desert land. They had not done anything to that property other than blade in a dirt road.

They started these sales dinners in the midsixties. You would get salesmen up at the front of the room and it was a real hustle operation. high pressure sales. Get them to sign the contract that night-they could not even leave with the contract and think about it overnight. They had to sign it that night.

There were followup calls the next morning to deal with buyers' remorse. It was just a tank operation. They were rolling down the avenue and these people were just right in the middle being mowed down. And the sales training manuals had it down to a science and you had to follow the practices of the company.

And you would get-at that dinner, there would be salesmen who would be jumping up calling holds on property. The whole idea was to create this enthusiasm and to get people to believe that they were getting in on the ground floor.

Representations were made in sales literature that this land was increasing 25 percent a year. And basically, it was geared to the blue collar, unsophisticated buyer, although I will tell you, there were some professionals, some lawyers and accountants and doctors who fell for it as easily as the blue-collar worker. But primarily, it was geared to the blue-collar worker.

New York City was a huge marketplace for this sales effort, as other cold climates were as well, but New York was their primary market.

When the salesmen got the couple at the table, did the high pitchthey saw the films, were told in their advertising literature that they could make 25 percent a year as a financial investment, the sale was made.

In Rio Rancho, the evidence at trial showed that the company, while they represented themselves to these purchasers as community developers and you will hear a lot of talk, I am sure, from the land companies who will talk about themselves as being land developers and community developers. I disagree when you deal with really the large ones because they are not community developers; they are land subdividers. They have a small community as a secondary effort which aids their sales effort in selling off the subdivided lots out in the boonies. But their primary business is subdividing and selling raw, subdivided lots.

They are not community developers.

Now when a person bought the land, he was told that it was a safe financial investment and could be resold at a profit because there would be a demand for it.

Now in the Rio Rancho situation, they were told that Albuquerque was bursting at the seams and could only grow through that property. Now there is another large subdivision outside of Albuquerque to the south, 40 miles, who gave the same pitch, only it says that Albuquerque is bursting at the seams and can only grow south, and that is why it is a good, safe financial investment. And we are talking about Horizon Corp., with 170,000 lots sold off, mostly to people out of State.

The Rio Rancho subdivision sales amounted to $170 million. Now I mentioned that the land that they bought in 1961 was bought for $178 an acre. Ten years later, 1971, they bought another 37,000 acres of land

which adjoined their property. They bought that for $180 an acre. Ten years later, $2 more an acre. I mean that wasn't even abreast with inflation. And they were selling it to the public as a safe financial investment that was appreciating at 25 percent per year.

Well, it wasn't appreciating even $2 an acre over 10 years for the company to buy the next 37,000 acres of that land.

Now they were successfully prosecuted on the theory that that land was not a safe financial investment and they knew it, and they misrepresented the facts.

Now AMREP and Rio Rancho came back and said, "But we have a community out there and we are building homes." Well, the evidence at trial showed, we found an internal management report, a report that was done for management, the management of Rio Rancho and AMREP never believed that more than 5 percent of the people that they sold land to would ever move to that property, and that was their basic operating premise.

So they set aside, and this is really how the very large subdividers operate, and this is what you have to be very careful about, they set aside a piece of land which this company owned-they don't offer it for sale nationwide. And they will put some utilities in that land and they will say to that 5 percent or less who want to move to the property, we will take one of the lots out in the boondocks and exchange it in and you can move into our building area and you build a house and you've got water, electricity and you are happy and we are happy. That person is happy if he only bought one lot because he can only exchange one lot and build a house. If he bought 10 other lots for his financial investment, he is not happy. The company is happy because he then takes they then take that small area, put it on film and use it at their sales dinner and say, "This is what we are going to do to the entire property."

Well, they are not. They know they are not. They don't have the capability because they've sold off the rest of the land to people in 37 States.

In the Rio Rancho case, they sold off 77,000 lots to 45,000 purchasers in 37 States, for a total sales price of $170 million. They paid a total of $18 million for that land and sold it for $170 million.

Now what you really have here in terms of trying to protect the consumer, when we come back to what we learned, having had this statute on the books for 10 years, I think that we have learned several things. One, that the problem of fraud in the land industry is with us. It has been, it continues to be, and something has to be done about it.

We have learned lessons, we have taken some steps forward, but there is still much to be done.

One, you've got to enforce the law and I say in appropriate cases, you have to bring criminal prosecutions. That is the strongest deterrent to a land developer or a land subdivider, to be on notice that this is taken seriously, that he faces possible criminal jail time if he is going to violate the law and defraud the public.

Now the idea that there is a sucker born every day, I probably would agree. But it does not give you the right to go out and to just steal from that person.

In addition to really effective enforcement of the laws, I think that the laws must be strengthened. The Interstate Land Sales Act needs to

be strengthened in very precise ways, many of which are covered in the Minish bill.

For example, the escrow situation. In the Rio Rancho case, they advertised themselves as a master planned community and the investment value of these lots was supposed to come from the fact that they were going to place utilities in the land that you are buying. You were paying for it, God knows, I mean you were paying $6.000 to $12,000 an acre because you thought you were going to get utilities.

Well, it turns out you don't get utilities unless you want to build a house, and if you want to build a house, you don't build it on the land that you bought; you have to go into the company building area.

And to add insult to injury, you pay more to go into the company building area because it is a nice lot. It sure is. It is the only place you can build.

So you get to the situation where if you had the companies required to place money in escrow for those utilities, that would go a long way toward preventing fraud.

Now when the developers come in and say to this subcommittee, we can't do it because it is too expensive, then I say look very closely at what they are telling the consumer.

If they come into this subcommittee and say, we can't do it because the bond is too expensive and a bonding company thinks it is too risky, then I say if it is too risky for a bonding company, then it is too risky for the consumer and the consumer should not be in the position of having to buy that lot without any protection, believing the pitch that the company is making to them.

Now if the company is going to start making promises about utilities, which is really the situation that is covered in Congressman Minish's bill, if they are going to say they are going to put utilities in, then they have to put the money behind them, what they are saying, because if you had a situation in Rio Rancho, if their advertising was true, if there was going to be a demand for these lots, then Rio Rancho could have slowly placed the utilities in those lots and sold off those lots and made a profit.

If Albuquerque was, in fact, bursting at the seams and there was no place to grow, except through their property, they could have made the money. Those claims were not true.

So I say that for a developer who is not able to put money in escrow to back up his promises, then we had better be very careful about what he is selling and what he is promising to the consumer public, because if it is a legitimate operation, if there is the demand there, and if that situation is going to be that the utilities are going to be in place, there should be a situation that can be worked out where there will be financial protections for the consumer who is buying that property.

The second thing that I think that we really have to deal with in terms of these selling efforts, if now everyone is buying land or subdivided lots at these sales dinners or through the mails or through these mass marketing techniques, is that we absolutely need a cooling off period.

Now whether it is the 14-day cooling off period proposed by HUD or the 30-day cooling off period proposed by the Minish bill, a basic minimum has got to be the 14-day.

I think that the longer period of time, the better.

But when you give a purchaser a property report, you cannot expect any purchaser to absorb and intelligently understand the information that is in that property report when he is given the property report and asked to sign a contract the same evening.

So we absolutely need the cooling off period.

The other situation that really must be addressed by this subcommittee in terms of making the Interstate Land Sales Act effective is the statute of limitations.

In the Rio Rancho case, we had a criminal conviction affirmed on appeal. There were class actions brought immediately after the indictment was filed. However, the indictment was filed in 1975.

Under the HUD statute as it is presently on the books, there is a 3year statute of limitations which meant that only the people who had bought the land in the last 3 years had a right of action to be included in that class, even though the entire-actually, the class was composed of all the purchasers who bought that land as a financial investment. Most of them were cut out of the class because of the statute of limitations.

I would say that in a fraud situation, there is no reason to have a cutoff point where you are excluding from the class of defrauded purchasers people who bought their land 5 years earlier or 6 years earlier or 7 years earlier.

In a fraud situation, if you have a provable fraud, there is no reason not in include in that class all of the defrauded victims, regardless of the statute of limitations.

But to start arbitrarily saying 3 years after you buy your property, you have no right of action is really a serious abuse. And I would agree with the comments of Ms. Halloran from INFORM, that it really is, not only is it not a protection, but it cuts off substantial rights of the consumer, particularly in a fraud case.

Chairman ASHLEY. Do you have any judgment as to whether or not the regulatory and the enforcement functions should be separated? Ms. HYNES. I don't know whether they should be separated. I certainly think there has to be more done in terms of enforcement, in terms of the Rio Rancho case that was developed through a grand jury. There were very substantial benefits to proceeding in that way.

Chairman ASHLEY. Well, who referred that case to you?
Ms. HYNES. No one referred it to me.

Chairman ASHLEY. It did not come from the FTC did it?

Ms. HYNE'S. No. I started it. It was a situation where I was chief of the consumer fraud unit in the U.S. attorney's office, and I was looking for areas where there was not enough, where there was a Federal problem, but that the Federal Government had not done anything.

You find many agencies that are charged with enforcement. Few in the larger white-collar cases really don't get involved, and it is more appropriately handled through a grand jury, so I began the investigation into the AMREP case based on a survey of trying to find out what were the problems of consumers in the New York area and what was the largest category of problems, and I found out that land was one of them.

Chairman ASHLEY. What you are really saying is that neither HUD nor the FTC nor the SEC referred that particular case to you. MS. HYNES. That's correct.

Chairman ASHLEY. Have they ever referred any matters to you? MS. HYNES. Right now we are working with HUD jointly in an investigation that we had initiated and asked them to come in and help us with; in terms of specific referrals, I would have to say no. But I think that the enforcement effort has to be shouldered, perhaps by other law enforcement offices, such as the U.S. attorneys' offices.

Now, the Southern District of New York where I come from is a very large office, and we have good resources, but we committed substantial resources to that investigation. It was the largest fraud case that was ever brought by the U.S. attorney's office in the Southern District of New York, and we bring very large cases in the district, and the commitment of resources was tremendous, but we felt that the problem was tremendous, and it warranted that commitment of re

sources.

But I think that you really have to address the problem of effective enforcement, because the industry is going to realize that if the laws are on the books and they're not enforced, it doesn't make a bit of difference anyway. You can put a lot more laws on the books and if they are not enforced, it doesn't make any difference.

Chairman ASHLEY. Well, I can see that. But of course, from the Federal standpoint we are looking at divided jurisdiction.

Ms. HYNES. I don't think so. I think that in Congressman Brown's question this morning about does the FTC have jurisdiction, the FTC statute which I am familiar with, because I dealt in the U.S. attorney's office with the FTC and prosecuted some of their cases civilly, the FIC has their basic statute, is to prevent fraudulent and deceptive acts and practices in commerce.

Now, that is very broad. They can get into the land business which they did. I guess they could even get into the SEC if you started having television ads for brokerage houses that were fraudulent and deceptive. The point is that I don't think that the FTC does have exclusive jurisdiction, and I don't think we are taking anything away from the FTC in asking HUD to start to set standards for advertising and to beef up their enforcement effort in the area. I think you need

Chairman ASHLEY. Well, it is a divided responsibility is what you are saying, which is just what I finished saying. Isn't that what the FTC is supposed to do?

Ms. HYNES. No. I think you need an agency that has expertise in the area, and HUD has that expertise and should build upon the expertise and then go after.

Chairman ASHLEY. I don't understand. I thought the FTC had expertise with respect to fraudulent advertising and that kind of thing. Ms. HYNES. NO; I am talking about an industry. I think that FTC theoretically has the jurisdiction, but I think HUD also has jurisdiction?

Chairman ASHLEY. So it is divided jurisdiction. And is that good or is that appropriate and beneficial? That is what I am trying to get at. There doesn't seem to be a lot of effectiveness at the present time. Ms. HYNES. That I would agree with.

Chairman ASHLEY. Is this because it is divided jurisdiction?
Does anybody want to comment on this?

Ms. HALLORAN. Yes; I think there are a number of problems here. The first one is that although the FTC decided to get involved in the