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Issue Date: Vol. 51, No. 3, March 2011, Posted On: 2/24/2011

FTC Recovers $3M From DVD Vending Biz-Op Scammers

Emily Jed
Project Biz Opp Flop, Federal Trade Commission, FTC, video rental machine scam, vending business opportunity scam, American Entertainment Distributors Inc., Miriam Andreoni, Russell G. MacArthur, Mauricio Paz, Universal Cybercom Corp., Automated Entertainment Dispensers Inc., Universal Technical Support Inc.,vending, vending machine, vending business, vending machine business, office coffee service, OCS, automated retailing, automatic merchandising, coin-op news, vending news

WASHINGTON -- The Federal Trade Commission said it has recovered more than $3 million that it will refund to investors who were duped in an alleged scam that promoted video rental machines as a business opportunity.

The FTC's action against American Entertainment Distributors Inc. was filed in 2005, naming 10 defendants. The U.S. District Court for the Southern District of Florida has now entered final orders against nine of them, prohibiting further illegal conduct and requiring payments for refunds.

The FTC alleged that the defendants tricked investors into paying $28,000 to $37,500 apiece for video rental vending machines, telling them they could expect to earn between $60,000 and $80,000 a year, or recoup their initial investment in six to 14 months. The FTC's case was halted for three years while the Department of Justice pursued parallel criminal proceedings.

The court has entered a permanent injunction against one defendant, approved settlements with five others, and entered default judgments against three more. The court entered a permanent injunction against Russell G. MacArthur in July 2009. He is serving time in federal prison on related criminal charges. A judgment of more than $19 million was entered against him in the parallel criminal proceedings. The FTC has sued him for other business opportunity scams in the past.

The court approved a settlement with defendant Miriam Andreoni in November 2010. The order includes a judgment of $19.2 million, which is equal to the sum of the payments the American Entertainment Distributors operation allegedly took from consumers. Andreoni reportedly agreed to give up her rights in litigation over the proceeds of her late husband's life insurance policy, and the FTC obtained a judgment for $2 million in insurance proceeds in that case. Andreoni has reportedly tried to withdraw from her settlement and has objected to awarding the insurance proceeds to the FTC. The district court rejected these efforts, and she is challenging those decisions in the federal court of appeals.

Also in November, the court approved a settlement with defendants Mauricio Paz and the now-defunct Universal Cybercom Corp., which also includes a $19.2 million judgment. All but $116,617.95 was suspended based on the defendants' inability to pay. Paz has served time in federal prison on related criminal charges.

The court also approved a settlement with two other defunct corporations, Automated Entertainment Dispensers Inc. and Universal Technical Support Inc. Their net assets, totaling more than $250,000, will be turned over to the FTC for consumer refunds.

The court entered default judgments in February 2005 against defendants James MacArthur, American Entertainment Distributors Inc., and American Entertainment Machines Inc. More than $330,000 in assets has been recovered from these defendants for consumer refunds. James MacArthur is serving time in federal prison on related criminal charges.

Litigation continues against the estate of the 10th defendant, Anthony Andreoni, who died in 2009.

The FTC's case against American Entertainment Distributors Inc. was part of "Project Biz Opp Flop," a 2005 FTC law-enforcement sweep targeting business opportunity scams that included 16 actions against more than 60 defendants.

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