Press Room
December 19, 2000
Seniors Who Bought Pay Phones Cry Foul
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."
