SEC, Criminal Authorities Halt Florida-Based Ponzi Scheme Targeting Investors Through YouTube Videos
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.”
YouTube Video Used in Ponzi Scheme
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.