The Minnesota Department of Commerce Wednesday announced that it recently took action to shut down and place into receivership two collection agencies it says were collecting without proper licensing and operating out of trust, with trust account balances near or below zero.

The Commerce Department said that this past summer it began an investigation into ARM companies Receivables Management Solutions, Inc. (RMS) and Wentworth Assets, LLC, and their owner Robert Dunham. As part of its investigation, the state uncovered 40 separate dates from June 2012 to January 2013 where RMS’ trust account had either a zero or negative balance.  Under Minnesota law, collection agencies are required to establish a separate trust account to hold the money they collect on behalf of their clients to ensure that the money collected is not co-mingled with money for operating or other expenses.

The Commerce Department alleges that Dunham not only violated Minnesota law by comingling money for operating expenses and money collected for its clients in one account, but that the funds in the account were used for personal expenses.

[UPDATED 1:08pm Eastern to include statement from Dunham]

Dunham told in a statement that the Commerce Department is not correctly presenting information in the case. “As to the alleged charges made by the Minnesota Department of Commerce, I would like to state I plan to vigorously defend myself of these charges,” said Dunham. “What the Department fails to identify is the fact I sold the assets and client base of RMS as of April 1, 2013. Many of the allegations made about personal items purchased were made after the sale. I am confident once all the facts are discovered and considered it will shed a different light on this matter.”

Dunham recently wrote a piece titled “The Death of an Agency,” for his column in Collection Advisor magazine that detailed recent issues at his company which resulted in its closing, but does not mention an investigation.

The violations listed in the action also detail that Dunham and RMS refused or intentionally failed to account to their 4,966 clients (as of May 9, 2013) for all of the money collected on the clients’ behalf within 30 days from the last day of the month in which the money was collected.  The state further alleges that Dunham ordered RMS staff on at least two occasions to fabricate checks from consumer bank accounts to help cover RMS’ payroll.  Additionally, it is alleged that upon Dunham’s order RMS employees deposited post-dated checks from consumers prior to the check date, which resulted in financial problems for the affected consumers.

During the investigation, Dunham acknowledged that he let RMS’ license lapse because the company had a “net worth of over a negative million dollars” and could not afford the required surety bond to obtain a license. But Minnesota regulators say that the companies continued to operate without a license and entered into at least 1,212 new debt collection contracts with clients between August 8, 2012 and May 2013.

The Commerce Department said that RMS and Wentworth have been placed into receivership. By court order, debt collection companies are placed into receivership in order for the court-appointed receiver to manage the business, obtain a full accounting of the total amount of money the businesses collected for clients, the amount of money owed to clients, and the amount of money actually collected from consumers to pay off their debt.


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