Alabama Attorney General Troy King's office and the Alabama Securities Commission announced this week the permanent shutdown of what they call one of the largest debt settlement schemes in the nation.
King's office filed a lawsuit seven months ago against Keith Anderson Nelms, a Prattville, Ala. attorney, and his companies, Allegro Law LLC and Allegro Financial Services LLC, seeking to stop "deceptive and illegal activities." Autauga County (Ala.) Circuit Judge Ben Fuller, reviewed the allegations and subsequently agreed the companies violated the state's Deceptive Trade Practices Act and the Sale of Checks Act. Specifically, Fuller determined they were not licensed to do business in the state, did not reduce debts for clients and falsely represented services offered. The ruling bans Allegro and Nelms from operating a debt settlement or debt management business in Alabama.
An estimated $12 million in assets will be held for approximately 15,000 Allegro customers nationwide. Consumers sent monthly payments to Allegro which they believed would be used to pay their debts, but which were instead used to pay Allegro's massive upfront fees. "It was deceptively unclear to Allegro consumers that Allegro Law would collect its fees in full before any funds were used to pay creditors," according to the court, which also found that Allegro engaged in deceptive trade practices by representing that it was providing customers with legal services. In fact Allegro simply referred the cases to be handled by a third party that was not a law firm but which represented itself to clients as if it were.
Nelms had advertised that debt payment services offered through a business run by an attorney would provide superior results and would be handled in a more ethical and professional manner than debt payment services offered by a business not operated by an attorney. The court's order, however, states, "defendant's debt settlement program failed to reduce consumers' debt in most cases, negatively affected consumers' credit ratings and subjected customers to increased lawsuits and collection activities by creditors."
"Now the Court has put an end to Allegro Law's illegal operation, and has stopped it from continuing to exploit the clients it purported to serve," said King. "People who were in desperate circumstances came to Allegro for help, and instead they suffered greater harm. With this ruling, Allegro will not be allowed to cause further damage, and steps are being taken to restore as much money as possible to the victims whose trust was betrayed. My office will not permit any person or business to operate massive scams within our state."
The $12 million in assets have been in the care of a receiver appointed to ensure that the funds are handled appropriately. The distribution and scheduling of refunds will be determined later and clients will be contacted by the receiver, Louis Colley, or can contact him at Allegrolawreceivership.com.
Nelms already pleaded guilty to violating several Alabama Bar Association rules of professional conduct and was suspended from practicing law in the state.
Joseph Borg, director of the Alabama Securities Commission said, "This action continues our determination to enforce compliance with the law in the debt management industry. With the continuing financial crisis affecting Alabama citizens, those who have credit issues must carefully investigate and understand the debt management solutions being offered. Before [entering] into a contract with a debt resolution company, check their license with the Alabama Securities Commission's Registration Office to make sure they are licensed as required under Alabama law."
In other recent legal action against debt settlement companies, Minnesota Attorney General Lori Swanson filed lawsuits last week against six companies, alleging they violated a state law that requires them to be licensed in Minnesota and cap the fees they can charge, Minnesota AG Sues Six Debt Settlement Companies, Feb. 19. A week earlier, Illinois Attorney General Lisa Madigan filed four lawsuits against seven debt settlement firms, Illinois AG Sues Debt Settlement Firms, Executives, Feb. 10.
Alabama Laws Defined
Under the Sale of Checks Act, any person engaging in a debt payment services business must obtain a license from the Commission prior to conducting business in Alabama. The defendants operated in violation of the law by failing to obtain a license as required by the Sale of Checks Act before engaging in the debt payment services business nationwide from their Alabama office.
The Alabama Deceptive Trade Practices Act is designed to protect consumers by prohibiting business from committing a variety of deceptive practices including engaging in any "unconscionable, false, misleading, or deceptive act or practice in the conduct of trade or commerce."
Defendants were found to have violated the Deceptive Trade Practices Act by engaging in various deceptive business practices, including making false, misleading, and deceptive representations to consumers.