Here Comes Money Boo Boo

No, not the cherubic child star on reality TV.  We’re talking about the serious repercussions of American Tax Relief's misleading claims about substantially reducing what consumers owed in taxes — and major mistakes some businesses make when it comes to the financial consequences of deception.  A look at the settlement offers insights into the breadth of remedies available for violations of the FTC Act and related rules.

Through a massive TV, radio, direct mail, and online campaign, the defendants touted a "ONCE AND FOR ALL" fix (their caps, not ours) for people with tax troubles.  The defendants claimed their experienced tax pros "know the secrets" to save consumers "a significant amount of money" in settling up with the IRS.

What did customers really get?  According to the FTC, high-pressure pitches, exorbitant fees, broken promises, refund run-arounds — and not much else.

The FTC filed the case in 2010, won partial summary judgment in 2012, and reached a settlement that addresses the array of deceptive practices alleged in the complaint.  What about the terms of the order?  Among other things, it includes a stipulated judgment of $103 million, which will be suspended after the surrender of assets totaling more than $15 million.  The order also bans key players for life from telemarketing and the debt relief business.

If you’ve considered similar practices (and we really hope you haven’t) or if you have clients who have found themselves in the law enforcement soup, a closer look at the American Tax Relief order debunks some common defense misconceptions.

“If I incorporate, I can blame bad conduct on the business and walk away.”  Untrue.  In the 2012 partial summary judgment, the trial court found company head Alexander Seung Hahn personally liable for legal violations — and the complaint and order name Hahn’s wife, Joo Hyun Park.  Simply put, don’t count on that “I-N-C” or “L-L-C” after a company's name to shield individuals from liability under the FTC Act.

“We can hold onto ill-gotten gains by sinking cash into multiple bank accounts, tony real estate, and high ticket merchandise.”  Not so fast.  The settlement requires the defendants to turn over cash from more than a dozen accounts.  The Ferrari?  The U.S. Marshal Service is holding it, pending sale.  The collection of jewelry and gold will be turned over to the Receiver and sold, too — as will the house in Beverly Hills and the L.A. condo.

“Handing over assets to family members will thwart the enforcers.”  Not likely.  The settlement imposes judgments of $18 million and $595,000 against Mr. Hahn’s mother-in-law and father-in-law, who were named as relief defendants.  Although they weren’t charged with participating in the scheme, the court ruled they had received significant cash from the operation — cash they won’t be keeping.

 

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