A Florida federal judge approved an emergency request by the court-appointed Receiver of a suspected $70.9 million Ponzi scheme to expand the receivership to include a company whose mobile app was endorsed by prominent 'Shark Tank' personality Barbara Corcoran. In a hearing this morning, U.S. District Judge Donald Middlebrooks granted an emergency motion filed by court-appointed receiver James Sallah to include My Gee Bo, Inc. ("Gee Bo") in the recently-instituted receivership over JCS Enterprises, Inc. and T.B.T.I., Inc. (collectively, the "Receivership Entities"), which stand accused along with principals Joseph Signore and Paul Schumack of operating a massive Ponzi scheme using ATM-like "Virtual Concierge" machines. Notably, Gee Bo reportedly paid $400,000 to secure the endorsement of Corcoran, one of the personalities of CNBC's hit show 'Shark Tank.' Following news of the alleged fraud, Corcoran has announced she will be withdrawing her endorsement.
The Securities and Exchange Commission filed an emergency enforcement action last week, accusing Schumack and Signore of operating a massive Ponzi scheme that touted the sale of "Virtual Concierge" machines ("VCMs") to investors. The VCM, which resembles an ATM, is a free-standing or wall-mounted machine placed in various businesses that purportedly allowed the advertisement of products or services and even the ability to print tickets or coupons. Potential investors were solicited to participate in the Virtual Concierge program, which allowed investors to purchase one or multiple VCMs for a one-time fee ranging from $2,600 to $4,500 per VCM. In exchange, investors were promised substantial annual returns ranging from 80% to 120% purportedly derived from the revenue generated by the VCMs. Investors were provided with the location of their VCM(s), and were even given the ability to track the activity of each VCM online. In total, at least $70 million was raised from numerous investors.
In addition to the civil fraud charges, Schumack and Signore were also indicted on criminal charges. At Schumack's bond hearing last week, his link to Gee Bo was raised without any objection, and the court-ordered conditions of release explicitly allowed Schumack to continue his employment with Gee Bo, which operates a mobile shopping and payment app. However, the receiver's initial investigation showed that Gee Bo had multiple links to the Receivership Entities, including (1) ownership and control by Defendant Schumack and his wife; (2) the receipt of at least $770,000 in transfers from Receivership Entities; the use of an office paid for by JCS Enterprises; and (4) the use of JCS employees and materials.
Upon learning of Gee Bo's links to the Receivership Entities, the receiver filed an emergency action seeking to expand the receivership to include Gee Bo. This is a common occurrence in receivership context, as a receiver's investigation reveals the existence of other less-known entities that may have received diverted investor funds. Indeed, as the receivership progresses and a forensic accounting is completed, it is possible that additional entities could be placed under the receiver's control to preserve investor monies.
According to the receiver, at least $770,000 was transferred to or paid for the benefit of Gee Bo, including a transfer of $500,000 in October 2013, the purchase of a $20,000 white van, a $50,000 marketing plan, and the payment of at least $200,000 to an unnamed "celebrity" to market and promote Gee Bo. The Palm Beach Post identified this unnamed celebrity as Barbara Corcoran, one of the regular personalities on the popular CNBC show 'Shark Tank.' According to the Receiver's Motion and the Palm Beach Post, the agreement with Corcoran was finalized back in October 2013, and included the agreement to
appear in thirty and sixty second TV commercials..., social media, Twitter, PR, internet promotions, direct mail, point-of-sale, [and] the smartphone app...
This included at least two YouTube videos that were published under the YouTube account of JCS Enterprises, which are embedded below:
Following news of the Ponzi scheme allegations, the Palm Beach Post reported that Corcoran has "immediately" withdrawn her endorsement of Gee Bo. However, Corcoran apparently does not plan to return the money she received to promote Gee Bo - a position that may contrast with the Receiver's duty to recover funds for investors. As the receiver's motion makes clear, at least $770,000 of investor funds were diverted for the unauthorized purpose of funding Gee Bo's operations. Thus, the payment to Corcoran could potentially be the subject of an action for recovery under Florida's Uniform Fraudulent Transfer Act ("FUFTA").
A copy of the Motion is below: