A state court case against Morgan Drexen has just been moved to federal court. This case is Jenny Sykes v Morgan Drexen.
The suit alleges Morgan Drexen is in violation of the Virginia Credit Counseling Act by not being licensed in Virignia to offer services in compliance with the act.
The suit names Walter Ledda as CEO and says he holds himself out as a consumer advocate while Ledda is subject to a Permanent Injunction that prohibits him “from making misrepresentations of fact or from ommitting material facts in conjunction with the provision of debt negotiation services.”
Morgan Drexen is said to attempt to recruit or solicit consumers for their debt reduction program. Consumers are charged fees at the beginning of the programand a monthly service fee.
“In the meantime, creditors — who are under no legal obligation to countenance Morgan Drexen’s interference — often sue the consumers for repayment of the debt.
When Jenny Sykes first enrolled in the Morgan Drexen program she owed $7,844 on three credit cards and was current on her minimum payments. “After paying Morgan Drexen $7,014.10 over more than three years, Ms. Sykes found herself more deeply in debt because of her creditors assessed late fees and penalty interest when her monthly payments started going to Morgan Drexen rather than to them. Ultimately three of her creditors obtained judgments against her.”
The position of the suit is that Morgan Drexen provided unlicensed debt services in the State of Virginia. The suit also labels Morgan Drexen’s Services as illusory or illegal.
“The numbers reveal the parasitic nature of Morgan Drexen’s debt settlement program. Morgan Drexen promised Ms. Sykes that she would successfully complete the program by paying $145 a month for 49 months. In fact, Ms. Sykes paid Morgan Drexen amounts ranging from $140 to $235 per month for 41 months. After making 41 monthly payments totaling $7,014.10, Morgan Drexen’s Fedruary 2011 “Financial Profile Worksheet for Ms. Sykes shows that she remains 65 months and $13,107.73 away from the promised “financial freedom.
By November 2010, Morgan Drexen had collected $3,936.86 of statutorily prohibited fees from Ms. Sykes, yet Ms. Sykes was even deeper in debt than when she began the program.”
At the end of three yearsMorgan Drexen claimed they had negotiated settlements that saved the consumer $3,919 while at the same time had charged $3,936 in fees.
After Ms. Sykes was sued in 2008 by one of her creditors she was instructed to sign a “Limited Scop Representation Agreement” with Mr. Jim Bowman, an attorney licensed in Virginia. Bowman provided her with a consultation that cost Ms. Sykes $45 and she was instructed to represent herself.
The suit claims Morgan Drexen’s Business Model is a Facade.
The suit states:
Attorneys General in both Minnesota dn North Carolina have brought law enforcement actions against Morgan Drexen under similar laws in those states. Morgan Drexen routinely defends itself in such proceedings by pretending to be a third-party provider of “outsourced back office support” to law firms with “integrated legal systems” who are the ones that perform the actual debt settlement work for consumers.
In a January 26, 2011 letter to Ms. Sykes counsel, Morgan Drexen’s in-house legal department predictably portrayed its role as limited to “outsourced back office support” for the Williamson Law Firm, LLC, a law firm based in the State of Kansas. The onstensible purpose of this subterfuge is to enable Morgan Drexen to rely on an exception in the Virginia Credit Counseling Act for attorneys that negotiate with creditors.
Ms. Sykes never retained the Williamson Law Firm, LLC to settle her debts with her creditors.
Mr. Laurence Williamson of the Williamson Law Firm, LLC is not licensed to practice law in the Commonwealth of Virginia.
Ms. Sykes has never spoke to Mr. Williamson.
The lawyers described on the Williamson Law Firms, LLCs website as responsible for overseeing the debt settlement division — Mr. Uzo Ohaebosim — had had his license to practice law suspended by the Office of the Disciplinary Administrator of the Kansas Judicial Branch. Despite that suspension, Mr. Williamson’s and Mr. Ohaebosim’s former law partner, Sean Shores, has also had his license suspended and is currently facing criminal charges in Sedgwick County, Kansas. Yet another “Of Counsel” attorney to The Williamson Law Firm — Mr. John Harling of Minessota — pled guilty to one felony count of filing fraudulent tax return in September 2008. Mr. Hatling was also implicated by the Minnesota Attorney General for his part in Morgan Drexen’s scheme.
Morgan Drexen’s placement of an attorney’s name on the letterhead of its own correspondence does not negate its contract with Ms. Sykes to provide debt settlement services. Nor does it create an attorney-client relationship where none existed.
If you would like to read the entire complaint and see the exhibits, they can be found here.
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