December 2011

Truth is stranger than fiction: fraud came complete with a fake courtroom and costumed employees

Late last year, the Pennsylvania Attorney General (AG) filed a consumer protection lawsuit against an Erie debt collection company accusing it of using deceptive tactics to mislead, confuse or coerce consumers. The AG called the company’s actions “an unconscionable attempt to use fake court proceedings to deceive, mislead or frighten consumers into making payments or surrendering valuables to the company without following lawful procedures for debt collection.”

According to the lawsuit, the company allegedly used fraudulent civil subpoenas – sometimes served by deputy sheriff impersonators – to summon consumers to its office which included an area referred to as the “courtroom” and was the stage for fictitious proceedings to intimidate consumers into providing access to bank accounts, making immediate payments or surrendering vehicle titles and other assets. The bogus courtroom was set up with furniture and decorations similar to those used in actual courts, including a raised judge’s bench, two tables and chairs in front of the bench for attorneys and defendants, a simulated witness stand, seating for spectators, and shelves with legal books. And in some of the fake hearings, an individual dressed in black was seated as the “judge.” After the staged proceedings, the company’s employees allegedly were dispatched to the consumers’ homes in order to retrieve documents or to compel them to sign payment agreements.

In conjunction with the lawsuit, which seeks restitution for all consumers who have been harmed by the company’s unfair trade practices, the AG filed a petition for, among other remedies, a special and preliminary injunction asking the court to freeze the company’s assets, and prohibit it from engaging in any debt collection. Fast forward to November 2011: the company is now defunct, and the AG’s office is resuming its suit against the former president who several months ago filed for personal Chapter 13 bankruptcy which insulated him from creditors, but not from the Attorney General’s Bureau of Consumer Protection, according to Chief U.S. Bankruptcy Judge Thomas P. Agresti’s ruling.

And there is more. According to published reports, an Erie district judge is suing the publisher of the Erie Times-News, its web server and three reporters for defamation in connection with stories, which allegedly made it appear that he was part of the sham perpetrated by this debt collection agency.

Just like this case, many of the attorney general’s complaints read better than fiction, but these scams are real and cause very real damage to individuals and companies. Many consumers do not realize that state attorney general records are searchable and it is imperative that these records are included in all comprehensive background investigations.

New California law requires efforts to ensure supply chains are free of slavery

Effective January 1, 2012, California SB657, known as The California Transparency in Supply Chains Act of 2010, will mandate retail sellers and manufacturers doing business in California with annual gross receipts exceeding $100 million to conspicuously and clearly disclose their efforts and policies for ensuring that their supply chains are free from human trafficking and slavery.

The targeted companies are required to make these disclosures on their websites; if a company does not have a website, the information must be provided in writing within 30 days of a consumer request. Although the Act does not mandate any specific language, the disclosure must be easily understood and explain the procedures, if any, that the company has in place, in reference to:

Evaluating and addressing the human trafficking and slavery risks in its product supply chains (disclosure must state whether or not the company is using a third-party to assess these risks);
Requiring direct suppliers to certify that the materials used in the products comply with slavery and human trafficking laws in the countries in which they are doing business;
Conducting supplier audits to evaluate compliance with company standards on trafficking and slavery (disclosure must state whether or not the audits are independent and unannounced);
Maintaining accountability standards and procedures for employees or contractors who fail to meet company standards regarding slavery and human trafficking;
Training employees and managers who have direct responsibility with supply chain management on the mitigation of human trafficking and slavery risks.

While the Act has gained significant attention by California companies, its expansive jurisdictional provisions make it applicable to many large retail sellers and manufacturers that are organized or domiciled outside of California, as the $100 million gross receipts threshold for compliance is based on worldwide sales revenue. And since the threshold is relatively low and set in dollar amounts, it can be as triggered by earning less than 1% of that revenue in the state, owning some property or having even one employee or contractor here (see CA Revenue and Taxation Code Section 23101 for a full definition of “doing business in California.”)

California SB657 is a disclosure law and does not require companies to do things differently, but its deceptive simplicity brings into focus the importance of proactive risk management. And for many companies, it is a call to action to move beyond this law’s mere disclosure compliance and implement or strengthen their risk management programs not only for brand equity protection but also in recognition of their corporate social responsibility.

In our products portfolio, SI offers specialized background investigations for vendor/third-party engagements which include elements and search strategies designed to find, among other criteria, indications or records of slavery and human trafficking in supply chains.

The Act is a disclosure law and does not impose any substantive regulation on supply chain activities. Nor, unlike the “conflict minerals” provisions of the Dodd-Frank regulatory reform law, 9 does it impose any affirmative obligations on companies to perform diligence regarding the existence of slavery or human trafficking in their supply chains. Nonetheless, as a matter of corporate social responsibility as well as public image, companies may wish to consider whether it is appropriate to adopt policies or procedures to mitigate the risk that slavery or human trafficking exist in their supply chains.

Monthly Archives:

Truth is stranger than fiction: fraud came complete with a fake courtroom and costumed employees

New California law requires efforts to ensure supply chains are free of slavery