Lawsuits & Settlements

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.

SACRAMENTO – Seeking to recover more than $200 million in illegal overcharges and penalties, Attorney General Edmund G. Brown Jr. today announced that he has filed suit against State Street Bank and Trust -- one of the world’s leading providers of financial services to institutional investors -- for committing “unconscionable fraud” against California’s two largest pension funds -- CalPERS and CalSTRS.

The suit, which was unsealed today by a Sacramento Superior Court judge, contends that Boston-based State Street illegally overcharged CalPERS and CalSTRS for the costs of executing foreign currency trades since 2001.

"Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California’s public pension funds,' Brown said. 'This is just the latest example of how clever financial traders violate laws and rip off the public trust.'

The case was originally filed under seal by whistleblowers – “Associates Against FX Insider Trading,” who alleged that State Street added a secret and substantial mark-up to the price of interbank foreign currency trades. The interbank rate is the price at which major banks buy and sell foreign currency.

Subsequently, Brown launched an independent investigation into the allegations.

Brown’s investigation revealed that State Street was indeed overcharging the two funds. Despite being contractually obligated to charge the interbank rate at the precise time of the trade, State Street consistently charged at or near the highest rate of the day, even if the interbank rate was lower at the time of trade.

Additionally, State Street concealed the fraud by deliberately failing to include time stamp data in its reports, so that the pension funds could not determine the true execution costs by verifying when State Street actually executed the trades. Commenting on this deception, one State Street senior vice president said to another executive that “…if providing execution costs will give [CalPERS] any insight into how much we make off of FX transactions, I will be shocked if [State Street] or anyone would agree to reveal the information.”

Brown’s office estimates that the pension funds were overcharged by more than $56.6 million over eight years. The lawsuit asks for relief in the amount of triple 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 and penalties could exceed more than $200 million.

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 a monetary recovery, the law provides that the whistleblower “qui tam plaintiff” receives a share of the amount recovered if the requirements of the statute are met.

A copy of the complaint is attached.

Siskiyou County – Attorney General Edmund G. Brown Jr. announced that he has filed criminal charges against the former manager of a Mount Shasta-based medical clinic who filed “bogus claims” under Medi-Cal for medical services that were never performed.

Denise Fairhurst, 57, of Redding, was arrested Wednesday on five criminal counts of grand theft, insurance fraud and submitting false claims to the government. She is being held in Siskiyou County Jail on $1 million dollar bail. Arraignment is set for today in Siskiyou Superior Court at 3:00 p.m.

“Fairhurst ran a health clinic that was losing money and in danger of closing because of widespread financial mismanagement,” Brown said. “To keep her operation afloat, she submitted bogus claims to Medi-Cal and in the process violated California law.”

Brown’s criminal complaint, filed in Siskiyou Superior Court, contends that between January 2004 and December 2007, Fairhurst, the former manager of Alpine Healthcare Clinic, billed Medi-Cal $2.2 million for services not rendered to beneficiaries to help pay Alpine’s operations and management. In addition, Fairhurst used $33,492 of the funds to pay personal credit card bills.

The clinic’s financial problems stemmed from Fairhurst’s inability to set appropriate compensation rates for employees and physicians. For instance, a member of the maintenance staff was paid $1000 a month to work one hour a week. Other medical clinics in town lost employees to Alpine because they could not compete with its pay structure. The clinic also lost income because of an agreement she made with doctors to provide care to patients when they were admitted to a hospital.

With costs rising, Fairhurst submitted false claims to Medi-Cal. She forged Medi-Cal forms, claiming that patients had received care at the clinic, even though some patients had not been to it in years. It is estimated that two-thirds of the claims she submitted were fraudulent.

The scheme unraveled when a member of the clinic’s board of directors discovered that payment claims had been submitted for patients who had not been seen at the clinic. The board of directors hired an accounting firm to conduct an audit of the clinic’s finances. Fairhurst refused to provide any information to the firm and resigned in June 2008.

The audit uncovered further evidence of Fairhurst’s activities, including the use of a personal credit card that was linked to the clinic’s bank account. The clinic’s board of directors referred its findings to the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse for prosecution earlier this year.

If convicted, Fairhurst faces up to five years in prison.

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

San Diego – Continuing his fight against “rip-off artists” operating in California, Attorney General Edmund G. Brown Jr. filed suit today against eight individuals and six businesses that operated scams targeting small business owners. The lawsuits, filed today in San Diego Superior Court, seek to recover more than $3 million.

Schedule note: Brown is in San Diego this morning and is available to speak about these cases at approximately 10:30 -- at the Hilton Bayfront Hotel - downtown (Indigo A Room,
1 Park Blvd in San Diego 92101.

“These cases will send a powerful signal that small business owners must be on the alert,” Brown said. “These rip-off artists sent official-looking documents through the mail for the sole purpose of duping small business owners into paying them money – for no value in return.”

The three cases are separate scams, each following a similar theme. The defendants mailed to small businesses solicitations that appeared to be government documents featuring an official-looking seal, an official-sounding name, citations to the Corporations Code and a “reply by” date. The forms claimed that the business was in danger of losing its corporate or limited liability status if payment was not made within a short period of time.

In the first case, Anthony Williams operated Compliance Annual Minutes Board that mailed to California businesses official-looking forms demanding that the recipient complete the form and return it with payment of an “Annual Fee” of $150 or risk loss of corporate status. Williams claimed that in exchange for payment, he would provide corporate minutes. Instead, he prepared generic fictitious minutes for the business owners who paid his fee.

The next case involved George Alan Miller, Rebecca Miller, Arghisti Keshishyan and Kristina Keshishyan who together operated two corporations and one limited liability company: Annual Review Board, Inc., Business Filings Division and Corpfilers.com, LLC. Miller and his co-conspirators mailed solicitations to California limited liability companies and corporations, demanding that the recipients complete the form and return it with payment or risk penalties, fines and suspension. The payment amounts varied from $195 to $239, but all mailers were designed to be official-looking government documents that misled the recipients into sending money.

In the third case, Maria Jones operated Corporate Filings Division and Corporate Compliance Filings, Inc., which mailed official-looking forms entitled “Annual Minutes Disclosure Statement” to California businesses, implying that the recipient business was required to complete the form and return it with payment of an “Annual Fee” of $175 or risk loss of corporate status. In exchange for payment, Jones agreed to provide corporate minutes. The information she solicited, however, was inadequate for legitimate corporate minutes, and she instead provided fictitious minutes.

All defendants are accused of violating:

• Business and Professions Code section 17533.6 (Deceptive Solicitation Statute)
• Civil Code section 1716 (Phony Billing Statute)
• Business and Professions Code section 17500 (False Advertising Statute)
• Unfair business practices within the meaning of Business and Professions Code section 17200.

In all three cases, the Attorney General’s Office seeks civil penalties, injunction and other equitable remedies and costs.

Since 2004, the Attorney General’s Office has received more than 5,000 complaints against a growing number of individuals who mailed solicitations made to look like governmental forms to small businesses in California. Today’s announcement adds to the five cases the office has already successfully handled since these scams were brought to the office’s attention.

The three complaints and the mailers are attached.

LOS ANGELES -- Attorney General Edmund G. Brown Jr. today sued Todd Swick and Michael Sardo, owners of Los Angeles based Executive Financial Credit Services, for ignoring “repeated warnings” to register with his office and post a $100,000 bond with the Secretary of State.

“Swick and Sardo violated California law by refusing to register their credit repair business with the Attorney General’s office and post a $100,000 bond, even after repeated warnings,” Brown said. “So today, attorneys from my office are filing suit, sending a clear signal to credit repair firms operating in California that they must register with the Attorney General’s office and follow the law.”

Executive Financial Credit Services offers to help repair their customers’ credit by challenging negative or inaccurate items on credit reports directly with the three credit report bureaus—Experian, TransUnion, and Equifax. Under California’s 1984 Credit Services Act, companies providing credit repair services in California are required to register with the Attorney General’s office and post a $100,000 surety bond with the Secretary of State.

In late 2008, Brown’s office sent a letter directing the business to register and provided information to assist in the process. The business did not respond. Despite repeated warnings, Executive Financial Credit Services did not register and obtain a bond.

Later Swick claimed the business was no longer conducting credit repair services and didn’t need to register. Brown’s office, however, discovered the business was continuing to operate as a credit repair firm. In early 2009, Sardo informed Brown’s office that the business was moving from California to Arizona and would not complete the registration process. Brown’s office informed Sardo that if the business continued offering credit repair services in California, it was bound by California law to register.

Nevertheless, Executive Financial Credit Services still has not registered. So today, Brown filed suit in San Diego Superior Court, contending that the business violated:

• California Civil Code section 1789.18 for not posting a $100,000 surety bond with the Secretary of State’s office;
• California Civil Code section 1789.25 for conducting a business without first obtaining a certificate of registration from the Attorney General’s Office; and
• California Civil Code section 1789.13(a) for charging consumers money before completely performing the services they promised.

The suit seeks a permanent injunction to keep Executive Financial Credit Services and its principals from operating illegally, civil penalties of not less than $200,000 and restitution for victims.

Brown has taken recent action against credit fraud. Last week, Brown arrested a con artist who stole more than $300,000 from over 600 victims through a credit card and credit repair scam. Ralph Adam Rendon offered victims credit lines of up to $100,000 without any credit checks and offered credit repair counseling. Victims paid an upfront fee of $500 but never received the credit card or any credit repair services.