ACI founder's new venture hits snag.

Stephen Murphy - whose Marina del Rey real estate investment firm was shut down in 1993 in a Securities and Exchange Commission civil fraud case - has launched a local real estate infomercial/video business that also has been investigated by federal authorities and is struggling financially, apparently in part due to a dispute with contractors.

Murphy's attorney, Bob Rosen, said the infomercial/video firm American Real Estate Company Inc. is "retrenching" at a temporary office in Marina del Rey and will re-emerge soon.

The Better Business Bureau reports having received unresolved complaints about American Real Estate, and sources have told the Business Journal that the SEC is investigating whether Murphy's recent business venture violates the terms of a court agreement and therefore constitutes criminal contempt.

Also, Murphy freely admits that the FBI and the U.S. Attorney's Office have been investigating him and American Real Estate recently, but he says that is because of false leads from disgruntled contractors involved in producing his infomercial - "Coming Home to America."

Once again, Murphy has attempted to involve people in a business venture by telling them that some of the profits would benefit homeless veterans, sources said. Murphy promotes himself as a former homeless veteran, recovering alcoholic, author and "nationally renowned real estate expert" who has made money investing in distressed real estate.

However, a U.S. District Court judge last year exempted him from repaying $1.65 million to the estate of his former American Capital Investments Inc. in the SEC case because he didn't have the money. In that case, Murphy signed a consent decree, which did not admit or deny guilt, and was enjoined from violating securities law.

ACI was a real estate investment firm that, through a telemarketing company called Adfin Corp., sold commercial real estate partnerships. The SEC alleged that the operation was fraudulent and amounted to a "Ponzi-like" scheme because ACI promised investors impossible returns and then had to pay them using new investor funds (rather than profits from the operations or sale of buildings). Also, investment funds were used to pay company operating expenses and unusually high commissions to sales brokers.

In the new operation, Murphy has been appearing in infomercials touting a set of video "encyclopedias" on "America's Best Places to Live in the 90's" and selling advertising time on the videos to real estate brokers.

Sources told the Business Journal that the SEC has been investigating whether Murphy has again been selling unregistered securities by soliciting investors in his infomercial business. Murphy denies that he is selling securities.

Infomercial duds

Murphy said he started this new company (for which he technically is a consultant, not an officer) with loans from family and friends. The first infomercial "did absolutely terrible," he said, generating few orders for the company's video encyclopedia set. In fact, the videos are still being finished, he admitted, and none has been sent out.

The phone numbers for American Real Estate have been disconnected, and Murphy admitted the company had to abandon its Venice office because it couldn't pay the rent.

But Murphy said he plans to soon air a new infomercial and deliver videos to consumers, including the ads already purchased by real estate brokers.

"All I had was a dream. I had a dream to make something worthwhile to put on TV," said Murphy. "There is no crime in trying. There is no crime in failure. ... But we didn't quit. We restructured. We didn't quit."

Although the BBB reports that American Real Estate has failed to respond to complaints filed about the company and therefore has been assigned an unsatisfactory rating, Murphy said last week that he had just received the complaints, which numbered three, and that he was responding immediately.

Ads go for $2,500

According to the BBB, "callers nationwide" reported that American Real Estate sold advertising space on videos and infomercials for $2,500 to real estate brokers.

American Real Estate has sued the producer of the "Coming Home to America" infomercial, Eddie Rivera of Words and Pictures Entertainment Inc., and the people who edited the program.

American Real Estate alleges in the litigation, among other things, that Rivera exceeded his expense budget and hired incompetent independent contractors. Rivera has filed a response denying the allegations but has not countersued.

Rosen and Murphy claim Rivera and the independent contractors involved have been spreading rumors about American Real Estate out of vindictiveness. Murphy's lawsuit includes a charge of defamation and states that one independent contractor told the company's advertisers that American Real Estate is a "seam" and that the client would not receive any actual advertising services.

Rosen said American Real EState will honor all its obligations and is "trying to help people."

Athlete featured

"Coming Home to America" features Murphy and former Pittsburgh Steelers football player Rocky Bleier extolling the virtues of moving to a bucolic setting and escaping the big-city rat race. Also; Cindy Watkins, an attorney who worked for Murphy at ACI, speaks on the infomercial about living in Wilton, Conn.

Murphy, on the program, bemoans the fate of those foolish enough to invest in "someone else's real estate deal," only later to realize the pitfalls.

The infomercial also features real estate brokers discussing the advantages of certain specific markets. One such broker is Jeff Solomon of Major League Properties in San Diego, who negotiated the purchase of office buildings for ACL endorsed Murphy's books (including the widely publicized "One Up On Trump" - sales of which generated leads for telemarketers who sold ACI investments), acted as an asset manager for ACI's San Diego properties, and who now works as a consultant for the court-appointed receiver supervising the sale of ACI's assets.

Solomon said he appeared in the infomercial as a favor to Murphy and did not pay or get paid to appear in it, although he was aware that Murphy was charging others for the advertising time.

Exposure limited

"I was kind of a guinea pig. I was the first to do the taping with the producer," said Solomon.

However, Juliana Pawley, a broker with Coldwell Banker at Hilton Head Island, S.C., who is featured in the infomercial, said her company did pay to be included in life project.

"I doubt we ever got any business out of it. The only person who ever saw me on it was a friend," said Pawley. "I don't know if he (Murphy) ever sold one (video library). ... He said the profits would be used to build an apartment building for homeless veterans."

Offered for sale to viewers of the infomercial is a package including two videos on "America's Best Real Estate Investments in the 90's," an 11-volume video encyclopedia on "America's Best Places to Live in the 90's," copies of Murphy's five books (which deal largely with investing in distressed commercial real estate), and a "Realtors of America" guide. The price is $195, plus tax and shipping and handling charges.

Sources told the Business Journal that American Real Estate was formed in September of 1993, when ACI's assets were frozen, but remained dormant until the fall of 1994. The infomercial started airing in November or December of 1994.