American Real Estate vendors cry 'rubber.' (American Real Estate Company Inc.; rubber checks)

They report infomercial company bounced checks 

Several small businesses in Southern California report being cheated when American Real Estate Company Inc. of Venice paid bills with robber checks and then closed up shop, returning to sue many of its creditors.

Attorney Tom Agawa of Hayes & Stanley, who represents AREC, declined comment on the majority of the allegations, saying he was familiar with only one instance of bad check writing and with the complaints of only the 10 creditors who AREC is suing over contract disputes.

AREC, a residential real estate infomercial/video business, is the brainchild of Stephen Murphy, whose Marina del Rey investment firm - American Capital Investments Inc. - was shut down in 1993 in a Securities and Exchange Commission civil fraud case.

Murphy, the host of AREC's "Coming Home to America" infomercial, has promoted himself as a formerly homeless Vietnam veteran, recovering alcoholic, author, nationally renowned real estate expert and humanitarian.

The SEC alleged that ACI was a "fraudulent, Ponzi-like scheme." Now people who have done business with AREC claim they too have been defrauded.

AREC aired infomercials selling a set of video encyclopedias on "America's Best Places to Live in the 90's." The videos were never completed, and no orders were ever processed (or credit cards charged).

But the company apparently made money by selling advertising time on the videos and the infomercial to real estate brokers and other small business people, who were filmed extolling the virtues of life in their communities. Murphy says a new infomercial and a new set of videos, including the advertisements sold, will be produced soon.

AREC paid bills last year with checks written on accounts that had virtually no money in them or had been closed. A bank official confirmed that AREC bounced numerous checks, including some that were written on accounts after they had been closed.

Vendors said the checks were signed by AREC Vice President Ken Sorensen (former vice president at ACI named in the SEC complaint), but that it was clear to them that Murphy was in charge. Murphy is officially a consultant to AREC, and the president is listed on corporate papers as Mary Botti Upshaw.

Several vendors recalled similar stories about Murphy and/or Sorensen calling them to say a check was going to bounce and providing a new check to cover it, but many of those new checks also bounced. Some said AREC executives told them they were about to close escrow on a real estate sale and would pay them when the deal closed.

* Mike Flanagan, a partner in Video Symphony of Pasadena, said he rented video editing equipment to AREC, which paid its bills with two rubber checks for $22,000 total.

AREC later sued Flanagan, claiming the equipment was defective, and Flanagan said he filed a cross-complaint a few weeks ago.

"It's not just that he (Murphy) is writing bad checks; he's playing games with people. After he screws them by getting them to work for him and not paying them, he sues them," said Flanagan. "He's a vile individual, as is Ken Sorenson."

* Partners in an advertising agency called Power Media said all the checks they received from AREC, for media time they purchased in its behalf (about $5,000 in total), bounced.

* The controller at Custom Duplication in Inglewood said her company was paid with two rubber checks totalling $2,200. Custom Duplication has collected $550 through the L.A. County District Attorney's Office bad check division from an account of Sorensen's, she said.

Moss said that when he heard AREC was bouncing checks, he insisted that Murphy pay him with a cashier's check, which Murphy refused to do. Moss then refused to return Murphy's master tape. Moss said he won a judgment in small claims court but doesn't expect to collect.

* Video photographer Randy Bellous said he has $20,000 in robber checks from AREC (including a check for $7,247.80 written to American Express, to pay for credit card charges Bellous incurred while traveling around the country shooting footage for Murphy and is on the verge of filing for bankruptcy.

"He really took me for a long, expensive ride," said Bellous. He added that his expenses included picking up souvenirs that Murphy asked him to buy for him - a hat, spoon and a shirt from each city he visited, including a $125 cowboy hat from an exclusive shop in Scottsdale, Ariz.

AREC sued Bellous, but last week a Superior Court judge ruled AREC did not have a sufficient cause of action, giving AREC 20 days to reword and refile its complaint. Agawa said he will refile against Bellous.

AREC claims the people involved in making the infomercial were incompetent and exceeded expense budgets, and that subcontractors were to have been paid by infomercial producer Eddie Rivera of Words & Pictures Entertainment Inc., under a production agreement.

Bellous also has turned over AREC checks to the D.A.'s bad check division, and a lawyer in the D.A.'s office confirmed that a payment agreement has been worked out but not finalized.

Agawa said he knew of no bad checks other than the ones written to Bellous, and he said AREC gave Bellous a replacement check for $5,000 that Bellous successfully cashed. He said he knew nothing about the agreement worked out by the D.A.'s office.

Bellous' attorney, Ralph Boshes, said he wants to dispose of AREC's complaint against Bellous before pursuing action against AREC.

"At the appropriate time, when my client has the ball, he'll run with it. Right now, he's defending," said Boshes.

* Rivera said he is $16,000 in debt because of AREC and Murphy.

AREC's case against Rivera is in arbitration. Agawa said he fully expects to prevail in the case, winning a monetary judgment within a few weeks.

Rivera said it upsets him that he involved some of the other subcontractors "and they were ruined."