An indecent (business) proposal

Berger isn’t alone: “Dateline” met more people who say they each lost almost $40,000 in the same vending machine enterprise. They come from all over the country. Most never even got a machine. 

Derek is a business graduate, used money from another business. “It substantially hurt that, he says.

Savalas, a computer science major, got the money from selling his home in Rhode Island.

D’Elaine, an accountant, says he will probably have to file for bankruptcy.

Kristi is in real estate. She says she did get a machine and it is working, but it has yet to turn a profit. She used the money her grandfather left her to make what she thought was a worthwhile investment.

The Federal Trade Commission’s Eileen Harrington says more than 400 people invested in vending machines supplied by the company, American Entertainment Distributors. Altogether they lost $20 million.

“Boy, do I feel for these people who were taken in here,” says Eileen Harrington, Federal Trade Commission.

Russell MacArthur is the man, according to the FTC says, who masterminded the whole thing— and he was caught on tape.

MacArthur: I’ve got a formula that works, proven time and time again.

“I would call him slippery,” says Harrington. “He is a determined guy.”

The FTC began investigating MacArthur’s vending machine company early last year. Harrington says he ran it from this office building in Hollywood, Florida. Below, is a transcript of MacArthur on tape as he gloats to a government informant about how the company was a money-maker.

MacArthur: The place smoked to the gills. Within two weeks, you know, the next month we wrote $2 million and then the month after that $2.8 million and then we did back-to-back $3 million dollar months.

The FTC says MacArthur called the shots— he hired and fired employees, signed off on those TV ads, and wrote sales pitches telling investors they could earn as much as $80,000 a year from one machine. 

But the FTC says MacArthur made it almost impossible for investigators— and potential investors— to know he was behind the deal.

He kept his name off the company paperwork and held business meetings at a restaurant. But the FTC says a former employee saw MacArthur make sales calls by disguising his identity on the phone.

MacArthur himself talked about that:

MacArthur: I got a satellite phone and a voice changer. I bought it when I was at American Entertainment.  

Informant: Did you use it at American entertainment? You did?

MacArthur: Why not bro? Why not?

Harrington suspects that MacArthur used a voice changer “I think that these people know that they’re often taped by undercover investigators,” she says. The voice changer, she says, could have enabled MacArthur to do it all: “One guy can be the salesperson. Can be all the references. Can be the tech company, you know.”

This, Kristi, who used her grandfather’s inheritance money, says would make the scammer “a very despicable low individual.” “These are things that normal people don’t do,” she says.

In those secretly recorded conversations with the informant MacArthur talked about his formula—a quick turnaround, he said, is key.

MacArthur: You don’t stay open too long. You don’t get greedy. You (expletive) stay open for a year tops and you make it a year, you make it a year. Roll down the hatches man. You start to see the complaints coming in, you know it’s only a matter of time, you open another (expletive) room and do another product.

The FTC describes Russell MacArthur as quote “a serial fraud artist.”  Two years ago, the agency got a court order that permanently banned him from selling any future business ventures. 

But the FTC says MacArthur violated that ban soon after with the vending machine company.  

“What we know is that for the most enterprising of these get rich-quick crooks, court orders don’t seem to stop them. You know they’re always onto the next scam.”  

The people victimized that “Dateline” talked to were really angry with the FTC, saying that all it did was really just slap this guy on the wrist, and let him go. But now he’s taken another $20 million from people.

The FTC doesn’t have the power to bring criminal charges. It relies on the Justice Department and others to do that.

“We used all the authority that we have and got the toughest relief that we could get and it wasn’t enough,” says Harrington. “What we would like is for those who have the authority at the state and federal level to prosecute criminally.”

Late last year, the FTC brought another action against Russell MacArthur, and this time against American Entertainment Distributors and some of his colleagues in that company.  The FTC alleged unfair and deceptive business practices, temporarily shut the company down and froze its assets.  The case continues. Government investigators say the Justice Department is looking into the company’s dealings.

But, will any of these people get their money back? Probably not.

Russell MacArthur has denied the FTC’s allegations.  He has not been charged with any crime in this case. Through his lawyer, he declined an interview with “Dateline.”

As for Kenneth Berger, although he didn’t think he was taking a gamble, he did roll the dice… and lost.

The toughest part of it, besides the financial loss, is the emotional toll: “I’m angry. I’m bitter. I’m frustrated. I feel humiliated. And I’m embarrassed,” he says.

If someone is trying to sell you what they claim is a "surefire get-rick-quick" business opportunity, the FTC recommends you take plenty of time to investigate the risks. The agency estimates there are nearly one million cases of get-rich-quick fraud every year.

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