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Fraud at Credit Bureaus Alleged

Prosecutors say insiders were bribed by a Riverside firm to boost its clients' scores. Five people are indicted.

August 31, 2004|E. Scott Reckard | Times Staff Writer

A Riverside credit-repair firm bribed corrupt employees at credit bureaus in an unprecedented scheme to inflate the financial standing of hundreds of clients, causing lenders to lose at least $6 million, federal prosecutors said Monday.

Prosecutors said insiders expunged damaging credit information from files at TransUnion, Equifax Inc. and the Experian subsidiary of GUS -- companies whose credit scores are crucial to about 30,000 lenders and other businesses across the nation.

A federal indictment returned by a Santa Ana grand jury this month named three Southern Californians and two New Jersey residents in the alleged fraud that took place for a year beginning in February 2001.

Costa Mesa-based Experian said it triggered the probe in early 2002 after it caught and fired a Dallas employee who was part of the scam.

The employee, Dolores Guerrero, was paid $300 to $500 a week to falsify files, said Assistant U.S. Atty. Douglas F. McCormick. She pleaded guilty to fraud in May and is serving a prison term of more than three years, McCormick said.

The Aug. 4 indictment, listing 16 counts of fraud and conspiracy, named Mickey Lynn Manning, 44, the alleged ringleader, and her husband, Ross Smith, 37. They allegedly operated the scam through their Riverside-based company, Second Chance Financial Services, a firm specializing in improving people's credit ratings.

The couple's attorney, Howard Beckler, said they planned to surrender, plead not guilty and be released on bond Thursday. He declined to comment further.

Also charged was former TransUnion employee Marcus Brandon Betts, 31, of Ontario, who was arrested Friday and released on $20,000 bond Monday. He didn't return a call seeking comment, and his attorney couldn't be reached.

The other defendants are New Jersey residents Jamila Takiyah Davis, 26, and Jose L. Crespo, 38, who were arrested Thursday and released on bond.

They were charged with working through legitimate financial firms in New Jersey to inflate consumer credit scores by reporting phony loans and loan payments to the credit bureaus. Their attorneys said they expected to plead not guilty in Santa Ana federal court. .

Crespo's attorney, Rene Medina, declined to comment further, saying he hadn't had time to study the indictment or discuss it with his client. Davis' attorney, Thomas Nooter, said her role in the case was negligible.

Consumer credit experts expressed concern over the alleged breach of security. "It compromises the single-most important source of information that lenders use to make credit decisions," said Scott Gable, senior vice president of the consumer credit division of Wells Fargo & Co.

In the past, credit bureau information has been misused to commit identity theft, authorities said. But neither prosecutors nor consumer advocates could recall a case in which insiders at credit bureaus systematically falsified credit files.

"It raises a lot of issues about the security of the credit-reporting industry and whether or not its systems are adequate to ensure the maximum possible accuracy," said Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Equifax spokesman David Rubinger in Atlanta declined to comment but noted that the indictment didn't identify any Equifax employees by name. TransUnion said no one was available to discuss the case.

Experian spokesman Donald Girard said the unusual nature of the fraud and the fact that his company's own monitoring systems first detected the anomalies in Guerrero's work showed that the industry's security measures were sound.

Falsifying credit files is "kind of like counterfeiting the new bills," Girard said. "You can try it, but it's hard to get away with it with all the shape-shifting holograms and embedded threads."

He said Guerrero, who had worked at Experian for three years when the fraud was detected, passed a rigorous screening before being hired and was one of relatively few employees authorized to change information in consumers' files.

The credit bureaus collect information about consumers' payment habits from financial institutions, then sell this information to lenders and other companies in the form of credit scores. Credit-repair firms are typically hired by consumers whose checkered bill-paying history has left them unable to qualify for loans.

The indictment said more than 50 businesses lost a total of more than $6 million extending credit to people whose credit ratings were inflated and who defaulted on their debts. Some of the beneficiaries of the fraud were aware that their credit scores were improperly inflated, said McCormick, the prosecutor.

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Times staff writer Kathy M. Kristof contributed to this report.

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