Nationwide Automated Systems Ponzi Scheme Case: The Lease Barred Visits to the Machines

In the Nationwide Automated Systems Ponzi scheme case, the operators paid investors with other investors’ money while presenting it as ATM income, according to the Justice Department’s account of the operators’ guilty pleas. Investors received reports describing what their machines supposedly earned, while their leases prohibited visits to the locations. If you handled the accounts, performance reports or ATM servicing, that gap between the business on paper and the business you knew is the heart of this case.

Nationwide Automated Systems operated from Calabasas, California. This page follows its ATM offer, the records behind the payments and what it cost investors. Our broader treatment of equipment leasing and ATM Ponzi schemes compares the purchase-and-leaseback pitch across businesses.

What Did Nationwide Automated Systems Promise Investors?

Nationwide Automated Systems promised investors ownership of a specific ATM at a specific location, with the company leasing it back and paying them from its transactions. The SEC’s account of its complaint says the company promised annual returns of at least 20%. Investors supplied the purchase money while the company was supposed to put the machine to work.

The advertised locations made the promise tangible: hotels, casinos and convenience stores, largely in the Midwest, according to the SEC. The Justice Department’s guilty-plea announcement described the company’s claim to operate approximately 31,000 ATMs handling more than $1 billion in transactions each month. The criminal information also alleged that the company and its salespeople urged some investors to use retirement savings, claiming the offer would outperform traditional retirement accounts.

Where Did the ATM Payments Come From?

The Justice Department’s guilty-plea announcement said the company made monthly investor payments with other investors’ money. It operated no more than 250 ATMs, and those belonged to the company rather than its investors.

Some investors paid as much as $19,800 for a supposed machine. The SEC said third-party ATM servicers’ reports identified approximately 235 machines being serviced for the company. A servicing record could test the operating story separately from the sales agreement and the company’s own performance report.

The same payment-source problem appeared in Woodbridge Group of Companies. The SEC alleged that payments attributed to independent borrowers instead depended on new investors, while most borrowers were controlled by the operation’s owner and lacked the income to pay. In both accounts, the advertised commercial income and the money funding investor payments told different stories.

Why Could Investors Not Visit Their ATMs?

The company’s leases prohibited investors from visiting the locations where their machines were supposedly installed. The Justice Department’s guilty-plea announcement calls this a “non-interference” provision and describes bogus monthly reports that falsely detailed the machines’ performance. The agreement restricted the investor’s access while the report supplied the apparent proof that the ATM was working.

The SEC described a similar restriction against contacting the locations. It alleged that the company did not own most of the machines it claimed to operate, a fact hidden from investors subject to that contractual restriction. We see the absurdity in selling ownership of an ATM and then putting the place where it supposedly stood off limits. The paperwork supplied the machine and barred the visit.

For someone working with ATM assignments or servicing records, the useful connection is between the machine described in the agreement and the machine the business actually serviced. Someone preparing investor reports may know how the reported transaction activity was produced.

How Did the Nationwide Automated Systems Scheme Unravel?

The criminal information described a payment failure: the company bounced approximately $3 million in checks sent as monthly returns. The Justice Department’s announcement of that charging document said the bank account had fallen below $200,000. The cash balance and the promised payments had parted company.

According to that charging account, the operators responded to hundreds of calls by blaming accounting problems and technical delays from system upgrades. They allegedly reassured investors that timely payments would resume by early October as the scheme collapsed. The Justice Department’s November 2015 criminal-case account described another $15 million raised during the collapse. In a court memorandum quoted in that announcement, prosecutors said the operators solicited investments even after the SEC had served the company with a subpoena.

For an employee answering those calls or handling cash, the explanation sent to investors could be compared with what the accounts showed that day. The relevant records include the payment failure, the instructions for explaining it and the continued solicitation of money.

What Did the Nationwide Automated Systems Scheme Cost Investors?

The Justice Department’s November 2015 criminal-case account put losses at approximately $135 million and said more than 1,300 investors lost money. The SEC had said that the company raised more than $123 million over the preceding 18 months. Investors bought machines that mostly did not exist, and some had been urged to use their retirement savings. An accounts employee may know which deposits financed a payment that investors understood as earnings.

The Guilty Pleas and the Separate Civil Asset Freeze

The Justice Department’s announcement reported guilty pleas by the company’s president and another operator who had held titles including vice president. Both pleaded guilty to conspiracy, mail fraud and wire fraud in a scheme the announcement described as lasting 13 years. The FBI investigated the criminal case, with substantial assistance from the SEC.

The SEC separately brought a civil action. Its announcement said a federal court in Los Angeles had frozen the company’s assets and put them under a receiver’s oversight.

What Evidence Is Needed for Whistleblowing?

For suspected fraud built around an ATM investment, we connect the sales promise, the operating records and the source of the payments. The Nationwide Automated Systems case makes those connections unusually concrete: a specified machine and location, the lease restricting contact, the performance report, the servicer’s records and the money entering and leaving the bank account. Your knowledge of how those records were created can turn a discrepancy into an explanation of what happened.

A 2018 study of occupational fraud in the Journal of Forensic & Investigative Accounting, The Significance of Whistleblowing as an Anti-Fraud Measure, found that whistleblowing became more likely to detect a fraud as the number of people involved in perpetrating it increased. Its definition of whistleblowing included customers and vendors as well as employees. That broader view matters to someone outside the investment company’s payroll who knows what its machines actually did.

We work with you on the records behind the investor reports and the decisions they reveal. An employee who knows how the reports were prepared and a servicer who knows which ATMs were operating may each hold a different part of the explanation. Understanding your role and your information is where our work starts.

We assess information about investment fraud like this for the SEC’s whistleblower program. For fraud against the government, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We address whistleblower awards and investor recovery with you as separate questions.

You Know What Went Into the ATM Report

If you know how ATM reports were produced or where the money for investor payments came from, talk with our whistleblower experts about what you saw. We build the case strategy around your knowledge, bring in securities fraud whistleblower lawyers who understand investment-payment schemes, and stand beside you through the whole process. Start with the difference between what the investor was told and what the business actually did.