Scamming
Do you remember seeing program-length TV “infomercials” (30-minute commercials dressed up to look like interview programs) in 1993 that promoted applications for specialized mobile radio (SMR) licenses? At about the same time, a series of 60-second commercials played during broadcast radio talk programs around the country, promoting the sale of SMR license application services.
Besides the broadcast advertising, telemarketers employed by the promoters were making calls, looking for suckers to pay $7,000 apiece for applications that they could have prepared and filed themselves for $200, according to the Federal Trade Commission (FTC), which investigated the promoters. The FTC said the applications were promoted as “low-risk, high-return investments.” [our emphasis]
In a second phase of the scheme, the suckers paid about $8,000 per unit to purchase partnership interests in an entity promising to build systems to offer mobile telephone service to the public in competition with cellular systems, again based on false and misleading claims, the FTC charged.
In January 1994, the Federal Trade Commission brought charges against Metropolitan Communications, Columbia Communications Services, Nationwide Digital Data, Stephens Sinclair Ltd., Meehan Marketing Group and a number of individuals, including Sheldon Jackler and Joan Orth. A receiver, Daniel Goodman, was appointed for the corporate defendants.
Settlements In 1994, Meehan Marketing Group, its principals and its top-producing salesman settled with the FTC, paying $205,000 for “consumer redress.”
On Sept. 8, 1997, U.S. District Judge Jed Rakoff of the Southern District of New York entered judgments (representing more settlements) that required Jackler to pay $1.6 million to victims of the scams. Orth must pay $20,000 for “consumer redress.” In July 1997, she pleaded guilty to violating a court-ordered asset freeze and was sentenced to six months’ house arrest and one year’s probation. The judgments continue Goodman’s receivership.
Based on the information that the promoters sent their marks, the investments were ridiculous. Unfortunately, many people who don’t know about the SMR industry were persuaded to send money_ probably the same kind of people who respond to commercials promoting heating oil, gasoline, corn and soybean futures.
Scam No. 1 The FTC complaint said that the promoters told investors that they could obtain a license and then lease it to another party called a systems operator. The systems operator would provide all the equipment and funds necessary to make the system operational_at no cost to the license holder_and use the license to offer mobile telephone service to the public as part of a block of 10 or 20 licenses linked together. The defendants selling application-preparation services made representations that: * purchasers could earn $4,000 per year within 18 months of when the systems began operations. In fact, purchasers were not likely to earn such money, the FTC said. * a person could own only one SMR channel per geographical area. In fact, the FTC found, some companies own 100 or more SMR licenses in a single area. (Don’t we know it!) * the only way current SMR license holders or SMR service providers could acquire additional SMR frequencies was to lease them from other license holders. However, current licensees or providers could have applied for and obtained FCC permission to use additional frequencies themselves, the FTC found. (Yes, in the “good old days.”) * the SMR licenses for which customers were applying were highly valuable and likely to be worth many thousands of dollars, and that purchasing the defendants’ services was an excellent, low-risk investment. Not true, the FTC charged.
Scam No. 2 In the second phase of the scheme, some of the defendants began offering license holders_and other investors_units of general partnerships. According to the complaint, these defendants represented that the partnerships were engaged in joint ventures to operate SMR telephone systems in various cities. This part of the scheme included representations that: * the SMR telephone system would be a successful, economically viable competitor to the existing cellular systems in each targeted city. In fact, the FTC charged, the defendants’ proposed SMR systems were technologically inferior to current cellular systems in several respects. * each partnership was likely to yield $2,500 a year in income. Partners were not likely to earn that amount, the FTC found.
Moreover, the FTC said, the SMR license management agreements on which the proposed systems were based could have resulted in a revocation of the licenses due to violations of FCC regulations. In light of the investment representations, this should have been disclosed.
Remember the receiver? This brings us back to the receiver, Daniel Goodman. Early on, in an effort to preserve assets that might be converted to reimburse the victims of the scams. The receiver asked the FCC to extend the construction period for the thousands of channels sold in the scam. One can sympathize with those who were duped. It would be good if they could get their money back; but the FCC’s failure to make unconstructed channels available to hundreds of small SMR business owners isn’t fair, either.
The FCC granted the waiver and gave a four-month extension of the construction period. The extension was to begin after publication of the decision in the Federal Register. What was maddening to SMR business owners, though, is that, since granting the waiver, the FCC has never published the decision, making the waiver not for four months, but indefinite. How many small SMR business operators would have liked to have such a waiver? Plenty. How many ever received one? None.
In the meantime, the FCC froze applications for site-specific SMR licenses in the expectation of auctioning geographic-area licenses_an auction that commenced on Oct. 28, 1997. The opportunity for small SMR businesses to apply for recovered channels has been taken from them during the period since the scams began.
Scam victims paid an estimated $28 million in the first phase alone. Less than $2 million has been recovered. In the meantime, the cost to small SMR operators in terms of lost equipment sales and jobs that they would provide_were their businesses to grow_cannot be calculated. *Don Bishop
