Scam artists use B-level stars to gain investors' trust

March 12, 1996|By Denise Gellene | Denise Gellene,Los Angeles Times

LOS ANGELES -- As the host of "The Newlywed Game," Bob Eubanks explored the wonders of romance. Recently, he's been a spokesman for a 900-number dating service that left investors feeling jilted.

The service Mr. Eubanks hailed as "revolutionary" in an infomercial is under investigation for suspected investment fraud, part of a state and federal crackdown on a new form of scam that feeds on the psychic, chat and date lines that have become staples of cable TV. DDTC Mr. Eubanks hasn't been accused of wrongdoing. However, his endorsement evidently influenced some of the 281 unwitting investors, who expected their partnership to earn $3.99 a minute when singles called a 900 number to find a date. The investors -- many of them fans of Mr. Eubanks' popular 1970s TV show -- now are out a total of $3.4 million.

"I thought it had to be on the up-and-up," said Cleve Fitzpatrick, an unemployed aerospace worker from nearby Hawthorne who was so taken with Eubanks that he sank $50,000 into the Matchmaker Network. "I never suspected anything fishy."

Welcome to the dark side of the world of celebrity endorsements. Government probes suggest a few suspected scam artists are working Hollywood's B-list.

According to investigators, a big (or not-so-big) star can make an impression on the unsophisticated investors so often targeted by boiler-room operators.

"I'm sure some people saw Bob Eubanks and said, 'Wow,' " said Bonnie Youngdahl, an attorney with the California Department of Corporations.

Besides Mr. Eubanks, entertainer LaToya Jackson and New York cop and Playboy model Carol Shaya have endorsed questionable 900-number services.

None of the celebrities has been accused of wrongdoing. There's no indication that the deals were more than easy paydays for the celebrities, who appeared in advertisements for the 900 numbers.

Court documents indicate that one company under investigation paid $250,000 to an intermediary to pay Jackson for titillating bits for a "Jackson Family Secrets" 900 number. In one recording, Ms. Jackson prattled about the childhood antics of her more-famous brother, Michael.

Mr. Eubanks, out of the limelight except for his annual stint as host of a Los Angeles television station's Tournament of Roses broadcast, received $15,000 for the dating infomercial, which was shot in one day before a studio audience. It isn't known what Ms. Shaya was paid to appear in advertisements for a chat line.

The investigations are part of the sweeping Project Roadblock crackdown on high-tech frauds led by the Federal Trade Commission and agencies in 22 states. Separately, the Securities and Exchange Commission is probing possible securities law violations by some companies targeted in Project Roadblock.

As part of the crackdown, the Federal Trade Commission in January obtained a court order freezing the assets of a company called American Fortune 900, placing it in permanent receivership while the investigation continues. The agency has alleged that the Woodland Hills, Calif., company misled investors by playing down the risks associated with the 900 venture featuring the Jackson and Shaya lines.

Also in January, the California Department of Corporations searched the offices of several companies involved in the Matchmaker Network, including one named B.M.C. -- which stood for "Bring More Cash," according to information received by authorities.

Investigators say B.M.C. managed a Matchmaker Network partnership in which investors lost 80 percent of their capital. The SEC is investigating B.M.C. in connection with the sale of unregistered securities.

While most top performers are highly protective of their images and closely review endorsement deals, other celebrities aren't always as picky.

Mr. Eubanks said a Los Angeles agency called R&R Advertising approached him about doing the infomercial, which he viewed as a routine endorsement deal. He said he approved the script, deeming it "classy enough," and received assurances that the dating service was "completely private."

"I picked up my check. It didn't bounce. I walked away," Mr. Eubanks said.

Behind the famous names, authorities say, are veterans of unregulated telemarketing operations that range from precious metals to ostrich breeding. The FTC said Rory Cypers, the 25-year-old president of American Fortune 900, previously sold precious metals investments for Western Trading Group, an outfit the FTC shut down after an investigation in 1992.

In its court filings, the FTC said American Fortune 900 promised investors unrealistic gains, such as a sixfold return in two years. The agency said Mr. Cypers told some investors their money was protected against losses by a U.S. Treasury bond worth $4 million, and sent them worthless photocopies of the security to back up his claim.

When hype didn't work, Mr. Cypers allegedly used threats.

A 78-year-old widow said in court documents that she invested $10,000 after Mr. Cypers threatened to sue her if she did not come up with the money. Months later, she invested another $5,600 when Mr. Cypers told her she was required to meet a capital call.

"He had me scared, so I did it," the woman said in an interview.

The FTC has alleged that Mr. Cypers and American Fortune 900 engaged in deceptive promotional practices, and is seeking a court order requiring that investors' funds be returned.

Mr. Cypers dismissed the allegations against him and the company as "lies," and said he didn't profit from American Fortune 900.

Pub Date: 3/12/96

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