LexisNexis Academic
Advertising Age
November 7, 1988
Texas officials probe resort mailings
BYLINE: By DENISE GETSON, Christy Fisher in Dallas contributed to this story
SECTION: NEWS; Direct Marketing; Pg. 30
LENGTH: 566 words
A U.S. attorney in Texas has obtained what he believes is one of the largest-ever mail fraud judgments against a time-share resort company. Now, he wants to nab the company's direct-mailing agency.
The lawsuit, brought by U.S. Attorney Bob Wortham in Beaumont, Texas, last month, resulted in a $1.5 million fine against Freedom Financial Corp., which advertised time-shares by offering prizes to consumers for visiting the resorts.
Among the prizes: an "all-terrain vehicle" that was actually a lawn chair with large plastic wheels.
As part of plea-bargain agreement with the court, the Dallas company pleaded guilty to one count of conspiring to commit mail fraud and two counts of mail fraud relating to the distribution of misleading direct-mail ads for its time-share resort properties from September 1987 to June 1988. Freedom Financial operates five time-share developments in Texas and two in Missouri.
"I plan to change the way these time-share operations do business, and the direct-mail companies are at the top of the pyramid." Mr. Wortham said.
"Freedom Financial was sold a package by a direct mailer who claimed that their tactics were legitimate and had been proven with other resort operations in the county, " Mr. Wortham said. "Of course, Freedom Financial had to be pretty greedy to shut their eyes and be taken in by the claims."
His office is still investigating the direct-mail company's role in the scheme.
An official statement by Freedom Financial implicated a third-party professional mailing organization, which it had contracted with for the creation and distribution of its ads.
However, Freedom Financial's plea-bargaining agreement with the court has been sealed.
Penny Wilson, VP-marketing for Freedom Financial, refused to release the company's name.
Separately, Freedom Financial is paying $219, 000 in fees and restitution to Texas, Kansas, Missouri and Oklahoma and residents of those states who complained to government agencies that prizes offered for visiting the resorts were misrepresented.
Time-share resorts often entice visitors by claiming that a major prize is being reserved for them.
The investigation by the Texas attorney general found consumers who visited Freedom Financial time-share properties often were subjected to high-pressure sales tactics. In some instances, consumers got virtually worthless gifts rather than the high-price prizes they expected.
In addition to the "all-terrain vehicle" was a ladie's imported black mink coat, which was composed of dyed waste fur parts, including snouts, paws and ears. The value of the coat to winners, after they paid a "redemption fee, " was 5¢.
A Freedom Financial solicitation resembled an official telegram and carried a false endorsem*nt from the Texas attorney general's office.
The attorney general won an injunction requiring Freedom Financial to declare its contracts with mailing organizations to his office. Further, the office will regulate future ads for proper disclosure of prize information and terms of redemption.
Lorna Christie, director of ethics and consumer affairs for the Digest Marketing Association, said vigorous prosecution is appropriate when direct mailers employ fraudulent practices.
"Fraud hurts our business, " Ms. Christie said. "It's in the best interest of this organization that companies engaging in fraud are put out of business."
PERSON: BOB WORTHAM (63%);
COUNTRY: UNITED STATES (97%);
STATE: TEXAS, USA (97%); MISSOURI, USA (92%);
CITY: DALLAS, TX, USA (79%);
COMPANY: FREEDOM FINANCIAL LIFE INSURANCE CO (90%);
SUBJECT: RESORTS (90%); DIRECT MAIL MARKETING (90%); LAWYERS (90%); PLEA AGREEMENTS (89%); JUSTICE DEPARTMENTS (89%); FRAUD & FINANCIAL CRIME (89%); ATTORNEYS GENERAL (89%); INVESTIGATIONS (89%); CONSPIRACY (78%); FINES & PENALTIES (76%); GUILTY PLEAS (75%); SUITS & CLAIMS (73%); SALES PLAN (71%); MOTOR VEHICLES (70%); FUR & LEATHER CLOTHING (62%);
LANGUAGE: ENGLISH
Copyright 1988 Crain Communications, Inc.;
The San Diego Union-Tribune
June 11, 1989 Sunday
Fraud charges a threat to lavish lifestyle
BYLINE: Jim Okerblom, Staff Writer
SECTION: LOCAL; Pg. B-1
LENGTH: 1854 words
DATELINE: RANCHO SANTA FE
RANCHO SANTA FE -- David and Annette Hagen would seem to be the picture of success, what with the brand new, $670, 000 five-bedroom house they are renting here, the Cadillac and Range Rover in the drive and the direct-mail business they own in the the pink-stucco Polo Plaza complex nearby. That's what lots of people -- first in Seattle and then in Virginia -- thought about the Hagens.
Many don't think that anymore. "If you deal with that man, do so at your own risk -- he will take your money and run, " is how Desmond Call, manager of the Ad Pro print shop in a Seattle suburb, put it. Over the past 10 years, the 34-year-old Hagen has left in his wake scores of angry creditors, thousands of complaints from consumers, lawsuits, criminal investigations and an eight-count indictment for mail fraud and conspiracy, filed March 31 against him and his wife in Jefferson County, Texas. The Hagens recently opened the Brown Development Institute on Via de la Valle here. Approached at his office last week, Hagen answered to the name David Brown, but later denied that he was using that name.
A promotional brochure for his new company on his desk had his name printed as David Haggin.
He said that was a misprint. Hagen declined to be interviewed for this story, saying past interviews have resulted in "absolute lies" about him appearing in print.
In an interview with the Washington Post last month, he dismissed the indictment, saying, "Someone once said a U.S. attorney can indict a sandwich." Hagen's Houston attorney, Kent Schaeffer, said Hagen and his wife are innocent of the mail-fraud charges.
Schaeffer attributed Hagen's financial difficulties to business setbacks beyond his control. Despite his financial problems, Hagen has managed to live the good life by operating a series of direct-mail businesses that promote time-share campgrounds, resorts and condominiums.
Companies he has controlled in other states have sent out millions of letters -- by one account as many as 250 million -- promising prizes for people who attend time-share sales promotions.
Authorities allege the prizes often were never awarded. But much of Hagen's success, those who have dealt with him say, stems from his uncanny skill at running up hundreds of thousands of dollars of debt, and then walking away from it -- over and over again. "He deserves an academy award -- he's that good, " said Paul Wham, co-owner of LaserPrint, a Seattle-area company that says it lost more than $30, 000 to Hagen. Before moving to San Diego about three months ago, Hagen lived with Annette, his second wife, in Great Falls, Va. There, the two were known as David and Annette DeFusco.
DeFuusco is her maiden name.
Their life in Northern Virginia including driving a $95, 000 Rolls Royce and a Mercedes Benz and living on a 150-acre farm. The mail-fraud indictment stemmed from the Manassas Park, Va., direct mail firm that the couple operated with Annette as president. The Northern Virginia operation used several names, including DeFusco Advertising and Design, Lead Marketing, Leadco, Bureau of Adjustment and U.S. Graphics & Mail Ltd. According to Texas authorities, the operation sent out as many as 26 million letters to people in six Southwestern states offering BMWs, large-screen television sets, up to $10, 000 in cash and other prizes for attending time-share promotions for resorts owned by Dallas-based Freedom Financial Corp. Bob Worthman, the assistant U.S. Attorney in Beumont, Texas, who sought the indictment, alleges that the mailings were a blatant scam.
Unlike many mailings of this sort, Wortham says, the Hagens letters listed no cheap gifts, only expensive prizes such as cars, television sets and cash. "A lot of them said you were absolutely guaranteed to get both of the prizes, " he said.
"And you'd get there and win a book on the 1984 Olympics." Wortham said the mailings, in mid-1987 to mid-1988, prompted more than 2, 000 complaints in Texas alone. "We've handled a lot of major cases in the United States -- drugs, major bank-fraud cases, " Wortham said.
"But no other case I've handled has received the interest of the public as this case." Bill Van Hook, the assistant attorney general in Springfield, Mo., said his office also received close to 1, 000 complaints about the letters. Schaeffer, the Hagens' Houston attorney, argued the mailings were not illegal because they contained a "qualifying number" that had to match a winning number before the prizes were actually awarded.
He also noted that Freedom Financial, which hired the Hagens and approved their mailings, paid a $1.5 million fine but did not face any criminal charges. (The company was named an unindicted co-conspirator.) The couple's trial is scheduled for August. In 1987, the Hagens declared Chapter 7 bankruptcy for their Manassas Park operation. The company listed debts of $875, 000 to 20 of the largest unsecured creditors, with the Hagens personally responsible for none of it, said Gerald O'Donnell, the U.S. trustee overseeing the bankruptcy in Alexandria. There are no substantial assets, O'Donnell said, because much of the property was leased. The company's debts, in a 13-volume bankruptcy file, reportedly exceed $1.3 million to nearly 100 creditors.
One creditor is the doctor who delivered the Hagens' baby three years ago. Another creditor is Tri-State Envelope in Beltsville, Md. David Zukerberg, Tri-State's sales manager, said Hagen came in and paid cash for several small orders, and then asked for credit. "We said, `OK, we'll give you 20 days, ' " Zukerberg recalled. Soon much larger orders came in, and checks began bouncing. "In the space of 45 days, he had us for about $40, 000 or $50, 000, " Zukerberg said. The company eventually recovered close to half the amount, after some heavy-handed collection tactics, Zukerberg said.
Many other companies, banks and the U.S. Postal Service were not so lucky.
They got nothing. Schaeffer blamed the debts on the "amount of heat" put on by government investigators, which he said quickly drove away the Hagens' customers and sank the business. But the stories about Hagen are similar in Seattle. In 1979, Hagen and his first wife, Amanda, filed for personal bankruptcy for a company they owned called Sunbeam Electronics.
They listed debts totaling $296, 955 to 23 unsecured creditors.
All were legally discharged, according to bankruptcy records. After working in the marketing department for a time-share campground company in Bellevue, Hagen formed his own direct-mail marketing company, World Wide Marketing, around 1981 with several partners, said a former business associate who asked not to be identified. Under contract, the company was paid $50 to $85 for each "lead" it could entice to come to a sales promotion for a time-share resort or campground. Hagen liked to brag about his $1, 000 suits and his silk shirts and ties; he drove a Cadillac and stockpiled diamonds and other jewels, said John English, a World Wide salesman who eventually became vice president for sales. World Wide's offices were equally lavish, with $80, 000 worth of custom furniture, including a $6, 000 conference table, $1, 700 leather chairs, a $3, 000 desk in Hagen's office and a $4, 000 reception center, said Edward Webb, owner of Crawford's Office Furniture in Seattle. All of the furniture, Webb said, was leased through a company Hagen provided.
His store, Webb said, received an initial $1, 700 down payment, and then the deal collapsed.
The store finally recovered the furniture after nearly a year by paying a lien to a storage company, said Webb's daughter, Lynn. The last of it has been sold only recently. "It was just one nightmare after another, " she said. When English became vice president for sales, he assumed World Wide was awash in black ink, he said.
Then, when his wife gave birth to a baby prematurely, he discovered money that had been deducted from his paycheck for health insurance had never paid to the insurance company.
Hagen, he said, dismissed it as a clerical error -- but it happened again with another insurance company. Calls from disgruntled creditors began surfacing, English said, "and it became obvious what was going on."
English resigned, still owing $6, 000 in hospital bills. In 1984, after Hagen had remarried, World Wide Marketing was forced into Chapter 7 bankruptcy, leaving debts close to $1 million to dozens of Seattle-area companies. The former business associate said Hagen went on to form two more direct-mail companies -- one called United Prudential Inc. and one called Matrix.
He lived an increasingly lavish lifestyle, the man said, while both those companies racked up more debts. Gary Jones, owner of Westgate Travel in Seattle, said United Prudential paid cash for small amounts of airline travel and then charged $6, 600 worth.
"I never saw a penny of it, " Jones said. While trying to collect the debt one day, Jones said, United Prudential's controller sat "face-to-face across the desk" from him and announced, "We never intend to pay you or any of the others.
It has worked very successfully for us." Call, the office manager for Ad-Pro Litho in Lynnwood, Wash., said United Prudential charged $14, 000 to his company within the first 30 days, paying nothing.
Call said a company official laughed and told him: "If I decide to pay you, I will.
If I decide not to, I won't. And there's not a damn thing you can do about it." Schaeffer, the attorney, emphasized that most of the more than $1 million in debts Hagen left behind in Seattle were legally discharged.
The remaining creditors, he said, had legal avenues they could have pursued. "If all these people were really defrauded out of their money, why wasn't something done years ago?" he asked. Postal inspectors in Seattle spent four years investigating World Wide Marketing, United Prudential, Matrix and two other companies connected to Hagen there, said Stan Pilkey, the inspector who headed the probe.
Postal officials have said thousands of people were promised free trips, most never receiving them, and about 1, 000 lost $200 each in "refundable deposits." Harry McCarthy, an assistant U.S. Attorney in Seattle, said his office received the results of the investigations in January, and is still reviewing it to determine whether a criminal indicment will be sought. "It's fairly extensive, in terms of the number of people involved, " McCarthy said. The Hagens' lavish lifestyle may finally be threatened. In addition to the criminal charges they face in Texas, their company's bankruptcy in Virginia may also be in trouble.
O'Donnell, the trustee, said he has filed a challenge to the company's request to discharge its debts, contending it is in "absolute violation" of the bankruptcy code. It is unclear what business the Hagens' new company, Brown Development Institute, is doing here.
Hagen told a reporter last month that the company would do desk-top publishing and design small ads, and was "staying away" from any time-share promotions. But the promotional sheet for the Brown Institute on Hagen's desk last week -- the one with a name spelled "Haggin" -- was a list of valuable prizes that someone may have won.
The Washington Post
May 14, 1989, Sunday, Final Edition
DeFuscos Are Called Bad Example;
Time-Share Firms Changing Tactics
BYLINE: Mary Jordan, Washington Post Staff Writer
SECTION: FIRST SECTION; PAGE A18
LENGTH: 416 words
David and Annette DeFusco "are to our industry what p*rnographers are to the publishing industry, " said Gary A. Terry, president of American Resort and Residential Development Association, which represents a majority of the 1, 100 owners of time-share developments in the United States.
The millions of DeFusco mailings -- which promise, but do not deliver, expensive prizes to lure people to resorts or presentations of time shares -- have tarnished the image of time shares, Terry says.
But David DeFusco says that he is being blamed for the sins of an entire industry, and that vacation promoters have always relied on gimmicks and free gift offers to attract people.
"I did what everybody else did, " he said in a recent interview at his offices in Rancho Santa Fe, Calif. "Only I ran into a prosecutor who wanted to clean up the industry."
Time sharing -- buying into a resort for a week or more each year -- has become increasingly popular both in the United States and abroad, according to industry figures.
In 1988, 1.3 million Americans owned a time share, according to Terry's group.
Faced with increasingly bad publicity recently, some resort owners say they are rethinking their advertising tactics and hiring lawyers to read their promotional mail.
Outdoor World Inc., which owns 14 vacation spots around the country and once hired the DeFuscos, reviews all its mailings for potential legal problems, according to Bruce Morgan, the company's attorney.
"What David DeFusco has been indicted for is not part of the mainstream, " Morgan said.
"We've never had anybody as nasty as this."
The resort owners who hired the DeFuscos have run into trouble, too. The Dallas-based Freedom Financial Corp. pleaded guilty in October to conspiracy and mail fraud charges and paid a $ 1.5 million fine.
According to federal prosecutors, Freedom Financial paid for millions of the DeFuscos' mailings and had endorsed their use.
In Alexandria, The Hensley Group Inc., a time-share company that also used the DeFuscos' mailings, has been the target of complaints and lawsuits in Virginia, Maryland and Florida. Federal prosecutors said other resorts linked to the DeFuscos also may find themselves indicted or fined for fraud.
"Most members would love not to send direct mail, " Terry said, "but direct mail plus a gift offer is the single most successful [advertising strategy for time shares]. Unfortunately, it lends itself to . . . unethical and misrepresentative material."
ENHANCEMENT: SIDEBAR
COUNTRY: UNITED STATES (95%);
STATE: VIRGINIA, USA (92%); TEXAS, USA (79%); CALIFORNIA, USA (79%); MARYLAND, USA (79%);
CITY: DALLAS, TX, USA (79%);
COMPANY: FREEDOM FINANCIAL LIFE INSURANCE CO (53%); AMERICAN RESORT DEVELOPMENT ASSOCIATION (84%);
ORGANIZATION: OUTDOOR WORLD INC. ; HENSLEY GROUP INC.
SUBJECT: FRAUD; REAL ESTATE INDUSTRY; MARKETING; ADVERTISING REAL ESTATE (90%); RESIDENTIAL CO-OWNERSHIP (90%); REAL ESTATE DEVELOPMENT (90%); TRAVEL HOSPITALITY & TOURISM (90%); RESORTS (90%); DIRECT MAIL MARKETING (89%); JUSTICE DEPARTMENTS (89%); INDICTMENTS (88%); FRAUD & FINANCIAL CRIME (88%); INTERVIEWS (78%); LEISURE TRAVEL (78%); PUBLISHING (73%); LAWYERS (73%); GUILTY PLEAS (73%); MARKETING & ADVERTISING (72%); MARKETING STRATEGY (70%); CONSPIRACY (69%); FINES & PENALTIES (67%);
PERSON: DAVID DEFUSCO; ANNETTE DEFUSCO; GARY A. TERRY GARY A TERRY (90%); DAVID DEFUSCO (82%); BRUCE MORGAN (66%); ANNETTE DEFUSCO (66%);
LANGUAGE: ENGLISH
TYPE: VIRGINIA NEWS, NATIONAL NEWS
Copyright 1989 The Washington Post
Austin American-Statesman (Texas)
September 13, 1997
Timeshare purchasers seldom satisfied
BYLINE: David Evans
SECTION: Business; Pg. D1
LENGTH: 1004 words
DALLAS -- To Connye and Melvin Eichelberger of Dallas, the proposition from Silverleaf Resorts Inc. was outrageous.
In June, Silverleaf offered $200 to buy back the same timeshare vacation unit in Flint that it sold her for $5, 850 in October 1994. The development is on a lake about 100 miles east of Dallas.
Though the Eichelbergers wanted to sell, they declined the offer.
It was ridiculous, '' Connye Eichelberger said. I thought they were joking.''
It's no joke, however. Many owners of Silverleaf timeshares who want to sell their vacation investments accept the company's $200 buyback offer. That's because the resale market for timeshares -- which grant owners the right to use a condominium for a specified week each year -- is almost nonexistent.
Such transactions contributed to the 94 percent gross profit margin that Silverleaf posted last year, which was higher than that of almost any public company. Silverleaf's stock has gained 44 percent since its June initial public offering of 3.6 million shares at $16 by Credit Suisse First Boston. The stock closed at $22.75 a share Friday.
Silverleaf is one of the largest timeshare vacation developers in the $2 billion-a-year U.S. timeshare industry. It is an industry that is still dogged by customer complaints that, in the 1970s and '80s, led to some timeshare promoters going to jail for defrauding consumers.
For some timeshare owners who want out of their vacation investments, the difficulty in reselling their units is a source of grief. Silverleaf bought back 1, 500 timeshares for $200 a unit at its seven resorts in Texas and Missouri last year. Meanwhile, the company was able to sell units to new customers for an average price of $6, 645.
Silverleaf's average cost for each one-week unit sold to new customers last year was about $387, including buybacks, foreclosures, new construction and units from inventory.
Almost half the 1.8 million U.S. owners of timeshares are interested in selling, according to an industry study released in July. The number of units that Silverleaf bought back last year was equal to a quarter of the 6, 054 units it sold to new customers. Now, Silverleaf plans to buy back only about 500 units a year, according to the prospectus for its IPO.
Sharon Brayfield, president of Dallas-based Silverleaf, said the company buys back timeshares as a favor to its customers. It's kind of a customer service-type thing, '' she said. This is not something we forced anyone to do.''
The market for resale of timeshare intervals is very limited, '' said Silverleaf in its prospectus. Resale prices are substantially below their original purchase price.''
It isn't easy to sell timeshares the first time, either. Silverleaf spent 45 percent of its 1996 revenue on sales and marketing, which is in line with the industry, about $3, 000 for each timeshare sold. Timeshare buyers get title to 1/50 of a resort condominium unit and the right to use it for one week a year. They must also pay maintenance fees or dues.
Regrets purchase
Nobody wakes up in the morning and says, I want to buy a timeshare, ''' said industry consultant John Simon of KPMG Consulting.
Ask Ruthie Seward, an inventory clerk from Frankston who now regrets her $8, 500 purchase of a Silverleaf timeshare last year. She paid $850 down, and committed to monthly payments of $142 for seven years.
It's a lot of money for something we don't even use, '' Sewardsaid.
She said she was lured to the sales presentation by a letter from Silverleaf informing her that she'd won a prize.
Three months ago, Seward paid $200 to list her timeshare with a broker, asking $7, 000, but hasn't attracted any inquiries.
Foreclosures are another source of low-cost timeshare inventory for Silverleaf. In 1996, the company charged off bad debts representing 25 percent, or $12.1 million of its $48.1 million of sales. That's more than five times the industry average.
No Buyer Found
The Eichelbergers weren't able to find a buyer for their timeshare by July 1. That's when Silverleaf foreclosed on it. Even though Connye Eichelberger and her husband owned it free and clear, they were $350 behind in paying the $600 annual dues Silverleaf charges all its timeshare owners.
We kissed $6, 000 goodbye, '' said Eichelberger. Yet she said she doesn't regret turning down Silverleaf's $200 buy offer. I considered that an insult.''
According to the industry's study, the most common reasons timeshare owners want to sell are lifestyle changes, insufficient usage, the continuing expense and wanting more vacation flexibility.
The industry was notorious in the 1970s and 1980s for using high-pressure sales tactics and phony contests to persuade unsophisticated consumers that timeshares were a good investment.
In 1988, Silverleaf, then called Freedom Financial, was convicted on federal mail fraud and conspiracy charges, and paid a $1.5 million fine. The company admitted defrauding consumers by promising them nonexistent prizes in exchange for attending a timeshare presentation.
Robert Mead, who owned Freedom Financial, is now chairman and chief executive of Silverleaf. He holds about 7.7 million shares, worth $175 million. Although his company was convicted of fraud, he wasn't personally charged with any crime. David DeFusco, who provided sales leads for Freedom Financial, pleaded guilty to federal fraud charges and received a prison sentence.
Yes, we had problems back in 1988, '' said Brayfield. That was a really painful period for Bob.''
Besides the criminal conviction when it was called Freedom Financial, Silverleaf has been the subject of several enforcement actions by Texas and Missouri regulators.
In March, it donated $30, 000 to Texas to settle allegations by the Texas Real Estate Commission that it used illegal sales practices. Silverleaf admitted no wrongdoing.
The commission is now investigating 16 new complaints against Silverleaf, said Beverly Rabenberg, an attorney for the commission.
TICKER: SVLF (NASDAQ) (91%);
COUNTRY: UNITED STATES (94%);
STATE: TEXAS, USA (94%);
CITY: DALLAS, TX, USA (94%); AUSTIN, TX, USA (91%);
COMPANY: SILVERLEAF RESORTS INC (91%); CREDIT SUISSE FIRST BOSTON (69%); SILVERLEAF RESORTS INC (91%); CREDIT SUISSE FIRST BOSTON (69%);
SUBJECT: RESORTS (91%); RESIDENTIAL CO-OWNERSHIP (90%); TRAVEL HOSPITALITY & TOURISM (90%); INITIAL PUBLIC OFFERINGS (89%); STOCK REPURCHASE PLANS (78%); EXISTING HOME SALES (74%); CONSTRUCTION (74%); COMPANY PROFITS (73%); STOCK OFFERINGS (72%); FORECLOSURE (69%); CUSTOMER SERVICE (65%); RESEARCH REPORTS (50%); RESORTS (91%); RESIDENTIAL CO-OWNERSHIP (90%); TRAVEL HOSPITALITY & TOURISM (90%); INITIAL PUBLIC OFFERINGS (89%); STOCK REPURCHASE PLANS (78%); EXISTING HOME SALES (74%); CONSTRUCTION (74%); COMPANY PROFITS (73%); STOCK OFFERINGS (72%); FORECLOSURE (69%); CUSTOMER SERVICE (65%); RESEARCH REPORTS (50%);
LOAD-DATE: September 13, 1997
LANGUAGE: ENGLISH
Copyright 1997 The Austin American-Statesman
St. Louis Post-Dispatch (Missouri)
September 21, 1997, Sunday, FIVE STAR LIFT EDITION
SILVERLEAF PROFITS BIG IN TIGHT TIMESHARE BUSINESS;
COMPANY HAS BEEN A TARGET OF COMPLAINTS
BYLINE: David Evans; 1997, Bloomberg News
SECTION: BUSINESS, Pg. 08E
LENGTH: 1144 words
DATELINE: DALLAS
To Connye and Melvin Eichelberger of Dallas, the proposition from Silverleaf Resorts Inc. was outrageous.
In June, Silverleaf offered $ 200 to buy back the same timeshare vacation unit in Flint, Texas, that it sold her for $ 5, 850 in October 1994.
Though the Eichelbergers wanted to sell, they declined the offer.
"It was ridiculous, " Connye Eichelberger said. "I thought they were joking."
It's no joke, however. Many owners of Silverleaf timeshares who want to sell their vacation investments accept the company's $ 200 buyback offer. That's because the resale market for timeshares is almost nonexistent.
Timeshares grant owners the right to use a condominium or other piece of property, such as a campsite, for a specified week each year.
Silverleaf is one of the largest timeshare vacation developers in the $ 2 billion-a-year U.S. timeshare industry. The Dallas company has two timeshare resorts in the Branson area. It is building a third one south of Festus, Mo. It also has five in Texas and is building one near Chicago.
Silverleaf posted a 94 percent gross profit margin last year, higher than that of almost any public company. Its stock has gained 44 percent since its June initial public offering of 3.6 million shares at 16 by Credit Suisse First Boston. The stock was trading at about $ 23 Monday .
The timeshare industry is still dogged by customer complaints that, in the 1970s and 1980s, led to some timeshare promoters going to jail for defrauding consumers.
In 1988, Silverleaf - then known as Freedom Financial - agreed to pay the state of Missouri $ 45, 000 after the state accused the company of breaking consumer fraud laws related to its direct mail practices.
Tom Franks, a key officer of Silverleaf, said last week (Sept. 11) that those practices occurred when the company used outside marketers to drum up customers. The company has since brought all its marketing in-house, he said.
A spokesman for the Missouri state attorney general, whose office oversees timeshare resorts, said that it had received no complaints in the past couple of years about the company.
For some timeshare owners who want out of their vacation investments, the difficulty in reselling their units is a source of grief. Silverleaf bought back 1, 500 timeshares for $ 200 a unit at its seven resorts in Texas and Missouri last year. Meanwhile, the company was able to sell units to new customers for an average price of $ 6, 645 a week.
Silverleaf's average cost for each one-week unit sold to new customers last year was about $ 387, including buybacks, foreclosures, new construction and units from inventory.
Almost half the 1.8 million U.S. owners of timeshares are "interested" in selling, according to an industry study released in July. The number of units that Silverleaf bought back last year was equal to a quarter of the 6, 054 units that it sold to new customers. Now, Silverleaf plans to buy back only about 500 units a year, according to the prospectus for its IPO.
Sharon Brayfield, president of Dallas-based Silverleaf, said the company buys back timeshares as a favor to its customers.
Franks said customers are told before closing a deal that Silverleaf makes no promises about buying back weeks or re-selling them for customers.
"The market for resale of timeshare intervals is very limited, " said Silverleaf in its prospectus. "Resale prices are substantially below their original purchase price."
Franks said salesmen are told to tell customers that in order to get value out of the purchase, they must use it.
Silverleaf spent 45 percent of its 1996 revenue on sales and marketing, which is in line with the industry. That amounts to about $ 3, 000 for each timeshare sold.
"Nobody wakes up in the morning and says, 'I want to buy a timeshare, ' " said industry consultant John Simon of KPMG Consulting.
Ask Ruthie Seward, an inventory clerk from Frankston, Texas, who now regrets her $ 8, 500 purchase of a Silverleaf timeshare last year. She paid $ 850 down and committed to monthly payments of $ 142 for seven years.
"It's a lot of money for something we don't even use, " said Seward.
She said she was attracted to the sales presentation by a letter from Silverleaf informing her that she had won a prize.
Three months ago, Seward paid $ 200 to list her timeshare with a broker, asking $ 7, 000. She hasn't attracted any inquiries.
Foreclosures are another source of low-cost timeshare inventory for Silverleaf. In 1996, the company charged off bad debts representing 25 percent, or $ 12.1 million of its $ 48.1 million of sales.
The Eichelbergers weren't able to find a buyer for their timeshare by July 1. That's when Silverleaf foreclosed on it. Even though Connye Eichelberger and her husband owned it free and clear, they were $ 350 behind in paying the $ 600 annual dues Silverleaf charges all its timeshare owners.
"We kissed $ 6, 000 goodbye, " said Eichelberger. Yet she said she doesn't regret turning down Silverleaf's $ 200 buy offer. "I considered that an insult."
According to the industry's study, the most common reasons timeshare owners want to sell are lifestyle changes, insufficient usage, the continuing expense and wanting more vacation flexibility.
The industry was notorious in the 1970s and 1980s for using high-pressure sales tactics and phony contests to persuade unsophisticated consumers that timeshares were a good investment.
In 1988, Silverleaf, then called Freedom Financial, was convicted on federal mail fraud and conspiracy charges and paid a $ 1.5 million fine. The company admitted defrauding consumers by promising them nonexistent prizes in exchange for attending a timeshare presentation.
Robert Mead, who owned Freedom Financial, is now chairman and chief executive of Silverleaf. He holds about 7.7 million shares, worth $ 175 million. Although his company was convicted of fraud, he wasn't personally charged with any crime. David DeFusco, who provided sales leads for Freedom Financial, pleaded guilty to federal fraud charges and received a prison sentence.
The Texas Real Estate Commission is investigating 16 complaints against Silverleaf, said Beverly Rabenberg, an attorney for the commission. These are in addition to the allegations of illegal sales practices that were settled in March when the company donated $ 30, 000 to Texas. Silverleaf admitted no wrongdoing at the time.
Silverleaf acknowledges using "intensive" tactics with sales prospects, who aren't wealthy. "The company targets audiences which generally are less financially sophisticated and more susceptible to intensive sales practices than more affluent customers, " according to its prospectus.
"Intensive sales practices do not mean high-pressure sales, " Brayfield said. "Intensive merely means giving a special effort or certain emphasis."
TICKER: SVLF (NASDAQ) (91%);
INDUSTRY: NAICS721110 HOTELS (EXCEPT CASINO HOTELS) & MOTELS (91%); SIC6081 BRANCHES & AGENCIES OF FOREIGN BANKS (67%);
PERSON: MELVIN EICHELBERGER (59%); TOM FRANKS (58%);
COUNTRY: UNITED STATES (94%);
STATE: TEXAS, USA (94%); MISSOURI, USA (94%);
CITY: DALLAS, TX, USA (91%);
COMPANY: SILVERLEAF RESORTS INC (91%); CREDIT SUISSE FIRST BOSTON (67%);
SUBJECT: RESORTS (93%); TRAVEL HOSPITALITY & TOURISM (92%); RESIDENTIAL CO-OWNERSHIP (90%); US STATE GOVERNMENT (77%); DIRECT MAIL MARKETING (77%); CORPORATE WRONGDOING (75%); CONSTRUCTION (74%); COMPANY PROFITS (71%); INITIAL PUBLIC OFFERINGS (70%); EXISTING HOME SALES (70%); CONSUMER LAW (69%); FORECLOSURE (69%); JUSTICE DEPARTMENTS (63%); ATTORNEYS GENERAL (50%); RESEARCH REPORTS (50%);
LOAD-DATE: September 22, 1997
LANGUAGE: English
Copyright 1997 St. Louis Post-Dispatch, Inc.
Daily News (New York)
July 20, 2000, Thursday
PRIZE SEEKERS BEWARE OF TIME-SHARE OFFERINGS
BYLINE: BY ASA AARONS
SECTION: NEW YORK NOW; Pg. 62 ASK ASA
LENGTH: 380 words
Maureen Arscott wonders whether there's a car at the end of the drive to Massachusetts - or just a waste of fuel.
The New York woman has been trying to decide ever since she received a call from someone at Silverleaf Resorts, a Dallas-based vacation time-share company.
A vacation time-share gives the owner the right to use vacation property for a limited period over a specified number of years.
"I was told I won a car, but that I would have to travel to Massachusetts to collect the prize, " Arscott explained.
Why Massachusetts?
It's the home of Oak in Spruce, one of Silverleaf's 22 resorts nationwide.
The one thing Arscott is assured of finding there is a sales staff eager to tell her about the merits of the vacation property.
According to the Better Business Bureau in Fort Worth, Tex., Silverleaf sends letters offering one of several free awards to consumers who agree to attend a sales presentation.
Not all the consumers have been satisfied.
The BBB reports the company has been the subject of complaints alleging misleading or high-pressure sales tactics.
Other consumers have complained about the award they received at sales presentations.
The BBB added that most complaints have been answered, but not always to the customer's satisfaction.
If you receive an award letter or a call, it doesn't mean you've won a contest.
Though you will receive a gift if you attend the sales presentation, the chances that you will receive a major prize, such as a car or cash, are very slim, the bureau warned.
It found that most consumers receive a package for 10 one-day holidays, which allows use of resort facilities during the day only.
Overnight accommodations and transportation are not included.
Ed Lahart, a vice president at Silverleaf, could not confirm that Arscott won a car.
The company described the call as a solicitation to tour the property and not a guarantee of a specific prize.
Tomorrow: Are time-shares good investments?
Asa Aarons is a consumer reporter who appears on WNBC-TV, Channel 4, News. His Daily News column appears Mondays, Tuesdays, Thursdays and Fridays. Send your questions to: Ask Asa, P.O. Box 3310, New York, N.Y. 10116, or E-mail him (DNconsumer@aol.com). Questions can be answered only through this column.
TICKER: SVLF (NASDAQ) (58%);
INDUSTRY: NAICS334111 ELECTRONIC COMPUTER MANUFACTURING (63%); SIC3571 ELECTRONIC COMPUTERS (63%); NAICS721110 HOTELS (EXCEPT CASINO HOTELS) & MOTELS (58%);
COUNTRY: UNITED STATES (94%);
STATE: NEW YORK, USA (94%); TEXAS, USA (88%);
CITY: DALLAS, TX, USA (88%); NEW YORK, NY, USA (79%);
COMPANY: ASK ASA (63%); SILVERLEAF RESORTS INC (58%);
SUBJECT: SALES & SELLING (90%); RESIDENTIAL CO-OWNERSHIP (90%); RESORTS (90%); TRAVEL HOSPITALITY & TOURISM (89%); NEW ISSUES (89%); BUSINESS & PROFESSIONAL ASSOCIATIONS (77%); SALES FORCE (74%); CUSTOMER SATISFACTION (72%); TELEVISION INDUSTRY (50%);
LOAD-DATE: July 20, 2000
LANGUAGE: ENGLISH
Copyright 2000 Daily News, L.P.
