From the Courts: Justice Watch: 'Biz Op' scams: a quick way to get fleeced

September 11, 2006 Daily Business Review
By: John Pacenti

In the world of South Florida schemes and cons, there is always a new way to dress up the same old pig. 

These days it’s peddling “business opportunity investments” in DVD vending machines, dial-up ATMs, mobile check-cashing units and Internet kiosks to those susceptible to the get-rich-quick American myth. 

The scam artists have been keeping the U.S. attorney’s office for the Southern District of Florida busy. 

Federal prosecutors nickname these types of crimes “biz op” — short for business opportunity fraud. U.S. Attorney Alex Acosta said his office is cracking down on scams that have robbed millions of dollars from thousands of victims. 

Since February 2005, the USAO’s Economic and Environmental Crimes division estimates it has filed charges against about 40 people involved with about a dozen companies. They promised people a way to earn big-time income with relatively little effort in mostly turnkey businesses. 

Federal prosecutors say members of the public are targeted when they bite on advertisements — television, Internet or others — for a generalized business opportunity. These leads are then passed on to boiler rooms, where skilled phone sales staff peddle the “once-in-a-lifetime” opportunity. The technique has been working for decades. 

Prosecutors say the companies have defrauded more than 4,000 victims of $60 million. 

In August, a federal jury in Miami convicted Scott Rose of North Miami Beach on mail fraud, wire fraud and conspiracy for his role as a salesman for CheckMate Financial Inc. 

CheckMate told investors that it had mobile check-cashing vans, accompanied by two off-duty police officers, that would visit construction sites, hospitals, cruise ships and large factories to cash paychecks. Investors were told that routes were established. 

Investors, who were promised 18 percent on their investment, lost $2.5 million. Rose’s attorney, Richard Douglas Docobo of Miami, said the defense felt it had to prove through testimony that there was no conspiracy to defraud. 

“These are sad cases,” said Alicia Valle, spokeswoman for Acosta’s office. “There are some horror stories out there. Retirees, who lost their life’s savings, people who had to change their lifestyle, parents who can’t send their kids to college.” 

The scam du jour 

A few years ago, South Florida’s ubiquitous telemarketing boiler rooms were focused on selling foreign exchange investments. Now it looks like the turnkey “biz op” is the scam du jour, solidifying the area as one of the nation’s capitals for silver-tongued thieves. 

“It’s kind of the wild west down here,” said David R. Chase, a former Securities and Exchange Commission prosecutor now in private practice in Hollywood. “Not everybody knows each other. It’s a great area for people to come in and commit crimes like this.” 

The Securities and Exchange Commission and the Federal Trade Commission also have gone after these companies to shut them down. And a few individuals have successfully sued in civil court to get back their money. More have been left destitute, however. 

“Most of these scammers spend their income very quickly,” said Michael Davis, an FTC attorney in Washington, D.C. “They buy nice things for themselves. So often, the return for consumers is just pennies on the dollar.” 

Miami attorney Frank L. Hollander, who said he has represented dozens of those ripped off in biz op scams, said many of his clients are retirees. One lost close to $400,000. Others have lost their homes and had their marriages fall apart in the wake of financial ruin. 

Hollander said he was able to get injunctions to drive the fly-by-night firms out of Miami. “We took care of that cancer on society,” he said. 

Hollander said he still is pursuing a man he calls the “kingpin” of one of these companies to pay a $100,000 judgment. “He’s living in a mansion,” Hollander said. “He’s driving around in a Lamborghini and has a Swiss bank account.” 

Why do seemingly intelligent people part with their hard-earned savings without conducting greater due diligence? Kendall Coffey, a former U.S. attorney in Miami, said part of the reason is the all-American appeal of entrepreneurship. 

“They take a simple formula of promising huge profits from an investment and add on to that entrepreneurship,” Coffey said. “It’s more than simply buying a passive investment in swampland or ownership in the Brooklyn Bridge. These scams say you can farm the swampland.” 

Successful prosecutions 

The newer type of scam has kept investigators for the FBI and U.S. Postal Inspection Service busy. Their work is coming to fruition. 

On Aug. 31, the former operator of one of these biz op schemes, Leonard Needelman, was sentenced to 97 months in prison for mail fraud. His attorney, Allen Katz, could not be reached for comment. 

Needelman’s company, Cash Link Systems Inc., peddled “cashless” ATMs in which the public could swipe their debit cards and receive a receipt that could then be taken to a store for credit or cash. The machines sold for $12,000 apiece. It is charged with fleecing 800 people out of $15 million by saying they would earn their investment back in a year or less. 

In July, the first of eight defendants in another case was sentenced to 33 months in prison after pleading guilty in connection with a fraudulent scheme to sell DVD vending machines. 

Thomas R. Kling worked for Hollywood-based American Entertainment Distributors Inc. (AED), which prosecutors say exaggerated profit projections, falsely promised good locations and as references, gave prospects the phone numbers of people who supposedly prospered in the business opportunity. 

His attorney, Hector Dopico of the federal public defender’s office, declined to comment. 

AED sold more than $19 million of its DVD vending machines in 2003 and 2004. 

The phony phone reference is a traditional con right out of David Mamet’s play and movie “Glengarry Glen Ross,” which depicted the ruthless boiler room environment. 

“To sort of close the deal, they say, ‘By the way here are names of people who have purchased the machines,’ “Valle of the U.S. attorney’s office said. “What they are not telling you is the reference is somebody they paid to lie to these folks, to tell them ‘Yes, I’m a satisfied consumer.’ ” 

In a May indictment against a firm called Pantheon Holdings, nine defendants are accused of running a scam involving Internet kiosks. Four defendants associated with Pantheon have pleaded guilty. 

Pantheon promoted its business to consumers across the country in TV ads. It claimed that for a mere $18,000, Pantheon would perform all the legwork for the business operator. The only thing the business operator needed to do was plug in the Internet kiosk, wipe it down occasionally, and collect the cash. 

Pantheon’s take: $17 million from 700 investors. It no longer exists, but four of its former employees have pleaded guilty to fraud and the company’s territorial manager — Jay Mayne — is scheduled for sentencing today. Mayne’s lawyer, Martin A. Feigenbaum of Miami, did not return a call for comment. 

“The product may be different but the trickery, deceit and the means they swindle people’s money don’t change,” said Chase, the former SEC prosecutor. “At the end of the day, it’s the same wolf in sheep’s clothing.” 

Alex Acosta photo by Aixa Montero

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