Jose Muñiz was scrambling to keep up with orders at his Tamarac company, which ships live monarch butterflies for release at weddings and funerals, when he got a call from International Profit Associates.
IPA, a business consulting firm with 1,800 employees and $250 million in revenue, said one of its analysts might help him identify obstacles to growth at Amazing Butterflies.
One year later, Muñiz says he has a new hurdle: staying afloat as he continues to pay off $90,000 in debts split between IPA-related bills and fees on a risky loan he says IPA should have warned him against.
Muñiz and 39 other small-business owners -- including two others from Florida -- are suing IPA executives in Chicago federal court, claiming that they engaged in racketeering and fraud to sell millions of dollars in often unnecessary consulting contracts.
The suit, filed in March, alleges that IPA employees lied about consultants' qualifications and misrepresented the services they were offering. In addition, the plaintiffs argue that the company's pyramid-style compensation structure forces IPA workers to push services -- whether they are needed or not.
Established in 1991 in Buffalo Grove, Ill., IPA provides consulting to small and medium businesses through its flagship organization and subsidiaries, such as International Tax Advisors and Accountancy Associates. IPA claims to have worked with more than 170,000 firms since its inception and ''thousands'' in Florida in the last two years.
IPA says that it has a 99.5 percent customer satisfaction rate and that its 16-year track record is being muddied by a few vocal, disgruntled clients. It's asking the judge to dismiss the case.
''We are at a loss to understand how any thoughtful person [might] believe the allegations,'' the company wrote in response to questions from The Miami Herald.
The business consulting industry is unregulated, and both client expectations and quality of service can vary wildly, experts say. Even so, IPA has drawn more fire than most.
In the last three years, the Better Business Bureau has processed 424 complaints about IPA's services and high-pressure sales tactics by its telemarketers and debt collectors. IPA says it has resolved virtually all of the complaints, but the BBB said IPA's current ''unsatisfactory'' rating reflects the fact that the company has failed to address the root cause of the problems and complaints continue to pile up.
FLORIDA COMPLAINTS
STATE OFFICIAL NOTIFIES ILLINOIS INVESTIGATORS
Florida's attorney general has registered 28 complaints against IPA and passed those concerns along to its Illinois counterpart, which is investigating the company. While IPA has been sued by individual clients in the past, this is the first time that former customers have banded together in court.
Key to the plaintiffs' allegations are claims that IPA's organizational structure might promote heavy-handed sales tactics or fraud. One example: IPA's business analysis service. For between $300 and $3,000, IPA sends an analyst to provide ''an objective'' look at a business and give ``an unbiased view of its strengths and weaknesses.''
What many customers don't know is that the initial fee they pay doesn't go to the analyst doing the work, but goes to the telemarketer and field representative who sold the service. The only way the analyst can make money is by selling an additional consulting contract that can cost tens of thousands of dollars, according to IPA literature filed as evidence.
In effect, said Bob Reda, the plaintiffs' lawyer, while business owners share confidential tax and financial information in the belief that the analyst is looking out for their best interests, they are actually paying for an extended sales pitch. ''If the analysts did what they said they were going to do, and provided balanced and unbiased opinions, they wouldn't be able to make a living,'' he said.
IPA insists that it sells services only to companies that need it and that there is nothing wrong with working on commission. ''This form of compensation goes back to the Old Testament,'' IPA wrote in response to Miami Herald questions. ``We have seen no credible evidence in our business or in economic studies which suggest that paying someone on a commission interferes with objectivity.''
In a 2004 Harvard Business School case study, IPA founder and managing director John R. Burgess, who is named in the suit, explained the benefits of the compensation structure: ``If we were to pay a base salary, our analysts would lose some of their zeal for converting a survey into a consulting project. Pure commission gives them more autonomy out in the field -- it's just you versus the customer.''
IPA training manuals, submitted as evidence, also offer advice on ''wearing the client down'' and creating a ''sense of urgency'' to close sales.
Muñiz of Amazing Butterflies knows how convincing the sales pitch can be.
After an IPA analyst spent a day reviewing his company's tax returns and financial information, he was told that if he signed up for additional consulting at $245 an hour, IPA could help him rein in expenses and find money to overcome a short-term cash-flow problem.
A few days later, three IPA consultants -- each charging the hourly fee -- arrived at his office. Over three weeks, they racked up a bill for $45,000 for travel, lodging and wages. While Muñiz knew he would be paying the consultants' expenses, he said he was surprised by the heft of the bills.
Muñiz said he also sought IPA's advice in taking on an $87,000 loan against future credit-card receipts. The loan, from Rapid Advance, came with a $47,000 fee. As a result, about 30 cents of every dollar that Amazing Butterflies currently makes goes toward credit-card fees and payments on the advance -- even though Muñiz said he rarely has a 30 percent margin on sales.
Muñiz says a competent consultant would have raised red flags.
IPA vehemently denies his claims. ''At no time did IPA recommend the credit card purchase loan you described and the records of the project review don't even mention this subject at all,'' IPA wrote. ``Mr. Muñiz has simply made this up.''
Concerns about IPA go beyond the current batch of plaintiffs. With the help of former IPA employees and customers, The Miami Herald contacted 14 South Florida clients not involved in the suit. All but two reported negative experiences with IPA.
The customers, who collectively paid IPA hundreds of thousands of dollars, told similar stories of signing consulting agreements under pressure or false pretenses and being blindsided by bills they said didn't match the level of counseling they received.
HIALEAH FIRM SIGNS UP
FIRM'S OWNER FINDS CANCELLATION WOE
Ileana Martinez said her problems began in February 2006 when she received a cold call from IPA telemarketers and eventually agreed to pay $350 for a one-day analysis of her Airways Auto Tag Agency in Hialeah.
By day's end, the analyst had persuaded her that she was bleeding cash and needed consulting help, she said. Martinez claims she signed a consulting agreement only after the man assured her that the $245 hourly fee would likely be waived or discounted because of her status as a minority woman-owned business. When Martinez realized that the contract made no mention of the discount, she said she spent the next several days trying to cancel the contract.
Martinez said her calls went unanswered and the following Monday two IPA consultants arrived. Although she was no longer interested in IPA's services, they told her she was on the hook for $4,509 -- their travel and lodging expenses and a day's wages for both. Martinez and IPA eventually settled for less.
IPA says it cannot be held responsible for customers who sign contracts without reading them. It also allows those with buyers' remorse to cancel at the end of any business day -- but not before the end of the first day.
Shuffling through the IPA brochures she keeps stashed under her desk, Martinez said the only reason she hadn't tossed them out was to ``remind myself not to fall into a trap like that again. How dumb could I have been?''
Her claims mirror lawsuit allegations that IPA trains staff members to ''psychologically manipulate [potential clients] into a sense of financial crisis'' and ``produce materially false and misleading reports.''
Phillip Hendrix of Denver, Colo., said he learned those strategies firsthand. Hendrix, who attended a weeklong training course for IPA's business analysis service sales force in April, said trainers encouraged recruits to ''highlight a business owner's pain'' and 'twist some numbers around and over-emphasize things to lead them to believe, `Gosh, you are going out of business next month if you're not careful.' ''
Hendrix, who has a master's degree in business administration and has worked as a consultant in the past, said he quit within two months. Two others in Hendrix's class backed up his claims.
IPA contested the charges. ''No company could stay in business very long if it trained people in an aberrational way as you say these people have suggested,'' IPA wrote. ``Their statements are absolutely untrue and incorrect.''
The lawsuit isn't limited to sales strategies. The plaintiffs also allege that IPA sometimes used unqualified personnel with fake or deceiving credentials suggesting that they were licensed lawyers or certified public accountants.
Kevin Kaufman, president of Gen-Exbuilders in Miami, said he paid IPA about $20,000 for a week's worth of work in 2004. When the consultants left, Kaufman said, he had to pay his accountant overtime to correct their mistakes in his payroll taxes.
''They saw that we had a slight weakness in knowledge when it came to certain items. . . . But they didn't know what they were doing either,'' said Kaufman, who is not part of the suit. ``We have learned more fixing their mistakes than they ever taught us.''
The consultants also left Gen-Exbuilders with an employee handbook and six Excel spreadsheets to calculate such things as cash flow and income statements. Kaufman said his stepmother found almost identical spreadsheets for free on the Internet.
''They grossly overcharged for a service that's grossly underdeveloped,'' Kaufman said.
IPA said that the characterizations are unfair and that Kaufman and Muñiz -- as well as other business owners who complained to The Miami Herald -- had previously written letters praising IPA's work.
''I am sure you will appreciate that when clients voluntarily write a letter at the time of services lauding the company that should certainly mean more . . , if you are being fair, than statements made later without support,'' IPA wrote.
Kaufman and Muñiz said that the recommendation letters were written by IPA consultants and that they signed them before it was clear what had been accomplished.
''It's like when you pick up your car at the mechanic's and you think you are happy with the service,'' Muñiz said. ``But then three blocks down the road, the tires fall off.''
HAPPY CUSTOMERS
MIAMI FIRM'S OWNER PLEASED WITH RESULTS
Not everyone interviewed complained about IPA.
After repeated requests to talk with clients in the tri-county area who might vouch for its work, IPA passed along three names. Two of the former clients had glowing reports; partners at the third were at sharp odds over the benefits of the service.
Brian McMurray is one of the happy customers. He said he turned to IPA earlier this year when sales started to slide at Magic Hour Lighting & Grip, the Miami company he purchased a year ago. His IPA consultant had entertainment-industry experience and put together a 12-month plan that McMurray said he is confident will help turn his business around.
IPA ''worked within our budget'' of $16,000 and drafted a plan that ''was very detail-oriented and tailored for what we do,'' he said.
At Amazing Butterflies, Muñiz said his sales have slid 60 percent since last year, in large part, he believes, because he has had to cut back on advertising to pay IPA-related bills.
Now, he is focused on staying afloat long enough to see the case reach trial. But first, the judge has to rule on IPA's motion to dismiss the case.
''They say small businesses are the backbone of America, but this company is stripping them raw,'' Muñiz said. ``I'm just hoping the justice system stands up for the rights of its citizens.''
