Spotlight: Regulatory Reformer

When they picked on Joseph Sugarman, the bureaucrats at the Federal Trade Commission had no idea what they were getting into. The typical mail-order company, charged with violating FTC rules, would have paid the demanded $100,000 fine and signed the FTC's consent decree—and risked damaging its reputation when the agency issued its triumphal press release. But most would figure it was less hassle than a long, costly legal battle.

Not Joe Sugarman. Outraged at what he considers "extortion" and denial of due process by the FTC, Sugarman counterattacked. He bought ad space in the Wall Street Journal and the Washington Post for a hard-hitting ad headlined "FTC REVOLT." Encouraged by the initial response, he went on to run the ad in 40 other newspapers and magazines—the major media in which his electronic products mail-order firm, JS&A, advertises.

JS&A came to the FTC's attention during January 1979. The Chicago area was reeling under 75 inches of snow, and most of Sugarman's employees couldn't get to work. On top of that, his computer system was on the blink, causing quite a number of orders to be "lost" temporarily. As a result, the company failed to ship many customers their merchandise within 30 days and failed to notify them of the delay (since it couldn't find their records)—both violations of the FTC's 1976 mail-order rule. The delays led some customers to complain to the FTC—and that led to a visit by an investigator.

Although JS&A solved its computer problem and filled all the orders, that didn't matter to the FTC. It had still violated the mail-order rule, and the agency wanted a $100,000 fine. If JS&A refused to cooperate, Sugarman was told, the FTC could subpoena all its records. He offered a compromise settlement under which JS&A would pay any damages to consumers up to $90,000, but the FTC refused to budge. Back came a subpoena for 600,000 company documents, which Sugarman says would have taken a year and a half to produce. At that point Sugarman dug in his heels. If the FTC can use the media to argue its case, he figured, why couldn't he?

Who is Joe Sugarman, and how did he get where he is? As an electrical engineering major at the University of Miami, he first discovered he had advertising talent when the owner of a barbeque restaurant challenged him to think of a way to increase his business among college students. But both coursework and copywriting were cut short when Sugarman was drafted in his senior year. Seeking something challenging, he volunteered for Army Intelligence training and wound up in Germany helping the CIA debrief Soviet defectors.

His tour of duty over, Sugarman and several partners started a ski-lift business, but he found he much preferred writing ads. He set up and ran his own Chicago-area ad agency for several years, until in 1971 he read a Business Week article on the birth of the pocket calculator. Convinced that the idea was a winner—but unable to persuade his major mail-order client to market it—Sugarman decided to do it himself. Setting up shop in his Northbrook, Illinois, basement with $12,000 raised from friends, he rented 10 mailing lists for test mailings—and lost half the money. But two of the lists worked, making possible a successful follow-up mailing.

Since then, Sugarman's JS&A Group, Inc. has introduced dozens of new electronic gadgets—the flip phone, a pocket CB radio, a micro TV, an ion generator, and a sports radar, to name a few. Sugarman writes every ad and even sets the type and creates the layout himself. The ads "break every rule in the book" by featuring lots of words, by appealing to the reader's intelligence rather than his emotions, and by failing to include a response coupon (there's just an address and a toll-free number). But they work! JS&A sales have reached $12 million a year.

But the firm's growth now seems to be taking second place to Sugarman's anti-regulation campaign. In response to his ads, he's been deluged with letters, partly from well-wishers but mostly from others in business who have also been harassed by government agencies. "I've become something of a focal point for people to complain to," he explains, flipping through two four-inch thick piles of letters.

What does he hope to accomplish? Sugarman wants to solve not just JS&A's problem but the general problem of capricious bureaucratic regulation. Regarding the FTC specifically, he'd like Congress to repeal the 1976 Magnuson-Moss Act, which empowered the agency to write industry-wide regulations, rather than simply going after particular firms that engage in fraudulent or deceptive practices. It was one such regulation—the mail-order rule—that tripped up JS&A. He'd also like to see some procedural reforms, such as limits on the FTC's subpoena power and requiring the agency to pay the legal fees of firms that it sues unsuccessfully. (These latter reforms passed the Senate this winter.)

Longer range, Sugarman would like industry to adopt procedures that would eliminate the FTC's rationale for existence. He's proposed that the Direct Mail Marketing Association, for example, set up a voluntary certification program to designate ethical firms, with an easily recognized symbol to be placed in their ads (like the UL seal on electrical appliances). The certifying organization would carry insurance to reimburse any customers left hanging if a member firm went bankrupt.

This type of creative, free-market thinking is typical of a man who has practiced libertarianism all his life but never heard the term until libertarians started replying to his "FTC REVOLT" ad. "I would say my political orientation is definitely libertarian," he explains, having read one of the six copies of Robert Ringer's book that people have sent him. Others have enclosed pages from Ayn Rand's novels—which he plans to read as soon as he can find the time.

Joe Sugarman won big in mail-order electronics. And now this marketing genius wants to "win the battle of changing things" in the regulatory arena. After all, the tax revolt has its Howard Jarvis. Perhaps with a Joe Sugarman to rally its troops, the regulation revolt will be equally successful.

Bob Poole is REASON's editor. He is currently working on a story on the FTC for Reader's Digest.