On April 7, 2014, the Securities and Exchange Commission filed an emergency action to halt a Ponzi scheme conducted by JCS Enterprises, Inc., T.B.T.I. Inc., and their respective principals Joseph Signore of West Palm Beach, Fla. and Paul L. Schumack II of Pompano Beach, Fla. The complaint, filed in United States District Court for the Southern District of Florida, alleges that, from at least 2011 through the present, the defendants fraudulently raised at least $40 million from hundreds of investors nationwide through the ongoing sale of investments in Virtual Concierge machines (VCMs). The defendants guaranteed exorbitant returns, ranging from 80 to 120% annually and up to 500% over the life of a three- or four-year investment contract. Also, on April 7, 2014, Judge Donald M. Middlebrooks, U.S. District Judge for the Southern District of Florida, issued an order placing JCS and TBTI under the control of a receiver to safeguard assets, as well as other emergency orders, including temporary restraining orders and asset freezes.
According to the SEC’s complaint unsealed today, JCS, T.B.T.I, Signore, and Schumack touted the VCMs as a revolutionary product and fail-safe investment. The defendants promised to place and manage VCMs, which are ATM-like machines, at various locations to advertise products and services via touch screen, and print tickets or coupons, among other services. They represented that advertising revenue would generate the guaranteed returns paid to investors, who did not have to take any additional steps to earn their money. In reality, Signore, Schumack and their companies operated a Ponzi scheme, where, through numerous misrepresentations and omissions, they used new investor funds to make payments to earlier investors.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Signore and Schumack.
The defendants promoted VCMs on the internet though YouTube videos, and promised to locate, place and manage the VCMs, as well as inform investors about the location and activity of their VCMs. These representations were false. The defendants did not place VCMs at anywhere near the rate of those purchased by investors. Moreover, investors could not track their VCM’s activity, and the defendants did not provide investors with the location of their VCMs as promised.
The SEC’s complaint alleges that while operating the Ponzi scheme, Signore and Schumack also diverted more than $2.5 million to themselves and family members, and used money to fund other business ventures, for recreational purposes, and to satisfy financial obligations. While the majority of investors stopped receiving their monthly payments in January 2014, the defendants continued to solicit investors. Schumack continued lying to investors in an effort to generate more capital by providing a bulletin stating their last opportunity to invest was expiring at year end 2013. Schumack later fabricated excuses to placate irate investors who were no longer receiving their returns, telling them their checks were forthcoming. They were not. When investors started complaining, JCS also continued its fraud by issuing a press release, posted on its website, claiming it was “investigating the matter” and TBTI had defrauded JCS.
The SEC’s complaint charges JCS, TBTI, Signore and Schumack with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also seeks disgorgement of all ill-gotten gains, including prejudgment interest thereon; an order directing the defendants to pay civil money penalties; and any other relief that may be necessary and appropriate.
The SEC’s investigation was conducted by Fernando Torres, Linda S. Schmidt, Vincent T. Hull and Mark Dee in the Miami Regional Office, and supervised by Jason R. Berkowitz. The SEC’s litigation is being led by Russell Koonin and Vincent T. Hull. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the Federal Bureau of Investigation, the Florida Office of Financial Regulation and the Texas State Securities Board. The SEC’s investigation is continuing.