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Bad Connections

The biggest pay-phone scam yet uncovered involved a San Diego-based company called AmTel. But Colorado has had its share, too. By 1994, eight years after it was founded, AmTel was the third-largest private pay-phone company in the country, with 8,500 phones installed--hundreds of them in Colorado--and plans for another 10,000 to come. Within a year, though, it became clear that AmTel was largely an illusion.

The company raised $50 million from nearly 4,000 people in forty states. It did so using a "boiler room" of sales reps who contacted mainly elderly people. In the AmTel sales pitch, a rep would convince a retiree to buy a phone for about $4,000 and then lease it back to the company. In theory, an investor received the rent payment on the phone, as well as a healthy interest rate. (Later it was revealed that the company's two owners skimmed 4 percent off each sale/leaseback.)

The problem was that AmTel never made a profit, and the company had to keep selling new phones in order to pay the bills on the old phones--a classic Ponzi scheme. And because the new money raised had to be used to pay previous investors, the company ran up a "phone deficit"--it sold phones that it couldn't afford to install unless it kept signing up new investors. By 1995 AmTel's accounts showed 7,000 phones that it had "sold" but that existed only on paper.

In July of that year, California regulators charged AmTel with violating securities law by promising returns of up to 18 percent to investors, at the same time assuring them that the company was solvent when it was in fact losing cash. Within weeks AmTel declared bankruptcy.

AmTel recently was bought out by another phone company. But in the meantime, other companies have dialed into its techniques.

In late 1990 Stanley Cameron started a pay-phone company in Colorado Springs called Automated Telecom Technology Inc. Its financing plan bore a remarkable resemblance to AmTel's.

According to allegations contained in several lawsuits filed in El Paso County, Cameron raised money for A-Tel by networking with elderly parishioners in church congregations and with retired Air Force Academy employees. A number of sale/leaseback agreements obtained by Westword show that individual investors turned over portions of their IRA accounts to A-Tel in exchange for pay phones. The rate was $4,000 per phone.

In promotional pamphlets starting with the salutation "Dear Doctor/Investor," A-Tel promised between 15 and 18 percent annual earnings and "100 percent return of principal." The company also offered referral fees, paying up to $100 for each pay phone the company obtained through the recommendation of another person. One catch: The person making the referral also had to be an investor in A-Tel. "This adds credibility to the program and to the potential clients that you will be sharing this with," the pamphlets read. According to court filings, A-Tel raised $2.8 million this way.

But last year A-Tel, like AmTel, ran into financial problems. They seem to have begun when Cameron's company--also like AmTel--began selling "phantom" phones; investors were buying phones that didn't really exist. "Seven hundred phones [were] purportedly sold, installed and subject to leases...while the funds had been collected by [A-Tel], no such phones had ever been purchased, much less installed," charges one court filing.

No one disputes the fact that A-Tel raised money by selling pay phones that weren't real. In court, Cameron has explained that it was an innocent mistake: His sales force had simply outpaced his installation crew. Others--most notably a California transplant named Wayne Tully, who recently started a competing pay-phone company in Colorado Springs--say A-Tel was being propped up by a Ponzi scheme, using money from new pay phone sales to pay the debt rung up by old phone sales.

But A-Tel apparently didn't raise money fast enough, and last year the company filed for bankruptcy protection. A-Tel was $1.3 million in debt, with a $750,000 outstanding bill to US West and a $120,000 tab due the Colorado Department of Revenue.

As the owner of his own pay-phone company, Frank Semone, president of the Colorado Payphone Association, knows that the AmTel and A-Tel financing schemes further erode the already shaky reputation of the industry. And as a former owner of a brokerage firm that sold stocks and bonds, he suspects A-Tel's financing scheme was just as illegal as AmTel's.

"I think that if push came to shove and the Colorado Division of Securities got involved, they would say that what A-Tel was doing was in effect selling securities without a license," he says.

A-Tel finally emerged from bankruptcy court last month, but with a new set of owners and managers. Many of the elderly investors are expected to lose at least some of their money.

--Dexheimer

 
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