Consumer Protection

LOS ANGELES - As a financial reform package advances in the Senate and an unrelenting swarm of Wall Street lobbyists descends on Capitol Hill to block it, Attorney General Edmund G. Brown Jr. today urged senators to preserve a critical portion of the legislation which allows states to join the fight against financial fraud on the front line.

Provisions of the Senate’s current bill restore the authority of attorneys general to prosecute financial crimes at the state level, a move that would safeguard consumers, bolster federal oversight, and halt reckless, quick-money schemes before they spiral into national crises.

“Today, more than two years after the recession began, as thousands more Americans lose their homes, jobs and savings, states remain hamstrung in the fight against financial fraud. Even if a state witnesses a crime on its own front porch, it has limited, if any, authority to act,” Brown said. “If Congress is committed to preventing another downturn and enacting robust reform, it must preserve the provisions in the current package that untie states’ hands and allow us to join the fight.”

To press for these provisions, Brown sent letters today to Senators Reid, McConnell, Dodd, Shelby, Feinstein and Boxer urging them to uphold the role of the states in enforcing consumer protection laws. This follows a letter Brown and 39 other state attorneys general sent in November to members of Congress on the same issue.

While big banks on Wall Street announced billions in quarterly profits this week, another 200,000 California homeowners received a foreclosure notice between January and March. During the first three months of 2010, California alone accounted for almost a quarter of the nation’s foreclosure activity. Meanwhile, since the recession began, the state’s unemployment rate has more than doubled, rising to 12.6 percent in March.

Brown’s letter is copied below:

Dear Senator:

As California continues to struggle through the current financial crisis, with one of the highest foreclosure rates in the nation and a 12.6% unemployment rate, I urge you to adopt financial reform legislation that protects consumers against the predatory banking practices that led to this collapse. Ensuring that state Attorneys General have the authority to protect consumers against reckless Wall Street practices is critical to that protection. The current version of the Restoring American Financial Stability Act (SB 3217) gives back to states the authority to take action against national banks. I call on you to ensure that that state authority remains in the final bill, and that you resist the pressure exerted by Wall Street and its lobbyists to maintain the status quo of no government oversight.

Predatory lending and the avalanche of foreclosures it triggered lie at the core of our current crisis. Missing-in-action federal agency enforcement, and, indeed, active federal agency protection of national banks engaged in predatory lending, enabled this crisis. The federal laws and regulations that barred my office from stepping into the void to prosecute those banks and their subsidiaries for their deception contributed significantly. In the end, our current regulatory system gave national banks a free pass, while consumers and our economy paid the price.

The pending Senate bill gives Congress the opportunity to reverse course and provide a much-needed level playing field between Main Street consumers and Wall Street. The bill does away with regulations that shielded predatory practices and allows states to enforce their own consumer protection laws, and laws adopted by the new federal Consumer Financial Protection Agency, against Wall Street banks.

Wall Street's warning against a resulting unmanageable patchwork of state laws is a red herring. States routinely seek to harmonize their laws with related state and federal laws, and they often work together to bring multistate enforcement actions. Moreover, national banks have demonstrated their ability to market differently to different states when it suits them, as in the case of Pay Option Arm loans targeted to markets like California that, at the time, experienced steeply escalating property values.

And while the bill’s new Consumer Financial Protection Agency moves federal oversight in the right direction, it isn’t enough. One agency in Washington, regardless of how well-intended, can’t have its ears to the ground in all 50 states to prosecute misconduct the way each Attorney General can in his or her home state. State Attorneys General are the cops-on-the-beat who consumers turn to to sound the alarm on new threats targeting them. Prompt state action can limit the spread of those threats before they become national crises.

Congress need look no further than the failure of Washington Mutual to see why state Attorney General enforcement is an essential component of the reform needed to stop opportunistic, predatory actors from taking advantage of lax rules and absent enforcement. The Senate panel investigating the current crisis concluded that WAMU’s deceptive lending practices and employee incentive plans that promoted them created a “mortgage time bomb” with toxic loans destined to fail. When that time bomb exploded, and WAMU loans started plunging into foreclosure, federal laws and regulations prevented state Attorneys General from suing WAMU to halt its predatory practices. Instead, that responsibility was reserved for federal regulators who did nothing, notwithstanding the findings of at least one of those regulators that WAMU had engaged in a pattern of fraud and weak risk management.

By contrast, my office and other state Attorneys General have worked together to hold state-licensed banks accountable for their fraudulent practices. After suing Countrywide Financial Corporation and its subsidiaries for predatory lending practices in the Summer of 2008, our settlement with Countrywide forced it to modify loans of homeowners facing foreclosure and to pay restitution to consumers who had lost their homes.

Unfortunately, I couldn’t take action against WAMU for the harm it caused Californians in the way I could against Countrywide. And if the existing regulatory structure remains in place, banks will continue to flock to national charters to avoid state action like ours against Countrywide. But, if the Senate steps up and does the right thing now to protect consumers, and the nation’s economy, by adopting financial reform that protects the authority of states to enforce consumer protection rights, then we will have real change, and unscrupulous banks won’t be able to hide behind federal regulators who were complicit in their misdeeds.

LOS ANGELES – Accusing giant bond-rating firm Moody’s Investors Service of withholding evidence documenting its role in the housing and Wall Street meltdown, Attorney General Edmund G. Brown Jr. today announced court action to force Moody’s to explain why it gave its highest ratings to “risky and toxic” mortgage-backed securities that ultimately cost investors and taxpayers billions of dollars.

Brown’s action comes seven months after the Attorney General subpoenaed Moody’s, but the firm has refused to comply with the subpoena.

“The need for court action to enforce a state subpoena is highly unusual,” Brown said, “because companies almost always comply without such a drastic step being necessary.” But he said Moody’s, which played a central role in the run-up to the collapse of housing prices, has refused to explain its ratings practices to the state. Moody’s said responding to the state subpoena would be a “waste of time.”

“The state’s subpoena seeks information regarding Moody’s decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities,” Brown said.

“By taking this step, I intend to stop Moody’s from ignoring the state’s subpoena,” Brown said. “The people of California have the right to know how this credit rating agency got it so wrong and whether it violated California law in the process.”

Moody’s and other credit rating agencies ignored red flags in the run-up to the collapse in housing prices and gave stellar ratings to shaky securities, which made those investments appear as safe as government-issued Treasury bonds, Brown explained.

“But investors swiftly learned that the ratings were as worthless as the securities themselves,” he said.

Brown said Moody’s and other ratings agencies worked behind the scenes with the same Wall Street firms that created the securities, earning billions of dollars in revenue from those firms at a rate nearly double what they earned for rating other securities.

“A central question in the aftermath of the financial meltdown is whether Moody’s gave investment banks and other securities packagers unwarranted high ratings at the expense of investors, who depended upon the integrity and independence of Moody’s ratings,” Brown said.

The subpoena issued by Brown’s office on Sept. 17, 2009, seeks to determine:

• Whether Moody’s knew that the AAA ratings it gave to high-risk securities weren’t warranted
• Whether Moody’s made fraudulent representations about the quality of its ratings
• Whether Moody’s made fraudulent representations concerning the independence of its ratings
• Whether Moody’s conspired with companies it rated to the detriment of investors
• Whether Moody’s profited from giving inaccurate ratings to some securities
• Whether Moody’s compromised its own standards and safeguards in order to increase its own profits.

Moody’s and other Wall Street ratings agencies grade the credit worthiness of the bonds and securities that corporations and municipalities issue. Investors depend on these ratings to gauge risk in making investments. At the peak of the housing boom, these agencies gave their highest ratings to complicated, high-risk financial instruments that soon accelerated the financial collapse.

Brown said banks, pension funds and other investors, in California and elsewhere, relied on these ratings when they purchased trillions of dollars of securities backed by risky mortgages, seeking high returns and reassured by ratings indicating the issues were low-risk. Those purchases helped inflate the housing bubble by enabling ever-riskier mortgages.

When the speculative bubble burst, those risky mortgages defaulted in record numbers and investors were left unable to sell now-worthless securities. The agencies then downgraded the credit ratings of more than $1.9 trillion in residential mortgage-backed securities, a tacit acknowledgement they had ignored or did not understand the risks of the debt they rated, Brown said.

Moody’s is one of the most profitable companies in the country. It had the highest profit margin of any company in the S&P 500 in the years leading up to 2008 – higher than Google or Microsoft, according to U.S. Representative Henry Waxman, Chairman of the House Committee on Oversight and Government Reform.

Brown’s investigation of Moody’s is one of many actions by his office to fight financial abuses relating to the mortgage meltdown, including his 2008 lawsuit that resulted in an $8.68 billion settlement with Countrywide Home Loans over its fraudulent lending practices, as well as recent crackdowns by the Attorney General on foreclosure consultants and loan-modification scammers.

SAN DIEGO—Attorney General Edmund G. Brown Jr. today announced the arrests of a doctor and two employees operating a “complex, multi-level scheme” that bilked more than $200,000 from low-income patients and government agencies by overcharging and prescribed pain medication to individuals who had no medical need for it.

Beginning in 2007, the three individuals arrested Wednesday perpetrated their scheme to defraud state and federal health insurance programs and patients in the San Diego area.

“These individuals operated a complex, multi-level fraud scheme,” Brown said. “Today’s arrests are a result of the cooperative efforts of state and federal law enforcement to take this dirty doctor off the streets.”

The individuals arrested today include Dr. Mohammed Tarek Kady, 55, Mario Ramirez Zarco, 31, and Ana Audelo, 23, all three from Chula Vista.

All three individuals were charged with violating California Penal Code sections 182(a)(1), 182(a)(4), 487(a), and 550(b)(3) for conspiring to cheat and defraud, to commit grand theft, and commit insurance fraud.

In addition, Kady was also charged with:
• One count of violating California Welfare and Institutions Code section 14107(b)(4)(A) for Medi-Cal fraud
• Five counts of violating California Penal Code section 487(a) for grand theft
• Three counts of violating California Penal Code section 550(a)(6) for insurance fraud
• Seven counts of violating California Health and Safety Code section 11153(a) for illegal prescribing
• One count of violating California Labor Code 3700.5(a) for failing to obtain worker’s compensation for employees
• Special Allegations of theft, including theft in excess of $100,000.

The arrests are the result of a cooperative effort between Brown’s office, the San Diego District Attorney’s Insurance Fraud Task Force, the Federal Bureau of Investigation (FBI), San Diego Health Care Fraud Squad and San Diego Organized Crime Squad, the California Department of Industrial Relations, and the federal Drug Enforcement Administration (DEA), Tactical Diversion Squad.

In February 2009, an Anthem Blue Cross investigator reported Kady’s pediatric office in Chula Vista was unlawfully charging fees to patients enrolled in state and federal health insurance plans.

Two of Kady’s employees, Mario Zarco and Ana Audelo, unlawfully charged patients $50 to $500 for assistance in enrollment in state and federal health insurance coverage. Kady himself unlawfully charged patients an additional $200 to $300 fee to examine their newborn children in the hospital.

Investigators estimate that Kady unlawfully charged more than $60,000 for services to individuals and families enrolled in state and federal health insurance coverage.

Brown’s investigation also showed Kady frequently traveled out of the country for several weeks at a time but continued to charge for his services at his Chula Vista office. Reimbursement claims indicate Kady charged more than $160,000 for services when, in reality, he was out of the country.

In addition to overcharging for services and charging for services never performed, Kady prescribed pain medication to individuals without any justifiable medical purpose, enabling patients apparently “doctor shopping” for drugs. Kady wrote prescriptions for opiates, including the narcotic, Vicodin, and codeine cough syrups to drug addicts abusing the drugs and illegally selling them. On seven DEA sting operations, most recently last month, Kady prescribed narcotics without medical justification.

Kady’s patients were instructed to fill their pain medication prescription at one San Diego pharmacy. An employee at the pharmacy became suspicious after dozens of individuals attempted to fill prescriptions, written by Kady, at the pharmacy each Friday. The investigation revealed Kady and the pharmacy owner had a quid pro quo arrangement in which the pharmacy would kick back some $3 per prescription.

According to the Medical Board of California, Mohammed Tarek Kady was licensed as a physician in December 1997. He is a family practitioner with board certification in Pediatrics, and maintained two clinics, one in Chula Vista and one in San Diego.

If convicted of all charges, Kady faces as much as 20 years in prison. Zarco and Audelo face up to 6 years in prison if convicted of all charges.

“The Drug Enforcement Administration is committed to keeping the San Diego community safe from doctors who enable the abuse of prescription drugs”, says Special Agent in Charge Ralph W. Partridge. “The suspension of Doctor Kady’s controlled substance privilege is an important step toward ensuring accountability of those who supply controlled substances illegally”.

A copy of the complaint filed in San Diego Superior Court is attached. Photos of the defendants are also attached.

LOS ANGELES—-Attorney General Edmund G. Brown Jr. today filed a lawsuit against MDP California, Inc. for “dodging fair wage and labor laws” by denying workers overtime pay, worker’s compensation and pay for all hours worked. He is seeking $500,000 in restitution for cheated workers.

MDP California, a Nevada Corporation doing drywall installation throughout Southern California, also failed to pay state-mandated unemployment insurance, state disability fund payments, and state and federal taxes.

“MDP California cheated its workers and the State out of hundreds of thousands of dollars by dodging fair wage and labor laws,” Brown said. “Those kinds of business practices will not be tolerated in California.”

In late 2009, Brown launched an investigation into MDP California after being notified of possible worker’s rights violations. The subsequent investigation found hundreds of violations of California law.

Brown’s office also alleged that because the firm did not pay its workers a fair wage or pay state taxes, MDP California had an unfair advantage over its competitors and could underbid them for jobs.

Today’s lawsuit contends MDP California violated:
• California Labor Code section 510 by denying overtime pay
• California Labor Code section 226 by providing wages to employees in other employees’ names
• California Wage Order 16-2001(4)(A) denying pay for all hours worked
• California Labor Code section 226.7 by denying employees with a 10-minute break each four hours
• California Labor Code section 3700 by failing to pay worker’s compensation insurance
• California Labor Code section 201 by failing to pay wages owed to laid-off employees immediately
• California Business and Professions Code section 17200 for engaging in unfair business practices.

According to workers interviewed by Brown’s office, MDP California required workers to regularly work nine to 11 hours per day, Monday through Saturday and on sometimes on Sunday. None of the workers received any additional compensation for overtime worked.

One worker who was injured on the job was forced to take time off unpaid because he was not provided with any worker’s compensation.

Last week, Brown announced his office had won restitution for over 200 employees of Charles Evleth Construction, Inc., a Bakersfield construction company. The agreement also prohibited the company from denying workers fair wages and overtime pay, paying employees in cash to avoid state and federal taxes, and permitting supervisors to take kickbacks from employees in exchange for the employees being allowed to work.

Last month, Brown announced two other lawsuits against companies that denied their workers minimum wage, overtime pay, and in some cases, subjected workers to potentially deadly working environments.

On March 10, Brown sued Juan Munoz, a farm labor contractor in Southern California, for neglecting to provide rest breaks, potable drinking water or shade to field workers.

On March 3, Brown sued Livermore-based Country Builders after the company falsified payroll records to hide underpayments, deliberately misclassified workers to reduce the company's workers' compensation premiums and violated state prevailing wage laws.

The Attorney General’s investigation was conducted by his Underground Economy Unit. To protect mistreated workers, Brown created the unit in 2007 to investigate businesses for suspected violations of state wage and labor laws.

A copy of the lawsuit filed in Los Angeles County Superior Court is attached.

SANTA ANA — In a clear “warning shot” to unscrupulous loan-modification consultants, Attorney General Edmund G. Brown Jr. today announced that two women have each been sentenced to one year in jail and ordered to repay dozens of homeowners who were charged thousands of dollars in up-front fees for non-existent foreclosure-relief services.

Marianne Curtis, 69, of Costa Mesa and Mary Alice Yraceburu, 46, of Riverdale, who operated Fresno and Orange County-based Foreclosure Freedom, pleaded guilty last month to 71 criminal counts, including grand theft, conspiracy and unlawful foreclosure consulting. Both will serve one year in Orange County jail and an additional four years of probation.

“Curtis and Yraceburu shamelessly exploited homeowners desperate to avoid foreclosure, charging up to $1,800 in up-front fees for loan modifications that were never delivered,” Brown said. “Today’s jail sentences send a warning shot to loan-modification consultants: If you swindle homeowners, you face serious time behind bars.”

Brown’s office initiated its investigation into Curtis and Yraceburu in early 2008 after receiving a complaint from the Tulare County District Attorney. Charges were filed in Orange County Superior Court on March 19, 2009, against the defendants, and both pleaded guilty on March 24, 2010.

Brown’s investigation located victims in many California towns and cities: Antelope, Avenal, Bakersfield, Crows Landing, Elk Grove, Fairfield, Fresno, Galt, Hanford, Hayward, Hollister, Kingsburg, Mendota, Modesto, Petaluma, Placerville, Richmond, Ridgecrest, Rio Linda, Sacramento, Salinas, San Leandro, Simi Valley, Stockton, Taft, Vacaville, Vallejo and Ventura.

In addition to today’s jail sentences, Curtis and Yraceburu were ordered to repay 36 victims a total of $32,040. If eligible victims not named in the complaint come forward, the court can order additional repayment throughout the defendants’ probation term. As a condition of today’s sentence, both defendants are also prohibited from any future work in the telemarketing and real estate industries.

Brown’s investigation found that from April 2007 until February 2008, the two women paid for access to foreclosure listings so they could directly solicit hundreds of homeowners underwater on their mortgages with mailers promising relief.

When homeowners called the number on the mailer, they were told their mortgages could be renegotiated to a lower monthly payment. Victims, however, were required to pay up to $1,800 in up-front fees and were instructed not to contact their lenders.

Victims were assured the company had “private lenders and specialists exclusive to their company who are very experienced in the options and methods used to renegotiate home loans,” yet neither of the women who operated the company had real estate licenses, legal training or any experience in the home mortgage market.

Investigators found no evidence they had negotiated any successful loan modifications, and most of the victims were either forced into bankruptcy or lost their homes to foreclosure. Bank account records revealed the defendants took over $120,000 from unsuspecting homeowners.

Both Curtis and Yraceburu pleaded guilty to all 71 criminal counts including:
• 34 counts of unlawful foreclosure consulting
• 29 counts of grand theft
• 7 counts of attempted grand theft
• 1 count of conspiracy

By law, all individuals and businesses offering mortgage-foreclosure consulting or loan-modification and foreclosure-assistance services must register with Brown’s office and post a $100,000 bond. It is also illegal for loan-modification consultants to charge up-front fees for their services.

Non-profit housing counselors certified by the U.S. Department of Housing and Urban Development provide free help to homeowners. To find a counselor in your area, call 1-800-569-4287.

If you are a homeowner who has been scammed, contact Brown’s office at 1-800-952-5225 or file a complaint online at: www.ag.ca.gov/consumers/general.php.

Brown has sought court orders to shut down more than 30 fraudulent foreclosure-relief companies and has brought criminal charges and obtained lengthy prison sentences for dozens of other deceptive loan-modification consultants. Last month, Brown secured a court judgment that shut down two Orange County-based foreclosure-assistance companies, secured $1 million in restitution for victims and prohibited three individuals from ever working in the real estate industry again.

For more information on Brown’s action against loan-modification fraud visit: http://ag.ca.gov/loanmod.

A copy of the amended complaint, filed in Orange County Superior Court, is attached.

BAKERSFIELD – Attorney General Edmund G. Brown Jr. today announced that his office has secured back pay for more than 200 workers who were “routinely denied” fair wages and overtime pay by Charles Evleth Construction, Inc., a Bakersfield-based drywall company.

“To boost its profits and underbid competitors, Charles Evleth Construction routinely denied its hardworking employees a fair wage and overtime pay,” Brown said. “Today’s judgment secures back pay for more than 200 employees and prohibits this company from violating workers’ rights.”

In addition to providing back wages for more than 200 construction workers, today’s settlement prohibits Charles Evleth Construction from:

• Denying fair wages and overtime pay for workers;
• Paying employees in cash to avoid state and federal taxes; and
• Permitting supervisors to take kickbacks from their employees’ paychecks.

Today’s settlement follows a January 2009 suit Brown filed in Kern County Superior Court against Charles Evleth Construction to recover unpaid wages for workers who were denied full paychecks and overtime pay.

Brown’s office initiated its investigation in late 2008 and found nearly 1,200 violations of California law. In addition to wage violations, the investigation found that the company had failed to pay unemployment insurance, make state disability fund payments and pay state and federal taxes.

These practices allowed the company to gain an unfair advantage over its competitors and underbid them for construction jobs.

In the complaint filed in January 2009, Evleth was sued for violations of:

• California Labor Code section 510 for denying overtime pay;
• California Labor Code section 226 for failing to provide itemized statements detailing rate of pay, hours worked, deductions and pay period;
• California Labor Code section 1197 for failing to pay minimum wage;
• California Industrial Welfare Commission Wage Order 16 (8)(b)) for requiring workers to bring their own tools without paying at least twice the minimum wage;
• California Labor Code section 221 and 223 for allowing supervisors to take kickbacks in exchange for being allowed to work; and,
• California Labor Code section 221 and 223 for allowing employees to split paychecks in cash.

Worker’s Story

Juan Manuel Avalos of Bakersfield worked for Charles Evleth Construction for five months in 2005. Avalos was hired with a verbal agreement to work five days a week for $750 per week in pay. However, when Avalos started, he was required to work six days a week and often worked 12-hour shifts without overtime pay. Avalos was paid in cash every week, but discovered two months into the job that a site supervisor had been cashing his paychecks and taking up to $500 every week from his pay, leaving Avalos what remained in cash.

Last month, Brown filed two other lawsuits against companies that failed to pay workers and subjected employees to potentially dangerous workplace conditions, including:

• A lawsuit filed March 10 against Juan Munoz, a farm labor contractor in Southern California, for failing to provide rest breaks, potable drinking water or shade to field workers.
• A lawsuit filed March 3 against Livermore-based Country Builders after the company falsified payroll records to hide underpayments, deliberately misclassified workers to reduce the company’s workers’ compensation premiums and violated state prevailing wage laws.

A copy of the settlement, filed in Kern County Superior Court, is attached.

Los Angeles—As tax day approaches, Attorney General Edmund G. Brown Jr. today urged Californians to avoid “phony tax-relief companies” that charge taxpayers up to $3,000 in up-front fees to reduce or eliminate back taxes owed to the Internal Revenue Service (IRS), but provide no actual relief.

“Every tax season, phony tax-relief companies emerge to exploit cash-strapped Californians who owe back taxes to the IRS,” Brown said. “Taxpayers should be on high alert, avoid paying up-front fees to these companies and never ignore notices from the IRS.”

Throughout the tax season, tax-relief companies advertise on the radio, television and internet promising help for taxpayers in distress. For an up-front fee ranging from $2,000 to $3,000, these companies claim to reduce or even eliminate tax debts to the IRS and stop back-tax collection.

However, soon after collecting up-front fees, these companies typically inform taxpayers that they do not qualify for a relief program or that the IRS has rejected their attempt to reduce or eliminate the back-tax debt. Often these companies never even contact the IRS directly. Rather than reduce or eliminate the amount owed in back taxes to the IRS, these companies increase taxpayers’ debt burden.

Brown offered the following tips to taxpayers who owe back taxes and are having trouble paying:

• Don’t ignore notices from the IRS. Call and ask about collection alternatives, as you may be eligible for a monthly payment plan. In some cases, it is possible to pay less than the total amount you owe.
• Don’t trust promises from companies that imply that you are “qualified” or “eligible” for an IRS program to resolve your back-tax debt. Only the IRS can make that determination.
• Don’t pay up-front or advance fees for tax-debt relief services.

Taxpayers with problems paying back taxes can also contact the Taxpayer Advocate Service, an independent organization within the IRS dedicated to providing free assistance to individuals who are experiencing financial difficulties, need help resolving IRS problems, or believe the IRS is not working as it should.

Taxpayers can call the Taxpayer Advocate Service at 1-877-777-4778 or contact a local office directly in the following cities:

• Laguna Niguel at 949-389-4804
• Los Angeles at 213-576-3140
• Oakland at 510-637-2703
• Sacramento at 916-974-5007
• San Jose at 408-817-6850

Taxpayers can also seek help from local Low Income Taxpayer Clinics, which represent low income taxpayers before the IRS; assist taxpayers in audits, appeals and collection disputes; and can help taxpayers respond to IRS notices and correct account problems. To learn more about these local services and the Taxpayer Advocate Service, visit: http://www.irs.gov/advocate.

If you are a taxpayer who has been scammed by a company or individual offering tax-debt relief services, you can contact Brown’s office at 1-800-952-5225 or file a complaint online at: www.ag.ca.gov/consumers/general.php.

The IRS Office of Professional Responsibility oversees enrolled agents, attorneys, certified public accountants, enrolled actuaries, and appraisers. To report practitioner misconduct, email the IRS at: opr@irs.gov.

Last month, Brown issued an alert to taxpayers seeking tax-refund anticipation loans, commonly marketed as early tax refunds, warning them about deceptive advertisements, numerous fees and triple-digit interest rates. This alert followed two successful lawsuits against tax preparers who deceptively marketed refund anticipation loans:

• In June 2009, Brown won a $1.3 million lawsuit against Liberty Tax Service that bars the company from using false or misleading advertising to sell tax refund loans.
• In January 2009, Brown won a $4.85 million settlement with H&R Block, which prohibits the company from marketing refund anticipation loans as early tax refunds.

Santa Ana, Calif.—Attorney General Edmund G. Brown Jr. today shut down two fraudulent foreclosure-assistance companies and secured a court judgment that prohibits three individuals from working in the real estate industry and provides more than $1 million in restitution for victims left with “false hope” after paying upfront fees for nonexistent loan-modification services.

“George Escalante, Cesar Lopez and Adrian Pomery used their loan-modification companies to sell false hope to hundreds of Californians facing foreclosure,” Brown said. “This judgment shuts their companies down, locks them out of the real estate industry and pays back more than $1 million to the victims.”

On July 7, 2009, Brown filed suit against two affiliated companies based in Orange County, U.S. Foreclosure Relief Corp. and H.E. Servicing, Inc., as well as their executives, George Escalante and Cesar Lopez, and legal representative Adrian Pomery. The suit was filed jointly with the Federal Trade Commission (FTC) and the State of Missouri as part of “Operation Loan Lies,” a massive federal-state crackdown on loan-modification fraud.

The joint investigation, initiated in March 2009, found that the defendants used aggressive telemarketing tactics to convince distressed homeowners to pay $1,800 to $2,800 in upfront fees for loan-modification services that included reductions in principal and lower interest rates. In sales calls, H.E. Servicing, for example, claimed it had successfully negotiated 10,000 loan modifications. However, a full review of internal records found the company opened only 2,960 loan-modification files and completed only 311. It is estimated that California homeowners accounted for 15 to 20 percent of the company’s opened loan-modification files.

Brown’s judgment permanently shuts down U.S. Foreclosure Relief and H.E. Servicing and prohibits the defendants from ever working in the real estate and loan-modification industries again.

Additionally, the judgment will provide more than $1 million in relief to victims paid through frozen company funds and the sale of Escalante’s jewelry, 2007 Mercedes SUV, 2007 Mercedes sedan and 2009 Toyota Tundra. Separately, Lopez declared bankruptcy in June 2009 and relinquished possession of a 2007 Cadillac Escalade SUV and 2008 BMW S Series sedan as part of those proceedings.

Under the judgment, a court-appointed independent receiver will oversee the repayment program. Victims can access more information about this program by visiting the receiver’s website at www.heservicingreceiver.com, by calling: 1-866-243-8101 or by emailing: info@heservicingreceiver.com.

The FTC’s enforcement division will monitor the defendants’ compliance with the judgment, and if they are found to have misrepresented their financial condition and inability to pay, the judgment, in full, will become due immediately. The full judgment requires total payment of $8.6 million from Escalante, US Foreclosure Relief and H.E. Servicing as well as $3.3 million from Lopez and $3.4 million from Pomery.

While in operation, H.E. Servicing spent $70,000 a week on radio and television advertising in 100 media markets nationwide and had plans to spend an additional $10,000 to $30,000 a week with the goal of bringing in an estimated $270,000 a week in new business. A report prepared by an outside accountant found that in the first six months of 2009 alone, the company made $4.5 million in net income.

To learn more about how these companies operated, visit: http://ag.ca.gov/newsalerts/release.php?id=1774&.

The original lawsuit alleged that US Foreclosure Relief, H.E. Servicing and their executives violated:

• FTC Act, 15 U.S.C. § 45(a) for false or unsubstantiated loan modification and success claims;
• TSR, 16 C.F.R. § 310.2(a)(2)(iii) and (a)(4) for making false or misleading statements;
• TSR, 16 C.F.R. § 310.4(b)(l)(iii)(B) for violations of the National Do Not Call Registry;
• TSR, 16 C.F.R. § 310.8 for failure to pay national Registry fees;
• California Business and Professions Code § 17500 for making untrue or misleading statements;
• California Business and Professions Code § 17200 for unfair competition;
• Missouri Merchandising Practices Act § 407.020 for unlawful merchandizing practices; and
• Missouri Merchandising Practices Act § 407.938 and § 407.940 for unlawful foreclosure consulting.

Earlier this month, Brown filed an amended complaint naming Brandon L. Moreno and his law firm, Cresidis Legal, as additional defendants in the case. This comes after investigators found that Moreno served as the legal affiliate for H.E. Servicing after Pomery departed. These defendants are not part of the judgment announced today, and Brown will continue to prosecute the case against them.

By law, all individuals and businesses offering mortgage-foreclosure consulting, loan-modification and foreclosure-assistance services must register with Brown’s office and post a $100,000 bond. It is also illegal for loan-modification consultants and businesses to charge up-front fees for their services.

Non-profit housing counselors certified by the U.S. Department of Housing and Urban Development provide free help to homeowners. To find a counselor in your area, call 1-800-569-4287.

Brown has sought court orders to shut down more than 30 fraudulent foreclosure-relief companies and has brought criminal charges and obtained lengthy prison sentences for dozens of deceptive loan-modification consultants.

For more information on Brown’s action against loan-modification fraud visit: http://ag.ca.gov/loanmod.

A copy of the court-approved stipulated judgment, filed in U.S. District Court for the Central District of California, is attached.

Los Angeles--Attorney General Edmund G. Brown Jr. announced today that the California Supreme Court has granted the state's petition to review the Second Appellate District Court of Appeal’s ruling in the Saleem case, a decision last year that threw out a law banning convicted felons from possessing body armor. For more than ten years, the law served as a deterrent and arguably saved many lives. The Attorney General urges the Supreme Court to override the lower court’s ruling and restore this vital tool to the men and women who bravely protect our communities.

"This is a clear victory for police officers everywhere. Allowing criminals and gang members to arm themselves with body armor makes no sense, and I'm confident the Supreme Court will reverse this wrong-headed decision,' Brown said.

Brown filed a petition to the California Supreme Court on January 22, 2010 after the Second Appellate District Court of Appeal struck down the statute, ruling that the law was too vague.

Brown’s petition argued that the Court of Appeal’s Opinion:

• Failed to follow the test for determining whether a statute is vague;
• Contradicted the Legislature’s intent in enacting a body armor statute; and
• Needlessly abrogated the entire body armor statute.

In 1998, the California Legislature enacted the James Guelff Body Armor Act to prohibit felons convicted of a violent crime from possessing body armor.

Los Angeles—Attorney General Edmund G. Brown Jr. today filed a lawsuit against an Imperial Valley farm labor contractor Juan Munoz for failing to pay minimum wage and overtime, as well as committing “potentially deadly” worker safety violations by neglecting to provide rest breaks, potable drinking water or shade to field workers.

Juan Munoz supplied field workers to onion farms in Kern County and in the Coachella Valley and Mojave Desert.

“In the scorching summer months, farm work can be dangerous if workers aren’t given rest breaks, shade and drinking water,” Brown said. “We have no tolerance for contractors like Munoz who deny their workers a fair wage and subject them to potentially deadly working conditions.”

In 2009, Brown’s office conducted a routine field visit at a Southern California onion farm. During the visit, Brown’s office interviewed more than ten workers hired by Munoz.

According to the workers, Munoz gathered workers from throughout Southern California and delivered them to an onion field that was often far from their home. Once at the fields, they worked split shifts throughout the day and night, slept in the fields and bathed in a nearby reservoir.

The workers were not given rest breaks or potable drinking water, and the employees were not provided with training on how to recognize and prevent heat exhaustion.

Growers paid Munoz a set price per piece, such as a four-gallon onion sack, and Munoz determined the rate of pay for the field workers. The workers were typically paid $1.23 for each four-gallon sack of onions they harvested.

Employees worked split shifts totaling approximately 70 hours a week, but were not provided premium pay. Under state law, workers are entitled to an additional hour of pay if they have less than an eight-hour break between shifts. Workers were also denied overtime pay. State law requires employers to pay overtime (time and a half) to employees who work more than ten hours a day.

In addition, many of the workers were paid in cash below the minimum wage without a written statement of hours worked, rate of pay or deductions taken, also a violation of state labor laws. After working long hours in the fields, workers were often forced to wait up to two hours for their paycheck.

Stories of the Field Workers

Feliciano Sepulveda and his wife Sonia worked between 14 and 16 hours a day and, like other workers, slept in the fields. He and his wife regularly worked split shifts without premium pay or overtime, despite the long days. When the Sepulvedas collected their wages at the end of the day, Munoz rounded down to the lower dollar amount. During the 2009 harvesting season, neither of the Sepulvedas received training on the warning signs of heat exhaustion and often found the water cans empty during the hottest part of the day.

Mario Gomez and his wife, Araceli Ramos, worked on the same wage ticket, a violation of California labor laws, which require the work done by two individuals to be reported for each worker. Both worked approximately 15 hours a day, but neither of them received overtime or premium pay for split shifts. When calculated, Gomez’s and Ramos’ earnings totaled less than $8 an hour with no deductions or taxes withheld from their wages.

Nicolas Salinas worked 12 to 14 hours a day, 7 days a week, but was never paid overtime or premium pay. At the end of the day, Salinas waited more than two hours to be paid and often received only between $4 and $7.50 an hour. On Salinas’ paystub, his hours worked were often incorrect, and no deductions were taken out for taxes.

The federal minimum wage is $7.25/hour, and the state minimum wage is $8.00/hour.

Today’s lawsuit alleges that Munoz violated California’s unfair competition laws. The lawsuit seeks:
• A permanent injunction;
• Civil penalties;
• Restitution to the field workers; and,
• Other legal costs.

A copy of the complaint is attached.