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Mat Kearney

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Jun 20 | Too good to be true: the story of the Nationwide Ponzi scheme

It’s somewhat depressing to see how many Ponzi schemes are unravelled every month. According to a LexisNexis compilation in October of 2014, there were “8 guilty pleas with 10 newly discovered schemes involving more $500 million in the aggregate”.

Image of a generic ATM
Nationwide Automated Systems claimed it “offers custom-designed wood cabinet options, designed to match the visual feel of the retail location”

Among the list of Ponzi schemes uncovered was one belonging to Nationwide Automated Systems, Inc (“NASI”), owned and operated by a certain Joel Gillis, 76. At his side, a man by the name of Edward Wishner, company treasurer, vice president, and secretary. Very little else is known about the duo, except that they lived in Woodland Hills, California, and managed to defraud over $100 million from some 2400 investors (many of whom were seeking reliable retirement savings income) in what is known as an “ATM leaseback scheme”, which had been running since 1996.

What makes this most interesting, however, is following the trail of voices of concern — as well as dismissal of concerns — leading up to the SEC’s intervention. On an online forum called Quatloos, a “cyber museum of scams and frauds”, comments about NASI start surfacing as early as August 2012.

I have met many clients who have been involved for over a decade and swear by their 20% returns but when I push them for more detailed descriptions of the machines they own. Unfortunately they don’t have solid answers other than they get checks each month. Ponzi’s can run for years until they implode on themselves. (August 2012, jbv)

I have tried hard to find any indication that Nationwide is legitimate but can’t. (December 2012, worried)

Alongside the detractors, you hear voices like these:

Joel Gillis and Nationwide Automated Systems, Inc. are the most honest and legit business and investment business you will ever find. I have been happily doing business and invested with them for the past 2 decades. (April 2013, ElenaPezzini)

The way it worked was this:

  • You would buy one or more ATMs for anywhere between $12,000 and $19,800 per unit.
  • You would “lease it back” to NASI for 10 years, so that in exchange for operation and maintenance, you would get $0.50 per transaction that occurs at “your” machine.
  • NASI would mail you a check every month with a statement about how much you made, guaranteeing a 20% return (regardless of how much the machine made — they claimed they could do this because most ATM transaction costs were $2.50-$3.00 and therefore they could shift balances as needed).

It was, of course, a Ponzi scheme:

  • NASI claimed that it had 80 branches and 1,000 technicians on standby to service some 31,000 ATMs — in reality, it only had about 215, and none of them were ever “sold” to an investor.
  • It was able to do this because the contract each investor signed barred them from actually visiting “their” ATMs.
  • Investments from new investors helped pay back older ones. With the 20% ROI it would mean anyone investing after 2009 would have lost money.
  • In August 2014, NASI bounced some $3 million in checks owed to its investors, creating a flurry of emails, telephone calls and concern.
  • It is known that Gillis had previously refunded individuals their full investments if they had concerns or questions about the viability of the scheme.
  • The SEC filed its complaint September 17, 2014, putting the company into receivership on October 1.
  • At around the same time, even while SEC paperwork was being filed, NASI was able to raise around $4 million separately through new investors.

Now, onto the juicy conversations spotted on Quatloos, bearing in mind that there’s no guarantee any of these are real investors. Instead, I like to think that these bring to light some real conversations people have about its legitimacy:

NAS has been out of machines and refused to take additional investments from me. I mean, that’s pretty big, a scam that didn’t want to take someone’s money? (January 2014, SomeYuppie)

and even calls to the SEC:

So, even if it isn’t a scam, it’s an illegal security. — So, who’s got a contact at the SEC? (January 2014, webhick)

Tednewsom, who remained one of the more prolific posters, wrote:

I actually did swing by their old office once, three or four years ago. Nice, quiet little neighborhood, business district but semi-residential– i.e., a very low-crime area. Their office was the only one room in the building with a spyhole in the door. That amused me, and, to this former investigator, spoke volumes. (January 2014, Tednewsom)

All hell does start breaking loose around page 16

I am a current investor at NASI. Things were OK for 3 years (when I purchased my first machine) until Aug 2014. Usually we get our check or deposit in the first 5 days of the month, but not this time…

On 8.5.2014, a NASI rep emailed us, “I just spoke with Joel and learned that this months’ checks are being mailed today. I believe it has something to do with the fact that he’s been out of town. Not to worry.”

On 8.9.2014, a NASI rep emailed us, ” August’s delay in payments has been the result of Nationwide contracting with an outside firm to manage the monthly disbursements to investors. This system conversion has not gone smoothly, and Nationwide has dismissed the firm.”

I finally got the check on 8.13, but only to find it bounced on 8.18

So of course no August payment in my bank account yet. (August 2014, Funlife)

This is followed up by a posting of a letter sent to investors from Gillis and Wishner:

Last month we had a setback and except for a few sales of ATMs back to us, most people understood that sometimes businesses have problems.

Last month I wrote to you saying that the checks for September would go out between the 8th and the 10th. Unfortunately we have another obstacle.

We have been issued a Subpoena by the Security Exchange Commission and have been trying to accommodate their requests for various documents and records. (September 2014, Concerned Citizen)

Gillis and Wishner both plead guilty in January and their sentencing is now set for July 20, 2015. If you’re interested in reading more about the details of what comes next, including how much money will be returned to investors, the NASI Victims blog (listed below) is a good resource.

Sources

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