Avoiding ATM investment scams

June 5, 2006 | by Valerie Killifer
This story originally appeared on ATMmarketplace.com.
Dan Roy and two partners thought they had found the ideal investment — an ATM venture which promised $1 on every transaction, with placements guaranteed to turn between 240 and 450 transactions per month.

They decided to take a chance and in September 2005 invested $41,000 in One Source Solutions LLC, a California-based ATM placement company. Roy and his partners received their first check in October and were on track to make a second, much larger, investment in December. But Roy grew suspicious of One Source. He couldn't find any third-party validation or physical business address (only a UPS box), and he never received serial numbers for the first set of ATMs he bought through the company, despite several requests.

Roy threatened legal action and eventually recouped his investment. But after filing a formal complaint against the company, he has gotten little response.

Roy wasn't the only investor skeptical of One Source's actions. One Colorado investor filed a complaint with the Colorado Division of Securities, and on May 22, division commissioner Fred Joseph issued a cease-and-desist order against One Source and two of its principals — Mark Lebowitz and Alex Roderick. The order stops One Source from offering or selling its services in or from Colorado.

One Source never registered the ATMs in Colorado, which is required by law, and the Colorado Division of Securities found no evidence that any One Source ATMs existed.

No one from One Source attended theColorado Division of Securities' public hearing, and several calls to the company by ATMmarketplace were not returned.

"This is the first (ATM) case that I've dealt with here, but there have been others along the same vein," Joseph said.

When asked by an investor about the cease-and-desist order in Colorado, One Source's Alex Roderick e-mailed this response: "Our legal team is handling the situation. I realize that it may be a ‘black eye' for the company, but time heals everything and we will get past it."

It's easy to lose one's shirt

Roy and his partners were lucky. Many never receive their money back, and in the ever-expanding ATM industry, it's easy for investors to get lured into losing tens-of-thousands of dollars.

In April 2004, Las Vegas resident Louis Vallette pleaded guilty to 10 counts of felony money-laundering charges for lying to at least 56 investors about his ATM-leasing program. Vallette collected more than $2.7 million for ATMs that never existed.

In February 2005, two Florida men were convicted for their roles with Cash Link Systems Inc., another ATM-placement company. Alan Levine and Leland Balber received $15 million from at least 900 investors for ATMs that were either never placed or never placed in their advertised locations. Both men were sentenced to federal prison and ordered to pay a combined $10.7 million in restitution.

start quoteUltimately there will always be people trying to take advantage of others. Frankly, I don't think anyone should invest in companies unless they are professional investors, or if the companies in which they invest are publicly traded and therefore need to follow SEC rules.end quote

— Sam Ditzion, Tremont Capital Group

"There seems to be a lot of scams out there, so people need to be extremely careful. They're con artists, and usually they're pretty good at convincing people they're legit," Sam Ditzion, president and chief executive of Boston-based Tremont Capital Group.

"Ultimately there will always be people trying to take advantage of others," he said. "Frankly, I don't think anyone should invest in companies unless they are professional investors, or if the companies in which they want to invest are publicly traded and therefore need to follow SEC rules. That should keep people out of trouble and ISOs from getting a bad name."

Investor safeguards

Investors looking for an ATM venture should contact their state's Division of Securities for information about the company.

"We can see if the salespeople are licensed to sell securities. Further, we would be able to see if enforcement actions have been taken by other regulators regarding the company. I believe that due diligence should be performed regardless of the amount invested," Joseph said.

Joseph said, at a minimum, investors should:

  • Map out financial goals before meeting with a financial planner, stockbroker, investment advisor or other investment professional.
  • Conduct a background check with the state SEC regulator.
  • Understand the investment, including cost, goals, performance-history and nature of the risk.
  • Investigate before investing.

Not every placement company in the ATM industry is questionable.

Be wary of these advertising red flags:

"You will receive a high return on your ATM investment." — The higher the return, the higher the risk

"The investment is guaranteed. You can't lose money." — No investment can make that claim.

"We will place the ATM in a high-traffic location, like a casino, airport or convenience store." — Know the specific location, since many of those high-volume sites have already been cherry-picked. 

ATMs are a good investment, said George Ordonez of ATM Experts, a Florida-based ATM placement company.

"If you can get an ATM in a good location and get a good return on the surcharge, you can easily pay for the machine in a few months," Ordonez said. "The rest is just profit."

ATM Expert is four years old and lets investors track each of their ATM transactions online. Ordonez said investors should look for similar real-time transaction-tracking offerings before dropping big chunks of change on a deal.

"There are really good ISO companies," said Jerry Gregory, chief development officer for Texas-based Cash Carriers USA. "There are good big ones, and there are good little ones. But you've got to know who you're doing business with when you're talking about the money end of it. There are a lot of ways to look at it."

Topics: ATMs , Financial Self-Service , Return on Investment , Security

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