Scathing Report From Allegro Law Debt Settlement Bankruptcy Drags In Others

Allegro Law was an attorney model debt settlement company that charged advanced fees for services to consumers. The group previously fell and Keith Nelms, Esq. was subsequently disbarred and filed a Chapter 7 bankruptcy, taking client deposits with it.

The Allegro Law debacle follows in line with the mess created previously by Hess Kennedy, another attorney model debt relief firm that was trying to fight debt with mass debt invalidation procedures. Laura Hess was disbarred in that affair as well.

On December 21, 2011, United States Bankruptcy Judge William Sawyer filed a scathing report regarding pending motions and appeals in the cases filed by participants in the Allegro Law mess.

According to the Judge:

“On February 15, 2011, [Daniel] Hamm filed the first adversary complaint against Defendants AmeriCorp, Seton, Inc., and Timothy McAllen. Hamm alleges that these Defendants “have a long history of masterminding, orchestrating, and facilitating debt settlement schemes across the United States.” He further alleges that they were part of what he refers to as “Hess-Kennedy,” an affiliated group of entities who provide services to consumers variously described as “debt elimination,” “debt management” or “debt settlement.” These services are mass marketed to consumers via television advertisements and through other means, whereby consumers are promised that they can solve their financial problems. The Florida Attorney General obtained an injunction against Hess-Kennedy in proceedings in State Court in Florida on July 18, 2008. As a result of the Florida injunction, Hess-Kennedy needed some other way and some other place to operate if they wanted to continue in their debt elimination business. Hamm contends that the Hess-Kennedy scheme was a fraud where consumers were led to believe that services would be rendered, but in fact few services were actually rendered and the majority of the money paid in by consumers was taken by perpetrators of the scheme in the way of fees.

As a result of the injunction entered against Hess-Kennedy in Florida, it is alleged that Defendant Timothy McCallan targeted Keith Nelms to induce him to serve as a vehicle to undertake at least some of the business that had been done by Hess-Kennedy in Florida and to generate new business, thereby perpetuating McCallan’s established, fraudulent debt elimination scheme. The product of this unholy conspiracy between Nelms, McCallan and others was Allegro Law and Allegro Financial. Nelms, Allegro Law, and Allegro Financial are now Debtors in this Court.

Hamm alleges that Nelms began operating Allegro Law and Allegro Financial in the spring of 2008, shortly in advance of entry of the Florida injunction, and in anticipation of it. The business undertaken by Nelms by way of Allegro Law and Allegro Financial was the same scheme as that undertaken by participants in the Hess-Kennedy scheme in Florida with many of the same players involved. The common elements appear to be expensive television and marketing activities; false promises made to consumers regarding their debts; excessive fees; false statements to both consumers and their institutional creditors, such as Chase Bank; a bewildering array of entities providing all manner of services–some of which no doubt may have been legitimate–while others were fraudulent; and many lengthy and dense contracts, of which the benefits to the consumers appear to be largely illusory. Nelms is an Alabama lawyer who formerly had offices on Cobbs Ford Road in Prattville, Alabama. While Nelms was not a bankruptcy specialist he did, on occasion, practice in this Court and the undersigned had a general knowledge of his practice. It struck this Court as anomalous that a small-town lawyer with a few associates in a Cobbs Ford Road law office would, within only a few months, generate a business with more than 10,000 customers, through which many millions of dollars would flow, all to come crashing down within a year. Nelms’ activities came to the attention of the Alabama Securities Commission who investigated the business dealings of Allegro Law and Allegro Financial. The Alabama Securities Commission brought suit, The State of Alabama and The Alabama Securities Commission v. Allegro Law, LLC, Allegro Financial Services, LLC, and Keith Anderson Nelms, Civil Action No. CV-09-125-F, in the Circuit Court of Autauga County, Alabama. On July 9, 2009, the Autauga County Circuit Court enjoined Nelms and the Allegro entities from doing further business, seized all of their assets and installed a Receiver to take charge of the business.6 The injunction was made permanent, by a final judgment on February 11, 2010.” – Source

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The list of companies that are entrapped in this adversary proceeding(s) to recover money to return to consumers is staggering. I can’t remember seeing a previous case that intertwined so many debt relief companies and participants.

According to a U.S. Bankruptcy Court internal document the trustee Daniel Hamm is going after Credit Exchange Corporation, Elimadebt, First American Debt Relief, Internet Marketing Solutions, ComCred Corporation, Interactive Financial Solutions, Liberty Debt Relief, Precision Polling, Future Financial Services, First Choice Financial Services, The Achieveable, EOS Unlimited, American Debt Choice, Pivotal marketing Solutions, Creditors Interchange Receivable Management, Oasis Debt Relief, Clear Choice Debt Relief, Two Thumbs Up, ACD Debt Solutions, American Pro-Services, Clear Choice Solutions, Debt Zero, Financial Freedom Education Network, MegaClik, NoDelay Enterprises, The Rose Group, 42 Capital, SCK Marketing. – Source

As a result of these filings Americorp, Seton Corp, Tim McCallan, and The Achieveable have filed an objection to the report. As part of that filing Tim McCallan filed an affidavit that presented his version of events.

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He said:

I am the owner and chief executive officer of Americorp, Inc. (“Americorp”), Seton Corp. (“Seton”), and The Achievable, Inc. (“Achievable”), defendants in these proceedings.

Americorp is a New York corporation formed on July 25, 2000, to provide back office
processing to debt elimination companies. Services included, but were not limited to, providing customer service support, producing creditor proposals, and administering payments and disbursements.

Seton is a New York corporation formed on August 21, 2003, to provide back office processing and negotiation services to debt settlement companies. Services included, but were not limited to, providing customer service support, creditor negotiation, and administration of payments and disbursements.

The Achievable is a Maryland corporation formed on September 22, 2005, to assist debt management companies in marketing and in offering creditor concessions and benefits to the companies’ clients.

On or about February 1, 2008, Keith Nelms, the owner of the Debtors, contacted me to discuss the debt related services offered by the corporate Debtors. He indicated that he heard about their services from Joel Carlsen, an executive with a nonprofit debt management company for which Americorp provided services.

I learned that Mr. Nelms’ firm had been part of the nationwide network of law firms established by Hess Kennedy to provide services to prospective clients. Mr. Nelms noted that he wanted to start his own debt elimination firm and was interested in securing the services of Americorp, Seton, and Achievable.

After this initial contact, Mr. Nelms and I engaged in various discussions as to how the companies could best assist Mr. Nelms as he launched his firm.

Eventually, Mr. Nelms chose to utilize the services of Americorp to perform various administrative services for his firm’s debt management business, including, but not limited to, customer service support, payment and disbursement administration, and back office processing functions.

Seton was retained by Mr. Nelms’ firm to provide similar services for Mr. Nelms’s debt settlement business, but the services also included negotiation with creditors to settle client debts.

Mr. Nelms retained Achievable to gain the necessary creditor concessions/benefits that his firm needed for consumers who enrolled in the debt management program. Achievable also provided advertising services to the firm.

Prior to commencing work with the Hess Kennedy law firm in 2007, Americorp’s clients consisted principally of approximately ten non-profit debt management companies. Americorp serviced approximately 15,000 clients of these companies, utilizing some 140 employees.

Included in the filing is the report of Richard Briesch, PhD of Southern Methodist University. In this report he concludes that in the matter of Allegro Law and Allegro Financial Services the “the debt settlement industry generates tremendous value for their clients.”

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He also finds that “The completion rate for this industry is similar to or better than the completion rates for the alternative choices for consumers (Consumer Credit Counseling Services and Bankruptcy).”

He concludes that:

  1. The net consumer benefit from settled debts (defined as the total amount saved on the debt minus the amount paid to settle the debt and total fees paid to the industry) is positive and approximately 11% of the original debt amount. When the time value of money in included in these value calculations, this net benefit increases to approximately 33% of the original debt amount.
  2. The limited evidence available from two firms suggests that at an aggregate-level, the consumers who cancel the debt settlement program receive a net positive benefit. At an individual-level, more than half of the consumers who cancelled the program still had a net positive benefit.
  3. The value calculations do not include the value of the financial education provided to clients, which would have increased the consumer benefit (or welfare) even more.
  4. In the first year, approximately 90% of the clients settled at least one debt (out of an average of 4.8 debts per client). – Source

Amazingly the saga in this matter continues and thousands and thousands of consumers have now been waiting for years to get just some of their money back from the failure and bankruptcy of Nelms and Allegro Law.

For debt relief company and vendor participants in this enterprise it is a good example of needing to know who your debt relief partners are to make sure you don’t saddle up with a program doomed to fail and years later be the subject of a court ordered clawback of monies you were previously paid.

Damon Day - Pro Debt Coach

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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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