Veteran direct marketer Norman Chanes was one of three people indicted in March for their alleged roles in a $230 million Internet scam.
Chanes and fellow defendants Richard Martino and Bruce Chew ran a scam that lured consumers into “free tours” of adult Web sites, then billed their credit cards without permission, according to an indictment on file with the U.S. District Court for the Eastern District of New York.
The indictment also lists five companies, including Harvest Advertising, a New York ad agency headed by Chanes.
The three individuals were arrested March 18 and charged with conspiracy to commit mail fraud, wire fraud, credit card fraud and money laundering. Inspectors said the investigation is still open and that other defendants could be named.
Martino was released on $3 million bond, Chanes on $2.5 million bond and Chew on $1.5 million bond, said U.S. Attorney Linda Lacewell.
U.S. Attorney Roselynn R. Mauskopf is demanding forfeiture of up to $230 million in proceeds, including personal assets worth more than $20 million. These include Chanes’ $11 million home in Southampton, NY, a $1 million residence in Santa Monica, CA and a cooperative apartment in Manhattan.
Chanes has a 1984 mail fraud conviction on his record, according to U.S. Postal Inspector Bob Mignogna.
Martino is a member of the Gambino crime family, the indictment states. Chew was the chief executive officer of Crescent Publishing Group Inc., which publishes such magazines as Playgirl, High Society, Climax and Young Girls.
Calls to Chanes at Harvest Advertising were not answered at press time.
According to the indictment filed by Mauskopf’s office, the defendants operated adult Web sites based on Crescent Publishing’s magazines. Designed by Harvest, these sites were part of a joint venture formed by Crescent and Lexitrans Inc., a firm controlled by Martino, it continues.
The defendants tricked users into providing credit or debit card information as proof of age, promising that the card would not be billed, the indictment states. In addition, they disabled the “Back” buttons on the users’ browsers, and did not include “Exit” or “Home” buttons within the free introductory part of the tour, Mauskopf charges.
Pricing information was buried in the middle of “sexually explicit” text, the indictment notes.
With credit card charge-back levels exceeding 10%, the defendants created shell companies and opened new bank accounts to evade discovery by Visa, the papers add. However, Visa terminated Crescent’s merchant rights in 2000, they continue.
The indictment also states that Martino and Chanes laundered the proceeds from the scheme through several companies, including Mical Properties Inc., Dynamic Telecommunications Inc. and Westford Telecommunications Inc. In addition, Martino transferred more than $8 million to “a higher ranking member of the Gambino crime family,” it charges.
Chanes and Martino jointly ran companies in the 900 number-phone sex business during the 1990’s. In 1996, they expanded onto the Internet, the indictment continues.
Crescent, which reportedly is cooperating with the investigation, was not indicted.
One of Chanes’ mail order firms, Encore House, was raided by postal inspectors in the early 1980’s after several thousand consumers complained about binoculars and other product offers made by its subsidiary Marine Surplus Depot.
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