Los Angeles Loan Brokers Settle FTC Fraud Charges

Los Angeles-based Amstar Finance Corporation, Amstar Investment Corporation and their owner, Bibekanand Satpathy, have agreed to settle Federal Trade Commission charges that they rarely, if ever, came through on their offer of business loans and venture capital for which consumers paid up- front fees averaging $3,000. The settlement would require Satpathy to post a $500,000 performance bond for the protection of future customers before he markets loan or credit services, and bar all the defendants from making false representations regarding such services in the future.

The settlement would resolve charges the FTC filed against the defendants in June 1996 as part of Project Loan Shark, a joint crackdown by the FTC and 15 state Attorneys General on firms offering advance-fee loans that consumers never received. An FTC brochure for consumers titled "Advance-Fee Loan Scams" states that legitimate lenders never "guarantee" consumers will qualify for a loan or credit card, before they even apply, especially if they have bad credit, no credit, or have filed for bankruptcy in recent years. It also cautions consumers not to give their credit card, checking account or Social Security numbers over the phone unless they are familiar with the company on the other end of the line.

In the Amstar case, the FTC alleged that the defendants advertised their business loan services on the radio and in newspapers. Consumers who met with the defendants were told that, for an up-front fee, the defendants likely could obtain a loan or venture capital for them without regard to their financial circumstances, the FTC alleged. The defendants also allegedly told consumers that they could get the money quickly or within a specified period, and that they had connections with sources of financing that would help them obtain the desired financing. Few, if any, consumers received the promised financing, the FTC charged.

At the time the FTC filed its charges, the court granted its request for a temporary restraining order barring the challenged practices and freezing the defendants’ assets. Later, the court granted a preliminary injunction extending the conduct prohibitions and asset freeze.

The proposed consent judgment to settle the FTC charges, if approved by the court, would bar the defendants, in connection with offering or selling services related to loans, venture capital or other extensions of credit, from:

• falsely representing that consumers who pay a required fee and contract with any defendant can reasonably expect to receive the promised money or credit in the requested amount, or that they can expect it within a particular time period;

• falsely representing that they have connections with sources of financing that are likely to produce loans, venture capital or other extensions of credit;

• failing to disclose any fact material to a consumer’s decision to purchase their services.

The settlement includes a $300,000 judgment against the defendants, but based on their sworn financial statements, suspends that judgment. Should the defendants be found to have misrepresented their financial conditions, however, the settlement provides that the judgment would be due immediately.

Satpathy would be required to post the $500,000 performance bond prior to entering into services related to loans, venture capital or other extensions of credit. Thereafter, he would be required to disclose the existence of the bond to future customers.

Finally, the consent judgment contains various record keeping and reporting provisions that would assist the FTC in monitoring the defendants’ compliance.

This case was investigated by the FTC’s Dallas Regional Office. The Commission vote to approve this settlement for filing in court was 5-0. It was filed Feb. 28 in U.S. District Court for the Central District of California, in Los Angeles, and requires the court’s approval to become binding.

NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the "Advance-Fee Loan Scams" brochure and other documents associated with Project Loan Shark are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. The consent judgment in this case will be available at both locations shortly. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. X960055)
(Civil Action No. 96-3973 HLH (JRx))