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1 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 1 of 101 Page ID #:1158 EXHIBIT A

2 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 2 of 101 Page ID #:1159 Robb Evans & Associates LLC Temporary Equity Receiver of M&T Financial Group, a Corporation and d/b/a StuDebt and d/b/a Student Debt Relief Group, American Counseling Center Corp. et al. REPORT OF TEMPORARY EQUITY RECEIVER'S ACTIVITIES SEPTEMBER 20, 2017 THROUGH OCTOBER 4, 2017 This report covers the activities of the Temporary Equity Receiver (Temporary Receiver) 1 since the inception of the temporary receivership. This is the first report to the Court on the progress of the temporary receivership. It does not constitute an audit of financial condition and is intended only to provide information for use by the Court in assessing the progress of the temporary receivership. Summary of the Temporary Receiver s Analysis, Observations and Conclusions This report provides details about the Receivership Defendants operations which are highlighted in the bullet points below. The Receivership Defendants telemarketed their student debt relief programs to thousands of consumers and successfully enrolled about 27,000 consumers for nearly $22 million in sales, of which about 43% was cancelled or returned. The sales and marketing operation presents itself as a document preparation company and/or an enrollment facility, while providing information that confuses consumers as to the actual role it plays. The company operates in a high-pressure direct sales environment. Consumers are sold a service to obtain a consolidation or restructuring of student debt. Consumers are set up on a payment plan to pay for this service even though it is offered at no charge by the Department of Education. 1 Reference to the Temporary Receiver in this report means the Temporary Receiver, the Temporary Receiver s deputies, its staff, and its counsel. Page 1 of 30

3 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 3 of 101 Page ID #:1160 Consumer complaints in the form of notification to the Receivership Defendants by the Better Business Bureau, various States Attorneys General, other state offices and the Consumer Financial Protection Bureau. Affiliated entities were formed for the purpose of opening new accounts, holding assets and acting as successors to the Receivership Defendants. Encrypted internal messaging service and messages. Custody, Control and Possession On September 20, 2017 the Temporary Receiver met with the property manager at Wilshire Boulevard, Los Angeles and served her with a copy of the Temporary Restraining Order (Order). The Temporary Receiver confirmed the Receivership Defendants were currently occupying suites 310 and 405. The Temporary Receiver entered the two suites concurrently. Individual defendant Salar Tahour (Mr. Tahour) was present in suite 310, along with approximately 25 employees. The Temporary Receiver explained why the Temporary Receiver was there. Mr. Tahour stated that he needed to speak with his attorney and declined to cooperate. He then instructed the employees present not to cooperate and to go home. Mr. Tahour then left the office. Upon entry into suite 405 the Temporary Receiver asked to speak with Mr. Tahour and provided the names of the Receivership Defendants. Workers present stated that they did not know either Mr. Tahour or the Receivership Defendants. The Temporary Receiver was told that the business conducted at that site was document processing. Shortly thereafter, the Temporary Receiver addressed the approximately 50 workers present, advising them of the nature of the temporary receivership and the Temporary Receiver s powers and duties. During remarks to the employees, as the Temporary Receiver was describing the duty that the employees had to cooperate with the Temporary Receiver under the Order, the Temporary Receiver observed a man standing directly in front of the Temporary Receiver looking at his cell phone. He appeared to be communicating via text or on his phone. He interrupted the Temporary Receiver and stated, in substance, that no one had to cooperate with the Temporary Receiver s representatives and all workers should leave the office. In response to the Temporary Receiver s inquiry, he identified himself as Brian Silver (Silver). The Temporary Receiver later located a business card with Silver s name on it, identifying him as Regional Manager for Student Loan Financial Aid. Based on the Temporary Receiver s prelilminary analysis, the Temporary Receiver has determined that Student Loan Financial Aid Page 2 of 30

4 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 4 of 101 Page ID #:1161 is either a ficticious business name for the Receivership Defendants or is an affiliated entity of the named Receivership Defendants. After Silver s second instruction to the employees to leave, none of the workers who were then present cooperated with the Temporary Receiver. Only four employees partially filled out information on the questionnaire provided by the Temporary Receiver. Some employees chose to write their name and phone number on the form while some tore the questionnaire up and/or threw it away. One employee who arrived after Silver s remarks agreed to fill out a questionnaire and answer a few of the Temporary Receiver s questions before leaving. After Mr. Tahour and all of the employees left the offices, the Temporary Receiver took exclusive custody, control and possession of the premises and had the locks changed. The Temporary Receiver noted that there was very little information in the offices in paper format. Most of the information appeared to be electronically stored on cloud servers. Financial Information The Temporary Receiver was unable to locate accounting records on the Receivership Defendants premises. The Temporary Receiver located and served the outside firms which provided the bookkeeping and tax services for two Receivership Defendants, M&T Financial Group and American Counseling Center Corp. The Temporary Receiver also learned that the Receivership Defendants switched the bookkeeping and tax services to another firm at the beginning of July The Temporary Receiver did not obtain the complete books and records until September 26, The Temporary Receiver has reviewed and analyzed the accounting records, transaction details, bank statements and other documents. The preliminary financial information for each entity is discussed in detail below. In addition, upon entry to the Receivership Defendants premises, the Temporary Receiver discovered a number of entities were formed in 2017 for the purpose of opening new accounts and holding assets of the Receivership Defendants. The corporate documents, bank account opening documents and other related records for these entities were located at the Receivership Defendants business premises. In addition, many of these entities were funded by M& T Financial Group shortly after their corporate formation. Therefore, these entities Page 3 of 30

5 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 5 of 101 Page ID #:1162 appear to be affiliates and operate as part of one business enterprise with the named Receivership Defendants. More details about these affiliated entities are described below. M&T Financial Group M&T Financial Group was incorporated in California on December 16, 2013, and was coowned by Mr. Tahour and Matthew Massaband (Massaband). On June 30, 2015, a buyout agreement was entered into between Mr. Tahour and Massaband, whereby Mr. Tahour purchased all of Massaband s ownership interest and became the sole owner of M&T Financial Group. According to the fictitious business name statements attached as Exhibit 1, M&T Financial Group is also the registered owner for STUDEBT and SLRC. The profit and loss statement for M&T Financial Group from January 1, 2014 to September 6, 2017, based on the records obtained from the outside bookkeeping and tax service firms, is summarized under Exhibit 2 and below. Page 4 of 30

6 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 6 of 101 Page ID #:1163 1/1/2014~ 9/6/2017 Income Sales $ 9,819, Refunds (207,619.02) Total Income 9,611, Expense Advertising and Promotion/Marketing $ 2,601, Commissions 2,487, Salaries & Wages/Payroll-Others 505, Officer's Salary/Payroll-Officer 168, Rent Expense 347, Discounts-Merchant/Merchant Charges 169, Legal & Professional Fees 141, Office Supplies 127, Telephone Expense 120, Dues and Subscriptions 117, Taxes 94, Meal & Entertainment 85, Depreciation Expense 75, Rental of Equipment 38, Parking 16, Repairs & Maintenance 11, Insurance Expense 7, Outside Services 5, Settlement Expense 5, Automobile Expense 3, Bank Service Charges 3, Travel Expense 2, Licenses and Permits 2, Contributions 1, Freight & Delivery 1, Payroll Service Fee Supplies Interest Expense Linens & Laundry Total Expense $ 7,142, Net Income $ 2,469, Page 5 of 30

7 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 7 of 101 Page ID #:1164 Total income from sales and refunds were recorded from the company s inception through August 31, Total income of approximately $9.8 million and refunds of $208,000 appear to be understated as compared to data in the customer relationship management (CRM) system. The CRM system shows approximately $21.9 million in gross sales from January 2014 to September 2017, of which $11.7 million was completed and cleared. The difference in net sales of approximately $2.1 million is primarily due to booking and timing differences 2. The Temporary Receiver performed further review and analysis of the CRM data, and reconciled the CRM data to the company s books, which will be discussed in greater detail below. The most significant expenses were personnel-related payments, including salaries, wages and commissions, which totaled approximately $3.16 million from inception to September 6, 2017, representing about 44.3% of the total expenses during that period. The sum of $148,000 was paid to Mr. Tahour as salary and payroll, and recorded as Officer s Salary or Payroll-Officer on the books. Approximately $2.6 million was recorded as advertising and promotion expense from January 1, 2014 to August 31, 2017, which represented about 34.8% of the total expenses. The Temporary Receiver reviewed and analyzed the related accounting details, and discovered that a total of $1,057,700 in advertising and promotion expense was paid to Dynamic Interactive, a company in Irvine, California. The Temporary Receiver has served the Order on Dynamic Interactive, but has not had substantive discussions with that company yet. In addition, the Temporary Receiver found the advertising and promotion expense was overstated by $734,000, as described below. The Temporary Receiver reviewed the accounting transaction details and found a significant journal entry made to the books on December 31, This book entry was described by the outside service firm as adjustment to client s figures. The outside service firm told the Temporary Receiver that this journal entry was made based on Mr. Tahour s instruction to them. This entry increased a number of expense accounts, resulting in an understatement in 2016 net income of $926, This entry also resulted in a decrease in distributions to Mr. Tahour on the books by the same amount. 2 More details on booking and timing differences are provided later in this report. Page 6 of 30

8 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 8 of 101 Page ID #:1165 Type Date Memo Account Debit Credit General 12/31/2016 Adj to Client's Figures Refunds 23, Journal Adj to Client's Figures Advertising and Promotion 734, Adj to Client's Figures Dues and Subscriptions 32, Adj to Client's Figures Entertainment 37, Adj to Client's Figures Legal & Professional Fees 46, Adj to Client's Figures Office Supplies 54, Adj to Client's Figures Salar 926, , , After making the appropriate adjustments, the total net income for M&T Financial Group should be approximately $3.4 million from January 1, 2014 through September 6, More than $3 million was distributed to Mr. Tahour as capital distributions. The balance sheet statements by year from January 1, 2014 to September 6, 2017 based on the records obtained from the outside bookkeeping and tax service firms are attached at Exhibit 3. According to its balance sheet, M&T Financial Group does not have substantial assets other than bank and merchant accounts. The Temporary Receiver has frozen all the known bank and merchant accounts, and confirmed the balances directly with the financial institutions. Please refer to the Frozen Bank and Merchant Accounts section for details. Approximately $1.7 million was recorded as distributions on the balance sheet as of September 6, The Temporary Receiver reviewed and analyzed the distribution transaction details, and a total of $3.059 million was paid to Mr. Tahour or for his benefit from the company s inception through August 31, 2017, which was understated on the books and should be adjusted as reflected below. Year Distributions Per Books Distributions to Mr. Tahour Adjustment Total Distributions 2015 $ 167, $ - $ 167, , , ,196, ,694, ,694, Total $ 2,132, $ 926, $ 3,059, Page 7 of 30

9 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 9 of 101 Page ID #:1166 In addition, the Temporary Receiver found another book entry recorded on December 31, 2015, which reduced an additional $150,000 in Mr. Tahour s distributions. It stated that Mr. Tahour paid $150,000 in advertising for M&T Financial Group, but it did not state which vendor was paid. The Temporary Receiver has not yet been able to verify if or to whom the money was actually paid. More details about payments to Mr. Tahour or for his benefit will be summarized and discussed below. American Counseling Center Corp. American Counseling Center Corp. was incorporated in California on May 18, 2015 and Mr. Tahour is listed as its Chief Executive Officer (CEO). According to the fictitious business name statements attached as Exhibit 4, American Counseling Center Corp. is also the registered owner for SDCG and Student Debt Relief Group. The balance sheet by year from its inception to April 28, 2017, which was directly downloaded from its QuickBooks accounting file obtained from an outside bookkeeping and tax service firm, is under Exhibit 5. There are no other significant assets on the books other than the bank account balances. The Temporary Receiver has frozen all the known bank and merchant accounts, and confirmed the balances directly with the financial institutions. Please refer to the Frozen Bank and Merchant Accounts section for details. The profit and loss statement by year from the company s inception to April 28, 2017, which was directly downloaded from its QuickBooks accounting file obtained from an outside bookkeeping and tax service firm, is under Exhibit 6. According to its books, there was no income and only $30, in expenses from its inception through April 28, Payments to Mr. Tahour As previously discussed, a total of $3,059, was paid to Mr. Tahour or for his benefit from January 1, 2014 to August 31, 2017 and recorded as capital distributions. Page 8 of 30

10 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 10 of 101 Page ID #:1167 Mr. Tahour also received an additional $148,000 as officer s salary and payroll during the same period. In summary, more than $3.2 million was paid from M&T Financial Group to Mr. Tahour from January 1, 2014 to August 31, Affiliated Entities A number of affiliated entities were incorporated in California during 2017, which also opened bank accounts soon after the formation. These affiliated entities were formed for the purpose of opening new accounts, holding assets and acting as successors to the Receivership Defendants. These entities include: Collegiate Financial Premier Processing Group AT Financial Advisors GDL Financial Brentwood Parcels LLC The banking records also demonstrate that these entities are funded by M&T Financial Group, as discussed in detail below. Collegiate Financial According to its corporate documents filed with the State of California, Collegiate Financial was incorporated on June 30, 2017 with Silver listed as its CEO (Exhibit 7). As previously discussed, Silver is also a Regional Manager for Student Loan Financial Aid. Silver also has received paychecks every month from May 2016 to July 2017, recorded as commissions on M&T Financial Group s books. The Temporary Receiver located the JP Morgan Chase Bank (Chase) account opening documents and the corporate documents of Collegiate Financial on the Receivership Defendants business premises. The bank account opening documents show that Collegiate Financial opened its bank account on July 12, Silver is listed as its president and Mr. Tahour is listed as its signor, as shown under Exhibit 7. Page 9 of 30

11 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 11 of 101 Page ID #:1168 M&T Financial Group s 2017 banking records disclose that Collegiate Financial started receiving funds from M&T Financial Group soon after Collegiate Financial s formation. M&T Financial Group has transferred a total of $168,000 to Collegiate Financial s Chase Account 1791, $63,000 in July 2017 (Exhibit 8) and $105,000 in August 2017 (Exhibit 9). The Temporary Receiver has frozen the current balance of $28, in Collegiate Financial s account at Chase. Premier Processing Group According to its corporate documents filed with the State of California, Premier Processing Group was incorporated on June 13, 2017 with Mercedes Trigueros (Trigueros) listed as its CEO (Exhibit 10). Trigueros is also a current employee of the Receivership Defendants, who has received paychecks every month from July 2015 to July 2017, recorded as commissions on M&T Financial Group s books. The Temporary Receiver located the Chase bank account opening documents and the corporate documents of Premier Processing Group on the Receivership Defendants business premises. The bank account opening documents show that Premier Processing Group opened its bank account on June 22, 2017, soon after its formation. Trigueros is listed as its president and Mr. Tahour is listed as its signor as shown under Exhibit 10. Based on M&T Financial Group s 2017 banking records reviewed and analyzed by the Temporary Receiver, M&T Financial Group started transferring funds to Premier Processing Group shortly after the new bank account was opened. M&T Financial Group transferred a total of $138,000 to Premier Processing Group s Chase Account 5261, $23,000 in July 2017 (Exhibit 11) and $115,000 in August 2017 (Exhibit 12). The Temporary Receiver has frozen the current balance of $38, in Premier Processing Group s account at Chase. AT Financial Advisors According to its corporate documents filed with the State of California, AT Financial Advisors was incorporated on June 30, 2017 with Ki W. Kwon (Kwon) listed as its CEO (Exhibit 13). Kwon is also a current employee of the Receivership Defendants, who has received paychecks every month from July 2016 to July 2017, recorded as commissions on M&T Financial Group s books. Page 10 of 30

12 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 12 of 101 Page ID #:1169 The Temporary Receiver located the Chase bank account opening documents and the corporate documents of AT Financial Advisors on the Receivership Defendants business premises. The bank account opening documents show that AT Financial Advisors opened its bank account on July 12, Kwon is listed as its president and Mr. Tahour is listed as its signor as shown under Exhibit 13. M&T Financial Group s 2017 banking records also show that AT Financial Advisors started receiving funds from M&T Financial Group soon after AT Financial Advisors formation. AT Financial Advisors Chase Account 1597 received a total of $61,500 from M&T Financial Group, $26,000 (Exhibit 14) in July 2017 and $35,500 in August 2017 (Exhibit 15). The Temporary Receiver has frozen the current balance of $9, in AT Financial Advisors account at Chase. GDL Financial According to its corporate documents filed with the State of California, GDL Financial was incorporated on June 30, 2017 with Kianush Niaki (Niaki) listed as its CEO (Exhibit 16). Niaki is also a current employee of the Receivership Defendants, who has received paychecks every month from September 2016 to July 2017, recorded as commissions on M&T Financial Group s books. The Temporary Receiver located the corporate documents of GDL Financial along with blank checks with Chase on the Receivership Defendants business premises (Exhibit 16). The Temporary Receiver has confirmed with Chase that the current balance for GDL Financial s account is zero. Brentwood Parcels LLC According to its corporate documents filed with the State of California, Brentwood Parcels LLC (Brentwood Parcels) was incorporated on May 24, 2017 with Mr. Tahour listed as its sole member and with the same registered business address as the Receivership Defendants (Exhibit 17). The Temporary Receiver located the Chase bank account opening documents and the corporate documents of Brentwood Parcels on the Receivership Defendants business premises. The bank account opening documents show that Brentwood Parcels opened its Page 11 of 30

13 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 13 of 101 Page ID #:1170 bank account on July 11, Mr. Tahour is listed as its manager and sole signor as shown under Exhibit 17. The Temporary Receiver also found and reviewed additional documents, including a real estate property documentation package, which indicate Brentwood Parcels was formed primarily for the purpose of holding real estate properties. On July 5, 2017, Mr. Tahour purchased a real property located at 791 N. Bundy Drive, Los Angeles, California (Bundy Property) for a price of $3,208,000, with approximately $1.97 million paid in down payments and a $1.2 million mortgage with Wells Fargo. On July 14, 2017, a Quitclaim Deed was recorded (Exhibit 18) which transferred title to the Bundy Property from Mr. Tahour to Brentwood Parcels. Based on the operating agreement of Brentwood Parcels (Exhibit 19), this transfer constitutes a capital contribution of $1,964,000 from Mr. Tahour to Brentwood Parcels. As previously discussed, Mr. Tahour has withdrawn more than $3 million from M&T Financial Group, and therefore, this property was apparently purchased with funds traced to the Receivership Defendants. In addition, the Temporary Receiver has frozen the current balance of $8, in Brentwood Parcels account at Chase (Account 6105). Consumer Information Analysis The Receivership Defendants used cloud-based DebtPayPro software to store and manage their sales for student loan consolidation and settlement services, and the related consumer information (collectively referred as the CRM database). The Temporary Receiver served DebtPayPro and gained access to the CRM database. The Temporary Receiver downloaded the data and reports generated from the CRM database directly from DebtPayPro s website to perform further statistical analysis. The CRM database shows that sales occurred between January 2014 and September The Temporary Receiver compared and reconciled the sales by year in the CRM database to the Receivership Defendants books and records, and noted the following variances: Page 12 of 30

14 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 14 of 101 Page ID #:1171 Based on CRM Database Based on the Books Variance 2017 YTD Cleared Transactions $ 5,802, Net Sales $ 4,379, $ 1,422, Year 2016 Cleared Transactions $ 3,578, Net Sales $ 3,206, $ 371, Year 2015 Cleared Transactions $ 1,896, Net Sales $ 1,785, $ 110, Year 2014 Cleared Transactions $ 418, Net Sales $ 239, $ 178, Total $ 11,694, $ 9,611, $ 2,082, The Temporary Receiver further analyzed and investigated the variances, and determined they are primarily due to the following reasons: The outside bookkeeping and tax firm recorded the total monthly sales in a lump sum amount at the end of each month based on the amounts deposited into each of the Receivership Defendants bank accounts. The accounting books and records show the last sales transactions for 2017 were recorded on August 31, The CRM database shows the total gross sales for September 2017 was approximately $1.5 million, of which approximately $566,000 was cleared and $308,000 remained open. In addition to the timing and booking differences noted above, the amounts deposited into the Receivership Defendants bank accounts would be less than the actual amounts charged to the individual consumers by the Receivership Defendants because of the fees and reserves held by the merchant processors. Accordingly, the Temporary Receiver has determined the CRM database would be a more reliable source to perform further review and statistical analysis. Sales The types of sales by transaction downloaded from the CRM database are summarized below. The transaction types are taken directly from the CRM database. The number under the transaction type All is the sum of all other transaction types. The transaction type Clear represents the sales amount received. Cancel transactions are calculated from the amount of all future transactions cancelled as a result of the clients Page 13 of 30

15 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 15 of 101 Page ID #:1172 dropping out of the programs. Return/NSF transactions represent the payments that were returned from the merchant processors. Approximately $424,000 in transactions remained Open of which approximately $308,000 were incurred in September This is likely because the operation was temporarily suspended in September 2017 while some payments were open and have not been processed as a result. Transaction Type January 2014 ~ September 2017 % All $ 21,894, % Cleared $ 11,701, % Open $ 423, % Cancel $ 4,636, % Returned/NSF $ 4,743, % Rejected $ 255, % Error Processing $ 22, % Pending $ 72, % Void $ 39, % Authorized $ % As shown above, the gross sales from January 2014 to September 2017 totaled approximately $21.9 million, including approximately $18.6 million in credit card charges and $3.2 million processed by ACH. Only approximately $11.7 million of the sales was cleared. Approximately $9.4 million in sales was cancelled or returned, about 43% of the total sales. As demonstrated below, the growth of sales from year to year has been substantial. There was only approximately $722,000 in gross sales for In 2015, the amount more than quadrupled to nearly $3.3 million. In 2016, there was more than $6.2 million in gross sales, almost double the total sales in The increase in 2017 was even more significant, with sales having reached almost $12 million in less than nine months. Page 14 of 30

16 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 16 of 101 Page ID #:1173 Transaction Type All $ 11,652, $ 6,227, $ 3,291, $ 722, Cleared 5,808, ,578, ,896, , Open 316, , , , Cancel 2,604, ,347, , , Returned/NSF 2,758, ,207, , , Rejected 87, , , , Error Processing , Pending 69, , Void 6, , , Authorized The sales by month from January 2014 to September 2017, which were exported directly from the CRM database, are shown and summarized by year under Exhibits 20 and 21. Consumer Enrollment The Enrollment Report by year generated by the CRM database, including the number of clients enrolled, clients who dropped out and dropout rate, is set forth below. Enrollment Reports Generated by CRM Database Year Clients Enrolled Clients Dropped Drop Rate % ,869 1, % ,959 2, % ,850 4, % Average Dropout Rate from 2014 to % According to the All Enrolled Customers summary shown on the CRM database, the total number of consumers who have been enrolled in the programs is 27,059, which is different than the sum of clients enrolled from 2014 to 2017 as shown above (22,350). The difference is primarily due to a group entitled Graduated. The Temporary Receiver has reviewed and analyzed some of the details and transaction histories for these consumers, and noted that at least some of the consumers who cancelled the programs were also included in this group. Page 15 of 30

17 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 17 of 101 Page ID #:1174 For example, as shown under Exhibit 22, Customer ID XXXX2424, who is included in the Graduated group, was enrolled on June 4, 2015 and dropped out of the program on August 11, 2017 due to the customer s dissatisfaction with the program. Although the Temporary Receiver may perform further analysis on these consumer details and transaction histories to determine the number of cancelled consumers included in the Graduated group, it is likely that the number of all cancelled consumers will increase. Business Systems and Operations The Temporary Receiver determined the training, sales and marketing activities were concentrated in suite 405, which is the larger of the two suites. Suite 310 was also being used for sales and marketing in addition to administrative functions including the processing of payments for the fees charged by the Receivership Defendants as well as any payments for fees that are returned unpaid by the consumer s bank or credit card company. Mr. Tahour s office was located in suite 310, which contained closed circuit monitors overseeing suite 405 via multiple cameras. Mr. Tahour not only declined to speak with the Temporary Receiver, but he erased the information on a white board in his office before he could be prohibited from doing so. Suite 405 included approximately 76 desks for telemarketers and one desk for Silver. Sales and Marketing Operations Those few employees providing information on the Temporary Receiver s questionnaire called themselves, enrollment advisor or counselor, private loan consultant, debt relief counselor or representative/agent. Description of duties included Calling clients/assisting with signing people up for student loan forgiveness, document prep for student loan forgiveness, Educate people on William D. Ford loan program, see if they qualify and help enroll them if they do, and contacting individuals who have expressed interest in the programs. One employee who was not on site when the Temporary Receiver entered suite 405 came into the office to pick up his lunch. He completed a questionnaire and agreed to answer a few questions. This employee stated that he worked in suite 405, which was the Enrollment Facility which handled leads, both inbound and outbound. He stated that he set up individuals on payment plans to pay the company to work on obtaining student loan modifications as follows: Page 16 of 30

18 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 18 of 101 Page ID #:1175 There is a three-month enrollment period in which an administrative hold is placed on the loan for three months. This period is offered to anyone who qualifies and initiates a three -month time period in which the borrower does not have to communicate with their lender. Next comes a consolidation and re-servicing period in which the company utilizes a repayment estimator based on a Federal Algorithm for determining repayment qualification under the William D. Ford Direct Loan Program. The last step is the monthly enrollment into a new payment plan. There is an initial charge of $597, which can be paid over three months at $199 per month. This is then followed by monthly payments of $19 (if the loan balance is up to $10,000), $29 (if the loan balance is between $10,000 and $15,000) or $39 (if the loan balance is more than $15,000). All of these fees are due to the Receivership Defendants; none of these fees is forwarded to the consumer s lender for application to the consumer s student loan. The monthly fees of $19, $29 or $39 are due from the consumer to the Receivership Defendants through the remaining term of the loan. The employee also told the Temporary Receiver that the consumer was obligated to send the monthly student loan payment to the Receivership Defendants in addition to the monthly fees due to the Receivership Defendants. The loan payment and the fee would be separated, and the Receivership Defendants would get their fee and forward the loan payment on to the loan servicer. Upon questioning by the Temporary Receiver, the employee stated that he did not know how the accounting was handled as he was only trained in the enrollment area. The Temporary Receiver has not been able to verify that loan payments have been made to the Receivership Defendants for further distribution to the servicing agent. The Temporary Receiver has heard from consumers who believe the money they sent to the Receivership Defendants has been applied to the balance owed on their student debt. Page 17 of 30

19 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 19 of 101 Page ID #:1176 Changes to the Identity of the Receivership Defendant Companies The Temporary Receiver determined from business cards on site that the Receivership Defendants were operating under the name Student Loan Financial Aid or SLF Aid. (Exhibit 23) In addition to the entities named in the Complaint, the Temporary Receiver believes the following entities have been set up as successors, assigns subsidiaries and/or affiliates. This information comes from documents located on site and from other sources. Premier Processing Group o described as a document preparation company Collegiate Financial o Described as a financial services company AT Financial Advisors o Information pertaining to this company was located on site Band Financial o Mail addressed to the Wilshire Blvd. Regus office suite Student Advocates.com o A Knowledge Center website referenced in a script titled Compliance Call Script Finance discussed below o Ownership obscured through a Panamanian company (Exhibit 24) Equitable Acceptance o A third party finance company referenced in a script titled Compliance Call Script Finance discussed below o Appeared as Suspended on the California Secretary of State s Business Entity website (Exhibit 25) Capital Advocates Group (Exhibit 26) o Documents pertaining to this company were located on site o Mr. Tahour listed as its CEO o Dissolved on April 25, 2016 based on the California Secretary of State website Some of these entities were recently formed and funded by M&T Financial Group during 2017 and are discussed in more detail in the Financial Information section above. Page 18 of 30

20 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 20 of 101 Page ID #:1177 Scripts The Temporary Receiver located a few scripts that also contain procedural instructions for the telemarketers. Outbound Script (Exhibit 27) In this older script, the telemarketer is instructed to inform the consumer that the Student Loan Forgiveness Act, passed in 2012, allows the Federal Government to adjust the consumer s payment based on the consumer s income and family size and to adjust the term, forgiving the remaining balance at the end of the term. The telemarketer asks a few questions and notifies the consumer they have been pre-qualified for a revised payment and term. The script identifies various fees payable to the Receivership Defendants as dues, enrollment payments, maintenance payment and/or servicer fee. Within these fees is a recertification process charge to make sure the student loan payment amount does not go back up. The telemarketer then uses the consumer s information to gain access to the consumer s student loan account. The consumer is placed on hold and when the telemarketer returns, the telemarketer notifies the consumer that he/she has been officially approved. This script describes fee payment options that are fluid depending on what the consumer can afford: The fee could be $897, payable in three enrollment payments of $299 each, the first beginning immediately and the next two in two weekly installments. The minimum enrollment fee is $597, with the first payment beginning in seven days. There is a Hardship Start stating that the fee can be dropped to $480 divided into 12 payments of $40 each month, plus a $39 monthly maintenance payment for a total of $79 per month. Page 19 of 30

21 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 21 of 101 Page ID #:1178 The script goes on to notify the consumer that the company (in this case SLRC) is a private organization and enrollment payments do not go toward student loans. However, once the telemarketer has obtained a credit or debit card (which the telemarketer is instructed to save on file) for the fee payment, the telemarketer tells the consumer that the Department of Education requires two references on file who do not live with you along with your employer name and number. These statements blur the line between the status of the Receivership Defendant as a private company, a representative of the Department of Education, or a loan servicer. Once the consumer signs the enrollment document by e-signature the consumer is told avoid any correspondence with your lender so there are no disruptions with your enrollment. The script ends with the telemarketer congratulating the consumer on your new repayment plan, even though a new repayment plan does not yet exist. Debt Validation Script (Exhibit 28) This script appears to be more current than the Outbound script as it references a newer company known as SLF Aid: This script is more aggressive than the older one and strives to inflame the consumer over the injustice of lender wrongdoing and exploit consumer hardships to turn them against lender easily. The telemarketer is instructed to make reference to lawsuits against these lenders regarding predatory loan disbursement, abusive collection practices and invite the consumer to discuss how the loan has affected his or her credit. The lender is further vilified with the statement These lenders destroy the American economy with corporate greed. They send loan proceeds directly to the schools rather than to the consumers so these lenders can get a profit out of it. The telemarketer presents a solution to the consumer s victimization by offering to assist with: Building and maintaining good credit, or Saving money on the loans, or Resolving the debt quickly. Page 20 of 30

22 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 22 of 101 Page ID #:1179 These choices are then abandoned in the script and the telemarketer introduces the term debt validation as a program guaranteed to resolve the debt within 2-5 years and while the consumer pays approximately half of what is owed. According to the script, this program contains the following features: The consumer must make the decision to stop making loan payments and instead pay the Receivership Defendants to have the debts invalidated. The Receivership Defendants will dispute the debt. After six months, by law, the lender must charge off the debt and close the account. The debt is sold for 5% of its value because the lender cannot guaranty the debt is valid. The new owner of the debt cannot pursue the debt as they have no paperwork. The Receivership Defendants take over all correspondence between the consumer and the debt s owner(s) and the accounts become uncollectible and unenforceable. Although this results in an initial drop in the consumer s credit score, once this is finalized, negative remarks are invalid over time and the credit score improves. The original predatory lender is not hurt as they exploit a loophole in the tax code so they don t really lose any money when the consumer stops paying. The telemarketer then lets the consumer know how much money will be saved by entering into the validation program instead of repaying the loan obligation. Similar to the instructions in the older script, this newer script instructs the telemarketer to obtain the consumer s details and the consumer s login credentials. The consumer is then put on hold and told the underwriting department will evaluate the consumer s information. The telemarketer actually uses this time to fill information into the Receivership Defendants CRM system. The telemarketer then notifies the consumer that they have been officially approved by the underwriting department for the debt validation program. Page 21 of 30

23 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 23 of 101 Page ID #:1180 Enrollment documents are e-signed and the consumer is told to call Pan American Consulting who is also holding the Validation Account. Further, the consumer is instructed to forward any correspondence from the lender or creditor to Pan American Consulting. The Temporary Receiver contacted Pan American Consulting, however the representative denied knowing the company Student Loan Financial Aid. Processing Work Flow (Exhibit 29) This procedural document notes that payment for fees charged must clear before the Receivership Defendants will do any work on a file. Compliance Call Script Finance (Exhibit 30) This script was located in Mr. Tahour s office. It is not clear if this script is currently in use or if it is a prototype. The script appears to be instructions for a follow-up call to consumers to verify information. The script references fees in the amount of $39.42 and $1,314, both of which are different than amounts referenced in other scripts. The script also references two entities, Equitable Acceptance Corporation and wwwstudentadvocates.com. These two entities are further discussed below. Similar to other scripts found on site, the consumer is instructed not to make payments and to forward any information from the consumer s loan servicer to the Receivership Defendants immediately. High Pressure Sales Requirements of Sales Representatives In addition to the high pressure scripts that have been discussed in this report, the telemarketers are obligated and incentivized to achieve high sales results and are penalized if they do not achieve those results. The Temporary Receiver located a recent employment agreement (Exhibit 31) with the following provisions: Page 22 of 30

24 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 24 of 101 Page ID #:1181 The employment hours are Monday through Friday, 8 AM to 5 PM with a one-hour lunch break. Work hours can be expanded under the following terms of the agreement: and or such additional hours as are required by the employer for the Employee to competently perform the duties of his or her position. Compensation is at an hourly rate of $10.50 per hour, plus commission of: 10% = $ $4, % = $5, $7, % = $7, $10, % = $11, $11, % = $12, $12, % = $13, $13, % = $14, $14, % = $15, $15, Commissions are adjusted downward if the sale is negated. During the two-week training period, the employee is required to enroll 10 new clients. If the employee fails to do so, the employee s employment may be terminated. A sales quota of 10 enrollments per week must be maintained or the employee may be terminated. An employee may be terminated for absence, tardiness or leaving early. An employee has required daily talk time of four-hours per day or be subject to termination. If talk time is less than 20 hours per week, the employee s commission will be deducted 1% per pay period. If an employee is terminated, the employee will be compensated for commissions earned from (through) the last day worked. Future commissions will be forfeited. Employees must sign a three year Non-Compete Agreement. Page 23 of 30

25 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 25 of 101 Page ID #:1182 In addition to the reasons for termination listed above, the employee will be subject to termination if monitored calls show a lack of compliance, professionalism and product service/knowledge. The Temporary Receiver was unable to locate a code of conduct to measure these requirements against. Discussed later in this report in the section entitled Private Encrypted Messaging Service the Temporary Receiver transcribes and provides as Exhibit 32-I, a profanity laced message delivered by Mr. Tahour s senior executive assistant (and principal of affiliate company Premier Processing Group) that is apparently loosely based on a motivational speech in a book and movie entitled The Wolf of Wall Street. This speech, in both the original and derivative version, celebrates the quest to motivate employees to exploit their clients and reflects a culture of achieving sales at any deceptive cost. Consumer Complaints The Temporary Receiver located various complaints against the Receivership Defendants in Mr. Tahour s office. These complaints included violations of the Telephone Consumer Protection Act and failing to respond to requests for refund for incomplete work. The consumer complaints were comprised of complaints filed by consumers with a variety of entities, including but not limited to: Commonwealth of Virginia o Small Claims action against American Counseling Center Corp Server/Salar Tahour o Complaint for Damages for telephone solicitation in violation of various Virginia identification of telephone solicitor requirements; unwanted telephone solicitation Attorney General, State of Mississippi o Complaint filed with the Office of Consumer Protection against StuDebt/SDRG o Consumer began to complete on-line application, then decided not to proceed. He states he was misled that the company was a government agency. o He states his account was debited $690. He requested refund. o State of Mississippi notified StuDebt without response. Page 24 of 30

26 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 26 of 101 Page ID #:1183 Attorney General, State of North Carolina o Consumer complaint filed against Student Debt Relief Group o Consumer states she was misled into paying for consolidation assistance. Superior Court of California, County of Los Angeles o Complaint filed against American Counseling Center o Cites violation of the Telephone Consumer Protection Act State of Maryland, Office of the Attorney General, Consumer Protection Division o Complaint filed against EPPS at Defendant s site o Consumer states company gave her a forgiving student loan and she paid a fee to get a $39 payment for 10 years with the balance of the loan forgiven. o When consumer checked with her credit union, she was told the company had done nothing for her. Consumer Financial Protection Bureau o Notification to SLRC that it would like a designated point of contact to respond to consumer complaints Private Encrypted Messaging Service While on site, a private encrypted messaging service by the name of Telegram was discovered on the computers of the Receivership Defendants. Telegram is a heavily encrypted cloud-based messaging service that allows users to chat covertly with only designated individuals who have agreed to be part of the conversations. Messages can be immediately deleted without trace; giving the users the ability to message one another in secrecy. (Exhibit 32) Discussions between individuals revealed candid conversations between employees regarding practices of the Receivership Defendants. The conversations discuss agents lying to consumers, charging a higher amount than agreed to, consumers stating they had not authorized any charge, consumer s cancelling after discovering the Receivership Defendant is not a federal agency, and consumers encouraged to lie to obtain assistance. The Temporary Receiver believes that Mr. Tahour and his management team, Silver and Trigueros, are aware of subjects being discussed in these chats as they periodically participate in them, as evidenced in Exhibits 32, A, C and G. Page 25 of 30

27 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 27 of 101 Page ID #:1184 The covert nature of the messaging program did not allow the messages to be printed. Attached are exhibits showing photographs of computer screens evidencing conversations between employees. Because of the poor quality of the exhibits, the Temporary Receiver has transcribed the pertinent parts below. Exhibit 32-A If agents would stop lying there would be more cancellations, but that s not my department Core of everything at the end of the day Agents lying ****just talked about it with (name redacted) today He agrees Clients are not informed correct Hasn t that been discussed over and over again Processing ** wait until clients says refund or cancellation to send to them Exhibit 32-B Major reason clients get refunded is because they were misled or agent failed to provide ALL the information. Exhibit 32-C Client said she was lied to & doesn t want to continue Exhibit 32-D anyone available to speak with (name redacted) he says that his enrollment payment should be $240 and not $597 please ask (name redacted) to call (name redacted) back at the point of verification she shared that she didn t want to move forward and that we are a scam and didn t want to be transferred back to (name redacted) and hanged up the phone on me Exhibit 32-E (name redacted) wants his 39$ refunded because he never authized the payment Page 26 of 30

28 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 28 of 101 Page ID #:1185 Exhibit 32-F Acct I have a CANCELLATION (name redacted) client says he was told it was a federal company and looked at website said he was misled Exhibit 32-G Mr. Tahour joins a chat below: Not good Don t ever let a client wanting to cancel off the line Must be resolved ASAP Otherwise they dispute payments and all other weird stuff (in response to an employing stating): Salar, while you are here with us, that account has a family size of 6. Client s family size is 4. He said he was told by (name redacted) that in order to qualify we need to get to at least 6 people (Mr. Tahour responds) Forward that to the team leads Exhibit 32-H (name redacted) enrolled 3 days calling back to state she didn t have docs explained them to her. she said she doesn t provide for 3 people. but (name redacted) assured her if they live with her it counts as family size. trying to see if she is still going to move forward payment is going up to keep her I ll do 19 dollar recert instead of 39 last file returned to (name redacted) guy stated (name redacted) treid to get him to say he provides for his mom, but he doesn t. family size is the biggest issue today Exhibit 32-I This message by the senior executive assistant to Mr. Tahour is a rallying call to telemarketers emphasizing pressure to sell without regard to ethical conduct. Strattonites refers to the pop culture term for the infamous brokers described in Jordan Belfort's book The Wolf of Wall Street about a penny stockbroker who ran a pump and dump firm called Stratton- Oakmont on Long Island. Page 27 of 30

29 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 29 of 101 Page ID #:1186 Good Morning: See those little black boxes? They are called telephones (computers). I m gonna let you in on a little secret about those telephones. They re not gonna dial themselves! Okay? Without you they re just worthless. Like a loaded M16 without a trained Marine to pull the trigger. And in the case of the telephone. It s up to each and every one of you, my highly trained Strattonites, my killers. My killers who will not take no for an answer! My [f-word] warriors who ll not hang up the phone until their client either buys or [f-word] dies! Now, if anyone here thinks I m superficial or materialistic. Go get a job at [f-word] McDonalds. Because that s where you [f-word] belong! But before you depart this room full of winners I want you to take a good look at the person next to you. Go on. Because sometime in the not-so-distrant future you re pullin up to a red light in your beat-up old [f-word] Pinto. And that person s gonna pull up right alongside you in a brand new Mercedes. So you list to me and you listen well. Are you behind on your credit card bills? Good. Pick up the phone and start dialing. Is your landlord ready to evict you? Good. Pick up the phone and start dialing. Does your girlfriend think you re a [f-word] loser? Good. Pick up the phone and start dialing! I want you to deal with your problems. By becoming successful! All you have to do today is pick up that phone. And speak the words that I have taught you. And I ll make you richer..i want you to out there. And I want you to RAM Forgiveness Programs down your clients throats. Til they [f-word] choke on it til they choke on it and enroll. That s what I want you to do. You ll be ferocious! You ll be relentless! You ll be telephone [f-word] terrorists! Now. Let s knock this Mother[fword] out of the park!!! Have a Productive Day Guys Exhibit 32-J This grouping of chats is dated September 21, one day after the Receivership Defendants and Mr. Tahour were served with the Order: Lol have you gotten any words from anyone well we spoke to (name redacted) who is manager of sales floor and under (name redacted), said they are working things out and should be at work in a week or so, will keep us posted. He is one that was mentioned for court so if he s not worried things should be good. Once everything gets resolved Salar needs to fire everyone from the sales floor who lied to clients stating we were part of DOE or government ohh [s-word] so that s what the big whoop was about Page 28 of 30

30 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 30 of 101 Page ID #:1187 Seems as though because those guys are the federal trade commission who look into companies like these that mis-represent clients so the agents because they want their quota and by the time they reach us it is too late they re pissed. Mmmmm I see makes sense That s all bad Welp I hope we go back to work soon Same here, I usually use the check that we get on the first for rent so yeah that d be great Temporary Receiver s Communication with Consumers The following steps have been taken by the Temporary Receiver to notify consumers of the suit filed against the Receivership Defendants as well as the temporary suspension of the business operations. Incoming phone lines have a notification message. (Exhibit 33) An blast was sent from the Receiver to 12,000 consumers whose names were taken from the CRM. (Exhibit 34) The notice that was ed to consumers is posted on the Temporary Receiver s website along with the Complaint and the Order issued by the Court. An account entitled studebt@robbevans.com has been created for consumers to ask questions and obtain responses. Specific staff has been designated at the Temporary Receiver s office to respond to incoming phone calls and answer questions. As a result of responses to its notifications to consumers, the Temporary Receiver has received communication from individuals: Believing that the Receivership Defendants are their servicer. Believing that Receivership Defendant fees are loan payments going toward their student debt. Unable to determine who their student debt loan servicer is. Page 29 of 30

31 Case 2:17-cv ODW-PLA Document 37-1 Filed 10/06/17 Page 31 of 101 Page ID #:1188 Believing if they call their student loan debt servicer they will lose any discounts of their loan balances they may be working toward. Asking if they should continue making payments. Requesting information regarding their next payment due. Stating the Receivership Defendants told them the Receivership Defendants were authorized to manage their student debt. Expressing concern that personal information has been compromised. Bank and Merchant Accounts The Temporary Receiver served the Order on all known financial institutions and merchant processors that were used by the Receivership Defendants. Currently, the funds frozen in the accounts of Receivership Defendants, including affiliated entities, total approximately $507,000. The amount may be subject to future chargebacks. The Temporary Receiver is continuing to confirm the balances of bank accounts and merchant processing accounts of the Receivership Defendants, and working with financial institutions and merchant processors concerning the turnover of funds. Respectfully submitted, /s/ Robb Evans & Associates LLC Temporary Receiver Page 30 of 30

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