Judge: Feds can keep lock on online credit report biz over Craigslist rental ads fraud charges

By Jonathan Bilyk | Feb 22, 2017

A federal judge in Chicago has decided to allow federal regulators to continue to lock down an online company accused of working with others who listed fake rental properties on Craigslist to dupe customers into signing up for a credit monitoring service.

A federal judge in Chicago has decided to allow federal regulators to continue to lock down an online company accused of working with others who listed fake rental properties on Craigslist to dupe customers into signing up for a credit monitoring service.

On Feb. 21, U.S. District Judge Matthew F. Kennelly granted the Federal Trade Commission’s request for a preliminary injunction against the Credit Bureau Center LLC and its principal, identified as Michael Brown, to allow a receiver to continue to control CBC’s assets and keep CBC and any of Brown’s other ventures out of business.

The ruling comes a little over a month since the FTC filed suit against CBC and Brown. The complaint centers on allegations of fraud against the business, as well as violations of the Fair Credit Reporting Act, the Free Annual File Disclosures Rule and the Restore Online Shoppers’ Confidence Act.

The FTC obtained a temporary restraining order against Brown and CBC on Jan. 11, granting a court-appointed receiver control of the company’s assets and effectively shutting the company down pending further proceedings.

In its complaint, the FTC alleged Brown and CBC, which purported to offer free consumer credit reports through such sites as eFreescore.com, CreditUpdates.com and FreeCreditNation.com, also partnered with various affiliates allegedly running schemes to deceive customers into enrolling in credit monitoring programs costing around $20-$30 per month.

According to the lawsuit, the FTC alleged two particular affiliates, identified as Danny Pierce and Andrew Lloyd, defrauded customers repeatedly under a scheme involving fake rental property listings on Craigslist. When a potential tenant would respond to an ad, the complaint alleged Lloyd would impersonate the owner or manager of the nonexistent rental property and invite the tenant for a tour. However, before agreeing to conduct the tour, the prospective tenant was required to provide information to obtain a credit report through CBC.

When the customer signed up for the report, they would also be enrolled in CBC’s credit monitoring service, and charged automatic monthly charges.

The scheme raked in more than 146,000 sales for CBC from 2014-2017, the complaint alleged, generating more than $6.8 million in revenue for CBC and $2.3 million for Pierce and Lloyd.

According to the complaint, consumer complaints to the Better Business Bureau and the FTC prompted the federal action.

Brown and CBC have denied knowledge of the fake Craigslist ads, and resulting fraud, pinning the blame on Pierce and Lloyd.

As such, Brown asked the judge to lift the restraining order and deny the preliminary injunction.

However, Kennelly said he believed the FTC’s case to this point has demonstrated Brown and CBC likely knew enough to allow the FTC to keep control of CBC and its assets for now.

He pointed to text messages sent between Brown and Pierce in which Brown allegedly instructed his affiliates to “increase or decrease the level of traffic to its website depending on CBC’s needs” or “directed Pierce to change the content of the landlord letter that directed consumers to its website,” including a change specifically intended to “reduce complaints of phishing against CBC.”

The judge also pointed to evidence indicating CBC had received at least 87 calls to its customer service center referencing the Craigslist ads just in the 60 days preceding the FTC’s lawsuit. And the judge noted Brown and CBC were aware of more than 200 BBB complaints regarding the fake Craigslist ads.

When combined with other evidence presented to date, the judge said the FTC had thus far presented a case that Brown, individually, had been either aware of or “recklessly indifferent about … the deceptive activity.”

“The FTC has established a reasonable likelihood of succeeding on a contention that CBC hid its head in the sand and deliberately avoided knowledge of complaints so that it could keep raking in the benefits of Lloyd's and Pierce's activities,” the judge wrote.

Further, while court documents indicated Brown has argued the FTC’s actions are harming his other business enterprises, the judge said the receiver so far had not been able to separate CBC’s activities from that of Brown’s other businesses, based on Brown’s supplied financial and accounting records.

“The only evidence that the TRO has had a negative impact on CBC's affiliates is Brown's own testimony, which is unsupported on the present record,” Kennelly wrote. “Brown did not identify any particular injured affiliates (aside from Lloyd and Pierce, who made their money via deceptive conduct) and did not describe the extent to which each was harmed.”

Brown and CBC are represented in the action by the firms of Barclay Damon LLP, of Buffalo, N.Y.; Taft Stettinius & Hollister LLP, of Chicago; and the Law Office of Parker R. MacKay, of Kenmore, N.Y.

The receiver, identified in court records as Robb Evans & Associates LLC, is represented by the firm of Hiltz & Zanzig LLC, of Chicago.

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Taft Stettinius Hollister U.S. District Court for the Northern District of Illinois U.S. Federal Trade Commission

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