Authorities instituted civil and criminal proceedings against two Florida companies and their principals, alleging that their YouTube videos advertising 80% - 120% annual returns from investments in "Virtual Concierge machines" were part of a massive Ponzi scheme that took in at least $40 million from hundreds of investors nationwide. JCS Enterprises, Inc. ("JCS"), T.B.T.I. Inc. ("TBTI"), Joseph Signore, and Paul L. Schumack, II were named as defendants in an emergency civil enforcement action by the Securities and Exchange Commission. In a parallel action, the U.S. Attorney's Office for the Southern District of Florida also announced criminal charges.
According to the SEC, Signore and Schumack solicited potential investors to participate in the Virtual Concierge program, which involved the purchase of a virtual concierge machines ("VCM") through a one-time fee ranging from $2,600 to $4,500 per VCM. 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 told that the VCMs generated substantial returns, which in turn would allow the payment of annual returns to investors ranging from 80% to 120%. In addition, investors were provided with the location of the VCMs they had purportedly purchased, and even given the ability to track the VCM activity online.
Investors were solicited in several ways, including several websites controlled by the entities and through videos posted on popular video-sharing website Youtube:
The videos promised that the VCM would "generate income for years," and promised that a $3,500 investment could produce "huge returns." Potential investors also received emails from Schumack, who touted his graduation from West Point Military Academy in 1979 and whose email signature also featured a Bible passage intended to create a false sense of security for investors.
However, authorities allege that the outsized returns touted by the defendants were the result of a Ponzi scheme. According to the SEC, the production of VCMs was not close to the amount of VCMs purportedly sold to investors, and the guaranteed returns were "a farce." Instead, investor funds were commingled and used for a variety of unauthorized purposes, including the unauthorized transfer of more than $2 million to Signore and his family. An additional $56,000 in investor funds were used for expenses including restaurants, stores, and a tanning salon. Finally, approximately $4 million in investor funds were transferred to an unrelated account from which Schumack and others allegedly made more than 100 cash withdrawals of nearly $5 million.
In addition to instituting an asset freeze, the Court also approved the appointment of a Receiver over JCS and TBTI.
A copy of the SEC's complaint is below: