a “major” investigation. Two weeks later, the company issued a “clarification” conceding that it had indeed been under an SEC investigation since August 1994.
The SEC wasn’t the only group looking into the companies. The California Attorney General’s office was probing whether Incomnet complied with the state’s “business opportunities” law. (The law requires marketers to register with the state if, among other things, sales representatives must pay $500 or more to join.)
As much as anything, critics of NTC were concerned about some of the people running it. The long-distance operation was designed by two people who were involved with Kansas-based Culture Farms, Inc. 2 —an infamous pyramid scheme in which some principles went to jail.
Jerry Ballah, NTC’s marketing director, had settled a civil lawsuit over his role as a consultant to Culture Farms. (Ballah was also involved with another multilevel marketer of long-distance phone service, Arizona-based NCN Communications.) Chris Mancuso, NTC’s director of product development for a brief time, had served nine months in prison for his role in Culture Farms.
NTC and Incomnet weathered the regulatory storms of 1995. By early 1997, NTC was still in business. But it had turned its focus more sharply on ethnic groups and selling pre-paid phone cards, rather than traditional long-distance service.
“Pre-paid phone cards are the perfect product for a Ponzi scheme trying to pass as legitimate multilevel marketing,” says one former Ponzi perp. “They have the gloss of high tech...but they’re actually inexpensive and need to be replaced constantly.”
Even the most grizzled Ponzi perp can’t predict where the next hightech schemes will emerge. But a number of people who know how the schemes work guess the premise will be genetically-engineered cosmetics and dietary supplements. “You started to see hints of this when the FDA was holding back on approving new AIDS drugs,” says a federal law enforcement official who’s helped prosecute dozens of Ponzi schemes. “The combination of biotech sizzle with the triedand-true appeal of make-up and vitamins is a great pitch for Ponzi scammers.”
Case Study: United Energy Corporation California-based United Energy Corporation operated at the intersection of technology, tax havens and larceny.
2 In the Culture Farms scam, some 28,000 investors lost about $50 million buying kits that would grow milky “cultures” in a glass, supposedly to be processed into cosmetics. Most of the cultures grown were simply recycled into new kits and resold to investors.
UEC President Ernest Lampert, who claimed to have made a fortune in construction and other business ventures in Alaska and Hawaii, had a fairly utopian plan. His company would generate electricity from high-tech solar modules suspended in pools of water—and sell the juice to local utilities. It would then use the hot water produced by solar electricity to raise warm-water fish and produce ethanol and high protein cattle feed as byproducts.
UEC installed a network of 3,000 photovoltaic solar-cell collectors on man-made, acre-sized ponds in the rural California towns of Borrego Springs, Barstow and Davis. From the air, the “solar farms” looked like huge checkerboards. The 20-by-20 foot photovoltaic modules were shallow boxes with concave surfaces that focused sunlight on solar cells. They were mounted on islands about 208 feet in diameter, with aluminum frames packed with Styrofoam. These islands floated in a few feet of water.
Water was piped through the modules to cool them; this would then heat the ponds for fish breeding. The whole process was part of what Lampert called an “integrated life system.”
Better still: Lampert claimed that UEC’s solar energy cash flow would be heavily tax-advantaged. The average module, over its 30-year life span, would produce net cash flow of $243,775, all for an out-ofpocket investment of only about $15,000.
The
The SEC wasn’t the only group looking into the companies. The California Attorney General’s office was probing whether Incomnet complied with the state’s “business opportunities” law. (The law requires marketers to register with the state if, among other things, sales representatives must pay $500 or more to join.)
As much as anything, critics of NTC were concerned about some of the people running it. The long-distance operation was designed by two people who were involved with Kansas-based Culture Farms, Inc. 2 —an infamous pyramid scheme in which some principles went to jail.
Jerry Ballah, NTC’s marketing director, had settled a civil lawsuit over his role as a consultant to Culture Farms. (Ballah was also involved with another multilevel marketer of long-distance phone service, Arizona-based NCN Communications.) Chris Mancuso, NTC’s director of product development for a brief time, had served nine months in prison for his role in Culture Farms.
NTC and Incomnet weathered the regulatory storms of 1995. By early 1997, NTC was still in business. But it had turned its focus more sharply on ethnic groups and selling pre-paid phone cards, rather than traditional long-distance service.
“Pre-paid phone cards are the perfect product for a Ponzi scheme trying to pass as legitimate multilevel marketing,” says one former Ponzi perp. “They have the gloss of high tech...but they’re actually inexpensive and need to be replaced constantly.”
Even the most grizzled Ponzi perp can’t predict where the next hightech schemes will emerge. But a number of people who know how the schemes work guess the premise will be genetically-engineered cosmetics and dietary supplements. “You started to see hints of this when the FDA was holding back on approving new AIDS drugs,” says a federal law enforcement official who’s helped prosecute dozens of Ponzi schemes. “The combination of biotech sizzle with the triedand-true appeal of make-up and vitamins is a great pitch for Ponzi scammers.”
Case Study: United Energy Corporation California-based United Energy Corporation operated at the intersection of technology, tax havens and larceny.
2 In the Culture Farms scam, some 28,000 investors lost about $50 million buying kits that would grow milky “cultures” in a glass, supposedly to be processed into cosmetics. Most of the cultures grown were simply recycled into new kits and resold to investors.
UEC President Ernest Lampert, who claimed to have made a fortune in construction and other business ventures in Alaska and Hawaii, had a fairly utopian plan. His company would generate electricity from high-tech solar modules suspended in pools of water—and sell the juice to local utilities. It would then use the hot water produced by solar electricity to raise warm-water fish and produce ethanol and high protein cattle feed as byproducts.
UEC installed a network of 3,000 photovoltaic solar-cell collectors on man-made, acre-sized ponds in the rural California towns of Borrego Springs, Barstow and Davis. From the air, the “solar farms” looked like huge checkerboards. The 20-by-20 foot photovoltaic modules were shallow boxes with concave surfaces that focused sunlight on solar cells. They were mounted on islands about 208 feet in diameter, with aluminum frames packed with Styrofoam. These islands floated in a few feet of water.
Water was piped through the modules to cool them; this would then heat the ponds for fish breeding. The whole process was part of what Lampert called an “integrated life system.”
Better still: Lampert claimed that UEC’s solar energy cash flow would be heavily tax-advantaged. The average module, over its 30-year life span, would produce net cash flow of $243,775, all for an out-ofpocket investment of only about $15,000.
The
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