26 States Settle With Publishers Clearing House

In a legal settlement that could "forever change the sweepstakes business," Publishers Clearing House agreed to pay $34 million in a deal with 26 states to settle allegations of deceptive marketing.

The states went to court to stop the company from making what they characterized as false, deceptive and misleading statements to get people to buy magazine subscriptions, tapes, stamps, coins and figurines.

Under the agreement, Publishers Clearing House will pay $34 million in customer refunds, legal expenses and administrative costs to the states. Each state's share has yet to be determined.

The settlement also forces the company to alter its tactics for selling products in those states. It will stop using phrases such as "guaranteed winner." Instead, its mailings will have to include such notices as "you have not yet won" and "buying won't help you win."

‘We Listened to States’ Concerns’

"We will be making these changes in the next several weeks and months," said Christopher Irving of Publishers Clearing House. "Some of those changes are already included in our mailings."

Robin Smith, the chairman and chief executive with the Port Washington, N.Y., company, said in a statement: "This settlement will allow PCH to move forward doing what we do best — serving millions of satisfied customers and awarding millions of dollars to people all over the United States. We listened to the states' concerns and have agreed to responsive and significant changes that will make our promotions the clearest, most reliable and trustworthy in the industry."

Critics complained that the company's promotions led people to buy unwanted merchandise.

"This is a settlement that will forever change the sweepstakes business," said James Doyle, attorney general for the state of Wisconsin.

Today's agreement prohibits the company from using various tactics, including:

Making any representation that a recipient of a sweepstakes mailing will win, is likely to win or that winning is imminent.

Representing that a purchase is necessary to enter the sweepstakes or that ordering improves the recipient's likelihood of winning.

Representing that the Prize Patrol is coming to the recipient's house to award a prize.

Misrepresenting that Publishers Clearing House employees, real or fictitious, have personal feelings or a personal relationship with the recipient.

Tone Down the Hype

Wisconsin was the first state to take Publishers Clearing House to court, filing a civil lawsuit last year claiming the company preys on the elderly by deceiving them into believing they will become sweepstakes winners if they buy merchandise.

In preparing their case, attorneys with the state were dumbfounded to discover that Publishers Clearing House used a fictitious character to urge consumers to buy merchandise, including war-related collectibles.

Letters were sent to customers from a company official and "combat veteran" named Robert Treller. "I've flown in combat and I know what it's like to have flak popping all around you," Treller wrote in one letter.

Publishers Clearing House officials were forced to admit that there was no Treller when the state lawyers tried to contact him to obtain a deposition.

Wisconsin opted to go to trial rather than join an $18 million settlement the company reached last summer with 24 other states and the District of Columbia over the company's promotions.

Pressure from the states in that case forced the company to tone down the hype. The company's mailings now carry a readable, plain-English disclaimer that says, among other things, that making a purchase won't help ensure a win. They also list the long odds against winning.

Today's settlement was reminiscent of a $33 million agreement in 1999 between states and American Family Enterprises, a company which employed celebrities Ed McMahon and Dick Clark to promote its American Family Publishers sweepstakes.

The states participating in today's settlement are: Arkansas, Arizona, Colorado, Connecticut, Delaware, Florida, Iowa, Indiana, Kansas, Kentucky, Massachusetts, Maryland, Maine, Michigan, Minnesota, Missouri, North Carolina, New Jersey, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Vermont, West Virginia and Wisconsin. ABCNEWS' Barry Serafin and ABCNEWS Radio contributed to this report.