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Car Sublease Scam Figure Gets 3 Years : Courts: Orange County man is sentenced in the first prosecution under a law to ban a once-booming business.


In the first prosecution under a 1988 state law that effectively outlawed the once-booming--and often-abused--business of auto subleasing, Thomas Charles Carter of Lake Forest was sentenced Friday to three years in prison.

In an Orange County Superior Court trial late last year, a former employee testified that Carter defrauded clients of more than $1 million during the two years he operated his subleasing business, U.S. Financial. Carter closed the Santa Ana firm after his arrest in 1990.

Superior Court Judge Kathleen O'Leary allowed Carter to remain free on $25,000 bail pending appeal of his Nov. 20 conviction under the anti-subleasing law. The law makes it a felony for a third party to arrange a motor vehicle sublease without the lender's consent.

Companies such as U.S. Financial thrived in the late 1980s and early '90s. They promised to find financing for potential car buyers with poor credit, matching them with people trying to sell cars or trucks on which they still owed money.

The subleasing companies charged the buyer a substantial loan procurement fee--as much as $5,000--and then arranged for the buyer to sublease the seller's vehicle until the loan was funded.

Buyers were told that a portion of the fees would be used as down payment on the vehicles; the registered owners were assured that the buyers would assume responsibility for the monthly payments.

But in many cases the loans never materialized, the subleasing agents pocketed the fees and the sellers found themselves in trouble with their banks because the sublease clients stopped making payments.

It was because of such abuses that the Department of Motor Vehicles and the state attorney general's office pushed for a 1988 law that made many subleasing activities illegal.

Until Carter's trial last year, attorneys for subleasing companies had filed numerous challenges to the law. All were rejected. Several other subleasing operators arrested for violating the law pleaded guilty without trial, so Carter's emerged as a test case.

Although subleasing businesses operated in Los Angeles and other areas, the industry seemed to be centered in Orange County, said Rande King, a DMV special investigator.

Most of U.S. Financial's clients were from Los Angeles and Orange counties, according to James Coulter, the deputy district attorney who prosecuted Carter.

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