On October 11, 2007, the Federal Trade Commission (FTC) obtained a stipulated temporary restraining order barring misrepresentations, appointing a temporary receiver, and freezing the assets of Edge Solutions, Inc. of Delaware, Edge Solutions Inc. of New York, and Money Cares, Inc., all a/k/a The Debt Settlement Company and a/k/a The Debt Elimination Center; Pay Help, Inc.; and Miriam Lovinger and Robert Lovinger. The next step that the FTC is pursuing is to permanently bar the defendants from further violations, force them forfeit their alleged ill-gotten gains, and appoint a permanent receiver. A hearing is scheduled for October 25, 2007.
The lawsuit against Edge Solutions, et al. and the temporary restraining order, receiver and asset freeze reflect the FTC's continued focus on challenging conduct in industries that target financially-distressed consumers that may run afoul of consumer protection laws. We expect that the FTC - as well as state attorneys general, other federal and state regulators, and private plaintiffs (including plaintiffs' class action attorneys) - will continue to investigate and challenge similar conduct exhibited by other debt settlement companies, along with other conduct by companies that target their services at financially-distressed consumers, such as lead generation, list brokering, telemarketing, credit repair claims, and consumer privacy policies that are perceived to be non-compliant with applicable statutes and regulations.
The Edge Solutions' Suit and Stipulated Temporary Restraining Order, Receiver and Asset Freeze
The FTC brought suit against Edge Solutions et al. on October 1, 2007. The Edge Solutions case includes allegations that the defendants operated as a common enterprise. The FTC's complaint alleges that the defendants deceptively market a "debt settlement" operation that allegedly failed to provide services it claimed would reduce consumers' debt, resulting in even more debt for many consumers. The FTC alleges that this conduct violated Section 5 of the FTC Act.
Specifically, the FTC allegations against the defendants include that they represented expressly or by implication that:
- consumers who purchased the defendant's services would be able to pay off all of their debts referred to the program for a substantially reduced amount;
- defendants would contact all of the consumers' creditors referred into the program to negotiate settlements and would begin paying such creditors within several weeks of the consumers joining the program; and
- defendants would provide personalized, one-on-one financial consulting.
Furthermore, according to the FTC's complaint, since at least 2000, the defendants have sold debt settlement services through a number of web sites, offering a "Debt Meltdown Program" they describe as "an aggressive method of helping consumers out of the debt trap and away from the bankruptcy path." The FTC also states that the defendants claim they will negotiate with creditors to enable consumers "to escape debt at a fraction of the total amount they owe," that consumers end up repaying only "60 cents for every dollar that is owed," and that "we can reduce your unsecured debt by up to 60 percent and sometimes more and have you debt free in 18 to 30 months."
While the FTC did not challenge the defendants' handling and use of consumer personal financial data, the stipulated temporary restraining order and relief obtained against Edge Solutions et al. certainly reflects the Commission's concern regarding this conduct. In addition, marketing and advertising claims by other companies similar to that alleged in the Edge Solutions suit has been the subject of private litigation and state regulatory enforcement actions and investigations.
The FTC had moved for an expedited hearing for a temporary restraining order and other relief that had been postponed by a week at the request of the defendants. Despite the advance notice and additional time given to the defendants, the resulting Stipulated Temporary Restraining Order combined with the asset freeze and appointment of a temporary receiver illustrate the drastic enforcement methods at the disposal of the FTC.
The FTC has a long history of targeting companies marketing and advertising to consumers in financial distress - including debt settlement companies and credit counseling agencies - in this manner. Not surprisingly, in many instances, the FTC has gone directly to federal court - without notice to the defendants - and obtained temporary restraining orders, asset freezes, and receivers, which have left defendants with few resources to defend themselves.
Venable LLP's Litigation and Credit Counseling & Debt Settlement Practice
Venable LLP's credit counseling and debt settlement practice provides counseling to credit counseling and debt settlement companies and their service providers on an array of issues, including conduct that may be subject to FTC investigation or enforcement. Our practice group includes numerous seasoned litigators, each with significant credit counseling and debt settlement industry and FTC litigation experience.
For more information regarding the Edge Solutions Stipulated Temporary Restraining Order and FTC compliance, please contact Jonathan L. Pompan at 202-344-4383 / jlpompan@venable.com.
1 FTC v. Edge Solutions, Inc. et al, U.S. Dist. Ct., ED NY, Civil Action No.CV 07-4087; FTC File No: 072-3025 available at
http://www.ftc.gov/os/caselist/0723025/index.shtm.