900-Services Sale Pitch Jilts Some Investors
As the host of “The Newlywed Game,” Bob Eubanks explored the wonders of romance. Recently, he has been a spokesman for a 900-number dating service that left investors feeling jilted.
The service Eubanks hailed as “revolutionary” in an infomercial is under investigation for suspected investment fraud, part of a state and federal crackdown on a new form of scam that feeds on the psychic, chat and date lines that have become staples of cable TV.
Eubanks has not been accused of wrongdoing. However, his endorsement evidently influenced some of the 281 unwitting investors, who expected their partnership to earn $3.99 a minute when singles called a 900 number to find a date. The investors--many of them fans of Eubanks’ popular 1970s TV show--now are out a total of $3.4 million.
“I thought it had to be on the up-and-up,” said Cleve Fitzpatrick, an unemployed aerospace worker from Hawthorne so taken with Eubanks that he sank $50,000 into the Matchmaker Network. “I never suspected anything fishy.”
Welcome to the dark side of the world of celebrity endorsements. Government probes suggest a few suspected scam artists are working Hollywood’s B-list.
According to investigators, a big (or not-so-big) star can make an impression on the unsophisticated investors so often targeted by boiler-room operators.
“I’m sure some people saw Bob Eubanks and said, ‘Wow,’ ” said Bonnie Youngdahl, an attorney with the California Department of Corporations.
Besides Eubanks, entertainer LaToya Jackson and New York cop/Playboy model Carol Shaya have endorsed questionable 900-number services.
None of the celebrities has been accused of wrongdoing. There is no indication that the deals were more than easy paydays for the celebrities, who appeared in advertisements for the 900 numbers.
Court documents indicate that one company under investigation paid $250,000 to an intermediary to pay Jackson for titillating bits for a “Jackson Family Secrets” 900 number. In one recording, Jackson prattled about the childhood antics of her more-famous brother, Michael. Besides getting the dope on the Jacksons, callers can get an autographed picture of LaToya.
Eubanks, out of the limelight except for his annual stint as host of KTLA’s Tournament of Roses broadcast, received $15,000 for the dating infomercial, which was shot in one day at Magic Mountain before a studio audience.
It is not known what Shaya was paid to appear in advertisements for a chat line.
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The investigations are part of the sweeping Project Roadblock crackdown on high-tech frauds led by the Federal Trade Commission and agencies in 22 states. Separately, the Securities and Exchange Commission is probing possible securities law violations by some companies targeted in Project Roadblock.
As part of the crackdown, the FTC in January obtained a court order freezing the assets of a company called American Fortune 900, placing it in permanent receivership while the investigation continues. The agency has alleged that the Woodland Hills company misled investors by downplaying the risks associated with the 900 venture featuring the Jackson and Shaya lines, as well as a “Hollywood Pipeline” line by a former gossip columnist for the New York edition of Newsday, owned by Los Angeles Times’ parent company, Times Mirror.
Also in January, the California Department of Corporations searched the offices of several companies involved in the Matchmaker Network, including one named B.M.C.--which stood for “Bring More Cash,” according to information received by authorities. Investigators say B.M.C. managed a Matchmaker Network partnership in which investors lost 80% of their capital. The SEC is investigating B.M.C. in connection with the sale of unregistered securities.
In 900 number scams, telemarketers raise money from investors, ostensibly to get phone lines established and to pay for advertising. Investors are told to expect big payoffs when people start calling the numbers displayed in infomercials and ads.
The deals sour, investigators say, because any profits from the lines are consumed by advertising costs and salaries to telemarketers and promoters. An analysis done for the FTC by the Washington consulting firm of Strategic Telemedia asserts that American Fortune 900’s 180 investors have a “nearly zero” chance of recovering their total investment of about $3 million, in part because about 70% of investor funds went into salaries and other overhead. In an interview, the president of American Fortune 900 dismissed the analysis as “phony.”
In their pitches, suspected scam artists made use of the celebrity connection. According to authorities, copies of the Eubanks infomercial were shipped to some investors as a marketing tool. In the 30-minute infomercial, Eubanks sits in a chair and chats with beaming couples who presumably met through the Matchmaker Network. When a newlywed displays her ring, Eubanks cracks: “When is the baby due?” To a curvaceous woman who complains that a man she dated had been too short, Eubanks remarks: “I guess he thought you had big eyes.”
As the infomercial ends, Eubanks proclaims: “I think we’ve discovered something revolutionary here.” That’s just before a disclaimer appears stating that the happy couples are actors and “not actual consumers of the Matchmaker Network.”
Similarly, some investors in the company marketing “Jackson Family Secrets” received copies of the TV commercials for it, along with a call for more funds to get it on the air.
One bulletin sent to investors enthused about the prospects for the “no holds barred . . . exclusive” Jackson line, touting it as a “worldwide venture.” It continued: “May the future bring champagne wishes and 900 dreams.”
Although most top performers are highly protective of their images and closely review endorsement deals, other celebrities aren’t always as picky.
Eubanks said a Century City agency called R&R; Advertising approached him about doing the infomercial, which he viewed as a routine endorsement deal. He said he approved the script, deeming it “classy enough,” and received assurances that the dating service was “completely private.”
Eubanks said he did not inquire about the promoters of the Matchmaker Network because he had no stake in the venture, and he was unaware that the infomercial would be used to lure investors.
“I picked up my check. It didn’t bounce. I walked away,” Eubanks said.
Jackson’s husband and manager, Jack Gordon, said in a telephone interview from Spain that he was unaware of any probe into American Fortune 900. He declined further comment. Jackson was to receive 25 cents of the $2.99 a minute charged on the Jackson line.
Michael Shain, a columnist at New York Newsday until it was closed, could not be reached for comment on the Hollywood gossip line. He is not named in the investigation.
At least one celebrity is beginning to feel as jilted as investors. Shaya’s husband, New York police Sgt. Charles Castro, said she has yet to receive money from calls to the “True Blue” hot line. She was to receive 15 cents a minute. “They keep saying it is on the way, but we haven’t gotten it,” he said.
He said his wife’s deal was with a Manhattan company named Magical Promotions, which, according to court documents, signed talent on behalf of American Fortune 900. Castro said he did not know anything about American Fortune 900 or the government investigation. Magical has not been named in the FTC probe.
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Behind the famous names, authorities say, are veterans of unregulated telemarketing operations that range from precious metals to ostrich breeding. The FTC said Rory Cypers, the 25-year-old president of American Fortune 900, previously sold precious metals investments for Western Trading Group, an outfit the FTC shut down after an investigation in 1992.
In its court filings, the FTC said American Fortune 900 promised investors unrealistic gains, such as a sixfold return in two years. The agency said Cypers told some investors their money was protected against losses by a U.S. Treasury bond worth $4 million, and sent them worthless photocopies of the security to back up his claim.
When hype didn’t work, Cypers allegedly used threats.
A 78-year-old widow from Madera said in court documents that she invested $10,000 after Cypers threatened to sue her if she did not come up with the money. Months later, she invested another $5,600 when Cypers told her she was required to meet a capital call.
“He had me scared, so I did it,” the woman said in an interview.
The FTC has alleged that Cypers and American Fortune 900 engaged in deceptive promotional practices, and is seeking a court order requiring that investors’ funds be returned. American Fortune 900 has been barred from selling securities in four Midwest states.
Cypers dismissed the allegations against him and the company as “lies,” and said he did not profit from American Fortune 900.
State Department of Corporations investigators believe that a key figure behind the Matchmaker Network was Jonathan Shoucair, a veteran of telemarketing companies that sold unregulated investments in wireless cable and ostrich breeding. The agency has obtained an administrative order against Shoucair barring him from selling unregistered securities. He refused comment through his attorney, Irving Einhorn, the former Securities and Exchange Commission chief in Los Angeles.
Authorities say that Shoucair was an officer and director of a company called Madison Consulting, which shared an office in Canoga Park with B.M.C. Authorities say Madison acted as an unlicensed brokerage, selling investors stakes in a partnership called Touch Tone, which was managed by B.M.C. The Department of Corporations has filed an administrative order barring B.M.C. and Madison from selling unregistered securities. Madison faces a similar state order in Missouri.
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The Matchmaker Network was a black hole for investors’ money. With 80% of their $3.9 million gone, Touch Tone Partners tried to earn back lost funds. Last March, they paid R&R; Advertising $24,425 to air the Eubanks infomercial in scattered cities, but received revenue of $3,187 from 369 calls.
Investors say they were promised more. One San Francisco couple said in court documents that a telemarketer assured them of remarkable profits: double their $5,000 investment in 16 months for a total of $70,000 “long term.”
Several investors concluded that the infomercial did poorly because it ran late at night and because Eubanks, whose career peaked in the 1970s, no longer had much influence with singles.
“We had known of Bob Eubanks for years and got caught up in that,” said John Carter, 57, of Hawthorne, one of the few investors in the Touch Tone partnership who managed to sell his stake. “That’s what sold it originally. We forgot, basically, that he is getting up in years.”
Fitzpatrick, 40, now living with his parents as he recovers from his losses, says he learned a painful lesson about celebrity endorsements: “Don’t get swayed when you see your favorite celebrity promote a product. He is a paid actor. That’s all.”
