STATE OF MINNESOTA COUNTY OF HENNEPIN

DISTRICT COURT FOURTH JUDICIAL DISTRICT Case Type: Other Civil

State of Minnesota by its Attorney General, Lori Swanson, Plaintiff, vs. United Credit Recovery, LLC, Defendant.

Court File No. ____________________

COMPLAINT

The State of Minnesota by its Attorney General, Lori Swanson, for its Complaint against Defendant United Credit Recovery, LLC (UCR), alleges as follows: INTRODUCTION 1. UCR is a Florida debt buyer that purchases overdraft debt from large banks.

Overdraft debt consists of charged-off fees and principal that bank customers allegedly owe on overdrawn checking or savings accounts. UCR buys from the banks electronic portfolios with limited account information about tens of thousands of individuals and small businesses that allegedly owe these charged-off fees and balances. On a mass scale, UCR created computergenerated cut and pasted affidavitsbearing the logos of different banks and the purported notarized signature of a bank officialto supposedly substantiate that particular individual customers owe a particular amount of money. The affidavits, however, were not individually signed by the bank officers; rather, UCR cut and pasted their signatures and a notarys signature into a computer affidavit template to make individual affidavits for each consumer. In some cases, UCR used the cut and pasted affidavits to collect money from, and to get courts to

award judgments against, individual consumers. More frequently, UCR transferred the false affidavits to other debt buyers to which it resold the portfolios, which also used the false affidavits to collect money from consumers, both directly and through court judgments. The State of Minnesota, by its Attorney General, brings this government enforcement action to remedy this abuse of legal process and to hold UCR accountable for its deceptive conduct. PARTIES 2. Lori Swanson, the Attorney General of the State of Minnesota, is authorized

under Minn. Stat. Ch. 8, including Minn. Stat. 8.01 and 8.31 (2012), and under Minn. Stat. 325D.44 (2012), and has common law authority, to bring this action. 3. UCR is a Delaware limited liability company with its principal place of business

in Sanford, Florida. UCRs sole managing member and owner is Leonard G. Potillo. In its Certificate of Formation filed in Delaware in November of 2007, UCR listed its manager as Edward Thompson. UCRs March 2009 application to do business as a foreign limited liability company in Florida lists Steven Burks and Edward Thompson as its managing members. Mr. Potillo has testified under oath that neither Burks nor Thompson are real people but are simply pseudonyms he sometimes uses for himself. UCR later amended its Florida registration to remove Burks and Thompson as managers and to list Mr. Potillo as its sole manager. JURISDICTION AND VENUE 4. Pursuant to Minn. Stat. 8.01, 8.31, and 325D.44, this Court has jurisdiction

over the subject matter of this action. 5. This Court has personal jurisdiction over UCR through its business in Minnesota.

UCR does business in Minnesota and has committed acts causing injury to Minnesota citizens.

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Venue in Hennepin County is proper under Minn. Stat. 542.09 (2012) because

the cause of action arose, in part, in Hennepin County. FACTUAL BACKGROUND I. UCR PURCHASED ELECTRONIC PORTFOLIOS OF OVERDRAFT DEBT FOR PENNIES ON THE DOLLAR FROM LARGE NATIONAL BANKS. 7. UCR calls itself the nations largest buyer of overdraft debt from banks.

Overdraft debt is money allegedly owed by individuals or businesses for fees and/or principal on overdrawn checking or savings accounts. This debt is sometimes called demand deposit account, or DDA, debt, because it arises from fees and overdrawn balances on accounts in which a consumer may withdraw money without notice. When a bank customer presents a check or makes a debit card purchase or withdrawal for which there are not sufficient funds in the account, the bank may process the check or cover the purchase or withdrawal and then impose hefty fees, often called overdraft fees. Banks may also decline to process a transaction and charge not sufficient fund, or NSF, fees. In 2010, the average fee for covering an overdraft (e.g., so-called overdraft fees) was $35, and the average fee for a declined transaction without sufficient funds in the account (e.g., so-called NSF fees) was $35, according to a 2011 study published by the Pew Health Group entitled Hidden Risks: The Case for Safe and Transparent Checking Accounts. Banks also often impose a smaller daily or periodic fee for each period in which the checking or savings account remains in arrears. Because these fees typically continue to accrue while the account is in arrears, the amount of the fees can quickly balloon. 8. Banks usually charge off overdrawn account balances and related fees after

passage of a certain amount of time and close the bank account. Some banks then bundle thousands of charged-off accounts into large electronic portfolios of other similar accounts and

sell them to debt buyers for pennies on the dollar. UCR has purchased billions of dollars of such debt from banks since its inception in 2007. 9. UCR has purchased overdraft debt from a number of banks, including Wells

Fargo, US Bank, Bank of America, Fifth Third Bank, and Huntington National Bank. The overdraft debt purchased by UCR includes money allegedly owed by individuals or businesses for overdraft fees as well as principal. In many cases, the fees may comprise the majority or a significant portion of the amount allegedly owed. 10. UCR purchased overdraft debt from US Bank between 2007 and 2011. UCR paid

US Bank approximately $31 million for overdraft debt with an estimated face value of more than $820 million, or less than four cents on the dollar. UCR purchased at least 11 different portfolios of debt from US Bank during that time period, with its first purchase on or about December 7, 2007 and its last purchase on or about July 25, 2011. 11. UCR purchased overdraft debt from Wells Fargo between 2010 and 2012. UCR

paid Wells Fargo approximately $19 million for overdraft debt with an estimated face value of more than $700 million, or less than three cents on the dollar. UCR purchased at least 24 different portfolios of debt from Wells Fargo during this time period, with its first purchase on or about January 6, 2010 and its last purchase on or about January 30, 2012. 12. When UCR purchased overdraft debt from a particular bank, UCR and the bank

entered into a debt purchase agreement. UCR signed some of these debt purchase agreements through its supposed managers, Edward Thompson or Steven Burks. As noted above, Mr. Potillo has testified that neither Thompson nor Burks are real people, but rather are aliases used by him.

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UCRs debt purchase agreements with the banks typically allow it to pay

additional money to obtain substantiation that a particular consumer owes the debt. For example, UCRs standard purchase agreement with Wells Fargo allows UCR to pay $5 per request to obtain original documents pertaining to a particular consumer. UCRs standard purchase

agreement with US Bank allows UCR to request bank statements, signature cards, and terms and conditions disclosures for a customer account for a fee of $10 per account itemization requested. 14. UCR typically does not exercise its right to purchase individual underlying

original account documentssuch as individual account statements, contracts, etc.from banks to substantiate that an alleged overdraft debt is owed by a particular customer. UCRs owner, Mr. Potillo, has testified that it would be too costly for UCR to purchase this information on a regular basis. Instead, UCR purchases electronic portfolios with limited information, such as the names and balances of people who allegedly owe money to the bank for overdrafts. II. UCR CREATED FALSE AND FRAUDULENT CUT AND PASTED AFFIDAVITS TO LEVERAGE PAYMENTS FROM CONSUMERS, OBTAIN JUDGMENTS FROM COURTS, AND INCREASE THE VALUE OF OVERDRAFT DEBT PORTFOLIOS ON RESALE TO OTHER DEBT BUYERS. 15. UCR has electronically created on a mass scale false affidavits that appear to have

been signed by officers of the original banks and notarized by bank employees, and that bear the logos of the banks. In fact, these affidavits were created using computer software that simply pasted in a bank officers prior signature and notarization from other documents. In some cases, UCR presented these affidavits to consumers and to courts to aid in its collection of money. More frequently, it transferred the false affidavits to other debt buyers to which it resold the debt. 16. UCR regularly created cut and pasted affidavitswhich it called Affidavits of

Correctness/Assignmentto appear as if a vice president of the original bank personally reviewed the individual account, verified that the alleged debt is due and owing by the particular 5

consumer in the amount listed, and then individually signed that affidavit before a notary, swearing under oath that the statements in the affidavit are the true testimony of the bank officer whose signature appears on the affidavit. The false affidavits, however, were not actually signed by a bank vice president before a notary. Rather, UCR generated thousands of false affidavits at a time through a computer mail merge program. 17. UCR used the electronic spreadsheets it purchased from the banks as the data

source for its computer-generated affidavits. UCRs boilerplate template for its Affidavits of Correctness/Assignment contains an image of a bank logo in the upper left hand corner, followed by a description of the portfolio UCR purchased to obtain the particular overdraft debt attested to in the affidavit, followed by five merge fields of account information: (a) Account Number, (b) Borrower Name, (c) Open Date, (d) Charge Off Date, and (e) Gross Balance. UCRs affidavit template also contains an image of a bank vice presidents signature and a notarization. UCR imports the data from the banks electronic spreadsheets into the five merge fields in the affidavit template, creating thousands of computer-generated individual affidavits at a time with the press of a button. 18. UCRs owner and sole managing member, Mr. Potillo, admitted in sworn

testimony that UCR creates mail-merged affidavits and that it provides these false affidavits for the accounts it resells to other debt buyers. Mr. Potillo testified as follows: Q: A: Q: Okay. Youre familiar with the term affidavits of correctness, arent you? Yes, I am. And in fact, it is true, isnt it, that in relation to each and every portfolio UCR sells to third parties they provide an affidavit of correctness from US Bank relative to each of the individual accounts within that portfolio? United Credit Recovery provides a mail merged document of an affidavit of correctness. 6

A:

.... Q: All right. And with regard to when UCR provides these affidavits, they in fact provided these affidavits to each and every third party purchaser of debt relative to each and every one of the thousands of accounts that are purchased, correct? We provide the mail merge information of the affidavit, yes.

A: .... Q: A: .... Q:

It uses a mail merge program to accomplish that function? United Credit Recovery provides a mail merge function . . . .

So the affidavits that you provided, the 24,000 affidavits that you provided to [particular debt buyer] relative to the portfolios it purchased from UCR for $1.1 million, none of them, not one, was authentic, was it? No. Theyre not real affidavits. They are a mail merge document. Attached as Exhibit A are examples of computer-generated affidavits created by

A: 19.

UCR to falsely appear as though they were individually signed in person by a US Bank Assistant Vice President. All affidavits in Exhibit A bear exactly the same signature block image and notary signature. The notarized signature and the notarization were simply digitally imported into a mail-merge document. affidavits created by UCR. 20. The Minnesota Attorney Generals Office took the deposition of US Bank in US Banks Senior Vice The affidavits are among thousands of computer-generated

September of 2013 in connection with its investigation of UCR.

President, Jacob vanBrandwijk, testified that US Bank does not approve of or condone the use or existence of the computer-generated affidavits bearing its logo. He testified as follows: Q: [I]s the bank aware . . . of UCR creating affidavits of correctness in support of DDA debt purporting to verify DDA debt with images of notarized signatures of bank employees that did not, in fact, sign those affidavits? 7

A:

I am aware of documents that bear images of signatures and notary affirmations that dont appear to be documents that we produced. I dont know where or how or what they were produced from, but I know that theyre not correct.

.... Q: And did US Bank ever give permission to anyone outside the bank to create affidavits bearing images of a US Bank employees notarized signature purporting to verify DDA debts? No. Thats a categorical answer.

A: .... Q: A: Q:

It didnt give permission for others to create affidavits with its employees notarized signatures, true? Thats absolutely true. And upon becoming aware of the existence of such affidavits bearing notarized signatures of bank employees that did not, in fact, sign those affidavits, the bank doesnt approve of the existence or use of those affidavits currently, does it? Absolutely not. US Bank testified that it stopped selling overdraft debt arising out of demand

A: 21.

deposit bank accounts in 2012 because of compliance and reputational concerns relating to the sale of such debt. 22. Attached as Exhibit B to this Complaint are copies of similar computer-generated

cut and pasted affidavits created by UCR to appear as though they were individually signed in person by a vice president of Wells Fargo. The vice presidents notarized signature was

reproduced from another document and is identical on all of the affidavits. 23. The Minnesota Attorney Generals Office took the deposition of Wells Fargo in Wells Fargos Collection

October of 2013 in connection with its investigation of UCR. Manager, Marcus OSullivan, testified as follows:

Q:

And Wells Fargo didnt give UCR permission to create affidavits borrowing scanned images of Wells Fargo employees purportedly attesting to overdraft debts UCR purchased from Wells Fargo, did it? No, never. Wells Fargo testified that it stopped selling overdraft debt in 2012 because from

A: 24.

a risk and customer experience perspective, we did not think it was the best approach. Wells Fargo filed suit against UCR on September 20, 2013 in the United States District Court for the Middle District of Florida over UCRs creation, use, and dissemination of these false affidavits. See Wells Fargo, N.A. v. United Credit Recovery, LLC, Case No. 6:13-cv-01465-JA-GJK (M.D. Fla. 2013). Among other things, the lawsuit alleges that UCR provided the false affidavits bearing the banks name and logo to third party debt buyers which, in turn, have used the forged Notices and Affidavits of Correctness in Court proceedings against debtors. III. UCR USED THE FALSE CUT AND PASTED AFFIDAVITS TO COLLECT ON ALLEGED DEBTS AND TO ENHANCE THE PROFITABILITY OF DEBT PORTFOLIOS IT RESOLD TO OTHER DEBT BUYERS. 25. UCR and its agents or assignees obtain payments from consumers through

collection calls, letters, and lawsuits. In some cases, UCR presented the computer-generated false affidavits to Minnesota consumers and in Minnesota courts as proof that the debts are owed. The affidavits are intended to give the impression that the individuals debt has been personally verified and authenticated by an actual officer of the bank. 26. More frequently, UCR resellsoften very quicklythe overdraft debt portfolios

and affidavits to other debt buyers, which also in some cases use the affidavits to collect money from, and get courts to enter judgments against, individual consumers. When it sells debt, UCR enters into a debt resale and assignment agreement with the subsequent debt buyer. UCR signed some of these debt resale and assignment agreements through its supposed employee, Edward

Thompson, Director of Operations. As noted above, Mr. Potillo has testified that Edward Thompson is a pseudonym for himself, not a real person. 27. When providing the computer-generated affidavits to other debt buyers in

conjunction with the resale of an overdraft debt portfolio, UCR has tendered the affidavits as though they are legitimate affidavits individually created and notarized by the original banks. UCR has resold thousands of overdraft accounts to a Minnesota debt buyer by the name of Bradstreet & Associates, LLC (Bradstreet) and provided a computer-generated affidavit with each account. The Minnesota Attorney Generals Office deposed Bradstreet in September of 2013. Bradstreets President, Justin Balfany, testified as follows with respect to the use of UCRs affidavits by Bradstreet and its predecessor, Bridgestone and Associates, LLC (Bridgestone): Q: I understand your testimony to be that the entire period of Bridgestone and Bradstreet purchasing debt from United Credit Recovery, it got affidavits that appeared to be affidavits from the originating banks for each and every account; is that right? Yes. And I understand your testimony to be that Bridgestone and Bradstreet [have] always understood and assumed and believed those affidavits were created by the originating banks; is that right? Yes. And my question is, in fact, UCR never gave Bridgestone or Bradstreet reason to believe otherwise, did it? They did not. And my question is, had UCR told Bridgestone or Bradstreet that these affidavits were, in fact, not created by the originating bank, would Bridgestone or Bradstreet still have used those affidavits? No. Okay. No. And why do you say that? 10

A: Q:

A: Q: A: Q:

A: Q:

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Because it would have nothing to do with the account. Everything we used would be from the original creditor. And if it wasnt from the original creditor, we would never use something.

.... Q: And so, one of the ways in which the affidavits that UCR provided to Bridgestone or Bradstreet were used was in combination with the validation letter to give consumers what appeared to be proof or verification of the alleged debt; is that right? Yes. Its also true that when going to conciliation court to litigate claims against consumers on overdraft debt that was purchased from UCR and originated with Wells Fargo or U.S. Bank, Bridgestone or Bradstreet brought these affidavits with them in the file for each case that was being litigated in court; isnt that right? Yes. And in some instances, Bridgestone or Bradstreet presented those affidavits to conciliation court referees or judges as evidence of the indebtedness; isnt that right? Yes. A debt portfolio generally loses value as it is resold from one debt buyer to the

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A: Q:

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next. UCR sometimes resold overdraft debt to other debt buyers at a mark-up of approximately twice the price it paid to acquire the alleged debts from the banks. UCR has purchased overdraft debt from banks for as little as two to four cents on the dollar and then resold the debt to other debt buyers for as much as seven or eight cents on the dollar. UCR enhanced the price of the overdraft debt portfolios on resale in part by creating and providing subsequent debt buyers with the false, computer-generated affidavits. UCR knew, or should have known, that these

downstream debt buyers would use the affidavits to collect alleged debts from consumers. 29. Wells Fargos Collection Manager testified in a deposition taken by the

Minnesota Attorney Generals Office that UCRs purported affidavits allowed UCR to resell overdraft debt for a higher price than what it paid as follows: 11

Q:

If UCR resold accounts it purchased from Wells Fargo and other banks and included with each account on resale to subsequent debt buyers what it presented and claimed to be were affidavits attesting to the validity of each and every account in the portfolio, would that, in your experience, add value to the portfolio and allow UCR to charge a higher price? In my opinion, yes. And what do you base that opinion on? For the buyer of that resale, its going to take out the component of the of debt validation. It makes that account more of a prime account that youre purchasing, understanding that theres a document for each account that makes it very collectable. Bradstreets President also testified that the affidavits provided by UCR with the

A: Q: A:

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resale of overdraft accounts provided value as follows: Q: And the affidavits that were provided demonstrated or purported to demonstrate, among other things, chain of title of the debt; isnt that right? Thats to say that UCR, in fact, purchased the debt from the originating bank and owned the debt? Yes. And the affidavits provided with the overdraft checking account debt purchased by Bridgestone and Bradstreet purported to verify the validity of the underlying debts on an individual account-by-account basis for the originating banks; isnt that right? Yes. And isnt it true that the fact that these affidavits did those two things, they showed chain of title or purported to show chain of title and these affidavits purported to verify the accuracy or validity of the underlying debt, isnt it true that these affidavits had value to Bridgestone, Bradstreet and other debt buyers in the industry? Yes. And wouldnt you agree that Bridgestone, Bradstreet and others in the industry were essentially paying, in part, to receive not just the data file, the electronic spreadsheet, but also the affidavits that accompanied the data file with each and every sale of DDA debt? Yes.

A: Q:

A: Q:

A: Q:

A:

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UCRs activities appear to be lucrative. In an affidavit filed by UCR in the

United States District Court for the District of Nevada on October 21, 2011, UCRs owner, Mr. Potillo, testified that UCR lost $150,000 a day in revenue when it was unable to collect payments from consumers on overdraft debts purchased by UCR while its computer system was disabled. See Jason Bexten v. Mike Newkirk, et al., Case No. 2:11-cv-01660-PMP-RJJ (D. Nev. 2011). Elsewhere, Mr. Potillo has testified that UCRs cash receipts are between $5 million to $8 million annually. COUNT I UNIFORM DECEPTIVE TRADE PRACTICES ACT 32. 33. The State re-alleges all prior paragraphs of this Complaint. Minn. Stat. 325D.44, subd. 1 (2012) provides, in part:

A person engages in a deceptive trade practice when, in the course of business, vocation, or occupation, the person: (1) (2) (3) (5) (7) (13) 34. passes off goods or services as those of another; causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services; causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another; represents that goods or services have sponsorship, approval, [or] characteristics . . . that they do not have; represents that the goods or services are of a particular standard [or] quality . . . if they are of another; engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding. UCR, in the course of business, creates and sells false, computer-generated

affidavits that appear to have been individually and personally signed by officers of the banks that originated the overdraft debts and individually notarized. UCRs affidavits give the false

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impression that the affidavits were individually created by the original banks and that the overdraft debt was individually and personally verified by a bank officer, when in fact the affidavits were electronically created by UCR through the use of a computer mail-merge program. 35. UCR provided these false, manufactured affidavits to other debt buyers to which

it resold overdraft debt portfolios. By providing these false affidavits to other debt buyers, UCR enhanced the value of the debts it resold and placed the affidavits into the stream of commerce. UCR knew, or should have known, that downstream debt buyers would use the affidavits to collect the alleged overdraft debts. 36. UCR passed off its fraudulent cut and pasted affidavits to consumers, courts,

and other debt buyers as though the affidavits were individually and personally signed and sworn to by the banks that originated the alleged debts. In doing so, UCR caused a likelihood of confusion or of misunderstanding among consumers, courts, and other debt buyers as to the source, sponsorship, approval, or certification of the affidavits. UCR also caused a likelihood of confusion or of misunderstanding among consumers, courts, and other debt buyers as to the affiliation, connection, or association with, or certification by, the original banks with respect to UCRs false, computer-generated affidavits. UCRs affidavits misrepresented to consumers, courts, and other debt buyers the sponsorship of the original banks. UCRs affidavits also falsely represented to consumers, courts, and other debt buyers that the affidavits are of the standard or quality of real affidavits personally and individually created by the original banks. 37. UCRs conduct described above constitutes multiple, separate violations of Minn.

Stat. 325D.44, subd. 1. UCR has engaged in deceptive practices by passing off goods or services as those of another; causing likelihood of confusion or of misunderstanding as to the

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source, sponsorship, or certification of goods or services; causing a likelihood of confusion or misunderstanding as to the affiliation, connection, or association with, or certification by, another; representing that goods or services have sponsorship or characteristics that they do not have; representing that goods or services are of a particular standard or quality if they are of another; and engaging in other conduct which similarly creates a likelihood of confusion or of misunderstanding. By failing to disclose and omitting material facts to downstream debt buyers, consumers, and courts, UCR has further engaged in deceptive and fraudulent practices in violation of the Uniform Deceptive Trade Practices Act. 38. The Minnesota Attorney General is empowered to enforce Minn. Stat. 8.31

and 325D.44 against UCR, and is entitled to the relief set forth in those statutes. COUNT II UNJUST ENRICHMENT 39. 40. The State re-alleges all prior paragraphs of this Complaint. UCR knowingly used, and allowed to be used, false affidavits to verify or

prove alleged debts to consumers and courts and otherwise engaged in deceptive activity in order to force payments from alleged debtors or to obtain judgments against alleged debtors. 41. By engaging in such acts, UCR and its agents or assignees illegally and

wrongfully received payments to which they were not entitled. 42. UCRs acceptance and retention of such benefits under these circumstances is

unjust and inequitable.

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RELIEF WHEREFORE, the State of Minnesota by its Attorney General, Lori Swanson, respectfully asks this Court to award judgment against United Credit Recovery, LLC as follows: 1. Declaring that UCRs acts described in this Complaint constitute multiple and

separate violations of Minn. Stat. 325D.44, that UCR may not create, use, or disseminate computer-generated affidavits, as described herein, and that such affidavits are unlawful and may not be used. 2. Awarding judgment against UCR for civil penalties in the amount of $25,000 for

each separate violation of Minn. Stat. 325D.44 pursuant to Minn. Stat. 8.31. 3. Minnesota. 4. Enjoining UCR and its officers, directors, members, employees, agents, Ordering an expedited accounting of UCRs affidavit distribution in the State of

successors, assignees, affiliates, merged or acquired predecessors, parent, subsidiaries, and all other persons acting in concert with UCR, from the conduct described herein or in any other way violating Minn. Stat. 325D.44, pursuant to Minn. Stat. 8.31. 5. Awarding the State its costs, including costs of investigation and attorneys fees,

as authorized by Minn. Stat. 8.31, subd. 3a.

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Granting such further relief as the Court deems appropriate and just, including but

not limited to disgorgement of profits.

Dated: October 30, 2013

LORI SWANSON Attorney General State of Minnesota NATHAN BRENNAMAN Deputy Attorney General JACOB KRAUS Assistant Attorney General /s/ David Cullen DAVID CULLEN Assistant Attorney General Atty. Reg. No. 0338898 445 Minnesota Street, Suite 1200 St. Paul, MN 55101-2130 Telephone: (651) 757-1221 Fax: (651) 296-7438 david.cullen@ag.state.mn.us ATTORNEYS FOR PLAINTIFF STATE OF MINNESOTA

MINN. STAT. 549.211 ACKNOWLEDGMENT The party on whose behalf the attached document is served acknowledges through its undersigned counsel that sanctions, including reasonable attorney fees and other expenses, may be awarded to the opposite party or parties pursuant to Minn. Stat. 549.211 (2012). /s/ David Cullen DAVID CULLEN

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