Lawsuits & Settlements

Mendocino, Calif—Attorney General Edmund G. Brown Jr. today announced a settlement with James L. Harrison, 62, of Ukiah, after he “looted college scholarship funds” from a Trust intended to benefit female graduates of Ukiah High School pursuing careers in medicine.

Brown’s office, working with the Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Institutions, recovered both the principal and the interest—totaling over $650,000—owed to the Trust. In the settlement, Harrison agreed to a lifetime ban from serving as a charitable trustee or officer of a public benefit corporation.

“Harrison looted college scholarship funds intended to help women graduating from high school achieve their dreams,” Brown said. “Today’s agreement makes sure that he is never in a position to steal from a non-profit again.”

In 1993, Ukiah residents Viola and Oscar Allen established a Living Trust. It was their wish that upon their deaths, funds from the Trust would be administered as scholarships for female graduates of Ukiah High School interested in pursuing further education in the medical field.

Harrison, who was then Vice President of Savings Bank in Mendocino County, became Trustee in 1993. Instead of funding scholarships for students, he began spending the money for his own benefit. He invested in real-estate ventures and loaned money to friends and family.

In 2005, the FDIC was notified of suspicious activity involving the Trust. The Attorney General’s Office began its own investigation and found that Harrison had diverted hundreds of thousands of the approximately $474,000 in the original Trust.

In February 2007, Brown’s office filed a civil lawsuit against Harrison seeking to remove him from the Trustee position. Brown’s office also filed criminal charges against Harrison in 2008.

In February 2009, Harrison entered no contest pleas to the following felony counts:

• Misappropriation of trust assets (Penal Code sections 487/506)
• Filing willfully false tax returns (Revenue and Taxation Code section 19705(a)(1))
• Admittedly taking in excess of $200,000 (Penal Code section 12022.6(a)(2))

Harrison was sentenced to one year in county jail and three years probation.

As a result of the civil action, a new trustee was appointed to administer the Viola and Oscar Allen Trust and scholarships have been distributed for the last two years to female graduates of Ukiah High School.

A copy of the settlement agreement is attached.

Oakland—Attorney General Edmund G. Brown Jr. today sued Florida-based electronic-cigarette retailer Smoking Everywhere to prevent the company from targeting minors and making “misleading and irresponsible” claims that electronic cigarettes are a safe alternative to smoking.

“Smoking Everywhere launched a misleading and irresponsible advertising campaign targeting minors and claiming that electronic cigarettes do not contain harmful chemicals,” Brown said. “We are asking the Court to take these cigarettes off the market until the company has proven the products are safe.”

Electronic cigarettes, or e-cigarettes, are battery-operated devices with nicotine cartridges designed to look and feel like conventional cigarettes. Instead of actual smoke, e-cigarettes produce a vapor from the nicotine cartridge that is inhaled by the user. Smoking Everywhere, one of the largest e-cigarette retailers in the United States, claims in its advertisements that the e-cigarettes have no carcinogens, no tar, no second-hand smoke, and are therefore safe and healthy.

However, the U.S. Food and Drug Administration (FDA) has determined that electronic cigarettes contain a variety of dangerous chemicals, including nicotine, carcinogens such as nitrosamines and, in at least one case, diethylene glycol, commonly known as antifreeze.

Today’s lawsuit seeks to prevent the company from selling its products until there is evidence to substantiate its claims that they are safe. The lawsuit will also require the products to display the state-mandated Proposition 65 warnings of ingredients known to cause cancer or reproductive harm and seeks to prevent the company from making false and misleading claims and promoting the products to minors.

In one advertisement targeted to minors, Smoking Everywhere featured a video with radio show host Howard Stern claiming, “kids love ‘em.” The products feature flavors that appeal to youth, including strawberry, chocolate, mint, banana and cookies-and-cream.

Other ads claim that electronic cigarettes can help people quit smoking. To be advertised as a smoking-cessation device, a product must be approved by the FDA for that purpose. In fact, none of Smoking Everywhere’s products have been approved by the FDA.

The American Cancer Society, the American Heart Association, the American Lung Association, the Campaign for Tobacco Free Kids and other groups have expressed serious concerns about the safety of electronic cigarettes and urged that they be removed from the market until proof of their safety has been established.

A copy of the complaint is attached.

Oakland—Attorney General Edmund G. Brown Jr. and 23 other state attorneys general today announced a $22.5 million settlement with pharmaceutical giants Abbott and Fournier after the companies “illegally blocked” cheaper generic substitutes for the cholesterol-reducing drug Tricor.

The settlement is the result of one of the country’s first legal actions challenging pharmaceutical companies for 'product hopping,' a strategy to block generic competition by making slight changes to the formulation of a drug.

“Abbott and Fournier devised a complex scheme that illegally blocked cheaper generic drugs from entering the market,” Brown said. “They used minor reformulations of the drug to delay competition and filed frivolous patent lawsuits. This scheme cost California and other states millions of dollars.”

Beginning in 1998, Abbott and Fournier, two of the nation’s largest pharamaceutical companies, partnered to manufacture and distribute Tricor, a cholesterol-reducing drug. Tricor’s annual sales were in excess of $750 million.

By 2002, as Tricor’s patents were set to expire, several drug companies sought approval from the Food and Drug Administration (FDA) to market a generic drug equivalent to Tricor. To be approved by the FDA, the generic-drug manufacturer must prove that its drug has the same active ingredients and the same labeling as the brand-name drug, in addition to being a therapeutic equivalent of the brand-name product.

Once a generic drug is approved for market, the market share for a brand-name drug like Tricor can decrease by up to 80 percent. Most states and group health plans require pharmacists to substitute the generic drug for a brand-name drug to get the cost benefit of the cheaper generic version.

Knowing generic manufacturers were attempting to enter the market, the lawsuit alleged that Abbott and Fournier devised a complex scheme to delay and prevent the approval and marketing of generic versions of Tricor. The companies made minor changes in the form and dosage strength of Tricor that did not provide any significant health benefits over previous Tricor formulations. These minor changes interfered with and delayed any FDA approval of the generics.

To further delay the process, Abbott and Fournier also filed more than a dozen lawsuits against generic drug manufacturers Teva Pharmaceuticals and Impax Laboratories because the law prohibits the FDA from approving a generic drug for 30 months after patent-infringement lawsuits have been filed. After the 30-month automatic stays expired, all of the suits were eventually dismissed.

As a result of the scheme, Abbott and Fournier recorded Tricor sales exceeding $1 billion at the expense of consumers and state governments.

Today’s settlement agreement requires the companies to cease illegal efforts to block generic competition to Tricor and to pay the states approximately $22.5 million dollars. In California, the Department of General Services, Medi-Cal and the Department of Corrections will be reimbursed for overcharges.

States joining California in today’s lawsuit include: Arizona, Arkansas, Connecticut, District of Columbia, Florida, Iowa, Kansas, Maine, Maryland, Minnesota, Missouri, Nevada, New York, Oregon, Pennsylvania, South Carolina, Washington, and West Virginia.

A copy of the agreement is attached.

Sacramento – Attorney General Edmund G. Brown Jr. announced today a $21.3 million settlement with Schering-Plough Corporation, resolving allegations the company “deliberately inflated” the price of Albuterol and other drugs, causing California’s Medicaid (Medi-Cal) program to overpay millions of dollars in pharmacy reimbursement.

Albuterol is a widely prescribed generic drug, delivered through inhalers, nebulizers and masks, and used to treat asthma and other breathing problems.

“With healthcare costs spiraling out of control, it’s unconscionable that a Fortune 500 pharmaceutical company deliberately inflated its drug prices to cheat California’s public healthcare system out of millions of dollars,” said Brown. “This is a company that made more than $12 billion in profits last year, yet still raided the pockets of California taxpayers.”

Today’s settlement stems from a lawsuit filed by a whistleblower against several pharmaceutical companies accused of Medicaid fraud. The case is still proceeding against Dey, Inc., Mylan Pharmaceuticals, Inc., Sandoz, Inc. and their parent companies. Schering-Plough recently merged with Merck, and is now known as Merck & Co.

California’s $21.3 million agreement is one of three settlements negotiated with Schering-Plough, collectively totaling $69 million, over falsely inflated drug prices. The three lawsuits were originally filed by a whistleblower, Ven-A-Care of the Florida Keys, Inc., on behalf of California, Florida and the federal government. Schering-Plough also reached settlements with Florida and the federal government, the latter for approximately $44.5 million.

The settlement resolves allegations that Warrick Pharmaceuticals, a subsidiary of Schering-Plough, deliberately inflated the Average Wholesale Prices (AWPs) it reported to California for Albuterol. Medi-Cal sets the reimbursement rates for pharmacies for many of the drugs dispensed to Medi-Cal patients based on the AWPs reported by drug manufacturers.

California pharmacies dispensed Albuterol to patients and were then reimbursed by Medi-Cal. By reporting falsely inflated AWPs, some drug manufacturers caused Medi-Cal to overpay millions of dollars in pharmacy reimbursement. Medi-Cal is funded on a roughly 50% - 50% basis by the federal government and the State of California.

Reporting fraudulent AWPs is a violation of the California False Claims Act. The Attorney General’s Office investigated the claims, and in 2005, intervened in the lawsuit with its own complaint, currently being litigated in federal court in Boston. The California Department of Health Care Services, which is responsible for administering Medi-Cal, will receive $20.1 million, and the Attorney General’s False Claims Fund will receive just over $1.2 million.

The Attorney General’s False Claims Fund is used for the ongoing investigation and prosecution of false claims, including Medi-Cal fraud claims. Today’s settlement was negotiated by the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse. The Bureau of Medi-Cal Fraud and Elder Abuse investigates and prosecutes claims of Medi-Cal civil and criminal fraud, as well as allegations of elder abuse, such as physical assaults or financial theft.

The settlement agreement is attached.

Los Angeles –Attorney General Edmund G. Brown Jr. today sued a Los Angeles car wash for $2.6 million for illegally forcing employees to work nearly 60-hour weeks without overtime, ignoring minimum wage laws and denying injured employees workers’ compensation benefits.

Brown's legal action was part of his statewide crackdown on companies that break worker-protection laws.

"Most companies in California comply with state wage and benefit laws, but if you're running a firm that's exploiting your workers in this economy when people are desperate for jobs, we want you to know that we will find you, we will stop you and we will file some of the toughest legal actions in the nation against you,' Brown warned.

Brown’s lawsuit was filed in Los Angeles Superior Court today against Auto Spa Express, Inc. and its owner, Jonathan Min Kim, and Sunset Car Wash, LLC. The violations occurred at Auto Spa Express car wash facility located at 2028 Sunset Blvd., which employed between 23 and 41 people, depending on the time of year. The facility was sold to Sunset Car Wash, LLC earlier this year.

The suit contends that from 2006 to 2008, the company failed to:

• Pay the state minimum wage to its employees. Employees were often paid $6.32 an hour; the state’s minimum wage is $8.00 an hour. On days when there were no customers, employees sometimes would not be paid at all.

• Pay overtime. Employees were often forced to work six days a week, from 8 a.m. to 6 p.m., without overtime pay.

• Provide accurate itemized statements of hours and wages to employees. Employees were often paid in cash so that the company would not have to pay into the State Unemployment Fund or withhold pay for state taxes.

• Provide safe working conditions or report industrial injuries suffered by employees.

After receiving numerous complaints from Auto Express Spa employees, the Underground Economy Unit of the Attorney General's Office conducted an investigation into Auto Spa Express’ practices and uncovered the violations.

Brown seeks to recover $630,000 in unpaid wages for the company’s workers and to assess $2 million in penalties for violating California’s Unfair Business Act. The Attorney General is also seeking an injunction to prevent the defendants from committing similar violations in the future.

Today's action is part of Attorney General Brown’s ongoing crackdown on businesses that engage in unfair business practices by evading payroll taxes and failing to provide employees with state-mandated protections and benefits. Similar lawsuits were filed against a drywall contractor in Bakersfield and several trucking companies in Los Angeles.

The lawsuit is attached.

Los Angeles –Attorney General Edmund G. Brown Jr. today reached a settlement with UCLA Professor Gerald D. Buckberg, M.D., and five officers of the nonprofit L.B. Research and Education Foundation (“L.B.”) that forces them to stop using the charity as a “personal bank account” to finance their business ventures.

“Professor Buckberg and his associates used the charity as a personal bank account to finance their research and business ventures,” Brown said. “This self-dealing is a clear breach of their fiduciary duties and under today’s settlement, Buckberg must return $140,000 in diverted funds to the charity.”

Buckberg founded L.B. in 1997 and has served as the charity’s director, chief executive officer, and manager. The purpose of the charity, as stated in the articles of incorporation, is to “provide help to persons with physical and psychological problems, provide funding for research activities related to physical or psychological problems and to provide funding for scholarships and other programs that improve education.”

Under California law, “no part of a charitable organization’s income or assets may inure to the benefit of any director, officer, member or private person.” However, an investigation launched by Brown’s office in 2007 revealed that Buckberg and L.B.’s officers used the charity’s assets to finance their own medical research, the research activities of companies in which they had a financial interest and the development of medical devices that they sold.

On September 9, 2009, Brown sued the charity and its officers to stop these illegal practices. Today’s settlement agreement forces Buckberg to return $140,000 in diverted funds to L.B., and:

• Prohibits L.B. from using grants or other funding to directly or indirectly support research by L.B.’s officers and directors or any entity in which they have a financial interest;
• Requires L.B. to report future grant awards to Brown’s office;
• Prohibits Buckberg from serving as an officer of L.B.;
• Requires the transfer of control of L.B.’s corporate checkbook and bank accounts from Buckberg to the Chief Financial Officer;
• Requires L.B. to hire experts to educate officers and board members about charitable trust law and their fiduciary duties, to develop a conflict of interest policy and to develop a grant-making review process to ensure that future grants comply with state and federal law;
• Mandates that new board members be elected by a majority of the board and that two independent board members be added; and
• Requires L.B. to keep financial books and records that clearly set forth expenditures.

Under the settlement, Brown’s office will also be reimbursed for its legal fees.

L.B. has been primarily funded by Buckberg, although it has received some funding from several other individuals and businesses.

To report charity fraud, contact the Attorney General’s Office at 1-800-952-5225 or file a complaint online at: http://ag.ca.gov/charities/forms/charitable/ct9.pdf.

The settlement agreement is attached.

Los Angeles – Attorney General Edmund G. Brown Jr. and the Los Angeles County Department of Consumer Affairs announced today that $100,000 in consumer refunds are still available as part of a settlement reached last year with Hy Cite Corp. after the company “hoodwinked” consumers into buying its high-priced cookware using deceptive in-home demonstrations and scare tactics.

Brown urges consumers who were scammed by Hy Cite to contact the Los Angeles County Department of Consumers Affairs at 1-800-593-8222 to claim their refund.

“Hy Cite hoodwinked hundreds of consumers into purchasing high-priced pots and pans by using deceptive in-home demonstrations and scare tactics,” Brown said. “We want people to know that if they were scammed by HyCite, there’s refund money available for them. While $250,000 has already been paid to victims as part of our settlement, $100,000 in refunds remains unclaimed.”

In September 2008, Brown’s office secured a million-dollar settlement with Hy Cite, requiring the company to pay $350,000 in restitution to consumer victims. As part of the settlement, the Los Angeles County Department of Consumer Affairs agreed to distribute the restitution funds, $100,000 of which remains unclaimed.

Prior to the settlement, Brown’s office investigated Hy Cite and found that the company violated the state’s unfair competition and false advertising laws, as well as a previous injunction prohibiting such practices.

Hy Cite’s victims were mostly Spanish-speaking consumers living in predominantly Latino neighborhoods in Southern California. To get into homes, salespeople told consumers that they had won a prize or asked them to participate in opinion polls. Once inside, salespeople often used high-pressure, deceptive tactics, including in-home demonstrations of their products.

For example, salespeople regularly performed bogus “tests” on the victim’s cookware, claiming that non-stick or aluminum cookware was unsafe for families and could lead to illness. One test involved heating a mixture of baking soda and water in consumers’ pans to produce a bad-tasting paste. The salespeople claimed their tests showed that toxic chemicals were transferred into the family’s food through their existing cookware. Hy Cite’s “Royal Prestige” cookware ranged in price from $2,000 to $4,500 per set.

Costs further escalated when consumers agreed to pay for the pots and pans through the Hy Cite’s financing plan. Under these terms, while the company promised low rates, consumers were instead stuck with interest rates of 24% or higher, leading to missed payments, damaged credit scores and collection calls.

Brown’s office also found that the company used two separate credit structures for customers based on ethnicity: one for “Anglo” customers, who were offered 90-day payment deferral, contract cancellation, and the use of post-dated checks; and one for Latino customers, which included none of these options.

In addition to the restitution and penalties, last year’s settlement required Hy Cite to pay for an independent monitor to conduct in-depth interviews with future consumers of Hy Cite products. The settlement also set forth strict requirements on what salespeople say before and during sales presentations.

A copy of the September 2008 settlement with Hy Cite is attached.

*To request interviews in Spanish, please contact the Los Angeles County Department of Consumer Affairs, Office of Director Pastor Herrera Jr. at 213-974-9750*

San Francisco— Attorney General Edmund G. Brown Jr. today announced a landmark $1.4 billion settlement with three Wells Fargo affiliates to pay back investors, charities and small businesses that purchased auction-rate securities based on “misleading advice.”

“Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold,” Brown said. “Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back.”

Under today’s settlement, Wells Fargo will buy back $1.4 billion in non-liquid auction-rate securities from thousands of retail customers, charities, and small businesses nationwide, including about $700 million to California investors. Wells Fargo will also pay legal costs and future monitoring expenses incurred by Brown’s office.

In February 2008, nationwide auction markets froze, and investors have been unable to sell their securities.

Earlier this year, Brown filed the suit against three Wells Fargo affiliates—Wells Fargo Investments, LLC; Wells Fargo Brokerage Services, LLC; and Wells Fargo Institutional Securities, LLC—for violating California’s Securities Law. Brown’s suit contended that Wells Fargo routinely misrepresented, marketed and sold auction-rate securities as safe, liquid and cash-like investments, omitting material facts. The company was also charged with failing to supervise and train its sales agents and selling unsuitable investments.

The lawsuit contended that Wells Fargo ignored clear industry and internal warnings about risk and previous auction failure. In March 2005, the Securities and Exchange Commission (SEC), the “Big 4” accounting firms, and the Financial Accounting Standards Board all determined that auction-rate securities should not be considered “cash equivalents.”

Despite these warnings, Wells Fargo continued to aggressively sell and falsely market auction-rate securities as safe, liquid, cash-like investments until the nationwide auction markets froze in early 2008.

In marketing and selling these investments, Wells Fargo failed to inform investors about how auction-rate securities or the auction process worked, as well as the risks and consequences of auction failure.

Oakland – After finding “hundreds of environmental violations” at Shell gasoline stations statewide, Attorney General Edmund G. Brown Jr. today announced that his office has secured a $19.5 million judgment against the oil company and its affiliates, which will ensure compliance with the state’s hazardous waste and underground fuel storage laws.

“Shell Oil Company disregarded the state’s underground fuel storage and hazardous waste laws, committing hundreds of environmental violations at its gasoline stations across California,” Brown said. “This judgment requires the company to pay $19.5 million in penalties, comply with state law and improve its spill monitoring, employee training and hazardous waste management.”

In 2006, the Attorney General’s Office launched a statewide investigation into Shell and its gasoline stations after the San Diego and Riverside County District Attorneys settled cases with the company following numerous underground fuel storage violations.

Working with the California State Water Resources Control Board, the Attorney General’s Office investigated more than 1,000 Shell gasoline stations throughout California.

The investigation uncovered hundreds of violations at the company’s gasoline stations. For example:

• In February 2007, an inspector discovered that a Shell gasoline station located at 4355 Pacheco Blvd. in Martinez failed to properly maintain the required leak detection monitoring system for its gasoline tanks. The Shell station is located next door to the office of the Contra Costa County Hazardous Materials Program.

• In May 2006, an inspector discovered that a Shell gasoline station located at 7899 Greenback Lane in Citrus Heights, 20 miles northeast of Sacramento, failed to properly maintain spill alarms for its gasoline tanks. Inspectors observed similar violations in October 2005, September 2003 and April 2003.

• In August 2005, an inspector discovered that a Shell gasoline station located at 12398 Los Osos Valley Rd. in San Luis Obispo failed to maintain the required leak detection monitoring system for its gasoline tanks.

• In March 2005, an inspector discovered that a Shell gasoline station located at 30245 Agoura Rd. in Agoura Hills failed to properly conduct and maintain secondary containment testing and monitoring for its gasoline tanks. The inspector also found liquid and hazardous substances in the containment sump. Shell’s own inspector found liquid in the sump on previous visits to the station.

The judgment requires Shell, its subsidiaries, corporate parents, affiliates and successors to pay $19.5 million in civil and administrative penalties and immediately comply with state underground fuel storage and hazardous waste statutes, regulations and permits.

The company must also take immediate steps to improve spill and alarm monitoring, employee training, hazardous waste management and emergency response at its gasoline stations by:

• Implementing a “smart” monitoring system with programmable sensors to monitor for fuel leaks and other environmental alarms;
• Utilizing a continuous remote alarm monitoring, diagnosis and notification system;
• Providing annual compliance and emergency response training sessions to employees, contractors, consultants, retailers and operators;
• Implementing risk management software systems to drive improved underground storage tank compliance;
• Working with a third-party contractor to manage and oversee Hazardous Material Business Plans and Underground Storage Tank Monitoring Response Plans;
• Working with a third-party contractor to provide onsite underground storage tank permitting, registration and testing services;
• Completing a health, safety, security and environmental checklist to monitor, assess and address compliance issues; and
• Maintaining an underground storage tank equipment database and checklist.

Brown has taken aggressive action to stop violators of California’s underground fuel storage and hazardous waste laws:

• In August, Brown and eight district attorneys reached an agreement requiring U-Haul Co. of California to improve the way it handles and disposes of hazardous materials at its 179 regulated facilities throughout the state;
• In June, Brown joined 20 district attorneys and the Los Angeles City Attorney in a suit against Target Corp. to block the retailer from continuing to illegally dump hazardous waste in local landfills;
• In June, Brown and three district attorneys forged a settlement with Kmart requiring the company to stop disposing toxic substances in landfills and pay more than $8.65 million in civil penalties, costs and funding for projects to improve environmental protection in California;
• In April, Brown filed suit against TravelCenters of America – a national gas station chain – to force the corporation to comply with California’s underground fuel storage laws.

The $19.5 million judgment includes: $7.8 million in civil and administrative penalties to district attorneys and regulatory agencies; $5 million in civil penalties to the Attorney General’s Office; $5 million in civil and administrative penalties to the California State Water Resources Control Board; $700,000 to fund the Sacramento County Abandoned Well Restoration Project; $500,000 to the California Climate Action Registry; $400,000 in investigative costs and attorneys’ fees to the Attorney General’s Office; and $100,000 in investigative costs to the California State Water Resources Control Board.

The complaint, stipulated judgment and order, signed in Alameda County Superior Court, are attached. Included in the stipulated judgment is a full list of the Shell gasoline stations subject to the terms of the settlement.

El Cajon—Attorney General Edmund G. Brown Jr. and 11 other state Attorneys General today forced Student Loan Xpress, Inc. to provide $112.7 million in debt relief to students facing a “mountain of debt” for helicopter flight instruction they never received.

Of the $112.7 million, approximately $25.5 million in debt relief will go to California residents who did not receive the training they paid for.

“These students did not obtain the helicopter instruction they were promised, yet Student Loan Xpress insisted that they pay off the full cost of their tuition,” Brown said. “Without this agreement, Silver State flight school students would face a mountain of debt for training they never received.”

Silver State Helicopters was founded near Las Vegas in 2002, and the company quickly grew. At its height, the school comprised 34 campuses in 17 states, and included 2,700 students who paid approximately $69,900 each. In California, Silver State Helicopters operated flight schools in Sacramento, Chino and El Cajon.

In August 2005, Student Loan Xpress became the preferred student loan provider for Silver State Helicopters, lending or servicing some $180 million in student loans.

Yet, even before it made its first loan, Student Loan Xpress had reason to believe that the school was in serious financial difficulty. Students complained of a shortage of instructors, flight simulators and helicopters. Only 10 percent of Silver State students graduated. Ultimately, the school filed for bankruptcy in February 2008.

Many students paid thousands of dollars of tuition, but did not receive the flight training they were promised in return. Regardless of the bankruptcy, Student Loan Express demanded that borrowers repay the full cost of the loans.

Consequently, several state Attorneys General launched an investigation, which determined that the two companies had a close business relationship, and that that Student Loan Xpress had failed to comply with the duty to provide required notices to borrowers. Under the settlement, Student Loan Xpress denied any wrongdoing.

After several months of negotiations, the attorneys general and Student Loan Xpress reached a settlement agreement. The settlement, in tandem with the resolution of a private class action, calls for Student Loan Xpress to restructure approximately $174 million of student debt, based on the number of Federal Aviation Administration (FAA) certifications each student obtained. The fewer certificates obtained, the larger the amount forgiven. The average debt relief for students under this settlement is $46,016.

The company also agreed to:
• Forgive an additional 2.5 percent of the student loan if the adjusted loan is repaid within five years;
• Refrain from providing negative information to credit reporting agencies with respect to any loan restructured; and
• Forgive interest between the dates Silver State Helicopters filed for bankruptcy and approximately the end of 2009.

Student Loan Xpress will also pay $125,000 in legal expenses to the states. The states joining California in today’s settlement are: Florida, Georgia, Idaho, Illinois, Missouri, Montana, Nevada, Oklahoma, Oregon, Utah, and Washington.

The $112.7 in debt forgiveness included in this settlement includes the total relief provided in both the states’ settlement with Student Loan Xpress, and the proposed settlement in a private, nationwide class-action called Holman et al v. Student Loan Xpress, Inc. That class action was filed in federal court in Florida.

Student Loan Xpress borrowers with questions about the settlement are asked to contact the settlement administrator in this matter by e-mail, at settlementquestions@gmail.com.

A copy of the Assurance of Voluntary Compliance is attached.