FTC, States Target ‘High-Tech’ Scams
In a crackdown on “high-tech” scams, the Federal Trade Commission and authorities in 21 states unveiled 85 lawsuits against businesses accused of pitching mostly worthless investments in federal paging licenses and 900-number partnerships.
Fifty of the suits were filed against businesses in California, most of them operating in the Los Angeles area, apparently putting the state on the cutting edge of high-tech fraud.
The FTC said firms involved in the alleged schemes had set out to raise more than $250 million from investors, mostly through high-pressure telephone calls. It said the companies targeted elderly people, often asking whether they had retirement accounts that could be tapped for investments.
The lawsuits were filed by the FTC and the states over the last two weeks as part of a coordinated investigation into what authorities say is a fast-growing form of fraud.
As part of the crackdown, the California Department of Corporations on Jan. 18 obtained court orders against 41 individuals and companies, barring them from continuing to sell investments. All but one of the actions involved 900-number partnerships, the department said, adding that the targets of its investigation sought to raise from investors $225 million of the $250 million identified by the FTC.
The FTC said the crackdown, dubbed “Project Roadblock,” was launched in response to a new type of scheme pitching stakes in emerging technologies to unsophisticated investors. The FTC said the victims have lost as little as $1,000 and as much as $400,000. At a news conference in Washington, the agency played a videotape of an elderly victim saying she turned over her life savings of $116,000 to a swindler who promised her a profit of $1,000 for every paging license she obtained. The woman was not identified.
Authorities said victims of high-tech scams typically are falsely told their investments are risk-free.
“By using information-superhighway hype, they are making consumers believe that for $1,500 and no business experience, they can get in on the ground floor of an emerging industry,” Jodie Bernstein, director of the FTC’s office of consumer protection, told the news conference.
Authorities said that in the 900-number investment schemes, investors are sold stakes in so-called information-provider partnerships. Instead of owning a 900 number outright, investors are pooled in limited partnerships, responsible for leasing phone lines, paying for national promotion, and paying for fees to any endorsers used in “infomercials” or other advertisements. Because the market is so competitive, investors typically lose money, authorities said.
In the paging-license scams, victims are offered federal licenses for a paging frequency in a portion of a major city in exchange for $1,000 to $12,000. Authorities said investors are told they will be able to sell or lease their license to a large paging company for a substantial profit. But major paging companies don’t buy or lease licenses, because they don’t need them. Investors end up losing their licenses because under federal rules, they must use them or lose them.
Robert Friedman, assistant director of the FTC’s consumer protection bureau, said that in some cases, investors never received licenses--the con artists simply pocketed their money, he said.
In feeling out their elderly victims, the perpetrators frequently asked whether they had IRA or Keogh retirement accounts. In some cases, victims were falsely told that the investments were “IRS-approved” or “IRA-approved,” giving the victims a sense of safety, authorities said. The con artists often sent couriers to pick up the money before the victims changed their minds.
“If there is a lot of pressure to answer quickly, if they send a courier, it is almost always a scam,” Dee Harris, director of securities for the Arizona Department of Corporations, told the news conference.
The FTC said it is taking enforcement actions against eight businesses and freezing the assets of six of them, including three in California: American Fortune 900 and Bell Connections, both of Woodland Hills, and USA Channel Systems of Los Angeles. There was no answer at their offices Tuesday.
The Department of Corporations said it raided 11 companies at three locations in the state on Jan. 18, collecting financial records and evidence of felony securities fraud. It said those companies were attempting to raise $55 million from investors.
In addition, authorities in 15 states filed 32 lawsuits against businesses based in California.
The FTC’s Friedman said that although the victims were widespread, shady businesses tend to locate in Arizona, Nevada and California.
“They like the weather,” he said.