nuance communications, inc. - regulatory resolutions...may 13, 2016 · case 8:13-cv-00919-doc-rnb...

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1675

.·,

Court-Appointee/ Temporary Receiver 5

Andrew W. Robertson (SBN 62541) 6 robep:sona~ba)lar~spalir.com

Dantel M. ilenJamm (SBN 209240) 7 [email protected]

Ballard Sp81ir LLP 8 655 West Broadway, Suite 1600

San Diego, Califorpia 92101-8494 9 Telephone~ 619-696-9200

Facsimile: 619-696-9269

Attorneys for Temporary Receiver

~·-j

··<

., C:> •.•.. t

10

11

12

13

UN1TED STATES DISTRICT COURT P'" ., r'""'"" : CENTRAL DJS.TRICT OF CALIFORNIA \~ .. f i.··~o ~.: .•. X

SANTA ANA DIVISION . jt> L (:~1

14 FEDERAL TRADE COMJ\!IISSION,

15

16 V.

Plaintiff,

17 A TO Z MARKETING INC., a Nevada

18 corporation, also dba Cfient Services; et al.,

19

20

21

22

23

24

25

26

27

28 :--~

DilllWEST #9969546 v1

Defendants.

CASE NO. SACV13~0919-DOC (RNBx)

PRELIMINARY R$BOJ~If OF TEMPORARY RECEIVER

~1

JUDGE: Hon. David 0. Carter CTRM: 9D

FILED UNDER SEAL

. Case No. SACVl3-:Q9l9-WQC(~~x)- : PRELIMINARY REPORT OF TEMPORARY RECEIVER


12

13

( ) I )

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

SANTA ANA DIVISION yF X 14 FEDERAL TRADE COMMISSION, CASE NO. SACV13-0919-DOC

(RNBx) 15

16 v.

Plaintiff, PRELIMINARY REPORT OF TEMPORARY RECEIVER

17 A TO Z MARKETING INC., a Nevada

18 corporation, also dba Cfient Services; et al., .

JUDGE: Hon. David 0. Carter CTRM: 9D

19

20

21

22

23

24

25

26

27

28

DMWEST #9969546 v1

Defendants. FILED UNDER SEAL

Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER


1

2

)

Table of Contents

Pagel

3 I. Introduction ............................................................................................................ 1 : II. Receivership Activities ......................................................................................... 3 1

4 A. Receivership Defendants' Sites .... : ....................................................... _3 : 1. 1400 Reynolds A venue, Irvme, CA ........................................... 4 . 2. 1813 Dyer Road, Irvine, CA.: .................................................... 4 3. 17632 Irvme Boulevard, Tustm, CA ......... , ................................ 5 · 4. 2601 Main Street, Suite 1200, Irvine, CA ................................. 5 .

B. Financial Accounts ofReceivership Defendants ................................. 6 : C. Documents/Information/Electronic Data ............................................. 7 i · D. Forensic Accountants ........................................................................... 7 : ·

5

6

7

8 E. Co111pliance with TRO .......................................................................... 8 : III. Summary of Business Operations ....................................................................... 9

9 A. Backend Entities ................................................................................... 9

10

11

12

13

14

15

16

17

18

19

20

1. Securing the Premises ................................................................ 9 2. Cooperation ......................................... · ..................................... 10 3. Overview of Site, Personnel and Process Flow at 2601

4.

5. 6.

7.

8. 9.

Main St. Site ............................................................................. 1 0 : Attorney Involvement Is Extremely Limited at ; · Backena/NLC!USLC ............................................................... 12 : . Backend Controls Operations at 2601 Main Street.. ................ 15 : · OP.erations at Ba~kend~C/USLC Are • Sales/Telemarketmg-Dnven .................................................... 17 . Backend/NLC!USLC Is Primarily Directed by a Non- . : Attorney .................................................................................... 18 ~ Back en a Arises from and May Remain Tied to Goodrich ...... 21 : Ton and Montazeran Appear to Know of Violation of the MARS Rule .............................................................................. 22 .

10. Operations at Backend/NLC/USLC Were in Violation of · State Laws ................................................................................ 23 ·

11. Backend/NLCIUSLC Hid Locations, Names, and

12. ?E:o~~~:ti~~·c·~~t~~~·d .. ~;;·R.~~~·i·~i~ii~~~·M~d ................... 25 : ··

Advance Fees ........................................................................... 26 : · 13. Backend Controlled and Received Almost All Funds ............. 28

B. Baid Entities ..................................................................... :'. ................ 33 C. William Goodrich, Inc ........................................................................ 3 9

21 IV. Can These Businesses Be Operated Lawfully and Profitably? .... , ................... 41 A. Context- The Relevant Law .............................................................. 41

22

23

24

25

26

27

28

B. Lawfully .............................................................................................. 44 . C. Profitably ............................................................................................ 45 ·

DMWEST #!)969546 v1 i Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER :

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1678,,

( ) )

1 PRELIMINARY REPORT OF TEMPORARY RECEIVER

2 I.

· 3 Introduction

4 On June 19, 2013, this Court entered a Temporary Restraining Order with an·:.

5 Asset Freeze and Appointment of Receiver ("TRO") which appointed me, Thomas :.

6 W. McNamara, Temporary Receiver ("Receiver") for the business activities of.

7 Receivership Defendants. Receivership Defendants are defined in the TRO '

8 (Paragraph K, page 8) as "A to Z Marketing, Inc., Apex Members, LLC, Apex

9 Solutions, Inc., Backend, Inc., Expert Processing Center, Inc., Smart Funding

10 Corp., and William D. Goodrich, Atty, Inc., as well as any affiliates and

11 subsidiaries that conduct any business related to . the Receivership Defendants'

12 provision of MARS and that the Temporary Receiver has reason to believe are

13 owned or controlled in whole or in part by ,any of the Defendants."

14 We have located the sites where Receivership Defendants currently conduct

15 business and have suspended their loan modification operations consistent with the :

16 terms of the TRO. Based upon the review, interviews, and investigation we have :

17 undertaken since last Thursday, June 20, we can now provide a snapshot of the ·

18 structure of these businesses, their operations, and the flow of monies. Our ·

19 investigation is not complete and new facts may come to light. Nevertheless, I do

20 not anticipate that our fundamental conclusions discussed in this report will

21 change.

22 The principal inquiry of a Receiver in an action like this is to determine

· 23 whether the business can be operated lawfully. I must report to the Court that the

24 Receivership Defendants cannot. These businesses are not lawful loan

25 modification businesses. They are not law firms or even legal servi9e providers.

26 They are sophisticated telemarketing sales operations targeting distressed · ·

27 homeowners and charging illegal advance fees. They deceptively portray

28 themselves as service providers for lawyers, but this is all fiction - the

DMWEST #9969546 v1 1 Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECENER

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1679•• )

1 telemarketers are the drivers of the business. They control the marketing, the

2 processing, and the money. The associated lawyers provide nominal services and

3 serve primarily to promote the illusion that the consumer has retained a law firm.

4 Upon arrival at the various business sites, we learned that the Receivership

5 Defendants (those identified in the Complaint and others identified in our

6 investigation) have similar operations and some historic ties, but are not

7 necessarily a single common enterprise. For purposes of this Report, we break

. 8 Receivership Defendants into three groups - the Backend Entities; the Baid

9 Entities; and William Goodrich Attorney, Inc. We review their operations

10 separately below. 1

11 We understand that the Baid defendants (Ratan Baid, Madhulika Baid, A to •

12 Z Marketing, Apex Members, Apex Solutions, and Smart Funding Corp.), William

13 Goodrich and the FTC have offered a stipulation to continue the Preliminary

14 Injunction ("PI") hearing to allow them time to negotiate the terms of a PI. On the

15 other hand, Defendant Backend has filed an opposition to the PI. As such, the bulk

16 of this Preliminary Report focuses on Backend and related entities that will be the

17 subject of Friday's hearing.

18 Section XIX of the TRO specifically directs that I report to the Court on six

19 specific topics prior to the date set for the hearing to Show Cause regarding :

20 Preliminary Injunction. As to those topics, I can report as follows:

21 (1) Steps taken by the Receiver to implement the terms of this Order.

22 I have indefinitely suspended the loan modification operations of the Receivership

23 Defendants. The deceptive sales practices and illegal advance fees prohibited by

24

25 1 On June 25, 2013, the Receiver made a separate filing consistent with

26 TRO Section IX ("if any of the required information would hinder the Temporary Receiver's ability to pursue receivership assets, the portions of the Temporary

27 Receiver's report containing such information may be filed under seal and not served on the parties"). The matters addressed therein are herebv incoroorated bv

28 reference and not otherwise discussed herein. • .. .,

DMWEST #9969546 v1 2 Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1680( ·~

I

1 the TRO are so ingrained in their operations that this is the only feasible vehicle for .·

2 implementation.

3 (2)-(3) Receivership Defendants' assets and liabilities. We have

4 identified liquid assets, which are now frozen or have been deposited into a

5 receivership bank account as set forth below. We do not yet have a calculation for

6 overallliabilities.

7 ( 4) Receiver's assessment of whether the business can be operated

8 profitably and legally. The loan modification businesses op-erated by

9 Receivership Defendants cannot be operated lawfully because they are.. ali built on .

10 a model which incorporates illegal advance fees. While deceptive and over-the-top .'

11 sales practices might be curable with better personnel, training, and compliance, .

12 the advance fee component is not curable. This conclusion is detailed further

13 below.

14 Mr. Goodrich's law practice, however, could be lawful if he avoided

15 involvement in improper loan modification schemes.

16 (5)-(6) Any future steps the Receiver rec.ommends and Other matters

17 which the Receiver believes should be brought to the Court's attention. These

18 matters are set forth below in this Preliminary Report.

19

20

21

II.

Receivership Activities

Receivership Defendants' Sites

22 As directed and authorized by Section XV of the TRO, at 9:50 a.m. on

23 Thursday, June '20, 2013, I, along with my team, commenced the process of

24 securing access to the business premises of Receivership Defendants located in

25 Orange County, California. We coordinated our initial efforts with uniformed

26 police from the Irvine Police Department and agents of the U.S. Postal Service.

27 After taking control of the offices, I provided access to the FTC and the

28 Defendants consistent with the directives of the TRO. I also arranged for the

DMWEST #9969546 v1 3 Case No. SACVB-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER

.I

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1681r ) : )

1 external locks to be changed. Since then, only my agents have had unsupervised

2 access to the offices.

3 1. 1400 Reynolds A venue, Irvine, CA

4 The Reynolds Avenue site is headquarters for the Baid Defendants all owned .·

5 or controlled by Defendant Ratan Baid ("Baid"). The building is a two-story office .·

6 building (17,000 square feet on each floor) owned by Red Hill Plaza LLC, of.

7 which Defendant Madhulika Baid is the sole owner.

8 We entered the building at approximately 9:50a.m. The building is occupied ,

9 80% by Baid-related entities and 20% b;y four unrelated medical offices. The top

10 floor includes Suite 201 (executive, administrative, and accounting offices, server

11 room, and cubicles for 6-8 customer service staff), Suite 205 (offices of Getting

12 Visible, a search engine optimization sales business with 5-10 employees, majority

13 owned by Baid), and Suite 206 (offices of AAA Net Solutions, an IT provider with :i

14 6-8 employees, majority owned by Baid).

15 The ground floor includes Suites 109/111(sales/call rooms with 30 ·

16 telemarketers handling inbound calls for loan modifications and an office for

17 Defendant William D. Goodrich), Suite 107 (large, high-capacity mail and printing

18 room), Suite 104 (offices of Defendant Expert Processing Center, dba Expert

19 Marketing Services, with 2-4 employees), 4 suites leased to medical providers and

20 three vacant suites. A to Z pays monthly rent of approximately $18,000, but more

21 in some months as needed to subsidize Red Hill Plaza LLC.

22 Mr. Baid and Mr. Goodrich were both onsite upon our arrival. Both have

23 cooperated tlu·oughout our investigation to date, although I have found both at

24 times to lack credibility. All employees cooperated, completed questionnaires and

25 were generally excused for the day.

26 2. 1813 East Dyer Road, Irvine, CA

27 A to Z leases two suites at this site- Suites 401 and 405- on a month-month

28 basis as offices for additional sales teams. Over time, it has also been the site of


i

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1682I )

1 various other iterations ofBaid's operations. We entered the site at approximately ·

2 1 :00 pm after learning that it was active from an employee at the Reynolds site.

3 The on-site manager Daniel Y sais granted us access. All other employees had

4 departed, having been alerted to qur arrival at the Reynolds office.

5 Mr. Ysais reported that he was hired by A to Z Marketing in February 2013 ;

6 to supervise a team in Suite 401 of 5 to 7 people to handle inbound calls for home ;

7 loans ("The Mortgage Group"), but these efforts were very unsuccessful and the ·

8 group has been essentially rolled into the loan modification group. Suite 405 was ;

9 home to the "Law Center" employees engaged in loan modification work. When .

10 the manager in Suite 405 quit, those employees were relocated to Suite 401

11 Suite 401 is a small two story building with workspaces for 40-45 •

12 employees. Of those, less than 12 appeared to be in use. Suite 405 is a one story

13 facility with about 12-15 workspaces, all but one of which appeared to have been

14 vacated.

15

16

3. 17632 Irvine Boulevard, Tustin, CA

This is a very small 200 square foot office with no apparent active business

17 operations. The sign on the door reads, "Smart Funding/Deltatec." Deltatec is an

18 unrelated business which shares the space. We found no evidence of any loan

19 modification activities based at this site.

20 4. 2601 Main Street, Suite 1200, Irvihe, CA

21 This site is headquarters for Defendant Backend, Inc., its owner, operator

22 and alter ego Amir Montazeran and assorted related entities, including United .

23 States law Center and Nationwide Law Center. Backend sub-leases approximately

24 three-quarters of a floor from another tenant on the same floor. The building is an

25 upscale 12-story office building. The space is outfitted as a call room with

26 cubicles for approximately 50 telemarketing sales personnel and executive offices

27 on the perimeters.

28



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

) I

B. Financial Accounts of Receivership Defendants

Beginning June 20, 2013, my team served the TRO on banks where

Receivership Defendants, both those named in the Complaint and those I later ·.

determined to fall within the defmition in the TRO, were known to have accounts.

The following accounts with positive balances have been frozen: Acct.

Ending Amount Account Holder Financial Institution In Frozen

A to Z Marketmg, lnc. dba Client Services Bank of America 0579 $240.55 A to Z Marketing, Inc. ' ' Payroll Bank of America 4356 $938.73

;

A to Z Marketing, Inc. ' .,

dba Client Services Bank of the West 8055 $2,000.00

A&ex Solutions, Inc. (j perating Account) Bank of America 3289 $823.16 A~ex ~olutwns, Inc. (: econdary Account) Bank of America 4432 $32.00 Apex Solutions, Inc. East West Bank '0212 $50,250.62 . Apex Solutions Inc. East West Bank 5072 $2,041.17 . Backend, Inc. Bank of America 2668 $4,057.31 Backend, Inc. Bank of America 9617 $1,375.10 Expert Processmg Center, Inc. Bank of America 2507 $376.49 ~mart Fundin:(t CoT. dba Better Home elie Bank of America 6058 $1,010.68 ~mart Fundmg Corp. dba Client Services Bank of America 8102 $4,275.59 Smart Fundmg Corp. dba

Bank of America 2166 $577.12 AMRFunding '

~mart Fundmg Corp. dba .... 1

AMR Home I.:oans Bank of the West 5620 $30,809.24 Smart Funding Corp. East West Bank 7917 $317,433.76 Smart Funding Corp. East West Bank 0621 $443.11 Ratan Baid Bank of America 2212 $75.01 Ratan Baid Bank of America 7156 $147.32 Ratan Baid & Madhulika Baid Bank of America 8703 $447.42 Ratan Bard & Madhuhka Baid Bank of America 2213 $240.78 Ratan Baid & DheeraJa R. Sulakhe Bank of America 7134 $187.48. Madhulika Baid & Vikram Baid Bank of America 4864 $96.25 Madhuli_ka Bard &

I Vikram Baid I Bank of America I 0146 I $33.98 I



1

2

3

4

5

6

7

8

9

Account Holder Madhulika Bmd & Y meet Baid Madhulika Baid & V meet Baid Madhulika Baid Madhulika Baid Madhulika Baid & Ratan Baid fcheckingl JYlaq4_ullk_a Bmd & Ratan Baid fsavingsl Madhulika Baid TOTAL

Financial Institution

Bank of America

Bank of America Bank of America Bank of the West

Bank of the West

Bank ofthe West Bank of America

\

' I

Acct. Ending Amount

In Frozen

2985 $170.60

8767 $44.95 0390 $6,456.91 6537 $36.48

3393 $463.27

3393 $542.56 8061 $223.50

$425,851.14

10 Other than the money in these accounts, Receivership Defendants do not

appear to have substantial other liquid assets, but our investigation as to assets is 11

still in its preliminary stages. 12

13

14

C. Documents/Information/Electronic Data

. Upon taking possession of the four sites, my team confirmed that hard copy

documents were secure. I retained a forensic computer firm to make images of the 15

servers and of certain desktop computers at all the sites. We have done spot 16

reviews of a number of other laptop computers, but have refrained from imaging 17

.;

those computers up until this point because of the cost involved. I believe that we . 18

have control of the available elect\~:mic data relating to Receivership Defendants' 19

20 operation.2 We are reviewing this information in order to reconstruct the

21

22

23

operational and financial picture.

D. Forensic Accountants

I retained Jeanne Goddard, a CPA and principal in the accounting firm of

NGS, LLP ("NGS") to lead the forensic accounting investigation and to 24

reconstruct the financial activities of Receivership Defendants. 25

26

27

28 2 The FTC also made mirror images of servers and computers.

DMWEST #9969546 v1 7 Case No. SACV13-0919-DOC (RNBx) .. PRELIMINARY REPORT OF TEMPORARY RECEIVER


1 E.

~···~

)

Compliance with TRO

2 Once we secured the premises and completed a basic review of the business,

3 I took immediate steps to insure compliance with the TRO as follows:

4 1. Our overriding goal was to take all steps needed to achieve :

5 compliance, while also trying to protect the consumer to the extent possible.

6 2. All sales activities - "in-take" - was suspended by excusing sales

7 personnel who previously handled incoming calls generated by mailers. At the

8 Reynolds location we placed voicemail messages on the sales line alerting .

9 consumers to the suspension and directed them to the Receiver's website, which ·

10 will be activated when the Court file is unsealed. At th'e Main Street site, Backend i 11 employees have not cooperated with attempts to get the outgoing messages

12 changed.

13 3. We suspended modification processmg, except as to files with

. 14 immediate foreclosures sale dates. We asked staff at both sites to assist in

15 contacting customers with upcoming foreclosure sale dates. At the Reynolds site,.·

16 we have made contact with all customers with sales dates in the next 30 days. At

17 the Main Street site, we contacted customers with sales dates through July 5, 2013,

18 but efforts to have staff assist in further notification were not successful.

19 4. We have successfully taken down Nationwide's and Top Legal

20 Advocates' websites. We anticipate a "Notice to Consumers" on Defendants'

21 operative websites which will report the appointment of a Receiver and directing .

22 consumers to their lender or Hope Now.

23 5. I have reserved a Receivership website

24 (www.smartfundingreceiver.com), but I have not activated it because the case

25 remains under seal. The website will serve as a vehicle to communicate with

26 clients and consumers. Receivership Defendants' websites roll over to this website

27 if a PI is entered and the matter is unsealed.

28



1

2

)

III.

Summary of Business Operations

3 Defendants promote the fiction that they are law firms using non-lawyers to I

4 help them process applications. The reality is quite different- these businesses are

5 high-pressure, cash-up-front telemarketing businesses targeting distressed

6 homeowners and deploying the full array of sales techniques to "make the sale".

7 These businesses were not engaged in "rip an4 tear" operations, where no services

8 are performed. Some processing staff appear to have genuinely tried to heip

9 homeowners, and it does appear that some homeowners did..receive some loan .

10 modifications. The overriding goal of the managers was not to help homeowners,

11 but to make money. Regardless of their motives, the reality is that these businesses

12 are all illegal as they are based on obtaining advance fees for loan modifications in

13 violation of federal and state laws.

14

15

A.

1.

Backend Entities

Securing the Premises

16 On the morning of June 20, 2013, at approximately 9:55 a.m., agent$ of the

17 Receiver (in coordination with local law enforcement, the Postal Inspector, and the ·.

18 FTC) executed the TRO on Receivership Defendant Backend at 2601 Main Street,

19 Suite 1200, Irvine, CA. Physical space was secured by erecting barriers, and

.... 20 changing locks and keycards; electronic data on-site was secured through a cutting

21 off of Internet connectivity and mirroring of certain employees' data files;

22 employees were advised of the Receiver's authority; several employees were

23 provided a copy of the Court's TRO; and on-site interviews were conducted. Over

24 the next hours and days, as bank accounts and off-site locations of assets or data

25 were identified, they were secured by notices and changing access codes or rights

26 as appropriate.

27

28

DMWEST #9969546 v1 9 Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECENER .


1 2. Cooperation

2 Initially, the Receiver received very little cooperation from Backend agents ·

3 and employees. Most chose to leave immediately, often without filling out even ,

4 the requested one-page questionnaires with contact information. When attorney '

5 Charles Ton and Aruir "Alex" Montazeran arrived, they sat for a brief joint :

6 interview with an attorney for the Receiver. Montazeran asserted that the Receiver ·

7 was in the wrong place, stating he knew who the Receiver was looking for, but .

8 they were not there. Ton asserted that they were a different "Backend" than the 1

9 company listed in the TRO because they were incorporated in Delaware, not ! 10 Califomia.3 After asking a few questions and obtaining copy of the TRO, both :'

11 stated that they wanted to have an attorney present before answering any questions.

12 After defense counsel, Mr. Dumm, became involved, interviews with

13 management were still declined, but questions about passwords and the contact

14 persons for information technology began to be answered. Mr. Durnm also

15 participated in a June 25, 2013 interview of a processing department employee .

16 who assisted the Receiver in reviewing the cloud-based customer management •

17 database. However, on the morning of Wednesday June 26, 2013, Mr. Dumm

18 emailed counsel declining to provide assistance in changing outgoing telephone ,

19 greetings or notifYing homeowner-customers, . indicating a preference to avoid .

20 action in light of the Court moving the hearing date on the TRO to Friday.

21 3. Overview of Site, Personnel and Process Flow at 2601 Main St. Site

22 Backend and related entities Nationwide Law Center (NLC) and United

23 States Law Center (USLC) occupy approximately three-quarters of the floor space

24 of the 12th floor of 2601 Main. Most of the floor space is cubicles. Only three

25

26 3 The Receiver's review of on-site documents, and investigation with the California Secretary of State's office, established that Backend has long been, and

27 1

remains, a California co:gJoration, entity number C3084125, with an entity address of 2601 lvfain Street, Suite 1200, Inrine, C/'•_._ 92614. A Delav,rare corporation \Vith

28 the name "Backend" was created by Ton within only the past few months.

DMWEST #9969546 v1 . 10 Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER


1 offices - two occupied by Montazeran and Ton, and one vacant- have doors.

2 Approximately one-half of the floor space is occupied by intake, and one-half by

3 processmg. Ton is the only attorney identified as being on-site in this large

4 operation.

5 Intake personnel have been instructed to call themselves "Legal Assistants"

6 m consumer contacts but most often described themselves (in interviews,

7 timesheets, and employee questionnaires) as in "intake" or "sales." They receive

8 calls from homeowners calling.the toll-free number listed on mailers, gather initial

9 information to determine if the homeowner could be a customer, and make the

10 sale, for which they are incentivized through commissions, "spiffs" and the like.4

11 Once the sales/intake manager signs off on the back of the file jacket, it goes to .

12 accounting to process payment through Phase 2 of the 4 phases of payment. The '

13 file then goes to processing, where a loan modification package is submitted to a :.

14 banl<. A Phase 3 payment is then taken. Processing then follows up with the bank

15 and the homeowners regarding· additional inquiries and documents required. A

16 final, Phase 4, payment is taken for this work.

17 None of the work discussed above is performed by attorneys. Thus far, the

18 Receiver has found no evidence of substantive legal analysis for clients by either

19 on-site attorney Charles Ton, or any of the affiliated attorneys. In a January 24,

20 2013 email titled "Compliance issues," Charles Ton 1old his network of attorneys

21 that they would receive an "automatic email with a link to review your assigned

22 file," and they should "please just click on that link and send a reply email stating

23 'Reviewed' for our system." This appears to have been a new compliance

24

25 4 The Receiver has reviewed Charles Ton's Declaration, which claims that the affiliate attorney in the customer's home state also executes the contract

26 with each customer. Tlie Receiver has seen no evidence supporting this claim in any of the many hard copJ. customer contracts, hardcop~ client files, and electronic

27 client files the Receiver has reviewed. The Receivers interviews with affiliate

28 :f6~~[~~~~~~~~;f~~i~t:i~ii~~i~~~e~e;;~e:;~1~~ki~~o~iKgi~~e1~;ili~~~~~~f.aid DMWEST #9969546 v1 11 Case No. SACV13-0919-DOC (RNBx)

PRELIMINARY REPORT OF TEMPORARY RECEIVER


1

2

3 ,.

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

\ i

innovation - multiple attorneys quickly wrote back, e.g., noting they'd never had

access to the system before and needed assistance getting started. Charles Ton's

January 24 email also told the attorneys it would be "a good idea for you to contact

the client with a Welcome Call to introduce yourself as the local attorney in their ;:

state" as this "could be great for your legal practice." The January 24 email .:

contains no discussion of any substantive involvement by counsel. Other .

communications from Ton to attorneys, discussed below, show that he .

affirmatively communicated that attorneys need not have substantive involvement •

in the files, and were only needed to click on a link, for Backend/NLC/USLC's

compliance file.

4. Attorney Involvement Is Extremely Limited at Backend/NLC/USLC

NLC and USLC describe themselves as nationwide law firms consisting of a

network of 'attorneys in every (or nearly every) state. In some communications

with state regulators, NLC/USLC claim to be merely a referral network for other

attorneys in various states. However, in actual operations, affiliate attorney

involvement is very limited in the operations of the entities at 2601 Main Street. :

Witness statements and documents on this question include the following:

• The NLC/USLC associate/affiliate/consulting attorney agreements

(see Exhibit 21) states that the affiliate attorney in each state will be

required only to provide a consultation of "up to half an hour per

client" and only "upon client's request." Interviews with staff and

affiliate counsel, and review of client files, indicate that in many .

instances the affiliate attorneys in various states have no contact

whatsoever with their alleged clients.5

5 We were informed of and observed evidence of some affiliate attorneys conducting "welcome" calls to clients; and logging into the electronic · database system to check on processors' progress.

DMWEST #9969.546 v1 12 Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER


1

2.

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

•

•

·~

i

The Receiver's team conducted a random audit of 5 NLC and 5 USLC

files, a summary of which·. accompanies this report as Exhibit 1. In

some instances, no examples of attorney contacts with clients were

found. Where contacts were recorded, they appeared minimal. No

attorney notes were made to the files sampled except as to the fact that

file had been opened and a ''Welcome" attorney call made. There

were no indications the affiliate attorneys supervised the processing of .

the files.

The NLCIUSLC associate/affiliate/consulting attorney agreement

(Exhibit 21) states that the affiliate attorney will be paid only

"$100.00 per file retained in the state the Attorney is contracted for

whether or not the client requests consultation with the Attorney."

Thus, of the $3,700 per file typically collected by NLC and USLC,

only l/37th or 2.7% goes to the only attorney licensed by a state bar to

provide legal representation to the consumer in that state. Put another .-

way, if Backend/NLC/USLC are merely back-office support and

referral, the attorney's overhead for use of Backend!NLCIUSLC is

97.3%.

A December 2011 email from Charles Ton advised all staff that

because atton1eys "are not getting paid much per file," clients should

not be provided contact information for affiliate attorneys. Alex

Montazeran sent a follow-up email to all staff instructing that Charles

Ton would arrange any other consultation with affiliate attorneys.

A February 2013 email from Charles Ton to an attorney interested in

joining the affiliate network stressed the limited nature of the work by

the attorney, stating that the attorriey need be available "for phone

·consultation of up to half an hour." This would consist of "a

Welcome call to the client to introduce yourself," which Ton noted



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

•

•

/ )

was "good for more clients and referrals to your law practice," while .

"any questions the client may have can be referred to our staff." (See ,

Exhibit 22.)

An interview of an affiliate attorney further corroborated these

observations. The attorney informed us that he/she spoke directly to •

Charles Ton6 about the responsibilities of a USLC affiliated attorney. ;

Ton told the attorney that ifUSLC had a client in that attorney's state,

the attorney would get an email with a password and could review the :

client file. The attorney should call the client to welcome them and let : ....

them know they had a local attorney contact. Ton assured the • ;

attorney, though, that all legal work would be done by USLC, not by:

the affiliate attorney. This was particularly important because the '

affiliate attorney did not have experience in relevant areas of practice,

and lacked malpractice insurance. A 2013 document found on site ·

corroborated the attorney's statements: Ton assured the attorney that ·

he had crossed out the section of the attorney affiliate agreement ·

requiring the affiliate attorney to have professional liability insurance. i (See Exhibit 23.) Ton was true to his word: the attorney never had a j

phone call with a client and never once received any client files, .

despite being paid more than once by USLC.

Another interview with an affiliate attorney was similarly revealing ..

Though this attorney claimed to have monitored client progress·

6 Despite a fairly extensive review of emails and other business records 24 of NLC/USLC/Backend, the Receiver has seen no evidence that JD Haas hired any

empl<?yees,. engaged anY, ?-ffiliaty attorney,. ~espond~d to any client complaints. or 25 state mvestigatwns, participated many decisiOn-making about money, or otherwise

functioned m any management capacity whatsoever. As but one exam2le, the 26 current telephone list throughout tlie cubicles at 2601 Main Street titled 'United

States Law Center, Attorneys at Law" puts Charles Ton at the top of the list, and 27 lists numerous "legal assistants" (who appear to in fact be sales/mtake personnel, .

see below) below him. See Exhibit 2. ill Haas appears nowhere on the telephone ' 28 list. / ' A A •

DMWEST #9969546 v1 14 Case No. SACVB-0919-DOC (RNBx) ; PRELIMINARY REPORT OF TEMPORARY RECEIVER ,


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

•

5.

) !

through Leadtrac (a cloud-based database used by NLC/USLC), the

attorney described his/her activity as limited to a welcome call, and :

·'then being available as local counsel for state-specific issues, with all·,

other client work to be performed by others (i.e., by the .

Backend/NLCIULC staff at 2601 Main Street). When the attorney

asked what would happen to clients during the Receivership, the

Receiver's attorney stated that the affiliate attorney should feel free to

take action they deemed appropriate for dients of their law firm. At .

that point, the attorney demurred, statjng "I'm not exactly their ·

attorney," and noting the receipt of only $100 per "client".

In an October 5, 2011 email, former manager Shawn Mirnezam told··

the NLC team that "All the legal issues and concerns should go to

Charles first. He will give you direction if your client needs to contact

a local attorney."

Backend Controls Operations at 2601 Main Street

16 Interviews with personnel and reviews of accounting data on company ·

17 computers indicate that Receivership Defendant Backend is the controlling entity

18 at the 2601 Main Street site, and that entities Backend, NLC, and USLC (to name

19 just those raised by defendant Backend in its papers f are best viewed as one

20 ~nterprise. Witness statements and documents on this question include the

21 _ following:

22

23

24

25

• The accounting data (stored in the accounting software Quickbooks) ·

for NLC, USLC, and Backend indicates that the vast majority of

money received by NLC and USLC is transferred to Backend.

26 7 Backend's controlling members and managers created numerous other entities to play similar roles, including Interstate Law Group, SC Law Group,

27 Millennium Law Group, and many others. All of these entities appear to controlled in a verv similar fashion ov Alex Montazeran and attornev affiliates to

28 operate enterprises" designed in response to the FTC's MARS rule. "



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

•

•

)

Specifically, a year to date cash basis profit and loss statement for

USLC indicates that of $1,326,563.44 in total expenses recorded, ·

$1,218,800, or 91.8%, was paid to Backend for "Advertising and

Promotion." The professional fees paid to the attorneys that allegedly

direct USLCINLC, are $70,379.83, or 5.5% oftotal expenses.

The bank statements for the law entities shed further light on this :

pattern. Funds are received through ACH transfers from clients. The

same day or a few days later, large round dollar amounts were

transferred .... to Backend. The amounts do not seem to follow any

pattern other than they are large, round dollar amounts that lower the

USLC account balance down to quite low amounts. The amounts vary ·

by day and the totals vary by month.

An email dated March 1, 20 13 sheds further light on these transfers. ·

A person who identifies themself as "Accounting Manager" for USLC

emails Alex Montazeran and Charles Ton the bank "balances by

company" for USLC, NLC, and Backend. USLC has $41,774.59 in

trust. Alex then directs Ton: "Charles, please transfer 40k from trust .

to operating and from operating to backend." Charles complies: :

"O.K., I will have that done at lunch time." JD Haas, the person who

has submitted a D~claration stating he is the principal and manager of

Backend, appears nowhere on this email.

Accounting records show that Backend pays the rent for the offices at

2601 Main, which are leased by another entity owned or controlled by

Montazeran, Emax Loans, Inc.

Accounting records show that Backend pays the wages of the workers

at 2601 Main, both the intake personnel and the loan modification ·

processing personnel. Per an email from Charles Ton, Backend also

pays incentive pay to attorney Ton tor sales he brings in.



1

2

3

4

5

6

7

8

'<. 9

10

11

12

13

14

15

16

17

•

•

6.

( .'\ I

The other entities' existence and outward appearance to the world

fluctuate as the promoters change form to respond to consumer

complaints and increasing liability; only Backend remains constant.

For example, in an email dated May 1, 2013, Charles Ton wrote to

Alex Montazeran: "We need to start using USLC and Resolution Law

Center for all new file intakes while dissolving Nationwide. There are

too many complaints and problems with Nationwide." Ton saw no

need to be honest about the reason for the change: "We can say

Nationwide is dissolving since its owner Daniel Ruggiero no longer :

wants to operate it." He also noted the benefit of evading liabilities by ::

shifting entity names: "Nationwide will not have any assets and

therefore has no funds for refunds or [sic] pay any liabilities." (See

Exhibit 24.)

In response to Ton's May 1, 2013 email, Alex proposed to use a new

front person: "I would put jd hass our lead attorney now? Put jd hass

and our ct supervising attorney." (See Exhibit 24.)

Operations at Backend/NLC/USLC Are Sales/Telemarketing-Driven

18 Nearly thirty individuals work at 2601 Main Street with the title of legal

19 assistant or senior legal assistant. However, in actual operations, these individuals

20 function as a sales organization. Witness statements and documents on this

21 question include the following:

22

23

24

25

26

27

28

•

•

Sales persons are listed on USLC telephone lists as "legal assistants,"

but were previously called intake specialists and compliance

managers, both at NLC and USLC. (See Exhibit 2.)

Interviews with several of these intake specialists/legal assistants

indicated consistently that they viewed their function as sales and

were incentivized on closed deals like salespeople; they took their



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

•

•

•

•

•

7.

/ ) l

direction from their sales managers and above them Alex Montazeran,

not attorney Charles Ton;8 and they were not performing legal tasks.

Scripts discovered on-site and emails threatening sanctions for

disobedience indicate that, as is common in telemarketing operations,

the NLCIUSLC "legal assistants" are directed to ask callers for the

code of the telemarketing mailer that prompted their call.

"Legal assistants" are organized into teams with such cash-oriented

names as "Rags2Riches" and "Benjamins." (See Exhibit 2.)

"Legal assistants" are paid both hourly and via commission, for each·

customer deal they bring in. They are incentivized to front-load

payment structures to early "Phases" of the retainer agreement, and

penalized if they bring in a deal with payments spread out more ·

evenly across the providing of services.

Numerous call scripts were found throughout the office, including in

attorney Charles Ton's office. These sales scripts urge "legal

assistant" personnel to create a sense of urgency and limit initial calls .

to no more than ten minutes.

Individual time sheets for personnel still list their title as intake and

department as sales (Exhibit 3, Time Sheets).

Backend/NLC/USLC Is Primarily Directed by a Non-Attorney

21 Although structured to give the appearance of being a law firm run by an

22 attorney, in fact the operations at 2601 Main Street were primarily directed by

23 Alex Montazeran, a non-attorney. Witness statements and documents on this


25

26

27 8 Ton was described in :Rejorative terms, with employees noting which of the ~.voi Ton or Montezeran; took the lion's share of the monev and drove the

28 Lamborghmi. •



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

•

•

•

( J

As noted above, in interviews with "legal assistants", personnel

indicated consistently that they took their direction from their sales

managers and above them Alex Montazeran, not attorney Charles

Ton, and they described Ton in unflattering terms.

In an April 16, 20 13 email, Alex Montazeran showed his hiring/firing .

authority over the "legal assistant" /intake/sales personnel, noting in

response to apparently weak sales statistics for the "Rags2Riches"

sales team "THIS IS UN ACCEPT ABLE CHRIS. DO I NEED A

NEW TEAM LEAD?" (Exhibit 25.)

In a March 19, 2013 email, Alex Montazeran showed his hiring/firing ' ·

authority over the processing personnel, telling everyone to increase

to "4 hours talk time" and threating one loan modification processor

with termination: "You must call all your clients by today, if you can't

let me know so I can hire someone that can!" (Exhibit 26.)

Charles Ton's emails show that he obtained pay increases, bonus

plans, and increases in pay from Alex Montazeran, and took direction

from Alex. Ton described himself ·as a salaried employee to

accounting in a February 2013 email: "My Attorney base pay is

$1,500 per week which should be paid from Nationwide (eventually

United States Law Center). Iri addition to the above base pay, I get

commissions and bonuses for files I bring in which should be paid

from Backend, Inc." ' '

In a January 27, 2012 email from Montazeran's NLC email account,

Montazeran directed the accounting manager to increase Ton's pay to

"$5000 per month," noting they "were supposed to increase him after

we ramped up."

An April 22, 2013 email from TJ Sumaia, who worked in accounting, :.

was sent to Alex Montazeran, and only cc'd to Charles Ton, with



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

•

•

•

)

respect to a request for a raise. Alex responded, without any apparent

consultation of Charles Ton: "I'll approve a raise of $100 per week. ;

You need to step it up. Never be behind and fix your schedule to be :

more consistent."

In a September 28, 2011 email, Ton wrote to Alex Montazeran for:

direction regarding a receptionist position for Nationwide Law Center. :

He stated that he was following Alex's "direction" in "interviewing I.

candidates," and asked Alex to "clear things out" with an individual::

who was being a "control freak." Montazeran directed Ton crisply:·.

"Keep interviewing as instructed." (Exhibit 27.)

Charles Ton's emails and other correspondence show that he assisted

as Montazeran' s personal attorney in many respects, including ·

disputes involving late charges and a personal dispute with a woman.

In 2011 correspondence with Chase disputing a late fee, Montazeran • '

noted with regard to his Attorney Goodrich operation: "I happen to ·

run a large nationwide law firm ... " Montazeran also threatened to

have his law firm file a complaint.

In a February 3, 2012 email to the "Ripoff Report" objecting to a:· i

customer complaint about Nationwide Law Center, Alex Montazeran ;:

complained that the report "was generated to extort my company and ;

business," and it could cost "me a lot of clients and income."

Persons put forth as "owners" of NLC!USLC are a shifting group of

attorneys who appear to be merely member/affiliate attorneys. For

example, while Backend's TRO Opposition claims that JD Haas (an

affiliate attorney located in Minnesota) is USLC's owner, USLC's

August 15, 2012 business license application to the City of Irvine lists

Daniel Ruggiero, Esq. as its sole "Owner."

DMWEST #9969546 v1 20 Case No. SACV13-0919-DOC (RNBx) . PRELIMINARY REPORT OF TEMPORARY RECEIVER ;


1

2

3

4

5

6

7

8

9

10

11

12

13

•

•

Incorporation documents show that Montazeran filled out the ·

paperwork and provided his credit card information for the ·

incorporation of Nationwide Law Center, P.C.

On June 13, 2013, an Ohio attorney advised that his state bar objected

to the current affiliate contract, which made USLC's customers clients

of USLC and not the affiliate attorney. Charles Ton forwarded the •

attorney's concerns to Alex Montazeran and asked, "Let rrie know

wh?.t you want to do." Montazeran provided direction: "Reword the

agreement with him and submit it to the supreme court for approval."

Ton then advised the Ohio attorney to revise his affiliate attorney

agreement with USLC to make it appear that "the Ohio clients are the •··

Ohio Attorney's clients, not ours, and that we are merely a referral ; ·

service for our attorneys:"

14 8. Backend Arises from and May Remain Tied to Goodrich

15 Defendant Backend and related entities NLC!USLC arise from operations of

16 Defendant William D. Goodrich. Witness statements and documents on this


18 • On August 4, 2011, Charles Ton received an email from Frank Llanes ·

19

20

21

22

23

24

25

26

27

28

•

•

at "William D. Goodrich, Attorney At Law," stating "Welcome to the

Firm."

The same day, Ton received an email from Alex Montazeran directing .

Shawn to provide resumes for "our" - apparently Goodrich's - .

network of multi-state attorneys for use in forming Nationwide, noting

"Nationwides [sic] website should be up and running by Monday."

Also on August 4, 2011, Ton received another email from F. Llanes

directing him to "focus" and put up Craigslist postings for attorneys

"post haste."



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

•

•

•

•

( -)

In creating the Nationwide Law Center entity, Ton began by sending

out several emails from his own William D. Goodrich email account

[email protected] but quickly set up a new email box for:;

himself as [email protected] .

In a September 13, 2011 email, Alex Montazeran used his

"attorneygoodrich" email account to forward to Charles Ton samples ·

of "William Goodrich associate agreements" for affiliate attorneys,

noting "check them out." One of the samples sent is extremely

similat: to the affiliate attorney agreement that NLC and USLC used.

Goodrich himself sent in his agreement to be a NLC-affiliated ·

attorney on September 27, 2011.

In a March 2, 2012 email, Alex Montazeran and Charles Ton

conferred regarding a customer complaint they received regarding the

fact that "Federal Law bans companies from charging an upfront fee :

on modifications" absent fitting within "three conditions" for the ·

·attorney exemption. Montazeran noted: "Charles, this is a Goodrich·

file. We need to have him call the client."

18 9. Ton and Montazeran Appear to Know of Violation of the MARS Rule

19 Ton and Montazeran direct their operations with the clear intention of

20 attempting to appear as though they are in compliance with the MARS rule under ·

21 its "attorney exemption." Indeed: this explains the use of the affiliate attorney

22 network and effort to have them make the single welcoming phone call and to log

23 into the file (though as noted, this often did not appear to occur). However, in a

24 December 4, 2012 email, Ton advised Montazeran that although he "read the FTC

25 MARS rule and there is no mention of a face to face meeting" requirement, some · ·

26 affiliate attorneys "have brought it up regarding the MARS rule." Ton then noted:

27 "Though there are many other provisions that will eliminate the attorney

28



1 exemption to collect advance fees. If they want to split hair on each issue, they can

2 still get us for it. Let's hope we don't get any complaints." (See Exhibit 28.)

3 10. Operations at Backend/NLC/USLC Were in Violation of State Laws

4 Numerous examples of different state governments objecting to

5 NLC/USLC's sales practices and structure were observed. These included:

6 • A March 14, 2013 complaint letter from the State of Connecticut's

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 I

•

Department of Banking, Consumer Credit Division noted that· under

Section 36a-671 of the Connecticut General Statutes, all persons

engaged in debt negotiation must have a state license. (See Exhibit

29.) The attorney exception under 36a-671c(1) is limited to "An

attorney admitted to the practice of law in this state who engaged in

debt negotiation as an ancillary matter to such attorney's

representation of a client." In his April 4, 2013 response for

Nationwide, Charles Ton claimed that Nationwide's affiliated attorney

in Connecticut only provided negotiation of mortgage loans as an

ancillary matter to his representation of his clients. The Receiver 'is

aware of no evidence to support this assertion by Ton, and significant

evidence (discussed above) indicating that Ton's representation was

not accurate when made: the entirety of NLC's engagement

agreement focused on debt renegotiation, and was expressly limited in

writing to this scope of representation. Ton also claimed the other

information requested, including the names of Connecticut residents

who were clients of NLC, was attorney-client privileged, and so

refused to provide it. (Exhibit 29.)

Similarly, in a March 25, 2013 letter, the State of Vermont's

Department of Financial Regulation notified Nationwide Law Center

that it was investigating potential violations of its lending laws, which

appeared to parallel Connecticut's in requiring a state license for

DMWEST #9969546 v1 23 Case No. SACVB-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECENER


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

•

•

! )

mortgage renegotiation activity, and exempting attorneys only if the

debt renegotiation was an ancillary part of their activity. (See Exhibit

29.) Charles Ton responded to Vermont on April 8, 2013, again

claiming that NLC's affiliated attorney in Vermont only engaged in .

debt renegotiation as an ancillary part of a broader representation, and

refusing to provide other information. (See Exhibit 29.)

On June 13, 2013, an Ohio attorney advised that his state bar objected

to the current affiliate contract, which made USLC's customers clients

of USLC and not the affiliate attorney. Charles Ton forwarded the

attorney's concerns to Alex Montazeran and asked, "Let me know ·

what you want to do." Montazeran provided direction: "Reword the

agreement with him and submit it to the supreme court for approval."

Ton then advised the Ohio attorney to revise his affiliate attorney

agreement with USLC to make it appear that "the Ohio clients are the

Ohio Attorney's clients, not ours, and that we are merely a referral

service for our attorneys." This would obviously not be an accurate

portrayal of the operations at 2601 Main Street.

In a letter dated April 23, 2013, Charles Ton responds for NLC to a

customer complaint investigation commenced by the Attorney

General of Virginia, even though Ton currently claims to never have

been more than a participant in a network of attorneys for NLC, and is

not even licensed in Virginia.9

26 9 We also note that Ton may be in violation of State Bar rules regarding conflicts of interest, as he appears to regularly represent officers and managers of

27 Backend/NLCIUSLC in personal matters while at the same time, and without disclosure to his NLC/USLC clients, reuresentimr them even though they may have

28 claims against processing personnel. ' ~ - · ·



1 11. Backend/NLC/USLC Hid Locations, Names, and Operations

2 The operation at Main Street utilized numerous deceptive practices to mask '

3 those who worked there, who controlled it, its true location, and the nature of the

4 operation. Some examples are covered above, but others include:

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

•

• Numerous persons admitted to using false names, and pointed to ·

others using false names in customer contacts. The reason they gave

for the frequent use of false names was that certain individuals had .

become notorious (through consumer posts on consumer protection

websites such as "Ripoff Report"), and therefore needed to conceal

their true identity to be effective in sales.

• Pr~viously, Main Street used the name Nationwide Law Center.

However, after numerous complaints against NLC were posted on the

internet, the name was changed to United States Law Center.

Once it was at the Main Street location, NLC utilized a Pittsburgh

return address on stationary and mailers. We saw no indication that

NLC had any operations in Pittsburgh.

USLC utilized two Philadelphia addresses on stationary and mailers.

We saw no indication USLC had any operations in Philadelphia.

Montazeran, through Backend, secured phones that would display as

215 area codes (which are for Pennsylvania) for the Main Street

location, such that any person receiving a call from such lines would

have area code 215 appear on their caller ID.

• Based on the contents of the sales cubicles, it appears that Backend's

sales staff (legal assistants) were instructed to identify themselves as

legal assistants at NLC's or USLC's Pennsylvania address, as such

information was written in the cubicles in various forms as reminders.

• The websites USLC utilizes claims that USLC performs a variety of

legal services other than loan modification. We have identified no



.....

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

( )

such services being offered as all the files reviewed thus far related to

loan modification (except one Ton identified as relating to a single _

bankruptcy filing for a friend or associate). Further, although the firm

states it provides services such as personal injury (and then references

Massachusetts law), a simple internet search for the language

appearing in that section of the website shows that virtually the same

description of personal injury services appears on the website of a

Massachusetts law firm whose website

http://www. samsonlawyers. com/practice-areas/litigation/personal

injury (i.e., it was cut-and-pasted).

IS

• In a letter dated May 21, 2013, Charles Ton responds to an

investigation involving former NLC employee or contractor Justine

Hutchinson by explaining _for NLC that she was contracted as an

independent contractor, and NLC has decided to go out of business

due to six months' of losses. Notwithstanding that representation,

NLC files were still being processed in June 2013.

• Also in May, 2013, Ton wrote to Montazeran stating: "[T]here are

too many complaints and problems with Nationwide. We can say

Nationwide is dissolving since its owner Daniel Ruggiero no longer

wants to operate it. Legal Processing can continue to process out the

files~ Nationwide will not have any assets left and therefore has no

funds for refunds or pay any liabilities."

23 12. The Operation Centered on Receiving Advance Fees for Loan

24 Modification

25 The Backend/NLC!USLC enterprise was set up to obtain advance fees for

26 loan modifications prior to having secured such a modification on. the consumer's _

27 behalf.

28


Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1704/- ~) ( )

1 The mechanics worked as follows: After the consumer agreed to engage the·

2 services of NLC/USLC, the contract was automatically generated by LeadTrac.

3 (Exhibit 4, "Leadtrac after a Successful Closing Call - Prep for Docu-Signing the

4 Service Agreement.") Tl;w "Senior Legal Assistant" (really, a sales floor

5 supervisor or team leader) then reviewed the contract with the borrower and the

6 borrower signed electronically. I

7 As to NLC/USLC, the contract included five phases: (1) Pre-Qualification, :·

8 New File Set Up, Review, & Calculation Services, (2) Compilation and~

9 Submission of Package & Review of Lender's Requirements, (3) Submission of

10 Bank Proposal Package, (4) Negotiations with Lender, and (5) Solution. (Exhibit

11 5, Sample Contract.)

12 Upon the completion of each phase, NLC!USLC was entitled to be paid a

13 ce~ain amount. According to our interviews and review of documents, borrowers

14 are cominonly charged a flat fee of $3,700,. which is divided into either three ·

15 payments of $1,700, $1,000 and $1,000 or four payments of $925 each. Each

16 payment corresponds to a particular phase of the contract.

17 For example, if the borrower elects the three payment option, NLC/USLC is

18 entitled to collect $1,700 upon the completion of the first phase and $1,000 each

19 upon the completion of the second and third phases. Under the three payment

20 option, NLC/USLC is paid zero for the completion of phases four and five.

21 Alternatively, if the borrower elects the four payment option, NLC/USLC is

22 entitled to collection $925 each upon the completion of phases one through four.

23 Under the four payment option, NLC/USLC is paid zero for phase five.

24 By the time the borrower signs the contract, the first phase-Pre-

25 Qualification, New File Set Up, Review & Calculation Services-is already

26 complete. NLC/USLC immediately collects the first installment payment when the

27 contract is signed. Also, once the contract is signed, the second phase is already

28



1 underway. Collection of the fee for that phase also occurs before underwriting .

2 prepares a loan modification for bank review.

3 Included in the contract is an ACH Authorization Form that the borrower •

4 also electronically signs. The ACH Authorization Form allows NLC/USLC to:

5 automatically debit the borrower's bank account for each payment on certain dates. '

6 In order to debit the borrower's account, NLC/USLC prints a check with the ! I

7 borrower's bank account information and deposits the check. On the signature line:

8 of the check, NLC/USLC includes a check authorization notice that the check is

9 being deposited to make the payment requested by the borrower.

10 The structuring of the contract to collect fees in advance appears to be the 1!

11 clear intent of the operation. In a December 13, 2012 email, Alex Montazeran ;:

12 states: "I just noticed PHASE 4 of the retainer is after we get an approval. We ••

13 need to change that to Phase 5 and create some sort of phase 4 so we could collect ;

14 that payment." The revised retainer agreements for USLC reflect that change, ·

15 showing a final phase 5 of activity with no payment associated. See Exhibit 31.

16 13. Backend Controlled and Received Almost All Funds

17 Our accountants have identified numerous examples of funds being

18 transferred as between Backend!NLC/USLC that are consistent with our

19 conclusion that Backend and Montazeran controlled the operation that was

20 identified as being in the name ofNLC and'USLC.

21 The Quickbooks balance sheet of Mortgage Modification Center (which are .· ·

22 Backend' s Quickbook files once opened) lists National Law Center and Interstate :

23 Law Group as "Intercompany Transfer Accounts." This appears to indicate that ·

24 they are affiliated companies ofBackend. (Exhibit 6.)

25 Copies ofUSLC's and NLC's Quickbook files were on the computers/server

26 of Mortgage Modification Center (Backend) at their company headquarter offices.

27 There also were bank statements and bank reconciliations ofNLC and USLC in the

28 offices and significant quantities (boxes) of blank check stock for NLC and USLC

DMWEST #9969546 v1 28 Case No. SACV13-0919-DOC (RNBx) . PRELIMINARY REPORT OF TEMPORARY RECEIVER


1 at the Backend offices. We also observed that there were no payroll expenses on

2 NLC's and USLC's books; only on Backend's books.

3 As to USLC, we observed the following facts summanzmg financial ·

4' operations:

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

• We found a document that listed USLC bank account information:

including online access user names and passwords in Backend's ·

records. (Exhibit 7.)

• In regard to the flow cash, it appears that incoming funds were

deposited initially into USLC's trust bank account. Shortly thereafter

(same day to a few days later), large round amounts were transferred

to the Operating account. Again shortly thereafter, large round

amounts were paid to Mortgage Modification Center (Backend) out of

the Operating account.

• Total Income was $1,482,828 for the period 6/1/2012 to 5/2_9/2013 ·

(the time frame of all income/expense transactions per the :

Quickbooks file).

• Of the above amount, $1,230,800 was paid to Mortgage Modification ·

Center ("Backend") in the form of Marketing/ Advertising &

Promotion expenses. Thus, payments to Backend/MMC comprised

92% of total expenses paid by this "law firm."

• The company's total expenses for the period were $1,338,658.

Expense payments to payees other than Backend totaled only

$107,858. These expenses comprised mainly professional fees of

$70,379 (payments to affiliate attorneys); $32,377 for Sales Returns;

and the remaining $5,1 05 for other various operating expenses.

• The company shows Net Income of $144,170. Based on the Balance

Sheet at 6/24/2013, it appears that of that amount, approximately

$48K is sitting in bank accounts and $94K is in an account called


Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1707i )

1 Undeposited Funds. Until bank accounts are entirely reconciled, we

2 will not know how much of the balances actually exist, but it seems

3 unlikely that the $94K is truly an asset.

4 As to NLC, we observed the following facts summanzmg financial

5 operations:

6 • Per the Quickbooks "Profit & Loss"(Cash basis) report for the

7 company, total Income of the company was $2,498,165 for the period

8 6/1/2012 to 5/31/2013 (a one-year time frame was used for purposes

9 of analyzing the income statement)

10 • Of the above amount, $1,695,115 was paid to Mortgage Modification

11 Center (Backend) in·the form of Sales Commission expenses. These

12 expenses comprised 68% of total expenses paid.

13 • The company's total expenses for the period (cost of goods sold and

14 administrative expenses combined) were $2,191,772. Expense

15 payments to payees other than Backend totaled $496,657. These

16 expenses comprised mainly payments to Processing Contractors of

17 approximately $283K; Sales Returns of $88.5K; Professional and

18 Legal fees (payments to attorneys) of $71K and the remaining $54K

19 for other various net operating expenses.

20 ~ Except for one bank account per this Quickbooks file, the bank

21 accounts were not reconciled. Only Bank of the West account #5037

22 was reconciled and the last date of reconciliation was November 30,

23 2012.

24 For Backend (Mortgage Modification Center), we observed the following

25 facts summarizing financial operations:

26

27

28

• Per the Quickbooks "Profit & Loss"(Cash basis) report for the

company, the total Income of the company was $3,226,308 for the

period 6/1/2012 to 5/31/2013 (the time frame of all income/expense·



1

2

3

4

5

6

7

8

9

10

11

12

) / )

. transactions per the Quickbooks file). The sales total is net of NSF

checks and sales returns totaling $363,115.

• The Backend Quickbooks sales detail did not consistently display the

names of the sources of their sales income. Assuming that the ·

p~yments to Backend stated in the Quickbook files of NLC and USLC

are all reflected in the Quickbooks file of Backend, the estimated

break-down of the sources ofBackend's income is as follows:

NLC $1,230,800 34%

USLC $1,695,115 47%

Other/Unknown $ 300,393 9% Add back NSF checks/returns $ 363)15 10%

Total Net Sales $3,589,423 100%

13 • At a minimum, over 80% of Backend's sales are from NLC and

14 USLC (over 90% without grossing up the NSF checks and returns),

15 based on the Quickbooks files reviewed.

16 We also have produced a report in the Quick Books file for Backend which

17 listed all transactions in the bank accounts where the payee for the check or the

18 cash withdrawal was expressly identified as Amir (Alex) Montazeran. There are

19 four bank accounts involved, two with Bank of America, and one each at Chase

20 and Citibank. The majority of the transactions were through the Bank of America

21 general checking account #71400. (Exhibit 8.) The period of time for the

22 transactions was from January 2010 until June 2012 and the net grand total of these

23 transactions is approximately $206,000 in disbursements and withdrawals

24 (excluding W-2 payments) as this was the period of all transactions reflected in

25 Quickbooks. The transactions are notated mainly as "Officer Draws", however

26 other notable transactions are as follows:

27

28

• Check #3588 dated Dec 23, 2010 in the amount of $200 payable to

Amir Montazeran notated as "Amir signed blank check."



1

2

3

4

5

6

7

8

9

10

11

12

13

14

• • •

• • • • • • • • • •

( ) ! )

"Counter check at bank" of$40,000 dated October 21,2011.

"Cash withdrawal" of $504.99 on October 31, 2011.

Cash withdrawal at the Wynn Las Vegas November 1, 2011 of·

$204.99.

"Cash WD at US Bank ATM' of $443 on November 14, 2011.

"Counter check at bank" of$2,000 dated November 18, 2011.

"ATM withdrawal" of$481.95 on November 18,2011.

Check# 1809 for $468 for "tire reimbursement" on January 8, 2010.

Check# 3663 for $2,192 notated as "$1096 Max personal Amex."

Check# 3928 for $1,304.88 notated as "Amex personal $652.44."

"BofA ATM WID" for $500 on April29, 2011.

"Cash withdrawal" of $500 on September 27, 2011.

"Cash withdrawal" of $100 on October 6, 2011.

Check# 8175 for $41,000 on August 21, 2012 notated as "Due From

15 EMAX Loans Inc." 10

16 Although not reflected in the Quickbooks summary above, an additional

17 $100,000 check from Backend to Amir was located. (Exhibit 9.) It is thus

18 possible there are additional unlabeled payments to him. Our review of the ·

19 financials is ongoing, and not all transactions may be clear until bank records are i

20 received.

21 Lastly, we note that Montazeran himself appeared to vww this entire

22 enterprise and its funds as his, no matter what name it was using. In an email chain

23 (of which there are two versions) with Backend's accountant, Montazeran wrote

24 about his need to show his bank certain levels of income. On page 2 of the email,

25 he states "These guys [the bank] are asking for 2012 business taxes as well. Can

26 you prepare me one showing about 3.6-4 million in sales." The accountant than

27

28 10 Emax is another entity belonging to or controlled by Montazeran.

DMWEST #9969546 v1 32 Case No. SACV13-0919.,DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECENER

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1710.~) I ')

/

1 responded: "Yes, who am I [sic] showing for the K-1 's? We removed you as the

2 'Owner' are they expecting to see you as an owner?" Montazeran responded to

3 those two questions "Me" and "Yes they are."

4 In the second email chain, Montazeran then instructs his accountant on page :

5 5 of that document that he needs to show 400k-500k in profit. On page 4, he :

6 instructs the accountant to ensure that all the tax extensions are done for his

7 ·various entities, which he lists as "interstate law group NV, unitedstates law center,

8 nationwide law center Delaware, nationwide law center pa, backend, emax loans,

9 etc ... "

10 B. Baid Entities

11 The Baid entities include Smart Funding Corp, A to Z Marketing, Inc., Apex

12 Members LLC, Apex ·Solutions, Inc. and Expert Processing Center, Inc., all

13 owned and controlled by Baid. Smart Funding appears to have operated a

14 traditional mortgage brokerage business for many years up to 2009 when the

15 housing bubble burst. After 2009, Baid branched out into debt relief and loan

16 modification, deploying newly-formed entities A to Z, Apex, and Expert

17 Processing. Baid also owns several operating businesses, also based at the

18 Reynolds site, which do not appear to be directly involved in the mortgage

19 business (originations or modifications) - Summit Client Services dba AAA Net

20 Solutions (IT serviees)11, Getting Visible (search engine optimization sales), and

21 Expert Marketing Services (general marketing and graphics services).

22 The mortgage-related businesses we found upon arrival were almost

23 exclusively focused on loan modifications. We were able to quickly identify the

24 basic components of the modification business:

25

26

27

• A to Z was in charge of marketing which translated to high volume

direct mail pieces aimed at homeowners with specific demographics.

28 11 This company provided IT support to Alex Montazeran/ Backend, Inc;



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

/ ) r )

"Leads" for these mailers were secured from sophisticated lead ·.

sources. We found nearly 10,000 such mailers poised for sending in '

the mail room at the Reynolds site. These mailers were carefully

concocted to look official with lots of encouraging syntax - "eligible

for special modification program guidelines"; "new fixed interest rate

. as low as 2%"; "avoid foreclosure". Urgency was imparted with

notations of "Final Opportunity" and "Final Notice". (Exhibit 10 is a

sample of one of the Mailers we found in the Mail Room). A to Z

strategized, planned, prepared, implemented, and paid for all this

marketing. In 20 13, A to Z spent $1.3 million on leads and $1.3

million on Marketing.

The mailers directed consumers to Toll Free Numbers that rang in call

rooms operated by A to Z and manned by A to Z telemarketing sales

personnel, who were instructed to answer with nebulous labels such as

"Loss Mitigation," "Loan Assistance " ' "Mortgage Retention

Department," and "Home Retention." These toll free numbers did not

ring in a lawyer's office. The staffers answering these calls were not

lawyers, paralegals, or legal assistants - they were sales personnel.

(Exhibit 11.)

'A to Z Sales personnel were not ince:rltivized to service clients, but to

SELL - all compensation was based on actual dollars collected. A

white board at the Dyer Road office of A to Z showed how a good

salesman could make $8,600 per month based on 10 sales per month

at $3,500 per month (Exhibit 12). The call room at Reynolds was

riddled with notices and postings about compensation and how

salesmen could sell more and make more. (Exhibits 13.) There was

not even a set price for modification services - sales people were



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

•

•

( )

given a range of $2,000 to $5,000 which translated to a procedure that

they could charge what they thought they could get.

The Sales Manager advised us there was very little on-site training,

rather he tried to just hire people with a background in mortgages. In ·

such an environment, over-promise and over-sell techniques were •

common among sales personnel incentivized only to sell. We did see

some limited scripts in the Reynolds Avenue call room which gave

sales people some tricks of the trade - "get deep and use your sales

tools/emotional hooks to engage client;" "Let's get you signed up and ·'

protected today;" "just telling clients what they wanna to hear;" "you i(

are more than a file to us, your best interest is our top priority;" "we ;

are a consumer protection law firm." (Exhibit 14.)

For those homeowners who signed up, they were not told that loan

modification providers cannot accept advance fees except in very

limited circumstances. They were told to pay up usually in three

installments. Those payments were not made to· a lawyer's office, but

to "Client Services", a dba of A to Z, primarily via ACH debits. No :

direct payments were made by a consumer to a lawyer or law firm. A

to Z paid the lawyers out of the Client Services account. The standard

form retainer agreement to Client Services was delivered with ffi1

ACH authorization form authorizing payment to Client Services_ or .:

"clients" could pay by direct deposit or wire to Client Services ..

(Exhibit 15.)

For those homeowners who became "clients", they were not directed

to a lawyer, a paralegal, or a legal assistant to prepare their

application. They were not even directed to a non-lawyer at A to Z's

office in Irvine, but instead they were assigned to one of 40

"processors", all located in a call room partially owned by Baid in



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

•

Calcutta, India. The listing of the Processing Department lists them .

all as "processing officers," all of whom used Americanized.;

pseudonyms and email addresses at epcemail.com. (Exhibit 16.)

A to Z did arrange to have a lawyer of some sort connected to this

flow of events, but the lawyer was a bit player in this marketing

program. This was not a law firm with non-lawyers performing

collateral services. This was a telemarketing business owned and

controlled by non-lawyers with lawyers as a nominal adjunct.

Consumers who signed up did sign a retainer agreement that bore the

name of some lawyer or law group. But, the retainer agreement was

automatically generated from a data base with the lawyer's pre

printed signature (Exhibit 17.) The first attorney associated with A to .

Z was Defendant Goodrich from mid-2009 through August 2011 -.:

during much of this time, he was also working for the predecessor ·

firm of Defendant Backend. Although he was based in Irvine, he used

a New York address on his correspondence, mailers, and website

address for ·his law "office." According to Goodrich, in August of

2011, he changed his roles with Baid and Backend, shifting to a less

public role and working primarily for Baid. With Goodrich's help, A

to Z enlisted a series of lawyers to play the part of fungible lawyer,

each for very brief periods: McGoldrick Law Center based in West

Chester, Pennsylvania (August 2011- November 2011) - attorney

McGoldrick quit and sued A to Z (see·· Exhibit 19 to FTC's TRO

Application); Burke Law Center based in New Jersey (December, ..

2012 - February, 2012) - attorney Burke quit after attending a real ·

estate seminar that convinced him that A to Z's operation was illegal

(see Exhibit 20 to FTC's TRO Application); Cronauer Law Center

based in Washington, D.C. (March- May, 2012)- attorney Cronauer



·, 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

•

•

•

quit abruptly after only a few months "on the job"; Top Legal

Advocates based in Michigan (May, 2012 - February, 2013) -

attorney Lewiston was told costs had gotten too high; and Evergreen

Law Office based in Seattle (February 2013 - present~. Baid and

Goodrich were in the process of establishing Great Lakes Law Center ··

with a new front attorney at the time of the receivership. Goodrich

generally obtained these attorneys by placing ads on Craigslist.org

seeking loan modification attorneys. Goodrich and other Baid

employees set up the entities' front attorney apparatus. They

established mail drops or executive office space in far-flung cities for

the front attorney - Detroit, Seattle, and New York. Mail was then

periodically forwarded from these locales to the A to Z offices in

Irvine.

A to Z, under Goodrich's direction, set up Evergreen Law Offices in

early 2013, in part because the predecessor lawyer front- Top Legal

Advocates -had too many BBB complaints (Exhibit 18).

A to Z, again under Goodrich's direction, did most of the leg work ·:

needed to set up Evergreen Law Offices. (Exhibit 19.)

As recently as June 7, 2013, lawyer JD Haas of Bloomington,

Minnesota, was exchanging emails with Goodrich about Haas being

the principal of a new "firm" to be set up by Goodrich and Baid. This

is the same JD Haas who has filed a Declaration in this action that he

is the principal ofUSLC. (Exhibit 20.)

24 In the brief periods since the Receiver's appointment, we have not been able

25 to confirm every detail of these Baid operations. But, one thing is crystal clear -

26 the loan modification business operated by A to Z and its affiliates was a

27 telemarketing business owned and controlled by non-lawyers with lawyers as paid

28 subordinates who did nominal actual legal work. Goodrich played the enabler for



1 the Baid operation. He rounded up front attorneys, set them up, and then

2 responded to the voluminous complaints from consumers and state regulators ·

3 which followed.

4 We have not had a chance to complete a thorough investigation on the •

5 financial records of Defendant Baid and his related entities. We have, however,

6 learned the following:

7

8

9

10

11

12

13

14

15

16

17

18

19

2

21

22

23

24

25

26

27

28

•

•

•

•

•

Income -In 2012, approximately $11 million in gross receipts were •

received into A to Z Marketing and later disbursed to other related [

entities. A to Z Marketing receives a majority of the income.

Comingling of funds - The companies frequently transferred large ·

round dollar amounts between commonly owned entities. We have ·

found little or no supporting documentation relating to the payments

made. For example, large round payments are paid from A to Z

Marketing to Smart Funding Corporation and simply coded as

"processing fees."

Foreign Transfers - Large round dollar amounts were regularly wire

transferred to foreign entities. These transfers include large payments

to one or more entities with common ownership to the defendants.

We did not find invoice numbers or other general accounting support

for these payments. The accounting staff informed me that Mr. Baid ..

makes all wire transfers.

Common use of space/accounting - Many (if not most) of the :

commonly owned and controlled entities occupy the same office

space and have their accounting records prepared by the same

accounting staff.

Law Firms - Law firm Quickbooks accounting files are maintained at

the 1400 Reynolds address (which appears to be headquarters for the

various Baid owned and controlled entities). Also, checkbooks and

DMWEST #9969546 v1 38 Case No. SACV13-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER •


1

2

3

4

5

6

7

8

9

10

11

12

•

c.

( )

other accounting documents relating to the law firms exist at this site;

however, no actual attorneys were here on the date we entered the ·

premises. Except for Defendant Goodrich, who claimed he "retired"

from the loan modification business in 20 11, no attorneys actually

worked from the Irvine offices.

Numerous Entities - The Baids own and operate a multitude of

related en~ities. These companies maintain their accounting software ·

records at the 1400 Reynolds locati9n with a common accounting

department overseeing deposits and disbursements for the various

entities. Accounting software files were found onsite for over 15

compames.

William Goodrich, Inc.

13 Defendant William Goodrich plays an instrumental role in the Baid

14 operation currently and played a similarly important role in Backend/Montazeran's ·

15 loan modification operation. According to Goodrich, in 2009 he moved back to

16 the United States and settled in Irvine. He had not practiced law in 14 years, but he

· 17 had a background in real estate law. He met Baid after responding to a Craigslist

18 posting for a loan modification attorney. He met Montazeran in the same way -

19 responding to a Craigslist ad. Goodrich began to work with both loan modification

20 organizations concurrently in 2010. He did so, according to Goodrich, until

21 August or September of_ 2011, when he claims he withdrew from the loan

22 modification business and began to work primarily with Baid. (We have found

23 documents, however, suggesting that Goodrich . continued to work with

24 Montazeran' s organization through early 2013 as an affiliate attorney and saw

25 payments from Montazeran to Goodrich in the last month.)

26

27

28


Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1717( ) I )

1 Goodrich claims that he stepped back from the front attorney positions in the

2 fall of 2011 because he wanted to slow down. 12 However, it is notable that there

3 had also been a substantial number of consumer complaints, internet postings and j

4 regulatory inquiries by this time. It may be that these factors played a role in his ~:

5 decision, particularly since he did not really slow down. Rather, he became even·

6 more involved in the Baid organization, but not on the front lines with the •

7 consumers. Instead, Goodrich was instrumental in bringing in a string of front:

8 attorneys: McGoldrich, Burke, Cronauer, Lewiston, and Touchi, each of whom:

..9 lasted only a short time and many of whom Goodrich hired when they responded ·

1 0 to craigslist postings. Goodrich would assist these front attorneys in setting up :

11 their loan modification practice, arranging mail drops and working on websites. At :

12 least three attorneys left on their own accord, either because they had learned the

13 practice was illegal or because they could not control the Baid operation.

14 Goodrich was continually changing the person on the front lines, and their :

15 locations (Pittsburgh, Detroit and Seattle). At the time we came on site, Baid and . ·

16 Goodrich were in the process of establishing a new front attorney in Chicago at a :

17 firm to be called Great Lake Law Center.

18 Goodrich's other role at the Baid organization was to respond to complaints '

19 and regulatory inquiries. Goodrich's posture appears to have been that if the ·

20 consumer threatened to go to the BBB or a state agency, he would settle. ·

21 Similarly, if a regulatory agency made an inquiry on behalf of a client then:

22 Goodrich would quickly reach a settlement with the consumer. Despite this

23 settlement-ready posture, the Baid organization had dozens and dozens of

24 complaints and requests for refund at any one time, along with state bar actions

25

26 12 Notably_, although Goodrich was in Irvine at the time he was the front :·

27 attorney, he listed his address on websites and correspondence at a mail drop in , 1\.T"'"' Vru·lr p.,..,..,nrnahhr th1c UT!:IQ tn m1cr11rPf't f'r'll'lCllmPr<1 l'lnrl l'lvn1r1 r1P.tP.r't1nn bv : 1 '4V VV .L V.l.L'I...... .L .l ""'1.,}\,.l..l.I...L'-"'V..LJ' \...I. .1U l'\' '"-"'"-' l-'J ..I.J,..1..1.U'\o..+.l..J.. VV\, VV.t..l.'-,JW..l..I...I.V..l. U '-""..I...L...,.... '-""' Y ...._, .... ...._.. ........ v .... vv ...... ....,.._.._ J ;

28 the California State Bar, as advance fees had been outlawed in the state by SB 94. :

DMWEST #9969546 v1 40 Case No. SACV13-0919-DOC (RNBx) : PRELIMINARY REPORT OF TEMPORARY RECEIVER .

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1718I J / )

1 , against the front attorneys that Goodrich would generally farm out to counsel. In

2 fact, a spreadsheet was necessary to keep track of the numerous complaints.

3 We also found documents suggesting that Goodrich was offering to provide

4 these same services to other organizations. We located one draft agreement with

5 one firm and talking points for another. It appears Goodrich was attempting to .

6 franchise his services.

7 If it becomes necessary, we will later supplement this Preliminary Report :

8 with additional discussion as to the Baid entities and Goodrich.

9 I~

10 Can These Businesses Be Operated Lawfully and Profitably?

11 Paragraph XV(M) of the TRO tasks me to determine if the businesses of·

12 Receivership Defendants can be operated lawfully and profitably. My conclusion ·

13 IS no.

14 A. Context- The Relevant Law

15 A critical predicate for any review of loan modification operators is a clear

16 understanding of the regulatory landscape. Those regulations are detailed in the

17 FTC's filings with the Court. For these Receivership Defendants (who are.

18 telemarketing entrepreneurs, not attorneys), the condensed version as the Receiver ·

19 understands it and applies it to these operations is simple:

20 1. Advance fee loan modification operations are, with narrow /

21 exceptions for attorneys, unlawful under the MARS rule.

22 2. A phony, form over substance, relationship with an

23 attorney will not render them legal under MARS.

24 3. Even attorneys cannot take advance fees here in California

25 because the MARS attorney exemption will not apply where a

26 state forbids a practice, as is true here in California where

27 attorneys are included in the state law advance fee prohibition.

28

DMWEST #9969546 v1 41 Case No. SACV13-0919-DOC (RNBx) ·•· PRELIMINARY REPORT OF TEMPORARY RECEIVER


1

2

3

4

( \ J

4. If attorneys are engaging m unlawful activities in their

states - such as fee-splitting, running-and-capping, or aiding the

unauthorized practice of law- the MARS rule will not apply.

The starting point is the Mortgage Assistance Relief Services ("MARS")

5 Rule. It is designed to prevent unfair and deceptive practices associated with

6 mortgage assistance relief services. Providers of mortgage assistance relief

7 services are prohibited from: (1) charging up front fees; and (2) misrepresenting

8 their services, among other things. See 16 C.F.R. §§322.3(b) & 322.5.

9 ... Specifically, as of January 31, 2011, companies offering to help .

10 homeowners modify their loans cannot charge upfront fees. 16 C.F.R. §322.5. A ;

11 mortgage assistance relief company cannot collect a fee until the homeowner has

12 signed a written agreement with the lender that includes the relief the company

13 obtained. 16 C.F.R. §322.5(a). When the homeowner is presented with the written

14 agreement, the mortgage relief company must inform the homeowner that he or she

15 can reject the offer without obligation and, if the homeowner accepts, the total fee

16 is due. 16 C.P.R. §322.5(b).

1 7 Attorneys are exempt from the MARS Rule if: ( 1) they provide mortgage

18 assistance relief services as part of their practice of law; (2) they are licensed to

19 practice law in the state where their client or their client's horne is located; (3) they

20 comply with all relevant state laws and regulations concerning attorney conduct;

21 and ( 4) before they perform any services, they place the fees in a client trust

22 account that complies with state laws and regulations. 16 C.F.R. §322.7.

23 Attorneys may lose their exemption by: (1) allowing their names to be used

24 in solicitation of clients without actively providing legal services in connection

25 with mortgage assistance relief services; (2) sharing legal fees for MARS-related

26 services with non-attorneys; (3) helping non-attorneys engage in unauthorized

27 practice of law; and ( 4) engaging in widespread telemarketing operation staffed by

28 non-attorneys, among other things. See Mortgage Assistance Relief Services Rule:


Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1720( )

1 A · Compliance Guide for Lawyers, available at http://business.ftc.gov/

2 sites/ default/files/pdf/bus77-mortgage-assistance-relief-services.:.rule-lawyers. pdf.

3 Individual states also have their own state regulations, including California

4 Civil Code §2944.7(a)(1) (prohibiting persons from claiming, demanding,

5 charging, collecting, or receiving any compensation until after contracted services

6 fully performed). 13 Senate Bill 94 ("SB 94") became effective October 11, 2009.

7 It prohibits attorneys from charging or collecting legal fees for loan modification

8 services before those services are complete. Since the California statute provides

9 further r.estrictions than the MARS Rule, and the MARS Rule incorporates those

10 rules as a limitation on the attorney exemption, SB 94 trumps the MARS Rule and

11 prohibits lawyers from collecting advance fees for loan modification work until

12 those services are complete. See State Bar of California, Senate Bill 94 and Loan

13 Modification Fraud, available at http://www.calbar.ca.gov/Public/Consumer

14 Information/LoanModificationFraud.aspx ("[T]he FTC rules require compliance

15 with SB 94 and an attorney who fails to Qomply with SB 94 would be subject to the

16 penalties provided for in both SP 94 and the federal law.").

17 SB 94 was due to expire on January 1, 2013. However, it was extended by

18 Senate Bill 980 (SB 980), signed into law on September 25, 2012. As with the

19 prior law, SB 980 is applicable to lawyers and non-lawyers alike, see Cal. Bus. &

20 Prof. Code §6106.3; Cal. Civ. Code §2944.7. Again, the MARS "attorney

21 exemption" cannot apply (even if otherwise applicable) where an attorneys'

22 conduct is unlawful under state law. See 16 C.P.R. §322.7.

23

24 13 Section 2944.7(a)(1) states in full relevant part: "(a) Notwithstanding any

25 other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arrang_es, attempts to arrange, or otherwise offers to perform a

26 mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following: (1) Claim,

27 dem~nd, charge, collect, or receive any compensation until after the person ha~ fully nu'rf'nrm.,.CI ~"a£'h 'lind 4>'lT4>YIT 40!P!"Vil'l> tfl1> nl''r40!£\H I'Ofi·fr'llt>fl"rl tn r\4>'rf'n'rm

28 ~r ";.ep;es~;t;d th;t h~ ;; sh~ w~·.;rarv;rf~;~.~,;-~(J~;ph~~i~~~Jd;Jj:"" W J:'"AAVA AU



1 To the Receiver's knowledge, all or almost all states also have prohibitions

2 against fee splitting (lawyers splitting their fees with non-lawyers), running-and-

3 capping (lawyers paying non-lawyers to solicit clients for them), and aiding in the

4 unauthorized practice of law. For example, the California Rules of Professional : . i

5 Conduct prohibit an attorney from directly or indirectly sharing fees with a person !

6 who is not an attorney. See Cal. R. Prof. Conduct 1-320; see also ABA Model:

7 Rules of Prof. Conduct Rule 5.4(a). Also, an attorney cannot "compensate, give,

8 or promise anything of value to any person or entity ... as a reward for having

9 made a rec.ommendation resulting in employment of the member or the member's

10 law firm by a client." Cal. R. Prof. Conduct 1-320(b); ABA Model Rules of Prof.

11 Conduct Rule 5.4(a). Lastly, an attorney "shall not aid any person or entity in the .

12 unauthorized practice of law." Cal. R. Profl Conduct 1-300(a); ABA Model Rules

13 ofProf. Cond. 5.5(a).

14 · B. Lawfully

15 Based upon the facts and law identified above, to become lawful going ,

16 concerns, these loan modification businesses face significant hurdles at two levels: :

17 1. ' Misleading Consumers. The over-promise, under-deliver ·

18 phenomenon which is documented in the FTC's presentation to the court, and ;

19 confirmed by our on-site experience, could, in theory, be corrected. It would,

20 however, take a paradigm shift in the sales culture of the business and the

21 :recruiting, training and supervision of the sales and operations staff. Such shifts

22 would take time and reduce profitability, but would be possible. At a minimum,

23 the whole commission structure tied to completed sales would have to be altered to

24 remove incentives for over-selling. Further, the services could not be marketed as

25 legal services or "law firms," at least assuming the services continue to be

26 delivered and controlled by non-lawyers, as is presently the case. And, the actual .

27 entities performing the sales would have to be accurately portrayed, removing all ;

28 deceptive practices currently utilized to hide under changing law firm names.

DMWEST #9969546 v1 44 Case No. SACV13-0919-DOC (RNBx) ' PRELIMINARY REPORT OF TEMPORARY RECEIVER


1 2. Advance Fees. However, even if all deceptive trade practices could

2 be removed, the basic business model has a fatal systemic flaw - advance fees.

3 Defendants, like many loan modification entrepreneurs before them, have created :

4 thin alliances with a lawyer. Such a practice is fatally flawed as follows:

5 a. The consumer is deceived into believing he is hiring a lawyer or a law

6 firm;

7 b. The lawyer is engagmg m improper fee splitting, has formed a.

8 partnership with a non-lawyer, and is not using reasonable care in the handling of

9 his ".clients." Such practices are forbidden and subject the lawyer to sanctions.

10 c. Under MARS and nearly all state regulations, advance fees are illegal

11 except in the narrowest of circumstances.

12 Thus, to operate lawfully, the entities· would have to function without

13 advance fees, and to only collect fees on successful loan modifications. This

14 would require, in essence, building completely new enterprises in regard to their

15 profit model.

16 c. Profitably

17 Defendants' implicit assessment of the profitability of lawful operations is ·

18 worth noting. The Defendants. appear to know of the MARS rule and state

19 equivalents, and go to significant pains and some expense to create the pretense of

20 a law practice in order to crrcumvent the rule. Defendants appear to have

21 concluded that the collection _of advance fees is a necessity, and that they cannot

22 profitably conduct a lawful loan modification business.

23 If these businesses were run lawfully, profitability would be severely

24 challenged. If sales personnel faithfully sold the service with absolutely no ·

25 hyperbole, hype, or misinformation, we expect that alone would slow sales

26 dramatically, and would increase expenses for hiring, training, and supervision.

27! Additionally, the inability to collect advance fees in California would require

28 building an entirely new financial infrastructure for these entities. Given that the


Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1723() ( )

1 entities' present assets were largely collected through unlawful advance fees,

2 substantial new capital would be needed to fund operations. To put it simply,, this

3 scenario is not a realistic one for this Receivership.

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Dated: June 27, 2013

DMWEST #9969546 v1

THOMASW.MCNAMARA

By: c:?Z- ).;_ ;!.---Thomas W. McNamara Temporary Receiver

46 CaseNo. SACVB-0919-DOC (RNBx) PRELIMINARY REPORT OF TEMPORARY RECEIVER .


PROOF OF SERVICE FTC v. )1 to Z A1qr'Ti_e,ti1Jg, inc., eta[. USDC Central Dtstr1ct ofCahforma

Case No. SACV13-0919-DOC (RNBx) 2

3 I, Ashley Munyon, declare as follows:

4 .I am at~ employee ofa !llcrilber of the b3;r oqhis Court at whose direction was 5 made. m the Co~mty of ~an D1ego, ~tate of Cahfo;rma. 1 am over the age of .18 and not

a party to the wtth.m actiOn~ my busmess address IS 655 West Broadway, Swte 1600, 6 San Diego, California 921 v 1-8494.

7 On June 27, 2013, 1 served the following document(s) described as:

8 • PRELIMINARY RE'PORT OF TEMPORARY RECEIVER

9 on interested pmi}es in this action by placing 0 the original [2J true copy( ies) thereof enclosed m sealed envelopes as follows:

13

14

15

16

17

]. 8 VIA EMAIL & U.S. MAIL Stacy Procter S Procter(caftc. go v

19 Federal TI·ade. Commission

20 10877 Wilshire Blvd., Suite 700 Los Angeles CA 90024 TeL: 310-824~4366

21 Fax: 310-824-4380

22 VIA EMAIL & U.S. MAIL f\1. Canchce Bryner

23 Law Offices ofM. Candice Bryner A Professional Corporation

24 900 Roosevelt

25 ' Irvine, CA 92620 Tel: 949-371-9056 Fax: 949-679-2492

26 Candicee{mxvnerlaw.com

27

28

DMWEST #9974619 v1

Attorneys for Plaint[ff

Attorneys for Plaintiff

Attorneys for DEfendants A to Z lvfarketing, Inc., Apex lvfem.bers, LLC, Apex Solutions, Inc., Expert Processing Center, Inc., Smart Funding Cmp., William D. Goodrich, Attv, Inc. and dba WDG, Attornev at Law, Ratan Baid, and j\;fadhulika Ba'ld

Case No. SACV13-0919-DOC-(RNBx) PROOF OF SERVICE

Case 8:13-cv-00919-DOC-RNB Document 33 Filed 06/27/13 of 51 Page ID #:1725)

VIA .EMAIL & U.S. MAIL Attorneys for Defendant Backend1 Inc. Thomas J. Borchard

2 J. Sean Dumm Borchard & Callahan, APC

3 25909 Pal a, Suite 31

00 Mission Viejo, Ca ifornia 92691

4 Tel.: 949-457~9505 Fax: 949-457-1666

5 tborchard(Zi)borchardlaw.com jsdumm(i!J5orchardlaw.com

6 ! fX1 BY ElVIAIL: I caused the documents to be sent to the persons at the e-mail

7 UcfClress( es) Its teo above. I did not receive, within a reasonable time a11:er the transmissi<?n, any electronic message or other indication that the transmission was

8 unsuccessful.

9 rg:j MAIL to non-ECF participants by causing a true copy thereof to be placed in a sealed envelope with postage thereon fully prepaid to be placed in the United States

1 o mail at San D1ego, California addressed as md1cated above. I am "readily familiar" \Vith this firm's practice of collection and processing correspondence for mailing. It

11 is deposited witf1 the U.S. Postal Service on that same day in the ordinary course of business.

12 n YIA ClVl I ~CF. by electronically fil_ing the foregoing wi~h)he Clerk ,of the . 13 p!s~nct Court usmg 1ts ECF System, wh1cn electromcally notifies them VIa email as

mdtcated above. 14 0 F AC.SilVULE by cau~ing s~ch docum~nt to be tran.sn~itted by facsimile machjne 15 to. thhe office(s

0) of tdhe parties mdiCated hedrebm. hThe fach~nmle machme used complied

v.nt Rule 20 3 an no error was reporte y t e mac me. 16 0 FEDERAL EXPRESS,by causinaa true. copy t!1ereofto b~ P.laced ip a sealed. 171 envelope ad~ressed to the o1Jice(s).ofthe pa1~1es mdiCated herem below iully_pre.patd

11 to. be p1ace¢_m ~ederal Expre~s d~hv~~y serv_1ce b9x at 6?5 Wes~ Broadway, ?an

18 Otego, Cah.torma. I am. "readtly famthar" w1th th1s firms practiCe of collection and proces.·sing corresp. ondence for federal Express service. It Js deposited with Federal

19 Express on that same day in the ordina1y course of business.

20 0 PERSONAL SERVICE by causipg a true and c01:rect copy of the . '"' . aforementiOned document( s) to be delivered to the parttes on the attached servtce hst

21 this date by Nationwide Legal, Inc.

22 ! n .(ST.~ TE).: I declare L!nder penalty of perjury under the laws of the State of

I; tallforma that the above IS true and correct. '"\

23 ~ . \ (FEDERAL): l declare that I am emploved in the office of a member 0fthe bar 24 o this court at whose direction the service \Vas made. \

\

26 i I

Executed June 27, 2013, in ftm. D~go, Ca. li.tO-q1ilk-----~, . \ . j '·{ \/l /~ j f~ 1 "'··-,~~ ;

"------/r"·\ 1 \j\.J: --~~ it /'.t\1 \,. //

27d

281 I

1-·····-···········--·····--

i DMWEST #9974619 v1 2

\\ I I I ' / IJ] --·-·---

Case No. SACV13-0919-DOC (RNBx) PROOF OF SERVfCE