DVD Vending Machine Scam Convictions
In the American Entertainment Distributors business opportunity fraud, the U.S. Attorney announced that "a jury convicted Edmond Grigorian and Cesar Menendez after a two-week trial before United States District Court Judge Jose E. Martinez, in Miami, Florida. The defendants were convicted of fraud charges in connection with a scheme to sell a business opportunity involving DVD vending machines."
The two were jailed immediately and held over for sentencing, scheduled for January 4th, 2007. There is a mandatory restitution order, and it will be interesting to see what monies, if any were recovered for the investors.
American Entertainment Distributors was the classic business opportunity scam. "Evidence introduced during the trial showed that AED sold the DVD vending machine business opportunity by using baseless and wildly exaggerated profit projections. In addition, AED falsely promised to secure good locations for the machines, falsely claimed that the machines were reliable and easy to operate, falsely promised to provide long-term customer service, and referred prospective buyers to phony references. Undercover tapes introduced during the trial showed that both defendants knew that they were using false information to lure people into the deal. Most of the consumers paid $36,500 to AED for the machine and the promised services."
It would be interesting to listen to the tapes, but they are unavailable on the Pacer system.
I suspect the DVD Kiosks will become the weapon of choice for business opportunities frauds as the use of DVD Kiosks become more common in the marketplace.
For very interesting reading, on the other hand, regarding the legitimate Kiosk marketplace, I highly recommend Davis Freeberg's blog.
Technorati Tags: vending machine business, business opportunity fraud, business opportunity scam, vending machines, american entertainment, mandatory restitution, aed, fraud charges, jose e martinez, profit projections, classic business, sell a business, menendez, united states district court, edmond
Comments
Wow - You said it would happen, but I wasn't convinced. Sad to see that you were right. You even said that it would be Florida :) The whole industry may very well be ripe for fraud. What a sorid affair. Not sure why people have to exploit good technology for the purposes of fraud, but apparently a $36,000 price tag wasn't enough to make people do real homework or stick with legitimate businesses.
The real cost for most DVD kiosks should be closer to $19K - $25K, but it's amazing to me that anyone would pay that much to begin with. I guess when you are selling dreams, no cost is to small. To recover $36K within a 2 - 3 time horizon, you'd have to average at least 15 - 30 DVDs a day and even for Walmart those aren't easy numbers to pull off.
I'm glad that they caught these guys though. The only piece of advice that I would give is to always be very skeptical of any company offering to place the DVD machines for you. As with any real estate business it's all about location location location and if you aren't the merchant receiving the benefits of repeat customer traffic, you're going to earn skimpy profits while waiting for the machine to pay for itself.
Posted by: Davis Freeberg
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November 1, 2006 6:11 AM
I found a link on the FTC website of the court filings. I read through a couple of them. Pretty juicy stuff. These turkeys sound like they were well organized. Hardly fair considering that their prey was likely unsophisticated investors without the resources or know how to uncover their scheme.
http://www.ftc.gov/os/caselist/americanentertainmentetal/americanentertainmentetal.htm
Posted by: Davis Freeberg
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November 1, 2006 7:45 AM
Davis;
The price tag for biz op frauds has gone up from 3k (for candy vending frauds) to 10k (for payphone frauds) to now around 40k for Kiosk frauds, from the early 90's.
These schemes date back to the early 1900's.
The price tag doesn't really bring about more serious due diligence because most of the prospective purchasers don't realize that they are purchasing something regulated as either a franchise or investment contract
Posted by: michael webster
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November 1, 2006 9:32 PM