Consumer Protection

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

When homeowners called the number on the flyer, they were told their mortgages could be renegotiated to a lower monthly payment. Victims, however, were required to pay thousands of dollars in up-front fees and were instructed not to contact their lenders.

Victims were assured the company had “private lenders and specialists exclusive to their company who are very experienced in the options and methods used to renegotiate home loans,” yet neither of the women who operated the company had real estate licenses, legal training, or any experience in the home mortgage market.

Investigators found no evidence of any successful loan modifications and most of the victims were either forced into bankruptcy or lost their homes to foreclosure.

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

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

Copies of the complaint and arrest warrant affidavits are attached.

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

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

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

The companies made statements such as:

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

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

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

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

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

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

The companies have agreed to the following terms:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In the criminal complaint, Hastert is alleged to have:

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

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

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

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

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

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

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

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

# # #

San Diego -- Attorney General Edmund G. Brown Jr. today filed a lawsuit to stop the Contractors Asset Protection Association, Inc. from engaging in a “sophisticated and fraudulent scheme” to cheat the state workers compensation system.

“This company falsely promised its clients that if they gave their employees empty titles and worthless shares of stock they could avoid tens of thousands of dollars in workers compensation premiums,” Attorney General Brown said. “But you can’t simply call a security guard a vice president and avoid complying with the law through a sophisticated and fraudulent scheme.”

This lawsuit seeks a permanent injunction barring Contractors Asset Protection Association, Inc. (ConAPA) and its founder-president, Eugene Magre from engaging in unfair and deceptive business practices in violation of sections 17200 and 17500 of the California code. The lawsuit also seeks restitution and civil penalties of no less than $300,000.

The lawsuit alleges that ConAPA sought to cynically exploit a legal exception to the workers compensation law, where directors of a corporation who are also the sole shareholders can exempt themselves from workers’ compensation coverage.

Under this scheme, ConAPA marketed and advertised an unlawful business plan urging employers to misclassify rank-and-file employees as “corporate officers” and issue them nominal shares of company stock so as to avoid paying workers’ compensation insurance premiums. For example, housekeepers, cooks, security guards, maintenance men, roofers, and construction laborers were named as “vice-presidents” and issued worthless shares of non-negotiable stock.

Despite the titles, many workers were not assigned any managerial or administrative duties and performed the same rank-and-file duties for the same pay that they performed prior to their “promotion.”

ConAPA ensured that its clients were able to prevent their new “officer-shareholders” from gaining control over the business. Employees were also required to sell their shares back to the company if they left the company.

Some ConAPA clients created “dummy” corporations populated by rank-and-file “officer-shareholders” that held no real assets, and existed solely for the purpose of offering their officers back to the original client company as rank-and-file workers who were ostensibly exempt from workers’ compensation.

ConAPA told its clients that this business model was legal, and implied that the program had been scrutinized and approved by several state authorities, which it had not.

The company has approximately 40 active clients, and has had as many as 200 clients in the past that employed their business model.

A copy of the complaint is attached.

###

Sacramento–Attorney General Edmund G. Brown today announced that a coalition of 18 states and cities have won reversal of controversial Bush-era pollution standards “justified by nothing more than junk science” and which threatened to undermine public health.

"This dangerous air pollution causes thousands of premature deaths each year. Yet the Bush Administration callously ignored the facts and put forward a standard justified by nothing more than junk science,” Attorney General Brown said. “Today, the DC Circuit Court cleared the way for the Obama Administration to right this wrong.”

Fine soot pollution (also known as fine particulate matter pollution or “PM 2.5”) comes from diesel vehicles, power plants and other sources, and is prevalent in urban areas. Because fine soot can lodge deep in the lungs, it can cause numerous harmful health effects, including premature death, chronic respiratory illness, decreased lung function, cardiovascular disease and asthma. Children, senior citizens, and people with existing lung and heart diseases are especially susceptible to harm from fine soot pollution.

That is why EPA’s scientists and scientific advisory committee recommended strict new standards for fine soot in 2005. However, the Bush Administration rejected their advice and chose a weaker, less protective standard. Today’s decision clears the path for the Obama Administration to issue new, stronger standards.

Today’s decision, issued by the federal Court of Appeals for the D.C. Circuit, agreed with the coalition that the Bush EPA had acted illegally in issuing weak air pollution standards for fine soot, acting against the advice of EPA professional staff and EPA’s own scientific advisory committee. The court found that the Bush EPA had also erred by not taking into account the special sensitivity to air pollution of children, elderly people and other vulnerable populations. The Court remanded the standards to the new Obama EPA to issue new, more protective air pollution standards for fine soot that will better protect public health.

The states, cities and other state agencies joining in the challenge that led to today’s victory are: California, Connecticut, Delaware, Illinois, Maine, New Hampshire, New Jersey, New Mexico, New York, Oregon, the Pennsylvania Department of Environmental Protection, Rhode Island, Vermont, the District of Columbia and the South Coast Air Quality Management District. The States of Arizona, Maryland and Massachusetts also joined as friends of the court.

FOR IMMEDIATE RELEASE
February 20, 2009
Contact: Christine Gasparac (916) 324-5500

Brown Files Criminal Charges Against Broker who Masterminded Elaborate Real Estate Scheme

NEVADA COUNTY – Attorney General Edmund G. Brown Jr. and Nevada County District Attorney Cliff Newell today announced that criminal charges were filed against a hard-money real estate broker who “brazenly deceived” investors and borrowers, embezzled fees, and filed false paperwork.

“This man brazenly deceived investors and borrowers, promising high returns and easy loans, ripping off his customers for his own personal enrichment,” Attorney General Brown said. “Ultimately, this criminal scheme collapsed when many of these loans failed, costing hundreds of people more than $20 million.”

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

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

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

In the criminal complaint, Hastert is alleged to have:

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

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

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

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

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

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

The complaint and declaration are attached.

Sacramento—Attorney General Edmund G. Brown Jr. today issued a Consumer Alert to California homeowners about a “blatant and costly scam” targeting homeowners with declining property values.

“This blatant and costly scam holds out hope to homeowners that their property taxes will be reduced if they pay hundreds of dollars to a middleman to have their property re-evaluated,” Attorney General Brown said. “In point of fact, homeowners can seek relief directly from their county assessor free of charge. Homeowners should be on high alert.”

Companies are sending deceptive mailers to homeowners offering help in reducing property tax assessments, if the homeowner pays the company hundreds of dollars in fees. The companies use official-sounding names such as “Tax Adjusters,” “Tax Readjustment” or “Tax Review” to make victims believe the company is a government agency.

Property tax reassessment is a free service provided by county tax assessors. If homeowners believe their property value has declined and they are paying too much in property taxes, the local tax assessor will review the property value for free for a possible downward assessment.

To avoid becoming a victim, homeowners should:

• Never pay money for something they did not ask for.
• Avoid a middleman—they should contact their local tax assessor’s office for property value reassessment.

Homeowners who believe they are a victim of this scam should contact the Attorney General’s Office by either calling 1-800-952-5225 or by writing to P.O. Box 944255 Sacramento, CA 94244.