The sweepstakes no one ever won: Feds finally target $100 million KC-based schemes

The $100,000 call to Jimmie Kitchings came out of the blue.

“The guy says, ‘Congratulations, you’re a grand prize winner,’ ” said Kitchings, who recalls that he was ready to dismiss it as a joke.

So Kitchings looked up the sweepstakes company, Next-Gen Inc. It didn’t boost his confidence.

“They don’t have too good a reputation … as far as Google goes,” he said.

Kitchings really had won.

That was about four years ago and before Uncle Sam took Next-Gen Inc. and a group of related Kansas City-area businesses to federal court. Regulators said in February that the companies have used deception to collect more than $100 million from consumers since 2013.

Two of the companies — Next-Gen and Westport Enterprises Inc. — pitch million-dollar sweepstakes top prizes that no one has ever won.

Two others — Opportunities Unlimited Publications Inc. and Contest America Publishers Inc. — run mail-in contests with virtually unsolvable top-prize puzzles.

They’re part of a family of businesses controlled by a well-to-do family that was involved in a bizarre business transaction three years ago with a U.S. senator’s brother.

They’ve survived decades of state and local legal challenges, though one of the businesses has been banned from Utah and another from Johnson County.

Now, the group — split mostly between North Kansas City and Lee’s Summit — sits in the crosshairs of the Federal Trade Commission. The FTC and Missouri’s attorney general have asked a federal judge in Kansas City to shut down the companies and freeze the assets of owners Kevin R. Brandes and William J. Graham.

The federal case is based in part on evidence from a criminal investigation by the U.S. Postal Inspection Service and consumers’ complaints to the Better Business Bureau, as well as agencies overseas where the companies also send mailers. The FTC declined to discuss the case.

In court filings, the companies say they have deceived no one, are not "fly-by-night operations" and have voluntarily stopped sending out new contests and sweepstakes for now.

Attorneys for the companies and their owners rejected interview requests and declined to answer emailed questions for this article. The owners and attorneys need to stay focused on the looming federal case, said Nathan Garrett, a former federal prosecutor who is one of the attorneys representing the defendants against the FTC and Missouri.

But in one court filing, they acknowledged potential ruin, saying the fight is “to save their businesses, families and livelihoods.”

Feel lucky?

Kitchings had a little trouble cashing his winning sweepstakes check. Two banks rejected it as fake, he said, before a third accepted it.

Other aspects of the companies, revealed in company records and court filings, are less than genuine.

Many of the mailings that consumers receive bear official-sounding but fictitious names — National Awards Commission, North American Awards Center and the like.

Mailings also carry signatures and names of fake employees such as Larry Hourd. One attorney for the group has likened it to General Mills inventing Betty Crocker.

And good luck winning the $1 million or $2 million grand prizes in those sweepstakes mailers.

According to the companies’ own court filings, no one ever has.

For Next-Gen, that’s a clean slate since it started in 2007. Westport Enterprises, its smaller affiliate, has been mailing sweepstakes entries even longer — 29 years. Yet it can make the same claim: no million-dollar prize winner. Ever.

That might not come as a surprise, given the fine print on one Next-Gen sweepstakes mailer.

“Chances of winning the Grand Prize are one in 300 million,” it said. “If winning number(s) are not matched, Grand Prize(s) will not be awarded.”

Mind you, millions of people have tried to win them. And they’ve paid the companies millions of dollars in the process.

The money wasn’t to play the sweepstakes. That would be illegal.

Besides, Next-Gen and Westport don’t run the sweepstakes. Other companies do and sell the entries to Next-Gen and Westport. If there ever is a big payout, an insurance policy will cover the prize.

Consumers send Next-Gen money because, embedded in its sweepstakes mailers, is a paragraph or two about a “Premium Offer.”

For $12 or as much as $69.99, you can get the “premium offer,” often costume jewelry or gift certificates usable at a shopping website that collects shipping and handling fees when consumers use their credits.

The government says this premium offer is the sweepstakes scam. Consumers send money thinking it’s an administrative fee to collect the sweepstakes winnings, not realizing that they’re buying the jewelry.

How well does that work?

Next-Gen collected more than $47 million in consumers’ checks and money orders in just four years, according to an FTC investigator who sifted through the company’s banking records.

Millions of other consumers caught on and sent back just the sweepstakes entries. No money.

To the companies, this is evidence the mailers aren’t deceptive. To the government, it just means not everyone is duped.

The record is unclear on how much money smaller winners, such as Kitchings, have collected.

Next-Gen claims in one court filing that it has paid 77 winners from 2008 through 2016. The total payout: $126,450, or an average of less than $1,700 per winner.

A Next-Gen website that shows a photo of Kitchings getting a big check lists 163 winners who have received a total of $128,050. But that total doesn’t include Kitchings, who is shown only in the photo and is not named on the list.

Westport Enterprises sends out far fewer mailers and claims in court to have had only six winners from 2008 through 2016 for a total payout of $1,800.

Skills test

If luck isn’t your game, how about a game?

Potential prizes are smaller in the contests offered by Opportunities Unlimited Publications and Contest America Publishers, which often go by OUP and CAP.

OUP and CAP court filings said they have paid winners $10.4 million over their combined 68 years of operation. That’s less than $153,000 by each company each year on average.

In four years — May 2013 through June 2017 — they took in more than $49 million from consumers, according to the FTC investigator who examined the companies’ banking records.

They make money from fees consumers pay to play multiple rounds in the contests. Additional fees will boost your winnings, if you win. Fees range from $9 to $45, according to the FTC’s court filing.

The scam here, according to the FTC and Missouri’s federal complaint, is that the contest mailings mislead players into believing they’ve already won or are about to win, when few actually do.

Aaron Reese of the Better Business Bureau of Greater Kansas City has taken the same allegation to the companies. He said they changed their mailers but not their tactics.

“Yeah, it’s different, but it’s the same overall impression you’re giving, that these people have won money, and they haven’t,” Reese said.

Meet the owners

If consumers struggle to win the sweepstakes and contests, the owners have done much better.

Kevin R. Brandes, a 54-year-old Florida resident, is the principal owner behind the group. He holds a majority stake in OUP and CAP and all of Next-Gen and Westport Enterprises.

His junior partner is William J. Graham, 49 of Lee’s Summit. Graham owns the rest of OUP and CAP and all of a smaller direct-mail company called Reveal Publications LLC, which also is a target of the FTC lawsuit.

In addition to the direct-mail businesses, Brandes and Graham have an assortment of other businesses not targeted for shutdown.

Both men are involved in B&G Auto Sales, an appointment-only car dealership in Lee’s Summit, and Midwest Extreme Park, a 310-acre dirt bike track in Bates County, Mo.

They have a mail services firm called Global Postal Solutions, and marketing and consulting firms, some of which do business with the FTC-targeted companies.

And if consumers send a bad check to one of the sweepstakes or contest companies, Global Check Recovery, a Brandes-Graham business in Lee’s Summit, steps in.

Global Check Recovery went after one 87-year-old Florida resident who had been sending a lot of checks to the targeted companies. His nephew stopped payment on 21 checks after learning what was going on.

In each case, Global Recovery had sought to collect more in bad-check fees — a total of $640 — than the value of the check — less than $270 combined.

Financial information on the businesses Brandes and Graham own is scarce. But Brandes’ gross income topped $2.1 million in each of 2014, 2015 and 2016, according to a Johnson County district judge’s determination in a child support case last year.

Waterfalling Estate.jpg
The Waterfalling Estate is a nearly 11,000-square-foot home with Olympic-sized infinity pool, tennis stadium and basketball court on 9.44 acres with two waterfalls on an ocean-side bluff. Google

Founder and friend

OUP and CAP, the two contest companies, were founded by C. Floyd Anderson, Kevin Brandes' stepfather.

Anderson also owned the former Northland National Bank for a time, but he got more attention for his Ward Parkway mansion. He told The Star in 1991 that he paid nearly $2 million for it.

He and wife Sharon Brandes paid more — $5.75 million — for a sprawling complex in Hawaii called Waterfalling Estate: a nearly 11,000-square-foot home, Olympic-sized infinity pool, tennis stadium and basketball court on 9.44 acres with two waterfalls on an ocean-side bluff. So said the news release the real estate broker issued three years ago when the couple sold the property.

About the same time, Anderson was selling the contest companies, OUP and CAP, and a related management business. Along the way, he’d picked up his own business partner — Ron Blunt, who is the brother of U.S. Sen. Roy Blunt, R-Missouri.

Ron Blunt had succeeded Anderson as president of OUP in 1998 and as president of CAP in 2000 but dropped those titles a few years later. Neither Anderson nor Blunt was named in the federal lawsuit.

For Blunt, the contest companies were a career rebound. In 1993, the FDIC had banned him from the Kansas City-area bank he ran. Blunt had used bank money to pay for a nanny, according to the order.

When Anderson and Blunt sold OUP and CAP to Brandes and Graham in 2015, the deal carried two surprising details.

The price tag was a shockingly low $450,000, according to sales agreements submitted in the FTC lawsuit.

Sellers of private companies usually can expect a sale price equal to a year’s worth of the company’s revenue, or more. OUP and CAP sold for less than one month’s revenue, according to financial statements.

Stranger still, Blunt was shorted in the deal. The documents show he owned 27 percent of each of the companies but received only 22 percent of the total proceeds.

The documents provide no explanation. Neither Anderson nor Blunt could be reached for comment.

National turn

The contest companies OUP and CAP have faced state and local challenges for at least 25 years.

Minnesota and Missouri officials took actions against them in 1993, followed by Kansas and West Virginia in 1995 and Connecticut in 1997. In 2002, Missouri took action again, along with Florida and Arizona.

Each time, company officials and their attorneys settled with regulators, sometimes after years of negotiations. Often, they consented to consumer refunds, paid fines or investigation costs, agreed to stop practices that officials called deceptive or misleading and pledged steps designed to protect consumers.

“OUP and CAP have entered into consent decrees with nine state attorneys general,” the companies said in a filing opposing the FTC’s action. “The terms of those consent decrees govern OUP and CAP’s practices.”

It is proof, the companies claimed, that they are “willing to work with regulators.”

Emilie Burdette, an assistant district attorney in Johnson County, said she wouldn’t disagree with their cooperation claim. She negotiated a 2012 agreement with a related company that sold reports on sweepstakes that consumers could enter. Its mailings included a Johnson County post office box.

“Our office was receiving complaints from all over the country,” Burdette said. “We were inundated.”

The remedy Burdette pursued, and got, was a ban against the company entering any consumer transactions in the county or sending mailings to any consumer in the county.

Cooperation hasn’t always lasted.

Florida reopened its 2002 case against OUP and CAP in 2014, saying the companies were “blatantly violating” the terms of the settlement. They reached a new agreement in June 2016. Arizona got a new settlement with them in 2016.

Sweepstakes company Next-Gen joined the regulatory parade in 2015 when Utah pursued fines and reached a March 2017 consent agreement that banned Next-Gen “from issuing mailings to any addresses within the State of Utah.”

The earliest sign of federal interest came in a June 6, 2017, letter to a woman in Nebraska. Postal inspectors were advising Barbara Slater that she had been “identified as a possible victim of alleged mail fraud.”

Attached was a long list of companies with ties to Brandes and Graham, including all of those the FTC now wants shut down.

Jessica Rich, former director of the FTC’s bureau of consumer protection, said the federal agency likely got involved because the string of state actions had failed to stop the companies’ deceptive practices.

“That’s what we call a recidivist,” said Rich, now vice president of advocacy at Consumer Reports.