Arthur Toll, former president/CEO of Regal Communications Corp. Inc., a defunct infomercial marketing company in Fort Washington, PA, is scheduled to be sentenced to four years in prison without parole Dec. 3.
Toll entered a guilty plea agreement Aug. 6 to a series of federal crimes, including securities fraud, false statements to auditors, mail fraud and wire fraud.
Prosecutors said Toll participated in a conspiracy to report millions of dollars in bogus revenue and accounts receivable in Regal’s financial statements and to divert Regal stock worth millions of dollars to himself.
Regal chief financial officer Bruce Edmondson, a certified public accountant, also pleaded guilty to charges of securities fraud and making false and misleading statements to auditors. Meanwhile, Regal’s legal counsel, Elliot Fisher, entered a cooperation plea to testify against Toll and Edmondson.
“It was just amazing for a period of years he [Toll] was able to dupe his auditors and report these false revenues,” said Alicia Strohl Resnicoff, assistant U.S. Attorney for the Eastern District of Pennsylvania. “He was able not only to keep it afloat, but attract investors.”
Among the investors in Regal was celebrity Joan Rivers, whose company, Joan Rivers Products, merged with Regal in a stock swap deal.
“She had a profitable company and sold it for stock that ended up being worthless,” Resnicoff said.
An attorney representing Rivers said she had not filed a civil complaint against Regal or Toll, while the possibility of collecting damages appeared doubtful.
“We’re not sure what amount we would claim,” said Paul Sherman, a lawyer with Pryor Cashman Sherman & Flynn LLP., New York. “Basically, he [Toll] goes to jail and we applaud.” He deferred questions about restitution claims to the U.S. Attorney’s office.
While Toll agreed to pay $1.8 million in restitution as part of his plea agreement with prosecutors, a disbursement allocation would have to be determined by Judge Robert F. Kelly, the U.S. District Judge who presided over the case, Resnicoff said.
The plea agreement with prosecutors means that Toll will avoid a trial in which the government was prepared to present a mountain of facts to support its allegations.
Toll, who once appeared on the cover of Inc. magazine as an attention-grabbing entrepreneur, was the majority owner of Regal Communications, which owned two major subsidiaries. Regalfone Inc. was the operator of pay-per-call “900” services that included sex talk, psychic and horoscope programs. Regal Group marketed products through infomercials. The companies filed for bankruptcy Sept. 23, 1994, following auditor discoveries of financial irregularities that delayed its fiscal reports and triggered a federal investigation.
Fake Receivables, Forged Signature
Toll’s plea agreement indicates Regal reported retained earnings of $4.2 million and net income of $969,883 in 1992, but the government’s expert witness would be expected to testify that Regal actually had negative retained earnings of $1.26 million and a net loss of $4.5 million.
During that year, Toll and Edmondson allegedly inflated the revenue and receivables of Regal Group with two sets of bogus transactions.
Regal Group’s books indicated it was owed $2.2 million in “royalties” from Inphomation Inc., an infomercial marketing company in Baltimore whose biggest hit was the “Psychic Friends Network.” (Inphomation filed for bankruptcy in 1998). That receivable was based on a bogus contract signed by Toll and bearing the forged signature of Michael W. Lasky, the president of owner of Inphomation.
Lasky and Inphomation’s financial controller, Naresh Mirchandani, confirmed that Inphomation never owed Regal Group any royalties and the documents used by Edmondson to support the receivable are fake, according to prosecutors.
That same year, Regal also recorded a receivable of more than $3.1 million for sales of travel irons to an entity identified as Uprise Sales Inc. The receivable was paid down with two cashier’s checks – one for $1.3 million and the other for $1.5 million – that were printed with the name “Uprise Sales Inc.” as the remitter. Prosecutors said the receivable was bogus because Regal never sold irons to Uprise Sales and the money used to purchase those cashier’s checks came from another company called Gateway, which also was owned by Toll and Edmondson.
Toll and Edmondson also allegedly funneled more than $500,000 from Regalfone to TEL Entertainment, a video store owned by Toll, Edmondson and another Regal board member, Gerald Levinson.
“Regalfone’s books masked the true purpose of the transfer of these funds to TEL by classifying the $500,000 as ‘equipment purchase deposits’ on Regalfone’s books (which had the added benefit of being an asset),” the agreement says. “Although TEL was owned and controlled by Edmondson, they created fake invoices to make it appear as if the TEL involved in these transactions was a different company.” Toll and Edmondson then circulated the money back to Regal to pay for their own Regal stock and warrants.
It Gets Worse
While Toll and Edmondson managed to hide a net loss of $4.5 million in fiscal 1992, they went further the following year, hiding a net loss of $17.4 million, according to the U.S. Attorney. The company reported to auditors negative retained earnings of about $3.7 million and a net loss of $7.8 million in fiscal 1993.
That year, Toll and Edmondson allegedly circulated millions of dollars between Regalfone and Clark Advertising, an agency they owned and operated. While Regalfone would pay Clark for media airings, Clark would pay Regalfone for revenue it earned from various long-distance companies and service bureaus, including National Audiotex, which also was owned by Toll and Edmondson.
“Although Regalfone did purchase some media time through Clark during this period, that amounted to $5-6 million at most, not the $24 million claimed in Regal’s books,” the government says. “Clark never collected money from National Audiotex, Inphomation, AT&T or any other long distance phone company or service bureau which it would need to remit to Regalfone.”
While the Regal is estimated to have lost between $20 million and $40 million, it did not appear to prosecutors that Toll embezzled funds, Resnicoff said.
“It’s not like he stole $20 million from the company,” she said. “The company was having serious financial problems and instead of reporting it, he [Toll] hid it.”