Consumer Protection

SACRAMENTO--California Attorney General Edmund G. Brown Jr. today announced a $150,000 settlement for aspiring homeowners who had their entire down payments unlawfully seized by Lease2OwnHomes for missing rent on a lease-to-own agreement.

"We have obtained restitution for renters who were ripped off by an unscrupulous landlord who illegally seized down payments that were part of a lease-to-own home scam,' Attorney General Brown said.

Under California law, if a renter misses a monthly payment in a lease-to-own program, the landlord may only seek eviction and unpaid rent. In this case, the landlord unlawfully seized the entire down payment for the purchase of the home in addition to seeking the eviction and unpaid rent. In April, the attorney general sued the company in Sacramento County Superior Court, for allegedly violating section 17500 of the Business and Professions Code, by:

* Providing a lease and option to purchase agreement when the company knew that consumers were not financially capable of meeting monthly payments required to successfully purchase a home. The company also sometimes ignored its own $70,000 minimum annual income requirement for consumers participating in the program

* Falsely claiming that consumers would have time to clean up any bad credit before purchasing their Lease2OwnHome

* Falsely claiming a “Over 96% Success Rate” in helping consumers purchase homes, when virtually no one was able to purchase a home as they described

Lease2OwnHomes knew that many of the renters who signed up for homeownership would never be able to afford the monthly payments. In one case, Lease2OwnHomes sold a large house in Stockton to a divorced mother of four who was unemployed and attending school part time. After the woman missed a $1,650 monthly payment, the landlord seized her entire $9,000 deposit on the house in addition to seeking eviction.

The company told consumers that “Bad credit is OK because you will have time to clean up any credit issues like bankruptcy, chargeoffs, low credit scores, and foreclosures before purchasing your Lease2OwnHome.” The company also promised to assist with credit repair although the company was not properly registered as a credit repair company.

The attorney general is currently aware of at least 75 renters in Sacramento and San Joaquin County who signed up for the program. Company president Quentin Hazell, claimed to work exclusively with the market of “untapped future home buyers” who were within a year or two of purchasing homes but who needed “extra time to get financing in place, improve credit or save for a larger down payment.”

Under the settlement approved today by the Sacramento Superior Court, the company must pay $300,000 in civil penalties if they do not provide consumers with $150,000 in refunds for the down payments they seized.

Consumers who have filed a complaint with the Attorney General’s Office or who file a complaint on or before September 15, 2008 may be eligible for a partial refund. Consumers should file a complaint in writing to the Attorney General’s Office Public Inquiry Unit, PO Box 944255, Sacramento, CA 94244-2550 or send an online complaint to piu@doj.ca.gov.

For a copy of the settlement agreement and the state’s original lawsuit please contact the press office at (916) 324-5500.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today disclosed “shocking new details” about Countrywide Financial’s deceptive business practices which included ignoring their own underwriting guidelines and rewarding employees for selling risky home loans.

"These shocking new details provide further evidence of Countrywide's dangerous lending practices, which included ignoring borrowers' low credit scores and rewarding employees for selling risky loans,' Attorney General Brown said. 'In one case the company approved an adjustable rate mortgage to an 85-year-old disabled veteran with such a low credit score and high debt that he defaulted in less than six months.'

On June 20, 2008 Attorney General Brown sued Countrywide for engaging in deceptive advertising and unfair competition by pushing homeowners into risky loans for the sole purpose of reselling the mortgages on the secondary market. Today Brown filed an amended lawsuit in Los Angeles Superior Court which reveals twenty new details about the company's scheme to deceive consumers into taking out dangerous mortgages. The information had been previously withheld from the complaint.

Some of the new information includes the fact that Countrywide’s wholesale lending officers received higher commissions for selling Pay Option Adjustable Rate Mortgages--loans that entice consumers with a very low initial 'teaser' rate--and loans with weak underwriting standards. Countrywide also paid higher commissions for putting borrowers into loans with higher rates and fees than they qualified for based upon credit scores and other factors.

Countrywide ignored factors that it identified as having negative impacts on underwriting including: high debt ratios, low credit scores, and minimal down payments. Company employees regularly overrode warnings from Countrywide's computerized underwriting system, known as CLUES, which issued loan analysis reports rating consumer credit, purported ability to repay, and whether a proposed loan complied with underwriting guidelines.

The following examples describe new details about how Countrywide granted exceptions to sound business practices. These examples represent a small percentage of the large number of California residents who are facing foreclosure due to Countrywide’s dangerous practices:

• A Countrywide loan officer convinced a borrower to take a Pay Option ARM with a 1-month teaser rate and a 3-year prepayment penalty plus a full-draw piggyback home equity line of credit based on the loan officer’s representation that the value of the borrower’s home would continue to rise and he would have no problem refinancing. The borrower’s debt-to-income ratio was 47 percent and credit score was 663. The loan officer offered the loan even though the company’s CLUES report and an underwriter review indicated strong doubts about the borrower’s ability to repay. The loan closed in January 2006, and a Notice of Default issued in June 2007.

• The CLUES report issued for a loan applicant in February 2005 stated that the consumer had too much debt for the loan program and identified other elements of risk including a low credit score. The CLUES report raised doubts about the borrower’s ability to repay the loan but Countrywide approved a 3/27 adjustable rate mortgage with a 3-year prepayment penalty, to an 85-year old disabled veteran with a credit score of 509 score and an debt-to-income ratio of nearly 60 percent. The loan closed in February 2005, and a Notice of Default issued in July 2005.

• The CLUES report for a proposed loan identified multiple risks that created doubts about the borrower’s ability to make the payments, including the fact that a borrower had an open collection account. In January 2006, however, Countrywide granted exceptions for these risks and approved a reduced documentation Pay Option Adjustable Rate Mortgage loan for $352,000 with a 3-month teaser rate and a 3-year prepayment penalty, as well as a Piggyback home equity line of credit for $22,000. The loan closed in January 2006, and a Notice of Default issued in October 2006.

Many borrowers who obtained Pay Option and Hybrid ARMs did not understand that their initial monthly payment would at some point 'explode,' that their initial interest rate would increase and become adjustable, or that the principal amount of their loans could actually increase. Countrywide received numerous complaints regarding these practices from borrowers, including over 3,000 complaints per year handled by the Office of the President between January 2005 and August 2007.

Countrywide gave branch managers commissions or bonuses based on the net profits and loan volume generated by each branching, thereby creating intense pressure to sell as many loans as possible, as quickly as possible, at the highest prices possible. Branch managers were rewarded for meeting production goals set by corporate management, increasing the number of loans sold per loan officer, and reducing the time periods between the loan application stage and funding--or penalized for failing to do so.

Today’s amended lawsuit also contains updated data about Countrywide's staggering foreclosure rates. As of April this year, 21.11% of the mortgages owned by Countrywide Home Loans were in some stage of delinquency or foreclosure, including 47.97% of originated non-prime loans, and 21.23% of Pay Option ARMs. In January and March, 2008, Countrywide recorded 3,175 notices of default in Alameda, Fresno, Riverside, and San Diego counties alone, representing an aggregate total of delinquent principal and interest of more than $917 million.

The state's amended complaint is attached. For more information about California’s lawsuit against Countrywide please visit: http://ag.ca.gov/newsalerts/release.php?id=1582&

LOS ANGELES--Attorney General Edmund G. Brown Jr. today announced that California will receive $23 million of a $515 million nationwide settlement with Bristol-Myers Squibb. The settlement resolves allegations that the company reported “grossly inflated” drug wholesale prices to California’s Medicaid program in an effort to maintain its market share of prescription drugs.

“The Medi-Cal system requires companies to accurately report drug prices to the state,” Attorney General Brown said. “Bristol Myers-Squibb grossly inflated its reported drug prices and then used the artificially high price to increase its market share. The Bureau of Medi-Cal Fraud and Elder Abuse will continue to investigate and prosecute any alleged fraudulent conduct by any health care provider whose services or products are paid for by Medi-Cal,” Brown added.

The settlement agreement follows a drug-price investigation into Bristol Myers-Squibb and former subsidiary Apothecon that was launched in 2001 by California, the federal government, and other state attorneys general. The investigation was triggered by various whistle blower lawsuits filed around the United States. During the inquiry, Bristol Myers-Squibb voluntarily disclosed potential violations of state and federal anti-kick back law.

California found evidence of violations including: reporting artificially high average wholesale prices for prescription drugs to shut out competitors, organizing kickback schemes to lure pharmacies and wholesalers, illegally marketing an adult anti-psychotic drug as a treatment for children, and hiding the lowest sale price for Serzone to underpay Medicaid. Details of those allegations include:

* Reporting inflated average wholesale prices for physician-administered drugs:

The average wholesale prices for drugs were substantially higher than the prices for which the company sold these products, a scheme designed to maintain market share in the face of competing generic alternative drugs. The company’s sales force would “market the spread” or sell drugs based on the profit margin between the reported average price, which is the basis for Medicare and Medicaid reimbursement, and the actual costs for the same drugs, which were dramatically less than the reported price.

Medi-Cal, which is California’s Medicaid program, reimburses pharmacies and doctors based on prices reported by pharmaceutical manufacturers whose drugs are dispensed to beneficiaries. Because government health insurance programs such as Medi-Cal rely on reported prices to set reimbursement amounts, the company’s conduct caused the state to overpay for drugs.

* Engaging in an array of kickback activities to enhance their market share:

The investigation revealed that Apothecon paid millions of dollars to lure pharmacies and wholesalers to switch from competitors’ generic drugs to the company’s generic products. The payments to doctors included physician consulting programs consisting of trips to luxury resorts, meals at expensive restaurants, and tickets to sports events where doctors allegedly listened to pharmaceutical sales pitches. The kickback schemes targeted payments to doctors to keep generic competitors out of the market.

* Illegally marketing its atypical antipsychotic drug Abilify:

The Food and Drug Administration approved Abilify in November 2002 for the treatment of adult schizophrenia and later for adult bi-polar disorder. The investigation revealed that the company promoted the drug for treatment of children and dementia-related psychosis when neither use was approved by the FDA. This off-label promotion scheme increased the company’s sales between 2002 and 2005.

* Concealing its best price to the U.S. Centers for Medicare and Medicaid Management:

Bristol Myers-Squibb allegedly concealed its best price from the federal Centers for Medicare and Medicaid Management in a private-labeling scheme for its drug Serzone. The federal government uses best price to determine the amount of Medicaid rebates owed to states. The company allegedly affixed Kaiser labels to its Serzone and shipped the drugs at a lower price than was sold to any other customer. The company did not include this low price in its calculations reported to the federal government for Medicaid rebate purposes, thereby underpaying rebates owed to California.

The $23 million settlement with Bristol-Myers Squibb will pay approximately $12 million in full restitution to Medi-Cal and $11 million for the state’s False Claims Fund. The state’s lawsuit was filed in San Diego Superior Court in 2003 and then removed to the federal central district court in Los Angeles. Later it was consolidated with a number of other state lawsuits in federal court in Boston.

To date, California has reached settlements worth $9.7 million with five other companies, and their corporate parents, resolving similar allegations. Claims against fifteen companies are still pending.

For copies of the state's settlement and original lawsuit please contact the Attorney General's Press Office at 916-324-5500.

RIVERSIDE--California Attorney General Edmund G. Brown Jr. and District Attorney Rod Pacheco today sued TXI International, a Riverside cement plant, for exposing people to the potent carcinogen hexavalent chromium without providing warnings to the community as required by law.

“Dust, which contained elevated levels of cancer-causing hexavalent chromium, escaped into the air in violation of state law,” Attorney General Brown said. “California is suing the company to get them to stop their practices which cause chromium exposure.”

In late 2007, the South Coast Air Quality Management District discovered that ambient quantities of hexavalent chromium, a potent carcinogen, were up to 50 times the level that would trigger a mandatory public warning under Proposition 65, the state’s Safe Drinking Water and Toxic Enforcement Act. Investigators traced the source of the chromium to dust piles on a four acre plot at a cement factory operated by TXI International.

Since 2006 the company knew that there were four acres of uncovered and unwetted dust piles that contained chromium at a cement plant it operated. The company knew that fugitive emissions from the dust piles were spreading into the surrounding areas, including the nearby Fleetwood Motor Homes facility, where the emissions caused exposure to hexavalent chromium to persons living, working, or otherwise present in the area.

Proposition 65 was enacted to protect California citizens from chemicals known to cause cancer, birth defects or other reproductive harm, and to inform citizens about exposures to such chemicals. Businesses that expose people to those chemicals must give clear and reasonable warning to the people being exposed. The law requires a warning for chromium if exposure would create a 1 in 100,000 risk of contracting cancer. The Air Quality Management District estimated the chromium levels near the cement plant were up to 50 times that amount.

In today’s lawsuit Brown asserts that the exposures occurred because defendants allowed uncovered piles of dust to remain on a property owned by the cement manufacturer. The company’s deliberate and intentional acts have resulted in the hexavalent chromium emissions getting into the air where it has been inhaled by people near the area.

“The lawsuit filed in collaboration with the California Attorney General’s Office will help protect the environment for the people who live in this community now as well as future generations,” said Riverside County District Attorney Rod Pacheco.

The piles of chromium-containing dust are a by-product of grinding and heating raw materials, such as limestone, clay, silica, in a kiln during preparation to create concrete. After heating these materials, the resulting pebble-like particles, called clinker, are stored for long periods before other materials are added to create the final cement product. Investigators found that the company maintained approximately 80 tons of unwetted dust on four acres at a cement plant.

When wind or atmospheric conditions raise dust from the piles into the surrounding air, this results in emissions of the material contained in the dust. These emissions are called “fugitive emissions.” Defendants have known since at least 2006 that the dust at the cement plant contained hexavalent chromium.

Brown and Pacheco are suing on Thursday in Riverside County Superior Court in Riverside for violations of the state’s Safe Drinking Water and Toxic Enforcement Act. Violators are liable for civil penalties of up to $2500 per day for each violation. Under the act, also known as Proposition 65, businesses must provide a clear and reasonable warning before exposing individuals to dangerous chemicals.

Brown is also suing the company for violating the state’s unfair competition laws, a statue which allows up to $2500 per violation. The state is seeking an undisclosed amount of penalties and restitution.

Hexavalent chromium is a known carcinogen that was identified as a chemical known to the State to cause cancer on February 27, 1987.

Recently, the company agreed to pay the local air district $600,000 in penalties and spend $400,000 toward site improvements as part of an agreement to reduce the amount of toxic cement dust escaping from a factory north of Riverside. That settlement requires the company to eliminate outdoor storage of unprocessed cement, which was found to be a source of dust carrying hexavalent chromium into neighborhoods near the plant in the Rubidoux area.

Defendant TXI Riverside, Inc. is a Delaware Corporation that operates a cement plant at 1500 Rubidoux Blvd. in the City of Riverside.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today sued Countrywide Financial, its chief executive Angelo Mozilo, and president David Sambol, for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market.

“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”

Brown alleges that Countrywide Financial used deceptive tactics to push homeowners into complicated, risky, and expensive loans so that the company could sell as many loans as possible to third-party investors. According to the lawsuit, the company marketed complex and difficult to understand loans with very low initial or “teaser” interest rates or payments. Countrywide employees, including loan officers, underwriters, and branch managers--who were under intense pressure to process a constantly increasing number of loans--misrepresented or obfuscated the fact that borrowers who obtained certain types of loans would experience dramatic increases in monthly payments.

In the past, lenders like Countrywide sold home loans to customers and held the loans in their own portfolio, an incentive to maintain strong underwriting standards. Countrywide, however, sold its loans to third-parties in the form of securities or whole loans, often earning more profit for riskier loans. The business model generated windfall profits for Countrywide.

The company pushed these loans by emphasizing a low “teaser” or initial rate, often as low as 1 percent for pay option ARMs. Countrywide obscured the negative effects--including rising rates, prepayment penalties and negative amortization--which would inevitably result from making minimum payments or trying to refinance. The company misrepresented or hid the fact that borrowers who obtained its home loans--including exploding adjustable rates and negatively amortizing loans--would experience dramatic increases in monthly payments.

In an effort to rope in as many customers as possible, Countrywide greatly relaxed and liberally granted exceptions to its mortgage lending standards. Traditionally, lenders required borrowers to document income and assets but Countrywide offered reduced or no documentation loan programs to increase its loan sales. Angelo Mozilo and David Sambol actively pushed for easing underwriting standards and granting exceptions to documentation requirements.

In Countrywide’s 2006 annual report, the company touted the massive growth of its loan production from $62 billion in 2000 to $463 billion in 2006--three times the increase of the U.S. residential loan production market, which tripled from $1.0 trillion in 2000 to $2.9 trillion in 2006. 26 percent of Countywide loans were for California properties. The company sold an ever-increasing number of loans in an effort to gain a 30 percent market share of loan originations and then sell its loans on the secondary market, as mortgage-backed securities or pools of whole loans. Countrywide’s securities trading volume increased from $647 billion in 2000 to $3.8 trillion in 2006.

Countrywide routinely sold loans based upon a borrower’s stated income and without verifying the information. Loan officers memorized scripts that marketed low payments by focusing on the potential customer’s dissatisfaction, saying, for example, “Which would you rather have, a long-term fixed payment, or a short-term one that may allow you to realize several hundred dollars a month in savings?” The loan officer did not state that the payment on this new loan would exceed the payment on the current loan.

Countrywide paid greater compensation to brokers for loans with a higher interest rates, as well as prepayment penalties, because it could sell those loans for higher prices on the secondary market. Countrywide also paid rebates to brokers who originated loans with prepayment penalties, adjustable rates and high margins.

Countrywide operated an extensive telemarketing operation in which it touted its expertise and claimed to find the best financial options for customers. Customer Service representatives at Countrywide call centers were required to complete calls within three minutes, often processing sixty-five to eight-five calls per day. Employees who did not meet quotas were terminated. The company’s deceptive marketing practices, designed to sell costly loans while hiding or misrepresenting the terms and dangers, included:

• Encouraging borrowers to refinance or obtain financing with complicated mortgage instruments like hybrid adjustable rate mortgages or payment option adjustable mortgages
• Marketing complex loan products by emphasizing a very low “teaser” rate while misrepresenting the steep monthly payments, increased interest rates and risk of negative amortization
• Dramatically easing underwriting standards to qualify more people for loans
• Using low or no-documentation loans which allowed no verification of stated income
• Hiding total monthly payment obligations by selling homeowners a second mortgage in the form of a home equity line of credit
• Making borrowers sign a large stack of documents without provider time to read the paperwork
• Misrepresenting or hiding the fact that loans had prepayment penalties

As the secondary market’s appetite for loans increased, Countrywide further relaxed its standards to finance borrowers with ever-decreasing credit scores. Countrywide employees routinely overrode the company’s computerized underwriting system, known as CLUES, which issued loan analysis reports recommending or discouraging loans based on factors such as a consumer’s credit rating. As the pressure to produce loans increased, Countrywide set up an entire department in Plano, Texas, at the direction of Mozilo and Sambol, where employees could submit requests for underwriting exceptions. In 2006, 15,000 to 20,000 loans a month were processed through this exception process.

Countrywide’s deceptive sales practices resulted in a large number of loans ending in default and foreclosure. According to Countrywide’s February 2008 records, a staggering 27 percent of its subprime mortgages were delinquent. Overall, approximately 20,000 Californians lost their homes to foreclosure in May 2008 and 72,000 California homes were in default, roughly 1 out of 183 homes.

Despite receiving numerous complaints from borrowers claiming that they did not understand their loan terms, Countrywide ignored loan officer’s deceptive practices and loose underwriting standards. Countrywide also pushed its borrowers to serially refinance, repeatedly urging borrowers to obtain home loans to pay off their current debt.

Today’s lawsuit, filed this morning in Los Angeles Superior Court, redacts confidential information Countrywide provided during the attorney general’s investigation. The attorney general is seeking the company’s consent to file an amended complaint that removes the redactions.

During the course of its investigation into Countrywide, state investigators reviewed hundreds of thousands of documents and interviewed scores of witnesses including consumers and former employees.

Consumers who believe they have been victimized by Countrywide Consumers should file a complaint by contact the Attorney General’s Public Inquiry Unit in writing at Attorney General's Office California Department of Justice Attn: Public Inquiry Unit P.O. Box 944255, Sacramento, California or through an online complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL

The case is People v. Countrywide, Los Angeles Superior Court case number LC081846.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today called upon CVS Pharmacy to immediately stop selling expired products, including baby food and over-the-counter medications, which were discovered during recent undercover shopping investigation in Southern California. The attorney general also asked the CVS to comply with California laws requiring proper storage and disposal consumer’s confidential medical and financial information.

“State investigators found that dozens of CVS pharmacies in Southern California have old and expired products, including medicines and baby food,” Attorney General Brown said. “CVS Pharmacy should immediately pull these expired products from its shelves and ensure that these consumer safety violations do not occur again,” Brown added.

During a recent undercover shopping operation, state investigators found 48 expired products on the shelves of 26 CVS Pharmacies in Los Angeles, Orange and San Diego Counties. Some of the expired products--which included baby formula, toddler food, and over-the-counter medications--were between four and six months old. Investigators also discovered expired food products including milk and eggs. Some of the products’ “sell by” dates were hidden with price tags or other store stickers.

Recent investigations by the New York Attorney General have also found that CVS Pharmacies in New York have engaged in similarly unlawful selling practices. In a letter sent today, Attorney General Brown asked CVS Pharmacy to change its sales practices to make certain that sales of expired product do not occur in the future.

The California Attorney General’s Office had launched its investigation into CVS Pharmacy sales practices in March, 2008 after receiving consumer reports about expired products on store shelves in Southern California.

Although California law does not explicitly prohibit the sale of certain expired products, federal laws require that products contain expiration dates. The attorney general asserts that placing expired items on its shelves violates false advertising and unfair business practices statues because CVS Pharmacy falsely implies that its products meet national quality control standards.

Attorney General Brown also asked CVS Pharmacy to disclose its formal policies regarding the collection, retention and destruction of such information to determine whether the company is complying with California law. The attorney general has reason to believe that the company may not have properly safeguarded or disposed of consumers’ private health and financial information, in violation of state consumer protection laws.

In February, 2008 Brown reached a settlement with The Walgreen Company after state investigators discovered that that company had failed to properly retain, safeguard and dispose of confidential customer information, in violation of California laws including California Civil Code section 1798.81 Under the terms of that settlement, Walgreens agreed to revise its disposal and retention policies, implement ongoing employee training, and annually review those policies.

In addition to the ceasing the sale of expired products, Attorney General Brown today asked CVS Pharmacy to quickly resolve its practice of not protecting private consumer information.

CVS Pharmacy, a division of CVS Caremark Corporation, is the largest retail pharmacy in the United States with more than 6,300 retail locations and approximately 300 stores in California, most in Southern California. The company is headquartered in Woonsocket, Rhode Island.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today announced a plan to create an online prescription drug database so that authorized doctors and pharmacies can stop drug dealers and addicts who collect dangerous narcotics from multiple doctors.

“Every year thousands of doctors try to check their patient’s prescription history information but California’s current database is difficult to access,” Attorney General Brown told a news conference. “If California puts this information online, with real-time access, it will give authorized doctors and pharmacies the technology they need to fight prescription drug abuse which is burdening our healthcare system.”

Brown is working with the Troy and Alana Pack Foundation--founded by Bob Pack whose 7 and 10 year-old children were killed by a driver under the influence of prescription drugs obtained from multiple doctors--to enhance California’s current prescription database by providing real-time Internet access for law enforcement and medical personnel.

Since 1940, the California Department of Justice has maintained a state database of dispensed prescription drugs with a high potential for misuse. Today, this prescription information is stored in the state’s Controlled Substance Utilization Review and Evaluation System or CURES, which contains 86 million schedule II, III and IV prescriptions dispensed in California. Examples of drugs that are tracked in the state’s database include Morphine, Vicodin, Oxycodone, Codeine, amphetamine, and analogs of methadone and opium.

The attorney general currently receives more than 60,000 requests annually from authorized doctors and pharmacies for patient prescription history information. Such requests are currently processed within several days by fax or telephone which makes it difficult for doctors and pharmacists to quickly review a patient’s prescription history before dispensing another controlled drug.

California’s new online CURES system will make it much easier for authorized individuals to quickly review prescription information to help prevent “doctor shopping,” or gathering large quantities of prescription medications by visiting multiple doctors. The new online database, which the state is preparing to launch in 2009, is expected to cost $3.5 million over the next three years.

The new CURES program will give doctors and pharmacists the technology they need to monitor the prescribing and dispensing of controlled medications. Attorney General Brown said that if doctors and pharmacies have real-time access to prescription history information, it will help them make better prescribing decisions and cut down on prescription drug abuse in California.

“If doctors can easily check their own patients’ prescription history, it will reduce the number of people who are able to obtain large quantities of narcotics from many different physicians,” Brown said.

According to the Drug Abuse Warning Network, there were 598,000 emergency room visits involving non-medical use of prescription or other pharmaceutical drugs in 2005. 55% of these visits involved multiple drugs.

In 2005, Senator Tom Torlakson and the Troy and Alana Pack Foundation authored Senate Bill 734 which authorized new tamper-resistant prescription pads and permitted online access to the CURES system, pending the acquisition of private funding. The Troy and Alana Pack Foundation is working with Kaiser Permanente, The California State Board of Pharmacy and the California Attorney General’s Office to develop the new database.

“As a pioneer in the development of online medical information, Kaiser Permanente is proud to have contributed to the feasibility study and development of the database,” said Kaiser Permanente Pharmacy Operations Professional Affairs Leader Steven W. Gray. “With the aid of this database, physicians and pharmacists will have valuable patient history information readily available to make the best and safest patient care decisions.”

Virginia Herold, executive officer of the California State Board of Pharmacy said: 'The California State Board of Pharmacy has long been a strong supporter of the CURES system. This new system will reduce drug diversion from pharmacies--it is an important enhancement to patient care and law enforcement.'

Kentucky was the first state to put all its prescription history information online for authorized doctors, pharmacists and law enforcement. California’s new database will be the largest online prescription drug database in the United States.

A Frequently Asked Questions document is attached. For more information on the California Department of Justice Bureau of Narcotic Enforcement and California’s current prescription drug monitoring system visit: http://ag.ca.gov/bne/trips.php

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.