7 People Charged : Scam Honed Its Skills in Van Nuys

Two San Fernando Valley women recently arrested on charges of running a $10-million telemarketing scam had operated in Van Nuys for nearly six years before the company moved to Santa Monica and was shut down, a federal prosecuting attorney said.

Assistant U.S. Atty. David A. Katz, coordinator of a Southern California fraud task force, said Jan Rado, 42, of Reseda and Holly Miles, 35, of Encino had been operating out of a Van Nuys office under the name American Business Industries between 1981 and 1986.

After Rado and Miles broke off their partnership in 1986, Rado changed the company’s name to Executive Suppliers and then to Transworld Marketing Group when she moved it to Santa Monica in February, 1987, Katz said.

Both women and five of their employees were named in a federal grand jury indictment July 8. Rado and Miles are accused of running a so-called “boiler-room” operation in which customers were told that they had won one of five grand prizes, including a Caribbean cruise, a fishing boat or a Lincoln Town Car.

Customers were told, however, that they had to put up $399, and later $563, to purchase “premiums” in order to avoid gift taxes on the grand prizes. In return, customers would receive promises of “high-quality” personalized pens, baseball caps or calendars, which would be accompanied by their valuable prize gift in “7 to 10 days.”

Few Prizes Delivered

But few, if any of the prizes, were ever delivered.

According to the indictment, the Lincoln Town Car and the Caribbean cruise never materialized for any customer. On the rare occasions when a boat was awarded, it was not the “Boston whaler-type” that had been promised, but an inflatable raft; an “Emerson home entertainment center” was actually a $30 one-piece plastic radio, and a side-by-side refrigerator-freezer turned out to be a plastic, portable cooler run by a 12-volt battery.

One victim of the scam, Milo Fencl, a chiropractor from Scottsdale, Ariz., said he received a letter from American Business Industries in late 1985 notifying him that he had won a videotape camera.

To “avoid gift taxes,” Fencl sent American Business Industries $250 and received 200 pens of poor quality with his name printed on them, he said. “We never did get the camera.”

Upset, Fencl returned the pens by mail to the company and demanded a refund. But “I could never find them,” he said.

‘I’ve Been Ripped Off’

His wife, Allison, said it was then that she realized: “My God, I’ve been ripped off.” She contacted the U.S. Postal Inspection Service in California after complaining to a local office of the Better Business Bureau.

Milo Fencl, on the other hand, tried to shrug off his loss: “Nobody wants to feel like a fool. It was not that big a deal. I’m not going to go to California to beat on somebody for $200.”

That is exactly the attitude that boiler-room operators count on to do business, Katz said. Many telemarketing operations target people who live out of state because they are less likely to pursue complaints, he said.

“If the one that has been defrauded lives in Maine, it’s obvious that it’s going to cost him more money to come and punch you in the nose,” he said. But the main reason such scams work, he said, is that people “think they are getting something for nothing. It happened to this guy they just saw on TV, and they think, ‘Why not me?’ ”

Katz said Transworld, Executive Suppliers and American Business Industries were averaging between $1 million to $2 million a year between 1981 and 1987. “This is not a fly-by-night operation,” he said.

Creditors Defrauded

He added that it is not unusual for a boiler-room operation to go undetected for years because operators often relocate and change the name of their companies as well as their own names.

“By moving, they not only evade law enforcement, but defraud creditors. They don’t pay their rent, their phone bill. . . . They got it down to a science,” Katz said.

U.S. Postal Inspector Larry B. Johnson said his office had been monitoring American Business Industries since 1982 after receiving numerous complaints from customers. A full investigation was launched in 1986 after inspectors checked with more than 200 offices of the Better Business Bureau across the United States and found more than 200 complaints lodged against Transworld, Executive Suppliers and American Business Industries.

The investigation took a weird turn when one of the original investigators, Charles M. Yarton, a 17-year U.S. Postal Service employee, was arrested and charged with conspiracy to obstruct justice.

According to the indictment, Yarton telephoned Rado on Nov. 17 to warn her about an upcoming search of Transworld by postal inspectors. He directed her to “get rid” of any documents pertaining to her company, and she called a moving company to haul records to a dump.

Most Records Recovered

But postal inspectors descended on the office a day earlier than Yarton had expected, and most of the records were recovered.

Yarton later pleaded guilty to violating a federal law against alerting investigative targets about a search. He was sentenced to five years’ probation and fined $1,000.

Authorities said Yarton received a light sentence because nothing of value was exchanged for the information. “It was pure ego,” Johnson said. “Pure stupidity.”

Rado, who has been released on $50,000 bail, has been charged with multiple counts of fraud, conspiracy to obstruct justice and interfering with a search. Miles, out on $60,000 bail, has been charged with multiple counts of fraud.

Rado’s attorney could not be reached for comment. But Miles’ attorney, Nicholas A. Micelli, said of the charges: “They’re baseless. The allegations against my client give new and different meaning to the word bizarre. She was a small player. She had a clerical function.”

Similar Complaints

Since splitting with Rado, Miles and her husband, Jesse Plunkett, have operated another telemarketing firm in Van Nuys under the name Select Business Industries, Johnson said.

Miles was arrested at the offices of that company, Jones said, and the U.S. Postal Inspection Service had received similar complaints from customers who say Select Business Industries has defrauded them.

Katz estimated that 75% of all telemarketing schemes in the country operate out of Southern California. Almost 200 operators have been convicted in the region since January, 1986, and Katz estimates that about a third of those came from the Valley.

“This has become our problem,” he said. “Just the way drugs have been centered in Miami, . . . Southern California is becoming known around the country as the fraud capital.” But, Katz added, “we’re on the verge of killing that goose.”

Others are not so certain.

“It’s a hard row to hoe,” said Chauncey Cupkie, president of the Southern California chapter of the American Telemarketers Assn. He said that because of the large number of boiler-room scams, legitimate telemarketers continue to suffer from a “used-car salesman type of image.”

“It’s a real problem for us to overcome that image,” Cupkie said. “We’re trying to educate the public as much as possible. But it’s like saying, ‘Hey, do you trust a used car salesman?’ It’s really tough. It’s not something you conquer overnight.”