US Accuses Two Men of $80 Million ATM Ponzi Scheme

Manhattan U.S. Attorney Charges Two Defendants In $80 Million Ponzi Scheme

NEW YORK, Sept. 21 /PRNewswire-USNewswire/ — Preet Bharara, the U.S. Attorney for the Southern District of New York, and Joseph M. Demarest, Jr., the Assistant Director-in-Charge of the New York Office of the FBI, announced the unsealing of a ten-count indictment charging Vance Moore II and Walter Netschi for allegedly perpetrating an $80 million Ponzi scheme involving investments in Automated Teller Machines (ATMs). Moore was arrested Friday afternoon in Garner, N.C. Netschi is expected to surrender to federal authorities in Manhattan this morning.

According to the indictment unsealed in Manhattan federal court:

From 2005 through January 2008, Moore and Netschi solicited over $80 million dollars worth of investments in ATMs purportedly placed in various retail locations around the country, including convenience stores, gas stations, malls and hotels. Moore and Netschi claimed that the ATMs would generate revenue streams for the victims based on fees charged for withdrawals of cash. In truth and fact, Moore and Netschi did not use the victims’ funds to purchase ATMs, but rather used the money to further the fraudulent scheme and to enrich themselves.

Moore and Netschi entered into contracts with victims falsely representing that the victims collectively had purchased approximately 4,000 ATMs. In truth and fact, approximately 90 percent of the machines purportedly sold to the victims either did not exist or were never owned by Moore and Netschi. To further the fraudulent scheme, Moore transmitted monthly reports and monthly payments to the victims purportedly relating to their investments in the ATMs. In reality, the reports contained false information and the payments were not revenues from ATMs but were simply monies received by Netschi from new investors.

Moore made additional misrepresentations to victims who noticed discrepancies in the monthly reports or inquired about problems concerning ATMs they believed they had bought. For example, in the fall of 2006, a victim visited the location of an ATM in Florida that he thought he had purchased from Netschi’s company and that was purportedly being serviced by Moore’s company. The investor could not find the ATM and was informed by the hotel where the ATM was supposedly located that no such ATM existed. Moore then falsely represented to the investor that the ATM in question had been relocated elsewhere in Florida.

Moore and Netschi each are charged in the indictment with one count of conspiracy to commit wire fraud and nine counts of wire fraud. Each count in the indictment carries a maximum potential penalty of 20 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss derived from the offense. The indictment also seeks $80 million in forfeiture from Moore and Netschi.

Moore, 55, of Raleigh, N.C., is expected to be presented in federal court in the Eastern District of North Carolina later today. Netschi, 62, of McKinney, Texas, is expected to be presented in Magistrate’s Court in Manhattan federal court later today.

Mr. Bharara praised the work of the FBI in the investigation of this case. He added that the investigation is continuing.

“Vance Moore II and Walter Netschi used false promises and fake returns to steal tens of millions of dollars from their victims. We will continue to use the full resources of our office to expose the perpetrators and vindicate the victims of complex financial frauds,” said U.S. Attorney Preet Bharara.

“The defendants claimed the revenue in their investment opportunity derived from ATM fees. In fact, it was a classic Ponzi scheme, and the phantom revenue came from new investors. The scheme itself, until discovered, was one giant cash machine,” said FBI Assistant Director-in-Charge Joseph M. Demarest, Jr.

The case is being handled by the Major Crimes Unit of the U.S. Attorney’s Office. Assistant U.S. Attorney Antonia M. Apps is in charge of the prosecution.

SOURCE U.S. Department of Justice


Texas-based MLM, Stream Energy Sued

The Texas-based MLM, Stream Energy, Sued for Operating as a Pyramid Scheme

August 2009

The Texas-based MLM, Stream Energy, which sells gas and electric utilitiy services in Texas and in Georgia, has been sued for operating a pyramid scheme. The civil suit, which is seeking class ation status, claims that Stream misrepresents income potential, misleads consumers to invest as salespeople, is causing the great majority of “sales people” to lose money and is destined to collapse.

The suit notes that the ratio of Stream customers to salespeople is now only two to one. Therefore the income potential could only come from recruiting other sales people in an endless chain fashion. In such a plan, only a very small number can be successful and all others are doomed to failure. Stream’s pay plan is a typical MLM that pays earlier investors with funds invested by new ones in an “endless chain” plan.

The lawsuit will be eerily familiar to consumers who have watched the MLM industry. Stream is a type of MLM similar to Pre-Paid Legal, the now defunct Excel Communications, the travel scheme, My that was prosecuted as a pyramid scheme in California, and the telephone scheme, ACN which has also been prosecuted in Canada and Australia, but was able to continue based on rulings by judges. These schemes offer payments based on the number of new sales people recruited and each salesperson must also have a small number of retail customers to be qualified for commissions.

By using the endless chain pay plan the scheme can drive a large number of sales, though almost no sales people actually earn a profit and virtually none actually earn a profit for “direct selling.” Excel, for example, recruited 500,000 American salespeople in one year at one point and quickly became the 4th largest long distance phone service in America. Yet, 80% of its salespeople were quitting each year. It quickly spiked and declined rapidly, eventually going bankrupt, ruining all distributors and all shareholders. Pre-Paid Legal also enjoyed fast growth, but now is in steep decline, with recruiting slowing and the ratio of “retail” customers to salespeople narrowing. My Travel Biz became the 17th largest travel agency in America, though virtually none of its salespeople actually earned a profit from retail travel sales. The big earners were making money off all the other salespeople’s investments.

In these cases, the products are sold at competitive prices, but each salesperson must pay upfront and monthly fees in order to participate in the chain. The net result is to produce a large base of customers, but the incentives and promises made to the salespeople – which produce the sales – turn out to be false. The salespeople are churned in huge numbers as they discover that it is mathematically impossible for them to build their own large downlines.

Most other MLMs – which constitute a variation on the pyramid selling model – have virtually no retail customers at all and they usually hype grossly overpriced products. 40-60% of those high prices are then transferred to the top of the pyramid. In those cases, the MLM companies do not track retail sales at all, though they may officially claim that each salespeople is required to make retail sales.

The Stream Energy model builds in a requirement for a small number of retail sales, giving an appearance of greater validity. Some news analysts are blinded by the large number “sales” these schemes produce. They also do not understand the pyramid pay plan that tricks the salespeople into losing their investments and wasting their time and effort.

See The Complaint

Source: Pyramid Scheme Alert