof

No Breaks Today for Customers at McDonald's

Aired August 22, 2001 - 12:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIP)

JOHN ASHCROFT, ATTORNEY GENERAL: More than $13 million worth of grand prizes have been corruptly won by the co-conspirators in the scheme. As you can see, this fraud scheme denied McDonald's customers a fair and equal chance of winning. We want those involved in this type of corruption to know that breaking the law is not a game.

(END VIDEO CLIP)

ROGER COSSACK, HOST: McDonald's says billion served. What they didn't serve was the winning game piece. Today on BURDEN OF PROOF, no breaks today for customers At McDonald's.

Hello, and welcome to BURDEN OF PROOF.

The FBI has arrested eight people in connection with an alleged scheme to defraud the McDonald's Corporations and its customers. The scheme dates back to early 1995, when Jerome Jacobson, the man entrusted with the security of McDonald's "Pick Your Prize Monopoly" and "Who Wants to Be a Millionaire?" games, allegedly rigged the games by allegedly distributing winning game pieces to friends and associates. These insiders then allegedly recruited others to claim the winning prizes, which ranged from $20 to $1 million and then split those winnings among themselves.

McDonald's denies any knowledge or participation in the scam and is launching a new $10 million instant cash giveaway game starting August 30th.

So joining us today, these old McDonald's fans themselves, Jeffrey Harris, former assistant director for marketing abuses with the Federal Trade Commission, criminal defense attorney Nita Ginsburg, and former FBI special agent Mark Carter.

First, let's go the CNN justice correspondent for the update on this unfolding investigation.

Kelli, you know, nothing could be lower than rigging than rigging the McDonald's game. We all deserve a better break than that. Enough of McDonald's joke, what's the latest?

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Roger, let me underscore the fact that Jerome Jacobson was not a McDonald's employee. He was in fact an employee of Simon Marketing, which if the firm that McDonald's had contracted to administer its games, and it was many games. It was the "Monopoly" game, the "Who Want to be a Millionaire" game, many of the games that they have done promotionally since 1995.

The FBI says the investigation continues. As of yesterday, there were eight people, seven besides Mr. Jacobson who were arrested and are in custody. But as I was told by one FBI official, people are now "singing like birds" -- that's a quote -- and they expect we will see more arrests as this scheme unravels.

Now the FBI has been on this case the last year now. It was a TIP the FBI got was from someone who was only way they described this person as someone had knowledge of this scheme. The people that were involved in this scheme were very closely knit. Some were relatives, and friends with business relationships that had gone back for years, so there is the expectation this will lead to uncovering of even more people involved.

So far, officials have not directly implicated Simon Marketing, although they would not rule that out as a possibility, if there is some wrongdoing uncovered. The policy at the company was supposed to have at least two even three people overseeing the production of those winning game pieces, not only when produced, but also from distribution, and it looks like it was only Jerome Jacobson who was charged with making sure the pieces got where they needed to get.

COSSACK: So, Kelli, what are you saying, in fact it wasn't the whole corporation of Simon Marketing, it was perhaps just this one individual who was in charge of these particular games that the allegations are aimed at?

ARENA: So far, at least so far, that's what if investigation uncovered.

COSSACK: All right.

Mark, how does FBI investigate something like this. We heard that there was disgruntled employee, perhaps someone who didn't get what they were supposed to. What happens?

MARK CARTER, FMR. FBI SPECIAL AGENT: Well, they started off with the best piece of information you can get in any conspiracy investigation, which was an informant. And typically these people are either a spurned lover, a romance gone sour, or co-conspirator in this who didn't they got their share. The next step is to take the information the informant gives you and start trying to piece it together. Before I came in today, I ran a few basic records check in the paper, and pretty quickly, you can start see real estate transactions, and addresses and last names that all match.

Once they get to that point, the next step is to actually start to gather real evidence.

COSSACK: tell us more what you did this morning. As you say, I just ran a little something. You know, I could be here forever run a little something and never find what you found. What did you do and what did you find already?

CARTER: Well, there's commercial databases available where various state agencies and commercial enterprises, such as Lexis and Nexis. You know, they have the news. But public records, documents that are available to anyone in the public, filing of lawsuits, complaints, all sorts of litigation, property record transfers,these all public records available for inspection, and many of the records are available now online. You subscribe to these databases, pay money to be a part of them, you type in people's names, it pops up where they own property and they have been involved in litigations, who they sold property to.

COSSACK: You can see connections between some of these people?

CARTER: Very quickly with that list of names you can immediately start to see connections -- you know, associated with the same companies, real estate transactions back and forth between them going all the way back to '94, '95.

COSSACK: So what the FBI did, Jeff, was they went ahead and they said to McDonald's, keep this thing going, they went to McDonald's and they said, you know what, you've got some problems here, and whether or not you know about it or not, we want to keep this thing going for a while so we can investigate to find out who does knows something about it, and McDonald's cooperated. But what about all the people who were cooperating and thinking that there might have been a problem, what about those people that were buying their hamburgers and getting their slips -- or not getting slips at that time?

JEFFREY HARRIS, FMR. DEP. ASSOC. ATTY. GENERAL: Well, all you can say is people that were buying the hamburgers, all they were getting at this point was cholesterol. What I think McDonald's point was in the greater good, it is better to allow this and minimalist chance that a particular consumer would lose something in order to catch these guys.

And McDonald's today did announce that they will hold some very, very high money games to make up to their the consumers the opportunity they lost.

But what I think McDonald's did wrong and what Simon Marketing did wrong is that when you're engaged in these kind of high-money game or promotion, you ought to be hiring people like Mark to check out the -- your employees that are going to be involved in this, if you are Simon Marketing, or if you're McDonald's, you ought to hire someone like Mark to check out Simon Marketing before you engage them and entrust them with this kind of responsibility.

COSSACK: Mark, if you would have been hired ahead of time, would there be any reason to believe that would you have been able to disclose this earlier on?

CARTER: It's hard to say, it's possible. I don't know what this person's background was, but certainly if they had hired a firm such as mine, we would have come in and established certain controls. Obviously, their controls failed miserably, allowing one person to be able to take these pieces worth literally million of dollars and pass them out to friends. We would, if nothing else, at least been able to establish some sort of check-and-balance system and monitored it from the outside.

COSSACK: Let me take a break. It is important before I go on a break to once again underline that as of this time, as Kelli Arena reported, there is no reason to believe McDonald's is involved at all. If it was done by anyone, it was done by this Simon Marketing Company and an individual within Simon Marketing Company. So we don't even know if Simon Marketing as a cooperation knew about it.

Now we'll take our break.

Jerome Jacobson allegedly monopolized McDonald's winning real estate. But if the charges are accurate, it will become difficult for him to get a "get out of jail free" card.

Stay with us.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It's kind of disheartening. I think there a lot of people who probably come to McDonald's specifically for that particular point, and if the prize is not being awarded, I think that's very deceiving, obviously.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I think makes you feel like are you getting ripped off, because, like, it gets you there, you know, to buy their products, but you don't have a chance of winning. So it just seems like it's a rip-off.

(END VIDEO CLIP)

(BEGIN LEGAL BRIEF)

George Rivas, the leader of the gang of Texas escaped convicts was found guilty of capital murder Tuesday in the slaying of Irving Police Officer Aubrey Hawkins.

The convicts escaped from the Connally Unit in Kenedy, Texas on December 13. The sentencing phase of Rivas' trial was set to being Wednesday.

(END LEGAL BRIEF)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I would assume that they put all those advertising to do, whatever gimmick they can do, to just remind you that McDonald's exists, so when you see a line of restaurants, the one that is going to stick out to you is McDonald's, you got that logo in your mind. But I don't know anyone will consciously say I will go eat at McDonald's because I might win gold.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

QUESTION: Are you currently playing Monopoly?

UNIDENTIFIED MALE: Yes, collecting the pieces, putting on my board.

QUESTION: Have you won anything?

UNIDENTIFIED MALE: No, still waiting for that big prize, like a jeep or something, but hasn't come yet.

(END VIDEO CLIP)

COSSACK: Yesterday, after the Fed's announced an arrest in the alleged game scam, McDonald's announced the launch of a new promotional game. Starting August 30th, 55 major cash prizes, totalling $10 million, will be given away at randomly selected McDonald's. In addition the restaurant chain will create an independent task force to review future promotions.

Well, Kelli, the way it worked, did that mean that people had no chance at all to win cash prizes, or no chance to win the big ones?

ARENA: No chance to win most of the big ones, Roger. There a lot of people who legitimately won quite a bit of money from McDonald's over the year. But many of the $1 million prizes, the big $100,000, $200,000 prizes were sort of diverted to Mr. Jacobson's friends.

As far as what else McDonald's is doing, Roger, number one, they have severed relationship with Simon marketing. That was immediate. Second thing, they have formed an independent task force to make sure future promotions are properly guarded and that they can ensure their integrity in some way, which is what you were talking about earlier, as you know, someone suggested McDonald's should have done it in the first place. And not only are they doing this instant cash giveaway over the Labor Day weekend, but once the FBI concludes its investigation, then they're going to go back and find out exactly how much money was diverted fraudulently, and in this case, it's $10 million. Let's say at the end of the day, it's turned out $20 million was fraudulently diverted. They will do another $10 million cash giveaway to give customers the chance of getting the money they would have gotten since 1995 through today.

COSSACK: All this and a double-size burger, too.

What's the crime here, Nita? What's the gentleman from Simon -- what is he going to be charged with, Jacobson?

NINA GINSBERG, EARNED J.D. FROM ANTIOCH LAW SCHOOL: Well, what I've read is he's been charged with mail fraud. I think that's probably -- they're probably additional crimes but...

COSSACK: Where is the mail fraud? When you get the tickets, you don't have to use the mail.

GINSBERG: No, but all you need is a very remote connection to the mails. If any of the McDonald's advertisements were going through the mails. Anything that was part of the promotional scheme. Anything that he did using the mails, that assisted the transfer of any of these tickets or any of the prizes. I wouldn't be surprised if there isn't wire fraud allegation brought.

COSSACK: Wire fraud would be?

GINSBERG: Use of the telephone. Apparently they were wiretaps. Sounds like the FBI has a lot of admissions by these participants, or at least conversations that can be interpreted against them as part of this scheme. And any of those phone conversations, in furtherance of the scheme, would be considered wire fraud.

COSSACK: Why isn't the FTC doing this, Jeff, instead of the Justice Department. You have experience in both areas.

HARRIS: Well, because I think the FBI regards this as a criminal investigation primarily, and they're not looking at this as primarily the kind of defrauding of consumers that is handled administratively. Here you have a guy at Simon Marketing and others who have illegally through fraudulent activities gotten $13 million. That's a fairly major crime, and the FTC does not have criminal jurisdiction. The FBI and the Justice Department obviously do, and that's why it's going that way.

COSSACK: Mark, we heard the FBI has had wiretaps in this case. Now one thing every law enforcement agent knows it is not easy to get wiretaps. There a lot of things government agents can do, but getting a wiretap to tap someone's phone is a darn tough thing to do. How were they able to do it in this case, and what was the necessity?A

CARTER: Well, I think that they were able to do it as I said with public record checks and the informant on the inside who is telling, you know, how this scheme is being perpetrated, that was enough to get a judge to sign off on a court order to allow them to tap these phones.

Of course, today, you know, it is very difficult to tap phones in general. When I was in the FBI, they called them wiretaps. They literally were. You went to central office of the telephone with your company, with your court order, and you identified the two wires that were on big banks of circuits that belonged to your target, you tied into them, and you were off and running. Now of course you have to have sophisticated equipment because telephone calls go into computers where they break it into billions of bites.

COSSACK: And it's more difficult to convince a judge to give you an order to get a wiretap nowadays, wouldn't you say?

CARTER: Absolutely. Privacy has become a huge issue today. And it' s much more difficult to get anyone, any judge to say you can start tapping people's phones.

COSSACK: All right, let's take another break.

Do not pass go, don't touch that remote. Could other suspect face charges in the McDonald's monopoly scam? Don't get away.

(BEGIN Q&A)

Q: The New York Board of Pardons and Paroles is scheduled to consider teh release of what inmate today?

A: Sixties radical Kathy Boudin. In 1981, Boudin was sentenced to 20 years to life in prison for her role in an armed car robbery in which a guard was killed.

(END Q&A)

COSSACK: Federal investigate have arrested eight people suspected of rigging promotional games at McDonald's restaurant. Now fast food junkies were eager to buy to full-meal deals with hopes of winning a million dollars. But unbeknownst to consumers and McDonald's, the games have allegedly been rigged from 1995.

All right, Nina, let me have you defend Mr. Jacobson.

Are you worried the police are going to take him down the station and give him a grilling. I'm sorry, I couldn't resist.

GINSBERG: Apparently he has begun cooperating with the FBI, which means he's admitting his conduct probably. But want they want to know is the names and the extent of other people's involvement. So if that is what he is in fact doing, his defense is not really a defense of I didn't do it, but minimizing his criminal penalties.

COSSACK: I did it but I've seen the late.

GINSBERG: I've seen the light. It wasn't worth the money.

COSSACK: And will he is to give back the money?

GINSGERG: He will certainly have to give back the money.

COSSACK: Jeff, what about a civil lawsuit? What abut all these people who've walked into McDonald's, unbeknownst to anyone and said, you know, I'm buying this, and perhaps McDonald's didn't know, but we talked about the fact that was a way they could have known. Were they negligent?

HARRIS: Well, Roger, if your question is, is there a lawyer out there who will think of bringing this suit, the answer is unequivocally, yes. But what is consumer's loss? The loss of expectancy of winning the big prize, one in 440 million? It's going to be very hard. There's no question that there's liability, but what are the damage for each individual consumer, how do you prove it, so I think that there is a possibility, anybody with the filing fee can file a lawsuit. Will it ultimately be successful, probably not. There's one caveat, if it turns out there's someone, the investigation goes up and there was someone inside McDonald's who participated, that could change everything, but based on what we know now, which is that McDonald's had no involvement in this.

COSSACK: But why would that change anything in terms of what the damages are? I hear what you're saying, look, I could have legitimately gone in there every day for years and years and never won a thing. That's just the way life is, even if I would have had a chance. Why would that change anything in terms of what my damages are, if there was somebody on the inside?

HARRIS: Damage are still difficult, even if there is someone one on inside, but the suit becomes a little more appealing if McDonald's, through one of its employees high up in the chain, defrauded their customers, as opposed to McDonald's being the victim. But ultimately, I agree with you, the damages issue is going to be very, very difficult here. That not to say someone wouldn't try.

CARTER: Punitive damage awards as well, right.

HARRIS: Well, that's right. If there's fraud on the part of McDonald's, you could get punitive damage against McDonald's, but you'll want stress right now, that's not what we think happened -- things could change. You know, but the real lesson we want to stress here is any corporation or business engaging in a big financial transaction, where loss of their reputation can really hurt their business, ought to be prudent and take every step necessary before they go into it. All these businesses that have one of the catastrophe befall them, and then form the committee oversight, they ought to be doing this before the fact.

COSSACK: So what can they do, Mark?

CARTER: They can hire firms like ours. We specialize in these kind of risks control, risks management, investigations, do background investigations. But most importantly some of this could have been solved with some very, very basic business controls, which say you never have one or only two people involved in handling those large sums of money. Multiple people need to know exactly what is happening with anything that that's valuable.

COSSACK: Nina, are we going to see a lot more arrests in this case?

GINSBERG: Well, apparently, there a whole another level of people involved. We had Mr. Jacobson giving the prizes to his friends who then apparently solicited friends and relatives to be the actual people who were the prize winners.

COSSACK: One or two removed.

GINSBERG: So we have all of these one or were removed people. There was an article that had a lot of unknown names from locations around the country. I think two were from Virginia, about the closest to anywhere where we all are, that were unnamed, who apparently received prize money. So I think -- and then there will be those people who knew about it and facilitated some part of the transaction. Greed is a very insidious thing. People who are normally very honest when he they think they can get an easy buck do a lot of stupid things, and there will be more people involved. If the cooperating continues, eventually I'm pretty certain they will get to most of those people.

HARRIS: Roger, word of caution, there were apparently some legitimate big money winners.

COSSACK: We talked about, Kelli said there were some that won $100,000.

HARRIS: And it's very important that in the investigation, both McDonald's and the media be very careful that we don't tar legitimate winners and make them look like crooks, because if most of the big winners were procured illegally, the few that won it legitimately can get swept into that same category if we don't use caution in describing them.

GINSBERG: In fact, the FBI is -- there were many who think that the FBI has been in the last year or two very overzealous in identifying suspects without the appropriate amount of investigation, and just to name somebody.

It is interesting that in this whole scam, all we've heard is $13 million, they've only paid out a little bit over $4 million. So what's been least is 4$ million, but of course it sounds a lot worse and more spectacular when you here $13 million.

COSSACK: Particularly if you were taking kids in there every week trying to win that thing.

GINSBERG: That's right.

COSSACK: That's all the time we have for today. Thanks to our guests, thank you for watching. Join us again tomorrow for another edition of BURDEN OF PROOF.

See you then.

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