Millions missing in Vegas Ponzi scheme

Grace Leong

Friday, Feb. 1, 2002 | 11:19 a.m.

The Federal Trade Commission, which accused Las Vegas company Affordable Media of running a Ponzi scheme that scammed 2,295 investors nationwide out of more than $35 million, now says millions of dollars are missing and the investors will likely recoup just pennies on the dollar.

The FTC, which is proposing a second plan to reimburse consumers defrauded in one of the largest scams in Las Vegas history, said its consumer restitution fund was estimated to total only $352,239 as of Dec. 31.

The FTC said in court papers filed Wednesday its first consumer redress plan distributed $1.2 million to 387 investors in a related Ponzi scheme.

The federal agency wants court approval for the second plan to issue refunds "pro-rata based on each investor's net loss" to the remaining eligible investors who didn't receive redress through the first plan.

The FTC said 22 of 1,908 investors who were identified as employees and salespersons for the defendants, also known as the Sterling Group, won't be eligible for redress because the amount of money lost by investors far exceeds the amount of money available for redress and because "equity demands that innocent victims of fraud recover before those who helped perpetrate the fraud."

The FTC had sued several principals of the Sterling Group including its former managing director Eric Stein, his wife, Ruth and step-daughter Ina Bell and a San Diego couple, Michael and Denyse Anderson, who headed Financial Growth Consultants, a firm that allegedly solicited investors for the Sterling Group.

Other defendants included the Sterling Group's Denver-based sales office Sterling Multi-Media Co. doing business as Venture Capitalization Co. and its two operators George McWilliams and Edward Hally.

The suit alleged the Sterling Group, which promoted products by direct response infomercials, operated a Ponzi scheme in which older investors were paid with money from new investors.

The FTC said a judgment of $35.8 million was entered against the Sterling Group and Eric Stein on Feb. 2, 1999. Financial Growth, the Andersons, the Sterling Group and Stein are jointly liable for $20.6 million of the judgment, while Stein alone is liable for the remaining $15.2 million.

But the federal agency said it was only able to collect $31,721 from Stein and $213,615 from the Andersons. The FTC said Ina Bell and Ruth Stein, who ran the Las Vegas Sterling office, turned over $92,801 in return for a suspension of a $5 million judgment. The restitution pool also includes $14,102 in earned interest.

FTC attorney Gregory A. Ashe said the consumer restitution pool may be enlarged if the agency is successful in collecting on a $1.4 million offshore trust in the Cook Islands held by Michael and Denyse Anderson. The FTC is appealing a decision by the High Court of the Cook Islands dismissing a lawsuit it filed against the trustee of the Andersons' trust to freeze the funds.

"We estimate the average investor lost about $10,000-$20,000," Ashe said. "If we're unsuccessful in collecting the $1.4 million trust, investors will likely get paid about 2-3 cents on the dollar. If we're able to collect on the trust, then that goes up to 8-9 cents on the dollar."

The Andersons claimed they have no control over the trust because of a duress clause that became effective when the FTC sued them.

Meanwhile, some 387 investors who invested through Sterling Multi-Media's McWilliams were reimbursed $1.2 million in January 2000 after McWilliams turned over $1.2 million in exchange for a suspension of a $4 million judgment against him.

"The Denver office was running a secondary Ponzi scheme for Sterling Group. But restitution was paid separately because the funds deposited with the Denver office never commingled with those of the Las Vegas office. In fact most of the investors weren't even aware there was a parent company in Las Vegas," Ashe said.

"The big question is, 'where did all that money go?' Everyone swears they don't have the money. But the bank records show a lot of money was taken out in cash, and cash is difficult to trace," Ashe said. "From our experience with most fraud cases, most of these perpetrators know the other shoe is going to drop, so they spend money like there's no tomorrow. Also the money may have been paid as commissions to the agents of many independent sales offices for Sterling Group."

The Nevada Attorney General's office, which said this case may be the "largest investment scam" in state history, leveled criminal charges against Stein, Ina Bell and another company executive, Philip Balestrieri of San Diego.

The charges stem from the company's operations in which it sold $5,000 units of television time to advertise impulse items. Investors who bought the units were told they could receive a 50 percent return in a 60-day period on the proceeds of the items sold. While many initially saw returns on investments, complaints began emerging in 1998 when some investors didn't receive their money back.

Eric Stein and Bell, who weren't licensed to sell securities in Nevada and failed to disclose that the securities weren't registered with the Nevada State Securities Division, were among eight individuals indicted in 1999 on 119 counts of conspiracy, mail fraud, money laundering and securities fraud.

Stein, who pleaded guilty to 73 counts, was sentenced in December to about 8 years in prison. Bell and Michael and Denyse Anderson each admitted concealing their knowledge of a felony without admitting they participated in it. Michael Anderson is now serving a 5-year probation sentence, while Denyse is serving a 3-year probation sentence.

Balestrieri pleaded guilty in October 1998 to a misdemeanor count of conspiracy to commit securities fraud. He agreed to pay $2,000 restitution to a victim and cooperate with state and federal authorities in their investigation of the Sterling Group. By pleading guilty, Balestrieri avoided prosecution on felony charges of racketeering, securities fraud, sale of an unregistered security and operating as a broker without a license.

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