NEW YORK (MainStreet) The lure of passive income making money with little or no effort is certainly appealing. One such scheme had the perfect pitch: polish that new luxury car and lounge by your new pool, because you got in on the ground floor of The Virtual Concierge Machine (VCM) a video kiosk with tourist information! That's the YouTube promotion of a South Florida scam that has been blown wide open by the Securities and Exchange Commission.
Promising guaranteed returns of 300-500% within four years, Joseph Signore of West Palm Beach and Paul L. Schumack II of Pompano Beach offered investors ATM-like touch screen machines that would dispense advertising and coupons for local businesses in high-traffic tourist locations. But few machines existed it was all another Ponzi scheme, paying off earlier investors with funds from late comers. The SEC says Signore and Schumack diverted millions of dollars in investor funds for their personal use.
"Signore and Schumack touted VCMs as a revolutionary enterprise and fail-safe investment based on a stream of advertising revenue that would generate the guaranteed returns paid to investors," said Eric I. Bustillo, director of the SEC's Miami Regional Office. "However, the advertising revenue was virtually non-existent and investors aren't enjoying the riches touted on YouTube."
The SEC complaint says the scam raised more than $40 million since at least 2011 through promotion via YouTube videos, e-mail solicitations and investor seminars.
In one YouTube video, a cheerful actor is polishing his new Cadillac when an exuberant friend says, "What an amazing car! How can you afford this?" The answer is of course, "My Virtual Concierge!" Another snippet features a woman showing a friend her new pool. Viewers are asked, "Do you want to make more money? Then it is time for you to own a Virtual Concierge."
Investors were promised that VCMs would be placed in premium locations at hotels, stadiums and other venues, with password access allowing them to monitor the activity of each machine. However, payments stopped in January of this year while Signore and Schumack continued soliciting new investors.
Signore diverted approximately $2 million directly to himself and family members, according to the SEC. He also routed investor money to unrelated business ventures he operated with his wife.
Debit charges of $56,000 in investor funds were spent at restaurants, merchandising stores, and a tanning salon, as well as other credit card bills. Schumack's wife signed a check for $500,000 of investor capital, payable to the IRS.
--Written by Hal M. Bundrick for MainStreet