In 2013, the Consumer Financial Protection Bureau (CFPB) sued debt settlement company Morgan Drexen for collecting illegal “upfront fees” for debt settlement services and for running deceptive advertisements. Shortly before that, the company filed suit against the CFPB, challenging the agency’s investigative authority. The CFPB prevailed in its lawsuit: in April 2015, a federal court ruled against Morgan Drexen and found that the company misled the court and falsified evidence during the lawsuit. Morgan Drexen went out of business in late June 2015 after filing for bankruptcy.
This week, at the request of the CFPB, a federal district court entered a final judgment against debt relief company.
The court found that the company violated federal law, prohibited Morgan Drexen from collecting any further fees from its customers, and ordered it to pay $132,882,488 in restitution and a $40 million civil penalty. This decision follows a stipulated final judgment against Morgan Drexen’s president and chief executive officer, Walter Ledda, that the court approved in October. The court found that Ledda violated federal law, banned him from providing debt relief services, and required him to pay restitution and a civil money penalty.
Final Judgments Against Ledda and Morgan Drexen
The court’s March 16, 2016 final judgment against Morgan Drexen memorializes its June 2015 conclusion that the company violated federal law, and its ruling that the company may not collect any more advance fees for debt relief services, or any more fees at all from its customers. The final judgment also orders Morgan Drexen to:
- Pay $132,882,488 in restitution: Morgan Drexen is required to pay this amount to borrowers who enrolled in the company’s program between Oct. 27, 2010, when the federal ban on upfront fees went into effect, and June 18, 2015, when Morgan Drexen stopped selling debt relief services.
- Pay a $40 million civil penalty: Morgan Drexen must pay this amount to the CFPB’s civil penalty fund.
Because Morgan Drexen has declared bankruptcy, any payment of this judgment will occur through the bankruptcy process.
The court’s October 2015 final judgment against Walter Ledda contains similar findings and injunctive and monetary relief. In that judgment, the court found that Ledda and Morgan Drexen violated the Telemarketing Sales Rule and the Dodd-Frank Act by charging consumers illegal upfront fees for debtrelief services, and by making deceptive statements about the company’s services. Under the terms of the final judgment, Ledda will:
- Pay $500,000 to the CFPB for consumer redress: The final judgment requires Ledda to pay $500,000 to the CFPB for use in providing redress to consumers.
- Surrender additional assets: The final judgment requires Ledda to turn over additional assets to the Morgan Drexen bankruptcy estate.
- Pay a civil money penalty: Ledda is required to pay $1 to the CFPB’s Civil Penalty Fund. The Bureau did not require Ledda to pay a larger penalty because of his limited financial resources after repaying harmed consumers.
- Exit the debt relief industry: The court has permanently banned Ledda from providing debt relief services or otherwise working in the debt relief industry.
The court also imposed a $99 million equitable money judgment and $20 million civil money penalty against Ledda, both of which are in large part suspended based on Ledda’s inability to pay. If Ledda fails to make any of the required payments or turn over his assets, or if the CFPB discovers Ledda misrepresented his financial condition, the full $99 million judgment and $20 million penalty will become due immediately.
Attorneys Found In Contempt
After the court’s June 2015 order prohibiting Morgan Drexen from charging fees for debt relief services, two attorneys, Vincent Howard and Lawrence Williamson, took the reins of Morgan Drexen and continued the company’s unlawful conduct. Among other things, Howard and Williamson:
- Hired more than 50 former Morgan Drexen employees, including the company’s former owner and chief technology officer, and former chief financial officer;
- Continued to charge fees to harmed consumers pursuant to the same contracts under which Morgan Drexen charged the consumers unlawful fees; and
- Provided consumers misleading information about Morgan Drexen’s shut-down and contradicted the advice in court-approved letters about how consumers could protect themselves in light of Morgan Drexen’s unlawful conduct.
When the CFPB learned of Howard and Williamson’s actions, it filed a motion requesting that the court hold the attorneys and their law firms in contempt of the court’s order. In October 2015, the court found that the attorneys’ conduct had violated the court’s order, and held the attorneys and their law firms in contempt. The court ordered the attorneys to return all payments they had received from former Morgan Drexen consumers since the court’s June 2015 decision to ban Morgan Drexen from receiving such fees. The court also ruled that the attorneys will be fined $10,000 a day for each day they continue to accept fees from former Morgan Drexen consumers. The attorneys have appealed this order.
A copy of the court’s final judgment against Morgan Drexen and Walter Ledda can be found here.
A copy of the civil minutes regarding the judgment can be found here.
A copy of the court’s contempt order concerning the attorneys can be found here.