The Justice Department announced today the filing of several criminal and civil business opportunity fraud cases, initiated as part of a joint sweep with the Federal Trade Commission and several states. Business opportunity fraud schemes take advantage of people looking for work by luring them in with false promises of big profits and leaving them worse off than they started. The cases include criminal charges against 14 individuals and civil cases against three businesses. The criminal and civil cases announced today are part of a series of investigations named “Operation Lost Opportunity.”
The Justice Department’s cases are part of the efforts of the President’s Financial Fraud Enforcement Task Force and are being handled by the Civil Division’s Consumer Protection Branch, in coordination with the U.S. Attorney’s Offices for the Central District of California, the Southern District of California, the Southern District of Florida, the District of Oregon, the Western District of North Carolina, the Western District of Pennsylvania and the Southern District of Texas.
Seven different business opportunity schemes are the targets of the Justice Department’s actions. According to the charging documents, the criminal schemes involved placement of advertisements online and in newspapers that touted the profits that could be earned by purchasing a business opportunity to own and operate vending machines or display racks. The United States alleges that the schemes operated as follows: Salespeople explained that consumers who purchased the opportunity would earn substantial income from the equipment. According to the sales pitch, the vending machines or display racks would be placed in store locations in the purchaser’s hometown and would offer candy, refreshments or jewelry, depending on which opportunity was being offered. According to the sales pitch, the purchaser would then receive profits based upon sales from the vending machines or display racks.
“In an attempt to lure wary consumers, fraudsters have crafted business opportunity schemes that promise what appear to be more realistic returns backed up by false success stories,” said Tony West, Acting Associate Attorney General. “But we are more determined than ever to bring to justice those who are defrauding Americans out of their time, money, and faith in our economic system – this law enforcement sweep represents a coordinated effort to combat business opportunity fraud on multiple fronts.”
“Although years of criminal law enforcement attention has disrupted and deterred many fraudulent business opportunity schemes, some perpetrators have not yet heard the message – that defrauding entrepreneurial Americans out of their hard-earned money will result in stiff penalties,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division. “Members of the public should be on guard for the deceptive tactics used to attract victims, and avoid schemes that fail to abide by the FTC’s Business Opportunity Rule.”
Enticed by the promise of a “turnkey” business, hundreds of consumers lost millions of dollars purchasing the fraudulent business opportunities targeted in this sweep. The four businesses involved in the criminal component of the sweep include the following:
· Mark Five Inc., a Houston company that promoted a jewelry business opportunity. O n November 12, 2012 and November 14, 2012, the Department of Justice filed criminal informations charging Billie Joyce Sanders and Michael Cupina in connection with their conduct at Mark Five. Each defendant was charged with conspiracy, which carries a maximum prison term of five years. According to the charging documents, Mark Five salespeople referred potential business opportunity buyers to Sanders and Cupina, who falsely claimed to own and operate successful jewelry display racks. One other individual was previously charged in connection with Mark Five. In February 2012, a grand jury in Houston indicted Mark Five principal Robert King on charges of conspiracy to commit mail and wire fraud, and substantive mail and wire fraud. King’s trial is scheduled for February 2013.
· The Lauren Jewelry Collection, an Atascocita, Texas, company that promoted a jewelry business opportunity. On November 13, 2012, the Department of Justice filed a criminal information in the Southern District of Texas charging Regina Rush in connection with the Lauren Jewelry Collection. Rush was charged with one count of conspiracy, which carries a maximum prison term of five years. According to the charging document, Rush served as the proprietor of the firm and made false representations about the success of distributors and the authenticity of references. The charges state that Rush encouraged potential purchasers to call references who made false statements about their experiences with the Lauren Jewelry Collection.
· American Vending Systems (AVS), a Colorado company that promoted energy candy business opportunities. On November 14, 2012, the Department of Justice filed a criminal information in the Western District of Pennsylvania charging Pearl Pastilock in connection with her conduct at AVS. Pastilock was charged with one count of conspiracy, which carries a maximum prison term of five years. According to the charging document, AVS salespeople referred potential buyers to Pastilock, who falsely claimed to own and operate successful energy candy vending machines. Five other individuals were previously charged for their conduct at AVS and related firms. Richard Black, Gary Luckner, Lou Gubitosa, Trey Friedmann and Mel Hendricks were all charged and pleaded guilty to conspiracy charges for this conduct.
· Multivend LLC, dba Vendstar, a New York company that promoted candy vending machine business opportunities. On Oct. 10, 2012, a grand jury in the Southern District of Florida indicted 10 individuals for misrepresenting a number of facts in connection with the sale of Vendstar business opportunities. More information about these charges can be found at:
The charging documents referred to above contain only accusations against the defendants and are not evidence of guilt. The defendants should be presumed innocent unless and until proven guilty.
The civil cases the Justice Department filed allege that three businesses violated the Federal Trade Commission’s Business Opportunity Rule. The businesses include:
· The Zaken Corp., also doing business as The Zaken Corporation, QuickSell and QuikSell, (Zaken). Zaken is alleged to be a Thousand Oaks, Calif., corporation that offers a work-at-home business opportunity. According to the complaint against Zaken and its corporate officer Tiran Zaken, the defendants offer consumers a business plan to locate and contact businesses with excess inventory to sell. The complaint alleges that Zaken represents that once purchasers of the opportunity identify businesses interested in selling excess inventory, Zaken will find a buyer for the inventory and give the purchaser a “finder’s fee” equal to half of the total sales price. Among other allegations, the complaint filed by the Justice Department alleges that Zaken makes unsubstantiated claims, including that purchasers “can make thousands of dollars monthly for working just 2 to 4 hours a week from home.” This case was filed in the U.S. District Court for the Central District of California.
· Christopher Andrew Sterling, doing business as Sterling Visa, Rebate Data Processors and Credit Card Workers. Sterling is alleged to have run several work-at-home schemes from Southern California. According to the complaint, Sterling represents that purchasers of his opportunity will make a substantial income by “processing” applications for product rebates or credit card applications. Among other allegations, the government’s civil complaint alleges that Sterling failed to make required disclosures under the FTC’s Business Opportunity Rule and made unsubstantiated earnings claims. This case was filed in the U.S. District Court for the Southern District of California.
· Smart Tools LLC, a Tualatin, Ore., company. The complaint against Smart Tools and its corporate officer, Kirstin Hegg, alleges that the defendants have marketed a work-at-home business opportunity that teaches purchasers to locate people who are eligible for a partial refund of their FHA mortgage loan insurance premium. According to the complaint, the defendants tell potential buyers that they can charge a fee for information on how to obtain the refund. The defendants allegedly sent postcards to potential buyers stating that purchasers can earn up to $38,943 per year without stating what, if any, substantiation supports the earnings claim. Such a claim violates the FTC’s Business Opportunity Rule. This case was filed in the U.S. District Court for the District of Oregon.
Today’s announcement is part of efforts underway by the Consumer Protection Working Group (CPWG). The CPWG is part of President Obama’s Financial Fraud Enforcement Task Force which was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The CPWG brings together federal, state, and local law enforcement agencies, regulators, and other stakeholders to protect consumers from fraud that can devastate victims and cause widespread economic harm. Consumer fraud comes in many forms and can be found in fraud on our nation’s servicemembers, payday lending, high-pressure telemarketing schemes, internet scams, business opportunity scams, and unscrupulous third party payment processors. Scam artists often target vulnerable populations such as the unemployed and those already struggling with debt. Through this partnership, the CPWG is working to strengthen consumer protection efforts, leverage resources, enhance civil and criminal enforcement of consumer fraud and educate the public in an effort to prevent consumers from being victimized. For more information about the Financial Fraud Enforcement Task Force, visit www.stopfraud.gov .