Consumer Protection

San Francisco – Attorney General Edmund G. Brown Jr. won a lawsuit earlier this week that bars the nation’s third largest tax preparer -- Liberty Tax Service -- from deceptive advertising that “blurs the line” between tax refunds that are free and high-cost loans.

“Liberty Tax Service lured cash-strapped Californians into paying for high-cost loans, when they could obtain tax refunds free from the IRS just weeks later,” Brown said. “This ruling bars Liberty from deceptive advertising that blurs the line between IRS tax refunds and pricey loans.”

Liberty Tax Service’s print and television ads misled customers by promising 'Most Refunds in 24 Hours.” In reality, Liberty was selling refund anticipation loans, not a tax refund. Customers had to pay an upfront fee of about $30 plus interest, at a rate that could be as high as 395% annually. By contrast, tax refunds are available at no charge from the IRS and generally arrive anywhere from 8 days to 4 weeks after returns are filed.

In February 2007, Brown filed suit in San Francisco Superior Court against Liberty Tax Service as part of an effort to stop deceptive marketing associated with Refund Anticipation Loans. Brown reached settlements with Jackson Hewitt in 2007 and with H&R Block in 2009 over similar claims.

Monday’s ruling holds Liberty Tax Service responsible for its deceptive marketing, which also included print ads that failed to include disclaimers mandated by law and television ads that included those disclaimers, but so briefly and in such faint type that the Court said they were “plainly designed to be overlooked by consumers.”

According to the IRS, refund anticipation loans target low-income taxpayers, especially those who receive the Earned Income Tax Credit. Approximately 70% of Liberty Tax Service’s refund anticipation loan customers in 2006 and 2007 received this credit.

The ruling:

• Bars Liberty Tax Service from using false or misleading advertising to sell tax refund loans;
• Requires the company to review and monitor the ads run by its California franchisees;
• Requires the company to discipline franchisees that fail to receive approval of their ads from Liberty and report those franchisees to the Attorney General; and
• Requires the company to pay $1.16 million in civil penalties, $135,886 in restitution, and the Attorney General’s costs.

Two violations of the advertising provisions of the injunction by a single franchisee will result in a $15,000 fine; a third violation requires the termination of the franchisee.

The injunction also imposes limitations on Liberty’s ability to collect, on behalf of itself or others, money supposedly due from its customers for previous years’ tax refund loans.

The judgment requires Liberty Tax Service to inform these alleged debtors of supposed debts before the consumers takes any step that would commit them to having any amount of the alleged debt deducted or withheld even temporarily from their refund. This is a significant modification of Liberty Tax Service’s past collection practices.

Consumer advocates and policy makers, including the U.S. Taxpayer Advocate, have sharply criticized such practices for years.

San Diego - Attorney General Edmund G. Brown Jr. today forged a settlement with CVS Pharmacy requiring the company to make sure expired products are not sold in its stores and provide customers a $2 coupon if they identify products past their sell-by date.

The settlement also applies to Longs Drug Stores California, which CVS purchased in late 2008.

“CVS Pharmacy routinely sold expired baby formula, over-the-counter medication and dairy products long after the expiration date,” Brown said. “This agreement forces the company to give customers a $2 dollar coupon if they find expired products in CVS or Longs Drug Stores.”

In March 2008, Brown launched an investigation which revealed that CVS Stores in Los Angeles, Orange, and San Diego Counties had regularly sold expired baby food, baby formula, over-the-counter medications and dairy products to consumers. Expired products found include:

• Gerber’s Vanilla Custard, 11 months expired, at a Huntington Beach store.
• Bright Beginnings Ultra Baby Formula 31.7 oz., 3 months expired, at a Fullerton store.
• Bonine for Kids (children’s motion sickness medication), 5 months expired, at a Buena Park store.
• Gerber Baby Food Oatmeal with Applesauce and Bananas, 2 months expired, at an El Cajon store.

The investigation also confirmed that five CVS Pharmacies had improperly discarded more than 500 documents and prescription bottles containing confidential medical information in dumpsters outside of its stores. This discarded information included patient names, addresses, birthdates and prescription medications.

In June 2008, Brown called on CVS Pharmacy to immediately end the sale of expired products and mishandling of confidential customer information across all CVS Pharmacy stores.

Brown today filed a civil suit and a stipulated judgment in San Diego County Superior Court.

The suit contends that CVS Pharmacy violated Business and Professions Code 17200 and Civil Code 1798.81, by misleading customers about CVS’ standards to insure that products would not be sold after the expiration of the “sell buy” or “best by” date and by failing to preserve the confidentiality of customers’ personal medical records. In entering into the settlement, CVS denied any wrong-doing.

The stipulated judgment resolves the suit and forces CVS to:
• Stop the sale of expired products in CVS Pharmacy and Longs Drug stores in California;
• Implement a first-of-its-kind coupon program whereby consumers who find an expired item on store shelves are entitled to a coupon worth $2.00 which can be used in any future purchase at a CVS Store in California for any product;
• Revise existing policies regarding the sale of expired products and require employees to check at least twice a month that sell-by dates have not passed on infant formula, baby food, eggs, dairy products and over-the-counter medications;
• Revise existing policies regarding the disposal of confidential waste so that they include proper shredding policies and require written certification that all records containing personal information have been properly disposed of;
• Review and revise these updated policies annually and provide employees with written training in these new policies;
• Provide the Attorney General’s Office with sworn statements certifying that it has complied with all aspects of the Judgment;
• Perform random audits in its California stores twice a year to make certain that expired products aren’t being sold and that confidential medical information is safeguarded and disposed of properly: if CVS fails to meet these new conditions, audits will continue until these new requirements are met for two consecutive years; and
• Designate a toll-free number for employees and customers to report expired products and each store must submit reports to its corporate headquarters regarding these incidents at least twice a month.
CVS will pay $975,000 in civil penalties, attorney fees and costs.

A copy of the complaint and stipulated judgment are attached.

Oakland -- Continuing his fight against scam artists who “prey on” vulnerable Californians, Attorney General Edmund G. Brown Jr. today issued a directive forcing foreclosure consultants to register with his office and post a $100,000 bond by July 1, 2009.

Those who fail to do so will be in violation of state law, subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation.

“California is awash with con artists who prey on vulnerable families facing foreclosure,” Brown said. “By forcing foreclosure consultants to submit detailed information to my office and post a $100,000 bond, this registry will help bring long-overdue transparency to this shadowy world.”

Up and down the state, scam artists pose as legitimate foreclosure consultants, promising homeowners they will prevent foreclosure. In reality, these scam artists charge huge up-front costs, but don’t provide an ounce of help.

Earlier this month, Brown’s office prosecuted a scam artist who provided hundreds of homeowners with forged bank documents and directed them to send their mortgage payments to accounts she had created, instead of the homeowners’ lender.

Additionally, Brown’s office has seen a significant increase in the number of complaints from homeowners regarding foreclosure consultants.

The registry unveiled today will provide Californians with information about potential consultants and recourse in the event that a consultant violates the law.

All foreclosure consultants operating in California must post a $100,000 bond and register with Brown’s office by July 1, 2009 and submit the following information:

• Name, address, and telephone number;
• All names, addresses, telephone numbers, websites, and e-mail addresses used or proposed to be
used in connection with their business;
• Copies of all advertising;
• Copies of each different contract the consultant will use with consumers; and
• A copy of its $100,000 bond.

Foreclosure consultants who provide proper information will receive a Certificate of Registration. Brown’s office, however, may refuse to issue, or revoke, a Certificate of Registration if the foreclosure consultant has made any misstatement in its registration form, has been convicted of fraud or misrepresentation, has been convicted of a violation of the state’s foreclosure consultant laws, California’s false advertising, unfair or deceptive practices laws or other laws dealing with mortgages.

If the company violates the law, a court may order restitution to victims out of proceeds from the $100,000 bond.

In order to obtain a Certificate of Registration by July 1, 2009, foreclosure consultants should send in their registration application and materials as soon as possible so they can be reviewed prior to July 1.

The registry was established through legislation sponsored by Speaker of the Assembly Karen Bass, AB 180, which was signed into law last year.

A copy of the registration forms may be found at http://ag.ca.gov/register.php under the “Foreclosure Consultant Registry.”

After July 1, 2009, consumers can call the Attorney General’s office to determine whether the company they are considering dealing with has been issued a Certificate of Registration.

Tips for Homeowners

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, 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 ignore letters from your lender. Consider contacting your lender yourself, many lenders are willing to work with homeowners who are behind on their payments.

DON'T transfer title or sell your house to a “foreclosure rescuer.” Fraudulent foreclosure consultants often promise that if 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 your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent 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.'

DO contact housing counselors 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.

Brown’s Actions to Help Homeowners and Stop Loan Modification Fraud

Sued Countrywide For Predatory Lending And Secured $8.6 Billion Settlement. In October 2008, Brown announced an $8.68 billion settlement with Countrywide Home Loans, once the largest lender in the county, after the company deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers’ ability to afford loans.

Obtained Guilty Plea From Woman Who Operated Sophisticated Loan Scam. In May 2009, Brown obtained a guilty plea from Anna Santos, 22, who used forged documents to convince more than 100 desperate homeowners to hand over an average of $3,000 for non-existent loan modification services.

Shut Down “Foreclosure Freedom” And Announced Arrest Of Two Loan Modification Scam Artists. 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 loan modification services. The two scam artists were charged with 24 counts of grand theft and 25 counts of foreclosure consultant statute violations.

Broke Up “First Gov” And Sent Five Members To Prison. In November 2008, Brown shut down First Gov, a company that demanded $1,500 to $5,000 in up-front fees to modify loans it never renegotiated. In March 2009, five members of the ring were sentenced to a total of 18 years in prison.

Ended “Federal Land Grant” Foreclosure Rescue Scam. In May 2008, Brown ended a scam in which hundreds of homeowners were convinced to pay $10,000 to place their property in a land grant, a phony and worthless real estate document, and then convinced to sign over the deed to their home.

Shut Down Six Predatory Lending Companies. In March 2008, Brown shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions for promising homeowners unrealistically low mortgage payments and then switching them to loans that did not match the original agreement, many with hidden fees of up to $20,000. The three scam artists who operated the scheme have been sentenced to three years in prison.

Redding – Attorney General Edmund G. Brown Jr. last night filed 79 criminal charges against three men who “callously swindled” thousands of individuals, including many retirees who lost their life savings, in a $200 million Ponzi scheme.

The defendants -- James Stanley Koenig, 57, of Redding; Gary T. Armitage, 59, of Healdsburg; and Jeffery A. Guidi, 54, of Santa Rosa -- were arrested late last night and are now in custody. Bail has been set at $5 million each.

“These three men callously swindled thousands of individuals out of $200 million to bankroll their extravagant lifestyles,” Brown said. “They took investors money and used it to pay for an 80-acre castle estate, a Lear jet, luxury homes and fancy cars. The Ponzi scheme ultimately collapsed under its own weight, causing hardship to thousands, many of whom were retirees who lost their life savings.”

The charges, filed in Shasta County Superior Court, mark the culmination of a year-long investigation, which found that Koenig, Armitage and Guidi created a network of more than 55 business ventures over a period of 10 years to enrich themselves and keep their Ponzi scheme afloat.

Brown’s investigation revealed that in 1997, the three men began peddling construction and real estate projects across California. This included: “Quail Hollow,” a residential subdivision in Susanville; Lake College, a for-profit vocational school in Redding; Mountain House Golf Course near Tracy; a light industrial distribution center in Brentwood; and dozens of other so-called “investment opportunities.” Victims were promised that these were safe, secure, low risk investments with double digit returns, averaging 12 percent.

In recruiting their victims, Armitage organized “investment planning seminars,” many of which targeted retirees, in the Bay Area and throughout California. Based on advice from these seminars, Californians invested sums ranging from $50,000 to more than $1 million. Some turned over their entire retirement portfolios and savings accounts.

Many of the construction and real estate projects, however, were poorly managed and were not financially viable, resulting in huge losses. Some projects were left unfinished or ended up in foreclosure.

Rather than inform investors about the failures, Koenig, Armitage and Guidi sought to attract new investors, whose funds could be used to offset losses and pay returns to earlier investors. In doing so, the defendants withheld vital information that impacted investment decisions, including past business failures and Koenig’s 1986 federal fraud conviction.

With double-digit returns and no knowledge of the investment failures, most investors kept their money in place and many invested in new projects. This Ponzi scheme continued for more than 10 years.

Beginning in 2001, Koenig, Armitage and Guidi redirected investors’ millions into the purchase of more than 20 senior housing and residential care facilities. This included: Alterra Clare Ridge in Fresno; Sterling House in Bakersfield; Clare Bridge Cottage in Bakersfield; Seasons in Modesto, Northridge, and Vacaville; Oakdale Heights West in Redding; Oakdale Heights in Bakersfield, Fresno, San Leandro, Beverly Hills, Santa Clarita, Roseville, Laguna Beach, and La Mesa; Senior Oaks Senior Living in Redding; and other facilities in Pennsylvania, Oregon, Nevada, North Carolina, and Virginia.

Under this scheme, the defendants’ company would purchase an assisted living facility and sell it to one of their affiliate companies. The affiliate would then sell ownership shares in the property as an “investment opportunity” at an even higher price to new investors. Meanwhile, an additional affiliated company would manage the property to maximize revenue.

Revenues, however, were not reinvested into the facilities, but were pooled and used to pay interest to investors and keep investors at bay.

In April 2007, the Ponzi scheme began to collapse under a mountain of debt, and the defendants were unable to pay interest to investors. Nevertheless, they continued to solicit new investors in the vain hope that they could keep the operation alive, raising $23 million from 91 new investors.

The defendant’s businesses finally closed their doors in June 2008.

During the course of its investigation, Brown’s office identified more than 1,000 victims with losses totaling $200 million.

Over the 10 years, Koenig, Armitage and Guidi siphoned fees, revenues and profits from their business ventures for their personal benefit, using the funds to purchase an 80-acre castle estate, a Lear jet, luxury vehicles, lavish vacations and expensive wine and art.

Last night, the defendants were charged with selling securities by means of false statements or material omissions in violation of Corporations Code Section 25401/25540 and residential burglary in violation of Section 459 of the Penal Code:

• Koenig was charged with 40 counts of securities fraud and 37 counts of residential burglary.
• Armitage was charged with 42 counts of securities fraud and 37 counts of residential burglary.
• Guidi was charged with 39 counts of securities fraud and 33 counts of residential burglary.

If convicted on all counts, each could face more than 100 years in prison.

If you believe you have been a victim of this scheme, please contact the Attorney General’s office at 1-800-952-5225.

Copies of the arrest warrant and criminal complaint are available upon request.

San Diego—Continuing his fight to stop scams against homeowners, Attorney General Edmund G. Brown Jr. today filed suit against two brothers who “ripped off homeowners” seeking help in reducing their property tax assessments.

The brothers billed tens of thousands of homeowners throughout California nearly $200 each for property tax reassessment services that were almost never performed and are available free of charge from local tax assessors.

“These scam-artists ripped off thousands of homeowners for property reassessment services readily available free of charge,” Attorney General Brown said. “This lawsuit seeks to end the deception and blocks these companies from continuing to scam homeowners.”

Brown’s suit, filed in San Diego County Superior Court against brothers Sean and Michael McConville and their businesses, “Property Tax Reassessment” and “Property Tax Adjustment Services,” seeks an end to the scam and at least $2.5 million in civil penalties. The suit contends that these companies:

• Made and continue to make untrue and misleading statements with the intent to induce consumers to purchase products and services in violation of Business and Professions Code Section 17500 and 17537.9;

• Distributed solicitations implying a government connection, approval or endorsement in violation of Business and Professions Code Section 17533.6;

• Distributed solicitations that appear to be billing statements in violation of California Civil Code Section 1716; and

• Engaged in unfair competition in violation of Business and Professions Code Section 17200.

These Southern California-based companies targeted tens of thousands of Californians looking to lower their property taxes with mailers that read like government billing statements, featured official-looking logos and demanded hundreds of dollars in payments for reassessment and reassessment appeal services. The statements warned homeowners that if payments were not received by the “due date” they faced late fees or would have their file marked “non-responsive” or “ineligible for future tax reassessments.”

Brown contends that neither company adequately informed consumers that they were not a governmental entity, the solicitations were not a bill, purchase of the services was not required and services were available free of charge from county assessors.

Additionally, few, if any, of the property tax assessment services homeowners were billed for in 2008 were completed.

These companies continue to solicit California homeowners and have recently sent out mailers with due dates of May 26, 2009.

Last week, the Ventura District Attorney’s Office charged one of the brothers, Sean McConville, with 20 felony counts for criminal conduct stemming from his property tax reassessment operations.

To avoid becoming a victim, homeowners who believe their property value has declined and they are paying too much in property taxes should:

• Never pay money for something they did not ask for; and
• Avoid a middleman and instead contact a local county tax assessor’s office for a free property value reassessment.

Homeowners who believe they have been victimized by this or any other property tax scam should contact the Attorney General's Office at:

• http://ag.ca.gov/contact/complaint_form.php?cmplt=CL ;
• 1-800-952-5225; or
• P.O. Box 944255 Sacramento, CA 94244.

This lawsuit follows the property tax scam alert Brown issued on February 12, 2009. Since taking office Brown has made protecting homeowners a top priority. In the past three months alone, Brown has:
• Obtained a guilty plea from a woman who operated a sophisticated Los Angeles-based loan scam;
• Announced the arrest of two loan modification scam artists that operated a company called Foreclosure Freedom responsible for conning vulnerable homeowners out of thousands of dollars;
• Sent perpetrators of a San Bernardino-based foreclosure scam engineered by the First Gov company to prison;
• Issued a warning about scam artists using forged letterhead to con homeowners into paying for non-existent loan modification services.
• Stopped a massive statewide scheme that unfairly overcharged thousands of Californians for shoddy and home repair work; and

Today’s complaint is attached.

Los Angeles -- Attorney General Edmund G. Brown Jr. today obtained a court order preventing Los Angeles-based Total Call International, Inc. from charging “hidden and deceptive” fees for its pre-paid calling cards.

“Total Call International has raked in profits by advertising bargain basement prices then charging exorbitant fees when their cards were used.” Brown said. “Today’s agreement safeguards California’s consumers by forcing this company to fully disclose hidden and deceptive calling card fees.”

Total Call International advertised low per-minute base rates on its calling cards and then charged consumers steep, undisclosed add-on fees and surcharges when consumers used their cards, Brown said. This significantly reduced the amount of calling time available.

Brown and the California Public Utilities Commission launched an investigation and prepared a lawsuit contending that Total Call International violated a California law that specifically requires disclosure of pre-paid calling card fees, as well as California’s false advertising and unfair competition laws.

Brown and the utilities commission today filed a complaint and a stipulated judgment resolving the case. The stipulated judgment requires Total Call International to:

• Disclose all fees, add-ons, and surcharges in a clear and conspicuous manner and include those charges in the marketing of its per-minute rate.

• Maintain records and allow the Attorney General’s office to monitor its activities to determine if Total Call International is in compliance with the settlement and California Law.

• Pay civil penalties of $300,000.

During the course of the investigation, Total Call International agreed to stop charging a “real-time rate surcharges,” costing the company $1.5 million in profits. Total Call International did not admit any wrongdoing.

Calling cards, often sold at newsstands and grocery stores, are meant to be a convenient, affordable tool for users that make frequent international calls and may not have regular access to telephone service.

Calling card users should take the following steps to protect themselves:

1. Make sure you’re getting what you pay for- buy a card for a small denomination first to test out the service.
2. Check with family and friends to find out their experience with calling cards.
3. Ask the retailer if they stand behind the card if the telephone service is unsatisfactory. It’s important to remember that the store where the card is purchased from doesn’t control the quality of the service.
4. Remember that very low rates, particularly for international calls, may indicate poor customer service, or a sign that hidden fees and surcharges apply.
5. Always look for disclosures about surcharges, monthly fees, per-call access, in addition to advertised rate-per-minute.
6. Check the expiration date. Some cards expire after a certain amount of time.
7. Make sure the card comes in a sealed envelope or has a sticker covering the PIN. Otherwise, anyone who copies the PIN can use the phone time you’ve already paid for.

This is the second case that Brown has filed forcing the disclosure of fees. In 2007, Brown forced San Francisco-based Devine Communications, Inc. to disclose all hidden fees. Florida and New Jersey have also been actively prosecuting similar cases.

Today’s settlement, filed in San Francisco Superior Court is attached.

NEVADA COUNTY -Attorney General Edmund G. Brown Jr. announced that the man behind an “elaborate real estate scam,' Thomas Hastert, pled guilty today to 59 felony counts of embezzlement, securities fraud, and selling unregistered securities.

“For three years, Hastert pulled off an elaborate real-estate scam, squeezing millions out of investors,” Brown said. “Hastert’s days of swindling are at an end, and he will spend the next 5 years in prison.”

Brown filed criminal charges against Hastert in the Nevada County Superior Court in February 2009 for embezzlement, securities fraud, selling unregistered securities, 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.

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.

- The loans that Hastert brokered were required by law to be placed into a special trust account overseen by a third-party escrow firm to ensure the project was being built. Hastert never did. Hastert used the money to pay his office expenses and other development projects. There was no oversight.

- 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.

Hastert will be formally sentenced on June 25 in Nevada County Superior Court. He is expected to receive 5 years in prison.

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.