Phoenix New Times 2000
Valley-based infomercial czar Don Lapre has made millions selling his to late-night-TV viewers. So what's the secret behind his bankruptcy?
Seated at a booth in an upscale Phoenix eatery, TV pitchman is arranging packets of Equal on the table to demonstrate a new wealth-building company he’s preparing to launch. Each packet of the sugar substitute is a stock market share, and Lapre — a boyish 35-year-old wearing jeans and a short-sleeved jersey — is the investor.
Don Lapre's face appears on seemingly every item of literature that leaves his offices.
“You’ve heard of day trading,” says Lapre, who is armed with two cell phones. “Well, I’m creating a way to play the stock market at night. You know, for people who work all day and don’t have time during normal business hours. It’s called night trading. You’ll see me on TV with this in eight months.”
The spiel is convincing, because Lapre is a good salesman. He has reaped millions over the past decade hawking get-rich schemes on late-night cable TV infomercials. Lapre, whose earnest pitch once was parodied by on has peddled everything from money-making secrets to 900 numbers to Web site services. Now he's even figured out a way for the average cretin to net $4,000 daily by night-trading on the stock market. Lapre is a money-making machine.
There's just one glitch. Last summer Lapre's empire went bankrupt when he rolled out a new ad campaign and it "bombed like an Edsel," as one consultant put it.
Lapre was Icarus incarnate.
A speculative real estate deal in went south. Profits, once a reported $60 million per annum, took a nose dive. On June 29, the get-rich guru filed for Chapter 11 bankruptcy and began to reorganize his five-company realm. His filing listed assets of $9 million and liabilities of $12.5 million.
A tearful Lapre addressed his staff, telling them that he was tempted to shoot himself.
Six months later, Lapre's on the bad apple list and a frequent target of consumer-advocacy columns in newspapers nationwide. Customers allege Lapre himself is the primary beneficiary of his money-making schemes. Some have spent thousands on Lapre's programs, and they want their money back. Former employees are clamoring to get paid. Creditors are frothing at the mouth.
None of these details bothers Lapre, however, who's focusing his energies on yet another wealth-building concept.
"I just want to have fun creating ideas and selling them," Lapre says. "I wish I had a big ego, but I really don't give a rat's ass about what people think about me."
Don Lapre (pronounced la-PREE) grew up poor in Sunnyslope. His mother worked at a U-Totem, and his father, who was laid up for two years with back trouble, owned a house-painting business. One of five kids, Lapre is proud of the times he helped make ends meet by gathering cast-off furniture in alleys and selling it down at the Park 'N' Swap.
"I've seen the pain and the suffering and the poor side of the world," he says.
A credit shy of graduating from -- a full-time job pulled him away from his studies -- Lapre hired on with his father's company in 1988. He soon launched his own enterprise, a dating service called the 1828 Club.
Around that time, Lapre met , who would become his partner in business and marriage and mother of their two children. With $110 in their pockets, and no money for wedding rings, Sally and Don drove to to get married. When they returned to Phoenix, Don told his bride he was $35,000 in debt. Just two months after the dating service opened, Lapre declared Chapter 7 bankruptcy.
Lapre says he rebounded with a successful business, painting houses.
"Any normal guy would have been crippled by a lack of confidence," Lapre says. "But I was too naive to be negative."
Capitalizing on their own experience as debtors, the Lapres in 1990 opened a credit repair business called Unknown Concepts, offering credit cards, cash loans and discount vacations. Their ad read: "Visas/Mastercards/Erase bad credit/Cash loans to anyone!!"
The 148 customers who paid $37 for the package learned that the Lapres did not issue credit cards but only provided names, addresses and information about companies that offered credit cards. The discount vacation information contained in the package merely suggested the consumer check with a travel agent for last-minute discounts.
The sued the couple for violating the state Consumer Fraud Act. The Lapres were barred from participating in any credit services organization and were ordered to pay civil penalties and more than $5,000 in restitution to complainants.
That didn't stop Lapre. His next venture involved writing and selling a 36-page manual explaining how to recoup a insurance refund after paying off a home mortgage. The manual cost 60 cents to make and sold for $85. Lapre placed an ad in the and claims he was soon making more than $1,000 a day.
A friend set up Lapre with a 900 number. Over the course of a year, Lapre placed 1,100 ads in newspapers across the country advertising $2.99-per-minute 900 lines. He says he began raking in $50,000 per week.
Don Lapre was white hot.
In 1992, Lapre stepped into the bright lights of television infomercials, an industry that generates more than $500 million a year in product sales. Alongside exquisite models endorsing miracle diets and exercise equipment that requires no effort, celebrities plugging anti-baldness remedies and psychic healing and chefs raving about must-have kitchen aids, Lapre preached the gospel of prosperity on . He told viewers how anyone could easily earn $50,000 a month with a 900-number business.
Lapre's wee-hour special markets his package, a stack of business how-to manuals crammed with common-sense tips on how to get filthy rich -- fast. divulges golden nuggets such as "decide on what you're going to buy and sell" and "don't quit your day job." The offers exclusive tips for operating a 900 number, including, "check your  line often to make sure it's working properly." In the , Lapre reveals how to establish profitable Web sites without a computer.
The Tempe headquarters of Don Lapre's empire.
Don Lapre's home.
The real showstopper is a 36-minute video titled . Persistent and whiney, like an adolescent making a case for the car keys, Lapre exhorts viewers to surround themselves with winners ("Get rid of your ugly friends!") and maintain a solid constitution ("Your health is worth a billion dollars!").
More than nine million U.S. adults buy at least one item from a TV offer per year, and Lapre's special brand of sincerity guaranteed him a substantial share of the pie.
In spite of their efficacy, infomercials are deservedly viewed as lowbrow, and Lapre is often singled out as the butt of jokes. In June, a columnist for opened a piece on a completely unrelated topic with a reference to a TV appearance by "some animated Don Lapre-lookin' wing nut. . . ."
Don Lapre sells through New Strategies, whose parent company is. He also sells a host of programs under four other monikers, all operating as one enterprise, making it difficult to keep the books straight.
During an emergency bankruptcy hearing, , a Lapre lawyer, said, "One of the problems with this company is that the accounting controls were not as diligent as they should be, so to be quite honest with you, the company is on a daily basis determining what its payables are."
Once viewers buy the first program for $39.95, they are contacted within days by a cheerful sales rep who offers additional psychic, sports, dating and chat 900 lines, plus free Web sites. Marketers call this the "back end," and it involves repeatedly capitalizing on willing prospects.
"I would say if we did not have a 900 service on the back end, we couldn't survive just selling the packages," Lapre told a reporter in 1995.
While a 900 line costs $100, some customers have spent thousands to launch their new business. Lapre insists that a handful of viewers have made millions. Others crashed and burned. And they blame it on Lapre.
"I saw it advertised on TV, and they made it look like you could make a couple thousand dollars in the first few months," says Schweizer, who at the time feared losing his job at a casino.
After making an initial purchase, Schweizer and his wife, Ree, were bombarded with sales calls. They were told that as distributors for Lapre, they would sell dating, sports and psychic 900 numbers via Web sites set up by New Strategies. But after they paid for the services, Schweizer says, the Web sites were never established. Schweizer says he couldn't get through to Lapre's customer service representatives.
"We looked up their info in the computer and apparently they had nine Web sites with us, seven of which were already set up and two of them we're waiting on them to give us the information."
Penn adds that New Strategies' records show the couple spent $5,200.
"The rest of the stuff was free," he says. "We gave them some free Web sites."
They purchased the package, plus additional services for $1,190.95, but say they never received catalogues as promised. When they called Lapre's 800 numbers, most of the time they couldn't get through or would be disconnected. When they finally spoke to a customer service representative, they were told Lapre didn't like the style of the catalogues so he was revamping them. After contacting the Phoenix Better Business Bureau (BBB), they were refunded most of their initial expenditure.
"So it can happen and it does happen," Storch says. "You can get struck by lightning, too."
But Storch doesn't believe Lapre's programs work for a lot of people.
"Most people buying the product don't apply themselves. They're looking for a quick way to make money, and you really have to work hard at it."
Besides, he says, "Most of the crap in there isn't information on how to run a business. It's basically for giving you a number to call Don so he can sell you something else."
Just ask Texas resident , whose customer service nightmare cost him upward of $3,700. Along with the package, McMillen purchased eight 900 lines, several search engines and Web sites and 100 catalogues. The Web sites were never set up, McMillen says, and he didn't receive the catalogues. Whenever he called customer service to complain, someone would refer him to another number, which inevitably would be a message machine.
Some of Don Lapre's literature.
Storch says even he couldn't get through on Lapre's customer service lines. "Toward the end, I didn't think anyone handled customer service," he says.
Despite the complaints, Storch says Lapre is conscientious about training his sales force not to make false claims. He remembers each sales representative had a piece of plate glass on his desk with a script beneath it. A quality-assurance staff would record their conversations and review them each day. A telemarketer who was caught saying something mildly misleading would receive a white slip. A yellow slip meant they'd veered off the script. And a pink slip meant they didn't get paid for the sale.
Lapre's enterprises have drawn their share of attention from the Phoenix Better Business Bureau. Though the package offers a 30-day money-back guarantee, the bureau has received complaints alleging delays in product delivery and refunds. Others have expressed dissatisfaction, stating that Lapre's program was misrepresented and that earnings opportunities were exaggerated.
Although New Strategies responded to complaints by issuing refunds, the BBB advises "extreme caution when dealing with this company."
Lapre counters that the BBB doesn't consider the ratio of customers to complaints.
"The only thing you'll ever hear in the news is the two people who are upset 'cause they didn't make money," Lapre says. "We only have one Better Business complaint for every 3,000 customers we sell. The BBB never releases the ratio of complaints versus the number of customers, and we have three and a half million customers."
By 1994, Lapre purportedly was earning $40 million with the package. That year, his business caught the eye of an industry watchdog, the (now known as the , or ). The group asked the advertising-regulation division of the council of the BBB to investigate Lapre.
After reviewing the infomercial, the BBB told Lapre he should use a disclaimer that said, "As with any business opportunity program, you make more or less money."
Knowles says ERA deemed this disclaimer inadequate, but dropped the case.
No matter. Lapre was on a roll. Investing $350,000 to launch a chain of retail outlets called the Incredible Products Stores, his next scheme involved showcasing gadgets and new inventions. The idea flopped.
That didn't prevent Lapre from rolling out the National Lifetime Reminder Service. The concept was simple. For $390, clients would purchase 100 membership kits that they would then sell at $39 apiece to recruit new members. The service would provide customers with a reminder call on every major date they wanted to remember, along with optional gift baskets. Lapre says the company generated $80,000 a day.
The BBB caught wind of the service via customer complaints alleging "misrepresentation of the program, poor customer service and difficulty obtaining a refund."
Lapre ran into more difficulties. He was forced to pay state unemployment and withholding taxes totaling $45,000, which he'd neglected to file in '93 and '94.
To top that off, the Michigan attorney general took action against Lapre when the entrepreneur began selling in the state without properly notifying state officials.
"The concern five or 10 years ago was consumers weren't aware what they were watching was an ad," says Lesley Anne Fair, an attorney for the FTC's Division of Advertising Practices. "Now we think companies are better educated about the format. Now we're concerned that the promises are unsubstantiated. Whether it's a diet product or a money-making system, they've got to back up their products."
Jeff Knowles of ERA says it's not uncommon for get-rich-quick sermonizers like Lapre, who've scored tremendous success with one product, to run into financial trouble later on. An infomercial can cost $600,000 to produce -- not to mention the cost required for a half-hour block of air time averaging $800 -- so it's no wonder TV pitchmen develop cash-flow problems.
"It's not unusual for marketers who've made a lot of money with one product to later fall on hard times and wind up in bankruptcy," says Knowles. "The better established infomercial companies are concerned about the long term and relationships with customers. They sell a range of products and establish a good relationship with customers, honor refund requests and stay out of regulatory problems."
For all his questionable business dealings, Lapre insists he's first and foremost a family man.
"The most important thing to me is my family and my health," he says.
In 1997, Lapre bought a $269,000 home for his mother in , then signed a contract for more than $130,000 to have a Disneyesque water feature constructed on the property. He subsequently was sued for breach of the contract and wound up paying upward of $40,000 to the contractor. In June, just before filing for bankruptcy, he invested more than $10,000 to have a pool tiled at a home near , where, according to the contractor, his brother was living. Lapre paid seven months later.
"I have a small company, and $10,000 is two months of operating expenses," says the contractor, who requested anonymity. "Two days before Christmas, I told [a Lapre assistant] I didn't know if my daughter would have Christmas or not. Two hours later, they said the check's ready."
The interior of Lapre's 36,000-square-foot headquarters looks like an wet dream. Motivational billboards flank 19-foot-high bleach-white walls, flaunting images of scantily clad models on tropical beaches and sweating athletes flashing brilliant white smiles. More than 200 telemarketers yammer into headsets against a background of soothing music. There are no walls, just endless rows of white computers on gray desks.
Lapre transferred his business to this building, 3255 East Elwood, after vacating his office in the Building in November 1993. In addition to moving expenses, the shift cost him $35,000, which he owed his former landlord for jumping ship without notice, according to court records.
The Elwood building is Lapre's kingdom, home of five entities: Tropical Beaches, New Strategies, Dolphin Media, Don's Making Money and National Lifetime Reminder Service -- all of which are bankrupt but still bringing in about $100,000 per day, according to attorney Alisa Lacey.
You'd never know that just six months ago, business came to a grinding halt.
Mychale Solimine hasn't forgotten. As network administration assistant, Solimine worked for Lapre for more than three years. A grad with experience in computer networks and data entry, he was responsible for processing all credit card transactions brought in by the sales force and sending the lump sum to the bank. Things were great when Solimine joined New Strategies in August 1996. The company raked in between $1.2 million and $1.6 million a week. Lapre was spending a minimum of $600,000 per week on air time.
But then Lapre took a good thing too far.
"Don was always trying something," recalls Solimine. "At first, he used to test things like crazy. For instance, when he launched the Reminder Service, he threw 100 salespeople on the floor. They would be given a base script and the lawyers would crawl through it. Once it started showing it could turn a profit, he would hire more people."
Optimism reigned. There were bowls of fresh fruit around the office. Employees were given a $20 meal card each week to use in a lunchroom that served catered meals. Lapre says he even had plans to send 60 employees on a company cruise to celebrate the turn of the millennium.
Then Lapre began dabbling with the Internet. He conceived the idea that would bring New Strategies to its knees: the Three Ways Campaign, which allowed clients to sell a package of three Web sites, a merchant account and a Net-based people locator service. Distributors would give away brochures and reap 25 percent of every Web site they set up. If they set up a merchant account, Lapre would pay them $500. Lapre tested the program using 12 telemarketers, then moved half of the sales force over to the program when it looked like a money maker. He spent lavishly to develop and market the product, then switched out the old infomercial.
The leads rolled in, but according to Lapre, they were worthless because New Strategies didn't charge anything up front. Within two months, the cash supply dried up and the company was losing $500,000 a week.
To make matters worse, Lapre had lost millions in a Mexican land deal that went sour.
Three years ago, Lapre funneled $4 million from Tropical Beaches to bankroll a property investment just outside Puerto Vallarta, Mexico. Lapre forsook his natural constituency, the hoi polloi, and tried his luck at selling to fellow millionaires, with disastrous results.
"I wanted to buy a little piece of land in Mexico on the beach for me and my wife," Lapre recalls. "We knew a guy named Pedro. In order to buy a piece of land we wanted, we had to buy nine acres. He said we could build homes on all the property."
Fernandez says Lapre stopped sending money in April 1999.
"I kept thinking next month it will sell and I'll get my money back," Lapre says. "After $4 million into it, I couldn't go any further."
, broker manager for in Puerto Vallarta, whose company listed the homes early on, says the partners had plans to build and sell 18 detached villas fronting the beach, plus 56 condominiums. Only a beach clubhouse and two of the villas were completed, says Squire.
Although Squire says La Playa Estates was a well-conceived project, Lapre and Fernandez changed the configuration several times, creating concern among potential buyers.
"It seemed the development plan was changing every other month," says Squire. "That was one reason it didn't succeed as well as it could have. There didn't seem to be a clear-cut marketing effort put forth by the developers."
Squire adds that Fernandez was young and inexperienced.
"He's a young fellow who was involved in sod growing and other similar projects," says Squire. "He has very strong family connections but he never did any development work."
, a real estate broker and president of the real estate board in Puerto Vallarta, advised Lapre in the planning stages of the project. She says the project bombed because Lapre and Fernandez wanted to pre-sell both the homes and the condominiums in an area that was largely inaccessible.
"To have a small gated community in the middle of nowhere is a very difficult project," Elias says. "People buying condos want to be close to Puerto Vallarta, not isolated 50 minutes from downtown. They changed the plan several times because the condo pre-sales didn't work."
Fernandez says Lapre no longer has control over the property and that until he and his new partners start selling the homes and condos, Lapre won't recoup his investment.
"You can't give it back if you don't sell," he says. "We haven't finished paying for the land so we can continue [developing], but if we don't pay, there's a clause in the contract that the owners of the land keep everything we've done."
Without Lapre's bankroll, Fernandez says he can't guarantee the development will succeed.
"We tried to get more investors and loans from the bank," he says. "Everything takes time."
Lapre says the loss had no bearing on his subsequent bankruptcy. "But it would've helped to have the money in the company," he concedes.
The $4 million might have been enough to keep a sinking ship from going under.
Solimine says there was talk around the building that Lapre had dumped $600,000 of his own money in the Three Ways Campaign to revive it, then poured in another $300,000.
Lapre, who says he's never depressed for more than one day a year, was clearly in a tailspin.
Solimine remembers the day the lights went off.
"It all went down June 28 . It was 5:05 on a Monday and we had only made $120,000, which was pretty low for a Monday. Don called a big meeting. He said we were going to have a big company meeting in the morning, so everybody go home, have a good night's rest and get ready to come tomorrow at 11:30 a.m. to a brand-new company."
For Solimine, whose wife was five months pregnant, there would be no brand-new company. He was laid off and was forced to live on food stamps. He says Lapre still owes him $3,700 in back wages.
For a week, the doors to New Strategies were sealed shut.
"It came so fast," says Lapre, who expects to spend $1 million on legal fees this year. "For one week, we didn't know what to do, and we were talking to six different attorneys, asking them, 'What do you do in this state?' We had to get approval from our attorneys on how to reorganize. For exactly one week, we didn't do anything."
Although many of the employees were called back to work, Solimine says other people shared his experience.
"I have friends who are strapped for money, and they went back to work. They still haven't gotten the full pay."
Solimine was surprised by Lapre's actions.
"I stood behind what he did. Lapre honors what he does. But when he lost his shirt and stabbed his employees in the back, that's when I got a bitter taste in my mouth."
Onetime salesman Elliot Storch says Lapre owes him more than $800 for two bounced paychecks and his last week's salary. Storch says he doesn't know Lapre well, but thinks he has good intentions.
"From what I've seen of Don, he doesn't appear to be a bad person," says Storch. "He has done everything he possibly can within his power to get where he is today, even if he has to convince himself he's helping people out. I genuinely believe he was distraught when he told us the company was going bankrupt. He got up and cried in front of everybody. He said, 'If I had a gun right now, I'd shoot myself.'"
Today, Lapre is on the rebound. With a new management team in place, he says, his enterprise is once again solvent. A team of consultants has slashed operating expenses and reduced Lapre's annual salary to a mere half-million, according to a court testimony by of the financial management firm Biltmore Associates. Schweigert acted as chief operating officer during the early throes of the bankruptcy.
Plans for reorganization of Lapre's companies have included discussions on how to repay his creditors, which include Phoenix-based computer, telecommunications and printing companies, the and the . His largest national creditors are (owed approximately $900,000) and (owed more than $700,000).
"The company could just explode," says Lapre. "I spread myself too thin operations-wise, but now I brought in a chief operating officer and a chief executive officer. We're still in bankruptcy mode, but it looks like New Strategies will be back on its feet and will do phenomenally in January."
ECHO is interested in promoting its banking services on Lapre's infomercials.
"There's only one major motivation for a merger, and that's to make money," says ECHO chief executive officer . "And Don's organization definitely makes money. Secondly, his heavy money in media television, which runs from a million to a million and a half a month, is an effort we could piggyback to offer other products to merchants that Don could easily incorporate into his infomercials. It's a cross-marketing effort."
Barry says he has no trepidation about working with a bankrupt company.
"Don's an amazing motivator and he's an amazing creator. The challenge that faces those types of people is getting into the details of day-to-day management, and that's the primary issue here. He's now put together a team that I think is able to handle the day-to-day and allow him to focus on the creative aspects."
As for Lapre, going bankrupt is just another day in paradise.
"I fail at more things than anyone I've ever met," he says. "But I try more things than anyone I've ever met. I'm a good loser."
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