U.S. Indicts 12 in Cosmetic Scheme : $80-Million Culture-Growing Project Had 27,000 Investors
Twelve people, including 10 Californians, were indicted Wednesday for their alleged involvement in an $80-million culture-growing investment operation that attracted 27,000 investors nationwide.
The indictment handed down by a federal grand jury in Topeka, Kan., brings to an end the yearlong controversy over a promotional campaign to sell kits to grow “lactic cultures” for use in a line of women’s cosmetics that never went to market.
A six-month investigation by a myriad of state, federal and international law enforcement agencies tracked a group of promoters from South Africa to the United States and through 30 states.
The group set up six related companies to operate what federal authorities allege was a pyramid scheme.
South African Origin
Each individual was indicted on 63 mail fraud counts and one count of conspiracy. The 76-page indictment alleges that the suspects diverted more than $10 million in investors’ money for their own use. Most of the remaining funds have still not been accounted for, according to federal investigators.
Immediately after U.S. District Judge Richard Rogers issued the indictment, Gert Theron, 46, of Mission Viejo, was arrested and taken into custody by U.S. marshals. The indictment alleges Theron brought the investment program from South Africa to America. The other 11 people indicted have agreed to surrender to federal officials in Kansas, according to R.J. Schick, the U.S. postal inspector who organized the six-month national and international investigation.
Others indicted are:
Paul George Stemm, 52, of Newport Beach; Frans Jacobus Theron, 43, of Palm Springs; Willard Barnes Bass Jr., 44, of Irvine; Larry Stephen Huff, 43, of Canoga Park; William Field Wagner, 34, of Los Angeles; Kristine Ann Gunn, 23, of Palm Springs; Christopher Joseph Mancuso, of Las Vegas; Charles Allen West, 51, of Larkspur, Calif.; Roland Rocco Nocera, 54, of San Rafael; Ronald L. Rakow, 47, of Los Angeles, and Terrence James Taylor, 39, of Lawrence, Kan.
South African Losses
Each person faces a maximum fine of $73,000 and a maximum prison sentence of 320 years because each count carries a five-year maximum penalty.
The U.S. culture-growing investment program was similar to one that swept South Africa two years ago. Investors there lost about $120 million before government officials shut down the companies involved.
Activator Supply Co. of Pahrump, Nev., sold investors “lactic culture activator kits” for $35 apiece. Promoters told investors the cultures were destined for use in a line of women’s cosmetics manufactured by Nevada-based Cleopatra’s Secret Inc. While some cosmetics were produced, the indictment alleges that 90% of the cultures grown were recycled into activator kits and sold to new investors.
Investors sold their completed cultures to Culture Farms Inc. of Lawrence, Kan. Culture Farms in July filed for protection of the court in a Chapter 11 bankruptcy petition which listed 27,000 creditors.
An estimated $3 million held in Activator Supply Co.'s California bank accounts was recently placed into receivership by the California attorney general’s office.
According to the indictment, Gert Theron allegedly brought the culture promotion from South Africa to America, and then Stemm set up three corporations to promote the culture business. Stemm, who is licensed to practice law in Illinois, also acted as a representative for Activator Supply Co. in its efforts to obtain a Las Vegas business license, according to the indictment.
In a previous interview, Stemm said his sole role in the operation was representing Ariate N.V., a Netherlands, Antilles, company he said held the right to license the culture process to others.
Frans Theron allegedly acted as a marketing consultant for the operation set up by his brother, Gert. The indictment said Theron allegedly “promoted and guided the scheme as a consultant and converted proceeds from the scheme to his own benefit.”
According to the U.S. attorney’s office in Los Angeles, Theron is facing extradition to South Africa to stand trial on fraud charges there.
Willard Barnes Bass, also known as Sam Bass, allegedly wrote letters to South Africa to obtain money for the development of the scheme in the United States.
According to investigators, Bass also traveled to South Africa and acted as an agent for the American culture-growing operation. He once served as president of Equity Bancorp, a defunct Newport Beach investment company. The state Franchise Tax Board revoked Equity Bancorp’s corporate status on Sept. 4, 1984, for failure to file a 1983 corporate tax return.
Larry Huff allegedly arranged for the packaging of activator kits in Phoenix and prepared promotional material for Activator Supply Co. He also is alleged to have set up business relationships between Rontel Tele-marketing Corp. in Encino and the other companies. Rontel prepared a series of television commercials featuring actress Jane Powell to promote the Cleopatra line of cosmetics.
William Wagner, president of Custom Products & Development Co., allegedly caused “certain letters to be prepared to legitimize the culture-growing process in South Africa for the purpose of obtaining money” for the development of the U.S. scheme. Wagner, who traveled to South Africa last spring, developed a line of women’s cosmetics containing the lactic culture, but the line was never produced.
“I’m shocked,” said Wagner when informed that he was named in the indictment. “I think it was a legitimate business but there was a lot of bad timing.”
Kristine Gunn served as president of Cleopatra’s Secret Inc. and met with Los Angeles cosmetics manufacturer Robert Saute to negotiate a method to extract the lactic culture.
Claims for Product
Ronald Rakow is a Los Angeles nutritional products consultant. The indictment alleges Rakow told a gathering of growers in Las Vegas that demand for the cultures was unlimited. In a previous interview with The Times, Rakow said the cultures had to be grown by investors at home as part of a marketing plan to get the investors to sell the finished cosmetics. Rakow formerly worked for the Grateful Dead rock group, according to the group’s official biographer.
Christopher Mancuso allegedly assisted in making the packaging arrangements for cultures in Phoenix and Kansas City, Mo. He directed, promoted and managed Culture Farms Inc. as an officer of Los Angeles based Commonwealth Business Systems. Mancuso also “diverted and converted proceeds from the scheme to his own benefit,” the indictment said. Huff and Mancuso operated a defunct Los Angeles computer dating service, according to postal inspectors.
Terrence Taylor acted as president of Culture Farms Inc. He allegedly controlled payments to culture growers and promoted culture growing in Overland Park, Kan.
Roland Nocera served as president of Activator Supply Co. Nocera “controlled bank accounts containing investor money and diverted proceeds from the fraud scheme to his own benefit,” according to the indictment. In a previous interview, Nocera said his company refunded about $8 million to investors, an amount contested by federal officials.
From 1980 to 1983, Nocera served as president of Holiday Magic Inc., a defunct San Rafael cosmetic company. In 1977, he was convicted on a securities fraud charge relating to Holiday Magic’s operation.