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Finance Firm Settles FTC Fraud Charges

Leasecomm agrees to cancel judgments against customers it allegedly had scammed with deceptive business opportunities.

May 30, 2003|Hanah Cho | Times Staff Writer

More than 850 Californians will be cleared of $3.4 million in court judgments obtained by a Massachusetts finance company that allegedly scammed thousands of customers nationwide with deceptive work-at-home and Internet business opportunities.

Federal regulators said Thursday that Woburn, Mass.-based Leasecomm Corp., a subsidiary of MicroFinancial Inc., agreed to cancel a total of $24 million in judgments against its customers to settle charges brought by the Federal Trade Commission, seven states and the Ventura County district attorney's office.

Under the settlement, Leasecomm also must pay a $1-million fine to cover the states' legal and law enforcement fees. Its attorney, Richard McCarthy, said Leasecomm denies wrongdoing and settled to avoid the expense of a continuing investigation.

The FTC said Leasecomm used "shady third-party agents, deceptive contracts and false claims" to lure would-be entrepreneurs. The company financed business opportunities that were sold by third-party vendors, according to the FTC.

One of those vendors was now-defunct Roma Computer Solutions of Oxnard, said Mitchell Disney, a Ventura County senior deputy district attorney.

Roma marketed Internet business packages through seminars at hotels, promising customers quick cash. The packages, which cost as much as $6,000, included an outdated computer, Web site design software, presence in an "online mall" and a merchant account for accepting credit cards, Disney said.

The Ventura County district attorney's office had received more than 125 complaints about the marketing and performance of the products. While investigating the operation in late 2001, county officials found that more than half of the 3,000 packages sold by Roma were leased by Leasecomm, Disney said.

The FTC's complaint accused Leasecomm of drafting its contracts in such a way that customers paid even when the vendors used misrepresentations or the products failed to perform.

In one case, a vendor signed up 1,882 customers for a business opportunity, but nearly 1,500 went into default, the FTC said.

"Companies that try to hide behind the fine print in contracts and lie to consumers about what they were signing, whether directly or through agents, simply do not pass muster," said Howard Beales, director of the FTC's Bureau of Consumer Protection.

When customers failed to pay, Leasecomm sued them, according to the FTC. Because the contracts allowed Leasecomm to sue its customers in Massachusetts and customers often weren't able to make the trip to that state, the company won many default judgments in the last three years.

Under the settlement, customers still facing lawsuits can have the cases moved to a local jurisdiction, which would allow them to contest the suits.

Karen Brace, owner of a Westlake Village voicemail and on-hold message recording business, was sued by Leasecomm in December.

Brace, who leased a credit card processing machine through Leasecomm, said that although she followed her contract to the letter, the company claimed she still owed money when she canceled her lease in November 2001.

By February 2002, she was receiving at least one phone call a week and numerous notices demanding that she pay. Brace said she feared she would lose her home and business as well as be forced to file for bankruptcy protection.

With the settlement, Brace said, she finally can resolve her mess. "I have to make sure my credit is cleaned up and made whole again," she said. "I have to move on."

Associated Press was used in compiling this report.

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