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The FTC has been issuing warnings to industry members for years to stay miles away from phantom debt collection – the practice of pressuring people to pay debts they don’t owe. Don’t collect phantom debts. Don’t traffic behind the scenes in questionable portfolios. And definitely don’t buy or sell portfolios known to be bogus. The FTC and the New York Attorney General’s Office have filed a lawsuit alleging that Buffalo-based Hylan Asset Management has done just that by “placing” portfolios of bogus debt with debt collection agencies or selling them to other brokers or collectors. In addition, the complaint charges that Worldwide Processing Group, another Buffalo area outfit, has illegally collected on phantom debts, including many obtained from Hylan.

You’ll want to read the for details, but one strand of the story starts with Joel Tucker, a known name in phantom debt circles. According to the FTC and the AG, Tucker used his access to sensitive information (for example, consumers’ bank account and Social Security numbers) to create portfolios of bogus debt. In 2017, a federal court held that Tucker had “marketed, distributed and sold counterfeit debt portfolios” in violation of the FTC Act.

But that’s not the only way Tucker fabricated financial fiction. The FTC and the AG say that through companies he controlled, Tucker sold purported payday loan leads to lenders. In many instances, those lenders then issued “loans” to consumers without the consumers’ permission, a pernicious practice known as “autofunding.” Lenders helped themselves to money in consumers’ bank accounts – again without consumers’ authorization – under the false rubric of “finance charges.” When aggrieved consumers denied the attempted debits, the lenders had another sneaky surprise in store. They transferred the unauthorized loans back to Tucker as “debts,” which Tucker or his companies then sold to debt brokers. In 2014, the FTC and Consumer Financial Protection Bureau took legal action against the purported lenders.

Which brings us to what the FTC and the AG say was the next stop on the Phantom Debt Express: Hylan Asset Management. The lawsuit alleges that for years Hylan bought Tucker’s phantom debt portfolios through a guy named Hirsh Mohindra. Hylan then placed them with companies like defendant Worldwide Processing Group or sold the bogus portfolios to others.

The charges that the counterfeit nature of the debts is no surprise to Hylan. By the fall of 2014, a Hylan employee had already called into question the portfolios’ veracity. The next alarm bell: Starting in November 2014, Hylan began to get reports from collection agencies that a large number of consumers were complaining they didn’t owe the purported debts. That same month Hylan owner Andrew Shaevel sent an email to Mohindra: “There is a MAJOR problem with data on this file. Either there was a data transformation error or there is major FRAUD with this file. [A Hylan employee] discovered that there are debtors with the same name and address that have different SSNs, same bank accounts but different names and/or SSN’s. THIS IS NOT KOSHER!” Not kosher indeed, but the FTC and the AG say Shaevel dropped the concern once Mohindra agreed to provide “replacement files.”

In fact, Hylan continued to buy Tucker-originated debts and sell them to third parties. The company did this despite additional red flags, including an email about the FTC-CFPB autofunding action with a note from Shaevel to Mohindra, “FYI. This might be an issue”; an email from Hylan to Mohindra with an attachment listing 74 “debtors” who had signed affidavits that they didn’t owe the debts; and a letter from the Receiver in the FTC’s autofunding case directing Hylan “to immediately cease the sale of any loans allegedly originated by any of the Receivership.” (Those are just some of the warning signs alleged in the complaint.) Then there was an FTC-Illinois AG phantom debt action against Mohindra resulting in a $47 million judgment banning him for life from debt collection or debt selling.

The just-filed action charges Hylan and Shaevel with distributing counterfeit debts and providing others with the means and instrumentalities to mislead consumers, in violation of FTC and New York law.

The agencies allege that Hylan client Worldwide Processing Group and owner Frank A. Ungaro, Jr., ignored obvious alarms, too. According to the lawsuit, the company was aware of numerous complaints from consumers that they didn’t owe the debts the company was trying to collect. What’s more, Worldwide Processing was the top generator of Better Business Bureau complaints in its region – complaints that both the BBB and the New York AG forwarded to them. The lawsuit charges Worldwide Processing and Ungaro with multiple violations of the FTC Act, the Fair Debt Collection Practices Act, and New York law for placing pre-recorded voicemails that threatened to “contact all references on file” if people didn’t pay, illegally contacting third parties about consumers’ purported debts, making misrepresentations to consumers, and failing to give them FDCPA-required notices.

Even though the lawsuit was just filed, FTC and AG warnings about tainted debts have been long-standing. Add this latest enforcement action to the list of reasons to stay away from portfolios associated with law breakers.