Lawsuits & Settlements

SAN DIEGO -- Attorney General Kamala D. Harris, along with the attorneys general of 49 other states and the District of Columbia, today announced a $95.9 million settlement with USA Discounters over allegations that the company used deceptive marketing and unlawful debt collection practices targeting military servicemembers.  Under the settlement, Attorney General Harris secured nearly $7 million in restitution for over 4,100 Californians who were harmed by the company’s fraudulent actions.

USA Discounters, which also did business as USA Living and Fletcher’s Jewelers, operated retail stores near military installations, including near Navy and Marine Corps installations in the San Diego Area.  It sold consumer products, including furniture, appliances, televisions, computers, smartphones, and jewelry, primarily on credit and specifically targeted members of the military and veterans. The company marketed itself as a discount retailer but actually sold its merchandise at a substantial mark-up, including additional fees that effectively concealed exorbitantly high interest rates for financed purchases. 

“Our military servicemembers give their all to protect our country and our interests around the world, and yet USA Discounters gave its all to fleece them with deceptive marketing and unlawful debt collection practices,” said Attorney General Harris.  “This agreement holds USA Discounters accountable for its illegal conduct and compensates servicemembers and veterans for the harm it caused.”

USA Discounters advertised that military, veterans and government employees would never be denied credit for goods purchased from the retailer and then used abusive tactics to collect on debts owed, such as persistently contacting servicemembers’ chains-of-command and using the military allotment system to guarantee payment. The company’s abusive actions threatened the military careers and security clearances of its victims.

In addition to its deceptive marketing, USA Discounters also failed to provide terms and disclosures in its financing agreements, as required under the law, and misled consumers about the costs of financing.  USA Discounters also charged added fees to its customers who were on active duty and required them to sign contracts that included unfavorable terms not included in contracts signed by other customers, in violation of California’s Military and Veterans Code, which prohibits discrimination against military members in the terms and conditions of credit. For contracts entered into outside of California, USA Discounters filed default debt collection actions against servicemembers in Virginia state courts, regardless of the state where the contract was entered into or the servicemember’s location, which meant servicemembers were often unable to defend themselves in court. 

USA Discounters closed its stores in the summer of 2015 before declaring bankruptcy. Under the terms of this settlement, the company agreed to write off accounts, remove negative information from credit reports, and provide other consumer relief. The settlement also includes provisions for injunctive relief and civil penalties. 

The Attorney General’s Office received critical assistance in its investigation from the Navy and Marine Corps legal assistance offices at Navy Base San Diego, the Marine Corps Recruit Depot, and Camp Pendleton, and from the Navy’s Fleet and Family Support Center. 

Attorney General Harris has defended the rights of servicemembers, filed actions against companies who prey on members of the military, and issued multiple consumer alerts to warn servicemembers against scams and fraud.  In August 2016, Attorney General Harris reached a $252,000 settlement with two privatized military housing contractors, Lincoln Military Property Management LP and San Diego Family Housing LLC and their eviction law firm, Kimball, Tirey & St. John LLP, over the companies’ unlawful evictions of 18 military servicemembers and their families in San Diego and Orange County.  In addition, Attorney General Harris previously took action against JP Morgan Chase for violating the Servicemembers Civil Relief Act in obtaining default judgments against servicemembers on credit card debt.

The Attorney General also obtained a $1.1 billion judgment against Corinthian Colleges, which illegally used the official seals of the military services in advertisements to entice servicemembers and veterans to enroll in its programs. 

SAN DIEGO - Attorney General Kamala D. Harris today announced that California has reached a $252,000 settlement with two privatized military housing contractors over the companies’ unlawful evictions of 18 military servicemembers and their families from private military housing complexes in San Diego and Orange Counties. 

Attorney General Harris argued that these evictions violated the California Military and Veterans Code, the Servicemembers Civil Relief Act, and other state debt collection laws which protect servicemembers who are sued while serving on active military duty and are therefore unable to appear and defend themselves in court.  These laws prevent the entry of a default judgment unless a lawyer has been appointed to represent the interests of the absent servicemember, and they prohibit the use of false statements to collect a debt.  In addition, the contractors allegedly violated California privacy laws by filing court documents that included unredacted Social Security numbers, birth dates, or other personal information of nearly 100 servicemembers and military family members.

The defendants, Lincoln Military Property Management LP and San Diego Family Housing LLC and their eviction law firm, Kimball, Tirey & St. John LLP, are required to pay $200,000 in civil penalties, as well as provide $52,000 in debt relief for the servicemembers harmed by their conduct and assist victims with restoring and repairing credit history.  The settlement also requires the defendants to provide privacy protections to victims, including identity theft repair and mitigation services for one year following notification.  In addition, any default judgment evicting a servicemember and his or her family that was unlawfully obtained will be dismissed.

“It is unconscionable that companies would prey upon and illegally evict servicemembers and their families from their homes,” said Attorney General Harris. “This agreement holds these contractors accountable for their unlawful conduct – including illegal evictions and privacy violations – and ensures that veterans’ rights under the law are protected.  I want to thank the Navy Region Legal Service Office (RLSO) Southwest of San Diego for helping us secure justice for the servicemembers harmed by these companies.”

The complaint, filed today in San Diego Superior Court, alleges that Lincoln routinely evicted tenants from its private military housing complexes while failing to file affidavits that accurately reflected the military status of the servicemembers.  The defendants also violated California privacy laws by disclosing the personal information of servicemembers, exposing at least 100 victims to a risk of identity theft.  

The United States Department of Justice is filing a parallel complaint in the U.S. District Court for the Southern District of California alleging violations of federal law.

This is Attorney General Harris’s second action against a company that violated the Servicemembers Civil Relief Act.  The first was against JP Morgan Chase, which violated the Act in obtaining default judgments against servicemembers on credit card debt.  The Attorney General also obtained a $1.1 billion judgment against Corinthian Colleges, which illegally used the official seals of the military services in advertisements to entice servicemembers and veterans to enroll in its programs. 

The Attorney General’s office has provided training and technical support to JAG legal assistance attorneys at military installations throughout California.  The Attorney General has also issued multiple consumer alerts to help members of the military protect themselves from fraud and scams.  Her most recent alert for servicemembers and veterans, issued in honor of Memorial Day, provides tips on how to avoid common scams including rental scams, pension scams, predatory auto sales and financing, and education rip-offs.

A copy of the complaint is attached to the online version of this news release at www.oag.ca.gov/news.

Agreement reached over alleged violations of California’s false claims, false advertising and unfair business practices laws

LOS ANGELES - Attorney General Kamala D. Harris today announced that the Bureau of Children’s Justice and False Claims Unit of the California Department of Justice has reached a settlement agreement with K12 Inc., a for-profit online charter school operator, and the 14 affiliated non-profit schools known as the California Virtual Academies (“CAVA Schools”) that it manages, over alleged violations of California’s false claims, false advertising and unfair competition laws. 

As part of the settlement, which is subject to court approval, K12 will provide approximately $160 million in debt relief to the non-profit schools it manages—“balanced budget credits” that were accrued by the schools as a result of the fee structure K12 used in its contracts—and will pay $8.5 million in settlement of all claims.  In addition, K12 has agreed to implement significant reforms of its contracts with the CAVA Schools, undergo independent reviews of its services for students with disabilities, ensure accuracy of all advertisements, provide teachers with sufficient information and training to prevent improper claiming of attendance dollars, and change policies and practices to prevent the kinds of conduct that led to this investigation and agreement.  

This is the first settlement by the new Bureau of Children’s Justice, a first-of-its-kind unit created by Attorney General Harris in February 2015 to enforce civil and criminal laws that protect children and to pursue solutions that help ensure all children are on track to realize their full potential.  The Bureau partnered with the False Claims Unit to investigate this matter, in which K12 and the CAVA Schools were cooperative.  The Attorney General’s office recently disclosed five additional active investigations by the Bureau of Children’s Justice addressing education, juvenile justice, and the child welfare system: www.oag.ca.gov/bcj/investigations.

“All children deserve, and are entitled under the law, to an equal education,” said Attorney General Harris. “K12 and its schools misled parents and the State of California by claiming taxpayer dollars for questionable student attendance, misstating student success and parent satisfaction, and loading nonprofit charities with debt.  As my office continues an industry-wide examination of for-profit academic institutions, this settlement ensures K12 and its schools are held accountable and make much-needed improvements.”

The Attorney General’s Office alleged that K12 and the CAVA Schools it operates in California misled parents to induce them to enroll their children in K12 schools by publishing misleading advertisements about students’ academic progress, parent satisfaction, their graduates’ eligibility for University of California and California State University admission, class sizes, the individualized and flexible nature of their instruction, hidden costs, and the quality of the materials provided to students.

In addition, the Attorney General’s office alleged that K12 and its affiliated schools submitted inflated student attendance numbers and collected more dollars in state funding from the California Department of Education than they were entitled to.  According to a whistle blower, K12 allegedly counted logging on for as little as one minute as a full day of attendance, wasting taxpayer dollars and harming students by depriving them of a full day of high-quality academic instruction.

Finally, the Attorney General’s office alleged that K12 and its employees influenced nonprofit online charter schools to enter into unfavorable contracts that put them deep in a financial hole.  The agreement ensures that K12 and the CAVA Schools refocus on the need to deliver quality educational services and that they do so with appropriate controls between the for-profit vendor and nonprofit schools.

A recent study showed that students in virtual schools that exist solely online are far behind their peers in math and reading.  In addition, reports show that the CAVA Schools collectively had a graduation rate of 36%, compared to the state average of 78%.

K12 Inc. is based in Virginia and is a for-profit, publicly traded company.  The 14 non-profit virtual charter schools it manages throughout California enroll approximately 13,000 K-12 students.

Ensuring that all students receive full days of academic instruction is part of Attorney General Harris’s innovative “smart on crime” approach to criminal justice, in which the Attorney General’s office has commissioned research into elementary school truancy and chronic absenteeism and the connections between school attendance and interactions with the criminal justice system later in life.  Reports from the past three years and additional materials are available online at https://oag.ca.gov/truancy.

Civil Penalties and Significant Injunctive Terms Follow the $1.18 Billion Secured for California in Initial Landmark Settlement with Volkswagen

SAN FRANCISCO - Attorney General Kamala D. Harris today announced that, in addition to the historic $14.7 billion settlement with Volkswagen announced last week, the company will also pay California an additional $86 million in civil penalties as part of a second partial settlement over the company’s use of “defeat devices” to evade emissions testing in its diesel vehicles. 

The agreement, which is subject to court approval, represents the largest amount of money recovered by the state of California from an automaker and resolves certain aspects of the California Attorney General’s claims against Volkswagen under California’s Unfair Competition Law as well as the Dodd-Frank Consumer Financial Protection Act of 2010.  Volkswagen will also agree to significant injunctive terms to deter future misconduct, including a new requirement that Volkswagen contractors and employees report to the California Attorney General’s office any request for or use of “defeat devices.”  

Of the $86 million in penalties, the Attorney General will direct $10 million in grants to local government agencies or academic institutions to research and develop technology to detect “defeat devices” and better assess on-road emissions, as well as to monitor, model, and mitigate the environmental and public health impacts of vehicle emissions, especially on children and other vulnerable populations.

“We must conserve and protect our environment for future generations and deliver swift and certain consequences to those who break the law and pollute our air.  Volkswagen tricked consumers seeking to purchase an eco-friendly car by misleading the public about the level of harmful pollutants their so-called ‘clean diesel’ vehicles were emitting,” said Attorney General Harris.  “This additional settlement sends an unequivocal message to Volkswagen and any other automaker that California will aggressively enforce our robust consumer and environmental protection laws.” 

Today’s announcement follows last Tuesday’s joint announcement by California Attorney General Kamala Harris and California Air Resources Board Chair Mary Nichols that California, alongside the U.S. Environmental Protection Agency and U.S. Department of Justice, had negotiated a landmark $14.7 billion settlement with Volkswagen over the software it installed in its diesel cars to trick emissions testing while actually emitting up to 40 times the level of harmful nitrogen oxides allowed under state and federal law. 

As part of that $14.7 billion agreement, Volkswagen agreed to spend an estimated $10 billion to compensate consumers and buy back or modify hundreds of thousands of its polluting cars, pay $2.7 billion into a trust fund for environmental mitigation projects, and spend $2 billion over 10 years on zero-emission technology.  Of the $4.7 billion in mitigation funding and investments, $1.18 billion will come to California ($800 million in zero-emissions technology investments and $380 million for environmental mitigation projects in the state).

The partial settlement announced today relates to Volkswagen’s 2.0 and 3.0 liter vehicles that deployed “defeat devices” to deceive regulators and consumers about levels of harmful emissions.  An estimated 86,000 2.0 and 3.0 liter vehicles were sold or leased in California between 2009 and 2015.  Today’s settlement preserves California’s potential criminal claims and claims for additional civil penalties and injunctive relief under state environmental laws, as well as the Attorney General’s claims for consumer relief and environmental mitigation related to the 3.0 liter vehicles.

In addition to the $86 million in civil penalties, Volkswagen agrees to strict injunctive terms as part of the settlement, including:

• Prohibitions on false and deceptive advertising
• Affirmatively disclosing defeat devices in certification applications and other submissions to the California Air Resources Board (CARB)
• Notifying the California Attorney General’s office and CARB of whistleblower and other complaints
• Requiring Volkswagen contractors and employees who are designing engine control units or engine control software to report to the California Attorney General’s office and to CARB any request for or use of defeat devices, and to keep accurate records of software features and changes that could be used as defeat devices
• Provide the California Attorney General’s office with reports of any violations, along with periodic reports regarding its efforts to implement the injunction and effectiveness of those efforts

The consent decree was filed today in U.S. District Court, Northern District of California and is attached to the online version of this news release at www.oag.ca.gov/news.

SAN FRANCISCO - Attorney General Kamala D. Harris and the California Air Resources Board (CARB) today announced a landmark $14.7 billion national settlement with Volkswagen over allegations that the company violated environmental and consumer protection laws by installing “defeat device” software to bypass emissions controls in its 2.0 liter diesel vehicles.

As part of the national agreement, which is subject to approval by the court, Volkswagen will spend approximately $10 billion to buy back or modify these vehicles, as well as pay $2.7 billion into a trust to support environmental programs and reduce emissions and an additional $2 billion on investments and promotion of zero emissions vehicles.  The agreement preserves the Attorney General’s and CARB’s claims for civil penalties and prospective injunctive relief, as well as their claims related to 3.0 liter diesel vehicles.

In addition to providing consumer relief funding, California will receive $1.18 billion, representing more than one-quarter of the funding VW must provide for environmental projects in states injured by the company's conduct and investments it must make in zero emission technology.

“Our state and national environmental protection laws exist to protect public health and to preserve our planet for future generations.  Volkswagen undermined these objectives by deceiving California consumers and flagrantly violating California environmental and consumer protection laws by manipulating its diesel vehicles to produce false results when undergoing emissions testing,” said Attorney General Kamala Harris. “This landmark agreement not only ensures that consumers who were deceived are fairly compensated, but also requires Volkswagen to make unprecedented investments in protecting our environment and advancing zero emission technology.”

As part of the agreement, VW will offer compensation to those who own or lease a VW or Audi 2.0 liter vehicle as of September 18, 2015.  Owners have the option of having Volkswagen buy back their vehicle or, if approved by CARB and EPA, having VW modify their vehicle to reduce its emissions.  Owners who opt for a buyback or modification will also receive an additional cash payment of at least $5,100.  Some owners may receive as much as $10,000.

In addition to consumer relief and getting polluting cars off the road via the buyback and modification program, which is anticipated to cost Volkswagen over $10 billion, Volkswagen is also required to pay $2.7 billion into a trust to support environmental programs throughout the country to reduce emissions. CARB will receive and direct 14.12%, $380 million, of these trust funds to fund environmental mitigation projects in California.  Volkswagen is also required to buy back, modify, or scrap at least 85% of the subject vehicles nationally and in California, and it is required to pay for additional mitigation projects if it falls short of that requirement.   

Volkswagen must also spend $2 billion over a 10-year period to promote zero emissions vehicles through educational information, research and development, and infrastructure development (such as building charging stations), to further mitigate emissions and help right the market that was manipulated by the false emissions results in Volkswagen diesel vehicles.  Forty percent, or $800 million, of these investments will be made in California, pursuant to investment plans that will be subject to approval by CARB.

“This is a good deal for California’s environment and for California consumers. It will bring over a billion dollars of projects to California to supercharge our expanding zero-emission vehicle market, and fully mitigate the environmental harm to our air as a result of VW’s cheating,” said CARB Chair Mary D. Nichols. “The Consent Decree also recognizes the crucial contribution the dogged engineers in CARB’s testing lab played in exposing the illegal device in the first place – and the exceptionally costly and difficult challenges we face in our fight for cleaner air in a state where tens of millions breathe the most heavily polluted air in the nation.”

Volkswagen programmed software in its diesel cars to achieve lower emissions while undergoing testing, but in normal driving conditions, their cars were emitting up to 40 times more harmful nitrogen oxides than allowed by state and federal law. 

The parties settling claims against Volkswagen in this major agreement include the California Attorney General’s Office, CARB, the U.S. Department of Justice, and the U.S. Environmental Protection Agency (EPA).

California is uniquely affected, not only because of our robust environmental protection laws and CARB’s unique enforcement and regulatory role, but also because our state has the largest number of affected consumers.

In conjunction with the consent decree, the California Attorney General’s office filed a joint complaint with CARB in the Northern District of California this morning.  The complaint is attached to the online version of this news release at www.oag.ca.gov/news.

The agreement is subject to approval by the court following a public comment period.

The agreement is specific to 2.0 liter vehicles and does not include Volkswagen and Audi 3.0 liter vehicles that are alleged to have similar defeat devices installed.  It also preserves the ability of the Attorney General, CARB, and the EPA to seek civil penalties and further injunctive relief.

LOS ANGELES – Attorney General Kamala D. Harris today filed a lawsuit against Johnson & Johnson (J&J) for false advertising and deceptive marketing of its surgical mesh products for women.  The complaint alleges that J&J neglected to inform both patients and doctors of possible severe complications and misrepresented the frequency and severity of risks.

California co-led a multistate investigation, including 46 states and the District of Columbia, into J&J’s surgical mesh products for women, and is seeking injunctive relief and monetary penalties to ensure that J&J stops its deceptive practices.

“Johnson & Johnson put millions of women at risk of severe health problems by failing to provide critical information to doctors and patients about its surgical mesh products,” said Attorney General Harris. “Johnson & Johnson’s deception denied women the ability to make informed decisions about their health and well-being.  My office will continue to hold companies accountable for misleading consumers and patients for financial gain.”

The surgical mesh device is designed to treat common health conditions in women such as stress urinary incontinence and pelvic organ prolapse. The lawsuit alleges that J&J misrepresented the safety of these devices by concealing the possibility of serious and irreversible complications caused by mesh, including permanent pain with intercourse and/or loss of sexual function, chronic pain, permanent urinary or defecatory dysfunction, and potentially devastating impact on overall quality of life.  

J&J also misrepresented the severity and frequency of common complications, and failed to disclose that its surgical mesh devices presented risks not present in alternative treatment options.

The suit further claims that J&J knew about potential risks and side effects prior to the launch of their mesh products, yet omitted that information from educational and marketing materials provided to doctors and patients.  

J&J sold 787,232 devices nationally from 2008 to 2014, including more than 42,000 in California for that same time period.  Worldwide, more than 2 million women had been implanted with these mesh products. 

In addition to the lawsuit filed today, J&J faces over 35,000 personal injury lawsuits in state and federal court related to its surgical mesh products. 

A copy of the complaint is attached to the online version of this news release at www.oag.ca.gov/news.

SACRAMENTO - Attorney General Kamala D. Harris today filed a lawsuit against Pong Marketing & Promotions Inc., a major sweepstakes gambling software provider, for illegal gambling in violation of state criminal and unfair competition laws.  In the suit, filed in Solano County Superior Court, Attorney General Harris seeks injunctive relief and penalties of approximately $10 million.

Pong, a company based in Canada, provided software to sweepstakes cafes throughout California.  These cafes operate as mini-casinos, offering interactive gambling-themed games on computer gambling devices, which they market to a predominantly vulnerable, low-income clientele.  The California Supreme Court ruled that these machines are illegal gambling devices in violation of California Penal Code section 330b.  Pong then abandoned its sweepstakes model, changing its software to a purported skill-based system, retaining the gambling devices and having players redeem cash prizes by executing the “skill” of clicking a mouse to stop a moving cursor before the time expires.

“When casinos are allowed to masquerade as cafes in our neighborhoods, it both deceives consumers and undermines public safety,” said Attorney General Harris. “Software providers who misrepresent their games as lawful must be held accountable for their role in facilitating criminal activity.  I thank our law enforcement partners across the state for their efforts to shut down these illegal gambling operations.”

Sweepstakes gambling enterprises are a major problem nationwide, estimated to earn over $10 billion a year.  In California, Attorney General Harris has pioneered the use of the Unfair Competition Law to provide stronger monetary remedies against these operators. 

The Attorney General’s office works in tandem with local law enforcement agencies across California as part of the Sweepstakes Gambling Task Force to dismantle illegal gambling operations. The Sweepstakes Gambling Task Force includes the California Attorney General’s Office, Contra Costa County District Attorney Mark A. Peterson, Fresno County District Attorney Lisa A. Smittcamp, Kern County District Attorney Lisa S. Green, Merced County District Attorney Larry Morse II, Riverside County District Attorney Michael A. Hestrin, Solano County District Attorney Krishna Abrams, San Diego County District Attorney Bonnie M. Dumanis, Sonoma County District Attorney Jill R. Ravitch, Tulare County District Attorney Tim Ward, and Los Angeles City Attorney Mike Feuer.

SAN FRANCISCO - Attorney General Kamala D. Harris today filed a lawsuit against investment bank Morgan Stanley for misrepresentations about complex investments such as residential mortgage-backed securities, in which large pools of home loans were packaged together and sold to investors.  These misrepresentations contributed to the global financial crisis and to major losses by investors including California's public pension funds, which are responsible for the retirement security of California peace officers, firefighters, teachers, and other public employees.

The complaint, filed in San Francisco Superior Court, alleges that Morgan Stanley violated the False Claims Act, the California Securities Law and other state laws by concealing or understating the risks of intricate investments involving large numbers of underlying loans or other assets. In addition to residential mortgage-backed securities, the complaint also focuses on "structured investment vehicle" investments, which involved not just packages of residential mortgage loans but also other types of debt of individuals and corporations. 

“Morgan Stanley’s conduct in this case evidenced a culture of greed and deception that helped create a devastating economic crisis and crippled California’s budget,” said Attorney General Harris. “This lawsuit is necessary in order to hold Morgan Stanley accountable for the destruction it caused to California, our people, and our pension funds.”

Specifically, the complaint alleges that, from 2004 to 2007, Morgan Stanley assembled and sold billions of dollars in mortgage-backed securities, many of which contained risky loans made by Morgan Stanley subsidiary Saxon, or by New Century, a mortgage lender which received crucial funding from Morgan Stanley.  Morgan Stanley purchased and bundled high-risk loans from subprime lenders like New Century into seemingly safe investments, even though it knew the lenders were “not [using] a lot of common sense” when approving the loans, the complaint alleges. Additionally, the complaint alleges that Morgan Stanley did not disclose the risks because it did not want its concerns about loan quality to become a “relationship killer” that would cause it to lose its lucrative business with companies making the risky loans. 

Among other things, Morgan Stanley's offering documents, which were required to fully and accurately inform investors about the risks, actually misrepresented the quality of the loans contained in the investment packages, by failing to disclose that many of them were underwater (the mortgage was more than the property was worth) and by failing to disclose the number of delinquent loans.  They also used exaggerated appraisals which overstated the value of the properties securing the loans, and knowingly presented incorrect data concerning owner occupancy and loan purpose, which tended to understate the riskiness of the loans.   

The complaint goes on to allege that Morgan Stanley sometimes even took loans that it had already decided not to include in its investment packages because they were too risky, and then included them in later investment packages, despite knowing the problems with the loans, and doing nothing to fix them. The complaint alleges that the lack of disclosure prompted a Morgan Stanley employee to observe to his co-workers that someone “could probably retire by shorting these upcoming . . . deals,” “someone needs to benefit from this mess.”

The complaint also alleges that Morgan Stanley played a central role in crafting the Cheyne structured investment vehicle, which sold supposedly safe short-term investments based on mortgage-backed securities and other complex investments.  Investors were particularly reliant on accurate disclosure of the risks because of the complicated nature of these investments.  The complaint alleges, however, that while Morgan Stanley knew of significant risks, it nevertheless worked to portray the investments as extremely safe.  In fact, Morgan Stanley managed to procure extremely high credit ratings, in some cases the same ratings as the very safest investments such as U.S. government bonds, for investments in Cheyne notes. Morgan Stanley bragged that it “shaped rating agency technology” to “get . . . the rating we wanted in the end,” prompting a SIV manager to observe, “it is an amazing set of feats to move the rating agencies so far.”  Unfortunately, the result of Morgan Stanley's success was huge losses to investors when the SIV failed.     

The California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) – two of the nation's largest institutional investors – lost hundred of millions of dollars on these Morgan Stanley investments.  CalPERS provides retirement security and health plans to more than 1.6 million California firefighters, peace officers, and other public employees.  CalSTRS provides retirement, disability, and survivor benefits for over 850,000 of California’s pre-kindergarten through community college educators and their families. 

The lawsuit arises from a multiyear investigation into the issuance and rating of mortgage-backed securities by Attorney General Harris's California Mortgage Fraud Strike Force.

The Attorney General’s Mortgage Fraud Strike Force was created in May 2011 to comprehensively investigate misconduct in the mortgage industry. As a result of that investigation, Attorney General Harris has to date recovered over $900 million for California’s public pension funds in settlements with three banks and a credit rating agency over misrepresentations in connection with structured finance investments sold to CalPERS and CalSTRS. 

The Attorney General's additional efforts to investigate the mortgage crisis include securing an estimated $18 billion for California in the National Mortgage Settlement and sponsoring the California Homeowner Bill of Rights, a package of laws instituting permanent mortgage-related reforms.

SAN FRANCISCO - Attorney General Kamala D. Harris today announced a preliminary approval of settlements resolving allegations that LG, Hitachi, Panasonic, Toshiba, and Samsung, companies all based in Japan or Korea, fixed prices on critical components of televisions and computer monitors from 1995 to 2007.  Those critical components, known as Cathode Ray Tubes or CRTs, were used to display images on computer monitors and televisions screens before they were replaced by flat screens. The court has approved the settlement pending valid objections submitted within 60 days.    

The companies’ price fixing scheme caused damage to California consumers and government entities that overpaid for their televisions and computers. The announced settlement has led to legally enforceable judgments against these foreign companies.

“LG, Hitachi, Panasonic, Toshiba, and Samsung deliberately targeted the U.S. market to raise prices for televisions and computers worldwide,” said Attorney General Harris. “These settlements bring justice and relief to California consumers and end the malicious practice of price-fixing by these companies.”

The settlements, which were filed in San Francisco Superior Court, require all five companies to pay a total of $4.95 million to settle claims of overcharges paid by California government entities, general damages suffered by the State’s economy, and civil penalties. The settlements require that the companies pay back the illegally obtained profits to those affected by their actions. In addition, the settlements include injunctive relief, which requires that each company engage in company-wide antitrust compliance training and reporting that involves products in addition to CRTs and extends to foreign companies and subsidiaries. Finally, the settlements include requirements, enforceable by the court via fines and imprisonment, to prevent future violations of antitrust law. 

In 2011, after the Office of Attorney General Harris conducted a confidential investigation into price-fixing involving CRTs, Attorney General Harris filed complaints against these companies for having entered into a price-fixing conspiracy of critical components of television and computer screens. That conspiracy involved top-level meetings of key executive decision-makers in Asia and Europe to set prices and outputs of CRTs.  It also involved worldwide meetings among lower-level executives to exchange confidential information.  Californian subsidiaries of these companies were involved in this conspiracy and took on the role of monitoring the prices of televisions and computers in California stores.

This case, filed by Attorney General Harris, requested the court award damages to California consumers. A parallel case filed by private counsel in federal court, known as the Indirect Purchaser Plaintiffs, also requested damages on behalf of Californians, and Attorney General Harris and the Indirect Purchaser Plaintiffs coordinated their discovery and settlement efforts.

Due to these coordinated efforts, California consumers or sole proprietorships that purchased at least one television or computer between 1995 and 2007 can make a claim, with a guaranteed minimum check of $25.

All eligible California consumers and sole proprietorships can file claims for reimbursement at https://www.crtclaims.com/. The new deadline for filing those claims is June 30, 2016.

In December 2015, Attorney General Harris announced a settlement resolving allegations that Pratibha Syntex Ltd., a company based in India, gained an unfair competitive advantage over American-based companies by using pirated software in the production of clothing imported and sold in California. The settlement, which was filed in Los Angeles Superior Court, required Pratibha Syntex to pay $100,000 in restitution, prohibited Pratibha Syntex from using unlicensed software or reproducing any part of a copyrighted software program without the permission of the legitimate copyright holder, and required the company to perform four complete audits of the software on their computers and fix any violations within 45 days. That case marked the first time a state has secured a legally enforceable judgment against an international company for these types of violations. 

Copies of the complaint, memorandum in support of preliminary approval, and the order granting preliminary approval, are all attached to the online version of this release at www.oag.ca.gov/news.  Further details can also be found at http://oag.ca.gov/consumers/crt_notice.

LOS ANGELES - Attorney General Kamala D. Harris and five district attorneys today announced a $8,500,000 settlement with Wells Fargo Bank over privacy violations that included recording consumers’ phone calls without timely telling consumers they were being recorded, as required by California law. The investigation into Wells Fargo and the subsequent settlement were the result of the work of the Attorney General’s Office and the office of Los Angeles County District Attorney Jackie Lacey, along with the Consumer Protection Divisions of Alameda County District Attorney Nancy E. O’Malley, Riverside County District Attorney Michael Hestrin, San Diego County District Attorney Bonnie M. Dumanis and Ventura County District Attorney Gregory D. Totten.

As part of the settlement, which is in the form of a stipulated judgment, Wells Fargo will pay civil penalties totaling $7,616,000 and will reimburse the prosecutors' investigative costs of $384,000. In addition, Wells Fargo will contribute $500,000 to two statewide organizations dedicated to advancing consumer protection and privacy rights.  

“Protecting the privacy of California consumers is increasingly crucial as technology rapidly develops and becomes a bigger part of our lives,” said Attorney General Harris. “This settlement holds Wells Fargo accountable for violating the privacy of its customers by recording calls without providing adequate notification, and ensures that the bank makes the changes necessary to protect the privacy of its customers.”

The civil complaint, filed in Los Angeles Superior Court, alleged that Wells Fargo violated sections 632 and 632.7 of the California Penal Code by failing to timely and adequately disclose its automatic recording of phone calls with members of the public. California has some of strongest privacy laws in the country.  In California, each party to a confidential conversation must be advised at the outset if a call is being recorded, so that the individual can object or terminate the call if he or she does not wish to be recorded.

In addition, the settlement agreement states that Wells Fargo must comply with California's standards for recording confidential communications between the bank and its customers by making clear, conspicuous, and accurate disclosures.  Wells Fargo has also agreed to implement an internal compliance program to ensure that the policy changes are made. This is a significant step that is aligned with Attorney General Harris’ ongoing efforts to preserve California businesses’ ability to innovate while ensuring that consumers’ right to privacy is protected.

“Wells Fargo failed to recognize that Californians place a high value on privacy,” said Los Angeles County District Attorney Jackie Lacey. “Today’s settlement takes another step toward ensuring that consumers’ rights are protected.”  

“The collaboration of the District Attorney’s Offices and the Attorney General resulted in today’s settlement,” said Alameda County District Attorney Nancy E. O’Malley. “As information technology reaches ever further into the lives of our citizens, strict compliance with California’s privacy laws becomes ever more imperative to protect the rights of those individuals.”

“Preserving an individual’s right to privacy is among the greatest challenges we face in the Digital Age,” said San Diego County District Attorney Bonnie M. Dumanis. “This settlement underscores our office’s commitment to protecting San Diego County consumers from intrusions and privacy violations in the marketplace.”

Once Wells Fargo was notified by investigators of the alleged deficiencies in their recording disclosures, the bank and its counsel worked cooperatively to implement changes in the company’s policies nationwide, without admitting liability.

In October 2015, Attorney General Harris reached a similar settlement with Houzz Inc., an online platform for home remodeling and design, to resolve allegations that the company violated California privacy laws by recording incoming and outgoing telephone calls without notifying all parties on the call that they were being recorded. The settlement required Houzz to appoint an individual to serve in a Chief Privacy Officer capacity to oversee Houzz’s compliance with privacy laws, marking the first time such a provision has been included in a California DOJ settlement.  . 

Copies of the complaint and stipulated judgment are attached to the online version of this release at www.oag.ca.gov.