Newport Man Pleads Guilty to Fraud in Cosmetics Scheme

A Newport Beach man involved in a cosmetic promotion scheme that allegedly defrauded 27,000 investors out of $80 million has pleaded guilty to charges of mail fraud.

Paul G. Stemm, 53, was one of 12 people indicted last year by a Kansas grand jury.

Stemm and Frans Theron, 45, of Palm Springs pleaded guilty Dec. 19 to charges of conspiracy to commit mail fraud, according to Assistant U.S. Atty. Richard Hathaway.

The defendants sold a culture-growing investment program designed to supply a key ingredient for a line of women’s cosmetics. But the program allegedly turned out to be an elaborate pyramid scheme and was shut down by Kansas and California law enforcement officials.

Theron, a native of South Africa, originally sold the culture kits in his homeland. He was a major organizer of the promotion in the United States.

Stemm served as a business adviser, according to court records.

Two companies were set up to handle the program. Activator Supply Co. of Pahrump, Nev., sold “activator kits” to investors for use in growing a milk-based bacteria for sale to Culture Farms Inc. of Lawrence, Kan.

Authorities determined that less than 1% of the cultures grown ever made their way into the line of “Cleopatra’s Secret” women’s cosmetics.

Stemm and Theron face a maximum penalty of five years in federal prison and $10,000 fines.

A federal judge in Kansas City set a March 2 sentencing date for all 12 defendants.