66 Firms Accused of Telemarketing Fraud
Federal and state regulators Tuesday accused 66 investment firms of defrauding investors nationwide out of more than $43 million by marketing bogus movie productions, cable programming, infomercials and other entertainment-related ventures.
The largest swindle, according to officials at the Federal Trade Commission, appeared to be My Pet TV, an animal-themed cable channel promoted by Los Angeles-based telemarketers who raised $16.5 million from about 1,200 unwitting investors but failed to air any programming. The enterprise was first publicly exposed by an article in The Times in May.
Regulators also moved against a Southern California firm that allegedly lured hundreds of investors with slick pitches for an infomercial selling a package of Elvis Presley memorabilia, including a previously unreleased recording. In fact, the FTC said in court documents, the package did not include the promised recording, and the infomercial did not air as scheduled.
“Show biz schemes have enormous appeal,” said Jodie Bernstein, director of consumer protection for the FTC, at a Washington news conference. “They play on the glitz of Hollywood. They are touted with fabulous earnings claims, promoted with deceptions, and virtually all the investors end up losing their money.”
Among those is Dean Cooke of Vienna, Va., a 57-year-old retired aerospace engineer who said Tuesday that he lost $20,000 invested in “Operation: Desert Gold,” a treasure hunt movie starring Erik Estrada ostensibly being produced by Rynell & Associates and Van Nuys-based Alpine Pictures.
“The pull was that it was going to be a wholesome movie,” Cooke said. “I’m disappointed I was so gullible. It’s a hard lesson.”
While “get rich quick” telemarketing schemes have recently begun featuring Hollywood themes, fraud investigators say they follow the pattern of traditional “boiler room” scams, in which naive investors receive high-pressure telephone sales pitches offering stratospheric investment returns.
Such telemarketing fraud has turned into a $40-billion-a-year business involving solicitations for investment schemes based on oil and gas wells, precious metals, computer software and other products.
Tuesday’s crackdown, dubbed Operation Risky Business, was mounted by the FTC and the Securities and Exchange Commission. The federal agencies joined with securities regulators from 20 states who issued cease-and-desist orders against many of the targeted firms and obtained restraining orders against those and others.
The investment schemes at issue included not only film and television productions, but online casinos, themed restaurants featuring laser shows or psychics, and a microbrewery.
No criminal charges have been filed at the federal level.
The top-selling investment scheme involved in Tuesday’s action was My Pet TV, offered by two firms with offices in Los Angeles and Studio City.
The FTC charged the venture’s alleged principals, cable-TV promoters Michael Marcovsky and Sheldon Altfeld, with defrauding investors by telling them that My Pet TV, which ostensibly aired pet-themed programming, was already broadcasting on the Oasis TV network, according to a lawsuit filed by the FTC in Los Angeles.
A Los Angeles judge has frozen the company’s assets and issued a restraining order to prevent it from making more calls, and has appointed a receiver to oversee what remains of the firm, authorities said. Investors in the company have filed their own lawsuit to recover their money and punitive damages.
The investors were originally enticed into placing $10,000 or more each into a scheme to provide nonviolent children’s programming to cable television systems around the country.
In fact, as the investors’ lawsuit and The Times’ investigation disclosed, most of that money was lost to exceptionally high sales commissions, and little was left over to buy programming.
Eventually, the FTC charged, Altfeld and Marcovsky diverted the remaining $650,000 in investors’ funds to My Pet TV, which was operated by Marcovsky. My Pet TV never broadcast the programming it claimed, the FTC said.
FTC officials said they consulted an FBI library of secretly tape-recorded conversations between telemarketers and elderly volunteers posing as potential investors. Regulators also used their own investigators to surreptitiously record telemarketing calls and catch salesmen allegedly misrepresenting the truth.
The FTC alleged that another firm, Automated Systems and Concepts International Inc. of Los Angeles and Las Vegas, fooled investors by claiming they could reap a 50% return on their money in four months if they sent in $10,000 to help produce an infomercial promoting a package of Elvis Presley memorabilia to air on the 20th anniversary of the singer’s death--Aug. 16, 1997.
According to the agency, investors were told that the package would include a book, “Elvis Immortal,” which would be made the official book of Graceland, Presley’s estate in Memphis. The telemarketers raised about $12 million, but the infomercial failed to appear on the anniversary date.
In another suspected fraud, a company executive-producing “Operation: Desert Gold,” a movie in which Desert Storm soldiers discover buried treasure, sold securities in its partnership.
SEC lawyers said the firm kept inflating the required “budget” so the firm could keep bilking its original investors, and delayed production of the movie indefinitely.
But officials cautioned that, even if regulators intervene, telemarketers will probably move on to another trend.
“If history teaches us anything, it’s that people who are hell-bent to commit fraud will find new and original ways to do so,” said SEC enforcement director Richard Walker. “They will attempt to modify their behavior when they know the jig is up.”
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Companies Targeted for Shutdown
Federal and state regulators announced a series of actions Tuesday against allegedly fraudulent firms selling entertainment-related securities. The Federal Trade Commission and the Securities and Exchange Commission filed lawsuits to shut down several of the firms. State authorities have filed court actions to stop the following companies from marketing in their particular states.
Abbey-Ashford Securities Inc.; New York
Affordable Media, LLC dba Sterling Group; Colorado, Missouri and Nevada
Alliance Media Group; Pennsylvania
Automated Systems & Concepts International Inc.; California
Bakersfield Productions LLC; Wisconsin
Big Killing Productions; Kansas
BJO Enterprises Ltd.; Texas
Broadcast Services Inc.; New Jersey
Capital Funding Group Inc.; Alabama
Capital Funding & Financial Group Inc.; Hawaii, Illinois, Iowa, Massachusetts, Ohio and Washington
Children’s Awareness Network; Wisconsin
Children’s Awareness Network Affiliate Partners; Wisconsin
Children’s Cable Network; Alabama
Commercial Express; Pennsylvania
Denis M. Benson; Iowa
Financial Growth Consultants, LLC dba Sterling Marketing Group a.k.a. Inter Com Business Consultants LLC; Wisconsin
Firestorm Productions; Kansas
Global International Marketing; South Dakota
Hero Partners LP; Wisconsin
Holocolor LLC; Kansas
Holoworld; Kansas
Hoppy Brewing Co. Inc.; Illinois
Infomercial Capital Partners, LLP; South Dakota
Infomercial Designers LLC; Kansas
Internet Casino Sports Gaming Inc.; Pennsylvania
Internet Casino Sports Gaming LLC; Pennsylvania
J & J Film Distributors Inc.; Wisconsin
Ki Digital Inc.; New Jersey
KidsNet Connect LLC; Massachusetts
KidZtime TV Inc.; Hawaii, Illinois, Iowa, Massachusetts, Ohio and Washington
LCA Films Inc.; Pennsylvania
Little Giant LLC; Pennsylvania and South Dakota
Music Venture Partners; Pennsylvania
Network Media Marketing; Wisconsin
North American Broadcasting Partners; California
North American Broadcasting Partners II; Kansas
Olympic Entertainment Group Inc.; Alabama
Pier2 Communications; Alabama
The Populus Co.; Illinois
The Prophet’s Game; Pennsylvania
Psychic Cafe/J.P. Michaels; New York
Rose Media Group LLC; South Dakota
Royalty Films Inc.; Wisconsin
Shalakan LLC; Pennsylvania
Spooky House Entertainment LLC; Indiana and Pennsylvania
St. Paul Film Foundation; Delaware and Massachusetts
Starquest Capital Management, LLC; Indiana and Pennsylvania
Sterling Capital Management Group, Inc. dba Superior Capital Management Inc.; Wisconsin
Sunset Over Texas, LLC; South Dakota
Taramar Venture Capital LLC; Massachusetts
Tri Star Capital Management Inc.; Illinois and Iowa
Vincon International Group; Wisconsin
Vincon International Production Corp.; Wisconsin
White Witch Doctor Inc.; Washington
World Interactive Gaming Corp.; New York, South Dakota and Wisconsin
