Lawsuits & Settlements

San Francisco – Attorney General Edmund G. Brown Jr. won a lawsuit earlier this week that bars the nation’s third largest tax preparer -- Liberty Tax Service -- from deceptive advertising that “blurs the line” between tax refunds that are free and high-cost loans.

“Liberty Tax Service lured cash-strapped Californians into paying for high-cost loans, when they could obtain tax refunds free from the IRS just weeks later,” Brown said. “This ruling bars Liberty from deceptive advertising that blurs the line between IRS tax refunds and pricey loans.”

Liberty Tax Service’s print and television ads misled customers by promising 'Most Refunds in 24 Hours.” In reality, Liberty was selling refund anticipation loans, not a tax refund. Customers had to pay an upfront fee of about $30 plus interest, at a rate that could be as high as 395% annually. By contrast, tax refunds are available at no charge from the IRS and generally arrive anywhere from 8 days to 4 weeks after returns are filed.

In February 2007, Brown filed suit in San Francisco Superior Court against Liberty Tax Service as part of an effort to stop deceptive marketing associated with Refund Anticipation Loans. Brown reached settlements with Jackson Hewitt in 2007 and with H&R Block in 2009 over similar claims.

Monday’s ruling holds Liberty Tax Service responsible for its deceptive marketing, which also included print ads that failed to include disclaimers mandated by law and television ads that included those disclaimers, but so briefly and in such faint type that the Court said they were “plainly designed to be overlooked by consumers.”

According to the IRS, refund anticipation loans target low-income taxpayers, especially those who receive the Earned Income Tax Credit. Approximately 70% of Liberty Tax Service’s refund anticipation loan customers in 2006 and 2007 received this credit.

The ruling:

• Bars Liberty Tax Service from using false or misleading advertising to sell tax refund loans;
• Requires the company to review and monitor the ads run by its California franchisees;
• Requires the company to discipline franchisees that fail to receive approval of their ads from Liberty and report those franchisees to the Attorney General; and
• Requires the company to pay $1.16 million in civil penalties, $135,886 in restitution, and the Attorney General’s costs.

Two violations of the advertising provisions of the injunction by a single franchisee will result in a $15,000 fine; a third violation requires the termination of the franchisee.

The injunction also imposes limitations on Liberty’s ability to collect, on behalf of itself or others, money supposedly due from its customers for previous years’ tax refund loans.

The judgment requires Liberty Tax Service to inform these alleged debtors of supposed debts before the consumers takes any step that would commit them to having any amount of the alleged debt deducted or withheld even temporarily from their refund. This is a significant modification of Liberty Tax Service’s past collection practices.

Consumer advocates and policy makers, including the U.S. Taxpayer Advocate, have sharply criticized such practices for years.

Los Angeles -- Fighting to protect the rights of students who have been “indiscriminately terrorized” by gang violence, Attorney General Edmund G. Brown Jr. and Los Angeles City Attorney Rocky Delgadillo today announced that they have filed a lawsuit seeking an injunction that creates a 1.4 square-mile gang-free zone around Fremont High School in Los Angeles.

This injunction would be the first-of-its-kind and would impose a daytime curfew on members of four violent street gangs (the Swan Bloods, Florencia 13, the Main Street Crips, and the 7-Trey Hustlers/Gangster Crips) to prevent them from being on the streets while students walk to and from school, from assembling with other gang members, and from harassing and intimidating law-abiding citizens.

“These brutally violent street gangs have indiscriminately terrorized students who simply wanted to travel to and from school,” Brown said. “This first-of-its-kind injunction would create a gang-free zone around Fremont High School that shields students from violence, intimidation and drug trafficking.”

A complaint seeking this injunction was filed in Los Angeles County Superior Court on Friday, June 12. The injunction would create the “Fremont Free Passage Safety Zone” to prevent gang activity in the 1.4 square-mile neighborhood surrounding Fremont High School in Los Angeles.

This zone will be bound by Florence Avenue to the north, Central Avenue to the east, Manchester Avenue to the south and the 110 Freeway to the west and extends 100 yards beyond each of these boundaries.

Within the zone, police will enforce a strict curfew preventing gang members from being on the streets while students are walking to and from school, from 6:00 a.m. to 9:00 a.m. and from 2:00 p.m. to 6:00 p.m. Also, to protect all residents in the Fremont High School neighborhood, gang members must obey a night time curfew from 10:00 p.m. to 5:00 a.m. The injunction also prevents gang members from:

• Standing, sitting, walking, driving, gathering or appearing anywhere in public view, in a public place or in any place accessible to the public, with any other known gang member in the zone;

• Confronting, intimidating, annoying, harassing, threatening, challenging, provoking, assaulting, or battering any person who lives in, works in, visits or passes through the zone;

• Possessing any firearm, ammunition or weapon, whether or not concealed, in a public place or in any place accessible to the public within the zone;

• Selling, transporting, possessing or using, any controlled substance, drug or drug-related paraphernalia within the zone;

• Acting as a lookout by whistling, yelling, or signaling to warn another person engaged in unlawful or nuisance activity of the approach of law enforcement officers within the zone;

• Obstructing, impeding or blocking the free passage of any person or vehicle on any street, walkway, sidewalk, driveway, alley or parking lot within the zone;

• Drinking or possessing an open container of an alcoholic beverage in public within the safety zone;

• Damaging, defacing, marking, painting or otherwise applying graffiti to any public or private property or possessing any item to carry out such acts within the zone;

• Loitering in public for the purpose of tagging graffiti, drug-related activity or any other unlawful or nuisance activity within the zone; and

• Being present in or on the property of another person that is not open to the general public without the owner’s consent within the zone.

This injunction marks the culmination of a nine-month investigation into the gang activity of the Swan Bloods, Florencia 13, the Main Street Crips, and the 7-Trey Hustlers/Gangster Crips around Fremont High School. The 77th Division of the Los Angeles Police Department gathered and provided the evidence necessary to take action.

The investigation found that gang members frequently confronted, threatened, intimidated, assaulted, and robbed Fremont High School students traveling to and from school. These gangs also vandalized property, trespassed, loitered and sold and used drugs on sidewalks and streets near the school. For example:

• In April 2009, a young male was shot by a young female in broad daylight right next to Fremont High School on 79th Street and Avalon Boulevard.

• In March 2009, Swan Blood gang members attacked a young woman from behind in broad daylight and stole her necklace at a laundromat adjacent to Fremont High School on 78th Street and San Pedro Street.

• In February 2009, a Main Street Crip gang member armed with a handgun took a family hostage seven blocks from Fremont High School on 84th Street between Main Street and Wall Street after running from an LAPD officer.

• In November 2008, three Swan Blood gang members approached a 16-year-old student from behind, knocked him to the ground, punched and kicked him in the head and face, knocked him unconscious, and took his property. The crime occurred about four blocks from Fremont High School on McKinley Avenue at 80th Street.

• In October 2008, a 7-Trey Hustlers/Gangster Crips gang member shot into crowd of rival Swan Blood gang members with an assault rifle about one block from Fremont High School at 76th Street and San Pedro Street, killing an eight-year-old girl.

• In 2008, Florencia 13 gang members surrounded a Fremont High School student, asked him where he was from, yelled out, “This is Florencia!” proceeded to punch and kick him, and stole his money and electronics. The crime occurred less than one block from Fremont High School at 79th Street and Avalon Boulevard.

• In October 2007, a Florencia 13 gang member tried to stab a 15-year-old student walking home with a screw driver. Five to six gang members then punched and kicked the student, causing an eye abrasion, swelling to both sides of his face, bloody lips, a bump on his head and vomiting.

• In June 2007, a Swan Blood gang member murdered two young men in an alley about six blocks from Fremont High School, near 84th Street and San Pedro Street.

Many of the crimes around Fremont High School go unreported because victims and witnesses face the threat of retaliation and violence if they talk to police.

The complaint filed contends that this gang activity infringes on the constitutional right of students to obtain a public education on a safe, secure, and peaceful campus and to safely travel to and from school in violation of California’s Tom Bane Civil Rights Act. The Bane Act protects individuals from interference -- by use of threats, intimidation, or coercion -- with his or her peaceable exercise of their state and federal constitutional rights.

The complaint also contends that this gang activity constitutes a public nuisance pursuant to California Civil Code, sections 3479 and 3480.

To date, traditional law enforcement methods have not eliminated the immediate and continual risk to the lives and property of the people who live in, work, visit and pass through the neighborhood surrounding Fremont High School.

“Too often, street gangs thrive in and around our public schools. We intend to use the powers of the Bane Act to create meaningful safe passages to and from Fremont High School so that the students of that school can study and learn in peace, free from the menace of criminal street gangs,” Delgadillo said. “That is why I am proud to partner with the Attorney General and his office on this historic and creative effort to break the grips of gangs around our public schools.”

This action builds on Brown’s commitment to cracking down on violent street gangs. Last month, Brown announced the arrests of 15 members of the Merced Gangster Crips on charges of conspiracy, drug-trafficking, and weapons sales. Brown also filed 347 felony charges with San Diego District Attorney Bonnie Dumanis against dozens of members and associates of a San Diego street gang for stealing more than $500,000 from the Navy Federal Credit Union, using forged checks and an Indian Casino cash machine.

The complaint for injunctive relief, filed June 12, 2009 in Los Angeles County Superior Court, is attached.

Oakland -- Fighting to protect Californians from exposure to “toxic and corrosive” chemicals, Attorney General Edmund G. Brown Jr., 20 district attorneys and the Los Angeles City Attorney today filed legal action against Target Corporation to block the retailer from continuing to illegally dump hazardous waste in local landfills.

Separately, Brown and the Riverside, Ventura and San Joaquin County District Attorneys have forged a settlement with Kmart over similar claims, 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.

“Target has shown a willful disregard for California’s hazardous waste laws by dumping flammable liquids and toxic chemicals in local landfills over a period of eight years,” Brown said. “If successful, this lawsuit would force Target to comply with state laws governing the lawful handling and disposal of toxic and corrosive waste.”

“By contrast, Kmart has cooperated, agreed to live up to its obligations under the law and will train its employees to properly handle and dispose of hazardous waste.”

Target

Target currently operates more than 200 retail stores and seven distribution centers in California. The retailer carries and handles hundreds of items with hazardous properties, including: bleach, paints, pesticides, aerosol products, oven cleaners and automotive products.

Under California law, Target is responsible for properly handling and disposing of products that are damaged during shipping or stocking, returned to the store by customers or removed because they are past their expiration date.

Target is also required under law to employ a licensed hazardous waste hauler to pick up the waste and transport it to a hazardous waste disposal facility. This ensures that hazardous waste will not end up at local landfills where toxic chemicals can seep into California’s water supplies or emit dangerous gases.

Since 2001, however, local environmental health inspectors have served Target with more than 300 Notices of Violation (NOVs) for breaking California’s hazardous waste control laws.

In March 2006, the Attorney General’s Office launched an investigation into Target’s practices in conjunction with district attorneys throughout the state after local store inspections revealed ongoing violations. Violations include:

• In May 2009, an Alameda County Target store sent flammable aerosol canisters, propane canisters, light bulbs containing mercury, corrosive spray cleaners and medical waste to a local landfill not authorized to receive such waste.

• In March 2009, a San Bernardino County Target store sent a photo processing unit with toxic liquid and other hazardous materials to a local landfill not authorized to receive such waste.

• In December 2008, a Target employee in San Joaquin County informed county inspectors that hazardous waste, including pesticides, were routinely disposed of in the store’s trash compactor for transportation to a local landfill not authorized to receive such waste.

• In January 2008, investigators discovered that multiple Los Angeles County Target stores sent several tons of products that could not be sold, to the Los Angeles Regional Food Bank. The shipments contained over 5,000 pounds of damaged, leaking and unusable items with flammable, toxic and corrosive properties. A licensed hazardous waste hauler had to be dispatched to the food bank to properly handle the hazardous waste at a cost of over $5,000.

• In March 2002, a Sacramento County Target employee dumped leaking containers of liquid pool chlorine into the store’s trash compactor. The chlorine reacted with other chemicals in the compactor and toxic fumes were released into the air. This led to the store’s evacuation, an emergency response and several individuals were transported to local hospitals.

This joint investigation found that Target stores across California have illegally dumped thousands of pounds of hazardous waste in local landfills. Target was cited by local environmental health inspectors for violations of environmental laws as recently as last month.

Brown, the 20 district attorneys and the Los Angeles City Attorney are suing Target for:

• Intentional and negligent disposal of hazardous waste at a point not authorized in violation of California’s Health and Safety Code;

• Intentional and negligent unauthorized transportation of hazardous waste in violation of California’s Health and Safety Code;

• Intentional and negligent violations of Hazardous Waste Control Laws for Hazardous Waste Handling Training and Storage Requirements in violation of California’s Health and Safety Code;

• Knowing violations of Hazardous Materials Release Response Plans and Inventory Laws in violation of California’s Health and Safety Code; and

• Violations of Unfair Competition Laws.

This lawsuit would require Target to immediately comply with California law and start using a licensed hazardous waste hauler to pick up the waste and transport it to a hazardous waste disposal facility. Additionally, the lawsuit seeks $25,000 maximum penalties for each violation.

The 20 district attorneys who signed onto today’s lawsuit include: Alameda County D.A. Tom Orloff; Contra Costa County D.A. Robert J. Kochly; Fresno County D.A. Elizabeth A. Egan; Humboldt County D.A. Paul V. Gallegos; Kings County D.A. Ronald Calhoun; Los Angeles County D.A. Steve Cooley; Merced County D.A. Larry D. Morse II; Monterey County D.A. Dean D. Flippo; Orange County D.A. Tony Rackauckas; Riverside County D.A. Rod Pacheco; Sacramento County D.A. Jan Scully; San Bernardino County D.A. Michael A. Ramos; San Diego County D.A. Bonnie M. Dumanis; San Joaquin County D.A. James P. Willett; San Mateo County D.A. James P. Fox; Santa Clara D.A. Dolores A. Carr; Solano County D.A. David W. Paulson; Stanislaus County D.A. Birgit A. Fladager; Ventura Country D.A. Gregory D. Totten; and Yolo County D.A. Jeff W. Reisig. Los Angeles City Attorney Rocky Delgadillo also signed onto the lawsuit.

Today’s complaint against Target, filed in Alameda County Superior Court, is attached.

Kmart

Kmart currently operates 100 retail stores throughout California. The retailer carries and handles hundreds of items with hazardous properties, such as: latex and acrylic paints, pesticides, fertilizers, aerosols, pool chemicals, jewelry cleaners, auto batteries and waste oil.

In 2005, the Riverside County District Attorney’s Office initiated a formal investigation into Kmart’s hazardous waste handling practices. Subsequently, the Attorney General’s Office joined the investigation, which uncovered that Kmart had failed to account for most of the hazardous waste it generated between 2002 and 2007.

The investigation found that:

• In December 2006, a Kmart in Ventura County dumped liquid waste down drains.

• On two separate occasions in 2006, a San Joaquin County Kmart as well as a Ventura County Kmart sent waste oil generated at the stores to private oil change companies instead of disposing of the waste oil at an authorized disposal location.

• In 2005, a Kmart in Riverside sent 32 gallons of flammable latex paint, nine bottles of flammable STP Water Remover, 11 cans of flammable spray paint, and one can of flammable Armor All Tire Foam to a local landfill not authorized to receive such waste. Fortunately, the waste was intercepted at a transfer station.

Brown’s office contends the company violated California’s:

• Hazardous Waste Control Law by sending multiple flammable and hazardous waste for disposal at local landfills and failing to properly train its employees in handling hazardous waste;

• Hazardous Materials Release Response Plans and Inventory Act by failing to submit required reporting records from 2004-2007; and

• Unfair Competition Laws.

The settlement prohibits Kmart from sending hazardous and flammable materials to landfills, and requires it to properly train its employees to comply with California’s hazardous materials and hazardous waste laws. Additionally, Kmart must properly label, segregate and store its hazardous waste.

Under the settlement, Kmart must pay $8.65 million in civil penalties, costs and funding for projects to improve environmental protection in California.

A copy of the complaint and stipulated judgment, filed in Ventura County Superior Court, is attached.

San Diego - Attorney General Edmund G. Brown Jr. today forged a settlement with CVS Pharmacy requiring the company to make sure expired products are not sold in its stores and provide customers a $2 coupon if they identify products past their sell-by date.

The settlement also applies to Longs Drug Stores California, which CVS purchased in late 2008.

“CVS Pharmacy routinely sold expired baby formula, over-the-counter medication and dairy products long after the expiration date,” Brown said. “This agreement forces the company to give customers a $2 dollar coupon if they find expired products in CVS or Longs Drug Stores.”

In March 2008, Brown launched an investigation which revealed that CVS Stores in Los Angeles, Orange, and San Diego Counties had regularly sold expired baby food, baby formula, over-the-counter medications and dairy products to consumers. Expired products found include:

• Gerber’s Vanilla Custard, 11 months expired, at a Huntington Beach store.
• Bright Beginnings Ultra Baby Formula 31.7 oz., 3 months expired, at a Fullerton store.
• Bonine for Kids (children’s motion sickness medication), 5 months expired, at a Buena Park store.
• Gerber Baby Food Oatmeal with Applesauce and Bananas, 2 months expired, at an El Cajon store.

The investigation also confirmed that five CVS Pharmacies had improperly discarded more than 500 documents and prescription bottles containing confidential medical information in dumpsters outside of its stores. This discarded information included patient names, addresses, birthdates and prescription medications.

In June 2008, Brown called on CVS Pharmacy to immediately end the sale of expired products and mishandling of confidential customer information across all CVS Pharmacy stores.

Brown today filed a civil suit and a stipulated judgment in San Diego County Superior Court.

The suit contends that CVS Pharmacy violated Business and Professions Code 17200 and Civil Code 1798.81, by misleading customers about CVS’ standards to insure that products would not be sold after the expiration of the “sell buy” or “best by” date and by failing to preserve the confidentiality of customers’ personal medical records. In entering into the settlement, CVS denied any wrong-doing.

The stipulated judgment resolves the suit and forces CVS to:
• Stop the sale of expired products in CVS Pharmacy and Longs Drug stores in California;
• Implement a first-of-its-kind coupon program whereby consumers who find an expired item on store shelves are entitled to a coupon worth $2.00 which can be used in any future purchase at a CVS Store in California for any product;
• Revise existing policies regarding the sale of expired products and require employees to check at least twice a month that sell-by dates have not passed on infant formula, baby food, eggs, dairy products and over-the-counter medications;
• Revise existing policies regarding the disposal of confidential waste so that they include proper shredding policies and require written certification that all records containing personal information have been properly disposed of;
• Review and revise these updated policies annually and provide employees with written training in these new policies;
• Provide the Attorney General’s Office with sworn statements certifying that it has complied with all aspects of the Judgment;
• Perform random audits in its California stores twice a year to make certain that expired products aren’t being sold and that confidential medical information is safeguarded and disposed of properly: if CVS fails to meet these new conditions, audits will continue until these new requirements are met for two consecutive years; and
• Designate a toll-free number for employees and customers to report expired products and each store must submit reports to its corporate headquarters regarding these incidents at least twice a month.
CVS will pay $975,000 in civil penalties, attorney fees and costs.

A copy of the complaint and stipulated judgment are attached.

Los Angeles – As part of a nationwide crackdown on fraudulent charities, Attorney General Edmund G. Brown Jr. is filing today eight lawsuits against 53 individuals, 17 telemarketers and 12 charities that “shamelessly exploited” people’s generosity and squandered millions of dollars of donations intended to help police, firefighters and veterans.

Brown’s suits are intended to permanently stop the charities’ deceptive practices and require the repayment of all funds raised under false pretenses. Brown is seeking involuntary dissolution of eight of the charities.

“These individuals shamelessly exploited the goodwill of decent citizens trying to help police, firefighters and veterans,” Brown said. “In point of fact, a shockingly small portion of donations went to those in need, while millions went to pay for aggressive telemarketing and bloated overhead – and in one case – to purchase a 30-foot sailboat.”

Brown filed these suits in conjunction with the Federal Trade Commission and 48 other states as part of a nationwide sweep called “Operation False Charity.”

In California, just as in the other participating states, the so-called charities raised millions of dollars based on false claims that donors’ contributions would benefit police, firefighters and veterans organizations. But in reality, these charities rarely benefit public safety personnel. And, in most cases, 85 percent to 90 percent of donations are used to pay the fees of for-profit telemarketing firms.

Last year, Brown launched an investigation into 12 of the worst offenders, resulting in the eight cases filed today in Los Angeles, Orange, San Bernardino, and San Mateo counties. It is estimated that since 2005, hundreds of thousands of Californians have been deceived by the solicitation campaigns these charities and their fundraisers have conducted.

Brown is filing three suits against 5 charities and their fundraisers in Los Angeles County Superior Court:
• Law Enforcement Apprenticeship Program, based in Los Angeles.
• California Police Youth Charities, based in Sacramento.
• American Association of Police Officers, Police Protective Fund, Inc. and Junior Police Academy -- all of which are based in Los Angeles and are operated by the same directors.

Brown is filing three suits against 5 charities and their fundraisers in Orange County Superior Court:
• Association for Firefighters and Paramedics, based in Santa Ana.
• Association for Police and Sheriffs, Inc., based in Fullerton.
• Coalition of Police and Sheriffs, Disabled Firefighters Fund, and American Veterans Relief Foundation – all of which are based in Santa Ana and are operated by the same staff.

Brown is filing one suit against a charity and its fundraiser in San Mateo County Superior Court:
• Homeless and Disabled Veterans Corporation, based in Washington D.C.

Brown is filing one suit against a charity and its fundraisers in San Bernardino County Superior Court:
• California Organization of Police and Sheriffs, based in San Bernardino.

Los Angeles:
People v. Law Enforcement Apprenticeship Program, et al.
Brown today sued Los Angeles-based Law Enforcement Apprenticeship Program, its directors and its for-profit fundraiser, Rambret, Inc., for falsely promising contributors that their donations would be used to operate an apprenticeship program for at-risk youth. The program was never operated and no students were ever enrolled in it.

Instead, donations were used to pay for fundraising expenses, the personal expenses of the charity’s directors and the purchase of a 30-foot sailboat.

In 2003, Law Enforcement Apprenticeship Program raised $529,863, but only $31,501 – just 6 percent -- was spent on its program services. In 2004, the charity raised $372,623, but spent only $5,615 – 1.5 percent -- on program services.

Brown’s suit against the charity, its directors and its for-profit fundraiser, contends that they:
• Conspired to defraud donors.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Made illegal distributions in violation of Corporations Code section 5237.
• Knowingly filed false public documents in violation of Corporations Code section 6215.
• Failed to keep corporate books and records in violation of Corporations Code section 6320.

Brown seeks to dissolve the charity, to prevent the directors from operating a charity in California again, and to prevent the fundraiser from soliciting funds for a charity in California until it complies with state law.

Brown also seeks a court order requiring the charity to file a report of its receipts and expenses, to recover the funds misappropriated by the directors and civil penalties in excess of $150,000.

People v. California Police Youth Charities, et al.
Brown today sued Sacramento-based California Police Youth Charities, its executive director and its for-profit fundraisers -- National Consultants, Inc. and Public Appeals, Inc. -- for falsely promising contributors that 100 percent of donations would go to support the charity’s programs to help at-risk youth. In reality, less than 20 percent of the $9 million raised in 2006 and 2007 was spent on charitable programs.

The charity also filed false documents with the IRS and the Attorney General’s Office. In 2006, the charity reported that it made almost $1 million in grants, when it actually made grants totaling only $110,000.

Brown’s suit against the charity, its executive director and its for-profit fundraisers contends that they:
• Conspired to defraud donors.
• Engaged in deceptive and misleading solicitations in violation of Government Code section 12599.6.
• Engaged in reporting violations in violation of Government Code sections 12586 and 12599.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Knowingly filed false public documents in violation of Corporations Code section 6215.

Brown seeks a permanent injunction to end these deceptive solicitation practices. He also seeks to recover misappropriated charitable funds and civil penalties in excess of $100,000 from the charity and its for-profit fundraisers.

People v. American Association of Police Officers, Police Protective Fund, and Junior Police Academy, et al.
Brown today sued Los Angeles-based American Association of Police Officers, Police Protective Fund, and Junior Police Academy, their officers David Dierks and Philip LeConte, and their for-profit fundraisers for misleading donors into thinking that their solicitors were volunteer police officers and that contributions would benefit donors’ local police departments.

The for-profit fundraisers include: West Coast Advertising (known as Professional Communications Network) and Mark Christiansen (doing business as Charitable Fundraising Services).

Additionally, the charities violated both state and federal law when they filed reports with the IRS and the Attorney General’s Office that under-reported fundraising and administrative expenses and over-reported the amount spent on charitable programs.

In 2007, for example, Police Protective Fund raised $6.8 million and claimed in its tax returns that it spent $1.7 million on its charitable program. However, that $1.7 million improperly included fundraising expenses, a $350,000 judgment paid to the State of Missouri and other administrative expenses.

Likewise, in 2007, American Association of Police Officers reported in its tax returns that it spent $493,798 on its charitable program. However, out of that amount, $425,000 was paid to the charities’ officers and other administrative and fundraising personnel. David Dierks and Philip LeConte were each paid $168,000 in salary, and were also provided with vehicles such as a $45,000 Range Rover and a $25,000 Jeep Cherokee.

Brown’s suit against the charity, its directors and its for-profit fundraisers, filed in Los Angeles County Superior Court, contends that they:
• Engaged in deceptive and misleading solicitations in violation of Government Code section 12599.6.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Knowingly filed false public documents in violation of Corporations Code sections 6215 and 6812.
• Improperly compensated its directors and officers in violation of Corporations Code section 5227.

Brown seeks injunctive relief to prevent defendants from operating any charities in California and to stop future fraudulent solicitation and reporting practices. Brown also seeks to recover misappropriated funds and civil penalties in excess of $150,000.

Orange County:
Association for Firefighters and Paramedics
Brown filed suit today against Santa Ana-based Association for Firefighters and Paramedics, its president, Michael F. Gamboa and its for-profit fundraisers -- Public Awareness, L.L.C., Community Support, Inc., and Courtesy Call, Inc -- for falsely claiming that it used donations to assist local firefighters, paramedics, and burn victims.

Brown’s office discovered that from 2005-2008, only 3 percent of approximately $10 million dollars was spent on assistance to burn victims. No funds were ever used to assist firefighters and paramedics.

The remainder – some $9.7 million -- went to pay for the charity’s fundraising expenses and overhead.

In addition, the charity sent fraudulent invoices to people who had not made a pledge and sent letters to donors who had never given, asking them to mail in their “usual” annual donation.

Brown’s suit against the charity, its president and for-profit fundraisers contends that they:
• Engaged in deceptive and misleading solicitations in violation of Government Code section 12599.6.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Violated Federal regulations regarding deceptive and abusive telemarketing practices.

Brown is seeking to dissolve the charity. He also seeks a permanent injunction against the charity’s president to prohibit him from any future involvement with a California charity, and civil penalties in excess of $150,000.

People v. Association for Police and Sheriffs, Inc., et al.
Brown today sued Fullerton-based Association for Police and Sheriffs, Inc., its directors and its for-profit fundraisers -- Public Awareness, LLC, and Courtesy Call, Inc., for falsely claiming that the majority of donations would be used to help the victims of domestic violence.

Brown’s investigation revealed that of the $2.6 million raised in 2005 and 2006, 90 percent of the donations went to pay the for-profit fundraisers. Most of the remaining donations were used to pay salary and other personal benefits for its president, Lloyd Jones, and others.

In violation of federal law, the fundraisers blocked donors’ Caller ID. Once on the phone, the fundraisers engaged in aggressive and abusive conduct.

The investigation also found that the charity and its for-profit fundraisers sent pledge confirmation cards to people who never agreed to donate and that some of the charity’s fundraisers represented that they were police officers, when they were not.

Brown’s suit against the charity, its directors, and its for-profit fundraisers contends that they:
• Engaged in deceptive and misleading solicitations in violation of Government Code section 12599.6.
• Committed registration and reporting violations in violation of Government Code sections 12599 and 12599.6.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Breached their fiduciary duty to the charity in violation of Corporations Code section 5231 and 5233
• Violated federal regulations regarding deceptive and abusive telemarketing practices.
Brown seeks to dissolve the charity, recover improperly diverted funds, recover civil penalties in excess of $150,000, and to obtain a permanent injunction preventing all defendants from any involvement with a California charity until they comply with California law.

People v. Coalition of Police and Sheriffs, Disabled Firefighters Fund, American Veterans Relief Foundation, et al.
Brown today filed a lawsuit against Santa Ana-based Coalition of Police and Sheriffs, Disabled Firefighters Fund, and American Veterans Relief Foundation, their directors and for-profit fundraisers for falsely claiming that donations would be used for programs to help injured police and firefighters, and homeless veterans.

The for-profit fundraisers include Campaign Center, Inc., KWS Productions, Inc., Tel-Mar Productions, Inc, Community Publications, Inc., and Roman Promotions, Inc.
Through 2005, the charities raised $17 million, but only $351,000 – approximately 2 percent -- was spent on programs for cops, firefighters, and veterans. The vast majority of donations went to paid telemarketers.

The President, Jeffrey Duncan, used charitable funds for his personal expenses, including trips to Hawaii and to Las Vegas, and for meals, including one for $1,200 at Medieval Times.

Joseph Shambaugh, who founded all three of these charities, was indicted by federal authorities on charges of mail fraud and money laundering. He is currently at large.

Brown’s suit against the charities, their directors, and for-profit fundraisers contend that they:
• Conspired to defraud donors.
• Engaged in deceptive and misleading solicitations in violation of Government Code section 12599.6.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Violated federal regulations regarding deceptive and abusive telemarketing practices.

Brown seeks to dissolve the charity, to prevent the directors from operating a charity or being involved in charitable fundraising in the future, and to prevent the fundraisers from soliciting on behalf of a charity in California until they comply with state law.

He also seeks to recover misappropriated charitable funds and civil penalties in excess of $100,000 from the charities, their directors and for-profit fundraisers.

San Mateo:
People v. Homeless and Disabled Veterans, et al.
Brown today sued Washington, D.C.-based Homeless and Disabled Veterans, and its for- profit fundraiser, Atmost, Inc. for falsely representing to donors that their charitable contributions would be used to assist homeless and disabled veterans in California with food, shelter, and self-help programs. Yet no donations were used for these purposes.

Instead, the vast majority of the donations -- over 70 percent -- were used for fundraising expenses, and the rest went for administrative expenses at its headquarters in Washington, D.C.

Brown’s suit against the charity, its directors and its for-profit fundraiser contends that they:
• Engaged in deceptive and misleading solicitations in violation of Government Code section 12599.6.
• Engaged in solicitation activities in California in violation of the registration and reporting requirements set forth in Government Code sections 12599, 12599.5, and 12599.6.
• Engaged in unfair business practices in violation of Business and Professions Code section 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code section 17510.8.
• Breached their fiduciary duty to the charity in violation of Corporations Code sections 5231 and 5237.

Brown seeks to dissolve the charity, to prevent the directors from operating a charity in California again, and to prevent the fundraiser from soliciting on behalf of a charity in California until it complies with state law.

He also seeks to recover misappropriated charitable funds and civil penalties in excess of $150,000 from the charity, its directors and its for-profit fundraiser.

San Bernardino:
People v. California Organization of Police and Sheriffs, et al.
Brown today sued San Bernardino-based California Organization of Police and Sheriffs, its directors, officers and its for-profit fundraisers – Civic Development Group, LLC and Rambret, Inc. -- for falsely representing that donations would be used to benefit law enforcement officers and that 100 percent of each donation would be received by the charity.

Donors were told that their contributions would be used to purchase bullet-proof vests, make grants to families of officers killed or injured in the line of duty, provide veterinary treatment for service animals injured in the line of duty and mentoring of at-risk youths.

Out of the $30 million raised from 2005 to 2007, over $25 million was spent on fundraising.

No money was spent on bullet-proof vests, no grants were made to families of officers, $6,600 was spent on veterinary treatment for service animals, and $16,500 was spent on mentoring.

Brown’s suit against the charity, its officers, directors and for-profit fundraisers, contends that they:
• Conspired to defraud donors.
• Engaged in deceptive and misleading solicitation in violation of Government Code section 12599.6.
• Engaged in unfair business practices in violation of Business and Professions Code 17200.
• Used false or misleading statements when soliciting for contributions in violation of Business and Professions Code section 17500.
• Failed to use contributions for the purpose solicited in violation of Business and Professions Code 17510.8
• Violated federal regulations regarding deceptive and abusive telemarketing practices.
• Knowingly filed false public documents in violation of Corporations Code section 8215.
• Committed registration and reporting violations in violation of Government Code sections 12599 and 12599.6.

Brown seeks to dissolve the charity, to prevent the directors from operating a charity in California again, and to prevent the fundraisers from soliciting on behalf of a charity in California until they comply with state law.

He also seeks to recover misappropriated charitable funds and civil penalties in excess of $150,000 from the charity, its directors and its for-profit fundraisers.

States participating in “Operation False Charity” include:
Alabama, Alaska, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, , Virginia, Washington, West Virginia, Wisconsin and Wyoming. The District of Columbia is also participating.

The Attorney General’s Office offers the following tips to potential donors to help them avoid being the victims of charity fraud:
• If you receive an unsolicited call asking for a donation, it is most likely from a paid telemarketer who may keep a substantial part of your donation as payment of fundraising fees.
• Recognize that the words 'veterans' or 'military families' in an organization's name don't necessarily mean that veterans or the families of active-duty personnel will benefit from your donation.
• Donate to charities with a track record and a history. Charities that spring up overnight may disappear just as quickly.
• If you have any doubt about whether you have made a pledge or a contribution, check your records. If you don=t remember making the donation or pledge, resist the pressure to give.
• Check out an organization before donating. Some phony charities use names, seals and logos that look or sound like those of respected, well-established organizations.
• Ask the soliciting charity or the paid fundraiser what percentage of your donation will go towards fundraising expenses and what percentage will go towards the charity’s charitable purpose.
• Do not send or give cash donations. For security and tax record purposes, it is best to pay by check made payable to the charity.
• Ask for a receipt showing the amount of your contribution.
• Be wary of promises of guaranteed sweepstakes winnings in exchange for a contribution. You never have to give a donation to be eligible to win a sweepstakes.

There are a number of resources to obtain information about a charity. The Attorney General’s website is a good place to start ( http://ag.ca.gov/charities.php ).

Use the search feature (http://justice.doj.ca.gov/cfr/cfr.asp) to find out if a charity and its fundraiser are registered. Review the Attorney General’s Guide to Charitable Giving for Donors (http://ag.ca.gov/charities/publications/CharitiesSolicitation.pdf ) for additional tips. Other sites that have valuable information include:

www.charitywatch.org - American Institute of Philanthropy
www.bbb.org - Better Business Bureau Wise Giving Alliance
www.charitynavigator.org - CharityNavigator
www.ftc.gov/charityfraud/ – Federal Trade Commission

Los Angeles – Bringing an end to an “elaborate pyramid scheme,” Attorney General Edmund G. Brown Jr. today completed an agreement forcing YTB International to stop the deceptive marketing of its largely unprofitable travel websites and prohibiting the company from charging consumers nearly $500 to recruit others into its endless chain scheme.

“YTB falsely promised customers they could get rich quick by selling travel online,” Brown said. “In reality, customers were reeled into an elaborate pyramid scheme and most never earned a dime. Today’s settlement ends YTB’s pyramid scheme by arming consumers with hard facts and eliminating the need to sign up for this largely unprofitable website.”

On August 7, 2008, Brown filed suit against YTB (also known as yourtravelbiz.com), its affiliates, and founders to end the pyramid scheme and stop YTB’s false and misleading marketing campaign. Today’s stipulated judgment, filed with the Los Angeles County Superior Court, accomplishes this by:

• Prohibiting false and deceptive marketing;
• Requiring that YTB provide consumers with information in a clear and conspicuous manner about how difficult it is to make money by selling travel through YTB;
• Prohibiting the company from charging nearly $500 to recruit others into the scheme and requiring that new member recruitment be done using a free online demonstration;
• Limiting income from “downstream sellers” (e.g., people who have been recruited and who have become recruiters themselves);
• Eliminating perks and other incentives for joining; and
• Making it easier to quit.

YTB lured consumers into its travel business with false promises of wealth and deceptive marketing. YTB charged customers $449.95 for the purchase of a website, and $49.95 a month to operate it. In total, consumers paid YTB over $1,000 in the first year of operation.

Many signed up to sell travel or to obtain travel discounts, but they quickly found it virtually impossible to make money selling travel. A plane ticket from Los Angeles to New York, for instance, would only yield $3 in profit. An international ticket from San Francisco to London would net only $6 in profit.

In 2007, the annual median income for those selling travel was $39.00, less than one month’s cost to operate the website. The majority of consumers who purchased YTB websites made no money through the sale of travel, and many lost money through continued website operations.

By contrast, recruiting others to purchase websites, and having those purchasers recruit others to purchase websites (and so on), was much more profitable. Members earned money based on how many websites they sold, as well as how many websites those they recruited sold. These multi-level sales, combined with the required purchase of the $449.95 website, formed the foundation of YTB’s pyramid scheme.

The stipulated judgment ends this pyramid scheme by:

• Prohibiting false and misleading marketing and requiring that consumers be provided with information about how difficult it is to make money through YTB. Until now, YTB has made wildly misleading claims about how much people can earn from selling travel. This included videos of YTB agents driving luxury cars and holding up $10,000 checks, and making misleading statements about millions of dollars earned in commissions. The stipulated judgment requires YTB to provide consumers with information in a clear and conspicuous manner about typical income earned by website purchasers, typical cost of operations, the number of people who quit, and the number of people who have not earned commissions. This allows consumers to see that most YTB travel sellers make no money, and in fact rack up high costs.

• Prohibiting YTB from charging consumers money in order to recruit others. Until now, the only way that consumers could demonstrate the website is if they had already purchased one for $449.95. The stipulated judgment requires YTB to establish a free demonstration website that must be used when recruiting others. This will reduce the incentives for people to purchase YTB websites, which are largely unprofitable when used to sell travel.

• Significantly limiting how much people can make from individuals they have recruited and who have become recruiters themselves. Sixty percent of recruiters’ sales must come from persons who are not themselves recruiters; otherwise, their income will be reduced.

• Prohibiting YTB from:
• Issuing travel credentials in California and advertising that travel discounts, perks and tax-write offs are available by purchasing a website.
• Stating or implying that their travel rates are comparable with those of travel booking sites such as Expedia or Orbitz.
• Providing any recruitment bonuses or compensation based on the recruiter’s purchase of a website.

• Requiring YTB to open up its operations to scrutiny by the Attorney General’s Office. The Attorney General’s Office will have access to all YTB marketing materials, events, meetings, gatherings and presentations to ensure the company is complying with the agreement and California law. YTB will also register as a franchise with the California Department of Corporations as required by law.

• Requiring YTB to make quitting easily available by fax, email, or telephone.

• Requiring YTB to pay $1 million in penalties, costs, and restitution to California victims who filed complaints against YTB.

In filings with the SEC since Brown’s 2008 lawsuit, YTB stated that there is “substantial doubt about the Company’s ability to continue as a going concern.” Also, it revealed that in 2008 and the first quarter of 2009, YTB has lost $5.9 million from its operations. The number of internet websites sold decreased 75% in first quarter 2009 compared to first quarter 2008, and the total number of website owners decreased 53% in first quarter 2009 compared to first quarter 2008.

Today's settlement builds on the Attorney General's ongoing commitment to protect Californians from the get-rich-quick schemes that proliferate in a down economy. In March, Brown entered into a settlement enforcing tough restrictions on two companies - Imergent, Inc. and Stores On Line - that falsely promised customers that they could earn full-time income by selling merchandise over the Internet.
Today’s settlement is attached.

San Diego—Continuing his fight to stop scams against homeowners, Attorney General Edmund G. Brown Jr. today filed suit against two brothers who “ripped off homeowners” seeking help in reducing their property tax assessments.

The brothers billed tens of thousands of homeowners throughout California nearly $200 each for property tax reassessment services that were almost never performed and are available free of charge from local tax assessors.

“These scam-artists ripped off thousands of homeowners for property reassessment services readily available free of charge,” Attorney General Brown said. “This lawsuit seeks to end the deception and blocks these companies from continuing to scam homeowners.”

Brown’s suit, filed in San Diego County Superior Court against brothers Sean and Michael McConville and their businesses, “Property Tax Reassessment” and “Property Tax Adjustment Services,” seeks an end to the scam and at least $2.5 million in civil penalties. The suit contends that these companies:

• Made and continue to make untrue and misleading statements with the intent to induce consumers to purchase products and services in violation of Business and Professions Code Section 17500 and 17537.9;

• Distributed solicitations implying a government connection, approval or endorsement in violation of Business and Professions Code Section 17533.6;

• Distributed solicitations that appear to be billing statements in violation of California Civil Code Section 1716; and

• Engaged in unfair competition in violation of Business and Professions Code Section 17200.

These Southern California-based companies targeted tens of thousands of Californians looking to lower their property taxes with mailers that read like government billing statements, featured official-looking logos and demanded hundreds of dollars in payments for reassessment and reassessment appeal services. The statements warned homeowners that if payments were not received by the “due date” they faced late fees or would have their file marked “non-responsive” or “ineligible for future tax reassessments.”

Brown contends that neither company adequately informed consumers that they were not a governmental entity, the solicitations were not a bill, purchase of the services was not required and services were available free of charge from county assessors.

Additionally, few, if any, of the property tax assessment services homeowners were billed for in 2008 were completed.

These companies continue to solicit California homeowners and have recently sent out mailers with due dates of May 26, 2009.

Last week, the Ventura District Attorney’s Office charged one of the brothers, Sean McConville, with 20 felony counts for criminal conduct stemming from his property tax reassessment operations.

To avoid becoming a victim, homeowners who believe their property value has declined and they are paying too much in property taxes should:

• Never pay money for something they did not ask for; and
• Avoid a middleman and instead contact a local county tax assessor’s office for a free property value reassessment.

Homeowners who believe they have been victimized by this or any other property tax scam should contact the Attorney General's Office at:

• http://ag.ca.gov/contact/complaint_form.php?cmplt=CL ;
• 1-800-952-5225; or
• P.O. Box 944255 Sacramento, CA 94244.

This lawsuit follows the property tax scam alert Brown issued on February 12, 2009. Since taking office Brown has made protecting homeowners a top priority. In the past three months alone, Brown has:
• Obtained a guilty plea from a woman who operated a sophisticated Los Angeles-based loan scam;
• Announced the arrest of two loan modification scam artists that operated a company called Foreclosure Freedom responsible for conning vulnerable homeowners out of thousands of dollars;
• Sent perpetrators of a San Bernardino-based foreclosure scam engineered by the First Gov company to prison;
• Issued a warning about scam artists using forged letterhead to con homeowners into paying for non-existent loan modification services.
• Stopped a massive statewide scheme that unfairly overcharged thousands of Californians for shoddy and home repair work; and

Today’s complaint is attached.

Los Angeles -- Attorney General Edmund G. Brown Jr. today obtained a court order preventing Los Angeles-based Total Call International, Inc. from charging “hidden and deceptive” fees for its pre-paid calling cards.

“Total Call International has raked in profits by advertising bargain basement prices then charging exorbitant fees when their cards were used.” Brown said. “Today’s agreement safeguards California’s consumers by forcing this company to fully disclose hidden and deceptive calling card fees.”

Total Call International advertised low per-minute base rates on its calling cards and then charged consumers steep, undisclosed add-on fees and surcharges when consumers used their cards, Brown said. This significantly reduced the amount of calling time available.

Brown and the California Public Utilities Commission launched an investigation and prepared a lawsuit contending that Total Call International violated a California law that specifically requires disclosure of pre-paid calling card fees, as well as California’s false advertising and unfair competition laws.

Brown and the utilities commission today filed a complaint and a stipulated judgment resolving the case. The stipulated judgment requires Total Call International to:

• Disclose all fees, add-ons, and surcharges in a clear and conspicuous manner and include those charges in the marketing of its per-minute rate.

• Maintain records and allow the Attorney General’s office to monitor its activities to determine if Total Call International is in compliance with the settlement and California Law.

• Pay civil penalties of $300,000.

During the course of the investigation, Total Call International agreed to stop charging a “real-time rate surcharges,” costing the company $1.5 million in profits. Total Call International did not admit any wrongdoing.

Calling cards, often sold at newsstands and grocery stores, are meant to be a convenient, affordable tool for users that make frequent international calls and may not have regular access to telephone service.

Calling card users should take the following steps to protect themselves:

1. Make sure you’re getting what you pay for- buy a card for a small denomination first to test out the service.
2. Check with family and friends to find out their experience with calling cards.
3. Ask the retailer if they stand behind the card if the telephone service is unsatisfactory. It’s important to remember that the store where the card is purchased from doesn’t control the quality of the service.
4. Remember that very low rates, particularly for international calls, may indicate poor customer service, or a sign that hidden fees and surcharges apply.
5. Always look for disclosures about surcharges, monthly fees, per-call access, in addition to advertised rate-per-minute.
6. Check the expiration date. Some cards expire after a certain amount of time.
7. Make sure the card comes in a sealed envelope or has a sticker covering the PIN. Otherwise, anyone who copies the PIN can use the phone time you’ve already paid for.

This is the second case that Brown has filed forcing the disclosure of fees. In 2007, Brown forced San Francisco-based Devine Communications, Inc. to disclose all hidden fees. Florida and New Jersey have also been actively prosecuting similar cases.

Today’s settlement, filed in San Francisco Superior Court is attached.

San Francisco -- Attorney General Edmund G. Brown Jr. today filed suit against three Wells Fargo affiliates to recover $1.5 billion for California investors who purchased auction-rate securities based on “false and deceptive” advice that these financial instruments were “as safe and liquid as cash.”

“Wells Fargo’s affiliates promised investors auction-rate securities were as safe and liquid as cash, when in fact they were not, and now investors are unable to get their money when they need it,” Attorney General Brown said. “This lawsuit seeks to recover $1.5 billion for Californians and holds these companies accountable for giving investors false and deceptive advice.”

Auction-rate securities are investments with long-term maturity dates (e.g., bonds) that Wells Fargo and other banks marketed as short-term investments equivalent to cash. These investments paid a slightly better rate of return than a bank account. And, investors could sell the securities at regular weekly or monthly auctions which provided the promise of liquidity.

In February 2008, these auctions froze up nationwide, and investors were no longer able to redeem their securities for cash, as promised. This left approximately 2,400 Californians who had invested with Wells Fargo without access to more than $1.5 billion. More than 40% of Wells Fargo’s auction-rate security investors were Californians.

In total, 5,687 investors purchased $2.9 billion worth of auction-rate securities from these companies nationwide.

By August 2008, major financial institutions including UBS, Citigroup, Wachovia, and Merrill Lynch met their obligations to investors and restored the cash value of these securities. The three Wells Fargo affiliates, however, have refused to do so.

Consequently, Attorney General Brown filed his complaint in San Francisco Superior Court today to restore the cash value of these securities, force the companies to disgorge any subsequent profits tied to the securities, and obtain civil penalties of $25,000 per violation. This could amount to hundreds of millions in civil penalties.

The suit contends that three Wells Fargo’s affiliates – Wells Fargo Investments, LLC, Wells Fargo Brokerage Services, LLC, and Wells Fargo Institutional Securities, LLC – violated California’s Securities Law by:

• Routinely misrepresenting, marketing and selling auction-rate securities as safe, liquid and cash-like investments similar to certificates of deposit or money-market accounts and omitting material facts in violation of California Corporations Code 25401;

• Offering and selling, as a broker-dealer, securities by means of a manipulative, deceptive or other fraudulent scheme, device, or contrivance in violation of California Corporations Code 25216(a);

• Marketing and selling auction-rate securities to investors for whom these investments were unsuitable in violation of California Corporations Code 25216(c) and California Code of Regulations, title 10, section 260.218.2; and

• Failing to supervise and adequately train sales agents pushing these investments in violation of California Corporations Code 25216(c) and California Code of Regulations, title 10, section 260.218.4.

In marketing and selling these investments, Wells Fargo’s affiliates ignored clear industry and internal warning 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’s affiliates continued to aggressively sell and falsely market auction-rate securities as safe, liquid, cash-like investments until the nationwide auction markets froze in February 2008.

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

Following the collapse of these auctions, Wells Fargo’s affiliates took advantage of the situation and offered loan programs to those who needed immediate access to the money tied up in these investments.

Investments ranged from $25,000 to millions, and investors included small businesses and small business owners, retirees, married couples, and other hard working Californians. These investors were led to believe they were putting their savings and assets into a safe and accessible place, but instead, they were left without access to their cash, leading to serious hardship. For example:

• A Southern California woman suffering from lung cancer and needing extra funds to help treat her illness sold her home and put the money into a Wells Fargo savings account. A Wells Fargo agent later recommended she put the money into an account with a higher interest rate. When the woman told the agent she needed to access the money and could not afford to lose any of it, she was reassured that her money would be safe like cash. Without disclosing the nature of the investment, the agent invested the funds in auction-rate securities and when the auctions failed, the woman could not access her money.

• A Bay Area company invested $400,000 in a money market account until it was solicited by phone to invest in what was described to them as a liquid, money market-like-account. They were told the only difference was the amount of notice needed to pull the funds (one week vs. one day). The funds were intended to help the business expand, but after the auctions failed, employees were instead laid off. The company was never informed that they were investing in auction-rate securities or that there were substantial risks tied to the investment.

A copy of the complaint is attached.