A tip sent to me at [email protected] told me to go look at a particular legal case for some shocking information about the debt settlement company, Johnson Law Group. Man, this story proves that truth is stranger than fiction.

The text of the complaint might take a few minutes to read but trust me, the story is a good one.

And it’s a good case to read because it shows us how attorney model debt settlement companies can be manipulated and controlled by non-lawyers for their own personal gain.

In this alleged case we have a felon convicted of grand larceny, enterprise corruption, and criminal possession of stolen property that is controlling the actions of an entity that holds itself out as an attorney run debt settlement company and the felon and his partner have run off with 5,000 of client funds that are supposed to be held on deposit in the trust account. The attorney that is supposed to be watching over these clients has been threatened with physical harm and blocked from entering his office, phone and email.

Here is how Johnson Law Group describes themselves on the web.

We are a law firm whose services include debt settlement and bankruptcy. Our job is to analyze your debt situation and provide you with appropriate debt relief options. We do not hold your money in our account. The goal of our debt settlement program is to resolve your indebtedness through compromised settlements or through bankruptcy, whichever is best suited to your needs. There is a fee for our services, but we only accept clients who have the potential to achieve significant financial benefits from participating in our debt settlement program and our fees are figured into the monthly set-aside amounts to which you and your debt analyst agree. Our program allows you to pay only a portion of what you owe and helps you resolve your obligations usually in months rather than years. – Source

Knowing what they say on their site, read the complaint below by the attorney that is supposed to be in charge of this law group and I think you’ll come away saying the marketing on their site appears to be false and things are really, really broken at the Johnson Law Group.

If all the allegations are true from the complaint then, in my opinion, no Johnson Law Group client should have any belief they have a confidential relationship with an attorney, their personal information is protected, the sales people represent the attorney, or money deposited with Johnson Law Group is safe.

@GetOutOfDebtGuy

This story comes from the complaint filed by Johnson Law Group, a Nevada professional corporation, and Anan Mark Eldredge against Advanced Client Solutions, a Nevada LLC, Kenneth Kestenbaum and Paul Costantinou.

Jurisdictional Statement

1. JLG, at all times relevant herein, was a Nevada professional corporation duly authorized and existing under the laws of the State of Nevada, with its principal place of business in Clark County, Nevada.
2. Eldredge, an individual, at all times relevant herein, was a resident of Clark County, Nevada. Eldredge owns ninety-nine percent (99%) of JLG.
3. ACS, at all times relevant herein, was a Nevada limited liability company duly authorized and existing under the laws of the State of Nevada, with its principal place of business in Clark County, Nevada.
4. Kestenbaum, an individual, at all times relevant herein, was a resident of Clark County, Nevada. Kestenbaum owns seventy-seven percent (77%) of ACS.
5. Constaninou, an individual, at all times relevant herein, was a resident of Clark County Nevada. Constaninou owns twenty-three percent (23%) of ACS.

Relevant Facts

Eldredge is an attorney who was admitted to practice in the State of Nevada in May, 2006. After being admitted, Eldredge was employed by the Johnson Law Group, a California professional corporation qualified to conduct business in the state of Nevada (“JLG California”). JLG California was owned by two veteran California attorneys, Douglas Crowder (“Crowder”) and William Johnson “Johnson”), as to ninety-nine percent (99%) together, and one Florida attorney, Bertran Bosman (“Bosman”), as to one percent (1%).

JLG California was a debt relief law firm that provided debt settlement and debt management services (the “Legal Services”). Although incorporated in California, JLG California’s offices were located in Las Vegas, Nevada. Defendant Kestenbaum, via ACS, functioned as JLG California’s firm administrator.

From the time Eldredge commenced employment with JLG California in 2006, JLG California appeared to be growing and have potential to become highly successful.

In August of 2007, Crowder and Johnson informed Eldredge that they were leaving JLG California. Eldredge later learned the reason for their departure was an inability to work with defendant Kestenbaum. Eldredge succeed to the remainder of Crowder’s and Johnson’s seventy-four percent (74%) interest in JLG California, thereby making Eldredge the owner of ninety-nine percent (99%) and Bosman the owner of one percent (1%) of JLG California.

In December 2009, JLG California merged with JLG, a newly formed entity for the purposes of the merger, thereby dissolving JLG California. With the merger, JLG replaced JLG California in any agreements JLG California had entered prior to the merger.

After Eldredge became a ninety-nine percent (99%) owner of JLG California (now JLG), he became aware of a “Service Agreement” JLG California had entered with ACS in October of 2006 (the “services Agreement”). The Services Agreement purportedly allows ACS to handle the administrative functions of JLG. For the first time, Eldredge became aware that Kestenbaum, via ACS, was not simply the firm administrator, but controlled JLG’s administrative and non-attorney personnel, among other things.

Under the Services Agreement, ACS would provide JLG with “the necessary support to manage the business aspects” of providing debt settlement services, including providing “facilities, furniture, fixtures, equipment, non-professional personnel, clerical and billing services, collection claims pursuit and general administrative services.”

ACS’s specific duties under the Services Agreement included:

1. Providing non-legal administrative support staff;
2. Developing administrative policies for the overall operation of JLG;
3. Consulting with and keeping JLG informed as to policy matters and other major decisions affecting legal services, including assistance in resolving complaints, grievances and disputes concerning the Legal Services provided to clients and/or third parties;
4. Providing JLG with a law firm facility or facilities (the “Law Firm Facility”) and entering into the necessary lease for the Law Firm Facility;
5. Paying all rent and amounts due under any lease and paying for the Law Firm Facility’s equipment, telephone, electric, gas and water utility expenses, and all other costs and expenses incurred at the Law Firm Facility.
6. Providing JLG with all equipment reasonable and customary for JLG’s operation;
7. Recruiting, hiring, and supervising an office administrator and other non-professional personnel reasonably necessary for the efficient operation of the Law Firm Facility, including technical personnel, receptionists, marketing personnel, and janitorial and maintenance personnel;
8. Arranging for payroll service to pay all compensation due employees and independent contractors;
9. Providing JLG with a method of bookkeeping;
10. Providing JLG with a collection report every two weeks specifying: (i) total gross billing for the preceding two weeks; (ii) total gross receipts for the preceding two weeks; and (iii) an accounts receivable aging schedule indicating accounts receivable agings for 30, 60, 90 and over 120 days;
11. Providing JLG with financial statements for its operations and data necessary JLG’s preparation of its federal or state income tax returns;
12. Ordering and purchasing all office and related supplied required in the day-to-day operations of the Law Firm facility and furnishings or obtaining business cards, stationary, forms, telephones and postal services.
13. Billing for all services rendered by JLG and serving as billing and collection agent; and
14. Depositing all monies representing earned fees or non-refunable retainers received by JLG into JLG’s operating account, and all monies representing unearned fees or funds to be paid to other parties received on behalf of JLG into JLG’s trust account.

ACS is not a law firm; Kestenbaum and Constantiou are not attorneys. Nonetheless, the Services Agreement gives ACS and its owners unfettered control over JLG’s operations and finances.

The Services Agreement also allows ACS to maintain operational and trust checking accounts in JLG’s name, and states that ACS “shall be a signatory on both accounts, with the right to make deposits and withdrawals to and from the accounts.” It further expressly authorizes ACS to disburse from JLG’s operating account ACS’s “compensation and all other costs, expenses and disbursements which are required or authorized” by the Services Agreement.

The Services Agreement outlines a complicated compensation formula for ACS defined as the “Administration Fee.” The Administration Fee is a monthly sum of $500,000 less the “Company Holdback,” as defined in the Services Agreement.

Per the Services Agreement, each calendar quarter, ACS must calculate JLG’s profit for the quarter based on the formula set forth therein, and ACS will pay JLG “a rebate” from a portion of the Administration Fee equal to twenty-five percent (25%) of JLG’s profits for each quarter. In other words, ACS, a non-lawyer, takes every penny JLG earns, and, if JLG makes a profit as determined by ACS, ACS “rebates” JLG twenty-five percent (25%) of that amount quarterly.

The Services Agreement was drafted by lawyers. It provides:

[ACS] shall not interfere with the exercise by the Professional (attorneys) of their professional judgment, nor shall [ACS] interfere with, control, direct or supervise and Professional (attorneys) or any individual whom and Professional may employ or contract with in connection with the care and treatment of [JLG's] clients. [ACS] shall have no authority whatsoever with respect to the establishment of fees for the rendition of such services.

Despite this ostensible limiting language, ACS and its owners exercise absolute power over JLG and Eldredge. Defendants have free reign over JLG’s bank accounts, including JLG’s operating and client trust accounts.

On information and belief, defendant Constantiou is a felon for inter alia, grand larceny, enterprise corruption, and criminal possession of stolen property. Both Kestenbaum and Constantiou are signers on virtuality all JLG accounts.

ACS controls the receipt of payments from JLG clients and any other sources and ACS controls payments to all vendors. ACS also controls payment from JLG to ACS. At Kestenbaum’s and Constantiou’s direction, ACS routinely transfers sums up to $75,000 from JLG’s operating account to its own account.

Each month, regardless of the income JLG receives in its operating account, ACS transfers that amount to its own account.

Plaintiffs have demanded an accounting from defendants in excess of fifty (50) times. Defendants have refused and continue to refuse plaintiffs’ demands.

Defendants’ alleged justification for routinely draining the JLG operating account is their alleged entitlement to an Administration Fee under the Services Agreement.

Defendants Kestenbaum, Constantiou, and their friends’ lavish lifestyles are all supported under the guise of “company expenses,” all of which ACS directly withdraws from JLG at Kestenbaum’s or Constantiou’s discretion. Although ACS must “rebate” twenty-five percent (25%) of JLG’s profits each quarter to JLG, it never does so because JLG never has a profit. JLG never has a profit because defendants charge every trip, travel expense, food expense, lodging expense, and other lavish purchases directly to JLG. JLG has no ability to see the detail of these expenses because ACS simply pilfers all funds directly from JLG’s accounts.

Despite plaintiffs’ belief that payment of the Administration Fee as structured is prohibited by the ethical rules, plaintiffs have been unable to stop defendants from withdrawing funds in defendants’ sole and absolute discretion.

In late 2008, defendant Kestenbaum informed plaintiff Eldredge that the JLG trust account was deficient by $185,000. Kestenbaum admitted that he and his co-defendants failed to transfer client payments from JLG’s operating accounts to JLG’s trust account as they were occasionally obliged to do. instead, ACS kept the money and spent it, resulting in the $185,000 deficiency.

Plaintiffs demanded that ACS immediately cure the deficiency, and cease taking disbursements above what was essential to operate ACS and JLG until the trust account was replenished.

Defendants refused plaintiffs’ demands, and have continued to pillage JLG’s operating account. Defendants have also otherwise utilized unscrupulous accounting methods to attempt to conceal the deficient funds.

The individual defendants threatened Eldredge with physical harm unless plaintiffs agreed to sign certain documents or take certain actions.

Defendant Kestenbaum consistently threatens to close the Law Office Facility if plaintiffs do not capitulate to his demands. Because plaintiffs would not acquiesce to certain demands, defendants have closed the Law Office Facility multiple times in the past, to the great detriment of plaintiffs and plaintiffs’ clients.

Defendants’ closing of the Law Office Facility rendered plaintiffs helpless to assist clients because defendants control JLG’s database of clients, all technology including e-mail and phones, and the Law Office Facility.

Defendant Kestenbaum has threatened to reduce Eldredge’s salary, notwithstanding consistently increasing his own and Constantiou’s salaries to a combined total exceeding $36,000 per month.

Despite ACS’s duty to provide non-legal administrative support staff under the Services Agreement, defendants have reduced the number of employees available to service JLG as necessary for JLG to function. Defendants refuse to hire additional employees.

Despite ACS’s duty to consult with and keep JLG informed as to policy matters and other major decisions affecting the legal services, including assistance in resolving complaints, grievances, and disputes concerning the legal services provided to clients and/or third parties, defendants do not consult with and keep JLG informed, instead unilaterally making such major decisions with plaintiffs knowledge.

Despite ACS’s duty to provide JLG with a Law Office Facility and equipment customary for JLG’s operation, defendants unilaterally revoke JLG’s access to the Law Office Facility and equipment at their whim if plaintiffs do not succumb to defendants’ demands, no matter how outrageous those demands are.

Despite ACS’s duty to provide JLG with specific financial information, defendants refuse to do so after innumerable requests.

Despite ACS’s duty to deposit monies accordingly into JLG’s operating and client trust accounts, defendants failed to do so and misappropriated $185,000 from JLG’s trust account, without justification. Defendants have failed to replenish the client trust accounts after their misappropriation, and have instead attempted to conceal their theft.