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Before the U.S. Attorney's Office for the Southern District of New York recently announced the indictments of two men for operating an alleged Ponzi scheme involving deployment of off-premise ATMs, some of their companies' investors sensed something was wrong.
One unnamed investor told Vance Moore II and Walter Netschi, the companies' two owners, that an ATM the two claimed was generating revenue was housed in a building Hurricane Katrina destroyed, according to the indictment. Another investor, also unnamed, went to a Florida hotel to see how well one of the company's ATMs was operating. When he could not find the machine, the hotel manager told him there was no ATM, the indictment says.
Moore's and Netschi's companies also stopped for a time paying investors their regular monthly dividends, which raised more eyebrows about their purported businesses.
On September 21, individuals and small equity firms that invested in Moore's and Netschi's companies no longer had to wonder if the firms were on the up and up. The federal government charged that the companies and their two owners were not legitimate.
Federal prosecutors indicted Moore, 55, of Raleigh, N.C., and Netschi, 62, of McKinney, Texas, for allegedly operating an $80 million ATM Ponzi scheme. They charged the two with one count each of attempting to commit wire fraud and nine counts each of wire fraud. If convicted, they face 20 years in prison for each count and fines of at least $250,000 each.
The U.S. Attorney's Office also wants the men to repay the $80 million they allegedly bilked investors.
FBI agents arrested Moore several weeks ago in Garner, N.C. Netschi surrendered to the U.S. Attorney's Office in Manhattan. A judge released Netschi hours later after he posted $3 million bail secured by two homes, Jim Margolin, a spokesperson for the FBI in New York, tells ATM&Debit News. Moore, who had been ill, was scheduled to turn himself in last week to the U.S. Attorney's Office in Raleigh.
Lawyers for Netschi and Moore did not return ATM&Debit News calls seeking comment.
The indictment charges that Moore represented himself as president of ATM Financial Services, a Delaware-based company, and Netschi claimed he was president or general manager of various companies, including 36 Main, based in Nevada. Moore claimed his company serviced and maintained ATMs, and Netschi said 36 Main purchased the ATMs after determining how much cash the machines dispensed.
The companies claimed they deployed the ATMs in retail outlets nationwide.
According to the indictment, the two raised $80 million between 2005 and January 2008 from individuals and small private-equity firms to purchase, manage and deploy 4,000 off-premise ATMs. "Approximately 90% of the machines simply did not exist or were never owned by Moore or Netschi and hence could not legitimately have been sold by them to any investor," the indictment says.
Moore and Netschi promised investors 20% to 25% returns on their investments, Margolin says. They initially paid investors monthly dividends, which they claimed were from revenue earned from surcharge fees, he adds.
"These monies were received by Netschi from new investors (or new investments from existing investors), which were then transferred by Netschi and Moore's companies" to pay dividends, the indictment says.
For a time, Moore transmitted monthly dividends to investors by wire. In or about July 2007, Moore and Netschi stopped paying dividends to investors, the indictment alleges, noting the two men offered a number of excuses to investors as to why the payments had stopped.
The U.S. Attorney's Office for the Southern District of New York put Moore and Netschi under scrutiny when, in December 2007 and January 2008, they solicited funds from a new group of potential investors based in New York, the indictment alleges.
"On or about Nov. 14, 2005, Moore and Netschi made false representations over a telephone to investors located in New York ... regarding a proposed investment in ATMs," the indictment says.
The size of the scam is troubling but also surprising, says Leon Majors, president of the Payments Systems Practice for Phoenix Marketing International in Salisbury, Md.
"I have not heard of anything on this scale in quite some time," says Majors, adding he was surprised con men would target off-premise ATMs because the industry is not as 'high-flying' as it was five years ago.
"I believe investors who knew nothing about the off-premise ATM industry were attracted to the investment because the slow economy has depressed returns," Majors says. ATM
