OCCU Alleges 'Pattern of Racketeering' In Auto Scam

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Orange County's Credit Union has filed a lawsuit against numerous defendants alleging a "pattern of racketeering activity" involving more than 180 motor vehicles. The suit claims the CU suffered $285,000 in losses from six fraudulent auto loans.

According to the complaint, a copy of which was provided to The Credit Union Journal by Orange County's CU, more than 20 credit unions and banks in the county have been defrauded by a intricately planned, far-reaching "vehicle ring" that has been operating since January 2000.

The suit alleges several defendants operate a business known as the "Duty Free Auto Club" in Costa Mesa, Calif. These defendants allegedly conspired with several "Straw Buyer Defendants"-described as persons with the appearance of good credit-to defraud financial institutions by applying for motor vehicle loans.

How Scam Allegedly Operated

To ensure the straw buyer defendants qualified for these loans, the suit alleges the operators of the Duty Free Auto Club, or the "Duty Free Defendants," supplied bogus income and employment verification. In some cases, the salary of the straw buyer loan applicants was exaggerated three to 10 times higher than the person's actual salary, OCCU alleges.

The straw buyers allegedly purchased multiple expensive motor vehicles on the same day, or within the same week, so prospective lenders could not be informed by credit reporting agencies the number of commitments each individual was taking on. These sales were carried out with the alleged cooperation of "Dealer Defendants," who delivered the vehicles not to the purported buyer, but to the showroom or warehouse facility of the duty free defendants.

Once the vehicles were in possession of the duty free defendants, those defendants allegedly obtained duplicate certificates of title for the vehicles with the help of "DMV Defendants." In addition, the suit alleges, the Duty Free Defendants conspired with "Insurance Defendants" to provide false insurance information to the motor vehicle lenders, including OCCU, "leading them to believe that their motor vehicle collateral is protected..."

For a short period of time, the duty free defendants allegedly made loan payments on behalf of the straw buyer defendants to the motor vehicle lenders, including OCCU. At the same time, though, the duty free defendants allegedly sold, leased, loaned or rented the vehicles to "End User Defendants," despite the fact the autos were the alleged property of the financial institutions issuing the loans.

In some instances, these end user defendants also are victims, the suit alleges. Some end user defendants made payments to the duty free defendants under the mistaken belief they eventually would become the legal owners of these vehicles. However, in other cases, the suit alleges some end user defendants were aware of the fraudulent nature of the transactions, yet willingly participated because they planned to use the automobiles for "illegal purposes knowing that it cannot be traced back to (them)."

Barry Smith, attorney for the law firm of Buchalter, Nemer, Fields & Younger and counsel for OCCU, said the scope of this case continues to broaden as more financial institutions become aware of the existence of the vehicle ring.

"Credit unions hear about this and call me because they realize they have loans to these people, too. There are more than 20 credit unions and banks involved right now, so we are sharing information," said Smith. "The district attorney is investigating, as is the DMV."

OCCU began to uncover the ring when it noticed a pattern with several defaulted auto loans, Smith said. When representatives of the CU attempted to place courtesy calls after loan payments were missed, they noticed the contact number for several different loans was the same. "The payments for a number of loans were all coming from the same company," he explained.

'Dealers Should Be Investigated'

Smith said OCCU has several possible ways to recover its losses from the loans. One avenue is going after the assets of the operators of Duty Free Auto Club, which still is in business, he said. Another is going after the auto dealers who sold the cars to the Straw Buyer Defendants.

"If someone walks into a dealer and says he wants to buy 10 cars, you might think it's your lucky day, or you can look into it. Some of these dealers should have investigated," he said.

The lawsuit was filed Sept. 9 in Orange County Superior Court. Smith said a hearing will be held Nov. 6 on OCCU's request for an order allowing it to take possession of the cars it says are collateral for loans.

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