Lawsuits & Settlements

LOS ANGELES—California Attorney General Edmund G. Brown Jr., in conjunction with the Los Angeles Department of Consumer Affairs (LADCA), today announced a million-dollar settlement with Wisconsin-based Hy Cite Corporation, which was investigated for using discriminatory business practices and false advertising in the sales of its high-priced Royal Prestige cookware to California consumers. This is the Attorney General’s second settlement agreement with Hy Cite Corporation for similar consumer fraud tactics.

“Hy Cite’s sales approach has been to scare people into buying high-priced pots and pans by telling customers that the cookware in their own home was unsafe,” said Attorney General Brown. “We won’t tolerate this type of predatory consumer marketing in California. This settlement will put an end to Hy Cite’s bogus chemical tests and predatory lending terms and ensure that the company treats its customers fairly and honestly.”

Hy Cite Corporation sells high-priced cookware targeting Latino consumers and neighborhoods through in-home demonstrations. Hy Cite’s salespeople allegedly lied their way into people’s homes by telling consumers that they had won a prize or by asking them to participate in opinion polls. Once in consumers’ homes, the salespeople often used high-pressure sales tactics and deception to convince consumers to buy the expensive cookware. Salespeople scared consumers into believing that cookware made of non-stick materials or aluminum would make them sick, claiming that Royal Prestige’s stainless steel cookware was safer to use.

To convince consumers of their claims, Hy Cite representatives would routinely perform bogus “tests” on the victim’s cookware, heating a mixture of baking soda and water in non-stick or aluminum pans, creating a bad-tasting paste through the resulting chemical reaction. The representatives claimed that toxic chemicals were transferred into the family’s food, making the consumer’s existing cookware unsafe for their families.

In many cases, consumers were convinced to finance their purchases through the company’s financing plan, but were misled to believe that the percentage rate was lower than the 20% or more financing rate they were charged. Many people who were scared into buying the products were unable to afford them, fell behind on their payments, and faced collection calls and damage to their credit rating.

During the investigation, the Attorney General’s office found that the company had developed two separate credit structures for customers, based on the customer’s ethnicity. Hy Cite’s “Anglo” customers were offered 90-day payment deferral, contract cancellation, and the use of post-dated checks. These options were not offered to Hy Cite’s Hispanic customers.

After receiving several consumer complaints about the company’s predatory sales practices, the Attorney General’s office began its investigation in March 2007.

This is California’s second settlement with the Hy Cite Corporation for consumer marketing fraud. In 2000, the California Attorney General’s office reached a settlement agreement with Hy Cite Corporation, in which the company agreed to drastically reform its business practices, pay restitution and civil penalties to victims of its predatory sales tactics, and honor a permanent injunction from engaging in these actions in the future.

Under the current settlement, Hy Cite and several of its top executives agreed to pay $1 million as restitution to consumer victims, plus penalties and costs to the Attorney General and LADCA. In addition to these penalties, Hy Cite has agreed to hire an independent monitor for three years to conduct in-depth interviews with future consumers of Hy Cite products. The judgment also sets forth strict requirements on what its salespeople can say to convince consumers to listen to a sales presentation and what can be said during the sales presentation itself.

SAN FRANCISCO- California Attorney General Edmund G. Brown Jr. today announced that he has reached a settlement with Citibank after a three-year investigation into the company’s use of an illegal “account sweeping” program. Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund.

“The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

Between 1992 and 2003, Citibank employed a computerized “credit sweep” process to automatically remove positive or credit balances from credit-card customer accounts. An account could show a credit balance if a customer double-paid a bill or returned a purchase for credit. The credit sweeps were done without notifying the customer and without regard for whether the customer had any unpaid balances or other charges owed to Citibank.

The credit sweeps targeted more than 53,000 customers nationwide. All of the affected accounts were in a recovery status, which includes accounts of customers who have died, sought bankruptcy protection, or been the target of litigation or other collection efforts by Citibank.

In July of 2001, a Citibank employee uncovered the practice and brought it to the attention of his superiors. The employee was later fired for discussing the credit sweeps with an internal audit team. In the words of a Citibank executive, “Stealing from our customers is a business decision, not a legal decision.” The same executive later said that the sweep program could not be stopped because it would reduce the executive bonus pool.

The Attorney General launched its investigation of Citibank in 2005 to determine whether the company violated the California False Claims Act by filing false holder reports with the California State Controller that omitted any reference to the swept funds. The 3-year investigation led to today’s settlement.

The settlement includes:
• Permanent injunction – Citibank will be permanently prevented from re-initiating the credit sweeps.
• Refunds to victims – Citibank will refund all improperly swept funds to customers who were victimized by the sweeps. Citibank will also pay California customers 10% interest on the amount taken.
• Penalties – Citibank will pay $3.5 million in damages and civil penalties to the State of California.
• Compliance audit – After Citibank’s refund process is complete, an independent auditor will review Citibank’s work to ensure that it has lived up to its obligations.

Citibank has affirmed that it can identify most of the victims of the credit sweeps and has begun the process of reviewing archived account data and refunding the improperly swept funds going back to 1992.

A copy of the settlement is attached

SACRAMENTO--In response to today’s Sacramento Superior Court decision to deny a lawsuit challenging the title and summary and ballot label for Proposition 8, California Attorney General Edmund G. Brown Jr. issued the following statement:

“This lawsuit was more about politics than the law. The court properly dismissed it.”

One of the many responsibilities of the attorney general is to prepare a title and summary for initiative measures. For more information visit: http://ag.ca.gov/initiatives/index.php

The court’s order, issued today, is attached.

FOR IMMEDIATE RELEASE
Contact: Gareth Lacy (916) 324-5500

Brown Sues To Topple Online Pyramid Scheme

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today announced a lawsuit against YourTravelBiz.com for operating a 'gigantic pyramid scheme' that recruited tens of thousands of members with deceptive claims that members could earn huge sums of money through its online travel agencies.

“YourTravelBiz.com operates a gigantic pyramid scheme that is immensely profitable to a few individuals on top and a complete rip-off for most everyone else,” Attorney General Brown said. “Today’s lawsuit seeks to shut down the company’s unlawful operation before more people are exploited by the scam.”

YourTravelBiz.com and its affiliates operate an illegal pyramid scheme that only benefits members if and when they find enough new members to join the scam. Once enrolled, members who join the pyramid scheme earn compensation for each new person they enlist, regardless of whether they sell any travel. The company lures new members by offering huge income opportunities through online travel agencies yet the typical person actually makes nothing selling travel.

According to company records there were over 200,000 members in 2007 who typically pay more than $1,000 per year--$449.95 to set up an “online travel agency” with a monthly fee of $49.95. In 2007, only 38 percent of the company’s members made any travel commissions. For the minority of members who made any travel commission in 2007, the median income was $39.00--less than one month’s cost to keep the Website. There are at least 139,000 of the company’s travel Websites, all virtually identical, on the Internet.

YourTravelBiz’s extensive marketing materials include videos of people driving Porsches and other luxury cars, holding ten-thousand dollar checks, and claiming to be raking in millions of dollars in profits. The company advertises through its Website www.ytb.com, and at conventions, workshops and nationwide sales meetings which have been held in California locations such as Los Angeles, Sacramento, San Francisco and San Diego.

Brown charges the company, its affiliates, and the company’s founders J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen and Andrew Cauthen with operating an “endless chain scheme,” an unlawful pyramid in which a person pays money for the chance to receive money by recruiting new members to join the pyramid. Brown also charges the company with unfair business practices and false advertising practices including:

* Deceptive claims that members can earn millions of dollars with the company
* Operating without filing legally mandated documents with the attorney general and the Department of Corporations
* Selling an illegal travel discount program

Under California’s unfair business practices statue, the company is liable for $2,500 per violation of law. Attorney General Brown is suing YourTravelBiz.com to get a court order that:

* Bars the company from making false or misleading statements
* Assesses a civil penalty of at least $15,000,000 and at least $10,000,000 in restitution for Californians who were ripped off by the company.

From August 6 through 10, thousands of members are preparing to travel to St. Louis for a national convention to learn new techniques to recruit more victims into the illegal pyramid scheme. Last year at least 10,000 people attended a similar national conference. For more details on the company’s plan to perpetuate its scheme visit: http://www.yourtravelbiz.com/bizRep/BizReports/BIZREPORT_07-18-08.htm

For more information on pyramid schemes visit: http://ag.ca.gov/consumers/general/pyramid_schemes.php

Consumers who believe they have been bilked by YTB should send a written complaint with copies of any supporting documentation to:

Office of the Attorney General
Public Inquiry Unit, P.O. Box 944255
Sacramento, CA 94244-2550

Or through an on-line complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL.

Today’s lawsuit against YourTravelBiz.com, filed yesterady in Los Angeles Superior Court, also names affiliates which include YTB Travel Network, Inc., YTB Travel Network of Illinois, Inc., as well as the company’s founders J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen and Andrew Cauthen. For a copy of the lawsuit please contact the attorney general's press office: (916) 324-5500.

Contact: Abraham Arredondo: (916) 324-5500 or Ed Weil (510) 622-2149

Atty. Gen. Brown Settles Potato Chip Lawsuit With Heinz, Frito-Lay & Kettle Foods

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today settled lawsuits against Heinz, Frito-Lay, Kettle Foods and Lance Inc. after the companies agreed to slash levels of the cancer-causing chemical acrylamide in their potato chips and french fries.

“The companies agreed to reduce this carcinogenic chemical in fried potatoes--a victory for public health and safety in California,” Attorney General Brown said. “Other companies should follow this lead and take steps to reduce acrylamide in french fries and potato chips,” Brown added.

In 2005, the attorney general sued McDonald’s, Wendy’s, Burger King, KFC, Frito-Lay, Kettle Foods, Lance, Procter & Gamble and Heinz, for selling potato chips and french fries containing high levels of acrylamide, a chemical known to the state to cause cancer. Acrylamide is a by-product of frying, roasting and baking foods--particularly potatoes--that contain certain amino acids. In 2002, Swedish scientists discovered high levels of cancer-causing acrylamide in fried potato products.

The attorney general sued french fry and potato chip companies under Proposition 65, the Safe Drinking Water and Toxic Enforcement Act, which requires companies to post warnings of any cancer-causing chemicals in their products unless they can prove that the levels do not pose a significant health risk.

Last year, restaurant chains including KFC, McDonald’s, Wendy’s and Burger King agreed to post acrylamide warnings at their restaurants and to pay civil penalties and costs. In January, Procter & Gamble agreed to reduce acrylamide in Pringles potato chips by 50 percent so that no warning would be required.

Under today’s settlements, Frito-Lay, Inc., which sells most of the potato chips sold in California, Kettle Foods, Inc., maker of “Kettle Chips,” and Lance, Inc., maker of Cape Cod Chips will reduce acrylamide over a period of three years to 275 parts per billion. For Frito Lay, this is about a 20% reduction, while for Kettle Chips, which contain far more acrylamide; this is an 87% reduction in acrylamide. Most Cape Cod chips are already near the compliance level, but one product, “Cape Cod Robust Russets,” contains over 7,000 parts per billion of acrylamide, and immediately will either carry a warning label on the package or will be removed from the market. Frito-Lay will pay $1.5 million in penalties and costs, $550,000 will be forgiven if it can reduce acrylamide in its products in half the time required by the settlement. It will pay an additional $2 million if it fails to reduce acrylamide in the required time. Kettle Foods will pay $350,000 in penalties and costs, while the much smaller Lance, Inc., will pay $95,000 in fees and costs.

Last week the Attorney General reached agreement with Heinz, Inc., the manufacturer of Ore-Ida frozen french fries and tater tots, will pay $600,000 in penalties and costs and will change its fried potatoes to contain 50 percent less acrylamide.

The settlements were approved today by Los Angeles Superior Court Judge William F. Highberger. A trial had been scheduled before Judge Highberger on July 28, but today’s settlement marks the end of the state’s litigation. Had the lawsuit gone to trial it would have been a legal battle with scientific experts debating the extent of the cancer risk posed by acrylamide.

The U.S. FDA is studying the problem of acrylamide in fried potatoes but has not taken formal action. The FDA’s website advises consumers that acrylamide can be reduced by not over-browning potatoes during cooking. For more information visit: http://www.cfsan.fda.gov/~dms/acryfaq.html

Brown said he will work with the companies to find a way to effectively give consumers information about the acrylamide in their products, while at the same time preventing undue public alarm and unnecessary warning signs concerning foods that contain insignificant amounts of the chemical.

For more information on acrylamide and Proposition 65 please visit:
http://ag.ca.gov/prop65/

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today announced California's plan to sue the U.S. EPA for continuing to “wantonly ignore its duty” to regulate greenhouse gas pollution from ships, aircraft, and construction and agricultural equipment.

“Ships, aircraft and industrial equipment burn huge quantities of fossil fuel and cause massive greenhouse gas pollution yet President Bush stalls with one bureaucratic dodge after another,” Attorney General Brown said. “Because Bush’s Environmental Protection Agency continues to wantonly ignore its duty to regulate pollution, California is forced to seek judicial action.”

Under federal law and the landmark Supreme Court decision Massachusetts v. EPA, the Environmental Protection Agency is authorized to regulate greenhouse gases from a wide range of vehicles including ocean-going vessels, aircraft and agricultural, construction and industrial equipment. Invoking such authority, Attorney General Brown formally petitioned the EPA--in October 2007, December 2007 and January 2008--to initiate appropriate regulatory action.

In the face of Brown’s petitions, the EPA has done nothing but issue a pathetically weak “Advanced Notice of Proposed Rulemaking” on July 11, 2008. The EPA’s proposal contains hundreds of pages of discussion and facts but never once states that greenhouse gases endanger public health or welfare--the legal foundation for fashioning regulations. Brown said that ignoring California’s petitions violates the Clean Air Act which requires the agency to adopt standards for greenhouse gases.

Under the Clean Air Act, EPA is given 180 days to respond with appropriate regulation action. If the agency does not issue timely regulations for aircraft, ocean-going vessels and nonroad engines, California can and will sue the federal government for unreasonable delay. The lawsuit will be based on the following:

* EPA’s failure to make explicit findings that industrial equipment, ships and aircraft emit greenhouse gas pollution that endangers public health or welfare
* EPA’s failure to adopt timely regulations to control such emissions

President Bush blocked EPA’s original plan to make a formal finding that greenhouse gases endanger public health or welfare. Recently, congressional investigations have found that White House staff signed off on EPA’s “endangerment finding” in November 2007. Subsequently, White House officials told EPA to cancel the finding.

“If President Bush was serious about America’s dangerous and growing foreign oil dependency, he would forthwith direct EPA to do its job and regulate greenhouse gases,” Attorney General Brown said.

Nonroad engines, ships and aircrafts emit as much greenhouse gases as 270 million cars, more than the entire number of registered vehicles in the United States. The following background information details the massive energy consumption and negative environmental effects of ocean-going vessels, aircraft and nonroad engines.

SHIPS

The world’s relatively small fleet of large ocean-going vessels, about 90,000, emits approximately three percent of the world’s total greenhouse gas emissions. Ocean-going vessels in total emit more CO2 emissions than any nation in the world except the U.S., Russia, China, Japan, India and Germany. These emissions are projected to increase nearly 75 percent during the next 20 years.

EPA’s own recent proposal states that marine vessels that purchased fuel in the U.S. emitted 84.2 million metric tons of CO2 in 2006, or 3.9 percent of the total U.S. mobile source CO2 emissions.

The United Nations International Maritime Organization has authority under international treaties to establish pollution standards for vessels but has to date failed to adopt controls on greenhouse gas emissions. The IMO Marine Environment Protection Committee recently planned to inventory greenhouse gases by 2009 but made no commitment to regulate such emissions. Attorney General Brown says that ocean-going vessels have a right to innocent passage under international law but that right does not include polluting the air or water near in California.

AIRCRAFT

According EPA data, aircraft contributed three percent of the United States’ total carbon dioxide emissions and 12 percent of the transportation sector emissions in 2005. The Federal Aviation Administration expects domestic aircraft emissions to increase 60 percent by 2025.

Aviation’s contribution to global warming is greater than other major greenhouse gas emission sources because aircraft release emissions at high altitudes. For example, when nitrous oxide is emitted at high altitudes it generates greater concentrations of ozone than when it is released at ground-level. Brown says that because aviation injects greenhouse gas pollution at high altitudes—right where these emissions have a heightened negative impact—the EPA must take action to curb these emissions.

There are currently no greenhouse gas emissions controls on aircraft and only limited controls for some conventional pollutants such as carbon monoxide. Last year, the International Civil Aviation Organization, a United Nations agency, passed a resolution to set international emissions reduction agreements but the organization has taken no additional action to further this goal.

AGRICULTURAL AND INDUSTRIAL EQUIPMENT

Millions of industrial machines in mines, on farms, and at construction emitted 220 million tons of carbon dioxide in 2007—an amount equivalent to the emissions from 40 million cars. Mining and construction equipment accounted for 32 percent of these emissions, followed by agricultural and industrial equipment. According to the California Air Resources Board, there are approximately 17.8 million of these machines and engines in California.

The EPA has refused to regulate emissions from nonroad engines, aircraft and ocean-going vessels despite unassailable evidence of global warming and dangerous foreign oil dependency. Last week the U.S. Climate Change Science Program's issued a report on global warming’s devastating effects which include more frequent and intense hurricanes, heat waves, and flooding. In California, where hydropower comprises approximately 15 percent of in-state energy production, diminishing snowmelt flowing through dams will decrease the potential for hydropower production by up to 30 percent by the end of the century.

Other states, local governments and agencies which joined California today in warning the EPA of an impending lawsuit include Connecticut, Oregon, New York City, the California Air Resources Board and the South Coast Air Quality Management District. National environmental groups filing similar petitions include Earthjustice and the Western Environmental Law Center.

California’s notice of intent to sue the EPA is attached.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. and the California Department of Food and Agriculture today announced that Bombino Express Worldwide has been sued for importing unmarked packages of mangos and yams from India that had not been treated to prevent the spread of the destructive Oriental Fruit Fly.

"Bombino Express Worldwide is charged with smuggling untreated and unlabeled fruit that can carry invasive insects like the Oriental Fruit Fly into the United States,' Attorney General Brown said. 'When foreign shipping companies disobey California’s quarantine laws they put the state’s growers at risk. County, state and federal inspectors should be commended for catching this illegal shipment and isolating its contents.'

Attorney General Brown alleges that Bombino Express Worldwide violated the Food and Agriculture Code and engaged in unfair business practices by failing to label and treat packaged mangos to kill any fruit fly larvae before exporting the products to the United States. Female Oriental Fruit Flies lay eggs in groups of 3 to 30 under the skin of host fruits and vegetables like those imported by Bombino Express Worldwide.

A single fruit fly lives approximately 90 days and can travel up to 30 miles in search of food and sites to lay eggs. The threat of agricultural destruction from invasive species like the Oriental Fruit Fly is so great that there was a complete ban on importing Indian mangos and yams until May 2006 when federal law was amended to allow limited importation of Indian mangos. Under the new rules, shipping companies must attach documentation affirming that mangos are treated to kill any fruit fly larvae.

The Department of Food and Agriculture launched an investigation into Bombino Express Worldwide after an inspector at a facility near Ontario International Airport found several unmarked packages of produce being imported to California from India. A parcel inspection dog named C.C., working for the San Bernardino County Agricultural Commissioner’s office, sniffed out the mislabeled box of mangos. Contra Costa County is also using dogs for parcel inspections in the Bay Area and there are plans to assign dogs in San Diego, Sacramento and Fresno counties.

The Attorney General’s Office seeks $10,000 per violation of the Food and Agricultural Code and California’s unfair competition statute. The company could face up to $1.67 million in penalties for its 167 violations of California law.

Oriental fruit flies have wreaked havoc on Hawaiian agriculture since the species was introduced to the island in 1946. According to the California Department of Food and Agriculture, failure to eradicate Oriental Fruit Flies in California could cost the state up to $176 million in crop losses, pesticide use and quarantine requirements.

Bombino Express Worldwide appears to be part of a large network of companies that import various products including fruit, spices and other products from India and Southeast Asia.

California’s First Amended Complaint was filed on July 9, 2008 and was served on Mohmed Yasin Latiwala July 15, 2008 in New Jersey. Latiwala was served with the lawsuit in his individual capacity as CEO and on behalf of Bombino Express, Inc., Bombino Express (Worldwide) Inc. The lawsuit was also served on the California office of Bombino Express in Hawthorne.

A copy of the state’s lawsuit is available from the attorney general's press office at: 916-324-5500. For more information from the California Department of Food and Agriculture visit: http://www.cdfa.ca.gov/exec/Public_Affairs/Index.html

SACRAMENTO--California Attorney General Edmund G. Brown Jr. today announced a $150,000 settlement for aspiring homeowners who had their entire down payments unlawfully seized by Lease2OwnHomes for missing rent on a lease-to-own agreement.

"We have obtained restitution for renters who were ripped off by an unscrupulous landlord who illegally seized down payments that were part of a lease-to-own home scam,' Attorney General Brown said.

Under California law, if a renter misses a monthly payment in a lease-to-own program, the landlord may only seek eviction and unpaid rent. In this case, the landlord unlawfully seized the entire down payment for the purchase of the home in addition to seeking the eviction and unpaid rent. In April, the attorney general sued the company in Sacramento County Superior Court, for allegedly violating section 17500 of the Business and Professions Code, by:

* Providing a lease and option to purchase agreement when the company knew that consumers were not financially capable of meeting monthly payments required to successfully purchase a home. The company also sometimes ignored its own $70,000 minimum annual income requirement for consumers participating in the program

* Falsely claiming that consumers would have time to clean up any bad credit before purchasing their Lease2OwnHome

* Falsely claiming a “Over 96% Success Rate” in helping consumers purchase homes, when virtually no one was able to purchase a home as they described

Lease2OwnHomes knew that many of the renters who signed up for homeownership would never be able to afford the monthly payments. In one case, Lease2OwnHomes sold a large house in Stockton to a divorced mother of four who was unemployed and attending school part time. After the woman missed a $1,650 monthly payment, the landlord seized her entire $9,000 deposit on the house in addition to seeking eviction.

The company told consumers that “Bad credit is OK because you will have time to clean up any credit issues like bankruptcy, chargeoffs, low credit scores, and foreclosures before purchasing your Lease2OwnHome.” The company also promised to assist with credit repair although the company was not properly registered as a credit repair company.

The attorney general is currently aware of at least 75 renters in Sacramento and San Joaquin County who signed up for the program. Company president Quentin Hazell, claimed to work exclusively with the market of “untapped future home buyers” who were within a year or two of purchasing homes but who needed “extra time to get financing in place, improve credit or save for a larger down payment.”

Under the settlement approved today by the Sacramento Superior Court, the company must pay $300,000 in civil penalties if they do not provide consumers with $150,000 in refunds for the down payments they seized.

Consumers who have filed a complaint with the Attorney General’s Office or who file a complaint on or before September 15, 2008 may be eligible for a partial refund. Consumers should file a complaint in writing to the Attorney General’s Office Public Inquiry Unit, PO Box 944255, Sacramento, CA 94244-2550 or send an online complaint to piu@doj.ca.gov.

For a copy of the settlement agreement and the state’s original lawsuit please contact the press office at (916) 324-5500.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today disclosed “shocking new details” about Countrywide Financial’s deceptive business practices which included ignoring their own underwriting guidelines and rewarding employees for selling risky home loans.

"These shocking new details provide further evidence of Countrywide's dangerous lending practices, which included ignoring borrowers' low credit scores and rewarding employees for selling risky loans,' Attorney General Brown said. 'In one case the company approved an adjustable rate mortgage to an 85-year-old disabled veteran with such a low credit score and high debt that he defaulted in less than six months.'

On June 20, 2008 Attorney General Brown sued Countrywide for engaging in deceptive advertising and unfair competition by pushing homeowners into risky loans for the sole purpose of reselling the mortgages on the secondary market. Today Brown filed an amended lawsuit in Los Angeles Superior Court which reveals twenty new details about the company's scheme to deceive consumers into taking out dangerous mortgages. The information had been previously withheld from the complaint.

Some of the new information includes the fact that Countrywide’s wholesale lending officers received higher commissions for selling Pay Option Adjustable Rate Mortgages--loans that entice consumers with a very low initial 'teaser' rate--and loans with weak underwriting standards. Countrywide also paid higher commissions for putting borrowers into loans with higher rates and fees than they qualified for based upon credit scores and other factors.

Countrywide ignored factors that it identified as having negative impacts on underwriting including: high debt ratios, low credit scores, and minimal down payments. Company employees regularly overrode warnings from Countrywide's computerized underwriting system, known as CLUES, which issued loan analysis reports rating consumer credit, purported ability to repay, and whether a proposed loan complied with underwriting guidelines.

The following examples describe new details about how Countrywide granted exceptions to sound business practices. These examples represent a small percentage of the large number of California residents who are facing foreclosure due to Countrywide’s dangerous practices:

• A Countrywide loan officer convinced a borrower to take a Pay Option ARM with a 1-month teaser rate and a 3-year prepayment penalty plus a full-draw piggyback home equity line of credit based on the loan officer’s representation that the value of the borrower’s home would continue to rise and he would have no problem refinancing. The borrower’s debt-to-income ratio was 47 percent and credit score was 663. The loan officer offered the loan even though the company’s CLUES report and an underwriter review indicated strong doubts about the borrower’s ability to repay. The loan closed in January 2006, and a Notice of Default issued in June 2007.

• The CLUES report issued for a loan applicant in February 2005 stated that the consumer had too much debt for the loan program and identified other elements of risk including a low credit score. The CLUES report raised doubts about the borrower’s ability to repay the loan but Countrywide approved a 3/27 adjustable rate mortgage with a 3-year prepayment penalty, to an 85-year old disabled veteran with a credit score of 509 score and an debt-to-income ratio of nearly 60 percent. The loan closed in February 2005, and a Notice of Default issued in July 2005.

• The CLUES report for a proposed loan identified multiple risks that created doubts about the borrower’s ability to make the payments, including the fact that a borrower had an open collection account. In January 2006, however, Countrywide granted exceptions for these risks and approved a reduced documentation Pay Option Adjustable Rate Mortgage loan for $352,000 with a 3-month teaser rate and a 3-year prepayment penalty, as well as a Piggyback home equity line of credit for $22,000. The loan closed in January 2006, and a Notice of Default issued in October 2006.

Many borrowers who obtained Pay Option and Hybrid ARMs did not understand that their initial monthly payment would at some point 'explode,' that their initial interest rate would increase and become adjustable, or that the principal amount of their loans could actually increase. Countrywide received numerous complaints regarding these practices from borrowers, including over 3,000 complaints per year handled by the Office of the President between January 2005 and August 2007.

Countrywide gave branch managers commissions or bonuses based on the net profits and loan volume generated by each branching, thereby creating intense pressure to sell as many loans as possible, as quickly as possible, at the highest prices possible. Branch managers were rewarded for meeting production goals set by corporate management, increasing the number of loans sold per loan officer, and reducing the time periods between the loan application stage and funding--or penalized for failing to do so.

Today’s amended lawsuit also contains updated data about Countrywide's staggering foreclosure rates. As of April this year, 21.11% of the mortgages owned by Countrywide Home Loans were in some stage of delinquency or foreclosure, including 47.97% of originated non-prime loans, and 21.23% of Pay Option ARMs. In January and March, 2008, Countrywide recorded 3,175 notices of default in Alameda, Fresno, Riverside, and San Diego counties alone, representing an aggregate total of delinquent principal and interest of more than $917 million.

The state's amended complaint is attached. For more information about California’s lawsuit against Countrywide please visit: http://ag.ca.gov/newsalerts/release.php?id=1582&

LOS ANGELES--Attorney General Edmund G. Brown Jr. today announced that California will receive $23 million of a $515 million nationwide settlement with Bristol-Myers Squibb. The settlement resolves allegations that the company reported “grossly inflated” drug wholesale prices to California’s Medicaid program in an effort to maintain its market share of prescription drugs.

“The Medi-Cal system requires companies to accurately report drug prices to the state,” Attorney General Brown said. “Bristol Myers-Squibb grossly inflated its reported drug prices and then used the artificially high price to increase its market share. The Bureau of Medi-Cal Fraud and Elder Abuse will continue to investigate and prosecute any alleged fraudulent conduct by any health care provider whose services or products are paid for by Medi-Cal,” Brown added.

The settlement agreement follows a drug-price investigation into Bristol Myers-Squibb and former subsidiary Apothecon that was launched in 2001 by California, the federal government, and other state attorneys general. The investigation was triggered by various whistle blower lawsuits filed around the United States. During the inquiry, Bristol Myers-Squibb voluntarily disclosed potential violations of state and federal anti-kick back law.

California found evidence of violations including: reporting artificially high average wholesale prices for prescription drugs to shut out competitors, organizing kickback schemes to lure pharmacies and wholesalers, illegally marketing an adult anti-psychotic drug as a treatment for children, and hiding the lowest sale price for Serzone to underpay Medicaid. Details of those allegations include:

* Reporting inflated average wholesale prices for physician-administered drugs:

The average wholesale prices for drugs were substantially higher than the prices for which the company sold these products, a scheme designed to maintain market share in the face of competing generic alternative drugs. The company’s sales force would “market the spread” or sell drugs based on the profit margin between the reported average price, which is the basis for Medicare and Medicaid reimbursement, and the actual costs for the same drugs, which were dramatically less than the reported price.

Medi-Cal, which is California’s Medicaid program, reimburses pharmacies and doctors based on prices reported by pharmaceutical manufacturers whose drugs are dispensed to beneficiaries. Because government health insurance programs such as Medi-Cal rely on reported prices to set reimbursement amounts, the company’s conduct caused the state to overpay for drugs.

* Engaging in an array of kickback activities to enhance their market share:

The investigation revealed that Apothecon paid millions of dollars to lure pharmacies and wholesalers to switch from competitors’ generic drugs to the company’s generic products. The payments to doctors included physician consulting programs consisting of trips to luxury resorts, meals at expensive restaurants, and tickets to sports events where doctors allegedly listened to pharmaceutical sales pitches. The kickback schemes targeted payments to doctors to keep generic competitors out of the market.

* Illegally marketing its atypical antipsychotic drug Abilify:

The Food and Drug Administration approved Abilify in November 2002 for the treatment of adult schizophrenia and later for adult bi-polar disorder. The investigation revealed that the company promoted the drug for treatment of children and dementia-related psychosis when neither use was approved by the FDA. This off-label promotion scheme increased the company’s sales between 2002 and 2005.

* Concealing its best price to the U.S. Centers for Medicare and Medicaid Management:

Bristol Myers-Squibb allegedly concealed its best price from the federal Centers for Medicare and Medicaid Management in a private-labeling scheme for its drug Serzone. The federal government uses best price to determine the amount of Medicaid rebates owed to states. The company allegedly affixed Kaiser labels to its Serzone and shipped the drugs at a lower price than was sold to any other customer. The company did not include this low price in its calculations reported to the federal government for Medicaid rebate purposes, thereby underpaying rebates owed to California.

The $23 million settlement with Bristol-Myers Squibb will pay approximately $12 million in full restitution to Medi-Cal and $11 million for the state’s False Claims Fund. The state’s lawsuit was filed in San Diego Superior Court in 2003 and then removed to the federal central district court in Los Angeles. Later it was consolidated with a number of other state lawsuits in federal court in Boston.

To date, California has reached settlements worth $9.7 million with five other companies, and their corporate parents, resolving similar allegations. Claims against fifteen companies are still pending.

For copies of the state's settlement and original lawsuit please contact the Attorney General's Press Office at 916-324-5500.