Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 1 of 61 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS Springfield ) ANDREW ZIMMERMAN and KELLY ) ZIMMERMAN, On Behalf of Themselves and ) All Others Similarly Situated, ) ) Plaintiffs, ) ) v. ) Case No. 03-CV-30261 ) CAMBRIDGE CREDIT COUNSELING CORP.; ) CAMBRIDGE/BRIGHTON BUDGET ) PLANNING CORP.; BRIGHTON CREDIT ) MANAGEMENT CORP. CAMBRIDGE ) CREDIT CORP.; BRIGHTON CREDIT CORP.; ) BRIGHTON CREDIT CORP. OF ) MASSACHUSETTS; JOHN PUCCIO; and ) RICHARD PUCCIO, DEBT RELIEF ) CLEARING HOUSE, LTD., BRIGHTON DEBT ) MANAGEMENT SERVICES, LTD., INC. ) CYPRESS ADVERTISING AND ) PROMOTIONS, INC., CAMBRIDGE ) CONSUMER CREDIT INDEX, INC., ) SOUTHFORK ASSET MANAGEMENT CORP., ) JPMORGAN CHASE & CO., CHASE ) MANHATTAN BANK USA. N.A, CAPITAL ) ONE CREDIT CARD SERVICES, CAPITAL ) ONE BANK USAA FEDERAL SAVINGS ) BANK, PROVIDIAN FINANCIAL ) CORPORATION, PROVIDIAN BANK, ) PROVIDIAN BANCORP SERVICES, FIRST ) CONSUMER CMC CORPORATION, CAPITAL ) ONE F.S.B., USAA SAVINGS BANK ) ) Defendants. ) ) AMENDED COMPLAINT FOR INJUNCTIVE RELIEF AND DEMAND FOR JURY TRIAL -1- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 2 of 61 Plaintiffs, Andrew Kelly Zimmerman, hereby file this Amended Complaint for Injunctive Relief and Demand for Jury Trial pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, and assert that no responsive pleading has been served with respect to their original complaint herein, and that they may amend as a matter of course at this time. INTRODUCTION 1. This class action lawsuit seeks to recover monies wrongfully obtained from consumers who found themselves in the direst of financial circumstances and in need of debt relief and credit counseling over the period beginning five years prior to the filing of the original complaint in this action. 2. Aiming itself directly at this sub-prime market, defendant Cambridge Credit Counseling Corp. (“Cambridge”) advertised and promoted itself in print and broadcast media as a non-profit organization exempt from taxation under §501(c)(3) of the Internal Revenue Code, as “America’s Premier Debt Management Firm”, as “a leader in the non-profit credit counseling industry” and as “the benchmark to which all others are compared.” 3. Cambridge’s sister entity, Cambridge/Brighton Budget Planning Corporation (“Cambridge/Brighton”) called itself a “Professional Debt Management Organization” and represented that it was “a New York State licensed Not-For-Profit organization offering credit counseling and educational assistance to consumers throughout the United States.” Though it represented that a request for 501(c)(3) tax-exempt status was pending, that status was never granted. 4. Defendants Cambridge and Cambridge/Brighton and their sister credit counseling agency (“CCA”) for-profit Brighton Credit Management Corp. are but three of several arms of a single commercial enterprise operated by defendant brothers John Puccio and Richard Puccio, -2- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 3 of 61 that also included defendants Cambridge Credit Corp. (“CCC”), Brighton Credit Corp. (“BCC”), and Brighton Credit Corporation of Massachusetts (“Brighton Mass.”), Cambridge Consumer Credit Index, Inc. (“CCCI”), Debt Relief Clearing House, Ltd. (“DRCH”), Brighton Debt Management Services, Ltd., Inc. (“Brighton DMS”), Cypress Advertising and Promotions, Inc. (“Cypress”), Southfork Asset Management Corp. (“Southfork”), and others as yet unknown (collectively the “Cambridge Defendants”). 5. Cambridge sought tax-exempt non-profit status a few weeks after the March 30, 1997 effective date of the Credit Repair Organizations Act, 15 U.S.C. § 1679, et seq. (“CROA”). It is alleged that Cambridge sought tax exempt/non profit status for a number of reasons. First, it is alleged that Cambridge’s founders, John and Richard Puccio established Cambridge as a 501(c)(3) non-profit company as a deliberate means to evade the Credit Repair Organizations Act and possibly other laws. As the Federal Trade Commission has stated, 501(c)(3) status has been used by credit counseling companies as “a get-out-of-regulation-free card.” Second, it is alleged that a collateral benefit was that many creditors would only pay “fair share” money (explained infra) to 501(c)(3) entities. In other words, not only was setting up as a non-profit tax exempt entity beneficial to avoid regulation, it also was more “profitable” because of the additional fair share revenue that would otherwise be unavailable to Cambridge from its customers creditors. But perhaps the greatest benefit to Cambridge and its operations from being set up as a non profit 501(c)(3) entity was that it allowed Cambridge to market itself as a charity instead of a company that would profit from their debts. 6. Cambridge’s and Cambridge/Brighton’s actual business operations, however, were at all pertinent times inconsistent with those of a non-profit entity with tax exempt status under Section 501(c)(3) of the Internal Revenue Code. This is so for many reasons. Although -3- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 4 of 61 Cambridge explains in its tax returns that its primary tax-exempt purpose is to “provide direct aid to financially distressed debtors with credit counseling services and conduct negotiations with creditors on their behalf,” in reality, that is not true. Cambridge and Cambridge/Brighton engaged only in minimal activities that further an exempt purpose, and instead at all pertinent times have operated like for-profit businesses. Their primary purpose is to sell debt management plans (“DMPs”) to consumers and its operations are designed to benefit their organizers, John and Richard Puccio, whose related for-profit entities charge exorbitant fees to provide virtually all aspects of the CCA’s business operations, from furniture, to employees, to customer services. Indeed, largely based upon these relationships and the private benefit and inurement that flowed from them, the Internal Revenue Service is now in the process of revoking Cambridge’s 501(c)(3) status. The findings of the IRS are confidential and will be filed separately and under seal Exhibit A and incorporated herein by reference. Further, the State of Massachusetts has commenced a lawsuit that alleges that Cambridge did not operate consistent with Massachusetts laws governing charitable/non profit organizations. That complaint is attached hereto as Exhibit B and also incorporated herein by reference. 7. Further, it is alleged that Cambridge’s operations were also inconsistent with its 501(c)(3) status because, inter alia, they resulted in a purely private benefit to the numerous creditors of Cambridge’s customers. This fact was recently reported by a debt management trade association to its members. An American Association of Debt Management Organizations (“AADMO”) Freedom of Information Act request to the Internal Revenue Service (IRS) disclosed that on September 9, 2005, the IRS denied 501(c)(3) status to a credit counseling organization, citing in part the following: -4- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 5 of 61 “Our analysis of the information you submitted shows that while you are organized for charitable purposes you do not satisfy the operational requirements to be recognized as exempt under section 501(c)(3)...Your operation will also serve to further the private financial interests of the credit card companies, and other creditors.” “In addition to operating for a substantial non-exempt commercial purpose, you would be providing substantial private financial benefit to the credit card companies and other creditors by operating as their collection agency. The fair share paid by the credit card companies would clearly result in significant savings over the possible costs of not recovering any of the unpaid debt owed them. These companies would clearly realize substantial financial benefits through their business relationship with you.” A true copy of the AADMO report to its membership, including a redacted version of the IRS ruling is attached hereto as Exhibit C. 8. More specifically, the IRS recognized, and the plaintiffs allege here, that while Cambridge’s related organizations have certainly benefited in a purely private (and therefore unlawful) way from the hundreds of millions of dollars in fees consumers paid to Cambridge for the setting up and processing of their DMPs, the far greater private beneficiary of the DMP “services” that Cambridge, Cambridge/Brighton, and Brighton CMC (collectively the “CCA Defendants”) sell are the creditors of the CCA Defendants’ clients to whom hundreds of millions of dollars were paid. 9. Defendants JPMorgan Chase & Co., Chase Manhattan Bank USA. N.A, Capital One Credit Card Services, USAA Federal Savings Bank, USAA Savings Bank , Providian Financial Corporation, Providian Bank, Providian Bancorp Services, were among the credit card companies that issued credit cards to the Zimmermans, JPMorgan Chase & Co., Chase Manhattan Bank Usa. N.A, Capital One Credit Card Services, Capital One Bank, Providian Financial Corporation, Providian Bank, Providian Bancorp Services, First Consumer CMC Corporation, Capital One F.S.B., and/or became creditors of the Zimmermans. As creditors of -5- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 6 of 61 the Zimmermans, they were presented with DMPs by Cambridge and benefited directly from its services. Hereafter, they shall be referred to collectively as the “Creditor Defendants.” 10. The DMPs Cambridge, Cambridge/Brighton and Brighton CMC sold and still sell are in fact a product of the consumer credit card issuers to which Cambridge’s customers owe money. Here is how they work: a consumer experiencing difficulty paying his or her unsecured credit card or similar debts owed to credit card issuers contacts as credit counseling agency (“CCA”) such as Cambridge, Cambridge/Brighton or Brighton CMC to arrange a DMP. Under the DMP the consumer sends the CCA a single lump sum, which the CCA then will distribute to the entities to which the consumer owes money. Depending entirely upon the policies of the creditor organization the consumer owes money to; the consumer may get certain benefits. These include, inter alia, the creditor agreeing to waive late fees owed, waiving over the limit fees, improving the customer’s credit rating by eliminating all references to delinquent payments on the consumer’s credit reports by “re-aging” the account, and/or lowering interest rates. Again, all of these “benefits” are exclusively dictated by the consumer’s individual creditor and are believed to be standardized by each creditor. In other words, the Creditor Defendants will offer the exact same “benefits” to all consumers enter DMPs. The identity of the particular CCA has no bearing at all on the benefits the consumer receives, though it may have a bearing on the benefits the CCA receives. 11. Plaintiffs further allege that that the DMP “services” the CCA Defendants sold to consumers were in large part sponsored, controlled and regulated by the very same consumer credit, credit card issuing, and credit card servicing organizations to which Cambridge’s customers owed their debt. Indeed, it is alleged that DMPs offered through CCAs were exclusively an invention of creditor organizations so as to provide a method by which the -6- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 7 of 61 creditor organizations could maximize the principal collected on an account whether or not the overburdened consumers ultimately declared bankruptcy. Indeed, plaintiffs allege that the entire credit counseling is but one of the many means unsecured credit issuers have at their disposal for collecting debts. 12. More specifically, it is alleged that the credit counseling industry was formed in the 1960s through the efforts of creative credit card companies that saw an opportunity to collect debt placed at risk by the alternative of bankruptcy. However, rather than offer DMPs or any counseling directly to the overburdened consumers that owed them money, the creditor industry instead chose to use non-profit 501(c)(3) organizations to perform these services and insulate them from liability. The consumer credit card industry paid for this by allowing CCAs a percentage of what they collected, known as “fair share” payments. 13. Although often denominated as “donations” to the CCAs, there has never been any true charitable/donative intent behind “fair share” payments. The fact of the matter is that these are simply payments to CCAs for services collecting the debts owed by consumers. While it is unknown to plaintiffs whether all creditors treat the “fair share” payments on their books as payments for services or as tax deductible contributions, plaintiffs do know, and therefore allege, that at least one credit care issuer, Citibank, for some period treated the fair share monies it has paid to Cambridge and to CCAs generally as a business expense and not as a charitable contribution on its federal income tax return. Notably, however, and even though Cambridge received notice of Citibank’s position in a letter, Cambridge’s tax return claims that all of the monies that it has received in fair share payments are tax deductible contributions, not income for services. -7- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 8 of 61 14. “Fair share” payments were designed by the consumer credit card industry to work essentially in the form of an output contract: creditors of CCAs’ customers dictate to CCAs that for every dollar the CCA is able to collect from a consumer toward the payment of the consumer’s debt, the creditor will pay the CCA a certain percentage of that amount. The lure of this funding operates as a means to exercise control over the workings of the CCAs, including Cambridge, Cambridge/Brighton, and Brighton CMC. Credit issuers also exercise control by imposing strict rules and regulations that the CCAs must follow to get their “fair share” payments or “donations.” This is explained in more detail below. 15. Back in the 1960’s when the consumer credit card industry formed the credit counseling industry, and for many years thereafter, “fair share” percentages were typically 15% of all payments made by consumers to the CCA. Paying this percentage was preferable to the consumer credit card industry over alternatives such as consumers filing bankruptcy, where the creditor would get nothing (at least under the old bankruptcy law), charging off the account, or sending the account to more traditional collection agencies whose percentage charges were higher than the 15% paid to the CCAs in “fair share”. 16. In or about the late-1990’s, and coincident with the explosion of consumer debt in the United States, which was itself largely due to credit issuers expanding the availability of credit for high risk consumers, a “new breed” of CCAs developed. Relying heavily on slick advertising on the Internet, television, radio and other mass media, entities such as Cambridge, Ameridebt, Inc., and Genus CMC entered, and within just a couple of years, largely took over the entire credit counseling/DMP market. 17. The “new breed” of credit counselors operated with a largely common business model. First of all, there would be no in-person interaction between “counselors” and clients at -8- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 9 of 61 all. Rather, after the customer contacted the CCA, whether by e-mail or by telephone, then the CCA would attempt to sell the customer on a DMP, whether or not the customer’s best interests dictated such a course was appropriate. There would be little or no “education” and even less “counseling.” “Counselors” were in fact salespersons paid on how many DMPs they sold. 18. Then, to funnel money out of the enterprise to its organizers, in this case the Puccio brothers, the ostensibly non-profit/tax exempt CCAs would “contract” with their for- profit entities so as to siphon off as much of the CCA’s total revenue as possible. 19. It is alleged that at all relevant times, the consumer credit card industry generally, and the Creditor Defendants, specifically, were well aware of: a. the practices being employed by the “new breed” of CCAs, including the CCA Defendants and that many of these CCAs, including the CCA Defendants, were making false and misleading claims to consumers as to the benefits of their services and the supposedly non-profit nature of their operations; b. the high fees that were being charged by the “new breed” of credit counseling entities and that these organizations were offering little, if any education to consumers; c. the use by these “new breed” entities of boiler room sales operations to aggressively sell DMPs with little, if any regard for whether a DMP was appropriate for the consumer’s actual needs; and d. the absence of any meaningful counseling or education being provided to CCA clients. 20. Defendants JPMorgan Chase & Co. and Chase Manhattan Bank U.S.A., NA., and their division, Chase Bankcard Services (collectively “Chase”) reduced its “fair share” payment to Cambridge to 5% because higher fair share contributions had been set at levels appropriate for -9- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 10 of 61 non-profit agencies to maintain their high overhead expenses such as brick and mortar facilities and face-to-face educational counseling services. By contrast, Cambridge did not require as much support. 21. Chase also recognized that with an industry-wide shift away from the face-to-face credit counseling in which effective agencies provided a variety of non-DMP related services, “new breed” agencies might be inclined to focus their efforts on providing only those services that would generate revenue from creditors (i.e. DMPs), and would charge higher fees to consumers. It understood clearly that movement in the direction of these inclinations would not be good for credit counseling. 22. Nevertheless, Chase in correspondence to CCAs referred to its relationship with them as a partnership. On April 1, 2003, it wrote that: “Chase is proud to partner with and provide ongoing support to approved Credit Counseling Agencies that provide Debt Management Plans to appropriate consumers and continue to support them to successfully complete the program.” A true copy of Chase’s letter is attached hereto as Exhibit D. 23. Plaintiffs allege that as a result of the “new breed” of credit counseling entities taking over the CCA industry, virtually the entire consumer credit card industry in about 1998- 1999 began gradually reducing their fair share payments from the 15% that had been generally recognized as necessary to support genuine non-profit credit counseling to from 0 to 8 percent in 2004. Unburdened from the need to provide real counseling, “new breed” CCAs like Cambridge and Cambridge/Brighton gained an even greater competitive advantage over “old line” face-to- face counseling organizations. 24. Through their own efforts and those of trade associations and/or lobbying groups that have represented the consumer credit card industry, the Defendant creditors knew of -10- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 11 of 61 Cambridge’s business practices and the problems that flowed from them from 1999 forward. Further, it is alleged that the consumer credit card creditor industry and the Creditor Defendants named herein had the power to, and did, exercise both direct and indirect control over the Cambridge Defendants in a number of ways. First, each of the Creditor Defendants had the ability to decline to work with the Cambridge Defendants. Clearly, since the Cambridge Defendants had no product of their own to sell, but were just packaging and selling credit relief granted by the consumer’s creditor, it was only through the actions, practices and courses of business of the Creditor Defendants that the Cambridge Defendants could stay in business. 25. As a direct result of the joint venture between the Cambridge Defendants and the Creditor Defendants, the Creditor Defendants benefited significantly by receiving monies that they would not otherwise have received from consumers. The Cambridge Defendants also benefited by their joint ventures with the Creditor Defendants. It was the Creditor Defendants and other creditors like them— not Cambridge—that authorized and controlled the creation of the “benefits” (i.e. lowered interest rates, re-aging of late accounts, etc.) that the Cambridge Defendants touted and sold to the Plaintiffs and the consuming public generally. Without the active participation of the Creditor Defendants with Cambridge in the resulting joint venture and course of business, Cambridge would have had nothing to sell to Plaintiffs. 26. Further, the consumer credit card industry generally exercised a large degree of control over Cambridge’s business operations through “fair share” monies. Indeed, as alleged above, it was the consumer credit card industry that collectively formed and later supported the CCA model for selling DMPs by making “fair share” money available. Plaintiffs allege that “fair share” payments to Cambridge alone have amounted to tens of millions of dollars during the period covered by this amended complaint and indeed were over $13,000,000 in 2003 alone. -11- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 12 of 61 Moreover, each of the Creditor Defendants actually paid “fair share” moneys to Cambridge. This action, practice and/or course of business resulted in Cambridge and the other “new breed” CCAs coming into the market and causing plaintiffs and the classes their damages. 27. A collateral benefit to the consumer credit card industry from the “new breed” of high fee CCAs was that the creditors could reduce or eliminate their “fare share” percentage, and retain more of the monies such CCAs collected. 28. As an example of the creditors’ direct control over Cambridge, Citibank retained the right to audit it for the purpose of determining whether or to what extent it was acting in the best interests of Citibank’s customers. Citibank’s audit powers gave it the rights to: a. conduct audits at any location where an agency was engaged in business, during normal business hours, and with or without prior notice; b. to request material and documents used in the regular course of the agency’s business; c. to observe and/or monitor Cambridge’s employees performance of routine tasks and duties; and d. review all of Cambridge’s financial records, whether maintained by it or by a third party. Plaintiffs believe, and therefore allege that the Creditor Defendants could and should have done the same and actually undertaken audits. Another credit card issuer, Sears announced that it would not do business with CCAs that failed to meet its standards of contact. Unfortunately for the Zimmermans and hundreds of thousands of other consumers, most credit card issuers did not make or follow through with such assertions. -12- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 13 of 61 29. When the consumer credit card industry eventually implemented policies conditioning fair share payments on CCA’s compliance with “best practices,” or being approved by an association of credit counseling agencies, the Creditor Defendants continued to accept DMP proposals from Cambridge even though they knew or should have known at all pertinent times that Cambridge was not in compliance with those best practices. 30. Even when the consumer credit card industry knew entities like the CCA Defendants were disseminating false and misleading information to consumers, it, including the Creditor Defendants continued to deal with them for several reasons: a. declining to work with “new breed” CCAs like the CCA Defendants would increase the chance that their debtors would file for bankruptcy; b. accepting their DMPs became increasingly beneficial as advertising blitzes by the “new breed” CCAs induced more and more consumers to enter DMPs— even when bankruptcy was a better alternative— with the effect of extending consumers’ payments by several months as they delayed filing bankruptcy; and c. finally, these advantages came at a declining cost to creditors: as the “new breed” CCAs charged consumers higher fees, the Creditor Defendants could decrease their “fair share” payment expense. 31. In sum, the growth of high-cost, low-quality CCA “mills” like Cambridge, Cambridge/Brighton and Brighton CMC was directly and indirectly fueled by the actions, practices and courses of business of the consumer credit card industry as a whole and the Creditor Defendants specifically. It is therefore alleged that in operating in the manner in which they have, the credit organizations named as defendants herein are liable to the plaintiffs and the members of the classes identified in this complaint under the CROA as persons that engaged in -13- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 14 of 61 acts, practices, or courses of business that directly or indirectly resulted in Cambridge and Cambridge Brighton’s commission of, or an attempt to commit, a fraud or deception on plaintiffs and the members of the classes alleged herein in connection with the offer or sale of credit repair services. 32. Alternatively, and consistent with the published views of both the IRS and FTC, it is further alleged that the Creditor Defendants are liable to the plaintiffs and the subclass of persons who had accounts with these them under the non-CROA theories of liability alleged herein against the CCA Defendants because at all relevant times, Cambridge, Cambridge/Brighton and Brighton CMC were acting as the agents in collecting debts owed them by the plaintiffs. 33. This action, therefore, seeks to recover from Defendants and any other persons or entities unknown that are part of the same commercial enterprise, statutory damages under the CROA including without limitation all funds paid by the plaintiffs and the class of persons they represent to Cambridge in fees/donations during the statutory period. 34. The bases for such recovery include, but are not limited to: a. The monies that plaintiffs and the members of the class identified herein paid to Cambridge, Cambridge/Brighton and Brighton CMC as fees were obtained by the unfair, deceptive, misleading and fraudulent representations that: (1) Cambridge and Cambridge/Brighton were legitimate not-for-profit corporation and never conducted their operations in a manner consistent with the requirements necessary to obtain or maintain that status; (2) that for the same reasons Cambridge was never a legitimate tax-exempt corporation; (3) that the CCA Defendants “counseled” 45,000 persons monthly, and that they were “dedicated to teaching clients to understand and manage their debts and -14- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 15 of 61 providing each client with the necessary personalized attention for them to achieve financial stability.” But in truth, they did not provide bona fide consumer credit counseling services to their clientele and were all three merely arms of a single corrupt for-profit enterprise, born of predecessors CCC and BCC, the objective of which is and always has been to enrich the Puccio defendants. b. Cambridge, Cambridge/Brighton and Brighton CMC therefore used false representations and deceptive means to collect or attempt to collect debts of consumers. c. Certain of the monies that plaintiffs and the members of the classes paid to Cambridge, Cambridge/Brighton and Brighton CMC were advance fees prohibited by the CROA. d. Cambridge, Cambridge/Brighton and Brighton CMC failed to adhere to the CROA by failing to provide written statements to consumers advising them of their rights, and failed to obtain and maintain receipts establishing the delivery of such statements; e. Cambridge, Cambridge/Brighton and Brighton CMC failed to provide consumers with contracts containing terms required by CROA. f. The Cambridge Defendants unjustly enriched themselves at the expense of the consumers with whom Cambridge, Cambridge/Brighton and Brighton CMC had relationships. The Puccio brother defendants benefited from that conduct. g. The Cambridge Defendants who provided DMP services to consumers with whom Cambridge, Cambridge/Brighton and Brighton CMC had relationships breached fiduciary duties to the consumers. The Puccio brother defendants benefited from all of those breaches. -15- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 16 of 61 THE PARTIES 35. At all times pertinent to this action, therefore, Defendants Andrew and Kelly Zimmerman were natural persons and residents of Fluvanna County, Virginia. The Cambridge Defendants CCA Defendants 36. Defendant Cambridge Credit Counseling Corp. (“Cambridge”) is a non-stock corporation formed under Massachusetts state law, and has its principal corporate office at 67 Hunt Street, Agawam, MA. It identifies its President as John Puccio, and states that his address is 6 Liquori Drive, Southwick, MA. On information and belief, its Vice President is Richard Puccio. It is an illegitimate non-profit 501(c)(3) credit counseling agency (“CCA”). 37. Defendant Cambridge/Brighton Budget Planning Corporation (“Cambridge/ Brighton”) is a corporation formed under New York state law, with its service of process address at 3001 Expressway Drive North, Islandia, NY. It has no registered agent. On information and belief its President is John Puccio, and its Vice President is Richard Puccio. It is an illegitimate non-profit credit counseling agency. 38. Brighton CMC Corporation (“Brighton CMC”) is a for-profit Delaware corporation headquartered in Palm Beach, Florida. It is a for-profit CCA. Other Cambridge Defendants 39. Defendant Cambridge Credit Corp. (“CCC”) is a stock corporation formed under New York law, and has its principal executive office at 3001 Expressway Drive North, Islandia, New York. It has no registered agent. It lists its chairman or chief executive officer as John Puccio, and provides the same address for him. On information and belief, its Vice President is Richard Puccio. -16- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 17 of 61 40. Defendant Brighton Credit Corp. (“BCC”) is a stock corporation formed under Delaware law, and has its principal executive office at 3001 Expressway Drive North, Islandia, New York. It has no registered agent. It lists its chairman or chief executive officer as John Puccio, and provides the same address for him. On information and belief, its Vice President is Richard Puccio. 41. Defendant Brighton Credit Corporation of Massachusetts (“Brighton Mass.”) is a corporation formed under Massachusetts state law, with its principal office at 67 Hunt Street, Agawam, MA.. Its registered agent is United Corporate Services, Inc., 18 Tremont St., Boston, MA. Its President is John Puccio, and its Vice President is Richard Puccio. 42. Brighton Debt Management Services, Ltd. (“Brighton DMS”) is a for-profit New York corporation that maintains its headquarters and principal place of business within this District located at 3001 Expressway Drive North, Islandia, New York. Brighton DMS has entered into contracts with Cambridge/Brighton, Cambridge Credit Counseling and/or Brighton CMC to provide DMP administration and processing services. Brighton DMS transacts its DMP business in New York even though Brighton DMS is not a New York licensed budget planner. 43. Debt Relief Clearinghouse, Ltd. (“Debt Relief Clearinghouse”) is a for-profit Massachusetts corporation headquartered in Agawam, Massachusetts. It transacts business from an office located within this District located at 3001 Expressway Drive North, Islandia, New York. Debt Relief Clearinghouse produces television commercials and maintains a telephone call center for Cambridge/Brighton, Cambridge Credit Counseling and Brighton CMC, to advertise, promote and administer those Defendants’ DMPs. Debt Relief Clearinghouse transacts business, promotes its business and/or solicits consumers and via the television, radio and print advertising and the Internet. -17- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 18 of 61 44. Cypress Advertising & Promotions, Inc. (“Cypress”) is a for-profit New York corporation that maintains its headquarters and principal place of business within this District located at 3001 Expressway Drive North, Islandia, New York. Cypress is routinely paid by Cambridge/Brighton, Cambridge Credit Counseling and Brighton CMC to procure advertising space and time to advertise those Defendants’ DMPs on or in television, radio, print and other media. 45. First Consumer CMC Corporation (“First Consumer CMC”) is a for-profit Florida corporation that maintains its headquarters and principal place of business within this District located at 3001 Expressway Drive North, Islandia, New York. First Consumer CMC has entered into contracts with Cambridge/Brighton and Brighton CMC to provide DMP administration and processing services. 46. Brighton CMC Corporation of Massachusetts (“BCMC of MA”) is a for-profit Massachusetts Corporation with its headquarters and principal place of business located at 3001 Expressway Drive North, Islandia, New York and is registered with the New York Secretary of State as a foreign business corporation doing business in New York. Brighton Credit Massachusetts transacts business in New York even though Brighton Credit Massachusetts is not a New York licensed budget planner. 47. Cambridge Credit Corporation of Massachusetts (“CCCM”) was a stock corporation formed under the laws of the state of Massachusetts, with its principal place of business at 67 Hunt Street, Agawam, MA 01001. Articles of dissolution were filed on March 10, 1999 for CCCM. -18- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 19 of 61 48. Cambridge Consumer Credit Index, Inc. (“CCCI”) is a corporation formed under Delaware state law, with a place of business at 3001 Expressway Drive North, Islandia, New York 11749. The Puccio Defendants 49. Defendant John Puccio is the president and co-owner of all of the defendant corporations. His address shown on recent corporate registrations is 6 Liquori Drive, Southwick, MA. 50. Defendant Richard Puccio is a director and vice president and co-owner of all of the defendant corporations, and is the brother of John Puccio, defendant. Recent corporate registrations show his address as 50 Roosevelt Avenue, Syosset, NY. THE CREDITOR DEFENDANTS 51. Providian Financial Corporation is a corporation formed under the law of the state of Delaware. It offers credit card products and services. On information and belief, either it, Providian Bank or Providian Bancorp Services issued a credit card to the Zimmermans and/or became their creditor. 52. Providian Bank is a corporation formed under the law of the state of Utah. It offers credit card products and services. On information and belief, either it, Providian Financial Corporation or Providian Bancorp Services issued a credit card to the Zimmermans and/or became their creditor. 53. Providian Bancorp Services, is a corporation formed under the law of the state of California. It offers credit card products and services. On information and belief, either it, Providian Financial Corporation or Providian Bank issued a credit card to the Zimmermans and/or became their creditor. -19- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 20 of 61 54. Defendant Capital One Bank is a Virginia Corporation with its principal place of business at 11013 West Broad St., Glenn Allen Virginia. Capital One Bank is a limited purposes State Chartered credit card bank in Virginia that offers credit card products. On information and belief, either it or Capital One F.S.B. issued a card to the Zimmermans and/or became their creditor. 55. Defendant Capital One F.S.B., is a federal savings bank with its principal place of business at 1670 Capital One Drive, McLean, Virginia. Capital One, F.S.B. offers consumer lending and deposit products, including credit cards and card services. On information and belief, either it or Capital One Bank issued a card to the Zimmermans and/or became their creditor. 56. Defendant JPMorgan Chase & Co. is a corporation formed under the law of the state of Delaware. It has its corporate headquarters in New York, New York, and its U.S. consumer and commercial banking headquarters in Chicago, Illinois. Plaintiffs believe, and therefore allege, that it is a successor in interest to the credit card business of Chase Manhattan Bank U.S.A. JPMorgan Chase & Co. at all pertinent times used “Chase” as a brand name under which it issued consumer credit cards and card services. Chase Bankcard Services is a division of JPMorgan Chase & Co. and called itself a creditor of the Zimmermans. On information and belief, it or its subsidiary JPMorgan Chase & Co. issued the Zimmermans a credit card and/or became their creditor. 57. Chase Manhattan Bank U.S.A., NA., had a principal place of business located at Wilmington, Delaware, and was a corporation formed under the laws of that state. It is or was a credit card issuing and servicing bank, and, on information and belief, it or its parent JPMorgan Chase & Co. issued the Zimmermans a credit card and/or became their creditor. -20- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 21 of 61 58. USAA Federal Savings Bank, located in San Antonio, Texas, is a federally chartered savings association. It is a credit card issuing and servicing bank, and either it or its affiliate USAA Savings Bank issued the Zimmermans a credit card and/or became their creditor.. 59. USAA Savings Bank, located in Las Vegas, Nevada, is a Nevada chartered thrift and a wholly owned subsidiary of USAA Federal Savings Bank. It issues credit cards and performs related services and either it or its affiliate USAA Federal Savings Bank issued the Zimmermans a credit card and/or became their creditor. JURISDICTION AND VENUE 60. Jurisdiction is founded on the existence of a federal question pursuant to 28 U.S.C. §1331. The action arises under the CROA, 15 U.S.C. § 1679, et. seq. as hereinafter more fully appears. This Court has jurisdiction over all of the defendants as they are either located in Massachusetts or regularly transact business within the Commonwealth. 61. Pursuant to 28 U.S.C. §1367, this Court has supplemental jurisdiction over all state law claims described more fully hereinafter on grounds that each is so related to the federal claims alleged herein that they form part of the same case or controversy. 62. Pursuant to 28 U.S.C. § 1391(a) venue in this district and division is proper because a substantial part of the events or omissions giving rise to the claim occurred in this district and virtually all of the defendants are located here. CROA WAS PASSED TO PROTECT CONSUMERS FROM PREDATORS LIKE RICHARD PUCCIO 63. On November 4, 1992, as a consequence of his misconduct, Richard Puccio was enjoined by the Securities and Exchange Commission from associating with any broker-dealer in the securities industry. -21- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 22 of 61 64. The Securities and Exchange Commission wrote in its decision on his appeal on October 22, 1996: Puccio’s misconduct could hardly be more serious. For more than two years [from March 1989 through June 1991], he engaged in high-pressure, fraudulent sales tactics in utter disregard of his obligations to customers and their welfare. Even his own attorney conceded that Puccio’s conduct was egregious. We are not dealing here with an isolated instance of misbehavior. Even before he was employed at Stratton, Puccio violated the securities laws at ICI. Then, at Stratton, he engaged in a broad pattern of fraudulent conduct over an extended period of time. . . . . . . In this instance, he was admittedly aware that he was engaging in improper conduct. . . . We question the sincerity of any assurances by Puccio that he will not engage in future violations . . . . In Re Richard J. Puccio, Admin. Proc. File No. 3-8438 (Oct. 22, 1996). 65. At some point in time in the early-to-mid 1990s, Richard Puccio joined his brother John as one of two sole owners of CCC and BCC, which the two operated for several years in the mid-1990s as a debt consolidation business for consumers with debt problems. 66. On September 20, 1996, CROA was passed by Congress. It was to take effect six months later, at the end of March, 1997. Congress passed CROA to regulate the credit counseling and repair industry because it found that the “business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.” 15 USCS § 1679(a). 67. The purposes of CROA were to “(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) to protect the public from -22- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 23 of 61 unfair or deceptive advertising and business practices by credit repair organizations.” 15 USCS § 1679(b). CAMBRIDGE’S PREDECESSORS AND THE FOR-PROFIT TO NOT-FOR-PROFIT CONVERSION 68. BCC and CCC operated as for-profit businesses in the early-to-mid 1990’s and shared corporate offices and an operations center in Agawam, Massachusetts. 69. On information and belief, during the relevant period there was no functional or other distinction between CCC and BCC, and the two were inextricably linked by the common ownership of, and active and pervasive control by, the Puccio brothers, and were characterized by a confused intermingling of activity in their common enterprise with a substantial disregard for the separate nature of the two corporate entities, or at the very least serious ambiguity about the manner and capacity in which each of the two corporations and their representatives acted. 70. In addition, on information and belief, CCC and BCC did not observe corporate formalities or maintain meaningful corporate records, and did not pay dividends. Rather, their assets were siphoned away by the Puccios through compensation and benefits packages and/or other mechanisms. The corporations were used for the business transactions of their dominant shareholders, the Puccios, and lacked functioning officers and directors apart from the Puccios. 71. On November 12, 1996, six weeks after CROA was passed, John Puccio caused articles of organization to be filed for the formation under Massachusetts law of CCCM and Brighton Mass. as stock corporations for the purpose of “financial consulting and any related activity.” 72. Fifteen days later, on November 27, 1996, John Puccio caused articles of organization to be filed resulting in the formation under Massachusetts law of Cambridge as a non-stock corporation for the purpose of “credit counseling.” -23- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 24 of 61 73. Nine days later, Puccio caused Cambridge/Brighton to be formed under New York law as a not-for-profit corporation. 74. John Puccio and Richard Puccio then caused Cambridge to enter into an Intangible Assets Sale Agreement with CCC and BCC to purchase from them for $14.1 million the following assets: trademarks and goodwill in the marks utilizing “Cambridge” and “Brighton” in connection with debt consolidation services, copyrights, goodwill, business plans, creditor contacts and relationships, referral source contacts and relationships, business “know-how,” trade secrets and proprietary information . . . . The purchase price was to be payable over 50 years at an interest rate of 7%. 75. Consistent with the common ownership and pervasive control by the Puccios, and the confused intermingling of activity between CCC and BCC, neither the Intangible Assets Sale Agreement nor the purported fair market value appraisal of CCC and BCC, which determined the purchase price, made any functional or other distinction between CCC and BCC. 76. Cambridge’s tax returns stated that the purpose of the purchase transaction between Cambridge and its predecessors was for “conversion to not for profit.” 77. However, no new operating policies were implemented by Cambridge as a result of the transfer of assets from CCC and BCC. 78. On information and belief, the purpose of converting the business to not-for profit was (1) to make it facially eligible to apply for tax-exempt status under §501(c)(3) of the Internal Revenue Code, which would permit it to avoid the legal requirements of the newly-enacted CROA, and (2) to use the non-profit status as a marketing tool to compete, expand the business and ultimately to further enrich the Puccio brothers. -24- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 25 of 61 79. The conversion was fraudulent. It was never the intention of the Puccio brothers to operate and treat Cambridge as a tax-exempt non-profit, but rather they intended Cambridge: a. to enrich themselves and their key executives by permitting them to siphon off corporate assets of their business through huge compensation packages, and b. to enrich themselves by using the non-profits’ revenues to pay them off for the purchase of CCC and BCC’s assets; and c. to grow their business free of the regulation of CROA; and d. to misrepresent its own objectives by holding itself out to the public as not-for-profit organization, exempt from taxation under §501(c)(3) of the Internal Revenue Code in its advertising and other promotional materials, for the purpose of attracting clients and customers; and e. to otherwise defraud the public by misrepresenting its objectives and business practices. 80. The sale of the assets of BCC and CCC to Cambridge constituted a use of all three participating corporations to promote a fraud against the public, and violations of law. 81. On or about September 25, 1997, Cambridge applied to the U.S. Department of the Treasury’s Internal Revenue Service (“IRS”) for recognition of an exemption under § 501(c)(3) of the Internal Revenue Code. The application was granted on or about February 12, 1998. -25- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 26 of 61 82. Defendant Cambridge/Brighton also applied for 501(c)(3) status, and advertised that its application was pending. Its application to become a tax-exempt organization, however, was never granted. CAMBRIDGE AND CAMBRIDGE/BRIGHTON’S BUSINESS PRACTICES 83. Cambridge advertises on radio, television and in print in an effort to reach “more people.” 84. Cambridge, Cambridge/Brighton and BCMC also offer a “Cambridge Bucks Program” whereunder they pay customers “money for helping others better their financial future.” 85. Cambridge, Cambridge/Brighton, BCMC, and DRCH advertise extensively to indebted consumers using the World Wide Web. 86. In their advertising, Cambridge and Cambridge/Brighton trumpet the claims that Cambridge is a 501(c)(3) Non-Profit organization, and that Cambridge/Brighton is a non-profit. 87. Cambridge calls itself a “Professional Debt Management Organization” and America’s Premier Debt Management Firm” and represents that it: is a 501 (c)(3) Not-For-Profit organization offering credit counseling and educational assistance to consumers throughout the United States. We are dedicated to assisting our clients in understanding and managing their debts by providing each client with the personalized attention necessary to achieve financial stability. It is our objective that, as our clients repay their debts through our company, they will become more educated about consumer debt and how it affects their lives. Our clients can then apply this knowledge to successfully manage their finances in the future. 88. Cambridge/Brighton calls itself a “Professional Debt Management Organization” and represents that it is: a New York State licensed Not-For-Profit organization offering credit counseling and educational assistance to consumers throughout the United -26- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 27 of 61 States. We are dedicated to assisting our clients in understanding and managing their debts by providing each client with the personalized attention necessary to achieve financial stability. It is our objective that, as our clients repays their debts through our company, they will become more educated about consumer debt and how it affects their lives. Our clients can then apply this knowledge to successfully manage their finances in the future. 89. Cambridge and Cambridge/Brighton also hold themselves out as a “community service”, representing: “[t]he great part of our service is that we are not a loan company. We are a not-for-profit community service that works with your creditors to reduce the high interest rates your being charged. By doing this, we are able to get you out of debt in a fraction of the time it would take you on your own, and we’ll also be able to save you THOUSANDS of dollars in the process.” (Emphasis added, capitalization original). 90. Cambridge’s advertising also promotes it as “a pro-consumer organization”. 91. In its advertisements, Cambridge builds its credibility with consumers, such as plaintiffs, by referencing its non-profit and tax-exempt statuses in order to induce consumers to believe that it is not concerned with its own revenues but rather with helping others. Such information when presented in conjunction with statements that it is a “community service”, and offers to share savings with consumers such as: Cambridge is the only Not-For-Profit counseling organization that splits Fair Share revenue with its clients through our Good Payer Program. As of January 2003, over 5.3 million dollars have been rebated back to clients. are powerful inducements to the public. Taken together, they also constitute unfair, deceptive, misleading and fraudulent representations. 92. Similarly, Cambridge/Brighton links its non-profit status with talk of splitting money with the class members as follows: -27- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 28 of 61 Cambridge/Brighton Budget Planning Corporation is a New York State licensed Not-For-Profit organization . . . At Cambridge/Brighton Budget Planning Corporation, we have developed the most dynamic incentive program in the industry, called the Good Payer Program. This program, funded by voluntary contributions from creditors called “fair share” contributions, actually rewards the clients who stay committed to repaying their debts through our service. For every six months that a client makes all payments on time, and in the full amount, we give back to the client s 50% of all “fair share” funds collected on the client' behalf. It has also represented that it is: “a Type "B" not-for-profit. 93. s Cambridge' representatives also routinely represent to the public through advertising to consumers that it is a charitable "nonprofit" consumer credit counseling organization. In fact, these representations are not true. Cambridge does not operate like a charitable organization, but as an organization specifically designed to make profits for defendants Puccio and their commercial enterprise. 94. Brighton CMC represents in its web site that: Brighton Credit Management Corp. Business Statement and Philosophy Brighton Credit Management Corp. is an organization offering credit counseling and educational assistance to consumers throughout the United States. We are dedicated to assisting our clients in understanding and managing their debts by providing each client with the personalized attention necessary to achieve financial stability. It is our objective that, as our clients repay their debts through our company, they will become more educated about consumer debt and how it affects their lives. Our clients can then apply this knowledge to successfully manage their finances in the future. Below are just a few of the key reasons that we at Brighton Credit Management Corp. pride ourselves as being the best in the debt management industry. Client Services Department Our courteous representatives are trained to take a pro-active approach to both the and clients' the creditors' needs. We have strategically developed our Client Services Department to handle a large volume of telephone inquiries with the least amount of time on hold possible. Automated Account Information System This state-of-the-art system allows our clients and their creditors access to their -28- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 29 of 61 account information 24 hours a day, 7 days a week. This information includes when payments come in, when they go out, and check stub information. Also, clients can receive a full payment history by mail or fax on command. In addition, clients have the ability to leave inquiries about their accounts on our Audix Voice Mail system. These inquiries are then researched and answered by our Client Service Department. State of the Art Call Center Technology Our Customer Service Center has the most technologically advanced communications system in the industry. This system is designed to manage and distribute more than 20,000 calls per hour! We currently utilize two individual call center systems, thus minimizing potential down-time. Custom Designed Software Our Client Tracking System was custom-designed to help our Client Services Representatives to process any query in an expeditious manner. This software enables our Accounting Department to routinely process and disburse thousands of payments on a daily basis. This system also generates proposals which are then s forwarded to the client' creditors, informing them that the client has joined the program. Cambridge and Cambridge/Brighton use substantially the same language to promote their services. 95. Cambridge and Cambridge/Brighton represent in nearly identical language that their services will improve debtors’ credit ratings, as follows: How will the Program Affect My Credit Rating? In joining our service, some creditors may report that you are a member of a credit counseling program. When you apply for future financing, we can provide you with a letter of reference that will normally increase your chance of receiving that financing. As long as your payments to [Cambridge/Cambridge/Brighton] are on time and in the required amount, you would be eligible to receive this type of reference. Also, if you are currently over-extended and have a high debt-to-income ratio, this can be preventing you from qualifying for many types of financing regardless of your credit standing. What this means is even if you have an “A” credit standing; you may not qualify because of your debt-to-income ratio. Even if you do qualify it can be at a higher rate, which will cost you much more in the long run. By being a member of our program, your debt-to-income ratio will come down much faster. This may put you into a better position to qualify for loans at lower interest rates in the future. These statements are unfair, deceptive and misleading. -29- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 30 of 61 96. As yet another inducement, the CCA Defendants promise that participation in their DMPs will improve consumers’ credit ratings, records and scores and fix bad credit. 97. Brighton CMC tells consumers on its website that “By taking advantage of our Debt Management Program we can help you get control of your finances by gaining the following benefits from your creditors… Re-establish Your Credit[:] As you pay the bills through us, you’ll be establishing a steady payment history – just what banks look for when you apply for credit!” (Emphasis in original). Cambridge/Brighton promises the same credit repair services on its website. 98. Cambridge/Brighton states on its website that: “When you join our debt management program, we’ll be able to help you re-establish your credit” and “joining a program such as ours is a fantastic start on rebuilding your credit worthiness.” 99. Cambridge Credit Counseling states on its Internet website: “When you join our debt management program, we’ll be able to help you re-establish your credit.” In this same solicitation, Cambridge Credit Counseling claims it can achieve the “Re-aging of Past-due accounts.” 100. Cambridge Credit Counseling states in a promotional flyer: “By taking advantage of our Debt Management Program, we can help you get better control of your finances by gaining the following benefits from your creditors… Re-establish your credit worthiness so you may become eligible to receive future financing.” 101. In and unsolicited e-mail broadcast by Cambridge Credit Counseling on or about June 13, 2005, Cambridge Credit Counseling discusses methods for checking and correcting “credit reports and credit scores.” This Cambridge Credit Counseling e-mail directs consumers to one of its websites, www.GoodPayer.com. -30- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 31 of 61 102. On information and belief, at all pertinent times, Cambridge, Cambridge/Brighton and Brighton CMC did not perform bona fide consumer credit counseling because (1) their credit counselors were at all pertinent times influenced by bonus compensation policies and sales incentives that undermined their commitment to the best interests of consumers, and created incentives to sell DMPs whether or not those were in the best interest of consumers; (2) their employees were not well trained or otherwise qualified to provide competent consumer credit counseling, and (3) its employees were discouraged from providing counseling services, and therefore do not in fact provide them. 103. Cambridge’s Authorization to Release Financial Data specifically seeks from its clients authorization to negotiate on their behalf. It provides, inter alia, “Further, my agent is authorized to negotiate all matters pertaining to my account.” 104. The CCA Defendants do not in fact “negotiate” with consumers’ creditors. 105. The CCA Defendants do not use their best efforts on customers’ behalf. In its standard agreement, in the article headed "Good Payer Program," Cambridge states: While there is no guarantee that we will be able to achieve creditor contributions for the Good Payer Program, we will do our best. Many creditors will pay such contributions. If we are successful, at your request, we will mail you a bonus check after the completion of each six (6) month period. Under the heading "Debt Settlement Services" the agreement provides If at any time you would like us to negotiate a full settlement of your debts with your creditors, our fee will be fifty (50%) percent of any savings we negotiate for you not to exceed ten (10%) of the total amount you owe to all of your creditors that we negotiate with. Next, the agreement provides: Cambridge will set up a creditors payment account in its computerized system. It will use its best efforts to obtain your creditors’ cooperation in the acceptance of their respective shares of the proposed Monthly Payment -31- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 32 of 61 or of an amount that will increase the amount you must pay monthly to no more than fifteen (15%) percent higher than the original proposed Monthly Payment without your consent. . . . Cambridge will request a reduction or s waiver of the client' interest rate and any late charges and seek rebates for the client Good Payer Program and account pay-off services described below. . . . Finally, the standard agreement provides that Cambridge will “[u]se its best efforts to reduce the amount of your monthly payments” and will “[u]se its best efforts to reduce the interest rate you are currently paying to your creditors (although many major creditor s will reduce the interest rate of a consumer like yourself at Cambridge' request, there is no guarantee that your particular creditors will extend this benefit in your case. . . ).” 106. However, the CCA Defendants do not in fact use its “best efforts” on behalf of consumers. CCA Defendant credit counselors spent little if any time with their “clients.” Rather, once a DMP was sold by Cambridge, it sent the plan to defendants Brighton DMS or Brighton rarely if ever 107. Upon information and belief, the creditors (credit card issuers, etc.) dictate in advance to all “credit counseling” companies what late fees and penalties they will waive for a consumer who enrolls in a DMP, what reductions in interest rate they will agree to, how much or if they will agree to “re-age” the debtor’s account, etc. 108. Upon information and belief, a creditor will grant the same or substantially the same terms and rate reductions, etc., to a particular debtor, based upon his payment history, debt load, and other factors unique to that debtor, regardless of whether he enrolls in a DMP through one of the defendant companies, or through some other “credit counseling agency.” 109. Cambridge and its affiliates fail to disclose this information to consumers. -32- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 33 of 61 110. Failing to disclose that all competing companies can accomplish substantially the same result for a given client, while implying that Cambridge can “negotiate” with creditors implies a level of personalization in its services that is unfair, deceptive, misleading, and fraudulently omits material facts. 111. Cambridge and Cambridge/Brighton are really nothing more than debt collectors that take fees for their collection services from both creditors in the form of “fair share” payments, and from debtors by attracting money in the false guise of Monthly Payment Design Services fees and Payment Program Fees based on their non-profit status. 112. In its past two tax years combined, Cambridge took in over $20,000,000 in fees from creditors for its collection services. 113. Approximately a third of the nearly $39 million in revenues Cambridge collected for its tax year ending in 2001, and a third of the more than $45 million in revenues collected the year ending in 2002 were spent on self-propagating advertising, direct mailing, and on telemarketing and referral fees. 114. Cambridge does not engage primarily in activities which accomplish one or more of the exempt purposes specified in section 26 U.S.C. § 501(c)(3). 115. More than an insubstantial part of Cambridge’s activities is not in furtherance of an exempt purpose. 116. Cambridge’s services are not directed generally at all persons with a need for credit counseling services, but only at those who are its fee-paying clients. CAMBRIDGE BEHAVES LIKE A FOR-PROFIT CORPORATION RATHER THAN A NON-PROFIT 117. On information and belief, Cambridge and Cambridge/Brighton function internally like profit-driven companies: their “credit counselors” are thought of as salesmen of -33- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 34 of 61 DMP’s, and are judged, and evaluated and compensated in large part based on their current week or month’s production of new account revenues. 118. Cambridge and Cambridge/Brighton focus their efforts almost exclusively on enrolling consumers in debt management plans (“DMPs”). 119. Providing such incentives is inconsistent with tax-exempt status and constitutes an unfair, deceptive and misleading practice since a DMP is not best or appropriate for every caller, or even every caller who can be persuaded to buy one. Callers reasonably expect, based upon the advertising, that they are going to receive fair, honest, tailored, unbiased “counseling” about what is best for their unique circumstances. 120. Cambridge generates revenues greatly in excess of its expenses and compensates its senior executives and owners richly. For its tax years ending in 1998, 1999, 2000 and 2001, the Puccio brothers were more richly compensated each year. Their start-up “non-profit” paid each of them compensation of $210,400 in its first year ending 1998. In the year ending in 1999, it paid them each $271,600 in compensation. In the year ending in 2000, it paid them each $312,000 in compensation. In the year ending in 2001, it paid them each $391,958 in compensation, benefits and deferred compensation. In the year ending in 2002, it paid them each $624,000 in compensation. 121. Meanwhile the Puccios’ for-profit corporations CCC and BCC were also receiving payments of interest and principal from Cambridge for its purchase from them of their credit counseling business assets. The $14.1 million dollar purchase price of those businesses was paid down to $2,600,582 in only five years. Thus the not-for-profit Cambridge transferred to CCC and BCC approximately $11,499,418 over the course of five years. -34- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 35 of 61 122. General Manager Chris Viale received compensation from defendants Cambridge of $167,713 for the year ending 1998, $185,562 for the year ending 1999, $234,172 for the year ending 2000, $394,122 for the year ending 2001, and $374,726 for the year ending 2002. 123. Cambridge’s net earnings therefore inure in part to the benefit of “private shareholders” or “individuals” as those terms are defined by paragraph (c) of 26 C.F.R. § 1.501(a)-1. 124. Cambridge retains millions of dollars in earnings every year. By the end of the four years ending in 2002, on four-year revenues of approximately $142,370,000, Cambridge had built up net assets of $25,736,642 (from only $85,726 as of August 1, 1997). In its first non- profit return (year ending July 1998), it reported an excess of revenues over expenses of $777,827. For the year ending in 1999, it reported an excess of $4,039,608. For the year ending in 2000, it reported an excess of $4,250,470. For the year ending in 2001, it reported an excess of $7,352,839, and for the year ending 2002, it reported an excess of $8,518,673. 125. Of Cambridge’s $38,879,141 in revenues for its year ending in 2001, $15,729,985 were initial fees paid by clients, $14,628,813 were continuation fees paid by clients, and $7,962,390 were fees paid by creditors for collection of debts. 126. According to a April 2002 report of the Massachusetts Senate Committee of Post Audit and Oversight: Cambridge Credit Counseling Corp., based in Agawam, Massachusetts, is one example of a credit counseling agency that requires consumers to pay questionably high fees to participate in their debt management program. In addition, this agency’s management and structure have received national press scrutiny. The personal history of the director of the agency, Richard Puccio, casts a shadow on the agency’s operations. . . . Now, as the director of Cambridge Credit Counseling, he has intertwined his nonprofit venture with a for-profit debt-referral company owned by his brother. Their intimate working relationship has raised red flags for -35- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 36 of 61 consumer advocates who see an improper connection between the two companies. In addition to this alliance, consumer advocates raise the point that the high salaries that the Puccio brothers receive, $312,000 each in FY2000, is a sum considerably higher than the average nonprofit director’s salary. 127. Cambridge’s maintenance of its non-profit status and its § 501(c)(3) exemption have been fraudulent for the past five years, and its representations that its is a tax-exempt non- profit are fraudulent for the reasons stated above. THE PUCCIOS ALSO USE NON PROFIT CAMBRIDGE/BRIGHTON TO ENRICH THEMSELVES 128. On information and belief, the only functional difference between Cambridge and Cambridge/Brighton’s operations is the fact that Cambridge/Brighton has called itself a non- profit but has lacked the benefit of 501(c)(3) status. 129. On information and belief, with the exception of the dollar amounts alleged, the allegations in paragraphs 61-84 are generally applicable to Cambridge/Brighton’s business practices, and are therefore repeated and realleged herein with reference to defendant Cambridge/Brighton. THE PUCCIOS USE BRIGHTON MASS., BRIGHTON DMS, CYPRESS AND DRCH TO FUNNEL DMP PROCESSING REVENUES OUT OF THE CCA DEFENDANTS TO THEMSELVES. 130. When the for-profit to not-for-profit conversion of CCC and BCC to Cambridge occurred in November of 1996, the Puccios also caused Brighton Mass., another newly formed entity to enter into a contractual relationship with Cambridge for certain services. 131. Cambridge and Brighton Mass. entered into an Agreement, whereunder Brighton Mass. would provide Cambridge with office furniture, equipment and computers, software licenses, telemarketing and customer service support, for a fee “calculated to be equivalent to the actual cost to [Brighton Mass.] of providing [the same].” -36- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 37 of 61 132. Defendant Brighton Mass. is under the common the ownership and pervasive control of the Puccios with defendants Cambridge, Cambridge/Brighton, CCC, and BCC. 133. On information and belief, Brighton Mass. does not pay dividends, and is used by Cambridge as a mechanism to facilitate the siphoning of Cambridge’s assets to the Puccios. 134. The Puccios each received compensation from defendant Brighton Mass. of $150,00 for the year ending 1998, $180,000 for the year ending 1999, $156,000 for the year ending 2000, $173,536 for the year ending 2001, and $312,000 for the year ending 2002. 135. The Puccio’s compensation, which comes from revenues of Brighton Mass.’s contract with Cambridge, is not an “actual cost” to it of providing the furniture, equipment, software and telemarketing and customer services that it provides. 136. On information and belief, Brighton Mass. does not have functioning officers and directors beyond the Puccios, and it is used by them for their own transactions as dominant shareholders. 137. Defendant Brighton DMS was incorporated on March 21, 2003 to replace Brighton Mass. And perform DMP processing services for all DMPs sold by the CCA Defendants. 138. Since1998, Brighton Mass and Brighton DMS realized gross receipts in excess of $40.5 million. 139. On July 17, 1996, the Puccios created defendant Cypress to “procure advertising space/time” for the Defendant CCAs. It shares the same location as Cambridge/Brighton, and all of the Defendant CCAs pay it for its services. Since 1999 it has received gross receipts in excess of $6.5 million as of March 2004. -37- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 38 of 61 140. On January 27, 2000, the Puccios created defendant DRCH to “produce television infomercials” and operate a call center to screen calls for the Defendant CCAs. It shares the same location as Cambridge/Brighton, and all of the Defendant CCAs pay it $750 for each consumer that it transfers and that enrolls in a DMP. Through 2002, its gross receipts were over $25 million. THE ZIMMERMANS’ CLAIM 141. In the year 2002, Plaintiffs Andrew and Kelly realized that their debts were managing their lives, and that they were only able to make minimum payments to their creditors. 142. Although they were current on most of their payments, and had experienced no charge-offs, they felt the need for help. 143. The Zimmermans learned about Cambridge through advertising on three separate three media: television, radio and magazine advertising. 144. They were attracted to Cambridge by its representations that it could lower their interest rate or eliminate it altogether; eliminate over-the-limit fees; re-age their account after 90 days and would give back half of the fair-share money Cambridge received from creditors every six months through Cambridge’s Good Payer program. 145. Andrew Zimmerman believed that since Cambridge was a nonprofit, he would be able to pay less for its services than for the services of a for-profit company. 146. Andrew Zimmerman wrote down Cambridge’s phone number and called. 147. Plaintiffs were advised that Cambridge would send out an informational form or debt sheet, and asked the Zimmermans to identify their creditors and certain other financial information and send it in. 148. The Zimmermans received the form, filled it out and sent it back to Cambridge. -38- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 39 of 61 149. They got a call back in about a day, indicating that Cambridge could help them, and that its services would cost a fee equal to one monthly payment under Cambridge’s DMP. Cambridge advised this would be about $948 per month. 150. In this critical initial contact, Cambridge offered no debt counseling. It did not even broach with the Zimmermans the subject of whether they could stay the course, or whether they should declare bankruptcy, or whether they should obtain training as to how to budget and manage their finances better. 151. The Zimmermans were told, if you get on our program we’ll manage your debt for you. Then they were given a script to use when dealing with concerned creditors. 152. Cambridge did not advise the plaintiffs that missed or delinquent payments caused by their inability to both make an initial payment to Cambridge and meet their existing obligations would have a lasting adverse impact to their credit rating. They were not provided with any suggestions as to how they might avoid such a problem, such as by gradually entering a DMP one account at a time. It did not advise them that just being a client of a credit repair organization could affect their credit. 153. Cambridge did not “negotiate” any loan reductions during the interval between receiving the Zimmerman’s debt sheet and calling them back. Rather, Cambridge simply referenced source materials indicating the reductions creditors would have offered to the clients of any credit organization offering DMP services. 154. Cambridge asked the Zimmermans to pay it the $948 up front, by certified check or to give its access to their account for direct drafts. In addition, it advised them it would charge 10% of each of their monthly payments as a service fee. -39- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 40 of 61 155. The Zimmermans selected the latter option, involving direct drafts from their account. 156. Cambridge proposed a few dates for the Zimmermans to choose from for their direct drafts. None were early in the month. One of the dates was the 20th, and the other was the 25th. 157. The Zimmermans elected to allow Cambridge to draw their payment directly from their account on the 20th of the month. 158. When the 20th of the month came and went without a draft occurring, the Zimmermans contacted Cambridge to determine what the matter was. 159. Cambridge told the Zimmermans that their paperwork had not arrived in time to draft their account for the 20th, and so Cambridge had unilaterally decided to do so on the 25th. 160. The Zimmermans recognized that within the confines of Cambridge’s scheduling of its draws, and the Zimmermans’ obligation to their landlord, they would not be able to be consistently “on time” in their payments to Cambridge for purposes of earning Good Payer dollars. The Zimmermans therefore asked Cambridge to adjust their draft date back to the 20th. 161. Cambridge declined to revisit the issue of the draft date, indicating to the Zimmermans that it had already sent proposals to creditors, and did not want to modify them. 162. As a consequence, the Zimmermans were in fact unable to make timely payments to Cambridge to get Good Payer credit. 163. After four months with Cambridge, the Zimmermans’ accounts had not been re- aged. 164. After four months with Cambridge, the Zimmermans owed more money than they had before they went to Cambridge for help. -40- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 41 of 61 165. After four months with Cambridge, the Zimmermans’ credit report was worse than it had been before due to their delinquencies. CLASS ALLEGATIONS 166. Built on a juggernaut of national television, radio and print advertising, defendant Cambridge claims to serve 75,000 persons on its most recent two tax returns, and advertises that it “counsels approximately 45,000 consumers monthly, 6,000 of which enter into their Debt Management Plan. To date, over 160,000 consumers have entered into our Debt Management Program.” 167. A typical Cambridge advertisement entices the consumer with blurbs such as: “Struggling to pay your bills? Let Cambridge Credit Counseling Corp. help you catch up on your s payments! Cambridge Credit' exclusive Debt Management Program has assisted thousands of people just like you . . . . Get out of debt much faster and save lots of money with reduced interest rates and lower monthly payments.” 168. Each of these consumers was in similar financial trouble to that experienced by the Zimmermans. In a search for debt counseling assistance, they entered into relationships with Cambridge, Cambridge/Brighton and their affiliates. 169. The plaintiff class incorporates by reference all preceding allegations as though fully set forth herein. 170. Plaintiffs bring this action as a class action against Defendants pursuant to Rule 23 of the Federal Rules of Civil Procedure. 171. In the First Cause of Action in this Complaint, the class that Plaintiffs seek to represent consists of all individuals nationwide who, like them, have paid Cambridge fees for credit counseling services and for a DMP within five years prior to the filing date of this -41- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 42 of 61 complaint. Plaintiffs also seek to represent the subclass of persons who had accounts with the Creditor Defendants and paid fees to the CCA Defendants. 172. In the Third and Fourth Causes of Action in this Complaint, the class that Plaintiffs seek to represent is identical and consists of all individuals nationwide who, like them, have paid monies to Cambridge unjustly enriching it, and/or as to whom fiduciary duties were violated forming the basis for a constructive trust. 173. In the Fifth and Sixth Causes of Action in this Complaint, the class that Plaintiffs seek to represent asserts a consumer protection cause of action for unfair, deceptive, misleading and fraudulent practices with respect to the marketing of its services. The Fifth Cause of Action is pled on behalf of a subclass of Virginia Consumers who enrolled in DMPs with the CCA Defendants. The Sixth Cause of Action is pled on behalf of a the same nationwide class alleged as to the First, Third and Fourth Causes of Action. 174. The members of all classes and/or subclasses are so numerous that joining the individual members is impracticable. Upon information and belief, there are in excess of 160,000 persons that are members of the nationwide class. The identity of members of the class is readily discernable using information contained in records in the possession or control of Defendants. Those individuals defined as members of the class and not excluded therefrom shall be referred to collectively hereafter as “Class Members”. 175. The questions of law and fact which are common to the members of the classes predominate over the questions affecting the individual members of the classes, including plaintiffs. More specifically, the common issues of law that will predominate over the questions affecting individual members of the classes are, inter alia, whether: 1. Cambridge Defendants are a single commercial enterprise; -42- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 43 of 61 2. whether the Cambridge Defendants other than the Puccios, CCC, BCC, CCCI, and Southfork are “credit repair organization” within the meaning of the CROA; 3. whether the operations of Cambridge and Cambridge/Brighton inure to the private benefit of any affiliated entity defendants, or to the private inurement of the Puccio brothers and other executives; 4. whether Cambridge is entitled to 501(c)(3) and non-profit status and to hold itself out as such; 5. whether Cambridge/Brighton is entitled to its non-profit status and to hold itself out as such; 6. whether Cambridge and Cambridge/Brighton’s public claims concerning their tax- exempt or non-profit status, and self-description as “community service” organizations constitute unfair, misleading, deceptive and fraudulent statements in violation of 15 U.S.C. §1679b(a)(3) and (4) of CROA; 7. whether the CCA Defendants assertions concerning their ISO certifications, their professionalism, their staff’s qualifications or competence, their technology, their competence, their negotiating services, their interest in the individual consumer and in properly identifying his or her best interests and providing appropriate services, constitute false, deceptive and/or misleading representations of credit repair services when the CCA Defendants do nothing more than a sales job for DMPs; when the CCA Defendants “counselors” are incentivized only to sell DMPs in volume, and when they then pass the DMPs to affiliated for-profit entities that the CCA’s did not negotiate fair servicing contracts with. -43- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 44 of 61 8. whether the initial payment equal to one month’s debt payments (Monthly Payment Design Fee) and the monthly payments constitute payments in advance, charged in violation of 15 U.S.C. §1679b(b) of CROA; 9. whether the Puccios and any other Cambridge Defendants are “persons” within the meaning of the CROA; 10. whether Cambridge and Cambridge/Brighton are the agents of creditors in performing the “services” they perform and/or whether those creditors are persons whose actions, practices or courses of business resulted in a fraud or an attempt to commit a fraud in connection with the sale of the CCA Defendants’ services so as to be liable under the CROA; 11. whether any of the Cambridge Defendants were unjustly enriched; 12. whether any of the CCA Defendants or Brighton Mass., or Brighton DMS violated fiduciary duties to the class members; 13. whether the Cambridge Defendants defendants violated Virginia’s Consumer Protection Act. 176. The common questions of fact that will predominate arise from, inter alia, whether the CCA Defendants’ representations in its advertisements and printed materials and which were intended to be presented to the consuming public at large, and not to any specific individual, were true and complete and not misleading and whether any of the creditors of Cambridge’s or Cambridge Brighton’s customers were in fact the principals in an agency relationship with Cambridge. Further, plaintiffs allege that the oral representations made to the plaintiffs were part of a uniform and coordinated “pitch” that was also aimed at the general public and not to any specific individual. -44- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 45 of 61 177. The claims of plaintiffs are typical of the claims of the members of the classes. Plaintiffs are like all customers of the Cambridge Defendants in that they were offered consumer credit counseling services as an inducement to sign up with Cambridge pay the fees required thereunder. 178. s, While the specific amounts of the fees paid by each of Cambridge' Cambridge/Brighton’s and Brighton CMC’s respective customers may differ depending upon the amount of their overall debt and the number of accounts that the customer entrusted to Cambridge for servicing, the damages suffered by each of the members of the classes will be calculable under a single formula, namely the amount of the Monthly Payment Design fees paid, and, as for monthly fees, the monthly fee of 10% of the monthly payment or a minimum of $25 multiplied by the number of months the Class Member was in the DMP. 179. Plaintiffs are represented by able counsel who will adequately represent the classes of persons alleged in this complaint. Plaintiffs have no conflict with any members of the classes that would disqualify them from adequately serving as class representatives and vigorously prosecuting this claim. 180. A class action is superior to other available means for the fair and efficient prosecution of this action. 181. Certification of the class would allow litigation of claims that, in view of the expense of litigation, may be insufficient in amount to support individual actions. Individual Class Members are unlikely to be aware of their rights and not in a position, by way of experience or financial means, to commence individual litigation against the Defendants. -45- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 46 of 61 182. A class action will result in an orderly and expeditious administration of the Class Members’ claims and economies of time, effort and expense and uniformity of decisions will be insured. DEFENDANTS ARE THE ALTER EGOS OF THE PUCCIOS WITHIN A COMMON ENTERPRISE 183. As set forth in more detail in prior paragraphs of this complaint, and for purposes of each of the following causes of action, Plaintiffs allege that the Cambridge Defendants, including the Puccio brothers at all pertinent times, were part of a single commercial enterprise inextricably linked by the common ownership of, and active and pervasive control by, the Puccio brothers, and characterized by a confused intermingling of activity in their common enterprise with a substantial disregard for the separate nature of the corporate entities, or at the very least serious ambiguity about the manner and capacity in which each of the entities and their representatives acted. 184. In addition, on information and belief, the for-profit Cambridge Defendants did not pay dividends. Rather their assets were siphoned away by the Puccios through compensation and benefits packages and/or other mechanisms. The corporate defendants were used for the business transactions of their dominant shareholders, the Puccios, and lacked functioning officers and directors apart from the Puccios. 185. All of the Cambridge Defendants are alter egos of John and Richard Puccio, and John and Richard Puccio are all part of a single commercial enterprise. 186. The ultimate purpose of the common enterprise was to assert the non-profit and tax-exempt status of Cambridge and Cambridge/Brighton to circumvent the requirements of the CROA in order that the Puccio defendants could grow their business without regulation and -46- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 47 of 61 receive private inurement flowing out of Cambridge and Cambridge/Brighton directly to the Puccios, and indirectly to the Puccios through Cambridge’s affiliated entity defendants. FIRST CAUSE OF ACTION FOR VIOLATION OF THE CROA AGAINST ALL DEFENDANTS 187. Plaintiffs incorporate and reallege all of the prior paragraphs of this complaint as though set forth here in full. DEFENDANTS ARE CREDIT REPAIR ORGANIZATIONS 188. Cambridge, Cambridge/Brighton, Brighton CMC, Brighton Mass, Brighton DMC, Cypress and DRCH at all relevant times used instrumentalities of interstate commerce and/or the mails to sell, provide, or perform (or represent that they can or will sell, provide, or perform) services, in return for the payment of money or other valuable consideration, for the express or implied purpose of-- s (i) improving consumer' credit record, credit history, or credit rating; and/or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i). 189. Cambridge, Cambridge/Brighton Brighton CMC and their affiliated entity defendants are “credit repair organizations” within the meaning of 15 U.S.C. §1679a(3). 190. Any Cambridge Defednant not found to be a credit repair organization, may be found to be a “person” within the meaning the CROA, 15 U.S.C. Section 1679b(a)(4). 191. The Creditor Defendants are “persons” within the meaning of 15 U.S.C. Section 1679b(a)(4). -47- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 48 of 61 SUBSTANTIVE VIOLATIONS OF CROA 192. Cambridge maintains its "non-profit" and tax-exempt status under 26 U.S.C. §501(c)(3) tax-exempt status as a means to market itself, to evade the coverage of the CROA, and for the purpose of covering up or concealing violations of the CROA. 193. Cambridge and Cambridge/Brighton at all pertinent times were in fact not operated as tax-exempt non-profits, but were, in reality, profit-making arms of the Puccios’ single commercial enterprise. 194. The Cambridge Defendants did not provide bona fide consumer credit counseling to the vast majority of their clients, but represent that they do in advertising materials as a basis for maintaining their non-profit status, and to mislead consumers concerning their services in violation of 15 U.S.C. §1679b(a)(3) of the CROA. 195. Cambridge and Cambridge/Brighton as credit repair organizations, by publishing and advertising their "non-profit" status and/or their tax exempt status and by making public statements that they are “community service[s]”, and by failing to disclose that affiliated for- profit organizations are performing the services, are undertaking acts, practices, and/or courses of business that constitute or result in the commission of, or attempts to commit, frauds or deceptions against consumers in connection with the offer or sale of the services of such credit repair organizations in violation of 15 U.S.C. §1679b(a)(4) of the CROA. 196. Cambridge, Cambridge/Brighton, Brighton CMC and their affiliated entity defendants as credit repair organizations charged and received of plaintiffs and Class Members money for the performance of services which the credit repair organization agreed to perform before such services were fully performed. 197. Cambridge, Cambridge/Brighton, Brighton CMC and their affiliated entity -48- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 49 of 61 defendants as credit repair organizations failed to provide plaintiffs and Class Members with a written statement, separate from any written contract, stating: "Consumer Credit File Rights Under State and Federal Law "You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any ' credit repair' company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years. "You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud. "You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations. "You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it. "Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur. "You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau. s "If the credit bureau' reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit -49- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 50 of 61 bureau must include a summary of your statement about disputed information with any report it issues about you. "The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact: "The Public Reference Branch "Federal Trade Commission "Washington, D.C. 20580". constituting a violation of 15 U.S.C. §1679c(a) and (b) of the CROA. 198. Cambridge, Cambridge/Brighton, Brighton CMC and their affiliated entity defendants as credit repair organizations failed to maintain a signed statement from Plaintiffs and the Class Members acknowledging receipt of the foregoing statement in their files for 2 years, in violation of 15 U.S.C. §1679c(c) of the CROA. 199. Cambridge, Cambridge/Brighton, Brighton CMC and their affiliated entity defendants as credit repair organizations presented contracts to plaintiffs and Class Members which failed to: 1. Specify terms and conditions of payment, including the total amount of all payments to the credit repair organization or any other person; 2. Contain a full and detailed description of the services to be performed by the credit repair organization for the consumer, including: a. all guarantees of performance; and b. an estimate of the time required for the performance of the services; 3. s Contain the credit repair organization' name and principal business address; and 4. Contain a conspicuous statement in bold face type, in immediate proximity -50- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 51 of 61 s to the space reserved for the consumer' signature on the contract, which reads as follows: “You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right." in violation of 15 U.S.C. §1679d of the CROA. 200. Cambridge, Cambridge/Brighton, Brighton CMC and their affiliated entity defendants as credit repair organizations failed to accompany their contract with plaintiffs and Class Members with a form, in duplicate, which had the heading “Notice of Cancellation” and contained in bold face type the following statement: "You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you. "To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to [name of credit repair organization] at [address of credit repair organization] before midnight on [date] "I hereby cancel this transaction, [date] s [purchaser' signature].". in violation of 15 U.S.C. §1679e(b) of the CROA. 201. Cambridge, Cambridge/Brighton, Brighton CMC and their affiliated entity defendants as credit repair organizations failed to give plaintiffs and Class Members (1) a copy of the completed contract and the disclosure statement required under section 15 USCS § 1679c; and (2) a copy of any other document they required the plaintiffs and Class Members to sign, at the time the contract or the other document is signed. 202. Based on the facts alleged, the defendants have violated the CROA and plaintiffs, -51- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 52 of 61 and the Class Members, have suffered damages as a result of these violations in the amount of all advance payments and monthly service fees charged by and paid to Cambridge, Cambridge/Brighton, Brighton CMC and the affiliated entity defendants in violation of the CROA. 203. Plaintiffs are also entitled to recover these same monies against defendants on the basis that these defendants are liable together, as they operate together as a single commercial enterprise; that Cambridge and Cambridge/Brighton, Brighton CMC are the alter egos of the Puccio brothers and that the Puccios (and potentially others) conspired with and aided and abetted the commission of the wrongful acts alleged herein; and that CROA liability for violations of its prohibitory provisions applies to "any person" and is not limited to credit repair organizations. 204. Plaintiffs are also entitled to recover these same monies against the Creditor Defendants on the grounds that, as alleged herein, they are “persons” that engaged in acts, practices, or courses of business that directly or indirectly resulted in the commission of, or an attempt to commit, a fraud or deception on members of the classes alleged herein in connection with the offer or sale of credit repair services by Cambridge and Cambridge Brighton: 205. Alternatively, and consistent with the published views of both the IRS and FTC, it is further alleged that the creditor all Defendants are liable to the Plaintiffs under the CROA for the damages alleged herein because in doing the things alleged herein, they were either credit repair organizations or “persons” engaged directly or indirectly in a course of business with credit repair organization defendants. 206. Defendants'conduct in knowingly doing the things alleged herein to the most vulnerable class of consumers was despicable, deplorable and malicious so as to shock the -52- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 53 of 61 conscience of every decent person so as to entitle plaintiffs and the members of the classes identified herein to punitive damages. WHEREFORE, plaintiffs request on behalf of themselves and all members of the classes identified herein: 1. this Court order that Cambridge and Cambridge/Brighton are not entitled to rely on, or otherwise assert their tax-exempt or non-profit status as a defense to any claim in this action; 2. judgment against defendants, jointly and severally, in the amount of all fees paid by plaintiffs and by each Class Member to the defendants during the period commencing five years prior to the date of this filing through the date of judgment; 3. as punitive damages, an amount equal to at least 90% of all retained earnings in the defendant organizations after payment of actual damages and at least 90% of all compensation paid to the Puccio defendants during the period commencing five years prior to the date of this filing through the date of judgment, or such other amount as the Court may deem appropriate; 4. accrued interest on plaintiffs’ and Class Members’ damages awarded at the legal rate from the date of the filing of the original complaint herein; 5. reasonable attorney’s fees and costs as determined by the court; and 6. all such other relief as the Court may deem necessary and appropriate under the circumstances. THIRD CAUSE OF ACTION FOR UNJUST ENRICHMENT AGAINST ALL DEFENDANTS 207. Plaintiffs reallege and incorporate herein by reference the allegations of all -53- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 54 of 61 preceding and following paragraphs in this complaint as though set forth here in full. 208. As a result of the facts alleged herein, all of the defendants received a benefit, measured as the amount of profits received by them from the plaintiffs and the Class Members, and have unjustly retained those benefits at the expense of plaintiffs and Class Members. WHEREFORE, the Plaintiffs are entitled at their option either to enforce a constructive trust of the property so acquired, or to enforce an equitable lien upon it or its proceeds to secure their claims against the constructive trustees for damages for breach of trust. FOURTH CAUSE OF ACTION FOR BEACH OF FIDUCIARY DUTY AND REMEDY OF CONSTRUCTIVE TRUST 209. Plaintiffs reallege and incorporate herein by reference the allegations of all preceding paragraphs in this complaint as though set forth here in full. 210. Defendant CCAs Cambridge, Cambridge/Brighton, and Brighton CMC promised to negotiate adjustments and modifications of the credit accounts of the putative plaintiff class of consumers with their creditors, and otherwise transacted business for the benefit of the putative plaintiff class. Defendants’ services gave rise to fiduciary duties to the putative plaintiff class of consumers. 211. Defendant CCAs Cambridge, Cambridge/Brighton, and Brighton CMC, and DMP processing companies, Brighton Mass and Brighton DMS received, held, and disbursed consumers’ money for the purposes of paying it to creditors for the benefits of the putative plaintiff class of consumers. These services placed defendants in the roles of trustees and/or co- trustees, and gave rise to fiduciary duties towards the putative plaintiff class of consumers. In addition, Cambridge held itself out as a trustee in a voluntarily disbursement plan to creditors according to its client’s financial means. -54- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 55 of 61 212. These duties arose by operation of law and required defendants to subordinate their interests to those of the consumers and to act only for consumers’ benefit. The duties required scrupulous good faith and candor. It was the duty of the defendant trustees or co- trustees and as fiduciaries to pay or convey the money they had received only to persons to whom the beneficiaries had authorized them to make payment. 213. These defendants breached their duties as trustees or co-trustees and as fiduciaries by failing to act with complete candor towards the putative plaintiff class of consumers. For example, they failed to disclose bonus policies that benefited their counselors, and failed to disclose that services were performed by related for-profit entities in exchange fees that were not negotiated at arms length, that were not tempered by competitive market forces, and that generated margins for the non-profits and distributions to the Puccios so substantial that they resulted in both private benefit and private inurement for. More specifically, the non-profits’ processing fee payments were paid to entities that were owned or controlled by the same Puccio brothers. By so conducting their business, the defendant fiduciaries violated their duties towards all members of the putative plaintiff class of consumers. 214. As a consequence, the foregoing defendants, together with co-defendants Cambridge Credit Corp., Brighton Credit Corp., Cypress, Debt Relief and John and Richard Puccio improperly acquired title to funds and property that is traceable Monthly Payment Design Fees and Payment Program Fees members of the classes paid to non-profits Cambridge and Cambridge/Brighton, and to which plaintiffs and Class Members have a right. 215. Additionally, the foregoing defendants, together with co-defendants Cambridge Credit Corp., Brighton Credit Corp., Cypress, DRCH and John and Richard Puccio (a) knew or should have known of an ongoing course of business constituting a breach of trust, committed by -55- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 56 of 61 themselves or their predecessors- or co-trustees, and improperly permitted it to continue; or (b) neglected to take proper steps to compel predecessor- or co-trustees to restore the wrongfully gained money to consumers, or (c) neglected to take proper steps to redress breaches of trust committed by their predecessors and co-trustees. 216. s The defendant' gain of the res by fraud and violation of a trust was wrongful and justifies the imposition of a constructive trust against all property of the defendants- that is fairly traceable to their wrongful conduct. WHEREFORE, the Plaintiffs are entitled at their option either to enforce a constructive trust of the property so acquired, or to enforce an equitable lien upon it or its proceeds to secure their claims against the constructive trustees for damages for breach of trust. They are also entitled to equitable relief in the form of a preliminary and permanent injunction restraining any of the Cambridge Defendants other than the Puccio brothers from distributing, loaning, gifting or otherwise transferring any further monies to the Puccios. FIFTH CAUSE OF ACTION: VIOLATION OF VIRGINIA CONSUMER PROTECTION ACT 217. The Plaintiffs incorporate herein by reference each of the foregoing allegations. 218. Defendants Cambridge, Cambridge/Brighton and Brighton CMC were “suppliers” in the transaction alleged herein within the meaning of the Virginia Consumer Protection Act, Va. Code Ann. §59.1-196 et seq. (the “Act”). 219. The transaction Cambridge entered into with Plaintiffs amounted to a consumer transaction within the meaning of the Act. 220. In the course of their consumer transaction with Virginia consumers Defendants violated the Act as follows: a. They advertised consumer credit counseling services with intent not to sell them -56- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 57 of 61 as advertised, specifically, it did not intend to provide bona fide consumer credit counseling services; and b. They used other deceptions, frauds, false pretenses, false promises, or misrepresentations in connection with consumer transactions, specifically, they called themselves a community service and misused the non-profit and tax-exempt statuses of Cambridge and Cambridge/Brighton to promote themselves and to create false and misleading perceptions about their central purpose. 221. Plaintiffs have been damaged as a consequence of the violations by Defendants. Plaintiffs’ damages are measured, without limitation, as all monies they delivered to Defendants. 222. The violations of the Act by Defendants were willful. WHEREFORE, Plaintiffs demand rescission pursuant to §59.1-205, or, in the alternative, judgment against Defendants, jointly and severally, in such amount as may be shown at trial is necessary to disgorge all fees, and to provide restitution, compensatory and punitive damages, or at least $1,000 for each violation, whichever is greater, trebled to three times actual damages s sustained, together with Plaintiffs’ reasonable attorney' fees and court costs, and to enter such additional orders or decrees as may be necessary to restore to Plaintiffs any money or property, real, personal, or mixed, tangible or intangible, which may have been acquired from them in violation of the Act. SIXTH CAUSE OF ACTION: VIOLATIONS OF THE MASSACHUSETTS CONSUMER PROTECTION ACT, M.G.L. C. 93A, § 2 AGAINST ALL DEFENDANTS EXCEPT THE CREDITOR DEFENDANTS 223. M.G.L. c.93A, § 2(a) prohibits unfair or deceptive acts or practices in the conduct of trade or commerce pursuant to state and federal law. 224. At all times relevant to this Complaint, each of the defendants to which this cause -57- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 58 of 61 of action applies was engaged in trade or commerce as those terms are defined in M.G.L. 93A, §2. The Cambridge Defendants’ principal operations were located in Agawam, MA, and Cambridge, Brighton DMS, Brighton Mass. and DRCH are all Massachusetts corporations based there. 225. Pursuant to 940 Code Mass. Reg. § 3.16(4), a violation of any federal consumer protection statute is within the purview of M.G.L. c.93A, § 2 and is deemed a violation of M.G.L. c.93A, § 2. By engaging in the acts and omissions described herein, and thereby violating the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq. and in accordance with 940 Code Mass. Reg. § 3.16(4), Defendant is in violation of M.G.L. c. 93A, § 2(a). 226. Alternatively, pursuant to the Massachusetts Credit Repair Organizations Act, M.G.L. c.93, § 68E, "any violation of sections sixty-eight B to sixty-eight D, inclusive, shall constitute a violation of chapter ninety-three A." 227. In the course of their dealings with the Zimmermans and the other class members, the defendants violated M.G.L. c.93, § 68B and M.G.L. c. 93a, by engaging in various unfair and deceptive practices, including but not limited to: a. Charging or receiving money or other valuable consideration from consumers prior to full, complete and satisfactory performance of such services Defendant agreed to perform or provide, and/or failing to obtain a surety bond in the amount of not less than $10,000; b. Making or using untrue or misleading representations in the offer or sale of the services of a credit services organization and engaging in the course of business intended to defraud or deceive a consumer in connection with the offer or sale of such services. c. Engaging in credit counseling activities within the Commonwealth of Massachusetts, including the creation of debt payment plans, in violation of M.G.L. c. 180, § 4A, which strictly -58- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 59 of 61 limits the persons or entities who can do so. d. Using other deceptions, frauds, false pretenses, false promises, or misrepresentations in connection with consumer transactions, specifically, they called themselves a community service and misused the non-profit and tax-exempt statuses of Cambridge and Cambridge/Brighton to promote themselves and to create false and misleading perceptions about their central purpose. 228. By virtue of the foregoing, Defendant has violated M.G.L. c.93A, § 2(a). 229. Defendant knew or should have known that the above-described acts and practices were in violation of M.G.L. c.93A, § 2(a) and regulations promulgated thereunder. 230. Consumers like the plaintiffs have suffered monetary loss as a result of s Defendant' unlawful acts or practices. Absent injunctive relief by this Court, Defendant is likely to continue to injure consumers and harm the public interest. 231. Sections 410(b) and 410(c) of the Credit Repair Organizations Act, 15 U.S.C. §§ s 1679h(b) and 1679h(c), empower this Court to issue a permanent injunction against Defendant' violations of the Credit Repair Organizations Act and, in the exercise of its equitable jurisdiction, to order such ancillary relief as preliminary injunction, rescission, restitution, disgorgement of s profits resulting from Defendant' unlawful acts or practices, and other remedial measures. 232. Section 4 of the Massachusetts Consumer Protection Act, M.G.L. c.93A, § 4, empowers this Court to grant injunctive and such other relief as the Court may deem appropriate to halt and redress violations of the Massachusetts Consumer Protection Act. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by s Defendant' law violations. 233. On or about February 5, 2004, the Zimmermans sent each of the Defendants to whom this cause of action is alleged a written demand for relief which identified the claimants -59- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 60 of 61 and reasonably described the unfair or deceptive acts and practices relied upon and the injuries suffered. WHEREFORE, Plaintiffs request that this Court, as authorized by Section 410(c)(1) of the Credit Repair Organizations Act, 15 U.S.C. § 1679h(c)(1) and M.G.L. c.93A, § 4; and pursuant to its own equitable powers: a. Award Plaintiffs such preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief; b. Permanently enjoin Defendant from violating the Credit Repair Organizations Act and M.G.L. c.93A, § 2(a); c. Award such relief as the Court finds necessary to redress injury to consumers resulting s from Defendant' violations of the Credit Repair Organizations Act and M.G.L. c.93A, § 2(a), including, but not limited to, damages the refund of monies paid, and the disgorgement of ill- gotten monies; and d. Award Plaintiffs the costs of bringing this action, including reasonable attorneys'fees, as well as such other and additional relief as the Court may determine to be just and proper. PLAINTIFFS DEMAND A TRIAL BY JURY ON ALL CLAIMS Respectfully submitted, ANDREW ZIMMERMAN and KELLY ZIMMERMAN, By their attorneys, -60- Case 3:03-cv-30261-MAP Document 65-1 Filed 10/21/2005 Page 61 of 61 /s/ Garrett M. Smith____________________ Garrett M. Smith (Va. Bar # 34162) (pro hac vice) Gary W. Kendall (Va. Bar # 15651) MICHIE HAMLETT LOWRY RASMUSSEN & TWEEL PLLC 500 Court Square, Suite 300, P.O. Box 298 Charlottesville, Virginia 22902-0298 Telephone: 434-951-7222 Facsimile: 434-951-7242 David J. Vendler (SBN 146528) MORRIS POLICH & PURDY LLP 1055 West Seventh Street, 24th Floor Los Angeles, California 90017 Telephone: 213-891-9100 Facsimile: 213-488-1178 Stephen G. Hennessy (BBO No. 549914) P.O. Box 477 Milton, MA 02816 Telephone: 617-696-1600 Facsimile: 617-696-1667 Gregory S. Duncan (Va. Bar # 26692) 412 E. Jefferson St. Charlottesville, VA 22902 Telephone: 434-979-8556 Facsimile: 434-979-9766 Dated: October 21, 2005 -61- Case 3:03-cv-30261-MAP Document 65-2 Filed 10/21/2005 Page 1 of 2 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS Springfield ) ANDREW ZIMMERMAN et al., On Behalf of ) Themselves and All Others Similarly Situated, ) ) Plaintiffs, ) ) v. ) ) Case No. 03-CV-30261 CAMBRIDGE CREDIT COUNSELING CORP.; ) et al. ) Defendants. ) NOTICE OF FILING WITH CLERK’S OFFICE Notice is hereby given that the documents, exhibits or attachments listed below have been manually filed with the Court and are available in paper form only. Exhibit A: IRS Report of Examination of Cambridge Credit Counseling Corp., dated December 27, 2004 (to be filed with Motion to Seal). Exhibit B: First Amended Complaint, Comm. of Massachusetts v. Cambridge Credit Counseling, Corp. Suffolk Superior Court, Action No. 04-1436F, filed May 25, 2004 (greater than 2 MB). Exhibit C: AADMO announcement of IRS Denial of 501(c)(3) status (document contains security codes). The original documents are maintained in the Clerk’s office in paper format. I certify that within 24 hours of the electronic filing of this Notice, I will cause to be filed and served upon all counsel of record paper copies of the documents identified above. Respectfully submitted, 1 Case 3:03-cv-30261-MAP Document 65-2 Filed 10/21/2005 Page 2 of 2 ANDREW ZIMMERMAN and KELLY ZIMMERMAN, By their attorneys, /s/ Garrett M. Smith____________________ Garrett M. Smith (Va. Bar # 34162) (pro hac vice) Gary W. Kendall (Va. Bar # 15651) MICHIE HAMLETT LOWRY RASMUSSEN & TWEEL PLLC 500 Court Square, Suite 300, P.O. Box 298 Charlottesville, Virginia 22902-0298 Telephone: 434-951-7222 Facsimile: 434-951-7242 David J. Vendler (SBN 146528) MORRIS POLICH & PURDY LLP 1055 West Seventh Street, 24th Floor Los Angeles, California 90017 Telephone: 213-891-9100 Facsimile: 213-488-1178 Stephen G. Hennessy (BBO No. 549914) P.O. Box 477 Milton, MA 02816 Telephone: 617-696-1600 Facsimile: 617-696-1667 Gregory S. Duncan (Va. Bar # 26692) 412 E. Jefferson St. Charlottesville, VA 22902 Telephone: 434-979-8556 Facsimile: 434-979-9766 Dated: October 21, 2005 2 Case 3:03-cv-30261-MAP Document 65-3 Filed 10/21/2005 Page 1 of 3 EXHIBIT D CFA .-.- Fax: Case 3:03-cv-30261-MAP2022657989 Document 65-3 Oct 20 2005 Filed 10/21/2005 Page 2 of 3 APR, 21, 2003 NO. 784 P. 2 0 CHASE R.:.lpb ChllRe Cardmembe.' S~I. "I"IIU 6()O Whi1u \. 1a)' Ccmlar !)ray\) "~;~I:Jnf Ncwurk, 1)8 19711 April 1, 2.003 Re: Pa)' rOt Performance Dear Lmy Chue is ple8led to introduce U. new pedormina credit counsetmlliaenciol ,) with higher fair share rates. It is impOtUnt note that Chase is not reducing ita top fair qt;ncies that &r8 ac;hi~ving the :highelt levels oCperformancc. In developin& our PlY tor Perfon-nlnoc Program, we reviewed the reccmt approved CCA' .. Ovorall cUltomers referred by CCA' I to Chale, and their abiUty to lucceld\111y participate in a debt maftl8Gment plan. fUrther adJuatmentl were m148 if the arcdit electronically an.dJor (2) il not accredited. Chase il proud to pU'tDer with Apncie. that thmn to luccessfully complete ~be profit S01 (cX3)- desianated alonciea th.t comply with Chaso maintain a minimW1l level of pertbrmance within the criteria outlined above. Chase . Minim\lm "Ienci.. must be physical presence. Agenc\eI muat disclose to aU consumm at The specific an10unta or vo(uuWy contribution., that are rcqUbted from tht clients, Thlt enterinl into a Cuatomen are required co clOlc an pU!po8ea). ). Cust~mer. mutt Th&1 tho ). Customer. have ftom the agency and to report di.Ot8plnciel. CFA Fax:2022657989 Case 3:03-cv-30261-MAP Document 65-3 Oct 20 2005 Filed 10/21/2005 Page 3 of 3 APR, 21. 2003 NO. 784 Alen~i.s mwt thoir non.. public Il'\formation by the 8S=~Y to their ~reditor' and by their creditors to tho aseney. . AgenCl1e8 .must have accountl (eapecially operating aCCOunts and client deposit Relative to thcscmcarurcments. effeotive May 1, YOUt Cb..e-&lllgned lair .hare ute for all enrolled aecounta is 4. 50%. Please update your records to en.we full fair shire rate. ChUe will monitor through d.ta capture Bnd , we plan to rlw in approximately twelve months. .As. disclaimer,Chase re,erves the rilht to change any fair .hlre model for u.i;1\mll fair share to that it proprietary to We look, forward to continuing to to oW' e1igible cUltorners and hope that you find our new Pay for Performance Prorram more equitable. If 1604 or email me at ralphJG1'r.ll(f;Jpmchcu.. t:o",," Sb1cerely, ~at,M paltMlt Ralph Jan-ell, A vP Case 3:03-cv-30261-MAP Document 65-4 Filed 10/21/2005 Page 1 of 1 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS CLERK’S NOTICE This document can not be scanned due to its size, or the way in which it was bound. The original is available for viewing in the Clerk’s Office.