On November 15, 2017, the U.S. Attorney for the Southern District of New York (“USAO”) announced that a jury has convicted the owner of an alleged fraudulent lending scheme (the “Defendant”) for one count of conspiracy to collect unlawful debts in violation of the Racketeer Influenced Corrupt Organizations Act (“RICO”); one count of collecting unlawful debts in violation of RICO; one count of conspiracy to commit wire fraud; one count of wire fraud; one count of aggravated identity theft; and one count of violating the Truth in Lending Act (“TILA”). The Defendant was convicted following a two-and-a-half week jury trial in the Southern District of New York.
At trial, the USAO presented evidence that the Defendant and his company would provide payday loans over the internet to hundreds of thousands of customers. These loans were alleged to target financially struggling individuals with misleading communications and contained interest rates of more than 700 percent. Part of this lending scheme, according to the USAO, was that these payday loans would automatically renew each bi-weekly period, automatically withdrawing the interest payment but leaving the principal amount untouched, thereby causing borrowers to repay interest charges with each paycheck without paying down the loan. The scheme was also alleged to have extended loans and automatically withdrawn payments from consumers who never approved their loans, but had only been seeking further information. The USAO alleged that these operations generated over $200 million in revenue.
Hundreds of consumers were alleged to have lodged complaints with various state regulatory bodies and consumer protective groups. But, according to the USAO, in an attempt to avoid liability the Defendant created a sham appearance that the lending scheme was located outside of the United States, and therefore outside of the jurisdiction of these regulatory bodies. In furtherance of this scheme, the Defendant allegedly misled his outside counsel to represent to regulators and in court that the entirety of the lending operation was located in Nevis or in New Zealand, causing many regulators to close their investigations. The USAO presented evidence that in actuality and unbeknownst to the Defendant’s legal counsel, the entirety of the operation was run out of a facility in Kansas City, Missouri.
The Defendant’s sentencing hearing is scheduled for April 2018. He faces maximum statutory sentences of 20 years’ incarceration for each of the RICO and wire fraud counts of conviction. The count of aggravated identity theft carries a maximum penalty of two years’ incarceration, and the TILA count, one year.