Federal Court Hands Down Final Judgement Against Debt Relief Company, Ending Lawsuit
A final judgement against a debt relief company resolves an August 2013 lawsuit brought on by the Consumer Financial Protection Bureau (CFPB).
As part of the judgement against Morgan Drexen the company is banned from collecting any more money from its customers and must pay about $132.9 million in restitution and a $40 million civil penalty. A final judgement against Morgan Drexen owner Walter Ledda was approved in October.
Ledda founded the company in 2007. In 2013, the CFPB sued the company for violating the Telemarketing Sales Rule and the Dodd-Frank Wall Street Reform and Consumer Protection Act by charging illegal upfront fees for debt relief services and misrepresenting their services to consumers.
When consumers signed up for Morgan Drexen's services, the company presented them with two contracts, one for debt settlement services, and the other for bankruptcy-related services. Based on its investigation, the Bureau brought suit alleging that consumers who signed up sought services for debt relief and not bankruptcy, that little to no bankruptcy work was actually performed for consumers, and that the bankruptcy-related contract Morgan Drexen presented to consumers was a ruse designed to disguise impermissible upfront fees for debt relief work.
In January 2015, weeks before trial was scheduled to start, the Bureau learned that Morgan Drexen had created and altered bankruptcy petitions that it submitted to the court as evidence of having provided bankruptcy services.
The CFPB informed the court of its findings and filed a motion seeking the sanction of default judgment against the company. After hearing testimony from Ledda, other Morgan Drexen representatives, and a whistleblower who exposed the company's conduct, the court issued an order in April 2015 finding that Morgan Drexen misled the court and, "acted willfully and in bad faith by falsifying evidence." On the basis of its findings, the court sanctioned Morgan Drexen by entering default judgment against the company.
Because Morgan Drexen has declared bankruptcy, any payment of this judgment will occur through the bankruptcy process.
Ledda must pay $500,000 to the CFPB for consumer redress, surrender additional assets, and leave the debt relief industry. If the court finds that Ledda misrepresented his financial situation or otherwise violates the court order, he will be required to pay the full $99 million judgement and $20 million civil penalty.
A copy of the court's final judgment against Morgan Drexen and Walter Ledda can be found here.