Dec 02 2008
If you get a call offering extended coverage, hang up and then complain
By Herb Weisbaum
msnbc.com contributor | ConsumerMan
One of the most obnoxious and deceptive marketing campaigns I have ever seen is taking place right now. It uses postcards, letters, and phone calls to sell outrageously priced extended warranties. Read the complete Auto warranty company launch sleazy scam story.
Jul 25 2008
The owner of Maita Auto Sales in Sacramento, Mohamad Maita, turned himself in to authorities after a warrant for his arrest was issued for five felony counts of insurance fraud. He was booked into the Sacramento County Jail, with bond set at $50,000.
The California Department of Insurance Criminal Investigations Branch Fraud Division conducted an investigation that revealed Maita, 30, filed claims against his commercial insurance policy stating vehicles at his dealership were either vandalized or stolen and recovered at a total loss. Maita purportedly submitted fraudulent documents from auto auction yards overstating the cost of the vehicles. Investigators uncovered the inconsistency when comparing the original auction paperwork to Maita’s alleged doctored submissions to his insurers.
Losses were estimated at $30,000 due to Maita’s alleged fraudulent activities. Maita faces up to five years in state prison and/or a maximum fine of $50.000 if convicted.
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Jul 21 2008
Pursuant to the California law car dealers have the right to add a document fee of $55 to each auto purchase contract. Taking into consideration that the preparation of documents is the part of the dealer’s business, the law should not allow the dealers to charge extra money for this. However, this year car dealers decided to sponsor a bill in the California Legislature and raise the cost of this service from $55 up to $65. This will cost California consumers an approximate $40 million every year.
The bill was passed by the Assembly, but this week the author of the bill withdrew the bill in the face of opposition from key senators, including Senator Ellen Corbett, who chairs the Senate Judiciary Committee. Opposition to the bill was led by Rosemary Shahan, the head of the consumer advocacy group, Cars for Auto Reliability & Safety. Now California car buyers will be able to save about $40 million per year.
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Jun 26 2008
Whitehall Discovery Ford owner/manager Tony Nielsen was sentenced to jail for felony fraud. The former owner of the dealership has confessed that earned more than $300,000. He had defrauded hundreds of customers an extended warranty scam and failure to pay off loans on traded-in cars. Nielsen owned and Discovery Ford located at operated 3001 W. Holton-Whitehall in Whitehall Township from April 2005 through August 2006. Starting November 2006 the dealership had a new owner and was named Whitehall Ford.
The investigation of this case took more than a year and was very complicated. During the investigation the state police had to interview more than 400 people and review all the financial documents of the dealership. According to authorities the business of the dealership owner began to falter about three years ago and he started to keep customers’ payments for extended warranties without buying the policies, and failed to pay off the outstanding loans on traded-in cars. The dealership also failed to forward customers’ payments for “gap insurance” to cover the difference between the value of a car totaled in an accident and the amount owed on a new car.
The state police started the investigation in August 2006 when a customer of the dealership contacted them and informed that he had taken a vehicle to another Ford dealer for service and learned the car never was registered for an extended warranty. Investigators quickly found Nielsen’s dealership had failed to forward money, in most cases $2,000, paid by customers for the warranties.
Nielsen declined the opportunity to speak at the court. The attorney of defendant argued for leniency, taking into consideration that the former dealership owner was making efforts to pay complete restitution to his victims.
Nielsen, 43, was sentenced to jail for 10 months. He is eligible for work release, but if he gets one, it will be only for 48 hours a week. The defense requested Nielsen get extra time off jail in order to work at an existing job in the area or to continue flying around the country conducting “tent sales”. The judge vetoed this request of defendant. Moreover, the judge ordered that Nielsen perform 100 hours of community service in the County and placed on 30 months’ probation period.
Pursuant to the order of the Judge Nielsen will also be responsible to pay full restitution to his victims and $78,052 to Universal Warranty the insurance company that covered the extended warranties.
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Jun 25 2008
General Motors (GM) has been asked by the Consumer Commission to pay Rs three lakh in compensation to the widow of an advocate, who was sold a defective car, drawing him into a legal hassle till his death.
Ruling that the manufacturer is liable for sale of defective goods, the Commission presided by Justice J D Kapoor asked the GM’s subsidiary to pay damages to the widow of G L Sanghi, whose car malfunctioned from the day of purchase itself.
Sanghi was not even delivered the original keys of his brand new car which he had purchased on December two, 1996 from GM’s local dealer Regent Automobiles in New Delhi, forcing him to send repeated requests for it. He received the original key only after eight months, the complaint had said.
Sanghi, a south-Delhi resident, also found a number of defects in his car, including low mileage and engine overheating, which made driving uncomfortable, it said.
As many as 16 letters were sent by Sanghi to the automaker and the dealer enumerating the defects in the car, but the defects were not rectified.
Sanghi had filed a consumer case in 1998 but after his death in January 2006, his family members sold the car.
GM denied any manufacturing defect in its car and contended the troubles experienced by Sanghi were owing to his driving style.
The Commission also comprising Members G D Dhanuka and Rumnita Mittal, however, found no substance in automaker’s claim and held it guilty of deficiency in service for manufacturing and selling a defective vehicle.
It asked GM to pay damages for the loss suffered in the value of the car, mental agony due to sale of defective car.
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Jun 24 2008
The Pennsylvania Attorney General has recently filed a civil lawsuit against Value Kia located at Essington Avenue in Southwest Philadelphia and the Value Kia located at East Lincoln Highway in Coatesville. In the result of the settlement the above mentioned local auto-dealerships have agreed to pay 250-thousand dollars for deceptive advertising and other fraudulent practices.
The investigation revealed that the dealerships made false promises to customers, such as:
“Free Vehicle with any vehicle purchase”
“Up to $12,000 off new cars”
“YOU CHOOSE! $1,500 cash with any vehicle purchase or 60″ color projection television just $1 with any vehicle purchase.”
There were also other ads that offered consumers a five carat diamond tennis bracelet, up to 60% off new cars, and free gas for one-full-year with every new and used vehicle sold.
These ads that promised great deals and prizes were very appealing to prospective car buyers. However the defendants failed to make good on many of the sales incentives. The Car buyers arrived at the dealerships in the expectation to receive the free gifts or deals only to be told that they had to meet a host of conditions to qualify for the offers. Car buyers were able to meet all or even some of the conditions to purchase the cars and trucks as advertised very seldom.
The investigation also revealed that the cars the dealerships sold were defective and the dealership did not pay off balances on trade-ins.
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Jun 23 2008
A family bought an SUV from a new car dealership. As the vehicle was last year’s model and had only 225 miles on it the family expected to get a good price. The car dealer made sure the vehicle was “brand new” and it had been taken for a few test drives, which accounted for the miles. The car buyer had to return the vehicle to the dealership for repeated major repairs. Unhappy with this the owner finally took it to an independent mechanic to check a routine problem. The mechanic informed that prior to its purchase the vehicle had been involved in a major rollover accident. Further investigation revealed that not only had the vehicle been involved in an accident, but had also been stolen and was still listed in the crime computer as a stolen vehicle. The Defendant dealership argued the definition of “new vehicle”. The dealership stating that the fact that the vehicle had never been titled constituted the vehicle as “new”.
After the trial the dealership was fined $250,000 Punitive and $27,000 Compensatory.
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Jun 13 2008
Auto dealership owner, Thomas Gerow Gales, was recently charged for defrauding more than 27 customers of his dealership and must refund about $96,000. The owner of Gerow’s Auto Sales in Deposit, has agreed to pay a judgment of over $101,000. The judgment includes consumer restitution, civil penalties and court costs. The settlement preventing Gerow Gales to own an auto sales business in New York State unless he posts a $200,000 performance bond is pending court approval in Broome County State Supreme Court.
Legal papers reveal that the auto dealership promised customers who intended to purchase a vehicle at the dealership to pay off the outstanding loan if they trade-in their old vehicles at the dealership. However they failed to repay the outstanding loan and later sold the traded-in vehicles to other consumers, who were not able to register the vehicle with the Department of Motor Vehicles and drive it.
The investigation also revealed that customers paid Gerow Auto Sales more than $1,600 for extended warranties, but the dealership never submitted the papers to the warranty company, thus leaving the customers without warranty coverage.
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Jun 12 2008
Over a year ago, the inaugural SCM weekly Insider Newsletter headlined the indictment of classic car dealer Peter Brotman on federal charges for allegedly defrauding customers and a bank of more than $2.1 million through a consignment scheme. At that time, he was living in France, while his wife and two daughters remained in the States. Recently, Brotman was tracked down by the FBI in Barcelona, Spain, returned to Pennsylvania, and pleaded guilty to charges in federal court. Described by the prosecution as a man that master swindler Charles Ponzi would have envied, he was sentenced to five years in federal prison for frauds totalling almost $2.2 million.
The court records, while presenting a straightforward case, are lengthy. This is our summation of them. In a 16-count indictment citing wire, mail, and bank fraud, Brotman was accused of defrauding eight classic cars owners, including actor Nicholas Cage, out of a total of $1.2 million. He also defrauded Willow Grove Bank of almost $1 million on two separate loans, according to the indictment. As part of his plea bargain, Brotman was ordered by U.S. District Court Judge R. Barclay Surrick to forfeit more than $1.8 million toward restitution.
The auto frauds occurred between November 2002 and December 2004, while Brotman, now 46, operated the Pennsylvania Motor Sports Corporation, according to federal authorities. Brotman would sell expensive cars for clients and keep the proceeds, or he’d give the cars to other people to settle other debts, the court was told. Brotman was arrested in Spain by Interpol, while claiming to be brokering a $450 million art deal, the authenticity of which was questionable, authorities said. Brotman allegedly sent his customers emails and faxes promising to pay them from the commission, but that method of payment had not been agreed upon.
The losses suffered by the car owners ranged from $20,000 to $600,000, and the cars involved included a 1948 Packard, 1954 Jaguar, 1964 Rolls-Royce, and 1998 Bentley. Nicholas Cage apparently consigned three Ferraris and one Cobra to Brotman but received only partial payment, losing $300,000, according to court papers.
When the owners didn’t receive their disbursements, Brotman made misrepresentations to keep them from filing lawsuits or complaining to authorities, the indictment said. In some cases, Brotman sent customers checks drawn on bank accounts he knew lacked sufficient funds.
Brotman arranged an $850,000 line of credit with the Willow Grove Bank to finance the purchase of cars but did not give the bank titles to the cars listed as assets, according to documents. Indeed, according to the FBI investigation, he did not have possession of cars he claimed to have. He also borrowed $105,000 to buy a tractor trailer to transport his vehicles but failed to inform the bank when he sold it, authorities said.
According to prosecution documents, Brotman could have been sentenced to 125 years in prison, accompanied by a fine of $2.5 million. Federal Sentencing Advisory Guidelines suggested 41 to 51 months. In Brotman’s Defendant Sentencing Memorandum, his lawyer contended that Brotman “did not prey on the unsophisticated or otherwise vulnerable consumer. His victims were businessmen, equally knowledgeable in the collectable car trade.”
Some fellow dealers in the classic car business, and regular contributors to SCM, remain sympathetic to Brotman, and contend that a similar fate can befall anyone trading in a fluctuating market.
“Peter’s major fault was not telling his clients he had made colossal errors in judgement and needed to file for bankruptcy and work out a deal with them,” said one dealer who preferred to remain unnamed. “In my book, $1.8 million is not worth taking away five years of someone’s life.”
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Jun 11 2008
Auto industry officials have expressed incredulity that John McNamara, the Long Island auto dealer charged with fraud, could have convinced a subsidiary of General Motors to finance tens of thousands of nonexistent vehicles, as Federal prosecutors have maintained he did.
According to the charges, Mr. McNamara borrowed $425 million supposedly to buy 17,000 converted vans from Kay Industries of Indianapolis in December, then sell them to the Cydonia Trading Company in Cyprus.
Converted vans are standard vehicles manufactured by the Big Three auto makers that have been upgraded with plush interiors and extra equipment. Many of the companies that do the conversions are in Indiana.
An order from a single company for 17,000 vans would attract widespread attention among converters. According to the Recreational Vehicle Industry Association, a trade group, the entire industry produced just 16,700 conversions in February, the last month for which figures are available and an unusually good one in the conversion business. In February 1991, just 6,400 converted vans were produced. Made for the U.S.A.
Similarly, Mr. McNamara’s claims that the vehicles were being sold overseas appears to defy belief. Recreational vehicles are designed primarily for American superhighways, and the recreational vehicle association said that only 1.35 percent of the converted vans produced last year, or 1,760 vehicles, were exported.
Jack Barrett, the vice president for communications at the subsidiary, the General Motors Acceptance Corporation, declined to comment on why G.M.A.C. officials did not recognize the implausability of Mr. McNamara’s orders, when the trade association figures are readily available.
Nor would he comment on how company officials managed to overlook the evident imbalance between the number of vehicles Mr. McNamara said Kay Industries was converting and the number of basic vans produced at General Motors plants. For example, Chevrolet built just 100,067 full-size vans in 1990. Anyone buying even 1,000 vans a month would seem likely to attract attention as a major customer.
Mr. Barrett also declined to explain how such a large number of apparently phantom vehicles managed to slip through G.M.A.C.’s usually tight management controls. “This is a very distressing situation for G.M.A.C.,” he said. “But I can’t get into internal controls because of pending litigation.” ‘Count Cars Every Month’.
An incredulous official of another manufacturer’s financing subsidiary who declined to be identified, said, “We go out there and count cars every month. Our people go out with hand-held computers, and they punch in the vehicle identification numbers of every car on the lot.”
Nick Sharkey, a spokesman for the Ford Motor Credit Company, echoed that theme. “We have auditors out there and they count cars,” he said. “We check these things out.”
Executives of other auto finance companies said the identification numbers collected by field auditors are compared with those in central records to insure that the loans were used to purchase cars and trucks as promised and that payments were made when vehicles were sold.
All the domestic auto companies and some of the larger importers have finance subsidiaries that try to promote the sale of the parent companies’ products. They often offer better interest rates and credit terms than banks or other lenders.
The General Motors Acceptance Corporation provides financing to its dealers and to dealerships in which G.M. retailers have investments, even if they sell rival makes. It would not be unusual for G.M.A.C. to finance the purchase of converted vans produced by a small company, many of which were probably G.M. products to start with.
The finance companies provide loans for the dealers to purchase vehicles from the factory and for consumers who buy from the dealer.
G.M.A.C. had assets of $102 billion at the end of last year, making it larger than all but five American banks. It has been a consistent money maker, paying its parent company $850 million in dividends in 1991.
Mr. Barrett noted that G.M.A.C.’s loss in the McNamara case may be smaller than some reports have indicated. Mr. McNamara is accused of bilking the company of $436 million, but G.M., apparently aware of the fraud, took a writeoff of $275 million last year in connection with the case, according to documents filed with the Securities and Exchange Commission. The difference, presumably, is what G.M. expects to recover from Mr. McNamara’s assets. It is unclear why, if it knew it was being cheated, the company waited so long to take action against Mr. McNamara.
The Chrysler Corporation seems to have escaped G.M.’s problems. Although Mr. McNamara owns the Station Chrysler Plymouth Jeep Eagle dealership in Port Jefferson, a spokesman for Chrysler Financial Corporation said it had no problems there. “Everything is in order as far as our dealership goes,” said Jack Ferry, the spokesman.
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