‘Milk’ Cosmetics Marketed Amid Fraud Investigation
A line of cosmetics derived from soured-milk cultures made its debut last week amid continuing investigations by federal and state law enforcement authorities into a network of businesses involved in marketing culture-growing kits.
Last Thursday, The House of Cleopatra’s Secret Inc., based in Palm Springs, launched a four-month television advertising campaign starring actress Jane Powell to promote the products.
Although law enforcement authorities have no apparent interest in the actual cosmetics, officials in California, Nevada and Kansas--among others--have accused several companies of violating securities laws by selling the culture-growing kits as investments. Investors purchase the kits from a Nevada firm, and sell the grown cultures to companies in Kansas, which turn the cultures over to the cosmetic-making firms.
Thousands of investors, including more than 100 in Orange County, have purchased culture-growing kits from Activator Supply Co. in Las Vegas. The California attorney general’s office is investigating whether the kit-selling scheme violates state laws, including a prohibition against pyramid, or endless-chain, schemes.
In Las Vegas, city officials have tried unsuccessfully to halt the culture-selling business by denying a business license to Activator Supply Co.
The Kansas Securities Commission is attempting to prohibit the the sale of lactic-culture growing contracts on the premise that they are unregistered securities. But twice the commission has been rebuffed in efforts to halt business being done by Activator Supply and Culture Farms Inc., the Lawrence, Kan., company that buys the grown cultures back from investors. However, a Kansas state court has ordered a temporary ban on marketing of the kits by other companies, according to Craig Stancliff, associate general counsel for the Kansas Securities Commission.
A hearing on the Kansas commission’s request to permanently ban the selling of the culture-milk contracts has been set for April 12.
Last week, Anaheim Deputy City Atty. Grover D. Merritt dropped the city’s charges against Zelbert W. Ritchie, 57, who had been accused of participating in an illegal pyramid scheme and violating the state’s Seller Assisted Marketing Plan, a consumer disclosure statute.
“The bottom line is that Mr. Ritchie wasn’t doing anything criminal. There is nothing wrong with the pitch he uses or the program he is offering,” Ritchie’s lawyer, Harry Hicks, said Friday.
Merritt acknowledged that he dropped the charges in part because he was having difficulty applying relatively new and complicated state law to the circumstances whereby Ritchie was recruiting new investor-growers of the milk culture.
But Merritt also said he agreed to dismiss the charges only if Ritchie would make himself available to tell investigators from the state attorney general’s office what he knows about the culture-marketing enterprise. In return, Ritchie would receive immunity from prosecution.
However, state Deputy Atty. Gen. Al Shelden, who is heading the state investigation, said he has not yet decided whether he wants to grant Ritchie immunity in exchange for information.
But executives at Cleopatra’s Secret and Rontel Tele-Marketing Corp., the Encino company handling the advertising campaign for the cosmetics, have said the investigations do not pertain to them, even though both companies were named in the Kansas case.
Bruce Adams, president of Rontel Tele-Marketing, said daytime commercials for the cosmetics are being aired on four national cable networks--USA, WTBS, WOR and CBN--and on several commercial stations, including KCOP, Channel 13, in Los Angeles.
The commercials invite viewers to call a toll-free number and order a trio of items--a facial scrub, mask and moisturizing cream, for an introductory price of $39.95.
