Former Costa Mesa company ordered to pay $173 million in debt-relief scheme

A now-shuttered Costa Mesa-based company that carried out what regulators described as an illegal debt-relief scheme has been ordered to pay nearly $173 million in fines and restitution, according to the Consumer Financial Protection Bureau.

Morgan Drexen Inc. was ordered to pay almost $133 million in restitution and a $40 million civil penalty for charging illegal upfront fees and deceiving consumers about its services, according to a statement from the bureau, an agency established by Congress in 2010 to protect consumers in the financial sector.

The judgment “sends a strong message that debt-relief companies break the law when they defraud struggling consumers, and those actions have consequences for which we will hold them accountable,” bureau Director Richard Cordray said in a statement Friday.

The bureau sued Morgan Drexen and its founder, Walter Ledda, in 2013, alleging the company had violated the Telemarketing Sales Rule and Dodd-Frank Wall Street Reform and Consumer Protection Act.

Customers at Morgan Drexen had to sign contracts for both debt-relief and bankruptcy-related services, even if they were only looking for debt relief, according to the bureau.

The bankruptcy contracts were “a ruse designed to disguise impermissible upfront fees for debt-relief work,” as little or no bankruptcy work was done for the customers, the bureau said.

A court issued a permanent injunction against Morgan Drexen in June, barring the company from collecting any more money from customers or charging upfront fees for debt-relief services.

Morgan Drexen filed for bankruptcy protection the next day. As a result, any payments related to the judgment have to go through the bankruptcy process.

According to the Consumer Financial Protection Bureau, two attorneys took over at Morgan Drexen and continued the company’s illegal operations. The attorneys – Vincent Howard and Lawrence Williamson – and their law firms were later found in contempt of court.

The court ordered the attorneys to return any payments they had received from former Morgan Drexen customers since the ruling in June and warned them that they would be fined $10,000 for each day they continued to accept fees from those customers.

The attorneys have appealed that order.

Ledda, who founded Morgan Drexen in 2007, was ordered to pay $500,000 in consumer redress and turn over additional assets to the company’s bankruptcy estate.

He also is permanently banned from working in the debt-relief industry, the bureau said.