FTC, SEC Crack Down on Media Scammers
According to statements issued by the FTC, the scams range from promotions for production of infomercials to a plan for an Internet gambling casino.
One company which appears several times on the list was Affordable Media, based in Las Vegas, which is the parent company of Sterling Multi-Media. Also mentioned are two media sales companies called Financial Growth Consultants, San Diego, and Venture Capitalization, Denver. Several of Affordable Media's subsidiaries are included on the list of the 66 companies.
"[The FTC] lawsuit focuses on Affordable Media," said Gregory Ashe, an attorney for the FTC's Bureau of Consumer Protection. "They were selling media time to consumers and promising fabulous returns in a short period of time."
The FTC is charging that the defendants through telemarketers made unsolicited phone calls offering prospective investors the opportunity to purchase media units, which entitles owners to share the proceeds from the sales of products advertised in DRTV ads. According to the FTC, the telemarketers told investors that the products were being offered on TV for $20 each while the cost of goods amounted to $5, yielding a $15 profit for investors. The marketers told potential investors that each spot is "almost certain" to generate at least five sales, according to the FTC allegations.
The products included Aqua Bells, water-filled dumbbells, and The Talking Pet Tag. Sterling also sold a specialized plastic wrap cutter through the ads.
"The thing that makes it deceptive is that they are making misrepresentations to consumers and it is the consumers' money they are using to buy the media time," Ashe said. "Eventually the whole thing collapses because the number of investors gets so large you can't pay off the old investors. A lot of people get burned, like in all Ponzi Schemes."
A Ponzi scheme is scam in which investors are promised large returns on their investments in a short period then paid back with the money of later investors. The scheme is named after Charles Ponzi who developed the scam in the 1920s.
The FTC alleges that Affordable Media and its affiliates are guilty of the same practice. According to Ashe, investors were solicited by the companies telemarketing centers operated by the sales offices and promised investors 25 to 50 percent on their return in a 90-day period.
"On an annualized basis, after they took out their commission which they did not disclose, they were promising returns of 1,000 percent," Ashe said. "This is just false."
Affordable Media allegedly operated the scheme since March 1997. After the telemarketers closed a sale, the investor was sent an agreement to sign and return with the investment money, which averaged between $5,000 and $10,000, but in some cases ranged as high as $100,000, according to Ashe. The agreement promised exorbitant returns.
"It was a very multileveled operation which also had contracts with smaller units," said Ashe. "It wasn't the case where producers [of commercials] would contact Sterling, Sterling would contact them and say 'I want to produce commercials for your product.' This was not necessarily any sort of written contract."
The 11 defendants in the lawsuit face two counts. The first count is violation of the Federal Trade Commission Act, which prohibits the inducement of investors through a deceptive act or practice. The second count is violation of the Telemarketing Sales Rule. This rule prohibits misrepresenting, directly or by implication, any material aspect of an investment opportunity. Allegedly, the very offer of the contract was deceptive and misleading.
"This is not a class action, the remedies we seek are injunctive relief prohibiting them from doing certain types of things," Ashe said. "We are not sure how many defrauded customers there are we are still looking into that."
To prevent the defendants from continuing the practice of the Ponzi scheme, the FTC has, by court order, frozen the assets of Affordable Media and its affiliates and has demanded that the money kept in off-shore accounts be repatriated. Several of the defendants were incarcerated on contempt charges when they failed to obey the court orders.
Two of the 11 defendants, Michael K. Anderson and Denyse Lindaalyce Anderson, are currently being held on contempt charges, after they failed to repatriate funds that were being held in an off-shore account in the Cooke Islands.
"The money they brought in was $50 million gross," Ashe said. "We can't guarantee that we will find all of the money and we will try to get some consumer redress, but we don't guarantee anything."
In addition to the civil action taken by the FTC, the State of Nevada has filed criminal charges against the officers of Affordable Media.
The investigation has been ongoing since April 28, but has been hampered by the disappearance of Eric Stein, one of the operators of Affordable Media's Sterling Group. Ashe said Stein is missing and there is a warrant out for his arrest. Stein, when captured, faces up to 70 years in prison if found guilty of one count of racketeering, one count of conspiracy, four counts of securities fraud and three counts of selling unregistered securities, according to Nevada Deputy Attorney General Matthew Gabe.
In addition, Ina Liberty Bell, the daughter of the Stein and manager and resident agent of Affordable Media, faces the same sentence on the same charges plus one count of transacting business as an unlicensed broker dealer and two counts of transacting business as an unlicensed sales representative.
"This is the maximum sentence they can get if they are found guilty of all counts," Gabe said.
Nevada also charged Philip Balestrieri, a sales representative from the San Diego office, with one count of conspiracy to commit securities fraud, which he plead guilty to in an agreement with the attorney general's office. The charge is a gross misdemeanor and Balestrieri as part of the agreement could face up to a year in prison and a maximum fine up to $2,000.
Balestrieri's hearing was heard on Oct. 28. Bell's preliminary hearing was on Nov. 12.
"We didn't charge the company with a crime, technically we might have been able to, but we went after the individuals instead," Gabe said.