On March 16, 2016, the Costa Mesa, California debt settlement company of Morgan Drexen was ordered by a federal court to pay $132.8 million in restitution to those who enrolled in the company’s debt settlement program between October 27, 2010 and June 18, 2015. The company was also ordered to pay $40 million in civil penalties into the civil penalty fund of the Consumer Financial Protection Bureau (CFPB). The restitution and penalties stem from Morgan Drexen’s business practices in “helping” consumers resolve their debts. The judgment was entered in a lawsuit filed against Morgan Drexen by the CFPB in August 2013. The lawsuit charged that Morgan Drexen violated federal consumer protection laws by illegally charging consumers upfront fees and by misrepresenting its services to consumers.
Misrepresentation of Services and Fees
The CFPB’s investigation into Morgan Drexen’s practices revealed that the company required consumers to sign two different contracts for services. The first contract was for debt settlement services. The other was for bankruptcy related services. The CFPB investigation revealed that consumers were really seeking debt settlement services and not bankruptcy. Little or no bankruptcy related services were actually performed. The CFPB investigation revealed that the real reason for the bankruptcy related services contract was to disguise the illegal upfront fees the company was collecting from consumers.
While the CFPB lawsuit was ongoing, it was discovered that Morgan Drexen had falsified evidence that it had presented to the court. The falsified evidence consisted of altered and fraudulently prepared bankruptcy petitions that Morgan Drexen had submitted to the court the as “evidence” that the company had provided bankruptcy services to consumers. In April 2015, the court found that Morgan Drexen had “acted willfully and in bad faith by falsifying evidence.” In June 2015, the court ordered the company to stop collecting money from any more consumers and to stop charging upfront fees for its debt relief services.
Attorneys Continued Illegal Practices
After the court’s June 2015 order, attorneys Vincent Howard and Lawrence Williamson continued the business practices that Morgan Drexen had been ordered to halt. This ultimately led to these attorneys and their law firms being cited for contempt of court and ordered to pay fines and restitution. The attorneys have appealed this ruling.
In October 2015, the court entered a final judgment against Walter Ledda, the founder of Morgan Drexen. This final judgment ordered Mr. Ledda to:
- pay $500,000.00 to the CFPB for use in providing redress to consumers,
- surrender additional assets,
- pay a $1.00 civil penalty (due to Mr. Ledda’s financial condition), and
- permanently stop providing debt relief services and to refrain from working in the industry.
Morgan Drexen Files Bankruptcy
Morgan Drexen has sought relief in the bankruptcy court. A trustee has been appointed to administer the case and keep the lines of communication open for affected consumers.
If you are a victim of Morgan Drexen’s practices, go here for more information. If you are considering utilizing the services of a debt settlement company, you might consider the Morgan Drexen story as a strong cautionary tale of the risks you could face in dealing with a debt settlement company. Almost certainly, if you are struggling with debt, your best option is to consult with a reputable and experienced bankruptcy lawyer to discuss your situation. Every day, our attorneys meet with individuals and families who are struggling with debt and are in great need of competent and affordable help. Your first visit is free of charge and you are not obligated to take any action as a result of the consultation.
Ed Woods is the Managing Attorney of several of the Bond & Botes Law Offices throughout Mississippi. He holds a Bachelor of Science from the University of Southern Mississippi, and a Juris Doctorate from Mississippi College School of Law. Ed puts his extensive knowledge of bankruptcy law to use defending consumers from debt collection lawsuits and more. Read his full bio here.