- The Washington Times - Sunday, January 8, 2006

With $13,000 in credit card debt, Sandra Gavin was looking for help paying her bills in 1999 when she saw a television ad for a credit counseling company called AmeriDebt. The promise to cut her monthly payments in half while ridding her of debt seemed to be just what she needed.

Miss Gavin spoke with a sales representative and signed up, sending AmeriDebt $521. She thought it was her first debt payment. But a month later, when creditors said she owed late fees for missed payments, she discovered that that money was instead a “contribution” to AmeriDebt. For the next two years, she paid a $70-per-month contribution along with her monthly payment.

“I thought [the saleswoman] had told me everything on the phone,” said Miss Gavin, 60, of Carnegie, Pa., who works as a housekeeper at a hospital. “Nothing was ever mentioned about a contribution.”

Miss Gavin is one of thousands of former customers who reputedly paid millions of dollars in upfront fees to the Germantown-based AmeriDebt Inc., once one of the nation’s fastest-growing nonprofits meant to help Americans staggering under personal debt.

In a lawsuit set to go to trial tomorrow, the Federal Trade Commission (FTC) claims the company unfairly portrayed itself as a nonprofit, then hid fees from the debtors who signed up. AmeriDebt and a for-profit sister enterprise reputedly reaped $172 million in fees, much of which the FTC says funded the lavish lifestyle of company founder Andris Pukke.

A U.S. District Court judge also will hear arguments in the same trial from a class-action lawsuit filed against Mr. Pukke and his former company by one-time AmeriDebt customers. The Internal Revenue Service (IRS) is reviewing AmeriDebt’s tax-exempt status, and U.S. Postal Service inspectors are probing suspected mail fraud by Mr. Pukke’s companies. Several states such as Illinois, Texas, Missouri and Minnesota have reached settlements with the company in bankruptcy court.

Mr. Pukke has denied the charges in court filings, arguing AmeriDebt never confused or misled customers. He maintains that only a fraction of Ameri-Debt’s estimated 450,000 customers think they were misled about fees and says the firm saved clients an average of $1,300 each through its debt-management plans.

“Clearly, consumers were not misled to their detriment. Clearly, they received a service that they both wanted and needed,” his attorneys wrote.

Mr. Pukke could not be reached for comment, and defense attorney John Williams did not return several calls seeking comment. Other former AmeriDebt officials either would not comment or did not return phone messages.

Much of the FTC case centers on Mr. Pukke, a 36-year-old who amassed a fortune on the business of helping debtors in need. The FTC says he made $70 million off AmeriDebt, using the money for mansions in Maryland and Florida, along with a California home outfitted with $8,000 bedsheets. His girlfriend reputedly received large payments from Mr. Pukke’s companies, even though she never worked for them.

Mr. Pukke ran into legal trouble early in his career. In the 1990s, he ran two companies that advertised loans for just $20, regardless of a person’s credit history. He agreed to shut down the companies in 1996 after investigators concluded that the companies did not have enough money to make loans to the 1,000 people who each sent in $20. Federal prosecutors said a related court order barred him from opening similar businesses in the future.

That year, Mr. Pukke founded the nonprofit that became AmeriDebt, which began selling debt-management plans on television and through the Internet. But again he had problems. In 2000, AmeriDebt and a sister company settled with the District of Columbia over deceptive marketing. Mr. Pukke’s companies refunded customer money but acknowledged no wrongdoing.

The FTC says that in 1999, Mr. Pukke created a for-profit firm called DebtWorks, which he owned. AmeriDebt sold debt-management plans to customers, whose accounts then were shifted to DebtWorks. AmeriDebt’s sales team began asking customers for voluntary “contributions” of an upfront payment of 3 percent of the total debt and a $7 per account monthly fee. Customers were told the money was needed to maintain their accounts and help the nonprofit cover its costs.

In 2003, the FTC filed its lawsuit against AmeriDebt, saying those fees were shifted into DebtWorks and used by Mr. Pukke for personal expenses. Mr. Pukke’s estranged wife, Pamela, who was named in the lawsuit for benefiting from the deals, recently settled with the FTC. AmeriDebt filed for bankruptcy in 2004, and its remaining clients were shifted to another credit-counseling firm.

Judge Peter Messitte, who will hear the case, froze Mr. Pukke’s assets last summer after the FTC accused him of siphoning money to offshore insurance companies and Latin American business ventures.

Miss Gavin eventually took a $10,000 loan from her credit union and paid off her AmeriDebt account. She estimates that she paid about $2,500 in fees during the two years she was with the firm. Miss Gavin, who is scheduled to testify for the FTC, is still in debt, but says she has learned a valuable lesson.

“The most important thing is when you are in trouble with your debts, you need to have people be honest with you,” she said.

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