A tipster (send in your tips here) directed my attention to a recent class action suit file in New Jersey against a whole host of Legal Helper Debt Resolution friends. In fact the suit names the salesperson involved in the sale of these debt relief services. That will be a cold splash of water for many debt relief salespeople.

Here is the list of parties included: Legal Helpers Debt Resolution, The Law Firm of Macey, Aleman, Hyslip and Searns, Eclipse Servicing, Global Client Solutions, Legal Services Support Group, JG Debt Solutions, Rocky Mountain Bank & Trust, Lynch Financial Solutions, Lynch Financial Solutions Legal Center, Financial Solutions Consumer Center, Financial Solutions Processing Center, JEM Group, Century Mitigations, Legal Helpers, Thomas Macey, Jeffrey Aleman, Jason Searns, Jeffrey Hyslip, Thomas Nicely, Joel Gavalas, Amber Duncan, Harry Hedaya, Douglas McClure, and Michael Hendrix.

The suit alleges:

The defendants have created a plan or scheme to defraud the residents of the State of New Jersey and other states by performing unlawful debt adjustment activities and engaging in the unauthorized practice of law in the State of New Jersey. The law firm of Legal Helpers Debt Resolution, L.L.C. and its individual members, recruits, employs and partners with both front-end lead generators and back-end service companies, financial institutions and other attorneys in New Jersey and other states to provide debt adjustment services creating the impression that these services are to be performed or provided by attorneys. In fact, these services are not performed by, nor were they ever intended to be performed by, attorneys.

This unlawful plan or scheme is in violation of the New Jersey Debt Adjustment and Credit Counseling Act, N.J.S.A. 17:16G-1, et seq. since these services are performed by for profit entities or persons not permitted to operate such business in New Jersey under the Act.

Such debt adjustment activity further constitutes the unauthorized practice of law in the State of New Jersey.

Both violations constitute crimes under New Jersey law and are in violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et seq., the New Jersey Racketeer Influenced and Corrupt Organizations Act, N.J.S.A. 2C:41-1, et seq., and other State laws.

The Alleged Facts of the Case

[Note: I bolded or highlighted what I thought were the most interesting parts of the allegations.]

LHDR advertises and markets itself as a national and the nation’s largest debt resolution law firm maintaining partners in offices in all 50 states. It also claims the following:

• It does not practice law in the State of New Jersey under the name of LHDR and all of its services provided in New Jersey to New Jersey residents are through the partnership of Macey, Aleman, Hyslip and Searns, and any office located in New Jersey is an office of Macey, Aleman, Hyslip and Searns.
• It is owned and operated by debt resolution attorneys in every state.
• It works in professional alliance with many of the nations top reputable debt negotiation companies to assist clients as advocates for their rights and has created a cutting edge debt negotiation program to provide consumers with debt resolution services similar to those provided by large corporate law firms for their business clients.
• When potential clients contact LHDR, its attorneys review the customer’s current financial situation and tailor a debt resolution plan that is unique to their situation. LHDR immediately contacts customers’ creditors to inform them to contact LHDR as the customers’ law firm regarding all issues of the customers’ debt. Additionally,
  LHDR has attorneys on staff to protect customers from any harassing debt collectors.

  LHDR makes no promises and will not guarantee it can negotiate customers’ debts to a certain percentage. It is a group of experienced attorneys and trained legal advocates and adheres to the following minimum performance standards: If LHDR does not reduce the customers’ debt by at least 35 percent of what the customer owes, it will refund the customers’ fees for settling that particular debt and still resolve the debt on the customers’ behalf.

• LHDR uses its diverse legal background to look at every client file with unique eyes. Instead of pushing a client into one direction, LHDR discusses all available debt resolution options and tailors a plan for the client. With offices in all 50 states, LHDR has the tools, knowledge and experience to get its clients out of debt.
• LHDR, like a security blanket, will take control of its clients’ debt resolution issues, will contact the clients’ unsecured creditors to advise them that they should only communicate with LHDR as the clients’ attorney. In the event that any creditor or collection agency violates federal laws in regard to their debt collection practicesm, LHDR is prepared to fully represent the client to protect his or her rights under the relevant collection laws.
• LHDR will analyze which debt resolution alternative makes the most sense for the customer and will explain those options to them. In many situations, LHDR will propose the option of debt negotiation or a financial workout plan that the customer can afford. It will review individual circumstances and, if it feels that the customer has made the wrong decision, its attorneys will contact the customer to discuss other options.
• If a customer’s circumstances change or a particular debt resolution plan does not meet the customer’s needs, LHDR is prepared to discuss additional alternatives including the discharge of debts via bankruptcy. The customer will never be without a viable alternative.
• LHDR claims the only way to become a client is through a mutual agreement in a formal engagement letter with the firm and its co-counsel.
• Eclipse advertises and markets itself as a customer-centric one-stop back office solution for debt settlement companies looking to out source their customer service and debt management and negotiation requirements. Its offers debt settlement plans in 48 states, either directly via network of attorneys in those states where non-attorney based debt settlement is prohibited and services customized plans in all 50 states. This technology allows customers of its clients to receive benefits such as real time online account access, electronic signature/documents, archiving and service from a highly trained staff of professional debt negotiators and customer service agents. Its private label back office program includes fully staffed customer service, creditor management, payment processing and a debt negotiation department for the benefit of its clients. It specifically provides:
  1. A 50 state attorney model;
  2. Fees to 15 percent of total debt;
  3. Docu-sign sign-ups;
  4. Custom intranet; and
  5. Text or email status notifications.
• Eclipse offers the following debt resolution plans:
  1. No up-front fee;
  2. Attorney assisted;
  3. Traditional;
  4. Lender based;
  5. Commercial; and
  6. Customized.

  It also offers comprehensive training to its clients.

• Global markets and advertises itself as a service provider to debt settlement companies providing account management services for their customers. It is one of the largest account management companies in the United States and has developed and implemented its account management services specifically for the purpose of debt resolution, utilizing among other things non-interest bearing special purpose accounts (hereinafter “SPA”) which it claims are insured by the FDIC. SPA’s are disbursement accounts where monies are deposited usually through direct deposit arrangements with customers of the debt settlement companies. Monies are disbursed from the SPA’s to pay the fees of the debt settlement companies and creditors. Eclipse claims not to be associated with independent debt settlement companies. It has created some of today’s most cutting edge debt settlement account management products and is recommended by over 500 highly regarded debt settlement companies. These debt settlement companies receive benefits such as improved cash flow with separation of debts and company fees, improved retention rate, decrease in overall servicing costs, less time managing client account information, decrease client set-up time, web-based software interface and open integration with debt management software packages. Disbursement of SPA’s are made only with the approval of the clients of the debt settlement companies, but those companies have access to the account information. Global and Rocky maintain and operate debt management accounts for hundreds of third party businesses that offer debt adjusting services, electronically withdraw funds from a debtors account or receive funds forwarded by other means from the debtor and deposit these funds in a Special Purchase Account in Rocky, administered and maintained by Global. Fees and costs are deducted from a debtor’s SPA which are paid to various parties involved in the debt adjusting plan, such as LHDR, Eclipse, JG, Global, Rocky and other front-end or back-end affiliates of these parties and their employees, agents or servants.
• JG claims to provide a debt settlement program to avoid filing bankruptcy. It describes the program for settling debts as follows:
  

  You will asked to put aside and save a set amount of settlement funds on a monthly basis. This amount will be determined in your initial analysis based on total amount of debt and will be in line with your income and expense budget. Once you have accumulated enough settlement funds, we will make a reasonable offer to your creditors to settle the debt. JG Debt Solutions will begin the negotiation process. Each person’s situation is different and the negotiation process will begin at different times depending on the amount of the debt. Once a creditor has agreed to a settlement amount, we will present this offer to you. If you approve the settlement, we will instruct the creditor to fax over the settlement offer in writing. Then have a three way recorded conversation with you, the creditor and us to settle the account. Debts can be settled in two different ways, one lump sum or a term settlement. One lump sum is just that, one payment and the account is paid. A term settlement is a settlement which is paid over an extended period of time until the account is paid. JG Solutions then moves through each debt until all of your debts have been paid and you are debt free.

  It describes the program as simple, effective and broken down into three steps.

  1. A free debt consultation to review the financial situation and gather the necessary information to put together a customized debt settlement plan.
  2. Work with the customer on a debt relief plan that is tailored especially for the customer. Many different options and payment structures allow the customer to customize his plan.
  3. It will negotiate with creditors to reduce the customer’s debt as low as possible.
• LSSG provides qualified prospects (1) to certain lawyers and law firms who provide legal services to consumers who meet established criteria, (2) to financial coaching and debt education firms and (3) to debt management companies. It enters into agreements with entities or persons who specialize in the marketing and generation of qualified leads of consumers who are experiencing financial issues and may require legal services associated with resolving pending unsecured debt issues, including debt reduction and possibly bankruptcy services, debt management and/or financial counseling or coaching for the purpose of utilizing these entities or persons’ marketing abilities in order to generate qualified leads.
• LHDR has entered into a support services agreement with LSSG which requires LSSG to solicit and enter into marketing agreements with persons or entities as described above who are designated as representatives. These representatives must conform to the terms and conditions required by LHDR in the marketing and generating of qualified leads which are set forth in the agreement between LSSG and the representatives. LSSG pays the representatives a fee based on the enrolled debt of a lead approved by LSSG and accepted for retention by LHDR, for non-legal services provided to and paid by a lead which is known as service costs.
• LSSG is managed by Lynch which markets and advertises itself as a company that provides consumer leads to various debt resolution providers and refers consumers to attorneys nationwide that are committed to providing the highest level of financial relief programs and consumer protection services and have established a highly effective debt resolution process. Lynch is a front end provider of leads in the debt resolution business. Jem Group, Inc. (“Jem”) is a back end debt relief company implementing, managing and maintaining debt relief programs marketed and purportedly performed by front end affiliate debt settlement companies, affiliate lead generators and LHDR. Century Mitigations, L.P. (“Century”) lists its general partner as Consumer Finance Alternatives, Inc. and operates
  similarly to Lynch.

  In September 2009 plaintiff called JG seeking help in reducing her debts to various creditors rather than filing bankruptcy and spoke with Gavalas who explained the debt reduction program and that her credit card debt could be cut in half and paid off within three years. To determine if plaintiff qualified for the program, Gavalas stated he needed information on her income, debts and a social security number so a credit check could be performed. The decision on whether she qualified would be made by Eclipse and a payment program would be prepared for her. Gavalas promised to call plaintiff to advise if plaintiff qualified.

• Gavalas called plaintiff shortly thereafter and advised she had been accepted in the program and could either pay $358.00 per month for three years or $200.00 per month for five years. Plaintiff chose the three year plan and was advised that Eclipse would be emailing her papers enrolling her into the program and arranging for direct withdrawal of payments from her checking account for the monthly fees. Plaintiff was also told she was being represented by attorneys in this process known as LHDR and that if any creditors contacted her she was to advise them she was working with LHDR and any paperwork received from any creditors was to be forwarded to LHDR when it was received. Gavalas then asked a series of questions to which plaintiff had to respond. This part of the call was recorded.

  Plaintiff received documents by email from CustomerServiceAccounts@plansvc.com which stated it was sent on behalf of Customer Service by the Doc-U-Sign online signing service and requested plaintiff review and sign the documents. Plaintiff received the following:

  (a) a power of attorney appointing LHDR her attorney in fact and authorizing LHDR and/or its designees (1) to act as plaintiff’s limited financial advisor and to represent plaintiff in negotiating the modification, reduction, settlement and payment of any and all debts allegedly due and owing in her name; (2) to request and receive confidential credit and account information from creditors, credit bureaus, collection agencies, creditor attorneys and any other third parties who may be possession of such information and could be viewed by plaintiff personally; and (3) to release a copy of the power of attorney to plaintiff’s creditors and agents. The power of attorney listed LHDR’s main office as Sears Tower, 223 South Wacker Drive, Suite 5150, Chicago, Illinois 60606, with administrative offices at 5010 West Carmen Street, Tampa, Florida 33609, the same address as the offices of Eclipse. An email address of cs@plansvc.com was provided.

  (b) a Special Purpose Account application, and account agreement establishing a Special Purpose Account with Rocky Mountain Bank and Trust of Colorado Springs, Colorado, for the purpose of accumulating funds to repay debts in connection with a debt management program sponsored by LHDR. Plaintiff also authorized the bank’s agent, Global, to initiate debit entries to plaintiff’s checking account at TD Bank in the amount of $353.62 per month until further notice. The application advised that Global was the customer service agent for all matters relating to the SPA and questions relating to the program should be addressed to LHDR. Eclipse was listed on the application under the Schedule of Fees and Charges as Eclipse Financial, Inc., 3302.

  (c) an electronic payment authorization permitting LHDR or its designees to process debit entries from plaintiff’s checking account with a $25.00 NSF fee automatically deducted.

  (d) a “welcoming packet” consisting of (1) a pledge to the client’s by LHDR; (2) frequently asked questions and answers; (3) important information from the Compliance Department of LHDR advising, among other things, that LHDR has initiated the procedures necessary to notify creditors that plaintiff is being represented by an attorney, to provide creditors with the phone number of LHDR rather than attempt to negotiate if contacted by a creditor and to send in call logs every two weeks of any telephone calls received from creditors; (4) notice from the Accounting Department regarding a separate account for settlement funds; (5) a procedure to be utilized to respond to creditors and collectors phone calls; (6) instructions on how to handle those calls; (7) information on violations of the Fair Debtor Collection Practices Act; and (8) a blank call log sheet. (e) a retainer agreement between LHDR and plaintiff for legal services relating to advice, counseling, analysis and negotiation services regarding plaintiff’s unsecured debt, and related financial circumstances regarding credit cards and unsecured lines of credit. The agreement states it is between LHDR, any assigns or related entities that may be formed in the future and not any individual, parties, members or employees of LHDR. The agreement provides in part (1) that the agreement does not take effect and LHDR has no obligation to provide any services until the agreement is signed and the flat retainer agreement fee paid; (2) LHDR will negotiate and attempt to enter into settlements with creditors of plaintiff in an effort to modify and/or restructure plaintiff’s current unsecured debt; (3) LHDR shall subcontract certain tasks including negotiations with creditors and collectors and certain customer support responsibilities to a third party and LHDR and other legally trained, licensed personnel will supervise all negotiations and customer support insuring that the these services comply with established procedures (4) that LHDR will not represent plaintiff in any matters before a court or arbitration; (5) in the event a creditor or collector sues plaintiff, LHDR is under no obligation to provide representation but LHDR will discuss specific debt related issues with the client and, if appropriate, offer additional legal service in regard to bankruptcy and other debt resolution services for client’s consideration; (6) the client must forward all correspondence from creditors including collection letters, demands and complaints to LHDR.

• In consideration for the services to be rendered, the client agrees to pay LHDR an initial flat fee retainer of $500.00 for debt review analysis and structuring of a debt resolution plan and a monthly maintenance fee/cost for the debt resolution plan in the amount of $50.00 per month. If LHDR is able to obtain a 65% or greater reduction of client’s total scheduled debt, it shall receive on a contingency fee based on five percent of the amount of debt reduction.
• The implementation, management and maintenance of the debt resolution plan by LHDR shall be performed under the direct supervision of LHDR by Eclipse at a cost of fifteen percent of the client’s total scheduled debt (called the service fee which is to be automatically deducted by LHDR from the client’s bank account), which are not considered legal services. LHDR has a non-exclusive reciprocal referral agreement with FSLC (probably a typographical error – should be Eclipse as the letters FSLC appear no where else in the agreement, nor is there an explanation of what those letters stand for, although they could refer to defendant Lynch’s trade name, Financial Solutions Legal Center) to provide these services under LHDR’s direct supervision.
• A payment and fee schedule is attached to the retainer agreement and incorporated therein requiring the plaintiff to pay $461.05 for the three months beginning September 30, 2009 and $353.62 per month beginning December 30, 2009 until August 30, 2012. From the first three payments, a retainer fee of $166.67 and a service fee of $244.38 is deducted each month. A monthly maintenance fee of $50.00 is also deducted each month. From December 30, 2009 to November 30, 2010, a service fee of $183.28 per month is deducted with any amount in excess of the fees being accumulated in the SPA.
• No where in the retainer agreement does it state when LHDR is to begin the negotiation process or if the client must accumulate a certain amount of funds before negotiations will commence. A document in the welcoming package entitled “Frequently Asked Questions” states that once LHDR has been retained, it will send letters to creditors notifying them that it represents the plaintiff and LHDR will then begin the negotiations. Any offers or settlements will be communicated to the client for approval.
• Plaintiff returned the documents, digitally signed, by email to Eclipse on September 29, 2009 and copies were returned to her dated October 15, 2009 mailed October 19, 2009. These documents did not have plaintiff’s signature on them. The monthly payments were deducted from her checking account. Between September 30, 2009 to December 21, 2010, the plaintiff paid LHDR a total of $5,626.97 which consisted of a retainer fee of $500.00, service fees of $2,932.50 and maintenance fees of $750.00. The last account activity statement received from Global set forth a balance in the account after all fees of $1,090.47 as of November 30, 2010. No money was paid to any creditors of the plaintiff.
• The plaintiff’s creditors continued to contact her, both in writing and by phone. Plaintiff forwarded the phone logs and all correspondence received to LHDR and Eclipse at the Florida address as required by the agreement, including offers made by the creditors to settle. However, plaintiff did not receive any communications from LHDR, Eclipse or Global concerning any settlement offers or the various contacts by the creditors.
• On or about February 3, 2010, Global sent a “Welcome to Global Client Solutions, L.L.C.” letter providing information on the plaintiff’s SPA. The letter stated that plaintiff was a client of Eclipse Financial, Inc. and any questions regarding the negotiation of debts and the status of the debt program should be directed to Eclipse.
• On or about January 19, 2010, an attorney for Target National Bank sent plaintiff a collection letter which plaintiff forwarded to LHDR. Plaintiff received a letter in return on LHDR letterhead stating that the letter was not legal advice and that she should send an FDCPA validation letter, which was included with the cover letter, to Target’s attorney by certified mail, which was received by Target’s attorney on March 19, 2010.
• On March 15, 2010, Target sued the plaintiff for $7,017.17 plus interest and costs. The complaint was mailed by the court to plaintiff on March 17, 2010 and plaintiff, upon receipt, forwarded the summons and complaint to LHDR. Target’s attorney responded on April 22, 2010 by letter that the validation letter sent by the plaintiff was too late and suit had been filed. Plaintiff forwarded that letter to LHDR.
• Plaintiff heard nothing from Eclipse nor LHDR and Target’s attorney filed a motion to enter judgment which was received by the plaintiff shortly after December 7, 2010 and forward it to LHDR.
• On December 10, 2010, Eclipse responded stating that plaintiff did not and has not paid for Eclipse or LHDR (referred to as “us”) to answer the lawsuit, but rather to manage and settle debts. However, Eclipse stated it had three teams working on plaintiff’s behalf to get the matter resolved. The motion to enter judgment is still pending.
• Plaintiff received dunning letters concerning her indebtedness to GE Money Bank/Walmart, one in October 2009 and two in March 2010, the last being from Walmart’s attorney, all of which were forwarded to LHDR. GE filed suit against the plaintiff on May 11, 2010. The summons and complaint were received by plaintiff shortly after May 13, 2010 and plaintiff forwarded them to LHDR. Plaintiff heard nothing from LHDR or Eclipse concerning this matter. The judgment was entered against the plaintiff on June 25, 2010 in the amount of $4,298.79. A goods and chattels execution was issued on August 12, 2010.
• Plaintiff forwarded all bills and correspondence received from Citibank, one of her creditors, to LHDR, including any offers to settle. On November 26, 2010, TD Bank, holder of plaintiff’s checking account, was served with a levy in the amount of $11,884.49 resulting from a judgment entered against the plaintiff in favor of Citibank on September 7, 2010 in the Superior Court of New Jersey, Special Civil Part, Burlington County.
• Plaintiff received notice from TD Bank that the items presented for payment against her checking account on November 30, 2010 were not honored due to an insufficient balance in the account. Plaintiff, for the first time, discovered Citibank had levied on her account. A series of phone calls, emails and text messages were placed to and exchanged with LHDR, Eclipse and JG by the plaintiff concerning this matter. Plaintiff forwarded on December 7, 2010 by facsimile to Shane Marine at Eclipse information concerning the levy. Neither LHDR, Eclipse nor JG intervened. A motion for turnover of funds was filed by Citibank seeking release of the $6,056.00 levied. The court, on January 21, 2011, ordered the sum of $5,056.54 released to Citibank after plaintiff exercised her $1,000 statutory exemption.

  Plaintiff had to make a payment to LHDR by cashier’s check in December 2010 since her bank account had been frozen by the levy.

• Performance of debt adjustment and credit counseling services in New Jersey is regulated by the New Jersey Debt Adjustment and Credit Counseling Act, N.J.S.A. 17:16G-1, et seq. (hereinafter “the Act”) and the regulations promulgated by the Commissioner of the Division of Banking and Insurance as authorized under N.J.S.A.
  17:16G-4.

• Under New Jersey law, no person other than a non-profit social service agency or a non-profit credit counseling agency shall act as a debt adjuster, N.J.S.A. 17:16G-2(a), and such agencies must first obtain a license to do so from the Department of Banking and Insurance, N.J.S.A. 17:16G-2(b).
• A debt adjuster under New Jersey law means a person who either (a) acts or offers to act for a consideration as an intermediary between the debtor and his creditors for the purpose of settling, compounding or otherwise altering the terms of payment of any debts of the debtor or (b) who to that end receives money or other property from the debtor or on behalf of the debtor for payment to or distribution among the creditors of the debtor.
  N.J.S.A. 17:16G-1(c)(1).

• An attorney at law admitted to practice in the State of New Jersey who is not principally engaged as a debt adjuster shall not be deemed a debt adjuster under the Act and therefore not subject to licensure.
• The fees which a licensee may charge for debt adjustment services under the Act shall not exceed one percent of the gross monthly income of the person to whom the service is rendered, but in no case shall the fee exceed $15.00 per month, except as may be otherwise provided by rule or regulation promulgated by the Commissioner. The Commissioner is authorized to set the maximum fee for credit counseling. N.J.S.A.
  17:16G-6.

• Under N.J.A.C. 3:25-1.2, the fee for debt adjustment may not exceed $25.00 per month or $60.00 per month for credit counseling services.
• Any debtor injured by violation of the Act may bring a civil action for recovery of damages.
• Under the Act, every licensee acting as a debt adjuster shall disburse to the appropriate creditors all funds received from a debtor less any fees permitted by N.J.S.A. 17:16G-6 within ten days of receipt of those funds, maintain a separate trust account in a qualified bank as defined under paragraph 12 of N.J.S.A. 17:9A-1 in the name of the debt adjuster for the benefit of the debtors, serviced by the debt adjuster, and maintain an appropriate ledger book for the trust account required, having at least one single page for each debtor with the appropriate entries of all deposits into and disbursements from each debtor’s account, including copies of all records showing disbursements to creditors and receipts from debtors which legible records shall be maintained in accordance with generally accepted accounting principals for not less than six years following the close of each debtor’s account.
• Under N.J.S.A. 2C:21-19(f) (and N.J.A.C. 3:25-3.1(d)), any person who shall act or offer to act as a debt adjuster without a license as required by the Act unless exempted from licensure pursuant to the Act shall be guilty of a crime of the fourth degree.
• The actions of and the services provided by LHDR, Eclipse, Global, JG, LSSG and Rocky as set forth above, are debt adjusters as defined by statutory.
• LHDR, Eclipse, Global, JG, LSSG and Rocky are not licensed by the Commissioner of the Department of Banking and Insurance to perform debt adjustment or any other services, nor are they qualified to do so as they are not non-profit social service agencies or consumer credit counseling agencies as defined under N.J.S.A. 17:16G-1.
• LHDR, Macey, Aleman, Hyslip and Searns are not attorneys at law of the State of New Jersey and were principally engaged as debt adjusters, thus, are not exempt from the licensing requirement of the statute and also are engaged in the unauthorized practice of law in the State of New Jersey.
• Nicely, although admitted to the bar of the State of New Jersey and listed as a partner in both LHDR and Legal Helpers, performs no services for LHDR and neither Nicely nor LHDR maintain a bona fide office within the State of New Jersey. While Nicely resides in the State of New Jersey and lists an office within the state, that office has no telephone number. He maintains an office in Philadelphia, Pennsylvania under the name of a separate law firm, Macey and Aleman, also known as Legal Helpers. Legal Helpers also maintains an office in Newark, New Jersey, at 17 Academy Street, Suite 610 and/or 615, listing as its managing attorney Alana Carrion, who provides no services to LHDR and is not a member of LHDR. Legal Helpers provides no legal services other than representation of consumers in bankruptcy cases.
• The business of debt adjustment and provision of debt resolution services are considered the practice of law under the laws of the State of New Jersey.
• LHDR, Eclipse, Global, JG, LSSG and Rocky, by operating as a business providing debt adjustment and resolution services, are engaged in the unauthorized practice of law.
• Under N.J.S.A. 2C:21-22(a), a person is guilty of a disorderly persons offense if the person knowingly engages in the practice of law and under subsection (b) is guilty of a crime of the fourth degree if the person knowingly engages in the unauthorized practice of law and creates the false impression that the person is licensed to practice law or derives a benefit or in fact causes injury to another.
• LHDR, Macey, Aleman, Hyslip, Searns, Nicely, Eclipse, Global, JG, LSSG and Rocky have also engaged in a criminal conspiracy as defined by N.J.S.A. 2C:5-2 by formulating, promoting and engaging in the crimes of unlawful debt adjustment and the unauthorized practice of law.
• LHDR, Macey, Aleman, Hyslip, Searns, Eclipse, Global, LSSG and Rocky created the basic plan and operating procedure to engage in the debt adjustment business within the State of New Jersey and the other 49 states. LHDR, Macey, Aleman, Hyslip and Searns utilized their status as attorneys to gain a competitive advantage in the debt adjustment marketplace and deceive consumers.
• Consumers in New Jersey and other states were misled into believing they were being represented by attorneys and thus would receive the professional services expected from an attorney by the general public.
• In fact, LHDR, Macey, Aleman, Hyslip and Searns provided no legal services nor any legal advice to any New Jersey customers, nor did they ever intend to do so.
• Eclipse was to be the sole provider of the debt relief services and Global and Rocky were to act as a depository for debtor’s funds.
• Eclipse, LHDR, Macey, Aleman, Hyslip, Searns, Eclipse, Global, LSSG and Rocky created a marketing and promotion program to attract debtors through all forms of advertising in the media and contracting with lead providers for the purpose of selling debt resolution services throughout New Jersey and the United States.
• JG, LSSG and other numerous front-end debt relief companies with whom LHDR, Eclipse, Global and Rocky associate hold themselves out as being in the business of performing debt relief services when in fact they are only lead generators and/or initial processors of information acting on behalf of LHDR, Eclipse, Global and Rocky.
• JG was a front-end for-profit debt relief company established for the purpose of acting as such for LHDR and Eclipse and entered into an agreement for consideration to operate on their behalf with the plaintiffs.
• A representative of Eclipse came to New Jersey to train Galavas and other employees of JG providing slides, training manuals and instruction on how to deal with customers, how to obtain information from them and how to explain the debt adjustment reduction plan.
• Part of Eclipse’s training materials consisted of a sample LHDR retainer agreement such as the one signed by the lead plaintiff with a signature of an LHDR representative embossed on the form, an SPA application and agreement, an LHDR electronic payment authorization, sample payment schedule and fee table, an enrolled creditor list, an LHDR power of attorney, a welcoming packet with all documents which were provided to the plaintiff, an LHDR addendum for extension of the program, a sample letter to creditors with the name of Hyslip already embossed thereon with directions to communicate to their administrative offices in Tampa, Florida, LHDR addendum for secured debt, the compliance call recording script, including information and questions to be asked of the customer once accepted into the plan, and even an authorization to be signed by a Commanding Officer of military personnel customers to participate in the plan.
• JG would receive phone calls in response to the advertising and marketing by LHDR, Eclipse, Global, Rocky and JG from inquiring debtors. JG received calls not only from New Jersey residents such as the lead plaintiff, but from different parts of the country as the phone calls were transferred around the country on a round robin basis to other front-end entities such as JG. JG paid for inclusion within this rotating phone service.
• A representative of JG would take the phone call and explain the program to the prospective client. JG’s representative would read from a script telling the customer they would be represented by an LHDR attorney who was experienced in the negotiation of debt adjusting and would contact the creditors on the customer’s behalf to negotiate a reduction.
• The customers were asked for information on the type and amount of indebtedness, their employment and income, their social security number for purposes of obtaining a credit report, their checking account number, the bank routing number and an email address. They were told this information would be submitted to “underwriting” for a determination of whether the customer qualified to participate in the plan. Customers were advised that, if accepted, they would pay money every month to be accumulated in an account which would be used for the purposes of negotiating with creditors. Customers debts would be compromised so that they would pay 55 cents on the dollar including fees. The first three payments would be higher than the usual plan payment because the $500.00 retainer had to be paid to LHDR. Customers were not told that creditors might not accept any negotiation of the debt.
• The information obtained about the customer was forwarded to Eclipse to determine how much the customers would pay. No one was accepted for a plan unless they had at least $10,000 in debt and access to email. The information was inserted into a payment calculator which determined how much the customer would pay without any consideration of the customer’s personal circumstances and without any contact with the creditors or LHDR.
• If accepted, Eclipse would contact the front-end agent, JG in this case, advise them of that fact and prepare papers necessary for the customer to execute.
• The customer was then called, as was the lead plaintiff, told of the acceptance and read the compliance call recording script, which part of the telephone call was recorded. This was referred to as the “genie” call. JG representatives were instructed to prepare the customer for this recording. Customers were told that certain questions had to be asked of them to which they had to respond and that, although some of the questions and information which they would hear might seem frightening or alarming, they were merely to answer “yes” to the questions and the JG representative would call them back after the recording was finished. The representative further explained that the information they would hear during the “genie” call rarely, if ever, happened and that the attorneys would not let it happen, taking care of the problems that might arise. The customer was advised not to ask any questions during the “genie” call or the call would have to be repeated. The recorded call was transmitted to Eclipse. After the recording, the customer was told the documents would be forwarded by email for electronic signature, that LHDR would not call or send out any cease and desist letters to creditors until the documents were signed and returned. Once the documents were signed, the JG representative advised the customer (1) not to call JG again, rather any future contacts were to be through LHDR and Eclipse who were in the same office in Florida; (2) to avoid all contacts with creditors; (3) of the contact information for LHDR and Eclipse; (4) not to negotiate with the creditors; (5) missing three payments would disqualify the customer from the program; and (6) to advise Eclipse if any payments needed to be changed.
• If any questions were asked by the customer, JG representatives were instructed on how to answer them.

  A. If the customer asked if they should make their minimum payments, they were told that if they did, it would interfere with the negotiation process and make it harder to negotiate.

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  B. If they asked when the negotiation would begin, they were told when they had enough money to being negotiating with the smallest creditor first.

  C. If they had any questions on the documents before signing and sending, they were to call the JG representative and he would explain or answer the questions. The training manual had the documents included therein and an explanation of what to tell the customer.

  D. If they asked the location of LHDR, they were advised that it was in Florida.

  E. The JG representative did not speak with anyone from LHDR.

• JG’s representative received commissions based on what was sold, that is the size of the estimated compromised debt to be paid as calculated by Eclipse. Goals were also set for the representatives to reach so much debt per month, usually in the $100,000 to $200,000 range.
• In order to combat abuses in the debt relief industry, the Federal Trade Commission has substantively amended the telemarketing sales rules as it applies to for-profit debt relief companies which has caused LHDR and Eclipse to alter their business model and devise and new operating procedure to circumvent the new rule requirements.
• In part, the rule prevents charging up front fees, does not exempt attorneys per se, applies to both outgoing and incoming telephone calls, makes it illegal for front-end and back-end affiliate companies to provide substantial assistance to another company if it is known that company is violating the rule or if one remains ignorant of their actions. However, the FTC has stated that debt relief providers, including attorneys who meet face to face with customers before signing any agreements, are likely to fit within the exemption of the rule on face to face meeting. LHDR, Eclipse, Global, Rocky and LLSG have now developed a procedure that would require a face to face meeting with a representative at the time the contract would be signed and an agreement with lead generators and LSSG to develop leads and market the debt adjustment services. – Source

The full complaint can be read here.

This case was filed by:
Joseph M. Pinto, Esquire,
Polino and Pinto, P.C.,
720 East Main Street,
Moorestown, NJ 08057;
phone 856-727-1777;
fax 856-727-1546;
email jfpolino@prodigy.net

Sincerely,


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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.

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