Things have taken a substantial turn for the worse for California based debt settlement wannabe giant, Morgan Drexen.
On April 21, 2015 the court awarded a default judgment in favor of the Consumer Financial Protection Bureau. More on that here.
Then on April 30, 2015 the court found there was substantial danger and “good cause to believe that immediate and irreparable damage to the Court’s ability to grant effective final relief for consumers in the form of monetary restitution and disgorgement or compensation for unjust enrichment will occur from the transfer, dissipation, or concealment by Morgan Drexen of its assets unless Morgan Drexen is restrained and enjoined by Order of this Court.” – Source
Morgan Drexen Files for Chapter 7 Bankruptcy Protection
At 7:08 PM last night Morgan Drexen, Inc. filed a Chapter 7 bankruptcy petition in the Central District of California. The filing is massive. I’ll share tidbits from the hundreds of pages below as I wade through them.
Morgan Drexen says there will be funds available to creditors for distribution and estimates the number of creditors is between 1,000-5,000.
The bankruptcy was not filed by Morgan Drexen but by Paul Shankman of Hinds & Shankman in Torrance, California.
It was signed by Walter Ledda as President and Chief Executive Officer.
Some interesting creditors named in their listing include:
A bunch of court reporters
A bunch of lawyers
American Appliance Repair
American Arbitration Association
American Bar Association
American Bankruptcy Institute
American Cancer Society
American Heart Association
American Red Cross
Big Brothers Big Sisters
Clerk Florida Supreme Court
Clerk U.S. District Court
Colorado Bureau of Investigations
Colorado Secretary of State
Consumer Financial Protection Bureau
Department of Justice
Internal Revenue Service
Jeffrey Katz – (Their lawyer named in court documents?)
John Mogannam, Individually and as class – Source
Make a Wish Foundation
National Consumer Law Center
National Press Photographers Association
Nevada Department of Taxation
OC Rescue Mission
Orange County Bar Association
Pediatric Cancer Research
Public Relations Society of America
Superior Court of California
U.S. Debt Reduction Services
West Virginia Secretary of State – Source
Summary of Schedules
Morgan Drexen says they have $8,043,970.97 in assets and $9,917,419.35 in liabilities. The largest part of creditors is holding unsecured claims.
They list a bank account with US Bank as a payroll account with $9.16 in it.
They list their insurance policies.
One of the insurance policies says the parent company is “Morgan Drexen, Inc. MDRX Business Services, LLC, MDRX Marketing Services, LLC, Carthusian IP Holdings, LLC” as if they are all one interconnected company. Interesting.
Then there is a big list of who Morgan Drexen advanced money to. The list includes a large number of lawyers. The top ten biggest balances were advanced to:
MDRX Business Services – $133,709
Law Office of Tiffany T. Luther – $128,320
J.D. Hass, Attorney at Law – $74,348
Hugh R. Williams, Attorney at Law – $69,202
Law Office of Rachelle McIntyre – $31,591
MDNC – $27,747
James E. Bowman, PLLC – $16,297
Shawn A. Bozarth, Attorney at Law – $15,791
Bush Law Group – $11,951
Donald Moore, PC – $10,542
Employees who were advanced money that is owed are:
Augusta Rita (Who blew the whistle on Morgan Drexen to the CFPB)
They then list Rita Augusta as being the source of potential claims against her.
There are some notes attached that say:
MDRX Business Services was a borrower from Morgan Drexen of $2,680,000.
MDRX Marketing Services was a borrower from Morgan Drexen of $430,000.
MDRX Marketing Services was a borrower from Morgan Drexen of $681,033.
Carthusian IP Holdings was a borrower from Morgan Drexen of $2,960,000.
Walter Ledda and Awadhesh Gupta appear to have signed all of those agreements as an officer for the non-Morgan Drexen companies. – Source
Schedule E & F
Awadhesh Gupta – Unpaid wages January 2013 – December 2014 – $12,475
Walter Ledda – Unpaid wages January 2013 to August 15, 2014 – $12,475
Internal Revenue Services – 2014 Taxes – $966,172
Internal Revenue Services – 2013 Taxes – $300,325 – Source Source, Source, Source
Under contracts and unexpired leases Morgan Drexen lists:
MDRX Business Services – sublease (The MDRX Business Services sublease is signed by David Walker as Chief Financial Officer.)
Pinnacle Claims Management – sublease – Source
Interesting that David Walker also signed the Morgan Drexen building lease as the Morgan Drexen CFO. – Source
Statement of Financial Affairs
2015 YTD Morgan Drexen, Inc. – $2,926,011
2014 Morgan Drexen, Inc. – $22,886,943
2013 Morgan Drexen, Inc. – $34,656,511
Even I was surprised by the number of suits Morgan Drexen is involved in. If you click on the images below you can see a larger image. The suits cover a range of issues including violations of the Telemarketing Sales Rules, enforcement of out of state judgments against them, worker’s compensation and labor claims, discrimination, failure to pay wages, Colorado suit under the Debt Management Services Act, violation of the Telephone Consumer Protection Act, violation of the Georgia Debt Adjustment Act, failure to perform services, NJ class action suit, violation of the Ohio Debt Pooling Act, violation of the NJ Debt Adjustment and Credit Counseling Act, violation of the Wisconsin prorating statute, violation of the West Virginia Consumer Credit and Protection Act, violation of the West Virginia Debt Pooling Statute, unauthorized practice of law, violation of the Virginia Debt Management Plans Act, enforcement action by Wisconsin. – Source
Statement of Financial Affairs – Item 7
In the last year, Morgan Drexen donated $4,845 to charity.
What is interesting is Morgan Drexen has been paying their bankruptcy attorney for services related to debt counseling or bankruptcy since the beginning of March.
March 5, 2015 – $13,069 pre-petition advice
April 24, 2015 – $9,000 pre-petition advice
April 24, 2015 – $15,000 for Chapter 7 fee plus $335 filing fee.
This section also describes the different services the affiliated companies were providing:
Carthusian IP Holdings – “Purchased the IP and other intangible property of Morgan Drexen.”
MDRX Business Services – “Purchased the attorney support and paralegal service lines and all related fixed assets or related property of Morgan Drexen.”
MDRX Marketing Services – “Purchased the marketing management and advertising service lines and all related fixed assets or property of Morgan Drexen.”
MDRX Marketing Services – “Purchased the legal intake and sales service lines and all related fixed assets or related property of Morgan Drexen.”
The ownership of Morgan Drexen is identified:
Awadhesh Gupta – Chief Information Officer – 15.1% ownership
Rita Augusta – Former Chief Operations Officer – 4.3% ownership
Morgan Drexen Holdings Trust – 80.6% ownership
Wages – May2014 to April 2015
Walter Ledda – $855,222
Awadhesh Gupta – $378,992
Rita Augusta – $153,957
David Walker – $182,344
Jeffrey Katz – $155,208 – Source
Morgan Drexen says that between May 1, 2014 and April 30, 2015 it only spent $16,965 on marketing and it earned $8,922,319 from support and servicing fees. That last bit is interesting since they said MDRX Business Services acquired all the attorney support and paralegal service lines.
There is one very interesting line that says they made $14,718,581 from “Settlements & Judgments.” Judgments? – Source