Ameridebt founder on trial

“Credit Firm AmeriDebt Founder Faces Trial
By STEPHEN MANNING (AP Business Writer)
From Associated Press
January 08, 2006 2:33 PM EST
GREENBELT, Md. - With $13,000 in credit card debt, Sandra Gavin was looking for help paying her bills in 1999 when she saw a television ad for a credit counseling company called AmeriDebt. The promise to cut her monthly payments in half while ridding herself of debt seemed just what she needed.

Gavin spoke with a saleswoman and signed up, sending AmeriDebt $521. She thought it was her first debt payment. But a month later, when creditors said she owed late fees for missed payments, she discovered that money was instead a "contribution" to AmeriDebt. For the next two years, she paid a $70 per month contribution along with her monthly payment.

"I thought this woman (the saleswoman) had told me everything on the phone," said Gavin, 60, of Carnegie, Pa., who works as a housekeeper at a hospital. "Nothing was ever mentioned about a contribution."

Gavin is one of thousands of former customers who allegedly paid millions of dollars in upfront fees to the Germantown-based AmeriDebt Inc., once one of the nation's fastest growing nonprofits meant to help Americans staggering under personal debt.

In a lawsuit set to go to trial Tuesday, the Federal Trade Commission claims the company unfairly portrayed itself as a nonprofit, then hid fees from the debtors who signed up. AmeriDebt and a for-profit sister enterprise allegedly reaped $172 million in fees, much of which the FTC says funded the lavish lifestyle of company founder Andris Pukke. (pronounced PUCK-ee)

A U.S. District Court judge will also hear arguments in the same trial from a class-action lawsuit filed against Pukke and his former company by one-time AmeriDebt customers. The Internal Revenue Service is reviewing AmeriDebt's tax exempt status and U.S. Postal Service inspectors are probing possible mail fraud by Pukke's companies. Several states such as Illinois, Texas, Missouri and Minnesota have reached settlements with the company in bankruptcy court.

Pukke has denied the charges in court filings, arguing AmeriDebt never confused or misled customers. He maintains only a fraction of AmeriDebt's estimated 450,000 customers believe they were misled about fees and asserts that the firm saved clients an average of $1,300 each through its debt management plans.

"Clearly, consumers were not misled to their detriment. Clearly, they received a service that they both wanted and needed," his attorneys wrote in a court filing.

Pukke could not be reached for comment and defense attorney John Williams did not return several calls seeking comment. Other former AmeriDebt officials either wouldn't comment or did not return phone messages.

Credit counseling firms help consumers pay down what they owe by consolidating their debts, reducing monthly payments and interest rates in the process. Most are tax-exempt nonprofits.

As credit card debt blossomed in the late 1980s and 1990s, so did the business of credit counseling. In the early 1990s, there were roughly 200, but by 2002, more than 1,000 credit counselors were doing business, according to a 2003 report by the National Consumer Law Center and the Consumer Federation of America.

Alleged abuses also increased. The FTC claims some newer, more aggressive firms, such as AmeriDebt, collected hidden fees from consumers and funneled them to for-profit firms, a violation of their tax exemption. The FTC has filed lawsuits against several other nonprofits.

"They (AmeriDebt) were one of the worst of the new generation," said Deanne Loonin, an attorney with the Boston-based National Consumer Law Center.

Much of the FTC case centers on Pukke, a 36-year-old who amassed a fortune on the business of helping debtors in need. The FTC says he made $70 million off AmeriDebt, using the money for mansions in Maryland and Florida, along with a California home outfitted with $8,000 bed sheets. His girlfriend allegedly received large payments from Pukke's companies even though she never worked for them.

Pukke ran into legal trouble early in his career. In the 1990s, he ran two companies that advertised loans for just $20, regardless of a person's credit history. He agreed to shut the companies down in 1996 after investigators concluded the companies didn't have enough money to make loans to the 1,000 people who sent in $20. Federal prosecutors said a related court order barred him from opening similar businesses in the future.

That year, Pukke founded the nonprofit that became AmeriDebt, which began selling debt management plans on television and through the Internet. But again he had problems. In 2000, AmeriDebt and a sister company settled with the District of Columbia over deceptive marketing. Pukke's companies refunded customer money but acknowledged no wrongdoing.

The FTC alleges that in 1999, Pukke created a for-profit firm called DebtWorks, which he owned. AmeriDebt sold debt-management plans to customers, whose accounts were then shifted to DebtWorks. AmeriDebt's sales team began asking customers for voluntary "contributions" of an upfront payment of 3 percent of the total debt and a $7 per account monthly fee. Customers were told the money was needed to maintain their accounts and help the nonprofit cover its costs.

But few people understood how their contributions would be used and the sales force was urged to be vague, according to John Paul Allen, who worked as a salesman in 2003. Scripts for salespeople mentioned the contribution was voluntary, but Allen said his supervisors told him to push customers to pay the fee. The sales pace was frenetic and bonuses were awarded based on the amount of fees collected.

"They (supervisors) would tell you, `You've really got to push the sale, you've got to make it sound like this contribution is the key to our survival,'" said Allen, a potential witness for the FTC in the upcoming trial.

In court filings, Pukke's attorneys say the fees were clearly outlined to customers, who knew their first payment would go to AmeriDebt. They note the fees were listed on the contract that customers signed and were part of the script read on sales calls.

"AmeriDebt fully informed the consumer about the nature of his or her voluntary contribution as many as four times," Pukke's filings assert.

In 2003, the FTC filed its lawsuit against AmeriDebt, saying those fees were shifted into DebtWorks and used by Pukke for personal expenses. Pukke's estranged wife, Pamela, who was named in the lawsuit for benefiting from the deals, recently settled with the FTC. AmeriDebt filed for bankruptcy in 2004, and its remaining clients were shifted to another credit counseling firm.

Judge Peter Messitte, who will hear the case, froze Pukke's assets last summer after the FTC accused him of siphoning money to offshore insurance companies and Latin American business ventures.

Gavin eventually took a $10,000 loan from her credit union and paid off her AmeriDebt account. She estimates she paid about $2,500 in fees during the two years she was with the firm. Gavin, who is scheduled to testify for the FTC, is still in debt, but says she has learned a valuable lesson.

"The most important thing is when you are in trouble with your debts, you need to have people be honest with you," she said.”

“I wonder if they'll start an AmeriPrison that helps people get out of prison?
last edited: 1/10/06 11:14:53 AM”

“I wonder if they'll start an AmeriPrison that helps people get out of prison?

Yeah but itll cost you all your cigarettes!”