Dozens of Investment Opportunity Businesses Targeted in "Project Risky Business"
The Federal Trade Commission, Securities and Exchange Commission and 20 members of the North American Securities Administrators Association today announced nearly 60 law enforcement actions directed at scores of bogus entertainment and media-related "investment opportunity" scams. The scams, ranging from promotions for production of infomercials to a plan touting an Internet gambling casino, have been targeted as part of a nationwide crackdown by federal and state officials against fraudulent money-making ventures. Some of the scams claimed they were "approved" by The Internal Revenue Service for investors' Individual Retirement Accounts. The IRS does not approve investments.
"These 'investment opportunities' are peddled as bright, new initiatives. But they're actually the same old story," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "They are touted with fabulous earnings claims, promoted with deceptions and virtually all the investors end up losing their money."
The FTC filed complaints in federal District Courts against:
- Automated Systems & Concepts International, Inc. The FTC charged promoters of this investment scheme deceptively marketed $10,000 investments in North American Broadcasting Partners and its production of infomercials and the products featured in them, such as an Elvis Presley "package" that included a coffee-table book, a CD with a previously unreleased Elvis song and Elvis postage stamps. According to the FTC, the defendants have raised approximately $12 million to date.
- World Interactive Gaming Corp. The FTC charged the defendants deceptively marketed investments in an Internet gambling casino by claiming that consumers were likely to turn a $10,000 investment into $157,000 profit in one year. In this case, the agency alleged the defendants raised approximately $2 million from 150-200 consumers.
- My Pet TV. The FTC alleged the defendants victimized 1,200 investors who had previously lost money through a failed investment scheme by illegally appropriating the remaining $650,000 of their original $16 million investment and diverting it into a cable-TV network devoted to pet programming.
"Entertainment and media-related investments can be risky business," Bernstein said. "Consumers who don't know the industry well should take a cautious approach to investing."
Richard H. Walker, Director of the SEC's Division of Enforcement, agreed. "The cases we bring today should send a strong signal to fraudsters that whether they work on Wall Street or in Hollywood, we're going to catch them. The SEC, FTC, and NASAA have teamed today to crackdown on fraud in the entertainment industry. We need consumers to join our team and do their part by doing their homework before they buy investments from strangers."
"There is nothing entertaining or amusing about misleading or defrauding investors and that's what we're talking about," said Denise Voigt Crawford, President of NASAA. "Con artists promise 'Titanic' profits, but too often investors end up going down with the ship."
The FTC cases:
The FTC charged that six defendants operating North American Broadcasting Partners telemarketed investments in infomercials and the products they touted, and promised significant returns to investors. The FTC alleged that the defendants falsely claimed that an infomercial for their "Elvis Immortal" memorabilia package, including a compact disc featuring a previously unreleased song recorded by Elvis Presley and a book containing several hundred photographs by Elvis Presley's personal photographer was under consideration to be the official book of Graceland, would air on the 20th anniversary of Elvis Presley's death. The agency also alleged that the defendants falsely claimed in their sales pitches that QVC and Target Stores had sold thousands of NABP products. Finally, the complaint alleged that defendants lied about prior investors receiving substantial returns on their investments. At the request of the FTC, the U.S. District Court for the Central District of California granted a temporary restraining order, froze the defendants' assets and appointed a receiver, pending trial.
My Pet TV defendants used telemarketers to induce consumers to invest in $10,000 increments in "affiliates" of a cable television network named "Children's Cable Network," which was to broadcast non-violent, educational children's programs. Investors were told that they would earn money from prospective advertisers for the children's shows in an arrangement to be managed by the defendants. The scheme raised $16.5 million, most of which was disbursed to the principals and the telemarketers who successfully solicited the investments. The FTC alleged that the My Pet TV defendants fraudulently and illegally diverted at least $650,000 from the Children's Cable's affiliates to another of their schemes, My Pet TV, and later misrepresented that My Pet TV was airing shows on a cable system. The U. S. District Court for the Central District of California issued a temporary restraining order, froze the defendants' assets and appointed a receiver, pending trial.
The defendants in World Interactive telemarketed shares in an Internet gambling casino, Golden Chips Casino, telling investors profitability would mimic "Microsoft, Netscape and Yahoo." The FTC alleged that they misled consumers by claiming that World Interactive should 'conservatively' earn $100 million in its first year and that investors could expect to make $150,000 or more in one year from their $10,000 investment. A hearing on the FTC's request for a temporary restraining order is set for August 17, 1998, in the U.S. District Court for the Eastern District of New York. The New York Attorney General provided substantial assistance in filing this case.
In a related case, Peter Aro and Jason McDuffie, principals of Coastal Gaming, Inc., have agreed to settle FTC charges that they misrepresented to potential investors that the investments they were offering in casino gambling ships would yield high returns, that celebrities were in line to promote the investment opportunities, and that there was a $1 million escrow account in place to guarantee the investment. The FTC brought these charges in 1997 as part of "Project Field of Schemes," a joint federal-state law enforcement and consumer education campaign against fraudulent investment opportunities. The settlements would prohibit the defendants from making false representations in connection with investments in casino gambling ships, or any other investment opportunity generally. In addition, Aro is required to first obtain a performance bond in the amount of $500,000 before engaging in any future telemarketing activity. The settlements also would impose a monetary judgment in the amount of $5,000,000 on each of the defendants.
In a second related FTC case, Denyse Anderson and Michael Anderson remain in jail after District Judge Lloyd D. George on June 17, 1998, found them in contempt of court for failing to repatriate almost $1.3 million in off-shore assets. The FTC's complaint against Affordable Media, LLC, doing business as the Sterling Group Media and its affiliates, charged that the defendants falsely promised returns on investments in media units -- blocks of TV commercials promoting various products with proven consumer appeals. Another defendant, Eric Stein, the subject of state criminal charges, remains at large and was featured recently on "America's Most Wanted."
The Commission votes to file the complaints in the Automated Systems & Concepts International, Inc. and World Interactive Gaming Corp. cases were 4-0. The Commission vote to file the complaint in My Pet TV case was 3-1, with Commissioner Orson Swindle dissenting. In a separate dissenting statement, Commissioner Swindle said, "I regard as deplorable the acts in which the defendants allegedly engaged. Nevertheless, I have voted against filing this complaint. Unless consumers were the victims of fraud or deceit when they decided to invest their money, I do not believe that application of Section 5 of the Federal Trade Commission Act is the appropriate way to address misconduct in the internal operations of a business."
NOTE: The Commission issues a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. The complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaints and consent agreement as well as two consumer alerts, "Lights, Camera, Rip-Off!" and "Taxpayers with IRA's: FYI," produced by the Office of Consuemr and Business Education, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Office of Public Affairs
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Bureau of Consumer Protection
202-326-3284 or 202-326-3285