Coupon Company Shuts Down, Leaving Customers in the Lurch

A troubled company in Costa Mesa that sold coupon books used by PTAs, Scout troops and other nonprofit organizations for fund-raising has gone out of business, leaving customers with as much as $2 million in now-worthless coupons.

United Grocers Clearinghouse, which sold thousands of coupon books redeemable for name-brand cereal and coffee, had temporarily suspended operations in April, shortly after the California attorney general’s office alleged in a civil suit that the company was operating a scheme that was placing millions of dollars of customers’ funds at risk.

Privately held UGC had marketed itself mainly to Southern California nonprofit groups such as the Irvine Education Foundation, which sold booklets during a 1995 fund-raiser.

Nonprofit organizations bought books of tickets and raised funds by selling them to supporters and pocketing a percentage of the revenue. UGC promised to ship cereal and coffee from its warehouse near Orange County’s John Wayne Airport.

State officials began investigating the company after receiving complaints that UGC had failed to ship products.

State investigators alleged in a civil suit filed in March that UGC was running a fraud scheme--using new payments from customers to cover its mounting expenses. UGC stopped selling distributorships after the suit was filed and promised existing customers that it would find another coupon company to honor its outstanding coupons.

Instead, UGC founder and Chairman Stephen Lee has closed the company’s doors and reportedly is considering liquidating UGC through a bankruptcy filing, according to an Irvine-based attorney who formerly represented the company.

Attorney Ron Cooper, in a taped message on his firm’s answering machine, placed blame for UGC’s demise on “chaos” after the state filed its civil suit and “negative publicity heaped upon the company” in subsequent media coverage. Cooper’s message also maintained that his firm no longer represents Lee or UGC. Cooper did not return telephone calls.

Lee wasn’t available for comment on the company’s demise. It was uncertain Wednesday how the business failure would affect the continuing civil case. Deputy Atty. Gen. Albert N. Sheldon, who is based in San Diego, also was unavailable.

The state’s lawsuit seeks $4 million in damages and fines in connection with the fraud allegations.

The small 1-year-old company ran into problems almost from the outset.

Early this year, UGC was swamped with complaints from customers who said the company wasn’t making good on its promise to promptly ship cereal and coffee. Lee acknowledged during an interview that his company’s distribution system was initially overwhelmed by demand.

The attorney general’s suit alleges that UGC created a “house of cards” that placed millions of dollars in consumer funds at risk. State investigators allege that the company had amassed more than 250 distributors nationwide and collected $2.5 million from distributors and customers by selling an estimated 6 million coupons.

But UGC had “virtually no capital reserves to meet possible consumer demands for products,” the suit alleges. UGC’s potential obligations would top $40 million if the estimated 6 million coupons sold by UGC were redeemed, according to the suit.

Lee maintained that the state’s allegations are unfounded and that UGC would clear its name by finding another coupon company to redeem its millions of outstanding coupons.