COSTA MESA — An Orange County video telephone promoter who continued soliciting investors after being jailed for contempt of court was indicted Wednesday on 30 counts of criminal fraud and money laundering.
The federal grand jury indictment, handed down in Los Angeles, alleges that Michael Gartner, 32, masterminded a $12-million securities fraud scheme by selling hundreds of investors shares in a nonexistent videophone system that he claimed would link major business centers in Los Angeles and Orange counties.
Gartner, who used infomercials and a phone solicitation operation to sell investments, once showed a TV audience an empty cabinet covered with blinking lights and called it a working prototype of a "photonic switch" developed by his Costa Mesa-based Interlink Data Network, the indictment states.
Neither Gartner nor his attorney could be reached for comment Wednesday.
Though a number of legitimate companies nationwide are seeking investors to develop various telecommunications systems, the field is also fertile for scam artists who take advantage of the public's fascination with high technology and quick profits, law enforcement officials say.
Kathryn Holguin, chief investigator for the California Department of Commerce unit that regulates the wireless cable industry, said she knows of at least 250 telemarketing operations selling investments in high-tech systems, some of which exist only on paper. About half of those 250, she said, are in Orange and Los Angeles counties.
Holguin estimated that such companies pull in $1 million a month from investors lured by the promise of huge returns. "It's sad," she said. "People have to do their homework before they invest rather than trying to get (the legal system) to do something after their money is gone."
Federal officials attempted last year to shut down Gartner's company and several related businesses. The Securities and Exchange Commission sued him for civil fraud, and he was ordered in June, 1993, to repay investors $12.3 million and to stop selling investments in the videophone business.
In January of this year, however, Gartner was jailed for contempt of court for refusing to disclose the whereabouts of the millions of dollars he had collected from investors. Officials so far have traced only the $2 million that Gartner spent on himself to maintain a lavish lifestyle, which included renting a $16-million hilltop mansion in San Juan Capistrano.
While Gartner was in jail, the indictment states, he teamed up with his sister, 26-year-old Yvette Gartner, and started peddling shares in videophone systems to investors in Canada. The Gartners placed ads in Canadian newspapers soliciting investors for a company they described as a maker and seller of videophones.
When prospects called the number, Yvette Gartner would put them through to her brother in a three-way call, according to the indictment. Michael Gartner would then speak with them on a phone made available to prisoners at the Metropolitan Detention Center in downtown Los Angeles.
The two also sent out marketing material that had been produced and used earlier to sell investments in Interlink Data Network, the indictment states.
If convicted on all 30 felony counts, Michael Gartner could be sentenced to 230 years in prison and fined $7.5 million. Yvette Gartner faces up to 15 years in prison and a $750,000 fine on three counts of wire fraud stemming from the phone solicitations from jail.
Michael Gartner's company, Interlink Data Network, was formed in 1991 and almost immediately began soliciting investors in what sales agents represented as a company with breakthrough patents in fiber-optics technology.
Prospects were told that Interlink had built a working prototype of its videophone and was in the midst of building a 21-mile fiber-optic network in the Wilshire district of Los Angeles. In fact, the indictment alleges, none of those things were true.
The contempt citation against Michael Gartner has been lifted, but he has been arrested on the criminal charges and remains in jail, Assistant U.S. Atty. David Schindler said Wednesday. A bail hearing is scheduled for Friday, with arraignment scheduled Monday in U.S. District Court in Los Angeles.