Consumer Protection

LOS ANGELES—California Attorney General Edmund G. Brown Jr. today announced a crackdown on trucking companies operating at the Ports of Long Beach and Los Angeles that abuse their workers by denying them protections under state workers’ compensation, disability and minimum wage laws. These companies engage in cost-cutting schemes that take advantage of their workers and avoid California taxes. They unlawfully classify their workers as “independent contractors,” circumventing state employment taxes and labor laws that guarantee workers compensation and disability benefit and the right to a minimum wage.

“We are cracking down on these two companies and investigating several others that are taking advantage of their workers and cheating the state out of payroll taxes,” Attorney General Brown said. “These are low-paid truck drivers working long hours under onerous conditions who are not getting the benefits they deserve.”

Beginning in February 2008, the Attorney General’s office authorized a task force to investigate trucking companies at Long Beach and Los Angeles Ports. The investigation uncovered numerous state labor law violations committed by several trucking companies operating at the ports. Two of the lawsuits were filed in Los Angeles Superior Court today and several more will be filed in the coming weeks.

The lawsuits allege that the trucking companies named in the suits have an unfair advantage over their competitors in violation of California Business and Professions Code 17200 by depriving employees of benefits and protections entitled to them under California law. These companies are also cheating the State of California out of thousands of dollars in state payroll taxes.

Jose Maria Lira, a fleet operator responsible for transporting cargo from the Ports of Los Angeles and Long Beach, controlled all aspects of his drivers’ work, yet classified his employees as independent contractors and made them sign documents stating that they were independent. Lira leased his trucks to drivers, requiring them to sign a lease agreement stating that the driver would pay Lira 50% of his gross earnings each month in return for use of the truck, plus an additional 10% for management fees.

In fact, Lira required them to claim independent contractor status contrary to their true status as employees. The drivers worked exclusively for Lira, working 60 hours or more per week, delivering cargo in Lira company trucks. Under these conditions, the drivers should have employee status with its legal protections and benefits under the law.

The second lawsuit filed today is against the Pac Anchor Transportation Inc. (“Pac Anchor”) and Alfredo Barajas. Brown asserted that Pac Anchor and Barajas engaged in a shell game in which Alfredo Barajas supplied Pac Anchor with 38 trucks and drivers. Pac Anchor directly paid Barajas’ truck drivers, providing them with 1099 tax forms at the end of the year. Barajas and Pac Anchor misclassified the drivers as independent contractors in order to keep operating costs down and to avoid paying the mandated taxes and benefits.

The investigation found that the drivers should be classified as employees because they do not own the trucks they drive, do not have a business independent of Pac Anchor or Barajas, have no real opportunity for “profit” other than compensation on a piecework basis delivering loads, and can be terminated at will.

The two complaints are attached.

LOS ANGELES—California Attorney General Edmund G. Brown Jr., in conjunction with the Los Angeles Department of Consumer Affairs (LADCA), today announced a million-dollar settlement with Wisconsin-based Hy Cite Corporation, which was investigated for using discriminatory business practices and false advertising in the sales of its high-priced Royal Prestige cookware to California consumers. This is the Attorney General’s second settlement agreement with Hy Cite Corporation for similar consumer fraud tactics.

“Hy Cite’s sales approach has been to scare people into buying high-priced pots and pans by telling customers that the cookware in their own home was unsafe,” said Attorney General Brown. “We won’t tolerate this type of predatory consumer marketing in California. This settlement will put an end to Hy Cite’s bogus chemical tests and predatory lending terms and ensure that the company treats its customers fairly and honestly.”

Hy Cite Corporation sells high-priced cookware targeting Latino consumers and neighborhoods through in-home demonstrations. Hy Cite’s salespeople allegedly lied their way into people’s homes by telling consumers that they had won a prize or by asking them to participate in opinion polls. Once in consumers’ homes, the salespeople often used high-pressure sales tactics and deception to convince consumers to buy the expensive cookware. Salespeople scared consumers into believing that cookware made of non-stick materials or aluminum would make them sick, claiming that Royal Prestige’s stainless steel cookware was safer to use.

To convince consumers of their claims, Hy Cite representatives would routinely perform bogus “tests” on the victim’s cookware, heating a mixture of baking soda and water in non-stick or aluminum pans, creating a bad-tasting paste through the resulting chemical reaction. The representatives claimed that toxic chemicals were transferred into the family’s food, making the consumer’s existing cookware unsafe for their families.

In many cases, consumers were convinced to finance their purchases through the company’s financing plan, but were misled to believe that the percentage rate was lower than the 20% or more financing rate they were charged. Many people who were scared into buying the products were unable to afford them, fell behind on their payments, and faced collection calls and damage to their credit rating.

During the investigation, the Attorney General’s office found that the company had developed two separate credit structures for customers, based on the customer’s ethnicity. Hy Cite’s “Anglo” customers were offered 90-day payment deferral, contract cancellation, and the use of post-dated checks. These options were not offered to Hy Cite’s Hispanic customers.

After receiving several consumer complaints about the company’s predatory sales practices, the Attorney General’s office began its investigation in March 2007.

This is California’s second settlement with the Hy Cite Corporation for consumer marketing fraud. In 2000, the California Attorney General’s office reached a settlement agreement with Hy Cite Corporation, in which the company agreed to drastically reform its business practices, pay restitution and civil penalties to victims of its predatory sales tactics, and honor a permanent injunction from engaging in these actions in the future.

Under the current settlement, Hy Cite and several of its top executives agreed to pay $1 million as restitution to consumer victims, plus penalties and costs to the Attorney General and LADCA. In addition to these penalties, Hy Cite has agreed to hire an independent monitor for three years to conduct in-depth interviews with future consumers of Hy Cite products. The judgment also sets forth strict requirements on what its salespeople can say to convince consumers to listen to a sales presentation and what can be said during the sales presentation itself.

SAN FRANCISCO- California Attorney General Edmund G. Brown Jr. today announced that he has reached a settlement with Citibank after a three-year investigation into the company’s use of an illegal “account sweeping” program. Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund.

“The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

Between 1992 and 2003, Citibank employed a computerized “credit sweep” process to automatically remove positive or credit balances from credit-card customer accounts. An account could show a credit balance if a customer double-paid a bill or returned a purchase for credit. The credit sweeps were done without notifying the customer and without regard for whether the customer had any unpaid balances or other charges owed to Citibank.

The credit sweeps targeted more than 53,000 customers nationwide. All of the affected accounts were in a recovery status, which includes accounts of customers who have died, sought bankruptcy protection, or been the target of litigation or other collection efforts by Citibank.

In July of 2001, a Citibank employee uncovered the practice and brought it to the attention of his superiors. The employee was later fired for discussing the credit sweeps with an internal audit team. In the words of a Citibank executive, “Stealing from our customers is a business decision, not a legal decision.” The same executive later said that the sweep program could not be stopped because it would reduce the executive bonus pool.

The Attorney General launched its investigation of Citibank in 2005 to determine whether the company violated the California False Claims Act by filing false holder reports with the California State Controller that omitted any reference to the swept funds. The 3-year investigation led to today’s settlement.

The settlement includes:
• Permanent injunction – Citibank will be permanently prevented from re-initiating the credit sweeps.
• Refunds to victims – Citibank will refund all improperly swept funds to customers who were victimized by the sweeps. Citibank will also pay California customers 10% interest on the amount taken.
• Penalties – Citibank will pay $3.5 million in damages and civil penalties to the State of California.
• Compliance audit – After Citibank’s refund process is complete, an independent auditor will review Citibank’s work to ensure that it has lived up to its obligations.

Citibank has affirmed that it can identify most of the victims of the credit sweeps and has begun the process of reviewing archived account data and refunding the improperly swept funds going back to 1992.

A copy of the settlement is attached

From The Wall Street Journal
August 11, 2008
Opinion Journal

Two weeks ago The Wall Street Journal kicked off a debate on how best to allocate scarce resources to solve the world's problems. Bjorn Lomborg offered a summary of the latest findings from his Copenhagen Consensus project, where he has enlisted some of the world's top economists to address the issue. Now we're offering views on the subject from top political and business leaders. How would you spend $10 billion of American resources (either directly or through regulation) over the next four years to help improve the state of the world?

Saving $10 Billion With Efficiency
By Jerry Brown
August 11, 2008

The cost of energy in the United States, on an annual basis, has now soared beyond $1 trillion. Our massive purchases of foreign oil represent perhaps the greatest transfer of wealth from one people to another in all human history. And, paradoxically, this wealth transfer is from a far more technologically advanced nation to poorer countries -- some unstable and hostile -- whose only claim is the oil that lies under their ground. Wake up America! We must stop the hemorrhaging of our national treasure, and we need to do it now.

I propose that we take the $10 billion and invest it in curbing our energy appetite through efficiency programs and incentives. The efficiency I envision would allow us to enhance our quality of life, but do so in ways that reduce the huge quantities of oil, gas and coal that we now consume.

California has kept its per capita electrical consumption flat for the past 25 years -- in significant part through appliance and buildings standards and incentives to adopt ways that get more work out of less energy. I am not talking about some collective hair shirt, but rather about a wide variety of new technologies and designs.

The world is facing a triple threat of unprecedented dimensions: First, the loss of cheap and easily discovered oil; second, explosive energy demand from China, India and other emerging countries as they rapidly improve their standard of living; and third, the climate disruptions caused by CO2 and other greenhouse gases. None of the three will go away. In fact, each will get progressively worse unless we take decisive action, without delay. America must take the lead in dealing with global energy and climate challenges, and at the same time vastly strengthen its own economy and security.

For too long, the federal government has been slow and unimaginative in setting efficiency standards for appliances and equipment, and in many cases it has set no standard at all. We know from the example of California's energy commission that huge financial savings can be generated through efficiency standards consistent with the best available technology. Billions of dollars and large quantities of fossil fuel could be saved if the federal government would set tough but practical standards for lighting, refrigerators, stoves, computers and other products and pieces of equipment.

Congress provided the legal authority to do so in the 2007 energy bill, but the Department of Energy currently lacks the trained personnel and engineers needed to create such a sophisticated regulatory framework. This will require additional funding -- perhaps as much as several hundred million a year. The next president should engage the appliance and equipment manufacturers and provide the kind of leadership that has so far been totally lacking.

Next, the federal government should establish a financial grant program, encouraging the states to craft efficiency standards for new buildings. Again, the example of California is instructive. Its detailed and regional building standards have saved Californians tens of billions of dollars in lower energy bills. A significant part of the proposed $10 billion could be spent on this type of effort. Each state would be asked to craft their own rules in response to the differing conditions found in various regions of the country.

A third type of program could be modeled on California's current system of rebates, tax credits and other incentives that encourage businesses and consumers to adopt efficiency measures that exceed the mandatory standards. This program is financed through the investor-owned utilities and established under the authority of the state utilities commission.

The federal government could provide a matching program for each state's efforts consistent with standards that are technically feasible, and that provide an economic return on the investment. In California, all the electric and gas utilities have added conservation investments to their historic practice of dealing with energy shortages only though building new plants.

Just as new sources of energy require vast sums spent on R&D, so do new efficiency technologies. They will emerge only if there is adequate investment in research and development. Some of the $10 billion should go for this. Needless to say, overall investment in both energy and efficiency R&D is pathetically and dangerously underfunded.

While military, medical and pharmaceutical research has steadily grown over the past two decades, R&D to increase our national energy efficiency and provide the full gamut of new fuels and power sources has fallen by 50% in real terms. In the early 1980s, energy companies invested more in R&D than drug companies; today, drug companies invest 10 times as much in R&D as do energy firms. To secure our energy and economic future, America must reverse this shameful neglect. Physicist and University of California professor Dan Kammen estimates that we must increase our level of energy and energy efficiency R&D five to tenfold, spending $15 billion to $30 billion per year to develop new fuels, new sources of energy and more efficient technologies.

America is at a crossroads. Total U.S. financial and nonfinancial debt rose to $44.7 trillion in 2006, from $2.4 trillion in 1974. This does not even count longer-term liabilities such as Social Security and Medicare. Oil and gas are consuming more and more of our national wealth. It is time for our political and business leaders to tap into America's unspent creativity and entrepreneurial genius. Many times $10 billion will be needed. But it can be done. It must be done.

Mr. Brown, a Democrat, is attorney general of California.

Contact: Abraham Arredondo: (916) 324-5500 or Ed Weil (510) 622-2149

Atty. Gen. Brown Settles Potato Chip Lawsuit With Heinz, Frito-Lay & Kettle Foods

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today settled lawsuits against Heinz, Frito-Lay, Kettle Foods and Lance Inc. after the companies agreed to slash levels of the cancer-causing chemical acrylamide in their potato chips and french fries.

“The companies agreed to reduce this carcinogenic chemical in fried potatoes--a victory for public health and safety in California,” Attorney General Brown said. “Other companies should follow this lead and take steps to reduce acrylamide in french fries and potato chips,” Brown added.

In 2005, the attorney general sued McDonald’s, Wendy’s, Burger King, KFC, Frito-Lay, Kettle Foods, Lance, Procter & Gamble and Heinz, for selling potato chips and french fries containing high levels of acrylamide, a chemical known to the state to cause cancer. Acrylamide is a by-product of frying, roasting and baking foods--particularly potatoes--that contain certain amino acids. In 2002, Swedish scientists discovered high levels of cancer-causing acrylamide in fried potato products.

The attorney general sued french fry and potato chip companies under Proposition 65, the Safe Drinking Water and Toxic Enforcement Act, which requires companies to post warnings of any cancer-causing chemicals in their products unless they can prove that the levels do not pose a significant health risk.

Last year, restaurant chains including KFC, McDonald’s, Wendy’s and Burger King agreed to post acrylamide warnings at their restaurants and to pay civil penalties and costs. In January, Procter & Gamble agreed to reduce acrylamide in Pringles potato chips by 50 percent so that no warning would be required.

Under today’s settlements, Frito-Lay, Inc., which sells most of the potato chips sold in California, Kettle Foods, Inc., maker of “Kettle Chips,” and Lance, Inc., maker of Cape Cod Chips will reduce acrylamide over a period of three years to 275 parts per billion. For Frito Lay, this is about a 20% reduction, while for Kettle Chips, which contain far more acrylamide; this is an 87% reduction in acrylamide. Most Cape Cod chips are already near the compliance level, but one product, “Cape Cod Robust Russets,” contains over 7,000 parts per billion of acrylamide, and immediately will either carry a warning label on the package or will be removed from the market. Frito-Lay will pay $1.5 million in penalties and costs, $550,000 will be forgiven if it can reduce acrylamide in its products in half the time required by the settlement. It will pay an additional $2 million if it fails to reduce acrylamide in the required time. Kettle Foods will pay $350,000 in penalties and costs, while the much smaller Lance, Inc., will pay $95,000 in fees and costs.

Last week the Attorney General reached agreement with Heinz, Inc., the manufacturer of Ore-Ida frozen french fries and tater tots, will pay $600,000 in penalties and costs and will change its fried potatoes to contain 50 percent less acrylamide.

The settlements were approved today by Los Angeles Superior Court Judge William F. Highberger. A trial had been scheduled before Judge Highberger on July 28, but today’s settlement marks the end of the state’s litigation. Had the lawsuit gone to trial it would have been a legal battle with scientific experts debating the extent of the cancer risk posed by acrylamide.

The U.S. FDA is studying the problem of acrylamide in fried potatoes but has not taken formal action. The FDA’s website advises consumers that acrylamide can be reduced by not over-browning potatoes during cooking. For more information visit: http://www.cfsan.fda.gov/~dms/acryfaq.html

Brown said he will work with the companies to find a way to effectively give consumers information about the acrylamide in their products, while at the same time preventing undue public alarm and unnecessary warning signs concerning foods that contain insignificant amounts of the chemical.

For more information on acrylamide and Proposition 65 please visit:
http://ag.ca.gov/prop65/

SISKIYOU--Attorney General Edmund G. Brown Jr. today warned Nestle that California will challenge the environmental plan for a bottled water plant in Siskiyou county if the company does not revise its contract to pump water from the McCloud River.

“It takes massive quantities of oil to produce plastic water bottles and to ship them in diesel trucks across the United States,” Attorney General Brown said. “Nestle will face swift legal challenge if it does not fully evaluate the environmental impact of diverting millions of gallons of spring water from the McCloud River into billions of plastic water bottles,” Brown added.

Although Nestle publicly offered to reduce its annual water take to 195 million gallons of spring water per year--enough to fill 3.1 billion 8-ounce plastic bottles--the company has not yet agreed to change the terms of its contract with the McCloud Community Service District. The current fifty-year contract permits the company to draw 520 million gallons of spring water each year and also to pump unlimited amounts groundwater.

In a letter sent to the Siskiyou County Planning Department, Attorney General Brown said that “the environmental review for the previously proposed project had serious deficiencies,” yet “the proposed changes have not been memorialized in a formal document.” Brown also said “the suggested changes would require significant revision of the contract between Nestle and the McCloud Community Services District, a new, formal project proposal, and circulation of a new Draft Environmental Impact Report.”

Brown also said the environmental analysis fails to consider the global warming impacts of producing and transporting millions of gallons of water including:

* Greenhouse gases from producing the plastic bottles
* Electrical demand for the project
* The diesel soot and greenhouse gas emissions from truck trips.

Ninety-six percent of bottled water in the United States is sold in plastic bottles produced from fossil fuels, typically natural gas and petroleum. It took 17 million barrels of oil, not including transportation energy, to produce all the plastic bottles for American consumption in 2006. It took 900,000 tons of the chemical polyetheylene terephathalate and produced 2.5 million tons of carbon dioxide to produce all this plastic.

According to data from the Pacific Institute, it would take 1.768 million barrels of oil annually to manufacture 3.1 billion 8-ounce plastic bottles, caps and packaging to hold 195 million gallons of water.

The McCloud River is unique among California’s larger rivers in that most of its water derives from springs and underground lava aquifers rather than from rainfall or snowfall. The river and its associated riparian area provide habitat for over 200 wildlife specifies. The Lower McCloud has been designated a Wild Trout Stream by the state Department of Fish and Game.

Attorney General Brown has asked the County of Siskiyou to revise its environmental impact report and circulate a new draft of the environmental impact report.

The bottling plant is proposed for construction at 909 Mill Street in McCloud California. For a copy of the state's letter please contact the Attorney General's Press Office at 916-324-5500.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. and the California Department of Food and Agriculture today announced that Bombino Express Worldwide has been sued for importing unmarked packages of mangos and yams from India that had not been treated to prevent the spread of the destructive Oriental Fruit Fly.

"Bombino Express Worldwide is charged with smuggling untreated and unlabeled fruit that can carry invasive insects like the Oriental Fruit Fly into the United States,' Attorney General Brown said. 'When foreign shipping companies disobey California’s quarantine laws they put the state’s growers at risk. County, state and federal inspectors should be commended for catching this illegal shipment and isolating its contents.'

Attorney General Brown alleges that Bombino Express Worldwide violated the Food and Agriculture Code and engaged in unfair business practices by failing to label and treat packaged mangos to kill any fruit fly larvae before exporting the products to the United States. Female Oriental Fruit Flies lay eggs in groups of 3 to 30 under the skin of host fruits and vegetables like those imported by Bombino Express Worldwide.

A single fruit fly lives approximately 90 days and can travel up to 30 miles in search of food and sites to lay eggs. The threat of agricultural destruction from invasive species like the Oriental Fruit Fly is so great that there was a complete ban on importing Indian mangos and yams until May 2006 when federal law was amended to allow limited importation of Indian mangos. Under the new rules, shipping companies must attach documentation affirming that mangos are treated to kill any fruit fly larvae.

The Department of Food and Agriculture launched an investigation into Bombino Express Worldwide after an inspector at a facility near Ontario International Airport found several unmarked packages of produce being imported to California from India. A parcel inspection dog named C.C., working for the San Bernardino County Agricultural Commissioner’s office, sniffed out the mislabeled box of mangos. Contra Costa County is also using dogs for parcel inspections in the Bay Area and there are plans to assign dogs in San Diego, Sacramento and Fresno counties.

The Attorney General’s Office seeks $10,000 per violation of the Food and Agricultural Code and California’s unfair competition statute. The company could face up to $1.67 million in penalties for its 167 violations of California law.

Oriental fruit flies have wreaked havoc on Hawaiian agriculture since the species was introduced to the island in 1946. According to the California Department of Food and Agriculture, failure to eradicate Oriental Fruit Flies in California could cost the state up to $176 million in crop losses, pesticide use and quarantine requirements.

Bombino Express Worldwide appears to be part of a large network of companies that import various products including fruit, spices and other products from India and Southeast Asia.

California’s First Amended Complaint was filed on July 9, 2008 and was served on Mohmed Yasin Latiwala July 15, 2008 in New Jersey. Latiwala was served with the lawsuit in his individual capacity as CEO and on behalf of Bombino Express, Inc., Bombino Express (Worldwide) Inc. The lawsuit was also served on the California office of Bombino Express in Hawthorne.

A copy of the state’s lawsuit is available from the attorney general's press office at: 916-324-5500. For more information from the California Department of Food and Agriculture visit: http://www.cdfa.ca.gov/exec/Public_Affairs/Index.html

SACRAMENTO--California Attorney General Edmund G. Brown Jr. today announced a $150,000 settlement for aspiring homeowners who had their entire down payments unlawfully seized by Lease2OwnHomes for missing rent on a lease-to-own agreement.

"We have obtained restitution for renters who were ripped off by an unscrupulous landlord who illegally seized down payments that were part of a lease-to-own home scam,' Attorney General Brown said.

Under California law, if a renter misses a monthly payment in a lease-to-own program, the landlord may only seek eviction and unpaid rent. In this case, the landlord unlawfully seized the entire down payment for the purchase of the home in addition to seeking the eviction and unpaid rent. In April, the attorney general sued the company in Sacramento County Superior Court, for allegedly violating section 17500 of the Business and Professions Code, by:

* Providing a lease and option to purchase agreement when the company knew that consumers were not financially capable of meeting monthly payments required to successfully purchase a home. The company also sometimes ignored its own $70,000 minimum annual income requirement for consumers participating in the program

* Falsely claiming that consumers would have time to clean up any bad credit before purchasing their Lease2OwnHome

* Falsely claiming a “Over 96% Success Rate” in helping consumers purchase homes, when virtually no one was able to purchase a home as they described

Lease2OwnHomes knew that many of the renters who signed up for homeownership would never be able to afford the monthly payments. In one case, Lease2OwnHomes sold a large house in Stockton to a divorced mother of four who was unemployed and attending school part time. After the woman missed a $1,650 monthly payment, the landlord seized her entire $9,000 deposit on the house in addition to seeking eviction.

The company told consumers that “Bad credit is OK because you will have time to clean up any credit issues like bankruptcy, chargeoffs, low credit scores, and foreclosures before purchasing your Lease2OwnHome.” The company also promised to assist with credit repair although the company was not properly registered as a credit repair company.

The attorney general is currently aware of at least 75 renters in Sacramento and San Joaquin County who signed up for the program. Company president Quentin Hazell, claimed to work exclusively with the market of “untapped future home buyers” who were within a year or two of purchasing homes but who needed “extra time to get financing in place, improve credit or save for a larger down payment.”

Under the settlement approved today by the Sacramento Superior Court, the company must pay $300,000 in civil penalties if they do not provide consumers with $150,000 in refunds for the down payments they seized.

Consumers who have filed a complaint with the Attorney General’s Office or who file a complaint on or before September 15, 2008 may be eligible for a partial refund. Consumers should file a complaint in writing to the Attorney General’s Office Public Inquiry Unit, PO Box 944255, Sacramento, CA 94244-2550 or send an online complaint to piu@doj.ca.gov.

For a copy of the settlement agreement and the state’s original lawsuit please contact the press office at (916) 324-5500.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today disclosed “shocking new details” about Countrywide Financial’s deceptive business practices which included ignoring their own underwriting guidelines and rewarding employees for selling risky home loans.

"These shocking new details provide further evidence of Countrywide's dangerous lending practices, which included ignoring borrowers' low credit scores and rewarding employees for selling risky loans,' Attorney General Brown said. 'In one case the company approved an adjustable rate mortgage to an 85-year-old disabled veteran with such a low credit score and high debt that he defaulted in less than six months.'

On June 20, 2008 Attorney General Brown sued Countrywide for engaging in deceptive advertising and unfair competition by pushing homeowners into risky loans for the sole purpose of reselling the mortgages on the secondary market. Today Brown filed an amended lawsuit in Los Angeles Superior Court which reveals twenty new details about the company's scheme to deceive consumers into taking out dangerous mortgages. The information had been previously withheld from the complaint.

Some of the new information includes the fact that Countrywide’s wholesale lending officers received higher commissions for selling Pay Option Adjustable Rate Mortgages--loans that entice consumers with a very low initial 'teaser' rate--and loans with weak underwriting standards. Countrywide also paid higher commissions for putting borrowers into loans with higher rates and fees than they qualified for based upon credit scores and other factors.

Countrywide ignored factors that it identified as having negative impacts on underwriting including: high debt ratios, low credit scores, and minimal down payments. Company employees regularly overrode warnings from Countrywide's computerized underwriting system, known as CLUES, which issued loan analysis reports rating consumer credit, purported ability to repay, and whether a proposed loan complied with underwriting guidelines.

The following examples describe new details about how Countrywide granted exceptions to sound business practices. These examples represent a small percentage of the large number of California residents who are facing foreclosure due to Countrywide’s dangerous practices:

• A Countrywide loan officer convinced a borrower to take a Pay Option ARM with a 1-month teaser rate and a 3-year prepayment penalty plus a full-draw piggyback home equity line of credit based on the loan officer’s representation that the value of the borrower’s home would continue to rise and he would have no problem refinancing. The borrower’s debt-to-income ratio was 47 percent and credit score was 663. The loan officer offered the loan even though the company’s CLUES report and an underwriter review indicated strong doubts about the borrower’s ability to repay. The loan closed in January 2006, and a Notice of Default issued in June 2007.

• The CLUES report issued for a loan applicant in February 2005 stated that the consumer had too much debt for the loan program and identified other elements of risk including a low credit score. The CLUES report raised doubts about the borrower’s ability to repay the loan but Countrywide approved a 3/27 adjustable rate mortgage with a 3-year prepayment penalty, to an 85-year old disabled veteran with a credit score of 509 score and an debt-to-income ratio of nearly 60 percent. The loan closed in February 2005, and a Notice of Default issued in July 2005.

• The CLUES report for a proposed loan identified multiple risks that created doubts about the borrower’s ability to make the payments, including the fact that a borrower had an open collection account. In January 2006, however, Countrywide granted exceptions for these risks and approved a reduced documentation Pay Option Adjustable Rate Mortgage loan for $352,000 with a 3-month teaser rate and a 3-year prepayment penalty, as well as a Piggyback home equity line of credit for $22,000. The loan closed in January 2006, and a Notice of Default issued in October 2006.

Many borrowers who obtained Pay Option and Hybrid ARMs did not understand that their initial monthly payment would at some point 'explode,' that their initial interest rate would increase and become adjustable, or that the principal amount of their loans could actually increase. Countrywide received numerous complaints regarding these practices from borrowers, including over 3,000 complaints per year handled by the Office of the President between January 2005 and August 2007.

Countrywide gave branch managers commissions or bonuses based on the net profits and loan volume generated by each branching, thereby creating intense pressure to sell as many loans as possible, as quickly as possible, at the highest prices possible. Branch managers were rewarded for meeting production goals set by corporate management, increasing the number of loans sold per loan officer, and reducing the time periods between the loan application stage and funding--or penalized for failing to do so.

Today’s amended lawsuit also contains updated data about Countrywide's staggering foreclosure rates. As of April this year, 21.11% of the mortgages owned by Countrywide Home Loans were in some stage of delinquency or foreclosure, including 47.97% of originated non-prime loans, and 21.23% of Pay Option ARMs. In January and March, 2008, Countrywide recorded 3,175 notices of default in Alameda, Fresno, Riverside, and San Diego counties alone, representing an aggregate total of delinquent principal and interest of more than $917 million.

The state's amended complaint is attached. For more information about California’s lawsuit against Countrywide please visit: http://ag.ca.gov/newsalerts/release.php?id=1582&

LOS ANGELES--Attorney General Edmund G. Brown Jr. today announced that California will receive $23 million of a $515 million nationwide settlement with Bristol-Myers Squibb. The settlement resolves allegations that the company reported “grossly inflated” drug wholesale prices to California’s Medicaid program in an effort to maintain its market share of prescription drugs.

“The Medi-Cal system requires companies to accurately report drug prices to the state,” Attorney General Brown said. “Bristol Myers-Squibb grossly inflated its reported drug prices and then used the artificially high price to increase its market share. The Bureau of Medi-Cal Fraud and Elder Abuse will continue to investigate and prosecute any alleged fraudulent conduct by any health care provider whose services or products are paid for by Medi-Cal,” Brown added.

The settlement agreement follows a drug-price investigation into Bristol Myers-Squibb and former subsidiary Apothecon that was launched in 2001 by California, the federal government, and other state attorneys general. The investigation was triggered by various whistle blower lawsuits filed around the United States. During the inquiry, Bristol Myers-Squibb voluntarily disclosed potential violations of state and federal anti-kick back law.

California found evidence of violations including: reporting artificially high average wholesale prices for prescription drugs to shut out competitors, organizing kickback schemes to lure pharmacies and wholesalers, illegally marketing an adult anti-psychotic drug as a treatment for children, and hiding the lowest sale price for Serzone to underpay Medicaid. Details of those allegations include:

* Reporting inflated average wholesale prices for physician-administered drugs:

The average wholesale prices for drugs were substantially higher than the prices for which the company sold these products, a scheme designed to maintain market share in the face of competing generic alternative drugs. The company’s sales force would “market the spread” or sell drugs based on the profit margin between the reported average price, which is the basis for Medicare and Medicaid reimbursement, and the actual costs for the same drugs, which were dramatically less than the reported price.

Medi-Cal, which is California’s Medicaid program, reimburses pharmacies and doctors based on prices reported by pharmaceutical manufacturers whose drugs are dispensed to beneficiaries. Because government health insurance programs such as Medi-Cal rely on reported prices to set reimbursement amounts, the company’s conduct caused the state to overpay for drugs.

* Engaging in an array of kickback activities to enhance their market share:

The investigation revealed that Apothecon paid millions of dollars to lure pharmacies and wholesalers to switch from competitors’ generic drugs to the company’s generic products. The payments to doctors included physician consulting programs consisting of trips to luxury resorts, meals at expensive restaurants, and tickets to sports events where doctors allegedly listened to pharmaceutical sales pitches. The kickback schemes targeted payments to doctors to keep generic competitors out of the market.

* Illegally marketing its atypical antipsychotic drug Abilify:

The Food and Drug Administration approved Abilify in November 2002 for the treatment of adult schizophrenia and later for adult bi-polar disorder. The investigation revealed that the company promoted the drug for treatment of children and dementia-related psychosis when neither use was approved by the FDA. This off-label promotion scheme increased the company’s sales between 2002 and 2005.

* Concealing its best price to the U.S. Centers for Medicare and Medicaid Management:

Bristol Myers-Squibb allegedly concealed its best price from the federal Centers for Medicare and Medicaid Management in a private-labeling scheme for its drug Serzone. The federal government uses best price to determine the amount of Medicaid rebates owed to states. The company allegedly affixed Kaiser labels to its Serzone and shipped the drugs at a lower price than was sold to any other customer. The company did not include this low price in its calculations reported to the federal government for Medicaid rebate purposes, thereby underpaying rebates owed to California.

The $23 million settlement with Bristol-Myers Squibb will pay approximately $12 million in full restitution to Medi-Cal and $11 million for the state’s False Claims Fund. The state’s lawsuit was filed in San Diego Superior Court in 2003 and then removed to the federal central district court in Los Angeles. Later it was consolidated with a number of other state lawsuits in federal court in Boston.

To date, California has reached settlements worth $9.7 million with five other companies, and their corporate parents, resolving similar allegations. Claims against fifteen companies are still pending.

For copies of the state's settlement and original lawsuit please contact the Attorney General's Press Office at 916-324-5500.