Spitzer Obtains $5.5 Million For 340 Wnyers Victimized In Pay Phone Pyramid Scheme
Attorney General Spitzer announced today that he has recovered $5.5 million for 340 Western New Yorkers who were victimized in the largest investment fraud case in Western New York history.
The scam, which was nothing more than a Ponzi scheme, involved the sale of pay phones by Goldome Capital Management (GCM), located at 3260 Walden Avenue, Depew. GCM salespeople targeted senior citizens, who were existing insurance clients of theirs, to buy the phones for $7,000 each.
GCM and its salespeople were paid a commission to sell the phones by ETS Payphones, a Georgia company that manufactured the phones and orchestrated the scam. The salespeople were also registered to sell securities for National Planning Corp. (NPC), a Santa Monica, California financial services company.
Today, Spitzer announced that NPC has agreed to pay $5.5 million, representing 70% of the money lost by 340 of the victims.
Although NPC had no relationship with GCM or ETS, and the payphones were not NPC products, the vast majority of the victims who bought them were NPC customers, having previously purchased NPC investment products from the salespeople. Spitzer, in applauding NPC, noted that the company did not take part in the scam, receive any money as a result of it, nor have any relationship with ETS.
As part of the scam, victims were told that they could buy the phones, lease them back to ETS to operate, and would be "guaranteed" a 14% monthly return on their investment. Furthermore, the investors were told that they could sell the phones back to the ETS for the original purchase price at any time after six months.
Often, the victims used their life savings, cashing in CDs, IRAs, and other annuities to buy the phones. In a typical case, an elderly couple would buy six phones for $42,000 with the promise that their investments would generate $500 a month in income for them.
The victims trusted the salespeople because in many cases the salespeople had previously sold them safe, conservative investments, such as insurance company-backed products while working as brokers registered with NPC.
"Those behind this scam reached out and touched hundreds of Western New Yorkers, stealing millions of dollars from them," said Spitzer. "With promises of 'guaranteed' large returns at no risk, the victims lost money that represented a lifetime of savings- money set aside for them to enjoy their golden years, pay for medical care, or help out children and grandchildren. I'm delighted that we're able to deliver some good news to the victims during the holiday season."
On average, those covered by today's announcement will receive $33,000, although some will receive much more. For instance, some victims lost more than $150,000. It's expected that the victims will begin to receive their money by the end of January.
"I want to applaud NPC for stepping up to the plate and doing the right thing here," said Spitzer. "Although the company was not involved in the scam, it has cooperated fully with my office."
The scam began in November of 1998 and came to an end when ETS declared bankruptcy in September of 2000.
Investors covered by the agreement are those who bought payphones from the following salespeople for the period indicated, which was the time frame when they sold the investment while being licensed through NPC:
|Alan Justin, Jr.||5/14/99 through 9/00|
|Eric Justin||" "|
|Patrick Justin||" "|
|Yun Coughlin||" "|
|David Sada||" "|
|Jay Gianni||6/2/99 through 8/30/00|
|Ronald Mueller||9/22/99 through 2 16/00|
|Michael Crystal||1/2/00 through 1/31/00|
|Michael Saunders||4/17/00 through 9/00|
Spitzer noted that his office's investigation into the scam continues, and that he's hopeful of obtaining restitution for 350 additional victims who are not covered under the agreement with NPC.
Also taking part in the announcement were Joseph and Rita Janus of Cheektowaga, who lost $126,000 and William and Susan Duquin of Williamsville, who lost $98,000.
The case was handled by Assistant Attorney General Dennis Rosen and Senior Investigator Peter Eiss of the Buffalo Regional Office, under the direction of Investor Protection Bureau Chief, Eric Dinallo.