Lawsuits & Settlements

FOR IMMEDIATE RELEASE
Contact: Gareth Lacy (916) 324-5500

Brown Sues To Topple Online Pyramid Scheme

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today announced a lawsuit against YourTravelBiz.com for operating a 'gigantic pyramid scheme' that recruited tens of thousands of members with deceptive claims that members could earn huge sums of money through its online travel agencies.

“YourTravelBiz.com operates a gigantic pyramid scheme that is immensely profitable to a few individuals on top and a complete rip-off for most everyone else,” Attorney General Brown said. “Today’s lawsuit seeks to shut down the company’s unlawful operation before more people are exploited by the scam.”

YourTravelBiz.com and its affiliates operate an illegal pyramid scheme that only benefits members if and when they find enough new members to join the scam. Once enrolled, members who join the pyramid scheme earn compensation for each new person they enlist, regardless of whether they sell any travel. The company lures new members by offering huge income opportunities through online travel agencies yet the typical person actually makes nothing selling travel.

According to company records there were over 200,000 members in 2007 who typically pay more than $1,000 per year--$449.95 to set up an “online travel agency” with a monthly fee of $49.95. In 2007, only 38 percent of the company’s members made any travel commissions. For the minority of members who made any travel commission in 2007, the median income was $39.00--less than one month’s cost to keep the Website. There are at least 139,000 of the company’s travel Websites, all virtually identical, on the Internet.

YourTravelBiz’s extensive marketing materials include videos of people driving Porsches and other luxury cars, holding ten-thousand dollar checks, and claiming to be raking in millions of dollars in profits. The company advertises through its Website www.ytb.com, and at conventions, workshops and nationwide sales meetings which have been held in California locations such as Los Angeles, Sacramento, San Francisco and San Diego.

Brown charges the company, its affiliates, and the company’s founders J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen and Andrew Cauthen with operating an “endless chain scheme,” an unlawful pyramid in which a person pays money for the chance to receive money by recruiting new members to join the pyramid. Brown also charges the company with unfair business practices and false advertising practices including:

* Deceptive claims that members can earn millions of dollars with the company
* Operating without filing legally mandated documents with the attorney general and the Department of Corporations
* Selling an illegal travel discount program

Under California’s unfair business practices statue, the company is liable for $2,500 per violation of law. Attorney General Brown is suing YourTravelBiz.com to get a court order that:

* Bars the company from making false or misleading statements
* Assesses a civil penalty of at least $15,000,000 and at least $10,000,000 in restitution for Californians who were ripped off by the company.

From August 6 through 10, thousands of members are preparing to travel to St. Louis for a national convention to learn new techniques to recruit more victims into the illegal pyramid scheme. Last year at least 10,000 people attended a similar national conference. For more details on the company’s plan to perpetuate its scheme visit: http://www.yourtravelbiz.com/bizRep/BizReports/BIZREPORT_07-18-08.htm

For more information on pyramid schemes visit: http://ag.ca.gov/consumers/general/pyramid_schemes.php

Consumers who believe they have been bilked by YTB should send a written complaint with copies of any supporting documentation to:

Office of the Attorney General
Public Inquiry Unit, P.O. Box 944255
Sacramento, CA 94244-2550

Or through an on-line complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL.

Today’s lawsuit against YourTravelBiz.com, filed yesterady in Los Angeles Superior Court, also names affiliates which include YTB Travel Network, Inc., YTB Travel Network of Illinois, Inc., as well as the company’s founders J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen and Andrew Cauthen. For a copy of the lawsuit please contact the attorney general's press office: (916) 324-5500.

Contact: Abraham Arredondo: (916) 324-5500 or Ed Weil (510) 622-2149

Atty. Gen. Brown Settles Potato Chip Lawsuit With Heinz, Frito-Lay & Kettle Foods

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today settled lawsuits against Heinz, Frito-Lay, Kettle Foods and Lance Inc. after the companies agreed to slash levels of the cancer-causing chemical acrylamide in their potato chips and french fries.

“The companies agreed to reduce this carcinogenic chemical in fried potatoes--a victory for public health and safety in California,” Attorney General Brown said. “Other companies should follow this lead and take steps to reduce acrylamide in french fries and potato chips,” Brown added.

In 2005, the attorney general sued McDonald’s, Wendy’s, Burger King, KFC, Frito-Lay, Kettle Foods, Lance, Procter & Gamble and Heinz, for selling potato chips and french fries containing high levels of acrylamide, a chemical known to the state to cause cancer. Acrylamide is a by-product of frying, roasting and baking foods--particularly potatoes--that contain certain amino acids. In 2002, Swedish scientists discovered high levels of cancer-causing acrylamide in fried potato products.

The attorney general sued french fry and potato chip companies under Proposition 65, the Safe Drinking Water and Toxic Enforcement Act, which requires companies to post warnings of any cancer-causing chemicals in their products unless they can prove that the levels do not pose a significant health risk.

Last year, restaurant chains including KFC, McDonald’s, Wendy’s and Burger King agreed to post acrylamide warnings at their restaurants and to pay civil penalties and costs. In January, Procter & Gamble agreed to reduce acrylamide in Pringles potato chips by 50 percent so that no warning would be required.

Under today’s settlements, Frito-Lay, Inc., which sells most of the potato chips sold in California, Kettle Foods, Inc., maker of “Kettle Chips,” and Lance, Inc., maker of Cape Cod Chips will reduce acrylamide over a period of three years to 275 parts per billion. For Frito Lay, this is about a 20% reduction, while for Kettle Chips, which contain far more acrylamide; this is an 87% reduction in acrylamide. Most Cape Cod chips are already near the compliance level, but one product, “Cape Cod Robust Russets,” contains over 7,000 parts per billion of acrylamide, and immediately will either carry a warning label on the package or will be removed from the market. Frito-Lay will pay $1.5 million in penalties and costs, $550,000 will be forgiven if it can reduce acrylamide in its products in half the time required by the settlement. It will pay an additional $2 million if it fails to reduce acrylamide in the required time. Kettle Foods will pay $350,000 in penalties and costs, while the much smaller Lance, Inc., will pay $95,000 in fees and costs.

Last week the Attorney General reached agreement with Heinz, Inc., the manufacturer of Ore-Ida frozen french fries and tater tots, will pay $600,000 in penalties and costs and will change its fried potatoes to contain 50 percent less acrylamide.

The settlements were approved today by Los Angeles Superior Court Judge William F. Highberger. A trial had been scheduled before Judge Highberger on July 28, but today’s settlement marks the end of the state’s litigation. Had the lawsuit gone to trial it would have been a legal battle with scientific experts debating the extent of the cancer risk posed by acrylamide.

The U.S. FDA is studying the problem of acrylamide in fried potatoes but has not taken formal action. The FDA’s website advises consumers that acrylamide can be reduced by not over-browning potatoes during cooking. For more information visit: http://www.cfsan.fda.gov/~dms/acryfaq.html

Brown said he will work with the companies to find a way to effectively give consumers information about the acrylamide in their products, while at the same time preventing undue public alarm and unnecessary warning signs concerning foods that contain insignificant amounts of the chemical.

For more information on acrylamide and Proposition 65 please visit:
http://ag.ca.gov/prop65/

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today announced California's plan to sue the U.S. EPA for continuing to “wantonly ignore its duty” to regulate greenhouse gas pollution from ships, aircraft, and construction and agricultural equipment.

“Ships, aircraft and industrial equipment burn huge quantities of fossil fuel and cause massive greenhouse gas pollution yet President Bush stalls with one bureaucratic dodge after another,” Attorney General Brown said. “Because Bush’s Environmental Protection Agency continues to wantonly ignore its duty to regulate pollution, California is forced to seek judicial action.”

Under federal law and the landmark Supreme Court decision Massachusetts v. EPA, the Environmental Protection Agency is authorized to regulate greenhouse gases from a wide range of vehicles including ocean-going vessels, aircraft and agricultural, construction and industrial equipment. Invoking such authority, Attorney General Brown formally petitioned the EPA--in October 2007, December 2007 and January 2008--to initiate appropriate regulatory action.

In the face of Brown’s petitions, the EPA has done nothing but issue a pathetically weak “Advanced Notice of Proposed Rulemaking” on July 11, 2008. The EPA’s proposal contains hundreds of pages of discussion and facts but never once states that greenhouse gases endanger public health or welfare--the legal foundation for fashioning regulations. Brown said that ignoring California’s petitions violates the Clean Air Act which requires the agency to adopt standards for greenhouse gases.

Under the Clean Air Act, EPA is given 180 days to respond with appropriate regulation action. If the agency does not issue timely regulations for aircraft, ocean-going vessels and nonroad engines, California can and will sue the federal government for unreasonable delay. The lawsuit will be based on the following:

* EPA’s failure to make explicit findings that industrial equipment, ships and aircraft emit greenhouse gas pollution that endangers public health or welfare
* EPA’s failure to adopt timely regulations to control such emissions

President Bush blocked EPA’s original plan to make a formal finding that greenhouse gases endanger public health or welfare. Recently, congressional investigations have found that White House staff signed off on EPA’s “endangerment finding” in November 2007. Subsequently, White House officials told EPA to cancel the finding.

“If President Bush was serious about America’s dangerous and growing foreign oil dependency, he would forthwith direct EPA to do its job and regulate greenhouse gases,” Attorney General Brown said.

Nonroad engines, ships and aircrafts emit as much greenhouse gases as 270 million cars, more than the entire number of registered vehicles in the United States. The following background information details the massive energy consumption and negative environmental effects of ocean-going vessels, aircraft and nonroad engines.

SHIPS

The world’s relatively small fleet of large ocean-going vessels, about 90,000, emits approximately three percent of the world’s total greenhouse gas emissions. Ocean-going vessels in total emit more CO2 emissions than any nation in the world except the U.S., Russia, China, Japan, India and Germany. These emissions are projected to increase nearly 75 percent during the next 20 years.

EPA’s own recent proposal states that marine vessels that purchased fuel in the U.S. emitted 84.2 million metric tons of CO2 in 2006, or 3.9 percent of the total U.S. mobile source CO2 emissions.

The United Nations International Maritime Organization has authority under international treaties to establish pollution standards for vessels but has to date failed to adopt controls on greenhouse gas emissions. The IMO Marine Environment Protection Committee recently planned to inventory greenhouse gases by 2009 but made no commitment to regulate such emissions. Attorney General Brown says that ocean-going vessels have a right to innocent passage under international law but that right does not include polluting the air or water near in California.

AIRCRAFT

According EPA data, aircraft contributed three percent of the United States’ total carbon dioxide emissions and 12 percent of the transportation sector emissions in 2005. The Federal Aviation Administration expects domestic aircraft emissions to increase 60 percent by 2025.

Aviation’s contribution to global warming is greater than other major greenhouse gas emission sources because aircraft release emissions at high altitudes. For example, when nitrous oxide is emitted at high altitudes it generates greater concentrations of ozone than when it is released at ground-level. Brown says that because aviation injects greenhouse gas pollution at high altitudes—right where these emissions have a heightened negative impact—the EPA must take action to curb these emissions.

There are currently no greenhouse gas emissions controls on aircraft and only limited controls for some conventional pollutants such as carbon monoxide. Last year, the International Civil Aviation Organization, a United Nations agency, passed a resolution to set international emissions reduction agreements but the organization has taken no additional action to further this goal.

AGRICULTURAL AND INDUSTRIAL EQUIPMENT

Millions of industrial machines in mines, on farms, and at construction emitted 220 million tons of carbon dioxide in 2007—an amount equivalent to the emissions from 40 million cars. Mining and construction equipment accounted for 32 percent of these emissions, followed by agricultural and industrial equipment. According to the California Air Resources Board, there are approximately 17.8 million of these machines and engines in California.

The EPA has refused to regulate emissions from nonroad engines, aircraft and ocean-going vessels despite unassailable evidence of global warming and dangerous foreign oil dependency. Last week the U.S. Climate Change Science Program's issued a report on global warming’s devastating effects which include more frequent and intense hurricanes, heat waves, and flooding. In California, where hydropower comprises approximately 15 percent of in-state energy production, diminishing snowmelt flowing through dams will decrease the potential for hydropower production by up to 30 percent by the end of the century.

Other states, local governments and agencies which joined California today in warning the EPA of an impending lawsuit include Connecticut, Oregon, New York City, the California Air Resources Board and the South Coast Air Quality Management District. National environmental groups filing similar petitions include Earthjustice and the Western Environmental Law Center.

California’s notice of intent to sue the EPA is attached.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. and the California Department of Food and Agriculture today announced that Bombino Express Worldwide has been sued for importing unmarked packages of mangos and yams from India that had not been treated to prevent the spread of the destructive Oriental Fruit Fly.

"Bombino Express Worldwide is charged with smuggling untreated and unlabeled fruit that can carry invasive insects like the Oriental Fruit Fly into the United States,' Attorney General Brown said. 'When foreign shipping companies disobey California’s quarantine laws they put the state’s growers at risk. County, state and federal inspectors should be commended for catching this illegal shipment and isolating its contents.'

Attorney General Brown alleges that Bombino Express Worldwide violated the Food and Agriculture Code and engaged in unfair business practices by failing to label and treat packaged mangos to kill any fruit fly larvae before exporting the products to the United States. Female Oriental Fruit Flies lay eggs in groups of 3 to 30 under the skin of host fruits and vegetables like those imported by Bombino Express Worldwide.

A single fruit fly lives approximately 90 days and can travel up to 30 miles in search of food and sites to lay eggs. The threat of agricultural destruction from invasive species like the Oriental Fruit Fly is so great that there was a complete ban on importing Indian mangos and yams until May 2006 when federal law was amended to allow limited importation of Indian mangos. Under the new rules, shipping companies must attach documentation affirming that mangos are treated to kill any fruit fly larvae.

The Department of Food and Agriculture launched an investigation into Bombino Express Worldwide after an inspector at a facility near Ontario International Airport found several unmarked packages of produce being imported to California from India. A parcel inspection dog named C.C., working for the San Bernardino County Agricultural Commissioner’s office, sniffed out the mislabeled box of mangos. Contra Costa County is also using dogs for parcel inspections in the Bay Area and there are plans to assign dogs in San Diego, Sacramento and Fresno counties.

The Attorney General’s Office seeks $10,000 per violation of the Food and Agricultural Code and California’s unfair competition statute. The company could face up to $1.67 million in penalties for its 167 violations of California law.

Oriental fruit flies have wreaked havoc on Hawaiian agriculture since the species was introduced to the island in 1946. According to the California Department of Food and Agriculture, failure to eradicate Oriental Fruit Flies in California could cost the state up to $176 million in crop losses, pesticide use and quarantine requirements.

Bombino Express Worldwide appears to be part of a large network of companies that import various products including fruit, spices and other products from India and Southeast Asia.

California’s First Amended Complaint was filed on July 9, 2008 and was served on Mohmed Yasin Latiwala July 15, 2008 in New Jersey. Latiwala was served with the lawsuit in his individual capacity as CEO and on behalf of Bombino Express, Inc., Bombino Express (Worldwide) Inc. The lawsuit was also served on the California office of Bombino Express in Hawthorne.

A copy of the state’s lawsuit is available from the attorney general's press office at: 916-324-5500. For more information from the California Department of Food and Agriculture visit: http://www.cdfa.ca.gov/exec/Public_Affairs/Index.html

SACRAMENTO--California Attorney General Edmund G. Brown Jr. today announced a $150,000 settlement for aspiring homeowners who had their entire down payments unlawfully seized by Lease2OwnHomes for missing rent on a lease-to-own agreement.

"We have obtained restitution for renters who were ripped off by an unscrupulous landlord who illegally seized down payments that were part of a lease-to-own home scam,' Attorney General Brown said.

Under California law, if a renter misses a monthly payment in a lease-to-own program, the landlord may only seek eviction and unpaid rent. In this case, the landlord unlawfully seized the entire down payment for the purchase of the home in addition to seeking the eviction and unpaid rent. In April, the attorney general sued the company in Sacramento County Superior Court, for allegedly violating section 17500 of the Business and Professions Code, by:

* Providing a lease and option to purchase agreement when the company knew that consumers were not financially capable of meeting monthly payments required to successfully purchase a home. The company also sometimes ignored its own $70,000 minimum annual income requirement for consumers participating in the program

* Falsely claiming that consumers would have time to clean up any bad credit before purchasing their Lease2OwnHome

* Falsely claiming a “Over 96% Success Rate” in helping consumers purchase homes, when virtually no one was able to purchase a home as they described

Lease2OwnHomes knew that many of the renters who signed up for homeownership would never be able to afford the monthly payments. In one case, Lease2OwnHomes sold a large house in Stockton to a divorced mother of four who was unemployed and attending school part time. After the woman missed a $1,650 monthly payment, the landlord seized her entire $9,000 deposit on the house in addition to seeking eviction.

The company told consumers that “Bad credit is OK because you will have time to clean up any credit issues like bankruptcy, chargeoffs, low credit scores, and foreclosures before purchasing your Lease2OwnHome.” The company also promised to assist with credit repair although the company was not properly registered as a credit repair company.

The attorney general is currently aware of at least 75 renters in Sacramento and San Joaquin County who signed up for the program. Company president Quentin Hazell, claimed to work exclusively with the market of “untapped future home buyers” who were within a year or two of purchasing homes but who needed “extra time to get financing in place, improve credit or save for a larger down payment.”

Under the settlement approved today by the Sacramento Superior Court, the company must pay $300,000 in civil penalties if they do not provide consumers with $150,000 in refunds for the down payments they seized.

Consumers who have filed a complaint with the Attorney General’s Office or who file a complaint on or before September 15, 2008 may be eligible for a partial refund. Consumers should file a complaint in writing to the Attorney General’s Office Public Inquiry Unit, PO Box 944255, Sacramento, CA 94244-2550 or send an online complaint to piu@doj.ca.gov.

For a copy of the settlement agreement and the state’s original lawsuit please contact the press office at (916) 324-5500.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today disclosed “shocking new details” about Countrywide Financial’s deceptive business practices which included ignoring their own underwriting guidelines and rewarding employees for selling risky home loans.

"These shocking new details provide further evidence of Countrywide's dangerous lending practices, which included ignoring borrowers' low credit scores and rewarding employees for selling risky loans,' Attorney General Brown said. 'In one case the company approved an adjustable rate mortgage to an 85-year-old disabled veteran with such a low credit score and high debt that he defaulted in less than six months.'

On June 20, 2008 Attorney General Brown sued Countrywide for engaging in deceptive advertising and unfair competition by pushing homeowners into risky loans for the sole purpose of reselling the mortgages on the secondary market. Today Brown filed an amended lawsuit in Los Angeles Superior Court which reveals twenty new details about the company's scheme to deceive consumers into taking out dangerous mortgages. The information had been previously withheld from the complaint.

Some of the new information includes the fact that Countrywide’s wholesale lending officers received higher commissions for selling Pay Option Adjustable Rate Mortgages--loans that entice consumers with a very low initial 'teaser' rate--and loans with weak underwriting standards. Countrywide also paid higher commissions for putting borrowers into loans with higher rates and fees than they qualified for based upon credit scores and other factors.

Countrywide ignored factors that it identified as having negative impacts on underwriting including: high debt ratios, low credit scores, and minimal down payments. Company employees regularly overrode warnings from Countrywide's computerized underwriting system, known as CLUES, which issued loan analysis reports rating consumer credit, purported ability to repay, and whether a proposed loan complied with underwriting guidelines.

The following examples describe new details about how Countrywide granted exceptions to sound business practices. These examples represent a small percentage of the large number of California residents who are facing foreclosure due to Countrywide’s dangerous practices:

• A Countrywide loan officer convinced a borrower to take a Pay Option ARM with a 1-month teaser rate and a 3-year prepayment penalty plus a full-draw piggyback home equity line of credit based on the loan officer’s representation that the value of the borrower’s home would continue to rise and he would have no problem refinancing. The borrower’s debt-to-income ratio was 47 percent and credit score was 663. The loan officer offered the loan even though the company’s CLUES report and an underwriter review indicated strong doubts about the borrower’s ability to repay. The loan closed in January 2006, and a Notice of Default issued in June 2007.

• The CLUES report issued for a loan applicant in February 2005 stated that the consumer had too much debt for the loan program and identified other elements of risk including a low credit score. The CLUES report raised doubts about the borrower’s ability to repay the loan but Countrywide approved a 3/27 adjustable rate mortgage with a 3-year prepayment penalty, to an 85-year old disabled veteran with a credit score of 509 score and an debt-to-income ratio of nearly 60 percent. The loan closed in February 2005, and a Notice of Default issued in July 2005.

• The CLUES report for a proposed loan identified multiple risks that created doubts about the borrower’s ability to make the payments, including the fact that a borrower had an open collection account. In January 2006, however, Countrywide granted exceptions for these risks and approved a reduced documentation Pay Option Adjustable Rate Mortgage loan for $352,000 with a 3-month teaser rate and a 3-year prepayment penalty, as well as a Piggyback home equity line of credit for $22,000. The loan closed in January 2006, and a Notice of Default issued in October 2006.

Many borrowers who obtained Pay Option and Hybrid ARMs did not understand that their initial monthly payment would at some point 'explode,' that their initial interest rate would increase and become adjustable, or that the principal amount of their loans could actually increase. Countrywide received numerous complaints regarding these practices from borrowers, including over 3,000 complaints per year handled by the Office of the President between January 2005 and August 2007.

Countrywide gave branch managers commissions or bonuses based on the net profits and loan volume generated by each branching, thereby creating intense pressure to sell as many loans as possible, as quickly as possible, at the highest prices possible. Branch managers were rewarded for meeting production goals set by corporate management, increasing the number of loans sold per loan officer, and reducing the time periods between the loan application stage and funding--or penalized for failing to do so.

Today’s amended lawsuit also contains updated data about Countrywide's staggering foreclosure rates. As of April this year, 21.11% of the mortgages owned by Countrywide Home Loans were in some stage of delinquency or foreclosure, including 47.97% of originated non-prime loans, and 21.23% of Pay Option ARMs. In January and March, 2008, Countrywide recorded 3,175 notices of default in Alameda, Fresno, Riverside, and San Diego counties alone, representing an aggregate total of delinquent principal and interest of more than $917 million.

The state's amended complaint is attached. For more information about California’s lawsuit against Countrywide please visit: http://ag.ca.gov/newsalerts/release.php?id=1582&

LOS ANGELES--Attorney General Edmund G. Brown Jr. today announced that California will receive $23 million of a $515 million nationwide settlement with Bristol-Myers Squibb. The settlement resolves allegations that the company reported “grossly inflated” drug wholesale prices to California’s Medicaid program in an effort to maintain its market share of prescription drugs.

“The Medi-Cal system requires companies to accurately report drug prices to the state,” Attorney General Brown said. “Bristol Myers-Squibb grossly inflated its reported drug prices and then used the artificially high price to increase its market share. The Bureau of Medi-Cal Fraud and Elder Abuse will continue to investigate and prosecute any alleged fraudulent conduct by any health care provider whose services or products are paid for by Medi-Cal,” Brown added.

The settlement agreement follows a drug-price investigation into Bristol Myers-Squibb and former subsidiary Apothecon that was launched in 2001 by California, the federal government, and other state attorneys general. The investigation was triggered by various whistle blower lawsuits filed around the United States. During the inquiry, Bristol Myers-Squibb voluntarily disclosed potential violations of state and federal anti-kick back law.

California found evidence of violations including: reporting artificially high average wholesale prices for prescription drugs to shut out competitors, organizing kickback schemes to lure pharmacies and wholesalers, illegally marketing an adult anti-psychotic drug as a treatment for children, and hiding the lowest sale price for Serzone to underpay Medicaid. Details of those allegations include:

* Reporting inflated average wholesale prices for physician-administered drugs:

The average wholesale prices for drugs were substantially higher than the prices for which the company sold these products, a scheme designed to maintain market share in the face of competing generic alternative drugs. The company’s sales force would “market the spread” or sell drugs based on the profit margin between the reported average price, which is the basis for Medicare and Medicaid reimbursement, and the actual costs for the same drugs, which were dramatically less than the reported price.

Medi-Cal, which is California’s Medicaid program, reimburses pharmacies and doctors based on prices reported by pharmaceutical manufacturers whose drugs are dispensed to beneficiaries. Because government health insurance programs such as Medi-Cal rely on reported prices to set reimbursement amounts, the company’s conduct caused the state to overpay for drugs.

* Engaging in an array of kickback activities to enhance their market share:

The investigation revealed that Apothecon paid millions of dollars to lure pharmacies and wholesalers to switch from competitors’ generic drugs to the company’s generic products. The payments to doctors included physician consulting programs consisting of trips to luxury resorts, meals at expensive restaurants, and tickets to sports events where doctors allegedly listened to pharmaceutical sales pitches. The kickback schemes targeted payments to doctors to keep generic competitors out of the market.

* Illegally marketing its atypical antipsychotic drug Abilify:

The Food and Drug Administration approved Abilify in November 2002 for the treatment of adult schizophrenia and later for adult bi-polar disorder. The investigation revealed that the company promoted the drug for treatment of children and dementia-related psychosis when neither use was approved by the FDA. This off-label promotion scheme increased the company’s sales between 2002 and 2005.

* Concealing its best price to the U.S. Centers for Medicare and Medicaid Management:

Bristol Myers-Squibb allegedly concealed its best price from the federal Centers for Medicare and Medicaid Management in a private-labeling scheme for its drug Serzone. The federal government uses best price to determine the amount of Medicaid rebates owed to states. The company allegedly affixed Kaiser labels to its Serzone and shipped the drugs at a lower price than was sold to any other customer. The company did not include this low price in its calculations reported to the federal government for Medicaid rebate purposes, thereby underpaying rebates owed to California.

The $23 million settlement with Bristol-Myers Squibb will pay approximately $12 million in full restitution to Medi-Cal and $11 million for the state’s False Claims Fund. The state’s lawsuit was filed in San Diego Superior Court in 2003 and then removed to the federal central district court in Los Angeles. Later it was consolidated with a number of other state lawsuits in federal court in Boston.

To date, California has reached settlements worth $9.7 million with five other companies, and their corporate parents, resolving similar allegations. Claims against fifteen companies are still pending.

For copies of the state's settlement and original lawsuit please contact the Attorney General's Press Office at 916-324-5500.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today sued Countrywide Financial, its chief executive Angelo Mozilo, and president David Sambol, for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market.

“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”

Brown alleges that Countrywide Financial used deceptive tactics to push homeowners into complicated, risky, and expensive loans so that the company could sell as many loans as possible to third-party investors. According to the lawsuit, the company marketed complex and difficult to understand loans with very low initial or “teaser” interest rates or payments. Countrywide employees, including loan officers, underwriters, and branch managers--who were under intense pressure to process a constantly increasing number of loans--misrepresented or obfuscated the fact that borrowers who obtained certain types of loans would experience dramatic increases in monthly payments.

In the past, lenders like Countrywide sold home loans to customers and held the loans in their own portfolio, an incentive to maintain strong underwriting standards. Countrywide, however, sold its loans to third-parties in the form of securities or whole loans, often earning more profit for riskier loans. The business model generated windfall profits for Countrywide.

The company pushed these loans by emphasizing a low “teaser” or initial rate, often as low as 1 percent for pay option ARMs. Countrywide obscured the negative effects--including rising rates, prepayment penalties and negative amortization--which would inevitably result from making minimum payments or trying to refinance. The company misrepresented or hid the fact that borrowers who obtained its home loans--including exploding adjustable rates and negatively amortizing loans--would experience dramatic increases in monthly payments.

In an effort to rope in as many customers as possible, Countrywide greatly relaxed and liberally granted exceptions to its mortgage lending standards. Traditionally, lenders required borrowers to document income and assets but Countrywide offered reduced or no documentation loan programs to increase its loan sales. Angelo Mozilo and David Sambol actively pushed for easing underwriting standards and granting exceptions to documentation requirements.

In Countrywide’s 2006 annual report, the company touted the massive growth of its loan production from $62 billion in 2000 to $463 billion in 2006--three times the increase of the U.S. residential loan production market, which tripled from $1.0 trillion in 2000 to $2.9 trillion in 2006. 26 percent of Countywide loans were for California properties. The company sold an ever-increasing number of loans in an effort to gain a 30 percent market share of loan originations and then sell its loans on the secondary market, as mortgage-backed securities or pools of whole loans. Countrywide’s securities trading volume increased from $647 billion in 2000 to $3.8 trillion in 2006.

Countrywide routinely sold loans based upon a borrower’s stated income and without verifying the information. Loan officers memorized scripts that marketed low payments by focusing on the potential customer’s dissatisfaction, saying, for example, “Which would you rather have, a long-term fixed payment, or a short-term one that may allow you to realize several hundred dollars a month in savings?” The loan officer did not state that the payment on this new loan would exceed the payment on the current loan.

Countrywide paid greater compensation to brokers for loans with a higher interest rates, as well as prepayment penalties, because it could sell those loans for higher prices on the secondary market. Countrywide also paid rebates to brokers who originated loans with prepayment penalties, adjustable rates and high margins.

Countrywide operated an extensive telemarketing operation in which it touted its expertise and claimed to find the best financial options for customers. Customer Service representatives at Countrywide call centers were required to complete calls within three minutes, often processing sixty-five to eight-five calls per day. Employees who did not meet quotas were terminated. The company’s deceptive marketing practices, designed to sell costly loans while hiding or misrepresenting the terms and dangers, included:

• Encouraging borrowers to refinance or obtain financing with complicated mortgage instruments like hybrid adjustable rate mortgages or payment option adjustable mortgages
• Marketing complex loan products by emphasizing a very low “teaser” rate while misrepresenting the steep monthly payments, increased interest rates and risk of negative amortization
• Dramatically easing underwriting standards to qualify more people for loans
• Using low or no-documentation loans which allowed no verification of stated income
• Hiding total monthly payment obligations by selling homeowners a second mortgage in the form of a home equity line of credit
• Making borrowers sign a large stack of documents without provider time to read the paperwork
• Misrepresenting or hiding the fact that loans had prepayment penalties

As the secondary market’s appetite for loans increased, Countrywide further relaxed its standards to finance borrowers with ever-decreasing credit scores. Countrywide employees routinely overrode the company’s computerized underwriting system, known as CLUES, which issued loan analysis reports recommending or discouraging loans based on factors such as a consumer’s credit rating. As the pressure to produce loans increased, Countrywide set up an entire department in Plano, Texas, at the direction of Mozilo and Sambol, where employees could submit requests for underwriting exceptions. In 2006, 15,000 to 20,000 loans a month were processed through this exception process.

Countrywide’s deceptive sales practices resulted in a large number of loans ending in default and foreclosure. According to Countrywide’s February 2008 records, a staggering 27 percent of its subprime mortgages were delinquent. Overall, approximately 20,000 Californians lost their homes to foreclosure in May 2008 and 72,000 California homes were in default, roughly 1 out of 183 homes.

Despite receiving numerous complaints from borrowers claiming that they did not understand their loan terms, Countrywide ignored loan officer’s deceptive practices and loose underwriting standards. Countrywide also pushed its borrowers to serially refinance, repeatedly urging borrowers to obtain home loans to pay off their current debt.

Today’s lawsuit, filed this morning in Los Angeles Superior Court, redacts confidential information Countrywide provided during the attorney general’s investigation. The attorney general is seeking the company’s consent to file an amended complaint that removes the redactions.

During the course of its investigation into Countrywide, state investigators reviewed hundreds of thousands of documents and interviewed scores of witnesses including consumers and former employees.

Consumers who believe they have been victimized by Countrywide Consumers should file a complaint by contact the Attorney General’s Public Inquiry Unit in writing at Attorney General's Office California Department of Justice Attn: Public Inquiry Unit P.O. Box 944255, Sacramento, California or through an online complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL

The case is People v. Countrywide, Los Angeles Superior Court case number LC081846.

SACRAMENTO--California Attorney General Edmund G. Brown Jr. today announced a $6 million settlement with MCM Construction, resolving allegations that the company was operating diesel cranes, pile drivers, and other portable engines without the required air district pollution permits.

“The company was operating construction equipment, without the necessary permits, which is potentially very damaging to the environment,” Attorney General Brown said. “Under today’s settlement the company will obtain the necessary permits and submit the equipment to careful inspection.”

Under California laws designed to protect air quality, construction companies must obtain a permit from local air pollution control districts before operating certain diesel engines over fifty horsepower. The California Attorney General’s Office alleged that MCM Construction operated dozens of engines at multiple locations without required permits on hundreds of days. Diesel exhaust contains carcinogens, particulate matter, and oxides of nitrogen.

The parties settled for $6 million in advance of trial, agreeing that MCM Construction will obtain necessary permits prior to operating any of its portable, diesel-burning equipment and will train its personnel to take precautions to protect rivers at bridge construction sites. The settlement, which is the largest ever environmental settlement involving portable engines, requires the company to pay $4 million in penalties and costs and an additional $2 million to replace some of its older engines with newer, cleaner-burning engines. The company will also adopt an internal environmental auditing process.

The Attorney General’s Office brought its legal action along with Mendocino County District Attorney Meredith Lintott, and Ventura County District Attorney Gregory D. Totten.

Mendocino District Attorney Meredith Lintott noted that her office was “extremely proud of the air district’s extraordinary proactive efforts to discover defendant MCM’s polluting conduct.”

“There is nothing more vital to the health and safety of Ventura County residents than having clean air to breathe,” said Ventura’s District Attorney, Gregory D. Totten. “This settlement helps rid our community of un-permitted high-polluting diesel engines, and is a step forward in preserving air quality for all Ventura County residents.”

In the past, MCM had been cited by local air district officials for not having necessary permits at dozens of prominent construction projects including the Noyo River Bridge in Fort Bragg, the Highway 101 Bridge over the Santa Clara River in Ventura County, and the Watt Avenue Bridge in Sacramento.

The state also alleged that MCM Construction damaged critical salmon spawning habitat while working at the Van Duzen River in Humboldt County. The company deposited debris, silt, and pollutants into the river, violations of the Clean Water Act.

The state’s complaint and the settlement document are attached.

SAN DIEGO--California Attorney General Edmund G. Brown Jr. today announced a “groundbreaking settlement” with Merck & Co. which requires the pharmaceutical manufacturer to obtain Federal Drug Administration approval before running any television drug advertisements for new pain medications.

“Merck’s aggressive television advertising convinced hundreds of thousands of consumers to seek Vioxx prescriptions before the drug’s risk were fully understood,” Attorney General Brown said. “Today’s groundbreaking settlement prevents Merck from releasing new television drug advertisements without obtaining federal approval.”

Today’s settlement resolves 30 state lawsuits challenging Merck’s marketing practices for Vioxx, a non-sterodial anti-inflammatory drug used to treat symptoms of arthritis as well as chronic and acute pain.

In 1999 Merck launched an aggressive promotional campaign directed at both consumers and health care professionals in which the company allegedly misrepresented the cardiovascular dangers of Vioxx. In 2004, Merck admitted that Vioxx caused serious cardiovascular adverse events and withdrew the drug from the market.

California alleged that one of the problems with the Vioxx marketing campaign was that the direct to consumer advertising began when the drug was first released and before doctors had an opportunity to gain experience with the drug and its potential side effects. Under today’s settlement, Merck may not launch a television advertising campaign for a newly approved pain drug if the Federal Drug Administration recommends delaying such television advertising.

The settlement, which also requires Merck to pay $58 million in restitution to states, is the largest monetary settlement that a group of states have obtained in a pharmaceutical advertising case. California will receive $5.3 million of the settlement funds to pay attorneys’ fees, future enforcement and consumer education.

The settlement places other restrictions on Merck’s future conduct including:

• Prohibiting the use of deceptive scientific data when marketing new drugs to doctors
• Prohibiting Merck from “ghost writing” articles and studies for publication
• Requiring disclosure of conflicts of interest when Merck promotional speakers make presentations at supposedly independent Continuing Medical Education programs
• Requiring Merck to submit clinical trial results of FDA-approved Merck products to the National Library of Medicine

Merck’s principle place of business is One Merck Drive, Whitehouse Station, New Jersey. Merck advertised, sold, promoted and distributed the prescription drug rofecoxib, marketed under the name Vioxx, in California and nationwide.

Other states which participated in today’s settlement include: Arizona, Arkansas, Connecticut, Florida, District of Columbia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, and Wisconsin..

Please contact the attorney general's press office for a copy of the complaint and settlement