Colorado Business Litigation Lawyer Blog

Who hasn't caught an infomercial or two late at night when sleep is elusive? A friendly vibrant host touting a get rich quick scenario while you're fretting over a mounting pile of bills soon starts to sound appealing.

However the Federal Trade Commission and the Colorado Attorney General seem to take infomercials claims quite seriously. They recently joined in filing a suit in Denver U.S. District Court against the Dalbey Education Institute (formerly America's Note Network), which is based in Westminster, Colorado. Their concern was with the company's 2002 to 2010 infomercial entitled "Winning in the Cash Flow Business" that aired across the United States and Canada. The spot featured an "Emmy award Winning Host", Gary Collins.

The company's pitch is that by buying various CDs, DVDs and booklets ranging from $39.95 to $159, one can learn how to locate and broker promissory notes, which will quickly earn you significant amounts of money without much effort. The complaint however, alleges that the company's infomercials are deceptive and misleading.

The FTC brought their complaint under the Federal Trade Commission Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act to secure relief, restitution, and the "disgorgement of ill-gotten monies" for deceptive practices. The State of Colorado brought their action under the Colorado Consumer Protection Act for similar reasons.

The lawsuit contends that DEI and its principals engaged in deceptive trade practices through an organized network of companies and knowingly made false representations, as very few consumers ever earned money after purchasing the advertised materials or broke into the promissory note business.

The Telemarketing Sales Rule prohibits telemarketers and sellers from misrepresenting "[a]ny material aspects of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer" and from "[m]aking a false or misleading statement to induce any person to pay for goods or services."

The complaint asks the Court for relief by entering permanent injunctions against Defendants to prevent future violations, award relief to consumers as is deemed appropriate, and for reimbursement of court costs.

Denying the allegations, DEI views this as an attack on a respected local company and intends on fighting the lawsuit.

Unfortunate news blows in for one of Colorado's top employers as Vestas Wind Systems faces a class action lawsuit filed in Colorado's U.S. District Court. The lawsuit alleges that the wind turbine company that employs roughly 1600 Coloradoans violated the U.S. Securities Exchange Act of 1934.

The suit alleges that misleading information was posted about the company's 2010 earnings, which resulted in losses to investors of Vestas stock and their pension fund. Four of Vestas' officers are singled out for knowingly releasing the false statements in financial reports and press releases.

Apparently an accounting procedure, which failed to be implemented by its January 2010 due date would have prevented the false statements from being disseminated. Vestas did not make this accounting change until November of 2010.

During the time period in question, it is alleged that ordinary shares traded at unnaturally inflated prices. Then when sobering second quarter news was posted, stating that several million dollars in revenue would have to be deferred, the market reacted accordingly with a 22.5 share drop in one day.

The lawsuit goes on to accuse Vestas officers of benefiting by receiving millions of Euros in salary and incentive-based compensation.

Vertas and its individual defendants are planning on vigorously defending this lawsuit claiming that the suit was filed without merit. So you make the call, meritorious claim or a lot of hot air?

We wrote back on April 29, 2010 about what some SEC staffers were doing while Bernard Madoff was busy perpetrating a massive fraud against his investors. Some high-level employees, including SEC attorneys, were spending as much as eight hours a day watching porn on their government computers.

Now comes word from The Denver Post that, in response to a Freedom of Information Act request by Denver attorney Kevin Evans, the SEC has disclosed that 33 SEC employees and employees of private contractors in the SEC's Denver Regional Office and six other locations were investigated for accessing pornography sites on government computers during working hours. Seventeen of the employees had senior status and earned at least $99,356 in annual salaries.

In an earlier disclosure, the Office of the Inspector General (OIG) says that 24 of the employees who were investigated either resigned or were suspended, counseled or reprimanded. It is unknown if any of those investigated were involuntarily terminated. A federal judge in Denver has ruled to protect the employees' privacy by not releasing the names of the those involved.

It is our observation thataside from the moral implications of porn-watching it really doesn't matter if the slackers were spending their days shopping or just randomly surfing the internet. The fact remains that taxpayers were paying these people handsomely to do the government's work, including work investigating Madoff and other swindlers for the protection of the public.

Don't we have the right to expect more integrity from our public employees, especially from those in supervisory positions? After all, while the supervisors are figuring out ways to waste their time, what are the people they are paid to supervise doing?

Continue reading "SEC Staffers Fiddled While Investors Got Burned" »

Starting in the late 1990s, HealthSouth Corporation, which advertises itself as the nation's largest provider of inpatient rehabilitative healthcare services, began intentionally overstating its earnings in order to meet expectations of Wall Street analysts.

Then in 2002, HealthSouth added non-existent "miscellaneous" assets to its Colorado ledgers to balance its books. It did the same in other states across the nation. By 2003 it had overstated its earnings by at least $1.4 billion. HealthSouth then began filing misleading personal property declarations with Boulder County and other state taxing authorities, to match its fraudulent accounting to avoid raising the suspicion of federal authorities. It then paid personal property taxes on these non-existent assets.

In 2004, HealthSouth filed with Boulder County petitions for refund of taxes paid in 2002. HealthCare admitted that it had inflated income with matching entries to non-existent assets in a fraudulent scheme, and had paid taxes on those bogus assets. Boulder County denied the refund under a Colorado statute it believed controlled the situation.

On appeal, the Colorado Board of Assessment Appeals (BAA) dismissed the petitions, upholding Boulder County. The Colorado Court of Appeals, in a split decision, reversed the BAA, giving a broad interpretation to "overvaluation" of assets as a ground for authorizing a refund.

The Colorado Supreme Court reversed the Colorado Court of Appeals, holding after careful analysis that none of the four conditions for refund authorized by the statute had been met nor existed. These reasons include (1) erroneous valuation for assessment; (2) irregularity in levying; (3) clerical error; and (4) overvaluation.

Intentionally paying taxes on properties it knew did not exist in order to perpetuate a fraudulent scheme does not authorize a refund of those taxes, period.

All Colorado business taxpayers should read the full opinion of the Colorado Supreme Court here.

A bookkeeper for a Colorado financial company was arrested at her home in Jefferson County last Friday for investigation of embezzling $760,000 from a Boulder financial company, starting just two months after she began working for the company in 2006.

Another accountant, who was filling in for the regular accountant while she was off work, discovered that large money transfers were being made into two personal bank accounts. The company then had an audit conducted and notified police of the suspected embezzlement.

This type of employee defalcation seems to happen with regularity, not only in Colorado, of course, but also in states across the nation. The most common cause in these thefts of an employer's funds most often is the lack of regular audits, both internal and external.

All the glowing references in the world for a new bookkeeper or accountant and all the trust that a company develops for that employee should never take the place of regular audits. In addition, employee defalcation insurance -commonly called fidelity bonds--are a must. This type of insurance recognizes that even trusted employees have been know to steal, in which event the employer is reimbursed for the loss by the insurance company.

All businesses should institute basic guidelines to help prevent or minimize employee dishonesty. These guidelines should include at a minimum such steps as making sure that an employee who receives money on behalf of the business is not the same employee who makes the bookkeeping entry for that same money. Another safeguard is seeing that a duplicate of deposit slips prepared by one employee are kept and then compared by a different employee with bank receipts, to ensure that deposit slips are not altered on the way to the bank.

Large business corporations mostly are well aware of how to protect themselves against employee embezzlements. Sometimes, however, medium and smaller businesses tend to be more lax in employee oversight and make themselves vulnerable to financial losses from employee theft.

Continue reading "Companies Must Conduct Regular Financial Audits" »

According to a report issued by the Federal Trade Commission (FTC), Colorado was among the most scammed states in 2009. In its latest annual report, the FTC concludes that Colorado residents ranked high in fraud and identity theft complaints.

Colorado ranked second only to Nevada in fraud and other complaints, with 412.4 complaints per 100,000 population (20,772 complaints), and ninth in identify theft complaints, with 95 complaints per 100,000 population (4,775 victims).

The report's data are based upon 1.3 million unverified complaints received by the FTC, the Consumer Sentinel Network the Internet Crime Complaint Center, Better Business Bureaus, Canada's PhoneBusters, the U.S. Postal Inspection Service, the Identity Theft Assistance Center, and the National Fraud Information Center, among others. Fraud complaints were 54%, 21% were identify theft complaints and 25% were other types of complaints.

No less than 40% of the fraud complaints by method of payment involved credit cards. And a whopping 48% involved contact with victims by internet and e-mail. Victims in the 40-59 age group amounted to one-half of all victims.

As the data amply demonstrate, if there is a way to defraud people, it has been done; if not, there are dishonest individuals and companies who are busily thinking of ways to do it. One way of providing yourself with at least some means of protection is to jealously safeguard personal information such as social security number (including your child's), passwords, middle name (often used as a password), date of birth, address, and telephone number. Always ask why any such information is being requested and refuse to part with if it the explanation doesn't satisfy you.

You have the right to obtain a free copy of your credit report at least every twelve months at annualcreditreport.com. Be sure to analyze the credit report carefully for accuracy and for unexplained inquiries or transactions. Report discrepancies promptly.

To view the full FTC report click here.

Brian Maass of CBS4 Denver reports that an Adams County woman has been charged with buying herself cigarettes and food with taxpayer dollars intended for crime victims.

The 16-year veteran was the assistant victim advocate coordinator for the Adams County Sheriff’s Department. She has been charged with multiple felonies for using gift cards intended for crime victims to pay for necessities. She was videotaped at various stores making purchases for herself.

When confronted, the woman is reported to have said that she stole the cards because “she was hurting for money.” She said she knew it was wrong and that she would repay the money. It is believed that the cards were used only in July and August.

She has been placed on administrative leave without pay, pending resolution of the charges against her of embezzlement, theft and official misconduct.

It is mind-boggling that in an economy with an unemployment rate approaching ten percent a person would jeopardize her long-held job for a few packs of cigarettes. Still, let’s not forget that the law clothes the accused with the presumption of innocence. And, this fundamental constitutional right applies whether one agrees with it or not and whether or not there is a purported confession. See if you can wrap your mind around that concept.

“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” so said Goldman Sachs & Co. when the SEC filed fraud charges against the investment banking and management firm. Read our original report here.

According to The Washington Post, it now appears that “vigorously contest” means that Goldman will pay $550 million, the largest fine the SEC has ever levied against a financial company.

Goldman was accused of failing to disclose to investors that Paulson & Co., a hedge fund, was advising Goldman to purchase individual mortgage-related securities that Paulson believed would lose value. Paulson would then in effect “bet against” the investments. When the housing market collapsed, Paulson reaped billions of dollars in profits, while Goldman investors, who believed the investments were designed to earn them a profit, lost a reported $1 billion.

The language of the settlement agreement was carefully negotiated so as not to constitute admissions of wrongdoing by Sachs in pending civil suits against the company. Nevertheless, Goldman expressed “regret” that it had included “incomplete information” in its materials marketing the investment to clients.

Don’t you just love our financial industry?

Continue reading "A Belated Follow-up to the Goldman Sachs Debacle" »

Avanza stores that marketed primarily to Latino customers admitted in court on Friday, August 13, 2010 that it cheated its customers by charging them 10% more than the price at which its products were advertised.

Some people who had shopped at Avanza in 2008 noted that a sign at the register said “A great way to save—Plus 10% at the register!” When a customer specifically asked about the sign, she was informed that it meant she would save 10% on her purchases at the register. After all, what else could it have meant? When she inspected her receipt, she saw nothing indicating a 10% savings. That’s because Nash Finch Co., the owner of Avanza and other supermarkets and food distribution centers around the country, including Colorado, had intentionally adopted a pricing scheme that was in effect from 2008 until April, 2009, whereby customers were systematically charged 10% more than advertised prices.

Six of the customers sued the owner in 2008. Trial was to begin in Adams County on August 16, but the company caved-in and admitted its wrongdoing. Under the terms of the judgment, each plaintiff/shopper is to receive $700 because of the overcharges. Plaintiffs’ attorneys spent significant time during the discovery phase of the lawsuit. Nash Finch fought the case tooth and nail for almost two years. (I have not looked at the court pleadings, but I think it is a fair assumption that Nash Finch for all this time denied that it had done anything wrong until it finally agreed to the entry of judgment against it.) The judgment also requires that Nash Finch pay to plaintiffs’ attorney fees in a reasonable amount and court costs incurred in prosecuting the lawsuit.

This is another glaring example of just how low the ethics and morals of some businesses have sunk. It would be unfair to say that the store cheated only Latinos. Every customer who shopped there was equally cheated. Having shopped at an Avanza market, I am aware that most of the shoppers were Latinos, though and, in many cases, were people who were the most vulnerable because most considered Avanza to be their neighborhood grocery where they could buy the many types of products that simply are unavailable in other large supermarkets.

After all this, how can anyone ever again trust Nash Finch and the stores it owns? Will the person or persons who made the decision to cheat customers be held accountable by the criminal justice system? Don’t hold your breath!

Continue reading "Colorado Avanza Supermarket Cheats Customers, Admits Wrongdoing" »

A night mail handler at USPS entered a guilty plea in Colorado federal court on August 11, 2010 to two counts of theft by mail. According to a plea agreement, the man will be sentenced in November to one and a half to two years in prison and fined from $4,000 - $40,000.

The man admitted stealing from 100-150 packages a week since January 2008, valued roughly at over $283,000. His haul included CDs, DVDs and Victoria’s Secret lingerie, and came from large on-line sellers such as Amazon.com. He gave the lingerie to his wife and sold the stolen CDs and DVDs to Angelo’s Movies, Music and Gifts, reportedly one of the largest independent music stores in the Denver metro area. Receipts from Angelo’s indicated purchases from the man of 11,829 items valued at over $85,000. Owner Angelo Coiro said that the man was not asked where the merchandise came from. Coiro said he assumed the man owned a business, based on the random nature of the items sold.

Let’s say that over a less than two-year period someone offers to sell you a total of over 11,000 (yes, that’s thousand) random items. Would you at least wonder where this merchandise came from? Or would you just assume the merchandise must be owned by the seller? Or would you simply ask? Oh, and Angelo’s has not been charged with any wrongdoing.

Food for thought.

Gary Noble, 31, of Denver, Colorado, was indicted by a federal grand jury in a 63-count wire fraud scheme, whereby Noble, through various companies he controlled, had his relatives purchase homes with loans obtained from commercial lenders through the use of false and fraudulent documents.

Noble had his relatives buy the homes through Noble Mortgage Company. Another of his companies, Noble Title Agency, issued title insurance commitments purporting to show that the purchasers were purchasing the properties free and clear of any prior loan encumbrances. Any such prior loans were to be paid off from the loan proceeds obtained from the mortgage lenders. Noble Title agency acted as settlement agent for the lenders. Instead of paying-off the prior mortgages from the loan proceeds, portions of the loan proceeds were appropriated by Noble to his own use and benefit. In many cases, the properties were resold shortly after their purchase to Noble’s and his family’s associates.

Noble was arrested in California on June 3, 2010, and is free on bond, pending a court date in Denver Federal Court on June 18. A conviction on each count of the indictment could result in as much as a 20-year prison term and/or a fine of $250,000. The court can also order that restitution (repaying the allegedly ill-gotten money) be made by Noble.

Judge Stephen Victor Wilson, U.S. District Judge in the Central District of California, on April 20, 2010, dismissed a complaint filed by persons who claim they were defrauded by Bernard Madoff’s pyramid scheme.

The investors’ complaint alleges that the Securities and Exchange Commission (SEC) woefully failed to discover Madoff’s scheme long before Madoff confessed that he was running a pyramid scheme and had defrauded investors of amounts totaling billions of dollars.

Readers will recall that I previously wrote about the SECs inaction, incompetence and inexperience in its failure to discover Madoff’s illegal investment scheme. To refresh your recollection on the details of those articles click here and here.

Judge Wilson, in effect, says that the SECs manner of investigation, even assuming “sheer incompetence,” was permissible and protected, given that its actions and failure to act were protected by the “discretionary exception” to the Federal Tort Claims Act. In other words, if the statutes creating and controlling the SEC require discretionary (may act) as opposed to mandatory (must act) powers, those acts or failure to act do not expose the SEC to any liability.

It is expected that the decision will be appealed by the plaintiffs to the U.S. Court of Appeals for the Ninth District.

I will follow this case in the event of an appeal.

Continue reading "California Federal Court Dismisses Investors’ Lawsuit Against SEC for Madoff Losses" »

In an April 28, 2010 Senate subcommittee hearing, Senator Carl Levin (D-Mich.) grilled Daniel Sparks, former head of Goldman Sachs mortgage department, about an email that Sparks received from Thomas Montag, Goldman’s former head of sales and trading. In the June 22, 2007 email, Montag made reference to a series of mortgage-backed investments Goldman was selling to its customers as one “shi**y deal.” Sen. Levin noted that even after the date of the email Goldman continued to sell the same investments to customers. Quite naturally, Goldman officials didn’t tell those customers that it was a shi**y deal.

Sparks continued to deny that the email said precisely what it meant. Instead, he claimed that the email had to be put into context. Sen. Levin observed that the context was “mighty clear,” and asked Sparks if he was at all bothered by the fact that Goldman continued to sell the investments after June 22 with knowledge that it was a bad (fooled you!) deal for the customer.

If corporate greed makes you wince, in the immediate future you should refrain from watching TV and reading newspapers.

Continue reading "Sen. Levin Knows a Shi**y Deal When He Sees One" »

We all know by now what a Ponzi scheme is. Some sharp hedge fund manager or other investment guru sells fund shares, usually to close friends and relatives, and friends and acquaintances of each, promising a higher rate of return than could reasonably be earned in a legitimate investment. Typically, the fund doesn’t generate earnings with which to pay the promised interest to the investors. Instead, money paid in by later investors is used to pay interest to early investors. It doesn’t take much imagination to deduce that this house of cards, so to speak, eventually will collapse. When it does, typically nobody gets paid back.

The Security and Exchange Commission (SEC) is the body with authority to investigate these monetary funds. The SEC can impose huge fines on these bogus companies and freeze and seize their assets. Unfortunately, recent history has shown that the performance of the SEC leaves much to be desired. Click here to read about the breathtakingly inept and careless oversight that the SEC exercised in the Bernard Madoff debacle. To make matters even worse, it recently has been discovered that high level SEC staffers were busy watching porn on their government computers instead of doing the job for which they were hired. One lawyer watched as many as 8 hours of porn during the day.

Now comes an April 28, 2010 Denver Post article that reports that yet another $122 million Ponzi scheme has been discovered operating in Colorado. Sean Miller, a Greenwood Village-based hedge fund manager, said he was the only person involved in the wrongdoing. Although phony financial statements claimed $120 million in assets, there was actually only $15 million in a Morgan Stanley account.

As in all con games, experts say the so-called victims are oftentimes not victims at all. Lured by the promises of unusually high rates of return, these “victims” rarely ask questions about why the investment is consistently making investors so much money.

Will this never end?

Here we go again. Another Wall Street giant has been accused of defrauding its investors. Goldman Sachs & Co., a global investment banking and management firm, allegedly failed to disclose conflicts of interest in mortgage investments it sold during the failing housing market. Fabrice Tourre, a Goldman Sachs vice president, has also been charged by the SEC for his involvement. The Securities and Exchange Commission announced the charges last Friday.

According to Marcy Gordon with the Associated Press, Paulson & Co. is the Goldman Sachs client being investigated. The AP identifies Paulson as “one of the world’s largest hedge funds” and reports them as having paid Goldman approximately $15 million in 2007 for structuring the deals. Losses by investors reportedly exceed $1 billion.

The SEC allegations suggest Goldman failed to disclose to investors that Paulson & Co.
played a part in selecting mortgages and were in a position to profit from the waning mortgage values. Investors were told an independent, objective third party selected the securities.

The Goldman Sachs website reported the following statement today: “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

We will follow the saga and continue to report on it.

Continue reading "Goldman Sachs Faces Civil Fraud Charges" »