Two Oregon Firms Named in Pay-Phone Ponzi Scheme

Two Oregon-based companies defrauded thousands of Californians and others, many of them elderly, in a $100-million scam involving pay telephone investments, the Securities and Exchange Commission has alleged.

The civil fraud allegedly committed by closely held Alpha Telcom Inc. and American Telecommunications Co. is the latest in a series of so-called Ponzi schemes involving coin-operated customer-owned telephones, regulators said.

The two Grants Pass, Ore.-based companies defrauded as many as 7,000 people concentrated in California, Texas and Florida by paying early investors from deposits of new investors rather than from investment returns, the SEC alleged. Defendants’ attorneys declined to comment or didn’t return telephone calls.

A federal judge in Portland granted the SEC’s request Monday for a temporary order halting the scheme and for a freeze on defendants’ assets.

“Good cause exists to believe that defendants will continue to engage in such violations to the immediate and irreparable loss and damage to investors and to the general public unless they are restrained,” U.S. District Judge Owen Panner wrote.

The judge also approved the appointment of a receiver to run the companies, the SEC said.

The SEC’s suit cited as defendants Paul S. Rubera, 52, who allegedly controls both Alpha and American Telecommunications; Robert A. McDonald, 39; Ross S. Rambach, 48; and Mark E. Kennison, 45. Other defendants are Strategic Partnership Alliance of Ashland, Ore., and SPA Marketing of Pittsburgh.

A court hearing on whether to issue a preliminary injunction against the defendants is scheduled for Sept. 6.

The SEC alleged the defendants advertised a 14% annual return while their pay-phone operations lost $1.5 million from January 2000 to April 2001. Alpha paid $16.8 million to investors during this period, the SEC’s suit said. The investments were marketed through insurance agents, it said.

In a typical pay-telephone scam, a company sells pay phones to investors through a middleman for $5,000 to $7,000, state regulators said. As part of the sale, the company agrees to lease back and service the phones, usually for a fee. Many middlemen have been independent insurance agents, the regulators said.

“What we’re seeing is the tip of what’s likely to be a very large iceberg,” Deborah Bortner, Washington state’s securities director, said earlier this year.

Last December, the SEC charged Charles E. Edwards of Atlanta with defrauding as many as 10,000 investors through the sale of $300 million in illegal pay-phone contracts. Edwards, who owned ETS Payphones Inc., denied the allegations. A federal judge froze his assets, and he has appealed this freeze.

ETS Payphones, while neither admitting nor denying wrongdoing, settled the SEC charges by agreeing to be subject to stiffer sanctions in the future if it commits similar violations.