Two Southern California companies involved in promoting a line of cosmetics containing a soured milk culture were among nine firms ordered Wednesday to stop doing business in Kansas.
A cease-and-desist order filed by the Kansas Attorney General's Office and the Kansas Securities Commission contends the companies are selling unregistered securities through an unlawful pyramid marketing scheme.
Kansas authorities believe that so far, about 4,000 culture growers across the country have invested about $4 million in the operation. The growers sell the cultures to Culture Farms Inc. of Lawrence, Kan. In Orange County, where the culture has been promoted heavily, there are more than 100 investor-growers, according to local law enforcement officials. A similar culture-growing investment operation swept South Africa for two years before authorities there shut it down last November.
Roland Nocera, the president of Activator Supply Co. of Las Vegas, the company selling the culture-growing kits, said attorneys representing the companies in Kansas have asked the state court to overturn the order.
The California companies named are The House of Cleopatra's Secret Inc. of Palm Springs, which is marketing a line of women's cosmetics containing the culture, and Rontel Telemarketing Corp. of Encino, which has produced national television commercials for Cleopatra's Secret products.
Other companies named in the order are Activator Supply Co.; Ariate N.V., a Curacao, Antilles, company represented in the U.S. by Irvine attorney Paul Stemm; Culture Farms Inc. and The House of Cleopatra's Secret Inc. Three Nevada companies--Kubus Nurseries U.S.A., Commonwealth Business Systems Inc. and Worldwide Business Consultants Inc. also were named. According to Kansas officials and the U.S. Attorney's office in Los Angeles, Worldwide President Frans Theron is now facing extradition to South Africa on fraud charges.
Morrie Winters, president of The House of Cleopatra, said his company "has absolutely nothing to do with the operation in Kansas." He said he had not seen the order. Winters said a series of commercials featuring actress Jane Powell will begin airing early next month.
Winters' Los Angeles attorney, Richard De Santis, said in a phone interview that he intends to fight the Kansas order because the company "doesn't even do business in Kansas." Craig Stancliffe, associate general counsel for the Kansas Securities Commission, said he believes the "whole syndicate of companies" is involved in what he called a "tiered pyramid scheme."
He said investors have been paying $350 to $3,500 to begin growing a culture destined for use in a line of cosmetics to be sold by the Palm Springs company. He said the order does not prohibit growers from sending their cultures to be purchased by Culture Farms Inc., which pays about $6 per batch.
Boyd Schmidt, general manager of Culture Farms, said company President Terrence Taylor turned over books and records to Kansas officials on Wednesday and is cooperating fully with the investigation.
State agencies in California, Nevada, Oregon and Kansas have been investigating the operation since December. In mid-February, Anaheim police arrested Zelbert Ritchie of Rosemead for selling Activator Supply Co. culture-growing kits. The complaint filed by the Anaheim city attorney's office charges him with operating a pyramid sales operation. Ritchie's pretrial hearing is scheduled for today.