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Sunday, September 26, 1999
By GEORGE GRAHAM and DOUG HANCHETT
Editor's note: For more than 20 years, American Inventors Corp. of Westfield promised to make the dreams of amateur inventors come true. Now, 10 people associated with the company face federal charges of bilking more than 34,000 victims out of about $100 million.
American Inventors Corp. billed itself as an inventions promotion company – a resourceful corporate friend to basement visionaries and backyard tinkerers eager to see their brainchildren patented and born into the marketplace.
But the Westfield corporation's greatest invention may have been itself.
Federal officials say that Russell resident Ronald Boulerice and others created an elaborate money-making machine that preyed on the dreams, sweat and money of more than 34,000 inventors, swindling them out of as much as $100 million since the company's founding in 1975. All that without generating a single dime of legitimate profit to any customer who used their services.
Last May, Boulerice and nine others associated with American Inventors and two of its corporate spin-offs were indicted on charges of mail fraud, money laundering and tax evasion.
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AMERICAN INVENTORS CORP. TIMELINE
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1975 – American Inventors Corporation founded in Massachusetts. 1981 – Ronald Boulerice becomes president and sole owner of American Inventors. 1985 – American Inventors posts gross revenues of $842,792 and spends $75,000 a year on advertising. 1988 – Ronald Boulerice purchases land at Woodland Way in Russell for $185,000. 1991 – Ronald Boulerice sells his land to himself and wife Julia A. Boulerice for less than $100. May 1992 – Ronald Boulerice purchases a former train station at 16 North Elm St., Westfield for $190,000. July 1992 – Internal Revenue Service audits American Inventors. Dec. 1992 – American Institute for Research and Development is founded in the former train station purchased by Boulerice. Late 1992 – Massachusetts Patent Services, 82 Broad St., Westfield, is founded. 1993 – Ronald Boulerice creates Gemini Advertising Corp. and installs his wife, Julia Boulerice, as president and owner. 1993 – American Institute for Research and Development posts gross revenues of $1,027,919 and spends $19,466 on advertising. June 1993 – Boulerice transfers a number of properties to his wife, Julia, and a trust run by his three children. 1994 – American Inventors posts $11,553,290 in gross revenues and spends $2,077,000 in advertising. American Institute for Research and Development posts gross revenues of $1,930,000 and spends $38,217 on advertising. September 1994 – United Patent and Trademark Services is formed in Washington, D.C. Feb. 1995 – United States Patent and Trademark Office suspends Leon Gilden from practice of patent law. Feb. 1995 – Boulerice appears on national television and says his company has successfully promoted 13 inventions in 20 years. Early 1995 – Boulerice and Samson use cash to finance the start up of Washington Financial Group an invention-promotion company that does business in Palm Beach, Fla. Boulerice assumes a 65 percent ownership this company and Samson owns remaining 35 percent. Sept. 1, 1995 – American Inventors ceases operations. Sept. 6 1995 – Ronald Boulerice files for personal bankruptcy. Oct. 1995 – Massachusetts Patent Services ceases operations. Oct. 26, 1995 – Federal Trade Commission sues American Inventors and American Institute. United States Postal Inspectors execute search warrants at American Inventors and American Institute headquarters. Criminal investigative units of Internal Revenue Service and United States Postal Inspection Service begin investigations. Early 1996 – American Institute ceases operations. Sept. 1996 – Washington Financial Group, now located in a strip mall in Enfield, Conn., ceases operations. In 1996, Washington Financial posted gross revenues of $246,373 and spent $65,935 in advertising. March 1996 – U.S. District Court judge orders FTC civil trial to be stayed, pending outcome of criminal investigation. Sept. 1998 – Boulerice holds an estate and tag sale that includes a cigarette lighter owned by Frank Sinatra, autographed Muhammed Ali boxing gloves and a baseball signed by Babe Ruth. May 18, 1999 – Ten people, including Ronald Boulerice, his daughters Laurie and Lisa, and Samson are indicted in U.S. District Court for their involvement in alleged invention-promotion scam that netted $60 million from more than 34,000 inventors nationwide. Boulerice trial date has yet to be set. June 9, 1999 – Boulerice, the only one of the ten ordered to be held in custody pending the trial, is transferred to a federal medical facility in Missouri for treatment of a bladder problem. July 27, 1999 – U.S. District Judge Michael A. Ponsor releases Boulerice from detention under conditions that virtually amount to house arrest within his Russell property. |
A Federal Trade Commission civil lawsuit filed against American Inventors in 1995, which encompasses 20 years of the company's existence, states that inventors paid American Inventors over $100 million. Assistant U.S. Attorney William M. Welch II, who is prosecuting the criminal case, said the $60 million figure is being used because the case targets a 14-year period within the company's 21-year existence and criminal prosecutors face a different burden of proof than those involved in civil actions.
The stories told by those who say they lost money to American Inventors are heart-rending – and legion.
Springfield resident Tawnya T. Pitts-Jones, who conceived an idea for a seat belt for pregnant women, says she lost $8,490 – and, ultimately, her marriage – to American Inventors.
Jon and Diane Fifer, also of Springfield, say the $5,000 they signed away to American Inventors to promote Jon's fish-shaped bread-slicing invention helped push them into bankruptcy.
Fannie and Everett Lowery, retirees from Warrensville, Ohio, say they took out a second mortgage on their home to come up with the $11,000 that American Inventors wanted to patent and market the "safety chopper" that Fannie designed to cut up vegetables.
Federal agents say there are thousands upon thousands of similar stories from American Inventors' clients throughout the United States and Canada. These stories run the gamut from wacky ideas and contraptions that probably never should have been encouraged to legitimate and well-conceived ideas that now may be lost forever.
If the government is right, how could they do it? How could a company operating quietly in a stately mansion near downtown Westfield for years inflict so much misery and make so much money?
With lots of sweet talk and puffery, say Pitts-Jones and many other inventors. And, according to legal documents, with elaborate scheming and an intricate shell game of dummy corporations secretly controlled by Boulerice and designed to manipulate large volumes of people and money.
One such corporation, which boasted a Washington, D.C., address but had its mail routed to American Inventors in Westfield, billed itself as a Better Business Bureau type of operation and gave a glowing review of American Inventors to at least one inventor seeking information on the firm, according to a search warrant application and affidavit filed by U.S. Postal Inspector Gerard F. Carmody for the company's 82 Broad St. headquarters and approved by U.S. District Court Judge Michael A. Ponsor on Oct. 25, 1995.
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THE CHARGES
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Two indictments against ten people associated with American Inventors were unsealed May 18 in U.S. District Court in Springfield.
The first indictment: They are charged with conspiracy to commit mail fraud, mail fraud, conspiracy to commit money laundering, money laundering, conspiracy to defraud the U.S. Internal Revenue Service and filing false tax returns.
They are charged with conspiracy to commit mail fraud and mail fraud.
The second indictment: The two indictments further allege that Ronald, Laurie and Lisa Boulerice and Samson and several other unnamed American Inventors employees conspired to defraud the U.S Internal Revenue Service in a number of ways. First, the indictments allege that beginning in Sept. 1992, Ronald Boulerice doubled the salaries of Samson, Laurie Boulerice and at least two other American Inventors employees. On a weekly basis, Samson, Laurie Boulerice and two other American Inventors employees cashed their payroll checks and returned a portion of their salary increase to Ronald Boulerice, the indictments state. Ronald, Laurie and Lisa Boulerice and Samson, as well as the other American Inventors employees, then filed false personal income tax returns that disguised this payroll kickback scheme, according to the indictments. Second, the indictments also allege that in late 1992, Ronald Boulerice created a sham corporation called Massachusetts Patent Services and made his daughter, Laurie Boulerice, the president and owner, even though Ronald Boulerice really controlled the company. Ronald and Laurie Boulerice then created an inflated invoice scheme that padded Massachusetts Patent Services' invoices, which allowed Ronald Boulerice to skim $151,000 in income from Massachusetts Patent Services and give money to Laurie Boulerice under the guise of being legitimate income, the indictments charge. Third, the indictments allege that Ronald Boulerice had American Inventors pay for his personal expenses and obligations by falsely submitting personal expenses as business expenses to American Inventors and other entities. Some of these personal expenses included improvements to his personal residence, a $26,000 trip to the Far East and money to his daughter, Lisa Boulerice, whom Ronald Boulerice had put on the payrolls of American Inventors and Massachusetts Patent Services, even though she did not work for either company, the indictments say. As a result of these various tax fraud schemes, Ronald Boulerice did not report at least approximately $490, 000 in additional income during the years 1992 to 1994, according to the indictments. Boulerice owes an additional tax liability of approximately $188,000, the indictments say. |
American Inventors and at least two other invention promotion companies controlled by Boulerice – American Institute for Research and Development and Washington Financial Group – relied heavily on national advertising to reach inventors, according to the indictment. Inventors contacting the companies received promotional materials touting the company's experience, professionalism and track record in obtaining patents and bringing inventions to market.
Pitts-Jones said she called American Inventors in May 1991 after coming up with the idea for her maternity seat belt, a swath of elasticized belt that could be clipped into a vehicle's existing seat belt system and expanded as needed.
American Inventors then reportedly asked Pitts-Jones to send an initial fee of $169 for a registered patent attorney's opinion letter and marketing analysis report.
The indictment states that American Inventors employees referred to this opening gambit as the "inside pitch." At this point a salesman, following a written script, would tell the inventor that, if the opinion letter and market report were favorable, the company would then offer packages for patenting and marketing service. But, according to the indictment, patent lawyer Leon Gilden, one of the defendants in the case, was in on the scam and generated positive patent opinion letters for American Inventors nearly 100 percent of the time.
Gilden, whose last known address is in Spokane, Wash., has yet to be arrested.
The "set-up pitch" came about two months later when a salesman called the inventor, according to federal officials. The salesman would tell the inventor that the opinion letter and marketing report had been favorable, and would ask to schedule a face-to-face meeting in Westfield or in one of the company's leased offices around the country in order to seal the deal.
John Hoime, former American Inventors sales manager, specialized in getting inventors to agree to these face-to-face meetings and, at one point, enjoyed an 80 percent success rate at scheduling them, according to the affidavit.
"(Hoime) was so strong and adamant about getting that face-to-face meeting, that it put people off," said former American Inventors employee Robert Lougher. "I have heard him swear at them."
Hoime could not be reached for comment.
The indictment states that inventors were told during such face-to-face meetings that their idea had survived two rigorous screening processes and that only five or six inventors out of 100 earned the privilege of a personal meeting with American Inventors.
Pitts-Jones said her set-up pitch came two months after her initial contact with American Inventors in July 1991.
The Springfield woman, now 39, said she and her husband met with American Inventors in Westfield and sat spellbound for nearly two-hours as company officials lavished praise on her maternity seatbelt and its potential to succeed in the marketplace.
The need for speed and secrecy was stressed at these meetings, according to legal documents and inventors.
"They said your invention is so great we want to hurry up and get in on the market," Pitts-Jones said.
James T. Ables, 50, of Anchorage, Alaska, inventor of the "Flextension" which lays caulk in hard-to-reach places, says he flew to Seattle in 1993 for his face-to-face with an American Inventors salesman.
"They just stroked me and built me up," said Ables, who said that he ultimately lost $13,000 to American Inventors. "They said 'This is just great. Jeeze, don't tell anybody about it.'"
Fannie and Everett Lowery, the Ohio retirees, say they received the same treatment.
"(The salesman) was so enthusiastic when we talked to him face-to-face," said Fannie Lowery, discussing the meeting she and her husband had in Detroit with an American Inventors salesman.
At these meetings the inventor would be told the company had established realistic minimum figures for the cash advances and royalties that a manufacturer would pay for the inventors' idea, according to the indictment.
Pitts-Jones says she was told by her salesman that American Inventors, negotiating with manufacturers on her behalf, would accept nothing less than a $25,000 cash advance and a minimum royalty of $50,000 a year .
Inventors were also told the companies received most of their profits from sharing in royalties or agreements with manufacturers. The indictment states that all of the companies' profits came from the up-front fees. The clincher for many inventors came when American Inventors produced a handsomely bound feasibility report extolling the virtues of their invention and its potential markets.
Pitts-Jones' report makes a few oblique references to the maternity seatbelt. The rest is nothing but jargon-laden double-talk and boilerplate. One section describing how the maternity seat belt might be mass-produced could be applied to nearly any invention.
"The exact sequence of assembly will depend on the design and configuration of individual components. If the final design requires that a precise sequence of operations be followed, this can be accomplished," states Pitts-Jones' report.
This kind of stuff goes on for 45 pages.
A former American Inventors employee reportedly told Carmody that Boulerice and John L. Samson told their employees to screen incoming inventors against their existing databases and reject any applications from relatives and family members of existing clients, according to the affidavit.
"... Because those individuals would be more likely to discover that (American Inventors) used the same sales pitch, the same boilerplate feasibility report and the same expected profit figures in nearly every case," states the affidavit.
Another part of the pitch was American Inventors' claim that it would extensively market the invention directly to manufacturers and at trade shows, according to legal documents and inventors.
"I envisioned them as a hellacious marketing company," said Ables.
But the affidavit states that American Inventors marketing consisted of a submissions department that created brochures promoting inventors ideas which were then mass-mailed, without a cover letter, to relevant manufacturers.
And whenever American Inventors attended a trade show it brought "40 or 50" loose-leaf binders of the brochures that manufacturers could leaf through if they desired, according to the affidavit.
American Inventors, founded in West Springfield in 1975, grew by leaps and bounds. And as it grew, Boulerice devoted more and more money to reaching more and more inventors through advertising, promotional materials and the hiring of additional sales staff.
At the height of the operation, American Inventors and its related companies had about 50 employees, according to Assistant U.S. Attorney William M. Welch II.
In 1985, American Inventors spent $75,000 in advertising and grossed $842,000. By 1994, the company was spending more than $2 million a year in advertising and posting more than $11 million in gross revenues, according to the indictment.
By then, American Inventors was "evaluating" about 100 ideas a day, according to the affidavit.
"Their Number 1 motivation was money," said Lougher of Westfield, who says he quit the company after discovering the alleged scam and formed an "inventors awareness group" dedicated to exposing phony invention-promotion companies.
The indictment paints a picture of a massive boiler-room operation with employees reading scripted come-ons over the phone to eager inventors, and sales secretaries furiously entering data on these inventors and their inventions into the company databases.
A key part of the scam, according to the affidavit, was that inventors were not told of the difference between utility patents, which protect the use or function of a product, and design patents, which protect the product's general appearance. Utility patents provide more protection and are much more valuable than design patents, which are commercially worthless for many of the inventor's ideas.
If the United States Patent and Trademark Office rejected a utility patent application, Boulerice or Sampson would then instruct the patent attorney to draw up and submit a design patent application without telling the inventor, according to the affidavit.
And if the patent office rejected the design patent, Boulerice or Samson would instruct the patent attorney to draw up a different design patent application, according to the affidavit.
Former American Inventors employees told Carmody that this procedure enabled American Inventors to get around its money-back guarantee that promised its clients would get patents, according to the affidavit. It also resulted in inventors obtaining patents on inventions that had been altered from their original design without their knowledge or consent, according to inventors and the affidavit.
Ables said someone at American Inventors added a spoon at the end of his caulking device, purportedly to smooth the caulk.
"They got the patent on the spoon," said Ables, adding that its addition made his invention essentially unusable.
After their face-to-face meetings, after forking over thousands of dollars, after many of them received their patents, the 34,000 inventors sat back and waited for the licensing agreements and royalties to come rolling in.
The months, and then years, passed.
And, for the vast majority of inventors, nothing happened.
Periodically, Pitts-Jones called American Inventors and received assurances that her maternity seat belt was being shown at trade shows.
Pitts-Jones says the strain of losing that much money, the realization that she and her husband had been scammed, cost them their marriage.
"I am out $8,400," said Pitts-Jones. "That's what happened. They really railroaded me."
The Lowerys, who are in their early 70s, and the Fifers, who are raising three children, say they are still struggling to make ends meet.
"My husband is working part-time at the mall just in order to help keep things going," said Fannie Lowery.
Many of the inventors view the recent round of indictments as good news – even though federal officials say there is very little chance that any of the inventors will ever see their money again.
"Maybe something will finally be done with these people," said Fifer. "They have really taken us for a rough ride."
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