In a debt-relief scheme that affected about 15,000 people across the country, three telemarketing executives headquartered in Pompano Beach and using a branch in Panama bilked victims out of an estimated $70 million, according to the Florida Attorney General’s Office, the Federal Trade Commission (FTC) and the attorney working to retrieve assets in the complex case.
A civil complaint filed recently in federal court in Fort Lauderdale by the attorney general’s office and the FTC alleged that telemarketers at several of the companies managed from the Pompano Beach office building offered to consolidate personal debts for customers, pay off, settle or obtain dismissals for these obligations and improve their credit ratings.
Customers were allegedly convinced to pay from a few hundred to more than a thousand dollars per month to one of the so-called debt-relief companies that were part of the scheme, according to the complaint.
In most cases, no payments were made to reduce these debts. Moreover, customers ended up becoming victims: They incurred even greater indebtedness thanks to fake loans obtained from the companies, loans that were supposedly being used to pay their preexisting debt. Some customers were sued by their old creditors or were forced into bankruptcy.
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Running since 2013 with a headcount reaching around 150 managers, telemarketers, administrative staff and others, this South Florida-based operation was shut down in May by a federal judge who issued a preliminary injunction and asset freeze order affecting the individuals and companies involved.
I paid thousands of dollars to HAG/321 and they did not do anything they promised. My debt effectively had been doubled.
The court also appointed a receiver, Jonathan E. Perlman, a shareholder at the Miami-based law firm Genovese Joblove & Battista and an attorney with extensive experience in receivership roles. His formidable task is to sift through the maze of companies, accounts and financial operations to recover funds for defrauded customers.
Defendants – human and corporate
On May 8, the FTC and the State of Florida filed a complaint seeking an injunction with the U.S. District Court of the Southern District of Florida. The defendants in the case were Jeremy Lee Marcus, who was described by the receiver as the CEO and an owner of the group of companies in the debt relief operation; Craig Davis Smith, the COO and also an owner; and Yisbet Segrea, an executive who ran the office in Panama, plus dozens of corporate defendants controlled by the individual defendants. These included 321Loans Inc., Financial Freedom National Inc., Helping America Group, Marine Career Institute Sea Frontiers Inc., Instahelp America Inc. and Breeze Financial Solutions.
Receiver Perlman believes there could be more than 80 companies involved as corporate and related defendants, but that 23 are currently investigation targets since they offer the best potential for recovery, he told the Florida Bulldog.
The companies operated as a “common enterprise” through an interrelated network with commingled funds, all allegedly controlled by the three defendants, the complaint says.
According to the FTC and Florida attorney general’s complaint, these are the basics: The defendants made their money by promising customers large debt consolidation loans at attractive rates, or by telling customers they were taking over the task of servicing consumers’ preexisting debt relief accounts. In both cases, customers paid the defendants millions of dollars under the false premise that these alleged debt-relief companies would pay off, settle or obtain dismissals of consumers’ debts and improve their credit ratings.
In fact, there were no actual loans. Defendants kept most of the loan payments and paid very little or nothing toward reducing their customers’ debts. Eventually, the victims found out that no one was paying their original debts, their accounts were in default and their credit scores had suffered. In some cases, original creditors filed lawsuits against the consumers and some were forced into bankruptcy.
One scam victim, Derek S. from Vero Beach, told about his experience with the debt-relief group in an April affidavit.
Two years ago, he said, he did a Google search for a debt consolidation firm and found Helping America Group (HAG), one of the corporate defendants. “At that time, I was current on my debts and was making the minimum payments monthly,” he said in the affidavit. “I was looking for a company to consolidate my debt and to make one lower monthly payment.”
A fake loan
After calling HAG and learning about their services, Derek was told that another defendant firm, 321Loans, would be making the loan to him and would pay off his creditors. The loan, a fake, was for a total of $10,835 plus interest at 9.99 percent. He was also told to stop paying his creditors, not to talk to them and that another group firm, Breeze Financial, would help improve his credit score.
He started making monthly payments to Paralegal Support, still another firm in the group, and subsequently called several times to ask for a progress report. He was told “it would take time to negotiate the debt.”
A few months later, he called two of his creditors, who said they never heard of HAG or 321. He tried to cancel his agreement but was not allowed to do so until after he had filed complaints with the Florida attorney general and the Better Business Bureau. Last December, 321Financial — another element in the scheme — issued a cancellation letter and a refund of $200.13.
“I paid thousands of dollars to HAG/321 and they did not do anything they promised,” he said. “My debt effectively had been doubled.”
The joint state-federal complaint filed last May states that the defendants were in violation of the Federal Trade Commission Act, the FTC’s Telemarketing Act (covering consumer fraud and abuse) and the FTC’s Telemarketing Sales Rule (TSR). The Florida attorney general brought the action under the state’s Deceptive and Unfair Trade Practices Act and the Telemarketing Act.
The defendants, who are free, have denied any wrongdoing. While the current case against the defendant group is a civil action, a criminal suit could be filed in the future, according to an attorney familiar with fraud actions.
The FTC and the Florida Attorney General’s Office declined to comment on the progress of the case, since it is still open.
Finding customers and making the pitch
The scheme attracted potential victims by using Internet advertising and websites, direct mail and unsolicited phone calls. The defendants also bought presumably legitimate debt-relief firms and acquired their clients’ names as well as personal and financial information. Here’s how it allegedly worked:
▪ Companies in the group used ads on their websites or sent personal letters to the potential client’s home address. Sometimes falsely identifying themselves as nonprofits, they offered low-interest loans so a consumer could combine all debts and make one payment at a more favorable interest rate. For example, a typical letter sent by one of the group companies, 321Loans, offered up to $35,000 at 4 to 7 percent interest to cover debts from credit cards, private student loans, accounts in collection, medical bills, etc. The letter said the credit was pre-approved.
▪ The group supplied its Pompano Beach telemarketing staff with training manuals that taught “The Art of the Sale.” Some nuggets from the manuals: “The more time you spend qualifying [researching] the prospect, the less time you will waste pitching unqualified people for hours only to find they HAVE NO $$$,” and “so remember your ABC’s — Always Be Closing!”
▪ When people called a “customer approval center” (or when sales staff made unsolicited phone calls), prospects were told that a loan would be made to cover the full amount of their debt, plus interest. The loan would be used to pay off all indebtedness, and the lucky consumer would only have to make monthly payments that were much less than what they were paying. The companies told consumers they could provide low-interest loans because their nonprofit status allowed them to borrow at favorable rates.
▪ While potential clients were still on the phone, telemarketers emailed them a link to a document designed to look like a loan agreement. Consumers clicked on highlighted areas to initial and sign the agreement, which committed them to pay back the loan and fees, wherever applicable. The 50 to 75 page document in fact contradicted the sales pitch made by the telemarketers.
▪ Consumers agreed to have their bank accounts debited immediately for their first loan “repayment” or for a processing fee. Then monthly “repayments” were automatically taken from their accounts, ranging from $200 to over $1,000. Few or no payments were made to creditors, and a consumer with, say, $8,000 in old debts, would owe the preexisting amount, plus the $8,000 “loan” taken out from a defendant company.
▪ When consumers were told by original creditors that none of their bills had been paid, dismissed or settled, the defendant companies strung them along with false explanations, such as more time was needed to validate the consumers’ debts or to confirm payoff amounts. Clients who called to complain were given excuses and treated badly. Sometimes, the only contact number available was disconnected.
▪ In another aspect of this scam, the group, using mostly outside legal counsel, worked with some clients who were sued by creditors before the operation was shut down in May, according to the receiver’s amended first interim report filed in June. In these cases, the group’s attorneys ironically won large claims for clients related to supposed violations of the Telephone Consumer Protection Act or the Florida Consumer Collection Practices Act by credit card companies. But clients only received a small portion of the damages. For example, one client received $1,000 from a law firm working with the group after a credit card company paid a total of $80,000. Many cases followed a similar pattern, and some customers apparently were not aware of the amount of the total settlement.
Recovering assets for victims
“I’m essentially the CEO of this defunct enterprise,” Perlman, the court-appointed receiver, told the Florida Bulldog. “My main goal is to conserve and protect all the assets of the receivership.”
Assets — cash and a wide range of real estate — include a 50,000-square-foot headquarters building at 1410 SW Third St., Pompano Beach. Other tenants in the building who were unrelated to the defendant group continue to provide revenue to the receivership.
So far, the receivership has served over 30 banks with orders for records, and continues to look for other financial institutions that might be a source of assets.
Perlman told a Florida Bulldog reporter that the information his office has gathered so far indicated that “the amount taken from customers has been $70 million, and continues to rise.” It will increase as more bank records come in. The estimate in May was $50 million.
“We come in unannounced and serve papers to all the institutions we know about,” he said. “We try to obtain money and other assets voluntarily. If not, you take it to the judge.”
While the receivership is identifying and seizing assets related to the case, reimbursement to victims will come after the asset search is completed and the current civil proceeding resolved.
Perlman’s team has set up a website, www.321loansreceivership.com, to inform victims and the public about developments in the receivership process. Currently, he is the temporary receiver, but has petitioned the court to be named permanent receiver.