The pitch was as simple as it was enticing: purchase an ATM for $12,000 or so and receive 50 cents on each transaction it processed. Nationwide Automated Systems Inc., the sponsor of the offer, was promising annual returns of up to 20 percent.

There was, of course, a catch: Investors were prohibited from contacting the shops and other places their ATMs were located.

That, according to the Securities and Exchange Commission, was because only a handful of the 31,000 machines NASI sold actually existed. The SEC shut down the company late last month, saying its principals, Joel Gillis and Edward Wishner, were actually running a $123 million Ponzi scheme, with most of the investors living in the L.A. area.

“There were doctors, lawyers and CPAs who invested substantial sums of money,” said Alan Broidy, a bankruptcy and commercial law attorney in Century City who’s representing about a dozen NASI investors. “I believe it’s more than $123 million. It’s not Bernie Madoff, which was in the billions, but this is not a mom-and-pop Ponzi scheme.”

Two days after the SEC’s initial complaint, filed under seal Sept. 17, NASI filed for Chapter 7 bankruptcy protection. A federal judge agreed to the government’s request to halt Gillis and Wishner from conducting business two weeks later, ordering NASI’s assets frozen and prohibiting the pair from destroying documents. The complaint was unsealed earlier this month.

Gillis and Wishner, the complaint says, told investors NASI owned the automated teller machines. It would sell them the ATMs and lease them back, paying investors with the revenue generated by fees of $2.50 or $3 on each transaction. While it claimed to have as many as 31,000 ATMs in its network, the SEC said, NASI generated revenue from just 235 – nowhere near enough to support payments necessary to keep up with promised returns.

The company, formed in 1996, was located on the third floor of a mid-rise office building that sits on a hill in Calabasas, overlooking the 101 freeway. It brought in about $123 million over the last 20 months, the complaint alleges, and “less than 2 percent of that amount represents legitimate ATM transaction revenue.” The balance, it says, was “overwhelmingly” money coming from new investors.

“The scale of defendant’s fraudulent offering,” the complaint says, “is staggering.”

SEC officials declined comment. The company’s voicemail box no longer accepts messages, and neither Gillis nor Wishner, both of whom live in Woodland Hills, replied to emails.

“The SEC has made allegations and we’re responding. We hope to have the issue resolved as soon as possible,” said James Spertus an attorney at Spertus Landes & Umhofer in West Los Angeles representing Gillis.

Wishner’s counsel did not respond to requests for comment.

Retirement savings

The machines NASI purported to have were said to be in hotels, convenience stores, casinos and movie theaters throughout the country. Many investors with the Calabasas company were much closer to home, convinced to participate in the ATM business by NASI’s principals, it sales staff, friends and acquaintances.

The company’s bankruptcy filing lists an investor in Malibu as a creditor who claims she lost $144,000. A West L.A. investor says she lost $120,000.

One, a 61-year-old Ventura man who asked that his name not be published, said he purchased 20 machines from Gillis in spring 2012 for $240,000. Up until August, he said, checks were arriving on time each month for about $6,300.

“The ATMS were promised to be a monthly income that would change a little bit, based on the amount of transactions, but would be a whole lot more stable than bonds,” he said. “Now it’s back to the stock market and trying to figure out how to get an income from something that’s totally unstable.”

The investor, who retired three years ago, said he had some money left over for retirement but he has already started looking for a part-time job.

“We’re not wealthy by any means, we’re just regular working people,” he said. “It was a planned income and now it’s a mess.”

Before his days at Nationwide, Gillis attended Ferris State University and Northwestern University, later embarking on a career selling life insurance for New York Life Insurance Co.

Wishner, meanwhile, earned a bachelor’s degree from New York University and started his own tax preparation and accounting company in 1985.

Public stumble

The duo joined forces when Nationwide launched in 1996, with Gillis serving as president and Wishner as vice president, treasurer and secretary. They were also controlling shareholders of ATM Holdings Inc., which became a public company through a reverse merger but did not file any statements with the SEC. That business, based in Canoga Park, was suspended by the SEC in 2007 after it failed to submit required periodic filings and reports.

Rumblings about NASI’s practices started to bubble up in 2009, when some questions about the investment vehicle were posted in investor chat rooms online.

Gillis responded by hiring Profile Defenders, a New York search engine optimization company, to remove or hide negative online listings from such websites as Google and Yahoo, said Jason Bradshaw, Profile Defenders’ sales director in San Francisco.

“He’s been concerned about his company’s problems for quite some time,” Bradshaw said.

He said Profile Defenders hid the majority of negative postings about Nationwide and charged Gillis $10,000 for the service. But, Bradshaw claims, the company was never paid for its work. Profile Defenders responded by making all the hidden posts visible again.

Generating a 20 percent annual return was bound to raise some eyebrows, but Gillis and Wishner tried to dispel concerns by telling potential investors that if their ATM was not active enough to provide that rate of return, the duo would make up the difference out of NASI’s share.

The deal called for investors to pay $12,000 per ATM – though in some cases that price was as high as $19,800 – and lease the units back to NASI for 10 years. The lease agreement also contained a “noninterference” clause barring investors from contacting any locations where the ATMs were installed or any of the contractors hired to service the machines.

When the SEC came calling in August, NASI provided it with a “voluminous spreadsheet listing all of its purported ATM holdings” that showed more than 31,000 machines generated nearly 18 million transactions – about 580 each – in June alone.

“NASI’s records,” the complaint says, “are patently fabricated.”

Among the allegedly false claims is NASI’s record of placing more than 670 ATMs in the Casey’s General Store chain (identified as Casey’s Convenience Marts in the complaint) throughout the Midwest.

“Rather,” the complaint says, “each and every ATM installed at a Casey’s Convenience Mart is in fact owned by Mobile Money Inc., a San Clemente-based company which has no affiliation with NASI.”

David Tente, Florida-based executive director for the U.S. arm of international trade group ATM Industry Association, said NASI had been a member of the association for three years and that its membership was terminated after the SEC allegations came to light.

“This is a pretty rare occurrence,” Tente said. “It’s the first time in my time here that we’ve terminated a membership for any reason. It seems to be fairly certain there were unethical business practices going on there.”

The association estimates Nationwide owned between 150 and 250 machines, Tente said. The vast majority of them it claimed to own were actually owned by other members of the association.

Well runs dry

The SEC filed its emergency action last month, asking a federal judge in Los Angeles to freeze the company’s assets. It also sought a freeze on Gillis and Wishner’s personal assets.

Two days after the SEC filed its complaint, NASI filed for bankruptcy protection. That case, however, is set for dismissal because a temporary receiver was appointed by the SEC to handle the company’s assets going forward.

What assets are left, however, is a question. The SEC said checks amounting to $2.8 million sent to investors in August were returned for insufficient funds.

Still, it said, Gillis and Wishner were able to write checks to themselves shortly after they sent millions of dollars in bad checks to their investors. Wishner was paid $44,820 last month, while Gillis allegedly received $12,500.

The company’s bank account in August had dwindled to less than $200,000, according to the complaint, which would make it virtually impossible to reimburse the investors who Nationwide allegedly defrauded.

Some investors who had partnered with NASI years ago have since recovered their initial investment and earned a profit. Those early investors could be at risk of losing their capital gains if the court decides to use the clawback method to recover more funds.

The Ventura investor, however, isn’t holding his breath.

“I’m hoping there will be some money that’ll come back, but it’s hard for me to count on that because I don’t know how long Ed and Joel had to prepare for this,” he said. “I don’t know if they’ve got anything that’s tangible. I do know that some people invested and Joel took their money and cashed their checks just before this happened.”

For reprint and licensing requests for this article, CLICK HERE.