AmeriDebt Founder's Wife Settles FTC Probe
Saturday, December 31, 2005
The estranged wife of the founder of AmeriDebt Inc., a Germantown credit-counseling firm that has been accused of deceptive business practices, settled charges with the federal government yesterday.
The settlement, in which Pamela Pukke agreed to give up her ownership interest in two of the couple's multimillion-dollar homes -- saying the funds for them "were derived unlawfully" from consumers -- came four days before her husband, Andris Pukke, had been scheduled to go to trial in U.S. District Court in Greenbelt on civil charges.
However, late yesterday, the trial, scheduled to begin Tuesday, was postponed for a week without explanation by either Pukke's lawyers or the Federal Trade Commission, which is suing him. The FTC says Pukke and his wife illegally earned more than $70 million in fees from financially strapped consumers who turned to his nonprofit firm to help improve their credit.
Pamela Pukke is expected to be one of the government's witnesses against her husband. The FTC never alleged that she participated in deceptive business practices. However, it alleged that "she received the fruits of the fraud," said Alice Saker Hrdy, assistant director of the FTC's division of financial practices.
According to the FTC's lawsuit, AmeriDebt misled consumers by falsely claiming that it operated as a nonprofit organization with no upfront fees. In reality, the FTC said, consumers had to pay what AmeriDebt called a "voluntary contribution," which often amounted to several hundred dollars.
The FTC said AmeriDebt was created to make money for Pukke and his for-profit company, DebtWorks Inc. After signing up with AmeriDebt, a customer's account was transferred to DebtWorks, which received $100 for each new account from AmeriDebt, followed by $25 a month as long as the consumer stayed on a debt-management plan. Between 1998 and 2003, the Pukkes received more than $70 million in income from DebtWorks, the FTC complaint says.
The FTC lawsuit is part of an ongoing government crackdown on the credit-counseling industry as hundreds of consumers have complained about aggressive sales tactics, high fees and little help in reducing debt. The Internal Revenue Service is auditing 60 credit-counseling firms to see whether executives have misused their organizations' tax-exempt status for personal gain.
A class-action lawsuit brought by former DebtWorks clients, making charges similar to the FTC's, is set to be tried, along with the agency's case.
Pukke has denied the charges, arguing that consumers were able to pay their debts faster and less expensively as a result of AmeriDebt's services.
According to court papers filed in both cases, Pamela Pukke's name, not her husband's, was listed on AmeriDebt's incorporation papers in 1996. She continued to be listed as a director, but court papers say she never knew she was a director until a government deposition in 2004.
She said she had no involvement with the company, though she may have signed some documents at her husband's request. But, the filings argue, she didn't know what she was signing. "He was my husband, so I trusted him, and if he said, 'Sign this paper,' I did," she is quoted as saying. Pamela Pukke also said that in some cases, her name may have been signed by her husband, according to the plaintiffs' filings.
The class-action plaintiffs also cited a deposition by Pamela Pukke saying that she did not know her husband was a convicted felon until a government official knocked on her door.
In 1996, Andris Pukke pleaded guilty in Pittsburgh to a federal charge of trying to defraud consumers by falsely promising debt-consolidation loans. The U.S. attorney said Pukke collected more than $38,000 in what the U.S. attorneys' office called a "sham" lending operation. Pukke agreed to refund the money and not engage in any advance-fee-for-loan operation in the future. He was sentenced to three years' probation and fined $5,000.
According to a plaintiff's court filing, "when she confronted her husband, he admitted the conviction, but discounted its significance."
The Pukkes separated in January 2003.
The FTC said it believes Pamela Pukke received more than $4 million from the allegedly deceptive business practices. It estimates that under the settlement, she will give up assets worth about $1.8 million, including the proceeds from the sale of the couple's Potomac home, as well as their Miami Beach house. She is left with about $850,000 in assets, according to her lawyer, Robert M. Adler.
Pamela Pukke settled because "the government had a powerful case," Adler said.
The FTC said the money will be used to provide refunds to consumers.
Andris Pukke's lawyer, John B. Williams, did not return phone calls requesting comment on the settlement.