SANTA ANA, Calif. – An alleged car buying and loan scam whichmay have bilked credit unions and banks out of more than $4 millionso far may be only the tip of the iceberg, according to a recentlyfiled suit. “The biggest problem with this is the credit unionsdon't know what to do because they don't know what they don't knowyet,” said attorney Barry A. Smith who heads up the credit uniondivision at the Los Angeles law firm of Buchalter, Nemer, Fields& Younger. “They may be victims but they don't know it yet.”“Until you get burned, you don't know (you are a victim)” Smithsaid. Smith filed suit in Superior Court on behalf of OrangeCounty's Credit Union in Santa Ana. It is the first such case totarget what he said was “one of the more sophisticated” scams thathe has seen in some 30 years of practice. “One of the purposes ofthis lawsuit is to alert not only the public but to alert financialinstitutions about these things,” said Smith, whose law firm is oneof the largest in California representing credit unions. Smith saidat least 20 banks and credit unions may have fallen prey to thescheme that so far involves 188 high-priced luxury automobiles.Orange County's CU`s suit involves six of the vehicles “that weknow of” worth an estimated $285,000, Smith said. “Orange County'sCredit Union decided to take a stand and not only attempt torecover their losses but also do what they can to put a stop tothese illegal tactics,” Smith said. The suit names some 40individuals and companies as defendants. Among those named are DutyFree Car Connection, Duty Free Car Payment, Duty Free Auto Club,DFCP Capital Investment Corp., and DFCP Financial Group. The suitalleges that car loans were obtained through fraudulent means andthat the cars were then sold, leased, loaned or rented to others inviolation of the terms of the loan contract. It said that Duty Freewould continue for “a period of time” making payments on behalf ofthe original buyer even though the original buyer never tookpossession of the vehicle. Eventually, those payments would stopand the cars would disappear, the suit claimed. The suit allegesthat the defendants conspired to obtain vehicle loans fromfinancial institutions by falsifying income, employment andinsurance information for buyers whom they recruited with a lure ofinterest-free loans, kickbacks, bribes or other monetaryincentives. The defendants sought buyers with good credit and highFICO scores in order to obtain the loans, the suit said. To enhancethe buyers' credibility, they would be listed as employees of oneof the Duty Free companies at a salary which often was “three to 10times higher” than they actually earned, the suit claimed. Smithsaid some buyers would purchase as many as 10 to 20 vehicles in oneor two days – many from the same dealership – for Duty Free, thenthey would go to various credit unions and banks seeking loans withDuty Free holding power of attorney. Because income and employmentverification was supplied by Duty Free, and the buyers already hadgood credit with high FICO scores which would be verified whenrunning a credit check, the financial institutions would approvethe loans, Smith said. “If you walk into a bank and you're making$100,000 a year and have excellent credit, aren't you entitled to acar?” he asked. Smith added that single purchasers, who he calledthe “straw buyers,” could qualify for numerous loans at differentinstitutions because the loan information would not show up on acredit report for at least 30 to 45 days. The purchased cars werenever driven by the original buyer, Smith said. Instead, the carswere delivered to a showroom in Orange County, where they wereoffered for lease, loan, rent or sale at exorbitant rates to peoplewho would otherwise not qualify to buy them. Duty Free lured thosecustomers by advertising that people with poor credit could “drivewhat you want, not what the bank tells you to drive” by joining theDuty Free Car Club, the suit said. The cars also were promoted topeople who wanted to hide cash, whether it was obtained legally orillegally, Smith said. Duty Free advised its end-user customersthat no credit checks were necessary to obtain the cars, that theycould exchange vehicles as often as they wanted and that customerscould select as many cars as they desired. The suit furthercontended that customers were promised a clear title to thevehicles at the end of the payment term and that Duty Freeillegally altered the certificates of title to show that thecompany owned the cars free and clear. Some of the cars have beenfound abandoned at crime scenes, Smith reported. He said financialinstitutions that made the loans on the vehicles have no idea whocurrently owns the cars. “This is a very clever group of people,”said Smith, who represents several hundred banks and credit unionsand handles numerous cases involving fraud and scams. “They havethis really down to a science. They know what they're doing.They're very very intelligent. They've tried to cover themselves onthe law.” The suit, filed Sept. 9 in Superior Court in Santa Ana,lists violations of the Racketeer Influenced and CorruptOrganizations Act (RICO) as well as conspiracy, fraud and breach ofcontract, among other charges. The first hearing in the case wasscheduled for Nov. 6, at which time Smith said he will seek a courtorder allowing the credit union to take possession of the cars onwhich it has loans, assuming the vehicles can be located. “Theindividuals, the `straw buyers' who we think are our customers,they don't have the cars,” he said. “We don't know where the carsare. We have no idea. We know there are cars that are now in NewYork, Chicago, Las Vegas. “After a while they stop paying on thecars,” he added. “So now that the bank or credit union goes tocontact the individual `the straw buyer,' what are they going toget? They don't have anything. The cars are long gone. So what'shappened to them we don't know.” The vehicles on which OrangeCounty's CU provided loans include three 2000 Mercedes, a 2000Jaguar, a 2002 Honda, and a 2001 Mercedes valued at $58,717.Overall, the losses to the credit union are more than $285,000, hesaid. “We don't know how big this is,” Smith said of the allegedscam. “We believe the (total) loss (so far) is over $4 million forthe banks involved.” He said he was aware of similar operations inother parts of the U.S., but none that were as sophisticated as theone in Orange County. “I have seen a lot of scams and fraud overthe years for the banks I represent and this is one of the mostsophisticated ones,” he said. Smith said Orange County's CU wouldwelcome other credit unions in its litigation. Smith can be reachedat (213) 891-0700. -

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