December 19, 2000
By Jeff Ostrowski
The Palm Beach Post
When Stuart retiree Al Gibbs heard that he could make risk-free income by investing in pay phones, he forked over a big chunk of his life savings.
Gibbs, 86, last year invested $275,000 in phones sold by ETS Payphones of Georgia. ETS sold phones for $7,000 each; the company promised to manage the phones and send the profits to investors.
For a while, the investment seemed legitimate: Gibbs received payments of $3,000 a month.
But in September, ETS Payphones filed for bankruptcy protection. A couple weeks later, the Securities and Exchange Commission sued ETS, accusing it of fraud.
Gibbs stopped receiving payments, and he was just one of many Treasure Coast retirees who invested substantial sums in the phones.
ETS Payphones raised massive amounts of cash – $300 million from 10,000 investors nationwide, according to the SEC.
Gibbs said he invested in ETS Payphones after seeing a newspaper ad for an investment seminar run by Philip E. Mehl Sr. of Senior Financial Education in Stuart.
Mehl’s pitch seemed credible, and Gibbs bought in.
“I believed them,” Gibbs said. “That’s where my stupidity came in. I trusted Phil.”
The Florida Department of Banking and Finance on Monday ordered Mehl to stop selling the investments. Mehl is not licensed to sell securities, the state said. Altogether, he sold more than $20 million in investments to Treasure Coast retirees and collected commissions of 10 percent to 16 percent.
Mehl couldn’t be reached for comment, and his attorney, John Chalif, declined to comment.
Barbara Jacobs, 70, sued Mehl in November.
In her suit, the Martin County woman said she invested $96,000 – “her entire life savings and retirement funds” – in ETS Payphones.
Martin County retirees Stephen and Bonnie Fincel also sued Mehl last month. Mehl directed $200,000 of the Fincels’ savings to ETS Payphones, plus tens of thousands of dollars into other inappropriate investments, said the Fincels’ attorney, Lawrence Klayman.
The Fincels are religious people who invested in part because Charles Edwards, the man who ran ETS Payphones, spoke of his strong Christian beliefs during sales seminars, Klayman said.
“This was all their money,” Klayman said. “They were suckered in.”
The failure of ETS Payphones spawned another lawsuit from Martin County residents against a Boca Raton company that marketed the investments.
Stuart retirees Robert and Phyllis Arnold this month sued Thomas E. Murray and National Communications Marketing Inc., a marketing company for ETS Payphones. The Arnolds invested $140,000 – a fifth of their net worth – in the phones, said their attorney, Scott Link of West Palm Beach.
Link is seeking class-action status for the suit, filed in Palm Beach County Circuit Court. Murray said he invested $380,000 of his retirement savings in ETS Payphones.
“We’re all basically victims,” Murray said. “This is a heart- breaker.”
Earlier this month, the California Department of Corporations issued cease-and-desist orders to dozens of firms selling phone investments, including National Communications Marketing.
California regulators accused National Communications of illegally and fraudulently selling the investments.
National Communications’ attorney, Merrill Bookstein of Boca Raton, said the firm marketed the investments because it believed they weren’t securities and therefore didn’t need to be registered with regulators. National Communications itself was fooled by ETS’ financial statements, Bookstein added.
Bill McDonald, enforcement director for the California Department of Corporations, said ETS is just one of several pay-phone investment scams targeting senior citizens. Investors should steer clear of phone investments that promise risk-free returns, he said.
“There’s nothing wrong with someone selling you a private pay phone,” McDonald said. “But they’re way overestimating the profit potential and way underestimating the risk. These are lousy investments. They’re being misrepresented, and they’re overpriced.”