Medical scanner investors lament deal as big scam

A million-dollar heart scanning device sits idle in an office building in the Los Angeles suburb of Rancho Cucamonga.

A fireworks salesman in New Prague, Minn., helped pay for it. So did a California spine surgeon, a Louisiana businessman, a civil service worker at a Florida Air Force base, an Iraq veteran now doing medical work in West Africa and many others.

All of them invested at least $15,000 in the hope that the machine would make them lots of money. So far it hasn't paid them a dime. Now investors are complaining to authorities that the company, Advanced Health Scan, swallowed more than $5 million since 2005 and repeatedly misled them about its status and prospects.

The investors haven't been reassured by revelations that their main contact at the company, Daniel A. Caterino, has served time in federal prison for mail fraud, is barred from dealing securities in California and was indicted in Alabama last year on charges of illegally selling securities for a body-imaging company.

The experience has been a cautionary tale for investors across the country. They still believe the business idea was a good one. Now they wish they had done more background checks on the people behind it.

"I'm just totally pissed off," said Larry Ryder, 64, who lives in New Prague and sells fireworks in Minnesota, North Dakota and S Dakota. He invested $15,000 in Advanced Health Scan in 2007 after examining its glossy prospectus. "The people were so nice on the phone. It sounds like it was a scam all the way along."

In a recent interview, Caterino acknowledged that the investment didn't live up to its initial promises, and that those originally involved with Advanced Health Scan have departed with little to show for the money invested. But Caterino said that it's a viable enterprise with a real asset, the Toshiba 64-slice scanner, and that the project can move forward, if the investors just leave him alone for a little while.

"We're not the bad guys, we're the good guys," Caterino said.

The pitch sounded good

At least two years ago, Advanced Health Scan, a limited partnership based in California, began soliciting investors through Internet ads. The pitch was persuasive: invest in a powerful imaging technology that can prevent heart attacks with early detection. The brochures gave the impression the entrepreneurs had done their homework. They predicted a 58 percent return on investment in the first year that the center was open, rising to 75 percent by year five.

The offer made sense to investors across the country, including those in the health care field. Dr. Byron King, a San Diego spine surgeon, put in $75,000. Brett McElwee, who owns a Louisiana health care staffing company, invested $25,000.

Yet the promised clinic, which would feature a 64-slice CT scanner, did not open. Promised deadlines would pass with no action. Some investors complained to the Better Business Bureau of Los Angeles. Others tried to talk to people at the company, but it wasn't clear who was in charge.

Caterino said he was part of a team that took over the company last year. He said the previous managers had raised about $5.5 million and spent $4 million with little to show for it. Now the business is actually getting off the ground, he said. The clinic in Rancho Cucamonga is open, he told investors in a video message in September. But that doesn't mean it's accepting patients.

"We don't have a secretary, we don't have a receptionist, we don't have money to pay the phone bill," Caterino said in an interview. His boss, John Leal, said he has reached a deal with a nearby hospital whose patients could use the scanner. To make it happen, Leal said, the company has to raise another $350,000.

Turning over a new leaf

As far as his background, Caterino said, he has put his mail fraud days behind him (he said he became a Christian). The California Department of Corporations, which has prohibited him from selling securities because of previous violations, is telling lies, he said. He didn't want to comment about the charge against him in Alabama.

Caterino, who said he and his wife have invested $148,000 in the clinic, isn't predicting when investors will start earning some money back. But he told them in a video message last month that he expected revenue by the beginning of next year.

Carrie Trubenbach, a psychotherapist in Santa Cruz, Calif., who invested $15,000 and is now organizing disgruntled investors, said Caterino has "wreaked havoc in everybody's lives."

"I thought I was doing the adult responsible thing and investing money so that one day I could retire," she said.

Ryder, in New Prague, figures he will never see his $15,000 again. Investors have contacted each other to evaluate their legal options. So many unanswered complaints have been made to the Better Business Bureau that Advanced Health Scan has earned an F, the bureau's worst rating.

Sometime this month, the Advanced Health Scan website went down, replaced by the ominous words, "This Account Has Been Suspended Please contact the billing/support department as soon as possible."