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FTC sues California company over tax relief scam

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CARLA K. JOHNSON | October 6, 2010 07:30 PM EST | AP

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CHICAGO — Thousands of consumers drowning in tax debt fell victim to a nationwide scam by a California-based company whose owners enjoyed a lavish lifestyle in a multimillion-dollar home with seven luxury cars in the garage, federal officials said Wednesday.

American Tax Relief of Beverly Hills, Calif., bilked consumers out of more than $60 million, according to the Federal Trade Commission, which announced it has filed a lawsuit in an attempt to win consumers' money back.

A federal judge in Chicago has ordered the company to stop making deceptive claims and appointed a receiver to take charge of the company. The judge also froze company assets and assets of its owners Alex Hahn, 43, and his wife, Joo Hyun Park, 37, of Beverly Hills.

Hahn was convicted in 2006 of mail fraud in California and sentenced to five years probation and ordered to pay nearly $1.3 million restitution, according to a search warrant filed in the current case by the U.S. Postal Inspection Service. The restitution was partially paid from proceeds from American Tax Relief, the document states.

"Their scam is over, closed down," said David Vladeck, director of the Federal Trade Commission's Bureau of Consumer Protection.

Los Angeles attorney Chuck Kreindler, representing the company, said American Tax Relief has helped taxpayers, but a "small percentage of their customers are not looking to resolve their tax problems, but find some new way to beat the system."

Kreindler said in an e-mail to The Associated Press that the company would "vigorously defend" against the FTC action, "which was brought without any notice to ATR, focused on a small handful of complainants, and ignored the thousands of consumers who have been helped."

The FTC estimates 20,000 consumers paid upfront fees from $3,200 to $32,000 for worthless tax relief services, according to the lawsuit. The company also charged customers' credit cards without their authorization and gave few refunds, the claim states.

A new FTC telemarketing rule that takes effect Oct. 27 will prohibit companies that sell debt relief services by phone from charging or collecting fees before they settle or reduce a customer's debt.

Warren Mesler, 45, a timber broker from Wellsville, N.Y., said he made two payments to American Tax Relief totaling $9,000, but never got help.

"I should have known before I even paid them the second time," Mesler said Wednesday. "When they wouldn't return phone calls, I knew I was in trouble."

Many victims' tax bills and penalties continued to climb while they waited in vain for help, Vladeck said.

"While pushing people even deeper into debt, the owners of this enterprise were living in a house in Beverly Hills worth $3.4 million and keeping a garage full of a Ferrari, two Porsches, two Mercedes Benzes, a Bentley and a Rolls Royce," Vladeck told reporters in Chicago. "They don't even buy American."

Chicago resident Tim Fullerton, 43, a pharmacy technician, phoned the company for help after hearing radio ads promising to settle delinquent taxes for pennies on the dollar, he said Wednesday. He ended up paying thousands of dollars upfront and got no help from the company.

When Fullerton told his wife, Darlene Fullerton, an accountant, about the company's unmet promises she became "pretty livid about the whole situation," she said, and went to work filing complaints with the Better Business Bureau, two state attorneys general and the FTC.

The couple later worked out a payment plan with the Internal Revenu Service on their own.

The IRS makes installment agreements with people who can't pay all their debt at once. In very limited situations, the IRS does allow taxpayers to settle debts for less than what's owed, but most people don't qualify and they don't need a third party's help.

"Consumers don't have to deal with companies like this," Darlene Fullerton said. "You can't fight back."