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$18.9M Judgement Obtained Over Internet Kiosk Ponzi Scheme

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By Admin on April 28, 2009 11:11 AM

A federal district court has entered a $18.9 million judgment against the operators of an "internet kiosk" business opportunity scam that amounted to a Ponzi scheme, and the court's move opens the door for the distribution of more than $2 million to victims of the scheme, the Federal Trade Commission (FTC) announced this week.

The scheme involved free-standing computer kiosks designed for public access to the Internet (for a fee) from places like hotels, bowling alleys, and convenience stores. According to the FTC, more than 450 consumers purchased thousands of kiosks, and were scammed by the California-based defendants, who misrepresented the earnings potential of the internet kiosk business and the availability/profitability of locations for the machines.

A U.S. District Court for the District of Nevada judge "agreed with the FTC that the venture was a Ponzi scheme," in that "'Revenue' payments sent to investors each month did not come from the kiosk businesses, but from the infusion of money paid by new investors." And "the defendants installed only a small fraction of the kiosk businesses they had sold, [leaving] the majority of investors holding worthless interests in nonexistent kiosks," according to the FTC.

Consumers will be reimbursed over $2 million from the judgment, including about $450,000 that was frozen by the court, another $1.5M in scheme profits that had been seized by the FBI, and funds that the defendants paid to their attorneys, the FTC reports.