Infomercial pitchman is shut up; Jail ends the career of Md. man who talked people out of millions; Hagerstown 'institute'; Polk was broke, once lived in a tent, then he started selling dreams; Fraud

THE BALTIMORE SUN

In one of his TV infomercials, John Polk looks busy, the kind of busy that goes with being rich.

Busy in his office, busy on his jet and busy interviewing successful subscribers to his programs -- "Inside Secrets," "Elite Performer," "Real Estate Money Machine."

But it's not Polk's office. It's not Polk's jet. And, federal prosecutors said, the subscribers are not success stories of Polk's Peak Performance Institute in Hagerstown.

U.S. District Judge J. Frederick Motz ruled Thursday that Peak Performance defrauded thousands of people of more than $10 million.

Polk, who had pleaded guilty to one count of mail fraud in a plea bargain, was sentenced to 51 months in federal prison. Motz also fined Polk $250,000 and ordered him to pay $2 million in restitution.

Motz also sentenced David Bowen, another company official, to 18 months and ordered him to pay $250,000 in restitution. And a third company official, Matthew Foulger, 32, was sentenced to 30 months in jail. Like Polk, Bowen and Foulger pleaded guilty to one count of mail fraud.

According to prosecutors, Peak Performance made numerous misrepresentations in its infomercials and sales seminars, and falsely promised money for joint real estate ventures.

"If people are not willing to invest in themselves, then how can they expect me to, in some cases, invest tens of thousands if not hundreds of thousands of dollars?" Polk asked at a 1995 seminar in Tampa, Fla., according to court records.

Polk, who declined to answer a reporter's questions, testified at his sentencing hearing last week that he tried to run his business legitimately.

"I never imagined in a million years that anything could become criminal out of it," he said.

The sentencing might not be the end of Polk's legal problems. After Polk sold Peak Performance to Foulger in 1995, he moved to Texas and started another company, 2xtreme Performance International LLC, which marketed health, fitness, beauty and weight management products through 100,000 claimed distributors in 50 states.

Like Peak, that company used infomercials and seminars to market products. Like Peak, 2xtreme generated numerous complaints of fraud. And like Peak, it is no longer in business.

Barry Cohen, a self-employed Web designer from Phoenix, Ariz. and his wife Catherine, became involved in Polk's 2xtreme through a friend.

Cohen said he spent a year working the 2xtreme program before getting out in December. "It was a spiral of spending money, more and more money," Cohen said. "It was a scam."

Testimony in the Polk case has pulled back the curtain on a mysterious industry that often is encountered late at night by channel surfers.

The industry features salesmen-speakers who float from company to company, earning a commission for every package they sell through scripted presentations.

One of the industry's rules is "poundage," meaning the books and tapes that customers buy must weigh a lot.

One of the industry's most effective sales tools is "shortage," the idea that only a few slots are available in the most lucrative programs.

The $2 billion industry -- and its sales techniques -- have started to attract the attention of prosecutors.

Polk's case was not the first to be prosecuted, noted Jeffrey Knowles, a partner at the Baltimore and Washington law firm of Venable, Baetjer, Howard & Civiletti and general counsel to the Electronic Retailers Association, formerly the National Infomercial Marketing Association.

He cited recent cases in Orlando, Fla. and Fairfield, Iowa, as the first criminal charges he had heard of that directly resulted from infomercials. "This is a relatively new development," Knowles said.

Knowles said he thinks the Federal Trade Commission has been dissatisfied with the results of civil proceedings it had previously relied on. "As a result of the ineffectiveness of their enforcement, they have reached out to law enforcement for help in dealing with fraud cases."

In light of the criminal cases, the Electronic Retailers Association is telling members that they must have their own internal standards, monitor their own operations, and make sure their businesses are in accord with the association guidelines on truthful marketing.

Knowles said officials of Peak and the Florida and Iowa get-rich programs were not members of the association.

"These business-based programs constitute only a small segment of the direct-response television industry," he said. "Most products sold through infomercials are consumer products. These business-based programs have always been part of the infomercial industry, part of the 'dark side' of the industry, but they are a small part of the industry."

Clean-cut, lean and of average size, Polk appeared relaxed and confident in court last week, winking frequently to family members and even attempting to converse with FBI Special Agent Barry O'Neill, who led the investigation into Peak.

Polk testified that he owed his start to his Marine Corps brother-in-law, who turned him around as a wayward teen-ager, and to a book, "The Magic of Thinking Big."

Polk, who described himself as a former warehouse employee who once lived in a tent, had sampled several sales seminar companies and became a devotee of inspirational speakers such as Tony Robbins and Zig Ziglar.

Drawing on research and his own personal experience, he said, he wrote books that became the package offered by Peak Performance: "The Real Estate Money Machine," "High Yield Low Risk," Credit, Credit and More Credit," "Secrets to Building Wealth."

Polk, who calls himself a "financial expert," "author" and "self-made millionaire," said he ultimately offered more programs at a lower price than any of his competitors. "I wanted to be really proud of what I did," he said.

But federal prosecutors describe Polk's ventures in less homespun terms.

After dropping out of Frostburg State College, he tried his hand in restaurants and in selling insurance and climate control devices before filing for personal bankruptcy in 1988. They say he started the Peak Performance Institute in 1991, and increased the company's sales seminars dramatically in 1993.

A statement of facts signed by Polk describes Peak's operation the following way: Polk rented mailing lists and sent advertisements intended to look like newspaper articles that identified two men, Jim Moore and Chris Heath, as his "success stories" -- even though Moore attended someone else's seminars and Heath made his money before he even met Polk.

In the mailing, Polk said he was looking for partners to buy real estate and items at government auctions -- items that could be sold to create a huge profit. The article identifies Dale Festerman as a Polk student, omitting the fact that he is Polk's father-in-law.

A narrator in a 1993 infomercial says Polk has assembled "countless other experts in the field of making money," when those supposed experts were simply veterans of the sales seminar circuit who sold packages through scripted presentations.

Steve Clements, a Peak salesman-speaker who pleaded guilty to one count in the mail fraud case and has yet to be sentenced, told the court a $500 package would typically get him $200 and the company $300.

He said he was generally expected to sell packages to 20 percent of a seminar's attendees. When he missed that mark, Clements said, he would "hear about it," usually from Polk himself.

The 1993 infomercial also says Polk pulled a woman at random from the unemployment line, and enabled her to make $1,000 in one week using his methods.

In fact, the woman, Nicole King, was the sister of Chris Heath, then a Polk employee. Polk paid King $1,000 for a contract on a piece of property; the contract had an escape clause that Polk later used.

To make himself appear wealthy, Polk filmed a segment of an infomercial in a furniture store office display. He rented a jet for one hour at the Frederick airport, and filmed himself talking on a cell phone.

At its seminars, Peak sold two programs:

"Inside Secrets," which was marketed in part as an opportunity for consumers to use Polk's money to jointly buy real estate under $150,000 and other items at government auctions.

"Elite Performer," which promised that Polk and a fictional investment group were ready to be partners on real estate ventures higher than $150,000.

The programs consisted of a hefty set of books and tapes. "The books and tapes that you give consumers have to weigh a lot," said Clements.

Polk would falsely tell participants at each seminar that he had 27 slots available in the Elite Performer program, which cost almost $600. The first people to get to the sign-up table at the back of the room would get the slots.

"I want to work with 27 serious people," Polk said at one seminar. "Use my money one time and I will rebate it right back to you."

Janetta Coats, a seminar participant, testified that the sales pitch worked. "There were people running to the back of the room to sign up for this program," said Coats, who estimates that she lost about $5,000 attempting to come up with properties for joint ventures.

In his statement of facts, Polk admitted he never used his money on real estate ventures in the "Inside Secrets" program and that he partially completed one venture in the "Elite Performer" program.

A few people at the top of the company would exchange "winks and nods," knowing the venture was a fraud, Foulger testified. "My understanding was that John was not going to write a check for anything, auctions or real estate," Foulger said.

In his testimony, Polk portrayed himself as a salesman who gave pitches that were aggressive but well within legal limits. He said, for instance,that his lawyer told him he did not have to disclose the role of relatives in his infomercial as long as the truth was being told.

He also said he foolishly delegated the creation and responsibility of the Elite Performer program to Foulger, who promised huge returns.

Polk's lawyers also put on their own testimonials -- not infomercial-type stories of people who made thousands a month but more modest stories from Polk customers.

Grace Ward, a tax preparer who is a former IRS auditor, testified she used Polk's books about real estate and government auctions to help clients. "I feel I more than received my money's worth."

Even though Polk's second venture, 2xtreme, was not the subject of Polk's sentencing hearing, it got plenty of court time. Joyce McDonald, the assistant U.S. attorney who prosecuted the Peak case, called 2xtreme a "criminal venture."

Clements, the sales seminar speaker, testified he worked briefly for 2xtreme but quickly became uncomfortable and quit. "It was basically a waste of money."

The Texas attorney general's office alone has received over 200 complaints about 2xtreme. Polk sold 2xtreme in February for $4.5 million to a subsidiary of USAsurance Group Inc.

In June, four months after the sale, 2xtreme filed for Chapter 11 bankruptcy protection, according to filings with the Securities and Exchange Commission. So far, only $1 million of the purchase price has been paid, prosecutors in the Peak case said.

McDonald and O'Neill, the chief FBI investigator in the case, would not answer questions about whether 2xtreme was the subject of an FBI investigation.

As part of Polk's plea agreement, McDonald's office agreed not to prosecute 2xtreme -- a pledge that does not bind the FBI or other U.S. attorneys. The Federal Trade Commission also declined comment on whether it was investigating 2xtreme.

For his part, Polk said in court last week that he was proud of the business he built at 2xtreme. "I can't ever admit that that was something bad," he said.

Sun staff writer Amanda Crawford contributed to this story.

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