A reader send in some documents they said I would be interested in seeing. It relates to the 2013 Consumer Financial Protection Bureau (CFPB) lawsuit against Morgan Drexen that is still ongoing.
My first thought was a disbelief this case was not further ahead. Then I read the document publicly filed in the case by the former Morgan Drexen co-founder, partial owner, Bord of Director’s member and Chief Operating Officer (COO), Rita Augusta.
If true, the allegation of Augusta seem shocking. Her claim is Morgan Drexen manipulated records or made up records involved in the Morgan Drexen case with the CFPB.
She says, “At some point, Morgan Drexen received a document request from the Bureau (“CFPB”).
I became aware that the company did not produce the requested documents in a timely manner, and that, as a result, the Court ordered the company to produce the documents.
At some point in mid-June, 2014, after the Court ordered Morgan Drexen to Produce the documents, Jeffrey Katz, the company’s General Counsel, called me and told me he needed help with the document preperation. He then instructed me to assign Morgan Drexen employees to work with a woman named Nancy Jin to review all of the consumer files that Morgan Drexen was going to produce that related to a consumer who enrolled in either the dual program or the bankruptcy-only program. He instructed us to: (1) create bankruptcy petitions for the consumer if there was no petition in the consumer’s file; and (2) add whatever information was available about consumers to any bankruptcy petitions that were already in the files to make the petitions appear more complete. Katz told me he wanted me and Jin to do this because Morgan Drexen needed petitions to appear as complete as possible to make it seem Morgan Drexen was actually performing bankruptcy-related work for consumers enrolled in the dual program.” – Source
Augusta goes on in detail to describe how this task unfolded and the sequence of communications and efforts to accomplish it.
Nut probably more surprising and downright shocking was a letter included in the linked file above from Augusta where she makes so allegations which would certainly get the attention of the CFPB.
“January 22, 2015
Walter [Ledda],
This letter follows up my phone call with you yesterday.
I am writing concerning the direction Morgan Drexen appears to be heading, my worry for the future of the company and the potential liability of its principals. I do not make these recommendations lightly: I am a co-founder of Morgan Drexen, a shareholder and have served the company for several years in my role as Chief Operating Officer and as member of the Board of Directors.
In the last few days, it has come to my attention that Morgan Drexen plans to convey, certain of its assets, including its proprietary software, to another entity. So that there is no confusion, I, as a board member or officer, was not consulted about this transaction; I did not authorize it and was unaware of the intent until the last few days.
Further, I have repeatedly requested financial information Morgan Drexen from David Walker, CFO, since 2012. Despite these requests, no meaningful information has been provided to me.
When faced with the challenges like those presently burdening Morgan Drexen, there is a right way and a wrong way to address them. Despite any advice to the contrary, conveyance of Morgan Drexen’s assets at this time is not the ethical way to deal with the judgments obtained against Morgan Drexen and the pending litigation from the CFPB. Morgan Drexen must stop and reverse any and all efforts to alter its financial condition, including divesting itself of assets. If Morgan Drexen does not make the right choices now, the company, its officers, directors and shareholders will face even greater financial risk than if Morgan Drexen were to go out of business as a result of these judgments.
Without access to Morgan Drexen’s financials, I cannot adequately serve on the Board of Directors. Due to not being consulted on major changes affecting the business including but not limited to the transfer of Morgan Drexen’s assets, I no longer wish to serve on the Board of Directors.
Accordingly, this letter shall serve as tender of my resignation from Morgan Drexen’s Board of Directors, effective immediately. In addition, this letter shall serve as my demand that Morgan Drexen buy out my equity interest in the company.
Regards,
Rita Augusta”
Rita Augusta also stated “if called as a witness I could and would completely testify thereto.” The CFPB must be very interested in what Augusta has to share.
Following the bombshell information from Augusta the CFPB asked the Court for a sanctions against Morgan Drexen and Walter Ledda. I am assuming Morgan Drexen thinks the motion for sanctions is without warrant and not important. They will most certainly fight the actions of the CFPB. At the time this was written I did not see a publicly available response from Morgan Drexen to the CFPB’s request.
On February 10, 2015 the CFPB filed court document which stated, “Since the Bureau filed this action in August 2013, Defendants Morgan Drexen, Inc. (“Morgan Drexen”) and Walter Ledda have engaged in all manner of delay and obfuscation to thwart this case.1 They failed to produce documents, forcing the Consumer Financial Protection Bureau (“Bureau”) to file a motion to compel. Magistrate Judge McDermott granted that motion and ordered Defendants to produce responsive documents. They violated that order. Magistrate Judge McDermott then issued another order requiring production. Defendants violated that order, too. The Bureau then filed a motion seeking sanctions. In response, Judge McDermott again ordered Morgan Drexen to complete its production and stated that the Court intends to impose monetary sanctions on Morgan Drexen.
In response to the Judge McDermott’s first order to produce documents, Morgan Drexen requested an extension of time. It is now clear why. Instead of producing consumer files in a timely manner, as required, Defendants were busy manipulating evidence by: (1) creating bankruptcy petitions that did not exist at the time of the Bureau’s document request and adding them to consumer files before producing the files to the Bureau; (2) altering bankruptcy petitions in consumer files that did exist at the time of the Bureau’s document request by inputting information into the petitions to make it look like Morgan Drexen had performed more work on the petitions than it actually had prior to the Bureau’s document request; and (3) altering log notes in consumer files to hide the fact that it had created and altered petitions prior to producing the files to the Bureau.
Morgan Drexen’s outrageous conduct is a flagrant contravention of the most basic rule of civil litigation – honest dealing under the Federal Rules of Civil Procedure – and constitutes fraud on the Court. Its actions were premeditated and performed with a bad faith intent to pervert justice. Such conduct warrants the most severe sanction. Accordingly, this Court should grant the Bureau’s request for an order of default judgment against Defendants.”
To refute the allegations made by the CFPB, court records say, “On January 21, 2015, the Bureau contacted counsel for Defendants to discuss its concerns about Morgan Drexen’s production of consumer files. After this conversation, the Bureau sent defense counsel an e-mail in which it requested that defense counsel to provide any explanation Defendants had in response to the Bureau’s concerns within 24 hours. In response, Morgan Drexen provided a sworn statement by an employee named Linh Tran. Tran’s declaration – and defense counsel’s explanation of it – does not contradict anything in Augusta’s declaration and does not explain metadata inconsistencies. What it does show is that Morgan Drexen did not produce the documents requested in discovery.” – Source
For anyone with a load of time on your hands, you can read more detail on these events here, here, and here.
I have no outrage or indignation in me about the situation. Just disbelief this case is still going on and silliness like that alleged would take place.
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