SEC CHARGES, FREEZES ASSETS OF "VIRTUAL CONCIERGE MACHINES" (VCM) ALLEGED PONZI SCHEMERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a South Florida-based Ponzi scheme targeting investors through YouTube videos and selling them investments in a product called virtual concierge machines (VCMs) that would purportedly generate guaranteed returns of 300 to 500 percent in four years.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges.

The SEC alleges that Joseph Signore of West Palm Beach, Paul L. Schumack II of Pompano Beach, and their respective companies JCS Enterprises Inc. and T.B.T.I. Inc. falsely promised hundreds of investors nationwide that their funds would be used to purchase ATM-like machines that businesses could use to advertise products and services via touch screen and printable tickets or coupons.  Investors supposedly needed to do nothing to earn returns on their investment in a VCM, which would purportedly be placed at such locations as hotels, airports, and stadiums where they would derive revenue from the businesses paying to advertise through them.  However, instead of advertising revenue serving as the driving force behind the returns paid to investors, the two men and their companies paid returns to earlier investors using money from newer investors.  Signore and Schumack also diverted millions of dollars in investor funds for their personal use and other unrelated expenses.

“Signore and Schumack touted VCMs as a revolutionary enterprise and fail-safe investment based on a stream of advertising revenue that would generate the guaranteed returns paid to investors,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “However, the advertising revenue was virtually non-existent and investors aren’t enjoying the riches touted on YouTube.”

According to the SEC’s complaint unsealed today in U.S. District Court for the Southern District of Florida, Signore, Schumack, JCS, and T.B.T.I. fraudulently raised more than $40 million since at least 2011 by guaranteeing exorbitant returns.  The SEC alleges that JCS Enterprises promoted VCMs through YouTube videos, e-mail solicitations, and investor seminars.  In one YouTube video, an apparent investor is polishing his new Cadillac as a friend proclaims, “What an amazing car! How can you afford this?”  The investor responds, “My Virtual Concierge.”  A similar scene ensues with a different investor showing a friend her new pool.  A spokesperson appears and asks the viewer, “Do you want to make more money?  Then it is time for you to own a Virtual Concierge.”

The SEC alleges that Signore, Schumack, and their companies promised to locate, place, and manage the VCMs while informing investors where their VCMs were located.  Investors were to be provided a password to allow them online access to monitor the activity of their VCMs.  However, VCMs were not placed anywhere near the rate of those purchased by investors, who were never provided the locations of their VCM and could not track activity as promised.  The scheme collapsed in typical Ponzi fashion once new investor funds dried up.  The majority of investors stopped receiving their monthly payments in January 2014, yet Signore and Schumack continued to solicit new investors while fabricating excuses to placate irate investors no longer receiving their returns.  JCS went so far as to issue a press release claiming that TBTI had defrauded JCS and it was “investigating the matter.”

Glenn S. Gordon, associate director of the SEC’s Miami Regional Office, said, “The defendants never told investors the most important way in which these machines resembled ATMs – as a source of ready cash from investors that the defendants used for their own benefit.”

The SEC also alleges that Signore and Schumack misappropriated investor funds for themselves while never telling investors they would do so.  Signore used investor funds from accounts at JCS to divert approximately $2 million directly to himself and family members. Signore also routed investor money to unrelated business ventures he operates with his wife.  Debit charges from JCS accounts indicate that approximately $56,000 in investor funds were spent at restaurants, merchandising stores, and a tanning salon as well as other credit card bills.  Money from T.B.T.I’s accounts was similarly used for personal expenses.  For example, Schumack’s wife signed a check for $500,000 made out to the IRS.  T.B.T.I. also has transferred approximately $4 million from its investor account to an unrelated account from which Schumack and others executed more than 100 cash withdrawals totaling around $4.8 million, which was 91 percent of the account balance.  Another $23,000 of investor money was used by Schumack for personal expenses including restaurants, merchandising stores, and a nutrient therapy center.

The SEC’s complaint charges JCS Enterprises, T.B.T.I., Signore, and Schumack with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 along with Rule 10b-5.  The SEC seeks disgorgement of ill-gotten gains, prejudgment interest, and financial penalties among other relief for investors.  The Honorable Donald Middlebrooks granted the SEC’s request for a temporary restraining order and a temporary asset freeze against JCS, T.B.T.I., Signore and Schumack, and further required the defendants to provide accountings.  Judge Middlebrooks also entered an order appointing James D. Sallah, Esq. as receiver for JCS and T.B.T.I.  A court hearing has been scheduled for April 17.

The SEC’s investigation, which is continuing, has been conducted by Fernando Torres, Linda S. Schmidt, Vincent T. Hull, and Mark Dee in the Miami Regional Office.  The case has been supervised by Jason R. Berkowitz.  The SEC’s litigation is being led by Russell Koonin and Mr. Hull.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida as well as the Federal Bureau of Investigation, Florida Office of Financial Regulation, and Texas State Securities Board.

FTC GOES AFTER AUTO DEALERS FOR FALSE ADVERTISING

FROM:  FEDERAL TRADE COMMISSION 
FTC Announces Sweep Against 10 Auto Dealers
‘Operation Steer Clear’ Drives Home That Auto Ads Must Be Truthful

The Federal Trade Commission announced today that nine auto dealers agreed to settle deceptive advertising charges, and the agency is taking action against a 10th dealer, in a nationwide sweep focusing on the sale, financing, and leasing of motor vehicles.

According to the complaints, the dealers made a variety of misrepresentations in print, Internet, and video advertisements that violated the FTC Act, falsely leading consumers to believe they could purchase vehicles for low prices, finance vehicles with low monthly payments, and/or make no upfront payment  to lease vehicles. One dealer even misrepresented that consumers had won prizes they could collect at the dealership.

“Buying or leasing a car is a big deal, and car ads are an important source of information for serious shoppers,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Dealers’ ads need to spell out costs and other important terms customers can count on. If they don’t, dealers can count on the FTC to take action.”

‘Operation Steer Clear’ is the latest effort from the FTC to protect consumers in the auto marketplace. The dealerships that settled are charged as follows:

California

Casino Auto Sales of La Puente, Calif., and Rainbow Auto Sales, of South Gate, Calif., allegedly violated the FTC Act by deceptively advertising that consumers could purchase vehicles at specific low prices when, in fact, the price was $5,000 higher. Both dealers’ ads involved a mix of English and Spanish. Honda of Hollywood, Los Angeles, and Norm Reeves Honda of Cerritos, Calif., violated the FTC Act by deceptively advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts. The ads also allegedly violated the Consumer Leasing Act (CLA) and Regulation M, by failing to disclose certain lease related terms. Norm Reeves Honda’s ads also allegedly violated the Truth in Lending Act (TILA) and Regulation Z, by failing to disclose certain credit related terms.

Georgia

Nissan of South Atlanta of Morrow, Ga., allegedly violated the FTC Act by deceptively advertising that consumers could finance a vehicle purchase with low monthly payments when, in fact, the payments were temporary “teasers” after which consumers would owe a different amount. The ads also allegedly violated TILA and Regulation Z, by failing to disclose certain credit related terms.

Illinois

Infiniti of Clarendon Hills of Clarendon Hills, Ill., allegedly violated the FTC Act by deceptively advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts. The ads also allegedly violated the CLA and Regulation M, by failing to disclose certain lease related terms.

North Carolina

Paramount Kia of Hickory, N.C., allegedly violated the FTC Act by deceptively advertising that consumers could finance a purchase with low monthly payments when, in fact, the payments were temporary “teasers” after which the consumer would owe a much higher amount, by several hundred dollars. The ads also allegedly violated the TILA and Regulation Z, by failing to clearly and conspicuously disclose certain credit related terms.

Michigan

Fowlerville Ford of Fowlerville, Mich., allegedly violated the FTC Act by sending mailers that deceptively claimed consumers had won a sweepstakes prize, when, in fact, they had not. Some of their ads also allegedly violated TILA and Regulation Z, by failing to disclose certain credit related terms.

Texas

Southwest Kia companies, including New World Auto Imports, Dallas, Texas, New World Auto Imports of Rockwall, Rockwall, Texas, and Hampton Two Auto Corporations, Mesquite, Texas, allegedly violated the FTC Act by deceptively advertising that consumers could purchase a vehicle for specific low monthly payments when, in fact, consumers would owe a final balloon payment of over $10,000. The companies also allegedly deceptively advertised that consumers could drive home a vehicle for specific low up-front amounts and low monthly payments when, in fact, the deal was a lease and they would owe substantially more up-front. The ads also allegedly violated the CLA and Regulation M, by failing to disclose certain lease related terms, and the TILA and Regulation Z, by failing to disclose certain credit related terms.

The proposed consent orders settling the FTC’s charges in the nine cases are designed to prevent the dealerships from engaging in similar deceptive advertising practices in the future. The orders prohibit the dealerships from misrepresenting in any advertisement for the purchase, financing, or leasing of motor vehicles the cost of leasing a vehicle, the cost of purchasing a vehicle with financing, or any other material fact about the price, sale, financing, or leasing of a vehicle. When relevant, the proposed consent orders also address the alleged TILA and CLA violations by requiring the dealerships to clearly and conspicuously disclose terms required by these credit and lease laws. In the case where the dealerships misrepresented that consumers had won a prize, the proposed order also prohibits misrepresenting material terms of any prize, sweepstakes, giveaway, or other incentive.

The FTC would like to thank the Los Angeles Department of Consumer Affairs for its assistance with multiple investigations in California, and the Michigan Department of Attorney General for its assistance with the investigation in Michigan.

The Commission votes to accept the packages containing the nine proposed consent orders and complaints for public comment were 4-0. The agreements will be subject to public comment for 30 days, beginning today and continuing through Feb. 10, 2014, after which the Commission will decide whether to make the proposed consent orders final. Submit a comment electronically:

Casino Auto Sales
Honda of Hollywood
Fowlerville Ford
Infiniti of Clarendon Hills
Nissan of South Atlanta
Norm Reeves Honda Superstore
Paramount Kia
Rainbow Auto Sales
Southwest Kia
Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

In addition, the FTC issued an administrative complaint against Courtesy Auto Group of Attleboro, Mass. The FTC alleges the dealership violated the FTC Act by deceptively advertising that consumers can lease a vehicle for $0 down and specific monthly payments when, in fact, the advertised amounts exclude substantial fees. The ads also allegedly violate the CLA and Regulation M, by failing to disclose or clearly and conspicuously disclose certain lease related terms.

The Commission vote to issue the administrative complaint was 4-0.

FTC CHARGES MARKETER WITH DECEPTIVE ADVERTISING OF RAPID WEIGHT LOSS PRODUCT

FROM:  FEDERAL TRADE COMMISSION 
FTC Charges HCG Marketer with Deceptive Advertising

Defendants Promised Dietary Supplement Would Cause Substantial Weight Loss
The Federal Trade Commission has sued an Arizona man who markets HCG Platinum diet products by falsely claiming the products will cause consumers to lose substantial amounts of weight. Kevin Wright and his companies must respond to the complaint in federal court.
HCG, or human chorionic gonadotropin, is a hormone produced by the human placenta that, for decades, has been falsely promoted by various marketers for weight loss. In November 2011, Wright and six other HCG marketers received warning letters issued jointly by FDA and FTC staff, advising them that their HCG products are mislabeled drugs under the FDA Act, and warning that it is unlawful under the FTC Act to make weight-loss claims that are not supported by competent and reliable scientific evidence.

Marketing through retail outlets such as GNC, Rite Aid, and Walgreens, and through their own websites, Wright and his companies, HCG Platinum and Right Way Nutrition, LLC, promise consumers that HCG Platinum liquid drops will cause rapid and substantial weight loss, and they claim consumers will likely lose as much weight as the endorsers in their advertisements.

The defendants, who also make claims on Facebook, on product packaging, and in Internet pop-up ads and magazines, direct consumers to place the HCG concoctions under their tongues before meals and stick to a very low calorie diet of 500 to 800 calories per day. They typically charge between $60 and $149 for a thirty-day supply of one of their three HCG Platinum formulations.

The defendants market two of their three formulations as “homeopathic,” which means the listed ingredients are diluted to the point they are undetectable. On product packaging and in other advertising, they claim that the products cause consumers to lose a pound a day, are safe to use, and are clinically proven to burn fat, reduce weight, and lower cholesterol.

The defendants have sold more than $13 million of HCG Platinum since 2010. The FTC has asked the court to order the defendants to surrender the ill-gotten gains they received from their deceptive marketing of HCG Platinum products.

Consumers should be skeptical of advertisements that tout HCG as a weight-loss treatment.

For more information see the FDA video, Being Fooled by Empty Diet Promises.

The complaint also named seven relief defendants, who received money from sales of the HCG product, but had no active role in the alleged efforts to deceive consumers: Weekes Holdings, LLC; Primary Colors, LLC; KMATT Holdings, LLC; Nutrisport Holdings, LLC; Ty D. Mattingly; Julie Mattingly; and Annette Wright.

The Commission vote authorizing the staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the District of Arizona on October 30, 2013.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.