State ex rel. Miller v. Pace
Iowa Supreme Court
677 N.W.2d 761 (2004)
Edwin Pace (defendant) sold customer-owned, coin-operated payphones to investors. Pace offered investors a sale-leaseback option upon purchase, which enabled investors to lease the payphones to management companies immediately upon purchasing the payphones. Pace sent the purchased payphones directly to the management companies. The management companies placed the payphones in their locations, handled the day-to-day operations of the payphones, and paid investors a monthly fee. In the course of selling the payphones, Pace told the investors that they would own the payphones leased to the management companies, that their investments in the payphones were very safe, that they would receive high returns on their payphone investments, and that the management companies were fiscally strong. Pace did not tell the investors that their investments were risky, that the returns promised by the management companies most likely could not be realized, and that the payphone program amounted to a Ponzi scheme because lease payments could only be paid through the sale of future payphones. Pace was charged with violating Iowa’s Consumer Fraud Act (Act), Iowa Code § 714.16. The trial court determined that Pace’s marketing and sales practices amounted to consumer fraud in violation of the Act. Pace appealed.
Rule of Law
Holding and Reasoning (Ternus, J.)
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