The Federal Trade Commission has settled its largest case involving deceptive credit counseling and debt management brought by the agency. Andris Pukke, founder ofAmeriDebt, Inc.and a related company, DebtWorks, Inc.
The agreement, if approved by a federal court, would require Pukke to give up virtually all of his assets for a consumer redress program for victims of the deception, a fund that ultimately could total as much as $35 million.
The agreement also bars Pukke permanently from engaging in credit counseling, debt management, and credit education activities, prohibits him from violating the Telemarketing Sales Rule, and prohibits him from engaging in other conduct in connection with telemarketing.
"Our case alleges that these defendants used their credit counseling business to deceive nearly 300,000 consumers about the services they provide, the fees they charged, and their status as a non-profit company," said Lydia B. Parnes, director of the FTCs Bureau of Consumer Protection. "This settlement bans the defendants from the credit counseling business permanently and requires them to give up the money they made from this scheme."
The settlement ends more than two years of litigation against Pukke, effectively securing virtually all of his personal assets, including homes in Miami Beach and Southern California, for use as consumer redress.
The settlement also settles the claims of a nationwide class action, which had been consolidated for trial with the FTCs case.
A receiver, appointed by the court in April 2005, to identify and maintain Pukkes assets, has collected property worth millions of dollars, and the order authorizes him to continue his efforts to locate additional assets.
Any amounts the receiver collects, up to $35 million, would go into the redress fund under the settlement. If the receiver collects assets worth more than $35 million, the excess would go into the bankruptcy estate that was created when Pukke filed for bankruptcy last July.
The Case
In a complaint filed in November 2003, the FTC charged that AmeriDebt, Inc.; DebtWorks, Inc.; and Andris Pukke deceived consumers with claims that AmeriDebt was a nonprofit organization and that it provided counseling services to consumers seeking to get out of debt.
The FTC charged that, rather than operating for charitable purposes as advertised, AmeriDebt funneled profits to affiliated for-profit entities and individuals, including DebtWorks and Pukke. The complaint also charged that the defendants did not provide counseling services, but simply enrolled every customer in a debt management plan (DMP).
According to the FTC, AmeriDebt also deceived customers when it claimed that it did not charge an up-front fee. Instead, the complaint alleged, AmeriDebt kept its clients first payment under their DMPs as its own fee, rather than disbursing the money to consumers creditors as promised. The complaint charged these practices were deceptive in violation of the Federal Trade Commission Act.
In June 2004, AmeriDebt filed for bankruptcy relief. At the request of the FTC and others, the bankruptcy court removed existing management and appointed a trustee to oversee AmeriDebt. In March 2005, AmeriDebt settled the FTCs charges by, among other things, agreeing to shut down its debt-management operations.
In April 2005, at the FTCs request, the court froze the assets of Pukke and DebtWorks, and appointed a receiver to locate and marshal their assets. Andris Pukke filed for bankruptcy in July 2005, and subsequently the District of Maryland court stayed the bankruptcy case pending the outcome of the FTC trial.
Pamela Pukke, Andris Pukkes estranged wife, was charged as a relief defendant in the case and settled with the Commission in December 2005, by releasing her claims to certain assets and by agreeing to cooperate with the Commission regarding its ongoing actions involving Andris Pukke and DebtWorks.
The settlement imposes a $172 million suspended judgment against the defendants, which will be triggered if they do not comply with the order. In addition, the monetary judgment is based on financial statements provided to the Commission by the defendants; the order requires them to turn over the value of any asset omitted from either financial statement.
Further, the order contains the defendants agreement that the assets collected will be held in a constructive trust for consumer victims and used for consumer redress. The Commission, in consultation with the lawyers for the class action, will determine how to set up and implement the redress program. In the event that the money collected instead must go into Pukkes bankruptcy estate, the FTC will hold a $172 million claim against the bankruptcy estate.
