Steel Bars and Steel Guitars Part 2
‘People think that at 61 years of age, I just crawled out from under a rock and decided to make some money. Nothing could be further from the truth.’
A D V E R T I S E M E N T
A D V E R T I S E M E N T
By Charles Siderius • Photography by Mark Graham
Prosecutors said one of Petty’s habits eventually made the FBI’s work easier: He taped thousands of his conversations — including this one with his brother — and the recordings were found and seized by the FBI when agents executed a search warrant at his trailer home.
Petty believed that investing in TeleCom2000 was so confusing that he would not allow anyone to send him money without being fully educated, and he insisted on being the educator. He required all potential investors to listen to a 14-minute taped message that described what TeleCom2000 was about.
The message would invite investors to join in one of Petty’s national conference calls. During those recruiting calls, existing TeleCom2000 investors would gush about how much money they had made. Petty would explain the business and answer questions.
Petty is proud that no one was pressured to send money and that no one invested in the dark. He was happy to provide as much information as any investor desired.
On its face, TeleCom2000 was sold as a telephone network that offered its members cheap cell phone service and company profits. To join the network, members paid $1,316 for a phone contract. They were promised repayment of that sum after six months. A fee to the person who referred you to TeleCom2000 was supposedly also paid out of your money, but you were still guaranteed an added return of $2,463.
Even greater moneymaking opportunities were offered to those who invested more. A $10,000 investment was guaranteed by Petty personally to return about $50,000 in six months.
No investors were required to sell or market TeleCom2000. Petty did it all from the comfort of his mobile home. With the power of “digital technology,” Petty felt he could target potential investors identified by existing TeleCom2000 clients and find thousands of others randomly through phone messages and “fax blasting.”
Petty reasons that, because regular telephone networks must spend so much on acquiring and retaining long-distance telephone customers, they have to pass on expensive marketing and sales costs to customers. Plus, he said, customers are fickle and switch telephone service frequently, which means the telephone companies must spend more money to get them back or find new customers. As part of his pitch, Petty calculated that telephone companies spend about $3,600 for each new or returning customer, including all of the marketing, sales, and operational costs.
TeleCom2000 had no sales staff, no marketing staff, no big expensive building or other brick-and-mortar infrastructure to buy or maintain. TeleCom2000 could save everybody all the money that traditional telecommunications companies were forced to spend. TeleCom2000 would be saving so much money in expenses that it could “give” long-distance and cellular telephone service to its customer/investors for free. In fact, TeleCom2000 could give the money it saved back to customer/investors.
In January 2001, TeleCom2000 staged a gathering of investors at the Holiday Inn in Tyler. Petty was the star of the Christian event and performed some of his music. A videotape shows him dressed in a brown sport jacket and turtleneck and wearing his tinted glasses like a 1970s disco king, walking and talking in front of the group of about 75 mostly older investors gathered in a ballroom.
Petty told the group that he lives by agape, which is “love that seeks to help the other person attain the highest good. ... It’s very, very important because that has to do with what this plan is all about.”
Several investors, including a former Missouri car dealer, touted the merits of TeleCom2000. The car dealer, who claimed to have made more than $250,000 from TeleCom2000, cautioned the crowd not to “pester” the busy Petty with too many questions. He told the group just to worry about cashing the many TeleCom2000 checks that would be arriving.
For someone sitting on top of the world, Petty at times looked a bit uneasy in the video, like he’d started a brush fire and was trying to stamp it out with his feet. He cautioned the audience that certain people, particularly government types, would not understand what TeleCom2000 was about. He said it angered him that anyone would try to characterize his complicated principles or his company as a “pyramid scheme.”
“Can you imagine some of the yokels, these attorneys and attorneys general, trying to understand?” Petty said.
Petty’s convictions and his convoluted explanations combined with catchy terms like “Titanium” and “Platinum” level investing had a legitimate ring to mom-and-pop investors. No overhead costs and a loyal customer and investment base would have to be profitable, wouldn’t it?
In truth, Petty’s logic is, for lack of a better description, baloney. While it’s true that AT&T and Verizon have marketing and sales staffs and offices to pay for, they also have actual telephone lines and a real telephone network. TeleCom2000 didn’t.
TeleCom2000 had only Al Petty, Al Petty’s literature, and Al Petty’s recorded messages and conference calls — and WorldTeq’s fax number. WorldTeq was the actual phone company with which Petty placed orders for phone service. WorldTeq paid TeleCom2000 about $50 for each referral, or about $233,000 for the life of the $16.5 million TeleCom2000 operation.
If you ask Petty where the money was coming from — and he’s been asked over and over — he will always say in a most sincere way that the money for TeleCom2000 came from the power of the network of people and from the savings.
It is impossible to get him to agree that savings themselves don’t generate money. That is the exact quantum leap in logic that is sending Petty to prison. You don’t earn $500,000 in cash for not building a $500,000 house. If you give TeleCom2000 $1,300 and TeleCom2000 gives you $3,600 back, that extra money has to come from somewhere. In Petty’s case, the only real cash came from investors.
In December 2001, TeleCom2000 was taking in millions, and, despite his insistence that everything was legal, Petty was nervous about the government, according to a transcript of a conversation recorded at his mobile home. He told one of his Angels —his word for his office help — and his brother that the government wants to keep people in a “mold” and would try to stop him if anyone gets too far ahead.
“When you start creating millionaires out of people that were former highway patrol cops, you know, they don’t like it,” Petty said.
Petty was paying off investors as promised, however. Between January and March 2001, he paid TeleCom2000 investors $7.5 million. Petty set up a computerized system to generate checks that would automatically be sent to investors according to intricate schedules he provided.
Petty was also paying himself and said he firmly believes that TeleCom2000 was making real profits that translated to legitimate compensation. He commissioned construction on his new house and ordered more than $100,000 worth of goods for it. He bought the Mercedes for himself and a new sport utility vehicle for one of his Angels. He also bought the Angels a horse so they could take a break once in a while, Petty said.
At TeleCom2000 headquarters, a.k.a. Petty’s mobile home, the pace was hectic as the checks came in a deluge and a growing number of investors had to be paid.
The Angels, who were earning as much as $4,000 a week — and who sometimes were asked to give Petty back rubs and see him in leopard-pattern bikini briefs — could not keep up. Twice Petty had to contract for temporary office help.
Petty didn’t know it, but a flip comment he made at a Tyler bank about opening a religious account to keep the money away from the government had sparked a suspicious activity report. An FBI investigation followed.
Before winter of 2001, three of six Angels already were working with the FBI. As far as Petty was concerned, things were a little behind but rolling along fine until the end of last March, when he decided to move the operation to Canada — for better office support, he said.
On March 30, 2002, the day after the FBI searched the mobile home, Petty told one of his Angels that TeleCom2000 had been sold and moved out of the country. The reasons were too “complex to enumerate,” he wrote in a letter that promised Angels “gratitude pay” in return for their loyalty and silence.
In a conversation recorded by one of his employees, Petty said that TeleCom2000 would continue to pay its investors, “unless somebody destroys the company. I don’t know how they can do that now that it doesn’t belong to me, but they might do it. If they do, well it’s not just you but thousands of people will suffer. That’s what I will do anything to prevent. I don’t care what I have to do.”
The U.S. District Court for the Eastern District in Tyler issued a temporary restraining order on April 2, freezing Telecom2000’s assets. The fun part of Petty’s wild ride was over.
Petty’s preliminary hearing last June was a bit of a circus. Dozens of his estimated 3,000 supporters and investors traveled from many parts of the United States to the federal courthouse in Tyler to pray and commiserate with the accused. Some thought it was a trial, not just a preliminary hearing, according to Chuck Anderson, a Tyler resident who has written an unpublished book about Petty and TeleCom2000.
When the FBI froze TeleCom2000’s accounts, investors had been paid and quite recently. Many of them were angry at the government and said they could see nothing illegal about TeleCom2000.
Petty’s money was frozen, and he needed money to mount a defense. Where to get it? Why, the same place he’d gotten the rest of his money. Incredibly, while Petty was fully engaged in criminal proceedings, a call was put out on the TeleCom2000 web site for a “TeleThon 2000 Victory Fund” drive, which aimed to raise money by the same method that got Petty into trouble in the first place. “How much is it worth to you to get your TeleCom2000 business back?” the site read. “Take advantage of the generous offers of TeleCom2000 business owners! Many of you owners have ‘put it in writing’ that you will purchase ‘2 for 1’ businesses for you if you can come up with as much as $5,000 to $25,000 to contribute to our TeleThon Action Victory Fund!
“This means that — if and when we win this thing and get TeleCom2000 up and running again for a $5,000 donation to the TeleThon 2000 Action Victory Fund, the Action Committee will purchase a Pro10 for you — if and when TeleCom2000 wins and gets back in business! This earns you $60,000! A contribution of $25,000 will get you a Pro50 when TTN gets up and running! That would earn you $297,000!”
The page said Petty needed $700,000 to “knock ’em dead” in the courtroom. The page also said Petty actually hoped to get jurors to join TeleCom2000 when the trial was over:
“Our goal for all 12 jurors is to sell ’em, sign ’em, and put the jurors, ‘on the road to financial independence America,’ and get a unanimous verdict of 12 votes not guilty!”
Prosecutors, who found the process enormously entertaining, did not shut the site down, since they did not want to be put in the position of preventing him from raising money for his defense. The judge did caution Petty not to encourage his followers to violate the law in the process of building his defense fund, but the site itself continued in operation through Petty’s trial.
During the eight-day trial that ended Oct. 30, the jurors were convinced that TeleCom2000 was indeed a pyramid scheme. Traci Kenner and Gregg Marchessault, assistant U.S. attorneys who prosecuted the case, said they plainly showed that Petty had taken in about $17 million during the two-year life of TeleCom2000 and that he owed more than $30 million.
“It escalated. Especially during 2002, which happens with these schemes. You’ll see an escalation after they kind of limp along for awhile,” Kenner said. “He paid out around $8 million.”
The pair also convinced the jurors that Petty had done enough posturing during the life of TeleCom2000 to make it plain that he knew the investment plan was a scam, Kenner said.
“He moved his operation to Canada,” Kenner said. “He offered a gratitude pay plan to his employees, and one of the conditions of that plan was that they not go to the authorities, including the FBI. And on a tape recording that was entered into evidence where he had a discussion with one of his employees, he made the comment that he would continue to program [payments] even if he went to prison.”
Dan Petty, Al’s only brother and his only legally recognized business associate, testified that he suspected TeleCom2000 was a pyramid scheme.
Al Petty was convicted of 24 counts of wire fraud, 20 counts of mail fraud, 31 counts of money laundering, and 23 counts of engaging in monetary transactions with property derived from an illegal activity.
Based on advice he received from his attorney, Petty did not testify, which he now regrets. He is certain that he could have convinced the jurors of the truth. He also did not accept a plea bargain, which would have probably resulted in a lighter sentence.
“I can either lie and ... spend the rest of my life, my eternal life, in hell for lying, or I can tell the truth and take a chance of going to prison for the rest of my life,” he told his brother during a sometimes heated telephone conversation — recorded by Al — about a month after the trial. “That’s a no-brainer. I choose to tell the truth. Don’t ever present me with a plea.”
During the months leading up to the trial, the number of Petty supporters shrank. Money for his defense dried up. Some investors sued Petty.
The biggest problem Petty has with the government’s claims and the outcome of the case, he said, is that the government, not Petty, created the victims of TeleCom2000. Until the government seized the funds, Petty said, every investor had been paid as promised, and they would have continued to be paid. He’s right about that; he was paying everybody off. He even has a book of planned payments that were stopped when the government seized funds, he said.
But Petty’s own charts speak to the certainty of his eventual undoing. The income he shows on his chart starts at about $16.5 million in March 2002 and is predicted to nearly double each month until the time of the trial, when TeleCom2000 would have taken in $146 million. By Petty’s own projections and TeleCom2000’s guaranteed returns of between 500 and 1,100 percent, his revenue of $146 million would have required a return to investors of between $730 million and $1.6 billion the subsequent year. Still, Petty does not agree that TeleCom2000 was guaranteed to collapse. He compares it to legalized gambling or Social Security, which is the “father of all Ponzi schemes,” Petty said. His witnesses at trial got it right, he claims.
“They pointed their fingers at the FBI,” he said to his brother in that taped telephone conversation. “They pointed their fingers at them in court and said, ‘Al Petty did everything he ever told me he would do. ... If he gets started again I’ll be with him again but you guys took my money and you took my business and I want it back. I’m your victim, not his victim.’ ”
No matter who Petty believes is to blame, there is no question that TeleCom2000 left some investors in bad shape. By Petty’s own account, some TeleCom2000 investors maxed out credit cards, cashed in IRAs, stocks and bonds, and blew life savings in order to follow his dream. It’s unclear if the government will be successful in getting anybody’s money back.
Other investors, such as Kevin Garris of Pittsburgh, Pa., still stick up for Petty. Garris invested about $1,000 and received about $500 before the government shut TeleCom2000 down. He said the network was getting its money from new network members, and there is nothing wrong with that.
“Different people join under you and the money comes from long distance and cell phone expenses. That sort of stuff. It was working. It was working exactly the way he advertised it. ... A lot of people had no complaints about this,” he said. “I can see that Al was set up royally. Somebody had it in for him... It’s just nuts that the judge didn’t drop the case. He must have been paid off is all I can figure.”
And then there is Anderson, the 58-year-old Tyler resident who wrote the book about Petty. Anderson, who sells annuities, worked himself into heart surgery while smoking up to four packs of cigarettes a day writing his 50,000-word tale of Petty’s case. He had no personal involvement in the case but got interested after hearing about it from a friend. Anderson describes Petty as a sociopath who hid behind intentionally obfuscating language and charts.
“Where does all the money come from?” Anderson asked. “Nobody understands that. It’s Petty doublespeak. It has nothing to do with anything.”
Petty’s requests for a new trial and for the judge to set aside the jury’s verdict, have been denied. Still, he seems certain he will be vindicated. After having to sell a guitar for money to pay his hotel bill, he said, he was permitted to move back to his mobile home to await sentencing, which won’t happen for at least three more weeks.
His brother tried to patch things up and went to see Petty at the Hampton Inn before Petty went back home. Petty didn’t let his brother come up to his room but talked to him at length in the lobby. Again, Al Petty recorded the conversation. Petty told his brother that he believes his case is historic and that a book or a movie will come out that will show he is a victim of the government. His brother complimented him for his dedication, like when he built the Guitorchestra, and declared him a genius. Al Petty agreed.
“If you judge people by results, I’m a genius, but as far as brains are concerned, I doubt I’ve got any. You know I’ve always refused to take an I.Q. test, but I know this: I certainly get results,” he said. “I get things done ... Sometimes it ain’t easy, but I get it done.”
A version of this story first appeared in the Dallas Observer.
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