Education Corporation of America – Inside Scoop on Why the Schools Closed So Suddenly

With the sudden closure of Education Corporation of America for-profit schools, a lot of students and faculty are very upset about the sudden notice of closure.

A court filing by the Receiver details how the school had to pull the plug. You can read the saga below.

Keep in mind that while the actual closure of the school has disrupted tens of thousands of people, this was a slow moving train wreck and was not the fault of any one party, with the exception of ECA management.

The Inside Story

I. INTRODUCTION

On November 14, 2018, the Court entered the Appointment Order which appointed John F. Kennedy, Esq. as the receiver (the “Receiver”) for Education Corporation of America, Virginia College, LLC (“VC”), and New England College of Business and Finance, LLC (“NECB,” together with Education Corporation of America and VC, “ECA”), with respect to all the business, business interests, and property of ECA (the “Receivership Property”). The Appointment Order authorized the Receiver to: take immediate possession of the Receivership Property and to have the full power to exercise the usual and customary powers afforded to a receiver; operate ECA’s business with a primary focus on financing of the business and other restructuring or sale transactions, custody, and control of all assets of ECA; engage and employee persons to assist him in fulfilling his duties; acquire and retain all rights to operate and maintain ECA; to assert any rights, claims, or causes of action on behalf of ECA; pay from ECA’s assets any costs incurred from instituting or defending any action; have all the powers of the directors, officers, and managers of ECA; use, sell, or lease the Receivership Property; obtain credit and other financial accommodations for the benefit of the Receivership Property; enforce, disavow, reject, impair, or terminate any contract, agreement, or lease; and, take any further action as the Court deemed equitable. Doc. 26, pp. 4-7.

The Appointment Order also granted the Receiver immediate access to ECA’s financials and business premises. The Appointment Order required the Receiver to report to this Court and the parties information regarding and describing the Receivership Property within sixty (60) days after the entry of the Appointment Order. Doc. 26, p. 7. The Receiver has prepared and filed this Initial Report within the first thirty (30) days of the Receiver’s appointment due to the recent significant hardships facing ECA and the Receiver’s decision to implement the necessary wind-down.

II. DISCUSSION

The November 14. 2018 Hearing

During the hearing on November 14, 2018 (the “Appointment Hearing”), certain representations were made before the Court. First, counsel for ECA informed the Court that ECA was seeking additional funding from ECA’s investors. With the anticipated additional funding from the investors, along with the ordinary course of Title IV funds from the Department of Education (“DOE”), ECA would continue to operate, through the Receiver, by implementing the restructuring plan (“Restructuring Plan”). This Restructuring Plan contemplated allowing a predetermined twenty-six (26) campuses (the “Teach-Out Campuses”) to achieve a teach-out then close, while allowing forty-five (45) campuses (the “Go-Forward Campuses”) to continue to operate in their ordinary course. During the Restructuring Plan, potential buyers were to be actively and intentionally pursued to purchase ECA. Once a potential buyer was approved and the funds from that sale were held by the Receiver in the Receivership Property, a claims process would be employed to allow all secured and unsecured creditors to make claims on the Receivership Property. The Receiver affirmed to the Court that he had been made aware of ECA’s Restructuring Plan, with the ending goal being the sale of ECA (or its assets or substantially all of its assets), and the feasibility of the plan. Furthermore, as the Receiver stated during the Appointment Hearing, having an investor with the ability and willingness to infuse additional funds into ECA distinguished ECA and the appointment of a receiver in this case from any other receivership the Receiver had been appointed to.

During the execution of the Restructuring Plan, the Appointment Order enjoined all landlords from exercising certain rights against ECA and the Receivership Property. Specifically, landlords and “all other interested persons [were] enjoined from interfering with […] property of the Receivership Estate [. . . .]” Appointment Order, Doc. 26, p. 9. The Court, however, ordered the Receiver during the Appointment Hearing to pay the landlords’ monthly rent as long as the Receiver allowed ECA to remain in the landlords’ properties. The Receiver affirmed to the Court that stub rent from the date of the Receiver’s appointment would be paid for the month of November, and that moving forward, it was the intent that monthly rents would be paid to the extent the ECA remained in the landlords’ properties.

The Receiver’s Initial Due Diligence

Following the Receiver’s appointment, the Receiver commenced his due diligence regarding the financial status of EC A. A day after the Appointment Hearing, November 15, 2018, the Receiver, along with representatives from EC A, met with representatives from One Beacon. One Beacon is an issuer of surety bonds that had recently rescinded ECA’s bonds due to ECA’s financial condition. These bonds are required by some state licensing agencies as a condition of approval. The bonds are intended to protect students and states’ interest in the event a school cannot fulfill its commitments to its students. Through the Receiver’s negotiations, One Beacon agreed to reinstate a portion of ECA’s bonds in return for partial collateral. One Beacon also agreed to meet with the Receiver on a monthly basis to further discuss and negotiate additional collateral for the reinstatement of additional surety bonds.

On November 20, 2018, the Receiver traveled to Birmingham, Alabama to visit with the ECA leadership team at the ECA headquarters. During the time in Birmingham, the Receiver met with department heads to attain a better understanding for the procedures and systems already in place, specifically the accounting, financial aid, and legal departments. The Receiver also had an introductory and substantive telephone conference with the president and chief executive officer of ECA, Mr. Stuart Reed.
Procedures and systems were established for the approval of disbursements. The Receiver met with ECA’s chief financial officer, Mr. Mike Ranchino, and other ECA financial representatives to set forth the guidelines for which disbursements above a certain individual or aggregate amount, or those extraordinary to the normal course of business, were to be first approved by the Receiver. Those requested disbursements generally included categories such as: rent, accounts payables, payroll, stipends, regulated disbursements, and vendors. Attached as Exhibit A is the true and accurate summary of the requested disbursements that were approved by the Receiver.

The Receiver also implemented avenues of communication with the vendors and landlords. On or about November 20, 2018, a letter was sent to vendors to place the vendors on notice of the Appointment Order and the accompanying preliminary injunction. The letter also informed the vendors of the Receiver’s intent to continue to operate EC A during the pendency of the receivership, and that in the future, a claims process would be implemented for the purpose of addressing any claims a vendor may have against ECA. Additionally, the Receiver attempted to communicate with the landlords that initially reached out to the Receiver regarding the implications of the Appointment Order to the landlords’ respective properties.

The Receiver also worked directly with ECA leadership regarding the continued efforts to solicit a buyer for ECA, a major component of the Restructuring Plan. The Receiver joined weekly calls with Parchman, Vaughan, & Company, L.L.C. (“Parchman Vaughan”), the private investment banker hired to lead the sale of the Receivership Property. These weekly calls provided updates regarding the market for the sale of the Receivership Property, and provided the status of the preliminary conversations regarding any possible bids for the Receivership Property.

Unintended Hardships

As noted above, there were two key aspects for the success of the Restructuring Plan: additional funding from the investor, and the continued ordinary course of the federal Title IV funding from DOE. Unfortunately, both aspects of funding were not received as anticipated to allow the Restructuring Plan an opportunity to succeed. Following a roller-coaster like series of events, and despite the tremendous efforts of the Receiver and the Receiver’s professionals, the Receiver was left with no decision but to implement the necessary wind-down and direct abrupt closing of the ECA campuses.

On November 8, 2018, the DOE placed ECA’s institutions on Heightened Cash Monitoring 2 (“HCM2”). ECA and its institutions were previously on Heightened Cash Monitoring 1 (“HCM1”), which allowed ECA to draw its obligated Title IV funds on a weekly basis. On HCM2, however, ECA would only be allowed to request Title IV funds on a monthly basis, with DOE disbursing the funds only after its review and approval of numerous documents ECA would be required to submit to the DOE. While ECA was placed on HCM2 days before the appointment of the Receiver, the full ramifications of the restricted flow of federal funds was not fully known or appreciated until after the appointment of the Receiver.

The Receiver, along with ECA leadership, promptly began to appeal the DOE’s implementation of HCM2. Mr. Roger Swartzwelder, general counsel for ECA, sent several notes and objections to the DOE, articulating reasons why HCM2 was not appropriate for ECA. These objections and requests for reconsideration were all denied, with little analysis and reasoning provided for the denials. Furthermore, the Receiver requested to have direct communication with DOE regarding its decision to place ECA on HCM2. In an email dated Wednesday, November 21, 2018, the Receiver specifically requested a meeting with the DOE representatives to discuss the implications of HCM2 on ECA and any possible avenues to have HCM2 rescinded or modified. The Receiver, at least initially, did not receive any communication from the DOE regarding their willingness to meet, or communicate at all, with the Receiver.

The DOE’s actions of placing ECA’s institutions on HCM2 had additional direct ramifications on the success of the Restructuring Plan. According to the investors, ECA’s placement on HCM2 was a substantial change in conditions that, again according the investors, caused investors’ offer for the additional funding to ECA to be reconsidered and rescinded. The Receiver negotiated and communicated with the investors, on a daily basis, to ensure that the investors appreciated the fact that without the additional funding, the Restructuring Plan would not be given an opportunity to succeed. Likewise, the Receiver was abundantly clear with the investors that without the originally promised additional funding being received in a timely manner, ECA would face a necessary wind-down. Through the continued discussions and negotiations with the investors, it became clear to the Receiver that additional funding would not be given while ECA remained on HCM2.

Based on this information, the Receiver and ECA leadership again turned their efforts to the DOE. As the DOE continued to refuse to communicate with the Receiver, the Receiver sought additional remedies to open channels of communication with the DOE. These channels included use of elected officials and current ECA board members directly advocating on ECA’s behalf before the DOE. Through these efforts, a line of communication was established between the DOE and the Receiver.

The DOE granted the Receiver an opportunity to discuss ECA and HCM2 in person in Washington, D.C. On November 30, 2018, the Receiver and Mr. Ranchino traveled to Washington for a series of meetings with DOE representatives. During these meetings, the Receiver and Mr. Ranchino communicated ECA’s financial status and the Receiver’s intent to implement the Restructuring Plan. It was communicated that the success of the Restructuring Plan would provide ECA’s thousands of students an opportunity to continue their education while a structured teach-out process was implemented, instead of an abrupt closure of their campuses. The Receiver requested that ECA be removed from HCM2, or in the alternative, that there be a modified version of HCM2 implemented. With at least a minimum of a modified version of HCM2, this would allow the timely flow of federal funds to ECA, and to allow the Receiver to obtain the additional funding from the investor. Furthermore, the Receiver specifically informed the DOE that without the timely flow of federal funds from the DOE, and the additional funding from the investor, the Receiver would have no choice but to implement the necessary wind-down of ECA, without providing a full proper teach-out, at the beginning of the following week. The DOE made no representations regarding the Receiver’s request, or when a decision would be made regarding the Receiver’s request.

Within the next forty-eight hours of the Receiver’s trip to Washington, the DOE requested certain financial documents and student records. The Receiver directed ECA to work with and to provide the DOE with any documents that was requested. To the best of the Receiver’s knowledge, all requested documents have been provided to the DOE.

On Monday, December 3, 2018, it became increasingly clear to the Receiver that the DOE would not provide relief from HCM2, and that the investors would not provide the additional funding. Although there remained the possibility of additional funding to implement the Restructuring Plan, ECA professionals provided cash-flow projections that demonstrate that the decision to implement a necessary wind-down must be made the morning of Wednesday, December 5, 2018. In preparation for the likelihood that the necessary wind-down would commence, the Receiver and ECA leadership began to discuss the practical plans to implement the wind-down. The discussions included the communications to campus presidents, employees, and students; providing instructions for students to receive transcripts; and the actual closure of the schools.

On Tuesday, December 4, 2018, less than twenty-four hours from the commencement of the wind-down process, several events added to the roller-coaster like series of events. First, a potential investor approached the Receiver with an offer to infuse a substantial amount of capital to ECA for implementation of the Restructuring Plan. This offer, however, was simply a preliminary offer, and the potential investor requested that the Receiver delay commencing the necessary wind-down by forty-eight hours in order for the potential investor to conduct due diligence. A significant aspect of the potential investor’s due diligence included communicating with DOE and gaining DOE’s approval, a task that the Receiver was fully aware would not be achieved quickly. As the cash forecast clearly did not allow for a forty-eight hour delay from commencement of the wind-down, the requested delay was not a viable and prudent option for the Receiver. In the Receiver’s efforts, however, to attempt to gain the additional funding, the Receiver offered the potential investor the opportunity to purchase the requested forty-eight hours at a rate to cover ECA’s expenses for delaying the wind-down. The Receiver reiterated to the potential investor that this was the only way to delay the wind-down from being commenced on the morning of Wednesday, December 5, 2018. The potential investor was not willing to purchase the additional time in response to the Receiver’s terms.

Second, the original investor still remained unwilling to commit to the original offer for additional funding. Although being informed throughout the previous week that a decision regarding the necessary was looming, the investor requested additional time for the possibility to secure additional funding. The Receiver made this investor the same offer as was made to the new potential investor: that if the wind-down was going to be delayed for a period of time, such an extension would have to be purchased. The investor would not commit to purchasing the extension, but requested until the morning of Wednesday, December 5, 2018, to make the ultimate decision regarding the extension.

The third major event that occurred on Tuesday, December 4, 2018, was the decision by the Accrediting Council for Independent Colleges and Schools (“ACICS”). ACICS is the accrediting body for all of ECA’s institutions, other than NECB. ACICS had recently issued a show-cause order for ECA regarding the status of ECA’s accreditation and had scheduled a hearing for Wednesday, December 5, 2018. Upon knowledge that ECA was seriously considering a wind-down due to ECA’s financial status, ACICS withdrew ECA’s accreditation effective December 19, 2018, which date ACISC later extended to December 21, 2018. The hearing was still held on Wednesday, December 5, but ACICS’s decision to withdraw the accreditation stood.

Upon hearing of ACICS’s decision to revoke ECA’s accreditation, the original investor informed the Receiver, in writing, that he was no longer considering purchasing an extension to delay the wind-down. Additionally, the investor was not interested in providing the originally discussed additional funding and informed the Receiver that he agreed a wind-down was appropriate at this time. Having no other options or alternatives, and having exhausted all reasonably possible leads for additional funding, the Receiver directed that the necessary wind-down commence on the morning of Wednesday, December 5, 2018.

The Wind-Down Process

Without offering insight as to whether ECA would receive relief from HCM2, the DOE requested that the wind-down should attempt to achieve the softest landing for the most students possible. Pursuant to this request, the Receiver made accommodations to the necessary wind-down plans to allow an expedited teach-out, followed by a domino-closing schedule of the campuses. According to this schedule, those campuses that did not have any academic modules being completed, or graduations be completed, within approximately two weeks of the start date of the wind-down, would be closed on December 7, 2018. All other campuses would remain open until the date the modules or graduations at the respective campuses were completed, after which those campuses would also close. Based on this plan, the anticipated date for closure of all campuses was December 21, 2018. Although this planned closing schedule would abruptly close nearly all of ECA’s campuses, this was the softest landing, and likely only landing, reasonably possible at this point.

In order to execute this expedited teach-out and domino-closing schedule, additional funding was needed. The Receiver first communicated with the original investor to secure a smaller amount of additional funding to provide for this closing schedule. The investor was willing to work towards a funding deal to help the students, but the investor was unable to fully commit to the funds. Through daily, and at times hourly, negotiations with the investor, the Receiver was able to reach an agreement to secure funding in order to fully implement the expedited teach-out and domino-closing schedule. At the time of the filing of this Receiver’s Initial Report, the Motion to Approve Additional Funding, with an attached proposed order, had been filed and is before the Court.

The Receiver also sought to secure necessary additional funding from the DOE. As the above-mentioned expedited teach-out process was DOE’s request, and because ECA was entitled to federal funds for those students that remained enrolled in class for an additional two weeks, the Receiver requested additional federal funding. The DOE appeared to entertain the idea of providing additional federal funding solely for the purpose of the teach-out and wind-down process. The DOE again requested numerous documents from ECA to review before approval of the funds could be considered. Additionally, a full and complete audit of the supporting documents was also ordered by the DOE as a condition of the federal funds being released. To date, the Receiver has not received a full commitment from the DOE to help fund the teach-out. The DOE has commented that if funds are made available to the Receiver to fund the teach-out, those funds would not likely be available until January.

The wind-down process began Wednesday, December 5, 2018. Based on the domino-closing schedule, approximately three thousand two hundred (3,200) employees were terminated and thirty eight (38) campuses were closed on December 7, 2018. Skeleton crews remained behind to scan and destroy sensitive documents on those campuses that were immediately closed. The campuses that remained open as part of the expedited teach-out process only retained the faculty required to complete the modules and for graduation. All other staff was also terminated. The corporate office was also vastly reduced, leaving only a select few on staff to implement the wind-down to the end.

Due to the abrupt wind-down of the campuses, the response, as was expected, has been shock. Unfortunately, that feeling of shock has led to vandalism and theft at some of the campuses. The Receiver has directed ECA officials at the affected campuses to report all disturbances with the police, and to file police reports where necessary. At some campuses, additional security has been provided as applicable.

The decision to implement the necessary wind-down process was an extremely difficult decision to make. The Receiver delayed making the decision until the last possible moment to allow additional funding to be secured, from numerous different sources. Unfortunately, the promises of funding never amounted to anything, and the decision to implement the wind-down had to be made. The consequences from the lack of funding from the investor and the DOE resulted in approximately eighteen thousand students’ (18,000) education abruptly ending, and more than three thousand (3,000) employees being unemployed.

Moving Forward

As the wind-down process proceeds, the Receiver has begun to implement several additional actions. On December 6, 2018, the Receiver sent a letter to all landlords and landlords’ counsel to provide an update regarding the operations of ECA. The letter represented the unforeseen hardships discussed above, and how those had directly impacted implementing the Restructuring Plan. In compliance with the Court’s desires, the Receiver informed the landlords that following the wind-down, all properties occupied by ECA would be vacated in an orderly and timely manner, and turned over to the property owners/landlords. The Receiver attached to the letter an exhibit that set forth the timeline for all of the currently occupied properties to be returned to the landlords. Attached as Exhibit B and Exhibit C is the letter sent from the Receiver on December 6, 2018, and the schedule for the Receiver to return the properties to the landlords respectively.

The Receiver will support the continued operations of NECB. The Receiver has had direct communications with the DOE to allow NECB to be carved out and allowed to continue to operate pending a future sale. NECB remains accredited by its regional accrediting agency, separate from ACICS. Furthermore, ECA professionals have represented to the Receiver that a sale of NECB would attract substantial attention, with a possible bid ranging between ten to twenty-seven million dollars. Any sale of NECB would add great value to the Receivership Estate. For the Court’s benefit, attached as Exhibit D is ECA’s twelve-week cash flow forecast to illustrate the continued funding to NECB, as well as the other ordinary wind-down expenses, as NECB is moved forward through the sale process.

Furthermore, the Receiver is preparing to form a claims process to address the creditors concerns and will address those accordingly. The Receiver anticipates filing a motion to approve a claims procedure whereby creditors may file proofs of claims with the Receiver by certain deadlines to evidence their claims against Defendants in order to participate in the distribution of assets from the Receivership Estate, if any, according to their priority. To facilitate this process, the Receiver expects to solicit bids from and employ a third-party claims processing agent (the “Claims Agent”) which will send a Court-approved notice to file claims (the “Notice to File Claims”) and accompanying proof of claim form to all known creditors of Defendants. The Claims Agent will assist the Receiver with receiving, processing, and administering all proofs of claims filed by creditors. The Receiver will review and determine the treatment of these claims for distribution. – Source

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

My Daughter Signed My Name on Credit Cards She Got and I Don’t Know What to Do

Question:

Dear Steve,

My daughter signed up for two credit cards and had my name added on I did not sign anything.

If my daughter files for bankrupt can they go after me for the balance?

Jerry

Answer:

Dear Jerry,

Yes, unless you identify yourself as a victim of identity theft. You will need to file a police report and the card company may file criminal charges against her.

If you don’t do this then you will either have to legally prove you did not sign and the credit card company may pursue your daughter for fraud or you can pay it and avoid all the consequences of being a victim of a financial crime.

I find that identity theft is most often perpetrated by people we know. Family and roommates have the easiest access to our information.

The Federal Trade Commission put together a very good site to assist with identity theft issues. Go to IdentityTheft.gov for a step-by-step process to detach yourself from this fraudulent debt.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

United States Sues Freight Companies for Systematic Overcharging of Shipments

The United States has filed a complaint in the Western District of New York against YRC Freight Inc., (YRC); Roadway Express Inc. (Roadway); and Yellow Transportation Inc. (Yellow), alleging that these companies systematically overcharged the government for freight carrier services and made false statements to the government that hid their misconduct, the Justice Department announced today.

The United States filed this lawsuit in U.S. District Court in Buffalo, New York.  The United States alleges that, for more than seven years, the defendants defrauded the Department of Defense by millions of dollars for shipments that were actually lighter, and thus cheaper, than the weights for which the defendants charged the government.  The United States further alleges that the defendants knowingly made or used false statements concealing their overcharging practices to the Department of Defense. 

“Those who do business with the government must do so fairly and honestly,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “Knowingly overcharging the government is an affront to American taxpayers, and the Department of Justice will seek to ensure that those who engage in such misconduct are held accountable.”

Specifically, the United States’ lawsuit alleges that the defendants reweighed thousands of shipments and suppressed the results whenever they indicated that a shipment was actually lighter than its original estimated weight.  Thus, instead of charging the Department of Defense for shipments based on the correct weight, the defendants knowingly billed the government (and their other customers) based on weights that they knew to be inflated.  The defendants also allegedly made false statements to induce the Department of Defense to use them as freight carriers and further knowingly made or used false statements to improperly avoid their obligations to correct inflated invoices and return overpayments. 

“When a federal agency, such as the Department of Defense, enters into a service contract with a private corporation or company, the expectation is that the agreement will be administered in good faith,” stated U.S. Attorney James P. Kennedy Jr. for the Western District of New York. “In this case, YRC did not legally fulfill its agreed upon obligations to the Defense Department, choosing instead to line its pockets with tax payer’s dollars. Such actions are fraudulent and illegal. This case should serve as a warning to any organization that enters into a contract with the federal government—if you try to rip us off, be prepared to pay a heavy price.”        

“This complaint is the result of a successful investigation to identify those who seek to profit by defrauding the Defense Department,” stated Leigh-Alistair Barzey, Special Agent-in-Charge, Defense Criminal Investigative Service (DCIS), Northeast Field Office.  “DCIS will continue to investigate procurement fraud allegations, along with its law enforcement partners, in order to protect U.S. military members and the American tax payer.”

The original lawsuit in this case was filed by James Hannum under the qui tam, or whistleblower, provisions of the False Claims Act.  Under the act, private citizens can bring suit on behalf of the United States for false claims and share in any recovery.  The act permits the government to intervene in such lawsuits, as it has done here.  Those who violate the act are subject to treble damages and civil penalties.  

This matter was investigated by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of New York, the Defense Criminal Investigative Service, and the United States Army Criminal Investigation Division Command.

The case is captioned United States ex rel. Hannum v. YRC Freight, Inc.; Roadway Express, Inc.; and Yellow Transportation, Inc., Civil Action No. 08-0811(A) (W.D.N.Y.). 

The claims asserted in the United States’ complaint are allegations only and there has been no determination of liability.  

This article by the Department of Justice was distributed by the Personal Finance Syndication Network.

FTC and State of Florida Win Summary Judgment: Court Orders Ringleader of Debt-Relief Scam to Pay $23 Million and Imposes Industry Bans

Kevin W. Guice defrauded more than 10,000 consumers nationwide

A federal judge in Florida has permanently banned Kevin W. Guice from the telemarketing and debt-relief industries, agreeing with the Federal Trade Commission and the State of Florida that he founded and operated a massive debt-relief scam that took in over $23 million from more than 10,000 consumers, until halted by a June 2016 temporary restraining order.

“Guice bombarded consumers with illegal robocalls and tricked them into paying thousands of dollars for worthless credit card debt reduction services,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “Working with our partners in the Florida AG’s office, we were able to bring Guice to justice and stop this massive fraud.”

According to the evidence the court used to make its ruling, Guice’s operation consisted of two telemarketing companies and 11 shell companies which worked as a common enterprise to sell two types of fraudulent debt relief services, all while concealing Guice’s involvement. Operating out of a boiler room in Orlando, Florida, Guice’s telemarketers inundated consumers with millions of robocalls, including calls to telephone numbers on the FTC’s National Do Not Call Registry.

Using aliases such as “Bank Card Services” and “Credit Assistance Program,” Guice’s telemarketers falsely claimed to be a “licensed enrollment center” for major credit card networks like MasterCard and Visa, and promised consumers that they would substantially and permanently lower their interest rates. Guice charged consumers illegal up-front fees of between $500 and $5,000 for this service, but consumers did not obtain the permanent and substantial interest reductions they were promised.

Guice’s operation also pitched a bogus credit card debt-elimination service, charging between $2,500 and almost $26,000 up front, claiming that they could access funds from the government or from a lawsuit against the credit card industry to pay off consumers’ credit card debt. There were no such funds, and consumers who purchased Guice’s debt-elimination service wound up deeper in debt with damaged credit scores and higher interest rates and late fees.

What the Final Order Means

The order and permanent injunction resolve the FTC’s and the State of Florida’s charges against Guice under the Federal Trade Commission Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The order contains both injunctive and monetary relief, permanently barring Guice from all telemarketing, either directly or through an intermediary.

The order permanently bars Guice from advertising, marketing, promoting, offering for sale, selling, or assisting anyone else in any of these activities in relation to the provision of debt-relief products or services. It also permanently bars him from making a range of material misrepresentations related to the marketing or sale of any product.

Next, the order permanently bars Guice from failing to clearly and conspicuously disclose any of the items above, as well as from taking a cash advance against consumers’ credit cards or causing billing information to be submitted for payment before getting consumers’ express written consent to do so.

Finally, the order imposes a non-suspended judgment of $23,099,878 against Guice, payable to the Commission, for restitution to the consumers he defrauded. In addition to cash, Guice will surrender his 55-foot ocean yacht (the “Tuff Life II”), a luxury-watch collection, and other personal property to a court-appointed receiver.

This case was brought jointly with the State of Florida’s Office of the Attorney General, and the FTC appreciates its assistance in this matter.

This article by the FTC was distributed by the Personal Finance Syndication Network.

Make Sure You Die Before Your Parent PLUS and Federal Student Loans Are Forgiven

Life is ironic at times. And more questions are coming up about what happens if I die and owe federal student loans.

Here is the answer.

A Death Discharge is available for these types of federal student loans: Direct Loans, Grad PLUS Loans, Federal Family Education Loan (FFEL) Loans, and Perkins Loans.

There are two types of federal student loans to consider with a Death Discharge: Parent PLUS and regular student loans.

Parent Plus Loans After You Die

So you did a good thing and helped someone go to school. You may have taken out a Parent PLUS loan or even consolidated more than one into a new Direct Loan and opted to repay it under the Income Contingent Repayment (ICR) program.

As it stands right now if the holder of a Parent PLUS loan dies or the student dies who received the benefit of the loan – the loan can be discharged.

Student Loan Holder Dies

If the student is the obligated part on a federal student loan and passes away then the loans will be discharged and since the balance will be zero there will be no claim against the estate or remaining assets of the student debtor.

No Tax Liability

As it stands as of the date of this article, federal student loans are discharged tax-free the balance goes to zero.

The no tax liability death discharge is currently scheduled to expire at the end of 2025 when the tax provision it is a part of will expire. Hopefully, the law will be extended.

Of course, tax rules can change so be sure to confirm the current tax liability by seeking advice from a licensed tax professional you trust.

How to Get a Death Discharge

The executor of the estate or someone managing affairs for the deceased person will need to contact the Parent PLUS or regular federal student loan servicer and advise them of the death. They will have to supply an original death certificate when requested. A notification alone is not going to be sufficient.

Document all communications with the servicer and send items requested by some means that provides proof of delivery.

Here is the Big Problem

There are many people who are repaying their federal student loans under an income-driven repayment plan. As it stands right now, people taking that approach will make payments for 20-25 years and if the loans are forgiven before they die, the forgiven amount will be taxable. The IRS will expect income tax to be paid on the forgiven amount unless the responsible party is insolvent or up to the amount the responsible party becomes insolvent.

If the person dies after the loans are forgiven, the Internal Revenue Service (IRS) will proceed against the remaining assets of the debtor to collect the forgiven student loans through the repayment program.

Crazy, Huh!

So, if you are older it may make more sense and cost less money overall if you extend out the repayment term passed when you estimate you may die. When you pass the student loan can pass with you.

Private Student Loans

There is no standard policy or rule when it comes to private student loans. You are on your own there.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Common Tax Filing Mistakes

Benjamin Franklin once said, “But in this world, nothing can be said in certain, except death and taxes.” You can procrastinate and put off dealing with your taxes until the deadline looms, but you cannot escape them; and worse, you can even incur penalties and delay your refund if you miss the deadline.

If you are expecting a refund from the IRS, you want to receive it the soonest possible time, and mistakes in filing can derail this. Here are common tax-filing mistakes that can delay your tax return process.

Failing to disclose all income. If you forget to include all income on your return, the IRS will surely be keen to uncover it. They will let you know that you missed something and, depending on when they discovered it, you can face penalties and interest for the unreported income.

Incorrect Social Security Numbers (SSN). Your income statements, retirement plan contributions, savings account interests, among other crucial transactions, are all keyed to your social security number; so do not forget to correctly write down your social security numbers when doing your tax returns. The IRS has stopped putting the SSNs on tax package labels due to privacy issues.

Bad Math. These are the most common mistakes done on tax returns. If you want to minimize errors, use tax-software programs to file your return, but you still need to make sure that your initial numbers are correct. Simple typographical errors can make a lot of difference. Discrepancies like these will be spotted by the IRS and they will definitely let you know about them. In a lot of cases, they will be the one correcting the mistake and refigure your taxes for you – but you don’t want to give them the chance, so make sure your numbers are right.

Unsigned Forms. You must always sign your return. If you and your spouse are filing jointly, make sure that both you sign he forms. If you forget this, you will have to refile the forms and your return can be held up for weeks. You can avoid this problem if you file electronically.

Spelling Errors. This is particularly important in names. Make sure that all names listed on the return reflect the ones listed on your

Social Security card. For recently married women who are changing their surnames, you must alert the Social Security Administration so this change will not cause you any problem when you make your first joint return.

Wrong Status. This is another mistake that can be avoided if you file electronically, as the software only allows you to choose one status. If you filing your return on paper, check off the proper filing status.

Missing Proper Tax Credits of Deductions. Your credit eligibility depends on your income. Take due diligence in following the instructions. The IRS has an Interactive Tax Assistant to help you determine whether you are eligible for deductions or tax credits.

These are just a few of the common tax filing mistakes. Preparation is still key. Do not wait until the deadline before preparing your tax return. If you find yourself overwhelmed, you can ask for an extension. You can also find a good preparer if you are not very confident that you understand everything that needs to be done.

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This article by Myrtle Bautista first appeared on TaxAct and was distributed by the Personal Finance Syndication Network.

FTC Obtains Court Order Barring U.S. and Canadian Scammers from Marketing, Selling Internet-related Services and Misrepresenting Their Relationship with Consumers

Defendants ordered to pay more than $4.6 million

At the Federal Trade Commission’s request, a U.S. district court in Illinois has handed down a final judgment and order requiring nine related Canadian and U.S. defendants to pay more than $4.6 million for tricking small businesses into paying for Internet directory listings, search engine optimization services, or website design and hosting services they never ordered.

The FTC announced the case against the Premium Business Pages defendants in June 2018, as part of the multi-agency “Operation Main Street” law enforcement initiative directed to scams targeting small businesses.

The default judgment and order, issued by the U.S. District Court for the North District of Illinois, Eastern Division, also permanently bans the two individual and seven corporate defendants from advertising, marketing,  or selling any Internet directory listings, search engine optimization services, or website design and hosting services.

The order further prohibits the defendants from misrepresenting, among other things, that they have a preexisting relationship with consumers, that they have ordered their services, or that they owe money to the defendants.

Finally, the order bars the defendants from seeking to collect money on any outstanding accounts that are still open, or transferring any of these account to anyone else for collection, and imposes record-keeping and reporting provisions to ensure their compliance with its terms.

Case History

The FTC’s complaint charged the defendants with making unsolicited calls to small businesses since 2013 to induce them to pay for unordered Internet directory listings, search engine optimization services, or website design and hosting services. The defendants allegedly targeted businesses using several names, including Premium Business Pages, Ameteck Group, The Local Business Pages, and Data Net Technologies.

When first contacting businesses, the defendants claimed to be calling to collect on a past-due invoice for one of their services. In reality, the small businesses contacted never ordered or agreed to buy anything from the defendants and were never sent a bill. In many cases, the defendants’ telemarketers threatened that the business’s accounts would be turned over to “collections” or would be “red flagged.”

In some cases, even after a business paid money it did not owe, the defendants called back weeks later, sometimes claiming to be a different company demanding payment for other “outstanding invoices,” or claiming that the first payment was only the first installment.

Shortly after the FTC filed the complaint, the judge granted the agency’s request for a temporary restraining order against the defendants, halting their allegedly illegal conduct pending trial. A complete list of the individual and corporate defendants in this case can be found in the recently entered court order.

This article by the FTC was distributed by the Personal Finance Syndication Network.

My School Closed Because the President Was Stealing From It

Question:

Dear Steve,

I went to Hallmark Institute of Photography, took out almost 80K in student loans from both Granite State and Sallie Mae. Maybe 6 months after I finished the program (10 month accelerated photography program supposed to equal a bachelors degree) the school closed due to the president being caught embezzling 2.6 million for personal use, come to find out the “director of financial aid” was in marketing beforehand, they accepted pretty much anyone who applied and advertised as all aspects of photography but received maybe a handful of “business lessons” which basically taught me how to do taxes.

Am I eligible for private and federal loan discharge and reimbursement due to closure or fraud?

Margaret

Answer:

Dear Margaret,

The Hallmark Institute of Photography situation was quite a mess.

Your federal student loans can be discharged under the closed school discharge program.

Your private loans are still due and no discharge is available for those unless your individual lender has a special program. Which I doubt. This is one of the reasons I advise people to avoid private student loans.

If you 1) attended a school that closed less than three years ago, 2) meet the eligibility requirements for a closed school discharge, and 3) want your loans discharged, contact your loan servicer about applying for a closed school discharge now instead of waiting for three years to receive an automatic closed school discharge.

By receiving a closed school loan discharge,

  • you have no further obligation to repay the loan,
  • you will receive reimbursement of payments made voluntarily or through forced collection, and
  • the record of the loan and all repayment history associated with the loan, including any adverse history, will be deleted from your credit report.

Be sure to keep a record of all of your communications and copies of correspondence,

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

I Don’t Like the Loan Modification Program My Daughter is In

Question:

Dear Steve,

My daughter enrolled in a loan modification program about 5 months ago. She is still being garnished as well as paying the required monthly fee. Every month they request copies for documents already received. Is this a ploy to continue garnishment, and what can she do legally?

Wanda

Answer:

Dear Wanda,

Thanks for being a good mom and looking out for your daughter.

Obviously, I don’t know which program or exactly what kind of debt this might be for based on your question.

What I can give you is some general advice though.

If your daughter enrolled in some type of debt intervention program she most likely signed and agreed to terms of service with the provider. That agreement is where you would need to look to exactly understand what services she agreed to purchase.

It is not unusual for the written agreement to provide a much different description of the service than the commissioned salesperson did on the telephone.

I like to give companies the benefit of the doubt on the first pass of dealing with a customer service issue. So after reading and understanding the client agreement your daughter signed, have your daughter contact the company to explain her service frustrations.

If the company does not want to or can’t correct its poor service issues then you can escalate your complaint. Here is my process for doing that. See How to Get Your Money Back From a Debt Relief Company if You Feel Like You’ve Been Scammed.

Underlying all of this is the fact this situation involves creditor(s) your daughter owes. Those relationships have their own legal agreements your daughter entered into. And if your daughter is already being garnished then she was most likely already sued and the creditor(s) won a judgment against her.

For legal issues, you should always consult a licensed attorney in your state. One place to look for such an attorney is here.

From your question, I can tell you there is a lack of clarity about what is going on, a misunderstanding of the services purchased, a lack of good customer service being provided, or a combination of those issues.

Keep digging and please come back and post an update in the comments section below and let me know what happens next.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

How Can I Break My Brooklyn College Transcript Out of Jail?

Question:

Dear Steve,

I have 110 credits at Brooklyn College but can’t get my transcripts released due to owing 10,000 (due to health problems!). They sent it to a collection agency, so I can’t even do a payment plan.

What do you advise? Should I fight the actual debt and pay a lawyer, would filing for bankruptcy help?

Thanks,

Naf

Answer:

Dear Naf,

Apparently, this is a debt you owe Brooklyn College directly. They are withholding your transcript as collateral until the debt is paid. That is not unusual for colleges to do.

Just because debt has been sent to a collection company that does not mean a payment plan can’t be established if Brooklyn College has authorized them to do so. The college does not have to do so.

You can fight the school and attempt to negotiate with them. If you are not getting anywhere and need your transcript the irony is you can file bankruptcy to get it.

A Chapter 7 bankruptcy would end the debt you owe the school so they can no longer hold the transcript. If you filed bankruptcy today you should be able to get your transcript in about 90 or so days.

Filing bankruptcy does not prevent you from applying for federal student loans in the future.

The bottom line here is if you can’t get anywhere with the school or collection agency and/or you need your transcript quickly, then filing bankruptcy would do the trick.

Filing a Chapter 7 bankruptcy in NYC can be accomplished for around $1,500 if you shop around.

You may want to read my post How to Find a Great Bankruptcy Attorney for some tips on what to look for. Shopping by price alone is not the best approach. You also need to find an office you like and can work with.

So, filing bankruptcy is less expensive than the debt and you can rebuild your credit after the bankruptcy.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.