Sued or Sanctioned

Arete Financial Freedom Settlement Business Looks Cooked

Written by Steve Rhode

The case filed by the Federal Trade Commission (FTC) against American Financial Support Services over alleged illegal student loan assistance program issues looks like it has snagged the debt settlement program of Arete Financial Freedom leaving consumers in a very problematic limbo.

How This Happened

The FTC filed suit against the following: “Defendants American Financial Support Services, Inc. (“AFSS”), US Financial Freedom Center, Inc. (“USFFC”) and Jay Singh (“Singh”) (collectively, the “AFS Defendants”) opposed the Motion. Opp’n. 1. ECF No. 48. Defendants Carey G. Howe (“C. Howe”), Ruddy Palacios aka Ruddy Barahona (“Palacios”), and Shunmin “Mike” Hsu (“Hsu”) (the “Arete Individuals”) and Arete Financial Group d/b/a Arete Financial Freedom (“AFF”) and Arete Financial Group LLC (“Arete LLC”) (collectively, “Arete”) also opposed the motion. Opp’n. 2, ECF No. 49. Oliver Pomazi (“Pomazi”) later joined Arete and the Arete Individual’s opposition. ECF No. 69.” There are others named in the original complaint but for this recent court document, these are all that matter for this story.

The reason the Arete Financial Freedom business looks in trouble is that the players in the enterprise are alleged to have acted as a common enterprise. That means while there may have been different companies, they acted together or had an interchange of assets or benefits.

In April 2019 court documents state the Arete that was involved in the problematic student loan assistance market attempted to bail out of it and just focus on the settlement business which they felt was separate.

“The Court notes that Arete and the Arete Individuals argue that they decided to withdraw from the student loan advisory business in April 2019. C. Howe, Decl. ¶ 5. C. Howe declares that Arete “announced this change to [] employees and ceased [] marketing efforts shortly thereafter. I shut down our student loan consulting business website at aretefinancialfreedom.com and redirected it to aretefinancial.org, which is solely dedicated to Arete’s consumer debt settlement services.”

Nice try but…

Will Arete Be Able to Overcome This Fact?

Here is where the issue really sucks in the settlement clients of Arete Financial Freedom.

“Arete and the Arete individuals argue that the private interests of Arete outweigh the public interest because immediately prior to the TRO Arete was an active business focused on consumer debt settlement and not student loans. Opp’n. 49, 23. However, as described above, by its own admission, Arete continues to collect fees from remaining student-loan customers and continues to provide consumers with “recertification services.” C. Howe Decl. ¶¶ 5,7. Such fees and services premised on misrepresentations are evidence that there is a continuing harm to consumers and that such practices are ongoing.”

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“Arete argues that only ten percent of its business and monthly revenue is derived from student loans. C. Howe Decl., ¶ 7. Furthermore, Arete argues that it has a thriving business focused on renegotiating debt settlements on behalf of customers. Palacios Decl., ¶ 3. The appointed receiver has also acknowledged that Arete has shifted its business to consumer debt relief. Hawbecker Decl., Ex. 1. Arete notes that prior to the TRO, Arete was serving approximately 38,000 customer credit accounts on behalf of 7,700 debt settlement clients and employed approximately 150 individuals, 143 of whom work on debt settlement services. Id. at ¶ 4. Arete’s debt settlement programs do not charge customers fees in advance. Id. at ¶ 5. Furthermore, student loan customers pay through a different payment system (World Pay and vPay) than do Arete’s debt settlement customers (who use Debt Pay Gateway) and are reportedly deposited into a different bank account. C. Howe Decl. ¶ 5, 10; Palacios Decl., ¶ 5. However, the receiver’s report identifies transfers of almost $4 million between these accounts during a five month period in 2019. Rec. Reprt., Ex. 27, 2. Additionally, pursuant to the receivership initial accounting records review, “it is not possible to verify the amount of income derived from each of the two business models.” Rec. Reprt., Ex. 27, 2. This is because Arete’s accounting records were inadequately kept with few transactions entered for 2019 (including no deposit history for nine months). Id. at 2. As such, Arete’s accounting records cannot be relied upon.”

“For the foregoing reasons, the Court finds that a freeze to the entirety of the assets of all Defendants is appropriate here.”

Consumers Get Screwed By Underlying Acts

From public records, it seems that while Arete Financial Freedom was trying to operate a compliant new debt settlement program, the pollution of their previous relationships, owners, players, and business entanglement pulled them under.

While Arete Financial Freedom might be doing everything right today, income generated from alleged illegal activities has flowed through or helped support the now compliant settlement efforts.

And there is a difference between claiming to do everything right and what might be discovered. “Arete LLC has violated two state orders by marketing debt relief services without a license.”

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“Here, the F.T.C. has provided evidence that Defendants have dissipated their assets given that the Corporate Defendants transferred over five million dollars to offshore banks and entities. Pl. Ex. 25, 1810-11. Furthermore, the Corporate Defendants’ bank accounts have been used to pay for the Individual Defendants’ cars, travel, personal credit cards, and gambling. Pl. Ex. 23, 1050, 1052, 1097, 1102, 1104; Pl. Ex. 25, 1810. Furthermore, between April 2014 and May 2019, the Corporate Defendants have transferred $10.9 million to the Individual Defendants or the Howe family trust account. Pl. Ex. 25, 1808- 10. Such evidence indicates that there is a likelihood that the claimed assets will be dissipated. This is particularly so where the alleged conduct is premised on misrepresentations. Accordingly, the Court finds that an asset freeze is appropriate here as to the Corporate Defendants.”

What Will Happen Now

The Receiver is in the difficult position of taking over and properly dealing with the assets and businesses.

If the assets used to run the Arete Financial Freedom debt settlement program are frozen and no money is available to run the program, services will cease.

Consumers in the program will be left in limbo as the Receiver and Defendants sort out what to do. This will take time.

Historically, these situations are not sorted out quickly. Consumers get caught in the middle, and the program collapses.

My Advice if You Are a Consumer in This Program

To avoid a lengthy stay in limbo, and the collapse of the settlement program as you knew it, a prudent step would be for consumers to talk to a local bankruptcy attorney to discharge their debt quickly and for a relatively small cost. This will allow consumers to move forward and rebuild their financial life rather than being trapped in a lengthy court fight.

If a consumer wants to continue the settlement approach, they would need to find another company and start over. Current funds may be slow to obtain but if desired, consumers should talk to the escrow company holding their funds. This would essentially terminate their account with Arete Financial Freedom since the settlement funds would be withdrawn. Documents on their case from Arete Financial Freedom may be slow to be recovered, if at all.

There is no good answer here. Just the best or the unfortunate ones.




About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

6 Comments

  • Weren’t you the same dude that posted a blog saying their debt settlement service was screwing them over with Veritas? Now they were doing everything right? Yeah, you sound totally credible and not sensationalist at all.

  • I was duped into their student loan scam. I had a bad feeling about it from the beginning. It just didn’t sit right with me but I did it anyway. They made it look like I would be making the same payment every month and pay my loans off four years early. I even have the papers to prove it.
    However, when I received a notice for my first payment it was three times the amount they told me. I called them immediately and they lowered it to what it was supposed to be.
    After I read about them being investigated and their funds frozen I immediately cancelled my monthly payment.
    I find it odd that this type of thing happens as often as it does and in CA of all States. They always seem to have everyone’s best interests in mind.

    • There is no excuse for any company misrepresenting the facts. However, it is easy to understand why people are attracted to such companies when servicers provide such incorrect information and the Department of Education seems to have no proactive public marketing campaign about the programs that are available.

        • I would suggest you go back and look at your client agreement to see which escrow company was identified for your account. Technically they are not totally closed, just in legal limbo.

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