Every now and again we at Elite E Services stumble upon business models in the course of our operation that are sometimes interesting but alarming at the same time - in this case, timeshare fraud. After having our head held under water by combination of ugly circumstances (tough regulation making business impossible but at the same time losing millions to Forex fraudsters which ironically the regulations failed to stop); we are sensitive on fraud - especially that which does not appear to be on the surface! And as markets evolve, so do fraud models..
SAN DIEGO – Jeffrey Spanier, a 51-year-old former owner of Amerifund Capital Finance, LLC located in Boca Raton, Florida, was convicted by a federal jury today for his role in an elaborate stock-loan fraud scheme in which executives and shareholders of publicly traded corporations collectively lost over $100 million when the stock they pledged as collateral for loans was immediately sold in order to fund the loans.
Why this is a good example though - this fraud was perpetrated at the highest levels. Victims of this fraud included the who's who of Wall St., corporate executivies, ultra high net worth individuals, and even Bono (
This may have to be a multi-part series as we uncover this new type of fraud which may be the next big 'securities fraud' as what we are looking at - appears to be unregistered securities. Let's start with a short history of what a timeshare is and how we got where we are.
Long ago, before the dinosaurs, the Johnson family wanted to share their lake cottage with the Smith family for the summer, and asked them to kick in for the repairs of the old dock. Or something like that. And then it became a business - of course starting from the infamous Fort Frauderdale, Florida (during this time Boca Raton was still a swamp, inhabitied only by IBM and some Japanese..)
The first timeshare in the United States was started in 1974 by Caribbean International Corporation (CIC), based in Fort Lauderdale, Florida. It offered what it called a 25-year vacation license rather than ownership. The company owned two other resorts the vacation license holder could alternate their vacation weeks with: one in St. Croix and one in St. Thomas; both in the U.S. Virgin Islands. The Virgin Islands properties began their timeshare sales in 1973 with owners Hillie Meyers, Don Saunders, and Arthur Zimand.
How we got to where we are today follows the same path of all industries; fuelled by Fed policy of cheap money, an expanding real estate market, retiring rich baby boomers, and all the other favorable demographics. But what insiders in this industry learned quickly was that, they were really selling the dream. It was possible to sell the nothing, the artificiality. "Real" estate is just that - it's real. Timeshare owners don't really 'own' anything, if you read the agreements - it's a contract to pay, an obligation - in perpetuity. Every time share contract is different but in no case is there actual ownership of 'real estate' - you may own the 'rights' to a 'membership' but if it cannot be 'sold' then what kind of ownership is that really? What they learned was that the profit here was all in the sizzle, not in the steak - and if they could enhance the sizzle to be 99% and serve Grade B flank steak, they'd have a winning model to become very rich, which was borderline legal. While the timeshare industry itself is 'legal' and in some states there are 'regulations' - many of the tactics they use, contracts they offer, are illegal. Many of the 'salespeople' they hire, have criminal records for financial fraud. In fact, the FTC currently has hundreds of criminal investigations against timeshare companies, timeshare resale scams, timeshare fraud, and related illegal activities. Similar to how the Forex fraud we saw had nothing to do with Forex, many of these frauds have nothing to do with timeshares. People are so desperate to sell their obligations, when a scammer calling from Mexico says he can 'resell' your timeshare (which is practically impossible) hopeful victims wire thousands of dollars to the foreign bank account with little respute. Doesn't sound like a lot of money for a scam, but - multiplied by the 10 Million timeshare owners out there, this can add up to millions of dollars for the fraudsters.
When you 'buy' a timeshare 'contract' it's sort of like a debt, you are obligated to pay and if you die, your children will inherit the payments. Sounds a lot like a bond! Yes, these are unregistered securities. The 'exchange' as they call it, RCI, is an unregistered exchange. There are issues with the SEC, the CFTC, the states, and possibly even anti-trust issues. Some of these issues are starting to be talked about in the financial media:
Summary
- Analysts upgrading HGV are not considering the 'dark side' of this industry.
- Potential liabilities can spring up anytime that can change this tune.
- Angry customers complain, which can soon become lawsuits, with deleterious consequences.
About half of the big timeshare companies are public companies, so here's where the biggest issues lie. Because public companies are required to follow rules such as disclosure rules that don't apply to private companies. So this may be where we see the first complaints.
Really what it comes down to, is a broken model. Not all timeshares are frauds - but in an inflationary environment, is such a model - fraud removed - profitable anymore? It's like the Series 7 stockbroker, who used to charge a percent of the trade - now anyone can place their own trade for $9.99 or less whilst sitting in their bathrobe petting their cat. The timeshare model is a broken bricks and mortar model from the past, it's dead like the shopping mall is dead, just like Amazon is killing retail stores, new upstarts that remain to be seen (still do not exist) will cannabalize this rotten model. In the meantime, there's a lot to be decided in court.
Even according to industry 'official' statistics, about 17% of timeshare owners are not happy. Although Diamond is now private and bigger companies have 'cleaned up' their act, reports of false imprisonment, fraud by trickery, misleading sales statements, and outright refusals to comply with customers requests, and just a few of the things still going on.. just read sites like this Consumer Reports (RCI):
We see no reason to sign up for RCI except to give the company money. We are new members who tried to use RCI for the first time. We wanted to visit El Dorado Suites, Riviera Maya, using our exchange. Through RCI, we have to pay a $399 fee for a mandatory 7-day visit. RCI requires we also pay a $2500 "Mandatory all inclusive" fee for the El Dorado. So that's the cost of our RCI membership, plus a $399 fee, plus a $2500 all-inclusive fee. Curious, we logged into El Dorado's home page and found we could sign up for the exact same vacation, not using RCI, for a total cost of $2200, also all-inclusive. So the all-inclusive fee alone is more than the actual cost of staying at the El Dorado Suites, without having ever met an RCI salesperson....I have been with RCI approx 12yrs. My previous issues have been the fact that they charge for unused points... Live and learn. My complaint is that I had to cancel a reservation. It's unfortunate but situations do arise and plans have to get changed. I cancelled 5-days prior to my check-in date. RCI WILL NEITHER REFUND NOR CREDIT my charge of $99.00! They say they have a 24-hour 'grace period'. I feel this is a major RIP-OFF to consumers and extremely bad business practice. I have contacted them by email, customer service and 'blabbering' supervisor. I was told "they have to keep the lights on" in order to provide their service. Well, RCI, my lights need to be on as well!! BUYER BEWARE.
You get the idea. One can spend a weekend reading these, it does make more interesting reading than outright financial fraud, but eventually it will make you want to vomit. You can't call this a business model - you have to call it 'fraud' or 'scam' because it's like that. If normal companies operated like this, they'd be shut down. Imagine walking into Wal Mart and instead of their 'no questions asked' return policy they argued with you and told you there was a 'grace period' or some such nonsense, there would be riots, boycotts - Wal Mart would be no more. 90% of business operates like that. The only exception is software sales because practically, once you 'download' the software you can copy it and there's no way to prove that you didn't. Other than that - and some other rare exceptions, you can't lock people in a room for 8 hours without their permission. Readers - this is a time-bomb waiting to explode! How can we profit from it? Short the stocks; (HGV) (WYN) (VAC) et al
If you own a timeshare and want out, there are only a few lawfirms who are actually law firms who can do this for you, like this one Fortis Law Group PLC. There are also hundreds of scam companies claiming to be 'timeshare resale experts' who even have 'licenses' to do this - but beware - this is a scam too! This industry is filled with fraud from one end of the business cycle to the other. It can only be explained by George Carlin, with this clip:
We know what we have to do. Let's get working!
