12 Indicted in Culture-Kit Scheme : Mail Fraud Charged in $80-Million Investment Program

Twelve people, including 10 Californians, were indicted Wednesday on mail fraud and conspiracy charges 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 six-month-long international investigation of the culture-kit promotional campaign. The investment program sold kits for growing “lactic cultures” that were to be used in a line of women’s cosmetics, but the cosmetics never went to market.

The 76-page indictment alleges that the suspects diverted more than $10 million in investors’ money for their own use. Most of remaining funds have still not been accounted for, according to federal investigators.

The investigation by myriad 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 investment scheme.

Immediately after U.S. District Judge Richard Rogers issued the indictment, U.S. marshals arrested Gert Theron, a 46-year-old Mission Viejo resident, who the indictment accuses of bringing the investment program to the United States from South Africa. 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 investigation.

Each of the 12 persons indicted Wednesday was cited on 63 mail-fraud counts and one count of conspiracy. Conviction on all the counts would mean a maximum fine of $73,000 and a maximum prison sentence of 320 years, as each count carries a five-year maximum penalty.

In addition to Gert Theron, those indicted include:

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, Calif.; Ronald L. Rakow, 47, of Los Angeles, and Terrence James Taylor, 39, of Lawrence, Kan.

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.

According to the indictment, Gert Theron allegedly imported the culture promotion from South Africa and then Stemm, who is an attorney, set up three corporations to promote the culture business. Stemm also acted as a representative for the kit-selling company in its efforts to obtain a Las Vegas business license, according to the indictment.

Activator Supply Co. of Pahrump, Nev., sold investors “lactic culture activator kits” for $35 a piece. 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. In July, Culture Farms filed for court protection from its creditors in a Chapter 11 bankruptcy petition that 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 state attorney general’s office.

No Commercial Market

Additionally, the indictment alleges that Cleopatra’s Secret was supposed to manufacture the cosmetic line. Rontel Tele-Marketing Corp. of Encino produced a television ad campaign featuring actress Jane Powell. Culture Farms purchased the cultures from investors. Other companies involved were Diversified Labs Inc. of Kansas and Kubus Nursery U.S.A. Inc., a Nevada corporation.

The indictment alleges that there was no commercial market for the home-grown cultures other than the one created by the defendants.