Consumer Protection

LOS ANGELES- Continuing his crackdown on mortgage fraud, Attorney General Edmund G. Brown Jr. late Thursday won a guilty plea from 22-year old Anna Santos, who conned thousands of dollars from homeowners in a “cruel and sophisticated” loan scam. Santos will be formally sentenced on May 20 in Los Angeles Superior Court. She is expected to receive 2 years in prison. “Santos conned thousands of dollars from homeowners trying to save their homes through a cruel and sophisticated scam,” Brown said. “She held out hope, but in reality did not provide an ounce of loan modification, leaving her victims unprotected and in far worse straits.” Santos was arrested on March 12, 2009 after she used forged documents to convince victims to hand over thousands of dollars for non-existent loan modification services. Santos obtained a fictitious business permit through the City of Los Angeles for 'Payment Processing Department.' She opened several bank accounts and two post office boxes under that name. She mailed flyers to vulnerable homeowners that appeared to be from victims' lenders or a government agency. The flyer used a large, bold header that read 'Final Notice' and advised homeowners that they qualified for a special program to save their home from foreclosure. After signing up for “loan modification services,” homeowners then received what appeared to be 'confirmation' that their lender had been notified. Many victims also received loan modification documents that appeared to be from their lender. These documents were all forgeries. The victims were informed they had been placed in a 'probationary' program and their mortgage payments should be submitted to 'Payment Processing Department' and sent to a given post office box address. None of the payments were credited to the victims' home loans. Payments sent to the post office box were retrieved by Ms. Santos and deposited into the bank accounts she had opened. Santos targeted seniors and homeowners on the verge of foreclosure. It is believed that she scammed more than 100 victims. On average, victims lost approximately $3,000, at a time when they could not afford their mortgage, let alone additional fraudulent expenses. Since taking office, Attorney General Brown has shut down loan modification and foreclosure rescue scams and fought companies that have misled vulnerable borrowers:

• In March 2009, Brown shut down Foreclosure Freedom, a fraudulent loan modification company that continued to collect fees and mortgage payments from dozens of homeowners without ever providing any loan modification services.
• In November 2008, Brown arrested three members of First Gov after the company demanded an up-front fee, ranging from $1,500 to $5,000, to participate in a loan-modification program and never renegotiated the loans.
• In October 2008, Brown announced an $8.68 billion settlement with Countrywide Home Loans after the company deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers’ ability to afford loans.
• In May 2008, Brown shut down a team of scam artists that acquired deeds to hundreds of homes in foreclosure by convincing desperate consumers to pay $10,000 to place their property in a land grant, a phony and worthless real estate document, and then tricked homeowners into signing over the deed to their home and paying the company rent.
• In March 2008, Brown shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions after the companies ran a complex predatory lending scheme using bait and switch tactics to victimize thousands of homeowners, many of whom lost their homes.

San Francisco -- Attorney General Edmund G. Brown Jr. today filed suit against three Wells Fargo affiliates to recover $1.5 billion for California investors who purchased auction-rate securities based on “false and deceptive” advice that these financial instruments were “as safe and liquid as cash.”

“Wells Fargo’s affiliates promised investors auction-rate securities were as safe and liquid as cash, when in fact they were not, and now investors are unable to get their money when they need it,” Attorney General Brown said. “This lawsuit seeks to recover $1.5 billion for Californians and holds these companies accountable for giving investors false and deceptive advice.”

Auction-rate securities are investments with long-term maturity dates (e.g., bonds) that Wells Fargo and other banks marketed as short-term investments equivalent to cash. These investments paid a slightly better rate of return than a bank account. And, investors could sell the securities at regular weekly or monthly auctions which provided the promise of liquidity.

In February 2008, these auctions froze up nationwide, and investors were no longer able to redeem their securities for cash, as promised. This left approximately 2,400 Californians who had invested with Wells Fargo without access to more than $1.5 billion. More than 40% of Wells Fargo’s auction-rate security investors were Californians.

In total, 5,687 investors purchased $2.9 billion worth of auction-rate securities from these companies nationwide.

By August 2008, major financial institutions including UBS, Citigroup, Wachovia, and Merrill Lynch met their obligations to investors and restored the cash value of these securities. The three Wells Fargo affiliates, however, have refused to do so.

Consequently, Attorney General Brown filed his complaint in San Francisco Superior Court today to restore the cash value of these securities, force the companies to disgorge any subsequent profits tied to the securities, and obtain civil penalties of $25,000 per violation. This could amount to hundreds of millions in civil penalties.

The suit contends that three Wells Fargo’s affiliates – Wells Fargo Investments, LLC, Wells Fargo Brokerage Services, LLC, and Wells Fargo Institutional Securities, LLC – violated California’s Securities Law by:

• Routinely misrepresenting, marketing and selling auction-rate securities as safe, liquid and cash-like investments similar to certificates of deposit or money-market accounts and omitting material facts in violation of California Corporations Code 25401;

• Offering and selling, as a broker-dealer, securities by means of a manipulative, deceptive or other fraudulent scheme, device, or contrivance in violation of California Corporations Code 25216(a);

• Marketing and selling auction-rate securities to investors for whom these investments were unsuitable in violation of California Corporations Code 25216(c) and California Code of Regulations, title 10, section 260.218.2; and

• Failing to supervise and adequately train sales agents pushing these investments in violation of California Corporations Code 25216(c) and California Code of Regulations, title 10, section 260.218.4.

In marketing and selling these investments, Wells Fargo’s affiliates ignored clear industry and internal warning about risk and previous auction failure:

• In March 2005, the Securities and Exchange Commission (SEC), the “Big 4” accounting firms, and the Financial Accounting Standards Board all determined that auction-rate securities should not be considered “cash equivalents.”

Despite these warnings, Wells Fargo’s affiliates continued to aggressively sell and falsely market auction-rate securities as safe, liquid, cash-like investments until the nationwide auction markets froze in February 2008.

In marketing and selling these investments, Wells Fargo’s affiliates failed to inform investors about how auction-rate securities or the auction process worked and the risks and consequences of auction failure.

Following the collapse of these auctions, Wells Fargo’s affiliates took advantage of the situation and offered loan programs to those who needed immediate access to the money tied up in these investments.

Investments ranged from $25,000 to millions, and investors included small businesses and small business owners, retirees, married couples, and other hard working Californians. These investors were led to believe they were putting their savings and assets into a safe and accessible place, but instead, they were left without access to their cash, leading to serious hardship. For example:

• A Southern California woman suffering from lung cancer and needing extra funds to help treat her illness sold her home and put the money into a Wells Fargo savings account. A Wells Fargo agent later recommended she put the money into an account with a higher interest rate. When the woman told the agent she needed to access the money and could not afford to lose any of it, she was reassured that her money would be safe like cash. Without disclosing the nature of the investment, the agent invested the funds in auction-rate securities and when the auctions failed, the woman could not access her money.

• A Bay Area company invested $400,000 in a money market account until it was solicited by phone to invest in what was described to them as a liquid, money market-like-account. They were told the only difference was the amount of notice needed to pull the funds (one week vs. one day). The funds were intended to help the business expand, but after the auctions failed, employees were instead laid off. The company was never informed that they were investing in auction-rate securities or that there were substantial risks tied to the investment.

A copy of the complaint is attached.

LOS ANGELES -- Attorney General Edmund G. Brown Jr. announced that special agents from the California Department of Justice today arrested Abel Moses Somilleda, the owner of a vacation travel agency, who “ripped off” $55,000 from high school and college students whose 2006 trip to Cancun, Mexico was cancelled.

“Dozens of high school and college students paid hundreds of dollars for a spring break trip to Cancun, but instead of a week of vacation, these students were ripped off by the owner of Big Bad Student Travel,” Brown said. “Abel Moses Somilleda promised a vacation to Mexico, but when the trip was cancelled, he pocketed the students’ money instead of providing refunds.”

Abel Moses Somilleda, 35, of Hawthorne, Calif., was arrested in Hawthorne by California Department of Justice Special Agents. He is charged with:

• Nine counts of grand theft in violation of Penal Code section 487(a);
• One count of failure to return moneys in violation of Business and Professions Code section 17550.14; and
• Nine counts of failure to deliver on ticket or voucher in violation of Business and Professions Code section 17550.17(b).

Somilleda opened Big Bad Student Travel in 2004 after working for ten years in the student travel business and coordinating several trips of his own.

In 2006, Somilleda organized a spring break trip to Cancun, Mexico, for dozens of high school and college students. Students paid approximately $700 for the flight, hotel room, and expenses.

Three months before the trip, however, Somilleda learned that it would be cancelled. But instead of immediately informing those who had signed up, Somilleda continued to accept payment for the trip. It was only two or three days before the trip was scheduled to take place when Somilleda notified students that it had been cancelled.

Somilleda promised the students that they would receive a refund within several days. The students, however, never received refunds.

In total, Somilleda pocketed some $55,000. A search warrant uncovered that Somilleda had spent most of the money on his own personal expenses -- including rent, dinners, groceries, and utilities.

If convicted of all charges, Somilleda faces eight years in prison.

California requires all sellers of travel to register with the California Attorney General’s Office and display their registration number on all advertising. To check the registration of a Seller of Travel visit the Attorney General’s website at http://www.ag.ca.gov/travel/

To help prevent becoming a victim of travel fraud, the Attorney General’s Office has offered a few tips and warning signs.

GET IT IN WRITING AND READ IT CAREFULLY
Before you pay any money, read all the terms and conditions relating to your travel services including cancellation conditions, fees and other restrictions.
PAY BY CREDIT CARD
You have a right in certain circumstances to have credit card charges reversed if you do not receive what you paid for. Check with your credit card company for details. This protection is not available when you make a payment with a check, money order, or cash.

KNOW BEFORE YOU GO
Check beforehand with your local Better Business Bureau or California Department of Consumer Affairs ( http://www.dca.ca.gov/ ), which may tell you how long the seller of travel has been in business, whether there have been any law enforcement actions brought against it in the past, and the nature of consumer complaints it has received, if any.
CONFIRM TRAVEL PLANS DIRECTLY
It is a good practice to confirm all of your travel arrangements directly with the businesses providing the transportation, hotel, or car rental.
BEWARE OF “FREE” TRIPS
While there are legitimate businesses that offer free trips, there are others that offer “free” trips to entice consumers into buying their products or services, which include hidden costs.
INTERNET SCAMS
There are many legitimate sellers of travel that provide great deals on the Internet, but if an offer seems too good to be true, it probably is.
USE ONLY A REGISTERED TRAVEL COMPANY OR AGENT
Sellers of travel must register every year with the Attorney General's office in order to do business or market in California. They must clearly display their registration number in all advertising materials. Do not deal with unregistered travel companies. While registration does not mean that the seller is reputable, you should avoid any seller who has not adopted the safeguards required by law to protect your payments.

IF YOU HAVE BEEN SCAMMED
Taking money without delivering goods or services that are promised can be a crime. If you believe you have been a victim of a crime, call your local police agency. If your travel seller’s main place of business is in California, and under certain other circumstances, you may be entitled to make a claim for restitution from the Travel Consumer Restitution Fund. For more information about how to file a claim, please go to http://ag.ca.gov/travel/consumer.php.

SAN DIEGO – Attorney General Edmund G. Brown Jr. and the Contractors State License Board (CSLB) have finalized an agreement that will stop a massive service and repair scheme that unfairly overcharged thousands of Californians for “shoddy and woefully inadequate” home repair work.

“This massive scheme defrauded thousands of California homeowners who were charged exorbitant fees for shoddy and woefully inadequate home repair work by unlicensed and unskilled contractors,” Attorney General Brown said. “The agreement stops the illegal practices and gives homeowners a chance to recover some of their losses.”

A months-long investigation by the Attorney General’s Office and the Contractors State License Board found that SRVS Charge Inc. and its affiliated companies had been cheating some 6,000 customers each year for overpriced and substandard home repair work since 1989.

To stop the companies’ illegal practices and provide restitution to those who were victimized, Brown and the CSLB reached a settlement with:

• SRVS Charge Inc. and its affiliates,
• Principal owner, Sarkis Terabelian, 43, of Burbank;
• General manager, Zohrab “Rob” Mkhitarian, 40, of Burbank; and
• Associates Marine Metspakyan, 33, Avetik Avo Gyandzhyan, 38, Lilit Lusparyan, 28, Alisa Oganyan, 35, Estine Akopyan, 28, and Vardui Terabelian, 45.

The defendants operated various service and repair companies that employed electricians, plumbers, and heating and air-conditioning technicians in Southern California, the San Francisco Bay Area, and the Sacramento region. These companies routinely targeted elderly Californians.

Exorbitant customer fees enabled Sarkis Terabelian, Mkhitarian, and his associates to purchase two helicopters, a Mercedes-Benz, and real property valued in excess of $1 million. Title to these vehicles and real property were seized by the Attorney General’s Office last year and will be released as a result of the settlement.

SRVS Charge Inc.’s scheme worked like this:

• The company placed millions of dollars in telephone directory advertising, including many full-page ads. The ads, which listed different company names, claimed a 100% satisfaction guarantee and senior discounts. When customers called the numbers listed in any of the ads, they would be directed to a central call center.

• Many times repairmen would be dispatched from a different company than the customer called.

• Often, these workers had not undergone the criminal background check required of all contractors and Home Improvement Salespeople licensed by the Contractors State License Board since January 1, 2005.

• Customers were charged high prices for emergency home service and repair, often unrelated to the actual home repair work. Much of the work was poorly done or never completed.

• If a customer refused to pay, the company would file a lien against the home to force payment.

Because the company used multiple business names, it was difficult, if not impossible, for customers to seek recourse for incompetent workmanship, incomplete work, or any other issue that arose on their project. Customers were often denied refunds, despite the existence of the “100% satisfaction guarantee” promised in the ads.

Over several years, the Attorney General and the CSLB shut down affiliates of SRVS Charge, Inc. But instead of ending their scheme, the defendants continued to run their company under a labyrinth of business names and fraudulent contractor license numbers that were interchangeable. When CSLB either revoked a license or received an excessive number of complaints, the company would establish a new corporate identity and business would continue without interruption.

As part of its investigation, CSLB conducted undercover stings against service technicians suspected of using these fraudulent licenses and referred instances of the illegal activity to the San Diego, Los Angeles, Santa Clara, and Sacramento County district attorney’s offices. In one instance, the San Diego District Attorney’s Office found that a service technician had also committed burglary and theft and is now being prosecuted for his crimes.

Attorney General Brown entered into a final agreement with the defendants in San Diego Superior Court on March 12, 2009, and the agreement was made public today. The settlement provides for the following.

• A permanent injunction against the defendants’ prior illegal activities. This includes:
o CSLB monitoring of the defendants’ operations for one year;
o Mandatory registration of all company service technicians with CSLB. This requires technicians to undergo a criminal background check;
o Capping the number of business licenses that the defendants can use to a maximum of five;
o Preventing the defendants from charging exorbitant fees or fees that have nothing to do with the actual work that is performed;
o Fully disclosing to CSLB the names of the directors, officers, and employees of their company; and
o Mandatory customer complaint tracking with proper complaint investigation and reasonable efforts to resolve them.
o Prohibiting the defendants from engaging in false advertising.

• $3 million in penalties and restitution to be distributed as follows:
o $1.3 million to be used for consumer restitution;
o $450,000 to be assessed in penalties for state Business and Professions Code violations; and
o The remainder to be used to reimburse CSLB for investigative costs, legal costs, and costs of monitoring future compliance with the judgment.

“This settlement is a victory for California consumers and legitimate contractors, and brings resolution to thousands of hours of investigative work,” said CSLB Registrar Steve Sands. “Victims will now be able to regain some of their money, and CSLB will be able to watch this company closely so others aren’t harmed.”

If the terms of the settlement are violated, the defendants could face jail time.

The following companies are affiliated with the defendants and are included in the settlement:

• American Electric (CSLB #834398)
• American Home Repairs, Inc. (CSLB #834206)
• 59 Minute Service (CSLB #837697)
• Cal Repair Services, Inc., dba Pick Red Plumbing (CSLB #797241)
• Answering Resources, Inc., dba Thrifty Electric (CSLB #723375)
• Orbell Enterprises, Inc., dba Plumbing One (CSLB #713006)
• USA Services, Inc. (CSLB #775863)
• Love My Home, Inc. (CSLB #811361)
• Electric Avenue, formerly A Plus Electric Company (CSLB #569322)
• American Electric 911 Fast Inc. (CSLB #826916)
• Pro Electric Co. (CSLB #670171)
• RG Electric (CSLB #516892)
• Pacific West Heating & Air Conditioning (CSLB #604150)

If you think you have been the victim of fraud by this company and its affiliates, please contact the Contractors State License Board at 1-800-321-CSLB (2752) and press 7.

The original complaint and settlement terms are attached.

FOR IMMEDIATE RELEASE
Friday, March 20, 2009
Contact: Office of the Attorney General - Christine Gasparac (916) 324-5500
Cotchett, Pitre & McCarthy - Niall McCarthy (650) 697-6000

Brown Sues to Recover Hundreds of Millions of Dollars Illegally Diverted from Medi-Cal

LOS ANGELES – Responding to a whistleblower’s allegation of “massive Medi-Cal fraud and kickbacks,” Attorney General Edmund G. Brown Jr. joined legal action against seven private laboratories to recover hundreds of millions of dollars in illegal overcharges to the state’s medical program for the poor.

“In the face of declining state revenues, these medical laboratories have siphoned off hundreds of millions of dollars from programs intended for the most vulnerable California families.” Attorney General Brown said. “Such a pattern of massive Medi-Cal fraud and kickbacks cannot be tolerated, and I will take every action the law allows to recover what is owed,” Brown added.

According to whistleblower Chris Riedel, the CEO of Hunter Laboratories, “I confirmed with the California Department of Health Care Services that these practices were illegal. We then had a choice--either join the other labs in violating the law or be unable to compete for business. We choose to suffer the financial consequence, and follow the law.”

The lawsuit, which is pending in San Mateo Superior Court, contends that the 7 medical labs systematically overcharged the Medi-Cal program over the past 15 years.

The defendants include:
• Quest Diagnostics, Inc., based in Madison, NJ; its affiliate Specialty Laboratories, Inc., based in Valencia, CA; and 4 other Quest affiliates.
• Health Line Clinical Laboratories, Inc., now known as Taurus West, Inc., based in Burbank, CA.
• Westcliff Medical Laboratories, Inc., based in Santa Ana, CA.
• Physicians Immunodiagnostic Laboratory, Inc., based in Burbank, CA.
• Whitefield Medical Laboratory, Inc., based in Pomona, CA.
• Seacliff Diagnostics Medical Group, based in Monterey Park, CA.
• Laboratory Corporation of America, based in Burlington, NC.

California law states that 'no provider shall charge [Medi-Cal] for any service…more than would have been charged for the same service…to other purchasers of comparable services…under comparable circumstances.' Yet, these medical laboratories charged Medi-Cal up to six times as much as they charged some of their other customers for the very same tests. For instance,

• Quest Diagnostics, Inc. charged Medi-Cal $8.59 to perform a complete blood count test (CBC), while it charged some of its other customers $1.43 for the exact same test. This is one of the most frequently requested blood tests.

• Laboratory Corporation of America charged Medi-Cal $30.09 to perform a Hepatitis C Antibody screening, while it charged some of its other customers only $6.44 for the test.

• Health Line Clinical Laboratories charged Medi-Cal $12.65 to perform an HIV Antibody screening, while charging some of its other customers $1.75 for the test.

These are not isolated examples. They are part of a pattern of fraudulent overcharging and kickbacks that developed over the past decade. Here’s how it worked:

• The defendant labs provided deep discounts when they were being paid directly by doctors, patients, or hospitals. Prices were often below the lab’s cost and sometimes free.

• In exchange for these steep discounts, the defendants expected its customers to refer all of their other patients (where the lab was paid by an insurance company, Medicare, and Medi-Cal) to its lab. Under California law, this amounted to providing an illegal kickback.

• These sharply reduced prices, however, were not made available to Medi-Cal. Instead of charging the discounted prices, the defendants charged Medi-Cal up to 6 times more than the defendant charged others for the same tests. In effect, defendants shifted the costs of doing business from the private sector to Medi-Cal.

• Additionally, defendants offered their clients who paid them directly (not through Medi-Cal or other insurance) deeper and deeper discounts in order to get a larger share of the lab testing business. This created an unfair playing field, and laboratories that followed the law could not effectively compete. These law-abiding companies were sometimes forced to sell or go out of business completely.

The case was filed under seal in San Mateo Superior Court under California's False Claims Act by a whistleblower and qui tam plaintiff Hunter Laboratories, which processes blood tests. Hunter Laboratories had found that it could not compete in a significant segment of the marketplace where many of the major players were offering referring doctors, hospitals, and clinics far lower rates than they were charging Medi-Cal.

After the whistleblowers filed the complaint, the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse investigated the allegations and Attorney General Brown intervened under seal. The case became public this week.

Hunter Laboratories' attorney, Niall P. McCarthy of Cotchett, Pitre & McCarthy, commented that “At a time when California is laying off teachers and firefighters and is in a massive budget crisis, it is unconscionable that these defendants would bilk the system to the tune of hundreds of millions of dollars.”

Under California's False Claims Act, anyone who has previously undisclosed information about a fraud, overcharge, or other false claim against the state, can file a sealed lawsuit on behalf of California to recover the losses. They must notify the Attorney General as well.

Such a case is called a 'qui tam' case. If there is money recovery, the law provides that the qui tam plaintiff receives a share of the amount recovered if the requirements of the statute are met.

The lawsuit asks for relief in the amount of triple the amount of California’s damages, civil penalties of $10,000 for each false claim; and recovery of costs, attorneys’ fees and expenses. It is estimated that damages could amount to hundreds of millions of dollars.

The clinical testing field is a $50 billion industry nationwide. The defendants named in the lawsuit include some of the largest clinical laboratories in the country.

Quest Diagnostics is the leading provider of diagnostic testing, information and services in the United States, with more than 500 patient service centers in California.

Laboratory Corporation of America performs more than one million tests on approximately 400,000 samples each day and has more than a dozen patient centers in Los Angeles.

To report fraud or abuse, call the Bureau of Medi-Cal Fraud and Elder Abuse's hotline at (800) 722-0432.

ORANGE COUNTY- Attorney General Edmund G. Brown Jr. today announced the arrest of two scam artists -- Mary Alice Yraceburu and Marianne Curtis -- who “coldly and heartlessly” conned over one hundred and sixty victims out of thousands of dollars for non-existent loan modification services.

“These scam artists coldly and heartlessly preyed on Californians desperate for help in saving their homes,” Attorney General Brown said. “Homeowners in financial trouble have to be on guard against loan modification fraud, so they don’t make a bad situation worse.”

Attorney General Brown today filed 49 felony charges Orange County Superior Court against Mary Alice Yraceburu, 45, of Riverdale and Marianne Curtis, 67, of Costa Mesa.

Yraceburu was arrested today in Fresno County and Curtis was arrested today in Orange County on the following charges:

• 24-counts of grand theft;
• 25-counts of violations of California’s foreclosure consultant statutes;
• One special allegation that the total value of theft was over $65,000;
• One special allegation that the total value of theft was over $100,000;

Both women are convicted felons who have served time in state and federal prisons.

The two women operated a company called Foreclosure Freedom, which sent hundreds of fliers to Californians promising help in stopping the foreclosure of their homes. The fliers read: “FINAL NOTICE – Respond only to this notice immediately.” This is similar to First Gov scam, which the Attorney General stopped late last year.

When homeowners called the number on the flyer, they were told their mortgages could be renegotiated to a lower monthly payment. Victims, however, were required to pay thousands of dollars 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 of any successful loan modifications and most of the victims were either forced into bankruptcy or lost their homes to foreclosure.

Assets seized through search warrants served at Foreclosure Freedom and the bank accounts held by Mary Alice Yraceburu and Marianne Curtis totaled over $10,000.

If convicted of all charges, Yraceburu and Curtis face 21 years in prison.

Copies of the complaint and arrest warrant affidavits are attached.

Ventura -- Attorney General Edmund G. Brown Jr. and Ventura District Attorney Gregory D. Totten today clamped down on two companies -- Imergent, Inc. and Stores On Line – that “falsely promised” customers that they could earn full-time income by selling merchandise over the Internet.

“These companies falsely promised customers that they could get rich by selling merchandise over the Internet,” Attorney General Brown said. “In reality, many customers were left in deep debt, paying high up-front costs, and never earning a dime from their websites. This agreement allows these customers to get back some of their losses.”

These two companies sell website-based “stores,” in packages of three or six websites, at a cost of between $2,700 and $6,000. They market their products at seminars, which they advertise through postcards and other mailings often sent to senior citizens with limited Internet experience. They often offer seminar attendees a meal and a free gift such as an MP3 player.

The companies made statements such as:

“Are you ready to claim YOUR share of eBay’s annual $3.2 Billion in revenue? By attending our FREE 90-minute ‘eBay Entrepreneur Training’ Conference you will learn how eBay PowerSellers run successful Internet businesses and how an elite few use additional strategies to boost revenues way beyond the average seller. Learn how nearly half-a-million people create full-time incomes using eBay!”

At the seminars, the companies make tantalizing claims regarding the massive profits that can be earned by consumers who purchase their product. Often, however, these profits are never realized and the customer is left in serious debt.

One victim used the inheritance left by her father to purchase six websites, in hopes that they would help supplement her income after retirement. The victim spent over $10,000 in set up costs. Of the six websites the victim bought, only one has been set up, and it continues to cost more than it brings in.

In August of 2006, the California Attorney General’s Office and the Ventura County District Attorney settled a previous case against Imergent, Inc. and Stores On Line. That settlement barred the defendants from engaging in conduct that violated California’s laws governing Seller Assisted Marketing Plans.

The Attorney General’s office continued to monitor the companies’ business practices and discovered that they were violating the 2006 agreement and were continuing to sell Seller Assisted Marketing Plans without registering with the state.

A new action was brought in 2007 to enforce the prior judgment, and to seek penalties, restitution, and an injunction. Today’s agreement resolves the 2007 action.

The companies have agreed to the following terms:

• Pay $147,600 for full restitution to California consumers who have complained to the Attorney General’s Office, the Ventura County District Attorney, or directly with StoresOnLine.
• Pay $202,400 for restitution to California consumers who submit complaints within 90 days.
• Cancel all outstanding financing contracts for consumers who have complained.
• StoresOnLine will also send a letter to all California purchasers who have bought since January 1, 2008, offering them a 15-day period within which to cancel the transaction and receive a refund.
• Register with the state as a seller of Seller Assisted Marketing Plans
• Provide a 15-day right to cancel for purchasers over the age of 65
• Disclose clearly the circumstances under which StoreOnLine will charge consumers a web site hosting fee, and provide consumers the opportunity to opt out of hosting websites with Imergent, Inc. and Stores On Line.
• Provide the Attorney General’s Office with recordings of sales presentations and notify the Attorney General and Ventura County District Attorney’s Office when sales presentations take place in California, so they can be monitored.

These types of schemes are promoted on TV infomercials, on the Internet, by direct mail, at trade shows, at invitation-only seminars, and through ads that may appear in the classified sections of newspapers or magazines. The ads promise big earnings, and promise that no selling or other experience is necessary.

If you believe you are a victim and have not yet made a complaint to the Attorney General’s Office, you may be entitled to restitution if you submit a complaint within 90 days.

To submit a complaint with the Attorney General’s Office, please file a complaint online at http://ag.ca.gov/consumers/general.php or call the Public Inquiry Unit at 1-800-952-5225.

LOS ANGELES- California Attorney General Edmund G. Brown Jr. today warned that scam artists have “sunk to a new low” and have used the forged letterhead of major lenders to con worried Californians into paying thousands of dollars for non-existent loan modification services.

“Scam artists have sunk to a new low and are using the forged letterhead of lenders to con worried Californians into handing over their hard-earned money,” Attorney General Brown said. “Californians should be deeply skeptical of anyone who demands money up front and makes extravagant promises that they can save their home.”

Attorney General Brown also advised consumers about seven steps they can take to protect themselves from loan modification fraud. (See below).

Today’s warning comes on the heels of the arrest Wednesday of Anna Santos, 22, of North Hills – a key player in a loan modification scam using forged letterhead – on charges of money-laundering, conspiracy, and four-counts of grand theft.

Ms. Santos joined with members of the defunct First Gov loan modification ring in a separate criminal enterprise with a disturbing twist. They used forged mail and envelopes that appeared to be from victims’ lenders.

Ms. Santos obtained a fictitious business permit through the City of Los Angeles for “Payment Processing Department.” She opened several bank accounts and two post office boxes under that name. She and other members of the ring mailed flyers that appeared to be from victims’ lenders or a government entity. The flyer used a large, bold header that read “Final Notice” and advised homeowners that they qualified for a special program to save their home from foreclosure.

After providing their mortgage information, homeowners received what appeared to be “confirmation” that the lender had been notified about the loan modification. Many victims also received loan modification documents that appeared to be from the victim’s lender. The documents were of course forgeries.

The victims were informed they had been placed in a “probationary” program and their mortgage payments should be submitted to “Payment Processing Department” and sent to a given post office box address. None of the payments were credited to the victims’ home loans.

Payments sent to the post office box were retrieved by Ms. Santos and deposited into the bank accounts she had opened. The money was then transferred to bank accounts held by other members of the ring.

Many victims paid over $6,000 to this loan modification scam.

Here’s what homeowners can do to avoid becoming a victim:

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

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

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

• DON’T pay money upfront to people who promise to work with your lender to modify your loan. It is unlawful for foreclosure consultants to collect before 1) they give you a written contract describing the services they promise to proved and 2) they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan.

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

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

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

• DO contact housing counselor approved by the U.S. Department of Housing and Urban Development (HUD), who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at 1-800-569-4287 (TTY: 1-800-877-8339) or www.hud.gov.

IF YOU TRANSFERRED YOUR PROPERTY OR PAID SOMEONE TO “RESCUE” YOU FROM FORECLOSURE, YOU MAY BE A VICTIM OF A CRIME.

Please file a complaint with the Attorney General’s Office at the following address: Office of the Attorney General - Public Inquiry Unit, P.O. Box 944255, Sacramento, CA. 94244, or online at www.ag.ca.gov/consumers/general.php.

SAN BERNARDINO -- Attorney General Edmund G. Brown Jr. announced that three individuals have pled guilty to loan modification fraud against hundreds of 'desperate California homeowners' and were sentenced to as much as 6 years of prison.

“While doing nothing to help and pocketing all the money, these individuals ripped off desperate California homeowners who paid thousands of dollars to stop the foreclosure of their homes,” Attorney General Brown said.

The defendants sentenced were part of a foreclosure scam engineered by the First Gov company, which was based in San Bernardino, Calif.

• Rosa Conrado, 51, of San Bernardino, was sentenced today to six years, four months of prison for 6 counts of grand theft.

• Alejandrina Maldonado, 33, of St. Lucie, Fla., was sentenced on February 26, 2009, to a three year prison term for one count of grand theft.

• Martin Jesus Flores, 33, of Baldwin Park, was given three years of probation today based on his limited participation in the scheme.

• David Giron, 44, of Ontario, and Saul Amador, 23, of West Covina are scheduled for a preliminary hearing on March 19, 2009, for theft, money laundering, and conspiracy.

• Three other members of the ring -- Juan Jose Perez, 48, of Grand Terrace, Isuara Hernandez, 33, of La Habra, and Antonia Gonzalez, 66, of San Bernardino – are believed to have fled the jurisdiction and may be out of the country.

In November 2008, Attorney General Brown announced the break up of the First Gov scam ring. First Gov, -- which also operated under such misleading names such as Foreclosure Prevention Services; Resolution Department; Reinstatement Department; and Reinstatement Processing -- solicited hundreds of homeowners, offering to help them stop the foreclosure of their homes.

Ring members promised victims they would renegotiate their mortgages and reduce monthly payments. They demanded an up-front fee, ranging from $1,500 to $5,000, to participate in the loan-modification program.

Victims were told to stop making mortgage payments and communicating with their lender because this would interfere with the loan modification process. After collecting their fee, ring members pocketed the money and did nothing to help victims.

The action today is part of Attorney General Brown's campaign to fight predatory lending and loan modification scams.

• In March 2008, the Attorney General’s office arrested members of Lifetime Financial Corporation for perpetrating a similar mortgage-modification scam that cheated hundreds of California homeowners out of hundreds of thousands of dollars.

• In October 2008, the Attorney General secured $8.6 billion in loan relief for eligible homeowners in a landmark settlement with Countrywide Financial Corporation for engaging in deceptive and predatory lending practices.

The Attorney General has also issued a Consumer Alert regarding foreclosure scam rings and tax reassessment scams. Homeowners should be on high alert when approached by companies offering ways to save your home or lower your property taxes.

The press release announcing the First Gov arrests in November can be found at: http://ag.ca.gov/newsalerts/release.php?id=1627

FOR IMMEDIATE RELEASE
February 27, 2009
Contact: Christine Gasparac (916) 324-5500

Brown Announces Arrest of Fugitive who Masterminded $20 Million Real Estate Fraud Scheme

NEVADA COUNTY —Attorney General Edmund G. Brown Jr. and the Nevada County District Attorney announced that the man behind a $20 million “fraudulent real estate scheme,” Thomas Hastert, was taken into custody and arrested Thursday in Santa Cruz.

“Thomas Hastert’s days of swindling millions from investors and borrowers are at an end,” Attorney General Brown said. “Now the case moves to the courtroom, and Mr. Hastert can be held accountable for his fraudulent real estate scheme.”

A warrant was issued for Hastert’s arrest last Friday. Santa Cruz investigators, working with the Nevada County District Attorney’s Office, arrested him yesterday morning at his daughter’s house. Bail was set at $540,000.

Seventy-three criminal counts were filed against Thomas Hastert in the Nevada County Superior Court last Friday for embezzlement, securities fraud, and filing false documents.

Hastert brokered over 270 hard-money loans in Nevada, Sacramento, Sutter, Butte, Placer, and Yolo Counties between September 2004 and September 2007 for real estate development projects. Hard-money loans typically provide high returns for private investors and are secured through collateral such as real estate.

In this case, Hastert secured $20 million from several investors, using the funds to broker hard-money loans to borrowers seeking to develop homes on real estate.

In the criminal complaint, Hastert is alleged to have:

Misled investors. Hastert told investors that borrowers had excellent credit scores and were capable of repaying the loans. This proved to be untrue. Many borrowers had poor credit scores, did not make regular payments on the loans, and held properties that were in foreclosure.

o The loans that Hastert brokered were required by law to be placed into a special trust account overseen by a third-party escrow firm. The firm had to verify whether funds being withdrawn by borrowers were being used for construction projects. Despite telling investors he had established such a trust account, Hastert never did, and the money was regularly withdrawn and misused by borrowers with no oversight.

o Hastert told investors he would personally oversee the development of the land. In one instance, he was asked by investors to drive them to a particular property that was supposedly under development. Hastert could not locate the property.

• Set up fake investors, known as “straw men,” to keep concerned investors at bay. Hastert filed documents with a county recorder’s office saying that his secretary owned a majority interest in the investment, despite the fact that she had never invested a single dollar. If a legitimate investor tried to initiate foreclosure proceedings, Hastert would contend that the supposed majority owner opposed the action.

• Embezzled fees. Hastert was entitled to collect a 3% fee on loans he brokered. However, he took all his fees up-front as if the loan were fully funded. In fact, some loans never fully funded, and others took more than a year to fully fund.

If convicted, Hastert could face up to 11 years and 4 months in prison. Bail was set at $540,000. A warrant was issued for his arrest today.

To view the press release about his charges, please follow this link:

http://ag.ca.gov/newsalerts/release.php?id=1683

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