The Federal Trade Commission's $172 million lawsuit against AmeriDebt founder Andris Pukke could go to trial as early as January, after a federal judge yesterday denied the government's request to rule in its favor without a trial.
Also yesterday, Pukke's lawyer informed the U.S. District Court in Greenbelt that his client, whose assets were frozen by the same judge in April, intends to file for bankruptcy court protection soon. That move would not affect the FTC case but would put on hold, as far as Pukke is concerned, a class action lawsuit filed on behalf of consumers against Pukke and others.
The FTC sued AmeriDebt and Pukke in 2003, claiming that the Maryland-based nonprofit credit counselor charged high, hidden fees to consumers seeking help with their debts. The federal agency claims that Pukke controlled AmeriDebt and channeled tens of millions of dollars over the years to his for-profit company, DebtWorks, to process AmeriDebt client accounts.
The FTC wants Pukke and the defunct DebtWorks to return $172 million in fees collected from AmeriDebt customers, and had asked the U.S. District Court in Greenbelt to rule in its favor without going to trial.
In denying the request for summary judgment, U.S. District Judge Peter J. Messitte said he is sensitive to the Arthur Andersen case, where the accounting firm initially lost only to have the U.S. Supreme Court last month throw out the conviction. Once a giant in the accounting world, Arthur Andersen now has about 200 employees.
"There is no risk of error in denying summary judgment," Messitte said. Nevertheless, he added, the evidence submitted by the FTC was "very strong."
"We're disappointed, but ... it's not a ruling in favor of the defendant or on the merits of the case, but only that there are issues that need to be addressed at trial," said Joel Winston, associate director of the FTC's division of financial practices. "We remain very confident that we will be able to prove our case at trial and win a judgment against Mr. Pukke."
Pukke did not attend yesterday's hearing. His lawyer, John Williams, said, "It was a good ruling."
At trial, Williams said, his client will be able to show how he helped consumers. Over the years, for instance, AmeriDebt customers saved at least $600 million by enrolling in debt management plans and receiving more favorable terms from creditors, Williams said.
A class action lawsuit filed against Pukke and several other defendants was set to go to trial in early January. But because Pukke's impending bankruptcy would stay the case against him, Messitte said that the FTC case should be heard at that time instead.
Williams said he does not know what chapter of the bankruptcy code Pukke intends to file under. Filing will make it easier to handle the multiple claims of those seeking money from Pukke, including the Internal Revenue Service, Williams said.
"There are so many competing demands on a very limited amount of money. We decided this was the best course," Williams said.
Williams said yesterday he did not know how much money Pukke has. In an April interview, Williams said that his client had about $10 million and the IRS is making a claim for much of that.
The FTC and the class action lawsuits accuse Pukke of spending lavishly, paying nearly $180,000 to an interior decorator, another $180,000 on construction expenses for his house and taking his girlfriend on trips to Bora Bora and Tahiti. He also transferred $2 million to an account in Latvia for his father and last year gave $200,000 to his girlfriend and another $250,000 to his wife, according to the FTC.
Even if Pukke files for bankruptcy, the class action lawsuit against him may not be stalled for long. David J. Vendler, a California lawyer handling that case, said he intends to ask the bankruptcy court to lift any stay.
AmeriDebt, once based in Germantown, filed for bankruptcy last year. In March, it agreed to close its credit counseling operations as part of a settlement with the FTC.