Company Halts Coupon Book Distribution
A troubled company that sells coupon books to PTAs, Scouts and other nonprofit groups for fund-raisers now says it can’t afford to ship name-brand breakfast cereal and coffee already promised to thousands of consumers.
United Grocers Clearinghouse, in a letter mailed Wednesday to distributors, said it “felt compelled to close its doors to the public and suspend operations entirely” until a civil suit filed by the state attorney general’s office is resolved.
A telephone hotline is advising coupon holders that UGC won’t “accept or fill any future coupon orders for coffee and cereal.” The taped message also advises UGC distributors to stop selling coffee and breakfast cereal coupon books to nonprofit groups.
Since opening its doors less than a year ago, Costa Mesa-based UGC and its distributors have sold about $2 million in coupon books, mainly to nonprofit groups throughout Southern California. Consumers who bought books through fund-raisers would then redeem coupons for cereal from Kellogg’s, Post and General Mills and a variety of name-brand coffees that the company was mailing from its warehouse in Costa Mesa.
But according to court documents, UGC was really operating a Ponzi scheme, using new money to pay old debts. Investigators maintain that as of the beginning of March, the company has sold more than 210,00 books, which contain 30 coupons each, or more than 6.3 million coupons. UGC executives dispute the number as too high, but were unable to say how many had been sold.
The state maintains that if all outstanding coupons were to be returned, the tiny company would need as much as $41 million to buy and ship products to consumers.
UGC President Steven Lee on Thursday advised UGC customers to “be patient” while the company negotiates with a “nationally recognized retailer” that might allow UGC customers to exchange their coupons for unspecified goods.
Lee also blamed the company’s decision to temporarily suspend business operations on negative consumer reaction driven by “completely erroneous news reports” about the attorney general’s lawsuit, filed March 28 in Los Angeles Superior Court.
“All of this talk of Ponzi schemes, a house of cards, fraud . . . is completely incorrect. This is not a fraud and nobody’s being ripped off.”
UGC’s rapid growth is tied to a business plan that targets nonprofit organizations that are always scrambling for new ways to raise funds.
Lee, also identified in court documents as Steven Lee Ickes, blamed the civil lawsuit and resulting media coverage for scaring away business partners and creating the cash shortfall that has forced UGC stop shipments.
Lee maintains that UGC made money from advertisements that other companies paid to have mailed along with the cereal and coffee. Those companies quickly abandoned UGC when word of the lawsuit surfaced, he said.
While UGC won’t be shipping any more cereal, Lee said that consumers can still exchange their coupons for other goods, including whey milk and a private label coffee blend.
Times Staff Writer Diane Seo contributed to this report.
