Consumer Protection

SAN FRANCISCO --- Attorney General Kamala D. Harris today issued a consumer alert with tips on how Californians can make safe, informed donations this October, which is National Breast Cancer Awareness Month.

Attorney General Harris offers the following five tips to the public on how to avoid “sound-alike” organizations and scam artists that use high-volume donation periods to prey on the goodwill of Californians.

1. Avoid giving your credit card number to a telephone solicitor. Avoid giving cash to an individual or responding to an e-mail solicitation. Instead, seek out known organizations and give directly by calling the organization, visiting its official website, or mailing a check to the listed address.

2. Research an organization before you donate by visiting:
- California Attorney General’s Registry of Charitable Trusts, http://oag.ca.gov/charities
- Better Business Bureau’s Wise Giving Alliance, www.give.org
- Charity Navigator, www.charitynavigator.org

3. Learn about an organization by asking the right questions: Does the organization only support research? Does it fund community health programs? How are donations used? What percentage of donations is used for charitable activities?

4. Avoid generic claims like “Supports Breast Cancer Programs,” and look for a name, label, or logo that you recognize and can verify.

5. Ask the organization not to store your credit card information.

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

Californians who believe they have been victimized by a fraudulent charitable solicitation should file a complaint with the Attorney General’s Registry of Charitable Trusts at http://ag.ca.gov/charities.php.

SAN FRANCISCO --- Attorney General Kamala D. Harris today announced that the California Department of Justice, in conjunction with the State Bar of California, has sued multiple entities accused of fraudulently taking millions of dollars from thousands of homeowners who were led to believe they would receive relief on their mortgages.

Attorney General Harris sued Philip Kramer, the Law Offices of Kramer & Kaslow, two other law firms, three other lawyers, and 14 other defendants who are accused of working together to defraud homeowners across the country through the deceptive marketing of 'mass joinder' lawsuits. 'Mass joinder' lawsuits are lawsuits with hundreds, or more, individually named plaintiffs. This is the first consumer action by the Attorney General’s Mortgage Fraud Strike Force.

Kramer’s firm and other defendants were placed into receivership on Monday, Aug. 15. The legal actions were designed to shut down a scheme operated by attorneys and their marketing partners, in which defendants used false and misleading representations to induce thousands of homeowners into joining the mass joinder lawsuits against their mortgage lenders. Defendants also had their assets seized and were enjoined from continuing their operations. Nineteen DOJ special agents participated as the firms were taken over Wednesday, Aug. 17, along with 42 agents and other personnel from HUD’s Office of Inspector General, the California State Bar, and the Office of Receiver Thomas McNamara at 14 locations in Los Angeles and Orange Counties. Sixteen bank accounts were seized.

"The defendants in this case fraudulently promised to win prompt mortgage relief for millions of vulnerable homeowners across the country,' said Attorney General Harris. 'Innocent people, already battered by the housing crisis, were targeted for fraud in their moment of distress.'

"The number of lawyers who have tried to take advantage of distressed homeowners in these tough economic times is nothing short of shocking,' said State Bar President William Hebert. 'By taking over the practices of four attorneys accused of fraudulent marketing practices, the State Bar can put a stop to their deplorable conduct as part of our ongoing effort to protect the public.'

It is believed that at least two million pieces of mail were sent out by defendants to victims in at least 17 states. Defendants’ revenue from this scam is estimated to be in the millions of dollars.

As alleged in the lawsuit, defendants preyed on desperate homeowners facing foreclosure by selling them participation as plaintiffs in mass joinder lawsuits against mortgage lenders. Defendants deceptively led homeowners to believe that by joining these lawsuits, they would stop pending foreclosures, reduce their loan balances or interest rates, obtain money damages, and even receive title to their homes free and clear of their existing mortgage. Defendants charged homeowners retainer fees of up to $10,000 to join as plaintiffs to a mass joinder lawsuit against their lender or loan servicer.

Consumers who paid to join the mass joinder lawsuits were frequently unable to receive answers to simple questions, such as whether they had been added to the lawsuit, or even to establish contact with defendants. Some consumers lost their homes shortly after paying the retainer fees demanded by defendants.

This mass joinder scam began with deceptive mass mailers, the lawsuit alleges. Some mailers, designed to appear as official settlement notices or government documents, informed homeowners that they were potential plaintiffs in a 'national litigation settlement' against their lender. No settlements existed and in many cases no lawsuit had even been filed. Defendants also advertised through their web sites.

When consumers contacted the defendants, they were given legal advice by sales agents, not attorneys, who made additional deceptive statements and provided (often inaccurate) legal advice about the supposedly 'likely' results of joining the lawsuits. Defendants unlawfully paid commissions to their sales representatives on a per client sign-up basis, a practice known as 'running and capping.'

Defendants’ alleged misconduct violates the following laws:
-False advertising, in violation of section 17500 of the Business and Professions Code
-Unfair, fraudulent and unlawful business practices, in violation of section 17200 of the Business and Professions Code
-Unlawful running and capping, in violation of section 6152, subdivision (a) of the Business and Professions Code (i.e., a lawyer unlawfully paying a non-lawyer to solicit or procure business)
-Improper fee splitting (defendants unlawfully splitting legal fees with non-attorneys)
-Failing to register with the Department of Justice as a telephonic seller.

Homeowners who have paid to be added to one of the lawsuits should contact the State Bar if they feel they may be victims of this scam. They can also contact a HUD-certified housing counselor for general mortgage related assistance.

The Department of Justice has seized the practices of the following non-attorney defendants:
Attorneys Processing Center, LLC; Data Management, LLC; Gary DiGirolamo; Bill Stephenson; Mitigation Professionals, LLC; Glen Reneau; Pate Marier & Associates, Inc.; James Pate; Ryan Marier; Home Retention Division; Michael Tapia; Lewis Marketing Corp.; Clarence Butt; and Thomas Phanco.

The State Bar has seized the practices and attorney accounts of the attorney defendants:
The Law Offices of Kramer & Kaslow; Philip Kramer, Esq; Mitchell J. Stein & Associates; Mitchell Stein, Esq.; Christopher Van Son, Esq.; Mesa Law Group Corp.; and Paul Petersen, Esq.

Attorney General Harris is challenging the defendants’ alleged misconduct in marketing their mass joinder lawsuits; her office takes no position as to the legal merits of any claims asserted in the mass joinder lawsuits filed by defendants.

Victims in the following states are known to have received these mailers, or signed on to join the case. This is a preliminary list that may be updated:

Alaska, Arizona, California, Colorado, Connecticut, Florida, Hawaii, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, Texas, Washington

The complaint, temporary restraining order, examples of marketing documents and photos of the enforcement action are available with the electronic version of this release at http://oag.ca.gov/news.

SAN FRANCISCO –-- Attorney General Kamala D. Harris today announced a national settlement with JP Morgan Chase & Co. (JPMC) as part of an ongoing nationwide investigation over allegations of anti-competitive and fraudulent conduct in the municipal bond derivatives industry.

“School districts, non-profits and municipalities in this case were all defrauded by Wall Street,” Attorney General Harris said. “This settlement brings a measure of restitution, justice and closure to the victims.”

The settlement was based on allegations that JPMC made secret deals with competitors in the bidding process. This illegal conduct included bid-rigging, peeking at competitors’ bids and offering non-competitive courtesy bids. These schemes enriched the financial institutions and brokers at the expense of cash strapped state agencies, cities, school districts and non-profits that could ill afford the steep financial consequences of this illegal conduct.

The settlement also provides that JPMC will pay $17 million in restitution directly to certain other government and not-for-profit entities as part of separate agreements it entered into today with the U.S. Securities and Exchange Commission and the Office of the Comptroller of the Currency.

The state and federal settlements are distinct components of a coordinated global $228 million settlement that JPMC entered into today. JPMC also reached agreement with the U.S. Department of Justice’s Antitrust Division, the Internal Revenue Service and the Federal Reserve Board.

JPMC is the third financial institution to settle with the multistate working group in the ongoing municipal bond derivatives investigation following Bank of America and UBS AG. To date, the state working group has obtained settlements worth approximately $250 million. California entities are set to receive approximately $6.7 million for restitution under the JPMC settlement.

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed, or to hedge interest-rate risk.

In April 2008, the states began investigating allegations that certain large financial institutions, brokers and swap advisors engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.

The investigation, which is still ongoing, revealed collusive and deceptive conduct involving individuals at JPMC and other financial institutions, and certain brokers with whom they had working relationships. The wrongful conduct took the form of bid-rigging, submission of non-competitive courtesy bids and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations.

LOS ANGELES – Attorney General Kamala D. Harris today announced the creation of the California Attorney General’s Mortgage Fraud Strike Force, staffed by Department of Justice attorneys and investigators charged with protecting innocent homeowners and bringing to justice those who defraud them.

Composed of both civil and criminal enforcement teams, the Mortgage Fraud Strike Force will monitor and prosecute violations at every step of the mortgage process, from the origination of mortgage loans to the marketing of mortgage-backed securities to the investing public.

“Californians in search of the American dream all too often found a protracted personal and legal nightmare,” said Attorney General Harris. “Families are losing their homes, while those who perpetrated crimes and frauds against them walk free.”

At her announcement of the new mortgage fraud unit, Attorney General Harris was joined by Mayor Antonio R. Villaraigosa, representatives from U.S. Department of Housing and Urban Development (HUD) and the Center for Responsible Lending, as well as homeowners harmed by unlawful lending, servicing and foreclosure practices.

“We will work to safeguard the homeowner at every step of the process – from origination of a loan to its securitization, and we will prosecute to the fullest extent of the law those who take advantage of trusting California families,” said Attorney General Harris. “We are setting a high bar for other states and we insist that homeowners be protected, respected, and informed.”

The Mortgage Fraud Strike Force will operate out of Department of Justice offices in Los Angeles, Fresno, San Francisco and Sacramento. Twenty-five attorneys and investigators will work together in three teams:
• The consumer enforcement team will target scams in the consumer arena, including predatory lending, unfair business practices in originating loans, deceptive marketing, and loan modification and foreclosure consultant scams.
• The criminal enforcement team will prosecute criminal frauds associated with the epidemic of mortgage scams, including fraudulent investment and money laundering schemes related to mortgage lending or foreclosure relief.
• The corporate fraud team will target misconduct involving investments and securities tied to subprime mortgages, as well as false or fraudulent claims made to the state with respect to these securities.

Los Angeles Mayor Antonio R. Villaraigosa offered his support of the new strike force. “With nearly 10,000 foreclosures in the City of Los Angeles last year,” he said, “this strike force is certain to help countless residents and families from becoming victimized.”

“The Attorney General’s authority and attention to this issue brings a critical law enforcement component to the table that will help stop the practice of predatory lending once and for all,” said Mayor Villaraigosa. “I applaud Attorney General Harris for her dedication to employing swift justice to the scam artists who prey on the residents of some of our most economically vulnerable neighborhoods.”

California has been hit hard by the foreclosure crisis, and by predators who seek to profit from the millions of Californians who are underwater in their mortgages, in foreclosure, or at risk of entering foreclosure.

Last year alone, there were foreclosure filings against 546,669 California homes. It is projected that between 2009 and 2012, a total of 2 million California homes will enter the foreclosure process. In the last year, the California Department of Justice has received thousands of complaints related to foreclosure scams, mortgage fraud, and mortgage servicing practices.

“The fingerprints of illegal activity are all over the foreclosure crisis,” said Paul Leonard, director of the California Office, Center for Responsible Lending. “The Attorney General’s effort marries the need to punish bad actors for the practices that brought our economy to the brink with the need to eliminate the scam artists who have since attempted to profit from it. Given the economic damage wreaked by foreclosures in California, this initiative is very welcome news.”

Attorney General Harris has long been dedicated to prosecuting mortgage fraud. In 2009, as District Attorney of San Francisco, she launched the first stand-alone district attorney’s mortgage fraud unit in California with $1.1 million from the U.S. Department of Justice.

If you are a homeowner who has been scammed, you can learn more or file a complaint online with the Attorney General’s office at: http://oag.ca.gov/consumers.

SAN BERNARDINO, Calif. – Three men were arrested this morning in San Bernardino County in a $102 million bribery scheme. A fourth, former Supervisor Paul Biane, remains a fugitive from justice.

The four individuals were indicted yesterday by the San Bernardino County Grand Jury on 29 counts of conspiracy to commit bribery, misappropriation of public funds, improper influence, conflict of interest, and additional charges.

“When public officials act corruptly, every Californian is their victim,” said Attorney General Kamala D. Harris. “Let the San Bernardino indictments send a strong message that we will never tolerate this sort of abuse of the public trust.”

The indictments are the result of a combined effort by Attorney General Kamala D. Harris and San Bernardino County District Attorney Michael A. Ramos. Their two agencies jointly investigated the case and presented it to the grand jury, and will share in prosecution of the charges.

Turning themselves in to authorities for arrest this morning were Mark Kirk, former chief of staff for a member of the board of supervisors and current director of government relations in the county administrative office; James Erwin, former chief of staff for a member of the board of supervisors; and Jeffrey Burum, a general partner of Colonies Partners, L.P., a developer. The three were arrested and booked at Central Detention Center in San Bernardino.

Former Supervisor Paul Biane did not turn himself in after the indictment. Biane is also charged with misappropriation of public funds, filing a fraudulent tax return, perjury, filing a false instrument, and two counts of bribery.

Kirk is also charged with bribery, improper influence, forgery, filing a fraudulent tax return, willful failure to file a tax return, four counts of perjury, three counts of filing a false instrument, and four counts involving bribery.

Burum is also charged with four counts involving bribery.

The case is part of a continuing probe by both the Attorney General and the DA into corruption in San Bernardino County.

The current charges, according to the indictment, stem from a $102 million settlement approved by the Board of Supervisors in 2006 with the developer Colonies over flood control improvements on 434 acres of land in Upland. The indictment alleges that the defendants engaged in a corrupt scheme to obtain the settlement from the county.

Between January 2005 and November 2006, according to the indictment, that corrupt scheme included Burum influencing “members of the Board of Supervisors through a combination of threats, extortion, inducements and bribery, in order to secure their vote in favor of a settlement.”

Erwin joined the conspiracy, the indictment says, and conveyed threats and/or inducements from Burum to William John Postmus (then chairman of the Board of Supervisors), Biane and Kirk. Erwin agreed to accept money in exchange for influencing the votes of Postmus and Biane. Kirk agreed to accept money to influence the vote of another member of the board. And Postmus and Biane joined the conspiracy by agreeing to accept a bribe to approve the Colonies settlement.

The bribes were $100,000 each.

After Colonies received a substantial amount of the $102 million settlement, the indictment says, Burum distributed the agreed-upon bribes and payments to Postmus, Biane, Kirk and Erwin. The defendants used political action committees to conceal the bribes.

Postmus pleaded guilty in March to 14 felony counts, including conspiracy to accept a bribe and conflict of interest. He agreed to cooperate in the continuing investigation.

SAN FRANCISCO – Attorney General Kamala D. Harris today announced a $90.8 million national settlement, which includes some $6.3 million for California agencies, with the multinational Swiss bank UBS AG over allegations of anticompetitive and fraudulent conduct in the municipal bond derivatives industry.

“This financial fraud harmed school districts, cities, state agencies, and non-profit groups,” Attorney General Harris said. “The multi-million dollar settlement provides restitution to those victimized and sends a strong warning to anyone contemplating similar scams.”

California participated with federal agencies and 24 other states in the negotiations that led to today’s settlement. In addition to the approximately $6.3 million in restitution, California will be entitled to a share of the $2.5 million civil penalty and $5 million in investigation costs that UBS has agreed to pay.

Under the settlement, UBS agreed to pay back a total of $90.8 million to local and state agencies nationwide, as well as to non-profit groups, that had municipal bond derivative contracts with UBS, or used UBS as a broker, between 2001 and 2004. That restitution is part of a $160 million settlement package that includes federal agencies.

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest the proceeds of bond offerings until the funds are needed, or to hedge interest rate risk.

In 2008, a group of states began an investigation of allegations that certain large financial institutions, including national banks, insurance companies, brokers and swap advisors, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.

The investigation, which is continuing, revealed collusive and deceptive conduct involving individuals at UBS and other financial institutions, along with certain brokers with whom they had working relationships. This conduct took the form of bid-rigging, submission of non-competitive courtesy bids and submission to government agencies, among others, of fraudulent certifications of compliance with U.S. Treasury regulations.

Regardless of the means used to perpetrate the schemes, the objective was to enrich the financial institution and/or the broker at the expense of the issuer, depriving the issuer of a competitive, transparent marketplace.

As a result of such this conduct, state, local and not-for-profit entities entered into municipal bond derivatives contracts on less advantageous terms than they would have otherwise.

Other states joining California in today’s settlement are Alabama, Colorado, Connecticut, District of Columbia, Florida, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Tennessee and Wisconsin.

The Attorney General’s investigative team in the office’s antitrust section included Senior Assistant Attorney General Kathleen Foote; Supervising Deputy Attorney General Natalie S. Manzo; Deputy Attorneys General Paula Lauren Gibson, Winston Chen and Ben Labow; Annette Goode-Parker, senior legal analyst; and Sheila Rhoads, legal analyst.

As a part of the same investigation, California reached a $67 million multi-state settlement in December with Bank of America for illegal activity by some of its employees in investing the proceeds of municipal bonds. This activity amounted to bid rigging, price fixing, and other anti-competitive practices that defrauded state agencies, local governments and non-profit groups. California’s share was about $6 million.

SACRAMENTO – Attorney General Kamala D. Harris encourages Californians to participate in “Prescription Drug Take-Back Day” tomorrow by taking their expired, unwanted and unused prescriptions to an official drop-off center to ensure proper disposal.

National Prescription Drug Take-Back Day provides a safe alternative to fouling our lakes and rivers or creating a risk of prescription drugs falling into the wrong hands. Californians can bring prescription medications and over-the-counter tablets or capsules to any of the nearly 200 collection centers participating across the state. To search a list of drop-off locations, go to www.dea.gov and click on the “Got Drugs?” icon.

Collection centers are open on Saturday from 10:00 a.m. to 2:00 p.m. Many of the sites, which are staffed by law enforcement officials, are at local police stations. The medications will be destroyed following federal and state regulations.

Unused prescription drugs left sitting in a medicine cabinet contribute to drug abuse, especially among teenagers. In 2010, the Centers for Disease Control released a study showing that one out of five high school students in America abuses prescription drugs.

Other recent studies show that prescription drug abuse is soaring. The 2009 National Survey on Drug Use and Health found that there are some 6.2 million non-medical users of prescription drugs in the United States, and there are more Americans abusing prescription drugs than abusing cocaine, hallucinogens and heroin combined.

Approximately 3,000 state and local law enforcement agencies across the country participated in the first National Take-Back Day last year, when more than 121 tons of prescription drugs were collected.

The Attorney General’s office has been at the forefront of efforts to combat prescription drug abuse in California. In addition to costing the state millions of dollars each year, prescription drug abuse can have serious public safety consequences. Many abusers hold down regular jobs, including driving trucks, operating transit vehicles, and working in medical facilities.

Tomorrow’s Take-Back Day is an easy way to properly dispose of expired, unused, and unwanted prescription drugs. Prescription drugs are potentially dangerous if left in the medicine cabinet or thrown away – and should not be flushed down the toilet to end up in our waterways.

SACRAMENTO – Attorney General Kamala D. Harris today asked a Sacramento County Superior Court to hold “Tax Lady” Roni Deutch in contempt of court, imprison her for five days on each violation and fine her thousands of dollars for shredding millions of pages of documents and failing to pay refunds to her clients in violation of a court order.

“Deutch showed herself to be a predator for profit, preying on innocent, hard-working people who were simply hoping to settle their accounts with the IRS,” Attorney General Harris said. “By defrauding these victims, and then pleading poverty, she created a real danger that her clients will never receive their advance fees back.”

In August, the Attorney General filed a $34 million lawsuit against Deutch for swindling thousands of people facing serious and expensive tax collection problems with the IRS. On August 31, the court issued an order that prohibited Deutch from destroying evidence.

“Despite this order,” the Attorney General said in today’s action, “Deutch has been routinely shredding documents on an almost a weekly basis.” The Attorney General estimates that to date Deutch has shredded some 1,643,000 to 2,708,600 pages of documents. Deutch’s shredding campaign has permanently deprived the Attorney General of evidence needed to fully prosecute the action against her.

Deutch’s law firm, based in Sacramento County, had revenues of at least $25 million a year. She spent $3 million a year on advertising, much of it on late-night cable TV, and frequently offered tax advice on popular TV shows. In her pitches, she promised to significantly reduce the IRS tax debts of people who signed up with her firm. Instead, she took thousands of dollars in up-front fees from clients but offered little or no help in lowering their tax bills. Hundreds of clients complained to the Attorney General and other government agencies.

In addition to shredding documents, the Attorney General also charged that Deutch violated a November 17 preliminary injunction by failing to issue some $435,000 in refunds to her clients within 60 days. Instead she “decided to disperse funds to friends, family and other creditors. By draining her estate and that of the law firm, Deutch has placed her clients at serious risk of never receiving their refunds.”

For instance, Deutch opted to transfer hundreds of thousands of dollars in equity from the sale of her home to a media firm. She also personally withdrew $241,000 from the law firm’s accounts and her personal accounts at just one bank. In addition, since the preliminary injunction order was issued, Deutch made more than $21,000 in unnecessary expenditures, including gifts to family and friends, and a payment to a NASCAR racing team.

The Attorney General asked the court to fine Deutch $1,000 and imprison her for five days for each count of contempt, to immediately freeze Deutch’s personal assets, and to appoint a receiver to manage her law firm’s business operations.

Copies of the court filings are attached to the version of this press release found at ag.ca.gov.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pyramid Scheme

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

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

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

Phony Stock Sale

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

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

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

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

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

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

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

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