Mar 29, 2018 | Consumer Protection, Employment & Technology Archive
FDIC Announces Settlements with Cross River Bank and Freedom Financial Asset Management
On March 28, 2018, the Federal Deposit Insurance Corporation (“FDIC”) announced settlements with Cross River Bank, Teaneck, New Jersey, and its institution-affiliated party, Freedom Financial Asset Management, LLC, San Mateo, California, for unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission (FTC) Act related to the marketing and origination of Consolidation Plus Loans (“C+ Loans”). Additionally, the FDIC found the bank and Freedom Financial Asset Management violated the Truth in Lending Act (“TILA”) and Electronic Fund Transfer Act (“EFTA”).
$20 Million Placed in Segregated Account for Restitution to Harmed Consumers
As part of the settlement, Cross River Bank and Freedom Financial Asset Management (“FFAM”) stipulated to the issuance of respective Consent Orders, Orders for Restitution, and Orders to Pay Civil Money Penalties (the “FDIC Orders”). The FDIC Orders require restitution to harmed consumers. Although the exact amount of restitution has not yet been finally determined, $20 million has been placed in a segregated account for the purpose of providing restitution to harmed consumers. Additionally, the FDIC Orders assess civil money penalties of $641,750 against the bank, and $493,500 against FFAM.
According to the FDIC, Cross River Bank originates C+ Loans, an unsecured debt consolidation loan product, through FFAM. C+ Loans are offered exclusively to consumers who contract with Freedom Debt Relief, an FFAM-affiliated debt settlement company. C+ Loans were marketed as a way for consumers to quickly resolve their outstanding debts. Consumers are charged a settlement fee of up to 25% of each debt enrolled in Freedom Debt Relief’s program.
Cross River Bank and FFAM Violated Federal Law Prohibiting Unfair and Deceptive Practices
The FDIC determined that Cross River Bank and FFAM violated federal law prohibiting unfair and deceptive practices, by, among other things:
- Requiring borrowers to sign loan documents without knowing the essential terms and conditions of the loan;
- Failing to inform borrowers that certain major creditors will not negotiate debts with FDR and including related debt settlement fees into C+ Loans, when, in fact, borrowers had to negotiate such debts themselves;
- Misrepresenting to consumers that the C+ Loans would result in the settlement of all their debts within 30 to 45 days or 30 to 90 days, which was not true for nearly half of the consumers; and
- Misrepresenting that the consumers’ creditworthiness would improve by obtaining a C+ Loan.
As the originator of these loans, Cross River Bank is responsible for ensuring the C+ Loans program operates in compliance with all applicable laws.
Cross River Bank and FFAM Required to Develop and Implement a Restitution Plan
The FDIC Orders require Cross River Bank and FFAM to develop and implement a restitution plan that covers borrowers who, from 2013 to the present, received loans originated by the bank through FFAM, and were harmed by the practices identified as being unfair and deceptive. The restitution plan must be submitted to the FDIC for review and non-objection, and restitution calculations will be verified by an independent third-party. According to the FDIC, consumers who are eligible for relief under the settlement are not required to take any action to receive restitution.
In addition to the payment of restitution to harmed consumers and civil money penalties, the FDIC Orders also require Cross River Bank and FFAM to take affirmative steps to ensure compliance with the FTC Act, as well as TILA and EFTA. Cross River Bank’s Order also requires adequate oversight of its third-party providers; a Compliance Management System that effectively identifies, addresses, monitors, and controls consumer protection risks associated with third-party activities; and sufficient resources to oversee third-party relationships.
For additional information, please see: Cross River Bank: Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty and Freedom Financial Asset Management, LLC, and Cross River Bank: Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty.
Source: FDIC.gov
Kehoe Law Firm, P.C.
Mar 28, 2018 | Consumer Protection, Employment & Technology Archive
Kehoe Law Firm, P.C. is making consumers aware that on March 26, 2018, a first amended class action complaint was filed against Gold’s Gym Of Aikens, South Carolina; Gold’s Gym Of North Augusta, South Carolina; Gold’s Gym Of Augusta, Georgia (Bobby Jones Exp.); Gold’s Gym Of Augusta, Georgia (Walton Way Ext.); and Gold’s Gym Of Evans, Georgia for damages, injunctive relief, and other legal or equitable remedies from the alleged illegal actions of the gyms for negligently and/or willfully sending text messages to the cell phones of Plaintiffs in violation of the Telephone Consumer Protection Act.
Allegedly, in September 2017, one Plaintiff visited the Gold’s Gym of Aikens, South Carolina and filled out information for a gym guest pass. The Plaintiff was required to provide her cell phone number. Despite not consenting to receive text messages from any Gold’s Gym, the Plaintiff received text messages regarding her gym visit and gym promotions from telephone numbers (803) 832-4832 and (803) 648-4653, as well as short codes 522-36 and 873-65. Another Plaintiff also visited the same gym, was required to provide her cell phone number, and, despite checking a box reflecting that she did not consent to receive text messages from any Gold’s Gym, was sent text messages from (803) 832-4832 and short code 522-36.
According to the first amended complaint, on information and belief, the Gold’s Gym of Aikens, South Carolina; Gold’s Gym of North Augusta, South Carolina; Gold’s Gym of Augusta, Georgia (Bobby Jones Exp.); Gold’s Gym of Augusta, Georgia (Walton Way Ext.); and Gold’s Gym of Evans, Georgia utilize (803) 832-4832 and short codes 522-36 and 873-65 to send bulk text messages to numerous cell phones. The first amended complaint was filed in U.S. District Court, District of Minnesota (18-cv-00447-DSD-KMM).
Do You Believe You Are a Victim of Illegal Robocalls, Text Messages, “Junk” Faxes or Telemarketing Sales Calls?
If you have received illegal robocalls, text messages, “junk” faxes or telemarketing sales calls, you may be able to recover at least $500 for each illegal call, text or fax you received and, possibly, as much as $1,500 for each illegal call, text message or facsimile that was made either willfully or knowingly.
To help evaluate your potential legal claims under the Telephone Consumer Protection Act, please complete KLF’s confidential Robocall Questionnaire or, if you prefer to speak with an attorney, please complete the form above on the right, e-mail [email protected] or contact Michael Yarnoff, Esq., [email protected], (215) 792-6676, Ext. 804, for a free, no-obligation evaluation of your potential legal rights.
Mar 28, 2018 | Consumer Protection, Employment & Technology Archive
Kehoe Law Firm, P.C. is making consumers aware that on March 22, 2018, a class action complaint was filed against a Texas-based Gold’s Gym to stop the gym’s practice of sending unsolicited text messages to telephones of consumers nationwide in violation of the Telephone Consumer Protection Act. Allegedly, the Plaintiff, beginning on February 28, 2018, began receiving unsolicited, promotional-type text messages to his cellular telephone from Gold’s Gym, despite Plaintiff’s lack of consent or prior relationship with the gym. The class action seeks, among other things, statutory damages and injunctive relief. The complaint was filed in U.S. District Court, District of New Jersey (2:18-cv-03955).
Do You Believe You Are a Victim of Illegal Robocalls, Text Messages, “Junk” Faxes or Telemarketing Sales Calls?
If you have received illegal robocalls, text messages, “junk” faxes or telemarketing sales calls, you may be able to recover at least $500 for each illegal call, text or fax you received and, possibly, as much as $1,500 for each illegal call, text message or facsimile that was made either willfully or knowingly.
To help evaluate your potential legal claims under the Telephone Consumer Protection Act, please complete KLF’s confidential Robocall Questionnaire or, if you prefer to speak with an attorney, please complete the form above on the right, e-mail [email protected] or contact Michael Yarnoff, Esq., [email protected], (215) 792-6676, Ext. 804, for a free, no-obligation evaluation of your potential legal rights.
Mar 27, 2018 | Shareholder & Investor Protection
SEC Charges Energy Storage Company and Former Sales Executive in Fraudulent Scheme to Inflate Financial Results
On March 27, 2018, the Securities and Exchange Commission announced that it charged a California-based energy storage and power delivery product manufacturer, Maxwell Technologies, Inc. (“Maxwell”), and one of its former sales executives, Van Andrews (“Andrews”), in a fraudulent revenue recognition scheme designed to inflate the company’s reported financial results.
Premature Revenue Recognition from the Sale of Ultracapacitors to Meet Analyst Expectations
According to the SEC’s order, Maxwell Technologies, Inc. (NASDAQGS: MXWL) prematurely recognized revenue from the sale of ultracapacitors – small energy storage and power delivery products – in order to better meet analyst expectations. Andrews, a former Maxwell sales executive and corporate officer, allegedly inflated the company’s revenues by entering into secret side deals with customers and by falsifying records in order to conceal the scheme from Maxwell’s finance and accounting personnel and external auditors. Maxwell’s former CEO, David Schramm (“Schramm”), and former controller, James DeWitt (“DeWitt”), also were charged for failing adequately to respond to red flags that should have alerted them to the misconduct.
Maxwell Technologies Engaged in An Accounting Fraud Scheme that Improperly Recognized Over $19 Million in Revenue from Future Quarters
The SEC’s order stated:
From December 2011 through January 2013, Maxwell . . . engaged in an accounting fraud scheme that improperly recognized over $19 million in revenue from future quarters in violation of U.S. Generally Accepted Accounting Principles (“GAAP”). Maxwell, an SEC recidivist, issued materially false and misleading statements about its revenue, revenue growth, and gross margins, and inflated its reported financial results to better meet analysts’ expectations. Maxwell did not have sufficient internal accounting controls to identify and properly account for its revenue throughout the relevant period.
Maxwell’s primary source of revenue growth during the relevant period was expected to come from ultracapacitors, essentially small energy storage and power delivery products used in automotive, heavy transportation, renewable energy, backup power, wireless communications and industrial and consumer electronics applications. Maxwell’s ultracapacitor revenue growth was material to analysts and investors and was highlighted in all press releases and earnings calls.
Former Maxwell Executive Prematurely Recorded Ultracapacitor Revenue
The SEC’s order stated:
Maxwell, through Andrews, a former Senior Vice President of Sales and Maxwell officer, prematurely recorded ultracapacitor revenue as a result of his conduct and the failures of the company’s finance and accounting department controls. Maxwell, through Andrews, used several improper tactics to prematurely record revenue, including: customer side deals with contingent payment terms and full right of return; channel stuffing; extending payment terms; falsifying purchase orders (“POs”) and third-party confirmations; and by instructing certain distributors to order product they neither wanted nor needed at quarter-end. The fraud created the misperception that Maxwell’s ultracapacitor growth was far more successful than reality.
Maxwell’s Finance and Accounting Department, Including Its Former Controller, Repeatedly Overrode and Ignored Automated Controls and Missed Red Flags
The SEC’s order stated:
Maxwell’s finance and accounting department, including then-controller DeWitt, repeatedly overrode and ignored automated controls and missed red flags that should have alerted them to material revenue recognition departures. Although Andrews and his sales department took steps to hide the side deals from Maxwell’s senior financial personnel, the repeated override of automated controls allowed the sales to continue each quarter. Then-Chief Executive Officer (“CEO”) Schramm and Maxwell’s senior financial personnel knew that the sales took place the last days of each quarter, that certain sales were beyond approved credit limits and contained extended payment terms for up to 180 days, and that certain prior sales receivables were significantly past due. Maxwell ultimately recorded the revenue despite the fact that it should have known the sales terms were not fixed and determinable as required by GAAP for revenue recognition. Schramm also overrode automated credit limit controls to authorize large sales to distributors at quarter-end that he should have known those distributors neither wanted nor needed.
Internal Investigation Initiated After Maxwell’s Audit Committee Received Whistleblower Letter Describing the Revenue Recognition Fraud
The SEC’s order stated:
On or about January 9, 2013, Maxwell initiated an internal investigation after its audit committee received a detailed internal whistleblower letter describing the revenue recognition fraud. As a result of that investigation, on March 7, 2013, Maxwell announced that its previously issued financial statements on Form 10-K for 2011 and all quarterly reports on Forms 10-Q in 2011 and 2012 could not be relied upon. Maxwell also disclosed material weaknesses in its internal control over financial reporting due to “errors” it discovered in the “timing of recognition of revenue from sales to certain distributors.” Maxwell’s stock price declined 11.09%, closing at $8.10 per share on March 8, 2013. Soon thereafter, on March 18, 2013, Maxwell’s external auditor resigned after concluding it could not rely on representations made by senior financial personnel. After the external auditor’s resignation, Maxwell’s stock price declined an additional 20.57%, closing at $5.91 per share on the news.
Maxwell Files Restatement Which Reduced Revenue and Turned Net Income Gains Into Net Losses
The SEC’s order stated:
On August 1, 2013, Maxwell filed a restatement of the 2011 Form 10-K and Forms 10-Q for the first three quarters of 2012 that reduced revenue by 6.4% and 7.5% respectively. The restatement also turned net income gains into net losses for fiscal year-end 2011 and certain quarters in 2012.
Maxwell’s Securities Violations
The SEC’s order stated:
As a result of the conduct described herein, Maxwell violated the antifraud provisions of Exchange Act Section 10(b) and Rules 10b-5(a) and 10b-5(c) thereunder, and Securities Act Section 17(a), the reporting provisions of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, the books and records provisions of Exchange Act Section 13(b)(2)(A), and the internal accounting control provisions of Section 13(b)(2)(B).
As a result of the conduct described herein, Andrews violated the antifraud provisions of Securities Exchange Act Section 10(b) and Rules 10b-5(a) and 10b-5(c) thereunder, and Securities Act Section 17(a) and caused Maxwell to violate Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 10b-5(a), 10b-5(c), 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Andrews also violated Exchange Act Section 13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2.
As a result of the conduct described herein, Schramm and DeWitt caused Maxwell to violate Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.
Penalties Imposed and Fair Fund Established for the Benefit of Harmed Investors
Both Maxwell and Andrews consented to the SEC’s order without admitting or denying the allegations and agreed to pay penalties of $2.8 million and $50,000, respectively. Andrews also agreed to be barred from serving as an officer or director of a public company for five years. Without admitting or denying the findings that they caused certain violations by Maxwell, Schramm agreed to pay a total of nearly $80,000 in disgorgement, prejudgment interest, and penalty and DeWitt agreed to pay a $20,000 penalty.
The money collected in this proceeding will be used to establish a Fair Fund for the benefit of investors harmed by the accounting fraud. Maxwell’s former CFO Kevin Royal, who was not charged with wrongdoing, has reimbursed the company $135,800 for incentive-based compensation he received during the period when the company was found to have committed accounting violations.
Source: SEC.gov
Mar 26, 2018 | Consumer Protection, Employment & Technology Archive
Telemarketer Which Pitched Home Security Systems and Monitoring Services to Consumers Charged by FTC – Related Defendants Permanently Barred from Engaging in Abusive Telemarketing
On March 23, 2018, the Federal Trade Commission announced that it filed a complaint and motion for preliminary injunction in federal district court alleging that Alliance Security Inc. (“Alliance”), a home security installation company, and its founder, directly and through its authorized telemarketers, called millions of consumers whose numbers are on the National Do Not Call Registry. Two of Alliance’s authorized telemarketers and their principals also have agreed to settle charges that they made illegal calls on Alliance’s behalf.
According to the FTC, Alliance and its CEO and founder, Jasjit “Jay” Gotra (“Gotra”) are recidivist violators of the FTC’s Telemarketing Sales Rule. Gotra previously operated Alliance under the name Versatile Marketing Solutions, Inc., and settled FTC telemarketing- and robocall-related charges against them in a court order announced in April 2014. In the action announced by the FTC on March 23, 2018, however, the FTC alleges Alliance and Gotra never complied with the 2014 court order.
Defendants Alliance and Gotra Allegedly Made at Least 2 Million Calls in Violation of the Telemarketing Sales Rule
Allegedly, since the court entered the 2014 order, Alliance and Gotra have made or helped others make at least two million calls to consumers that violate the Telemarketing Sales Rule, including more than a million to numbers on the Do Not Call Registry. Alliance installs home security systems, and its employees allegedly make outbound calls to solicit the sale of the systems and associated security monitoring services.
Alliance also, according to the FTC, contracts with third-party telemarketers that make similar outbound calls pitching its products and services, including many to numbers on the Do Not Call Registry. Alliance, for example, hired defendants Defend America, LLC and Power Marketing Promotions, LLC, and their principals, and authorized them to market their products, leading to those companies also illegally calling consumers whose phone numbers are on the Do Not Call Registry.
The FTC’s complaint also charges Defend America and Power Marketing with violating the Telemarketing Sales Rule by not identifying the seller in their calls, as well as Alliance for telling the two companies not to identify it in calls to consumers. The FTC’s complaint also alleges Alliance and Power Marketing deceived consumers by misrepresenting themselves as calling on behalf of ADT, an unrelated home security company.
According to the complaint, even after Alliance learned about the deceptive calls, it failed to terminate its contracts with these telemarketers. Finally, the complaint alleges that Alliance and Gotra obtained consumer reports without having a permissible purpose, in violation of the Fair Credit Reporting Act.
Defend America and Power Marketing Defendants Agree to Settle the FTC’s Charges
The stipulated final order settling the charges against Defend America and its principal Jessica Merrick permanently bars them from telemarketing or assisting others in telemarketing, in addition to imposing a civil penalty of $2,296,500, which will be suspended based on inability to pay.
The stipulated final order settling the charges against Power Marketing and its principal Kevin Klink permanently bans them from selling home security and medical alert devices. Power Marketing also is banned from all telemarketing. Klink is banned from making robocalls or helping anyone else make them, from calling phone numbers on the Do Not Call Registry, unless a consumer directly contacts him to request a call, and from selling lists containing numbers on the Do Not Call Registry.
The order also bars Kevin Klink from abusive telemarketing practices and other Telemarketing Sales Rule violations related to abandoning outbound calls, failing to identify the seller in a telemarketing call, and using spoofed caller ID numbers. Further, it imposes a civil penalty of $3,293,512 against Power Marketing and Kevin Klink, which will be partially suspended due to their inability to pay, upon payment of $300,000 to the FTC.
The proposed court settlements announced by the FTC resolve the FTC’s charges against individual defendants Jessica Merrick and Kevin Klink, and corporate defendants Defend America LLC and Power Marketing Promotions LLC. Litigation continues against Gotra and Alliance, formerly known as Versatile Marketing Solutions, Inc.; VMS Alarms; VMS; Alliance Security; Alliance Home Protection; and AH Protection.
Source: FTC.gov
