Consumer Protection

LOS ANGELES -- Attorney General Kamala D. Harris today filed a lawsuit against one of the nation’s largest funeral trusts, which pooled the funds of more than 27,000 California consumers who prepaid for funerals for themselves or loved ones, charging that the organization engaged in conspiracy and kickbacks while illegally diverting some $14 million.

Attorney General Harris filed the suit, seeking a permanent injunction and restitution to consumers, against the California Master Trust, the California Funeral Directors Association, and other defendants in Los Angeles Superior Court. The suit was filed on behalf of the Cemetery and Funeral Bureau of the Department of Consumer Affairs, which regulates the funeral industry in California.

“The defendants preyed upon thousands of Californians at one of the most vulnerable times of their lives,” Attorney General Harris said. “This lawsuit will make sure their money goes where it was intended: to pay for their funerals or the funerals of loved ones.”

The trust, created in 1985 by the funeral directors, is a “preneed” funeral trust that pools the prepaid funeral payments of individual purchasers throughout California. It controls about $63.5 million.

By the end of 2009, some 27,000 California consumers who were customers of more than 300 funeral establishments, had entrusted funds with the organization for their own or loved ones’ funeral services. They were “among California’s most vulnerable and trusting consumers,” according to the suit.

Preneed funeral contracts are usually purchased by the elderly and paid in installments. Seven years elapse on average between a consumer’s purchase of a preneed contract and the beneficiary’s death.

The suit alleges that millions of dollars of consumers’ money paid to the trust was misspent or mismanaged, that defendants paid at least $4.6 million in illegal kickbacks to funeral homes, and that the defendants paid themselves excessive administrative fees.

The suit seeks an injunction to halt such illegal activities plus restitution of about $14 million with interest. It also seeks to wrest control of the trust away from the Funeral Directors Service Corp., a subsidiary of the California Funeral Directors Association, and place it under a new trustee, and seeks a full accounting of the trust’s financial transactions as well as the defendants’ financial transactions with the trust since 2000.

Many of the problems with the California Master Trust were uncovered in an extensive audit conducted by the Cemetery and Funeral Bureau and released in June 2010.

Prosecuting the case are deputy attorney generals Nancy Kaiser and Geoffrey Ward.

Consumers with questions can call the Cemetery and Funeral Bureau toll-free at 800-952-5210.

RIVERSIDE - Attorney General Kamala D. Harris announced that two men who stole millions of dollars through phony stock sales and an illegal pyramid scheme were convicted today on charges of grand theft and securities fraud.

James A. Sweeney, II, 64, of Afton, Tennessee, and Patrick M. Ryan, 35, of Canyon Lake, California, were found guilty on 65 counts of grand theft and securities fraud. The two men, who face a maximum of more than 20 years in state prison, will be sentenced June 14 in Riverside County Superior Court.

Sweeney and Ryan, co-founders of Riverside-based Big Co-op, Inc., stole approximately $8.2 million from more than 1,000 Californians through an illegal pyramid scheme and phony stock sales.

Big Co-op, also operating as Ez2Win.biz, purported to be an online shopping hub where consumers could go to purchase thousands of goods and services at discounted prices from big-name retailers including, Sears, Target and Macy’s.

Pyramid Scheme

Consumers were informed they could save money on their own purchases, plus earn commissions and rewards, by convincing others to shop at the site. In reality, consumers never received rebates or rewards. Instead, their monetary gains were based on recruiting others to purchase memberships, and having those purchasers recruit others to purchase memberships (and so on).

Individuals who were recruited paid Big Co-op between $19.95 and $99.95 in monthly membership fees for the rewards program.

From 2005 to 2006, Big Co-op generated $1.2 million in revenues through this pyramid scheme.

Phony Stock Sale

In addition to the pyramid scheme, the two men sold phony stock in Big Co-op as a stand-alone investment.

At seminars and meetings across California, Sweeney and Ryan pitched Big Co-op as the future of online commerce, compared it to Google and EBay, and falsely informed investors the company was turning huge profits. Investors were also told that an initial public offering (IPO) was imminent, and that when the company went public, the stock would double or triple and their investment could climb to well over $100 per share.

In reality, Big Co-op was never profitable, there was not an impending IPO, and the only significant revenue generated was as a result of the sale of phony stock and the payment of membership fees for the pyramid scheme.

Shares in the company were sold for $0.50 to $5.00, with two-for-one deals offered to investors willing to pay cash. From 2005 to 2006, Big Co-op took in more than $7 million from this scheme.

With investor cash, Sweeney and Ryan bought luxury homes, country club memberships, five Mercedes, and ran up $30,000 to $50,000 in monthly credit card bills. Investor funds were also used to pay for an elaborate bachelor party in Las Vegas, a $23,000 wedding ring and a $100,000 wedding.

In October 2006, after receiving numerous complaints, the California Department of Corporations issued two desist and refrain orders against Sweeney, Ryan and other associates directing them to cease selling stock in the company. In May 2007, a second order directed them to cease selling memberships in the company. Following the second order, the case was referred to the Attorney General’s office for prosecution.

The case was prosecuted by Deputy Attorney General Patricia M. Fusco, with assistance from lead investigator Andy Thomas.

The two men were charged in May 2009. A copy of the original complaint can be found at: http://oag.ca.gov/news/press_release?id=1749&p=3&y=2009

OAKLAND -- Attorney General Kamala D Harris today encouraged Californians to make charitable donations to help victims of the devastating earthquake and tsunami in Japan but warned citizens to beware of scams posing as charities that sometimes prey on the goodwill of California donors during times of tragedy.

Attorney General Harris offers the following tips on how to give wisely if solicited to help disaster relief efforts, in order to assure that donations are used as the donor intends:

1. Carefully review disaster-relief appeals before giving. In times of disaster, many 'sound-alike' organizations and sham operations solicit donations.

2. Make sure the charity is registered in the Attorney General's Registry of Charitable Trusts. Registration does not guarantee that a charity is effective, but it is an important indicator. A searchable database is available at http://ag.ca.gov/charities.php.

3. Ask what percentage of your donation will be used for charitable activities that directly help victims.

4. Avoid donating through e-mail solicitations. Clicking on an e-mail may lead you to a website that looks authentic but is established by identity thieves seeking to obtain money or personal information.

5. Only provide your credit card information once you have reviewed all information from a charity and verified its credibility. Ask the organization not to store your credit card information.

6. Do not give cash. Write checks payable to the charitable organization, not a solicitor.

7. Take action on your own rather than responding to solicitations. Seek out known organizations and give directly, either by calling the organization, using the organization's official website, or mailing a check to the address listed on the organization's website.
The Attorney General's Office regulates charities and their for-profit fundraisers in order to prevent the misuse of charitable donations.

For additional tips on charitable giving, go to http://ag.ca.gov/charities/charit_giving.php. Information on national charities is available from the Better Business Bureau's Wise Giving Alliance at 800-575-4483 or www.give.org.

Californians who believe they or others have been victimized by fraudulent charitable solicitation can file a complaint online with the Attorney General's Registrar of Charitable Trusts at http://ag.ca.gov/charities.php.

SACRAMENTO – California Attorney General Kamala D. Harris and 37 other attorneys general today announced a $68.5 million settlement with AstraZeneca Pharmaceuticals for unfair and deceptive practices in its marketing of the antipsychotic drug Seroquel.

Today’s settlement is the largest multi-state settlement with a pharmaceutical company in history. California will receive more than $5.2 million, the largest share among the states in the consumer protection settlement.

“The health and well-being of patients should drive drug prescriptions in California, not the profits of a pharmaceutical company,” said Attorney General Harris. “This settlement puts an end to unscrupulous marketing practices and protects consumers from misguided, and potentially dangerous, treatment with Seroquel for uses the FDA has not approved.”

The complaint, filed today with the proposed judgment, alleges that AstraZeneca promoted Seroquel for unapproved uses, failed to adequately disclose potential side effects to health care providers, and withheld scientific studies that called into question the drug’s safety and efficacy.

Seroquel is an antipsychotic medication used to treat schizophrenia and bipolar disorder. It was approved by the Food and Drug Administration (FDA) for treatment of these conditions in adults, but AstraZeneca promoted the drug for children and the elderly to treat a variety of medical conditions, including anxiety, depression, post traumatic stress disorder, Alzheimer’s disease and dementia.

Doctors may prescribe medications for unapproved or “off-label” uses, but drug makers are prohibited from promoting drugs for treatment of medical conditions not approved by the FDA.

A three-year investigation, led by the attorneys general of Florida and Illinois, revealed that AstraZeneca also failed to adequately disclose side effects associated with Seroquel, including weight gain, hyperglycemia, diabetes and cardiovascular complications.

As part of today’s settlement, AstraZeneca agreed to not promote Seroquel in a false, misleading or deceptive manner, including for “off-label” uses. AstraZeneca is required to provide accurate and scientifically balanced responses to requests about off-label usage. The drug maker is also required to enact policies to ensure financial incentives are not given to salespeople for off-label marketing and post payments made to physicians on a website.

States joining California and the District of Columbia in today’s settlement include Arizona, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia and Wisconsin.

Copies of the related documents are attached to the online version of this release at ag.ca.gov.

LOS ANGELES -- Attorney General Kamala D. Harris filed a lawsuit today seeking restitution and civil penalties totaling $803,100 in a scam that defrauded 33 African American churches in Southern California. Promoters promised that the leased computer kiosks would enhance the experience of parishioners, but the scheme ended up creating big debts for the churches.

The Attorney General’s lawsuit, filed today in Los Angeles Superior Court, names Television Broadcasting Online, Ltd., Urban Interfaith Network, Willie Perkins, Michael Morris, Wayne Wilson, Tanya Wilson, Balboa Capital Corp., and United Leasing Associates of America, Ltd. It charges them with violations of the state’s unfair competition and false advertising laws, and seeks restitution, civil penalties and an injunction to prevent any further illegal activities.

“This was a cruel and hypocritical scheme,” said Attorney General Harris. “The perpetrators preyed on institutions of faith. Let this be a lesson to others who may look to defraud our community organizations: you will be caught and you will be held accountable.”

The Attorney General’s complaint states that defendants Television Broadcasting Online, Ltd., Urban Interfaith Network, Willie Perkins, and Michael Morris “engaged in a nationwide scam” in which they persuaded “195 African American churches in 15 different states to enter into expensive and onerous leases for shoddy computer equipment housed in wooden cabinets.” They promised the churches the kiosks would be free, advertisers would make the lease payments and the churches would be under no financial obligation.

By 2006, the scam reached California, where 33 African American churches were persuaded to enter into leases for the kiosks. Twenty-four of the churches are located in Los Angeles County, five in Riverside County and four in San Bernardino County.

Defendants Wayne and Tanya Wilson -- on behalf of Television Broadcasting Online, Ltd., Urban Interfaith Network, Willie Perkins and Michael Morris -- pitched themselves to the California churches, according to the Attorney General’s complaint, as representing “a business/religious entity, national in scope, with strong ties to both the African American community and enlightened corporate sponsors” that wanted to help this religious community. They said the computer kiosks would connect the churches and their parishioners to “national advertisers, government, businesses and even generate some revenue for themselves.”

When the churches failed to pay the monthly lease payments, Balboa and United filed collection suits, seeking full payment plus interest, attorneys’ fees and costs.

According to the Attorney General’s complaint, the leasing companies, Balboa and United, are liable because the other defendants were acting as their agents and because, even after the leasing companies learned of the misrepresentations, they failed to alert churches to the scam and vigorously continued to enforce the terms of the leases.

Wayne and Tanya Wilson live in Rancho Cucamonga. Balboa Capital Corp. is based in Irvine. United Leasing is based in Brookfield, Wisconsin. Urban Interfaith Network, Inc. and Television Broadcasting Online, Ltd. are based in Oxon Hill, Maryland. Perkins and Morris were convicted in Michigan of racketeering, conspiracy, and false pretenses in connection with the scam. Morris is serving 5 to 20 years, and Perkins is serving 4 to 20 years.

A copy of the complaint is attached to the press release at ag.ca.gov

LOS ANGELES - Attorney General Kamala D. Harris today announced a $6.5 million settlement of a predatory lending case against Angelo Mozilo and David Sambol, former officers of Countrywide Financial Corporation. Attorney General Harris announced the settlement money will be used to establish an innovative statewide California Foreclosure Crisis Relief Fund to combat the effects of California’s high rates of foreclosure and mortgage delinquency.

“Our prior settlement with Countrywide provided restitution for foreclosed homeowners and set in motion loan modification programs that have helped tens of thousands of consumers,” Attorney General Harris said. “We will use the current settlement to help Californians affected by the mortgage crisis by providing grants to agencies that help homeowners facing foreclosure with relocation assistance and providing money to state and local agencies to prosecute mortgage fraud.”

During the 18 months ending last September, 282,000 California homes went into foreclosure, and in the last three months of 2010, notices of default were filed on another 70,000 homes in the state.

This settlement concludes litigation filed by Attorney General Edmund G. Brown Jr. in June 2008 against Countrywide Financial Corp., Countrywide Home Loans and Full Spectrum Lending, as well as Mozilo and Sambol. The financial relief provided under the current settlement augments the Attorney General’s October 2008 settlement with Countrywide to provide loan modifications and other foreclosure relief valued at $8.68 billion nationwide, with $3.5 billion provided to California borrowers.

According to the lawsuit, leading up to the mortgage crisis, Countrywide lured borrowers with low “teaser’’ rates often as low as 1 percent adjustable rate loans. Its loan officers obscured the downsides of these loans, which included rapidly rising rates after teaser rates expired, big prepayment penalties, and negative amortization in which a borrower’s total loan costs rose even as additional payments were made. Countrywide also loosened its mortgage standards and verification procedures in order to write more loans.

As a result of these practices, tens of thousands of homeowners with Countrywide loans ended up in default and foreclosure. The Attorney General’s lawsuit alleged that Mozilo and Sambol knew of these practices and allowed them to continue.

The complaint alleged that Countrywide sought to increase its share of the nationwide mortgage market to 30 percent through a deceptive scheme to mass produce loans – with little concern about borrowers’ long-term ability to afford them. It then would sell the loans on the secondary market to earn the highest possible premiums.

The settlement with Mozilo, the CEO of Countrywide, and Sambol, its president, was filed today in Los Angeles Superior Court. Mozilo and Sambol left Countrywide when it was purchased by Bank of America in July 2008.

Bank of America acquired Countrywide’s loan portfolio and assumed responsibility to make restitution to mortgage holders who qualify under the terms of the Attorney General’s 2008 settlement. Since that settlement, Countrywide has made more than 32,000 modifications, worth more than $1.3 billion, on loans made to California borrowers and has paid $28 million in cash to Californians who lost their homes to foreclosure.

A copy of the Countrywide complaint and today’s settlement are attached to the online copy of this press release at ag.ca.gov.

LOS ANGELES -- California Attorney General Kamala D. Harris today announced a settlement that places conditions on the $30 billion joint venture of Comcast and NBC Universal to safeguard innovation and protect consumer choice.

California reached this settlement in conjunction with the U.S. Department of Justice and the state attorneys general of Washington, Texas, Florida and Missouri.

“This settlement will preserve the right of consumers to enjoy the best content at the best prices and also encourages a competitive environment where innovation can thrive,” Attorney General Harris said. “With these protections, this settlement strikes the right balance between protecting consumers and ensuring a fair playing field without preventing economic development.”

Comcast, based in Philadelphia, is the largest cable television company in the nation. It is the dominant cable provider in several California markets, including the Bay Area, Sacramento and Fresno. Comcast also offers Internet and telephone services to homes and businesses, and owns several popular cable channels, including regional sports channels and the E! Entertainment channel.

The combination would give Comcast ownership of NBC Universal’s programs, local stations, production facilities, cable channels including MSNBC, CNBC, Bravo and USA Network, and a major film studio. NBC Universal, based in New York City, is also part owner of Hulu.com, which distributes television programming and other video over the Internet.

The settlement prohibits Comcast/NBC Universal from withholding its content from competitors, including other cable companies and Internet providers, who control the “pipes” to consumers. It prevents Comcast/NBC Universal from unfairly raising the price for its content to other cable companies or Internet providers, which could have the subsequent result of these companies raising pay television prices for their viewers. It also prevents Comcast/NBC Universal from restricting or degrading access of its content to other cable companies or Internet providers.

Comcast must relinquish all control over Hulu.com, and it must continue to supply NBC content to the website.

California will be able to independently enforce provisions in the settlement for at least seven years. Under the terms of the settlement, the court retains jurisdiction that will allow California or any other party to enforce the agreement, modify it and punish violations.

For example, California will be able to prevent Comcast/NBC Universal from retaliating against any broadcast TV network, cable programmer, local TV station, or video producer for providing video programs to a Comcast competitor. The settlement gives California the power to enforce Comcast’s obligation to provide any online video distributor the same programs it provides to any tradition pay television system with equivalent terms and conditions. Comcast is also prohibited from restricting the further distribution of its video programs by companies to whom it sells programs.

The FCC also issued an order today approving the proposed transaction with conditions.

A copy of the complaint and settlement are attached to the online version of this press release at ag.ca.gov.

LOS ANGELES – Attorney General Kamala D. Harris today announced that her office had stopped Bioelements, Inc., a cosmetics company operating in California, from engaging in “a blatant price-fixing scheme” in which it prohibited retailers from selling its products online at a discount.

“Bioelements operated a blatant price-fixing scheme by requiring online retailers to sell its products at high prices,” Harris said. “Price manipulation harms consumers, competition and our business community. We will continue to be vigilant in protecting our markets from these kinds of abuses.”

The settlement is one of the first applications of California’s strict, pro-consumer antitrust law banning vertical price-fixing in the wake of a controversial 2007 U.S. Supreme Court decision that weakened federal law in this area. Vertical price-fixing occurs when companies along the distribution chain conspire to set the price of a product or service at an artificially high level. In California, prices must be set independently -- and competitively -- by distributors and retailers.

Bioelements markets a line of human beauty-care products under its BIOELEMENTS trademark, offering skin products it claims have quasi-medicinal properties such as reducing wrinkles. These products -- known as “cosmesceuticals” because they supposedly merge the attributes of cosmetics and pharmaceuticals -- are sold at beauty salons across California, as well as on the Internet.

An investigation initiated by Harris’ predecessor as attorney general, Edmund G. Brown Jr., revealed evidence that since 2009, Bioelements had entered into dozens of contracts with other companies that required them to sell Bioelements’ products online for at least as much as the retail prices prescribed by Bioelements. (There were no express pricing requirements for products sold in person or in shops.)

In doing so, Bioelements violated California’s antitrust and unfair competition laws.

Under the settlement, in the form of a stipulated court judgment signed Tuesday by Riverside Superior Court Judge Harold W. Hopp, Bioelements is required to:

• Permanently refrain from fixing resale prices for its merchandise

• Inform distributors and retailers with whom Bioelements made price-fixing contracts that Bioelements considers the contracts void and will not try to enforce them

• Pay a total of $51,000 in civil penalties and attorney fees.

The 2007 U.S. Supreme Court decision Leegin Creative Leather Products, Inc. v. PSKS, Inc. sharply curtailed federal antitrust law pertaining to vertical price-fixing, but did not affect California’s strict state antitrust law. In the last three years, the California Attorney General has sent two open letters to Congress urging passage of legislation reinstating federal safeguards against vertical price-fixing schemes like Bioelements’. In February 2010, the Attorney General obtained an injunction under California law against another cosmetics company, DermaQuest, Inc., which halted a price-fixing scheme similar to Bioelements’.

A copy of People v. Bioelements civil complaint and the stipulated judgment are attached to the press release online at www.ag.ca.gov.

LOS ANGELES – California Attorney General Kamala D. Harris has filed a friend-of-the-court brief in a U.S. Supreme Court case that seeks to end the “pay-for-delay” agreements in which a drug company pays competitors not to market generic versions of its brand-name drug.

Attorney General Harris is the lead on this amicus brief, signed by 31 other attorneys general, which urges the U.S. Supreme Court to review these agreements that cost consumers billions of dollars and violate state and federal antitrust laws.

“Keeping generic drugs off the market forces Californians to pay artificially high prices and denies many access to the medication they need,” Attorney General Harris said. “Our office is committed to putting an end to anticompetitive schemes like this that drive up drug prices in order to protect pharmaceutical companies’ profits.”

In the matter before the Supreme Court, Bayer Corporation allegedly paid its competitors $400 million in exchange for agreements not to market generic versions of the popular antibiotic, Cipro, which is used to prevent and treat a variety of bacterial infections.

In 1997, several generic companies sought FDA approval to market generic versions of Cipro. To avoid losing $1 billion in annual sales of Cipro, Bayer sued the rival companies for patent infringement – and then paid them $400 million under the cover of settling the patent litigation. As part of the settlement, the companies agreed not to market a generic version of Cipro for six years.

In 2000, class action lawsuits were filed in New York on behalf of consumers against Bayer, as well as the companies with which Bayer entered pay-for-delay agreements, including Barr Laboratories, Watson Pharmaceuticals, Hoechst Marion Roussel and the Rugby Group. The rulings in those suits allowed drug companies to pay one another not to compete if done in the context of settling patent litigation – even if the patents involved were not necessarily valid or infringed upon.

The brief filed today supports a private antitrust lawsuit filed by direct purchasers of Cipro, which include large drug wholesalers, pharmacies, unions and health care plans.

In the brief, the California Attorney General’s Office, along with the 31 other states, urges the U.S. Supreme Court to accept the case for review and allow proper antitrust scrutiny of these agreements.

The amicus brief is attached.

LOS ANGELES – Attorney General Edmund G. Brown Jr. announced today that Wells Fargo has agreed to provide loan modifications worth more than $2 billion to thousands of California homeowners with “pick-a-pay” loans and to pay an additional $32 million to thousands of borrowers who lost their homes through foreclosure.

None of the loans were made by Wells Fargo. All were originated by World Savings and Wachovia, banks Wells Fargo acquired.

“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”

The pick-a-pay, or pay option adjustable-rate, mortgage loans allowed borrowers to make payments at various levels. The highest level fully covered the monthly interest and principal due. Another level covered interest only. At the minimum level, payment was insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance.

Ultimately, the loans would reset, increasing the monthly payments dramatically.

Faced with unemployment, dramatic declines in home prices, and the sharp escalation of the monthly payments, thousands of borrowers were unable to meet their mortgage payments.

The settlement with Wells Fargo covers loans made by World Savings Bank, a subsidiary of Golden West Financial Corp., and Wachovia Bank. Wachovia purchased World Savings in 2006, and Wells Fargo then acquired Wachovia in 2008.

Under the settlement, Wells Fargo will offer affordable loan modifications to an estimated 14,900 California borrowers with pick-a-pay loans made by World Savings or Wachovia. Many of the modifications will include significant principal forgiveness. The total value of the modifications mandated by the settlement is projected to be more than $2 billion.

Wells Fargo is also required to pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure, plus approximately $1.8 million in costs to the state. Payments to foreclosed homeowners are expected to average more than $2,650.

Wells Fargo has reached settlements over pick-a-pay loans with attorneys general of several other states, including Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.

California borrowers eligible for loan modifications should get a notice from Wells Fargo within the next two months. Borrowers who suffered foreclosures should be notified during the first six months of 2011. For further information and updates, check the Attorney General’s website at ag.ca.gov.

A copy of the settlement is attached.