Consumer Protection

San Diego – Continuing his fight against “rip-off artists” operating in California, Attorney General Edmund G. Brown Jr. filed suit today against eight individuals and six businesses that operated scams targeting small business owners. The lawsuits, filed today in San Diego Superior Court, seek to recover more than $3 million.

Schedule note: Brown is in San Diego this morning and is available to speak about these cases at approximately 10:30 -- at the Hilton Bayfront Hotel - downtown (Indigo A Room,
1 Park Blvd in San Diego 92101.

“These cases will send a powerful signal that small business owners must be on the alert,” Brown said. “These rip-off artists sent official-looking documents through the mail for the sole purpose of duping small business owners into paying them money – for no value in return.”

The three cases are separate scams, each following a similar theme. The defendants mailed to small businesses solicitations that appeared to be government documents featuring an official-looking seal, an official-sounding name, citations to the Corporations Code and a “reply by” date. The forms claimed that the business was in danger of losing its corporate or limited liability status if payment was not made within a short period of time.

In the first case, Anthony Williams operated Compliance Annual Minutes Board that mailed to California businesses official-looking forms demanding that the recipient complete the form and return it with payment of an “Annual Fee” of $150 or risk loss of corporate status. Williams claimed that in exchange for payment, he would provide corporate minutes. Instead, he prepared generic fictitious minutes for the business owners who paid his fee.

The next case involved George Alan Miller, Rebecca Miller, Arghisti Keshishyan and Kristina Keshishyan who together operated two corporations and one limited liability company: Annual Review Board, Inc., Business Filings Division and Corpfilers.com, LLC. Miller and his co-conspirators mailed solicitations to California limited liability companies and corporations, demanding that the recipients complete the form and return it with payment or risk penalties, fines and suspension. The payment amounts varied from $195 to $239, but all mailers were designed to be official-looking government documents that misled the recipients into sending money.

In the third case, Maria Jones operated Corporate Filings Division and Corporate Compliance Filings, Inc., which mailed official-looking forms entitled “Annual Minutes Disclosure Statement” to California businesses, implying that the recipient business was required to complete the form and return it with payment of an “Annual Fee” of $175 or risk loss of corporate status. In exchange for payment, Jones agreed to provide corporate minutes. The information she solicited, however, was inadequate for legitimate corporate minutes, and she instead provided fictitious minutes.

All defendants are accused of violating:

• Business and Professions Code section 17533.6 (Deceptive Solicitation Statute)
• Civil Code section 1716 (Phony Billing Statute)
• Business and Professions Code section 17500 (False Advertising Statute)
• Unfair business practices within the meaning of Business and Professions Code section 17200.

In all three cases, the Attorney General’s Office seeks civil penalties, injunction and other equitable remedies and costs.

Since 2004, the Attorney General’s Office has received more than 5,000 complaints against a growing number of individuals who mailed solicitations made to look like governmental forms to small businesses in California. Today’s announcement adds to the five cases the office has already successfully handled since these scams were brought to the office’s attention.

The three complaints and the mailers are attached.

LOS ANGELES -- Attorney General Edmund G. Brown Jr. today sued Todd Swick and Michael Sardo, owners of Los Angeles based Executive Financial Credit Services, for ignoring “repeated warnings” to register with his office and post a $100,000 bond with the Secretary of State.

“Swick and Sardo violated California law by refusing to register their credit repair business with the Attorney General’s office and post a $100,000 bond, even after repeated warnings,” Brown said. “So today, attorneys from my office are filing suit, sending a clear signal to credit repair firms operating in California that they must register with the Attorney General’s office and follow the law.”

Executive Financial Credit Services offers to help repair their customers’ credit by challenging negative or inaccurate items on credit reports directly with the three credit report bureaus—Experian, TransUnion, and Equifax. Under California’s 1984 Credit Services Act, companies providing credit repair services in California are required to register with the Attorney General’s office and post a $100,000 surety bond with the Secretary of State.

In late 2008, Brown’s office sent a letter directing the business to register and provided information to assist in the process. The business did not respond. Despite repeated warnings, Executive Financial Credit Services did not register and obtain a bond.

Later Swick claimed the business was no longer conducting credit repair services and didn’t need to register. Brown’s office, however, discovered the business was continuing to operate as a credit repair firm. In early 2009, Sardo informed Brown’s office that the business was moving from California to Arizona and would not complete the registration process. Brown’s office informed Sardo that if the business continued offering credit repair services in California, it was bound by California law to register.

Nevertheless, Executive Financial Credit Services still has not registered. So today, Brown filed suit in San Diego Superior Court, contending that the business violated:

• California Civil Code section 1789.18 for not posting a $100,000 surety bond with the Secretary of State’s office;
• California Civil Code section 1789.25 for conducting a business without first obtaining a certificate of registration from the Attorney General’s Office; and
• California Civil Code section 1789.13(a) for charging consumers money before completely performing the services they promised.

The suit seeks a permanent injunction to keep Executive Financial Credit Services and its principals from operating illegally, civil penalties of not less than $200,000 and restitution for victims.

Brown has taken recent action against credit fraud. Last week, Brown arrested a con artist who stole more than $300,000 from over 600 victims through a credit card and credit repair scam. Ralph Adam Rendon offered victims credit lines of up to $100,000 without any credit checks and offered credit repair counseling. Victims paid an upfront fee of $500 but never received the credit card or any credit repair services.

San Francisco – Launching an investigation into credit rating agencies’ role in fueling the financial crisis, Attorney General Edmund G. Brown Jr. today issued subpoenas to Standard & Poor’s, Moody’s and Fitch to determine whether the firms violated California law when they recklessly gave “stellar ratings to shaky assets.”

“Standard & Poor’s, Moody’s and Fitch put their seal of approval on high risk mortgage-backed securities, recklessly giving stellar ratings to shaky assets that proved toxic to the entire financial system,” Brown said. “This investigation is meant to determine how these agencies could get it so wrong and whether they violated California law in the process.”

Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings grade the creditworthiness of corporations and municipalities and the financial instruments (e.g., bonds and securities) they issue. Investors depend on these ratings to gauge risk and make investment decisions.

At the peak of the housing boom, these agencies gave their highest ratings to complicated financial instruments – including securities backed by subprime mortgages –making them appear as safe as government-issued Treasury bonds.

In rating these securities, the agencies worked behind the scenes with the same Wall Street firms that created them. For their work, the firms earned billions of dollars in revenue, at a rate nearly double what they earned for rating other financial products.

Banks, pension funds and other investors relied on these ratings when they purchased trillions of dollars of securities backed by subprime mortgages because of the high returns and apparent low-risk. Those purchases helped fuel the housing bubble by providing funding for lenders to issue ever-riskier subprime and other toxic mortgages. When the bubble burst, however, those risky mortgages defaulted in record numbers and investors were left holding worthless securities, unable to sell them.

Subsequently, the agencies downgraded the credit ratings of $1.9 trillion in residential mortgage backed securities, a tacit acknowledgement of their failure to adequately assess the risks of the debt they rated. The rating agencies either ignored or did not understand the risks of the debt they rated.

Given the role the rating agencies’ played, Brown is directing the agencies to provide by October 19, 2009 information that will help answer the following questions:

• Whether the rating agencies failed to conduct adequate due diligence in the rating process;
• Whether the rating agencies gave high ratings to particular securities when they knew or had reason to know that high ratings were not warranted;
• Whether the rating agencies failed to comply with their own codes of conduct in rating certain securities;
• Whether the rating agencies profited from giving inaccurate ratings to particular securities;
• Whether the rating agencies made fraudulent representations concerning the quality or independence of their ratings;
• Whether the rating agencies compromised their standards and safeguards for profits;
• Whether the rating agencies' statistical models captured the risk inherent in subprime and other risky assets and, if not, what was the rating agencies' response; and
• Whether the rating agencies conspired with the companies whose products they rated to the detriment of investors.

Brown’s investigation of the rating agencies is one of many actions by his office to address financial practices relating to the mortgage meltdown, including his 2008 lawsuit against Countrywide and recent crackdown on foreclosure consultants and loan modification scams.

LOS ANGELES – Continuing his effort to curb prescription-drug abuse, Attorney General Edmund G. Brown Jr. today unveiled a new internet-based prescription-monitoring database that provides physicians, pharmacists and law enforcement officers a powerful technology to stop 'drug seekers' from obtaining prescription drugs.

"The recent deaths of Anna Nicole Smith and Michael Jackson have made clear to the whole world just how dangerous prescription drug abuse can be,” said Brown. “Today, my office is inaugurating a high-tech monitoring system that will enable doctors and law enforcement to identify and stop prescription-drug seekers from doctor-shopping and abusing prescription drugs.'

The state's secure database, known as the Controlled Substance Utilization Review and Evaluation System (CURES), contains more than 100 million entries representing controlled substances (Schedule II, III and IV) dispensed in California. Controlled substances are classified under federal guidelines based on potential for abuse and accepted medical use in treatment in the United States and international treaties.

Prescription Drug-Monitoring Database

Today’s launch of the online CURES database is part of Brown’s effort to curb prescription-drug abuse in the state and make it easier for doctors to track their patients’ prescription-drug history. The database gives health professionals (doctors, pharmacists, midwives, and registered nurses), law enforcement agencies and medical profession regulatory boards instant computer access to patients’ controlled-substance records. This replaces the state’s previous system that required mailing or faxing written requests for information. Each year, more than 60,000 such requests are made to the Attorney General’s office.

Each database record contains a patient’s dispensed drug record, including:

• Drug Name
• Date Filled
• Quantity, Strength and Number of Refills
• Pharmacy Name and License Number
• Doctor’s Name and DEA Number
• Prescription Number

Under the new system, a pain-management physician examining a new patient complaining of chronic back pain would be able to instantly look up the patient’s controlled-substance history to determine whether the patient legitimately needs medication or is a “doctor shopper.” “Doctor shoppers” are prescription-drug addicts who visit dozens of doctors to obtain multiple prescriptions for drugs. In the past, the doctor’s request could take several days for a response. Now with CURES instant access, doctors can identify doctor shoppers and other prescription-drug abusers before they write them another prescription. Law enforcement can also flag a person in the database to alert physicians to potential abusers.

Last year, the Attorney General’s office provided more than 64,000 Patient Activity Reports to authorized subscribers.

Growing Problem of Prescription-Drug Abuse

With 7,500 pharmacies and 158,000 prescribers reporting prescription information annually, CURES is the largest online prescription-drug monitoring database in the United States. Its goal is to reduce drug trafficking and abuse of dangerous prescription medications, lower the number of emergency room visits due to prescription-drug overdose and misuse, and reduce the costs to healthcare providers related to prescription-drug abuse.

Prescription-drug abuse costs the state and health insurers millions of dollars each year. The National Survey on Drug Use and Health estimates that 20 to 30 percent of California’s drug abusers primarily use prescription drugs. In addition, a 2005 survey by the Drug Abuse Warning Network estimates that non-medical use of pharmaceuticals accounted for more than 500,000 emergency room visits in California, an enormous drain on the state's healthcare system.

According to the latest Department of Justice 'Drug Trends' report, Valium, Vicodin, and Oxycontin are the most prevalent pharmaceutical drugs obtained fraudulently. Vicodin and Oxycontin are the two most abused pharmaceutical drugs in the United States.

CURES Success Stories

Prescription-drug abuse can have serious consequences for both abusers and the public. Each year, hundreds of people die from prescription-drug overdose in California. Dozens more are injured or killed by prescription-drug abusers who are driving under the influence of medication. The problem is on the rise; recent studies have found that teens are increasingly more likely to have abused prescription drugs than most illicit drugs.

Last year, Brown and the CURES team targeted the top 50 doctor shoppers in the state, who averaged more than 100 doctor and pharmacy visits to collect massive quantities of addictive drugs like Valium, Vicodin, and Oxycontin. The crackdown led to the arrest of dozens of suspects, including Frankie Greer, 53, who visited 183 doctors and 47 pharmacies to feed a prescription-drug habit that included some of the most dangerous painkillers in lethal combinations. In a one-year period, Greer sought out multiple doctors at hospital emergency rooms to prescribe her more than 4,830 hydrocodone tablets, 2,210 oxycodone tablets and 156 Oxycotin pills, along with a variety of additional addictive painkillers.

In May 2009, the CURES team worked with the Ventura County Sheriff’s Office to provide detectives with the prescribing history of Dr. Bernard Bass, a Burbank doctor accused of writing hundreds of fraudulent prescriptions to feed his patients’ drug addictions. Seven of his patients died from prescription-drug overdoses. Following an investigation that included the CURES report of the prescriptions he had written, Dr. Bass faced criminal charges, lost his medical license and surrendered his license to prescribe controlled substances.

CURES can also alert law enforcement and licensed medical professionals to signs of illegal drug diversions. Last fall, Brown’s office teamed up with the Simi Valley Police Department to investigate Ricky Washington, known to police for his violent history, street gang-affiliation and previous drug-trafficking arrests. The 12-month investigation revealed a criminal conspiracy in which Ricky Washington and associates had stolen the identities of eight doctors, which they used to illegally write prescriptions. The drug-trafficking group also stole the identities of dozens of innocent citizens, designating them as 'patients' in order to fill the fraudulent prescriptions. The drug ring obtained more than 11,000 pills of highly addictive drugs like Oxycontin and Vicodin.

For more information on the California Department of Justice Bureau of Narcotic Enforcement and California's current prescription drug monitoring system visit: http://ag.ca.gov/bne/cures.php.

For doctors and other authorized healthcare and prescription-drug providers, visit ag.ca.gov for more information on CURES and how to register.

San Fernando Valley – On Thursday, September 10, 2009 at approximately 3:30 p.m., Attorney General Edmund G. Brown Jr. will be the guest speaker at a consumer protection townhall in Sylmar, where he will warn Southern California residents about the proliferation of “devious mortgage schemes” and offer tips to avoid them. Since 2007, Sylmar has experienced the highest number of foreclosures in the City of Los Angeles.

“Following the housing collapse, scammers and rip off artists have come up with dozens of devious mortgage schemes to take advantage of desperate homeowners,” Brown said. “Homeowners must arm themselves with information and be wary of loan consultants who charge thousands of dollars in upfront fees and deliver nothing in return.”

Brown will be a guest speaker at a community hearing on foreclosure prevention organized by Los Angeles City Council Jobs and Business Development Committee Chairman Richard Alarcon. The townhall is free and open to the public.

WHAT: Town hall hearing on consumer protection. Topics include: mortgage fraud, foreclosure prevention, false advertising, student loans and credit card issues.

WHO: Attorney General Jerry Brown as guest speaker, and
Los Angeles City Council Jobs and Business Development Committee Chairman Richard Alarcon.

WHEN: Thursday, September 10th
3:00 PM- 5:00 PM

WHERE: Los Angeles Mission College
Campus Center
13356 Eldridge Ave. Sylmar, CA. 91342

BROWN’S RECENT ACTIONS TO STOP MORTGAGE FRAUD:

• Brown partnered with the California Department of Real Estate and the State Bar of California to combat loan modification and foreclosure fraud across the state.

• Brown has sent letters directing 386 mortgage foreclosure consultants to register with his office and post $100,000 bond, or demonstrate why they are not required to. If the consultants are required to register and have failed to do so, they are subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation.

• Brown sent letters demanding that 27 loan consultants substantiate suspect claims made on the internet and in direct mail advertising.

• As part of a nationwide sweep last month, Brown filed suits against 21 individuals and 14 companies who ripped off thousands of homeowners seeking mortgage relief. In total, Brown has sought court orders to shut down 32 companies and has brought criminal charges and obtained lengthy prison sentences for deceptive loan modification consultants.

• Brown unveiled a new website ( http://ag.ca.gov/loanmod) that provides homeowners tips to avoid loan modification fraud, allows them to determine if a company is registered with his office and makes it easier to file complaints.

5 Tips to Avoid Being Scammed
1. Don't pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.

2. Don't ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.

3. Don't transfer title or sell your house to a 'foreclosure rescuer.' Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.

4. Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.

5. Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.

Los Angeles – Attorney General Edmund G. Brown Jr. today warned Californians wishing to assist victims of the California fires to avoid “sham charities” that rip off consumers in the wake of major disasters.

“After virtually every disaster, scam artists come out of the woodwork to defraud individuals wishing to help victims,” Brown said. “Californians should give only to reputable organizations so their donations don’t end up lining the pockets of criminals and opportunists.”

Brown noted that fraudulent and misleading charitable solicitations are common following disasters – whether the donation request comes by phone, mail, in front of retail stores, or email. He advised consumers to take time to carefully consider fire-relief solicitations before giving, and offered the following tips:

• Closely review disaster-relief appeals before giving.

• Stick with charities that are reputable rather than those that spring up overnight. If you are unsure, check to see if the charity is registered in California with the Attorney General's Registry of Charitable Trusts. Registration does not guarantee legitimacy, but it is an important indicator. A searchable database is available at http://ag.ca.gov/charities.php. Information on national charities is available from the Better Business Bureau's Wise Giving Alliance at 800-575-4483 or www.give.org.

• Take action on your own rather than responding to solicitations. Seek out known organizations and give directly by phoning the group, finding its official web site, or via regular mail.

• Listen closely to the name of the group and beware of 'copycat' names that sound like reputable charities.

• Don't give through email solicitations. Clicking on an email may lead you to a site that looks real but is established by identity thieves seeking to obtain money or personal information.

• Do not give cash. Make checks out to the charitable organization, not the solicitor.

• Do not be pressured into giving. Even in times of emergency, reputable organizations do not expect you to contribute immediately if you are unfamiliar with their services. Be wary of appeals that are long on emotion but short on details about how the charity will help disaster victims.

• Ask what percentage of donations will be used for charitable activities that help victims and how much will fund administrative and fundraising costs. State law requires solicitors to provide such information if requested by donors. Be wary of fundraisers who balk at answering.

• Find out what the charity intends to do with any excess contributions remaining after victims' needs are addressed.

For additional tips on charitable giving, go to http://ag.ca.gov/charities/charit_giving.php

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.

Los Angeles – Attorney General Edmund G. Brown Jr. today forced CashCall, Inc., an Anaheim-based fast-money lender, to stop using “loan shark tactics” in collecting debt, including abusive calls at all hours of the day and night and empty threats of law enforcement action.

The court-ordered judgment also forces CashCall to stop misleading consumers with deceptive advertising and pay $1 million in civil penalties and legal expenses. CashCall used former child actor Gary Coleman as its television spokesman.

“CashCall preyed on consumers desperate for cash, charging triple digit interest rates and using loan shark tactics to collect on their debts,” Brown said. “This judgment forces CashCall to stop harassing its customers and should serve as a warning to consumers to be wary of fast-money lenders.”

CashCall, owned by Paul Reddam, founder and former owner of DiTech mortgage company, currently charges 139.34% annual interest on the $2,600 loan it offers to consumers. This means that consumers who make the required $298.94 monthly payment over 36 months pay $10,761.84 over the life of the loan. That adds more than $8,000 in interest to the loan.

Brown contends that CashCall used illegal and abusive debt collection practices when customers were unable to make on-time payments, in violation of California Business and Professions Code Section 17200. These practices included:

• Making excessive and verbally abusive telephone calls at all hours of the day and night;
• Causing borrowers to incur bank fees by repeatedly trying to collect payments despite knowing there were insufficient funds in the borrowers’ accounts;
• Threatening to initiate law enforcement and wage garnishment proceedings against borrowers without any basis for doing so;
• Improperly discussing private financial information with borrowers’ friends, colleagues and neighbors;
• Failing to honor borrowers’ requests to cancel automatic withdrawals from checking accounts; and
• Continuing to contact borrowers by phone after receiving requests to only contact them in writing.

Brown also contends that CashCall misled customers with deceptive television, radio and online advertising in violation of Business and Professions Code Section 17500.

CashCall’s advertisements falsely suggested that low interest rate loans were available to all borrowers, when in reality, the rates advertised were only offered to some borrowers, usually members of the military. CashCall offered lower interest rates because Federal law limits the interest it can charge on loans to active duty servicemembers and their families.

Today’s court order puts an end to CashCall’s illegal debt collection practices and stops its misleading advertising. The settlement also requires CashCall to:

• Stop making excessive and verbally abusive telephone calls at all hours of the day and night;
• Pay $1 million in civil penalties and expenses related to the investigation and resolution of this case;
• Train its employees within 30 days and not fewer than four times per year thereafter to ensure compliance with the judgment;
• Terminate any officer, director or employee who violates the terms of the judgment;
• Record all telephone calls made to, or received from, prospective and current borrowers; and
• Maintain a detailed log of all consumer complaints.

A copy of the complaint and final judgment, filed in Los Angeles County Superior Court, is attached.

Los Angeles – Threatening possible criminal and civil prosecution, Attorney General Edmund G. Brown Jr. today ordered 386 mortgage foreclosure consultants to post $100,000 bonds and register with his office.

He also ordered more than two dozen companies to justify suspicious loan modification claims made in “slick advertising,” online and through the mail.

“Hoping to lower their mortgage payments, thousands of homeowners were instead duped by slick advertising and money-back guarantees,” Brown said. “The time for accountability is at hand, and this rogue industry must clean itself up or face legal action,” Brown added.

Brown also unveiled a new website (http://ag.ca.gov/loanmod) that provides homeowners tips to avoid loan modification fraud, allows them to determine if a company is registered with his office and makes it easier to file complaints.

Brown today joined with the California Department of Real Estate and the State Bar of California in a new partnership to combat loan modification and foreclosure fraud.

Brown has sent letters directing 386 mortgage foreclosure consultants to register with his office within 10 days and post $100,000 bond, or demonstrate why they are not required to. If the consultants are required to register and have failed to do so, they are subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation. Eighty-five of these consultants are based in Los Angeles County, 133 in Orange County, 47 in the Inland Empire, 68 in San Diego County and seven in the Bay Area.

Additionally, Brown sent letters today demanding that 27 loan consultants substantiate suspect claims made on the internet and in direct mail advertising. For instance:

· Brown directed Irsfeld, Irsfeld & Younger, LLP as corporate counsel for JL Richman, doing business as Home Retention Programs of Glendale, Calif. to substantiate its claims including: “Our team has 10 years of success in negotiating 90% of all mortgage loan modification requests to a successful outcome….For the modification requests we accept, our modification failure rate is less than 1%.”

· Brown directed 21st Century Real Estate Investment Corporation of Rancho Cucamonga to substantiate its written solicitations including: “[y]our proposed loan modification is a 30 year fixed/3.5% interest rate with a monthly payment of $495. Your monthly savings is $705. Total savings over a 30-year period is $253,800. . . . Your first payment will be negotiated to begin March 2009 – payable to your current lender for $495.”

· Brown directed Mortgage Modification Solutions of Irvine to substantiate its claims including: “Our services are due to the FEDERAL MANDATE which makes it mandatory for mortgagees, upon the default of a single family mortgage, to engage in loss mitigation actions” and “Why $3995.00 is nothing compared to what you can accomplish in return? #1- It’s 10 times more expensive to hire a CPA or a Financial Advisor to exclusively analyze & Research your financial affairs to create a plan acceptable to the Banking standards.”

· Brown directed Alliance Law Center of San Diego to substantiate its letters to consumers stating: “Final Notice: 3/11/09, our review of certain information indicates you may be a victim of federal disclosure violations and/or predatory lending violations, therefore your loan may be invalid, and you may qualify for a loan modification saving you thousands of dollars.”

The State Bar of California today announced that it has obtained resignations from two lawyers and filed charges against a third for their loan modification activities. The State Bar’s special team on loan modification complaints continues to investigate more than four hundred active complaints from consumers about lawyers’ roles in loan modification scams.

Brown has made it a top priority to combat loan modification fraud. As part of a nationwide sweep last month, Brown filed suits against 21 individuals and 14 companies who ripped off thousands of homeowners seeking mortgage relief. In total, Brown has sought court orders to shut down 32 companies and has brought criminal charges and obtained lengthy prison sentences for deceptive loan modification consultants.

Copies of the letters and a list of consultants who have not registered are attached.

San Diego – Continuing his fight against “rip-off artists,” Attorney General Edmund G. Brown Jr. won a $1.2 million ruling against Gaston Muhammad, 42, and Ronna Green, 41, of Duluth, GA, who billed nearly a million California business owners $150 each for deceptive and unnecessary corporate minutes services.

“These rip-off artists sent nearly a million deceptive mailers to business owners, threatening them with loss of their corporate status if they didn’t pay $150 for unnecessary services,” Brown said. “In reality, this was a massive scam costing California small business owners hundreds of thousands of dollars.”

The defendants mailed solicitations to California business owners that were designed to look like State of California official forms—specifically, the Secretary of State’s “Annual Statement of Information.” The solicitations implied that unless the corporations paid the defendants a $150 annual fee, they could lose their corporate status. The defendants sent out 986,000 solicitations to California businesses between July 2007 and November 2008.

The solicitation appeared to be a government document featuring an official-looking seal, an official-sounding name, the corporation number, citations to the Corporations Code, and a return address in Sacramento. The defendants, in fact, resided in Georgia and the Sacramento address was a mail drop.

The defendants promised to prepare annual minutes for the recipient corporations, even though the information sought on the forms was insufficient to create minutes. Defendants simply invented the dates, meeting places, participants, and actions taken in the fictitious minutes they created.

Brown filed suit in San Diego Superior Court in May 2008, charging defendants with violating:

• Business and Professions Code section 17533.6 (Deceptive Mailing Statute) and 17550 (False Advertising Statute)
• Civil Code section 1716 (Phony Billing Statute)
• Permanent injunction from a previous mail scam judgment against Gaston Muhammad
• Unfair business practices within the meaning of Business and Professions Code section 17200.

On June 22, the Trial Court ruled that the solicitations were misleading. The Court also found that the disclaimers were not big and bold enough to alert the recipients that this was not an official form. It found that the defendants violated all four statues and the permanent injunction.

The court ordered defendants to pay restitution of $200,000 and imposed civil penalties of $986,000. It further issued a permanent injunction which, in addition to requiring the defendants to comply with the law, barred them from engaging in the business of providing corporate minutes in California for five years. The Court also awarded the state the costs incurred in the prosecution of this case.

Earlier this year, Brown filed suit against two brothers operating a similar scam, billing homeowners nearly $200 each for property tax reassessment services that were almost never performed and are available free of charge from local tax assessors.

The judgment and a copy of the mailer are attached.

Los Angeles – Responding to a just-released report that exposes the inner workings of a loan modification boiler room, Brown warned homeowners to avoid “shadowy and unscrupulous” loan modification consultants who use aggressive telemarketing tactics and charge thousands of dollars in upfront fees for foreclosure relief.

The report, written by a court-appointed receiver, found that H.E. Servicing, Inc., a loan modification company that Brown sued last week, ran a “well-appointed telephone boiler room” focused on making money, rather than helping homeowners stay in their homes.

“From sun up to sun down, this shadowy and unscrupulous operation used high-pressure telemarketing tactics to bully homeowners into paying thousands of dollars for phony loan modification services,” Brown said. “In reality, the goal wasn’t to help these homeowners stay in their homes, but to rip them off and take their hard-earned dollars.”

On July 7, 2009, as part of “Operation Loan Lies,” Brown, the Federal Trade Commission and the State of Missouri sued US Foreclosure Relief Corp., George Escalante, Cesar Lopez and Adrian Pomery who operated a number of fraudulent foreclosure relief companies including H.E. Servicing, Inc. On the same day the suit was filed, the U.S. District Court for the Central District of California entered a temporary restraining order appointing an independent receiver to closely examine the structure, operation and finances of these companies.

After reviewing documents, tracing financial transactions, interviewing employees and speaking with state officials, the receiver made the following findings:

• “Even if most of the deceptive sales practices could be cured, this is not a lawful advance fee loan modification business. It is not operated and managed by a lawyer or a properly licensed DRE broker. It is a phone sales operation selling unlicensed loan modification services with more than 80 percent of its clients residing outside of California.” (p. 2)

• “At the outset, it is a challenge to precisely categorize this business. It is not a law practice. It is not a licensed mortgage or real estate company. Rather, I see this business as a high-pressure, cash-up-front telephone sales business targeting distressed homeowners. It appears that some homeowners may have been helped, but the overriding goal of the business was not to help homeowners, but to make money.” (p. 6)

• “The Sales Department is essentially a well-appointed telephone boiler room with phone cubicles for 44 sales people – ‘counselors’ – and separate offices or stations for 3 on-site managers.” (p. 9)

In addition to the excerpts above, the receiver’s report, submitted July 15, 2009, made the following observations about H.E. Servicing, Inc.:

• The sales department operated like a boiler room. Spread across 11,285 square feet of office space in Anaheim, the company operated as a “bustling enterprise” with phone cubicles for 44 sales people and offices for three on-site managers. Sales people handled approximately 500 incoming calls per day in staggered shifts from 5:00 a.m. to 5:00 p.m. Of the 60 employees, only eight “staff negotiators” communicated directly with clients and lenders about mortgage details.

• The typical commission was $450 for a fully paid sale (i.e. $2,500 upfront payment) with an extra $25 if the consumer paid by debit card or wire transfer. If the consumer could only handle a payment plan (minimum $1,000 down), the sales person received a percentage (10-15%) of the amount actually paid, with no commission on the later payment. Other sales incentives were also offered, including a Rolex watch.

• Sales people informed homeowners that the company successfully negotiated 10,000 loan modifications, when in truth, only 311 were completed. Sales people informed homeowners that the company had 10,000 confirmed and negotiated loan modifications, a 90% success rate, nationwide service and over 100 workers. According to company records, from November 2008 to July 8, 2009 a total of 2,960 loan modification files were opened with only 311 completed.

• The company spent $70,000 a week on radio and television advertising in 100 media markets and had plans to expand to $80,000-$100,000, producing an estimated $270,000 a week in new business. The company also planned to aggressively hire additional sales staff.

• The company advertised a money back guarantee, but just before being shut down it implemented a cap on refunds, regardless of the amount due to consumers.

• Homeowners were led to believe that they were hiring a lawyer or law firm to save their homes. Sales people frequently referred to the company as “attorney-based.” One sales person had a note claiming that the attorney was “the most aggressive attorney in the mortgage industry.” By contrast, the receiver’s report says that the business is “not a law practice.”

• In the first six months of 2009, a report prepared by an outside accountant reported a net income of $4.5 million.

Last Friday, with the temporary restraining order set to expire, the U.S. District Court for the Central District of California held a hearing to consider the receiver’s report and other evidence presented by the Attorney General, the Federal Trade Commission and the State of Missouri. After hearing this evidence, the court issued a preliminary injunction to keep the terms of the temporary restraining order in place.

The Court set a hearing for July 28, 2009 to consider options to assist homeowners, particularly those facing foreclosure.

Brown has been leading the fight against fraudulent loan modification companies. In addition to last week’s legal action against 21 individuals and 14 companies, he has sought court orders to shut down several companies including First Gov and Foreclosure Freedom and has brought criminal charges and obtained lengthy prison sentences for deceptive loan modification consultants.

As part of today’s consumer alert, Brown’s office issued the following tips for homeowners to avoid becoming a victim:

DON'T pay money to people who promise to work with your lender to modify your loan. It is unlawful for foreclosure consultants to collect money before (1) they give you a written contract describing the services they promise to provide and (2) they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan. However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the Department of Real Estate, for review.

DO call your lender yourself. Your lender wants to hear from you, and will likely be much more willing to work directly with you than with a foreclosure consultant.

DON'T ignore letters from your lender. Consider contacting your lender yourself, many lenders are willing to work with homeowners who are behind on their payments.

DON'T transfer title or sell your house to a “foreclosure rescuer.” Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later. The foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. BEWARE! This is a common scheme so-called “rescuers” use to evict homeowners and steal all or most of the home's equity.

DON'T pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

DON'T sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the “rescuer.”

DO contact housing counselors approved by the U.S. Department of Housing and Urban Development (HUD), who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at 1-800-569-4287 (TTY: 1-800-877-8339) or www.hud.gov.
If you believe you have been the victim of a mortgage-relief scam in California, please contact the Attorney General's Public Inquiry Unit at http://ag.ca.gov/consumers/general.php.

A copy of the court-appointed receiver’s report, submitted July 15, 2009, is attached.