Alone and depressed, Stephen Schwartz was flipping through channels one evening in late 1999 when Miss Cleo appeared on his television screen. The 49-year-old supermarket delivery man became transfixed as the psychic doled out insights into love, finance and employment prospects. When she offered to do the same for him — free for the first three minutes and at a discounted rate for the rest of the call — Schwartz decided it was a deal he could not pass up.

"I was in a real state of depression at that point," the Maryland resident recalled. "I was hoping that she could give me some idea of what my future might be."

But when he called, Schwartz says, Miss Cleo was nowhere to be found. The "psychic associate" he spoke with commented on his personality and character, but offered little else in the way of a psychic reading until, disappointed, Schwartz ended the call.

Then came the real surprise. The network had billed him at full cost. "They stuck me with a $300 bill," Schwartz said. "They didn't keep their end of the bargain."

Schwartz eventually took his case to court, filing a civil suit to reclaim his money. He recouped nearly $200 after the company failed to show up in court.

"They are acting like predators," Schwartz said of his psychic experience. "They prey on lonely men such as myself. I think they should be out of business."

Schwartz is one of millions of customers who have responded to ads for Miss Cleo's Mind and Spirit Psychic Network since its launch in 1999. In the past two years, the network has grown to become the most popular telephone psychic service in the country. Infomercials featuring Miss Cleo have become fixtures of late-night and low-budget T.V. advertising slots. She also helps hawk a Web-based psychic consultation service, a line of at-home tarot products distributed by the Walgreens drug store chain, apparel, and even an online dating service.

But the one place Miss Cleo, whose real name is Youree Cleomili Harris, is least likely to be found is on her hotline—which is actually staffed by "psychic associates" who are part of a business empire constructed by a wealthy South Florida businessman, Steven Feder.

Feder, along with his cousin, Peter Stolz, used Harris' image (she is paid a fee to represent the company in the commercials) to turn the network into a multimillion-dollar business. A former New Jersey resident, Feder is now facing a bevy of lawsuits alleging that his business defrauded consumers and violated the "no call" rules that residents of many states can use to protect themselves against phone solicitation.

But Feder's legal troubles have brought into question more than just whether his schemes are breaking the law. What are his customers getting for their money?

A look at the inner workings of Miss Cleo's network suggests that the answer, in some cases, is not much at all. Some of the psychics touted on television as highly qualified may be little more than telemarketers reading from prewritten scripts, law enforcement officials say. And when Courttv.com called the psychic hotline, the "associate" who answered did just that, reciting the "psychic reading" from a script a reporter later obtained.

The "psychics" are governed, says one who has worked for the network since 1996, by one major tenet: Keep the customer on the line for as long as possible—and keep the money flowing.

A lawyer for Feder does not dispute that the psychic network is a money-making enterprise, but insists that the company is not breaking any laws. In fact, he says, the network provides a valuable service to its customers.

"This is a business as well as a psychic entertainment service," said Sean Moynihan, a lawyer with Klein, Zelman, Rothermel & Dichter in New York. "The people who call are adults. They make a volitional decision to call the number. If at the end of three minutes they're not enjoying it then they don't have to continue." If they do, it will cost them $4.99 a minute.

On the Heels of Miss Cleo

The Mind and Spirit network isn't Feder's virgin attempt at making money in the telephone psychic business. In 1993, he and Stolz started a company that battled for market share with the successful Dionne Warwick's Psychic Friends Network, the first psychic network to achieve widespread success.

Their first attempts didn't catch on, but over the years, Feder and Stolz honed their craft. They hired celebrity mouthpieces such as former Miami Vice star Philip Michael Thomas and former Dynasty star Catherine Oxenberg to represent the company. They began building an extensive database of information about their customers. And they developed an aggressive marketing strategy using that information to keep customers coming back.

The network does not release its sales figures, but a study by the New York State Consumer Protection Board reported that their business brings in as much as $400 million annually. The original company started by Feder and Stolz in 1993 is now the Psychic Readers Network, Inc. (PRN), which handles advertising for the sprawling enterprise. According to public records, the two now control 16 other corporations from an office in Fort Lauderdale. One of those corporations is Access Resource Services, Inc. (ARS), which Moynihan, the lawyer, identifies as the "fulcrum" of the enterprise.

But it is Harris, or "Miss Cleo," who says she comes from a line of Jamaican shamans, that has given Feder and Stolz the perfect face to put on the well-tuned marketing engine they have built over the years.

From studio sets rife with mystical trappings, such as whorls of incense, candlelit backdrops and rune graphics, Miss Cleo doles out advice in a thick Jamaican accent, offering customers pearls of wisdom.

"If you want him to believe that it's over, then you've got to stop accepting the booty calls at 2 a.m. in the morning," she tells one anguished caller.

Keepin' 'em on the Phone

While Feder and Stolz seem to have a company for every part of their business—advertising, debt collection, direct marketing, and more—none of their 17 companies actually employ the psychics that staff the psychic hotlines.

Subcontractors, referred to as "bookstores" by insiders, recruit, train and manage thousands of psychics who handle the calls spurred by Miss Cleo's commercials. The subcontractors, such as Nevada-based Buckwood Communications or Fort Lauderdale-based Real Communication Services, are fed by an 800 call center in Nebraska called West Interactive. Operators there simply provide each customer a 900 number, which can change depending on the time of day, the region in which a commercial is shown, and the standing of subcontractors with Feder and Stolz.

Each psychic reader is paid by the subcontractor on a call-by-call basis (see a psychic's job application here). A central clearinghouse keeps track of who's logged on and available to take calls. This telephone system, to which Courttv.com was granted access through a government official, features a daily pep talk from Feder, followed by another from the manager of the psychic's particular group.

In a recent version of Feder's message (click to hear it yourself) the telephone magnate emphasizes his newest venture, the Miss Cleo dating service. "Please make sure that you send every single person to that Web site, and let them know that we have given them a free membership," he tells the psychics. "This is another venture that we're going into."

As of Wednesday, only five days after launching the CleoDate Web site, Feder already had more than 1,300 subscribers signed on.

The next "pep talk" message (click to hear it yourself) is from the psychic's group manager. "I know it's been kind of slow ... the group averages have been anywhere from 19s to 21s — that's across the country, so if you're not getting calls it's because you're falling below that," the unidentified woman says. "I would say everybody just be patient and just stay logged on as long as possible ... Everybody just hang in there as much as you can."

The "19s" and "21s" that the group manager mentions are averages of how many minutes a psychic can keep customers on the phone. For the psychics, this number is as good as a pulse. If it dips too low, it can be fatal — the psychic can be booted off of the system without notice. In his daily message from Jan. 14, Feder himself seemed to imply as much, warning psychics to "Treat each call as if it is your last!"

As the South Florida psychic reader who has worked with Feder since 1996 told Courttv.com, calls are distributed according to a priority system (explained more here), a high-pressure tactic that sends customers to the psychic with the highest average.

"We're obliged to keep people on the line," the psychic said. "We have to make things up, because we need the priority rating or we won't get calls. It's impossible. Last week, even though I had a 61-minute call, I didn't get anything for six days."

Because most psychics make only 14 to 24 cents a minute, depending on the their average call time, a break of that long can be a serious financial blow.

As positive reinforcement, psychics are reportedly paid 25 cents for every postal address they collect and 10 cents for every e-mail address. If they don't collect enough, they can be dropped from the network.

According to the Florida psychic, the pressure placed on psychic readers is passed on to the customer. "Most psychics don't even look at the cards," he says. "With so much pressure to keep people on the line and get their information, you need to tell the customer a lot of bullshit. But you can hurt people. You can hurt people very very deeply."

Still, the psychic admits to manipulating customers into staying on the phone. One effective way to keep callers on the line, he says, is to reveal a tidbit that piques their curiosity. One failsafe topic: Tell them their loved one is cheating.

"If you say there is cheating, there are a ton of questions they will want to ask," the psychic said.

Techniques like this are commonplace, judging by the countless tutorials subcontractors have placed on the Internet for their psychics to read.

"When you feel that the caller is hanging up after only a few minutes because he/she wants the free minutes only, try saying that, in your opinion, if they call back for several short free readings they will only get what they are paying for, but if they stay on now and let you complete their reading, you are sure it will change their life," suggests one tutorial.

In a section titled "What if I Don't Give Tarot Card Readings," another guide encourages psychics to fib their way through the reading if they're at a loss. "This is not a hard call to make; even if you know nothing about Tarot Cards," the guide states. "If someone calls the line asking for a Tarot card reading, you KNOW there is something troubling them. Start the conversation just like that ... No caller has gotten upset just as long as you're giving some kind of a reading. That's what they're paying for."

Tips like these aren't all psychics use to help them perform a reading. Many also recite verbatim from detailed "scripts" that forgo the need for tarot cards altogether. The four scripts obtained by Courttv.com are packets containing pages for each tarot card in the deck, along with a suggested passage containing possible interpretations for that card.

The tarot card technique that Miss Cleo and many of her "psychic associates" use is an age-old practice dating to the 15 century, when gypsies are thought to have brought it to Western Europe.

A typical tarot deck consists of 78 cards, each bearing a picture of a natural object, such as a star, or a character representing one of man's many vices, such as "the fool." Each card also carries with it a particular implication, and a script will offer a number of prefabricated dialogues on each one.

Not every reader uses tarot cards, and other scripts are available that cover just about every corner of the mystic world, from numerology to astrology to mental imaging.

Given the network's "for entertainment purposes only" disclaimer, the whole issue of whether callers are getting real psychic readings may be a moot point legally. Whether many customers would continue calling if they knew the true tricks of the trade, officials say, is another question.

Moynihan, a network lawyer, says that the script problem lies with the subcontractors — not his clients.

"That may be the practice of a certain subcontractor or subcontractors," he said," but [my clients] hire independent contractors who have their own internal operating rules. [The subcontractors] have control over themselves."

According to Moynihan, subcontractors are expected to adhere to specific ground rules, such as not using scripts and hiring bona fide psychics. The network also requires each new reader to sign an affidavit concerning their veracity as a psychic. The penalties for violating the ground rules, Moynihan says, are severe. "If we find out that somebody is using scripts or advertising to hire telemarketers rather than psychics, they will be fired," he said.

The Future Looks Bright

Since launching Miss Cleo's network in 1999, Feder and Stolz come under consistent fire from customers who say they've been jilted by the psychic duo. Currently eight states have taken some form of action against the network for problems ranging from deceptive advertising practices to billing errors.

Susan Grant, director of the National Fraud Information Center, says that most of the problems facing the Miss Cleo network could be solved by clearing up the advertising. Grant says the blurred line between the free portion of the call and the paid portion is the main culprit.

"Companies that provide services through 900 numbers have an obligation to make it clear what you're going to be charged and on what basis," Grant said. "But cases like the Miss Cleo case illustrate that a lot of times that information isn't presented in a straightforward and understandable way."

"Usually people think that they're getting a free reading to sample the service," Grant added. "But they end up being hit with charges they couldn't see even with a crystal ball."

The first suit filed against Feder's companies was brought in 1999 by the state of North Carolina. Mike Easley, the state's attorney general, alleged that customers were being billed for time advertised as free — and if they did get free time, much of it was spent on hold or on answering logistic details.

ARS, named as a defendant in the suit, agreed to settled the case for nearly $60,000.

That suit brought up another complaint as well, that some residents receive collection notices for phone numbers that weren't even theirs.

Moynihan says that billing problems such as these generate 90 percent of the complaints against the network or ARS (Access Resource Services, Inc.), which handles collections for the network.

According to FTC rules, a long distance company is obligated to dismiss 900 calls that customers have contested. ARS is then stuck with the bill. To recoup its losses, the company aggressively pursues payment by using the phone number from which the call was initially dialed to track down and bill the caller.

As a result, Moynihan admits, people sometimes get bills and collection notices for calls they didn't make. "It might have been your gardener, it might have been your maid, or it might have been your babysitter — but if it appears on your phone bill, the call was placed," he said.

The lawyer argues that a business handling so many calls is bound to make a few mistakes. "But you're not talking about thousands of complaints," he says. "You're talking about 50 or 60."

Still, some of the billing mixups have been particularly egregious. Some families have reported receiving ominous collection notices for relatives that had long ago passed away, for example.

Mixups of this sort have become rallying points for detractors of Feder and Stolz's aggressive practices.

With the North Carolina suit settled, the network must now face many of the same allegations in suits pending in Illinois, Pennsylvania, Wisconsin and Missouri.

In Missouri, Attorney General Jay Nixon has already won one victory against ARS.

Shortly after Nixon filed suit in July 2001, alleging that ARS called residents that should have been protected by the state's no-call rule, the company agreed to pay $75,000 in fines.

"Miss Cleo should have seen this coming," Nixon said in a press release brimming with appropriate puns. "It doesn't take a crystal ball to realize that ripping off consumers isn't without consequences. I predict the courts will see that Miss Cleo pays for a serious lack of foresight."

Saying Nixon "blindsided" his clients, Moynihan claims that the company called only its former customers, which it was allowed to do under Missouri state law. "All the complaints were just absolutely wrong," the attorney said. "But we settled to stop the bleeding from all the negative press."

The publicity over the Missouri victory was so damaging, in fact, that Feder and Stolz put out a special Miss Cleo commercial to address it. Soon after the settlement, the screen shaman claimed in a new series of ads: "For years, people have been persecuted for their beliefs," adding that she wasn't about to let "them" hold her back from helping people.

While Nixon may have grabbed the biggest headlines with his victory, it was an Arkansas suit that dealt Feder and Stolz their first financial knockdown. In November 2001, the state forced ARS to forgo $3.2 million in charges for violating the no-call rule as well as for the recurrent allegations of misleading advertising and wrongful billing practices.

The New York Consumer Protection Board, too, has used its no-call rule, which was passed in April 2001, to seek $224,000, or a maximum of $2,000 for each of 112 no-call violations, from ARS in an Oct. 31, 2001, filing. But authorities there have added yet another group to those they wish to protect — the psychics themselves.

"We want to warn people thinking about joining this enterprise from a stay-at-home workplace that they should take some more time to think about this," said Jon Sorenson, spokesperson for New York's consumer protection board. "They're just like the customers at first because neither of them know what they're getting into."

Attorneys in the network's home state of Florida haven't brought suit against PRN or ARS — but they have succeeded in getting the company to change its advertisements so that they don't seem to offer an entire reading during the three-minute trial period. The company also agreed to stop implying that every caller would get through to Miss Cleo, and has since changed her tagline from "Call me now..." to "Call now for your free readin'."

These changes may have been largely cosmetic, but a third agreement signed in late 2001 binds the company to follow in Florida any agreement it makes in another state.

The biggest suit threatening Feder and Stolz right now is a civil suit filed by the author of a popular book on tarot card readings. Nancy Garen, who wrote 1989's "Tarot Made Easy", claims Feder and Stolz used material verbatim from her work on their Web site and told their psychic readers to use it as a guide during calls. She is seeking $250 million.

Garen and her lawyer, Larry McFarland, claim to have found a total of 154 sections of "Tarot Made Easy" on the site in an online tarot card reading section offered free to customers of the network. "Ninety percent of those cards had text copied from 'Tarot Made Easy,'" McFarland said. "It just floored us."

While Moynihan did not deny that material from Garen's book might have been used by the company, the lawyer says the suit won't stand up in court. "Whatever it was, it was certainly not something that was directed by the principals of the company," he said.

McFarland says the ongoing discovery period of the lawsuit has helped him develop a case for the use of the book as a script.

In one e-mail the lawyer obtained (click here to view), Feder urged his psychics to sign an affidavit stating that he never requested them to use Garen's book.

"Could anyone imagine giving a spiritual or psychic reading by using the descriptions of a tarot card read verbatim as a reading?" Feder asked. "I'm tired of us being accused of being frauds and fakes when we make a difference in thousands of people's lives every day."

A followup e-mail from the group manager stated that unless psychics filled out the form, they wouldn't be allowed to field calls.

"I am sorry to be a pain but I sent you an affidavit a few days ago and you have not sent it back yet. It needs to be signed and returned no later than 10-19-01 which is tomorrow or you will not be able to work," the e-mail states. "Please send it in if you want to keep working. It is a requirement from the main company."

But perhaps the most surprising development in Garen's case was when Harris —Miss Cleo herself—actually contacted one of the author's lawyers—to offer an apology.

"Ms. Harris stated, 'Please tell Ms. Garen I am so, so sorry,'" Sebastian Gibson, another lawyer for Garen said in his deposition of his 30-minute conversation with Harris. "It's horrendous, it's disgusting, especially when they take that route. There was no need for them to do anything like that. I told them long ago, 'Why are you doing this?'" Harris said, according to Gibson.

It might not matter how involved Miss Cleo is with any of the activities alleged in the suits. In the end, her popularity could prove to be her downfall.

"People don't think about PRN or ARS," said the Florida psychic who spoke to Courttv.com. "They think about Miss Cleo. And if her reputation gets dangerous, they'll just get rid of her."