See February 9, 2013 update at bottom for takedown request received from EFA Processing.
This article was written and contributed by Jason Spencer, the former Managing Partner of Dextral Capital Management Fund. He shares his observations and experiences from inside the debt settlement industry.
I asked Jason why he wanted to share this story. He said, “The reason is that people getting taken advantage of is nothing new nor is it necessarily newsworthy.
However when someone holds themselves out as a savior to desperate people in their greatest time of need when in reality their only intention is to use that desperation as a tool enrich themselves, then I believe we as a society have an obligation to do what we can to prevent such behavior.
Preying on the weak and the scared has no place in the United States of America. And shutting down their companies is not enough because they just seem to migrate like a virus to a new industry.
First it was internet stocks, then credit repair, then mortgage brokers, then debt settlement, then IRS tax help, then mortgage relief, and each time the government shuts down their ability to operate in an industry they just move to another one. There will always be desperate people that want to believe someone on the other end of the phone is really there to help them but that won’t be true until there are consequences for hurting others.”
The 100 Million Dollar Scam Nobody Knows About
The scam perpetrated by Ken Talbert on American citizens is far worse than anything Bernie Madoff did… and perhaps more costly. Some may argue that Bernie took money from people that could afford to lose it, but you can’t argue the same for Ken. He takes money from people in the most desperate state of their life. He does so by promising them salvation from the depths of their despair.
Settling client debts came in distant second to sales for DebtXS / EFA Processing, a Frisco, Texas based debt Settlement Company. The company’s goal was to sell them debt settlement and then try to keep clients as long as possible before they threw in the towel. For example, DebtXS / EFA Processing was completing 600 settlements a month yet they had made commitments to settle over 210,000 accounts when I arrived in 2009.
The promise was to have all of the clients debt settled in three years, although it appears it would take 29 years if they didn’t sign up anyone else. But they did keep signing up new clients, at the rate of over 3,000 per month. The average client had 6 accounts, thus they added 18,000 settlement commitments within 36 months every month. Clearly neither DebtXS nor EFA Processing planned on making good on their promises made to clients. They couldn’t have even if they tried. This was illustrated further by the fact that when I arrived in 2009 they had only 6 out of 200 employees working on actually settling debts.
Ken would explain to me that the beautiful part of this whole thing was that technically the client belonged to someone else. So if EFA didn’t perform on the promises to settle, the legal liability came down on the debt settlement “sales company” that sold the product. He said that they were just a “back-end processor” and that the sales company hired them to do the work, and if EFA Processing didn’t perform, well that was the fault of the sales company in the eyes of the law.
They asked people for money up front in exchange for the promise to perform a service, but they never delivered. Instead the higher ups at DebtXS blew the money on mansions, Dallas Cowboys suites, exotic cars and courtside seats to watch the Dallas Mavericks play and a lifestyle that makes Hugh Hefner look like a member of the Geek Squad. This lavish lifestyle led to EFA/DebtXS taking on clients that they knew couldn’t afford and the program and would quit before they made their first payment. The nefarious company’s rationale was that they needed the $199 startup fee to keep the doors open. Even if the client would quit the next day, they would still get the $199. And quit they did. The head of the company gave me their monthly retention numbers. Good Lord – 99.8% gone in 22 months. This may have been startling to most businessmen, but for Ken this was actually the goal.
I called out Ken and his staff about the fact that they had over 100 people working customer service, reselling the clients on the program and six actually settling accounts. I thought my point was obvious, that if you shift more people into settlement that less people would call in upset. They told me that if they were dealing with a normal client base that I may have a point but since nearly everyone quits by month 18 they didn’t need to add staff. My reply was always “don’t you think that if you actually settled their debts that they would stay longer?” which was met verbatim with “no, they’re fucked up people” by DebtXs CEO Ken Talbert. The two highest ranking men in the company actual argued with me, saying that “better service always equals less revenue” and they had a multitude of tests run to prove their claims. You see, the goal of EFA was to simply mail a simple “cease and desist” letter to the creditor, which prevents them from contacting the client and then to avoid contact with the client so they don’t have to explain why they haven’t settled any accounts. In the clients mind the harassment has ended so the problem is gone.
In late 2009 when the FTC started demanding that the actual settling of clients debts increase, EFA scrambled to comply. Unfortunately they had spent all of their clients’ money, so they needed to sign up more clients to get more funds in order to be able to hire more people to settle the accounts of their original clients. And this cycle of taking other people’s money to pay off the services of the first group would continue. And when the FTC finally ended the EFA’s ability to charge clients upfront money, Ken argued that he could shut the whole company down and not settle anyone’s debt because the FTC changed the law on them and that they couldn’t afford to stay in business. He actually argued with the FTC that he needs new people’s money, upfront, to be able to perform the services that he was already grossly overpaid to do. Isn’t this called a Ponzi scheme?
That all changed when Ken Talbert figured out that his clients would settle between 40 percent and 60 percent of face value all day long, and he could buy their debts from creditors for less than 10 percent of face value. But Ken said that he didn’t think it would look good if he owned a debt buying entity and collection company. Thus he put it in his son’s name, James Talbert, who was away at college. He then went to work creating a hedge fund to raise the capital to make huge buys. Initial returns were consistently at 250% in fewer than 3 months with virtually no risk, because he knew how much the clients had in savings. He knew whose debt to buy and who’s not to buy because he had access to see into their savings accounts. So if Jane Doe had $2000 in her special debt settlement savings account and Ken could buy her debt for $200, he would make a 1000% return if his company EFA could convince the client that $2000 was the best deal they could get on the debt. The longer a settlement company waits, the cheaper the client’s debt sells for as the holder becomes convinced the client is never going to pay, and in turn the owner of the debt becomes more likely to sell it. So if EFA doesn’t settle with a debt holder, then EFA gets to collect their monthly fee longer and the more likely it is that Ken could purchase the debt. He and his clients’ interests were completely misaligned, which usually leads to very bad things.
Around this time they asked me to join them because I had experience in raising money for alternative investments in the past. I always felt we were doing something great for the debt settlement clients. When we bought the debt, we never called and bothered the clients nor did we charge them interest or fees, sue them or any of the other horrible things collection companies are known to do consumers. Plus, we typically settled for 40% of the outstanding debt, thus the client saved 60% without much hassle. The only problem was that EFA/DebtXS had the worst data in the industry. The company was so obtuse that they never even bothered to get the correct credit card number for their clients and therefore they could not ever settle the debt.
When the Federal Trade Commission ruling came out, Ken began to look for other ways to monetize his existing client base. For example, Ken needed $225,000 to pay someone off. Instead of taking it from EFA, he siphoned it off his son’s debt buying company (which Ken secretly ran) and I have the proof in financial documents provided to me by his son’s debt buying company. The only problem was that the money was supposed to be transferred from his son’s debt buying company to our hedge fund in order to repay loans that Ken issued from the Hedge Fund that he then ran to his son to buy his client’s debt. He took another $120,000 meant for our clients and started some more companies with it. All of this was intentionally hidden from me and when I learned about it… I flipped out. Ken was like a father to me and to learn that someone I think so highly of had done something so horrible was beyond my reality. Ken promised to pay it back many, many times, thus I decided to stick around until I could get the money he owed to “our” clients.
Soon after the FTC ruling, Ken’s son James Talbert joined us to run the collection company, which he had technically owned for years. He didn’t share my approach of getting a great deal for the clients; rather, he thought his collection company should maximize revenue. James and Ken obtained login names and passwords for Safeguard employees so they could then see how much prospective clients have in savings before they made settlement offers (I have obtained 100’s of screenshots of this happening). They were ordered to stay below 50 percent of the balance owed because anything above that would require customer approval. They instead would “negotiate” for 45-49 percent. The obvious problem with the whole setup is that Ken has promised his clients he will try to get the best deal he can, while he is buying their debts and then trying to get the most money he can on them. I think this qualifies as a conflict of interest and the FTC agrees since they made it illegal a long time ago.
I use the term collection company loosely since they never bothered to get more than three collection licenses. One of the three, Nevada, cooked the books to get the state to grant them a license. James was, and still is, collecting consumer debts illegally. In fact, this is why I ultimately left the partnership I had with Ken. I told James to cease collections until he got licensed and Ken overruled me and told James to continue. Ken is the General Partner of the hedge fund. I’m just a limited partner but I had always run things. By law Ken has a fiduciary responsibility to only consider the best interest of the clients in the fund, but he took advantage of the client base every time it seems I let my guard down. Actually, he took advantage of the client base on both sides. He would settle for the highest amount he could convince his EFA clients to take and then siphon the money off from “his sons” collection company before it could reach the hedge fund to repay our clients.
Ken uses the Collection company “Safeguard Recovery” (SGR), owned by James Talbert, to get other debt settlement companies to share their client’s personal data in hopes that SGR has some of their clients debt. This is normal to the industry, but SGR must sign a Non-Disclosure stating that they won’t share the data with anyone else. Ken then takes that data and has another entity, Safeguard Capital (SGC) go buy debts. The companies were named similar names to confuse people. SGR and SGC is usually managed and run by EFA employees. They also have offices inside EFA, sitting right next to the settlement people, yet they pay no rent. The funny part is that Ken is actually tricking his competitors into sending him their complete client lists. The competitors think they are helping their clients by pursuing good settlement offers but they don’t even have any debt placed with them anymore. They are scamming the other debt settlement companies that are trying their best to do the right thing. Once they get their client lists, they can market bankruptcy services to them and take a referral fee from a lawyer. Is anyone not being scammed?
EFA, DebtXS, DRO, SGR, Eckity Capital Markets, Dextral Capital Management, Dextral Capital Management Fund and SGC were always run by Ken Talbert. We always had to meet with him to go over numbers and the direction of each entity. I was kept out of EFA business due to the fact that I never drank the proverbial “Kool-Aid”, but I’m of the opinion the company engages in dozens of illegal activities and if they haven’t broken any law yet, then just wait until next month.
If 10 percent of the things I heard about are true, then EFA/DebtXS is the dirtiest company I’ve ever heard of. I assume this is why they keep multiple lawyers and a legal assistant on staff full time for a company that’s barely doing any business. After all, if you’re going to engage in illegal practices it’s probably a good idea to have a few lawyers on staff.
Lastly, Ken has begun suing his own EFA clients from Dextral, seeking to recover 100% plus all legal costs (I have attached docs). Where does it end?
EFA Processing Takedown Request – February 9, 2013
Dear Mr. Rhode:
I am writing to you as the General Counsel of EFA Processing, LP, in response to a January 31, 2013, post on your website called getoutofdebt.org. Your commentary title of the post is “Former Dextral Managing Director Shares His Bold Story About Ken Talbert.” You list the posting party as Mr. Jason Spencer, and indeed a “Story” it is. My interest in the post is that same is replete with falsehoods, misstatements of verifiable facts, and malicious lies that are designed to injure, if not destroy, EFA Processing, LP. I am certain that you do not wish to get in the middle of a defamation and business disparagement lawsuit resulting from the outlandish lies contained in the post allegedly authored by Mr. Spencer and adopted as true by you in your blog.
To that end, EFA Processing, LP respectfully demands that you immediately cease and desist any further posting of the subject post by Mr . Spencer in all areas of your website(s). It is my understanding that Mr. Spencer has already personally requested that you cease further publication of the subject post yet same is still being published in different areas of your website. All postings of the subject post must be removed immediately. EFA continues to suffer irreparable damage as a result of the falsehoods contained in the post and will hold all parties to the dissemination and publishing of such injurious falsehoods accountable under the law.
I feel that you will not be able to rely on the provisions of Section 230 of the Communications Decency Act to shield you from liability in this matter. I urge you to simply do the right thing and not post such injurious filth in a manner that highly suggests truth in the falsehoods you choose to publish.
At best you are being played as a pawn for consistent disinformation; at worst, you could be complicit in the defamation being spread.
Your site will be monitored to determine if, and when, you have removed the offending post by Mr. Spencer. Thank you for your anticipated cooperation in this matter.
Douglas K. Williams,
General Counsel for EFA Processing, LP
February 9, 2013 Response
I received the takedown request above that should have been sent to the Myvesta Foundation.
We have received no such request to take down the article from Mr. Spencer. The article is 100% user supplied content.
It was not edited by the site but published as is.
The title is not commentary but a statement of fact. It is our belief that Mr. Spencer was a managing director of Dextral Capital Management as he stated here, the story is about Ken Talbert, and the user submitted content is arguably bold by definition.
We urge, solicit, desire and beg EFA Processing and Ken Talbert to post any additional statement they want to respond to Mr. Spencer using the links in the left margin of the story or this link. EFA Processing and/or Ken Talbert are welcome to respond to the allegations Mr. Spencer, the author, made in his contributed story.
If Mr. Spencer stated anything that was untrue then we implore EFA Processing and Ken Talbert to address those items specifically and not let any falsehood stand. The letter received identifies no particular statement.
The site does not adopt any user submitted content, stories or comments as true, just “as is” in accordance with the site terms.
As we said in posting Jason Spencer’s contributed content, the author “shares his observations and experiences” and the story contributed is his story. That hardly seems as if it “highly suggests truth in the falsehoods you choose to publish.” What is false? And we did not select part of his contributed story to publish.
Mr. Spencer was not compensated for his story and was advised in advance that anything he chose to contribute must be truthful and he would be responsible for his content.
This is the only such location of the posting of this article on the site and we are not aware of any other content submitted by Mr. Spencer.
The EFA Processing attorney, Mr. Williams refers to Section 230 of the Communications Decency Act. For those interested, more details can be found about that here.
To be open and transparent about the request received, the takedown notice received was submitted to the Chilling Effects Clearinghouse.