On May 11, 2012 documents were filed in two bankruptcy cases by United States Department of Justice, Office of the United States Trustee against Morgan Drexen and others. The allegations made are very sternly worded.
In the first document filed against Morgan Drexen, Howard Law, Figueredo & Boutsis, and Rosen & Wining the trial attorney for the Office of the United States Trustee says:
“The Respondents, together with other possible unknown entities, devised a business scheme to defraud and impugn the integrity of the bankruptcy system, which entails defrauding debtors nationwide by using an enterprise system purporting to provide debt resolution services. The enterprise system operates on a deceptive bait and switch scheme, which maximizes collections of fees from the debtor-clients, while not providing beneficial service to the debtor-clients in regards to debt resolution plans. The Respondents acted in concert together with other entities wherein they failed to comply with the Bankruptcy Code and Rules and to adhere to the obligations under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, while knowingly and fraudulently entering into fee sharing arrangements for services rendered and expenses reimbursed in or in connection with a title 11 case. In the instant case, the Respondents assisted the Debtors in debt resolution activities and bankruptcy representation; entered into fee agreements with the Debtors; received payments under those agreements; and did not disclose receipt of those payments to the Court, the creditors, trustee, or the United States Trustee. The Respondents prepared a false statement for the Debtors to execute which the Respondents knew was false when it was prepared, had the Debtors execute the false statement under penalty of perjury, and then filed the false statement with the Court. The Respondents also prepared a false disclosure of compensation statement for execution by local counsel, which the Respondents knew was false when it was prepared, and then filed this with the Court.”
The same court document lists what are labeled as “undisputed facts” in the matter.
- In or about December 2010 and prior to the instant case, the Debtors, Edward and Mary Garrity, saw an advertisement for debt resolutions and contacted Morgan Drexen, Inc.
- The Debtors are Assisted Persons as defined under Section 101.
- On or about December 8, 2010, the Debtors entered into a fee agreement with Figueredo & Boutsis, P.A. for a Non-Formal (Chapter 13) Debt Resolution Program. See Exh. 1. However, Figueredo & Boutsis asserts that it is also main bankruptcy counsel for the Debtors. See Exh. 4.
- Also on or about December 8, 2010, the Debtors entered into a fee agreement with Rosen & Wining to provide bankruptcy representation. See Exh. 2. That agreement, with respect to the preparation of a chapter 7 petition, provided the following terms for compensation of services and reimbursement of expenses:
a. $3,250.00 Fees for services;
b. $450.00 Bankruptcy Chapter 7 filing fee;
c. $10.00 Trust disbursement fund transaction fee; and
d. $62.00 Monthly flat file servicing fee.
- The bankruptcy fee agreement conditioned the preparation of the chapter 7 petition upon all fees having been paid in full.
- The Morgan Drexen File Number, applicable to both Figueredo & Boutsis as well as Rosen & Wining is 1151520778 with MDIS Security Number 242237.
- After that time, the law firm of Rosen & Wining withdrew $3,576.00 by ACH withdrawal from the Debtors’ regular checking account, as follows:
a. $100.00 December 8, 2010;
b. $496.00 December 23, 2010;
c. $596.00 January 23, 2011;
d. $596.00 February 23, 2011;
e. $596.00 March 23, 2011;
f. $596.00 April 23, 2011; and
g. $596.00 May 23, 2011.
- The law firm of Figueredo & Boutsis withdrew $1,784.00 by ACH withdrawal
from the Debtors’ regular checking account, as follows:
a. $290.00 July 22, 2011;
b. $596.00 August 23, 2011;
c. $471.00 September 2, 2011;
d. $241.00 October 23, 2011;
e. $62.00 November 23, 2011;
f. $62.00 December 23, 2011; and
g. $62.00 January 23, 2011.
- In preparation of filing of the Debtors’ bankruptcy case, Morgan Drexen, supervised by Figueredo & Boutsis as well as Rosen & Winig, prepared the Debtors’ bankruptcy statements, including but not limited to the Debtors’ Statement of Financial Affairs, Statement 9.
- Statement 9 provides that the Debtors paid Figueredo & Boutsis undisclosed payment dates totaling only $1,536 from December 2010 – December 2011.
- Statement 9 also declared that the Debtors had paid no other law firm, entity, or person anything for consultation concerning debt consolidation, relief under the bankruptcy law or preparation of the petition in bankruptcy.
- On January 30, 2012, the Debtors executed their Statement of Financial Affairs, under penalties of perjury, as prepared by Morgan Drexen and supervised by Figureedo & Boutsis as well as Rosen & Winig.
- Morgan Drexen as supervised by both Figueredo & Boutsis and Rosen & Wining prepared the Disclosure of Compensation of Attorney for Debtors, signed by local counsel Tony Turner, which disclosed that the Debtors had paid $3,250 directly to Tony Turner pre-petition.
- Tony Turner is local counsel for Howard Law, P.C. who employed Mr. Turner to represent Morgan Drexen clients in Florida. See Exh. 3.
- Tony Turner neither received $3,250 pre-petition nor was paid anything directly from the Debtors.
- Pre-petition, Tony Turner was paid $406.00 from Figueredo & Boutsis for the filing of the bankruptcy case and the bankruptcy case filing fee.
- The Debtors filed for chapter 7 bankruptcy relief on January 31, 2012.
- No attorney associated with Howard Law, P.C., Rosen & Winig, P.A., or Figueredo & Boutsis, P.A. appeared at the meeting of creditors conducted on March 7, 2012. William Schweikhardt appeared.
- The Debtors were unaware that Mr. Schweikhardt was appearing. The Debtors and Mr. Schweikhardt had not previously spoken about their bankruptcy case.
- By the Attorney Rolls, Mr. Schweikhardt is not admitted to practice in either the United States District Court for the Middle District of Florida or the United States Bankruptcy Court for the Middle District of Florida.
- Mr. Schweikhardt is unfamiliar with bankruptcy practice and procedure and has never practiced bankruptcy on behalf of any party in interest.
It is very interesting that the consumer was presented with two agreements to sign on December 8, 2010. One is for what appears debt settlement services, called in this case a “non-Formal (Chapter 13) Debt Resolution Program” by Figueredo & Boutsis in Palmetto Bay, Florida. The second on the same date was with Rosen & Winig for chapter 7 bankruptcy filing.
It does not seem to make sense why a consumer would be sold but debt settlement and bankruptcy at the same time.
The debt settlement agreement with Figueredo & Boutsis charges the consumer 18% “of the verified original balance of the resolved account at the time of the agreement.” The firm collected $1,784.
And calling this program an informal chapter 13 bankruptcy seems deceptive in that is possess none of the powers that a chapter 13 bankruptcy does. It does not stop creditors, collection calls, lawsuits, eliminate co-debotr liability, etc. But why would a consumer be entered into a debt settlement program on the same day as a chapter 7 bankruptcy?
The second agreement for bankruptcy services that appears to be executed on the same day by Rosen & Winig in Palm Gardens, Florida is for a chapter 7 bankruptcy filing. This agreement charged the consumers a fee of $3,250, a filing fee of $450, a Trust disbursement fee of $10, a $15 ACH fee if the payment bounced and the most puzzling fee of all, a “monthly flat fee of $62 to cover costs and expenses for the following paralegal services: facsimile transmissions, telephone charges, postage, on-going document processing, scanning, indexing, retrieval, and other file maintenance.”
Yet in the bankruptcy filing the bankruptcy attorney who filed the case is Tony A. Turner of the Law Office of Tony Turner in Orange Park, Florida. Tony Turner, Esq. actually has an agreement with Howard Law of California to “serve as associated local counsel for attorneys who require the services of an attorney licensed in the jurisdiction(s) where Local Counsel is licensed to practice law.” Howard Law “directly contracts with Morgan Drexen for access to Morgan Drexen’s proprietary software and paraprofessional support in connection with their debt resolution and/or bankruptcy practices.”
So the consumer was sold services by contacting Morgan Drexen and signed an agreement for bankruptcy with Rosen & Winig who then got a contract attorney, Tony Turner to file the bankruptcy where the documents had been prepared by Morgan Drexen, but Turner was contacted with Howard Law in support of services for Morgan Drexen and the person that appeared at the trustee meeting was Mr. Schweikhardt who is not admitted to practice in front of that bankruptcy district.
Oh yes, and was also sold debt settlement services at the same time with Figueredo & Boutsis.
United States Trustee Requests
The office of the United States Trustee alleges and asks for the following in conclusion.
“The Respondents devised a scheme and artifice to subvert the bankruptcy process, the integrity of the bankruptcy system, and the public perception of bankruptcy in a manner and mechanism targeted at the disadvantaged debtors, many if not all, are defined as Assisted Persons under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
The Respondents devised and implemented this business model in no less than 42 States nationwide purporting to provide debt consolidation/debt resolution services while at the same time targeting these individuals for chapter 7 bankruptcy in a means and artifice to collect excessive, unreasonable, unnecessary, and phantom expenses, together with unreasonable, unnecessary, and excessive compensation for services.
The Respondents are engaged in this nationwide business model and are operating and acting as the agents for each other with express or implied authority to further their common goal. All benefitted financially from their collective acts and omissions.
The Respondents each, jointly and severally, knowingly and willfully entered into express and/or implied agreements to establish the sharing of compensation of fees and reimbursement of expenses for services rendered in or in connection with title 11 consumer bankruptcy cases.
The United States Trustee requests that the Respondents be enjoined from providing any Bankruptcy Assistance to any individual person in Region 21 under section 526(c)(5)(A), and that this Court order the disgorgement of all fees under section 329(b), as well as, assess additional civil penalties under sections 526(c)(2)(C) and 526(c)(5)(B).”
But There Are More Claims
I have another case on my desk as well that rolls out in a somewhat similar fashion and one in which the United States Trustee has filed a somewhat similar claim with the court.
More to come.