Florida-based YouTube Ponzi Scam Draws Attention of SEC, Criminal Authorities
There is still plenty of stock fraud around that occurs the old-fashioned way, insider trading through phone calls, fraudulent shell companies, off-shore bank accounts, etc., but the proliferation of social media has opened a whole new limitless world for those who are inclined to commit fraud. One such case is the recent use of YouTube to dupe investors into placing their investment dollars in a Ponzi scheme.
The Securities and Exchange Commission (SEC) issued a press release on April 8 in which it charged two individuals and their South Florida-based companies with fraud. The SEC allegations state that Joseph Signore of JCS Enterprises, Inc. and Paul L. Schumack II of T.B.T.I., Inc. used YouTube to solicit investors to partake in purchasing what they refer to as Virtual Concierge machines (VCM). The VCMs are very much like ATMs, but are designed to be used by businesses to promote their products and services. A touch screen interactive display allows companies to not only tout their products, but it also allows customers to print coupons, find attractions, locate restaurants, or buy merchandise. The VCMs were supposed to be placed in hotels, ballparks, universities, or nearly any place that had a high volume of traffic.
The YouTube video promises that within four years, investors are guaranteed returns of 300 to 500 percent by doing no more than contributing the initial investment of $3,500. The funds collected from investors are solicited under the guise of purchasing “your own” VCM and the returns that they were promised would come from the revenue generated by the companies advertising on the VCM. Unfortunately for those who invested early, in following a typical Ponzi model, the initial returns that were paid actually came from the funds received from newer investors. Of the monies received, Signore and Schumack siphoned millions of dollars for personal expenses or on expenses that were unrelated to the VCMs.
As Ponzi schemes usually do, this fraudulent investment opportunity fell apart when new investors dwindled and early investors stopped getting their monthly payments. In spite of the absence of any real revenue stream, the men continued to try to solicit new investors while lying to angry current investors about why there was an absence of payments. In a move not unsurprising from such an unctuous company, JCS even issued a press release claiming that its co-conspirator, T.B.T.I., had defrauded JCS and they were “investigating the matter.”
The SEC’s complaint stated that since 2011, the men and their companies raised more than $40 million by guaranteeing astronomical returns. It continues on to state that JCS Enterprises used e-mail and investor seminars, in conjunction with the YouTube videos, to solicit investors. The video claims that the company will locate or place the VCMs while assuring prospective investors that they need do nothing more than make the initial investment. It continues on to say that investors would have online access to view the activity of their specific VCM. The rate at which the Schumack and Signore placed the VCMs was not equitable to the amount of money they had fleeced from interested investors, and those investors were never able to track activity of the VCM they thought they were investing in.
The SEC’s allegations don’t stop there. They further contend that Signore and Schumack misappropriated investor funds without informing the investors. Although Signore tried to use the JCS Enterprises press release to place the blame for these issues squarely on the shoulders of T.B.T.I., Signore, in fact, used about $2 million of these funds to benefit himself and his family. He also used investor monies for an unrelated business, and approximately $56,000 in debit transactions from the JCS accounts were used to pay restaurant bills, shopping expenses, and credit card bills.
As for T.B.T.I’s involvement, Schumack’s wife made a payment by check to the IRS in the amount of for $500,000. Schumack also withdrew approximately $4 million from T.B.T.I.’s investor account and placed it in another account from which he and others made in excess of 100 cash withdrawals totaling about $4.8 million. This $4 million withdrawal represented 91% percent of the investor account balance; furthermore, Schumack used an additional $23,000 in investor funds for personal expenses.
The SEC’s complaint seeks disgorgement of ill-gotten gains, prejudgment interest, and financial penalties among other relief for investors. They also requested a temporary restraining order and a temporary freeze of assets of both men and both companies which the Honorable Donald Middlebrooks granted. 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.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges.
If you have suffered losses as a result of the actions of JCS Enterprises, T.B.T.I., Mr. Signore, or Mr. Schumack, please call us at the Blum Law Group at 877-STOCK-LAW for your free consultation.