Consumer Protection

SAN DIEGO--California Attorney General Edmund G. Brown Jr. today announced that Theodore Swain, 60, was sentenced this morning to 24 years in state prison for running a $7 million Ponzi scheme that ripped off 100 investors in Southern California.

“This is the fourth time Swain has been caught ripping people off with his worthless investment schemes,” Attorney General Brown said. “Most recently, he convinced 99 consumers, including a doctor, lawyer and aerospace engineer, to invest tens of thousands of dollars in property which does not exist.'

Today, the Honorable Judge Charles Gill sentenced Theodore Swain to 24 years in state prison and ordered him to pay $6.7 million in victim restitution.

Swain used professional looking mass-mailings, directed at tens of thousands of people in southern California, to entice investors into conducting business with First Fidelity Assurance Corporation, based in San Diego.

Swain successfully tricked 99 consumers, between 2003 and 2006, into investing between $1,000 and $100,000 in mortgage certificates for properties which did not exist. Swain produced an elaborate and flashy looking investment prospectus, which promised 10% returns on real-estate projects requiring quick financing during the housing boom.

“This was a very convincing Ponzi scheme,” said Deputy Attorney General Tawnya Boulan who prosecuted the case jointly with the California Department of Corporations. “Swain was very persuasive and ripped off sophisticated investors by maintaining an appearance of success.”

Swain used cash from new investors to pay dividends to old investors, thereby perpetrating his fraud for several years. Swain never disclosed to investors that he had been convicted of grand theft three times and had previously filed for bankruptcy. Under California law, individuals selling investments must disclose any information which might factor into a consumer's decision on whether or not to invest.

Swain’s only source of revenue for the scheme was new investment capital from new investors. He strung people along for nearly three years, ripping off a total of $7 million. About $300,000 was occasionally returned to some investors as a way to convince them to stay involved in the fraudulent scheme and lend an air of legitimacy to the operation.

In 2006, Swain was arrested in New Mexico following an investigation by the California Department of Corporations. During the investigation, the attorney general obtained a court order to freeze $2 million in Swain’s assets and property, money which will be used as restitution for victims of the fraud.

In 2008, after a five-week trial, a San Diego jury found Swain guilty of 15 counts of fraud, 6 counts of grand theft, 3 counts of grand theft of an elder, and 6 counts of running a fraudulent securities scheme. The jury also imposed an excessive taking and white collar crime enhancements of $2.5 million.

“It is devastating when the financial well-being of California citizens falls into the hands of a con man that uses trickery and deceit,” said Sean Rooney, Senior Trial Counsel for the California Department of Corporations. “Today’s sentencing sends a message that swindlers like Theodore Swain will be thoroughly investigated and prosecuted under California law.”

The trial was jointly prosecuted by Deputy Attorney General Tawnya Boulan and Sean Rooney, Department of Corporations Counsel.

For more information on today’s sentencing please contact the California Department of Corporations at (916) 322-7180.

SAN DIEGO--California Attorney General Brown today shut down a team of scam artists that acquired deeds to hundreds of homes in foreclosure by convincing desperate consumers to place their property in a “land grant,” a phony and worthless real estate document.

Federal Land Grant Company—a San Diego-based business run by Bill Hutchings, his wife Xiaoke Li and former wife Shawna Landis—tricked desperate homeowners into believing that they could protect their homes from foreclosure by deeding their property to “federal land grants.” Land grant transfers, used hundreds of years ago when the United States was still acquiring land from other countries, are no longer recognized by any court or county assessor.

“There hasn’t been a legitimate use of the land grant since the conclusion of the Mexican-American war,” Attorney General Brown said. “If some fast talking scam artist offers a quick escape from foreclosure using archaic documents, be extremely suspicious.”

Federal Land Grant required homeowners to pay up to $10,000 to put their property in a so-called land grant which the company claimed would prevent foreclosure. Federal Land Grant also tricked homeowners into signing over the deed to their home and paying the company rent.

To make the meaningless grants appear legitimate, the company attached a land survey from when property was transferred to the United States by a foreign entity hundreds of years ago. In San Diego, for example, the company attached a survey from the Spanish Land Grant of 1872 and said that the deed reinstated the land grant and would protect homes from foreclosure.

State investigators confirmed from realty specialists in the Bureau of Land Management that a “federal land grant” transfer is meaningless and there is no mechanism in California for establishing a land grant on privately held land. Homeowners who are conned by the land grant scam are typically evicted from their property at the completion of foreclosure proceedings and retain no legally recognizable title to their property.

At least two Riverside County Superior Court judges, when faced with foreclosure sales involving so-called land grants, did not give any consideration to the deeds and issued eviction orders sought by the lender.

Federal Land Grant often perpetrated their scam by inviting homeowners to attend weekly seminars on the fraudulent land grant program. During these seminars, which had up to 50 participants, the company convinced homeowners to enter a lease back scheme in which the homeowners transfer their property to Federal Land Grant and then make monthly payments, purportedly for rent.

Investigators in the California Attorney General’s Office have discovered more than 280 properties in San Diego and Riverside counties that have been transferred to Federal Land Grant or one of its affiliated companies. An additional 65 properties have been transferred in counties including Los Angeles, Orange and San Bernardino. At least 60 homeowners have had their homes sold through foreclosures.

Attorney General Brown today filed a complaint for an injunction and penalties against Federal Land Grant. In addition to filing a complaint, the attorney general obtained a restraining order to halt the defendants’ illegal activities and an asset freeze so that the company’s money can be used to refund consumers. A hearing for the preliminary injunction is set for June 5, 2008.

As a result of its business practices, Federal Land Grant allegedly violated California’s foreclosure consultant and equity purchaser laws and California’s laws prohibiting deceptive and unfair business practices including:

• Unlawfully acquiring title to property by falsely representing that it is necessary to put property into a “land grant” to stop foreclosure
• Making false statements regarding the existence of a mechanism to transfer property from private ownership to a “federal land grant”
• Making untrue statements that consumers’ private property has been transferred to a “land grant” when this is a legal impossibility.
• Telling homeowners that transferring title to the company will prevent homeowners from having to pay their mortgage when the transfer merely strips homeowners of collateral for their mortgage and does not relieve the debt itself.

A copy of the complaint and application for the restraining order are attached.

Yesterday, investigators from the San Diego District Attorney’s Office and FBI agents served arrest warrants and three search warrants during one of the land grant seminars in San Diego. Arrested were the ringleader William Hutchings, 62, Xiaoke Li, 43, both of Scripps Ranch in San Diego, Edgar Martinez, 30, and Diego Gil, 38, on charges of conspiracy, grand theft, and deceitful practices as foreclosure consultants. An arrest warrant for Shawna Landis, 29, of Sorrento Valley, has been issued. The San Diego District Attorney will prosecute the criminal case.

“The defendants preyed on mostly non-English speaking, Hispanic homeowners who were in foreclosure, claiming to offer assistance in preventing the victims from losing their home,” San Diego District Attorney Dumanis said. “These transactions were illegal and left the victims even worse off than they were before. Some of the victims have been evicted from their own homes when this scheme failed.”

The district attorney and FBI are asking all victims who signed properties over to defendants or the companies to report the incident by calling the following hotline: (619) 531-4475

ORANGE COUNTY— California Attorney General Edmund G. Brown Jr. today announced the arrest of an Orange County travel agent who sold more than $160,000 in “bogus travel packages” to senior citizens who wanted to visit Cuba for religious and cultural purposes.

“The suspect allegedly ripped off dozens of senior citizens who wanted to travel to Cuba for religious and cultural purposes,” Attorney General Brown said. “Peddling these bogus travel packages has earned Mr. Rendon a trip to court to face criminal charges,” Brown added.

The 78 felony charges, filed in Orange County Superior Court on April 8, allege that Ralph Adam Rendon, 31, of Santa Ana, stole hundreds of thousands of dollars from people who wanted to go on religious trips to Cuba. On Tuesday, Orange County Sheriff’s deputies arrested Rendon. Bail was set at $170,000.

Ostensibly, the trips were designed to connect Jewish and Greek Orthodox Americans with members of their faith in Cuba. In 2006, Rendon began advertising his travel agency, “USA to Cuba,” in religious magazines in an effort to target Jewish and Greek Orthodox people who wanted to travel to Cuba for religious purposes.

Rendon directed victims to pay $1,000 in upfront fees to his alleged business “USA/AAE Scholarship Foundation,” but put his private address on the return envelop. After victims paid this upfront fee, Rendon requested an additional $2,580 and then canceled the trip. Rendon told the travelers that the U.S. Treasury Department had blocked all religious trips to Cuba, which was false.

Investigators determined that Rendon sold fake trips to 34 elderly travelers from Los Angeles, San Francisco, Utah and New York. When victims attempted to obtain refunds after the trip was canceled, he ignored their demands. In June 2006, Rendon stopped selling trips.

Financial records show Rendon used customers’ money to pay his rent, lease a new Mercedes, and hire a divorce attorney. Brown charged Rendon with 78 felony counts, including grand theft, embezzlement, mishandling consumer funds and trust account violations.

Investigators with the California Department of Justice and the Santa Ana Police Department launched their probe in 2006 after receiving complaints from victims. With assistance from the Long Beach and Seal Beach police departments, investigators began to interview victims and audit Rendon’s bank records.

Rendon allegedly violated Sellers of Travel law which requires travel agents to register with the Attorney General’s Office. Rules also require travel agents to deliver services before extracting a fee; Rendon improperly collected his fees upfront. He also failed to place the victim’s money into a trust account, which state law requires. If an agent is unable to arrange a trip, they must refund all consumers’ money within three days.

By failing to disclose that he was not a registered seller of travel and that he did not have a license to arrange trips to Cuba, Rendon committed theft by false pretenses. Rendon allegedly embezzled the money he was given. Rendon allegedly committed numerous felony violations for failing to deposit the money he was given to arrange the trips into a trust account.

Agents that sell trips to Cuba must obtain a Travel Service Provider license from the U.S. Treasury Department. The Department does allow trips to Cuba for religious or humanitarian purposes. Rendon never obtained a license and the Treasury Department told him to stop selling travel packages to Cuba.

Rendon was arrested by Orange County Sheriff’s deputies on Tuesday. He posted bail, which was set at $170,000 dollars.

For a copy of the criminal complaint and declaration in support of the search warrant, please contact the Attorney General's Press Office.

LOS ANGELES—California Attorney General Edmund G. Brown Jr. today shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions, accusing the predatory lending companies of pushing homeowners into “illegal and unconscionable loans.”

“As the mortgage crisis worsens, a growing number of fly-by-night companies are employing utterly brazen tactics to push homeowners into illegal and unconscionable loans,” Attorney General Brown said. “The illegal sales practices of these companies, run by Eric Pony and his family, included psychological pressure, forgery, and outright lies,” Brown added.

The companies ran a complex predatory lending scheme using bait and switch tactics to victimize thousands of consumers in California, many of whom have lost their homes.

Yesterday, the Los Angeles Superior Court, at the request of the attorney general, froze all the companies’ real estate and bank accounts and enjoined them from engaging in further predatory practices. The freeze order also included expensive cars and millions of dollars in private real estate owned by Eric Pony. Brown also seeks an estimated $20 million in penalties and restitution.

In the coming weeks, Brown intends to bring additional legal actions, both civil and criminal, against other mortgage lenders and foreclosure consultants who are taking advantage of homeowners across California.

San Bernardino District Attorney Michael A. Ramos also announced that several individuals affiliated with Lifetime Financial were arrested this morning on charges including conspiracy, grand theft, forgery and elder abuse. “These predatory lenders have taken advantage of people who placed their trust, as well as their homes, in the hands of these unscrupulous business people,” San Bernardino District Attorney Ramos said.

THE SCAM

Lifetime Financial, Nations Mortgage and Greenleaf Lending operate predatory lending schemes to cheat homeowners by promising unrealistically low mortgage payments and then switching them to loans that do not match the original agreement. Telemarketers lure consumers by telling them that they are preapproved for a fixed rate loan of 5% to 6% which could lower monthly payments by hundreds of dollars.

Although the exact number of victims is unknown at this time, Eric Pony, the President of Lifetime Financial, claims to have arranged thousands of loans. During the investigation that led to today’s lawsuit, the California Attorney General’s Office took declarations from more than twenty individuals who had been scammed by these companies.

Lifetime Financial arranged loans with hidden fees of up to $20,000. In addition to these fees, consumers end up with loans that have worse financial terms than their original mortgage.

In some cases, consumers were saddled with monthly payments that exceeded their entire monthly income. Many consumers have either lost their homes to foreclosure or are facing foreclosure as a result of engaging in these transactions.

Telemarketers initially request only a nominal payment for a home appraisal. Appraisers then inflate home values to qualify the homeowners for much higher loans than are appropriate. The companies never provide copies of theses appraisal reports to consumers.

Next, a salesperson shows up at the victim’s house, sometimes as late as 11:45 at night, with documents that are incomplete or contain terms that are vastly different from those originally promised. If consumers complain about the terms, the salespeople tell them that there is a mistake but they should just sign the paperwork to “keep this great deal.”

If a consumer refuses to sign the documents, company employees forge the customer’s signature. In some instances, the forgeries are so blatant that the victims’ names are misspelled.

As a result of these tactics, the final mortgage documents always contain extremely unfavorable terms that are substantially worse than originally promised by the telemarketers. Other fraudulent and unlawful practices include the following:

• Offering thousands of dollars in cash back without disclosing that the money would be used to cover high fees
• Falsely promising to reimburse prepayment penalties from the victim’s current lender
• Pressuring victims to sign inaccurate loan documents by promising to correct excessive fees
• Failing to provide copies of signed documents
• Forging victims names and signatures on loan documents
• Falsifying income information on loan applications and creating fake references
• Refusing to honor written demands to cancel loans

If a consumer tries to back out of the transaction, the companies promise to waive thousands of dollars in various processing, application, origination and underwriting fees. If the consumers agree, sales representatives provide a new statement but then resubmit the original forms, ultimately charging the same excessive fees.

THE SCAM ARTISTS

Lifetime Financial, Nations Mortgage, and Greenleaf Lending, all located in Los Angeles, operated complex real estate schemes involving, by Eric Pony’s own admission, thousands of transactions. Documents obtained during a recent search warrant confirmed that Lifetime Financial recently received more than $1.7 million from Olympic Escrow.

Some of the key players involved in companies’ conspiracy to rip off homeowners include the following individuals:

• Eric Pony, 25, a real estate sales person until he surrendered his license in September 2007 following an investigation by the California Department of Real Estate. Eric Pony is also known to use the alias “Oren” to conceal his unlawful practices.
• Paulette Pony, 23, Eric’s sister and a notary public for Lifetime Financial until her license was revoked in December 2007 by the California Secretary of State for felony conspiracy charges and failing to disclose a 2003 forgery conviction.
• Wilma Pony, 58, Eric’s mother, who also worked as a notary for Lifetime and is the President and Chief Executive Officer of Nations Mortgage, Inc. and Direct Credit Solutions, Inc., organizations which are also being sued today by the attorney general.

Lifetime Financial, and its web of affiliate organizations, has also operated out of Encino, Canoga Park, Glendale and North Hollywood.

The Pony family employed a team of telemarketers, notaries, brokers and escrow officers to peddle their fraudulent loan applications. These suspects, who solicited consumers in Spanish, English and Tagalog, knowingly broke the law in an effort to push consumers into loans they could not afford. The companies charged consumers with excessive hidden fees, as high as $20,000. Other suspects sued today include the following persons:

• Eli Hassine, 25, who was appointed a notary public in January 2005.
• John D H N Nielsen, a.k.a. Doo Hyun No, a licensed real estate broker for Nations Mortgage and Green Leaf Lending, Inc.
• Carol Pencille, 57, an escrow officer and the President and Chief Executive Officer of Olympic Escrow, a company involved in a kickback scheme with Lifetime whereby $2,700 in fees was taken from escrow proceeds through falsified amendments to loan documents.
• Sibpun Ampornpet, 31, an escrow officer, notary public, and principal of Olympic Escrow. A document shredder in Ampornpet’s office contained shredded signatures of consumers and other fraudulent paperwork.
• Dean Storm, a licensed real estate broker until a Department of Real Estate investigation led to the revocation of this license in September 2007.

At various times, Pencille and Ampornpet also worked for Virtual Escrow, Inc. and Olympic Escrow, companies that operated in Glendale, Encino and North Hollywood. The attorney general suspects that there are other people involved in these companies’ conspiracy to cheat homeowners and will amend the state’s lawsuit when these persons are identified.

THE VICTIMS

The following are two examples of the individuals who were manipulated by the company’s irresistible offers:

In 1996, Ron and Barbara Fitzgerald moved into their home in Lancaster, California. Ron is retired and his wife Barbara has been bedridden for several years due to a serious medical condition. In October 2006, Lifetime Financial offered the Fitzgeralds a 4.5% fixed rate with $800 monthly payments. The telemarketers offered to meet Ron at a nearby café to review paperwork.

During the meeting, Ron discovered that the paperwork did not conform to the terms that were discussed with the telemarketers. The sales agent told Ron that the paperwork was a “mere formality” and “everything would be taken care of.” Ron decided not to sign all the paperwork.

Later that month, the Fitzgeralds were stunned to find that their loan had been processed even though Barbara Fitzgerald did not, and could not have, signed any loan documents due to her medical condition. Investigators later determined that all the signatures and initials on the loan documents were forged.

The Fitzgerald’s mortgage went from $189,000 at an adjustable rate of 8.04% with monthly payments of $1,100, to now owing $244,000 at an adjustable rate of 8.5% with payments of $1,788.

Luis Garcia, a 75 year old disabled senior from Peru, has limited understanding of English. Lifetime Financial contacted Garcia in Spanish and promised to refinance his mortgage into a low, fixed rate. Garcia agreed to a 50 year loan with $1,000 monthly payments and was shocked when he received a letter from New Century Mortgage stating that his new loan rate was 7.95% and his initial monthly payment would be $2,254. All the paperwork provided to Garcia was written in English.

With help from translators and family, Garcia discovered that Lifetime Financial had falsified almost all of Garcia’s information including his monthly income and work history. Garcia was unable to afford the extremely high monthly payments and ultimately lost his home.

THE CHARGES

The attorney general is seeking civil penalties of $2,500 for each violation of law and full restitution as well as a permanent injunction against operation these businesses. Penalties and restitution are estimated to exceed $20 million. The following assets are subject of the seizure order:

• Bank accounts at Wells Fargo, Bank of America, Citibank, East West Bank, First Federal Bank and Washington Mutual
• 16 separate private and commercial properties, valued at more than $6 million, in Tarzana, Canoga Park, Studio City, Las Vegas, San Antonio, Sherman Oaks, North Hollywood and Los Angeles
• All personal property, especially luxury cars, including: 4 Mercedes Benzs, 2 Ferraris, 1 Land Rover, 1 BMW, 1 Audi and 1 Bentley

Other agencies which assisted with the investigation that led to today’s lawsuit include: Los Angeles Department of Consumer of Affairs, California Department of Real Estate, the California Department of Motor Vehicles and the San Bernardino District Attorney.

California’s lawsuit, filed yesterday afternoon under seal in Los Angeles Superior Court, is attached.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today sued Abbott Laboratories and French drug company Fournier for devising “an elaborate scheme” to block less expensive generic versions of TriCor, a drug that controls cholesterol.

“Through an elaborate scheme—involving multiple drug patents, baseless lawsuits, and market manipulation—Abbott and Fournier thwarted competition,” Attorney General Brown said. “These companies made billions of dollars in annual profits, while Californians were burdened with artificially high drug prices,” Brown added.

After the Food and Drug Administration approved TriCor in 1998, Abbott and Fournier immediately devised a complicated strategy to prevent generic companies from entering the market and driving down Tricor prices. Key elements of the company’s scheme included the following:

• First, the company made trivial changes to the formulations of TriCor, for example switching from a capsule to a tablet, and then withdrew the original drug from the market.
• Then, Abbott and Fournier aggressively marketed their slightly altered versions of TriCor—although these drugs did not offer new medicinal benefits.
• Next, Abbott and Fournier deleted references to the original forms of the drug from national drug databases to confuse pharmacies or health plans, consequently making it impossible for a generic version of TriCor to obtain generic status.

At the same time, Fournier got the U.S. Patent Office to issue a series of patents covering the minor variations of TriCor, and then filed meritless patent infringement lawsuits against generic companies that tried to compete.

Abbott and Fournier knew that their patents were unenforceable but the litigation triggered mandatory thirty-month periods in which the Food and Drug Administration could not approve generic versions of TriCor. These delays from litigation gave Abbott and Fournier enough time to deplete the market of the older versions of TriCor so that no generic company could compete.

All of these baseless lawsuits were ultimately terminated or dismissed by Abbott and Fournier after their market-switching schemes were completed.

The attorney general alleges that these practices violate California’s antitrust law as well as the Sherman Act and have caused Californians to pay artificially high prices for TriCor. California and its citizens pay more than $150 million on TriCor per year. Studies show that when generic competition to a branded drug becomes available, the price for the drug decreases between 50 and 80 percent.

The civil complaint, filed today in federal court in Delaware along with twenty three other states, seeks triple the amount of damages incurred by the state’s public health agencies and individual consumers. The reason for seeking these exemplary damages is due to the willful, egregious and repeated nature of these violations.

Abbott Laboratories develops, manufactures, and sells pharmaceuticals and health care products and services throughout the United States. The company’s principal place of business is 100 Abbott Park Road in Illinois. Fournier Industrie et Sante is a French corporation headquartered at 42, Rue de Longvic, 21300 Chenove, France. Laboratoires Fournier, S.A., a subsidiary, collaborated with Abbott for regulatory approval, production and sale of TriCor in the United States.

TriCor is a brand-name prescription drug that uses the active ingredient, fenofibrate, to regulate triglyceride and cholesterol levels. TriCor and other fenfibrate drugs lower triglyceride levels, reduce low-density lipoprotein cholesterol, and increase high-density lipoprotein cholesterol. TriCor is generally prescribed as a maintenance drug for long-term cholesterol problems.

Eighteen states joined California today in filing this lawsuit including: Arizona, Arkansas, California, Connecticut, District of Columbia, Florida, Iowa, Kansas, Maine, Maryland, Minnesota, Missouri, New York, Nevada, Oregon, Pennsylvania, South Carolina, Washington and West Virginia.

The complaint is attached.

SAN FRANCISCO--Attorney General Edmund G. Brown Jr. today requested that the San Francisco Superior Court issue an injunction to prevent H&R Block from telling its customers that tax refunds can be obtained within two days, without disclosing that such payments are actually expensive loans.

“H&R Block incorrectly tells its customers that a tax refund can be obtained within two days--these payments are loans, not legitimate tax refunds,” Attorney General Brown warned. “Consumers should know that such quick payments result in high interest rates and heavy fees.”

It takes between 8 and 15 days for the Internal Revenue Service to send refunds to individuals who use direct deposit and 21 and 28 days to obtain a refund by mail. H&R Block, however, told customers that they could get their refunds within two days. These payments were actually loans offered by H&R Block that has annual percentage rates, including fees, of 80% or higher. According to publicly filed documents, millions of Californians have received these loans since 2001.

California law and the Internal Revenue Service require that tax preparers distinguish between tax refunds and “refund anticipation loans” that are based upon the expected tax refund amount. According to California Business and Professions Code Section 22253.1 (a), “any tax preparer who advertises the availability of a refund anticipation loan shall not directly or indirectly represent the loan as a client’s actual refund.”

At a hearing this afternoon, the attorney general asked the San Francisco Superior Court to issue a preliminary injunction prohibiting H&R Block from continuing to represent its loans as tax refunds. The Court has scheduled a hearing to decide the matter on April 3rd.

Investigators in the attorney general’s office called H&R Block offices throughout California, requesting information about how long it would take to get tax refunds. Two-thirds of the H&R Block representatives told investigators that refunds can be sent to taxpayers within two days, without disclosing the fact that it was actually a loan.

Most of the people who get the loans receive the Earned Income Tax Credit. People who earn this credit typically make between $10,000 and $35,000 and have several dependents, making them especially vulnerable to high-interest loans.

“For years, H&R Block has not disclosed the fact that a two-day return is a loan, not a true tax refund,” said Brown. “It is shocking that the company still continues this unlawful business practice and fails to properly train its employees.”

Today’s request for an injunction is part of an ongoing lawsuit against H&R Block, filed in 2006, alleging that the company engaged in false or deceptive advertising in its marketing of high-cost loans to low-income families. California’s lawsuit alleges that H&R Block violated IRS rules prohibiting the company from directly providing loans. According to the lawsuit, the company provided customers with the loan applications, filled out the applications, and sent the applications to the banks. H&R Block also provided customer’s loan money on an “Emerald” ATM card that came with heavy fees and costs.

Defendants in the case include H&R Block Services, Inc.; H&R Block Enterprises, Inc.; H&R Block Tax Services, Inc.; and Block Financial Corporation. Last year, H&R Block’s total revenues exceeded four billion dollars.

The Attorney General has also brought legal action against two H&R Block competitors that also offer refund anticipation loans. On February 26, 2007, the attorney general filed a complaint against Liberty Tax Service. That complaint is attached.

On January 3, 2007, the attorney general reached an agreement, also attached, with Jackson Hewitt Tax Service.

For more information on California's lawsuit against H&R Block, visit: http://ag.ca.gov/newsalerts/release.php?id=1261&year=2006&month=2

LOS ANGELES—California Attorney General Edmund G. Brown Jr. today sued Interwall Development Systems, one of Los Angeles’s largest drywall contractors, for employing a “sophisticated and heartless scheme” to cheat hundreds of its employees out of at least $5 million in wages and benefits.

“Interwall employed a sophisticated and heartless scheme, involving multiple businesses, to cheat its employees out of overtime and mandatory break periods,” Attorney General Brown said. “Today’s lawsuit sends a strong message that California will not tolerate companies that rip off their employees.”

Brown’s lawsuit alleges that Interwall denied overtime pay, did not provide itemized wage statements, and did not allow its employees to take breaks during afternoon shifts. The company slashed its labor costs in an effort to underbid competition for at least 150 drywall installation projects in Los Angeles, San Bernardino, Riverside, Orange and San Diego Counties. The company maintains offices in Irvine and Laguna Beach.

Investigators found that Interwall employees worked Monday through Saturday, up to twelve hours per day, and received no overtime payments. Interwall also denied rest breaks to employees during their afternoon shifts. Under California law, workers are entitled to ten minute breaks every four hours and overtime pay for working more than eight hours per day or 40 hours per week.

To avoid paying overtime, Interwall set up a complex business operation with affiliate companies that paid employees, at regular pay rates, for the extra hours. In one case, an employee worked 68 hours for Interwall but was paid for 40 hours by Felts Construction Company and 28 hours by Cinco Construction. ANCCA Corporation dba N-U Enterprise was also involved in the various payment schemes.

Workers who labored for the drywall company suffered substantial monetary losses and are entitled to approximately $2.5 million for unpaid overtime and $2.5 million for working through mandatory breaks. The attorney general brings this lawsuit to halt the company’s illegal practices and get restitution for the workers who lost wages. Brown sued Interwall under Business & Professions Code, section 17200, which expressly prohibits unlawful or unfair business practices. Specifically, Attorney General Brown seeks:

• An injunction against Interwall to get the company to stop denying overtime and other benefits
• Restitution payments to the employees who lost thousands of dollars in wages
• Civil penalties of up to $2,500 for each violation of Business and Professions Code section 17200

The attorney general enforces California laws that require fair business practices in order to protect working men and women and ensure a level playing field where all businesses adhere to the same rules of conduct.

In December, Brown sued two janitorial companies, Excell Cleaning & Building Services and MO Restaurant Cleaning Services, for committing flagrant violations of California’s basic wage and hour laws. Brown also sued Brinas Corporation, a Southern California drywall contractor that was paying workers below minimum wage and also denying overtime wages. Brown also sued PacifiStaff, a company that was teaching construction companies how to avoid providing state mandated workers’ compensation benefits.

The Attorney General has other ongoing investigations into employment, payroll and record-keeping practices of various businesses and construction companies across California.

The state’s lawsuit against Interwall is attached.

LOS ANGELES—Attorney General Edmund G. Brown Jr. and Insurance Commission Steve Poizner today announced a $7.2 million settlement with American Investors Life Insurance Company, Family First Insurance Services, and Family First Advanced Estate Planning, resolving allegations that the companies sold thousands of annuities with exorbitant fees to vulnerable senior citizens.

“These companies tricked senior citizens into buying annuities that would not pay out for years and had substantial early withdrawal fees—investments that made no sense for elderly people,” Attorney General Brown said. “California took action against these companies and today’s settlement marks the end of their unlawful practices,” Brown added.

“I refuse to tolerate insurance fraud in California,” said Commissioner Poizner. “Targeting our state’s vulnerable seniors to make an extra buck is especially egregious. Today’s settlement is a victory for seniors and all California consumers.”

Today’s multi-million dollar settlement resolves a lawsuit filed in 2006 which alleges that the companies tricked senior citizens into buying annuities—long-term financial vehicles with high penalties for early withdrawal. The annuities offered the possibility of future payments, but only after a lengthy surrender penalty period. Such annuities are generally acquired as long-term investments for future retirement income and not considered wise vehicles for seniors’ savings.

Under the scheme exposed by the attorney general and the insurance commissioner, Family First sent sales representatives, who were not authorized to practice law, to senior citizens’ homes to provide legal advice on estate planning. At no time during the initial solicitation or the home visits did Family First disclose that their ultimate goal was to sell annuities. After preparing the living trust documents the agents returned to the seniors’ homes—under the guise of acting as their financial or estate advisors—and induced the seniors to move their liquid assets into annuities.

The representatives did not disclose that seniors would be unable to withdraw more than the specified amounts while waiting for the investment to mature—sometimes up to 15 years—without incurring substantial penalties. The scheme, known as a Living Trust Mill, is a growing threat to senior citizens who are lured by the free seminars and sales agents who pose as financial or legal experts.

The settlement, filed today in Los Angeles County Superior Court, requires American Investors Life Insurance and the Family First companies to pay $1 million in civil penalties and distribute $5.5 million to consumers who purchased the annuities through Family First and incurred surrender penalties. The judgment also requires the companies to pay $700,000 to reimburse the Office of the Attorney General and Department of Insurance for costs incurred during the investigation and prosecution of this case.

The settlement also requires American Investors Life Insurance to waive surrender penalties when consumers present evidence of a significant financial hardship. The company must let consumers redeem the annuities, without surrender charges, in the form of monthly payments. Consumers who have not already received a credit for 55% or more of future surrender charges will have an opportunity to receive the value of their annuities in monthly payments along with a bonus of either 1% or 1.25% of their principal investment.

The judgment forces Family First Insurance Services and Family First Advanced Estate Planning to permanently cease all business operations. The judgment bars American Investors Life Insurance Services from soliciting seniors without revealing that the consumer will be propositioned by an insurance agent. American Investors is no longer permitted to make false or misleading statements about the terms of any annuity or insurance policy and they must disclose all charges that may be incurred when redeeming an annuity. The defendants are also prohibited from engaging in the unauthorized practice of law.

Scam artists have capitalized on the growing popularity of estate planning and living trusts by establishing schemes, known as Living Trust Mills, which use the estate planning services as a cover to sell annuities. The sales agents lure seniors with free seminars and sometimes pose as estate planners or financial experts to gain trust, allowing them to review personal financial and investment information. Agents running a Living Trust Mill are known to pressure seniors into converting all their investments into annuities by scaring the seniors into believing their original investments are unsafe.

To avoid these scams, consumers should be especially wary if a sales agent exhibits any of the following warning signs:

• The sales agent claims to a trust expert, senior estate planner or paralegal, or to work with an attorney who is an expert in estate planning. These agents are not attorneys and not experts in living trusts. If seniors need assistance with preparing a trust or other estate plan, they should seek out their own attorney whose expertise is in estate planning.
• Offering a free seminar or sales presentation on living trust services.
• Requesting access to personal financial information while setting up or updating an existing living trust. Agents use this ploy to ultimately pitch annuity investments.
• Criticizing existing investments and saying that these investments carry more risk than the annuity.
• Not discussing the drawbacks of a particular investment option.

Consumers who believe they been victimized by Family First, another Living Trust Mill or by annuity fraud, should report the crime to their local district attorney or the Department of Insurance at 1-800-927-HELP or visiting www.insurance.ca.gov. They also may file a complaint at the Attorney General's Web site, http://www.ag.ca.gov/consumers/mailform.htm.

LOS ANGELES—California Attorney General Edmund G. Brown Jr. and California Labor Commissioner Angela Bradstreet today sued two janitorial companies for exploiting their employees and committing “flagrant violations” of California’s basic wage and hour laws. The two offices have joined forces to collect these unpaid wages, thereby both helping the workers and sending a strong message that California’s labor laws must be obeyed.

“These janitors toiled for long, hard hours and their paltry compensation was far below the legal minimum,” Attorney General Brown said. “Such flagrant violations of basic labor laws will not be tolerated,” Brown added.

California alleges that the janitorial companies, Excell Cleaning & Building Services and MO Restaurant Cleaning Services, paid below minimum wage, did not pay overtime, denied rest and meal breaks and did not provide itemized wage statements. Both companies conducted business in Counties including Los Angeles, San Diego and Orange. MO Restaurant Cleaning is currently suspended by the Franchise Tax Board and is not authorized to do business in California. Excell employs approximately 300 janitors to clean California chain restaurants and bars.

During an investigation by the Employment Development Department and the Labor Commissioner, officials interviewed approximately twenty Excell employees and found that company’s janitors were working 8 ½ to 10 hour night-shifts without breaks, seven days per week, for a flat sum of $50 per day. Investigators determined that the company owed these workers approximately $585,000 in overtime, minimum wage and compensation for denied rest breaks.

Investigators also discovered that Excell was misclassifying its janitorial workers as “independent contractors,” rather than employees, to avoid $247,000 in payroll tax and mandatory social security and Medical contributions.

The janitors began work between 11:30 p.m. and midnight and were required to work all night until 8:30 a.m. or longer. They were paid a flat rate of $50 regardless of how many hours were actually worked. Some janitors were paid with checks that bounced.

As a result of this payment scheme, janitors were given less than the legal minimum wage and did not get mandatory overtime, including double-time pay. Workers were also not allowed to take rest breaks and meal periods as required by California law.

The labor commissioner and the attorney general bring this lawsuit to recover unpaid wages, get the companies to stop their unlawful practices and get them to pay restitution to the exploited workers. Some of the penalties and denied payments include:

• Failure to pay in excess of $700,000 in wages
• Failure to pay at least $500,000 in minimum wages
• Penalties of at least $100,000 for violating minimum wage laws
• A penalty of at least $100,000 for denying up to $50,000 in overtime including double-time
• Penalties and restitution for denying payment upon termination
• At least $300,000 in penalties for not providing itemized wage statements
• Penalties and back wages for denying meal and rest breaks
• Penalties and back wages for writing paychecks with insufficient funds

In addition to the penalties and restitution for these labor violations, California seeks penalties and restitution for violations of Business and Professions Code 17200 which bars companies from engaging in unlawful, unfair or fraudulent business practices. Courts assess a civil penalty of $2,500 for each violation proved at trial.

The attorney general enforces California laws that require fair business practices in order to protect working men and women and ensure a level playing field where all businesses adhere to the same rules of conduct.

Last month, Attorney General Brown filed an unfair competition lawsuit against Brinas Corporation, a drywall contractor in Los Angeles which was fueling the underground economy by paying workers below minimum wage and off the books. In November, Brown also sued PacifiStaff, a Los Angeles-based company, for teaching construction companies how to avoid providing state mandated workers’ compensation benefits that protect employees who are injured on the job.

Excell is a Delaware corporation with its corporate office located in Houston Texas. The company is registered with the California Secretary of State and its California business address is in Santa Ana. Its CEO is Essam Omar. MO Restaurant, suspended by the Franchise Tax Board in April 2007, has the same Houston address as Excell. In March, Excell agreed to pay $278,483 in back wages to 166 janitors in Houston after a U.S. Department of Labor investigation found that the company failed to pay overtime, in violation of the federal Fair Labor Standards Act.

The Division of Labor Standards Enforcement, led by Labor Commissioner Angela Bradstreet, is authorized to enforce the California Labor Code. The commissioner adjudicates wage claims, investigates discrimination and public works complaints, and enforces state labor law and Industrial Welfare Commission wage orders.

Janitorial workers perform heavy cleaning duties such as washing walls and glass, cleaning floors, shampooing carpets and emptying trash and rubbish containers. Janitors may perform routine maintenance work and tend to furnaces and boilers. According to the California Employment Development Department, there were approximately 229,900 janitors and cleaners employed in California in 2004.

The state’s lawsuit, filed today in Los Angeles Superior Court is attached.

NEW YORK — Charging the federal government with “subverting a key public safety measure,” California Attorney General Edmund G. Brown Jr. today sued the U.S. Environmental Protection Agency for allowing companies to hide information about toxic chemicals at thousands of facilities around the United States.

Brown joined eleven other states in challenging the EPA’s decision to weaken the Toxic Release Inventory, a program which requires facilities to report annual quantities of toxic chemicals emitted by refineries, chemical plants, and other manufacturing facilities.

Blasting the new disclosure requirements, Attorney General Brown said, “The EPA is subverting a key public safety measure that helps communities protect themselves from toxic chemicals. The federal government should require more--not less--disclosure of the toxic substances that the threaten public health and safety.”

Under the new rules, approximately 5,300 facilities nationally could be permitted to conceal vital safety information from the Environmental Protection Agency about toxic chemical levels and management of toxic waste. The new regulations increase by 10-fold the quantity of chemical waste that a facility can generate without providing detailed reports.

The attorney general is filing the lawsuit to invalidate EPA's revised regulations and return to the former, more stringent, reporting requirements. California asserts that EPA’s adoption of the new rule violates the federal Emergency Planning and Community Right-to-Know Act, a law which requires EPA to collect information on toxic chemicals. The law was passed under Ronald Reagan after a cloud of methyl isocyanate killed thousands of people in Bhopal, India and then a similar chemical release occurred at a sister plant in West Virginia.

Facilities covered by the Right-to-Know Act must disclose their releases of approximately 650 toxic chemicals as well as the quantities of chemicals they recycle, treat, burn, or otherwise dispose of on-site and off-site. The information in the database has been used by citizen groups, state and local governments and labor organizations to protect workers and monitor toxic chemicals.

The database has also been used in California to support Prop 65, a state law that requires companies to warn the public about exposure to chemicals known to the cause cancer or reproductive harm. Since the disclosure requirements were established in 1986, thousands of companies have voluntarily cut their toxic chemical releases by billions of pounds.

The states joining today’s lawsuit against the EPA include: Arizona, Connecticut, Illinois, Maine, Massachusetts, the Minnesota Pollution Control Agency, New Hampshire, New Jersey, New York, the Pennsylvania Department of Environmental Protection and Vermont.

The states’ lawsuit, filed today in United States District Court in Manhattan, is attached.