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Commissioners Poolman and Vinje Alert Consumers to Payphone-Investment Scheme
March 2, 2001 701-328-2440

Bismarck, ND - North Dakota Insurance Commissioner Jim Poolman and state Securities Commissioner Syver Vinje are cautioning consumers to beware of a risky, often fraudulent and potentially illegal payphone-investment scheme.

The alert is prompted by recent reports made by several North Dakota insurance agents to both the Insurance Department and the Securities Commission indicating they have been contacted by an out-of-state company to market coin-operated, customer-owned payphones. Such companies, Poolman and Vinje said, often solicit independent, sometimes unwitting, insurance agents to act as middlemen.

"Ninety-nine percent of North Dakota insurance agents have earned the confidence of their clients. That some agents reported being contacted is evidence of their professional prudence and integrity," Poolman said. "It may just be a matter of informing agents of the law and their regulatory obligations. Our foremost concern, however, is to inform and protect the public."

According to Vinje, the payphones, which generally cost between $5,000 and $7,000 to buy, are usually leased back to the seller for a fee. State securities regulators estimate that the scam has already cost consumers $76 million in 26 states, he said. "Typically, sellers entice consumers with an extravagant and unrealistic guaranteed return of up to 15 percent on their investment. Such promises should trip a red flag for investors," Vinje said.

"The scheme isn't new," Vinje said. "Over 20 years ago, when I was with the attorney general's office, one of the scams we investigated involved consumer-owned payphones. The scheme just keeps getting recycled." One new twist, however, is some out-of-state companies' using the Internet to recruit agents and vendors.

Poolman and Vinje are encouraging consumers who are approached by agents or financial service providers to make an investment in consumer-owned payphones to contact the Insurance Department or Securities Commission as soon as possible. Either agency can confirm that an agent or financial services provider is licensed and registered to sell securities in North Dakota and that the company involved is offering a legitimate investment instrument. Both companies 
and agents, the commissioners say, could find themselves in violation of the North Dakota Securities Act.

"Until consumers are made widely aware of this scheme and come forth, we won't know the extent of the scam's penetration into the state or which agents may be trying to sell these payphones to the public. We don't intend to allow even one North Dakota investor to be victimized," Poolman said.


North Dakota Insurance Department
600 E. Boulevard Ave.
Bismarck, ND 58505-0320
Phone 701.328.2440
Toll free 800.247.0560
Fax 701.328.4880

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