Major Development: CFPB and U.S. Attorney Collaborate to Bring Federal Criminal Charges Against Debt Relief Company, Principal and Employees
In an unprecedented move, the Consumer Financial Protection Bureau (CFPB) announced on May 7, 2013, that it has made a criminal referral to the United States Attorney for the Southern District of New York. U.S. Attorney Preet Bharara, in conjunction with the CFPB’s announcement of its own civil enforcement action and complaint, simultaneously filed a indictment in a federal district court in New York charging Michael Levitis, his company Mission Settlement Agency, and three employees with mail fraud, wire fraud, and conspiracy to commit mail and wire fraud. Each of the charges carries a maximum 20-year jail sentence.
The defendants allegedly scammed 1,200 customers seeking debt relief out of approximately $2.2 million. “As alleged, Mission preyed upon the financial desperation of people around the country who – like so many ordinary Americans – were simply struggling to pay down their debts after the financial downturn,” Bharara said in a statement.
The indictment alleges Levitis and other Mission employees lied to customers about the terms and costs of Mission’s debt reduction plan. In many cases, the company took no actions to relieve the customers of their debt, but rather pocketed the money intended to go toward debt relief. In total, Mission collected approximately $6.6 million in fees and only paid $4.4 million to customers’ creditors, according to the indictment’s allegations. The criminal charges against Mission, Levitis, and the company’s other employees came as a result from an investigation by the CFPB that opened in July 2012.
The CFPB filed its parallel civil enforcement action against many of the same defendants. The complaint alleges that the “[d]efendants attracted financially distressed consumers through phone calls, mailings, and other solicitations promising substantial reductions in outstanding debts owed to unsecured creditors. In the course of offering their services, Defendants unlawfully collected fees in advance of providing any debt-relief services.” Each of the defendants thereby violated the FTC’s Telemarketing Sales Rule’s advance fee ban. The complaint further alleges that Mission Levitis, engaged in deceptive and unfair practices, in violation of Title X of the Dodd-Frank Act, by misleading consumers, impersonating a government agency, and giving false statements regarding fees for their services.
“Today’s action takes aim at two operations we believe are designed to profit through unscrupulous and illegal business practices,” said CFPB Director Richard Cordray. “Consumers deserve better and we are proud of this coordinated effort with the Department of Justice and U.S. Attorney Preet Bharara to crack down on harmful behavior.” Director Cordray has made it clear that the CFPB will be looking for more opportunities to collaborate with U.S. Attorneys.
Practical Impact
This marks the first time the CFPB has announced a criminal referral in connection with an enforcement action. The referral is a wake-up call for numerous companies operating in the consumer services arena. While the CFPB has, in the past, brought coordinated actions with state attorneys general and regulators like the FDIC, its venture into the criminal realm is unprecedented.
Plainly, companies under the CFPB’s purview must now be acutely aware of the potential for criminal liability following, or in conjunction with, a CFPB enforcement action. This possibility implicates several issues: the breadth of discovery provided to the Bureau as part of any enforcement or regulatory action; the availability of privilege and confidentiality designations; corporate governance; and the need for companies to be nimble in both overseeing their compliance efforts and pivoting from complying with federal regulators to defending against criminal charges.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB. Finally, Troutman Sanders’ White Collar and Government Investigations Practice Group has represented numerous financial institutions, officers, directors, and employees in federal and state criminal investigations.