Mobile Billboards - Business Opportunities Fraud
The SEC announced yesterday that three of the top salesmen in the Mobile Billboards business opportunity fraud had been ordered to pay approximately $1.8 million in restitution. The Mobile Billboards scam ran for approximately three years, from 2001 and 2004. The scam was uncovered as a ponzi scheme by several securities regulators including: the Attorney General for Washington State, the Pennsylvania Securities Commission, the Department of the Secretary of State, North Carolina and ultimately the SEC, and that complaint can be accessed here.
This scheme had all the hallmarks of a business opportunities fraud, trademark violations, unrealistic earnings projections, false guarantees, and high pressure salesmen. It was the securitization of the standard business opportunities fraud. How did it work? In brief, individuals bought "units" in Mobile Billboards, which represented to the investors that it would pay them 13.49% yearly and then repurchase their units at par in seven years. Mobile Billboards claimed that they were placing "mobile billboards" on numerous fleets and generating ad revenue. Unfortunately, all they were doing is using the investor's money to pay back the investor 13.49% yearly; at the same time these three salesmen earned commissions of between 15% and 27%. So assume that after commissions, they only had $80 and were paying 13.5% a year to the investor. The scheme could have theoretically lasted about six years, even without new money coming in.
What were the warning signs regarding Mobile Billboards?
Technorati Tags: mobile billboards, business opportunity fraud, ponzi scheme, pressure salesmen, business opportunities, pennsylvania securities commission, sec, state north, trademark violations, securitization, hallmarks, restitution, regulators, uncovered
Well, to my mind, the biggest alarm bell was the economic nature of the scheme. Why was Mobile Billboards borrowing money from you? You were effectively lending money to Mobile Billboards at 13.49%, with a guarantee of full repayment in seven years. This is a silly scheme, if guarantor, Reverse Guaranty Trust, could take $5,000 and in seven years turn it into $20,000, then what the hell was Mobile Billboards doing? Why didn't the founders just give their money to this money making juggernaut Revers Guaranty Trust. Again, individuals fail to judge whether a guarantee is a signal of increased or decreased risk.
There were some other obvious problems. According to the SEC press release, "Investors simultaneously leased the billboards back to Outdoor Media Industries, Inc. (Outdoor Media"). Investors were told that Outdoor Media would purportedly pay the lease payments, approximating 13.49% per year, to investors. Mobile Billboards agreed to buy back the billboards after seven years at the full purchase price, purportedly guaranteed by Reserve Guaranty ("Reserve Guaranty")" There is in fact a real company called "Outdoor Media Inc", whose website is here. No doubt they had no knowledge of their alleged dealings with Mobile Billboards. It might have been worth a stamp and a letter to Outdoor Media to confirm the existence of these contracts.
But how hard is it to do this due diligence? Well apparently, according the WSJ, one large US law firm is in hot water for not figuring out quickly that this was scam. Mobile Billboard's receiver launched a lawsuit against the firm alleging that "Paul Hastings with negligence, aiding and abetting fraud, and breaching its fiduciary duty. It was filed on behalf of Mobile Billboards's receiver and aggrieved investors, many of whom were elderly and lost their life's savings, according to the complaint and SEC filings."
Technorati Tags: mobile billboards, business opportunity fraud, ponzi scheme, pressure salesmen, business opportunities, pennsylvania securities commission, sec, state north, trademark violations, securitization, hallmarks, restitution, regulators, uncovered
