by Bill Singer
Business Opportunity Fraud From Sunny Costa Rica
February 15, 2012
For a good con to work, you typically need three key ingredients. One, a smooth talkin' con artist. Two, a mark who is willing to buy something that's too good to be true. Three, a plausible pitch.
As to the first piece - the savvy scamster - well, frankly, those that pull these things off seem to be born with the gift of gab. As to the second piece, what can I say, there's a sucker born every minute.
For me, the artistry of the rip-off is coming up with the pitch. What's being sold? Why is it a great buy? How much effort went in to make it look real?
Sounds Familiar?
Federal prosecutors allege that beginning in May 2005, John White, Michael Deevy and their co-conspirators fraudulently induced purchasers in the United States to buy business opportunities (typically for not less than $10,000) in
- USA Beverages Inc. (FL and NM corporation, rented offices in Las Cruces, NM);
- Twin Peaks Gourmet Coffee Inc. (FL and CO corporation, rented offices in Fort Collins, CO);
- Cards-R-Us Inc. (NV corporation, rented offices in Reno, NV);
- Premier Cards Inc. (CO and PA corporation, rented offices in Philadelphia, PA);
- The Coffee Man Inc. (CO corporation, rented offices in Denver, CO); and
- Nation West Distribution Company (CO corporation, rented offices Denver, CO).
Now some of those names may sound familiar to you. That's how the pitch is supposed to work. Trust me (but don't trust the fraudsters), those names are not what you think they are - namely, they're not successful, long-term businesses. That's the credit you gotta give to the guys who pulled this one off - the companies sort of sound real, like names that you've seen before. Unfortunately, these are notbona fide companies like Starbucks, Dunkin Donuts, Caribou, Panera, or Green Mountain Roasters - organizations whose names are often mimicked as part of these scams. The con artists may want you to make that association, and you may well have, but it's all make-believe.
According to a federal Indictment issued November 29, 2011, by a Miami, FL grand jury, notwithstanding the states of incorporation and the locations of the offices in Florida, Nevada, New Mexico, Colorado, and Pennsylvania, the defendants operated out of Costa Rica. Also, despite the fine sounding names of the companies, in fact, each company operated only for a few months, after which, one would close and another would open to take its place.
Apparently, it was no coincidence that the defendants used all the U.S.A. state incorporations and business addresses; to the contrary, the Indictment alleges the plan was to mislead potential purchasers into believing that the businesses were located entirely in the United States. About the most made-in-the-USA aspect of this alleged scam was that the various companies used bank accounts, office space and other services in the Southern District of Florida and elsewhere.
NOTE: An Indictment is merely an allegation, and every defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
Once again, the ugly head of a business opportunity fraud has reared its very ugly head.
Faking Sincerity
Federal prosecutors allege that in this business opportunity fraud, potential purchasers were told that the profits of some of the companies were based, in part, on the profits of the business opportunity purchasers. That was a seemingly clever bit of fraud because it gave potential investors the impression that the companies had some kind of stake in ensuring the success of the sold businesses - you make money, the companies make money. All of which then led into the faux sincerity about how important it was for the companies to find investors good locations. Hey, we take this seriously. We want to see you make a bundle because we retain a piece of the action. That's why were gonna find you a AAA spot.
According to the Indictment, additional misrepresentations made as part of the conspiracy included that:
- purchasers would likely earn substantial profits;
- prior purchasers of the business opportunities were earning substantial profits;
- purchasers would sell a guaranteed minimum amount of merchandise, such as greeting cards and beverages; and
- the business opportunity worked with locators familiar with the potential purchaser's area who would secure or had already secured high-traffic locations for the potential purchaser's merchandise stands.
The Indictment alleges that the companies employed various types of sales representatives, including fronters, closers, and references.
- Defendant White allegedly used assumed names, was a fronter and reference for USA Beverages, a fronter and reference for Twin Peaks, a fronter and reference for Cards-R-Us, a fronter, closer and reference for Premier Cards, and a fronter, closer and reference for Coffee Man.
- Defendant Deevy allegedly used assumed names, was a fronter and reference for Cards-R-Us, a fronter and reference for Premier Cards, a fronter for Coffee Man, and a fronter and reference for Nation West.
SIDE BAR:
Fronter: spoke to potential purchasers when the prospective purchasers initially contacted the company in response to an advertisement.
Closer: subsequently spoke to potential purchasers to close deals.
References: spoke to potential purchasers about the financial success they purportedly had experienced since purchasing one of the business opportunities.
Federal Charges
Defendants White and Deevy are charged with conspiracy to commit mail and wire fraud, and with committing their offenses via telemarketing. In addition, both defendants were charged with five counts of mail fraud and 13 counts of wire fraud. If convicted of conspiracy, White and Deevy face a maximum statutory term of 25 years in prison, a possible fine and mandatory restitution on the conspiracy count. They also face a maximum statutory term of 25 years in prison on each of the mail and wire fraud counts, a possible fine and mandatory restitution.
The United States intends to seek the extradition of White and Deevy from Costa Rica, where both men were arrested in early February 2012. Prior to the arrests of White and Deevy, eight other individuals were charged and arrested in connection with business opportunity fraud ventures based in Costa Rica. Seven of those eight other individuals have been convicted in the United States. The eighth individual, Jeffrey Pearson, is in custody in Costa Rica.
