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Crooks targeted legions of people with bad credit

TAMPA — Peter Porcelli's $6.7 million mansion, perched three stories high on the sands of Belleair Beach, was called Millenium Sunset. Kyle Kimoto's ranch, set on 10 acres in St. George, Utah, featured 11 bedrooms, nine bathrooms and 6,000 square feet of air-conditioned horse stables.

Both magnificent homes have different owners now, and Porcelli and Kimoto have moved into new quarters: 8- by 12-foot federal prison cells with bunk beds and steel commodes.

Porcelli and Kimoto built fortunes with an international army of cold-callers who targeted consumers struggling with shaky credit and mortgage debt. They kept federal investigators at bay with a maze of companies where the names of corporate officers sometimes belonged to homeless people.

They thumbed their noses at regulators, calculating nominal risk in stealing $159.95 at a time — even if their victims numbered more than a half-million.

They hatched new schemes to defraud those at the end of their rope even after the Federal Trade Commission filed complaints against them. It took 15 years for the government to put them away.

Kimoto, 35, is doing 29 years in federal prison. Porcelli, 58, got 13 years and had five knocked off for testifying against Kimoto. He faces as many as 20 years more when he is sentenced in Tampa on Thursday for a foreclosure relief scam that wrecked the dreams of dozens of down-on-their-luck Floridians.

"These are two pretty bad guys that caused a lot of hurt to a lot of people,'' said David O'Toole, an FTC attorney. "They preyed on people who were facing financial distress, and they knew they were going after people who were desperate."

Amid their crimes, Porcelli and Kimoto basked in the glow of civic and sports success.

Porcelli parlayed deceptive direct-mail sales pitches — "Pack your bags'' for a free vacation that wasn't so free — into annual revenue of $42 million. His Marketing Response Group was nominated for the Tampa Chamber of Commerce small business of the year. He poured his profits into his Tampa Bay Smokers, a fast-pitch softball team stocked with recruits he put on his company payroll. The Smokers won world championships in 1996 and 1998.

Kimoto was a record-setting college pitcher with the Southern Utah T-Birds who ended his professional baseball career with a Frontier League team called "the Steal." His wife, Juliette, was crowned Mrs. Nevada in 2006, and Kimoto, a father of six who generously supported churches and charity, was named "Husband of the Year."

• • •

The Porcelli-Kimoto saga is revealed in thousands of pages of records filed by state regulators, the FTC, federal prosecutors and appellate judges.

Their telemarketing strategy focused on Americans whose credit histories made them ineligible to qualify for a credit card. Kimoto purchased lead lists of 50 million potential customers. Boiler room call centers were set up in Utah, Florida, Canada, India and the Caribbean.

Following scripts, the cold callers suggested they were affiliated with Visa, MasterCard or a financial institution that had turned down the consumer's credit card application. But now the consumer could get a MasterCard for a one-time processing fee of $159.95, and using the new credit card would boost their poor credit score. A "verifier" would come on the phone to get bank information and debit the $159.95.

Victims received either a "value-added debit card" — worthless without money in a related bank account — or a dummy plastic card with a MasterCard logo and meaningless numbers on the front and a phony magnetic strip on the back.

In 2001 in their first sit-down, Porcelli testified, Kimoto explained, "I am going to give you the psychology of what happens with a customer. The way to get them to pay for it is to make your product more important in their mind than anyone else who calls that day."

The sales would come easily, Kimoto promised: "These people are so weak on the phone, these customers are so — I don't want to use the word vulnerable — but so easy to sell."

The sell was easy, especially after telemarketers warned credit-poor consumers that if they refused the card, their credit report would get a derogatory mark and they might never have another chance to get a credit card.

Hundreds of thousands of people bought the sales pitch, and tens of millions of dollars flowed into Kimoto's St. George company, Assail, and Porcelli's Bay Area Business Council, in Largo.

When customers got the cards and realized they had been duped, complaints flooded customer service operators, more than 100,000 complaints in one seven-month period. Rebuffed, they called the Better Business Bureau and consumer agencies. Finally, the U.S. government stepped in.

In late 2003, the FTC won a $106 million judgment against Assail for fraudulent telemarketing. Collecting it was another matter.

Kimoto concealed his assets through "a complex money-laundering scheme'' involving friends, business associates and family members, according to the receiver appointed to collect the judgment. Cash was buried in a corporate network five levels deep, with money wired to shell businesses used to buy property in the names of others.

Homeless people's names were listed as "straw man" officers of corporations. "Burning parties" were organized to destroy incriminating records.

Kimoto filed for bankruptcy protection in 2004 and claimed personal property of just $4,000 in household furnishings, $1,000 in clothing and a $300 wedding band. But a receiver found autos, snowmobiles, water scooters and all-terrain vehicles, cash transferred overseas (some to buy diamonds in South Africa), a ski resort cabin worth $925,000 and $416,000 in fraudulent proceeds donated to the Mormon Church. The receiver liquidated $8.6 million in assets concealed by Kimoto and associates.

The FTC had put Porcelli's direct-mail company out of business in 1996 after finding that its free vacation cost consumers as much as $894. It said his telemarketing business "amounted to little more than thievery."

In 2004, a federal judge ordered Porcelli to repay consumers $12.5 million and issued an injunction that banned him from offering credit services, including loans of any kind, for life.

• • •

A documentary on Porcelli's softball success, Fastpitch, reflected his opulent lifestyle and an attitude of invincibility.

Attired in a cream-colored, double-breasted suit and posing with his yacht and Mercedes Benz sports car, Porcelli told the camera, "I firmly believed I was endowed by a sense of destiny, and with more talent than a human being really deserves."

The FTC got a whiff of that arrogance when it tried to shut down his operation. "These guys were stunned when we brought theses cases against them," O'Toole said. "Porcelli was like, 'What can we do to make this just go away?' "

Instead of things going away, the FTC's civil actions grew into criminal investigations. In March 2007, Porcelli was indicted on conspiracy, wire fraud and money laundering charges in connection with the MasterCard telemarketing scheme. Porcelli cut a deal to testify against Kimoto.

The government wanted to make an example of the telemarketing tycoons, in part because of the rising tide of white-collar crime during a falling economy. Assistant U.S. Attorney Bruce Repper said the scam targeted people scraping by and seeking to save their credit.

"They were looking for a life raft and instead were thrown a concrete anchor," he said.

Kimoto's defense was that he shouldn't be held responsible for the actions of his telemarketing crews. But Porcelli testified that Kimoto purposely crafted deceptive scripts, and the jury convicted him on all counts.

Preaching deterrence, U.S. District Judge Michael J. Reagan sentenced him to 29 years.

Forbes magazine added Kimoto to a Top 10 list of longest white-collar sentences, along with Ponzi schemer Bernard Madoff.

• • •

Even as the government prosecuted Kimoto and Porcelli for one scam, they were plotting their next.

As early as 2004, Porcelli traveled to Las Vegas to discuss a foreclosure rescue scheme with Kimoto.

They set up nonprofit foundations to offer "relief'' to homeowners on the brink of foreclosure. Porcelli's Safe Harbour Foundation, in Clearwater, sent out cards that read, "Let us help you survive the foreclosure storm!"

Safe Harbour was an illegal nonprofit — without tax-exempt status, registered nowhere, run by a fictional "Peter James." It referred homeowners to Silverstone Lending, Porcelli's newly established mortgage brokerage company.

Silverstone's customers got short-term relief with a six-month note loaded with fees that drove the loan's annual percentage rate as high as 260 percent. The FTC said Porcelli "bullied or tricked" those who couldn't pay into deeding over their properties. Dozens of Floridians lost their homes.

The offer of credit and mortgages, of course, violated the federal judge's lifetime ban on Porcelli from offering credit products or loans of any kind.

Porcelli was indicted on mail fraud charges in October in the Safe Harbour/Silverstone operation. He is to be sentenced Thursday.

While Kimoto does his prison time north of Reno, his wife is now in the government's crosshairs. In a complaint filed last year, the FTC said Juliette Kimoto was one of the principals behind fraudulent web offerings on "Grant Connect." Consumers enticed to tap into lucrative federal grants ended up with a worthless computer program and unwanted enrollment in membership programs that cost $70 a month or more.

After Porcelli and Kyle Kimoto were convicted in the telemarketing fraud cases, each pointed the finger at the other. Porcelli blamed his indictment on Kimoto "grossly misrepresenting" the MasterCard offer. Kimoto's attorney said Porcelli was the ''real criminal."

The conclusion of the FTC's O'Toole: "I think they were both right."

Times researcher John Martin contributed to this report. Jeff Testerman can be reached at (813) 226-3422 or testerman@sptimes.com.

Crooks targeted legions of people with bad credit 10/04/10 [Last modified: Monday, October 4, 2010 12:21am]

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