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CFPB Lines Up Crosshairs on Walter Ledda

By on May 4, 2015

The Consumer Financial Protection Bureau (CFPB) is not holding back after their recent victory with a default judgment and asset freeze against Morgan Drexen. Now they are going after Walter Ledda personally to recover money.

After reporting the recent bankruptcy filing of Morgan Drexen the CFPB filed this long discourse why Walter Ledda should be made to pay for the damages due from Morgan Drexen.

Certainly Ledda’s legal team will file a response but for now, here is the position of the CFPB from court documents.

“As its founder, President and CEO, sole board member, and the controlling member of the committee that determines the company’s strategic and operational decisions, Walter Ledda exercises pervasive control over his co-defendant, Morgan Drexen, Inc. (“Morgan Drexen”). He was deeply involved in the bad faith conduct that led this Court to impose a sanction of default judgment on the company. He has admitted that he knew that Morgan Drexen created and produced fraudulent bankruptcy petitions in discovery. He has also admitted that he participated in the petition-creation project.

Once the fraudulent petitions were produced to the Bureau, Ledda made them the centerpiece of his own defense in this case. The Court then relied on his misrepresentations in denying the Bureau’s Motion for Summary Judgment. Ledda had months – and numerous opportunities – to disclose the true nature of the petitions to the Court, the Bureau, and even his own trial counsel, but he never did. And if not for the whistleblowing by former Morgan Drexen board member Rita Augusta, the Court and the Bureau would have proceeded to trial having no idea that Ledda’s defense was based on profound misrepresentations.

Like Morgan Drexen, Ledda engaged in willful, bad faith conduct that was highly prejudicial to the Bureau, and an affront to the integrity of this Court and our civil justice system. On this basis, and to deter others from committing similar acts, the Court should impose default judgment on Ledda, just as it did on Morgan Drexen.”

“Defendant Walter Ledda founded Morgan Drexen in 2007. At all times relevant to this litigation, he has been Morgan Drexen’s President, Chief Executive Officer, and a member of its board of directors. He is also the controlling member of the company’s Executive Committee, which makes the company’s operational and strategic decisions.

Until 2013, Ledda directly owned more than 75% of the company. He then transferred his shares to a trust that he controls and of which he is the sole beneficiary.

In his capacity as Morgan Drexen’s founder, its President and CEO, a board member, the controlling member of its Executive Committee, and its majority shareholder, Ledda exercises extensive control over the day-to-day affairs of the company.

For example: (1) he developed, implemented, and oversaw the dual program for debt relief that is the subject of this litigation; (2) he directed Morgan Drexen to create the dual program’s “preferred creditor” program, through which Morgan Drexen negotiates with creditors through an internet portal and does not make bankruptcy threats; and (3) he reviews Morgan Drexen’s advertisements, and, among other things, decides when they should be further reviewed by outside counsel.

From 2010 to the present, Ledda has monitored the work of Morgan Drexen through weekly manager meetings. These meetings typically take place on Mondays and Fridays. Ledda sets the agenda for the meetings. Jeffrey Katz is present at these meetings. The purpose of the Monday meeting is for departments to report to Ledda what work they plan to do for the week. The purpose of the Friday meeting is for departments to report to Ledda what work they actually accomplished during the week.

READ  It's What Morgan Drexen Doesn't Say That's Most Interesting

During the investigation stage of this case, Ledda confirmed that he has the power to approve or disapprove projects at Morgan Drexen. He also acknowledged his pervasive control of the company, stating that, at Morgan Drexen, “[e]ventually, the buck stops with me.” In his Opposition to the Bureau’s Motion for Summary Judgment, Ledda even conceded that he “is a control person as to [Morgan Drexen].” Ledda did not even attempt to refute the Bureau’s allegation that he is individually liable for Morgan Drexen’s violations of law, except to note that he “does not control the attorneys” who contract with Morgan Drexen.

Consistent with Ledda’s long history of controlling nearly every facet of Morgan Drexen’s business operations – by his own admissions – Ledda was at the center of the company’s deceitful manufacturing of bankruptcy petitions. Ledda’s own declaration submitted to the Court in support of Defendants’ Opposition to the Bureau’s Motion for Sanctions demonstrates that he authorized, paid for, and was intimately involved in the project to manufacture bankruptcy petitions.18 Among other things, Ledda admitted that he:

  • “[P]layed [a role] in the production of the clients [sic] files for the 480 consumers randomly chosen” by the Bureau;
  • Knew that data used to create the petitions “was scattered and housed in different systems and different formats,” including in “[u]nprocessed Bulk Mail” and “other misc. sources”;
  • Knew that Jeffrey Katz had instructed employees to input data into Morgan Drexen’s systems to create the bankruptcy petitions;
  • Was asked to help with the redaction process; and
  • Decided how to compensate the Morgan Drexen employees who worked to manufacture the bankruptcy petitions.

At the evidentiary hearing held on February 10, 2015 (“Evidentiary Hearing”), Ledda confirmed his central role in the creation and production of the fraudulent petitions. Among other facts, he acknowledged that he:

  • Was directly involved in providing assistance with discovery-related “technological issues” that arose during the course of this litigation;
  • Was informed by Jeffrey Katz that Morgan Drexen was “running behind” in what he referred to as “the redaction project” (redacting personal information from the petitions he was creating);
  • Approved Katz’s request to ask Rita Augusta and other Morgan Drexen employees to assist in the creation of bankruptcy petitions;
  • Discussed with Rita Augusta how to compensate Morgan Drexen employees working on the petition-creation project;
  • Personally approved the method by which Morgan Drexen would compensate these employees;
  • Knew that the petitions that Morgan Drexen produced were not created in the ordinary course of business;
  • Knew that Morgan Drexen employees searched for information not found in the bankruptcy database and inputted that information into bankruptcy petitions that were produced to the Bureau; and
  • Knew that Morgan Drexen employees created bankruptcy petitions for consumers who were no longer enrolled in the dual program and that these petitions were produced to the Bureau.

It is undisputed that, despite his knowledge of and direct participation in the manufacture of bankruptcy petitions, Ledda never told his counsel, the Bureau, or the Court what he knew or what his role was in the project. Further, the Court has established that, at the summary judgment stage, Ledda made “misleading assertions [to the Court] regarding the preparation and creation of bankruptcy petitions that purportedly occurred in the ordinary course of business.” When the Court accepted those asserted facts in its summary judgment order, Ledda did not bring the errors to the Court’s attention.”

Ledda Cannot—and Should Not—Be Permitted to Avoid Liability for his Sanctionable Conduct by Feigning Ignorance

Given Ledda’s own admissions about his central role in facilitating the bankruptcy petition creation project, his misrepresentations to the Court, and his failure to set the record straight despite countless opportunities to do so, it is unclear how Ledda will even begin to try to dig himself out of the default judgment hole.

As the Court noted in its Sanctions Order, Ledda testified during the evidentiary hearing that he “‘expected that [the Bureau] would have been notified of these petitions as they were created outside the normal course of business,’ but claims that he never discussed with Katz whether the Bureau had been informed of the creation of the bankruptcy petitions.”

If this is Ledda’s defense—that he just “never discussed” a project of this magnitude that carried this much risk of sanctionable conduct with the company’s general counsel—then default judgment is even more vital to punish Ledda for feigning ignorance when confronted with the facts.

Ledda’s testimony—which is essentially that it just slipped his mind to ask Katz about what, exactly, Defendants would represent to the Bureau and this Court regarding the authenticity and significance of the petitions he helped create—is self-serving and not credible. Ledda is Morgan Drexen’s “control person.” He facilitated a project to create hundreds of fake bankruptcy petitions at the eleventh hour—risking terminating sanctions due to the delay in production. If he wanted the Bureau and the Court to know the true nature and significance of the bankruptcy petitions, he would not have left such a vital piece of information to chance. But he plainly did not want the truth to come out, which is why his ignorance defense fails.

Ledda’s testimony that he “expected that [the Bureau] would have been notified” about the truth is just one more lie in a long string of lies Defendants have told during the course this litigation.

Even putting Ledda’s credibility aside, he cannot escape terminating sanctions by placing all the blame on Katz.”

You can read all 21 pages, here.

It’s too early to tell how this is all going to end but it’s not looking good for a free pass for Ledda to escape all personal liability. At the very least, I did note in the Morgan Drexen bankruptcy case filed it appears Ledda personally guaranteed the office building lease in Costa Mesa. If Morgan Drexen is not going to be able to pay its bills then this might land on him.

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About Steve Rhode

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.

2 Comments

  1. Chad

    May 7, 2015 at 10:07 am

    For those following up. Ledda has had a new office with a full staff setup for almost 6 months now. They have a full sales and support team under new a new name. I believe they just crossed the 5,000 client mark so as far as business is concerned “business as usual” comes to mind.

  2. Henry Hernandez

    May 5, 2015 at 9:08 pm

    Finally!!!!

    Walter is a crook who deserves all this.. All the trust account on the Bankruptcy Pleading are all his companies he is trying to say are creditors is BS.. He thinks he already hide his money.. I hope they get the whole 90 million and he goes to jail!

    He is a Push 1 dialing scam from day 1..

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