David Goldstein Reports

LOS ANGELES (CBS) ― Watching at home, the Direct Shopping Network, or DSN, looks like a place to find bargain gemstones and jewelry. But listen to what this insider claims is the secret of how some DSN hosts succeed.

"It's bull****ing. It's all bull****."

This former DSN host should know and has only agreed to talk if we conceal their identity.

"I was instructed to lie."

"I was instructed to fake phone calls."

"It's an embarrassment to the entire home shopping industry."

DSN originates from a soundstage here at the old Glendale studios. But their potential audience is huge. They're carried nationwide on DirectTV and Dish Network. And simulcast live on the Internet.

Some of the time hosts interact on-air with sales reps off camera.

"Alex, where are they calling from? Denver?"

Sales reps who were supposedly on the phone with consumers who are buying the products.

But our former host says sometimes no one was on the phone.

"I was instructed to make up names and conversations and talk as if I'm speaking to someone."

Why?

"To make it seem as if everything's selling like hotcakes. Make it seem like an urgency and makes somebody want to actually call in and buy because it might sell out."

And when it comes to auctions…

"I'm opening at a thousand dollars a carrot and throwing in the diamonds."

Our former host claims some are rigged with fake phone calls.

"As a host you might make up another person. Throw a fake person into the game and say, Mary's calling in and she's bidding $400. What are you other bidders going to do?"

Another trick this former host claims they were instructed to do is to say something's a limited quantity. To create a sense of urgency similar to this.

But some of the time the former host says that's not true. Behind the scenes some hosts give a signal to the phone reps.

"The host goes like this -- many of them available."

We also talked to another former host who confirmed fake auction bids were used to get other people to bid higher.

And a former sales rep says they faked phone calls -- calling it creative frenzy.

We wanted to see it firsthand. So earlier this year we sent in an undercover producer. To apply for a job as a sales rep. She was hired. On her first day of training her instructor laid it out.

"They told us there would be auction pieces where they would say it's one of a kind to the customers but then the host would motion to us to tell when they were going to have more."

The days she worked the phones, she carried a hidden camera. While viewers at home see the jewelry on TV, behind the scenes our undercover producer witnessed the host Michelle Mahone pointing and prompting telephone reps to make up fictitious callers.

"She poses questions in such a way that you know you have to say something."

The viewers are led to believe the callers allegedly bid on auction items when it was clear the reps weren't even on the phone.

She also witnessed the host claiming these items were selling like hotcakes when they weren't.

"A lot of times when she says another one gone -- they don't really sell. She's just saying that to get people to bid on them."

DSN is run by Art Garbedian--who also has his own show. I caught up with him outside the studio.

"We've talked to some people who worked here. Rig auctions, fake phone calls and lie about one of a kind items. Your response?"

"Come on in we'll talk about it," Garbedian said.

But the man who makes his living selling merchandise on TV would only agree to talk without the cameras.

"Do your hosts fake phone calls? Do they rig auctions?"

"Would you like to come in and talk about it? I would love to talk. Come on. The rules are you don't bring cameras in."

He never answered the questions -- and finally went back inside.

"What's the matter Art, let's talk about it. Where you going?"

DSN's lawyer did respond. He denied the company rigs auctions, lies about one-of-a-kind items and fabricates phone calls.

The attorney claims our source is a disgruntled employee who was fired by DSN. And is overly hostile toward the company.

I spoke with the attorney's general's office who say rigging auction bids is illegal and they are interested in viewing our investigation

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