Culture-Growing Fad Being Probed; Man Arrested in Anaheim

Anaheim police on Monday arrested a Rosemead man on 13 misdemeanor counts in connection with what police described as “an endless-chain scheme” to sell investors kits to grow soured milk cultures for use in cosmetics. It was the first arrest in this country related to an investment fad that swept South Africa last year and recently has been gaining momentum in the United States.

Zelbert Wallace Ritchie, 57, was arrested on a variety of fraud charges filed by the Anaheim city attorney’s office, including making misleading statements about the culture investment, failing to register a list of his company’s principals with the secretary of state and misrepresenting the investment as secured, according to Sgt. Jerry Stec.

Ritchie posted bail and was released late Monday. He could not be reached for comment.

Meanwhile, prompted by what state investigators described as a “flood of consumer inquiries,” offices of attorneys general offices in Kansas, Oregon and Nevada are investigating companies involved in the operation.

850 Paid Fees Last week, Las Vegas city officials ordered one of the companies, Activator Supply Co., to stop doing business because it did not have a valid business license. Activator Supply’s sole owner and president, Roland Nocera, pleaded guilty in 1977 to one count of securities fraud in connection with the multimillion-dollar nationwide marketing of a line of cosmetics.

According to promoters, about 850 people in 18 states, including California and Oregon, have paid at least $350 each to participate in the culture-growing investment.

“It’s all over Orange County, as far as we can tell,” said Stec, a fraud investigator with the Anaheim Police Department. “The method of sales is very much like a pyramid,” said Stec, adding that he has been told there are at least 50 local growers. Stec said Ritchie was giving several sales seminars a day in Anaheim for a company called Premiere Concepts.

Most states, including California, have laws prohibiting some kinds of pyramid operations, in which investors pay promoters to join the operation and the funds are used to pay back earlier investors. Basically, the laws prohibit certain types of investments where investors are totally dependent on promoters to earn a profit.

The culture operation involves buying “activator” packets, which contain a yellow, powdery substance that growers add to a glass of milk and grated cheese. The mixture is left to ferment for seven days. Then, part of the top layer is skimmed off for sale back to the promoters.

Nocera said in a recent interview that his company’s activator kits grow a key ingredient in a new line of cosmetics being developed for sale by a Reno company called Cleopatra’s Secret.

The culture’s U.S. promoters insist that there is no link between them and a South African culture-growing operation in which hundreds of thousands of people invested a total of about $200 million before the Ministry of Trade stepped in and stopped the operation last November. Although some investors earned thousands of dollars growing the culture, called kubus, hundreds are still awaiting repayment of some portion of what they invested, according to South African officials.

Nocera said the culture to which he holds the exclusive American rights is different from the South African kubus culture. However, he confirmed that his culture is grown in the same way.

Asked for Temporary License

On Feb. 5, Las Vegas city officials ordered Nocera’s company to stop operating because it did not have a valid business license. “We are investigating to get a picture of how the company operates,” said Jim DiFiore, a city licensing investigator. DiFiore said the investigation will end in about 10 days.

Tom Bell, attorney for Activator Supply Co., said Friday that he has not seen a formal order to cease operations but said he is aware of the city’s investigation. Bell said the company has asked the city for a temporary license.

Nocera said that his business is legitimate and that there is no reason for the various state agencies to be concerned. “We are on target each and every day with our commitments to these people (the growers),” Nocera said.

He said Activator Supply works with two other companies, Culture Farms Inc. of Lawrence, Kan., and Cleopatra’s Secret. Activator Supply Co. sells growers the “Lactic BC40 activator kits” at $350 for 10 packets, sent to customers by Federal Express.

The customers send dried, fermented culture to Culture Farms, which pays growers $6 for each “harvest.” Each activator kit can be harvested as many as 15 times, at which point it loses potency, the promoters say. A number of investors interviewed by The Times said they have been paid hundreds of dollars for growing the substance. Culture Farms said it has paid thousands of dollars to growers since December.

Culture Farms then sells some of the cultures back to Nocera’s company, which uses the substance as “starter” for new growers. Culture Farms sends other cultures to Cleopatra’s Secret for use in a line of cosmetics due to be on the market in April, according to Christopher Mancuso, vice president of marketing.

During a tour of his Las Vegas office, Nocera showed a visitor a three-inch-high stack of activator orders and checks. He declined to say how much he has earned by selling the activator kits, but if the 800 or so growers paid the minimum $350, he has taken in at least $280,000.

Nocera formerly was president of San Rafael, Calif.-based Holiday Magic Inc. That defunct company generated millions in sales before the Securities and Exchange Commission, the Federal Trade Commission and several state law enforcement agencies went to court to stop it from operating. Nocera paid a $5,000 fine for violating federal securities laws but never went to jail.

Of the culture-growing operation, Anne Perry, a deputy attorney general in Las Vegas, said “As with any new enterprise, I’d urge consumers to use caution.” Perry said in a telephone interview that Activator Supply Co. is cooperating with her department’s investigation, which focuses in part on whether or not the operation involves illegal multilevel, or pyramid sales.

Jan Margosian, consumer information coordinator for the Oregon attorney general’s office in Salem, said, “We have an open investigative file and so does the Oregon securities department.”

She said Activator Supply Co.’s sales activities raised a “red flag” because the company is not registered to do business in Oregon. She said local bankers have also been calling state investigators for information on the culture company because Oregon residents are applying for $12,000 to $15,000 loans to invest in activator kits.

Floyd Williamson, an investigator for the state attorney general’s office in Wichita, Kansas said his office is investigating the culture-growing operation. Williamson, who has attended several sales meetings, said the operation may violate Kansas laws against pyramid sales.

To determine the culture’s value, the promoters have hired researchers at two respected universities. Cleopatra’s Secret has a $27,200 research contract with Dr. Marvin Rapaport, who consults for Dermatology Associates of Beverly Hills and teaches in UCLA’s dermatology department. Rapaport, who is highly regarded in the cosmetics industry, has agreed to conduct 8 weeks of testing on the Cleopatra’s Secret line of cosmetics. Cleopatra’s Secret President Kristine Gunn, could not be reached for comment, but Rapaport confirmed that he is doing skin testing on the safety of the Cleopatra’s Secret cosmetic line.

The University of Kansas microbiology department recently accepted from Culture Farms a $59,000 one-year grant to determine the purity of the milk and cheese culture. Dr. James Akagi, professor of microbiology, said in a telephone interview that his laboratory technicians will regularly check samples of the culture and explore other possible uses for it.

Meanwhile, Saute Consultants in Sun Valley, Calif., is developing a line of Cleopatra’s Secret facial products. Dr. Robert Saute, who said he has developed cosmetics for companies around the world, said it appears the people behind Cleopatra’s Secret are “very serious about this thing.”

“We have taken the lactic culture and put it into the products and the products look good,” said Saute in a recent telephone interview. “I think it’s a very unique approach. We can’t prove the culture is the greatest thing since the discovery of gold, but it certainly falls in the realm of credibility.”