Debt Relief Scam Ended as the FTC Takes Action Against Stephen Todd Cook

The FTC wasn't kidding around when it enacted new rules aimed at cracking down on debt relief scams. The new rules took effect October 27 and already they have yielded some results. More specifically, the FTC has gone after an allegedly unscrupulous operator by the name of Stephen Todd Cook -- a man who appears to be making a very good living off of the misery and financial distress of others. Here are the sordid details of what Stephen Todd Cook has allegedly been up to:

According to the FTC’s complaint, an operation that did business under the names 800 Credit Card Debt and Debt.com deceptively claimed they would eliminate or reduce consumers’ debts quickly and put an end to calls from debt collectors. In ads that ran nationally, they used statements such as, “We’re 800 Credit Card Debt, America’s leader in helping settle debt . . . [W]e have programs available to help you eliminate your debt by up to 60%.” The ads allegedly featured phony testimonials from people posing as the defendants’ customers.

The complaint also alleges that the defendants falsely claimed they provided the debt settlement services they advertised. In some cases, they also claimed their services were part of a public, non-commercial program, through statements such as, “The following is a public announcement . . . Americans who are behind on their credit card payments must take action immediately. If YOU have ten thousand dollars or more in credit card debt, a new relief program is now available. . .”

In reality, the defendants had no substantiation for their debt elimination or reduction claims, and did not provide debt settlement services, according to the FTC’s complaint. Instead, the FTC alleged, they merely sold the sales leads generated by their ads to debt settlement providers, or to other lead generators or lead brokers that re-sold them. The complaint alleges that the defendants had no information about whether the companies that bought the leads could fulfill the promises the defendants made in their ads. In fact, the FTC charged that because many of their leads were sold to other lead generators and lead brokers, the defendants typically did not even know the identity of the debt settlement providers that ultimately purchased the leads.

The defendants are Debt.com Marketing, LLC; Media Choice, LLC; 800 Credit Card Debt, LLC; and Stephen Todd Cook. The settlement order imposes a $28.2 million judgment that will be suspended when the defendants surrender all funds in their corporate bank accounts, as well as the proceeds from the sale of Cook’s two properties in California, his real estate in the Virgin Islands, and his ownership interests in two overseas investment funds. The full judgment will be imposed immediately if the defendants have misrepresented their financial condition.

Stephen Todd Cook is being hit hard by regulators here, with a substantial financial penalty. But will that really stop him from resurfacing later with some other scam? Maybe not. According to blogger Steve Rhode "it appears Cook has a long standing involvement in the debt relief world and it goes way back to Ameridebt and Infinity Resources Group, both of which were previously shutdown by regulators. In fact it looks like the debt relief trio of Tim McCallan, Andris Pukke, and Stephen Todd Cook all went to Harborfields High School in Greenlawn, NY around the same time."

You can dig into the convoluted connections between these men by taking a look at legal documents posted on Rhode's site.

Let's just hope that Stephen Todd Cook is not as persistent in ripping off consumers as his pal Andris Pukke. When Pukke went on civil trial for the huge abuses of AmeriDebt, the Washington Post reported on his shady past:

The FTC said its lawsuit "represents Andris Pukke's 'third strike.' " In 1996, he pleaded guilty in Pittsburgh to a federal charge of trying to defraud consumers by falsely promising debt-consolidation loans. The U.S. attorney said Pukke collected more than $38,000 in what the U.S. attorney's office called a "sham" lending operation. Pukke agreed to refund the money and not engage in any advance-fee-for-loan operation in the future. He was sentenced to three years of probation and fined $5,000.

In 1999, the District of Columbia sued AmeriDebt, Pukke and another of his firms -- Infinity Resources Group Inc. -- charging deceptive practices in promising but not delivering debt-consolidation loans. The suit was settled in May 2002; the defendants agreed to make refunds without admitting wrongdoing.

Are New Rules To Stop Debt Relief Tough Enough? No.

New rules went into effect October 27 that aim to protect consumers from companies engaged in abusive, deceptive, and exploitative debt relief activities. But the rules are too narrow in scope to offer all the protection that the should. The rules take the form of amendments to the Telemarketing Sales Rule, or TSR.

"Too many of these companies pick the last dollar out of consumers' pockets, and far from leaving them better off, push them deeper into debt, even bankruptcy," said Jon Leibowitz, chairman of the Federal Trade Commission, in a statement describing the new rules. As explained by MarketWatch,

The rules call for debt-relief companies to make specific disclosures to consumers about what will happen, what it will cost, how long it might take and what kind of results to expect, including any negative consequences.

The regulations, which extend the TSR rules to cover calls consumers make to firms in response to debt-relief ads, also will ban companies from misrepresenting what they can do.

The most significant change outlaws for-profit companies that sell debt-relief services over the telephone from charging fees before they settle or reduce credit-card or other unsecured debt.

The ban on up front fees will prevent the abuse that is core to the debt relief business -- taking people's money and then not doing anything to help them.

But the problem with the new rules is that they only cover activities that conducted over the phone, since the rules are appended to the TSR. They don't also extend to debt relief scams that operate over the Internet or through face-to-face solicitations.

Another challenge is the sheer size of the debt relief business. As MarketWatch reports: "In 2002, for example, there were only eight debt-relief companies in the business. Today there are at least 2,000, and they're managing a total of about $20 billion in credit-card and other unsecured debt, according to the Association of Settlement Companies, a trade organization."

The Better Business Bureau has reported logging a huge number of calls about debt relief scams from all 50 states. Commenting recently on the new rules, the BBB stated:

Since the start of the recession in December of 2007, the Better Business Bureau has received more than 6,000 complaints from consumers about debt relief or debt settlement companies. Typically, complainants say they were charged large up-front fees in exchange for the empty promise that the company would significantly reduce or eliminate their debt.

“The debt relief industry has flourished in the current economy and you can bet that many unscrupulous companies are feverishly trying to figure out ways to get around the new laws, such as relying less on telephones to solicit new customers,” said Alison Southwick, BBB spokesperson. “While these new rules provide effective new protections, consumers still need to be on the lookout for deceptive debt relief services.”