In Search of a Sure Thing

Investors in this ATM deal thought it couldn't fail. They were wrong.

By David Landis, Contributing Editor

From Kiplinger's Personal Finance magazine, February 2005

Brian Trainor first heard about Cash Link Systems while he was watching a History Channel documentary about financial moguls. During a break, he saw a commercial pitching investment in a "cashless" automated teller machine. Instead of dispensing currency, the machine spit out a receipt, which the user presented to a nearby cashier for payment. The device, which resembled a desktop adding machine, required none of the expensive infrastructure of armor-plated, cash-dispensing ATMs. This was an opportunity within reach of the little guy. For $12,858, you could own three machines and pocket about half of every $2 transaction fee.

When Trainor called, the Cash Link salesman was reassuringly specific: At a minimum, 300 to 600 people would pass near each ATM location daily, and 5% to 8% of them, on average, would use the device, he said. Trainor did the math: The low end of those averages meant 15 customers and $16.50 in revenues each day, or $495 a month. Halving that number to account for hyperbole still left about $250 a month, or $3,000 a year, per machine. "I would have been more than ecstatic with that," says Trainor, 32, an aspiring screenwriter from Brooklyn.

So Trainor invested in 25 cashless ATMs. With volume discounts, his cost came to $71,250, or $2,850 per machine. If his assumptions panned out, the annual return on his investment would be more than 100%.

But, as Will Rogers once put it, sometimes it's better just to get a return of your investment.

Cash Link opened for business in the summer of 2003. By the time a Securities and Exchange Commission lawsuit shut it down in July 2004, nearly 700 investors had plowed $10 million into a business that regulators say is simply a new twist on an old scam. In years past, naive investors bought snack- and soda-vending machines on the promise of high-traffic locations that turned out to be anything but. These dubious "business opportunities" later gave way to pay phones, prepaid-phone-card machines and Internet kiosks.

Although the machinery has become more sophisticated, the pitch has a time-tested appeal: Be your own boss. "For someone who is not lucky or successful in corporate America, it is alluring," says Terrence McElroy, spokesman for the Florida Department of Agriculture and Consumer Services. The agency received 155 Florida-based complaints about Cash Link, which was based in Hollywood, Fla.

Not-so-funny claim

Cash Link's TV commercial asserted that a typical ATM handled 4,000 transactions a day. But the small print on its Web site noted that the figures were for bank ATMs. Leonard Needelman, a former back-office employee of Cash Link, told SEC lawyers in a deposition that most of his colleagues viewed the figure as "sort of an object of humor."

A key part of the pitch was that Cash Link would help place ATMs in high-traffic businesses, such as fast-food restaurants, which would be reimbursed by a third-party contractor who would process the transactions electronically. Investors were led to believe that their role was limited to installing the machines in locations secured by Cash Link. After investing their money, however, they discovered otherwise. The "in-house placement assistance" turned out to consist of a few dozen people cold-calling businesses from Cash Link's offices. The calls were merely intended to persuade business owners to meet with a Cash Link investor. It was up to the investor to seal the deal.

Alex Estrella, one of the cold callers, says that he searched for potential locations in the Yellow Pages or on the Internet. Under pressure to produce results, he says, he made little effort to measure potential foot traffic. "I was given the names of 40 to 50 investors who had three machines or more, and I had to find them locations," Estrella says. "They were all climbing walls because they were promised they'd get locations in a week or two and they had had their machines three to six months."

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